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Predictably Irrational Customers and Employees
_15-214×300.jpg” alt=”" width=”102″ height=”144″ />Dan Ariely, a behavioral economics professor at Duke University, has spent his career amassing research data to show that the decisions we make are often shaped (or misshaped) in ways that are “Predictably Irrational,” the title of one of his books.
We live in two different worlds, says Ariely, one where social norms prevail and the other ruled by market norms. The author provides many funny examples of the damage that can be done by mixing the two – from fining parents for picking up kids late (thus allowing parents to do a quick cost/benefit analysis of being late) to your love life (complete with a Woody Allen quote, of course).
My favorite chapter is the one that explores social versus market norms and the confusion that arises when we mix the two. For example, some economists will argue that gift-giving is economically inefficient. Everybody has experienced this: We spend more than we want to produce less satisfaction than the recipient might get by spending the same amount of money on something else.
So why does non-monetary gifting persist (and why is it often considered more socially desirable than cash)? For the same reason that, if you offer your mother-in-law $300 for having prepared Thanksgiving dinner for the family, she will be less than thankful.
Ariely describes experimental research demonstrating that people happily do things for free that they would not do for pay. But when a market norm is introduced, the mental calculus changes. Once market norms get set in our minds, it takes a long time (if ever) for social norms to re-emerge with the importance they had before.
We should think hard about the signals that companies send to employees and customers by mixing market and social norms. Wages, prices, rents, dividends and cost-benefit analysis are essential business concepts, of course. But companies today also are trying to position themselves socially. By no means is this limited to social media and networking: think of advertising campaigns built on “good neighbor” and “we can help” themes.
If social loyalty is a valid business goal, then every business decision should be made with that in mind. Ariely gives an example of a hefty bounced-check fee at your bank. If the relationship is strictly business, you probably shrug it off. If the bank wants a social relationship, then a friendly call from a bank manager or an automatic fee waiver might be a better strategic fit. “You can’t treat your customers like family one moment and then treat them impersonally – or, even worse, as a nuisance or a competitor – a moment later when this becomes more convenient or profitable,” writes Ariely.
The notion of social norms in employee relationships is relatively new, as industrial age management concepts finally give way. This makes sense in an economy built on intangibles and creativity. And surely, the electronic devices we carry home with us at night have blurred the lines between workplace and home, paid time and personal time.
It’s silly to think that we can or should undo the market norms that govern a company’s dealings with employees. It’s not at all silly to think that decisions affecting employees should be made with the social relationship top of mind.
Ariely asks readers to imagine that he wants to give out year-end bonuses to top performers. Is cash necessarily the best reward? Suppose the true objective is to encourage your top performers to be even more creative. Might the best bonus be an all-expenses-paid vacation designed for relaxation and refreshment? The author makes the case that gifts and benefits for employees should be kept in the social realm to maximize employee pride, satisfaction and commitment to the work.
One last thing to consider: Maybe you do need to run your company, your customer and your employee relationships strictly by market norms. In that case, maybe you also should save the money you’re spending on feel-good advertising and social media – as that’s not the game you’re in.
Frank Ovaitt is President and CEO of the Institute for Public Relations.