[Voiceover]: In the whole world of behavioural science. Now there's a conversation of nudges and sludges. I'm making a choice. I don't quite know why, but you can measure that today. If this picture doesn't load for this pair of shoes you're selling that just cost you $34,000 today. Welcome to Add to Cart, Australia's leading e commerce podcast that express delivers all you need to know in the fast moving world of online retail. Here's your host, Bush.
Nathan Bush: Welcome to another episode of Add to Cart. I'm Bushie and I'm joining you from the land of the terrible people, otherwise known as Brisbane, Australia on Add to Cart. We welcome everyone to share and listen to e commerce stories. The more diverse the better. I want to especially welcome the traditional owners and the original storytellers of the land that we are on, our indigenous and Torres Strait Islander listeners to join us in our e commerce conversations and our community. You may not know it, but 400 milliseconds after I started speaking just now, your brain made the decision as to whether you are going to continue listening to this podcast or not.
Nathan Bush: Are you still here?
Nathan Bush: That's lucky, because the truth is our brains make hundreds of these lightning speed decisions every day, including when we're shopping. And the fact is we are hardly aware that we are making them. My guest today has joined me to explain how e commerce brands can increase profitability by understanding what's going on in consumers brains. Sonja Friedrich is a behavioral science strategist with a background in business marketing. What a title. She works with academics, data scientists and tech experts to harness the power of behavioral economics for business and and brands and works with clients such as News Corp, AstraZeneca, Volvo and Nespresso. In this chat, Sonia reveals the world of nudges and sludges. She tells us how a friction audit works and she shares the website feature known as the $300 million button. Can you guess which button we're talking about now? Before we get into today's episode, I want to say a massive thank you to everyone who came along to last Thursday's E commerce social in Brisbane. What an epic night it was. So to catch up with some old friends, meet some new ones, including listeners of the pod that I hadn't met before. And of course brilliant to hear about what's coming up in the world of TikTok for e commerce. Based on the success of Thursday night, we will be planning Sydney and Melbourne e commerce socials very, very soon. Thanks to everyone who entered our Retail Global Giveaway in the newsletter the lucky winner of our two Retail Global retailer passes was Raf from Blue Bungalow. Can't wait to see you there, Raf. If you are still to get your tickets for Retail Global, use the code add to cart 300 all one word and get $300 off your tickets. And lastly, bear with me. We have a very special midweek exclusive episode coming up this week. I'll be joined by Alex McNabb, COO of Baird Footwear, and Jordy Heiss, retail product consultant at Shopify. And we're going to hear how Baird deliver such spectacular in store experiences. Have you been into one of their stores lately? It is lush. Also, Jordy has some very, very exciting Shopify pause news to share here. It's a game changer. You'll want to tune into that one on Wednesday. All right, that's enough fluffing about. Let's get into it. Thanks to our partners, Shopify plus and Deliver in person. Here's our conversation with Sonja Friedrich. Sonja, welcome to ADD to cart.
[Voiceover]: Thanks for the invitation. It's great to see you again and fantastic to be here.
Nathan Bush: Great to catch up.
Nathan Bush: I think we met in the glorious part of the world that is Byron Bay a couple of years ago.
[Voiceover]: We did. I know you're doing quite a bit of work down here for some of the local businesses and very successfully, I might add. And I can't quite even remember where we actually connected, you know, so. But I remember us having some conversations and I've always kept track of where you're at. And now here you are running a very successful podcast and I love the name.
Nathan Bush: I've loved keeping track of your journey because to me, you are someone who is totally unique in the e commerce space. You're speaking about something that I don't think a lot of people are speaking about. And I'd be interested to hear from you today whether people are actually thinking about it as well. But let's kick off with behavioral economics. For a lot of people that are, they're two very big concepts. How do you bring them together? And what is behavioral economics?
[Voiceover]: Sure, look, I think you can keep it really quite simple. How we behave around money is really what it is. So if you think of yourself and how you behave and how others behave. But technically, behavioral economics is the psychology of how we make choices, decisions, take risks and spend money. And really it's now actually moved more into behavioral science, which is looking at some of the other social sciences that have bolted on and neuroscience being added into that. And so what we're starting to see is just the dynamics of it and I think a broader understanding of it from where it began 12 years ago. Speaking just about behavioral economics to more about the psychology of human beings, basically why we do what we do.
Nathan Bush: You're in the heads of customers.
[Voiceover]: Yes, well, yeah. And I think we know so much more about the brain. I think we've always had psychology and researchers who are playing in this space and finding out a lot for brands specifically, and now we just know a lot at a deeper level, and more importantly, understanding that 95% of human decision making is unconscious, which is sort of a bit of a mind blow, when you really go, do I only make conscious choices? 5% in my life, and I can honestly say over the last 12 years, I've started observing myself, myself, n equals 1 and gone, oh, my God, did I just do that? You realize how unconsciously you do so many things, and then you start to go, what am I doing in my
Nathan Bush: business then, yeah, well, give us an example of that to bring it to life. Where do we see behavioral economics in play, especially in retail?
[Voiceover]: Oh, sure. I think we see it everywhere, both online and on land. And online, it's very, very simple across subscription models. And there's three choices. And we know the brain takes the path of least effort. And 36% more often will choo choose the one in the middle simply because it's the one in the middle. And every day we might do that with just how we buy a cup of coffee. You know, when we get a takeaway, that order effects and what's anchored are really, really key. So next time you go and buy a coffee and you see the coffee cups and have a look at what order they're in, if there's a large one at the front and then, you know, the smaller ones, you're likely to spend more money just because you've been anchored to something that's bigger versus even if that cafe flips those coffee cups around and does their own experiment, they might see an actual change in their revenue simply from that. And so to me, I think that's something that we can all relate to every day when we buy our takeaway coffee and you start going, what did I really choose the one I wanted? And how much coffee did I really want to drink? And none of us really make that choice. And if you added in another coffee cup size the next day when I went back to do it, I'd probably choose a different one. Even if every day I've been choosing one Saying that's how much coffee I like to drink. So when you start observing it in your day to day, you start going, oh, okay, I think something happened there. And for me still it often the aha moments happen after I've walked away. However, shopping today is a very different experience for me because I have my mobile phone and I'm taking photos of all the nudges I see. So it's fun.
Nathan Bush: I saw you got sucked in by some bamboo straws the other day.
[Voiceover]: I did, I did. I put this post on LinkedIn, as you rightly mentioned and I make these banana smoothies which I love and reuse the straws, the plastic ones that we've had from McDonald's that are about a year old and they go in a dishwasher over the time and I thought it's going to be time for some new ones. And I was, I live in Byron, as you know, and down at the beach cafe and they had a jar there with there were only seven bamboo straws left in there and I went oh my gosh, I should try one of these. So obviously the availability of that in my mind was still there. And then what kicked in though was I chose one and I thought I better buy three because there's only seven here. And whether it works for me or not, I don't know. I did try it yesterday actually and I went, well, I've just spent $12 because they were $4 each and I came down to buy a coffee, you know, so I get nudged and we post rationalize our purchases basically all the time.
Nathan Bush: That makes sense. And you say that 95% of our decision making is unconscious when it comes to retailers. Do you find that there is much thought given to how customers make decisions? The behavioural economics behind why customers choose what they choose?
[Voiceover]: Look, I think there's different businesses doing it different ways and I think a classic example is one of the most important reasons or the most powerful reasons that determines how much money a customer spends in your shop is based on the dynamic of anchoring, which has got nothing to do with your price or your product. So if I walk into a retail space and there's a $3,000 item as the first thing that I see or 2,000 DOL and then everything else is, you know, 150, $250, I am more likely to add more money in my basket because something has anchored a figure in my head and that's very easy to play around with this in store. I do know too, like this powerful technology which is tracking the behavior of how people move around in stores. You know and that's used you know vcount they do this work in Australia and I certainly know for particularly in say the sale of engagement rings they're placed in a certain way in a store to bring someone in and how they actually go around the store the same in the supermarket.
Nathan Bush: How does that work with engagement rings?
[Voiceover]: Well because they sell more engagement rings than anything else then they will understand the dot. Like you can actually track. You don't physically see me but you see an outline of me and you can tell if I'm male, female, my age. And so you can actually track who I am and where I go in the shop. Now you can change the layout of a shop that then physically defaults a direction based on just how your cabinets are set up and actually takes me on a journey. And you know the big supermarkets do this all the time. You know we know what's at eye level and what pack design. And in retail space specifically I think in behavioral science behind the scenes we're seeing implicit response testing used all always now in pac design which is to measure unconscious behavior under that 400 millisecond period of time. So I'm making a choice. I don't quite know why but I can measure that today.
Nathan Bush: And is that the average decision length time 400 milliseconds.
[Voiceover]: The decision time varies based on whether it's a visual, a sound, a smell or a sight. But for the brain to engage with a word 13 times more energy I think it is to engage with a word than a picture. Which is why you you want a picture first and then the words and let the picture tell the story as they say.
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Nathan Bush: I could imagine that this is ingrained too, in making and breaking customer habits, not just making decisions. Would that be right?
[Voiceover]: Absolutely. I think I have a different respect now for how difficult it is to change a customer's behavior because everything is so hardwired in our brain. And to disrupt that hard wiring takes a lot. So, you know, I come from a background, having worked in marketing and strategy with big pharmaceutical brands for 20 years and then running an agency in Sydney. You know, hand on heart, I wouldn't do 80% of what we did back then to change behavior, because now, yes, we're trying to disrupt entrenched habits and we all have a default choice. And when you understand that the brain is hardwired to make the path of least effort, the path of least effort for every customer, whether it's in their best interest or not, is to do the same thing.
Nathan Bush: And do you have any insights around how customers make those decisions for those low involvement purchases, such as buying a carton of milk versus those more involved purchases? Potentially shopping for a couch?
[Voiceover]: Sure. And I think we can deceive ourselves thinking we make more informed decisions for those bigger purchases if we take it to an extreme. Buying a house. People often see, you know, three houses and buy one of them and it'll be the biggest investment of their life. And they don't really put that much energy into choosing a house. It depends on, you know, on the nature of things. So we like what's familiar. So most of us use those same brands that we were brought up with until we find we have a partner and get married. And then we go, hey, I don't use the same brand of toothpaste anymore. How did that happen? Or the same brand of something. But, you know, we now combine our worlds and then somewhere along the line go, well, where did my behavior get disrupted? And do I actually like the new toothpaste? And it's just become a new default. So sometimes that happens because of budgeting in a household.
Nathan Bush: Number one, causes divorces.
[Voiceover]: Yes, that's right.
Nathan Bush: Waking up one day realizing you've been using the wrong toothpaste.
[Voiceover]: Yeah. And you go, well, actually, I can buy my own toothpaste and I can make the eggs the way I like to make them. So go back to having poached eggs rather than scramble, you know, and actually taking your power back to what you love. And so we give up a lot without realizing in those areas. And then some Other areas, we think we're making a big decision, but something like we could go and buy a suit around the corner and we see a similar suit that is on sale and it's $5 off, let's say, and it's a 15 minute car ride to get the $5 off. And it costs you more time and money in petrol and your time and you'll drive that extra distance to get the $5 because the bargain is what has gotten you in the door. And then while you're there, you buy a shirt, a tie, a pair of socks and some shoes and suddenly you've actually changed your behavior and potentially gone to a different retailer because of a nudge, something that has gotten you. And our fear of missing out in the deal, it makes us do irrational things all the time.
Nathan Bush: And I saw a story from you, another story was around. You were ordering some stationery or some cards and there was a postage fee of I think it was $150. And it was from a retailer that was located a couple of hours away from you. And you're like, well, I'm not paying that, I'll go get in the car and go pick it up. And then you stopped and you thought about it, you went, what's my time worth? What's the petrol worth? I should just pay the postage. Is the idea of nudges. And we're going to get into nudges to kind of help connect those pieces for a customer so they don't have to do the hard thinking.
[Voiceover]: Yeah, absolutely. Like there's the. In the whole world of behavioral science now there's a conversation of nudges and sludges. And so a sludge is something that is actually not in a human's best interest, where you're trying to deceive. And a classic example of that we see all the time is how difficult it can be to unsubscribe from something. And you know, friction is actually built in so it takes you longer to unsubscribe, but so that you keep paying money and you just give up. So behavioral science and behavioral economics isn't about that. It's actually about how do you make a easier journey for a customer. Because as we all know, 7 out of 10 people leave an e commerce website and you go, well, why are they leaving? And there's over a trillion dollars sitting in abandoned carts around the world. And you go, well, something's going on where somebody had an intention to purchase something and they just let it go. And I know I do the Same. So you go, how do we make that journey easier for you? And apply nudges for that space. I come from a strategic background and have worked a lot also in the startup and the Fortune 500 space. And I go, I haven't yet met anyone in business to not make money yet. Every day they're spending money on their promotions and their pricing, and they're doing things without really understanding human behavior. And so today I go, ask yourself, how much money you lost today rather than how much money you made? And by reframing that, you start going, yeah, where are we losing money? And let's understand where we're actually losing money by not understanding how the human brain works. I've worked with customers where we've had a 500% increase in their average customer order value over three years. It's grown and grown and grown. And it's because, one, they needed it for their own profitability to survive. So it wasn't just, let's increase the price. And then it was like, well, if we don't do that, you won't be in business. And so it's to actually support those businesses. And retail in some areas is tough now. In some areas it's booming.
Nathan Bush: The retail environment is a really interesting one because we're in a soft economy. But do you think that there's still money being left on the table and people are actually blaming a soft economy rather than being smarter about going after those nudges?
[Voiceover]: Yeah, look, I do agree with that. And I think there's always winners and losers in any economic scenario. And so the question is, what business are you in? And if you're in one, say, let's call it in the potentially lost category, then you go, well, how do you get smarter in that category? And I definitely agree with you that if you have a look at your dropout rates or your customer disengagement, and if you don't really understand how the brain works, your customers aren't consciously disengaging, they just disengage. And so you need to now understand that. And the areas are nudging and also removing friction. And I now believe understanding and mapping friction journeys is more powerful than understanding a customer journey. If you eliminate friction, you can actually have customers stay with you and spend more money. And then you go, well, they're here. They want to be here. Like, I know these brands I love. And I go, I want to be here with this brand, and if I find something else that I like, I'd be happy to buy it today. Yeah, it saves me time coming back later. So yes, I think I always go back to the, the last gfc and I know of businesses who said it was because of the gfc and I actually know it wasn't anything to do with the GFC that some of those businesses went down. It was because they didn't understand, mostly they didn't understand their numbers and their data and their customers. And today we throw in tech. There is a tech edge that is happening that everybody can actually apply.
Nathan Bush: It's so interesting because as you're talking about the landscape where behavioral economics can play in retail, it obviously does go across pricing, it goes across finance. But to me it is almost like a branding exercise as much as anything because you're demonstrating value to your customers and to me that's all wrapped in together.
[Voiceover]: It's true. In the world of behavioural science, we talk about brand love. How do you build the brand love? Because everything is an emotional and a salient experience. Every activity and every engagement is meant to increase the brand love rather than put any barriers from it. So I agree with you completely. And if you give me a frictionless experience, a friction free experience, then that brand love increases because I go, gee, this was easy. And from an E commerce perspective, something that came in that I'm sure all of your listeners know about is the sign in as guest button. Now that's a godsend, a very clever behavioral science nudge and that would have cost about $1,500 for a developer from, I think it was Best Buys in the US who came up with it and we call it now, you know, the $300 million button that everyone's got. But it's because it's understanding human behavior at the checkout. We hate committing to giving up information and so our fear kicks in and we also hate filling in full. So if you understand choice and how number of fields that a brain is prepared to fill in, even if we go in as sign in as guest, we may give you the same information and we usually do, we just do it in a different number of steps. But I'm prepared to do that because I don't feel like I'm giving you all of me and I'm not having to make such a big commitment. Now that is a genius find, a genius discovery that has completely changed how people sign in to buy their purchases. And that's by understanding the human brain. It's very, very clever. And there it is, a simple nudge. And if any of your listeners don't have that on their site that's sort of like mandatory nudge number one.
Nathan Bush: Well, I'd love to get into that. So from an E commerce perspective, you work with a lot of E commerce retailers. Where do you often find as the kind of go to when you're working with a client for the first time and you talk about those customer points of friction, where do you normally go? I bet it's here, here and here.
[Voiceover]: Well, we actually run friction audits so we can for an E commerce site and even an on land retail site run a friction audit where we actually physically go in and we try and we do it from an understanding of conscious and non conscious behavior because a lot of businesses already understand friction to a point. And we go, yeah, but are you looking at getting beyond the obvious? And then I do work with some partners where we actually run some diagnostics which literally pick up the friction in your site and put a value to it and show, you know, even something as simple as if this picture doesn't load for this pair of shoes you're selling that just cost you $34,000 today. So you can prioritize where you invest your time, energy and effort for friction. I always say you can do it simply yourself. If you sit in front of a website and just close your eyes and then you open them and you slow down and observe where your eyeballs dart. So without heat maps or anything, any Google glasses or anything, you can just see where you're jumping. If I'm not landing where I meant to land, you can already tell there's a problem with the site. So even those smaller businesses that maybe don't have the budget for a lot of what they do, they might feel like they're locked into someone's platform. You go, well, is that platform in that forest work for you? Or even as something as simple as, you know, I mentioned earlier, we like a visual first. Like we know you put a visual on the left and put the text on the right. If there's a person there, well, you make sure that simple things like the text sits in the line with their eye and you have more engagement than if it's sitting down here over their chest. So there's things like that's where the human eye naturally goes. So if you watch where your text is sitting on a site, even that you can go, did I read the text that we spent so much time or paid an agency to come up with or let's just move it. Sometimes we get rid of things because we think they're not working. Instead of going, maybe we just put it in the wrong spot.
Nathan Bush: I love that idea of the audit. I bet there's so many things in
Nathan Bush: there, I think obvious things, but also
Nathan Bush: some of those things you talked about there, about having text at the eye level, there's probably some hard and fast rules that most people aren't aware of when it comes to online design and experience.
[Voiceover]: Yeah, absolutely. And I think, Nathan, the shift in that as well is that, you know, we work with some collaborators. There's the whole world of design and now the whole world of behavioral design for E commerce. And they are actually two different things. One is about understanding human behavior and designing on a website for the human experience and truly understanding that. And the luxury of e commerce is this ability to ab. Split test. And for most behavioral science, we now want to split test in the real time as well, whether you're on land or online. But you do have this luxurious space where you can see how things impact and watch it in real time. And you know, that world of testing needs to go beyond the designers and developers to the marketers and the, you know, and everyone and go become a culture of experimentation is. Is where the power lies.
Nathan Bush: Yeah. Fantastic. Now, the reason we picked up our chat is that we were talking over email recently about your new venture and your new collaboration, which is taking the years of work that you've been doing in behavioral economics and using AI to help retailers especially insert dynamic nudges into the website so that it is tailored for the customer. It's called Bahamix. I'd love to hear more about that and how that came about.
[Voiceover]: Yeah, sure. And this was actually really synchronistic, Nathan. I just was having a look at. Actually I was redesigning my colors for my own website and I thought I'll just see what's happening in the world of behavioural science. Everyone in behavioral science seems to use blue and orange and I thought, well, I won't use that then. So. And I came across Bahamix as a business and I thought this looks really interesting because I'm a big fan of pricing and I'm a big fan of measured impact outcomes. And so I was in touch with the founders of it. They're based in Switzerland and it turns out the two gentlemen, Filo and Valen, they were independently looking at how to try and solve the problem in retail of product returns. Because so many people will go, well, I'll just buy all the sizes and I'll try them on at home and then I'll send back the ones that don't Fit because it doesn't cost me any money. The retailers are paying for that. And this is a massive, like I said, over $2 billion problem in Europe, because more than 45% of products that are bought are actually sent back. So their intent was, well, can we start solving this problem? And they started to actually build nudges. And one's a behavioral scientist and the other is an ex AI programmer from Google. And they just met in the corridor at a university and started having a chat. And literally they met on a Saturday. And by the Monday they both quit their jobs and said, we're doing this full ball, which is what they did.
Nathan Bush: Unconscious decision making.
[Voiceover]: Yeah, this is where you trust someone you met and you trust that actually what you really have believed is possible, you can do. And so one of their first clients was Otto, which is the largest retailer, supermarket retailer in Germany. And Thielo did his PhD working with some work with them. And so that's sort of where it all began. And the rest, as they say, is history. Is that now what happens is in the nature of it is that there's more than a thousand intelligent nudges, we call them, and they're not hard coded into the website. It's actually understanding that even your customer base that comes to an e commerce site, we're not all the same. So if you put in a most popular banner, well, everybody sees it in the same spot. Yet for some people, it doesn't actually nudge them at all. And more importantly, we're finding in some instances it actually loses you revenue. And so what we have is an AI platform that continues to learn about your customer behavior, but none of it is behind the paywall. So we don't need to know anything about the name, the age, the sex, the credit cards. And obviously from a privacy point of view, that is absolutely fantastic and essential. What we can do is we can start looking at behavior and the dynamics of behavior, and then we throw up an intelligent nudge that helps someone to actually, you know, if they've left something in the cart or we can understand what happens in this behavioral pattern. And over here, you know, what Sonja's doing is a little bit different to Nathan. We actually give them different nudges and that's the dynamics of it. And I think that's where we have the smarts in play, that not everybody needs a nudge. And particularly with couponing, where you're giving the same coupon to everybody and we call that intelligent coupons, where you go, well, actually we can understand behavior and When a coupon is needed, when it will actually cost you money, and when you actually don't even need to give it, which saves you money. So it's really, really powerful. And the client gets access to a dashboard which is live, and they can see every nudge and how it is on a desktop, laptop or iPad and in real time can see what's working and not working. And we come up with this dynamic set and work out what's best for everyone's site. So something that works, say in grocery may be different to a luxury, good to the car market. And so you want to start learning about each vertical, how they work best. Yeah, it's just cool and clever. So for me, when I saw it, I went, we do a lot from big data and personalization to pricing and friction. And then it was like, this is the full stop at the end. And I thought, this is a really nice thing to bolt onto my offer with clients. So I've become a global strategic partner with them and we're now offering that to clients in Australia who have never had access to it. It's fun and it's cool. And the best of it too, Nathan, is you only pay on success.
Nathan Bush: Yeah. Okay.
[Voiceover]: Which is pretty rare these days, but that's how much we believe. Overall, we're getting a 20% increase in net revenue for businesses, which is significant in a time for your online. And you go, well, and all it is is a line of code that gets plugged into your site.
Nathan Bush: Okay.
[Voiceover]: We're doing what we say, which is take out the friction and make it easy for the customer.
Nathan Bush: Yeah. And you've got a thousand dynamic nudges in there. I understand. And you sent me through the deck and I was nerding out as well because there's some brilliant screenshots in there around the different types of nudges. One that caught my eye was you had the cart populating and you could see it was a fashion site and there was a number of items in there already. And then there was a little nudge, a little text pop up that said, we cannot reserve any more items in your cart. So obviously not costing anything, but just saying, hey, do you want to actually stop, make the purchase and reserve the items before you continue window shopping? Which to me is really interesting and I hadn't seen that before. You gave us some other examples. Where do you find your most popular nudges that are built into the platform?
[Voiceover]: I've got to say they're all popular, but they're not. It varies by client and what you've just picked up on too is that you know, when you see behavior, different behaviors, you can see some people are using their cart as a wish list rather than what they want to buy. And so the behavior of that you want to try and reduce because then you've just got all these things being reserved in a potential sale scenario and if your stock runs out, you can't fulfill them, you're in trouble. I think one of the most where this began and one of the ones I love the most is actually to do to try and avoid those product returns. And so now let's say if you choose a size 10, 12 and 14, let's say there will be a pop up which says, do you realize that this is going to take you about 32 minutes at home for you to try them on and actually see which is your best size? Or you could just check the size chart right now and it will take you three minutes. There's different dynamic ones, but we have had a 5% reduction in product returns overall from these dynamic nudges. And for those business, again, the cost and implication of that is significant. So we're getting an increase in online sales and then we're reducing now the product returns. And I think the other area that I like too is that most people put up a banner which says most popular and that's hard coded in. And we now also realize that that doesn't mean something for someone else. So we might have 40 different nudges of different banners that come up depending on the behavior, where we learn which ones actually have more impact for that person in that point in time. And that's what I love about is it's dynamic. And then if I'm a VIP customer, we've got clients who go, well, let's create different ones for our VIPs because they're coming back, we want to treat them differently. And so we work with our clients and we review the nudge set periodically with them based on the dynamics of the site and you know, some want more rather than less. And we work together hand in hand and upskill a client as much or as little as they want. We can do the lot and they can just watch the results or we can upskill their team. And we do find there's some clients who have some knowledge of behavioural economics and behavioural science and have tried nudges and said they don't work in our scenario. And we go, well, let's try them with our AI capability and seeing what scenarios they may work for your site and which ones they don't.
Nathan Bush: Have there ever been any nudges that have surprised even you who have, you know, you've been in behavioral economics for a long time when you've got a machine serving up the proposed nudges, any that you like. Oh, that won't work. But it actually has.
[Voiceover]: Oh, look, I think I actually start from a different place now, Nathan, which is assume it's not going to work and prepare for the risk. And then when it does work, everything's a bonus. And I guess that's part of the learning of behavioral science, which is you do a pre mortem on everything rather than a post mortem. And so the other upshot of that is that when you go live with things, we like to keep a really close eye on them because if something just trails and has an unintended consequence, like we're not putting any nudge in space that we think isn't going to work. We're not starting from that scenario. However, every dynamic is different and some perform better in different categories than others, although with a lot of learning in fashion, for instance, because that's where a lot of the esprit came on board very early on and is now in 15 countries around the world because it's been so successful for them. And so I think like anything you test and you do it closely and then you can turn them off and on as you need. So it's not like you go, oh, we're stuck. You go, oh no, that's not working, let's turn that off straight away. And sometimes you don't wait for statistical proof in that dynamic you go, as we say, it's easy to spend someone else's money, so we like to sit in the shoes as if it's ours.
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Nathan Bush: You're seeing an average of 20% increase in revenue for your clients and that you've got a shared success model as a way to commercialize Bahamics. How does that actually work? Are you taking a clip of the uplift?
[Voiceover]: Yeah, always a clip of the uplift. And the uplift means. So let's say we're talking about fashion. You've got an increase in revenue, you still have got returns, you know, and so what we do is we have a control that's actually built into the system live. So the control can always show the improved uplift from the Bahamix nudges and it can show the reduction in product returns for the uplift as well. So that's always in play. And any customer can check all the data. They've got access to it if they want to have a look at it. So that's really, really good. And then the percentage is usually around 15%, but it can vary depending on the profit margins. Profit margins in luxury goods are a lot higher than in grocery, for instance, so we're always prepared to negotiate on that. The last thing anyone is going to do is take it on and it costs them money. But you get the uplift and then every month with your uplift, you pay us and, you know, you can turn it on and off. There's a licensing agreement, but there's zero locking contract. Don't have to sign up for five years, you know, or sign your life away. We very much back the performance of it. Separate to that, we do have a diagnostic product as well, which you can actually. It's to see where everything's falling over and put a cost value to it. And then for your internal tech team, actually show where it's located so they can see exactly where that is. And that's obviously powerful as well. At the moment, that's its own cost, but I'm suggesting we actually build that in and do that on a pay on its performance model as well, and just have a default that you get both of them because they're both advantageous, which I'm sure we'll have a look at over the next couple of months of integrating both of them into the same pricing model.
Nathan Bush: And I'm sure there's lots of metrics that you can see impacted by nudges, you know, we're talking everything from conversion and revenue all the way through to returns. How do you measure what is specifically from the nudges versus what else might be happening in a business? Promotions, new product, everything else?
[Voiceover]: Yeah, that's a really good question because obviously around sale time, you know, we know that businesses are doing certain things or they have a product launch or a certain time of year that they change something for their business because it works. And they also know the dynamics. So they're doing that as well. They can do all of that. And then what happens is that because the AI is all about behavioral trait, we can actually monitor what's happening with the behavior, just as the control versus what the hammocks is. So you may get your uplift. We don't get a cut of anything that's from what you're doing. Let's put it. They don't merge in and we give everyone a demo. So anyone who's interested, the key is you need to have over 100,000 visitors to your website a month. We know that the system optimizes from then on. We can do some slightly lower, but really we don't want to take anyone on under that. And, you know, some people have got millions coming. So the data is very, very powerful. We set up a control group and usually early on it's a lot more robust. And then what happens is a client will go, well, let's reduce the size of the control. Like it might have started with 40,000 users or the same as the Bahamix. And once they get their confidence in seeing that, they go, well, actually, I don't want 40,000 of my customers not being nudged. What's the lowest that we need to have as a control that's still statistically significant for our business? And so we then reduce the size of it and we can change that control group anytime. But basically what happens is that there's a behavior pattern and we know when to nudge it. And for the control, there's the behavior pattern and we don't nudge it. And so we can actually have them running, you know, side by side. And I can see you nodding so you understand how that can actually work live. And then the client can see, you know, if we had a dashboard in front of us, we could see right now, in this moment in time, what's working, what's not working, how much the uplift has been. You can see it by time of day, by second of day, and you go, oh my gosh, we've just done X. Yeah. Which is I Mean, just watch the
Nathan Bush: money roll in and the returns stay away.
[Voiceover]: Well, I think that here's, I guess where people go, well, is it too good to be true? And one of the things that can happen is that the average order value itself can sometimes go down. And the reason that the average order value can go down is that the customer is actually having a better experience and not buying the three sizes of the clothes. And so overall though, that we're increasing the conversion rate and reducing the other. So we do like to be really upfront so that people don't panic and go, oh my gosh, my average order value has gone down. We go, well, you can nudge that differently. Like, we can play around and nudge that with some other things like anchors. And as we mentioned earlier, for this dynamic, though, we're looking at overall net return. The payment is on the net revenue. So you can get a net, you still get your revenue uplift, you've still got your product returns, we take them off and it is about the true uplift.
Nathan Bush: And you mentioned a single line of code for implementation. I'm sure many retailers have heard that before. And it's sometimes the case, sometimes not the case of how simple it is to implement. What are you looking at in terms of getting started for a retailer in terms of both technical development, but also time taken to learn and train the machine for your business?
[Voiceover]: Sure. So the machine will learn itself. So we don't need any information from you about your business. Okay. Which people find a bit surprising that we don't need to hear about what you do and don't do. We've actually got our nudge set. And so basically what happens is any business that's interested, we will do a demo where we actually mock up what some of them will look like on your site. And like, you know, once you see it, the dynamics of it yourself, you go, okay. And it takes us, our team, about two weeks to do that. That's probably the longest actually that it takes of anything. And so then we do a demo and we do find that that's really the converting tool because somebody goes, I can see it live. I can see what I get access to. There's always support here. So we actually don't have customer service people to support you. We have behavioral scientists that support you. So you get assigned a behavioral scientist. And then myself and Thilo, who's the original founder, we're always there as required. And then what we do is we send through what we call a primary nudge set, which you approve and when you see it, you can see what it actually is, how it will be on, whether it's, you know, the product page, the category page, the cart page. And so it's sort of divvied up in those three areas. You approve them and some clients want to read them, some don't care. They go, just put them. Go live, you know what you're doing. And we sign a licensing agreement, which we're normally doing in parallel. We can literally. Then we send you the instructions to put a line of code in on the pages. We literally had somebody here in Australia, a vitamin business, go live yesterday. It took him five minutes, I think. And they've got two sites, so they did Australia and America and that was it. And if you need hand holding, we have a front end developer who will go, okay, let's do it together. Here you put it in. We literally are talking minutes, Nathan. It is one line of code and it's minutes. And if it's both the nudge and diagnostic tool, that still is only one line of code.
Nathan Bush: Yeah, great. Oh, fantastic. If we've got retailers who are really interested and are more visual people, you mentioned Otto, you mentioned Esprit. What are some of the sites that you would recommend that they go and have a look at to experience some of those nudges for themselves?
[Voiceover]: Okay, well, I think if they go to the Bahamix website, you can see the number of the businesses that are there. You know, we've just got Volvo and Nespresso on board in Germany and a lot of the businesses are actually from Germany and Switzerland and then rolling out from there, mainly because that's where the company is based. You can go onto those, like just have a look at all of their businesses there and start having a look. I think the key is that don't try and copycat a few of them is all I'd say, because people can think, oh, we can just put that into our site. And that actually defeats the purpose. We had another client last week who said, well, once we learn what's right for our business, can we hard code it in? And we're like, no. Because behaviors change. That's the whole point is the dynamics of it is actually the win.
Nathan Bush: Yes.
[Voiceover]: So you'll see some elements of it. Go to those sites. Yeah. And I agree, Nathan, have a look. Or I would say firstly, if you're really interested in. Want to try and see if you can. How do I increase my net revenue by 20% and you have 100,000 visitors or more, just get in touch with me and let's have a conversation and why don't we set up a demo and we show how it would actually look for you and we do a demo and beautiful. I do think it's a bit of a no brainer. Like a lot of things can be too good to be true, but when you've got the likes of one business in one country, made an extra 15 million euros in one country alone last year and then before the Christmas sales said we want to get another five countries live in two weeks. So the proof's certainly there.
Nathan Bush: Yeah. I haven't had the chance to use it myself with any of the retailers I'm working with, but the examples that you sent me and the deck that you sent me really got me excited. I think it's really fascinating use of AI that is outside of the normal thinking of how we can use AI in a retail business.
[Voiceover]: I agree. And Look, I'm on LinkedIn like most people in business and the last year has been posts galore about what you can use AI for. And I went, Sonia, you're not an AI expert and you're never going to become one. And all I found was that it was a big distraction of my time and I thought just wait till some people work out how to use it and then work with them. That is a skill set in its own. So I feel really privileged to be working with the smarts of the team of Bahamics and everyone who's behind it. And I think too there's pressure now in businesses to say what are we doing with AI? And that can again disrupt your own processes, your own business and cause you to jump on board of something that really doesn't actually add value to you. So, you know, that's one area we're using it we can see even in producing social media, once you understand all of your different segments, you can actually use AI to generate some of your socials, et cetera. This has certainly got traction and you know, from even from a validation point of view, there's a society in behavioral science called Gabs and Gabs awarded Bahamix their annual award last in 2023 for R&D and AI, which I think that endorsement. Daniel Kahneman is actually an advisor to that, as is Robert Cialdini. Dilip Solman's on the board of that as well. And we're talking some serious players in behavioural science. So I think to get that acknowledgement is a significant affirmation.
Nathan Bush: I think you've just excited our science nerds.
[Voiceover]: Good.
Nathan Bush: What is the best way you mentioned you're on LinkedIn. You've got your personal consulting, you've got Bahamics. What's the best way for people to heard this and go, I need to talk to Sonja about this?
[Voiceover]: Well, I think the best way is just to send me an email. Soniasonjafriderich.com have a look at my website. There's some information on there about the hammocks and the team. It's one element of what we offer. You're absolutely right. And I think the key is that for Australian APEC clients in particular, it's pretty exciting that nobody else is offering this in Australia.
Nathan Bush: Yeah, Sonia, the on, I'm really excited and I can't wait to continue our conversation. Thank you for sharing everything that you're doing, taking us on the journey of behavioural economics and then lifting the lid
Nathan Bush: on Bahamics, which I think is also very interesting.
Nathan Bush: So thank you for joining us on Add to Cart.
[Voiceover]: Thank you. It's been a pleasure and it's fun times ahead.
Nathan Bush: I don't know about you, but did you want to go away from that conversation and immediately start, start playing with all the nudges that you can implement on your website or even just step back and think, oh my God, when was I last nudged? It happens all the time. So thank you, Sonja, for bringing this to our attention and showing us how we can use this in our e commerce businesses. Here are the three big takeaways that I took from that conversation. Number one, anchor pricing. It is worth revisiting some of your key or your core items on your site and understand the decisions that are being made by your customers and what your customers are comparing. It might be another size, a more premium version, or your overall pricing for these key products. Make sure that there is a comparison anchor that will make your core product even more appealing, even if those comparison products actually don't sell a lot. Number two, the most basic eyeball truck tracking is your own. Try this exercise. Sit in front of your computer or your mobile with your eyes closed. Then slowly open them and observe where your eyeballs dart. And if you're not landing where you're meant to land, you know you've got a problem. Better still, try it with a friend or family. Number three, beware the sludges. We heard all about the power of nudges, but you've also got to be aware of where your sludges are. These are the moments that require more brain power than is necessary. And we know customers don't like thinking and they sometimes make a customer turn away for life. You know the times trying to unsubscribe from a newsletter, clearing carts, cumbersome checkout forms. Make sure you're fixing your sludges as well as implementing your nudges. Thanks for joining us today on Add to Cart to listen to all our
Nathan Bush: e commerce conversations now in the hundreds.
Nathan Bush: You can head on over to addtocart.com there you can also join up to our free private Slack community to share e commerce ideas, tips and questions with other listeners. You can also subscribe to the Add to Cart weekly newsletter and browse some of the video highlights from our chats. There is a lot there that's add to cart.com au and if can I ask you one thing before you go? If you enjoyed today's episode, make sure you share it with a friend or a colleague who could benefit or leave us a review. It really makes a difference. Thanks again for listening and until next time, keep those customers adding to cartoon.
