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What is behavioral economics? Why does it matter to you?

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Podcast Episodes

What is behavioral economics? Why does it matter to you?

279. Creating an Irrational Loyalty Program at McDonald’s with Lauren Kemp & Stephen Springfield

In today’s conversation, I am joined by Kwame Christian, who I believe is our first 3-peat guest! (Though Dr. Marco Palma from the Human Behavior Lab at Texas A&M has technically been on the show three times, once was part of a panel when we launched the certificate program so I am going to say that Kwame is in a class all his own (for so many reasons)).

Kwame was also my first guest on the first-ever live show of The Brainy Business on Fireside earlier this week. If you haven’t heard of Fireside yet or checked out the show there, and if you don’t yet have enough Kwame (I know I never will!) check out the replay within these show notes. Fireside is a new platform co-founded by Mark Cuban where I was recently invited to do a show. It lets the audience come up on stage to participate and ask questions. It is really cool and I’m going to be testing it out for a bit to see if this is a good permanent addition to the content you get from The Brainy Business. So if you want to stay around and have a chance to come behind the scenes and be part of the show, please come join us there. And of course, listen in on this episode as Kwame and I talk all about his new book, How to Have Difficult Conversations about Race.

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IN A RUSH?

HERE'S A 2 MINUTE TIP.

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SHOW NOTES:

  • [00:46] In today’s conversation, I am joined by Lauren Kemp and Stephen Springfield, whom I first saw while they were giving a presentation at Greenbook’s IIEX Behavior last fall.
  • [03:44] Lauren shares about herself and her background. She works in consumer insights at McDonald’s on the US team.
  • [04:41] Stephen shares about himself and his background. Stephen is the Founder and Principal at Aspen Center for Consumer Science. 
  • [06:43] Novelty and the magic of the irrational attracted Stephen to behavioral science and behavioral economics. 
  • [07:35] Behavioral science isn’t really about the irrational and the crazy cool stuff. It is about the scientific process applied to understanding behavior.  
  • [10:35] Irrationality is where all the profit is.
  • [13:05] Lauren started her career with an internship at Brain Juicer. They were pioneers in the behavioral economic space. McDonald’s was one of her main clients there. 
  • [15:17] McDonald’s global team created the loyalty program so the individual markets had some space to make the program work in their specific market. 
  • [17:17] She started with a literature review since loyalty programs were not new to the industry. She wanted to learn what was most important for a loyalty program and how they could design theirs to be successful. 
  • [19:45] Top tips for doing your own literature review? Definitely start by bookmarking Google Scholar. 
  • [22:11] The program needed to entice customers to engage with the program. They wanted it to be consumer centric. 
  • [24:16] They knew it was very important for the program to be transparent enough and easy to understand. Consumers don’t like it when they feel they are being tricked or it is clouded. Transparency is so huge in our culture today.
  • [25:57] They found that the value of a loyalty program is engagement with the program itself – not the reward that you get. The reward you get is transactional. 
  • [28:27] Lauren spent a week or two on her literature review process and Stephen’s team did some additional research. 
  • [30:39] It is important to invest the time in research, but it probably doesn’t need to take as long as you think. 
  • [33:21] There is an aspect of irrationality and that is where the profit is.  You have to find a way to offer something of value that is not completely transactional. 
  • [36:23] They wanted to find which items would drive trips because the point of the loyalty program is to get to people to visit more often. 
  • [37:58] They tested five different point levels from 1 point to 10,000 points. They found that 100 points per dollar was easy and worked best. 
  • [40:03] The goal is to get somebody to purchase something now with an eye toward achieving something later. Mental budgeting and being able to do the math towards a simple reward was a game changer. 
  • [43:05] They continued coming back to the goal and objective: getting consumers to come to McDonald’s because they had rewards, and they want to accumulate more rewards, and at some point they would like to redeem those rewards. 
  • [44:56] They found there was some linearity with the value of the item and the trip driving behavior, but there were also outliers drove trips.  
  • [46:46] If there are products on the loyalty menu that are a lower cost to produce that would still drive engagement from a customer perspective and trips are a huge win. 
  • [49:16] Consumers can’t tell you what they would do and why they would do it. 
  • [51:35] Key Insight: The thing that drives that behavior doesn’t have to be the most expensive thing. 
  • [53:18] Science isn’t really interested as much in truth as things that are reliably predictive. 
  • [56:07] Melina’s closing thoughts
  • [57:18] It doesn’t need to take eons to incorporate good behavioral science research into your projects.

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