Point: Innovation processes must reflect people’s true behavior

Story:
Dan Ariely, author of Predictably Irrational, finds that people display a host of consistent behavioral quirks in how they respond to products and marketing. These cognitive biases change not only people’s decisions and subjective opinions, but also their objective performance with products.

For example, in his work on behavioral economics, Ariely and his colleagues documented such quirks as:

• how “free” items can bias decisions
• how arbitrary numbers (e.g., the last two digits of your social security number) can affect the price a person is willing to pay
• how adding a choice that almost no one will choose can cause many people pick the more-expensive choice
• how publicly-made choices differ from privately-made choices.

Note: Dan Ariely will be speaking about the hidden forces that shape people’s decisions at the World Innovation Forum in New York City on May 6, 2009 at 4-5:30 pm.

One strong example from Ariely’s research is the effect of product price on performance. Does getting a good deal on a product change how well that product works? To test this, Ariely and his colleagues studied the efficacy of products such as pain killers, cold medicine, and energy drinks as a function of the price people pay from them. In the energy drink study, people bought an energy drink (some test subjects got a price discount), drank the drink, and then performed a word puzzle test. People who paid more for the drink solved more of the puzzles than did people who got a discount for the identical drink. Similar patterns appeared in the pain killer study and cold medicine research.

The implication for innovation: This research helps explain why good products can fail because of the discrepancies between beliefs in how people should act versus how they actually do act. Moreover, this irrational behavior is consistent across people, products, and time. Because the irrational behavior is consistent, companies can adjust their innovation, product development, product testing, and marketing processes to fit people’s real behaviors.

Action:

• Understand the human biases that affect product choice, willingness to pay, and product performance.
• Design products that suit how people are, not how people should be.
• Create product testing processes (e.g., focus groups and lead user studies) that replicate or control for the effects of actual retail and usage scenarios