Case Study #1

Money isn’t everything: How the pull of the hedonic incentives can drive behaviors

In our time at Google, we worked with AdWords to increase the likelihood that an advertiser would add conversion tracking, an AdWords feature.

What is conversion tracking?

Conversion tracking is an important feature within AdWords for advertisers because it allows them to understand how much their ad costs relative to how many people buy their product. However, despite its business importance, it is also a time-consuming and complex feature to add for the typical marketing manager. Adding conversion tracking requires technical work and usually involves a developer. Thus, many companies delay adding conversion tracking even though adding this feature would be in their best interest.

How do we influence someone to do something they want to get done, but just tend to procrastinate?

This could be signing up for 401(k), making a doctor’s appointment or adding conversion tracking to an AdWords account. All of these behaviors have something in common: they fall into the category of one-time behaviors. This means that they only need to be done once. It is not a re-occuring behavior or a habit. When we want someone to do something only once vs. habitually, we need to consider what could increase that person’s activation energy. What would give someone a reason to act today vs. tomorrow?

Together with Google, we conducted an experiment to try to increase people’s activation energy by offering incentives. While we typically don’t recommend monetary incentives, for one-time behaviors monetary incentives can provide the activation energy needed without hooking the user on expensive extrinsic rewards.

With this in mind, we decided to choose a variety of incentives to test:

  • No incentive
  • $20 AdWords
  • Two movies from the Google Play Store
  • $20 Google play credit
  • $50 AdWord credit

Which one did users like best?

We found that the $20 Google Play credit was actually the most enticing. Customers preferred the hedonic reward (Google play credit) over the utilitarian reward (AdWords credit).

In hindsight, this makes sense. What motivates an advertiser to do something today and overcome procrastination? What we know from behavioral science literature on time discounting suggests that it’s something that is rewarding for her today.  A $50 AdWords credit incentive is economically the best decision, but it doesn’t help her today. The $20 Google play credit could help her today, when she goes home from a tough day of work, since she can watch new movies or play new mobile games.

It’s worth noting that Google’s intuition was that the $50 incentive would win, and ours was that the ‘two movies’ would win. We were both wrong. Thus, the best takeaway from this experiment is that no matter what our intuition tells us (even if we’re the experts), we still need to test, as every context may be different. If Google had not tested the $50 incentive and just decided to launch it, they would have spent a lot more money than required AND their advertisers wouldn’t have been as happy.

Testing wins this round.

Case Study 2:

Behavioral Economics Nudges a 14 Percent Bump in Google AdWords Retention Rate

Imagine you are trying to lose ten pounds. If you lost five pounds in the first two weeks, you would likely be motivated to keep going. You’re making progress! Your goal is in sight! However, what if you lost zero pounds in the first two weeks? Would you be as committed to continuing your restrictive diet? Not likely. It’s tough to do something difficult and not see any results. You may give up or consider switching to another diet.

AdWords users had the same problem as a dieter who doesn’t see immediate weight loss. As a new AdWords customer, you don’t always see results immediately. Like all advertising, an advertiser needs to test and refine their ad multiple times before the ROI hits their target level. Thus Google had to focus on retaining people long enough for the customers to start seeing results. How long? Results that reflected the true value of AdWords usually started showing up after the three-month mark, provided that the advertiser stayed engaged.

We had to solve that “dieting” problem. Even if most customers signed up with the best intentions of understanding and learning how to use AdWords, without seeing immediate progress, a lot of them wouldn’t follow through. With 50 percent of advertisers churning out in the first two months, this was a significant problem.

At Irrational Labs, we knew that using behavioral economics principles would help Google narrow this intention-action gap. We hypothesized that converting customers from a short-time mindset (I need to see results ASAP!) to a long-term mindset (I am investing to get a great return in the future) would lead to a higher retention rate. We tested this hypothesis within Google’s call center by assigning a random sample of incoming calls to an experimental group that tried to create a long-term mindset.

How did it work?

When new AdWords customers called for the first time, half of them were told they had a plan. Not just any plan. It was “My 3 month AdWord Expert Access Plan.” We focused on three months to create the long-term mindset and anchor the campaign message.

We did this in a variety of ways:

During the call, reps repeated the “three months” phrase often and asked customers about their long-term advertising goals, but not in a Google-centric way. (“Are you interested in advertising over the next few months? Over the next year?”) This framing served to get people in the mindset of thinking long-term about advertising.

The expert then set up a series of five future calls that would be used to help the customer optimize their account for free. On the first call the customer pre-committed to these future dates, further increasing the idea that this was a product that deserved a longer-term approach.

All of the ongoing communications also emphasized that this was a product that would have increasing rewards over time. For example, the AdWords expert sent the customers an email with the image of a fruit tree. The visual metaphor helped explain the path that the customer would take learning how to use the software – from putting in the upfront work and upkeep to eventually noticing the fruit of their labor. Seeing the fruit tree “growing” served as a salient visual reminder to increase their long-term mindset.

So what happened?

The group that had the three-month program stuck around longer. Retention rates for the “My 3-Month Expert Access Program” increased by 14 percent.

We achieved strong results using behavioral economics nudges in our partnership with Google. But the real question, of course, is … could this work for your diet?