Navigating complex markets

In the last week of June, the 2018 Behavioural Exchange conference brought together experts, policy-makers, academics, and practitioners in behavioural insights to explore and create new and better policies. We went along to hear how these cutting-edge findings could be further applied to our consumer engagement research.

Kicking off the event, Martin Parkinson, the secretary of the Department of Prime Minister and Cabinet, reflected on the failure of the NeoNurture, which Time Magazine rated the number one invention in 2010. An incubator designed from leftover car parts for use in developing countries without adequate medical facilities, the NeoNurture was only ever used by one baby after its invention (who modelled it for Time Magazine) – because the developers failed to consider how prospective choosers might respond to the invention. Parkinson recalled that Ralf Speth, Jaguar’s CEO, once quipped, “If you think the cost of good design is expensive, you should look at the cost of bad design.” Here at CPRC we agree.

In our Five Preconditions of Effective Consumer Engagement report, we strongly recommend regulators and policymakers adopt customer journey-mapping exercises to ensure interventions intended to improve consumer choice address the barriers people face when making decisions. Refining information fact sheets for example, is unlikely to improve consumer choice where individuals are unaware they exist, or if they remain incomprehensible for the purpose of comparison.

Parkinson also emphasised the need for the APS to ‘get to know the public we serve – in all the breadth and depth that encompasses’. It is essential that policymakers develop interventions that address the range of circumstances individuals find themselves in. We think this a good guiding approach for all sectors – industry, academia, policymakers and regulators – this is especially the case when attempting to remove barriers for vulnerable consumers.

In opening the second day’s proceedings Professor John A. List spoke to the importance of not just trialling interventions before widespread adoption but for a need to replicate results to provide policymakers to avoid ‘voltage drop’ when taking behavioural interventions to scale. This makes an awful lot of sense, especially sharing the results so that others can also learn from these trials before designing a new intervention.

Some examples of this were outlined in following presentations from the Australian Energy Regulator, Behavioural Insights Team and Behavioural Economics Team Australia exploring a range of trials completed, both in the UK and in Australia to improve consumer comprehension of retail energy information, a sector that remains particularly fraught for consumers.

Professor Rick Larrick spoke to the importance of providing consumers with comprehensible information, especially information that signposts  key aspects or features of a product or service. Here, Larrick outlined how consumers have historically been provided with limited and flawed energy metrics, such as miles per gallon, to quantify energy use. His research proposes four principles informed by behavioural insights for designing comprehensible consumer facing measures to help consumers make more informed decisions. This has direct relevance to CPRC’s second precondition – ensuring consumers have access to key information that is clear, comparable and comprehensible.

Arguably the big drawcard of the event, Professor Cass Sunstein’s plenary session explored and addressed a number of misconceptions about nudges, and provided rejoinders, along with a preliminary outline for a “Bill of Rights for Nudging”.

Professor Sunstein highlighted that nudges can be a particularly useful tool for policymakers and regulators to help individuals make better choices, and are generally more popular than mandates or bans. He also noted a key aim of nudges is to improve the navigability of life’s difficult choices, particularly for those with limited attention or capacity to do so. His example of a GPS is apt – calculating the quickest, easiest way home as a guide, which retains freedom of choice for the user.

CPRC’s Five Preconditions report drew heavily on behavioural insights, and this concept of navigability permeates much of our conceptual framework. Our fifth precondition in particular requires policymakers and regulators ensure consumers are aware where they can seek help, are aware of key product and service information, are aware where to compare products and services, and are aware how to switch between providers where this suits their preferences. The issue of navigability is particularly pertinent for those already encountering disadvantage.

Watch Sunstein deliver his Holberg Prize address:

Notably, in the address, he cited MIT scholar Ester Duflo:

“We tend to be patronising about the poor in a very specific sense, which is that we tend to think ‘why don’t they take more responsibility for their lives?’ And what we are forgetting, is the richer you are the less responsibility you need to take for your own life, because everything is taken care of for you. And the poorer you are, the more you have to be responsible for everything about your life… Stop berating people for not being responsible and provide the poor with the luxury the rest of us have, that a lot of decisions are made for us.”

CPRC considers improving the navigability of complex products and services is paramount, especially where policymakers have determined that markets should deliver these services. We’ll be doing more work on these concepts over the coming year.

Five Preconditions of Effective Consumer Engagement

On April 16, CPRC launched our foundational Five Preconditions of Effective Consumer Engagement report, hosting a panel discussion with leading academics. Download a copy of the report here.

Complexity, disengagement and inability to choose products that suit consumer needs and preferences have all been raised as significant challenges for consumers across a range of competitive markets.

Our Five Preconditions of Effective Consumer Engagement report outlines a conceptual framework and associated remedies for policymakers and businesses to better support consumers make product choices across a range of competitive markets.

In kicking off the event, CPRC’s Board Chair, Catherine Wolthuizen, spoke to the impetus for the project – the crisis of trust around the world, and the numerous regulatory reviews across different sectors currently underway. Catherine also spoke to the policy gap that has emerged in deregulated markets, and the need for a more prominent role by policymakers to enable consumer engagement in markets, particularly essential services or complex markets.

Report authors Lauren Solomon, Chief Executive of CPRC, and Ben Martin Hobbs, Research and Policy Officer, provided an overview of the report and the Five Preconditions required for consumers to effectively engage in markets, illustrated with relevant examples internationally and locally.

An expert panel of Australian academics also discussed the need to remove barriers for vulnerable and digitally excluded consumers, along with the significant challenges encountered when comparing and switching offers.

Dr Yvette Maker, Senior Research Associate at the Melbourne Social Equity Institute, University of Melbourne, spoke to her research on addressing the barriers to access for consumers with decision-making impairments – a key aspect of Precondition 1 (Barriers to access for consumers with reduced capacity or vulnerability are removed).

Yvette outlined the legal frameworks relevant to supported decision-making, the limits of existing approaches and how we might go about developing new models of support for these consumers.

You can read a bit more about Yvette’s research here.

Dr Rob Nicholls , Senior Lecturer at the University of New South Wales Business School, spoke to the difficulty consumers have in comparing offers and stickiness in switching providers.

Rob also drew comparisons across sectors, pointing to mobile phone number portability in telecommunications as an example of a success story and the need for metadata portability to reduce market friction – essential to supporting Preconditions 3 (Comparison tools are accurate, simple and effective) and 4 (Switching costs [financial and non-financial] are low).

Read more about Rob’s work here.

Professor Julian Thomas, Director for the Social Change Enabling Capability Platform at RMIT University, provided key insights from the most recent Australian Digital Inclusion Index research. Julian noted that the data shows a significant portion of consumers continue to face barriers to access, and limited digital literacy for particular consumer cohorts.

Julian highlighted that while older consumers face may have limited digital literacy, policymakers should not make assumptions about the ability of so called digital natives.

Limited digital literacy and access is relevant not only for Precondition 1 but also for Precondition 5 (Consumers are aware of how to access, assess, and act on information), where policymakers rely on digital channels to provide consumers with information or new tools to choose products or services more easily.

Explore more of Julian’s work here.

The CPRC team would like to thank all who attended our launch, as well as our expert speakers who gave generously of their time and knowledge, helping to make the event a memorable success. Special thanks to EnergyAustralia for graciously hosting the luncheon event.

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