‘Default option’ nudges: be careful how you use them

When customers need to make multiple choices during a purchase (e.g. a trip), guide them with a mix of low and high-priced default recommendations. Don’t push high-priced options too hard

Travel websites use many nudges to make our purchases more profitable. For instance, Ryanair uses anchor pricing with very expensive ‘flexi plus’ packages, or decoy ‘regular’ packages that are only slightly less expensive than ‘premium’ packages that offer much more.

This study focuses on one of the most commonly used nudges: default options (e.g. preselected travel insurance). Previous research mostly studied default options in standalone environments. This study analyses them in a more realistic environment (like when booking a trip), and the results can be surprising.

The main learning: think (and test) how multiple nudges in a customer journey will affect each other.

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Use a mix of low and high-priced default options to maximize profits

Impacted metrics: Customer spending
Channels: Product | Ecommerce sales | Sales team

Recommendation

When your customers need to make a series of choices for your product (e.g. booking a trip, buying a car), guide them strategically through the options using preselected ‘defaults’.

Don’t always preselect the highest-price option, especially in the first option you present. Customers see through that and will actively choose the lowest-price for all the other options. Overall, they will spend less.

Instead, use a strategic mix of low, average, and high priced default options as they go through the purchase to keep their trust and maximize your overall revenue.

Effects

  • Previous research has repeatedly established that pre-selecting a default option works in nudging people towards that choice. For instance, take the following options: a) standard; b) premium (+$19); c) gold (+$49). When gold is preselected, people are more likely to choose it than when no option or another option is preselected. 

  • However, when people need to make multiple choices one after the other (e.g. configuring a new car, booking flight options), default options affect not only that choice but also subsequent choices (e.g. the default option for choosing a car’s side mirrors will affect the choice of seat type afterward).

  • When people accept your first preselected default, they are more likely to accept your next default options as well. If instead they ‘break’ from your default recommendation, they will likely do so for the next choices and spend less overall. 

  • If you recommend the highest-priced defaults at the beginning or too often, customers are more likely to break away from your recommendations.

  • In the study, an initial low-price default option (the car’s side mirrors) lowered spending for that option (-€62), but resulted in subsequent higher spending (+€395). By contrast, a high-price default at the beginning (+€68) reduced later spending (-€336).

Why it works

  • When we see preselected default options, we assume they are recommended by companies because they’re the best option to choose from. If we don’t choose it, we’re afraid we’re going to miss out (a form of loss aversion). However, if a company is consistently recommending the highest-price option, we see through their attempts to make us spend more, and lose trust in their recommendations.

  • Choices are difficult to make. They require cognitive energy and active thinking. So when the recommended options look good, we are happy to go with them to conserve our energy.

Limitations

  • The study of multiple choices during a customer purchase is complex. The researchers tried their best with several experiments to eliminate alternative explanations of the effect. However, it may be riskier to generalize when there are so many factors that could come into play (e.g. navigation from one page to the other, the order of higher or lower-priced options, how many options need to be chosen, etc.).

  • The researchers tested the effect mainly on the website of a car manufacturer. This is an expensive online purchase. The effects should hold for cheaper products and in other environments (e.g. face-to-face sales), but this was not directly tested.

Companies using this

  • Many companies use default options, especially in online sales. However, few seem to consider the interplay of different nudges, and may be missing out on higher profits.

Steps to implement

  • If you’re not yet using default options to nudge your customers towards your best or most profitable option, you should start with that.

  • Next, if you have multiple options, test preselected defaults on a mix of best value and most profitable options (ideally that’s the same thing). Measure the impact on overall profits, not on the individual choices.

  • You can also try this outside digital experiences, for example in face-to-face sales (e.g. when selling a property).

  • If you want to take things a step further, you can test making subsequent default options dynamic, depending on what your customers choose in the previous step (i.e. whether they accepted or changed the default option in the previous step).

  • To make it even more powerful, you can test adding a social validation nudge (e.g. 'Most people choose X' or '70% of people select this option').

Study type

Online experiments and field study (on an unnamed car manufacturer’s online car configuration system, average car price: €58,000), United States and (probably) Germany

Source

Donkers, B., Dellaert, B. G., Waisman, R. M., & Häubl, G. (October 2020). Preference Dynamics in Sequential Consumer Choice with Defaults. Journal of Marketing Research, 0022243720956642.

[Link to paper]

Affiliations

Erasmus University Rotterdam and University of Alberta, The Netherlands and Canada

Remember: Because of the groundbreaking nature of this paper, it could be disproven in the future (although this is rare). It also may not be generalizable to your situation. If it’s a risky change, always test it on a small scale before rolling it out widely.


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