Previously, I discussed Dan Ariely’s research about social and market norms.  While it seems easy enough, in theory, to offer some social reward in a business environment to increase loyalty or morale, Ariely cautions about carelessly combining social and market norms.  Bringing market norms into a social situation can lead to outcomes that are uncomfortable to even think about:  he offers the example of finishing a lovely Thanksgiving meal with your extended family and then offering to pay your mother-in-law $300 for her efforts to prepare it.

However, it can be just as unfortunate to bring social norms into a market situation.  To illustrate this, Ariely asks you to consider the bank that has spent billions of dollars marketing the impression of a social relationship.  Customers join in to be part of the bank ‘family,’ but then a check bounces.  In a solely market relationship, there is a fee and the customer moves on because “business is business.”  However, in the social relationship that the bank has marketed, the fee comes instead of a “friendly call from the manager” and is “not only a relationship-killer, it’s a stab in the back.  Consumers will take personal offense.”

“In treating their employees—much as in treating their customers—companies must understand their implied long term commitment.” Not only can it be unwise to combine these two norms in a relationship between a business and a customer, but also between a business and its employees.  Think about the business that encourages high morale with an emphasis on the family atmosphere at the workplace…but then lays off employees due to budget cuts.  Once the social norms work their way deeply into the workplace, it’s no longer “just business” and a layoff becomes a very personal, and likely bitter, experience.

“When a social norm collides with a market norm, the social norm goes away for a long time.  In other words, social relationships are not easy to reestablish. Once a social norm is trumped by a market norm, it will rarely return.” Even more dangerously, once a social norm has been violated, it takes a long time to recover.   It’s harder to forgive and forget in a situation where you feel you were personally affronted.

Both in interacting with customers and employees, businesses need to carefully consider the integration of social and market norms, which goes back to the idea that “if companies want to benefit from the advantages of social norms, they need to do a better job of cultivating those norms.” Think about the integration of social and market norms, both within your workplace and with customers.  Are you swimming in dangerous waters by not truly cultivating a social relationship, or are you managing an effective balance between the two norms?

I previously discussed Predictably Irrational by Dan Ariely and was intrigued with the concept of behavioral economics.  As I was reading the book, I couldn’t help but consider the ways in which his research could influence the workplace.

In Chapter 4, Ariely writes extensively about social and market norms.  Social norms are those that control our desire to help others; essentially, this seemed to me our wish to be “neighborly.”  Market norms are those that control our business relationships; Ariely writes that there is nothing “warm and fuzzy” about market norms.

“People are willing to work free, and they are willing to work for a reasonable wage, but offer them just a small payment and they will walk away.” In various iterations of one study, participants were asked to perform a small task for various amounts of money, nothing at all, or a gift.  The participants that worked the hardest in this study were those that were not paid at all for their work; the participants that performed worst were those that were paid only a token amount of money!  Under the guise of social norms, people are willing to help others.  A small gift did not negatively impact performance (a box of chocolates), until that gift was given a monetary value (a $5 box of chocolates).  Basically, people will work hard for reasonable compensation (market norms) or to help their fellow man (social norms).

“Money, as it turns out, is very often the most expensive way to motivate people. Social norms are not only cheaper, but often more effective as well.” Ariely cites the example of firefighters, policemen, and soldiers; certainly these are not the most well-paid employees in America but they risk their lives on a daily basis for their professional pride and sense of duty.  To motivate employees, he suggests that employers look beyond token financial bonuses to find ways that social norms can provide motivation.

Ariely argues that, if a businesses ask employees to perform above and beyond (work late to meet deadlines, travel on weekends), then the business must offer something in return (job security, comprehensive medical benefits).  These relatively intangible sacrifices and benefits fall under the category of social norms, and serve to develop a positive working relationship and employee loyalty.  He also suggests other positive ways to reward employees through social norms:  adequate sick leave, personal gifts in lieu of cash bonuses, flex time, and family picnics.

While it might seem easy to just flippantly toss some social norms into business relationships, either with employees or customers, Ariely cautions against combining the two without some careful consideration.  “Although some companies have been successful in creating social norms with their workers, the current obsession with short-term profits, outsourcing, and draconian cost cutting threatens to undermine it all.” Check back soon for further discussion about those dangerous waters!

Image from www.danariely.com

I just finished another book in my nonfiction reading kick; this latest title was Predictably Irrational by Dan Ariely.  I found it to be a fascinating introduction to behavioral economics.  Essentially, those who study behavioral economics try to understand and explain why people behave in certain, often unexpected, ways.  Ariely clearly illustrates that people are irrational; we believe that we are making rational decisions when, in fact, we consistently make decisions that are not necessarily the best ones.

This book is applicable not only to decisions on a personal level, but it is also relevant to decisions made in marketing, office management, motivation, and many other workplace situations.  Consider these three brief highlights from the book:

• People “focus on the relative advantage of one thing over another, and estimate value accordingly.”  The example he sites is trying to choose between a trip to Paris with breakfast everyday or a trip to Rome with breakfast every day.  You struggle with decision, because they are both lovely cities.  However, the decision becomes much easier when given a third option:  Paris without breakfast.  Most people would now choose the trip to Paris with breakfast, because it is clearly the better deal in comparison to Paris without breakfast.  The Rome trip is now just a distraction, because it cannot be easily compared to the Parisian vacation.  Certainly you can think of other ways that this concept of relativity is used in advertising to skew your daily decisions!

• People generally have problems with self-control, but most of us have also developed mechanisms for managing this weakness.  For example, you might take advantage of an automatic investment plan for a portion of your paycheck because you know that you’d never save the money otherwise; given the option to choose due dates for three papers, a student spreads the dates throughout the semester rather than choosing the last day of class for all three submissions.  Ariely takes this one step further to suggest charging refundable premiums for routine health checkups to encourage patients to follow through and actually show up or a smart credit card, that limits spending on entertainment to a predetermined amount every month.

• We pay too much for FREE.  As an example, in one study, shoppers were asked to choose between a FREE $10 gift card and a $20 gift card for a cost of $7.  Rationally, it makes sense to pay $7 and earn a $13 profit but consumers consistently took the FREE offer!  What else do you do, irrationally, for something free?  Buy two items to get one FREE (even if you didn’t want one in the first place!)?  Wait in line for a ridiculously long time for a FREE ice cream (that might cost you a few dollars any other time)?

Each of these examples in Ariely’s book made me reflect on decisions, both major and trivial, I’ve made recently.  I found myself questioning whether I’d really been as rational as I thought!  Several sections in the book were particularly interesting in relation to the workplace; stay tuned for future blog posts about a few of these topics!