Nudge Your Customers Toward Better Choices

Reprint: R0812H

When car rental companies sign you up for insurance unless you actively decline it, or software vendors recommend you click “next” for a quick install, they’re choosing default options for you—covertly or overtly guiding your choices. Well-designed defaults benefit both company and consumer, simplifying decision making, enhancing customer satisfaction, reducing risk, and driving profitable purchases. Ill-conceived defaults can leave money on the table, fuel consumer backlashes, put customers at risk and trigger lawsuits—costing companies dearly. Despite those high stakes, management pays little attention to default policies.

Setting defaults requires companies to balance a complex array of interests, including customers’ wishes and the company’s desire to maximize profits while minimizing risk. At a basic level, defaults can serve as manufacturer recommendations, and more often than not we’re happy with what we get. Most companies also strive to set defaults in ways that align with customers’ preferences. In its online auto configurator, for example, Audi preselects silver metallic as the default color because it’s the most popular. Of course, defaults can be nefarious as well. They have caused many of us to purchase unwanted extended warranties or to inadvertently subscribe to mailing lists, for example.

The authors provide a taxonomy of default types and guidance on when—and when not—to use each type. They range from “benign defaults,” representing a company’s best guess about which single product configuration would be most acceptable to most customers, to “adaptive defaults” that change depending on individual customers’ stated preferences.