I recently received a letter from a well-known subscription radio service for my car. The letter offered me a significantly discounted rate to renew my lapsed subscription. Despite the generous offer and the excellent performance of the product, I won’t be renewing. Why not? It’s not about the product itself. It’s about the sludge.
What’s sludge? In their book Nudge: Improving Decisions About Health, Wealth, and Happiness, economist Richard Thaler and legal scholar Cass Sunstein introduced a simple and profound idea. By improving the environment in which people make choices — they call this the “choice architecture” — we can help them make wiser choices without restricting their options. We can nudge them into making better choices.
You see nudges all around you. When you started at your current employer, you were probably asked if you wanted to take part in a company retirement plan. The default option is a nudge. We can significantly increase the percentage of people who take part in the plan by setting the default to be yes and providing a small default contribution percentage. I recently signed up for my employer’s retirement plan and was gently nudged to a better contribution level. The nudge doesn’t mandate participation. You can opt out or change your contribution level. It’s your choice. The nudge is a subtle intervention that guides your choices without restricting them.
Then there’s sludge. Sludge guides you to do things that aren’t beneficial. You can see sludge all around you too. When was the last time you took advantage of a mail-in rebate? You probably had to collect not only your original receipt but also cut off a UPC code from the packaging of the item you purchased. All of that needed to be mailed off to a processing center, which took weeks to process the rebate. The rebate itself probably wasn’t a check; it was a pre-loaded debit card with an expiration date. Why make it so hard? There are legitimate reasons for these barriers: Original receipts and UPC codes prevent fraud, and debit cards are less expensive to process and more flexible for consumers. But the result is consumers don’t claim many mail-in rebates; over $500 million a year, according to a 2013 Consumer Affairs report.
In product management, we deal with nudges every day. With more people making choices through digital products, user experience professionals and interface designers become the choice architects who influence their users’ decisions and behaviors. The influence isn’t confined to the user experience and isn’t limited to our core product. As product professionals, we influence our customer’s decisions and behaviors throughout their customer journey. Customer experience — how they interact with us across multiple touchpoints, including advertising, social media, marketing materials, sales processes, and customer service and support — provides us with opportunities to nudge them towards choices that add value. Alternatively, we can nudge them towards choices that add value for us at their expense. We can add sludge.
My experience with the subscription radio service is a classic example of sludge in customer experience. They offer a free trial subscription for new car purchasers followed by a significantly discounted rate for the first year when that trial expires — a classic free-trial product-led growth strategy. When the first year expires, things spiral into sludge. The standard rate is significantly higher than the discount. You can usually get them to reduce the rate if you call to cancel. Strike one. What’s the price? There is one price for people who renew their subscription. There is a lower price if you call to cancel and complain. That choice architecture makes economic sense — most people will just renew at the higher rate, more than making up for the customers who complain and get the discounted rate. But is it good for your customer? Strike two is forcing your customers to call you to cancel the automatic renewal. Does it make economic sense? Yes. That gives you the opportunity to offer them the discounted rate. But as a customer, I should be able to unsubscribe just as easily as I can subscribe. More sludge. And enough sludge that I choose not to use the service.
I’ve seen similar examples in subscription renewals across the spectrum of SaaS products in both B2C and B2B markets. Some companies remind their customers of the pending renewal and provide an opportunity to cancel, usually through a simple process on their website or within their app. Others email notifying them of the renewal after the fact. Sometimes an email to Customer Service can get the charge reversed. Sometimes not. I’ve seen all three examples over the past few months. Strangely enough, I’ve also seen sludge during sign-up. A small-business CRM platform I was exploring offered a free 30-day trial. But to complete the sign-up, I had to talk to a salesperson. Does it make sense for the company? I’m sure that screening the prospects and pitching them on the value of the product increases adoption, but does it add value to the customer? Not to me.
I’m not advocating that we design and build our products just to maximize the benefits our customers receive. Product managers aren’t altruists. We don’t give away our products. Even the ostensibly free ones include an exchange of value. Nor am I suggesting that the designers of the products behind these examples are malevolently manipulating their customers. I don’t believe they are. I believe they are ignoring, or undervaluing, the cost of the sludge they are introducing into their products.
What am I advocating? First, we need to look at our products holistically. We need to recognize that customer experience is as important in delivering value as user experience and that our whole product is just as important as our core product. All the components of customer experience work together as part of the value we are providing. This isn’t a new concept. Geoffrey Moore wrote about the “whole product” decades ago in his seminal book Crossing the Chasm. His distinction between the “core product” — the company’s primary product or service — and the “whole product” — the core product plus everything the customer needs to realize their desired outcomes — was novel. Today’s entrepreneurs and product managers are incorporating whole product concepts to create compelling products and successful businesses. They are also expanding user experience — how a person interacts with and experiences the core product — into customer experience and focusing on how a person interacts with and experiences their brand. I would like to see them recognizing that their choice architecture is another key element of that customer experience.
In designing our product’s choice architecture, we need to actively and intentionally balance our needs with the needs of the customer. We already do that with price. A product priced higher than the value it provides isn’t desirable. A product priced less than the value it provides but also less than the cost to deliver may be desirable, but it isn’t sustainable. We seek an equilibrium between the value we provide and the value we receive. We need to find a similar equilibrium between maximizing the value our choice architecture provides to us and the value it provides to our customers.
