5 Ways Contractors Can Use Behavioral Economics to Their Advantage

Understanding how and why homeowners make decisions can help you achieve your business goals. Here's how.

January 25, 2022
behavioral economics

Graphic courtesy: Nuthawut | stock.adobe.com

While economists expect consumers to perform rational actions while purchasing goods and services, Nobel Prize-winning economist Richard H. Thaler in his book “Misbehaving: The Making of Behavioral Economics” narrates how, in the mind of economists, consumers “misbehave” i.e. do not behave in a rational manner that economists expect. 

The University of Chicago describes the idea of behavioral economics as combining “elements of economics and psychology to understand how and why people behave the way they do in the real world.” Understanding how consumers, AKA your customers, make decisions can also help you push them toward a specific decision.

Here are a few ways, taken from Thaler’s book, that home improvement contractors can use to influence homeowners into making a decision in the contractor’s favor.

1. Information: Educating consumers to help them with their home improvement decision

Calling it the Binmore Continuum, Thaler said consumers make better decisions with practice. Consumers can understand a good deal with familiar things that they buy often, such as grocery items, and get it right. But for big decisions that consumers make once or twice in their lives, such as buying a home, getting a mortgage, a new job, or a large home improvement project, consumers often don’t have many opportunities to learn or practice. 

They may seek other non-biased experts' opinions to help them make that decision. You can be that expert and help homeowners decide to go with you by providing them with enough resources and detailed information to help them make the decision.


RELATED: Who is the Primary Decision-Maker in a Remodeling Couple?


2. Make it Easy: If you want someone to do something, make it easy for them

In a UK experiment, the government wanted to encourage more people to insulate their attics to save energy consumption. In a first attempt, incentives were offered for people to insulate their attics, but there were not many takers. 

This was because the attics had a lot of clutter that the homeowners had to clean before embarking on insulating. When attic contractors offered a low-cost cleanup special as an add-on for homeowners to prepare for insulation, more people agreed. 

Remove the barriers that prevent the homeowners from not making a decision, also referred to as “unfreezing.” Sometimes it is as easy as adding a checkbox to your electronic contract.

3. Nudges: Using choice architecture

Thaler came up with his idea called nudge theory to describe how people, or more specifically, companies and organizations, can influence behaviors to their desired outcome by carefully and purposefully labeling or selecting rules.

“A nudge can be any form of choice architecture that alters people's behavior in a predictable way without restricting options or significantly changing their economic incentives,” Thaler explains. “To count as a mere nudge, the intervention must be easy and cheap to avoid.”

And if contractors have a goal for wrapping up interior remodeling projects on time, you need homeowners to be prepared. A low-cost method such as text updates, for example, on the project team’s arrival and schedule will help homeowners prepare for your team and ultimately save time. Easy and cheap.

4. Bonus Ahead: Provide a promised reward upfront 

Another experiment that was successful for economists and that contractors could try is to give a bonus to your team ahead of the project, which will be returnable if the project is not completed on time (under circumstances that they can control). 

5. Payments: Set a standard

Adding a line in your invoice on the lines of “A majority of our customers pay their invoices within three days” or similar, depending on your company’s performance with payments. 

The sentiment helps your customers understand that most people pay on time and they would not want to be in the group that doesn’t.

About the Author


About the Author


Shashi Bellamkonda, Speaker and Digital Marketing Expert, known by many as the “social media swami,” is VP, Marketing at Leap (Leaptodigital.com) and teaches Digital Marketing Strategy and Marketing Analytics at Georgetown University. Shashi is passionate about helping small businesses and has spoken on Small Business and Marketing technology tools at conferences like SXSW, IABC, PRSA, Mid-Atlantic Summit, MarketingProfs and Affiliate Summit.

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