By Linnea Gandhi (TGG Group)
Richard Thaler and Cass Sunstein begin their seminal work Nudge with the by-now classic example of choice architecture in a school cafeteria: when healthier options are placed up-front and at eye-level, students are more likely to choose them.
Perhaps taking a page from Nudge, two major consumer-facing companies have made similar choice architecture moves (i.e., changing the context in which consumers make decisions) that have attracted attention over the last few weeks.
The first example comes from the world of retail pharmacy. As part of a profile of Helena Foulkes, the president of CVS/pharmacy, Fortune highlighted the explicit consumer health focus of her team’s retail makeover: “At about 500 stores, CVS has begun stocking snacks marketed as ‘healthy’ (such as Kind bars...) near the cash registers while relegating traditional junk food (like Oreo cookies) to the back.” Readers may recall that CVS/pharmacy also made a far less libertarian – though arguably far more impactful – change to its choice architecture last year by publicly committing to pull all tobacco products off its shelves by October.
The second example comes from the consumer packaged goods industry. In an interview featured in this month’s Harvard Business Review, PepsiCo Chairperson and CEO Indra Nooyi, explained, “We’ve taken lessons from Richard Thaler and Cass Sunstein’s book Nudge. We try to put portion-control packages out front on the shelves. We make sure our diet products are merchandised as aspirationally as our full-sugar products are.” This is in line with the commitment made by all three major soda manufacturers (PepsiCo as well as Coca-Cola and Dr. Pepper) almost exactly a year ago to help reduce the calories Americans consume in sugary drinks by 20 percent over the next 10 years. Nooyi’s comment suggests that the main lever they mean to pull to make good on this pledge is to increase the availability and attractiveness of their relatively healthier products.
Beyond CVS and PepsiCo, there are no doubt numerous other private sector companies implicitly or explicitly embracing the principles embodied in the iconic cafeteria example that opens Nudge. They are changing the choice architecture of stores and products in a way that preserves consumer freedom of choice (excluding the tobacco example) while subtly promoting healthier choices, an end that most consumers would agree makes them better off. These companies must be “nudging”…right?
In fact, changes made by for-profit companies in the name of consumer health often explicitly promote profit as well. CVS Health, of which CVS/pharmacy is a division, believes its bottom line will benefit from an improved reputation as a health care leader; as consumers pay more of their health care costs out of pocket, they will place greater value on companies who help lower those costs for them in the short and long term. Or as Fortune concludes: “In a subtle way, pushing Kind bars instead of Oreos is part of [their] battle for consumer loyalty.” Similarly, PepsiCo CEO Nooyi attributes the shift from “fun-for-you” products (a.k.a. junk food) to “good-for-you” products to underlying changes in consumer demand: “We’ve dialed up the good-for-you offerings because societal needs have changed.” (The skeptic in me wonders whether eating more moderate quantities of sugar, salt, and fat wasn’t a “societal need” in years past…)
What does it matter if these private sector initiatives were designed to promote consumer health but also conveniently promote corporate profit? Surely nudges need not put the private sector out of business – this sounds like a win-win!
But what if CVS/pharmacy and PepsiCo made these and other changes to their choice architecture primarily in the name of profit, with health as a convenient side effect? Would we still applaud them as loudly? Would we still be so quick to call them nudges? I’m not so sure.
Consider the possibility that Oreos and other junk food are among the more popular products CVS/pharmacy carries. By putting them in the back of stores, the retailer may be increasing foot traffic through a greater number of aisles where various products and promotions might catch consumers’ eyes and end up in their shopping carts, thereby increasing overall retail sales. Or in the case of PepsiCo, portion-control packaging may enable the company to sell these products at higher margins, and not only because it is providing additional acquisition value to consumers who seek a portion-control mechanism. Margins may also be easier to play around with because by shifting packaging to accommodate strict calorie counts, the firm may – intentionally or not – make it more difficult for consumers to compare per-unit pricing across comparable products.
This line of reasoning highlights a gray area for private sector practitioners of behavioral science: nudging is only an intention away from clever marketing. It may well be the case that certain companies are changing choice architecture for profit-seeking reasons, but their advertising and PR departments are cherry-picking examples which also happen to promote consumer welfare and fit nicely under a narrative of benevolent nudging.
As the concept of nudging finds increasing publicity and popularity (the recent White House Executive Order to use behavioral insights no doubt helps) private sector companies may increasingly tread into this gray area. Does it matter whether they cleverly market their initiatives under the brand of nudging, even if their original intentions are hardly to make consumers “better off, as judged by themselves”? I’m honestly not sure. Maybe in this case the ends justify the means. If consumers’ freedom of choice is preserved and on net they do indeed find themselves better off, maybe the distinction between clever marketing and nudging is trivial. Or maybe not.