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Managing Retail Losses: Deploying the ‘Nudge’ Concept

December 13, 2022
By 
Adrian Beck

Context

There is an old adage, from whom I know not, which says: ‘you cannot arrest your way out of a shrinkage problem’; in other words it is not a good idea to base a retail loss control strategy primarily upon catching and prosecuting all those who cause loss. The argument goes that it would not only be enormously expensive to do this, not least because of the sheer number of people that would be required to both catch offenders and then process them through increasingly creaky criminal justice systems, but it would also become a Sisyphean task – one that never ends due to the size of the potential offender population. For instance, think about the sheer number of shoppers that are now routinely generating loss through self-checkout (SCO) – would such a loss prevention model require that they all be arrested and prosecuted?

What is more realistic, and much more cost effective, is to develop ways in which the majority of would-be offenders can be deterred, mainly by reducing the opportunities available to them. In other words, design a loss prevention strategy that protects the business from the vast majority of miscreants, leaving the more determined thieves to be the target of an apprehension/prosecution programme.

However, while likely to be more cost effective than a rolling programme of mass arrests and prosecutions, loss prevention practices can still be expensive for retailers; installing video technologies, employing security guards, applying tags to products, and designing smart shelving and fixtures, all come at a cost. Wouldn’t it be better (and cheaper) if would-be thieves could, through subtle conscious and subconscious persuasion techniques, be persuaded not to steal? Could they be ‘nudged’ in the right direction to not cause retail losses?

The Concept of Nudging

The idea of ‘nudging’ is not new and can be described as a way to try and change behaviours by subtly altering the environment so that automated cognitive processes are triggered in an individual that favour desirable outcomes. This should be achieved without coercion and in theory the individual retains alternative options should they wish to choose them. This is described as creating a ‘nudge architecture’.

What does this look like in practice? One of the earliest and most famous examples of ‘nudge theory’ in action is the use of an image of a housefly inside a urinal in a toilet in Schipol Airport near Amsterdam in the Netherlands! The idea is that the image of the fly improves the ‘aim’ of men using the urinal.

From the point of view of the person who is being nudged, they can be transparent and non-transparent. Nudges such as foot print stickers on a pavement leading to a waste bin are clearly transparent, both in terms of being seen and the underlying intention – please put your rubbish in the bin. An example of a non-transparent nudge would be the inclusion of default choices on a form, such as organ donation – here the recipient may not be aware of the nudge occurring.

Nudging in a Retail Context

Within retailing there are many examples of nudging, especially around product selection. Remember when standing in line at staffed checkouts and being tempted by all those fast food/chocolate options placed directly in front of you? You were being nudged to buy them.

Nudging in a Retail Loss Prevention Context

There are also examples of nudging at work within retail loss prevention – signage stating that CCTV is in operation, thieves will be prosecuted etc are longstanding examples. However, as the use of Self-checkout (SCO) has increased, along with associated losses, new ‘nudge’ techniques are emerging. For instance, a common generator of SCO losses is customer misuse of the product look-up facility when weighing produce – the ‘grapes for carrots scam’. One option being explored to nudge customers to select the ‘correct’ product is to use product recognition technology to narrow down the available choices from the look-up menu. This is often based upon colour – say it is orange, then the customer is only given the option of produce of that colour, such as carrots, grapefruits and squash. In theory the miscreant user could head back into the look up menu to find an alternative, but the act has now been made more difficult and involved. Of course, for the honest shopper, this can also save time as well! 

Other examples can be found in the world of mobile Scan and Go SCO where the consumer uses their own device to scan and pay for products in the store via a retailer-provided App. Here retailers are including ‘nudges’ within the software, such as routine messages reminding users to scan all items they wish to purchase, and at the point of payment, requiring a confirmatory response that they have scanned all the items in their basket/trolley.

At Fixed SCO machines, some retailers are now deploying ‘nudging’ as part of their non-scanning detection systems. When a user is detected not scanning an item, the system will display a message and an image of it on the screen asking the consumer to scan it. If they do, then they can continue with their checkout process, if they do not, then a member of staff may be informed. This is described as ‘Algorithmic Nudging/Management’ – Machine Learning developing ways to encourage individuals into what can be regarded as ‘desirable’ behaviours.

Nudging Ahead

It is easy to see why retailers want to invest in these types of approaches – wherever possible it is often quicker and cheaper to get consumers to follow the ‘rules’ without having to resort to people-driven coercion. At the moment, the evidence is a little mixed on how successful some of these approaches will be over time – will the nudged simply learn how to ignore them? But, as the retail environment continues to evolve, particularly around the use of more frictionless approaches, thinking about how consumers can be ‘nudged’ away from creating retail loss could be a useful avenue of future exploration.

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