Many businesspeople continue to think that marketing and advertising are the same things. Self-serving advertising agencies have been encouraging this myth for decades, and as a result, business people have relied too heavily on advertising to drive business. In truth – advertising is just one communication tool, and communication is just a small part of […]

Many businesspeople continue to think that marketing and advertising are the same things. Self-serving advertising agencies have been encouraging this myth for decades, and as a result, business people have relied too heavily on advertising to drive business. In truth – advertising is just one communication tool, and communication is just a small part of marketing.

The reliance on advertising to drive performance over the last 50 years has, at least in part, arisen from an ignorance of what marketing is and the range of other tools (often more cost-effective tools) available to drive performance. In truth – marketing is all about managing human behaviour to achieve a social and or commercial objective – and the tools available to achieve this are many.

This paper addresses some of the more cost-effective tools for influencing consumer behaviour.

Too few in business or indeed elsewhere in the community have recognised the close parallels between marketing and psychology and the marketer and the psychologist. Psychology is the study of the human mind and its functions – especially those impacting the behaviour of human beings. A psychologist leverages the understanding generated by this study to influence human behaviour.

Marketing is or should be the study of the consumer mind and its functions – especially those impacting consumer behaviour. Marketing managers and others involved in marketing should be in the business of achieving social or commercial outcomes by influencing the behaviour of target audiences. Cost-effective marketing is about using leveraging data to manage consumer behaviours.

This will be the central issue addressed in this paper.

Many businesspeople resist applying data instead of relying on intuition when making marketing decisions or developing a marketing strategy. Marketing managers and business leaders who overstate their brilliance all too often have relied on gut feelings when making strategic decisions. In truth, intuition should only be used to understand data – and never instead of data.

The cost of market research and the questionable value of market research for answering some questions reliably has in part driven the reliance on intuition in marketing decision making. In 2021 however, there are alternatives to traditional market research, and there are available more data than ever before. In truth, applying intuition instead of sourcing data is more stupid than ever.

The tools for better understanding consumer behaviour will be addressed in this paper.

Marketing has entered the age of behaviour change. That change will be increasingly data-driven. 

MARKETING IS ALL ABOUT CONSUMER BEHAVIOUR. 

I worked in advertising from 1989 to 2013. While it was most certainly the least rewarding period of my life, it was also a valuable learning experience as I witnessed first-hand the decline of a once-powerful industry. More importantly, I witnessed first-hand an unnecessary reliance on advertising by marketing managers who know no better and advertising agencies with a vested interest.

In 2021, the ‘advertising era’ is drawing to a close. The cognitive era is gradually replacing it’ – an era characterised by an increasingly scientific approach to marketing – reflecting a growing recognition that marketing is – or should be – all about the consumer and, more specifically, the management of consumer behaviour. Certainly, cost-effective marketing is all about finding the most efficient means of influencing consumer behaviour.

1. Embrace the decline of advertising – and the advertising agency.

The 1990’s to 2020’s has a time of rapid change for advertising. It was a period during which threats to the existing advertising business model undermined the viability of the industry, and questions about its lack of accountability were destroying confidence in the industry.

Technology was beginning to erode advertising agency income streams, including commissions on film making, plate making, and printing. Digital technologies were changing the very definition of advertising and how media was purchased.

As a result, once expensive processes such as typesetting, photography, and artwork preparation became simpler, easier, and cheaper.

The move away from print, radio, and television advertising to online media started to reduce production costs, thereby lowering media commissions and agency revenues. The increasing number of provider options and more efficient competition began to put pressure on advertising agency revenues and profitability.

There was also increased questioning, by business, of the value of advertising and advertising agencies. More and more of the advertising process was being assigned to low-cost specialists or simply brought in-house, thereby marginalising many advertising agencies. The industry was also fragmenting with the advent of direct marketing practitioners, digital agencies, and social media practitioners etc.

There was increasing concern about poorly qualified media representatives providing advertising services and pretending to provide marketing services. There was also a growing concern about the value of the ‘creative’ expertise offered by agencies, most of which had never produced anything original while overstating the importance of originality in the first place.

Embrace the beginning of the end for advertising the advertising agency. 

2. Question the emphasis you place on advertising.

In 2017/2018, Proctor and Gamble reduced its advertising budget in Europe by $750 million and sacked 50 advertising agencies. In the first quarter after the cuts, sales increased by 3% (despite there being nothing exceptional about economic conditions). In other words, while advertising spend was significantly down, sales for P&G were up – suggesting that the original advertising spend may have been too high.

And P&G were not alone. It was one of many businesses – large and small – reducing advertising expenditure – not because they want to save money (although they might) but because they suspected there were other, more cost-effective ways of marketing their business than spending big on advertising.

In the 2019 financial year, Myer reported AUD$24 million EBIT with its multi-million-dollar advertising budget. This was better than any of the previous five years but still well below a commercially acceptable level. In 2020, Myer reported a substantial loss (although, to be fair, this was impacted by COVID 19). On the other hand – with NO advertising budget – in 2019, Zara (international) reported a US$1.71 billion profit on the back of a 7% rise in sales and a 56.8% boost in margins in 2019. In the same year, Zara (Australia) reported a 35% increase to AUS$12 million – again with no advertising.

Instead of using advertising as its principal marketing tool, Zara prioritised being truly customer-focused and maximising the lifetime value of each customer:

• Leveraging customer data.
• Developing product customers want.
• Offering an excellent customer experience.
• Leading the market in range.
• Sophisticated merchandising.

Krispy Kreme and Rolls Royce are also businesses that do not advertise. Despite this- Krispy Kreme has a market capitalisation of US$925 billion, and Rolls Royce has a market capitalisation of 614.96 billion Stirling. The success of these businesses and the successful marketing of these businesses has been achieved without relying on advertising.

Growing by 7.56% year on year, supermarket giant Costco reported a US$19.8 billion gross profit in 2019. Trading across the world, Costco is the second-largest retailer in the world and the second most profitable bricks and mortar retailer in the United States. These results were achieved with no traditional marketing.

The marketing strategy for Costco is built around value pricing and a limited range of unique products – sold in bulk. The communication strategy for Costco involves:

• Ambush marketing.
• Documentary marketing.
• Database marketing.

These are just some of the businesses that are learning that advertising is now necessarily an essential part of their marketing strategy and that even when external communication is essential – that communication need not be advertising.

Remember that marketing is a great deal more than advertising and may not always need to involve advertising. 

3. Rethink your definition of marketing.

Google defines marketing as ‘the action or business of promoting and selling products or services, including market research and advertising.’ This definition reflects a view held by many, including most businesspeople, that marketing is all about ‘promotion and selling, market research and advertising.’ The fact is, however – marketing is about a great deal more than advertising and digital communication. Indeed, marketing need not involve advertising or digital marketing, and effective marketing can reduce the need for advertising and digital communication. While often the most expensive component of marketing, advertising and digital communication is only a small part of a far more complex and interesting discipline.

Marketing also need not involve market research, although, in my experience, many businesses would be a great deal more profitable if they invested a little more in market research (which, of course, advertising agencies who know best and want the money spent on new creative or additional media will almost always discourage) with a view to spending a lot less in advertising.

Philip Kotler, the North-Western University doyen of marketing, whom some call the – ‘father of modern marketing, defined marketing as the discipline of – ‘satisfying needs and wants through an exchange process.’ Highlighting that marketing is or should be all about the consumer, this definition focuses not on tools used to influence consumer behaviour but rather on the consumer whose behaviour is influenced. This was one of the first definitions of marketing to put the customer front and centre.

My problem with this definition is that it makes no reference to why an individual or organisation would want to satisfy the needs and wants. It is also limited in that it appears to focus on a commercial transaction (an exchange) when marketing can also be used to address social issues where very often no transaction takes place. Marketing can, for example, be used to encourage people to stop smoking and reduce drinking – this discouraging an exchange.

Kotler has also defined marketing as the discipline of – ‘… identifying unfulfilled needs and desires. It defines, measures, and quantifies the size of the identified market and the profit potential. It pinpoints which segments the company can serve best, and it designs and promotes the appropriate products and services.’ While this definition overcomes the lack of a commercial orientation, it excludes the possibility of a non-commercial objective (other than profit) and remains focused on exchange. This definition also fails to get to the heart of what marketing is and how it can help a business, government agency or not for profit.

The American Marketing Association defines marketing as – ‘…..the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.’ I would argue that the strength of this definition is its focuses on delivering value to stakeholders. My main quibble with this definition relates to the fact that marketing need not involve communication or an exchange.

I will resist the temptation to list and critique any more definitions of this complex discipline and instead offer one of my own. I liken ‘marketing’ to social psychology – defining it as:

• Managing human behaviour to achieve social and or commercial objectives.

This paper will demonstrate not only the veracity of this definition but also its cost-effectiveness.

Here is an excellent demonstration of marketing that involves managing consumers to achieve a behaviour (accuracy) but does not involve advertising (communication) or an exchange. The marketing objectives are achieved without advertising and in an environment in which advertising (signage) had failed previously.

To reduce careless behaviour that causes splashing, researchers in the United States painted an image of a fly at the base of a urinal. What followed was a stream (pardon the pun) of men aiming at the fly when they used the urinal. This led to a 50% drop in spillage on the floor – significantly reducing cleaning costs. A second study at the University of Louisville in Kentucky involved placing a rival university’s emblem at the bottom of the urinal in their changing rooms. Similar results were achieved.

I would argue that no amount of signage or advertising would have achieved this outcome.

Your definition of marketing – to focus on the consumer and their behaviour.

4. Marketing is all about managing human behaviour.

Social psychologists recognise the close parallels between marketing and psychology – and the marketer and the psychologist. Psychology is the study of the human mind and its functions – especially those impacting the behaviour of human beings. A psychologist leverages the understanding generated by this study to influence human behaviour.

Marketing is or should be the study of the consumer mind and its functions – especially those impacting consumer behaviour. Marketing managers and others involved in marketing should be in the business of achieving social or commercial outcomes by influencing the behaviour of target audiences. Cost-effective marketing is about using leveraging data to manage consumer behaviours.

I would argue that marketing almost always involves one of four things:

• Causing a behaviour for the first time.
• Causing a behaviour for or the last time.
• Causing a behaviour to occur more often.
• Causing a behaviour to occur less often.

Marketing strategies can be designed to cause a behaviour to occur – for the first time (say – shop at a specific store or buy a particular brand); for the last time, (say – smoking); more often, (say – visit a restaurant or fast-food brand); less frequently (say – drinking alcohol). The only other thing marketing might do is add value to a product to achieve one of these behavioural outcomes and causing that behaviour to occur at a target price – but even that is focused on causing a designated behaviour to occur (at a preferred price point).

This clearly demonstrates that marketing is all about managing or influencing consumer behaviour, as also demonstrated by this example.

Students at Roskilde University in Copenhagen undertook a two-part study looking at littering. In the first part, they handed out lollies in wrappers in the streets of Copenhagen – and then counted the number of wrappers that were on the ground afterwards. The second part preceded the lolly distribution by placing ‘green footprints’ on the ground leading up to rubbish bins. Then they handed out the lollies – and found a 48% decrease in litter afterwards.

They found that the ‘green footprints’ on the ground caused people to visit the bin more often than just drop the paper. They also found that after the initial people followed the ‘green footprints’, there appeared to be a social norm developing. This, in turn, further increased the proportion of people who walked over to the bins and deposited the wrapper in them.

This is a fantastic example of using marketing to influence consumer behaviour without advertising, utilising a nudge – a psychological trigger – cost substantially less than an advertising campaign.

Understand that marketing is all about the cost-effective management of consumer behaviour.

5. Remember the five most important questions in marketing.

Highlighting the importance of behaviour management are the five most important questions in marketing:

• What are the business objectives?
• Whose behaviour are we to manage?
• What behaviour do we require?
• How can we cause that behaviour cost-effectively?
• When should we aim to target behaviour?

Having defined the business objectives (social and or commercial), the next step must be to define the target market (those consumers whose behaviour is to be influenced), the behaviour that is required of that market if the business objectives are to be achieved (purchase, repeat purchase and or referral etc), the easiest way of causing the behavioural outcome sort (the product, price, distribution or a nudge etc), and then when in the purchase process or customer journey the behaviour of members of the target audience can be most effectively influenced.

The first question involves a relatively simple business decision. The second question involves understanding the market well enough to complete a market segmentation, accounting for factors like, but not limited to:

• Personality – traits that impact on behaviour.
• Lifestyle – activities, interests, opinions, and attitudes.
• Social class – upper, medium, and lower.

Question three also involves a business decision, while questions four and five must include assessing the customer journey – and the points in that journey at which behaviour can be influenced.

Recent research found that businesses that embrace all stages in the customer journey increase their return on investment by 54%. Research also found that customer journey mapping and leveraging increases’ upsell revenue by 56%.

Fully leveraging the customer journey involves:

• Mapping the customer journey from the first point of need or want identification right through to repeat purchase and referral.
• Identifying in the journey every point at which the customer interacts or potentially interacting with you and your business.
• Understanding and directly addressing the needs at each touchpoint and establishing the capacity to address those needs fully.
• Identifying a strategy for engaging with your target market at every touchpoint in a way that encourages the purchase of your product.

In my experience, few businesses understand their customer’s journey as well as they should, and even fewer are well placed to identify and fully leverage each touchpoint in that journey. This failure tends to drive marketing costs up and the potential for maximising revenue down.

Embrace the behavioural approach to marketing and the power of the customer journey. 

If you embrace putting the customer first, it should be easy enough to accept the notion that marketing is all about the consumer, or more specifically, all about managing the behaviour of consumers – not advertising. Having got to that point, it should be relatively easy to focus on finding the most cost-effective means of managing consumer behaviour, and that need not necessarily involve advertising. It is important to consider the alternatives to advertising before investing heavily in advertising.  

BIAS MEANS CONSUMER BEHAVIOUR IS RARELY RATIONAL.

  Human beings like to think of themselves as rational. However, the fact is that humans are nowhere near as rational as many think and indeed, most purchase decisions are not made entirely rationally. Further, consumers’ lack of rational decision-making and behaviour makes predicting behaviour difficult and influencing behaviour more complicated. Mitigating this is the growing body of research that is making consumer behaviour ‘predictably irrational.’

Cost-effectively managing consumer behaviour requires an understanding of the drivers of consumer behaviour, including the irrational drivers like cognitive biases.

6. Learn to understand the predictability of irrational behaviour.

In his 2008 book, Predictably Irrational, Duke University Professor Dan Ariely discussed the observation that human beings, while irrational, are predictably so. He discusses a range of examples of irrational decision making by humans – decision making that is common in consumer purchase behaviour.

Irrational thinking or – ‘automatic thinking,’ ‘bottom up’ thinking or ‘fast thinking’. In contrast, rational thinking is variously referred to as ‘considered thinking,’ ‘top-down thinking’, and is often referred to as ‘show thinking.’ I would argue that irrational thinking is not thinking at all, but perhaps a semantic argument best left for a philosophical debate. Suffice to say here that irrational decisions are generally automatic and or emotional and involve little thought.

Recognizing the prevalence and importance of irrational thinking, Daniel Kahneman coined the phrases:

• ‘slow thinking’– irrational thinking occurring in the frontal cortex or conscious mind.
• ‘fast thinking’– rational thinking occurring in the brain stem or limbic system or unconscious part of the mind.

The cortex is responsible for cognitive thinking, where we consider facts in detail and respond using the evidence available to them. The brain stem is responsible for instinctive ‘thinking’, and the limbic system is responsible for emotional ‘thinking’. All are essential. We think automatically when we are driving a car, and there is no time to ponder. We think emotionally in picking a partner. We need to think slowly when we are thinking through an important issue or complex problem.

Neurological and psychological research would suggest that about 20% of thought occurs in the neo-cortex and therefore is conscious. By comparison, 80% of ‘thinking’ (if you can call it that) occurs in the brain stem or limbic system and is therefore unconscious. In terms of consumers’ purchase behaviour, research by Harvard Professor Gerald Zaltman suggests that 95% of decision making is unconscious or what he calls ‘subconscious’.

The point here is that consumer purchase decisions tend to be more irrational than rational. Indeed, purchase decisions are often made irrationally, with rational thinking used to justify or ‘rationalize’ the purchase.  Research suggests that over 50% of people’ experience buyer’s remorse often or at least sometimes – indicating a failure to rationalize. The other 50% seem to have been successful in their rationalization.

It is folly to consider consumers or consumer decision making rational. Indeed, it is folly to consider your own decision making rational. Instinct and emotions, neither of which are rational, impact significantly on decision making.

Embrace the irrationality of consumers.

7. Beware 25 cognitive biases that drive consumer behaviour. 

Significant and frequently drivers of consumer behaviour driving irrational behaviour are some 25 cognitive biases – common to almost all human beings.

The media and self-serving politicians propagate a myth that terrorism is a bigger problem today than it was at any time in history. As a result, there is a view in the broader community that we are at greater risk of terrorist attack in 2021 than at any time in history.

This doesn’t seem right. In 2017 there were 80 terrorist attacks in Europe. In 2018 there were 83, and in 2019, there were just 57 terrorist attacks in Europe. In 1972, there were 300 terrorist attacks in Europe. Indeed, the only years with lower levels of terrorist attack than 2017, since 1970, are – 1970 and 2003 – 2008, also reported as very bad for terrorist attacks. The perception that terrorist attacks are more common today reflects what is known as the ‘availability bias.’

The availability bias involves making decisions based on how easy it is to bring something to mind. This involves the human propensity to conclude whatever is top of mind – including media reports. Hence the importance in marketing of awareness and being top of mind. Consumers are biased towards reacting to or basing judgements on what is top of mind.

Tversky and Kahneman identified three heuristics or biases:

• Availability
• Representativeness
• Anchoring and adjustment

The representativeness bias occurs when the similarity of objects or events confuses people’s thinking regarding the probability of an outcome. People frequently make the mistake of believing that two similar things or events are more closely correlated than they actually are.

Hence the importance of differentiation in marketing. Effective branding is, at least in part – helping to ensure that your product is not compared with substandard competitors.

The anchoring bias involves an individual’s decisions being influenced by a particular reference point or ‘anchor’. Once the value of the anchor is set, subsequent arguments, estimates, etc., made by an individual may change from what they would have otherwise been without the anchor.

The anchoring bias at work might include:

• Viewing a $100.00 T-shirt as cheap because the last similar T-shirt we saw was $500.
• Predicting what Apple share price will be tomorrow based on today’s $266.37.
• Viewing a $300 bottle of wine as high quality because most bottles are $100.

Hence, Apple and many other businesses used the strategy to release three models in a product category – a premium, a standard, and an economic model. Due to the anchoring effect – and the effect of the premium model and economy models – consumers are driven to the standard product (which often delivers the highest margin to the business.

These three biases can also deliver irrational decisions:

• The consumer buying a substandard product because it is top of mind and they did not consider others – believing that because they knew the brand – it must be good.
• The consumer not buying a Lexus because they are comparing it to a Toyota (the same manufacturer) rather than a Mercedes (which Toyota believe it should be compared with)
• The consumer paying far too much for a product because they have no anchor to judge value – or viewing a product as expensive – because it is dearer than their ancho.

Remember that cognitive biases drive consumer irrational behaviour.

8. Leverage one of the 25 cognitive biases to help achieve your objective.

Research in the United States found that while more than half (54%) of US citizens are on a diet- 69% of fad diets fail to achieve the target weight. The most recent figures in Australia suggest that more than 2 million Australians are on a diet at any one time. By the time the average Australian woman is 45, she has tried an average of 61 diets.

Why would this be so when the research and anecdotal evidence suggest that diets don’t work – and they don’t! A big part of the answer lies in the ‘bandwagon bias.’ Rather than assessing each diet on its merits – consumers tend to follow the lead of others and rationalize their diet choice based on second-hand information they pretend to understand and use to establish a personal rationale.

If you want people to buy your product – lead them to believe everyone else is.

Studies have found that 42% of people living in the United States believe in the creationist view of the origins of mankind – that the earth is less than 10,000 years only. This is in stark contrast to the scientific view and the weight of scientific evidence suggesting that the earth is 4.5 billion years old. The most extraordinary thing about this finding is that these people will not even countenance the mammoth quantity of evidence to the contrary.

Physicist Lawrence Kraus suggested that the difference between scientists and creationists is that while scientists are actively seeking facts, they can prove them wrong. Creationists seek evidence that supports their fixed opinion. This is an example of the ‘confirmation bias,’ – where consumers prioritize information that confirms their previously existing beliefs or biases.

If you want people to buy your product, supply them with information that supports an existing belief or suggests your product’s purchase.

The Australian government is taking a lot of credit for the number of jobs they are ‘creating’ – citing the 5.1% unemployment rate. They have credited this low rate on their great work with taxation reform, trade deals and various other strategies. At the same time, however, 8.5% of Australian workers are underemployed (unable to earn a living wage from the work they have secured). This the government blames on the changing nature of work.

In other words, this government, like most of its contemporaries and forebears, is taking credit for good results and blaming others for inadequate results. Not unique to politicians, the self-serving bias involves an individual taking credit for positive events or outcomes but blaming outside factors for adverse events. In essence, this is all about people thinking they are better than they are, and others are worse.

An example of this bias occurs when wealthy people think they made their own luck and got rich because of their brilliance. Tell people they are brilliant, and most often – they will believe you.

Leverage the power of cognitive biases.

9. Repetition will not make it right but can make it seem so.

In 2019, the Collingwood Football Club had 85,226 members – all of whom no doubt believed that Collingwood is the greatest football club in the country – regardless of any evidence to the contrary – or even a definition of what constitutes ‘great’, or the criteria for evaluation. Why do they think this? Well, one of the reasons is most certainly that they keep on hearing each other say it.

I frequently hear people say that Australia is the most successful multi-cultural society on earth, despite not offering criteria for evaluating ‘success’, an inability to cite data and any real evaluation of other nations who think they are the best – including the US. They believe it c=none the less – largely due to the constant repetition of the observation (NOT FACT) by politicians who know consumers want to hear it.

In the 2016 election, the Labor Party took votes from the Coalition by suggesting that the latter would destroy Medicare. In the 2019 election, the Coalition took votes from the Labor party by suggesting that Labor would introduce a death tax. In both cases, the continual repetition of a claim – true or otherwise – leads to it sticking and affecting the election’s outcome. Both claims were wrong, but voters embraced both claims.

This gives substance to the notion that – ‘If you through enough mud, eventually some of it will stick. And it will. This is an example of the repetition bias at work. This might also be evidence that repeated advertising of a message can, in time, transform a claim into a ‘fact’ – a technique politicians have used very effectively for many years.

The repetition bias occurs when there is a willingness by an individual to believe what we have been told most often and by the greatest number of different sources. Nobel prize winner Daniel Kahneman likes this to ‘human gullibility‘ – and with considerable justification.

These are just some of the many biases impacting consumer behaviour, all of which dramatically impact consumer decision making. Others include repetition bias and tunnel vision.

The repetition bias clearly works in favour of big advertisers and, even more so, favouring businesses with highly effective social media and media relations programmes. Social media can be highly effective in converting an observation into a ‘fact’ through repetition. It is important to understand the impact of repetition and strategies for countering it. Once an observation becomes a ‘fact’, it can be difficult to change.

‘Everyone knows that!’. Do they indeed?

Embrace the power of repetition.

10. Help your customers avoid buyer’s remorse and leverage choice bias.

A US study found that up to 50% of US shoppers experience buyer’s remorse, at least occasionally. The situation in Australia is likely to be similar. ‘Buyer’s remorse’ occurs where a customer regrets a purchase shortly after making it. It occurs when there is an absence of post-purchase rationalization or the – choice bias. Choice bias, also called post-purchase rationalization, is – the tendency to retroactively ascribe positive attributes to an option one has selected and to demote the forgone options.

Regarding choice bias, Neil Patel notes – ‘All of us hold preferences that have little factual evidence to support them. We will defend a preferred flavour of ice cream, type of phone, favourite sports team, political ideology, superstitious hunch, or worldview because we focus on its positives, not giving much consideration to its negatives.” Successful post-purchase rationalization is the opposite of buyer’s remorse.

According to Patel, the choice bias impacts purchase behaviour as follows:

• People tend to buy products and services with which they are familiar.
• People tend to trust any piece of information that seems to support this choice.
• People tend to forget any information that opposes a strongly held viewpoint.

The choice bias most commonly occurs where:

• We make an emotionally driven purchase.
• We don’t like to admit we are wrong.
• We place a higher value on what we have.

Research suggests that the choice bias increases as we age.

Rather than being a concern, the choice bias can very often represent an opportunity. For this reason, it is not uncommon for businesses to invest significantly in promotion specifically designed to help consumers cognitively rationalize what might have been an emotional purchase – and in so doing, increase the likelihood of repeat purchasing and referral. BMW has been a leading exponent of this strategy.

Leverage the potential of choice bias. 

Twenty-five cognitive biases can influence consumer behaviour. These biases can also be leveraged to cause preferred consumer behaviour. Understand the impact of these biases on the behaviour of your consumers. Embrace the potential for leveraging these biases to influence consumer behaviour.

EMBRACE THE PREDICTABLY IRRATIONAL BEHAVIOUR OF CONSUMERS.

Most human beings like to think they are rational and that they make purchase decisions rationally. The truth is, we are all rational sometimes, but irrational much more of the time. Here is a small demonstration. If I told you that you could save $50 on a $300 shirt by driving 20 kilometres to a store in a neighbouring suburb – would you make the journey? Most people I talk to would make the journey. Why not? Fifty dollars is fifty dollars. Now, if I told you that you could get a $50 discount on a $50,000 car by driving 20 kilometres to a neighbouring suburb, would you make the journey? Again, most people I speak to would not make the journey. But why not? Fifty dollars is still fifty dollars?

11. Beware the intuitive decision. It is very often very wrong.

It might be harsh to describe consumers as stupid, but there is compelling evidence to suggest that such a description might be applicable – at least as far as insurance is involved.

A study by four economists from Penn State, Temple University, and the University of Pennsylvania considered how much consumers were willing to pay for $100,000 travel insurance cover for a trip to Thailand. Participants in the study were offered:

• Option 1 – cover for death caused by terrorism.
• Option 2 – cover for death by any cause, including terrorism.

The findings revealed staggering irrationality, as follows:

• Option 1 – an average of $14.12.
• Option 2 – an average of $12.03.

Participants were willing to pay more for cover that addressed only terrorism than they were for cover that addressed all potential causes of death, including terrorism. This finding was very similar to that of a study by Kahneman, which found that participants in California were prepared to pay more for earthquake insurance than they were for general disaster insurance, which included earthquakes.

These findings demonstrate irrational thinking driven more by an irrational fear than a rational assessment of the insurance options on offer. But, of course, the implications of these findings extend well beyond insurance. It is also important to note that irrational thinking is no more or less common among stupid people than smart people. Research has found that the correlation between intelligence and the propensity to be rational is between 0.2 and 0.3.

It is important to recognise the impact of emotions in decision making. In these cases, media coverage and related factors had caused consumers to feel sufficiently afraid of terrorism and earthquakes that they did not consider the policy in the detail required to make a rational decision. It is also worth noting here that ‘western’ deaths from terrorism are now running at half the number they were in the 1980s, so even the fear of terrorism is irrational.

IDEA – Embrace the irrationality of the audience. Identify where irrational thinking can be used or leveraged to advantage. For example, consider attaching your product to a very specific issue.

12. Leverage the competitive nature of consumers. 

In a study, Harvard Business School’s Max Bazerman earned $17,000 auctioning $20 bills to his students, with at least one student paying $204 for a $20 bill. It is reported that in all the years Bazerman ran the auction, he didn’t lose a cent.

In this, and other studies, psychologists actioned $20 bills, and in most cases, while the bidding started at $1.00, it invariably rose to $20 and then $21 – and in some cases rose to as high as $500. Wharton management professor Adam Grant, who plays this game in consulting sessions, says a military officer once paid close to $500 for a $20 bill.

Why on earth would anyone, let alone multiple people bid more than $20.00 for a twenty-dollar bill? While there might be several explanations for this outcome, it is apparent that the competitive environment makes winning more important than the potential financial gain, at least to a significant number of people. Thus, this behaviour appears less than rational.

This certainly points to the competitive sentiments that drive many human beings. This sentiment is also reflected in the ‘fear of loss’ where most people are more concerned about potential losses and will pay more to avoid possible losses than they are about potential gains and will pay for those gains. Indeed, research suggests that fear of loss can cause significant anxiety.

Kahneman & Tversky suggested that the pain of losing is psychologically about twice as powerful as the pleasure of gaining. People are more willing to take risks or behave dishonestly to avoid a loss than to make a gain. Fear of loss is a significant driver of consumer behaviour and is often reflected in response to scarcity claims. Consumers buy because they do not want to miss out. Interestingly, empirical evidence has shown that this only works where the proposition that the consumer might miss out is credible. Simply suggesting consumers might miss out is not enough.

IDEA – Make the most of the consumer’s competitive nature. Consider leveraging the fear of missing out that will encourage consumers to pay a premium. But make it credible. 

13. Leverage the similarity between consumers and sheep.

A 2008 study by Noah J. Goldstein, Robert B. Cialdini and Vladas Griskeviciu found that the rate of bath towel in hotels increases significantly when patrons are told that other patrons reuse bath towels, even where the alternative is an environmental message. It was found that:

• An environmental message alone led to a 35% reuse rate.
• A message that 75% of people reuse bath towels led to a 44.5% reuse rate.

This highlights the power of social norms and the extent to which knowing what others have done impacts the behaviour of consumers. Furthermore, it suggests that following the lead of others is more important to many people than doing what might be considered the ‘right thing’.

Very often, consumers judge the quality or value of a product by its sales to date. This is why many advertisers claim to be the best-selling brand in a category. This is one of the reasons brands promote the popularity of their product. Consumers want to feel that they are on a winner.

Social norms are why teenagers who think they are individuals and unique dress much the same and often in a way that is indistinguishable from their peers. This is because they want to believe they are individuals and unique – but at the same time want to fit in and be seen as part of the tribe.

Social norms are why consumers will walk past a supermarket display without stopping or purchasing – when no one else is viewing the display – but will stop and look and often make a purchase when a crowd is assembled in front of the display. This finding has arisen in numerous studies.

Rather than assessing a situation on its merits, a significant number of consumers respond irrationally and emotionally, more influenced by social norms than facts, figures, and data relating to the qualities of the product. Further, while some might see the behaviour of others as proof of the quality or value of a product – this is not the case with bath towel recycling – where social norms alone are driving behaviour.

IDEA – Leverage social norms. In addition to addressing cognition with a logical reason to buy, address emotion by highlighting the number and type of people who have already purchased. 

14. Take the time to understand the complexities of incentives.

A US survey of businesses with successful incentive programmes found that 82% of them used merchandise and travel as the incentive – instead of cash. This finding is entirely consistent with research conducted by behavioural economist and psychologist Dan Ariely, who found:

• University students offered $30 cash were significantly less likely to complete projects assigned to them than students offered a slab of beer (valued at $30).
• People lined up in their masses to collect a free ice cream (valued at $4.00) but would not line up for $4.00 in cash.

‘What would people say if I took money for doing community work or lined up for $4.00?’

In another series of studies, Ariely found that:

• Lawyers were not inclined to undertake charity work for a fee of $30 per hours (well below their hourly rate) but would complete the same charity work for free.
• Lawyers who completed voluntary work for a charity worked a great deal harder than those who completed the work for a commercial fee.

‘ My time is worth a whole lot more than $30, and offering me such a fee, discounts my value.’

These studies highlight the complexity of incentives for employees and indeed for consumers. The way in which consumers and, indeed, human beings, in general, respond to incentives is indeed very complex and not at all rational – at least in the traditional sense. Money, or at least cash, is not always the most effective incentive for influencing consumer behaviour.

IDEA – When offering an incentive, look beyond cash, consider goods and services, remember the power of social norms, and prioritise pro-bono over discounted. 

15. Understand and leverage the power of expectations.

We have all come across ‘Coke drinkers and ‘Pepsi drinkers.’ However, most studies have found that consumers struggle to differentiate the various brands of cola when participating in a blind taste test. For example, the findings in round one of a recent study involving a blind taste test were:

• 41% identified Coke correctly.
• 38% identified Pepsi correctly.
• 35% identified RC cola correctly.

 

In the second round of this same study, participants were given three rounds of the same cola. The findings were:

• 45% identified Coke correctly.
• 32% identified Pepsi correctly.
• 25% identified RC cola correctly.

Despite this apparent inability to accurately differentiate brands of cola, another study found that:

• 83% of people in the US say they prefer Coke over Pepsi.

Collectively, these findings suggest several things, including:

• When people buy Coke, they buy the brand, not the taste.
• The brand creates expectations that are not borne out by reality.

Consumers who buy Coke are buying everything they associate with the Coke brand, so much so that they believe it tastes better than Pepsi. They are buying into the fun lifestyle, youth, and vitality associated with the Coke brand. They are even buying into the images of slim models drinking Coke – even though if these models consistently drank Coke, they would not be slim. Once the brand’s expectations are established in the consumer’s mind, the taste’s appeal follows.

Another study highlighted this phenomenon in which students claimed that an adulterated beer tasted better than the unadulterated beer until the subjects were told about the adulteration – and then the results were reversed. For example, consumers said that a beer spiked with balsamic vinegar tasted better than the original beer until they were told it was adulterated with balsamic vinegar.

Another more radical study involved feeding blindfolded respondents a flavoured strawberry cake that they were told was lemon flavoured. Again, the majority of respondents reported tasting lemon. In a second such study, instead of the consumers being blindfolded – the strawberry cake was coloured lemon. Again, the respondents tasted lemon.

Human beings are not rational. Very often, a drink or food tastes better because they believe it is better. Their perceptions inform their reality. The same has been found to be the case with beer. Expectations can have a profound effect on perceptions.

IDEAS – Create an expectation that is consistent with the purchase of your product. To leverage expectations, build a brand with multiple dimensions that the consumers can engage with. 

Consumer behaviour is often irrational, or at the very least – less than irrational. Fortunately, it is predictably irrational and can therefore be understood and managed. It can also be leveraged. Irrational thinking is not good or bad – it just is. Understanding this provides valuable insights into how to manage consumer behaviour cost-effectively.

As an aside – it is useful to remember that there is no correlation between the propensity to think rationally and intelligence. Consumers at all intellectual levels can be irrational or at least behave that way. (see the Psychology of Stupidity) 

THE POWER OF ANTECEDENTS IN DETERMINING BEHAVIOUR.

Many factors influence how a human being or consumer will behave. There are also numerous antecedents of human or consumer behaviour. To manage consumer behaviour, it is helpful to understand these antecedents.

There are numerous antecedents of consumer behaviour. This paper touches on just some.

16. Price can impact the perception of quality more than the quality.

A famous Stanford University study considered two groups with wines at two price points each and asked consumers to rate their enjoyment of the wine. The findings can be summarised as follows:

• Wine 1
• Priced at $5.00 – received an enjoyment rating of 2.25 out of 6.
• Priced at $45.00 – received an enjoyment rating of 3.5 out of 6.
• Wine 2
• Priced at $10.00 – received an enjoyment rating of 2.5 out of 6.
• Priced at $90.00 – received an enjoyment rating of 4.1 out of 6.

The findings here point to the impact that price can have on the perception of a product. The same wine with a higher price point was (in two cases, with two wines) enjoyed more than the same wine at a lower cost. Price directly impacted the consumer’s perception of the product.

As counterintuitive as these findings might be, they have been replicated.

This study is an archetypal demonstration of the impact of beliefs on consumer behaviour. The consumer views price as an indicator of quality. The higher the price of a product, in this case, wine, the better the quality of the product. Consumers believing that price was an indicator of quality drove them to consider the higher-priced wine better – even when it is not. Not only did the consumer perceive the dearer wine as better quality, but neuro-science also found that the brain actually registers it as better.

In other words, a belief can impact perceptions and how the brain actually registers an experience. Consumers were not just saying the dearer wine was better because that made sense to them. Their brain’s expectation based on the belief that price was an indicator of quality made it actually taste better – highlighting the profound potential effect of beliefs on behaviour.

These findings have been replicated in other food categories and with factors other than price. These studies have also demonstrated that – the truth or otherwise of a belief has little bearing on whether there is an impact on perception and, ultimately, behaviour.

IDEA – Price products to communicate the quality of the product. Charge at least what the consumer expects to pay for a product of the quality you are promoting.  

17. . Expectations can impact the effectiveness of a product more than the features. 

A study led by Kaptchuk considered how people reacted to migraine pain medication. Three groups were tested and treated as follows:

• Group 1 – treated with a branded drug.
• Group 2 – treated with a labelled placebo.
• Group 3 – did not receive any treatment.

The research findings suggested that the placebo was 50% as effective as the real drug in reducing pain. That is, a treatment with no efficacy at all was effective in half the cases tested. This clearly demonstrates the power of the placebo effect.

The placebo effect is often a medical intervention — a pill, injection, or sham surgery — that has no therapeutic value. The placebo effect refers to the real benefits that these inert interventions can have. For example, the simple act of taking a tablet can make a person feel its benefits. This definition has a medical orientation as placebos are most commonly used in a medical environment. However, the placebo effect is also found in the commercial environment.

Consider:

• High prices can create the impression that one product is of a higher quality than another. “It must be better because it costs more. This is well reflected in the price of many luxury goods.
• The differential pricing of men and women’s shaving products. Despite being on average 7% more expensive, the women’s products are only different from the men’s in that they are packaged in pink instead of black.
• Numerous studies have shown that participants can lose or put on weight when put on a diet they are told is fattening or slimming. Research has suggested that physical and significant weight loss can occur when a person is told a high sugar food is slimming.

In another study, pain killers were delivered in equal dose to patients after a hip replacement operation (an excruciating procedure) in two ways:

• By a patient-driven drip.
• By a GP in a white coat.

The patients receiving attention from the GP in the coat experienced 70% less pain, despite the same level of medication. Once again – expectation played a bigger role than the drug.

More than anything, these studies demonstrate the power of expectations. The expectation that the placebo was treatment was enough to deliver a positive outcome.

IDEA – Use psychological triggers to create expectations that enhance the perceived value of your offering and its effectiveness, thus boosting sales and repeat sales. 

18. Quality and value have an essence that, if captured, can enhance both.

While on trial for his life, just after the second world war, Herman Gering was found to have purchased a painting by his favourite artist Johannes Vermeer from another Dutch artist – Han van Meegeren. Van Meegeren was subsequently charged with selling stolen art to the Nazis- only to later demonstrate that the painting was a forgery, completed by van Meergeren himself. Rather than theft, van Meegeren was guilty of forgery. Apparently, this depressed Gering more than his impending execution.

The point here is that art historians, Gering, Hitler, and indeed the investigators after the war all thought that the painting was an original. As an original, it had an incredible value. As soon as it lost its provenance, the fact that no one to distinguish between the original and the copy meant nothing. The copy had gone from being valuable (and stored in a vault) to worthless (and displayed unguarded in a curiosity gallery in New York). The value of the painting was not its appearance or beauty but its essence – which in this case is its back story or provenance.

I own a cricket bad, sold to me by a cricket official with Donald Bradman’sBradman’s signature on it. I paid the market price of $2000 for the bat with the promise that the certificate of authentication would come through in a handful of days. More fool me. The certificate never came through, Don Bradman never signed the bad, and I had burned $1900 (I guess the bad and box were worth $100). The bat had no inherent value – the value was in the provenance or back story – which turned out to be a lie.

Other than my being as stupid as Gering on this occasion, two observations can be drawn from these two stories:

• The value in many products lies not in their physical characteristics but their essence – in this case, provenance.
• Humans love stories, and we live in a society where stories can add value to just about anything.

Consumers are attracted to stories, and those stories can add real value to a product or service. Indeed, the only reason money has any value is that we have a story about its value. A $100 note is worth 2 or 3 cents without the story that is told with it. The story, not the note, harbours the value. Leave out the security strip, and while the note looks the same to the casual observer – the story is that it has no value.

IDEA – Use a back story for your product that enhances the product’s value by adding to its essence. If a back story or provenance does not exist, consider creating one. 

19. Despite what they might think – consumers find it very difficult indeed to judge quality.

Some would suggest that Joshua Bell is among the two or three greatest violinists in the world today. He is certainly good at playing regularly at the greatest venues, including – Lincoln Centre. Kaufman Music Centre and Carnegie Hall. Tickets to his concerts sell for many hundreds of dollars, with box tickets attracting an even higher price.

In an experiment in 2007, Bell played his violin in the Washington subway, busking in front of thousands of people. Bell had a grand total of $52.17 during this busking concert in his busker’s hat. One of those contributing to the hat recognised Bell and, thinking he was ”down on his luck” put $20.00 in the hat – meaning that all the others gave just $32.17 – even though they were listening to one of the best violinists in the world. The latter would normally attract a ticket price in the hundreds.

The fact is only one person, the one giving $20.00 recognised Bell and, without knowing whom they were listening to, heard nothing in the music that they considered exceptional or worthy of a bigger contribution into the hat. It appeared that appreciating the quality of Bell’sBell’s playing was dependent on knowing who he is.

Psychologist Paul Bloom has written and spoken about ‘‘Bedroom tricks’‘. This is the notion that you wake up in the morning to find that you have just slept with and had sex with, not your wife, but her identical twin sister. The question he poses is – if the experience was no different to sleeping and having sex with your wife – why would it matter (other than for the divorce that might follow)? Would it matter to you, and if so, why would it matter? It would matter to most people because the revelation would be contrary to the knowledge they thought they entered the bed with.

 

What we know or think we know about a product – or anything-can dramatically affect how we respond and behave. Knowing or thinking you know can change your perception and, ultimately, your behaviour. What pre-conceptions or essence do your consumers bring to the purchase of your products?

IDEA – Ensure that consumers have the context that enables them to understand the quality of your product. Despite what they say – consumers are very poor at judging quality.

20. Cultural programming can create a yuk factor that is hard to counter.

In many Asian cultures, eating insects is commonplace. And why not? Insects are among the best sources of protein available to human beings. That aside – it will be an uphill battle to get Europeans to eat crickets. In most human cultures eating human flesh is not an option. While in most societies, it is illegal to kill a human to eat them, there are many places in the world were eating the flesh of a person who has died by natural causes is not illegal.

I would argue that even if cannibalism was clearly legal in western countries, eating human beings would remain rare. I would also argue that it will be a long time before consumers in Australia will willingly eat insects. Further, where an Australian consumer found out after eating a dish that it has insects in it, they would be appalled and might even feel sick. I remember a similar effect when I told a vegetarian that gelatine (a constituent of a lolly she was eating) was made from animal bones.

This effect is also reflected in the lengths to which the meat industry has gone to separate the product in the supermarket from the animal in the field. This distinction has been made so well that some children do not readily make the association. Slaughter yards have become meat processors – largely the help bury the notion that dinner is a cute sheep.

The research of Paul bloom suggests that this ”yuck factor” is driven by a range of factors, including:

• Religion – as is the case with Pork in the Middle East and Beef in India.
• Culture – as is the case with eating insects in Asia but not Australia.
• Nature – which might well be the case with human flesh.

Perhaps the most interesting implications of these findings include the following:

• The ”yuck factor needs to be a consideration for marketers.
• There are a range of drivers of the ”yuck factor.

It is also interesting to note that the ”yuck factor” is rarely rational. Indeed:

• Not eating Pork or beef for religious reasons is entirely irrational – and without any relevant scientific foundation.
• Not eating insects is not only irrational but arguable damaging to our health and the environment.
• Not killing human beings is very rational, but not eating human beings could be argued to be less rational.

All this from a vegetarian who considers eating any meat an unpleasant idea.

IDEA – When packaging your product and developing the marketing narrative behind it, bear in mind the cultural factors that impact perceptions. 

 FIVE TIPS FOR ENSURING YOUR MARKET BEHAVES AS YOU WANT.

Ultimately, marketing is the business of managing consumer behaviour to achieve social and commercial objectives. It is all about ensuring a target market behaves in a specified manner for the first time, more often, less often, or for the last time.

Maximising the return on the investment in marketing requires identifying the most cost-effective means of causing the required behaviour to occur with the required frequency. This requires an understanding of how consumers think and how best to influence that thinking.

Drawing on the understanding of how humans think taken from neuroscience, behavioural economics, and other research – following are 5 tips for ensuring your market behaves as you want.

21. To boost sales – stop relying on intuition. It is, at best – unreliable and at worst – wrong.

Research by Columbia University found that when presented with a choice between 24 flavours of jam – just 3% of consumers made a purchase – while by contrast – when presented with just 6 flavours of jam – 30% of consumers made a purchase. Before launching a new generation of its Olay brand, Proctor and Gamble tested 3 price points – $12.99 – $15.99 and $18.99. At $12.99, the sales were good. At $15.99, sales tanked. Finally, at $18.99, sales peaked, causing P and G to price Olay at $18.99, generating $2.4 billion with ongoing annual growth.

Both of these outcomes are considered counterintuitive. They highlight the inherent flaws in intuition – and the fact that marketing is increasingly a science. While creativity and lateral thinking are important – science and objective and critical thinking are essential for cost-effective marketing. Marketers or businesspeople who rely too heavily on intuition – have embraced one of three erroneous ideas:

• The idea that they are typical of the market and, as such, what they would do, the market will do.
• The idea that they have developed some special insight into a market by virtue of their brilliance.
• The idea that human beings are rational and, as such, will behave rationally and predictably.

The first idea is patently absurd. Very few marketers and business-people are typical of the target market they serve, and even when they are, individual differences remain. The second idea reminds me of the Dunning-Kruger effect – where smart people tend to underestimate their ability and dumb people tend to overestimate their ability. In my experience, those businesspeople with amazing intuition tend to fall in the latter group. Finally, the third idea is patently absurd. As the last series of missives in this series substantiates, consumers and indeed human beings are often irrational.

The idea that marketers and business-people have some special insights or intuition is without foundation. A 2019 study by Reach research found that marketing managers do not have an elevated ability to understand and empathise with consumers. Some 199 marketing executives completed an empathy psychometric test (the IRI – Interpersonal Reactivity Index) measuring their empathy levels both cognitively and emotionally.

Participants in the study addressed 14 statements – half addressing PERSPECTIVE TAKING and half addressing EMOTIONAL EMPATHY. The study found no differences in terms of the capacity to understand consumers – between advertising and marketing people and the general population on either criterion. However, only 30% of marketers and the general population were proficient at experiencing and accurately relating to the world from their customer’s perspective.

IDEA – Avoid relying on intuition in the absence of data. To achieve a superior return on investment – apply intuition after the data has been collected and analysed. 

22. To boost sales – stop relying on education. Its power is grossly over-rated. 

How many times have you heard people say, ‘education is the key’? I have heard it more times than I could ever recall. While this is often the case, education is not always an effective tool for managing human behaviour. All too often, people know what is right or know what they should do (they have the facts) but ignore what they ‘know’ and behave as they choose. Their behaviour is often inconsistent with their education. Consider:

• 58%of teen motor vehicle crashes are due to distraction.
• 97% of teens ‘agree’ that texting while driving is dangerous.
• 43% of teens who know it is dangerous, text anyway.

Another 2018 study looked at teen texting while driving. It found that the effects of anti-texting education are short-lived. After a short period of behaviour change, most consumers return to their usual practice of texting while driving – despite knowing the dangers.

While these two studies focused on teens, ask yourself:

• Have you ever driven under the influence of drugs or alcohol?
• Have you ever driven tired (which is as bad as driving drunk)?
• Have you ever used your phone while driving?

Education can be an important tool when managing human behaviour. However, most often, it is not enough. Education is an important starting point and little more. Managing behaviour also requires:

• An emotional connection.
• The creation of a habit.
• A nudge.

People with an emotional connection with a behaviour – want to act in a manner consistent with that behaviour. People with a habit – don’t even think about the behaviour sought. They just do it. A nudge can have the effect of causing a behaviour through a stimulus-response type process.

Each of these is discussed in the blogs that follow.

IDEA – Don’t bother with education until an emotional connection has been established. Use education to support an emotional connection.

23. To boost margins – stop relying on facts.  Facts can harden existing perceptions.

A previous blog in this series cited a study in which teenagers were educated about the dangers of texting while driving. Unfortunately, the impact of this education was small and short-lived. In this same study, the teenagers were also introduced to a once attractive woman of their own age who had been badly injured in a crash in which both of her parents were killed. A teen driver texting caused the crash. The effect of this meeting on the texting behaviour of the teens in the experiment was long-lasting – very long-lasting, indeed.

Meeting with an injured woman of their own age created an emotional connection for teens in this study and resulted in a determination to stop texting. Meeting the woman made the issue of injury caused by texting real rather than a statistic. Seeing the devastating result of texting for just a few seconds created a fear of texting while driving. The empathy with the injured woman made the dangers of texting real.

Creating an emotional connection is possibly the most effective way of causing a behaviour to occur. Education creates an understanding, but an emotional connection creates motivation. Emotional connections are also good for business more broadly. A study reported in the Harvard Business Review found that emotionally engaged customers are:

• Three times more likely to recommend.
• Three times more likely to re-purchase.
• Less likely to shop around (44% rarely shop around).
• Less price-sensitive (33% wanting a 20% discount to change).

Forrester Research found that an emotional connection:

• Facilitates a 26% increase in margins.
• Facilitates an 85% growth in sales.

Strategies for creating an emotional connection include:

• Creating a personal human connection.
• Demonstrating values consistent with the target market.
• Engaging customers in the story behind the brand.

There are few things more powerful in marketing than an emotional connection. An emotional connection will almost always have a more significant impact than a cognitive connection created by education.

IDEA –Use emotions, not facts, to change opinions based on emotional connections. Don’t bother too much with facts until an emotional connection has been established.

24. To boosting sales – embrace choice architecture. I could cost nothing and deliver everything. 

A supermarket has, on average 60,000 products or SKU’s. Some larger supermarkets have many more than this. While consumers are not, daily, choosing between all of these products, these numbers do serve to highlight the vast choice open to consumers in 2020. In her now-famous TED talk, Palo Alto discussed a supermarket with some 348 varieties of jam – another overwhelming number. It must be stressful for some customers to make a choice. Indeed, research had demonstrated that when there were 6 varieties of jam on offer – the number of people likely to buy was 6 times higher than when 24 varieties of jam are on sale.

The fact is decisions create uncertainty, and choices are often harder for consumers to make than marketers recognise. Consider your response to a menu in a Chinese restaurant with 120 items on it and one in an Indian restaurant with 20 items on it. I find Chinese restaurant menus – too hard and have little doubt that other people do too. Such menus encourage people not to read them but rather to ask the staff or buy what they always buy. With choice or decision making – more is not necessarily better. As suggested in the last blog in this series, some choices create the perception of control and motivation. The suggestion here is that too much choice is also undesirable. Research suggests that 3 – 7 options (depending on the product) are ideal with most consumer goods – with more options reducing customer satisfaction.

Limiting the options, and therefore the choices to be made is one strategy for making decision making easier. Three other strategies that can make decision making easier are:

• Making the choice concrete.
• Setting a clear deadline.
• Categorising the offering.

These three strategies for making decision making or choice easier will be addressed in the blogs that follow.

IDEA – Limit the options or choices per category to a manageable three to seven. Use science to design the product choice process – making your product easier to purchase.

25. To boost sales, prioritise fast thinking. Slow thinking is less common. 

In his book, Thinking Fast and Slow, Nobel prize-winning psychologist Daniel Kahneman identifies two types of systems of thinking:

• Fast thinking – unconscious, emotional, and instinctive thinking.
• Slow thinking – conscious, deliberate, and largely rational thought.

Fast thinking occurs in the brain stem and limbic system – without thought, making it open to the effects of prejudice and other unconscious biases. Its function is to facilitate decisions that we don’t have time to consciously ponder – such as the range of automatic thinking or decision making that occurs when we drive a car. If you consciously thought about every action when driving – you simply could not drive. It would take too long. Instead, fast-thinking tends to respond to more obvious cues.

Slow thinking is what sets human beings apart from most other animals. Occurring in the neocortex, the largest and most recent part of the human brain, Type 2 thinking is considered and deliberate. This is the kind of thinking that is more common when making important purchase decisions – like a house or a car. Instincts and emotions may still play a part in such decisions, but cognition is more common because of the dollars involved. Slow thinking often involves more complex cues.

The work of Kahneman – highlights the complexity of the human brain and the importance of understanding that complexity – including systems of thinking, when developing the optimal marketing strategy. Three of the more powerful strategy for influencing consumer decision making are:

• Leveraging instinct.
• Addressing the unconscious.
• Embrace the pain of buying.

These three issues are discussed in more detail in the blogs that follow. These blogs point to the importance of neurology ion influencing human behaviour and the marketing efficiencies that can flow from embracing what we know about the human brain.

IDEA – While not ignoring genuine thinking or ‘slow thinking’ in your marketing – prioritise ‘fast thinking’ – instinctive, emotional, and unconscious responses (which are not really thinking at all)

FIVE TIPS FOR COMMUNICATING VALUE AND MAXIMISING MARGINS

The impact on behaviour of money, value, and social responsibility may not be as predictable as many people, and indeed many businesspeople might think. All three are nonetheless important.

Following are five tips relevant to communicating value.

26. To encourage compliance, replace financial penalties with a social contract. 

It is in the best interests of day-care centres to ensure that parents pick their children up on time. Unfortunately, the behaviour of parents in this regard is variable. To examine the impact of penalties or fines on deterring the late pick up of children in day-care, researchers at the University of California studied a facility in Israel. Two groups were tested:

• Control group – parents simply asked to pick their children up at 4.00pm.
• Test group – parents fined 10 shekels (US$2.84) for a pick-up after 4.00pm.

The findings were revealing. The frequency with which parents in the control group were late and the degree of lateness in picking up their children was moderate and unchanged from before the experiment. The frequency with which parents in the test group were late and the degree of lateness in picking up children skyrocketed. Parents in the test group were late more often and more often later than the control group despite paying the penalty for that lateness.

Not only were parents in the test group worse than parents in the control group while the late charge applied – but they remained so for 17 weeks after the penalty was scrapped.

This study and several replications drew researchers to conclude that:

• Parents in the control group (and indeed parents in the test group before the experiment) viewed picking their child up from the day-care centre on time as a social responsibility or part of a social contract.
• During the experiment, parents in the test group viewed the penalty – not so much as a fine for being late – as a charge for an additional service offering. Given the moderate level of the fee ($2.84), many of these parents simply chose to pay the fee.
• By charging a late fee, the day-care centre was converting a social responsibility into a commercial transaction. While under the social contract, most parents complied, in its absence, they did not.

In this and similar studies, the researchers concluded that a late fee penalty in this kind of environment did not deter customers from inappropriate behaviour. Indeed, it tended to make the unwanted behaviour more, not less, common. When money is introduced into the equation, the nature of the transaction changed from honouring a social contract to completing a transaction.

IDEA – Consider as an alternative to financial penalties – establishing a social contract – and never diminish the power of a social contract by using financial penalties to influence behaviour. 

27. To increase margins, recognise that value is in entirely the eye of the beholder.

A $500 artwork is worth $500. As it happens, that depends on who owns the artwork and who is making the judgement of value. A 1984 study by Knetsch and Siden found that most respondents were unwilling to trade the lottery tickets they had been given – for money, despite the latter having an obvious higher and risk-free value. In another study – respondents were given a mug and then asked if they were willing to trade it for some Swiss candy that actually had a higher retail value. Some 80% of the participants were unwilling to make the trade.

These are just two examples of the entirely irrational )but all too common) ‘endowment effect’ or ‘ownership effect’ – which involves – the tendency for consumers to value an object that they own, higher than they would value if they didn’t own it – and often higher than its actual fair market value. The endowment effect is a very common phenomenon, identified in numerous studies by numerous researchers over many years. It is often linked to ‘loss aversion, where losing ‘X is found to be significantly more painful than the pleasure of being gifted ‘X.

The endowment effect has significant implications in marketing. One of the more common applications of this concept involves the free trial. A free trial puts an item in the consumer’s hands, increasing its value and triggering loss aversion. This has been tested with car dealerships and found to be highly potent. By taking a product home, consumers feel like they own it and then placed on it, a value higher than the asking price.

The fashion footwear brand Converse has a system where they work with customers to help them design their own shoes – selecting the colour scheme and patterning. This act of personalisation has been found to create a sense of ownership in the customer, which in turn means they place a higher value on the shoes they did previously and the asking price.

IDEA – Create an environment in which customers feel ownership such that they will place a higher value on your product. Involve customers in product development. 

28. To increase margins, build value into the story behind your product.

In his fabulous book, ‘How Pleasure Works’ Yale University psychologist Paul Bloom highlights several studies that have considered the impact of a story on the value of a product. One example involved a jumper that had a moderate value based on its fabric and design – but when sold as once belonging to George Clooney, had a substantial value. The story that the jumper had been owned by George Clooney significantly enhanced its value.

The back story behind a product can enhance its value. Equally, however, as the back story changes, so does the value. With George Clooney’s jumper, the value declined again, if:

• George Clooney had never actually worn it.
• George had worn it but had it washed before giving it away.
• If a condition of sales was that the story was never told.

The findings of this study and many others like it suggest that:

• A back story can significantly enhance the value of a product.
• There is an essence in the product that also increases its ‘value.’
• Stories are best when they can be retold to friends and family.

These points are also illustrated by another example cited by Bloom involving a fake Vermeer painting purchased by Herman Gering. As soon as it was found to be a fake – its value fell – despite no one being able to tell the difference between the original and the fake. They looked no different but were different in terms of story and essence. Of course, the fact that the forgery was sold to Gering by a remounted forger meant that it was worth less than the original but more than a run of the mill fake. It still had a backstory.

The fact is consumers, and indeed human beings more generally love stories. As Yuval Noah Harari points out, even the very value of money is based on a story. Money has little inherent value. The same might be said of gold and Bitcoin.

IDEA – Develop a back story, perhaps involving provenance that builds value into a product, creating an environment t in which margins can be increased. 

29. The maximise margins, remember that the arbiter of value is uninformed.

What is a wine worth? Can the average consumer tell the difference between shit and clay, wine and slop? Stanford University researchers looked into these questions, testing two groups of consumers and their wine preferences. The two groups considered wine at two price points as follows:

• Group 1
• tasted wine 1 – after being told it was a $5.00 wine.
• tasted wine 1 – after being told it was a $45.00 wine.
• Group 2
• tasted wine 2 – after being told it was a $10.00 wine.
• tasted wine 2 – after being told it was a $90.00 wine.

All respondents were asked to rate the wines in terms of quality. The findings were as follows:

• Group 1
• tasting wine 1 – after being told it was a $5.00 wine – rated it 2.25 out of 6.
• tasting wine 1 – after being told it was a $45.00 wine – rated it 3.5 out of 6.
• Group 2
• tasting wine 2 – after being told it was a $10.00 wine – rated it 2.5 out of 6.
• tasting wine 2 – after being told it was a $90.00 wine – rated it 4.1 out of 6.

In reality, only one wine was tested in this study. The differences in the rating of this wine was based on an impression driven by the only variable in the study – price. In other words, though they were drinking different wines and based their rating of the wine on the price quoted. This is just one of many studies that demonstrate that.

• Ignorant consumers often use price as a measure of quality.
• Increasing the price can increase the perception of value.
• Consumers know a great deal less about wine than they think they do.

In the absence of real knowledge, consumers will use price as a measure of quality.

IDEA – Use price as much more than a value guide. Use price as a tool to drive the perception of value – especially among uninformed consumers.  

30. To maximise margins, embrace the notion that cash is not always king. 

In his book Predictably Irrational, Dan Ariely discusses two studies that compare the value of money to the value of a product – both giving rise to surprising results. In the first study, students at Duke University were asked to complete community work, with two potential rewards:

• $30.00 cash.
• A slab of beer (valued at $30.00)

Almost all of the students participating in the study opted for the slab of beer. This was even though $30.00 could buy a slab of beer.

In another study, Ariely set up a stall in the city and on alternative Sundays gave away:

• Ice cream cones (valued at $4.00)
• $4.00 cash.

On the first Sunday, the line for a free ice cream was long. On the second Sunday, the line for the $4.00 was virtually no-existent. This was even though $4.00 could buy an ice cream.

In both of these studies, the participants chose the non-cash offer – despite the equivalence and greater flexibility of the cash option. This has been variously interpreted as follows:

Students (and almost certainly consumers more generally) do not want to be seen taking payment for a charity or community project.

Consumers are more than happy to line up for a free ice cream cone but see it as petty and inconsistent with their self-image to line up for cash.

These findings highlight again just how complex consumers are when it comes to money.

Another study highlighting this complexity is the curious IKEA effect. A 2011 study found that consumers are willing to pay 63% more for furniture they had assembled themselves than they are for equivalent pre-assembled items. Consumers place more value on something they have assembled themselves – despite and indeed because of – the additional work involved. This research suggests that consumers place a very high value on work they complete themselves.

IDEA – Understand where the value lies and what is viewed as delivering the most value. Embrace the social influences that can determine value. 

FIVE TIPS FOR GETTING YOUR CUSTOMER TO BUY YOUR PROPOSITION – PART 1

So long as the cash is available, or they are prepared to take the risk that the cash will become available, any marketer or businessperson can try and advertise their way to success. There are, however, also a myriad of smart tools that marketers can use to achieve commercial and social objectives without relying too heavily on advertising. At the very least, these smart tools can reduce the reliance on expensive advertising.

31. To drive sales – be careful not to over-estimate consumer thinking.

Eating big is all too common in Australia as indeed it is in the United States – CLICK HERE. Indeed, some 60% of adults in both countries are now overweight or obese. The habit that is overeating is all too evident at a smorgasbord. To counter this – or at least examine strategies for getting smorgasbord users to consume less, in one study – a sign reading ‘People with big dishes are inclined to eat more.’

The use of the sign saw a 50% increase in the number of people selecting a small plate – leading to nearly a third of people doing so – and those people indeed consumed less – benefiting their waste line and the restaurant’s bottom line. This significant behaviour change and the favourable outcome was achieved without patrons being told to eat less or lecturing them on the benefits of doing so.

Patrons knew that they should eat less, and many simply needed a small and harmless nudge to encourage them to take action that would help them do just that.

Another study looked at the consumption of salads by people in a smorgasbord environment. Researchers noticed that patrons tended to fill their plates with more items at the beginning of the smorgasbord, and much fewer items at the end of the smorgasbord – and salads tended to be at the end. Placing the salads at the beginning of the smorgasbord caused patrons to load up at the beginning – but this time with salad.

This demonstrates how effective nudges can arise from the simple observation of consumer behaviour and then making minor changes to leverage behaviour traits. Nudges do not necessarily need to be contrived. They can also involve leverage or even exploiting established behaviours.

For readers familiar with merchandising, the last example will be no surprise. Taking M&Ms off the display and placing them in an opaque box on the smorgasbord line – calorie intake was found to decrease by 9% in just the first week. This is yet another example of how consumer behaviour can be altered simply by making small changes based on observation of existing behaviours.

All of these three studies took place at an office of Google in the United States. They were part of a series of experiments designed to encourage staff to be healthier. These are sound examples of using a nudge in a social context – although the outcomes also have commercial implications. These are also examples of how human behaviour can be observed, understood and leveraged.

INSIGHT – Instead of telling your customers what to do, try a gentle nudge or psychological trigger. Understand your consumer well enough to be able to identify practical triggers. 

32. To maximise repeat purchasing – instead of educating, create habits. 

If you still believe that education is the key to managing or influencing consumer behaviour, consider – 14% of Australians still smoke; 70% of Australians increased their alcohol consumption during the COVID-19 lockdown, and you still drive home late at night straining to keep your eyes open.

A powerful strategy for influencing or managing human behaviour involves helping people to develop new habits. Habits are so strong that they often endure when memory is lost. Many studies have found people with dementia completing tasks they cannot remember or could not explain how they completed. Habits happen in a different part of the brain to memory – and they are largely automatic – making them beneficial for sales.

After all of the investment in anti-smoking campaigns, the fact that 14% of adult Australians still smoke is not only a sad demonstration of the limitations of advertising, but it also provides an insight into the power of habits. Create a strong enough habit, and people will keep on repeating it in the face of significant opposition. The habit of smoking is supported by up to 100 associated or ancillary habits. These include when a cigarette is lit, how it is held, and how it is smoked. Smoking is, in truth, a complex group of habits rather than one big habit.

Smoking is an undesirable habit – but it is no different in structure to other habits and involves three critical components:

A cue.

A routine.

A reward.

Further, there are few things more conducive to ongoing sales than a habit. Exceptional marketing campaigns often seek to create a habit, often an unconscious habit, by creating a cue, a routine, and a rewarding scenario for members of the target audience. One of the more famous examples of powerful habit creation was the launch of Pepsodent toothpaste – the most successful launch of all time. This campaign created the habit of nightly teeth cleaning.

INSIGHT – use a cue, a routine, and a reward to create a habit that automatically causes the market to buy and then repeat purchase your brand. 

33. To drive sales – stop fearing and start leveraging consumer biases.

Therefore, anyone who suggests human beings and, therefore, consumers are rational is lying, delusional, stupid, or all three. Human beings are anything but rational – but at least they are ‘Predictably Irrational’ – or so says Duke University Professor and psychologist – Dan Ariely. Much, though not all, of the irrational behaviour of consumers, is facilitated by one or more biases. The most common biases are:

• Authority effect – thinking something is actually because it came from a respected source
• Exposure effect – a tendency to view products you are exposed to as superior.
• Decoy effect – where a decoy impacts the perception of two credible options.
• Recency effect – considering the most recently heard facts as more reliable.
• Framing effect – being influenced by how a proposition is framed.
• Correlation bias – acting as if correlation means causation – when it does not.
• Bandwagon effect – it must be the best choice if most people do it.
• Post-purchase effect – only considering confirming data after a purchase is made.
• Humour effect – being more inclined to remember that which is funny.
• Availability bias – tending towards options where there is more information available.
• Loss-aversion – being more attracted to limiting losses than making gains.
• Ambiguity bias – more inclined to pay attention to risk than reward.

There is, alas, no such thing as an entirely rational human being or consumer. We are all subject the one or more of a variety of biases – only 10 of which are listed here. Fortunately, as well as being a problem, biases can be an opportunity – provided they can be leveraged. Natural biases can be leveraged by, for example:

• Creating social norms
• Creating a decoy
• Creating an authority

Each of these opportunities will be addressed in the blogs that follow. For now, the critical issue is to be aware that humans are not rational – but at least they are predictably irrational.

INSIGHT – There is no such thing as a consumer not affected by biases. Rather than trying to counteract these biases – consider leveraging them. 

34. To drive sales – create and leverage social norms. Humans are sheep.

In 1945 –72% of male and 26% of female adult Australians smoked. By 1980 some 35% (41% of men and 30% of women) of adult Australians smoked. In 2020, just 13.8% of adult Australians (about 16% of men and 12% of women) smoked. These numbers suggest that women are smarter than men when it comes to avoiding bad habits. They also highlight the fact that smoking rates have declined markedly since 1945 – especially among men.

Much of the decline in smoking rates can be attributed to anti-smoking legislation and campaigns. That said, research has also found that the health warnings while impacting the behaviour of smokers, did not impact as strongly as changes in social norms. Between 1945 and 2020, smoking went from being a social norm and expectation to a social ill. In 1945 it was expected that adults and, in particular, men would smoke. In 2020 it was considered a bad form for men or women to smoke. As much as it might have changed the behaviour of individuals, anti-smoking campaigns created a new social norm and created an expectation that smart people will not smoke.

Smoking rates were high in 1945 when smoking was an expectation, and they are low in 2020 when smoking is considered stupid behaviour. This shift demonstrates the power of social norms. Social norms are compelling indeed, and the creation of social norms is among the most powerful tools available to marketers. Consider these two examples from the research:

A jam display in a supermarket attracted almost not viewers and even fewer sales. In response, the researchers had several people stand in front of the display, reading the labels. This resulted in a massive increase in the number of shoppers who stopped and drove sales. Shoppers like all consumers, and indeed humans are, in fact – sheep.

In a hotel, patrons were asked to reuse bathroom towels to save water and energy and, in so doing, be environmentally responsible. Less than a third complied with the request. A second group were told that they should reuse bathroom towels like 80% of patrons too. Reuse rates rose to around 70%. Patrons wanted to behave as other patrons did.

Human beings are social animals, and they are drawn to behave as their fellow humans behave. As such, creating a social norm can be a powerful marketing tool. Leveraging the social norm bias can be very powerful indeed. The social norm bias can be summarised as follows – ‘if everyone else is doing it, then it must be the right thing to do’. Social norms can be created in numerous ways, including:

• Using high profile influencers
• Facilitating social media comment
• Communicating stories
• Engaging in relevant partnerships

In addition to immediate sales, social norms can deliver long term behaviour change and repeat sales.

INSIGHT – Create a social norm or the perception that behaviour is consistent with social standards. While claiming to be individuals, most consumers are sheep.  

35. To drive sales – create and leverage a respected authority figure.

It is common knowledge that consumers are increasingly turning to the internet to research products they might purchase. It might, however, be less well known that some 54% of consumers use social media to complete that research. Consumers seem to view that people on social media can be trusted and represent a credible authority, at least in so far as comments regarding a product are concerned. This is why 91% of major brands use two or more social media channels.

Socialite Kim Kardashian has amassed a fortune in excess of US$72 million – not bad for a woman whose only talent appears to be recommending products online. Kardashian is among the worlds leading influencer marketers. She purports to be an authority on beauty and related products – and people, it would seem, take her advice and buy the products in significant numbers.

Consumers actively look for authorities – people they trust – to tell them what is best to buy – triggering the authority bias – ‘if Kim buys it, then I,t must be good and I should buy it. The ‘authority bias’ is somewhat different to the ‘celebrity effect’. Denis Lillee selling Steel Blue work boots (about which he knows nothing) and Ita Buttrose selling St Ives retirement villages (about which she knows little) are examples of the celebrity effect –. In contrast, Kim Kardashian (apparently a woman of style) selling fashion or Anthony Bourdain (a celebrity chef) selling a food destination are examples of the ‘authority bias’.

There is a natural human bias towards relying on people we believe are authorities – people we trust to give reliable, sound advice. Leveraging the human predisposition to rely on authorities might involve:

• Identifying and engaging credible authority figures
• Employing those authority figures to recommend the brand
• Communicating relevant messages online and offline.

This is a tried and proven strategy. Suffice to say here that it still works – especially where the authority is seen as being knowledgeable about the product at hand.

INSIGHT – Instead of engaging in celebrity marketing, consider engaging with a trusted authority and believing the target consumer.

Advertising is not always the best or most cost-effective way forward. There are many more effective ways of influencing consumers to purchase, pay more and buy again.

FIVE TIPS FOR GETTING YOUR CUSTOMER TO BUY YOUR PROPOSITION – PART 2

So long as the cash is available, or they are prepared to take the risk that the cash will become available, any marketer or businessperson can try and advertise their way to success. There are however, also a myriad of smart tools that marketers can use to achieve commercial and social objectives without relying too heavily on advertising> at the very least these smart tools can reduce the reliance on expensive advertising.

36. To drive sales – be careful not to over-estimate consumer thinking.

Eating big, is all too common in Australia as indeed it is in the United States – CLICK HERE. Indeed, some 60% of adults in both countries are now overweight or obese. The habit that is overeating is all too evident at a smorgasbord. To counter this – or at least examine strategies for getting smorgasbord users to consume less, in one study – a sign reading ‘People with big dishes are inclined to eat more.’

The use of the sign saw a 50% increase in the number of people selecting a small plate – leading to nearly a third of people doing so – and those people indeed consumed less – benefiting their waste line and the restaurants bottom line. This significant behaviour change and favourable outcome was achieved without patrons being told to eat less or lecturing them on the benefits of doing so.

Patrons knew that they should eat less and many simply needed a small and harmless nudge to encourage them to take action that would help them do just that.

Another study looked at the consumption of salads by people in a smorgasbord environment. Researchers noticed that patrons tended to fill their plates with more of the items at the beginning of the smorgasbord and much less of items at the end of the smorgasbord – and that salads tended to be at the end. By placing the salads at the beginning of the smorgasbord it was again found that patrons loaded up at the beginning – but this time with salad.

This demonstrates how effective nudges can arise from the simple observation of consumer behaviour and then making small changes to leverage behaviour traits. Nudges do not necessarily need to be contrived. They can also involve leverage or even exploiting established behaviours.

For readers familiar with mechandising, the last example will be no surprise. By taking M&Ms off display and placing then in an opaque box on the smorgasbord line – calorie intake was found to decrease by 9% in just the first week.  This is yet another example of how consumer behaviour can be altered simply by making small changes based on observation of existing behaviours.

All of these three studies took place at an office of Google in the United States. They were part of a series of experiments designed to encourage staff to be healthier. These are sound examples of using a nudge in a social context – although the outcomes also have commercial implications. These are also examples, of how human behaviour can be observed, understood and leveraged.

INSIGHT – Instead of telling your customers what to do, try a gentle nudge or psychological trigger. Understand your consumer well enough to be able to identify effective triggers.

37. To maximise repeat purchasing – instead of educating, create habits.

If you still believe that education is the key to managing or influencing consumer behaviour, consider the 14% of Australians who still smoke; the 70% of Australians who increased their alcohol consumption during the COVID-19 lockdown; or the last time you drove home late at night straining to keep your eyes open.

A powerful strategy for influencing or managing human behaviour involves helping people to develop new habits. Habits are so strong that they often endure when memory is lost. Many studies have found people with dementia completing tasks they cannot remember how to do or could not explain how they completed. Habits happen in a different part of the brain to memory – and they are largely automatic – making them beneficial for sales.

After all of the investment in anti-smoking campaigns, the fact that 14% of adult Australians still smoke is not only a sad demonstration of the limitations of advertising, but it also provides an insight into the power of habits. Create a habit that is strong enough, and people will keep on repeating it in the face of significant opposition. The habit of smoking is supported by up to 100 associated or ancillary habits. These include when a cigarette is lit, how it is held, and how it is smoked etc. Smoking is, in truth, a complex group of habits rather than one big habit.

Smoking is an undesirable habit – but it is no different in structure to other habits and involves three critical components:

• A cue.
• A routine.
• A reward.

Exceptional marketing campaigns often do seek to create a habit, often, an unconscious habit, by creating a cue, a routine, and a reward scenario for members of the target audience. Further, there are few things more conducive to ongoing sales than a habit. One of the more famous examples of powerful habit creation was the launch of Pepsodent toothpaste – the most successful such launch of all time. This campaign created the habit of nightly teeth cleaning.

INSIGHT – Use a cue, a routine, and a reward to create a habit that causes the market to buy and then repeat purchase your brand automatically.

38. To drive sales – stop fearing and start leveraging consumer biases.

Anyone who suggests human beings and, therefore, consumers are rational is lying, delusional, stupid or all three. Human beings are anything but rational – but at least they are ‘Predictably Irrational’ – or so says Duke University Professor and psychologist – Dan Ariely. Much, though not all, of the irrational behaviour of consumers is facilitated by one or more biases. The most common biases are:

• Authority effect – thinking something is true because it came from a respected source
• Exposure effect – a tendency to view products you are exposed to as superior.
• Decoy effect – where a decoy impacts the perception of two credible options.
• Recency effect – considering the most recently heard facts as more reliable.
• Framing effect – being influenced by how a proposition is framed.
• Correlation bias – acting as if correlation means causation – when it does not.
• Bandwagon effect – it must be the best choice if most people do it.
• Post-purchase effect – only considering confirming data after a purchase is made.
• Humour effect – being more inclined to remember that which is funny.
• Availability bias – tending towards options where there is more information available.
• Loss-aversion – being more attracted to limiting losses than making gains.
• Ambiguity bias – more inclined to pay attention to risk than reward.

There is, alas, no such thing as an entirely rational human being or consumer. We are all subject the one or more of a variety of biases – only 10 of which are listed here. Fortunately, as well as being a problem, biases can be an opportunity – provided they can be leveraged. Natural biases can be leveraged by, for example:

• Creating social norms
• Creating a decoy
• Creating an authority

Each of these opportunities will be addressed in the blogs that follow. For now, the critical issue is to be aware that humans are not rational – but at least they are predictably irrational.

INSIGHT – There is no such thing as a consumer not effected by biases. Rather than trying to counteract these biases – consider leveraging them.

39. To drive sales – create and leverage social norms. Humans are sheep.

In 1945 –72% of male and 26% of female adult Australians smoked. By 1980 some 35% (41% of men and 30% of women) of adult Australians smoked. In 2020, just 13.8% of adult Australians (about 16% of men and 12% of women) smoke. These numbers suggest that women are smarter than men when it comes to avoiding bad habits. They also highlight the fact that smoking rates have declined markedly since 1945 – especially among men.

Much of the decline in smoking rates can be attributed to anti-smoking legislations and campaigns. That said, research has also found that the health warnings, while impacting on the behaviour of smokers did not impact as strongly as changes in social norms. Between 1945 and 2020, smoking went from being a social norm and expectation to a social ill. In 1945 it was expected that adults and in particular men would smoke. In 2020 it is considered bad form for men or women to smoke. As much as it might have changed the behaviour of individuals, anti-smoking campaigns created a new social norm and created an expectation that smart people will not smoke.

This shift demonstrates the power of social norms. Smoking rates were high in 1945 when smoking was an expectation, and they are low in 2020 when smoking is considered a stupid behaviour. Social norms are very powerful indeed, and the creation of social norms is among the most powerful tools available to marketers. Consider these two examples from research:

• A jam display in a supermarket attracted almost not viewers and even fewer sales. In response the researchers had a number of people stand in front of the display reading the labels. This resulted in a massive increase in the number of shoppers who stopped and drove sales. Shoppers like all consumers, and indeed humans are in fact – sheep.
• In a hotel, patrons were asked to re-use bathroom towels in order to save water and energy and in so doing be environmentally responsible. Less than a third complied with the request. A second group were told that they should reuse bathroom towels like 80% of patrons to. Reuse rates rose to around 70%. Patrons wanted to behave like other patrons did.

Human beings are social animals, and they are drawn to behave as their fellow humans behave. As such creating a social norm can be a powerful marketing tool. Leveraging the social norm bias can be very powerful indeed. The social norm bias can be summarised as follows – ‘if everyone else is doing it, then it must be the right thing to do’. Social norms can be created in numerous ways including:

• Using high profile influencers
• Facilitating social media comment
• Communicating stories
• Engaging in relevant partnerships

In addition to immediate sales, social norms can deliver long term behaviour change and repeat sales.

INSIGHT – Create a social norm or the perception that a behaviour is consistent with social norms. While claiming to be individuals, most consumers are sheep. 

40. To drive sales – create and leverage a respected authority figure.

It is common knowledge that consumers are increasingly turning to the internet to research products they might purchase. It might however be less well known that some 54% of consumers use social media to complete that research. Consumers seem to hold the view that people on social media can be trusted and represent a credible authority, at least in so far as comments regarding a product are concerned. This is why 91% of major brands use two or more social media channels.

Socialite Kim Kardashian has amassed a fortune in excess of US$72 million – not bad for a woman whose only talent appears to be recommending products online. Kardashian is among the worlds leading influencer marketers. She purports to be an authority on beauty and related products – and people it would seem, take her advice and buy the products in significant numbers.

Consumers actively look for authorities – people they trust – to tell them what is best to buy – triggering the authority bias – ‘if Kim buys it, then it must be good and I should buy it’. The ‘authority bias’ is somewhat different to the ‘celebrity effect’. Denis Lillee selling Steel Blue work boots (about which he knows nothing) and Ita Buttrose selling St Ives retirement villages (about which she knows little) are examples of the celebrity effect – whereas Kim Kardashian (apparently a woman of style) selling fashion or Anthony Bourdain (a celebrity chef) selling a food destination are examples of the ‘authority bias’.

There is a natural human bias towards relying on people we believe are authorities – people we trust to give sound reliable advice. Leveraging the human predisposition to rely on authorities might involve:

• Identifying and engaging credible authority figures
• Engaging those authority figures to recommend the brand
• Communicating relevant messages online and offline.

This is a tried and proven strategy. Suffice to say here that it still works – especially where the authority is seem as being knowledgeable about the product at hand.

INSIGHT – Instead of engaging in celebrity marketing, consider engaging an authority who is trusted and will be believed by the target consumer.

 Advertising is not always the best or most cost-effective way forward. There are many more effective ways of influencing consumers to purchase, pay more and purchase again.

 FIVE TIPS FOR GETTING YOUR CUSTOMER TO BUY YOUR PROPOSITION – PART 3

So long as the cash is available, or they are prepared to take the risk that the cash will become available, any marketer or businessperson can try and advertise their way to success. There are, however, also a myriad of smart tools that marketers can use to achieve commercial and social objectives without relying too heavily on advertising. At the very least, these smart tools can reduce the reliance on expensive advertising.

41. To change consumer behaviour – stop threatening or frightening – and start engaging. 

An ANU study found that 20% of adult Australians drank more during May 2020 – one of the months during which the CIVID 19 pandemic was in full swing. Another study reported by the ABC found that 70% of Australians increased their alcohol consumption during the pandemic (starting in March). Whatever the true figure – it is apparent that many people increased their consumption of alcohol during the pandemic, despite alcohol restrictions in some states and the threats of:

• Unemployment or at least a lower income in the months ahead.
• Health issues arising from increased alcohol consumption.

There is little doubt that a percentage of the population do respond to threats. Indeed, many people have reduced alcohol consumption or stopped smoking because of the threatened damage to their health. However, it is equally evident that many people do not respond well (in the way we want) to threats. Indeed, a body of neurological research talks about the ‘boomerang effect’ where threats have the contradictory effect of increasing consumption. This latter group don’t just ignore threats. Many of them react to it negatively – partly due to the high number of threat neural pathways in the brain.

It might make intuitive sense that threats will change behaviour, and they can most certainly contribute – with some consumers at least. But more often than not, threats are not enough to change ingrained habits, and in some cases, threats are counterproductive. The literature suggests that the preferred approach involves offering or highlighting the rewards of the preferred behaviour. That is, it is generally more productive to highlight the benefits of low alcohol consumption than it is to highlight the negatives of high alcohol consumption. It is better to promote the benefits of a clear head than to highlight the threat of liver cancer (which many think will never happen to them).

This tip is especially pertinent in 2021 as commercial television screens emit images of an actor pretending to be a COVID 19 victim gasping for breath. In addition to falling prey to the folly of using fear to change behaviour, this commercial has the added problems of lacking authenticity – and being run at a time when the vaccines are not available for young people – even if they want to be vaccinated. This is an example of lazy advertising.

INSIGHT – Prioritize rewards over threats. Where possible, avoid threats and the use of fear to influence consumer behaviour. Instead, authentically highlight the benefits.

42. To drive repeat business – support long term rewards with short term rewards.

In a Stanford University study completed between 1965 and 1969, children sat in a room for 10 minutes with a treat just in front of them on the table. They were told that they could eat the treat or wait 10 minutes and get two treats. The result was that 30% of children waited just 30 seconds before consuming the treat. Only 30% could wait the 10 minutes required to get two rather than just one treatment. This landmark study and others replicating it have been used to predict all kinds of life outcomes from weight to wealth. This study highlighted one critical issue – human beings struggle with delayed gratification.

Likely, human beings have always struggled with delayed gratification. However, it is also apparent that the inclination towards immediate gratification (I want it now) is growing year on year. In 2020 the resistance to delayed gratification was reflected in the:

• Ongoing resistance to invest in superannuation.
• The resistance to address climate change.
• Difficulties associated with saving a deposit.

Many consumers are resistant to investing in the long-term benefits of superannuation – beyond the mandatory level. Consumers are reluctant to address climate change, given that the effects cannot be held now. Resisting breakfast out each Saturday and Sunday is a big call for many young people saving for a home deposit. These are examples of irrational behaviour in many respects, but humans are irrational – albeit predictably so.

The solution to encouraging consumers to accept short term pain for long term gain is to accept that it is very difficult, if not impossible, to encourage the majority of human beings to delay gratification. The solution lies in bringing some of the gratifications forward. For the three examples noted above, this might involve (among numerous options):

• Creating competitions with immediate prizes for higher investments in superannuation.
• Delivering a superior level of overt social acceptance to people who act on climate change.
• Allowing people to rent and buy a property – so they can enjoy it even before paying.

Research suggests that these short-term rewards do not need to be huge, but they do need to be frequent and consistent.

INSIGHT – Remember that most consumers think short term most of the time. In addition to any long-term rewards, consider offering frequent short-term rewards.

43. To engage your target audience – give them real or perceived control.

A study by Energy Economics reported in 2018 found that when domestic electricity users have real-time information regarding energy consumption leads to a reduction in demand of 20%. Savings were largely delivered by shifting some power usage into off-peak periods where charges are lower. This study demonstrated that information could deliver a greater level of control and motivate consumers to take action to reduce energy consumption. This demonstrated both the power of information and the impact of control.

Information can empower consumers to take control of aspects of their lives and indeed their purchase decisions by giving them a sense of control. That sense of control (real or perceived), in turn, motivates consumers to take action. Research suggests that perceived control also feeds into a greater sense of happiness.

Research also suggests that in commerce, choice is also a significant driver of the perception of control and, therefore, an antecedent of motivation (perhaps to purchase) and happiness (or satisfaction). Research has found that choice can be an important facilitator of control and that consumers find this control liberating and motivating.

Research in the United Kingdom found that senior public servants are significantly happier and significantly more motivated than junior public servants. Surprisingly enough, this was not found to be income-related. Rather, it was found to be related to the perceived level of autonomy or control that senior public servants feel they have and the lack of both that lower-level public servants believe they have. Again – control motivates.

The reality is that human beings have very little control over their lives. Despite this, or perhaps because of it, consumers respond very positively to control wherever they can find it. Indeed, research suggests that the panic buying at the beginning of the COVID 19 pandemic was as much due to a desire for control (in an environment in which there is little control) as concerns about running out.

Human beings crave control. Deliver them control (real or perceived), and they will be more motivated to act as you want.

INSIGHT – Ensure your target market has the real-time information, choice, and flexibility they need to feel that they are in control. 

44. To drive sales – make decision making easier by setting deadlines. 

The literature suggests that there are four common reasons why consumers procrastinate before taking action:

• They are overwhelmed – a point addressed in previous blogs in this series.
• The timing is wrong.
• Dislike of the task or lack of real interest in the purchase.
• No sense of urgency.

The last of these reasons are addressed here. Decisions take longer when there is no sense of urgency, and indeed, decisions seem harder when there is no sense of urgency. Setting a deadline and creating a sense of urgency, on the other hand, reduces the decision-making time and makes decision-making (perversely) easier.

Over the years, much has been written about Parkinson’s Law – which theorizes that work expands to fill the time available for completion. In other words, consumers will take more time to decide if they have more time to make it – and they will make a decision faster and with greater ease if there are strict time constraints. In a commercial environment, this has implications in terms of the following propositions:

• 50% off until Friday
• Strictly limited season
• Order by Wednesday

In each of these cases, a sense of urgency, and indeed scarcity has been created. The consumer has been given a strict time limit within which a decision to purchase or not purchase needs to be made. While setting a deadline will not ensure that the preferred product is purchased, it will have the effect of simplifying decision making – or making it easier to choose.

INSIGHT – Embrace Parkinson’s Law and set clear deadlines, knowing that deadlines make decision making easier by creating a sense of urgency.

45. To drive sales – make it easier to purchase by categorizing. 

Choices involved decisions, and decisions create uncertainty. When there is uncertainty, human decision making slows and becomes more difficult. Making decisions easier reduces uncertainty and can have the effect of decreasing decision-making time and increasing consistency and satisfaction. There are many ways to make decision making easier, with three of them being – making it concrete, setting a deadline and categorizing products. The first two were addressed in previous blogs. The third is addressed here.

Consider two scenarios:

• 600 magazines divided into 10 categories.
• 400 magazines divided into 20 categories.

Consumers consistently consider the second of these two options to:

• Offer more choice and, as such, create a greater sense of control.
• Make a choice easier and deliver a higher level of customer satisfaction.

Research has demonstrated time and again that creating more discrete categories of a product – rather than increasing the number of products creates the greatest sense of choice – while at the same time making a choice easier. There is also a body of research that demonstrates that creating a new category of product can be a powerful strategy for differentiating a new product or brand from the current range on the market – again highlighting the value of category management.

All of this research highlights the importance of product or brand categories and how the management of those categories can differentiate, make a choice easier and increase customer satisfaction. On one level, a Prius is a car that, like any other car – gets you from A to B. It might even be considered a stylish car that gets you from A to B. On this basis, however, the Prius has hundreds of competitors – making a choice difficult and lowering satisfaction upon purchase. (you will forever be asking – ‘did I make the right choice, and were their other options I should have looked at?’). On the other hand, the Prius might be categorized as an electric vehicle – in which case it has only 10s (if that) of competitors – making a choice easier and satisfaction more likely. If it is further recategorized as the car that responsible environmentalists drive – it might have no direct competitors – making a choice very easy indeed.

INSIGHTS – When developing your product mix – place a higher priority on the number of categories than on the number of products on offer. 

Advertising is not always the best or most cost-effective way forward. There are many more effective ways of influencing consumers to purchase, pay more and purchase again.

FIVE TIPS FOR GETTING YOUR CUSTOMER TO BUY YOUR PROPOSITION – PART 4

So long as the cash is available, or they are prepared to take the risk that the cash will become available, any marketer or businessperson can try and advertise their way to success. There are, however, also a myriad of smart tools that marketers can use to achieve commercial and social objectives without relying too heavily on advertising. At the very least, these smart tools can reduce the reliance on expensive advertising.

46. To Drive sales – make decisions more concrete.

It is most instructive to consider the extraordinary growth and success of Tesla. Founded in 2003, in June 2020, the business had a market capitalisation of US$185 billion. By market capitalisation, Tesla is in 2020, the second-biggest automotive company on earth – achieved in 7 years. The largest is Toyota – founded in 1936.

Clearly, some of this market capitalisation is based on estimates of future car sales rather than current car sales, given that in car sales – Tesla ranks seven. That said, being the seventh-largest automotive company in the world after 17 years is good going by any standards – other than perhaps those of Elon Musk.

So why has Tesla been so successful? No doubt there are several reasons, most of which are not relevant to this discussion. Of particular relevance, however, is the tangible difference between Tesla and most of its competitors. Tesla offers:

• A 100% electric-only motor – ensuring that at least for now it has few competitors.
• A distinctive design – that sets it apart from almost all of its direct competitors.
• Superior technology – with a range of nearly 400klm – well ahead of others.

Moreover, these factors and several others, including the direct sales of vehicles and the charisma of the biggest shareholder, make the differences between Tesla and its competitors – absolutely concrete. It is very different to Toyota, Hyundai, Kia and Nissan when for most of their vehicles, the differences are more subjective and not at all concrete. At the same time, the Tesla does not suit everyone – those that like them appreciate their uniqueness and concrete differences.

Choice is easier where differences are concrete. Choices are easier where differences are concrete. Consider, for example, three products where direct comparisons are difficult because the differences are anything but concrete:

• Telephone and internet contracts.
• Health insurance arrangements.
• Superannuation products

Choices in these three industries are so much harder because differences and indeed features per se are not concrete.

INSIGHT – Differentiate products as concretely as possible to make it as easy as possible for your target market to choose to buy your product.

47. To drive sales – leverage instincts and intuitive thinking.

If you believe that human decision making is largely rational, you live in ‘cloud cuckoo land.’ If you believe that most human decision-making is thoughtful, you are right out of touch with reality. If you think that any human decision – and in particular purchase decision is entirely rational – you are just plain wrong. Research suggests that 90% of human decision making is largely emotional, and almost all decision making is influenced by emotion. In other words – most purchase decisions are made using predominantly ‘fast thinking’ – a system of thought discussed in the last blog in this series.

Because fast thinking is fast and based on emotion, it often leads to poor judgements and is far more impacted by bias and heuristics. At the same time, it is often easier to appeal to, especially where there is an understanding of what it responds to. Fast or automatic decision making is most common with:

• Low-value purchases – such as chocolate bars.
• High-frequency purchases – such as newspapers.
• Low engagement purchases – such as tissues.

With products in these categories, intuition plays a significantly more significant role in decision making than conscious thought. Fast or automatic thinking and instinct can be leveraged by:

• Appealing to heuristics and biases.
• Emotional connections.
• Ease of purchase.

All human beings are impacted by heuristics and biases (recency, availability, confirmation, hindsight etc.) and playing directly to these biases can be very powerful in influencing fast thinking. The ethics of doing this warrant consideration, but the effectiveness of leveraging biases is clear. Few things are more powerful motivators of human behaviour than emotions. Politicians are past masters at appealing to the emotions that drive fact or instinctive thinking – as is so often reflected in their passion for three-word slogans (‘Stop the Boats’) – slogans we can connect to emotionally and will not think too deeply about. If a product is to appeal to fast thinking, it must be easy to purchase – because if it is not easy to purchase, the consumer has to apply slow thinking to make the purchase. In 2020 ‘convenience’ is more important than ever, and maximising convenience facilitates fast thinking.

INSIGHT – Recognise that consumers are not rational and that few decisions are made based on facts. Embrace human emotions and leverage them to maximise sales. 

48. To maximise sales – minimise the pain of buying.

There is almost always pain associated with making a purchase. Apart from anything else, there is pain associated with the requirement to part with money. Research suggests that almost regardless of the sector, there are three categories of buyers, at least in so far as the pain they experience when making a purchase. They are:

• Unconflicted – 61%.
• Tightwads – 24%.
• Spendthrifts – 15%.

Unconflicted customers are average spenders. Their ‘buying pain’ takes time to kick in. Tightwads are people who will spend less than average. Their ‘buying pain’ kicks in early. Spendthrifts are big spenders. They tend to spend a lot more before ‘buying pain’ sets in. The group that offers the low hanging fruit is ‘Spendthrifts’, while the group that will be most difficult to convert and sell up is the ‘Tightwads’. Given that all markets tend to have all three groups and that these dispensations are hard-wired in the human brain (which they most certainly are), it is helpful to determine which category each customer falls into. Simple questioning can usually facilitate this identification.

It seems especially important to be able to identify ‘Tightwads’ given that they represent about a quarter of the market. Identifying ‘Tightwads’ can facilitate implementation of customised strategies Including but not limited to:

• Reframing value – instead of $1000 – $84/ month for 12 months.
• Reduce pain – perhaps by bundling products in the way telco’s do.
• Sweat the small stuff – instead of a $5 fee’ – ‘a tiny $5’.

It is important to know the questions needed to identify which category each customer is drawn from. These categories seem to be hard-wired in the brain. They may warrant a different marketing or sales approach, especially given that there is no evidence to suggest that an individual can be moved from one category to another.

INSIGHT – Remove every barrier or potential barrier to making a purchase. Make purchasing as easy and as self-evidently intuitive as possible.

49. To leverage relationships – get personal and engage individuals ahead of cohorts.

One of the most significant trends in marketing over the last five years has been the growth in and expectation of consumers for – personalisation. Research suggests that 80% of consumers are more likely to buy when they have a personalised experience. In response to this trend, marketers using a high level of personalisation credit it with a 20% increase in sales. Personalisation works, and marketing automation can be used to make personalisation work even more effectively and inexpensively—the more personalised the marketing – the better.

Personalisation can and should apply wherever possible. It is especially relevant with:

• Direct mail and particularly e-mail (EDM).
• Lead management experiences.
• Website interactions – perhaps using geo-location technology or a log in facility.
• Telephone enquiries, sales and follow-ups.
• Face to face sales interactions.
• The ‘in-business’ customer experience.

A feature of the 2000s is that we have the data required to personalise marketing – and a feature of the marketing of highly successful businesses like Apple, Amazon and Facebook, is that they actively gather and leverage data that facilitates personalisation. This is a feature of most of their marketing.

Automation driven personalisation can also reduce waste and, as such, improve the cost efficiency of the marketing – by ensuring that the right person gets the right message in the right way.

Research suggests that personalised marketing increases enquiries, conversion rates, the average sale, margins, repeat business rates and referral rates – due largely to higher levels of attention and engagement on the part of enquirers, new customers and past customers. It achieves this by:

• Grabbing attention – the human senses respond more actively to personalisation.
• Holding attention – human beings engage better with personalised experiences.
• Positive feelings – human beings feel good when experiences are for them.
• Building loyalty – human beings are more loyal when they have a personal connection.
• Enhanced advocacy – human beings talk more about personalised experiences.

Important drivers of the personalisation in marketing are the human needs for:

• Significance
• Connection
• Growth

Each of these drivers of personalisation will be discussed in the blogs that follow.

INSIGHTS – Use the growing availability of digital technology to personalise all aspects of your marketing, leveraging fully the human needs for significance.

50. Drive lifetime value – establish and leverage a brand community.

In 2019, research suggested that 61% of corporations in the United States have set up or are in the process of setting up a brand community.

A brand community is defined as a community formed based on attachment to a product or marque. Recent developments in marketing and research in consumer behaviour highlight the connection between brand, individual identity and culture’. (Wikipedia)

The strengths of a brand community are many and include:

• They build loyalty and evangelism.
• They facilitate feedback and meaningful conversation.
• They can significantly reduce the cost of communication.

The limitations of a brand community include:

• They can attract a limited range of people and limit your market reach.
• Feedback is often skewed, with the most passionate being the most vocal.
• They can take a significant period and patience to build.

Making a brand community work well is supported by:

• Creating a safe place for one to develop and for communication.
• Nurturing the community with frequent communication and engagement.
• Providing tangible incentives for community membership.

The real problem for many businesses with a brand community is that they take considerable time to develop and ongoing resources to realise their potential.

A recent survey found that members of an online community or brand community spent 19% more than customers from outside the community. This reflects the findings of another study in which 70% of members felt a brand community significantly improved brand exposure.

Three of the requirements for a brand community are:

• A leader.
• An audience
• Outsiders

Manchester United is the archetypal general community comprising some 660 million members and generating some $776 billion US revenue. Manchester United has:

• A leader in the brand.
• Followers in the form of members.
• Outsiders in the form of supporters of other clubs.

The brand, represented by the management and coach, sets the vision and values, providing direction and the environment in which members can engage.

Followers, the primary target market, are those people with sufficient interest in the vision and values to join and engage with the brand and other members.

The outsiders, possibly considered the ‘enemy’ or those that members rally against, are vital because they galvanise them.

A community is a tribe, and every tribe has a leader. Of course, there would be little point in having a leader without followers, and followers tend to unite against outsiders.

INSIGHT – Develop online, and potentially offline – a safe place to engage and build relationships with customers and potential customers. 

Consumers are not rational – but their irrationality is entirely predictable. It can and must be understood. It can and should also be leveraged. Next week we will touch on the irrationality of marketers and businesspeople in general.

FIVE TIPS FOR MAKING BETTER MARKETING AND BUSINESS DECISIONS 

A great deal has been written here and elsewhere about the irrational behaviour of consumers. However, it is also important to remember that marketers and businesspeople, in general, are also consumers, or at the very least human beings and as such inclined to be irrational. Further, there is ample evidence to suggest that the best decisions in business are made rationally, and as such that irrational behaviour by marketers is not conducive to performance maximisation.

Marketers also need to learn to make decisions rationally.

51. To make the best marketing decisions – avoid survivor bias.

Many businesses calculate their ARR – annual rate of return – from customers. In one example of this practice examined by researchers, the initial calculation suggested an ARR of 112%. However, this calculation was based on the rate of return from retained users (users who were still customers at the end of the financial year). When a second calculation was completed – including all customers lost during the year by churn – the ARR fell to 71%.

This is an example of the survivor bias in action. The survivorship bias occurs when an assessment is based on the outcomes for what might be called ‘survivors’ or focusing on successful people – ignoring the failures and non-survivors. Examples of the survivor bias follow:

• The book ‘Seven habits of highly effective people by Stephen Covey – provides an overview of habits Covey found to be common for highly effective people. But Covey only spoke to the ‘survivors’ people who were highly effective. Would his findings be as valid? What if the seven habits could also be found with equal frequency in inefficient people?
• It would be wrong, however, to conclude, as some have, that a university education is of little value and may even be a hindrance. It is true that Steve Jobs and Bill Gates both dropped out of ivy league universities and then created multi-billion-dollar fortunes. Many more people dropped out of the same universities and were never heard of again.
• A sales team uses a specific marketing strategy and increases rates by 35%. Therefore, we should all use that same strategy. But how many other sales teams also used that strategy and failed. Was it that specific strategy or something else that made our sales team successful?

There is a common tendency among consumers and businesspeople alike to judge what does and does not work based on a handful of so-called survivors. Consider consumers who might:

• Judge a product as high quality because a partner had a good experience with the same product. What about all the people who have had a bad experience.
• Consumers opt for a treatment for a disease because three people who survived that they heard about were successfully treated. What about those for whom it was unsuccessful?
• Hear a commercial telling them that 9/10 of all dentists surveyed validated a brand of toothpaste, without being told how many dentists refused to be surveyed because they did not want to comment on a toothpaste with which they had a bad experience.

It is important to understand the impact of the survivor bias on decision making. I am very sceptical about anything that starts – ’10 things that …..’, but other people accept such information as factual.

INSIGHT – Avoid relying on data drawn exclusively from successful experiences. Also, look at the behaviour of failures. 

52. To make the best marketing decisions – avoid the sunk cost fallacy.  

I heard an ignorant Australian politician suggest dealing with climate change; it is important not to throw the baby out with the bathwater. He implied that the investment in coal should continue because of the investment to date and the current dependency on coal, even though current estimates suggest that in property alone, climate change is estimated to reduce values by $571 billion in Australia by 2030.

The ignorance I refer to here relates not to this politician’s attitude to climate change (although it well might) but to the use of the phrase ‘we cannot throw the baby out with the bathwater”. Why on earth not” If something, the investment to date is irrelevant. The only thing that matters is the best strategy for the future. To do otherwise is to fall for the sunk cost bias – which involves an individual continuing to behave based on their investment (time, money and effort) to date.

The sunk cost fallacy is closely related to loss aversion and the status quo bias. Loss aversion refers to people’s tendency to prefer avoiding losses to acquiring equivalent gains. The status quo bias occurs when an individual is most likely to stick with the current default option, almost irrespective of the results to date. In many respects, the sunk cost bias or fallacy is reflected in the old Australian saying – ‘I may as well be hanged for a sheep as a lamb.’

Examples of the sunk cost bias of fallacy at work abound. Consider:

• An explorer invests $20 million drilling for oil without success, and without genuinely considering the high probability there is no oil – continues drilling because of the investment to date.
• A colleague of mine who resisted selling for $5000 a piece of equipment worth less than $5000 and taking up space – all on the basis that he paid $80,000 for it three years ago.
• A share trader buying a stock for $1.00 per share, one month after purchasing the same stock at $2.00, all on the basis that they want to ‘average down.’
• Going on a holiday and staying in a dreadful hotel that makes life a misery but staying there because you have already paid $500 for it.

Of course, in the commercial environment, the sunk cost bias can work in a brands favour. A golfer who has invested in a brand of clubs might continue buying that brand because of the investment to date. More often, however, the sunk cost bias will work against a brand. A fisherman who has invested in a motorboat brand might resist changing brands because of the investment to date and despite the potential benefits of a change.

INSIGHT – Remember that it is not just the general consumer that is sucked in by the sunk cost fallacy or the status quo bias. These are traps for all players. 

53. To make the best marketing decisions – identify your blind spot.

A recent study found that 65% of Americans believe they have above-average intelligence. Another study found that 80% of drivers think they are above average drivers, and 84% of academics think they are above average lecturers. These numbers are absurd and are not even close to reality. They are often cited as examples of the Dunning Kruger effect, which they are, but they are also examples of the blind spot bias.

Blindspot bias is the failure to notice your own cognitive biases. The bias blind spot is the cognitive bias of recognising the impact of biases on the judgment of others while failing to see the impact of bias on one’s judgment.

A colleague of mine once asked my view on a social issue, and I responded with a very progressive view. He responded by suggesting that I am biased because I am a progressive voter (which I probably was). When I suggested that on this basis, he was also biased because he was a conservative voter – he denied it strongly. In other words, he could see my bias, but not his own. This is an archetypal example of the ‘blind spot bias’ at work.

All human beings have blind spots, and those blind spots impact the behaviour of all human beings. The impacts of these blind spots include:

• A reluctance or inability to be open to new things.
• An unwillingness or inability to be open to new information.
• A reluctance or inability to be open to new ideas.

Clearly, these blind spots can impact the consumer’s reception to marketing messages. They can, in turn directly impact responses to innovation, sales, and margins – or the perception of the value of a brand. Therefore, it is important to understand these blind spots, how they can impact purchase behaviour and the marketing approach.

Blind spots can also impact the decision making of marketers and businesspeople in general. Blind spots, including those inspiring arrogant intuition, make for suboptimal decision making. Even marketers and businesspeople have blind spots.

INSIGHT – Embrace critical thinking, and work to see things as they are, not as you want them to be or as your intuition suggests they are.

54. The make the best marketing decisions – avoid being self-serving.

The Australian government is taking much credit for the number of jobs they are ‘creating’ – citing the 5.1% unemployment rate – the lowest for some time. They have credited this low rate on their great work with taxation reform, trade deals and various other strategies. At the same time, however, 8.5% of Australian workers are underemployed (unable to earn a living wage from the work they have secured). This the government blames on the changing nature of work.

In other words, this government, like most of its contemporaries and forebears, is taking credit for good results and blaming others for inadequate results. This is called the self-serving bias – and it is not unique to politicians.

The self-serving bias involves an individual taking credit for positive events or outcomes but blaming outside factors for adverse events. In essence, this is all about people thinking they are better than they are, and others are worse than they are.

An example of this bis occurs when wealthy people think they made their luck and got rich because of their brilliance – while people who failed, in the same way, are viewed not so much as unlucky, but as not being as smart or working as hard. Another example might be a job applicant who blames the employer for sacking them, but his or her brilliance for winning the next job. A third example might be Nick Kurios, who seems to take credit for his successes and then blames the umpire for his losses.

In the commercial environment, this bias can manifest itself in several ways:

• The golfer takes credit for good shots and blames a recently purchased club for poor shots.
• A driver blaming a faulty vehicle for a car crash and then filing a suit against the manufacturer for damages.
• A fashion guru thinking they look good in an outfit because they are good looking rather than because of the quality of the clothing.
• A businessperson putting attributing successes to their brilliance and failures down to poor advice from consultants.

The self-serving effect can manifest itself in several ways. It is a clear and present danger.

INSIGHT – Don’t take credit for things when they go well but not when they go wrong. Stop blaming the product, brand or business for those things that go badly.

55. To make the best marketing decisions – start thinking differently.

I have previously written about the power of social norms in shaping consumer behaviour. They are very powerful indeed. The fact is, however, that social norms are equally powerful in shaping the behaviour of marketers. Indeed, sheep-like behaviour is common among businesspeople as it is among any other group of consumers – if no more so, given their natural (though often denied) conservatism.

The ‘Think Different campaign launch by Steve Jobs and Apple in 1997 was at least in part a response to the natural inclination for businesspeople and businesses, in general, to operate in line with social norms – doing the same thing and offering the same product over and over. The campaign run by Jobs between 1997 and 2002 was one of the best ten campaigns of my lifetime. Have a look at the initial commercial – CLICK HERE.

Many businesspeople talk about thinking differently, but in some 40 years in business, I have met no more than 5 or 6 who do. Despite the value in looking at markets, problems and products from various perspectives and developing innovative solutions – most go safe and avoid the risk. I was once asked from a significant account by a Managing Director who told us that he has been to an association event and told that his latest campaign was ‘bullshit’. We were sacked, not because the campaign did not work (it did) but because he was embarrassed when his peers noticed the radical change in direction. Whether it is peers, senior managers or the boards people are concerned about – ‘thinking different’ is rare and acting differently is very rare indeed.

The three blogs that follow this will look at three areas in which ‘thinking different. Has been demonstrated to be beneficial:

• Replacing threats with something more engaging.
• Focusing short term on a long-term product.
• Leveraging control to inspire motivation.

Thinking differently is the key to developing innovative solutions. Thinking differently is the key to differentiating your product or brand. Thinking differently is the key to rising above the competition. Thinking differently requires:

• Being smart and strong enough to recognise the flaws in your intuition.
• Applying intuition only after real data has been collected and analysed.
• Engaging people with the capacity and ability to think laterally.
• Asking the right questions, listening for and responding to the answer.
• Focusing only on the customers – ignoring commonly held views.

Approaching the issue from a different perspective and thinking differently is rare – but that is largely why it can be a competitive advantage – assuming, of course, you dare to act differently.

INSIGHT – Engage people to help you look at issues from a different perspective, especially from consumers’ perspectives. 

IN CONCLUSION

Marketing is or should be all about managing human behaviour to achieve a commercial or social objective. As marketing moves into a more scientific era, it is prudent that marketers reduce the emphasis on advertising g and increase the emphasis on influencing consumer behaviour – based on an in-depth knowledge of that behaviour and its antecedents.

Human beings are irrational, but as science progresses, this irrationality becomes increasingly predictable. There is a growing understanding of the plethora of no-advertising tools available to marketers to influence consumer behaviour – including the nudge. There is also a growing =understanding of the constraints on consumer behaviour – including 25 cognitive biases