Behavioural Economics

As I write this on an early morning Eurostar, newspaper talk is of green shoots. So are all the faces around me wreathed in happy smiles? Well, no. But that is because the ones that aren’t asleep are all feverishly gazing at their phones, Blackberries and laptops. Why feverishly? Because we have just emerged from that undersea world of communications blackout we call the Tunnel.

Stop at traffic lights, and you’ll see the passengers in the car alongside are looking down. If a meeting breaks for five minutes, colleagues will immediately check texts, emails and Facebook. Some will even make that a higher priority than a bathroom break. See what happens when an aircraft lands. Look at kids, teenagers, young adults, everyone. Look at spectators at the Test. Eyes down – even in a full house.

Just think how different things are from every previous moment of history, when our natural gregariousness led us to chat with the people around us. Now we’re preoccupied with communicating with people who aren’t there. Our thumbs are working nineteen to the dozen. Give us two generations and our thumbs will be longer than our fingers.

We are checking on what we can’t see – not what we can. We used to have a laugh with the person beside us. Now we Tweet it to our followers. We are here, but our minds are elsewhere.

Things may be looking up, but we are looking down. I worry about that. I’m a great enthusiast for bright eyes and a smile. With the eyes cast downwards and the mouth set in concentration,
I can’t see either. ‘Social Media’ – bit of a misnomer, isn’t it?

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The greatest challenge for business leaders? Profitability? No. Productivity? No. Sustainability? No. Communications? No. Diversity? No. Red tape? No.
I’m talking about The Meeting – the dysfunctional and villainous consumer of people and time. It should be the pathway to decision making, the engine of progress, and the multiplier that translates individual talent into collective excellence.
Instead meetings in most companies achieve little, demotivate participants, and waste time and money – £26bn was the estimate of the cost to the UK economy of time squandered in meetings in 2011 alone.
I have spent a quarter of a century helping clients make a very important decision for them – which agency to appoint to transform the fortunes of their brand. Each pitch process has involved scores of meetings, which I have sat through and observed. There were also years of studying decision science, and researching and writing my book DECIDE, which I wrote because of my conviction that decision making is the single most important skill in life – not just for business. You can’t make business decisions or implement them without meetings. All this has given me a personal perspective on the meeting, and the frustrations it brings.
But I have also researched widely, and meetings seem to be the bane of most people’s life – here and around the world. Here are my Top Ten most obvious meeting mistakes:
1. Poor leadership
2. Ineffective follow up and implementation
3. Failure to set a goal for the meeting
4. Too many items on the agenda
5. Too many attendees. Did you know that at least 32 ministers now attend cabinet meetings? In a 90 minute cabinet meeting that gives each minister less than three minutes airtime!
6. Not enough time spent on preparation
7. No effort to profile participants, so as to get a balanced team. (Team – so the meeting is supposed to have a team dynamic?)
8. Loud voices allowed to dominate
9. People getting away with overtalking and interrupting
10. Too much confrontational behaviour and tone (the technique favoured on radio programmes like the Today Programme and Question Time).
And those are just features of the old fashioned face-to-face meeting, with everyone in one room. If they seem to work increasingly less efficiently, what price the ubiquitous conference call and telephone meeting? Nightmares for the most part. Dominant and persistent voices rule. Conference calls for the most part are all output, with everyone queuing up to speak. Any listening is passive and grudging. I feel that conference calls don’t work well even as status updates. As a forum for decision making they are quite simply hopeless. Video conferencing and Skype work better, but usually seem to suffer from many of the defects of ‘live’ meetings.
People’s preference for social media and one-to-one communications has also made traditional meetings unpopular. Think of all those personal brands sitting around the table!
Is there anything that can be done? I think that it’s not enough simply to do a ‘taking the car in for a service’ job every time a company realises it has a problem with the way it uses meetings. We need to be much more ambitious.

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The procurement function gets a lot of stick.

Organisations that supply services to big client companies (especially agencies) frequently complain about that they see as mean procurement departments. ‘They beat us up on price’. ‘They make us jump through all sorts of hoops’. ‘They impose tough payment terms on us’.

I’ve been known to say the same sort of thing myself!

But there’s a big truth out there: procurement’s job is to buy raw materials, goods and services for their company, and to do it selfishly. That’s because we all buy selfishly. We want things on our terms, at the lowest possible price, provided the quality is OK. The language is littered with sayings and aphorisms to underline this point.

“They are so desperate for the business, they’ll drop the price in the end”
“Never pay more than you have to”.

But the buyer can be sceptical too.

“No such a thing as a free lunch”.
“Pay peanuts, get monkeys”.

It is unrealistic to expect your commercial equation to defy the laws of gravity – whether you are an agency seeking a higher fee, or if you are trying to sell your house in a depressed market. Buyers will be buyers. But the other side of the coin is rather less obvious. If you want to be a success in sales, you can’t sell selfishly. If you sell what you want to sell, at the price you want to get, on the terms you insist on, you are likely to have very limited success.

That’s because we have to sell generously. We need to work out what people want to buy. We have to allow people to choose. We must get the pricing right. We are obliged to offer terms the buyer will accept.

Yet so often, we come across ungenerous sellers:
• The take it or leave it mentality
• Agencies that tell the client there’s only one creative solution, only one photographer, only one director
• Inflexible media deals, that aren’t deals, precisely because they are inflexible
• The used car that’s too pricey, or the house seller that won’t drop their price

Selfish buying demands generous selling. Hard-nosed buying makes sense. Hard-nosed selling makes none. Unless you are very tough – or very, very good.

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My headline is a quotation from Kevin Murray’s excellent new book “The Language of Leaders”. As the book was only released from embargo yesterday at a spectacular launch party in Uniever House, I guess I am probably the first to quote from it. I certainly won’t be the last. Kevin interviewed more than 60 CEOs and Chairs, and has distilled a rich blend of wisdom and advice.

The entreaty to listen is as important as it is sometimes (for many of us at least) difficult to do. I am reminded of my own weakness in this area as I read through the transcripts of the interviews I am doing for my own book on Decision Making. Several times I read “DW interrupting”, or “DW overtalking”!

How embarrassing it is to have one’s faults so graphically displayed. But that’s not important. What matters is that in our need to communicate, we often put our desire to get our point across ahead of the need to understand where everyone else is coming from.

Let’s return to that familiar aunt sally, the unproductive meeting. Think back to the last time you emerged from an hour’s or hour and a half’s worth of meeting frustrated that nothing was achieved, no decision taken. All that effort in juggling diaries to assemble the key stakeholders, and you and your colleagues are no further forward. I’ll bet there was at least a trace of all of the following:

• Somebody important either failing to make it, or having to leave early
• The more dominant personalities doing the lion’s share of the talking
• 40 or 50% of people in the meeting making very little contribution (not talking – maybe not really listening either)
• The agenda not completed
• Main problem still not solved
• No decisions
• Time on the project running out

All this is crucial in today’s corporate environment where, as Kevin points out, leaders need to demonstrate speed and agility as well as consummate communication skills.

Is there an answer over and above persuading even the most loquacious and articulate to try and listen? That is certainly a big part of it. In his book Kevin quotes David Nussbaum, CEO of the WWF in the UK, as advocating listening with our eyes as well as our ears, to ensure we can read the body language of others.

This is very reminiscent to me of Professor Charles Spence’s emphasis on synaesthesia (using two or more of the senses at the same time), in his analysis of consumer decision making.

But behavioural change in adults (particularly corporate heavy hitters) is not easy to bring about. Equally important in redressing the balance between listening and being heard is ensuring that all decisions (including those determining how companies communicate in public) are made on the basis of the best data.

Best data has to include consideration of the views and recommendations of the quiet ones as well as the dominant ‘overtalkers’. These views can just as easily written down and read, as spoken and heard. Even metaphoric listening is far better than not listening at all.

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Having written in yesterday’s blog post about consumer conversations – and the ones a brand owner wouldn’t want, I came across this brilliant headline. It’s above an essay by Belgian digital creative Sam de Volder in a book I thoroughly recommend – Digital Advertising: Past, Present and Future, edited by Patrick Burgoyne and Daniele Fiandaca from Creative Social.

The headline is hard to beat as a summary of the tension between companies that still put out old fashioned irritating, foghorn advertising, and advertisers that actually seem to relish giving the consumer something to like. De Volder has a term for what the sympathetic advertiser offers. He calls it “Branded Utility”.

Sam’s examples:

 • Nike+

• Ikea providing trolleys that carry multiple trays in their cafes

• H&M’s virtual fitting room

• Fiat eco:Drive

• BMW: free audio books

I could also add from the current crop:

• M&S and most of the supermarkets, with their imaginative complete meal offers, which are also great value

• Sky Plus: how civilised not only to be able to record two programmes, but to time shift the end of a programme to make time for supper

• NatWest: however cynical we have all become about bankers, they do seem to be making changes that help

De Volder makes one other simple but persuasive point – in traditional advertising it is the brand owner conducting the orchestra. Whereas in digital advertising it is the consumer who has to make the first move. If they get no reward response……no dice.

We are back to our preference for conversations over being shouted at. Advertising imitates life. Funny that.

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Everyone agrees that it is all about consumer conversations now. Command and control is dead. 

It is not enough nowadays for advertisers to do a segmentation analysis to calculate optimum target audience, use media planning to maximise reach and frequency, engage the account planners on unearthing insights, and entrust the creatives with developing an ad campaign to boost sales. (Isn’t that how it was supposed to work?) 

Today’s brand owners are data rich. They are monitoring social networks, chats, blogs and emails. They can observe web surfing patterns and what is happening at point of sale. They get daily feedback on what consumers think about products, service, price, packaging. 

Dialogue has replaced monologue. The consumer has almost as much say on the Five P’s (product, price, place, promotion and people) of marketing as the marketing department. 

So why am I telling you what you already know? Because I have a nasty feeling that while some of the mega brands have well and truly grasped all of the above, hundreds of brand owners have not. What is my evidence? Just sit down for an evening and watch the ads on ITV or any of the other commercial channels. 

Are there still brands inventing problems, which they then attempt to solve? Can you still hear brands shouting commercial messages at the consumer? Are there any campaigns out there appearing at such a frequency that the agency and their client must be relying on a high irritation factor making the brand name unforgettable? 

Look. You know the answer to those questions! 

Bertrand Cesvet, the Chairman of Sid Lee, is a clever man. His 2008 book Conversational Capital (written with Tony Babinski and Eric Alper) is as eloquent account as I have seen on how to create word of mouth that works. He actually tells you how it is done. He talks about the engines of creating conversations: myths, icons, initiation, rituals, over-delivery, tribalism, endorsement. 

He has coined two proprietary techniques – one fairly obvious, the Exclusive Product Offering (EPO), the other more intriguing, the Relevant Sensory Oddity (RSO). The EPO individualises and personalises the service or product experience. Think iTunes or the multiplicity of choice at Starbucks. 

The RSO is all about synaesthesia – appealing to more than one sense, often in a quirky and surprising way (please see my blog post on 9th October “Uncommon Sense”). Good examples: the shopping experience at Abercrombie & Fitch, or the annoyingly slow delivery from a Heinz Tomato Ketchup bottle or Guinness tap. 

How much conversational capital is being created on TV most evenings? Here’s my challenge: watch long enough to pick out three promising examples. I will lay a bet now: that will give you time to write down the names of twice as many brands, which are still delivering unreconstructed hard sell, annoyance or assaulted senses and sensibility. As a brand owner, would you relish the consumer conversations that such an old fashioned approach might stimulate? 

Let’s face it, the editing facility provided by TiVo or Sky Plus is used by viewers to eliminate the ads. Ever wondered why?

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The theory goes that some decisions are made only after careful consideration, while others are on the basis of gut feelings. Generally speaking, the longer we have to decide, the more we are going to at least weigh the options – based on assessing pros and cons (as Benjamin Franklin advised his nephew on how to choose between two potential wives more than 200 years ago). If there is little or no time available, we usually rely on experience, instinct and/or training. Look at pilots, soldiers, firefighters, referees, triage nurses and so on. 

So far, so true. Two books, Malcolm Gladwell’s Blink and Gerd Gigerenzer’s Gut Feelings, are good for taking us through the ins and outs of short order decision making. I personally find the Gigerenzer book more useful, because it explains how our instincts work – and makes us feel better about trusting them, eg: 

  • It is the Recognition Heuristic that explains brand loyalty, even in the face of a cheaper own label
  • I love the Beneficial Degree of Ignorance, which enables intelligent quiz show contestants to work out the right answer from how a question is put, even when it is out of their knowledge comfort zone
  • I find Unconscious Intelligence a really good way of explaining how we often manage to use rules of thumb to solve problems and make decisions as accurately and often quicker and better than we can using logic and method

 Gigerenzer uses another phrase that rings true for me: the Evolved Brain. Most of us are so conditioned by our education, that we want to make learning a totally logical and linear process – with a predictable ratio linking inputs and outputs. In Gut Feelings we read about numerous examples of the brain working out things for itself: 

  • The intuition of detectives (which also I suspect extends to other ‘outwitters’ like referees, umpires, teachers, suspicious partners)
  • The determination of pioneering scientists
  • Love matches (and Gigerenzer tells us sternly that intuition is as much a male skill as a female one – despite the urban myth!)
  • Even an instinctive moral code

 We work out that a gut feel decision can turn out to be just as right and just as successful as one painstakingly arrived at. Once we have crossed that credibility barrier, we can cheerfully embrace instinct and intuition and accept that they are useful (and indeed reliable) tools in our toolkit. 

In this way we rationalise gut feel and give it the same respect as logical process and thinking. Neither method of making decisions is infallible. Equally it would be wrong to regard logic and rationality as the obvious route for men as opposed to women, or when you have more time. 

The realisation that gut feelings and Benjamin Franklin’s algebra both have their place, and are complementary skills, makes it a lot easier to get through life!

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This is where consumer decisions meet marketing decisions. 

Definitions vary. The First Moment of Truth (FMOT) is either when you put a product in your trolley, or when you check it out. The Second Moment of Truth (SMOT) is when you eat it or use it. In a bar FMOT is the bar call, SMOT is the ‘cheers’ moment. 

Research has shown that shopping lists overwhelmingly consist of products, not brands. Also that just over 75% of in-store purchase decisions are on impulse, and that it takes between three and seven seconds to choose the item you want. 

For those of us who spent the best years of our lives planning ad campaigns, these stats are pretty depressing.

Nor are they very reassuring for a veteran pitch consultant. All that time and process to find the best agency in the world, and Mrs Cameron in Notting Hill chooses an own label yoghurt in 5 seconds flat. 

Even Professor Spence must shudder. Some of the best minds in Oxford have advised the wine company on the shape and weight of the bottle, the design and colour of the label, even on the flavour and nose of the wine itself……………and Mr Osborne has selected half a case of Chile’s finest at £4.99 a bottle. 

But that’s how it is with decisions. You can be very influential in the ones you contribute to yourself. But a stressed customer in a hurry and a cash flow crisis can decide against logic and reason, and your best laid plans are frustrated. 

None of this means that marketing and advertising decisions do not need the greatest care, and informed inputs. 

Of course it is worth finessing product formulation and packaging by building in sophisticated calculations on how it impacts on the consumer’s taste, touch, sight, smell, and hearing. It is everyone’s task to make the product deliver at both FMOT and SMOT. 

Traditional and digital advertising and marketing communications are as vital as ever to set up the desire. 

Just as long as we never forget that the real consumer isn’t in a focus group or lab. She’s left herself just three to seven seconds to load her trolley with a brand (yours, someone else’s or an own brand). 

Marketers have to make their decisions with all the limitations of  consumer decision making in mind. 

So why don’t they invest more money at or near the point of sale? Good question. Those clever people at P&G have upped their spend by four times.

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For weeks now I have mainly been writing about decisions in business, politics and sport. It is high time to return to the area of decision making that has been the focus of my working life for over 40 years – how the consumer decides, and what influences those decisions. 

On Friday last week I had the opportunity of an interview that did a great deal to get me back inside the consumer’s head. I spent a riveting two hours with the Professor of Experimental Psychology at Oxford University. Charles Spence is one of the world’s leading experts in the science of neuromarketing. Unsurprisingly he is in as much demand from marketers, as from his students and research assistants. 

I am sure that in his private and family life, Charles has a healthy supply of common sense. But when it comes to the application of his academic training as a psychologist and neuroscientist to understanding and stimulating his fellow humans as citizens, patients and consumers, he is truly the master of uncommon sense. 

During the course of sessions in his spectacularly untidy office and the Aladdin’s cave beneath that is his laboratory, I learned an extraordinary amount about how we experience products, brands and marketing communications through our senses, and how marketers and others can influence consumer behaviour by simultaneously impacting on more than one sense at the same time. 

Importantly, I also learned how much I don’t know. 

We are dealing here with the principles of synaesthesia: the interconnection between stimuli to our five senses: vision, smell, taste, touch and hearing.

For instance: 

  • We are well aware that appreciation of the taste of wine is enhanced by its smell – or ‘nose’. But as we look for inspiration in Majestic, how consciously are we influenced by the colour of the bottle, and its shape and weight? Do we realise the impact of the shape of the label?
  • How susceptible are we to the smell as well as the feel of a garment treated by a fabric softener…
  • …or to the noisiness of a packet of crisps, which ‘says’ crispness just as much as the contents deliver the taste we expect?
  • Does strawberry jam taste better out of a jar with a red label?
  • Has the sound coming out of an iPod been as important as the taste of the ingredients in turning ‘Sound of the Sea’ into Heston Blumenthal’s signature dish at the Fat Duck? [A Charles Spence project.] 

This week I will be exploring more aspects of how consumer decision making and behaviour can be influenced by communicating with the senses as opposed to just using reason and emotion. I have a hunch that neuromarketing might throw even more light on Behavioural Economics in the ‘Nudge’ or Rory Sutherland sense, and give us some powerful new examples of ingenious and hyper-effective ideas. 

Next week I want to move on to see if considered or macro-decision making in the corporate or institutional context is also capable of being enhanced by appealing to the senses. We already know how important the evidence of the different senses is to people in the armed forces, emergency services, A&E, on the flight deck, and even referees and umpires – who are all tasked with making decisions in very short order. 

Could it be that we are just touching the surface by only applying reason and logic to big decisions in business and public life? Maybe we should be factoring in seeing, smelling, hearing and tasting, as well as touching!

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It was shattering news on the radio this morning. We knew that Steve Jobs had to be very ill to stand down from the helm at Apple. But to die so soon after. At the age of only 56. 

I wrote earlier in the week about Saras Sarasvathy’s seminal  paper: “What makes entrepreneurs entrepreneurial”. I urge you to google it and print a copy. In her study into what makes entrepreneurs different from everyone else, she highlights the way they think. She describes it as ‘effectual’ reasoning, and contrasts it with predictive and rational thinking, which she calls ‘causal’. 

For Sarasvathy, a decision based on causal reasoning is designed to cause an outcome which will bring you closer to your goal. Causal reasoning or decision making is about means to an end. Logical. Sequential. Linear. This is command and control behaviour. 

Effectual reasoning is not about setting a goal and making decisions based on how to achieve it. Effectual thinking and decision making is about making things happen in a broader sense. Effectual decisions can work just as well in an indirect way. 

In marketing and advertising, we are very familiar with both approaches. Marketing plans are predominantly causal, relating actions and investments to financial and verifiable targets and data. 

Advertising, on the other hand, particularly in the brave new world of consumer conversations, tends to be based on strategic thinking and insights into consumer behaviour, and what might influence it. Planning and creative are inherently effectual, while media, direct marketing and promotions are causal.

Which brings us back to the amazing career, influence and sheer creativity of Steve Jobs. Not only an innovator par excellence. He was also a true visionary in that he was able to conceive, make and market a legendary line of products under the Apple, Mac and “I-“ labels, which his loyal followers adopted as if the branding was actually theirs. 

Effectual is of course the exact opposite of ineffectual. Jobs was effectual and influential to an extent unmatched by any of his contemporaries. We can cite a distinguished list of pioneers from former generations: Stephenson, Brunel, Hargreaves, Ford, Marconi and so on. Or early consumer champions who built giant companies like P&G, Unilever, Nestle, Cadbury and co. But the mechanics of manufacture, distribution and selling in those days were much more straight line. People were still customers. They had not yet learned to become consumers. 

Jobs has been the most effectual leader and champion of the consumer revolution – understanding that entertainment, leisure, friendship and fun are just as important as producing documents and making phone calls. Pixar and the App Store are as much a part of his extraordinary legacy as the Apple Mac and the iPhone. His inventions haven’t just given us great products to buy. He defined, shaped and framed the empowered world we now take for granted.

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