Cross-post from my CRM..meet VRM blog.

This post is a short(ish) summary of a working session led by Drummond Reed and me at the recent West Coast VRM Workshop, and also an introduction to the Kantara workgroup in which we are going to move this debate forward. It is also part of the thinking that will short emerge in a Mydex white paper.

At the VRM workshop, we discussed the need for the concept of the Personal Data Store, what it would do in practice, and what that will ultimately enable.

Why we need such things - because individuals have a complex need to manage personal information over a lifetime, and the tools they have at their disposal today to do so are inadequate. Existing tools include the brain (which is good but does not have enough RAM, onboard storage, or an ethernet socket……thankfully), stand alone data stores (paper, spreadsheets, phones, which are good but not connected in secure ways that enable user-driven data aggregation and sharing), and supplier based data stores (which can be tactically good but are run under the supplier provided terms and conditions). NB Our current perception of ‘personal data stores’ is shaped by the good ones that are out their (e.g. my online bank, my online health vault); what we need is all of that functionality, and more - but working FOR ME.

What they will do/ enable - the term Personal Data Store is not an ideal term to describe a complex set of functions, but it is what it is until we get a better one (the analogy I’d use in more ways than one is the term ‘data warehouse’ - again a simplistic term that masks a lot of complex activity). A Personal Data Store can take two basic forms:

Operational Data Stores - that get things done, and only need store sufficient breadth and depth of data to fulfill the operation they are built for (e.g. pay a credit card bill, book a doctor’s appointment, order my groceries).

Analytical Data Stores - that underpin and enable decision making, and which typically need a more tightly defined, but much deeper data-set that includes data from a range of aspects of life rather than just that from one specific operation (e.g. plan a home move, buy a car, organise an overseas trip).

A sub-set of the individual’s overall data requirement will lie in both of the above, this being the data that then integrates decision-making and doing.

In both cases, the functionality required is to source, gather, manage, enhance and selectively disclose data (to presentation layers, interfaces or applications).

We also discussed ‘who has what data on you’ and introduced the following diagrams to explain current state and target state (post deployment of Volunteered Personal Information (VPI) tech and standards).

The key terms that require explanation are:

My Data - is the data that is undeniably within, and only within, the  domain of an individual. It’s defining characteristic is that it has demonstrably not been made available to any other party under a signed, binding agreement. This space has been increasingly encroached upon by technology and organisations in recent history (e.g. behavioural tracking tools like Phorm) and this encroachment will continue. Indeed a general comment can be made that ‘my data’ equates to privacy in the context of personal data; so the rise of the surveillance society and state is a direct assault on ‘My Data’. Management of ‘My Data’ can be run by the individual themselves, or outsourced to a ‘fourth party service’.

Your Data - is the data that is undeniably within the domain of an organisation; either private, public or third sector. Proxy views of this data may exist elsewhere but are only that. This data would include, for example, the organisations own master records of their product/ service range, their pricing, their costs, their sales outlets and channels. Customer-facing views of much of Your Data is made available for reproduction in the ‘Our Data’ intersect.

Our Data - is the data that is jointly accessible to both buyer and seller/ service provider, and also potentially to any other parties to an interaction, transaction or relationship. It is the data that is generated through engaging in interactions and transactions in and around a customer/ supplier relationship. Despite being ‘our’ data, it is probably technically owned, or at least provided under terms of service designed by the seller/ service provider; in practical terms this also means that the seller/ service provider dictates the formats in which this data exists/ is made available.

Their Data - is the data built/ owned/ sold by third party data aggregators, e.g. credit bureaux, marketing data providers in all their forms. It’s defining characteristic is that it is only available/ accessible by buying/ licensing it from the owner.

Everybody’s Data - is the public domain data, typically developed/ run by large, public sector(ish) entities including local government (electoral roll), Post Offices (postal address files), mapping bureau (GIS). Typically this data is accessible under contract, but the barriers to accessing these contracts are set low - although often not low enough that an individual can engage with them easily.

The Basic Identifier Set/ Bit in the Middle - this is the core personal identity data which, like it or not, exists largely in the public domain - most typically (but not exclusively) as a result of electoral rolls being made available publicly, and specifically to service providers who wish to build things from them. This characteristic is that which enables the whole personal eco-system and its impact on data privacy to exist, with the individual as the un-knowing ‘point of integration’ for data about them.

The ovals in the venn diagram represent the static state, i.e. where does data live at a point in time. The flow arrows show where data flows to and from in this eco-system; I use red to signify data flowing under terms and conditions NOT controlled by the individual data subject.

Flow 1 (My Data to Your Data, and My Data to Our Data) - Individuals provide data to organisations under terms and conditions set by the organisation, the individual being offered a ‘take it or leave it’ set of options. Some granularity is often offered around choices for onward data sharing and use, i.e. the ‘tick boxes’ we all know and which are one of the main bitsof legacy CRM that VRM will fix.

Flow 2 (Your Data to Your Data, including Our Data) - Organisations share data with other organisations, usually through a back-channel, i.e. the details of the sharing relationship are typically not known to the data subject.

Flow 3 (Your Data, including Our Data to Their Data) - Organisations share data with a specific type of other organisation, data aggregators, under terms and conditions that enable onward sale. Typically the sharer is paid for this data/ has a stake in the re-sale value.

Flow 4 (Everybody’s Data to Their Data) - Data Aggregators use public domain data sources to initiate and extend their commercial data assets.

The target state is shown below, a different scenario altogether - and one which I believe will unfold incrementally over the next ten years or so…..data attribute by data attribute, customer/ supplier management process by customer/ supplier management process, industry sector by industry sector. In this scenario, the individual and ‘My Data’ becomes the dominant source of many valuable data types (e.g. buying intentions, verified changes of circumstance), and in doing so eliminates vast amounts of guesswork and waste from existing customer/ citizen managment processes.

The key new capabilities required to enable this to happen are those being worked on in the User Driven and Volunteered Personal Information work groups at Kantara (one tech group, one policy/ commerce one), and elsewhere within and around Project VRM. The new capabilities will consist of:

- personal data store(s), both operational and analytical

- data and technical standards around the sharing of volunteered personal information

- volunteered personal information sharing agreements (i.e. contracts driven by the individual perspective, creative commons-like icons for VPI sharing scenarios)

- audit and compliance mechanics

Around those capabilities, we will need to build a compelling story that clearly articulates, in a shared lexicon (thanks to Craig Burton for reminding us of the importance of this - watch this space), the benefits of the approach - for both individuals and organisations.

The target state that will emerge once these capabilities begin to impact will include the 4 additional individual-driven information flows over and above the current ones. The defining characteristic of these new flows is that the can only be initiated by the data subject themselves, and most will only occur when the receiving entity has ’signed’ the terms and conditions asserted by the individual/ data subject. The new flows are:

Flow 5 (My Data to Your Data (inc Our Data) - Individuals will share more high value, volunteered information with their existing and potential suppliers, eliminating guesswork and waste from many customer management processes. In turn, organisations will share their own expertise/ data with individuals, adding value to the relationship.

Flow 6 (Everybody’s Data to My Data) - With their new, more sophisticated personal information management tools, individuals will be able to take direct feeds from public domain sources for use on their own mashups and applications (e.g. crime maps covering where I live/ travel)

Flow 7 (My Data to (someone else’s) My Data) - An enhanced version of ‘peer to peer’ information sharing.

Flow 8 (My Data to Their Data) - The (currently) unlikely concept of the individual making their volunteered information available to/ through the data aggregators. Indeed we are already starting to see the plumbing for this new flow being put in place with the launch of the Acxiom Identity Card.

The implications of the above are enormous, my projection being that over time some 80% of customer management processes will be driven from ‘My Data’. I’m pretty confident about that, a) because we are already see-ing the beginning of the change in the current rush for ‘user generated content’ (VPI without the contract), and b) because the economics will stack up. Organisation need data to run their operations - they don’t really mind where it comes from. So, if a new source emerges that is richer, deeper, more accurate, less toxic - and all at lower cost than existing sources; then organisations will use this source.

It won’t happen overnight obviously; as mentioned above specific tools, processes and commercial approaches need to emerge before this information begins to flow - and even then the shift will be slow but steady, probably beginning with Buying Intention data as it is the most obvious entry point with enough impact to trigger the change. That said, the Mydex social enterprise already has a working proof of concept up and running showing much of the above working. A technical write up of the proof of concept build can be found here. And the market implications of this are explored in more detail in new research on the market value of VPI shortly to be published by Alan Mitchell at Ctrl-Shift.

The two hour session at the VRM workshop was barely enough to scratch the surface of the above issues, so the plan is to continue the dialogue and begin specifying the capabilities required in detail in the User Driven and Volunteered Personal Information (technology) workgroup at The Kantara Initiative. The workgroup charter can be found here. A parallel workgroup focused on business and policy aspects will also be launched in the next few weeks. Anyone wishing to get involved in the workgroup can sign up to the mailing list here and we’ll get started with the work in the next couple of weeks.

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Iain Henderson Data, Privacy, Project VRM, vpi

The British Standards Institute have produced a new set of standards for what they call PIMS (Personal Information Management Systems).

Of course, this PIMS is the complete opposite of the PIMS we have been talking about for the last couple of years. Their standard is for organisations managing individuals’ personal data. Our PIMS are for individuals using information to manage their affairs.

‘My PIMS’ versus ‘Their PIMS’. Oh dear, more terminological confusion here we come!

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AlanMitchell Buyer centric services, Resources and Papers

The more I talk to people about consumer decision-making and the potential for buyer-centric services, the more I hear what appears to be a new conventional wisdom: that consumers don’t know what they want until marketers tell them.

This was one of the pushbacks I got from my talk at Nottingham Business School. Like so much else that’s said about the so-called ‘irrationality’ of consumer decision-making, it’s a) more complicated than the simplistic slogan and b) fuelled to a large degree by marketers’ own self-serving propaganda.

So let’s look a little closer.

First, there is the whole debate about the role of conscious and unconscious processes in decision-making. I’ve touched on that elsewhere so won’t return to it here. So what else is there?

Innovation

Well, there is one important area where it is absolutely true that consumers don’t what they want until marketers tell them: the arena of innovation where the consumer doesn’t know what’s possible.

For example, he is ignorant of technological or other capabilities and doesn’t know that it’s possible to fly through the air in a steel tube, or talk to a person on the other side of the world in real time, so he thinks he has to go by boat or write a letter.

This is probably the most important area where the line ‘consumers don’t know what they want until marketers tell them’ is absolutely true. It’s the background to Henry Ford’s oft-quoted remark that if he had asked consumers what they wanted, they wouldn’t have said a motor car; they would have said a faster horse. It’s where innovators and inventors come along and say ‘you never knew this before, but now it’s possible to do X!’

But we also have to keep it in perspective. Time and time again, studies of new product launches show that the vast majority of so-called ‘new’ products are actually new versions of old products – an added tweak or feature, a variant of some sort. A tiny minority of supposedly new products – around 1-2% - are actually new to the world. So while it’s true that consumers don’t know that they want innovations till they see them, this truth actually only accounts for a tiny proportion of total marketing activity.

Clever marketing?

So, apart from this tiny proportion, where else does the adage hold true? Well, there are number of areas where it seems like it holds true, but probably doesn’t. Here are three examples:

• The consumer doesn’t know what’s available. In most markets, especially where consumers are relative novices, they only have a cursory knowledge of what’s available on the market. Because the costs of searching for information about these different choices is so high they often don’t bother. In these circumstances, they become at least partially reliant on marketers telling them what’s available – and when they come across what they want, they go out and buy.

Viewed from the point of view of the marketer, this looks like the consumers waiting for the marketer to tell them what they want, but actually it’s nothing of the sort. Consumers’ apparent passivity is a by-product of the high costs of searching, sifting, comparing what’s available. The job of buyer-centric services is to help consumers know what’s available, thereby reducing their dependency on this sort of spoon-feeding.

• The consumer doesn’t know what’s best In some cases, even where the consumer is aware of a wide range of alternatives, he still doesn’t know which option to go for: he needs advice. Again, this is especially true when the consumer is a relative novice and where the product or service is relatively unfamiliar or complex.

What the consumer really needs here is trustworthy advice. But usually that’s not available at an affordable price, so the consumer has to take a different approach. Historically, one of the lowest risk routes available was to opt for the most reputable, most famous supplier i.e. the one that did the most advertising.

Again, the ‘evidence’ seems to show that it is the marketer telling consumers want they want, but actually this evidence is just a manifestation of a deeper issue – the high costs of getting trustworthy advice.

The job of buyer-centric services is to provide the trustworthy advice (see Problem Solving Communities) thereby reducing dependentce on these short-cuts.

• Impulse purchasing, where the consumer is titillated by the marketer’s marketing I remember once, I went out and the weather turned nasty. I was on my way home feeling cold, wet, hungry and miserable when I saw an ad for Heinz Tomato Soup. I looked at the ad and thought ‘that’s just what I want to warm and comfort me’ – and bought a tin there and then. I didn’t know that I wanted a bowl of hot tomato soup until the ad ‘told’ me and triggered the desire.

Marketing activities such as these crystallise desires by stimulating consumers’ senses. This is the secret behind impulse purchases, and it will remain a feature of life as long as human beings have impulses.

But again, if you look at purchasing as a whole – especially in terms of amounts of money spent – most purchases aren’t impulse, they are considered to some degree or other. And on many occasions, the consumer defaults to an impulse approach because the cost or complexity of making a better, more informed decision is so high.

So if we look at the above four scenarios, we discover that only one of them really holds true: the case of ‘newness’ where much of the value that’s being provided comes from the very fact that nobody has thought of this before. The other three areas where it seems that consumers need to be told what they want are actually symptoms of the deeper problem: that in today’s commercial environment, the costs of decision-making are so high that most people opt for short-cuts, because otherwise they would go mad.

When we do know what we want

The other side of the coin is that there are also a number of cases where it’s palpably not true that consumers need to be told what they want. In every market you can think of, there is always a spectrum of consumers ranging from the complete novice who doesn’t even know what questions to ask, to the absolute connoisseur. In other words, market by market, category by category, product by product, situation by situation we are all of us on some sort of learning curve.

The more experienced and knowledgeable we become, the more we know what we want and the less helpful marketers trying to tell us otherwise becomes. In fact, at this end of the spectrum the boot moves to the other foot, where marketers need to engage with these consumers because they know what they want better than the marketers! This is the impetus behind the growing interest in ‘co-creation’.

A common half way house here is where people ‘sort of’ know what they want, but find it hard to articulate and express.

The really big area is in the middle: the many cases where consumers currently rely on marketers telling them what they want because, the way markets currently work, the sheer hassle of doing anything different is simply much too much.

The buyer-centric opportunity

Now, if we look through this list, we discover the potential for a whole range of different buyer-centric services. For example:

• Where the consumer doesn’t know what’s available, making it easier and quicker for the consumer to find out (by for example, using search, peer-to-peer, buyer’s guide and other mechanisms)
• Where the consumer defaults to heuristics for lack of good advice – here the buyer-centric service can make the consumer less reliant on the marketer by providing better advice via peer reviews, expert reviews, problem solving communities and the like.
• Where the consumer needs help in articulating exactly what they want/need. Looking forward, this is probably one of the richest areas of buyer-centric service, and it’s made possible by consumer-to-consumer information sharing: ‘I might not have been on this journey before, but many others have – and I can pick their brains to help me work out what’s right, and what’s not right, for me’.
• Where the consumer wants to specify what they want but can’t get. This is the arena of specialist ‘request for proposal’ services which reverse the flow and which help consumers to talk to marketers and say ‘actually, this what I want’.

So what’s our net conclusion?

• First, there is a role for the marketer ‘telling consumers what they want’. But in reality, it’s actually quite restricted – mostly to the arena of innovation.
• Second and much more important, there is a massive unmet need for services that help consumers work out and articulate what they want for themselves.

Most marketers’ claims about consumers needing to be told what they want do not relate to the passivity or lack of imagination of consumers – they relate to the costs consumers incur when they go to market; costs which are, for the most part, created by marketers themselves; costs which make navigation, choice etc expensive and difficult and which prompt consumers to opt, instead, for whatever marketers put in front of them.

Alan Mitchell

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AlanMitchell Advertising, Branding, Buyer centric services, Marketing, The Persuasion Paradigm, Uncategorized

One of the sessions at the VRM workshop in San Francisco last week focused on Requests for Proposals or RFPs.

The idea is pretty straightforward. A buyer creates an RFP for something she wants to buy, sends it out to the market, gathers up sellers’ responses and makes a choice.

Sellers, knowing they are competing against each other for a ‘hot’ lead, may be incentivised to offer an extra special deal. Buyers also benefit from the fact that it is a hassle-free process – the offers coming streaming in straight to your digital ‘front door’ when you ask for them. This is especially so if the RFP process creates an anonymity shield which stops sellers from scraping the buyer’s contact details and spamming her.

One way of doing this is, for example, is to ask sellers to upload their responses to a temporary URL which only the buyer knows about. Once the buyer has made her choice, or after a certain time span, the URL can be closed down.

It sounds a like a neat idea and for a time I thought it would be one of the vanguards of buyer-centric commerce. The more I look at it however, the more I think it is still a good idea – but something that will only really work well once lots of other supporting bits of infrastructure and service are in place. (For more details on this see our White Paper on Added Value Buying Services) In other words, aside from a few ‘pure’ applications it is a ‘later’ rather than ‘sooner’ development.

Here’s why. The immediate technical challenges of creating anonymous links between buyers and sellers are relatively solvable. At the moment, open source software expert Don Marti is leading the charge on this (http://zgp.org/~dmarti/business/upside-down-bg/).

Trouble is, even if we crack the technical messaging bits, there’s still a lot more we have to do to make RFPs really work. For example, we have to address the potential obstacles that exist at both ends of the process. Specifically:

- helping would-be buyers build a specification that’s clear and detailed enough for vendors to respond to
- a means of translating buyers’ expressions of desire into language that sellers can understand and respond to
- seller response processes that ‘understand’ RFP feeds well enough, and efficiently enough, to generate meaningful, useful responses.

These are not easy problems. They are very hard problems relating to language (the two sides understanding each other well enough to communicate), and value (the two sides getting enough value from the new process to think it worthwhile).

On language, the RFP problem is easy if the buyer can name an exact product title (e.g. down to bar code/electronic product code detail) – a ‘language’ that fits directly into the seller’s systems. But this probably accounts for 0.01% of real buyer requests, most of which include an element of search, discovery and uncertainty.

The other 99.99% of buyer requests will be much vaguer, along a spectrum e.g. I want to buy:

- a digital camera
- a digital camera in this price bracket
- a digital camera with these sorts of features in this price bracket (but I’m not really sure what these features are, or how important they are to me)
- a digital camera of this brand with these features in this price bracket (though I haven’t thought about which of these features are ‘must haves’, ‘nice to haves’, and so on
- a digital camera of this brand and model with these features in this price bracket.
- only this brand with a choice from these particular model variants, with these clearly specficied features.

Under an RFP system, sellers not only have to understand and respond relevantly to this spectrum in a way that generates easy-to-understand and easy-to-compare information that is useful to the buyer, they first of all have to understand what the buyer is ‘getting at’. For example:

- is the buyer describing features using exactly the same language as those described by seller in his product catalogue? [e.g. What if the buyer says he wants a 'fast' computer, or 'an easy to use' camera?] As soon as the seller needs a human being to read and understand the buyer’s description the RFP process may become far more expensive, not cheaper, than existing systems. On the other hand, if we rely simply on machine recognition of key words we will generate more spam than value, even if unwittingly.
- what if the buyer’s specifications don’t fit the market? (i.e. she can’t get all her desired features within her stated price bracket?) How does the seller respond to this? By simply spamming her with all available options? How does the seller help the buyer understand what these trade offs mean, and their pros and cons? As soon as the process goes beyond ‘a single shot’ of buyer RFP/seller offer (as soon as it requires ‘a conversation’) RFP style messaging processes don’t work very well.

This raises many issues of cost and value for both sides: ‘am I convinced that using an RFP is really the most cost-effective way for me to go to market?’

These are not just finicky details. Without a lot of surrounding services and processes to help buyers and sellers at both ends, pure RFPs which focus only on better Internet-based messaging between buyers and sellers are only likely to create a workable win-win with a vanishingly small proportion of transactions.

On top of this, as Bart Stevens (www.ichoosr.com) points out, there’s another barrier of user trust to overcome. Many consumers are so jaded be clever ‘bait and switch’ marketing ploys that seem honest and good value in the beginning only to have a sting in their tail, that they are wary of taking up genuinely new buyer-centric opportunities even when they do emerge.

It’s not only seller-centric marketers who are interested in behaviour change!

Anyway, my conclusion is that:
- the real ‘value add’ here probably does not lie in the messaging/contact aspects of the RFP process but in the specification building process – helping buyers articulate demand in such a way that it fully and accurately fits what they want, in a way that streamlines rather than complicates seller processes.
- while at first sight RFPs look like an easy ‘low hanging fruit’ for VRM, I suspect they will end up being one of the hardest – and last – nuts to crack; the ‘artificial intelligence’ of VRM if you like, where, only after thirty years of failing to solve this ‘simple’ problem do we actually realise how complex it really is. (We tend to underestimate just how complex buying processes are because, currently, most of the complexity is handled inside buyers’ heads. The complexity only becomes apparent when we try to automate it.)

But that’s not to say cracking the communication protocols is a bad idea.

Alan Mitchell

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AlanMitchell Buyer centric services, Project VRM

Fascinating discussion over dinner last night with Drummond Reed, Bill Washburn and my colleagues Iain Henderson and William Heath from our personal data venture Mydex (www.Mydex.org).

We had just flown in to San Francisco for the VRM meeting, so were jet lagged and hardly sparkling. But Bill made the comment that the real potential of the internet was not being realised because of a pervading lack of trust. This is interesting because previously, trust-issues have not created barriers to our ability to realise the full potential of new technologies.

Metallurgy, steam power and electricity transformed the world in many ways, but the general rule of thumb was, in good old entrepeneurial capitalist style, ‘do anything you like with it, so long as you don’t break the law.

Computing technologies started out much the same, transferring that ‘do what you can!’ motto from matter and energy to information. So, in the industrial age we did lots of fantastic new stuff with matter and energy, and then we had an information age where we started doing lots of fantastic new stuff with information. With the internet however, this no holds-barred approach to information creates problems – because I don’t necessarily want you to start doing fantastic new stuff with my information if it’s fantastic for you and awful for me.

The power of trust

When the key issue is no longer just the technology, but the relationships surrounding that technology, you have a different type of problem. You need a parallel set of innovations in ’social technologies’ – new ways of bringing people together to create new and better outcomes.

Perhaps the last time we had a problem of a similar scale was with the growth of trade. The more trade you do, the clumsier and more constraining barter becomes. You need something to oil the wheels. The ‘obvious’ answer is money, but for many years it was not an obvious answer at all.

Money requires a huge leap of faith. You give somebody something of real value, and in return, they give you a worthless token. The only way you can then retrieve the value you have given away is by persuading someone else to part with something of real value in exchange for your worthless token.

It’s absolutely crazy, once you stop to think about it. But as long as people fail to make this gesture of trust, the prevailing lack of trust acted as a brake on the economic potential of the trading system. And to build the trust that was necessary, a whole set of new rules, institutions, practices, safeguards, social rituals and relationships, norms and expectations, divisions of labour and so on had to be developed.

As Drummond pointed out, one of these institutions is banking, which is an entire global industry built on ‘meta-trust’. First, you make a leap of trust in accepting money in exchange for real value. T hen you make a second leap of trust by giving it to somebody else to look after! With no real recourse if they decide not to give it back! Craziness piled on top of craziness. So, once again, we had to develop a whole new set of rules, regulations, practices, institutions etc to deal with this trust problem – and we’re still struggling with how to do it, as the credit crunch shows.

Bill’s point was that we’re now facing the same sort of problem with the sharing of personal information on the Net.

The old assumptions about ‘if you can, do anything you like with it within the law’ may work brilliantly with new inventions like electrical machinery. But it creates a nightmare of mistrust and lost economic potential when it comes to personal information. And that’s basically what’s happened with the last 50 years of centralised corporate data gathering: the underlying assumption in the corporate world was ‘if we can gather information about you, the customer, it’s ours to what we like with’. Just imagine if banks said that to us in relation to our money!

The next leap

That’s what Mydex in particular, and VRM more generally is about. It’s about creating the new ’social technologies’ of trust to allow personal information to be shared the way we share money. If all the right conditions are there – if it’s a mutually acceptable exchange in conditions of mutual trust – we hand over money to somebody else without a thought – and by doing so we contribute our little bit to the larger public good of economic activity. We help unleash its potential. But if those conditions are not present, then our immediate attitude is ‘No Way!’. And the economy’s potential is constrained.

So what are the right conditions – the rules, institutions, practices, safeguards, social rituals and relationships, norms and expectations, divisions of labour – necessary to unleash the potential of personal information sharing in a networked world?

That’s a huge question which we need to tackle as a society. But our bet is that one necessary building block is to create the distinction with personal information that banks did with money.

You hand your money over to a bank for safekeeping. But that does not mean the bank can do anything it likes with it. You may give the bank permission to do some things with it, such as lend it out to other people. But if so, they have to pay you interest for it. You share in the benefit of sharing its value.

Personal data banks like Mydex create the same distinction. You use the personal data store to keep your information in a safe place that’s also easy to access. Mydex also allows this information to be shared, but only in ways that you choose, agree to, and get some benefit from.

Personal data stores are certainly not the whole solution to the dilemma Bill raised. But I’m pretty sure they’re a part of it.

Alan Mitchell

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AlanMitchell 'The Information Age', Project VRM

Interesting discussions on the VRM steering group prompted by Doc Searls’ blogs about ‘fourth party services’ (http://blogs.law.harvard.edu/vrm/2009/04/12/vrm-and-the-four-party-system/).

The bottom line is that I think the concept of ‘user-driven’ services as espoused by Joe Andrieu (e.g. (http://blog.joeandrieu.com/2008/07/12/towards-user-driven-search/) is risky for two reasons.

First, it muddies the waters around VRM’s unique and special contribution:  its focus on creating services that work on the side of the individual.

Second, it narrows the VRM agenda, to focus too much on mechanisms of user control, and not enough on even bigger challenges such as the design of new business models.

More detail, for those who are interested…

As far as I can see, ‘fourth party services’ are pretty much the same as the Personal Information Management Services we’ve talked about on this blog for some time (http://www.rightsideup.net/?page_id=58)

The debate itself stems from a growing a realisation that there are at least two ‘levels’ of VRM.

The first level simply gives individuals software based tools, like mobile phone apps, that the individual can use how and when they want.

The second level is when a specialist service or business provides extra infrastructure, functionality or services that help individuals do things they couldn’t do if they were left to themselves with their ‘apps’.

Doc Searls has termed this second layer of services which are acting for or on behalf of the individual as  ‘fourth party’ services. There are others however, such as Joe Andrieu, who have started talking about ‘user driven services’ (http://blog.joeandrieu.com/ )

As I understand ‘user driven’ it means a service which is shaped – or ‘driven’ – to a greater or lesser extent by the user’s direct input. As Joe explains in one of his emails:

“User driven services are a category that, for me, is as much a direction of innovation  as anything else.  YouTube is more user driven than Cable TV. Blogs are more  user  driven than newspapers.

Every major Internet breakthrough has been by companies being more user    driven in some way. Amazon. Google. eBay. Facebook. Twitter. The web  and the net itself.”

On the other hand, as Joe stresses in the same email, ‘fourth party’ services are much more focused:

“Fourth Party services, in contrast, have a very tightly focused meaning:
fourth parties operate on behalf of you, the individual.  2nd parties
and third parties, e.g., Apple and various iPhone developers, have no
expectation or obligation of acting in your best interest.  However,
your personal datastore does. Your lawyer does.  That’s the distinction:
a fiduciary responsibility to the individual user.”

If we are interested in developing buyer-centric or ‘VRM’ services, which route should we follow: ‘user-driven’ or ‘fourth party’?

The agency concept

The fourth party or buyer-centric service anchors itself on the side of the individual. That’s what defines it and distinguishes it from all other business models and services –  it works for and on behalf of the individual. It is on the individual’s side, acting as the individual’s agent (as I first talked about in my book Right Side Up many years ago).

For me, this is the fundamental intellectual – and practical – departure point. If you don’t get to this starting point you can never ‘get’ VRM or buyer-centricity. And if you don’t keep it as your anchor, you will get lost and confused in no time at all.

For many people however, this starting point is also their sticking point. They just can’t see it. They think we are talking about some sort of altruistic pressure group or charity – not a proper business.

This is odd because none of us have any trouble with big companies paying agents to work for them. In fact, there are so many agencies, consultants, advisors, contractors and so on working for big companies that sometimes it seems they’re the biggest business sector of all. Everyone knows what these agents do. They are employed by BigCo if and in so far as they are successful in furthering BigCo’s interests, as specified by BigCo of course.

The buyer-centric or fourth party service is no different: it earns its keep as long as, and in so far as, it acts for and on behalf of the individual in his or her dealings with other parties – such as all those BigCos with all their agents.

Perhaps one of the reasons people find it so hard to ‘get’ this is because it is so new. To work, it requires innovation on many fronts: technology, service and user-experience, business model, definitions of value, metrics of success, legal, contractual and regulatory issues, and so on.

In my view, the only way we can keep all these innovation projects working hand-in-hand and in sync is if they keep the starting point of ‘for and on behalf of the individual’– this litmus test of purpose – absolutely clear.

Unfortunately, that’s precisely what the ‘user-driven’ concept loses. By shifting the focus from relationship and purpose (e.g. services that work for the individual) to mechanisms (does it happen to be ‘driven’ by the user or not?), the user-driven concept weighs anchor and (to mix metaphors horribly) lets the balloon float free – to be taken in whatever direction the wind of ‘user control’ might take it.

Now. You could argue – as Joe might – that if it is user-driven then it must, by definition, be acting for and on behalf of the individual. I’m not sure. A bank ATM is a ‘user-driven’ service, to some degree. It’s ‘more user-driven’ than the bank counter and the teller – and it’s this spectrum of ‘user-drivenness’ that Joe seems interested in.

But the ATM is there mainly to outsource costs from the bank to the customer. User self-service is a big thing for companies wanting to offload costs on to customers. These companies could embrace the concept of ‘user-drivenness’ quite happily. And without our moorings relating to ‘for and on behalf of the individual’ we can’t distinguish between the two.

It’s also true, however, that the concept of an agent acting for and on behalf of the individual also has its blurry edges. There are, for example, many ways of acting for and on behalf of individuals: political and social campaigning, legal representation, and so on. You could say your lawyer is your ‘agent’. You could say somebody you pay to clean your house or your shoes is your agent too, because they are acting on your instructions.

Marginal or central?

The interesting thing about all these forms of agency is that they lie outside the commercial mainstream. They are either ‘non-commercial’ (e.g. political and social campaigning), or if they are commercial they exist only on the margins.

Lawyers for example, flourish on the back of information asymmetries. They are experts and you depend on this expertise. And they charge you accordingly, so you only employ a lawyer when you are desperate.

The maid cleaning your house lies at the opposite extreme of information processing. Here, it’s mainly manual labour which no one has ever been able to automate. This is the economic equivalent of balloon squeezing. You might push the work from one person to another but the volume of work – the air inside the balloon – remains unchanged. No new efficiencies have been created.

The interesting thing about this is that the lawyer and the maid exist at the extremes of information processing cost/difficulty.

The real breakthrough of buyer-centric or fourth party services is not just the agency concept but how and where this concept is applied – in the heartlands of the economy: commercial activity.

For them to do this, they need to create new types of business which use information in new ways. These are businesses that make their money out of ‘consumer empowerment’ or, in the case of public services, citizen empowerment; services that put the power of information in the hands of individuals to help them do what they want to do more effectively and more efficiently.

To make this happen, most buyer-centric or fourth party services will indeed need to be ‘user driven’. For example, it goes without saying that an agency relationship cannot work if the client (in our case, the individual) cannot specify what he wants to achieve, monitor the work of the agent, and so on. We need clever information technologies to make it possible to do this in ways that are easy to use, on a mass scale. This is a massive innovation challenge in its own right, but it’s just one consequence of the core agent concept.

So, to sum up:

Joe advocates the ‘user-driven’ concept on the grounds that it is ‘a direction of innovation’.

Yes, it is one possible direction of innovation. But actually, the scope of innovation it envisages is quite narrow – basically, the mechanisms/services that enable the user to drive the service.

The buyer-centric/fourth party vision on the other hand requires at least three different levels of innovation. For it to work, we need:
•    Clever new tools, software and so on that help individuals gather, store, slice and dice, analyse, share and deploy the information they need to do the things they want to do. (This, in itself, is effectively a whole new industry)
•    Innovative new business models to make these new technologies happen. (What are the revenue streams for the service, what are the economic incentives for the business and the people it deals with?)
•    Innovative ‘social technologies’: i.e. the rules, practices, relationships and safeguards that generate the trust these businesses must have if they are to prosper.

For VRM to flourish, we need all three ‘dimensions’ of innovation.

VRM’s defining contribution is the notion of using information – and developing information services – that work on the side of the individual. The potential scope and benefits of this idea, for both individuals and organisations, is unthinkably huge.

We blur this focus at our peril!

Alan Mitchell

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AlanMitchell Buyer centric services, Project VRM

Here’s my theory on what happens when the subject of VRM/ buyer-centricity is raised in a CRM context.

Hopefully we can work on improving our VRM sales pitch at the VRM workshop in Mountain View later this week.

Anyone with suggestions as to how we can better tell the story and who won’t be at the meeting this week then please chip in with comments and we’ll make sure they get taken onboard.

Iain

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Iain Henderson Project VRM

I have just received a missive from the IPA, the UK’s advertising agency trade body, waxing lyrical about the Inaugural speech from their new president, Rory Sutherland, Vice-Chairman of Ogilvy Group.

In it, he urges the advertising industry to pay more attention to new discoveries in areas such as consumer psychology, behavioural economics, herd theory (whatever that is), social theory and neuroscience.

“The most effective way for any organisation to achieve its ends,” Sutherland declared, “is often through better human understanding:” Advertising is “the business of turning human understanding to our clients’ advantage”.

Sutherland’s speech goes straight to the heart of the issue raised in my recent blogs on consumer psychology and decision making and marketing schizophrenia. Unfortunately, he approaches it from the wrong side up.

Question: what do we want to do?

1) Use our understanding of human psychology, decision making and so on to help human beings to achieve their ends, for their own advantage?

OR

2) Use our understanding of human psychology, decision making and so on to help organisations achieve their ends, for their advantage?

The ad industry’s new found love affair with behavioural economics, neuroscience and the like is a disaster waiting to happening. As it unfolds it will:
1)    intensify the already toxic climate of mistrust between advertisers trying to ‘change’ consumer behaviours and consumers wanting to look out for their own interests
2)    generate an even more aggressive consumer and media backlash against organisations and their marketing, instead of finding and building win-wins
3)    prompt even more intrusive, heavy handed interference from regulators – precisely what the advertising industry spends most of its time moaning about.

Marketers can duck, dive, fudge and wordsmith as much as they like, but either they are in the business of helping people make and implement better decisions (in which case they are adding value), or they are in the business of obstructing, sabotaging and undermining peoples attempts to achieve this goal (in which case they are destroying value).  If you try to turn ‘understanding people’  (sounds so warm and friendly, doesn’t it?) into the instrumental pursuit of organisations’ ends and advantage, you are doing the latter.

Well meaning it might have been, but Rory Sutherland’s speech was a clarion call for intensified value destruction. It will be counterproductive.

Alan Mitchell

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AlanMitchell Advertising, The Persuasion Paradigm

My last marathon post on consumer psychology and supposedly ‘irrational’ consumer decision-making was rather long and very complicated, but that’s how these things work. You can distort the truth in one single phrase – but it may take thousands of words to unravel just how and why the distortion works.

Fact is, the issues I described in that post are played out in thousands of ways across every consumer market every day.

Take one simple example: car marketers have discovered that the sound the door makes when you shut it is very important to car users. If it closes with a satisfying ‘thud’ then that ‘thud’ sends a signal telling the user that this car is solidly constructed and safe.

Now. This liking for satisfying thuds is not a ‘rational’ judgement as per pink elephant theories of rationality. Engineering wise, the satisfying thud may, or may not, be connected to the car’s safety performance, but thuds in themselves are not a source of safety. For the most part, the signal is working at an unconscious level: the car user may never notice it enough to comment on it. It goes in ‘under-the-radar’ of consciousness as part of the environmental monitoring we discussed in the previous post – but it does connect directly and powerfully to those primeval decision-making drivers relating to safety and security.

So how does this play itself out in the marketplace? There are a number of possibilities.

•    It might just so happen that in the course of making the car safer, engineers create a door that closes with a satisfying thud. In this happy coincidence, both aspects of the car user’s needs are met: the ‘rational’ need for a safer car, and the ‘irrational’ need for the emotionally charged, under-the-radar signals that create an emotionally satisfying sense of safety.

•    It might be, however, that in the process of making a safer car, engineers create a door that closes with a tinny ‘clink’. In this scenario, even if their car is now objectively speaking the safest car in the world, they risk being punished in the marketplace. No matter how much prospective buyers look at the data on a piece of paper, their largely unconscious senses urge them powerfully – and irrationally – that this car is not safe. So they don’t buy it.

•    A clever marketer then comes along. Because he’s interested in the ‘irrationality’ of consumers decision-making, he uncovers the cause of the problem and tells the engineers that they need to redesign the door so it gives a satisfying thud, even if in doing so, they add nothing to its objective safety performance. In this way, the marketer addresses the car buyer’s ‘emotional’ ‘irrational’ needs as well as his rational needs, and everybody is happy.

But does it stop there? In the last case of adding the satisfying thud to an already safe door, how much extra cost should the engineers incur in making this change, and how much more should the car buyer pay for it? Here we enter the treacherous territory of consumers paying a premium for ‘irrational’ emotional ‘added value’.

But things can get even more complicated. What happens, for example, if in the process of producing the satisfying thud engineers produce a product that’s actually less safe? Here, addressing the consumer’s ‘irrational’ emotional need comes at the expense of the product’s rational, objective performance.

Or consider the possibility of two very different trajectories of competition. One trajectory focuses on the actual process of delivering improved safety performance. The other trajectory focuses on delivering emotionally-driven signals of safety, without bothering with the underlying realities. What happens if the second strategy of addressing the ‘irrational’ emotional signals delivers the company more sales, more quickly than the first one? If so, the industry gets sucked into a spiral of intensifying competition, not around who is best at actually delivering better value, but over who is best at exploiting the consumer’s irrationalities.

The contribution of buyer-centric services

How then, can we positively deal with this situation?

One answer, of course, is via a deus ex machina – the regulator. If a regulator specifies that no car can be made with doors below a certain safety level, then having delivered this minimum standard, marketers can compete in the market for satisfying thuds to their hearts’ content. In many markets, that’s where we’ve ended up.

This answer is not 100% satisfactory however, because often it simply recreates the conflict at another even more intractable level – of condescending, patronising nanny state-minded regulators on the one hand and ‘free market’ marketers forever bitching about how these nanny state regulators a) don’t understand ‘what the consumer really wants’ and b) are always adding cost and complexity via all their extra red tape.

An alternative – perhaps supplementary – approach is that of the buyer-centric service which adds value by helping buyers make and implement better decisions. There are three ways such a service could help.

1) It could focus on the facts – say, helping to produce league tables about which cars are, in objective tests, safer. This can be a useful service – it’s certainly part of the buyer-centric approach – but, as our professors pointed out, it fails to address the realities of ‘irrational’ decision-making; the raw emotional power of that satisfying thud. This is one reason why worthy institutions such as The Consumers Association in the UK and Consumer Reports in the US have always had less influence than they ‘should’. In a funny sort of way, actually just focusing on the ‘rational’ facts in this way actually leaves the field open to marketers seeking to exploit our ‘irrational’ decision-making foibles.

2) It could go one step further by playing the ‘stop and think’ card, I talked about this in the previous post. Here, it wouldn’t just produce a league table of car safety, it would also expose and publicise the devious, manipulative aspects of competition around satisfying thuds when this competition fails to actually address the issue of safety. Such ‘stop and think’ education works in the same way as brand awareness. Once you are aware of something, you can’t make yourself unaware of it. And once you ‘stop to think’ you are more able to let your ‘what if’ mental modelling facilities play a bigger part in your decision.

Buyer-centric services can help buyers make better decisions in this way, though the approach does have a drawback which the professors would have been quick to point it out. If ‘stopping to think’ increases the cost of decision-making too much, many people just won’t bother: life is just too short to spend your time worrying about all these little nuances, especially when they crop up in thousands of different ways, in every market you can think of.

So, unless the buyer-centric service can provide this service in a way which is either very low cost and very easy to use, or fun, it still might not work (though, in cases where the buyer recognises the value of stopping to think it might do the trick perfectly).

3) The third step is to play the marketers at their own game: to deploy the supposed ‘irrationality’ of consumer decision-making in ways that help individuals make better decisions, rather than getting in the way and obfuscating matters.

There are many ways of doing this. One way is to use the same unconscious ‘nudges’ that marketers use to distort buyers’ decisions to help buyers make better decisions. This is the theme of the book Nudge.

Another trick is to note that there is never just one instinctive emotional driver behind a decision. Usually, there are many.

In the case of the satisfying thud, the thud appeals to our instinct for safety. However (for example) human beings also have equally strong emotional instincts around reciprocity, reputations for being trustworthy, punishing cheaters who pretend to be trustworthy and are not, and so on.

Now, if a company prioritises competition around the pretence of safety (the market for satisfying thuds) at the expense of real safety, there is a potentially strong emotional reaction against its cheating motives and actions. This emotional reaction to the company’s cheating is potentially far, far stronger than the one relating to satisfying thuds (once you stop to think about!).

It’s the combination of the three above approaches that makes the buyer-centric service so powerful. Buyer-centricity is not about telling consumers they should be rational pink elephants, or pretending that they are. It’s about understanding how real human beings make real decisions and then using this knowledge to help them make better decisions, instead of trying to use this knowledge as a means of conning them and extracting value from them.

Unfortunately, we still haven’t dealt with all the professors’ objections, because they made another point too: that ‘consumers don’t know what they want until marketers tell them’.

This is another one of those glib catch-phrase distortions that’s simple to say and complex to unravel. I will return to that in my next post.

Alan Mitchell

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AlanMitchell Buyer centric services, Marketing, The Persuasion Paradigm

I suggested in my post Marketing Schizophrenia and the Persuasion Paradigm that much of the debate about consumer decision-making, behaviour and marketing is stuck down an intellectual dead-end. To escape this dead-end we have take a deep breath and prepare to do battle with a fog of conceptual confusion.

(Bear with me in this post and please forgive its length. I’m trying to think out loud about stuff that’s incredibly slippery, where one wrong move takes you right back to where you started.)

Pink Elephantism

OK, so here goes. The context of this whole debate is the insane speculations of traditional economics – particularly its notion of ‘rationality’ which, for a hundred years or so, has pretty much defined what a ‘good’ decision looks like and how it is made.

In short: according to these theories a ‘good’ decision is one that ‘maximises the utility’ of the individual making the decision. This brings with it three huge assumptions.
1) A good (i.e. ‘rational’) decision is only rational if it is pathologically selfish. ‘My sole concern is to maximise my utility. If the only way to maximise my utility is at another person’s expense, that’s not my problem.’ In other words, this theory of ‘rationality’ is uncompromisingly atomistic and, ultimately, it is an exploitative philosophy.
2) This utility maximisation has been carefully calculated according to purely ‘rational’ considerations – weighing hard facts about what will and what will not maximise my utility unsullied by non-rational considerations such as ‘emotions’.
3) This process of calculation is perfect. It assumes that I have access to all the information I need to make this calculation and that the costs of gathering and using it are zero.

This theory of ‘rationality’, along with its associated assumptions colours and distorts all our debates about consumer decision-making, consumer behaviour, marketing and so on – mainly by the ways it defines ‘irrationality’:
• It is ‘irrational’ not to be pathologically selfish (to factor other people’s needs or desires into our decision-making).
• It is ‘irrational’ to let emotions colour what a ‘good’ decision looks like.
• It is ‘irrational’ to make decision without having complete access to perfect information, because without this, the calculation is likely to be wrong.

All we have to do is look at this list to know that, by definition and a priori, the theory of rational decision-making has declared all real human beings’ decision-making to be ‘irrational’. We may know in our heart of hearts that this is nonsense, but explaining exactly why it is nonsense is quite difficult. As a result, we find ourselves debating the nuances and foibles of human decision-making as if it were true. It’s as if the biology profession decided that all living creatures should be pink flying elephants, and then went about comparing all the real creatures they studied against this ‘gold standard’ of what their ideal features should be. Are they pink? They should be! Do they have six foot long probisci? They should have! Do they weight two tonnes and still fly? They should do!

For consumer decision-making this disease of pink elephantitis tells us – straight away – that virtually all consumer decisions are ‘irrational’ because they are a) coloured by emotions and b)not perfect (because they are not based on perfect information).

Now. Please note the power of that word ‘irrational’. First and clearly, somebody who is ‘irrational’ is stupid. Second, anybody who is rational – wanting to maximize his own utility – will take advantage of the stupidities of stupid people.

Marketing corporations are supposed to be rational entities making rational decisions. Therefore, if they want to behave rationally, they need to understand the stupidities of consumer irrationality and to exploit these stupidities as much as possible. This way, marketers can get consumers to do what they want them to do – buy more stuff, pay higher prices, be ‘loyal’ to the brand, become the brand’s ambassadors, etc. This is what ‘effective’ marketing is about.

This is not the whole of marketing of course. Remember, in my marketing schizophrenia post I emphasised the two opposite stances of marketing: Stance 1) identify and meet customer needs and Stance 2) change consumer attitudes and behaviours in our favour. Stance 1 isn’t perfect by any means, but right now it’s Stance 2 we are wrestling with: the professors’ argument that because consumer decision-making processes are mostly unconscious and irrational a) consumers will always be prey to marketers’ persuasive powers and b) there is no merit or value in trying to build services that help consumers make better decisions.

So, is consumer decision-making really that ‘irrational’?

Well, over the last few decades, there’s been an awful lot of new research in areas such as behavioural economics, evolutionary psychology, ‘neuroeconomics’ and the like – and here’s my take on what we seem to have discovered so far.

Round One to the Professors

The first to thing to say is Yes, it’s true: most human mental activity and decision-making is indeed unconscious. This is a byproduct of our evolutionary past. Brains and nervous systems did not develop for the purposes of thinking ‘rationally’. They developed to help organisms survive, so they are geared to the survival imperatives of sensing and fleeing danger (or fighting), and of sensing and approaching opportunities, for food and sex for example.

The way these instincts work is not via some sort of artificial intelligence if-then computer programme. We are wetware, not hardware and software. Our decisions are mediated by a chemical soup of hormones, neurotransmitters and the like, which we mostly feel as emotions: fear, a desire for safety and security, desire for food etc.

What this means is that every decision we make rests on, and is mediated by, these survival-oriented and unconsciously generated emotions and instincts. So, unconsciously, our mind is always sending us ‘flee’ or ‘approach’ signals which make us feel uncomfortable or comfortable with certain situations and decisions. We know these almost primeval prompters are important because people with brain damage to the parts of the brain that process them find it almost impossible to make even the most basic of everyday decisions.

So, the first point goes to the professors. Yes, most ‘consumer’ (i.e. human decision-making) is indeed underwritten by strong, influential unconscious processes. However, this is not the same as saying that the resulting decisions are ‘irrational’ and that people’s decisions are therefore stupid. Far from it, most of these decisions are actually very sensible. These instinctive processes and responses evolved because they help us survive.

Round Two to the Professors!

By the way, there are probably many layers of such instinctual decisions at work at any one time, some of which may not be directly to physical safety or security. For example, we humans are social creatures and are acutely aware of our relative position in the pecking order among our peers. Just as our unconscious emotions scream ‘don’t do it!’ when we sense risk or danger, and ‘do it!’ when we sense an opportunity for food or sex, they also scream ‘do it!’ if it looks like a particular action might improve our status.

Marketers realised this was the case a long time ago. They realised that if they can wrap an aura of status around the product they are trying to sell, many people will buy it not because of its particular features or functions, but because of the social signals it sends. Such decisions may be ‘irrational’. They don’t fit the pink elephant mindset. But from the point of view of a social animal trying to prosper within a competitive pecking order, it makes some sense. We human beings are influenced by many such ‘irrational’ but ‘understandable’ instincts, and marketers have become adept to appealing them.

So yes, it is true that when a market researcher asks a man why he spent twice as money as he really needed buying a penis-extension status-symbol of a motor car rather than a more functional one that does the job of transport just as efficiently, he might start talking about the engineering and the miles per gallon. He might invent all manner of ‘rational’ justifications for his decision. But we know that deep down underneath, his decision was driven by status seeking, not engineering and that these are just post-rationalisations.

So round two also goes to the professors.

Round Three to the Professors!!

Here, we need to make a second, knock-on observation: our minds are ‘always on’. Our senses are always scanning our environment – sight, sound, touch, smell, and so on – to make sure we are not running into danger; to find opportunities for food, procreation and so on. The vast majority of our brain time is taken up with this under-the-radar environmental scanning, and the vast majority of these scanning and other processes are unconscious. This is important when we come to consider one of the effects of advertising. Because our minds are ‘always on’, we cannot help but become aware of advertising messages even if we are not paying them conscious attention, and once we have become aware we cannot decide to become unaware; awareness is not a reversible decision.

If we put this together with our first point about instinctive decision-making and its connections to primeval concerns of safety, security etc we arrive at an important conclusion. By definition, we feel safer and more secure with things that are familiar to us – that we have become used to and know are not a threat. Thus, simply by making us aware of and familiar with brands, advertising and marketing creates preferences for these brands – compared to products and services which are not familiar to us. Given the choice between the familiar and the unfamiliar, most of us choose the familiar. This is one of the reasons why advertising ‘works’; why it is often effective in influencing consumer decisions whether they aware of the process or not.

So, the third round also goes to the professors – though only within certain limits. Awareness advertising can be very powerful … when the brand that’s being advertised is competing with brands we are not familiar with. But once we are equally familiar with two brands, the influencing power of brand awareness evaporates. More awareness will not prompt us to choose one over the other; mere awareness does not determine the outcome of consideration.

For this reason, even in a buyer-centric, VRM-enabled future we can expect there to be lots of awareness advertising. Yet in the scheme of things – as Professor Andrew Ehrenberg and others have shown through mountains of empirical evidence – in the end awareness advertising is only a ‘weak’ force. Yes, it has an effect, but only at the margins.

Round Four to the Professors!!!

The third point to consider is the way human brains ‘think’. Our minds are incredibly good at seeing patterns and analogies, and not very good at thinking logically, calculating probabilities, and so on. We do not think like computers. Thinking in terms of patterns and analogies makes very good evolutionary sense. If a new situation has features similar to a previous situation which presented us with dangers or opportunities, it’s a pretty good rule of thumb to assume this new situation is also presenting us with similar dangers or opportunities. That way, we are not starting from scratch every time we come across a situation, needing to amass information and evidence, sift its relevance, weigh its pros and cons, etc. Life is too short for that. By the time we’ve gone through the laborious process of ‘rational’ decision-making, there’s a good chance we might be somebody else’s lunch.

But there is a drawback to this rule-based, pattern-based way of thinking: sometimes we don’t read the patterns right. Sometimes we make mistakes. As a result, we make ‘irrational’ decisions on two counts. First, the reason for making our decision in the first place was not a thorough evaluation of all the relevant facts but a simple judgement ‘this looks like a good idea because it’s similar to that other decision which seemed like a good idea’. Second, sometimes we mistake the pattern and make decisions that are not in our best interests.

Once we start looking at consumer decision-making rules of thumb, we can find dozens of them – and each one can be ‘exploited’ by wily marketers who, once they understand the pattern or the signals we are looking for, deliberately create the pattern in order to mislead. Take just one example. Consumers have learned, often by painful experience, that ‘you get what you pay for’. So many consumers adopt the heuristic ‘expensive = good quality’ and ‘cheap = shoddy’.

Having identified this heuristic at work, it’s relatively easy for marketers to exploit this: ramp up the price, and make it look like it’s really good quality say, by wrapping it in fancy packaging when in reality the product inside is no better than its cheaper peers’. Consumers acting on the heuristic ‘expensive = good quality’ then buy this product believing it to be better quality, when it is not.

So: round four also goes to the professors. Sometimes marketers induce consumers into making ‘stupid’ decisions by taking advantage of unconscious or barely conscious mental processes, including belief systems, that are far from ‘rational’ as defined by the pink elephant economists.

A dead end for buyer-centric services?

So far, it’s not looking good for my argument, is it? Could it be that the professors are right after all? That the idea of building buyer-centric services that help people make better decisions is destined to fall on stony ground?

Well, I don’t think so, because I think we are only half way through the story. Let’s pursue it a little further.

So far, we have talked only about unconscious and barely conscious (i.e. heuristic driven rather than consciously, deliberate, ‘rational’ decision-making processes). But the fact is, we humans do ‘stop to think’ every now and then – and we do so for good reason.

Some time in our long evolutionary history, we started developing ‘what if’ mental models. Having noticed a particular pattern instead of risking life and limb by immediately taking course of Action A, we learned how to carry out ‘what if’ trial runs in our heads. ‘If I leap in that direction, I might lose balance and fall over that cliff’. In this way, we began to build mental models of the reality around us, and to make conscious decisions between alternative courses of action.

These conscious, deliberate decision-making processes didn’t get rid of the primeval emotions driving our behaviour. They were just a layer on top, thereby creating two interesting scenarios. The first scenario is where our basic instincts scream at us ‘do it!’ or ‘don’t do it!’ and we go ahead and make our decision on this basis. Does this obviate the value of conscious deliberation? Not at all. Having made a decision as to what to do we may then we refer to our ‘what if?’ mental modelling capacities to work out the best way of doing it. In such a case, the decision might still be driven by unconscious emotional or survival motives, and we simply deploy ‘rational’ conscious, deliberate decision-making processes in pursuit of these goals.

The second scenario is that our basic instincts scream at us ‘do it!’, or ‘don’t do it!’, and our ‘what if?’ mental modelling capacity then kicks in and tells us to reconsider: “actually, thinking about it, I’m not sure that’s the best thing to do”. So, instead of punching someone in the face after they have been rude to us, we keep our anger in check, avoid going to prison and make it up with them later.

Many marketers, when trying to big up their powers of persuasion, ignore the effects of this human ability to ‘stop to think’. For example, there are now huge amounts of research that show advertising can have all sorts of subliminal emotional effects: for example, the smiling pretty woman signalling ‘come to me!’ induces male consumers to buy more and pay more even when the product is as asexual as a loan. Such signals work, because they are addressing those unconscious instincts of ‘flee!’ or ‘approach!’.

However, what marketers don’t add when they big up these findings, is that as soon as the same consumer ‘stops to think’ a) about the relative merits of this offer as opposed to that, or b) how the way the offer is being presented might be manipulative, the persuasive effect of the imagery evaporates. Marketing activities like these ‘work’ so long as consumers continue operating on autopilot. They stop working when they stop to think.

There are two issues worth considering here. First, time and learning. It’s now a common observation among marketers that consumers are becoming ever more ‘savvy’ and ‘sophisticated’ and therefore less prone to be influenced by marketers’ blandishments. Once we stop to think about this, we can see why. Even if most human decisions are first and foremost underpinned by emotional needs and signals relating to safety, security, status, opportunities for reward and so on, we have also evolved this ability to stop to think and to learn from our experience. This is one of the reasons why marketers’ ability to play with our unconscious desires, to get us to what they want us to do, is more limited than they sometimes pretend.

Reciprocity and the theory of mind

But we haven’t finished yet because, to make sense of the world, ‘what if?’ mental models also have to take account of what other people are thinking, believing, intending, planning to do etc. To have a robust, realistic mental model of the world out there we also have to develop a ‘theory of mind’ which tells us about the other party’s motives.

This is important, because another one of the basic emotional instincts we acquired along the way is that of reciprocity. Reciprocity has two sides:
• ‘you scratch my back and I’ll scratch yours’. In other words, if you demonstrate yourself to be honest and fair with me, then generally speaking I will be honest and fair with you.
• ‘an eye for an eye; a tooth for a tooth’ – the revenge instinct. If you betray my trust and threaten me, then I will punish you for your transgression.

Now, once we enter this territory of ‘theory of mind’ things begin to get very complicated. For example, having a reputation for being trustworthy can be very beneficial because people will be much more willing to do business with you. This is what lies behind marketers’ talk of brands being about trust and promises, and the importance of keeping these promises.

On the other hand, if you have a reputation for being trustworthy but can somehow get away with cheating (by for example, pretending that it’s better quality simply because it’s more expensive), then you can reap the benefits of the good reputation without its related costs. This can be a much more profitable course of action.

However, over many years of complex social life, human beings have learned to keep a look out for such cheats. In fact, some psychologists posit the existence of powerful ‘cheater modules’ in human minds. We are, it seems, instinctively very good at scanning the actions, signals and motives of other parties to see whether they are likely cheats or not.

What’s more, human societies have also developed sophisticated ways of punishing cheats, for example, via the weapon of gossip, by which the cheating party’s reputation is destroyed, the party gets isolated and shunned, and so on. In the modern era we have given these age-old instincts fancy new names such as ‘word of mouth communication’ and ‘peer-to-peer communities’ etc. But they are as old as the hills.

Here, we hit the real dilemma for marketing’s persuasion paradigm.

1) By looking at the ways human minds work – e.g. the power of instinctive emotionally driven decisions that are  shaped by patterns and analogies and ‘irrational’ rules of thumb, plus physiologically unavoidable facts such as ‘always on’ awareness – it is possible for marketers to find many ways of influencing consumer decisions. Their success at doing this seems to demonstrate that ‘the consumer’ is indeed ‘irrational’ and ‘open to influence’. There is strong, indeed irrefutable evidence that, to some degree or other, marketing’s persuasion paradigm ‘works’.
2) However, the self-same in-built characteristics of the same human minds also explain why the scope of such ‘powers of persuasion’ are actually rather limited. Sometimes, they only ‘work’ up to a certain limit and then stop working. Sometimes, they evaporate in the face of second thoughts. Often, the consumer is presented not just with one influence working in one direction but many influences working in many different directions, so that their net effect is that they cancel out. For example, the heuristic ‘expensive = good quality’ may be countered by gossip saying ‘that brand is a rip-off’.
3) Once we bring ‘theory of mind’ into the equation we discover that marketing is working always at two levels at the same time, not just one. Even as marketers succeed in influencing or persuading consumers to do one thing, they are at the same time sending powerful signals as to their motives and intentions. If and when these motives and intentions are not deemed trustworthy, they trigger ‘revenge’ responses. Even as marketing’s persuasion paradigm appears to work by influencing consumer decisions it is, at the same time, undermining trust and building resistance.

That’s why nowadays, nobody trusts marketing or marketers. Which means that, in everything they do, marketers find themselves trapped in an uphill struggle of rising costs and reducing ‘effectiveness’.

The opportunity for buyer-centric services

So where does this leave buyer-centric services whose job is to help individual make and implement better decisions?

The first thing to note is that ‘better decisions’ are not the same as ‘rational’ decisions, as defined by the pink elephantists. If we take it for granted that most human decisions are emotionally driven, and that the ‘bottom line’ for most human decisions includes an emotional element – Was it fun? Do I feel safer as a result? Has it improved my status? Does it make me feel good about myself? – then a truly buyer-centric service will help people make decisions that achieve these emotional results. Buyer-centricity is about being human. It’s not about trying to become a pink elephant.

The second thing to note is that, under their persuasion paradigm, marketers often try to induce consumers into making worse decisions. The value of buyer-centric services is that they help individuals ‘see through’ and overcome the ploys. They can do this in many ways: by helping us to see and develop different patterns and different analogies and adopt different decision-making rules of thumb, helping us to ‘stop and think’; mobilising the power of gossip to punish cheats, etc. They may even use the same biasing instincts that prompt us to make bad decisions (i.e. decisions we later regret) to help us make better decisions. This is theme of the fascinating book Nudge by Richard Thaler and Cass Sunstein.

So my net conclusion is that:
1) despite the fact that rounds one to four of the argument seemed to go to the professors, there is room for new types of service that help individuals make (and implement) better decisions;
2) approaches to marketing that seek to take advantage of the supposed ‘irrationality’ of ‘the consumer’ are both toxic and addictive. They are addictive because they ‘work’ to a some degree. Once they have started working then, in the quest for even better results, marketers are sucked into taking bigger and bigger doses. But the net effect of these bigger doses is usually counterproductive: they build consumer resistance to marketing (thereby leading to increased cost and complexity) while undermining trust.
3) From the consumer’s point of view, there is potential value in services that help them make better decisions, despite their supposed ‘irrationality’.

Now, this doesn’t mean that there is a viable business model in services that help consumers make better decisions. (I believe there is a viable business model. In fact, I believe it’s going to become the biggest industry in the world.) But that’s a separate argument.

It also begs the question, ‘what’s in this for marketers?’ I believe there’s a huge amount of value in better consumer decision-making for marketers. It’s about helping markets flow and work better, rather than clogging them up with unnecessary friction. But that, too, is a separate argument.

Also, it doesn’t answer the professors’ other objection – the one that says consumers don’t know what they want until marketers tell them. That too, is far more complicated than it looks, and I’ll return to that in due course.

But right now, if you’ve kept with me this long, Thank You! This is only a first stab at a big and complex debate. So please add your thoughts, because the sooner we work our way through this intellectual maze, the better.

Alan Mitchell
7 April 2009

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AlanMitchell Advertising, Buyer centric services, Marketing, The Persuasion Paradigm