At the core of the buyer-centric concept is the simple notion that for most people, value boils down to the ability to make and implement better decisions – at every level from life defining to choice of toothpaste.

Trouble is, once we start investigating what a ‘better decision’ might look like, it turns out to be pretty complicated.  New discoveries in psychology are underlining just how complicated human decision-making is, and the whole debate has been shrouded in a fog of confusion – most of it generated by marketers and their self-serving theories of ‘persuasion’.

Anyway, I’ve been gnawing away at these issues over the past few months and will at the grindstone for a while yet.

If you are interested in some half-way house conclusions, you can see my summary of what new findings of psychology mean for our understanding of consumer decision here, and why most marketing theories about consumer decision-making are so much claptrap here.

Really keen to hear any thoughts or comments.

Alan Mitchell

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AlanMitchell Buyer centric services, Marketing, The Persuasion Paradigm

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

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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Just back from a session with Nottingham Business School’s marketing faculty (thanks to Debbie Roberts for the invitation!). I presented them with two basic ideas.

The first is that marketing suffers from a bad case of in-built schizophrenia. On the one hand, it’s all about ‘identifying and meeting customer needs’, which involves getting organisations to do what their customers want them to do. On the other hand, it’s also all about ‘changing attitudes and behaviours’, ‘building brand loyalty’ and so on – in other words persuading and influencing customers to do what the organisation wants them to do. So marketing is trying to do two opposite things at the same time. My suggestion was that the second ‘persuasion paradigm’ aspect of marketing is basically a waste of time and money for both sides, customer and company. (http://www.rightsideup.net/?p=13)

The second idea followed from the first. Behind consumers’ needs (and desires) for products and services we have an even bigger, deeper ‘meta’ need – for help in making and implementing better decisions. This need for ‘decision making support’ is a huge untapped market: potentially the biggest market in the world, because ultimately we all want to make better decisions about every aspect of our lives. However, thanks to its persuasion paradigm, marketing has signally failed to address this need or even to recognise that it exists. For this reason, from the perspective of the consumer/customer, marketing is part of the problem, not part of the solution.

Surprisingly (!), the assembled professors and PhD students didn’t seem to like my ideas. I got pushback on two fronts. First, they didn’t like my ‘schizophrenia’ observation. It’s not what they read in the textbooks. It’s not what they teach. That’s fine by me. Virtually everything you read about marketing focuses on what marketers should be doing, or how they should do it. There’s hardly anything out there about what marketers actually do. I was talking about my observations about what marketers do, and therefore what marketing actually does.

The second piece of pushback was far more interesting. According to my thesis, helping individuals make and implement better decisions is the biggest unexplored market out there; the source of growth for a whole new industry, new types of value creation etc. But the professors weren’t convinced. They had three basic arguments.

First, when I claimed that people want to make and implement better decisions, what many of them heard was that ‘people should make rational decisions, and that marketers should help them’. The word ‘rational’ is important here, because it’s not about being sensible or even logical. It’s a throwback to the bizarre economist fantasy of homo economicus: the pathologically selfish individual, interested only in money/price, with access to perfect information at zero cost.

This raises an important question: if people are never going to be ‘rational’ in the way economists describe, ‘what does better decision making look like?’

The second, related pushback was that in human beings the real decision making processes are largely unconscious, driven by unconscious emotions. The reasons we give for our decisions are just post-rationalisations. So there is no way we can help people make better decisions (especially by offering them more ‘rational’ support).

The third pushback followed from the first two. Given the highly irrational nature of consumer decision-making and the fact that consumers don’t really know what they want, they need to be told what they want by advertisers. As one of the professors said, “I don’t know what I want until the ads tell me”. (I still can’t work out if he had his tongue in his cheek, but it’s certainly the line peddled by advertising luminaries such as Maurice Saatchi. http://www.rightsideup.net/?p=14&cpage=1#comment-18)

Put these three pushbacks together and we have a powerful justification for an ideology of marketing which says:  “ ‘we’ (the marketing profession) are clever; ‘they’ (‘the consumer’) are stupid and gullible. ‘We’ deserve to lead ‘them’ by nose.”

I think this ideology is part of the problem for both individuals in their roles as buyers and consumers, and for sellers. It undermines trust and creates friction in the marketplace. However, if the observations supporting it are correct, it may be  unavoidable. Just the way things are.

I don’t believe this. Like so many things marketers do, the arguments are muddled and superficial. That’s not to say it’s a hugely complex area. In fact, it’s an intellectual minefield. One false step could blow you away. Nevertheless, we need to enter this minefield and navigate our way through.

Why? Because an thinkably rich prize – a ‘buyer-centric’ commercial system that has helping individuals make and implement better decisions at its operational heart – now beckons.

Alan Mitchell

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Here’s one simple way to encapsulate today’s trend towards buyer-centricity. Our modern commercial set-up is organised around a persuasion paradigm, where the driving force in commerce is companies and their attempts to persuade individuals – so-called ‘consumers’ – to buy their products or services (and not those of their rivals).

We are, however, groping our way towards a personal decision-making paradigm, whose centre of gravity is helping individuals make and implement better decisions at lower cost (where ‘cost’ includes time and hassle cost, as well as money cost). This is being made possible by an information age: our increasing ability to search for, gather, store, filter, edit, slice and dice, analyse, share the information we need to for our decision-making.

Better personal decision making (and implementation) is an era-defining shift for two simple reasons: it shifts the focus of value creation from companies and their goals to individuals and their goals; and it encompasses all aspects of production, distribution and exchange (and a whole lot more) – because living our lives as best we can boils down to making and implementing the right decisions at every step of the way, across everything we do.

Practically speaking, this shift from a persuasion to a personal decision-making paradigm is a catalyst for wholesale, accelerating and deepening change. Here are some top line commercial implications.

1. It changes the purposes to which information is put. Under the persuasion paradigm, the information that’s made available to individuals is produced primarily by sellers to help these sellers achieve their selling goals: to influence buyer decisions. Better decision making, however, is about using information to help buyers – individuals – achieve what’s best for the individual. This also means a change in information content. For example: the information that is presented in a typical advertisement is different to the information that is presented in a peer-to-peer product review or price comparison service.

1. To make better decisions, individuals often need to volunteer further information about themselves: desired outcomes, priorities, constraints, questions, concerns. We looked at one such service ‘module’ – the Problem Solving Community – on the BCCF web site recently (http://www.rightsideup.net/ProblemSolvingCommunities.htm). As a result of this voluntary input of information, the information flows that define relationships and interactions in society are beginning to change fundamentally. The persuasion paradigm revolves around top down messaging by sellers to influence buyers’ purchasing decisions. Better decision-making is informed by bottom-up personal voice: ‘Here I am. This is me. This is what I want to do right now’. This requires far reaching innovation in the mechanisms and processes which connect buyers to sellers.

1. Better decision-making is a different type of activity to consuming news or media entertainment. When making decisions we are paying attention to different things, using our minds in different ways, using different types of tools, which are provided by different channels and sources of information. As a result, we are seeing the beginnings of a slow and painful separation of ‘marketing and advertising’ from ‘news and entertainment’.

But there is little benefit in being able to make a better decision if you can’t implement it better. The personal decision-making paradigm therefore opens up two further areas of innovation.

• First, it takes us beyond today’s norm of ‘customer relationship management’, where companies gather information about their customers in order to maximise the value of those customers to the company and to manage the company’s dealings with them. Instead, it leads us towards supplier or vendor relationship management (see Project VRM. http://www.rightsideup.net/ProblemSolvingCommunities.htm). Under supplier relationship management, individuals (or services working for individuals) gather information about organisations in order to maximise the value of those organisations to the individual, and to manage the individual’s dealings with these organisations.

So, while customer relationship management looks at many different customers through the eyes of just one company, supplier relationship management looks at many different organisations through the eyes of just one individual. We are talking about significant changes to the structure of commercial relationships.

This has an important knock-on effect. Our current commercial set-up is organised around producer silos: organisations with the dedicated and focused knowledge, expertise, resources and infrastructure to undertake a particular, specialist production task: make a motor car, make a computer, make a bar of chocolate, fly people from A to B, and so on. The economics of these organisations is organised around doing more of the same, better: the car maker wants to sell more cars, the computer maker wants to sell more computers, and so on.

But most desired outcomes or ‘solutions’ require the integration of many different ingredients. To make that trip, we need our computer to book the flights, our car to get us to the airport, the plane to take us from A to B, and the bar of chocolate to sustain us along the way. To implement better decisions in other words, we need to cut across and somehow integrate the many separate outputs of today’s silo infrastructure.

• This leads us to the second critical point about decision implementation. To better implement decisions we need better coordination, integration and administration – of all the different inputs we need to achieve our desired outcomes. This shifts the focus from the inputs themselves to how to bring them together. It shifts the focus from the details of products and services themselves (which will always remain important) to the processes we use to access and use them. Companies recognised the critical importance of process design and management many years ago, but when it comes to personal processes, this is virtually virgin territory.

If we put all these things together, we can see how big thr shift from the persuasion paradigm to the personal decision-making paradigm is. It embraces the purposes to which information is put (and therefore its content); the mechanisms and processes via which this information is generated, elicited and distributed; the channels through which it flows; the structure of the resulting commercial relationships; and the processes we use to generate value through these relationships.

The persuasion paradigm may have had some merit in the early days of the industrial age. But today, it is inefficient, sclerotic and toxic and well passed its sell-by date. The simple concept of better personal decision-making takes us to the brink of an explosion in innovation.

Alan Mitchell

16 August, 2007

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I had an interesting discussion with Alan Tapp from Bristol Business School who is researching whether marketing can, or should be, seen as a science.

I made two, related, comments.

First, marketing as we know it is an industrial age invention designed to improve the performance of corporations by helping them to sell more, more profitably. This does not generate an ‘objective’ (as in ‘scientific’) perspective. Instead it generates a highly subjective outlook on things. It looks at the world through the eyes, interests and concerns of a particular corporation. What would marketing look like if marketers were employed by individuals to improve their individual market performance and profitability? If marketing were a service to the individual? Would it worry about, and do, the same things? Would it use the same measures of success?

Of course, corporations and individuals use science to help them achieve their objectives, and could you argue that there is a developing ‘science’ of understanding in terms of how to understand and meet people’s needs, and how to communicate with them persuasively.

But I doubt it. For a start, there is a big difference between practical ‘craft’ knowledge – that if you do X then Y tends to happen – and a science where you really understand why X causes Y, in what circumstances, with what limitations, contexts and so on.

And we can’t ever forget the purpose of marketing, which is not to discover new knowledge but help corporations perform better.

The golden contribution of marketing is its focus on identifying and meeting customer needs – which means that the skills and resources of big companies are often deployed in very useful, value-adding ways.

However marketing’s role in this is unfortunately more alchemy than science. Alchemists dreamed of turning base metals into gold. Marketing dreams of turning people – ‘customers’ and ‘consumers’ – into corporate assets by making them ‘loyal’ to the company’s brands. Both are fantasies.

In addition, both alchemy and marketing struggle to disentangle cause from effect. The other side of the coin to marketing’s ‘identify and meet needs’ mantra, for example, is the quest to ‘change customer attitudes and behaviours in our band’s favour’. Companies invest vast amounts of time, money and effort on this forlorn quest, and continually mistake success in one arena (meeting peoples’ needs) with success in the other (changing peoples’ behaviours).

For example: Does a price promotion succeed in changing peoples’ behaviours in favour of a particular product – or does it simply align with what people want (lower prices)? When people respond to an advertising campaign, is it because the message is so powerful and persuasive? Or is it because it’s about something people were considering buying anyway? That’s useful to them, in other words?

Marketers continually mistake ‘alignment success’ with ‘influence success’ – and, drawing the wrong conclusions, seek to invest even more time, money and effort in the attempt to influence or change customer attitudes and behaviours … only to be disappointed by the results.

Marketing will be as successful in changing people’s attitudes and behaviours in favour of brands as alchemists were in turning base metals into gold. The ‘evidence’ they offer for success in moving towards their goal represents a fundamental misunderstanding of what is going on. Very rarely is it actually evidence that they have succeeded in their objectives, it is evidence of something else entirely: not that they have been successful in changing what people think or do, but thatthey have been successful in doing what people want them to do. And their success evaporates as soon as they stray from this simple truth.

Why does this matter? Because we can only grasp the importance of person-centric business models once we have seen through the illusions that continue to underpin ‘marketing’.

- when companies are successful in identifying and meeting needs, they tend to mistake this for success in changing customer attitudes and behaviours. Corporations have a command and control mindset. They can control what goes on inside their corporate boundaries, so why not try to control what goes on outside – in the market – via this special, magical tool called marketing? But people don’t want to be controlled. They want to be in control.

- while some day-to-day marketing activities focus on identifying and meeting customer needs, an awful lot of marketing – communications and branding, for example – is obsessed not with the needs of customers, but with the needs of the company: to sell its products. But people don’t want narcissistic ‘messaging’ from companies. They want honest to god, useful, trustworthy information.

- The ‘identify and meet customer needs’ mantra is actually far more bounded and limited than most marketers dare admit. What it really means is ‘identify those needs that we can turn into profitable markets for ourselves’. It is actually just one part of the agenda of ‘improve the company’s performance’ and ceases to be a driver of corporate actions as soon as it stops fitting this agenda.

Trouble is, not all ‘consumer needs’ are easy to turn into profitable markets for companies. For this to happen the ‘need’ needs to ‘fit’ the company: its legacy skills and infrastructure, and the company’s need to generate economies of scale out of this need. The industrial age company makes its money by producing and selling more and more of the same thing.

Yet in real life, when individuals try to solve problems in their daily lives, the solutions to these problems don’t depend on more and more of the same thing. They depend on the opposite: a combination of just one of many different things. So while the marketing mindset focuses on finding customers for products, the person-centric mindset focuses on finding a range of different products for people. They are looking down the telescope from opposite ends.

When it comes to ‘operating logic’ and goals the two are 100% unaligned.

Person-centric business models are designed to put people in control, using honest to god trustworthy information, to solve the problems of daily live (as distinct to the problems of finding customers for products). For marketing alchemy this is simply a leap too far.

Alan Mitchell

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