I know it's been a long time since I've put words to paper. In the meantime, I started a business and I have to say it's a lot tougher than I expected, and until this gets sorted out, I thought I'd write the things that inspired me most, that changed my mind most.
This is the first piece of a series based on Decoded, The Science of Why We Buy What We Buy, by Phil Barden - long time marketing professional with T-Mobile. Why this book? Maybe you remember how fascinated I was with Daniel Kahneman's Thinking Fast and Slow. Reading it, it changed my mind on how we make decisions, what irrational beings we really are and how untrue was the whole Economics we studied in college: namely - that we are rational beings that make decisions based on utility. Reading this book, I was thinking that it would be great if we could apply the System 1 vs System 2 thinking to marketing. Well, guess what? Phil Barden does just that and with it, in Decoded, he creates a whole new paradigm of marketing, based on neuroscience, that is much more fit to the world we live in.
Not to make a post too long (after all, studies show that people best read 500-1000 word blog posts) I will split the findings in the book over several posts. So here we go:
Understanding decision making
Conventional thinking: for brands it's important to be in the consideration set. New thinking: Consumers brains responded intuitively only to the favourite brand, not the second “first choice brand effect”. That’s why it makes sense to be top of mind, not in the consideration set.
The framework - Kahneman’s System 1 and System 2 model.
True brands work at System 1 level (implicit, unconscious, autopilot level) Weak brands activate System 2, meaning that consumers have to think about the choice.
The autopilot processes almost every signal in the environment due to its enormous capacity. Therefore even subtle signals can influence decision making and behaviour.
Through framing, the autopilot and its implicit processes determine how we perceive and act upon the world around us. Framing explains the real equity of brands for selling products. Think of this in blind tests, the branded variant always comes up on top. Think of Starbucks commanding a higher price.
The amount of money that we are willing to pay over and above the objective value of the product is exactly equal to the vale of the frame that the brand provides at the moment of purchase.
Seeing brands as the frames for the product ends the debate between doing an ad with brand image vs hard sale. Without the brand, the hard sale has no value since in most categories, customers are quite satisfied with the product performance and therefore it lacks and relevant differentiation.
The framing effect also explains why the brand effects are so frequently underestimated in surveys, because framing operates at the implicit level and hence, consumers aren’t aware of it. It follows that surveys of this type are pretty much useless.
The autopilot manages the majority of perceptions, expectations, attitudes and motivational drivers underlying purchase decisions.
- To fully understand consumer decision making and to persuade consumers to buy our products we need to understand both explicit and implicit levels of decision.
- Potentially, all the signals that we send influence the autopilot.
Decoding Purchase Decisions - how do we really choose?
The picture of a product or brand increases the activity in the area of the brain called “reward system”. When the price was shown, the insula was activated (area associated with pain). Knutson’s results show that purchase decisions are based on a reward-pain value relationship. To make consumers buy it is possible to simultaneously increase reward and decrease pain >>> hard sale vs brand image debate.
How to increase value
Design can increase value: e.g Voss (the most expensive water in the world) has also one of the most beautiful bottles. Voss was able to overcome the price point of table waters because it positioned itself more closely to a beautiful table decorations rather than speaking about water source and purity.
Prices however also influence the value side of the equation because in many categories a higher price means better quality (wine). It contributes to value only when the price range in the category is high.
Language can increase value - e.g restaurants having flowery menus sell more and at higher prices. 75% less fat was valued more than 25% fat. Or gain vs non-loss. In cosmetics the language is positive, based on what you gain from using a cream, non-loss is powerful in risky categories such as insurance, medical, banking, housing.
Price is highly relativistic therefore signals such as stars, flashes, discount symbols help decrease price. Anchoring effect - always compare prices. Charm prices ending in 9. Sales price markers were valued more than charm prices. Next to price, there is also the behavioural cost - making things easy or look easy and decreasing time required increases the likelihood of the purchase.
Price is only considered/perceived when given a frame of reference. That’s why asking consumers about purchase intent without offering environmental cues or sometimes even prices, is foolish. Consumers don’t know how to compare it. We need comparisons to make decisions. Value and cost are fundamentally relativistic.
Occasion based marketing
Very important since every decision is made contextually. For top of mind questions “if you think of an ice-cream brand, which one comes to mind” totally disregards the context effect where a consumer might choose very different (romantic evening, ice cream with kids in the park, on the road etc). Since the revenue potential of various consumption occasions can be measured, using occasions can be a helpful marketing tool, helping to identify gaps with high sales potential that are not yet owned by another brand but which ofer significant growth potential. This sheds a different light on loyalty as well: consumer may be loyal to a brand only in a certain occasion, not all the time.
- there need not be a trade-off between hard selling and image-oriented marketing.
- the implicit level of cost allows us to maximise net value without actually reducing the price.
- reducing behavioural costs can be a powerful lever to increase net value
- occasion-based marketing is a complementary perspective on consumer behaviour. It provides a myriad of strategic opportunities as well as a springboard for innovation.