I am a big fan of decision-making sciences (that’s a more palatable word for marketers for behavioral economics & cognitive sciences). Ever since reading Thinking Fast & Slow by now famous Daniel Kahneman, I found that our irrationalities, heuristics and System 1 - are probably the most important piece of marketing knowledge since the USP in 1940s.
So, I will try to take the most common heuristics and list how marketers can make the most of them - in order to match marketing 2.0 to our being a human 1.0. My intention is to update the list with applications, so if you spot any instance of this heuristic being applied to marketing, please drop me a note in the comments below.
For this post we will deal with loss aversion, reference dependence and status quo bias.
Gains catch our fancy, fears drive our behavior
We’ve long known that new products, most innovative products - fail. In CPG the rate is somewhere about 80-90% - that is most products launched this year, won’t be on the shelf the next year. And out of the products that do make it past their 2nd birthday, their penetration rate is on 1.73% according to GfK & Kantar Worldwide Europanel
Recently on a project I got involved into why Romanians don’t use credit cards (or debit) for day to day payments; although there are many cards issued, the majority is used just to take out all the pay-check at once. Or why close to nobody does internet banking - when the benefits are enormous.
Or even more strangely, since the payment by SMS was introduced at Cernavoda bridge - I would’ve expected less of a queue at the cash office. The old joke that Romanians are used to queuing (a Communist legacy) just doesn't cut it any more given the age of the drivers I’ve seen.
And yet, any business book you open and any marketing or strategy conference you attend say - “innovation is good for any business” or “innovate or die” or, in the corporate world - “let’s have a disruptive innovation workshop! (and pay thousands for the venue and the speakers, in the process).
So why is that when we do innovate, only 10% seem to make in on the long term?
Turns out, at least part of the blame for the high rate of failure of innovation or the slow uptake of new products lays with the way marketers communicate them :(. Let me explain:
There are two factors at work here - one is the loss aversion, which I’m sure you’re familiar with, if you’d like a refresher - here’s a nice explanation in a financial context. To put it simply, this is our innate trait of placing 2X importance on what we have to give up, or lose, or change than what we stand to gain.
The other is the fact that we are reference dependent - meaning people evaluate new choices based on the most salient reference point. And the most salient reference point is generally the habitual one, what they've used to evaluate products on so far.
For example, online shopping is considered convenient only when a researcher asks for an evaluation. In real life, people do not really think about convenience of online shopping but rather about their losing the ability to pick and choose, to really smell that tomato and gently touch that cashmere sweater (turns out there is brilliant new research that shows shopping on a touchscreen greatly enhances our sense of ownership, suggesting that shopping on a tablet might give better conversion rates than shopping on a desktop - but this in another chapter).
Or when presented with an internet banking token people really think about losing the chit chat opportunity with their account manager at the bank; or losing the safety of knowing there is always somebody there to complain to and solve your problem (when there really isn’t but then again, people aren’t rational). I've got branch managers telling me people travel to other neighbourhoods just to keep their account manager, should he or she change office.
On the other hand, this loss aversion makes matters worse also for innovator and marketers - when you’ve invested time and effort into new features, and all you did is obsess about it for months, understandably you feel you own that new product. Understandably, you tend to communicate it as such, like it’s your baby - because otherwise you fear the loss of your point of view...marketers are just as used to the status quo as normal people in the streets.
It seems that when it comes to new products, both consumers fear losing their habits and innovators and developers fear losing their work. And between them, most products fail.
Beware of the new
So what is there to do? How should marketers go about this when launching something new? John Gourville, a Harvard University professor - in his wonderful paper “The Curse Of Innovation” has a few hints on based on an easy to gauge matrix that lists the degree of behavioral change required and the degree of product innovation.
As a marketer you have to decide if your communication role is to (1) accept and manage the underlying resistance to change or to (2) proactively minimize that resistance.
One example is to make it behaviorally impossible to stick to the old solution: for example, years ago when working in branding we launched a new pack for margarine. About 3 months after the launch the clients calls us very unhappy that the new pack product isn’t selling. We undertook some serious research to find out what’s wrong with the pack...turns out, given the fact that the client already had big stocks of margarine with the old packaging, they took the decision not to withdraw the old pack from retail. And of course, what did consumers do? They happily went for the old pack, totally blind to the new pack (because yes, we only see what we want to see). Physically altering the environment is the surest way to change an undesirable behavior.
Another solution is to minimize the differences in communication and emphasise the similarities. Besides downplaying risks by going for similarities, there is an additional effect here - people only value and pay attention to product features only after they’ve bought the product (familiarity - has to power to focus our attention). A good example is the communication campaign for Unicredit Mobile Banking - it likens the new mobile banking app to your branch, only at ..0m distance from you. You get the best of both worlds. What could be more reassuringly familiar than that?
Yet another solution would be to manage for the long term. Understand that the Cloud for business environment requires huge shifts in how IT and whole departments operate, so when forecasting sales, do not get optimistic, plan to invest in communication for the long term. Or, find a group of people that really do not take long or risk much by changing behavior - like targeting SMEs.
So, closing thought...be cautious when trumpeting how new, different and better is your new product, especially if it requires a big shift in behavior.
- Tablets, Touchscreens, and Touchpads: How Varying Touch Interfaces Trigger Psychological Ownership and Endowment, Brasel. A
- Byron Sharp, How Brands Grow 2009.
- A Curse of Innovation: A Theory of Why Innovative New Products Fail in the Marketplace, Gourville, 2005, HBS
- The Business Of Choice - Marketing to Consumer's Instincts, Matthew Willcox, 2016