Accountability is not enough

It’s time that marketers broke free from the restrictions that are imposed by business language and devised a vocabulary that actually reflects human behaviour, says Rory Sutherland

Unlike many in marketing, I am rather ill-disposed to words like ‘accountability’. It seems to me that this notion imposes on brands a demand for numerical quantification which may simply be neither possible nor desirable – and may risk underestimating significantly a brand’s true value.

How do you ‘account’ for the effect a brand may have on the quality of the people you hire, or on your ability to launch new products? As with weather forecasting, it seems likely that reliably predicting a brand’s future effects may be mathematically impossible.

But I also think that to be obsessed with quantifying the results of every area of marketing expenditure is to misunderstand the nature of the marketer’s problem. Doctors are uncomfortable with the placebo effect not because they believe it doesn’t work but because they don’t know how – it does not sit with any available model they have of how medicine works. In the same way the finance function in business is uncomfortable with marketing not so much because they think it is ineffective but because it is not congruent with their reductionist, neo-classical economic view of the world.

My contention is we need a new vocabulary. To adopt the vocabulary of accountancy is too defensive – it is an example of the ‘Stockholm Syndrome’ where you adopt the phraseology and mindset of your abusers. As marketers, who should above all believe in the primacy of human psychology over economic models, our task is not to adopt the bean-counting view of the world, but to point out to bean-counters that their mechanistic models of the world are inadequate. We cannot do this if we think and talk like bean-counters ourselves.

a common language Our current marketing vocabulary does us few favours, either. To people trained to respect hard science, the language is indistinguishable from that of flower arranging or astrology. Talking to a finance director about brand iconography is like going to the head surgeon at St Mary’s Hospital and suggesting that he ‘trust to the healing power of the crystal’.

We need to find inspiration – and a phrasebook – somewhere else. Happily, in this task, we have been pre-empted by a new, exciting community of behavioural economists, Darwinian psychologists and behavioural scientists, as well as network scientists. The models and language they have developed are a gift to marketing – one it would be insane not to accept.

I have no idea why the marketing field lost touch so badly with academia (David Ogilvy, Bill Bernbach and Howard Luck Gossage were all, in their way, social scientists manqués). We now have a chance to re-establish intelligent links. With these words and concepts, a few of which I have listed below, we can once again speak truth to power.

SIGNALLING Signalling is a concept from evolutionary biology and is also now used widely in economics. It is a vastly more useful phrase than ‘messaging’ or ‘proposition’ or suchlike as it carries with it the understanding that businesses communicate a great deal about themselves even when they are not intentionally communicating. It encompasses the idea that actions and behaviours may often convey more information than words.

As Robin Wright has observed, peacocks are beautiful examples of signalling. To breed, the peacock needs the acquiescence of a peahen who must choose a peacock with which to breed, a question that involves genetic fitness. The peacock addresses this in three extraordinary ways. The peacock is stating that it is so genetically fit that it can still function as a bird even with this absurd, purely decorative appendage on its back. That is conspicuous waste as a form of meaningful advertising.

The peacock’s tail signals in two other ways. The evenness and symmetry of the eyes on the tail are also indicators of genetic fitness as is the degree of translucence of the feathers. The tail operates at the macro, the median and the micro level, providing inarguable proof that its carrier is fit and healthy. A valuable brand does the same.

Brand expenditure is a form of signalling. The fact that you are prepared to put money into your product up front suggests you have faith in it. Moreover, by investing in a reputation, you have something valuable to lose by not dealing squarely with your customers.

Creativity is a way of signalling your own intelligence and ability (music, poetry, art and sport all arose from similar human displays). The vital component of meaningful signalling is that it is expensive and/or difficult to do. It is the time or money invested in the message that makes it a mark of commitment, not just an empty claim.

INFORMATION ASYMMETRY Information asymmetry makes signalling necessary. The bowerbird demonstrates to the female that it is likely to hang around after the chicks are born by taking the trouble to build an elaborate nest. Human females similarly look for some mark of commitment from men who do not have a biological need to stick around and look after their children – which is where the engagement ring comes in. It is something expensive up front which suggests you intend to be around for more than one pregnancy. If you are planning only a one-night stand, an engagement ring is an expensive way of getting one. To a female bowerbird or human, the mantra is credo quia carum est – I believe what you say because it has cost you dearly to say it.

That is why I find it so ludicrous when economists object to brands because they are ‘barriers to entry’. They are indeed barriers to entry, which is precisely why consumers value them so highly. A costly engagement ring is a barrier to entry in marriage, but you should be wary of someone who tries to avoid buying one. And a brand reputation is difficult and expensive to acquire but you should be wary of buying without one. If these things were cheap and easy, they would be meaningless.

"Talking to a finance director about brand iconography is like going to the head surgeon at St Mary’s Hospital and suggesting that he ‘trust to the healing power of the crystal’"

LOSS AVERSION There is a huge element of trust and a leap of faith in virtually every purchase we make – which is why we are so desperate to find, and willing to pay a premium for – any signals of reassurance. Yet this is hugely underestimated, by marketers and economists. Indeed, research by behavioural economists indicates that, when we hand over the cash, fear is roughly twice as powerful an emotion as hope.

Subconsciously we may be ‘thinking’ far less about how to buy the very best television and far more eager to ensure the model we buy isn’t rubbish. Most discussion in research focuses on whether or not the thing is the best I can buy but human decisions are not exclusively made that way. They are more weighted towards the avoidance of disappointment. Once you know that, brands make a lot more sense than if you assume people are seeking perfection.

A brand is not a guarantee of perfection. The very best thing you might find in any market may be from an obscure source and require six months’ work to find it. However, as a guarantee of something not being bad, a brand is spectacularly powerful.

The saying that nobody ever got fired for buying IBM is probably the most famous example of marketers understanding loss aversion. Indeed, it is worth remembering that in business-to-business markets, loss aversion is often at its most powerful.

MAXIMISING AND ‘SATISFICING ’ This leads to something very interesting, first identified by Herbert Simon of Carnegie Mellon University in the 1950s. It is the difference between decisions made by ‘satisficing’, where risk aversion is prominent in the mind, and those made through ‘maximising’, which is getting the very best possible thing for a specific amount of money.

If you want to know the difference between satisficing and maximising, ask yourself this question: ‘What is the best meal you have ever had in your life?’ You may recall ‘a charming little backstreet in Rome’ or ‘this place in Paris’. And how many times have you eaten there? Once?

It is only when you understand satisficing that you understand the success of McDonald’s.

"We deploy techniques without being aware of them. When faced with a choice, one default may be to buy what I bought last time. If that is not available I’ll buy the one there is most of on the shelf or possibly the one I have heard of."

There probably is nowhere in the world where McDonald’s is the best restaurant in town but there certainly is not a town in the world where it is the worst. In terms of loss avoidance and satisficing, when you go to McDonald’s you will never get ill, never be disappointed, never be ripped off and never be treated uncivilly. Nor will you be socially embarrassed. All of these are pitfalls you must face when trying to find somewhere ‘better’.

Most of the time people are happy with the ‘pretty good at a reasonable price’. This explains why most people in reality have a repertoire of acceptable brands, rather than choosing through ranked preference. Contrary to what some ad people would want us to believe, normal consumers do not develop a passionate enthusiasm for Starbucks and a deep loathing for Costa Coffee. Far more often, they alternate happily between the two.

This presents some problems. When you put people in a market research context, they are not in the subconscious realm of satisficing where most decisions are taken, but in the realm of rational, conscious thought and attention. People feel, particularly in the presence of others, that they must portray their purchase decisions as optimal and highly rational. They portray themselves as maximisers – an act which, although well-intentioned, is highly misleading. It is how they think they should decide; it may even be how they think they do decide – but it is not how they really decide.

BEHAVIOUR FIRST Another problem is that, when people explain their behaviour, they believe, as we all do, that attitudinal change precedes and is a necessary precursor to behavioural change. However, nearly all neuroscience and behavioural economics research suggests it happens the other way around. As one neuroscientist beautifully observes, the brain is not the Oval Office of the body issuing directives and being obeyed, but more like the press office. Decisions are actually taken down in the basement and the brain issues hasty post-rationalisations to explain why you adopted the course you did.

If we understood this – and it is deeply counterintuitive – that people do things and then make sense of them subsequently, the world might be a happier place. For example, it is believed by environmentalists that in order for people to adopt environmental behaviour it is first necessary to convert them into committed environmentalists who share exactly the same motivations as their own. This is very painful and involves a huge amount of very annoying preaching which generally makes people resentful. The trick is to change behaviour first then the attitudes will follow. Make it easy for people to recycle and they will then become better disposed to the concept of recycling.

HEURISTICS Heuristic is a very useful word that I hope will become adopted by marketers. They are the rules of thumb that people deploy when making decisions. Consumers use heuristics – for instance fame and social proof – all the time. When choosing between two restaurants, when little is known about either, you will probably go to the one with more people in it. What is interesting is that all this is instinctive; we deploy such techniques without being aware of them.

When faced with a choice, one default may be to buy what I bought last time. If that is not available I’ll buy the one there is most of on the shelf or possibly the one I have heard of.

Choice architecture can be developed exploiting the heuristic of ‘doing whatever seems normal’. This is demonstrated in the difference in organ donations by country, based purely on whether the donor card is opt-in or opt-out. If it is opt-in, where it seems normal not to donate your organs, around 12% of people will donate. If opt-out, where the assumption is you are happy to donate unless you specify otherwise, 98% donate. If you make it a managed choice, with both yes and no boxes, about 66% donate. So, to an important question to which we probably do not know the answer – should I donate my organs? – the instinctive heuristic is to ‘do what most people do’.

Retail must have been boosted by an insight, whether accidental or deliberate, into the heuristic that, when presented with three choices, we tend to choose the middle one. When I was a child, supermarkets offered the choice of a basket or a trolley the size of a Mack truck. The trolley was a ridiculous size so you chose the basket – and so bought less. Then, brilliantly, supermarkets offered a third choice, the Japanese or shallow trolley. Because it is ‘the one in the middle’, people choose that. This ‘one in the middle’ heuristic applies strongly to price, too.

RELATIVITY Another aspect of choice architecture is the fact that we choose something relative to what is around it. We look at alternatives. Estate agents work this way. They will take you to a house very similar to the one they think you will buy but slightly more expensive and a bit less good. It will then be much easier to flog you the house they think you will buy. It will be £3,000 cheaper and have a greenhouse. Bang, sold. Our brains work relatively rather than absolutely.

A German car maker had a stock of new cars it needed to sell and it was about to knock €3,000 off the purchase price in order to do so. Then someone who knew what they were doing asked: ‘Are you sure that is the best option?’ ‘Well, €4,000 would be better but we can’t afford that’. ‘No,’ the visitor said, ‘make it €3,000 on the trade-in price of the old car, not off the price of the new car.’

A classical economist would say it is the same thing. They tested it and the difference was pronounced, accounting for the sale of 20,000 extra cars. The reason is that €3,000 on top of the €8,000 you might expect for your old car seems a lot of money, while €3,000 off the €22,000 price of a new car seems less of a deal, proportionately. That shows the extent to which our brains work at a comparative level.

Path dependency We tend to have a model of behaviour where people go from brand preference to purchase behaviour, as though it was an unmediated, absolutely direct process. In reality, many decisions involve multistage path-dependent actions.

I like the cocktail culture in the US with all that mixology stuff. One reason for the lack of cocktail culture in the UK is that, by the time you get to the spirits section in a supermarket and consider buying Campari, Pimm’s or rum for Mojitos, the fruit you need is 500ft away against the flow of shoppers and ice is nowhere to be found. Sainsbury’s, with Diageo, through brilliant use of path dependency, has created a cocktail pod in the spirits section where there are mixers, ice, lemons and (for the connoisseurs of gin and tonic) limes, all together. The net effect is a rise in sales of spirits of between 8% and 9%, due to an understanding of path dependency.

Path dependency is vitally important in the context of channels to market. People thought that Barnes & Noble’s brand strength would carry through to the online space and defeat Amazon but it didn’t. Once a consumer is within a channel, their brand map changes. If you are online you will probably go to Amazon. Channel choice may be a prior choice to brand selection and if you lose within a channel, you may lose overall.

Complementarity There are some things the value of which vastly depends on what you consume them alongside or with. Possibly the most extreme is popcorn. If you went out this evening and there was a popcorn seller on the street outside your house, you are unlikely to be tempted. However, were you to go to a cinema, there is virtually no limit to what you would pay for a bucket of popcorn. It makes no sense but the two, film consumption and popcorn consumption, are complementary goods, as economists call them.

A perfect example of complementarity, is the Guide Michelin. It was started in 1900 when Michelin had about 95% of the French tyre market. It realised that the only way to make more money was to get French people to drive further and burn more rubber. Now the thing about French people is they won’t go anywhere unless there is a restaurant at the end of it. What Michelin created was a guide to restaurants and interesting things to see, the consumption of which was complementary to the burning of tyre rubber in 1900 France.

Marketers tend to overlook this. Were I Coca-Cola’s marketing director, I would spend more time getting ice widely adopted in British homes than I would promoting the virtues of Coke. If you look at the complementarity, there is evidence that if you serve Coke with ice and lemon, sales will be 70% higher than if served without ice. So the best way to increase consumption of cola if you are brand leader is to create complementarity and bribe fridge makers in the UK to add a proper ice-making machine as they do in civilised parts of the world.

I am only half-joking. What is your biggest obstacle to more sales? Is it a brand issue or the absence of some complementary good? It is a question worth asking.

FRAMING It is a fascinating thought that you can make something seem better or worse according to the comparative frame applied to it. If you can change the frame, you can change the game.

That human perception is malleable and susceptible to suggestion and comparison is demonstrated by Ferrari: it offers you the choice of having your new car delivered to your home free or you collecting it from Maranello, Italy, at a cost of £300. I am sure you will get a tour of the plant too but the point is that the latter option is positioned as the more desirable. That it is also much the cheaper option for Ferrari doesn’t seem a factor.

That our perception and memories may be affected by remarkably arbitrary influences makes marketing more rather than less important. Take an espresso machine. If you think how much the cost of running a Nespresso machine would be if it were filled up with coffee and sold in a jar like Nescafé, it would be a fortune – on a like-for-like caffeine shot basis, you would be paying £80 for a jar, something most of us would find unconscionable. However, the coffee comes in little individual metal pods and hence the frame of reference isn’t Nescafé but Starbucks. Every time I use the machine I think how I am saving money, paying 26p for something that would cost a couple of quid at Starbucks. The frame of reference means I think it a bargain.

Video conferencing has failed to take off because it is what economists call an inferior good. It is framed as a cheap alternative to something else. It is what someone gives you when they don’t trust you with the real thing. If your frame of reference is negative in this way, you almost always lose (something from which coach travel and frozen food have suffered appallingly). The video conference needs reframing as the rich man’s phone call, not the poor man’s air trip. It should be installed in the CEO’s office and nowhere else, and certainly not in a basement room.

How can Red Bull charge £1.50 a can when Coke can charge only 50p? Weirdly, you make the can smaller. Suddenly people think this is a different category of drink for which different price points apply. If the can had been the same size, I am not sure they could have charged £1.50.

This list is neither exclusive nor exhaustive. But it includes just a few of the concepts from the behavioural sciences which will provide us with a new and scientifically validated way of looking at the world. Perhaps more importantly, though, it is a vocabulary that can be used when speaking to people who don’t speak marketingese.

Rory Sutherland is vice-chairman of OgilvyOne London and Ogilvy Group UK.

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