Tuesday, November 30, 2010

How your favourite colour can win over stakeholders

My favourite colour is blue.  If you has asked me what my favourite colour was when I was say, 4 years old, it's likely I would have said, ... "Because!".   Kids are pretty blunt and uncomplicated like that.  Cut to primary school and the same question will get a rationalised response. "Because it's red like a fire truck", or "Because princesses wear pink". 

From an early age, part of development is learning to rationalise and justify, to explain why you have the opinion you do.  Imagine if the answer to "what is your favourite colour?" was "Because I am guided by deep unconscious processes that I do not fully understand which make me spontaneously reply blue".  So much easier just to say "Because!"

Now to the business context.  Imagine you are trying to justify an investment but one of your stakeholders doesn't like what you're proposing.  Why? "Costs excessive, no funds available, risk to customer retention, incompatible with brand values...."  - all rational reasons that may be cited.  But really, why?  "Because!" Now that may be the real answer.  Whilst the rational reasons have been stated, there's a strong possibility that you are actually dealing with something a little deeper - the gut reaction which in this case has worked against your project.

That's the trick our minds play on us. Whilst the stakeholder might truly believe the rational objections to your idea, the main issue is more likely to be with their gut.

In his book Blink, Malcolm Gladwell introduces the concept of thin slicing - "the ability of our unconscious to find patterns in situations and behaviour based on very narrow slices of experience" (p 23); of recognising patterns and making snap judgments. At an early age, I made a snap judgment that blue was my favourite colour, and throughout my life I have stuck to that. In everyday language we're talking about "a gut feel".  Gladwell sets out to convince his readers of three things 1. that decisions made quickly can be every bit as good as decisions made cautiously and deliberately, 2. that when rapid cognition decisions go awry they do so for very specific reasons and 3. that snap decisions can be educated and controlled.

So back to your stakeholder who has made a snap judgment about your proposal.  Look at it from their perspective - what patterns may they have seen that has set them against proceeding?  Sure you can counter their rational concerns with facts and data, and you might even (begrudgingly) get the signature. But what's underneath the surface that might mean you have won over the head but not the heart?

Short of using techniques like the "5 why's" and metaphor elicitation (using visual imagery to draw out the unconscious), your best path is looking at change management tools to pitch your proposal to both the gut and rational levels.  A great read on the subject is Switch: How to Change When Change is Hard by Dan and Chip Heath.  In this book they use set out actions to 1. Direct the Rider (the rational brain), 2. Motivate the Elephant (the unconscious) and 3. Shape the Path. 

Rest assured there are ways to both unpick the unconscious motivations and guide them to your end - the hard part is taking the time to consider the thin slice, to answer the "Because!", and to make sure that you can convince your stakeholder's gut that it's the right decision.

Sunday, November 21, 2010

Interest rates get a rise: A Behavioural Economics perspective

It's been two weeks since Americain won the Melbourne Cup and the Reserve Bank of Australia (RBA) raised the cash rate by 25 basis points.  In both cases the result was unexpected.  The Commonwealth Bank (CBA) responded by lifting variable rates by 43 basis points with the other "big banks" following a week later with increases between 39 and 42%.  Public outrage was followed by political outrage as both major parties muttered about how to regulate the power wielded by the big banks. But what does Behavioural Economics tell us about the reaction to interest rate increases above the RBA rate?

1. Pricing irrationality
Have you moved your home loan as a result of the interest rate policy change? Let's take a minute to consider the scale of what CBA did.  On an average $300k loan the increase of 43 basis points (CBA) vs 25 (RBA) is a difference of 18 cents per dollar.  Over 30 years this is $54,000 or $34 or week.  $54,000 must be worth consideration, right?

Remember when petrol was less than $1 a litre?  Not that long ago, but now that the psychological barrier has been broken, we find ourselves paying $1.29 and beyond on a regular basis. Where's the outrage now?  Around the same time, Woolworths and Coles introduced their petrol docket savers where you can knock off $0.04 per litre.  On a 40L tank that's $1.60.  100L tank, $4.   For around the price of a coffee the petrol savers have been an outrageous success for the grocers because they have changed behaviour in their favour - people shopping in their outlets so they can save on petrol.

$54,000 vs 4c a litre.  I'd hazard a guess and say that more people have changed their grocery shopping than changed banks.  Why? We have different scales of pricing in our minds due to the effects of priming and consideration of one activity (petrol) does not means reconsideration of another (mortgage).

2. Revenge
I'll take my loan elsewhere!  I won't put up with this treatment! Revenge is a powerful emotional reaction and Behavioural Economics has illustrated it can cause irrational responses.  In the example of interest rates the revenge would be withdrawal of your business and it would be irrational because of the financial detriment through exit fees and the inevitability of rate changes across all loan providers.

3. Adaptation
Dan Ariely covers Adaptation in "The Upside of Irrationality".  Pretty simply, we underestimate how quickly we become desensitized to change.  And that's why two weeks after the interest rate shift it has faded to the background and I imagine very few people are still contemplating a change of bank. Of course this is exactly what the banks prey on - we get used to the higher rates, we get used to the standard of service and we adapt to paying more for our mortgages.

An interesting aside with adaptation- we are more likely to adapt when the change is less frequent.  In this case, an annual interest rate hike would in theory be less inflammatory than the monthly expectation-teasing RBA announcement.

4. Identifiable victim
The concept here is that we respond to individual suffering rather than the suffering of masses.  World Vision apply this principle when they ask that you sponsor a child rather than support a community. What do interest rates have to so with this?  Two things - from the bank's perspective they treat us as a mass and so do not see the suffering of individuals for whom a rate rise is devastating. And from our perspective, we would probably cope better with the behaviour of banks if they presented themselves as individuals who are making decisions in the best interests of their community ie shareholders.  And given many of us are bank shareholders (through Superannuation and managed funds), personalising the benefit may soften the blow.

5. Self herding
This is not the first time the banks have exceeded the RBA's official increase.  Can you remember the dates of other changes?  I can't. Although I can remember I was outraged. And I can remember I didn't switch banks. What that leads to is repeatable behaviour - in other words, I remembered I was annoyed but didn't do anything.  Therefore this time I am more likely to follow the same (inert) path.  Self-herding suggests that we recall our actions, apply them to a more general principle, and then follow the same path when a a similar situation happens.  Again, the banks rely on the pattern of inertia when they increase rates - much like insurance companies and utilities providers who increase prices.

6. Priming
Priming is where our pricing expectations are set in relation to a particular context. In this case, the RBA has primed our expectations of what is a "fair" increase at 25 basis points.  When the banks move in line with this, people get on with life because there is no one really to blame.  It is only when the banks "price gouge" by moving beyond the RBA rate that it becomes a story. 

Where does all this leave us when it comes to interest rate increases beyond the official cash rate?  It's an understandable reaction to get angry when the banks breach our sense of fair play, but I think a large part of the issue is that we get mad at ourselves for not acting the last time it happened.  It's our irrational selves at play - expending more energy looking for discounted groceries than the best loan.  So before the next rate change there are a couple of things you can do - check which banks you have shareholdings with because it may ease the pain if you ultimately profit, and of course, if you are not satisfied with your bank, take action in anticipation of another inevitable rate increase.

Thursday, November 11, 2010

That packaging is smokin' hot

Here's my prediction in light of the Federal Government's ban on the use of colours and branding on cigarette packets - look out for significant packaging innovation in this sector.  When you are stripped of the usual ingredients - Branding, colour, logo, language - all you are left with is the packet itself to differentiate your product.

So where can we look for examples of product differentiation through packaging?
- The famous Coke bottle immediately springs to mind
- Alcoholic beverage manufacturers are prolific as any trip to the spirit's aisle will attest - Asolut! vodka,  Bailey's, Johnny Walker
- Wine bottles have been on the action too - the Rosemount square base bottle is one of the most striking
- Flavoured milk - Big M carton vs the plastic bottle Dare drinks

Next comes perfume - designed to be as beautiful as the scent to ensure that the whole sensory experience is consistent.

And how about Cars? The ultimate packaging differentiation between a transport that gets you from A to B

Of course the examples listed above are not subject to the no-branding restrictions the cigarette companies are facing. But the test is whether you can pick the brand without the branding.  Coke bottle without the label? Yes. Absolut! without it's brand? Yes (and a bottle worthy of re-use as a water pitcher if the local restaurant is any measure). Porsche without the insignia? Yes.  Prius without it's badge?  Yes - now that it has been established in market.  (For those who watch the animated series The Family Guy, Brian drives a car that by its shape is clearly a Prius). But how about Holden without the lion? Hmmm, no.  Ford? Same deal. 

It's not new to state that Packaging is a vital component of the product & marketing mix.  The task for us as marketers is to be clear about what role we what packaging to play.  Imagine your product is in the same situation as the tobacco companies - what would you innovate to ensure that yours is the product taken home by your customer?  And what are you waiting for?

Sunday, November 7, 2010

Getting your customers on-board - lessons from the bus

The public buses in Melbourne seem to have at least one design improvement opportunity.  In order to identify which bus is going where, customers who are walking from the rear side of the bus have to creep up the side before craning their neck around the front of the bus to see the destination posted.  This strange dance is usually accompanied by a mild sense of panic that goes along with catching any form of public transport - fear that the bus, train, ferry will leave without you.  The fix is easy - post the destination on the side and even rear of the bus so that no matter the direction you approach, you can see the where the bus is headed.  In other words, communicate from the customer's perspective...literally.

Like most things, this doesn't at first glance seem like a problem sufficient to warrant a refit of the bus. But think about those extra 5 steps x number of people needing to confirm destination x number of stops x number of routes x number of days per year and you can quickly add up to a lot of inefficiency.  Not to mention the risk posed as unwitting customers step in front of the bus as it takes off. 

The lesson for marketers? Look at your product from every angle that the customer may use it.  Does it effiiciently communicate all they need to know or do the customers have to adapt their behaviour to understand how to use it?  If you are making your customers look at the front before they are ready to get on-board, you are not doing your job.

Monday, November 1, 2010

Traffic light button pushers

In a recent post (Elevating elevator multi-sensory behaviour) I wrote about the quiet chaos invoked when one of the sensory cues breaks down - in this case a "bing" that confirms that the elevator button has been activated.  But let's take it outside, to any street corner where pedestrians cross with the safety lights.  Why is it that some people feel that pressing the button repeatedly, and often with rapid fire technique, will speed up the light change?

The button itself usually makes a sound as you depress it - reinforcing that your action has been conducted. Some buttons even have back lighting to reinforce that you have completed your task. But these cues are simply acknowledging that you have pushed the button. What if I want to CONTROL the process?  What if I DON"T HAVE TIME TO WAIT 30 SECONDS BECAUSE I'M A VERY BUSY PERSON! Press press press the button and aha! The lights have changed! Proof that the more times I press the button the faster the lights will change.  And for those skeptics who say the lights would have changed anyway, that may be true but it would have taken soooo much longer. 

What's happening here?  People who must logically know that one push of a button is enough to set the system to change the lights are finding themselves repeatedly and earnestly reaching for the button.  People who must rationally know that the light system does not count how many button clicks it gets before making the change (8, 9, 10...yep, now I can change) keep pressing that thing like it's machine gun.  What's happening is a pretty simple reinforcement of behaviour. Do it once and it works, why not do it every time?  And why take the 'risk' that not doing it will mean that the lights won't change...ever? 

Look around and you will see people of all walks of life behaving in ways counter to logic because that's just how we are (refer Predictably Irrational by Dan Ariely) Of course it doesn't mean there cannot be improvements to everyday experiences like traffic light crossings.  How about a count down timer that is enacted when the button is pressed?  I've seen timers that count how much time you have left to cross the street, but how about knowing you have 10 seconds to wait before the lights switch?  It will also help to cue whether the person across the street has already pressed the button.

For marketers the lesson from the lights is that the more cues the better.  Reinforce that your customer has completed whatever task is required of them - Order complete message; Acknowledgement that their competition entry has been received; a reference number when dealing over the phone - confirm, confirm, confirm that they have completed their action otherwise they may keep pressing the button.

Elevating elevator multi-sensory behaviour

One of the elevators in my building at work has a faulty button so whenever we swipe our security passes and push "8" the light goes on but there is no "bing". Push the button for any other floor and the "bing" reinforces that the magic elevator has recognised our request.  If you want any proof that multi-sensory cues are important, just observe the body language of people who have not their button push confirmed - does any of the following sound familiar? Re-pressing the button. Repeated glances at the button. Nervous toe tapping as the targeted floor approaches. Heightened anxiety.  Sounds ridiculous doesn't it?  After all, the worst that can happen is you go to another floor and have to try again. And it is ridiculous - it is irrational.  The innocuous absence of a "bing" can change your experience of an elevator trip. 

In his book Brand Sense, Sensory Secrets Behind The Stuff We Buy, Martin Lindstrom talks about the importance of such sounds as the ding heralding the arrival of an email in your inbox and the sound of a car door closing.  If you have a Mac computer you will no doubt be familiar with the unique...how do I describe this...vrrrr pop! that accompanies actions to close Apps. The iPod click wheel, the Nokia ringtone (which was, whilst recognisable, more a negative than positive for the Brand because it was connected to work...), tell us that sounds are vital to cue and/or reinforce behaviour.

Back to the lift in my building.  Three of 5 senses are generally employed in the button scenario.  Touch - pushing the button; Sight - a light to indicate the button has been activated; and Sound - the 'bing" to reinforce the button's action. Thankfully for now, Touch and Smell have been left out of lift button pushing (but not always out of the experience of lift travel unfortunately). As soon as the Sight or Sound cues are absent, the system breaks down and we all get a little uncomfortable.

So what is the lesson from the elevator? People subconsciously seek multi-sensory reinforcement of their behaviour and when one of the expected cues is absent, performance is sub-optimal.  Think about your product or your marketing message - what cues are you setting up for your customers and are they reinforcing the desired (purchase) behaviour?

Yo-Yo 3: Marketing getting craze-y

In the two earlier articles Yo-Yo 1: Crazes happen because people herd and Yo-Yo 2:  Crazes come in two forms: Tsunami style and Mexican wave we covered how herding behaviour underpins Crazes like Yo-Yos, polished floorboards and iPhones, and that Crazes can be classified as either Giant Waves or Mexican Waves depending on their momentum and direction. If we agree that getting a mass of people to do something is good for business, let's now consider the role of marketers in starting a craze and/or surfing one.

Recall that Coke deliberately sent track-suited tricksters to my school to incite the Yo-Yo craze, an example of a Giant Wave, all consuming craze.  Clearly this was a marketing strategy to influence young minds to the positive qualities of Coca-Cola. But what did they do to ensure it worked?

Coke made sure that
- they selected representatives we would be influenced by (ie they were cool)
- the skill/activity was accessible to the mass
- the Craze itself was talkable and tangible
- they supported the Craze with related messages in market so that wherever we turned the Coke promise was consistent and reinforcing

What about a Mexican wave? Whilst the elements to start the craze might be the same as a Giant Wave it's the momentum that's the difference. Take iPods.  Someone to influence the market? Steve Jobs. Something tangible, accessible and talkable? The iPod's portability and distinctive whiteness made it a highly visible talking point.  Related messages? The launch by Steve Jobs on stage in his black top and jeans is key to influencing early adopters to purchase and carry his message to market. Aided of course by the famous and distinctive iPod posters which highlighted the product's whiteness.  But the momentum...

In a Mexican Wave the product craze is pushed forward - ideally with the market's own momentum but often with marketing's support. iPods were picked up by early adopters before trickling (at great speed relative to other products) to other influencible market segments. The energy comes from referral - implicit or explicit- and mass comes over time.

Contrast this with a Giant Wave - the early adopters are the market - it's all or nothing because the time period is condensed.  Mass comes immediately or not at all. For this type of craze, the marketing is more intense because all bases must be covered together for a finite period.

In the case of a Giant Wave, it is harder for competitors to get a slice of the action because by the time they have geared up, the craze might be over.  Mexican Waves on the other hand are susceptible to competitor activity as they try to steal the momentum that has been generated.

So for those in marketing, the key elements of Crazes seem to be mass behavioural change and momentum, summarised in the table below.   Central to the work we do is who we influence and how - but that will have to wait for another post - for now I have to go and find my Yo-Yo.