Behavioral economics should replace market research to help businesses better understand why consumers make the decisions they do, says Rory Sutherland, vice-chairman and executive creative director, Ogilvy Group.
In the Mad Men era, he said, there were close links between advertising and academia. Over the years, these ties have frayed and the marketing model has failed to evolve with technology and new platforms. In his words, it is “in need of refinement.”
Sutherland spoke to Marketing ahead of his scheduled appearance at Future Flash 2012, the sixth annual thought leadership conference organized by the Institute of Communication Agencies (ICA).
You’re a known champion of behavioural economics. Can you explain what that is and what role it can play in marketing?
Rewind about 50 years to the Mad Men era. You’ll see there were close links to academia and advertising in agencies. There were academic psychologists involved in the business and, for some bizarre reason, in the interim years those links lead to atrophy. My view is that re-establishing links with the most interesting research on human decision-making will have a great contribution to make both in terms of helping the business but also in elevating marketing’s role and place within the business.
Can you give an example?
Pricing. Whether something is cheap or expensive depends entirely on what you’re comparing it against, what your frame of reference is. Marks & Spencer is a premium food retailer and can’t compete on price with Lobalw, Tesco’s and so forth. But what they can do is compete very effectively with restaurants. So the tagline they use is: ‘Dine out for two for £10.’ It’s not, ‘Eat in, feed a family of four for £2.27 .’ It’s changing the frame of reference and the comparison changes the perception of value.
What are the challenges of adopting behavioural economics?
There are a few ethical considerations that you have to take in to account. There is a potential, for example, to use a combination of technology and psychology to piddle around with pricing in a way that people would probably find unethical or unacceptable. The fact that some of these things act on the unconscious always raise ethical questions.
I’m not saying this is an absolute cure for all ills, but I don’t think it’s possible to be a marketer in any reasonable space in 2012 without having some idea of a theory of consumption and why people buy and how people choose. And that psychological understanding becomes more important as society gets richer, because in that case people’s expenditure is deviating much further from simple utility.
Why haven’t more businesses adopted it?
It may be there are a lot of vested interests in agencies because a lot of valuable economic insights can actually be easy to originate and cheap to execute. So it may be there isn’t an obvious business model other than for small start-ups. People are slow. All these things are slow… Changing mass behaviour is difficult. Everybody has their own set pattern of doing things. The structured patterns of business is designed to soothe yesterday rather than tomorrow, and the processes that ad agencies use are arguably processes that belong in another age. Again, most of the marketing text books are written based on FMCG case studies using conventional media. And the oldest decision makers are heavily invested in the old way of doing things. Someone once put it, “Progress goes on one funeral at a time.” You can say in business that progress takes it one retirement at a time.
Future Flash takes place on May 16 and 17. Click here for more information.
