My Advertising Is so Efficient It No Longer Works

now for your next session I am absolutely delighted to to give you Rory Sutherland to invite him to the stage now Rory is the vice chairman and executive creative director of advertising for that ah I've forgotten how you say it I'm so thank you Oh Garvey I was gonna give it a go and then I just knew it would end badly Oh goofy group now Rory is one of the most well known and sought-after marketing experts in the UK and you are about to see why he has a number of wildly successful TED talks to his name and is famed for the insights into what drives human behaviour and how organizations can effectively tap into our motivations as individuals he also told me that one of the naked women dancing in the opening sequence to a Bond film is his third cousin there we go but today he's talking on how his advertising is so efficient that it no longer works please welcome to the stage Rory Sutherland thank you very much as it would have just been obvious from the genetic resemblance our thought I don't know how many of you been watching on BBC for the recent ten part American series on the Vietnam War anybody absolutely fantastic you can watch it on you can catch up on iPlayer and it's been a 10-year labor of love to produce this extraordinary documentary from the very beginnings to the end of the Vietnam conflict which is a really really interesting study apart from anybody who's interested in just combat in general it's a really really interesting study and how really really intelligent people can end up making really dumb decisions and one of the things that can most wrong-foot people is falling in love with a particular metric and that's the assumption that what you can measure somehow must be important and the dangerous thing I think in a lot of life is that there are important things and there are things that are easy to measure but the correlation between the two may not be all that great one of the problems I noticed in about episode 5 of this season is all the military guys because they were obsessed with reporting upwards what they were doing some ways I suspect if you'd left the conflict to the people on the ground it probably could have been over within about three years because of the need to report information you have to report information that can be aggregated and in order to be aggregated ball it's got to be numerical and a lot of incredibly important information particularly to do with attitudes and hearts and minds doesn't have an SI unit or a mathematical measure attached to it so they particularly at the top people like McNamara extraordinary bright people became obsessed with the body count and because they were encouraged by the ratio of the body count they missed a really really important thing which is they thought that the more bodies that you'd effectively created the better you were doing what they missed was a very simple fact if you killed one VC you had one less VC to contend with every time you killed an innocent civilian however which appeared exactly the same on the body count you created ten new VC and so they the obsession with metrics particularly as the higher up an organization you get the more preoccupied you are with self justification the more you deal with aggregate information and the kind of information that aggregates may not be the best information now coming on to a bit more of this later and it's one of the things that concerns me about the digital world that actually the digital world is in many ways a mathematical world and it thrives on models which may or may not bear a very close resemblance to real human reality sometimes it does in which case great but a long time what you can measure and what matters may be almost magically maybe a diametrically opposed in some cases so what I'm just talking about today this is what I've tried to do as far as Ogilvie change goes I've tried to I by the way I know some of the earlier speakers fall back in love with humanity as a fantastic call to arms I think I've also tried to look at something which is I think ad agencies creative agencies remain mistake because they've like everybody else they've become preoccupied with the technology and lost touch with the humanity and my view is an advertising agency a creative agency suffers from this enormous problem which is that people only come and talk to us about problems when they have a media budget now I'd argue that for every person with a media budget there are a hundred people with a psychological problem that a combination of human insight and creativity might solve who never come and talk to us we're no longer paid on Commission we haven't been paid on media commission for about 25 years to any significant extent yet the added industry still behaves as though it is it regards any solution which doesn't involve a bought media component as somehow invalid and when it gets a problem its first thought is how can we translate this into a solution which involves giving some money to Rupert Murdoch and my contention is there are tons and tons of problems you can solve then an agency actually is a bit like a General Hospital but it has a sign out front that says cosmetic surgery you know we only get within our portals 5% of the people we need to be talking to because there are hundreds of problems that can be solved with a mixture of better human insight and creative imaginative solutions just to give one example of something we're working on at the moment um how to stop people at airports trying to carry water through the security Lane everybody knows this but the number of people who basically try and wing it with a bottle of Av on their hand luggage hasn't significantly decreased in eight years despite the fact that awareness of the rule has presumably been going up and up we think by the way it's a product of the choice architecture that once you're in a queue and you have a clamshell piece of luggage because over the last 10 or 15 years as low-cost airlines have started charging for checked in luggage practically everybody who flies more than once every two years acquired one of those clamshell maximum size carry on bits of luggage one attribute of those pieces of luggage is it's impossible to open them in public without spilling your underwear all over the floor so one of our simple solutions this is not involved in any managed Rupert Murdoch it says put some tables in the run-up to the security lane so that people who know they've got a bottle of water in it can actually retrieve it without hideous embarrassment you know an awful lot of behaviour driven not by information not by persuasion it's just driven by the environment in which people find themselves that's one of them they're about five other solutions we've looked at but what's patent in the cases it isn't the case of awareness this is a case of something about the environment something about the choice architecture is driving people to behave in the wrong way what we also do is we look at extraordinary things about what we call innovation now innovation is spelt e I double n ER vation it's a close relative of innovation but it works slightly differently innovation is where you innovate not by doing something new in the physical world but by doing something differently within the brain so you can create something within the brain without necessarily creating it in the in reality I'll give you an example of that by the way that yellow is totally an optical illusion I assume this is not GB pixelated screen there aren't any yellow indicators they're all red green and blue do you know this by the way LCD screens RGB screens are species-specific anybody know that they they're designed to work with humans if you're a bird looking at that you'd think it was a ship representation of reality humans just have red green and blue cones that detect color and the screen unlike birds which have ultraviolet detection but they don't detect red I think it's right thing you're right in saying that same way I mean there's some things like shrimp which can detect 16 types of wavelength if you produce the screen for a shrimp it'll be a really complicated thing to do okay this is a hack there's no yellow all it does is mix red and green in a mixture which your brain associates with the color yellow and the color yellow is not created there remotely on the screen it's crazier than tile in your head our contention is you can create value you can create great experiences in the head without doing much to reality and one of these it drives me nuts when I go to digital conferences is there's always someone there with a really really sophisticated technological solution and they say well we've got something what are those things called you have in shops which you like you know which basically sort of blew two things there could be converse is that right and there's always a guy who's has this really clever beacon solution which detects when you have a past customer walking with 100 yards of the shop and you know this really interesting I'm intrigued by this contextual communications useful and they always say so the great thing is you can serve them a 20% off offer I can look I don't need a PhD to help me sell things by dropping the price okay she wonders if you want to find someone who can sell things by dropping the price just go to a car boot sale then get a harford right any idiot can sell things by dropping the price the art of marketing is surely to charge more for the same thing by making it seem better okay now the vital thing here is to realize that you can do this you can synthesize just as you can synthesize yellow in the human head you can sense the synthesized value in the human brain and the best example of this my favorite hand of the last three years one of my two favorite ads was an announcement by an easyJet pilot come in to land you know that feeling where your plane draws up about a mile from the terminal and you hear the engines wind down and everybody on the plane thinks to themselves silently oh it's gonna be a bus you know that feeling right you can have paid for the flight and you just expecting to taxi to the bloody terminal and then the plane stops a mile away and everybody goes oh it's a bus right and I was experiencing exactly that same emotion but the pilot was a basic genius he he gave an example of a piece of fantastic innovation because this is what he said he said I've got some bad news and some good news by the way this is always a very good way of creating innovation if you look at a lot of great advertising end lines good things come to those who wait you either love it or you hate it reassuringly expensive naughty but nice a lot of great advertising end lines we're number two so we try harder have that yes but in them it's a very clever trick because what the human does when you're presented with bad news and good news is to minimize regret you disproportionately focus on the good news to cheer yourself up okay really really worthwhile I've actually gone to the government with this and said look part of the problem of a lot of things government does tax for example is there's no upside if you created a tiny upside to tax like you got a badge okay um my own suggestion that high rate taxpayers should be allowed to drive in the bus lanes was was rejected but there we go I'll try again if there were a tiny upside we could make ourselves much happier things like speeding tickets and tax make us disproportionately angry there are people who've gone to jail for five years who can tell a positive story about it they are it was its formative experience I met a lot of interesting people I never would have met okay you can there are lot of appalling experiences where you can tell the upside story but with something like tax or nobody provides the upside story the pilot did he said I've got some bad news and some good news he said the bad news is that we haven't been able to get an air bridge because there's a plane blocking the gate but the good news is the bus will take you right next to passport control so you won't have far to walk to collect your bags but a couple of us look to each other and won't that's that's always true isn't it when you have a bus it takes you right next to pass you don't have to walk you know 400 yards through a kind of crap version of Bluewater before you can get to passport control the bus takes you right next spot but like I've got I've got quite a heavy bag I'm glad there's a bus and just by changing what people focus on you can make people you can make something that people thought was seem good okay Shakespeare said the same thing you know what is it there's no such thing as good or bad but only thinking makes it so Shakespeare spotted that you can argue there are loads and loads of fantastically by the way you can make people pay for things which are a downside if you buy a Ferrari they'll deliver it for free to your local Ferrari dealership apparently all you can pay 500 pounds have a tour of the factory in Maranello which you travel to at your own expense and then drive the car home and then if you notice that but by framing it as a tour of the factory they've got you to pay to collect your own car okay now things aren't cheap I've mentioned that thing about will give them a 20% discount you can make things cheaper through innovation who's got an espresso machine here okay I've got one love it love it like a child it is in fact insanely expensive if you had to buy an espresso coffee in a jar like Nescafe for an equivalent dosage of caffeine a jar of caffeine a jar of Nespresso if you bought in the jar would cost about 70 quid and you'd look at it next to the Nescafe and go this is completely bonkers it's not just me these aren't voices in my head are they're the carrot just go ahead right I just wanted to check ok thanks you reassured me ok right now the fascinating thing is you couldn't you couldn't buy it if you looked at a jar of coffee costing 70 quid you couldn't buy it you go this is just insane but it doesn't come in a jar it comes in a pod which gives you an individual dose of espresso coffee so your frame of reference isn't Nescafe its Starbucks and you put the 29 pea pod into your Nespresso machine anything most 29 people would cost me two pounds 28 Starbucks this machine's practically making me money at rolls-royce in Maserati made their cars cheaper through innovation they stopped exhibiting them at car shows where they look expensive and they started exhibiting them at yacht and plane shows if you've been looking at Lear Jets Gulfstream's and Sun seekers all afternoon a 250,000 euro car is an impulse buy okay by the way if you allow people to pay for something contactless Li it feels 15% cheaper by the way so innovation is a really important thing I would argue that uber is very largely an innovation despite regardless of what people talk about it is disruption in an economic model blah-blah-blah-blah-blah the reason it disrupted was not because it got you a car quicker but because of a very simple thing just as the human brain has um actually can't actually you don't produce yellow but you can generate yellow you could reduce wait time not by reducing it but by reducing the uncertainty of it the thing that was appalling about minicabs parts was that they always lied about how long they're going to take I mean this is very simply the single thing the London Transport did that most improved passenger satisfaction per pound spent wasn't faster more frequent trains it was dot matrix displays on the platform we're happier waiting ninety nine minutes for a train knowing that it's going to take nine minutes than waiting five minutes for a train in a state of uncertainty we really really hate uncertainty okay when you look at queuing there are about nine psychological factors that affect people's experience of a queue which are not the duration they have to wait worst thing you can do is have a queue alongside your queue which is moving faster than yours is okay anybody stuck in traffic knows the same phenomenon okay what Huma did is allowed you to base the order a car and then you could tell yourself a story are you going oh look now whereas with a mini cab it'll be where the hell is this guy I'll go out in the rain I'll look around maybe he's already arrived maybe he's part around the corner I'll go out in the rain looking like an idiot and see if I can find our mini cab oh god he's not here maybe he's already left okay with uber you can look at the screen and go oh look he's stuck at those traffic lights I'll have another pint okay there were other emotional benefits too but I think I think there's a small ego benefit which is does anybody else do this where you time your arrival onto the pavement to coincide with the arrival of the car because that makes you feel like Keyser söze at the end of the usual suspects you know you come out of the police station and the car draws up you know you feel like louis xiv you feel great I also think the fact that you didn't have to pay and fart about with a wallet the fact that you just got out of the car and said thanks and that the receipt was emailed to you made it feel like a service and not like a transaction but I think the real value I've just written a piece in The Spectator by the way which says that actually Transport for London is very very silly being nasty to uber because uber is actually incredibly valuable to people even when they don't use it I'm much more likely to take a train now because uber exists because I know there's a plan B a fallback position okay previously if you got stuck in the wrong part of London at one o'clock on Saturday morning I mean you know you're basically completely stuffed okay so a lot of the time I used to drive into London not to take my car in as a form of transport but as a kind of fallback position which I need to have a car there just in case alright last year I made 40 fewer journeys into London than I did the year before largely because of the existence of uber and yet instead of those journeys I only used uber to get home once was knowing it was there that made the difference so generally in human behavior there's much more subtlety going on than economics and standard mathematical models really understand so the trick for innovation is as I said look for things which are objectively similar but subjectively different the right mixture of red and green is the same as yellow okay as far as the brain is concerned so the right mixture of red and green on that screen crates yellow even though there are no yellow producing LEDs on the screen similarly Nature has been doing this for a few million years the Chile by the way isn't actually hot do you notice the Chile wants to be if I'm right it wants to be eaten by parrots but not by insects and not by mammals because the parrot spread its seeds further afield imagine parents aren't sensitive to capsaicin humans and some insects are I think I've got this right but only seriously if there any be a really good botanist or zoologists and the audience come and tell me afterwards there's nothing hot about it chilli it doesn't burn your mouth or indeed other parts of your digestive tract because it's hot it actually hacks perception capsaicin makes your sensors in your mouth hyper sensitive to heat so anything that comes into contact with them in association with chilli feels really really hot so it's actually changing its total innovation it's changing the way we perceive something rather than changing the reality and I just like I'll show this film just to give you an example of this depending on how something is presented you can make something brilliant seem absolutely terrible and you can make something pretty bad as Ferrari did did seem brilliant and that's why marketing isn't an optional extra it is an added value it's an intrinsic part of the value of anything unless you're a Marxist and you believe there's some weird objective labor base theory of value which probably a couple of you do ok it's fine right but if you accept that value is subjective there are two things which determine value effectively how it's perceived as a factor of not only what it is but how its presented and there's no escaping that now I always wanted an example of something absolutely brilliant which was terribly presented I used to use a theoretical example which is a restaurant serving michelin-starred food but which smells of sewage ok yeah now what tends to happen there if you assume that we've got to improve objective reality you go we must make the food even better no get rid of the smell ok but equally I managed to find an even better example of this from two Australian comedians who took the hottest property in the entertainment world at the time and probably now as well and presented it in a way that did not inspire trust or belief or conviction and this is what they did hello hi peep shows they have a pretty bad name normally associated with lewd content but by definition they don't have to be so in an attempt to change that we took one of the world's biggest performing artists kept all these clothes on and set up an edge here and peep show would anyone dare to believe what was written outside and come into our very dodgy looking venue that was fair enough because we dressed Hamish is a fairly shady looking spruiker in charge of getting customers I got you Sheeran it wasn't Sheeran I don't think it's gonna be a brave soul I wouldn't I wouldn't come into if there was dude it was right this was going to be tough paper dude Sheeran for two bucks insurance do you want a paper dude Sheeran your loss what are you drinking big fella got a cheering in here beautiful GG hey man sitting on a stool what do you reckon two bucks got an edge here and just sit on a stool in there you want him to bucks two bucks for a beats think about it it's actually pretty good value despite trying we'd had a total lack of interest for over 50 minutes it's been some time we should have got you a more comfy chair I think you need in there two bucks you need each urine is it singer yeah yes no I think one of the big problems is people think Ed Sheeran's a code word for a new drug you guys like it cheering two bucks two bucks for thirty second paper what like they just say no yeah dirt cheap paper dirt cheap people here we go two bucks it's your checking we're pricing it too high and that's why we're not getting people coming in it's a Friday get you engineering Peep Show two bucks sitting on a stool play your song if someone actually does think it's a peep show I might quickly give you the go-ahead to take away your clothes you're willing to do that yeah been drinking a lot of beer recently all right yeah you're not a couple of months ago maybe but yeah I'm shaping this just the shape of a potato two hours in me and Hamish was getting more desperate Sharon is literally sitting in there on the stage waiting for your two dollars we were feeling it as well but just when we thought this had been a giant waste of everyone's fun you guys like it cheering you like this hearing two butts Peep Show just got him sitting on stage in it well - that's gonna cost you two bucks you only get 30 seconds I don't come in but well there's only one way to find out we might be on here here we go here in Peep Show he's there till midday all right your choice no she did this map thing it walks away I'm just saying if you guys whenever guys see me there by himself with a probably a busy later on two bucks 30 seconds I mean your bird can come if you want just to back to head everything's aboveboard I can assure you absolutely not like I guarantee what it'll do but yeah pay two bucks and after two hours 23 minutes including some final hesitation we finally found people brave enough to take haeseong's down the state behind yourselves just listening to the announcement every good luck enjoy your pain hello and welcome to the Peep Show your time will stop [Music] [Applause] so that's partly funny okay but it's a poet I think that's pretty much how it feels if you're a financial services marketer at the moment we doesn't matter how objectively good your product is if you don't have basic trust if you met if you can't manage to create that idea which is this is probably going to be okay okay I would argue the whole sector regardless of you know merit or or dessert really suffers from a huge shortage of trust that's what ultimately happens now notice here that the first thing they start when they start failing what's their default maybe we're pricing it too high okay now one of things that were worried me most about algorithms is they'll automatically start testing the price of things rather than the other psychological factors which may cause people to buy now interesting Lee when he finally persuades that couple to go in he uses two or three really well-known tested techniques of human behavioral science he says scarcity value it'll probably get pretty busy later on he's only there till midday you both can come in etc okay now those things basically work okay those of us I've been studying behavioral science for 15 years when I am on an airport airline website and it says only four seats left in this price okay I know exactly what they're doing they're trying to exploit my scarcity bias but I still buy the bloody tickets so what's important about this is it can also be used to solve really really big problems this isn't just your typical brand managers problem the over prescription of antibiotics has been solved through behavioral science which is a post-dated prescript essentially you give people a bit of paper which is prescription for antibiotics they leave the GP completely happy because they got a bit of paper I think 80% of the people given a post-dated prescription don't actually cash it in for the antibiotics if you give people a prescription and say don't take this until Friday what they do is they pass the chemists on the way home they get the antibiotics anyway because they're planning to go home and wrap up in a duvet there's been eight quid on their prescription charge and sunk cost bias means well I've spent the eight quid I might as well start taking the pills if you just post-date the prescription I've done the even more controversial theory with the NHS which is you could reduce unnecessary visits to GPS by about 50 or 60 percent by just having an answerphone message which lists the three most common ailments that people are suffering from at that time now psychologically why do you go to the doctor now the logical answer is we go to the doctor to get well okay 90% of the reason we go to the doctor is to be reassured fair okay when you have an illness what's the best thing the doctor can ever say to you in terms of reassurance there's a lot of it about okay you immediately feel fine right it's wrong like when there's a power cut what do you do when there's a power cut you go out on the street and when you see all the other lights are off in the street you don't thank for that okay it's not just my problem it's a shared problem I can relax right what's the worst thing a doctor can say to you this is an extraordinary condition I've never seen anything like you before that's the weather you don't want to have no doctor so if you had an answer phone message or an on wait message and on hold message at the surgery which just said these are the common viral conditions that are going around at the moment my hunch is that 2/3 of the people wouldn't bother going in at all they just go oh I've got that I think also choice architecture understanding human psychology can solve really big problems like the question of diversity and recruitment yeah an awful lot of the problem of diversity probably isn't due to conventional prejudice it's due to a thing called status quo bias which is if you're making one decision you go very very close to the expected boring norm there's a solution to that if you hire people in groups without any bidding whatsoever people will automatically make diverse hiring decisions because now they're looking for complementary skills they do this instinctively when everybody had one car per household everybody had a saloon car because it was like right close to the kind of middle default boring unusual in no dimensions thing once people bought two cars per household they had two completely different cars and probably neither of them was a saloon car so just by changing the way that choices are made you can completely transform the decisions that people make that's another example of innovation because still one of my problems with math I've been speaking some good mathematicians about this is that when you multiply two things together or you add two things together you lose information but it's actually if I was just talking to a taxi driver about this on the way here now what does Amazon Prime do it encourages you to buy lots and lots of things from Amazon because you make one payment and then all your subsequent payments all your subsequent delivery charges for Amazon Prime a free right that's designed to encourage you to make lots of one person commit now why does Amazon Prime have to exist and the answer is because 1 times 7 isn't the same as 7 times 1 7 people buying one thing a month probably don't care about a delivery charge one person buying 7 things a month he's not gonna buy the 5th 6th and 7th thing from Amazon because he's already spent 12 quid on bloody delivery and that's the limit fair ok naturally if you wanted to make the congestion charge more psychologically effective you'd make everybody's first three journeys into London free then the next five journeys are 10 quid and after that it starts going up you do the opposite of Amazon Prime but they haven't because the congestion charge treats 7 people going in once the same as one person going in a 7 times so it's not optimized to change behavior I would argue by the way there's a fundamental problem that Amazon has which it doesn't know how to solve which is it's very a very very good way online commerce ecommerce is a very good way to say one thing to seven people or 15 people it's not a great way to sell 15 things to one person that's kind of Walmart okay and the two are not the same now if you start accepting that one time 7 is not the same as 7 times 1 1 plus 7 isn't necessarily the same assemblers run you can suddenly start solving problems creatively because what the multiplication is doing in your model what the addition is doing in your model is actually stripping out information it's stripping out human neurons so I was talking to transport a transporter ministry the other day I said look you're talking about overcrowding and trains ok and the idea is anybody who has to stand on a train is bad and I agree it's kind of bad but we're never gonna produce a train network when no one has to stand let's look at it differently if 10 people have to stand 10 percent of the time well it's kind of overcrowding but meh ok right I mean all of us here if we had to stand on a train every tenth journey Kelly yeah happens you know ok whatever if you'd bought a season ticket and you had to stand every day you'd be livid wouldn't you so one person who has to stand 100 percent of the time is not the same psychologically it's the same in the model but it's not the same psychologically as ten people who have to stand one journey in 10 fare now once you split it up like that once you accept that commuting is not commutative you can solve the problem the interesting way you say ok maybe what we need to do is we need to have two trains a day in each direction which are exclusively for quarterly and annual season ticket holders and we'll make sure that if you're on that train you get a seat if you want to travel on that train you have no season ticket maybe you've got to pay a supplement now restaurants would do this right if you're a really regular customer of a restaurant they give you a better seat why don't real ways think like restaurants the answer is because they're looking at information in the aggregates they're not looking at it at the personal disaggregated level that's it models look clever anything that uses math makes you look clever it demolishes argument because the guy with the spreadsheet in the room always wins the argument but the very process of adding things up and multiplying them together maybe actually limiting your creative ability because aggregate information looks Trevor but can make you act dumb now what I'd like to talk about just for the remainder of this talk I understand we're a bit ahead of time so I'm free to ramble a little bit I generally think that marketing needs to be the science of knowing what conventional logic is wrong about now the problem about conventional logic in a marketing setting is if you're conventionally logical you'll never get fired okay any decision which is made based on the pretense that people are logical and rational will never get you into trouble the only problem is that two problems one you might be wrong - you'll often use logic and end up in exactly the same place as all your competitors so you'll end up in the worst part of the market which is a kind of bloodbath because logic tends to take you to the same place your logic tends to take you to the same place as other people's logic there we go lovely example you want to compete with coca-cola 140 years or so for the last 80 years I suppose it's been the most popular cold non-alcoholic drink in the world apart from water so you're in the room and you're mr. logic and they say what do we need to do to compete with coke can you say and we need to produce a drink that tastes nice and cost less than Coke and comes in a really big can so people get great value for money now no one will kick you out of the room if the drink you subsequently launch fails you won't get fired for doing that okay in logical terms cost less taste nice that comes in a big container you've totally slam-dunked it the only problem is the most successful attempt to compete with Coke in 150 years is this and it comes at a tiny cam costs a fortune and it tastes disgusting okay there probably is by the way a deep psychological reason for this which is if you want to believe that a drink has medicinal or psychotropic powers it can't taste conventionally nice with a lot of medicines they add a shitty tasting thing to it to maximise the placebo effect because if nurofen tasted like black currants it probably wouldn't work very well okay we need it that's why people think wheatgrass good for you cuz let's face it you're not drinking the stuff for pleasure are you okay you could just go lick the underside of your lawnmower and create the same effect but it's worth knowing that in a business there's kind of finance department logic there's operations logic okay there's what you might call air traffic control logic now you want the people in operations you want a lot of the people in a business to deploy conventional logic which is do the same thing best practice optimize maximize efficiency all those things which make a business efficient and good but there's certain spheres of business which shouldn't operate on the same logical precepts HR I'd argue is one of them if you know simply R&D would be another one yeah your R&D anything to do with experimentation and R&D HR because let's face it the skill of HR is to find people that your competitors aren't finding to work for you and marketing is a third one another sphere which you're probably not involved in is military logic has to be different from conventional logic why because if you're conventionally logical in the military your enemy knows what you're going to do and kills you because they set a trap for you they know what you're going to do you become predictable and if you become predictable you become dead okay this if you want to over intellectualize a joke which is something I never recommend but it is a very very funny joke and you all know it this is essentially what's going on here you have an ex-military man in the film airplane I think it's called Kramer from right um and he's in charge of the control tower he's a Korean War veteran he's in charge of a control tower for those of you don't know airplane there's essentially a stricken airliner with a very inexperienced ex-military pilot on board who has to land sort of 200 civilians after dark because the pilot and the co-pilot to be taken ill this is what happens turn on the searchlights now it's just what we expect in history now the funny about that is you - you don't want military logic in air traffic control you don't want the people who tighten the wheel nuts on your plane when you next fly to be wildly creative people going straight let's try anti-clockwise for the lols okay but there are spheres in business and military and governmental and political decision-making where you've got to abandoned conventional logic it's just about ok to have procurement people buying military hardware ok what you don't want is procurement people deciding military strategy if you've done that they would have insisted that the d-day landings took place between Dover and Calais to minimize fuel costs right the whole point of the Normandy landings was to create the expectation that that's where the landing would take place while actually planning to land somewhere much more expensive and much more difficult all military strategy is actually the cunning deployment of wasted resources to wrong-foot an enemy if you ever do what's most efficient you'll come up against the most resistance I would argue the same applies in many cases to marketing if you try and make marketing merely efficient you'll end up predictable and in the same place as everybody else and the problem that we face is that finance dominated decision-making in a business is overwhelmingly dominated by what you might call procurement logic which is cost-cutting maximize efficiency the default mode of any business is essentially reduced the price of things no one who goes into any business meeting who says I've found a way of doing X cheaper no one will have to face any hard questioning in some cases the problem arises that actually marketers now suffer a kind of Stockholm Syndrome where they pretend they're like procurement and they shouldn't be doing that because marketing isn't this isn't that kind of thing it doesn't use that kind of logic someone I knew studying for a qualification in behavioral science they made their money doing email marketing for a large London theater chain they discovered very quickly that Redoute that advertising a discount on theater tickets reduced demand now those you studied economics again carob does not compute I can understand that perfectly the fact that you're discounting the ticket suggests the play isn't all that great right if you think about it going to a not very good play still costs you one hundred and forty quid after the discount by the time you paid for babysitting and the meal out and car parking and a taxi and all that farting around so people were less likely to go to the theater when the tickets rabbit eyes with a discount so she used to tell people this they come and say I want you to advertise the matinee on Friday for such-and-such a performance and I want you to tell people it's twenty five percent off and she's in our happily advertised the available tickets but I won't say twenty folks they're off cuz it'll reduce demand and reduce the price so you'll get yourself fewer tickets and a lower price and every case the people came back to I want you to do it anyway why you'll sell fewer tickets because my boss can't shout at me if I pretend that economics is true I'll never get into any trouble let's say I didn't sell all the tickets and I didn't put the discount on he might say oh but if you put the 25% discount on economic theory tells us we would have sold more tickets therefore we would have done a better job so effectively economics is basically the new IBM no one ever gets fired for using it and this is a fundamental problem I think with the way algorithms are designed with the way business decisions are made which is that basically pretending that economics is true never gets you into any trouble now imagine if you wanted to go and say I want to go and give our staff for pay rise because I find that generally jollying them up and making them happy increases the sales of our product let's say that was a call center okay you could make that case in fact in many many cases it will be absolutely true we had a very very good pull center one of our clients and I asked him how is your call center so good why are all the staff so brilliant they said to be honest we probably overpay them and the reason is because they felt they were overpaid they stayed for years and they got really really good at their job now in order to justify that you would probably it would take you a year of hard argument and you'd still probably lose if you went into the same meeting and said I'm going to put the stuff on zero hours contracts and outsource them to somewhere else okay that will get through on the nod and there's a fundamental bias in business which is effectively towards making everything 20% cheaper than consumers wanted to be and 40% shittier because those business decisions are just the easiest one slate that's why by the way there are no curtains on the euro stock is some um scrote in procurement you paid two hundred and eighty quid there are hooks for the curtains okay this means you can't see your laptop in the Sun unless you pull the blind down which is a bit passive-aggressive because you share the blind with someone else that's getting bit Larry David here I grant you this okay but someone pointed out that you can actually save two hundred thousand year and dry-cleaning costs by not having any curtains the corresponding argument which is curtains will make it a lot nicer and more people will come back that's probably true but it's much harder to prove and it's much harder to argue so here we go these are the assumptions of economic logic that human behaviour objective as I said it isn't we construct ideas of value and price in our heads from various cues but it's not objective it's not perfectly trusting it's not proportionate it's not a god Inc which I won't go into because it's a bloody headache it's not status free context-free individualistic it's not maximizing it it's not path independent okay now looking at how a restaurant gets people how long they got five minutes ten perfect okay look at our restaurant gets people to buy wine a restaurant wants people to buy wine but his wines very profitable why is wine very profitable and the reason is that basically anyone else screaming it it's kind of the whole wine things kind of how many people really would really rather drink like cocktails or gin and tonic or whiskey I think quite a lot or beer that matter okay but the great thing about wine is it's kind of so you can't charge you can markup wine to a huge extent because it's right okay you can't charge fifty quid for a glass of Johnnie Walker red because people know what a bottle costs in the shops but you can buy in a case of Chateau de Bie or 2008 for 6 euros a bottle charge 50 euros bottle for in everyone will crap on about the scent of black currants and all that sort of bollocks okay because that's what you're expected to do so restaurants really want you to order wine they manipulate you every single time okay total manipulation first of all when you come into the restaurant there are already wine glasses on the table which kind of say this is the kind of establishment which expects you to drink wine if indeed you say we're not drinking wine they take them away with a bit of a half have you noticed okay then they bring you a drinks list which isn't called drinks list it's called the wine list and the choice architecture the wine list is you have four pages of a totally insane and ridiculous range of different kinds of red white and Rose a wine and then like this grotty little back page for the perverts and deviants who'd actually prefer who prefer to drink something produced by a culture that's mastered brewing or distillation right rather than just trampling on grapes and leaving them to go off alright so you feel you have to now but there's even cleverer and even clever piece of manipulation on this which is they only hand out one wine list so the guy with the wine list I've started to show the lady here is French so I'm just probably a heart attack and this assault on her national I'm so sorry anyway um there's any one wine list now if you think about there's only one drink that you can kind of share among everyone unless you want to say tequila slammers all round which you probably wouldn't in this kind of venue right so the guy with the wine list turns to the table and what does he do he says red or white at which point it's game over for the gin drinkers the beer drinkers they're forced to go along with everybody else now you think you've chosen to drink red wine but actually the whole choice architecture has been fundamentally geared up to flog you wine now by contrast let's look at something that that's the product of years of genius in how to run a profitable restaurant let's look at something else let's look at how we choose flights no not hotels okay I think it's fair say nobody when they book a hotel goes online to trivago or whatever and goes I want to stay in Barcelona for three nights what's the cheapest hotel do you don't do that because you'd end up in some rat-infested place right so hotel choosing online is a bit nuanced but what they do in the airline is they bake the only salient thing by which you can choose price in fact if you're an airline that said I'd like to be tempted better have a bit more legroom and we'll charge everybody ten percent more you probably disappear off page one or two of the search rankings and you go bankrupt even though on balance lots of people would probably prefer that trade-off so there's a very important thing Daniel Kahneman who is the first economist or first psychologist to win the Nobel Prize for economics he made the point that his most important discovery in his life is nothing is as important as you think it is while you're thinking about it what you're looking at and what is salient becomes important because you're paying attention to it when you go I put inside of British Airways I said look the way you get people onto the twelve o'clock flight rather than the ten o'clock flight is exclusively by dropping the price of the less popular flight but I put it out in one case I said look the twelve o'clock flight it's got a brand new 787 Dreamliner on it okay but I can only discover that by clicking by mousing over one thing then clicking on it then clicking on something else now that planes cost some 150 million pounds right but in my actual choosing it does it's not even visible you know the fact whether there's Wi-Fi or not isn't visible you can use loads and loads of things to get people to change their behavior as well as the price mechanism but when you make price the dominant thing people automatically will choose on price now I think the airline industry is killing itself through chocolate now I don't know how many other people have done this I've done it myself okay just to be clear so you've got a family of four you're leaving Gatwick to go somewhere on easyJet you know in like five weeks time and their various flights and you see that one of the flights is 10 quid cheaper than the three other flights came to the same destination that day and therefore of you so you multiplied by four go bloody ell saving forty quid I've got to do that fantastic so you booked it and then two days before you travel you have a look at what you've booked again and you realise it's the bloody 6:00 a.m. flight anyone else done this and then a day before you go there's no way I'm gonna get the family out of bed at 3:30 in the morning so you end up booking a hotel the night before and having a meal and Pizza Express which costs you about 200 quid which completely eradicate the 40 quid you saved by choosing the 6:00 a.m. flight but the time you chose that was the salient factor now if airlines can't find other things to advertise you know one of things I've said is you've got to make choice architecture here more multi-dimensional you've got to have you know maybe the midday flight has you know two kids for the price of one maybe then one o'clock flight says free Wi-Fi on this flight maybe one flight says take this flight and get a free upgrade to premium economy on the way back but you've got to mess with the choice to not make it all about money because otherwise the entire world's airline industry is just involved in a massive race to the bottom simply because of the way they present choice to the wet to people who are choosing a flight now I'm just - just doing let make this point if you want to buy really if you want to buy arts don't buy art by architecture okay because the way we choose a house is we go where is it how much does it cost how many bedrooms does it got has it got a garden has it got a green house and then we narrow it down and we look at five houses and we choose the one we like the look of most right now I did it backwards I said let's look for a fantastic house architectural a first and then worry about the other stuff I ended up in a flat in a Robert Adam grade 1 listed only 2000 grade 1 listed houses in Britain well about a factor in which you can conceivably live I mean some of them like the Royal Opera House and Nelson's column okay my name is an economist I said how much extra do we pay for the fact this is a Robert Adam house he said somewhere between Norton 2% now you don't pay 2% extra for a Picasso versus some crappy thing done by a guy on the Bayswater right but if you bought art the way we bought architecture that's what would happen okay if people went if people went if art websites were like property websites you and I want a painting that's about five by three I wanted to be painted in the South of France I wanted to feature two cows and maybe a tree and I'd like it to be mostly green but with a bit of blue and then the bloke said here are five of them and you said I'll have that one right in those conditions Picasso's would be really really cheap so the order of elimination of attribute has a huge effect on the actual decisions people make and the airline industry is effectively trying to commit suicide because of choice architecture this is getting a bit better okay at least they say what the plane is and the fact that there's Wi-Fi on it another interesting thing by the way in terms of why by the way first class is cheaper than business class god only knows but their algorithms clearly gone a bit wonky too very vital things for the last five minutes okay one of which is the every model of human decision-making assumes that people are trying to maximise it assumes they're trying to optimize something economists call the thing they're trying to optimize utility okay I would argue this makes no sense given that our brain is the product of evolution and given that we've evolved to live in a world of uncertain information nobody's explained that very quickly okay um the reason by the way that Finance tends to hate marketing is because finance is very heavily instrument influenced by economics economics assumes perfect trust and perfect information in every decision so in the mind of someone in finance or in the mind of an economist in their perfect world model advertising shouldn't exist at all because consumers would already know exactly what they wanted and how much they're prepared to pay for it okay that's why Finance tends to hate marketing because it sees it as a cost to be minimized not as a source of value creation because they don't really accept subjective value they don't really understand it similarly economists assume we're trying to maximize something that let's be clear there are decisions like archery where it's all about maximization you aim for the bullseye okay you aim for the bullet doesn't matter if you can't see if you're drunk if you if it's windy you go for the bullseye why'd you go for the bullseye because there's no better strategy in archery because if you just miss the 10 you get a 9 if you just miss the 9 you get an 8 if you just miss the 8 you get a 7 okay that's a maximization problem where the only logical strategy is aim for the 10 I would argue by the way that's why archery has never made it big as a televised sport to be absolutely honest because there no trade-offs I mean if you're actually commentator it must go something like this yeah so Barry what do you think he's gonna do next um well John I think he's gonna aim for the 10 like he's down for the previous 500 bloody goes right because there's nothing else you can do okay archery is not an interesting sport darts by contrast now apologies for those French lady here I gave this presentation in France fine place France very good food not a great darting nation it has to be said and for this section of the presentation they were completely baffled but dance sexuality if you're not very good at dart darts aim for the southwestern quadrant of the board because you won't get a triple 20 that way unless you're really bad but you won't get a one or a five where there's a Messier outcome to a decision when there's a degree of uncertainty to a decision you have to consider two things you have to consider the average but you have to consider the variation as well you have to consider the variance got that now because the human brain has evolved to make decisions that are much more like darts than they are like archery you know do I climb an extra 10 feet up that tree to get the extra cherries even though there's a small risk I could die okay by falling okay those are the kind of messy uncertain decisions that we've evolved to make and we have to consider both how good is it on average is not enough because if it's really really good on average but one time in 10 its fatal okay then we don't want to do that we'll take a trade-off we'll have something that's less good on average but has lower variance so it's never going to be terrible that's why I would argue I'll just flip through the next slide if I can first that's why McDonald's is the most successful restaurant in the world so no cuz it's really really good it's because it's really really good at not being awful an awful lot of human behavior is driven by this it's not only asking the question how good is this thing optimally it's also asking what's the worst that can happen and if what's the worst that can happen even if there's a very low probability of something bad happening but if that bad thing is very very bad we won't take the bite okay you can see that in people's behavior on things like eBay it only takes one really dodgy thing like really bad grammar and the listing you know two recent complaints from people now logically okay if we were a logical species on eBay if someone had a 95 percent approval rating okay they should be able to sell their products for five percent less than someone with 100 percent approval ratings that because they're 5% unreliable actually what happens is if someone's got a 95 or 90% of proven rating they sell the bloody products for about a third of the price or they can't sell them at all okay there's there's that uncertainty thing at all there's too much variance in there now I don't want it that I would argue is why people pay a premium for brands not because I think brands are better but because they think they're less likely to be shite okay this is a cat showing exactly the same thing it's asking there's not much chance of this worst thing happening but if it is the worst case scenario the worst case scenario is really bad so a cow just hit play there it's a cucumber put it outside your cat's line of sight wait and they go okay there's not much chance it's a snake but why take the risk okay they're probably where it's green it's got a point he knows it's low to the ground there probably were cats in early and evolutionary history who are calibrated the other way around they went oh look at that cute little cucumber oh it's a snake those cats tend to exit the gene pool if you get my drift right now so most cats are the same from the slightly paranoid cat but the way this affects human behavior to such an extent that when you have penalty kicks to decide football competitions even like the World Cup two minutes three okay super okay people would have score more they get a higher average if they kick the ball straight down the middle not everybody obviously but some of them the reason they don't is although you're more likely to score you look much stupider if you fail if you kick the ball left and the guy saves it kick them alright the guy say if you look unlucky kick the ball down the middle and the guy saves it you're more likely to score he's less likely to save it because his propensity is to dive but if he does save it standing in the middle you look really useless like you didn't even try that drives nearly all business decision making fear of the negative is a much more powerful force than desire for the positive and it can lead to business decision making which is dangerous we also discovered by the way in drinks context for Diageo there is no way you will ever sell a man a cocktail unless the menu contains an illustration or a picture of the glass in which chips to be served because if the male brain thinks there's a naught point oh five percent chance it arrives looking like that he'll order a beer instead okay exactly like the cat okay now I'll end on one final thing because this is important okay there's what you can measure now in digital advertising what's easiest to measure answer it's a purchase or transaction or a click from a message that he is highly that is very very close to the point of purchase fare okay I would like to argue the significant part of marketing must rely on doing the opposite of this let me tell you very simple terms you go to a car dealership and the bloke buys you a cup of tea right now you don't get one incredibly generous bloke he's just made me a cup of tea this is fantastic well amazing customer service because he's trying to sell you a car right it doesn't really instill trust because the cars cost twenty grand and the tea bag costs to pee right now if on the other hand you buy a car from the guy and a week later he rings you up and says you forgot the logbook I'll drop it off at your house on my way home this evening you go wow that's really cool all right because the first is self-interested and naked Lee short-term it's the second gesture is patently long-term estate isn't gonna be selling you another car for three years now the meaning and the what's easy to measure and what has meaning to consumers may be very different to explain this bit of game theory okay generally people are honest decent and nice and this applies to relationships with brands just as relationships with other people to the extent they expect future interactions a lot of altruism is basically long-term selfishness it's worth being nice to this guy because I'm playing the long game and people are playing the long game who are looking to actually engage in a series of repeated nonzero-sum transactions over time tend to be decent and trustworthy people who just want to flog you something and then disappear we don't trust those people I would argue the next densive part of marketing is doing things that only pay off in the long term now the way we'd signal trustworthiness to another human whether is by doing things that involve effort now or cost now which will only pay off over a series of repeated interactions because that shows we're playing the long cooperative game not the one-off Chiti game and so I'll end with this just to be clear how much of marketing now the problem is is those things by definition are the hardest thing to measure and they're the things that every algorithm will miss because the payoff may come three years hence an example of a generosity post purchase would be when you spend two hundred pounds on cosmetics or women's fashion they have to give you a rope handle bag don't they it's not better than the polythene bag it's just more expensive it says we're not stingy here we're giving you a proper bag okay now measuring the efficacy of the rope handle bag would be really really difficult because the only time it will show up might be two years or three years hence or six months hence the effectiveness of the cup of tea is really easy to measure but the meaning is inversely proportionate to the ease of measurement that is really costly long term signaling upfront expense as proof of long-term intention okay you wouldn't buy an engagement ring if you're only planning a one night stand there are cheaper alternatives I imagine okay right if you notice an engagement ring also has to cost an amount that is actually painful to the man buying it doesn't matter how rich you are it has to involve actual pain as a sincere gesture that I I am entering into this arrangement on the clear and proven expectation that it has a long-term future not a short-term expedient you know what you know that's called energy right okay similarly five guys giving you extra fries okay that's after you've bought the fries they give you an extra scoop which is above and beyond the the scoop that fills the cap again that's long-term singling the fact that Selfridges sends you your stuff from Selfridges calm in much much better packaging than you have any reason to expect that's long-term signaling my hunch is a very very large part of marketing and particularly the establishment of trust involves a behavior which by definition is very difficult to measure and by focusing more and more marketing budgets not on where they're effective but where you can prove they're effective there's the danger that we're misdirecting investment dangerously but that's my final bit of advice avoid conventional logic because your competitors will all use that test counterintuitive things because your competitors won't thank you very much indeed thank you you

Channel: FLETCHERWILSON

Views: 79,408

Rating: 4.9336309 out of 5

Keywords: Quantcast, Supernovauk

Id: ZtCG-Jo51d4

Length: 65min 42sec (3942 seconds)

Published: Fri Oct 13 2017

Reddit Comments

[u/GG_is_life]

He might be right, but not for anything remotely close to any of the reasons he's stating so....okay?

[u/IizPyrate]

Predicting that companies within the airline business will go bust is like predicting the sun rising in the morning.