Zee MELT 2019 | Mindspace | Rory Sutherland | What are we missing?

[Applause] [Music] particularly advertising agencies have missed an extraordinary mistake for their making if you notice this right if you call yourself a consultant you can basically be employed to do anything don't you okay there is nothing really you know you could be an anything consultant if that consultancy is a word where you could pretty much insert any noun concrete or abstract before it and it sounds perfectly credible okay so if you're a consultancy firm people will come to you with practically every problem under the Sun if you call yourself an advertising agency the only people who will knock on your door will be people with an advertising budget and the strangest thing happened about 25 years ago I joined a mogul v30 years ago in 1988 within five years we no longer as a creative agency made any meaningful money from media commission and yet for the following 25 years we went on behaving as though we were paid on media commission so this is broadly speaking what the advertising industry does in June it flies lots and lots of account men down to cam and goes tell you what if you're really nice to that client over there he's got quite a large media budget and he might spend seven million on it with WPP instead of with publicist now if you're WPP or publicist that decision is of course important in the wider scheme of things it's like pissing in the Pacific it doesn't make any difference because the weird thing the advertising agency an advertising industry completely failed to do it completely failed a spot that when you are paid by the hour and not paid by Commission there were suddenly a hundred times more problems that you could solve because you weren't confined only to talking to people who had a media budget and for every person who's got a problem and a media budget there are about a thousand people who have a problem and no media budget and yet the muscle memory of what we used to do is so strong we've just continued doing it for 25 years the importance of something is determined by how big a media budget is now my contention is what that's done is it's cooled there it caused the advertising industry to problems it's completely failed to grow outside its natural homeland what it really needs is a Columbus moment it really needs to discover some new land it needs to get budgets from people who aren't in marketing it needs to get budgets from R&D because what I suddenly discovered where I discovered behavioral science is that all over the business world all over the governmental world all over the world of say environmental sustainability there are thousands and thousands of problems to be tackled which can be tackled by anybody who's got that mixture of human insight and creative problem solving and all those problems are being given to somebody else they're being given to economists you immediately define the problem in economic terms so conveniently then only economists can solve them they're being given to consultants who basically see everything as an efficiency optimization problem they're being given to lawyers and the crazy thing that seems to have happened to me is that we've lost an enormous amount of stature as well if you think about it when I first came into the industry two-thirds of all ad spend was packaged goods now that would have included back then cigarettes it would have included beer it would have included detergents soaps shampoos and so forth but it was packaged goods by and large within those organizations media advertising was a highly strategic role and it was decisive your advertising determined your distribution to determine your facings and it also determined consumer demand so when you performed a large advertising act you had a kind of triple whammy benefit it solves three problems at once what nobody else seems to have noticed as well as not noticing the fact that we're no longer paid on media commission anymore no one seems to notice that fundamental nature of plants has changed now the packaged goods industry marketing was a very very senior and very strategic discipline within it typically if you're a large packaged goods company the chief executive has done a five-year stint in marketing what happened is that now that 68 69 percent that used to be spent on advertising buy packaged goods companies is now under 25% what's taken up the slack has been in many cases categories that didn't exist in 1988 when I came into the industry so reinsurance comparison websites online retail mobile phone handsets mobile phone networks broadband providers cable television providers now all those organizations don't have a marketing mindset at all they have a highly financialized or technology driven culture and so the budgets may be the same but the level of influence we have within them if we only talk to the marketing function of those organizations our level of influence is small in many cases of course the decision was the relevant decisions may already have been made before they talk to us at all and those are the two things we missed we're no longer paid on Commission anymore and in some ways that's a pity you know the great thing about Commission is occasionally you've got a very large check for doing almost nothing at all you know that was nice the disadvantage of Commission is it confined you to solving only those problems which bought media was an integral part of the solution but the principle value of an ad agency isn't that it buys media nor should it be the principle value is that you can combine human insight and creativity to solve problems in completely strange and unexpected ways but when you're dealing with a highly technological culture or when you're dealing with a highly financialized culture the dominant mental models those people employ are typically either efficiency optimization or economics effect has anyone here studied economics by the way quite a few now the interesting thing is in order to make economics look mathematically needs they make a series of assumptions they create an imaginary world for which they're solving problems and the assumptions are that everybody makes decisions in an atmosphere of perfect information and perfect trust so they assume that everybody knows exactly what they want to buy how much value they'll derive from buying it how much they're prepared to pay for it and they completely trust the person who's selling it to them now in such a world marketing wouldn't need to exist so when you're working with an organization which has a financial economic or technological culture essentially their mental model of advertising which is external to their economic model is that it's a necessary evil at best and it's a cost to be minimized it's not a source of value creation and if you sometimes wonder why we're not treated as seriously as we'd like it's because we see marketing and advertising as a way of genuinely making products more valuable the people we're talking to see it as a necessary cost if they're to sell these products in which the value exclusively resides that's why we often have a problem because the fundamental culture that's the third thing we missed which is that the fundamental culture of the people we were talking to had changed and I made an accidental discovery if you talk about advertising you get invited to advertising conferences if you call what you do behavioral science you get invited to number 10 Downing Street and I suddenly realized that if marketing had reinvented itself a bit like consultants did first of all don't call yourself an advertising agency in a way because the only people who'll knock on your door are people who want to do advertising I always look at the Ogilvy Building and I see it a bit like a General Hospital with the potential to solve all kinds of ailments and diseases but we've kind of got this sign above the door which says cosmetic surgery you know it want a butt lift your brand will happily do that but don't expect anything more serious and so the strange thing is I see the alignment with behavioral science as the bridge to escape the corner that we've unwittingly painted ourselves into and if we're not careful marketing no longer becomes a central business discipline and the source of enormous psychological value creation it becomes reprographics with a-levels essentially and I think we risk that at the great problem we have is that the vocabulary we use doesn't have a pet science if you're in finance you got economics as a pet science every business discipline has a convenient pet science we don't so what you want to remember is that the language of marketing is like the language of astrology it's absolutely fine if you're talking to people who also believe in it but to anybody else you sound mad okay if you go to a finance director and you say you talk about brand iconography okay in a meeting with the finance director that's like going to the head of thoracic surgery at Mumbai central hospital and saying we should trust to the healing power of the crystal okay that's what it sounds like and my contention is that I see the huge value in behavioral science for what it is it's a way of codifying and classifying the various aspects of human behavior that we know instinctively but haven't really been able to explain but I also see it as a way of engaging the wider business world and not being confined to going down to can and obsessing over the 1% of the world's business population who happen to have a media budget they shouldn't be our target anymore all we're doing essentially is rearranging deck chairs on the Titanic if we do that yes a bit of money might go from publicist to WPP and a bit of money might go back in the other direction that's not the central problem the central problem is understanding that value exists in the human mind and is created psychologically it's created in the mind every bit as much as it's created in the factory and until we can win that argument everything else we do is secondary what actually happened I think which made things worse is if you go to for example can if you look at these enormous tech companies now a tech company like Facebook or a tech company like Google can't realistically claim to have a monopoly over all the world's good ideas but it can claim to have a monopoly or a strong comparative advantage when it comes to reaching audiences so either accidentally or on purpose the tech companies have changed all the conversation in advertising away from content and messaging and towards the optimization of targeting because it suits their ends to do so if you think about it if you want to sell a product you sell a product on the things where it is uniquely strong and so patently Google can't plausibly go into offices and say we know about making films better than you do we know about persuasion better than you do what it can do is say we've got a better audience than anybody else and what they've done is 90% of the attention and investment in our industry seems to be focused on something which is the less important of two things good targeting merely finds customers good creative work actually creates them that's the difference and yet the thing that has the biggest effect over the efficacy of any communication which is what it says has been forced to take second place to who you're talking to now they're both equally important they're both I'd also argue they're both at some level indistinguishable they're inseparable but the relative attention I once made the point recently that for the money the typical client is now spending on they're doomed to fail tech stack you could have hired 10 David Abbott's for their entire working life but what we've done is we've essentially and strangely the creative industry in a kind of Stockholm Syndrome has gone along with this pretense and it is a pretense if you talk to people within those technological organizations they'll admit the same thing they'll say to me apps the honest beyond a certain point the thing that makes the most difference is the creative content and yet all you people seem to want to talk about is the targeting question you're optimizing the wrong thing you're experimenting too much in one area and too little in another and then kill we can change that again we'll be missing out but as I said that fundamental culture of business I think has changed significantly over the last few years and a large part of business has become really a pretend science see any way I can describe it now economics attempts to model human behavior and value using effectively the tools of Newtonian physics and the first rule of a science is no magic you're not allowed magic in physics you're allowed magic in chemistry but the vital thing is there is magic in psychology that's what magicians use they use psychology to perform acts of magic you can by telling a little story make something that's brilliant and that's why I called the book alchemy you can't change lead into gold as a chemist as a psychologist if you want to make led more valuable than girls you can and here's my example we all know this this wasn't an appetizing case study the media budget was zero and the copywriter was the pilot of my easy jet plane flying into London so you know that business where the plane you land the destination Airport and the engines wind down and you're still a mile and a half from the airport terminal and everybody on the plane has the same thought oh it's gonna be a bus and the bus drives up and everybody gets grumpy and goes oh I hate these bloody buses I feel cheated I paid for an air bridge now they give me a bus and I'd felt that for years and years and years and then the pilot made this announcement he said I've got some bad news and some good news by the way a very effective persuasion technique is anybody noticed it was only when I discovered behavioral science that I noticed how many good advertising end lines actually contain a contradiction we're number two so we try harder you either love it or you hate it reassuring the expensive fresh cream cakes naughty but nice good things come to those who wait they actually include an acknowledged negative unfortunately Robert Cialdini the author of pre suasion has actually spotted this and what the planet says he said I've got some bad news and some good news the bad news is I won't be able to get you an air bridge because there's a plane blocking our gauge but the good news is that the bus will take you all the way to passport control so you won't have to walk far to get your bags all right note to my companion I said hold on a second that's always true isn't that but nobody killed us I was actually quite glad there was a bus I had a heavy piece of hand luggage and now I didn't have to walk past 25 Toblerone stands just to get to passport control the bus took me straight there next time if you want to practice alchemy on a plane when there's a bus just say very loudly to companion I'm really glad there's a bus because it takes you all the way to passport control and you don't have to walk so far and what you've done is you've created gold out of base metal through a single sentence and what I suddenly discover is this talent and this extraordinary magic you can perform that way has far wider applications and yet because of the weird way in which we call ourselves advertising agents or whatever we've confined it this extraordinary the use of this extraordinary magic has been confined to an absolutely miniscule part of overall business and government problem solving and I can prove this at very end of my talk if I have time by saying that I am just a bad guy I went into the Treasury and asked them a question about tax which is why do you do it this way not that way they never thought about it hundreds of people who spend their entire lives thinking about tax they're paid to think about tax had never thought of a different way of cutting taxation and so very quickly this is the guy it's not Brian May of Queen just in case you thought it's actually Isaac Newton now in physics there's no magic okay you know simple fairly straightforward equations capture all the meaningful variables gravity speed mass whatever it may be and describe with unflinching accuracy what's going to happen generally there's a single right answer and generally numbers capture all the information you need to know to solve the problem so for example almost explicitly physics says no magic second law of thermodynamics energy cannot be created or destroyed now the economists in their attempt to copy physics this is Milton Friedman said there's no such thing as a free lunch now there's no such thing as a free lunch in economics there is such a thing as a free lunch in psychology because we've all had loads of them haven't we because let's face it a lunch feels a lot different if you don't have to pay for it okay so this was introducing the dismal restrictions of physical thinking and imposing it on how we actually interact with living organic humans you can create a free lunch in psychology but economics is so desperate to be consistent and look scientific that it's created a magic free model of the world and the problem is is that once a solution gets to a logical person it never escapes you notice this ok this is my great point that I think pervades this is why advertising agencies only solve 1% of the problems they could solve it's because if you have a creative suggestion quite rightly I think by the way I don't I don't think this is wrong I do want whole organizations desperately taken over by imaginative experimental people at every level in every position I'm flying back on British Airways and 2 o'clock this morning I don't want to think that the people who check the wheel nuts on the plane or the people working in our traffic control a wildly creative people just to be clear ok you know I don't want the people checking the wheel nuts to go let's try anti-clockwise this time just for the lawls right I don't want that I don't want the people in air traffic and to start experimenting with different configurations of landing while I'm in mid-flight no please don't do that but equally there's this fundamental bias in business where once you've defined something as a rational problem you enact it or the assumption that because there's a rational explanation therefore it's the best course of action if you're a creative person all your work has to be presented to far more rational people than you for a cost-benefit analysis a feasibility study five rounds of market research anything that's counterintuitive has a burden of proof set against it which is 20 times higher than the burden of proof for anything that's logical go into a company board meeting this happened with KFC in South Africa they had a product that wasn't selling I said put the price up and they said that's crazy if something's not selling you put the price down I said yeah logically but if you're wrong putting the price down is a much more expensive mistake than putting the price up try it they tried it and weirdly demand went up now that's not that surprising because I think you go to KFC for well you've ever kept see for one main reason which is your wife isn't around to find out in my experience but you gotta catch me for two reasons you go for a bargain or you go for a treat and something that's priced in the middle isn't a bargain and it isn't a treat you know if you don't get an endorphin rush from mid market retail dear okay you get a thrill from a bargain and you get a thrill from an extravagance but you don't get an emotional hit from mid market retail I went shopping for bed linen with my wife once and after about an hour of staring at things I said can we make a deal here she said what said can we spend one of two amounts of money in this bed linen shop she said one of those I said nothing or a lot it was crazy I said no no because I said I'm pretty happy with the bed linen we got at the moment if we spent 200 pounds getting bed linen that's the same as our existing been linen I've wasted 200 quid on something I don't notice if I spend nothing I can go and buy a drone instead okay on the other hand if we spend 500 pounds I can get nerdly excited by thread counts Egyptian cotton mattress toppers Oxford pillowcases and I can actually get a bit derive a bit of a thrill from the experience 200 pounds is useless I don't save any money and I don't get any enjoyment and so in the same way you put the price up now imagine how much more difficult it is in the board meeting you've got to you've got five minutes at our board meeting okay well the products not selling so we're gonna drop the price almost certainly that'll be improved in it'll be approved in two seconds if you said the product isn't selling so we're going to run an advertising campaign and put the price up people would argue that to death so strangely everything that's consistent with economic theory is more or less passed on the knob within business anything that's a bit of bleak a bit different a bit value-add have to argue itself to death and so we've created within business this weird world where the rational people are completely unpleased you don't get rational people going well according to my mathematical model we should actually invest 3.5 but before I present this to the board I'm going to show it some really wacky people to see if they've got some alternative ideas no they go and present 3.5 whereas if you've got any idea that deviates in the slightest way from conventional logic you'll put under you're put through the wringer now let me just give you another idea and another example of alchemy this time it was created in PR like the bus to the terminal it was about seven words so from enough in a station some pancreas in London they spent about a half a billion pounds refurbishing it very similar architectural albeit smaller to the Victoria Terminus here in Mumbai and the PR company that launched the fact that they now spent half a billion refurbishing the station included on every press release the completely wonky an irrelevant fact that the station now contained the longest champagne bar in Europe okay now as a superlative as a claim to fame that's kind of crap isn't it you know I occasionally boast that my grandparents were the fourth family in Wales to own a dishwasher it's about that rubbish okay so nobody ever says I'm thinking of going to a champagne bar can you give me a list of possible candidates ordered in descending order of length oh yeah what was your champagne bar last night oh it wasn't long enough okay no one really cares about how long a champagne bar was but for some reason the longest champagne bar in Europe if you go to anybody in London and say where's the longest champagne in bar in Europe fourteen years later anybody aged 30 or over all goes to one at some Pancras station and the magic of this was not that it was a relevant fact it was that this single bonkers silly silly fact basically conveyed to the human brain that this wasn't a boring human transit terminal optimized route for the efficient throughput of human travelers it was actually a fun place than a destination in his own right and those seven words mean that now 25 years later if people want to meet in London they might meet at some plank row station even if they don't need to catch a train okay so those seven words transformed they contributed an extra hundred million pounds to the value spent because you got to remember most humans most ordinary people consumers don't know much about architecture they're not gonna go I really like the news in pancreas you must come with me and look at the architraves okay but champagne bar that captures something it just resonates it's what I call I'm going to use this phrase in a second it's emotionally efficient okay now later on a couple years ago they spend a billion pounds renovating London Bridge station and they employed everybody and they did a very good job and beforehand it was the most hated station in London now it's okay but I didn't employ an alchemist and I kept saying all you've got to do is leave to retail branch shops don't sell them to the highest bidder which will be a coffee shop anyway okay okay sell one instead make sure there's a guy there who's open 20 hours a day and he operates London's biggest florists so when you come down these escalators there's a massive florist there that's all you got to do and your billion pounds will have an emotional value commensurate with what you actually spend now if you're wondering where I derive this from Carnot theory has anybody come across it so really interesting and really useful concept which is that in judging anything we have kind of threshold attributes we have performance attributes in other words how well does it do the job that officially it's supposed to do and then we have excitement attributes now Carnot theory was developed by a Japanese academic for I think the consumer electronics industry in Japan the classic manifestation of Carnot theory and I'm gonna be a bit baffling to anybody under the age of 28 here you'll remember it if anybody in the 1980s or 1990s bought a cassette player or DVD okay now notionally all you should care about is the quality of the sound reproduction the build quality and the price was it heck the single most important thing when choosing a cassette player in the 1980s was the eject mechanism remember that if you press the button then it went clack that was manifestly an appalling cassette player and you weren't gonna give it house run whereas if it had a whirring hissing motion with the hint of hydraulics that was brilliant and we bought that one true of DVD players even later and that's simply because what we care about and what something is are only peripherally related I think I think there should be Carnot theory and everything now why is that if you think about it Carnot theory in the Dyson the functional attributes are the fact that it does do a reasonably good job bagless Li of removing filth from the carpet the delight attribute is the fact that it's transparent so you can see the dirt you're getting out of the carpet now I'm willing to I don't have a parallel universe to prove this point I'm willing to bet that if James Dyson when he designed his range of vacuum cleaners if he done everything the same but he'd made them translucent and beige he wouldn't have sold more than 10 okay so what we have to recognize is that the human brain is a product of evolution it isn't designed to accurately depict reality because that's not what evolution cares about evolution only cares about survival if in evolutionary terms you can sacrifice 20% of accuracy and gain 2% of extra reproductive or survival Fitness eeveelution will make that trade-off every time so evolution is there to give us a picture of the world not that we'll actually maximize accuracy and fidelity but the one that will actually be most conducive to survival and as a result for example we're hugely over up to oops sorry car no Theory here for example uber okay yes the car arrives yes it's cheap those are all functional attributes there are two major bits of alchemy an uber the map because we're happier waiting 15 minutes for a cab if we can see it approaching does anybody else do this but there's a bit of ego which is you time your arrival onto the pavement to coincide exactly with the cam drawing up does anybody else do that because it makes you feel like Keyser söze in the usual suspects you know at the end right okay there's also a bit of psychological alchemy in that you can pay by credit card because everything you buy on a credit card feels 14% cheaper than anything you buy with cash at the fact that you don't request a paper receipt you don't hand over any money makes it kind of feel a bit like a service not like a transaction so as much as economists always talk about economies of scale blah blah blah you know cost efficiencies the real magic of uber but the way does anybody know where he had that idea he had the idea watching the James Bond film Goldfinger the Canadian partner of Travis was watching that scene in Goldfinger where Goldfinger Bond has a little map in the dashboard of his db6 and he's following Goldfinger through the Alps with a moving dot and this stoned Canadian one afternoon basically looked much to the film and said that's how it should be when your cab arrives now we're hugely over optimized by the way to spot faces and things that's immediate an elephant that's George Washington okay now the reason is that in evolutionary terms spotting things with two eyes and a nose is important it might be something about to eat you it might be something you can eat it might be a fellow human being in which case detecting whether that human is angry or friendly is the difference between life and death but we see faces even when they're not there we're heavily attuned to see faces we've attached emotion here for example is pissed washing machine and this famous example from Florida is of course the chicken church a very surprised chicken and depending on what we're attuned to perceive I think you can create something called emotional efficiency now the reason I want to use the word phrase of emotional efficiency is not because I believe it's the right phrase but if you're an engineer okay if you're a finance guy you like efficiency anything with efficiency attached to it is good because that's the kind of sad oh you are okay so I'm saying let's rewrite marketing language and talk about emotional efficiency because the question is in order to sell something you have to first generate a certain emotion because emotion by and large determines action therefore the question in all salesmanship is what's the most effective way of generating that emotion and it might be making the Hoover transparent it might be having a really cool map when the thing arrives it might be an advertising campaign it might be telling you that the bus tells you all look takes you all the way to the passport control so you don't have to walk fast but all those things or for example putting the longest champagne bar in Europe in a station and telling people about it all those things are alchemy because they're magically emotionally efficient they generate a huge emotional kind of vault fast in the recipient's at a very very low cost cartoonist on this case Picasso that's extraordinary emotional efficiency with a single line now a I probably wouldn't pick that up as a dog but we're heavily attuned to picking up living things we're over kind of calibrated to detect living things so the fact that without lifting his pen you know Picasso can basically go penguin and you know slightly morose dachshund that's kind of great art is emotionally efficient the television is emotionally efficient is anybody know this okay now first of all television manufacturers when you bought your last TV it didn't say on the Box optimized for higher primates okay it didn't bother televisions your television but because humans can't detect them that would be a total waste of effort ultra ultraviolet would impress a parrot or a pigeon infrared would be nice if you're a snake okay right snakes always find TV I think a bit washed out and lifeless because there's no infrared okay but they optimized this around humans and we only have three types of cone in our eye and they detect blue green red and that's the only three colors the TV needs to produce if you wanted to produce an objectively accurate television it because billions of pounds me the size of a football pitch okay be like one of those things kim jeong-hoon does you know where every pixels a yard across right that wouldn't be great the TV is fantastic the option emotionally efficient because it simply says I need to trigger this response what's the most effective way of doing it I'm not going to bother producing ultraviolet I'm just going to produce the three colors that the human eye cares about and what the human eye does is now you could have a TV that had yellow pixels you know this for the color mixing is entirely psychological doesn't exist in physics okay if you mix red and green pixels and physics you don't get yellow pixels you get red and green pixels okay what happens is if you fire equal amounts of red and green at the human eye it can't tell the difference between that and yellow so your brain goes I better make it yellow so the yellow is produced in your head but magenta is even weird because halfway between red and blue should be green but your brain can detect green and when you see anything that's magenta your brain goes that's weird it's halfway between red and blue so it should be kind of green but I can't see any green so it invents a completely new color magenta which doesn't exist in physics to explain away the absence of green ok so basically all this stuff is designed around perception not designed around reality the pathans the same so if you take the path none okay the pillars aren't parallel they bulge in the middle the floor bulges upwards in the center the sides curve outwards and the decorative freezes aren't symmetrical they're 4,000 miles where in the British Museum but that's a separate matter okay but um the point about that is the Greeks didn't design the temple to be rectangular they designed it to look rectangular and strangely pillars that bulge outwards in the middle look straighter than pillars illustrate rolls-royce borrowed this for the radiator grille if you look at the individual grilles on a Rolls Royce radiator it's called inte ASIS and they're slightly fatter in the middle than they are at the ends because it looks better that way and all I'm suggesting is we should design things around perception not reality because perceptions all we care about and yet the worlds in the grip of these weird economists who are trying to design things to be optimally good in reality not optimally good in perception nature by the way has had this trick very early that's a chilly I don't really need to tell you here do I okay right I agree with you I'm a bridge it's the essential ingredients of basically all food I completely with you yes okay now the interesting about the chili is it's not hot every single person in the world would describe it as hot just as every single person in the world would describe mint as being cool and yet the actual temperature isn't that what capsaicin does it was evolved by the chili plant to trigger a sensor in the mammalian mouth and I presumably rectum as well judging by experience okay which is only triggered normally by a temperature over about 110 Fahrenheit so the only reason you say chillies are hot is because it triggers a temperature sensor using a chemical not a temperature okay so it's like the television television it's effectively folk faking an emotional response by hacking our perceptual apparatus the reason it does this by the way is it wants to be eaten by birds which don't have this same sensor because birds don't crunch the seeds down so the seeds will germinate and birds also tend to take the seeds further away so it's an evolutionary hack to make sure your seeds are eaten by birds not by mammals presumably - parrots these things could taste like strawberries for all we know they don't taste remotely hot so parrots are really really manly they can eat tons and tons of chilies while manifesting absolutely no effects at all now it's worth saying before I slag Economist's off completely it's worth saying that there were there was a School of Economics which got all this right the Austrian school if you're familiar with people like Ludwig von Mises Schumpeter Hayek and so forth the Austrian school believed that economics should be a subordinate discipline of psychology they were kicking around in Vienna at the time of Freud and the Austrian school effectively believed that advertising and marketing were as much a source of value creation as manufacturing was because the value of something was not determined in the mind by what it was but by the way it was perceived and therefore if you changed the context of something you changed its value even if the thing itself didn't change and ludwig von mises here in national economy tea raiders handles and verse often effectively when he mentions the man who sweeps the floor he explicitly means advertising and marketing he says so you could produce michelin-starred food in a restaurant that smells slightly of sewage and nobody would enjoy the meal if one of the spikes on your fork was slightly out of alignment you wouldn't enjoy the meal okay now if your food is popular if it isn't selling yup you could try make the food even better that's waste of time no get rid of the smell and all too often what happens in businesses is when they have a product that fails they try and change the product itself not the context in which its presented and all of human perception is context dependent there's wonderful psychological experiment which I can demonstrate in a single slide none of you I think read that first two words as tied shut now actually the h and the a are exactly the same symbol there but your brain immediately goes in that context that one's an H that one's an A and similarly you don't really notice that that's a B and that's the thirteen although they're actually indistinguishable what our brain does is it makes sense of something because in evolutionary terms what matters is not what something is it's what it means and so our whole perception is optimized around meaning not around what matter now if you want a perfect example of this I'm going to make the point we should never ever talk about marketing as adding value because when you say marketing adds value it gives the impression that the value itself is already inherent in the product and that marketers just add a little bit of magic pixie dust to make that product value a bit better than it was before okay now the reason that's wrong is it makes marketing sound like an optional extra you can have the best product in the world but if you market it badly no one wants it now I always wanted to prove this by taking a really really good product and marketing it really badly I think there is one case the Philips airfryer by the way does anybody own one yeah one of the best thing do gree it's a miracle yeah but they called it a fryer when it isn't okay so the kind of people who would want to fry food and by the way if you go to a store it's place next to the deep fat fryers so it's an incredibly healthy way of producing fried food but because you call it a fryer at a friend of mine middle-class English people get well we don't really eat fried food to me there you see now a friend of mine suggested if they just named it in french and called it the air Souter's they would have rocked off the shelves you see but they called it fryer and it immediately stigmatized it does anybody remember that French cooking technique called sous-vide right as far as I can remember you put your food in a shopping bag stuffed it down your underpants and walked around for a few hours on a hot day it sounded to me like the most disgusting way of cooking food imaginable but because it was called sous-vide everybody imagined it was immensely sophisticated so the Philips airfryer is one example of a great product which had you named it differently what's for him steamed away is it's hugely popular in in Southeast Asia where of course frying and cooking are the same thing you see where basically you don't have an oven so it because frying is cooking in Southeast Asia the things walk off the shelves in Britain you can barely offload them despite the fact they're a life transforming product I mean I bought one for my dad and he became a kind of weird evangelist she's 88 going around all his friends saying you've got to buy one of these so the Welsh borders there's this small tiny pocket of air fryer ownership Guildford but just a proven even better to Melbourne comedians literally got one of the best entertainment products in the world and they deliberately marketed him really really badly so ed sheeran who at the time of this experiment was probably the hottest ticket in the kind of international or Western music industry weirdly spent a morning hanging out with these two melbourne comedians 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 another tempt 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 each show would anyone dare to believe what was written outside and come in to 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 all right I can hear English do you think I don't think okay it's gonna be a brave soul I wouldn't I wouldn't come into if there was a dude with a beard at her heart and say like competencies ed was right this was going to be tough on paper did Sharon for two bucks insurance do on a paper dead Sheeran your loss what are you ranking big fella that each hearing any a beautiful GJ hey man sitting on a stool what do you reckon two bucks got edge here and just sitting on a stool in there you want two bucks two bucks for a face 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 yeah yes not I think one of the big problems is people think Ed Sheeran's a code word for a new drug that's got you guys like it cheering two bucks two bucks for a 30 second paper what like are they just say no yeah dirt cheap paper dirt cheap paper here we go two bucks you're joking we're pricing it too high and that's why we're not getting people coming in Friday get you in cheering Peep Show two bucks sitting on a stool play your song if someone actually does think it's a peep show and I quickly give you the go-ahead to take away your clothes you're willing to do that yeah I've been drinking a lot of beer recently all right yeah you're not a couple of months ago maybe but yeah men shavers just the shape of the potato two hours in and Hamish was getting more desperate and Sharon is literally sitting in there on the stage waiting for two dollars we were feeling it as well but just when we thought this had been a giant waste of everyone's fun guys I kids hearing you love is hearing two bucks Peep Show just got in city on stage and it oh ooh that's gonna cost you two bucks you only get thirty seconds I don't come in but well I was only one way to find out we mop you on here here we go he's even be be shy he's there somebody died all right your choice no she did the smart thing and walks away I'm decided he gonna have to go he's sitting there by himself they're probably busy later on two bucks 30 seconds I think you both can come if you want to see back to him everything's aboveboard I can assure you not absolutely not like I guarantee what it'll do but yeah baby bucks and after 2 hours 23 minutes including some final hesitation we finally found people brave enough to take it enjoy hey hello and welcome to the picture your turn will stop loving you too is 17 baby man still follows hi 23 and I'm thinking bout how people fall in love that tom is finished now what's that I think I mean if you think that's comedic pretty much anybody in the financial services industry is in the same position it doesn't matter how good your product is if nobody really trusts you they're not coming in you know so actually I think this is actually a more common problem than we ever realized and two interesting thing is when they finally get that couple to go in they use a few behavioral science techniques he's only there till midday it's gonna get pretty busy later on you can both can come if you like you know they're very very clever scarcity bias although cost airlines using only four seats left at this price you know I've been studying steady bias for 15 years it still works on me you know I go look they're trying to exploit my scarcity bias oh about a bug okay um the second interesting thing when you think about it is if you just paste one ad for that in the Melbourne age and charged $100 you would have had Q stretching around the block that's how advertising often adds to believability you know you must be serious about this because you're actually spending money promoting it I can also trust it because you've said it in a public place an information that goes to many people simultaneously is inherently more trustworthy than information that only goes to one person at a time that's why we get married in public okay in the case of India with 9,000 guests there was a headline actually the New York Times for the wedding of Megan Marco and Prince Harry which said how do you cater a wedding for 600 people and the first comment underneath was from an Indian which said just contact your normal caterer and tell to have the food but in the case in the case here I think it's obviously fascinating because um what we have here is case where if the proposition doesn't make sense for example if you have a great product it makes sense that you advertise it doesn't it it makes sense that you make a lot of noise about it so if you have a great product and don't make a lot of noise about it people are confused because they're getting I'm gonna thought that was a really big deal but they don't seem you making much of it if something doesn't makes sense now this is where economics and marketing really need to differ okay now if you imagine a case where you had two products one product is ostensively better than the other it's a bigger television okay but it's cheaper than the other television now to an economist that's the easiest decision in the world higher utility lower price you choose the bigger cheaper TV to the human brain we don't work like that because we haven't evolved in a completely trustworthy setting so we think that's weird if I if that TV really were better the guy selling it would charge more for it so there must be something crap about this TV which I don't know about because otherwise why is it so cheap if you think about it okay economists assume we operate in a world of complete trust anybody who'd evolved in the ancestral environment to be completely trusting would have been killed within about six minutes the chance they'd ever get you know come over here and look at this wonderful thing Wow all right we've Peyton Lee evolved to be a bit suspicious now here's a wonderful case where something doesn't make sense this press that I did contact them immediately has four types of an espresso machine in the virtual range if I get this right this is this is the virtue oh and this is the virtue a plus with an automatic top opener and it priced them both at the same price and I had to contact necessity you about crazy no one can make a decision under those conditions if you make the other one five pounds more people oh I get it so kind of rich people who like a bit of novelty pay an extra fiver to have the lid open automatically right that makes sense yeah I didn't really want that I'll just buy the virtue and save myself a fiver or you like me you go which opens automatically I will pay any price but it doesn't matter that makes sense okay if you have two things the virtue and the virtue us and they're both the same price and I told the salesman in shops listen now everybody can't get their head around that today my eyes are off them and that's what happens if you have two TVs you know the bigger TV cost less in economic world everybody buys the bigger TV at the lower price in human world people don't buy either of them because they can't make sense of the decision and that's again another feature of our evolved perception which differs from what you might call conventional logic this is why you have to design for perception and meaning you can't design for objective reality now when you think about it when we design chairs we don't just get physicists involved we don't just say of the chair does this chair support the weight of a certain human we actually go is it comfortable does it fit the size of the evolved human bum okay if you know these door handles tend to be at kind of the right height because humans happen to be kind of that tall but weirdly when we design something like a tax program or an economic program or we attach price we don't think of the evolved human brain we treat the evolved human brain as if it's some kind of weird mystical cube you know with no irregularities I'd say one thing about perception for example is we perceive things relatively much more acutely than we perceive things absolutely so if you think about it it's much more important that we detect a contrast in color than we can name colors okay I'm a man anyway so I can only name about six colors my wife can name 206 with things like taupe which I've never understood do you have the same dispute I'm a bit like a very early version of Microsoft Windows I've got a color ver you know I've got about 11 colours I can name and my wife says no it's not blue it's a kind of bluey green completely lost on me okay but nonetheless okay it's much more invaluable in evolutionary terms to detect contrast than to be able to name colors individually because it's not very useful being able to point it at a tiger and say oh look it's Pantone whatever it is we spotting the tiger in the first place is really important and so if you take your hand and cover the join between the white bits of the gray bit and so you hold your hand up so you can't see the join what you'll actually see is a weird transformation where you realize that this bit objectively is the same color as the top bit that's just one aspect of human perception that's kind of weird now I'm coming on to this scene which is our perception of price is also a bit like that it's relative not absolute um our perception by the way we think we can separate what we taste from what we hear from what we smell from what we feel from what we see we can't before we even get access to information imparted by our senses a kind of black box in our head a sense making apparatus combines the information together to maximize cohesion in the information we're supplied so um painkillers are more effective if they're branded they're more effective if they're red wine is taste better if you pour it from a heavier bottle your car drives better after you've had it cleaned if you notice that it's not just a cleaner car it's a quieter car it accelerates better it corners better it's altogether a better car that's why everybody who sells their car cleans the car that's where everybody who sells a house actually puts coffee on the stove because when there's a smell of fresh brewed coffee it's not just a nicer smelling house it's a better house now if you don't believe what I'm saying about the what you might call the leakiness of our senses try this baby at any one moment we are being bombarded by sensory information our brains do a remarkable job of making sense of it all [Music] it seems easy enough to separate the sounds we hear from the sites we see but there is one illusion that reveals this isn't always the case have a look at this what do you hear bah bah bah bah but look what happens when we change the picture bah and yet the sound hasn't changed in every clip you are only ever hearing bar with a bee ah it's an illusion known as the McGurk effect take another look ah concentrate first on the right of the screen now to the left of the screen the illusion occurs because what you are seeing clashes with what you are hearing in the illusion what we see overrides what we hear so the mouth movements we see as we look at a face can actually influence what we believe we're hearing if we close our eyes we actually hear the sound as it is if we open our eyes we actually see how the mouth movements can influence what we're hearing oh sorry that's that black box at work because essentially it goes that strange I've got a conflict between what I'm hearing what I'm saying so to resolve this conflict I'm going to assume it's more likely I've misheard that I've missed scene so I'm going to overwrite the B with an F we don't have any choice in the matter we're not even aware of the process taking place and by the way painkillers are more effective if they're branded and they're more effective if they're expensive so essentially we have this black box which makes sense the various inputs and fuses them into a usable narrative and we have no control over this when I said our our perception is highly relative that includes the perception of price if you don't even express there how many people have an espresso machine I've got three you believe I love it like a child pathetically fond of the thing now objectively I know it is insanely expensive if you had to buy Nespresso coffee in a jar like Maxwell House or like brew C but a local knowledge okay for an equivalent dosage of caffeine it would cost I guess about five thousand rupees and you'd look at it next to the sort of three hundred four hundred five hundred rupee alternative chart and you go that price is insane there's nowhere I can pay that map that madam amount of money for coffee but the interesting thing is it doesn't come in a jar it comes in a pod and we don't really know what an individual filter coffee costs so when we put the 39 P or 50 rupee is that about right for her pod into our machine our frame of reference isn't Nescafe it isn't brew its Starbucks we think was but 49 P but I mean it's Starbucks that would've cost me two pounds 20 so this machine is practically making me money and in the same way rolls-royce and Maserati stopped exhibiting their cars and car shows because a $400,000 car looks really expensive at a car show instead they started exhibiting them a yacht an aircraft shows because if you've been looking at Lear Jets all afternoon a $400,000 car is an impulse buy it's like putting the chocolate next to the tail you know the people on the way out go oh well I didn't buy a plane today so I'll have a couple of those and that's why you should never buy anything at an airport by the way airports do a wonderful job you know has anybody been to that bloody sunglass hut place you know where after you spent 20 minutes in sunglass hards you know if I were on the high street in the UK and there were a pair of sunglasses for 90 pounds I got a bloody ridiculous there taking the piss once I've spent 15 minutes in sunglass hut if I discover anything in two figures I go or a bargain and the same thing applies to color as applies to price and since actually genuinely since what something is remember the airport bus is a product of what it is of the context in which people Seve it something good can be made bad and something bad can be made good by changing the context what that means interestingly is that sometimes now remember economics is model on physics the opposite of a good idea is wrong okay in physics because there's one right answer that's why it appeals so much to business decision makers because they like the lack of ambiguity they can go to the board and go according to our economic model this should be 7.4 right in marketing in psychology the opposite of a good idea can be another good idea because if you frame it differently the things that are a weakness in one universe are restraints than a different mental universe just by presenting it differently and so what I always say is one marketing technique is take something that makes sense just pretend the opposite take the most successful product in the market and do the opposite of everything they do now you're gonna say well that's ridiculous I can't imagine how that would work now imagine okay you're in a meeting and you want to compete with coca-cola and you say look for a hundred years or so cokes being the most popular cold non-alcoholic drink in the world apart from water we want a bit of that action so you get all the rational people in and I admit I would've said the same yeah well what we basically need to do is we need to drink the taste nicer than coke cost less than Coke and comes in a really big can so it's great value for money and then we're gonna be in Coke hey or not what's the most successful attempt to compete with coke in 50 years it's that it comes in a tiny can it cost a fortune and it tastes disgusting okay they can run a Formula One team on this stuff at one point before they produce the variants it was the most valuable single SKU in the world will you believe it why I gotta Charlie sure it must be something to do with context because if you think about it if you promote a drink as being medicinal or psychoactive different rules apply we don't want medicine to taste nice do it right in order to be believably psychoactive it's got a taste weird if it tasted delicious we wouldn't believe it gave us wings and similarly the fact that it's expense it means it must contain lots of potent rare ingredients and the fact you have to put it in a small cam says this stuff must be really powerful because if they put it in a normal full-size can people will go postal and like go do lollies right so all of those things the black box processes that and says this is great in the same way that it processes coke and says this is great but he's in a different context different things matter Diet Coke by the way or coke lighters you call it here are things that right that happy that's deliberately made to taste a little bit more bitter than ordinary coke because otherwise people don't believe it's a diet drink if there isn't a bit of a trade-off people go that's not a plausible diet drink and that importance of making something plausible has caused me occasionally in marketing meetings to do very strange things including saying the only problem I've got with your product is it might seem too good to be true you know and I genuinely mean that I think that can be a problem if you introduce a product that's too revolutionary people are looking for the downside if you notice low cost airlines made an awful lot of noise about what you didn't get when low cost airlines launched they're all wet you don't get a meal you don't get a checked in you don't get a pre allocation seat you don't get any checked in luggage you got to pay for this you've got to pay for that why would you do that okay because if you say we're just as good as British Airways and half the price people get out that's not true I don't believe you it probably means you don't service the engines and your pilots are all one day released from prison okay but if you say look we don't put in all this fancy but as a result you can get to you know you can fly to Chennai for half the usual price people go I get it that makes sense right I'll do that I think sometimes in products we've actually got to build in failings IKEA does it doesn't it right okay you think about I care if you had furniture that cheap in the UK we'd assume it was crap furniture so Mike here makes you think never you're not compromising on the quality of the furniture you're compromising on the quality of the retail experience you know I've got to walk a mile and a half you know past kitchen smorgasbord slotty Bart fast you 207 pounds 99 to find the thing I want and then I've got to carry it to my car you know Americans couldn't cope with IKEA when it first opened because then used to a higher level of service and IKEA had to compromise a bit but if you think about it one thing you can't do can anybody go to Ikea and leave empty-handed you have to buy at least some tea lights don't you because you can't you couldn't bear the thought that you've been through that amount of pain and had nothing to show for it and so I think there's something really interesting there the opposite of a good idea if you recontextualize it can be another good idea there are two great ways to do hotel check-in you know facial recognition dispenses your key card as soon as you walk through the door that'll be cool because I then focus on how efficient it was and I'd like it for that reason or if you turn up and say that Mandarin Oriental and Hong Kong they walk you up to your room and make you a cup of tea while you're signing the bit of paper now that's really good because it makes you feel like a rockstar they're both good and they're both opposites it entirely depends on the contextualizing of the thing there is would you believe it it's it's no longer there or rather it's still there but it no longer practices the same thing for 20 years a restaurant called one key in Chinatown in London made an extremely successful business out of being the rudest restaurant in London and it was in Tripura it was its absolute pride so if you ask for chopstick it's right if you ask for a knife and fork they ridicule you they've no stinking Western Pig too incompetent you strip steaks when you arrive they go and say sit over there with them now if you're a pissed English guy on a Saturday night this was great if you're an American tourist had wandered in through them from the street that wasn't so good because you weren't expecting it and you you know you haven't got the context but it actually became a hugely popular restaurant because people get all sonic let's go to one key and let them insult us so anything can be good or bad provided you frame it right and that's kind of alchemy I'm very interested I'm interested in kind of veganism and vegetarianism as technologies and there's this very interesting thing called beyond meat it's a new kind of unicorn company in the United States and it's kind of high-tech vegan meat now nearly everybody would have used the standard iconography of vegetarian packaging in the UK and America which is all about self denial or altruism you know you know because you care you know that sort of thing okay now by calling it beyond meat and almost having an image of a kind of cow thing on the top it's trying something completely different in the framing of a vegetarian or vegan food which is this is actually Meteor than meat itself now if you think about it it's completely the opposite framing that most health food and most vegetarian food adopts which is about the language of self-denial and sort of hair shirted Puritanism and what's so clever about this I died I hope they've spotted it is they've kind of done the opposite and so what I want to say is very quickly is there's masks and there's human maths now let me give you an example okay in human maths in maths one plus one one minus one equals naught in human maths one minus one if you make people pay attention to the first one is about naught point nine okay do you see what I mean now advertising comes from the Latin anima advert or a which is to direct attention to and if you have a product with the strengths than a weakness and you direct attention to the strengths okay people don't notice the weakness so much so the equation comes out net positive because they focus on the good thing the fact you know the fact that this is for example a really comfortable train and they don't focus on the bad thing the fact that it takes too long two hours longer than flying should have been nobody sitting on the Orient Express or on a luxury train service is their gang this is so slow why can't they get a move on you know nobody on a cruise ship goes why can't they make this bastard go faster why because you're not focused on that okay what you pay attention to becomes what's important by changing what people pay attention to you change the relative importance and that's how advertising creates value because it gets you to pay attention to and therefore enjoy those areas where product or brand has a comparative strength now I said what are we missing now I think that the insights from behavioral science can be used to solve far far wider problems than the problems that the advertising industry is given to solve we are probably given about 1% of the problems we could solve to solve just an example I said I can solve train overcrowding psychologically and I can do it using human maths two ways right if you're a train engineer if you're a network manager on a rail company you ask the question how do we reduce train overcrowding and you say well the only way we did is more trains more frequent trains longer trains faster trains and longer platforms and greater capacity all of which is going to cost you hundreds of millions of dollars and I said why don't you try solving it psychologically what you mean said well your model of the world assumes that 10 times 1 equals 1 times 10 because maths models do human maths 10 times 1 does not equal 1 times 10 let me explain why ok a hundred people who have to stand on the train 10 percent of the time aren't the same as 10 people who have to stand 100 percent of the time in degree of pissed-off nurse ok when I travel on the London Tube I tend to travel at weird times a day I have to stand up about 10 percent of the time I'm not angry about that happens you know in any transport network there going to be moments of overcrowding I regard that as totally unacceptable if you're a season ticket holder and you never get a seat you're livid right so I said all you need to do is run two trains a day in each direction at peak times and make them exclusively for annual season ticket holders only so you've got an annual or quarterly season ticket you can travel on these trains if you haven't you got to buy a first-class ticket otherwise you're not on the train why am i doing that to make sure that whereas there may be a hundred people who have to stand ten percent of the time there's nobody who has to stand a hundred percent of the time am arguing is I think that solves the problem I don't lien solves it from a systems perspective but from a psychological perspective which is the only one that matters I mean no one's dying because there standing on the train they're just pissed off if you can stop them being pissed off you've solved the problem so stop worrying and in the same way I asked a separate question which is what if you could do that do you remember one minus one equals not point nine right at the moment why do people not like standing on a train now before you solve the overcrowding problem why don't you ask the psychological problem now okay I'm not talking about four-hour train journeys okay yeah I'm being clear I'm talking about commuter rail half an hour why do people not like standing on train they can't hate it all that much all the time just quite often when seats become available people who are standing don't sit down usually the people who don't sit down are the people who've found a nice place to lean have you noticed that the people who are actually standing in the middle of the train carriage they go and find the seat but the people you've got a good lean you know they actually go on quite a be leaning here to be honest why don't we take this insight and go what's going on here our people pissed off because when you have to stand in the middle of train you can't use your phone you can't read a book you can't read a newspaper why because you need one hand to hold on to something because otherwise you'll fall over and get involved in the sexual harassment suit okay right so you have to hold on to something to stop yourself falling over so once you've got one hand out of use you effectively can't do anything enjoyable okay now arguably if you give someone a good place to lean they regain the use of one hand so standing becomes totally different but equally let's look at how trains are designed okay we design a train so that the bastard with the seat gets everything who knows that okay if you've got a seat on a train you got a seat you sit down on the seat you've got a table you've got a view out of the window you've got a place to put your laptop you've got a place to put your coffee you've got a place to put your bag under the table so you're not worried about anybody nicking it and you've got a plug for your laptop if you're standing you get sod all right now if you reframe the choice so there's an upside and a downside to standing and sitting the human brain will exaggerate the positive and minimize the negative that's what brains do it's called adaptive preference formation so let's design a train where all the seats are in the middle so you don't get a view and you don't get a table you do get a good place to put your bag okay and you do get a nice place to sit but you don't get a view along the outside of the Train we'll put loads of leaning points where you can lean like that view out of the window table for your laptop two USB ports to charge your phone little hook to hang your bag no standing is no longer a compromise it's a choice and you've completely reframed it so that someone who's standing can mentally tell themselves a story where they would have preferred to be standing anyway because at least I get to use my laptop not like those pathetic geriatrics sitting on the chairs and so if you simply reframe the choice architecture of something you can actually synthesize happiness for the greater number of passengers that's again what I mean about alchemy like the bus to the airport terminal you can create happiness out of nowhere with just a story and so very quickly I've got much time a bit more human maths order matters okay the order of choice and the way we present a choice affects the choices people make one thing that really worries me about the web is that generally everybody making a choice online is forced to choose by the same attributes in the same order and that reduces the amount of information the seller gets from buyers what used to be good about markets was that lots of people made a decision in lots of ways when you bought a house some people saw the house with a for sale sign some people went to a state agent some people might have searched online and you know if they were advanced in the old days some people might have actually seen it advertised in the newspaper and lots of people discover the existence of the house through lots of different ways now all of those ways were were individually silly but collectively the markets were intelligent because they absorbed lots and lots of information from people who are processing that information in different contexts what's happened now with with online real estate websites well in the UK at the upper end of the market rice bands go at 50,000 pound increments nobody can sell a house for eight hundred and seventy five thousand pounds anymore because whether you're searching high low or low high if you type in 850 to 900 thousand the chances are you'll never get to the eight hundred and seventy five thousand pound house so every house is priced somewhere close to a price threshold which means you don't have a price demand curve anymore you have a price demand ziggurat and I worry about this if you go to a railway site it ranks trains by speed of journey if you try and travel down to France it always tells you to go via Paris if you want to get to Bordeaux from London on the train because it's 20 minutes shorter or thirty minutes shorter but the fact is if you change it Lille you don't have to travel from one Paris station to another in a taxi okay through the die on a death tunnel right you just get off at Lille wait an hour and a half and have lunch go to the Palais des jeux be aired in RB air which serves a fantastic range of Flemish ales neck back a couple of pints walk back to where you got off the train and bought another train done now the second option is much better than the first but the algorithm assumes the only thing you care about is end to end journey time not journey quality so we have to be really alert to this which is how many times when we see everybody doing something do we assume everybody's doing that because that's what everybody wants to do I always look at it and go maybe everybody's doing it because that's what the choice architecture is forcing them to do so I went to a pizza delivery company Pizza Hut in the UK and they said everybody orders their pizza but 95% of people all repeat sir as soon as possible I said well that seems a bit weird to me because there must be people who'd prefer it a bit later you know if it were 70% 80% I go yeah makes sense but 100% 98% let's do an experiment now why does this matter the reason is if you could get a certain percentage of people to order their pizzas 30 40 50 60 minutes ahead of time you could do batch processing so you could put more than one delivery on one bike the big obstacle the biggest cost in pizza delivery is the delivery not the pizza just to ruin it for you it's basically a motorcycle firm with an oven okay in economic terms but the second thing that's really interesting is that um you could then instead of doing everything just in time deliver pizza back to base to deliver pizza back to base you could go go out do the 9:15 delivery the 9:20 delivery the 9:25 delivery back to base you've just made your delivery twice as efficient half the price you've reduced carbon emissions I was at that if I'm talking to a left-wing audience just to be clear you made a whole stack of money and you also solved the biggest problem of pizza delivery which is the bottleneck on Friday and Saturday night because on Friday and Saturday night the guys who ride the bikes would rather go to parties where the pizzas are delivered than deliver the pizzas so you tend to have a manpower shortage at those peak times so let's try it and I looked at the website the default was ASAP I looked at the app the default was ASAP I found up a pizza delivery place did they say when would you like it now unless you specifically go out of your way to stipulate deferred delivery it fires the thing off straight away something away which email shouldn't do at the weekend does anyone else agree if you send an email at the weekend by default it should arrive on Monday morning agree right okay that's what I mean about defaults you know basically there was a guy by the way I got time side digression there was this guy Houston like fell walking and he used to get up on Sunday morning send emails to all his junior staff on Saturday morning and then go fell walking okay I only learned two years later that he ruined all their weekends he wasn't intending to even look at the emails until Monday he was just getting it off his desk but they went over an email from the boss it's Saturday morning I better spend the whole weekend working on this this guy unintentionally crapped up everybody's life and that's the kind of thing that can happen with bad defaults in technology I really really worry about this but if they're that they're bad in the same way for everybody so anyway we said okay well we'll try expressing it as a time of day and we'll make the defaults 30 40 minutes or we might even express it as eight 38 48 58 60 and when people ring up will say when would you like it is 9:30 okay or would you like it a bit sooner so we'll just change the social expectation you could push the thing out as far as an hour without losing any sales secondly you could put three pizzas on one bike rather than one thirdly and we didn't expect this for a second customer satisfaction went up by 50% and I don't know why the best theory I have is that if you say as soon as possible people are kind of on tenterhooks waiting for it to arrive where essentially if you say 8:30 and it arrives at 8:28 they go that was really good but actually when you say as soon as possible there's no way of actually surpassing expectation but if you say 8:25 and you turn up at 8:23 they go that was really cool fascinating but everybody in the pizza industry assumed that it was all about speed actually particularly if you have maps that show where the bike is that assumption probably no longer holds so anyway an extra bit of human maths here here we go 2 plus 2 plus 2 plus 2 plus 2 plus 2 is the same as 1 plus 3 plus 1 plus 3 plus 1 plus 3 okay not very controversial okay but 2 times 2 times 2 times 2 times 2 times 2 is a much bigger number than 1 times 3 times 1 times 3 times 1 times 3 now economics assumes that utility ok in the human brain is additive and you get a bit of extra utility you get a bit less utility in evolutionary terms over time we think this assumption that what you might call human life is ergodic is a false assumption human fortune is multiplicative you know one act of massive misfortune and it doesn't matter what happens to you in the future because you're dead ok so human life is highly time-sensitive human life therefore we believe has evolved to prefer not only higher averages which we do prefer but lower variance because two times two times two times two times two is much bigger than 1 times 3 times 1 times 3 times 1 times 3 why does that matter and I think it matters because actually when you make a decision under run sir instinctively you've got to consider two things how good is the outcome likely to be on average but also what's the worst that can happen but it's no good making a decision that's really good on average if one time in 50 it's fatal right if one time in 50 it's disastrous okay then actually that's not a good decision because if you take decisions like that 50 times you end up dead got it if you think about it very simply in Russian Roulette terms okay if I offer a thousand people a million dollars to play Russian roulette once some of them might say yes if I offer a load of people a billion dollars to play Russian roulette a thousand times nobody's going to say yes because you're dead okay now this I think explains brands that simple bit of maths explains why consumers prefer brands they don't see brands as a guarantee of superiority they see them as a reliable proxy indicator of low variance I would an extraordinary napkin somewhere at home when the seam talib and i over dinner drew the graph and what we said about McDonald's is McDonald's is the most popular restaurant of the world not because it's very very good but because it's incredibly good at not being terrible okay so you know you wouldn't take someone there on a date okay that's what Nando's is for okay but McDonald's if you want basically to know that you won't be ripped off you the food will be edible the food will be palatable you'll have a perfectly Pleasant place to sit you won't be abused by the way - you won't be ripped off and you won't get ill nothing beats McDonald's it's low average low variance and when we make a decision we care about both and I would argue by the way human cooperation probably evolved around this - guys go out hunting okay and they get okay if you get three and I get one we split the difference that simple decision if I get three you get three we both keep three if we both get one we both keep one if I get three and you get one we'll make it two inch that simple act of exchange will make the organism more successful as I go as far as to say that I think that's what people pay for when they pay for a brand I think they do it instinctively I think when they look at products that don't have a name on them that they don't recognize the name on they don't say I don't like this because he hasn't got enough reputation or skin in the game and therefore I consider this a high variance purchase I think they just feel a bit frightened buying things they've never heard of because reputational investment is a good proxy for quality control you're only willing to invest upfront in your reputation if you believe that your product will deliver it repeatedly over time and that's what flowers do so weddings are about by the way upfront expenses proof of long-term intention you have massively right think about an engagement ring has to cost a man an amount that hurts okay because if you were planning a one-night stand okay he wouldn't be spending this amount of money on a ring it proves that he has long-term intentions for the relationship okay that's why of course you have the most expensive weddings in the world and you also have the lowest divorce rate in the world see it's not a coincidence you basically think I'm not going through that again okay lowers okay so this is a fascinating thing this is how to think of marketing it's the science of knowing what economists are wrong about I mean literally I mean go and take any setting you have and say what are the things that logical people would assume here and which of them is a safe assumption and which of them can be challenged that's more or less I think what a marketer the marketing methodology should be than everything that's done there's always in every great success I think there's always something that's slightly defies conventional logic it's the thing we notice it's the thing we care about if we have a sense of proportion it would bother us how the eject mechanism works but the way we've evolved it's the most important thing and looking for those things first requires that you abandon the conventional assumptions of logic and in order to produce magic you've just got to let go of logic and so looking at of what a very imaginary logical person would do and saying let's just take one of those assumptions and test if the opposite might be true don't do it all the time bees don't do it all the time but during some of the time twenty percent of bees ignore the waggle dance eighty percent of bees explore basically liked what they already know about where you can find nectar 20% of them go off on exploratory missions to try and find out what they don't yet know that's roughly the ratio of activity that should go on in a business 80% of it should be exploiting what makes sense what we know we know it works it's worked in the past and 20% of it should be just continually testing and updating that knowledge to find out whether it's still true don't forget things that were true 10 years ago can be completely untrue 10 years later you know ok Wi-Fi on a train wasn't a solution you did care when a train journey was really boring you cared a lot more about how fast the train was the invention of Wi-Fi suddenly changes that you know you cared about how fast your parcel arrived Parcel tracking arguably means that so long as you know it's on its way you're not particularly neurotic about it anymore but that's always got to be the trade-off if you try and optimize efficiency based purely on what you already know bees don't do this because they map they modelled it as a complex system and realize that without the random bees the hive will get trapped in a local maximum and starve to death it's the random bees who are doing kind of R&D continually testing the hut you know testing the existing knowledge of the hive to see where it can be enhanced or challenged now once you understand this all of them say two slides together we should just start taking all the things that everybody assumes occasion there's no difference between getting poorer and getting less richer because they see an expense as being equal whether it's payments or reduced tailors these guys transform the designers pensioner sailor and Bernard see Nathan Nobel Prize for economics by suggesting them the way you should make pension work I think about in terms of various remember as the right low variance the way you make effects work is you sign up for a pension of twenty five percent doesn't cost you anything every 25 percent of the outside goes into your pension you'll never get poorer you get less richer for evolutionary reasons we much prefer that to cite the up straight away to a pitch that's going to cost us $300 a month okay psychologically in terms of variance reduction in terms of downside minimization to an economist they're identical to here would be they're totally different and is the second question yesterday about tax why'd you do Jack's cars this important people like them yeah buddy yeah but then you just get a few baseline if nobody misses them anymore don't do Chapas cars keep the tax rate the same and once a year we sucked people alone sir now they'll notice that nobody the spice I start off this evening nobody in the whole tax field had ever questioned the logic of that they never assumed that there might be a difference between sympathy and reducing the amount of money you took away from people or taking away the same money and giving it back but because in economics they're exactly the same in psychology they're totally different now why would I like to do this because people would notice b-because before you pay someone their refund you can encourage them to give half of it to charity it's very hundreds of charity if you're suddenly given the 600 pound green baize and your total would you like to receive just 300 now 300 charity the mental equation is different so I think strongly point that there are whole areas I started this talk talking about what what are we missing there are whole areas of human decision-making which marketing thinking has even touched trigger in two different worlds with what you might call a design mentality and reception mentality looking how to maximize emotional efficiency as I call it early there are enormous waves of things which we covered by economists by management consultants rational and web marketing traitor if we move into those territories we can genuinely change the world thank you very much [Applause]

Channel: Kyoorius

Views: 10,219

Rating: 4.936842 out of 5

Keywords: Zee, Zee MELT, MELT, 2019, Marketing, Communications, Advertising, Media, Digital, BTL, ATL, India, Conference, Disruption, Lessons, Tips, Tricks, Learnings, Trends, Rory Sutherland, Mindspace, Ogilvy UK

Id: bAc-f9ci-00

Length: 91min 53sec (5513 seconds)

Published: Mon Jul 29 2019