Podcast Summary
Solving unconventional problems with intangible means: Ogilvy Change uses behavioral economics, evolutionary psychology, and complexity economics to create psychological value for clients, focusing on intangible solutions instead of infrastructure or engineering.
Rory Sutherland, Vice Chairman of Ogilvy and Mather, and his team at Ogilvy Change are using insights from behavioral economics, evolutionary psychology, and complexity economics to solve unconventional problems for their clients. Instead of focusing on infrastructure or engineering solutions, they aim to change behavior through intangible means. An example of this is addressing the issue of airport security lines being held up by passengers trying to bring liquids through security, even though they have no malicious intent. By using psychological insights, they can help solve these types of problems, which were previously not considered the domain of advertising agencies. Sutherland also discussed the notion that intangible solutions, such as those offered by the advertising industry, are sometimes seen as "cheating" or a cop-out, but he argues that creating psychological value is just as important as objective value.
Intangible Value in Marketing and Advertising: Effective marketing and advertising can change how people perceive and value intangible elements, adding to the overall value of a product or service.
The value we perceive in the world around us is not solely based on tangible factors, but also intangible elements such as context, perception, and emotion. Using the example of a restaurant, the enjoyment of the food is not just determined by its intrinsic qualities, but also by the context in which it is consumed. This concept, known as intangible value, can be harnessed through effective marketing and advertising, which can change the way people perceive and value things. An example of this is when a pilot turns a seemingly negative situation, such as having to take a bus instead of an air bridge, into a positive one by shifting passengers' focus to the convenience of having the bus take them right next to passport control. This ability to create value through perception and emotion is a unique attribute of capitalism and should be appreciated, rather than dismissed as cheating. While the labor theory of value may suggest that value is only created through hard work and suffering, the reality is that there are multiple ways to create value, and intangible value is an important and valuable one.
Perception of value influenced by stories and contexts: Stories and contexts can greatly impact the perceived value of products and services, influencing their success or failure.
The way we perceive the value of products, including food and drinks, is not just based on their objective qualities but also on the stories and contexts associated with them. For instance, a heavier wine bottle or a story of its expense can influence our perception and enjoyment of the wine. Conversely, negative stories or contexts can have a detrimental effect. The same applies to other products and services, such as video conferencing, which was initially marketed as a poor substitute for air travel, leading to its limited adoption. If video conferencing had been marketed as a rich man's phone call, it could have been more successful and even replaced some air travel. The importance of storytelling and proper context setting cannot be overstated, as it can significantly impact the success or failure of a product or service. Additionally, the cost and effort required to use a product or service can also signal its importance, adding to its perceived value.
Demonstrating commitment through costly signaling builds trust: Costly signaling, such as London's black cab drivers' rigorous qualification process, builds trust by showing commitment and expertise
The concept of costly signaling, which involves demonstrating commitment through effort or resources, plays a significant role in building trust and reliability in various domains, including marketing and professions. The speaker used the example of London's black cab drivers and their rigorous qualification process as a commitment device that signals their expertise and trustworthiness to passengers. This idea can be applied to other areas, such as medieval guilds and modern technology. However, it's essential to consider the full scope of a role or function, as technology may only replace the most obvious or simplest aspect, leaving other important responsibilities untouched. In the context of self-driving cars, for instance, while they may offer advanced driving capabilities, they cannot fully replace the human drivers' roles in providing security, recognition, and other intangible benefits that contribute to a satisfactory customer experience. Therefore, understanding the multifaceted nature of roles and functions is crucial to evaluating the impact of technological advancements on various industries.
Driverless cars lack human emotions and consequences: Driverless cars' absence of emotions and fear of retaliation may lead to increased risky behavior towards them, while pedestrians may not respect road rules as they would with human-driven cars.
While driverless cars offer advanced navigation capabilities, they lack the human element of emotions and potential consequences for misbehavior. In some parts of the world, having a local driver provides not only transportation but also security due to local knowledge and the deterrent effect of emotions. Conversely, in places where people are more mischievous, they may find ways to manipulate driverless cars. The absence of emotions in driverless cars means there's no fear of retaliation, making them potentially easier targets for pranks or more serious misconduct. This lack of consequence could lead to increased risky behavior towards driverless cars. Additionally, pedestrians may take advantage of this lack of consequence, potentially putting themselves in danger by not respecting the rules of the road as they would with human-driven cars.
The importance of social intelligence in driving: Cultural norms influence driving styles and accident rates, highlighting the need for social awareness in driverless cars to ensure safe integration
While driverless cars may offer predictability and efficiency, they lack the social intelligence and unpredictability inherent in human drivers. This lack of social awareness could lead to potential dangers and mischief, especially in areas where driverless cars are not yet the norm. The importance of social intelligence in driving is influenced by cultural norms, with some cultures, like the UK and countries with high tolerance of ambiguity, having lower accident rates due to their tendency to give other drivers the benefit of the doubt. Conversely, more rule-driven cultures, like Germany and the US, may have higher accident rates due to their less forgiving driving styles. As the integration of driverless cars continues, it will be important to consider these cultural and social factors to ensure safe and effective integration into our transportation systems.
Understanding human behavior in complex social situations: Navigating social situations requires social intelligence and give-and-take, especially during the transition to autonomous vehicles. Understanding human behavior through reading influences advertising and consumer behavior.
Navigating complex social situations, such as driving in a roundabout, requires a high level of social intelligence and give-and-take, especially during the transition period when both human-driven and autonomous vehicles are in use. Regarding reading, the process of selecting what to read involves filtering through a vast amount of information, and individuals like the speaker have been influenced by various authors in the fields of economics, biology, psychology, and evolutionary thought, which have particular relevance to advertising and consumer behavior. The speaker's career in advertising began with conducting social science experiments to test different advertising approaches, using methods such as the randomized control trial, which predates their use in medical science. Overall, the speaker's experiences and interests demonstrate the importance of understanding human behavior and social dynamics in various contexts.
Testing different response methods impacts sales: Offering multiple transaction methods can increase sales by catering to various consumer preferences and influencing their willingness to pay
The way consumers are offered to respond or order a product can significantly impact the sales, even if the product and its cost remain the same. The speaker shared an experiment where they tested different methods of response - phone number only, coupon only, and phone number plus coupon. The results showed that the response rates varied greatly depending on the mode of response. The sum total of responses was almost equal to the sum of responses from individual methods, indicating that people who responded via phone were those who would only respond via phone, and the same applied to coupons. This finding was economically strange and led the speaker to explore further, discovering that the transaction method itself influenced consumers' willingness to pay. This concept, as illustrated in an experiment about buying a bottle of Heineken from a distant location described as a boutique hotel or a beach shack, demonstrates that the utility gained from the product and the utility gained from the transaction itself are not mutually exclusive. Therefore, offering multiple modes of response or transaction methods can lead to increased sales.
Understanding context is vital for informed decisions: Consider more than just price when evaluating value, recognize role of luck, skills, and attributes in success, accept uncertainty in business, test different approaches to understand consumer behavior, and appreciate the importance of context and nuances in making informed decisions
Understanding context is crucial when evaluating the value of goods, people, and ideas. The speaker emphasizes that there's more to consider than just the simple transaction between the value and the price. He also discusses the importance of recognizing the role of luck, skills, and attributes in success. In the world of academia and business, there are those who claim to know what they're talking about, but not all of them truly do. The speaker suggests that in business, it's acceptable to deal with uncertainty and inconclusive results, whereas in academia, the goal is to be unambiguously right. He also criticizes economics for its one-dimensional view of human motivation and the limited solutions it offers. The speaker encourages testing different approaches, such as raising prices instead of lowering them, to understand consumer behavior better. Ultimately, the context and nuances of a situation are vital for making informed decisions and achieving success.
People's expectations shape their spending: People's past experiences and cultural norms influence their spending, leading them to pay more for perceived value and necessary expenses.
People's expectations and perceptions can significantly influence their spending habits, even in seemingly unusual situations. Using the example of a Brit's first experience at an American Taco Bell, the speaker illustrates how people's expectations, shaped by their past experiences and cultural norms, can lead them to spend more than they might have otherwise. This phenomenon is not limited to food; it also applies to other industries and experiences, such as hotels. Even in countries with lower labor costs, people may still be willing to pay high prices due to their expectations and the perceived value of the experience. Additionally, vacations are a scarce resource for many people, leading them to view high prices as a necessary expense rather than a compromise. This mindset, known as status quo bias, can be a powerful influence on consumer behavior.
Pressure for certainty stifles creativity in decision-making: The pressure for certainty in corporate settings can lead to a lack of creativity and imagination, resulting in a culture of conformity and risk aversion. It's important for decision-makers to recognize the role of human judgment and imagination in decision-making and be open to new ideas and approaches.
The pressure for certainty and avoidance of blame in corporate settings often leads to a lack of creativity and imagination in decision-making. Economics, with its focus on artificial certainty and scientific approaches, exacerbates this issue. Decision-makers in institutions are often rewarded for following established formulas and avoiding subjective judgment, even if it means missing out on potentially better options. This can result in a culture of conformity and risk aversion, where the normative choice is the default, even if it may not be the best one. This can stifle innovation and progress in businesses and organizations. It's important to recognize that decision-making involves human judgment and imagination, and that there is a risk of regret or blame associated with taking risks and making unconventional choices. However, the potential rewards of creativity and innovation can far outweigh the risks, and it's important for decision-makers to be open to new ideas and approaches.
Beware of bogus rationality in decision-making: Over-reliance on logic can mask the role of imagination and creativity in decision-making, potentially leading to costly errors. Acknowledge both reason and intuition for effective decision-making.
Relying too heavily on "rational, boring norms" in decision-making can lead to a phenomenon known as "bogus rationality." This occurs when individuals or institutions pretend to use a logical, sequential process to arrive at decisions, when in reality, imagination and creativity are the driving forces behind the hypotheses. This misrepresentation of the mental processes involved can be costly and prevalent in various institutional settings. Additionally, reverse reasoning, which involves considering what might have occurred prior to a current state, is an essential and often overlooked aspect of decision-making, particularly in advertising. Ultimately, it's crucial to acknowledge the role of both reason and imagination in the decision-making process and not to underestimate the importance of creativity and intuition.
The creative process is messier than it seems: Embrace the messiness of the creative process and trust your instincts and unconscious mind to lead you to a solution.
Our thinking processes, especially in creative fields like advertising and problem-solving, are not always as linear and logical as they may appear. Sherlock Holmes, for instance, uses a combination of observational skills, hypothesis, and instinctive urges to solve mysteries. Similarly, in advertising, the creative process often involves a mix of these modes, but the final presentation is usually post-rationalized to make it seem more logical and systematic. This misrepresentation can lead people to believe that there's a foolproof process for achieving creative insights, when in reality, much of the process is intuitive and unconscious. Furthermore, evolutionary psychology suggests that humans are not rational animals, but rather post-rationalizing ones, meaning that we often create plausible-sounding narratives to explain our emotional states after the fact. So, the next time you're trying to solve a complex problem or come up with a creative idea, don't be too hard on yourself if the process doesn't seem perfectly logical. Embrace the messiness and trust that your instincts and unconscious mind are working together to lead you to a solution.
The power of perception and the unconscious mind in business success: Business success can be influenced by factors beyond rational expectations and consumer preferences, including perception and the unconscious mind. Unusual tastes, marketing, placebos, high cost, and rituals can all trigger beliefs and responses that contribute to popularity and success.
The reasons behind a business's existence or a product's popularity may not always align with rational expectations or consumer preferences. The success of a cafe, for instance, doesn't necessarily depend on the owner's reasons for its location, but rather on external factors. Similarly, the seemingly irrational success of products like Red Bull or placebos can be attributed to the power of perception and the unconscious mind. In the case of Red Bull, its unusual taste and marketing may create a sense of expectation and belief in its psychotropic or medicinal properties, leading to its popularity. Likewise, placebos, when administered with a strange taste and accompanying ritual, can trigger the body's natural healing processes by signaling to the unconscious mind that recovery is underway. In the realm of fashion and cosmetics, the high cost and ritualistic application of these products can contribute to the user's confidence and self-worth, even if the primary objective is not to attract a mate or signal status to others. Ultimately, the success of businesses, products, and even personal rituals can be rooted in the power of perception and the unconscious mind, often defying rational explanations.
Costly Signaling: Effort, Cost, and Ritual Increase Perceived Value: The more effort, cost, or ritual involved in acquiring or constructing a product, the greater its perceived value in the brain. This concept, known as costly signaling, can be seen as an extension of Marx's labor theory of value and is present in various everyday experiences like IKEA furniture and homeopathy.
The perceived value of a product or experience can be significantly increased when there is an element of effort, cost, or ritual involved. This concept, known as costly signaling, was discussed in relation to the placebo effect, homeopathy, and various everyday examples like IKEA furniture and picking your own strawberries. The effort put into acquiring or constructing a product can contribute to its perceived value in the brain, much like Marx's labor theory of value. Even inefficient or painful early stages of a technology can be endured due to the status and novelty they provide, leading to eventual innovation and widespread adoption. However, it's important to note that excessive rivalrous forms of costly signaling can lead to economic inefficiency and absurdity.
The cost of communication impacts its perceived importance: Historically, costly communication was perceived as more important and trustworthy, and this instinct still influences how we view digital communication today
The cost and effort put into communication can significantly impact its perceived importance and reliability. This was evident in the past with the use of typewriters, where the time and resources required to produce a letter made it a valuable and trustworthy form of communication. Today, we assume that digital communication like email is free and instantaneous, but if it came with a cost, it might be perceived as more serious and trustworthy. This concept can be compared to costly signaling in advertising, where a higher budget for a campaign can make it more effective due to the perceived value it conveys. The human instinct to associate importance with the cost of communication has been present throughout history and continues to influence how we perceive and value different forms of communication.
The value of costly signaling: People tend to perceive communications or actions requiring significant investment as more valuable, as they signal trustworthiness and quality, and help minimize worst-case scenarios.
Communications or actions that require a significant investment of time, effort, or resources are often perceived as more valuable or impactful. This could be due to the scarcity or difficulty in creating such communications, making them more meaningful and memorable to the audience. This concept can be applied to various aspects of life, including marketing and business strategies. For instance, a business or individual that invests in building a strong reputation and providing high-quality products or services over an extended period is more likely to be trusted and chosen over a new or unknown entity. This idea, known as costly signaling, suggests that people make decisions based on minimizing the worst-case scenario rather than maximizing the expected outcome. Understanding this concept can help explain various human behaviors that might seem irrational from an economic perspective.
Using social intelligence to make informed decisions: People often rely on past experiences and social cues when making decisions, even in unfamiliar situations. Middle class values, like education and commitment, can be signaled through costly commitments or long-term investments. However, prioritizing short-term gains over long-term sustainability can lead to 'psychopathic' businesses.
People often rely on past experiences and social intelligence when making decisions, even if it means sticking with what they know instead of exploring new options. This was exemplified by the speaker's point about his mother's ability to read people and make informed decisions based on social cues, even when she knew nothing about the subject matter at hand. This concept can be applied to various situations, including buying cars or investing in businesses. The speaker also touched on the idea that middle class values, such as education and commitment, are often signaled through costly commitments or long-term investments. However, the focus on short-term gains in business, as encouraged by the shareholder value movement, can lead to "psychopathic" businesses that prioritize immediate profits over long-term sustainability.
Understanding the importance of trust and commitment: People prefer stability and long-term relationships over short-term gains. Recognizing and respecting different perspectives can lead to better communication and collaboration.
Successful businesses and relationships are built on trust and long-term commitment, not just short-term gains. This was exemplified by a car salesman who understood that misleading customers would lead to losing future sales. The idea that people who are not deeply invested in a community are viewed with suspicion is an interesting psychological concept, and it's important to remember that most people, especially those with families, prefer to stay put rather than constantly move around. This "right to stay" is a fundamental human desire that is often overlooked in discussions about rights of movement. The divide between those who want to move around freely and those who prefer to stay in one place can lead to a mutual incomprehension, and this was evident in the surprise of many experts during the Trump and Brexit wins. It's essential to recognize and understand different perspectives to foster better communication and collaboration.
Urban elites vs. the rest of the population: Bridging the gap: Urban elites and the rest of the population have a disconnect in understanding each other's perspectives, leading to misunderstandings and backlash. Bridging the gap requires genuine understanding and empathy, and avoiding oversimplification or stereotyping.
There's a significant disconnect between urban elites and the rest of the population in understanding each other's perspectives, particularly in advertising and politics. This disconnect can lead to misunderstandings, surprise, and even backlash. For instance, Coke's multicultural Super Bowl advertisement, where people sang the national anthem in their own languages instead of English, was an example of this disconnect. The urban elites' obsession with signaling openness can come across as pathological and disconnected from reality, as not all people who hold strong opinions necessarily behave in the same way. Furthermore, there are liberal ideas, such as increasing vacation time and reducing the high incarceration rate, that could gain widespread conservative acceptance if presented in the right way. However, the urban elites' focus on issues that annoy the outgroup can hinder progress on these and other important issues. In summary, bridging the gap between urban elites and the rest of the population requires genuine understanding and empathy, and avoiding the trap of oversimplifying or stereotyping those with different perspectives.
Political Ideologies and Groupthink: Focusing on opposing group's annoyances instead of root causes hinders political consensus. Right-wing individuals generally don't protest, and institutions can suffer from artificial certainty and groupthink. Decision sciences can challenge assumptions and encourage progress.
Our tribal loyalty to political ideologies can hinder progress and productive discussions. The speaker suggests that focusing on issues that excessively annoy the opposing group, rather than addressing the root causes, can make political consensus harder to achieve. He also notes an asymmetry in protesting, with right-wing individuals generally not engaging in demonstrations. Instead, they often defer to authority and the status quo. The speaker values the decision sciences, which encourage testing unconventional ideas and challenging assumptions, as a way to counteract the tendency towards artificial certainty and groupthink within institutions. He also mentions the example of the paradox of choice experiment, which did not always replicate due to contextual factors, as a reminder that marketing experiments do not always yield consistent results. Overall, the speaker advocates for a more open-minded and experimental approach to political and social issues.
The value of testing counterintuitive things: Understanding that testing counterintuitive options can lead to valuable discoveries, even if data isn't robust at first, is crucial for progress and innovation.
In today's digital age, having artificial certainty is less valuable than it was historically, yet people are clinging to it more. The paradox of choice, as demonstrated in the jam experiment, encourages us to try new things, even if they seem counterintuitive. The cost of testing is low, and the potential upside can be immense. As a business person or policy maker, it's important to understand that you don't have to be right all the time and that testing counterintuitive things can lead to valuable discoveries. By focusing on a few options instead of an overwhelming number, decision-making becomes easier and less stressful for consumers. This approach can lead to progress and innovation, even if the data isn't robust at first. So, don't be afraid to take risks and try new things, even if they go against conventional wisdom. The potential reward can be great.
