Not-so-positive Advertising

To ‘tell complex stories in a simple way that everyone from the man-on-the-street to the corporate CEO will understand’ IBM and Ogilvy Paris teamed up with renowned illustrator Noma Bar.

Bar is famous for using a technique called ‘negative spaces’.

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Keystrokes of the ‘faint-hearted’ closet economist: The advertising ‘nudge’

There’s a quiet revolution playing out amidst the advertising fraternity. The advertisers are attracted by the new possibilities that emerge when the world is viewed through the behavioural economics lens: the study, if you like, of how people actually behave rather than how more theoretical models declare that they should. They are looking to behavioural economics to help find new ways to influence the decisions we take, as consumers.

Many behavioural economists describe their discipline as a complement to the world of classical economics: an alternative framework to the centuries-old view that economic agents behave consistently and rationally, choosing the best outcome in every situation, making the right decisions in a world of perfect information.

In fact, it is a much more direct challenge to the old orthodoxy than this suggests.

To the layman at least their observation and experiment-rich brand of psychology (a worldview that accepts that humans are irrational, inconsistent and don’t always act in their best interests) explains far better the world around us: be it stock market bubbles or conspicuous consumption.

The advertising industry, of course, instinctively understands this ‘new’ economic startpoint. It has long understood that decisions are often made habitually, emotionally and on the basis of what others think or will think; at odds, in other words, with the classical economist’s predictions.

Although you will still hear the term ‘USP’ lazily bandied about, it long ago enlarged its mental model of ‘how advertising works’ from one where the unadorned statement of a product’s unique advantage would coerce the attentive and rational consumer into forming a preference for it.

A behavioural economics perspective is not, then, a bolt from the blue for advertising folk.

At its broadest, behavioural economics reminds us of the ‘status quo bias’ that keeps most markets stable (because we crave the familiar, and are adverse to the potential loss that attaches to a ‘new’ decision) and the ‘heuristics’, or rules of thumb, that we use to aid decision-making.

Brands, of course, are the ultimate heuristic: mental shortcuts that make potentially complex decisions simple for consumers. They speak to the ‘cognitive miser’ in all of us. Behavioural economics gives us also the notion of ‘anchoring’: that brand (and other) decisions are typically made in relation to other options, rather than in isolation.
This alone should provide food for thought and an obvious action plan for those advertisers and brand-owners who spend too much time staring at their own brand or campaign, and not enough understanding their competitors’. (Marketing history is littered with brands that were effectively repositioned by others while brand managers fiddled).

But whether or not the advertising fraternity has a long-lasting love affair with behavioural economoics – by its very nature, its focus on what people actually do – brings with it an overdue challenge to the implicit assumption in some corners of our industry that ‘brand’ and ‘brand image’ are the exclusive levers of marketing success.

Our impulse to understand behavioural economics, then, is a helpful corrective to lazy or narrow thinking; a reminder that attitudes to a brand will often follow rather than lead behaviour change and that an advertising campaign is one answer, not always the answer.

We would all do well to make the assumptions with which we market and advertise more explicit, a kind of ‘contract’ with our organisation and others that makes concrete our underlying beliefs. Meanwhile let’s remember that what people say about brands and what brands say about themselves is, in the end, less important than what people (and brands) actually do.

There’s always been this long-drawn debate about whether advertising is strongly persuasive or nudging?

And see how Haagen-Dazs used salience to create an all new product.

A version of this article appeared in Bangalore Mirror last month.

Image Courtesy: adverlab.blogspot.com

Keystrokes of the ‘faint-hearted’ closet economist: Why Kindle will soon be available for ‘free’?

The economics of free. Extolling the virtues of Chris Anderson, free is the future of business. And of course, this is not news. Google giving off Nexus Ones for free at TED, Radiohead offering ‘as you wish, you may pay’ music download off the internet and Kindle bringing the price down consistently so much so that it is predicted that by November it may be available for FREE.

It must cost something to make?

The trick is in figuring out how Amazon can bundle the free Kindle and still make money.

The wonderful feature of a non-scarce, or infinite, good that it is effectively a free resource. Once created, it costs nothing to give to someone else, and you still retain the original. In fact, economists have finally realized that this is the very key to economic growth and progress. The infinite resource known as an “idea” that improves what was already there is what increases the size of a market. Or, putting it another way, that infinite resource of a new idea makes an existing scarce resource more valuable.

The way it works is actually quite easy and fits in with the same basic economics that’s always been in place. Knocking down the barriers of artificial scarcity opens up tremendous new opportunities — just as knocking down the artificial scarcity known as “protectionism” helps to grow markets by creating new opportunities. In this case, those new opportunities have only increased in number as we’ve gone digital, making more content infinite in nature.

So, the very simple way to go about this is to:

1. Redefine the market based on the benefits based on the benefits of what you’re providing, rather than the specific product you’re selling. If you’re focused on selling the benefits, then discovering a better way to sell those benefits is seen as a good thing, rather than a threat.

2. Break the benefits down into scarce and infinite components. In fact, if you look closely enough, you realize that any scarce product you buy actually has infinite components while any infinite good you see also tends to have scarce components.

3. Set the infinite components free, syndicate them, make them easy to get – all to increase the value of the scarce components.

4. Charge for the scarce components that are tied to infinite components. And, yet, all the while, you know exactly what scarce resources those non-scarce goods are tied to, and you’re ready to sell those scarce resources, recognizing that the more people who are consuming the infinite goods, the more valuable your scarce resource is.

So while, ebooks may be the scare resource, Kindle is the infinite one and giving it for free may just get more people to hop onto ebooks.

Taperings:
Courtesy Wikipedia: The Grateful Dead have constantly toured throughout their career, playing more than 2300 concerts. They promoted a sense of community among their fans, who became known as Deadheads, many of whom followed their tours for months or years on end. In their early career, the band also dedicated their time and talents to their community, the Haight-Ashbury area of San Francisco, making available free food, lodging, music and health care to all comers; they were the “first among equals in giving unselfishly of themselves to hippie culture, performing ‘more free concerts than any band in the history of music’.

Keystrokes of the ‘faint-hearted’ closet economist: Signalling & Brands

The concept of signalling has to do with the transfer of information from one party to another, often in order to achieve some sort of mutual satisfaction or arrangement. When explaining the way that signalling occurs, the party that is transmitting the information is often referred to as the agent. The party that receives and evaluates the information is usually understood to be the principal.

One of the classic illustrations of how signalling works involves an individual who is seeking employment. In order to attract the attention of an employer, the prospective employee may choose to engage in signalling as a means of gaining the attention of the employer. This segment of the process often begins with the crafting of the resume. If the information on the resume generates sufficient interest, then the employer will often schedule an interview and seek to broaden his or her knowledge base about the prospective employee.

At the interview, the prospect assumes the role of agent and seeks to build on the rapport already established through the resume. This will involve emphasizing certain facts that are relevant to the position and the general goals of the company. Essentially, the agent is taking true data and presenting it in the most attractive manner possible.

In turn, the employer assumes the role of principal and receives the information. As the information is received, principals assimilate and evaluate the data. At the end of this process, the principal can extend an offer of employment to one agent, as well as inform other agents that there is no need for further information and the position is now filled.

One of the key components of ethical signalling is that only true and correct information is provided by an agent to a principal. While the agent may choose to downplay some data while spotlighting other information that he or she believes is of more interest to the principal, honesty is essential if the conveyance or signal of information is to be considered successful.

When a person buys a used car from a stranger, the buyer knows that the purchase involves risks. The seller may tell him that the car has always worked well, but the buyer cannot be sure that the seller is truthful. It is in the interests of the seller to say these things, whether or not they are true. The seller of a “lemon” could say the same thing as the seller of a quality item. Economists say that markets in which one side of the transaction has better knowledge than the other, as in this case, have asymmetric information. In this example sellers of quality items need a way of communicating information to buyers so that only truthful information will be transmitted.

How do sellers convince buyers of the attractive qualities of their products? Or how do buyers seek to filter out erroneous information? Sellers of high-quality items must find a way to signal information about their products, and these signals must be difficult for those selling low-quality products to duplicate.

The way firms signal quality is by building a brand. A brand is valuable only if consumers associate it with quality, and the firm can build this association only with time and resources. Once a brand is established, it is in the interests of the firm to protect it by not offering a poor-quality product.

When consumers are uncertain about product attributes, firms use brands to inform consumers about product positions and to ensure that their product claims are credible(and that there is no information asymmetry.) Brands as market signals improve consumers’ perceptions about brand attribute levels and increase confidence in brands’ claims. The reduced uncertainty lowers information costs and the risks perceived by consumers thus increasing consumers’ expected utility.

What makes a brand?

So the battle over brands will go on. Do not be fooled into thinking it is really about mobile phones, cars or shampoos. It is all about information. And it will continue for as long as buyers need and want information.

PS: Signalling is one of the most seminal works of the economist, George Akerlof who spent a considerable amount of time in India while working on his various theses.

Signalling has been widely used by marketing researchers to understand brand equity and building brand extensions using an umbrella brand as a linchpin.

NEXT POST -> The economic principle that fuels the multi-billion dollar internet advertising industry.

What makes an idea viral?

Agents of change. As Gladwell states, ideas and products and messages spread like viruses do. Virals are like epidemics. It goes in conjunction with the quintessential theory of chemistry: Brownian movement – molecules follow a random movement, they do not rest. They are unstable hence, they keep moving around yearning for stability. So imagine an environment with no media or an inert gas where there is no reaction because they are complete and stable; with no desire to react or need for information. Word of mouth advertising is undoubtedly the oldest type of viral marketing. What is the difference between word of mouth, Ponzi schemes, multi-level marketing and the Susan Boyle YouTube explosion that generated over 47-million online viewers? The answer – it took longer to type about Susan Boyle. They are all essentially the same things. Both real viruses and viral marketing rely on a big supply of susceptible, easily influenced people. Based on this “Bernie” Madoff is the undisputed king of viral marketing having designed and executed the largest Ponzi scheme in history.

Stickiness. Packaging of the message. Connections and the personal character of the people trying to spread a viral can certainly help it spread, but if the message is not worth spreading, then it is doomed to failure. Virals must have a certain character which causes them to remain active in the recipients’ minds. Moreover, they must be deemed worthy of being passed on. Simplicity, for example, is intuitively attractive–Southwest’s or the then Deccan’s goal of being the low-fare airline is elegant in its minimalism. Could Southwest or Deccan include positions on customer comfort and safety ratings in its mission statement? Sure. But that extra information might hinder, not help, employees looking to the corporate ethos as a guide for making decisions.

Context. Like human behaviour, virals are sensitive to the conditions and circumstances of the times and places in which they occur. We are all we are powerfully influenced by our surroundings, our immediate context, and the personalities of those around us to act in an expected fashion. The TV show “Candid Camera” and its many avatars have been making this point since 1948 with a range of colourful demonstrations changing the social and psychological context around everyday events (e.g. the other people in an elevator all turning around and facing the rear). It goes on to show that these changes influenced people’s behaviour – even when they know it is strange and abnormal.

So is it viral or is it spread?
Viral is a thing that happens, not a thing that is. The metaphor suggests something is self-propagating, when what we actually mean is that lots of people are choosing to spread it around, for their own reasons. Focusing on what those reasons may perhaps, get the message driven home. To quote Joseph Heller, there was no telling what people might find out once they felt free to ask whatever questions they wanted to.

Jonah Peretti Viral Meetup Talk