Praxeology - Lessons from a lost science - Rory Sutherland at Conversion Conference 2011

Posted by Mark Slocock on 01 December 2011

Rory Sutherland, Vice Chairman at Ogilvy Group UK, delivered a strong presentation, which I found very entertaining and interesting.

Rory started out with an example - when working on a BT project that was aiming to sell additional features to consumers, they tested the response rate based on which channels they promoted in the copy, then tested three variations:

  • Just phone as a channel had a response rate of 1.5%
  • Just post as a channel had a response rate of3%
  • Phone & post had a response rate of 4.5%

Time and time again the key to selling a product is not the features or price but the channel you allow them to buy through.

Never look at the purchasers of your product and assume that the age has anything to do with the demographic, it's likely to be the channel through which you sell your product that determines this. The more important question to consumers is how easy is the purchase of the product, for economists this is hard to grasp.

Rory gave an example of the choice between two pensions where one provides 15% more return.  Logically you should choose this one, however in reality you are more likely to choose the one with the easyiest application form.

In website design, small changes can have huge effects in conversions, Rory suggested that we should spend more time looking for these small changes than bigger things.

Rory then went on to talk about hyperbolic discounting – we have a tendency to view near field expenditure to long field expenditure. For example if you offer someone £1 today or £2 tomorrow, most would take £1 today. However if you offer them £1 in 7 days or £2 in 8 days most would take £2.  

Richard Thaler invented a new approach to pensions called Save More Tomorrow, where you sign up to allocate a portion of future salary increases to a pension scheme, you pay nothing now, then when you get a pay raise, 20% of the increase goes in to the pension – so there was no loss on income. This approach resulted in double the uptake and double the savings.

A few problems with Marketing:

  • Marketing is lacking in influence
  • No first principles
  • The dirty little secret – we don't have a model (have procedures but no model)
  • Obsession with attitude, not behaviour

Accountants do have a model, which means that unless marketers also have a model they will always be subservient to them. The problem with the accountants is that most of them are a little thick (Rory's words!) – they are failed mathematicians who know the model but don't understand the reasons behind why it exists. All models start off as an aid to thinking and end up as a substitute for thinking.

So finally and happily we have the opportunity to create something in developing a model based on behaviourial economics. If you can't sit in the boardroom and challenge the accountant's model you don't deserve to be there – but you need a model to be able to do it.

Rory used the development of Eurostar as an example, he said that the important thing about the Eurostart journey is the start and the end - but we spent £6billion shortening the journey and very little on the start and end of the journey.

Creativity is policed by logic but the logic is not policed by creativity. This is dangerous bias in business. Einstien said "Not everything that counts can be counted and not everything that can be counted counts".

Marketers start with the human and work outwards, the best investment Transport For London ever made was putting dot matrix panels on the platforms – the problem people had with waiting for the next train was the uncertainty. The screens on each platform solved this and massively improved people's experiences of the tube.

Koreans have traffic lights that count down the redlight - so drivers know when it's about to change, this makes the wait less frustrating, incidentally the Chinese have a green countdown, this is a terribly bad idea as people speed up to make the light.

The sweet spot is the cross section of Technology Psychology and Economics – great ideas based on all three disciplines. 

An example of this that had to be dealt with was the problem that people were not showing up to their GP appointments. Several ideas were tested:

  • Firstly, a notice in the waiting room, this is a bad idea because the people in the waiting room are not missing their appointments - but putting up a notice tells them that lots are - making it more acceptable to do so
  • Second idea was to send a text message the day before the appointment which worked well
  • Third text message requiring a reply, "Are you planning to come to your appointment tomorrow?" this is the sweet spot idea 

Rory suggested a solution for making people complete their course of antibiotics - instead of 24 white pills give 18 white ones and 6 blue ones – chunking means people are more likely to complete the course.

Ludwig von Mises is Rory's hero – he was an economist at the time of freud – he believed that psychology is more important than econonmics and first applied the term Praxeology.

In the Art world, if a £4,000 painting doesn't sell in two weeks most galleries will double the price, and the picture is more liekly to sell. Rory followed this point with the questiion "Are there any brand leaders in any category that are also the cheapest? (prehaps Ryan Air and Wallmart but mostly not)

Ludwig von Mises pointed out that, in a restaurtant, you cannot distinguish between creating the food and cleaning the floor, because both are equally important. It's no good serving michelin star food if the restaurant is dirty - you will not succeed.

Royal Mail spent a huge amount of time and effort trying to get the percentage of first class post the was delivered within one day from 98% to 99%, this was a huge waste of effort because the perception in the public was that the rate was more like 50% - 60%, so the problem was the perception not the reality and there would have been more value in improving the public perception rather than the reality.

Our perception is that a clean car drives better.

Peacocks need to show genetical fitness, they do this with bong song and tail feathers which gives the perception of genetical prowess.

Rory suggested that women dress to impress women because dressing to impress men is too easy - men don't care about bags or shoes, women focus on this to impress other women not men.

Women look for signs of long term commitment from men because women can have one or two kids a year – men could have thousands. The traditional way of showing this is for men to make big signs of committment - i.e buying an engagement ring.

Country pub not tourist restaurant form of capitalisum – country pubs rely on their reputation to ensure that people come back, every experience is important. Whereas a tourist restaurant does not need to - chances are that their customers will not come back anyway. Branding is the upfront investment that proves long term commitment

Women like men to buy them flowers and jewellery because it shows a sacrifice – men don't like jewellery or flowers.

Rory made the same point as Andre about the rule of three, Steve jobs was a great believer in this as well and this is the reason that Apple products always came in three options.

It's all about perception, Rolls Royce cars are marketed at air shows not car shows - when you've spent the day looking at jets, £300k on a car doesn't seem as expensive.

Rory recommended reading Nudge By Richard Thaler and Cass Sunstein.

My write-up really doesn't do this talk justice, Rory is a great public speaker and the talk was excellent.

Next Talk: Campaign Management and its Effect on Conversion Rate by Alan Coleman.

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