Is our data-driven era driving out the magic of marketing? And — even scarier — is it possible that being 100% data-driven isn’t actually supported by the data?
In this episode of Retention Masterclass, Rory Sutherland, Vice Chairman at Ogilvy UK and author of “Alchemy: The Dark Art and Curious Science of Creating Magic in Brands, Business, and Life,” speaks with Peggy Anne Salz and yours truly about pretty much everything under the sun. As in, an incredible grab-bag of gooey goodness for savvy marketers.
To interview Rory, you pretty much press play and stand back, and that’s basically what my co-host, Peggy Anne Salz, and I did.
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A short (seriously) list of what Rory talks about
- Magic in marketing
- Why marketing is not physics
- Why linear thinking doesn’t lead to quantum breakthroughs
- Why brands should start with retention before anything else
- Alchemy and magic (of course)
- A/B testing (yes, Rory uses data!)
- What Uber’s killer feature really was
- Why brands really only need to do one thing brilliantly well
- Hotels and weatherproofing (don’t ask)
- How Tesla’s dog mode made Rory, who doesn’t own a dog, want a Tesla
- DoubleTree’s chocolate chip cookie
- Rory’s friend Dave (sort of)
- Why brands should ask customer to do them a favor
- Why brands can get COVID-19 marketing horribly wrong
- Delivering drinking water in vans (yes!)
- Customer loyalty
- Brand loyalty (to customers)
- What Amazon gets right
- Why you should probably set your price higher if you want to sell more
- Clock radios (uh huh)
- Nespresso versus Maxwell House
- The beautiful insanity of Dyson vacuums and hair dryers
- Using data to exploit versus using data to explore
- Data versus common sense
- P values
- Mental lockjaw
- And … of course … magic in marketing
Watch: dark arts & magic in marketing
Full transcript: dark arts & magic in marketing
John Koetsier: Is our data-driven era driving out the magic of marketing? And … is it possible that being 100% data-driven isn’t actually supported by the data?
Peggy Anne Salz: We’re going to look at both, because here we are. Welcome to Retention Masterclass, brought to you by CleverTap. I’m of course, Peggy Anne Salz, welcome as always, together with my co-host John Koetsier. And today we’re going to be chatting with Rory Sutherland, Vice Chairman of Ogilvy, and author of Alchemy: The Dark Art and Curious Science of Creating Magic in Brands, Business and Life. And John, the reason I’m reading it up there is because the real book, which we have here, has a very different title.
John Koetsier: Cover your eyes, cover your eyes, it’s so bright, gold, it’s blinding me.
Peggy Anne Salz: … it says, “Turning Lead to Gold.” We’re going to love this show and love our guest.
John Koetsier: I’m looking forward to it as well. I’ve got to know him just a little bit in the few minutes prepping for this and he’s pretty amazing. So in his book, Sutherland argues that thinking rationally and logically can be counterproductive, and that marketers who rely on logic may be missing the ideas and inspiration that produce truly effective campaigns. In his TED talks – which have been viewed over 7 million times – he talks about the need for alchemy.
Peggy Anne Salz: And like the book, you know, shining examples, mysterious, magical. We’re going to get deeper into the book. We’re going to get deeper into what Rory has to say and drawing from such a long time in the industry, stories, details, probably a little gossip too John. Just why is everything better when you unlock and unleash unrational thought? Doesn’t that sound exciting? So, how could it be a better guest on our show?
John Koetsier: Wonderful. Welcome to Retention Masterclass, Rory! Thank you for joining us.
Rory Sutherland, talking about magic in marketing
Rory Sutherland: Huge joy to be here, particularly anything called Retention Masterclass is going to drag me in. And really very simple reason for this, by the way, which I think bears repeating, which is the idea of a customer journey is a grotesque oversimplification usually. But nonetheless, if you have anything sequential going on in behavior, it makes sense to optimize from the end backwards. So my argument would be if you’re an organization, get your repeat purchase and your retention fixed before you start worrying about acquisition.
Get your conversion fixed before you start worrying about, say, brand advertising. And the reason for that is quite simply, if you haven’t got the end right, everything you do further up the funnel is correspondingly less effective. Okay, now think about it this way if you like, if you’re widening a road, there’s no point in widening a road if there’s a set of badly phased traffic lights 500 yards further on…
John Koetsier: Have you spoken to any city planners?
Rory Sutherland: All you do is you remove a traffic jam from one place and simply recreate it further on down the road. And I suppose this is similar to Eli Goldratt’s whole thing, I think it’s called The Goal, which is his idea of bottleneck theory. But there’s no point in widening a bottleneck upstream if there’s a remaining bottleneck further downstream. And what I think might criticize advertising for a little bit is because all the money was in brand communication, all the attention went to that as well. Now that’s not to say that brand communication isn’t hugely important and widely deserving of a lot of attention, but it arguably should be the third thing you get right, or the fourth thing you get right, not the first point of focus. Because again, if your website isn’t converting very well, or you create customers and they only buy from you once, you could then produce the most brilliant ad campaign in the world and it wouldn’t make you very much money.
Peggy Anne Salz: Think about it, John, what is he saying? I mean, he is actually saying that you have to get retention right at the end. This is our Retention Masterclass, this is the timing in the industry. Think about that and work a bit backwards, which is completely the opposite of what we’ve heard in the industry up until this time. I mean, you’ve had an amazing career at Ogilvy, but you’re also a little bit of, maybe, I’ve heard you and seen you referred to as the “Don of Advertising.” So a little bit of the mafia thing in there, but maybe, I think it’s more of a Don Draper actually, Rory, listening to you.
Rory Sutherland: I’d largely prefer the mafia one, yeah.
Peggy Anne Salz: So maybe we could just backtrack a little bit. I mean, tell me a little bit about that career, I know from a lot of years at Ogilvy, this reputation doesn’t come without a reason.
Rory Sutherland: I don’t know, I mean, I started in direct marketing, which was a very, very happy accident and worth mentioning because it was lucky in two ways. David Ogilvy always said, ‘You should spend some time as a copywriter in direct marketing before you work in advertising,’ because he thought that the value of simply seeing what works is extraordinarily valuable. And it’s much better to start in direct marketing and go to advertising than the other way around. I think also there was something interesting which was that although we didn’t know that at the time, all of us in direct marketing were kind of amateur behavioral scientists, or behavioral economists, and we very quickly learned certain things that, for example, very, very small things can make a huge difference.
You know in AB testing, you learn that ostensibly trivial changes in phraseology or presentation would have an enormous effect on the efficacy of your communication. The other reason it was lucky is I happened to be in Ogilvy and made the “Direct” as it was then called in Soho Square back in 1988, where it was an assemblage of the most remarkable people to learn from, naming them quickly: Drayton Bird, Steve Harrison, my own art director for a time, Mike Sim. It was an extraordinary place in the sense that it was rather like Paris in kind of 1920, which is, everybody interesting was either there already or passed through. And so it was a brilliant place to learn for two reasons, really, the people you could learn from and the particular area of study.
And I remain a kind of direct marketer to a large extent, in that probably my default mode of thinking is a mixture of direct marketing and behavioral science. And my argument is that this encourages you to focus on things. This is, you know, I started this talk by saying about start at the end, because if you haven’t got the end right, the beginning doesn’t really matter.
And funnily enough, indirect marketing back in the eighties and us Tyro copywriters thought these old farts, what are they, what do they know? You know? But they used to say when you wrote an off-the-page press ad, start with a coupon. Ridiculous, have these people never been to art college? You know, patently you should start with the headline or the concept or the idea, but of course they were kind of right because you could produce a brilliant ad and if the coupon left two or three things unexplained, or ambiguous, or unclear, you didn’t get any response.
So all that relatively, and this is one of the things that’s fascinating in behavioral science, you can take exactly the same principle, you know, you could do a wonderful ad for a product explaining the price, its many myriad consumer benefits, but if you didn’t explain ‘Allow 28 days for delivery,’ or you didn’t tell people when it would arrive, or you missed out some other important factual detail, you could end up halving the number of products you sell.
And this, I think still applies in behavioral science. There’s a great book by a Canadian actually, Dilip Soman, which is about The Last Mile, and his point is that there are a lot of decisions that, just as we know actually that a brand, maybe 30-40% of off-the-shelf decisions take place in-store at the last minute. The last mile is peculiarly decisive in determining whether people buy or not. And that’s another reason why I think it pays people to pay far more attention than marketing services people currently do. You know, nobody’s ever going to get promoted for brilliant application form design, but equally, working on American Express for many years, the single biggest breakthrough we experienced was probably application form design. If you could make it very short. Not only was it very short, and easy, and attractive, and so forth, but also you could make a virtue of the fact that the application form was very short by saying, ‘We aren’t asking for a whole heap of details from you because we want you as a card member.’
John Koetsier: Yes.
Rory Sutherland: And you know, a significant obstacle to applying for an American Express card would be fear of rejection. Which is, I mean in dating the same thing, if you think about it. I mean people in the pickup artist community, of which I’m not a member, but people in the pickup artist community say it’s a perfectly satisfactory strategy, which is whenever you meet someone you fancy, you just proposition them, and one time in ten you’ll get lucky. Now, the interesting thing is most people can’t stand doing that because they can’t cope with the prospect of rejection.
John Koetsier: They must work in sales.
Rory Sutherland: Well that’s very interesting. I mean, one of the interesting things you do is you apparently, what they tell themselves, people in the pickup artist community, is look, we evolved to live in very, very small communities where there were only five or six eligible people, and therefore if we blew it with one of them that was our chance finished for good, because also the six people would all talk to each other. And if you went and propositioned all six of them, pretty rapidly in the community you’d become known as ‘pervy Dave’ okay, and your reproductive opportunities were significantly damaged.
But of course, in a city of 7 million people that doesn’t really apply. You know, you’d have to be pretty d–n unfortunate to be known across London as ‘pervy Dave’ and so every time you enter a bar is essentially a fresh opportunity. But the evolutionary psychology behind that is we’ve evolved to assume that behavior like that will spread and become widely known. And so the pickup artist people deliberately tell themselves that story to overcome this natural aversion. So it’s very interesting, just going back to this is where I find life so fascinating, because you can take insights through evolutionary psychology and you can apply them to something as apparently disparate as credit card applications, which is, no one wants to actually send in their salary details only to be told a week later that they were found wanting. And therefore, the ability to say the reason this form is so short is because we already know we want you, was extraordinarily decisive in terms of the number of people who applied.
John Koetsier: So, I could be wrong here, Rory, but I believe I heard you say something about AB testing…
Rory Sutherland: Yup.
John Koetsier: And we started this interview with talking about the dark arts and the magic of marketing as opposed to the data of marketing. Talk to me about how you square those two.
Rory Sutherland: Well, one of the things is I’m a huge believer in testing because, put it this way, people have this huge argument about behavioral science, is it a science? And in the sense of engineering on Newtonian physics, no, it isn’t. Right? I don’t think I’ll ever be able to say with complete certainty, ‘Do X, it will definitely work.’ What I can do is use behavioral science to massively widen the solution space by saying, ‘If I suggested you doing X, you would look at me as if I were a lunatic, but given the potential gains of doing X, believe me, there’s enough I know from behavioral science to know that even if I can’t guarantee it will work, it’s emphatically worth testing.’
And so my point is that if you confine yourself only to testing the things that you think should be important, you’re narrowing your solution space dangerously. And in fact, there’s evidence of this which shows from people in the programmatic space, which shows that the more things you test, the more extraordinary successes emerge. Now, obviously we expect the relationship to be proportionate, but what’s interesting is it’s kind of disproportionate, and that’s because people only testing two things will tend to test something boringly logical, like a price reduction. Whereas people that are testing six things will test something apparently a bit silly, or counter-intuitive, or weird.
Well, the fundamental truth I think in marketing, and one of the reasons why marketing is very different, and why marketing shouldn’t attempt to imitate the physical sciences in its degree of certainty, is in psychology you can create magic. You can’t in Newtonian physic’s second law of thermodynamics, you know, energy cannot be created or destroyed. But in psychology, if you change the context of something to a tiny degree you can completely change its meaning, the emotional response it generates, and therefore, for example, the sales it generates. An example would be, ‘Avis is #2 in Rental Cars.,’ That’s actually an ad for Hertz, standing on its own. You add, ‘So we try harder,’ and it’s an ad for Avis. Suddenly you’ve turned, literally, you’ve turned lead into gold because you’ve turned a weakness into a strength. And you’ve taken the number two aspect of Avis which in completely rational economic terms, you know, well – less economies of scale, we have fewer outfits, less choice of cars, less probability the old car will be available – all those things would tend to say being number one in rental cars, particularly in America in the sixties where they generally thought that scale was glorious, which had very, very bad effects on American beer for about 30 years I might add.
John Koetsier: Is that somebody from the UK?
Rory Sutherland: Yeah, funnily enough. I’ve actually written on it. I read a paper, one of the reasons I completely lost faith in economics, I read a paper by an American economist entirely about the inefficiencies of the German beer market. And this paper was published, I think in the late seventies early eighties, and I was reading this going ‘but somewhere you have to mention the fact that although Americans can produce beer at a lower cost, the beer isn’t that great!’
Peggy Anne Salz: Okay, I will admit that.
Rory Sutherland: Genuinely, you know the Munich beer festival is a bit more of a draw than the Milwaukee beer festival if I’m being absolutely honest about this.
John Koetsier: Yeah that’s true.
Peggy Anne Salz: I’ll give you that one.
Rory Sutherland: Now what’s interesting in the United States, is once hipsters got involved in brewing, you’ve gone from being the worst country in which to drink beer, certainly as a proportion of its GDP, to possibly the best. Okay, you know if someone invited me on a brewery tour of North America, I’d be there at a shop now, whereas in 1975 we, okay, we’ve done that one and that one, I suppose we better do the third one.
John Koetsier: Exactly. Get all the factories done at once, right? You know what’s super interesting, because you’re talking about data and you’re talking about testing different things and seeing different things. The quote that came to my mind, perhaps you recognize it, Arthur C. Clarke, “Any sufficiently advanced technology is basically equivalent to magic.”
Rory Sutherland: The thing that fascinates me actually is, I’m by no means a Luddite, the overlap between psychology and behavioral science and technological possibilities. Manifested, I think there are quite a few billion dollar businesses which think of themselves as tech businesses, owe their success to really using technology to stumble onto a, maybe intentionally, sometimes accidentally, sometimes they just never realized the extent to which this psychological hack would be decisive. But in the case of Uber, for example, the killer aspect, the killer feature of Uber was really the map. And what that is, is a very simple thing, which is humans have a great need for certainty. And the fundamental psychological experience of waiting for a taxi was completely changed when you could watch the taxi on a map. Now, okay, previously the guy could say, ‘It’ll be there in 10 minutes,’ but he could have been lying, he could have forgotten all about you, and so you sat on tenterhooks waiting for this thing to appear. And suddenly all that uncertainty went, and you went, ‘Oh look, he’s stuck in those traffic lights, you know, I’ll make myself another cup of tea.’
And so it’s a classic case where what people who are trying to be scientific do is they measure the objective reality, whereas it’s the subjective experience which is really decisive. I mean, to be honest, I shouldn’t say this, but you can sometimes get away with services which are objectively a bit crap, okay. Well no, that’s not true, actually we can’t have that, you can never get away with being rubbish simply by being a good marketer. But you can get away with something that’s remarkably unamazing or normal in 90% of dimensions if you do one thing brilliantly.
Peggy Anne Salz: So is that… so Rory, is that one element when we go back to alchemy, will we go back to this magic?
Rory Sutherland: Yeah.
Peggy Anne Salz: Is that element, is that equal to brand magic? Or is it, as you’re saying, let loose of rational thought, we’ve gone through data, so there must be something else that is giving that brand that shine even when it’s mediocre.
Rory Sutherland: Well, Kano theory is something I’m a big fan of. This guy at the University of Tokyo who was very heavily involved with the Japanese consumer electronics industry, and he made the point that the products have kind of threshold attributes, which are table stakes. You know, you’ve got to do that because if you don’t, nobody will buy you because you’re rubbish, okay. Then you have performance attributes and those have a kind of flat lining correlation with consumer satisfaction. In other words, in their absence, the consumer is totally dissatisfied, but in their presence nobody’s particularly impressed. So, if you stay at a hotel and the roof doesn’t leak, nobody goes, ‘Marvelous hotel, fantastic weatherproofing,’ right? It doesn’t create any differentiation or real delight, but equally, if you stayed at a hotel and water started dripping on your bed, you’d be pretty pissed off about it.
Then you have the performance attributes, which are the things that logical people think matter, and they’re the kind of rational things, you know, it might be processor speed, or battery life, or reproductive quality of sound or whatever, build quality, and they matter, but they haven’t got a linear relationship with consumer satisfaction. And then you have these things called ‘delight attributes’ which are kind of supra linear, they’re often surprisingly peripheral to the main function of the thing, but the very fact that they’re noticeable and eccentric and unusual means they capture a disproportionate amount of our attention, and therefore contribute to a completely disproportionate extent to our willingness to pay, or our satisfaction with the product.
I noticed, by the way, Elon Musk clearly knows about this because he builds into the Tesla Model 3 and the Model Y, he builds in things like ‘fart mode’ and ‘fireplace mode.’ And now the interesting thing was, I was just on the point before Coronavirus broke out, of buying a Tesla Model 3. And this is the tragic thing, the reason I wanted to buy it was it had ‘dog mode,’ okay, now this is slightly ridiculous to begin with, what makes it even more ridiculous is I don’t own a dog. Just to explain what dog mode is, because the car’s electric, you can leave the air conditioning on without the engine running because it just runs off the main battery. That means you can leave a dog in the car in Scottsdale, Arizona, and the dog will be perfectly comfortable.
John Koetsier: Of course somebody will come along and smash the window because they think the dog is in trouble, and yet the dog would have been comfortable.
Rory Sutherland: This is exactly the problem, and so Elon spotted this and he said, ‘The problem is that people who don’t know it’s a Tesla, who don’t understand this, people will, PETA activists will come along and smash the window of the car to free the dog.’ Okay? So when you put the car into dog mode, it displays on the enormous screen a picture of a dog, and it says, ‘Don’t worry, the interior is being kept at a constant 72 degrees, my owner will be back shortly.’ And it displays this whenever anybody approaches the car so it actually utilizes ‘sentinel mode,’ which is another security mode, which is already existing in the car. And there’s also ‘Joe mode,’ by the way, because a guy called Joe complained to Musk that when his kids were asleep in the car, the various announcements woke them up. So if you choose Joe mode, the announcements are loud in the front but more or less inaudible in the rear.
But the extraordinary thing about that is the fact that this thing had dog mode was kind of a deal maker for me, even though I don’t have a dog, because it’s the attention to detail that’s gone into this is really spectacular. It also is a clue, by the way, that the product isn’t designed by accountants, because accountants hate delight attributes, right, they’re the first thing they kill. So in the case of the consumer electronics industry in Japan, often the Kano element, the delight element, would have been the eject mechanism on a cassette deck in the 1980s so it didn’t just go clack, it kind of had a counterbalance and a bit of hydraulics that meant it hissed open like a door on Star Trek, you know? And that was the kind of decisive factor. And of course expense on the eject mechanism is exactly the thing that finance people tend to kill. So it is, in a sense, emblematic of the fact that the product is produced by someone who’s doing it for love rather than for simple economic transactional purposes.
John Koetsier: That’s super, super interesting. I mean, and that’s kind of the brand attribute that you’re talking about right?
Rory Sutherland: Now the wonderful thing, that hotel chain which gives you a cookie, the DoubleTree…
John Koetsier: Yes.
Rory Sutherland: Okay, The finance people have been trying to kill the cookie for ages. The most recent marketing director, apparently to piss them off, made the cookies slightly larger. And the marketing person is, by the way, right, because I haven’t stayed at a DoubleTree for 14 years, it was last in Chicago. I’m a Brit, so I’m not even, I was kind of when they handed me this signature cookie, I took it up to my room. I said, ‘What’s this American bull—t cookies?’ But of course, they actually have an oven underneath the check-in desk so the cookies are warm and I don’t know what the recipe is. They have actually, during lockdown, they’ve made the recipe public.
John Koetsier: I saw that.
Rory Sutherland: And anyway, I’m not a cookie connoisseur, but these things were sotting delicious. Okay, you know, I put the baseball on the television and sat down eating these things, they are utterly tremendous. And so 14 years later, if my PA ever said, ‘There’s a conference on, you’ve got a choice of the X or the DoubleTree,’ fourteen years later, I’d remember that. Now 95% of the hotels I’ve stayed in over the last so many years, I can’t remember a single distinguishing feature.
Peggy Anne Salz: So let me, Rory, we spoke before, and you just brought up a point here, it brings me back to that, and you said that it’s about embracing irrational thought and you should actually do things. The way to move forward is to do something that upsets the finance officer or that they wouldn’t go for.
Rory Sutherland: The biggest source of competitive advantage in any organization is its ability to do things the finance director doesn’t like. So if genuinely, and that would be true of a car company, it would be true of an advertising agency, the things that make you remarkable, that really both distinguish you and which also have the capacity to create what you might call behavior, loyalty, affection, attention, beyond the normal scope of proportionate reason, tend to be things which are weirdly orthogonal to the usual metrics which our finance director would think would be important, like price or time or size of room, or whatever it may be.
Funnily enough, in the hotel industry there’s a great case which my great friend Richard Shotton mentions, he’s the author of the book The Choice Factory, which I’d highly recommend him as a guest, and he talks about the Magic Castle Hotel in Los Angeles. Now fairly amazingly, it’s – now let’s be really clear about this – it is very clean, it’s clearly very well maintained, but it’s a slightly dated architectural hotel in LA in a very old dated building with a very small swimming pool, which is #6 on TripAdvisor among Los Angeles hotels, and which also manages to charge a pretty high nightly rate.
And he makes the point that everything about the hotel is good, but there are two or three extraordinary things which are fantastic. So they have a thing called a ‘popsicle hotline,’ so if you’re by the pool, you lift this phone and someone comes out with – to my British audience, these are ice lollipops – but someone comes up with a tray that’s kind of piled high with popsicles and you can help yourself for free. I noticed in the photographs on Google images that when your laundry comes back there’s your name written in ink, a little smiley face and a sprig of lavender added to it. And what they do is they do three or four things which are kind of disproportionately effective in generating affection and generating general charmingness.
And we all know people like that, don’t we really, who are kind of, ‘You must meet my mate Dave, he’s a bit of an a–hole but he’s a great guy,’ you know? And there are those people, and what it is so fascinating because those things, and the reason I always call this “alchemy” is that people who are obsessed with making marketing look like physics always assume that the scale of the input is proportionate to the scale of the effect. That in order to make your hotel more appealing you have to drop the price by X percentage, all those sort of very linear ideas of what makes a difference. And of course, dotted all over the place there are tiny things you can do which brilliantly signify that you care in an ingenious way, and those things have a meaning value which is way out of proportion to their cost.
Peggy Anne Salz: That’s exactly the point Rory, you know that’s what you were talking about before. Now we are marketing in a pandemic, this is the era of COVID-19. John is hosting a fantastic webinar sponsored by CleverTap as well, you probably should be on it, but now we’ve got that wrapped up. But anyway, the point is that very much it’s about working on that playbook, changing that playbook. What will delight people in our times now? How has that changed?
Rory Sutherland: I mean, responding to the crisis in an ingenious and useful way not only to your direct customers, but to everybody else. One of the best things, okay, I’ll give you a lovely example of this, and I don’t know, I haven’t seen anybody quite yet do it, although Ocado did a very nice thing which said, ‘By the way, if you’ve got a delivery, why not ask your neighbors if there’s anything you can get them.’ Because obviously Ocado, which is a home delivery grocery service in the UK which is extremely good, they would like to make as few large deliveries as possible because the constraint on their ability to supply food is really the delivery slot rather than share supply volume, that’s their bottleneck. And so if they can get you to order for your neighbors, that’s a good thing.
Now, one of the most fascinating discoveries in behavioral science, and it’s called the “Benjamin Franklin Effect” after a little story Benjamin Franklin tells, is that strangely, if a brand asks you to do them a favor, simple economic logic would suggest that you would require remuneration for this. Oddly, we like people we’ve done favors for.
So Cialdini is very good at this, Robert Cialdini.
The weird thing about Cialdini’s six rules is they’re all sorts of contradictory. Now, this is my great point about why you should never model marketing on physics, which is two things, okay. The opposite of a good idea can be another good idea in marketing. That’s not true in physics. The opposite of the good idea is generally wrong. There are exceptions in engineering and so forth, but quite often in marketing the opposite of a good idea can be another good idea. And one of the strangest things is we like brands that do favors for us, but we also kind of like brands if we can do a favor for them. And it must be an evolutionary mechanism, which is now I’ve done a favor for this person, I can trust them a bit more because then they’re kind of in my debt.
I’ve suggested to airlines for ages, look, if you’ve got a bloody flight at 10:30 to New York which is overbooked and a flight at 11:30 that’s underbooked, why don’t you just email your customers a week ahead of time and say, ‘Look, you don’t have to do this, by the way you are totally free to go on the 10:30 flight, but it would really help us out if you went on the 11:30 flight.’ Without any remuneration or reward at all, the result will be that people who go along with that will like you more, and that’s weird. Conventional economics would go “No, no, no, you must demand some compensation,’ but people kind of like the feeling of being useful. And so if you can actually co-opt your customers in a way which between you and them, you can contribute to the greater good, then strangely you do very well out of it.
And so that’s the other reason. If you don’t believe in magic, and that’s the kind of magic, okay, right? If you only believe in economics and physics as your model for how the world works and you have no kind of attention to psychology or evolutionary psychology or anything else that tells you, or epistemology, by the way, the way we perceive the world isn’t objective to begin with. The problem is, if you don’t believe in magic because you believe in economics, you’ll never look for magic. And when someone presents it to you, you won’t believe in it. In fact, what you’ll do is you’ll look for another explanation because this magic has basically disrupted your comfortable worldview.
John Koetsier: Super interesting, super interesting. So how does that work right now? We are going through coronavirus, we are going through COVID-19. You’re at home, we’re video conferencing all day long. Brands are trying to reach out, they are finding ways of connecting, but they don’t want to just hype a crisis as well. How do you apply that to COVID-19?
Rory Sutherland: Now you can get this dangerously wrong, I agree. I mean, some brands have been absolutely fabulous in the sense that they’ve been able to repurpose their factories. Unilever has done this quite extensively where you can repurpose factories to produce necessary medical supplies. I think, believe it or not, Prada is producing one-use medical gowns and PPE equipment, presumably with a red stripe somewhere on the thing and that, by the way, goes back for ages. I was looking at the Spectator‘s, it’s the 10,000th edition of the Spectator which is the oldest weekly magazine in the English language in continuous publication. And going back and looking at World War 1 advertising, it was all about Rolls Royce talking about their contribution to the war efforts.
And, you know, if you can do something directly of value, but equally, if you can recruit your customers so that together you can do something of value, eg: ‘Look, you know, if you can do us a favor.’ I mean, now I don’t like criticizing Ocado because they’re very good, they’ve stopped supplying bottled water. I think they’re right to discourage bottled water because it uses up a huge amount of weight on a van and let’s face it, we’ve got a bloody tap don’t we? Right, okay. So it’s not the best use of van capacity to deliver to a bunch of neurotics in Hampstead who weren’t drinking tap water. You know, their weird spring water that’s been shipped all around the world or whatever, it’s not a good use of distribution. Now it might’ve been a little bit better if they’d just said as a favor, ‘You know, we’d prefer you not to,’ because people probably prefer something that is voluntary to something that’s imposed. So I think that business of, you know, if you can’t do something directly valuable, but you can help your customers engage in prosocial behavior, I think you will reap emotional rewards for that. Because coordination is a valuable function in these cases.
John Koetsier: Yes it is, absolutely. And I love what you said earlier as well about doing a favor for somebody makes you like them more, some weird psychological trick. What a brand can do ideally in that scenario is know what somebody wants to do, or know what somebody might be interested in doing or be able to do, and be able to respond to that in advance. Have you seen some examples of that? Have you seen some value in that? Understanding your customer well enough that you know what, this person probably wants to do this, or might be open to doing that, and I’ll give them the opportunity.
Rory Sutherland: I mean, a very interesting thing by the way, which is worthy of mention, is that certainly the online grocery delivery firms were obviously besieged with new customers when this first happened. And they were also essentially flooded with people who’d bought something once in 2018 when they had a garden party but hadn’t used the service since. And it’s very interesting, this is where economics and ethical capitalism diverge. It’s very interesting, they’ve given distinctly preferential treatment to their most loyal past customers. And I think in talking about loyalty and retention, there are elements which need to be understood much better, because economics is entirely focused around the one shot, one off, anonymous transaction, and consumers’ minds don’t work like that. Consumers’ minds have evolved for relational capitalism, not for anonymous transactional capitalism.
And therefore, it’s worth knowing that every time someone does business with you, and the longer they do business with you, they do have a sense that they are acquiring from you a sense of reciprocal obligation. I’ll give you two examples of this. If you run a utility, electricity company, power company, phone company, if you get a letter of complaint, the most common opening paragraph will be, ‘I have been a customer of yours for X years. Imagine my horror when…’ Okay, now the fact that consumers write that is indicative of the fact that although technically you subscribe one year at a time, people do regard longevity of tenure as bringing them significant rights, preferential rights. And not unreasonably by the way, because the fact that you’ve been a long term customer suggests, one: that your future value is longer because you’re prepared to be loyal. It also suggests, I think that you’re trustworthy, you know that there’s a sort of mutual trust going on because in game theory, repeat games are more trustworthy and more cooperative than one shot games. The second example I always give is I always use the same local taxi firm. And the reason I do that is because I could get cheaper rates if I rang around every time and asked for competing quotes or whatever, the reason I like to give them a few airport jobs, the reason I’m out of business is because one day my wife’s car is going to break down and it’s snowing and they’re going to pull their finger out and go the extra mile to get me a car instead of some random punter who hasn’t booked a taxi in 16 years, and now because it’s snowing wants to get a taxi so he doesn’t scratch his own car.
So the fact that actually what’s going on in the consumer’s head in a relationship is not the same as the balance sheet view of a business. Any business, look, this is why marketing is so important, even in businesses that don’t do any marketing, okay? Because marketing isn’t actually a function. It’s a way of looking at the world. And if you don’t have a marketing person or a person with the marketing mindset in your C-suite, everybody’s looking at the business in a single snapshot in time of aggregate information, seen through an accountant’s eye view. And the customer’s eye view of things, as with the cookie at DoubleTree, is at 90 degrees to that. You can know everything about your g–d–n balance sheet and your statistics while knowing nothing about your customer’s own experience over time.
Peggy Anne Salz: So let’s take it a step further here, Rory. You know you’re talking about alchemy in your book. We’ve talked a lot offline about how some of the best ideas are the worst ideas, or the most irrational ideas. Give me a big idea in these unprecedented times. Give me a big idea about tackling the even bigger problem for retention. You’re talking about retention is understanding your audience, but probably there’s something we can do that pushes the envelope even further than that.
Rory Sutherland: One thing is that deepening trust. I think Amazon probably gets this right. I had a recent fairly uncommon problem with an Amazon delivery, and the guy actually said, ‘Well, look, we’re going to look after you mate, because you’ve actually bought 4,000 things from us.’ Now, bear in mind, I was probably in the UK, I was the customer of a thing company called “Book Pages” which was bought by Amazon. So I’m actually kind of customer #1 in the UK for Amazon, because I was essentially there before Amazon was even here. So it goes back a very long way. Now, simply acknowledging that you’ve noticed is really important. With British Airways, you have a system in the BA loyalty program where you have miles which you can redeem for free flights, and there are tier points which reset the zero annually which determine your status whether you’re in the blue, bronze, silver or gold tier.
And one of the things we did, which we were very pleased we did, it was a recommendation, was that when people go and look it doesn’t just show your current tier points, it shows your lifetime tier points. Which says, not only do you know that you’re a long term customer of British Airways, but you now know that we know you’re a longterm, very valuable customer of British Airways. And the point of that is when the points reset to zero every year, you kind of had the feeling, particularly if you’ve redeemed a lot of your air miles to go on holiday, so you know, you had 25,000 air miles and 20 tier points, okay, because you’ve just taken one flight to Rotterdam or something, right – probably be 40 actually, but okay you get my point – and you go, well, I feel like I’m just a tourist, you know, I’ve spent literally hundreds of thousands of pounds with British Airways, but according to the data I can see on the screen which is 40 tier points and 20,000 miles, I’m just a tourist.
And one of the reasons you’re loyal to an organization is that the organization knows you’re loyal to it. So there’s an awful lot of second order and third order recognition that goes on here and a lot of organizations aren’t very good at doing that. I mean, interestingly Sky in the UK has a loyalty program which is entirely due to length of tenure. If you’ve been with Sky for 10 years, you’re in their premium ambassador class regardless if you’ve had the cheapest package all along.
John Koetsier: Wow. Interesting. I will always remember British Airways with pleasure for having taken me from Moscow to Berlin, and then forgetting I got on that plane and not giving me a seat on a flight from Berlin to Vancouver where I’m home, forgetting that I got on the plane in Moscow and then realizing last minute they forgot, and then giving me an upgrade to lie flat, have a ton of space, big TV, whatever class that is, and letting me have a great flight home. But let’s take that and let’s talk about how to execute that, right. We’ve talked about being able to recognize reciprocity, to tell your customer that you care, to tell your customer that you realize what they’ve done for you, and you’re going to do some things for them. And so we talk about growth stacks, right? Tech growth stacks as well. What’s in your growth stack? What’s in your tech stack? What applications do you have? And you’ve talked about the alchemy and the magic. Where does that come together and what do you see as necessary in a growth stack for a brand?
Rory Sutherland: Well, I think one of the problems is that business is obsessed with quantification and it’s much easier to quantify cost savings than it is to quantify opportunities. And businesses have become disproportionately focused, I think, on producing more crappier things at a lower price, when what the consumer wants, as the American beer market rather neatly demonstrates, is actually slightly fewer, better things at a slightly higher price. I mean, the assumptions I think around price and cost are very dangerously polluted by economics. And one of the things I always suggest testing is, you know, maybe the reason this thing isn’t selling is you need to put the price up. Now you’re going, ‘This is absolutely insane.’ No, no, no, no, no, there are cases where being cheap is a total marketing disaster.
And the example I always give is you have two products, one of them has more features than the other and appears to offer greater expected utility, okay, because it’s a clock radio which has additional features. And the clock radio with more features is also cheaper than the other clock radio. Now, to an economist, that’s the easiest decision in the world, isn’t it? Oh, well there’s higher utility, lower price, I’ll obviously buy clock radio B. If you look at how humans think, they also deploy second order intelligence, which is if I actually had a better clock radio, I’d charge more for it. Okay, why would I produce a better clock radio and then sell it for less? Obviously there’s something about this other clock radio that is a bit crap that I just don’t know about, because they lack the confidence to charge a premium for their superior functionality. Now, what I’m saying is that if you actually have a better product at a lower price, what may happen is consumers come in and they are totally confused and buy neither of them.
John Koetsier: Yes.
Rory Sutherland: So understanding that if you use the laws of logical economics or you obsess about data by the way, to a point where it ceases to inform and becomes a constraint that you’re not allowed to do anything that current data doesn’t justify, what you’re actually doing is you’re probably turning your back on major opportunities for growth. Because the real opportunities for growth tend to exist in counter-intuitive spaces where you are not a commodity and where your competitors haven’t been yet. Which are, so the classic case, okay, are two examples of data, right? There was nothing in any data about consumer coffee buying habits for home consumption that told you that Nespresso would be a billion dollar company. And the reason is, and this is where the alchemy lies, it’s in the magic of human perception and the fact that human perception isn’t objective. If you were comparing the price of Nespresso coffee with the price of Maxwell House and you had to buy it in a jar, you’d look at it on the shelf and it’s completely insane, right? Okay, this is costing me like 40 times as much. Luckily, the frame of reference when people put the 45 cent pod in the machine, their frame of reference is Starbucks, not Maxwell House.
Peggy Anne Salz: And that’s probably the magic and the smoke and mirror.
Rory Sutherland: So if you look at the data, that’s where the magic lies. Dyson makes no sense, I’ll admit this freely myself. If James Dyson had come to me and said, ‘I think there’s a market for a $900 vacuum cleaner,’ I would have gone ‘Look, James, just look, first of all, it’s a distress purchase, no one derives any pleasure from buying a vacuum cleaner. You only do it under duress when you move out of rented accommodation or your old vacuum cleaner explodes. And anyway, anybody who can spend $900 on a vacuum cleaner has a cleaner, so they don’t even use the vacuum cleaner themselves, right?’ Okay, and all of those would have been perfectly rational. Now, this is the fundamental part, just because something makes sense doesn’t mean it’s right. Okay, that’s probably true in physics, it’s probably true in engineering. If something makes sense within engineering terms, then it’s right. In psychology it isn’t true. So, you know, the explanation you have for something may not be the real why, it’s simply chosen because it’s plausible. Now nevermind a nine hundred dollar vacuum cleaner, right, he’s now perfected a $600 hairdryer!
Peggy Anne Salz: John doesn’t have that problem, Rory.
John Koetsier: Haha, no I don’t have that problem.
Rory Sutherland: But you still want one, don’t you?
John Koetsier: Interesting thing for me there, is that data’s great if you use it right and you just open the blinds, and there’s a lot of different things that might not be seen.
Rory Sutherland: And this is why I wrote about the bees because bees use data. Bees use data in the waggle dance, okay? We know there’s pollen over there, we know there’s nectar over there, but they have a certain number of bees who are free to ignore the waggle dance, and it’s the difference between exploit and explore.
John Koetsier: Yes.
Rory Sutherland: And the reason companies aren’t growing is because in many cases, it isn’t … by the way, I knew people in the city and people in the city actually are much more interested in growth and R&D and experimentation but the desperate need to present some impressive quarterly figures has caused businesses to focus far too much on exploit and far too little on explore. And what explore is, is I’m going to exploit what I already know, but I’m also going to invest in finding out what I don’t know, particularly in finding out what my competitors don’t know either. Because the value, although the chance of success is less certain, the value of success is inordinately greater.
Peggy Anne Salz: You know, Rory…
Rory Sutherland: And this is all big data, right? Bees know this, all big data comes from the same place, the past, right?
Peggy Anne Salz: Yeah.
Rory Sutherland: All the waggle dance reflects is what they already happen to have learned about the availability of nectar and pollen in the environment. All of that can be proved total rubbish by events, because a cow breaks into a field and eats all the flowers, so your previous data suddenly becomes utterly worthless. All Nescafé’s data on what people would pay for coffee granules was worthless in conceiving of Nespresso.
John Koetsier: And the same is happening right now with coronavirus and COVID-19 because consumer behavior has changed so massively and so rapidly it’s really hard to apply all your old data.
Rory Sutherland: I’d also criticize a lot of scientists in this because they’re trying to, masks, right? They say, ‘We have no evidence that masks…’ well of course you don’t have any evidence, the f—ing virus is new, right? There isn’t going to be any evidence, because this is different. Now, I would much prefer a probabilistic view of the world, which is ‘How likely is it that wearing a mask is actually going to harm you or promote the spread of the disease, right? And I’d say on the balance of probabilities, you use common sense, but you have these scientists who go, ‘No, no, no, there’s no peer reviewed sci…’ Well of course there f—ing isn’t okay, because this hasn’t happened before. And so, one of the things it’s led to is it’s led to utterly brilliant science, I’m not disputing this, but it’s also led to a kind of weird, slightly, almost kind of mental, how would I describe it, there’s a wonderful phrase for it… it’s kind of like a mental lockjaw in a way, where people go, ‘I can only make decisions on the basis of approved peer reviewed science with a P-value of less than 0.05.’
And of course, you know, a large amount of evolutionary common sense evolve for the very fact that we, most of the time, we’re making decisions on inadequate information, inaccurate information, by the way, which is equally important. We don’t fully know that the data from China is absolutely okay. And also we have to actually factor in not just the degree of certainty, but the consequences of being wrong. So, you know, I would say that if you had anecdotal evidence that Drug X, which is already available over the counter, appeared to reduce either the transmission rate or the severity of symptoms, you know, you should be weighted in your behavior towards giving it a bash. Because the upside benefit is much, much… and particularly the learnings from discovering that it does work much, much higher in benefit than a short term downside risk.
John Koetsier: Yeah.
Rory Sutherland: And so that business of going, ‘We cannot do anything unless we are completely certain,’ is absolutely perfect if you’re in a field of flowers where the location of the flowers never changes, but if a new species of flower pitches up, it’s no use at all. You need a totally different approach.
Peggy Anne Salz: And that’s why we come to alchemy, Rory. That’s why we had you on the show. I mean, to summarize, it’s about not looking entirely at the data or looking behind the data, it’s about big ideas [lost audio].
Rory Sutherland: Yeah, absolutely. It’s, now, this is, I’m going to be very clear here, what I’m not suggesting is that you adopt lunatic behaviors at large scale, which are irreversible, okay? I’m merely suggesting that in searching somewhere, you don’t just factor in the probability of discovery, you factor in the value of discovery. And of course, once the waggle dance exists, then you can tell the other bees about this new field you’ve discovered, which may be as yet unknown to anybody else. And so the overall value of that is enormous.
John Koetsier: It is, absolutely.
Rory Sutherland: This all goes back to this whole statistical argument. It all goes back to a row or sort of disagreement between Sealy Gosset who came up with the students’ T-distribution and a guy called R.A. Fischer, who is very, very clever but possibly wrong. And this whole P-value of less than 0.05 is totally arbitrary because the degree of certainty requiring a decision depends on the upside consequences and downside consequences, both for being right and being wrong.
John Koetsier: Absolutely.
Rory Sutherland: So betting the farm on something, you want a huge degree of certainty. But if actually, I mean the French, in credit, they’re looking at this question that nicotine prevents transmission or reduces significantly the chance of catching it. Now of course, that’s absolute anathema to anybody in public health.
John Koetsier: Oh yes, let’s smoke cigarettes so we don’t get Coronavirus.
I’m so sorry, we have to call an end to this. Unfortunately, we have other commitments to get to and I know it’s getting late for you. We very much appreciate having you on the show Rory.
Rory Sutherland: I quite understand.
John Koetsier: It’s been interesting, it’s been amazing. It’s been wide ranging, it’s been all over the world, and we really have had a wonderful time. Thank you so much for joining us on Retention Masterclass. And Peggy, I’ll give you leave to thank Rory as well and end the podcast.
Rory Sutherland: It’s a great pleasure.
Peggy Anne Salz: Absolutely Rory, great to have you. I mean, the one to write down, the t-shirt I think we all have is “Think about the end first” and then later think about the beginning of the journey. Think about retention, that really works with our theme here at Retention Masterclass. So thank you so much for being on Retention Masterclass. Thank you for joining, also as our viewers.
John Koetsier: Wonderful, and thank you, Peggy. And whatever platform you’re on, please like, subscribe, share, or comment, or all of the above. If you love this podcast, hey, rate it, review it, that’d be a massive help. Until next time, keep well, keep safe. This is John Koetsier, and signing off for Peggy Anne Salz as well.
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