
November 25, 2020
Rory Sutherland: Human Behavior, Innovation, and Alchemy (EP.16) | Infinite Loops Podcast with Jim O’Shaughnessy
Check out the Infinite Loops Podcast Page & Episode Notes
Key Takeaways
- “The trouble with market research is that people don’t think what they feel, they don’t say what they think and they don’t do what they say” David Ogilvy
- The role of Marketing in Innovation
- You need the marketing function along the product function to spread innovations
- A huge part in spreading the use of vaccines was convincing people to change their behaviors and get vaccinated
- The technology of Nespresso did not take off until it was popularized as a lifestyle brand by George Clooney
- Steve Jobs was a great marketer
- You need the marketing function along the product function to spread innovations
- In corporations, people often make decisions with the aim of avoiding blame
- Quality of reasoning becomes more important than the outcome
- “Math can give us a lot of confidence in our own wrongness” – Rory Sutherland
- The way you frame a product totally changes consumers perception and behavior
- Great marketers know that tiny improvements can achieve tremendous results
Key Products Mentioned
- Rory’s book: Alchemy: The Dark Art and Curious Science of Creating Magic in Brands, Business, and Life
- Zen and the Art of Motorcycle Maintenance by Robert Pirsig in regard to Pirsig’s quest to find “What Quality Is” and how it relates to Rory’s book
- Rory was inspired to look at the economy as a naturalist by Robert Frank’s books The Economic Naturalist: In Search of Explanations for Everyday Enigmas and The Darwin Economy: Liberty, Competition, and the Common Good
- Jim mentioned Talking to Strangers by Malcolm Gladwell while talking about the Amanda Knox case
Intro
- Rory Sutherland (@rorysutherland) is a best-selling author and Vice Chairman of Ogilvy Group, one of the largest advertising agencies in the World
- Host – Jim O’Shaughnessy (@jposhaughnessy)
- In this chat, Rory discusses the importance of marketing in innovation and the insights he learned by studying human psychology
Market Research and Human Behavior
- You cannot rely on logic or on what people say for your market research
- “The trouble with market research is that people don’t think what they feel, they don’t say what they think and they don’t do what they say” David Ogilvy
- Many billion-dollar businesses targeted markets that could have never been thought of by asking customers
- Examples of Starbucks, Nespresso, Dyson, Uber
- We think we can predict how we will behave, but we are wrong
- Our behavior is mostly driven by our emotions
- We don’t have accurate introspection about our emotions, but we think that we do
- The brain thinks it is making decisions while it is only rationalizing them after the fact
- It thinks it’s the President issuing executive orders
- In reality, it is the Press Secretary confabulating plausible-sounding explanations for decisions taken somewhere else
- Our behavior is mostly driven by our emotions
Reason, Innovation and Marketing
- In corporations, people often make decisions with the aim of avoiding blame
- Quality of reasoning becomes more important than the outcome
- You can’t be blamed if your decision was “reasonable”
- This makes it impossible (except for entrepreneurs) to experiment with counter-intuitive solutions
- In complex systems answers often are counter-intuitive
- This explains why entrepreneurial companies innovate more
- Quality of reasoning becomes more important than the outcome
- Innovation is a backward-process
- Practitioners make the progress, which later is codified by scientists and academics
- The role of Marketing in Innovation
- You need the marketing function along the product function to spread innovations
- A huge part in spreading the use of vaccines was convincing people to change their behaviors and get vaccinated
- The technology of Nespresso did not take off until it was popularized as a lifestyle brand by George Clooney
- Steve Jobs was a great marketer
- You need the marketing function along the product function to spread innovations
Leveraging Selfish Reasons for Community Benefit
- One of the main improvements in public health was that people wash regularly
- Soap advertisements never encouraged people to wash themselves to prevent community disease
- The message was that people who didn’t use soap would smell and be lonely
- It doesn’t matter that people used soap for selfish reasons, it achieved the socially beneficial objective
- The message was that people who didn’t use soap would smell and be lonely
- Soap advertisements never encouraged people to wash themselves to prevent community disease
- Pure altruistic reasons sometimes get in the way of the success of social movements
- They work on a few individuals but they don’t scale
- Tesla cars appeal to people who don’t care about the environment
Human Have a Need for Certainty
- We get very dissatisfied when we know we don’t have information
- People feel less upset when you tell them their flight was delayed by 90 minutes, then if you just say it was delayed
- Knowing how long they have to wait, they can arrange their time
- People feel less upset when you tell them their flight was delayed by 90 minutes, then if you just say it was delayed
- Uber’s success leveraged our need for certainty
- With Uber, you know exactly where your driver is and when it will pick you up
Framing Is Everything
- The way you frame a product totally changes consumers perception and behavior
- It’s a way to arbitrage human nature
- Nespresso was able to sell because it made customers compare it to Starbucks, not home coffee
- To convince his dad to buy Cable TV, Rory compared it to his daily newspaper expenditure
- Once he showed that Cable would cost $0.66/day, against the $2 his dad was spending on newspapers, buying cable became a no-brainer
Beyond Determinism there’s Magic
- “We are deterministic beings living in a probabilistic world” – Jim O’Shaughnessy
- Aristotle’s influence contributed to making us so deterministic
- Everything is either yes/no, on/off, black/white
- But that’s not how the real world works
- Everything is either yes/no, on/off, black/white
- Aristotle’s influence contributed to making us so deterministic
- By being so deterministic, we lose the possibility for magic
- We assume that to improve travel we must make the journey faster
- Great marketers know that tiny improvements can achieve tremendous results
- Virgin gained an edge by introducing the entertaining system for coach passengers
- It was a small cost for the airline, but it totally shifted consumers’ perspective
- Virgin gained an edge by introducing the entertaining system for coach passengers
- Great marketers know that tiny improvements can achieve tremendous results
- We assume that to improve travel we must make the journey faster
- Advertising may look least effective when it’s doing the most work
- It takes time to change social norms
- Early on, advertising may look like it’s not bringing results, while it is shifting people’s attitudes
- Later advertising may look more effective
- But its effectiveness may depend on the earlier campaigns
Why Business Decisions are More Affected by Bias
- In personal decision-making, you don’t have to justify all your decisions
- You can rely on heuristics and intuition which you don’t fully understand
- In a business environment, we are forced to justify every decision on a spreadsheet
- Learning to become comfortable with uncertainty allows you to take advantage of massive opportunities that you otherwise couldn’t pursue
- “Doubt is certainly not a pleasant condition, but certainty is absurd” Voltaire
The Economy and Innovation
- Unintentionally, markets allow for creativity to continue indefinitely
- Many of the products we love the most sounded crazy before they were brought to market
- Who could have thought that people would pay $700 for a Dyson vacuum cleaner?
- Who could have predicted that Zoom could emerge against some of the biggest tech companies in the world (Google, Microsoft)?
- Many of the products we love the most sounded crazy before they were brought to market
- “Capitalism is the world’s best-funded social science experiment” – Rory Sutherland
- You should look at markets not as an economist, but as a naturalist
- Ask: why does Dyson exist?
- Rory was inspired in this by Robert Frank’s books The Economic Naturalist: In Search of Explanations for Everyday Enigmas and The Darwin Economy: Liberty, Competition, and the Common Good
- You should look at markets not as an economist, but as a naturalist
Stated Preferences and Virtue Signaling
- **By virtue-signaling, people tend to not reveal their true preferences **
- In the 2016 US election polls, many people didn’t reveal their preference for Donald Trump
- People tend to adopt the most visible “environmentally friendly” measures to show-off
- While they don’t adopt other important measures that can’t be easily seen from the outside
- “Don’t tell me what you think, show me what’s in your portfolio” Nassim Taleb
- The most passionate devotees of a cause tend to hurt it more than help it
- They virtue-signal so much, they become an obstacle to the cause
- Super-strict vegans make veganism less attainable for other people
- Doing so they put off moderates and end up hurting their cause
- Super-strict vegans make veganism less attainable for other people
- They virtue-signal so much, they become an obstacle to the cause
Tweaking the Tax System to Reveal Preferences
- Rory suggests turning tax cuts into optional tax rebates
- People could decide whether to accept the full rebate or to donate part of it to a particular cause
- This would increase donations because it’s easier to forego a benefit than to make a loss
- Making the names of those who donate publicly available would create ‘skin in the game’ and reveal true preferences
- People could decide whether to accept the full rebate or to donate part of it to a particular cause
On the Dangers of Math
- “Math can give us a lot of confidence in our own wrongness” – Rory Sutherland
- You can pick a certain statistic and state it out of context, and it can be presented as an undeniable fact
- In reality, without more complete information, that fact may be incredibly misleading
- You can pick a certain statistic and state it out of context, and it can be presented as an undeniable fact
- The number of people who think they understand statistics is much larger than those who actually do
- Most politicians are not experts in mathematics or statistics
- “Inflation is the sneakiest tax in the world, because people don’t understand it” – Jim O’Shaughnessy
Additional Notes
- We are mimetically driven
- If you leave people to their own devices, they will copy other people
- That’s why Zoom was so slow to take off until the pandemic
- Everybody else was having physical meetings, virtual ones were considered “unusual”