The central plank of my two-year IPA presidency is an inquiry into behavioural economics and its possible application to marketing. This task seems to me vital if the IPA is to live up to the "I" in its name, delivering on its role as an institute of learning by finding and sharing new knowledge that can benefit its whole membership.
"Choice architecture" is one of the core principles of behavioural economics that first inspired me and we have made it the focus of our initial work in embracing this new science. The idea first appears in Richard Thaler and Cass Sunstein's book Nudge: Improving Decisions About Health, Wealth And Happiness. My goal is for our industry to become home to many of the first true choice architects in the commercial world.
It has always been a mystery to me, since we are an industry that claims to work on the basis of human insights, how little effort we apply to understanding people and their actions. Happily, I believe the IPA can be a perfect place to establish a culture of investigation that will supply new thinking to the industry as a whole - just as the Institute of Aeronautical Engineers presumably serves people engaged in aeronautical engineering.
Most people in our business are interested by psychology and the social sciences, and yet they find themselves stymied by a framework of human action and perception that typically focuses on fairly naive models of human behavioural change and decision-making.
In many cases, we seem to have adopted a model for consumer decision-making whereby brand preference is assumed to translate perfectly into purchase behaviour and price premium. In some cases (in particular for packaged goods), this may be a fairly good assumption. But just as recent research into human decision-making poses difficult questions for the classical model of economics, it likewise presents awkward findings for the classical model of marketing.
The standard marketing model seems to assume that we hold a kind of brand beauty pageant in our heads, simultaneously and even-handedly evaluating all the options available to us and choosing whichever brand we think most shapely: where we line up every option and arrive at an optimal solution, with appropriate weightings for all the variables involved in the decision.
Which would be lovely ... if only it were true. In fact, it emerges that our decision-making is much more complicated than that - and is determined as much or more by context than by any absolute measure of value. Preferences are typically ordinal but not cardinal. Our notions of price and value are highly relative, subjective and context-dependent. Decisions are not usually taken from all possibilities, but are made by an iterative process of elimination.
For instance, if we make decisions at the category level before we make brand decisions, simple path dependency may mean that a strong brand in a weak category may get nowhere.
To use alcoholic drink as an example, there are absolutely magnificent sherries and fortified wines available, yet because we unthinkingly make a category decision to turn right as soon as we see the sign pointing left to "Sherry, Port and Madeira", we will mostly never get the chance to discover a Methusalem, a vintage Bual or a great Manzanilla. Equally, although most wine is dismally bad, because we instinctively turn to the wine aisle when hosting a party, we will end up forcing lacklustre red wine down our guests' throats.
Birds Eye has been a victim of the same phenomenon. It did not matter how high the quality of individual brands of frozen food might be, middle-class housewives had stopped turning down the freezer aisle in supermarkets - rejecting a whole category. (This in itself should force us to ask a question. Why, when so many decisions take place before the consumer has even reached the level of brand selection, does almost all marketing activity seek to influence brand perception alone? Why are there so few category campaigns nowadays?)
Understanding the power of choice architecture - and acknowledging that there are many models of human decision-making that may require different approaches to communication - will prevent a lot of misdirected effort. At the same time, brand owners and agencies can turn an understanding of choice framing to their advantage. The recent (and apparently successful) campaign for Horlicks, which sought to give the drink a complementary role to tea and coffee, is one such example.
In fact, if you can reshape your comparative set, you can transform your fortunes. Anyone with a Nespresso machine may pay a 2,500 per cent premium for their coffee per cup - but because the comparative set seems to be Starbucks rather than Nescafe (and helped by the fact that we don't buy Nespresso in a jar), we don't seem to mind. Equally, Rolls-Royce found that an easier way to sell its £300,000 cars was not at motor shows (where they seemed expensive) but at boat shows, where, alongside an $8 million yacht, they seemed like a bargain.
Another factor in choice architecture is immediacy bias - that in taking any decision, we are disproportionately affected by the ease and attraction of the first step, rather than by the long-term consequences of the decision (in fact, I once backed out of buying a house because the estate agent annoyed me).
This is why channel preference exercises such a powerful effect on our behaviour. If I like using text messages and hate using the phone, a service that lets me order pizzas by text will perhaps triple the number of pizzas I order versus a phone-only competitor. The hassle of using the phone may be trivial in the overall scheme of things, but it is immediate.
Our choices do not take place simply between brands, but are part of a complex ecosystem of decisions - part of a whole framework of decision-making. Attempting to change the fortunes of your brand by simply promoting brand attributes may be complete folly.
Especially if, like Manzanilla or Birds Eye, the prior step in consumer decision-making effectively rules you out of contention.
I also suspect that this sort of choice bias applies to far more momentous decisions than to what we buy. Women are traditionally seen as more eager to marry than men. Is this because the long-term institution of marriage is less appealing to men than to women (longevity figures suggest the opposite)? Or is it merely that the first step we take towards being married - planning and enacting a wedding - is vastly more appealing to women than to men? Do women want to get married for life because of the pleasure of spending a day in a pricey frock? And do men resist the institution because they hate the idea of dressing up like a prat and making a speech while risking the ridicule of their friends?
If people entered the married state not by spending a month discussing floral arrangements and corsages, but by spending a month being bought cars and consumer electronics while enjoying plentiful deviant sex in a pub, would the world be full of men desperate to marry at 18, while blaming their reluctant girlfriends for their "fear of commitment"?
Just wondered, that's all.
- Rory Sutherland is the IPA president and vice-chairman of Ogilvy UK.