- Stop thinking your customers decide rationally – because they don’t.
Rational thinking, or what Kahneman calls ‘slow thinking’, occurs in the frontal cortex or conscious mind. Irrational ‘thinking’ or what Kahneman called ‘fast thinking’ occurs in the brain stem or limbic system or unconscious part of the mind. Some call irrational thinking – ‘bottom up’ thinking and rational thinking’ top-down thinking’.
The frontal neocortex is where humans consider facts and respond based on the available evidence. The brain stem is responsible for instinctive thinking, and the limbic system is responsible for emotional thinking’. All are essential. Human beings need fast thinking (to drive, for example) and slow thinking (for making complex decisions).
Neurological and psychological research suggests that about 20% of thought occurs in the neocortex and is conscious. 80% of ‘thinking’ (if you can call it that) occurs in the brain stem or limbic system and is unconscious. In terms of consumers’ purchase behaviour, research by Harvard Professor Gerald Zaltman suggests that 95% of decision making is unconscious or what he calls ‘subconscious’.
The point is that consumer purchases are more often irrational than rational, and the purchase decision tends to be more irrational than rational. Perhaps the most significant factor impacting how rational purchase decisions are is bias. Human beings are subject to 25 or more cognitive biases, including the:
- Recency effect.
- Sunk cost fallacy.
- Confirmation bias.
- Competitive sentiment.
- Bandwagon effect.
- Anchoring effect.
- Availability bias.
- Choice bias.
- Placebo effect.
A common mistake for many businesspeople is to think that consumers make purchase decision rationally – or indeed that the presentation of cats and figures will influence purchase decisions. Very often – facts are found not to influence purchase decisions. The related mistake is not taking into account the myriad of cognitive biases that can impact purchase decisions or the strategies that can be implemented to manage them.
Stop considering consumer decision making a rational process.
- Stop considering the intangible when defining a competitive advantage.
One of the first questions I ask a new client or, indeed, a prospect is – ‘why should I buy X (your product) ahead of Y (the product made by the primary competitor).’ This question tends to elicit one of three answers:
Surprisingly, some business people have given little consideration to what sets them apart from their competitors. While rare, this is especially dangerous. Most business people I talk to offer a qualitative point of difference, like:
- Better/best service.
- Better/best quality.
- Better/best value.
A flick through the newspaper will demonstrate how many businesses position themselves thus. Homebuilders are among the worst. What is the difference between a Dale Alcock home, a Summit home and Plunkett home? If you can tell, you are smarter than me. I would argue that this is why they are so dependent on advertising – and being top of mind. They all say the same thing, and no one believes any of it.
Unfortunately, qualitative responses like this are all too common. What is more, they are no better than the non-committal response. In response to such answers, I find myself asking:
- Define better/best?
- Who determines better/best?
- How do I know you are better/best?
The most productive responses are tangible. Such responses, while less common, are more meaningful and more potent. They might include:
- Same day delivery (when the competition is delivering in a week).
- 10-years warranty (where others offer five years).
- Aluminium frame (where the competition has a heavy steel frame).
Most businesses I come across have not devoted sufficient time and energy to defining a competitive advantage or point of difference that is tangible and therefore:
Still, fewer businesses have established a competitive advantage that, in addition to being tangible, is:
- Directly addressing a known customer need or want.
- Sustainable – over time.
After a great product, I would argue that there is nothing more important in marketing is a tangible competitive advantage that addresses a need, is sustainable and is unique – or at least uncommon.
Reduce costs and increase returns with a tangible competitive advantage.
- Stop targeting a large market – and instead, think small.
Venture capitalist Mark Cuban is reported to receive hundreds of requests for investment funds every week. He is also reported to set people seeking funds three excellent challenges before even considering offering the funds requested. Those questions are:
- Demonstrate your strategic competitive advantage.
- Prove that you understand your customer ‘owns your ass.’
- Prove that your business will target the smallest possible target market.
Cuban’s first challenge relates to the point made in the last missive on this topic of stupid decisions. To minimise marketing costs and maximise returns, it is essential to establish a tangible and sustainable s=competitive advantage or point of difference.
Like any marketer devoted to minimising costs and maximising returns, Cuban is committed to businesses invests in being customer-focused – understanding customer problems, needs and wants and then exceeding expectations in the solutions delivered.
Cuban also highlights the importance of targeting a market small enough that:
- It can be understood very well by the business.
- Can be addressed with a highly targeted competitive advantage.
- Can have its problems, needs, and wants directly addressed.
While most business people I talk to try and define a market that is as large as possible, I have much more respect for business people who define the smallest viable market and focuses on being well ahead of any competitor in that market. Smart businesses have the smallest possible market for each product and then develop a new product or brand for each ‘small market.’ This approach will facilitate reduced costs and both increased sales and higher margins.
Stop trying to be all things to all people and then go a step further and find a niche you can own!
- Never engage an advertising agency to create a brand.
It has been suggested that the Myer brand revolves around it being – ‘the pinnacle of accessible quality on the high street.’ I am not convinced that this is true – but I am convinced that over recent years Myer has struggled with its branding, what it stands for and how it is positioned visa ve’s its competitors. Their website suggests that right now – Myer wants to be viewed as – the home for essentials, the place to buy ‘must haves’, the home of brands we all love, and as offering the best of home. Over time, Myers seems to have positioned itself as providing a good range, good products, good service, good value.
I would argue that such a positioning is unsustainable because:
- It is vague and qualitative.
- It fails to differentiate Myer in a highly competitive market.
- It is not being delivered in practice.
There is nothing tangibly different in the branding of Myer. They are saying pretty much the same things their competitors are saying – perhaps using different words. Look at the Myer website and the David Jones website – and then articulate the difference in branding. I suspect. You will find it very difficult.
No matter what the Myer website and advertising say, I would argue there is nothing distinctive about their products, quality, pricing or service – other than how average they are. Put simply; I would argue that Myer consistently offers products available in many other stores, pricing that differs little from other stores and service that is virtually no-existent.
I would argue that the larger underlying issues relate to the fact that Myer:
- Seems to think that communication creates a brand.
- An advertising agency can create the optimal brand.
Brands are not built on communication. Communication merely tells the audience what the business thinks the brand is. To quote Jeff Bezos (a significantly better retailer than Myer) suggests that your brand – is what your target audience ‘says about you when you are not in the room’. And what Myer customers say about them when they are not in the room depends much more on the behaviour of staff and the customer experience than it ever will on communication. Zara – the world’s 5th largest fashion brand – has no advertising budget.
Further, where there is conflict between what the communication says and the store delivers – the store offering will always win – generally at the expense of the brand.
Advertising agencies are communication experts, and while communication may be absolutely essential for Myer and communicating the brand might be important – the advertising agency is not well placed to either:
- Define the brand.
- Create the brand.
A brand is best defined by a strategist drawing on research and not at all fixated on communication. Creating the brand is ALL about culture, and the business culture is much more about HR than it will ever be about communication. A great brand like Zara is defined based on customer needs and the competitive environment. A great brand like IKEA is created by a culture that consistently ensures the delivery of brand promises.
Understanding these two points is rare in Australian business. Embracing them is even rarer.
Ensure your branding delivers – by having a strategist define it and HR create it.
- To sell more – always put customers ahead of sales.
A short while ago, I ventured into a news agency to buy a newspaper. Yes, I know – how old fashioned of me. I purchased two newspaper – attracting a total cost of $7.50. When I handed my credit card over to the shopkeeper, he said that I could not use it because the sale value was under $10.00 – the credit card minimum sale. Three stupid things happened here. To save a few cents in credit card charges, this shopkeeper:
- Lost a $7.50 sale.
- Destroyed his credibility through an implied lie.
- Lost a customer for life.
I never carry cash, and while the sale was a small one – the newsagent lost it – and the small margin flowing from it. Because he suggested that the bank or credit card business restricted the value of a purchase – in other words, he lied – his credibility was significantly damaged. And based on the first two points – I will never go back to this newsagent, and I have told at least 20 people of my experience.
I had an almost identical experience – with exactly the same outcomes – at a bakery.
I recently made my last purchase at JB Hi-Fi. The item has a tag showing a price of $19.00. The counter staff member processed the purchase and asked for $22.00 (which I understand was the price the item should sell for and that the tag should have highlighted). Then, instead of apologising when the discrepancy was highlighted (and immediately refunding the $3.00), she argued before going through a credit process that cost at least 5 minutes of my time.
On a previous occasion at JB Hi-Fi, I had another confrontation with a shop assistant who was trying to avoid processing a service request. She just did not want to know about it. She would have preferred that I simply buy a replacement.
I will never shop at JB Hi-Fi again – no matter what their advertising or remarketing says.
The point here is that retailers and other business people focus on the sale far too often rather than the customer. The focus was on the $2.50 (less than $10.00 – in the newsagency), a similar amount in the bakery, and the $3.00 in JB Hi-Fi – rather than the customer and that customer’s lifetime value.
For the record:
- I regularly walk past the newsagent in question.
- I regularly drive past the bakery in question.
- Harvey Norman has done well out of me avoiding JB Hi-Fi.
Now, you might read this and think I am a tough prick – and you could be right. But – I am not the only one.
Focus on the lifetime value of every customer.