44. Rory Sutherland, Vice-Chairman of Ogilvy

Executive Creative Director and Vice-Chairman for OgilvyOne in London, Vice-Chairman for Ogilvy & Mather UK, and IPA president, Rory Sutherland has +22 years experience exploring the stark discrepencies between theory and reality.

How do you see the advertising industry today? Never mind advertising, the whole job of marketing is to turn human understanding into business advantage – hence it is our job above all else to be at the forefront of any new insights into how people decide and act.

The changing nature of briefs and the new panoply of media available to us makes a deeper understanding more important than ever, for the more complex range of media requires a more complex and nuanced understanding of how different communications work – and why some work and others fail. 

Good, experienced advertising and direct marketing people instinctively “know” many of the lessons of behavioural economics, but it makes these notions much easier to explain if there is a body of scientific thought and a vocabulary which supports our instincts.

There has been enormous progress in the social sciences in the last 30 years, for example:

  • Behavioural Economics: The study of the effects of “social, cognitive, and emotional factors on the economic decisions of individuals and institutions.”
  • Network theory: The study of “graphs as a representation of either symmetric and asymmetric relations between discrete objects such as the internet and social networks.”
  • Game theory: The study of “strategic decision making and mathematical models of conflict and cooperation between intelligent rational decision-makers in areas such as economics, psychology, and logic.”
  • Psychophysics: The study of “the relationship between physical stimuli and its effect on a subject’s experience or behaviour.”
  • Darwinian psychology: The study of “psychological traits such as memoryperception, and language from a modern evolutionary perspective.”
  • Cybernetics: The study of communications and automatic control systems in both machines and living things.

…to name a few.

Yet, perversely, advertising seems less interested in psychology and the social sciences than it was in the era of the early Mad Men episodes. This seems absurd to me.

Why do you think advertising steered away from psychology? I think it’s probably a number of unconnected things which all had the same effect:

  • Advertising agencies started making most of their money through television. This television advertising model tended to push the rational-persuasion model, since it was a convenient fiction. And it didn’t need particularly sophisticated models to explain the workings of advertising in a media monoculture.
  • There was a period when consumers and marketers, brought on by books like The Hidden Persuaders and films like The Manchurian Candidate, became paranoid about brainwashing and the idea that people could somehow be manipulated without their conscious knowledge. Of course we now know this to be true to a degree. This led to marketing and advertising businesses to claim that everything was merely simple-rational persuasion which took place in the plain light of day.
  • In the 60s and 70s a lot of the social sciences took bit of a wierd turn; apart from anything else, in the late 1970s it might have been career suicide for academics to engage with commerce in any way.
  • The dominance of packaged goods in advertising agencies. When you sell packaged goods (which up until the last 10 years dominated ad spend), brands couldn’t really control the environment in which their products are sold, and the simple pursuit of fame and fashion may be all you could do: you were asking someone to do little more than pay 10p more and to move their hand two inches to the right when reaching for the shelf. Today the behavioural challenges of much of marketing are dramatically different – take up cycling, move your broadband supplier, join a car club, book a flight…

What’s encouraging to me is that nearly all young people coming into advertising nowadays find this fascinating – the fact that we lost interest in it seems genuinely strange to them.

The simple fact is that modern marketing thinking has been polluted by a lot of very poor models which are increasingly wrongheaded. Neo-classical economic thinking has polluted the Anglo-Saxon world to a great extent, but also the obsession with the ‘rational-persuasion model’ has infected marketing to too great an extent. Any attempts which challenge these – without necessarily rejecting them entirely – seem welcome to me.

But wouldn’t poor models equate to wasted time and money, with the market correcting itself and better models coming out ahead? Bad models, once they’ve become widely accepted, have an extraordinary capacity to survive – through a kind of lazy consensus.

Neoclassical economics is patently flawed – it failed to predict the last financial crisis. Very few neoclassical economics were even vaguely alarmed by the boom in propery prices. Nobody understands what’s going on. Nobody can explain the economy and the way it’s behaving at the moment. If this were meteorology, people would have given up and started again. 

But economics has this weird thing in that so many people have careers, advancement, and promotion dependent on basically believing in neoclassical economics and its propogation that it’s become a sort of pseudo-scientific religion. Once you’ve invested a lot of effort in learning the lingo, you’re pretty reluctant to abandon it.

Is that why you started OgilvyChange.comOur approach at Ogilvy isn’t necessarily to be the most fashionable agency or the coolest agency, but to be the most influencial agency. Therefore OgilvyChange is a specialist-generalist arm of Ogilvy & Mather UK. I call it specialist-generalist because while we specialise in our contrarian way of looking at the world, we are absolutely generalists when it comes to acting on the insights we generate.

Another reason I started OgivyChange was because it always struck me as pathetic that you could work in a top 5 advertising group, but if your local barber came to you and said “I need help advertising. Can you help me?” The typical answer would be “Unless you have a budget of 5M£, I’m absolutely useless to you.”

That, to me, was a source of undying shame. One of the great things about direct marketing, where I began my career – and which I still love above all else – is that it’s scalable. The simple thinking behind direct marketing embraces universal principles such as ‘the best source of customers is your past customers.’ Those can be applied to any business, large or small. Therefore, you should ask yourself “What can I do to get people to come back?” Because it’s much easier to retain a customer than it is to acquire one. That’s useful to a small business just as much as to a large one.

A third reason for OgilvyChange.com, as well as my many speaking engagements, is that while lots of advertisers and marketers speak at conferences, I’ve found in most instances they spend all their time at marketing conferences – talking to each other.

I very rarely turn down invitations to speak at conferences and universities, and I choose to make such a disproportionate effort to talk with people outside of the markeing world because the progress being made in marketing isn’t being widely-enough shared with people who aren’t marketers. Thus, the importance of marketing as a discipline is diminishing and marketing is being marginalized. 

Nudge theory is very important because it says big governmental problems can be solved by human-centered marketing thinking. That’s why it’s vitally important for us to make noise about marketing’s ability to come up with solutions to problems.

So what I try and accomplish by speaking is to make as much noise as possible in educational communities such as universities and business schools to excite people about the idea of working in this field. We need to keep the quality and diversity of applicants up.

Secondly, I speak to audiences of business-people who aren’t marketers because economics has created a mode of business thinking which people’s psychology does not feature at all. Bear in mind public speaking is a lot like Malcolm Gladwell’s “10,000 hour rule” from his book Outliers: The more you speak, the easier it gets. 

What’s the relationship between disruption, emotional branding, and behavioural economics? Disruption is perhaps a different word for what behavioural economic enthusiasts would call a “radical reframing strategy”. I’m not fond of the term “emotional branding”  because, quite frankly, what other kind of branding is there? – but Marc Gobé seems to be thinking along the right lines.

[EDITOR’S NOTEMarc Gobé is the author of “Emotional Branding: The New Paradigm for Connecting Brands to People” which I found to be a great read!]
What would happen if behavioural economics replaces neoclassical economics? How would that affect how brands market themselves? One of the things you must understand is that applying economic models to human behavior, especially collective human behavior, is as daft as trying to model the weather as if it were a lever or a cog.
 
One of the lessons of complexity theory is don’t expect the scale of the intervention to be proportionate to the scale of the effect. One of the things that nudge theorycomplexity theory, network theory, and cybernetics have in common is that they acknowledge that we are dealing with fields where very small interventions can have massive results.
 
So one of the things I would expect marketing to do is to spend more time, effort, and money searching for ‘trim tab interventions’ – very small things that have much bigger disproportionate effects.
 
How do you make marketing work in a complex, unpredictable, and changing world? Behavioural economics will always be an imperfect science. One of the great pieces of progress in meteorology is that they haven’t just gotten better at forecasting, they’ve also gotten better at knowing what they simply cannot predict. An advance in marketing would be acknowledging that a certain amount of the success of an advertising campaign or a product launch will inevitably be due to  circumstances beyond your control; not necessarily beyond your detection, but beyond your control. 
 
Predicting the success of things a certain distance ahead may actually be beyond the power of computation. Knowing what you can’t know is above knowledge; Socrates made that point.
 
Wikipedia maintains a working list of 100+ heuristics and cognitive biases people generally “fall victim to.” Would these heuristics and cognitive biases be a foundation of behavioural economics? Personally, I am wary of the use of the word “bias”. Why? Because many ‘biases’ can be considered rational if you define rationality in a less autistic way than economists typically do. We should not allow economists to hijack ownership of the concept of rationality – their definition is based on mathematics, not on biology, evolutionary necessity, imperfect information, etc.
 
The economists description of rationality is a very selective idea about what rationality is.
 
How would a behavioral economist define rationality? I’m not qualified to go into detail, but what I know is that there isn’t one pat type of rationality. For example, people can be:
  • Ecologically rational – given the circumstances in which a person finds him or herself in, an action may actually be a perfectly sensible course of action.
  • Socially rational, or evolutionary rational – a certain degree of copying in our behaviour where when in doubt. Our impulsive instinct to copy the behavior of others is essential to becoming a social species.

[EDITOR’S NOTE: Derek Sivers makes several good points about social rationality in his TED TALK ‘How to start a movement’.]
 
As a social species, there are all kinds of behaviours we need to adopt to ensure our survival which aren’t about individual preference.
 
In the real world where we have imperfect information, incomplete trust, and a certain degree of uncertainty, the use of heuristics is inevitable, and in many cases while not optimal, are our best way to decide. There’s always a risk that we reach into our heuristics toolbox and use the wrong heuristic to decide something, but sometimes biases can mean ‘any behaviour that deviates from an economists description of rationality.’ That’s just wrong.
In addition to being taught, one of the ways we learn is actually seeing how other people do things and then assuming there’s a reason for them doing it.
So while heuristics and ‘biases’ are part of the behavioural economics toolbox,there are also insights to be gained from the theories and areas of studies (mentioned above).
If people are typically ‘irrational’, then how do companies conduct data and trend analysis? Four things here on big data:
  • Read the book The Signal and the Noice by Nate Silver. He makes the point that the more data you have, the more likely your business model suffers from overfit or gets confused between signal and noice because the more variables you have, the more likely those variables seem to indicate something, when in fact the correlation may be nonsensical.
  • A lot of very intelligent people place enormous faith in big data. But whenever I meet anyone who is very, very, very intelligent and knows a lot about data, they’re skeptical of it.
  • When it comes to big data, it’s worth remembering that there is also a lot of vested interests, because there are a lot of people who know how to do a regression analysis who stand to make a lot of money by selling regression analysis to people who don’t understand regression analysis. 
  • A lesson from meteorology – You need a mixture of people, theories, mental pattern recognition (which people do well), and computation. The idea that you can just leave computers to make decisions unsupervised by human interpretation is probably a dangerous fallacy. In chess, the best chess player isn’t the person or a computer, but actually a person who has access to three separate computer programs to aid his instincts.
[EDITOR’S NOTE: For advice on how to manage analytics and trend analysis for your website(s) and social media platforms, read my interview with Benjamin Descazal, Data Consultant for KBMG.]
How can new brands compete against established brands who incorporate behavioural economics models early on? Established, dominant brands enjoy a huge advantage in the marketplace. Happily, new behavioural thinking (not least new understanding of the massive role habit and loss aversion play in human behaviour) explains why this is so.

It hence provides a better template for what challenger brands need to do. Competing head to head on the same turf as your competitor rarely works. Interestingly, it’s Red Bull and bottled water that have both had more success competing against Coca Cola than Pepsi.

What book(s) would you recommend for entrepreneurs interested in behavioural economics? Just to get you started:

I’ve a small advertising buget, any advice? Behavioural economics can be useful to small businesses because it reveals very small things you can do which you can do in your spare time. Some of which require no budget at all which can really make a big difference.

Case in point, when I’m in a big city I go to Starbucks for their consistency and because it wouldn’t be worth the time it would take me to try all the different coffee shops to find a favorite. But in smaller towns I find out what the best independent and locally-run coffee shop is and go there. That’s ecological rationality, by the way (definition above).
 
Well, most companies have a loyalty program where you “Buy 10 of something and get one free” cards which you must carry around with you in your pocket and remember to have it stamped each time.
Recently, one of my favorite coffee shops offered to keep my fidelity card on the wall behind their register with my name on it, and every time I came in they would stamp it for me. That’s taking the idea of a loyalty program futher. I’m now up on the wall and honored as a regular. That’s a beautiful little psychological device – a lovely idea!

More advice in no particular order:

  • Go after your customers and make them more loyal.
  • Never forget that customer service is relative to expectation. If you create some small unexptected element of surprise for the customer, that will make a huge difference.
  • If you’re in an industry where customer expectation is low, then it doesn’t take much effort to stand out from your competition.
  • Start from the transaction out. Don’t start with advertising. Start close-in to the point of sale and work outwards. What are the barriers that prevent customers from doing business with you? For example, what if a hair stylist sends its customers a text message offering a special reduction over the next week, and those customers could simply book an appointment directly to the text saying “Tuesday at 10:00am” instead of having to call the stylist or book online?
  • A huge amount of our behaviour is devised to minimize transaction costs. To anybody under 30, it might seem weird to call up and physically book an appointment when this could be more conveniently done by app or by web. 

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