My CMO 2.0 Influencer Conversation with behavioral economist Dan Ariely, who is also the author of one of my favorite books, Predictably Irrational, was particularly insightful and instructive.
Dan started the conversation by talking about his past, and how a life changing event – having about 70% of his body burned by a magnesium bomb that detonated close to him – led him on a path of human experimentation.
We quickly moved to one of my favorite topics – how people make decisions either in a market framework or a social framework, and how mixing the two, which inevitably happens in the world of business, is not a good idea.
People are inherently social creatures, and when we talk about money we create a different set of expectations than the ones we have in our social world. The social world and the market world have different rules and regulations. What do you think would happen if instead of taking a bottle of wine to a dinner party you were to give the host cash so that she could buy her own bottle? It would no go over so well, would it?
In the business world we have no choice but to mix the two together, as we hire people in return for a salary, but also tap into social drivers that money cannot buy (i.e., an extreme example of that is firefighters putting their own life on the line, which could not be motivated by any amount of money). Too many companies try to put a monetary value on things where they would be better off leaving it in the social realm. They need to understand the trade-off between economic efficiency and social efficiency. Who would be more motivated to work overtime when you need it – the person who got a $1,000 cash reward for doing well or the one that was sent on a trip to the Bahamas worth $1,000? Research shows that it is the person getting the gift. The same is true for healthcare – why put a monetary value on the healthcare services that you provide to your employees? It does not buy you social efficiency which you could otherwise derive from providing them with that service as a social reward.
Next we talked about group dynamics, especially herding, and how that affects people’s buying behavior. People tend to herd – buy the music that got the most downloads, stand in line at the restaurant that has the longest line, etc. We also follow the herd of our own self, meaning that we buy things based on the way we bought before – even if that was based on a random act.
Dan also reviewed recent research that shows how we internalize the social. In an experiment he gave some people shirts with the term generous printed on it and others with the term stingy printed on it. After wearing the shirt in public for awhile people who had the generous shirts were behaving in a more generous way than those that had the stingy shirt. The interesting part of the experiment is that he got the same results when people were wearing shirts with the same terms printed on the inside of the shirt – so in a way that they were the only ones to know.
Another issue near and dear to many marketers is that of free trials. Free trials for products that are known quantities, i.e., Godiva chocolates, will not lead to the depreciation of value of those products in our mind. Free trials for products that we do not know, and do not assign value to, will diminish the value of that product so that when you start charging for it we will refuse to pay for it.
Other things that we talked about include:
- The dark side of social rewards
- How the feedback you get from focus groups can be very suspect because people have bad intuitions about their own behavior
- How ideation works best when other people can build on your ideas
- The importance of experimentation and business education in business
- How pricing is not determined by supply and demand and the importance of self-herding
- Behavioral economics and its impact on the economy and the stock market
- The honesty mindframe and its influence on cheating
As usual you can listen to the podcast on the CMO 2.0 Site and soon we will be putting up transcripts of this CMO 2.0 Influencer Conversation.