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Starting with the premise that advertising is always designed to increase consumer awareness and to persuade users that the brand is superior, a new research study by a team of researchers from by Stanford University tested the impact of advertising on both awareness and perceived quality. What they found is that “advertising has consistently a significant positive effect on brand awareness but no significant effect on perceived quality.”

An interesting side finding from the study is that share-of-voice does not impact brand awareness - in fact, if you outperform your competitors with advertisement it will have a slightly negative impact on your brand awareness.

The research paper also mentions empirical studies that show that advertising lowers price sensitivity - again confirming that pricing may be controlled more by the supply side rather than the demand side.

All that being said, the study confirms that advertising has little effect on sales.

(via Strategy+Business)

A new research study by the Society of New Communications Research (disclosure - I am a senior fellow in the society and have been peripherally involved with the study), “Exploring the Link Between Customer Care and Brand Reputation in the Age of Social Media,” found that affluent consumers are using social media to share their customer service experience and learn about other’s care experiences when making purchase decisions.

Some of the top findings include:

• 59.1% of respondents use social media to “vent” about a customer care experience (ed. note: glad to see I am in the majority…)
• 72.2% of respondents research companies’ customer care online prior to purchasing products and services at least sometimes
• 74% choose companies/brands based on others’ customer care experiences shared online

Again - proof that while positive word of mouth may outweigh negative word of mouth, and that off-line word of mouth may outweigh online word of mouth, the online negative word of mouth may have much more impact on purchasing decisions as they are found while the buyer is in active buying mode.

Another great experiment by MIT behavioral economist Dan Ariely as described in his book “Predictably Irrational” shows that it is not the product that counts but the information about the product.

In one experiment, they sold SoBe drinks to two groups of students who were about to exercise. The first group paid full price, while the second group got a 30% discount. After exercising they asked the students whether they felt more or less fatigued than usual - and all reported that they were indeed less tired. Except that the group which paid full price was less fatigued than the group which paid less. The 50c aspirin does work better than the 5c aspirin…

They then did an experiment where they sold students SoBe, which claims to provide “energy for the mind,” before administering a 15-word puzzle. Again, one group paid full price and another paid less. They also baselined the experiment with a group that did not take SoBe. The group that paid full price solved as many word puzzles as the group that did not get the drink, while the group which got the discount solved about 30% less word puzzles.

WOW…we are doomed.

But wait! It gets better. They then performed the same experiment except that this time they printed the following message on the cover of the quiz booklet “Drinks such as SoBe have been shown to improve mental functioning, resulting in improved performance on tasks such as solving puzzles.” They also stated that the SoBe web site referred to 50 scientific studies to support these claims - information which was totally fictional. The results? The ones that paid full price solved 33% more puzzles than the ones who did not get the drink, and the ones that got the discount solved 7% more word puzzles.

And who said that messaging was dead? The things you say about your product may indeed be more important that the product itself…

I think we should - and I explained why in a new post at the Marketing 2.0 group blog.

What do you think? Let me know…

Through a set of experiments desribed in his latest book “Predictably Irrational: The Hidden Forces That Shape Our Decisions“, MIT behavioral economist Dan Ariely shows how we live in two different worlds - one in which social norms prevail and one in which market norms prevail.

The social norms include friendly requests that people make, for example when a neighbor or friend asks you to move a couch or something. You do not expect to get anything in return right away, and they are usually warm and fuzzy. Most of the time they provide pleasure to both parties. Market norms on the other hand are cold and calculated, with exchanges being sharp-edged: wages, prices, rent, etc.

One of the experiments recounted by Ariely involves three groups of people who were asked to do a repeat task for 5 minutes - combining circles and squares on a computer screen. The first group was given $5 for the task, the second 50c and the third was asked to do it as a favor. The group that was paid $5 worked harder by about 50% compared to the group which was paid 50c. The group which was not paid, and which evaluated the request in their social framework instead of their market framework beat both other groups. He then repeated the test, but instead of giving money he gave the first group a gift of chocolates worth about $5, but without telling them that, the second group got a snicker bar and the third group was asked to do it as a favor again. This time all three groups achieved the same results, the same results as the original group which evaluated the request in their social framework. The last test was again with gifts, except that this time people were told the value of those gifts. The results? The same as if they would have paid people.

Another point he makes, supported by more experiments, is that once a person evaluates something within a market framework, they will continue to do so even after payments are no longer given. So it is a very bad idea to create situations in which both frameworks are mixed.

There are a ton of lessons to be learned by this, one related to giving customers incentives to help you. If you have customer support communities or innovation communities and people help you based on non-monetary incentives, like recognition, or a small gift every now and again, you could kill the dynamics of those community by introducing even tiny monetary incentives. Your customers will now switch their mindset to a market framework instead of a social framework. Now if people can be switched into a market framework and not return from that mindset, that also means that others can screw up the landscape for you. Say you have a tech support community and for some reason another vendor starts paying people for helping out - based on some of the experiments described in the book, this could actually change the perception of the value that you are giving your own community members back.

The fact that misplaced rewards and punitive actions can backfire has been a long documented fact. Many kids end up reading less than when they started when parents stop giving them monetary rewards for reading. Many more parents end up being later in day care centers that charge those parents by the minute for being tardy. Plus they no longer feel the guilt of being late because they now evaluate this transaction as a market transaction instead of as a social norms based transaction.

That is the question that MIT professor in behavioral economics Dan Ariely tries to make his readers think about in his new book, Predictably Irrational: The Hidden Forces That Shape Our Decisions, as he proves that most people are indeed predictably irrational.

Take the following experiment as an example. In the experiment, students were introduced to six products - two different wine bottles, a trackball, a wireless keyboard and mouse, a design book and a box of Belgian chocolates. Students were then given a form that listed all the items and asked to write the last two digits of their social security on top of the form and also next to each item in the form of a price. So, if someone’s last two digits was 23, they were asked to put $23 next to each item on the form. Next they were asked whether they would pay that price for that item with a simple yes or no. When the students finished that, they were asked how much they would be willing to bid for each item. Well guess what? The students with the highest-ending social security digits (from 80-99) bid highest, while those with the lowest-ending numbers (0-20) bid lowest. In the case of the cordless keyboard, the top 20 percent bid an average of $56, while the bottom 20% were willing to pay an average of $16. Overall the top 20% were willing to pay prices that were 216 to 346 percent higher than those of the students with social security numbers ending in the lowest 20%.

And that is just one of the many examples given in Prof. Ariely’s book.

So what does this all mean? As an economist, Ariely believes that fundamental economic principles like the one where supply and demand determine pricing, or the claim that free markets and free trade benefit everyone involved in those transactions, may in fact be bogus. The first one is based on the assumption that the supply and demand forces are independent from one another. The second is based on the assumption that all players in the market know the value of what they have and the value of the things they are considering getting from the trade. But if our choices are affected by random initial anchor prices as demonstrated in the experiment above as well as other experiments listed in the book, then the price that I am willing to pay (demand) can be heavily influenced by the supply side through MRSP (manufacturers suggested retail price), promotions, discounts, etc. So it is not the consumers’ willingness to pay that influences the market price, but instead the market prices themselves that influence the consumers’ willingness to pay. And for the same reason, the choices and trades we make in free markets may not at all reflect the true benefit that we would derive from the things we trade.

So what does that mean from a marketing perspective? For starters, and as it relates to pricing, it means that marketers may in fact have more control over buying behavior than they are currently given credit for. Additional research described in the book as well as on Ariely’s web site and blog, indicates that marketers may in fact be able to influence much more than the price a consumer is willing to pay for something, but also influence their general buying preferences.

In the end, the consumer may not be as much in charge as you think…

The Online Publisher Association announced that it added Community as a category to its Internet Activity Index (IAI). So they will now measure how much time consumers spend online with Content, Communications, Commerce, Search and Community.

The OPA defines community as:

“Web sites and applications that combine user-generated content with communications in order to foster relationships between individual members and groups of members. Many Community sites are content driven, and they were previously accounted for in the Content category. However Community’s content is largely user-generated, and when merged with communication, creates a specific category of online activity.”

The IAI numbers for January show that consumers spent 42.7% of their online time interacting with content, 28.7% with communications, 16.1% with commerce, 7.5% with community and 5.0% with search.

AdAge picked up on the story, declaring “When It Comes to Time Spent Online, Content Trumps Community.”

But wait a minute here, adding community as a category at the same level as content, communications, search and commerce, is like comparing apples and oranges. Or better yet, comparing apples and oranges with air or water. Communities are combinations of content, commerce, communications and search. And communities affect the usage pattern of all the above categories and vice versa. So if I am spending time on Amazon.com, am I spending time with commerce, content, search or community? Obviously the end result is commerce if I buy something, but it could also be searching without buying or interacting with content (both user generated reviews and published content) without commerce. The fact that Amazon is a community which leverages my personal profile very well (another component of communities) is determining my interactions and time consumption on that site. The same can be said for many other sites that combine content with community. If I am spending time on the WSJ Health blog, I am spending time with content or community? If as a car buff I spend time on Carspace.com, I am spending time with commerce, content or community? Would I spend as much time conducting commerce, searching for stuff or interacting with the content on those sites if there were no community component to them?

Probably not…

Besides the fact something does not sit right with the categories, many conclusions drawn from the new numbers by AdAge and the IPA are equally flawed. Jim Nail at the Cymphony’s Influence 2.0 blog captures those flaws in detail in his post today (well worth the read). A couple of highlights include:

• The fact that page views per person in content dropped 225 pages suggests that a number of content sites were just moved to community.
• Content sites show 480 pages per month per user vs. 380 pages for community sites. So from an ad perspective, the reach may be just the same.
• Another factor not reflected in the new numbers is influence. If a third of people below 30 don’t make buying decisions before checking with their social networks, the impact of communities on the commerce is obviously not reflected in those numbers.

We should of course remember the agendas that both organizations are representing - those of advertisers and publishers.

Business Week recently had an article on neuromarketing, and how scientists are using this new method to see how your brain responds to various messages and advertising. But does that really tell the story? Can you understand buying behavior without understanding culture and social context?

Surely, neuroscientists will pinpoint that part of the brain that light up in response to certain stimuli. But aren’t those areas going to be different depending on your cultural background and your social environment. Maybe these methods can help with targeting messages for impulse buying - but I have a hard time believing that we can explain buying behavior in various parts of the world based on the brain patterns of individual buyers…

What do you think?

You cannot predict consumer purchasing by looking at buying behavior from an economist point of view. Their way of abstracting the buying behavior as that of a rational individual driven primarily by personal needs, instead of looking at it from the complex social web perspective in which we actually make buying decisions, is just not realistic. As with many complex systems, you cannot understand, nor predict, a large social group’s buying behavior by abstracting the individual members of that group and studying their individual buying behavior as if they were rational players who are not influenced by their environment and the behaviors of others.

An interesting book covering this topic, which happened to be my first Kindle purchase, is : The World of Goods: Towards an Anthropology of Consumption. Authored by Mary Douglas and Aron Isherwood - it nicely contrasts the anthropological way of looking at consumption with the economic view.

A good example is to imagine what a small island might look like if it were promoted as a luxury retreat. What kind of stores would you expect, what kind of display/status purchases would people make, etc. Now imagine that same island, with the same people, after a natural disaster, or as they are all getting older, and now influenced by a deep religious movement. The whole island would look differently, people would buy differently, the type of stores that would be there would be different, etc. That is not something you would be able to predict based on the individuals.

Communities impose constraints on the individual members of that community. In some communities it is not ok to buy certain things - think buying fur coats in green communities. In other communities, people will buy stuff to exclude others from their community - think high roller communities who will make you feel bad if you don’t have your own jet, or a biker community if you do not have all the appropriate paraphernalia.

As the authors of the book suggest - “the collapse of a community frees individuals, and thereby affect inflation, spending and saving.”

Now isn’t this exactly what just happened with the mortgage market meltdown? In the past you would have bought your mortgage from a local banker, or a community member you knew. Part of the buying behavior would have been influenced by the community, which would make sure that you did not buy more than you could afford. And if you did, or hit hard times, you would have worked really hard to repay the loan one way or the other. Now, with no community to guide this process, many people bought stuff they could not afford, and many are walking away from their situation with hardship, but without the guilt feelings that they would have had in their community in the past.

Another interesting assumption from the book - which I barely started reading - is that “there is a comprehensive, fundamental set of human wants which concerns control of other humans (and also escape from being controlled).” Now this explains way more than political buying decisions.

Very insightful…