At the recent 2010 CIO Summit – The Year Ahead – Tony Scott, the CIO from Microsoft asked the audience the question: “who here is best friends with their CMO?” Only about 1 in 5 hands went up, to which he made the comment that by next year everyone should be friends with their CMO or risk to no longer be in their role.

That struck a chord with the audience. CIO’s should be best friends with their CMO counterparts and here is why:

1. Changing processes will require a different infrastructure
   Whether companies pro-actively embrace the social wave that is currently hitting businesses or not, most marketing and sales processes have already profoundly been affected by the social. People no longer listen to companies and instead make their buying decisions based on recommendations from peers. The funnel disappeared and is being replaced by a messy, swirly social buying process. Innovation and support can now be turned into social processes involving customers and employees whose job it is not to design and support new products. The CMO cannot enable his team to support these new processes without the CIO and the CIO’s team cannot build the right infrastructure without thoroughly understanding the new processes. They need one another to succeed in this area.
2. Cultural environment conducive to high technology adoption rates
   CIO’s need to find pockets of culture within their company that are ripe for social technology adoption or enterprise 2.0 adoption. In many companies the marketing department may be that department. Most marketing departments are being forced into adopting social tools by their customers, prospects and detractors. So for CIO’s to get a win under their belt with social tools, they may benefit from befriending the CMO.
3. Together create an opportunity to regain senior strategic roles at the executive table once again
   Many CMO’s and CIO’s have lost their strategic place at the executive table. At a recent large investment banking portfolio company retreat, the three execs from the portfolio companies that were invited to represent the  executive team were the CEO, the CFO and the Exec in charge of Human Resources. Look at many executive teams on company web sites, many of them don’t have a CMO or CIO reporting all the way to the top. The CMO and the CIO can team up together to regain a strategic seat by representing the voice of the customer within the company. That will require for the CMO to stop thinking of their role as the company advocate in the marketplace and instead become the customer advocate within the company, and for the CIO to stop thinking about how to build hard walls around the company and instead to find ways to extend the edge of the company to encompass customers, prospects and detractors. 

There are many other reasons why CIO’s and CMO’s should be best friends, but those three alone should make for the divide that exists between them to disappear now.

[self-serving ad coming up]That is also the reason why the upcoming Hyper-Social Mini Summits are now focused on both CIO’s and CMO’s – which should make for a great brainstorm session.[/ad]

Most marketers embrace the economists’ worldview – we are rational people who buy products to fulfill our needs and when confronted with choices we make rational decisions.

Unfortunately that is not always the case – if ever.

Our buying behavior is very much influenced by our social behavior, which in turn is mostly determined by hardwired reflexes. That is what makes it so hard to predict what will sell and what will not. We buy things because they make us look cool, intelligent or well informed. We buy things because our mirror neurons drive us to want to imitate others. We buy things even though we know they are not good for us, and we do not buy things that are proven to have a positive effect on our condition. We buy things without the latest bells and whistles because we hate change. We buy things because we want to belong.

When we buy things, we do not act as rational beings.

Sure, we buy things based on recommendations from others, and avoid things that people badmouth. But it goes further than that – we buy things based on the behavior of the people who bought the same product, and more importantly based on the behavior of others who are observing the original buyers. That is true for personal fashion items as well as for enterprise software solutions.

On the one hand, that makes it a heck of a challenge to predict winners and losers in the marketplace. On the other hand it provides marketers with an opportunity to incorporate expected social behavioral reactions to new products into the product innovation process…

What do you think? Have you seen good examples of that? Hindsight of course is 20/20…but who does it well as a predictor of success?

It’s a fact that brands which are associated with rituals are stickier. In fact, you can find some research to that effect in the book Buyology, which I wrote about a little while back.

Think eating Oreo cookies (do you take them apart first?), think using your iPod, or think buying a book on Amazon. All of them have some sort of ritual associated with them, which can be different for different people, but which make the products more memorable. Once you develop habits with your iPod, you will not switch to another player when this one breaks – you will buy the same product again.

According to Martin Lindstrom, rituals commit habits to your “implicit” memory, “which encompasses everything you know: how to do without thinking about it, from riding a bike  to parallel-parking to tying your shoelaces to buying a  book effortlessly on Amazon.”

Once a product experience is at that level – why would you change?

Have you thought whether your brand might get associated with a ritual? Have you seen some great examples out there? If so, please share.

I have been enjoying the book Buyology: Thruth and Lies About Why We Buy, which is based on a three-year neuromarketing study that involved brain scans of 2,000 volunteers from all over the world.

The book is a great read and describes some amazing findings – like the fact that the cigarette warnings on cigarette packages and ads may in fact be the killer marketing tool for cigarette manufacturers, as it induces craving for smoking in smokers.

Another finding is that we tend to lie to market researchers – not consciously, it’s just that our unconscious mind is better at interpreting our behavior (including why we buy)  than our conscious mind. Needless to say that this finding spells disaster for the market research industry, on which companies spent $12 billion in 2007 in the US alone.

And if you thought it was getting harder to reach people with your advertising, check out the following passage:

By the time we reach the age of sixty-six, most of us  will have seen approximately two million television  commercials. Time-wise, that’s the equivalent of  watching eight hours of ads seven days a week for six  years straight. In 1965 a typical consumer had a 34  percent recall of those ads. In 1990, that figure had  fallen to 8 percent. A 2007 ACNielsen phone survey of  one thousand consumers found that the average  person could name a mere 2.21 commercials of those  they had ever seen, ever, period.1 Today, if I ask most  people what companies sponsored their favorite TV  shows—say, Lost or House or The Office—their faces go  blank. They can’t remember a single one. I don’t blame  them. Goldfish, I read once, have a working memory of  approximately seven seconds—so every seven  seconds, they start their lives all over again. Reminds  me of the way I feel when I watch TV commercials.

Yikes…

The book also describes the importance of mirror neurons on buying behavior, the importance of “cool” on genetic survival, and much more…maybe I’ll have a few more posts on the topic in the near future.

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…

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…

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?