Applied Irrationality

The first in a series of articles examining the marketing aspect of insights presented by Dan Ariely in his book "Predictably Irrational"

Give them something to not choose.

Dan Ariely's research, expressed in his book "Predictably Irrational", reveals some very interesting tendencies in how people, in general, value things.

One is that, given three choices, people will be more likely to choose the middle option.

Another is that in a group of three objects or images, people are more likely to pick one that is similar to, but better than one of the others. For example, if you had three hammers, two red and one blue, one red hammer has a cheap looking handle, the blue and other red hammer have nice looking, comfort grip handles. You can expect the red, nice handled hammer to be the best seller of the three, all else being equal.

We are also vulnerable to the power of suggestion. Baselines can be set for us. For example, you are in a restaurant where the steak costs $45. You may opt for the hamburger, but you see the $14 price tag as a bargain.

So what's the marketing take-away?

Giving people choices is not just good for them, it's good for you. Having more than one variation of an item gives the consumer something upon which to base a comparison.

Without such a basis they might be more comfortable not making a choice at all, since you gave them an ultimatum "it's this hammer or no hammer". You may sell very few low end hammers, but if they increase sales of higher end hammers just by their presence, it's worth the shelf space.

The same dynamic is true on the higher end. Having a high priced, top of the line choice may not result in lots of high end sales, but it just might increase the mid-priced sales.

You have to consider each section of your product or service mix to be an integrated display. Look at total sales at least as closely as individual item sales. To what extent are the products that aren't selling driving sales of those that are? Removing a particular product due to slow turnover may end up costing you sales.

Making the most of it:

It's important to recognize that market behavior is what it is. It's not what you think it is. It's not what you think it should be. It's not about what you think you would do in a given situation. The stats don't lie. Behavioral trends change with the market place. The more people are wary of a particular quirk, the less it expresses itself. What works today may not work so well in 5 years. That's what continuing research is for and that's what keeps it fun.

For more insights into the irrational, visit www.predictablyirrational.com

Marketing Strategy - Slow and Steady or Fast and Furious?

Should you be looking for an instant return on your advertising dollars or a gradual building of awareness and customer base over the long term? The answer depends on your budget, your customers, your product mix, your goals and the nature of your business. You don't necessarily have to engage in one style or the other. Both have their time and place.

I think most business owners, especially rookies, look for the instant return. This can be achieved, but it's not as easy as simply placing an ad. For the "fast and furious" campaign you have to go big and you have to go wide. You want to get your ad in front of a lot of people and if you're going to spend the money on distribution, it only makes sense to take the time to make the piece itself attractive and effective. It also takes research, trial and error. You have to test different approaches, keep meticulous stats and see what generates the best return. This type of marketing requires both time and cash. You have to do your homework and you have to be able to afford to be wrong from time to time. You will try very expensive things that wont work, and an approach that works this month, may not work six months from now. That's part of the challenge, and the fun. The "fast and furious" approach is appropriate if you have the cash flow and the desire to put in the time to do the research and track the results. It also makes sense if you are in a commodity type business. That is, when your product or service really isn't that different from your competitors. For example, if you're selling cow manure. You might claim that you can differentiate yourself based on service, but let's face it, service after the sale is not a big factor in cow manure purchasing decisions. Clever, flashy, frequent advertising could be.

The slow and steady approach is mainly a matter of making and keeping people aware of your existence. This could entail regular advertising on a smaller scale. It could be as simple as putting your logo on an event poster, sending out a quarterly newsletter, occasional door hanging, putting labels on your products or packaging or other local and regional, relatively inexpensive advertising. This type of advertising can add leverage to word of mouth and it can be cumulative. When a customer recommends you or your company to a friend or associate it will carry much more weight if that friend or associate has heard of you before. Also, if someone sees your business card on a bulletin board, it will have more impact if they've seen your logo or company name somewhere before. It doesn't even matter if they remember where they've seen it. One downside is that the "slow and steady" approach is much more difficult to track. Someone may decide to give you a try after seeing your ads in 6 different venues on 10 different occasions. Which one pushed them over the edge? It's also important to remember that the "slow and steady" approach must be accompanied by quality product and service. If you want to enhance word of mouth, it better be good word of mouth.

Both approaches can be employed by the same business. You might want to do a big campaign a couple of times or even once a year and "awareness" advertising the rest of the time. If you're in a highly competitive field, like real estate or insurance, you have to do bit a both. You want to stay in touch with your current and past clients while constantly looking for new ones. Just bear in mind that if you're going to go for the "big score" you don't want to bet the farm on it. Every campaign, large or small, will generate some awareness, but you don't want to put yourself in a position where the success or failure of a single campaign will make or break you.

Effective marketing is a combination of strategy, imagination and execution. The execution applies not only to the advertising campaign, but to delivering on the promise. The marketplace is fluid, so you have to be nimble and attentive. Know your goals. Know your budget. Know your product Know your customers. Expect to make mistakes and be prepared to learn from them.

More marketing lessons from Washington D.C.

Politics is not pretty. But it can provide valuable insights into marketing. Everybody is selling something, whether it be a bill, an agenda or an election campaign. The most heated marketing campaign recently has been for the stimulus bill and the newest version of the Treasury's bail out plan.

The stimulus bill will pass on mostly party lines, but less than half the American public is convinced it will do any good. Wall Street greeted the bailout plan with a 400 point sell off.

Regardless of what you think of the merits of the measures, there's no doubt that the marketing of them has fallen flat. They have not inspired confidence or positive buzz. I think a key mistake that was made in promoting both was "couching". That is, forewarning the buyer that the product may not actually work as advertised.

Both the Vice President and the President made a point of saying that there's a good chance that many of the things they're going to do aren't going to work out the way they would have liked. Treasury Secretary Geitner repeated the sentiment when asked why he couldn't provide more details on the bailout proposals. He said they're going to wait and see how things work out, then decide how to proceed.

How can you expect someone to have confidence in what you're selling when you don't express confidence in it yourself? I understand the misguided motivation. They're trying very hard not to be wrong. If things don't work out they can say "Well, I told you it might not." The fact they're missing is that whether they warned us or not, they will be held accountable for the result.

What's an entrepreneur to take away from this? If you don't believe in what you're selling, don't sell it. If you do, stick your neck out and make me believe that you believe. If you have two job applicants with similar resumes and you ask each "Are you the right person for this job?" and one says "Absolutely" and the other says "I think so, but there's a good chance I'm not." Which one are you going to hire?

If you can't confidently recommend your product or service to your best friend or family members at your regular asking price, you need to reevaluate your product and service mix, your pricing, or both. Confidence is contagious and so is uncertainty. Nobody wants to buy uncertainty.

De Ja Vu 1982

A recent trip to the local Office Max took me back in time to the recession of the early '80s. I went there shopping for a thermal laminator, some labels and rubber bands. I expected the prices would be a bit higher, but what I found was ridiculous. The labels I had been paying just over $20 a pack for just 6 months ago were $46. The thermal laminator I had bought 18 months ago for under $37 was now $119. Even the rubber bands had gone from $4 and some change to $6.95. I had a $10 off coupon so I went ahead and got the labels and the rubber bands. Of course when I got home, I discovered I could get the same labels online from another source for $10.95 and the laminater for $40.

It took me back because I remember the recession of the '80s and how companies attempted to make up for lost revenue by raising prices. It didn't work then and it wont work now. I had planned on spending about $75 or so on this particular trip. Instead I spent about $40 and left with less than I was shopping for. They made a bigger margin on what I did buy, but I wont bother shopping there again. I know I can still find value elsewhere. It's just going to take a little more research.

That's what happened in the '80s. While most companies were offering less for more, some found ways to cut costs and keep prices low. The latter survived and thrived. The former did not. You may be tempted to follow the herd and try to slip price increases by your own customers. It may be unavoidable in some cases, but remember, your customers are also looking for ways to make ends meet. They are looking for value and they will be looking harder now than ever before. A 10% price increase will not result in more revenue if it causes sales to drop by 20% or more.

I was working at Dominos pizza when a franshisee came up with the idea for the "Mega Deal". The offer was for a large, unlimited topping pizza for $7.99. Corporate hated the idea. They just knew that lowering the average ticket price was a recipe for disaster. It couldn't possibly work. Not only did it work, other franchisees copied the model and before long it went nationwide. Profits in most areas that ran the promotion tripled.

When credit was easy people weren't as value conscious as they are right now. With internet, cable and cell phones, it's easier now than ever for word of real values to get around by word of mouth. Take care of your customers. Bite the bullet. Take the lower margin for a while. Look for value and pass it on to your customers. They will reward you for it in the long run.

I do not like green eggs or pizza

Going green has been all the rage in marketing for the past year or so. But it doesn't work for everything. The new Pizza Hut ad campaign is a prime example. The Pizza Hut "Natural" commercial sure doesn't get my taste buds excited. First they show a crust, that looks just like the box. Then they tell you they use "all natural pepperoni" which just makes you wonder what their regular pepperoni is made of. Basically, they make it sound like you'd be doing the planet a favor by buying one of these pizzas, but it sure doesn't sound appetizing.

Trucks are another realm where "green" doesn't play well. Fuel efficient means my v8 extended cab gets 20mpg. Don't try to sell a dainty carbon footprint to truck buyers. They aren't interested.

If I see "green" on an ad or bug or weed killer, that tells me one thing; they don't work. The same is true for shower heads, sprinklers and low-flush toilets.

"Green" can be an effective marketing tool if it is perceived to add value. If you have a product that is more energy efficient and environmentally friendly, while at the same time providing top quality and performance, you've got something. If you're simply giving me less in the name of saving the planet, well...you know what they say about my back and the rain.

How to make a brochure

When do you use a brochure rather than a flyer? What kind of content should be included in a brochure? What's the best ways/places to distribute brochures. Easy Street Designs provides some answers.

How to create a brochure:

Before we get to how, let's start with why. Flyers, print ads and mailers are primarily designed to get someone thinking about your product, service or company. They have a very broad audience and are often deployed in a "shotgun" type marketing campaign. A brochure is targeted at people who are already in the market for your product and are actively shopping for it. A brochure provides more detailed information about how a shopper should evaluate the product, important questions to ask, and of course, answers to those questions.

Our biggest selling brochure is the tri-fold type. It's sharp looking, convenient to display, holds a good amount of information and imagery, and can be mailed in a standard number 10 envelope. The tri-fold gives you six panels to work with. A good way to break it down is: Front cover, four informative content panels, and a back panel containing primarily company and contact information.

The cover must have eye appeal. It's got to be attractive, while conveying the general idea of the content. It should not be cluttered with text. A nice image, with a prominent subject line, perhaps a subheading and "compliments of (your company) across the bottom is a good start.

The content should not be all about your company and how wonderful you are. Save that for the "about us" section of your web page. Instead, put yourself in the shoppers shoes. What questions would you ask? What questions do many of your prospective customers ask? What are some things a novice shopper for your product might not think to ask? By offering useful information about the product in general, rather than self-promotion, you demonstrate not only a clear understanding of your industry, but empathy toward your customers and prospects. One of the things they worry about is being tricked into a bad deal. The last thing they want to hear, or read, is a heavy-handed sales pitch. To make the reading easy on the eyes, a ratio of about 3-1 for text to imagery works well.

The back panel is where you make your pitch, but still a relatively soft-spoken one. A short paragraph plugging your company, a photo, logo, designations, certifications and all of your contact information, followed by a slogan or tag line is a good formula.

Distribution:
Brochures are more costly and contain more information than some of your other forms of print advertising. You'll want to be more selective about where and how they are dispensed. Ideally you want them in front of people who are already somewhat interested in what you have to offer. Offering them free upon request at your website is a no-brainer. You can also offer them in your other print advertising by simply adding "call for a free, informative brochure". This form of "opt-in" distribution can be a good source for future mailing lists as well. Another good distribution channel is though lobbies and waiting rooms, particularly where people will have some time to kill. Tire stores, medical offices, dentists, attorneys, anywhere that something to read would be appreciated. Maybe some people just pick up your brochure for something to read, but even if they aren't in the market for the product, they'll likely leave the brochure behind to be picked up again and they are now at least familiar with your product and your company. In-store or in-office distribution is another great one. Customers may come in for one product, but demonstrate some interest in another. Rather than give them the full-blown sales pitch, possibly putting them off, you simply offer them a handy brochure. Trade shows and events are perfect for brochure advertising. You get face to face contact with prospective customers who can then walk away with in-hand information about the product of interest to them and your company, and of course you'll want to bring them to every sales call.

Brochures can be a valuable part of your marketing tool box. Take some time and care in devising a sharp looking informative piece. If you save a few bucks on design and layout and wind up with 2,000 brochures that nobody wants to read, what have you saved? (and now the pitch) Whether you need printing only, or design and print, Easy Street Designs can ensure you get an attractive quality piece at affordable pricing. With minimum quantities as low as 50 (85 cents each) and pricing as low as 25 cents each (2500 +) we can accommodate any budget.

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More lessons from the campaign trail

It's time to take another look at the presidential campaign from a marketing strategy perspective. I've said before that election campaigns are the ultimate marketing challenge. You're not trying to influence decisions over a period of time. You're trying to influence a single decision at a single moment in time. The only thing that counts is the state of mind of the voter at the moment they cast their vote.

That's what makes political campaigns great case studies. I think one of the biggest mistakes John McCain and company have made over the course of this campaign is in trying to "out-Obama Obama".

McCain has been playing the "me too" card in running against George Bush and even his own party. Dedicated Republicans had a hard time warming up to McCain in the first place and were bouyed a bit when Palin, a fellow true believer, was added to the ticket. Now they've been subjected to criticism from their own candidate, who seems to be constantly telling the country what a bunch of scoundrels they are.

The problem is, if someone is basing their vote largely on an anti-Republican sentiment, why would they not vote for the Democrat? Why would you pick the second most anti-Republican candidate?

Just as in marketing, you don't go head to head with your opponent in areas where you know they are stronger. You look for where you are strong and they are weak. McCain's strength had been his reputation as a fiscal conservative. He had a golden opportunity, when he suspended his campaign and went back to Washington DC to deal with the "rescue package". Had he worked to his strength and stood up and said "hell no!" to the bail out, even if he had been over-ruled, he would have been a hero. He likely would have run away with this election. Instead he went to meetings and put his stamp of approval on a modified version of the original plan, which contained such crucial additions as aid for toy wooden arrow importers and money for wool research.

In stark contrast, when Obama is confronted by the right, he shrugs it off. He has not made a big deal of his association with Bill Ayers or his choice of words in saying we should "spread the wealth around" because he knows his base doesn't have a problem with those things. He's not trying to pander to free market capitalists because he doesn't see a need to. He's simply ignoring them.

The lessons? Discover your strengths. Know your customers. Reinforce your strengths. Take care of your customers. If you are a broccoli salesman, don't pour a lot of resources into sponsoring the "We hate broccoli" convention. Tell those who like broccoli why more is better and how you're going to enhance the quality, value and distribution. Don't tell those who are on the fence "Don't worry, I wont try to sell you that much."

I'm not buying what Obama is selling, but at least I'm pretty clear on what he's selling. But, the fact that I'm not buying Obama doesn't mean I must buy McCain. It's not enough to dissuade people from patronizing your competition. You must give them a reason to patronize you.