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.