Wednesday, January 8, 2014

Decoded: The Science Behind Why We Buy [Book Review]

I have just finished reading a great book by Phil Barden called Decoded. The book shows us how branding works in order to influence our purchase decisions. Barden argues that, "Strong brands have a real effect in the brain, and this effect is to enable intuitive and rapid decision making without thinking".

The main foundation of the book is based on the work of Daniel Kahneman, a psychologist who won a Nobel Prize in 2002 for showing that people are not the rational agents that economists had thought they were. Kahneman summarizes his work in his book, “Thinking, Fast and Slow”.  Kahneman's book stated that the mind incorporates two systems: an intuitive “system one”, which makes many decisions automatically, and a calculating but lazy “system two”, which rationalises system one’s ideas and sometimes overrules them.

Back to Phil Barden and his book Decoded. He incorporated the ideas of Kahneman into the field of marketing saying: "There are two decision-making systems at work in any decision we make: an implicit system working like an autopilot, and an explicit system". Thus, when we make a purchase decision we are under the influence of both System 1 (Autopilot) and System 2 (Pilot).

The explicit pilot system is a rational one and rule-governed. So you may argue, why do we base our decision on the implicit autopilot system which is irrational. The point is that the autopilot system is fast and can process multiple pieces of information in parallel, and above all, it is effortless and doesn't consume much of our energy as opposed to the implicit system. Thus, in our day-to-day tasks we cannot make use of the the explicit system all the time. You may think of implicit autopilot system as our intuition, it is what helps us to turn the steering wheel in a fraction of a second when we face some dangerous situation while driving. It is also the one that is trained that the red colour means stopping or rejection and the green colour means proceeding or acceptance, and that's why when our mobile phones ring, we press on the answer button based on its colour rather than by reading what is written on it. The pilot system is learnt by explicitly memorizing rules. This is the one that learns the multiplication table and is used to calculate mathematical operations such as 5 * 12. The autopilot system on the other hand relies on Hebbian theory, "What fires together wires together".

Phil Barden explains the Hebbian theory as follows: "The first time we hear the word No [as babies] it is just a phonetic pattern, a sound. But we recognize that the voice becomes louder and Mums face looks different the second time she says it. Some minutes later the word No is accompanied by her taking something away from us. After a while we learn the meaning of the word No. This implicit learning is completely different to how we learn a foreign language in school". That is why the autopilot system is slow-learning despite that fact that it is fast-acting.

How can all this affect our purchase decisions? Barden referred to the researches of Brian Knutson, an associate professor of Psychology and Neuroscience at Stanford University, whose studies show that purchase decisions are based on a reward– pain relationship. Barden elaborated: "The neuro-logic of a purchase decision is based on the equation: Net Value = Reward – Pain. The higher the net value, the more likely the purchase". The reward in our case is the value a product offers to its purchaser, while the pain is its cost. Both value and cost are divided into explicit and implicit components, each of those components targets its designated system in our minds. Thus, in order to increase Net Value, there are four strategic playgrounds which can all be used at the same time":

  1. Value (reward)
    1. Explicit value
    2. Implicit value
  2. Cost (pain) 
    1. Explicit cost (financial) 
    2. Implicit cost (behavioural)

Barden gave an example to the Implicit Value using Voss, a branded water from Norway. Rather than using normal plastic bottles, they pages their water into bottles that look more like table decoration or perfume bottles. Thus, even though the taste of Voss can hardly be differentiated from tap water, its packages offered an additional implicit value by telling our implicit autopilot system that it is a premium water.

Similarly, the way prices are presented the the users may make them look higher or lower than they are. The author added, "The implicit level of cost allows us to maximize net value without actually reducing the price. Reducing behavioural costs can be a powerful lever to increase net value and thereby gain a competitive edge". Chapters 2 and 3 are must read to understand the tricks used to alter the perceived value and cost of products. There is also this other book review that you might like to read.

Stores not only entice you with sales, they also use limited-time offers to increase your sense of urgency in making a purchase.

Goal-based valuation

In addition to the aforementioned Net Value equations, we also value the things we buy based on how much they coincide with our goals.  The author explained, "Why do we buy what we buy? To answer this question we will introduce the concept of goals. Goals are a hot topic in psychology and neuroscience. Goal-based valuation is the most sophisticated level of value in the human brain, and it is a key concept in our journey to answer the question of why we buy what we buy". He then added, "The autopilot implicitly matches signals in the environment with goals that are currently active. As a result of this matching, attention is allocated to the signal which shows the highest fit to the active goals". He also explained "The winner takes all" effect and why a brand show make sure it offers the highest fit to its customers' dominant goal, there is no room for the second place here. "Consumers choose the product with the highest fit to their dominant goal in a given situation".

"Goal achievement underlies what we call relevance in marketing".

As with everything else,  a brand should tailor its message to respond to the customers explicit and implicit goals on the same time. "There are two levels of jobs for which we can employ brands and products: to meet explicit goals that are category-specific, and to meet implicit goals that are more general and that operate at an underlying, psychological level".

In the case of Bounty, the product experience is the basis for the implicit goal of escapism.

"The explicit goals are the reason why a product category emerges, so all competitors who want to survive in the market have to meet these goals". While the implicit goals on the other hand are brand specific, and are not directly related to the brand. For example in the advertisement of Bounty chocolate, the explicit goal may stress on its good taste or cost, but the implicit goal focuses escapism. Notice the deserted island and the image of stay away from the crowded city. "The connection between explicit and implicit goals is important. In the case of Bounty, the product experience is the basis for the implicit goal of escapism: chocolate with coconut. The associations we already have with coconut provide a credible bridge to the implicit goal of escapism – palm trees and desert islands". The author compared this with that advertisement of Snickers, and how a similar implicit message doesn't suit them. "Contrast this with Snickers, for example, where you have to bite through nuts – a link to the implicit goal of escapism here is much less credible than one linking to a performance goal".

"Greek philosopher Plato, who talked about emotion being the black horse that needs to be controlled by the white horse which symbolizes reason and rationality. This dualism made its way through history, including Descartes and Kant". Decoded's author continued to explain how in marketing we should not entertain such dualism. He added that the products and their features are their to serve the customer's explicit goals, while the brand it there to serve the customer's implicit goals.

But what are the possible goals customers may have? Barden listed "prevention and promotion" as the two most basic motivational drivers for humans.  He then added that marketeers have to pick the one that fits their brand more. "To maximize relevance, we have to know which focus is the most dominant one for the majority of customers".

Carlsberg is probably the best lager in the world (autonomy), Carling taps into security (male camaraderie), while foreign beers such as Cobra or Tiger have their centre of gravity in the excitement domain (e.g. they are from exotic countries like India.

He then added,  "The psychology of motivation, show that out of the rudimentary motivations of prevention and promotion, there developed what one might call the Big 3 human motivations that are grounded in physiological processes, operate deep within us and are universal in nature:" Security, Autonomy and Excitement.
  • Security: nurturing, belonging
  • Autonomy: power, recognition, status
  • Excitement: adrenaline, drive to change
There are also combinations of each two of aforementioned motivations:
  • Adventure: Excitement and Autonomy combine
  • Discipline: Autonomy and Security combine
  • Enjoyment: Excitement and Security combine
When designing your brand image you have to have to pay attention where on the above hexagon you have to position it. That's why you need to understand your customers very well.

For me the book was very useful and enlightening, and it helps me in my business where I try to help marketing teams make use of Data Science in their jobs.


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