Rory Sutherland is, perhaps, the closest thing to industry royalty that we have in marketing. He’s Vice Chairman of Ogilvy UK, a best-selling author, owner of one of the best TED Talks you’ll ever see and the man behind MAD Fest a marketing, advertising and disruption event taking place in London 4 – 6 July.
In this episode we discuss:
- Lionfish, toothfish and pilchards – how rebranding fish drives sales
- Humans have strange value systems
- The map is not the territory – Alfred Korzybski
- The relationship between innovation and marketing
- All decisions look different with hindsight
- Rory being a heretic
- Mercedes v Toyota and how they manufacture quality without trade offs
- Why people buy expensive wines
- How to get young people to invest in pensions
- When you shouldn’t use nudges
- Why economists are the worst people on the planet
- Why the Uber map is genius
- Why random brands exist on Amazon
- The benefits of being on Chris Evans’ breakfast show
- How the Walls Viennetta came about How managers can convince the board to
Rory is the Vice Chairman of Ogilvy, an attractively vague job title which has allowed him to co-found a behavioral science practice within the agency.
He works with a consulting practice of psychology graduates who look for ‘unseen opportunities’ in consumer behaviour – these are the often small contextual changes which can have enormous effects on the decisions people make – for instance tripling the sales rate of a call centre by adding just a few sentences to the script. Put another way, lots of agencies will talk about “bought, owned and earned” media: we also look for “invented media” and “discovered media”: seeking out those unexpected (and inexpensive) contextual tweaks that transform the way that people think and act.
It is a hugely valuable activity – but, alas, not particularly lucrative. This is because clients generally do not have budgets for solving problems they did not know they had.
Before founding Ogilvy’s Behavioural Practice, Rory was a copywriter and creative director at Ogilvy for over 20 years, having joined as a graduate trainee in 1988. He has variously been President of the IPA, Chair of the Judges for the Direct Jury at Cannes, and has spoken at TED Global. He writes regular columns for the Spectator, Market Leader and Impact, and also occasional pieces for Wired. He is the author of three books: The Wiki Man, available on Amazon (at prices between £1.96 and £2,345.54, depending on whether the algorithm is having a bad day), and the best-selling Alchemy, The surprising Power of Ideas which don’t make Sense, published in the UK and US in May 2019, and, co-written with his former colleague Pete Dyson, the newly released Transport For Humans on the behavioural science of transport.
Rory is married to a vicar and has twin daughters. He lives in the former home of Napoleon III – unfortunately in the attic. He is a trustee of the Benjamin Franklin House in London and a Patron of Rochester Cathedral.
Rory’s Other Stuff
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This transcript has been done automagically using Happy Scribe and hasn’t been checked by a real person, so there may be some hilarious mistakes where the AI can’t work out our accents – I’m sure they’re trained on just the American accent.
Eyup and welcome to The Strategy Sessions. My name is Andi Jarvis. I am the host of the show and the Strategy Director at Eximo Marketing. I am absolutely confident that no one listening to this episode today is here to listen to me. You’ve all come to listen to Rory Sutherland. If you’re thinking, I don’t know who Rory Sutherland is, strap yourself in and get ready for a wild ride. Rory is one of the most entertaining guests I’ve ever had on the podcast. His bio will tell you he’s a TED Talker, link in the show notes, obviously. He’s an author of the book Alchemy and a best selling book, Alchemy. He’s the Vice Chairman at Ogilvy UK. He totally, but none of that really makes sense until you’ve heard him talk about a subject which is really behavioural psychology. I love this subject and I love listening to Rory talk about it because he says things like this.
Because value is in the mind of the customer. This is what the Austrian’s understood. The Austrian’s understood that marketing was as much a form of value creation as manufacturing was.
And also like this.
When word succeeds, it really, really succeeds.
We’re back to the realms of penicillin then, aren’t we, in terms of things that…
Not just penicillin, but the walls of Viennetta.
He’s the only person on the podcast, I think, who’s ever mentioned the Bible and Dost Capitol. Possibly the only person in the world who’s ever mentioned those two books together in the same sentence as well. He is also probably a self confessed heretic. Now, heresy is not much of a crime these days, although it would have possibly had you burnt at the stake or drowned a few hundred years ago. But we talk about that. Rory’s views on marketing might be heresy to some people. Interesting eye opening. I really hope it’s only part one because there were so many subjects that we didn’t even get into touching on. I am going to pass to Rory and see if he will come back and do a second part. I’ll keep everything crossed. Let me know what you think of this episode. My details are in the show notes. Any questions, any thoughts? Bang them on to me. Otherwise, listen, just put your headphones in and have a listen to Rory Sutherland talk about, well, a bit of everything, really. This one is an exciting guest for me. I’m really pleased and proud to announce that I’m joined by Rory Sutherland on The Strategy Sessions.
Rory, how are you?
It’s a pleasure to be here. Absolutely fantastic. Thank you very much indeed.
Well, I am not going to read a bio out for Rory, but if you haven’t seen his TED Talk, it’s in the show notes. He’s been on Secret Diary of a CEO with Steve Bartlett and various other podcasts. And he’s always one of the most entertaining and enjoyable guests you could ever have. So this is a great day for me. But more than that, it should be a great day for you. So let’s start by picking Rory’s brains and talking about humans and how strange we are. That’s what I think we’re going to talk about today. And I wanted to start, Rory, by saying, you wrote a book called Alchemy, and one of my favourite stories in there is about the lionfish. So do you want to tell us about lionfish? And then we can talk about people from now on, wouldn’t you, really?
Yeah, there are a few areas where it’s particularly rich, I think, to talk about the role of psychology in behavior and business and in problem solving in general, by the way. I think this extends much wider than just being a business concern or indeed a government concern. One of them is railways, which we’ll probably come to later. The other one is fish because there are various cases where simply renaming a fish has led to something which was previously despised becoming perfectly fashionable. Indeed, highly desired. So if you want proof of the arbitrariness of humans’ value systems, back in Wales, where I come from, which was rich with salmon in the Y, and in particular in parts of Scotland, in the 19th century, quite often people would get a job as a servant in a country house. And one of their demands or conditions of employment was that they’d not be served salmon more than three times a week. Now, we think of salmon as a premium food. In fact, if you were in a Scottish country house in the middle of the 19th century, it was junk food. Lobster was junk food, by the way, in many areas of the world.
It was what you fed the poor. Oisters were more or less what maintained a protein supply to the New York working classes for a time. And there are more modern examples. So for example, someone absolutely brilliant in Cornwall discovered that the pilchard, which was a despised fish, probably not helped by being known as a flavour of cat food. Someone discovered that the pilchard was actually a member of the sardine family and started calling pilchard’s Cornish sardines, which transformed exactly the same thing from being a unwanted, unf fashionedable foodstuff to flying off the shelves at Tesco. Cornish is probably a pretty good adjunctive to add to more or less anything, actually, whether it’s Cornish cruncher is I think one of Marks & Spencers most successful cheeses. A similar case was the Patagonian toothfish, which most of you have probably eaten in a fancy restaurant if you go to fancy restaurants, but you haven’t been sold Patagonian toothfish. It’s actually sold as Chilean sea bass because no one wants to eat Patagonian toothfish. And a more brilliant case, I think, of a real rebranding of a fish related problem was the lionfish, which I’m fairly sure is a Pacific fish, escaped somehow, possibly from an aquarium accident and escaped into the Caribbean, where it was a catastrophe because it’s extremely vicious predator and it has no natural predators of its own.
Probably because it’s brightly colored and the fish in the Caribbean, although it’s perfectly edible and tasty, fish in the Caribbean, predator fish have evolved a distinct distaste for anything brightly colored because bright colours are often aposematic signaling in the animal world. They’re a way of singling, I don’t need to camouflage myself, which means I’m probably poisonous or dangerous in some other way. That’s why lady birds aren’t green. Lady birds aren’t green. The worst color you could be on a leaf you would have thought is being red. Lady birds are actually not exactly poisonous, but they exude a disgusting taste from their knees so that birds really hate eating them. And if you’re either poisonous or disgusting in some way, ironically, it pays not to camouflage yourself, which is imitating the behaviour of a tasty food. It pays to do the absolute opposite and to say, come and take me on if you think you’re hard enough, effectively, which is called aposematic signaling. It’s quite often fake. So some other animals have learned to fake this, but you adopt the appearance of a nasty snake or a nasty animal simply because you can then exploit this evolved predisposition to avoid anything that’s too brightly colored.
I suspect that’s present in humans as well. Humans have very distinct color preferences with food and certain colors which are just inherently disgusting. Anyway, so what happened? This thing escaped into the San Diego, into the Caribbean. And so what Ogilvy did in Columbia, I think, I hope I got that right, but was to effectively make lionfish.
Really actionable fish for humans to eat. In the absence of a natural predator, why not go to the apex super predator, which is humans? They got Michelin St arden awarded chefs to produce lionfish recipes, which would then encourage the fishing of lionfish. I think they got the Catholic Church to recommend it. What they effectively did was take something that nobody wanted to kill and turn it into something that humans wanted to eat.
It was a multi pronged attack on the lionfish, but it seems to have significantly succeeded. So what you effectively did is you said fishermen aren’t going to actually bother with this thing if it has no value. So we’ll give you a value. Now, I’ve never tasted it. I’ve never been to Colombia. It’s apparently delicious. And so this is really, really important because actually how things taste is not and are what you might call our predisposition to eat things is not based solely on what they are. It’s based on the stories we tell about them and how we think of them and how we perceive them. Two examples I give in the food space, one of them is miso soup. Now, miso soup, I think, benefits enormously from being known as Japanese. I mean, if one of your kids or your nephews or nieces or your brother or your sister said, I’ve just invented this new soup. Imagine a world where miso soup didn’t exist. And there was this slightly murky coloured liquid with a couple of white Cubes and a weird leaf in it. What you would not say to them is, Hey, give up the day job.
Your futures as a soup inventor. Now, I like miso soup, but I don’t think I like it objectively. You could argue that there’s quite a bit of food racism, if you want to call it that. Not necessarily negative, but positive. So in a world where sushi didn’t exist, if you imagine I came to you and said there’s an awful state in Somalia where the population is so poor, they’re reduced to eating raw fish wrapped up in rice with a bit of leaf round it. Your reaction would not be, What a supreme delicacy. It would be poor bastard. I hope that never happens to me. One of the most wonderful things, I never remember his name because it’s bloody difficult to pronounce, but he’s the same man who said, and I’m going to Google it now, the map is not the territory. And he used to indicate this. There we are. It’s Alfred, I think it’s Khrushchevsky.
And he’s famous for saying the map is not the territory. But he also is less famous, but deservedly famous for an experiment he used to do on his students in the lecture hall, which is he’d walk onto the lecture theatre stage with a brown paper bag, effectively, and start munching biscuits from the bag while he was lecturing. And then as a gesture of kindness, he’d go and hand out some of these biscuits to the front row of the lecture theatre, who’d also start chewing and munching on them, crunching away perfectly happily. And then he’d remove the brown paper bag and reveal that what it actually said was dog bisquets on the bag. Now, at that point, the reaction of the people happily crunching the bisquets completely changed from mild contentment to absolute disgust. One person was apparently sick. That’s quite an extreme. I think I could manage to. Quite a lot of people spat them out into their hands or into handkerchiefs or whatever, or basically refused to eat or consume any more of what they were contentedly eating only a short time before. And it’s really interesting because what Khrushchevsky said there is he said, So you see, we don’t only eat food, we also eat words.
And his point was, I think a very valid one, that the value of anything depends not necessarily on purely the objective qualities of the thing itself. Actually, when I was a kid, I used to be go cat because it was quite tasty. Okay. Sorry. I was quite young.
Okay. Just for avoidance of doubt, how young are we talking? Sixteen, 17?
Younger than that. They’re more like seven or eight. Yeah. But actually, our perception of anything, our evaluation of anything, our desire for anything is heavily contextually conditioned. And it’s a nonsense, therefore, to formulate any school of economics which sees value creation purely as a product of efficient manufacturing of a predefined good without understanding that a very large part of economic value is created in the mind, not in the factory. Now, unfortunately, marketers who should have been the benefit a visionary of this realisation, and indeed the Austrian school of economics, fully realised this. The Austrian school of economics, which was much more attuned to psychology and what you might call behavioural considerations, rather than just weird considerations of efficiency, understood that marketing is as much a source of value creation as manufacturing. Unfortunately, we have a business world dominated by left hemisphere thinkers who effectively believe that the definition of value is pre existing and can somehow be mathematically determined. And your job therefore is to create it through more and more efficient manufacturing. And that the only innovations that matter are innovations in what you can offer and how you can make it, rather than, I would argue, the cheaper, more effective, more potent, faster, and actually more interesting, though admittedly less easily defined practice of adding value in changing how people think rather than in changing what you make.
The phrase I always use is that innovation and marketing are fundamentally two sides of the same coin. There are two ways you can create new economic value. You can either find out what people want and work out a really clever way to make it, or you can work out what you can make and find out a really clever way to make people want it. Now, the money you make is indistinguishable either way, but there’s a strange mentality among people, particularly with an engineering background or with a finance or economics background or in B2B, actually, which.
Is boring. Boring to boring as regular listeners.
Will know. Actually, B2B marketing is spectacularly important. The problem is because of this myth that all B2B decisions are completely rational. A lot of people utterly fail to realise the component of value in B2B that is actually emotionally driven. The money you make is indistinguishable whether you solve a problem or create a new value space through doing something new or making people think in a new way. I’ll give you a lovely example of this, which I only discovered watching one of endless YouTube videos. It was probably on cold fusion or something like that. Youtube, by the way, I think is absolutely miraculously valuable that it’s a perfect case of a technology really reaching its apotheosis when it’s 10 or 15 years old and therefore not getting the attention it deserves. Youtube is becoming basically Wikipedia with video. One of the things I’d recommend to all your listeners is get YouTube premium. It’s 15 quid a month. Add free YouTube, watch it on your 4 K flat screen TV. If you’ve got a smart TV, if you haven’t, get something like Google Chromecast so that you can because that will now come. If you’re a curious person and I didn’t do the fact that you’re listening to a podcast, I think you’re one of the 30 % of the population who are inherently curious.
If you’re a curious person, YouTube is the gift that keeps on giving. So I discovered this thing on YouTube, which is very interesting because it l ets… I’m always interested in decisions that have bad consequences that are then written off as bad decisions. Because accepting that a large amount of the future is unknowable, you can’t always say that a decision that had bad consequences was a terrible decision, nor can you necessarily say that a decision that had good consequences was a good decision. So I was at Abbey Road yesterday recording a podcast and I made the point that actually Decker’s decision to turn down the Beatles at the time was not particularly ridiculous. If you look at the tracks the Beatles presented to Decker on some demo tape or whatever, they’re so obscure that not even weird Beatles fanatics are even aware of them. Most of them are covers. Let’s be honest, Love Me Do, which is their first charting song, isn’t a very good song. No one could have predicted the extraordinary leap between Love Me Do and I Want to Hold Your Hand. Put it that way. One of them is a forgettable piece of…
Okay, the harmonica was a bit interesting, but apart from that, there’s not much to it, really. Actually, what they did, Decker signed Jerry and the Tremelos instead of the Beatles, partly because they were based in London and therefore their transport costs would be lower. That wasn’t a great piece of cost saving. Okay, whoever the procurement guy was involved in that.
Don’t think you should be selecting bands on proximity to London, right? But the second reason, they signed Jerry and the Tremallows, and actually I’m fairly sure that the Tremallows had a number one before the Beatles did. So given what you could tell at the time, that wasn’t necessarily a good decision because no one could have expected this extraordinary apotheosis that came after Love Me Do. Even Brian Epstein thought they were a big shit. He just saw potential where other people didn’t. This is in the early days.
Yeah. And I think sometimes as well, as you say, not knowing the future, there’s no way of saying if the Beatles would have signed for Decca.
No, no, no. Well, they wouldn’t have had George Martin. And George Martin’s background was in recording comedy records with the goons, which meant he did things with them, starting with the Marseille s, for example, which would be second nature to someone who’d work with the goons. But at the time, would have seemed really weird to someone who had a conventional music background. It’s rather like Nassim Talibe’s point that actually all the really successful eternal books, whether it’s the Bible or or whatever, violate all the principles that publishers hold dear. Anyway, to get back to my YouTube epiphany, I’m watching this history of Netflix, and there’s the famous moment where Netflix offer themselves to sell to Blockbuster video, the late Blockbuster video. And their request for $50 million is viewed as practically an insult. It’s just you’re being ridiculous here. And everybody goes, The people at Blockbuster video, they couldn’t see the future. They’re complete morons. Blah, blah, blah, blah, blah. I’m going to give them a break here. And the reason is that Blockbuster video could have replicated Netflix’s technology for less than $50 million. They could have done it overnight and they could have signed up their own customers.
What made Netflix valuable, and there were lots of also other players in that space, you may remember Love Film, for example, etc. What made Netflix remarkable was none of that stuff. It was an idea they had after they had failed to sell themselves to Blockbuster video. And it was the idea of three DVDs, three DS at any time, replace them as frequently as you like. I think it was 50.99 a month. I can’t remember the exact price. And no late fees ever. And they came up with that later, almost in desperation. And it so happened that that particular pricing format just captured the imagination in a way that none of their previous attempts had done so. Previously, it was like, hey, it’s like your local video store, but you do it by post. Suddenly, this idea that potentially… Now, the reason it worked is that, I mean, potentially, lots of people could have been watching 25 grand films a month and they would have lost a fortune. And probably actually for the first month or two, that’s exactly what people did, which probably created total despair in their finance director. But rather like gym membership, most people, through natural inertia, settled down to a slower rate of replacement, and the whole thing finally worked.
And so it was that very brave step because you had, after all, created a business model that was potentially a living disaster if the only people who taken it up were utter film fanatics who were students or unemployed and watched 47 films a day, you would have been absolutely on a road to bankruptcy. But desperation forced them to try it, and it turned out that it worked. So it’s unfair because the real innovation in Netflix was not DVDs through the post. It was a pricing mechanism, which is a marketing question. I’ll say the same about solar panels, which I say repeatedly. Loads and loads of absolutely brilliant people, vastly cleverer than me, have somehow converted solar panels to a level of efficiency where they make sense in the UK. When I was a kid, solar energy was discussed as something you did in the Sahara desert or Arizona, but it was never going to be anything of much use in Britain. Through utter scientific genius, they’re getting to a level of extraordinary efficiency and double digit efficiency in terms of the conversion. But what they failed to do is that second thing, the Netflix stage, where they worked out how to sell them.
And they have this mistaken thing, which is basically the assumption that most people have about solar panels is that I have to call in some weird company I’ve never heard of. A totally unknown brand, who are going to cover my entire roof with solar panels. I then hope that my electricity provider will credit me for energy I feed into the grid, but I have no particular certainty around this. And then at the end of this installation, on the roof of a house which I may be planning to sell in the next five years, I have to write a cheque for 25 grand. Now marketers will tell you that is an appalling way to sell things. Nobody wants to write a huge cheque up front for a long term pay off that may be totally catastrophic. Now, I don’t know what the answer is. Maybe it’s mobile panels that you can take with you when you move. After all, anybody with a big garden could easily just rig something up in the paddock. Maybe it starts off with a completely scalable thing where you buy three panels and they trickle charge your car. And so for the next 48 hours, I’m not going anywhere.
I could be charging my car right now, but I’m not. And maybe you start off small, you start modular, and then after people are pretty happy with their two grand’s worth of solar panels, they buy another two grand’s worth. Now, apparently there’s a Dutch company that’s just started doing this in the Netherlands, and it seems absolutely the right way to sell this product. And so this thing that engineers and finance people instinctively hate marketing, and they think that success through marketing is essentially cheating is a massive obstacle to successful innovation.
Your book is called Alchemy, and I wonder, from reading it and from listening to your talk, if you should have called it heresy, because there’s a little bit of me that… Yeah, you’re right. I see. Conventional economic theory and what you do is you are a heretic to some of the conventional business wisdom. Do you get that push back from clients?
Yeah. What it is is that actually alchemy is heresy in a sense, because…
It was seen as.
That, wasn’t it? If you have the mentality that you know, essentially a Newtonian mentality that something cannot be created out of nothing, okay? Then magic is anathema to you because it violates your world view of trade offs, proportionality, linearity, and everything else, which are the assumptions you use to make sense of the world. As a result, a much clever person than me, the Australian economist nick Gruean, makes a parallel point of mine, which is that the economic obsession with trade offs and the belief that trade offs are inevitable is actually a massive limiter on the imagination. Because there are many cases and Gouen points to several of them where a really good idea isn’t a tradeoff between two opposing forces. It’s a resolution of the two things to create something better. So you can say, well, there was going to be a tradeoff between price and quality. And then he points to the case where Toyota managed to produce a car with the highest quality levels in the world, I think second only to a Mercedes at the time. The Mercedes had something like 37 fault checkers involved in the process and Toyota had none.
That’s because they’d invented a way where quality control was built into the manufacturing process. It wasn’t a separate step. Yeah. Okay. Now, there are lots and lots of cases where you say, Oh God, the trouble with doing this is it’s going to be expensive. Okay. And the marketer would say that isn’t necessarily a trade off because you can create circumstances where people want to spend more. There are lots and lots of cases in markets where people want to spend more. If you look at wine, for example, and I get here, I defer to Joe Fattarini, who you may know from channel five as their wine expert. He’s an absolute wine expert, but he’s also extremely knowledgeable about behavioral science.
Drives consumption of expensive wine is not the fact that people want a better wine. People spend more to mark an occasion. That’s probably true of women’s clothes when they go to a wedding. You could actually get away with Zara, ASOS, whatever. But if it’s your best friend’s wedding, you feel I probably should drop 300 here to mark the occasion. Now, a marketing guy took over Chapel Down in the UK. Now, Chapel Down produces English or British technically because they’re also Welsh producers. British sparkling wine. British sparkling wine is actually at its best, unbelievably good. Okay? And he did improve the quality. I’m not suggesting he was entirely… As I said, when I said there are two directions of travel. You either make people want something or you make something they want. Most successful innovation involves a bit of both. I’m not suggesting it’s one or the other. They’re not mutually exclusive. Okay, the pet rock is entirely psychological valuation. That’s the most extreme marketing case. And there are other things, commodities, which are all about what the thing is, things that are bought as commodities. But most things involved in both. And he did raise the quality of Chapel Down.
And I would argue, other than perhaps the very best champagne, it’s as good a white sparkling wine as you can drink. But he also did something else. He actually ramped up the price to champagne prices or champagne prices plus. And what he realized is that the role of champagne is partly to drink, but it’s also to communicate generosity or hospitality. Congratulations on your so and so, Andi. Here’s a bottle of English sparkling wine. It doesn’t matter how good that wine is. If you suspect I paid 8.95 for it, I’m not doing the job. It’s not doing the job it’s supposed to do. And one of the great things about champagne is it’s impossible to produce champagne below a certain price point. So if I give someone a bottle of champagne, they know I’m not dicking around. They know I’m not skimping. One of the most brilliant things he did is you put the price up. Actually, the entire category, not only Chapel Down, but many, I won’t call them imitators, that’s unfair, but many other English sparkling vines, well sparkling vines have actually done the same thing. And it’s absolutely critical because it’s the classic case where actually in economics there always has to be a trade off.
In psychology, there doesn’t. The road.
To premium, sorry to interrupt you there, because there’s an interesting case of V olvo at the moment who are one of the few examples in the car category at least who are moving up market. They went from middle of the road family vehicle to now being their premium vehicle. And putting your price up is only one step of that. But it is a difficult thing to do. A marketer would look and go, oh, going upstream and becoming more premium is really difficult. So is it just putting the price up, or is it the other things that come with.
It as well? Actually, if you look at the behaviour of Proctor and Gamble, who are the smartest tools in the box, the sharpest tools in the box, a huge amount of their revenue growth has come from premiumising things. I mean, oil of Ule or Oolay, which you probably may remember from your childhood as something that was bought for £2.75 is now I think over a tenner or something like that. I’ll have to double check. Let me get checked. I don’t want to be guilty of… Here we are. Oil of Oolay. Now, I think they may have improved the formulation. I’m not suggesting that it’s all one thing or the other. Yeah, here we are. Oleg regenerative 24 night moisturizer with retinol, 19 quid. That’s in a cardo. Regenerist three point firming anti ageing cream, moisture, 50 millimetres at boot, 17 quid.
I used to have this stuff slapped all over me as a child and it was.
The beachy. By the way, the 17 quid of boots just a bit client of ours. So I’ll do that. That’s actually half price. Now, there are huge number of advantages, by the way, to being expensive, to having a premium positioning, not least, which is you can discount and still make money, right? Yeah. Okay. One of the ways I occasionally buy clothes is you actually go to a really expensive place like Selfridge’s and you go and basically search for the most discounted items. Now, I’m not probably an advertisement for.
Men’s fact. Are you from Yorkshire? Because that sounds like the way I buy clothes.
I mean, okay, if you think about it, there’s an extraordinary… If you can’t sell something at… I’m probably doing them a disservice because actually they make quite a lot of effort in terms of sustainability. But you can’t sell something at Primark. There’s nowhere else you can sell it. Okay. Whereas if you look at the premium stuff, you can have a sale. You can still make money from your sale. You’ve got TK Max, which as a Yorkshireman, you’re probably a bit of a devotee, I’m guessing.
I am. I’ve got the TK Max tattoo just down here.
Absolutely, just exactly. Yeah, right. Okay. Actually, the point is that value is highly contextual. I mean, if someone buys a can of refrigerated Coke from a vending machine, we think of Coke as a commodity, but that refrigerated Coke is probably selling for six times as much per unit volume as the two liter bottle you buy in poundland. I’m not sure they deal with poundland, but the two liter bottle you buy in Aldi. Okay. Now it is refrigerated. There’s a cost of refrigeration, etc. But nonetheless, what something is worth is contextually determined. So I’m going to give this idea away for free because I’m tired of trying to sell it. This, by the way, is actually a huge problem, which is that it’s very difficult to sell creative ideas, which I think limits… Okay, it’s very easy to get in consultants who will improve your productivity efficiency because a lot of McKinseyites can crawl around your place charging 200 quid an hour for ages. It’s really easy to make money doing that bullshit. Whereas the problem with an idea is once you’ve told someone the idea, you’ve effectively given it away. Payment by the hour is almost a perfect mechanism to prevent and discourage the generation of ideas.
What that does is it incentivizes an obsession with processes and chart and flaming, bloody, great 200 page PowerPoint things. My idea here, which I can’t charge for so solid, I’ll give it away, is why shouldn’t you have Coke vending machines also be electronic car chargers? Now there’s an advantage to this, which is if I went to 7 Oaks Council and said, I’d like to put Coke vending machines on your pavements, they basically show me the door. But if I went to 7 Oaks Council and said, How would you like to meet all your government sustainability charges for the provision of charging machines for free? And the solution is we provide electric car chargers which actually sell Coke or Costa Coffee, which Coke owns, I think. Okay, right? Yes, I do. Okay, right. Well, the seven notes guys have got to at least think about this bad boy, haven’t they? Now, my point is that conceptually a Coke vending machine contains a contactless credit card thing. And by the way, outdoor contactless credit card things are quite difficult because you’ve got to be very cautious about the potential for fraud. It’s much more difficult than an in store one.
Right. Okay. So you have the contactless payment mechanism which can also cope with RFID, presumably. You have an electricity supply and you have an Internet connection. Well, that, plus a 7 or 50 kilowatt charging cable is a car charger. Yeah. Okay. Now, the argument here is that looking for different contexts and places where you can sell and sell, particularly profitably, an awful lot of luxury retail exists really through what you might call curation and clever merchandising in that when you go into a shop in Bond Street, after a while, you think that a £90 T shirt is a perfectly reasonable T shirt because of what you’ve been looking at for the previous 25 minutes. Whereas on the high street in Rochdale, people would be scandalised and you’d probably have a fight. Yeah, absolutely. People’s readiness to pay for things is massively contextually dependent. And so it makes obvious sense to explore this because value is in the mind of the customer. This is what the Austrian s understood. The Austrian s understood that marketing was as much a form of value creation as manufacturing. And modern day economics, because it’s dominated by left brain reductionist thinkers, is really…
Well, the reason it’s reluctant to acknowledge this is that once you acknowledge psychology, your maths goes out of the window.
Yeah, I never heard that.
Because actually your career is probably formed in economics by constructing elegant mathematical models that bear very little relation to reality. That’s the last thing they want.
A lot of what you’re talking about is known as nudging. I actually think the way you’re describing it, I think framing or reframing is a better phrase for it. But nudging shot to prominence through Cass Sunstein and the work they did in the US. And then in the UK, the book is over there somewhere with Inside the nudge unit by Dr. David Alpin. I think.
His name is. Great. Great. Great. e were both at the same college at the same time, actually, when you were leaving. Brilliant.
But when I hear you.
Talking about the book… He was actually the hard working, diligent and serious academic, and I was the dilatanty boozy person. But I’m a very big admirer of what he’s done, actually. Seriously.
I wonder when I look at the work that they’ve done within the government, now, obviously that is a place run by economists generally and politicians looking for reelection. But are they looking at their nudges on too much of an economic benefit? Because what you’re saying is that actually you can’t measure everything with a pound sign.
At the end of it. This basically comes from the heuristics and the heuristics and biases school. And I think one of the areas in which nudging is misused is people’s real behavior clearly deviates here from what conventional economics would predict. Therefore, the economics is right and the people are wrong, and our job is to nudge them into behaving more like Homo economicus and less like Homo sapiens. Now, I’ll give you an example of this, which is I went to a government thing on how do you get younger people to invest in pensions, because obviously the payback is significantly higher the earlier you invest. Now, this is worth doing. I’m not for a second say it’s not worth doing. And one of the things I said is the first thing you need to do is redesign the pension so that people can draw it down before they reach 55, because when you’re 25, being 60 is basically, I mean, that’s another planet, right? It’s rather like, why it’s difficult to stop young people smoking because the diseases of the relatively elderly are being elderly is such a remote… They’ve only had 6 % of their adult life to date.
I remember this, I was a copywriter on pension stuff when I was in my 20s and I couldn’t really understand why anybody put money away rather than going out for a curry. I was forcing myself as a method actor into that mindset. I couldn’t really get my head around it, to be honest. So the first thing you have to do is you have to redesign and rethink the pension. Maybe you don’t even call it a pension, right? You call it young person saving fund, whatever it may be, and it can morph into a pension later in life. So maybe the word pension associated with words like pensioner is problematic to begin with. But the fact that you can’t, you wave goodbye to this money until you’re actually quite old is ridiculous because you don’t know what the near future, what the middle age is going to bring. You know so little about your future. But there’s also a factor. I said, look, I’m really happy in lots of ways to help you do this because I think there are biases against young people saving. But I said at some point, do not expect people to behave as economically rational actors would do.
For the simple reason I said, look, basically Darwin. Okay, when you’re 25, there are a load of things which are probably more important to you and to your long term happiness than saving up for a distant future, one of which might be finding a high quality life partner. Now, without stereotyping anybody, there are lots of quite extravagant things you may have to do to find a high quality life partner. I not being stingy, not going Dutch when you go out for the first meal. And I’m fairly confident in saying that among people… I don’t go there. I’m married. I feel, by the way, as someone who actually got married before there was tinder, I feel like someone who just caught the last helicopter out of Saigon, basically. I wouldn’t know how to date nowadays. I wouldn’t have a clue. But I’m fairly confident you don’t get many people under 30 or under 40 on tinder boasting about how great their pension is. It’s just not a major poll. In fact, it’s a bit of a turn off, actually. Being a tight wad is a bit of a turn off. I’ve learned this the hard way.
If ever I buy my wife a present from the selvedgest sale, I never admit it was in the sale. That’s absolute death. And so, by the way, I bet there are a load of people over 70 on tinder who are boasting about how great their pension is.
I’m fairly confident that would be a major pull if you’re in the over 70s dating market. But there are a load of other priorities that young people have to get their shit together, the now near impossible business of buying a house, perhaps, before they have to worry about long term saving. Given the path dependency of life, it’s absolutely fallacious to believe that what an economist would think is rational is actually optimal or rational in the real world.
I think we probably agree that economists are the worst people on the planet.
I think it’s abominable. I’m not quite as extreme as my friend Nassim Tali, who thinks that the discipline shouldn’t exist.
It’s a fairly extreme position.
What I do think about it, though, is that Tim Hartford has made it a defence that I only pick on economics when it goes… Fairly fair criticism, that I only criticise economics when it’s wrong. My argument to Tim Hartford there, I love the guy, by the way, and he’s great, and he’s also, again, one of the people who’s open minded enough to know both strengths and weaknesses of economics, is that what you’ve created in economics is a bit like Formula One, where the pit crew is more interesting than the car. In other words, the car is so unreliable that actually the behaviour of the pit crew is actually more important. In other words, the problems are actually more important than the actual solutions. And I think behavioural economics, complexity economics, Austrian school economics, all the Marxism, actually. Having started off from a standard conservative position that Marxism is bonkers, the guy is, like many other people, is not terrible at psychology, I think. And I think Marx didn’t really understand a whole load of psychological factors at work. But nonetheless, there’s some very interesting stuff there. If you want to understand what’s gone wrong with the property market, you might say that the investment value of property has come to dwarf its use value.
And in that you’d be using Marxist language. I’m also a Georgist, by the way. I won’t go into this because it takes explanation and it’s impossible to convert anybody to Georgism anyway. So I always feel this bloody lost cause. But the dissident economic schools actually have in a way more to teach us because they’re much richer in counter intuitive, anecdote, insight, surprise, and actually in business in the creation of economic value. And actually in science, noticing the anomaly is actually more important in many cases than cataloging the regularities.
Worry about science in this way that it’s with things like P values, it’s how confidently can we generalize about something. Okay, now actually in business asking what’s everybody else wrong about is probably the first question you should ask. What are the assumptions that are absolutely endemic in a category which actually either aren’t true or maybe have been rendered no longer true by technology? Yeah, now, I always mention that the Uber map as a piece of psychological genius, which is, let’s not worry so much about how quickly cars turn up. Let’s instead use GPS plus the mobile smartphone to show people where their car is, and you can obtain the same or greater psychological end at a tiny fraction of the cost of changing the reality.
Yeah, don’t make the car quicker. Let people know where it is.
Let people know. And basically, okay, I mean, don’t get me wrong. Again, this is where I make the point. The rational argument isn’t totally irrelevant if Uber’s took 45 minutes to turn up and it said driver smoking a fag. Okay, that’s not a great car company. What I’m saying is that once you have punctuality within a certain acceptable threshold, further gains in speed of arrival actually may be a disadvantage, actually. Because quite often I want to order an Uber when I’m on the 15th floor of a building and I still need to have a piss and go and hand back my pass. So I don’t necessarily want cars that turn up in four minutes, actually.
Yeah, it needs to be a bit long. Yeah. It’s the problem because I think lots of things you talk about, we know that because of the way funding works, whether it’s from businesses or government, things do have to generate a return. So what we’ve ended up looking for is the safest way to generate a return instead of the best way to.
Generate a return. Yeah, you’re absolutely right, the safest way. And secondly, the most provable way. Yes. Okay. So for example, it’s always easier to quantify costs than it is to quantify opportunity costs. So that causes a disproportionate focus on cost cutting rather than opportunity hunting. Yeah. Okay. And this, by the way, what’s quite interesting is the advertising industry, with its obsession with digital performance marketing and measurement, actually exemplifies this problem in microcosm because effectively people would rather spend money, quite a lot of performance marketing, I think, is getting people who would have bought the product anyway and already customers of the retail site to buy something they would have bought anyway a bit sooner for a discount. Now that has a value. I’m not suggesting, by the way, that conversion of that kind or just overcoming inertia isn’t a valuable role in marketing. But there’s another more crucial role in marketing, which is getting people who didn’t know about you and didn’t think they wanted what you had to sell to buy what you have to buy at full price. Now, the money from those two transactions might look quite similar, and it’s much more expensive to obtain the second than the first, but the second is ultimately measured over the long term more valuable.
And if you can’t account for that incremental value, you will concentrate too much of your expenditure, not on things that are necessarily valuable, but on things that are easy to prove aren’t wasteful.
And it’s a framing exercise, again, isn’t it? Because performance marketing looks by its nature over short term attribution, Windows 28 days, whatever. I was at a conference the other week and a guy from Ringside, a data platform, looked at data over from millions of transactions for the number of people who use it. And they found that people who make their first purchase at a discount are worth over three years are worth about 30 % less than a person who makes their first purchase at full price.
That strikes me as highly plausible. Yeah. You actually auction for the.
Listen, I’ve invested in that product as soon as I heard that I was like, This is brilliant.
But that’s exactly my point, which is that actually short term transactional value doesn’t necessarily reliably correlate with long term customer lifetime value. Also, there are a lot of things you can do in marketing which are valuable, which are impossible to quantify. The example, I don’t know why I always give this example. I have to think of a new one because it’s probably getting a bit boring. But if you’re the chief executive of Rolls Royce Aero engines or the chief executive of Boeing, you can ring practically anybody on the planet in business or politics and they’ll return your call. That’s not true of the chief executive of… To take those Amazon imaginary brands, Wagwan Wu, so and so, whatever. Okay? Right. Do you know why those are there? Those ludicrous brands on Amazon that look like Scrabble tiles.
Is it because we love brands as a…
No, it’s actually weird. It’s because Amazon gives great preference to brands that are registered in the US. Unfortunately, if you want to call yourself something cool, it takes much, much longer to register the brand and get approval because of the problem of other people who have similar names. Whereas if you give yourself a totally ridiculous name, you can get registered overnight. Right. So it arises from the gaming of a system in a way. There you go. Which fascinated me because I couldn’t understand. I thought, because someone in China, if you gave me a tenner and a pint, I’d come up with a reasonable name for them. But anyway, I think this is so interesting because what we’re doing… Don’t get me wrong, I cut my teeth and anybody in marketing who gets a chance to work for American Express do so because you learn everything in American Express. And I work on American Express as a direct marketing copywriter, and it’s got everything. It’s a premium brand. It uses a lot of direct marketing. It’s now got a lot of digital activity. It has member get member. It has a points program, a loyalty program.
There’s nothing that you could learn about marketing that you can’t learn working for American Express. It’s a glorious brand, actually. I’ve said, I’ve idolized them a little bit. Actually, one thing, by the way, they answer the phone. Right. Okay. Unique among financial services providers.
Amazing. They actually answer the goddamn phone. The interesting thing there was that, don’t get me wrong, the conversion bit is important because American Express built back in the day this fantastic, prestigious brand, which I think most prospective card members thought they couldn’t afford or that they get turned down if they applied for it. Now, I think you needed to write to people to encourage them to apply because the fact that you wrote written to people in direct mail said, we know about you and you’re the person who carries this card. I don’t think the brand would have worked on its own without the direct marketing. In fact, I think it would have been a very strong brand with not many card members in the same way that Vesace is a very strong brand with not many customers. And you know, you need scale as a financial provider. And so I think the fact that you do both is really important. And getting people over the last mile is sometimes the toughest challenge after all. And I’d also say that getting your conversion rate is probably the first thing you should focus on because there’s not much point in optimizing things further up the funnel if the spout of the funnel is ridiculously narrow or clogged.
You have to eat while you dream.
Don’t you? Absolutely right. And yet what did worry me about the only problem in direct marketing is that the wonderful thing was you could measure the value of everything you did to the penny, albeit the short term value. They did actually probably have a good idea of the… I never knew what it was, but the lifetime value of a card member, in fact. They probably had a reasonably good model for that. But you’re never allowed to do anything that you couldn’t measure. And that’s dangerous because as I said, what’s it worth that the chief executive of Rolls Royce can call anybody on the planet and get them to return his call? Well, it’s patently worth millions in a sense in certain circumstances. But it would be impossible to put an absolutely finite, clear dollar value on that. An awful lot of marketing is really not in pursuit of a predefined objective, although we like to think it is. It’s actually opportunity maximisation. All right? I like that. Yeah. If I make myself famous… Okay, if you’re a bit famous… Well, I noticed this because I do quite a lot of public speaking. Stupidly, I pay all my public speaking fees to Oval V in an arrangement I made about four years ago where I made less money from public speaking.
But broadly speaking, if you’re quite famous, you will get invitations to speak from businesses you didn’t even know existed at conferences you didn’t even know took place. If you’re quite famous as a business, you will get customers, employees, opportunities, partnerships brought to you that your own imagination would never have actually conjured up. But which other people’s awareness of you then creates. Now, if you simply say the only role of marketing is that we define what success looks like in advance, very narrowly, and the only successful component of marketing is the extent to which it obtains and achieves objectives we have defined in advance, then you’re massively undervaluing marketing. I’ll give you a classic example of this, which is from my own experience, okay? Which is, if you’d said to me, Okay, we need to target readers for the book Alchemy, I would have said, Well, people working in marketing, people interested in psychology. There may be some people in the investment community who might be interested in this as a dissent way of looking at companies and company value or potential or whatever. But by and large, I would have defined core target audiences in one way or another.
And then one day, a few years ago, I’m at Cannes and Chris Evans decides to do his Virgin Breakfast Show on Virgin Radio from the Cannes Advertising Festival. And one of his underlings had read Alchemy and said, This guy’s probably in Cannes because he works in advertising. Why don’t you interview him about his book? So I turn up, do the interview on Chris Evans’ Breakfast Show, okay? 1 million listeners. And it goes quite well. Chris has obviously skimmed the book. I didn’t expect him to read the whole damn thing because he’d only heard about the book a few hours beforehand. But then he spends the rest of the day reading the book on the beach. I didn’t know this. And the following day on Chris Evans’ breakfast show, he was quoting and quoting little details from the book and mentioning the book quite frequently. Meanwhile, unbeknownst because obviously I’m not listening to Virgin Radio while I’m in France unbeknownst to me, I’m sitting in a hotel room and I can’t understand what’s going on because the sales of my book on Amazon are just insane. I was out selling all of JK Rowling. I beat the highway code, which when you think about it is compulsory to buy.
I never beat the little book of Norm and I never beat the hungry little fucking Caterpillar. And there are about six other, most of them cookery books, I think, in one footballer’s biography, which I couldn’t beat. But I was number eight on Amazon of all books. Incredible. Not every single person. 94 % of the people who bought that book on that day would have laid outside that. Now, what’s the value of it? Well, actually, maybe they like the book and they buy another copy for their friends. That’s another aspect of the sale, which is actually impossible to quantify. This business of quantification bias comes from physics. It comes from physics because in Newtonian physics, you have all the numbers you need to produce a single, demonstrably correct prediction. Okay? Moreover, the laws of physics don’t change. The laws of psychology and behavior do. Fashion is one example of the laws of psychology changing. Okay? So the really interesting thing there is that this urge for certainty looks like it’s being scientific, but it’s actually a massive constraint on discovery. Never mind business. I think most really major business breakthroughs happen creatively or accidentally or through someone noticing a freak thing that they can’t explain, or through actual insanity.
In the case of Dyson, I would have advised him against making an £800 vacuum cleaner. Turns out there is a market for those things. Who knew? Now, actually, when we delve deep enough, that’s also how most scientific progress happens. The idea that we should actually decide what is important to investigate in advance. Science is just as bad as government and business in actually predicting where you should explore. And therefore, in many ways that when you’re a bit random, yes, your chance of failure is probably higher. Your chance of success is lower, but your chance of absolutely transformational success might well make up for that problem. The fact that when weird succeeds, it really, really succeeds.
We’re back to the realms of penicillin then, aren’t we, in terms of things.
That number one. Not just penicillin, but the walls of Viennetta. It’s much.
Important. Of course, there’s Fleming getting all the credit. The walls of Viennetta happened because there was a wonky conveyor belt and what should have been a slab of ice cream turned into scroll work.
Get out of town, seriously.
Well, there you go. Christmas has never been the same since in the Java, it’s household anyway.
So tell me, I’ve just spotted the time, Rory, and I’m really sorry. We’ve gone over the top of the hour, but can I ask you one more question to throw?
If you are a marketer, a brand manager, head of marketing, that type of person sat in your company listening to this going, damn it, I agree with everything Rory says. Absolutely. You go into work tomorrow morning and you… What do you do? Because you know that the board are probably too busy looking at the rational McKinsey Isaacs’ projections of what success looks like. So what do you do if you’re in.
That role? I have one example, which is that one solution so far, I’m trying to come up with more, obviously, which is that you explain the statistical and other biases involved that essentially make companies too cautious. And you argue for the ring fencing of a small amount of what you might call psychological R&D money, which is… And this this is actually mathematical. This is called the Explore Exploits Tradeoff. It happens in algorithms. It happens in animal foraging in all kinds of places. And you just go whatever the ratio is between exploiting what we already know and exploring what we don’t, it’s patently obvious that we don’t know everything, least of all about the future. And therefore, for the long term profitability, survival, and growth of a company, some degree of exploration and experimentation is necessary in the marketing space just as it is in the R&D space, which brings me full circle to the point I made at the very beginning. But we haven’t even talked about trains, so I’d like to do a follow up session if that’s okay.
Listen, do you have to go? Because if you don’t have.
Unfortunately, I do. That’s okay. Well, listen, trains have a special place in my heart. So we will get you back another time, Rory, to talk about trains. I absolutely promise that. I’m flexible working and the mad fest as well.
Absolutely delighted. Nudgestock, seventh of July, by the way. Nuts stock.
Com. Nuts stock. Com. All the details are in the show notes. And if you can be there, do be there because you’re in for an absolute treat. Rory Sutherland, thank you very much for your time. It’s a pleasure. Enjoy the rest of your day. It’s been an absolute hoot. Thank you.
Likewise, thank you so much. Bye.
Right, we’re out. Thanks very much for that, Rory.
Absolute pleasure. I better go and dash on to my next meeting. I suddenly noticed. No problem. My apologies, but thank you for reminding me too. Otherwise, I would have gone on for another hour. Thank you.
Thanks, Rory. Cheers.