Myth Buster

Why Less Is More in Website Optimisation. Experiments In Online Gaming!

Thu, 02 May 2013 19:21:00 +0100

When seeking to optimise a web page or a customer journey it is important to consider how much impact an individual change will have on conversion. This is where experience can help, but each website and its customers are unique so previous tests are no guarantee of future behaviour. Indeed, visitor behaviour is heavily influenced by emotional impulses and sometimes appears irrational. People often react before thinking which is why intuitive design is so key.

The key insight here is that visual design matters because there is no such thing as a neutral design. It may be the imagery on the landing page, the order games are displayed, the availability or familiarity of the games, the nature of achievements, or the tone of voice used to encourage sign-up. Potentially everything we display can affect how visitors respond.

This is why understanding how people make decisions can help us identify potential ways to improve website design. This can both help visitors find what they are looking for and improve the customer experience. A happy visitor is more likely to return to a website and become a valuable custoimer.

We know that people use their intuitive, largely automatic and unconscious mind, to make most of their daily decisions. Our intuitive mind is fast and impulsive because it employs rules of thumbs (heuristics), such as stereotypes. It also jumps to conclusion to minimise cognitive effort. But the use of short-cuts and associations inevitably leads to predictable biases or errors in our decision making. Examples being:

The affect heuristic: Where people allow their likes and dislikes to determine their beliefs about an activity or person etc. This often occurs because our emotional response (e.g. attitude towards the activity) will heavily influence a person’s beliefs about their benefits and risks. Thus, if someone likes to play poker they will generally overestimate their chances of winning and be more willing to play online or offline.

The availability heuristic: We judge the frequency of an occurrence by the ease with which instances come to mind. This is heavily influenced by the ease of recall and the number of instances we remember. People who like to be guided by their intuition are more susceptible to this bias. Thus gaming sites often display a live stream of recent winners to demonstrate the size and frequency of wins.

Availability and affect heuristic: People’s perceptions of the likelihood of an event occurring are distorted by the frequency and emotional intensity of messages they see. Thus a story that is repeatedly seen will be perceived to be more likely to occur again if it conveys real human emotions rather than sticking to the facts.. We are a social animal and so we love to hear about how people respond to events and how it may change them as a person. Indeed, social scientists have found that rich and vivid imagery of rare events (e.g. a jackpot win) also makes people less sensitive to the probability of it occurring again. Insurance companies use this to their advantage when selling accidental death cover. Very few people die from accidents as most deaths are the result of natural causes.

Cognitive Effort:

When we need to undertake mental activities that require concentration and control, such as complex calculations, our intuitive self activates our slower, more conscious mind. Our slow mind is also activated when something is detected that doesn’t fit in with our model of the world that our fast mind maintains (e.g. something appears too good to be true). This is why people often shun offers that are perceived to be too generous. People become cynical and assume there must be a catch. So don’t give away too much or reduce prices well below the competition as it may be counterproductive.

Much of the time our slow mind will confirm what our intuitive mind tells it as we don’t like to experience internal conflict. However, our conscious mind is also activated when we need to:

Simultaneously manage multiple ideas in our memory that need separate actions or have to be combined using a rule. Only our slow mind can deal with rules, compare items on several levels and deliberately choose between multiple options.

Processing statistical information. JC Penney discovered to its cost that people don’t like to calculate how much they may be saving. Mental maths uses lots of cognitive energy and humans are generally lazy when it comes to maths.

Instruct our memory to override habitual responses. When driving it is difficult to stop yourself putting your foot on the brake when you skid on ice or oil.

Using self-control to resist temptations or maintain a coherent train of thought.

The paradox here is that when our slow, conscious, mind is engaged in dealing with a challenging cognitive computation we are more likely to give into temptation. So don’t have a bag of sweets with you when you are playing a skill-based game if you want to have any left for later.

“If there are several ways of achieving the same goal, people will eventually gravitate to the least demanding course of action. In the economy of action, effort is a cost, and the acquisition of skill is driven by the balance of benefits and costs. Laziness is built deep into our nature.” Daniel Kahneman from Thinking, fast and slow.

Cognitive Strain:

Indeed and our slow mind has limited capacity. Concentration and computations quickly depletes our reservoir of mental energy resulting in mental overload. Our slow mind responds to this by focusing solely on the most important activity. When this occurs we can become completely blind to other stimuli. The case of the gorilla walking across the basketball court is a frequently quoted example.

On a website mental overload can result in visitors failing to see the primary call to action or an error message that informs them about a non-responsive user interface. Fortunately for website designers as people become more adept at a task the energy required diminishes. This means we can allocate more resource to other activities and we notice more content on a site. However, this is of little help to the first time visitor and is another reason why unnecessary content can kill conversion.

A key trigger for our slow mind taking control over our decision making is cognitive strain. This can be caused by a number of factors including:

Instructions being in too small a font (not everyone has a large screen or good vision)
Poor contrast between the copy and the background
Jargon and unfamiliar words.
If we are frowning because we are in bad mood or have been irritated by not being able to find the information we are looking for we can also experience cognitive strain.

So, why does this matter? Well, if we are suffering from cognitive strain we are generally:

More careful and suspicious about an activity (too good to be true?)
Pay more attention and scrutinize the content more than usual
Feel less comfortable and certain about the nature of the content
Make fewer errors as we rely on our intuition less
Are less creative and thus less responsive to creative content (not good for gaming!)

The danger here is that cognitive strain creates sufficient uncertainty and negative feelings about a site that visitors will not feel comfortable enough to sign up or make a transaction. It is human nature to avoid uncertainty because it makes us feel uncomfortable. This is partly why site security and trust is so important to website visitors.

On the positive side cognitive ease can assist conversion by making content appear more familiar and so visitors are more willing to consider signing up or making a transaction.

So what other factors can result in cognitive strain that we need to avoid when designing a web page?

Asking visitors to switch from one task to another (i.e. multi-tasking). Have a clear hierarchy of calls to actions and keep distractions, such as requests for information, to a minimum.

Time pressure. Some sense of urgency can encourage visitors to complete a task. However, be careful not to give visitors so little time that they feel pressurised or the site times-out while they are looking for information you have asked them for. You will just annoy customers and they will probably go elsewhere.

Asking for too much information at once. Divide tasks, such as sign-up, into smaller, easy steps.

Difficult to pronounce words. Easily pronounced words evoke positive feelings whilst the opposite is true with words that we have difficultly saying.

Unfamiliar ideas or words. If something is unfamiliar we are more suspicious and critical of it. Due to associations in our memory people are generally more accepting of familiar ideas and phrases. Avoid using jargon or technical terms as you will frighten off novice players who don’t understand what the terms mean. Similarly repetition leads to cognitive ease because it results in a feeling of comfort and familiarity.

Mood. As mentioned above if we are in a bad mood we are prone to cognitive strain. However, websites can counter this problem by using humour in their content. Experiments by social scientists have shown that smiling can lead to cognitive ease.

Choices involving trade-offs that create conflict. Asking people to make choices that involve trading-off attributes (e.g. two different welcome packages), that lack a compelling reason to select either option creates conflict and makes decision making difficult. Emotionally it is not pleasant as it forces us to think about opportunity costs and the losses implicitly involved. Introducing a third, noticeably inferior option, provides a comparison that makes it easier for people to make decisions.

Too many options. We are often told giving people choice is good for people. Unfortunately as the number of alternatives that we offer people increase so also the positive features associated with the discarded options accumulate. People find it difficult to forget about the rejected options and choice almost always involves giving something up of value. Research indicates that shoppers who are shown a larger display are less likely to buy. Further, evidence suggests that the cumulative opportunity cost of having increased choice can result in reduced levels of satisfaction with a purchase.

A key insight from this is that cognitive ease is a cause of feeling good, but also a consequence. Feeling good also leads to us to be more confident that we understand information and to judge content as truthful. The opposite is true with cognitive strain and not surprisingly decisions that create discomfort lead to indecision.

Thank you for reading my post. I hope it generated some ideas for improving your website design.

The author: Neal Cole has over 20 years’ experience of working in market research and website optimization for some of the UK’s largest financial services providers and online retailers. Neal is currently a conversion specialist for a major online gaming company in Gibraltar. He is also a regular contributor to the GreenBook Blog market research website. Neal is a full member of the Market Research Society and an Associate of the Chartered Institute of Marketing. You can follow Neal on Twitter @northresearch and view his LinkedIn profile.

Further reading: Thinking, fast and slow by Daniel Kahneman, The Paradox Of Choice by Barry Schwartz, Nudge by R Thaler and C Sunstein

Hidden Human Motivations. What Mountaineering Can Tell Us About Human Motivations.

Tue, 12 Mar 2013 18:40:47 +0000

Marketers and researchers often use the term ‘consumer’ to describe customers and prospects. We conduct consumer research, and measure consumer awareness of brands. We also have consumer confidence measures as if they are a separate segment of society. As the article I’m not your consumer asserts the term is “counter productive and misguided”. It implies that consuming things is all important and this ignores the largely hidden motivations of human behaviour.

Behavioural economist George Loewenstein suggests that if we want to understand human motivations in general we may learn more from studying non-consumption activities, such as professional mountaineering. There are many motivators of human behaviour that are not directly linked to consumption. Sure, consuming things can stimulate our senses. The pleasure of wealth also gives us status and control over our spending habits that facilitate consumption activity.

However, mountaineering involves putting up with extreme environmental conditions and the “unrelenting misery” that comes with a very physical and dangerous activity. There is the extreme cold, risk of frostbite, exhaustion, hunger, risk of snow-blindness, altitude sickness and an appallingly high death rate. This is not consistent with sensory pleasures or the benefit wealth.

So why do people do it? We know that the vast majority of decisions people make are made unconsciously by our fast and intuitive mind. For this reason it’s perhaps not surprising that when asked directly mountaineers’ aren’t very forthcoming with their answers. Mallory’s “because it is there” does not make us any the wiser.

As a result Loewenstein decided to examine mountaineering literature to uncover clues about their true motivations. Using his expertise in psychology and behavioural economics he looked for evidence of the influence of mainly non-consumption based motivators such as skill, self-recommendation (ego), and a good name (recognition/prestige).

Key Insights:

Empathy Gap & Memory Deficit:

People who are not experiencing the visceral states, such as altitude sickness or hunger, associated with an extreme activity are largely incapable of imagining how they would feel or behave when in such a situation. He noticed that a number of mountaineers acknowledged an ‘empathy gap’ and expressed their frustration at not being able to articulate the true nature of their experience when later they came to write about it.

Some mountaineers also recognised that their memory of an expedition could change almost instantly when an objective is achieved. This might be finishing a particularly difficult stage of a climb or reaching the summit. But despite acknowledging that their memories were inaccurate, there was little evidence that mountaineers changed their behaviour as a consequence (e.g. they carried on mountaineering despite the misery).

Memory deficit occurs because our recollection of an experience is largely determined by the worst or best moment and how the event ends (appropriately called the peak-end rule). Further, the duration of an experience also appears to have little impact upon our memory. This helps explain why we go back to theme parks even though we may spend most of the time queuing for the popular rides.

The Interpersonal Myth:

In the older literature Loewenstein noticed frequent mentions of solidarity and comradeship. However, this was not the case in more recent material. Instead there were references to loneliness, isolation and alienation. In some cases the extreme nature of mountaineering appeared to create enemies out of friends. He asserted that this is because modern mountaineers are much more honest about the nature of their sport. Perhaps also it was less socially acceptable in the early days of mountaineering to write critical remarks about your climbing partners.

Whatever the reason, the isolation of climbing is probably compounded by the empathy gap which prevents people from fully understanding their partners’ discomfort and feelings. This may also partly explain why peoples’ recollections of the same event can vary so much.

Recognition & Prestige:

Few mountaineers like to acknowledge that what matters is their achievement in the eyes of others, but mountaineering is a prestigious sport in many social spheres. However, because mountaineers generally don’t want to appear to be obsessive publicity seekers many will incorporate a ‘scientific’ or ‘humanitarian’ goal to hide their true motivation. This has the added benefit of ensuring that at least one goal of the expedition is likely to be met. This is why when an expedition fails to reach its main target they will switch the focus to the scientific or humanitarian objective.

Self-Esteem:

If it is socially unacceptable for a mountaineer to admit they are after fame and recognition from others, it is even more problematic when they want to impress themselves by demonstrating they have certain desirable characteristics. People seek to achieve this by adopting behaviours that they feel are consistent with the desirable characteristics they wish to be associated with. Thus, you may join a gym to appear more health conscious. But if you rarely make time to go to the gym you will undermine the value of the behaviour. Unlike many behaviours though, mountaineers have the distinct advantage that it is practically impossible for them to ‘fake it’ and it builds character because it is so difficult.

Goal Completion:

Humans have an almost obsessive desire to meet self-set goals. I have a neighbour who always has a ‘project’ on the go and will not let anything or anyone distract her from completing it. This may partly reflect people’s desire to boost their own perception of themselves, but Loewenstein believes that people also use goals to counter their inherent preference for immediate gratification.

Have you noticed that people generally dislike deviating from their own plans? This explains why mountaineers’ sometimes suffer from ‘summit fever’ where they find it difficult to abide by their designated turn-back time even though they know continuing with the climb could prove fatal. Loewenstein suggests that goal-setting and completion is hard wired into our brains and we may also use it as a way of dealing with our problems. Certainly we all know times when we are determined to carry on with a plan even though other people are telling us that it is time to move onto something else.

Mastery:

Skill or mastery is also an important driver of behaviour. People obtain pleasure from undertaking activities that they are good at and especially like to master their environments. Certainly being good at an activity boosts our self-confidence and makes the activity more absorbing. This in turn can help us forget about the burdens of everyday life. This is why skill-based games are so popular as people can improve with practice and they are able to absorb themselves so much that it takes their mind off any problems they have.

A perception of control over our environment is particularly relevant to mountaineers. Research indicates that a feeling of control improves our ability to tolerate pain and it reduces our level of fear. This may explain why mountaineers appear unperturbed by risks they perceive they have some influence over, but are more fearful of events that they accept they have no control over, such as falling rocks.

Meaning:

Loewenstein noticed that after mountaineers had a near death experience almost without fail it made them want to put more time and energy into their personal relationships and reduce their commitment to professional and material goals. He suggests that this occurs because such events heighten our awareness of our own mortality and stops us procrastinating. It makes us realise that if we don’t start to invest in personal relationships now we may not get another opportunity.

How relevant are these motivations?

Mountaineering is an extreme sport and only a relatively small minority of people participate. Indeed, Loewenstein suggests that these motivations may be more important in mountaineering than in other activities and probably better developed in mountaineers. However, he asserts that we can observe these same motivations in many of our daily activities and that we can use them to better understand human behaviour in the general population.

This should not be a surprise to any marketer as many brands try to associate themselves with positive behaviours that might improve our self-perception and how we are perceived by others. By seeking to embed a brand into existing behaviours we attempt to encourage habit formation.

DIY retailers promote ideas for ‘projects’ to nudge us into setting goals that we then feel obliged to complete. Social gaming companies have achievement levels and badges to reward our skill and encourage us to aim for the next challenge or goal. Theme parks benefit from the peak-end rule and duration neglect as we remember the thrilling rides, but soon forget about the time spent in long queues for the most popular rides.

So is it time to stop referring to our fellow human-beings as consumers and focus more on their underlying motivations? It may take a near death experience for a person to appreciate what really is important to them, but we are definitely not here just to consume.Further,our tendency to copy people we admire or want to associate with also has an important part to play in our behaviour. As Loewenstein points out in his paper on The Economics of Meaning:

“And our happiness as part of a collective may depend as much as the successes or failures of the collective rather than our own private successes and failures.” George Loewenstein, Exotic Preferences

Thank you for reading my post and I hope it generated some ideas about human motivations and behaviour.

The author: Neal Cole has over 20 years’ experience of working in market research and website optimization for some of the UK’s largest financial services providers and online retailers. Neal is currently a conversion specialist for a major online gaming company in Gibraltar. He is also a regular contributor to the GreenBook Blog market research website. Neal is a full member of the Market Research Society and an Associate of the Chartered Institute of Marketing. You can follow Neal on Twitter @northresearch and view his LinkedIn profile.

Further reading:Exotic Preferences by George Loewenstein; Thinking, fast and slow by Daniel Kahneman; How the mind works by Steven Pinker.

What Do Business People Really Think About Market Research? A Client-Side Perspective.

Mon, 11 Feb 2013 17:21:00 +0000

What’s the most frustrating aspect of working as a client-side researcher? Some recent posts on Twitter #mrx suggest that research agencies may be the culprit. Well, we all have our bad days. But when working as a client-side research manager I found the attitudes and misconceptions about research among some of my colleagues to be one of the most frequently occurring issues.

First of all there were the general misconceptions about research:

Market research is just about asking people direct questions.
We should run some focus groups because that’s what we usually do.
You have to follow up qualitative research with a quantitative study.
Why would we want to ask people what they want?
We should give customers what they ask for.
30 qualitative interviews is too small a sample to get any useful feedback.
Report back to me when you have completed the research (I don’t need to be involved do I?).
I need some research to tell me what to do.

Then there were the various reasons why we should not conduct research:

We haven’t got time to do any research because it takes too long to conduct and we didn’t include it in the project plan.
Research takes too long to complete. You will need to allow me 2 to 3 weeks to approve the budget and a further week to sign-off the questionnaire as I’m very busy.
We don’t need research as we already know what customers’ need, we just can’t deliver it.
Our advertising agency ran a couple of focus groups to test their ideas.
There’s no point doing research because our products are too complex for customer’s to understand.
I don’t need research to tell me how to produce great creative designs.
Research is too expensive and we’d rather spend the money testing different creative ideas.
If we conduct a survey it will raise expectations that we are going to do something about the level of service we offer.
Our research is not helping us make strategic decisions.

And helpful suggestions about how to design or conduct research:

Why can’t we do all our own research using online surveys?
We could get our sales people to ask customer’s what they think of the service they provide?
I’d like to run some focus groups to get feedback on our new idea from consumers.
You should only have 3 or 4 questionnaire in a customer satisfaction survey because that’s all Enterprise Cars ask in their questionnaire (I received this challenge at 2 separate organisations).
Having a “very poor” option in the rating scale is too negative.
We can discuss how we are going to use the research once we have the results back.

Then there were the reasons for doing research:

We need some evidence for the board to support the decision that we’ve already made.
We don’t need to publish the research if we don’t agree with the findings.
We want to quote a reasonably high satisfaction score in our report and accounts.

And it didn’t always go swimmingly when results were presented back:

It was very interesting, but it didn’t tell me anything I didn’t already know.
There shouldn’t be any recommendations in the report as it’s marketing’s role to decide what actions should be taken as a result of the research.
I haven’t got time to attend the presentation, can you email me the findings.
The staff knew it was a mystery shopper and that’s why they didn’t follow the normal sales process.
The mystery shopper probably didn’t understand the explanation that our sales person provided as it’s a complex subject.
The research was paid for from my budget and so I will circulate the findings.

I would point out that some of these comments and perceptions are thankfully not very common. Some are probably a reflection of the industries I have worked in, financial services and retail. However, even within the same organisation I experienced a wide range of reactions and expectations. The comments above also came from a variety of levels of management, so it would be unfair to say it was only junior or inexperienced managers.

Why do these attitudes exist?

There are various reasons for some of these attitudes, including internal politics and a lack of stakeholder engagement, but here are my main suggestions:

Not top of their agenda! For many middle and senior managers they may spend little, if any, part of their day getting involved in research projects. When they do get involved there is often little expectation of being engaged in any co-creative process. As a consequence they are not always prepared to commit to the time and energy that some projects require.

Illusion of validity. This refers to how as people acquire more knowledge and expertise they have a tendency to develop an enhanced illusion of their skill and become over-confident in their abilities to predict the future. As Kahneman put it, they are “dazzled by their own brilliance and hate to be wrong”. This may be especially problematic in the financial services sector because it is packed full of highly skilled and numerate professionals. The sector’s senior management is dominated by bankers, actuaries, underwriters, and accountants. With hind-sight this culture of over-confidence seems to have been a contributory factor to the 2008 financial crisis. However, forecasting errors are to be expected because the world is unpredictable.

Not invented-here bias. People who come up with an idea have a tendency to become attached to it and greatly overvalue the potential importance of the idea. The danger is that they become obsessively attached to their own idea and fail to objectively evaluate ideas from other sources (e.g. from market research). Further, organisations establish cultures focused towards their own beliefs, terminology, processes and products. Dan Ariely asserts that the overuse of acronyms, which is rife in financial services, can facilitate this process by giving the impression there is a source of insider knowledge and they enable people to talk in a form of shorthand.

Research in the media. The image of research in the media is often dominated by opinion polls and ‘surveys’ that latch onto a correlation that may prove to be spurious. This is sometimes the result of poorly designed studies (see The Law Of Small Numbers). But also by the cognitive bias that Kahneman calls What You See Is All There Is (WYSIATI). This means that people tend to assume that what is visible is all there is and they will not automatically check to see if there is more than they are aware of. Critics of market research appear particularly prone to this bias as they rarely refer to the many and varied modern research techniques deployed by the industry,

Shareholder value versus mission-led businesses. Evidence suggests that Mission-led businesses out perform the market by nine times . This may be because there is a clear focus in the business, including a desire and passion to meet genuine customer needs. By definition management behaviour tends to be aligned with the core values of such businesses . Mark Earls asserts that such businesses may benefit from our ‘herd’ instinct as people with similar beliefs and values like to align themselves with organisations that hold the same goals. They also tend to value customer feedback because they appreciate how important it is to retain customer trust in the brand.

Brand values are just words. Some companies, including Aviva, one of my past employers, have recognized that being customer centric is not just the responsibility of the research department. Where the company culture encourages all employees to engage with customers and get involved with understanding customer needs there tends to be a more open-minded attitude towards how research can assist them in their day job. However, for this to work it is essential that such behaviours are driven from the top. Customers look for confirmation that management behave and make decisions in accordance with their core values and beliefs. Otherwise brand values are just words that have no substance. Recent financial mis-selling scandals in the UK have shown how this is sometimes the case.

Loss aversion. Just like the rest of us business people dislike losses more than they value gains. This is compounded in businesses that are obsessive about cost cutting and results in too much focus on the cost of research rather than the benefits. As it is often difficult to estimate the return on investment for a research project this can result in many potentially beneficial research projects failing to get support from management in such organisations.

Ensuring research projects are followed up and actions, not just results, are communicated: It is essential that any significant research project is followed-up and insights are linked to marketing or business strategy. If this is not visible it can give the impression that research isn’t being used to help drive the business forward.

Thank you for reading my post and I hope it raised awareness of some of the challenges faced by the client-side researcher.

The author: Neal Cole has over 20 years’ experience of working in market research and website optimization for some of the UK’s largest financial services providers and online retailers. Neal is currently a conversion specialist for a major online gaming company in Gibraltar. He is also a regular contributor to the GreenBook Blog market research website. Neal is a full member of the Market Research Society and an Associate of the Chartered Institute of Marketing. You can follow Neal on Twitter @northresearch and view his LinkedIn profile.

Further reading:Thinking, fast and slow by Daniel Kahneman, the Upside of irrationality by Dan Ariely (@danariely); Herd by Mark Earls (@Herdmeister).

The Ripple Effect! (IHWSH) The Influence Of Others On What We Buy.

Thu, 10 Jan 2013 08:57:00 +0000

Can most of the things we buy really be the result of other’s behaviour and opinions, whether openly or through covert imitation? This was a response to my blog about how social networks influence mass behaviour. The idea does challenge conventional thinking about how people make decisions and common assumptions that most market research is based upon. However, many of these are false assumptions so isn’t it about time we looked at the data and came up with a model of human decision making that doesn’t neglect social influence?

The Power of the Herd:

My original post was mainly based upon the book I’ll Have What She’s Having by Mark Earls (@herdmeister), Alex Bentley and Michael O’Brien. This asserts that social learning (imitating other people) is the engine for the spread of culture, behaviour and new ideas. The basic premise is nothing new. ‘Herd behaviour’ was first popularized almost one hundred years ago by Wilfred Trotter in his book Instincts of the Herd in peace and war (1914).

However, more recently the economists Thaler and Sunstein suggested that social influence is important because most people learn from other people and it is one of the most effective ways to nudge behaviour. They noted that in Jonestown an entire population committed suicide due the power of social influence. That teenage girls are more likely to become pregnant if they see other teenagers having children. But also obesity, academic effort of students, broadcasting fads and the behaviour of US federal judges have all been found to be heavily influenced by their peers.

Is it a co-incidence that we buy so many of the same brands as our parents and have adopted some of their behaviours’ and phrases? Some of these preferences change as a result of friends, partners, colleagues, and others in our social networks. But who were they influenced by? Our personal belief system is also the result of interactions with other people. We largely rely on people we respect and trust rather than actively seeking experiences to form our beliefs.

Super Social Humans:

Earls and his co-authors suggest that our tendency to copy results from humans being the most social of all primates. Living in groups we possess superior cognitive abilities that allow us to copy behaviour and ideas. These characteristics have enabled humans to adapt and survive in changing social landscapes. We only have to look at how people now use smart phones to see how quickly humans find new ways to interact and exploit opportunities that didn’t exist just 20 years ago.

That is not to say that people automatically follow each others like lemmings. Humans do of course innovate. Earls and co assert that ideas spread through a small amount of individual learning (innovation), and then social learning by the vast majority of people. Sales and motivation consultant Cavett Robert confirmed the same observation:

“Since 95 percent of the people are imitators and only 5 percent initiators, people are persuaded more by the actions of others than by any proof we can offer.” Cavett Robert

Interactions and Conformity:

Further, Earls and his co-authors point out that even if an idea or behaviour is intrinsically appealing, unless the knowledge of, motivation for, or acceptance spread through our interactions with others it will not get very far. Indeed, social norms emerge and change in our cultures as a result of behaviour spreading through conformity. No one sets out what these norms should be. But people from a particular culture will generally agree on social norms without having to confer with each other. We learn what the norms are through our interactions with other people. Further, as Robert Cialdini and other social scientists have found social norms can be a powerful way to persuade people to behave in a certain way.

Too much choice!

The psychologist Barry Schwartz points out that as the number of choices we are faced with continues to rise people have no alternative but to rely on second-hand information rather than personal experience. His concern was about global telecommunications and how these networks copy and distribute the same stories. Even if a story is false or biased the danger is that the more it is repeated the more people assume it is true.

“When you hear the same story everywhere you look and listen, you assume it must be true.” Barry Schwartz, The Paradox of Choice

In our modern societies copying is likely to be the most effective strategy for most decisions. We neither have the time or capacity to process so many choices. Schwartz visited a US consumer electronics store as part of the research for his book The Paradox of Choice. He estimated that the individual components in the store would enable one to create 6,512,000 different stereo systems. Perhaps it’s not surprising the iPod became so popular!

Market Patterns:

Earls and is his co-authors point out that patterns in market data are the best guide as to whether decisions are heavily subject to social influence. If people largely make decisions independently of each other, and use some kind of rational cost-benefit selection process, we would expect to see a normal distribution (short-tail) of brands. This is most likely to occur where there are relatively few similar products to choose from.

Further, brand loyalty would not to be correlated with brand size and advertising would be as effective at attracting new customers as it is with existing buyers. Markets would be more stable as people wouldn’t follow trends. Sudden and massive cascades (e.g. the switch to digital cameras) wouldn’t occur as peoples’ preferences would not change until they had decided for themselves that a new product would better meet their needs.

However in reality many markets are characterized by long-tail distribution that marketers recognize by the 80:20 rule. Andrew Ehrenberg’s work in social and market research identified that short-tail distribution can exist in static and non-segmented markets. This means there is no turnover of products. But in many of today’s highly segmented markets we can see countless products come and go during a year.

Ehrenberg’s work confirmed the double jeopardy law that small brand’s suffer from both fewer buyers and also less loyal customers compared to large brands. He also found that price elasticity declines in magnitude as a brand’s share rises. Why should this be if we are not influenced by others? His work indicated that most promotions only have a short-term impact on sales and almost all buyers during promotions are repeat purchases rather than new customers. He concluded that most advertising simply raises awareness of a brand but rarely seems to persuade. Indeed, one of his key conclusions is that most FMCG markets lack any real brand loyalty. Purchasing patterns are driven more by habit and availability than any emotional attachment to a brand.

Directed Copying:

Earls and his co-authors make an important distinction between two kinds of copying that humans use to learn from. These are crucial for marketers as they influence the dynamics of the social landscape and how markets change over time.

When we have a choice between many apparently equivalent options we often find copying the behaviour or decisions of a particular person preferable to trying to evaluate all the different options ourselves. Directed copying occurs where people copy in an advantageous direction. This may involve copying successful people, members of our family, people who are similar, or celebrities. When we copy people or groups that we wish to identify with this may lead to social diffusion within the confines of the group.

Undirected Copying:

Undirected copying occurs where we copy people, probably subconsciously, with little if any knowledge of the person we are imitating. This often happens where there are not just a huge number of similar options to choose from, but there are also too many people or groups of people to copy from. Further, people appear as equally uninformed as you and are probably copying other people themselves.

Undirected copying is particularly useful for all those thousands of little choices that we hardly given any thought to and so it is largely an unconscious process. However, it is a model that can be used at the population level. This is because even if individually we have specific reasons for copying someone else, there are likely to be so many and varied reasons for copying that we can consider it undirected.

Undirected copying is probably the norm in many situations and may help predict rates of change. It acts like the interactions of cascade models and is characterized by continual flux, unpredictability and long tail distributions. The latter reflects the fact that only a small percentage of new ideas ever becoming popular as most fail. This is why we see turnover of ideas as the most popular ones are more likely to be copied again.

Some Implications:

Directed copying can explain variations in the normal ebb and flow that results from undirected copying. This could be caused by a cultural or media event (e.g. the Olympics or a motion picture release) as well the adoption by a celebrity. Celebrity endorsements don’t tend to have the same impact as they are often not perceived to be genuine behaviour.

Where an idea is perceived to be better than all the others directed copying kicks in and increases its popularity until something better comes along. Provided copying is primarily influenced by the quality of ideas, then the more people in the population, the more good ideas are likely to be identified.

The nature of copying among populations can be influenced by their interconnections. Large, interconnected networks of people where there are relatively few similar products tend to favour directed copying. In such networks the behaviour of individuals is greatly influenced by those upstream. If we hope that people will select on the basis of quality (i.e. the follow the copy if better rule) then this kind of network is more likely to benefit a superior idea. This is similar to the early adopters marketing model where innovators generate new ideas that are picked up by early adopters and then copied by others.

Undirected copying produces unpredictable landscapes where probabilities are the best guide to picking winners. In financial markets for instance a balanced portfolio has more chance of selecting a winner than trying to pick individual stocks.

The success or failure of an idea is often unpredictable and largely random. What determines success at any one moment is how popular it is.

Conventional marketing and market research thinking significantly underestimates the power of social influence in determining many of the things people buy and the behaviours we adopt. Further, emotional brand loyalty may be a lot less prevalent than many marketers believe it is. Behaviour mainly drives attitudes to brands, but what influences behaviour? I suggest that it may be time to believe the math, not the myth.

If you want to understand more about mapping social behaviour I recommend you read I’ll have What She’s Having by Bentley, Earls and O’Brien. Thank you for reading my post and I hope it has challenged a few ideas you have about marketing and influencing human behaviour.

The author: Neal Cole has over 20 years’ experience of working in market research and website optimization for some of the UK’s largest financial services providers and online retailers. Neal is currently a conversion specialist for a major online gaming company in Gibraltar. He is also a regular contributor to the GreenBook Blog market research website. Neal is a full member of the Market Research Society and an Associate of the Chartered Institute of Marketing. You can follow Neal on Twitter @northresearch and view his LinkedIn profile.

Further reading: I’ll Have What She’s Having by Alex Bentley, Mark Earls (@Herdmeister), & Michael O’Brien; Herd by Mark Earls (@Herdmeister); Influence by Robert Cialdini (@RobertCialdini), Nudge by Thaler (@R_Thaler) and Sunstein (@CassSunstein); The Paradox of Choice by Barry Schwartz (@Barrysch), The Contribution of Andrew Ehrenberg to Social and Marketing Research by John A Bound.

8 Reasons To Start Blogging Today!

Mon, 03 Dec 2012 13:20:41 +0000

It’s FREE and easy to set up and maintain. Using a blog platform is very easy and it’s simple to choose from a range of free design templates. When you want to change the template you can do this for all your posts at the click of a mouse. For the more advanced bloggers some platforms also support free plugins or extras. These extend and expand the functionality of your blog. Examples include audio players, Facebook like buttons, Retweet buttons and language translators. WordPress.org which is one of the most popular platforms supports a wide range of plugins (see link at the end of this post).

You can establish a network of bloggers on your subject of interest. By allowing other people to submit posts to your blog you can benefit from crowd sourcing and attract more content from other bloggers.

Become a leader rather than a follower. You are generating unique and hopefully interesting content. You will join a relatively small, but growing group of people who generate new content via social media.

There are many feedback mechanisms. To help you understand how your content is being received there are many feedback mechanisms including comments, ask me a question, and track backs (links from other sites to your blog).

It enhances your public profile and improves your online credibility. Blogging allows you to show the world what you know about a topic or interest. You can demonstrate how you can structure a persuasive and engaging story or informative article. You can then post your blogs on Twitter, LinkedIn, Facebook and other social networking sites you use.

It improves the reach of your Tweets. When I RT someone’s link I often only get 4 or 5 clicks, and a single RT if I am lucky. When I tweet a new post from my own blog I normally get over 500 clicks the first time I tweet it. I can also rely on a few RTs depending upon how popular it is.

It keeps you focused during major life events. Personally I found blogging helpful when I recently left a job. It helped me focus my energy into a positive activity. You don’t have to blog about the life event, I didn’t. I decided to use it as a way of expressing my views on subjects that I felt strongly about and thought some of my Twitter followers might find of interest. It has worked best where I did some research, read a book or an article, and then put my personal thoughts down in my blog.

Finally, it’s fun. I enjoy being able to express my views in a blog. It’s great therapy! Don’t do it if you don’t enjoy it as otherwise it becomes a chore.

Thanks to Lisa Radin (@milguy23) for giving me the idea to write this blog and thank you for reading it.

I recently came across 9 tips to help you experience the power of blogging which gives some great advice. For those more advanced bloggers who want to use some plugins for Wordpress here is a useful article on impressive blog plugins.

The author: Neal Cole has over 20 years’ experience of working in market research and website optimization for some of the UK’s largest financial services providers and online retailers. Neal is currently a conversion specialist for a major online gaming company in Gibraltar. He is a full member of the Market Research Society and an Associate of the Chartered Institute of Marketing. You can follow Neal on Twitter @northresearch and view his LinkedIn profile.

What Makes Social Networks Tick?

Mon, 12 Nov 2012 14:07:00 +0000

What underlies the evolutionary success of the human race and allows social networks to function? In the book ‘I’ll have what she’s having’ by Bentley, Earls (@Herdmeister) and O’Brien, the authors’ assert that cooperation between individuals is key to both.

Research into a diverse range of group activities by Northwestern University Institute found that individual performance was a poor indicator of team success. Group results are determined by a combination of individual performance and how well people co-operate. This post examines how cooperation evolves in social networks.

BENEFITS OUTWEIGH THE COST:

Co-operation can flourish in complex systems such as social media and modern highly interconnected societies. For co-operation to evolve game theorist Martin Nowak identified that the benefits must outweigh the costs to the individual. It is human nature that people will not persist with a behaviour that does not have a perceived return greater than the time or effort invested in the activity.

The authors’ grouped conditions that need to exist for co-operation to evolve into three categories.

1. Group Mentality:

People support others who are either biologically related (kin selection) or belong to the same group (group selection). Despite the power of kinship it is group selection that is more common in our modern societies. Humans appear naturally hardwired to cooperate as part of a group and psychological studies suggest they have more positive emotions and are more motivated when feeling part of a community. This goodwill allows for sharing, bartering, trading, lending, borrowing and many other collaborative behaviours.

Cooperation allows people to provide different skills to manufacture complex products that an individual would struggle to build, or to grow a single crop that can be exchanged for goods and services produced by other members of the group. People benefit from assisting the group because their long term interests are usually served by the group’s success. As a result more cooperative groups tend to be more successful and grow at the expense of less cooperative groups.

2. Reciprocity:

The system of indebtedness originating from the rule of reciprocation may be a unique characteristic of human nature. Indeed, the archaeologist Richard Leakey suggests that reciprocation is part of what makes us human:

“We are human because our ancestors learned to share their food and their skills in an honored network of obligation.” Richard Leakey

Reciprocation acts as an adaptive mechanism that facilitates the division of labour, the exchange of goods and services, and the formation of clusters of inter-dependencies that link people together into social networks. Robert Cialdini asserts that reciprocation is essential for our ability to make social advances because it provides confidence to the person who gives something to another individual that their effort will not be in vain.

Reciprocation can work where an individual looks for another person to cooperate first before they cooperate. However this form of direct reciprocation can be unreliable because the mood can quickly be destroyed by freeloaders. But it also fails to explain why someone will cooperate with people they don’t know and may never meet again.

Indirect reciprocation, where co-operation has become common, if not the norm, is a more powerful form of reciprocation. This occurs when individuals respond in kind to the reciprocal behaviour of others. Twitter relies on the mechanism of reciprocation to drive the flow of information around the social network. Following other people, re-tweeting other’s posts, answering questions, and leaving comments on blogs all encourage reciprocal behaviour from others.

3. Reputation:

Authority or reputation is a further enabler of indirect reciprocation. Robert Cialdini asserts that our obedience to authority allows for the evolution of complex systems for resource production, trade, defence, and social control that would otherwise not be possible. Such obedience often takes place with little or no conscious thought. Often a communication from a recognized authority is used as a behavioural shortcut that determines how we act in a certain situation. For example on Twitter people will sometimes retweet a link before reading the post because of the reputation of the source.

Earls and his co-authors assert that reputation only works if a person is recognized as having legitimate authority. However, Cialdini points out that in reality just the appearance of authority can be sufficient for people to be influenced by a person or group. For instance titles are supposed to be a reflection of years of work. But it is very easy for a person to adopt just the label and receive automatic submission to their judgement. Clothes, such as a doctor’s uniform, can also trigger our mechanical compliance to authority.

In a similar way group membership and kinship use various forms of identification so that individuals know whether they belong to a group or not. This could be a surname or clan name in some societies or you may be defined by your accent or appearance. Whatever the nature of the group though copying and conforming is an essential part of belonging to a group. Because we are social creatures membership of groups often overrides our individuality and determines our place in society.

“The key to group membership, of course, is copying those around you so that when you’re in Rome you act as the Romans do, and not like someone else.” Bentley, Earls & O’Brien - I’ll Have What She’s Having.

Implications:

Social networks take many forms, from close groups of friends located within a small geographical location, to global social media networks. As a result we can use the ‘rules of the game’ as the authors’ refer to them in many different situations to encourage cooperation and innovation.

There are huge benefits to be gained from encouraging a culture of cooperation within our diverse social networks. People are more likely to be able to achieve change when battling a bureaucracy if they cooperate than working in isolation. Similarly within organisations cooperation is essential for any change program to be successful. Conventional top down strategies will often fail because they have not got buy-in from people lower down the organisational structure. Management need to accept that they can’t force people to do things that they don’t agree with. Innovation is also more likely to result from collaboration.

Brands and organisations in general can assist the process of cooperation by making sharing of content easy and rewarding. Facebook, Twitter and other large social media appear to provide a ready-made solution for sharing. Analysis of the dynamics of Facebook communities by Emilio Ferrara discovered that there are relatively few large communities in Facebook. The vast majority are highly connected small size communities. However, members of such networks often suffer from information overload due to the number of connections each has. This reduces the chance that individual members will see and share content.

As ‘super social’ apes humans are community-minded and benefit from being embedded within groups rather than acting in a selfish and isolated way. Research suggests that people who surround us influence and regulate our behaviour. Organisations can benefit from our social nature by engaging with people in a collaborative manner to encourage creativity and innovation. This helps build trust and is more likely to influence mass behaviour than conventional marketing approaches. Indeed, Rachael Botsman suggests that trust is the currency of the new economy and is our most valuable asset.

Organisations can encourage a culture of reciprocation by taking a genuine interest in their customers and staff. People are generally good at spotting insincere interactions, but appreciate communications that are both helpful and engaging. Offering interesting and unique content facilitates reciprocation because it is more likely to be well received when shared.

Reputation gives authority to communications. Organisations often adopt brand values as a way of demonstrating their commitment to key customer beliefs. However, Mark Earls suggests that actions are the most powerful means of communicating behavioural change. Organisations are more likely to be successful in achieving change if they align the company’s actions with their core beliefs. This demonstrates more clearly than any marketing communication that the organisation is serious about its core beliefs.

The author: Neal Cole has over 20 years’ experience of working in market research and website optimization for some of the UK’s largest financial services providers and online retailers. Neal is currently a conversion specialist for a major online gaming company in Gibraltar. He is a full member of the Market Research Society and an Associate of the Chartered Institute of Marketing. You can follow Neal on Twitter @northresearch and view his LinkedIn profile.

Further reading: I’ll Have What She’s Having by Alex Bentley, Mark Earls (@Herdmeister), & Michael O’Brien, Herd by Mark Earls (@Herdmeister). Influence, Robert Cialdini (@RobertCialdini)

The Influence of Social Networks on Human Behaviour!

Sun, 28 Oct 2012 12:20:00 +0000

This post has also been published on the Green Book Blog market research website.

In ‘I’ll have what she’s having’; Mark Earls and his co-authors explain how social learning (i.e. imitating other people) acts as the engine for the spread of culture, human behaviour and ultimately innovation. The authors reassert the need for those wanting to influence mass behaviour to move away from the “me” to the “we” perspective.

But, why should we care? Well, the authors demonstrate how copying each other has been the driving force behind the success of our species and the spread of innovation. We are so adept at imitating each other that we are often not even aware that we are doing it. Further, the nature of social learning has far reaching implications for organizations seeking to change mass behaviour or spread new ideas.

“Practically it matters because our social inheritance underlies modern human life in a huge, increasingly interconnected population of people to learn from and an enormous oversupply of choices in our lives.” - Bentley, Earls & O’Brien - I’ll Have What She’s Having.

Mark Earls and his co-authors examine the processes by which ideas spread through our social networks. This can often result from person to person imitation without people even consciously being aware of their actions.

This is common where there are large populations confronted with a large number of similar options. People are inundated with choices that lack differentiation. But they are also faced with a multitude of social influences and recommendations that ensures that at an aggregate level there is no clear direction of copying.

Sometimes people consciously direct their copying as they want to be associated with like-minded people and share similar experiences. They may adopt an idea because it appears better than what came before or we may seek to conform because it changes our perception of a social norm. There are numerous reasons why we imitate other people, but essentially herd behaviour is at the heart of the dispersion of ideas, behavioural change and innovation through our social networks.

It is a myth though to suggest that herd behaviour leads to people increasingly behaving and looking the same. We all like to have our own identity and will copy different individuals or groups which ensure diversity flourishes. Indeed, for work clothes we may copy colleagues, whilst our music tastes may be driven by friends we socialize with and the model of car we buy may be influenced by people where we live.

“The paradox of social diffusion is that we all conform in one way or another, but this does not mean we all behave in the same way.” Bentley, Earls & O’Brien - I’ll Have What She’s Having.

SCALE MATTERS - DON’T MISS THE FORREST FOR THE TREES:

So if our interaction with other people through our social networks is the key to understanding mass behaviour, why does much of our marketing activity continue to focus on understanding what individuals think and do? The authors point out that predictive cascade models of how forest fires spread do not concern themselves with the characteristics of an individual tree and what it is made of. Instead they treat each tree as flammable material in a grid system. What matters is how close trees are to other trees and how they interact with each other.

Indeed, social scientists have noticed that many behaviours and lifestyle characteristics appear to cluster in social networks. A study by David Shoham, PhD, investigated why obesity and related behaviours cluster. The research among US school children found that it could only partly be explained by friend selection. They discovered a significant and powerful relationship between obesity and a child’s circle of friends.

Indeed, a child who was not over-weight was considerably more likely to become obese if they were closely connected with children who were already obese. They concluded that it was important not to treat children with obesity in isolation. They also found that in this instance social influence tended to operate more in detrimental ways. A recent TED talk describes the hidden influence of social networks.

Implications:

The analysis challenges the validity of generalizing results from experiments and quantitative research to the wider population. The authors’ assert that “more” is definitely different. Of course humans are not inanimate objects, but the point is that as social creatures’ human society is more than the sum of the individual parts. At an aggregate level our social networks display complexities that go beyond the traditional marketing and research approach that treats individuals in isolation.

As herd theory suggests we are more likely to be influenced by the actions of others in our network. Thus to understand the spread of ideas and innovation we need to pay more attention to the characteristics of our social networks. We are likely to learn more by understanding the scale and structure of networks than studying with the views of individuals. This is about exploring how much social networks cluster, how big and how far they reach, and how they change over time.

Brands and marketing content are not important on their own. What matters most is what people (e.g. staff, customers and non-customers) do with them and how they interact with other people in their networks. The scale and structure of social networks will influence how your brand is adopted and evolves as a social entity. Organizations can’t control how people interact with their brands, but they can encourage interaction and adapt to how social networks interpret and change the context of the brand.

Organizations can be too focused on the actions of their direct competitors. However, emerging trends and innovations from outside an organization’s sector can often be a more valuable source of ideas as they are not subject to the same norms that evolve and constrain behaviour in their sector.

Thank you for reading my post. I hope it has challenged some ideas about human behaviour and has generated some useful ideas about understanding social dispersion.

The author: Neal Cole has over 20 years’ experience of working in market research and website optimization for some of the UK’s largest financial services providers and online retailers. Neal is currently managing conversion optimisation for a major quoted online gaming company in Gibraltar. He is a full member of the Market Research Society and an Associate of the Chartered Institute of Marketing. You can follow Neal on Twitter @northresearch and view his LinkedIn profile.

Further reading: I’ll Have What She’s Having by Alex Bentley, Mark Earls (@Herdmeister), & Michael O’Brien, Herd by Mark Earls (@Herdmeister).

Do Companies Care About The Quality Of Market Research? By @northresearch A client-side perspective!

Sun, 07 Oct 2012 23:13:55 +0100

I’ve recently read a number of posts about the quality of market research. Some of these posts have criticised poor practices of research suppliers and others point to the frailties client side-researchers. Some valid points have been made, but there is a danger that we are missing the bigger picture here.

Market research is a collaborative process and unless all parties work together we will gather data, but we are unlikely to gain much insight. This of course includes the people we call respondents. As Mark Earls points out in his book Herd, co-creativity is deep rooted in human nature. Most new ways of looking at problems are the result of people working together in groups rather than on their own. This is why the nature of the relationship between the client, agency and respondent is so important to the success of research.
Most senior managers in client-side companies are more concerned about the quality of insights and the action that results from research spend. They tend to assume that we are the experts and will use our professional judgement to ensure research is carried out to the required standard.

There are many challenges on both the client-side and the supplier-side to completing a successful research project. However, from working on the client-side there are some practices that can help the different parties work together more collaboratively.

Keep processes manageable and simple. I once came across a colleague who was updating a manual for a continuous customer satisfaction project that was over 100 pages long. The research agency was expected to follow the procedures in the document! Even if someone did read the manual there is no way that they could digest every procedure and ensure they were all implemented.

“Of course, organograms, Gantt charts and 6-sigma processes all make us feel more secure. But this security is based on just the same illusory roots as our own individual volition and sense of self.” Mark Earls, Herd.

Include action planning or post-research workshops in the brief and proposal to ensure that it is positioned to all concerned as an integral part of the process. This can help kick start the process of getting buy-in and commitment from client-side management to an essential part of any project. Unless planned from the beginning there is a risk that management will create a separate process and the research team may not even be involved.

Focus on using your interactions with each other to exchange ideas and knowledge. This can be particularly useful when conducting a review of published research and current thinking related to the business problem.

There are also a number of ways that client-side researchers can encourage a more collaborative approach and improve the chances of valuable insights being identified from a study.

Client-Side:

Don’t rely solely on head office management’s view of the business problem. In any large organization it is difficult for Head Office management to be in touch with what’s happening at the coal face. Company culture and human nature often don’t encourage staff to feedback problems they encounter. Research agencies may be able to help with this process, but it’s valuable for the client-side research to meet with staff at different levels that are directly affected by the problem. This can be a great source for developing hypothesis to test in your research.

Try to uncover hidden agendas’ by engaging with different stakeholders. Challenge the need for research. What would happen if no research was undertaken? Explore what stakeholders anticipate will come out from the research and what they perceive to be the main barriers to change.

Don’t be too prescriptive with your research brief. You can state your preferences for how the research should be designed, but leave it open for discussion and refinement.

Don’t look at the project in isolation. Share other relevant insights with your research agency and discuss whether they can add value to your current project.

There are also behaviours that research agencies can employ to improve the relationship with the client and thus encourage a more collaborative approach. These may seem obvious, but I’m amazed how often agencies don’t follow these practices.

Research Agencies:

Research the organization and client. A lot of client-side teams have been downsized over recent years and so have less time to brief suppliers. Help the client by doing some homework. Use LinkedIn to find out about the background of the client.

When you get a brief from a client call them up to discuss the brief. Find out about the background to the project and allow the client to explain their thinking behind the suggested approach. See how open they are to alternative and more collaborative approaches.

Don’t just re-produce the brief in your proposal. Take the opportunity to add value to the brief and if appropriate look at the problem from different angles. Clients are often put off a proposal if it is perceived to follow a standard template and there is little effort to explore the business problem further.

Be up front about the level of time and support you can offer before you need to charge additional fees. Many client-side researchers are under pressure to save money and don’t appreciate having to request an increase in budget.

Find out about your audience and who the key stakeholders are. Ask the client-side researcher to brief you about any reservations or concerns stakeholders have about the research.

Focus on insights rather than data and methodology. It is a myth that turning up for a debrief with a large PowerPoint deck or a set of data tables impresses clients. Management would rather focus on one slide with genuine insights than spend an hour going through a long detailed presentation.

Many thanks for reading my post. I hope it gave you some food for thought.

The author: Neal Cole has over 20 years’ experience of working in market research and website optimization for some of the UK’s largest financial services providers and online retailers. Neal is currently a conversion specialist for a major online gaming company in Gibraltar. He is a full member of the Market Research Society and an Associate of the Chartered Institute of Marketing. You can follow Neal on Twitter @northresearch and view his LinkedIn profile.

Further reading: Herd by Mark Earls (@Herdmeister) and The Wisdom of Crowds by James Surowiecki

4 Common Myths About Human Decision Making! By @northresearch

Fri, 24 Aug 2012 09:49:00 +0100

Prices are determined by supply and demand!

Despite what economist might tell us, prices are often not the result of an equilibrium between supply and demand. When a new product is launched the initial price can be fairly arbitrary. It may simply reflect what the seller believes customers will be prepared to pay. However, experiments in behavioural sciences show that the first price that we see when considering a purchase becomes imprinted in our mind and acts as an anchor. This influences not only current prices but also our future expectation of the price. This is contrary to traditional economic theory.

This phenomenon is called arbitrary coherence and explains why our first decision to purchase an item is so important to our future behaviour. It also suggests that what consumers are prepared to pay can easily be manipulated. Indeed, Dan Ariely found that the prices we are initially prepared to pay can be influenced by responses to random questions.

In one experiment Ariely got students to write down the last two digits of their social security number before asking them to bid for a number of items in an auction. When the bids were analysed Ariely found that students with the highest-ending social security numbers bid the highest, and those with the lowest-ending numbers bid the least. Ariely’s experiments also demonstrated that once people are willing to pay a certain price for one product in a category, their expectation of prices for other products in the same category are logically linked to that first price (the anchor).

People are mainly influenced by a brand or product before they take an action. This idea is fundamental to the popular A.I.D.A (Attention, Interest, Desire, Action) advertising model.

Experiments by behavioural economists (BE) suggest that most of the decisions we make are influenced unconsciously by our emotions, social norms and what our peers are doing. The context, including the environment we find ourselves in, also influences our behaviour. BE indicates that we then unconsciously review and post-rationalize after the event. This means that we usually act before we consciously consider our decisions and our memory of what drives our decisions is unreliable and often wrong.

Because most of our decisions are driven by the unconscious mind we cannot assume that the customer journey is a linear process as many popular models would have us believe. Mark Earls suggest that it is more likely to be similar to a game of snakes and ladders. Positive influences, such as what we hear from our peers, nudge us towards a purchase. However, negative influences, such as our emotional state, may move us away from a decision.

People have clear preferences and know what they want!

As Dan Arliely points out in his book Predictably Irrational, “everything is relative”. People often don’t know what they want until they see it in context. Priming, anchoring, and framing are key to how we respond to choices we make. People like to compare things that are easily comparable, and the context of how we present items heavily skews our response to them. This is why it is particularly important how we position new ideas or products. For once we have presented something new as being positioned in a certain category or price band it is very difficult for people to accept much movement away from this initial anchor.

This partly explains why asking people about future purchase intentions can be highly misleading. The answers you receive will be strongly influenced by the context of the survey and the individual question. Further, if people are not fully aware of their motivations for past purchases you can’t expect them to predict how they will respond in a future hypothetical situation.

Consumers like to act independently of each other and express their individual preferences.

Humans are a “super social species” (Mark Earls, Herd). Our behaviour is unconsciously influenced by what other people do and more so than we realise or like to admit. When faced with uncertainty we look to how other people behave and will often follow their lead. Indeed, Mark Earls argues that human-to-human interactions about a brand are much more influential than business-to-consumer interactions can ever be. Further, he suggests that consumer generated word of mouth (WoM) is much more powerful than that created through marketing WoM campaigns. This is because people are very good at spotting cheating and deception.

The insight here is that brands are built on interactions between people and not brand values or footprints. Whether it is consumer-to-consumer interactions or staff to consumer conversations, its people that matter most. Marketing departments may be more productive if they encourage C2C interactions rather than trying to control brand communications. There is some evidence to suggest that the C2C interactions potentially generate greater returns than short-term B2C marketing activities.

This challenges current thinking about targeting and the Customer Relationship Marketing (CRM) approach to interacting with consumers. If B2C communications are indeed more short-term and less powerful than C2C interactions then does this undermine some of expected benefits from CRM? Certainly recent research does not suggest that most customers want a relationship with your brand! If this is the case then they key to unlocking the power of WoM may be more about giving power back to your customers to allow them to interact rather than trying to police brand communications.

Thank you for reading my post. I hope it challenged some common assumptions about human decision making.

The author: Neal Cole has over 20 years experience of working in market research and website optimization for some of the UK’s largest financial services providers and online retailers. Neal is currently a conversion specialist for a major online gaming company in Gibraltar. He is a full member of the Market Research Society and an Associate of the Chartered Institute of Marketing. You can follow Neal on Twitter @northresearch and view his LinkedIn profile.

Why Do Companies Buy Cheap Market Research? By @northresearch

Wed, 08 Aug 2012 12:54:00 +0100

I read with interest Edward Appleton’s blog (Can MR Clients Recognise Quality When They See It?). Edward was commenting on Reg Baker’s post Final Thoughts on MRMW where he suggested that

“if online and social media have taught us nothing else it’s that clients sooner or later will buy cheap data over good data every time.”

I agree with Edward that cheapness is missing the point. The issue is value or perceived value in most cases. This is why management consultants are able to command such high fees when they often re-package research and simply present it in a way that is more strategic and digestible for senior management. I have always found research budgets easy to come by when I have been able to demonstrate a clear link with sales or costs. Linking insights to marketing strategy is essential for any client-side researcher and being visibly part of this process is critical for raising the perceived value of insights.

However, I can also identify with the sentiments expressed by Reg Baker. From my experience in financial services I have observed a number of situations that can encourage cost to override the quality of data.

AGENCY ROSTERS:

Rosters that are established with too much emphasis on cost savings and not enough weight given to building relationships rarely achieve their aims. The result is a bureaucratic straight-jacket and wastes a lot of time and money. You end up with fewer suppliers and agencies are forced to reduce unit costs. However, this simply encourages agencies to offer a skeleton service. Anything not explicitly included in the proposal is then charged as an extra. Given the need to show savings it is then difficult to justify any increase in budgets to cover extras that might improve data quality. This strategy for saving money is essentially counter-productive.

COST CHALLENGES AFTER THE WINNING PROPOSAL HAS BEEN CHOSEN:

I don’t mind cost challenges, it’s a fact of commercial life. However, random cost challenges where management ask for cost savings after the agency has been selected can have dire consequences for complex studies. This sometimes happens because marketing managers perceive research as an easy area to cut as they don’t see a direct link to short term business goals. Some managers also see research as a commodity and don’t appreciate that sudden cost reductions will be made by sacrificing sample size or other factors that may ultimately affect data quality.

OBSESSED WITH COSTS:

Some companies are generally obsessed with cost reductions. Such companies are so focused on costs that added value functions like research are treated the same as any other cost centre. This means that procurement expect research departments to use methods such as online auctions for competitive tenders. This again is treating research and data as a commodity and assumes everything including insights can be measured.

MANDATORY SURVEY FOR GLOBAL HQ:

When Global Head Offices impose a standardized survey across all their markets there is a big risk that such research will not be fit for purpose in many countries. I’ve seen this in the UK where the unique characteristics of the UK market are not taken into account by the Global HO. This means that local management do not buy-in to the insights and the study is seen as a necessary evil. One consequence is that quality of data is not seen as a priority.

GARBAGE IN GARBAGE OUT!

There are lots of other situations that I could mention where cost is seen as more important than the quality of data, but most derive from a lack of appreciation of the potential value of insights. The key take out is that we recognize there is a problem and we put strategies in place to deal with it. From a client-side perspective it is a constant process of stakeholder management, and building relationships with suppliers. However, the best way of demonstrating the value of insights is to deliver data that is actionable and clearly assists management in meeting their set targets and goals.

Many thanks for reading my blog and I would love to hear your thoughts on this important topic.

The Psychology of Loss! By @northresearch #mrx

Mon, 30 Jul 2012 12:05:00 +0100

As anyone who bought stocks at the height of the dot.com bubble will probably understand, making a quick profit is great, but making a loss is difficult to stomach! Behavioural scientists call this loss aversion. People are intrinsically afraid of losses. When compared against each other people hate losing more than they enjoy winning. Thus losses loom larger than gains even though the value in monetary terms may be identical.

Research studies into the psychological value of losses and gains indicate that people may have a loss aversion ratio of between 1.5 and 2.5. This means a loss that is identical in money terms to a gain may be valued up to 2.5 times more than the gain. This is an average as some people are more loss averse than others.

For example professional gamblers are more tolerant of losses. This seems to be because they are less emotionally involved in individual bets than the amateur gambler. The key for any risk taking behaviour appears to be to think like a professional trader or gambler. Don’t get emotional about a purchase or a bet. Think of it as purely a transaction.

IMPLICATIONS OF LOSS AVERSION

Loss aversion is one of the most important drivers of human decision making. This is because it inevitably leads to risk aversion and a number of predictable behaviours in certain situations:

Threat to lifestyle:

Where a loss could be ruinous or would threaten their lifestyle, people will normally dismiss the option completely. This is one reason why spread betting companies force customers to set automatic stop losses on most of their accounts. This protects customers from their bad bets by limiting potential losses. If there was no such stop loss in place most people would never consider this type of betting.

Winners and losers:

Where people are presented with a situation where both a gain and a loss is possible there is a tendency to make extreme risk averse choices. For instance a person is given the choice between a small but certain gain and a chance for a large gain that also has a low chance of a large loss. People have a tendency to focus on the potential for a large loss and often select the former, more certain option. This is why people are drawn to guaranteed returns and even a small probability of a large loss is enough to make people shy away from certain types of investments.

Bad choices:

Where the choice is between a certain loss and a larger loss that is just a probability (i.e. there is a chance of no loss), diminishing sensitivity can result in excessive risk taking. This helps explain why people will sometimes throw more money at a loss making venture in the hope that they can turn the business around. Gamblers are also prone to putting more money at risk after making substantial losses. Their mind set is focused on the potential for their next gamble to win the jackpot and wipe out their losses. People become so emotionally involved in trying to avoid a loss that they fail to see they are just making the situation worse.

Power of ownership:

Where a person buys something with the intention of consuming or using it the minimum price that they are prepared to sell the item for is often higher than the maximum price they would be prepared to pay themselves. This is called the endowment effect. The ownership of goods appears to increase the perceived value of an item, particularly for goods that are not frequently traded.

This is the result of our reluctance to give up an item that we already own. Such behaviour can be seen in the housing market where sellers often have to lower their initial asking price as buyers frequently are not prepared to pay the price sellers value their homes at. The endowment effect is most prominent for new goods, such as cars, where owners value their goods much closer to the original purchase price than potential buyers do.

Status quo bias:

Loss aversion is also powerful force in preventing change. People have a general preference towards the current state of affairs (e.g. their existing supplier) over changing to a better alternative. This is often attributed to a combination of loss aversion and the endowment effect. However, fear of regret in making a wrong decision can also play a part in inertia.

This is why it is important to understand the effect of loss aversion and emotional factors when researching how to encourage switching. Money back guarantees and free trials are often used by companies to reduce the perceived risk of loss and regret that stops people switching away from what they know. However, the fear of loss and feeling regret are such powerful emotions that these activities often fall on deaf ears. Loss aversion is probably the most effective loyalty program most companies have on their side.

“Loss aversion is a powerful conservative force that favors minimal changes from the status quo in the lives of both institutions and individuals.” Daniel Kahneman, Thinking, fast and slow.

HOW PEOPLE REACT TO RISK OR PROBABILITIES:

As I’ve mentioned, loss aversion and risk are intrinsically linked. Research into the psychological value (i.e the weight) that people give to different probabilities has identified two key biases that influence human decision making in the face of uncertainty.

The possibility effect results in highly unlikely (low probability) events being given more weight than they justify. People naturally overestimate the probability that these events occur and so are more willing than they should be to respond to offers that tap into these perceptions.

This helps to explain the attractiveness of betting on unlikely outcomes (e.g. a horse with odds of 100 to 1) and insurance policies that cover uncommon events (e.g. extended warranties). If people assessed odds rationally they wouldn’t gamble on such unlikely events as they would over time be better off keeping their money in their pocket.

In market research this means that people tend to express more concern about low probability events such as crime or freak accidents than we might expect them to. This may also explain certain risk averse behaviours that give the impression that the chance of an event is higher than it is in reality.

The certainty effect leads to events that are almost certain being given less weight than their probability justifies. Due to loss aversion it is human nature to want to eliminate risk rather then reduce it. In horse racing this means people place fewer bets on the favourite than we would expect if they were totally rational. Instead the possibility effect encourages people to bet on rank outsiders when the odds don’t justify it.

In retail, rather than offering 4 for the price of 3, people respond better to 1 free with every 3 purchased. The latter is more compelling because the zero price has more certainty. For websites it also means that if visitors are slightly unsure about how genuine or secure a website is they will have a tendency to magnify the risk. This may lead to visitors abandoning a transaction. It also explains why we are so responsive to guarantees. A guarantee eliminates any uncertainty about the situation, whether it’s about an application being accepted or getting the advertised offer/rate. People are often unsure if they will qualify for offers so a guarantee removes this concern.

A study carried out by Kahneman and Tversky for their Prospect theory indicated that unlikely events (1% to 2% probability) are over weighted by a factor of 4. However, for an almost certain event the difference is even larger. In experiments a 2% chance of not winning was given a weighting of 13% (or an 87.1% chance of winning).

THE RISK OF A RARE EVENT:

Where the odds of an event are very small (e.g. around 0.001% or less) people become almost completely indifferent to variations in levels of risk. Rather emotional factors and how a risk is framed are the key drivers of how people react to these levels of risk. This helps to explain why people are often too willing to bet on extreme events happening or why they buy multiple lottery tickets when there is a large jackpot.

“When the top prize is very large, ticket buyers appear indifferent to the fact that their chance of winning is minuscule.” Daniel Khaneman, Thinking, fast and slow

Research has also found evidence that rich and vivid descriptions of an outcome (e.g. fantasies about your lifestyle as a lottery winner) help to reduce the impact of probabilities. In particular people are more heavily influenced (in terms of weighting of probabilities) if an event is described by using frequencies (e.g. the number of people) than by using standard indicators of probability or risk.

This is why gaming sites tend to promote the number of winners rather than the chance of winning. From a marketing perspective it suggests using rich media to bring events to life and avoid using abstract concepts of probability that people struggle to understand.

So, loss aversion and related biases are a key driver of human decision making in many situations. It explains how uncertainty skews surveys that ask respondents direct questions about risk and uncertainty. If there is any uncertainty about an outcome people are likely to exaggerate the potential risk and respond accordingly. For this reason more value is likely to be gained from observing consumer behaviour and analysing the choices they make (e.g. through conjoint analysis or online experiments).

Thank you for reading my post and I hope it has generated some ideas for future research and experiments.

The author: Neal Cole has over 20 years experience of working in market research and website optimization for some of the UK’s largest financial services providers and online retailers. Neal is currently a conversion specialist for a major online gaming company in Gibraltar. He is a full member of the Market Research Society and an Associate of the Chartered Institute of Marketing. You can follow Neal on Twitter @northresearch and view his LinkedIn profile.

Further reading: Thinking, fast and slow by Daniel Kahneman, Influence by Robert B. Cialdini, PHD (@RobertCialdini) ; Predictably Irrational by Dan Ariely (@danariely); the Upside of irrationality by Dan Ariely

How Market Research Can Help Prevent Mis-Selling Scandals! Monitoring Service & Advice

Thu, 05 Jul 2012 11:38:00 +0100

The latest mis-selling scandal in UK banking reminded me of the value of having accurate and credible monitoring of customer interactions where advice is being given. In financial services this is particularly important because poor advice can be very costly to the customer and may have long term consequences on their lifestyle.

However, reputation and good will is critical in all businesses and it is essential that your customers have confidence that you have the right controls in place to identify when service levels and advice are consistently below expected standards.

MONITORING CUSTOMER INTERACTIONS:

In one of my research roles I came across a company who assured me that they could measure real customer interactions be sitting next to advisers and recording their telephone conversation with customers. I was advised that this would not influence their behaviour because the advisers were dealing with business transactions. Sales management were also comfortable with this approach.

This is clearly a fallacy. There is plenty of research that indicates it is human nature to behave differently when we know we are being observed. People are more careful to follow standard procedures and want to portray themselves in a good light with everyone concerned.

Indeed, a number of years ago I was asked to establish a programme of research to monitor service standards and identify training needs for an insurance company’s direct sales force. Each sales person was already evaluated on a regular basis by being accompanied and assessed during a normal sales visit. The vast majority of sales people passed these assessments without much trouble. The question was whether these observations were a true reflection of their normal behaviour.

EVALUATING FACE-TO-FACE SERVICE & ADVICE:

To ensure an accurate and detailed evaluation of service standards and behaviour I established a program of regular mystery customer surveys. We recruited people who met the basic customer profile and gave them a very simple scenario (customer need) to follow. This allowed the customer to use their own details as much as possible. They also collected any documents or leaflets they were given during the process.

THE RESULTS:

Sales management and Legal were shocked by the findings. There was a total lack of consistency in how the sales process was followed and most advisers did not perform to expected standards. This was valuable feedback though and a great deal of effort was employed to improve the customer experience and the standard of advice provided.

IMPLICATIONS FOR RESEARCH:

Only video mystery shopping (using a hidden camera) can accurately capture every element of customer interactions to ensure there is no disagreement about what was said and done. Where traditional pen and paper mystery shopping was used I believe this was a false economy. The sales process in FS is too long and complex to be able to rely on the memory of a mystery shopper.

It is difficult for anyone to ignore a video of poor or misleading advice in FS. This is partly because video evidence can capture the whole sales experience. But also regulators will normally be given access to such material when they visit companies and they will expect to see evidence of corrective action.

There was no correlation between customer satisfaction with the advice given and the adviser’s compliance with basic standards for advice giving. This is perhaps not surprising as why should a customer understand details of the advice process. But it does confirm that Voice of the Customer research should not be used as an indicator of the quality of advice provided.

Videos of customer interactions are a powerful aid to change. They allow advisers to see the interaction from the customer’s point of view that encourages changes in behaviour that would otherwise be difficult to achieve. Each adviser was able to view their video with their manager and agree a detailed personal development plan to address any issues identified.

In FS you need fully trained advisers or trainers to assess the customer interactions. Each company has its own standards and you need a good understanding of regulatory requirements to accurately evaluate a service and advice.

OVERALL CONCLUSION:

The findings suggested to me that the regulatory framework is too complex and prescriptive. The focus should be on giving customers good service and advice rather than ticking boxes and following set procedures.

People need to be able to trust advisers, particularly when dealing with money issues. However, a minority of people will always have a tendency to cheat or cut corners unless there are controls in place to spot such rogue behaviours. It is human nature and it happens in every sector. Video mystery shopping is an excellent tool that can be employed to capture the reality of the customer experience and the nature of advice given. With the correct controls in place it can be a catalyst for positive change in an organisation and a means for identifying potential mis-selling.

Thank you for reading my post. I hope it generated some ideas for conducing and using market research.

The Myth of Consumer Rationality! Financial Services, Gambling & Behavioural Economics. Insights For Market Research.

Sun, 10 Jun 2012 23:59:00 +0100

Now published on the GreenBook Blog market research website!

I’ve worked as a customer insight and research manager in financial services (FS) for most of my career. During this time I’ve noticed that colleagues often assume that consumers are more rational when buying financial products compared to other categories of goods and services. There is a perception that FS products are more ‘serious’ than your average consumer goods product (FMCG).

This view is sometimes supported by The Consumer Involvement Theory. The theory suggests FS purchases fall into the high involvement and rational segment of the model. This is due to the relatively high cost of FS products and that purchases are more about logic and less about emotion. You don’t buy a pension everyday!

But what does the evidence from experiments in behavioural economics and neuroscience indicate about rational decision making in the face of risk and uncertainty? Are consumers’ really discreet, self-determining individuals who make considered, rational decisions?

This view increasingly looks misguided and is probably a fallacy created by our own minds to make us feel in control of our behaviour. As Mark Earls points out in his book Herd:

“Our failure to acknowledge the truth about human nature distorts our attempts to understand human behaviour and frustrates our attempts to change it. Bad theory = Bad Plan = Ineffective action.” Mark Earls on Stephen Pinker, Herd

Behavioural economists Dan Airely and Nobel laureate Daniel Kahneman have uncovered strong evidence that rational decision making is often an illusion. That is not say people don’t behave differently when considering money issues. Dan Ariely found that just thinking about money makes people more selfish, self-reliant and less charitable. However, these traits don’t necessarily make people more rational in their FS decision making.

Insight identified from behavioural economists challenge many of the basic assumptions of traditional economics and related theories of decision making. Some of the Key insights are:

Emotions - Human decision making is unconsciously driven by our emotions and social norms much more than we have appreciated in the past. This is due in part by our reliance on our fast, intuitive, but largely unconscious mind. Daniel Kahneman refers to this as system 1. This makes the majority of our decisions. But its frequent use of rules of thumb (heuristics) make people prone to biases that can lead to sub-optimal decisions.

Answering an easier question - Because we find cognitive thought hard work, system 1 will often substitute an easier question for a difficult question to answer instead. It will do this automatically if we are unable to easily retrieve an answer to a hard question.

Context dependency - Our state of mind and the decisions we make are heavily influenced by the environment within which we find our selves. This leads to inconsistencies in our decision making that we are largely unaware of.

Memory - Our memory of events is unreliable and heavily biased towards the beginning, the peak of activity and the end of an event. We neglect the duration of an event and have little awareness of our true motivations.

Illusion of understanding - Kahneman uses the acronym WYSIATI (What You See Is All There Is) to describe our tendency to think that the limited information we have about the world is all that there is to know. Humans create narrative fallacies in an attempt to make sense of what are often random events.

“Our comforting conviction that the world makes sense rests on a secure foundation: our almost unlimited ability to ignore our ignorance.” Daniel Kahneman, Thinking, fast and slow

People herd - As Mark Earls points out humans are a “super social species”. Our behaviour is unconsciously influenced by what other people do and more so than we realise or like to admit. In the face of uncertainty we look to how other people behave and will often follow their lead.

Mark Earls takes this insight a step further and argues that market size and market share are primarily a function of consumer-to-consumer interaction. The implication being that rather than focusing on supply side factors, marketing should pay more attention to understanding and modelling interactions that generate mass behaviour (i.e. consumer-to-consumer interactions).

”You have to understand the rules of interaction - the accepted behaviours and rules of thumb of the individuals whose interaction generates the complexity of behaviour that you are studying - because these will shape the outcome of interactions.” Mark Earls, Herd

Real people are also sometimes generous and willing to contribute to the good of the community. These are not the characteristics of a rational person described by traditional economic theory.

So peoples’ decisions are mainly influenced by factors that they are not consciously aware of. Humans review and post-rationalize decisions. This suggests that our perceptions of a product or brand are likely to change after an action rather than before as implied by traditional marketing models like AIDA (Attention, Interest, Desire, Action). It should probably be changed to Context, Attention, Emotion/social norms, Action, Review, Memory (C.A.E.A.R.M). Not a great acronym, but I still find marketing people using the old AIDA model so we do need to encourage them to move on from it.

PROSPECT THEORY:

So what specifically does behavioural economics have to say about FS decision making? Risk and uncertainty is at the heart of Daniel Kahneman and Amos Tversky’s Prospect theory. Three cognitive principles form the basis of the theory:

The perceived value of a decision outcome (the utility derived) is dependent upon the history of one’s wealth (the reference point). This may seem obvious, but traditional economics does not recognize that a poor person will perceive a gain of £1,000 as generating more utility than would a millionaire. A person’s reference point is often the current status quo.

People experience diminishing sensitivity to both sensory changes (e.g. light) and to changes in wealth. So for example the subjective difference between £1,000 and £1,100 is much smaller than between £100 and £200.

Humans are loss averse. When compared against each other people dislike losing more than they like winning. Thus losses loom larger than gains even though the value in monetary terms may be identical. This explains why investors find it painful to sell shares that are below their purchase price and find it easier to sell shares that are in profit. This is not rational behaviour.

LOSS AVERSION:

Loss aversion is key to understanding how people perceive financial services, and gambling of course. Extensive research has been undertaken to estimate the psychological value of losses and gains. These studies have identified a loss aversion ratio of between 1.5 and 2.5. This means that a loss that is identical in money terms to a gain is valued up to 2.5 times more than the gain.

Interestingly, professional risk takers such as fund managers are more tolerant of losses. This may be because they are less emotionally aroused than the amateur investor. Loss aversion leads to predictable behaviours in a number of situations:

If a potential loss could be ruinous or would threaten their lifestyle, people will normally dismiss the option completely. Only obsessive gamblers would normally consider this type of situation.

Where people are presented with a situation where both a gain and a loss are possible people tend to make extreme risk averse choices. For example a person is presented with the choice between a small guaranteed gain over 5 years (e.g. a deposit based account) and a stock market linked product that carries a low risk of a large loss. People have a tendency to focus on the large potential loss and often select the former, less risky option. This is why advisers will focus on the large upside potential of a stock market linked investment and try to play down any potential for large losses.

Where the choice is between a certain loss and a larger loss that is just a probability (i.e. there is a chance of no loss), diminishing sensitivity can result in excessive risk taking. This explains why private investors sometimes refuse to cut their losses on poorly performing shares and instead invest more money (to reduce the average purchase price) in the hope that the price will recover sufficiently to avoid a loss. This is known as the sunk-cost fallacy.

“Loss aversion is a powerful conservative force that favors minimal changes from the status quo in the lives of both institutions and individuals.” Daniel Kahneman, Thinking, fast and slow.

THE POSSIBILITY AND CERTAINTY EFFECTS:

When considering FS decision making it also necessary to understand how consumer evaluate risks. There are two key biases that relate to the psychological value (weight) given by people to different probabilities or risks.

The possibility effect results in highly unlikely (low probability) events being given more weight than they justify. This helps explain the attractiveness of both gambling and insurance policies that cover unlikely events (e.g. extended warranties).

The certainty effect leads to events that are almost certain being given less weight than their probability justifies.

Indeed, research shows that unlikely events (1% to 2% probability) are over weighted by a factor of 4. However, for an almost certain event the difference is even larger. In experiments a 2% chance of not winning was given a weighting of 13% (or an 87.1% chance of winning).

RARE EVENTS:

Where the odds of an event are very small (e.g. around 0.001% or less) people become almost completely indifferent to variations in levels of risk. Rather emotional factors and how a risk is framed are the key drivers of how people react to these levels of risk. This explains why after a terrorist attack there tends to be more focus on whether insurances cover such risks even though the level of risk (to an individual) remains extremely low. It also helps to explain why people are often too willing to bet on extreme events happening.

“When the top prize is very large, ticket buyers appear indifferent to the fact that their chance of winning is minuscule.” Daniel Khaneman, Thinking, fast and slow

Kahneman also found evidence that rich and vivid descriptions of an outcome (e.g. the lifestyle of a lottery winner) helps to reduce the impact of probabilities. In particular he found that people are more heavily influenced (in terms of weighting of probabilities) if an event is described by using frequencies (e.g. the number of people) than by abstract concepts such as chance or risk.

RISK AND NARROW FRAMING:

Due to our use of intuitive thinking (system 1) and the laziness of system 2, most people have a tendency to evaluate individual risks separately and independently. People tend to make decisions when a problem arises rather than trying to look at the bigger picture. What Khaneman found was that this approach will almost always lead to sub-optimal decisions due to our focus on loss aversion. The best solution is to aggregate decisions together. A professional investor achieves this by always looking at individual shares as part of a balanced portfolio. This reduces the impact of loss aversion on our preferences.

MENTAL ACCOUNTS:

People hold their money in different accounts, some of which are real and some are only mental (e.g. money from my dad to buy my daughter a present). There is normally the everyday spending account, general savings, savings assigned for emergencies, maybe savings designated for private education and so on. People use mental accounting as an aid to self control. They have a clear hierarchy of willingness to use these accounts to cover their immediate needs and have an emotional attachment to the state of their mental accounts.

Mental accounting is a form of narrow framing and can have disastrous consequences in financial services. It often leads to private investors to set up a separate mental account for each share they own. This results in investors wanting to close each account as a gain. So when they need money for their daughter’s wedding what do they do? They have a very strong preference to sell winners rather than losers. It also helps to explain why consumers might have an outstanding credit card balance of £2,000 (with an APR of around 20%), and yet have savings of £10,000 (paying just 4% interest). These are not rational behaviours.

REGRET:

Emotions are also an important factor in how we evaluate gains and losses. Most theories of decision making assume that people evaluate available options in a choice separately and independently. This does not reflect human nature. People feel regret when the experience of an outcome is affected by an alternative option that was open to them, but they did not choose. Thus missing out on selecting the top performing managed fund may influence the perception of your investment choice.

ARE PEOPLE REALLY MORE RATIONAL WHEN BUYING FS PRODUCTS?

The evidence clearly suggests no. People are prone to the same biases when purchasing FS products as they are when buying consumer goods. Indeed, FS decisions may sometimes be subject to more powerful disruptive forces (e.g. loss aversion and mental accounting) than other types of purchases. This demonstrates the importance of regulation and consumer education in the FS sector.

WHY DO FS MANAGEMENT BELIEVE IN RATIONAL CONSUMERS?

Senior management in the FS sector is dominated by a series of very numerate professions who are highly skilled at estimating risks and calculating probabilities. There are actuaries in life & pensions, underwriters in general insurance and lending, bankers, accountants, and a smattering of economists. Given their training and experience of dealing with risk and uncertainty they are less prone to key cognitive biases such as risk aversion and mental accounting. For this reason FS management are less likely to appreciate how strongly consumer behaviour is influenced by these biases.

I observed an example of this when I worked for a large UK life assurance company. We developed a Guaranteed Capital Bond that protected your initial investment and provided some limited potential to benefit from any rise in the stock market. It researched well, but the CEO (who was an actuary) thought it wouldn’t sell. It didn’t offer enough upside potential if the stock market grew strongly. The Director of Sales & Marketing (a sales person) was supportive of the launch because he understood how loss averse people can be. I don’t need to say who won the argument when it went on sale.

IMPLICATIONS FOR MARKET RESEARCH:

I could write a whole post on the implication for market research arising from the above insights. Instead I would like to finish with just a few suggestions for consideration:

Use analytics to better understand current customer behaviour. In the digital age we can now use web analytics to track and measure online customer behaviour. We also have the ability to conduct online experiments (i.e. A/B and Multivariate testing). But even in the off-line world there are many sources of data to explore and analyse before we need to conduct primary research.

Fewer focus groups please! In some FS organisations focus groups appear to be the default research tool. In a previous post, Should focus groups carry a health warning?, I pointed out my own concerns about this method of research. Interestingly John Kearon of BrainJuicer made a similar observation:

“Yes, they (Focus groups) can reveal powerful insights in the hands of a great researcher, but all too often they are just the lazy default of unquestioning research buyers and produce little or no insight on the subject at hand.” John Kearon, BrainJuicer

Don’t ask direct questions but instead observe behaviour. People are unreliable in their recall of why they make decisions. Insights are more likely to emerge from observing human behaviour during key experiences than trying to ask direct questions. This can be carried out in a number of ways including ethnography, auto-ethnography and analysis of customer interactions (e.g. telephone calls) with customer facing staff.

Covert monitoring of behaviour. There is plenty of evidence to show that people behave differently when they know they are being observed. I used video mystery customers (using a hidden camera) to evaluate training and development needs for one company’s sales team. I was informed that almost all of them met agreed standards when they were accompanied on visits by a trainer. However, almost the opposite was observed when we analysed the videos of the mystery customer appointments. Unless you have regular monitoring of service standards in place you can’t be sure what level of service your customers are receiving.

Customer facing staff. Listening to sales people, advisers, brokers, telephone agents, people who speak with customers on a daily basis can very insightful. People are better at observing how other people behave than trying to explain their own behaviour. Experienced sales people collect a wealth of knowledge about how customers respond to different strategies, what turns them off, what excites them, what confuses them and what appears to motivate them.

Co-create. A collaborative approach to research encourages mutual respect and shared learning. Including social influencers (i.e people who shape attitudes and behaviours of their peers) in the process helps ensure the generation of more innovative ideas than would be the case with only experts and working parties involved. Collaboration also helps break down barriers between different stakeholders and speed up concept development and refinement.

Crowd sourcing. There is growing evidence that asking large groups of people to participate in predictive markets can be a very good way of selecting winners. James Surowiecki’s book, The Wisdom of Crowds, has a mass of evidence to support this approach.

Understand the ‘how-mechanic’ of groups of consumers. To really understand ‘herd’ behaviour companies need to focus on influencing consumer-to-consumer interaction rather than B2C interaction. Mass behaviour occurs under certain circumstances and is based upon simple rules.

“By examining the interactions and behaviours that a particular group of people has, it is possible to identify the underlying rules that drive it.” Mark Earls, Herd

The mistake many organisations make is to see Word of Mouth (WoM) as a channel rather than the way consumers interact and influence each other. To benefit from this insight it is necessary to understand the conditions of interactions (e.g. the environment) and the rules of interaction (e.g. how people engage with each other). By making small changes to either or both of these elements of interaction we may be able to significantly influence individual and ultimately group (e.g. private investors) behaviour.

Thank you for reading my post. I hope it challenged your thinking about consumer decision making and the implications of behavioural economics for market research.

Further reading: Thinking, fast and slow by Daniel Kahneman, Herd by Mark Earls (@Herdmeister), Influence by Robert B. Cialdini, PHD (@RobertCialdini) ; Predictably Irrational by Dan Ariely (@danariely); the Upside of irrationality by Dan Ariely; The Wisdom of Crowds by James Surowiecki; Consumer.ology by Philip Graves (@philipgraves); Nudge by Richard Thaler (@R_Thaler).

How Myths Are Formed! The Law Of Small Numbers.

Wed, 09 May 2012 12:27:00 +0100

Much of the attention given to Daniel Kahneman’s book Thinking, fast and slow has been about how people make decisions and the implications for models of consumer behaviour. However, the book also points out that researchers have their own bias - the law of small numbers! Is this bias to blame for many modern day myths?

What is it?

It’s a general bias that makes people favour certainty over doubt. Most people, including many experts, don’t appreciate how research based upon small numbers or small populations can often generate extreme observations. As a result people have a tendency to believe that a relatively small number of observations will closely reflect the general population. This is reinforced by a common misconception that random numbers don’t generate patterns or form clusters. In reality they often do. Kahneman makes this observation:

“We are far too willing to reject the belief that much of what we see in life is random.” Daniel Kahneman, Thinking, fast and slow.

Why are researchers prone to the law?

Kahneman acknowledges that researchers (social and behavioural scientists in his case) have too much faith in what they learn from a few observations:

They select too small a sample size which leaves their results subject to a potentially large sampling error.

Experts don’t pay enough attention to calculating the required sample size and instead use rules of thumb.

A well known example of this is the supposed ‘Mozart effect’. A study suggested that playing classical music to babies and young children might make them smarter. The findings spawned a whole cottage industry of books, CD and videos.

The study by psychologist Frances Rauscher was based upon observations of just 36 college students. In just one test students who had listened to Mozart “seemed” to show a significant improvement in their performance in an IQ test. This was picked up by the media and various organisations involved in promoting music. However, in 2007 a review of relevant studies by the Ministry of Education and Research in Germany concluded that the phenomenon was “nonexistent”.

What is to blame for the bias?

Kahneman puts much of the blame for people being subject to the bias of small numbers on System 1. This is because system 1:

Eliminates doubt by suppressing ambiguity and automatically constructs coherent stories that help us to explain our observations.

It embellishes scraps of information to produce a much richer image than the facts often justify.

Is prone to jumping conclusions and will construct a vision of reality that is too coherent and believable.

Humans are pattern seekers and look for meaning in their observations.

People do not expect to observe regular patterns from a random process and when they do see a potential correlation they are far too quick to reject the assumption that the process is entirely random.

Overall Khaneman believes people are prone to exaggerating the consistency and meaning of what they see. A tendency for causal thinking also leads people to sometimes see a relationship when there isn’t one.

Questions for Researchers?

Kahneman’s work raises some important questions for researchers and customer insight specialists.

We are pattern seekers, and we often use small samples in qualitative research and usability testing. However, is there a tendency to extrapolate the findings from small scale studies to the wider population?

Do researchers sometimes select too small a sample size in quantitative studies and experiments? Is this because they use a rule of thumb rather than calculating the statistically required sample size?

Are we too quick to reject a random process as being truly random?

As with all forms of bias reality is characterized by a spectrum of behaviours from the rigorous to the lax. From my experience on the client-side of research there are a number of reasons why research sometimes falls foul of the bias.

Observations from a client-side researcher!

Usability tests evaluate actual behaviour so normal sampling rules don’t apply!

I read this recently in a blog about website usability testing. This is a myth. The reason for only undertaking a small number of tests is because there are diminishing returns. After 5 to 10 tests few new usability risks tend to be generated. The law of small numbers still applies even when it involves human behaviour.

Like any form of qualitative research usability testing is a valuable way of uncovering potential risks and perceptions of a new design. However, just like traditional qualitative research, usability testing still benefits from being validated by using quantitative techniques (e.g. A/B or multivariate testing).

Treating qualitative findings like quantitative data!

I wasn’t going to include this as it seemed too obvious. I changed my mind when I read a post on a LinkedIn group which asked; Can qualitative become quantitative?

The answer is normally no as qualitative studies usually rely on small numbers and a less structured approach to questionnaire design. This means that each interview is unlikely to be identical to the others and so are not comparable.

However, the post reminded me of a number of occasions where I witnessed people latching onto the number of respondents choosing an option in a qualitative study as being indicative of the frequency of behaviour in the wider population. This is a risk when quoting numbers or proportions in qualitative research. Non-researchers sometimes have a tendency to interpret proportions in qualitative research as indicative of actual customer behaviour.

Senior Management comprehension of sampling & statistics:

When I worked for a life insurance company I was constantly being challenged about the reliability of findings from small samples. The reason for this was simple. Almost all the senior management were actuaries. This meant they had an excellent grasp of the potential bias caused by sampling. This had the benefit that other departments were unlikely to be able to misuse research based upon small samples because they would meet the same challenges as I did.

DIY research tools (e.g. Surveymonkey):

DIY tools have given non-researchers easy access to the means of conducting and analyzing their own surveys. I am not against the use of these tools. Unfortunately though many non-researchers who use DIY research tools may not have sufficient knowledge of sampling and statistics to correctly design or analyse data from surveys. If this is the case it suggests that non-researchers may be particularly prone to bias resulting from the law of small numbers.

Correlation does not mean causation!

Key driver/multiple regression analysis is often used for modelling the influence of independent variables on a single dependent variable. However, such models can only infer a causal relationship and further experimentation and analysis is needed to support such a relationship.

The nature of survey data (e.g. independent variables are often correlated) and sample sizes does not always justify the use of such statistical techniques. Big data can play a key role here in providing more robust evidence for causal relationships. But without evidence to suggest a reason for a causal relationship it is important that a correlation between two variables is treated with the utmost caution. On a similar vein always be skeptical about a trend line that fits too well as this could be a Procrustean solution. This is where only data that fits the trend as been selected and data that doesn’t is discarded.

Death by PowerPoint!

This is a training issue, but I frequently see PowerPoint slides that highlight differences between sub-samples that are not statistically significant. In most research agencies the modelling and analytics are carried out by a separate department from the account executives. This is not a problem provided the account executives who present data have sufficient understanding of the nature and limitations of the analysis they present. From my experience this is not always the case.

Budgets and treating research like a commodity!

When companies treat research like a commodity and constantly expect to make cost savings there is a danger that sample sizes will be cut to the bone. As a result studies don’t deliver the required level of reliability. I briefly worked on a multi-country brand and advertising tracking study that only had sufficient sample to analyse on a three monthly basis. This proved very frustrating as it wasn’t sufficiently sensitive to measure the short-term impact (i.e. monthly) of bursts of advertising activity.

Pressure to identify insights!

Researchers are by their nature pattern seekers and this can make them susceptible to seeing phenomena that are generated by a purely random process. There is nothing wrong with this provided we treat such patterns with caution and seek further data or more robust research to test our hypothesis. This is why researchers need to be trained to present results in a balanced and critical way so that management don’t jump to conclusions.

Reporting continuous data too frequently!

There is a growing tendency to expect to have data on tap. This is a characteristic of the digital age. But sometimes this leads to pressure to analyse and communicate continuous survey data too frequently. I came across a continuous customer satisfaction survey a few years ago where high level Key Performance Indicators were communicated to each business area on a monthly basis. However, despite most of the base sizes being far too small to identify any significant differences, the Customer Insight Manager was expected to comment on changes from the previous month’s score. This encouraged the inventing of reasons for changes that were not even statistically significant.

Implications:

The law of small numbers gives researchers an interesting insight into our own potential fallibility. It warns us against listening to our intuition and relying on rules of thumb for determining sample size. Khaneman also provides a useful reminder to be careful on how findings are communicated when dealing with data from small numbers. Research and experimentation is after all an iterative process, so we should always be looking to validate results, whether from large or small scale studies. It is only through trial and error that we are ultimately able to separate insights from myths.

Thank you for reading my post and I hope it provided some useful insights.

Source: Thinking, fast and slow by Daniel Kahneman.

This post has also been published on the Green Book Blog!

How Good Is Your Intuition? Behavioural Economics And Coversion Optimisation

Mon, 23 Apr 2012 12:17:00 +0100

In his book Thinking, fast and slow, Daniel Kahneman outlines how the human brain uses two different mental systems for making decisions:

System 1 - The fast, automatic, little or no effort, intuitive, but largely unconscious mind.

System 2 - The slow, disciplined, effort hungry, largely conscious mind that monitors system 1 and allocates attention to more complex mental problems that require it. However, this system is lazy and will rely on system 1 whenever it thinks it is adequately handling decision making.

As an example of how these systems work here are some simple puzzles. The answers are at the bottom of this page. Do not try to calculate the answers, but listen to your intuition:

1. A bat and ball cost $1.10

The bat costs $1 more than the ball

How much does the ball cost?

2. If it takes 5 machines 5 minutes to make 5 widgets , how long

would it take 100 machines to make 100 widgets?

100 minutes OR 5 minutes

3. In a lake, there is a patch of lily pads. Every day, the patch doubles in size.

If it takes 48 days for the patch to cover the entire lake, how long would

it take for the patch to cover half of the lake?

24 days OR 47 days

These 3 questions made up the Cognitive Reflection Test that experimenters recruited students from Princeton to take. The questions were selected because they all suggest an immediate intuitive answer that is incorrect. For the bat and ball puzzle the number 10 (10 cents) tends to come to one’s mind. This is the intuitive answer but is wrong. If the ball did cost 10 cents and the bat is $1 more than 10c ($1.10) that would make the total cost of the bat and the ball $1.20, not $1.10 as stated in the puzzle.

When the test was administered, half the students were given a test paper with a small font and washed out print that was legible, but difficult to read. The other half were given a test paper in normal print. Interestingly, 90% of the students who received the test paper in normal font got at least one question wrong. However, only around a third of those given the difficult to read paper got any questions wrong. This is because the difficult to read paper caused cognitive strain (i.e. shit we have a problem!) which automatically activates system 2. This mobilizes our full attention and allocates resource that is more likely to reject answers suggested by our intuition (system 1).

What this demonstrates is how easily we are happy to rely on our intuition (system 1) when things appear to be going well (i.e. no complex problems to solve). We rely on system 1 for making most our decisions, but this can sometimes cause us to jump to conclusions that are incorrect.

Implications for Conversion Optimisation:

If you want to ring alarm bells and activate your customer’s system 2 then make the font small and difficult to read. This may occur during the registration process for websites that use the Captcha security test (Completely Automated Public Turing test to tell Computers and Humans Apart). No wonder this may seriously damage your conversion rate! If you have been using persuasive copy to encourage sign-up this security mechanism could undo all your hard work as it causes cognitive strain and activates a person’s system 2. This system is more likely to reject the reason for an impulsive decision and abandon a transaction.

This model of decision making also suggests sites should avoid asking visitors to remember instructions or promotional codes etc (e.g. displaying codes as images that cannot be copied and pasted). The more information that a website expects visitors to remember for future use the more likely it will lead to cognitive strain which will activate system 2. If mental effort is needed for storing information there will be less available for other activities and people become prone to missing messages or instructions during a website journey.

The use of two different mental systems also challenges the way organisations use traditional research and usability testing for assisting website design. In a previous post, Should focus groups carry a health warning, I outlined why focus groups can be a misleading research tool. However, standard usability testing, particularly in labs, are prone to some of the same kinds of bias. What Kahneman’s work suggests is that direct questions often engage the wrong system (system 2) and that observation of behaviour is more likely to provide true insights. It also supports the benefits of ethnographic research where people are observed undertaking a behaviour in their natural environment (e.g. in their home) rather than in a user lab. Ultimately though the most reliable way of understanding what affects visitor behaviour will be an online experiment.

Thank you for reading my post and I hope it challenged some common myths about how we make decisions.

Source: Thinking, fast and slow by Daniel Kahneman.

Answers: 5 cents, 5 minutes, 47 days

Linking Insights to Marketing Strategy! A Client-Side Perspective.

Mon, 16 Apr 2012 00:02:00 +0100

This post has been published on the GreenBook Blog market research website.

Client-side researchers sometimes feel that they are constantly being asked to justify the value of research insights. A frequent challenge from management is how can we measure the value of insights and what specific decisions have been driven by research. Ideally management would like to understand how research links to either sales or costs. Demonstrating how insights have led to specific decisions can be particularly challenging when you work in a large, hierarchical, multinational organisation where the management structure appears to be in a constant state of flux.

As a result client-side researcher spend a significant amount of time engaging with stakeholders to understand their problems and offering advice on how research can support their decision making. A great deal of time can be taken up with discussing potential projects and negotiating budgets. So when a project is commissioned it’s somewhat of a relief that you can get on with writing a brief, sourcing sample files, agreeing the data collection methods, and considering the analysis requirements. However, to ensure insights are linked to strategy and decision making it is also essential for the client-side researcher to integrate Action Planning into the market research process. Without such a mechanism in place there can be no assurance that management will use the insights to support strategic decision making. It is very easy to ignore insights, particularly if they don’t agree with your own opinion!

ESSENTIALS OF ACTION PLANNING FOR THE RESEARCHER:

Ensures the researcher retains ownership of the findings and how they are used. This is important as the client-side researcher is best placed to advise on interpretation of results when management drills down to a granular level of action planning. In addition it raises the profile and credibility of the client-side researcher within the organisation.

Provides greater visibility and evidence of how research findings are used and the value it adds to the organisation. This is invaluable when trying to negotiate budgets and agree on priorities for future research spend.

Enables the researcher to engage with a range of stakeholders and gain a greater understanding of how findings influence and drive strategic and tactical decision making.

Allows the researcher to work more closely with operational areas that have responsibility to implement actions generated by research.

INTEGRATING ACTION PLANNING INTO THE MARKET RESEARCH PROCESS:

Set expectations at the beginning! If you introduce it as best practice before you start work on a project you rarely meet resistance to the concept.

Ask a senior stakeholder to sponsor the action planning process and obtain agreement of who will take ownership of actions within individual areas or departments.

Include action planning in the research brief or plan. Outline any potential involvement you require from the external research agency. Propose that you act as a consultant to implement the process as you have the best understanding of the organisation and culture. However, agree with the agency how they can assist and have input into the process.

Consider how the research and the action planning may relate to key strategic or operational initiatives. Discuss any potential conflicts or implications with the senior stakeholders before proceeding with the research project. This will ensure that the research and action planning either feeds into the initiatives or avoids overlapping.

Soon after the debrief meet with the stakeholders to agree which insights the action planning workshop should address. You should set the agenda by identifying beforehand the priority insights and how best to approach them in the action planning workshop.

Don’t combine the research debrief and action planning workshop. Management need time to digest insights from the debrief and an action planning workshop can easily last for two to three hours to properly consider implications and actions.

MANAGING ACTION PLANNING WORKSHOPS:

Ask attendees to prepare for the workshop by sending them a short summary of the research. Get them to write down potential actions/ideas to discuss at the workshop.

Invite people from a range of areas, including departments not necessarily involved in project to provide some diversity and independent thinking.

Set some ground rules, e.g. no bad ideas, no judging ideas, want everyone to participate, use post-it notes to write down ideas when other people are talking, all ideas to be captured etc. Use relevant brain storming techniques to make the workshops engaging and productive.

Begin with a short summary of the key insights that will be discussed during the workshop.

Split the attendees into small break-out groups of 4 or 5 individuals and allocate a topic to each group.

Provide each group with a structured approach to discuss their insight. For example if the research relates to improving customer service or experience you could ask them to generate a list of things we need to stop, start and continue doing. Ask them to spend 5 minutes at the end prioritizing their actions in each category.

Ask each group to feedback their top 3 ideas for each category (e.g. Stop, Start and Continue), but capture all the ideas by taking away flip charts used during the break-out groups.

MAINTAINING MOMENTUM AFTER THE WORKSHOP:

Use a suitable template to capture and summarise all the ideas. Carefully merge duplicate ideas so that you don’t lose the meaning, group ideas into themes that emerged from the workshop, and categorize according to:

Quick wins that could be implemented with little or no resource.
Medium term ideas requiring some resource or support.
Longer term, strategic ideas that may require significant resource or a change in policy.

Circulate the draft action plan to attendees and ask for feedback and comments by a set date.

Take your sponsor through the draft action plan and get their feedback and agreement to seek owners for each action.

Get agreement from action owners how the action plan will be kept up-to-date with progress and developments.

Have update meetings with your sponsor and key action owners to review progress. This can be used to ensure the plan is still relevant and whether it needs to change to respond to any changes in strategic direction. It is important to review the plan on a regular basis and feed in new insights from more recent research.

Whilst I was in the process of writing this post I came across an excellent article on the Green Book blog by Edward Appleton; Should Researchers be more like Advertising Planners? This suggests that market research needs to put more emphasis on tangible value-added outputs to respond to the changing nature the world of insights. For some client-side researchers this may require a step change to ensure they are at the heart of the action planning process.

Thank you for reading this blog. I hope it generated some ideas for managing your research action planning. I would also like to thank Lisa Radin (@milguy23) for her feedback and assistance in writing this post.

The Irrational Visitor: 17 Conversion Optimisation Tips From Behavioural Economics!

Wed, 11 Apr 2012 12:05:00 +0100

Behavioural economics indicates that people are often irrational in their decision making as they are heavily influenced by biases that are in the unconscious mind. This means that conversion professionals can utilise knowledge of these ‘rules of thumb’ to nudge website visitors towards a particular behaviour. However, because people are not fully aware of these influences customer research cannot predict how they will respond to the use of such persuasive designs. Online experiments (A/B and multivariate tests) are the only true way of knowing how visitors will respond to a new web page or online journey. Organisations that use such experimental testing can potentially save millions of pounds by avoiding lost sales and benefit from an uplift in conversion.

Outlined below are insights identified from behavioural economics and the potential implications for optimising online conversion. Because context is so important in human behaviour some of these ideas may be relevant to your site, while others may not. This depends upon the nature of your site and how you generate income. However, from working in a Conversion team it is clear that behavioural economics is a valuable source of ideas for helping to optimise web pages.

1. Ownership focuses our attention on what we might lose!

Even partial ownership (e.g. a trial subscription) tends to make people more attached to what they have and make them focus on what they may lose rather than what they may gain. Ownership changes our perception of things and our aversion to loss makes it difficult for us to give it up.

A fantastic example of this is how Amazon promotes a free trial of its express delivery service Amazon Prime. This combines the power of FREE, that we cover later, with a limited trial that makes customers focus on what they will lose if they cancel their subscription. Try testing different trial promotions, or give more prominence to money-back guarantees, cooling-off periods (for financial services) and ease of returns for large or expensive items.

2. We are motivated by meaningful tasks and acknowledgement of our effort!

None of us like to think our effort is meaningless and we all appreciate positive feedback. Visitors want to know that any information you request from them is essential and not just for your benefit. People also like feedback to confirm they have successfully completed tasks (e.g. registration or add to basket) as this reassures and motivates them to continue.

When testing your registration process remove any fields that are not absolutely necessary and try different words or phrases to explain why each piece of information is required. Finally, test different ways or congratulating customers when they have completed a task or journey.

3. Everything is relative!

People find it difficult to make new decisions and like to compare things that are simple to compare (e.g. one LED TV against another LED TV). Until a person has made such a comparison they often don’t understand there own preferences or know what they want. Giving just two very different options will make it difficult for people to choose. They have nothing to compare either option with and they may not select your preferred option.

This is why sales people will often show you a premium option, a medium option and a value option that appears inferior. They know most people will choose the middle option. So by testing different alternatives on a given page may allow you to nudge visitors towards your preferred option. This could be different subscription options or alternative targeted content (e.g. recently viewed/wish list items etc).

4. The first time we go to purchase is critical for the price we are willing to pay!

Once a price has been established in our minds it will largely determine our perception of current and future prices. Sensitivity to price changes is heavily influenced by our memory of the prices we have previously paid or seen.

When launching a new product if you can associate it with a premium category you are more likely to be able to charge a premium price. Test different ways of presenting prices, change the location of the price, and see if by offering a premium alternative you can boost sales without having to make large price reductions.

5. The power of FREE!

The impact of offering something for FREE is often underestimated. People are afraid of loss and because of this FREE is a powerful motivator. As a result consumers will perceive a FREE offer as substantially more valuable than it really is.

This can result in the cost of offering something for FREE being easily outweighed by the benefit from an uplift in conversion. Alternatively, if you offer a free benefit as part of your proposition that perhaps your competitors don’t, then try testing the impact of promoting this as a FREE benefit of your service. But whatever you do don’t mention how much it actually costs.

6. Scarcity makes us value things more!

People value things that are scarce partly because they are loss averse. We are particularly motivated if we believe that we are in competition with other people to purchase a scare item. This is why eBay auctions can get out of hand and we end up paying far more than we originally planned for an item.

Stock level indicators (e.g. low stock, number of items left, bids etc) are powerful drivers of conversion. Scarcity is used everywhere online, including flash sales, exclusive pre-sale registration, offer ending soon, and limited edition item. Test, test and test!

7. We are more motivated by a cause than by money!

People are much more willing to spend time and effort for a cause than for money. This is because social norms are much more powerful motivators than cash. Research has shown that focusing on money can result in more independent and selfish behaviour and a reluctance to be involved or help others. People who believe in cause are much more passionate and more willing to offer to help others.

It can be advantageous to align your brand or site with relevant good causes as it helps to build loyalty. However, taking such an approach often needs to be part of a long-term commitment to a cause as people can react negatively if you chop and change according to short-term business needs. If you do go down this route focus on the material benefits to the good cause (e.g. Computers for Schools vouchers) rather than the actual value. Test different methods of giving to good causes to understand which most engage with your customers.

8. The power reciprocation!

We feel obliged to the future repayment of favours, gifts, good deeds and the like. Organisations can use this social norm to their advantage provided they offer help, advice or samples without obligation.

Online video guides are becoming the norm, but other ways to benefit from this rule include online tools and planners, free smartphone Apps, money off coupons and how to guides. The skill here is to find something that really catches the imagination of your customers so that they value it so much that they almost feel obliged to maintain their relationship with you.

9. Sex sells!

Great images of beautiful people grab attention and can help to sell product. Sex sells and will always sell because we respond to material differently when we are in a state of arousal. Neuroscience indicates that this is because it engages the pleasurable reward center of our brain. People also automatically assign positive traits to attractive looking people.

Try testing models of different age, gender or family groups on high converting pages to see if aligning the images more closely with your target audience improves conversion. People are naturally drawn to looking at eyes so this could also be incorporated in your tests.

10. Customers will procrastinate if you give them a chance!

People like to put decisions off until the last minute and avoid doing things that they don’t enjoy. To avoid visitors procrastinating use different strategies to motivate them to convert now!

Online only discount can be used to encourage visitors to sign up. Also have you considered using gamification techniques to make a recruitment email or registration process more interesting and enjoyable. You can also test different incentives (e.g. money off vouchers or prize draw entry) to see what attracts new customers the most.

11. If uncertainty exists people look to the actions of others to guide them!

People like to follow the crowd as they assume they know something they don’t.

If your site has built up a sizable number of subscribers ensure this is clearly sign posted on your landing pages. Inform visitors about what is most popular on your site and include testimonials from existing customers.

12 People respond more positively to someone they know and like!

People want to like organizations that they buy from and they respond positively to indications that you have similar values and attitudes to them. Companies that have a clear vision and strong customer centric culture can project this through their online presence to their advantage.

Market research can help you understand your prospects life style, values, interests and motivations. This can help you avoid having policies or promoting causes that conflict with your visitors’ vales and interests. Having photographs of real people who work for an organisation in relevant posts can improve how visitors relate to a website and have been known to significantly improve conversion rates. Further, the perceived age of a model on a page can also affect the conversion rate if they are too young or old compared to your visitor profile.

Sites that are perceived to use deception or trick customers into decisions may benefit from short-term gains in conversion but this is likely to be more than off-set by a loss from life-time customer value. Experiments have found that even a low level of irritation can make people irritated and act vengeful towards companies that annoy them.

13. People don’t like closing doors!

People like to keep their options open as it gives them a sense of control over their own destiny. Even when people are at the last stage of a transaction having a get out option (e.g. back to shopping) may be more motivating than than if you make it difficult to abandon or change items in the basket. Otherwise customers can feel trapped and out of control.

Test different sign-posting at each stage of checkout as it is important to communicate to customers where they are in the process and give them clear options. Try testing more prominent ‘Return to shopping’ or ‘Back’ buttons in checkout to see if it actually improves rather than decreases conversion.

14. The power of the written word!

People like to be perceived to be consistent and it is an important motivator of our behaviour. Inconsistency is perceived to be an undesirable personal trait. Commitment is the key to consistency and is the reason why Amway Corporation ask their members to record sales goals on paper. Similarly, just writing something positive about a subject can cause a shift in a person’s attitude and behaviour towards the views they express.

Reviews and testimonials are great for putting on your site but also they help reinforce attitudes and behaviour of those who write them. Have you analysed the value of customers after they have written a review? Test different ways of promoting testimonials and reviews and see if you can obtain permission to use them on landing pages.

15. Obedience to authority!

People have an almost extreme tendency to comply with the commands of someone in authority. Even the appearance of authority can be enough to influence our behaviour. Some brands also are so well respected in their market that they have a certain authority that their competitors lack.

For many years in the US an actor who played a doctor in a popular TV series successfully promoted caffeine-free coffee. It’s success was partly explained by his association with being an MD on TV. Personalities associated with your category or service can be powerful symbols of authority. Other sources of authority include independent surveys that benchmark your service. John Lewis (above) is well known for high service standards in the UK. Awards, and testimonials from recognized experts can also add to your credibility. Try testing different ways of indicating your authority to see what works best on your site.

16. Don’t underestimate the importance of presentation!

Expectations affect every aspect of our life and how you present your value proposition will influence how visitors respond to your site now and in the future.

Research can help you identify your potential customers’ expectations. If you understand new visitor expectations you can test aligning your key messages and presentation accordingly. For landing pages test different benefits for signing up and see if aligning content and imagery to reflect new visitor search activity improves conversion.

17. We put greater value on things that we have helped create!

The ability to customize a product by investing our own time and effort often leads us to value it more than something we buy off the shelf. Converse allows visitors to customize casual shoes and Moonpig.com enables customers to create their own greetings cards.

Where people value the ability to personalise a product this can be a great way of improving the perceived value of your product or service. Try testing in different categories or the level of personalisation to see what catches your customer’s imagination.

Thank you for reading and I hope I have generated some ideas for new online tests. A revised version of this article has been published on Usabilla.com.

Further reading: Influence by Robert B. Cialdini, PHD; Predictably Irrational by Dan Ariely (@danariely); the Upside of irrationality by Dan Ariely; The Wisdom of Crowds by James Surowiecki; Consumer.ology by Philip Graves (@philipgraves); Nudge by Richard Thaler (@R_Thaler). Thinking, fast and slow by Daniel Kahneman

7 Marketing Myths About Online Conversion Optimisation!

Fri, 30 Mar 2012 15:04:00 +0100

As online businesses have matured and competition for customers has intensified, conversion optimisation has become an increasingly important method for improving the customer experience and ultimately conversion. Developing a program of online experiments using split (A/B) testing and Multivariate Testing (MVT) enables organizations to identify which new elements of a customer experience have the desired impact on visitor behaviour. This normally follows at least three stages:

Understand current visitor behaviour by using web analytics to identify conversion funnels. This helps you to prioritize pages and journeys to review. Start with the low hanging fruit by focusing on pages with the highest levels of traffic and the highest conversion rates.

Align webpage objectives with the business goals. This process can help identify low priority objectives that can either be removed or their prominence reduced to allow the focus to be on the high priority objectives.

Review priority web-pages and customer journeys to develop test hypothesis to increase conversion (or whatever the desired behaviour is). It is important to segment customers (e.g. new vs existing) as you will need to understand how changes to your website affect different key groups.

Up to this point I find everyone appears to be in agreement about what needs to be done. However, when it comes to developing hypothesis for online experiments I have found there are a number of myths that some marketeers have about conversion optimisation. When I originally published this post I outlined 5 such myths, but I have now added a further 2 myths of conversion optimisation:

1. You should follow the rules and principles of conversion optimization.

One such rule I’ve heard is that the fewer clicks to conversion the better. Taking this particular myth first, if more clicks allows the visitor to build trust and engagement with the site, then the opposite may be true. Context is so important in improving the customer experience. There are no rules in conversion optimization, just hypothesis that need testing. Always seek to challenge existing thinking and don’t make assumptions about the customer journey unless you have evidence to back it up.

2. Apply best practice User Experience (UX) design.

By definition best practice is already out of date and the online world is rapidly changing. I don’t dispute that elements of best practice generate useful ideas, but if we always considered best practice websites would rarely change. Good UX design is an important driver of hypothesis but this doesn’t always align with current best practice. Be bold, be different, test new ideas as otherwise testing will have very limited benefits.

3. Do what customer and usability research tells us to do.

Usability testing tells us if customers can complete a task or transaction, but it can’t tell us how visitors will behave in a real purchase situation, when they might be searching for a dress to impress at a party and their own money is at risk. Real life is very different from a usability test. During research observe what people do and listen to the language they use as this is often more illuminating than their opinions of a particular webpage. Behavioural economics tells us that people are poor at predicting how they will adapt to change and generally are resistant to and dislike change. One of the easiest mistakes you can make is taking what customers say and applying it in a literal way. Listen, observe, and interpret according to a recognized framework of consumer behaviour.

4. Rely on gurus and online tips.

Anyone who needs to tell you that they are a guru probably isn’t one. Whilst online tips and advice from ‘experts’ can generate ideas, every website is unique. Your visitors and their motivations should reflect your value proposition. You also need to consider your business model and how you generate income. Companies that are serious about online experiments, such as Amazon and Booking.com, don’t allow their conversion team members to write blogs or tweet about their experiments. They don’t want to give away a competitive advantage. So, ensure your experiments are tailored to your website and your visitors to ensure they have the highest chance of success. I have some recommendations for additional reading at the end of this post.

5. Focus on the design of a single competitor or best in class website.

It’s good practice to browse other websites as you will see design features, interfaces, tools etc that generate ideas for testing. However, never fall into the trap of focusing or modelling your site on a single website. This is dangerous as their value proposition, and visitor profile is likely to be different from yours. This means they have good reason to present information and interact with visitors differently from you. Their customers probably also have very different expectations to your visitors. Further, there is no guarantee that they have optimized their site unless you have evidence to support this assumption. Focus your efforts on better meeting the needs of your own customers and seek to create a user experience that reflects their aspirations and motivations.

6. If we didn’t experience a fall in sales last time we made a change to our proposition/offer it is not necessary to test the impact of a further change!

There is still a tendency among some marketeers to want to change elements of the offer without first testing. They tell you that they didn’t see a drop in sales last time they made a significant change so they don’t expect one this time. This misses the point as many factors affect sales and unless there is a control it is impossible to isolate how sales might have moved if the offer had not been changed. Further, it is critical to understand how different segments respond to changes to really understand its impact on the business. Inertia caused by factors such as brand loyalty, perceived risks of switching suppliers and habit formation mean that existing customer behaviour may not change immediately. The danger is that existing customer behaviour (i.e. no change) will hide changes in new customer behaviour as most sites are dominated by repeat visitors. Potential customers may be put off from signing up to your offer and you will never be aware of it unless you conduct a controlled online experiment.

7. If a small change is made to just one element of a customer journey we don’t need to consider conversion for the journey as a whole, just the element we are changing.

Websites are ecosystems. Every element is linked to other parts of the system through their interaction and influence on visitor behaviour. However, people who have been tasked with changing one element of a journey can be prone to focusing on their change in isolation of the customer journey as a whole. This can have serious consequences if not challenged as even a minor change early on in a journey can significantly influence visitor expectations and behaviour. This can result in a reduction in overall conversion that is not anticipated by those working in silos. To avoid such situations ensure that marketeers appreciate the importance of measuring all the relevant conversion rates, including the overall journey conversion rate.

Myths can develop for all kinds of reasons, but unless they are challenged they can become adopted and soon become embedded in an organisation’s culture. You may have come across other myths relating to conversion optimization, so please drop me a line if you have other examples. Thank you for reading and I hope you found the blog useful.

The author: Neal Cole recently worked as an Online Conversion Optimisation Manager for a major UK retailer where he designed online experiments to improve sales and conversion. He also has over 20 year experience working in market research and customer insight for some of the UK’s largest financial services companies and retailers. Neal is currently on a career break. You can follow Neal on Twitter @northresearch or view his LinkedIn profile here.

Recommended reading: Influence by Robert B. Cialdini, PHD; Predictably Irrational by Dan Ariely (@danariely); the Upside of irrationality by Dan Ariely; The Wisdom of Crowds by James Surowiecki; Nudge by Richard Thaler (@R_Thaler).

Not Invented-Here Bias. Why good ideas take time to spread!

Thu, 22 Mar 2012 13:39:00 +0000

Even in the digital age new ideas and innovations can take a long time to be adopted by organisations that could benefit from them. Why is this? One explanation is the “If I (or we) didn’t invent it, then it’s not worth much.”

This is sometimes referred to as Not Invented-Here bias. The behavioural economist Dan Ariely conducted experiments to understand why this occurs. He identified that:

People appreciate their own ideas a lot more than solutions invented by others.
When they have created something themselves people become much more attached to it and can greatly overvalue the potential importance of the idea.
We sometimes discover ideas ourselves that may have been invented elsewhere. If we adopt the idea we soon overvalue the usefulness of the idea as if we had invented it ourselves.
Not Invented Here bias does encourage a high level of commitment and determination to see our ideas through to the end.

The danger is when people become obsessively attached to their own ideas and fail to objectively evaluate ideas from other sources. Thomas Edison fell into this trap when he tried to dismiss and discredit alternating current (AC) as an alternative to direct current (DC) that he had invented. Ironically the inventor of AC was working for Edison when he developed it. This meant Edison could have taken the patent for AC. However, Edison was so protective of his own creation that he failed to see that only AC could provide the scale and scope needed for the extensive development and use of electricity in the modern age.

Companies can also establish cultures focused towards their own beliefs, terminology, processes and products. The overuse of acronyms in companies can facilitate this process by giving the impression that there is a secret insider knowledge and it enables people to talk in a form of shorthand. This risks creating a kind of inner circle of people who are too internally focused. They over value the importance of their own ideas as they perceive themselves to be privy to all the key information. This kind of culture discourages ideas from outside the company from being taken seriously as the group becomes too insular.

It is difficult to stop people using acronyms in business as they are ingrained in our business culture. However, we can help ensure they do not become a hindrance by ensuring diversity and independent thinking in our committees, working-parties and steering groups etc.

Avoid having groups that draws people from a single area or department as this will encourage a silo mentality.
Always include some people from outside the areas directly affected by a project as this will bring some diversity and independence to the group.
Rather than seeking a consensus use voting to make decisions as this will help to avoid ‘group think’.
Have a clear agenda and select a leader who takes an active role in ensuing everyone has a chance to contribute

The independence of each member of a group is important for intelligent decision making as it helps prevent the mistakes that some people make from becoming correlated. Independent thinking individuals are also more likely to have new information that may be valuable to the group overall. This is summed up well in this quote:

“One key to successful group decisions is getting people to pay much less attention to what everyone else is saying.” James Surowiecki, The Wisdom of Crowds.

Thank you for reading and I hope I have given you some useful ideas.

Further reading: the Upside of irrationality byDan Ariely (@danariely), The Wisdom of Crowds by James Surowiecki.

Should Focus Groups Carry A Health Warning? Implications of behavioural economics for Market Research.

Fri, 16 Mar 2012 14:10:00 +0000

This post has been published on the GreenBook Blog market research website.

Since starting out as a client-side researcher focus groups have frequently been recommend to me as a suitable exploratory method. Initially this wasn’t a problem. I was new to the industry. However, over the years I have gradually become more aware of their frailties. I have come across some excellent moderators. But I have also seen for myself how focus groups can be misleading and misused. The key problems I have experienced include:

Respondents often don’t know what they want and tend to respond more favorably towards what is familiar to them rather than what might be new.

Respondents sometimes say what they think you want them to say. I have observed the same respondent say completely contradictory things during a group. Seemingly to please the audience.

Reactions to stimulus material is highly influenced by how the material is presented and communicated. This can be made worse if the moderator isn’t equally comfortable with all the variants.

Respondents will over-analyse and rationalize topics (e.g. advertisements) when we are looking for their emotional response as this is often the key driver of the desired behaviour.

A single respondent may introduce new information into the discussion, and it can completely change the direction of the discussion. Sometimes this can be useful, other times you wonder if it didn’t overly influence other respondents.

One person can completely dominate the discussion and I have observed people changing their opinions to avoid conflict or because they mistake confidence for knowledge.

Some respondents will not open their mouth once to contribute to the conversation.

They are often conducted in a completely alien environment which does not match the context of the discussion. Viewing facilities can exasperate this problem as they can create a laboratory atmosphere.

Discussion guides have too many items for discussion and include closed questions. I find moderators are generally overly optimistic about getting through a long discussion guide.

The industry may argue that most of these issues can be dealt with by an expert moderator. But we now have increasing evidence from behavioural economics that people are often irrational in their decision making. Humans rely heavily on mental short-cuts that allow them to make fast, automatic decisions that require little cognitive effort. This means that our conscious mind may not be aware of what drives a lot of our decisions. Such findings support the view that people post-rationalize what drives their decision making. This leads to people creating erroneous reasons for decisions when asked direct questions. Neuroscience also support the view that the majority of human decisions are made by this largely unconscious mind.

Indeed, it appears only a small proportion of decisions are made using our slower, more cognitive mind. This uses a lot more energy than our unconscious mind. For this reason we use this second system for complex, difficult tasks that requires a lot of thought. This has major implications for how we conduct and analyse market research. But what else can we learn from behavioural economics? Here are few key observations that have implications for focus groups and market research in general:

Everything is relative and people don’t know what they want until they see it in context. Priming, anchoring, and framing are strong influences on how we respond to stimulus. People like to compare things that are easily comparable, and the context of how we present items heavily skews how we respond to them. This is especially problematic for anything totally new.

Social norms such as reciprocation, commitment and consistency are powerful influences on our behaviour. We are more strongly motivated by social rewards than by monetary rewards. And yet most participants in focus groups are incentivized solely with cash.

Our state of mind affects how we respond to questions. Dan Ariely’s experiments demonstrated how men’s responses to questions are heavily influenced by how aroused they are. This begs a question for market research. If we ask a respondent questions away from the natural context of the decision does this invalidate their answers? Context is an important aspect of how we respond to stimuli and we may not gather the key insights if we divorce the research from the natural decision-making environment.

If uncertainty exists people look to the actions of others to guide them. People herd and like to do what other people are doing or saying. ‘Group think’ can also set in if the group is too homogeneous and the moderator seeks a consensus of opinion rather than having a show of hands. This is particularly worrying for focus groups.

People have an extreme tendency to comply with the commands of someone in authority. If a respondent in a group comes across as something of an authority on the subject under discussion you may have a problem.

Don’t underestimate the importance of presentation. It sets expectations for how people respond now and in the future behaviour. This confirms my point about how people are very sensitive to how stimuli is presented. This may have implications for using mock up products or artwork rather than the finished design.

First impressions count. Once a price has been established in our minds it will largely determine our perception of current and future prices. This indicates how people have a natural tendency to anchor prices from past experience and can be heavily influenced by priming.

Behavioural economics challenges the validity of relying solely on asking consumers direct questions, and highlights bias that can result from group dynamics (eg herding & group think). The most fundamental challenge for market research is that humans are using two different cognitive systems for decision making. Thus, responses obtained from a person using their fast, efficient, unconscious mind will be invalid if in reality they normally use the more cognitive, conscious mind for that kind of decision. For evaluating advertising the reverse is likely to be the case. And what if they switch between the two systems at various points?

The consumer’s reliance on the unconscious mind for decision making and the unreliability of traditional research methods is analyzed by Philip Graves in his book Consumer.ology. He suggests that the most reliable methods for understanding consumer behavior are live tests and covert observation. Where practical I think this is excellent advice. For websites online experiments can be run relatively easily using A/B and multivariate testing. Where live tests are not feasible, there is strong evidence to suggest Predictive Markets, such as those developed by @BrainJuicer, offer us a reliable alternative.

For a number of reasons we are still going to want to ask consumers direct questions, though not necessarily in a focus group format. What behavioural economics suggests to me is that we need a framework in place to increase the likelihood that our methods and analysis will uncover the key insights. This means we need to consider factors including:

The mind system that is predominately engaged during the process.
The state of mind and context of the process being investigated.
How we present items to avoid priming, anchoring and framing bias.
Existing behaviour - what habits and preferences currently exist.
Emotional responses that might be engaged
Social norms that may be influential

Under the right conditions I believe direct questioning of consumers can still provide useful insights. A good example is how Proctor and Gamble investigated the potential market for Febreze. Initially Febreze under-performed and was very close to being cancelled. To identify what was holding the product back P&G sent researchers into peoples homes to observe and record cleaning behaviour. This allowed researchers to ask questions during or straight after cleaning episodes. Respondents were therefore in the right frame of mind and in a natural environment to discuss cleaning related products. What they discovered was that people were not aware of their own house odors. P&G’s strategy had been built around removing such unwelcome odors so this is explained why this wasn’t working. Further in-home observation and questioning identified how Febreze customers incorporated the product into existing cleaning habits. This was the break through they needed as they had been trying to create a new cleaning habit for Febreze. Instead P&G was able to piggy back onto an existing cleaning habit. This resulted in a completely new advertising strategy, and P&G has never looked back. Febreze now has annual sales of over $1 billion.

For focus groups, the dynamics of groups and the environment appears to make their findings more prone to bias. As Philip Graves points out:

“The artificial nature of the research environment can also be responsible for not flagging up something that, in the real purchase environment, is unconsciously reinforced and hugely significant in determining a product’s fortune.” Philip Graves, Consumer.ology

Jonathan Ive, Apple’s Senior Vice President of Industrial Design, once said that Apple had found good reason not to use focus groups because:

“They just ensure that you don’t offend anyone and produce bland inoffensive products.”

Does this mean that the focus group is dead. Given their popularity I suspect not. Further, recent experiments with using gamification in focus groups have shown how we can use this technique to disrupt and counter dominant group members. What this suggests is that we should look to incorporate some of the insights from behavioural economics into the design of focus groups. Why not try running a focus group in a kitchen environment if the topic is about cooking appliances? Use role play and gamification techniques to bring out the appropriate state of mind. Observe body language and facial expressions, not just what people say. I know some moderators already use these types of strategies and perhaps we need to promote them more heavily to clients who insist on using focus groups. Probably the most important point is that we recognize the limitations of our research tools and use behavioural economics to help us avoid certain traps and interpret findings in a more scientific way.

Thanks for reading. I hope this blog has challenged a few myths and generated some useful ideas.