The Austrian Way Of Marketing

  • The Austrian Way Of Marketing

    Posted by Hunter Hastings on January 19, 2022 at 8:17 am

    Economics For Business is a way of applying the deep insights of Austrian economics for advantage in business, or, more specifically, in generating value for customers. I’ve always thought there is an Austrian Way Of Marketing that comprises:

    * Our unique way of understanding people’s search for betterment or progress.

    * Our unique way of understanding how they choose means to achieve their ends.

    * Our understanding of how they learn what to want in detail (the Value Learning Cycle).

    * Our unique insights about subjective value and satisfaction.

    We might build this into a system.

    What do you think?

    Hunter Hastings replied 4 months, 1 week ago 1 Member · 1 Reply
  • 1 Reply
  • Hunter Hastings

    January 20, 2022 at 10:28 am

    I love this from Rory Sutherland:

    Wanted – an Austrian School of Marketing

    I notice the Government has started to offer stop-smoking kits to people who want to quit. It’s a very good idea. In fact everything that allows people to change their behaviour in gradual steps, rather than expecting a single road-to-Damascus conversion, generally seems to work well. Kits are a very good solution to this, as can be a series of timed SMS messages.

    Behavioural economists call this step-by-step approach “chunking” and there are plenty of experiments to prove how it can work for people. What also seems to be true is that the nature of the first step has an insanely disproportionate effect on whether people complete the journey.

    In 1989, about a year after I started work at OgilvyOne (which, back in those analogue days, was known as Ogilvy & Mather Direct) we performed a series of tests to determine whether mailings to BT customers should allow people to reply by telephone, by post or by their choice of either. I think the origins of the test may have lain in BT’s understandable belief that, where possible, people should be encouraged to use the telephone – combined with a sensible concern that the insistence on telephone response might alienate those elderly people who were uncomfortable using the device to talk to a call centre (this was 1989, remember). When the results came in, it was among the first of a few hundred findings over the years which have deepened my obsession with the anomalies of human behaviour – long before I had even heard the term “behavioural economics”. I can’t remember the exact response rates from 1989, but they were as near enough along the following lines: Mail-Only: 3%. Phone-Only: 1.8%. Choice of both: 4.7%.

    Now remember that everything else about the mailings was identical – they were sent to randomly selected and representative audiences with identical offers, identical creative treatments and identical copy. Only the response vehicle changed What is odd here is that the response level of version 3 is almost the sum of the other two. To an alert analyst, this suggests that the single greatest factor affecting whether someone buys the product or not is not the price of the product, nor even what it does, but the means by which you can order it. It was the first of many times I was to learn a vital lesson about human decision-making. That the interface and framework within which we take a decision may have a greater effect on the decision we make than the actual consequences of the decision. And that the extent to which we enjoy the first step (or dislike it) has an insanely powerful influence on whether we do anything at all. If you don’t like the phone (or, in the case of 1.8% of people, you don’t like the writing of coupons) it almost doesn’t matter how good the product is – you probably won’t buy it.

    I discovered this phenomenon for myself a few years later through a kind of accident. I had occasionally ordered business products online from Royal Mail, and so was listed on their database as a “business”. One day they wrote and offered me some “free Special Delivery envelopes” – not prepaid, you understand, but just strong plastic self-sealing envelopes . I sent back a card and said “Yes! Please send me your free envelopes without delay.” To my surprise a few days later there arrived a package containing not the ten envelopes I had expected but reams of the things – well over 100. But this wasn’t the really odd thing. The really amazing thing was that, eight years later, I had used them all. Probably 100 of them were sent by special delivery. Having these envelopes increased my use of Special Delivery by about 500%.

    Why so? Well, again, it’s about the order in which we make decisions. The order of decision-making when sending a parcel does not necessarily begin with the question “To which distribution brand shall I entrust the delivery of this item?” Instead the first question may be “How the hell do I pack this damn thing?” If in your stationery drawer you have strong, large envelopes marked Special Delivery, the second question “How do I send it?” is already answered for you. It’s an order effect, in other worlds. Make the first step pleasant and easy and the subsequent steps seem to follow on naturally, with other options not being considered at all.

    I am not sure that this bias does not apply to far more momentous decisions than what we buy or how we send packages. Women are traditionally more eager to marry than men. Is this because the long term institution of marriage is less appealing to men than to women? Or is it merely that the first step we take towards being married – in other words planning and enacting a wedding – is vastly more appealing to women than to men? Do women want to get married for life because of the pleasure of spending a day in a pricey frock. And do men resist the institution because they hate the idea of dressing up like a git and making a speech while risking the ridicule of their friends? If people entered the married state not by spending a month discussing floral arrangements and corsages, but simply by a protracted stag party – spending a month being bought cars and consumer electronics by adoring relatives while enjoying nightly porn film viewings and free beer, would the world be full of men desperate to marry at 18 while blaming their reluctant girlfriends for their “fear of commitment”?

    Now there is a vital lesson from all this, I think. Most brand thinking assumes that consumers make decisions in one simultaneous act of comparison – in a kind of brand beauty pageant, with a line-up of competing brands being assessed on their merits and costs. Sometimes this may be true. People may well choose washing powder off a shelf in a supermarket in this way. (Interestingly, and perhaps unhelpfully, it is the early influence of fmcg marketing which still defines most brand thinking today). But most human actions are not the product of a single decision in this way. They are – like my parcel sending activities- the product of a series of decisions, with a separate comparative frame being applied for each step. If you don’t believe me, think of the way you buy petrol. Brand is a factor, but rarely the primary one. We like Coke, but a huge element of its power is that it is the only brand you can request where it is not you but the restaurant who is embarrassed by the answer “We haven’t got any”. Asking for Dr Pepper Zero somehow carries a level of anxiety which requesting Coke does not.

    In my case above the order was 1) “How do I wrap this bugger?” followed by 2) “which distribution company do I employ to send it?” There is often a whole ecosystem of decision-making, with massive interdependencies involved as we progress towards an outcome. In many cases whole swathes of possible brands will never be considered at all in my evaluation, since they have already been eliminated in a prior round of reductionist decision-making. If I have decided I want an off-road vehicle, it is unlikely that Jaguar will feature in my brand short-list, however potent their advertising may be. If I have decided I want a European holiday, I won’t check the Virgin website…. and so on.

    In my next post I shall detail a very extreme version of this behavioural phenomenon concerning ordered decision-making. It is of massive importance in the understanding of human behaviour – which is why the Austrian School of economics under Ludwig von Mises (pictured above) created a whole science of Praxeology (see Wikipedia) in an attempt to understand it.

    What seems bizarre is that brand marketers seem to make very little effort to understand Praxeology at all – preferring to maintain the pretence that all decisions happen at the brand level. Hence it is rare for any marketing spend to be used to influence anything other than the choice between very similar products or services. Category advertising is almost extinct. Yet the new media we have at our disposal give us a tremendous opportunity to influence decisions which often do not take place at the brand level at all.

    If you have time, spend a moment investigating praxeology and the Austrian economists (many of whom, confusingly, are not Austrian). Of particular appeal is that 1) They are great believers that value is and can only be understood subjectively; 2) They reject most forms of research, believing that humans are too self-conscious not to have their behaviour affected by the very act of observation and 3) they won’t use maths, since human desire is too complex to be expressed numerically. Our kind of guys, in other words.

    Published Jan 24 2010, 01:40 AM by Rory Sutherland

    Filed under: The Austrian School Praxeology