The tortuous evolution of CSR

There is (hopefully) a point in exploring ‘win-win’ to the depth I’ve been going at it. The aim is to flesh out a useful workable alternative to a rule of thumb that’s dominated the business world (disastrously) for decades: 20^th century economists’ pink elephant theories of ‘rationality’ – the notion that all economic agents are, or should be, maximising their own particular benefits regardless of what effects they have on other parties.

Pink elephant rationality defines away serious investigation of what ‘win-wins’ look like in the real world. According to it, for a transaction to happen between two rational agents, both sides must have calculated that it would maximise their utility. Therefore, by definition, every transaction represents the best possible of all win-wins. End of story. No need to enquire any further.

So what happens when rational assumptions meet the real world? Incomprehension, muddle and an almighty mess. The tortuous evolution of corporate social responsibility is a case in point.

When people first started asking questions about big brands’ supply chain ethics – the use of child labour in suppliers’ factories, or depletion of renewable  resources, or pollution – brand owners mesmerised by pink elephant ‘rationality’ simply couldn’t grok what was going on.

“What happens in our suppliers’ factories has got nothing to do with us. We have entered into a contract for the delivery of value, in a free and open market, and that’s that. If they didn’t want to sign that contract they didn’t have to, and that goes for the children signing their employment contracts too – they are rational agents too, and they have chosen to make these contracts. It is not our job to interfere with the workings of the market and free choice.”

“All we are doing is maximising our profits as any rational company would do. Yes, it is a shame about all that pollution, but clearing it up would cost us money and reduce our profits and that would be irrational. Irrational economic behaviour is bad, so clearly we can’t do that.”

“Oh, and by the way. By raising these concerns you are acting irrationally, which is also bad. It is not your job to worry about what happens on the other side of the world. It is your job to maximise your own benefits, and we designed our products for that purpose: identifying and meeting your consumption needs to maximise your utility. So run along dear. Don’t worry your pretty little head about things that don’t concern you.”

The result was mutual incomprehension. Companies were trying to be ‘rational’ but the people raising these concerns weren’t interested in rationality. They were interested in fairness and in their eyes what was going on didn’t seem fair.

Corporate leaders’ apparently callous ‘not my problem’ dismissals of peoples’ concerns then reinforced the impression of unfairness, at which point all the powerful emotions associated with revenge kicked in. The corporations concerned became hate figures, yet still their leading executives couldn’t for the life of them understand why. They were only behaving rationally! What’s wrong with that?

After a time, as the hate campaigns gained increasing traction (rather than fading away as an irrational aberration, as was originally expected), companies realised they had to respond. Enter ‘corporate reputation management’: pink elephant rationality reinvented for a new situation.

At the time (we are talking late 1980s/early 1990s here) the very idea of managing a reputation seemed rather revolutionary, triggering endless books, speeches and conferences. It was revolutionary because it required the corporate to look beyond the narrow utility of its value proposition to an apparently extraneous factor. A bad reputation might affect your sales, directly or indirectly. If having a ‘good’ reputation improves your sales, it’s ‘rational’ to ‘manage’ your reputation so that people like you more and buy more of your stuff. (Enter endless yawn-worthy debates about demonstrating the ROI of the initiative in question).

Trouble was, this logic had nothing to do with fairness. It was still driven by ‘rationality’: the cold calculation of benefit only with another variable added. This same cold calculation of benefit quickly discovered that actually addressing issues such as child labour or pollution would be costly and complex, so that was quickly shoved aside. Instead, companies tried to ‘build’ their reputations with PR spin. Glossy sections of the annual report now focused on low cost good works which had nothing to do with the real operations of the organisation but which were meant to transfer a glow of goodwill to it.

Of course, to ordinary mortals who didn’t understand the complex workings of ‘rationality’ this seemed doubly outrageous: both unfair and deviously dishonest. So, to the astonishment and dismay of corporate executives still drinking at its intoxicating fountain, their carefully crafted attempts at ‘reputation management’ actually helped undermine their reputations. ‘Reputation management’ was quietly buried, to be replaced by ‘Corporate Social Responsibility’ which, in its early stages, repeated all the same mistakes as reputation management.

Slowly – incredibly slowly – however, some brave souls in the corporate world began to realise that something deeper and more important was going on. Through many fits and starts and blind alleys, corporate social responsibility evolved so that if we look at ‘best practice’ today, it looks pretty much like a quest to achieve fair outcomes using fair processes.

There were two stages to this. First, leading organisations (by no means all, but a few leading organisations that actually get it) began to realise that creating a ‘fair’ outcome throughout their supply chains was an unavoidable expectation; an intrinsic part of their job. But at first they did this unilaterally; by fiat, in old top down ‘reputation management’ style: the management of different audiences’ perceptions.

It didn’t work that well. Why? Because these unilateral approaches failed to build trust. The only way they could do this was via ‘fair processes’: by engaging with and listening to even their harshest critics (God forbid!); by being clear and up-front about what their real policies and objectives and by being prepared to explain, justify, debate (and sometimes amend) them rather than simply declaring them unilaterally; by creating clear boundaries between what they are prepared to do and not prepared to do (and why); by being transparent about what they are trying to do and what results are being generated; by allowing independent audits of their activities to establish credibility. And so on.

In other words, a fairer outcome wasn’t in itself enough to appease the critics. A fairer process was a necessary part of convincing people that a fairer outcome was indeed being achieved. Net result: in this field at least, organisations have discovered the importance of ‘fair outcomes achieved via fair processes’ not because of some high moral concern but because they had discovered the hard way this was the only approach that works.  My suggestion is that this will prove true of all ‘relationship management’ issues, including marketing.

By the way, there is a twist in the tail here; a fundamentally important twist in the tail. Having realised they had to undertake initiatives to clean up their supply chains (a process that’s only just beginning), companies were presented with a ‘lose’ which they couldn’t avoid. So what did they do? They quickly focused their attention on how to turn the ‘lose’ into a ‘win’. “Perhaps, in the process of building fair trade sustainable sourcing practices, we can use it to improve quality, reduce unpredictable fluctuations in commodity prices, create closer working relationships to unleash benefits in other areas such as supply chain management.” Perhaps, in other words, we can actually use this to gain competitive advantage!

Faced with a ‘lose’ which they couldn’t escape, leading organisations were forced to innovate to turn the ‘lose’ into a ‘win’. This is one of the most important findings to emerge from our pursuit of the idea of win-win. Most of the win-wins we see around us today didn’t just happen by accident. They were designed. They happened because somebody innovated to make them happen.

If your rule of thumb is pink elephant rationality, if a ‘win’ opportunity presents itself you grab it, whether it’s fair or unfair. That creates one sort of innovation agenda.

If your rule of thumb is ‘win-win’, if it’s not a win for you, or if it is unfair in some way, then you need to innovate to make it a fair win-win. That is a completely different innovation agenda. That’s how a commitment to building ‘win-win’ relationships inevitably morphs into a complete innovation strategy.

Which innovation agenda/strategy is your organisation pursuing? Can it even tell the difference between the two?

Alan Mitchell      www.ctrl-shift.co.uk           Newsletter 

Brands' elusive killer app

Unfortunately, my last post on win-wins was too simplistic. It implied that if there was a ‘fair’ division of the gains delivered by a win-win relationship, then all would be fine and dandy.

Obviously, it’s a good start to have a ‘win’ to share, but it’s not the end of the story. As well as considering ‘fair outcomes’ we also need to consider ‘fair processes’.

Fair process – or ‘procedural justice’ as it was first called – came to the fore in the 1960s after a landmark study of the US legal system by social psychologist John Thibaut and legal expert Laurens Walker. Their key discovery: people often care more about how a decision or outcome is arrived at than what this final decision or outcome happens to be.

If people feel they have been treated fairly along the way, they are much more inclined to accept the final outcome of a process even if it goes against their interests – even if they end up a ‘loser’. Likewise, if they feel they have been treated unfairly, they may still reject the outcome even if it favours them. The fairness of the process deeply colours their perception of the outcome.

Among the key attributes of fair processes are: no favouritism (i.e. no arbitrary decisions driven by power or politics rather than by focusing on the merits of the case); the ability to state your case or have someone represent you (a voice that is listened to); and transparency – that the rules of the game are clear to all concerned; that there is nothing devious, dishonest, underhand or manipulative in other how the process is carried out or how the outcome is explained or justified.

If you want a cliché, fair process is about treating people with respect. If people feel they have been treated with respect, they respond accordingly and reciprocally. If they feel they have been treated disrespectfully, their revenge mode kicks in. We are talking about deep emotions here: feelings of self-esteem, status, recognition and affirmation versus shame, anger, humiliation and feeling powerless.

I would argue that fair process lies at the heart of all successful customer-facing activities: marketing, advertising, sales, customer service and so on. How the process is managed – whether it’s deemed to be fair or not – is probably decisive in determining whether it is seen by the customer as being value adding or not, with strong knock-on effects on perceptions of the brand as a whole.

There’s an important distinction to be made here. With fair process we are not really talking about the value of the product or service per se. We are talking about whether the process of interacting and transacting itself adds or destroys emotional and practical value from the customer’s point of view.

If so, an understanding of the implications ‘fair process’ should lie at the heart of all organisations’ interactions with customers. The bizarre thing is, despite intense interest in fair process in many other walks of life including law, industrial relations, international relations, politics, organisational behaviour, peace and conflict studies and so on, it seems to have passed marketing by.

Fact is, like it or not, everything marketers do either signals their commitment to making the process of customer engagement fair, or not – with hugely powerful consequences either way. Great brands don’t only generate ‘fair’ win-win outcomes with their customers through the value of their products and services, they also signal and demonstrate through everything they do, big and small, a commitment to using fair processes to generate these fair outcomes. It is this that build trust, respect and all the warm, positive feelings brands are supposed to create.

When Marks & Spencer introduced ‘no questions asked’ product returns, for example, it had a disproportionate emotional impact because it signalled respect and trust for the customer. This had nothing to do with the quality or value of the product in question, and everything to do with the process of interaction.

 On the other hand, when marketers are economical with the truth, make misleading claims, hide snares and get-outs in small print, make people jump through hoops, indulge in spin, seek to enforce ‘lock-in’ against the customer’s will, sell on or use personal information to spam somebody (and so on) deliberately or not, they are demonstrating unfair intentions via unfair processes - which destroy trust and value..

The signalling power of these actions can reach far beyond the monetary value of the detail in question: they are ‘little things’ that speak volumes. They are where and how real brand trust is either built or destroyed: not just from making and keeping a product promise (a very rational, calculating, contractual angle on branding) but from how ‘respectfully’ the brand treats its customers. This, I would suggest, lies is the heart of real brand building: using fair processes to generate fair, win-win, outcomes.

This begs a big question: right now, for this customer in this situation, what does a fair process look like? The answer may not be obvious. This is the real job of customer insight: to understand what ‘fair’ actually looks like from the customer’s point of view, and therefore how to generate fair processes and outcomes, consistently.

Of course, you cannot do this if ‘using fair processes to generate fair outcomes’ is not part of your agenda.

Alan Mitchell      www.ctrl-shift.co.uk           Newsletter

Reinventing CRM and direct marketing

I did a talk last week with my colleague William Heath for the IDM’s Data Council on Volunteered Personal Information and its implications for CRM and direct marketing.

Slides from the talk are now up on the IDM’s web site (http://www.theidm.com/download/pdf/Volunteered_Personal_Information.pdf)

The talk covered:

• The intrinsic flaws in our current model of CRM and direct marketing
• The emergence of individuals as managers of personal information, of personal information management services (PIMS) and the consequent rise of VPI
• What forms VPI will take
• Their impacts on organisations’ customer-facing activities
• The potential size and scale of the market for VPI
• Preconditions for the emergence of a successful VPI market
• What a successful VPI strategy will look like for organisations.

If you want a more detailed transcript of our talk, get in touch with me at alan.mitchell@ctrl-shift.co.uk.

Alan Mitchell      www.ctrl-shift.co.uk           Newsletter

Win-win, trust and real branding

In my last post, I asked what the ‘share of spoils’ should be in a ‘win-win’ relationship: 1/99 or 99/1? In fact, these sorts of divisions hardly ever occur in real life. Why? Because at some point, long before they get beaten down to just ‘1’ one of the parties walks away saying “Up yours!”.

There is something really important here. Walking off saying “Up Yours!” is not a ‘rational’ act. Remember, even if you got just ‘1’ out of this relationship, you would still be better off than you would have been otherwise. So if you were ‘rational’ as per pink elephant economists’ theories of rationality, you would still accept it. But people don’t. Instead, they think (and feel) “this is not fair!” And then, elemental emotional forces take over.

We human beings have deep reciprocal instincts. It’s part of our evolution as a social species. When we feel we have been treated fairly or kindly, we feel the urge to reciprocate with fairness and kindness. And when we feel we have been treated unfairly the other side of reciprocity – revenge – kicks in. When we are in revenge mode, we go out of our way to make the other side suffer: we are prepared to make a sacrifice just to ‘pay them back’.

This is what happens when the division of spoils becomes unfair: the aggrieved party sacrifices the benefits he would have got in order to get revenge. “If you’re going to treat me that unfairly, I’ll do my best to make sure you get nothing at all!” This outcome has been repeated in hundreds of experiments, across the world, in every walk of life, across every social group. The instinct appears to be universal.

But there’s a problem here. If you have been number-wanged by 20^th century economics and accounting, you will feel deeply uncomfortable with any concept that cannot be reduced to a neat, measurable, calculable, numerical formula. As a concept, ‘fairness’ seems horribly wishy-washy. Vague to the point of meaningless.

There are two things to remember here. First, while ‘fairness’ is a universal instinct, it’s also a social construct: how it manifests itself differs according to social context. Some societies (especially those with ‘hunter’ backgrounds which historically required strong cooperation to achieve goals) expect far more equal shares than others (such as farming societies where people tended, and guarded, their own land). Gift-giving cultures having different expectations to ‘trading’ cultures. Nevertheless, you won’t find a society where anything less than a 20/80 split is generally deemed acceptable: anything less than ‘20’’ and the “I’ll get you back!” reaction tends to kick in.

Second, while fairness may seem so wishy-washy concept that it’s impossible to operationalise, it’s as real as a fist in your face. A sense of fairness or unfairness transforms peoples’ behaviour: it’s the difference between chalk and cheese.

Why is ‘fairness’ so important? Because it creates the connection between trust and win-win. As I said in my last post, win-wins only provide a foundation for trusting relationships. They’re a necessary pre-condition, but not sufficient in themselves. The trusting relationship still has to be built.

For this, at least three things have to happen. First, you have to commit to being ‘fair’ in your dealings with the other party; you have to commit to not shafting them, This includes not over-stepping the mark when it comes to dividing the cake. Second, you have to clearly signal and communicate this commitment. And third, you have to demonstrate your sincerity – consistently demonstrating your commitment to achieving ‘fair’ win-wins through your actions.

Once you stop to think about it, this is what great brands have always done in the past. And what they will continue to do in the future. In fact, my guess this is that it’s what lies at the heart of real branding.

Alan Mitchell      www.ctrl-shift.co.uk           Newsletter 

Why trust is so elusive

The more we pursue ‘win-win’ the more interesting things emerge. Take the issue of ‘share of spoils’.

The critical thing about win-wins is that they create ‘positive sum games’: by entering a win-win relationship the two sides help each other bake a bigger cake than they could have done acting alone. We shouldn’t assume however, that this cake will automatically be shared 50/50. In fact, there is no reason at all for win-wins to be divided in this way.

If the extra cake is worth ‘100’, it’s still a ‘win-win’ for one party to get 1 and the other party to get 99. Or vice versa. Both sides are still getting more than they would have done otherwise. What they actually end up getting then depends on their bargaining power. (Within the context of competition, of course).

Result: many win-win relationships generate intensely adversarial power battles, with the two sides going at each other hammer and tongs for a bigger share of the spoils. Look at retailer/ supplier negotiations in the consumer goods industry for example. Car manufacturers’ relationships with their parts suppliers. Unions versus managements.

It’s a common assumption that win-win relationships are, or should be, nice, cosy, lovey-dovey, soppy ‘peace and love man!’ sorts of things. In fact, they’re often like unhappy marriages. Both sides know they would be worse off going elsewhere. But they hate each other with a vengeance as they fight it out: what’s it going to be, 1/99 or 99/1?

That’s why, in a previous post, I carefully avoided equating win-win relationships with trusting relationships. What I said instead was much more careful. I said that win-win is “a fertile breeding ground of trust’. 

If you are stuck in a beggar-my-neighbour zero sum game situation where the only way one side can ‘win’ is to make the other side lose, the chances of building trust between the two sides are close to zero. If, however, there is a bigger cake that you can share, then at least you have the chance to build trust.

Having the chance to build trust and actually doing it are not the same, however. Something else is needed. Without this ‘something else’, win-win relationships are just as likely to generate hate-filled ‘hammer and tongs’ adversarial relationships as win-lose ones. That’s why, I think, so many people have been disillusioned by well-meaning attempts to build win-wins. They didn’t get the response they expected, and went away feeling hurt and disappointed.

This isn’t a reason to give up on win-win, however. It’s an even more important reason to discover what that ‘something else’ is.

Alan Mitchell      www.ctrl-shift.co.uk           Newsletter

The 'competitiveness' trap

OK. Back to win-wins. Everything I’ve said so far points to the conclusion that creating and maintaining superior win-wins is very hard work.

For one thing, what a ‘win’ looks like to either or both sides is fluid. If you are dying of thirst, a glass of water looks like a fantastic ‘win’. Three glasses later, another ‘win’ is likely to move to the top of your priority list.   This is another simple, obvious observation but it does mean that a) successful win-win relationships require constant vigilance and adjustment (i.e. relentless hard work) and b) that it’s impossible in principle to find a purely organisation-centric ‘secret of success’ – one that revolves solely around what the organisation does in isolation: its strategy, culture, technology, infrastructure, people, whatever.

Bizarrely however, that’s precisely what most business books, professors and consultants do: lay out one after another ‘tried and tested’ formula for success that focuses on what the firm does in isolation to the win-win context. (These formulae are often triumphant … for a while. Then the underlying win-win dynamics change and the firm's success suddenly evaporates to everyone’s surprise and consternation.)

Every win-win is also relative and comparative. If I’m getting ‘5’ from my relationship with you but could be getting ‘10’ from somebody else, then for me ‘5’ is a ‘lose’ not a ‘win’. That means you can’t work out whether something is a win-win by looking just at the two parties in isolation. You have to understand the context; the options facing the other party as well as your own. This makes maintaining win-win relationships a doubly remorseless task: ‘win-win’ is an uncompromising, unforgiving task master.

You could say these observations simply restate what we’ve always known about competition. They do, to a degree. But there is a difference . Viewing things through the lens of ‘competitiveness’ alone doesn’t reveal the crucial distinctions clarified by a ‘win-win’ perspective. It doesn’t help you see the meaninglessness of ‘brand loyalty’ for example, or the disastrous effects of the quest to ‘change consumer attitudes and behaviours’ or the stupidity of marketing metrics that measure benefit for only one side of the equation in isolation.

In other words, if ‘competitiveness’ is your goal in abstract – without regard to whether it creates a win-win or not – you will almost certainly end up competing around the wrong things. Many organisations have fallen, and still are falling, into this trap.

Alan Mitchell      www.ctrl-shift.co.uk           Newsletter 

Martin Hayward leaves dunnhumby

I hear on the grapevine that Martin Hayward, director of strategy and futures at Tesco’s customer data arm dunnhumby, is leaving the company.

At first glance, that seems a bit odd: Less than two months ago, Martin published a book (called Any Colour You Like As Long As It’s Any Colour You Like), which acts as an extended explanation and eulogy of how the Clubcard approach works and why it is so successful.

However, at the end of this book – where he turns his gaze to the future – Martin writes the following.

“At the moment, while your local supermarket might know what’s in your shopping basket, your bank knows what you buy, your mobile company knows where you are and who you speak to, and your favourite search engine knows what sort of holiday you’re researching, none of this data is linked together.

In future, companies might start exchanging this data to get a fuller picture of their customers’ lives. Imagine for example, if a supermarket linked its shopping information with viewing habits from satellite TV or an internet search engine. This could obviously only happen with the permission of customers, but could lead to enormous benefits for consumers and business.

Closing the loop of understanding around media and shopping habits would enable advertisers to see if their TV ads had actually led to a purchase in a supermarket. In turn, this could enable advertisers to beam relevant ads into the living room.”

Now, I don’t actually agree with this vision. (I agree with Martin about the power of data integration, but I think the natural point of integration for such data is the individual, not companies exchanging data about this individual behind the individual’s back. But let’s not get into that here.)

The point is, the rest of Martin’s book is about how well the Clubcard approach works in just one of those silos in isolation – grocery retailing. Over the last few years, dunnhumby has grown at an extraordinary pace applying its Clubcard know-how to new retailers such as Kroger in the US and Casino in France. As a business model, focusing resolutely on this single seam of gold, replicating the same basic methodology across the entire industry, makes eminent sense. But it doesn’t leave much room for an exploration of that bigger vision of customer data integration.

Perhaps that’s got something to do with Martin’s departure.

Alan Mitchell      www.ctrl-shift.co.uk           Newsletter

Taboos that have made marketing as it is

Ginger Man’s passionate response to my post on ‘win-win’ illustrates something else. As Colin Wheeler noted in his comment about ‘brand loyalty’, analysing interactions and relationships from a win-win perspective should be simple and obvious. But 20^th century theories of economics and marketing made it almost taboo to do so.

Mesmerised by behaviourist psychologists’ theories of ‘stimulus-response’ as a means of control, 20^th century marketers treated consumers as pieces of putty in marketers’ hands – their attitudes and behaviours to be changed at will by marketers’ carefully designed and delivered ‘stimuli’. (For an example of ‘people are putty in our hands’ thinking in action, see Robin Wight’s ‘Battle of Big Thinking’ speech on neuromarketing, especially his comments about “constructing brands in consumers’ brains” and creating “branded empathy”.)

If unilaterally changing the consumer’s attitudes and behaviours is your agenda, then that’s ‘end of story’, as Ginger Man would say. Whether you are creating a ‘win’ for the consumer or not is irrelevant. (What it feels like to be this piece of putty being moulded and ‘changed’ by thousands of different marketers at the same time is the consumer’s problem, not the marketer’s.)

Meanwhile, 20^th century economists taught us that all economic agents were ‘rational’, which meant that they always made perfect decisions. If so, every transaction is a win-win transaction by definition. Therefore, investigating win-win as a theme is a waste of time. The problem has already been solved.

The net result of this intellectual pincer movement was that companies squandered huge amounts of time, money and effort going down one road (an often fruitless attempt to change consumer attitudes and behaviours) while not going down the other road (of exploring what win-wins actually look like). Result: A double whammy. It’s as if somebody had come along and hung a great big notice on the door leading to the future saying “Irrelevant dead-end. Don’t bother exploring this one” and that everybody had believed them.

Many marketers brought up in this environment are now committed to it, intellectually and emotionally. So much so that to challenge it is almost akin to an existential attack: ‘if what you are saying is true, then there’s no point to my existence!”. Ginger Man said as much: “If you're not getting people to do something then what the hell are you bothering for?” he asked.

In fact, marketers did recognise the importance of win-wins via the mantra of 'identify and meet customer needs'. And many of the most successful 20^th century companies actually did adopt the values and principles of ‘mutual benefit’ at some level or another. In consumer goods for example, P&G, Unilever, Nestle, Mars all had a strong culture and values that embraced some acceptance of mutual benefit. However, at the same time marketers imbibed 20th century taboos and a deep pattern of schizophrenia emerged at marketing's heart.

We now have the opportunity to liberate ourselves from this schizophrenia - and thats something really worth 'bothering for'.

The Cowboy Builder school of marketing

My last post on ‘win-wins’ elicited this glorious response from ‘Ginger Man’.

“Utter rubbish. What is buying (or not buying) if not behaviour? If you're not getting people to do something then what the hell are you bothering for? Just so you know, a win-win if you must use the expression, is when I sell my client's product and the customer buys it. End of story. This post is absurd.”

I might be misinterpreting you Ginger Man (sorry, I don’t know your real name), but it sounds to me like you are an unreconstructed caveat emptor cowboy builder breed of marketer.

Let’s test your proposition a little further.

Scenario 1  You use misleading claims to get the customer to buy your client’s product. By your definition (“a win-win is when I sell my client’s product and the customer buys it. End of story”) this is absolutely fine and dandy, even if your customer never buys your client’s products again.

Scenario 2    Having closed your sale and got your customer’s name and address you spam them to death with cross-sell and up-sell messages that drive them nuts. As a result, the customer switches off and opts out. But hey!, he bought the product so who cares?

Scenario 3   The customer buys the product but something goes wrong and he needs customer service. But customer service is not a revenue stream, it’s a cost, so you make it as difficult and painful as you can for your customer to get the help he needs. As a result, he tells everyone he meets how awful you are and ‘GingerManbrandsucks.com’ web sites begin to appear all over the place.  (Please note: Scenarios 1 and 2 have got nothing to do with closing sales per se, they’re all about the processes surrounding the sale.)

In each of these cases, you’ve managed to close a sale so, Ginger Man, from your point of view this is “End of story”. But (as I think you know quite well) it’s not. There’s a big difference between closing sales and building brands. When building brands, 'the story' never ends because you always have the future to think about. And as you think about this future (and the negative effects of treating your customers as mere punters to be caveat emptored out of their cash) you start to change what you do. And guess what! The changes you make end up building win-wins. This is not a great moral point, Ginger Man. It’s just a fact of life which simplistic ‘End of Story’ theories ignore at their peril.

By the way, there’s a slightly more subtle point behind this. I never said that sellers don’t want to change customer attitudes and behaviours. Of course they want to change customer attitudes and behaviours in their favour. But, actually, it’s incredibly difficult to change peoples’ attitudes and behaviours in ways they don’t want  (despite 20^th century behaviourist psychologists' claims). It’s much much easier to change people’s attitudes and behaviours by creating ‘wins’ for them. They like wins (attitudes), and they actively pursue these wins (behaviours): if it’s a win for them, they do all the ‘changing’ of their own accord, free of charge!

So yes, successful marketing does change peoples’ attitudes and behaviours. But it doesn’t do this by making 'change' its purpose, by setting a goal of ‘changing peoples’ attitudes and behaviours’ and then creating special activities designed to change attitudes and behaviours (i.e. ‘stimulus-response’). It does this by creating ‘wins’ for the customer: products that represent a 'win' and process that represent a 'win' too, because both matter to the customer. Changes in attitudes and behaviours follow as a by-product.

Now please tell me, Ginger Man, why is that so absurd?

Alan Mitchell      www.ctrl-shift.co.uk           Newsletter

More ducking and diving from Rory Sutherland

In one respect, the IPA President’s New Year reception in London last night was a rather bizarre event. With all the massive displays on the wall it seemed more like a convention on behavioural economics than an adland do.

In his speech IPA President Rory Sutherland continued his crusade for the industry to embrace behavioural economics. He conjured up a vision of the IPA and member agencies as a central point of scientific understanding of consumer behaviour and decision-making; of “how people spend their time, money and attention”. Here’s a chance to create “a scientific framework for our activities” and to speak “the economic vocabulary” of the board, he declared.

All great stuff, but he still assiduously avoided the elephant in the room. How does he want the industry to use our ever deepening knowledge of human behaviour and decision making? Should it seize upon the findings of behavioural economics to induce consumers into behaviours and decisions that profit their clients at the consumer’s expense? Or is Rory going to commit the IPA to endorsing some sort of Nudge Test – the policy recommendation of researcher-pioneers Richard Thaler and Cass Sunstein that we should use this knowledge to create choice architectures that “influence choices in a way that will make choosers better off, as judged by themselves.”

As I’ve argued before, to continue down the road of crusading for the application of behavioural economic to marketing without such a commitment is irresponsible, playing with fire. Yet this is precisely what Rory seems to be doing.

Here’s just one illustration. Attendees at the reception (thanks for the invite, beautiful canapés!) were given the latest version of the IPA’s pamphlet ‘Behavioural Economics: Red Hot or Red Herring’. Section Six, on price perception, is introduced with these words in big bold letters.

“In theory, price should be a consequence of the value people attach to something. We should be willing to pay what we think something is worth. In practice, this causality runs backwards. The price that is demanded for something makes us value it.”

This claim is backed by an example from recent research which suggested that if people think a headache pill is more expensive, they think it works better.

Now please help me out here. Do tell me if I’m getting it wrong, but the implication of IPA’s presentation of these findings seems to be that, if the causality of pricing is that the price marketers demand determines how consumers value the product, then all marketers have to do to improve consumers value perceptions is to put the price up. “Oh goody! If we double our prices, consumers will think our product is twice as valuable! What an excellent wheeze! No need to worry about quality, or functionality, or service! Just screw them rotten! This is the new best practice, as revealed by behavioural economics! Thank you Rory!”

Of course this is stuff and nonsense and the IPA knows it because, tucked away at the end of this section (and not in big bold letters) it goes on to say: “Although people clearly take price as an indicator of quality and value, this does not mean anyone can benefit from a simple price hike. What it does mean is that price needs to be used within the context of other indicators of value.”

So which is the real finding of behavioural economics? The first bit in big bold letters? Or the second bit, tucked away at the end? If it’s the second bit, why choose the first bit to put at the front, in big bold letters, to introduce the section?

My fear with the IPA’s love affair with behavioural economics is that, under the guise of ‘deeper insight into consumer behaviour and decision-making’, advertising agencies will end up presenting, and trying to apply, behavioural economics as a new, clever, ‘scientific’ way of manipulating consumers into behaviours that benefit clients at the consumer’s expense. As I’ve said before, this is a sure-fire way of reaping a PR and regulatory backlash that will do both clients and agencies no end of harm. Yet, in its first official publication on behavioural economics, it seems the IPA can’t resist the temptation to do this just this.

So come on Rory. What about that Nudge Test?

Alan Mitchell      www.ctrl-shift.co.uk           Newsletter

The unfolding tragedy in marketing

So far, despite my earlier promises I’ve still been pretty glib about what ‘win-wins’ look like. So let’s dig a little deeper.

‘Wins’ are like beauty. They exist in the eye of the beholder. We may have some pretty good rules of thumb for what a win or a lose looks like. Generally speaking, for example, a good price is better than a bad price, good quality is better than bad quality. But what the ‘perfect’ outcome looks like depends absolutely on what the person’s current agenda and priorities are. They could be to do with risk reduction or opportunity creation, with cost reduction or value enhancement. They could be driven by one emotion such as fun, or another such as status.

Whatever it is, it’s each party’s prerogative to decide what a ‘win’ looks like for them. Two things follow from this. First, it reinforces marketing’s special role as the identifier and architect of win-win transactions and relationships: the mantra ‘identify and meet needs’ goes to the heart of it. That’s why marketing is so uniquely important and valuable.

Second, however, it means that the one of common definitions of marketing’s function – to ‘change consumer attitudes and behaviours’ – doesn’t fit, because it is a one-sided, unilateral action. If A tries to change B to fit A’s definition of what a ‘win’ looks like, the chances of A creating a win-win with B are very small indeed. It can happen and it does … sometimes, but very rarely. Instead, the chances of creating an adversarial relationship are very high.

That’s why the common assumption that good marketing is about changing customer attitudes and behaviours (and that marketing metrics measure how successful you have been in doing this) is so dangerous. It actually undermines the very win-wins successful marketing is based on.

This belief, that marketing is about changing consumer attitudes and behaviours to fit the goals of a particular organisation, is probably the biggest cause of bad marketing today. It’s a classic case of faux marketing. Yet sadly, thousands of intelligent, committed men and women go to work each day thinking that this is what they are doing, or should be doing. What a tragedy!

Alan Mitchell      www.ctrl-shift.co.uk           Newsletter

Why 'brand loyalty' is meaningless

I said in my last blog that it’s marketing’s job to identify and make win-wins possible. The intriguing thing about this is that if you follow the logic through, there are some areas where it provides strong support for traditional marketing theories and practices – and others where it poses a fundamental challenge.

Branding and ‘brand loyalty’ are good examples. Brands are vehicles for win-win relationships and both parts of the phrase are important: ‘win-win’ because both sides benefit, and ‘relationship’ because it’s not a one-off transaction. It’s repeated over time. Historically, the whole point of building a brand was for buyers to return again and again … because they could trust the brand to deliver the superior value it promised.

For organisations, the big positive economic effect of brand building wasn’t the one-off transaction, it was the ongoing predictability (risk reduction) of many repeat purchases over time (income streams). It was this that made it possible for organisations to invest (in R&D, infrastructure etc) to deliver even better value, with higher volumes leading to reduced unit costs and therefore increased competitiveness.

Brands’ win-wins therefore work at two levels simultaneously: at the level of the transaction or interaction, and at the level of the win-win system that makes this transaction possible.

A number of things ‘drop out’ of this simple analysis.

First, (once again) it shows why our current approach to marketing metrics is so disastrously wrong. If we try to measure the benefits of branding from the seller’s side alone, we are missing half of the equation: when it comes to understanding win-wins, we are missing the point.

Second, if we focus just on isolated transactions – e.g. the size of the margin – we risk missing the most important question: does this transaction help to build, or undermine, a win-win system of relationships that’ are the engine of wealth creation? (I’ll return to this point in a later blogs. It’s crucial.)

Third, the concept of ‘brand loyalty’ is a meaningless tautology. Adding the word ‘loyalty’ to ‘brand’ adds as much new insight and information as adding the word ‘red’ to ‘red’. Branding is all about repeat purchases – it’s all about that virtuous spiral starting with a win-win transaction and ending in a virtuous spiral, a win-win system of ongoing ‘relationships’. Without this, branding is nothing. The fact that some people felt they had to invent the concept of ‘loyalty’ is just a symptom that branding has lost its way.

By the way, before you flood me with correspondence, yes of course I’m aware of the distinction between ‘customer acquisition’ and ‘customer retention’. The one positive thing the loyalty movement did was help organisations realise that ‘retention’ is as important as ‘acquisition’ in win-win relationships. But right now, I’m trying to make a more fundamental point: if you feel the need to add the word ‘loyalty’ to your brand – to talk about special initiatives to ‘build brand loyalty’ – you are almost certainly not doing ‘more sophisticated marketing’. You are probably dabbling with a symptom of the fact that something fundamental has gone wrong with your brand.

If a brand is not delivering the win-wins that are the reason for its existence, it’s not doing its job any more.

Alan Mitchell      www.ctrl-shift.co.uk           Newsletter

Why 'win-wins' matter

Why is win-win such an important idea? Two simple, interconnected reasons stand out. First, if an exchange does not create a ‘win-win’ it’s a ‘win-lose’, which means it’s creating an adversarial relationship – and adversarial relationships are incredibly wasteful. They squander time and energy which could have been invested in baking a bigger cake.

To see the economic importance of win-win vs win-lose relationships imagine two people riding in a car which breaks down. In a win-win relationship, both push the car in same direction together: it gets somewhere. In a win-lose relationship, one starts pushing the car forwards, the other backwards. Net result: huge amounts of effort is expended for close to zero progress. OK, it’s a stupid, trivial example. Trouble is, if you look below the surface, it sums up how many adversarial economic relationships actually work.

Second, win-wins are a fertile breeding ground for trust, which is a hugely powerful economic force. Why is trust so powerful? Again, for two reasons. First, if two parties don’t trust each other they will devote huge amounts of effort and resource trying to protect, secure and insure their own position: low trust relationships are economically expensive because they require huge amounts of ‘watch-my-back’ negotiations, contracts, policing, monitoring, enforcement, insurance, etc. In short, they massively increase transaction costs, and the higher transaction costs get the more they strangle economic activity. High trust relationships lead to lower transaction costs, helping both sides get more value from the relationship while unleashing extra economic activity.

That’s the second economic impact of trust: its ‘opportunity cost/loss’ effects. When two parties don’t trust each other they end up not doing a whole load of things that they could have done if they had trusted each other. Thus, in a low trust environment, many potentially wealth creating things simply don’t happen.

It’s hard to over-emphasise the importance of this second aspect of trust. Its effects are largely invisible to traditional marketing and financial metrics because you cannot measure something that never happened. Yet this ‘something’ may make all the difference (the difference between getting your broken-down car to a garage or not, for example). This is one of the many things wrong with our current counter-productive approach to metrics: they actually ignore many of the things that are truly economically important.

So the obvious conclusion is that effective sustained win-wins lie at the heart of economic success. Marketing’s special role, with its job of identifying customer needs, is to identify and make these win-wins possible. This is not something accountants can do. Or lawyers. Or engineers. All the other professions help to deliver win-wins ones once they have been constructed. But it’s marketing’s unique contribution to identify what these win-wins could be in the first place.

It’s an occupational hazard of marketing to obsess about tools and techniques and immediate market/brand objectives …and to forget itsunderlying win-win logic along the way. That’s how and when faux marketing edges real marketing aside.

 Alan Mitchell      www.ctrl-shift.co.uk           Newsletter

Real versus faux marketing

We ended 2009 with a lively and enlightening debate about the role of neuroscience in advertising and the need for a Nudge Test.

My argument was very simple. If advertisers are to deploy the insights and findings of behavioural economics – which charts the many ‘predictable irrationalities’ which dog human decision-making – then we need to use these insights ‘as part of the service’ to help people make better decisions, not exploit their weaknesses. If we try to use these insights to exploit peoples’ decision-making weaknesses, then we may get away with it for a while. We may even make loads of dosh out of it … for a while. But we will also reap the whirlwind in terms of a PR and regulatory backlash.

The argument therefore ended where it had started: successful marketing revolves around the design, creation and maintenance of win-win commercial relationships. If we focus only on one side’s (our side’s) ‘wins’ regardless of whether the other side wins or loses, we may be lucky: we may generate a win-win more out of good luck than good management. But we may also be constructing a situation where one side ‘wins’ by making the other side lose. If so, we are creating an adversarial relationship which will come to haunt us forever onwards.

Two things fall out of this simple observation. First, an awful lot of the marketing we see around us is ‘faux marketing’. By ‘faux marketing’ I mean it dons the superficial garb of marketing – advertising, branding, ‘customer focus’ and ’insight’, segmentation, differentiation, all those wonderful things – but it’s not doing ‘real’ marketing at all because it’s failing to building those win-wins. Instead, it's focusing on only one side’s ‘wins’ in isolation.

Second, the current marketing metrics agenda is the worst example, and cause, of faux marketing: it concerns itself only with calibrating one side’s ROI; one side’s costs and one side’s benefits – the marketer’s. Therefore it can never tell whether it is helping to create win-wins or not. It is blind to the most important metric of all (how rich a win-win is it?).

Sadly, this indifference to real marketing is now being played out in the ‘neuromarketing’ debate. When Robin Wight talks about “building brands into consumers’ heads” and messing with individuals’ mirror neurons to create “branded empathy” for example, he is displaying complete indifference as to whether this represents a ‘win’ to the consumer or not. He is advocating faux marketing. And he is helping to engender the backlash I mentioned earlier (all under the banner of ‘saving advertising’!).

But what is a ‘win-win’? What does it look like? So far I’ve talked about it rather glibly, making it sound like a rather tired cliché. In fact, like other ‘obvious’ concepts such as ‘space’ and ‘time’ the closer you look, the richer and more complex it becomes. So, for the next few weeks I’m going to explore this theme of ‘win-win’. What do ‘win-wins’ really look like? How do we create them? And what are their real implications for marketing?

Alan Mitchell      www.ctrl-shift.co.uk           Newsletter

Ethics or pragmatism?

Responding to my last blog Rory Sutherland says he needs more time to think about it, before committing the IPA to the Nudge Test. That seems eminently sensible. Think away, Rory!

But while you’re doing so, I would like to address some possible misunderstandings. You say:

“I just need some time to think before I implicitly commit the IPA's whole membership to any ethical standard, even a really good one.”

That’s your description of what you would be doing, not mine, Rory. This sentence sets off two big alarm bells for me: one relating to ‘ethical standards’, the other to ‘committing the whole IPA membership’.

Ethical standards.   I raised this issue on strictly pragmatic grounds. My argument was that if the advertising industry embraces behavioural economics while failing to commit itself to the Nudge Test then it will reap the whirlwind in terms of a PR and regulatory backlash. It may be that it’s pragmatic to be ethical and yes, there was an element of ethical outrage in what I wrote. But I wasn’t suggesting you should adopt some difficult-to-defend moral high ground. My focus was on the pragmatic implications of what you are doing. I would strongly recommend you do the same.

‘Committing the IPA’s whole membership’   I fear this could become a stalking horse and an excuse. Of course you know your role much better than me Rory, but I didn’t think you were in a position to ‘commit the whole membership’ to anything. All I’m asking you to do is to commit the IPA to a leadership role in developing and promoting the Nudge Test as it relates to advertising.

Practically speaking, that would boil down to two initiatives. First, you would devote some resources to developing a ‘Nudge Test’ tool, methodology or framework as a service to your members and their clients. They could choose to use it or not use it. It would be up to them. But the very fact that the IPA had developed it would be its own form of nudge. Members choosing not to use it would do so knowing that they could be opening themselves up to criticism. The very fact that the Test was there, waiting to be used, would create some sort of pressure to use it, thereby helping the industry avoid the whirlwind I talked about.

Any resulting debate about what the Test should include and not include, and how it should or should not be used would be valuable learning for the industry.

Second, I am really encourage by your remark that “I certainly agree with you that healthy metrics should take account of both sides”, but I think you should act on it by including some form of Nudge Test as a criteria for advertising effectiveness awards, case studies etc, which currently have an unhealthy obsession with just one side’s metrics. This would encourage better practice. (I say ‘better practice’ because I don’t think we’re in a position to say what ‘best’ practice is yet.)

This takes us to your final point:

“I would dearly love to believe that all client problems could be solved by win-win actions … [but] I am not quite sure that we can confine our every action to measurable win-wins and nothing else. If you can show me I am wrong, nothing would make me happier.”

You know I cannot show you right now, because I don’t have the data. That’s the whole point!

We can only get this data if we start using the Nudge Test to distinguish between ‘win-win’ marketing activities and ‘win-lose’ marketing activities. My personal hunch is that yes, win-win marketing activities will turn out to be more ‘effective’ for both sides (because they build trust rather than undermining it) and that applying the learnings of behavioural economics along with the Nudge Test will help agencies and clients understand advertising effectiveness better than they have ever understood it before. But we can never test such a hunch if we fail to collect the data we need to do the analysis.

So, Rory, this is not about you committing “the whole IPA membership” to anything, especially not some easy-to-ridicule high moral ground. It’s about your vision as an industry leader.