Skip To Site Navigation

Rory Sutherland's Blog

December 2007 - Posts

Amazon Prime - a brave and interesting idea

To judge by Amazon's recent financial results, the Amazon Prime gamble seems to have paid off. How many more businesses should try something similar?

For those of you who don't know, Amazon Prime is, in its way, the simplest form of loyalty programme imaginable.

It works like this: you divvy up an annual fee to Amazon of forty-nine quid (or seventy-nine dollars if you're a Yank) and in return most of what you buy from Amazon comes with free next-day delivery (two-day delivery in the US). The free delivery applies whether your purchases are delivered to your home or someone else's.

In its way, it is a near relative of the mobile-phone package, the newspaper subscription or the all-you-can-eat buffet (or, come to think of it, marriage). It serves to intensify a relationship through a form of mutual commitment.

It also works because it exploits some very simple human psychology. Your best customers enjoy the pleasant, repetitive sensation of profiting from every purchase while your business still nets more money - either from the customer's greater loyalty, or simply because the revised pricing causes them to spend more on your services overall.

In Amazon's case, I imagine the business will particularly benefit from greater gift buying, and greater impulse purchases - not allowing for those (in my experience surprisingly numerous) people who join even though the package does not make strict financial sense, merely because they like the simplicity.

My only regret is that they did not also offer me a special 80-quid prime membership tailor-made for heterosexual males whereby all gift wrapping would be free as well. Having said that, by doing this they would run the risk of narcissists like me gift wrapping everything - my 1MB SD cards would arrive beautifully labelled "To Rory, with much love and devotion from Rory." Or something. Never mind - it's great as it stands. 

These schemes are simply a means of reframing the cost-benefit equation for your customers. I suspect this advantage is very pronounced in Amazon's case, where people may wince far more at a pound of postal cost than a pound of purchase price - in the way that some people find it more painful to pay a tenner for a taxi ride than to spend thousands buying a car.

Neverthess I believe this kind of pricing arrangement will continue to grow in many other sectors. (I have been advocating it for some time to clients such as Ocado). So where else might it work?

Low-cost airlines could use this mechanism to create very simple loyalty programmes: by paying an annual fee you could enjoy free lounge access, priority boarding or priority booking.

The railways need to adopt this idea more, too. In Germany a BahnCard 50 costs a few hundred pounds a year but gives you 50% off every rail journey. Often employers pay for this. Here you have nothing between the full season ticket and the family railcard - this is silly. Especially as - when you think about it - what is needed to combat car use is something which mirrors the cost-structure of car-ownership, with high upfront costs and a low cost of incremental usage.

It could be very potent for businesses which have highly perishable product. Travelodge, for instance. Pay X and you can book any room for half-price less than 24 hours beforehand. 

Or - and here's a radical suggestion - Royal Mail. Pay X a year and all packages to/from your home are delivered free.

Any more suggestions? I'll buy a year's Amazon Prime membership for the person who submits the best idea.

Posted Dec 29 2007, 10:07 PM by Rory Sutherland with 8 comment(s)

Oh shit! My advertising works and I can't explain why.

This week's blog post is brought to you by the letters M, S and O, by the number 2 - and by the late Paul Feyerabend of UC Berkeley.

One of the strangest (and, to my mind, most unedifying) phenomena in advertising today is the sight of ad-folk performing hideous mental contortions in their attempt to accommodate some recent advertising which does not, strictly speaking, conform to their own definition of "good advertising". M&S, O2, Dairy Milk.

The industry's attempts to reconcile these campaigns with its prejudices is a little like golf's adoption of Tiger Woods: "You don't look like you belong here, but God do we need you on the team."

But there is still discomfort. M&S, you see, 'doesn't really have an idea'. O2 is 'kind of design-led'. Cadbury's 'doesn't really have a clear-cut proposition'.

Just as Tiger Woods is the successor to Jesse Owens, these triumphant misfits are the successors to First Direct or Ronseal. Ads whose 'unaccountable' success unsettled the industry.

In other words, they are ads which don't conform to adland's rigidly-held view of what constitutes a good ad. As such they are seen as slightly unwelcome by the many Ad Fascists who believe that there is only one kind of great advertising and that moreover this great advertising can only be arrived at in one way.   

Ad Fascists react to successful exceptions rather as Hitler reacted to Jesse Owens. They don't like them because they challenge their core beliefs. In this case it is the simplistic belief that advertising can be reduced to a few simple rules or 'a single theory of everything'. A neat, all encompassing definition of What is Good and Why.

These wholly artificial rules are rather attractive if we are to maintain the pretence that advertising is a neat and replicable science.

As it's Christmas, I'll make an attempt to enumerate a few of these rules now. You may like to add to them below....

1)  No idea or campaign can be of any merit whatsoever unless it gives rise to award-winning ads (M&S's work - like the AA's First Emergency Service campaign before it - create a kind of creative nervousness here.

2) On watching an ad, it must be possible for any junior planner to deconstruct it, deducing the original business problem in question and extracting from each execution the same single-sentence proposition devised to address it.

3) Advertising has no other function beyond the tortuously slow creation of brand-value through repetition of one message.

4) Advertising only works in the long term. Indeed any communication that looks eager to obtain short- or even medium-term results (perhaps by scandalously including a price or promotional offer) barely deserves the name of advertising.

5) No great advertisement or brand should ever communicate more than one thing. Indeed every brand must be distillable to a single aphorism. Never be so foolish as to spend $2bn designing a car which has good acceleration and good cornering (we don't want to confuse anyone here now do we?). But, equally, every ad must always say *one* relevant thing - no gratuitous singing nuns, please. Even Levi's ads found it necessary to cite one product feature.

Now, just for a moment, I want you to consider something shocking - frightful. And it's this.

 1) Maybe attaching your brand name to some singing nuns would work perfectly well. It wouldn't make any sense, but then neither does Christianity or Harry Potter, neither of which seem to suffer inordinately from the fact. Ordinary people do not demand rigorous sequential logic from their friends; do they want it from their brands? No Japanese advertising makes any sense at all. Logic is a client requirement, that's all.

2) There are many ways of arriving at good advertising, some of them involving sequential logic, others not.

3) Advertising can work its magic in many ways. And can do more than one thing for a brand at the same time.

4) These different roles of advertising may be complementary but they may also be incommensurable. eg it may be possible to have a good brand idea and a good idea about promotion without the two being connected. 

5) The belief that there is only one means by which an advertising agency can add value to a client or a brand is massively limiting to the value an agency can add to its clients.

6) By submitting to advertising purists, we may be sacrificing a great deal of brand voltage on the altar of brand purity. Yet it seems to be that high-voltage, noisy brands are the more commercially successful.

7) That, in an attempt to appear purist and scientific, we are actually being very bad scientists. Our obsession with one true, purebred Aryan form of advertising is a massive brake on progress and invention.

And that's what brings me to Mr Feyerabend - former disciple of Karl Popper and self-described 'epistemological anarchist'; the author of many books, including Against Method. A little outdated now, but still considered the century's leading philosopher of science. 

Now, if I understand this rightly, what Feyerabend said was that the insistence on a single approach to scientific discovery is actually unscientific.

Put another way, if you had retroactively applied the rules of scientific rationalism to all of the major scientific discoveries of the past 500 years you would have invalidated most of them. Perhaps most (penicillin, the X-Ray, the microwave, Aspirin, radio, Archimedes in the bath)  were the product of 'inspired opportunism'. As he once put it, ' a methodology was an ideology Galileo could not afford.'

"To support his position that methodological rules generally do not contribute to scientific success, Feyerabend provides counterexamples to the claim that (good) science operates according to a certain fixed method. He took some examples of episodes in science that are generally regarded as indisputable instances of progress and showed that all common prescriptive rules of science are violated in such circumstances. Moreover, he claimed that applying such rules in these historical situations would actually have prevented scientific revolution."

When I recently talked to Paul Smith here about advertising in the late 1970s, he remarked that the great virtue of the time was that noone demanded the same tedious logic be applied to every message. Hofmeister had a bear on the logo - that was enough. Hovis wasn't even Northern - but let's pretend it is.... Hamlet had a message which was surely generic to all tobacco - indeed which was truer of cigarettes than cigars (cigars are rarely consumed at moments of stress). And so on.... 

Freed from the wearisome burden of self-imposed rationality, and by the tyranny of consistency, there's no limit to what we might do.

Don't get me wrong. I am not suggesting we ignore come basic precepts. But brands, like fugues, can carry more than one tune. And even the occasional dischord can sound better than a monotone.

In other words, get me some nuns.

 

Posted Dec 21 2007, 12:22 PM by Rory Sutherland with 6 comment(s)

What's wrong with government advertising expenditure?

At around £150m per year, the government spends about 5% as much on advertising as on consultancy. Why is this figure so dismally small?

The UK Government spends almost 50% of our GDP. Yet its advertising budget is smaller than Unilever's. It's far smaller than the combined spend of the three largest mobile phone operators. It's just a DFS plus an Argos, or a l'Oreal plus a Specsavers.

Put another way, it's about a third of a stadium. A quarter of a runway. The cost of widening six miles of the M1.

It's chickenfeed.

Let me explain this another way. Like Argos, DFS and anyone else, the government spends money to solve problems. And problems can be solved in a couple of ways.

One is through changing the world; the other is by changing the way we look at it. (Sometimes, of course, it is a mixture of the two.)

Now, where the latter approach is, pound for pound, a more effective solution than the former, why would you not adopt it?

For instance, anyone will tell you that we have a transport problem in the UK? Do we? Or is it a timing problem? By which I mean there are quite enough roads and trains to take everyone where they want to go - the problems arise because everyone wants to go there at the same time. If we could just encourage 10% of people to stagger their jouneys into work, how many fewer roads would need to be built?

Persuading people to make better use of what they have is generally less expensive (and imposes less of an environmental cost) than providing people with more.

So, if advertising can be used successfully to stigmatise drink driving, why cannot it not stigmatise, say, benefit fraud?

To move to another ministry, should we be cutting down on NHS waiting lists, or communicating to patients regularly before their operations (there is a considerable medical corpus which suggests that the latter actually improves survival rates more)*.

In all the debate about food advertising to children, it seems not to have occurred to anyone in government that more pro-health advertising might be worthwhile.

I have one theory which explains this. The average politician is a lawyer. Their natural incination is to find legislative solutions to every problem (never mind that a solution involving compulsion is generally worse than one involving persuasion). The other people they speak to are overwhelmingly left-brain specialists in a specific field - transport engineers, railwaymen, doctors, bankers.

Now when did you ever meet a specialist who believed any money would be better spent on marketing the hospital than on, say, equipment? Where did you ever find an engineer who didn't want to build a road?

As Warren Buffett says, "Never ask your barber whether you need a haircut."

Yet politicians (only 6% of whom have ever held a proper job) will typically never speak to a marketer at all.

What a shocking waste.

Posted Dec 05 2007, 12:18 PM by Rory Sutherland with 16 comment(s)
 
Page 1 of 1 (3 items)
 
ADVERTISEMENT