Rory Sutherland's Blog

Rory Sutherland

There is a universally-held belief that advertising makes people want more things. This may indeed be true. But an equally important (and perhaps even more lucrative) use of advertising is to make people content with less. 

This year I have been mostly reading about behavioural economics.

I find the subject endlessly fascinating. Partly because the subject offers up endless counter-intuitive insights into human behaviour of the kind which research companies should generate but frankly never do (the fact, for instance, that in defiance of economic rationality, prostitutes almost always end up losing any clients whom they offer to serve for free* - I mean you don't generally get that from Millward Brown, do you?) 

The other reason I am captivated is a more self-interested one: I suspect it is the new behavioural-economic models which will form the model for the most successful (or at least the most interesting) agencies in the next ten years.

Why? Partly because this subject provides a robust intellectual link between understanding human nature and knowing how to make money, which is the only proper area of study for anyone in marketing (remember when we used to sell things?) Secondly, unlike the models prevalent in marketing, behavioural economics hasn't been designed to suit the needs of one media solution. Thirdly, I like it because it offers a practical alternative to the "messaging model" of advertising which everyone good in this business (see Russell Davies in last week's Campaign, or Paul Feldwick and Robert Heath passim) admits is a heap of old crap.

In fact behavioural economics offers the only current model I see capable of displacing the current lazy consensus around "how advertising works". As such it is vitally important since, as scientific historian knows, the only way to kill off an entrenched model is by replacing it with a new one.   

There is another reason it's useful. Quite simply economics has an extensive and precisely defined vocabulary (in stark contrast to marketing language where the word "brand" can mean three entirely different things within the same sentence).

For instance in the last month I have learned about "Veblen Goods", "Inferior Goods" and "Giffen Goods". (The idea of the Giffen Good is fascinating, but I don't propose to cover it here. Have a shufti at Wikipedia here if you want to know more.) 

The Veblen good, meanwhile, is a kind of product or service named after the rather austere looking Norwegian-American cove to the left, one Thorstein B. Veblen, a distinguished economist perhaps most famous for coining the phrase Conspicuous Consumption.

Veblen goods are those items which defy the usual price-laws of supply and demand because demand for them seemingly increases as their price goes up; indeed it is their high price and corresponding rarity which largely gives them their value. Caviar, an immensely expensive product which is decidedly less enjoyable to eat than, say, a packet of salt 'n' vinegar crisps, would be a good example of such an item. "Reassuringly expensive", the 30-year-old strapline for Stella Artois, is an elegant attempt to create a Veblen good using two words.

Sometimes the value of a Veblen good lies in its display or status value - the "I am rich" iPhone application would be an extreme example of this. Sometimes it may be simple human snobbery which believes that a rarer, pricier item will be better (the American Institute of Wine Economics has found that the safest way to guarantee enjoyment of wine is simply to tell the drinker that it cost a lot of money).

I here quote Wikipedia

"The Veblen effect is one of a family of theoretically possible anomalies in the general theory of demand in microeconomics. Other related effects include:

• the snob effect: preference for goods because they are different from those commonly preferred; in other words, for consumers who want to use exclusive products, price is quality;^[3]
• the bandwagon effect: preference for a good increases as the number of people buying them increases (see network externality);
• although some have suggested (Lea 87) that there is also a 'counter-Veblen' effect: preferences for goods increasing as their price falls, this is in essence merely traditional supply and demand theory " 

An "inferior good", finally, is one which people generally buy less of when they get a bit richer. Polyester or coach travel would be generally regarded as inferior goods. This distinguishes them from normal goods, of which people buy more when they get richer - such as, say, holidays.

Got that?

Right, now an almost universally held criticism of advertising is that most of it exists to amplify Veblen effects, and in particular that it prompts people to want things they don't need and can't afford. Worse, it promotes a kind of consumerist arms-race with everyone seeking to outdo each other in displays of conspicuous consumption.

My own belief? We all believe this - even advertising's most ardent defenders, don't we? And indeed advertising can do this. But in my opinion it very rarely does. In fact it is far more likely to have the opposite effect.

Okay, let's accept there is an economic case to be made for disliking conspicuous consumption, since (intentionally or not) it may create more net envy and misery in bystanders than it creates happiness in the consumer, while leading to elaborate forms of expenditure which are in many ways wasteful and unproductive (eg most women's fashion, two parking spaces at Harrods, that kind of thing). Certainly Veblen himself, being an austere Nordic type, disliked conspicuous consumption.**

But let's assume that Veblen effects are bad. Does advertising do much to create them?

Just a few points.

1. There were Veblen effects long before there was advertising. People have worn extravagant regalia or eaten expensive food to demonstrate status and wealth since the beginnings of hunan life and perhaps before (large antlers are probably a Veblen good). The women's clothes and footwear industries are extraordinary examples of conspicuous consumption, but this predates advertising by a few millennia (sumptuary laws were introduced five hundred years ago to limit which cloths such as silk could be worn by which ranks of society). In some cases mass advertising may actually destroy the rarity value a Veblen good seeks to create.
   
2. People who despise consumerism and advertising are usually just as guilty (possibly far more so) of seeking status through Veblen effects. The Guardian-reader who shops organically and holidays in Macchu Picchu is far more guilty of displaying rarity-snobbery than a Sun reader who goes to Burger King and Benidorm. Even if the first three are not overtly commercial, they are status seeking activities nonetheless.
   
3. Fashion and luxury goods advertising is very rarely done by ad agencies. Nor is most advertising for upmarket or luxury products. In fact for the most part Veblen goods are not promoted through advertising at all, but PR. Why would you spend £20,000 to advertise a $50,000 Ecological Treehouse when the Sunday Times will happily run a stupid article on them, next to a piece on funny-shaped swimming pools and holidays in Uzbekistan. And when the wonderfully non-commercial BBC will run hours of programming dedicated to the proposition that if your house doesn't have decking or a tossy water-feature then you're a loser. 
   
4. Against this backdrop a few purchases stand as a glorious counter to innate materialism. Things which ought to have become inferior goods but somehow aren't. Things which are the very opposite of Veblen goods - indeed they manifest bandwaggon effects or possibly even counter-Veblen effects. They are wonderful social levellers. I'll name some of them now.

 IKEA. McDonald's. CocaCola. Mini. LeviStrauss. The Ford Ka. Marlboro lights. easyJet. Pizza Hut. Gap. M&S. Tropicana. John Lewis. BT. Nokia. BP. Tesco. BA. Heinz Baked Beans. Nike. Kelloggs. Sony. Vodafone. Tabasco. Sky. Toshiba. Apple iPod. Volvo. Google. Centerparks. Virgin. Disney.

Spend a moment comparing, if you will, how incredibly democratic the soft drinks market is (mass production, mass distribution, mass advertising) compared to the market for wine (niche production, niche distribution, no advertising). The first is a model of egalitarianism - the second is riven by snobbery and status seeking. Remember Andy Warhol's beautiful insightful comment "What I like about Coke is that the President of the United States can't get a better Coke than the bum on the street." (True also of Google, incidentally). Do you think the Prime Minister drinks the same wine as the local wino? Fat chance.

Notice also how these democratic mass brands are disproportionately American (with healthily Protestant additions from Scandinavia and the UK).  The egalitarian French, meanwhile, are busy promoting luxury brands.

What fascinates me about these big brands is how astoundingly democratic they are, how devoid of any snobbery. Levi's denim (it's a rough, working man's fabric, for God's sake) should by rights be an inferior good, and yet it is worn equally by millionaire rock stars and impoverished accountants. In fact, amazingly, almost all of these brands enjoys what you might call the Cornwall effect - even if you're a billionaire, it's still okay to go there.

Some of you may quibble about McDonald's. I accept that (and I wouldn't have put it in the list myself until yesterday when I found myself queueing in the Drive-Thru lane behind a Lamborghini Diablo).

More important still, many of these advertised brands actually embody the counter-Veblen effect (IKEA, Tesco, easyJet are kind of cool because they are cheap - a characteristic once described as rational chic). This is also true of the Mini. These are all items which, no matter how rich you are, carry no stigma whatsoever.

So the peculiar irony is that big advertised brands, since they depend on mass distribution, ubiquity and fame, have it in their interests to be universal, democratic and non-Veblen. It is the unadvertised things which are divisive.

Large scale advertising may often work not by persuading people to trade up to more expensive variants, but in persuading them to keep their mass tastes instead. The idea that advertising creates social division may be quite wrong. Diametrically wrong, in fact. Advertising often works by persuading the market to adopt an efficient consensus solution, rather than fragmenting inefficiently and snobbishly.

It is, in a way, persuading people to be happy with less, rather than wanting more (brands, as I have remarked before, are environmentally very friendly - they require only electrons and neurons in their manufacture). Advertising is hence diminishing excess materialism by helping forge a common standard of "what's pretty good for all of us". And it prevents the inefficient creation of Inferior Goods - where people reject perfectly good solutions simply because they are "common" - and of Veblen Goods, the expensive things ehich people don't need.  Advertising is, in its way, pro beer and anti-wine.

So don't apologise, adland. Stick to your guns. And keep up the good work. We need far more advertising - and far more categories of expenditure where mass advertised mass brands render the category socially acceptable to all, destroying pointless and inefficient fragmentation in the pursuit of price discrimination.

Indeed George Monbiot believes part of the solution to global warming is to make coach travel cool (now there's a brand opportunity for someone). For Polyester I suspect it is too late. 

How do I know I'm right? Well I once got a room full of lefties to admit through clenched teeth that Karl Marx would have despised the organic movement, but would have loved McDonald's.  

Remeber Andy Warhol. A mass advertised brands is as close to egalitarianism as we'll ever get.

Yes people are tortured by social anxiety. But these things do not concern mass brands, which are a wonderful source of reassurance. My iPod is just as good as Steve Jobs's iPod. Anxieties and consumerism revolve around the areas where there are too few brands, not too many. Healthcare. Housing. Education. Travel. I wish Stelios would hurry up and open a school. I'd send my kids there in a shot.

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* The suggestion is that any form of discount or freebie moves the trick from the purely transactional realm (where the only currency is financial) into the social realm (where the currency is partly emotional). Clients wish to pay prostitutes in full to make clear that this is purely a financial transaction with no emotional component whatsoever.

** Having said which, it's worth remembering that the commissioning of much of the world's greatest art and architecture was probably motivated by no higher motive than the display of wealth - while the vanity which drives people to buy the latest fashions, cars or gadgetry funds innovation which fairly rapidly permeates to the lower end of the market. I can still remember the review of a new Rolls Royce in my childhood in which the reviewer was almost scandalised by the decadence of remotely adjustable wing-mirrors - something you would now get as standard on an £8,000 car, along with other shameful indulgences such as air conditioning or electric windows.