At the last count, there were about 8,000 mortgage products on sale in the UK. If you vowed to get the best possible deal on the market, and decided to invest six minutes per mortgage to understand its fine details, charges, penalties, flexibility etc, it would take you 48,000 minutes or 800 hours to do your research. At a working rate of 40 hours a week, that would take you 20 weeks. It would cost you half your annual salary.
That’s just mortgages. The average out-of-town grocery superstore now carries about 40,000 separate stock keeping units, so if you allocated, say, three minutes to each item to fully understand special product attributes, price relative to competing products, safety of specific ingredients, ethics and responsibility of the supplier etc, that would take you 120,000 minutes or 2,000 hours. At 40 hours a week, your research would take one full year.
Now apply similar numbers to every category you can think of – current accounts, mobile phones, flights, cars, household durables, films, life insurance, personal computers, clothes, cosmetics, gardening equipment and so on.
When it comes to going to market, the cost of making (and implementing) better, the cost of more informed decisions is astronomical and often outweighs the benefits of doing so many times over.
Marketers help to create these go-to-market costs by providing them with a choice. Choice is a wonderful thing, but we massively underestimate the costs of choice for some very simple reasons.
First, because the costs of choice don’t appear on marketers’ profit and loss accounts, marketers don’t worry about them. They appear in the consumer’s P&L instead. Second, the real scale of these costs remains invisible because consumers have developed ways of avoiding them – so the costs are never actually incurred in the first place.
Instead, they drive a whole series of alternative activities. Over the years, consumers have developed a repertoire of decision-making shortcuts that obviate the need to invest time, effort and money gathering, sifting and weighing the information they need to make better decisions. Here are some of these shortcuts.
- Buy what I bought last time. As long as what I bought last time was satisfactory, this slashes decision-making costs to zero, yielding huge go-to-market productivity savings.
- Buy from my current provider. This is the same as number one except applied to new products rather than repeat purchases. Buying from the devil I know saves me the hassle of shopping around.
- Buy what’s easiest to buy. If the alternative is miles away, getting it here will save the time and trouble of going elsewhere even if it is more expensive.
- Choose the famous one. Companies that advertise their products have a vested interest in keeping a good reputation; brands I’ve never heard of represent a risk.
- Buy the cheapest. The money saved is probably worth any slight differences in quality.
- Buy what’s on promotion. If there’s better quality available at a lower price seize the opportunity.
- Buy what my friends recommend. They’ve got experience that I haven’t got and I trust them to look out for my interests.
- Buy what experts recommend. If it’s a category where I haven’t a clue what I’m talking about it’s probably best to listen to what the experts say.
- Buy the badge or celebrity – I might as well use it to say something about myself.
- Buy the most expensive – you get what you pay for.
- Buy what’s most ethical or socially responsible – that’s the right thing to do.
Some of these shortcuts have deep social and psychological roots (Human behaviour that creates a snag in the marketer’s theorem, MW April 19). But many are simply practical. They are a good way of achieving a pretty good outcome at minimal decision-making cost.
They also pretty much define the marketing landscape. Leaving aside the degree to which consumers do make choices based on rational and functional attributes, most marketing revolves around companies’ attempts to respond to, and take advantage of, these consumer go-to-market behaviours. Loyalty schemes, cross-selling, convenience, awareness-driving advertising, price promotions, word of mouth marketing, expert or celebrity endorsement, luxury or “cool” imagery are all, at least in part, responses to the power of these shortcuts.
Worm is turning
But now a worm is turning at the heart of this entire set-up. A century ago, pioneers like Henry Ford triggered an economic revolution by slashing the cost of making things, not by 5 or 10%, but by 90 or even 99%. Today, pioneers like Google are doing the same with the costs of acquiring and using the information we need to make better decisions. Better, cheaper decision-making is replacing better, cheaper products as the epicentre of value creation.
As a result, three parallel and interconnected tidal waves of change are sweeping the world of marketing with increasing, deepening impact. First, as the cost of improved decision-making falls, the proportion of decisions driven by “careful consideration” versus “choice shortcut” is rising. If you can find the information you need to make a better decision in a few minutes, and that helps you get a better quality product or cheaper service, why pass up the opportunity? As a result, how people arrive at their decisions is changing radically in markets like electrical gadgets, air travel and, increasingly, financial services and automobiles.
Second, where people still prefer to use shortcuts, the content and outcome of these shortcuts are being transformed. If convenience is your criterion, then why not buy online? If it’s the reassurance of word of mouth or expert recommendation you want, there are plenty of websites to help you. Likewise with “buy the cheapest”. The same underlying driving forces; utterly different outcomes.
Third, as the real power and value of information is made manifest, consumer attitudes and expectations are evolving/ there is a dawning realisation that value doesn’t only derive from the qualities of the product or service in isolation, but also from the quality of the information that surrounds it. Is the information that is provided helpful and trustworthy? Or is it unhelpful and misleading?
This is prompting a serious rethink at the highest levels. Take the issue of food labelling and its contribution to health and wellness. At last week’s Efficient Consumer Response conference in Milan, Nestlé chief executive Peter Brabeck observed that to the degree that consumers expect the food industry to correct their unbalanced diets and their sometimes unhealthy lifestyle through nutrition, the advice that companies offer is playing an increasingly important role. Outgoing Ahold chief executive Anders Moberg echoed him, saying that consumers are looking for nutritional and dietary advice they can trust. With labelling, “legally speaking, we might have done our job. But we haven’t taken responsibility,” he warned. “We haven’t spoken to consumers in a language they can understand.”
Barilla chief executive Guido Barilla went further, warning that marketing should “criticise itself very deeply. The big issue is deception”. Marketers have “sacrificed” the needs of consumers, using misleading information to “push” their products. This is not growth to meet needs, it is growth “tailored to the needs of production, not life,” he declared. “It risks destroying the pact of trust between buyer and seller.”
It is a commonplace in marketing that brands simplify choice for the consumer. If it says BMW on the front of the car, I don’t need to invest a huge amount of time and effort inspecting and testing what’s under the bonnet.
Unfortunately, many marketers have restricted this insight to the product while failing to apply it to the information they provide customers through their marketing activities. Then, as people start “looking under the bonnet” of this information, they discover all sorts of debatable and questionable issues and practices. With a corresponding loss of trust. The BMW test needs to apply to everything marketers do and say.
The information age is changing the ways consumers make decisions, and therefore the relationship between consumers and marketers. Underestimate the scale of this change, or misunderstand the detailed implications, at your peril.
Alan Mitchell, www.alanmitchell.biz