Why the best business ideas are driven by psychology rather than logic
Bristol Media recently hosted a keynote with renowned speaker, author and Vice Chairman of Ogilvy UK, Rory Sutherland. In an entertaining and insightful session he explained why behavioural psychology holds more answers than economics and why there are more fish restaurants by the sea! Rin Hamburgh, founder of award-winning Bristol copywriting agency Rin Hamburgh & Co, was there to hear him.
To explain the power of behavioural psychology in getting consumers to part with their hard earned cash, Rory Sutherland told an anecdote about his dad.
Mr Sutherland Senior had always been averse to the idea of getting Sky on the basis that it was too expensive. At the age of 79 and having paid no more than the TV licence fee his entire life, the idea of shelling out £17 a month seemed extravagant to him.
Rory offered to pay for it himself but Mr Sutherland Senior remained unconvinced. So Rory changed tack.
“Ok dad, it’s not £17 a month, is it?” he said. “It’s 60p a day.”
“What difference does that make?” Mr Sutherland Senior replied. “It’s the same thing.”
“Yes,” said Rory. “But you spend £2 a day on newspapers. If you spend £2 a day on two newspapers, it’s hardly ridiculous to spend 60p to get 200 channels of TV is it?”
The context was shifted. Mr Sutherland Senior was persuaded. And is now, according to Rory, a keen advocate amongst his peers! Proving, Rory argues, that price is not merely a function of how much something costs but a variety of other factors ranging from how well off a person is to what they compare the price to and how they perceive its value.
Behavioural science - messy but effective
Psychology - and the power of using psychology within a business context - is central to Rory’s success. Having worked as a copywriter and creative director at Ogilvy for 20 years, he went on to set up the agency’s Behavioural Science division and last year published his second book, Alchemy: The Surprising Power Of Ideas That Don’t Make Sense.
Although Rory admits that, when compared to a traditional science like physics, behavioural science is a little “messy”, it presents some clear advantages.
“In physics, the opposite of a good idea is wrong,” he explains. “In behavioural science the opposite of a good idea may be another good idea. In physics you can’t create anything out of nothing, in psychology you can.” Rory argues that a successful psychological solution is usually more effective, less expensive and more potent than one driven by pure economics.
“Our job,” he says, speaking to a virtual room full of creatives, “is to get business to understand that you should address problems psychology first before looking for much more expensive economic or engineering solutions to the problems.”
The real reason why there are more fish restaurants on the coast
Much of Rory’s talk was aimed at unpicking the so-called logic of businesses favouring economic, rational or physical explanations for everything. Take the question of why there are more fish restaurants by the sea.
“If you ask people wearing a suit and sitting behind a desk, they’ll say, ‘Well, it’s low cost of supply, logistics, easy access to fresh produce, low distribution cost etc,’” he says. “And there might be a bit of truth in that. But first of all, if that were the case you’d also find a load of fish restaurants 5 miles inland and you don’t particularly”.
So why is it that there are so many more fish restaurants on the coast?
“I think the explanation - the real why - is that fish tastes better by the sea. If you’re sitting on the beach eating fish and chips it has a special type of deliciousness which it will never have if you’re in a park in Birmingham!”
The same goes for Pernod drunk in France and Guinness drunk in Ireland, Rory argues.
“Context really matters,” he concludes.
Three brands that beat the odds using psychology
Rory’s talk was peppered with real life examples of brands that have, whether deliberately or not, used psychology to succeed where on paper they should never have even got off the ground.
Take Nespresso. Analysing the make-at-home coffee market, the idea of creating a brand that would cost 70p per cup was ludicrous. Gold Blend probably costs less than 5p.
But Nespresso didn’t position themselves against Gold Blend. They positioned themselves against Starbucks. And as a result, managed to achieve both luxury status and feel like excellent value for their clients.
Or what about Dyson? £700 for a vacuum cleaner? No one’s going to pay that! And if they had the sort of income that would allow them to pay such a premium price, surely they’d have a cleaner.
Yet not only have Dyson sold millions of their vacuum cleaners, they’ve also recently launched a £400 hair dryer that’s flying off the shelves.
And then there’s Red Bull - which is expensive, sold in smaller cans than most soft drinks, and has an acquired taste. Not an ideal set of characteristics for a soft drink. But…
“Everything that makes it a terrible drink makes it a brilliant drug,” says Rory.
“If you frame it as a drink, it’s terrible. If you frame it as a drug, it’s a billion dollar business. It gives you wings!”
Saving the NHS with tax cuts and behavioural science
If behavioural science can have such a powerful effect in business, imagine how much it could achieve in a wider societal context?
Rory used the example of tax cuts. Implement a tax cut and people are going to very quickly get used to having an extra £30 or so in their salary each month. But what if the government took the tax and then issued a £400 rebate once a year?
Better yet, what if people had the option to take just some of that rebate and donate the rest to the NHS?
“It’s hard to get people to write a cheque for £200 for the NHS,” says Rory. “It’s much easier to say, “Do you want £400 in three weeks’ time or would you rather get £200 and let the NHS keep £200?”
Sadly, behavioural science is not yet a central factor when it comes to decision-making in our society.
Logic, he argues, can be dangerous. Psychology has a part to play in solving every problem. It’s the innovative right-brain “What if…?” thinking that produces many of the best ideas and solutions.
Which is why he believes that the advertising industry should be far bigger than it is. And why he will keep championing behavioural science in everything he does.
Our thanks to Rin Hamburgh for a great summary of Rory's Keynote!
Rin Hamburgh & Co is an award-winning, Bristol-based copywriting agency providing content creation, consultancy and training services. We harness the power of words to drive significant results for our clients in and around Bristol, the South West, London and beyond.