Dysrationalia and Other Consumer Disorders

It’s true. Most consumers suffer from a bad case of dysrationalia which, according to Keith Stanovich, emeritus professor of applied psychology and human development at the University of Toronto, is the “inability to think and behave rationally, despite having adequate intelligence.” He should know, he coined the term.

It’s true. Most consumers suffer from a bad case of dysrationalia which, according to Keith Stanovich, emeritus professor of applied psychology and human development at the University of Toronto, is the “inability to think and behave rationally, despite having adequate intelligence.” He should know, he coined the term.

Yep. I’m guilty, as well. And assuming you have adequate intelligence, you are, too. I came out when I bought a Suburban a couple of years ago. The slightly used car sat on the dealer’s lot for about four months when other Suburbans that were older and had more miles were selling within days of showing up on the lot. The only noticeable difference, other than the year and miles, were price. The older models that sold almost immediately were priced higher! For four months, I toyed with testing the car that wouldn’t sell, but my rational mind decided it would be a waste of time because, after all, it was priced nearly $6,500 below Kelley Blue Book value. Clearly, something had to be wrong with it.

WAKE UP!!! How did my rational mind know that there was something wrong with the lower-priced, newer car with fewer miles, unless my irrational mind was telling it so? And why does my irrational mind have more influence over my actions than my rational mind?

Upon discovering I, too, suffered from dysrationalia, I bought the car. And two years later, we have discovered absolutely nothing wrong with the car, other than the time my husband didn’t put the brake on and it rolled into a neighbor’s garage.

This same type of decision-making thought process and resulting behavior takes place daily among consumers of all ages, in all cultures, in all parts of the world. It’s human nature. For the most part, consumers never become aware that they are driven by irrational thinking and therefore, it never changes. So the reality is that we marketers have to address it, instead.

A great example of dysrationalia is found in the book of another one of my favorite psychologists, Daniel Kahnemann. In “Thinking Fast, Thinking Slow,” he asks the question, “A bat and a ball cost $1.10 in total. The bat costs $1 more than the ball. How much does the ball cost?”

Your first thought, if you’re like the majority of students at MIT, Harvard, Princeton and other prestigious schools, was 10 cents. Admit it. That’s the smart person’s answer. But it’s wrong. Do the math. If you do the simple math associated with this question, it’s 5 cents, because if you add 10 cents to the cost of the bat, which would be $1.10 if the bat is $1 more than the ball, you get $1.20. Wrong.

So why do most intelligent people get it wrong intuitively? Because we rely on our first thoughts to guide us, because in most of life’s circumstances, we don’t want to bother to really work out solutions and just want to go with our “gut.” Just like my “gut” told me the car was a lemon because it was priced below value, many consumers convince themselves to make poor choices daily.

Think back on the last time you went grocery shopping. Did you really stop to look at the shelf notes telling you the price per ounce of various items so you could see which brand and which price offered the best value for the money? And did you take the time to compare the price per ounce of the generic brands vs. the advertised brands? If so, get a life! Of course we don’t spend hours comparing price per value for every purchase we make. We rely on our “rational” thinking to do that for us quickly, and that “rational” thinking tells us that bigger boxes give us more value, and generic brands costs less. Pay attention next time you shop and you’ll realize it just isn’t always so, even at those big box warehouse stores.

Not only do you make irrational shopping choices daily, but so do your customers. To compensate, we marketers must present our messages in a way that fits our consumers’ irrational decision processes. As Dan Ariely pointed out in his book, “Predictably Irrational,” there are many ways we can do this. For one, when giving customers three options to choose from, put the one you want them to purchase in the middle. Consumers are not gong to do the math to see which offer provides the best price for the money, but instead are going to make a quick “gut” choice and purchase the one in the middle, because our intuitive mind tells us the first option is too basic, and the third option is likely extravagant or superfluous. So the middle option is most practical and therefore intelligent.

Another way we can appeal to irrational thinking is through price. Most of us will never buy the highest priced option, as it seems irresponsible. But we will buy something less expensive and feel good about it — even if it, too, was overpriced. Many studies show that if a salesperson shows us a clearly overpriced item, say a Lady Date Pearlmaster Rolex watch for $38,000, we will say “no, thanks.” But when they immediately afterward show us the Cartier Santos Demoiselle watch for roughly $15,000, it’s suddenly a bargain we have to have. Really? $15,000 for a watch is a bargain? My conscious mind tells me that it isn’t intelligent for anyone, regardless of income. (Yes, call me cheap.) The difference was our “rational” mind suddenly kicked into “irrational” thinking due to pre-set reference points created by someone trying to sell us something, and $15,000 is less than half of $38,000, so that is a practical and intelligent decision. For some.

So how do you, as a brand, create sales outside of marketing campaigns through psychologically driven pricing strategies, and how do you as a marketer position your products to sell precisely the items you want to sell most? Offering sales and promotional pricing can often backfire, as you saw in my car purchasing example.

Appealing to how our mind thinks, processes information, and calculates solutions — rational or not — is the key to “winning customers and influencing behavior” for life. Integrating other psychological drivers, such as authority and reward, will keep those same customers coming back for more.

Some key takeaways:

  • Never assume your target consumer is really going to read all the details of your message. Make it clear and actionable with a scan of the eyeballs.
  • Price according to what is reasonable and credible for the generation and mindset of customers you are targeting. Not too low and not too high.
  • Don’t make your customers think. Simply create a promotion that is simple and appeals to key psychological drivers: social proof, our need for rewards and authority.
  • Immediately recognize your customers with a “Thank You” (there are no excuses with automated emails today) and reward them at least with a gesture of appreciation for their business.
  • Finally, spend some time studying shopping patterns of your most valuable customers to identify rational and irrational behavioral trends. Plan future promotions accordingly and enjoy a strong ROI!

Marketing Success Is (Almost) All About the Data: Optimizing Customer Loyalty Behavior Initiatives

Much of what I’ve learned over the years about sales, marketing and customer service has to do with the critical importance of customer data, and how those data are converted to actionable insights. It’s how companies generate the right customer data, manage and share data the right way, and use it at the right time. It’s also how they use data to the best effect, to optimize loyalty and profitability, that makes them successful, or not, on an individual customer basis. Culture, leadership, and systems will facilitate effective information gathering, storage and application; and, CRM, CEM, ERP, or other acronyms notwithstanding, it’s impossible to be successful without having as much relevant anecdotal and dimensional content about customers as possible.

Much of what I’ve learned over the years about sales, marketing and customer service has to do with the critical importance of customer data, and how those data are converted to actionable insights. It’s how companies generate the right customer data, manage and share data the right way, and use it at the right time. It’s also how they use data to the best effect, to optimize loyalty and profitability, that makes them successful, or not, on an individual customer basis. Culture, leadership, and systems will facilitate effective information gathering, storage and application; and, CRM, CEM, ERP, or other acronyms notwithstanding, it’s impossible to be successful without having as much relevant anecdotal and dimensional content about customers as possible.

Bill Gates, often a prophet, said in “Business @ The Speed of Thought” (1999):

The best way to put distance between you and the crowd is to do an outstanding job with information. How you gather, manage and use information will determine whether you win or lose.

He might have added, had he really understood how to create and optimize customer loyalty, that what information, particularly customer-specific information, a company collects, and how they manage, share and apply it to the customer will determine how successful they can become.

One of my key sources for the uses of information gathered by customer clubs and, particularly, loyalty programs, for example, is friend and colleague, Brian Woolf (www.brianwoolf.com). Brian is president of the Retail Strategy Center, Inc., and a fountain of knowledge about how companies apply, and don’t apply, data generated through these programs.

In a Peppers & Rogers newsletter, for example, Don Peppers quoted Brian in his article, “The Secrets of Successful Loyalty Programs”:

Loyalty program success has less to do with the value of points or discounts to a customer, and much more to do with a company’s use of data mining to improve the customer experience. Top management hasn’t figured out what to do with all the information gleaned. You have all this information sitting in a database somewhere and no one taking advantage of it.

You need to mine the information to create not only relationships but also an optimum (purchasing) experience. The best loyalty programs use the customer data to improve not only promotions, but also store layout, pricing, cleanliness, check-out speed, etc.

Firms that do this are able to double their profits. When these elements are not addressed, all you’re doing is teaching the customer to seek out the lowest price.”

Tesco, one of the world’s largest retail chains, is using its customer information for a number of marketing and process initiatives. In his book “Loyalty Marketing: The Second Act,” Brian described how Tesco leveraged customer data drawn from its loyalty program to move into offering banking and financial services:

With information derived from its loyalty card and enriched by appended external demographic data, they can readily develop profiles of customers who would most likely be interested in basic banking services, as well as an array of related options, ranging from car loans and pension savings programs, to insurance for all types of needs—car, home, travel and even pets. It costs Tesco significantly less than half of what it costs a bank to acquire a financial services customer. Without a doubt, having detailed customer information gives them a competitive edge.

A few years ago, Tesco parlayed its offline customer data to also become the world’s largest online grocery and sundries home delivery service. Additionally, Tesco uses its customer data to target and segment communications to the millions of its loyalty program members by almost infinite demographic, purchase and lifestyle profiles. In his book, Brian notes that Tesco can create up to 150,000 variations of its promotion and reward statement mailings each quarter. These variations, as he says, ” … are both apparent and subtle, ranging from the product offer (i.e., which customers receive which offers at what price) to the content of the letter and the way it is personalized.”

Tesco is absolutely a company that knows how to leverage customer information. Its customer database contains not just demographic and lifestyle data, food spending in stores and on home delivery, but also specifics about its customers’ interest in, and use of, a diverse range of non-food products and services. As Bill Gates’ statement suggests, incisive and leveraged customer data has enabled Tesco to put distance between itself and its competitors, in both traditional and non-traditional retail markets.

An understanding of the real value and impact of customer information, and a disciplined plan for sharing and using the data to make a company more customer-centric, is needed more than ever. A good analogy, or model, for CEM and loyalty program effectiveness or ineffectiveness in building desired customer behavior, may be what can be termed the “car-fuel relationship.” A car, no matter how attractive, powerful and technically sophisticated, can’t go anywhere without fuel.

Not only that, to reach a desired destination, the car must have the right fuel for its engine, and in the right quantity. For customers, the car is CRM and its key data-related systems components (data gathering, integration, warehousing, mining and application).

The destination is optimized customer lifetime value and profitability. The fuel is the proper octane and amount of customer data.

Leading-edge companies are focusing on customer lifetime value as a destination. They are collecting the right data and using the right skills, processes, tools and customer information management technologies to make sure that key customer insights are available wherever they are needed, in all parts of the enterprise. Jeremy Braune, formerly head of customer experience at a leading U.K. consulting organization, has been quoted as saying: ” … organizations need to adopt a more structured and rigorous approach to development, based on a real understanding of what their customers actually want from them. The bottom line must always be to start with the basics of what is most important to the customer and build from there.”

I completely agree. It’s (almost) all about the data.

Leveraging Fear, Uncertainty and Doubt in Copywriting

Fear is paralyzing. And fear is important for marketers to understand and leverage. I was reminded of how fear takes over the mind while on vacation a couple of weeks ago in Barcelona, Spain. We rented a car for a drive to Andorra and Southern France, and while returning the car to the Barcelona’s city center, we got lost. The GPS navigation wasn’t helpful. The streets were crowded. Then a tap on the window by a motorcyclist next to our car, and pedestrians pointing

Fear is paralyzing. And fear is important for marketers to understand and leverage. I was reminded of how fear takes over the mind while on vacation a couple of weeks ago in Barcelona, Spain. We had rented a car for a drive to Andorra and Southern France and while returning the car to the Barcelona’s city center, we got lost. The GPS navigation wasn’t helpful. The streets were crowded. Then a tap on the window by a motorcyclist next to our car, and pedestrians pointing to the passenger rear tire sent me over the edge: the tire was nearly flat.

Going into the trip, I anticipated that renting a car and driving would generate some anxiety. It began with the fact that the car came with a manual transmission. The last time that I had driven a vehicle with a manual transmission was on the family farm in the 1970s. I thought driving with a manual transmission after all those years would be like never forgetting how to ride a bike. Apparently not. After dozens of times stalling the engine in intersections and at toll booths due to the learning curve of syncing acceleration and releasing the clutch, I felt fear. After three days of driving, I finally got past the learning curve of using a manual transmission.

But it was in the moments returning the car with a nearly flat tire that was my worst fear of all. There was no place to pull over on the crowded streets of Barcelona. Traffic was heavy. Motorcycles buzzed around us. Yet we were only blocks from the car rental facility. We couldn’t get there from where we were.

Fear consumed me. It’s an instinctive response, and there is science that helps to explain why fear is all-consuming.

The amygdala, or lizard brain, has an evolutionary purpose for humans to survive. The amygdala reacts in a “fight” or “flight” mode. It is alert to basic needs—anger, fear and reproduction—with memory formulated over a lifetime as it assesses how to respond to survive and reproduce.

The right amygdala retains negative emotions, especially fear and sadness. The left amygdala retains both pleasant and unpleasant emotions.

Because we’re wired for fear and negative emotion more dominantly than for positive emotions, fear, uncertainty and doubt take over.

And these emotions are the most powerful human emotions that marketers can leverage.

For fear to work, and for you to be credible in your copy, consider these three pathways:

  1. Begin by stimulating your prospect’s emotion with how you relate to their fear, uncertainty and doubt (“FUD”).
  2. Once you have acknowledged and reminded them of their FUD, you’re poised to take the next step of earning trust.
  3. Quickly calm their minds by offering your solution and clearing away the FUD.

When your mind is in constant fear, it’s difficult to think. You’re stuck. You’re frozen. You can’t make up your mind. Your decision-making power is blocked.

Marketers can leverage the power of fear to stimulate emotion, but to be effective, you must quickly calm the mind so that decision making is unblocked and you can move your customers to the thinking part of their brains where they can make decisions.

As for the rest of the Barcelona driving story, thankfully, after several minutes of fear and panic, we ditched using the navigation. Our daughter had been studying there for the semester and her internship’s office was in the general neighborhood of where we needed to return the car. She had never driven in the city, but was familiar with the streets.

She calmly gave me the turn-by-turn directions to the car rental return facility. When I finally recognized a landmark only a block away, my fear vanished and a calm enveloped me. We arrived before the tire had gone completely flat. And now I could think clearly once again and return to enjoying our vacation.

Cheat Sheet: Is Your Database Marketing Ready?

Many data-related projects end up as big disappointments. And, in many cases, it is because they did not have any design philosophy behind them. Because many folks are more familiar with buildings and cars than geeky databases, allow me to use them as examples here.

Many data-related projects end up as big disappointments. And, in many cases, it is because they did not have any design philosophy behind them. Because many folks are more familiar with buildings and cars than geeky databases, allow me to use them as examples here.

Imagine someone started constructing a building without a clear purpose. What is it going to be? An office building or a residence? If residential, for how many people? For a family, or for 200 college kids? Are they going to just eat and sleep in there, or are they going to engage in other activities in it? What is the budget for development and ongoing maintenance?

If someone starts building a house without answering these basic questions, well, it is safe to say that the guy who commissioned such a project is not in the right state of mind. Then again, he may be a filthy rich rock star with some crazy ideas. But let us just say that is an exceptional case. Nonetheless, surprisingly, a great many database projects start out exactly this way.

Just like a house is not just a sum of bricks, mortar and metal, a database is not just a sum of data, and there has to be design philosophy behind it. And yet, many companies think that putting all available data in one place is just good enough. Call it a movie without a director or a building without an architect; you know and I know that such a project cannot end well.

Even when a professional database designer gets involved, too often the project goes out of control—as the business requirement document ends up being a summary of
everyone’s wish lists, without any prioritization or filtering. It is a case of a movie without a director. The goal becomes something like “a database that stores all conceivable marketing, accounting and payment activities, handling both prospecting and customer relationship management through all conceivable channels, including face-to-face sales and lead management for big accounts. And it should include both domestic and international activities, and the update has to be done in real time.”

Really. Someone in that organization must have attended a database marketing conference recently to get all that listed. It might be simpler and cheaper building a 2-ton truck that flies. But before we commission something like this from the get-go, shall we discuss why the truck has to fly, too? For one, if you want real-time updates, do you have a business case for it? (As in, someone in the field must make real-time decisions with real-time data.) Or do you just fancy a large object, moving really fast?

Companies that primarily sell database tools often do not help the matter, either. Some promise that the tool sets will categorize all kinds of input data, based on some auto-generated meta-tables. (Really?) The tool will clean the data automatically. (Is it a self-cleaning oven?) The tool will establish key links (by what?), build models on its own (with what target data?), deploy campaigns (every Monday?), and conduct result analysis (with responses from all channels?).

All these capabilities sound really wonderful, but does that system set long- and short-term marketing goals for you, too? Does it understand the subtle nuances in human behaviors and intentions?

Sorry for being a skeptic here. But in such cases, I think someone watched “Star Trek” too much. I have never seen a company that does not regret spending seven figures on a tool set that was supposed to do everything. Do you wonder why? It is not because such activities cannot be automated, but because:

  1. Machines do not think for us (not quite yet); and
  2. Such a system is often very expensive, as it needs to cover all contingencies (the opposite of “goal-oriented” cheaper options).

So it becomes nearly impossible to justify the cost with incremental improvements in marketing efficiency. Even if the response rates double, all related marketing costs go down by a quarter, and revenue jumps up by 200 percent, there are not many companies that can easily justify that kind of spending.

Worse yet, imagine that you just paid 10 times more for some factory-made suit than you would have paid for a custom-made Italian suit. Since when is an automated, cookie-cutter answer more desirable than custom-tailored ones? Ever since computing and storage costs started to go down significantly, and more so in this age of Big Data that has an “everything, all the time” mentality.

But let me ask you again: Do you really have a marketing database?

Let us just say that I am a car designer. A potential customer who has been doing a lot of research on the technology front presents me with a spec for a vehicle that is as big as a tractor-trailer and as quick as a passenger car. I guess that someone really needs to move lots of stuff, really fast. Now, let us assume that it will cost about $8 million or more to build a car like that, and that estimate is without the rocket booster (ah, my heart breaks). If my business model is to take a percentage out of that budget, I would say, “Yeah sure, we can build a car like that for you. When can we start?”

But let us stop for a moment and ask why the client would “need” (not “want”) a car like that in the first place. After some user interviews and prioritization, we may collectively conclude that a fleet of full-size vans can satisfy 98 percent of the business needs, saving about $7 million. If that client absolutely and positively has to get to that extra 2 percent to satisfy every possible contingency in his business and spend that money, well, that is his prerogative, is it not? But I have to ask the business questions first before initiating that inevitable long and winding journey without a roadmap.

Knowing exactly what the database is supposed to be doing must be the starting point. Not “let’s just gather everything in one place and hope to God that some user will figure something out eventually.” Also, let’s not forget that constantly adding new goals in any phase of the project will inevitably complicate the matter and increase the cost.

Conversely, repurposing a database designed for some other goal will cause lots of troubles down the line. Yeah, sure. Is it not possible to move 100 people from A to B with a 2-seater sports car, if you are willing to make lots of quick trips and get some speeding tickets along the way? Yes, but that would not be my first recommendation. Instead, here are some real possibilities.

Databases support many different types of activities. So let us name a few:

  • Order fulfillment
  • Inventory management and accounting
  • Contact management for sales
  • Dashboard and report generation
  • Queries and selections
  • Campaign management
  • Response analysis
  • Trend analysis
  • Predictive modeling and scoring
  • Etc., etc.

The list goes on, and some of the databases may be doing fine jobs in many areas already. But can we safely call them “marketing” databases? Or are marketers simply tapping into the central data depository somehow, just making do with lots of blood, sweat and tears?

As an exercise, let me ask a few questions to see if your organization has a functioning marketing database for CRM purposes:

  • What is the average order size per year for customers with tenure of more than one year? —You may have all the transaction data, but maybe not on an individual level in order to know the average.
  • What is the number of active and dormant customers based on the last transaction date? —You will be surprised to find out that many companies do not know exactly how many customers they really have. Beep! 1 million-“ish” is not a good answer.
  • What is the average number of days between activities for each channel for each customer? —With basic transaction data summarized “properly,” this is not a difficult question to answer. But it’s very difficult if there are divisional “channel-centric” databases scattered all over.
  • What is the average number of touches through all channels that you employ before your customer reaches the projected value potential? —This is a hard one. Without all the transaction and contact history by all channels in a “closed-loop” structure, one cannot even begin to formulate an answer for this one. And the “value potential” is a result of statistical modeling, is it not?
  • What are typical gateway products, and how are they correlated to other product purchases? —This may sound like a product question, but without knowing each customer’s purchase history lined up properly with fully standardized product categories, it may take a while to figure this one out.
  • Are basic RFM data—such as dollars, transactions, dates and intervals—routinely being used in predictive models? —The answer is a firm “no,” if the statisticians are spending the majority of their time fixing the data; and “not even close,” if you are still just using RFM data for rudimentary filtering.

Now, if your answer is “Well, with some data summarization and inner/outer joins here and there—though we don’t have all transaction records from last year, and if we can get all the campaign histories from all seven vendors who managed our marketing campaigns, except for emails—maybe?”, then I am sorry to inform you that you do not have a marketing database. Even if you can eventually get to the answer if some programmer takes two weeks to draw a 7-page flow chart.

Often, I get extra comments like “But we have a relational database!” Or, “We stored every transaction for the past 10 years in Hadoop and we can retrieve any one of them in less than a second!” To these comments, I would say “Congratulations, your car has four wheels, right?”

To answer the important marketing questions, the database should be organized in a “buyer-centric” format. Going back to the database philosophy question, the fundamental design of the database changes based on its main purpose, much like the way a sports sedan and an SUV that share the same wheel base and engine end up shaped differently.

Marketing is about people. And, at the center of the marketing database, there have to be people. Every data element in the base should be “describing” those people.

Unfortunately, most relational databases are transaction-, channel- or product-centric, describing events and transactions—but not the people. Unstructured databases that are tuned primarily for massive storage and rapid retrieval may just have pieces of data all over the place, necessitating serious rearrangement to answer some of the most basic business questions.

So, the question still stands. Is your database marketing ready? Because if it is, you would have taken no time to answer my questions listed above and say: “Yeah, I got this. Anything else?”

Now, imagine the difference between marketers who get to the answers with a few clicks vs. the ones who have no clue where to begin, even when sitting on mounds of data. The difference between the two is not the size of the investment, but the design philosophy.

I just hope that you did not buy a sports car when you needed a truck.