Pojačalo Adriaticfest EP2: The Choice Factory: Behavioural Biases – Why We Buy I Richard Shotton

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Ivan Minić: I dalje smo na Adriatic Festu u Pržnom u Crnoj Gori i danas imamo prilike da nastavimo naš serijal. U drugoj epizodi još jedan inostrani gost, takođe keynote speaker na ovoj konferenciji. Čovek koga su kako sami kažu organizatori jurili dobrih šest-sedam godina, ali konačno su ovaj uspeli da ga, da ga dovedu na scenu. Fantastično predavanje, bihevioralna ekonomija, marketing, nešto što je vrlo često bila tema i u raznim epizodama Pojačala i nešto što je meni lično jako blisko i drago, tako da pozivam vas da saslušate ovaj razgovor, siguran sam da će vam biti interesantan. Richard, so glad we had the chance to meet and thank you so much for taking the time to do this podcast.

Richard Shotton: Not at all, very nice to, very nice to be here.

Ivan Minić: You had an amazing talk and keeping in mind your history, what you did over the past 10 plus years, and especially in the past couple of years where your books became quite popular and one of the key, let’s say, literature for people who want to get more behavioral science into what they do for business, try to understand how people reason, how people make decisions, how people decide to make a certain choice. It’s a, it’s a very important topic. It’s a topic we don’t talk enough about and that can significantly alter the future of a certain brand or a company or whatever. What qualifies you to talk about this?

Richard Shotton: Very good question. So, my background is not academic, it’s not formally trained in behavioral science. I came to this subject back in 2004 very much from a marketing angle. I was a marketer, I was a media planner, and I was, I think very frustrated that an awful lot of what we told clients was intuitive or based on speculation. When I stumbled across behavioral science, I, you know, was like a kid in a candy shop. I found this cornucopia, this amazing range of studies that I felt weren’t being used by the industry but had such practical implications. Unfortunately, academics often hide those practical implications under jargon and unnecessary complexity. But at the heart of the studies, there’s really simple things that we can all use to improve the power of our marketing. And I’ve now got 21 years of experience in using these principles for some of the best brands in the world, people like Google, Sky, Mondelez, Diageo, working with them to improve their marketing by drawing on these principles. And probably over the last 19 years, I’ve been running my own experiments. You know, sometimes the old academic research, it was often done on quite small sample sizes, often done using students. And what I’ve tried to do over time is show that in more commercial settings with a nationally representative audience, with a big audience, these findings still hold. So I guess it’s a mix of practical use and then my own body of research. 

Ivan Minić: So, very, it’s a very common things that you have of course two different worlds. One is academia, the other thing is practitioners, people who, who live. And these things don’t mix I think for the reasons that, that apply to both sides.

Richard Shotton: Yeah, I agree.

Ivan Minić: Academics don’t like practitioners, practitioners don’t believe in academia and we can learn so much from each other and it’s like oil and water, these things don’t mix. How can you, you know, get these things to peace?

Richard Shotton: So firstly, I agree with you. I think academics, especially I’m talking about marketing and psychology, they look at advertisers and think we are the devil incarnate, that we are immoral often and we’re just using these things to manipulate people. So academics often don’t want to be involved with marketers. And then I think you’re right, marketers look at academics and think they are unrealistic people with these abstract ideas. So there are myths on both sides. The way of bridging that gap I have found is you can’t just go to a brand and tell them about a study that was done in the 1960s or the 1970s in a very weird setting and then suddenly expect someone at Coca-Cola or Vodafone to suddenly be very keen on applying the ideas. What you need to do, in your words, is create this bridge. So I’ll give you an example of someone I’ve done that with. There is a really interesting idea, the original academic was John Gourville at Harvard and he came up with an idea called the “Penny a Day” effect. I think it was the late 90s he did this. And what he did in his study, he tries to encourage people to donate money to a charity. And sometimes the charity goes out and says “Please donate 365 dollars a year.” And very few people want to do it. Other people he says “Would you donate a dollar a day for the rest of the year?” Or for a whole year. And people are suddenly quite open to doing it. He says that people pay too much attention to the headline amount, the 365 or the 1, not enough attention to the unit of time. So people will treat a dollar a day as a much, much lower sum than 365 dollars a year. Now when I first read about that, I thought this is amazing. This is something we can apply again and again and again in marketing. So I went to people like telecoms companies and said “Look, why don’t you stop saying your product costs 30 euros a month? Why don’t you start saying it’s 30 euros a month, that’s the same as a 1 euro a day?” And I said “Look, here’s the evidence it works. Here’s Gourville’s study.” And most people turned round and said “Wait a minute. That’s a charity, we’re commercial. That study is 20 years ago, it’s not relevant to us.” So what I did was take Gourville’s methodology, and with all these studies the methodologies are in the public domain, I took his methodology and then I re-ran it in a commercial setting. So I was also interested in trying to apply this with car finance. And for my original study, got 500 nationally representative people, I showed them a picture of a car, I gave them a description of a car, and some people I said it was I think 4 pounds 57 a day. Other people, I said it was 1668 pounds a year, I think that’s the right maths. And then I did variants on monthly and weekly. And what I found was when I asked people to rate how good value that car was, saw a very clear pattern, just as Gourville suggested. If you gave people an annual amount, I think it was 11% thought it was a good deal. If you gave them the daily amount, 51% of people thought it was a good deal. Now crucially here everyone is seeing the same price, it’s just how we display it that’s changing. But it has this radical effect on perceptions. So by creating, re-running Gourville’s study, by creating a commercial version of it, then I found it much easier to persuade clients to adopt the findings. And that approach is something I’ve been doing for years. Re-running academic studies but rather than doing it in a non-commercial setting like charities, I’ve done it in commercial settings. Rather than using small samples, I’ve done it with a big group. And I’ve re-run it in lots of different countries to just to try and bridge that gap between academia and marketing.

Ivan Minić: And there are many cases and many situations where people, you know, built up on this. So for example one of the coolest things for charity for me is rounding up. So you are supposed to pay 34 euros and 15 cents, you can round it up to 35 or 36 and 100% of that will be donated to charity. I mean, pretty much everyone is gonna do that if, you know, they can. But it’s really interesting how people build up on this. And one also thing I noticed because of course when something, when people finally figure out it works, they use it, then they overuse it, then it stops working. What I noticed is that so many people now, so many campaigns are now focused on comparing not to a money value, but it’s a one cup of espresso. It’s five cigarettes. It’s something that anyone can accept.

Richard Shotton: Coffee seems to be the universal comparison set. Yeah, absolutely. The Big Mac index just for coffee.

Ivan Minić: Yeah, yeah, yeah.

Richard Shotton: And I think what they’re thinking there is coffee is probably a kind of luxury, mini luxury purchase and anything looks quite good value when compared to coffee. But you’re absolutely right, trying to change the comparison set is a very, very good way of increasing willingness to pay. I won’t remember the exact numbers but I did a study where, it was with Americans, we showed people, I think it was a tub of Ben & Jerry’s ice cream, 3 dollars 99. And some people we said “Look, you can buy a Walmart tub of the same size for 1 dollar 99. How good value is Ben & Jerry’s?” And something like 30% of people thought it was good value. We then get a completely fresh group of people, that’s important, show them the same tub of Ben & Jerry’s, same price, but this time the comparison item is Halo Top, you know really premium brand, 5.99. And the proportion of people who say that Ben & Jerry’s is good value went up by something like 50 or 60%. Exactly the same product, exactly the same price, whether people think it’s good or bad value depends on what they compare it to. And that should interest marketers because the mental comparison set for your product is not a fixed thing. It can be changed. And if you change your mental comparison set, you can really increase the amount you charge.

Ivan Minić: Yeah, basically you change the context. And of course, it’s statistics. So individually, it might not make sense to you. But when you talk to people, people who, I mean, I’m a guy who likes Italian gelato. That’s, that’s amazing for me. Whenever I go to Italy and in some places in Serbia as well, I have my favorite spots and I love gelato. Still, every time I was in US, I had Ben & Jerry’s. And it’s not buying the cup at the supermarket. It’s going to the store when they take it up. And of course I ate ridiculous amount. It wouldn’t be the same if it was every day for me, but you know, once a year, let’s make a treat out of it.

Richard Shotton: Yeah. And that idea of context is something that’s super important from a behavioral science perspective. There’s an idea called the fundamental attribution error. And it’s the idea that people overestimate the consistency of other people’s personalities. We think behavior is driven by fundamental characteristics. But the argument from behavioral scientists is we vary hugely from situation to situation. Now that is something marketers could apply far more regularly. You know, I worked in an agency for 20 years and every brief I was ever given had a target audience. I don’t think I received more than two briefs that ever identified a target context. But behavioral scientists would say how you behave has as much to do with the context as your own character. Like, you and I might have, be very different, let’s say demographically. You know you’re from Serbia, I’m from Britain. I’m 50, you look far younger. You know, we might be very different demographically, but if we are both in a rush, how we behave will become more similar. If we are both stressed, how we behave will become much more similar. So brands should spend more time thinking about what is the ideal context I reach someone in. As an example, brands should, all brands should probably think far more about reaching people in a good mood. There’s lots of studies from people like Fred Bronner, studies I’ve done which show you’re more likely to notice ads in a good mood, you’re more likely to believe them, you’re less likely to care about spending money. But how many ads, how many brands are actively going out and reaching or trying to put people in a good mood? There’s a great opportunity there.

Ivan Minić: Yeah, and there is this like a famous, it became a meme where they took, you know, the parameters of a person and they listed down and when you look at five top characteristics, Ozzy Osbourne and Prince Charles are the same person.

Richard Shotton: Yes, yes.

Ivan Minić: Even though they’re kind of different, they were, they both were princes in a manner, but you know, it’s a…

Richard Shotton: One the prince of darkness and one the prince of England.

Ivan Minić: It’s similar.

Richard Shotton: Yeah, yeah, yeah.

Ivan Minić: But you know, that’s the one of the, let’s say key things that we simply neglect. We bring too many, too much importance at things that are completely irrelevant in the end because, you know, social circle can implement, can influence far more than many other things. Preferences in some ways in life can completely take you off your desired course for some things. And it’s not always linear.

Richard Shotton: Yeah, yeah.

Ivan Minić: Correlation doesn’t always mean causation.

Richard Shotton: You mentioned then that our social circle is important. I think that is an absolute fundamental from a behavioral science perspective. There’s the idea of social proof, which is essentially the argument that we are a herd species who are deeply influenced by our peers, especially people we think are similar to ourselves. So if a brand can make itself appear popular, it will become more popular still. Now sometimes when I talk about that, people say “Oh that’s bloody obvious. Every brand knows that. You know, you go on the internet for five minutes and you see brands saying they’ve got a million customers or 100,000 five star reviews.” And it might be that a basic level of social proof is regularly applied, but with any one of these principles, you can apply it in quite unexpected ways. So for example, there’s a psychologist at the University of Texas, I think. Yeah, Texas, Peterson. And he does a lovely study. He gets 1117 people to go through an e-commerce journey. And when they’re trying to buy something, there is an item that isn’t there. And he questions people later on as to how irritated they are by the absence. The twist in the experiment, there’s always a twist, is that sometimes the item has been labeled “out of stock”, other people see it labeled as “sold out.” And his key finding is that people are about 15% less irritated if it’s labeled sold out.

Ivan Minić: Of course.

Richard Shotton: And Peterson’s argument is this is social proof. If you as a brand say that your item is “out of stock”, you’re drawing attention to the fact that you’ve been inept, you’ve mucked up your supply chains. But if you label something “sold out”, you’re drawing attention to the fact that there was lots of demand, this was a popular item.

Ivan Minić: And you were late. You were late to the party. It wasn’t their problem.

Richard Shotton: Yes, yes. You make it more appealing because you implant in the shopper’s mind an idea that lots of other people wanted it. So yes, some brands apply social proof in this simple way, we’ve got 10,000 followers, we’ve got 5,000 five star reviews, but that’s just one of a hundred ways you could apply this principle. And there’s so much more opportunity that a lot of brands aren’t applying. There’s so many costless interventions brands can make.

Ivan Minić: Let’s get back to the coffee because I think it’s important, it was an important part of your talk as well. I think coffee is interesting, for example, in exchange to using money, as a change using coffee as an example is important because if, for many people who drink coffee, they of course drink more than one a day and they either overestimate or underestimate the amount, the number of coffees they had during the day. But it’s never one. It’s never three. It’s five, seven, 10, 20 in some cases. And when you put that as an example, one coffee per day, it’s not like one breakfast per day because rarely people have two breakfasts. Giving a losing that feels bad. But losing one coffee maybe good for your heart as well, you know. I’ve done something good for myself instead of taking the caffeine drink, I got myself a new cell phone, new car, new laptop, whatever.

Richard Shotton: Insurance.

Ivan Minić: Insurance.

Richard Shotton: Yeah. And I guess there’s an element of, I think you’re right that coffee is a, is a nice powerful comparison for many products because it makes lots of things feel better value. But to be balanced against that is the danger of it being an overused currency. If everyone starts doing it, you want to be contemplating whether there’s a better alternative. There’s a very old study from behavioral science that’s been repeated again and again called the Von Restorff effect. So the original study was done by Hedwig von Restorff, a German psychologist, she was at University of Berlin in the 1930s. And in 1933 she does a very classic study. What she basically does is give people lists of information. So there might be 10 items on this list and nine of them will fit into one category, there might be animals, and the remaining item will be in a different category, like a piece of furniture. So I might have a list that says cat, dog, elephant, weasel, giraffe, table, goldfinch, shark, eagle. She gives people these lists, everyone has a minute or two to read through, she then takes the lists away and then she asks people to remember as much as they can. And what she finds again and again and again is that if you give people mainly composed of animals with a few distinctive bits of furniture thrown in, people will remember the furniture. Whereas if you gave people lists that were mainly bits of furniture with just one or two animals, it would be the animals they remembered. So this became known as the Von Restorff effect or the Isolation effect. And it’s the argument that we are hardwired to notice what is distinctive. So in your example of the overuse of coffee as a comparator, the danger is the audience eventually becomes blind to it. What brands need to do is not just think of whether something is good in isolation, they need to think is this a way that I can contrast myself with other people in the category. You want to be thinking as a brand “What are my category conventions?” And then splitting those conventions into two buckets. Some of those conventions are there for a very good reason, leave them alone. But other conventions will just be there for tradition’s sake. And if you as a brand break those conventions, you are tapping into one of the most powerful ways of generating noticeability. So yeah, I think there are nuances to the coffee example.

Ivan Minić: You had a, inside your talk you had a similar study where we were supposed to remember a couple of phrases consisting of two words. And what was interesting to me, I had a fairly good result, my brain works in certain way, I remember things. But what was really interesting to me, and I’m not neurotypical, but for me it was interesting that no one remembered the last word. And for me the last word was the first one I wrote.

Richard Shotton: Yes, so the, the reason for running the, the experiment, I read out these 10 phrases, was to demonstrate to people that we are much better at remembering concrete visualizable things like a white horse, we are very bad at remembering abstract ideas like impossible amount. So the argument is that vision is the most powerful of our senses. So if a communicator uses language that can be visualized, it’s sticky. If the language that’s used is abstract, it’s very forgettable. So that, that was the main purpose of the experiment.

Ivan Minić: And it’s an old experiment, it’s like 50 year old experiment.

Richard Shotton: Oh yeah, 1972, yeah. I have re-run it in 2022, so it still works today, it’s a genuine finding. But the point you make is there is another set of experiments called the Serial Position effect. Bennet Murdock did some of the original work in the 1960s. And what he did was read out lists of random words. So maybe it’s table, water, sunset, footwear. He gives people these lists and then later on he asks people what they can remember. And what he sees is this consistent pattern. People are quite good at remembering the first few words, they are bloody awful at remembering the middle words and they are very, very good at remembering the final words. He calls this the serial position effect and that is something that has been repeated, repeatedly shown. So if you held all the other variables the same, people are most likely to remember the final things and the first things. Now that’s interesting for a marketer because often we assume in a presentation people are gonna remember everything. We assume in emails people remember all details. But actually, memory is very, very patchy. Firstly, you can’t assume just because you’ve said something people have remembered it. And secondly, if you know people aren’t gonna hear the entire, or read the entire thing, it’s what you say first that matters and what you say at the end. That’s what sticks in people’s minds.

Ivan Minić: My basic logic was I remember where when it started and I remember the most recent thing because you gave us the list and then couple of tens of seconds after that you said “Now list it.” So I’m gonna write the last word first because that’s the, the most recent one in my memory. Also to bring back to the talk and again to the topic of coffee, you used really interesting example and I think it’s a, it’s a very good topic for us to discuss. You used the example of Nestlé building the Nespresso brand and how you take a kilo of coffee and make it far more lucrative for you by packaging it differently, working it a little bit, working a little bit on it. So roughly for a good kilo of coffee, it’s 10x the normal amount. But for my opinion, it’s not just the fact that it’s in small capsules. I think it’s the whole experience. It simplifies the experience, it makes it, makes it easier for you to in your home or in the office make a really decent espresso. And yes, the capsules are relatively expensive, but you don’t drink 50 coffees a day. In the office maybe you do, but individually you don’t drink that. And the, the entering margin is very low because if you buy some amount of coffee you probably get one of the cheaper coffee machines for free or it’s like 100 or 200 euros. For people who are passionate about coffee, the good machines, the serious ones cost like a pretty good used car. Of course there is some, somewhere in the middle is what satisfies most of the people. But this, okay, I’m gonna take a lot of money from you but in small bites. And it’s gonna be really easy for you to start giving me money.

Richard Shotton: Yeah. So the example I use, as you say was Nespresso and it’s something Rory Sutherland talks about brilliantly in his book “Alchemy” which I believe is coming out in Serbian soon. Well worth, well worth reading. And the argument he makes is by putting the Nespresso in a pod, it gives you a cup size serving. And once people think of cup size servings, their comparison set is Starbucks or any other barista. So the 60 pence that, or 60 cents sorry that Nespresso want for a pod of lungo coffee looks amazingly good value compared to the 3 euros a Starbucks or a barista wants for a cappuccino. The argument he makes is that if that same volume of coffee had been put into a pack and sold in a supermarket, the comparison set would not have been Starbucks, it would have been a pack of roast and ground coffee from Lavazza or Illy. And suddenly, the 100 euros that equates to as a kilo looks astronomically expensive. Now your pushback is “Well, maybe there’s other factors going on.” And I think you’re absolutely right that if you look at a behavioral science experiment, a good experiment will keep every other factor the same. So like when I went through the Ben & Jerry’s example, the only thing that changed was the comparison group. And what we see, and I’ve done it in tea, I’ve done it in lots of different drinks, again and again if you change the comparison set you change the willingness to pay. But if you just talk to an audience about experiments, behavioral science can feel a little abstract. So what I always try and do is talk about a mix of experiments and examples. But of course, once you look at an example of the real world, Nespresso weren’t conducting a scientific study. You know, they did all sorts of different things at the same time. They had the George Clooney association. They had some very beautiful stores that they sold it in. They gave away machines essentially as a loss leader. There were loads of different factors going on. So the Nespresso example alone can’t prove the point. But I think if you look at the body of evidence from experiments and then you see the real world examples where it’s being applied, that gives you sort of greater faith that these ideas can work as a marketer.

Ivan Minić: Our, let’s say biggest issue with the local economy in Balkan countries is basically the fact that in many cases we have really good raw materials. If it’s fruit or whatever, you have amazing things. We just don’t make anything from it to add the value. When you sell the raw material, you make the least amount of profit. And the idea is to add value in the process.

Richard Shotton: Yeah. In the Starbucks example, it’s not the coffee bean grower in Brazil who’s becoming rich, they’re getting pennies. It’s the brand at the end that’s scooping off an extreme amount of value. So I think you’re absolutely right, it’s that end part of the process where the money is often made.

Ivan Minić: You made some really amazing points in your talk and you write about these things in your books. But I wanted to make one, one more angle we can, we can discuss this. So one of the things you did was explain to people that you need to simplify things for your user because many people give up because it’s too complicated. But in some cases, if it’s too simple, if it’s too easy, people are not gonna appreciate it. So how do you know which case is it?

Richard Shotton: Yeah, great question. So just so I don’t sound like I’m stating the obvious, in the talk I made the point that not only if you simplify something you remove what I was saying was friction, you remove small barriers, you increase the behavior that’s being asked for. Beyond that, the point I was trying to land was that people like Daniel Kahneman, Richard Thaler, two of the recent Nobel Prize winners in economics who have a behavioral science background, their key additional point is removing friction has a bigger than expected effect when it comes to behavior change. So that, I think that’s the angle I really wanted to land. But you’re absolutely right, there are other studies, essentially it’s an idea called the IKEA effect, which show that if people have to put effort into something, they appreciate that product more. So the original study is a 2012 study, it’s done by Michael Norton who is at Harvard I think and Dan Ariely who’s at Duke. And what they did was recruit a group of people, randomize them into two sets. First group of people are taken into a room and there is a pre-assembled professionally made IKEA box. And people are asked how much do you want to bid on it. And it’s something trivial, people average let’s say 40 US cents. The other half the people, they’re brought into the room and this time the IKEA box is in pieces. The participants have to assemble it and then they are asked how much they’re prepared to bid for it to take it home. And it’s still a small sum, but it goes up by something like 50 or 60 percent. It’s about 60 cents now, the average bid. And Norton and Ariely, they argue, after repeating the study in a couple of different settings, they argue the more effort people put in, the more they appreciate it. Now sometimes people hear the Kahneman statement, make it easy, and then the Ariely statement which is put a bit of friction in, and they tear out their hair. They think “Well, behavioral scientists… Which bloody one is it? Which is it? Hard or easy?” And some people say “Oh this behavioral science stuff, they just telling us to do anything and it’s got a reason.” But that’s I think a slight misunderstanding. Ariely and Kahneman are often talking about slightly different things. If you want to change someone’s behavior, nine times out of 10, identify the barriers, remove them and you’ll have success. But if you want to change someone’s perception of value, how high quality is this thing, then that’s when you add friction. So, so think about Apple. You, you receive your iPhone and when they have that crucial moment, the first experience of getting to it, it’s not just a little bit of plastic that you tear off. It’s this box that’s been wonderfully designed to have, you know, physical friction in it. There’s, you have to kind of pull it off and it comes off really slowly because they want to make it feel like it’s a ritual, it’s something special. But then when Apple get you setting it up and when it’s just a mundane matter of getting through and making my phone active, then it’s so simple you don’t even need instructions. So I think it’s about judging what is the moment to add friction in to create a quality experience and where are the things that are just irritations that we should radically simplify. So if you’re a wine merchant, make it really easy for people to buy your products with one click. That’s where you reduce friction. But when it comes to the enjoyable experience of drinking the wine, keep that corkscrew in because it’s that effort at that moment that’s building appreciation, building quality perceptions.

Ivan Minić: In our country, and I don’t know if it’s a common thing around the world, probably is, in order to have warranty on the product, you have to keep the box. If you buy a television and you have two year warranty, you have to keep the box for two years in order so that you can return it in the box.

Richard Shotton: Oh no. Don’t do that in Britain. You must have like a garage full of boxes.

Ivan Minić: Yeah. And everybody hates that. The only boxes you like to keep are the Apple boxes.

Richard Shotton: Yes, yes.

Ivan Minić: And there is like a whole market of reselling the boxes. If you go to eBay there are like 50 euro boxes because people who got second hand laptops, they don’t have the box, but they like the idea of putting it in a box for something.

Richard Shotton: Okay. There is an arbitrage opportunity here. Let’s give up marketing and podcasting. I mean people are throwing these boxes away like anything for TVs and stuff in the UK. We could start shipping them over and making some money.

Ivan Minić: So, you, you published I think two books prior to this and the recent one came out. What made you think that it’s worth a book, then a second book, then now the third book?

Richard Shotton: So the, the first two books go together really. I mean you can read them in any order but they go together because they’re the same approach. So “The Choice Factory”, there’s 25 chapters, “Illusion of Choice”, there’s 16 and a half chapters. And I go through the same process. Each chapter is about a particular bias, a particular psychological insight. There’s a little bit about what the bias is, the existing academic evidence, my research to show these ideas work commercially today, and then finally the practical implications. And the difference between “The Choice Factory” and “The Illusion of Choice” is just that it’s a different set of biases. They’re completely different set of insights and biases. For the third book, “Hacking Human Mind” which I co-wrote with Michael Aaron Flicker, we’ve flipped it on its head. So there’s 17 chapters and each chapter is about a brand. So Snickers, Häagen-Dazs, Amazon Prime, Apple. Short history of the brand and then I talk about, or we talk about one or two insights from behavioral science those brands have used to achieve that success. And the reason that I thought it was so useful to approach it in this new way was I think it’s makes it much easier for people to understand. You know, there’s a… If you stay in the realm of abstract experiments, some people get it but there’s some people it just leaves cold. But if you open with the brand, I think it makes the studies far more accessible to a far broader range of people because it’s a concrete thing that we’ve all had experience with. So that’s, that’s why I thought there was a role for this third book.

Ivan Minić: It’s out?

Richard Shotton: It’s out. It came out September the 30th. So it’s been out for about a month. And yeah, hopefully there will be a Serbian version at some stage.

Ivan Minić: Yeah, I think so. What’s the first feedback you got? It’s a different story than previous.

Richard Shotton: Yeah, so the, the first feedback has been very much about the usefulness of starting with the brand rather than starting with the experiments. That’s the first feedback.

Ivan Minić: Starting with the brand and working your way back.

Richard Shotton: Yeah. And then… Analyzing… Yeah. And I think it makes it quite practical for marketers because, you know, when I was in an agency, often to get inspiration we would look at super successful brands in that category or related categories. And you think “Well what has McDonald’s done or Apple done or Amazon done? What can we learn from them?” And that sounds like a really sensible way of getting inspiration. But the problem is for any brand, they do hundreds of things at the same time. So how do you know which of their tactics are powering success and which are just incidental? Well our approach is to say “Here’s an amazing successful brand like Amazon Prime. And then we look at all the things they do. And then we see which of those tactics have also been proven to work in controlled experimental conditions.” So it’s trying to isolate what was the genuine magic behind these brands’ success that you can bottle and then re-apply on your product.

Ivan Minić: I think one of the important things we, we frequently neglect, you know, people from science are, from finance are gonna call it compound effect. People working in the offices are gonna say death by a thousand paper cuts. But in many cases it’s the fact that there are so many things, there is so much history. And frequently, you know, I’ve been working for 25 years now, it’s a long and interesting career and now of course many young people ask me for an advice or something, how did you do any of the things. It’s a lovely story, but it’s completely irrelevant to you because it happened 25 years ago when everything was completely different. And of course time is a factor, you talked about that as well. But it’s not just the time. In many cases, it’s the sheer size. You know, you can do horrible things as a brand, for your brand, not to the, you know, users, but you can make a ton of bad decisions and it’s gonna take a whole lot of time before you die off.

Richard Shotton: Yeah, your, the analogy I’ve often heard is brands, you know, big brands are like oil tankers. You know, and good or bad decisions, it takes a long time to, to move that ship. But then I guess your argument is why we have analyzed these brands through a behavioral science lens. It’s not just, we’re not just saying Amazon Prime did X, therefore copy it because Amazon Prime are successful. We’re saying of these things that Amazon Prime has done, we know that the sunk cost effect, getting people to pay down some money early on, is effective. Not just because Amazon, it worked for them, also because you run in simple experiments to show the impact of that idea. So, so with the Amazon example, so the sunk cost effect is this lovely idea from Hal Arkes who was in at the University of Ohio in the 1980s. And he begins his research with a thought experiment. So he says to people “Imagine you’ve bought a skiing holiday in Michigan for a weekend and it cost you 100 dollars and it’s gonna be good. You next week you buy a skiing holiday in Wisconsin for 50 dollars and it’s gonna be amazing. You then realize you’ve bought both of these skiing holidays in the same weekend and you can’t get any money back. Which are you gonna go on?” Now that’s actually a very simple question. Do you want to go on a good holiday that costs 100 dollars or an amazing holiday that costs 50 dollars? Everyone should do the amazing holiday. But they don’t. A slight majority, I think it’s 56% of people, they pick the more expensive but worse holiday. And Arkes’s argument is we hate the idea of wasted money or wasted effort. And we go to illogical lengths to try and justify that spend to ourselves. You now take that idea of the sunk cost effect, you bring it back to Amazon and you see why Prime is such a genius idea. If you can get people to spend money on Prime, they will keep on spending there even if there’s a better alternative because they hate the idea that the 89 euros or the 99 pounds, whatever it is, they hate the idea of thinking that is a wasted spend. And that is a principle far, far more brands could try and emulate.

Ivan Minić: What I want as a, let’s say a conclusion is, so many of the examples are so interesting and so important because we are part of the experience. We didn’t experience all of them, but you know, everybody opened an Apple product and felt amazing because of that. But when you are, Apple is a 50 year old company. Many of the companies we talk about in these cases and brands are transcending generations. When you are building something new now, you have to fight the streams of course, but you have to fight with the giants. And that’s a tough position. So what would you suggest to someone who is starting a business, trying to build a brand, what should be their approach? Because in my opinion, reading all the good books, listening to all the good podcasts, reading the case studies, that’s okay, but in many cases, it can lead you into a wrong direction if you don’t understand it properly.

Richard Shotton: Um, so I guess if you are a launch brand, of the principles we’ve discussed, I think the two that you should really consider are distinctiveness, this idea that we notice what’s distinctive, and social proof, we copy what’s popular. Now those might feel a bit strange to mention because almost by definition, if you’re a brand new brand, you’re not that popular, certainly compared to other people. But humans don’t base their decisions about popularity, they don’t judge the scale of a brand by pouring over a market research report. They judge the scale of a brand by thinking to themselves “How regularly do I see an example of this brand being used?” And they use that as a shorthand for popularity.

Ivan Minić: Heuristics basically.

Richard Shotton: Yeah, yeah, yeah, heuristic. Um, now once you think of that, you realize that a launch brand can hack that principle. So it might not be, I don’t know how big, is Monzo a big brand in Serbia? No. Okay. So it’s a reasonably recent fintech brand in Britain. It launched 15 years ago. And it is the most successful fintech launch. And one of the things they did so brilliantly was at launch they gave people these ridiculously bright, what they called hot coral, what we just call pink cards. And that created this illusion of popularity. Because let’s say you’re in a cafe, there’s someone with HSBC card, you don’t notice it. It’s boring, it’s bland. Chase, no one notices it. Bank of America, no one notices it. They’re all interchangeable bland colors. Someone gets out this bright pink card, everyone spotted it. So even though in reality they only had 10 or 20 or 30,000 users, because you kept on noticing them, you thought it was a hundred thousand or a million. They created this sense of popularity by turning what had previously been an invisible behavior, a hidden away behavior, a private behavior into something that was public and visible. That is a tactic that if I was a launch brand, I would be thinking really hard about. How can I make my usership very noticeable? And once you start thinking like that, you see this tactic used all the time. Like another British brand, Hendricks. They had the idea that gin, when people buy it in a pub and they walk away from the bar, it’s invisible, it’s transparent, it’s all served over lime. No one knows who it is. So what Hendricks did was serve over cucumber. So when John picks up his Hendricks and tonic at the bar and he goes over and sits at his table, you can still recognize it as a Hendricks. There are really, I think powerful ways that the smallest of brands can look much, much bigger. And it’s one of the most powerful tactics. You know, we said at the beginning, people are a social animal, we’re deeply influenced by what others do. So make yourself look popular and that will become a self-fulfilling prophecy.

Ivan Minić: And I think it’s, it’s really important that you care about your users. So for example, when you explained the, the brand, the Neo bank you were talking about. It’s not present in this region, but at the beginning, 15 years ago, you were able to open an account even if you were from outside of UK. And that was the first business, debit card I received which had vertical writing. So every other card, it’s horizontal, but this had, when you put it like this, it had my name in a different way. It was different. The other thing, yes, the color is one thing. But when you have like 10 cards, the color of the plastic is a big deal. One bank had orange cards. So if you take a look at the 10 cards, you know the plastic is different. It’s not just that you print on it a nice picture. Sure, everybody prefers a nice card to an ugly card. But these details, they make all the difference.

Richard Shotton: Yeah. Yeah, lovely.

Ivan Minić: Thank you so much. Thanks so much for listening to us. This is a second episode. A few more are coming and hopefully you had a great time. See you soon.