Milking it: Andrew Lewis on why value is relative

  • Decoder
  • April 28, 2015
  • Andrew Lewis
Milking it: Andrew Lewis on why value is relative

One of the persistent public views that exists around marketing and advertising is that these industries are great manipulators of us all, creating in us silly desires and passing fancies that divert us from a virtuous life path and empty our wallets with the skill of a pickpocket. And when one looks at something like the furore created by Lewis Road Creamery around chocolate milk, it’s pretty easy to see how people might start musing on this.

But the truth is that we are a much less Machiavellian lot than our fancy milk would suggest. Indeed, when one considers what is actually known via the social sciences about the ease with which human decision-making is influenced, you can’t help but feel that most marketing practitioners are either incredibly passionate to the plight of everyday people or simply missing a trick.
Let me illustrate this with a classic example from behavioural economist Dan Ariely relating to the relativity that exists around our decision making. The Economist magazine once offered three options for potential subscribers—a $59 internet-only subscription, a $125 print-only option or a $125 internet and print offer. Okay, weird pricing structure I hear you say, and not surprisingly no-one took up the $125 print-only option and something like 84 percent of tested consumers took up the print plus web version. Interestingly however, in a second test, when the useless print-only option was dropped from the list of possible options, the number of people choosing the all-in $125 option also dropped. Rather than 84 percent choosing the big package, only 32 percent took up the print and web option.

The principle illustrated here is the idea that humans don’t judge the value of things in absolute terms. Often we have no idea what things are worth until they can be considered in terms of the relative advantage they present and what we think this might be worth in value terms. By putting a ‘dud’ option in the mix, The Economist altered the relative value of the print edition and pushed up subscriber spend.

Things get even more interesting when you start thinking about some of the other ideas that permeate the behavioural sciences, such as the overriding power of context in shaping our decision processes. Daniel Kahneman talks to the topic extensively in his powerful book Thinking Fast and Slow, citing that the chances of a judge granting a prisoner parole was overwhelmingly influenced by how hungry they were. 

So given that these ideas are empirically proven concepts, one immediate observation is to wonder why marketing does not place more stock in utilising them in how it goes about the business of maximising sales. If human decision-making can be influenced in proven ways, much as the eye can’t help being fooled by optical illusions, why is this not the backbone of the marketing industry? Are we just generously giving consumers a head-start, or is there something we fundamentally don’t want to acknowledge in the idea that marketing could be made more effective through the rigorous application of ‘science’ over ‘art’?

The second observation is that if all human decisions are relative and fluid, dependent entirely on the context they are presented in, what does that mean for the whole idea of a customer-centric business? How do we go about building a business around maximising the value we deliver to customers if they themselves have no fixed idea of what they are looking for? This is a really important question for modern business, because what it suggests is that great care has to be taken in how we interpret what people want from us. They can tell us one thing, but the truth behind what will genuinely connect us most centrally with what they need to feel happy is likely something completely different. 

Indeed, customer centricity is probably better thought of as the creation of a context that makes people feel good about a decision they make than it is about maximising the actual product or service itself. It’s the scarcity rather than the chocolate milk that drives us. We feel good about buying in this context, so value has been created.

The end game for this line of thinking is by more effectively utilising a knowledge of what influences human decision-making, we actually become more effective at meeting people’s needs rather than more Machiavellian. We create, in the warm rush of securing a near mythical bottle of chocolate milk, a far greater value than could even have existed in taste or packaging maximisation.

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The graft and the glory. But mostly the graft.

  • Opinion
  • August 23, 2017
  • Vena Crawley
The graft and the glory. But mostly the graft.

While the industry focus is often placed on flashy bits happening on the surface, Contact Energy chief customer officer Vena Crawley says it's often the hard graft beneath the surface that makes the difference.

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