Alan Mitchell: Reinventing marketing - Government vs marketing's fault line

Alan Mitchell
Alan Mitchell

Helping consumers make better decisions is not sexy, but it is a great source of value, and this is reflected in UK policy, writes Alan Mitchell.

The way some government ministers have been talking recently, they sound more like consumer activists than leaders of a pro-business Conservative coalition. 'Sometimes it's hard to know whether we're getting a bargain or being ripped-off,' wrote consumer minister Ed Davey in his blog post announcing the latest step of the midata programme, which encourages companies holding customer data to release it back to consumers.

He continued: 'By increasing transparency and giving more power to you, the consumer, you will be better placed to get the deal you want that may put a bit of extra money in your back pocket.' This presumably means it is also taking extra money out of suppliers' pockets, which may explain why not all of them are happy.

Take energy. Some analysts have been muttering that getting consumers to switch suppliers is not going to reduce oil prices. More switching simply means higher costs of churn, with the only winners the pricecomparison sites that cream off the commissions.

Of course, the government does have some free-market logic behind it. Higher numbers of better-informed consumers making better purchasing decisions can only 'strengthen market discipline' by 'sharpening the incentives for businesses to compete keenly', declared its April strategy paper, entitled 'Better Choices: Better Deals. Consumers Powering Growth'.

Nevertheless, all this talk of switching, informed decision-making and price competition clashes with traditional marketing agendas of customer loyalty, persuasion and margin improvement.

So which is right?

Tempting as it is to dismiss the government's stance as cheap political opportunism, there's something important here.

Marketing has long been hamstrung by an internal fault line that consistently colours what it does and how it does it. This fault line was clearly identified in 1957 when John McKitterick, a senior marketing manager at General Electric, suggested that: 'The principal task of the marketing function ... is not so much to be skilful in making the customer do what suits the interests of the business, as to be skilled in making the business do what suits the interests of the customer.'

Philip Kotler returned to the theme 25 years later in a textbook where he distinguished between marketing as a 'discipline for influencing others ... of finding customers for present products and persuading them to buy these products', and marketing as a 'discipline of serving others' by identifying and meeting customer needs. Daily marketing practice is a mixture of both, he observed.

However, these disciplines pull in opposite directions and the government's trajectory is highlighting the fault line once again. If a bank, telecoms or energy company is making extra money out of customers not being on the best tariff, or out of habits and behaviours that are costly to the consumer but profitable for the company, what should marketers do? Help the customer make a better decision, or maximise the money-making opportunity?

Better decisions

Here are two good reasons why helping consumers make better decisions rather than inducing them to, as McKitterick put it, 'do what suits the interests of the business' may be a better long-term strategy.

The first is trust. People naturally resist actions they perceive as attempts to influence and persuade. In one recent experiment, consumers were presented with ad slogans that exhorted them to spend more ('Luxury, you deserve it'), or less. They did the exact opposite of what they were told to do. Advertising is supposed to 'prime' consumers to do what marketers want them to do.

This experiment, however, is evidence of 'reverse priming', writes marketing professor Julian Laran in the Harvard Business Review. This 'occurs because consumers recognise that slogans deliberately attempt to persuade them', he adds.

For another example, take the evolution of peer reviews. A common initial reaction to the idea of peer reviews was horror: allowing people to say anything 'off message' was anathema. Then marketers realised that peer reviews build trust - because consumers trust their peers more than marketers - so they started publishing peer reviews, but only favourable ones.

However, research by peer review specialist Reevoo suggests that the presence of negative reviews increases sales, because negative reviews add credibility and build trust. According to this research, 28% of consumers suspect censorship or fake reviews when they don't see any bad scores, and 70% trust all reviews (positive and negative) more when they see bad scores.

It is this that leads to increased sales.

Intriguingly, Nudge authors Richard Thaler and Cass Sunstein, two famous pioneers of behavioural economics (BE), are big supporters of the government's strategy. When they wrote Nudge, they said their findings should be deployed to help people make better decisions so that 'choosers (are) better off, as judged by themselves'.

Professor Thaler became an adviser to the government's behavioural insights team, which has been instrumental in its consumer empowerment strategy, including the midata project. One of Thaler's campaigns is against 'adverse targeting', 'where firms target consumers with offers designed to exploit their predictable irrationalities so that the firm can profit at the consumer's expense'.

Meanwhile, Professor Sunstein is working for the US government on its 'smart disclosure' policy of providing consumers 'with direct access to relevant information and data sets ... that support consumer decision-making'. Part of this, says Sunstein, is 'informing consumers about the nature and effects of their past decisions' including, for example, the costs and fees they have incurred.

Rational appeal

If all this seems overly rational, another BE implication is that marketing strategies based on 'demonstrable product superiority' were often successful not because of their rational appeal, but because of their emotional appeal. Consumers felt they could trust a brand that committed publicly to delivering the best product, whereas it's hard to trust brands that commit only to persuasion.

Research by price-comparison service Bill Monitor reveals further surprises. For example, consumers appear to value Bill Monitor's insights into their behaviours more than the savings they make. Making a better decision provides only some of the value: knowing they've made a better decision is satisfying. This is classic BE; as Bill Monitor marketing director Nick Wright says, 'people don't like uncertainty'.

The second reason that helping consumers make better decisions may be a better long-term strategy is the sheer economics of marketing.

Companies make money by selling products that consumers want. Marketing does not have a God-given exemption from this value test. A company's marketing is also a product. It is a product consumers 'buy' with their time and attention, in a world where both of those things are increasingly valuable. Failing the helpfulness or usefulness test could also mean not passing the effectiveness test, because of a simple failure to engage. One small pointer: according to Reevoo's research, consumers spend up to five times longer on websites that carry negative reviews than on those that carry only positive reviews.

Helping consumers make better decisions may not sound sexy, but it is a source of genuine consumer value. Such helpfulness need not be restricted to the product. It could relate to connected processes ('how to'), or issues related to the product (Pampers, for example, talks mostly about parenting, not nappies).

In pointing companies' attention toward a higher dimension of consumer value - decision-making - the government might be doing companies a favour.

Alan Mitchell is a respected author and a founder of Ctrl-Shift and Mydex. Read, comment on or join the debate at Alan Mitchell's blog, Reinventing Marketing

Alan.Mitchell@ctrl-shift.co.uk

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