TOO MANY STUPID DECISIONS

1.     Stop Thinking You Are Smarter Than You Are. Remember Dunning-Kruger. 

A few years ago, I had the occasion to meet with a neuroscientist at a prominent university. We had a fruitful and most interesting discussion of work he was doing commercially and in his academic role to understand how human beings, more specifically consumers, process and respond to marketing messages. Enlightened and inspired by his work, I asked this academic - which commercial clients he was currently advising. He responded by proudly showing me his wall of client logos. On this wall were the logos of some of the world's largest corporations.

More than impressed by this wall of fame, I asked this neuroscientist whom he worked within my home state of Western Australia. He responded with – 'I will not work with Western Australian businesses.' When asked why he responded – 'Because CEOs in Western Australia know everything.' He explained that in his experience, Chief Executives in Australia and especially Western Australia place a very high level of faith in their intuition, most often ignoring the science. As a result, he found them hard to work with and not good decision-makers.

While the neuroscientist might have been exaggerating – there is little doubt in my mind that there is something in what he said. I have certainly found that the entrepreneurial spirit in Western Australia has created an arrogance (perhaps necessarily so) among CEOs. This has caused them to think they know more than they do – which has encouraged stupid decisions.

This story brings to mind the Dunning- Kruger effect – based on the research of scientists David Dunning and Justin Kruger. The Dunning Kruger effect suggests that – people of high intelligence tend to underestimate their intelligence while people of low intelligence tend to overestimate their intelligence. The reasons for this effect are well documented. Evidence of it is found in statistics like the following:

·       65% of people believe they have an above-average IQ.

·       80% of drivers think they are above-average drivers.

·       94% of academics think they are above average lecturers.

Whatever the cause, I would argue that far too many business people are making far too many stupid decisions – decisions lacking the intellectual rigour so central to making the optimum decision. Decisions based on intuition – generally supported by an inflated ego – rarely lead to optimum decision making. I am reminded of the anonymous quote:

'The ego is the biggest enemy of humans.'

Put your ego away, apply intuition after reviewing the data and make better decisions.

2.     Stop reducing the staff who deliver the value your customers are buying.

If you have recently been into a Myer or David Jones store, you will have noticed the lack of staff on the floor providing service. I have it on good authority that in some stores David Jones can reduce staff numbers to as low as one or two per floor in some stores. I know from personal experience that getting served in a Myer or David Jones store can be very difficult indeed – requiring a search for staff. And then when you eventually find someone, they are busy serving at least one and sometimes two other customers.

How STUPID is this? There is nothing much sold in David Jones or Myer that cannot be purchased somewhere else. What is more, the product range available is at best average – and is often better in speciality stores. The prices in these stores, while not outrageous, are rarely anything better than average – about the same as speciality stores. And the service is generally worse. Given all of this – why shop at Myer or David Jones? When they could have made a smart decision to employ the staff needed to offer service that constitutes a competitive advantage – they instead make the obvious and intuitive decision to cut costs.  

This reminds me of the Murdoch, Stokes and Nine media empires in Australia, where staff number – and specifically journalist and editor numbers – have been reduced so much that quality journalism is at best – limited and at worst – a rarity. There are so few journalists and editors in these organisations that maintaining the quality of journalism is nearly impossible. As a result, these organisations have fallen into a vicious cycle – where reducing staff reduces the quality of the product and reducing.

How stupid is this? The reduction of journalists makes the product less attractive, which reduces the appeal of the publications, which reduces sales, which means more journalists have to go – and so on. Why would anyone buy a newspaper that is declining in quality – as indeed most are. The journalist creates the product, and it is the product that consumers are buying – or now – not buying as newspaper circulation declines at about 7% per annum – year on year.

None of this is to suggest that there is no merit in or a need to reduce costs. It is being suggested that cutting costs that reduce the appeal of the product, kill a potential competitive advantage, or make it less appealing to buy is STUPID!

Make sure your product is as good as it can be. 

3.     Stop expecting consumers to believe your ubiquitous rhetoric – they don't.

I walked past a women's clothing shop the other day, almost tripping over an A-frame sign on the pavement. The sign read – 'Best women's fashion at Perth's lowest prices.' On another occasion, I walked past a jewellery store in the CBD, noting a sign that read 'best price on diamonds – any quote beaten.' Neither sign was a-typical of signs all of us see every day, and the messages articulated were no different to those we see in advertising every day. Nothing unusual here.

That this is not unusual, however, does not make it any less stupid. Ask yourself this – 'Having seen either sign, would you be inclined to believe it?' I know I wouldn't. So, then ask yourself this – 'If you would not be inclined to believe such a message, why would anyone else?'. They almost certainly would not. Despite this- signs and advertising messages making similar claims are ubiquitous, and business people who seem to think that such messages will attract business are legion. For some obscure reason, many business people and, in particular, marketing managers seem to think that their customers will believe and respond to messages they would not believe and respond to.

Research suggests that 96% of consumers don't believe advertising messages.

Given this, instead of saying - 'Best women's fashion at Perth's lowest prices, would it not make more sense to have an outfit on display with a price that tangibly demonstrates the fashion available and the prices it is available for. Surely, given that no one believes advertising messages anymore – it would be better to demonstrate rather than articulate. Demonstration enables the consumer to draw their own conclusions based on solid data.

The other message - 'best price on diamonds – any quote beaten', I would argue, is beyond redemption. Not only is it a message that few will believe because they don't believe advertising – but it is also a message that is inconsistent with the fact that diamonds have a market price – and as such, the message is less than incredible. Having a market price suggests that diamonds will have a roughly similar price everywhere. As such, not only is this message unlikely to be convincing, it is highly likely to damage the credibility of the business.

Stop articulating and start demonstrating.

4.     Maximise profitability with a great product, not the advertising.

In a recent public lecture, New York University marketing professor Scott Galloway asked his audience – 'What do Facebook, Apple, Amazon, Netflix and Google all have in common.' After a period of silence, Galloway answered his own question with the words – 'A fucking great product.' And he is right. All five of these five businesses have a fantastic product – or more specifically, a product that is viewed as fantastic by their target market. His point was that the foundation stone of every great strategy or campaign is a great product.

I am not an advocate for any of these brands, other than perhaps Apple and Netflix. However, I agree that all five offer a great product that lies at the heart of their success – just as it lies at the heart of the success of brands like IKEA. You know, I despise everything about IKEA, including their products, their shops, their car park, their food and their organising of customers. Despite this, I consider IKEA one of the world’s great brands because its target market loves its products and everything that goes with them.

For many years now, and at the urging of advertising agencies, business has been devoting more and more budget to advertising and less and less budget to research and development. Many businesses have made the stupid decision to drive their product or brand using advertising rather than a great product. As a result, while Businesses like Apple can spend a fraction of a percentage of revenue on advertising, businesses like Telstra spend close to 10% of revenue on advertising. Apple has a great product that sells itself, while Telstra has a piss-poor product and needs advertising to sell it.

The foundation stone of every great success story is a great product. The better the product in terms of meeting or exceeding customer expectations - the lower the reliance on advertising and the cost of marketing. By the way, a great product meets and exceeds customer expectations – or in the case of Apple – sets those expectations.

Develop a great product and spend less on advertising.

5.     Clearly understand and leverage what your customer is buying.

Blind taste tests consistently find that consumers prefer the taste of Pepsi to the taste of Coke. This was one of the drivers of the decision by Coke to launch New Coke on April 23, 1985. As the records now show and as we all know, New Coke was a huge failure:

·       Creating the perception that Pepsi had won the cola wars.

·       Throwing out a formula that had been successful for 100 years.

·       Failing to achieve anything like its sales targets.

The failure was such that New Coke was discontinued on July 10, 2002, after the business burned millions trying to advertise their way to success with the new product. Some have suggested that this is the biggest marketing failure in the history of marketing.

In analysing this failure, it is interesting to reflect on two things:

·       While taste tests consistently found Pepsi to be preferred to Coke – this has never been reflected in sales. Coke has always outsold Pepsi – with Coke at 51% of carbonated drinks to Pepsi at 23% of carbonated drinks.

·       While there was evidence to suggest that the taste of Coke might need to be adjusted, it was unclear why Coke told consumers the taste had been altered, especially given that the taste of Coke can vary by country and has been adjusted over time.

Following on from this, I would suggest Coke made two mistakes and that these mistakes are all too common across business:

Coke was not clear enough on what consumers were buying.

It was a mistake to tell consumers a change had occurred.

Even though Pepsi was consistently preferred in taste tests, Coke continued to outsell Pepsi – and continues to do so to this day. Consumers are not buying Coke for its taste – or at least taste is not their primary concern. They are buying a brand and all that it stands for. They are buying into a lifestyle that is associated with Coke but not Pepsi. The same is true of consumers who pay a premium for an Apple I-phone despite not having any idea what sets it apart from its competition.

This is branding in action.

If consumers are not buying Coke with taste as their primary focus, why tell them the taste is changing? Certainly, there may be merit in fine-tuning the product's taste; it is not clear what is to be gained by telling consumers this has occurred. If changes have occurred without a problem in the past – why tell consumers this time – and in so doing suggest that Pepsi might have had it right all along.

The mistake of not knowing what the customer is buying is all too common, as is telling consumers things they don't need to know. Empathy-based marketing would have helped in this case.

Understand what your customer is buying and why.