Analytics & Neuroscience

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We first wrote the piece below back in 2012 and it is interesting to see how everything predicted at that time has, in fact, come to pass. Ultimately resulting in the election victory for Donald Trump and the near-election victory for Jeremy Crobyn. The key point is about how you can use the fusion of data on rational and emotional measures of human opinions to predict what they do next. In reality the underlying basis of such modelling and analyses relies only on understanding the primeval instincts behind the “Fight or Flight” decision process so well-documented by anthropologists. But if you understand that process, and then align your data in the right way, you can make powerful insights into what people will like and not like, and do and not do. It even ‘predicts’ the findings observed in “behavioural economics”, which is itself the study of actual as opposed to ideal situations.

We begin in the 1960’s. It was the computer in the 1960s that changed the way that companies took marketing decisions. They were able to process masses of quantitative data, which promised greater scientific number-based decision making. Gradually this was enhanced by more and more data on buying habits – Nielsen Retail Audit data, Consumer Panel data from Audits of Great Britain (which went on to be what we known today as WorldPanel), then transaction data direct from retailer scanning systems and loyalty cards and the creation of mathematical models based on recorded behaviour, income, geography and anything else that could be tangibly measured. Then came the era of “Big Data”, fuelled largely by social media.

But much of this reliance on hard data analytics and hard data modelling to analyse and plan the marketing effort was focussed on the mechanics of the sale rather than on data to understand the psychology of why consumers buy. For most companies, the results that came from all the analytical work on the hard data were disappointing – marketing programmes didn’t quite deliver the expectations that the modelling said they should deliver.

By the 1980s, scientists were beginning to explore the brain and the way it handles information and makes decisions. Called neuroscience, this, combined with the resurrection of Behavioural Economic theory, not new but becoming fashionable once again, combined to create what is commonly known as ‘behavioural research’ and promoted as the only way to understand and predict consumer buying behaviour.

Of course, none of this is new – what goes around, comes around. Between the 1930s and the 1960s, it was known as ‘motivational research’. A term that we at RedRoute International prefer to use.

Classic economic theory works on the principle that we take rational buying decisions by weighing up cost against benefit and making a logical choice based on this. Of course, this is not what we do at all. We all, at one time or another, buy things we don’t need, at arbitrary prices and for silly reasons.

As America moved into the era of plenty, where supply outstripped demand creating competitive battles between brands for a share of the consumer’s wallet, advertising agencies in particular needed better insights into consumer preferences than they were able to get from quantitative data that polling techniques had been supplying since the late 19th century.

Then, in 1938, along came Dr Ernest Dichter. His development of motivational research and the insights he extracted from this changed advertising, brands and the fortunes of companies such as Proctor & Gamble, Chrysler and General Mills.

Dr Dichter’s principles were based on the theories of Sigmund Freud, formulated over a century ago. Of course, this meant that many of his insights had strong sexual connotations – not in itself necessarily wrong, but sometimes a bit odd. He explained that smoking was like sucking on a nipple; a phallic shaped lipstick sells more because it offers a subconscious fellatio; baking is an expression of femininity, pulling a cake from an oven being the equivalent of giving birth; and, perhaps oddest of all, to increase sales of typewriters they should be modelled on the female body so that the keyboard was more concave and receptive. Some people like to fantasise.

From 1946 and through the 1950s, Dichter’s business boomed as companies queued up for his insights and advice, but inevitably, like all charismatic salesmen with implacable self-belief, he went too far. He was hired by Pepsi to advise on their new television campaign. He told them that they must never show Pepsi served with ice, because ice meant death. Dismissed as bonkers, he was thrown out.

He sank into obscurity, a discarded guru, long before his death in 1991, his motivational research tools and techniques pushed out by the new science of analytics driven by ever cheaper computers and data storage. But the core problem facing brand owners is that all the data and all the analytics didn’t give them the insight as to why consumers preferred one brand over another. Human behaviour continued to remain mysterious.

Enter the new discipline of neuroscience, which, (surprise, surprise), came with scientific findings that concluded that it is emotion and not reason that drives purchasing decisions. The resurrection of ‘Behavioural Economics’ – which is not new, but the old ‘re-branded’ – takes us back to the days of Dr Dichter, but this time with men wearing white lab coats.

But before you get carried away with neuroscience or measuring the pupil dilation response to brand logos, just pause and reflect on what this little piece of history tells us.

Numbers without attitudes give you an incomplete picture; attitudes without numbers is the same. But having attitudes and numbers combined – that’s how you create actionable insights to help improve your business.

That, in turn, is the basis of RedRoute’s Marketing Effectiveness service. Using Attitudes and Circumstances to predict Behaviours using our Motivational Modelling approach that we call “Effective Net Preference” or ENP™.

The data sources you have at your disposal these days to do this are legion. What is needed is a process. RedRoute is working with the Institute of Promotional Marketing to understand the impact and ROI in Experiential Marketing using exactly this technique – and it is proving to be highly beneficial to agencies and clients alike. We also use it in our CRM service, OPIUM, where optimising insights into customer personas enables you to be your customer’s or your consumer’s best friend in the category. And, ultimately, it is used to predict future behaviour like, for example, when one of our clients asked us to predict the impact of the post-Brexit devaluation on their sales. The situation was new and unique and many people thought it was a hard task. Our models, however, produced predictions which the client later described spontaneously as “Spot on”. We’ll take that as an endorsement of our approach!

To find out more about RedRoute’s ENP model and how it is applied, just review our web pages or get in touch and we’ll be delighted to help talk things through.

Read more Schezzer’s Blog articles at
https://www.linkedin.com/pulse/analytics-neuroscience-schezzer-scheherazade/


Behavioural Economics – An incomplete solution?

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When psychologists and economists discovered market research behavioural economics was born.

Many market researchers will see some of the examples of behavioural economics and think “Surely we knew that anyway?”

“How so?” you may ask.

Well that is because market researchers have to understand those types of outcomes in order to design research studies that provide useful results instead of results that stem from the circumstances under which the experiment took place. The key difference is that in the past there was no real scientific description of how decisions were systematically affected by these circumstances.

In the April edition of Marketing magazine Professor Nick Chater, Head of the Behavioural Science Group at Warwick Business School, described one such experiment. Female experimenters situated at the ends of two bridges, one high and precarious – the other low and sturdy. People crossing the bridges were asked to perform a small task and given a number to call the experimenters to follow-up later. The net result was that men who had crossed the high and precarious bridge were the ones most likely to call. Women crossing the low sturdy bridge the least likely. But that was not the most interesting part.

The most interesting part was that the men crossing the high bridge were more likely to call because the adrenaline rush that went with crossing the bridge transferred to the meeting such that they believed they had met someone who they really liked and wanted to see again. In many respects this is the same phenomena that drive people to repeat ever more risky experiences.

But is this really that surprising? Or is just a perfectly understandable and well-known outcome being presented in a new way? My belief is that often it is the latter and not the former.

Having worked for many years doing data analyses for the purposes of predicting individual customer behaviour, we have found that most behaviour can be described and anticipated if one assembles data on individual circumstances and attitudes. We call it the ABC of customer prediction. These “ABC” are:

- Attitudes
– Behaviours
– Circumstances

Understand the attitudes of the individual – what they value, what they aspire to, what they tolerate – and the circumstances in which they are making the decision – in as much detail as we can gather – and you can predict what they will decide to do with more than 50% certainty more than 50% of the time. And that is being conservative. Typically the 80/20 rule applies and you can predict the outcomes such that marketing profitability can be increased by 50%.

We have achieved this for numerous clients and our case studies provide the details. To find out more log-in to our site and visit our case study section.


Analytics and Neuroscience

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It was the computer in the 1960s that changed the way that companies took marketing decisions.  They were able to process masses of quantitative data, which promised greater scientific number-based decision making.  It was enhanced by more and more data on buying habits – transaction data from retailer scanning systems and loyalty cards and the creation of mathematical models based on recorded behaviour, income, geography and anything else that could be tangibly measured.

This reliance on hard data analytics and hard data modelling to analyse and plan the marketing effort was based on the mechanics of the sale rather than on the psychology of why consumers buy.  For most companies, the results that came from all the analytical work on the hard data were disappointing – marketing programmes didn’t quite deliver the expectations that the modelling said they should deliver.

By the 1980s, scientists were beginning to explore the brain and the way it handles information and makes decisions.  Called neuroscience, this, combined with the resurrection of Behavioural Economic theory, not new but becoming fashionable once again, combined to create what is commonly known as ‘behavioural research’ and promoted as the only way to understand and predict consumer buying behaviour.

Of course, none of this is new – what goes around, comes around.  Between the 1930s and the 1960s, it was known as ‘motivational research’.

Classic economic theory works on the principle that we take rational buying decisions by weighing up cost against benefit and making a logical choice based on this.  Of course, this is not what we do at all.  We buy things we don’t need, at arbitrary prices and for silly reasons.

As America moved into the era of plenty, where supply outstripped demand creating competitive battles between brands for a share of the consumer’s wallet, advertising agencies in particular needed better insights into consumer preferences than they were able to get from quantitative data that polling techniques had been supplying since the late 19th century.

Then, in 1938, along came Dr Ernest Dichter.  His development of motivational research and the insights he extracted from this changed advertising, brands and the fortunes of companies such as Proctor & Gamble, Chrysler and General Mills.

Dr Dichter’s principles were based on the theories of Sigmund Freud, formulated over a century ago.  Of course, this meant that many of his insights had strong sexual connotations – not in itself necessarily wrong, but sometimes a bit odd.  He explained that smoking was like sucking on a nipple; a phallic shaped lipstick sells more because it offers a subconscious fellatio; baking is an expression of femininity, pulling a cake from an oven being the equivalent of giving birth; and, perhaps oddest of all, to increase sales of typewriters they should be modelled on the female body so that the keyboard was more concave and receptive.

From 1946 and through the 1950s, his business boomed as companies queued up for his insights and advice, but inevitably, like all charismatic salesmen with implacable self belief, he went too far.  He was hired by Pepsi to advise on their new television campaign.  He told them that must never show Pepsi served with ice, because ice meant death.  Dismissed as bonkers, he was thrown out.

He sank into obscurity, a discarded guru, long before his death in 1991, his motivational research tools and techniques pushed out by the new science of analytics driven by ever cheaper computers and data storage.  But the core problem facing brand owners is that all the data and all the analytics didn’t give them the insight as to why consumers preferred one brand over another.  Human behaviour continued to remain mysterious.

Enter the new discipline of neuroscience, which, (surprise, surprise), came with scientific findings that concluded that it is emotion and not reason that drives purchasing decisions.  The resurrection of ‘Behavioural Economics’ – which is not new, but the old ‘re-branded’ – takes us back to the days of Dr Dichter, but this time with men wearing white lab coats.

But before you get carried away with neuroscience or measuring the pupil dilation response to brand logos, just pause and reflect on what this little piece of history tells us.

Numbers without attitudes give you an incomplete picture; attitudes without numbers are the same.  But having attitudes and numbers combined – that’s how you create actionable insights to help improve your business.


Are Brands Fighting Back?

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One could be forgiven for thinking that brands are surviving the recession with the Premier Foods announcement of their latest six months’ results. Their overall sales were up by 3.5%, but within this sales of Branston Pickle were up by 41%; Loyd Grossman Sauces by 35%; Hovis Bread by 17%; and Hartley’s Jams by 12%. These results prompted Premier to claim that shoppers are turning away from supermarket private label products towards branded products.

At a cost.

Premier reported a loss of £30 million compared to £2 million profit previously. Admittedly some of this loss is made up of one-off costs – pension charges, currency movements and the acquisition of RHM and Campbell’s UK business – but buried within this are the increased costs needed to drive brand growth. Promotions expenses, for example, have increased by 10% – a high price to pay to make the brands competitive.

Other company reporting suggests that Premier’s brand growth is the exception rather than the rule. Procter & Gamble reported a net sales decline of 11% with a profit decline of 18% for its fourth quarter, with premium brands such as Olay and Braun being particularly badly hit as consumers turned to cheaper alternatives. Unilever managed to achieve a 2% volume increase for what was their second quarter but at a huge cost – profits down by 31% – prompting one analyst to comment: “Volume performance has been bought at a high cost to margins.” The Unilever CEO said that “The consumer is making more value choices and I don’t think that’s going to change that easily.”

Despite its sales growth, even the CEO of Premier Foods had to admit: “We are not seeing anything that says we are coming out of recession.”


Winners and Losers in the Great British Recession

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Further evidence of fundamental changes in consumer behaviour because of the recession has recently emerged. A report published by Allegra Strategies (sponsored by McDonalds) revealed that the amount we spend on informal eating out (where a meal cost £15 or less) has fallen for the first time in 40 years. They estimate that 15,000 jobs have been lost in this sector in the past year and they warn that this trend will continue as one in five people plan to eat out less over the next 12 months.

Ethnic restaurants are being particularly hard hit by this change in behaviour. Eating out has come a long way since the days of Berni Inns. In 1950 there were only 6 Indian restaurants in Britain and still only 2,000 by 1970. Now there seems to be 2,000 in every city – but the credit crunch is beginning to close them down.

Recession and the consequent change in consumer behaviour creates winners and losers. In this instance the losers are informal eating out destinations (particular those where a meal is in the £10-£15 range); and the winners are Sainsburys with their “Feed your family for a fiver” promotion and the “Dine in for £10″ offer from Marks & Spencer.

Within your own business portfolio of products or services there will be winners and losers – have you identified which they are?


The Change in Consumer Behaviour

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According to a survey for The Children’s Mutual, a trust fund provider, the tooth fairy is paying an average of 6% less than last year for children’s teeth.

This is one of countless indications on how consumer spending behaviour is changing in response to the recession.

But what will happen as the economy recovers? Will consumers return to their previous spending behaviour or will they maintain their new more frugal pattern of spending?

What assumptions will you be making for the future of your business?


Yet More Bad News for the Doomsters

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"New Mortgage Deals Leap by 19%" – headline from today’s Evening Standard. Things are rough. They will not be easy for a while. But the cash injections made into the economy have been unwise. The G20 summit is looking at ways to bring the world out of recession. Too late guys. You have missed the turning point. The recession finished at the end of last year. Whether we have a “double-dip” remains to be seen but for now things are on the mend.

The problem is that the data policymakers use is based on how the economy worked in the late 20th Century.
The official stats do not recognise adequately enough that the UK economy is no longer running on goods and services that were popular in 1975 and that Financial Services is not the be-all and end-all of the UK economy.

And in the digital economy things happen more quickly now.
Sorry but it’s true.

It’s new. It’s different. It’s fundamentally different in fact.

There are a few things you need to think about.

Firstly, banks are strapped for cash – just look at the poor old Dunfermline Building Society. Poor being the operative word. This situation is not going to change for at least a decade and things are shaping-up whereby the regulators are going to make sure that banks can never lend unwisely again (well, not until they work out how to beat the system anyway). So future growth over the next five years at least will be slow and steady – and probably rather bumpy.

Second, the digital revolution. It means everyone is free to do all sorts of things never before possible.
Freedom to experiment. Freedom to be creative. Freedom to co-operate as never before. Freedom to use innovation to grow, not just cheap, unsustainable credit.

Finally, the environment. The climate really does need heeding. But people are willing to listen (well, at least this side of the pond anyway) and willing to act. So anyone involved in recycling should have a reasonably bright future provided they manage the risk that the over-supply of rubbish can bring! And if you can work out what products people want then you can make a killing. But I’m not talking "organic produce" and "sandals instead of shoes". What will be needed in the future are products that are every bit as efficient and effective (and the same price) as their less eco-friendly counterparts but which are better for you and for the environment.

Some companies (like Unilever) have been working on developing such products for many years now.
Others need to catch-up. Just make sure you are not caught in the wrong place at the wrong time.
Time to invest in windmills I think.