The Mad Man Returns. Rory Sutherland, and Behavioural Economics.

The vast majority of advertising people who watch the TV series “Mad Men” are watching a world that is fundamentally alien to them. It is a world where advertising “Mad Men” consort and consult freely with captains of industry, in a clear demonstration of the power that creativity has to provide business advantage.
It is a world that, for the most part no longer exists.
And Rory Sutherland is a man who would like to change all that.
Over the last fifty years, the influence of the advertising agency, has gradually slipped down the boardroom agenda to the extent that, these days, it is lucky to make A.O.B.
Combine that with all the other problems facing the modern agency: the demise of traditional media, the empowerment of consumers, and the other massive social changes being brought about by the digital revolution (not to mention the small matter of the global recession) and you can see why for many, it’s days are numbered.
According to Rory, though the single biggest reason we have ceased to command the respect we once had, is the absence of any real intellectual frame work within which to discuss and evaluate what we do. As Rory puts it:
“The problem is that we have been forced to become an excessively arty industry for want of a science to call our own. Many mathematical and scientific areas – most notably economics – have traditionally relied on models of human behaviour so reductionist and rational that they leave no room for human understanding at all. Spurned by hyper-rational economists and accountants, we have reacted in one of two ways: either we have clung hopelessly to the “overt rational persuasion” model of advertising as a desperate attempt to make sense of what we do, or else we have overcompensated and taken up allegiance with flower-arrangers, choreographers and fashion-designers and claimed that this is simply a business that can only be understood emotionally. Neither stance, to be frank, does us much good.”
Rory refers to evolutionary psychologist Geoffrey Miller, author of Spent: Sex, Evolution and the Secrets of Consumerism who describes thus: “Marketers still use simplistic models of human nature that remain uninformed by the past twenty years of research into human nature – research by evolutionary anthropologists, evolutionary biologists and evolutionary psychologists….. as a result, they don’t have access to a good map of the human mind, or of the brave new semiotic world in which it dwells.”
Or as Rory puts it: “our models of human behaviour and persuasion are pathetically shallow and make no attempt to place our discipline within any evidence-based scientific framework. Rather like astrologers, we use a language which is convincing to fellow converts but sounds suspiciously like bollocks to anyone else.”
The simple fact is that the understanding of human behaviour exhibited by businesses, has for too long been dominated by the thinking of engineers and accountants.
Rory describes this as “Physics Envy”, essentially, the envy of other disciplines towards the certainties created by the underlying mathematical basis of physics. Certainties which make the world easier to describe, explain and, most importantly, predict outcomes.
And it is this desire to reduce everything to mathematically based predictable phenomena that have had such damaging effects when applied to human behaviour.
The fact is that you simply cannot predict what will happen in any given interaction between two human beings with the same mathematical certainty as you can, for example, when you drop an object from a height. That is just common sense.
For years many economists denied this seemingly obvious point. As did many advertising and marketing people.
In economics this kind of deluded thinking led to the development of abstracted financial products that used complex formulae purported to magically separate “risk” from “return” and bore less and less relation to any kind of physical reality. This in turn led to the near collapse of the entire global economy.
In advertising it led to something even more scary: ”Link Testing”, for example.
Apart from being Vice-Chairman of Ogilvy, Rory is also President of the Institute of Practitioners in Advertising in the UK, and it is in this capacity that he is currently making the case for a new way of thinking in our industry: a way of thinking that can help reinvent the advertising agency for the digital age.
In a wide ranging and highly entertaining speech in front of a broad cross section of Irish account handlers, planners, creatives and clients in the National Gallery last week, Rory outlined his thinking.
Much of what passes for advertising science, Rory explained, has it’s origins back in the ’50s and 60’s, when over two thirds of advertising budgets were spent on packaged goods. The role of advertising was simply to persuade the consumer to buy Brand A rather than Brand B in a category that they were already going to purchase in any way. The behavioural change component in this was very small because all that was required was the creation of a mild preference on the part of the consumer.
This “science” is still being used today. However, these days, more than two thirds of advertising budgets come from areas other than packaged goods, where the decision architecture is far more complex: whether it be switching broadband provider, taking out home insurance, or encouraging people to give up smoking.
Rory argues that the new intellectual framework required to engage with these types of decisions is to be found in “Behavioural Economics”.
Behavioural Economics uses social, cognitive and emotional factors to provide a more realistic understanding of the economic decisions made by consumers. It does this by leveraging insights from recent advances in pyschology.
Three areas predominate in Behavioural Economics :
The first is Heuristics. Heuristics recognises the fact that people usually make decisions based on approximate rules of thumb, not strict logic.
The second is Framing. Consumers see everything in contexts, these contexts or “frames” are made up of anecdotes and stereotypes.The relationship between any given message and the context it is presented in is critical to the way in which it gets processed.
The third is the area of Anomalies or Market Inefficiencies. Broadly speaking, human beings do not act out of logical, enlightened self interest, in any way near as much as economists previously imagined. This has major implications for understanding “value”. And the oppotunities for advertising to add or retrieve it.

For example, A British newspaper recently decided to start charging for online content.

So it sent out two options to its readers: they could pay a £49 annual fee for access to the online paper only, or opt for a £110 fee for the physical paper plus online access. Most took the cheaper option.

The paper then tried adding a third option to its offer: a £110 fee for the paper only. The result was a complete reversal in buying patterns, as the majority of respondents now went for the £110 online and real paper package.

This is behavioural economics in action, leveraging all three areas of Heuristics, Framing and Anomalies.

And using this new way of thinking we can develop a much more accurate, real time understanding of our customers decision architecture. And using this to influence behavioural change.

This is where Rory Sutherland believes the advertising agency itself needs to change: “We need to broaden the definition of what we do”, he argues, “from the old familiar “proposition driven persuasive model” predicated on media spend, to one “that uses ideas to turn human understanding into business advantage for our clients.”

And whilst behavioural economics provides us with many opportunities for just that, the digital revolution offers even more.
Any business that has a consumer interface needs creativity.
But the creativity needs to be applied as much to changing things like choice architecture, as it does to the message. Digital media allows us to far more accurately examine trigger moments for change … because the occasion or event often determines the 
subject’s response far more than the message does.

By moving our focus from activities predicated on media spend we can begin to leverage the dis-proportionality that creativity affords. In this brave new world we find ourselves, there is no direct link between spend and effect. Consumer behaviour is influenced, obliquely and disproportionately.

Rory Sutherland’s vision of the future role of the advertising agency is one which places a highly sophisticated understanding of consumer behaviour at the heart of our client’s businesses. And this should come as no surprise when you look at his career to date.

Rory Sutherland comes from a direct marketing background. Specifically, an Ogilvy & Mather Direct, direct marketing background.

And this, I think, is highly significant in understanding how he has got to where he has in his understanding of how we need to evolve as an industry.

When Rory joined O&MD in the 90’s direct marketing was really coming into it’s own. As it did so it began to develop a different type of culture to that of the general advertising agency.

Many people in the general agency world, particularly those working with big budget clients, saw themselves as working at the centre of a broadcast model, in a branch of show business.

People working in direct marketing however, began to see things very differently.

In the marketing equivalent of the Copernican revolution, the world view changed from one in which everything revolved around the brand, to understanding that the universe did in fact revolve around the consumer. What’s more, the advent of richer and richer data afforded greater and greater insights into consumer behaviour, which allowed real two way interactions between brands and consumers. New ideas about lifetime value and customer relationship marketing emerged. This wasn’t show business, it was something fundamentally far more interesting.

The lessons learned in pre-digital customer relationship marketing become all the more powerful when applied to the modern digital realm.

As Rory points out, there will always be a place for the “show biz” side of advertising, whether it be advertising as such or some form of branded content. What we need to do as advertising agencies is to place consumer behaviour at the centre of what we do. For many agencies this transition from one way broadcast to two way dialogue will be the real revolution. Not the transition from analogue to digital media.

Ray Sheerin and I set up Ogilvy & Mather Direct in Ireland in 1993, he as Managing Director and I as Creative Director. Every year, we would both meet up with our opposite numbers from offices around the world. Over the years I have therefore had the pleasure of Rory’s company in a variety of exotic, and sometimes downright bizarre locations.

Talking with Rory is always a fascinating, if slightly disconcerting, experience. Not least because you have no idea where the conversation is going to go next.

In a roller coaster ride of consumer insights, literary allusions, and whatever you’re having yourself, Rory will talk at 90 miles an hour about anything and everything with no sense of boundaries. You see there’s more than a touch of the Mad Man about Rory.

And over the years I have come to regard Rory as a worthy successor to that original Mad Man, David Ogilvy himself.

They say that in certain ancient cultures tribal leaders would treat the mad man as a sort of shaman. Someone who should be heeded carefully, because their views were not restricted by the conventions of society. In later days this evolved into the role of the court jester. The function was the same: to see beyond convention and to speak as he found… in direct contrast to the usual crowd of courtiers and sycophants that surround the throne.

These days, every Chief Executive would do well to have at least one such Mad Man at his side. Particularly a Mad Man that displays such a clear sighted understanding of their customers behaviour.

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