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The YCCI-Ipsos Think Tank Applying Behavioral Economics to Consumer Marketing

© 2015 Ipsos.

GAME CHANGERS

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The application of psychological principles to understand what really drives economic behavior

BEHAVIORAL ECONOMICS (BE) IS HOT, BUT WHAT IS IT EXACTLY?

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Other companies who ignore the potential of

BE applications

WHY SHOULD COMPANIES CARE ABOUT APPLYING BE PRINCIPLES?

Val

ue

1980 2030 1990 2000 2010 2020

At Ipsos, we believe that we are at an inflection point with BE. It’s been talked about for at least 35 years, but companies like P&G, PepsiCo

and Kimberly-Clark, who are leading the application of BE principles to marketing, are the ones that will add significantly more value over time. Companies gaining

competitive advantage because of BE applications

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HOW ARE COMPANIES APPLYING BE TO GAIN COMPETITIVE ADVANTAGES?

Smarter Companies Stronger Marketing Better Research

OPTIMISM BIAS

DECOY EFFECT

IKEA EFFECT

SUNK COST FALLACY

LOSS AVERSION

PRIMING

SATISFICING

CONFIRMATION BIAS

+ +

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STRONGER MARKETING BY EXPLOITING THE DECOY EFFECT

Ariely’s example of Williams-Sonoma’s bread makers is a classic example of using the DECOY EFFECT to increase sales: the introduction of a 2nd much higher-priced bread maker dramatically grew the sales of the first, smaller one.

Stronger Marketing

THIS EFFECT IS BEING APPLIED TO VARIOUS SERVICES AS WELL:

a 3rd more expensive option increases the sales of the middle option!

Decoy Effect

When choosing between two options, the inclusion of a third “decoy” option can induce people into

favoring one of the original two choices

over the other.

Biases

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BETTER RESEARCH THAT ACCOUNTS FOR LIMITED ATTENTION

Everyone knows that no one has the attention span to keep taking long surveys that aren’t engaging and on their phones.

Better Research

At Ipsos, we’re always mobile-first & device agnostic.

Surveys need to be short, simple, intuitive, engaging and in-context

Limited Attention

We have a finite amount of attention.

When attention is split or stretched we find it

difficult to make optimal decisions.

Biases

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SMARTER COMPANIES THAT IMPROVE DECISIONS VIA CHOICE ARCHITECTURE

Smarter Companies

Google implemented choice architecture in its cafeterias in an effort to get employees to adopt more healthful eating habits. As Googlers reach for a plate, they encounter a sign informing them that people who use bigger plates tend to eat more than those who use smaller plates. Thanks to this simple change, the proportion of people using small plates has increased by 50%”.

“

”

Choice Architecture

Improving people’s decisions by structuring how information

and options are presented.

Interventions

Harvard Business Review, May 2015

Cafeteria

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WHAT IS THE PRIMARY OBJECTIVE OF THE YALE-IPSOS THINK TANK?

To start applying, through partnership & experimentation, the right BE principles to gain competitive advantage

… and counting

RESEARCH

BUSINESS

ACADEMIA

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Products Prices Advertising eCommerce

How can anchoring be used to increase prices

for healthy ingredients?

How can loss aversion be used to build loyalty and increase retention?

How can satisficing ensure brands meet acceptability levels?

WHAT ARE SOME OF THE TYPES OF EXPERIMENTS WE MIGHT DO?

How can unit bias help us grow volume via

more use per occasion?

Anchoring & Adjustment

During decision-making we use an initial piece of information (anchor) to make subsequent

judgments.

Heuristics

Unit Bias

We think that a unit of some entity — e.g. a plate

of food — is the appropriate amount

Heuristics

Loss Aversion

We feel disproportionate pain over losses and tend to take gains for

granted. This leads us to strongly prefer avoiding

losses, rather than acquiring gains

Biases

Satisficing

We make choices not by making an optimal

decision but by selecting the first option that meets an acceptable threshold

— that meets our aspiration level (satisfies)

and is good enough (suffices).

Heuristics

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WHAT ARE SOME OF THE INSIGHTS FROM YALE THAT WE CAN START APPLYING TODAY?

“Better Eating with the 4Ps Framework”

Alter the assortment, quantity and arrangement of options (e.g., we pour & drink more from short, wide glasses vs tall, thin ones).

Possibilities

Process Adjust the location of options or alter the structure of choices (e.g., we eat more healthy items if they’re served first in a buffet).

Persuasion How information is framed, at what moment and by whom it is presented (e.g., simple green/ yellow/red traffic light labels boost healthy sales).

Person Get beyond will-power with the use of goals, habits and pre-commitment (e.g., kids who pre-order lunches are twice as likely to eat healthily).

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WHAT ARE SOME OF THE INSIGHTS FROM YALE THAT WE CAN START APPLYING TODAY?

“Why People Value Authentic Products”

“Meaningless attributes often lead to meaningful differentiation”: Heinz ketchup’s thickness & slowness associated with quality despite not winning taste tests

“Differences in manufacturing location can impact consumer preferences through lay inferences about production quality:”

• Levi jeans made in the original plant have more “true essence” of the brand compared to jeans made in their newer factory.

• Hershey, PA is where it all started more than 100 years ago, and it’s still where the famous Hershey’s Kiss are made.

“Perceived attributes often lead to meaningful differentiation”: “During the Great Depression, Revlon nail polish for 50 cents (vs 10 cents); makeup was a vehicle for romantic hope.”

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5 or 6 non-competitive companies from all industries with 1 or 2 executives who are passionate & committed to applying BE, and who would love new networking & personal development opportunities

WE’RE LOOKING FOR 3 OR 4 MEMBERS TO JOIN US AND MERCK & SCJ

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OVER 3+ YEARS We’ve conducted 20+ experiments

on a wide variety of business applications

The Duke-Ipsos Research Center & Think Tank includes top CPG Companies

WE’VE BEEN PARTNERING WITH DUKE & 9 TOP COMPANIES ON SHOPPER-FOCUSED CHALLENGES

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Recruit 5-6 Board

Companies

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• Various non-competitors

• First come basis

• 1-2 Members each

• $75K Contribution

• $500+ Pool of Funds

• All for Experiments

• Until Pool depleted & then replenished

HOW WILL THE YALE-IPSOS THINK TANK ACTUALLY WORK?

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Kick-Off to Prioritize

Experiments

• Kick-off at Yale

• ~4 Yale Members

• ~3 Ipsos Members

• ~12 Board Members

• Introductions

• Common goals

• 2-3 big Questions

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Start Conducting Experiments

• Immediate access to existing Yale research

• Reduced rates to various Yale workshops

• Can use Board’s brands

• Can be US or global

• 3rd parties (retailers & other academics) used

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Bi-Annual Meetings to

Discuss Results

• Meet twice / year

• At Yale or Member

• Attendance critical

• Review Learnings

• Discuss Applications

• Proprietary to Board

• Can share internally immediately to drive business decisions

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Ongoing – Publications

& Sharing

• Yale has rights to publish before Board shares externally (brands are kept anonymous)

• Yale or Ipsos happy to partner at Conferences

• Newsletters & other regular communications

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RAVI DHAR is the George Rogers Clark Professor of Management and Marketing, Professor of Psychology in the Department of Psychology, and the Director of the Center for Customer Insights, all at Yale University.

He is an expert in consumer behavior and branding, marketing management, and marketing strategy. He consults with companies in a wide variety of industries, including financial services, high tech and luxury goods. Dhar has collaborated on pioneering research to understand the cognitive and motivational influences on consumer choice.

Ravi has published more than 50 articles and serves on the editorial boards of several of leading marketing journals. The American Marketing Association recently ranked Professor Dhar as the most productive scholar publishing in premier marketing journals from 2009 through 2013. His research and teaching has been honored with various awards including the Distinguished Scientific Accomplishment Award of the Society for Consumer Psychology, the Distinguished Alumnus Award from the Indian Institute of Management, & the Yale School of Management Alumni Association Teaching Award.

JERRY FORRISTAL is the President of Ipsos MarketQuest in the US and works across all of our clients on critical strategic issues relating to category exploration and sizing, consumer targeting and segmentation, brand equity and positioning, brand stretch and innovation, and brand architecture and portfolio management. He is also a senior member of Ipsos’ new global Centre for Behavioral Sciences.

Prior to joining Ipsos in 2011, Jerry was a Global Account Director at Kantar, a Director of European Research at Leo Burnett, a Research Manager at Hallmark Cards, and a Senior Statistician at AT&T’s Bell Labs.

Jerry is a quantitative Sociologist by training with a BA from the University of Kansas and a MA from Duke University where he published two widely-cited articles with Tom Diprete: “Multilevel Models: Methods and Substance” in the Annual Review of Sociology, and “Socioeconomic Change and Occupational Location for Successive Cohorts of American Male and Female Workers” in Social Science Research.

WHO WILL LEAD THE THINK TANK FROM YALE & IPSOS?

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MOST IMPORTANTLY, WHAT ARE THE KEY BENEFITS FOR YOU, AND FOR US?

RESEARCH • Better Research • Deeper Client Relationships • Reputation Building

BUSINESS • Stronger Marketing / Competitive Adv. • Better Research & Internal Decisions • Public Relations / Reputation Building

ACADEMIA • New Conceptual Models • More Real-Life Applications • Publication Opportunities

Real-Life Applications of BE Principles

Fresh Perspectives from Other Industries

Networking and Personal Development

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THANK YOU

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