Stopwatch Marketing Blog

 

Another fine book to fill up all those empty hours until Stopwatch Marketing comes out is Michael Shermer’s The Mind of the Market. In it, Shermer, the publisher of Skeptic Magazine, sets out to explain how and why people seemingly act irrationally when it comes to money. Among the familiar examples: Why do people hold onto stocks long after it becomes clear we should sell them? Why do people consistently choose options that would leave them worse off (earning $100 when everyone else makes $50) rather than one that would make them better off (earning $150 when everyone else makes $200)? Why would people walk across the street to save $40 on a $100 iPod purchase but would not walk down the street to save the same $40 on a $2000 HDTV? After all, in both cases, $40 equals 40 pictures of George Washington on cute little pieces of green paper.

The short answer, according to Shermer, is that we’ve all been programmed that way over thousands of years of years, having made the leap from hunter-gatherers to consumer-traders. Shermer amasses a huge amount of data and cites tons of research in the fields of biology, psychology, and a relatively new field called neuroeconomics. One great example: we are all social primates, having evolved from apes. Scientists have actually experimented with other primates, training them to “buy” food with pebbles. Once the apes have been fully trained and display consistent purchase behavior (that is, once the price has been set) the scientist increase the money supply (adding more pebbles). The nominal price of the food shoots up precisely as human economic models, based on decades of research into monetary policy would predict. Faced with “easy money,” monkeys, it seems, bid up the price of bananas exactly as humans do the price of homes. Let’s hope the monkeys don’t face a sub-prime lending crisis.

Seemingly irrational behavior on the part of consumers, of course, bedevils marketers. We explain much of this in our Stopwatch Marketing work with clients with the mounds of research indicating that actual buying behavior is almost always occasion-specific. Among the examples I shared with Michael in a comment on his blog: Why do millions of consumers drive past 20, 30, or 40 traditional supermarkets in order to spend MORE money on necessities at Whole Foods Market? Because, on that day, those consumers were looking for a recreational experience – browsing through a supermarket that openly bills itself as theater – rather than impatiently working their way quickly through a traditional grocery store. Research has shown that the very same people shop at Whole Foods once per month (for recreation) and at their local supermarket twice a week (for speed, convenience, and price reasons, that is, when they have a chore, shopping, to complete and are impatient to get it over with.)

In such cases, marketers make a big mistake if they tailor their marketing to the person, rather than the occasion.

The key point that I think both Shermer and we are making is that the economic behavior of individuals is not irrational to them; it is irrational only to observers trying to explain and exploit it.

 

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