Perception : The new P of marketing mix

I had an interesting experience recently. I met a friend of mine who had just come back from a brief stint in Japan for her company. While travelling in Delhi metro she couldn't hide her feeling of annoyance and said the train was pathetically slow and journey in Delhi metro amounts to “waste of time”. This took me by surprise as earlier she always seemed to enjoy the metro journey and believed it as an efficient and convenient one. So what just changed? As I found out what changed was her perception. Human mind does not have absolute scale to judge value of anything, but human mind can perform comparative measures. So a mere experience of travelling by bullet trains of Japan changed the perception of the value derived by Delhi metro train journey. This shows that values are not absolute rather they are perceived. Since they are perceived it could be created just by playing with the perception of people about a product or service rather than putting material effort to enhance the physical attributes of that product or service.

There are some beautiful product offerings which strengthen this belief.

Betty Crocker instant cake mix - The first instant cake mix developed and launched by Betty Crocker foods in 1952 did not sell well, people simply did not seem to like them. The product was very good and process was very easy and time efficient. Just put water in the powder, stir, put it in oven and voila! You have cake. So, what could have been the reason of failure? As it turned out, it was the superior efficiency of the product in terms of convenience that was driving away the perception of making a cake. Housewives were not able to derive the satisfaction and pleasure of creation. Just because not enough effort was involved they couldn’t overcome the feeling of “not able to take ownership of making the cake“.  The solution: the company took the egg and milk out of the mix and relaunched the product. So now housewives had to break eggs and put it in mix and measure milk and add it. This process of putting human effort and increased involvement gave housewives the perception of creative contribution. The product became a runaway hit. So what made people like the product was not the increase in the quality of any attribute rather the context (Instant solution to creation) in which it was used.

Diamond shreddies - In marketing the first principle is all value is subjective, which means all value is perceptive. Hence value can be created just by changing the perception.  A beautiful example in this regard would be that of diamond shreddies which shows – “Things are not what they are rather things are what we think they are”. Kraft foods came to Ogilvy&Mather in 2008 with a unique request to relaunch their “shreddies” brand of breakfast cereal with the constraint that shreddies customers liked the product as it was. Originally the shreddies were in square shape. Ogilvy didn't change the product but just changed the visual perception of the product by rotating it by 45 degree. So the old square shape became the new diamond shape and the product was relaunched as “diamond shreddies”. It also got the essence of new and improved product. Research showed that consumers found it tastier, crunchier and more flavored and sales increased by as much as 18% in just one month.  This example shows that just by a perceived change in one of the senses (visual here) the whole realty of the product can be changed in consumers’ mind.

IKEA effect - IKEA is a Swedish company which designs and sells semi assembled furniture. If you evaluate the quality of the furniture, it’s not superior to that of the competitors. So, what makes IKEA one of the world’s largest furniture retailers? The answer lies in the concept of “love of labour”. The very fact that these semi assembled furniture come with a complex manual, it takes a lot of time, effort and rework in assembling them. So the process is very painful, annoying and confusing and definitely not enjoying in anyways.  But when one finishes assembling it, one starts liking it more than any other furniture. The reason being mere investment of our time and effort creates a perceptual bias. This perceptual bias causes us to assess the value of things (in which our labour is invested) more than what their real value are. Now if we put the concept of material effort forward, the competitors would always have tried to make better product by using superior quality. IKEA on the other hand with better understanding of human psychology made people like the existing product.

An interesting example of skewed consumer rationality about product performance is Red bull. Why the Red bull can is smaller than a Pepsi or Coca Cola can and yet priced much expensively. The very reason is the consumer’s game theoretic model of thinking and irrational behavior. The smaller can is important to make consumers believe that the drink inside is special. So once consumer is convinced that the liquid is special, then the high price gets justified.

In the mind of consumer price is a very good proxy for quality. So what a low cost product or service provider should do? Here to justify the low price the marketer must highlight “what the consumer won’t get” in case of services and “what the product is not about” in case of products. A beautiful example in this case is Ryan air. Ryan air is no frills cheap fair airlines. The prices are generally less than half of full service airline. Now airlines is a huge investment business and if an airline is charging very low fair then it is very natural that consumer will become suspicious of the offer. Also as the airline business carries huge security risk, the suspicion of consumer only gets modified. What Ryan air does is that it constantly tells consumer what services they won’t get like No free food, luggage weight limit etc. It helps consumer rationalize the low fair. And that is the reason of huge success of Ryan air.

Probably the best ever example in the history about changing consumer rationality about a product is of Frederick the great. He ruled Prussia in 18^th century. One day he heard about a wonder plant from South America, potato. He was so impressed by nutritional and economic virtues of potato that he preached to his citizens that they must cultivate and consume potato. But the people of Prussia rejected the idea as they didn't like potato, because of the shape of the potato. The kind had other ideas. He declared potato as royal vegetable and started potato cultivation in royal fields. Also soldiers were ordered to guard the potato field. Interestingly the guards were ordered not to guard well in the night allowing the locals to steal the crop for their own gardens. Just within a few months there begun a massive underground cultivation of potato in Prussia. Thus potato flourished and has lived on ever since.

Rory Sutherland mentions that there are many a product/service offerings which make fundamental psychological mistakes. He took spotify for an example. It is an online music download and streaming store. The problem is, it offers unlimited music downloads for a fixed price for each month. This is a wrong design of offering in which a consumer is not able to rationalize the worth of price. A better design would be to tell consumer how much giga bytes of download they could do or how many songs they could download. In this offering a consumer could identify the price of each song.

 As per the Austrian school of economics there is no distinction between subjective value and perceived objective value. Take the case of a restaurant. There is no difference in the values one creates by cooking the food and by sweeping the floor. One creates the food and other creates the context in which the food is enjoyed.

Peter drucker had once famously said innovation and marketing are two ways of adding value. Now people’s belief that innovation means creation of new things (material effort) could be vastly wrong. A better understanding of how people behave, how they choose and how they perceive things could generate as much economic value as technological advancements or material effort. 

The Buying Brain

Deep inside human brain (and not the heart) there are many a latent and unfulfilled needs, wants and desires embedded. Psychologists had done a great job by distinguishing the needs as Innate (biogenic) and acquired needs. The moment any need is recognized by human id the brain moves into a state of tension. Psychologists say this tension creates a motive, now this motive is the driving force that impels human being into action. Interestingly Praxeology gives a slightly different explanation. The first axiom of praxeology says “human behaviour is a purposeful action”. Hence, the recognition of need immediately leads to creation of motive. This motive is the driving force (i.e. it is directional) towards the goal. And tension is created subsequently to choose the means to reach the end. Now the methodology of recognition of Innate and acquired needs are different. Innate needs are recognised more through internal environment whereas acquired needs are recognised more through external environment. The implication is that our own judgement about our acquired needs become highly relative. We compare with others as our reference point. A beautiful experiment was done in this regard with two capuchin monkeys. Two capuchins were placed in adjacent transparent cages. The first monkey was given a cucumber slice as reward for a small task and it ate it happily. The second monkey was given a grape for the same task, while the first one was watching it. Now when the first monkey was again offered a cucumber for the same task, it refused the reward. In fact it became so angry that it threw the cucumber slice away. Again as the motive is directional, it could be positive or negative. We may feel driving force towards an object or away from an object. Marketers design their product/service offerings based on “towards object” and “away from object” approaches. The question is which approach to choose and when. The marketers make the consumer aware of their needs by creating a psychological imbalance between existing and desired state (need recognised state). Now they must use the “away from object” approach by pulling down the existing state when consumer is seeking problem avoidance and use the “towards object” approach by pushing up the desired state when consumer is seeking satisfaction maximization. So toothpaste which promises white teeth uses “towards object” approach whereas toothpaste which prevents sensitivity uses “away from object” approach or avoidance approach.

Now, motivation impels humans into an action which is information search. The reason for information search is importance of buying decision. Consumer believe by a wrong buying decision consumers could create an inferior state for themselves. And consumer is highly loss averse. So the process of information search is an uncertainty reduction mechanism. Now, the next question is how much effort the consumer will put into information search. The best to understand this is to think of decision maker as a problem solver as proposed by John dewey. As per Dewey problem solving refers to undertaking thoughtful reasoned action to bring about most satisfying result (though in some situation the objective of consumer is not to bring about most rational and utility maximization result; Think about the last time you went shopping and bought that expensive dress which you actually didn't needed then). Consumers differ in terms of the energy they devote while solving a buying problem. The analysis of the purchase situation and the calculation of the probable risk determine the nature of decision making effort and its rigor. The nature of decision making effort is called involvement (Concept of involvement was proposed by Krugman as intensity of interest). So the degree of involvement is the extent of mobilization of behavioral resources (physical, mental and energy resources). These behavioral resources are used to judge the importance of four factors – Ego relationship, Perceived risk, Social sanction and significance.

The next step is evaluation of alternatives. Economics assumes that humans are rational agents with perfect information. Had that been true, marketing would not have existed. But in our real world humans are not rational and have limited information at their disposal. So how do the consumers make decision? As it turn out they over value the information they have and undervalue or ignore the information they don’t have. Also consumer’s rationality is bounded by the fact that she/he has limited cognitive ability and limited time to make that decision. Interestingly while evaluating alternatives human brain only compares the things it can compare and don’t compare the things it can’t. For example while evaluating two different models of mobile phone, a consumer can compare their camera pixels or their screen size, but she/he can’t comprehend how much reduction in screen size will compensate for unit increase in camera pixel. 

This is the reason behind irrational decision making. So, each of consumer’s decisions comprise of several considerations which are assigned importance (weight), but we do not assign these weights in most efficient way because of our inability. These considerations are shown below in the buying space analysis of human brain. 

An important point about alternative evaluation is that it follows less of economic module and more of game theoretic module. Had it used economic module more, consumers would have preferred a carbon or lava phone to an iphone every time. But consumer evaluation module is game theoretic, so she/he immediately becomes suspicious of so many features being available at so less price. Another important point is that consumer uses price as a proxy variable to determine quality. Consider the case of a mobile phone. There are close to 25-30 features of a phone described on any shopping website. Consumer’s brain doesn’t processes all of them rather apart from 4-5 features which she/he considers important, rest are compressed into a zip variable whose evaluation is done thorough brand fame. So, the consumer uses psychology of simplification.

The purchase step is the ultimate moment of truth for products or services, where consumer accepts or rejects them. The critical fact of this step is that though all consumers think they use some evaluation criteria objectively to choose one product over other using rationality, but actually most consumers in most of purchase occasions use reason based evaluation only ostensibly and actually it is an emotion driven subjective decision. Consider the case of choosing among two similar salt brands. With around 50 bits per second of processing speed it will take years to bring out the most rational decision. But the consumer makes the decision in a few minutes only. This is possible because human brain has two systems rational and emotional (Kahenman calls them slow and fast systems respectively). When the rational brain is engaged into making a complex decision and moves to a decision conflict, the emotional brain takes over and makes an emotional decision (which could be irrational). So the key to action is not thoughtful deliberations but emotions. The emotional brain not only helps in resolving decision conflict but also impacts the way rational brain analyse the decision made. Hence our rational brain is not good at being rational but it is good at rationalizing our emotional decision.