Category: Practice

In a recent article I tweeted about, Strategy+Business commented the PwC’s seventh annual global survey of consumers. The title and the content of the article ‘Competing for shopper habits’ was really good food for thought and encouraged to write this post.

In shopper marketing, there is a rule of thumb: only a mere 5% of purchase decisions are rational and the remaining 95% are purely intuitive. If, most decisions happen in the subconscious mind, can we really compete for shopper habits? There are 4 books I find particularly inspiring to address this question.

“Thinking fast and slow” by Daniel Kahneman.

The most famous researcher who dismantled the myth of the arch-rational decision-maker is the 2002 winner of the Nobel Prize in economic science, Daniel Kahneman. Ironically, he is not an economist but a psychologist – maybe another manifestation of the shoemaker syndrome. Kahneman proposes an alternative decision-making theory, more faithful to human psychology, called the “prospect theory”. But his work is more often epitomized by the System 1 – System 2 duet.

According to Kahneman, people are essentially relying on two systems when making decisions: a “System 1” using association and metaphor to produce a quick and dirty draft of reality, and a “System 2” drawing upon explicit beliefs and reasoned choices to produce a more complete and accurate picture of reality. “System 1” is fast, intuitive and prone to errors. “System 2” is slower and more rational but also labor-intensive and therefore way more tiring. That’s why instead of systematically analyzing every single situation and weighing the pros and cons of every option, our brains mostly rely on System 1 to make day-to-day decisions like purchases. In a nutshell, people are not rational when they are making most of the decisions they make.

“Predictably irrational. The hidden forces that shape our decisions” by Dan Ariely.

Dan Ariely, a professor of economics at MIT, and an evangelist of behavioral economics develops an interesting argument: people are not capable of consistently making the right decision for themselves. But the good news for shopper marketers is that they do so in ways which are systematic and repeatable – hence the subtitle of his book, “Predictably irrational: the hidden forces that shape our decisions”. What matters, he says, is to understand when and why people deviate and make irrational decisions.

“The Power of habit: Why we do what we do and how to change” by Charles Duhigg.

The New York Times business reporter, Charles Duhigg suggests that habits can be changed – if we understand how they work. Although not focused on purchase decisions, his approach is valuable for shopper marketers. According to the author, the neurological loop at the core of every habit consists of three stages: the cue, the routine, and the reward. When a task is done repeatedly, the brain anticipates the reward and a ‘craving’ forms. To change a habit, marketers need to understand the craving and find new ways to satisfy it. Interestingly, the research conducted by Duhigg shows that changing the routine – not the cue or the reward – is the most effective way to break the habit cycle. He also shares three drivers of success: familiarity, social commitment, and individual empowerment.

“Nudge: Improving Decisions about Health, Wealth and Happiness” by Richard Thaler & Cass Sunstein.

Nudging is another interesting concept for shopper marketers who aim at influencing behaviors. Richard S. Thaler and Cass R. Sunstein, professors in Economics and Law at the University of Chicago, established it in their best-selling book back in 2009. Their key argument is that details that may look insignificant can have a major impact on people’s behavior. Human beings, they say, often act in ways that seem detrimental to their own wellbeing: eating junk food, spending conspicuously, smoking cigarettes or failing to save money for their pension. Most efforts of private and public institutions to educate people about the risks are proving unsuccessful. Gentle “nudges”, rather than prescriptive “nagging”, are much more likely to drive real shifts in behavior. They use a now-famous example on how to best drive healthy food eating. “Putting the fruit at eye level [in the supermarket shelf] counts as a nudge,” they say. Banning junk food does not”.

If you have a book to recommend in that category, please feel free to leave a reply with the title and author.

As briefly mentioned in an earlier post, in the last quarter of 2017, two global players, McKinsey & Co and Geometry*, who have been looking at journeys for the last eight years or so, broadcasted respectively a podcast and a webinar, to share observations and reflections about their journey research practice. Talking to colleagues and clients, it seems that the two events have been largely unnoticed which is a shame considering the insights they uncovered. Let me share a topline summary.

McKinsey & Co: being in the initial consideration set is critical for success

Looking at data from more than 125,000 consumers in about 30 categories, McKinsey & Co found out that only 3 of the 30 categories were ‘loyalty-driven’, while the other 27 were ‘shopping-driven’. In other words, they demonstrated that loyalty was a myth for a majority of categories. Within those 27 categories, the dominant behavior was ‘switching’: 58% of shoppers were buying a different brand from one purchase cycle to the next. The key conclusion they drew was that it was critical for a brand to feature in the ‘initial consideration set’: 70% of brands were actually chosen out of this short-list. Therefore, the battleground for brands was what they call the ‘active evaluation’ phase when people switch to shopping mode and draw upon past experiences, external influences and biases to list brands that could fulfill their needs.

I don’t disagree with their conclusion but, as a shopper marketer, I’m also interested in the 30% of brands selected later on in the journey. In between the lines, it tells me that activating shoppers along the journey to displace incumbents can generate positive outcomes.

Geometry: the levels of risk and involvement are key variables to segment purchase behaviors

Building on the analysis of 66,000 shopper journeys across 38 categories, Geometry found out that differences between categories and markets were based on the effect of only a couple of variables. The starting point is that no shopper wants to make a bad decision. Against this statement, Geometry identified two criteria that discriminate people’s behaviors: firstly, the level of risk associated with the purchase decision and secondly, the level of involvement in the buying process. When you map journeys against those two axes, three behavioral typologies appear: ‘guesswork’, which is low risk/low involvement; ‘copying’ which is some risk and some involvement; and ‘research’ which is high risk/high involvement. While diverse behaviors can be observed, understanding the dominant behaviors in a category and a market can help shape the overall strategy to meet the needs of the majority of shoppers.

Once again, this is a very interesting finding for shopper marketing: if the two variables above – or proxies – are present in your dataset, you can focus your activation efforts on the main behavior in your category and ultimately increase conversion.

The above paragraphs are only short summaries and I strongly encourage you to read the full transcripts and associated reports.

McKinsey podcast: “Driving business growth by zeroing in on the consumer decision journey“. December 2017.

Geometry webinar: “Shopper marketing: Purchase journeys, behaviors and pre-triggers“. September 2017.

*Disclaimer: Geometry is my employer at the time I’m writing this post but the views I’m sharing are my own and do not represent those of the company.