Linking marketings contribution analytically to commercial results is critical in helping business growth and in demonstrating that the marketing function produces more than just intangible benefits as a result of decisions made on the basis of gut feeling. Yet the psychology of human decision-making should never be ignored. Managers may in public claim that a strategic decision is based on empirical evidence; in private, however, they may be more willing to admit the role of intuition in their decisions. There are in effect two brain systems that control our decision-making: one, the limbic part of the brain, operates swiftly and automatically with no sense of voluntary control and is thus open to situational biases and errors; the other, the neo-cortex, is deductive and controlled but requires conscious motivation to be activated and is slower to reach decisions. Managers need to be aware of the way the brain works when making decisions.
This article explores the thinking or cognitive biases that affect business decision-making and may have the effect of constraining a business’s growth. The four main obstacles to effective decision-making are:
• cognitive ease;
• loss aversion;
• anchoring the value of a brand.
In a world where decisions have to be made with imperfect, limited information under time pressure, human decision-making has developed shortcuts for judging the believability of any piece of information. Decision scientists call this cognitive ease or fluency. Put simply, cognitive ease or fluency is how easy the brain finds it to process a piece a piece of information. People naturally prefer things that are cognitively easy rather than demanding, but this preference can result in erroneous decisions. Cognitive ease helps explain real-world puzzles such as why people are more likely to invest in companies with easy-to-pronounce names.
The cognitively easy message here is that the simpler and more believable a business case is, the more likely it is to get approval; in other words, a chief executive is more likely to be swayed in support of a marketing proposal by three clear reasons than ten complicated ones.
“Losses loom larger than corresponding gains,” says Daniel Kahneman, a Nobel prize-winning psychologist, in his book Thinking Fast and Slow.
Loss aversion is a person’s belief that losses are perceived as far greater in their mind than the equivalent gains. This results in an overly cautious outlook for businesses even if you’re a marketing agency Hull. If a company attempts to change customers’ buying patterns there is potential for gain, but there is also the risk that they might be turned off the brand. Loss aversion can stifle change and growth.
The representativeness rule of thumb
Representativeness is often used as a rule of thumb to judge the likely success of a brand extension based on others’ previous experiences. There may appear to be no reason for a business that is capable of providing well-made cheap underwear not to do so, but whether people will buy Bic underwear will depend to a large extent on whether the brand seems representative of underwear. Bic may have been encouraged to venture into clothing by the success of Caterpillar, a maker of diggers and heavy machinery, in stretching its brand to footwear, including women’s sandals. But Caterpillar’s extension into women’s sandals makes sense because it was another step in a carefully staged journey of extensions for the brand. From industrial diggers, the company extended first into metal-tipped work boots – essential for any worker manning such machinery. As is often the case, work boots were worn outside the building site and became desirable footwear for anyone who needed strong foot protection or simply liked the styling of a heavy-duty boot. As Caterpillar became known for high-quality functional footwear, the proposition was re-engineered for a more mainstream market and then as a natural extension into the functional women’s wear market. This is why it makes sense to customers that an industrial digger brand can make women’s footwear. Bic’s adventure into underwear turned out to be too big a stretch for the brand – at least in one leap.
Anchoring the value of a brand
Choosing the right frame of reference or anchor is essential when making decisions related to a brand. In a classic research experiment, two groups of participants were asked to estimate the number of African countries that were members of the United Nations. Before the question was posed, each group of participants was in passing given the atomic weight of a chemical element, one a high number and the other a low one. Those given the high number estimated a much higher number of African countries than those given the low one. The irrelevant information they had been given about atomic weights had acted as a reference point – or anchor – for their answers.