An episode of the U.S. version of the television comedy, The Office, involves a Halloween costume contest at the paper supplier Dunder Mifflin. The top prize is a discount book offering coupons from local businesses. The retail cost of the book is $40.00 that offers $15,000 in savings if all coupons are redeemed. One character on the show, Oscar Martinez, is an accountant who takes exception to the irrational exuberance of his colleagues towards this prize.
The employees throw themselves into the contest. They produce topical and highly detailed costumes to best each other. The competition dominates the workday. Oscar’s frustration grows to the point where he challenges their thinking, “Everyone realizes this coupon book is not actually worth $15,000 right? You would have to spend $200,000 on crap you don’t need to get $15,000 of benefits. I am not the only one who sees this, right?”
Apparently, he is.
The employees escalate the competition by upgrading their costumes and strategizing how best to present them. Oscar tries one last time to educate his colleagues on the economics and their behavior. They aggressively rebut or outright disregard his argument.
To them, the coupon book represents $15,000 in real value. Oscar chooses to confront this irrationality head on. He switches from a colorful disco themed dance outfit to a very staid and generic ensemble worn by an everyman. Oscar explains to his colleagues using air quotes that he is now a “rational consumer”.
The contest commences with the participants showing off extremely elaborate creations including a samurai, Lady Gaga, a mummy, film director Michael Moore and a sexy nurse. Each employee casts a vote for the winning costume and to everyone’s surprise Oscar wins but the victory is greeted with little enthusiasm. The show cleverly reveals that the reasons why people voted for Oscar were as irrational as their view of the prize.
Given our confusing behaviors, it should come as no surprise that the earliest writers in marketing were psychologists. Understanding why people do what they do is at the heart of marketing. Yet, marketers constantly struggle to better their performance.
They employ numerous tools and techniques to inform, guide and substantiate marketing decisions, but predicting how consumers will react to and interact with brands is difficult to pattern. In fact, less than 20% of product launches succeed in the United States even when their concepts are researched and tested extensively prior to introduction.
When Steve Jobs was asked how much consumer research played a role in the launch of the iPad, he replied, “None. It isn’t the consumers job to know what they want.” Jobs was stating a commonly held belief held by many companies that consumers couldn’t identify the deeper desires that explain their needs and wants. A few decades before Jobs there was Akio Morito, co-founder of Sony, who advanced the same view saying, “The public does not know what is possible, we do.”
This is a strange tension and adversarial situation that exists between companies and consumers. Companies claim that consumers are irrational and unpredictable, while consumers say companies can be arrogant, unresponsive, confusing and deceptive.
The fact is, the world has become a faster, more complex place. Everyone faces a daunting slalom course of options and decisions each and every day. We live in a world where there are 17,000 new food products introduced each year and people on average make 30 to 40 food choices every day. It is overwhelming and confusing.
A fascinating aspect of our behaviour is how we react to pricing. If an examination of consumer behavior and pricing proves anything, it is that people decipher value in very different ways. Derek Thompson’s writing for The Atlantic expressed this very well, “consumers don’t know what the heck anything should cost, so we rely on parts of our brains that aren’t strictly quantitative. Second: Although humans spend in numbered dollars, we make decisions based on clues and half-thinking that amount to innumeracy.”
A curious example of this innumeracy came from a study by GroupM Next that looked at various discounts. It proved that shoppers are both rational and irrational at the same time. The study found that 45% of customers would leave a store if they found the same item at a 2.5% discount while comparison-shopping on their mobile device. And, as one would expect, more shoppers would leave the store with progressively higher discounts.
GroupM Next found that 87% of customers would exit the store for a 20% saving. This means that nearly 9 out of 10 shoppers would exit a store if they found the same $1,000 refrigerator offered somewhere else for $800. This makes sense because a $200 savings is compelling. Yet, 10% claimed they would complete the purchase in the store regardless of any discount!
Those people are willing to pay a significant premium for instant gratification and perceived convenience. To them, their choice is rational though more expensive.
This type of thinking is not a product of modern times. A poem by 3rd Century BC poet Herodas colorfully describes the haggling and shoe buying process in ancient Alexandria. A woman named Metro and her friends visit a shoe shop run by a man named Kerdon.
The retailer’s name translates to “Mr. Profiteer” so Herodas is having fun in this satire. Kerdon employs various sales techniques including offering the ladies complimentary beverages. He ensures their comfort with pillowed seating while making extraordinary claims about the styles, quality and unique colors of his shoes. Along the way Kerdon provides a sob story about his hard life and the large number of dependents who are counting on him. The poet makes it clear that Kerdon’s sales pitch is well practiced and largely inauthentic.
The shoppers frustrate Kerdon by asking to see every manner of footgear he has in stock. The fickle and trendy ladies evaluate all that he has to offer including slippers, scarlets and flats. He tries to entice Metro and her friends with branded Argive sandals that are the new, new thing.
These society ladies are savvy consumers. They haggle on price out of principle but are influenced more by the desire to stand out at an upcoming festival. Metro and her fellow mallrats end up buying shoes that will make an impression. As it turns out, price is a small consideration when compared with their personal vanity and desire to attain social cachet.
Status, prestige and honor have long prejudiced lucid thinking. Metro’s new shoes may have served the practical purpose of protecting her feet but they were the equivalent of today’s Manolo Blahnik fulfilling an intangible purpose and justifying a higher price. Thorstein Veblen identified this thinking and behavior in his 1899 book, The Theory of the Leisure Class, “the objects of conspicuous consumption must be wasteful, or possess no useful value, in order to reflect credibility on one’s reputation.”
One of the more bizarre demonstrations of affluence and higher social status ever recorded is attributed to Cleopatra who had a pearl dissolved so she could drink it. She also commissioned her own brand of lipstick consisting of crushed ants and deep red carmine beetles.
Colonial women at the time of the American Revolution regularly spent a full day and a hefty sum getting their hair “permanented” for special events. These same ladies sought to preserve the appearance of youth by acquiring expensive “paints” from China and lip salves from India. This behavior continues today with people boasting on Facebook that they have drunk an exorbitant ounce of scotch or even more remarkably a $666 dollar hamburger.
Surprisingly, this high-priced burger comes from a food truck. It is the creation of Franz Aliquo and is served from his 666 Burger mobile restaurant in New York. It consists of “a Kobe beef patty wrapped in gold leaf, foie gras, caviar, lobster, truffles, imported aged Gruyere cheese, melted with champagne steam, a kopi luwak barbeque sauce and Himalayan rock salt.”
Mr. Aliquo describes the world’s most expensive burger nicely, “It consists of a fucking burger filled and topped with rich people shit.” Franz’s observation is a great summary of the irrational human behaviour that will continue to confound consumers and marketers alike.