The Warc Blog

Can Behavioural Economics help explain shifts in the Market Research industry?

Posted by: Edward Appleton, Senior Manager Consumer Insights, Coca Cola Gmbh

Blog author

I've recently completed the 2nd Week of my online course on Behavioural Economics given by the renowned Dan Ariely. Week two was all about "The Psychology of Money". (You can read about the first week of the course here.)

What did I learn? Here's a short summary, aided by a few refresher views of the relevant Lecture sessions:

  • The greater the number of choice options in a given category, the higher the likelihood that we will become confused and buy less or nothing. However, there may be an optimal number of choices, after which purchasing activity drops off.
  • Contrary to what classical economics posits, we do not tend to calculate "opportunity costs" prior to making a decision. If we are sensitised to what else we could do with the same amount of money, it can lead to us avoid a purchase, or trading down.
  • Free is a special price point, leading us to especially irrational behaviour, whereby we only see the benefits, and are blind to potential cost.
  • Losses make us more unhappy than gains make us happy. 
  • We're happy paying more for something that seems to us to have involved effort.

The whole chapter left me feeling slightly uneasy - especially the points made about the value we attach to "free". The course he's offering is free - is there a catch involved? Are we being encouraged to blind ourselves to any potential costs? 

On a less meta-level, I wondered what these BE findings would tell us about the industry movements in Market Research. Here's my take.

1. The Pace of Change to New Market Research is partly driven by Loss Aversion.

I occasionally hear or read about New Market Research agencies wondering about the surprisingly slow movement towards new techniques, given the apparent advantages and assuming cost-parity. Loss aversion perhaps explains this in part: MR Clients are reluctant to give things up, and attach a higher value to the things we "own" (the procedures we have learned over the years) and downweight the benefits of the new.

I didn't see any suggestions in the Course about how to accelerate openness to change - or countering loss-aversion. No doubt those reading this in the business of Communications and Marketing will have some ideas - thanks for sharing.

2. The Shift to Online has reduced our Willingness to Pay more for MR.

Dan Ariely points out that when fixed costs are high - as with ATM machines - and marginal ones low, then our willigness to pay is diminished. We don't see any effort going in, and psychologically don't reward efficiency - even if that is irrational. The example given of a lock-smith that got better tips when learning his trade - though very slow and inefficient - than when he was expert and speedy in getting the job done is salutary, and mildly depressing.

In MR, the whole shift to online, away from one's mental picture of interviewers on the phone, in the street, patiently waiting to fill their quota, in all sorts of adverse weather conditions - has in effect diminished our willingness to pay for something, as we don't see or imagine the effort. 

3. DIY doesn't just cost less, it heightens our aversion to Paying for Options that Cost Anything.

According to this course, it would seem that DIY is more of an enemy to MR Agencies than I had originally thought. My position up until now is that DIY can be a good thing - it allows more research to be done, and as long as fit for purpose, and carried out with an understanding of the limitation and risks, is not something to be demonized. 

The example of "free" in the course suggests that once something is offered for free, demand shoots up, regardless of any potential costs - time, for example - and to the extreme detriment of anything that costs money.  What also happens is that once people have sampled free, it is very difficult to get them to go back to paying.

This has immense, not to say grave,  implications for MR. I very much doubt that online is going to disappear. Other industries - publishing, newspapers - are presumably much further down this road with "free" online content and paywalls, advertising and subscriptions. Curious if anyone has any experience they can share that go into more detail on this complicated topic.

Overall, the chapter left me feeling hungry for more in-depth, perhaps (dare I say it) nuanced explorations of the psychology of money. I wondered if the experiments were sometimes a little far from real-life situations - many of us believe that there is "no such thing as a free lunch", for example, that there is always a hidden cost attached to something. We become suspicious. We also know as consumers of media that the price of "free" means advertising of some sort. To me it's an immensely complex area, and something I definitely wish to explore further.

Debt consciousness is also something I wished the course had touched on, as it is a major problem for many societies and individuals. How might the BE insights apply to real-life situations to the benefit of society overall ? Deferring payment, for example, is something BE highlights as a way of minimising the pain of paying - that is precisely what Credit Card companies have known for decades and exploit to their own advantage. 

I would also welcome any inter-cultural experiments done on the topics touched on - attitudes towards money and debt differ extremely by culture.

That said, it's a great course, and a great learning process.

Curious, as ever, as to others' views.

10 April 2013 18:28


There are 2 comments on this blog

Great write up Edward.

I remember seeing you on a client panel a while ago talking about how annoying long research debriefs are and how short ones are much preferred.  I wonder if in writing long debriefs research agencies could be pre-empting the locksmith's dilemma i.e. feeling pressurised to demonstrate value for money through the sheer amount of visible effort, and whether some clients would feel short changed getting something only 20 slides long?

I'm certainly not defending this position - succinct debriefs take longer to do and provide more value - but looking for an explanation for this behaviour.

Interesting too in proposals - should agencies emphasise the amount of work required or instead emphasise the value generated?  Or put another way, should they calculate costs by adding up number of hours work it would take (like we used to do back in Research International) rather than estimate value created relative to competitors? (hard to do without price transparency)

In terms of free things not turning back, interesting to see in the news the other day that in the US newspaper subscription revenues increased for the first time in 10 years:
Peter H. 10 April 2013 at 6:56pm
Hi Pete, thanks for your comments - very interesting question. Speaking for myself, and I would definitely re-affirm my preference for a concise, action-focussed summary of findings rather than a huge pile of descriptive stats, many of which are not that powerful. Howvever, I have more than once come across cases where a "feel the weight" approach was taken to read-outs, and there didn't seem to be any push-back from the clients involved. Wonder if any studies of this phenomenom have been done anywhere in the world - cultural differences may also play a factor.

Does this mean I value the services of the shorter summary less? Not at all. What counts to me is the ability to be precise, to suggest signals versus noise, dare an interpretation in pattern recognition - based on a thorough knowledge of the inputs. Flimsiness doesn't inspire confidence - conciseness suggests an ability to sythesise, filter, focus, valuable qualities.

So either I seem to disagree with Dan's findings, or it's a combination of a sense of the work gone into providing a concise summary that conveys a sense of solid value - perhaps locksmiths don't have the opportunity to convey that, which Researchers might do (read it in the Appendix.....)

Curious if other people have views on what is a great question.
Edward A. 11 April 2013 at 4:22pm
Comments IconAdd your comment here:

Blog Search