Ad expert reveals the most common blunders in marketing

Rory Sutherland: And my argument is that an invention isn't an innovation until it changes behavior. I think it's Stuart Butterfield of Slack who says something very similar. No, the only real measure of the effect you're having on innovation is the extent to which you change behavior. And you can invent anything you like, but if you can't get anybody to adopt it, it's an invention, but it's not an innovation. And what was selling steam engines to mine owners? And the purpose of the steam engine was to replace the horses they used to walk round and round in circles draining the mines so that miners could go in and effectively mine coal slate coal whatever without drowning. What he realized is that you could you as an engineer you could talk around you know the calorific capacity of the boiler or the length of the piston stroke or whatever and these people didn't want to know. So Watson and Bolton amongst themselves said, 'Well, what do these people really want to know before they're prepared to buy a steam engine?' They said, 'They want to know how many horses they no longer need to feed if they buy a steam engine. How many horses can I get rid of if I buy the steam engine?' So what went out and invented a unit we still use today, which is called the horsepower. And the reason it's not named after a famous scientist like the M or the Newton or the Koulom or the Watt for that matter or Celsius or anything of that kind is because it's a marketing unit. It was invented for marketing purposes because he could then go and say if you buy 25 horsepower steam engine you can actually get rid of 75 horses cuz I think the horses worked in shift. So it does the work of 25 horses but it does it 24 hours a day. So you can now get rid of of 75 horses. And these people would go scribble, scribble, scribble, scribble, scribble. Cost of horses, cost of feeding horses, cost of looking after horses. And you know, on the back of an envelope, they could then go, we'll have two of those. By the way, it went even further than that. I mean, the industrial revolution was a marketing revolution every bit as much as it was an industrial revolution because there was no point in being able to produce things in abundance if you couldn't create corresponding demand. So, you know, one of the things about the 18th and 19th century in England was it was an absolutely pioneering period in terms of how people marketed things and that included the steam engine where what and Bolton would go to a mine owner. Now, let me get this right. Some people were already using Nukeman engines which were less efficient steam engines than the Watt engine. and Watt and Bolton would go along to the people who are already using these inefficient steam engines and this is how they priced their their own steam engine. They said, 'We'll supply it for free. You pay us a third of the money you save on coal.' So it was literally hardware as a service. Bear in mind this was 1775. I mean years later Rolls-Royce started charging airlines for jet engines in the same way. Effectively, you pay us for every hour the engine is in service. Now what was ingenious about that was of course it aligned the interests of the people selling the steam engines and the people owning the mines because the people in the country where coal was most expensive most needed to make m to save money on coal that was Cornwall t where there were tin mines quite a long way away from any available coal field. So coal was more expensive there. And so the first Watt engines tended to be installed in places where coal was most expensive which meant the mine owners saved more money and Watt and Bolton made more money. So they were actually capturing the upside.

Rory Sutherland: I make the same point about electric cars, which is you have this thing called range anxiety, and we're spending billions and billions of dollars a year trying to produce batteries with a higher energy density. It's a really good thing. I'm not I'm not saying, 'Hey, engineers, you're wasting your time.' But isn't it cheaper just to reduce anxiety rather than to increase range? Because if the way to reduce range anxiety is always to increase range, we'll end up with electric cars being heavier than they need to be, more expensive than they need to be, and you know, with 50 kwatt hours sitting outside your house 95% of the time effectively doing nothing. So reducing anxiety and I realized by the way how irrational this is and I explain the story which is it it fascinates me because one of the things I think that helps if you want to do this is to have some degree of metacognition. which is you don't just think, you think about your own thinking. It's apparently true of fighter pilots. The really good fighter pilots have good cognitive skills, but they also have good metacognitive skills. They don't just go, I'm going to do that instinctively, but they also ask, 'Is there a reason why I shouldn't be doing that in this instance?' Okay? Or this time it's different, as it were. And so my wife's car is a Mini Kooper electric and it's got about I I guess it's about uh 28 30 kWh battery and a range of about 100 miles. And I've got the Lotus Electray which is 112 kWh battery, a range of about 300 miles. And I got back from quite a lot of driving. I've been down to Wales and back and the car's down to 16%. Okay. And I'm going and all the lights have gone amber because it's at 16%. And I'm get I'm I'm going white knuckle on this. I'm going god I'm down to I'm 16%. Oh my goodness. I was down to 16%. Then I look at the actual range and it's about 58 miles. Now my wife's car that's 56%. Okay. In my wife's car we drive around at 56% i.e. with a range of 56 miles all the time without the slightest smidgen of anxiety. But when that's expressed as 16% not 56 miles, okay, I'm suddenly having conions and really panicking. Now, what that suggests is that range anxiety is much more a factor of psychology than it is of physics. And the problem with trying to increase battery range is that laws of physics are actually kind of set in stone to a large part. Okay? There's not much you can do about the laws of physics. Whereas the laws of psychology are magnificently malleable. And so that's the thing that really interests me because we spend a lot of time effectively trying to uh work within the laws of physics which are immutable when it would be a lot easier just to say actually you know why don't we why don't we take this undesirable thing and make it cool right?

Rory Sutherland: Richard Thaylor the Nobel prizewinning economist and behavioral economist the author of Nudge. He once spoke to a board of about 10 people very large company. And he goes to the eight heads of the largest divisions of this company and he asks them all simultaneously a question. Would you take a decision if it had a 50% chance of increasing your profits next year by 50% and a 20% chance of reducing your profits by 30%. And six out of the eight of them said no. And Thaylor goes back and says well you know you're all good enough mathematicians I assume to realize these are highly favorable odds. to a gambling man, you know, this is a very very good bet and yet you declined to take part. Why is that? And they reply six out of the eight of them uh because uh 20% of the time or 30% of time I'd lose my job. And then the interesting thing happens which is the chief executive is sitting at the end of the table and looks a gasast at the eight people and goes but I want all of you to take those odds because net net in aggregate we'd almost certainly end up massively better off. Yes, two divisions, one division might have a slightly disappointing year but four of them would perform spectacularly. And you realize that the way that businesses are structured, as you push responsibility and accountability further and further down the organization, they become more and more risk averse and they become more and more uncertainty adverse. So they would prefer a definite 5 to 10% to a probabilistic a 50% chance of 50%. And what happens then is that you fundamentally you become highly conservative. You're more worried about downside avoidance than you are upside opportunity. And as a result, obviously both innovation and marketing, I would argue, are fat tailed activities where 10% of what you do is probably more valuable than everything else. You know, you can't tell in advance which 10% it's going to be. They are processes of exploration and discovery. And what you do is you get rid of the discovery layer in the pursuit of efficiency. And in the short term it looks like a great idea but in the longer term it's it it proves fatal I think because you've lost the capacity to adapt to reinvent to reposition in pursuit of the occasional um the occasional breakthrough.