Knowing and Making

I had a very interesting conversation yesterday with the head of a branding agency who shares our vision of developing a scientific foundation for the practice of marketing. My view (and that of Rory Sutherland of the IPA and Ogilvy) is that behavioural economics can provide this foundation. But as a discipline, behavioural economics is not yet mature. It has a hole at its centre which needs filled before we can genuinely say that there is a science of marketing. Filling this hole is the goal of my research and this article outlines how it can be done. The key step in the development of behavioural economics is to close the gap in our understanding between neuromarketing and phenomenological descriptions of behaviour. The practice and underlying science of marketing can be represented as a multi-layered set of disciplines, from highest to lowest level: The craft and folk wisdom of sales and marketing Experimental phenomena from behavioural economics ??? Neuromarketing and the applicati...

There's lots of Bryan Caplan I don't agree with, but I can't deny he has some interesting ideas and a good way of thinking about them. The connection between growth and ideas is not so much logical as psychological. It is not logical for people to embrace counter-productive ideas just because conditions are getting worse, but they seem to do it anyway. This is from a paper on idea traps which is the concept that a society can get stuck in a sub-optimal equilibrium where the economic ideas that it runs on are flawed, but do not self-correct. My own experience of this is a paradox based in the economic situation in the UK right now. Logically, when there is low demand in an economy companies with a fixed cost base should spend more on sales and marketing. (This might not apply to firms which can easily scale down their costs - you can argue that the marginal return on sales spending is lower and therefore the optimal spend is less. But most companies are retaining most of th...

This blog has two primary themes: behavioural economics the economics of knowledge I believe they are closely linked, because behaviour is derived from the knowledge that people have about the world (or more strictly their mental model of the world , which may not actually be accurate knowledge). Knowledge, in the economy, is influenced by many things. But at least one type of entity specialises in influencing it: the knowledge firm. Knowledge firms include professional services firms, consultancies, marketing and media companies. Their distinguishing characteristic is that their work is not about manipulating physical objects but influencing the minds of people. This is done by creating messages and communicating them. Therefore, knowledge firms are in the business of second-order influence of behaviour . Traditional firms offer products to which people respond based on their existing perceptions and preferences. Knowledge firms actively change the perceptions and preferences that peo...

This article is from October, but germane to my discussion of fiscal salesmanship. Cass Sunstein: Wall Street's Lemmings : Why policymakers need to understand psychology as much as economics to solve the financial crisis. A couple of comments below the article point out that psychology is not the only  cause of the financial crisis, but Sunstein is not claiming that. Undoubtedly it makes a big contribution and turning it around (he uses the example of Roosevelt, maybe the best fiscal salesman ever) is within the powers of politicians - Barack Obama of course being the one most capable of it, for many reasons.

I’ve been thinking more about fiscal salesmanship – the concept that people will not just spend their fiscal stimulus – it has to be structured or presented in a certain way. I asked myself, as an entrepreneur, what would I do if I wanted to change the behaviour of a large group of people? I would do some marketing. People don’t just respond to pure incentives. Of course incentives do make some difference; when a consumer decides what to spend in the shops today, one of the factors will be that most products are 2% cheaper. But it’s only one of many influences, and people simply don’t have enough processing power to automatically incorporate all available incentives in their decision-making process. Indeed, financial incentives can usually be overridden or even inverted by the right kind of sales or marketing effort. BMW salespeople don’t cut their prices because of the signal it might send about their quality. Ryanair makes people think it is the cheapest airline by the clever ploy of...

All the recent news in software has been about putting established categories of application software online. Online CRM software - salesforce.com. Online project management software - Basecamp. Online accounting software - Xero, Freshbooks, FreeAgent. Online ERP software - SAP Business One and Netsuite. Office productivity software - Google Apps. Email software - GMail. Even Photoshop has online competitors - Picnik (among others). This will continue, and I think most observers agree that desktop and client-server software in these categories will gradually be overtaken by the online/SaaS alternatives - though Microsoft Office will probably hold out longer than most. But when was the last time a genuinely new category of software became prominent? Think of the main categories of software: - CRM - ERP - Office suites (which used to be several separate categories: word processors, spreadsheets, presentation software) - Project management - Drawing and graphics - Email clients - W...