Where is behavioral economics headed in the world of marketing?


The Nudge blog sat down (electronically) with John Kenny, Senior Vice President of Strategic Planning in Draftfcb’s Chicago office, to explore whether behavioral economics is just a fad in marketing or a legitimate tool to help the industry perform better. Starting with the Institute of Decision Making, Draftfcb has been one of the leaders in thinking about how to incorporate the discipline of behavioral economics with the practice, and business, of modern advertising and marketing. Recently, Kenny has put together a set of video lessons that serve as a guide to using behavioral economics in their work. The interactive guide, called “Marketing to Crazy People,” can be found here.

Nudge Blog: Behavioral economists have long looked at marketers and advertisers as people who have been applying behavioral principles for years. With the rise of behavioral economics as a recognized discipline, how would you say marketers and advertisers look at the work behavioral economists do?

John Kenny: Your point about marketers having used behavioral principles for years is a critical one. Most marketers are looking at behavioral economics as something that will transform what they do, but in truth it helps them understand better what the best creatives have always understood, albeit unwittingly: That people are not rational. The best creative has always been built on that insight, and is inevitably more creative, more breakthrough, more persuasive and more effective. Behavioral economics helps us understand why great creative works. That’s a huge competitive advantage, but it’s a mistake to see it as changing what we do. It’s more about making us more effective at what we do.

NB: The term behavioral economics has been floating around the industry for a couple years now, and more marketers are familiar with books like Nudge. Is behavioral economics just going to be a fad? If it’s here to stay, what is the next step for behavioral economics in your industry?

JK: If anything, behavioral economics impact will only grow in the future, because it works hand in glove with the growing centrality of digital solutions in marketing. You can’t understand the success of digital platforms like Amazon, Facebook, Farmville, Nike Plus, and Groupon if you don’t understand behavioral economic principles like social proof, the impact of variable intermittent social rewards, feedback loops, and scarcity. Behavioral economics will increasingly be providing the behavioral insight that drives digital strategy.

NB: It can be easy to think about the relationship between behavioral economists and advertisers and marketers as a one-way street. Do you think marketing professionals can offer insights and lessons to behavioral economists?

JK: Where we’ve seen it work as a two-way street is when we invite academics into the marketing process. What they tell us is three fold. First, marketers give behavioral economists access to huge behavioral databases that scream for behavioral analysis. Second, marketers can give academics great opportunity to test their insights. Public policy is a tough place to try something new, whereas marketers will inevitably have far more license. Finally we find ourselves invited to give a lot of presentations at universities by academics. Marketing is a great way of introducing students to the pervasiveness of behavioral economics in the messaging that surrounds them every day, and get them interested in the field.

NB: Draftfcb launched the Institute of Decision Making in June 2010. Can you give us an update on its work over the past year? What’s on tap for the fall?

JK: When we started the Institute, our goal was to build bridges between academics and our clients, and that’s been a huge success. Now, coming off that, our focus in the coming months will be ensuring that behavioral economics is not see as a separate skill set, but one that all departments in the agency are familiar with, and that our planners see as a core skill set.

NB: What behavioral economics concepts have you found to be most relevant or powerful in your work? What value do you think BE brings to your work?

JK: When we first started applying behavioral economics to marketing problems, initially we thought it would be most appropriate in developing offers, but very quickly we realized that it was applicable to nearly every marketing problem, from driving engagement, consideration, conversion and loyalty, so it’s hard to single out one principle as more useful than others. Right now, one of the areas I most excited about is working with our mobile marketing practice and combining the opportunities available with mobile technology with our “addiction to now.” But come back in 6 months and I’ll probably be raving about another principle.

NB: How have you incorporated BE into some of Draftfcb’s campaigns? Any favorite examples?

JK: Three favorites come to mind: Probably the first time I realized that behavioral economics could drive big creative ideas, was when one of our creative teams brought us an idea for a client’s free WiFi offer, called “free WiFi in places you’d actually want to go” built off the insight that people will go to crazy lengths to get something for free, a key behavioral economic insight, but one that we hadn’t considered until one of the creative teams brought it up.

Within the digital space, one of my favorite applications has been in the area of couponing, which is typically very rational. But what we’ve been finding is that by making couponing social, people will eagerly share a coupon with friends even if it sacrifice a coupon’s face value.

(Note: Draftfcb combined a standard financial discount coupon with a lottery prize that had a social component. The marketers found that the lottery component made people far more willing to use and share the coupon, even though sharing it reduced any single person’s odds of winning.)

However, if I had a favorite, it would be the negative social proof leveraged in the campaign “Your Mom Hates Dead Space 2.” For guys the best way to persuade them that a video game is cool is to tell them their mom hates it. Really simple insight, but that’s the power of behavioral economics

NB: What has been the reaction to introducing BE concepts into pitches from chief marketing officers?

JK: Some are very interested, but ultimately what the care about is the work. Is it insightful? Breakthrough? Does it shift their business? That’s all that matters, the work. The fact that we are increasingly getting that work from starting in behavioral economics is interesting to them, but secondary. In marketing no one ever asks to check out the bibliography.

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