Is the Behavioural Lens Out of Focus?

IPSOS VIEWS #5 June 2016 IPSOS VIEWS Is the Behavioural Lens Out of Focus? How to make behaviour work in CPG, financial services, technology and retail By Pascal Bourgeat Director of Behavioural Science

IPSOS Is the Behavioural Lens Out of Focus? VIEWS Is the Behavioural Lens Out of Focus? Using behavioural science to get closer to the consumer. FOREWORD Before psychologists and neuroscientists came onto the mechanisms underlying behaviour are unlikely to stage, Shakespeare’s Hamlet, Prince of Denmark was the change any time soon. best reference to understand our deep dislike of uncertainty and how it shapes our behaviour. Experimental psychology As interest in behaviour continues to gain momentum, and more recently neuroscience have not replaced Hamlet anything and everything is being said about how but they have enriched our view of behaviour, especially behaviour works and what those mechanisms are. behaviour within the context of uncertainty. They have Business publications like the Economist, HBR also changed how we look at ourselves as consumers, (Harvard Business Review) or McKinsey Quarterly shoppers, customers or citizens. have pushed their own view of (economic) behaviour in the wake of popular books by Daniel Kahneman, In this Ipsos Views paper, Pascal Bourgeat takes the Gerd Gigerenzer, Richard Thaler or Dan Ariely. The helicopter view of behaviour to show that the lens we use hullabaloo in the public space and among professionals is often out of focus and why. He then sets out to show a about irrationality, the role of emotion, cognitive bias simpler and clearer view of how (economic) behaviour works and auto-pilot behaviour owes as much to watering from the overlap of various areas of behavioural science, down what research actually shows as to focusing and presents examples from different industry sectors. on one area of behavioural science at the expense of There is much to gain from having the right picture resolution everything else. For all the talk about cognitive biases when we set out to influence behaviour. For it is when we and consumers, the faddish view of behavioural fit most closely around the way consumers, shoppers and science among professionals is itself very much customers ‘construct decisions’ that the creativity in our shaped by conformity bias, availability bias, availability interventions, actions and campaigns is most effective. cascade and bandwagonism. In this paper we examine some of the many lenses available to look at behaviour and decision-making in The behaviour lens is unbalanced particular and how they create different perspectives on behaviour, sometimes at odds with each other. However from the overlay of these lenses emerges Renewed interest in behaviour (or more precisely its a view of decision making articulated around three mechanics) is taking place at the right time. Digital major forces (maximisation, emotion and effort). technology is disrupting many sectors as it transforms We provide a series of examples of those forces at so many aspects of our lives: how we learn, how we work in consumer packed goods (CPG), service search, how we form relationships, how we shop, sectors, technology and retail. Finally, we examine how we keep fit, how we drive, how we work, how we how different types of research from observational to connect, almost everything from the time we wake up experimental, from quick surveys to the combination of to the time we go to sleep. As we constantly change neuro-measurement methods and an increasing array our environment, our behaviour keeps changing as of digital tools fit within this simple view of decision- we adapt to new environments. Yet, the behavioural making and helps find ways to influence and change behaviour more effectively and more efficiently. 1

IPSOS Is the Behavioural Lens Out of Focus? VIEWS Many lenses, many views Rationality and reasoning There are many lenses we can use to look at behaviour beside Cognitive psychology has had a major impact in its foray behavioural economics, an area of behavioural science that into judgment and decision making. At times, this has led to has gained much visibility over the past four years although confusion and uncertainty given over twenty-five theories or the breakthrough research took place over thirty years ago types of theories about cognition and behaviour elbow each and Nobel Prizes linking economics and behaviour were other within a kaleidoscopic view of behaviour. Dual process awarded in 1978 (Herbert Simon), 1992 (Gary Becker), 2000 theory (DPT aka system 1 / system 2 now redubbed type 1/ type (Daniel McFadden) and 2002 (Daniel Kahneman). 2) has benefited from visibility outside academic publications and conferences. DPT contrasts two types of ‘thinking’: the Does economics have anything of value to say or was it just a first type relying on automated processes and the second type fantasy view of economic behaviour? Consumer psychology, requiring controlled and more effortful processing like reasoning. cognitive and social psychology, human ethology and the Often, the interpretation of DPT is that decision-making is neurosciences are all deeply rooted in experimentation. But irrational because it relies on automated or subconscious what do they say about behaviour that can shape our view of processes and conversely reasoning is equated with rational behaviour in a practical way? outcomes. Yet, rationality is about how reasonable outcomes are within the decision context, not whether we engage tight reasoning processes or not. Besides, casual observation of Behavioural economics points to our own lives reveals how excessive consideration and over- analysing lead to poor outcomes (or even paralysis e.g. the “limitations in our willingness and ability choosing-feels-like-losing situation). And conversely, relying on past experiences and gut-feel with little or no upfront reasoning to behave as maximisers and shows can lead to sensible, rational outcome (especially to avoid poor decision making does not always reflect decisions). As Kahneman put it in 2003 in a summary of his “ work for the American Economic Review: “attention and effort consistent and stable preferences... by themselves do not purchase rationality or guarantee good decisions. In some instances, too much cognitive effort actually lowers the quality of performance. There are other situations in which skilled decision makers do better when they trust their intuition than when they are engaged in detailed analysis”. Economics was first under the spotlight. Arguably, it was a sitting duck because it imagined a world where everyone Often lost in translation here is that the “coherence-rationality” forms “consistent and stable” preferences and behaves as a espoused by economics is not the same as the “reasoning- perfect ‘maximiser’ all the time (always choose best) in a world rationality” of interest to psychologists. More from behavioural where all choices are only about self-interest. science has been lost in translation, for example: Behavioural economics points to limitations in our willingness and ability to behave as maximisers and shows decision making does not always reflect consistent and stable preferences (especially in situations of risk or uncertainty) as evidenced for example by loss aversion or framing effects. 2

IPSOS Is the Behavioural Lens Out of Focus? VIEWS • feeling can be seen as a different kind of Understanding how the internal forces ‘thinking’ from reasoning; “that shape our behaviour interact • people engage both types of reasoning processes in many (but not all) situations with specific circumstances (social, with the controlled system overriding quick temporal, situational, cultural, physical, impressions; “ • both conscious (deliberative or reflective) etc,) is the key to influencing behaviour. and non-conscious processes are at work in consumer decisions; and • processes that are merely automated by behaviour is examined within the particular context in which it habitual behaviour are not unconscious in takes place (or doesn’t). Understanding how the internal forces the same way as Freud’s Unbewusste which that shape our behaviour interact with specific circumstances has more to do with deep motivation (power, (social, temporal, situational, cultural, physical, etc.) is the key to belonging, enjoyment, control, recognition, influencing behaviour. security, etc.). Auto-pilot behaviour can rise to consciousness whilst hidden motivation There is a tension between the narrow view of economics (the remains just that, hidden (at least to ourselves). rational-agent model) and the more fluid view from behavioural economics and psychology. It is the contrast between those two perspectives that obscure our view of behaviour. Everyone agrees people want to make good decisions, either Behaviour in context consciously or not, at least choices that they are happy with. The broad idea of maximisation makes sense intuitively and Besides, human ethology shows that behaviour is adaptive is not rejected by experimentation. Ipsos has conducted given our curious and experiential nature and our exceptional over 40,000 studies on the adoption of innovation in CPG, ability to learn: the shortcuts we use on auto-pilot are service sector, technology, durables and more by developing as much the “tools that make us smart” as they are the predictive models of behaviour assuming people behave like processes that can lead to ‘sub-optimal’ outcomes (usually maximisers. Overwhelmingly, these models have predicted in- in the presence of risk and uncertainty). If we are intent on market behaviour very well which makes it difficult to conclude influencing and changing the real life behaviour of shoppers, that economic behaviour has nothing to do with some form consumers, customers, patients or health care professionals, of maximisation. At the other end, reducing behavioural there is nothing much to gain from benchmarking observed economics to “cognitive illusions” creates a view of people as behaviour and how we form impressions and preferences to a “pile of quirks” and ignores their conscious or unconscious some normative fantasy of what behaviour ought to be like. attempts at maximising the value of their choices and the On the other side, the gains for practitioners are substantial if underlying efficiency of decision processes. 3

IPSOS Is the Behavioural Lens Out of Focus? VIEWS Illustration of the tension between economics and On the side of behavioural economics we have to put in behavioural ecnomics. On the economics side, we have • Our ability to choose best is limited, it’s not • I am a perfect maximiser about maximisation • Preferences are constructed ‘on the fly’ • My preferences remain the same and choices change with context and perspective • Choice is driven by self-interest but in a • My choice is only driven by my self-interest social environment Decision making and efficiency A second series of lenses comes from consumer psychology and increasingly neuroscience: consumer psychology highlights the ‘constructive’ nature of consumer preferences in the choice process (they are formed ‘on the fly’) and how consumers try and minimise cognitive costs. More recently through a series of experiments, neuroscience showed the role of glucose metabolism on the use of full-on reasoning vs shortcuts in decision making (going for shortcuts or full-on reasoning is not independent of how much glucose runs in our blood because it impacts our performance. In addition, neuroimaging points to automated processes as being driven by economy not speed (lower brain activation for automated tasks indicates less effort required). These lenses mark efficiency as a major force in decision making and choice processes: Ipsos looked at shoppers in a frequently purchased category of food products from many different angles: observing their journey through in-store cameras, using eye tracking devices and conducting in-aisle and exit interviews. The results provide evidence for maximising behaviour as well as store and shelf design making attention and purchase behaviour easier. Me and we Finally social psychology contrasts self-interest with ‘social interest’, looks at the discrepancy between our ‘actual self’ and ‘ought self’ (duties and obligations at work or in society) and describes individual decisions and choices shaped by conformity, compliance, imitation and reciprocity. And evolutionary psychology tentatively shows how competition (selfishness), cooperation and altruism (selflessness) are all adaptive traits that benefit individuals in different circumstances. The evidence from the neuroscience of ‘mirror neurons’ and social cognition points to a brain wired for social behaviour, including economic behaviour. Each one of these fields provides a perspective on decision-making and choice processes. These fields overlap of course but they all pull in a particular direction (maximisation for economics, errors in reasoning and hazardous shortcuts for behavioural economics and cognitive psychology, the impact of the group on individual choices for social psychology and the drive for efficiency for neuroscience and consumer psychology). So what picture of decision making and choice emerges from all the different strands of research? 4

IPSOS Is the Behavioural Lens Out of Focus? VIEWS SAM: a balanced view of In other cases customers are driven by a desire to avoid stuff- ups: at Ipsos we have found a clear contrast in customer behaviour behaviour between sectors of financial services where the consequences of poor decisions are high like mortgage When these different lenses are superimposed, a simpler and choice or wealth management vs others like credit card clearer view of economic behaviour becomes apparent: three or online savings account. For the former, making the best key forces shape decision and choice processes. Shortcuts possible decision is only a distant second priority to not and biases find their place in this view and we gain a more making a poor decision. unified view of behaviour: it is one of efficiency, not perfection vs flaws in rationality or emotion vs reason. Self-interest (me) is increasingly influenced by ‘me and we’ considerations that are fuelled by hyper-connectivity, a The SAM consumer Seeks to maximise, wants to Avoid desire for transparency and a fresh sense of activism. For negative emotion and Minimise effort (SAM). When behaviour the launch of its plug-in C-Max car, Ford enabled people in is seen from the perspective of how those three internal forces 10 cities around the world to create their own animation and shape our behaviour in a particular situation, social context or be part of a shared story using La Linea, an old animation set of circumstances, which reasoning processes we engage character and the idea of plug-in. So maximisation is driven in decision-making, which shortcuts we turn to and which by what we need or desire as individuals but tempered by biases are at play, we move from behaviour as a “pile of quirks” surface and deep currents of social norms and our enduring to behaviour as decision-processes and outcomes in context. need for belonging. 1. Seeking maximisation Context colours decision situations, how we form impressions, preferences and choices. There are multiple Maximisation looks different from that of economics once facets to context that can be used on their own or in the lens from psychology is added: combination to impact impressions and decision processes: moment and location, time pressure, complexity and Maximisation is not about choosing the best in all uncertainty of situation, presentation of options, social and circumstances but making decisions that we are personal, culture, physiological or mental state, etc. French happy with (and sometimes not unhappy with). Hence fashion label Pimkie has teamed up with Hotel Banks in consumers can seek to maximise very tightly or simply try Belgium to create fashion mini-bars. The range of apparel and avoid poor outcomes … and anywhere in between. and accessories is chosen in light of weather and local It is a much more elastic view of maximisation and allows activities. Hotel customers are free to use the items from the for consumers behaving as effective maximisers in some mini-bar and purchase them on check-out. cases: for examples, eye-tracking studies reveal maximising The ‘hot cognition’ research points to the relationship behaviour as ‘eye fixations’ move between mainstream between mood and how we process situations (more brand and its private label look-alike on shelf. If the eye is holistically and superficially, less analytically). An Ipsos R&D not a window into the soul, it is certainly a window into our experiment using a range of biometrics and other measures mind and the processes at work. (eye-tracking, heart rate, galvanic skin response and voice pitch) shows that handing out a flower to shoppers as they enter the drinks aisle in a large grocery store: 5

IPSOS Is the Behavioural Lens Out of Focus? VIEWS and for longer. Many of the biases at work in our decision • elevates their mood; making processes appear to keep negatives at bay or mitigate them: negativity bias, status quo bias and almost • increases their motivation (as engagement all forms of loss aversion, anticipated regret, choice with a broader range of products); overload, zero-risk bias, cognitive dissonance, confirmation bias, choice supportive bias, etc. For example, Australian health insurance provider AHM realised customers of • increases purchase conversion from ‘hold’ health insurance have access to a range of health services to ‘drop’ (in basket); like dentistry, optometry, physiotherapy and many others (though spend on each one is capped) but use few of them. They created an offer where customers can choose which • decreases price sensitivity; and, services they want, pool the caps and spend more on services they really want. Their tagline “use 100%, waste • may increase size of shop and/or spend. nothing” makes the offer resonate more strongly by tapping into our loss aversion and the reaction it triggers (moving An analysis of thousands of Ipsos experiments about the away from the sense of loss). adoption of new CPGs shows that increasing choice within An online bank in Asia Pacific asked too many questions too a range has a positive impact on penetration (through early in the engagement process to customer acquisition. a combination of attention, appeal and other factors). A It made many people feel uncomfortable and drop out product in the range can be a poor seller but benefit all other altogether, reducing acquisition substantially. products through a halo effect. If the range is first presented without that particular product, the purchase of the remaining Unilever shared some insights from an observational category products in the range decreases. How the choice options study backed by neuro-measurement conducted in Turkey are framed as well as colour, mood and impression can in partnership with a retailer. The research uncovered how have a substantial impact on behaviour. Conversely, mood consumers keep away from negative emotion in ways often can turn negative when increasing choice leads to unsuspected at point of sale: overload and inhibit purchase behaviour (the too much choice kills choice effect). • The mood of males looking for personal At the other end, consumers may have good reasons care products goes south when they (conscious or unconscious) to behave like serious see female products in the process. maximisers. A recent McKinsey study highlights that ‘millenial moms’ are a lot more likely than the average US • Shoppers’ mood turns negative when consumer to behave like maximisers by “comparing prices, they encounter sharp edges at the end using coupons or loyalty cards more often, seeking out of the aisle but picks up if they see sales and promotions, shopping at several stores to find round edges. better deals, and buying more products in bulk”. • Empty shelves on show with white as the 2. Avoiding negative emotion dominant colour in view also impacted consumers’ emotions negatively. Beyond mood, any kind of negative experience, thoughts, feelings and social encounters resonate more strongly 6

IPSOS Is the Behavioural Lens Out of Focus? VIEWS Consumer products are sometimes categorised as ‘haftas’ or ‘wannas’ (have to buy vs want to buy). The same personal 1. whether consumers intended to put care category study showed how in-store reps pushing much effort in the decision or not; one product on shelf can decrease mood and purchase by inducing a negative emotion, pushing people towards 2. how complex the choice set is to ‘haftas’ and away from ‘wannas’. navigate; 3. Minimising effort 3. how difficult they find the decision situation; and Minimising effort is as much about physical effort (how many 4. how difficult they find forming clear clicks or steps) than it is about ‘cognitive costs’ (e.g. for preferences. a shopper accessing and updating memories of brands, attention at POS, the number of alternatives feeding into the decision and processing value for brands). Speaking about brands, ex-adman Bob Hoffman says the Underlying our reluctance to commit effort is some form of marketing industry is deluded about consumers “caring energy conservation. ATP, an organic molecule, is the main deeply about our batteries, our wet wipes and our chicken source of power for brain function derived from glucose strips”. Hoffman goes on saying that “people have shaky jobs metabolism. ATP remains constant within the cellular and unstable families, they have illnesses, they have debts, machinery and is exactly balanced by glucose utilisation. they have washing machines that don’t work,…, they have a Hence our natural motivation to minimise its use and lot of things to care deeply about”. This is a very direct and adopt efficient decision processes. It also accounts for our frank way to highlight that underlying consumer behaviour is a newfound willingness to outsource more and more cognitive brain ruthlessly selective with attention with the tyranny of ATP functions to digital devices (memory, search, evaluation, guiding our behaviour towards efficiency. localisation, comparison, value maximisation, etc.). A (meta) analysis of almost one hundred experiments looked at how consumers choose as a function of the number of options available to them in CPG categories as well as durables (e.g. MP3 player, camera) and services (e.g. hotels). The analysis showed that whether consumers experience overload is influenced by choice set size; overload is also modulated by four factors, all of which relate to cognitive effort: 7

IPSOS Is the Behavioural Lens Out of Focus? VIEWS CASE STUDY 1: People have shaky jobs and unstable CPG innovation and private labels “ CPG is a fiercely competitive environment and brand success families, they have illnesses, they have can be elusive. Decision and consumer neuroscience debts, they have washing machines that provide some key insights into how behaviour works in “ this environment: consumers typically engage four types of don’t work…they have a lot of things to brain processes in a mostly auto-pilot mode: care deeply about. Four Types of Brain Process The SAM view of behaviour is in focus because it is balanced. It is not beholden to one particular lens but all lenses contribute to our view of behaviour. An unbalanced 1. Recall from memory (some brands, view of behaviour is likely to lead to a poor understanding experiences, cues, etc are accessed) of the opportunities, challenges and limitations to change behaviour in a particular environment, be it that of consumers, 2. Selective attention (at the shelf consumers shoppers or customers. Conversely, a clear view of the lock in a small number of options in active forces at work in economic behaviour helps identify those memory) points where we have some leverage to influence behaviour and those where the SAM forces constrain our interventions. 3. Valuation (the brain assigns value to In addition, SAM helps us see more easily which shortcuts options) and biases are at work in behaviour and why. 4. Experienced value (shopping and consumption We examined how SAM forces are at work in a series experience feed back into memory) of sector case studies, each reflecting a different type of environment: 1. CPG 2. Fintech and digital technology 3. Retail 8

IPSOS Is the Behavioural Lens Out of Focus? VIEWS These processes work like a wheel in CPG because of the consumers’ lives (e.g. Sure compressed deodorant taps into consumption and repurchase pattern: sustainability, Scholl’s Velvet Smooth Express Pedi provides an effective solution to the age-old problem of hazardous solutions, Robinsons Squash D taps convenience in its Recall portable solution to flavour water on the go). The law of (Brands*, diminishing returns means that overwhelmingly product experiences, Selective innovation fails the maximisation game and the leverage at cues) attention the valuation stage is very hard to get. “The law of diminishing returns means that overwhelmingly product innovation fails the maximisation Experienced Valuation value = choice game and the leverage at the *brands as associated knowledge networks valuation stage is very hard to get. “ SAM provides some insight into the leverage available at Of course brands have long tried to create a range of key points on the wheel: associations: desirable associations to form preference or useful ones to prime consumers and make brands come to 1. Across markets, we often see that CPG brands put great mind or be noticed on shelf without effort. effort into building stronger consumer preference (i.e. they seek maximisation for the valuation game). Over time New avenues to create brand associations are on the rise however perceptions of quality in the market may increase and as brand management converges with corporate reputation perceived differences between brands decrease (including and managers align their brands with the needs of consumers vs private labels) or become irrelevant: consumers shift their and the demands of society. In the UK Persil, a brand of choice goals from (near) maximisation to ‘good enough’. laundry detergent, encourages parents to give children free/ play time outside which is vital for personal development. In In addition, the efforts of many brands to increase preference #dirtisgood Persil contrasts the situation of today’s children usually hit the wall of diminishing returns. The 2015 Nielsen who reportedly have less free time than people in maximum Breakthrough Innovation Report found that out of 8,650 security prisons. By adopting a broader social purpose and CPG product launches, only 18 actually delivered a new communicating it through an arresting comparison, Persil proposition, generated £10/€10 million sales in year 1 gains emotional resonance leading to recall attention and and retained 90% of their sales in year 2: almost all of the value vs other brands. Persil’s competitor Ariel questions 18 innovations actually change something significant in why the laundry is only a mother’s job at #ShareTheLoad. 9

IPSOS Is the Behavioural Lens Out of Focus? VIEWS 1. Be easy to buy (how the brand best fit in consumers’ lives, have distribution, have the right sizes and flavours on shelf) 2. Get noticed (attention to advertising and processing stimulus, being visible on shelf) 3. Refresh and build memory structures (build appropriate memory structures and reinforce them) 4. Create and use distinctive brand assets (distinctive visual, aural and verbal imagery minimise consumers’ processing and enable fast recognition, memory structures need to link effectively into brand to be reinforced) 2. Memory access and attention are the two stages likely 5. Don’t give a reason not to buy (e.g. to offer more leverage to brands. ingredients consumers don’t want, excessive premium) By tapping into valuable social purposes, both Persil and Ariel also create emotional resonance among consumers, giving the brand a chance to encode something new in Brands should choose their battle carefully: ‘attention consumers’ minds that will stick not just for preference but and memory equity’ is the first battle for CPG brands and also for access to the brand in memory and attention at the sometimes easier to win than the valuation battle. Besides, shelf. There is some evidence from consumer neuroscience brands that don’t get selected from memory and attention that long-term memory encoding (LTME) does not take place don’t go into valuation and don’t get chosen. It’s a game unless there is some emotional resonance to the situation where no pain means gain! or event. This is consistent with memory as an adaptive mechanism which encodes situations and events as useful experiences for the future. Unless there is some association with a positive or negative (expectation of) outcome, the situation or event is ignored at the time and irrelevant to the future. No accessible memory is needed. Out of the seven rules that Byron Sharp lists in “How brands grow”, five are about making choice easy for consumers. The SAM behavioural force at play in each one of them is physical and mental (energy) efficiency and impacts behaviour through memory access, attention and other decision processes: 10

IPSOS Is the Behavioural Lens Out of Focus? VIEWS 3. Private labels or store brands are a prime example of 4. Digital technology creates opportunities to encounter SAM principles at work in consumers’ behaviour. In many the brand in ways that attract attention, have emotional countries, private labels have been re-designed to deliver resonance, build brand accessibility or make shopping a consumer experience on par with that of manufacturers’ really easy. The Pepsi Max augmented reality campaign in brands. The more consistent product quality is across bus shelters in London gave consumers “an unbelievable private labels lines in a store, the more efficient the choice moment in their day” to help them notice and connect with for private labels becomes (including trial). Consistent visual the brand. At the shelf, IBM augmented reality shopping cues across shelves minimise attentional effort. Private app creates an easy and informative experience to find out labels matching their design with a leading brand also more about brands or quickly scan them for content without make it easy for consumers to compare: visual familiarity reading all back labels. Apart from the critical point that the minimises consumers’ loss aversion or status quo effect shelf is, any entry point (outdoor advertising, magazine as they consider switching. In a test for a grocery chain, page, ordinary objects or popular shopper locations) can be we found that more consistent visual cues of a particular used to create an experience that is educational, informative type across categories (e.g. tinned tomatoes, cheese, salty or entertaining and most importantly immersive. snacks, frozen dessert, etc.) led to stronger appeal because all products look like they belong to the same brand. the cheaper cost structure of private Is it surprising that the share of private labels is as high as 6 labels for retailers makes it easier 45% of grocery sales in Europe as reported by Nielsen when “ “ the business model fits so neatly around the key forces that for consumers to behave like near shape consumer behaviour. In our 2014 Ipsos global trends survey of 21 developed and emerging countries, 48% of maximisers: consumers say private label/store brands and manufacturer brands don’t differ in quality. Germany tops the list with 64% followed by the US and UK with 58% and 56%. Conversely Germany is the country where people least feel overwhelmed Digital technology can also totally disrupt the journey on the by the choices they have as a consumer (i.e. more would be consumer mental wheel by impacting attention, valuation more of the same). and experience through a radically different experience. The L’Oreal Genius Make-up app makes it easy to search, Finally, the cheaper cost structure of private labels for experience and remember looks, order for home delivery, retailers makes it easier for consumers to behave like near reduces the risk of negative emotion (eliminates uncertainty maximisers: consumers form on-par quality expectations about looks) and creates exclusive attention to the brand. and they are given lower prices and they process choice Other brands like Shiseido, De Beers or Ikea have seized on with minimum cognitive cost and they experience minimum the same idea. negative emotion as they form value and buy. Private labels can effectively tick all three SAM boxes. % saying private label brands and manufactured brands “don’t differ in quality” Germany 64% US 58% UK 56% Source: Ipsos Global Trends 2014 11

IPSOS Is the Behavioural Lens Out of Focus? VIEWS CASE STUDY 2: In 2016 Ipsos conducted a ‘behavioural review’ of 104 Fintech companies around the world (US, Canada, Brazil, Financial services and Fintech UK, France, Germany, Switzerland, Denmark, India, China and Australia) operating in twelve sectors of financial Financial technology (Fintech) is creating opportunities to services: wealth management, retirement planning, money capture and use financial data in radically innovative ways transfer, payment systems, investments platforms and for customers to transact, invest, borrow and manage their products, P2P lending, retail banking, personal day-to- day-to-day finances or their retirement savings. Fintech is at day money management, SMB financial management and the cusp of creating intense competition with mainstream insurance. The purpose of the analysis was to identify how financial services companies. each Fintech company tries to fit around and leverage the key internal forces that shape behaviour. A 2016 global review from PwC on Fintech included a Using the SAM lens, the analysis revealed that 61% of them survey of financial services companies (banking, asset maximise ‘me or we’ rewards, that is rewards that target management, insurance and payment sector) around the both self-interest and group or community interest. For globe. 83% of the companies surveyed believe that part example, in Germany Fidor online bank’s motto is “Banking of their business is at risk of being lost to stand-alone with friends”: it offers easy, quick and fair banking that appeals Fintech companies. Emerging trends believed to be most to the economic needs of customers. In addition, Fidor important by the banking sector all relate to making it easier has created Germany’s “most active finance community of (cognitive effort) as well as more attractive (maximising) and customers, employees and senior executives of the bank” to transparent (removing negative emotion) for customers: remove the lack of transparency and information asymmetry of traditional banks. The community comes first, banking second: better financial decisions for customers come Emerging Trends in the Banking Sector from the sharing of knowledge and experiences within the community. Property Partner enables investor to invest in 1. moving to simplification and streamlined property like they would invest in shares (crowdfunding model product application from £50) and provides healthy returns after fees. Many of the Fintech companies are attractive because they 2. implementing solutions that will improve use technology to provide more attractive products to and simplify operations customers and investors much more efficiently. 3. emergence of self-service tools Minimising effort, making it easy for customers and investors is paramount for both Fidor and Property Partner. The 4. moving towards nonphysical and virtual review of the Fintech companies showed that 91% leverage channels energy conservation by making more and more aspects of wealth management, investment platform, retail banking or 5. enhancement of credit decision-making peer-to-peer (P2P) lending exceedingly easy, streamlined in process, very flexible in access, terms (to understand) and 6. increasing services and solutions for visually simple and appealing. underserved customers 12

IPSOS Is the Behavioural Lens Out of Focus? VIEWS Financial services are a prime example of behaviour shaped by uncertainty mixed with the prospect of unattractive outcomes (miserable customer experience, wrong product 69% look at online reviews when features, complexity of process, etc). In a 2014 Ipsos review they don’t feel confident making a of how customers navigate products and brands in financial purchase decision services in Australia (banking, wealth management and insurance), we identified a series of biases and effects on customer behaviour including loss aversion, framing effect, negativity bias, confirmation bias, status quo and fairness bias. Removing negative emotion affecting customers CASE STUDY 3: in financial services is also a strong driver of the Retail bricks and clicks appeal of the new Fintech offer: 48% of the 104 Fintech companies Ipsos reviewed tap into removing negative emotion by increasing transparency, enabling access to A real-estate company in Latin American was struggling asset classes currently out of reach of most investors or to sell a string of new apartments to Generation Xers. The using social media and other sources of information to company realised they had to frame the encounter with remove unnecessary and time-consuming questions. Again, the development totally differently: printed information was this is possible because of technology. made available as origami rather than traditional flyers and brochures. By tapping into nostalgia, the company took Fintech has a huge amount of scope to grow and transform generation Xers to a different place which coloured the financial services, front and back because a large proportion impression they formed of the development, its location and of Fintech companies are finding strong leverage in essential features. It sold quickly and at higher than expected prices. SAM forces that other environments such as FMCG can hardly do. Fintech has not conquered the world yet for Technology brands understand the power than flagship a number of reasons, one of which is that behaviour in stores have to redefine our perceptions, impressions and financial services is tightly controlled by trust (and distrust) behaviour in the moment. Technology constantly redefines and the use of Fintech apps is not normalised yet. Fintech the possibilities that retailers have to create fun, memorable still has a deficit of ‘social proof’. When the behaviour looks and tangibly immersive experiences for customers. Huge and feels embedded in the lives of enough people around screens and digital walls have ‘supernormal stimuli’ quality to us then the bandwagon effect will accelerate the reach of create attention and mood. All of these have a strong effect Fintech in many facets of our financial lives. to colour decision making and push customers away from tightly maximising behaviour. However, the same technology also enables customers to look at shelves in store, seek a price review or a feature comparison from their device and quickly reshape options and preferences. Ipsos found that 69% of customers in 21 of the largest developed and emerging economies say they look at online reviews when they don’t feel confident making a purchase decision. In retail, customers who sit at opposite ends of the maximisation process (from effortful and inclusive to experiential and exclusive) can be equally happy with their choices. Maximise me-we Avoid negatives Make it easy rewards Source: Ipsos Fintech Survey, 2016 13

IPSOS Is the Behavioural Lens Out of Focus? VIEWS Technology is also working hard to make it easier for all we need to do is say our initials or look at a device. Security shoppers to access information, see how product and is obviously a motivation for online shopping but ultimate services can transform their looks or that or their new car simplicity is a powerful force on behaviour. or lounge room. There is always room to make a difference to shoppers’ mental effort. But in retail physical effort can Gradually e-tail is moving to a “zero-friction” world where never be discounted: a content and technology retailer was purchase behaviour remains driven by desire shaped by goals sharing with us how they had looked at shoppers’ heat and/or the moment and greatly facilitated by ultimate ease and maps in their flagship store and realised people often made a seamless customer experience (no negative emotion, feeling ‘bee line’ to the large wall of accessories but very few ended or mood along the way). up buying anything. After moving the island counter four small steps closer to the wall, sales took off. Health conscious grocery shoppers take the time to read back labels of the food products they buy. They are motivated enough to bother (i.e. bear the cognitive and time cost). They behave like real maximisers. UK shoppers more intent on avoiding unhealthy food choices can push shopping trolleys with new handlebars that scan barcodes and displays product information (e.g. low salt for butter) using coloured LED lights and smileys. A leading e-tailer in the Middle East tailors its positioning differently across countries and offers customers to an immersive and easy experience all the way to transaction and beyond. In one of the countries the company serves, the market is more sensitive about issues of online merchandise quality whilst in another country, the market is more likely to angst about a potentially limited range of online merchandise. Given customers drive to keep away from negative emotion, the e-tailer presents a different face upfront in each country to keep negative emotion at bay and ensure it can successfully engage customers. New payments systems from Fintech for retailers (e.g. Affirm POS loans) give shoppers more control and more transparency into payment (and repayment for credit) though they don’t really make payments easier than say near field technology (NFT) enabled credit cards. Despite NFT our in-built tendency to minimise mental and physical effort means we will respond to even more efficient payment systems: technology companies are experimenting with voice and facial recognition systems so 14

IPSOS Is the Behavioural Lens Out of Focus? VIEWS Making behaviour work MAPS: a framework for behavioural analysis SAM keeps the three key ‘constructive’ forces of behaviour Technology does not replace behavioural analysis. It simply into the picture as we look at the behaviour of shoppers, enhances it. A simple but powerful behavioural design consumers and customers. Technology however plays an framework like Ipsos MAPS reveals the specific personal and increasing role in our ability to become more perceptive contextual forces that constrain or enable behaviour before about their behaviour. Technology provides muscle to the interventions are designed to influence behaviour. type, breadth and depth of insight that we can gather. The MAPS framework looks at personal forces articulated An array of neuroscience tools also brings deeper insight to around our motivation and ability to perform the behaviour. The consumer behaviour in many of the consumer, shopper and contextual forces are articulated around the social and physical customer situations encountered at Ipsos: environment in which the behaviour takes place. • Implicit Reaction Time measures implicit memories of brand experiences, cues, visuals, names, shapes, colours: which memories will be accessed in the decision process? How strong are they vs the competition? How can we prime consumers as they go to the shelf? • Eye tracking devices are critical to gain insight into decision processes by measuring consumers’ eye-fixations (e.g. what do consumers actually look at in store, how long, how many times and what do they look at on packs or POS material). • Biometrics like facial coding, heart rate and galvanic skin response (GSR) reveal emotional engagement in response to advertising, a new store lay-out or a web/ app interface for online banking. 15

IPSOS Is the Behavioural Lens Out of Focus? VIEWS Decision-making in CPG, service sector and retail routinely relates to an environment featuring choice alternatives and motivation influenced by goals (conscious or not). SAM provides the critical backdrop to understand how the internal forces that shape our behaviour interact with specific circumstances (social, temporal, situational, cultural, physical, etc.). Understanding this interaction is the key to generating insight and remains the key to influencing behaviour. Regardless of whether one uses casual observation or a raft of neuro-measurement tools, a simple ‘lab’ experiment or a complex multi-faceted live experiment (e.g. store), insights gained from digging into a behavioural situation in CPG, service sector and retail almost surface more easily and clearly as the opportunities and the constraints created by the mindset of the consumer, shopper or customer become visible: 1. What is maximisation likely to look like for them? Are they trying to make ‘best’ decisions or avoiding poor choices? How can we colour the decision process and its environment through moment, situation or occasion, time pressure or social context, complexity and uncertainty of choice options, etc? 2. What negative emotions (or just feelings) arise in the situation or process, how can they be eliminated or circumvented? How can mood be enhanced? 3. What are the cognitive demands? Are there any mental (or physical) barriers to be pulled down? What can be done to make the behaviour (or a behaviour in a chain of behaviours) especially easy (creating easy memories, outsourcing memory access to a device, augmenting reality to get attention, ultra-simplicity of process, cues and easy associations, visual or auditory priming, anything tapping into our sense of smell)? Developing successful interventions The Ipsos 4 I process The Ipsos 4 I process shows that insight is a critical component to developing successful Identify interventions, actions or campaigns. The problem and behaviour(s) of interest Insight The creativity at the heart of many interventions Understanding behaviour(s) in depth and relies on insight. When interventions fail in context or are insufficient to change behaviour, the Intervention reason is almost always that the behavioural Design feasible behaviour change solutions analysis was neither systematic (looking at all facets of the person interacting with Improve the physical and social environment) nor Evaluate and refine solutions (iteratively) perceptive: whatever needed to be seen was overlooked. Creativity and the success of interventions and actions depend on both. 16

IPSOS Is the Behavioural Lens Out of Focus? VIEWS Further reading Herbert Simon on economics and psychology (1959). http://www4.ncsu.edu/~rghammon/workshop/S14_ Always a classic. Dickinson.pdf http://pages.stern.nyu.edu/~dbackus/Exotic/1Time%20 Boos, Dijksterhuis and van Baaren (2012) on the link and%20risk/Simon%20AER%2059.pdf between glucose and engaging conscious or unconscious Gigerenzer and Goldstein (1996) on ‘fast and frugal’ as processes in decision making processes that make us just as smart as rational inference http://psycnet.apa.org/index.cfm?fa=buy. http://www.dangoldstein.com/papers/ optionToBuy&id=2012-04347-001 FastFrugalPsychReview.pdf My top-three favourite books: Daniel Kahneman on psychology for behavioural economics Robert Cialdini (1993): Influence – The Psychology of (2003). The short and actually easy-to-read forerunner to his Persuasion ‘Thinking, fast and slow’ book. http://www.princeton.edu/~kahneman/docs/Publications/ Gerd Gigerenzer (2007): Gut-feeling – The Intelligence of the Maps_bounded_rationality_DK_2003.pdf Unconscious Stanovitch and West (2000) on system 1 and system 2 as Susan Michie, Lou Atkins and Robert West (2014): The different types of reasoning behaviour change wheel: a guide to designing interventions http://psy2.ucsd.edu/~mckenzie/StanovichBBS.pdf Bettman, Luce and Payne (1998) on how consumers End notes ‘construct’ choice and decision situations https://faculty.fuqua.duke.edu/~jrb12/bio/Jim/48.pdf 1 Motivation also seems to be hidden in the genetic make- up of some neurotransmitters (at least dopamine) given Yoon et al (2012) on decision neuroscience uncovering genetic differences of dopamine receptors across individuals consumer key decision making processes are correlated with their sensitivity to status and power. http://www.psych.upenn.edu/kable_lab/Joes_Homepage/ 2 2016 neuromarketing world forum in Dubai Publications_files/Yoon%20et%20al%202012.pdf 3 http://uk.businessinsider.com/bob-hoffmans-three- Dhar and Gorlin (2013) on the role of dual process in ad-delusions-2016-3?r=US&IR=T constructing preferences and choices 4 http://www.nielsen.com/uk/en/insights/reports/ http://faculty.som.yale.edu/ravidhar/documents/Adual-syst 2015/breakthrough-innovation-report.html emframeworktounderstandpreferenceconstructionprocess esinchoice.pdf 5 Byron Sharp (2010): How brands grow, Oxford University Press Skvortsova, Palminteri and Pessiglione (2014) on 6 neuroscience looking at efforts vs rewards in decision http://www.nielsen.com/us/en/insights/news/2014/around- making the-globe-private-labels-appeal-goes-beyond-price.html http://www.jneurosci.org/content/34/47/15621.full.pdf 7 http://ipsosglobaltrends.com/brands.html Dickinson, McElroy and Stroh on the impact of glucose on engaging fast or quick processes in decision making 17

IPSOS Is the Behavioural Lens Out of Focus? VIEWS Pascal Bourgeat Ph.D. (Consumer Behaviour) is Director of Behavioural Science at Ipsos Australia. He designs research with Ipsos’ private and public sector clients around the world on a range of behaviour-related issues. Particular areas of focus include CPG consumers and shoppers, customers of service sectors and users of public services (transport, environment and resources, patients, healthcare professionals and more). Pascal is one of Ipsos’ global behavioural economics and behavioural science experts. He is a regular writer and speaker on all aspects of consumer behaviour. Pascal is based in Sydney. The Ipsos Views white www.ipsos.com papers are produced by the @_Ipsos Ipsos Knowledge Centre. GAME CHANGERS << Game Changers >> is the Ipsos signature. At Ipsos we are passionately curious about people, markets, brands and society. We make our changing world easier and faster to navigate and inspire clients to make smarter decisions. We deliver with security, simplicity, speed and substance. We are Game Changers.