Rory Sutherland – How human behaviour regularly defies logic and supporting data

This is the kind of thing I absolutely love because it's my lifelong fascination: why people do the things they do, and indeed, that difference between price and value.

Uh, I mean, I flew over here on an Embraer 190 from London City Airport, and I imagine I don't know what the planes cost. They're about £55 million. Uh, the only thing I really remember about the flight that was really, really good was that someone had spent probably £25 putting a mobile phone holder on the back of the seat in front.

Okay. And so, one of the first things I think, this is why marketers are often unpopular within organizations, which is marketers have no sense of proportion. But the point is, consumers have no sense of proportion either. We can be hugely, hugely impressed by utterly trivial details, and we can ignore things that millions of pounds have been spent on. You know, I certainly don't know who made the plane's engines, for example. And yet, I imagine if you're working at British Airways, if you're the person responsible for seatback fitments, you fall fairly far down the food chain.

So, anyway, oop, here we go. Um, I think there's a fundamental problem, uh, in the way in which people try to understand business, consumers, economics, and everything else, which is that most people are trying to win an argument rather than solving a problem. And the mental mechanisms, the processes you adopt, are actually quite different for the two. But of course, in any large organization, you can only do anything by first winning an argument. And so, what you have to do is basically start with a reasonable assumption, make three or four logical deductions from that first assumption, and then get to a point which you claim is absolutely right. The single right answer. And if you think about it, our education system encourages people to do this. We probably hire people for their ability to do this. We promote them on their ability to do this. But actually, problem-solving is very different.

I mean, one of the nasty, presumptuous things. This is a book called "Voltaire's Bastards" by the Canadian philosopher John Ralston Saul. And he makes, he makes the argument that of all the human mental faculties we've evolved, including things like intuition, creativity, and even humor, we've put rationality in far too high a seating place on the table, that we regard it as basically superior to all the other modes of kind of human, um, mental processes. And he thinks this is just a fundamental mistake. He thinks that there are moments when you should absolutely use rationality and be absolutely adherent to it, but a lot of the time, you should give it a back seat.

Now, if you win a rational argument, there are often problems. Quite often, for example, funny enough, this is also true in physics, in very advanced physics, but it's certainly true in psychology, that the opposite of a good idea can be another good idea. In a rational world, you know, in high school math world, the opposite of a good idea is wrong. But in the real world, the opposite of a good idea can be another good idea. Or sometimes, the best solution is to do two things which appear completely contradictory.

I met somebody not that long ago who is the UK's walking tsar. And I said, "Well, what do you do?" And they said, "Well, we, our job is to encourage people to walk more." So, "What do you do to encourage them to walk more?" They said, "Well, we campaign for more footpaths, you know, uh, better pedestrian access to things. We campaign for pedestrianization." Now, it so happened I just had a bout of sciatica. And I don't know if you've ever had sciatica. It's back pain. It's a bit like a premonition of what it's like to be 20 years older than you actually are. And I said, "What about seating?" And the guy looked at me as if I was nuts. I said, "Look, okay, very fit people need more footpaths, but frankly, Britain hasn't got a shortage of horizontal surfaces. You know, there are plenty of places you can walk if you want to. The problem with the elderly or people who are marginally disabled or the people who need to walk more than they do is if they do start walking, there's nowhere to sit down." And so, sometimes the solution to getting people to walk more might be twofold. Yes, you campaign for more footpaths, but you also campaign for more benches. If you go to a seafront where, for complicated reasons, there are always far too many benches, memorial benches, typically, what you will see is a lot of people who don't normally walk a lot, walking a hell of a lot, partly because they confidently know they'll always be able to sit down.

And so, you know, one of the things I would say, funny enough, with pricing, one of the reasons I got interested in this category is I overheard some people at a KFC conference saying, "The product's not selling very well, so we're going to drop the price." And I just read a Naim Taleb book and I said, "Well, before you do that, try putting the price up." And they said, "Well, why would that work?" And I said, "Look, it probably won't work, but if it does work, it's a sight more valuable discovery than discovering that you can sell more by putting the price down." Weirdly, they put the price up and demand did go up. I've fluked out to be absolutely honest.

Um, the explanation for that, I think, might be psychological, which is that people go to KFC for two reasons. Well, three in my case, which is my wife's not with me to stop me going. Um, but people go to KFC in many ways for two reasons: a bargain or a treat. Okay? And, and part of it is I want a hot lunch, but I don't want to break through the £5, £6 barrier. But part of it is it's my birthday, or what, you know, your birthday, or the kids' birthday, whatever it may be. And actually, something that's priced in the middle isn't a bargain and it isn't a treat. And I think what they'd done with this product, which was quite a premium product, is they priced it at a level where people thought, "That's not enough." And it's surprisingly common.

So, actually, oops, we are we clicking? Am I pointing the wrong direction? Ah, fine. Fundamentally, one of the problems we have is that most humans, we're not a rational species. We're a rationalizing species. Uh, what we do is we make instinctive decisions and then we reverse-engineer, um, a rational-sounding explanation for our behavior. There's a whole argument in evolutionary psychology that we evolved the faculty of reason not to make better decisions. We're supposed to make decisions instinctively and using intuition. The reason we evolved the faculty of reason is because we'd evolved language and we're a social species, and we needed to justify our behavior to other people or evaluate the arguments of other people. It's not actually intended to be the way we make decisions.

And the other problem we have, I think, is that I had a friend who was for many years in journalism and then went into PR. And he said, "You know, one of the great things you learn in journalism is just because it makes sense doesn't mean it's true." And one of the things we tend to do as humans is, as soon as we hear an explanation that makes sense, we stop looking.

I talk about this later. If you talk about, if you look at sales as a phenomenon, okay, everybody would go, "Well, why do we sell more during a sale?" And people will go, "Well, prices go down, demand goes up. It's the price-demand curve. Nothing to see here. Move on." Okay. Actually, that's not the whole story by any means. An awful lot of the popularity of sales is actually to do with FOMO, social copying, uh, scarcity, the idea that this only lasts for two weeks, so I mustn't miss out. Uh, my hunch would be if Harrods basically dropped their prices by 30% and didn't tell anybody, okay, you wouldn't see much uptick in shopping. Okay, you know, if they, if they didn't do all the kind of marketing razzmatazz around the fact that there was a sale and have crowds of people outside, uh, yeah, you'd probably sell a tiny bit more. I'm not suggesting that economics is entirely wrong, but it's not the same thing. And so, what tends to happen is when, when anything is consistent with economic theory, everybody goes, "Yeah, that makes sense. Economics tells us that. No further questions. Let's move on." Um, and this goes back to obviously what the fifth century BC, sixth century BC. Uh, you know, people will basically accept the first story they hear.

Now, my argument is that the best definition of marketing, in many ways, is the science of knowing what economists are wrong about. Okay? And to some extent, it's also the science of knowing what market research, conventional market research, can't tell you. And most business decision-making probably proceeds according to one of those two assumptions. Either that economics is true: if you put the price up, demand will go down. How you charge for something has no bearing on whether people want it. It's just the headline dollar amount that determines preference. Um, and also assumptions that consumers can actually tell you what they want, uh, why they want it, and what they do given certain circumstances. Well, they can, but only if you tease it out of them very carefully. It's not because they're lying, by the way. I mean, not willfully or consciously lying. It's simply that so much of what we do is effectively a post-rationalization. The conscious part of the brain, the part of the brain that does the talking, isn't really the Oval Office. It's more like the press office. Okay? I don't know if you've got a press office in your company, but my experience of press offices is that something happens, and they hastily cobble together a plausible-sounding explanation for a decision taken somewhere else for reasons they don't understand. Okay. And that's basically what our brains are doing a lot of the time.

Um, the other thing I think that's really important, which is why I'm very interested in what you do, is this is not me. This is a Mark Ritson phrase. What tends to happen with data is it tends to get averaged. And the problem with averages is that the act of aggregation, probably perfectly acceptable for finance people who are just interested in knowing how much in total. But all the weird kind of nuance, what makes people different from each other, all the anecdotal information, all the interesting outliers get fundamentally ironed out in the act of averaging. I'm also really uncomfortable, by the way, with the belief that, you know, uh, bigger data means better data necessarily. I, one of my, one of my tasks is to rehabilitate the use of the word "anecdotal" as an acceptable form of information. Okay? The point I'd make is, in 1912, the Titanic had a lot of big data to tell them there were no icebergs to be expected that far south in the Atlantic in April. Okay? But then a piece of anecdotal data, which is, "There's an iceberg over there." Okay? Effectively trumps all the other data you may have. And that's partly because all big data comes from the same place: the past. You know, there isn't any data about the future. The context changes, circumstances change, trends change, uh, you know, human preferences collectively change over time. And so, the idea that a lot of big data from the past should necessarily outweigh an interesting piece of data that's come from the present strikes me as really uncomfortable.

And I think this is the problem with winning arguments, by the way, which is the police actually understand this distinction. They have what you might call investigative modes, where you're trying to find out who did it. And then there's an evidential phase. Okay? And the police accept that a lot of the information you collect in the, uh, in the investigative mode is totally anecdotal. They'll, they'll go, someone gets murdered, the police will go door-to-door and they'll ask neighbors, "Did you notice anything unusual between 8 and 10 p.m. last evening?" Totally open-ended question. Okay? You know, what was, was there anything that you didn't expect? That's it. Okay? Now, the information they get back will almost certainly have no evidence unless they said, unless they said, "I saw a man running down the street screaming, 'I did it.'" Okay? Has no evidential value. It's a man in a white van drove past five times in a funny way. Okay? No evidential value. You can't bring that up in court. Eventually, you need enough evidence to convict. But in the process of actually investigating a crime, you have to be happy with information which is merely interesting but doesn't actually have proof value.

If you look at how most serial killers are caught, it's Peter Sutcliffe, the Yorkshire Ripper, famously was caught because he parked his car in a funny way. Uh, in the Bradford red-light district. Handy tip if ever you go there, apparently the norm is to park with your windscreen facing the wall because people can't see what's happening in the back seat. Okay. And Sutcliffe had parked the other way around, as if he was planning to make a quick getaway. And the cops noticed it. I gave a talk to the Surrey police, and they said, "Cops would notice that." I said, "Why?" He said, "Because as soon as you join the police, you're taught you always park in a parking space facing out." So, if you go to a police car park, all the cars will have reversed into a bay. Partly because you look really stupid if there's a massive emergency and everybody's going, "Hi, you're blocking me in." But it basically means you can get where you need to go to really fast. So apparently they said, "All cops take that into their private life as well. If you see a policeman parking at Sainsbury's, they'll always reverse into the space." So, it's something they're just highly attuned to noticing. Totally trivial. You can't imprison someone for life for parking in a funny way. What it does do, the anecdotal information tells you what to investigate next, where to direct your attention. You know, it might prompt a question like, "That's funny. I wonder if something else is going on here." And so, you know, I'm totally happy with anecdotes, outliers, freak, freak pieces of information. We tend to discount them as trivial, but of course, in many ways, the most important information about the future first arrives in anecdotal form. Okay? And I think that's why as humans we pay attention to anecdotes, because we realize that actually important things don't first reveal themselves in the shape of data, first reveal themselves in the shape of someone saying, "The people in the next village are doing something funny."

Anyway, sorry. The really important thing to understand about value and, uh, the whole idea of how economics is utterly absurd. Any economists here? People trained? It, it really is terrible, isn't it? I mean, you know, it has no predictive value. Um, economists are allowed a luxury which physicists aren't, which is when people behave in a way that's inconsistent with economic theory, they call the people irrational. Okay? And I find this absolutely fascinating because physicists aren't allowed to do that. "My experiment completely failed, but that's 'cause the atoms were in a bad mood." Okay? You can't do that as a physicist, but as an economist, you're allowed to blame the failure of your theories on the public's failure to adhere to them.

And I think one of the most interesting things is that I'll come to this first. We haven't evolved to perceive the world objectively. It's one of the most important things to understand. And one of the weirdest things that nearly everybody does, including economists with things like price, including engineers with things like features, functionality, and specifications, is we assume that reality translates into perception in a kind of linear way.

Now, this is a fascinating book. Uh, I really recommend it by a guy called Andy Clark. He's a pupil of Karl Friston, who's a very weird guy at UCL, who talks about psychology and the free energy principle. But I thought that's a bit heavy and, to be absolutely honest, I don't understand it myself. But I did understand Andy's book. Um, and his point is that it's, it's not a new theory. People thought, Helmholtz and people like William James, thought this in the 19th century. He thought that actually most of what we perceive in our minds is actually a prediction. That there isn't enough bandwidth in the optic nerve to give us full, for the photographers among you, raw quality imagery in real time. Okay? There simply isn't enough bandwidth in the optic nerve. So the way evolution has solved for this problem is, funnily enough, exactly the same as this television. The, the reason JPEGs and MPEGs compress imagery is that rather than describing every pixel individually in painstaking detail, "there's a brown one, there's another brown one, another brown one," for every pixel, there's an expectation value, and the data is only used to correct for prediction error. So basically, it, it takes an expectation value for every pixel. If it's the same color as the pixel in film that came before it or the one that's alongside it, it can just say "same." It, you don't need any data to describe that. It's incredibly bandwidth-efficient. You only need the data to basically update prediction error where you've got something wrong or something surprising has happened.

If you think about it, you, you know, uh, you, you genuinely couldn't make, um, your Sky dish would have to be 25 feet across if you actually wanted to have televisions which worked where every pixel was individually described. And the theory is that the brain evolved exactly the same solution to the same problem: how to conserve, how to use incoming information from the senses as efficiently as possible. And the most efficient way to use our incoming data isn't about, uh, uh, what is. It's about what we expect, corrected by what we see that's different. And so, you know, I think that's just a hugely important thing to understand that most of our knowledge, uh, you, most of our vision of the world is internally generated, and then we're simply using our eyes to update what's new or unexpected or moving.

And by the way, one of the most important things about price, for example, is, uh, the two other points he makes is context is really, really important. The way we perceive the world will hugely vary. What we'll be attuned to notice. The way we'll be attuned to use our powers of observation varies hugely according to context. It's one really important point. The other thing is that perception is to some extent relative. True of price perception. True of everything perception. It's a beautiful day today. We all agree it's an absolutely lovely day, right? And that's because we're typically from somewhere in Northern Europe where if it's sunny, it's a nice day. I landed in Johannesburg once, and it was in the winter, their winter, and I was picked up from my hotel, and it was a day even lovelier than this. There wasn't a cloud in the sky. And I come out of the hotel, and the three people picking me up said, "I'm so sorry you had to come during such weather." I said, "What?" I laughed. I thought they were joking. They said, "No, the weather's terrible." Now, if you're British or Irish, if it's sunny, it's a nice day. That's it. Right. Okay. Doesn't matter what the temperature is. If the sun is shining, no one would think of saying it was bad weather. I didn't realize this. In Johannesburg, for the whole of the winter, there never is a cloud in the sky. It is completely blue skies all the time. What they meant was it was unusually cold. It was about 2 or 3 degrees. It wasn't that cold, to be honest, but there, you know, you know, you know what it is when you go to Southern Europe and it drops down to about 20 degrees, and everybody puts on a Canada Goose jacket and a bobble hat. You know, they're a bit like that, basically. And perception of, you know, perception of weather is entirely framed by, you know, comparison. It's all comparative. Massively true of price perception, by the way.

You probably know my story that Lamborghini, I know, Maserati and, uh, Rolls-Royce stopped selling their cars at car shows because a £250,000, £300,000 car looks really expensive at a car show. They just started selling them at yacht and aircraft shows instead because if you're looking at a Learjet or a Sunseeker 45-foot yacht for £8 million, a €250,000 car is basically, it's an impulse buy. It's like putting the chocolate by the, "I didn't buy a yacht today, so I'll have a couple of those." Okay.

I remember talking to Danone about this, which is they were, there was a huge debate about whether a drinking yogurt went next to in the milk section of a supermarket or in the yogurt section. And you get much more footfall, obviously, in the milk section. Except in France, for the French gentleman I was sitting next to, I was trying to ask why the French need so many variants of yogurt. I'm still trying to find that out. But you get massive footfall. Okay. But the problem is, is that people's price frame is much lower in the milk aisle than it is in the yogurt aisle. So you, so although you got more footfall in the milk aisle, you couldn't charge very much for the drinking yogurt there because people were, you know. So it even works at the aisle level.

Um, another thing, this is just an idea of mine which I think might be useful to marketers anywhere. This is a great book. Jeremy Bilmore has said, "The best books about advertising aren't about advertising." This is a book by a restaurateur who took a restaurant called Eleven Madison Park in New York from number 50 in the world to number one in the world. And in the course of reading the book, I know him a bit. I'm actually meeting him in September, I think, in New York. Um, he, he told a story which I thought was really fascinating. And I thought it, it had a great bearing for all of you here. So he's number 50 in the world. He takes his top team, mixture of people from the kitchen, people from front of house. He takes them to the best restaurant in the world. There's some annual restaurant awards where they give you the top 50 ranking. And unsurprisingly, the best restaurant in the world was very, very good. Okay? And all his companions were sitting there going, "Cool, they do that really well. We should do that. We should fold our napkins so they look like a swan or whatever it is they were doing, you know." Um, "Oh, we should copy that. Oh, look, look, I like the way they do this." And just at the end of the meal, um, Will Guidara said, "I'm not interested in any of the things they do well, because if we do those things well as well, nobody will notice, right? Because it's just like the best restaurant in the world, and you're the 50th best restaurant in the world doing the same thing. No one really notices." It's exactly that point about Andy Clark makes about, you know, you must know this. You go and stay in hotels and they go, you know, "We've had a recent upgrade refurbishment program where we've spent $400,000 per room." And you go, to make it look like every other hotel room I've ever stayed in. Okay? It's the weird stuff we notice. It's the things we didn't expect that really chime with us.

So, this guy clearly spotted this and he said, "I'm not interested in any of the things they did well." He said, "What I want to know is what do they do badly? What was a bit disappointing?" And it came down to two things: the coffee was just meh. You know, you could have ordinary coffee or decaf. It might have been a French press. It might have been an espresso, but nobody talked about the beans or gave you any kind of feeling that any love had been put into the coffee. And the other thing was that three or four of the party were beer drinkers. And if anybody else here, you know, drinks beer in restaurants, I do a lot. Okay? You get treated as a second-class citizen to the wine drinkers, don't you? Right. They're farting around over the wine drinkers and refilling their glasses and bringing them a new bottle and talking about the terroir, right? And they go, "Yeah, we've got Carlsberg." And then you try and get a refill as a beer drinker, and frankly, you know, they sneer at you.

So this guy immediately goes back to his restaurant. "I'm not interested in all the things they did well. We're already quite good at those things. Let's." He appointed one guy from the, I think, one waiter who was a coffee nut. He made him the coffee sommelier and said, "Your job is to have the best coffee experience." And the guy in the kitchens who is obsessed with craft ales, he said, "You're the beer sommelier." So if people said, "What have you got in the way of beers?" They were expecting him to say, "We've got this on draft." And instead, the guy would come with a beer list and talk about food pairings. You know, "If you're having fish, why not try this citrus IPA?" Now, what's brilliant about that is beer people are just used. They're just acclimatized to being treated like in high-end restaurants. Okay? And if somebody finally respects them and takes them seriously, it's an absolute mental breakthrough. And so I think there's a really interesting idea which we ought to practice much more. I call this reverse benchmarking. You go and look at your competitors and stop trying to benchmark yourself against them. You know, in many cases, your, your own customers don't even use your own competitors. So comparison doesn't really work. Instead, go and ask what other people do really, really badly and try and just do two or three things extraordinarily well. Just take one freakish thing and just do it disproportionately well. I'm not saying you can be at everything else. I just ought to make that point. I'm not using this to say you can be crap at everything if you're brilliant at one thing. But fundamentally, if the thing monopolizes, this is actually an important thing to understand, I think, in conjoint analysis, that conjoint analysis will tell you what's currently important to them. But you can use advertising and communication to increase the attention given to one aspect or another. Quite often, advertising is the act of directing people's attention to something you're good at to distract them from something you're not so good at. And by the act of actually garnering their attention, you make the thing they're paying attention to feel more important. So it's always worth asking the question in any analysis of this kind: this is how it stands at the moment. Where could we move it? Could we make something where we have a comparative strength which is underappreciated? Could we highlight it more, for example?

But anyway, um, I made the point here: optimize for perception, not reality. And nearly everybody, uh, when you have a new product, design it's given to engineers, and engineers will always want to impress other engineers, and they'll always prefer that their product is superior to the other product on engineering dimensions. And the problem with that is that basically, we don't perceive information reality remotely objectively, and evolution has taught us not to look at things objectively.

This is something I show in every talk I give now for two reasons. It illustrates this point perfectly, but also it can save someone's life. Okay? Just because, and there's no particular reason why. It's purely arbitrary. The way everybody on the planet describes speed is some variant of miles per hour or kilometers per hour. Okay? There's no reason we have to do it that way around. We just do. In other words, if I travel at this speed for an hour, how far will I have traveled? And that's how we describe speed. But two Cambridge behavioral scientists came up with something. They call this a paceometer, not a speedometer. And it's minutes per 10 miles. It's doing it backwards. Now, you do fuel economy for cars as liters per 100 kilometers, don't you? I think. Whereas in the UK and the US, we do miles per gallon. We do it the other way around. And actually, probably miles per gallon is a very bad way of encouraging people to buy economical cars because it's, you know, if you think about it, you'd think that going from a 40 to 50 miles to a gallon car is a really big deal. Whereas it's much less significant than going from a car that goes 18 to 20, 22. Okay? It's not a great way of encouraging people to, uh, drive economically.

Now, what's fascinating about this is this is completely linear. When you put a paceometer alongside a speedometer, what you see is that there's a huge difference in time saving. If, assuming you're going 10 miles between going at 10 miles an hour and 20 miles an hour, you'll actually save half an hour by doing that. If you accelerate to 30, you'll save, uh, from 20 miles an hour, you'll save another 10 minutes. Okay? Worthwhile areas of time. What's fascinating about this is that for any given distance, once you're going 60 or 70 miles an hour, you do kilometers, do you know? Yeah. Um, and, um, so once you're going at kind of what, what would that be? About 110 kilometers an hour. Okay. Going an extra 20 kilometers an hour is basically an idiot's game because it hardly saves you any time. Now, we don't think like that, I think, do we? You've all had that experience where you're running late for something and you go, "Shit, I'm driving at sort of 110, 120 kilometers an hour. I look, I'm going to be late. I'll go up to 140. I'll go up to 160." And then what you weirdly notice to your surprise is that on your satnav, your estimated time of arrival after about 6 minutes drops by one minute.

Now, the reason I think this is so important is that in a funny kind of way, if we know this, what we'll realize is that it's really, really important if you want to arrive somewhere soon not to go slowly. But going really fast as opposed to quite fast is a total waste of energy. You know, you're putting yourself at risk. You're putting other people at risk. Now, until you present the information in that way, it is, that is not remotely intuitive. Okay? You think, "Oh god, I'm going 60. If I go 80, I'll arrive much sooner." Actually, for any given distance, it, this is why actually we, if anybody had seen this chart, no one would have made the British High Speed 2 railway go at 200. They wanted to make the railway go at 230 mph, which actually saves an amount of time. I mean, funny enough, there's a, actually the psychology of transport comes in here. There's a very good transport writer who says that actually one of the things that nobody clocked is that train journeys can be too short. Okay? You know, an hour and 10 on a train is actually quite a nice bit of time to decompress, get some work done, get stuck into something. If you reduce that to 50 minutes, an inordinate cost, which means the trains can't stop, the tracks have to go in a straight line, so you've got to destroy a load of national parks, uh, because you can't go around a corner at that speed. And it uses a huge amount of energy and puts passengers in a massive amount of danger because nobody's ever said this, but in the event of a full-speed high-speed train crash, everybody dies. Basically, you got another Tenerife air disaster. Okay? So, you put yourself at this extraordinary risk for a time that's actually imperceptible to the passenger.

That's one thing I think that often happens in tech, which is engineers overoptimize and fail to spot the law of diminishing returns. Consumers really, really notice if something's 10 times better. If you make something 1.3 times better, they really don't care that much. And so, optimize for perception, not for reality. And so many businesses are optimizing for objective reality rather than perception.

Uh, your TV, by the way, is very interesting. When you bought a TV, it didn't say on the box, "Perfect for higher primates." Okay? But actually, all TVs are actually optimized. The only people who can watch a TV, look at a TV, and think that's a reasonable approximation of reality are, I think, humans, gorillas, and possibly bonobos. And that's because we, we happen to perceive red, green, and blue, which are the only three colors in the pixel. Okay? Your dog can't understand why you paid so much for that television because it thinks the picture's a bit, it can kind of see what's going on, but the colors are completely distorted because dogs, I think, I can't remember what it is, they perceive two different colors. If you've got a pet parrot, it really thinks your TV is crap because they can detect things in ultraviolet and things like that. And, uh, consequently, half the color, it would look totally washed out to a parrot, a typical television. So, the TV only works because it's designed around human perception, not around an objective depiction of reality. If you wanted a TV genuinely to produce a million colors, you'd need a million different things in each pixel, and it would cost an absolute fortune.

So, one, one very simple thought I've given you. Reverse, I think reverse benchmarking is just an interesting exercise. I'm not saying it'll give you a perfect answer, but it'll take you to an interesting place. Uh, the other thing I think that's worth talking about is the extent to which context changes everything. I mentioned that fact that Maserati and Rolls-Royce fundamentally, when you sell Rolls-Royces at a plane show or a boat show, they seem cheap. If you sell them at a car show, they look monstrously expensive. Uh, we, we did a very interesting experiment with an airline where we found that people's propensity to buy premium economy or business class tickets certainly wasn't a flat amount of money. It was how much, how expensive it was compared to the economy price. So the perception of that was not, "I'll pay £200 extra to go premium economy," which is what an economist would believe was true for any given length of flight. Instead, it was, you know, "Well, if premium economy is like 20% more, I'll pay it, but if it's twice the price, I won't." So that actually led to the airline making an extra £10 million of revenue every year in premium, uh, high-margin, uh, cabins because we said, "You can't sell someone a premium economy ticket unless they know what the economy ticket would have cost." Okay? You can't just say, "Premium economy, £800." "Oh, I'll buy that." Okay? They'll only buy it if they know how that compares to the economy price.

You probably know some famous price experiments. Uh, the very famous, I think it was the, um, the bread machine experiment where they had two bread machines, one, uh, one cheap one, more expensive, and they didn't sell either. Barrel, I think it was, if I'm right, or Williams-Sonoma, okay? And they were about to give up on the bread machine category, and then they started stocking a massively expensive bread machine, which nobody bought, but everybody started buying the bread machine in the middle. It's called the Goldilocks effect in, um, behavioral science. When humans aren't really sure what to do, they, they choose the one in the middle. But also, it was once you have the super expensive, um, bread machine, it made the other bread machines look comparatively reasonable and affordable by comparison.

There's someone here from Reckitt, I think. Is that right? Uh, they've been doing this with Finish. Okay. It, I think, absolute genius. In other words, you have Finish. You, the only problem with Finish, I think, you're running out of adjectives for the top-of-the-range product, aren't you? Okay. You know, uh, Finish, what, ultra power shine something all-in-one something else. But a lot of people do buy those. There's a, there's a surprisingly large group of people who basically just buy the best in categories they care about. Uh, that was the big surprise, by the way, in the smartphone market. Samsung always produced the top-of-the-range Galaxy phone. Their reasoning was simply that it was a halo product to make the rest of their products look better. And it was a surprise to Samsung when they discovered that actually, you know, their, their top-of-the-range phone is typically one of the most profitable things they sell. That wasn't their original intention. It was intended as a kind of, effectively as an anchoring device.

The other thing I think that's important is because humans make decisions contextually, a really easy way if, if you're innovating, is not to try and change everybody's mind. It's just change the context in which they take a decision. So I've always thought this is really interesting, which is my early years working in marketing. What I put here is, you can change a million minds or just change one context. Okay? And my early years in marketing. Well, here's, here's a perfect example. Okay. I love this example. One of the best marketing ideas I think of the 18th century came from James Watt, who'd invented the steam engine and was selling the steam engines to, uh, mine owners for draining the mines. Something they currently did using horses. You'd have horses walking around a capstan thing in a circle, pulling the water out of a mine. And Watt would come along and say, "Look at my amazing steam engine." And they'd go, "Yeah, that's really novel, fantastic." And they wouldn't buy one. Okay? And the people would go in, and being engineers, they'd talk about things like cylinder size and bore stroke and, you know, calorific capacity and the size of the boiler. And these people still wouldn't buy a steam engine. And so James Watt, who is clearly a good marketer as well as a good inventor, said, "What do they really want to know?" And they said, "They want to know how many horses they can get rid of if they buy a steam engine." And so Watt went away and invented a unit we still use today, which is called the horsepower. So the horsepower, which we still use for cars, we still use for, weirdly, for ships, etc., was invented as a marketing device. And suddenly you turn up and they go, "Yeah, well, okay, I'm interested in this thing, but, uh, you know, what are the economics?" And they basically go, "Well, if you buy a 25 horsepower steam engine, you can get rid of 25 horses. And if you buy a 50 horsepower steam engine, you can get rid of 50 horses." It was actually triple because the horses worked in shifts, whereas the steam engine could just keep going. So, technically, a 25 horsepower engine would, I think, do the work of 25 horses, but it meant the mine owner could actually get rid of 75 horses or something like that. And as soon as he presented, it's exactly like the paceometer. It's a complete kind of revelation, an epiphany. As soon as he presented the information in that way, everybody wanted to buy a steam engine. And I think it's really interesting because you probably remember this, okay? A lot of my early years in marketing were businesses that became successful not really by offering something that different in economic terms, but by changing the place at which the purchase decision took happened. Okay. So Argos, previously, before there was Argos, you kind of bought a toaster by going to a shop. Okay. Argos preempted that because you chose your toaster possibly while sitting on the toilet, although they never made a virtue of that, but suddenly you were choosing in a different way. You know, if you think about Direct Line motor insurance, EasyJet. I'm, I don't know how old you are. I'm 59. For the first sort of 20, 25 years of my life, if you wanted to fly anywhere, you went to a travel agent. Can anyone remember that? You literally went to a travel agent and you said, "I want to." And they'd come up with a load of flights that were available. It was very weird because then you'd go to the travel agent next door, and they'd come up with completely different flights. But these guys, before there was an internet, they put the phone number on the side of the plane. And the whole point was, if you want to fly anywhere, you don't actually go to a travel agent. You pick up the phone. And what I think is very interesting is that brand hierarchies in some ways are vulnerable to a shift in the context in which people make decisions.

And that's one of the things that really interests me about AI. Okay? I genuinely know what we should be talking about with AI is not how good it is, you know, whether DeepSeek is better than this. What we don't know about AI is what's the ultimate interface going to be? Because we'd all phone call centers a lot more if we knew we'd be answered absolutely immediately, wouldn't we? Right? The reason we don't call centers is our expectation of delay is huge. Well, if you have an AI-powered call center, so you can basically ring a number and go, "Sort this out," and it happens immediately. Does voice become our chosen mode of interaction? I, I, by the way, I'm not answering this question. I genuinely have no idea. But it struck me that one of the reasons I think Amazon produced Alexa was probably as a defensive moat. That Amazon's great fear was that in 5, 10, 15, 20 years' time, people would start interacting with things verbally rather than with point and click. Now, as it stands, you know, Amazon has spent billions and billions on a device which most people use for, "What's the time? What's the weather? And can you set an alarm for 7:30?" Okay? To be honest, it would have been cheaper for Amazon to send everybody in the world a thermometer and an alarm clock than to develop Alexa. Okay? But I suspect what they're doing is paranoia about what happens if the way people interact with things fun. What would a travel, I don't know the answer to this question, but what would a travel agent look like if we can escape from our constraints of what we're used to? And it's probably, first of all, it might, it might take place over time. You might make a phone call and go, "I'm interested in going to Greece in next September. Can you send me some about places where there is or isn't a golf course?" You know, and you just ask it over the next few weeks to send you stimuli. Okay. And then you might click on one hotel and go, "I quite like the look of this one. Do they allow dogs?" Okay? And the voice would reply, "I've just checked. They do allow dogs, but only up to a certain size." And then you say, "Show me the pool." I don't know. But you can imagine something which is a much more immersive, um, a much more immersive form of interaction.

And, but, you know, so in a sense, when you change the medium of something, one of the weirdest things we've never talked about is, I think video conferencing is immensely important to lots of businesses, but the businesses aren't talking about it. You know, fundamentally, you can change the way you work internationally. You can change, um, for example, there's probably now, thanks to video conferencing, there's a kind of spot market in human talent, which didn't exist before. My argument would be nearly everybody on the planet would give you an hour of their time on Zoom for $1,000 or less. Okay? Okay. Not major celebrities. But what that means is you can tap into expertise in a, in a short-term spot market way, which the reason it wasn't possible was when you had to meet face-to-face. A face-to-face meeting, the opportunity cost of a face-to-face meeting is like half a day or a day. Okay? If you have to travel overseas to meet them, the opportunity cost is like two or three days. Um, if you agree to a face-to-face meeting, you can't go on holiday that week. Whereas, if you agree to a Zoom call, you've just got to come in from the beach and have the decency to put a shirt on. Right? And then final thing is that a Zoom call is less of a hard commitment than a physical meeting in that if you cancel a Zoom call, people are just mildly inconvenienced, but they don't get angry. Whereas if someone's traveled to London to see you and you tell them at the last minute you can't do the meeting, they're not, they're perfectly understandably, they're really, really pissed off. But the whole psychological nature of these things is totally different. The whole context of the thing is different. And what people do is very strange. They go, "It's not quite as good as a face-to-face meeting." And you go, "But the point is that this meeting in the real world would never have happened at all. You go, you know, you're in Chile and the other guys in New Zealand. The likelihood that we'd ever meet in the real world is pretty close to zero. And if we did want to do that, it would cost about £15,000. And we're doing this here for free." So, it's very strange how people compare. They look, people look at Zoom as a form of communication or Teams. And

Their immediate assumption is you have to compare it to, um, a physical meeting. But the vast majority of Zoom calls are meetings that wouldn't have happened at all in reality. Very interesting.

By the way, comparison of speed. I've made this point a few times. All of you look at Olympic swimmers and go, "God, they're really fast, aren't they? It's a new world record." Right? One thing you can't do in Olympic swimming is have someone walking alongside the the edge of the pool. Because you realize that even world champion swimmers could be actually outpaced by a retired person with a Zimmer frame if they put on a bit of a burst of speed. I, I can't remember. I calculated the speed once. It's like 3.8 or 4.2 mph. That's a world record time if you're actually swimming. We think of it as fast because it's fast compared to other swimmers. But in reality, it's slower than someone in a pair of wellies. Okay?

And so this is what I mean about the way in which we judge things. What we tend to do when we judge something is we look for a frame of comparison and we go, it's a bit like this, but not. And that, that leads to utterly nonsensical things, I think. But anyway, I'll, I'll, I'll talk, I'll, I'll, I'll move on because I'm probably running a bit low on time.

This is the whole business if you change the context. And so I think one of the ways in which AI might provide a huge opportunity for innovators isn't in being really, really clever in a textual way. I think it might be in creating an entirely new interface where, you know, imagine a company where you, an airline where you could simply ring them up and say, "I want, you know, can you give me this information in an email please?" and you describe what you want and, you know, five seconds later the email arrives. You know, that, that starts to be a really interesting disruptive business.

But here's my point. Most of the time we try and solve problems in the real world because that way we can look objective and rational, and we don't spend enough time looking for psychological problems. Now, example of this, okay, range anxiety in electric cars, right? Two problems with range anxiety. Well, there are two ways to solve it. You increase range or you decrease anxiety. Okay. Now, that, I suppose, one solution, I'd never thought of this before. One solution to range anxiety would, of course, be pharmaceutical, which is you just give people free drugs with their electric car and they go around not really cared that they're at seven, not really caring that they're at 7%.

But actually, the point is that billions are being spent trying to increase range by increasing the energy density of batteries. But I don't know of anybody. There's a small group of us who have just started doing this in the UK saying, "Why do we spend a bit of time reducing anxiety?" And there are two really big reason, well, three ways you could reduce anxiety pretty much off the bat. Anybody got an electric car here? How many people? Few. Yeah. One, when you're at 86% in your electric car, it doesn't need the second digit. Right? Because you drive to the shops and now you're down to 85% and you go, "Oo, I'm losing charge." Okay? When you're at 11% or 7% or 14%, you need that level of granularity in your battery charge. Over 60%, it should just say 60% plus, 70% plus, 80% plus. Okay? You know, there's no reason. You know, your petrol gauge never did that, did it? You know, it never said, "Oh, your petrol tank's 37% full." Basically, it was half full, quarter full, an eighth full. Oh, the lights come on. That was how your petrol gauge worked. Okay.

And so secondly, one of the reasons people are anxious is simply because electric car charges aren't very visible, right? Petrol stations all grew up in the era before GPS. So if you weren't really, really ostentatious, nobody bought any petrol there because they couldn't see you. Okay? Nobody's ever said, "I went for a walk in the country and came across a charming little petrol station nestling among the trees." You had to be on a big busy road or better still a junction and you had to be visible from 400 yards away. When they installed these high-powered electric chargers, they put them around the back of an industrial estate in an obscure kind of uh, in fact, my local Sainsbury's had six high-speed chargers I didn't know for four months. Okay.

So, one thing is just go and bribe Google and Apple for Apple CarPlay and Android Auto and say, "If you've got an electric car, can we just have a small amount of screen real estate saying your nearest available charger is X miles away?" Okay, that's all you need. Because it's not really range anxiety, it's infrastructure anxiety. Now, because we're trying to solve the range problem, electric cars are heavier than they need to be, more expensive than they need to be. A lot of them, to be honest, are using up a lot of battery capacity, which they don't need. Okay, it's much, much cheaper to reduce anxiety.

Now, don't get me wrong, by the way. In America, we were saying this last night, in America or Australia or somewhere, range anxiety is is a reasonable rational thing because people live 600 miles away from their mum who lives 100 miles west of Boise, Idaho. Okay? You know, you don't want to be stuck stranded in the middle of some wasteland. But in Ireland or the UK or the Netherlands or Belgium or something, it's a completely academic problem. Densely populated small countries. I mean, once you've got about 150 miles of range, 90% of people, 99% of the time are going to be absolutely fine.

Um, I mentioned this with trains, okay? Uh, if you make, instead of making trains faster, just make the time on the train more enjoyable. If we'd given the brief for Highspeed 2 to Disney instead of giving it to a load of engineers and Mckenziites and nonsensical people like that. Okay. The first thing Disney would have done is they'd say, "Look, you've asked us for a train that goes at this speed, carries this number of people, blah blah blah." They'd basically go, "Wrong question. The question you should have asked is, how do we make the rail journey between London and Manchester so enjoyable people feel stupid going by car?" It's a psychological question that should have been asked. If you're trying to solve for a behavioral problem, you should be, you should be defining the brief in behavioral and psychological terms. Instead of assuming that speed somehow meets, neat maps neatly onto consumer preference, there's a fundamental misalignment between what engineers are generally trying to do.

I mean, actually, you see that. I, I've never met him, but I've always wanted to tease him about this, which is I'm absolutely sure that James Dyson thinks that everybody buys Dyson vacuum cleaners because of their superior engineering, when in reality, I think it's because they look cool, if I'm being absolutely honest with you. All credit to him, though, he was the one guy who wanted to make them transparent. Now, my hunch would be if Dyson had done everything else identically but had made the Dyson vacuum cleaners opaque, I don't think anybody would have bought them. I'll be absolutely honest with you. I think that was the actual decisive thing in their success. And the argument is that no, the argument was nobody wants to see the dirt. Okay? And Dyson's argument was that the act of vacuuming is more satisfying if you can see the stuff as it comes out of the carpet because there's a kind of feedback mechanism. So, he got, in fairness, he got that absolutely right.

Um, how long have I got? I've got a bit of time. Have I? Okay, sorry. I'm just trying to click on the Ah, there we go. Uh, my favorite psychological hack of all time. If you've got a load of data on passenger satisfaction and taxi use, what it would have told you is people don't like waiting for taxis. And the longer people have to wait for a taxi, the less happy they are. So, the logical person would immediately say, rather like those walking SARS who go, "We're here to promote walking, so we need more footpaths." The logical person would go, "Well, let's do a predictive algorithm to see if we can reduce taxi waiting time." Okay. Uber did something much, much easier. They just realized psychologically that it isn't the duration people mind, it's the uncertainty. And once you can see your taxi on a map, basically it doesn't change the quantity of time you spend waiting for the taxi, but the quality of your wait time is literally 10 times better. So instead of going, "Oh, maybe it's outside. Where do I go? Oh god, it's raining. Uh, maybe they lied. Maybe the taxi is not in its way. I better go outside because, you know, I need to check there there." Instead, you go, "Oh, look. It's over there. I've got eight minutes. I'll have another pint." Okay.

And actually, the probably in my entire working life, I think one of the most valuable things I've ever said to any client ever was simply saying to British Airways, "If you've got a delayed flight, the first thing you do before you repair the plane, find an estimate of the delay and put it on the departure board." Because if you put "delayed 67 minutes," I'm not saying you can say "delayed three days," right? I'm not saying that time is irrelevant, but basically "delayed 67 minutes," no one cares, right? The effect it has on people's happiness because unless you're Swiss or an retentive, you've built an hour's buffer into your day anyway, haven't you? Right? Okay.

So, fundamentally, if what don't try and change the objective reality of something, change how it's experienced. And you said that exactly. People buy experiences. They don't buy goods. They they don't pay prices. My point at the end of this is that to economists, price is a number. But to consumers, price is a feeling. So I'll go on a bit further. Here we go. Ah, this is a bit of video. And I consider this the greatest recontextualization in political history. Not many of you can remember this. Reagan's second term. He's 78 years old. Rather like the last American election. There's some accusations that he's too old and that he's not up to the job. And he starts messing up a few of the debates and fumbling his words and his advisers are all saying, "You've got to address the age issue. You've got to tackle it head-on." Reagan does something far more brilliant. He reframes it. And if you watch this, it's, it's only two or three minutes, but it's worth rewatching.

"Concern about his ability, especially mentally also. There are moments when..." Here we go. "73 years old. There are some concerns about his ability, especially mentally, to keep you in his doubt. Nobody knew anything about Alzheimer's at this point, but there were some concerns that were out there. In the first debate, Reagan against Mandale. There are moments when Reagan seems he's lost for words. He seems to go blank. The system is still where it was with regard to 10 minutes with regard to the the progressivity. As I've said, Walter Mandale said looking back, he said that was the one moment he believed he really could win that election. Today we have a brand new race. They got two weeks to get ready for the next debate. There is one more debate and Reagan has one challenge. He has got to reassure the country that what they saw in that first debate was an aberration, that he'll be fine getting a second term as president."

And so he shows up, uh, for the second debate. He knows the questions coming. People around him were trying to coach him. He told them before, "No, no, no. I got it." They didn't know what he had had in store. So the question comes up, the moderator says to him, "You already are the oldest president in history. Some of your staff say you were tired after your most recent encounter with Mr. Mr. Mandale. Um, I recall yet that President Kennedy had to go for days on end with very little sleep during the Cuba missile crisis. Is there any doubt in your mind that you would be able to function in such circumstances?"

"Not at all, Mr. Truid. And I and I want you to know that also I will not make age an issue of this campaign. I am not going to exploit for political purposes my opponent's youth and inexperience." So we can skip on to the next slide. But what was fantastic about one joke. Okay. The whole issue is killed. And that's one thing you learn in advertising, which is that it was very interesting. All his people were trying to brief him with a rational argument. And he wasn't going to spoil the joke by telling it early. He just said, "Don't worry, I've got this."

And one of the most important things I think in understanding intuition is that you can communicate things with humor that you can't say straight. If you take the famous Economist poster campaign, you know, "I never read The Economist. Management Trainee aged 42." Okay? Right? What that's actually saying is actually reading The Economist will make you successful at business. It's kind of a wanky message. Economist readers would have actually hated that message, but if you say it obliquely, it works. And this was the, this was the brilliant reframing of, and funny enough, Sara, which is a company in the UK which markets to the elderly, um, has actually basically stolen from Ronald Reagan and because they sell holidays and cruises and things to, uh, people over 50. I've told them, they haven't listened, that you should make it over 49 because there's a massive psychological difference between holidays for people over 49 and holidays for people over 50. It's a bit like, you know, 1999 pricing. Okay.

Um, uh, they, they're new strap line is simply "Experience is everything." They're effectively stealing from Reagan and rebranding age. Um, it's a holiday company for people who know what they like. Okay. By the way, interesting fact, we do become more conservative as we get older. And there's a very good reason. We become le, those of you with teenage children will find this maddening, right? Because they have to make mistakes for themselves and they have to try everything out for themselves. You go, "I've been doing this for 20 years. I know what to do." "No, I'm going to do this." Now, the reason for this is that when you're young, two things, okay? You have less experience to draw on, so experimentation pays more. But also when you're old, you have less future life left to benefit from a useful discovery. So the reason we become more conservative and less experimental as we get older is actually totally sensible in evolutionary terms. Whoops. We'll just go back into the. Here we go. Sorry about that. I, I couldn't resist showing that Reagan thing.

There's a fantastic thing, by the way. How many people are familiar with the explore-exploit trade-off? It occurs in algorithm design. It occurs in animal foraging. Um, some people actually think that it's, it's a fundamental property of human life. If you look at bees, it, it varies, but 80% of bees follow the waggle dance. They know where there's nectar, they know where there's pollen, and they obey instructions, and it's simple double-entry bookkeeping. Okay? Pollen collected is greater than, uh, energy expended in collection. The accountants love that stuff because it's really measurable. It's really kind of attributable. Okay? But to the bafflement of bee scientists, they discovered that 20% of bees don't follow the waggle dance. They go off at random. And they thought, bees have been around for 20 million years. Evolution really, really hates waste. Why is it that it tolerates this degree of kind of randomness in bee behavior, okay?

And they modeled it as a complex system. And they realized, and bear in mind, some of you are in the business of growth, right? I think a lot of the reason why companies aren't growing is they're too hard at, they try too hard at being efficient at what they're already doing. And they've got the explore-exploit trade-off fundamentally wrong because if you're interested in short-term shareholder measures, a, you know, if you think about it, a beehive that was measured on its quarterly reporting would immediately force all the scout bees to go and collect pollen from known sources and optimize the efficiency of collection of what is already known. What they realized when they modeled this as a complex system is that if you don't have the random bees, the hive eventually gets trapped in a local maximum and starves to death. It gets over-optimized on the past. It can't adapt to changing circumstances. So, if new flowers come into bloom two miles in the opposite direction or if a herd of cows break into your favorite field and don't and eat up all your all your assumed, uh, pollen sources, okay, you don't know how to adapt. You fundamentally become over-optimized on a single thing.

And so in algorithm design, in various forms, there's, there's one scientist in London who believes that the reason we have neurodiversity in human beings is for exactly the same reason that in any group of sort of hundred people, it pays to have six or seven people who look at the world really, really differently. And so it's called the explore-exploit trade-off, but when you think about it, it's not a trade-off. Now, what's a problem is that some of those scout bee journeys come back with nothing. But one time in 200, they come back with something much more valuable than pollen or nectar, which is information about the source of even more pollen and nectar. And if you optimize a business around efficiency, okay, you fundamentally, your first reaction is to get rid of the scout bees and to stop investing in discovery and spend all your resources on exploit. It's a bit like that famous phrase that if you have a company run by engineers, it never makes any money. But if you have a company run by finance people, it never makes anything at all.

But, um, these are other brilliant reframings. And I think one of the things we need to do very simply is whenever we have a problem of any kind which in some shape or form involves human beings or perception, we simply have to make two or three days time free to go, "Is there a psychological solution to this? Are we actually trying to optimize something that consumers don't care about?" And we talk about quite a lot in as marketers, you know, unmet needs. But I, it's also worth talking as marketers about met unnes. That a lot of businesses will spend a lot of time, you know, train companies, for example, will obsess about whether a train is two minutes late or not minutes late and they get fined on that basis. Not a single passenger on the train gives a if their train's three minutes late. You can't lead your life to that level of kind of anal precision. Reframing psychological solution. This cost 200 million pounds. The Elizabeth line in London cost 20 billion pounds. This carries as many people. How? The reason was it always existed. It was a, a series of railway lines around London that always existed, but they never appeared on the tube map. And Londoners think the tube map is a map of London. They got this from a totally unused network of railway lines to something that carries, I think it's 20 million people a week, if I've got that right. Um, certainly a month, might be a week. As many people as the Elizabeth line. Now, in fairness, they, they tarted it up a bit. They improved the rolling stock. They improved the lighting. But they did a brilliant reframing. They just took a railway line and pretended it was a tube line. It's all they did. On the first day this appeared on the tube map, usage went up by a factor of four on day one. And suddenly it completely changed where people would go and live in London because everybody who looks for a place in London goes, "Is it close to the tube?" Okay. And when this wasn't on the map, you suddenly got people saying really weird things like, "I want to live in Peckham because it's handy for Short ditch." Okay. Literally, I heard someone say that in 1990. You would have been committed if you said that, but there we go. Um, but this was literally, I would argue it's 20 billion pounds worth of infrastructure that was mostly created with pixels and ink. Wasn't really created with railway lines. It was created with information.

Got five more minutes. I'll be very quick. Right. Final psychological solution which I think is genius. Now, it's a banquet at Buckingham Palace in about 1954. Churchill's prime minister. Again, if I'm right, the Queen's newly on the throne. Present are immensely important dignitaries, heads of state, high commissioners, etc., and someone comes to the top table and points out to the Queen and Churchill that one of the distinguished guests has been spotted stealing a pepper pot. Now, it sounds pretty trivial, but they're apparently they're solid gold or something. They date back to George III and they're worth about £5,000 each and irreplaceable. So, they have this massive dilemma. Okay, if you have a contradiction, you can't resolve a contradiction rationally. You always have to treat it as a trade-off. But if you're allowed to use psychological solutions, you can resolve the contradiction, okay, by thinking about it differently.

So they've got this huge dilemma, which is, do we create a diplomatic incident or do we just take the hit and allow this guest, who was female, we don't know who it was, to steal this £5,000 pepper pot? And Churchill goes, "Don't worry, leave it to me." "What?" "Okay, I'll take care of it." And he leans over and he takes the matching salt shaker from the table and he puts it in his breast pocket and then he just waits. About half an hour later, the woman who's stolen the pepper pot, uh, is standing by the window on her own and Churchill just wanders up to her, pulls out the salt shaker from his top pocket and goes, "I think we've both been spotted. We probably better put these back." Okay.

Now, I don't think she actually believed really that he also was in the business of stealing the tableware. But by presenting himself as a fellow conspirator, not as an accuser, the whole nature of the conversation is totally different. Okay, one of them is a massive affront to your status. "Are you calling me a thief? I am absolutely outraged." You can imagine the whole thing, right? You know, fervent denial or claims that it was a mistake. Massive embarrassment. You go, you go along and say, "We're both guilty of the same thing, but I think we haven't got away with it." The whole psychological outcome of that thing is totally changed. And the psychologist Kevin Dutton, he, he basically asked a brilliant question. He said, "Is there actually a solution like that to practically everything? It's just that we aren't looking for them or that."

Now, could I have come up with that solution? I often ask myself that question. And what amazes me about it is I probably could have come up with a solution if you'd given me like a month. Okay? Literally a month to think about nothing else. You probably could have come up with that idea. But there's something really fascinating about psychology. The, the great thing about psychology, okay, is this is why people don't like it because people love certainty. They crave certainty. They love winning arguments. They love being right. And so they hate psychology because it's messy. But the great thing about psychology is it's messy. Okay? You can't rewrite the laws of physics, but you can mess with the laws of psychology any way you like. You can make something bad seem good. "Good things come to those who wait" for Guinness. Okay? Um, "Reassuringly expensive" for Stella Artois. "We're number two, so we try harder" for Avis. You can literally take something which is assumed to be a negative and make it a positive. Okay? You know, you can't do that in the real world of physics or chemistry or gravity or whatever. But in psychology, you can literally do that all the time. The weird thing is we spend so little time doing it. So rather than trying to change the world, change how people see the world because when people see the world differently, they behave differently and that then changes the world. Simple.

I haven't got time to tell you examples other than one, but we worked quite a lot with a large cinema chain in the UK. And one of the things we very simply did is they had standard seats and premium seats. And we said, "Why don't you create super premium seats?" Because then more people will buy the premium seats. Perception is relative. What was even better was they discovered the place to put the premium seats was to put bloody big day beds right at the front. So they actually occupied what was previously unused real estate. So were pure profit. Okay. Using other techniques with Odian, the number of people who've pre-booked food, which admittedly from a low base, I'll be honest here, statistically, by changing the context in which we offered the ch them the chance of pre-booking food, the number of people now pre-booking food went up by, wait for it, a factor of 27. Okay. Um, the number of people who actually join the loyalty program by tweaking the context. And this is what I mean. Advertising always wants to try and change minds, but my argument is, before we try and change everybody's mind one at a time, if you just change the context or the frame of reference within which they make a decision, they'll make a different decision and you only have to do that once.

So anyway, I'll be very quick now. I've got five more minutes. I'm just going to give very quick examples of weirdness with relation to price because the single area of marketing, the single P that's most woefully neglected and which has the greatest potential I think to increase profit is price. And near in nearly every case when something's mispriced, it's priced too low, I would argue. Okay. Also, it's quite easy to correct if you price too high, whereas if you price too low, you're kind of doomed. Okay. It's very, it's, you know, it's very difficult to get back up off the floor. Wine. Speaking to the expert, um, Joe Fatini, the main reason people spend a lot of money on wine is not for better wine, okay? It's to mark an occasion. Similar thing probably happens in women's fashion. Okay? There is a commensurate amount of money which is appropriate to your best friend's wedding versus going down the shops. Now, you could, unless your best friend's Anna Wintour, you could probably get away with going to your best friend's wedding in something from ASOS or Zara and nobody would actually know, but you'd know. And a large part of wine expenditure is basically to say, "This is a special occasion. It's a birthday. You want to show generosity. You want to show hospitality. You want to mark someone's anniversary. You want to say, 'This time it's different.'" And a very large amount of spending a large amount of money on certain categories is simply driven by that anthropological urge to say, "This is special. This time is different. The usual rules don't apply." Okay.

Next thing. Um, whoops. Sorry. Uh, I've already mentioned this, uh, the genius of the halo effect. Um, the other brilliant thing of course is, I mean, by the way, I'm a total dishwasher obsessive and I occasionally pay full price for this, I mean, seriously. Okay. But the other point is that sometimes it's sold at 50% off and then it's totally irresistible, right? Okay. It's half price and even if I've got two packets of this bloody stuff under the sink already, I go, "I better stock up while I can." And they still make money. By the way, who, who's from Reckitt here? You are. Yeah. Who, their their behavioral science or pricing team are total geniuses. I mean, um, the only other, the only other interesting thing. Yeah. Here's another one. Cler. Now, a standard economist would go, "It's three months interest-free." I, I was joining a club the other day. It wasn't that expensive. It was about £200 a year. It's the RSA in London. And they had three price points. You could either pay monthly, annually, or quarterly. Okay. Now, there was no interest. So, what you paid was basically the same. It was just I had a massive preference for paying quarterly, which I can't explain. Okay.

Now, I would argue that when you offer something in three equal interest-free payments, you're not just offering a bit of a, you know, a bit of a break for their credit card. I think it's, it makes it, I think it makes it a fundamentally different product. Okay. I think a product that's five, you know, a Dyson fan or something that's £580 versus one that's three payments of whatever it is, 80 or something. Okay? Right. I think they're different products. I, I really mean that. Okay. I think the way we react to price is so emotional and so visceral that you can't just say it's a different way of paying. And so experimentation with different ways to pay strikes me as really, really fundamental because to an economist, they all look the same. Okay. Oh, well, I suppose, and an economist would go, "It's perfectly rational people using Cler because they're getting three months interest-free." Okay. You know, economists would assume that you were using those three months to put the money in a high-interest-bearing account or something tragically sad like that. I hate saving personally. It's just consumerism needlessly postponed. But, um, I, you know, I think understanding the cycle. This is one of the things we've done which nobody nicked. Dashum, very good Indian restaurant in London. If you belong to the loyalty program, we give you a dice. Okay. And the only time that Dashum actually has spare tables is before 6 PM Monday to Thursday. If you're a member of the loyalty program, you have this little die that they give you. Every time you pay your bill before 6:00, Monday to Thursday, you throw the die and if you throw a six, you get your meal for free. Now, logically to an economist, that's a 16.6% discount. Okay. I'm then on a phone call about two years later. So, this was our idea for Dashum. It's hugely cultish. Okay. And there these guys at Chicago, they don't know we've worked with Dashum. They go, "Oh, you're from London." "Every time we go to London, we have to go to Dashum. Uh, we go, we go before six o'clock because one of my colleagues has got a dice. Right. And we bring a guy along from the London office because we think he's got a hot hand." Right.

Now, what was weird about this? Okay, all these people worked for William Blair Associates, which is like a minimum, a miniature Goldman Sachs, privately owned Goldman Sachs, right? Half the people on the call could have bought the restaurant. Okay, these people wouldn't have crossed the road for a 16.6% discount. You know, in fact, it would have put them off, to be honest. Now, I've never understood. I always think the Dunnes Stores promotion is utterly brilliant because it basically gives you, uh, you know, if you like, it gives you basket size, it gives you frequency, it gives you loyalty. It's a brilliantly simple idea. Not many people copy it. Not many people copy Amazon Prime. It's a brilliantly simple idea. And the point about Amazon Prime is that I think however rich you are, right, 10 people don't mind paying for delivery once a month, but one person really resents paying for delivery 10 times a month. And I think the point about Amazon Prime is if you want to have frequent customers rather than just a lot of customers, you've got to have some sort of mechanism like that. I don't know why more people haven't nicked this because one of the advantages is, right, if there's a one in six chance of getting a meal for free, you spend more, don't you? Right. Okay. Because you'd feel a bit of a dick if you skimped on everything and then ended up winning the meal. Okay. And it weirdly seems to attract these weird high-rolling people who just find the whole thing. No retailer, as far as I know, has ever experimented with that. And yet it strikes me. And the reason I think these things work so well is because economists look at them going, "16.6%." No consumer looks at that and goes, "It's a 16.6% discount." Maybe a professional poker player or someone would look at it like that. Okay, it's a totally different psychological experience if you pay in a different way. People prefer 50% extra free to 33% off the price, much less margin eroding most of the time. You'll know whether this is true, but it's really, really worth testing because 50% extra free, I'm assuming if you're a package goods company, erodes your margin much, much less than dropping 33% off the price. Okay. Now, most, an economist would go, "They're exactly the same, wouldn't they? 50% extra, 33% off." It's exactly the same in terms of unit price. I think they're totally different things psychologically. I think the way we respond to them emotionally is a, one of them is an act of generosity and the other one's an act of desperation, I might argue. Okay.

Now, I always wanted to do an experiment which was how much of dis of 50% extra free, how much of the success of that is actually economic, in other words, "I am getting more for the same price," and how much of it is just, "There's a deal." Okay. And so I said to someone once, I'd always wanted to do this experiment which was totally illegal, okay, and totally unethical, which was, you put 50% extra free on a product on the shelf and then you put the price up 50%. And you see what happens to sales because that totally unethical experiment would tell you what part of it is actual financial calculus of, "Look at what a lot of chocolate or what a lot of washing powder or what a lot of McCain oven fries I'm getting for this money," and how much of it is just, "Oh, me, there's a deal." Right now. I've never been able to get the data. How do I know? We didn't do the experiment. I shared it with a client who I obviously won't name who said, "I know the answer to that question." And I said, "Well, how the hell do you know?" And he said, "Because we're an enormous multinational and a few times a year, we do it by mistake. We put 50% extra free on and someone keys in the wrong price point and so the price goes up 50%." I go, "Okay, please give me the data. I'd love to see this." He said, "Obviously, I'm not going to give you the data." I said, "Well, give me a clue." He said, "Put it this He said, "You wouldn't believe how much money we make." Okay. So fundamentally, okay, what's going on here is as much an act of attention-grabbing interest. Oh, I can't decide between these five things. This one's got a deal on it. The economic calculation, I would argue, is for most people a relatively small part of what's going on.

Um, okay, I better end there. One of my favorite pricing scams is going to places where you get a lot of Airbnbs or a lot of tourists and selling really, really small things at quantities of things at a huge price. You've all done this, right? You go and rent an Airbnb and you go out and you need to buy shampoo and you go around the local branch of Pingo Doce or, you know, or Monoprix or whatever it is going, "I want the smallest of everything because otherwise I'll have to leave it behind at the end of the holiday." I've always thought, you know, I don't know why I actually reckon I haven't thought of this because you could probably sell seven dishwasher tablets for 200 pounds in places, okay, in places where people just want small. Um, we have sizes. You do. You do. You've thought of that. There's no beating you guys, is there? No. Um, I've always said the Harrods sale, I'd love to do a secret sale and see what effect it had on sales. In other words, without all the FOMO, the social proof, the razzmatazz, if you just drop the prices that way and you don't make a lot of noise about it, how much more do you sell? Because I would argue that sales are actually really a social phenomenon more than they are an economic phenomenon in many cases. And then finally, I think this is the last one. Yeah, just because it follows economic logic doesn't mean it's logical. Yep. There's a logical explanation for why people all queue up in a sale, which is to save money. I think there's a large part of it which is effectively or it's anthropological. I mean, one of the things that fascinates me, you know, I mentioned, you know, the opposite of a good idea can be another good idea. One of the things that really amuses me is the popularity of farmers' markets because a farmers' market defies economic logic because you're buying direct from the manufacturer, but you're paying more. Okay? You know, you actually pay more than you would in Tesco. And I think the reason is that farmers' markets are actually just they're street theater to an extent. They're all to do with localism. I mean, the way you create a farmers' market, by the way, is you take a Tesco, a metro, and you make it really. Okay. So, you do, you go, "Okay, we'll make it outdoors, uh, you know, in the rain, and you'll have to pay seven different times to buy seven different things, and it's really slow, and you've got to queue seven times, like you're in the Soviet Union or something, right?" But this is what I mean by actually a very good futurologist told me there's no such thing as a trend. There are only vectors. That whenever you have a trend, it always creates a counter-trend. And people have probably found a lot of their retail is too efficient, too impersonal, you know, too anonymous, too high-tech, and they're actually going back to kind of Victorian retail. Well, the perfect example of this, okay, I love this. When I was a kid, and some of you will remember this, the rich kids at school had all been somewhere long haul, and they'd all been to one of these amazing airports, and they all talked about them. They went, "Oh, I went to Schiphol. It's amazing. I bought a Walkman for like, you know, 120 quid. It's amazing. They got shops and everything and restaurants and everything, right? Okay. And then eventually it moved to Changi and people came back said, "Oh, I went to Singapore. It's amazing there. There's like a waterfall and there's this and there's that and the other." Okay. And then it was Dubai. Oh, I went to Dubai airport. It was fantastic. They've got this fantastic shopping mall and blah blah blah. And then eventually every bloody airport became a bloody shopping mall. And the next thing you heard was, "Have you been to London City Airport? It's brilliant. There's hardly anything there." Right? And people suddenly go to London City Airport and go, "This is fantastic. I don't have to walk through Bluewater just to get to a plane, right?" And so this is why you need the rogue bees because there's always something else going on which people aren't noticing. While everybody's talking about one aspect of a trend, there's always something else going on.

But here's my final point. Very simple. To economists, price is a number. To consumers, it's a feeling. Very simple. Very simple to that. The weirdest thing of all is this business of doing Clubcard prices where you only get a a discount if you use the loyalty program. Our argument, we suggested this to to Sainsbury's in the 1990s. And our logic was actually not just that it would drive take-up of the loyalty program, but that some a discount that not everybody else can have has a higher perceived value than one that's just effectively open to all. Okay? If you know, if you literally say 20% off to over, it's called the idiosyncratic fit phenomenon in behavioral science. If you say 50% off to over 30s or something, okay, the over 30s see that as being much more valuable than if you go X% off to everybody. So one of the most important things about this, by the way, is the worst mistake you can make. Uh, I, I'll end on this. The worst mistake you can make is assuming that once you're doing a discount, it doesn't need marketing because the discount stands for itself. Okay. How you present a discount, 50% extra free versus 33% off, exclusive to this because you're a a reward club member, you could save two pounds. Okay. I'll give you a psychological example. Okay? If you, if there was 20% off all BMWs, you wouldn't be that interested. Whereas, if you had a mate who worked for a BMW dealership who could get you 20% off because you were a mate, you'd be bashing down a path to their door. Okay? So the perceived exclusivity of a discount, the value of a discount is not just economic, it's actually very, very psychological. And so the worst thing you can do is say, "We're dropping the price, so we don't need to do any marketing." What you've now got to do is you've got to market the lower price. I hope that's been useful.

There is a whole, uh, by the way, the consistency point is that's the rarest quality quality of all. Actually sticking with an idea through multiple marketing directors or whatever. So I will actually say I was peripherally involved in the beginning and I would argue that Dove might be an example of reverse benchmarking. Okay, which is if the whole of the market goes in one direction towards, you know, artifice and, uh, you know, and a particular idea of beauty, effectively, you know, it's, it's a bit like that. Sorry, there's a terrible phrase from Sir James Goldsmith which is, "When a man marries his mistress, it creates an immediate job vacancy." Okay, I don't want you to take that literally. It's a terrible phrase, okay? And he wasn't a nice man. But what, what often happens is that the, the tendency of brands to benchmark against each other, okay, often creates what you might call a vacant space somewhere. And I think Dove was a beautiful example of of doing that. But what's really beautiful about it actually is the consistency. Um, and and I mean, nearly, I mean, funny enough, I, I was on stage with Scott Galloway a couple of nights ago and someone asked the question, you, what do you most regret? And it was a campaign done by another agency for the AA, the fourth emergency service. And a mad new marketing director took over and wanted to get rid of the line, "The fourth emergency to our members was the fourth emergency service," which had brought them sort of literally extraordinary levels of growth over the last few years. And I would say my biggest regret was we could have just refused to pitch and just said, "This is an act of brand vandalism. Uh, we're not willing to participate." It was also really weird working on that because all the creatives were basically sitting there for the first week going, "But this is really dumb. Why would you do this?" And so actually that, I mean, one of the great things is that consistency, which used to be, you know, in my childhood, brand consistency was pretty commonplace. It really, really marks you out now.