Behavioural Economics

Work is part of the IPA (Institute of Practitioners of Advertising). Only 270 agencies are part of the IPA, however those agencies that are part of the IPA are the real deal handling to 85% + of the whole UK advertising spend.

It is quite a tough process to be accepted and once you're in it is hard work to stay there as the targets of hitting CPD can be quite strenuous in a busy advertising agency. That said it is a fantastic industry body which provides a huge amount of resources to aid with improving business/marketing knowledge. A lot of major brands will only consider agencies part of the IPA as they know the level of Personal Development learning involving in being a member.

One piece of knowledge the IPA have been sharing recently is Behavioural Economics. Although the Theorem is decades old, notably coming about in the 1950s, it is relatively new in study. You know when people are winning Noble awards based on their research into Behavioural Economics that it is something to be taking notice of!

Behavioural Economics is a challenge on Classical Economics where the methodology was based on all human beings thinking and acting the same when it comes to decisions. A methodology I didn't agree with in the first place. Behavioural Economics looks at psychological decisions people make when making a purchase.

This new study is vital to the growth of marketing, where marketing has been considered simply ideology in the past and brand value not taken into account on the boardroom spreadsheet, Behavioural Economics gives fresh science to how the customer behaves and how important developing brands and marketing strategies needs to be.

A good example of this is an area of Behavioural Economics called "Price Perception". It looks at how a well developed brand can charge more to a product than a competitor. In mental acuity tests, those that chose the more expensive energy drink believed they performed better than the cheaper competitor when in fact is the cheaper energy drink had exactly the same ingredients. The same with medication, people spent more on over-the-counter drugs believing they were better when in fact the only variable was price.

Price Perception is a huge area in the health and pharmaceutical sector and always commented on by my girlfriend Becky. A cough medicine will be advertised on TV, and the next day people will be immediately buying the product despite the Dispensers advice that their current medication is cheaper and better.

With better marketing companies can create powerful brands which in effect can create them more profit. Hopefully the tables will turn and advertising agencies will invited into the boardroom to discuss company growth away from current alternatives of redundancies, outsourcing etc etc.

There are numerous other areas to discuss in behavioural decision making - ever notice that rarely does someone buy the most expensive bottle of wine or meal from the menu? Due to Choice Architecture people choose relative to what they can have, not absolutely what they want thus the most expensive items on the menu rarely have a great deal of profit attached to them compared to other items but create gravitas. It is the same reason why Rolls Royce sells cars at Yacht shows. A £200,000 Rolls Royce looks great value next to £5 million pounds worth of yacht.

It is why Audi spends millions advertising the Audi R8. How many people are going to be able to afford the Audi R8? Not many. How many can afford the A3 & A4? Millions. Because people think relative, they buy into dream of the R8, they can't afford that but buy into the model they can to be part of the experience.

Virgin are fantastic at building a brand. Their Virgin Mobile business is a Virtual Mobile Network Operator which basically piggybacks an existing mobile network(T-Mobile). It is the brand which you buy into, the tariff and customer service - the network is exactly the same as you would get if you joined T-Mobile direct.

Did you know that when in a telephone holding queue rather than telling the customer that "their call will be answered in x minutes", actually telling them to callback later makes people not hang up and hold on. This is because people work twice as hard to keep something than they do to obtain something.

With better marketing, companies can create powerful brands which in effect can create them more profit. Hopefully the tables will turn and advertising agencies will invited into the boardroom to discuss company growth away from current alternatives of redundancies, outsourcing etc etc.

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