What Placebos and Mexican Coke Teach Us about Customer Expectations

The power of placebos continues to confound the medical community. How is it possible in double blind clinical trials that sugar pills provide as good or better treatment results than actual medications?  A lot of it has to do human biology and how our brains perceive the benefits of a product or service – even before we use it.

Creating self-fulfilling prophecies first starts with understanding customer expectations. Dr. Gary Small, Director of UCLA’s Longevity Center and co-author of The Alzheimer’s Prevention Program cites research confirming how our brain neural circuitry drives our choices based on prior experience and expectations. The frontal lobe or “thinking brain” as it’s sometimes called seems to determine these perceptions he says.

What we expect to happen often actually does. And that’s why marketing is so darn important in identifying customer expectations and then designing a plan to deliver or exceed those very expectations.  Read Inc Magazine article

Sad, Spending and Overpaying

If you are depressed or even a little bit sad, keep your wallet at home. That’s the advice from experiments conducted by social psychologists at Harvard, Stanford and other universities. Behavioral research studies show that “feeling sad” may cause people to overpay for commodities at the rate of 30-300% more than they otherwise would. This research of course, flies in the face of New Classical economists claiming most individual consumers evaluate and make rational purchasing decisions. When it comes to spending, are you rational, or does emotion play a larger role?

A PBS special, “Mind over Money” mentions two schools of thought in economic decision-making; rationalists vs. behavioralists. The rationalists assume that consumers are completely rational, evaluating all available alternatives in a world of perfect information. Behavioralists, on the other hand, believe that emotion, excitement, and mood play a larger role in economic decision-making than previously considered.

A research report titled “Misery is Not Miserly” sheds some light on which line of thinking currently has the upper hand.

In a study, researchers hypothesized that people who “feel sad” and are more “self-focused” tend to spend more for commodities. To prove this hypothesis, psychologists set up two groups in different rooms. The test group was shown a sad video clip (the death of a boy’s mentor from “The Champ”), asked to write an essay, and then instructed to buy sporty water bottle. The baseline group was given the same task, but instead of watching the emotional video clip, members viewed a National Geographic segment on the Great Barrier Reef.

Though rationalists would say that there shouldn’t be any emotion carry-over effects from watching the scene from “The Champ,” the group exposed to the tragic video scene tended to pay up to four times more for the water bottle than the control group. This, in spite of many of the control group participants claiming the video did not affect their decision-making!

The researchers surmise that “sad and self-focused individuals spend more on commodities than other people do because they seek self-enhancement.” This in turn allows them to “increase the valuation of possessions that one might acquire.” In other words, people feeling sad or even depressed may find themselves overpaying for items in an effort to improve their state of mind.

Perhaps at this point you may be thinking that an experiment with water bottles has little relevance in your daily decision-making. Harvard social psychologist Jennifer Lerner would counsel you otherwise. She says, “(These) experiments have been done with high stakes money—a thousand dollars, etc.,—and what we find is that these results scale up, even when you use big money.”

Rational economists like John Cochrane from the Chicago School of Economics say emotions matter very little in economic decision-making. “The observation that people feel emotions means nothing,” he says. “If you’re going to just say markets went up because there was a wave of emotion, you’ve got nothing. That doesn’t tell us what circumstances are likely to make markets go up or down. That would not be a scientific theory.”

Counter that statement with Harvard’s Lerner, who claims emotions play a pretty significant role in economic decision-making, especially when experiments show sad and self-focused people spend more than they should.

The conclusions drawn from this debate matter very much, especially considering economic thought over the past 40 years has centered on rational decision-making. If rational decision-making isn’t the norm for consumers, it may be time to take a fresh look at the power of emotion in driving daily purchasing decisions.

Questions:

• The PBS Mind over Money special asks, “Does raw human emotion dictate your financial decisions, or are we rational calculators of our own self-interest?” What are your thoughts?
• Have you ever shopped when sad or depressed? Would you agree with the Harvard studies that “sad and self focused individuals spend more”?

Customer Experience: Smells Like Memories

Scientists have researched olfactory perception and discovered it’s quite common for people to associate memories and experiences with certain smells. However, it’s probably fair to say that most businesses haven’t given much thought as to what their showroom, waiting room or lobby smells like. In an effort to design a better customer experience, does your business pass the “smell test”?

Some smells bring us back to places, memories, or points in time. In a New Yorker article titled, “The Dime Store Floor,” author David Owen visits childhood haunts to recapture smells from his youth. In his journey, he checks to see if his old dentist office still smells of “volatile solvents and fear” or the basement in his childhood home still reeks of “dust and damp and plywood and clothes dryer exhaust.” Indeed, some smells linger on. Owen discusses how decades later, he can still generate a mental image of the smell of a museum he frequently visited as a child.

If you think about it long enough, chances are you can mentally reproduce a smell from a memorable time or place. That’s because the human mind creates deep sensory links to a variety of smells, and these sensory links are especially prevalent when attached to an emotional experience.

This familiarity is well documented in the research of Dr. Rachel Herz of Brown University. The whitepaper “I Know What I Like: Understanding Odor Preferences” cites three findings regarding the power of olfactory perception:

• Like or dislike of various smells is due to our emotional associative history with the odors in question
• Culture can influence our emotional attachment to smells
• Context sets the stage for perception of smells

First, the whitepaper mentions, “Whether we have a preference for a certain smell or not is due to our acquired emotional associations to that scent.”

For example, let’s suppose you run an auto repair shop. It would be pretty difficult, outside the installation of a coffee maker in the lobby, to change the odor of your business. Not to fear—the research of Herz and others show that what matters most is the pairing of odors to the customer experience.

In an experiment, Herz and other researchers noticed that when an “unpleasant odor was paired with a positive emotional experience, subsequent evaluations of that odor were more favorable and when a ‘pleasant’ target odor was paired with a negative emotional experience, subsequent evaluations of that odor were more unpleasant.” So yes, it’s possible that over time your customers could ultimately begin to love the smell of auto grease and car exhaust—provided, of course, that you’re offering them an incredible customer experience every time they walk into your repair shop.

Cultural differences also matter in olfactory preference. A supermarket poll by the Times of London cites that Britain’s top five favorite smells are: fresh bread, frying bacon, coffee, ironing, and cut grass. But if you plan on marketing a new chewing gum in Britain, just don’t try “wintergreen” as most Brits associate wintergreen with medicine! When it comes to “smell”, cultural associations matter, so do your homework and know your customer!

Finally, when it comes to smell, context sets the stage. Herz mentions an experiment where a particular odor is labeled “vomit,” when in actuality it’s parmesan cheese. Simply labeling an odor can influence end user perception of how it smells. To this point, Herz cites a clever example for marketers to think about: Are you selling a pine-scented disinfectant or is the smell actually “Christmas Tree”?

When designing a customer experience, smell matters. What associations are your customers forming from scents emanating from your business? What emotional attachments are you creating?

Questions:
• Are women more sensitive to some odors than men? Which smells?
• Suppose you plan on opening a maternity shop, which smells should you probably avoid?
• What odors do you powerfully associate with past experiences? What smells can you visualize—even from events decades ago?

Should Online Companies Be Forced To Forget?

Online companies have raised the eyebrows of privacy advocates who think web generated data should only be archived for a specified period of time. And while some companies have bowed to public pressure and only keep data on customer searches for a maximum of three months, others have not acquiesced. When it comes to privacy concerns, should Internet based companies be required “to forget?”

Neuroscientists have long claimed the act of forgetting is important to the processes of the human mind. Humans have a need to forget especially because each day our brains deal with tons of trivial information and clutter, not to mention hundreds if not thousands of marketing messages.

Therefore, our mental processes must prioritize which facts should have more importance than others—such as ‘where are my car keys?’ versus ‘what did I eat for lunch last Thursday?’ We must forget, because according to neuroscientists, our brains would overload if we captured every detail of our lives.

Yet, unlike the human mind which has a fixed capacity, computer data stores (i.e. disk, tape etc) are getting larger and cheaper to manufacture thereby allowing companies to keep more transactional details very inexpensively.

In fact, thanks to accelerating technological change, companies can now take advantage of less expensive data storage to keep transactional data for longer periods of time—with the ultimate goal of mining data for insights to improve the customer experience.

However, data retention policies of considerable length run head first into concerns from privacy advocates. For example, according to a Washington Post article, online search companies have policies in which they actively keep query data from 3-18 months, and in some instances longer. Their rationale? Online search companies say query data is used to improve their algorithms, optimize search results, and provide advertisers better targeting.

Privacy advocates, however, argue that search queries often contain personal details, and taken collectively can reveal a complete picture of the person using the search engine. Ultimately they say, too much power in the hands of a few key search engines is a privacy nightmare.

To effectively meet customer needs in a very complex and fluid economic environment, companies must be able to collect and analyze data to understand customer behavior, drive better communications and respond to changing customer needs. That said, the benefits of data collection and analysis must coincide with responsible behavior.

Questions:

• Should online companies be required to “forget” what they know about their customers and transactions? If so, what is the cut-off point?
• Should corporations advertise that they quickly “forget”—much as Ask.com has?
• Are consumer privacy concerns regarding data collection policies more bark than bite?