Failure of Economic and Marketing Models

One of the biggest issues we are currently facing is not just a crisis of the economy - it’s also a crisis of theory. When the theories and models we use to guide our decision making processes are outdated, or incorrect, then we are likely to make bad decisions. If this is true for economic models, could it also be for marketing models?

Outdated Economic Models:

From an economic perspective, an interview with Prof. Robert Shiller recently addressed this very topic. Conducted by McKinsey Quarterly, the interview raised some fascinating points on the failure of economic models to predict the current economic crisis. Click on the image below for a link to the interview.

If you don’t have time to watch the video, then the following quote summarizes the interview:

"Almost all economists had almost no clue that this crisis was coming...it wasn't in their models and it wasn't because they're not in the business of modeling human psychology. We are working on our way to better models, but they may not be the kinds of models that economists know and love. There's an underlying core theory in economics that depends on human rationality, but once we acknowledge that people are not fundamentally rational...then we have a problem with theory."

For me, the three important points raised in this interview were as follows:

1. Economic models didn't predict the crisis, because they didn't consider psychology.

2. Economic models assume people are rational, even when they often aren't.

3. New models that better reflect human thinking are needed.

Outdated Marketing Models:

From a marketing perspective, we are also facing this same crisis of theory, with many widely accepted models in desperate need of an update and an overhaul. The same three points made by Prof. Shiller with respect to economic theory could easily be applied to marketing theory, namely that:

1. Many marketing models don't consider human psychology (or not modern psychology anyway) - and can often fail to predict consumer or customer behaviour.

2. Many marketing models assume people are fundamentally rational (or that rational and emotional thought can be neatly split apart and targeted).

3. New models that better reflect human thinking are needed.

To illustrate this point, here’s one simple example of an outdated marketing theory that could easily lead to bad decision making - the habit of splitting apart rational and emotional motivations:

Contrary to underlying assumptions in many marketing models and theories, human thought cannot be separated into rational and emotional motivations (like layers or levels). In fact, modern science has shown that rational and emotional thoughts happen at the same time, and are deeply intertwined (like a symphony of thought according to famous neuroscientist Antonio Damasio).

So what's the implication for marketers and marketing theory? 

Take a look at your brand model or your marketing brief. Does it require you to choose between rational and emotional motivations, facts and feelings? Is one considered more important than the other? If yes, then you have reason to be concerned. Marketing theory may say these things operate separately, but science would indicate otherwise.

Millennial (Un)employment Motivations?

Yesterday on LinkedIn, a contact recommended reading “Dude, where’s my job? What happens when the most entitled generation ever hits a recession?” It was an interesting article and reminded me of some research we conducted in 2007 exploring the employment motivations of Millennials. Based on psychological needs, the research was designed to understand how an employer could appeal to Generation Y.

While I won’t bore you with all the details, three key insights emerged:

1. The need for security and reassurance: Through out childhood and most of their adult lives, Gen Y have been connected to the umbilical cord of their parents. When taking a step into the work world, they’re keen to find an employer who can provide a substitute for this unconditional security.

2. The need for affirmation: This takes many forms. It’s not just about money, it’s about affirming development. For Gen Y, every day should be a celebration of their awesome achievements. This was symbolised by an image of multiple champagne corks popping, which was selected by research participants because it represented the 'constant celebrations' they were expecting in their future workplaces.

3. The need for autonomy and variety: They hated being trapped repeating any particular task, let alone any single desktop application. This was particularly important for recent graduates, for whom the idea of stepping off one conveyor belt (school) and stepping onto the next (career) was very scary.

So how will Millennials react to a recession? Probably in a range of ways.

Some may become professional students, choosing to stay within the secure and reassuring environment of university and education. Expect some serious credentials post recession.

Some may work for love not money, choosing to pursue affirmation through internships, volunteer work or other areas of passion. Expect some fascinating resumes post recession. 

But perhaps most interestingly, many may become entrepreneurs. Having managed their own virtual businesses (Facebook, MySpace) for years, they’re pretty good at building networks, promoting their brand and innovating. If the opportunities don’t exist, you should expect them to make their own.

The Economy: Consumer Reflections & Brand Implications

Recent market research we've been conducting with consumers has uncovered some interesting insights into the current economic climate. Not only is the situation ‘shaking’ many consumer bank accounts, but it’s also starting to ‘shake’ their thinking.

For the past few years, families have made significant sacrifices in order to squirrel away their assets and wealth. Seeing it disappear is sparking some serious reflection - if all of our effort led to a net financial loss, perhaps we’d be better off focusing on a net emotional gain?

Here’s a neat quote from a father we interviewed illustrating the point: 

“Look at this economic crisis – there are people who can no longer look in the mirror and get a good feeling. People bought into this whole lifestyle thing, where what you have is what you buy. They become a slave to the dollar…It’s a money wheel, we’re like hamsters on a wheel. That’s the analogy for today’s life!! When you gotta have what’s new and best, you end up getting on that money wheel.” - Male (2009)

This same idea was illustrated a few years ago by JWT London in a TVC for Kit Kat: 

So what happens next? What are the implications for a brand?

Whilst people don’t seem to be abandoning the money wheel, they’re starting to reflect on their situation. This same course of action would be a good idea for many brands too. Reflecting and responding to shifts in consumer sentiment is the key to survival and success for a brand. In fact, to quote one of our clients: 

“Tough times are when great brands are built; what companies do now will determine their future in the market. This crash has turned the market into a muddy field and washed away a lot of competitive advantage. The brands that make their mark now will have a footprint for a very long time to come.” 

From what we are seeing, this current economic crisis may represent a turning point for many consumers and an opportunity for many companies. Ultimately big ideas often emerge from adversity – and a big shift in consumer sentiment creates a platform for these ideas. The question is, which great leaders and great brands will emerge?