Friday, October 16, 2009

Rory Sutherland: An advertarian's take on the world

Follow up interview ...

You call yourself an "Advertarian." Would you like to explain what that means?

Now, there’s a thought experiment that behavioral economists perform, one in which a man invents a brilliant new way for scanning X-rays -- so you can do cancer scans and X-rays at one tenth of the previous cost and at twice the speed -- and everybody heralds him as a hero. Then, it’s revealed that there isn’t any clever technology. All he does is scan the X-rays and then email them off to the Philippines, where highly trained, low-cost employees do the actual scanning of the X-rays manually, just as before, only at one tenth of the salary. And the argument that’s used by economists is that people are absolutely scandalized by this, everyone thinks is this absolutely outrageous, and "What a terrible man!" Yet, bizarrely, the effects are identical. The effect of offshoring to a low-wage economy is the same as a technological innovation. Indistinguishable. You might even argue that the second course is better, at least if you’re a Filipino in need of a reasonably well-paid job. But, interestingly, we judge them morally on a very different level. We’re very subjective about that, and the means and the intentionality make a big difference.

And I have a parallel example, where I say, “Imagine there’s a device that costs about 50p per household, per year, and if you install it in your house, it decreases the chance of a house fire by 30 percent.” And everybody goes, “That’s an absolutely brilliant idea. I want to buy one of those. And, actually, I think the government should pay for it and they should issue one to all households.” But, it’s not technically a device: it’s actually a TV commercial. To run the ad costs about 50p per household, per year, and it actually decreases the likelihood of household fires by 30 percent. There is a TV commercial that’s had precisely that effect. And then people go, “No, that’s not quite the same.” And the question you have to ask is, “Why is it not the same?” In other words, why do we regard solutions that involve, to a small extent, tampering with our heads or just supplying information or supplying persuasion ... why do we regard those solutions as lesser value than those that involve technology, for example?

It’s not that marketing-driven or advertising-led solutions can solve everything. That’s absolutely not true. What seems strange to me, though, is that people don’t at least try them first. Instead, governments try to solve their problems by compulsion. My view is that we should try and solve the problem by persuasion, and if that fails we can try compulsion or harder-level nudging. For this reason, I think the book Nudge is one of the most important books of the last five to ten years.

One of the small successes of my TEDTalk is that it’s now Conservative Party policy to spend no more money on speed cameras, but to spend the money on those vehicle-activated signs instead. So, I’ve had a small amount of advertarian success, with at least the prospective next government here in Britain. I’m purely philosophical about this. I’m not an advertarian in the sense that I believe that all problems can be solved this way. But, I think it’s best just to try.

Technology makes for easier persuasion and nudging -- what B.J. Fogg at Stanford calls persuasive technology -- and makes it far more potent. So, the British government’s Central Office of Information, they’ve said, “Look we’ve tried advertising with seatbelts for years. It didn’t really work. And so, we made it illegal not to wear a seatbelt and everybody wore one.” It’s interesting, of course, that at the time when we made it compulsory to wear seatbelts, there wasn’t the technology cheaply available to make a car go “bing” for 60 seconds, or even indefinitely, if you didn’t put your seatbelt on. Now, I would argue that making it a legal requirement that all new cars go “bing” for 90 seconds if you don’t put your seatbelt on when you drive off is a nudge, but it’s not really an infringement of liberties.

Senior people in government spend years getting their hands on very large budgets with which they want to do very big things, and quite often there’s a disproportionality, as the things that make an enormous difference are actually quite trivial. For example, Terminal 5 at Heathrow is magnificent. As a piece of architecture, it’s fabulous. But, the signage is dreadful. It’s a Kafka-esque nightmare of really appalling directions and confusion.

All large organizations need a Director of Trivia or a Director of Detail -- a very senior person with a large budget and great powers, but whose job is actually to take care of little irritants. Most board directors and government ministers, their sense of self-aggrandizement is too great for them to actually get involved here. You haven’t spent all those years becoming a government minister to improve form design, yet what Nudge would say is that if you want people to follow your policy, designing really attractive forms and interfaces is probably a better way of achieving your end than spending loads of time legislating or creating expensive incentives. The world needs people going around and sorting out little interface issues. If pelican crossings (crosswalks) had “Cancel” buttons, they would be more efficient. The thing is, you press the button and then realize there’s a gap in the traffic, you jaywalk across, and then all the cars have to stop for no one to cross the street. All you need there is a simple “Cancel” button so that if you decide to make a run for it you don’t stop all the traffic. And there are hundreds more little problems like these that are unnecessary irritants in our daily lives.

The Advertarian philosophy doesn’t solve all this; it’s just a little thing I made up. But, I do think that you should always try to solve a problem first through voluntary means or persuasive means before resorting to heavy-handed compulsion.

When you bring up advertising and government, the first thing that comes to mind is President Obama’s campaign last year. What did you think of his campaigning style, as well as what he’s doing in government right now? Is there anything you think he should be doing differently?

It’s very interesting. I think he ran a brilliant campaign using both social media and mass media. It’s actually a much more conventional advertising campaign than a lot of people have said. There was an enormous amount of money spent on advertising. And, it was interesting that to some extent he portrayed himself as the underdog, even though he was better funded than anyone. He played that off very cleverly. Because he wasn’t a long-time politician, he could play this game of “little old me” when actually, he had bucketloads of money to campaign with.

What’s peculiar in this case is that he’s failed to take the American people with him on health reform in the way that he undoubtedly co-opted them and created a popular movement around his election campaign. It must be remembered that, in the United States, there are immensely powerful lobby groups who weren’t in action against his election in the same way.

But, Obama did have the amazing effect of getting the British to rise up in defense of the National Health Service. The British are mostly critical of the health service and spend a lot of time complaining about it, but when various things came out in the United States more or less suggesting that we have committee meetings to decide whether you die or not, people found that such a ridiculous misrepresentation of the situation that they leapt to the defense of the system.

Now, just bear in mind that by European standards I’m quite right wing. Not by American standards, but by European standards I’m thought to be quite libertarian and quite keen on free-market solutions. But, there is a simple fact that, strangely, you can’t point out to Americans, which is that when you go to Canada, it’s not like everybody’s dying. They pay vastly less for prescription drugs, because they’re purchased centrally.

Incidentally, what no one actually says is that the United States spends an insane amount of money on health. A brutally statistical discovery, as found by the statistician Robin Hanson, claims that, above a certain level of expenditure, there is no correlation between money spent on healthcare and longevity. So, actually, when you spend above a certain amount per person on health, longevity doesn’t actually improve. And, Hanson’s theory is that excessive intervention by medicine outweighs the benefits of overfunding.

Most people think that the more you spend on healthcare, the better your healthcare is, but it’s not true. Now, it’s not that every heart surgeon is going, “Oh yes, a couple more of these heart operations and I’ll be able to pay for a yacht.” Rather, if you’ve spent 40 years practicing heart surgery and becoming a brilliant heart surgeon, you are unusually biased towards seeing solutions in heart surgery, just as legislators are overly biased to seeing solutions in legislation and people who are engineers are overly biased to seeing the solutions to the world’s ills lying in engineering. And so, overmedication and excessive intervention by doctors in the United States is probably a downside of how much money is poured into healthcare. The bias to intervention is always there in a case where you can either do nothing or do something. People always prefer something. The doctor’s recommendation of “Actually, I’d just leave it. It’ll probably go away,” is never one with which people are comfortable.

However, the inordinate amount of money spent on healthcare in the United States has enormous spillover benefit for other countries. The research and pharmaceutical development that’s funded by the large percentage of GDP devoted to US healthcare ultimately benefits the rest of the world enormously. So, in some ways, as a Brit, I would be quite keen for the United States to carry on with its current barking level of health expenditure.

The fundamental problem that Obama has in this -- and the British also had this for the previous 100 years -- is that when you’re top dog nation, you don’t think that anything could be better anywhere else. I mean, if France had come to us and said, “Actually, you ought to drink wine and not beer,” we would never have accepted that. The very idea comes across as unpatriotic. I’ve met Americans who themselves are quite chippy about the United States, but if you ever go and actually say, “I think your restrictions on drinking out-of-doors are a bit silly,” they get quite jumpy about it. In truth, there are 50 million Italians who sit outside drinking wine, in the open air, and their incidence of alcoholism is probably lower than the US.

I think Paul Romer has the answer, in truth. I thought Paul Romer’s speech at TED was actually magnificent. The idea of charter cities: absolutely fascinating. To change something at a national level is impossible. What you need to do is create cities that operate on new models and new institutions, and trial the new thing at that scale and then, effectively, let it spread outwards. That’s an interesting question, whether you should try it state by state in some form.

Is your advice to Obama that he should sit and have a talk with Paul Romer?

Yes, exactly that. I think so.

It’s a fundamental question about making change happen. In truth, much as people in central government love to issue strategy because it’s what they’re there for, a lot of important change happens from the bottom up. Where Britain’s conservatives have been quite good is in looking round the world for good ideas, in the sense that there are some very good Swedish ideas on education involving starting your own school that they’re currently looking at.

READ MORE: Rory Sutherland explains 360 degree branding, why the distance the technology can put between us is actually useful and talks Mad Men

Associated with your name is the phrase "360 degree branding." What is that exactly? What makes a campaign or an approach 360 degree?

I don’t think it’s something you can ever actually say, “OK, right. Mission accomplished.” I think it’s a vector, a direction, an aspiration. What it really understands is that there was a period of some mass media dominance, particularly with your advertising package groups, where the brand resided in the decisions you made on packaging, distribution and price, and mass advertising. If you had more or less covered those bases, you could say, “Well, a brand was created. Job done.” Of course, more and more brands now are highly experiential, and to some extent brands which were once considered product brands are now very much service brands.

Dave Ogilvy was a very early person to understand this. He was a massive enthusiast of, for example, direct marketing, long before other advertising people were, and he was also a very early person to spot the significance of brand value and long-term brand building as a role of advertisers.

What happens now, in a different media world, is we take our cues from far, far more diverse sources. One interesting perspective that obviously involves social media is that to some extent you might say that recommendation is the new promotion. Many people seeking reassurance on making a purchase decision will look to their peer group to provide it, often more than they might look to advertising. In some cases, people prefer a peer group even to experts. Even though Amazon pays for professional book reviews and provides them right next to the book, 80 percent of people prefer to read the reviews written by ordinary book readers. And maybe they just think that the average buyer of this book is more likely to reflect their tastes than a professional writing for theNew York Review of Books -- not a totally insane assumption, by the way.

So, brand cues can be anywhere, as well as the heuristics people use. For example, there is an advertising heuristic, which is a fairly good rule of thumb, that advertised brands are of a higher quality than unadvertised brands. Two things: You’re unlikely to spend an awful lot of money promoting a product that isn’t actually much good -- it’s said that advertising a bad product merely speeds its decline in many ways. And, secondly, the assumption that someone who invests in a long-term reputation, through building a brand, is far less likely to risk that reputation by producing a crappy car or useless DVD player than someone you’ve never heard of before. And this applies to everything. Nearly all transactions are based on asymmetrical information. It’s the same in the case of investing in a bank. What is there to reassure me that this guy isn’t going to disappear with my money? One of the signals that banks traditionally use is architecture. They build a big bank branch, with marble pillars and an impression of permanence.

There was a Nobel Prize won, by I think Joseph Stiglitz, on the concept of “signaling,” which is what people do in markets where there’s a lot information asymmetry. What is it that businesses do to create enough trust that they can actually sell what it is that they’re selling? Advertising is one of those, recommendation through social media is another one, design is probably another, as is the quality of your online interface. There are a lot of cues that people take when deciding whether to trust a brand and whether to respect it, and 360 is just the acknowledgment that it’s not enough for an advertising agency to say, “We’ve done your advertising. Your packaging looks quite good. So, it’s a slam dunk, job done, we’re off to the races.”

One of the things you notice now, because brands can be experienced in more and more ways, is that the 360 idea is used to regard every interaction and point of contact as a brand-building opportunity. The extent to which social media, in some categories, may be almost a substitute for advertising in creating trust and reputation, is an important one. In some categories, it’s less important, but there are some high engagement categories such as buying a digital camera. It’s something to look for, certainly.

Following up on that, there’s this new landscape of social media rising. Is there a form or type of social media where you see opportunity, growth and sustainability in the face of the doubts that are being thrown at it?

I think the first thing to say is that it isn’t new. It isn’t even as new as the Internet. Usenet was there long before the web was there, and the Internet was social long before it was ever 1.0. And, of course, ordinary word of mouth and recommendation has played an enormous part in decisions going back hundreds of years. So, reputation as a form of public opinion is not new.

What is new about today’s digital form is that it is amplified, it hangs around for much longer, it becomes searchable. The other thing which is vital about new digital media is that they work not only because they bring us together, but also because they allow us to interact at arm’s length. I have an interesting example of this. If you want to make a railway journey in Europe, there’s a man, he’s a complete railway enthusiast -- you probably don’t want to spend a week in a closed room with him. But he’s the man behind, which is a website entirely about how to make journey through Europe by train and which could be immeasurably helpful to you.

Face-to-face communication is time-consuming, it requires a lot of effort, and it also brings with it a degree of social awkwardness. On the web, people can actually engage in profitable exchange of information and goods at arm’s length. There’s an awful lot of the web that works, not because it brings us close, but because it preserves a kind of distance between us. I buy things from people on eBay, I don’t actually want to visit their home, meet their children or have coffee with them, but I’m very happy to buy what they have to sell. And the web enables us to actually engage with other people at a level of closeness or distance of our own choosing. That, in itself, is hugely significant.

We often use communication technologies to preserve distance, and the top example is text messaging. It’s, in a weird way, a way we’ve invented of not speaking to each other. There are the logical benefits to it. For example, I don’t have to start a text message with 65 words of pleasantries, which you do when you make a phone call. We prefer this, and channel preference to certain forms of engagement is unbelievably strong For example, if you invite live feedback on your service by text message, a few things happen. One, you get a degree of frankness and immediacy of response that you don’t get if you ask people to fill in a survey three weeks after they’ve taken a flight. And, interestingly, you get hugely more praise. People don’t like praising staff face-to-face because it might freak them out a bit, or they may think you’re hitting on them or something like that. But, when they can praise staff by text message, with a degree of distance, people do. One of the things that a company in Britain called Fizzback has discovered is that when you offer these SMS feedback channels, at say coffee shops, the amount of positive feedback that comes in actually outweighs the amount of criticism. With most other ways of seeking comment, you get a ton of criticism and not much praise, which is kind of disheartening for the staff.

I’m obsessed by that. I mean, an awful lot of the time, personal service is actually a pain in the ass. A lot of hotels actually think that they’re providing a wonderful service by having a desk where you can go and check in and give your credit card and collect your key, someone carries your bag up to your room and isn’t that all wonderful? In truth, by the time I’ve arrived on a long flight, I actually want to collect my key from an automated machine and go straight to the room without any human intervention at all. Low-cost airlines have shown that. The travel agent was once thought of as this wonderful added value in selling travel, only to discover that actually, you give people a screen with 20 prices on it and let them choose for themselves, with a strong impression of control, they’d rather not have a person involved.

Also, if you’re on Expedia or you’re on easyJet, you can interrogate your possible choices to a degree which, if performed face-to-face, would make you an asshole. If I spent three hours on the phone with a travel agent, and after three hours, I was saying, “And would it be 20p cheaper if I went on Wednesday?” unless I was an unbelievably thick-skinned individual, I’d be conscious of the fact that the guy was thinking, “This guy is a real pain.” Now, when I interact online, I can be as much of a pain as I like. I can be the world’s most-demanding, world’s worst customer and there’ s no one to mind.

I think a lot of people misunderstand the potential for these technologies, the idea of persuasive technology and that the interfaces we choose have an inordinate effect over the choices we make. And I think that’s the essential point of Nudge, that we’re more affected in our decisions by the interface and the architecture in which we choose than we are by the long-term consequences of the decisions we make.

The type of advertising that seems to freak people out the most at the moment seems to be the highly-targeted advertisements on the Internet, through Google Ads or Gmail, that take information you’ve entered at some point and tailor ads to you. Do you see this as simply an invasive form of advertising or do you see an upside to it?

If you’re trying to build a brand, rather than make a quick sale, then you have to be sensitive to those nuances. There’s a famous, awful case in Google Mail where someone was arranging the return of a body of a relative who’d died in a scuba diving accident, and in the course of their emails being sent and received, ads for scuba diving holidays started appearing alongside the emails. This is the sort of thing, which unfortunately, isn’t going to go away.

It’s important to recognize that there are huge advantages to this stuff. One of them is that it makes markets much more competitive and it removes barriers to entry to small players. The fact that they can actually reach people, both by person and by moment very efficiently is game-changing. If you were operating a niche before behavioral targeting came along, it was prohibitively expensive to try and reach your target audience with any real effectiveness. Mass media was closed to you for being too expensive, so what did you do? One alternative solution, I suppose, is personal referral, which of course is a form of behavioral targeting but which involves people. So, if I send you an offer and say, “Give this offer to the one person in your hundred friends who you think will enjoy it the most,” that’s an ingenious way of outsourcing the targeting of advertising to a person. That’s a human-powered alternative.

However, people are very strange with what they mind, because they’ll happily go to Google and type in “goat sex,” thereby revealing to Google an extraordinary deep and personal perversion, and seem to be completely unconcerned about doing this. But, when they spend an afternoon looking at hats online and they’re shown ads for hats, they get terribly offended. So people’s behavior isn’t completely consistent. It’s a social construct. Germany’s obsession with this is far, far greater than in the United States, for example. About 60 percent of Germans surf the web with cookies switched off. There’s a real obsession with anonymity and privacy there. The UK, as is usually the case, sit in a trans-Atlantic middle ground.

Of course, the obsession with privacy in Germany means that advertising is far less effective, therefore banner advertisements are worth very little, therefore there’s no way for content to actually fund itself. So, you may have a case where the economic barrier to start an online newspaper in Germany is far greater than it is in the United States, for example. Everybody who comes to your German online newspaper, you know nothing about them, you can only serve them generic advertising, making it worth almost zero. So, by being obsessed with privacy, you are making your online experience worse. It has to be recognized that the preservation of privacy does come at a cost.

As an ad man, do you watch Mad Men?

Yes, I do!

What do you think of it?

To some extent, Mad Men is male revenge for being made to watch Sex and the City for all those years. It’s the Y chromosome fighting back after so many years of watching women debate handbags. And so, the extraordinary machismo, the boozyness, the sexism, the hardcore smoking that goes on is undoubtedly a bit of a counterblast to the things that men have been made to sit through.

It’s a fantastically made drama, brilliant drama, spectacular period piece. If you talk to advertising people who remember the era, some of them say it was like that and some of them say it was nothing like that. Some of that stuff certainly happened, the smoking and, to some extent, the alcohol consumption are fairly accurate of the period in general, not just in advertising.

It’s spectacularly enjoyable and doesn’t do us any harm as an industry. I sometimes wonder if it’s not a bad idea to occasionally look a bit evil, given the alternative of looking ineffectual.