Knowledge Bank Blog, Pricing & Promotions, Shopper Communication

Small Changes, Big Difference

Are you presenting choices in a System 1 way?

We think much less than we think we think.

You might want to read that again. Slowly.

That is a one sentence summary of the book ‘Thinking Fast & Slow’ by a guy called Daniel Kahneman. He is often described as the Godfather of Behavioural Economics. He won the Nobel Prize for Economics even though he was a cognitive psychologist. Which must have really annoyed all the economists. If there is one thing that economists hate, it’s psychologists.

Kahneman won the Nobel Prize for challenging the conventional wisdom of how humans make decisions. The belief that forms the basis of traditional economic theory.  That we are rational beings who make rational choices. That we weigh up the pros and cons of a decision and then make an optimal choice.

Kahneman said that humans have 2 decision making systems – System 1 and System 2. System 1 is the quicker, more intuitive part of the brain. It takes little effort to use it. System 2 is the more logical, considered part of the brain. It takes effort to use it. Kahneman said that most decisions we make are made using system 1. Hence, we think much less than we think we think.

This makes sense. We make hundreds of decisions each day. If we thought them all through properly, we’d hardly ever make a decision. The only way we can cope is to rely on System 1. If our ancestors had waited to see whether that flash of orange in the corner of their eye was actually a lion, then you probably wouldn’t be reading this today.

Perhaps the biggest insight in all of Kahneman’s work is that we are very influenced by how choices are presented. The same choice, presented in 2 different ways can lead to 2 different decisions. For instance, by changing the question about organ donation on the driving licence renewal form from opt in to opt out, the number of donors increased hugely. A small change can make a big difference.

So, why is this important to us?  Well, the success of our stores, categories and brands depend on the choices shoppers make.  And the choices that they make are very influenced by how those choices are presented. Yet, as an industry, we still think more in a system 2 way rather than a system 1 way.

We spend a lot of time analysing – trying to figure out what is happening and why it is happening.  Analysis is important, but an over reliance on the numbers can lead us to miss what the shopper really sees in store.  How choices are presented to them. If we understood that more, we might do some quite different things.

So, what do we really mean?

Take, Price Positioning. We have detailed data about the price indices of our brand against the category average. But the shopper doesn’t see a neat price index chart. They see a set of options at shelf. Your product at a price index of 90 looks quite competitive on a slide. But on shelf, sitting next to a product that is 15% cheaper, suddenly you look expensive. In contrast, move somewhere else on shelf and your product now looks great value. Small change, big difference.

Take, Promotions. We spend a lot of time developing detailed promotional plans. We look at the depth of discount, the promotional mechanic, frequency etc. But we often think much less about how to communicate the promotion in the simplest and most compelling way. Exactly the same level of price discount can be communicated in 2 different ways and lead to 2 different outcomes. Small change, big difference.

Take, Product Messaging. There are lots of good products out there. So we often talk about how good they are – all the functional benefits that the product delivers. However, by doing this, we often focus less on the simple shortcuts shoppers use to make decisions. And use to reassure themselves they are making the right decisions.

For instance, does Fairy laundry detergent lead with ‘our product contains natural ingredients that are designed to work in harmony with your skin to soften fabrics’? All nice information and, we assume, true. Or do they lead with ‘Voted No 1 laundry brand for sensitive skin’? They lead with the latter and in doing so, frame their product and proposition in a much simpler, more compelling way. Small change, big difference.

When we face big challenges, we tend to look for big solutions. In fact we can often over-think them – we rely too much on System 2. What if we looked for smaller solutions? Small changes to the way we present choices to shoppers. That play to System 1. They might make more of a difference than we think.

Daniel Kahneman won a Nobel Prize for his work. We can’t promise you that. But a few points of market share might be nice.

Feel free to forward.  Have a great weekend and speak to you next week.