What may be most important about Kahneman’s work is his finding that most human decisions are made emotionally, and that the function of human reason is to justify those decisions after the fact.
“The implication is clear: as the psychologist Jonathan Haidt said in another context ‘The emotional tail wags the rational dog’ . . . Until now I have mostly described it [System 2] as a more or less acquiescent monitor, which allows considerable leeway to System 1. I have also presented System 2 as active in deliberate memory search, complex computations, comparisons, planning, and choice. Self-criticism is one of the functions of System 2. In the context of attitudes, however, System 2 is more of an apologist for the emotions of System 1 than a critic of those emotions—an endorser rather than an enforcer. Its search for information and arguments is mostly constrained to information that is consistent with existing beliefs, not with an intention to examine them. An active, coherence-seeking System 1 suggests solutions to an undemanding System 2.”25
The idea of humans as rational actors who make decisions to buy or use products and services in purely rational thinking is clearly flawed. We’ve seen firsthand that brands that do well today are the ones that touch peoples’ emotions in deep, meaningful, and authentic ways. Features, specifications can be noise—additional and largely unneeded fodder for System 2 to rationalize emotion-based decisions after they are already made.
Jonathan Haidt, in his book The Righteous Mind: Why Good People Are Divided by Politics and Religion, notes, “The mind is divided, like a rider on an elephant, and the rider’s job is to serve the elephant. The rider is our conscious reasoning—the stream of words and images of which we are fully aware. The elephant is the other 99 percent of mental processes—the ones that occur outside of awareness but that actually govern most of our behavior.”26
What this suggests is that, in order to impact and affect decision making, you have to appeal and connect to people’s emotions. Although perhaps counterintuitive to prevailing sentiment, playing to rational considerations is not a compelling motivator; in fact, it limits the potential of building bonds. The bottom line is that scientific and academic data has proven that human beings react intuitively to everything they perceive and base their responses on those reactions rather quickly. Within the first second of seeing something, hearing something, or meeting another person, impressions are made and actions are born. Intuitions come first.27 This suggests that traditional models, constructs, and methodologies that we have used for decades to drive our marketing and communications efforts outweigh the importance of rational thinking, rendering them outdated and faulty.
One particular aspect of the work done by Kahneman and his peers has been widely adopted by Behavioral Science and Behavioral Economics. Behavioral Economics aims to change the way economists think about the way humans perceive value and express preferences. This line of thinking, which uses psychological experimentation to develop theories about decision making, has identified a range of biases related to people’s perceptions of value and expressed preferences. In short, people don’t make considered choices; they are not always benefits-maximizing, cost-minimizing, and self-interested. They go with what feels right, with what feels like the right option. They are influenced by readily available information, and that includes our memories and salient information in the environment. We tend to live in the moment, resist change, are poor predictors of future behavior, are subject to distorted memory and are impacted by psychological and emotional states.28 Our thinking is subject to insufficient knowledge, feedback, and processing capacity, as well as cognitive biases and emotions. This makes the context of our decision making extremely influential. Additionally, behavioral scientists have recognized that humans do not make choices in isolation. We are social beings with social preferences, trust and reciprocity play a key role.29
Behavioral Science also suggests that we use “stories” as a way help us organize the information we receive, help us remember it, and help us make sense of the world. Since our brains have a limited amount of processing power and memory, shortcuts like stories and heuristics help us to make sense of our environment. This starts first thing in the morning as we consume information and interact with the world around us continuing through the day and into our dreams. This can become an important opportunity for marketers—using stories to impact how we notice, connect, and consider brands. Combining the significant role emotion can play with the power of a strong narrative establishes a new fundamental for effective brand building.
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APPROACHES AND MODELS
Facing these market forces as brand builders, we witnessed clients paralyzed by the marketing approaches and methodologies currently in use. Few leverage emotion, or are based on a real understanding of the way people actually make decisions. Still, in exploring them we gained a better understanding of their shortcomings in measuring and facilitating the bonds we form with brands.
HIERARCHICAL DECISION MODEL
The hierarchical decision model (HDM) is a logical behavioral model that tracks what is assumed to be the natural progression that people go through when experiencing a brand, typically through detailing rational marketing measures. It generally starts with awareness and advances to the highest stage (usually loyalty or advocacy).
This type of model alternatively divides between pre-purchase and purchase, sometimes also called the Loyalty Ladder. It is often used to measure a brand’s maturity and help determine where it needs to improve. The theory is that if you understand where stakeholders are along these measures, you can develop strategies and messaging that persuade them to advance to a higher level. This model assumes only a downward trajectory (moving from awareness to consideration to beyond) and measures where consumers are on a spectrum of decision. The various components utilized are based on consumer purchase decisions, post-purchase behavior and attempts to isolate when and how brands move higher in terms of needs. The model also assumes (incorrectly) that there is a definitive link between purchase intention and action, which has been shown to have little or no correlation with actual behavior.
This approach generally does not determine why a brand may be in a certain position, or if indeed these “decision-making” steps are indicative of the natural way people make decisions. In fact, what we know today suggests this does not reflect a consumer’s reality. The hierarchical decision model creates artificial layers of nuance, when in fact decision making is instinctive, fast, and based on emotion. The HDM does give us a clear roadmap for assessing other models and approaches. We moved to exploring more of the post-decision territories that focus on the satisfaction and loyalty areas.
SATISFACTION AND THE NET PROMOTER SCORE
Net promoter scores (NPS) are a popular technique with many Fortune 1000 companies used to measure the loyalty between a company and its customers. The net promoter score is calculated based on responses to a single question: How likely is it that you would recommend our company/product/service to a friend or colleague? The scoring for this answer is most often based on a 0 to 10 scale.30 The relative simplicity of the methodology and its corresponding NPS score gives researchers and executives a straightforward and easy to understand tool to gain a reading on the relative performance of the brand.
Developed by (and a registered trademark of) Fred Reichheld, Bain & Company, and Satmetrix Systems, the NPS score was introduced by Reichheld in his 2003 Harvard Business Review article, “One Number You Need to Grow”31. NPS can be as low as −100 (where everybody is a detractor) or as high as +100 (everybody is a promoter). An NPS that is positive (i.e., higher than zero) is felt to be good, and an NPS of +50 is considered excellent.32
We have seen the impact of NPS firsthand in executive offices around the globe. But while it has gained popularity among business leaders, it has also attracted controversy from academic and market research circles. Since it lacks a predictive quality (dealing more with the here and now versus the future) and has a singular focus around
the intention to recommend, this model can be limiting for measuring the more complex nature of the bonds we form with brands today.
LOYALTY
Loyalty has long been considered the ultimate goal of one’s desired customer base, and most companies want to increase their percentage of these valued users. Traditionally, brand loyalty refers to a consumer’s preference to buy a particular brand in a product category. It occurs because consumers perceive that the brand offers the right product features, images, or level of quality at the right price. This perception becomes the foundation for a new buying habit.
At one end of the spectrum, repeat purchase is often used as a standard for loyalty. At the other end, companies like Walker—a leading loyalty research and consulting firm—use a range of attitudinal (e.g., customers like working with a company and have a positive attitude toward the company) and behavioral (e.g., customers’ intention to continue doing business with a company, or recommend the company to others) metrics to measure loyalty and the stability of a company’s customer base.33
Loyalty is valued for several key reasons:
•Higher sales volume: The average United States company loses half of its customers every five years, equating to a 13 percent annual loss of customers. This highlights the challenges of trying to grow a customer base. Achieving even 1 percent annual growth requires increasing sales to customers, both existing and new, by 14 percent. It’s clear that limiting customer loss and increasing retention is extremely valuable.
•Premium pricing ability: Studies have shown that as brand loyalty increases, consumers are less sensitive to price changes. Generally, they are willing to pay more for their preferred brand because they perceive some unique value in the brand that other alternatives do not provide.
•Retain, rather than seek: Brand loyalists are willing to seek and search for their favorite brand and are less sensitive to competitive promotions. The result can be lower costs for advertising, marketing, and distribution.34
However, the use of loyalty as an ultimate measure has been effectively challenged by The Ehrenberg-Bass Institute, who have shown empirically that loyalty to one brand is generally only practiced by those who are very low users of a category, and therefore is not something a brand need aspire to. Indeed, 100 percent-loyal buyers are not especially important to one’s sales; they are few in number and are not particularly heavy buyers of the brand or product to begin with.35 The majority of consumers tend to have ongoing relationships with several brands, with one usually consumed or purchased more often than the others.36
Byron Sharp, in his book, How Brands Grow, echoes this thinking. He debunks that oft-repeated fact that 20 percent of your customers represent 80 percent of your sales. After reviewing multiple categories, he found that the number never got higher than 50 percent of customers representing 20 percent of business.37 Sharp goes on to suggest that loyalty metrics do not reflect the marketing strategy or image of the brand. In fact, he argues that customer loyalty is largely a myth; customers are at best “promiscuous loyals,” flitting fickly between alternate rival brands based on availability (e.g., 72 percent of Coke drinkers also buy Pepsi (UK)38).
It is clear there is still debate surrounding the idea of loyalty, but whether you believe it has value (or sufficient value) or not, loyalty can be an outcome of brand intimacy. Consumers who form close personal bonds with a brand are more likely to want that brand, rather than its competitors. They are also likely to be the brand’s most fervent advocates.
Where loyalty and brand intimacy differ is that, in essence, loyalty looks at behaviors and/or attitudes—not what underpins them. Loyalty is not necessarily driven by brand; loyalty can also result from responsive service or customized products. Brand intimacy, on the other hand, focuses on human-brand relationships and their psychological drivers.
WALKER’S LOYALTY MATRIX
The Walker model examines attitudes and behaviors and forms a thesis for how people become loyal to different brands (notably B2B) and what loyalty means. Walker found that conventional metrics of customer affinity—namely satisfaction, repurchase intent, and recommendations—were, in isolation, insufficient metrics to fully understand the complexities of customer behavior and its underlying motivating forces. They developed four “loyalty quadrants” based on attitude and behavior, as a way to segment levels of loyalty.
They are:
1.Truly loyal: Refers to customers who enjoy working with a company, have positive associations about them, and plan to continue to do so. They are also more likely to increase spending with the company and recommend it to others.
2.Accessible: A mixed bag group, one that does not plan to continue working with the company in question; however, they will still speak well of them. This group often makes up a small percentage of a company’s customers and consists of customers who no longer need the company’s products or services.
3.Trapped: These are customers that continue to do business with the company, but are not happy about doing so. They are often trapped by contracts, a lack of a substitute, or barriers to switching companies. They are unlikely to increase business with the company and are more likely to find other options.
4.High risk: These are customers who do not intend to return or continue doing business with the company and do not hold it in high regard. They will talk poorly about the company and will likely not be a customer for long.
These four groups are plotted as quadrants on a Loyalty Matrix, with attitude as the vertical axis and behavior as the horizontal axis. This matrix is used as a framework for measuring loyalty and is meant to help better understand business strategies in a practical way.
This is a valuable tool and provides a view into customer stability and a breakdown of customer loyalty. While it does measure some emotional components in defining its segments, it does not use emotion as a foundation. Further, loyalty itself, as a value measure, has been questioned (which raises a separate issue about the best way to measure customer retention).
Next is a series of models that explore the intrinsic value in brands, treating them more as an asset than a relationship.
YOUNG & RUBICAM BRAND ASSET VALUATOR (BAV) MODEL
The BAV Model, developed by global advertising agency Young & Rubicam, measures brand value by leveraging four key considerations. These include:
•Differentiation: the ability of a brand to be distinct from its competitive set;
•Relevance: the actual and perceived importance of the brand to its target audience;
•Esteem: the perceived quality of the brand and consumer perceptions about the increasing or declining popularity of the brand; and
•Knowledge: the extent of consumer awareness of a brand and their understanding of its identity.
According to the model, the process of a brand’s growth typically follows the order of Differentiation, Relevance, Esteem, and finally, Knowledge. Together, differentiation and relevance determine brand strength, which can be an indicator of the brand’s future performance. Esteem and knowledge together combine to determine brand stature, which is a measure of the current performance of the brand and represents its status among consumers.
On a grid that Young & Rubicam calls the Power Grid, brands can be plotted to compare their performance, with brand strength as the vertical axis and brand stature as the horizontal axis. As a brand grows, it begins by increasing its brand strength, followed by an increase in its brand stature.39
This model provides valuable insight into understanding the strengths and weaknesses of a brand. But it is observational in nature and one-sided in scope, meaning it looks at what consumers do and how they think, without considering how a brand’s interactions can contribute to measuring these values. The four measures are also very rational-centered and don’t take into account emotion as a driving force behind behavior.
INTERBRAND VALUATION MODEL
In examining alternate methodologies that approached our way of thinking on brand intimacy
, we also looked at the Interbrand Valuation model, which provides information on how to deploy a brand in order to create brand equity. With the advent of valuation in the 1980s, Interbrand pioneered an approach that examined how a brand contributes to business performance and provided a series of activities and recommendations to help ensure continued improvement.
Interbrand’s model considers three key levers:
1.The brand’s financial performance; i.e., the economic profits generated by the products and services.
2.The role of brand, which measures the portion of the decision to purchase that is attributable to the brand relative to other forces (e.g., price, design, features). This portion is then expressed as a percentage, known as the Role of Brand Index (RBI).
3.Last, brand strength, which is a diagnostic tool for measuring brand performance relative to competition. It measures the brand’s ability to create loyalty, and identifies the brand’s strengths and weaknesses.40
Analyses of these three levers were combined to create one single measure of the brand’s contribution to its organization’s business results—its Brand Value. This metric has since been used as a strategic tool to evaluate, inform, and guide aspects of the business. This metric is used both for one-off business cases and for ongoing brand management applications.
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