[ed. See also: We Should Use Brands, Not Love Them]
Imagine walking into a coffee shop, ordering a cappuccino, and then, to your surprise, being informed that it has already been paid for. Where did this unexpected gift come from? It transpires that it was left by the previous customer. The only snag, if indeed it is a snag, is that you now have to do the same for the next customer who walks in.
This is known as a “pay-it-forward” pricing scheme. It is something that has been practised by a number of small businesses in California, such as the Karma Kitchen in Berkeley and, in some cases, customers have introduced it spontaneously. On the face of it, it would seem to defy the logic of free-market economics. Markets, surely, are places where we are allowed, even expected, to behave selfishly. With its hippy idealism, pay-it-forward would appear to go against the core tenets of economic calculation.
But there is more to it than this. Researchers from the decision science research group at the University of California, Berkeley have looked closely at pay-it-forward pricing and discovered something with profound implications for how markets and businesses work. It transpires that people will generally pay more under the pay-it-forward model than under a conventional pricing system. As the study’s lead author, Minah Jung, puts it: “People don’t want to look cheap. They want to be fair, but they also want to fit in with the social norms.” Contrary to what economists have long assumed, altruism can often exert a far stronger influence over our decision-making than calculation.
Such findings are typical of the field of behavioural economics, which emerged in the late 1970s. Like regular economists, behavioural economists assume that individuals are usually motivated to maximise their own benefit – but not always. In certain circumstances, they are social and moral animals, even when this appears to undermine their economic interests. They follow the herd and act according to certain rules of thumb. They have some principles that they will not sacrifice for money at all.
It seems that this undermines the cynical, individualist theory of human psychology, which lies at the heart of orthodox economics. Could it be that we are decent, social creatures after all? A great deal of neuroscientific research into the roots of sympathy and reciprocity supports this. Optimists might view this as the basis for a new political hope, of a society in which sharing and gift-giving offer a serious challenge to the power of monetary accumulation and privatisation.
But there is also a more disturbing possibility: that the critique of individualism and monetary calculation is now being incorporated into the armoury of utilitarian policy and management. One of the key insights of behavioural economics is that, if one wants to control other human beings, it is often far more effective to appeal to their sense of morality and social identity than to their self-interest.
This is symptomatic of a more general shift in policy and business practices today. Across various fields of expertise, from healthcare to marketing, from military training to finance, there is rising hope that strategic goals can be achieved through harnessing the power of the “social”. But what exactly does this mean? As the era of socialdemocracy recedes further into the past, the meaning of the term is undergoing a profound transformation. Where once the term implied something concerning society or the common good, increasingly it refers to a technique of psychological intervention on the individual. Informal social connections and friendships are being rendered more visible and measurable. In the process, they are being turned into possible instruments of power.
Over recent years, generosity has become big business. In 2009, Chris Anderson, former editor of Wired magazine, published Free: The Future of a Radical Price. Anderson argued that there was now a strong business case for giving products and services away for free, in order to forge better relationships with customers. Giving things away for free becomes a means of holding an audience captive or building a reputation, which can then be exploited with future sales or advertising. Michael O’Leary, boss of Ryanair, has even suggested that airline tickets might one day be priced at zero, with all costs recovered through additional charges for luggage, using the bathroom, skipping queues, and so on.
What Anderson was highlighting was the potential of non-monetary relationships to increase profits. And just as corporate giving can be used as a way of boosting revenue, so can the magic words that are used in return. Marketing specialists now analyse the optimal way of saying the words “thank you” to a customer, so as to deepen the social relationship with them.
The language of gratitude has infiltrated a number of high-profile advertising campaigns. Around Christmas 2013, Lloyds TSB, one of the British banks to be most embarrassed by the 2008 financial crisis, launched a campaign consisting entirely of cutesy images of childhood friends enjoying happy moments together, concluding with the words “thank you”, written in party balloons. There was no mention of money. More bizarrely, Tesco, whose brand has suffered in recent years, released a series of YouTube videos in 2013 with men in Christmas jumpers singing “thank you” to everyone from the person who cooks Christmas dinner, to those driving safely, to other companies such as Instagram and so on. Tesco, it was implied, sprays gratitude in all directions, regardless of its own private interests.
There is inevitably a limit to how much of a social bond an individual can have with a multinational company. Businesses today are obsessed with being social, but what they typically mean by this is that they are able to permeate peer-to-peer social networks as effectively as possible. Brands hope to play a role in cementing friendships, as a guarantee that they will not be abandoned for more narrowly calculated reasons. So, for example, Coca-Cola has tried a number of somewhat twee marketing campaigns, such as putting individual names (“Sue”, “Tom”, etc) on their bottles as a way to encourage gift-giving. Managers hope that their employees will also act as “brand ambassadors” in their everyday social lives. Meanwhile, neuromarketers have begun studying how successfully images and advertisements trigger common neural responses in groups, rather than in isolated individuals. This, it seems, is a far better indication of how larger populations will respond to advertising.
All this – along with the rise of the “sharing economy”, exemplified by Airbnb and Uber, offers a simple lesson to big business. People will take more pleasure in buying things if the experience can be blended with something that feels like friendship and gift-exchange. The role of money must be airbrushed out of the picture wherever possible. As marketers see it, payment is one of the unfortunate “pain points” in any relationship with a customer, which requires anaesthetising with some form of more social experience. The market must be represented as something else entirely.
Yet the greatest catalyst for the new business interest in being social is, unsurprisingly, the rise of social media. At the same time that behavioural economics has been highlighting the various ways in which we are altruistic creatures, social media offers businesses an opportunity to analyse and target that social behaviour. It allows advertising to be tailored to specific individuals, on the basis of who they know, and what those other people like and purchase. These practices, which are collectively referred to as “social analytics”, mean that tastes and behaviours can be traced in unprecedented detail. The end goal is no different from what it was at the dawn of marketing and management in the late 19th century: making money. What has changed is that each one of us is now viewed as an instrument through which to alter the attitudes and behaviours of our friends and contacts. Behaviours and ideas can be released like “contagions”, in the hope of infecting much larger networks.
Imagine walking into a coffee shop, ordering a cappuccino, and then, to your surprise, being informed that it has already been paid for. Where did this unexpected gift come from? It transpires that it was left by the previous customer. The only snag, if indeed it is a snag, is that you now have to do the same for the next customer who walks in.
This is known as a “pay-it-forward” pricing scheme. It is something that has been practised by a number of small businesses in California, such as the Karma Kitchen in Berkeley and, in some cases, customers have introduced it spontaneously. On the face of it, it would seem to defy the logic of free-market economics. Markets, surely, are places where we are allowed, even expected, to behave selfishly. With its hippy idealism, pay-it-forward would appear to go against the core tenets of economic calculation.But there is more to it than this. Researchers from the decision science research group at the University of California, Berkeley have looked closely at pay-it-forward pricing and discovered something with profound implications for how markets and businesses work. It transpires that people will generally pay more under the pay-it-forward model than under a conventional pricing system. As the study’s lead author, Minah Jung, puts it: “People don’t want to look cheap. They want to be fair, but they also want to fit in with the social norms.” Contrary to what economists have long assumed, altruism can often exert a far stronger influence over our decision-making than calculation.
Such findings are typical of the field of behavioural economics, which emerged in the late 1970s. Like regular economists, behavioural economists assume that individuals are usually motivated to maximise their own benefit – but not always. In certain circumstances, they are social and moral animals, even when this appears to undermine their economic interests. They follow the herd and act according to certain rules of thumb. They have some principles that they will not sacrifice for money at all.
It seems that this undermines the cynical, individualist theory of human psychology, which lies at the heart of orthodox economics. Could it be that we are decent, social creatures after all? A great deal of neuroscientific research into the roots of sympathy and reciprocity supports this. Optimists might view this as the basis for a new political hope, of a society in which sharing and gift-giving offer a serious challenge to the power of monetary accumulation and privatisation.
But there is also a more disturbing possibility: that the critique of individualism and monetary calculation is now being incorporated into the armoury of utilitarian policy and management. One of the key insights of behavioural economics is that, if one wants to control other human beings, it is often far more effective to appeal to their sense of morality and social identity than to their self-interest.
This is symptomatic of a more general shift in policy and business practices today. Across various fields of expertise, from healthcare to marketing, from military training to finance, there is rising hope that strategic goals can be achieved through harnessing the power of the “social”. But what exactly does this mean? As the era of socialdemocracy recedes further into the past, the meaning of the term is undergoing a profound transformation. Where once the term implied something concerning society or the common good, increasingly it refers to a technique of psychological intervention on the individual. Informal social connections and friendships are being rendered more visible and measurable. In the process, they are being turned into possible instruments of power.
Over recent years, generosity has become big business. In 2009, Chris Anderson, former editor of Wired magazine, published Free: The Future of a Radical Price. Anderson argued that there was now a strong business case for giving products and services away for free, in order to forge better relationships with customers. Giving things away for free becomes a means of holding an audience captive or building a reputation, which can then be exploited with future sales or advertising. Michael O’Leary, boss of Ryanair, has even suggested that airline tickets might one day be priced at zero, with all costs recovered through additional charges for luggage, using the bathroom, skipping queues, and so on.
What Anderson was highlighting was the potential of non-monetary relationships to increase profits. And just as corporate giving can be used as a way of boosting revenue, so can the magic words that are used in return. Marketing specialists now analyse the optimal way of saying the words “thank you” to a customer, so as to deepen the social relationship with them.
The language of gratitude has infiltrated a number of high-profile advertising campaigns. Around Christmas 2013, Lloyds TSB, one of the British banks to be most embarrassed by the 2008 financial crisis, launched a campaign consisting entirely of cutesy images of childhood friends enjoying happy moments together, concluding with the words “thank you”, written in party balloons. There was no mention of money. More bizarrely, Tesco, whose brand has suffered in recent years, released a series of YouTube videos in 2013 with men in Christmas jumpers singing “thank you” to everyone from the person who cooks Christmas dinner, to those driving safely, to other companies such as Instagram and so on. Tesco, it was implied, sprays gratitude in all directions, regardless of its own private interests.
There is inevitably a limit to how much of a social bond an individual can have with a multinational company. Businesses today are obsessed with being social, but what they typically mean by this is that they are able to permeate peer-to-peer social networks as effectively as possible. Brands hope to play a role in cementing friendships, as a guarantee that they will not be abandoned for more narrowly calculated reasons. So, for example, Coca-Cola has tried a number of somewhat twee marketing campaigns, such as putting individual names (“Sue”, “Tom”, etc) on their bottles as a way to encourage gift-giving. Managers hope that their employees will also act as “brand ambassadors” in their everyday social lives. Meanwhile, neuromarketers have begun studying how successfully images and advertisements trigger common neural responses in groups, rather than in isolated individuals. This, it seems, is a far better indication of how larger populations will respond to advertising.
All this – along with the rise of the “sharing economy”, exemplified by Airbnb and Uber, offers a simple lesson to big business. People will take more pleasure in buying things if the experience can be blended with something that feels like friendship and gift-exchange. The role of money must be airbrushed out of the picture wherever possible. As marketers see it, payment is one of the unfortunate “pain points” in any relationship with a customer, which requires anaesthetising with some form of more social experience. The market must be represented as something else entirely.
Yet the greatest catalyst for the new business interest in being social is, unsurprisingly, the rise of social media. At the same time that behavioural economics has been highlighting the various ways in which we are altruistic creatures, social media offers businesses an opportunity to analyse and target that social behaviour. It allows advertising to be tailored to specific individuals, on the basis of who they know, and what those other people like and purchase. These practices, which are collectively referred to as “social analytics”, mean that tastes and behaviours can be traced in unprecedented detail. The end goal is no different from what it was at the dawn of marketing and management in the late 19th century: making money. What has changed is that each one of us is now viewed as an instrument through which to alter the attitudes and behaviours of our friends and contacts. Behaviours and ideas can be released like “contagions”, in the hope of infecting much larger networks.
by William Davies, The Guardian | Read more:
Image: Pete Gamlen
