Hi there 👋
I just finished this wonderful new book that I wanted to tell you about.
The book is Alchemy by Rory Sutherland, an executive at the famous Ogilvy advertising agency.
(avaliable at Amazon)
The book is one of the very best I've read about creative thinking and effective advertising. There's so much good stuff in there about how people make decisions, how things like the placebo effect and signaling influence our perceptions, and how it all ties into marketing.
If you get a chance to check it out, I'd love to know what you think!
I've also included all my Kindle highlights below, if you want my Cliff's Notes version. :)
Wishing you a great weekend,
Kevan
Rory’s Rules of Alchemy
The opposite of a good idea can also be a good idea.
Don’t design for average.
It doesn’t pay to be logical if everyone else is being logical.
The nature of our attention affects the nature of our experience.
A flower is simply a weed with an advertising budget.
The problem with logic is that it kills off magic.
–
“The trouble with market research is that people don’t think what they feel, they don’t say what they think, and they don’t do what they say.”
David Ogilvy
–
Our first recommendation to the client was to listen to what consumers said, but to interpret it laterally rather than literally.
–
In a sensible world, the only thing that would matter would be solving a problem by whatever means work best, but problem-solving is a strangely status-conscious job: there are high-status approaches and low-status approaches. Even Steve Jobs encountered the disdain of the nerdier elements of the software industry – ‘What does Steve do exactly? He can’t even code,’ an employee once snootily observed.
–
I think ‘psychological moonshots’ are comparatively easy. Making a train journey 20 percent faster might cost hundreds of millions, but making it 20 percent more enjoyable may cost almost nothing. It seems likely that the biggest progress in the next 50 years may come not from improvements in technology but in psychology and design thinking.
–
Put simply, it’s easy to achieve massive improvements in perception at a fraction of the cost of equivalent improvements in reality.
Logic tends to rule out magical improvements of this kind, but psycho-logic doesn’t. We are wrong about psychology to a far grater degree than we are about physics, so there is more scope for improvement. Also, we have a culture that prizes measuring things over understanding people, and hence is disproportionately weak at both seeking and recognizing psychological answers.
–
Remember the example I gave about asking why people hate standing on trains? When I asked that question, it seemed likely that no adult on the planet had asked that question for the last ten years – it sounded like such a stupid thing to ask. Perhaps advertising agencies are largely valuable simply because they create a culture in which it is acceptable to ask daft questions and make foolish suggestions.
–
… a heated debate in the 1960s at the ad agency J. Walter Thompson about the reasons why people bought electric drills. ‘Well obviously you need to make a hole in something, to put up some shelves or something, and so you go out and buy a drill to perform the job,’ someone said, sensibly.
Llewelyn Thomas, the copywriter son of the poet Dylan, was having none of this. ‘I don’t think it works like that at all. You see an electric drill in a shop and decide you want it. Then you take it home and wander around your house looking for excuses to drill holes in things.’
This discussion perfectly captures the divide between those who believe in rational explanation and those who believe in unconscious motivation; between logic and psycho-logic.
–
Would you prefer to think of yourself as a medical scientist pushing the frontiers of human knowledge, or as a kind of modern-day fortune teller, doling out soothing remedies to worried patients?
A modern doctor is both of these things, though is probably employed more for the latter than the former. Even if no one – patient or doctor – wants to believe this, it will be hard to understand and improve the provision of medical care unless we sometimes acknowledge it.
–
What happens on average when a thousand people do something once is not a clue to what will happen when one person does something a thousand times.
–
(In alchemy,) 10 x 1 does not equal 1 x 10.
–
We can see this diversity mechanism clearly in house hunting. If I were to give you a budget to choose your perfect house, you would have a clear idea of what to buy, but it would typically be a bit boring. That’s because when you have one house, it cannot be too weak in any one dimension: it cannot be too small, too far from work, too noisy or too weird, so you’ll opt for a conventional house. On the other hand, if I were to double your budget and tell you to buy two houses, your pattern of decision-making would change. You would now be looking to buy two significantly different properties with complementary strengths – perhaps a flat in the city and a house in the countryside.
–
Anyone can easily build a career on a single eccentric talent, if it is cunningly deployed. As I always advise young people, ‘Find one or two things your boss is rubbish at and be quite good at them.’
–
Complementary talent is far more valuable than conformist talent.
–
Metrics, and especially averages, encourage you to focus on the middle of a market, but innovation happens at the extremes. You are more likely to come up with a good idea focusing on one outlier than on ten average users.
–
People don’t use reason to make better decisions, but simply for the appearance of being reasonable.
–
As any game theorist knows, there is a virtue to making slightly random decisions that do not conform to established rules.
–
In competitive markets, it pays to have (and to cultivate) eccentric tastes.
–
I had decided before we moved that I wanted to live somewhere interesting, placing more emphasis on the architecture than on the precise location or the number of bedrooms. This eccentric approach certainly minimizes status envy.
–
It is, after all, a distinguishing feature of entrepreneurs that, since they don’t have to defend their reasoning every time they make a decision, they are free to experiment with solutions that are off-limits to others
–
We approve reasonable things too quickly, while counterintuitive ideas are frequently treated with suspicion. Suggest cutting the price of a failing product, and your boringly rational suggestion will be approved without question, but suggest renaming it and you’ll be put through grueling PowerPoint presentations, research groups, multivariate analysis and God knows what else* – and all because your idea isn’t conventionally logical.
–
‘There are two key steps that a mathematician uses. 1) He uses intuition to guess the right problem and the right solution and then 2) logic to prove it.’
–
Bullmore notes that we tend to frown on those who admit their debt to intuition as opposed to carefully planned experiment.
–
The argumentative hypothesis* suggests reason arose in the human brain not to inform our actions and beliefs, but to explain and defend them to others. In other words, it is an adaptation necessitated by our being a highly social species.
We may use reason to detect lying in others, to resolve disputes, to attempt to influence other people or to explain our actions in retrospect, but it seems not to play the decisive role in individual decision-making.
In my view, this theory has much to commend it. For one thing, it explains why individuals use reason so sparingly, selectively and above all self-servingly. It explains why we are good at contriving reasons for positions we already hold, or for decisions we have already made. And it explains confirmation bias, which leads people to seek out and absorb only that information which supports an existing belief. It also explains ‘adaptive preference formation’, where we change our perception of reality in order to depict ourselves in a better light.
–
Today, the principal activity of any publicly held company is rarely the creation of products to satisfy a market need. Management attention is instead largely directed towards the invention of plausible-sounding efficiency narratives to satisfy financial analysts, many of whom know nothing about the businesses they claim to analyze, beyond what they can read on a spreadsheet. There is no need to prove that your cost-saving works empirically, as long as it is consistent with standard economic theory.
–
It is a never-mentioned, slightly embarrassing but nevertheless essential facet of free market capitalism that it does not care about reasons – in fact it will often reward lucky idiots. You can be a certifiable lunatic with an IQ of 80, but if you stumble blindly on an underserved market niche at the right moment, you will be handsomely rewarded. Equally you can have all the MBAs money can buy and, if you launch your genius idea a year too late (or too early), you will fail.
–
Truly free markets trade efficiency for market-tested innovation that is heavily reliant on luck.
–
The advertising agency J. Walter Thompson used to set a test for aspiring copywriters. One of the questions was simple:
‘Here are two identical 25-cent coins. Sell me the one on the right.’
One successful candidate understood the idea of alchemy. ‘I’ll take the right-hand coin and dip it in Marilyn Monroe’s bag. Then I’ll sell you a genuine 25-cent coin as owned by Marilyn Monroe.’
–
No one in public life believes in magic, or trusts those who purvey it. If you propose any solution where the gain in perceived value outweighs the attendant expenditure in money, time, effort or resources, people either don’t believe you, or worse, they think you are somehow cheating them. This is why marketing doesn’t get any credit in business – when it generates magic, it is more socially acceptable to attribute the resulting success to logistics or cost-control.
–
The reason the alchemists gave up in the Middle Ages was because they were looking at the problem the wrong way – they had set themselves the impossible task of trying to turn lead into gold, but had got it into their heads that the value of something lies solely in what it is. This was a false assumption, because you don’t need to tinker with atomic structure to make lead as valuable as gold – all you need to do is to tinker with human psychology so that it feels as valuable as gold. At which point, who cares that it isn’t actually gold?
–
One contention in this book is that nearly all really successful businesses, as much as they pretend to be popular for rational reasons, owe most of their success to having stumbled on a psychological magic trick, sometimes unwittingly. Google, Dyson, Uber, Red Bull, Diet Coke, McDonald’s, Just Eat, Apple, Starbucks and Amazon have all deliberately or accidentally happened on a form of mental alchemy.
–
Preoccupied as they were with the hopeless idea of ‘transmutation’ – the transformation of one element into another – the alchemists failed to experiment with the rebranding of lead.
–
A great deal of the effectiveness of advertising derives from its power to direct attention to favorable aspects of an experience, in order to change the experience for the better.
…
I have always thought, for instance, that the word ‘downsizing’, which is used not only as a euphemism for redundancies, but in another sense refers to the voluntary decision by ‘empty nesters’ to move to a smaller and more manageable home, is a very useful coinage. It allows older people in needlessly large homes to portray their move to a smaller house as a choice born out of preference, rather than – as it may otherwise be assumed to be – a compromise born of financial necessity.
Create a name, and you’ve created a norm.
–
Reciprocation, reputation and pre-commitment signaling are the three big mechanisms that underpin trust.
–
What keeps the relationship honest and mutually beneficial is nothing other than the prospect of repetition. In game theory, this prospect of repetition is known as ‘continuation probability.’
–
To borrow the language of the Michelin Guide, a flower can be ‘vaut l’étape’, ‘vaut le détour’ or ‘vaut le voyage’; ‘worth stopping at’, ‘worth going out of your way for’ or ‘a destination in itself’.
–
Conversations about the marketing of brands tend to focus on hair-splitting distinctions between fairly good products. We often forget that, without this assurance of quality, there simply isn’t enough trust for markets to function at all, which means that perfectly good ideas can fail. Branding isn’t just something to add to great products – it’s essential to their existence.
–
Not only do people not know what they want, they don’t even know why they like the things they buy.
–
The only way you can discover what people really want (their ‘revealed preferences’, in economic parlance) is through seeing what they actually pay for under a variety of different conditions, in a variety of contexts.
–
The intriguing thing about Uber as an innovation was that no one really asked for it before it existed. Its success lay in a couple of astute psychological hacks: the fact that no money changes hands during a trip is one of the most powerful – it makes using it feel like a service rather than a transaction.
–
Credit card companies have discovered this already, with promises like ‘Apply now and get approval within 12 hours’ – they found, through testing, accident or experimentation, that this made a difference to people’s keenness to respond.
–
It seems rather like the lesson that is taught to aspiring journalists: ‘Dog Bites Man’ is not news, but ‘Man Bites Dog’ is. Meaning is disproportionately conveyed by things that are unexpected or illogical, while narrowly logical things convey no information at all. And this brings us full circle, to the explanation of costly signalling.
–
… Joel’s 50-year-old theory concerning brand preference. The idea, most simply expressed, is this: ‘People do not choose Brand A over Brand B because they think Brand A is better, but because they are more certain that it is good.’
…
Imagine you’re looking at two televisions. Both seem to be equal in size, picture quality and functionality. One is manufactured by Samsung, while the other is manufactured by a brand you’ve never heard of – let’s call it Wangwei – and costs £200 less. Ideally you would like to buy the best television you can, but avoiding buying a television that turns out to be terrible is more important. It is for the second quality and not the first that Samsung earns its £200, and you are absolutely right to pay for the name in this case.
–
Eventually the Dutch compiled a sort of phrasebook, which translates British English into Dutch English.
What the British say // What foreigners understand // What the British mean
I hear what you say // He accepts my point of view // I disagree and do not want to discuss it further
With the greatest respect // He is listening to me // You are an idiot
That’s not bad // That’s poor // That’s good
That is a very brave proposal // He thinks I have courage // You are insane
Quite good // Quite good // A bit disappointing
I would suggest // Think about his idea, but I should do what I like // Do it or be prepared to justify
–
In the same way, you cannot describe someone’s behavior based on what you see, or what you think they see, because what determines their behavior is what they think they are seeing.
–
It won’t surprise you to know that I am skeptical about the promise of ‘big data’, which is frequently promoted as though it were some kind of panacea. Like many things that emerge from the technology sector, we become so drunk on the early possible benefit of a technology that we forget to calculate the second-order problems.* The evangelists of big data imply that ‘big’ equals ‘good’, yet it by no means follows that more data will lead to decisions that are better or more ethical and fair.
…
To use the analogy of the needle in the haystack, more data does increase the number of needles, but it also increases the volume of hay, as well as the frequency of false needles – things we will believe are significant when really they aren’t. The risk of spurious correlations, ephemeral correlations, confounding variables or confirmation bias can lead to more dumb decisions than insightful ones, with the data giving us a confidence in these decisions that is simply not warranted.
–
All big data comes from the same place: the past.
–
My argument is not that alchemy is always reliable, ethical or beneficial. Far from it – it is simply that we should not recoil from testing alchemical solutions because they do not fit with our reductionist ideas about how the world works.
–
We have adopted a similarly pragmatic approach in proposals to reduce the amount of uneaten supermarket food thrown out by consumers once it passes a best-before date. Again, we didn’t concentrate on the reasons people shouldn’t waste food, but instead on ways to make unwasteful behavior easier to adopt. Our suggestions have included such childishly simple solutions as including the day of the week on ‘Use By’ and ‘Best Before’ dates on packaging. ‘Use by Friday, 12/11/17’ is a much more useful reminder than a numerical date.* As we have seen in this section, it is only the behavior that matters, not the reasons for adopting it. Give people a reason and they may not supply the behavior; but give people a behavior and they’ll have no problem supplying the reasons themselves.
–
The marketer’s life can be difficult and lonely. Typically, most of a company’s management will have the mentality of the air traffic controller, with a love of the obvious, whereas the marketer needs to be more like Kramer, with a fear of the obvious.