Studies show 25% of marketing budgets are wasted and, on average, 80% of product launches don’t achieve their objectives. Why? Because most marketers don’t truly understand their customers.
I’ll explain why as product marketers we should go beyond relying on gut instinct to make decisions and turn to more scientific rigor, namely consumer psychology principles, to boost our PMM efforts, and in this article, I’ll share three tried and tested methods.
My name's Phillip Agnew, and in this article, I'm going to talk about something a little bit different. I'm going to look at our consumers and understanding why consumers make the decisions they do because that's vitally important when we do our positioning, pricing, and messaging.
I'm going to be talking about the psychology behind good product marketing. I am Director of Product Marketing at Brandwatch, a company that helps our clients understand their consumers and I host the only podcast dedicated to consumer psychology called Nudge.
Most marketers don’t truly understand their customers
I'm going to start off with something quite controversial - most product marketers and most marketers don't truly understand their customers. The reason I think this is because of two stats.
The first one, from Rakuten marketing, estimates - and this is going to be off - that around 25% of marketing budget is wasted. So 25% of the activities we do, the emails we send, the products we launch, the budget is wasted, it doesn't generate an ROI.
HBR has done another study, which is more interesting in our space, on product launches. They say on average 80% of product launches don't achieve the objectives they set out at the start.
Now again, that won't be completely accurate but it's showing a trend that in general marketing isn't as efficient as it could be and in general, product marketing could be more efficient.
If I asked everybody reading about your failed launches, about your ROI on your marketing you didn't achieve, I would get every different type of answer.
I think if I wrote them all down, it would look something like this…
It would be everything from "I didn't have enough budget" all the way to "My boss is just shit". You can have all of these different things and it's really difficult to go through every single one of them and to truly understand the number one reason why marketing isn't completely efficient, or why every product launch is not successful.
Gut instinct
But I do think there’s a common theme we weave through all of these different problems. This common theme is around this - the fact that most of our marketing decisions are based on gut instinct.
According to Forbes, over 50% of the decisions we make are not based on data, science, or laws. This is a real shame because some of the most efficient professions in the whole world, some of the best job professions out there, which get levels of efficiency of 90 to 95% base almost all of their decisions on laws, science, and data.
The likes of lawyers, teachers, doctors, they're constantly basing their decisions on data, not just on gut instinct.
Yet, as marketers, at least 50% of our decisions are still stuck in this time.
We're still acting a bit like Mad Men just making decisions based on our gut, and not making decisions on a unique, clear understanding of our consumers.
What if marketing had laws?
But what if marketing had laws? What if product marketing had clear laws you could use and rely on when you make any decision?
When you decide what to call your product, when you decide how to go to market, when you decide what to put in that email header for your product launch, what if we had laws?
The interesting thing is we sort of do. If we look at our consumers, the people who will be reading those emails, the people who will be buying our products, and if we look at the science that's been heavily invested to try and understand these people, we can start to understand the consumers a bit better and we can start to develop some laws.
Why consumers make decisions
Because over the last 100 years, we've spent a bunch of time understanding why consumers make decisions.
If we as product marketers make an intense effort to understand all of this science, all of this research, all of this data, we can go beyond just making 50% of our decisions based on data and actually do a lot more.
We can start to get more efficient with our marketing spend and more importantly, we can try to lower that number of 80% of product launches failing.
This 100 years of research has developed a bunch of different scientific articles, different laws, different biases that all of our consumers have, that if we understand them, we can start to improve our product marketing.
I'll jump through a couple to give you a taste of what you could understand if you look at the consumer psychology behind each of our consumers.
Social proof
Social proof, something a lot of us already know. You're walking down the street, you see a bunch of pedestrians in front of you and they're all looking into a shop window. You will look into that shop window as well.
That's social proof - we follow the actions of others. What's really interesting is this can massively affect your marketing. It's one of the smallest and easiest tactics you can use to increase your marketing efficiency.
Richard Shotton, a brilliant author released a book last year called The Choice Factory, which I'd highly recommend. He went into a London pub and asked the barman "What is your most successful beer, what beer sells the most?"
The barman told him and he convinced the barman to put a sign on that beer for the following week, which said "the best selling ale". A bit of social proof saying this is the one that people buy, this is the best seller.
After he put that sign up, he measured the sales before and after the week, and just by adding that sign, nothing else changed, sales increased 2.5x.
What was really interesting about this is it wasn't that sales of every other beer went down, they might have dropped a little bit, but not by 2.5x, what actually happened was the number of sales just increased. By identifying some of your most popular product options, you can increase sales overall, that's social proof.
Endowment Effect
Another great one is called the Endowment Effect. This is the idea we're more likely to complete a task that's already begun.
It was discovered by a fascinating study in 2006 which looked at loyalty cards. In this study, they gave two sets of participants two different types of loyalty cards.
One of them had seven stamps to collect, you needed to get seven stamps, while the other had nine stamps to collect. The interesting thing was the one with nine stamps already had two stamps plugged in so the project had begun, people already felt like they had started to get towards getting their free cup of coffee.
But the interesting thing is, there's no difference between these loyalty cards, you both have seven stamps to collect. So if we assume our consumers are predictable, if we assume they act rationally, we'll just assume both of these would have the same success rate.
But obviously, that's not the case. That's not what the Endowment Effect reveals. Actually, you are far more likely to complete the one with two stents already plugged in. In fact, you're 82% more likely than the normal seven-stamp version.
This is vitally important because you will be creating campaigns that will encourage people to onboard onto your new products, you will be creating marketing campaigns that will encourage people to download your content, whatever you need to do, and identifying or at least showing they've started the process, they've started to move through a bit of a funnel will help get the endowment effect to kick in and help you improve your marketing.
Pratfall Effect
The final one I’ll highlight is the Pratfall Effect, a really interesting effect, the idea that we love imperfection so we're more likely to be attracted to things that aren't perfect.
There's been a bunch of studies that reveal this in lots of different places but my personal favorite is around chocolate spread. This is a Polish chocolate spread company and they tested two different versions of their product in some advertising campaigns.
One where the chocolate spread is neatly spread across the toast, and the other where it's just dolloped on messily. As you can probably guess, people prefer the imperfection and they're 63% more likely to prefer that one on the right.
This is the case with chocolate spread but it's also been proven with cookies - cookies that look a bit less perfect are far more likely to be consumed.
Also, interestingly, it works in job interviews as well. If you reveal a weakness about yourself in a job interview, you are more likely to get the job than the exact same candidate who doesn't show weakness at all.
So products and brands can flaunt their flaws, and they can get a little bit more engagement, increase that product marketing efficiency.
That's a very brief overview of lots of small different areas about how we can improve our product marketing messaging. Hopefully, I've excited you a bit and got you interested to find out more.
What if we made an effort to understand our consumers?
Now I want to move on to really making an effort to understand consumers, to dig deeper into some specific parts of consumer psychology, and truly understand them so we can actually change and improve our product marketing.
I'm going to cover three areas in this article: distinctiveness, anchoring, and scarcity.
Distinctiveness
This is the idea, and hopefully, all of you will know this already, that having a distinct brand will make you more memorable, and will increase your chances of recall.
The von Restorff effect
This unsurprisingly, like a lot of these consumer psychology studies was discovered almost 100 years ago in 1933, by a great cognitive scientist called Hedwig von Restorff who ironically enough had a very distinct name.
She gave participants long lists not dissimilar from the ones you see below and these lists had combinations of different letters.
She asked them to try and recall as much as they could from this list. What she did though, is put a few numbers into the list as well so within there was a list of numbers. And that was the thing that was distinct.
What was interesting when she asked participants to recall from this list, they were 30 times more likely to remember the list of numbers - very simple.
If you're distinct, if you stand out, you're more likely to be remembered.
Brand distinctiveness
This has been proven with brands as well. Richard Shotton, again, did the same study but he gave participants a number of brands from one specific category. Let's say the automotive industry.
Included within that category was one brand from a different category, let's say fast food. Just by having a brand that stood out within the category, you were four times more likely to be remembered.
When you're distinct within your space, you're more likely to be remembered.
Historically marketers fail to be distinctive
What's fascinating about this is marketers aren't very good at this, they don't tend to follow this rule at all.
Football
If we look at things like football sponsorship, it's always sponsored by the same types of brands, alcoholic beverages brands sponsoring the competitions these football clubs play in.
And gambling firms that sponsor the actual shirts that the football clubs wear, I think nine out of 20 of the Premier League clubs are sponsored by gambling firms.
We tend to follow our competitors, we flock to what our competitors are doing.
SaaS
It's not just in high-cost expensive areas like this, it's elsewhere as well. Many of us work in SaaS, these are four completely different SaaS websites, and yet they look identical.
I won't call out names, but I've seen these cartoons come up in a number of presentations recently, these cartoons are everywhere. We look at what our competitors are doing. We think "Those competitors are brilliant, they're really successful in our space. Let's copy them, let's do what they're doing, that can't be risky".
What science says though, is the complete opposite is true. If you copy your competitors, that's really risky because you're less likely to be recalled, you're less likely to be remembered and actually trying to do something different, is far smarter.
Watches
But it's not just us in the SaaS industry, it's elsewhere as well. I think my all-time favorite example comes from the watch industry. These ads are for different companies, even though they look identical - black background, Hollywood movie star looking out to the distance or to the camera.
But look at the watches, look at the time on the watches, they all set the time to the exact same time. Eight minutes past 10 - no distinctness whatsoever.
You might think this is just traditional old watch companies, a new company entering that market wouldn't do the same thing. You'd be wrong.
Even Apple does the same thing. So we struggle to be distinct and a lot of product marketing encourages us to follow our competitors and we see this herding around specific types of messaging, marketing, and advertising.
Distinctiveness in action
But if we are distinct, if we make an effort to stand out, we can really drive some impressive results.
The Australian tax collector
The Australian tax collector was struggling to collect taxes on time, they would send out letters to people who owed quite a lot of taxes, saying "Please pay now or you're gonna have to pay way more in the future".
The problem was nobody opened these letters, nobody responded, nobody paid their taxes on time. They made one small change, they A/B tested it, and the change was just to put a big stamp on the letter which said "urgent".
All that did is made it distinct, it made it stand out. By doing so they got more people to pay their tax on time and saved residents of Australia $4 million in late fees. Dramatic effects just with a small nudge.
Bins in Copenhagen
The second is from Copenhagen. They wanted to increase the amount of rubbish that ended up in bins.
They did something fairly obvious, which is rather than painting the bins green or gray, which makes them not stand out at all or blend into the background, they painted them neon and they painted some footprints on the floor which attracted you towards the bins.
This really small, tiny nudge resulted in 45% more rubbish being collected in bins.
Distinctiveness works, it actually drives behavior. It works for brands as well. There are dozens and dozens of examples of this working but the all-time probably most famous and successful example is Compare the Market.
Compare the Market
Compare the Market 10 years ago had very undistinctive advertising not too different from a lot of the advertising you'd see in SaaS today. They spoke a lot about benefits and features and the differentiators their product had versus their competitors and the benefits you could get out of using their products versus a competitor.
The issue was, everybody in the market spoke the same way. Nobody stood out. Nobody was distinct. They really struggled to get market share and to get traction.
They changed track around 2009 and introduced Aleksandr the Meerkat who was complaining about the fact that he had a website called comparethemeerkat.com that wasn't getting the SEO it needed because of Compare the Market.
It was weird, it was wacky, it didn't speak at all about product benefits, usage, or the use cases you could use the product for. All it was was really distinct and engaging and what is allowed Compare the Market to do was pretty incredible.
Up 83% in awareness, they achieved their 12-month objectives within nine weeks and they very quickly became the leaders in their space.
What I love about this though is the fact they changed their marketing completely, they went completely distinctive, and then what did the competitors do? The exact same thing.
Whoever that opera singer is, that's their competitor and they all did the exact same thing. What was a really smart strategy was then copied and then it's a stupid strategy following it up.
Distinctiveness: summary
The von Restorff effect - we know standing out helps improve recall, so start to use it.
The issue is brands copy competitors. Our boss will tell us, our CEO will tell us, our VP of Product Marketing will tell us "Company X is doing Y, let's follow them. That must be a good idea".
Educate them, say "Actually, no, let's try something different. That's probably a less risky strategy. Studies with taxes, bins, and meerkats prove being distinct isn't risky. It's less risky than copying competitors". That's the power of distinctiveness.
Anchoring
Again, anchoring is one you'll all know - if you're positioning a product, an anchor is really important because what anchoring means is the initial piece of information a consumer sees, is very, very likely to sway how they will use that product or whether they'll purchase that product or basically their future behavior.
The initial piece of information wields an unworthy amount of influence. It's been proved in a number of different studies.
Newspaper articles
There's a great study around newspaper articles, if you show this article to a bunch of random people, general pop survey, they will look at it and they will say on average, "Okay, that's good, that's progressive, that's quite good value. This is a good thing. This is a positive thing".
That's the word cloud you would get from that survey. If you showed the same representative sample group of people the exact same headline, but change the news publisher to this...
Suddenly that word cloud is completely indifferent. Suddenly, it's negative, it costs too much, it's a bad idea.
The anchor people use to put around their message massively influences how that message is perceived and future behavior.
Social security numbers
A far more interesting study was done by Dan Ariely and it was pointed out in his brilliant book, which is called Predictably Irrational, one you should check out. He did a study on students in his class.
He separated the students in half and the only thing he used to separate the students was the last number on their social security number.
As all of you will know, hopefully, social security numbers are issued in the US, they are completely random, there is nothing in that number that dictates how much you earn, where you're from, your demographic, etc. It's completely random.
He asked the students to split themselves into one half who had low numbers, zero to four. Then the other half who had high numbers, five to nine. All he did was told his students to remember that last number on their social security card.
Then he asked them to bid on a number of different products; champagne, a keyboard, a book, whatever it might be and he compared the difference in the results.
There should be no difference, right? Because we just split them in half completely randomly. There should be no distinguishable difference between the two groups. But we know because of the anchoring effect, that just isn't true.
Those who were anchored to think about that higher number actually bid a lot more for these products. The results are startling.
People are not just bidding 4%, 5%, 6% more, they're bidding up to three times more for the same items just because they've been primed to think about a higher number beforehand.
That is the power of the anchoring effect and a really interesting study from Dan Ariely. But it works in the real world as well.
Real estate agent
Here's a really interesting example from a book by Steve Martin and Joseph Marks. They went to a real estate agent in London and asked the real estate agent to make one small change about the way they do sales. That change was to do with the first thing somebody would hear when they called up the real estate agent.
So when they call them up, the receptionist picks up the phone, and rather than saying, "Sure, I'll pass you over to the estate agent Peter", they asked him or her to say something slightly different, "I'll pass you over to Peter, he has over 20 years of experience and would be perfect for you".
Now everything in there is true. Nothing is a lie. But they're just slightly anchoring the message with a bit more value, a bit more benefit. That one change had a dramatic effect.
The number of inquiries that were converted to valuations went up by 20% and for those people who heard that initial anchored message, the sales went up apparently by up to 20%. A really fascinating study by just changing one part of the marketing message.
Let's move on to advertising. We've done sales, we've done studies, let's move on to advertising.
De Beers
One of my favorite studies and one of the most famous ones is around De Beers and their advertising for diamond rings. In the 1930s just 10% of engagement rings were diamonds, a tiny amount, people can’t afford diamond wedding rings, nobody bought them. It was really only for an exclusive group of people.
Then De Beers came along and did a really interesting advertising campaign.
It's a version of this, this has been going for almost 80 years and it's all around a very specific anchor. If you look at the messaging, it says, "How can you make two month's salary last forever?"
Two months salary, that's the anchor they're talking about. Interestingly, people never used to spend two months salary, not even close, they would spend maybe half a week or a week on an engagement ring. The De Beer's has really pushed this idea that you should be spending a month or two months salary, and it had an effect.
People were far more likely to spend more, now they might not spend two months, they might spend a bit less, but they were spending enough to start affording diamond rings and through this advertising, the amount of people who are buying diamond rings is growing dramatically.
In the US, for example, it went from 10% in the 1940s to 80% in the 1990s, an incredible ad campaign that used a really smart anchor that dramatically changed consumer behavior.
Apple iPad
I'll finish anchoring with one of my favorite examples. Because this is something we all do as product marketers, we all do keynotes, we all do sales enablement, we all do customer calls. You can use anchoring in any of these mediums to dramatically make your pricing seem a little bit more reasonable.
Steve Jobs did this back in 2010 with the iPad launch. Before the iPad launched, you had a bunch of different journalists who were debating how much it would cost. The average they were saying was around $300. That's what they thought the iPad should cost for the tech it was bringing and the use case it was offering.
But there were some who were saying it could be cheaper, and some who were saying it might be as much as $1,000.
Steve Jobs used that extreme example as his anchor, he went on stage and he said to the room, "You guys in this room, some of you in this room think the iPad is gonna cost $999. That's what you think it's going to cost". Then he pressed a button and the $999 smashed and reveals $499 underneath.
He said, "For all of this tech, for all these wonderful features for all this wonderful functionality we've managed to sell it at just $499" and the crowd went wild. They were whooping, they were cheering they were celebrating and what's so stupid is the crowd is the same people that just days earlier, we're predicting this product would cost $300.
They were whooping and cheering about it being almost $200 more. The anchoring effect can heavily influence the behavior of your audience and your consumers and it's definitely one worth considering.
Anchoring: summary
Consumers alter their decisions based on the initial anchor they see, marketing campaigns and sales efficiency can dramatically improve if you think about the anchors consumers see and tweak them so they add value to your product.
Price can appear better value and we should always be looking to find ways to anchor our messaging, wherever that's in our sales calls, whether that's somewhere else completely.
That's the power of anchoring.
Scarcity
Most of you will know of scarcity - the idea that scarce resources are valued far higher than resources that are in plentiful supply.
The day British Airways announced Concorde was no longer going to run and in the future, they would be getting rid of Concorde flights between New York and British Airways, Concorde flights dramatically sold out. Every flight was getting booked up over the course of the next six to seven months.
Nothing had changed about that product, nothing had changed about the service, nothing had changed about the price, the product just became scarce. Our behaviors do dramatically change when something becomes scarce. It's a really impressive effect.
Jam
This an incredible study done back in 2000. The researchers went to supermarkets around the US and put booths up selling jam, they would alternate throughout different weeks and the only change between the two different booths was in the amount of jam they would sell.
In one variation of the booth, they would sell 24 varieties of jam. In the second variation, they would sell just six varieties of jam.
They tested this over multiple weekends, in different supermarkets across the country.
Conventional product marketing wisdom would say the 24 variety version should be more successful, our consumers want choice, they want to find the flavor that's right for them, they want to pick through all these different combinations and find something they think tastes the best, and you're more likely to get that with the 24 variety.
But that's not how consumers' brains work.
We are influenced dramatically by scarcity. In fact, we are far more likely to buy when you see the six variety version, almost 10 times more likely to buy.
A really important nudge to understand and really important effect to understand about your consumers because if you're like me, you do an end-of-year newsletter, which looks at all of the product launches you've done.
I remember looking at it last year, and we put something like 50 different launches or 50 different updates on there. Shit decision. We should have boiled it down, we should have gone for the top five or six because we know consumers like scarcity.
Seeing a movie
In another good example, a researcher polled a bunch of different participants on how likely they were to go and see a movie.
They explained the movie, and asked some participants, "How likely are you to go see this movie?" In the second variety, they said, "Oh, by the way, this movie is ending this weekend".
They announced there was a bit of scarcity and just by tweaking the message to say it ends this weekend, consumers were 36% more likely to attend.
If you host webinars, if you do events, if you want people to sign up for your products before a certain time, you should use the scarcity principle to influence your consumers.
Scarcity in our own lives
This is a bit off-topic but it's still really interesting and it's about scarcity in our own life. We are consumers and we dramatically change our behavior, when we realize our life is scarce - it's a scarce resource.
This tends to happen when we get to an age ending in nine, 29/39/49/59, when you get to one of these ages your behavior dramatically changes and you can measure it quite clearly.
You are far more likely to run a marathon when you get to 29/39/49/59. Side note, if anybody is selling shoes or sportswear, go and buy some ads at 29 or 39 or 49-year-olds, because you've got a good demographic there.
When you realize your life is a scarce resource, and it's running out, you're far more likely to run a marathon. And it's not just that, look at Ashley Madison website signups and you'll find you are far more likely to cheat on your partner when you get to 29/39/49/59. That's because you realize your life is a scarce resource.
A lot bleaker but you're also far more likely to commit suicide if you look at census data as well.
Our behavior changes when we realize our life is a scarce resource as well. This affects our consumers too. So if you're doing any type of marketing or product launch, you really need to consider this because it can dramatically change how our products are perceived.
Supermarket soup sales
I'm going to finish with one final study, one final example, which showcases how malleable consumers are in general. Again about scarcity, but looking specifically at soup sales in a supermarket and again as a variant.
In the first scenario, there's a big marketing campaign in the supermarket saying "buy this can of soup", and marketing works because people bought it. On average, when consumers saw that they would buy about three cans of soup.
Great, marketing works, product marketing works, we should all pat ourselves on the back, go home, take our bonus and be happy.
But if you make a slight tweak to that message, if you just put an asterisk on that message and say sales are limited at 12 cans per person, if you just make that slight tweak, you would dramatically change the response.
You shouldn't be changing anything because nobody's buying 12 cans beforehand, by the way, nobody's going to the supermarket, seeing some marketing and being like "Oh, yeah, 12 cans, that's what I want".
Nobody's doing that, nobody bought it beforehand, but you make a slight tweak to the message, you reveal that the resource is even just a little bit scarce, and you dramatically change consumer behavior because consumers go and buy four and a half cans of soup like maniacs just because they see sales are limited to 12 cans per person.
Scarcity: summary
Scarce resources are valued far higher so find a way to introduce scarcity around your service or your product offering.
Behavior dramatically shifts when scarcity is known. It is one of the simplest ways to improve marketing messaging because all of us can create scarcity in our product, whether it's limiting the amount of supply we give, or just limiting the amount of time you can have to access an offer.
If we emphasize scarcity, we can dramatically influence the behavior of all of our consumers. That is the power of scarcity.
Conclusion
In this article, I have covered a tiny portion of the huge amount of information about understanding consumers.
I've looked at distinctiveness, anchoring, and scarcity but there is way more behind that.
If you are interested in discovering that I do run a podcast where we delve into this stuff every single week. I'm not an expert in this space but the people I talk to are, I talk to researchers, authors, and pioneers in the space who truly help you understand what makes your consumers tick and what makes your consumers do the things they do.
Got more to discuss when it comes to understanding customer behaviors? Head to the B2B Marketing Alliance Community!
