Why Businesses Need Insights

April, 2013 Newsletter

Interview conducted by Ideas To Go Chairman Ed Harrington on April 11, 2013

In the marketing world, consumer insights have high value. But to understand what’s behind insights—or even what defines an insight—can sometimes require learning from a variety of different angles. In past newsletters and blog posts, we’ve covered the importance of insights from the business perspective. Now, in partnership with the Yale Center for Customer Insights, we are taking a more academic approach.

Ideas To Go facilitator and chairman Ed Harrington recently interviewed Ravi Dhar— George Rogers Clark Professor of Management and Marketing and the Director of the Yale Center for Customer Insights. Ravi’s multi-layered background in engineering, as well as his Masters Degree and PhD in business, with an emphasis in psychology and economics, gives him a perspective that helps connect the dots between consumer insights and business in a new way.

Ed: What led you to your work in consumer behavior and insights?

Ravi: Berkeley turned out to be ground zero in what’s now called “decision science,” or what the industry calls “behavioral economics.” (When I say “Berkeley,” I mean the entire area of Berkeley, Stanford, and the cross-disciplines of psychology, economics, and business school.) So the lesson here really was being in the right place at the right time. But—being at the right place at the right time only happens if you do a lot of exploration and discovery. So, I happened to be taking classes that were not in the business school, and I happened to bump into these people. And that’s when I really learned this is what I want to do. It’s really cool. How do people make choices? What motivates people? And that’s really what I’ve been doing the last twenty years.

Ed: As a behavioral economist, is that your perspective on looking at an insight? Is it other than that?

To me, an insight is really a powerful discovery about the underlying motivations that drive people's actions. It’s a discovery process; it’s not something that people can necessarily articulate.

Ravi: To me, an insight is really a powerful discovery about the underlying motivations that drive people's actions. It’s a discovery process; it’s not something that people can necessarily articulate. It can come through observation, it can come through trends, but it’s not the data. It’s the discovery about motivation that comes from the data. An insight is a motivation that drives some kind of action.   

It's really about unlocking peoples’ motivations for engaging in certain actions. It comes from connecting a lot of the different dots out there. If you think about one of the big things we know from macroeconomics — or even before that from even Ulysses and the Sirens — is that people have limited self-control. You could do a survey in any part of the world, and ask them, “Do you watch too much TV, or too little TV?” “Do you surf the Internet too much, or too little?” “Do you talk on the cell phone too much, or too little?” For a lot of these things, we have a pretty good idea that we’re doing too much of it, and we should be doing less. Similarly, you can think about savings: Are you saving too much, or too little? Most would say they’re saving too little. For a lot of behaviors, we know that people have self-control problems.

So the insight really is, “what motivates people to change their actions?” One of the beautiful things is a marketer can take and design products to have a deep understanding of that. Think about a product that was launched more than 20 years ago: bite-sized Snickers, and bite-sizes of many candies, which are actually premium-priced. It was based on the simple idea that I, as a consumer, am willing to pay a premium to the marketer for something that I like too much, so I want to have less of it. That’s a classic self-control issue: I like it so much, I’ll pay you a premium, so you’ll give me less of it. The 100-calorie snacks have the same idea.

I think the two big ideas of what drives behavior are around motivations and goals. Goals drive your actions and choices. But what we have known for the last 15-20 years is that, yes, people have lots of goals, but these goals are not static. People can talk with their parents, and suddenly their goal to become parental becomes very strong. We already knew that motivations were important. But what we didn’t know was that motivations could be unconsciously activated—or subconsciously activated—by the market, by the situation, by the environment. There was a study that showed when people walked past a library, they would talk in whispers because the library activated the notion that they need to be soft-spoken.

Insights come from what people are doing, so one of the things we have studied at Yale — and it’s been used a lot by companies — is that people have conflicting goals so they try to balance them. Take, for example, people who have a pizza, but try to balance it with a Diet Pepsi. Studies have shown that people have more calories at Subway than at McDonald’s—because they’ll have a relatively healthy sandwich, then they’ll have a big cookie to reward themselves. One of the most successful credit card launches was when you spend something, you save the change. But how much change were you actually saving? It didn't matter. The balance doesn’t have to be equal forces.

Ed: Do you find that observing behavior is a far better predictor than interviewing or asking? 

Ravi: We do a lot of this at Yale with discovery projects. First of all, it really is an art. To give a very concrete example, you should never ask consumers about their theories, or intent, or plan. Then you get into these issues of what they would like to do—or what they think is the right thing to do. What we find is that they are much better at telling you what they did. Then I can start asking from there: “What else was there? Did you look at the other things?”

Some people might ask, “So what was your decision route for what you had for lunch yesterday?” At Yale, we think that’s not the right approach because you’re now in what I call the “consumer as scientist” mode—not a “consumer as consumer” mode. I don’t want the consumers to be scientists. When companies do testing, when it’s focus groups or even product testing, they bring them into a room in a facility, and the consumer feels like they have to give advice to the company.

We’ve done studies where we make the consumers think like managers, or think like a consumer, and we get very different answers from them—whether they like the product or not. When they start as a manager, they start using theories. So when we ask them, “Should Heineken launch Heineken popcorn?” consumers as managers start saying, “Well, Heineken makes beer. What does beer have to do with popcorn? Popcorn would taste like beer. No, you should not be making popcorn." When we ask them, “You are a consumer who likes popcorn—what do you think of Heineken popcorn?” it’s “Oh, Heineken is high quality.”

Ed: What makes the work or the studies that you do challenging?

One of my frustrations—and I have to say this is more about the CPG world than the world of technology—is that they are still relatively conservative and they often want the right answer.

Ravi: One of my frustrations—and I have to say this is more about the CPG world than the world of technology—is that they are still relatively conservative, and they often want the right answer. I often tell them that if we all had the right answers, I would be sitting on a remote island. They will have consultants that tell them they have the right answer, whereas we will tell them we have the ways to address the questions. I find large tech companies, like IBM or Google to be much more open to experimentation.

It’s hard to experiment. But from my point of view, if you don’t experiment, the learning is always going to be slower and more limited—and the ones who are on the front tiers are going to be more open to the idea.

Ed: When we do innovation work with our clients, we almost always tell them when they get in session, the ideas will not get crazier when you go back home, so take all the chances you can right now.  Because, inevitably, once they get back to their organization, they’ll get more “safe.” 

Ravi: Exactly, so I totally understand they might have their constraints, and perfectly good reasons for not doing that, but it’s my observation that I have that it’s just that much harder to get them to change things to learn.

Ed: That does make me think that working with insights, you’re very focused on the customer/consumer—and that you should do an insight study on these clients, the corporation and the people who manage them, and how they look at these. It is fascinating.

Ravi: I agree, and I think it’s a work in progress. If you look at the insight world in corporations, it’s placed very differently. I remember having this discussion (with someone), I won’t name the company, but he used to spend over $100 million on research overall, in “market and customer insights.” He then spent some time as a P&L manager, which is someone unusual in this world. I asked him, “How much of what you did as head of insights is useful now that you’re running P&L?” And he said, “Very little.” I said, “What were you doing?” He said, “I can tell you five reasons why I was doing that, including that the CEO wanted certain metrics to be produced. It was backward-looking, not forward-looking—auditing documents and tracking documents, as opposed to growing the company documents."

You see, the pressure has changed. I think the job has changed. You see companies where the CEO is going to the Head of Insights—not to the CMO alone—and saying, “What have you done for me lately?” And they’re asking for a new measure of growth, something they can point to as a measure to show what came out of your unit, for the last year or the last five years. I find that a lot of insight folks are surprised by that question, because they haven’t defined their job like that. 

Ed: What constitutes a good insight organization within a company?

Ravi: Let’s talk about what constitutes a good insight first, because that’s where the challenge arises, because insights tend to be granular. CEOs and P&L Heads are looking for something to get a big shift. So, they say, “we’ll talk about the overall economics.” But the first organizational challenge is: how do you scale insights? What are these insights that are going to apply across business units and create capabilities that cut across? I think that the challenge of going from granular, single events to something that can be scaled very high is a challenge for the insight world to deal with it. How do you even measure it? Which ones should you focus on? That’s one issue.

Then you mentioned the issue of organizations. Talk to some of the technology companies. They don’t do insights. They say, “We do trends.” An example would be: you study smart phones. How they’re engaging smart phones in depth. You arrive at some insights, and then perhaps arrive at what it means for the business—now that people are mostly on smart phones, how do I change my communications strategy, my promotion strategy, whatever it is? There are going to be several billion smart phones in the country, in the world. What does it mean for business? New business models are going to emerge.  

There are two worlds: insights and trends. Smart companies monitor both.... I find that companies don’t do a good job of meshing the two worlds as well as they could.

There are two worlds: insights and trends. Smart companies monitor both. Trends on obesity, health, women in the work force, time spent out of home, aging population—and then, of course, they also do the insights from the bottom up. I find that companies don’t do a good job of meshing the two worlds as well as they could. The trend is to get some crazy person in for a day, and rattle off what the 10 things are that are out there. I think the trend work is not as rigorous. I don’t see as much being done there. They don’t connect them (to insights).  

Ed: Overall in corporations, do you see them more accepting of, or interested in, insights?

Ravi: Definitely more interested, but it also means expectations are much higher. And I do notice that, just like the CMO’s job, the (insights) job has had more turmoil in it. The expectations have increased.

Look for the video of the entire interview coming soon, as well as recaps and analysis of the 2013 Yale Customer Insights Conference in May.

Ravi Dhar is the George Rogers Clark Professor of Management and Marketing and Director of the Center for Customer Insights at the Yale School of Management. He also has an affiliated appointment as professor of psychology in Yale University’s Department of Psychology. He is an expert in consumer behavior and branding, marketing management and marketing strategy. He was recently honored with the Distinguished Scientific Accomplishment Award of the Society for Consumer Psychology.

©2013 Ideas To Go, Inc. All rights reserved.

Ed Harrington

Ed Harrington is CEO and Innovation Process Facilitator at Ideas To Go, an innovation agency that works with Fortune 500 companies to incorporate the voice of the consumer in ideation and concept development. He co-authored the book, "Outsmart Your Instincts: How the Behavioral Innovation Approach Drives Your Company Forward."