#292 Rory Sutherland - Master Sales & Marketing in 72 Mins - Kickoff Sessions

Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Rory Sutherland (00:00):
What I think we're demanding of marketing is
the same sort of accountabilityyou'd demand of a sales force,
and I think it's a mistake,because the way to look at
marketing is.
The analogy would be it's lesslike bauxite mining and more
like treasure hunting.
The reason you dig isn'tbecause everywhere you dig you
come up with some value.
It's because sometimes when youdig, you come up with something

(00:21):
spectacular.
In other words, 10% of what youdo adds about 80% of the value.

Darren Lee (00:26):
The logic is when someone buys something, how long
should they wait until they getvalue?
Do you know what the answer is?
Go on.
Answer zero.

It should be immediate.
We need to stop pretending youcan make this entirely
predictable and simply learn toappreciate the fact that both
innovation and marketing arereally processes of discovery as
much as they're processes ofimmediate return.
But what they're doing there is.
This is a terrifying thingwhich, if we're not careful and
I would actually supportunusually for someone who tends

(00:56):
to lean a bit libertarian-what's more important sales or
marketing?
They're not really separable.
It's a bit like you know whichis more important to the area of
a rectangle.
Okay, you know the width or theheight.
Okay, it's one of those thingsthat you know.
It's probably a false dichotomy.
What I would say is thatmarketing can be supremely

(01:22):
decisively important, can besupremely decisively important,
but it's sort of fat tailed.
I've been talking about this abit recently, which is that what
I think we're demanding ofmarketing is the same sort of
accountability you demand of asales force, and I think it's a
mistake Because in my experienceof 35 years in marketing, 10%

(01:45):
of what you do adds about 80% ofthe value.
In other words, there isincremental improvement, which
is fine and dandy, and you haveto do it and there's.
You know you're absolutelyfoolish not to do so, but every
now and then there's aspectacular breakthrough and we
should spend more of our timeand resources looking for
potential moonshots, as I callthem.

(02:06):
You remember that Google phrase10x and the moonshot, I think
it came from Astro Teller.
You know, at Google, and Ithink we are probably making a
mistake because we've been soldby the tech world on this idea
of perfect accountability andyou know where every unit of
know, every unit of expenditureis attached to a unit of revenue

(02:28):
.
Okay, and my view is that's thewrong way to look at it, that
actually the way to look atmarketing is a little bit it's.
In other words, it's less likethe analogy would be.
It's less like bauxite miningand more like treasure hunting.
The reason you dig isn'tbecause everywhere you dig you

(02:48):
come up with some value.
It's because sometimes when youdig you come up with something
spectacular.

Darren Lee (02:54):
How do you justify that to managers and clients and
stakeholders and VCs?

Well, vcs should probably understand the
principle, because their wholebusiness depends on the fact
that your 10% of successeseffectively pay for the other
90%.
And nonetheless, r&d innovationis exactly the same.
Ok, it's an inexact, nonlinearand kind of to some extent,

(03:23):
serendipitous process.
I mean, every drugs companywould realize completely that
you don't expect every singleline of inquiry to pay off.
Every police investigationwould understand.
I mean, it's actually a stapleof cop dramas, isn't it?
Which is, the investigationmakes a small breakthrough, just
as they're kind of running outof funding.

(03:45):
But my only argument is we needto stop pretending you can make
this kind of entirelypredictable and simply learn to
appreciate the fact that bothinnovation and marketing are
really processes of discovery asmuch as they're processes of

(04:07):
immediate return.
So I'll give you an example ofthat.
Well, two examples I alwaysgive, but I've got more.
Actually, I'll give you arecent one which really
impressed me.
So I was booking a hotel inHouston and normally when you
get to choose hotel rooms, youchoose, you know, standard,
deluxe, junior suite, whateverit might be, club floor.

(04:30):
Okay, the rooms are delineatedbasically by the status and size
of the room.
And I went on to book this roomand you could pay $15 a night
extra for either what theycalled pool access or gym access
.
Now, what that meant was theroom was near the pool or the
room was near the gym.
Okay, now what's extraordinaryabout that is it hasn't required

(04:52):
any investment in buildingconstruction or anything of the
kind.
You haven't had to re-carpet asingle room.
But you've created value justby describing something
differently, just by definingsomething differently,
positioning Effectively.
And I'm a kind of pool person,as you might have guessed.
And so I go yeah, is it worth15 bucks a night for two nights

(05:13):
to be within an easy walk of thepool?
Yeah, I think that is.
That's probably worth it.
And now what you've done isyou've created value out of
nowhere.

Darren Lee (05:22):
Just want to take one quick break to ask you one
question have you been enjoyingthese episodes?
Because, if you have, I'dreally appreciate if you
subscribe to the channel so thatmore people can see these
episodes and be influenced tobuild an online business this
year.
Thank you, let's double tap onhow you can do that, right,
because this is how youmanufacture value, or perceive
value, because it's theperception of value, of what

(05:45):
makes it valuable.
It's not necessarily buying theiPhone, it's what you can do
with the iPhone, what it enablesyou to do.
So how do you look at somethingobjectively and, instead of
wrapping it up with puttinglipstick on a pig, how do you do
this in a proper, elegant way,right, yeah, I mean the lipstick
on a pig argument.

I mean, by the way, I will freely admit that a
lot of marketing activity isn'tparticularly effective, except
to the extent that simple fameand familiarity make what you
have to sell more saleable.
Ok, At a very trivial.
It sounds very trite, but youcan't actually buy something if

(06:24):
you don't know it exists in thefirst place.
I know that seems absolutelyobvious.

Darren Lee (06:29):
Most people don't market their stuff, though.

So I'll give you an example.
When you next need to buy atoaster, there is such a thing I
think Dayu makes one andsomebody else does which is a
glass-sided toaster.
So you can basically see whenyour crumpet or muffin is at the
right level of brownness andhit eject at the opportune
moment.
Okay, now, if you don't knownow, because I've told you that

(06:54):
when you next buy a toaster, youwill at least have a deco at
the glass sided toasters and seewhether they make financial
sense One of them isn'tparticularly expensive, actually
.
If you don't know, those exist,well, you're not even going to
look in the first place.
So I mean, but also there are awhole lot of reasons
psychologically, why people feelmore comfortable buying things

(07:15):
that are well known, familiar,or which appear to have, uh, you
know, a large customer basealready so an improvement offer
effectively right, so somethingthat's an improvement I mean you
are, I are, I mean I think we.
I think we made this fundamentalmistake, which is because we're
demanding this perfect level ofaccountability, you know, this
perfect level of quantification.

(07:35):
We're kind of suggesting nowthat every dollar invested in
marketing has to be justified bymeasurable, quantifiable and
immediate, or at least veryshort-term, return.
Now, undoubtedly, somecomponent of what you're doing

(07:56):
probably works that way, but youmight be woefully
underestimating your investmentif you invest in something and
then only declare it valuable tothe extent that it very quickly
delivers the result that youwere expecting in the first
place.
A large reason to be famous,okay, and you'll know this right
.

Darren Lee (08:15):
Oh, you took the words out of my mouth.
I was going to say podcastingis a perfect example.

A large reason to be famous is actually nothing
to do with what you'reintending to do with your life.
It's that when you're intendingto do with your life, it's that
when you're famous, peoplebring you opportunities that you
never even knew existed in thefirst place.
Okay, so you will be asked toopen.
If you are famous, people willask you to open a supermarket.
They exist.
I don't know if you ever beenasked to open one.

Darren Lee (08:38):
George Foreman, exactly, george Foreman, okay.

But I mean, it has a value in all kinds of ways
, not all of which you candefine in advance, In fact, the
majority of which you probablycan't define in advance.
And one of the things that doesworry me is that in the

(09:00):
advertising business it seems abit banal to go to someone and
say we're going to make youfamous.
But actually it's a perfectlyhealthy aspiration, simply
because if you're not famous,you have to find all your
customers or viewers.
In the case of if you're aYouTube star, If you're at the
point where you are not famous,you have to find your customers.
When you become famous,customers whose existence you

(09:21):
never even envisaged will comeand find you.
That's a kind of escape velocity, that's a step change, and so
my only argument is that we'redeveloping a very
instrumentalist approach tomarketing, which is the purpose
of this thing is to achieve that, and we will measure its
success and justify itsexistence purely to the extent
that it achieves somepreordained objective.

(09:45):
Now, nassim Taleb, who I knowwell fantastic guy, I mean, if
you haven't read his books do,because they're kind of
game-changing and you neverquite see the world in the same
way afterwards and you certainlydon't see statistics in the
same way afterwards he wouldundoubtedly say that a large

(10:06):
part of what you're doing withmarketing is and this is a sort
of fancy phrase, but it capturesit perfectly increasing your
surface area exposure topositive upside optionality 100%
.
And the optionality part meansit's not that you have to take
every opportunity that comes toyou, it's simply that more
opportunities will come your wayfrom which you can choose.

(10:28):
Now I suppose you could saythat you know.
The point is, it's a littlelike the you know, the more I
practice, the luckier I get,phrase which is always
attributed to golfers or whoeverit may be.
In the same way, there are alot of things you can do which

(10:48):
aren't necessarily valuable inhelping you attain some
absolutely predefined end, butwill make it much more likely
that you get lucky in some asyet unknown way.

Darren Lee (11:00):
Yeah, I think if you look at your friend, chris
Williamson perfect example.
When Chris started his podcast,did he ever think he was going
to have an energy drink?
Of course not.
No, he was recording a podcastbecause he was generally curious
in productivity, personaldevelopment, self-development.
I was very early.

I didn't know who he was when I first did a
podcast with Chris, becauseafter they turned me down for
Love Island, I just refused towatch it.
I just boycotted the whole showyou created your own one,
absolutely.
But it was very, by the way.
It was immediately apparent Ididn't know who he was.

(11:34):
It went on within about two orthree minutes.
It was immediately apparentthat this guy is really good.
It wasn't one of thosequestions where where the hell
did this come from?
He is emphatically very, verygood and, you know,
extraordinarily curious andactually has brilliant, I think,
taste in kind of you know,topics and questions that's
where the compound effect hashappened.

Darren Lee (11:54):
all right, because he's had so many reps plus the
curiosity, yeah, so he'sactually enjoying what he's
doing and then, therefore, theluck happens, because this is
the big thing I have with.
Uh.
So we run podcasts for peopleright, and big companies small,
small companies and I think whenyou come from an advertising
background and a direct responsebackground, you're so used to
instant ROI, whereas what youget from your podcast is

(12:14):
longevity.
Same with content Contentlongevity.

By the way, in direct response we were always
underestimating how successfulthings were Okay.
Underestimating how successfulthings were Okay.
And I'll tell you, this goesback to about 1989, 1990, which
is banks used to send out localloan offers to their customers

(12:37):
and then there was a sort ofcentral direct marketing
division which also did that andthe banks effectively claimed
that they were just assuccessful as the experts.
So one-north was the point inpaying these experts.
And the experts said to themwell, hold on, how do you
measure a response?
And they said, well, anybodywho sends back the coupon or

(12:57):
anybody who comes into thebranch in the following three
months and asks to talk about aloan, ok, they said, what's the
ratio of those two?
They said it's about 50-50.
It's 1989, where you actuallytalk to a human in a bag, not an
EO chat.
And these guys said, well,we've only been measuring the
first half, we haven't beenmeasuring the second, Because

(13:17):
there was the response asdefined, which is someone who
immediately clicks, returns acoupon, makes a phone call, and
there's response as measuredover the longer term, and in
this case I mean it will varyenormously.
It was about 50-50.
So they were effectivelyunderestimating the

(13:38):
effectiveness of everything theydid by 50% by defining it too
tightly.
And I think that is worryingbecause I think digital
advertising is grossly distortedbecause people who find it very
easy to attribute sales to adspend for example, someone
selling direct can effectivelyoutbid for attention anybody who

(13:59):
sells through a retailer,because the person selling
through a retailer doesn't havethe hard data of to what extent
an individual ad generates sales.
The person selling direct does,and so I think we've got a
massive just, I mean, it's justa point I make, which is I don't
see ads online at all forconsumer package goods.

(14:20):
Now, I spend, you know, weirdly, I'm, you know, new man, I do
all the shopping, um, but youknow I spend, you know, an
appreciable amount of my moneyon shampoo, dishwasher, tablets,
uh, etc, etc, etc.
Never see anything for them.
And my argument is is becausewhat I will see ads for is high
margin goods which are bought onimpulse, um, or things which

(14:43):
have a very long lifetime value,like signing up to a financial
product.
Ok, they're.
The value of an acquiredcustomer is, you know, in three
digits.
Definitely OK if you findsomeone who buys high margin
fashion, ok, if you're I don'tknow well, mr Porter,
net-a-porter OK, but finding acustomer of that kind of thing
is disproportionately valuable.

(15:05):
Therefore, they can advertiseto an insane degree versus
people who are selling goodsthrough intermediaries with no
direct attribution.
And that does seem to me to bean interesting debate which
nobody ever raises, which is, ohyou know, are we distorting
effectively the kind of thingsfor which people see advertising

(15:25):
?

Darren Lee (15:25):
It's funny because I've actually had the exact same
discussion and attribution onmy team.
So we have a big brand, publicbrand, but then we have
advertising too and under adirect response, we don't see
the right metrics likesupposable metrics.
But what happens with us is thatour very, very, very, very,

(15:46):
very, very, very, very, very,very, very, very, very, very,
very very very, very very very,very, very, very, very, very,
very, very, very, very, very,very, very, very very very, very
, very, very, very, very, veryso your cost of acquisition is
about $1,200.
Yes, got it, got it.
So again, that's probably likea five to one.

But you also have not much marginal cost.

Darren Lee (16:10):
No, exactly so the fulfillment.
So again in your case.

You can actually technically afford to
spend $4,900 selling a $5,000.

Darren Lee (16:17):
100% If it's an incremental sale, which is by
the way a big, if Exactly.
But the big thing is that theseguys who've seen an ad, they've
seen something, and come intothe ecosystem.
They don't buy right now, butin 90 days or 180 days' time
they will be on a call and theywill say I remember seeing that
video with Darren and Rory.
They'll bring something up,they'll say it to us saying I

(16:40):
watched this, I watched that andthat's the awareness piece.
Well, jeremy Bulmore, wonderful.

He died, I think last year or the year
before, absolute sage of theadvertising industry, and he had
a friend who said Jeremy.
He said you work in advertising, don't you?
And Jeremy said yes.
He said well, you'll be amusedto know that I've just bought an
Aston Martin.
It was presumably a rich friendand he said it won't surprise

(17:09):
you to know that I bought theAston Martin because of an ad I
saw.
Jeremy goes no, no, it won'tsurprise me.
He said.
What might surprise you is thatI saw that ad when I was 12
years old.
Now, obviously that's anecdotal,but yes, undoubtedly there are
ads which have extraordinarilydeferred effects and of course

(17:29):
there are two problems with thatthe longer the time frame, the
harder it is to actuallypractice precise attribution.
But also we're addicted toshort-term response as a kind of
crack hit because it justifiesour activity Now there are
activities.
Short-term response as a kindof crack hit because it
justifies our activity Now thereare activities.
So one of the effects of thisis that almost every business

(17:52):
will overinvest in acquisitionrelative to customer service and
experience.
Okay, and the reason is thatcustomer service and customer
experience is often very, veryimportant.
It can be quite decisive, butits effects are slow.
If your bank pisses you off,you don't actually leave the
bank, you just become inert as acustomer and don't buy anything
else from them.
Okay, and it would probablytake you.

(18:12):
If you wanted to, I'll give youan example of this.
Actually, it's always struck meas very weird that nobody else
ever, anywhere, has stolen theidea from Amazon which is the
call me back button.
Okay, it strikes me as a major,major innovation in customer
service, which is you're onAmazon, your funny hat hasn't

(18:33):
arrived, because actuallysometimes Amazon is pretty
reliable.
Often it hasn't arrived becauseactually your wife or husband
has opened the package and youdidn't notice.
Okay, but nonetheless, you havethis problem.
You go in, you say it knows whoyou are because you're logged
in.
They don't have to ask yourpostcode and your email address
and all that bullshit.
Right, it knows what theproblem is because you've just

(18:54):
said my hat didn't arrive.
And then you click the buttoncall me back.
Three seconds later, your phonerings and there's someone who's
basically straight onto thesolution.
Now, it's a bit difficult tofind that button on Amazon, if
we're being absolutely candidabout it.
But you can find it and it's anextraordinarily potent customer
service tool, I would argue.

(19:16):
What's weird to me is thatnobody.
You'd think a bank would havecopied this.
Talk to us about a loan, talkto us about car insurance.
You'd think that loads ofpeople would have copied it.
Now why should they have copiedit?
I'll tell you why they shouldhave copied it because Amazon
does it.
Now Amazon tests absolutelybloody everything, okay.
So if Amazon does something,they've got a reason.
But also Amazon, unlike a bank,is a fast feedback business

(19:39):
where you can probably find outwhether that pays off in terms
of customer retention and repeatpurchase within months rather
than years, and you can trackthat if you want to.
I'm sure Amazon does.

Darren Lee (19:50):
I'm sure Amazon does .
Two things came up for me thereon that side, so one on the
customer support side, b2c, sobusiness to consumer.
So I worked at Revolut andRevolut is known to not have the
best customer experience andthey were trying to automate
more things.
This is before AI chatbots werea thing and they were basically
optimizing for the wrong metric.
They were optimizing forresponse rate, but people were

(20:11):
getting super pissed off becauseyou message hey, I have an
issue in my carrier and I'm inBulgaria, and then they want to
speak to someone and they'rejust getting automated message.
So they're making the issueworse.

Well, what they're doing there is that this
is a terrifying thing which, ifwe're not careful, ok, and I
would actually support unusuallyfor someone who tends to lean a
bit libertarian I would support.
Just as you need London blacktaxis to be regulated.
Ok, you can't just have anybodyturning up in a black cab,
because if anybody could borrowa black cab and drive around and

(20:44):
pick people up, I couldn'tcontentedly get into a black cab
with a total random stranger.
Okay, the system only works ifyou maintain.
This is why medieval guildscame into operation.
Okay, goldsmiths, et cetera.
In other words, there's a highbarrier to entry, which means
that someone doesn't want to getkicked out of the guild, which
means they have to basicallyplay honestly, because the

(21:05):
long-term consequences of beingcaught are more severe.
If you've invested in gettingthe knowledge in London, okay,
you'd feel a bit of a dick thenthrowing away two years of your
life because you wanted to ripoff an American tourist by, you
know, taking them on a wigglyroute.
Okay, I'm sure they do that abit, but surprisingly little
compared to other countries.
No-transcript.

(21:31):
Actually, really interestingquestion.
I don't think I've actually hada dodgy cab driver.
Okay, and that's because thesystem is policed so that you
have enough trust for thebusiness to exist in the first
place.
Okay, now I think there'sgenuinely a problem,
particularly with people as theyget older, where people will
abandon highly efficient and, inmany cases, economically

(21:54):
valuable online economicrelationships simply because
their expectation, or, to usethe phrase, once bitten twice
shy.
In other words, you've hadthree bad experiences with
Revolut customer service.
Then you need to make aninsurance claim and they force
you to do three hours' workonline rather than actually

(22:14):
doing the work yourself.
If you have four or five ofthese disastrous experiences, or
you get locked out of your bankaccount and there's no one to
talk to to explain what's goingon, okay, you will literally and
I think this will be even morepronounced among older and
richer people.
I'm not going to call it aboycott, it's not as coordinated

(22:35):
as that but people will simplydrift back to face-to-face
transactions.
That's right, 100%, and so, andthe reason it needs to be
policed is that my willingnessto engage with someone online
isn't driven by how good theircustomer service is.
It's driven by my expectationof their customer service.
Now I want to make this point.
I've had hotels.

(22:56):
I'll name them because theydeserve it Hotelscom, ford and
Zoom.
Okay, three cases where Ineeded to speak to a human being
.
Two of them was live chat andone of them was voice.
Well, the experience wasfantastic, okay, and it can be
really, really good, but thepoint is, my willingness to
engage in that kind ofrelationship in the first place

(23:18):
is driven not by the reality butby my expectation.
I had an issue with Stripe withthat.
Oh interesting, go on, tell memore.

Darren Lee (23:24):
So we do sponsorships.
So if you imagine ChrisWilliamson and AG1, we place
sponsorships on them.
So my company is called Voix,which is on top.
So we worked with this companyand they placed ads on one of
our podcasts but they didn'trealize that our company name
was there.
So they paid with a credit card.
It was 10,000 USD.
And then that company, who's abig agency?
They just saw this company andthey were like, oh, that wasn't

(23:46):
me, it was fraudulent.
So they went to their bank andthey just said, hey, I don't
recognize this transaction,recognize this transaction.
So then Stripe blocked theaccount, blocked the transaction
and just put my account intorestricted state.
So nothing severe.
But I went to Stripe and I wentinto their customer support and
immediately it was a human andI said look, it was a mistake on
their side.
Their founder even got back andsaid, oh dude, so sorry about

(24:09):
that.
Like I made that mistake, wethat mistake.

We had the email thread.
Understandable mistake.

Darren Lee (24:12):
And then we sent it over and then the person in
Stripe was like, yeah, perfect,here's all the information I'll
get back to you in 48 hours.
And in 48 hours the money wasback in my account and my
account was unmarked.

Back in normal, back in normal status.
Everyone was back to normalbecause it was a mistake on his
site, but again, which is we'rereaching.
You know, the idea of thesubscription, okay, is a very,
very valuable idea.
Okay, I think it's slightlyflawed, but I won't go into the

(24:44):
whole details of the thing, inthat I think there's a limit to
how many subscriptions peopleare prepared to have.
This happened, by the way, incable TV in the United States
going back 20, 30 years ago,people would hit $50 a month and
that was their basic ceiling.
30 years ago, people would hit$50 a month and that was their
basic ceiling.
If they signed up for somethingnew HBO they'd cancel something
else to remain below thatthreshold.
I think people also have, ifyou add up their mobile phone,

(25:04):
their broadband okay, theirNetflix, their Amazon, their
Disney Plus, their kids' mobilephones, the.
You know, if you add up allthose things, we're in danger of
reaching a world where people'ssalaries and your landlord okay
, right, we're in danger ofreaching a world where people's
salaries simply go into theirbank account and walk straight
out again.
Okay.
Now, the extent to which Ithink and I regard this as,

(25:28):
again, an area where I wouldsupport legislation the extent
to which you can sign people up.
Now you'll notice this Nobodyever signs someone up for a
subscription by direct debit.
Do you know why they don't dothat?
Because you can go to youronline banking app, have a look
at all your direct debits and ifyou're having a bit of a lean
month, you can just go down thelist and cancel them With a
credit card.
You have to go back to theoriginal entity and ask that

(25:52):
they cancel.
I think that's unethical.
I think it's wrong.
Okay, I think that you should,on your credit card app, be able
to basically cancel a recurringpayment on the credit card app.
I think those payments shouldalso be listed separately at the
top of your bill, okay, and youshould be given some degree of
control, because this businessof you know, I mean, I literally

(26:13):
found myself paying for mykid's club penguin account or
something when they werepractically at university, right
, this is bullshit.
Ok, and, by the way, companiesthat are reliant on that need to
be very, very nervous.
For two reasons, ok, one ofwhich is that there's the danger
of legislation which isstarting to happen in the US and
starting to happen in Germanywhich basically says it has to

(26:33):
be as easy to cancel an onlinesubscription as it was to
actually set one up in the firstplace.
Richard Thaler calls this asludge.
You know, you make it very easyto take up the free offer.
Then they start charging youand then you decide I don't want
this anymore.
And you know they demand.
You know some ludicrous numberof hoops to jump through in
order to cancel.
Now, the reason I think that'sbad, okay, and some of our

(26:57):
clients may go Rory, what areyou doing?
This is our business model.
The reason I think it's bad isbecause it's actually making
people pretty naturallyreluctant to engage in that kind
of transaction in the firstplace, even with honest actors,
a culture.
It's a cultural thing, which isI'm just not doing that again.
There's actually a wholeeconomic paper behavioral
economics paper about this,which is that people are, to use

(27:19):
my phrase once bitten, twiceshy.
They know I'm not going to getaround to canceling this, so
they automatically are aware oftheir own limitations and
therefore don't subscribe.
The other risk is thatcanceling direct debits suddenly

(27:41):
became very easy when onlinebanking came along.
I mean, there's also a problemwith security, okay, which is
the sudden rise in two-factorauthentication.
It's a great thing at the levelof the individual business, but
for a consumer who's a heavyinternet user, okay, the fact
that actually you need toconsult your phone for a
six-digit code practically everytime you do everything, we're

(28:03):
actually eroding, you know, asignificant part of the
advantage of transacting onlinein the first place, which is
that it was bloody easy, and sosomeone needs to clean this
thing up.
I mean, it's part of a widerthing called in-shitification,
okay, which is a Corrie Doctorowphrase, but someone does need
to come in and basically cleanup this mess.

(28:24):
You know, there needs to be abetter system to do with
passwords and identification,and I would argue that this
would be a perfectly legitimaterole of government, just as it's
a perfectly legitimate role ofgovernment to regulate London
black cab drivers.
Ok In that the system can onlywork if, effectively, there is a

(28:45):
way of excluding dishonestactors.

Darren Lee (28:49):
And I think that's part of the.
It's the attitude and behavior.
That's the biggest thing rightis.
People are skeptical to dothings I think about online
education, like people areskeptical to buy into online
education because they've beenburned in the past, which is a
valid point.
But to your point, it's likeyou know, some people make a
mistake.
When they make a mistakeinitially, but then they're
making a second mistake whenthey're not fixing that mistake
by moving forward, you got it.

(29:09):
So I'm very conscious of my ownbehaviors.
Am I fixing those behaviors?
Previously that got me caughtand that got me stuck.
So how do you do that from amarketing perspective?

There is an odd thing which is, having worked
in marketing all my life, I'veoften wondered in retirement
whether I should just doinformal advice on consumer
protection, a bit of anElizabeth Warren.
I don't know if you knowElizabeth Warren, because my
general impression of 36 yearsin marketing is that most

(29:45):
marketers are actually to someextent on the side of their
customers and they want to do adecent, honest job of it.
They're prevented from doing so, sometimes by financial
constraints, which is that it isoften more lucrative to be
dodgy than it is to be honest.
We should chat about that.
Ok, we'll chat about that.

(30:05):
It's a very simple thing, ok.
So I'll tell you a story aboutthat.
And I genuinely think thatconsumer protection, when well
enacted, can benefit bothconsumers and honest actors at
the expense of dishonest actorsin any marketplace.
Now let me give you anextraordinary thing.
Interestingly, by the way, Iwas chatting to a guy, a

(30:28):
wonderful guy, who's founded akind of meta search engine
called Kagiorg K-A-G-I, and it'sa pay-to-use search engine
which is not advertiser funded,and it's a bit like using Google
10 years ago in that it givesyou what you want to find rather
than what somebody else wantsyou to see Now, I'm a very, very

(30:50):
big fan of Google.
I'm not, you know, in the sensethat they do do quite a lot of
useful things, okay, gmail,google Maps, etc.
Certainly much more of a fanthan I am of Facebook, which
seems to, you know, swallowedtrillions of dollars without
actually coming up with a secondidea.
To be absolutely honest, we'rebeing really, you know, come on,
mark right, but I was in ahotel a couple of years ago in

(31:15):
France and I had COVID.
That's why I was in the hotel,I couldn't leave, and so I
wasn't on my A game.
But at the time I thought well,I'll get some admin done while
I'm stuck in a French hotel room.
And I knew that in a fewmonths' time I'd need to go to
Canada.
So I went and applied for thisCanadian equivalent of an ESTA,
which I think is called I can'tremember what it's called CTA or
something, canadian Transit,something.

(31:37):
Now I go into Google and searchfor it as I said, I'm not on my
A game.
I click on what looks like atotally plausible thing, which
is not a govca website, but itlooks official.
I go and pay $50.
And sure enough, actually, theydo actually deliver this
permission to travel.
In that sense, it's not acomplete scam.

(32:00):
They do deliver it.
The actual cost if you go tothe Canadian government website
is $14 Canadian.
Okay.
Now I'm going to say Google,come on, mate right.
It's perfectly obvious whatthis problem is, which is that
someone who is making $50 profit, or whatever it might be, from
selling Axis to Canada is alwaysgoing to outbid the Canadian

(32:24):
government okay, for thosesearch terms, on the ground that
the Canadian government isprobably making $2 to zero on
issuing this thing and they'remaking a profit of effectively
whatever it was 62 minus 14dollars, minus their payment to
google.
Now you're living off immoralearnings there, mate right?

(32:44):
I mean, you know you should.
You have to be alert to thefact that someone who is a
dishonest actor will always findit more profitable to acquire a
customer than someone who is anhonest actor, and you have to
be alert to this.
And it strikes me as completelybizarre that they were happy
for those search terms to appearat the top.
A print publication would nothave taken those advertisements,

(33:11):
would it?

Darren Lee (33:11):
How do you think about scarcity and urgency?
That's been manufactured.

It's not really .
I mean in a sense.
So I mean at the very simplestlevel.
I've spent years and yearsstudying this.
When I see the sentence onlythree seats left at this price,
it does make me book the goddamnticket.
Okay, I mean, a certain part ofmarketing is just overcoming
inertia and then remindingpeople that the thing may not be

(33:38):
available If you're in.
It is worth noting, by the way,if I can put my Elizabeth
Warren hat on briefly, that itsays only three seats available
at this price.
That does not specifically saythat the subsequent price won't
be lower.
It implies that subsequentprices for you, subsequent
prices for seats on that flightwill be higher, and probably the

(33:59):
balance of probabilities isthat they will be, at least
until very close to the date oftravel.
They probably will be higher.
Most people never go on tocheck what they would have paid
if they'd paid five weeks later,by the way.
So it's a slightly weasellyformulation of the words.
On the other hand, at somelevel it is at least true.

(34:20):
Okay, you know, there are onlyX seats available at that price.
Well, I mean, it's been true inmy experience where I've
actually gone and checked it.
You could just lie.
I'm absolutely right.
Is that an ethical thing to do?
Probably not really, actually.

Darren Lee (34:38):
You kind of have to pull the line right.

Obviously.
I mean some things are sold onthe basis of scarcity.
You know there are some thingswhere the value entirely depends
on their scarcity.
Now, I mean that's aninteresting question, because
luxury goods, to some extent,okay.
You could argue from a strictlyeconomic point of view that,
for example, the luxury handbagmanufacturers who will literally

(35:02):
burn and destroy $30,000handbags rather than sell them
at a discount, okay, and youknow there are documented cases
of this happening, and you knowthere are documented cases of
this happening Patently OK.
The value of that thing to theowner depends on its perceived

(35:24):
and signaled rarity, right, andon the fact that you obviously
have paid £30,000 for it,because you know you don't get
much Hermes on TK Maxx, right?
Okay, the scarcity value thereis a psychological thing.

(35:46):
It's nothing to do with.
I mean it's nothing to do withthe utility of the item itself.
It's to do with what the item,the ownership of the item,
conveys and it's also about theimplied status as a result.

Darren Lee (35:59):
If you're wearing a nice watch right If you're
wearing a Rolex watch and it'slike a Daytona watch and there's
only a few of them literallybuilt Well.

the entire collectibles market is in some
senses.

Darren Lee (36:08):
Yeah, exactly so.

it's like it's a single In some senses it's
completely deranged and they'veactually done experiments with
this, by the way, in onlinegames, which is quite
interesting.
So there was one of those gameswhere, to be honest, if I
didn't have a job I'd probablybe into that stuff.
I haven't got time for allthose fucking orcs and wizards
and things.
I bet you'd love it.
I probably would.
Maybe that's why I stay away.

(36:30):
It's a bit like crack.

Darren Lee (36:32):
Just don't take the risk.
We know we like it.
Yeah, we know we like it right.

And they had a particular weapon, okay, which
you could buy with anextraordinarily large number of
credits, which was quite ornatebut had remarkably little value
at actually killing orcs.
In other words, its value wasentirely in its display and
signaling value, not in its usevalue.
And what they found is sureenough that people would pay an

(37:01):
extraordinary amount for thisweapon, basically because it
made them look cool in the game,rather than because the weapon
had any real functionality interms of killing your enemy,
terms of killing you know yourenemy.
Similarly, when the I thinkI've got this right for a very
brief period there was an app onthe Apple Store which was

(37:25):
called I Am Rich and it was justa shiny diamond gemstone thing
that rotated on your screen andthe app cost $20,000.
Now Apple, for whatever reason,took it off.
What Apple actually took it off, but this was a thing which was
, I think the app was justcalled I Am Rich and it was pure

(37:46):
costly signaling.
The value of the thing was thatpeople knew you'd paid $20,000
to have it.
I mean, you could argue okay,that, okay, it has
conversational value, of course.
Yeah, in fairness, and actuallyit probably has fame value,
because word of your possessionof this ludicrous thing would
spread far and wide.
It might have a certain datingvalue.

(38:07):
You know, if you want to showoff the fact that you have
discretionary wealth, the bestway to show off that you're rich
is to waste it, right?
Just to be clear, I mean, Imade this point once, which is
that, okay, coach drivers andlorry drivers don't own a
quarter of a million poundvehicle, right, but we wouldn't

(38:30):
attach anything of the samesignificance to someone's
ownership of a coach or a truck.
Okay, because that truck has ause and they make money from it.
Right.
If you own a Rolls-RoyceCullinan, okay, that's probably
about the same price to buy as atop-of-the-range motor coach or
a really, really cool truck.
I don't know how much thosehuge things go for, but it's

(38:52):
going to be in the same kind oforder.
Okay, half a million.
But the Rolls-Royce has astatus value precisely because
most of what it offers you isunnecessary, whereas because the
coach or the bus is necessaryto your employment and is
actually a source of revenue, itcarries status.
So the very, verygratuitousness of the

(39:14):
expenditure and, by the way, I'mtotally conflicted on this, I
mean, I've worked in advertisingfor 36 years Would I like to
work on luxury fashion.
No, not really.

Darren Lee (39:23):
I've spent most of my time working on things like
broadband and mobile phonenetworks and things.

There's something about this which is
undoubtedly economicallyunattractive.
Okay, because if you think ofwhat else you could do with that
money in terms of philanthropyor whatever, it's not great.
It appears to be somewhatinnate to humans.
I would also make a weird,perverse argument, which is that

(39:53):
in some ways, as a statusexcept at the ridiculous
extremes, okay, in some ways,consumerism isn't a terrible.
Good plasterer or a really goodplumber could have a better car
than an average doctor, right?

(40:24):
Okay, if you look at statusapportioned that way, it's
actually a game that allows morediversity of opportunity than a
status system which we seem tobe having, where status is
actually allocated by prestigeor elite universities.
Diversity of opportunity than astatus system which we seem to
be having, where status isactually allocated by prestige
or elite universities at the ageof 22, after which you can do
nothing about it.

(40:45):
Okay, if you think about it, aHarvard degree and a guy who
speaks very widely on this, thatthe elite American universities
are luxury goods brands.

Darren Lee (40:57):
Oh, for sure, Okay.

And so a Harvard degree and, let's say,
you know, a Louis Vuittonsteamer trunk are, in a way,
serving a similar purpose.
Okay, there are aspects inwhich the consumer good which

(41:19):
can be bought at any time andacquired late in life and
da-da-da-da-da and also a reallygood scaffolder, can aspire to
the same shit as an averagedoctor.
There are aspects to that worldwhich are not altogether
actually unattractive.

Darren Lee (41:36):
I think there's the other factors.

Bring back materialism, Bring back shallow
consumerism.
It's almost like the anti-trendright.

Darren Lee (41:43):
It's the opposite.
So I'm just giving an example.
So let's say, like a plaster,an average guy, normal guy
making 50K a year, let's say hedoes save that money and then he
finances a Rolex.
And now he's wearing that Rolexand his friends at the pub
think he's cool, but he's not inthe right economical state to
be able to fund that.
If you flip that, you see manywealthy people actually taking

(42:04):
the opposite effect now walkingaround with no shoes on living
on an island and you wouldn'ttell that they have any money
right.

A taxi driver said to my brother-in-law
driving through Shoreditch.
He said what the hell'shappened to this place?
He said it used to be genuinecockneys here.
Now it's just rich peoplepretending to be tramps.
Exactly right.

(42:44):
So is there an aspect of virtuesingling?
By the way, it's interestingbecause it seems to be only
humans who do this, which is, inother words, you very, very
ostentatiously refuse to play agame.
You can only get away with thatif you are very strong in some
other status currency.
So I've made this point that ifyou're the mayor of London or
whatever, actually I don't thinkactually Sadiq doesn't actually
cycle, does he?
But Boris did.
Ok, if you're the mayor ofLondon, you cycle to work.
If you're the prime ministerand you, you know you wear

(43:08):
scruffy clothes OK.
It's basically saying I have somuch status accorded to me in
one particular field, throughreputation or credentials or
whatever it may be, that I don'tneed to play these games.
You know bass players in a band, you know, basically, dressing
scruffily and neglecting basicbodily hygiene says that my
playing abilities make me sosexy I don't actually have to
bother with this other stuff.

(43:29):
Like Adam Sandler, yeah.

Darren Lee (43:31):
You've got it exactly, adam.

Sandler's clothing.
Yeah, you've got it exactly.
Okay, now if you.

(43:58):
The point is, if you don't haveany state, you can't play those
gameschino sunglasses withMoschino written on them in two
inch high letters, you know,because it would be kind of like
, well, why do you need to try?
Ok, but status signaling,counter signaling, can be kind
of a bit mean, butcounter-signaling can be kind of
a bit mean.
Okay, and the point I makeabout that is that you know, for

(44:21):
example, you know Londoners whohave quite well-paid jobs, who
ride to work on a £3,000titanium bike, getting very
disdainful about cars.
Okay, right, oh, why do allthese people want cars?
But the fact is, if you work ina pizza restaurant, if you turn
up to work by bike, it doesn'tmean I have made an active

(44:43):
decision to cycle, it means youcan't afford a car.
So the meaning of these thingsvaries depending on the context
in which they're displayed andviewed.

Darren Lee (44:52):
You know, alex Ramosi.

Yes, very well yeah.

Darren Lee (44:54):
Alex has a great point, which is, if you haven't
made it yet, if you're justgetting started, you dress up,
you wear the suit, you cut yourhair, you're in good shape, but
then, when you've made it, youdress down.

The famous example of that is academia,
where tenured professors woulddress like tramps.
They'd also tend to have reallyshit cars.
I had an experience once where,being a bit of a flesh Harry, I
turned up to visit a friend atthe University of Pennsylvania
and I thought sod it, let's goand rent something.

(45:25):
It was a Lincoln Town car orsomething a bit blingy.
It was nothing outrageous.
I wasn't there in a CadillacEscalade, you know.
And I turned up and my friendmeets me at the car park and
then introduces me to someonewho was just walking out of the
building who, it turned out, wasthe first person ever to
genetically modify a plant.

(45:47):
So I can't remember whether hehad a Nobel Prize or not, but it
was something like this.
And then this guy gets into akind of battered Japanese car
and drives off and I'm there inmy Lincoln Town car, to be
honest, feeling like a bit of aprat and so famously tenured
professors.
It's a way of sayingeffectively, I think at
Microsoft they used to have aT-shirt that said something like

(46:07):
, which stood for it was anacronym fuck you, I'm fully
vested.
In other words, they got theirmoney.
You know it effectively is youknow, fuck you money, okay,
their money, you know iteffectively is you know, fuck
you man.
Okay, and it is worth notingthat some of that stuff
counter-signing is really,really interesting.
Okay, it's a really fascinatingphenomenon.

(46:29):
It seems to be unique to humans.
It's the idea that youconspicuously don't try.
Los Angeles is very interestingbecause you have two industries
.
The big one is the filmindustry, which is all about
beautiful people, and thenthere's the Los Angeles music
industry, which effectivelypositions itself against this
film industry by being really,really scuzzy.
Okay, it's like we're nothingto do with those guys.

(46:51):
Okay, and it's reallyinteresting, and it's really.
It is interesting.
The only point I would make isit's not always as virtuous as
the people practicing it like tothink it is.
Yeah, and it's also the positionI don't need a car in London
and it's kind of like well, Iremember this guy.

(47:11):
There was this development.
I went to judge somearchitectural awards.
There was this developmentwhere it originally had car
parking in the middle and they'dgo into the car parking.
Ok, I went to talk to thepeople who were living there.
A third of them were Uberdrivers right, that was their
fucking livelihood.
And they now, because thecouncil had got rid of car
parking in the middle of thedevelopment, they now had to

(47:33):
park around the corner Aboutonce every three months.
Their car would get vandalized,which would mean they're off
the road for three days.
Okay, I mean, actually it madea load of people feel good, you
know, basically denying, youknow, parking to the people who
lived in this particular housingdevelopment.
So actually, when you look atwhat the people there actually
needed, it was a shitty thing todo.

Darren Lee (47:56):
It's, as you said, context.
Yeah, what I'd love to ask youon is about guarantees.
Do you think guarantees arebullshit?

No, they are actually legally.
Well, this is an interestingcase.
They have to be legallyprotected because you can't just
claim bullshit guarantees.
So, okay, a large part of whypeople buy brands is that brands
have reputational skin in thegame.
They've invested a lot of moneyacquiring a certain reputation
and degree of fame.

(48:25):
The fame makes them morevulnerable to shaming.
Ok, right, if you are reallyreally badly treated, if you are
really really badly treated by,let's say, you know, a small,
crappy airline, ok, people willgo kind of, yeah, what did you
expect?
Whereas if you're reallyshabbily treated by Lufthansa or

(48:46):
BA, the level of outrage, inother words, would be greater.
So they're more vulnerable toshame, but also they have more
reputational skin in the game.
So they have to be at leastpractice some reasonable degree
of probity.
Okay.
Now one problem might be thatactually, those large companies

(49:07):
use technology to shieldthemselves from their
obligations, their moralobligations to their own
customers.
In other words, what we won'tdo is refuse to pay out the
guarantee.
What we will do is we'll makeit unbelievably difficult to
claim on this guarantee so thatactually 30% of people can't be
bothered.
That would be an example of ashitty thing to do.

(49:29):
So you're still within theletter of the law in that, had
the person jumped through 17digital hoops and had two-factor
authentication five times in arow, yes, you might have issued
a replacement, but you're makingit really really hard to do so,
and it's, you know.
One worry about AI is what thehell is the AI optimized for?
Is it optimized for justice,customer experience, fairness,

(49:52):
you know, and empathy, or,ultimately, does it end up
getting optimized for profitmaximization at the expense of
customers?

Darren Lee (50:02):
And I think, the conditional.
So what you're just kind ofdescribing is a conditional
guarantee, like they need to dothe 17 different bells and
whistles.
And I'm also kind of morethinking about it from a
consumption perspective, right,because it was Hermosi that
really really popularizedguarantees and with your product
, with your service, you shouldhave them.
But then they became more andmore wacky.
It was like, rory, you have todo X, y, z, jump through this,

(50:24):
attend this, and then, if youdon't get the result, we'll
offer this to you.
But it seems to have left a bitof a bad taste with people and
I'm trying to so Hormoz ispretty damn wise.

I mean, I regard him as extraordinarily
interesting in that he seems tohave an absolutely instinctive
understanding for marketing andsalesmanship, sure, which is
also a fascinating character,yeah.

Darren Lee (50:50):
He's absolutely smashed it right in terms of
what he was able to do indifferent industries.
So before he had the privateequity firm, he had Allen the
software.
He had a supplement brand.
That's right.
Jim Software was the I think itwas Jim Launch was the
licensing, and then he had asoftware on top of that which
was I think it was Allen, andthen he had the supplement brand
.
So he's been able to crackacquisition and retention in

(51:13):
many different industries.

And I think it's the you know he's been by
the way, the whole of Netflixexists because somebody
understood this stuff.
Netflix was a marketingbreakthrough, not a
technological breakthrough.
There's nothing particularlyinnovative about it.
I'm talking about the originalsorry, you're too young.
Dvds through the post.

Darren Lee (51:31):
I remember that.
You remember it.
Yeah, yeah, yeah, I remember it.
You know Extra Vision.
I remember you know ExtraVision.
Or is that just an Irish thing?

That was Irish there was another one, which was
called.
There was Netflix and there wasthe competitor, love Film.
Okay, that was the UK one.
Okay, okay, and what it was wasthat originally it was just,
you requested a DVD, they sentit to you, you watched it, you
sent it back and the twofounders were in a warehouse one

(51:57):
day.
This is why I always defendBlockbuster Video for not buying
Netflix, because at the time,netflix wanted $50 million for
their idea.
They hadn't cracked theacquisition and the retention
problem.
They cracked that by, almost indesperation, coming up with
three DVDs at any one time,change them as often as you like
, no late fees, ever $19.95 amonth.

(52:18):
$19.95 actually was helpfulbecause it was a price that was
not unadjacent to the price ofbuying a single DVD.
So you kind of looked at yourown budget and thought, well, I
probably do buy a DVD everymonth.
Okay, therefore, for what I'mspending already, I effectively
get access to a postal libraryof every DVD.

(52:40):
So, but that was the idea thatenabled them to crack the whole
business.
And it happened that one of thetwo founders was one of the
biggest experts on subscriptionmarketing as well, as you know
who is that?
It's the guy who isn't the ohcrikey.
Who have you got?
You've got Reid, haven't youMark Randall?
It could have been him.

Darren Lee (53:00):
Mark Randall is a guy that's pretty known.
He's a CEO.

Oh no, no, the guy's left now amicably, I think
, but he was one of the twoco-founders of this idea of DVDs
by Post, and it was this ideaof effectively having three.
The insight, in a sensepsychologically, was nobody
knows what film they want towatch tomorrow.
It's one of the reasons youhave sandwich shops, which is
that people don't know atbreakfast what they want to eat

(53:25):
at lunchtime and people don't go.
Actually, on Friday I'd reallylike to watch how to Train your
Dragon.
Okay, you don't know.
But when you have three at anyone time, the odds are that in
that three, when you feel likewatching a film, one of those
three films will appeal to you,and so it was.
That the kind of epiphany wasapparently when they looked at

(53:47):
one of their warehouses andthought wouldn't it be better if
we could store these videos inour customers' homes rather than
storing them in a warehouse andwaiting for people to ask no
fulfillment, rather than storingthem in a warehouse?

Darren Lee (53:58):
and waiting for people to ask no fulfillment.

Well, it kind of realized.
Now it was a brave move becauseif you think about it and there
probably were people who didthis there might have been
people who watched 15 films amonth and you lost money on
those people.
But you are making the samebets you make when you open a
gym, which is that people won'tcome as often as they think they
will.

Darren Lee (54:16):
So we have something similar in our company.
So in the agency side of ourbusiness we have like unlimited
podcasts that someone canrelease a month.
Okay, so let's say that's like8,000 USD, got it?
And you have unlimited amountof podcasts you can release.
But business owners and peoplenever, ever, ever go above six.
They just don't, because it'stoo much threshold.
No, whereas they have theoption and they are willing and

(54:39):
able and they want to pay moreso that they have it as an
option.
But then everyone knows that,even like statistically, your
views will go down, the energywill go down, you'll start to
hate it and they will say, ohyeah, I'm happy to do six, seven
, maybe five next month.
They almost like thevariability.

No, no, no.
I mean, there are people.

Darren Lee (54:56):
Optionality.

I mean, the interesting thing is there are
people on pay-as-you-go mobiletariffs who'd be better off on a
subscription and there arepeople on subscriptions who'd be
better off on pay-as-you-go100%.
Okay, a large part of yourpreference for that isn't,
strictly speaking, kind ofeconomically rational.
It's temperamental or emotional.
And I would argue okay, I wouldargue, interestingly that the

(55:21):
reason Klarna is so powerfulokay, pay in three interest-free
.
Now, you know, someone who isstrictly economically rational
will go.
You are getting aninterest-free loan for three
months, okay.
In other words, it's a lotbetter than putting it on your
credit card because you know youwon't end up paying.
You know 19.9, 23.4% APR.

(55:41):
Yeah, all of that's true, Iagree with that.
Okay, it is economicallyrational, but a large part of
that's an emotional thing, whichis that something that costs
450 quid and something thatcosts three payments of 150
pounds.
Fundamentally, those aredifferent things.
Now I have the weirdestexperience.
I joined an organization whichI think is about 200 pounds a

(56:05):
year, to join 240 actually, tomake the maths easier and I was
offered you can pay 20 pounds amonth, you can pay 80.
Let me get this right.
You can pay 60 pounds a quarter, okay, or you can pay £240 in
one go.
So it's identical actually.
Okay, don't ask me why.
Okay, I don't know, I had amassively strong preference.

(56:28):
Okay, my cash flow isn't soconstrained that you know I
really need to defer thatMassively strong preference for
paying quarterly, don't know.
So, literally, if you sell thesame thing, I mean literally, if
you sold Big Macs, okay, and itsaid, you know, split pay,

(56:51):
people who would otherwise notbuy a Big Mac will buy a Big Mac
because the act of purchasefeels different, but you're
saying that they would specifythe split pay, right, is that?
correct, or, just in general,split pay makes.
So Richard Thalo, who wroteNudge and actually subsequently
won the Nobel Prize forEconomics, he coined a phrase
which I think is really useful,which is called transaction

(57:12):
utility, which is there's thething, there's the cost of the
thing, ie the money that goesout of your wallet, okay, in
order to acquire the thing, andthere's transaction utility,
which is how it feels to pay forthe thing.
Okay.
Now, by observation, in termsof, you know, human behavior.

(57:34):
Obviously it varies dependingon people.
I mean, one famous behavioralscientist did work and found
that, just as there arespendthrifts, there's a
percentage of the population,about 25%, who basically like
spending money too much.
There's also, by the way,there's a slightly larger group
of people who were designated asskin flinks this is George

(57:55):
Lowenstein, if anybody wants toresearch the work and they find
the act of payment, even if theywant the thing and it's worth
the money, they find the act ofpayment just really
discomforting, just the feelingof money going out of their
wallet.
You know, basically, you know,and we all know people a bit
like that, you know, buyingaround in a pub, you know, you

(58:18):
or I, I hope okay, wouldbasically go, look, okay, it's
my turn to buy the round.
This is going to be 30 quid.
This is just part of the wholegame.
I'm not actually pained byhanding over the 30 pounds okay,
because it's just I kind ofmentally prepared for that when
I came and went out drinkingwith these people and you know
that's the cost of the evening.
There's no buyer's remorse, butthere's a certain there's a

(58:40):
percentage of people who anextremist would like, when it
was their turn to buy the ride,would mysteriously disappear to
the toilets for like 10 minutes.
Ok, so it varies, obviously byperson, but also it varies by
how you pay.
And there must be a bunch ofpeople who hate the idea of a
mobile phone subscriptionbecause it's commitment OK, and

(59:01):
they're also convinced theywon't use the phone that much.
And they're equally people whodon't like pay as you go because
they're frightened of getting ahundred pound bill or they
don't like the variability andthey just like the one and done
nature of a subscription, whichis I pay this, I get that.
I never have to think aboutthis shit again, done, deal.

Darren Lee (59:20):
I wonder, is there?
So I have this debate a lot oftimes on my team which is, if
you have the one price let'sjust keep it simple, it's $5,000
, and you present that as aprice, but then would you make
more, would you sell more if youjust presented one price versus
the options, versus the arrayof options, right?
So let's say, if someone'sprocess bought it's 5K, but then

(59:44):
if their investment kind of50-50, then there's a split pay,
2,500 by two or 2,600 by two,or if you keep presenting more
split pays, is that going todecrease?
Just the decision to buy?

This whole thing needs much more
exploration in marketing,because I think marketing got
infected by economics, wherepeople started to think the
price is the price is the price.
I think Thaler's idea oftransaction utility, which is
how it feels to buy something,is quite fundamental in a lot of
areas.
Okay, I'll tell you theexperiment.

(01:00:21):
There's a thought experimentwhich he actually I mean it was
admittedly tested on students,but it's kind of interesting.
Okay, which is you?
Imagine you're on a beach,which for you isn't difficult
because you live in Bali, forfuck's sake, but you're on a
beach.
Okay, and your friend saysthere is a place X, 100 yards
down the beach, okay, which isselling cold Heineken.

(01:00:44):
Okay, you are thirsty, youwould like a beer.
You're on the beach, I will godown there and see how much it
costs.
Tell me how much you'reprepared to pay for a bottle of
cold Heineken to consume on thebeach.
Okay, and in the first condition, the place selling the cold
Heineken was a boutique hotel,five star hotel, whatever.

(01:01:07):
Okay, blinged up place.
In the second one, it was abeach shack.
What he found was that theamount people were prepared to
pay was significantly higher forthe blingy venue than it was
for the beach shack.
Now, since the beer was to beconsumed 300 yards away from the
hotel, you weren't gaining anybenefit from proximity to one or
other of the locations.

(01:01:28):
Your utility from drinking thecold Heineken was exactly the
same regardless of where it camefrom.
But we were kind of happy withthe decision to pay, let's say,
$5.
The experiment was done in the90s, so the prices are much
lower.
We're probably happier paying $6, say $7, for a bottle of
Heineken if we know it's aboutique hotel with high

(01:01:49):
overheads and that's just whatthose things cost there, whereas
if it's a shack, we would feelripped off and even though the
utility we gained from drinkingthe drink would be identical in
either case there's no status tobe gained.
There's no, you know,locational significance, because
both locations were describedas being somewhere off down the
beach.
Okay, fundamentally, how goodit felt to buy the thing was

(01:02:15):
different, okay, to buy thething was different, okay.
And so you know, I thinktransaction utility is a really,
really important concept,because it suggests that when we
engage in exchanges with people, we are second guessing to some
extent.
Okay, you know, first of all,we're asking questions of basic
fairness.
We don't like being ripped off,even if the beer would be worth

(01:02:40):
it.
Okay, and also we do have akind of appreciation of what the
other party is doing.

Darren Lee (01:02:49):
Are you familiar with the time to value ratio?
Are you familiar with thatconcept?

Rory Sutherland (01:02:54):
For the benefit of the listeners.
I think I know what it is, butI might've got it wrong, so help
us both out.

So the logic is when someone buys something, how
long should they wait until theyget value?
Do you know what the answer is?
Go on?
Answer zero.
It should be immediate, becauseimmediately when they pay, they
should get immediate value.
So to optimize that, to avoidbuyer's remorse is whether it's
a program, a product, a serviceimmediately to eliminate buyer's

(01:03:21):
remorse.
We want to bring that down asfast as possible.
So let's give an example.
Let's say you buy a programonline for $5,000.
When you pay, you go straightin.
You start the journey when youget the beer.
You get the beer now.
When you're in that scenario,it eliminates that because the
value that you derive, or theperceived value, is determined
based on speed.

The entire mail order industry in the UK.
Interestingly now, obviously,with mail order with software,
the delivery can beinstantaneously.

Exactly Mail, not exactly there is I think, a
reasonable understanding.

So you might argue that it isn't actually
zero.
It's as fast as possible,because nobody expects, when you
order a book from Amazon, forit to materialize in their front
room instantaneously.

But imagine if you got a PDF and a short little
video intro as to how the bookwill help you and so on.
You buy and you get redirectedto a page and now you're
watching immediately afive-minute video.

You made a very interesting observation there,
which is there's no reason why,when you book a hotel online,
you shouldn't actually betreated to a little video of
your room or something of thatkind 100%, 100%.

I do that, we do that on purpose.
So you want people immediatelyto get.
It's called a quick win, soimmediately, whether they book a
call, whether they send amessage, they get something that
makes them win in their brain.

You're probably just about old enough to
remember this, but the old normfor anything you ordered
remotely was allow 28 days fordelivery.

Yeah, I remember that, and eBay.

In some cases that meant.
By the way, ebay does a verystrange thing, which is its
estimate for delivery speed isalways insanely pessimistic.
Have you noticed that?
Yeah, it's always very wrong.
Now I wonder if they're usingthe wrong metric there, because
they're actually.
They're losing sales to reducecustomer complaints.
Okay, so somebody there musthave been given the metric on
eBay.

(01:05:06):
Oh God, we're getting too manycustomer complaints about things
not arriving.
It's a total nightmare dealingwith these.
I know we'll solve this problemby getting everybody to give a
ridiculously pessimisticestimate of how soon the thing
is going to arrive, and the onlyproblem with that is there
seems to me that seems to carrya pretty large hidden cost in
that people go look, I don'tmind waiting three days for

(01:05:27):
something.
I'm not waiting fucking ninedays for some shit to arrive,
apart from things I don't likeexisting in a state of
uncertainty, right, I thinkthere's also a terrible mistake.
So the mail order industryalways did this allowed 28 days
for delivery.
In some cases, I think it'sbecause they ordered the stuff
only when they knew what thevolume of orders was, so they
were effectively reshipping.
Okay, I think the term is,isn't it?

(01:05:49):
You get a whole load of peopleon Amazon who are basically, you
know, resellers.
I mean, I think reshipping isbasically where you never
actually touch the goodsyourself at all, you just place
the order and it arrives fromsomebody else and the allowed 28
days for delivery, I think lostfar more sales than people
realized because it was just tooslow.

(01:06:09):
Okay, that's a month for cryingout loud.
I mean, imagine a world whereyou ordered a clock, radio say,
and then you know literally itwould be.
Now you know, okay, it'd beJune the 29th or something.
This thing would arrive andyou'd forgotten, you'd ordered
the thing practically Okay.

Yeah, it's like having a t-shirt right that says
a disclaimer.
You may not be beautiful withthis t-shirt.
Like why would you point thisout?
You know we've hit the flipexample.
We're chatting about crackearlier.
Like crack is the time to valueratio on crack is instant, so
it changes the frame right.
So it's, how do we createthings that have that instant
dopamine, that instant resultand yes, of course your product

(01:06:47):
can be delivered, and so onlater.
But I think that's whatcustomer experience is right.
It's what are the subtlenuances adjacent to the main
benefit?

Yes, you've got it exactly.
Yeah, and a lot of those aretoo with framing, but they're
all psychological, always.
I mean, one of the things Ithink is a mistake made by
nearly all online retailers is Iwould display right up front
that you can choose who deliversyour goods.
If I'm paying for P&P, as weused to call it, do you remember

(01:07:19):
that?
No Hostage and packing.
It was always sorry they nowcall it delivery, but in my
childhood it was 1995 plus 395P&P.

I remember that yeah .

Okay.
Now, if you're paying for it, Ithink you should choose who
delivers it.
Now that decision in mostonline retailers is undoubtedly
made by procurement, who want tochannel everything through the
same supplier so they get themaximum volume rebate.
Okay, because that's how theprocurement person justifies
their existence.
The procurement person is notheld responsible for volume of
sales.
They're simply held responsiblefor cost reduction per sale.

(01:07:56):
I would argue the significantpercentage of people don't buy
things online because they hateone or two of the distribution
companies and, by the way,whether your distribution
company is good or not dependsoften on your local driver.
It's very, very patchy.
I've never mean, I spoke.
I've never had anything otherthan brilliant service from UPS.
But weirdly, when I was talkingabout this thing last night,

(01:08:17):
there was somebody there who,for whatever weird reason, hated
UPS.
I found them absolutely superb.
Okay, you know, maybe I don'tknow where he lives.
I mean, maybe his UPS driver'slike you know got, I don't know.
You know got, I don't know.
You know memory loss orsomething, but I think, if you
said, you can choose if you wantthese delivered by, I think, on
Amazon, if I order a USB cable,I don't want a van coming up to

(01:08:38):
my house.
Put it in the fucking post.
The postman's coming anyway.
Put it in an envelope.
I'll pay you a pound extra.
Just put it in the fuckingRoyal Mail and put it in an
envelope, okay, I.
And put it in an envelope, okay, I don't need a van to deliver
a USB cable.
Let me choose Severaladvantages to this.
If it goes wrong, I won't blameyou.
To the same extent I'll blamethe distribution company,

(01:08:59):
because I chose them okay, and Imight even blame myself for
making the wrong decision.
I won't blame you.
Second thing is the speed andnature of the delivery at the
point of purchase mattersdisproportionately OK.
So I had something I neededvery, very urgently.

(01:09:19):
I desperately was wonderfullyhappy when they said we're
sending it by roll mail,something or other next day.
Twenty four.
Ok, because my postman knowswho I am, he knows all my
neighbors, he knows exactly whatto do, where to leave it.
You know, I mean you know, I'veknown him for 20 years, okay,
and I don't want a weirdstranger turning up being unable

(01:09:40):
to find the house.
I can't take that risk.
Now I think that's a classiccase where there's you know,
there's inordinate value in,just as there was inordinate
untapped value in mail order inthe 1970s and 80s, in just
delivering things faster.
Okay, right, there's nothing.
I mean the Royal Mail was anext day service in the 1970s.

(01:10:01):
Britain isn't a very bigcountry, I don't know Okay.
Secondly, I think there'sinordinate hidden value in
giving customers control overwho delivers it shares
responsibilities.
It creates accountability in thepurchaser and also, by the way,
you now get information aboutwhat people are willing to pay
for which you don't get okay,and you might actually find that

(01:10:22):
there's a whole chunk of peoplefrom whom you can make a little
bit of incremental profitbecause they really love Royal
Mail special delivery or theyreally love UPS or whatever 100%
, rory big.

thank you, sir.
You're a legend.
They really love Royal MailSpecial Delivery, or they really
love UPS or whatever.
A hundred percent, Rory big.
Thank you, sir.
You're a legend.

It's a pleasure , it's been a very strange
conversation, but theunderlining theme is that there
is a lot of I think genuinelythere are trillions of dollars
out there of undiscoveredpsychological value which we
haven't tapped, simply becausewe're much more wrong about
psychology than we're wrongabout physics, and therefore
there's much more progress to bemade in actually uncovering

(01:10:57):
what it is that people reallywant.

Well, that's why you've made such an indent and
why you've had such amazingresults because you don't follow
the rulebook.
That's the big thing.
That's what I want to get fromthe very beginning.
You don't follow the rulebook,so, as a result, you understand
the laws, you broke the laws andthen you rebuilt it in the way
you want to do it.

Well, I think, to be honest, I was in a
privileged position in some ways, of you know, I had a job for
35 years where you didn't haveto continually prove how
rational you were.

Yeah, and you were the best teacher.

Bear in mind that is what most people in most
jobs most of the time spend alot of time, often unnecessarily
.
That's why you get inmanagement consultants.
It's not because it changes thedecision you make.
It's to give your decision theappearance of deep rationality.
And most people are in thatposition of having to

(01:11:48):
continually prove thateverything they do is based on
data and highly rational.
And I was in the highlyprivileged position working in
advertising, where I was in ajob where actually, to some
extent, it was about howsignaling how lateral you could
be, not how literal you could be.

Love it Big.
Thank you, sir.

It's a joy.

Thank you very much indeed.
What a pleasure.

Thank you.

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#292 Rory Sutherland - Master Sales & Marketing in 72 Mins

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