Marketing Today: Less Bluff, More Puff

Thanks to new digital tools, marketing is no longer voodoo

WHEN a power cut interrupted this year’s Super Bowl, advertisers lit up. “Sending some LEDs to the @MBUSA Superdome right now,” tweeted Audi, swiftly plugging its own LED-accented car while taking a dig at its rival Mercedes, sponsor of the New Orleans Superdome. Tide, a detergent, came up with: “We can’t get your #blackout, but we can get your stains out.” But by general consent Oreo won the tweet-off with “Power out? No problem. You can still dunk in the dark.” The biscuit baker’s reward: 16,000 retweets and 20,000 Facebook likes.

Super Bowl TV commercials are the Broadway spectaculars of the marketing world, broadcast to millions. The blackout banter is more like improv, created on the fly for a select audience. Marketers these days must master both. It is not easy. Lightning reflexes have never been part of a marketer’s toolkit. Chief marketing officers (CMOs) “used to deliver big iconic brand ideas on a seasonal basis,” says Luke Taylor of DigitasLBi, a digital advertising agency. Some “are outside of their comfort zones”.

Nearly 40% of CMOs do not think they have the right people and resources to meet their goals, says an Accenture report entitled “Turbulence for the CMO”. Martin Sorrell, the boss of WPP, the world’s biggest marketing and advertising group, says that since the 2008 financial crisis marketers have been elbowed aside by finance and procurement chiefs. Dominique Turpin, the head of IMD, a Swiss business school, writes that “the CMO is dead”.

Yet some have never felt perkier. With new digital tools marketers can reach the likeliest customers when they are most in the mood to buy. Last summer Wall’s ice cream and O2, a mobile-phone network, teamed up to send advertisements to Londoners’ smartphones when temperatures climbed. When the weather cooled Kleenex, a brand of tissues, used Google search terms and health-service data to target ad spending to areas likely to suffer the most sneezes. Andy Fennell, the marketing boss of Diageo, a drinks firm, thinks this is “a golden era for brand builders”.

On Super Bowl Sunday, Nestlé’s “digital acceleration team” (DAT) gathered at the food giant’s headquarters on Lake Geneva to see how other brands’ TV spots echoed in social media. They watched as the blackout “completely changed the equation”, says the team leader, Pete Blackshaw.

The setting was a situation-room-like studio, where the focus is normally on how Nestlé’s own products are faring among electronic opinion-formers. A glowing map shows where social-media buzz is liveliest. A screen records that Kit Kat bars were the subject of 164,462 recent posts on Twitter, Facebook and the like. Of these, 73% were positive. (Though it is hard to imagine why anyone would complain about chocolate. What’s not to like?)

Kit Kat captured 34% of the chocolatey chit-chat, reveals an illuminated pie chart, while Snickers did better, with 39%. If sentiment droops, “community managers”, many of them DAT alumni, can swoop in to soothe a malcontent or suggest a fix. Such give and take has “radically changed the relationship between our brands and the consumer”, says Patrice Bula, Nestlé’s marketing chief. “Today we have really entered the age of conversation.”

This helps explain why marketers are feeling both potent and panicky. Instead of just lobbing messages out into the void, they must now act as customers’ “ambassadors”, says David Edelman of McKinsey, a consultancy. And that is tricky.

Most middle-class consumers will be Asian within a couple of decades. Pop culture can pop up as easily in Gangnam as in Harlem. Technology keeps giving marketers new ways to reach consumers and learn about them. The ensuing flood of data may drown creativity, some fear. Under constant pressure to prove that what they do is effective, “the next generation of marketers may not be able to be as intuitive and creatively inspiring as their predecessors,” worries Grant Duncan of Spencer Stuart, a recruitment firm.

The biggest shock, say marketers, is the schooling in humility that comes with round-the-clock conversation. Consumers are in charge. They can comparison-shop from their couches or badmouth brands via Facebook. They will not tolerate shoddy quality or sloppy ethics. In 2010 Nestlé fought campaigners who said the palm oil used in Kit Kat caused the destruction of Indonesia’s rainforest. Now it is at pains to be orang-utan-friendly. British snackers can scan a QR code on some Kit Kat packets to assure themselves that the cocoa is harmlessly sourced.

But deference is double-edged. Brands want deeper and more profitable relationships with consumers in exchange for the trust they hope to inspire. Marketers are stretching their notions of what brands stand for and smudging the distinction between advertising and entertainment. The lines between marketing and other disciplines within a firm are fading. Brands want to be antidotes to cynicism. But this will not divert marketers from their main task, pungently summed up by an ad exec: “to figure out and fuel consumer desires like they’ve never been fuelled before.”

Happy-clappy about nappies

Did you think Special K was a breakfast cereal? It is so much more. MySpecialK, a website, will advise you on diet, exercise and overall well-being. Do you pay attention to Nike only when your running shoes wear out? Then you don’t wear a Fuelband, which will record your workouts and upload the data to the internet every time you charge it. The point of Pampers is not to sell the most nappies but to help mothers raise happy, healthy children, writes Jim Stengel, a former CMO of Pampers’ owner, Procter & Gamble, in a recent book. From that flow “endless possibilities for growth and profit”.

If brands are to rise in the world, so must advertising. A medium that traditionally earned its keep through interruption now aspires to be sought out and shared. “There used to be ads and then content,” says Mr Fennell. “Now there is just good content and bad.” The advert could come in the form of a mobile-phone game like Captain’s Conquest, a hunt for high-seas booty that promotes Diageo’s Captain Morgan rum. Or it could be a televised chronicle of the travels of Alexander Walker II of the Johnnie Walker whisky dynasty, which drew an audience of 120m.

If only marketers could follow their customers as easily. They used to flow through “funnels”: attraction (where consumer-goods marketers typically concentrated their efforts) was the widest bit, followed by conversion (the actual sale) and retention. Technology complicates this. A marketing manual put out by Google likens today’s customer journey to a “flight plan”, a zig-zagging odyssey of apps, shops, social-media sites and online searches conducted on both fixed and mobile devices and unique to each shopper.

To chase consumers around, CMOs are pinching marketing techniques from other industries. Customer-relationship management (CRM) is used mainly by companies with enduring ties to consumers, such as banks and telephone companies. “Now you see CRM methodology in places where it had not been applied before,” says Marco Rimini of Mindshare, a part of the WPP group. Although makers of packaged goods such as nappies and toothpaste will still deal with consumers mainly through retailers, they can now establish direct relationships. The more marketers learn, the more they will tailor their come-ons to what they think shoppers want.

It is getting harder to tell where puffery ends and providing a service begins. Paul Kemp-Robertson of Contagious, a marketing magazine and consultancy, points to the Fly Delta app, which tracks passengers’ baggage and lets them peer through a virtual glass bottom to the ground below their flight. Australia’s Commonwealth Bank offers a house-hunting app that identifies the house, shows its price and helps the prospective buyer find a mortgage. “Adaptive marketing”, which varies messages as audiences and circumstances shift, should be as fast as journalism, says Nick Emery of Mindshare, which devised the Kleenex campaign. Or faster. Nike found 21,000 ways to tell people to “find [their] greatness”.

The best trick for CMOs who want to impress the boss would be to measure just what marketing is doing for a company’s bottom line. Los Angeles-based MarketShare (no relation to Mindshare) is one company that claims to be cracking this hoary problem. With more data and new ways of analysing it, a CMO can now predict what mix of media will achieve a company’s sales and margin targets, says Heath Podvesker of MarketShare.

Actually, marketers are not as clueless about that as they are said to be. The smartest were using econometrics to measure marketing’s payoff in the 1980s. Digital advertising made that easier in some ways (advertisers could pay per click) but added bewildering complexity. Now marketers are beginning to get to grips with it by measuring how various media affect each other. MarketShare touts the case of Electronic Arts, which was spending too much on television and cinema advertising and not enough on search advertising and YouTube videos to promote its “Battlefield” video game. After cutting television’s share from 80% to half and boosting spending on video and paid search, sales of the new version jumped by 23%.

This is good news for CMOs. MarketShare reckons that companies spend too little on marketing overall and that the right answer is not always to put more money into digital. Sometimes the algorithms counsel investment in print and television, which is heartening to marketers wedded to the storytelling side of their craft. No longer need CMOs creep diffidently into the chief financial officer’s lair.

But to stride in jauntily they will have to change the way they work. Gartner, a consultancy, has predicted that by 2017 they will spend more on technology than their companies’ chief information officers. Already 70% of big American firms employ a “chief marketing technologist”, says Gartner. With the shift in emphasis from set-piece campaigns to rapid responses, CMOs need more people working directly for them. This is putting into reverse a 20-year trend of favouring “working spend” (what consumers see) over “non-working spend” (overheads), says Dominic Field of the Boston Consulting Group.

Some companies are pulling marketers off the sidelines and onto the pitch. Land Rover, which like many engineering firms had a tradition of connecting with customers only sporadically, signalled a change in approach not long ago by hiring a new marketing chief, Patrick Jubb, from Vodafone. His brief is to cultivate relationships with owners and potential owners of luxury SUVs every bit as intimate as those between a mobile-phone network and its subscribers. “Marketing now works much more closely with the design and engineering teams in sharing a new product with the world,” says Mr Jubb. After dropping to less than two years in the mid-2000s, the average tenure of a CMO at a big-spending American firm has climbed back to 45 months, says Spencer Stuart. That suggests a recovery in jauntiness.

Still, a gap yawns between what CMOs could do and what they actually do. The left-brained bent that the job now demands “is not part of where their experience has been”, says McKinsey’s Mr Edelman. But CMOs are learning. Mindshare installed an “adaptive lab” in its London headquarters to educate them. DigitasLBi teaches its clients that not every utterance about a brand needs to be vetted by lawyers. Next time the floodlights fail, more marketers will know what to do.

Source: The Economist, Print Edition, 18 May 2013

Read More >

Can Marketing Be Saved?

If the digital age has done nothing else for productivity, it has proved spectacularly effective at generating a supply of mantras.

For those of us old enough to remember the inception of the web, it is occasionally worth pausing to remember a few mantras often heard in the mid-90s, and to ask how well they have survived the test of time.

For example, in 1999 Wired's US edition predicted the rise of "infomediaries". I remember that. These seem not to have fully emerged. Nor, in truth, has the "hyperlocal" web really taken shape.

But another prediction has always stuck with me because it was made with so much confidence:

"There will be no customer loyalty on the internet, since a cheaper price is always just one click away."

That statement was almost universally believed at the time. In the late 90s it was rare to read an article in a business magazine that did not predict that online shopping would degenerate into an orgy of price-comparison sites linked to a plethora of online retailers. What do we see in reality? A kind of inverse-square law is in operation: the largest online retailer, Amazon, sells nearly five times more than its nearest US competitor, Staples.com, and ten times more than Walmart.com. In the UK its dominance is even more pronounced (I am excluding the online grocery services here, since the supplying of perishable goods is unavoidably different).

It is difficult for any physical retailer to enjoy physical proximity to all its customers, but mental proximity is a different matter – you can effectively monopolize that.

Why were all the economists so wrong on this question? Or, to paraphrase the Queen on the financial crisis, "Why did nobody see this coming?"

Well, it's only fair to say there are some perfectly conventional economic reasons why Amazon enjoys this supremacy. Its prices by and large are highly competitive.

It offers enormous choice.

Its service is good.

And it benefits from scale in its warehousing and in its negotiations with suppliers (though certainly no more than Walmart/Asda). It also profits from other network effects, for instance, in the volume of customer reviews it attracts and in its appeal to marketplace sellers.

All these are plausible reasons which conventional economists would advance to explain its success. And it seems to maintain its share price without making much of a profit.

But are these the only reasons? None of these post-rationalisations can on their own adequately explain Amazon's dominance. If, as economists believe, people really do check competitive prices before buying a book from Amazon, it doesn't explain why no one much even bothers to compete in the categories Amazon dominates. Try searching book titles on Google if you doubt this.

What if the biggest reasons for Amazon's supremacy are not economic but psychological? Or the product of "heuristics and biases", to use fashionable psychology lingo. These are the cognitive short-cuts we adopt while facing an influx of data presented to us in everyday situations.

Let me give you a few examples:

No 1- The Mere Availability Effect

This is a mental bias whereby we are inclined to adopt a course of action simply because it easily comes to mind. Note that this is not the same as simple "awareness" or "fame". After all, Ryman and Asda both enjoy equivalent name recognition to Amazon in the UK. "A brand's mental availability refers to the probability that a buyer will notice, recognise and/or think of a brand in buying situations," says Byron Sharp, professor of marketing science at the University of South Australia. "It depends on the quality and quantity of memory structures related to the brand".

He continues, "This is much more than awareness, whether that is top-of-mind awareness, recognition or recall. Indeed, all of these [conventional marketing] measures are flawed by the use of a single, a-situational cue".

So, regardless of overall fame or reputation, context matters. When I am in a mall, I am content to wander into Waterstones; when online, it takes less cognitive effort to think of Amazon. It is a mental default.

When I'm offline, whether I go to Tesco or Waitrose may depend on the time of day, my location, mood and a host of other variables, all of which cause me to distribute my retail spending across a plethora of brands. When online, these variables are far fewer; hence the winner-takes-all effect (sometimes called the "Matthew Effect", named after the passage in that gospel where it is suggested that those who already have, inevitably get more) is not diminished by the ease of comparison and switching. On the contrary, it's more extreme.

It is difficult for any physical retailer, even Asda, to enjoy physical proximity to all its customers. But mental proximity is a different matter. You can effectively monopolise that.

No 2 – Habituation and Defaults

Yes, sometimes we do what economists believe, and assiduously check every possible retail outlet to find the lowest cost. But, let's face it, our lives would be intolerable if we evaluated every alternative before doing anything. We rarely test-drive more than two cars before we commit to buy one, so why should we search hundreds of web pages before buying a DVD? Instead we fall back on a simple, default behaviour: "If nothing bad happened last time, do what I did last time".

The evolutionary basis for this default behaviour does not need much explanation. In risk-averse modes (all mail order has an element of uncertainty and risk) it is sensible to be conservative. This conservatism applies to our taste in food: we feel very comfortable eating food which tastes identical to food we have eaten in the past, since the very fact that we are contemplating the decision is evidence that it did not kill us in the past. Ray Kroc, the former owner of McDonald's, spotted this tendency: "People don't want the best burger in the world," he stated, "they want one which tastes just like the one they had last time".

I understand KFC: you go to the counter and tell them what you want. I understand The Ivy: you are seated at a table and someone brings you a menu. But Nando’s puts me in a complete funk. Where am I supposed to go? Where’s the bloody cutlery?

In a desktop internet scenario the force of habit is strengthened by a significant factor. First of all there are none of the other confounding factors (such as proximity or happenstance) that nudge us out of our well-trodden paths. But there is also a further boost to the "familiarity breeds contentment" in online shopping: the cognitive burden of using any unfamiliar website is really quite high. A site you have used 20 times in the last year can be used with a degree of unconscious fluency - whereas a new site requires painful, conscious mental effort, generating uncertainty and doubt. (Think of the first few kilometres you drive in a hire car, where all the controls are in a different place to the car you own at home - or the bemusement you experience in a traditional shop when they rearrange the shelving).

I call this feeling of unease "Nando's Syndrome" - from the uncomfortable feeling I experience as a 47-year-old man when dining at the eponymous South African restaurant chain. I understand KFC; you go to the counter and tell them what you want. I understand The Ivy; you are seated at a table and someone brings you a menu. But Nando's puts me in a complete funk. Is it self-service or not? Where am I supposed to go? How do I get a drink? Where is the bloody cutlery? Compared to, say, waterboarding or colonoscopy it is not an extreme form of mental torture, but these feelings of unease are the mental equivalent of a hangnail or a blister - we do everything we can to make them go away.

Again, habit amplifies the abundance of the Matthew Effect. The more often that people go to your site, the more likely they are to come back.

No 3 – Social Proof and Contagion

The other default by which we live all the time is "do what everyone else does". Economists choose to ignore this behaviour, or deride it as "irrational" for a rather self-serving reason: once it is accepted that one person's behaviour may affect that of another, it makes a horrendous mess of their orderly mathematical models. It takes you away from the field of modelling human behaviour as though it were neat, Newtonian physics and brings you into the Wieneresque world of complex systems, emergence and feedback loops, for which they are mathematically ill-equipped. It also throws a spanner into their beloved, Panglossian idea that markets are perfectly efficient.

But we would not be recognisably human at all had we not developed the sensible instinct of copying the behaviour of others. Given limited time and energy, to go with the flow of mass behaviour is both necessary for survival (your tribe can either all fight or all run away - both are preferable to half of you doing one thing, half the other), and cognitively efficient (it draws on collective knowledge and experience, rather than individual enquiry, and allows learned behaviour to spread much faster).

Going to the same chip shop as everyone else may not be a perfect solution but it is unlikely to be terrible. Going out on a limb is risky and mentally demanding. That slight feeling of unease you have on entering an unfamiliar restaurant when you discover you are the only diner. That’s the heuristic at work.

Gerd Gigerenzer, the world's foremost expert on heuristics, would refer to this copying approach as "ecologically rational". The dissident economist Alan Kirman might call it social rationality. This is not "rationality" in the narrow, individualistic sense defined by economists and rational-choice theorists, but a good strategy under the circumstances. Going to the same chip shop as everyone else may not be a perfect solution, but it is unlikely to be terrible. Going out on a limb is risky and mentally demanding. And many human accomplishments depend on social norms - no one can decide on their own what it means to be fashionable. That slight feeling of unease you have on entering an unfamiliar restaurant when you discover you are the only diner? That's the herd heuristic at work.

There are many areas of expenditure that are disproportionately affected by this heuristic - since people are inclined to settle upon a suboptimal but universal consensus rather than ploughing their own lonely perfectionist furrow. Being a vegan is just damn difficult - every time you have to dine out with carnivores you have to explain yourself. Smoking is now mildly embarrassing in all middle-class circles. Coke is not my favourite carbonated drink (I prefer Dr Pepper), but it is a social norm to offer it: you cannot offer only Dr Pepper to guests. To use the language of blood groups, Coke is the type O negative of carbonated drinks - the kind you can give to anyone.

Once again this heuristic tends to increase the Matthew Effect: "To him that hath, more shall be given" (Matthew 13:12).

No 4 – To a Game Theorist Customer Loyalty is Not Irrational

In any conventional economic model, loyalty is irrational. In fact a rational economist would never get married. ("Why should we get married?" an economist asks his girlfriend in psychoanalyst Stephen Grosz's The Examined Life, a collection of case histories. "I choose you every day."He then goes on to insist on a prenup).

This failure to understand the ecological rationality underlying loyalty is a product of the bizarre behavioural model that underlies conventional economics. In the economic model of rational behaviour, a series of essentially anonymous economic actors engage in one-off exchanges, with each possessed of perfect information and complete trust. This is a situation which happens in the real world somewhere between "rarely" and "never". There are and have always been asymmetries of information, questions of trust, and also future unknowns.

In these circumstances, when the identities of the buyer and seller are known to each other, and are known to be known to each other, use of game theory may recommend that you might be better off paying more to buy disproportionately from one supplier rather than spreading your custom meanly and thinly across several.

First of all, the kind of exchanges that take place within a non-anonymous iterated-game framework tend to be more trusting and mutually beneficial than those that take place as a one-off transaction. Economic study of actions in, of all places, the Marseilles fish market has consistently demonstrated this instinctive preference repeatedly to deal with the same suppliers, even when it costs you a little more. The difference in optimal strategies between one-off exchanges and repeated exchanges is worth stressing. It is this distinction that essentially differentiates the capitalism of the functioning market from the capitalism of the tourist souk.

The Souk-vendor also has no prospect of reputational damage through selling sub-standard merchandise (nor of any reputational gain through selling something especially good).

When you buy from a tourist souk, you are participating in a zero-sum game. There is almost no prospect of repeat purchase, since the tourist in the souk will be back on a plane home to Luton the following week. Hence the sole interest of the vendor is to sell at as high a price as possible a carpet of as execrable a quality as possible. He has no interest in the future satisfaction of his customer, since any satisfaction or disappointment will have no economic gain or loss to his future business, which depends simply on a steady stream of new suckers passing his stall every day.

The souk vendor also has no prospect of reputational damage through selling substandard merchandise (nor of reputational gain through selling something especially good). Tourists generally do not fly back to Luton on easyJet and spend the next week recommending that their friends avoid the third stall along in the Marrakech market. Even if they did, it is unlikely that this reputational retaliation would affect the carpet seller's business very much. (TripAdvisor and other rating technologies may be changing this. In certain categories, such as small hotels, TripAdvisor may be of considerable economic importance)

It is for this reason that any economic transaction with strangers in a strange place is so mentally harrowing. The usual reputational and repeat mechanisms which ensure fair dealings (and even a kind of altruism) no longer function; suddenly you are operating in a low-trust, high-deception marketplace. As I often advise people, "If you want a bad meal, go to a tourist restaurant - and if you want a really bad meal go to a tourist restaurant with a view." The worst service I have ever received anywhere in the world was in Granada, where the entire customer base for restaurants consists of transients - tourists visiting the Alhambra and a large body of students. Without the prospect of repeat custom or the risk of reputational retaliation, markets simply do not function very well. (It's one of the reasons why, in any tourist area, it often makes sense, in game-theory terms, to go to McDonald's - since they will care about your custom back in Luton, and about their reputation overall).

Contrast this souk-like uncertainty and mistrust with the relationship that exists between you and, say, your local butcher. He is anxious that you are not disappointed by his sausages, since he stands to lose your future custom if they are found to contain large quantities of horse. Hence, when your local butcher sells to you, he is mindful of your future satisfaction. He also stands to suffer significant collateral reputational damage, because you can go around the neighbourhood mouthing off about your disappointing cheval-burgers, and hurt his business still more than by simply boycotting him on the quiet.

And the butcher, since he knows who you are, can engage in a form of reciprocation, rewarding you in ways that transcend simple monetary exchange. If you shop at the same butcher each week, you can reasonably expect a slightly better turkey at Christmas, for instance, or the best cuts of steak.

Tourists generally do not fly back to Luton on Easyjet and spend the next week recommending that their friends avoid the third stall along in the Marrakech market.

But how does Amazon operate in this way? Well, unlike a large impersonal bookshop, Amazon does know who you are. It knows your transaction history. And you know that it knows. Hence if you have satisfactorily bought 20 books from them over the last year and then the twenty-first book fails to arrive in the post, you can reasonably expect that Amazon accords you "the benefit of the doubt" and resends the book. If I am a one-off customer, I can have no such expectation. What indication do they have that I am not a con artist? After all, they have no record of any past transaction with me where I have not issued a complaint.

For the same reason, aside from the obvious economic incentive of air miles, I prefer flying with airlines I fly with quite a lot when I belong to their frequent-flier programme. Because of my frequent-flier record, I know that they know I am fairly valuable to them. If there is only one seat left on the last flight out of Stockholm before the snows come down at Heathrow, I can reasonably expect that the seat goes to me and not to some random backpacker. On an airline I rarely use I have no such hope or expectation.

These social currencies of exchange are usually not mathematically expressible (there is no mathematical notation for the "tit" or the "tat") but they do exist in our heads. In evolutionary terms, tit-for-tat reciprocation predated the invention of money by a million years or more, and it is necessary in many social situations. It would be seen as ethically intolerable for anyone besides a trained economist if British Airways were to hold a spot auction at Stockholm airport to determine who gets that last seat - and so past value is probably the only socially acceptable and economically intelligent way of allocating it. In any non-anonymous exchange, loyalty buys you a kind of insurance. Do we understand this instinctively? Once you look, real life, as opposed to theoretical "markets", is full of game theory.

An engagement ring or an expensive wedding is, in effect, a game-theoretic device, an up-front expense that indicates long-term commitment. It is through these sunk costs that we come to trust one another. A market where we "rationally" shift our loyalties according to short-term expediency may work less well than a more loyal market when a mental or digital record exists of each individual's transactions over time.

It is this instinctive urge to reciprocate and to retaliate that may allow markets with imperfect or asymmetrical information to work. It is one way we get around the problem of information asymmetry: how can you trust the seller of a car when he knows the quality of his car far better than you do? You look to futurity (by repeatedly using the same local car dealer) or to reputational collateral (by buying from someone local, whose reputation you can hurt). Unless you are desperate, you do not buy a second-hand car from a bloke called Dave living 200km away, for whom the only contact information you have is the number of a pay-as-you-go mobile.

While living in London, I noticed how many of my friends, on buying their first car, would return to their homes in Yorkshire, Wales or somewhere else far away and arrange the purchase through their father or friend. In retrospect the reasons for this seem obvious: London is too fluid, large and anonymous a place for anyone selling a dodgy second-hand car to worry about endangering his reputation. In Yorkshire, the private seller of the car drank in the same pub as the buyer's father.

Since advertising is expensive and difficult to do well, the cost of advertising is also a virtual engagement ring, proffered to the potential consumer: the upfront expense entailed being proof of long-term intention for the product, the brand and the relationship.

I agree with the social scientist Jon Elster when he says it is difficult to understand social behaviour without an understanding of game theory. Yet most economic and marketing models are almost totally blind to it and its effects. But it again helps explain why the Matthew Effect is so pronounced in online retailing. In an uncertain field such as mail order, you are more likely to be trusted and respected when things go wrong if there exists a record of your previous transactions - as an indicator of your trustworthiness and a hint to the likely loss of future value should you choose to defect.

In my view much advertising expenditure probably works this way. Since advertising is expensive - and difficult to do well - the cost of advertising is also a virtual engagement ring proffered to the potential consumer; the upfront expense entailed being proof of long-term commitment to the product, the brand and the relationship. Advertising sometimes conveys information, of course. But much of it ostensibly conveys really very little that is new or compelling. But the act of advertising, especially in expensive media, is a form of information in itself. Since it takes time to recoup the cost of an advertising campaign, it only pays to run one when the advertiser has reasonable expectations of the long-term, widespread popularity of the product being advertised. The act of advertising your product is hence a valuable signal that the manufacturer has faith in its own product - equivalent to a racehorse owner betting heavily on his own horse. It is not irrational that we're influenced by such as an action - on the contrary, it shows a high degree of instinctive social intelligence.

Therefore, the idea that brand loyalty is irrational is not true. In real life, we cannot assume the good intentions of the people we deal with. We need to look for relationships we can trust. A preference for dealing repeatedly with people who have reputations to lose by ill-treating us seems far from irrational - it is the very basis on which all human dealings rest.

When that economist said to his girlfriend "I choose you every day", he fundamentally misunderstood the nature of human relationships, which require something more enduring than a commitment that is reassessed on a daily basis. She - rightly, I think - ditched him soon afterwards.

What I've listed here are just four psychological theories as to why Amazon enjoys unrivalled success - alongside its obvious virtues as a highly efficient and well-run business.

Now you may not agree with all of these. In fact you may not agree with any of them. But bear with me. You see, what is really significant about these mental biases is that they are for the most part completely neglected by business and government in their decision-making. Businesses today may be making decisions - to compete, to undercut, to launch products, to enter a market, to advertise - with no understanding of the powerful effect these biases may have on success or failure. Governments may define policy or tax schemes in a way which makes sense to economists, but which is psychologically blind.

Take, for instance, the recent riots over student fees. Part of the reason for the fury aroused by student tuition fees is that they were paid for by "a loan" - a concept that involves a student labouring for years under a debt the size of which is depressing enough to people who are rich. For the poorer student, the sums are enough to discourage all but the most confident from going to university at all. Yet you could have instigated exactly the same financial mechanism but called it a graduate tax, which would have meant no-one would have needed to know of the depressing debt figure at all.

This simple reframing technique was probably considered by nobody, since all the effort was put into designing the scheme, and no attention at all paid to its psychological effects.

Why do businesses and governments make such egregious errors in understanding these heuristics and biases? Because they are unaware of them. Why? Because, frankly, we are largely unaware of them ourselves.

In understanding customer behaviour, companies have traditionally used two tools to determine likely purchasing intent. One is the standard assumptions of neoclassical economic theory, which is psychologically blind: the kind of "perfect" transactions it models are almost never found in reality. In the economist's mind, people are calculating rationalists, merely seeking to maximise their own utility in a world of perfect information, and devoid of such concepts as uncertainty, mistrust, fear and regret. Yet the human is far less a rational calculating machine than a kind of anxious, moralising, herd-like, reciprocating, image-conscious, story-telling game theorist.

The other tool most widely used in ascertaining and predicting consumer preference is market research. This, in truth, is little better than the economic model, as we don't really know why we do what we do. We're good at pretending to know, or constructing plausible-sounding post-rationalisations of our behaviour. But the heuristics that influence and, at times, determine our actions operate on us at a purely unconscious level.

No cricketer knows the heuristic they use to catch a ball. People come up with explanations, but all are wrong. Only observation reveals how people catch balls - and it is the same heuristic for everyone. But we lack the introspective mental mechanisms to understand and relate what we are doing. It is instinctive and tacit.

Hence research cannot really uncover much in the way of explanation for people's behaviour, since the people you are researching often do not understand why they behave as they do.

Moreover, when in groups, the explanations people contrive may be more motivated by the urge to impress the strangers in the room than to give the researcher any true insights. (It isn't only companies which have marketing departments - the brain has a pretty active marketing function of its own.)

So what I am saying here is that both the standard tools we use to predict and model human behaviour are really quite bad. Our ability to model and predict may therefore be little better than, say, weather forecasting in the 1820s. Now this is the critical question. We shall, I suspect, never be able to predict human behaviour exactly - any more that we can ever issue a perfect weather forecast for next year. But what if we could just develop models that improved it by just a bit? We are, after all, starting from a low base…

Much as we all love to decry it, weather forecasting has improved markedly. A four-day forecast today is as accurate as a two-day forecast in 1985. The path of a hurricane can be predicted now within a course over 65% narrower than 40 years ago.

More important perhaps, weather forecasting has improved in another way too - it now acknowledges the limits to its powers. It has learned that the ability to forecast anything more than ten days ahead may be computationally impossible. Knowing the limits to your understanding is a form of intellectual progress in itself.

What if economics and market research were to achieve a similar leap forward both in its ability to predict and in its understanding of its limitations? What would the implications be for business and government efficiency and for economic growth and well-being?

Books such as Nudge and Thinking, Fast and Slow have topped the bestseller lists. "Big data" now provides real-time behavioural information that will make it easier to test smaller behavioural experiments. Computer modelling - the very technology that has transformed weather forecasting - better depicts the complexity of actual market behaviour than the naïve Newtonian models of conventional economics. Darwinian psychology provides insights into those parts of our instinctive nature that we can change - and those we can't. And I haven't even mentioned neuroscience. Will these ever provide us with a perfect means to predict and adjust human tastes and actions? Not a chance. On the other hand, how much would our understanding need to improve before we would notice a significant improvement in economic effects, in quality of life - and in the intelligence of political debate? Remember, we are starting from a very low base - where intelligent people can be diametrically wrong in their predictions of the likely shape of online retail.

If the success of new product launches were to grow from the current six percent to ten, how much more could profitably be spent on Research and Development? Is it from psychological progress, not from physical technology, that we should expect the greater parts of the next 20 years?

I hold out rather small hopes for the gains for further scientific innovation. Once you've progressed from horsepower to the Boeing 747, it is far harder to enjoy a similar increase in velocity again. But what if the next century were marked as the golden age of progress in social sciences? That seems far more feasible and desirable. Or, as the great Robert Trivers puts it: "In short, Darwinian social theory gives us a glimpse of an underlying symmetry and logic in social relationships which, when more fully comprehended by ourselves, should revitalise our political understanding and provide the intellectual support for a science and medicine of psychology. In the process it should also give us a deeper understanding of the many roots of our suffering."

It is not to the next Steve Jobs or Bill Gates that we should look for the next great revolution in economic life, but rather to thinkers such as Daniel Kahneman, Robert Kurzban, Dan Ariely, Robert Trivers, Gerd Gigerenzer, Timothy D Wilson and John Tooby.

Read More >

The Mark of a Great Leader

Years ago, when most organizations were based on the hierarchical business model of the Industrial Age, great leaders were those who were unemotional, rational, even mechanistic. Those days are gone. Today's leader, especially one who is in charge of a dynamic, global organization, finds himself or herself in desperate need of one key trait — self-awareness.

An organization's success today depends on such a variety of talents and skills that no one leader could possibly be gifted in simultaneously. There are technological issues, global issues, financial issues, human resource issues, leadership issues, employee issues, legal issues, and more. A leader who is self-aware enough to know that he or she is not adept at everything is one who has taken the first step toward being a great leader.

This sort of personal mastery entails having a heightened understanding of one's own behavior, motivators, and competencies — and having "emotional intelligence" — to monitor and manage one's emotional responses in a variety of situations. This variety of situations is not limited to the home office, or the boardroom. It is of a global nature, across cultures which are very different and can be difficult to navigate, especially for those who are not comfortable, knowledgeable, or willing to admit their individual strengths and weaknesses. Everyone has a shortcoming or two — leaders who are willing to admit these, who strive to improve, and who seek out a consulting team to fill in the gaps will 1) encourage followers to do the same and 2) make room for others whose talents lie where theirs don't.

Have you ever worked with a micro-manager? This is someone who thinks he or she needs to be involved in everything that happens within the company. These leaders are closing out the talents of others by not divesting themselves from the day-to-day problem-solving activities of the company. Great leaders let go of the day-to-day, problem-solving activities of the company. Rather, they choose to maximize strategic and relationship-building efforts. These contribute to the forward momentum of the company rather than causing a "bottleneck" at the leader's desk. No one person should do it all — and if they are self-aware, most people will realize that they really aren't capable nor knowledgeable enough to do it all.

Do you recognize the difference between what you need to do versus what you should pass along to your team? Does your boss?

Following is a short list of things you can do to achieve self-awareness and personal mastery in leadership.

- Monitor your performance. Note areas in which you excel and need improvement. Communicate these to your team.
- Realize that failures and mistakes are just one step on the road to success.
- Recognize that being aware of the impact that your behavior has on other people is a critical leadership skill.
- Remember that when criticism is difficult to accept, there is probably some truth to it.
- And, finally, learn to give yourself and others credit for improving.

Read More >

The Tweet Crowd - Not As It First Appears

IF YOU think money can't buy you friends, think again. In the online world, it’s possible to purchase a crowd of fans. One thousand cost only £15 on average, according to estimates by Barracuda Networks, a network security company. Yet these friends won’t meet you for drinks after work. In fact, they don’t even exist. They are pixels on a screen.

A large share of social-media followers of the biggest companies are not human, believes Marco Camisani Calzolari, an entrepreneur and professor at Milan’s ILUM University. In a recent study he quantified the proportion of computer-generated fans or inactive users following big brands on Twitter. To decide whether a follower is human, Mr Calzolari used various criteria, including the number of posts from a fan’s Twitter account and the use of correct punctuation in tweets. According to this research, by June 2011 nearly half of Twitter followers of computer maker Dell—about 700,000—were bots.

Some politicians also seem to have many fake followers. Mitt Romney, the former Republican presidential candidate, became the focus of media attention when his Twitter following swelled by 17% in a single day in July. On close inspection, a significant proportion of Mr Romney’s followers appeared to be fake profiles. In Italy Beppe Grillo’s Five Star Movement lost momentum when Mr Calzolari made a similar claim about the followers of the comedian-turned-politician.

There is no indication that any of the companies mentioned in Mr Calzolari’s paper have bought followers-rogue bots often attach themselves to people and brands without payment. But some firms do buy a social media following. Fake profiles are at the centre of a very vibrant and growing underground economy, says Barracuda Networks. On eBay, the e-commerce site, for instance, the firm’s researchers have found 20 sellers offering to set up such profiles.

For start-ups a strong social media following can boost business. A small mum-and-dad shop struggling to sell its wares can look like a booming upstart thanks to a swollen Twitter account, or an artificially high number of Facebook likes. For major international companies, an underwhelming number of followers in the early stages of engagement with social media can be galling at best and damaging to brand perception at worst. Buying crowds of fans — even if they aren’t engaged with the brand — can give an artificial boost to a business.

For now, the trick works. “Normal people don't know yet that there is this black market. Most have total trust that a brand's followers are real,” says Mr Calzolari. But brands are already finding diminishing returns. When everybody has a large following, the impact is much diminished. And consumers are starting to cotton on to sharp practices. “The number of followers is a superficial measurement unless they are engaged,” argues Carly Donovan of Ogilvy Action, an arm of Ogilvy & Mather, the advertisement and public relations agency. Money can clearly buy you friends — just not always very good ones.

Read More >

How it Works: Building Strategic Alliances

A strategic alliance is a relationship between two or more organisations that falls somewhere between the extremes of an arm’s-length sourcing arrangement on the one hand, and a full-blown acquisition on the other. It embraces things such as franchising, licensing and joint ventures.

Booz Allen & Hamilton, a firm of management consultants and an acknowledged expert in the field, defines a strategic alliance as:
A cooperative arrangement between two or more companies in which:
• a common strategy is developed in unison and a win-win attitude is adopted by all parties;
• the relationship is reciprocal, with each partner prepared to share specific strengths with the other, thus lending power to the enterprise;
• a pooling of resources, investment and risks occurs for mutual gain.

In general, there are two types of strategic alliance: a bilateral alliance (between two organisations) and a network alliance (between several organisations). The alliance between Royal Bank of Scotland and Tesco, whereby the British supermarket chain provided the Scottish bank’s services throughout its stores, is an example of the former; the Airbus consortium and the Visa card network are examples of the latter.

Strategic alliances have many advantages: they require little immediate financial commitment; they allow companies to put their toes into new markets before they get soaked; and they offer a quiet retreat should a venture not work out as the partners had hoped. However, going into something knowing that it is (literally) not a big deal, and that there is a face-saving exit route, may not be the best way to make those charged with running it hungry for success.

The most popular use for alliances is as a means to try out a foreign market. Not surprisingly, therefore, there are more alliances in Europe and Asia (where there are more foreign markets nearby) than in the United States. In some cases, alliances are used by companies because other means of entering a market are closed to them. Hence there have been many in the airline industry, where governments are sensitive about domestic carriers falling into foreign hands.

One thing crucial to a successful alliance is a degree of cultural compatibility. Companies are advised, for example, to pick on someone their own size. Alliances between the very big and the very small are hard to operate not least because of the different significance that the alliance assumes in each organisation’s scale of things.

Alliances are often said to be like marriages. The partners have to understand each other’s expectations, be sensitive to each other’s changes of mood and not be too surprised if their partnership ends in divorce. Indeed, many companies build into their alliances a sort of prenuptial contract, an agreement as to what is to happen to their joint property in the event of a subsequent divorce.

Strategic alliances grew at a phenomenal rate in the 1990s. Some companies, such as General Electric and AT&T, set up several hundred. On one estimate, IBM cemented almost 1,000 strategic alliances during the decade. Booz Allen & Hamilton reckons that more than 20,000 were formed worldwide in the period 1996–98. Accenture says that Fortune 500 companies have an average of 50–70 alliances each.

Alliances have not always been successful. In 1998 BT and AT&T agreed to bundle their international assets into a single joint venture that started off with annual revenues of $11 billion, annual operating profits of $1 billion and some 5,000 employees. In 2001 the two companies agreed to unwind the alliance—at considerable cost.

Read More >

Cultural Intelligence and Going Glocal

IN THE Oscar-nominated satire on modern business life, “Up In The Air”, an earnest young executive at an outplacement firm horrifies her older colleagues by introducing them to the word “glocal”. This combination of global and local, she explains, means that the firm can now fire people (and offer them superficial advice on what to do next) using a standardised script, delivering the message through an internet link so there is no longer any need to fly long distances to deliver the bad news face-to-face.

Hollywood did not invent the word, which has been around since the 1980s. It was coined in Germany, then popularised around the world by various sociologists in the 1990s—though it has also been traced to a Japanese management concept, dochakuka, meaning global localisation. “Glocals” has also become a popular term to describe expat workers who move home often as their job takes them around the world.

But as is so often the case when Hollywood tries to portray the world of business, it gets the concept wrong. In “Up In The Air”, glocal is used to embody unthinking, top-down standardisation, neglecting the human interaction and understanding that are needed to be effective at the local level. In all its uses up until Hollywood distorted it, the word glocal had been used to direct firms away from a crude one-size-fits-all (or “the world is flat”) version of globalisation to one which takes seriously the need to comprehend and adapt to local differences.

A book written in 2009, “Leading with Cultural Intelligence”, by David Livermore, a management guru, explains why modern multinational organisations need to be glocal in the original sense, and why they must understand that “There’s really no such thing as a uniform global culture”. This message, he says, applies not just to marketing but to recruiting and managing teams of workers in different parts of the world.

Drawing on academic research and his consulting experience, Mr Livermore argues that managing effectively across multiple cultures is one of the toughest tasks facing multinational companies, not least American ones that are increasingly relying on emerging economies for their workers and future sales growth. According to a survey of senior executives from 68 countries quoted in the book, around 90% see “cross-cultural leadership” as the biggest management challenge of this century.

Different studies have found that 16-40% of all managers sent on foreign assignments end them early. The cost to employers of each early return has been estimated at between $250,000 and $1.25m, when moving expenses, downtime and other factors are taken into account. In almost every case, the reason things do not work out is cultural problems rather than job skills.

Mr Livermore sums up his solution to this problem with a new piece of management jargon, “cultural intelligence”, and a new measure, CQ, the cultural-intelligence quotient. He says it is about far more than knowing how long to look at someone’s business card or where to point your feet in different countries. He defines it as the “capability to function effectively across national, ethnic and organisational cultures”.

Mr Livermore believes firms need to make a priority of developing cultural intelligence, in the same way that some of the best have already embraced the idea that their managers needed “emotional intelligence” as measured by their emotional-intelligence quotient, “EQ”. Indeed one could question whether there is much difference between CQ and EQ: perhaps CQ is, essentially, an adaptation of EQ to apply to the specific problems raised by corporate globalisation.
Intelligent questions

Almost a century after William Stern, a German psychologist, proposed that people can be graded according to an impartial measure of “intelligence”, a debate still rages on whether such tests are reliable and whether people can do much to improve their IQ. The idea that emotional wisdom and cultural savvy can be consistently and impartially measured, or that people can be taught to improve them, is even more open to question.

Mr Livermore argues that his book is more academically rigorous than the rapidly growing library of books on managing cultural differences. It must be said, though, that some of the advice he offers seems rather obvious: for example, that it would help executives' cultural understanding if they took holidays abroad, learned a foreign language, watched films about other societies, and so on. Of more general application is the list of five factors the book says are key to understanding a country’s national culture: they include the importance that is given to punctuality, and attitudes toward uncertainty.

The author admits, however, that many firms’ attempts to train staff to understand cultural issues fail, because they do not go beyond vague and overarching homilies about respecting diversity. To overcome this, he says they must create structures to identify and deal with specific cultural problems the company faces. When recruiting for jobs that involve working abroad or with people from other cultures, they should try to identify candidates who already have high CQ. And they should incorporate CQ into their training and pay schemes.

These issues are being grappled with by most big multinationals, and increasingly by smaller firms which are tapping foreign markets through the internet. Mr Livermore’s approach is one of several being tried by different firms. Yum! Brands, for example, the owner of KFC and Pizza Hut, has used a model called ABR (achieving breakthrough results) developed by John O’Keeffe, another management guru, in an effort both to unify and localise its corporate culture.

Even the Obama administration is starting to realise that to achieve the president’s goal of doubling the value of its exports within five years, American business people need to improve their understanding of other cultures quickly. The Department of Commerce has hired Mr Livermore’s Global Learning Centre to develop CQ training programmes. As Mr Livermore puts it, many small and medium-sized businesses are trying to boost their exports, but “are doomed to fail” unless they improve their cultural intelligence. Currently, he says, “most are focusing heavily upon legal trade policies and neglecting the overall need to think through negotiation, marketing, distribution and so on in the light of cultural dynamics.”

That the government is now taking seriously the need for American firms to improve their cultural understanding is a sign of progress. Maybe the next time a Hollywood film uses the word “glocal”, it will get its meaning right.

Source: The Economist, Apr 6th 2010

Read More >

Advertising Campaign: Comfortably Fun is the Very Essence of Cool

A middle-aged man with a considerable paunch strolls down a golden beach wearing nothing but a pair of tortoiseshell spectacles, some burgundy speedos and what look like navy blue leather loafers. Beads of sweat make trails down his hairy belly. Is reading this making you want to buy a bottle of Southern Comfort?

Thought perhaps not.

But watch the film and you might feel differently. On paper, it’s a bad idea, but it manages to be instantly likeable. How is this so? Maybe the internet holds some clues.

In search of answers I turned to the politically incorrect, lecherous, faceless rabble known as YouTube commenters – specifically those who commented on the ad posted in Southern Comfort’s channel. I was struck by unprecedented levels of wisdom, exhibited in comments such as “Alpha Male - BAUWSSS!” Insightful.

The overwhelming majority of comments were positive - the kind of outpourings of joy that only rarely surround advertising. Not only do they prove the ad is improving the public’s opinion of the brand, but many commenters talk about actually buying a bottle of the stuff.

“This commercial is Awesome De Awesome,” read one comment. “Went out and bought some Southern Comfort JUST because of it!” Another said “within the first 5 seconds I decided to buy whatever was being sold.” There’s a beautiful simplicity here: saw an ad, bought the product. There are two explanations for this. It could be that people like this YouTuber are mindless drones – the kind of slaves to marketing that left-wing political bloggers love to moan about – or it might be that this commercial is so good that it turns normal, intelligent people into brand fanatics.

Southern Comfort faced a set of well-established conventions from the outset. There’s a default setting for booze ads - and it’s overused. There are only so many unrealistic parties, smug models and intimidating beauties people can take. This moustachioed man’s man is breaking the mould and people like it.

One commenter, for example, gave “props to the Marketing Director from SoCo for taking the risk on a great spot. Nice work,” Maybe this YouTuber has stumbled on something important to the commercial’s success. People are so ad-literate these days they can see when brands are playing it safe. They switch off as soon as they’re confronted by clichés.

Of course, whatever you think of those fantastical party commercials, they are at least fast-paced, and appeal to the glamour and excitement that they hope alcoholic drinks will bring to their tedious lives. This is why brands churn out the same message repeatedly. “Well that was boring,” one anonymous critic says. Evidently this YouTuber would rather the drink transforms him into a stylish party animal in the world’s coolest club than a confident middle-aged man walking along a golden beach.

This is one of the risks Southern Comfort and Wieden+Kennedy have taken in their first work together. In the face of alcohol ads depicting bright young things endlessly revelling, they’ve gone for a more relaxed approach, taking the tempo down to a peaceful stroll that perfectly matches the campaign’s tagline – “Whatever’s Comfortable.”

Incidentally, this is something else the commercial’s got going for it. The tagline is economical – two words are all the copywriter needed – and with the perfect casting and directing the message is clear. As one commenter points out, there are “No cheesy catch phrases with this alcohol frontman – just pure style.”

Considering the guy’s unique approach to beachwear, I assume this idea of style is more about his demeanour than his appearance. It’s the way he walks, the way he steps over people who get in his way and the way he dips his shoulder to the beach beauties as he passes. His lovable character made audiences wish they were this hero, imagining themselves in our hero’s inappropriate shoes. “In my mind this is me right now,” said one YouTuber. “And honestly, I’m sure I would look just as ridiculous as this guy, but he still looks just as happy and content as anyone could ever be.”

It all comes down to empathy. It’s much easier for us to identify with this podgy Gene Hackman lookalike than with Mr Smarmy Cheekbones, who stars in every other continental lager commercial, guffawing with his glamorous “friends”.

And if we don’t want to be Captain Comfortable, then we definitely look up to him. The worryingly-titled PsychadelicSexDream quipped below the video “DAD!? Is that you? I miss you...” An absent father is no excuse for that username, but the commenter’s got a point. There is something truly admirable about this bespeedod wildcard.

So why do we admire this proud gentleman? From childhood we are repeatedly told to be ourselves by our teachers, parents and role-models, but advertising often teaches us the opposite, suggesting that buying this product will make you just as cool and happy as all the people in their ads. “Instead of trying to be all things to all people this guy personifies being so cool by not being a follower,” one commenter said.

This remark is so bang on message we might suspect the online critic works for Southern Comfort, if it weren’t for the pages upon pages expressing love for this dude for being his own man.

YouTube’s verdict is decisive: we love this Louisiana spirit’s new mascot, not despite his unpolished looks but because of them. This ad has somehow managed to pin down the ever-illusive concept of cool. It doesn’t look quite as we expected, but it feels just right.

Read More >

Capello’s Management and Where it All Went Wrong

England’s World Cup defeat has devastated football fans around the country, with many questioning Fabio Capello’s management tactics and his ability to lead a team.

A man renowned for ruling with an iron fist, he put in place a strict regime which promised to whip the England squad into shape, putting an end to persistent rumours of the team’s bad behaviour, both on and off the pitch.

But England’s poor performance in the World Cup has brought about a sense of doubt, with fans questioning whether “the Squadfather’s” no-nonsense approach has quashed the team’s spirit, creativity and its ability to perform.

There is a fine line between instilling a sense of purpose and squashing creativity and individualism - a dilemma faced by business managers every day.

The spotlight now is on Capello’s future as England coach, but managers around the world should take the opportunity to look at their own leadership style and consider how they can tailor it to create a team that always wins:

• An element of fear: There is no doubt that Capello was ultra-strict in preparing the squad for the World Cup, his ultimate aim being to get the absolute best out of his team. Capello’s strict rule, however, did not kickstart the team’s talents. Instead, it seems to have spread a wave of fear and uncertainty which led to nervousness and mistakes on the pitch. It’s worth remembering that professionals, whatever their talent, will only perform to the best of their abilities if they feel confident and comfortable enough to do so.

• Laying down the law: Capello is an experienced manager and with experience comes the confidence to make decisions and delegate. His line-up strategies, however, have invited complaints both on and off the pitch about his positioning of players in unfamiliar territory. As the leader, you will often feel that you know best and have the right to lay down the law. But bear in mind that being too prescriptive can kill creativity.

• The issue of trust: It’s important as a manager to give team members the opportunity to play to their strengths. You might feel responsible for the end result, but trust your team members to know how they’re feeling. More often than not, the team’s captain will have a better sense of team spirit sooner than the manager, largely due to their proximity and day to day work with other team members.

• Taking on feedback: The worst thing you can do as a manager is to not listen to what your team is telling you. Capello experienced this after England’s disastrous second match. Failing to hear his team led to mutiny in the camp, with senior players making a public stand against him. You won’t always be expected to act on every bit of feedback you get from your team, but they do need to feel that you’re listening and taking it all on board. Otherwise frustration can lead to rash decisions and dire consequences. 

Read More >

A Slick Image

So, BP is rumoured to have turned to Goldman Sachs and the private equity firm Blackstone Corp for advice. I’ve had no personal experience, but I’d wager my mortgage that the services of the likes of Goldmans and Blackstone don’t come cheap. So rather than squander its increasingly scarce shareholder funds, I’ve got some tips for BP’s boss on crisis management, gleaned from some of the America’s top chief executives and PR gurus, which are offered freely in a spirit of public service:

1) Don’t get a life. Tony Hayward, BP’s chief exec, has probably figured this out for himself judging by the universal hostility to his comment that “I’d like my life back”. When you are responsible for the firm that has caused America’s worst environmental disaster, your life is no longer your own, and wishing it were otherwise will only antagonise the public further. So what if the comment was an attempt to empathise with others whose lives have been disrupted by the oil spill; when you are the most hated man in America, no one wants your empathy.

2) Don’t joke. Here’s some advice Goldman Sachs could give you, but probably wouldn’t. When Lloyd Blankfein, the investment bank’s chief executive, said he was “doing God’s work”, it was said tongue-in-cheek, not, as it would have been easy to conclude from the press reports, as a serious theological observation. In a crisis, chances are that CEO humour will get lost on the way to the front page. But the bottom line, Mr Hayward: whatever else you do, resist the urge to quip “oil’s well that ends well.

3) Fly commercial; better still, walk…no, crawl. When the bosses of the small carmakers formerly known as the Big Three went to Congress to ask for taxpayer dollars to bail out their failing firms, they each flew in their private corporate jets, thereby confirming the public’s worst suspicions about their incompetence and lack of comprehension of the austerity being suffered by their customers. In a similar spirit, when Mr Hayward goes to testify before Congress on June 17th he should ideally arrive on foot—or failing that, in an energy-efficient Prius rather than a gas-guzzling SUV.

4) Don’t make big profits—or if you do, give them away rather than pay large bonuses to yourself and your staff. It was the profits that Goldman Sachs announced in early 2009, and the huge bonuses it paid out, that helped earn the investment bank the nickname “vampire squid” and made Mr Blankfein a hate figure. If only Goldman Sachs had made losses instead of profits, Mr Blankfein would have been pitied and then ignored, like Citigroup’s boss, Vikram Pandit. If Goldman had at least given away most of the profits, he might have been forgiven his joke. At the very least, he could have forsworn his bonus. If he had done so, he might have got lucky like Howard Schultz, the boss of Starbucks, who waived his bonus—only for his board to insist on paying him one anyway.

5) Become Warren Buffett. Only the Sage of Omaha could be cheered for calling derivatives “financial weapons of mass destruction” despite issuing some of the most exotic derivatives ever created and then campaigning to exempt them from the new regulatory regime being introduced by Congress. Only Mr Buffett could get away with defending Moody’s against congressional accusations over the rating agencies’ complicity in the financial crisis, when he had been a big shareholder in Moody’s at  the time, and retain his reputation as a straight-shooter. No doubt BP will have to change its name as part of its post-spill damage-limitation rebranding, but maybe Mr Hayward should change his name too.

6) Quit while you are ahead. We have no reason to think that Tesco will soon be plunged into a crisis, but if it is, the plaudits heaped on Terry Leahy, its chief executive, on June 8th, when he announced his impending retirement, will provide further evidence of the wisdom of getting out before disaster strikes. Imagine how much better Mr Blankfein’s public image would be if he had retired at the end of 2008. How Mr Hayward must wish that he had retired on March 17th, one month before the oil spill, rather than merely selling one-third of his BP shares - worth around $1.2m then, but about half as much now.

7) Pray that a worse disaster strikes someone else.“Every day, Lloyd Blankfein must get down on his knees and thank God for the BP oil spill,” says one noted PR expert privately. (Maybe the spill is proof that Mr Blankfein is doing God’s work after all, then?) Being America’s most-hated boss seems to be a temporary position, the crown passing to a new troubled head each time a fresh disaster strikes. As Fake Lucas Van Praag tweeted the other day, “Even though Goldman maybe had non-consensual relations with the economy, it's not as bad as despoiling an entire coastline, right?” If it suddenly turns out that iPads are rotting their users’ brains, we will know whose prayers have been answered.

Read More >