Sunday, October 25, 2020

Understanding the "Non-Rational" Dimensions of B2B Buying


It's now clear that human decision making is usually a mix of rational and non-rational components. The recognition of this fact began to emerge in the 1950's when leading behavioral scientists started challenging the concept of human rationality that had dominated mainstream economics for decades. The work of these scientists laid the foundation for a new discipline that would later be called behavioral economics.

In 2008, two books - Predictably Irrational by Dan Ariely and Nudge by Richard Thaler and Cass Sunstein - raised public awareness of behavioral economics and put it on the radar screens of business and marketing leaders.

In reality, marketers have been using principles of the behavioral sciences for years, albeit largely unwittingly. As a 2010 article by McKinsey put it, "Long before behavioral economics had a name, marketers were using it."

A paper recently published by Google provides several fresh insights about how people make buying decisions. Decoding Decisions:  Making Sense of the Messy Middle is based on research conducted by Google in association with The Behavioural Architects, a research and consulting firm that specializes in the application of behavioral science to marketing.

Based on this research, Google and The Behavioural Architects developed a new model of the consumer buying process, which I described in my last post. The research also tested the influence of six heuristics and cognitive biases on buying decisions.

Heuristics are cognitive shortcuts or "rules of thumb" that humans use to simplify decision making. The use of heuristics enable us to reduce the mental effort required to make decisions. Behavioral scientists generally agree that heuristics can work reasonably well most of the time. However, the use of heuristics will also sometimes result in cognitive biases, which are decisions that deviate from what pure logic would indicate is more desirable.

Google and The Behavioural Architects evaluated the impact of six heuristics and biases on consumer buying decisions. The researchers observed 310,000 simulated purchase scenarios across 31 product categories. Each purchase scenario involved 1,000 participants who were asked to research a product they were actually in the market for.

Two of the six heuristics/biases tested in this study are particularly important for B2B marketers.

Social Proof

The most powerful heuristic identified in this study was social proof, which can be defined as our tendency to rely on the opinions and actions of other people when we're faced with a decision that involves ambiguity or uncertainty. In this study, social proof had the largest or second-largest effect in 28 of the 31 product categories tested.

While the Google research focused on consumer decision making, we also see evidence of social proof in the B2B space. For example, in a 2019 survey of technology buyers by TrustRadius, 52% of the respondents said they consult user reviews in their buying process, and they rated the trustworthiness of user reviews, on average, at 3.21 on a 4-point scale. In the 2020 Content Preferences Study by Demand Gen Report, 49% of the survey respondents reported they are using review sites to source information.

Authority Bias

Authority bias is the tendency of humans to rely on the opinions of individuals or firms that are viewed as authorities on a given subject. Google and The Behavioural Architects found that the authority bias was impactful in consumer buying decisions, although not quite as impactful as social proof. The authority bias was particularly strong in circumstances where consumers were less familiar with the product being researched.

We also see the authority bias at work in the B2B space. In the TrustRadius survey, 29% of the respondents said they used third-party publications in their buying process, and 24% reported using analyst reports. In the Demand Gen Report study, survey respondents rated content authored by a third-party publication or analyst as the type of content they give greatest credence to when evaluating a prospective purchase.

The Other Heuristics/Biases

The other four heuristics/biases evaluated in the Google research were:

  • Category heuristics - rules of thumb and enable us to make fast and satisfactory decisions within a given product or service category.
  • Power of now - our tendency to prefer products or services that are immediately available.
  • Scarcity bias - our tendency to act when we believe that the offer of a product or service is limited in terms or time, quantity, or access.
  • Power of free - the special appeal of a price that is exactly zero. Other studies have shown that we tend to prefer the offer of a free product over the offer of an alternative product that is more valuable, but not free.
These four heuristics and biases can also affect B2B buying decisions, although their impact is probably not as broad or significant as social proof and authority bias.
What B2B marketers should take from the research by Google and The Behavioural Architects is that understanding human decision making is essential for improving marketing performance.

Illustration courtesy of Abhijit Bhadurl via Flickr CC.

Sunday, October 18, 2020

Google Takes a Fresh Look at the Buying Process

 Marketers have been striving to understand how people make buying decisions for decades. In fact, the earliest formal description of the buying process - Elmo Lewis' famous AIDA model - is now more than 100 years old. The effort to decode how people make buying decisions - and to identify what can influence those decisions - has been the marketing equivalent of the quest for the Holy Grail or the search for El Dorado.

A paper recently published by Google provides several fresh insights on this vital topic. Decoding Decisions:  Making Sense of the Messy Middle is based on an extensive research project conducted by Google in association with The Behavioural Architects, a research and consulting firm that focuses on the application of behavioral science to marketing.

The objective of Google's research was to answer what is probably the most important and most perplexing question in marketing:  How to people decide what they want to buy and who they want to buy it from? Much of the recent research about the "buyer's journey" has focused on the actions people take along the path to purchase and on what sources of information and communication channels they rely on. In contrast, the Google research focuses on the mental processes that people use when faced with a purchase decision.

Based on this research, Google and The Behavioural Architects created a new model of the buying process and identified several mental shortcuts (heuristics) that people use to help them make buying decisions. While this research focuses on consumer buying decisions, the buying process model works equally well for many B2B buying decisions, and some of the heuristics also apply to B2B.

I'll describe Google's model of the buying process in this post, and I'll discuss the heuristics in a future post.

The Google Buying Process Model

The diagram below shows the buying process model that emerged from the research by Google and The Behavioural Architects. This research involved the observation of 310,000 simulated purchase scenarios across 31 product categories. Individuals participating in the study were asked to research a product they were actually in the market for. All the product research was performed online.

The study revealed that between the event or events that trigger a buying process and an actual purchase, there is what Google calls the "messy middle." The researchers concluded that there are no "typical" purchase journeys, but they also found that most people do engage in two distinct mental processes that are key to understanding what happens in the messy middle.

  • Exploration - This is an expansive group of activities during which people explore their options, learn about products or services, brands, and companies, and expand their consideration sets.
  • Evaluation - This is an inherently reductive group of activities during which people evaluate their options and narrow down their choices.
What makes the middle "messy" is that many people tend to jump back and forth between these two types of activities multiple times during the buying process, particularly when the potential purchase involves a complex or high consideration product or service. Google represents this back and forth movement as an endless loop in its buying process model.
This behavior creates a significant challenge for marketers because these two types of activities are cognitively different and therefore require different marketing tactics and different types of messaging and content. It can be difficult for marketers to discern whether a particular person is in exploration or evaluation mode, but if they send the wrong message at the wrong time, the prospective buyer may well eliminate their product or service from consideration.
Google also argues that buyers' activities in the messy middle take place against a backdrop of the buyer's awareness of (and perceptions about) products or services, brands, and companies in a given category. These perceptions are often driven by advertising, but they can also be influenced by stories in the media, information provided by family, friends, and associates, and what buyers have read or heard online.
Google calls this phenomenon "exposure," and they contend it is not a stage or step in the buying process, but rather ". . . an always-on, constantly changing backdrop that remains present throughout the duration of the decision-making process."
As I noted earlier, the research by Google and The Behavioural Architects focused on how consumers make buying decisions, but the buying process model also applies to B2B buying decisions. If anything the middle is even messier in B2B because many B2B buying decisions involve multiple people who are moving between exploration and evaluation at different times and speeds.
In my next post, I discuss what Google and The Behavioural Architects discovered about the role of heuristics in buying decisions.

Source of images:  Google

Sunday, October 4, 2020

Why Planning for 2021 Will Soon Become a Little Less Daunting


In case you haven't noticed, we're now in the fourth quarter of 2020, which means that many business and marketing leaders have started planning for 2021. Developing sound business and marketing plans is never easy, but the task becomes truly daunting when a global pandemic turns the business world upside down.

Planning for next year is challenging because of continuing uncertainties about the trajectory of the COVID-19 pandemic. For the next several months, the performance of the U.S. economy will largely depend on medical and scientific developments relating to the treatment and prevention of COVID-19. These developments will also significantly impact the business conditions that B2B companies will face in 2021. So in this year that is unlike any other, effective planning will require company leaders to consider topics that usually have no relevance for most businesses.

The good news is, we have made substantial progress on the medical/scientific front over the past several weeks. For example, there are now four COVID-19 vaccine candidates in Phase 3 clinical trials in the U.S. (Note:  AstraZeneca's trial has been temporarily paused in the U.S. because a U.K. trial participant developed an unexplained illness, and Novavax plans to begin its U.S. trial this month.)  

We are likely to get preliminary results from some of these trials within the next sixty days. Whatever those results are, we should have a clearer picture of when a vaccine is likely to be available, and that should enable company leaders to develop more realistic plans for 2021.

In an earlier post, I discussed the value of using scenario planning to deal with high levels of uncertainty. With scenario planning, business and marketing leaders develop alternative strategies that are based on a range of possible future conditions. But to support effective planning, the scenarios used must be realistic. Because of the enormous and growing volume of information relating to the pandemic and the future direction of the economy -  much of which is contradictory - developing realistic scenarios can be extremely challenging.

An article published recently by McKinsey & Company is a useful resource for developing realistic scenarios relating to the trajectory of the pandemic. The title of the article expresses the question that is top of mind for all of us - "When Will the COVID-19 Pandemic End?"

The article's authors identified two "end points" for the pandemic.

An epidemiological end point that will occur when a society achieves herd immunity. The authors noted that most companies will rely on a vaccine to achieve herd immunity. Reaching this end point will mean that ". . . the public-health-emergency interventions deployed in 2020 will no longer be needed."

The second end point is a transition to a form of normalcy. This end point will occur when " . . . almost all aspects of social and economic life can resume without fear of ongoing mortality . . . or long-term health consequences related to COVID-19." The authors of the article pointed out that this transition will occur gradually, and that the timing of the transition will depend on the successful rollout of an effective vaccine beginning in the fourth quarter of this year or the first quarter of 2021, and on continuing advances in therapeutics and clinical practices.

For planning purposes, the most important point in the article relates to the timing of the two end points. The article states:

"In the United States and most other developed economies, the epidemiological end point is most likely to be achieved in the third or fourth quarter of 2021, with the potential to transition to normalcy sooner, possibly in the first or second quarter of 2021." (Emphasis added)

Some business and marketing leaders may be disheartened by McKinsey's "most likely" scenario, but I view it as relatively positive. If this scenario proves to be accurate, we could see early signs of a return to a form of normalcy within the next six months.

Of course, the McKinsey "most likely" scenario is not a given. The article's authors noted that it depends on several factors, including:

  • The authorization of at least one vaccine for COVID-19 by the end of 2020 or early in 2021
  • The successful rollout of a vaccine to a sufficient portion of the population within about six months
  • A reasonably broad-based willingness by people to be vaccinated once a vaccine is available
These conditions may or may not materialize, but as I observed earlier, we should get critical information about the status of vaccine development within the next sixty days or so, and that will provide at least some of the clarity needed to support effective planning for 2021.

Image courtesy of Dan Moyle via Flickr CC.