Rory Sutherland & Dan Bennett on Behavioural Science, Loyalty & How People Really Decide (#777)

PAULA: Hello, and welcome to Let’s Talk Loyalty and Loyalty TV, a show for loyalty marketing professionals.

PAULA: I’m Paula Thomas, the founder and CEO of Let’s Talk Loyalty and Loyalty TV, where we feature insightful conversations with loyalty professionals from the world’s leading brands.

PAULA: Today’s episode is hosted by Charlie Hills, Chief Strategy Officer of Mando, a UK-based agency that uses smart data to create brilliant partnerships and rewards that really work.

PAULA: Enjoy.

CHARLIE HILLS: Hello, and welcome to this episode of Let’s Talk Loyalty.

CHARLIE HILLS: As Paula mentioned, I’m Charlie Hills, the Chief Strategy Officer for Mando Connect.

CHARLIE HILLS: In this episode, I’m absolutely delighted to interview Rory Sutherland and Dan Bennett, respectively, the President Emeritus and Senior Partner, Lead of Behavioural Science for Ogilvy Consulting.

CHARLIE HILLS: Rory has a fascination with the vagaries of human decision-making, and he sees the world of advertising, marketing, and loyalty as a Galapagos Islands for Behavioural Science.

CHARLIE HILLS: An accidental TikTok star, as well as a celebrated speaker and writer, Rory has found his blend of wit and behavioural insight resonates with audiences far beyond the boardroom.

CHARLIE HILLS: It’s this same passion that inspired him to found Ogilvy’s Behavioural Science Practice, and to write his book Alchemy, The Surprising Power of Ideas, that don’t quite make sense.

CHARLIE HILLS: His 12-week CPD accredited Mad Masters course helps marketers make sense of accelerated disruption and uses a tried and tested mix of creativity, innovation and behavioural science to their competitive advantage.

CHARLIE HILLS: Dan is the global lead of Behavioural Science at Ogilvy Consulting, pioneering the creative application of behavioural science to solve complex challenges.

CHARLIE HILLS: He’s managed over a thousand behaviour change projects with a portfolio spanning 100 major brands.

CHARLIE HILLS: He also curates Nudgestock, the world’s largest behavioural science festival.

CHARLIE HILLS: In this episode, Rory and Dan share their insights on loyalty, behavioural science and cover hot topics from favourite programmes and case studies, to generosity, to subscriptions, to partnerships and more.

CHARLIE HILLS: We’ll also be learning about their favourite books and highlights and key learnings from the many sectors and programmes they’ve both worked on.

CHARLIE HILLS: I really hope you enjoy our conversation today.

CHARLIE HILLS: So hello, both of you.

CHARLIE HILLS: I’m really excited to have you on the podcast today.

CHARLIE HILLS: Welcome to Let’s Talk Loyalty.

RORY SUTHERLAND: Oh, joy.

RORY SUTHERLAND: It’s a joy to be here.

RORY SUTHERLAND: It’s a personal kind of secret weapon and love of mine.

RORY SUTHERLAND: I find the whole notion of trying to make capitalism properly relational, which is what consumers ultimately want rather than transactional.

RORY SUTHERLAND: You know, at its deepest, it’s just an area that totally fascinates me.

CHARLIE HILLS: Well, that’s the best response to hello and welcome to the podcast that I’ve ever had with a guest.

CHARLIE HILLS: Dan, follow that.

CHARLIE HILLS: Are you delighted to be here as well?

DAN BENNETT: I was just going to say what Rory said, but he got there first.

CHARLIE HILLS: Brilliant.

CHARLIE HILLS: Well, thank you so much for coming.

CHARLIE HILLS: This is going to be such a cracking episode.

CHARLIE HILLS: Before we get into the nuts and bolts of it there, we want to start off because we’re building a library recommendation effectively for all our guests across Let’s Talk Loyalty.

CHARLIE HILLS: So I’m going to open with Paula’s favorite question, and I’ll ask you this first, Rory.

CHARLIE HILLS: What’s your favorite book about life, leadership or loyalty?

RORY SUTHERLAND: Funnily enough, I always recommend this book because you can read it in about five minutes.

RORY SUTHERLAND: It was first published in 1916.

RORY SUTHERLAND: It was, I later discovered one of David Ogilvy’s favorite books.

RORY SUTHERLAND: It seems very hokey, but it’s actually profound and it’s by Robert Uchtegraaff and it’s called Obvious Adams.

CHARLIE HILLS: Interesting.

CHARLIE HILLS: What’s it about?

RORY SUTHERLAND: It’s about an advertising person who solves business problems simply by noticing things.

RORY SUTHERLAND: Things which are seemingly obvious in retrospect once you point them out, but which are completely hidden from people because I think what we’ve done in business is our need to maintain the pretense of what you might call rational sequential thought closes off lots of possible avenues to us.

RORY SUTHERLAND: We had a client the other day who are agonizing about how to do something which, by the way, belongs to loyalty as part of this commercial innovation.

RORY SUTHERLAND: P&G call it commercial innovation.

RORY SUTHERLAND: Any form of innovation which doesn’t change the product itself, but which simply changes the relationship between the consumer.

RORY SUTHERLAND: Amazon Prime would be an example of commercial innovation, but then so would Share a Coke with.

RORY SUTHERLAND: Doesn’t actually change a Coke, it changes your relationship with Coke.

RORY SUTHERLAND: What was so fascinating is they were having absolute agonies about it because they were trying to theorize it first and have ideas second.

RORY SUTHERLAND: I said, why don’t you just do it backwards?

RORY SUTHERLAND: Why don’t you just have a load of ideas and then post-rationalize them?

RORY SUTHERLAND: Because that’s how it really works.

RORY SUTHERLAND: We just have to pretend that it doesn’t.

CHARLIE HILLS: That’s a lovely, lovely way of thinking about it.

CHARLIE HILLS: God, wouldn’t that be nice?

CHARLIE HILLS: I feel like sometimes we can spend months in the post-rationalization stage before we’re allowed to be creative in loyalty because our programs last so long.

RORY SUTHERLAND: I think a lot of pre-rationalization just serves to feed the egos of senior people who want to believe that they’re actually controlling things.

RORY SUTHERLAND: And so they have to believe that all good things emanate from the top.

RORY SUTHERLAND: But if you look at science, most progress actually happens bottom up.

CHARLIE HILLS: Nice, bottom up innovation.

CHARLIE HILLS: That’s a lovely idea and a really great kind of recommendation for a book as well.

CHARLIE HILLS: What about you, Dan?

CHARLIE HILLS: Have you got an equally good read for our audience?

DAN BENNETT: Oh, I do.

DAN BENNETT: I’ve got Rory Sutherland’s Alchemy.

RORY SUTHERLAND: I’m so pleased you did that.

CHARLIE HILLS: I was hoping you were going to.

DAN BENNETT: He always makes me.

DAN BENNETT: I’ve actually got John Keats’ book on…

RORY SUTHERLAND: I agree.

RORY SUTHERLAND: Yeah, fantastic book.

DAN BENNETT: And I think after kind of…

DAN BENNETT: We’ve just completed our 1000th project in the Behavioural Science Practice.

CHARLIE HILLS: Congratulations.

DAN BENNETT: You have of different sectors and different levels of thinking and organization.

DAN BENNETT: And a lot of people are very good at convergent thinking, but not a lot of people are very good at divergent thinking.

DAN BENNETT: And this book is the ultimate guide to kind of how to think creatively.

RORY SUTHERLAND: It’s a fabulous book.

RORY SUTHERLAND: Like Obvious Adams, it’s also very short.

RORY SUTHERLAND: You can read it in an afternoon.

RORY SUTHERLAND: And I totally recommend that as well.

RORY SUTHERLAND: It’s fabulous.

CHARLIE HILLS: Brilliant.

CHARLIE HILLS: Those are two really good recommendations.

CHARLIE HILLS: Thank you very much.

CHARLIE HILLS: Quite kind of.

CHARLIE HILLS: It’s an alternative to what we’d normally get.

CHARLIE HILLS: I’m delighted neither of you went kind of, here’s a textbook on loyalty.

CHARLIE HILLS: So thank you for sharing.

CHARLIE HILLS: Those are great.

DAN BENNETT: I can have position as well next, but that would be also great, but the…

RORY SUTHERLAND: It’s so funny because I was just about to say that, that is the book that changed my life, I think.

CHARLIE HILLS: Say it out loud, Dan, because we have some people who were just listening in as well.

RORY SUTHERLAND: It’s Jack…

RORY SUTHERLAND: What is it?

RORY SUTHERLAND: Al Rees and Jack…

RORY SUTHERLAND: I always get them the wrong way around.

RORY SUTHERLAND: Al Rees and Jack, Positioning the Battle for Your Mind.

RORY SUTHERLAND: And that was the original title.

RORY SUTHERLAND: And what’s so interesting is you realize that everybody in business instinctively is comparing themselves with their competitors.

RORY SUTHERLAND: And a byproduct of that is you become more and more similar to them.

RORY SUTHERLAND: So the competition becomes harsher and harsher and then a race to the bottom.

RORY SUTHERLAND: And the need…

RORY SUTHERLAND: Now we can argue whether it’s differentiation or merely distinctiveness.

RORY SUTHERLAND: And to be absolutely honest, in psychology, the difference doesn’t matter that much.

RORY SUTHERLAND: You can make your product meaningfully different, or you can simply make your personality as a brand meaningfully different.

RORY SUTHERLAND: And either way, it kind of works the same way.

CHARLIE HILLS: Nice.

CHARLIE HILLS: That’s very topical for a project we’re working on actually in the day job at the moment.

CHARLIE HILLS: I’m going to use that, which is I’m sure what a lot of people listening to this episode are going to be doing.

CHARLIE HILLS: Oh, I can use that.

CHARLIE HILLS: Oh, I can use that.

CHARLIE HILLS: Which brings me on to my next question.

CHARLIE HILLS: I always like to ask about your favourite loyalty programme as well.

CHARLIE HILLS: So we’ll start with you, Dan, this time.

CHARLIE HILLS: What’s your favourite loyalty programme and why?

DAN BENNETT: I think that the Avios programme is one of them, and it is now a client of ours.

DAN BENNETT: We can talk about some work later, but it was a favourite before that happened as well.

DAN BENNETT: Because of the genius move, I think, of it works on so many different levels.

DAN BENNETT: It works on a points mechanics level.

DAN BENNETT: It’s really became a part of culture and plays a role in people’s status and identity.

DAN BENNETT: For me, it’s half my personality.

DAN BENNETT: I can really add.

CHARLIE HILLS: I would disagree with that, Dan.

CHARLIE HILLS: I think there’s more to you than Afios, but you never know.

DAN BENNETT: Another half, at least.

DAN BENNETT: But this really clever role, I think, it played, which is it rewarded individuals for business travel.

DAN BENNETT: Basically, it allowed you to get some points for giving up your personal and discretionary energy, if you like, on business travel.

DAN BENNETT: I think that really makes the whole industry work really well.

DAN BENNETT: As kind of Rory has, lots of people could kind of have a bit of discretion about what business travel they do and don’t do.

DAN BENNETT: But because there’s a mechanism here outside of your employee that can reward you for doing business travel, I think it’s a genius, it’s a genius bit of kind of value transaction.

DAN BENNETT: So that’s my favourite because it works on so many different levels.

CHARLIE HILLS: Awesome.

CHARLIE HILLS: What about you, Rory?

CHARLIE HILLS: Which is your favourite?

RORY SUTHERLAND: I’m a late convert, and they only really become worthwhile when you’re older and you have enough points.

RORY SUTHERLAND: I’m a big fan of the Marriott Bonvoy programme, because one of the things I think both Avios and Marriott need to plug more is points plus cash.

RORY SUTHERLAND: And so I don’t like burning 90,000 points in one go, it just feels a bit too much like loss.

RORY SUTHERLAND: But what I often use the points to do is to take the price of the hotel below the guilt threshold.

CHARLIE HILLS: Nice.

RORY SUTHERLAND: So for example, I had an early start at about 10 days time, and I really wanted to stay in a hotel in London the night before.

RORY SUTHERLAND: I go, it’s 200 quid of my own money, I’m not really sure about that.

RORY SUTHERLAND: Chuck in a few points, it’s now 120 quid, I’m fine with that.

CHARLIE HILLS: Yeah.

RORY SUTHERLAND: Okay.

RORY SUTHERLAND: Now other ones, however, let’s define this really broadly.

RORY SUTHERLAND: One of the greatest loyalty programs of all time came from Ogilvy, and it was the unknown person who suggested American Express simply put a card member since on the card.

RORY SUTHERLAND: Because that has, and American Express people have told me this, that has been worth billions to them in terms of retention.

RORY SUTHERLAND: And simply the fact that a provider, supplier acknowledges the age of a relationship is extraordinarily meaningful.

RORY SUTHERLAND: In other words, what it says is we know that you’ve been a customer of ours or card member of ours for a significant length of time.

RORY SUTHERLAND: And the implicit, never explicit, there’s nothing explicit about membership at all.

RORY SUTHERLAND: There’s no transactional component.

RORY SUTHERLAND: But the implicit thing that the longer you’re with us, the more we value you.

RORY SUTHERLAND: One very interesting thing with the Avios program was, it always suffered from the problem historically that your tier points went back to zero every year.

RORY SUTHERLAND: And so you kind of felt, well, American, sorry, BA, don’t, you know, every year they look at me and they go, he’s got 15 tier points, he could just be a random backpacker.

RORY SUTHERLAND: He’s not a serious, you know, George Clooney style professional flyer.

RORY SUTHERLAND: And the lifetime tier points on Avios, on the BA club, have a similar effect, which is I know that they know that I’ve been quite valuable to them in the past, and therefore implicit in that is the idea that they’re going to make a bit more value and they’re going to invest a little bit more in my future.

CHARLIE HILLS: Yeah, no, I think tenure is such a hot topic, actually.

CHARLIE HILLS: And it’s really interesting because most people talk about it as tenure milestone rewards, you know, like, oh, what are you going to give me at one years, three years, five years?

CHARLIE HILLS: But is your view then that this kind of not psychological kind of play, but this recognition component is more important for rewarding tenure?

RORY SUTHERLAND: So I mean, that’s that’s a wonderful phrase because we often bracket them together.

RORY SUTHERLAND: It could be loyalty and recognition.

RORY SUTHERLAND: And the danger is we all fall into the trap of being purely transactional.

RORY SUTHERLAND: And the difference between a relationship, okay, this is going to possibly be a bit disturbing.

RORY SUTHERLAND: The problem a lot of businesses have is the customer and the marketer want to be in a relationship, but the finance, they want a marriage, but the finance director thinks they’re running an escort agency.

CHARLIE HILLS: Yes, I’m familiar with this one.

CHARLIE HILLS: Okay, we have encountered this quite a lot at work.

RORY SUTHERLAND: So financial metrics simply look at the here and now.

RORY SUTHERLAND: They don’t look at what you might call a longitudinal view of customer value.

RORY SUTHERLAND: They look at a snapshot view of transactional value.

RORY SUTHERLAND: And that leads to an awful lot of effectively dissonance, I think, between what the customer expects from a business and what a business is trying to do.

RORY SUTHERLAND: And I think the magic is in resolving that contradiction.

RORY SUTHERLAND: And loyalty programs or mechanics or whatever it may be, are just one mechanism of doing that.

RORY SUTHERLAND: In a relationship, you have a degree of non-explicit give and take.

RORY SUTHERLAND: Nobody actually takes their spouse and evaluates them daily on a key performance indicators, because you value the relationship as a whole.

CHARLIE HILLS: Yeah.

RORY SUTHERLAND: And what we’re in danger of doing is, which I think we’re doing in lots and lots of other ways as well, is becoming too granular about what we measure.

RORY SUTHERLAND: Not every transaction has to make money in and of itself.

RORY SUTHERLAND: There are great business activities, which are simply an investment in the relationship.

RORY SUTHERLAND: And I had a very funny thing.

RORY SUTHERLAND: I was on a Zoom call during lockdown, and it was called by Richard Thaler, who had won the Nobel Prize for Economics, to answer a student question.

RORY SUTHERLAND: It was a former student of his, who was now running a farmer’s market stall in Austin, Texas.

RORY SUTHERLAND: And he invited on the call, Daniel Kahneman was on the call.

RORY SUTHERLAND: I was one of the few people on the call without a Nobel Prize.

RORY SUTHERLAND: And the question this person asked is, what do I do with the last cucumber or the last pumpkin or whatever of the day, which never sells?

RORY SUTHERLAND: And a lot of the economists said, you reduce the price, because that’s what economists always say.

RORY SUTHERLAND: And I said, well, you could.

RORY SUTHERLAND: What I do is I said, once you’ve got one pumpkin left, go and hide it in the van.

RORY SUTHERLAND: And then when one of your best customers comes along, bring it out of the van and say, I’ve been saving this for you.

RORY SUTHERLAND: You can have it as a present.

RORY SUTHERLAND: Because I said, the value of investing in the relationship, provided it’s a regular customer, not a tourist, outweighs the cost of an individual pumpkin.

CHARLIE HILLS: Nice.

RORY SUTHERLAND: And I don’t want to flatter myself, but Daniel Kahneman thought mine was the best answer.

CHARLIE HILLS: That’s fantastic.

CHARLIE HILLS: I can see why versus discounting the pumpkin at the end of the day.

CHARLIE HILLS: And that long-term value is really what we’re all here in loyalty to try and do.

RORY SUTHERLAND: The reason we underweight it is not, it’s not impossible to measure, but it’s slow to measure.

RORY SUTHERLAND: An investment in acquisition delivers its self-justification immediately.

RORY SUTHERLAND: An investment in your call center, an investment in the relationship is harder and slower to quantify.

RORY SUTHERLAND: And since most people are in business just to justify their own existence, that causes every single business, I think, is imbalanced between effectively relational capitalism and transactional capitalism.

CHARLIE HILLS: Yeah, we are seeing such an increased focus on short-term metrics actually across the pieces.

CHARLIE HILLS: I know you guys are at the behavioural science practice as well.

CHARLIE HILLS: I think that’s one of the areas where people are so excited about behavioural science and its opportunity to almost give that little bit of magic and that way of kind of creating those moments that really matter.

CHARLIE HILLS: I know that’s kind of what we’re here to talk about as well and its application in loyalty.

CHARLIE HILLS: Consciously not all of our audience might know what we’re even talking about when we talk about behavioural science.

CHARLIE HILLS: So Rory, are you able to give us the skinny?

CHARLIE HILLS: What is behavioural science?

RORY SUTHERLAND: It’s understanding the difference between how people think they think and how they really feel.

RORY SUTHERLAND: Okay, that’s it in the sentence.

RORY SUTHERLAND: And we think all sorts of post-rationalised things about why we do things and what we’ll do under certain circumstances.

RORY SUTHERLAND: But our behaviour is very heavily driven by parts of the brain which are kind of opaque to introspection.

RORY SUTHERLAND: And it’s understanding, if you like, that sort of invisible hardware in the brain for fun and profit, which is the purpose of behavioural science.

CHARLIE HILLS: That’s a great way of talking about it.

DAN BENNETT: The past 100 years, psychologists have been going at understanding the brain and kind of understanding this kind of massive, unconscious part of the brain that we’ve evolved all of these different mental shortcuts that we operate the world with and really decoding them.

DAN BENNETT: I think they’ve identified over 150 different principles and heuristics inside of our brains that are not all active all of the time with all people, but certainly, as good psychologists do, it allows us to ask lots of great questions to kind of open things up.

DAN BENNETT: And a bit more like the John Cleese’s Creativity Book, where creativity really is about asking more questions, to kind of open up that solution space.

DAN BENNETT: I think the way we use behavioural science is quite surprising.

DAN BENNETT: A lot of people think you kind of come into a room in a creative brainstorm and kind of shut things down, and like a policeman saying, no, this is right and this is wrong.

DAN BENNETT: But actually, what behavioural science allows us to do is go, did you know there are more levers to pull inside of a brain than you think, and you can try to get ones out.

DAN BENNETT: And a lot of our work is really understanding which ones work in which context best for which products with different types of people, really.

RORY SUTHERLAND: Psychology is the fifth of the five P’s, really.

RORY SUTHERLAND: You’ve got product price, et cetera, promotion, but actually really getting deep into the real reasons why people buy and making things easy to buy and difficult to leave.

RORY SUTHERLAND: You know, is as much about psychology as it is about, by the way, there’s huge psychology to price, by the way.

RORY SUTHERLAND: As I said, you know, points plus cash.

RORY SUTHERLAND: I’m not really using it to reduce the price.

RORY SUTHERLAND: I’m using it to reduce the emotional pain of the transaction.

CHARLIE HILLS: Yeah, it’s a great way of thinking about it.

CHARLIE HILLS: And I think the behavioural science workshops that we’ve done have been some of the most favourite things I’ve done.

CHARLIE HILLS: And I never get it right as well in terms of which ones you think are actually going to pull the right lever.

CHARLIE HILLS: Dan, I think you’ve prepped some stuff on a couple of the different principles for us and how they’re actually used in loyalty in some programmes.

CHARLIE HILLS: It’d be great to bring that to life with some really good examples, if you’ve got any.

DAN BENNETT: Time for the examples.

CHARLIE HILLS: Yeah, time for the examples.

DAN BENNETT: I mean, what’s great about when people start work with Behavioural Science, it does two things.

DAN BENNETT: It gives language to understand things that you instinctively know, and then it also introduces some totally different things that you wouldn’t want to be disappointed in.

DAN BENNETT: One of them is the idea of leverage.

DAN BENNETT: There’s a principle known as the stopped gun effect, which is basically the idea that we would all instinctively know that if you were to point a gun at someone’s head, it would give them a threat, and they don’t know whether the gun is loaded or not.

DAN BENNETT: They act as if the gun is loaded.

DAN BENNETT: Psychologists call it the stopped gun effect, and it really is a powerful way of shaping our behaviour.

DAN BENNETT: That’s something that explains something that we already instinctively know, but it gives it language for us to operate with, and then there are other principles that usually feel more like new news to people and give us new concepts to work with.

DAN BENNETT: So we worked with Odeon for many years, trying out different ways to increase memberships, get people to buy more premium seats, get to enjoy the film with more food and drink along the way.

DAN BENNETT: One of the ones that we had a really great success with was looking at the membership sign-ups.

DAN BENNETT: So how do you get somebody who’s a regular visitor, regular guest, infrequent visitor, to sign up for the loyalty program, so they would give us a chance to communicate to get them to go more.

DAN BENNETT: Really, it’s about just exploring those different levers that we can pull.

DAN BENNETT: Imagine you’ve gone to the cinema, you’ve seen a great film, and because you’ve bought a ticket online, we get to send you an email, but you’re not yet signed up to the program.

DAN BENNETT: We tried four different ways of doing it.

DAN BENNETT: The first one we tried was you basically say, this is the control, if you like, for the experiment, earn points every time you visit the cinema.

DAN BENNETT: You might not know, when you go to the cinema, when you go to Odin, you’re going to earn some points, or you could be earning points if you signed up.

DAN BENNETT: So we tried that.

DAN BENNETT: Or we tried what psychologists call hot states, which is basically that our behaviour is highly influenced by our current emotional state.

DAN BENNETT: So if you ask them in that kind of really juicy moment, I just remembered the joy of film, I’ve had a great time, now is the time to get me.

DAN BENNETT: So you send an email after saying, got that post-movie feeling, get points every time to visit the cinema, to really go in the hot state.

DAN BENNETT: Or it could be the third out of four, which was looking at what psychologists call exclusivity, that kind of scarcity bias.

DAN BENNETT: So see exclusive screenings before everyone else.

DAN BENNETT: So I’m going to get something on what everyone else is getting.

DAN BENNETT: Does that make me a couple of everybody else perhaps?

DAN BENNETT: Some free as well.

DAN BENNETT: Or is it what psychologists call the endowment effect?

DAN BENNETT: Which is basically that we’re more likely to commit to something that we feel psychological ownership over.

DAN BENNETT: If I feel like something’s already mine or it’s a kind of a concrete thing, I’m more likely to take it.

DAN BENNETT: So we said, your points, your points are waiting for you, claim them now.

DAN BENNETT: So you kind of feel mad that they’re kind of sitting there and I’m just left on the table.

DAN BENNETT: It feels like I’ve kind of left my phone behind or something.

DAN BENNETT: Is that quite a big kind of psychological piece?

DAN BENNETT: And when you ask, you know, we often present these to kind of roomfuls of people and you ask people to vote which one you think is the most powerful.

DAN BENNETT: And it usually goes pretty evenly across all of them.

CHARLIE HILLS: This is where I normally get it wrong, which one I think is going to work.

RORY SUTHERLAND: Yeah, absolutely.

DAN BENNETT: We all do.

RORY SUTHERLAND: We all do.

RORY SUTHERLAND: Absolutely fine.

DAN BENNETT: If we could know before time, we would have to do the best.

CHARLIE HILLS: We must look at those speeches before we’re stood up at conferences.

DAN BENNETT: Exactly.

DAN BENNETT: And the one that tripled membership sign ups for Odeon was the endowment effect about saying to people that your points are waiting for you, claim them now.

DAN BENNETT: So there’s just something really instinctive and innate in us about that situation, about the customers we were talking to, that makes them want to sign up after that.

DAN BENNETT: Whereas, you know, paying for exclusive screenings, we often tend to think about how do we give people free stuff, free stuff, how do we just kind of bribe people into it?

DAN BENNETT: Sometimes it might just be a slight psychological hack inside the brain that lights us up a bit more.

CHARLIE HILLS: Yeah, that’s a great example.

RORY SUTHERLAND: It was actually doubly valuable in a way, because that particular test, because one, it showed that effectively that loss aversion approach, your points are waiting for you, simply worked disproportionately well.

RORY SUTHERLAND: I mean, it was a factor of three points, something or other, wasn’t it?

RORY SUTHERLAND: I think.

RORY SUTHERLAND: The other thing we learned, which was that people don’t actually care about exclusive preview screenings as much as they say they do.

RORY SUTHERLAND: So everybody in research will go, oh, I really like the idea of this.

RORY SUTHERLAND: It turns out that it’s not as big a motivator.

RORY SUTHERLAND: So I always say marketing is about two things.

RORY SUTHERLAND: It’s about unmet needs, but it’s also about met unneeds, which is quite often, because of market research, you’ll invest an awful lot in something that consumers claim to care about, when in reality, their behaviour shows that, to be honest, it doesn’t matter that much.

RORY SUTHERLAND: And an awful lot of market research is dangerous because we don’t really know what drives our own behaviour, as true of myself as it is of any consumer to a large extent.

RORY SUTHERLAND: And you can only discover this through experimentation because what people say is usually what sounds rationally plausible, not what’s actually true.

CHARLIE HILLS: Yeah, I think that’s brilliant.

CHARLIE HILLS: I think that’s one of the things I love about working with the Ogilvy Practice is it’s the experiments.

CHARLIE HILLS: So not only does the behavioural science thinking and specialist, it makes you think differently about the solution to the problem or the opportunity.

CHARLIE HILLS: But then I love the experiments and then actually seeing what happens in the real world.

CHARLIE HILLS: And then, like you say, you can actually prove what works with those kinds of instant results.

CHARLIE HILLS: It’s fantastic.

CHARLIE HILLS: We did a really cool podcast actually with Polly Jones of ODN, if anyone’s really interested to find out more about that.

RORY SUTHERLAND: She’s fantastic.

CHARLIE HILLS: Fantastic.

CHARLIE HILLS: And it’s a really, really great episode.

CHARLIE HILLS: So it’s on the archive if anyone’s interested to see more about that.

CHARLIE HILLS: That’s a brilliant example.

CHARLIE HILLS: Please tell me about the IAG case study.

DAN BENNETT: Oh, we’ll do one more, shall we?

DAN BENNETT: Yeah.

DAN BENNETT: So this was a really interesting piece of work we did with IAG and Barclays.

DAN BENNETT: It was a partnership, which I know we’ll talk about later.

DAN BENNETT: So we were looking at finding the right persuasion lever to get more customers to open an Avios earning current account, which is quite a big deal to switch your current account, isn’t it?

DAN BENNETT: Huge.

DAN BENNETT: So you’d want some pretty good payable sites to do that.

DAN BENNETT: We tried four different ways, four different levers to get into there.

DAN BENNETT: So we had the control, which was supercharge your Avios balance.

DAN BENNETT: We had what we called the, so we said supercharge Avios balance.

DAN BENNETT: We also tried, is your current account unlocking holidays view?

DAN BENNETT: So you really go on that what we call the distinction bias, which is kind of highlighting the differences, changes how people compare the options basically.

DAN BENNETT: So basically we’re kind of really framing around holidays.

DAN BENNETT: We tried status, and we know that status is a huge driver of behaviour.

DAN BENNETT: So we tried saying, your chance to bank more Avios than average members.

DAN BENNETT: So you kind of get ahead of everyone else.

DAN BENNETT: Is that going to be the best way?

DAN BENNETT: Or is it what we called the endowment effect, which is, you know, you position something that’s been owned by somebody.

DAN BENNETT: So we say your yearly cabinet upgrade ready when you are.

DAN BENNETT: That one had a 26% uplifting conversions without the use of an offer, which was absolutely huge.

DAN BENNETT: It had an increase in the click through rate that had barely been seen before.

DAN BENNETT: And just because we’d found the right behavioural science lever to pull.

DAN BENNETT: And I think that that’s the interesting part, which is it’s really hard to know which principle is going to work in which situation.

DAN BENNETT: It’s not that predictable unless you have personality data.

DAN BENNETT: But that’s another that’s another another podcast altogether.

DAN BENNETT: But this was the one that did quite a significant job really, and getting people to switch their current accounts.

CHARLIE HILLS: That’s brilliant.

CHARLIE HILLS: And that’s a really great kind of second example.

CHARLIE HILLS: And really nice to see in those two different industries as well, from cinema to airlines.

CHARLIE HILLS: What’s something else you think our audience, I don’t know, that you’ve not talked about before, or that might make them think so differently again, Rory?

CHARLIE HILLS: What’s something else you’ve really wanted to bring to the loyalty audience that you haven’t shared before?

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RORY SUTHERLAND: One thing is that quite a lot of loyalty programs are bifurcated between points for yourself or give the money to charity.

RORY SUTHERLAND: And there’s a halfway house which needs exploring, which is a loyalty program which allows me to be generous to somebody else.

RORY SUTHERLAND: Now, you might know that I think Cafe Nero allow you, if you’ve completed a card for a free coffee, you can send one to somebody else.

RORY SUTHERLAND: That’s one area which I think is very, very interesting.

RORY SUTHERLAND: And I always used to call this Godfather benefits, partly literally, because it’s the kind of thing that your godfather would do to a godchild.

RORY SUTHERLAND: The ability to use the BA program to upgrade someone else on their honeymoon, for example, would be absolutely fantastic.

RORY SUTHERLAND: But also, what’s great about it is A, you probably get somebody involved into the program.

RORY SUTHERLAND: But B, the person giving the gift feels good about it.

RORY SUTHERLAND: So I always joke to Dan that the best value I’ve got from my, you know, what am I, I joined the BA loyalty program in 93 or something.

RORY SUTHERLAND: But it was when my daughter and three of her friends were sort of stranded in Geneva, because they were on a ski trip and there was a ferry strike and they were having to get back by coach.

RORY SUTHERLAND: And I was able to, I just went in and put four of them in business class back from Geneva on the flight.

RORY SUTHERLAND: And for briefly for about seven days, I was hero dad.

RORY SUTHERLAND: And that made me almost feel better than anything I’d actually spent on myself.

RORY SUTHERLAND: And so that one of the things I think we can explore is that the other thing to explore, by the way, is just spontaneous acts of generosity, to see to what extent they pay through reciprocation.

RORY SUTHERLAND: So little things like the AO bear, where they give you a bear of their children in the house when they deliver your washing machine or your appliances.

RORY SUTHERLAND: Those things, now maybe it’s impossible to measure them, but that doesn’t mean they don’t work.

RORY SUTHERLAND: Not everything we do that’s worthwhile necessarily needs to be immediately justifiable.

RORY SUTHERLAND: It can simply be just a really good idea, which is John Roberts’ argument in AO.

RORY SUTHERLAND: I can’t really measure this, but the reason we do it is because we deliver our own appliances, it’s something we can do that nobody else can do.

RORY SUTHERLAND: Consequently, we think it has an advantage in terms of differentiation.

RORY SUTHERLAND: The fact that when he spoke to me about this, he just written a check for one million pounds for a new consignment of bears.

RORY SUTHERLAND: He is the largest buyer of bears in the UK.

RORY SUTHERLAND: I think these are not real bears.

RORY SUTHERLAND: I think delivering a real bear with your own hands can have quite a different effect.

CHARLIE HILLS: That would be an experiment worth trying.

RORY SUTHERLAND: There was a small company called Lux Leopard in Kent, which my wife bought clothes from.

RORY SUTHERLAND: Rather than flogging off stuff in a sale at the end of the year, they simply sent us a package before Christmas.

RORY SUTHERLAND: Now, all I can say is, empirically, that’s had a huge effect on my loyalty to them.

RORY SUTHERLAND: That’s what’s called in behavioural science, just reciprocation.

RORY SUTHERLAND: We tend to look to reciprocate when people are generous to us.

RORY SUTHERLAND: Too much of business has been made transactional.

RORY SUTHERLAND: If you do this, we will give you that.

RORY SUTHERLAND: That’s not the same emotionally as, here’s something extra.

CHARLIE HILLS: Yeah.

CHARLIE HILLS: It’s a bit like your pumpkin example from earlier, actually.

CHARLIE HILLS: It’s that really nice application of that extra thing.

CHARLIE HILLS: Dan, I know you were a huge fan of the Pratt scheme when it existed and the kind of the surprise and delight coffee is another one that’s just become part of British culture, isn’t it?

CHARLIE HILLS: That sometimes if you’re lucky and you get the right barista, you can get your free coffee or your free turmeric latte, or your free cup of tea or whatever you like.

CHARLIE HILLS: I think that’s another really good example of that in action.

RORY SUTHERLAND: Actually, my whole background was in advertising as a copywriter and what I discovered, particularly in service brands, is that there’s just as much creativity waiting to be discovered in mechanics, pricing.

RORY SUTHERLAND: I mean, Dan ought to talk about the Deschumne Dice, which is also one of my favourite loyalty programmes, which we kind of invent in the Behavioural Science Practice.

RORY SUTHERLAND: And I also want to mention, by the way, a fascinating story.

RORY SUTHERLAND: When Jeff Bezos came up with the idea for Amazon Prime, several people on the board of Amazon threatened to resign if he implemented it.

CHARLIE HILLS: Gosh.

RORY SUTHERLAND: So it’s always worth noting that Amazon Prime doesn’t seem that innovative now.

RORY SUTHERLAND: It was, however, that mechanic where you pay to belong to a programme, I think it deserves being explored much, much more.

CHARLIE HILLS: Yeah.

RORY SUTHERLAND: Because that’s a commitment device.

RORY SUTHERLAND: And actually, one of the reasons I think people like them is that sometimes people like choice reduction.

RORY SUTHERLAND: That, you know, in an online environment, you have such a massive plethora of different options for doing things that a mechanism which goes, well, I’ll go there first, actually makes your life easier.

CHARLIE HILLS: Yeah.

CHARLIE HILLS: And in the case of Prime, you know, it’s going to work and it’s going to deliver on time.

CHARLIE HILLS: I’ve recently had a crisis with my teenage sons and their school trousers in the over Easter.

CHARLIE HILLS: They both seem to have grown a foot without anybody realising it must be the kind of chocolate reaction.

RORY SUTHERLAND: Next day trouser delivery.

CHARLIE HILLS: Next day trouser delivery for school.

CHARLIE HILLS: And there’s nobody else, you know, in all honesty, it was free delivery.

CHARLIE HILLS: There’s nobody else I trust.

CHARLIE HILLS: I think Amazon Prime, you know, is I would call it a lifesaver in my household sometimes, because the alternative is driving down to the local, you know, supermarket or Marks and Spencer’s attempting to find giant trousers, which I know they won’t have in stock.

CHARLIE HILLS: And just the compared example, you know, an experience of that is massive.

CHARLIE HILLS: It’s a great, great example.

RORY SUTHERLAND: By the way, there’s huge, you know, one of the things that really interests me, by the way, also is if you’re, let’s say, a hotel brand like Marriott or IHG, the loyalty program doesn’t just pay in terms of the commercial behavior, in terms of how often they stay with you.

RORY SUTHERLAND: It also pays off in a way you can’t measure, which is propensity to book direct rather than book via an intermediary.

RORY SUTHERLAND: And of course, I don’t know, I always think that marketing is very harshly treated by finance because marketing is held responsible for every unit of cost, but it can only lay claim to a certain percentage of the value it creates and only for a short time.

RORY SUTHERLAND: And one of the things I think that’s very important about hotel loyalty programs is they probably massively drive the propensity to book direct.

RORY SUTHERLAND: Now, if you look at the commission taken by online travel agents, maybe that’s not being adequately factored into the value of the program.

CHARLIE HILLS: Yeah, we’ve had that exact conversation actually.

CHARLIE HILLS: We worked with Marriott Bonvoy and with Call of Limitless actually as well as Ogilvy did.

CHARLIE HILLS: And that is one of the major things.

CHARLIE HILLS: It’s so hard to track and measure, but you know it’s there.

CHARLIE HILLS: It’s almost like a hidden piece of value that you know that you’ve brought to the table.

CHARLIE HILLS: Yeah, that’s a really, really good point.

CHARLIE HILLS: What about with subscription?

CHARLIE HILLS: So there’s some new legislation coming out next year that I know we’ve all been debating and discussing and seeing how this is going to affect broad subscription businesses, but also loyalty subscription and paid for loyalty and things like Amazon Prime and the kind of the top tier subscription services.

CHARLIE HILLS: Consumers also we know have a love-hate relationship with them.

CHARLIE HILLS: What impact do you think that’s going to have on loyalty programs?

CHARLIE HILLS: I’ll put this one to Dan.

CHARLIE HILLS: And how do you think Behavioural Science might be able to help loyalty program leads kind of deal with that?

DAN BENNETT: Well, as we’ve been discussing this, we’ve realised it’s huge.

DAN BENNETT: I could say it’s going to be a fundamental challenge to a lot of business models because a lot of the people that we work with always knee-jerk towards subscriptions because it gives you that certainty of income greater when you stick along the line.

DAN BENNETT: The challenge is that everyone’s kind of ignored the fact that to a consumer, there’s this kind of subscription saturation that you can’t handle more than kind of 10 to 12 going on at once.

DAN BENNETT: And you start to feel kind of out of control.

DAN BENNETT: And because you’re a contractor with the company, you can’t cancel them like you can do direct debits on your bank, for example.

DAN BENNETT: So we’ve created this situation where if you work in marketing, you personally feel like you’re at subscription saturation, but your day-to-day role is still creating more for other people.

DAN BENNETT: So there’s a bit of a disconnect here between our personal experience and what we think is right for the business.

DAN BENNETT: And as we know that the Department of Business and Trade have been talking about the crackdown on subscription traps and the rules of the tightening and tightening.

DAN BENNETT: There’s going to be, you won’t have to make endless phone calls to cancer subscription.

DAN BENNETT: You know, hopefully in spring 2027, you’ll have a 14-day calling off period.

DAN BENNETT: It should be as easy to get out as it was to get in.

DAN BENNETT: And you’ll have to be reminded before any payment is taken within due time on the due platform.

RORY SUTHERLAND: If we’re being blunt, consumers never like them that much.

RORY SUTHERLAND: In fact, we can look at it and say the mobile phone industry only reached 100% penetration because it introduced the option of pay as you go, as opposed to some people are commitment, as anybody in a relationship knows, some people are commitment phobes.

RORY SUTHERLAND: And consequently, you know, one of the things is that I think there’s a massive opportunity cost to demanding people subscribe to things rather than offering the pay as you go option.

RORY SUTHERLAND: There’s also a behavioral tip I’ll give to all your listeners, which is, I think it’s very important that you allow people to pause subscriptions, because at the moment, you have a bifurcated choice, which is go on subscribing or cancel.

RORY SUTHERLAND: What’s been found psychologically is people who cancel never come back.

RORY SUTHERLAND: If you can frame it as a pause, you can win them back.

RORY SUTHERLAND: If you make them cancel, they’ve somehow put your brand in that category of things I’m no longer going to have a relationship with.

RORY SUTHERLAND: It’s like an X.

RORY SUTHERLAND: And consequently, one of the things that companies will need to look at very, very carefully is, I mean, you know, actually, I have a, I work a little bit with company called kaggy.com, which is a pay to use search engine, which is ad free and objective.

RORY SUTHERLAND: And one of the things I suggest to them is they have a subscription at my suggestion, which is if you don’t use it in any given month, we refund you your money.

CHARLIE HILLS: Oh, wow.

RORY SUTHERLAND: And I told them to instigate that because I said, once you get to a million users, your finance people will never allow you to do that.

RORY SUTHERLAND: So you need to do it now before you’re too big to actually instigate it.

RORY SUTHERLAND: Now, how can we ever prove to what extent that works?

RORY SUTHERLAND: We will never be able to prove it because the counterfactual doesn’t exist.

RORY SUTHERLAND: However, the degree to which it inspired gratitude and affection in the user base and trust was extraordinary.

CHARLIE HILLS: Yeah.

RORY SUTHERLAND: And so one of the things we need to do is, fundamentally, I think people like Amazon Prime, that’s the kind of commitment which is, you know, and also we use Amazon often enough that it feels like it’s paying off.

RORY SUTHERLAND: I think this subscription thing, we’re on a kind of burning platform.

RORY SUTHERLAND: The finance people pressured companies to do it because investors love future forward predictable income.

RORY SUTHERLAND: And so a lot of the pressure of this was, it never came from consumers, it came from the financial analysts and investors.

RORY SUTHERLAND: And that is what we know from Behavioural Science is once you can cancel easily, all that revenue is a significant threat.

RORY SUTHERLAND: No commercial organization apart from utilities allows you to pay by direct debit.

RORY SUTHERLAND: Now utility is slightly different because if you cancel it, your lights go off.

CHARLIE HILLS: Cold and dark.

RORY SUTHERLAND: Everybody wants you to subscribe by credit card.

RORY SUTHERLAND: Why?

RORY SUTHERLAND: Because it’s easy to cancel a direct debit.

RORY SUTHERLAND: You can do it through your online banking app.

RORY SUTHERLAND: Until recently, it’s almost impossible to cancel a recurring credit card payment without going to the original company.

RORY SUTHERLAND: Now there are apps that are being developed.

RORY SUTHERLAND: There’s a website called donotpay.com, which is designed to facilitate cancellation.

RORY SUTHERLAND: Then there’s legislation.

RORY SUTHERLAND: Then there’s the psychological problem that consumers are reaching a ceiling, which is they’re beginning to see their salary come into their bank account on payday and three-quarters of it walks straight out again.

RORY SUTHERLAND: They’re beginning to question first of all, the extent to which they have these commitments, and also they are now pretty naturally reluctant to take on any more.

RORY SUTHERLAND: Because what’s happened is every consumer is once bitten, twice shy.

RORY SUTHERLAND: They’ve all discovered that they pay for Club Penguin, well, their children are working as stock market analysts.

RORY SUTHERLAND: In other words, long after they needed it, everybody’s made a mistake.

RORY SUTHERLAND: Everybody has been once bitten, twice shy.

RORY SUTHERLAND: And consequently, there’s a fundamental threat that if you’re only offering this subscription model, and you’re a new entrant to the market, you’re at a huge disadvantage.

RORY SUTHERLAND: Once people have Netflix and they have maybe Disney Plus, you come along and you’re HBO Max, you’re up against this problem which is, I can’t have a third one.

RORY SUTHERLAND: It’s just too painful.

CHARLIE HILLS: Yeah, it’s going to be a really interesting kind of change, I think, in to see kind of where the boundaries are and then what behaviours we can see kind of come in.

CHARLIE HILLS: Where would you see kind of Behavioural Science playing in a role?

CHARLIE HILLS: Because I’m sure there’s quite a lot of people listening and watching this episode going, oh, crikey, that’s going to be me.

CHARLIE HILLS: Firstly, I need to go and look up this legislation if I was unaware of it.

CHARLIE HILLS: But what sort of ways could Behavioural Science help somebody deal with that challenge?

DAN BENNETT: I think some of it is about helping to think more divergently and helping to open up the solutions space.

DAN BENNETT: I don’t think there’s going to be kind of one magical Behavioural Science principle we can use to kind of rescue the challenge.

DAN BENNETT: But it’s more likely that we would get to a place where you could think about that you would have more of like an open relationship with lots of brands.

DAN BENNETT: Or you’d have kind of a lot of defaults there that you could turn on and off every month.

DAN BENNETT: So you might have a bigger amount of people that you are potentially wanting to, wrong analogy, but potentially wanting to kind of have a relationship with.

DAN BENNETT: We don’t have that relationship with them every single month.

DAN BENNETT: So you could have kind of seven of the TV subscriptions, but you’d only turn on and off.

DAN BENNETT: So you don’t get too locked in.

DAN BENNETT: It’s kind of the same with charities and kind of committed giving.

DAN BENNETT: This idea that everyone wants you to sign up to give £10 a month.

DAN BENNETT: Challenges, it kind of robs you of that gift of giving, because it’s like going on a first date where in the first day, you’re very happy to pay, you put the money down.

DAN BENNETT: But if on the second date, they don’t even fumble at their pocket as the bill comes to the table, you kind of feel a bit robbed by it.

DAN BENNETT: You get that same good feeling of giving.

DAN BENNETT: So I think we think we’re going to get to this place where you need some soft defaults, a few you’re going to be spending your money with, but not so much kind of feeling locked in.

DAN BENNETT: A lot of it goes back down to this core feeling of feeling in control or out of control.

DAN BENNETT: And especially at the time of kind of financial crisis and things feeling more squeezed, that’s the time where we need consumers to feel in control as possible really.

DAN BENNETT: So you don’t get that knee-joke effect that Rory talks about, I might be definitely in or definitely out.

RORY SUTHERLAND: I also make the point that there’s threat and opportunity here, in that there is obviously massive threat, because let’s imagine you had to email someone a week before you build them for a subscription, and that email had to contain a simple button that you could press to cancel.

RORY SUTHERLAND: That is a fairly major threat to quite a lot of business models.

RORY SUTHERLAND: Where there’s an opportunity however, is that there are far too many businesses where there is no pay as you go alternative.

RORY SUTHERLAND: Now, by the way, there’s a very interesting fact here.

RORY SUTHERLAND: Quite a lot of people on pay as you go mobile phone arrangements spend more than they would if they were actually on a contract.

RORY SUTHERLAND: They pay more.

RORY SUTHERLAND: What they’re doing is they’re actually paying a premium for flexibility, for not having to be absolutely committed.

RORY SUTHERLAND: They like the feeling that if I’m skint one month, I could lock my mobile phone in a cupboard and spend that.

RORY SUTHERLAND: They never do as it happens.

RORY SUTHERLAND: I think there’s also a huge opportunity cost to forcing people into subscriptions because there’s a whole chunk of people who effectively are essentially rejecting this as a means of payment wholesale.

RORY SUTHERLAND: There is no way I can bring myself to subscribe to the Financial Times.

RORY SUTHERLAND: I would pay a couple of pounds to read an article in the Financial Times, but whatever it is, £59, £69 a month for a subscription.

RORY SUTHERLAND: Also, if you think about it, I work in advertising, I don’t work in finance.

RORY SUTHERLAND: I feel that I’m getting huge value from 10% of the Financial Times and very little value for the other 90% because I’m not that interested in the prospects for central banking reform in Ecuador.

RORY SUTHERLAND: It’s not my thing.

RORY SUTHERLAND: Yes.

RORY SUTHERLAND: Right.

RORY SUTHERLAND: I would very, very happily pay a premium in some ways to cherry pick those parts of the FT that I really enjoy.

RORY SUTHERLAND: One of the bits of psychology here in Behavioural Science is that we hate paying for things if we think we’re getting comparatively less value from them than somebody else.

RORY SUTHERLAND: I’ll give you a lovely example of this.

RORY SUTHERLAND: I had a huge argument with people about railway season tickets, which I think just need to go.

RORY SUTHERLAND: I think it’s a ridiculous sort of ludicrous binary idea of you either pay daily.

RORY SUTHERLAND: So the carne or some other system has to be brought in.

RORY SUTHERLAND: The argument I had with the rail company was they said, but even if you just travel into London three days a week, you still save money.

RORY SUTHERLAND: I said, that may be true in economics.

RORY SUTHERLAND: It isn’t true in psychology because someone who’s traveling in three days a week, who’s paying the same as someone who’s traveling in five days a week, feels hard done by.

RORY SUTHERLAND: That’s the great thing with Amazon Prime.

RORY SUTHERLAND: I don’t really feel, although I probably am, I don’t really feel I’m cross-subsidizing people who buy more from Amazon than I do.

CHARLIE HILLS: Yeah, because you get so much from it.

CHARLIE HILLS: And actually, at that point, if you can choose the content that you really like.

RORY SUTHERLAND: I can choose what I like.

RORY SUTHERLAND: So I also think there’s a threat to this business model, which was a business model, by the way, which never emerged through consumer demand.

RORY SUTHERLAND: It simply emerged from the fact that on the Internet, it was difficult to make micro payments for 15 years.

CHARLIE HILLS: Oh, really?

RORY SUTHERLAND: The subscription, the propensity to drive subscriptions, exactly the same as the railway season ticket.

RORY SUTHERLAND: We now have technology which can simply go, the more you travel by train, the less you pay for each journey.

RORY SUTHERLAND: So you can actually, I’m going to suggest this to Transport for Wales, because they’ve got a certain degree of autonomy.

RORY SUTHERLAND: Be the first part of the UK which gets rid of the season tickets.

RORY SUTHERLAND: Instead, we have an app-based relationship which is simply, the more you travel, the more you get, which will also allow us to send people little presents.

RORY SUTHERLAND: So you can say, since you made your 100th journey, why don’t you have a free first-class upgrade?

CHARLIE HILLS: That generosity that you were talking about earlier comes to the fore.

RORY SUTHERLAND: That takes things from the transactional to the relational.

RORY SUTHERLAND: Now, the season ticket arose simply because in the 19th century, the word commuter emerges from the fact that you commuted your ticket.

RORY SUTHERLAND: It’s actually a commercial act.

RORY SUTHERLAND: It’s nothing to do with traveling to and from work.

RORY SUTHERLAND: Commuter came from commuting your ticket to a multiple ticket rather than a series of individual tickets.

RORY SUTHERLAND: Then that word then took on the meaning of someone who travels in into work every day.

RORY SUTHERLAND: Really interesting.

RORY SUTHERLAND: But that was because in the 19th century, they didn’t have smart means of payment.

RORY SUTHERLAND: You basically had to have a paper ticket.

RORY SUTHERLAND: So it was either pay for everything or pay one at a time.

RORY SUTHERLAND: There are now wonderful opportunities to experiment with new pricing mechanics.

RORY SUTHERLAND: Yeah.

CHARLIE HILLS: I think that’s one of the things we’ve seen so much in loyalty, the opportunity that technology can now let us do the things that we only dreamed of, 5, 10, 15 years ago.

CHARLIE HILLS: I know that that’s one of your hot topics, Rory.

CHARLIE HILLS: I wanted to ask you about partnerships as well, because I know that’s another really hot topic.

CHARLIE HILLS: I know we were going to round out on innovation, but actually you started off the call talking about innovation.

CHARLIE HILLS: Partnerships is one of your other key passions.

CHARLIE HILLS: How do you see that playing out in loyalty?

CHARLIE HILLS: What do you think people should be thinking about?

RORY SUTHERLAND: It’s very interesting because Mark Ritson will back me up on this.

RORY SUTHERLAND: Brand partnerships are one of the most underrated, underused techniques in the marketing armory.

RORY SUTHERLAND: My only explanation for how little attention is paid to them is precisely because they’re not very expensive.

RORY SUTHERLAND: One of the things that seems to happen in client businesses is the more expensive something is, the more people are involved in policing it.

RORY SUTHERLAND: I was at a very large multinational clients media day, and there were hundreds of people.

RORY SUTHERLAND: As you can imagine, because they spend a billion dollars on media every year, hundreds of people there.

RORY SUTHERLAND: I bet that despite the fact that that very same organization has engaged in a brand partnership that has brought them, I would confidently say a billion dollars in revenue.

RORY SUTHERLAND: I can’t name them, but-

CHARLIE HILLS: I know who you’re talking about.

CHARLIE HILLS: We’ll tell you off the record.

RORY SUTHERLAND: We’ll talk about that later.

RORY SUTHERLAND: We’ll tell you off the record.

RORY SUTHERLAND: Despite the fact they’ve come up with a billion dollar brand partner, brand partnerships are beautiful because instead of saying, what can we buy, it asks the question, what can two of us do together to our mutual benefit?

RORY SUTHERLAND: It’s the most fundamental form of human cooperation, not transactional, but let’s both work together to do something that we can’t do on our own.

RORY SUTHERLAND: And strangely, because that’s inexpensive, because cooperation is less expensive than commerce, commercial solutions to the problem, it correspondingly gets too little attention.

RORY SUTHERLAND: I’ll also do a mea culpa.

RORY SUTHERLAND: Ad agencies were always rude about brand partnerships, and that’s because you had two brands, one of which wasn’t your client, and you were terrified of losing control, and you didn’t make much commission from it.

RORY SUTHERLAND: And so I was sort of taught in the early days of being in an ad agency that you go, if someone mentions a brand partnership, you say, brand partnerships dilute your brand.

RORY SUTHERLAND: And then I realized that’s as stupid as saying, my having friends dilutes my personality.

RORY SUTHERLAND: It’s simply a plausible sounding sentence.

RORY SUTHERLAND: It’s complete nonsense.

RORY SUTHERLAND: Generally, you both benefit from the arrangement, reputationally and commercially.

CHARLIE HILLS: Marvelous.

CHARLIE HILLS: I completely agree, which is obviously why I work in it.

CHARLIE HILLS: I’m so passionate about it.

CHARLIE HILLS: It’s such an interesting area when two brands work together.

CHARLIE HILLS: And you can do so much more.

CHARLIE HILLS: And if you combine it with behavioral science kind of thinking, like spectacular, spectacular things can happen.

CHARLIE HILLS: I could talk for hours.

CHARLIE HILLS: I know our listeners and our audience could watch for hours as well.

CHARLIE HILLS: But I’m very conscious of your time, Rory.

CHARLIE HILLS: I’m sure our listeners would love to find out more about behavioral science.

CHARLIE HILLS: And I’m very conscious you’ve got Nudgestock coming up.

CHARLIE HILLS: So I wonder if you want to kind of, I know our normal question is to round out the episode going, how do people get in touch?

CHARLIE HILLS: The answer is obviously LinkedIn.

CHARLIE HILLS: Both Dan and Rory can be found on LinkedIn.

CHARLIE HILLS: We’ll stick their kind of contact details in the show notes.

CHARLIE HILLS: But would you like to round out telling them a little bit about Nudgestock and why they should go?

RORY SUTHERLAND: Yeah, it’s fantastic.

DAN BENNETT: So it’s the world’s largest festival of behavioral science and creativity.

DAN BENNETT: It’s the 14th year we’re doing it.

DAN BENNETT: It’s in London on September the 17th.

DAN BENNETT: And this year, the theme is all about trust issues.

DAN BENNETT: Brands have trust issues, institutions have trust issues, consumers have trust issues.

DAN BENNETT: But we never really tackle them head on.

DAN BENNETT: We always kind of try and tackle them laterally.

DAN BENNETT: So this year, we’re kind of uniting the world’s greatest psychologists, those in business that have dealt with some real severe trust issues and how they’ve overcome them and really getting together to go deeper on the psychology of what is trust?

DAN BENNETT: How is it built, broken and re-built?

DAN BENNETT: And we can’t mention the keynote today, but by the time you listen to it, if you go to nudgestock.com, you’ll see we’ve got an incredible keynote coming down.

DAN BENNETT: So worth getting your tickets now because the ticket price goes up every month.

DAN BENNETT: So worth getting in as early as you can.

RORY SUTHERLAND: You see, we’re deploying a very same mechanic.

RORY SUTHERLAND: And by the way, you know, the scope for in a bit, again, Mark, another Mark Ritzen thing.

RORY SUTHERLAND: We agree on nearly everything.

RORY SUTHERLAND: But the psychology of exploring different pricing mechanics.

RORY SUTHERLAND: To economists, price is a number.

RORY SUTHERLAND: To consumers, price is a feeling.

RORY SUTHERLAND: And the same amount of money can feel completely different.

RORY SUTHERLAND: This is the point I make about Klarna, by the way.

RORY SUTHERLAND: Now, to an economist, it’s an interest-free loan.

RORY SUTHERLAND: To me and to almost all normal people, three times a hundred pounds feels completely different to one payment of a hundred pounds.

RORY SUTHERLAND: And so the scope for innovation in terms of different forms of business relationship, the money you make might be exactly the same or more, but the feeling of value is completely different.

RORY SUTHERLAND: And you can literally synthesize perceptions of value for money simply by not changing what you charge, but how you charge.

RORY SUTHERLAND: And points programs were really interesting because they were there long before there was Bitcoin.

RORY SUTHERLAND: They actually fulfilled this Hayekian idea.

RORY SUTHERLAND: Hayek and the Austrian School Economists believed that there should be multiple currencies.

RORY SUTHERLAND: And of course, the loyalty program was a case of commercial organizations inventing what is effectively a parallel currency.

RORY SUTHERLAND: Now I’m going to end with a really radical idea.

RORY SUTHERLAND: I think there should be a government currency, a loyalty program for government.

RORY SUTHERLAND: Let me explain.

RORY SUTHERLAND: So if you wanted something like a parking space, or you wanted your GP to visit you at home, or you wanted an extra service from the government, if you had a points program, so it was based on willingness to pay, not ability to pay, you could create what you might call a hybrid between socialism and capitalism.

RORY SUTHERLAND: So let’s imagine you had a state issued currency called the ZOG, and you wanted, let’s say you wanted a second parking permit, you could spend a certain amount of your annual egalitarian points allocation on something you wanted rather than something you didn’t.

RORY SUTHERLAND: And then if you wanted to buy more ZOGs, the price of a ZOG would be proportionate to your wealth and earnings.

RORY SUTHERLAND: So you could actually create, by model with the loyalty program, you could create a kind of egalitarian currency which allowed people freedom of choice without having the slight problem of money, which is that the rich people get everything and the poor people get nothing.

RORY SUTHERLAND: So there you go, that’s redistribution of wealth through a loyalty mechanic.

RORY SUTHERLAND: It’s my craziest idea, but it’s worth exploring.

CHARLIE HILLS: I think it’s wonderful and it’s what we set this PEG podcast up to do, which is kind of to inspire and form and come up with like really big ideas, as well as give everybody kind of top tips and insight into programmes.

CHARLIE HILLS: I love that you finished off on that, Rory.

CHARLIE HILLS: Honestly, that’s definitely the biggest, best and slightly craziest, amazing idea that we’ve had on Let’s Talk Loyalty.

CHARLIE HILLS: And we’ll be sending it in to the government to get them to get an opinion on it.

CHARLIE HILLS: It’s awesome.

CHARLIE HILLS: Thank you so much for your time today, both.

CHARLIE HILLS: It’s been absolutely brilliant.

CHARLIE HILLS: We’ll put links to everything in the show notes for everybody.

CHARLIE HILLS: And all that’s left for me to say is thank you very much and goodbye.

RORY SUTHERLAND: It’s always a pleasure.

RORY SUTHERLAND: See you soon too.

CHARLIE HILLS: Bye.

DAN BENNETT: Take care.

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