It’s only been a couple of weeks since his passing, but already it’s difficult to move around online without seeing the influence of Daniel Kahneman.
I mean, it might be if you aren’t particularly interested in marketing and behavioural psychology, but then why would you be reading this?
For the uninitiated, Kahneman is one of the pioneers of popularising behavioural psychology in the business space, and arguably no business function has hoovered up his work and its recommendations more eagerly than marketing.
While many will be aware of his seminal work ‘Thinking Fast and Slow’, there’s plenty of other key Kahneman concepts worth exploring and utilising. In fact, Kahneman won his Nobel Prize for Economic Sciences in 2002, almost a decade before ‘…Fast and Slow’ was published.
Imagine that, your master work isn’t the one you win the Nobel for. Mind blowing…
Here are some of the key concepts with which Kahneman is best remembered, all of which should be understood by marketers and may come in handy for that next strategy/brief/pricing model you’re working on:
System 1 and System 2 Thinking
Arguably Kahneman’s best known model, and one that still has the ability to kick up a stink in the comments on LinkedIn. Essentially, Kahneman, and many other evolutionary psychologists, proffer the idea that our brains work in two different ways, which describes as System 1 and System 2.
System 1 thinking operates at an innate, emotional, instinctual level. This is ‘fast’ thinking, the kind of things we feel without realising that a thought has been processed, in many cases. Arguably, it could be the reason we prefer a particular brand, despite never having never consciously considered any preference in that category.
As you might expect, System 2 thinking is the opposite – the conscious mind being slower, more deliberate, and more logical.
We may all believe that we’re creatures of logic, but there are decisions we make all the time at an instinctual level. This shouldn’t be ignored. As marketers, it’s our job to understand those feelings for our category and create ways for our brand to be recalled at moments where these feelings are likely to be triggered (Category Entry Points).
Some of Kahneman’s other work will reference some of these, but for a deeper understanding on Category Entry Points and brand signifiers I’d highly recommend the work of Jenni Romaniuk from the Ehrenberg-Bass Institute (University of South Australia).
Loss Aversion
For this one we time travel all the way back to 1979, for Kahneman’s work with Amos Tversky on ‘Loss Aversion.’
One of the crucial frameworks in behavioural psychology, Kahneman and Tversky’s work on prospect theory (loss aversion) has been described by Columbia University as having ‘been called the most influential theoretical framework in all the social sciences. In fact, in a recent piece of research to test the theory, with a positive outcome, the University notes that ‘the 1979 paper that launched the theory is today the most cited paper in economics and is among the most cited in psychological science.’
Full study here for anyone interested: https://www.publichealth.columbia.edu/news/global-study-confirms-influential-theory-behind-loss-aversion#:~:text=Developed%20by%20Nobel%20Prize%20winner,outcomes%20over%20larger%20risky%20outcomes.
For all that fanfare, Loss Aversion theory is incredibly straightforward, as its name might suggest. In essence, the theory states that humans feel the loss of something much more greatly than the equivalent gain. The cited example is that the fear of losing $100 is far greater than the joy of gaining $100.
It’s the reason so many game shows have a ‘will they/won’t they’ gamble element, or increasingly allow contestants to exit the game at points with the sums that they’ve accrued – their risk aversion kicks in once it feels like ‘their’ money that they earned.
For B2B marketers a key lesson would be to understand the drivers of your audience and how your product or service meets them, and then frame this around the theoretical question of what would happen if you didn’t do/use/buy this? Might the competition have an edge? Might they lose out on leads? Might they not be compliant with regulation? Etc.
Kahneman’s work on framing in ‘Thinking Fast and Slow’ is also worth understanding here. Figure this out, subtly weave it in, and you should be on to a winner.
Cognitive Load and Attention Theory
Another leap back in time to 1973, this time to revisit Kahneman’s book ‘Attention and Effort’, albeit it’s a topic that is revisited in ‘Thinking Fast and Slow’.
We humans are simple creatures, and don’t enjoy expending more effort than we need to. This is true with our thinking, argues Kahneman, hence our System 1 thinking taking over decision making on many instinctual issues. In fact, having to think about things, particularly overthinking them, can be an issue for humans, with the cognitive load swamping our logical System 2 thinking and pushing us into an emotional, reactionary System 1 space.
This is bad news for brands. If your brand is too difficult to recall it can cause all kinds of difficulty for you, including frustrating your audience to the point of not engaging with you. In fact, several studies have been done that indicate that the brand that is the lowest-effort for audiences to recall is the one that wins, with the brain activity of subjects being reviewed when recalling brands.
I’ve written before about making your brand a ‘no-brainer’, it’s a fascinating subject that make the case for building recognising, memorable brands in a compelling, logical way. Just the way us humans like it.
Want more on Kahneman’s work on cognitive load? This study published in the National Library of Medicine is fascinating:
The Peak-End Rule
Think the end is nigh? Then make the most of the moment, because it’s likely one that your audience will remember.
Kahneman first shared the Peak-End Rule with the world in 1993, and since then several studies have explored the rule. Essentially, while the above on Cognitive Load is true, some memories are more impactful and important than others.
In his work, and in subsequent tests since, Kahneman found that participants recalled the ‘emotional peak’ and the final part of their experience – thus the phase ‘Peak-End’ was born. While Kahneman’s experiments focussed initially on physical sensations, focus has since shifted to mental load and emotional response.
What the rule demonstrates, and what we as marketers must learn, is that our audiences aren’t always rational, and that we can win by creating emotional peaks in our work as this is what will be recalled. It’s also where the greatest brand advantages can be gained.
The B2B Institute, whose work I’d highly recommend, has a great primer on the ‘Peak-End’ rule. Their write up includes a summary of a study by Affectivia and Unruly, which demonstrated brands that created at least one emotional peak in their advertising enjoyed far higher levels of brand and creative recall than those that focused on features and benefits (link here: https://business.linkedin.com/marketing-solutions/b2b-institute/b2b-research/trends/peak-end-rule).
Its common sense, but we can be so focussed on ourselves and features/benefits that we want to communicate that we neglect how we want our audience to feel which, in turn, neglects what they’re likely to recall. The lesson here is to shoot for ‘System 1’ to aid recall by ’System 2’.
Anchoring
One of Kahneman’s key ideas is that of Anchoring, the practice of using one piece of information to inform future decision making on a given topic. As per the ‘Cognitive Load’ section above, humans have a tendency for lazy thinking and, as such, can over-rely on the first piece of information given. Thus, this information becomes an ‘anchor’ to related thinking.
Imagine you’re asked to procure something that you typically wouldn’t in a category that you’re unfamiliar with. You may have some cues from potential suppliers as to whether they may be premium or discount, but once you get a first cost, you’re likely to then use that cost to weigh up the merits of every subsequent offer – regardless of whether this first cost is typical, or good value etc.
One way for marketers to utilise this is by setting the price and market value for their brands products and then demonstrating value beyond this point (don’t forget that price is one of the four P’s and, thus, should sit in marketing). When done properly and priced accurately you can even create an elevated market position for you and the entire category.
While there is undoubtedly controversy about diamond mining, and rightly so, it’s impossible to overstate the genius of N.W. Ayer’s campaign for the brand in the 1930’s, which needs far more than a couple of paragraphs to do it justice and place the work in proper context, but it’s the one that birthed the immortal line ‘A Diamond is Forever’. A true piece of genius that I’ll write about in more depth at some point, I’m sure.
Another stroke of genius was the brand’s ability to use anchoring to charge a premium for what was, at one point, a low-value stone that wasn’t particularly prized. Having created the idea of giving a diamond ring as an engagement symbol for the masses, Ayer’s had a second problem to solve – pricing.
Research found that those buying the ring, typically mean (this was the 1930s) had no idea what price was reasonable to show one’s everlasting love. Ayer and de Beers helped them first by offering a handy guide to pricing on their ads with a quick image and price reference. They then took this a step further, creating a full campaign with the line ‘How can you make two months’ salary last forever?’. The answer, of course, is to take that sum and purchase an engagement ring.
In one line Ayer and de Beers were able to set an anchor for their target audience without needing to mention a specific amount. The anchor lived in the mind of audience and utilised several other clever mental models including social proof and cognitive load, to make the decision-making process easier. A perfect blend of System 1 and System 2 that’s hard to beat as an example of effective advertising.
Kahneman’s Legacy
It’s difficult overstate the impact of Daniel Kahneman on behavioural science, particularly on behavioural economics. Suffice to say, despite having written almost 2,000 words here, the above is just the tip of the iceberg, there’s so much more to explore for marketers interested in how to use science to their advantage.
As well as Kahneman’s work I’d also highly recommend ‘Decoded’ by Phil Barden, the ‘Nudge Podcast’ by Phill Agnew, and ‘The Choice Factory’ and ‘The Illusion of Choice’, both by Richard Shotton. If you’ve read this far in, I think you’ll really enjoy them.
Back to Kahneman, while this piece has been something of a love-in and its likely obvious that I’m a fan, it’s worth being clear that his work isn’t without controversy.
A quick search will find several articles highlighting issues with the research and examples used in his work, particularly those in ‘Thinking Fast and Slow’ – largely owing to small sample sizes, so it’s worth investigating further and seeking other examples. In Kahneman’s defence, he has been publicly vocal on the limits of his sample sizes and has noted that more work is required to evidence his work on areas like ‘Framing’, which is why I’ve not included it here.
One thing that is clear, there’s plenty of merit to his work, and lots of lessons that marketers can and should be utilising in their own work. ‘Thinking Fast and Slow’ can be heavy going, but I promise it’s worth it – it’s also a fitting legacy for a man that dedicated decades to better understanding how we and our audiences really make decisions.
