Rory Sutherland is a marketing executive who worked for 25+ years at Ogilvy, the giant ad agency. He also wrote a book on psychology and human behaviour that is on my shortlist. I found his ideas and insights interesting the first time around so I decided to review them again through his interviews on Farnam Street and Invest Like the Best. 

Absurd solutions.

Everyone is looking for the logical and rational solution. So look for the seemingly absurd and irrational ones. Culture limits your competitors from doing the latter in most cases. 

Companies trying to solve with absurd methods may be the ones with the greatest ROI. It might fail but isn’t the point of investing to achieve above-average returns? How can you expect to do that by looking at the average solutions (i.e. rational and logical). 

Consider game theory. If all your competitors do the rational thing, shouldn’t you do the irrational thing? 

A culture that appears irrational because of the number of optically weird solutions they implement may have created a virtuous cycle. Such a culture will bring more people who will have the emotional freedom to do test out more irrational solutions. Not all will work but the ones that work will have above-average results. Business is non-linear so the pay-offs will warrant the cost. Consider how Constellation and Topicus are conglomerates yet they don’t centralize. They go the opposite way and break up business units and keep them small.

Weakness into Advantage

Hertz had this slogan: “When you’re only No. 2, you try harder.” What other companies use their comparatively weaker positions to their advantage? 

Environmentalists Should Like Marketing

Intangible value is the most environmentally friendly form of value creation. If I can be made to feel my bag is invaluable. I may never get another bag. 

Self-Deception

Robert Trivers’s idea of self-deception for self-deception as being an evolutionary advantageous thing people learned to do. 

“...we deceive ourselves the better to deceive others, because the best way to bullshit is to start by believing your own bullshit."

Low Cost + Effort = High Value

Consider how the cumbersome process of getting furniture at Ikea is by design. People equate the long process of walking through showrooms, having to write down what they want, finding them in a large warehouse, pushing boxes to the checkout, bringing it home to assemble all as “fun”.

It’s a suboptimal process for cheap furniture that costs us exponentially more in time. But we don’t think of it like that. We end up valuing the full experience and the furniture more despite its lower price tag. 

Same for people who pay money to pick cheap strawberries. Berries that would’ve ended up in the local supermarket. 

I’ve been ruminating on an idea of making a clothing business where one has to apply to purchase. A business with the tagline: Consume Life, Not Things. Questions like how little they spent on Amazon the past year. Would such an irrational process make the shirt have a higher value? 

The desire to put in work to feel like something is worth doing might also explain why there isn’t a single cosmetic product that would solve everything. People might deny it but I think the act of spending a long time applying various cosmetics leads to an effect of self-value. Remember the L’Oreal slogan: ‘because you’re worth it’. 

Vacation is Capitalism

When I met a British couple in Vietnam, they were shocked at my three-week vacation policy. They asked how it was expected for people to actually travel anywhere. I said it was better than the Americans who had no national minimum for vacation. From what I gather, the British have five weeks and the Christmas holidays are an additional period of vacation, per this couple. 

People equate vacation time with being lazy and a “socialist-European” view. But there is enough evidence to show one works harder after a period of resting. Anyone whose competed in sports should know this. Strength athletes take long breaks in between sets. Same for sprinters. That should be the same for mental work too. 

Vacation is also where people spend all their money and consume. People buy cars because they can use them on weekends. That’s why they buy vacation homes, holiday gear, etc. 

"I mean, Henry Ford created the two day weekend so that people would buy cars. It's slightly apocryphal, that story, by the way. But I mean, it was Henry Ford rather than legislation that that seemed to have created the two day weekend in the US, partly because of his surmise that if that became a norm, then it was worth the American worker owning a car. If you only had one day off every week, not so much."

North Americans have two-day weekends so companies can make more money. I bet remote working will lead to higher consumption as well. 

Brands to Blame

You go with a big brand because you trust they will deliver on the promise. If they fail to, then you can blame the brand. That’s what the premium price tag was for. 

If a firm uses the Big 4 accounting firm and there is a fuck up, the blame is on Deloitte or EY. If they use a small accounting firm, who could do just a stellar job or better, but they fuck up, then people will blame you for picking a small accounting firm. They will say “what did you expect? 

When the benefit of the decision is “the job gets done” while the cost can be “it doesn’t work” then people will choose the big brands. After writing about Power Corp in the premium newsletter, I thought about life insurance from a startup context. 

I don’t care how cumbersome or inefficient the current life insurance industry is. I will work with a company that has proven its ability to deliver on its promise. That means the company needs to have lasted longer than the lives of its customers. Most startups don’t meet that hurdle. Simply because of time. Time is the great equalizer. No amount of innovation and funding can get past that fact. 

Brands are important when all we are trying to do is avoid the worst-case scenario. When I buy a TV I just need it to do what every other TV does. I won’t risk it not working one day to save $100 buying a brand I’ve never heard about. 

Bias towards Engineering

Most people consider marketing solutions (i.e. psychology and human behaviour) cheating whereas engineering solutions are legitimate. Look at the big consulting firm’s obsession with data and analytics as an indicator of people’s desire for something to blame. 

When a formulaic solution leads to a disaster, it’s easy to blame the formula. When the solution came from subjective creativity, the person will get blamed. 

People believe a heavier wine bottle or statement of its expensive price makes wine taste better. Most don’t have any objective idea of whether a wine is good or not. Same for a restaurant. The restaurant could be three Michelin stars in food but a poor ambiance will kill it. Environment comes first in restaurants and that’s the same for wine in its container or brand. 

Business isn’t a Science

Whereas physics has one right answer, business can have multiple right answers. It’s possible for two investors who have invested in the same stock and for one to have considered a mistake while it was a success to the other. Let’s say the stock goes up 15% annually for 5 years. If my goal was 20% per annum, I’ve failed and my opportunity cost of not investing in another company also exists. But an investor who wanted to beat the index which did 7% annually for the same time period succeeded. There are many answers because success is subjective. 

In trying to make economics a science (it isn’t), the solutions have also failed to consider the complex non-linearity of the world. People do things for many reasons. Economists and academic psychologists might think it’s only one reason with one true “rationality”. 

“...the problem with economics is not only that it's wrong, it's that it's incredibly creatively limiting because it tends to posit a very one dimensional view of human motivation.”

This bias becomes prominent because of our desire for artificial certainty. People hate change and uncertainty. So we will seek out formulas that can explain things. We are creature of post-rationalization. 

“...there's a huge tendency for people to crave artificial certainty. And a lot of the reasons for that are entirely defensive, that within an institutional framework, the urge not to break ranks and not be considered possibly wrong, you know, it's much easier to get fired for being illogical than it is for being unimaginative.”

Therein lies the vicious cycle to the death of creativity in companies. The pursuit for creative solutions runs antagonistic to the desire to fit in and avoid blame. 

Long Game = High Upfront Cost

High upfront costs are signals for the business or person’s willingness to play the repeated-long game. Buying expensive equipment for your factory or an engagement ring could be such signs. 

A person who gets a graduate degree shows their commitment by paying for more school with money and time. Their competence is secondary to the signal they’ve displayed. 

People who do the hard work ahead of time showcase a signal. Seeking out an apprenticeship for no pay is another costly signal of your desire to be in it for the long haul. The same can be said for someone whose been doing all the work they would be doing in a career before even getting paid for it (i.e. writing a book or investment reports before having either as a paying career yet). 

For people and businesses playing the long game, their reputation matters. That’s also why trust in the brand exists. If Mercedes wants to stay in business, they have to maintain a standard to keep their reputation in the market.