Articles

Force of Habit

by Neale Martin published October 13, 2008 in BrandWeek BrandWeek

These days, it's become common for people to change vocations several times in the course of a career. In the case of author Neale Martin, that makes for an especially interesting resume. Prior to earning his doctorate in marketing, Martin worked as a hospital counselor in Texas, specializing in drug and alcohol dependency. What, you might ask, could that have to do with selling things? Quite a bit, actually. According to Martin's years of research in cognitive psychology, habit—among the human mind's most indomitable forces—can be so intractable that the majority of what people do each day, including shopping, follows established subconscious patterns so utterly ingrained as to be nearly impervious. For the makers and marketers of brands, that is a mixed blessing indeed. If your brand is already woven into the fabric of mass-market habits (Coke, Microsoft, et al.), Martin argues you can essentially rely on a nation of automatons to keep buying your products. But if your brand happens to fall into the category of "other"—and most do—well, you can just guess. Martin explores this dynamic in his recent book, Habit, which is excerpted here. But Martin's is not a treatise of defeat. There are ways for marketers to interrupt the brain's default settings and inject new brands into the habitual consciousness stream. How? In part, by getting your customers not to think about you.

While driving to a meeting on the outskirts of Atlanta on a beautiful spring afternoon, I had the disconcerting experience of being unable to recall the last 10 miles of highway. Apparently, I had successfully navigated a 4,000-pound car at speeds in excess of 70 mph, responding to hundreds of cars around me, without any conscious control of my actions for at least 10 minutes. This experience, familiar to most of us, illustrates the power and scope of the unconscious mind.

I was particularly aware of this phenomenon on a bright April day because I was on my way to a meeting with a client to discuss the pervasive role of habits in influencing customer behavior. This common example of driving on autopilot makes it easier to understand that we do the same thing in almost every phase of our waking life.

When we think of what it means to be human, we typically think of the attributes of our conscious mind—our ability to remember facts and faces, to solve complex problems, to create art and science. Indeed, our memories of the events of our lives create the sense of our personal identity. Yet for all the conscious mind's remarkable abilities, neurobiologists and cognitive psychologists contend that the unconscious mind controls as much as 95% of human behavior. The conscious mind decides to go to a meeting; the unconscious mind drives the car.

It seems counterintuitive that the massive amount of conscious processing power sitting atop our bodies should just be along for the ride. However, from an evolutionary perspective, significant benefits exist from just such an arrangement. This twin mechanism enabled our Serengeti ancestors to hunt for food without becoming food. Today these dual processors make it possible to talk on a cell phone while we drive.

Although multiple names have been given to the two distinct types of mental processing, in this book, we refer to the part of the brain where conscious cognitive processing occurs as the executive mind. We call the region of the brain responsible for unconscious processing the habitual mind. The executive mind is where we consciously store and retrieve memories, create intentional thought and logically solve problems. The executive mind can think about both the past and the future.

The habitual mind handles a vast array of functions, from regulating your heartbeat and body temperature, to storing thousands of responses to previously learned behaviors. The habitual mind is guided by the past but lives in the present.

Our understanding of the brain has been revolutionized in the past two decades. Through both clever laboratory experiments with animals and new technologies that enable us to look inside a working human brain, what we have learned during the last 20 years challenge much of what we thought we knew. Although these insights contradict basic assumptions in disciplines as divergent as psychiatry and economics, nowhere are the implications more profound than in marketing. A quick review illustrates the point.

New Product Failure Roughly 80% of all new products fail or dramatically underperform expectations. Although this metric varies between industries and services, the cumulative performance across all products and services represents a staggering indictment of marketing.

The plight of the Contour provides a good example of new product failure. In an effort to create a "world car," Ford Motor Co. spent $6 billion to create a line that featured a compact model called the Contour, which debuted in 1995. The automotive press immediately validated the vehicle. Car and Driver put the Contour on its Top 10 list from 1995 to 1997. Edmunds named the Contour's SVT sporty edition its most-wanted sedan under $25,000 in 1999. Yet a scant five years after introduction, Ford killed the Contour due to a plunge in what had already been lackluster sales.

In another questionable move, Ford introduced two cars to take the place of the highly successful Taurus, which annually vied with the Honda Accord and Toyota Camry for the No. 1 position in U.S. sales. The company replaced its perennial best-selling car with the Fusion, which is slightly smaller than the Taurus, and the 500, which is slightly larger. Combined sales for the two vehicles were a fraction of those for the Taurus at the height of its market domination. But rest assured that Ford went to exhaustive lengths in marketing research, focus group testing and development of a multimillion-dollar ad campaign before it decided to replace its top-selling car. (By the end of 2007, the Ford 500 was transformed back into the Ford Taurus—only the nameplate was changed.)

One of the easiest jobs in the world is to criticize decisions that have yielded bad outcomes, and Ford certainly received its share of critical press. But the Detroit automaker is hardly unique. Thousands of new products and services are launched each year, yet only a handful will have any meaningful impact on a company's long-term profitability and survival. A prevailing attitude considers it impossible to predict with any accuracy which products will catch on with customers and which will be greeted with a shrug of indifference. Whenever people say "Let's throw a bunch of stuff on the wall and see what sticks," they are getting ready to waste a lot of money. It's hard to imagine any other area of business that would tolerate such dismal results.

For a product to succeed, it must first make a connection with existing concepts stored in the unconscious. The habitual minds of customers and potential customers must go through a physiological change to accommodate a new concept and a new brand. This is a process, not an event, and it cannot be successfully circumvented simply by spending money on advertising or getting good placements in stores.

Loss of Customers Similar to the high cost of new product failure, losing existing customers is a chronic problem for most companies. Retention is critical for corporate profitability, but many companies routinely lose 20% of their customers a year, and better-performing organizations report losing 50% every five years. The cost of defections is harmful to both a company's top and bottom lines. The wireless industry provides an excellent example.

The cost of acquiring a wireless user in the United States averages between $300 and $450. That cost includes subsidizing handsets, paying distribution channel partners, running company-owned retail stores and marketing. In the United States, the three leading wireless service providers have more than 175 million customers combined. Churn (industry-speak for the pace of customer defection) typically runs from 1% to 2% a month. If we take a middle figure of 1.5%, that represents a loss of more than 2.6 million customers a month, at a minimum replacement cost of $787 million monthly, or more than $9 billion annually.

The wireless industry also provides an excellent example of the profitability of keeping customers as long as possible. When those acquisition costs have been offset, wireless customers represent substantial margins because the incremental costs of voice and data services are very low.

But the wireless industry, similar to many others, has a long track record of treating noncustomers better than existing customers. In an effort to woo new customers, wireless providers traditionally give far better deals on phones and contracts to noncustomers than to those who have been with the company the longest. Only after an established customer defects do providers launch a "win back" campaign, in which they spend far more than what it would have cost them to keep the customer in the first place.

To hold on to customers, many companies have instituted expensive customer satisfaction and loyalty programs. Although these programs originally created a strategic advantage for pioneers—notably American Airlines and Marriott hotels—their very success has forced competitors to copy them. Now every major airline and most hotel chains offer significant rewards for frequent use. The same is true for grocery and other retail stores. What was once a major differentiator is now a costly requirement for doing business. These programs create spurious loyalty, at best.

Dissatisfaction with Customer Satisfaction Billions of dollars are spent every year measuring and managing customer satisfaction. What could be more obvious than the need to create products and services that satisfy our customers? Many companies have customer satisfaction as a goal in their mission statements, and icon Philip Kotler puts the concept in his definition of marketing. The only problem is that customer satisfaction tells us almost nothing about what our customers will do in the future . . . 85% of customers who defect report being satisfied or highly satisfied with the company they are leaving. In large-scale meta-analyses, satisfaction explains only 8% of repurchase. Having written my doctoral dissertation on the subject, this information was as dismaying to me as any marketing manager trying to figure out why satisfying customers isn't enough to keep them.

To illustrate this point, let's look at a company that is routinely criticized for making defective and frustrating products but that nonetheless dominates the world.

Why We're Addicted to Bill Gates Each day, nearly 1 billion computers boot up with the familiar Windows or Vista icon. Even if we don't have the Microsoft operating system, most of us write with Microsoft Word, do math with Microsoft Excel and could not imagine presenting without Microsoft PowerPoint. No matter how much it might dismay us, we are all addicted to the software that Bill Gates foisted on the world 25 years ago.

Similar to most addicts, we no longer get a high from our addiction. But we can't seem to break the Microsoft habit. How did Gates get such a stranglehold on our lives?

He did not invent the original operating system for the PC or any of the productivity applications that made the desktop machine a staple for businesses around the world. And many of his customers complain openly and loudly about his products. The thousands of options that come bundled on every Microsoft application spawned the term feature bloat. And system administrators have their hands full trying to plug the seemingly endless flow of new security holes in Microsoft products. So why is Bill Gates the richest man in the world?

The answer to this question is the reason for this book. Success does not come from getting to the marketplace first or from creating the best or cheapest product. Success comes from becoming the unconscious, habitual choice of your customers. Bill Gates is the richest man in the world because learning to use his company's software habitually became necessary to participate in the modern world.

Jonathan Lazarus, vice president of strategic relations for Microsoft during the mid-1990s, sees the habit formation of early consumers being largely responsible for initial penetration of PCs into business markets. "IT managers couldn't keep PCs out," Lazarus says. "The corporate knee-jerk reaction was to reject the idea of allowing PCs in, but people had PCs at home that outperformed what they used at work." These early adopters bypassed IT by buying personal computers for their departments. "People built up habits at home," Lazarus points out, "and then asked, ‘Why should my work life be any different?'"

In the early days of the PC revolution, most application developers were one-trick ponies, focusing their efforts on a specific product. VisiCalc and WordStar were pioneering products, but the companies developing them were narrowly focused. Gates understood the need to establish standard applications that end users would eventually use as habitually as they did a typewriter or calculator. His relentless quest to make sure that Microsoft was the standard resulted in a generation that thought Word, Excel, PowerPoint and Outlook came with every PC.

Lazarus sees Microsoft's entry into applications as key to the success of Windows. "There's no question whatsoever that having Windows applications was critical to our success," he says. "The user revolution becomes critical, and Microsoft changed the user expectation. By Windows 95, we totally captured users' habits, and by Windows 98, there was an absolute expectation of information at your fingertips." . . . The reality is that Bill Gates crafted his company's success by capturing the most important piece of real estate in the world: the part of our brain that controls our habits. And by doing so, he rapidly accelerated the information revolution.

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The Executive and Habitual Minds in Action For all its remarkable abilities, the executive mind has the limitation of being able to consciously focus on only one thing at a time. The executive mind jealously guards this limited resource by turning over routine matters to the habitual mind, as with an executive handing off assignments to her assistant. If the mind has encountered and satisfactorily handled a situation before, it can write a script to automate the behavioral response in the future. If the mind perceives a situation as novel, the executive mind focuses on the problem.

Using the driving example from before, imagine that you are driving across town to a meeting. You are very familiar with all but the last couple miles of the journey, so you can multitask on the way there. You can talk on the phone, argue with talk radio and even eat a quick lunch while driving in traffic. But the moment you get into unfamiliar territory, you stop all the other activities and focus your executive mind on getting you to the address. Novel situations activate and focus the executive mind.

This evolutionary adaptation works the same in the grocery store as it did in the jungle. Most shoppers follow the same route through the store, as if guided by an invisible track running underneath the floor. This frees the mind to focus on shopping, decide what's for supper or ponder the mysteries of the universe. This strategy of efficiency carries over to shopping in most product categories where brands serve as cues to automate a purchase decision. The executive mind is constantly handing off decisions to the habitual mind in just this way.

Don't kid yourself: This behavior is not unique in the grocery store. This same dynamic occurs across sectors from airline travel to financial services. The executive and habitual minds are constantly interpreting and reacting to the environment in a complex and long-practiced dance. Marketing's greatest successes can be directly linked to aligning products and services with the habitual mind, whether on purpose or not. Coca-Cola's logo is so familiar that a customer can recognize it if only 5% of it is visible. The logo has not changed since Frank Robinson, Coke's first bookkeeper, christened the drink and also wrote the name in that distinctive script in 1885. The power of that cue has made Coke the most recognizable and valuable brand in the world.

Thinking of the executive brain as superior to the habitual brain is a mistake, just as it's a mistake to think of an executive as superior to a front-line employee. It's a matter of specialization and training. You might have to sell the executive mind, but you must win the habitual mind to keep a customer.

The power of the habitual mind has four significant implications:

1. Companies must focus on customer behavior, not attitudes or beliefs. Habits occur through the repetition of behavior and remain stable over time. Attitudes and beliefs are transitory and difficult to translate into predictable action. 2. Training the habitual mind is different than training the executive mind. Whereas the executive mind can learn through reason and intention, the habitual mind learns through cause and effect, reward and repetition. 3. To hold on to customers, you should keep them from consciously thinking about you. Though counterintuitive, automatic repurchase means the customer's habitual mind is in control. If the customer's executive mind is thinking about you, it could be thinking about your competitors as well. 4. To take a customer away from a competitor, you must break the customer's existing habits by first getting him to consciously think about the product. The stronger the existing habit, the more effort is necessary to dislodge it from an unconscious to a conscious process.

With these key concepts and their implications in mind, you are ready to explore in greater detail the role of specific brain functions and their corresponding impact on marketing.

Excerpted from Habit: The 95% of Behavior Marketers Ignore, (FT Press), by Neale Martin, copyright 2008, reprinted with permission of Pearson. Available at major booksellers or by visiting www.amazon.com or www.nealemartin.com