The psychology of what we buy – Part 2

In the previous posting we saw how advertisers began to sell meaning. In this post we examine how the selling of meaning and symbols was refined so that marketers could target different types of people. Again today this seems an obvious tactic but for a large part of the 20th century this was not the case. This sophistication was not as you would assume, dreamed up by a crack team of marketing ideas people in a mad men style office, but rather came about half by accident out of attempt, ironically, to combat consumerism itself.

HIPPIES ENGINEER MODERN MARKETING

Now we advance to the early 60’s having examined the inception of psychoanalytically-based advertising in the post-war years. The 60’s gave birth to a huge counter-culture which included a radical student left, one of the primary objections of which was the manipulation of the American people by the methods introduced by Bernays. The groups protested that by appealing to the unconscious desires of consumers firms were not only engaging in deceptive practices but were causing the American people to become docile, homogenized and unexpressive of their individuality. Their theory was that people had been conditioned unconsciously to desire mass produced products and thus the desires of their true selves were being ignored and eroded. The militant efforts of these groups were unsuccessful in changing society but from their failure would come a new method of subversion that would ultimately form the basis of the next orientation of the economy.

Having found direct action ineffective, many of these groups turned to the belief that it was possible to dismantle what they saw as consumerist systems of control by expressing their own inner selves in disregard for the desires thrust upon them by firms. This was the me generation: I am special, I am unique and my individualism cannot be expressed by owning the same type of “[insert generic mass produced good here]”. The problem with selling these groups meaning was that their values and thus desires were wholly different from the Americans of yesteryear. This ideal coincided with a snowballing set of beliefs and practices in psychiatry which advocated the realisation of the inner-self amongst individuals. This movement was incredibly widespread and by the 70’s over 65% of American consumers saw themselves as unique individuals.

NEW CONSUMERS

For the first time firms were now confronted with consumers who did not want to have a unanimous set of desires fulfilled by a homogenized range of products. To understand how these new consumers could be marketed to, firms turned to the leading research company SRI who conducted in-depth questionnaires with the goal of ascertaining the core value of the new consumer group. Their findings were the groundwork for many types of market segmentation used today. What they discovered was that within the new ubiquitous individualism of their respondents there were in fact patterns. These patterns were further collated until distinct types of consumers were created, based upon their values and beliefs. These types were so radically different because they segmented markets on a physiological and lifestyle-based criterion instead of the typical age, gender and social class segmentation. SRI found many groups completely transcended previous segmentation and could be found in any social class. This approach was slowly taken up worldwide; groups were discovered like experientialists whose goals were to enrich their inner-selves through experience.

ALL BUY MY SELF

The result of this was to provide a new model of consumer to be utilized by business. This model differed from both the rational economic man and Freud’s easily persuaded irrational beings. This new perspective allowed for the variability of individualism and would address the needs and desires of a multitude of types. Previously the problem in addressing these desires would have been that in production it was only profitable to mass produce. However new technologies in computing now meant that short runs of many varied products could be produced cheaply as was required to fulfill the needs of differentiated free individuals. This type of production began a second paradigm shift in the way that goods were sold to consumers. Goods were now sold to consumers as emblems of their own individuality based on the groups that SRI thought they belonged to.

However it is worth noting that these goods, although now tailored to the differentiated individual, were still selling symbols. But instead of firms mass producing goods and then symbolically linking those goods with the generic subconscious desires of the masses, they now acknowledging individuality. We see this type of marketing around us all the time. Have you ever heard “Those Starbucks guys are so pretentious, they think they’re so mature and stylish”, well with all the style and maturity they’ve purchased you would hope so. The person uttering this statement will then typically go to a less popular coffee chain and purchase a mug of steaming authenticity with a delicious blend of individualism. We can see in this example how a product so commonplace as coffee can be sold to two entirely different types of people by linking it with their perception of their inner-selves.

This process of selling us ourselves goes on in nearly all markets. Here is an exercise to demonstrate: go into your room, if you have your own room, or any place that you consider “your part” of where you live, typically where your clothes are. Now take an inventory of all your possessions but next to each write a statement of what your perception of that product’s personality would be if it were alive. For example my Macbook is clever, alternative and smug and has excellent personnel hygiene. When you add all these perceptions up you will find the sum of your buying has its own cogent personality and if you want to find where that personality came from you need only consult with your mirror. This is because as consumers we now buy to express our individuality.

CORPORATE FISHERMEN

In this set of articles we have chartered the progress of marketing in its utilization of psychology to sell meaning to consumers. We have seen how the waters of our subconscious were untapped as a selling tool, when firms appealed to the tiny man on the boat for rational decision making. We have seen those same waters tugged at by Edward Bernays as he took advertising to the moon by linking products with our submerged irrational desires. Today though it is acknowledged that to sell effectively a firm must not appeal to the sea but to individual fish within it.

Can you use bonuses in procurement to increase the use of e-Auctions?

e-Auctions are a great tool to save money quickly and efficiently if used correctly. However, there always seems to be a barrier to increasing their uptake with many procurement departments. Can bonuses linked to savings encourage their use?

Let’s start off with touching briefly on a more fundamental question, are bonuses for procurement staff the best way to motivate the team? Well, most procurement departments don’t have a Royal Wedding to boost morale and encourage drive, if that is what the wedding did for the UK (comments welcome!), so what else can achieve this?

From working at Rolls-Royce many moons ago, it was stated that a 1% saving in procurement gave a 10% increase in profits. From simple analysis you can see the power of procurement. If you make something for £10 and sell it for £11, you make a £1 profit. If you then make it for £9.9 and still sell for £11 then you make a £1.1 profit, a 10% increase for a 1% saving.

Obviously this is an over-simplification but the basic premise holds. In other words, the procurement people are in effect also sales people. During one project of ours looking at purchasing of yoghurt pots for a dairy, a £40,000 saving meant that they effectively needed to sell a million fewer yogurts to make the same return. In these difficult times when sales are tough, it is easy to see why procurement is so high on the agenda. So this brings us to the question, should procurement staff be more driven by bonuses like sales people?

The buyer’s role could be split into 4 areas: strategic, operational, customer-focused (internal) and supplier-focused. For the purposes of this article, we will consider just strategic and operational buyers. Strategic buyers would be those more focused in a central procurement team, for example, who are looking at aggregation of contracts, new product introduction and innovation in the supply chain. The operational role would be more focused on the day-to-day procurement from a preferred pool of suppliers. The strategic role may place more emphasis on savings, albeit sometimes difficult to measure, yet it is quite clear that both the strategic and operational roles would also need to be focused on many other factors. These other factors could include delivery, quality and lead-time, all of which can be measured and have been done so successfully by companies such as Rolls Royce as part of overall performance.

The question is do you always get what you measure? Bonuses attributed to all the aforementioned measures may lead the buyer to be too focused on these attributes and less focused on the relationships. However, you could say the same of the sales force. Salespeople have bonuses and the best sales people do not ignore relationships, as they understand that whilst relationships might have no immediate impact on bonuses, they will in the longer term.

For procurement staff on bonus systems, there will always be those who go for the quick hit and those who go for the more long term strategy. For sales people though, it is easier to give them clear bounds for a negotiation and maximum level of discounts. For a buyer this is much more difficult and if a buyer drives the savings to get a better bonus, they could create real harm for the company, which is why other factors need to be included to avoid this potential pitfall. There is the further difficulty that if you base the bonus on many factors you also need to measure these, which makes the task even more complex.

One example we came across a while ago of getting what you measure was one very large aerospace company that was measuring the number of e-auctions run per annum, rather than the quality or cumulative returns from the auctions. The result was that e-auctions were being run on toilet paper and lawn mowing services for head office just so the numbers could be maintained!

So, what is the alternative? My recent discussion with a procurement and operational director of a customer of ours drove me to think about this. At Market Dojo we make e-Auctions much more accessible to the procurement field. There are many challenges to their uptake but through our professional, easy to use software and approach we can mitigate many of these, although some always remain such as whether or not the suppliers will actively take part, for example. E-Auctions can yield large savings and so are very important as a negotiation tool. Yet how do we increase their uptake and are bonuses the key?

Many procurement managers feel that bonuses go against the profession, as generating savings are just one of many roles. Bonuses might be useful but only as a small factor. From a few discussions with people in the field, there is another solution. It actually seems that the best way to increase the use of auctions is by integrating the systems and processes together. By this we mean the kind of integration where it is easier to use the systems to obtain the results than not using them, so the lazy way of procurement is also the best way. Creating systems that people aren’t forced to use but that people want to use to make their life easier and to guide them through the best methodology is the key. See our article on gamification for more on this.

So we would say small bonuses are ok, linked to many other factors, but in the end make the easy way for procuring items also the best way and the savings will appear without the need to complicate matters with hard-to-measure bonus systems. In other words, integration of e-Auction software to the processes and ease of use will do more for their uptake than bonuses. Savings targets will still be essential though to measure success and offer a target to aim for. If you are going to include a bonus, do try to link them to the whole team’s performance which will encourage sharing and assistance amongst the organisation.

How else could you increase the use of e-Auctions?

The discussion above specifically focuses on increasing the use of e-Auctions via bonuses and savings targets but what are the other ways to motivate procurement professionals to carry out more e-Auctions?

Many people may ask, is this a good thing? At Market Dojo we would obviously say yes, but this isn’t from the desire to just sell more software (honestly!). Auctions are simply vehicles to get from ‘A’ to ‘B’ just like a car. When cars were invented, there was much opposition as they were seen as dangerous. This did not stop car becoming more popular, but the risks were mitigated but putting rules in place to ensure they were driven safely. Now we have many more vehicles on the roads, and yes, some are still driven badly (middle lane hogging!) but on the whole, the benefits have outweighed the disadvantages. We see a similar view point to auctions. Their use can be dramatically increased, with great benefits as long as rules and guides are in place and they are used appropriately.

In many cases the success of the auction, is not just down to the software but a combination of factors.

The comment in the previous discussion is still one of the most important – make the software easy, professional and part of the process and their uptake will increase. But how else can we make the process easier. To answer this we need to look at some of the steps in the process and the challenges they face.

Gathering data can be one of the most painful parts of starting this exercise. Unfortunately there is little we can do here but maybe it is something that your organisation can look at internally. Making the data accessible and in a common understandable format can really help with the analysis and preparation for an auction.

Picking the category and creating documentation such as RFQs are the next hurdles which can be overcome easily through guides and templates. E-Auctions on the whole can reduce a procurement cycle but the preparation time is generally longer as e-Auctions encourage and need tight specifications. There is no wriggle room during an auction. Offering guides and templates for picking the category and creating the documentation will make the process more accessible. At Market Dojo we are very familiar with all these issues and we have encapsulated all our knowledge on this in our guides which can be found on our website.

Our guides on finding suppliers can help with this part of the process but it is still hard leg-work and your organisation can help. Keeping databases up to date with approved suppliers will make this process much easier. Making an auction a success is heavily depends on the liquidity; you need to have capable participants willing to engage with you.

Finally support is the cornerstone to bring this all together. Easy to use software, with guides and templates can make e-Auctions more accessible but there is still the human factor. Good support from people who have done these activities before will be able to help in many ways. Obviously they can point them in the right direction, offer advice but most importantly they can act as a sounding board against fears such as those around participation. This support should also come from senior management giving their approval for the processes to help bring all the stakeholders on-board.

At Market Dojo we try to remove the barriers to entry to make e-Auctions accessible to every member of the purchasing community. We make the software easy to use, provide guides and templates and we also provide the support to help overcome your fears. Your organisations can also help with the data, the supplier pools and senior management approval. Together we can make this work and bring e-Auctions to bear as an accessible tool in the procurement professional’s toolkit.

Why do salespeople have bonuses?

The initial topic led to a random discussion in the local about why salespeople have large bonuses compared to other functions such as HR or IT? In the end, you could say why pay them bonuses just to do their job.

A salesperson might say it’s because they work longer hours and spend much of the time on the road doing unsociable hours. Or they might say that they are of crucial importance to an organisation, that without them the organisation collapses, although many roles in the organisation could say this. It might be that salespeople require a certain set of skills which can command the bonuses and they are not easily replaceable? These are all true to an extent but why would a fixed salary and a dedicated person not end up with the same results?

The reason is evidently more complex and employs a combination of factors.

Firstly we should examine the bonus, is it really a bonus? A bonus should be paid on top of your salary but what happens for salespeople, in many cases, is that some of the salary is given up and replaced by a bonus system. If they do not perform they get a salary which is less than someone of their skills and position would expect, almost a negative bonus. Only if they perform well do they get a salary which is augmented by an actual bonus. This is speaking from personal experience being involved with three different software companies all on wildly different bonus schemes yet the common factor was that the base salary was less than many of my successful peers in functionally different roles.

Secondly the bonus is meant to be a motivator to put the long hours in, especially when it is close to the end of a Quarter, financial targets need to be hit for the city and the companies financial standing upon which decisions may be made can be affected. This also brings in a level of pressure which other roles might not encounter.

Thirdly, in some ways, it is to protect the company itself, simple financial common sense. A salespersons job is directly linked to the money they bring in, more than any other role. A company might employ someone to bring in £300k to the business and in return for a £50k bonus. If they were on a fixed salary and did not hit the targets, paying them the £50k can be easily equated to the negative impact on the company’s financial position i.e. instead of £-300k, it is -£350k.

You could also say that the types of people sales positions attract are motivated by money. You could say that bonuses indicate to sales people that their job is never done, there is always the potential for more. There are possibly many other reasons for bonuses but the principal ones have been captured here.

Research has also shown however that money is a poor motivator. A raise in salary apparently only motivates people for a few weeks. It can create a bad culture, only working hard for the bonus and losing visibility on other factors. Bonuses can lead to jealousy and group bonuses can also lead to resentment if some people are not seen to be pulling their weight.

Also bonus systems are horrendously complicated to get right for all. Do you split the bonus by products, industries, applications or geography? You are almost certain of having a conflict between sales people at some point. And how do you include the crucial group element which is so important so the UK salesperson for instance passes on the lead to the salesperson in the US.

Applying bonuses to every position in the organisation will lead to a bad culture and does not look very sensible. It does seem that bonuses are more suited for salespeople than other functions but is there another way?

There are many different forms of motivation. We have seen in some companies giving time off as a reward can be a real motivator, a half hour at a time, and this has worked very well. Or you could look into training days, prizes, public recognition or maybe just a better office environment. Would this be enough for a salesperson? It certainly could be if the right person is found but how many of these exist? Maybe it is time for a change but we suspect the working formula for many organisations and people will be the same for many years to come, is that such a bad thing?

Market Dojo Interview with Buyers Meeting Point, November 2010

To get us started, give us a little background on Market Dojo and the team.

Two of the founding Directors, Alun Rafique and I, worked as cost reduction consultants for a nearly a decade combined. We helped companies like BP, Asda, Tarmac, Meggitt, Rolls-Royce and others to reduce cost and risk in their supply chains through strategic sourcing, tactical negotiations, supplier workshops and managed e-auctions.  During this time we noticed a gradual shift whereby companies wanted to carry out the activities in-house.  This gave us the seedling that became Market Dojo, the business-to-business e-auction software provider.

Our third Director, who used to work as an IT database specialist, but now currently designs complex data analysis software, has created solutions for companies like Tesco, Argos and Best Buy.  Therefore between us we feel we have all the necessary skills to create and manage an e-auction software company.  Our goal is to enable small and medium-sized businesses to run their own e-auctions successfully.

There are already so many players in the market – why enter the scene now?

We think that the timing is ideal.  We’ve noticed procurement organisations are facing new challenges as many of their clients who have enjoyed their services now wish to self-manage e-auctions to reduce costs.  Businesses have also learnt from the consultancies and there are an ever-increasing number of educational e-auction courses available.  Thus we have focused our company to supply the procurement professional with a commoditised solution.  We are not aware of any other e-auction providers that offer a product which is openly and reasonably priced (with no hidden prices or price escalations), yet easy to use and adopts professional processes to ensure success for third party use.  Furthermore the “cloud”, which is big news at the moment, allows us to provide the software-as-a-service solution to a very broad market with no set-up costs.

Our offering, which aims to provide businesses between $5m and $500m annual turnover with the tools required to run their own e-auctions, is very neatly spaced in its own market niche.  A number of our competitors would struggle to keep their skilled consultant workforce if they approached this market with our philosophy.  We believe this is exemplified by Ariba divesting their consultancy arm of the business to Accenture.  Both experienced professionals as well as complete novices are able to use our software.  We embed best practice into the software, which means our support costs will be greatly reduced.

One of the distinct things about Market Dojo is your credit based pricing system. Why did you choose to take this approach rather than just charging straight GBP for a license?

The credits model is to give us and our clients flexibility.  What we offer is a solution that caters for 90% of the e-auction market as standard, but with modular functionality to satisfy the remaining 10% of users, for example having bespoke categorised participant databases or using advanced reporting.  Our clients can expend credits to add such functionality to their account, if they so choose, and can make this choice once their experience and requirements develop, i.e. once they feel comfortable.

Credits also allow clients to consolidate their purchasing and invoicing transactions and allow them to continue to use their account uninterrupted. This works in the same way as something like ICIS LOR, the plastics and chemicals market price database.  Credits can be purchased in bulk by our clients to be used how they want, when they want.

For us the credit system is an advantage because the consolidated invoicing also aids our cash flow.  Furthermore the credits allow us to carry out some great marketing initiatives.  For example, exclusively for Buyers Meeting Point, sign up with Market Dojo before the end of 2010 and drop us a line quoting “Buyers Meeting Point” and we shall give you 25 free credits towards your first event, plus a further 25 credits in return for a case study.

One of the challenges of running a successful auction is being absolutely prepared. How you plan to be sure that users of the Market Dojo solution have positive results – not just because the software is useable but because they have the knowledge in house to follow a good process in advance?

We completely agree that the so called “plug and play” e-auctions can require just as much work as the consultancy-led managed auction process to be successful.  We have worked hard to inform our clients of the work and thorough process required, which is encapsulated in our free guides, yet by streamlining the process within the software we have managed to reduce the workload.

Whilst working as a consultant I recall assisting a client who wished to run their own e-auction.  After initially agreeing to proof-read their RFP, I ended up re-writing it for them, as well as adjusting the spend data and Lot structure.  However, despite our warnings, we just could not convince them to bolster the number of participants.  In the end they received a mere 3 qualification bids and during the e-auction itself just one further bid was placed.  It just demonstrated that the traditional “three bids and a buy” embedded itself in their process so firmly that even the e-auction became a part of it.  However, there is also an element that because the company sought to run an e-auction themselves via software from a consultancy, there was a blur in the roles and responsibilities, which ultimately caused it to fail.  At Market Dojo we counter this by clearly outlining the process in our guides and by taking on the clear role of a software provider.

Our past experience gave us a great learning platform to incorporate into Market Dojo. We have developed a number of features to make our clients, in their own capacity, run successful e-auctions. Firstly, we offer only self-managed e-auctions, therefore the clients know what to expect. To assist them we have created nearly 20 guides packed full of our consultancy knowledge and experience, which are free for all our users.  We have established our own community site, called Community Dojo, which encourages the free exchange of knowledge and learnings from running e-auctions and using Market Dojo. We have created professional, step-by-step software that has information help icons for every title, button and action that not just state information but provide advice and tips as well.  We also have professional support on stand-by in the form of e-mail, phone and Live Chat.  

All of these features combined mean that we have used our past learnings to fuel the future success of our clients.  Nevertheless, although we do focus on the software, we are a new company and we would be happy to go the extra mile in return for a testimonial or referral to make sure that our clients exceed their targets.