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Daniel Kahneman won the Nobel Prize in Economics (with Vernon L Smith) for his work on ‘Psychology of Judgement and Decision Making’ in 2002. His seminal article authored in collaboration with Amos Twersky, kickstarted the behavioural economics movement and his best-seller Thinking Fast and Slow has spun off many interesting books on the subject. He says that consumer behaviour does not directly depend on either monetary value (of the product) or the value (that individuals ascribe) of time. It works on a relative scale of perception. For instance if you were about to buy a saree worth Rs 2,000 and were told that the same was available for Rs 1,500 at another store, you may switch your allegiance for Rs 500. But if it were a television set worth Rs 50,000 that was going for Rs 49,500 at another outlet, you may behave differently. Think about it. The amount is the same, time taken to walk to the next store is the same and yet you stay put. Behavioural economists have identified many such effects and markers that folks in marketing and advertising are beginning to use to explain consumer behaviour. Let us apply some of these to the major events in 2016.
The year began with debate about the future of BARC, the television audience measurement system jointly promoted by the Indian Broadcasters Association and Indian Society of Advertisers and Advertising Agencies Association of India. There was always uncertainty about the future of the older TAM and then BARC went ahead and acquired many of its valuable assets. In a fell swoop, BARC became the single most important currency in the system. As behavioural economics tells us, there is an ‘anchoring effect’ that can make one choice look better. The absence of TAM made BARC that had already been the target of many critics, the subject of more criticism. Fortunately the angry voices are becoming muted as BARC itself is actively improving its reporting systems.
The Jio launch is another big changemaker. The Reliance Group has offered the Internet free to all Jio subscribers until March 2017. India has around 250 mobile internet users while over 600 million people possess a mobile (the number of mobile connections could be as high as 1.2 billion, but many have double/sim phones). Even those with a mobile internet connection use it sparingly (you can see people hunting for free Wi-Fi wherever they go). Jio is set to change all that with the free offer. Now behavioural economists have studied the magical effect of FREE. Consumers were asked to choose between two chocolate brands: one, a popular brand that cost one cent vs another perceived to be of better quality, for 5 cents. A large number of respondents picked the five cent option. But when the offer was changed to ‘free vs four cents’, nearly everyone chose the free option. To understand the Jio effect we must understand what people are using the ‘free’ mobile internet for. I suppose the first flush will see movie downloads (and other forms of entertainment). But as the habit grows, we will see a dramatic change in the way we consume entertainment, education and more. No wonder all major entertainment channels are jumping on to the OTT (Over the Top) bandwagon. And content is being created for consumption on smart phones. I remember when television advertising started in India, we who had been used to cinema advertising had to readjust our ‘size’ perceptions from 20 feet by 10 feet (200 square feet) to 24 inches. Now the screen size has shrunk by another factor of 5.
Finally as we near the end of the year demonetization is upon us. While there is a lot of debate on the short-term, medium-term and long-term effect of demonetisation and The Economist (3 December 2016) has gone out on a limb calling it ‘Modi’s bungle’, I believe this is the biggest behaviour change moment for India.
There are two change effects that are in play here. Loss aversion / status quo bias says that we tend to value what we have in hand more than what we may get in the future. So people, even middle-class citizens, are suffering from Loss aversion bias when they deposit their money in the bank. Another is the Inaction inertia effect. This says that if we missed out on an offer and if that offer resurfaces again, we will completely ignore it. It is here that Modi’s move may help the country. Millions of small businessmen have thrived on cash sales, not that they did not know of credit cards or payment wallets. They chose to ignore it due to Inaction inertia. This move has made them re-evaluate the need for a different payment system. (Even my sister who has a dermatological practice in Chennai is now considering getting a credit card swipe machine, overcoming her Inaction inertia). This is a big change that economists have held back comments on and perhaps next year they will compensate for the scorn they heaped on the government and call the entire exercise ‘Modi’s magic’. The digital transformation that demonetisation brings about should be a cause for celebration, same time next year, if not much earlier. Wishing all a wonderful cash-free 2017!
The author is founder, Brand-Building.com and author of “Nawabs Nudes Noodles – India through 50 years of advertising”. This is the fifth of a series of articles on media, brands, advertising and marketing that looks back on 2016 to look forward to 2017
