Kickoff Sessions
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Kickoff Sessions
#292 Rory Sutherland - Master Sales & Marketing in 72 Mins
Watch This NEXT: https://www.youtube.com/watch?v=HlK2P76_ZZs
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Asking Rory Sutherland what actually grows a business…
Most founders get this completely backwards.
They obsess over sales tactics…
And completely neglect marketing.
But the truth is:
Sales and marketing aren’t separate.
They’re one system that feeds your entire business.
- Marketing pulls attention.
- Sales converts it.
- Customer experience keeps them.
We break down how overdelivering in your marketing eliminates most sales objections before they even show up.
Because the reality is:
- The best marketing manufactures perceived value BEFORE the sale.
- The best sales process simply monetizes trust already created.
- And the best retention happens because you delivered real value.
You don't need a 47-step sales funnel.
You need world-class positioning, a clear message, and an offer that solves a real problem.
This episode goes deep on how to:
- Create demand BEFORE you ever sell
- Build surface area so luck compounds
- Make your sales process almost automatic
- Retain clients through actual delivery, not promises
This is the game for anyone serious about scaling in 2025.
(0:00) The Psychology of Marketing
(04:18) How to Create Real Value
(09:24) Fame as a Business Lever
(13:40) The Science of Long-Term Marketing
(18:12) Amazon vs Revolut: The Power of Real Customer Service
(23:22) The Ethics of UX: Why Friction Breaks Trust
(27:49) The Power of Transaction Utility
(34:38) How Price Framing Changes Consumer Behavior
(42:44) Should You Offer Guarantees
(46:19) Why Rich People Dress Poorly (And Why It Works)
(50:02) Netflix’s Marketing Breakthrough
(56:00) How to Increase Perceived Value of Products
(58:37) The Role of Marketing in Modern Business
What I think we're demanding of marketing is the same sort of accountability you'd demand of a sales force, and I think it's a mistake, because the way to look at marketing is. The analogy would be it's less like bauxite mining and more like treasure hunting. The reason you dig isn't because everywhere you dig you come up with some value. It's because sometimes when you dig, you come up with something spectacular. In other words, 10% of what you do adds about 80% of the value.
Darren Lee:The logic is when someone buys something, how long should they wait until they get value? Do you know what the answer is? Go on. Answer zero.
Rory Sutherland:It should be immediate. We need to stop pretending you can make this entirely predictable and simply learn to appreciate the fact that both innovation and marketing are really processes of discovery as much as they're processes of immediate return. But what they're doing there is. This is a terrifying thing which, if we're not careful and I would actually support unusually for someone who tends to lean a bit libertarian- what's more important sales or marketing?
Rory Sutherland:They're not really separable. It's a bit like you know which is more important to the area of a rectangle. Okay, you know the width or the height. Okay, it's one of those things that you know. It's probably a false dichotomy.
Rory Sutherland:What I would say is that marketing can be supremely decisively important, can be supremely decisively important, but it's sort of fat tailed. I've been talking about this a bit recently, which is that what I think we're demanding of marketing is the same sort of accountability you demand of a sales force, and I think it's a mistake Because in my experience of 35 years in marketing, 10% of what you do adds about 80% of the value. In other words, there is incremental improvement, which is fine and dandy, and you have to do it and there's. You know you're absolutely foolish not to do so, but every now and then there's a spectacular breakthrough and we should spend more of our time and resources looking for potential moonshots, as I call them. You remember that Google phrase 10x and the moonshot, I think it came from Astro Teller. You know, at Google, and I think we are probably making a mistake because we've been sold by the tech world on this idea of perfect accountability and you know where every unit of know, every unit of expenditure is attached to a unit of revenue.
Rory Sutherland:Okay, and my view is that's the wrong way to look at it, that actually the way to look at marketing is a little bit it's. In other words, it's less like the analogy would be. It's less like bauxite mining and more like treasure hunting. The reason you dig isn't because everywhere you dig you come up with some value. It's because sometimes when you dig you come up with something spectacular.
Darren Lee:How do you justify that to managers and clients and stakeholders and VCs?
Rory Sutherland:Well, vcs should probably understand the principle, because their whole business depends on the fact that your 10% of successes effectively pay for the other 90%. And nonetheless, r&d innovation is exactly the same. Ok, it's an inexact, nonlinear and kind of to some extent, serendipitous process. I mean, every drugs company would realize completely that you don't expect every single line of inquiry to pay off. Every police investigation would understand. I mean, it's actually a staple of cop dramas, isn't it? Which is, the investigation makes a small breakthrough, just as they're kind of running out of funding. But my only argument is we need to stop pretending you can make this kind of entirely predictable and simply learn to appreciate the fact that both innovation and marketing are really processes of discovery as much as they're processes of immediate return. So I'll give you an example of that. Well, two examples I always give, but I've got more. Actually, I'll give you a recent one which really impressed me.
Rory Sutherland:So I was booking a hotel in Houston and normally when you get to choose hotel rooms, you choose, you know, standard, deluxe, junior suite, whatever it might be, club floor. Okay, the rooms are delineated basically by the status and size of the room. And I went on to book this room and you could pay $15 a night extra for either what they called pool access or gym access. Now, what that meant was the room was near the pool or the room was near the gym. Okay, now what's extraordinary about that is it hasn't required any investment in building construction or anything of the kind. You haven't had to re-carpet a single room. But you've created value just by describing something differently, just by defining something differently, positioning Effectively. And I'm a kind of pool person, as you might have guessed. And so I go yeah, is it worth 15 bucks a night for two nights to be within an easy walk of the pool? Yeah, I think that is. That's probably worth it. And now what you've done is you've created value out of nowhere.
Darren Lee:Just want to take one quick break to ask you one question have you been enjoying these episodes? Because, if you have, I'd really appreciate if you subscribe to the channel so that more people can see these episodes and be influenced to build an online business this year. Thank you, let's double tap on how you can do that, right, because this is how you manufacture value, or perceive value, because it's the perception of value, of what makes it valuable. It's not necessarily buying the iPhone, it's what you can do with the iPhone, what it enables you to do. So how do you look at something objectively and, instead of wrapping it up with putting lipstick on a pig, how do you do this in a proper, elegant way, right, yeah, I mean the lipstick on a pig argument.
Rory Sutherland:I mean, by the way, I will freely admit that a lot of marketing activity isn't particularly effective, except to the extent that simple fame and familiarity make what you have to sell more saleable. Ok, At a very trivial. It sounds very trite, but you can't actually buy something if you don't know it exists in the first place. I know that seems absolutely obvious.
Darren Lee:Most people don't market their stuff, though.
Rory Sutherland:So I'll give you an example. When you next need to buy a toaster, there is such a thing I think Dayu makes one and somebody else does which is a glass-sided toaster. So you can basically see when your crumpet or muffin is at the right level of brownness and hit eject at the opportune moment. Okay, now, if you don't know now, because I've told you that when you next buy a toaster, you will at least have a deco at the glass sided toasters and see whether they make financial sense One of them isn't particularly expensive, actually. If you don't know, those exist, well, you're not even going to look in the first place. So I mean, but also there are a whole lot of reasons psychologically, why people feel more comfortable buying things that are well known, familiar, or which appear to have, uh, you know, a large customer base already so an improvement offer effectively right, so something that's an improvement I mean you are, I are, I mean I think we.
Rory Sutherland:I think we made this fundamental mistake, which is because we're demanding this perfect level of accountability, you know, this perfect level of quantification. We're kind of suggesting now that every dollar invested in marketing has to be justified by measurable, quantifiable and immediate, or at least very short-term, return. Now, undoubtedly, some component of what you're doing probably works that way, but you might be woefully underestimating your investment if you invest in something and then only declare it valuable to the extent that it very quickly delivers the result that you were expecting in the first place. A large reason to be famous, okay, and you'll know this right.
Darren Lee:Oh, you took the words out of my mouth. I was going to say podcasting is a perfect example.
Rory Sutherland:A large reason to be famous is actually nothing to do with what you're intending to do with your life. It's that when you're intending to do with your life, it's that when you're famous, people bring you opportunities that you never even knew existed in the first place. Okay, so you will be asked to open. If you are famous, people will ask you to open a supermarket. They exist. I don't know if you ever been asked to open one.
Darren Lee:George Foreman, exactly, george Foreman, okay.
Rory Sutherland:But I mean, it has a value in all kinds of ways, not all of which you can define in advance, In fact, the majority of which you probably can't define in advance. And one of the things that does worry me is that in the advertising business it seems a bit banal to go to someone and say we're going to make you famous. But actually it's a perfectly healthy aspiration, simply because if you're not famous, you have to find all your customers or viewers. In the case of if you're a YouTube star, If you're at the point where you are not famous, you have to find your customers. When you become famous, customers whose existence you never even envisaged will come and find you.
Rory Sutherland:That's a kind of escape velocity, that's a step change, and so my only argument is that we're developing a very instrumentalist approach to marketing, which is the purpose of this thing is to achieve that, and we will measure its success and justify its existence purely to the extent that it achieves some preordained objective.
Rory Sutherland:Now, nassim Taleb, who I know well fantastic guy, I mean, if you haven't read his books do, because they're kind of game-changing and you never quite see the world in the same way afterwards and you certainly don't see statistics in the same way afterwards he would undoubtedly say that a large part of what you're doing with marketing is and this is a sort of fancy phrase, but it captures it perfectly increasing your surface area exposure to positive upside optionality 100%. And the optionality part means it's not that you have to take every opportunity that comes to you, it's simply that more opportunities will come your way from which you can choose. Now I suppose you could say that you know. The point is, it's a little like the you know, the more I practice, the luckier I get, phrase which is always attributed to golfers or whoever it may be. In the same way, there are a lot of things you can do which aren't necessarily valuable in helping you attain some absolutely predefined end, but will make it much more likely that you get lucky in some as yet unknown way.
Darren Lee:Yeah, I think if you look at your friend, chris Williamson perfect example. When Chris started his podcast, did he ever think he was going to have an energy drink? Of course not. No, he was recording a podcast because he was generally curious in productivity, personal development, self-development. I was very early.
Rory Sutherland:I didn't know who he was when I first did a podcast with Chris, because after they turned me down for Love Island, I just refused to watch it. I just boycotted the whole show you created your own one, absolutely.
Rory Sutherland:But it was very, by the way. It was immediately apparent I didn't know who he was. It went on within about two or three minutes. It was immediately apparent that this guy is really good. It wasn't one of those questions where where the hell did this come from? He is emphatically very, very good and, you know, extraordinarily curious and actually has brilliant, I think, taste in kind of you know, topics and questions that's where the compound effect has happened.
Darren Lee:all right, because he's had so many reps plus the curiosity, yeah, so he's actually enjoying what he's doing and then, therefore, the luck happens, because this is the big thing I have with. Uh. So we run podcasts for people right, and big companies small, small companies and I think when you come from an advertising background and a direct response background, you're so used to instant ROI, whereas what you get from your podcast is longevity. Same with content Content longevity.
Rory Sutherland:By the way, in direct response we were always underestimating how successful things were Okay. Underestimating how successful things were Okay. And I'll tell you, this goes back to about 1989, 1990, which is banks used to send out local loan offers to their customers and then there was a sort of central direct marketing division which also did that and the banks effectively claimed that they were just as successful as the experts. So one-north was the point in paying these experts. And the experts said to them well, hold on, how do you measure a response? And they said, well, anybody who sends back the coupon or anybody who comes into the branch in the following three months and asks to talk about a loan, ok, they said, what's the ratio of those two? They said it's about 50-50. It's 1989, where you actually talk to a human in a bag, not an EO chat. And these guys said, well, we've only been measuring the first half, we haven't been measuring the second, Because there was the response as defined, which is someone who immediately clicks, returns a coupon, makes a phone call, and there's response as measured over the longer term, and in this case I mean it will vary enormously. It was about 50-50. So they were effectively underestimating the effectiveness of everything they did by 50% by defining it too tightly.
Rory Sutherland:And I think that is worrying because I think digital advertising is grossly distorted because people who find it very easy to attribute sales to ad spend for example, someone selling direct can effectively outbid for attention anybody who sells through a retailer, because the person selling through a retailer doesn't have the hard data of to what extent an individual ad generates sales. The person selling direct does, and so I think we've got a massive just, I mean, it's just a point I make, which is I don't see ads online at all for consumer package goods. Now, I spend, you know, weirdly, I'm, you know, new man, I do all the shopping, um, but you know I spend, you know, an appreciable amount of my money on shampoo, dishwasher, tablets, uh, etc, etc, etc. Never see anything for them.
Rory Sutherland:And my argument is is because what I will see ads for is high margin goods which are bought on impulse, um, or things which have a very long lifetime value, like signing up to a financial product. Ok, they're. The value of an acquired customer is, you know, in three digits. Definitely OK if you find someone who buys high margin fashion, ok, if you're I don't know well, mr Porter, net-a-porter OK, but finding a customer of that kind of thing is disproportionately valuable. Therefore, they can advertise to an insane degree versus people who are selling goods through intermediaries with no direct attribution. And that does seem to me to be an interesting debate which nobody ever raises, which is, oh you know, are we distorting effectively the kind of things for which people see advertising?
Darren Lee:It's funny because I've actually had the exact same discussion and attribution on my team. So we have a big brand, public brand, but then we have advertising too and under a direct response, we don't see the right metrics like supposable metrics.
Darren Lee:But what happens with us is that our very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very very very, very very very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very very very, very, very, very, very, very, very so your cost of acquisition is about $1,200. Yes, got it, got it. So again, that's probably like a five to one.
Rory Sutherland:But you also have not much marginal cost.
Darren Lee:No, exactly so the fulfillment. So again in your case.
Rory Sutherland:You can actually technically afford to spend $4,900 selling a $5,000.
Darren Lee:100% If it's an incremental sale, which is by the way a big, if Exactly. But the big thing is that these guys who've seen an ad, they've seen something, and come into the ecosystem. They don't buy right now, but in 90 days or 180 days' time they will be on a call and they will say I remember seeing that video with Darren and Rory. They'll bring something up, they'll say it to us saying I watched this, I watched that and that's the awareness piece. Well, jeremy Bulmore, wonderful.
Rory Sutherland:He died, I think last year or the year before, absolute sage of the advertising industry, and he had a friend who said Jeremy. He said you work in advertising, don't you? And Jeremy said yes. He said well, you'll be amused to know that I've just bought an Aston Martin. It was presumably a rich friend and he said it won't surprise you to know that I bought the Aston Martin because of an ad I saw. Jeremy goes no, no, it won't surprise me. He said. What might surprise you is that I saw that ad when I was 12 years old.
Rory Sutherland:Now, obviously that's anecdotal, but yes, undoubtedly there are ads which have extraordinarily deferred effects and of course there are two problems with that the longer the time frame, the harder it is to actually practice precise attribution. But also we're addicted to short-term response as a kind of crack hit because it justifies our activity Now there are activities. Short-term response as a kind of crack hit because it justifies our activity Now there are activities. So one of the effects of this is that almost every business will overinvest in acquisition relative to customer service and experience. Okay, and the reason is that customer service and customer experience is often very, very important. It can be quite decisive, but its effects are slow. If your bank pisses you off, you don't actually leave the bank, you just become inert as a customer and don't buy anything else from them. Okay, and it would probably take you.
Rory Sutherland:If you wanted to, I'll give you an example of this. Actually, it's always struck me as very weird that nobody else ever, anywhere, has stolen the idea from Amazon which is the call me back button. Okay, it strikes me as a major, major innovation in customer service, which is you're on Amazon, your funny hat hasn't arrived, because actually sometimes Amazon is pretty reliable. Often it hasn't arrived because actually your wife or husband has opened the package and you didn't notice. Okay, but nonetheless, you have this problem. You go in, you say it knows who you are because you're logged in. They don't have to ask your postcode and your email address and all that bullshit. Right, it knows what the problem is because you've just said my hat didn't arrive. And then you click the button call me back. Three seconds later, your phone rings and there's someone who's basically straight onto the solution. Now, it's a bit difficult to find that button on Amazon, if we're being absolutely candid about it. But you can find it and it's an extraordinarily potent customer service tool, I would argue.
Rory Sutherland:What's weird to me is that nobody. You'd think a bank would have copied this. Talk to us about a loan, talk to us about car insurance. You'd think that loads of people would have copied it. Now why should they have copied it? I'll tell you why they should have copied it because Amazon does it. Now Amazon tests absolutely bloody everything, okay. So if Amazon does something, they've got a reason. But also Amazon, unlike a bank, is a fast feedback business where you can probably find out whether that pays off in terms of customer retention and repeat purchase within months rather than years, and you can track that if you want to. I'm sure Amazon does.
Darren Lee:I'm sure Amazon does. Two things came up for me there on that side, so one on the customer support side, b2c, so business to consumer. So I worked at Revolut and Revolut is known to not have the best customer experience and they were trying to automate more things. This is before AI chatbots were a thing and they were basically optimizing for the wrong metric. They were optimizing for response rate, but people were getting super pissed off because you message hey, I have an issue in my carrier and I'm in Bulgaria, and then they want to speak to someone and they're just getting automated message. So they're making the issue worse.
Rory Sutherland:Well, what they're doing there is that this is a terrifying thing which, if we're not careful, ok, and I would actually support unusually for someone who tends to lean a bit libertarian I would support. Just as you need London black taxis to be regulated. Ok, you can't just have anybody turning up in a black cab, because if anybody could borrow a black cab and drive around and pick people up, I couldn't contentedly get into a black cab with a total random stranger. Okay, the system only works if you maintain. This is why medieval guilds came into operation. Okay, goldsmiths, et cetera. In other words, there's a high barrier to entry, which means that someone doesn't want to get kicked out of the guild, which means they have to basically play honestly, because the long-term consequences of being caught are more severe. If you've invested in getting the knowledge in London, okay, you'd feel a bit of a dick then throwing away two years of your life because you wanted to rip off an American tourist by, you know, taking them on a wiggly route. Okay, I'm sure they do that a bit, but surprisingly little compared to other countries. No-transcript. Actually, really interesting question. I don't think I've actually had a dodgy cab driver. Okay, and that's because the system is policed so that you have enough trust for the business to exist in the first place.
Rory Sutherland:Okay, now I think there's genuinely a problem, particularly with people as they get older, where people will abandon highly efficient and, in many cases, economically valuable online economic relationships simply because their expectation, or, to use the phrase, once bitten twice shy. In other words, you've had three bad experiences with Revolut customer service. Then you need to make an insurance claim and they force you to do three hours' work online rather than actually doing the work yourself. If you have four or five of these disastrous experiences, or you get locked out of your bank account and there's no one to talk to to explain what's going on, okay, you will literally and I think this will be even more pronounced among older and richer people. I'm not going to call it a boycott, it's not as coordinated as that but people will simply drift back to face-to-face transactions.
Rory Sutherland:That's right, 100%, and so, and the reason it needs to be policed is that my willingness to engage with someone online isn't driven by how good their customer service is. It's driven by my expectation of their customer service. Now I want to make this point. I've had hotels. I'll name them because they deserve it Hotelscom, ford and Zoom. Okay, three cases where I needed to speak to a human being. Two of them was live chat and one of them was voice. Well, the experience was fantastic, okay, and it can be really, really good, but the point is, my willingness to engage in that kind of relationship in the first place is driven not by the reality but by my expectation. I had an issue with Stripe with that.
Rory Sutherland:Oh interesting, go on, tell me more.
Darren Lee:So we do sponsorships. So if you imagine Chris Williamson and AG1, we place sponsorships on them. So my company is called Voix, which is on top. So we worked with this company and they placed ads on one of our podcasts but they didn't realize that our company name was there. So they paid with a credit card. It was 10,000 USD. And then that company, who's a big agency? They just saw this company and they were like, oh, that wasn't me, it was fraudulent. So they went to their bank and they just said, hey, I don't recognize this transaction, recognize this transaction. So then Stripe blocked the account, blocked the transaction and just put my account into restricted state. So nothing severe. But I went to Stripe and I went into their customer support and immediately it was a human and I said look, it was a mistake on their side. Their founder even got back and said, oh dude, so sorry about that. Like I made that mistake, we that mistake.
Rory Sutherland:We had the email thread. Understandable mistake.
Darren Lee:And then we sent it over and then the person in Stripe was like, yeah, perfect, here's all the information I'll get back to you in 48 hours. And in 48 hours the money was back in my account and my account was unmarked.
Rory Sutherland:Back in normal, back in normal status.
Rory Sutherland:Everyone was back to normal because it was a mistake on his site, but again, which is we're reaching. You know, the idea of the subscription, okay, is a very, very valuable idea. Okay, I think it's slightly flawed, but I won't go into the whole details of the thing, in that I think there's a limit to how many subscriptions people are prepared to have. This happened, by the way, in cable TV in the United States going back 20, 30 years ago, people would hit $50 a month and that was their basic ceiling. 30 years ago, people would hit $50 a month and that was their basic ceiling. If they signed up for something new HBO they'd cancel something else to remain below that threshold. I think people also have, if you add up their mobile phone, their broadband okay, their Netflix, their Amazon, their Disney Plus, their kids' mobile phones, the.
Rory Sutherland:You know, if you add up all those things, we're in danger of reaching a world where people's salaries and your landlord okay, right, we're in danger of reaching a world where people's salaries simply go into their bank account and walk straight out again. Okay. Now, the extent to which I think and I regard this as, again, an area where I would support legislation the extent to which you can sign people up. Now you'll notice this Nobody ever signs someone up for a subscription by direct debit. Do you know why they don't do that? Because you can go to your online banking app, have a look at all your direct debits and if you're having a bit of a lean month, you can just go down the list and cancel them With a credit card. You have to go back to the original entity and ask that they cancel.
Rory Sutherland:I think that's unethical. I think it's wrong. Okay, I think that you should, on your credit card app, be able to basically cancel a recurring payment on the credit card app. I think those payments should also be listed separately at the top of your bill, okay, and you should be given some degree of control, because this business of you know, I mean, I literally found myself paying for my kid's club penguin account or something when they were practically at university, right, this is bullshit. Ok, and, by the way, companies that are reliant on that need to be very, very nervous.
Rory Sutherland:For two reasons, ok, one of which is that there's the danger of legislation which is starting to happen in the US and starting to happen in Germany which basically says it has to be as easy to cancel an online subscription as it was to actually set one up in the first place. Richard Thaler calls this a sludge. You know, you make it very easy to take up the free offer. Then they start charging you and then you decide I don't want this anymore. And you know they demand. You know some ludicrous number of hoops to jump through in order to cancel. Now, the reason I think that's bad, okay, and some of our clients may go Rory, what are you doing? This is our business model. The reason I think it's bad is because it's actually making people pretty naturally reluctant to engage in that kind of transaction in the first place, even with honest actors, a culture.
Rory Sutherland:It's a cultural thing, which is I'm just not doing that again. There's actually a whole economic paper behavioral economics paper about this, which is that people are, to use my phrase once bitten, twice shy. They know I'm not going to get around to canceling this, so they automatically are aware of their own limitations and therefore don't subscribe. The other risk is that canceling direct debits suddenly became very easy when online banking came along. I mean, there's also a problem with security, okay, which is the sudden rise in two-factor authentication.
Rory Sutherland:It's a great thing at the level of the individual business, but for a consumer who's a heavy internet user, okay, the fact that actually you need to consult your phone for a six-digit code practically every time you do everything, we're actually eroding, you know, a significant part of the advantage of transacting online in the first place, which is that it was bloody easy, and so someone needs to clean this thing up. I mean, it's part of a wider thing called in-shitification, okay, which is a Corrie Doctorow phrase, but someone does need to come in and basically clean up this mess. You know, there needs to be a better system to do with passwords and identification, and I would argue that this would be a perfectly legitimate role of government, just as it's a perfectly legitimate role of government to regulate London black cab drivers. Ok In that the system can only work if, effectively, there is a way of excluding dishonest actors.
Darren Lee:And I think that's part of the. It's the attitude and behavior. That's the biggest thing right is.
Darren Lee:People are skeptical to do things I think about online education, like people are skeptical to buy into online education because they've been burned in the past, which is a valid point. But to your point, it's like you know, some people make a mistake. When they make a mistake initially, but then they're making a second mistake when they're not fixing that mistake by moving forward, you got it. So I'm very conscious of my own behaviors. Am I fixing those behaviors? Previously that got me caught and that got me stuck. So how do you do that from a marketing perspective?
Rory Sutherland:There is an odd thing which is, having worked in marketing all my life, I've often wondered in retirement whether I should just do informal advice on consumer protection, a bit of an Elizabeth Warren. I don't know if you know Elizabeth Warren, because my general impression of 36 years in marketing is that most marketers are actually to some extent on the side of their customers and they want to do a decent, honest job of it. They're prevented from doing so, sometimes by financial constraints, which is that it is often more lucrative to be dodgy than it is to be honest. We should chat about that. Ok, we'll chat about that. It's a very simple thing, ok. So I'll tell you a story about that. And I genuinely think that consumer protection, when well enacted, can benefit both consumers and honest actors at the expense of dishonest actors in any marketplace. Now let me give you an extraordinary thing. Interestingly, by the way, I was chatting to a guy, a wonderful guy, who's founded a kind of meta search engine called Kagiorg K-A-G-I, and it's a pay-to-use search engine which is not advertiser funded, and it's a bit like using Google 10 years ago in that it gives you what you want to find rather than what somebody else wants you to see Now, I'm a very, very big fan of Google.
Rory Sutherland:I'm not, you know, in the sense that they do do quite a lot of useful things, okay, gmail, google Maps, etc. Certainly much more of a fan than I am of Facebook, which seems to, you know, swallowed trillions of dollars without actually coming up with a second idea. To be absolutely honest, we're being really, you know, come on, mark right, but I was in a hotel a couple of years ago in France and I had COVID. That's why I was in the hotel, I couldn't leave, and so I wasn't on my A game. But at the time I thought well, I'll get some admin done while I'm stuck in a French hotel room. And I knew that in a few months' time I'd need to go to Canada. So I went and applied for this Canadian equivalent of an ESTA, which I think is called I can't remember what it's called CTA or something, canadian Transit, something.
Rory Sutherland:Now I go into Google and search for it as I said, I'm not on my A game. I click on what looks like a totally plausible thing, which is not a govca website, but it looks official. I go and pay $50. And sure enough, actually, they do actually deliver this permission to travel. In that sense, it's not a complete scam. They do deliver it. The actual cost if you go to the Canadian government website is $14 Canadian.
Rory Sutherland:Okay. Now I'm going to say Google, come on, mate right. It's perfectly obvious what this problem is, which is that someone who is making $50 profit, or whatever it might be, from selling Axis to Canada is always going to outbid the Canadian government okay, for those search terms, on the ground that the Canadian government is probably making $2 to zero on issuing this thing and they're making a profit of effectively whatever it was 62 minus 14 dollars, minus their payment to google. Now you're living off immoral earnings there, mate right? I mean, you know you should. You have to be alert to the fact that someone who is a dishonest actor will always find it more profitable to acquire a customer than someone who is an honest actor, and you have to be alert to this. And it strikes me as completely bizarre that they were happy for those search terms to appear at the top. A print publication would not have taken those advertisements, would it?
Darren Lee:How do you think about scarcity and urgency? That's been manufactured.
Rory Sutherland:It's not really. I mean in a sense. So I mean at the very simplest level. I've spent years and years studying this. When I see the sentence only three seats left at this price, it does make me book the goddamn ticket.
Rory Sutherland:Okay, I mean, a certain part of marketing is just overcoming inertia and then reminding people that the thing may not be available If you're in. It is worth noting, by the way, if I can put my Elizabeth Warren hat on briefly, that it says only three seats available at this price. That does not specifically say that the subsequent price won't be lower. It implies that subsequent prices for you, subsequent prices for seats on that flight will be higher, and probably the balance of probabilities is that they will be, at least until very close to the date of travel. They probably will be higher. Most people never go on to check what they would have paid if they'd paid five weeks later, by the way. So it's a slightly weaselly formulation of the words. On the other hand, at some level it is at least true. Okay, you know, there are only X seats available at that price. Well, I mean, it's been true in my experience where I've actually gone and checked it. You could just lie. I'm absolutely right. Is that an ethical thing to do? Probably not really, actually.
Darren Lee:You kind of have to pull the line right.
Rory Sutherland:Obviously. I mean some things are sold on the basis of scarcity. You know there are some things where the value entirely depends on their scarcity. Now, I mean that's an interesting question, because luxury goods, to some extent, okay. You could argue from a strictly economic point of view that, for example, the luxury handbag manufacturers who will literally burn and destroy $30,000 handbags rather than sell them at a discount, okay, and you know there are documented cases of this happening, and you know there are documented cases of this happening Patently OK. The value of that thing to the owner depends on its perceived and signaled rarity, right, and on the fact that you obviously have paid £30,000 for it, because you know you don't get much Hermes on TK Maxx, right? Okay, the scarcity value there is a psychological thing. It's nothing to do with. I mean it's nothing to do with the utility of the item itself. It's to do with what the item, the ownership of the item, conveys and it's also about the implied status as a result.
Darren Lee:If you're wearing a nice watch right If you're wearing a Rolex watch and it's like a Daytona watch and there's only a few of them literally built Well.
Rory Sutherland:the entire collectibles market is in some senses.
Darren Lee:Yeah, exactly so.
Rory Sutherland:it's like it's a single In some senses it's completely deranged and they've actually done experiments with this, by the way, in online games, which is quite interesting. So there was one of those games where, to be honest, if I didn't have a job I'd probably be into that stuff. I haven't got time for all those fucking orcs and wizards and things. I bet you'd love it. I probably would. Maybe that's why I stay away. It's a bit like crack.
Darren Lee:Just don't take the risk. We know we like it. Yeah, we know we like it right.
Rory Sutherland:And they had a particular weapon, okay, which you could buy with an extraordinarily large number of credits, which was quite ornate but had remarkably little value at actually killing orcs.
Rory Sutherland:In other words, its value was entirely in its display and signaling value, not in its use value. And what they found is sure enough that people would pay an extraordinary amount for this weapon, basically because it made them look cool in the game, rather than because the weapon had any real functionality in terms of killing your enemy, terms of killing you know your enemy. Similarly, when the I think I've got this right for a very brief period there was an app on the Apple Store which was called I Am Rich and it was just a shiny diamond gemstone thing that rotated on your screen and the app cost $20,000. Now Apple, for whatever reason, took it off. What Apple actually took it off, but this was a thing which was, I think the app was just called I Am Rich and it was pure costly signaling. The value of the thing was that people knew you'd paid $20,000 to have it.
Rory Sutherland:I mean, you could argue okay, that, okay, it has conversational value, of course. Yeah, in fairness, and actually it probably has fame value, because word of your possession of this ludicrous thing would spread far and wide. It might have a certain dating value. You know, if you want to show off the fact that you have discretionary wealth, the best way to show off that you're rich is to waste it, right? Just to be clear, I mean, I made this point once, which is that, okay, coach drivers and lorry drivers don't own a quarter of a million pound vehicle, right, but we wouldn't attach anything of the same significance to someone's ownership of a coach or a truck. Okay, because that truck has a use and they make money from it. Right.
Rory Sutherland:If you own a Rolls-Royce Cullinan, okay, that's probably about the same price to buy as a top-of-the-range motor coach or a really, really cool truck. I don't know how much those huge things go for, but it's going to be in the same kind of order. Okay, half a million. But the Rolls-Royce has a status value precisely because most of what it offers you is unnecessary, whereas because the coach or the bus is necessary to your employment and is actually a source of revenue, it carries status. So the very, very gratuitousness of the expenditure and, by the way, I'm totally conflicted on this, I mean, I've worked in advertising for 36 years Would I like to work on luxury fashion. No, not really.
Darren Lee:I've spent most of my time working on things like broadband and mobile phone networks and things.
Rory Sutherland:There's something about this which is undoubtedly economically unattractive. Okay, because if you think of what else you could do with that money in terms of philanthropy or whatever, it's not great. It appears to be somewhat innate to humans. I would also make a weird, perverse argument, which is that in some ways, as a status except at the ridiculous extremes, okay, in some ways, consumerism isn't a terrible. Good plasterer or a really good plumber could have a better car than an average doctor, right? Okay, if you look at status apportioned that way, it's actually a game that allows more diversity of opportunity than a status system which we seem to be having, where status is actually allocated by prestige or elite universities. Diversity of opportunity than a status system which we seem to be having, where status is actually allocated by prestige or elite universities at the age of 22, after which you can do nothing about it. Okay, if you think about it, a Harvard degree and a guy who speaks very widely on this, that the elite American universities are luxury goods brands.
Darren Lee:Oh, for sure, Okay.
Rory Sutherland:And so a Harvard degree and, let's say, you know, a Louis Vuitton steamer trunk are, in a way, serving a similar purpose. Okay, there are aspects in which the consumer good which can be bought at any time and acquired late in life and da-da-da-da-da and also a really good scaffolder, can aspire to the same shit as an average doctor. There are aspects to that world which are not altogether actually unattractive.
Darren Lee:I think there's the other factors.
Rory Sutherland:Bring back materialism, Bring back shallow consumerism. It's almost like the anti-trend right.
Darren Lee:It's the opposite. So I'm just giving an example. So let's say, like a plaster, an average guy, normal guy making 50K a year, let's say he does save that money and then he finances a Rolex. And now he's wearing that Rolex and his friends at the pub think he's cool, but he's not in the right economical state to be able to fund that. If you flip that, you see many wealthy people actually taking the opposite effect now walking around with no shoes on living on an island and you wouldn't tell that they have any money right.
Rory Sutherland:A taxi driver said to my brother-in-law driving through Shoreditch. He said what the hell's happened to this place? He said it used to be genuine cockneys here. Now it's just rich people pretending to be tramps. Exactly right.
Rory Sutherland:So is there an aspect of virtue singling? By the way, it's interesting because it seems to be only humans who do this, which is, in other words, you very, very ostentatiously refuse to play a game. You can only get away with that if you are very strong in some other status currency. So I've made this point that if you're the mayor of London or whatever, actually I don't think actually Sadiq doesn't actually cycle, does he? But Boris did. Ok, if you're the mayor of London, you cycle to work. If you're the prime minister and you, you know you wear scruffy clothes OK. It's basically saying I have so much status accorded to me in one particular field, through reputation or credentials or whatever it may be, that I don't need to play these games. You know bass players in a band, you know, basically, dressing scruffily and neglecting basic bodily hygiene says that my playing abilities make me so sexy I don't actually have to bother with this other stuff. Like Adam Sandler, yeah.
Darren Lee:You've got it exactly, adam.
Rory Sutherland:Sandler's clothing. Yeah, you've got it exactly. Okay, now if you. The point is, if you don't have any state, you can't play those gameschino sunglasses with Moschino written on them in two inch high letters, you know, because it would be kind of like, well, why do you need to try? Ok, but status signaling, counter signaling, can be kind of a bit mean, but counter-signaling can be kind of a bit mean. Okay, and the point I make about that is that you know, for example, you know Londoners who have quite well-paid jobs, who ride to work on a £3,000 titanium bike, getting very disdainful about cars. Okay, right, oh, why do all these people want cars? But the fact is, if you work in a pizza restaurant, if you turn up to work by bike, it doesn't mean I have made an active decision to cycle, it means you can't afford a car. So the meaning of these things varies depending on the context in which they're displayed and viewed.
Darren Lee:You know, alex Ramosi.
Rory Sutherland:Yes, very well yeah.
Darren Lee:Alex has a great point, which is, if you haven't made it yet, if you're just getting started, you dress up, you wear the suit, you cut your hair, you're in good shape, but then, when you've made it, you dress down.
Rory Sutherland:The famous example of that is academia, where tenured professors would dress like tramps. They'd also tend to have really shit cars. I had an experience once where, being a bit of a flesh Harry, I turned up to visit a friend at the University of Pennsylvania and I thought sod it, let's go and rent something. It was a Lincoln Town car or something a bit blingy. It was nothing outrageous. I wasn't there in a Cadillac Escalade, you know. And I turned up and my friend meets me at the car park and then introduces me to someone who was just walking out of the building who, it turned out, was the first person ever to genetically modify a plant. So I can't remember whether he had a Nobel Prize or not, but it was something like this. And then this guy gets into a kind of battered Japanese car and drives off and I'm there in my Lincoln Town car, to be honest, feeling like a bit of a prat and so famously tenured professors. It's a way of saying effectively, I think at Microsoft they used to have a T-shirt that said something like, which stood for it was an acronym fuck you, I'm fully vested. In other words, they got their money. You know it effectively is you know, fuck you money, okay, their money, you know it effectively is you know, fuck you man.
Rory Sutherland:Okay, and it is worth noting that some of that stuff counter-signing is really, really interesting. Okay, it's a really fascinating phenomenon. It seems to be unique to humans. It's the idea that you conspicuously don't try. Los Angeles is very interesting because you have two industries. The big one is the film industry, which is all about beautiful people, and then there's the Los Angeles music industry, which effectively positions itself against this film industry by being really, really scuzzy. Okay, it's like we're nothing to do with those guys. Okay, and it's really interesting, and it's really. It is interesting. The only point I would make is it's not always as virtuous as the people practicing it like to think it is.
Rory Sutherland:Yeah, and it's also the position I don't need a car in London and it's kind of like well, I remember this guy. There was this development. I went to judge some architectural awards. There was this development where it originally had car parking in the middle and they'd go into the car parking. Ok, I went to talk to the people who were living there. A third of them were Uber drivers right, that was their fucking livelihood. And they now, because the council had got rid of car parking in the middle of the development, they now had to park around the corner About once every three months. Their car would get vandalized, which would mean they're off the road for three days. Okay, I mean, actually it made a load of people feel good, you know, basically denying, you know, parking to the people who lived in this particular housing development. So actually, when you look at what the people there actually needed, it was a shitty thing to do.
Darren Lee:It's, as you said, context. Yeah, what I'd love to ask you on is about guarantees. Do you think guarantees are bullshit?
Rory Sutherland:No, they are actually legally. Well, this is an interesting case. They have to be legally protected because you can't just claim bullshit guarantees. So, okay, a large part of why people buy brands is that brands have reputational skin in the game. They've invested a lot of money acquiring a certain reputation and degree of fame. The fame makes them more vulnerable to shaming. Ok, right, if you are really really badly treated, if you are really really badly treated by, let's say, you know, a small, crappy airline, ok, people will go kind of, yeah, what did you expect? Whereas if you're really shabbily treated by Lufthansa or BA, the level of outrage, in other words, would be greater. So they're more vulnerable to shame, but also they have more reputational skin in the game. So they have to be at least practice some reasonable degree of probity. Okay.
Rory Sutherland:Now one problem might be that actually, those large companies use technology to shield themselves from their obligations, their moral obligations to their own customers. In other words, what we won't do is refuse to pay out the guarantee. What we will do is we'll make it unbelievably difficult to claim on this guarantee so that actually 30% of people can't be bothered. That would be an example of a shitty thing to do. So you're still within the letter of the law in that, had the person jumped through 17 digital hoops and had two-factor authentication five times in a row, yes, you might have issued a replacement, but you're making it really really hard to do so, and it's, you know. One worry about AI is what the hell is the AI optimized for? Is it optimized for justice, customer experience, fairness, you know, and empathy, or, ultimately, does it end up getting optimized for profit maximization at the expense of customers?
Darren Lee:And I think, the conditional. So what you're just kind of describing is a conditional guarantee, like they need to do the 17 different bells and whistles. And I'm also kind of more thinking about it from a consumption perspective, right, because it was Hermosi that really really popularized guarantees and with your product, with your service, you should have them. But then they became more and more wacky. It was like, rory, you have to do X, y, z, jump through this, attend this, and then, if you don't get the result, we'll offer this to you. But it seems to have left a bit of a bad taste with people and I'm trying to so Hormoz is pretty damn wise.
Rory Sutherland:I mean, I regard him as extraordinarily interesting in that he seems to have an absolutely instinctive understanding for marketing and salesmanship, sure, which is also a fascinating character, yeah.
Darren Lee:He's absolutely smashed it right in terms of what he was able to do in different industries. So before he had the private equity firm, he had Allen the software. He had a supplement brand. That's right. Jim Software was the I think it was Jim Launch was the licensing, and then he had a software on top of that which was I think it was Allen, and then he had the supplement brand. So he's been able to crack acquisition and retention in many different industries.
Rory Sutherland:And I think it's the you know he's been by the way, the whole of Netflix exists because somebody understood this stuff. Netflix was a marketing breakthrough, not a technological breakthrough. There's nothing particularly innovative about it. I'm talking about the original sorry, you're too young. Dvds through the post.
Darren Lee:I remember that. You remember it. Yeah, yeah, yeah, I remember it. You know Extra Vision. I remember you know Extra Vision. Or is that just an Irish thing?
Rory Sutherland:That was Irish there was another one, which was called. There was Netflix and there was the competitor, love Film. Okay, that was the UK one. Okay, okay, and what it was was that originally it was just, you requested a DVD, they sent it to you, you watched it, you sent it back and the two founders were in a warehouse one day.
Rory Sutherland:This is why I always defend Blockbuster Video for not buying Netflix, because at the time, netflix wanted $50 million for their idea. They hadn't cracked the acquisition and the retention problem. They cracked that by, almost in desperation, coming up with three DVDs at any one time, change them as often as you like, no late fees, ever $19.95 a month. $19.95 actually was helpful because it was a price that was not unadjacent to the price of buying a single DVD. So you kind of looked at your own budget and thought, well, I probably do buy a DVD every month. Okay, therefore, for what I'm spending already, I effectively get access to a postal library of every DVD. So, but that was the idea that enabled them to crack the whole business. And it happened that one of the two founders was one of the biggest experts on subscription marketing as well, as you know who is that? It's the guy who isn't the oh crikey. Who have you got? You've got Reid, haven't you Mark Randall? It could have been him.
Darren Lee:Mark Randall is a guy that's pretty known. He's a CEO.
Rory Sutherland:Oh no, no, the guy's left now amicably, I think, but he was one of the two co-founders of this idea of DVDs by Post, and it was this idea of effectively having three. The insight, in a sense psychologically, was nobody knows what film they want to watch tomorrow. It's one of the reasons you have sandwich shops, which is that people don't know at breakfast what they want to eat at lunchtime and people don't go. Actually, on Friday I'd really like to watch how to Train your Dragon. Okay, you don't know. But when you have three at any one time, the odds are that in that three, when you feel like watching a film, one of those three films will appeal to you, and so it was. That the kind of epiphany was apparently when they looked at one of their warehouses and thought wouldn't it be better if we could store these videos in our customers' homes rather than storing them in a warehouse and waiting for people to ask no fulfillment, rather than storing them in a warehouse?
Darren Lee:and waiting for people to ask no fulfillment.
Rory Sutherland:Well, it kind of realized. Now it was a brave move because if you think about it and there probably were people who did this there might have been people who watched 15 films a month and you lost money on those people. But you are making the same bets you make when you open a gym, which is that people won't come as often as they think they will.
Darren Lee:So we have something similar in our company. So in the agency side of our business we have like unlimited podcasts that someone can release a month. Okay, so let's say that's like 8,000 USD, got it? And you have unlimited amount of podcasts you can release. But business owners and people never, ever, ever go above six. They just don't, because it's too much threshold. No, whereas they have the option and they are willing and able and they want to pay more so that they have it as an option. But then everyone knows that, even like statistically, your views will go down, the energy will go down, you'll start to hate it and they will say, oh yeah, I'm happy to do six, seven, maybe five next month. They almost like the variability.
Rory Sutherland:No, no, no. I mean, there are people.
Darren Lee:Optionality.
Rory Sutherland:I mean, the interesting thing is there are people on pay-as-you-go mobile tariffs who'd be better off on a subscription and there are people on subscriptions who'd be better off on pay-as-you-go 100%. Okay, a large part of your preference for that isn't, strictly speaking, kind of economically rational. It's temperamental or emotional. And I would argue okay, I would argue, interestingly that the reason Klarna is so powerful okay, pay in three interest-free. Now, you know, someone who is strictly economically rational will go. You are getting an interest-free loan for three months, okay. In other words, it's a lot better than putting it on your credit card because you know you won't end up paying. You know 19.9, 23.4% APR. Yeah, all of that's true, I agree with that. Okay, it is economically rational, but a large part of that's an emotional thing, which is that something that costs 450 quid and something that costs three payments of 150 pounds. Fundamentally, those are different things.
Rory Sutherland:Now I have the weirdest experience. I joined an organization which I think is about 200 pounds a year, to join 240 actually, to make the maths easier and I was offered you can pay 20 pounds a month, you can pay 80. Let me get this right. You can pay 60 pounds a quarter, okay, or you can pay £240 in one go. So it's identical actually. Okay, don't ask me why. Okay, I don't know, I had a massively strong preference. Okay, my cash flow isn't so constrained that you know I really need to defer that Massively strong preference for paying quarterly, don't know. So, literally, if you sell the same thing, I mean literally, if you sold Big Macs, okay, and it said, you know, split pay, people who would otherwise not buy a Big Mac will buy a Big Mac because the act of purchase feels different, but you're saying that they would specify the split pay, right, is that?
Rory Sutherland:correct, or, just in general, split pay makes. So Richard Thalo, who wrote Nudge and actually subsequently won the Nobel Prize for Economics, he coined a phrase which I think is really useful, which is called transaction utility, which is there's the thing, there's the cost of the thing, ie the money that goes out of your wallet, okay, in order to acquire the thing, and there's transaction utility, which is how it feels to pay for the thing. Okay. Now, by observation, in terms of, you know, human behavior. Obviously it varies depending on people. I mean, one famous behavioral scientist did work and found that, just as there are spendthrifts, there's a percentage of the population, about 25%, who basically like spending money too much.
Rory Sutherland:There's also, by the way, there's a slightly larger group of people who were designated as skin flinks this is George Lowenstein, if anybody wants to research the work and they find the act of payment, even if they want the thing and it's worth the money, they find the act of payment just really discomforting, just the feeling of money going out of their wallet. You know, basically, you know, and we all know people a bit like that, you know, buying around in a pub, you know, you or I, I hope okay, would basically go, look, okay, it's my turn to buy the round. This is going to be 30 quid. This is just part of the whole game. I'm not actually pained by handing over the 30 pounds okay, because it's just I kind of mentally prepared for that when I came and went out drinking with these people and you know that's the cost of the evening.
Rory Sutherland:There's no buyer's remorse, but there's a certain there's a percentage of people who an extremist would like, when it was their turn to buy the ride, would mysteriously disappear to the toilets for like 10 minutes. Ok, so it varies, obviously by person, but also it varies by how you pay. And there must be a bunch of people who hate the idea of a mobile phone subscription because it's commitment OK, and they're also convinced they won't use the phone that much. And they're equally people who don't like pay as you go because they're frightened of getting a hundred pound bill or they don't like the variability and they just like the one and done nature of a subscription, which is I pay this, I get that. I never have to think about this shit again, done, deal.
Darren Lee:I wonder, is there? So I have this debate a lot of times on my team which is, if you have the one price let's just keep it simple, it's $5,000, and you present that as a price, but then would you make more, would you sell more if you just presented one price versus the options, versus the array of options, right? So let's say, if someone's process bought it's 5K, but then if their investment kind of 50-50, then there's a split pay, 2,500 by two or 2,600 by two, or if you keep presenting more split pays, is that going to decrease? Just the decision to buy?
Rory Sutherland:This whole thing needs much more exploration in marketing, because I think marketing got infected by economics, where people started to think the price is the price is the price. I think Thaler's idea of transaction utility, which is how it feels to buy something, is quite fundamental in a lot of areas. Okay, I'll tell you the experiment. There's a thought experiment which he actually I mean it was admittedly tested on students, but it's kind of interesting. Okay, which is you? Imagine you're on a beach, which for you isn't difficult because you live in Bali, for fuck's sake, but you're on a beach. Okay, and your friend says there is a place X, 100 yards down the beach, okay, which is selling cold Heineken. Okay, you are thirsty, you would like a beer. You're on the beach, I will go down there and see how much it costs. Tell me how much you're prepared to pay for a bottle of cold Heineken to consume on the beach.
Rory Sutherland:Okay, and in the first condition, the place selling the cold Heineken was a boutique hotel, five star hotel, whatever. Okay, blinged up place. In the second one, it was a beach shack. What he found was that the amount people were prepared to pay was significantly higher for the blingy venue than it was for the beach shack. Now, since the beer was to be consumed 300 yards away from the hotel, you weren't gaining any benefit from proximity to one or other of the locations. Your utility from drinking the cold Heineken was exactly the same regardless of where it came from. But we were kind of happy with the decision to pay, let's say, $5. The experiment was done in the 90s, so the prices are much lower.
Rory Sutherland:We're probably happier paying $6, say $7, for a bottle of Heineken if we know it's a boutique hotel with high overheads and that's just what those things cost there, whereas if it's a shack, we would feel ripped off and even though the utility we gained from drinking the drink would be identical in either case there's no status to be gained. There's no, you know, locational significance, because both locations were described as being somewhere off down the beach. Okay, fundamentally, how good it felt to buy the thing was different, okay, to buy the thing was different, okay. And so you know, I think transaction utility is a really, really important concept, because it suggests that when we engage in exchanges with people, we are second guessing to some extent. Okay, you know, first of all, we're asking questions of basic fairness. We don't like being ripped off, even if the beer would be worth it. Okay, and also we do have a kind of appreciation of what the other party is doing.
Darren Lee:Are you familiar with the time to value ratio? Are you familiar with that concept?
Rory Sutherland:For the benefit of the listeners. I think I know what it is, but I might've got it wrong, so help us both out.
Darren Lee:So the logic is when someone buys something, how long should they wait until they get value? Do you know what the answer is? Go on? Answer zero. It should be immediate, because immediately when they pay, they should get immediate value. So to optimize that, to avoid buyer's remorse is whether it's a program, a product, a service immediately to eliminate buyer's remorse. We want to bring that down as fast as possible. So let's give an example. Let's say you buy a program online for $5,000. When you pay, you go straight in. You start the journey when you get the beer. You get the beer now. When you're in that scenario, it eliminates that because the value that you derive, or the perceived value, is determined based on speed.
Rory Sutherland:The entire mail order industry in the UK. Interestingly now, obviously, with mail order with software, the delivery can be instantaneously.
Darren Lee:Exactly Mail, not exactly there is I think, a reasonable understanding.
Rory Sutherland:So you might argue that it isn't actually zero. It's as fast as possible, because nobody expects, when you order a book from Amazon, for it to materialize in their front room instantaneously.
Darren Lee:But imagine if you got a PDF and a short little video intro as to how the book will help you and so on. You buy and you get redirected to a page and now you're watching immediately a five-minute video.
Rory Sutherland:You made a very interesting observation there, which is there's no reason why, when you book a hotel online, you shouldn't actually be treated to a little video of your room or something of that kind 100%, 100%.
Darren Lee:I do that, we do that on purpose. So you want people immediately to get. It's called a quick win, so immediately, whether they book a call, whether they send a message, they get something that makes them win in their brain.
Rory Sutherland:You're probably just about old enough to remember this, but the old norm for anything you ordered remotely was allow 28 days for delivery.
Darren Lee:Yeah, I remember that, and eBay.
Rory Sutherland:In some cases that meant. By the way, ebay does a very strange thing, which is its estimate for delivery speed is always insanely pessimistic. Have you noticed that? Yeah, it's always very wrong. Now I wonder if they're using the wrong metric there, because they're actually. They're losing sales to reduce customer complaints. Okay, so somebody there must have been given the metric on eBay. Oh God, we're getting too many customer complaints about things not arriving. It's a total nightmare dealing with these. I know we'll solve this problem by getting everybody to give a ridiculously pessimistic estimate of how soon the thing is going to arrive, and the only problem with that is there seems to me that seems to carry a pretty large hidden cost in that people go look, I don't mind waiting three days for something. I'm not waiting fucking nine days for some shit to arrive, apart from things I don't like existing in a state of uncertainty, right, I think there's also a terrible mistake.
Rory Sutherland:So the mail order industry always did this allowed 28 days for delivery. In some cases, I think it's because they ordered the stuff only when they knew what the volume of orders was, so they were effectively reshipping. Okay, I think the term is, isn't it? You get a whole load of people on Amazon who are basically, you know, resellers. I mean, I think reshipping is basically where you never actually touch the goods yourself at all, you just place the order and it arrives from somebody else and the allowed 28 days for delivery, I think lost far more sales than people realized because it was just too slow. Okay, that's a month for crying out loud. I mean, imagine a world where you ordered a clock, radio say, and then you know literally it would be. Now you know, okay, it'd be June the 29th or something. This thing would arrive and you'd forgotten, you'd ordered the thing practically Okay.
Darren Lee:Yeah, it's like having a t-shirt right that says a disclaimer. You may not be beautiful with this t-shirt. Like why would you point this out? You know we've hit the flip example. We're chatting about crack earlier. Like crack is the time to value ratio on crack is instant, so it changes the frame right. So it's, how do we create things that have that instant dopamine, that instant result and yes, of course your product can be delivered, and so on later. But I think that's what customer experience is right. It's what are the subtle nuances adjacent to the main benefit?
Rory Sutherland:Yes, you've got it exactly. Yeah, and a lot of those are too with framing, but they're all psychological, always. I mean, one of the things I think is a mistake made by nearly all online retailers is I would display right up front that you can choose who delivers your goods. If I'm paying for P&P, as we used to call it, do you remember that? No Hostage and packing. It was always sorry they now call it delivery, but in my childhood it was 1995 plus 395 P&P.
Darren Lee:I remember that yeah.
Rory Sutherland:Okay. Now, if you're paying for it, I think you should choose who delivers it. Now that decision in most online retailers is undoubtedly made by procurement, who want to channel everything through the same supplier so they get the maximum volume rebate. Okay, because that's how the procurement person justifies their existence. The procurement person is not held responsible for volume of sales. They're simply held responsible for cost reduction per sale.
Rory Sutherland:I would argue the significant percentage of people don't buy things online because they hate one or two of the distribution companies and, by the way, whether your distribution company is good or not depends often on your local driver. It's very, very patchy. I've never mean, I spoke. I've never had anything other than brilliant service from UPS. But weirdly, when I was talking about this thing last night, there was somebody there who, for whatever weird reason, hated UPS. I found them absolutely superb. Okay, you know, maybe I don't know where he lives. I mean, maybe his UPS driver's like you know got, I don't know. You know got, I don't know. You know memory loss or something, but I think, if you said, you can choose if you want these delivered by, I think, on Amazon, if I order a USB cable, I don't want a van coming up to my house. Put it in the fucking post. The postman's coming anyway. Put it in an envelope. I'll pay you a pound extra. Just put it in the fucking Royal Mail and put it in an envelope, okay, I. And put it in an envelope, okay, I don't need a van to deliver a USB cable. Let me choose Several advantages to this. If it goes wrong, I won't blame you. To the same extent I'll blame the distribution company, because I chose them okay, and I might even blame myself for making the wrong decision. I won't blame you.
Rory Sutherland:Second thing is the speed and nature of the delivery at the point of purchase matters disproportionately OK. So I had something I needed very, very urgently. I desperately was wonderfully happy when they said we're sending it by roll mail, something or other next day. Twenty four. Ok, because my postman knows who I am, he knows all my neighbors, he knows exactly what to do, where to leave it. You know, I mean you know, I've known him for 20 years, okay, and I don't want a weird stranger turning up being unable to find the house. I can't take that risk. Now I think that's a classic case where there's you know, there's inordinate value in, just as there was inordinate untapped value in mail order in the 1970s and 80s, in just delivering things faster. Okay, right, there's nothing. I mean the Royal Mail was a next day service in the 1970s. Britain isn't a very big country, I don't know Okay. Secondly, I think there's inordinate hidden value in giving customers control over who delivers it shares responsibilities.
Rory Sutherland:It creates accountability in the purchaser and also, by the way, you now get information about what people are willing to pay for which you don't get okay, and you might actually find that there's a whole chunk of people from whom you can make a little bit of incremental profit because they really love Royal Mail special delivery or they really love UPS or whatever 100%, rory big.
Darren Lee:thank you, sir. You're a legend. They really love Royal Mail Special Delivery, or they really love UPS or whatever. A hundred percent, Rory big. Thank you, sir. You're a legend.
Rory Sutherland:It's a pleasure, it's been a very strange conversation, but the underlining theme is that there is a lot of I think genuinely there are trillions of dollars out there of undiscovered psychological value which we haven't tapped, simply because we're much more wrong about psychology than we're wrong about physics, and therefore there's much more progress to be made in actually uncovering what it is that people really want.
Darren Lee:Well, that's why you've made such an indent and why you've had such amazing results because you don't follow the rulebook. That's the big thing. That's what I want to get from the very beginning. You don't follow the rulebook, so, as a result, you understand the laws, you broke the laws and then you rebuilt it in the way you want to do it.
Rory Sutherland:Well, I think, to be honest, I was in a privileged position in some ways, of you know, I had a job for 35 years where you didn't have to continually prove how rational you were.
Darren Lee:Yeah, and you were the best teacher.
Rory Sutherland:Bear in mind that is what most people in most jobs most of the time spend a lot of time, often unnecessarily. That's why you get in management consultants. It's not because it changes the decision you make. It's to give your decision the appearance of deep rationality. And most people are in that position of having to continually prove that everything they do is based on data and highly rational. And I was in the highly privileged position working in advertising, where I was in a job where actually, to some extent, it was about how signaling how lateral you could be, not how literal you could be.
Darren Lee:Love it Big. Thank you, sir.
Rory Sutherland:It's a joy.
Darren Lee:Thank you very much indeed. What a pleasure.
Rory Sutherland:Thank you.