Putting the “R” in R&D: Theory-Driven Experiments
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Transcript of Putting the “R” in R&D: Theory-Driven Experiments
Putting the “R” in R&D:Theory-Driven Experiments
Jonathan ZinmanDartmouth College
May 18, 2009
Disclaimer:Different Backgrounds
You:• Consumer goods and services• Digital• Some wholesale elements• Ultimate objective: profit
Me:• Consumer finance (intertemporal choice)• Snail mail, bricks and mortar• Retail• Ultimate objective: discovery
– What makes people, markets tick
Premise: “Theory” Matters
• Theory = body of evidence on what drives decisions in a deeper sense– Consumer psychology– Competitive dynamics
• Why do we need it?– Tells us what to test– Generates big ideas: product development for
missing markets
Theory Tells us What to Test
Can’t I test everything? No• Not even in pricing (example later)• Certainly not in marketing/messaging
– Logic of psychology is that subtle differences in content, timing thereof can affect behavior
– So in principle infinitely many “frames”, “cues” to test
• Infinitely many more combinations thereof– exponential economics working against us!
– All this compounded by “information overload”
Theory Tells us What to Test:Marketing/Messaging
• Hypothesis: “Trigger emotion/intuition, not reason/deliberation, when selling something that’s not consistent with customer intentions”
• Example: Burger King• Example: direct mail experiment
– Subprime consumer lender in South Africa– 50,000 former clients– Who hadn’t borrowed in a while
Results Consistent with Hypothesis
• Hypothesis: “Trigger emotion/intuition, not reason/deliberation, when selling something that’s not consistent with customer intentions”
• Findings:– Content triggering deliberation backfires– Content triggering emotion spurs takeup– (Overall: content effect large relative to price)
Theory Tells us What to Test:Another Messaging Example
• Hypothesis: “Trigger attention/deliberation, not emotion/intuition, when selling product consistent with customer intentions”
• Example: savings product utilization– 3 different banks, 3 different countries– 14,000 clients who signed up for commitment or goal-oriented
savings product– Test: does merely reminding people (by text, mail) to make
deposits increase saving?– Yes, by about 6%– Emotional appeals within reminders (loss vs. gain frame) have
no effect• New example: energy conservation
Theory Tells us What to Test:Pricing and Direct Marketing
• Working with subprime consumer finance company that wants to position as “trusted, first-stop, one-stop”
• Rolling out alternative checking account• How sell transparency, still make money?
– Banks make all their money on hidden fees• Knowing customer and her existing relationships key: if
you pitch “avoid hidden fees” to someone with bank account she may change behavior, but not with you!
• Test:– Pricing (more vs. less transparent) x– Pitch Orientation (own vs. competitor attributes) x– Customer Status (banked vs. not)
Theory Gives us Big Ideas:Behavioral Diagnostics » Treatments
• Cognitive problem highlighted by research: consumers impulsive, lack self-control– Health: weight loss; smoking– Financial management; time management
• One solution: commitment– Help consumers formulate and stick to a sensible plan, in
their less-impulsive moments• Missing market: enforcement (ruthlessness)
Theory-Driven Product Testing:Commitment Contracts
• Domain/product-specific: savings• “Category-killer” contract providers
Theory Gives us Ideas:Another New Product to Test
• Imagine a product/service space where self-help doomed to fail– Personal finance: more like medicine or engine repair
than sanding a deck– Only worse– Research showing us how and why
• Unlike other such markets, no obvious place for most people to go to get “treatment”
• Why not? Cognitive forces*market forces– Consumer psychology: biases and limitations– Firms know these– Consumers don’t, or lack motivation/ability to get help
Product Development:Financial Medicine
• Events, regulatory response creating disruptions– Increased consumer awareness– Limits on firms’ ability to cater to consumer biases– Researchers: engineering, prescriptions
• Opportunity: mass-marketed financial medicine– Store/web-front portals for checkups, advice
Summing Up
Theory helps determine what to test• New products
– Mass missing market in defined space– Category-killer
• Direct marketing– Pricing and messaging
• Customer communication content