The word ‘Economics’ is defined as ‘the social science that describes the factors that determine the production, distribution and consumption of goods and services’. This is what just about everyone in retail is incessantly focusing on today. Economists and accountants everywhere are telling brands and retailers how to save a cent here, shave as rupee off there and how to make things a penny cheaper.
This is all good, value engineering based data, but we’re missing a major point: Between distribution and consumption comes acquiring, or as some call it ‘Shopping’. Because frankly, if a product hasn't been shopped for or bought, it’s pretty hard to consume.
In addition to this serious omission, brands and retailers are at risk of missing out on the most important questions they should be asking of the economists, and its one the bean counters struggle to answer. The question is:
‘Why do people shop for and consume certain items?’
To get a meaningful answer to this question, you need to put the accountants back in their boxes and dust off the psychologists. Because they offer something much more powerful than plain old economics: Behavioural economics applies psychological insights into human behaviour and explains economic decision-making. The truth is that psychologists go out and look at shoppers while economists very rarely look up from their spreadsheets. As a result, the psychologists provide the why behind the buy!
Economists listened to Little Chef customers in the 1980s when it had 400 branches. Consumers explicitly said they wanted healthier food, but implicitly, the customers wanted faster food. Little Chef’s ill-fated decision to go ‘freshly cooked to order’ and reject the cost of providing restaurants with microwaves, when just about everyone else was aiming for ‘fast food’ proved a costly error.
Psychologists recognised that in the 1980s, roadside restaurants needed to provide faster food. At that time MacDonald’s had only 100 outlets.
Economists reported that the infamous Tropicana relaunch a few years ago caused a financial loss of $33 million in just 7 weeks!
Psychologists would have recognised that a number of key visual heuristics were being removed or changed as part of the new pack design and therefore it was more than likely to fail. But were the psychologists asked?
Economists could report the financial implications of Tesco delisting Kingsmill, Carlsberg and Ribena.
Psychologists can provide the implicit reasons why people buy into these brands enabling them to become true category champions once again.
So come on now, economists, you’ve had your go at retail in recent years and frankly it ain’t that good at the moment. Move over and give the psychologists a crack.
What economists think about psychologists:
- Psychologists only study rats, pigeons, college freshmen and crazy people.
- (Perhaps due to the above,) psychologists are not very rational.
What psychologists think about economists:
- Economists stubbornly hold to a rational model of mankind that they must know is obviously wrong.
- Economists can never agree about what will happen to our economy.
Between us we can make things better: Better for brands, better for businesses and most importantly better for shoppers and consumers.