Take my word for it

We met William for the first time in September’s blog and last month we followed him as he managed a supplier selection process. He is a category manager for a global organisation and is responsible for a wide range of spend including marketing. As a result of the successful supplier selection process he persuaded his colleagues in the marketing team to use 3 direct marketing agencies. By agreeing to the organisation’s framework terms and conditions, the 3 agencies became preferred suppliers.

Kate, a team leader, wants to launch a new direct marketing campaign. She passes her requirements to William who uses the eSourcing tool to issue the request for a proposal (RFP) to the 3 preferred suppliers.

All the suppliers respond but the prices vary greatly. Before William presents the result of the RFP to the marketing team, a number of the marketing managers say that the supplier called Sandringham has the best track record and should be awarded the campaign. William is aware of social proof (note 1) so interrupts the discussion to present his result which shows that Sandringham have proposed the lowest number of days to complete the work. William questions whether the campaign can be delivered in such a short time and after a few minutes evaluating the proposal everyone concludes that Sandringham have not understood one aspect of the requirement.

By contrast, St James have the highest price although they propose the median amount to time. One of the marketing managers comments that St James have a reputation for attracting the best talent by paying them the most. The other marketing managers agree. William explains a Veblen good (note 2), one where a high price boost demand, and that a high price does not necessarily lead to a better campaign.

St James’s proposal provides the marketing team with a price anchor and leads them to select the last of the 3 agencies, Windsor, subject to final agreement on the price.

William contacts the account manager, Harry, from Windsor. Harry explains that they are very busy but their best direct marketing manager has just become available. William is aware of scarcity bias (note 3) so doesn’t panic and asks Harry to look at the price again. Harry responds positively and the next day and William passes the final details to Kate who raises a purchase requisition for Windsor.

This case study illustrated the danger of uncritical acceptance of claims by others. This may be based on the word of one person or of many. By recognising bias and being prepared to challenge it William is able to deliver a better outcome.

Notes

(1) Robert Cialdini, Professor of psychology and marketing, persuaded a hotel chain to adapt the message they left in guest’ room trying to encourage towel re-use. He created 3 different messages. The first, his control message, which stated the environmental benefits, was successful among 35% of visitors. The social proof message, in contrasts, simply stated that most people re-used their towels. This version boosted compliance to 44%.

(2) Dan Ariely, Professor of Psychology and Behavioural Economics, recruited 82 people from Craigslist who were willing to receive 2 small electric shocks in the name of science. All participant were given a painkiller; half were told the painkiller cost $2.50 a dose and half that it was only 10 c. In fact, they all received placebos. 85% of those taking the expensive pill reported less pain compared to only 61% taking the cheaper version. The high price of the pill lead to an assumption that it would be more effective.

(3) Stephen Worchel, a psychologist, recruited 134 undergraduates and asked them to rate the quality of a batch of cookies. The participants tasted the cookies from a glass jar containing either 2 or 10 biscuits. When the cookies were in scarce supply they were rated significantly more likeable and attractive. The participants were also prepared to pay 11% more. Scarcity bias means that the less there is the more you want it.

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