Evidence-based Management: An Application to Persuasive Advertising

1. Evidence-based Management: An Application to Persuasive Advertising J. Scott Armstrong The Wharton School, University of Pennsylvania armstrong@wharton.upenn.edu; jscottarmstrong.com July 26, 2014- R8 File: Evidence-based Management/Persuasive Advertising Lecture/Overview of Persuasive Advertising

2. Today’s objectives Ask you to “consider” the benefits of an evidence-based approach to management. Introduce you to “all useful knowledge on persuasive advertising.” Help you to find an action step. Adprin.com

3. Agenda Evidence-based management Development of advertising principles Examples of advertising principles. Action steps for yourself? (Who can persuade you?) Adprin.com

4. Seeking a diagnosis If you have a disease, who should you see: A) A doctor with years of experience who has seen many patients with similar symptoms? B) A doctor who is just out of medical school? Some history: • Prior to around 1940, if you had a disease, doctors were of no help. What happened after 1940? • It was the birth of evidence-based medicine. Although slow to take hold, the benefits have been enormous. Today, doctors are sued if they fail to use the findings. Adprin.com

5. Where does evidence come from? In complex and uncertain fields, experiments provide the only source of valid evidence. This applies to all areas of the social, management, and behavioral sciences. Specifically, advancements depend on experimentation that compares multiple, reasonable hypotheses supported by independentreplication studies. Unlike medicine, evidence-based management has not been adopted by practitioners or by business schools. Adprin.com

6. Applications of evidence-based management • What will global temperatures be in 100 years? (theclimatebet.com) • Will the number of polar bears decrease over the next 50 years? (See on YouTube) • Are mandatory disclaimers in advertising beneficial? “Are Top Executives Paid Enough?” • How can we reduce socially irresponsible decisions in organizations • Are returns on government investments in higher education positive or negative? (“Natural Learning in Higher Education”) Could I convince you to change your position on any of the above items in this lecture? No. So how are people persuaded? Self-persuasion. And advertising (and books and articles can help). We can come back to this later if you would like me to demonstrate that I cannot convince you. Adprin.com

7. Typical complex problem • Failures in observation • Does humor sell? • ___ Yes • ___ No • Complexity: Too many conditions for unaided observation Adprin.com

8. “Advertising is fundamentally persuasion.” - Bill Bernbach (1960) “Everyone is practicing oratory on others thro the whole of his life.” - Adam Smith “One quarter of GDP is persuasion.” - McCloskey & Klamer (1995) Adprin.com

9. Can advertising be improved? “ . . advertising is now so near to perfection that it is not easy to propose any improvement.” Do you agree? Who said that and when? Dr. Samuel Johnson, 1697 Adprin.com

10. Problems in persuasive advertising There are thousands of studies on persuasive advertising, but most are useless. Of the useful studies, most are unintelligible to normal humans, and few show management implications. We need a set of studies to make generalizations(e.g., replications and extensions). Some exciting findings fail on replication. It is impossible to remember the all the findings. In short, it is expensive and senseless for practitioners or students to read the academic literature. Adprin.com

11. Objectives of the Persuasive Advertising Project To summarize all useful knowledge aboutpersuasive advertising in the form of principles (condition/action statements) that are: • useful • operational (what to do under what conditions) • understandable • easy to use • up-to-date • easily accessible when needed Adprin.com

12. Experts’ knowledge typically lacks systematic record-keeping You have seen thousands of ads for watches. What time do they display? By systematic observation of the evidence, one can quickly learn. Most watch ads show the same pattern. Ten minutes after ten Adprin.com

13. Development of principles Actions: most have been proposed by practitioners Conditions: identified by researchers Adprin.com

14. Principles can summarize knowledge A principle describes: • what to do (actions in concrete terms) • when to do it (under what conditions) That is, “Given the objective, product, and target market, use advertising action X…” Example: Do not put a period at the end of a headline. • What is wrong with that as a principle? The principle has no condition. Write the most important advertising principle you can think of for persuading people. Check that it follows the definition for a principle. Adprin.com

15. 195 Principles for Persuasive Advertising There was a many experimental studies over the past century. It took 16 years to develop the principles. Were advertisers pleased? Publishers: Why not the top ten principles? Adprin.com

16. Assessing your current knowledge ___ 1. Complete Test your Advertising IQon adprin.com. (Guessing leads to a score of about 8.) ___ 2. Do the Predict Which Ad Pulled Best assessment. Adprin.com

17. How can you tell which ad would be most effective? Quasi-experimental data: Ad pair from Which Ad Pulled Best Adprin.com

18. Value of experience in advertising 97 pairs of ads were shown to subjects with no expertise in advertising (students). They were asked to pick the most effective ad. They were correct on 54% of their judgments (guessing would result in 50% accuracy). How accurate were experts on this task? 55% Adprin.com

19. Evidence-based principles are often ignored or violated Of the 195 evidence-based principles that apply to advertising: • None were found in an audit of 9 advertising textbooks and 3 practitioner handbooks • When asked whether “principles” were true or false, people did no better than if they had guessed (those who read “pop management” books did worse) • Current practice often violates the principles • The above findings have also been found for marketing principles Source: “Evidence-based Advertising”by J. S. Armstrong (2011)

20. Experimental evidence is resisted when it challenges current beliefs Semelweis’ experiments on deaths of mothers shortly after delivery led to the recommendation that doctors should wash their hands. How would you respond if you were a doctor? How do you normally respond when given evidence that you are wrong about something? The doctors strongly resisted for decades as they did not believe Semmelweis’ experiments. Adprin.com

21. Examples of a condition Does the product (or service) have a comparative advantage? Adprin.com

22. Short written quiz. Do not sign your name & do not yell out your answer. • A bat and a ball cost $1.10 in total. The bat costs a dollar more than the ball. How much does the ball cost? ____ • If it takes 5 machines 5 minutes to make 5 widgets, how long would it take 100 machines to make 100 widgets? ____ • In a lake, there is a patch of lily pads. Every day the patch doubles in size. If it takes 48 days for the patch to cover the entire lake, how long will it take for the patch to cover half of the lake? ____ Adprin.com

23. Results from “Bat & Ball” study Presented to 3,235 students at universities (e.g., MIT, Princeton, Harvard, Carnegie Mellon) with no time limit. • 17% correctly answered all three • Range from 50% at MIT to 5% at Michigan State • 32% missed all three Implications for advertising? People can be led astray when their involvement is low (Frederick 2005). Beware when you purchase low-involvement goods. * The ball costs 5 cents, the machines will produce the widgets in 5 minutes, and the lake will be half covered in 47 days. Adprin.com

24. Involvement Involvement has been important in advertising since early 1900s. Earlier terms included “short circuit” and “long circuit.” • Under “high involvement,” people consider an ad’s claims. • Under “low involvement,” the processing is peripheral—customers are influenced by seemingly irrelevant considerations. Products that are expensive (e.g., automobiles) or that lead to personal risks or to concern about how they are viewed by the consumers’ peer group, lead to high involvement when being considered for purchase. Adprin.com

25. Evidence-based advertising principles • There are 195 principles • They can be used as needed by practitioners • They appear in Persuasive Advertising, Palgrave Macmillan (2010) with free access to the principles online at AdPrin.com Adprin.com

26. Risky Business What would you rather receive: ___A) $500 for sure? ___B) 15% chance for $1,000,000 (and an 85% chance to receive nothing)? Frederick (2005) asked students at various U.S. universities. • About half of the students chose $500. • The expected value of the second offer is $150,000. To reduce customers’ risk, use a product satisfaction guarantee (1.3.7.) Adprin.com

27. Provide information needed by the target market Does this Audi automobile ad comply with the principle? Adprin.com

28. Mouthwash case You are introducing a new brand of mouthwash in a discount store. Would you advertise: A) A low introductory price? B) At its listed price? Why? Long-term sales higher when intro was at listed price When people made their original purchases of this credence product at stores with the low price, they concluded they purchased it for the price—for quality Minimize price and promotional information for new products (1.4.15.) Adprin.com

29. Associate products with things that are favorable and relevant to the product (2.5.1) Good application St. Patrick’s Day (Guinness)Commercial (2:35) Adprin.com

30. May I use the Xerox machine? Predict the percentage of people who would let someone cut ahead of them in line for each of the three stated reasons: 60% (1) “Excuse me, I have five pages. May I use the Xerox machine?” ______ (2) “Excuse me, I have five pages. May I use the Xerox machine, because I am in a rush?” ______ (3) “Excuse me, I have five pages. May I use the Xerox machine, because I have to make copies?” For #2: 94% For #3: 93% Adprin.com

31. Print ads with a “reason why” had higher recall Using Which Ad Pulled Best, we found 37 pairs of print ads where one ad offered relevant reason to buy the product while the other ad did not. Of the 37 ads that used a reason, 65% had higher recall. On average, recall for ads with reasons was 1.3 times higher. Adprin.com

32. Organ donation problem In Germany, 12% of people participate in organ donations, while in Austria, nearly 100% do so. Germany has asked you to propose advertising to increase organ donations. What would you do? Your target market surveys show that 85% of people favor organ donations in Germany. • In the Netherlands, nearly all adults received a letter asking them to sign up. Estimate the success of this approach. • It had negligible effects. • In six European countries where people must take action to opt out of a donor program, 99% are donors. In four countries where one must take action to be a donor, only 15% are organ donors. • Reference for above “To do nothing is in everyone’s power.” -Samuel Johnson, mid-1700s Make the recommended choice the default choice (1.3.4 ) Adprin.com

33. The new pricing policy You are a retailer of a quality product. You learn about a new pricing policy, “P-plan,” that you could implement at virtually no cost. 1. Customers say they prefer P-plan, and they believe it to be a more honest way to do business. 2. It would save time and reduce confusion for customers and retail clerks. 3. It would improve your image as a quality retailer. 4. It would improve long-term profits. Would you adopt this new pricing policy? ___ YES ____ NO ___ NOT SURE Adprin.com

34. Use round prices (1.4.2.) Why? To build long-term relationships and save time for buyers and sellers. Of customers, 66% prefer even prices, and 13% prefer odd. Odd prices take 1/3 time longer to think about and even university students are led to substantial errors. Kmart uses odd prices on 99% of its items while Neiman Marcus uses it on 16%. Adprin.com

35. May I use the Xerox machine? - Part 2 Predict the percentage of people who would let someone cut ahead of them in line for each of the three stated reasons: ______ (1) “Excuse me, I have 20 pages. May I use the Xerox machine?” ______ (2) “Excuse me, I have 20 pages. May I use the Xerox machine, because I am in a rush?” ______ (3) “Excuse me, I have 20 pages. May I use the Xerox machine, because I have to make copies?” Explain your reasoning. 24% (1) 42% (2) 24% (3) Adprin.com

36. For high-involvement goods, the reasons should be strong (2.1.2.) Using Which Ad Pulled Best with 321 tested full-page high-involvement print ads, 71% provided strong reasons. Using Which Ad Pulled Best, we found 25 pairs of high involvement print ads where one of the ads had stronger reasons than other. Example: An Isuzu ad that stated, "the new Isuzu comes in many attractive colors….a powerful new 24-valve, V6 engine and a price tag you can actually afford," had a recall score four times more than that for an Isuzu ad that did not offer strong reasons. On average, recall for ads with strong reasons was 1.5 times higher. Adprin.com

37. Predict the outcome of this experiment The U.S. National Park service posted signs to reduce the theft of petrified wood: “Your heritage is being vandalized everyday by theft losses of petrified wood of 14 tons a year mostly a small piece at a time.” They then did an experiment on the extent to which the sign reduced theft. Predict the outcome: ___A) no change; __B) small reduction; __C) large reduction. Answer: Theft increased 2.7 times. Why? It made the activity seem common (Cialdini 2003) Use social proof to encourage people to follow certain behavior. Adprin.com

38. Associate products with things that are favorable and relevant to the product(2.5.1) Mixed evidence: Analysis of 1,059 TV commercials from leading advertisers found that “scenic beauty” was associated with lower persuasiveness (Stewart & Furse 1986). Probably a negative if the ad has strong arguments. Note: Remember that liking can be a strategy in certain situations, but it is not an objective. Adprin.com

39. Provoke customers only when it attracts attention to a selling point (3.6.1.): Complies Baby picture for John Donaldson, now a drug addict Ad for Bernardos, a UK charity Adprin.com

40. The bake sale case In 2003, an affirmative action bake sale was held on the UCLA campus. It involved selling items at higher prices for white students than for minorities. How would you respond if you were the President of UCLA? National media attention was gained when university administrators called the bake sales racist and discriminatory, and tried to have them banned (scarcity). The selling point was that such practices are analogous to the affirmative action programs used by universities. The bake sale was extended in 2010 & 2011 (video 2:35). Adprin.com

41. Do not mix rational and emotional appeals in an ad (3.1.1.) Experiments: In ads for donations to “Save the Children,” the description of a victim alone had more donations than when statistics were added (Small, et al. 2006). In 80 auto ads, those with both rational and emotional appeals had lower recall than ads limited to one appeal (Mehta & Purvis 2006). Non-experimental data: In TV commercials, ads with “a balance of rational and emotional appeals were poorer on comprehension” (Stewart & Furse 2003). In non-experimental eye-tracking studies on TV commercials, subjects were overwhelmed when both emotion and information were present (Elpers, Wedel & Pieters 2003). Adprin.com

42. A bargain in other terms Which ad will sell more? ____ A. “For a package of 8 note cards, the price is $3. It’s a bargain” or ____ B. “For a package of 8 note cards, the price is 300 pennies. That’s $3. It’s a bargain.” Will they differ much? Why? • 35% • 70% Disrupt, then reframe an offer for low involvement goods that are for immediate sale. (5.1.4) Evidence: Laboratory exp & field experiments in European stores.

43. When customers refuse traditional appeals, surprise them with an unusual approach (5.1.3.) Bernbach’s ad for Volkswagen’s “Lemon”

44. When someone has an opposing viewpoint (e.g. non-smoker vs. smoker), how do you try to change their mind? Should you tell stories or give them facts? Use stories. They: Convey powerful emotional images, which aids recall 2. Lead people to process the information about the example, rather than the argument 3. Do not directly attack the target market’s beliefs, which disrupts counter-arguing When the target market has an opposing viewpoint, consider stories(5.3.1.) Adprin.com

45. Subway story Jared Fogle’s incredible story of losing 245 pounds on Subway sandwiches, diet, and exercise was featured in Subway advertisements. It was powerful and easy to remember. People thought about the example. It was a true story, so it avoided counter-arguing. It led to a successful campaign. Adprin.com

46. Help-wanted ad “Men wanted for hazardous journey. Small wages, bitter cold, long months of darkness, constant danger, safe return doubtful. Honor and recognition in case of success.” Good ad? ____ No ___ Yes In 1913, this small ad from the London Times drew 5,000 applications for a crew of 27 on Shackleton’s trip to the Antarctic. Adprin.com

47. Two-sided arguments Are two-sided ads effective? (Aristotle said yes.) __ Yes __ No __ Yes, but only under the following conditions: O’Keefe (1998) analyzed 107 studies that compared one-sided with two-sided arguments. • When the negative argument was refuted, the two-sided argument was more persuasive than the one-sided. • When the negative argument was not refuted, the one-sided argument was more persuasive. Use a two-sided argument that refutes the negative argument (5.8.1.) Adprin.com

48. British Air Campaign A British Airways advertising campaign invited people to try its business class. If unsatisfied, they would receive free coach tickets for another trip. Was that a good idea? ___ Yes ___ No Explain. Ofir & Simonson (2001) did experiments on satisfaction with a computer company, electric utilities company, supermarket, electronic equipment company, and magazine. All experiments were done in real situations with large samples. Some people knew that they would be asked later about their satisfaction, while others did not. Those who expected to evaluate the product were much less satisfied. Adprin.com

49. Do not invite customers to evaluate their satisfaction with the product prior to consumption (5.11.3) Pre-announced surveys reduced the likelihood that people would complain; thus, producers are less likely to know why they were dissatisfied. What to do? Use unannounced surveys occasionally Train people to listen carefully to customer complaints and suggestions – and use them. Ask customers to report things about the service that delighted them. Adprin.com

50. Evidence for the evidence-based revolution in advertising Now remember that experts were able to correctly identify 54% of the better ads. What was the corresponding accuracy for the non-experts? 73% Source: “Predictive validity of evidence-based advertising principles” Adprin.com