Tesco Nappies

Own brand products are ubiquitous in supermarkets. Why are they there? How do the supermarkets convince us to buy them?

As I walked around Tesco earlier today I noticed the huge similarity between Tesco own brand goods and branded items (made by a separate supplier).

Let's take the example of nappies. Here Pampers (owned by Proctor and Gamble) is the leading brand. They occupied about 60% of the shelf space in the nappy category. Approximately 20% were Huggies and a further 20% were own brand; Tesco. (This is a rough guide of market share).

The first question is why were Tesco competing with P&G in the nappy market anyway?

The answer lies in the profit margin. By selling their own goods, supermarkets cut out the middleman. They make more money selling their own brand goods than branded ones. However, each individual product space, or 'facing', is at a premium. The rate of sale is important. This leads us onto the second question.

How does Tesco convince us to buy their own brand products?

When an own brand product is in direct competition with a branded one, like the nappies pictured, the supermarket will try to convince us that their (usually) cheaper product does "just as good a job". It uses tricks such as the following to promote similarity between the different products:

• Placement. Own brand goods are often placed right next to branded ones, and often in the best position ("eye-level is buy-level").
• Colour. The pictures of the nappies above are a textbook example of a supermarket copying the colour of the market leader. Colour is of huge importance in our brains, and colour schemes are nicked wholesale from the branded goods.
• Emotional intent. There is a picture of a smiling baby on every pack of nappies in the store (the one exception is a line of uber-cheap Tesco nappies, occupying a tiny section of the bottom shelf).
• General aspects of design. For example, the number of nappies is on the bottom right corner.
• Packaging. Both types of nappies come in similar plastic packaging, and are of similar size.

Thus supermarkets use psychology and behavioural economics in an attempt to persuade that their product is just as good.

Does that make us fools for buying own brand goods??

No. Well, not necessarily. The own brand stuff may genuinely be just as good, or even better. Remember, branded goods are constantly trying to keep you loyal. They do not like it when you try out the competitors - they might be better!

Conclusion?

Be rational.

Realistic conclusion?

At least try to be aware of what shops and suppliers are trying to make you feel, think and do.

How??

Know some behavioural economics!

Book Review - Nudge

Daniel Kahneman called Nudge the bible of behavioural economics. He wasn't far wrong. It is the defining literature on behavioural economics of our generation. And given that our generation is the pretty much the first generation to have used behavioural economics, that makes it the defining book on behavioural economics. And it isn't hard to understand why.

Let's start with the authors; Richard Thaler and Cass Sunstein. Thaler is one of the godfathers of behavioural economics and the book is brimming with his expertise, while Cass Sunstein, a political scientist, is now employed by Barack Obama to implement 'nudges'. They communicate clearly and with humour. Nudge is a book you will devour in days, and it may just change the way you approach life...

A key concept in Nudge is 'choice architecture'; the context in which a choice is presented, or framed (for more stuff on frames see You've Been Framed - American Idiot). They demonstrate that it isn't possible to present a choice in a way that has no influence over the decision. We are fickle creatures. Neutrality is just not attainable.

So what is a 'nudge'?

"A nudge, as we will use the term, is any aspect of choice architecture that alters people's behaviour in a predictable way without forbidding any options or significantly changing their economic incentives. To count as a mere nudge, the intervention must be easy and cheap to avoid. Nudges are not mandates. Putting the fruit at eye level counts as a nudge. Banning junk food does not."

Sunstein

Some example nudges include encouraging healthier eating, increased  retirement saving, greener living and increased organ donations.

Thaler and Sunstein describe their approach as libertarian paternalism; using the oxymoron to communicate the fact that, while they believe people's decisions can be improved for their own welfare, they respect the freedom to choose. In short, they advocate the use of behavioural economics to improve people's lives, but in a libertarian way. Genius.

Unsurprisingly, since it was first published in 2008 Nudge has been incredibly influential; Downing Street even has a special 'nudge unit'.

The only poor chapter is the one on privatising marriage which, quite frankly, isn't worth the paper it's printed on. It feels like post-modern propaganda, shoehorned into the book for ideological reasons, which is a shame, because the rest of Nudge is so well thought out and scrupulously non-political. But one poorly researched chapter aside, Nudge really is a ground-breaking work.

Thaler

Nudge is so brimming with ideas that I'm struggling to keep this review short(!). Safe to say that it will inspire many a guruhogg blog post to come. I cannot recommend Nudge enough; such a good read. If you only read one book about economics in your lifetime (not a bad policy, per se), make it Nudge. It is Required Reading.

Genre: Behavioural Economics
Accessibility: 10/10
Accuracy: 8/10
Readability: 9/10
Usefulness: 10/10
Verdict: Required Reading

Punctual Preachers - Clocks

Apparently starting services on time is a common problem for churches. So imagine how impressed I was when visiting one recently to see behavioural economics in action, and working!

In their famous book Nudge (book review to follow shortly) Dick Thaler and Cass Sunstein suggest many creative ideas for using behavioural economics to 'nudge' people into making better decisions. The church in question, instead of starting 5-10minutes late as people wander in and sit down, created a 'nudge' of their own...

Two and a half minutes before the scheduled start time of 7pm, a video pops up on the big screen. This video has a clock counting down the 2.5minutes, and in the background a speeded up video taken from a car dashboard as it drove around the town (you know the kind of thing). The service started exactly as the video ended, dead on 7pm.

This is genius on many counts.

Firstly, it tells people that you are serious about the start time and that you will stick to it (this of course relies on you sticking to it).

Secondly, it is a reminder to people that the service will start very soon.

Thirdly, it gives people a couple of minutes to end their conversations and find a seat (better than just a 10 second warning).

Fourthly, the video of the town is fast-paced, which sends out the right message; be quick!

In conclusion, genius. And (admittedly on the basis of quite a small sample) it works!

Recommended listening:
Clocks by Coldplay

Book Review - Predictably Irrational

Predictably Irrational is a fantastic name for a book about behavioural economics. If you are looking for an easy read that will introduce you to many behavioural concepts using quirky yet illuminating stories, then this is the book for you. Dan Ariely takes us through all his research in a gripping tour of the wacky world of behavioural economics, finishing with an insightful take on the credit crunch. If nothing else, Predictably Irrational will convince you of the need for behavioural economics.

Predictably Irrational will not, however, give you a solid academic overview of the subject. The author's approach is to take us through his own wide-ranging research, but this means that genuinely ground-breaking stuff from other authors is sometimes omitted. For example, his chapter on anchors is well-written but illustrate matters with a flawed experiment (incentives were purely hypothetical - see Incentives - Ante Up). (Daniel Kahneman did not have this problem with his book.)

Ariely also includes the single most stupid experiment I've ever seen: it turn out that men, when sexually aroused, are less rational... well, DUH!

Another issue is one of his pieces of advice: hang around with a friend that is slightly less attractive than you in order to make yourself look more attractive (and whatever you do don't tell them, because that ends badly according to one of his readers). While this probably works, it is manipulative. I would not advise following all of the advice in Predictably Irrational. I do not advocate people using and manipulating their friends (or anyone)!

I will, however, end on a positive note. The chapters on cheating and honesty were genuinely new to me. Ariely's research showing that people cheat less shortly after being asked to recall the 10 commandments (or similar) is both credible and important.

Thus Predictably Irrational, while being occasionally frustrating, is well-written, easily accessible, often amusing and incredibly interesting. It is a good read, but it could be better.

Genre: Behavioural Economics
Accessibility: 9/10
Accuracy: 6/10
Readability: 9/10
Usefulness: 6/10
Verdict: A Good Read

PS Ariely has a blog, too: danariely.com