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Buy-ology - by Martin Lindstrom |
Now there is a fascinating new book that explains the actual science of why we buy things.
Martin Lindstrom’s book, “BUYOLOGY Truth and Lies About Why We Buy” shatters conventional wisdom and tells us why we really buy certain products or why we’re loyal to certain brands. Lindstrom partnered with researchers at Oxford University to launch the largest neuro-marketing study ever conducted to find out how our unconscious minds influence our buying decisions. At a cost of more than seven million dollars the team monitored more than 2,000 people from all over the world to see how their brains reacted to such things like product placements, subliminal messaging, brand logos, safety warnings and sexy or provocative packaging.
I wanted to know if Lindstrom could apply any of the findings to help explain what is going on right now in the investor’s mind. Below is our email exchanges:
You say that “fear” sells in politics – but fear is keeping a lot of money out of the market - how can “fear” be used in today’s financial world to get people to buy?
Lindstrom: Our society is under tremendous stress at the moment – we desperately need a “fence around us” which can help us to feel safe in these uncertain times – those products or services which can help us to build or maintain such a fence will be the winners. Products fulfilling this vacuum could in the financial world be extremely secure financial products with little risk and no return, insurance products or alternative investment products which stress safety. People will buy investments again if financial services companies figure out ways to sell to our fears and alleviate them.
In the fast changing consumer goods category we’ll see more functional or rational products appearing and capturing markets. Refrigerators which can store tons of foods in an economical way and help families to buy large quantities of food at discount prices, fuel efficient heating products, clothes with multiple functionalities and which are less fashionable and more practical, “how-to-products” telling how to create healthy yet cheap school foods for the kids, investment books – in short products which help to make us feel safe, save money and become more lean in our lifestyle. Those products are likely to be marketed by the usage of fear – like – “are you afraid of not being able to pay the school fees for your kids?” or “are you concerned about losing your retirement money” etc. In short – the marketing strategies that will work will be those that trigger the amygdale (aka the “fear center”) in our brain.
You write about rituals and how they and our superstitions affect how we buy. The winning ritual on Wall Street has always been, “buy low/sell high” – well, we’re pretty low and no one is buying – why is that?
Lindstrom: There are several reasons why. The primary reason is that we’re on alert. Remember, human beings did not evolve to work or deal on Wall Street. Instead, we were built to avoid dangers and to survive under extreme conditions – like facing a dangerous tiger. When we’re on alert, our brain’s amygdale (also in layman term called our “fear center”) makes us react to danger impulsively, and much faster than our rational brain can think. This exact behavior is what is taking place in today’s financial markets. We’ve all become substantially more on alert than just one year ago. … In short we’re substantially more reactive and thus the markets become substantially more volatile. So when Wall Street in the “good old days” said – “buy low/sell high” – our rational mind is disengaged – and our amygdale is in control – turning the entire situation into an emotional game instead of one driven by common sense and rational thinking.
The investor icon aka Warren Buffett writes in an editorial that, “A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful” and he’s buying big time – how does someone of Warren’s stature influence the way we buy – even when people are terrified of losing their shirts?
Lindstrom: I wish I could say that he has an enormous influence – big enough to turn it all around – however the challenge we’re facing even seems too big for Buffett – there’s no indication today that his move to invest in Wall Street some weeks ago – as well as his advice to the general public about buying has had an effect. If the crisis had been of a less dramatic scale I’m sure his advice would have made a big impact for the simple reason that we humans in a crisis tend to listen to our leaders since trust makes us feel more comfortable.
I am an optimist and I believe that we will bounce back from this current financial crisis but – how will the crisis affect how we buy in the future?
Lindstrom: In my mind there’s no doubt about that we’ll bounce back again – history tells us so– but unfortunately we are very short sighted. The best way to illustrate this was a recent fMRI scanning experiment where psychologists asked a group of random students to choose between a pair of Amazon.com gift vouchers. If they picked the first, a $15 gift voucher, they could use it at once. If they were willing to wait two weeks for the $20 gift certificate, well, obviously they’d be getting more bang for their buck. The brain scans revealed that both gift options triggered activity in the lateral prefrontal cortex, the area of the brain that generates emotion. But the possibility of getting that $15 gift certificate now caused an unusual flurry of stimulation in the limbic areas of most students’ brains—a whole grouping of brain structures that’s primarily responsible for our emotional life, as well as for the formation of memory. The more the students were emotionally excited about something, the psychologists found, the greater the chances of their opting for the immediate, if less immediately gratifying, alternative.
Of course, their rational minds knew that the $20 was logically a better deal, but—guess what—their emotions won out.
One necessary change in how we buy in the future is that we’ll first have to learn how to save money. Our current generation (including me) have never learned the importance of saving the way that my parents did since they experienced a war. Most of today’s consumers have never even tried the feeling of not being able to afford food tonight. This change will take time – but will happen – and once it happens it will be like a tanker at sea. It takes days for a tanker to change direction – yet when it happens it takes days to get it back to the original course again. Or said in another way – the damage will be hard and long and we’re likely to feel this for years rather than for months – so even though you and I can agree that we’ll bounce back again, there’s no doubt that the bounce will be a gigantic (and very) slow one.
Questions, comments?







