Thursday, May 06, 2010

Marketers vs. Economists

I'm studying at RMIT under the school of 'Economics, Finance and Marketing'. I find this combination interesting, I assume they are bundled together because office space is at a premium not because of a close ideaological fit.

In fact in many ways, Marketers and Economists believe two opposite and mutually exclusive things.

Economists believe people are 'Rational Utility Maximisers' which is nice specific and friendly terminology. Marketers haven't articulated such an assumption, because they don't generally insist on being anything more than a soft science. They have metrics sure, but these are precarious things and known to be so.

So to articulate it more simply Economists believe that people treat information thusly:

1. A person starts with Beliefs or Ideas let's call them 'Old Story'
2. Out there in 'reality' ie. outside our head their are facts.
3. We interpret facts as they become available to us.
4. The new information forms the basis of a new story.
5. If the new story contradicts the old story, we reject the old story and adopt the new story.

Or even briefer the economists believe that Facts drive a New Story which displaces the Old Story. This process is rational, we way up our choices based on the information available to us and make our decisions rationally.

Marketers believe people treat information thusly:

1. A person starts with Beliefs or Ideas let's call them 'Old Story'
2. Out there in 'reality' ie. outside our head their are facts.
3. We interpret facts as they become available to us.
4. The new information forms the basis of a new story.
5. If the new story contradicts our old story, we reject the new story.

The simplest case is to look at Macs vs. PCs. In the 90's microsoft was riding high, the personal computer was dominated by IBM, HP etc. Everyone wanted windows OS and very few people wanted Mac OS with it's funny keyboard buttons, 'trash' etc.
Factually (as far as I know) Macs were in strict utilitarian terms far more user friendly. The mac had a graphical user interface while PCs were still using MS-dos.

Now economists (and perhaps to a larger extent engineers) can't wrap their head around the fact that just because Macs were more user friendly, virus free and functional it didn't make them 'better' to consumers. There is faith in the economists view that people will accurately accept the story, based on facts, features etc that this new story would prevail.

Marketers however, new people were unlikely to even try the Mac, because by this stage microsoft dos, windows etc. was the lingua franca of the computing world. Everybody knew that microsoft (and by extension PCs) were better because everybody was using them. The consumers belief was that Microsoft's market dominance was based on an intrinsic superiority. Thus if you told people that Macs were better and even in strict functional terms it was true, people would reject this story because it contradicted their pre-existing beliefs.

Ironically, the marketers model perhaps describes economists fairly well too. Post GFC, Liquidity Crisis, US-Subprime mortgage which under the 'rational utility maximisers' belief couldn't happen because people would rationally assess housing prices, loans, the role of debt, risks etc. were asked if they needed to change their thinking - most said 'No' despite empirical evidence that their beliefs were irrelevant.

The facts did not conform to their beliefs, so they rejected the facts, just as their own economic model predicts they don't.

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