Culture and Economics

2016-05-05 06:11

Save your money.  There’s no secret.  Success in life boils down to two things.  Relationships & Follow-Through.  I can’t remember who told me that, but I think it’s true.  Invest time and emotion in building relationships with the people that really matter.  And always do what you say you going to do.   Simple and obvious….

Both in our professional and personal lives, being someone that others can depend on is the essence of your reputation.  Your personal brand equity.  It takes time to build and concerted effort to maintain.  But, when we show up and come through for people, it opens doors for everyone.

In behavioural economics, the ability to appeal to people on a bio-psycho-social level increases our ability to make that connection. And making that connection gives us the opportunity to follow-through; to deliver on their expectations.  So when we scale up, behavioural economics is about trying to stack the odds in our favour by analysing the data to infer general trends in consumer choice and management theory.  The science of people can be fun:  Identify a potential trend, develop a hypothesis, test it, repeat.

As one would expect when dealing with people, this can be both complex and utterly irrational.   I mean why on earth would a seemingly rational adult stand in a Starbuck’s queue for two hours for a cup of coffee?  The marginal benefit of one cappuccino over another is not worth the opportunity cost!  Or when people literally sleep outside the Apple Store for days before the next iPhone goes on sale?   These brands don’t sell products – they sell communities.

Or the pharmaceutical industry for instance.   Essentially they develop, at great expense, medicines to tackle biological ailments.   Obviously, a drug must result in a biological action, or it’s simply a placebo. (And placebos are a story for another day!)  This is an institutional response to a biological need.   Ten-odd years later the patents expire.  Generics enter the market.  Prices drop.  Yet many people around the world insist on taking the original drug instead of the cheaper generic.  Like two pairs of jeans, the only difference is the label, yet the psychological value of the brand’s promise makes all the difference to how much people are willing to pay. For the same thing.  When people are ill, they tend to seek out the best alternative their money can buy, even when the cheaper solution is just as efficacious.   An interesting conundrum for classical economists.

Apart from the biology and psychology though, consider how your social environment impacts your world view.  More specifically, your culture.   Not the visible rituals like the way people get married, bury their dead or design their buildings.   Rather the deep, unquestioning assumptions we make as a result of growing up in the environments we did.

From day one, we begin to assimilate a set of attitudes and behaviours upon which membership of our social group is contingent.  Starting with our families, we have to think and behave in a particular way or we’ll be ostracised.  Belonging to these groups (family, social, organisational, political) inform our self-identity and status in the hierarchy.  These unquestioned assumptions of how to think and act are so ingrained; we aren’t even consciously aware of their influence on us.  That’s our real cultural heritage.  And these macro-cultural models are pure gold to behavioural economists when we design ways to form relationships and follow-through opportunities with customers and employees.

Consider your own upbringing.  How has this shaped the way you make decisions and how you approach your work?  There is an enormous body of evidence to illustrate how your culture primes you to make certain decisions.   I mean, do you think the British complain like Americans when they receive bad service?  Consider the following….

Is your culture more Individualistic or Collective?  Is your self-identity strongly tied to belonging to a group, or did your upbringing reinforce the idea that you are strongly individual, perhaps even romanticised being different and contrarian?   Perhaps you grew up in a society in which conforming to you parents expectations were tacitly more important than the freedom to be yourself?  Anyone remember the movie ‘My Big Fat Greek Wedding’?   Perhaps you feel the cultural obligation to provide for your family when you start earning a salary; a hallmark of more collective or communitarian cultures.

Think of places like America, Britain, North-Western Europe and Australia.  Countries in which the rights of the individual are vehemently defended.  Freedom of speech, of association, property rights, universal suffrage – all tend to be highly correlated with higher levels of innovation, functional efficiency and living standards (and depression too).  Contrast this individualism with the cultures of Southern-Europe, Latin America, Africa and Asia, and we begin to understand how social convention is often considered more important than stand out individualism.  These are relational cultures, rather than task-oriented ones. Even the political implications of your personal cultural heritage: capitalism and socialism - are often general proxies of national attitudes to individualism and collectivism.  Like religion, the where and the way you grow up strongly influences the lens through which you view the world.

In practice, this means that success means different things to different people.  At its core, advertising appeals to the promise of success - making it crucial to understand what a target market values as success.  When designing a marketing campaign to an individualistic target market, it makes sense to emphasize ‘your personal enjoyment’ of that beer.  Picture the lone adventurer, expressing his freedom by doing adventurous things, and then cracking that satisfying cold one at the end of the day.   Or do we position the beer as part of a communal narrative.  Making it that thing that brings people together around some social ritual like watching football?   Clearly cultural context is everything.   Watch ads closely: look for ads directed at individuals and ads that appeal to the collective.  A Guinness ad in Ireland is very different to a Guinness ad in Africa.  Which probably explains why South African beer ads often come across as clumsy with all that cross-cultural brotherly love going on.  It’s all warm, fuzzy private schoolboy stuff.  Hardly the lived experience of most unfortunately.

Similarly, when we motivate people, research shows that while we may be able to reward specific individuals greater than average increases in an internally-competitive, individualistic organisational culture like a bank, we’d be crazy to try that in a more collective culture like on a mine.  Just imagine the labour friction that would result by circumventing the collective bargaining process, and paying some miners more than others.   Besides, there is plenty of evidence to suggest pay-for-performance remuneration practices in collective cultures lowers overall productivity, so it wouldn’t make business sense either.

Uncertainty Avoidance.  Another distinctive cultural dimension is risk tolerance.   Some cultures are more comfortable with uncertain outcomes – and this definitely impacts risk/reward behaviours in the workplace.  If you were to think about sky diving, bungee jumping and trekking to the North Pole, you’d probably think of a person of Anglo-Saxon decent.   Yes, that is a generalisation, and sure Sherpas climb Everest more than anyone, but you get the idea.   The impact of understanding your target market’s general attitude to risk makes a big difference in the purchasing decision process.  One can then appreciate the benefit of spending most of your time explaining the competitive advantage of using your product in one market, while stressing your guarantees and warranties in another.

Even some jobs require a high degree of risk tolerance.  Think credit loan officer or financial market trader.  Strong evidence suggests that cultural attitudes to risk have a significant impact on decisions taken on the job.  In one actual case, the design of a unit trust marketing campaign focused on superior returns in one market (South Africa which scores relatively low on uncertainty avoidance), while stressing the safety of capital in another (in Kenya which scores high).  Despite the fact that the product was exactly the same, by measuring national attitudes to financial risk taking, we were able to shape the appropriate marketing message.  When you appeal to a person’s basic underlying assumptions, they feel a greater affinity to your product.  When you challenge them, you get nowhere.

Or consider how you would approach a marketing campaign in Texas or Nigeria, compared say to Sweden or California?   Which markets are more likely to purchase the big 5-litre, V6 car, and which the eco-hybrid?   In the industry we refer to this as the Masculinity / Femininity of the market.  (Hofstede’s labels, not mine). Pitching to markets that score high on masculinity typically appeal to consumer concepts such as ambition and competitive advantage.  In other cultures, this type of aggressive product adjective isn’t that well received.  So next time you’re pitching in Scandinavia, make sure to speak about your product’s eco-credentials, your environmentally sensitive supply chain policy and that corporate social responsibility programme.

Obviously there are lots of other cultural dimensions that should be considered when shaping a brand or managing a culturally diverse team.  If you want to read more, Google ‘Hofstede’s dimensions of culture.  Insight into how people see themselves, with which groups they identify and how they attribute value helps a great deal in building relationships with people and following-through on their expectations.  But for now, I’ve overstayed my welcome…

Thanks for reading!

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2010-11-21 18:15

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