December 2013

Insights – Branding and Neuromarketing

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Background Brands - Why do we all love or hate them, and why does it matter? It matters because brands are formidable and not only exert a powerful influence on consumers by affecting their purchasing decisions, but also make a valuable impact on all businesses over and above the financials – Twitter, Amazon and Facebook are testament to that. Take a look at Table 1 which shows the recently published top 10 brands. No surprises there.

Table 1 - Top 10 Global Brands 2013

Position Brand Value $ million 1 Apple 98.3

2 Google 93.2

3 Coca Cola 79.2

4 IBM 78.8

5 Microsoft 59.5

6 GE 46.9

7 McDonalds 41.9

8 Samsung 39.6

9 Intel 37.2

10 Toyota 35.3

Source: Interbrand 2013 judged on 3 criteria: the financial performance of the branded products or service; the role the brand plays in influencing consumer choice; the strength the brand has to command a premium price, or secure earnings for the company.

Here’s the thing - these companies don’t just offer quality commodities which service a real need and give us a benefit, many companies do that, but what these brands seem to do over and above that, is build relationships with consumers who become genuinely attached and engaged with them – What they seem to be able to create is a unique emotional “experience”.

Take Apple for example, consumers don’t just buy computers, they buy Appleness,”complexity made simple”. At McDonalds, we don’t just buy hamburgers, we buy a “quality, service, cleanliness, and value” experience.

But how do they do it? The answer is we don’t yet know. All we do know is how complex the subject of branding and marketing is. More recently there have been some exciting advances which might just start to give us some clues.

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Jack Trout, marketing strategist, once said that a business needs to differentiate itself in the minds of consumers, “Marketing battles take place in the mind of a consumer or prospect. That's where you win. That's where you lose.”

Bit of history In 1637 the philosopher, Rene Descartes, postulated, “I think therefore I am” and believed in the separation of the mind and body. Because of this separation Descartes believed we were rational and that rationality drove behaviour and this idea prevailed for over 300 years. However, in 1994 the neuroscientist, Antonio Damasio, turned this idea on its head the result of which has had a profound effect on the world of marketing, contributing to it fast becoming an interdisciplinary field as we try to get inside the heads of consumers.

To demonstrate “Descartes’ Error”, Damasio designed a card game known as the Iowa Gambling Task, which has been replicated across lots of experiments using various techniques.

The way the game goes is this. People are shown 4 virtual decks of cards. Each person is told that each time they choose a card they could win some money, but, every so often, choosing a card will cause them to lose some money. The goal of the game is to win as much money as possible. Occasionally, in this experiment a card will also have a penalty. Each deck is different, in that the losses are distributed differently, so that some decks are "bad decks" and others "good decks", because some will lead to losses over the long run, and others to gains.

As you would expect, most players sample cards from each deck, and after about 40 or 50 selections they become fairly good at figuring out and sticking to the “good decks” (wouldn’t you!). When the researchers looked at the biological changes in the players’ skin, it showed a "stress" reaction to hovering over the “bad decks” after only 10 selections, long before any conscious sensation kicked in to realise these decks were “bad”. The suggestion being that we make decisions emotionally, not rationally, as Descartes proposed.

He saw them as changes in both body and brain states in response to different stimuli or pieces of information. The way it happens is that physiological changes (e.g., muscle tone, heart rate, endocrine release, posture, facial expression, etc.) occur in the body and are relayed to the

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brain where they are transformed into an emotion which tells us about the stimulus/ information we have encountered, and, dependent on that will be how we will react. So for example, if we encounter a product with a favourable emotion we might be driven to purchase it.

The point is that Damasio was instrumental in changing how we think about emotions and this has influenced marketing techniques and widening the field.

Pepsi and Coke Competition has always been fierce between Pepsi and Coke with the Coke brand always ranked higher than Pepsi. Back in the 1970s and 1980s Pepsi ran a campaign and invited people to do a blind test of Pepsi and Coke saying which taste they preferred, and most preferred Pepsi even though both drinks are identical in chemical composition. Pepsi tried to capitalise on this in their ads showing this preference, but it didn’t do the trick - Coke remained the top brand, a puzzle to marketers and no doubt Pepsi!

However, after Damasio’s findings, in 2004 neuroscientists revisited this experiment using brain scanning techniques. Once again people were tested without knowing the brand and again 50% chose Pepsi.

Here is the puzzle, Pepsi produced a stronger response than Coke in an area of the brain associated with positive value judgments (or pleasure to you and me), implying they liked the taste of Pepsi better. But further on into the experiment, when the people were told they were drinking Coke, 75% of them said that Coke tasted better. Their brain activity also changed – an area of the brain related to cognitive powers (thoughts and knowing) was activated and an area of the brain which plays an important role in the consolidation of information from short-term to long-term memory, suggesting those who liked Coke had been “aroused” by the brand and related it to memories and earlier positive experiences and judged on that irrespective of the current taste.

So for Pepsi their market share problem was one of brand perception (or emotional responses), not formula, and that is where they should focus their efforts, rather trying to improve the formula.

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Neuromarketing – Marketing through Science Neuromarketing was named in 2002 by Ale Smidts and is in its infancy, but emerged from the shift in thinking caused by Damasio. It is a multi-disciplinary field, blending psychology, biology, economics, medicine and neuroscience.

It tends to use sophisticated tools and techniques to measure changes in the activity of parts of the brain such as changes in physiological state (such as heart rate) to learn why consumers make the decisions they do and what part of the brain is telling them to do it.

The main techniques used are as follows.

fMRI = Functional magnetic resonance imaging is a technology that measures brain activity by detecting associated changes in blood flow. This technique relies on the fact that cerebral blood flow and neuronal activation are coupled. When an area of the brain is in use, blood flow to that region also increases.

EEG = Electroencephalography is the recording of electrical activity along the scalp. EEG measures voltage fluctuations resulting from ionic current flows within the neurons of the brain. In clinical contexts, EEG refers to the recording of the brain's spontaneous electrical activity over a short period of time, usually 20–40 minutes, as recorded from multiple electrodes placed on the scalp.

GSR = Galvanic skins response is a method of measuring the electrical conductance of the skin, which varies with its moisture level. This is of interest because the sweat glands are controlled by the sympathetic nervous system so skin conductance is used as an indication of psychological or physiological arousal. Therefore, if the sympathetic branch of the autonomic nervous system is highly aroused, then sweat gland activity will also increase, which in turn increases skin conductance. In this way, skin conductance can be used as a measure of emotional and sympathetic responses.

Figures 1 and 2 show the activity from research into branding using fMRI and also the different parts of the brain which are in use when we are choosing between brands. It is fascinating to see the many different areas which light up during the experiments, rather than just one.

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Figure 1 - Images of fMRI scans

Figure 2 - The many brain systems which have been implicated in brand preference

Prominent brain areas involved in brand decisions. Abbreviations used:ACC = anterior cingulate cortex; dlPFC = dorsolateral prefrontal cortex; lOFC = lateral orbitofrontal cortex; mOFC = medial orbitofrontal cortex; NAcc = nucleus accumbens; vmPFC = ventromedial prefrontal cortex; VS = ventral striatum. Plassmann, H., et al., Branding the brain:

A critical review and outlook Journal of Consumer Psychology (2012), doi:10.1016/ j.jcps.2011.11.010.

Its seeming precision and its potential for being an accurate predictive tool has grabbed the attention of many large organisations, not least because

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investing in their brand and marketing efforts is costly and reputations are at stake, so getting it right is vital, so methods such as neuromarketing which can reduce risk are attractive. So convinced are Google that they have invested in their own laboratories to enable company-specific market research. Table 2 shows other organisations which are proponents.

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Table 2 - Proponents of Neuromarketing and their Applications

Of course we don’t know the full value or return on investment for most of these studies but we do know that neuromarketing studies don’t come cheap. According to Forbe’s, an average EEG or fMRI marketing study costs in the region of $50,000, or just over £30,000 to you and me. Yes it is costly and invasive and out of reach of SME’s but as with everything over time the technique will become cheaper.

Another organisation which seems to have found value in the method is Campbell Soup. In 2005 sales of condensed soup were declining, and, frustrated with conventional marketing techniques, they turned to neuromarketing for some answers which highlighted that context was important (where people were located at the time of seeing an advertisement/brand) in their advertising, because when they showed adverts of soup to people in their homes, it elicited feelings of warmth as intended, but was not the case when the same people were shown the same adverts in grocery stores.

While at the grocery store they also studied them shopping for soup and found that the many varieties on offer created confusion, leading some to ignore the brand and just pick any soup from the shelf without any biometric response (indicating little of any emotional response). Those who did spend

Company Application

Proctor and Gamble

Launching of Febreeze room freshener

Motorola Product design

Delta Airline To learn what would make a fabulous experience

Hyundai Changing the exterior appearance of the car

Frito Lay (Pepsi) To test commercials products and packages and to learn more about appealing to women

Yahoo To test pre-release effectiveness of its branding campaign

PayPal/eBay To test speed and security issues of e-shopping

Microsoft To know engagement of Xbox users while playing the game, including their feelings of surprise, satisfaction and frustration

Buick Motors In enhancing dealers experience with customers – increased sales from 9% to 40%

Google To measure the effectiveness of YouTube overlays versus prerolls and found that overlays were much more effective with subjects

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time searching had bigger spikes in their biometrics (indicating a greater emotional response), but more importantly these people tended to put more soup in their baskets and proceed to purchase.

They also found that where the brand name was positioned on the display pallet made a difference – the higher the positioning the lower the response. Interestingly, Campbell were very proud of incorporating a big spoon holding a sample of soup into their labels, but surprisingly they found that this also provoked little emotional response, which was reinforced in follow-up interviews with people reporting the packaging didn’t look warm.

The upshot of all this was that Campbell figured out that, particularly in stores, they needed to trigger greater emotional responses to secure sales. As a consequence, they made their logo smaller and placed it at the bottom of the display containers, colour coded their packages for different lines of soups to help people choose, and to appeal to their consumers’ emotional psyche, removed the spoon and replaced it with an image of a warm ‘steamy’ soup.

The condensed soup brand had an estimated 2% increase in sales, but whether Campbell got a return for their investment, we don’t know. It is interesting to note too that the neuromarketing studies were complemented with traditional interviewing.

So, is neuromarketing advancing our knowledge of brand preferences? Just think for a moment of the vast amount of information that comes through our senses. It has been estimated that we encounter 11 million bits of information every second! So how do we choose between brands? Neuroscientists have recently proposed that we go through a four stage process, each involving a different set of brain systems before we decide to buy!

Figure 3 on the next page and for those of you who are interested and still with it, there is an explanation of each stage, or as marketers might like to think of them as hurdles for jumping. Don’t be put off by the headings – it’s just jargon! If you would like to know more detail of the study please refer to the authors.

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Figure 3 - A framework for brand decision making

Value signals important for brand decisions, Plassmann, H., et al., Branding the brain: A critical review and outlook

Journal of Consumer Psychology (2012), doi:10.1016/ j.jcps.2011.11.010.

Hurdle 1 - Representation and Attention Before consumers even start on the road of preferences a brand needs to be identified and recognised. This means that out of all the information coming towards us through all of our senses, we need to pick out a brand, and of course each organisation hopes it will be theirs!

At the same time as all this external information is flooding in, our brains are processing (even subconsciously) our “internal state” (our bodily functions and reactions which alert us as to whether we are we thirsty), and also our “external state” (making us aware of where we are; a pub, lounge etc.). Our senses, and the visual system in particular, have evolved to help us to identify things very rapidly and neuroscientists have shown that consumers can identify two different food brands and make up their minds about which one they prefer in as little as 313 milliseconds, often subconsciously.

Even if an organisation has managed to pass the brand identity hurdle, it still has to get consumers to “attend” or pay attention to it, before any

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move to purchase will begin. Again, an evolutionary thing, but we have the ability to filter out information considered irrelevant, the upshot being we pay attention to some things more than others.

Implications – It has been known for a long time that packaging has taken prominence over products in the minds of the consumer (beauty product packaging and its influence is good example), but this framework shows this tendency happens at a very early stage – and that colour, size, shapes, faces, texts will grab our attention more than others, so it is vital to get this right, more so if a new product/service is being launched. Of course, top brands have an advantage because they are familiar to consumers they are identified immediately.

Hurdle 2 – Predicted Value So now having sparked interest the consumer starts to “attend”. At this stage he/she evaluates how much they might like what’s on offer. Studies suggest that at least three brain structures are involved in this process alone, and if we don’t think we will like it, that’s it!

Implications – Marketers have to be very clever at influencing and persuading consumers with well thought through, strong communications as to why they might like an offering and the benefits we will get out of their product/service and tell us repeatedly! Benefits, not just of the product/service itself, but on an emotional level too. This is where stories help to make it real, appeal to our emotions and bring products alive.

Hurdle 3 – Experienced Value If a consumer has had direct experience with the product/service offering or brand before, their brains will activate different experience areas, depending on whether it was good or bad.

Implications - If a consumer has had a bad experience and this is associated with the brand it will be reinforced and transferred to all of their products/services, similarly if the experience was good, that brand has a head start for any new or changing products.

Hurdle 4a - Remembered Value In this stage the brain refers to memory and whether they have come into contact with the brand before, over and above any direct experience. It might be they have seen ads or they might have been told about the brand and depending. If the brand made a strong impression it will have been

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embedded more deeply in memory and hence retrieved more easily to form part of the decision making.

Implications – The implications for this is that an organisation needs to make powerful communications in order to attract new consumers. Again although this is known already, there is now an explanation as to why it might be more vital and as to why some ads work better than others.

Hurdle 4b - Learning The process shows that learning happens across many brain levels and systems which means that and marketing efforts can influence consumers at all stages of the decision making process.

Implications – As we can learn at differences stages, our thinking and reactions can also change. At least opinions are not perhaps not hard wired, so if a consumer has had a bad experience of the brand it could be changed.

Summary Brands play a pivotal role in a company’s value generation and so far the levers of success have been evasive. If the framework proposed is correct, it seems to be the case that the top brands have the ability to pass all the hurdles favourably, which is why we choose to buy from them. In turn, we can appreciate why the stakes of a brand are high because consumers can re-learn experiences and change their minds both from the outside in and inside out!

It seems to suggest that consumer decision making is an unconscious, staged affair requiring marketers to be very skilled and creative at targeting communications accordingly. For those who repeatedly get it right the dividends are high.

Its potential stems from the fact that it may make it possible to predict behaviour in a more accurate way than through traditional methods. On the downside, from what I have seen, many neuromarketing studies are limited because they are small scale, and have used individuals in a moment of time, often neglecting the social and cultural effects groups can exert such as cultural influences, peer pressure and social media, vital for trading in a global world.

It is likely that in time neuromarketing will become a standard tool in the researcher’s toolkit. Whether it will become a substitute for talking to real people remains to be seen. Psychologists know only too well how complex

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human behaviour is, how it can be affected by past experiences and how some can be more easily changed than others. They have also observed and produced explanations for many branding and purchasing phenomena also using scientific methods. The time has come for us to collaborate. Integrating disciplines and approaches can be no bad thing in understanding consumers.

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References Burman, C, Hegner, S and Riley, N, Towards an identity-based branding, http:www.sagepublications.com, Volume 9, pages 113-118.

Fugate, D, Neuromarketing a layman’s look at neuroscience and its potential application to marketing practice, Journal of Consumer Marketing, 2007, 24.7, page 385.

Plassman, H, Zoega, R, Milosavljevic, Branding the brain: A critical review and outlook, Article in press, Journal of Consumer Psychology.

Schmitt, B, The consumer psychology of brands, Journal of Consumer Psychology 22, 2012, pages 7-17.

Stuart, H and Jones, C, Corporate Branding in Marketspace, Corporate Reputation Review, Spring 2004:7, page 84.

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Ann Robertson runs an independent business consultancy, specialising in insight, business support and mentoring services to SMEs. She is quite unique in that she is a psychologist with an MBA. She is a very experienced researcher interested in cutting edge techniques, trying to take out the academics and highlight advances

in current thinking to keep her main audience updated.