The referendum for Scotland’s independence from Britain was a closer result than many expected. This was partly down to the strong campaign by those in the ‘out’ camp, but it was also due to a glaring error made by the unionist group before the thing even got going.
That mistake was to let people in favour of independence use the word ‘yes’ while they opted for ‘no’. By long association, the word ‘yes’ conjures in the mind a positive decision, while ‘no’ sounds stubborn and, by definition, negative.
It doesn’t even matter what people are saying yes or no to, yes wins every time. Imagine if Barack Obama’s run for the Whitehouse had been underpinned by the declaration ‘no we can’t!’.
It’s telling that the EU membership referendum has been fought using the words ‘leave’ and ‘remain’, two neutral descriptions of the UK’s future. Neither enjoys a linguistic advantage over the other.
Backing the loudest
Behaviour, then, is not easy to understand or predict. Economists tell us that in order to sell a product you just have to make it cheaper than your competitors. But this ignores brand value, amongst a host of other variables.
People pay more for brands not because the quality of the product is better, but because they trust recognised names not to poison them or blow up in their faces. So convinced are we by brand messaging that new products have a tough time breaking through, even if they are better or cheaper.
For investors this represents a challenge and an opportunity. New consumer-facing companies have an uphill struggle ahead of them, but companies that understand how people think can steal a march on those who don’t.
The examples of odd customer behaviour are endless. Why, for example, does darts enjoy an international TV audience and a passionate following, while archery does not? It’s simply that one has a more interesting system of scoring than the other.
Why do you feel unlucky if you buy a car from a friend and it breaks down after six months, but cheated if you buy from a dealer and the same thing happens? Why is vaping so closely associated with with smoking, despite studies showing the health effects are so wildly different?
Seizing the opportunity
For every example of weird behaviour there’s a company capitalising on it. Who would have thought that writing a food order on a smartphone app would be so preferable to speaking to a restauranteur direct?
Yet the food delivery aggregators like Hungry House, Just Eat and Uber Eats form the basis of an industry valued in the billions of pounds.
And for every winner there is a loser. The rise of Netflix, for example, has a famous parallel with the demise of Blockbuster. The Happy executives at Uber are in stark contrast to the grumpy faces of London’s black cabs, who suddenly find a big chunk taken out of their market.
When Gary Lineker started advertising Walkers Crisps he essentially consigned Golden Wonder to the dustbin of history. Yet Des Lynham couldn’t do the same for ITV in the face of competition from the BBC.
With Des at the helm of the BBC’s football World Cup commentary would receive four times the viewers of rival ITV when both channels screened a final. After ITV poached Des in a big-money transfer the lopsided viewing figures stayed the same and Des’ star faded.
Doing the legwork
Before backing a company, therefore, you must ask the question, ‘Does this business really understand it’s market, quirks and all?’ Is it that people really want to watch Des Lynham, or do they just prefer not to sit through ad breaks?
Getting a big return might require a counter-intuitive investment, like backing a house-sharing website when the world is full of hotels, but as in the case of Airbnb, the potential payday could justify the risk.
People are odd. They make funny decisions based on tiny changes to a product or service. Back people who understand these nuances and you’ll find yourself in a strong position to make a tidy return.