Understanding and influencing consumers (and Managers)

Group	Teacher	Department	Language
	Bart De Langhe	Marketing	ENG

COURSE CONTRIBUTION TO PROGRAM

"Consumption is the sole end and purpose of all production." (Adam Smith)

The most important challenge for any business is to predict and influence customer demand. This course will improve your ability to so by increasing your understanding of how the human mind works. You will learn to analyze yourself, your customers, and your colleagues based on theory and empirical evidence, rather than personal experience or intuition.

The course combines insights from psychology, economics, sociology, statistics, and artificial intelligence. Although we will emphasize managerial problems related to customer acquisition, development, and retention, you will also improve your ability to execute other organizational functions, and more generally, to be successful in life.

Course Learning Objectives

By the end of this course, you will have learnt:

- what makes human intelligence special and different from artificial intelligence
- to question your intuitions, and developed a habit to think about thinking
- to recognize and avoid the most important cognitive biases that can interfere with good decision-making
- recognize (ir)rationality in your own behavior and that of others
- how people value money and time
- how people deal with uncertainty and risk
- how people evaluate products and services
- a scientific approach to study customers
- to analyze drivers and frictions in the path to purchase
- to influence how information spreads between consumers online and offline
- the psychological drivers of (life) satisfaction

CONTENT

1. From the illusion of knowledge to the creation of kowledge ¿Education is the path from cocky ignorance to miserable uncertainty.¿ (Mark Twain) Business fundamentally relies on knowledge creation. Unfortunately, people suffer from an illusion of explanatory depth, believing they understand complex phenomena in much more depth than they actually do, and this illusion hinders learning. Managerial intuitions about consumer behavior tend to be strong, but they are often wrong. The first step toward understanding and influencing the minds of consumers is to know what you do not know. We will then lay out the building blocks for knowledge creation about consumer behavior. We will discuss the value of observation, surveys, and highlight the special importance of business experiments for testing managers¿ intuitive hypotheses about consumers.
2. From homo economicus to homo sapiens Firms provide products and services to consumers in exchange for money. Company profits can thus be seen as the result of a negotiation process between the firm and the consumer. If firms want to maximize the outcome of this negotiation process managers need to act in an economically rational way. We will discuss foundational theories from economics that prescribe how rational agents should behave. Consumer behavior is often inconsistent with prescriptions from economics. But irrational is not the same as unpredictable. To better describe how consumers actually behave, we will augment economic models with insights from psychology. The ability to recognize irrationality in your own behavior and that of others can help you maximize firm profitability.
3. Social influence "You are the average of the five people you spend the most time with." (Jim Rohn) The success of products is not only driven by intrinsic product attributes, but also by the influence people have on one another. Yet, basic social influence is often underestimated. Consumers desperately want to be seen in a positive light and try to manage the impression they have on others. We will introduce a few principles that allow marketers and salespeople to use consumers¿ tendency to engage in impression management to their advantage, and increase the likelihood of getting a ¿yes¿ from consumers. Social media are turning standard communication approaches upside down. We will analyze how messages spread through social networks and discuss how firms can leverage insights from social psychology to influence the diffusion process.
4. Satisfaction "In my lifetime, the changes in the world have been incredible. Now we live in an amazing, amazing world and it's wasted on the crappiest generation of just spoiled idiots that don't care." (Louis C.K.) Most businesses believe customer satisfaction is a very useful metric to keep track of firm performance. It is the most commonly used metric in marketing, just behind net profit, percent margin, and return on investment. In this session, we will analyze the relationship between product performance, customer satisfaction, and firm profitability. The relationship seems obvious, at first blush, but we will see that the pattern is much more complex and requires an understanding of the psychological drivers of consumption and satisfaction.

1. From the illusion of knowledge to the creation of kowledge

¿Education is the path from cocky ignorance to miserable uncertainty.¿ (Mark Twain)

Business fundamentally relies on knowledge creation. Unfortunately, people suffer from an illusion of explanatory depth, believing they understand complex phenomena in much more depth than they actually do, and this illusion hinders learning. Managerial intuitions about consumer behavior tend to be strong, but they are often wrong. The first step toward understanding and influencing the minds of consumers is to know what you do not know. We will then lay out the building blocks for knowledge creation about consumer behavior. We will discuss the value of observation, surveys, and highlight the special importance of business experiments for testing managers¿ intuitive hypotheses about consumers.

2. From homo economicus to homo sapiens

Firms provide products and services to consumers in exchange for money. Company profits can thus be seen as the result of a negotiation process between the firm and the consumer. If firms want to maximize the outcome of this negotiation process managers need to act in an economically rational way. We will discuss foundational theories from economics that prescribe how rational agents should behave.

Consumer behavior is often inconsistent with prescriptions from economics. But irrational is not the same as unpredictable. To better describe how consumers actually behave, we will augment economic models with insights from psychology. The ability to recognize irrationality in your own behavior and that of others can help you maximize firm profitability.

3. Social influence

"You are the average of the five people you spend the most time with." (Jim Rohn)

The success of products is not only driven by intrinsic product attributes, but also by the influence people have on one another. Yet, basic social influence is often underestimated. Consumers desperately want to be seen in a positive light and try to manage the impression they have on others. We will introduce a few principles that allow marketers and salespeople to use consumers¿ tendency to engage in impression management to their advantage, and increase the likelihood of getting a ¿yes¿ from consumers.

Social media are turning standard communication approaches upside down. We will analyze how messages spread through social networks and discuss how firms can leverage insights from social psychology to influence the diffusion process.

4. Satisfaction

"In my lifetime, the changes in the world have been incredible. Now we live in an amazing, amazing world and it's wasted on the crappiest generation of just spoiled idiots that don't care." (Louis C.K.)

Most businesses believe customer satisfaction is a very useful metric to keep track of firm performance. It is the most commonly used metric in marketing, just behind net profit, percent margin, and return on investment. In this session, we will analyze the relationship between product performance, customer satisfaction, and firm profitability. The relationship seems obvious, at first blush, but we will see that the pattern is much more complex and requires an understanding of the psychological drivers of consumption and satisfaction.

Methodology

The course is offered in an intensive one-week format, and comprises lectures, case study discussions, and exercises. The goal of the lectures is to present theories, frameworks, analytical techniques, tools, practical insights, and examples. The goal of the case discussions and exerices is to examine important concepts in different managerial settings, and to practice making decisions.

The course uses a collection of articles and case studies.

Bibliography

Bart de Langhe joined ESADE in 2017 as an Associate Professor of Marketing. He obtained his PhD from the Rotterdam School of Management, and was previously on the faculty at the University of Colorado-Boulder.

Bart is an expert in the psychology of consumer and managerial decision-making. He has published numerous articles in leading academic journals in marketing and management (such as Journal of Marketing Research, Journal of Consumer Research, and Management Science), and in more popular practitioner-oriented outlets (such as Harvard Business Review, The New York Times, and The Wall Street Journal).

Bart has taught courses on the psychology of decision-making across various programs (EMBA, MBA, MSC, BA), at ESADE, and several other business schools worldwide. In 2017, he was recognized by the Marketing Science Institute as one the most promising young scholars in marketing.

Type:	OP	Curs:	1	Period:	S semester
ECTS Credits:	3 ECTS

Understanding and influencing consumers (and Managers) (19CBA20020)

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