“We have learned more about the brain in the last 15 years than in all prior human history, and the mind, once considered out of reach, is finally assuming center stage,” wrote Dr. Michio Kaku, a theoretical physicist, in his 2014 book . Kaku was right: The fMRI—or functional magnetic resonance imaging, a tool that allows noninvasive study and mapping of brain activity—was only invented in 1990. It has been essential in understanding the human brain. 

In marketing, the brain assumed center stage in 2002 with the first neuromarketing experiments. These studies—which used tools like fMRI, but also EEG (electroencephalography, a method for measuring brain waves) and biometrics (tools such as face and fingerprint scanners)—examined the intersection of consumer behavior and neuroscience to determine how consumers may respond to an ad, brand or campaign. 

The purpose of neuromarketing is to figure out whether customers might pay attention to an ad, says Roger Dooley, author of  and owner of the . If consumers pay attention, will they be affected emotionally? The answer can indicate buying intent, Dooley says. 

In a study published in the Journal of Legal, Ethical and Regulatory Issues, titled ” the authors say that an ethical concern for neuromarketing is that it will give brands super-effective means to surreptitiously “push the buy button” in a customer’s mind. Marketing News spoke with Dooley—who has been writing about neuromarketing for more than a decade—about the ethics and capabilities of neuromarketing and whether it can “push the buy button.” This interview has been edited for length and clarity. 

MN: What are the ethical standards for neuromarketing research and the application of its findings?

RD: Most companies providing neuromarketing services would say that they operate in an ethical way, just as any advertising agency would. They’re not going to intentionally promote anything that’s deceptive or illegal. Most neuromarketing companies avoid testing kids under 18. They’re not trying to do neuromarketing studies on toddlers to figure out how to hook them onto their product; most people would find that pretty creepy. 

The question runs along all advertising: Are you doing things in a way that is honest and helpful to the consumer? Things that are not going to do harm? Are you helping the consumer decide to buy something they’re going to regret? If so, it doesn’t really matter what you’re doing, whether a marketing study or using deceptive ad copy—you shouldn’t do it. 

I’ve been reading about neuromarketing since about 2005 when there was a big concern that somehow brands were going to create these ads that would take over the customer’s brain and turn them into a buying drone. They’d be able to create ads that were so powerful that consumers would just do what they say. But that’s really a false concept. If those kinds of ads could be created, decades of work by Madison Avenue folks would have created at least a few of those ads by accident. 

The fact is that advertising has a limited impact. To me, it ends up being not a question of “Are you somehow using your marketing studies to create incredibly powerful ads?” but “Are you promoting a product or service that is good for the consumer?” And that’s not a neuromarketing question, that’s an advertising question. 

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MN: A concern might be undue influence on a consumer’s decision, but that’s a debate between old-school economics and behavioral science as to whether the average consumer has a rational mind or not. 

RD: Well no, of course they’re not of rational mind. People do not make decisions based on totally rational criteria, even though most people will tell you that they do. Rational criteria certainly enter decision-making, but I’m not going to buy a $1 million Lamborghini for rational reasons. 

Certainly some decisions have rational elements or are almost completely rational. If you have to replace a broken part, there’s not much emotion involved. But for most consumer purchases—automobiles, health and beauty products, food, fragrances, beer—there’s a strong nonrational component. Brand associations are important because they’re emotional, even though people would tell you that they made those decisions because they liked the flavor of one versus the other. 

MN: Can neuromarketing deepen the emotional affinities consumers have for a product or brand? 

RD: Oh yeah, and advertising can strengthen that brand affinity and emotional attachment. Take a real classic like : They created a stunning advertisement that was engaging, exciting to watch and a heroic moment. I’d say it made Mac owners feel more emotional about their attachment to the brand. And to that extent, a neuromarketing study might help you show that the “1984” ad was more engaging than the  that Apple ran the next year. If you’re talking about analyzing ads using your marketing techniques—for instance, a 30-second spot on TV—the big advantage to neuromarketing isn’t that you’re going to create these amazingly powerful ads, but hopefully you can get rid of some of the ads that suck. 

There are all kinds of studies that show that more than half of all the ads used by brands don’t move the needle. They don’t create brand preference at all. That’s the benefit neuromarketing offers to advertisers: You can identify those ads that simply don’t work and will annoy the viewer. Good neuromarketing studies can perhaps help an advertiser choose what works best or at least engages the consumers the most. They can eliminate the ads that are ineffective or destructively bad. 

MN: In the scholarly article “Is Neuromarketing Ethical? Consumers Say Yes. Consumers Say No,” the authors mention that another top concern for neuromarketing is customer privacy. Have you seen any privacy issues in neuromarketing?

RD: Traditionally, neuromarketing studies were not highly personalized. Taking a small group of consumers, testing them and then scaling up the results doesn’t really raise privacy issues. 

Now, with increased digital information and trackability, we have allowed more personalized approaches. I’ve seen some companies claim that they can ask a consumer a small number of questions and determine which quadrant of the Myers-Briggs Type Indicator they fall into, for example, which might dictate a different marketing approach. It’s hard for me to say how effective this is, but the possibility certainly exists. There are psychological factors being added to your digital profile along with all your other behaviors that are being aggregated. 

If you combine all this and target ads to people with specific characteristics, then that could be a good or a bad thing. It’s like if you are looking for a new suitcase, and as a result of your behavior, you start seeing suitcase ads everywhere. That could be good because it’s showing you other options than the ones you considered, or it could be really annoying and creepy if you already bought the thing. 

Personality-targeted ads could be the same way: You might find that you’re seeing better ads because, by and large, an untargeted ad from a consumer standpoint is the worst kind of ad. An untargeted ad is very likely to be meaningless. Maybe ads targeted to you based on your behavior or some personality characteristics would be a good thing. On the other hand, some people don’t want targeted ads because they don’t want to be identified or tracked. 

MN: It seems neuromarketing is a piece of the puzzle, but as you said, marketers and advertisers have to stand on a set of principles. Would marketers be wise to consider how they’d want their own data used as consumers?

RD: Right. One area that is particularly sensitive is political marketing. People could see neuromarketing techniques as even more creepy when using them in politics versus selling detergent or beer.

MN: Sure, and there’s more potential to use data to target different political groups so that only those groups see the ads—.

RD: Right. And again, that’s not necessarily a bad thing in an abstract sense. If you have a product that’s going to appeal to a relatively limited number of people, then it’s great. You’re spending less on advertising and you’re not annoying the people who don’t care about your product. When you apply it to some sort of distasteful political subculture where you’re trying to aim only at a hate group, that gets to be undesirable.

MN: How should marketers stay vigilant in using neuromarketing ethically?

RD: Ask if the outcome is going to be good for the customer. Advertisers are always trying to make ads more effective—that’s been true since the first days of advertising. Neuromarketing is a tool for eliminating the worst ads, not necessarily creating ads that are going to drive consumers into doing things they don’t want to do. But you do have to get to a deeper question: Is the product or service you’re advertising good to the buyers you’re targeting? 

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Richard Thaler was jolted awake by an early-morning phone call from Sweden. Over the days and weeks that followed, he was flooded with felicitations—e-mails, phone calls, media requests— leaving him more than swamped. The caller from Sweden told Thaler he had  in Economic Sciences for his research in behavioral economics. “Nothing more between now and the prize,” Thaler wrote two weeks after yet another request on his time, declining an interview to talk about how his nudge theory influences marketing.

Thaler is busy, caught in the surreal muck of a career-defining victory, but his wake-up call from Sweden should serve as a wake-up call for marketers to learn about his work and field of research. Thaler’s nudge theory carries serious weight in marketing, says Joel Rubinson,  and former chief research officer at The Advertising Research Foundation. “You can’t be in a meeting and say, ‘I never read [Nudge],’” Rubinson says with a chuckle. 

Everyone gets nudged. If you weren’t nudged by this story’s headline to read on, then perhaps you were nudged by a snack wrapper, imploring you to pick up, unwrap and devour its salty-sweet contents. Perhaps you were nudged by a mobile notification: Respond to a friend request, tip your rideshare driver or—hey, it’s raining—order some delivery food. 

This use of “nudge,” coined by , is the potential to alter someone’s behavior without nixing any of their options or changing their economic incentives. Countries like the U.K. and Japan created “nudge units,” nudging citizens to cajole them into paying taxes. One of Thaler’s favorite examples of a nudge is a small decal of a fly placed in a urinal at Amsterdam’s Schiphol Airport. The fly decal improves men’s “aim”—the airport reported an 80% reduction in men’s room . In marketing, nudges have gone from the bathroom to the boardroom to improve market research, decrease selective attention in stores and convert online shoppers waffling about purchases. 

The nudge has elbowed its way to the front of the conversation in behavioral economics, a field of research that blends psychology, economics and the scientific method to examine the human rationality of decision-making. Behavioral economics asks questions like: Why do people buy a bag of candy instead of a bag of vegetables when they’re trying to lose weight? Why do people buy $4 lattes when they’re trying to save money? The answer is often irrational.

Economists who believe in  are not convinced that nudges change people’s behavior. They say that rational agents—aka homo economicus; the economic man; you—make choices based on available information such as costs, benefits, preferences and probability of events. Our choices are our own, these economists say, and a nudge is merely an additional datum in our free market of information. If nudges work, it’s because the nudge has given new information to a rational decision-maker. However, research in behavioral economics has shown that humans often behave irrationally, changing their action when the same choices are framed differently.

Dan Ariely, professor of psychology and behavioral economics at Duke University, wrote in his book Predictably Irrational about a . Ariely and researchers sold Lindt Truffles for 26 cents each and Hershey’s Kisses for 1 cent each. Equal numbers of people bought each. When researchers dropped each candy’s price by 1 cent, 90% of people took the free Hershey’s Kiss. Ariely said the “power of free” makes us irrational.

Daniel Kahneman introduced with research partner Amos Tversky (who died in 1996) to describe choices that contradict the rational choice theory of economics. In 1979, the duo showed that the psychological cost of losing is twice as big as the psychological benefit of winning. Kahneman and Tversky’s prospect theory also discovered quirks in how people think about saving money.  gives an example: People are willing to drive an extra 10 minutes to save $10 on a $50 toy, but few would drive that extra 10 minutes to save $20 on a $20,000 car. Why? Because people frame the savings as a percentage. In their minds, saving 20% on the toy is more valuable than saving 0.1% on the car, even if more money is saved on the car. 

Thaler and Hersh Shefrin of Santa Clara University’s Leavey School of Business introduced the  This theory says the brain has a “doer” focused on short-term rewards and a “planner” focused on long-term rewards. The doer and planner are always at war, turning our headspace into a battlefield of today versus tomorrow. In later research, Thaler found that if a company creates a 401(k) choice architecture that automatically saves employees’ money, employees will save more for retirement. Put differently, employees must opt out if they wish to not save money; the choice architecture saves money for them by default. At the University of California, Los Angeles Shlomo Benartzi, who with Thaler wrote the paper  estimates that this nudge has helped employees save $29.6 billion over the past decade. 

As the body of behavioral economics research has grown, so too has its influence on marketing. “Every marketer has to understand what it means, particularly for the brands and products that they’re trying to manage,” Rubinson says. “You have to study it and have a point of view about it. You have to be able to say that these ideas are somehow embedded in the rationale of your marketing program.”

Don’t We Already Do That?

Marketers who read about nudging, framing and changing behavior may echo marketing legendasking, “Isn’t this what we’ve been doing?” Kotler, a professor of marketing at the Kellogg School of Management at Northwestern University and author of , says marketers have known that consumers are irrational for 100 years. “Behavioral economics is just a fancy term for marketing,” says Kotler, who considers marketing to be a branch of economics. “Classical economists never really studied how sellers and buyers made their decisions, but marketing has always tried to explain the motivations of buyers, sellers and their belief systems.”

Not so fast, says Ravi Dhar, professor of management and marketing at the Yale School of Management, director of the  and author of the same-name-different-textbook . Dhar studied behavioral economics (which he calls “behavioral science”) in its incipient days under teachers like Kahneman and Tversky and now researches its intersection with marketing. While marketing and behavioral science have stumbled upon many of the same ideas, Dhar says behavioral science aims to construct a “uniform framework” that marketing has missed. “If they’re not embedded into the framework, these [ideas] get lost,” Dhar says. 

At Yale, Dhar leads a program called  In this three-day session, Dhar works with CEOs and CMOs to integrate the principles of behavioral science into their businesses. Executives whom he teaches want simple frameworks and a common language for thinking about consumers, which is why CEOs and CMOs have flocked to Yale’s campus. Dhar teaches them the basics of behavioral science: how to use Big Data, find better insights and engage with consumers in a digital world. 

Yale is one of the few universities that combines marketing with behavioral science in its curriculum. Dhar says the average marketing curriculum doesn’t look much different now than it did 20 years ago, but many marketing practitioners have become autodidacts, learning about behavioral science from perusing books written by Thaler and Kahneman. Thaler’s Nudge has sold more than 750,000 copies worldwide, and Kahneman’s  has sold more than 1 million copies. Many of the books’ combined 2 million readers are CEOs and CMOs, but Dhar says reading books only goes so far in helping marketers implement and internalize the science. 

Dhar focuses his research on devising the common language marketers desire, a language they need to understand how to apply behavioral science. One of Dhar’s recent studies—undertaken by the Yale Center for Customer Insights and the Google Food Team at Google’s offices—examined how people can be nudged toward healthier eating. Researchers found that employees who poured their drinks at a beverage station 6.5 feet from a snack bar were 50% more likely to grab a snack than those who filled their glasses at a beverage station 17.5 feet away from the snack bar. For male Google employees, 11 feet of proximity correlated with gaining one pound of fat per year.

The Google study underlines a cornerstone of behavioral science: Consumers make quick, intuitive decisions—usually within five to 10 seconds—and rarely reflect on whether their decisions were good or bad. —fast, automatic and often unconscious. “System 2” thinking is slow, arduous and controlled. Most marketers still believe that consumers are rational agents who weigh each choice carefully, or System 2 thinkers. To the contrary, Dhar says, consumers tend to shop from the gut, just like the Google snacker who mindlessly grabs a snack because it’s a few feet closer. Marketers, he argues, must think like System 1 consumers. 

“Marketing managers spend 70 hours a week thinking about whatever product they are marketing, but the consumer is spending seven seconds,” Dhar says. “To understand the consumer behavior of that seven-second approach is critical.”

Changing the Framework of Marketing Research 

In the glory days of supposedly slow shoppers and even slower research—the 1970s—Rubinson researched economics on the moss-covered University of Chicago campus, the same campus where Thaler refined nudge theory and researched behavioral economics. As a student, Rubinson heard whispers of behavioral economics. He found the topic intriguing, even as other economists pilloried the field as junk science. In 1979, Rubinson began his career as an advertiser, becoming a senior manager of Unilever, and he soon noticed industry changes that reminded him of behavioral economics. The market sped up: In 1963, , per the U.S. Bureau of Economic Analysis. Over the span of Rubinson’s next job—25 years as chief research officer of The NPD Group—marketers went from studying retail shops with clipboards and pencils to accessing scanner data from across the country. Then Nielsen and IRI started reporting weekly store data. Billions of dollars shifted from advertising to promotion as consumers spent millions of dollars on the products that captivated them. In the early 2000s, the whisper of behavioral economics became a yell. Data dominated, allowing marketers to target consumers. Marketers could watch in real time as their product campaigns succeeded or failed, changing research tactics to focus on consumer behavior rather than intent. This shift in research became the most important aspect of how nudging and behavioral economics are now used in marketing and advertising, Rubinson says, and the shift carried over to consumer surveys and focus groups. 

Survey answers are another series of behaviors, Rubinson says, meaning consumers will answer survey questions differently depending on researchers’ word choice and question arrangement. Marketers who accept that a survey’s design and language can affect the answers consumers give can solve some of research’s systematic problems, such as enormous and unrealistic sales predictions or products that test well but belly-flop into the market. 

Behavioral economics research has also found that consumers often make shopping decisions on autopilot. On an average trip to the grocery store, for example, consumers won’t research every item they put in their carts. Rubinson says half of the items shoppers plonk into their carts will likely be purchased without thought about the product. Marketers must know how customers shop, especially marketers who craft campaigns for products that consumers likely won’t have the patience to research on the go, like eye drops.

“Shopping is the worst form of torture if your eyes are bothering you,” Rubinson says. “It takes you minutes to figure out all the variants on the shelf for a product you don’t normally buy. Behavioral economics would lead marketers and retailers to change the way they present [that] category to people.”

But here’s the rub: Many marketers are ensconced in their research methods, Yale’s Dhar says. They’ve put in time, money and effort and don’t want to change because that would mean even more time, money and effort—as well as a complete shift in philosophy.

“That’s a legacy problem,” Dhar says of businesses resisting change. “As we work with some companies, we can see how hard change is—not because they don’t want to change, but because they don’t want to confuse people. [These processes] need to be embedded in what you’re doing. You’re educating everyone on the insight team, then the marketing team. This is not a three-month process. For many of these companies, it’s a two- to three-year process. That creates uncertainty.”

However, Dhar says marketers who want scientifically sound results from their research must change. “When you look at a concept test for a new product launch, researchers ask people to carefully look at the product. ‘What do you like? What do you dislike? Circle this and circle that,’” Dhar says. “Most companies in the world of consumers would say they’re not happy with the test’s results.” Consumers make snap decisions—in five to 10 seconds—but marketing research treats them as shopping savants. Dhar questions this method of product research. 

 on his website that market research wasted time and money, adding that the marketing industry had a “focus group bias.” Marketers were easily swayed by human storylines but dubious of lifeless data. “We need to find a way to base our judgments and decisions on real facts and data even if it seems lifeless on its own,” Ariely wrote. 

In 2017, Ariely says marketers have more data and less bias. “Focus groups were easy to get compared to real data about purchasing and behavior,” Ariely says. “But as the ease of getting real data about behavior gets better, people are relying less on inaccurate [data].” 

Although the data is getting better, marketers are taking their lumps in the learning process. At one of Dhar’s recent intensive programs, an insights executive from a bank told him, “What I learned after three days is that I should fire myself, and we should do things totally differently.” 

“It’s a nice compliment,” Dhar says blithely, but adds that behavioral economics hasn’t solved all of marketing’s problems. However, as the scientific and business communities interact—for example, Ipsos and WPP’s Kantar now both have behavioral science arms—Dhar says more answers to marketing problems will come.

“I think that’s where the scientific community has lagged,” Dhar says. “But it’s changing.”

Avoiding the ‘Dark Nudge’

The behavioral economics revolution has been brewing for 20 years, Dhar says, but its integration into business practice bubbled to a boil when bigwigs from Uber, Tesla, Google, Amazon and Facebook took classes led by Thaler and Kahneman in 2007 and 2008.  about “priming,” which he said was a crucial area of behavior economics research. An example of priming, Kahneman said, could be flashing a smiley face on a user’s screen at a speed faster than the human eye can detect to influence their mood or behavior. Tamsin Shaw, the author of the NYRB piece and an associate professor of philosophy at New York University, wrote: “If subjects are unaware of this unconscious influence, the freedom to resist it begins to look more theoretical than real.”

Social media companies became the first big investors in concepts like nudging. In 2015, Amazon founder Jeff Bezos told his company’s shareholders that the company sends more than . But with success comes scrutiny; use of behavioral economics in Silicon Valley has drawn ethical questions that marketers would be foolish to ignore.

One ethical question was posed when The New York Times . Used this way, nudging meant less money for drivers, but shorter wait times for customers—and more money for Uber. In another example, Facebook revealed that it performed psychological research on 700,000 of its users. The company showed one segment of users posts ranging from neutral to happy in their news feeds and another segment saw posts ranging from neutral to sad. Facebook then monitored the posts of each user segment, finding users inundated with positive posts felt happy and users fed negative news felt sad. , but it later apologized for making its users unwitting study participants.

These infelicitous uses of nudging—including nudges in gambling, —have drawn criticism. Dhar says that while the companies he’s worked with use behavioral science in ways most people would view as ethical—PepsiCo has used behavioral economics to draw people to its healthier snack lines, for example, and pharmaceutical companies have nudged patients into picking up their medication consistently—the question remains whether customers are deciding what they want or marketers and companies are making the decisions for them. If companies are making decisions for consumers, are they making the correct decisions? 

“Consumers don’t know all the forces that influence their behavior,” Dhar says. “If marketers know that and pull those levers, then what’s the boundary of ethics? The boundary of ethics was easier when [marketers] said, ‘The consumer knows what they want, and if you try to give them something that they don’t want, that’s a bait-and-switch.’ Now, we’re in a world where the consumer is not quite clear [what they want], and if I move your preferences around, that gets very complicated.”

Just as Google moved snacks farther away from beverage stations to reduce employee snacking, Dhar says companies could just as easily place a soda at each employee’s desk and watch their staff become sugar fiends. Likewise, marketers could nudge consumers toward unhealthy products and habits, such as smoking cigarettes or drinking alcohol. “It raises the question about how marketers should be thinking about responsibility in a world where consumer behavior is impacted by forces outside their awareness,” Dhar says. 

Thaler, to his credit, has addressed nefarious nudges by calling out companies that use them, such as businesses that automatically enroll free-trial customers into a purchase if they don’t cancel in advance. Companies must always nudge for good, never bad,, and consumers must always be vigilant against nefarious nudgers. “If customers reward firms that act in our best interests, more such outfits will survive and flourish, and the options available to us will improve,” Thaler wrote. 

Don’t Be the Gorilla

Rubinson has a simple answer to how marketers can best use behavioral economics: Don’t be the gorilla. In 1999, two psychology professors at Harvard University, Christopher Chabris and Daniel Simons, were studying how humans only react to certain stimuli when many stimuli occur at once. This is called selective attention. The professors created a video to test selective attention, featuring two teams—one in white shirts and one in black shirts—passing basketballs. The video asked viewers to keep count of the number of passes between players on the white team. Midway through the video, someone in a gorilla suit lumbers into the middle of the screen and beats their chest. Approximately half of the pass-counting viewers failed to see the gorilla; this is the Invisible Gorilla test. 

The moral of Rubinson’s anti-gorilla advice is that marketers must ensure their products don’t fall into the background of the bustling media landscape, lest customers lose sight of the marketer’s products. “Find a way that people are treating you like the gorilla, whether it’s in search results or on the shelf or in your advertising … Find ways that your brand will command their attention,” Rubinson says. 

Every company has been the gorilla, he says, and one culprit is ineffective targeting. In 2017, Rubinson worked on a white paper that found advertising is twice as effective when a consumer is probabilistically closer to a purchase. If a consumer just bought a car or a phone or a snack, even the most targeted ad will be the proverbial chest-thumping gorilla. 

If marketers take anything from Thaler’s Nobel Prize win, Dhar says they should realize that consumers have limitless options but a finite attention span. Technology will evolve to take advantage of consumer’s short attention, but marketers who grasp the concept and take the fast-thinking perspective of consumers will ultimately be the most successful. 

One way marketers can take the perspective of consumers is to think about their own irrational shortcuts. In academia, for example, Dhar says professors who are hiring new employees only spend a few minutes looking at each résumé, taking small bits of information and accepting or rejecting the applicant based on trivial information—perhaps a common adviser or a shared alma mater—though they believe they processed it carefully. 

Marketers should stay alert to these mental shortcuts and think carefully, using their rational, slow-thinking System 2 brain to ask what they irrationally overlook at work, in life or as a shopper. They should realize that consumers are irrational in the same ways. Marketers must use this information wisely and never be the gorilla.​

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One of the big takeaways from 2016 seems to be that we’re still bad at understanding one another. It’s a considerable challenge for marketers, whose livelihoods depend on being able to know and influence others. The usefulness of self-reported market research stops short of a grand theory of buying behavior. Many subjects can’t explain why they responded well to a particular ad, or they can’t articulate their connection. 

For years, marketers have been turning to neuroscientists in their quest to drill deeper. Each new tool sheds insights on what actually drives consumer response. Facial coding is able to account for 9% of explanatory power, while the Electroencephalogram (EEG) reveals as much a 62% of decision making. But when , chief neuroscientist at , combined all the tools into a single measure, .

The official name of the method he developed is the Video Ad Explorer. Unofficially, he calls it the “Holy Grail of marketing”—a penetrating probe of consumers’ brains that is able to measure results with up to 77% explanatory power with in-store sales. Now, Marci talks about the significance of his research and how it could reset that ad-making process.

Q: You say you’ve found the Holy Grail of marketing. What do you mean by that?

A: There are different ways to measure non-conscious processing. EEG, biometrics, facial coding, [etc.]. Then there’s a component of self-report. How do people articulate what they like or don’t like about an ad and what they will or won’t buy? We had an opportunity here to compare all of those measures in one study that had a very strong sales outcome. 

The Holy Grail would be, which measures have value and in what combination. That was the big question that couldn’t be answered. The theory was that we were measuring different things. Therefore, if you group them all together, you would be able to capture more explanatory power of advertising creative than if you only had one or two. 

Q: How did you test that theory?

A: We looked at 60 ads across a wide variety of product categories—for instance, adult beverage, soft drinks, women’s beauty products, baby products, health and beauty and a variety of others—as they were airing and then simultaneously did testing over the course of five months. We recruited participants, and we measured EEG, biometrics, facial coding and with separate samples, self-report.

Q: Aside from self-report, are all these measurements non-conscious?

A: Yes. By non-conscious, we’re talking about measures that we don’t consciously manipulate all the time. We passively measure them. Unlike self-report (which is after you’ve seen the ad you answer a bunch of questions), we collect EEG, biometrics and facial coding as you watch the ad. So it’s not looking in the mirror, it’s the actual experience moment to moment. We then analyze the data and create metrics for every second of the ad. Then, we put all those metrics into a statistical model to see how it relates to sales. 

Q: How do you measure sales?

A: Nielsen Catalina Solutions has an approach where they take home-scanned data and combine that with set-top-box data. We have data on households exposed to the ad versus houses that are not. You then follow them into the store in a four-week window. Importantly, after the exposure, you look for the lift in the sales, in the product category and in the product itself. You control for the media spends. You control for the targeting, the size of the product and the timing. When you control for all those things, you get a fairly pure measure of the creative’s effect on sales. It’s not just how much ad spin you bought or how many channels you were on. That’s what is really exciting. 

Q: With the pure measure of creative, which creative did best? Which did poorly?

A: It’s a good question. The study question was, “What technologies did the best job of capturing a creative effect?” We’re not out there saying this type of ad does better than that type of ad. It’s much more about which methodology captures or has the most explanatory power. It turns out that the highest explanatory power came from the EEG. The second was the biometrics. Third was self-report and fourth was facial coding. In that order, and the range was as low as 9% and as high as 62%.

Q: What about eye tracking?

A: We use eye tracking for diagnostics, so we can see where people are looking. Are they looking at the brand or not? We don’t use eye tracking as a performance measure. The reason is a little bit technical but I can show you ads that are very simple, where people barely move their eyes, and ads that are more complex, and people move their eyes a lot. They can be equally engaged and have equal results in market. 

Q: How was ad reactive measured before this study? If you wanted to know or try to access the impact an ad would have or the purely creative aspects of an ad, what did you have to look at? 

A: The marketplace typically has self-report, which is still by far the most commonly used measure by itself. There are a number of companies that are adding facial coding to self-report. You might get two of the measures, but as I described, that’s probably the weakest. With the acquisition of Innerscope, we were able to combine the EEG, biometrics and facial coding into one package. That had never been done before. Nobody has the combination that Nielsen has right now. 

Q: How did you pick the ads?

A: Based on availability in market. We started the test late last year, and we were looking for big brands that we knew were going to be hitting a lot of households. The major selection criteria were: “Are you a big CPG brand?” and “Could we get the ads to test it?”

Q: You had to mount a theoretical defense for putting all these together. Why would there be opposition to that if it helps marketers better understand consumer behavior?

A: There’s a natural skepticism from clients who assume we’re going to charge more for more tools. Then, I think the research skeptics come out and say, “I get facial coding with this supplier and my self-report. Why do I need anything else?” 

Someone who expresses an emotion on their face—they smile, or they look surprised or they frown—that tells us something very important about that moment and the creative in the audience at that time. The majority of the time with video advertising, people aren’t actually expressing an emotion; they’re staring at the wall. This doesn’t mean they’re not having any emotional response. It just means they’re not expressing it on their face. We need other tools, like biometrics, to [understand] that emotional journey throughout the ad. EEG gives you more coverage of the brain. You can also get memory activation, emotional motivation and attention processing. When you think about it, you really have a nice combination of tools that, in theory, should complement each other. It turns out they actually do.

Q: How so?

A: With EEG and its broad coverage, With EEG and its broad coverage, you’re getting the most brain areas covered. We derive three different measures from that. That’s not something that facial coding captures, that’s not something that biometrics captures. It’s very unique to EEG. Memory activation is something that biometrics and facial coding can’t capture, but EEG can’t tell you if someone’s smiling or frowning; it can just tell you if they’re engaged. EEG can’t tell you if the energy level in the ad is high or low, and that’s where the biometrics come in.

Q: How much can an ad change on a second-by-second basis in the brain?

A: A lot. If you look at a 30-second ad, you can see anywhere between 10 and 15 peaks and valleys in the EEG trace, sometimes more than that. All within a 30-second ad. That’s a lot of journey going on within someone’s brain. It’s hard to imagine the granularity until you really see how these things shift. I’ve learned to respect the 30-second video ad. You’ve got sight and sound. You’ve got a story with a beginning, middle and end. You have to have relatable characters, bring people on some kind of a journey, integrate the brand product or service, make sure the brand’s prominent enough to engage their attention, their emotion, leave a memory trace and then motivate them at some future time in a story to make a purchase. That’s a lot to ask for a 30-second video.

Q: When you put all these measurements together, what do you know about how somebody is responding to an ad?

A: We’re able to … tell our clients whether this is an ad that has got great promise or this is an ad that needs some work. Then, because we can measure second-by-second, we can also find which areas of the ad are areas for improvement. Another thing that we do on a fairly regular basis is take that 30-second ad and help our clients turn it into a 15-second ad by taking just the most engaging parts. There’s some art as well as science to that, but we’re able to direct our clients to keep some parts, and throw others out.

Q: The results of your study showed that the integration of multiple neuroscience measures results in up to 77% explanatory power with in-store sales. Could you unpack that number?

A: That number comes from a statistical model where we’re looking at the in-store sales effects, controlling for all those variables I described (the media plan, the targeting, the size of the product). It includes inputs from the facial coding, the biometrics and the EEG. How much of the [creative effect on the consumer] does facial coding get? Between 9% and 12%, one little piece. How much does biometrics get? A bigger piece, almost a third. What does EEG alone factor? That’s the biggest chunk, upwards of 62%. Now if these tools all measured the same thing and had significant overlap, we would expect that combining them would not go above 62%. However, we actually found that putting them together brings our number up to an impressive 77%, proving the power of using all of the tools in combination.​

Q: Do you have any theories as  to what the remaining 23% could be?

A: No. It’s in the ether. As good as these technologies are, we’re not capturing every aspect of people’s mind and body. If we could add, say an FMRI—which we don’t because it’s very expensive and cumbersome—I could actually focus in on a few parts of the brain that none of these technologies capture very well. That might capture that last 23%.

Q: Why does this work? Why do non-conscious responses to ads translate into predictive consumer behavior?

A: Between 50% and 99% of brain processing is occurring without our awareness. There’s a whole lot going on in our brain that we just aren’t aware of and don’t have access to.

There’re a lot of theories and evolutionary reasons for that. We can’t possibly think about every single decision we make. It would be exhausting, and we’d be paralyzed. At the Shopper Brain Conference in Chicago, we’re hearing people talk about how [consumers] walk through retail stores. When [consumers] describe how they walk through that store, and you actually measure how they walk through that store, the two don’t look anything alike. That’s just one of many examples of how our memories and our conscious awareness of our behaviors are very limited.

People aren’t very good at explaining every aspect of their life. If you only ask people questions like, “Do you like that ad?”, “Do you remember that ad?” or “Would you buy that product?”, you’re only talking to one part of the brain: the conscious part. That might be the smallest part, so you need tools that can capture non-conscious processing. We’re not making claims that we’re capturing 100% of what’s left, but we’re capturing enough to create a powerful explanatory model.

Q: Did your results vary by product category or by target? 

A: We included all of the categories in the data, and the data set’s not quite big enough to be able to say how baby care and adult beverages perform differently. All of the advertisers think their category is special, but across these measures, so far we actually haven’t seen big differences. Engagement looks like engagement across these measures. When you look inside of categories, we have found with the biometrics you actually see more variants within categories than between.

With biometrics years ago, we looked across a couple hundred ads. We had two groups: One was entertainment, movie trailers. What could be more emotional? We compared that to financial services, banks, things like that. What could be less emotional? When you compare the two, the difference on a 100-point scale was one point. That was because there were a lot of differences within each category, so I could show you movie trailers that actually weren’t very emotional at all and financial services that got people pretty lathered up. What we see is there tends to be so much variability within a category that it washes out any potential effects between categories.

Q: Do you have any follow-up studies planned based on these results?

A: The next step is to look closer at the individual moments within the ads and to build on the data set to make it bigger and also to look within the ads to see what everybody wants to know: how do you make a great ad? That’s the work of 2017.

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Behavioral economics and marketing have had a natural connection for decades. Marketing has a heritage of understanding consumer decision-making behavior and its departures from purely rational choice. For example, brands are believed to “shift the demand curve” that relates price to volume.

In recent years there has been increasing interest in behavioral economics applications in marketing that can improve business performance. While many elements of behavioral economics have great benefits for marketers, more attention is focusing on the development of capabilities to deliver the value to the organization.

The potential to use insights from research to create change in future behavior is quite different from other research traditions that support strategy development based on insight about consumer needs, attitudes and preferences. Traditional approaches provide implications for action, but don’t specify how to realize change.

Inducing change ought to appeal to management, which values action and is often skeptical of insights that don’t lead to action. Since financial justification and return on marketing investment are well-established requirements, the disciplined intervention approach fills an organizational need. If you test specific hypotheses that can be acted upon by the organization, and find evidence to support one of them, there is a strong case for achieving the stated goal.

The Science

From a practitioner perspective, behavioral economics is research to understand how consumers behave economically, in real time. In many instances the research uncovers hidden biases and the role of emotions in consumer judgements, like placing more value on losses rather than gains, or more value on products you own versus those you don’t. How price is communicated can influence choice over and above the influence of price itself. Rather than responding consistently to all economic incentives offered by marketers, consumer response may vary by purchase and consumption occasions, among different competitive sets and for different reasons.

Research on these issues generates insights about consumer behavior that may not be captured by other approaches, e.g., retrospective attitude and usage surveys. Relatively simple measures of actual behavior often generate insights that are associated with large effects on choice (changes of 25% or more are commonly reported in published studies).

Much of the research in behavioral economics is conducted through experimentation, based on random assignment of consumers to test and control conditions. This is a crucial advantage compared to other methods such as surveys, qualitative interviews, behavioral analysis and modeling of individual consumers or aggregate time series. While other methods will always have the caveat that correlation alone doesn’t imply causation, the experiment can pinpoint causes.

Experiments still have the added challenge of demonstrating that the controlled conditions under which they operate, in lab settings or in live market tests, can be generalized to broader market conditions; however, they also have the potential for correction over time and improvement if the learning from the tests is absorbed, organizationally, and new and better tests are conducted.

In time, Tapscott believes individual riders of taxis or renters of rooms could trade peer-to-peer using secure blockchain technology. Customers could avoid paying the aggregator, agent or intermediary their percentage because the technology will promote trust between individuals. Wouldn’t it be nice if you could hail an Uber electronically and the fare was lower and all the fees went to the driver? Tapscott believes this is coming.

Intervention Approach

The intervention process itself is a promising area for further research and development. What are the likely side effects of a change, why do they happen and what steps can mitigate them? For example, why did J.C. Penney Co.’s pricing strategy, which was expected to confer numerous price-related benefits on customers, lead to losses? Perhaps the consumer derived some non-rational benefits from the complex and changing discounts that management decided to eliminate. Are there systematic ways to increase the extent to which planned outcomes are realized in market? For example, changes in pricing may tap into varying motivations for consumers. How can the communication of price changes best align with consumer motivations to improve effectiveness?

Getting There

Implementing the discipline of behavioral economics requires investment in certain skills. For example:

1. Understanding of the market and consumers well enough to be able to develop strategically important hypotheses to test. This can mean starting with a prediction about what would happen if an action was taken, rather than starting with an exploratory investigation.
2. Researching how to frame experiments that unambiguously test the hypotheses and control for nuisance factors that could obscure the results.
3. Ensuring that management decision-makers learn from each individual test, as well as the pattern across all tests, so they can take appropriate action and improve successive waves of testing and learning.

These skills are not new to marketing practice, but deploying them to achieve change is.

Despite the successes and promise of behavioral economics, it’s unlikely to provide solutions to all the issues marketers confront:

1. The “side effects” or “unintended consequences” of taking predicted actions require ongoing monitoring. For example, testing may lead to a desired higher opt-in rate for a particular type of investment account. Choices of other accounts may decline.
2. Marketing tactics designed for specific product improvements reside within broader corporate goals, e.g. long-term brand portfolio development, customer experience management and customer lifetime value. How can companies link the specific actions that are suggested by experimental testing to a broader set of marketing strategy priorities? Multiple uncoordinated tactics do not make a coherent strategy.
3. Many findings of behavioral economics research relate to short-term impacts. For investment decisions, companies need to set priorities on which improvements are likely to be the most sustainable. 

These issues are addressed to some degree with the tools of behavioral economics. Still, there’s a need for an integrated view of marketing effectiveness across all the levers that management uses. Behavioral economics has an important role in the marketing world of the future. It provides a potential competitive advantage to those who understand their markets well enough to know how to change them.

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Want to know how the U.S. economy is doing? ; it comes out every quarter. Interested in the domestic labor market? The Bureau of Labor Statistics releases detailing employment figures. Large publicly traded companies can be tracked daily through stock indexes like the Dow Jones Industrial Average and the Standard & Poor’s 500, and in a monthly survey by the National Federation of Independent Business.

But what about companies in the middle? Firms with yearly revenues between $10 million and $1 billion, which number around 200,000 businesses, employ 40 million people and total one-third of private sector gross receipts. Until recently, there were little economic data tracking this group of businesses as a class. 

But a new index developed by Chicago-based audit, tax and consulting firm (formerly known as McGladrey) aims to measure business conditions within the middle market. Developed in partnership with , the index comprises survey data collected from a representative sample of 700 middle market executives. 

The report’s topline metric, the , is a measure of sentiment, intentions and overall business conditions determined by questions about economic expectations, gross revenues, quarterly earnings, wages, hiring and capital expenditures. The inaugural survey, released in late March, reported the number to be 116.6—which is good, according to . “One hundred is what we consider to be neutral. If it’s above 100, the economy is growing. Below 100, the economy would be contracting,” Brusuelas says. 

RSM’s index lines up with another measure of the middle market: the released by the at The Ohio State University. That survey reported in its latest version that, “At the end of 2015 … expectations have materialized, indicating that the middle market has moved from a period of accelerated growth to a steadier, more sustained rate of expansion.”

New editions of the RSM Middle Market Business Index will be released every quarter. Though the current iteration is the first time RSM has published its results, Brusuelas’s team has been collecting data for the past five quarters. There are 20 questions total in the survey. Half of the questions are designed to be static; they will be asked in every iteration of the report. The other 10 questions will change every quarter in order to capture middle market reaction to specific events. For instance, Brusuelas plans to include questions about the U.S. presidential election in a later survey this year. “That one will have questions about policy uncertainty and expectations about the upcoming change in administrations,” he says. 

While the high-level economic data in the GDP and stock market reports is relevant to middle market firms, it can incorporate variables that do not apply to the middle market, resulting in an inaccurate reflection of how the middle market is performing relative to the overall economy. This can be seen in a previous version of this survey, when 

RSN asked questions about the appreciation of the U.S. dollar.

“Many middle market firms simply don’t have the exposure to the global economy, or the external economy, that the largest 530 firms that populate the S&P 500 and the Dow Jones industrial averages have. Because the global economy has slowed noticeably, and due to competitiveness issues, many of those firms’ earnings are having problems,” Brusuelas says. “Our firms, which are largely only participating in the U.S. or North American economy, they’re just not seeing those problems. They’re actually outperforming, in some cases, much larger firms.” 

Middle markets firms’ reliance on the domestic economy makes them an ideal bellwether for changes in the business cycle. The top-level takeaway ballyhooed by the inaugural index suggests the economy is unlikely to head into a recession this year. This assertion is based on survey data that indicates three in five respondents expect gross revenues to increase over the next six months, and the appetite for capital expenditures is projected to remain constant.

“One of the leading indicators [of recession] is a sharp drop in Capex. The fact that we didn’t see that, and [that] there are plans for expansion, put to rest any fears of a premature end to the business cycle,” Brusuelas says. “The U.S. economy is not a great, big aircraft carrier that turns very slowly. When the economy goes into a recession, it tends to fall off a cliff.”

Brusuelas is particularly encouraged by the current data because it was collected when high volatility in the stock market fueled fears of an imminent financial downturn. “When we were asking those questions in January and February, that was the most intense portion of global asset volatility, and we thought it would be a real acid test,” he says.

Looking ahead, Brusuelas says he expects the next survey to show improvement in hiring and other economic indicators, most notably a rebound in manufacturing activity. Drawing on five quarters of survey data, he’s comfortable reaching some conclusions about where the economy seems to be headed for middle marketers in the short term.

“Our survey participants tend to expect to see improved revenues, improved earnings and modest economic growth. They expect to increase hiring but they’re trying to keep a lid on compensation, which may be a function of overall regulatory pressures and concerns about hiring and retaining technically skilled individuals. This is a function of a tightening labor market,” he says.

Brusuelas sees the survey as a useful tool to influence the decisions of other middle market executives, as well as investors and policymakers. “If you see things getting very hot and [the RSM Middle Market Business Index] number accelerates well above 120 or 130, … and let’s say you’re a central banker, that’s probably a good forward look that one should expect inflation to heat up.”

Not everybody is convinced of the index’s value, however. , founder of middle market industry news site questions whether the data is substantive enough to base decisions around.

“When you consider [that] middle market businesses are the primary customer for [RSM’s] audit services, it makes us all wonder whether this is just marketing window dressing,” Sweeney says. “I’m pretty biased when it comes to the accounting houses. I’m of the opinion they often have ‘Grade A’ accountants and ‘Grade C’ marketers.”

Sweeney adds, “The question that needs to be asked is whether a middle market business owner would find these numbers useful, or would they more likely desire data specific to their industry rather than their weight class of company. It varies.”

One policymaker who does find the index helpful is , co-chair of the Congressional Caucus for Middle Market Growth. In an e-mailed statement, Rep. Stivers said, “RSM’s index further demonstrates the significance of the middle market to our overall economy and future job growth. Our caucus will keep working to tell the story of the middle market and to support policies and legislation that strengthen it.”

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