"Better Leads Come From Better Decisions" - How Behavioral Economics Is Reshaping Lead Generation

Speaker A: Today on eight Growth Ventures, I'm joined by Tom Thompson, chief economist at Havas Edge, the world's largest full service performance marketing agency and entrepreneur in residence at Harvard. Alumni entrepreneurs. Tom spent 12 years at the US Naval Intelligence Officer, then 22 years leading strategy at a top Dallas agency before becoming the in house economist, applying behavioral economics to how the world's biggest brands generate leads and build customers. We're going to break down the five cognitive biases that kill lead conversion, his value equation framework for pricing and positioning, and why the distinction between active and passive seekers is the most underused concept in modern marketing. Tom, thanks for being here today.

Speaker B: Uh, it's my pleasure. Thank you for having me.

Speaker A: So for the listening audience, I heard Tom at, ah, this year's LeadsCon. He was one of the established speakers that Ian McRae brought on board. And to be honest, it was my favorite session. I spent three days going to different sessions and this is the one that really resonated with me. So right afterwards I had to go grab him and say, man, we need to bring you on the podcast. And Tom, thank you so much for making it happen.

Speaker B: Well, thank you for the kind words about LeadsCon and thank you for having me. I'm excited for the conversation, of course.

Speaker A: So like, for the listening audience, Tom, we're going to talk a little bit about your background. A little bit. Uh, you started at Navy intelligence officers, spent 22 years running strategy at Bloomfield Noble, and now you're the chief economist at world's largest performance marketing agency. Honestly, that's not a typical career path. Walk me through this, Walk me through this journey and how you got to where you've gotten to.

Speaker B: Well, it's funny because these things seem very dissimilar, but in a way they're sort of all joined. So when I was an undergraduate, I couldn't decide what I wanted to do, so I did a double major in political science. Specifically, I was studying statistics. Political statistics. And then my other major was archaeology. So nowhere near each other. And I applied to graduate school in both. You know, did the flip a coin and decided that I wanted to earn money at some point, so realized that probably the better path was to go into the political science side. But my advisor at the time was telling me about this sort of nascent field called game theory that was really just starting to take it off. Now I'm clearly aging myself. To your listeners here that everybody goes, well, that's really commonplace now. But you have to remember, in the mid-80s, there really wasn't a foundation for game theory. So I ended up getting a master's degree in game theory and leveraged that right into working naval intelligence. And that game theory was really important in naval intelligence because the first project I worked on was the theory of when should you fire first? And specifically it was about submarines. And at that time, the captain of a submarine had ultimate authority to launch missiles and fire. So it was this theory. And once I had served my time through both Gulf wars and some other areas of comb, I was injured in a helicopter crash. So I took a medical out and needed to find something else to do. Well, I loved game theory so much, but the field was changing rapidly. So I went back to school and decided that economics was the preferred path for me because game theory was becoming a subset of economics, courtesy of Dr. Nash at Princeton. So went back to school at the University of Chicago in economics and got my first graduate degree there. Came out and started with Bloomfield, Noble, which were some friends of mine, and realized that I really liked advertising. It was a lot of fun. There were a lot of different things happening. I liked the strategy of it, but I was still an economist. So I started focusing specifically on the housing market at the time, and then ended up being part of the office of financial Stability, ah, at the US Department of Treasury. We were working on a program called making home affordable during the 2008 housing crisis. So I was applying behavioral economics, which is my field of specialty, with game theory in sort of this advertising world. And then it occurred to me when I was trying to work with agencies that I actually didn't know anything about advertising. So I was like, okay, I need to go back and learn this part of it. So I went back to school at Cornell and got a degree in, um, branding and advertising. And then I was able to have conversations. But through it all, the intent was always this foundation of how consumers make choices and why the choices they make. So it started with an undergraduate degree in political science about trying to understand why do people vote a certain way. Then it became game theory, which is why do people make certain choices? And then it became economics. Why do they choose these products over that products? And then advertising, and how do you sort of create that type of influence? So to the outside, it looks like really distinct, different things. But to me, it was always about why do people choose what they choose and can we influence that decision making?

Speaker A: Oh, my God, I love that. So what I heard, uh, if I have to summarize it, I heard someone who was into data and someone who is super curious and consistently wanting to know the why went through four different career trajectories that were all correlated. Right. And at the end of the day, like, if. If I'm young and in college right now, uh, what you actually went through is the reality of the. Where the modern world is turning into. With AI and, And, uh, agentic AI and everything. So it's kind of interesting to see you were there when game theory was coming out. You also have progressed, and that curiosity has led you through where you are. Is that. Is that a really good summation of it?

Speaker B: It's a great summation of it. And what I would say to that is that while I have given up on pursuing yet another degree, I've never stopped learning. And I think that programs available through, like, HAE or what. I know you've sort of created those kinds of briefings. We should always try to keep learning. There are tremendous opportunities inside of things like LinkedIn learning that are free. And I find that I have to stay on top of changing economic conditions, changing behavioral conditions. So it's about reading constantly. It's about talking to people, learning from experts. So my thrill of coming on this podcast is hopefully to inspire someone else. But it would be just as easy for me to jump in and start asking younger people around the building here at HAVAS New York to say, like, what do you find? What do you do? It's about keeping that curiosity and that willingness to adapt to the changing environment.

Speaker A: I love that. So let's talk a little bit about the things you do at, uh, hae, Harvard alumni, entrepreneurs. Uh, you teach courses on customer journey and customer acquisition. So when you're mentoring young founders who are early in building out their businesses, let's say, spending nowhere near some of what a large advertiser might be spending. Um, what are some of the advice and guidance do you give at that stage? Right. Like, where the ad spend is very critical, you don't have a ton of it, and you really need to kind of figure out how to deploy it. Where do you aim first?

Speaker B: I think the very first thing, and I think this is true for any level of company, is framing your product or service in a way that your target audience will understand. And I think that in the world of AI, especially now, what we find is that people tend to emphasize a specific part, but don't think the way that consumers think. And I'll give you an example. I was at CES this past year, Consumer Electronics show in Las Vegas. Love it, love going. But I'm watching these booths, and people have these giant 200 inch, 12K. And you know, there's all these signs that are like, this is an AI tv or, you know, it's AI programming and it learns what you watch and all those things. And I'm like, to a consumer, this is a tv. It's a big brighter tv, but it's a tv. And yet everybody feels that need to slap labels on something and call it else. I've seen more information about AI infused toothbrushes than I have people and they're like saying, this is AI, this is a specific. I'm like, it's a toothbrush. So my very first thing is, whatever you've created, can you put it in the context of what a consumer would recognize it as? It is a toothbrush, it is a shoe, it is a car. These are the very first steps. Because if you can't relate everything else you try to do, where you're trying to introduce these concepts of dynamic innovation or continuous innovation about why your product's better, they won't frame it if you're framing it differently than they understand. So that's always my very first piece.

Speaker A: Not the feature, but the benefit. If I, if I really want to simplify and what is the main problem we're solving? Like, stay true to that marketing, stay

Speaker B: true to that marketing adage. But, but even the problem you're solving is when we think in terms of, and, and here's the point I would make. In the world of AI, we think all of these things are really advanced. But at the bottom line, people like innovation, but they hate change, right? So when you talk to a consumer, if you're trying to get them to go from a toothbrush, right, an old school toothbrush, to an electric toothbrush that has an app and everything else, you have to start with the basic concept of this is a toothbrush, you might not press as hard. You actually just kind of do slow circles. There's some training there. But you're not asking me as a consumer to make some fundamentally different change about how I brush teeth. It's not a weird device I strap my head into and it shoots it with rays or something. No offense to if somebody's got a product like that. So understanding that is it. And, uh, then the problem you're trying to solve is now it is the differentiation between this cleans a thousand times better. It gets to places your ordinary toothbrush does not reach. Because if you miss the fundamental concept of this will brush my teeth, no matter what you try to position or how you try to differentiate from that Point forward. You've lost me as a consumer. I will, I will think it's too hard. And, and I know you opened this and I know we're going to get to it is. This is some of those behavioral impediments that, that catch people. It just, it just is. You. You've misframed it. To me as a consumer, I love that.

Speaker A: I know, and I know you got into this a little bit at LeadsCon, and this is where you really started. Catching my attention is you went through five behavioral biases that kill lead conversion. It was like effort aversion, loss aversion, regret aversion, uncertainty, and the renewal illusion. I mean, these sounded incredible. When you were. Can you. Thank you for the listening audience. Kind of walk them through, uh, what each one of these is and what the biases are.

Speaker B: Yeah, absolutely. I think to frame it up a little bit, a lot of lead generation friction comes from consumers trying to avoid discomfort, which includes uncertainty or potential regret. And all of these feed that same thing. The simplest way to think of these is that we as consumers make emotional decisions and then we rationalize them after the fact. And so the first one is effort, uh, effort aversion. This is a big one. Consumers prefer easier paths. We just do. At the end of the day, you want the simplest possible path. So if something feels complicated, you will emotionally think, wow, this is a lot of work. Let's just stick with the toothbrush example. An electric toothbrush doesn't seem that hard. Okay. That's not really a huge stretch, so you're probably not going to have a lot of concern about that. But if you have one of these really advanced toothbrushes that uses an app and it tells you how long to stay on each individual tooth and it's changing colors. And so that feels like a lot of work. I get up in the morning, I'm barely awake. I probably haven't had any coffee yet, so I'm stumbling to the bathroom and I'm just sort of sitting there with my eyes closed, brushing my teeth. The last thing I want to do is bring in my phone or have an Alexa device or something with a screen telling me you didn't spend enough time on your left molar. Uh, like, please. So things that feel hard, that's effort aversion. Path of least resistance. Loss aversion is a, ah, really detailed concept. But the simplified version of it is we tend to feel the pain of a potential loss more strongly than the benefit of a possible gain. This is, you know, you and I were in Vegas for the thing. This is how Vegas was built. It is that concept of if I put down $10 on the roulette table, I might win 20. But I have all these biases in my head, like, uh, oh, it's probably going to hit green instead of red. Whatever I've played right now. And so when it hits the different color, I go, oh, I lost $10. Right. I'm not that excited about winning 20 because $20 doesn't feel like it's going to change your life type things. So as a result, that feels like safe bet. And then people pick up after so many times. I mean, the favorite thing is the house will always win. But you find that because of that bias, people will just play once, and they feel like, uh, if I hadn't bet that $10, I could go get a sandwich or something. So we feel loss more than we feel potential gain. Uh, uncertainty. I'm trying to remember the order that you gave them. And regret.

Speaker A: That one was regret.

Speaker B: Regret. So, um, the regret concept is exactly that much like loss aversion. Once you make a choice and you rationalize it, then what happens is that fear of regret kicks in, where you go, I painted this blue. I loved the blue. Now, I spent the whole time painting this room blue. I don't love it. Right. So now you go, oh, uh, and you start thinking about, do I repaint it? But I invested all this money in blue, and it's like a whole big deal.

Speaker A: And then it sounds like our home every time we're done remodeling. Oh, man, we got to start all over again.

Speaker B: Exactly. I don't think I've ever finished a remodeling project in my home, but that's exactly what it is. Now translate that all the way back so that when you are in that process, what happens is you say, I might regret this decision. And that might regret means you just choose not to do it. Well, if I don't like the blue. Right. So that's why the emotional part is so important, because I love this blue. You might regret it later, but then you'll rationalize it. Well, I loved it before. Maybe it's just because the sun's hitting. You know what? I'll just change the light bulbs in here. I'll go a different bulb. So you start to rationalize that concept. But if the fear of regret is too great, you won't do it. Um, and then it was uncertainty.

Speaker A: Uncertainty.

Speaker B: Okay, so uncertainty matters. Because the thing is. And this is specific with AI where I think it's heading, too, is consumers increasingly want reassurance before action. If outcomes feel unclear, consumers delay. So this is where I see, and I don't want to deviate too much because I. I'll spend too much time on this. But the point is, this is where I think AI has really started to kick, is people are using AI for reassurance. So the bias is no one's really here to tell me that I'm making the right choice. Especially as you become an adult. Uh, it's one thing you ask family and friends, but as we get more mature, or you're the one who's running your business or you're investing in a product or service, then you're the one who starts saying, this is what my gut is telling me. But you're uncertain if you're making the right move. So we tend to ask people to help us alleviate that. The problem is, if you're a founder, right investor, my friends are all gonna say, oh, yeah, no, that's a pretty good idea. You almost need that contrarian part of it. So even though you might be getting the reassurance, you hope the uncertainty feels like such a bias, because are my friends really telling me the truth? Now? You have those really good friends that you say, do you think I've put on too many pounds? And they go, yeah, I have three friends, and you're two of them. Like, those are the good friends that you want to tell you the truth, but that's the uncertainty part of it. So when people turn to AI in looking at some of the research that's available that companies like OpenAI make available, we find that people aren't asking questions like, what's the best vacation? What they're really asking AI are, uh, things like, I want to take a beach vacation. Is this the best place for it? And I've looked at this place in Cabo, right. And is this a great place? And then AI is going to try to affirm. If you haven't sparked it up differently, it's going to affirm these choices. Great choice. Cabo's beautiful this time of year. The weather is really nice.

Speaker A: You are the world's best vacation planner.

Speaker B: Yeah, that's what it is. And so you're seeking this reassurance. But if you don't believe the source of your reassurance, that uncertainty factor simply becomes too much, and you start to hesitate because you're just not sure that you're really getting what you need. And then the last one is what I call the renewal illusion, which is Consumers convince themselves that they'll revisit the decision later, even though they usually won't. And this is New Year's resolutions to a T. This is shopping cart syndrome. There are a million terms for it. But the basic concept of this is, I saw this ad, or I've considered this product. You know what? This is exactly what I'm going to do. But I'm a little uncertain, or I have a little hesitancy on these things. So they convinced themselves. You know what? I'm going to talk to my doctor about a, uh, GLP1. You know what? I'm going to go down and visit that gym and check out those classes. I am going to test drive that car. And we never do. And it's not never, because there's never anything certain in economics, but it's never right. Otherwise, we would have a rapid consumption behavior economy, and we don't. And so that becomes the foundation or maybe the extension of what consumers do in the behavior. And what I think becomes one of the largest impediments is that one of the things I heard at LeadsCon was it's not the gathering the leads that is such a challenge anymore. It's the conversion of those leads. People get really excited, and you go, I am interested in remodeling. I am interested in this service. So you fill out the form, and then you start getting the materials. And now you're getting conflicting materials. Because if that lead's been sold to three, four different places, you're going, I would like this bathroom. Oh, but look what their bath rod model does. And what happens is now all of a sudden is you've created and reinforced all of those other biases that we just talked about. And so it becomes analysis paralysis. I don't know which of these tubs I like best. And then you start to delay, and pretty soon that remodeling project just gets perked further and further off until you're like, you know, let's just sell the house. Let's just sell the house, and we'll buy a new construction, and it'll be just how we want it, right? No, I mean, that's. That's that concept.

Speaker A: No, I love that. So. So, I mean, we went through all of these different biases, and I know as marketers and as salespeople, half our job is to try to overcome these biases. Um, one thing at least, like, let's. Let's kind of try to walk one path through that if we can. So we should really hit home, because this was. I Thought a very important way uh, of, of talking about it. So let's, let's go through one of the industries that was obviously at Reese Leasecon, which was the home remodel home surface and we started talking a little bit about it. Uh, uh, how would you frame each one of these things? Uh, let's maybe on the uncertainty side and how you can overcome that, that performance marketers should think about, right? Like hey, I want to remodel my bathroom. Let's just start, let's just start there. So you happen to be a uh, contractor. Your, your, your job is to you know, bring in leads that uh, uh, are interested in a home remodel. Part of the lead acquisition funnel is obviously running either Google search ads or running some type of media campaigns. Uh, it might be streaming ads or something of that sort of. Uh. In that specific scenario, if you are a performance marketer, how should you be? Do you try to tackle all five of them at uh, all the same time or do you pick one per creative and try to address that? Can we bring it a little bit to more?

Speaker B: Absolutely. Let's put this into a real example and I'll stay specific. With home remodeling I think the first thing to recognize is that most conversion friction is psychological, not informational. So it's very challenging as you know, with say a Google Ad or something to get enough information in front of someone so people focus on the channels or time of day. So I heard a lot of presentations and no one's wrong. So I don't mean to demean anyone who else was presenting, but those things matter. But it's about understanding the psychology of the consumer, not oh, this is the best month to try to remodel or those kinds of things. Right. So every consumer is going to go through this psychological in terms of the example, the very first thing that you have to do is recognize that the psychology of this is what is the simplest benefit to a consumer that is emotional, not rational. Uh, I said earlier that we make emotional decisions and then we rationalize them later. While it's impressive to come out of the gate saying save $2,000 on bath remodeling, the first thing that needs to happen is you have to give me a fundamental psychological benefit to bath remodeling. Now this is where it would be performance marketing based in terms of targeting. If you are say doing a remodeling for aging in your home, right. A walk in shower or a walk in tub, whatever those things might be. So you're going to target people 55 plus in that you want to present you love your home will help you age into it gracefully. Right. That's an emotional resonance to me as a consumer. I do love my home. And they're right. At some point I will have a hard time stepping up and over into a tub or I might need a bar next to the toilet, whatever these things are that we shouldn't be embarrassed about. But it's that initial concept grab the emotional understanding of it of uh, you love your home, we'll help you age into it gracefully as a concept. That's the first piece of this. Then we move through the biases. So what's that first bias? Well, that first bias is going to be the uncertainty. Now that uncertainty is likely to manifest itself into a concept of value. And we can talk about that in a minute. But that first part is going to be, oh my God, I do love this. Is this going to cost me $100,000 to remodel my bathroom for me. Now that uncertainty is usually price. Is this going to cost a lot? So now what you want to do is in that same emotional hook bath remodeling starting as low as blank $5,000. Because if all you need is a walk in tub, I can do that in a day. Those kinds of things.

Speaker A: This is where the financing messaging, also

Speaker B: financing messaging hits everything else. So what's the next most logical uncertainty that consumers face? The concern of disruption. Right. Is it affordable? Is this a nine month project? That will be people in my house and there's dust everywhere and it's all these things. So now what's that message? As little as a day. Right. You know, clean, uh, we clean everything. So you start thinking in terms of the way consumers think and start listing those out in the order. How much does it cost? How long is this going to take? What are the most common uncertainty type questions you can overcome? What if I don't like it? What is the satisfaction rate of this? Right. Well, here's the thing. I will bring all the samples. You pick everything. It's not like you leave for the day. This is an extreme home makeover where you leave and come back and hope you like the bathroom. These are your tile choices. This is your faucet choices. This is everything. Right. So now it becomes okay and then it is, I guarantee the work. We give you a 10 year warranty. So everything we can think of that is an uncertainty impact to consumer we address. And you want to try to address that as much as possible in your initial obviously that first click is the emotional. But if you take them right to a page that goes here are the commonly asked questions or here are the bullet points. However you've laid that out in social media or whatever that might be, or people watch past that six seconds and now your, your person or you are walking through a bathroom and you sit down and talk. Now you've overcome uncertainty.

Speaker A: I love, I love this. So you start with the emotional hook. You make them feel something that they connect with and overall be drawn to the future version of the problem. Once it's solved, how they will feel. Right?

Speaker B: That's right.

Speaker A: And then you start layering in all the other uh, um, aversions, solving them either through the landing page or potentially if they don't become a lead with other retargeting ads that they will see that will remind them of the emotional appeal and then solve another common most top aversion.

Speaker B: That's exactly right.

Speaker A: And then once you get them into the lead flow, then through all your remarketing campaigns, your email sequences, you're still trying to ensure that you're moving them down the funnel. So when sales actually gets on a phone call, they're more or less already ready for the conversation. Is that. Am I summarizing this?

Speaker B: You have it summarized exactly correct. The ultimate goal of the call is simply to convince you that I am the right one to do all of these things that we've just outlined. If I have to sit there and have a conversation with you about the value of your home will go up because of the bathroom. The truth is that consumer isn't at a stage of true decision making. They are still in some degree of uncertainty. That's like a loss aversion example. Right? But if I tear out this bathroom and I make it an age in bathroom and I decide to move to a one story or something or one of these 55 plus communities, will the family that tries to buy my home go, I don't want this because it has a walk in shower and a bar by the toilet. So now you start to apply loss aversion. Right. I'm gonna put all this um, money and I won't get it out by

Speaker A: the way as a performance market. You know what I just heard? Lead scoring. If they click on the team. So that's phenomenal. I love this. And by the way, I know we could, you and I could nerd out on this.

Speaker B: Uh, you're right. Go for hours on just this part. But that's the uh, that's the piece. When you, when you get to the Sales call. The only conversation should be, I am the right builder for you, or, uh, I am the right remodeler for you and everything else. They're just not at the stage. And you nailed it perfectly. If there's someone like you that can help people get that lead scoring down. So you know the time to make the phone call because you can tell through the journey if someone keeps. If you're using some tool like HubSpot or whatever tool there is, if you can see that people keep revisiting the cost, then you want to address that cost conversation via follow up email or remarketed targeting that's specific to the value conversation. It's when people start going remodelers in my area, that's it. They are hooked. Swoop in, be the one to sell them. And that job becomes so much easier because you've helped move them through the bias. And the challenge for a lot of people is that you have to appreciate that sometimes the rising tide lifts all boats. Right? That you might be convincing them this is the right thing. And then you come in and go, look, I did all this work and so you're ready to sign with me and they don't go with you. That burns you. But you have to recognize that it's also true that someone else may have done all that heavy lifting for you. And then you come in and get the win. But that's fine.

Speaker A: Uh, yeah, I want to talk about that a little bit. I think you talked about it as passive and active, but we'll get into that in a little bit. Let's talk about the value equation because that was incredible too. So you got. You talked about the economic value to customer M. Um, so I'm going to do my best to say it, and then I do want you to double click on it. You said, economic value to customer equals reference value plus differentiation value minus switching cost. So that was the equation you wrote. Please explain this to people and help

Speaker B: me break it down. All right, thank you. I will. You have it exactly right. So it looks like a really simple formula at its core. The way to think of this is we are trying to measure value, not just price, because it's important to understand that consumers often behave what appears to be irrational. It's not that they're irrational per se, it's just we would say, well, why wouldn't you always choose the cheapest hamburger? Why wouldn't you always choose the cheapest? Okay, because there are a whole bunch of other factors that come into it. So the way we measure this is. We start with what's called a reference value. Reference value is just simply the price with which a consumer thinks something should cost. If you go to buy a car and you think a car costs $40,000, that's your reference value. And if you are like me when I went to buy my kid shoes when he was. He's a college student now, but when he was in high school, I thought tennis shoes would be like $30. I had no idea that these things are now $150. So my reference value is way out of whack. But it doesn't matter because to me, that was my reference value. So to your listeners, the best thing you can possibly do is be the one that sets the reference value if a consumer is exploring something new. And let's stay on remodeling. I don't have a concept for what a walk in shower should cost. I have no idea. So if the first ad I ever see is a walk shower is $5,000, picking a number and I go, and I'm aging in, this would be great. That is now my reference value. I am going to compare everything else based on that initial reference value of $5,000. So the first in with a reference value gives you an amazing strategic advantage. But if your consumer has a feel for what they think something costs, that's the reference value, Then what we do is we take into account all these positive differentiators, and these are usually qualitative, not quantitative. So, for example, brand. Brand matters tremendously. And I think this is one example. If I didn't use it at LeadsCon, I use it a ton, which is to say, if I'm driving up and I'm driving through Oklahoma, I see a billboard and it says Johnny Rocket Burgers, and it's like, best in Oklahoma and winner of everything. And I'm like, oh, that's great. Then you see a sign that says McDonald's two miles ahead, I'm gonna drive onto the McDonald's, because while it's probably not as good, I do understand the brand, and I know what I'm gonna get right. So we're always back to those biases of regret. Well, what if I stop and it's not that good of a burger? And I could add a McDonald's. So that concept. So what are all the qualitative things that add? So if we stay with our home remodeling, if the home remodeling doesn't offer the type of faucet I want, right? So if I. If I'm sitting down and the remodeler shows me and it's like, hey, these are touchless faucets. And this is an auto temperature. So you never worry about getting scalded. You can just press the button. You, these are all things. I go, this is tremendous, this is tremendous. And so what happens is everything that gives you that positive feeling makes the price I'm willing to pay higher. So we add that to the reference value. So if I think that the walk in tub bathroom remodel is $5,000 and you start showing me all of these amazing features, I go, yeah, I would love to have touchless faucets. I would love to have a shower that is always the same temperature. I never have to adjust a knob. Uh, these are things. And you start to say, you know what, I would pay more for these things. So now maybe your value that you're willing to pay goes up to $8,000, right? So now I'm willing to pay $8,000 for this walk in shower tub combination. But now I have to start subtracting the switching costs or the negative differentiators and I start looking at all the things I don't like. Well, we can't start for three weeks. Uh, I kind of wanted to get this done because I'm going to be on vacation. So you start to subtract mentally qualitative costs. These are our colors. Oh, I don't really like any of these colors in the pre made shower available. You know, it's not sure I like that blue. It's not really the right blue. Right. So you start subtracting the number so you have your reference value. You add all the things you like, you subtract what you don't have and then that ends up with your final number which is the EVC or the economic value of consideration or economic value to consumer. And so what it is is that number is the money number in my brain that I'm willing to pay. That takes into account all of the qualitative and quantitative factors. So if that number is $7,000, I was willing to pay 8 because I liked all these things. But there were some things I don't like. So now my number seven, if you hand me a bid for $6,999. Sold. But if you hand me a bid for 7,100 dollars, I'm going to have a hard time with the conversion, right? Because that's at the end of the day, a consumer will arrive at an EVC and that becomes the sticking point. Now the great part Is that when you're really that close in that example, I'm sure you can work it out. But when we talk about larger products like washing machines or cars or big vacations, we can be talking about a significant difference of thousands of dollars. And you don't find that negotiating room. And that's why we see consumers walk away. And there's nothing more frustrating than to the end sales effort, where you go, I don't understand. He loved the car, loved everything about it. And the guy wouldn't come up $2,000. And I'm going to walk away going, the guy wouldn't come down $2,000. Right.

Speaker A: And I love all of this, by the way. I'm eating this up right now. So here I am as a performance marketer thinking down funnel conversion, and I'm thinking, hey, how can I collect data and figure out, uh, what were the positive impacts during the sales pitch or during the sales call? What are, what are the areas that they reacted to that seems to be creating value? And what are the things that, uh, clearly didn't go so well? Right. Like, okay, these are the things that are concerns. So if my job is to figure out the in between of the two, ensuring that there is room on the pricing side, I should be able to improve my conversion, right? Like, like that's right. If the framing changes, both on the sales and the growth side of things, people, theoretically, if they're getting to the pitch or to the proposal and there's a pricing conversation, then what went wrong is there were more negatives and you underestimated the negatives, um, on the value of those negative. Am I framing that correctly?

Speaker B: You framed it perfectly. And I think the extension of what you just said, where a lot of people get hung up, is we tend to set values based on what we perceive. Okay, uh, I'll use an example. My wife will not buy a coat because this color green or the belt buckle doesn't match. You know, her purse. I don't know. I'm making my wife sound bad, so hopefully she never listens to this. The point is, but to her, that has tremendous value. I could care less what the belt buckle looks like. Do you know what I mean? So I would be like, does it fit? Is the length good? Do I like the general shape? So my values aren't the same as hers? And so you have it exactly right. Because the thing is, you would say, I don't understand how that went wrong. All they didn't like was that the handle turned left, not right, and they walked away. That's just silly. There must be something else. But the truth is, that person could be so passionate about which way the handle should turn that that truly was a significant negative or switching cost that created an impediment to them. And that's the, the hardest part of what you just said is can you recognize that to the person you were talking to, that was a significant detractor value? When I wouldn't value that, I'd say, well, okay, I'll give you $50 off. But to that person, that was a $500 difference. And understanding that is why so many leads that look hot end up walking away is because we don't understand how that other person valued the negative differentiators. It's a hard thing to learn.

Speaker A: Let's change to E shaped economy a little bit.

Speaker B: Okay. Yeah.

Speaker A: So, uh, you talk about three consumer tiers where the top buys freely, the bottom restructures around affordability, and the massive middle seeks value for quality. You said most brands are completely missing the middle segment.

Speaker B: Absolutely.

Speaker A: So talk to me a little bit about what they are so the audience understands. And let's dig into that middle segment. What did you mean by that?

Speaker B: Okay, so the setup, and I have to be a little bit of an economist nerd here very quickly, is to say we're not really just talking about something like household income. A K shaped economy is high household income, low household income. An E shaped economy is to think of this more in terms of behavioral tiers. So the top of the E do generally tend to be wealthy consumers, but it's wealth in terms of how they perceive it. I don't have any kids at home. I've got good equity. Whatever those things are, you'll spend and buy a certain way because you're not really that worried, so you're spending freely. The bottom is really just people trying to survive. These are people that are desperately seeking value. These are people that are making active switching choices. Like I'm going to McDonald's previously, and now gas prices are so high, I'm not going to eat at McDonald's at all. Right. So they're opting out because this is really about survival. The middle of the E. These are consumers that we have begun to call the cautious consumer. They are willing to purchase, but you have to give them the justification for the purchase. So these are people that are tending to delay. And the reason I said that most brands are missing this is because we live in such a rapid, especially in performance marketing, we live in such a rapid measurement economy that if I run a television ad that says, call now and I'll throw in an extra and somebody doesn't call, we go total failure. Creative's not right, or we're running the wrong time of day, we're on the wrong stations, wrong target audience. What are all these problems that I'm not getting an immediate response, but that middle E right now what they're doing is going, this might be of value to me, but I need to do a little research. I need some justification. I need to think about this. So when, when brands don't stretch their conversion time out to accommodate this caution consumer, it's perceived as failure. And so brands are making rapid changes or they're switching the target audiences. When the truth was, you piqued my interest. I just didn't click the website right then, or I didn't click the link or I didn't make the phone call, call again. It's about, I need to think about it. And what I'm encouraging brands to do right now is to simply stretch out that time of consideration. And I know it's a hard thing because if you have limited investment funds and you're going, but I do this, and if it doesn't work, I will have burned all my money for nothing.

Speaker A: So you're saying the attribution window is longer. Right.

Speaker B: The attribution window needs to be much better.

Speaker A: It's not immediate. It might be 30 days or 15 days and there might be other things that they need to see, or do you think even longer than that?

Speaker B: It depends on the product to determine the length. Um, working with a client about vacations, vacation destination, it's really hard. Normally they would say, well, look, most people book airfare, we're going to say it's within that 90 day, maybe 120 day window. This is where we want to go. But there's so much uncertainty in the world right now that consumers aren't against taking a vacation. They're just slowing that out to maybe 240 days. Uh, you know what, maybe we can take it in the fall because gas prices are really high, jet fuel prices are really high. Airfare. I wanted to go visit Europe, I want to go to Romania, but gosh, that whole area seems kind of a dangerous place right now. So all of these things that become considerations, I still want to take a vacation. I'm just going to do more research. And it's not always research to save money. It's just research for that reassurance that I am going to be safe and have a good time. And all those factors go. So in that particular case, you might need to stretch out two more months. In the case of something like home remodeling. Right, same thing. Gosh, mortgage rates are high. Is now the time to tap for refinance or whatever these things might are. So if you're saying generally I should be able to generate a lead in say 14 days, you might need to make that 30 days because it just needs that little more reassurance of yeah, this is something I've had some time to think it over and I recognize in performance marketing that it is how did this ad perform today and how many leads did we generate today? But you just have to understand that these consumers are becoming more cautious in their approach. They're not zeroing out their willingness to buy, they're just delaying it. And that's why when we get things like retail numbers, you see things like luxury goods are really high. It's not just that wealthy people are spending more money. It's that emotional purchase of a Louis Vuitton bag is an emotional purchase and you're pulling the trigger. Right? But a vacation is, I really, really want to make sure I get this right. And then at the bottom that eating at a restaurant is gas prices are too high. I'm just not going to eat out this week at all because I had to pay an extra $60 to fill my tank. Right. So that's that shift in why we say it's an E shaped economy. And if that middle group, they may be aspirational, right? So if you think about someone in the middle who delays and you say, look, I'm thinking about taking a vacation, but here's what I'm going to do. I'm going to do some research. I'm going to find this. I'm going to wait for special deals that vacation. That may have been a, uh, $3,500 budget for vacation, they might end up spending $6,000 because they're aspirationally doing the research and finding out that it'll be so much better. And that's a great example of we don't want to translate that delay to they're not buying it can be they will actually spend more. We're not always. Not every category is showing that brand switching. It's not like everybody's buying down to a cheaper product. It's just the delay that makes it feel like. And then that bottomy which is switching to a cheaper product because the middle aren't buying and the bottom are buying cheaper. We interpret that as an Economic overall, a, uh, macroeconomic approach to say while spending's going down, it's only going down because when I looked at it for this two week period, these people bought less. These people didn't buy anything. But let's come back six weeks from now and see if suddenly it looks like, oh my gosh, consumers spent a ton of money. The economy must be really good. It's not that the economy's good, it's just that that decision timeline finally caught up, if that makes sense.

Speaker A: It's the segment, the cohort, the length of the window for me to summarize that. And, uh, I think we got into skirted around a couple topics here that I want to double click a little bit more on. Sure. So one thing we talk about is, um, there's a fallacy in performance marketing where everyone thinks it's about, uh, speed to lead. And what we like to talk about is speed to trust.

Speaker B: Ah, beautiful.

Speaker A: So the way you're like looking at the attribution window, everything you're kind of really doing on the marketing side and even the nurturing side as they come through the funnel is. And I know you talked about this and we haven't got into this topic, so maybe this could be a good transition into it because this is where you really started catching my attention at leaks. Gone as well is you started framing the notion of a passive buyer and an active buyer. Right?

Speaker B: Yeah.

Speaker A: And you, you mentioned that, uh, it's really 90% of the market really is the passive buyer, while 10% of the market is the active buyer. And the real opportunity is to focus on the passive buyer and, and make them the active buyer over time. Because. And where that resonated with me was the trust element that we like to talk about here within the agency. Can we, can we talk a little bit about this and.

Speaker B: Absolutely. So let's start by giving a quick definition. When we talk about active seekers or active consumers, we're talking about people that already know they have a problem and they're evaluating solutions. Okay. And more importantly, they know a solution exists. So they're not hunting a solution, they are hunting a solution provider. And really the question they're asking is, why should I choose you? This is the lowest hanging fruit. I just bought a motorcycle. I didn't really. Again, in case my wife is listening, I just buy a motorcycle. I know I need a motorcycle insurance. Right. So I'm going to go online and I'm going to pick motorcycle insurance. Clicking away on that, that makes me active. The problem is because I'M the lowest hanging fruit. It's where most of the sharks are fighting over the same piece of chum, right? Everybody's fighting for me at that point. And I, as a consumer have gone past all of the decision making parts because this is something I have to do. So I'm probably going to choose the cheapest or not the cheapest, the one with the greatest value. And that value is going to be heavily dependent on trust. And that trust comes from understanding you and that brand. But if I'm not that familiar, I may not have a low level of trust and I still have to make a decision immediately. So I might end up just saying. Well, I've heard of Progressive, seen their ads a bunch of times. Boom. Call them. That's the click. Doesn't mean it's the right one for me. It's just those. Meanwhile, a passive seeker. They're psychologically anchored in this present state and they're not actively looking to change. They're often comfortable enough with the, uh, current state. Anything new feels optional. Let's go back to our remodeling example. I know my bathroom's outdated, it's not as great as it could be, but I'm okay with it. I mean, really, it's the master bedroom, bath, it's the ensuite. No guest to my house is using that. This is me, right? So I could live in that current state forever, you know, so it comes back to that concept of how will you get me to start thinking about a future state? What can you tell me that that gives me that sense of emotional consideration? What will help me resonate with I should update this bathroom. And then it becomes why should I change at all? So the active consumer is saying, why should I choose you? The passive consumer is why should I change at all? If you go back to our remodeling example and that pathway that we follow, you building this information with me is creating this sense of trust. And that sense of trust means when I go to an active seeker mode, this is the decision I'm going to make. The beauty of that is I'm not opening it up. I am actually going to call you because you created a relationship with me. And if that relationship was trustworthy, like, this is really good information. This is speaking right to me on my house. This is really good research. I trust you. I will convert with you. So even though I go from passive to active seeker, I'm not really seeking anymore. I'm now actively following up on a relationship that you may not even realize you had Built it was just because it's all automated through remarketing. And that's really the impact. And you gave the stats that quite honestly, depending on the category, cell phones, for example, I think I used this one before, is 1% churn. On average now there are 300 million cell phone lines in the United States. 500 million if you include business lines. But if we stay on the consumer side, 300 million lines. So you go 1% churn. Well, sure. That's huge. The problem is I'm already moving from, say, AT&T to Verizon or from Verizon to T Mobile. So the rest of the industry doesn't really get to do that because I've already. I went from making a choice I'm not really seeking and in consideration for other choices. So why wouldn't you try to Talk to the 270 million people that may not be thrilled and just think it's too much of a hassle to switch their cell phone? And this is where you start to see the advertising of things like keep your number, keep your phone. You don't have to lose all your. Honestly, if I lost my phone, I'd be doomed because I can't remember a single number or anything. And I back nothing up to the cloud. So I'm like, oh, I don't want to switch. But these are the kinds of things that passively. If you keep addressing them to a consumer, then I'm going to build trust that when I walk in and say I want to switch from AT&T to UT mobile, and they go, you know what? I'm going to. Let me tap on your phone, I'm going to bring this card over. Your number's the same, all your contacts are there, everything's on your phone. Wow, thank you. And I walked in there with that level of trust because you had created that sense of trust to me.

Speaker A: I love that. So, AI, let's, let's kind of change topics to AI.

Speaker B: AI.

Speaker A: AI. It's everywhere, right? Yeah, yeah, it's very hot. In many, many industries, uh, for us, we've built a growth operating system. Right. We, we apply it to all facets of marketing, from paid media buying to content creation to landing pages. And we even go deeper into lead scoring and lead routing. And we followed the journey all the way through to sales and post sales. Um, but I'm kind of curious, in your viewpoint, where do you think AI as good as it's gotten and in a very short period. Right. So six years ago, June 2020, that's roughly when OpenAI released their APIs, that's when we started our agency, by the way, in its current form. Here we are coming on six year mark of that and it's sounds like a long time. It really isn't. Where do you think it's headed? Where do you think human judgment is still essential and critical and that it will never be, especially as marketers be able to do what we, we as humans still can differentiate and connect emotionally. While AI might be good at it, but it's not great at it yet.

Speaker B: Yeah, they're all really great points and I would sort of put this into a larger piece of this and reiterate something I said earlier. That is, I think that consumers are using AI for reassurance right now more than anything. They're asking it sort of biased, loaded questions. And AI doesn't fight you unless you have taken time to sit down and specifically spark or train your AI to say, I don't want you to tell me what I want to hear, I want you to do these kinds of things, okay? And not a lot of people bother to do that. So that's the first thing is I think people are using it for reassurance. Where I think it is heading is I think that there are too many models and I don't have a favorite. But I just think as an economist that everything ends up being sort of down to 2. I think what we're going to see is that people who haven't embraced AI yet will never embrace the concept of I'm going to ask ChatGPT a question, but their willingness to use AI is through brand trust. So I may not as a consumer go to ChatGPT and ask it where to travel. But I'm located out of the Dallas office for Havas. So American Airlines is the big hub for Dallas. So I fly American Airlines everywhere. When I log into American Airlines, there's an AI app that you can talk and ask questions. So even though I might be talking to a version of Claude that's running through their system, because I trust AI. I mean, because I trust American Airlines, I'm going to trust their AI. So I'm going to use AI by asking it vacation based questions or travel questions. Well, the fascinating part of that is I've already constrained myself into this is where AI flies. This is where AI is probably nudging that system to say things like, look, we're not selling enough flights to Detroit. And so all of a sudden it goes, have you ever been to Mackinac Island? You should fly to Detroit and rent a car, and you go, wow, that sounds like a great thing. So there may be a little of the validation part of that, but I think that's where AI is heading, is that AI as a tool will remain so for consumers that really embrace it for whatever they're going to do. But I think the rest of consumers will start using AI via the brands they trust. And I saw like Amazon just recently reframed Rufus back to Alexa, so it stays in that Alexa brand. But every time I go to buy something from Amazon, that thing pops up. Do you have another question you want me to show you other brands? I mean, but if you trust Amazon to deliver these products for you, you're going to start using that AI. So that's where I think the future of it is heading in terms of consumer behavior driven by the brands themselves. And so my advice to anyone that's introducing AI is you may build the greatest AI and tell me how it's a million lines of code or a billion lines of code, and it does all these things better. But if I don't know you and trust you, or you have all these other brand affiliations that are creating impact, I'm not going to use your tool. And if you don't frame it to me in a consumer much the way we began the podcast, by saying it's a toothbrush, if it is a travel AI and you build brand and trust there, I'm going to use it. And that's where I think we're going to see the future of this become is all the brands will start dropping in their own specific AIs to lead consumers to their decision. So much the same way lead generation matters now. It will in the future, because I'm not going to ask Grok about bath remodeling. But if I see the ads and trust Tom's Bath remodeling and I go, and there's an AI that lets me ask and answer all the questions for me. Congratulations. But we really didn't change the dynamic of performance marketing. You still had to get me to go to Expedia. You still had to get me to go to American Airlines. You still had to get me to go to Tom's Bath and remodel. And the fact that you have AI is a tool I now expect to see. That's where I think we're heading with AI.

Speaker A: I love that. So you teach, obviously, next generation of founders at, uh, uh, Harvard alumni entrepreneurs. What's the biggest gap, uh, you see, between how founders think about customer Acquisition and how you as an economist thinks about it.

Speaker B: I think the biggest gap is to use the old adage that so many founders, which is what we call the entrepreneurs, so many of these entrepreneurs are convinced they have built the better mousetrap and that the world will beat a path to their door. Because that was the adage of marketing from day one. I mean, we're talking from the Ogilvy days, right, That I am a rational consumer and you have the best available product and therefore I will purchase your product. The gap is that if you don't take into account all the qualitative aspects that we've been talking about, I don't know who you are, your brand, it doesn't come in a color. I like all these things that you don't consider. Your overall economic value of consideration is different than the consumers because you've spent so much time and effort to perfect the mouse trap that you didn't put the rest of the mousetrap about it. What does it mean to have a mouse free home? What is the emotional aspect? Uh, if you can't convince me of that, you can't convince me. Now. If I'm hunting a mouse trap and I'm like, I have mice and I'm going to go buy a mousetrap now you have to remember I'm in competition as the building the mousetrap. I'm in competition with everybody else with a mousetrap. So now it becomes, well, I built the greatest mousetrap ever, but it's 13 times more expensive than that one. How will consumers respond to that? So that's really the biggest gap is everyone gets so focused on the product development, that solution that they don't take into account the economic value of consideration of how a consumer will see that. It's the gap that I'm trying to solve that I really push to teach, and Harvard does a great job to drive this too, is to start to understand the basics of framing and messaging and positioning and all those things I know you help clients with. It's a vital part of it. It isn't just about raising money or generating leads. It's about the rest of that that impacts those final outcomes.

Speaker A: 100% agree. Uh, I want to, uh, end the call with a few kind of quick, rapid fire questions.

Speaker B: Sure. I'll try to be much faster in my responses then.

Speaker A: If every market in the world had, ah, to learn one one behavioral economic framework tomorrow morning, which one would you teach them and why?

Speaker B: M how much uncertainty impacts consumer behavior?

Speaker A: Why?

Speaker B: Because the more uncertain you feel as a consumer, the more you're likely to hesitate. And if you can understand that gas prices are having a tremendous impact on, say, my choice of everything from travel and all those, because I feel like I have less money at the end of the month, that's going to impact everything else I do. So that's my number. That would be my number one recommendation is understand how consumers, how much uncertainty impacts consumer behavior.

Speaker A: I love that. Tom, I've had an incredible time talking to you today. I think you and I could have made stretch this to 2 hours, 3 hours if we needed to. But I want to be respectable of your time.

Speaker B: Sure, absolutely.

Speaker A: If people want to be able to find you and learn more about, uh, Havish Edge, uh, and the brands you guys work with, uh, how would they do that? What's the best way to get a hold of you? Um, is it on LinkedIn or.

Speaker B: Yeah, I think. And I. Look, I'm probably going to get in trouble for not being more of a salesperson. It's pretty obvious I'm an economist and not a salesperson. But, uh, reach out to me on LinkedIn. It's spelled out Thomas J A Y Thompson. And I'm really actually pretty good about responding to questions there. And if nothing else, hopefully you can see through posts or reposts that I do of other people, a lot of those questions get answered. But I'm always excited and willing to chat with people all the time. And again, in violation of sales performance that I try to teach. When you talk to an economist, A, better, a lot, a lot more time if we talk in person than you think. And B, I promise I'm really not going to try to sell you on anything. I'm really just interested in problem solving. And be prepared for me to ask a bunch of questions about what you do because again, it's about that continually learning. I'm always fascinating what new products or services people are trying to bring to market and where they see needs. And I think there's a lot of opportunity for us to learn from each other. And it's why I enjoy podcasts. It's why I enjoy going to LeadScon. I'm not there thinking, oh, look, I'm gonna say XYZ. I went to as many sessions as I could. I really enjoyed the booths. I like going to ces. I like seeing all these things and seeing these consumer behavior changes in practice. I just find it fascinating that in product development especially that lead time is so huge that somebody's building something now that they hope to have in market two years from now. And as a behavioral economist, I'm going, good luck. Right? Because there are just some things you go, I don't know what the world's going to look like in two years.

Speaker A: Changing so fast. Uh, right.

Speaker B: Changing so fast, it's so hard to keep up. And I think that's why the companies that are more nimble or adopt a tool like you have, which is to say this is adapting to the rapid changing environment. This is what interested them. So it scores them differently or it leads them with the remarketing efforts. You can put all your effort into price, but if they're mostly interested in quality, and that's the remarketing piece, that'll be the piece that sells it. So consumers will tell you without telling you what they're hunting. And your ability to adapt to that is going to make the product or service. And that's where I think, you know, there's a tremendous opportunity for companies to learn from, from you more than me, quite honestly, unless they have really macroeconomic questions.

Speaker A: Well, Tom, thank you for being on. It was really. I knew this was going to be one of those sessions where you come in and you leave and you're like you're going to learn something new. And that held true. And, uh, I would love to, uh, bring you on at a future day that we. And there's so many great things you have there. Uh, I learned a lot and I enjoyed our conversation. And for everyone listening in, please make sure you, uh, you know, like, like subscribe to the channel and make sure to comment as well. Uh, thanks again for always listening in. Always great to have you guys on here. Have a great day.

Speaker B: Thank you.