Tim Longhurst's Blog

Predicting future consumer behaviour

March 29th, 2005 · 2 Comments

uts.jpgJordan Louviere spoke to a near-capacity Guthrie Theatre on the topic of modelling future consumer behaviour.

Louviere provided his perspective on why management decisions and choices based on ‘gut feelings’ don’t work. He then went on to introduce a sophisticated alternative – a research method developed in Australia in the early ‘80s and now used around the world: “Information Acceleration.”

“Gut feelings” don’t work – Here’s some proof

Humans are terrible at anticipating outcomes. Examples provided included:

  • Somewhere between 10-30% of new business ideas fail in the first year.
  • Thousands of dot-coms failed in the ‘90s.
  • There is no available evidence of humans consistently beating stock markets or predicting interest rates or economic growth.

The thousands of predictions made daily in the media are rarely measured to track the rate of inaccuracy, but it is suggested that this would be incredibly high.

It was hypothesised that we like to “know” that somebody is in charge, and that they know what they’re doing. (Although this is rarely, if ever the case.)

According to research quoted, “human managers don’t know their customers and politicians often make (inaccurate) assumptions about their constituents.”

A decision maker’s ‘Availability Bias’ may be a significant reason why “gut feelings” don’t work.

Two great examples of availability bias are:

  1. A successful executive who attended Yale is likely to remember
    fellow alums he encounters in his business circle and his social
    life. But his success places him in a narrow professional and
    social stratum. Because of his special, circumscribed range of
    experiences he is likely to overestimate the relative proportion of
    successful Yale graduates (because he meets them all) and to
    underestimate the proportion of unsuccessful Yale graduates (because he
    never meets them). [Range of experience can trigger the availability
  2. Unemployed executives are likely to overestimate unemployment
    among executives, whereas employed executives are likely to
    underestimate unemployment among executives. For each executive,
    employment estimates are biased by the vivid salience of their own
    personal situation. [Vivid salience can trigger the availability bias.]

In attempting to predict future consumer behaviour, Louviere suggests we need to step beyond our own assumptions about the world; how choices are made; or the benefits of a product.

According to Louviere, Information Acceleration is far more accurate than widely utilized pre-market product research.

The problem of pre-market consumer research is that consumers (reasonably) find it difficult to predict the future context in which their consumption choices will be made.

Information Acceleration attempts to create an environment that mimics the context in which future consumption choices will be made:

The testing environment researchers create is manipulated subtly for each participant. For example, product advertisements participants see in the research environment may vary. This allows researchers to, for example, identify whether the spokesperson for the product should be male or female, old or young. It also allows product features to be added or removed, to measure the impact such adjustments would make to product desirability.

Data collected in this testing environment can be manipulated to identify what markets would be most likely to purchase the product, and at what price.

Currently, Information Acceleration is used by a number of organisations; Louviere quoted Telstra, the Australian Defence Force and the National Australia Bank in his anecdotal list of organizations that have benefited from this system.

Louviere also mentioned that his modelling for the Spirit of Tasmania’s Sydney-Devonport service was measured to be only 1% off.

Interestingly, recent research using Information Acceleration indicates that Australians are prepared to pay “a small amount more” for products that are socially responsible.

More information: Event Website , PowerPoint Document on Bias [editor’s note: unfortunately this resource is no longer available online and we have therefore removed the link]

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Category: Understanding people