Al Ramadan explains how categories help organize companies and products in our minds, and how cognitive biases like anchoring effect and groupthink shape what consumers choose.
You might think this is not true, but it is. Which is, companies don't live in space. They don't live over there or down the road. They actually live here, in between your ears. They live in your mind. And we've only got certain capacity inside of this CPU up here. And so we need ways to organize all of these companies. And that's called a container. And that container is actually a category. And so, you know, my friend rang me the other day and said, hey, listen, I know there's some snow coming to Tahoe. I'm flying in from Australia. I need to get from San Francisco to Tahoe. What should I do? My answer was, go rent an suv. What's an suv? It's a category, right? I didn't tell him which particular type of car. I just gave him a bucket and said, go, go get one of those. Go ask for one of those. And categories work because it's kind of the way our brain works. We like to have a filing system. We want to put all of the different brands and. And products and companies into that filing system. And ultimately, it's the way people discover products and services is via this concept of a category. And categories actually manifest everywhere. You just. You may not have thought about it like this. When you walk into a supermarket, that's what you see. What is the sign above the aisle, the category definitions? It's all of the soaps, detergents, right? So it's a way of organizing. And if you think for one second that this is a random assortment of products on shelves and that the store's not organized for a particular way, you're crazy. The milk's always at the back of these places, right? Why you got to move past all the other categories to get there? Because they know that's one of the things you're coming in. So categories have been an organizing principle time immemorial, and they also true in the tech space. This is a famous Luma chart for big data landscape in 2015. It makes my head hurt just looking at it. But what are those boxes? Those boxes are categories. Someone has gone through all of the companies in the big data space and said, hey, that's one of these companies. That's one of those companies. And when people start to think about, well, what do I need for my business? They start to think about, okay, I need one of those boxes. And then they'll start to choose underneath that the company. And so let's talk about what happens in our natural world. Today we get more than 10,000 marketing messages every single day we are swamped with stuff coming at us, and we're very much in an overstimulated society right now. And so you can't make a decision about any one of those boxes quickly. You just can't. And so what happens is our brain uses a shortcut system. It starts narrowing down and speeding up the way in which we make these decisions. And the research here calls them cognitive biases. Many of you have probably already heard of them. But it's not about logic. It's actually about instincts. And I want to talk to you about three really important biases that you should know as a category designer. And the first one is the anchoring effect. If I said to you, hey, listen, you want to buy my car? And you said, sure. And I said, well, it's $5,000. That's an anchoring statement. It's not 50, it's not 2, it's 5. And now we're negotiating on the margin. That's what great category designers do. They get out into the market, they anchor the conversation around what we call their point of view, right? The world now comes to you. It's a $5,000 thing. It's not a 50 or a million dollar thing. The second thing is groupthink. You folks live in this world every day. When you turn on your social machines, what's happening? You're getting groupthink back to you. If Dave likes a certain beer or he likes a certain type of snowboard, it's more than likely I'm going to like that snowboard or that beer too. Because just because he's a buddy of mine and I respect him. And that's why Facebook and advertising on Facebook is going off the charts, right? It's because group think and the ability to influence those people in your circle is actually more powerful than anything else other than word of mouth in person. Then the first, the final thing is once you make a decision to purchase something, it's called choice supportive bias. Once I buy a particular brand, I end up kind of loving that brand forever. And even though it might not be better and someone markets me a better feature, I don't care. I'm in love with this thing. And so these things play a very important role as you go to market and category designers actually use these brain shortcuts as part of the category design process to lead people to purchase decisions or usage.
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