
Behavioral Science For Brands: Leveraging behavioral science in brand marketing.
Behavioral Science For Brands: Leveraging behavioral science in brand marketing.
How Everlane have harnessed the principle of fairness to grow their brand
Everlane’s success has partly been driven by differentiating themselves from the rest of the fashion industry. Crucially they have reframed the competition as behaving unfairly.
In this episode we look at a series of behavioral science experiments that show brands can disrupt consumer apathy if they position the competition as having behaved unfairly. We cover a range of studies by Werner Guth, Sally Blount and Richard Thaler. Most importantly we focus on the practical marketing applications.
MAF: [00:00:00] Welcome back to behavioral science for brands, a
podcast where we connect academic insights and practical marketing to
help you grow your business and your brand. Every other week, Richard
and I sit down and talk about some of the country's best brands and the
behavioral science that's powering them.
I'm MichaelAaron Flicker
RS: and I'm Richard Shotton.
MAF: And today we're diving deep on a brand named Everlane, a DTC
clothing company that has made Radical transparency and fairness, a
core tenet of their business. So Richard, when we first heard about
Everlane, we were super intrigued by some of the core tenets that they
built the brand around.
We're gonna talk about some of those today, and we'll dive in and talk
about the behavioral science that's powering it. Uh, but Everlane started
in 2011 by Michael Prisman and Jesse Farmer. On the surface, just
looks like a very nice, very polished DTC e commerce clothing
[00:01:00] company. But when you learn about their ethos, exceptional
quality, ethical factories, and radical transparency, you start to uncover
that they're doing something very different in the fashion world.
Uh, number one, when you go to their website and you click on any
clothing item, you could see not just Where the garment was made, but
the actual factory it was produced in and this idea of radical
transparency extends to their products. They show all of the raw costs to
make the product. And the concept that the founders came to was that
there's just wild overpricing in garments across most of the U S and so
they shared the true.
pricing, they share the true cogs, they would have something really
unique and different. This wins them one of Fast Company's most
innovative companies in 2018. And even their name was designed to
support this ethos. [00:02:00] Lane suggests a path, the journey to take
the fashion industry. Towards greater transparency and ethical fashion
and ever is like a sense of permanence implying the brand's values are
enduring.
So they're on this mission to bring more transparency and ethical fashion
to life. Uh, And as of 2023 last year, online revenues of 262 million. They
are a big time winner in the e commerce space. They currently shipped
143 companies. And when you listen to interviews with the founders.
Priesman said a basic high end t shirt costs around 7.
50 to make, but gets sold everywhere for like 50. He was like, holy cow,
there's a real discrepancy here. And so for him, he almost set up this
boogeyman that the industry is quote, a dirty industry, and they're on a
[00:03:00] mission to clean up the space. Interestingly, they've tested a
lot of different tactics, including something they call the choose what you
pay sale, where they allow shoppers to select one of three price points,
the lowest just covers production and shipping costs, while the higher
includes overheads, as they're really trying to bring the the lowest The
inner workings of how pricing happens to the forefront.
So everybody understands where the costs come from, from the clothing
they make. So lots to dig into here on Everlane. Interesting business
model. And we felt when we were spending time on their website, a lot
for wider brands and wider businesses to take away from. Um, so where
should we start with Everlane?
I
RS: think the best place to start is with their transparency. As you say,
it's a Radical Transparency in which they talk about their cost and profit
margin, but crucially they then compare that with the industry, the dirty,
vashed industry as they call them. And it's this [00:04:00] positioning of
Everlane as behaving fairly and their competition behaving unfairly,
which I think has broad application to many brands because humans are
hardwired to react very angrily, very poorly, if they think they're being
treated unfairly.
So there's a brilliant study, a 1982 study by, um, Werner Guth, uh, called
the ultimatum game. And when he was at University of Cologne, he
recruits a pair of people and he puts them in separate rooms. They're
never going to meet. They never have met. And one of them is the
proposer and one of them is the receiver.
Okay. So he goes to see the proposal and says, here's say 10. You
decide how you're going to split it. With this anonymous person in
another room, you decide. And then once you made that decision, I'll
make the offer to the other person. And the receiver has two options.
[00:05:00] They accept the offer as it stands.
There's no negotiating. They either accept the offer as it stands or they
reject it and both parties get nothing. So this is interesting because from
a classical economics point of view of self interest. Let's say I'm splitting
the money and I split 10, nine for me, 1 for you. It's in your self interest to
accept that unfair payment because if you say no, you've lost a dollar.
MAF: Because my option is 0 for 1.
RS: And 1 you can buy a lot more than 0. However, that behavior does
not happen regularly. Most people, if they are offered less than about 30
percent and there is variation by culture, but put that to one side for a
second, most people, if they're offered less than 30 percent will reject
the offer.
You know, they would rather have both people having nothing than them
being taken advantage of. So. It's this idea that [00:06:00] people would
go to great lengths, they will suffer a financial disadvantage to punish
people who've treated them unfairly. Guth explains this from an
evolutionary angle. He argues that for most of our evolutionary history
we have been very, very weak as individuals.
We don't have tusks, we don't have horns, we don't have big teeth, but
we unite as a group, and suddenly the humans are the most powerful
animal in the world. But for groups to operate successfully, you have to
get rid of the free rider problem. So we have evolved, uh, to punish
people who take advantage of us, even if that is a cost to us as an
individual.
Now that Guth experiment, I think is very interesting, but it's a slightly
Strange saying, but the basic idea has been shown in other
experiments. So one of my favorite studies is a 1996 study, uh, Sally
Blount, who's at Northwestern University, I think at the time, and
[00:07:00] Max Bazem. And they run this among students.
Students arrive on campus for the first day of university, and the
psychologists go up to them and say, um, we want you to come and help
us do half an hour. Of research tomorrow and we'll pay you 7. Now,
1996, 7 is a reasonable sum of money. So most people would say yes.
72 percent say yes. That's their control group.
Next group, they find another group of people. They offer them more
money, 8. But they also say, like, I'm really sorry, but earlier on today,
we were offering other people 10, but we've run out of cash. So this
second group are being offered more cash, but they are told that others
are even better. If people again acted like sensible, rational machines,
they would.
A dollar is better than zero. Exactly. But again, that [00:08:00] is not
what happens. You only get 54 percent of people accepting the offer. So
even though it's a better financial deal, you get about 25 percent less
people accepting the wage offer again. If people think they're being
treated unfairly, they are prepared to go to great lengths, even if it
comes at a cost themselves, to punish the, um, the transgressor.
So, sorry, slightly long winded way, two experiments there, but both of
them show that if you can position your competition, As behaving
unfairly, then you can rouse your audience to move away from that
provider and flock towards your own brand. I think if you can do that in a
meaningful and powerful way, you are tapping into one of the most
effective biases there is.
MAF: So Richard, it occurs to me that before you can get to what
Everlane has done, which [00:09:00] is where you just ended saying that
if you can position the, uh, the, your competitors badly, you can endear
yourself and, and feel more authentic to your audience. The first thing
that I took away from those two studies was depending on the delivery,
the dressing around the offer.
It's comparative to what, uh, the audience is hearing. So when I had no
idea that I can make any money and I'm offered 7, seven is better than
zero. I take it. But when I hear that it was 10 and now it's eight in
comparison, it's worse. So there's another piece of the learning we can
take away here that it's really the way that you set up.
The comparison or the way that you dress the offer that matters as much
as what the actual offer is. Yeah, I think
RS: that's absolutely fair. How you frame something is, is super
important. And the, often the way that consumers are currently
interacting different brands is not the only way that that [00:10:00]
situation can be positioned.
So for example, if I was a insurance brand at the moment, and. In a
situation where an awful lot of people use a comparison site, I will be
doing everything within my ability to position those comparison sites, not
as a customer champion who helped people find better deals, but as a.
A leech who add on 20 or 30 pounds to every policy, that same behavior
can either be framed as helping people get a good deal or adding
unnecessary cost of the situation.
There's an opportunity, I think, to radically reposition, um, brands in
certain categories.
MAF: Yeah. And I think what we want for folks to take away from here is
that if you want to be a disruptor in a space, if you want to try to, Position
something that's happening in your industry and in negative light, you
can [00:11:00] use these insights to not just reveal what's going wrong,
but in comparison to show what, what you're doing well.
RS: Yes. You know, your point earlier about it's, it's how you position
these things. It's not just the, the competition of behaving badly. It's that
they're behaving unfairly. And I think those are slightly different things.
MAF: Well said. And, and being fair as like Chris Voss says, and never
split the difference is almost the thing that matters most to people.
It's that it's unfair that they're taking so much profit. And that's, and that
attacks a sense of justice we have about what we should be paying.
RS: Yeah. I think that's a, that's a really good example. I think Chris
Voss is. Uh, you know, a brilliant writer, uh, never split the differences, a
brilliant book. And often the points that he makes have a psychological
underpinning.
Yes. So he often talks in that book around people will crash a deal on
negotiation. They feel they're being taken [00:12:00] advantage of, even
if it would be profitable for the company. If people think it's unfair, then
they're prepared for everyone to go down in flames. So yes, we can
apply this. When we think about consumer behavior, but I think as
professionals as well.
Yeah. He
MAF: calls it
RS: the
MAF: F word. Does he?
RS: Okay.
MAF: I
RS: didn't know that.
MAF: Uh, but you know, what's also interesting as I was preparing for
this episode and researching Everlane online, a lot of the questions in
Google searches that come up is why. You know, why do they charge a
hundred percent markup? What about this?
What about that? And what I was realizing was they're clear brand ethos
that when you read their about page comes through is a very
complicated message to distill down in a shopping experience. So to
them, a hundred percent markup is wildly better than the 400 percent
mark of the industry's showing.
But in these Google searches that was clearly being lost. I mean,
[00:13:00] it's very hard to make sure your message is heard all together
holistically.
RS: Yeah, I think you're right. And, um, we interviewed a while back
brilliant planner, Sarah Carter, and she talked about the idea that one of
the best things you can do as an advertiser is assume The indifference
of your audience.
So if Everlane success requires people to have read their ethos and
their brand mission, that is not going to work. That is an unrealistic
expectation. You need to sum up why you're fair and why the
competition is fair in something that people can pick up in a couple of
seconds. That's assuming indifference in your audience.
Unfortunately, I think as things currently stand, Everlane are expecting
too much of their audience to engage that complexity. But I still think
they are a very interesting, if not perfect brand. Because the great thing
with behavioral science is it, it picks [00:14:00] out these One or two
elements of a brand, which other people can learn from.
That's right. So there are lots of elements to Everlane. The experiments
by Blount and Goof just look at fairness. They hold all the other variables
equal. They just look at fair versus unfair. And they show that
repositioning a behavior as being. Unfair can lead to a radical change in
behavior. So it's that element that Everlane are touching on, but I think
other brands can learn on, learn from, but they might want to express it,
as you say, in a much, much simpler way.
MAF: Yeah, and, you know, a 280 million a year company, they're
clearly successful. They have publicly stated their goal is to be a billion
dollar clothing brand, a billion dollar company. To get there. You know,
you assume that people understand your proposition, and you have to
assume, like us, as new people, nobody knows what your, your brand
mission is, and how do [00:15:00] you continue to simplify the message
and communicate it, uh, in the easiest way possible.
All right, well, let's head to break, and when we come back, we'll talk
more about the psychology and behavioral science.
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MAF: Welcome back to Behavioral Science for Brands, a podcast where
we connect academic insights and practical marketing to help grow your
business and your brand. In this episode, we're looking at Everlane, a
D2C e commerce clothing company with a radical commitment to
transparency and fairness.
We spent the first half of the episode talking about the F word, [00:16:00]
fairness, and We wanted to build on this, thinking about more broadly
how companies can use transparency and fairness to, um, pass on cost,
increase price, which is applicable to all of us. How can we think about
The messaging that goes around when we have to increase price, um,
and there's a lot to learn in this case study.
RS: Yeah, fairness is definitely relevant to price increases, and there's a
lovely set of experiments by Richard Thaler, uh, he's a Nobel Prize
winner in economics, and back in 1986, he gave people a variety of
different thought experiments. So for example, some people were told
there's a hardware store nearby, uh, there's a giant snowstorm.
The next day after the snowstorm, they increase the price of the snow
shovels from 15 to 20. Is this fair or unfair? And 82 percent of people say
it's unfair. [00:17:00] So in this particular setting, where someone has
exploited an, an, a increased demand for their product and they just
shoved up the price, most people react negatively to that.
Second type of scenario, uh, for example, there was one around a
greengrocer, uh, Thaler tells people the greengrocer has had a
transportation mix up. They've had to pay an extra 30 cents to their
supplier. Um, they put up their cost by 30 cents. Do you think this is fair
or unfair? And in that setting, just 21 percent of people.
Think that it's unfair. So you've got this wildly different viewpoint and
essentially the belief in the price Increase being fair or unfair is not
driven by the cash amount that's going up It's driven by the motivation of
the of the of the seller now most economists to say Motivations are
irrelevant and people are just gonna [00:18:00] Respond to the facts, but
Taylor says that's not the case.
In reality, we have this view that it's much more acceptable to pass on
costs than just, uh, exploits increased demand. So if we bring this back
to how brands can apply it, if you are in a situation where you have to
put up your prices, explain to your audience that there's much explained
as much as possible of that price increase is you pass on costs.
So if you put up your prices by. 10 pounds, make sure people know
seven pounds of that is extra heating costs or extra staff costs or extra
tax costs. The more you explain where those price rises have come, the
more people will accept them.
MAF: Yeah, and for us, it comes back to thinking about not just the
business outcome you need, but the way you deliver it to the consumer.
So that it can be, uh, understood and embraced as much as possible.
[00:19:00]
RS: Yes, absolutely. It's that explanation, that wrapper that goes around
the price increase that's important. People do not just think, how much
value am I going to get from the item that's being sold, um, and now how
does the price compare to that?
That's probably how we should behave, but we're not desiccated
calculating machines. Uh, from my own personal memory, I can
remember, uh, being away on a work trip, Being absolutely tired to the
point of exhaustion, really, really wanting a coffee. The coffee would
have brought me 10 or 15 pounds of benefit.
But when I found the first shop, I think I might have been in Oslo or
somewhere, and it was six pounds for a cup of coffee. I just couldn't
bring myself to spend it because it felt unfair. I would have got more
benefit from that expenditure than the cash they were asking for, but
because I felt it transgressed a fairness norm, I wasn't prepared to do it.
I probably would have then gone spent six pounds on a pint of beer that
wouldn't have got me [00:20:00] anywhere as much happiness, but it,
the beer would have felt, um, Within those those fairness norms so
remember that we are not dealing with automatons we're dealing with
people who are very highly attuned sense of fairness and you as a brand
need to make sure you got on the right side of that.
MAF: Richard we spent a lot of time talking about explaining the prices
and conveying it a strategy i know many cpg brands use is slowly.
Increasing price over a longer period of time, they won't take more than
a 50 cent price increase in a year to 25 cent increases every six months.
Now that's a different strategy where they're slowly making the changes
over time, rather than taking all the price at once.
What would behavioral science say about that approach?
RS: I think, I think yes. An interesting one. And of the three experiments
discussed, the one that it probably relates most to is the Blounton
Baseman study, where the [00:21:00] willingness to accept a certain
level of payment for a job was dependent on what other people were
getting.
So people would have a comparison number and then that determined
whether they thought the wage was fair. I think you could apply that to
your example. Now, people are not thinking Is 11 a fair price for this bag
of beans? They're thinking, well, I used to pay 10. 50, 11 isn't that much.
You wait till they've forgotten that price rise.
And then you say, it's not 11, it's 11. 50 because they're always
comparing about with the last price, as long as you can make that. Uh,
uplift incremental up incremental and small and feel fair, then you are
going to be able to put through more price rise and then one big jump.
So yes, I think multiple small price rises would fit better with people's
psyche than one large price rise.
MAF: So then of course it becomes what business scenario are you in?
If you are in a [00:22:00] spot like we're all looking at potentially America
having tariffs. At the end of 2024 into 2025, where there might be a step
change, price increase. Some type of explanation may make more
sense. If you start taking price now in anticipation of a price rise increase
in the future, maybe you do not need to explain it.
So I, you know, it always comes back to what's the business case you're
in and how much advance notice do you have?
RS: Oh, absolutely. And encouraging someone to purchase your
products is not like a mathematics question where there is one good
answer. There are multiple techniques that you can use to encourage
people to buy you rather than your competitor.
You've got all these different techniques that behavioral science lays out
for you. You've got to choose which of the biases, which of the
experiments is most relevant for your particular, your particular setting.
MAF: Well said. Well said. [00:23:00] As we come to the end of the
episode, can we ask you to wrap up the big ideas, the big theories from
today?
So I think we've had
RS: three big discussions today. We firstly talked about the importance
of fairness to consumers. That if people feel they have been unfairly
treated, they will go to inordinate lengths to punish the transgressor.
Second point was you as a brand can harness. That insight, this is not
an abstract academic idea.
The way that you position your competitors can change a behavior of
being perceived as fair to being perceived as highly unfair. So the
example we discussed was insurance comparison sites. They currently
position themselves as market champions, giving you the information to
pick more cheaply. You could, I think just as easily position that.
Business sector as being a unfair [00:24:00] additional cost that's being
added onto the process that's taking advantage of customers. So it's not
that there is a objective fairness. It's up to you to put the most convincing
case together to swing people behind the argument that works best for
you. And then the third and final point we talked about was people will
accept a price rise more willingly.
If they believe you're passing on costs rather than exploiting a situation.
So if you ever in a situation where there's inflation, there's tariffs, there's
extra, um, costs in your business, cause staffing issues, make sure you
tell your supply, uh, your, your potential customers.
MAF: Lovely. And that wraps up today's episode.
If you found value in today's talk, please give a follow on YouTube or
leave a comment. It helps us reach more listeners just like you. And if
you'd like to go deeper on any of the topics we talked about today,
please visit theconsumerbehavioralab. com. There we have a video of
[00:25:00] today's talk, full transcripts of everything we said, and show
notes, which will have the studies and more in depth information about
the topics we talked about today.
Also, if you'd like to follow us in between episodes, reach out and follow
us on LinkedIn, where you can hear all the things that are happening
week by week. And until next time, I'm MichaelAaron Flicker
RS: and I'm Richard Shorten.
MAF: Thanks for tuning in and we'll look forward to bringing you our next
episode of behavioral science for brands the week after next.