Rory Sutherland: Don't overlook the basics

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I recently spoke to Dr Stephan Vogel, the creative director of Ogilvy in Europe. Stephan is German. He is also a genius, as evidenced by his authorship of a wonderful campaign promoting Deutsche Bahn, the company that runs the German railways. The creative team used artificial intelligence to find photographs of places in Germany that visually resembled more exotic foreign destinations and then, using behavioural economics reframing, juxtaposed live rail ticket prices to the German attraction alongside the (vastly higher) airfare to reach the more distant, but equally attractive, national attraction.

One question I had for Stephan was this: why was Germany such a bit-player in the global tourism market? I’ve always regarded German tourism as a missed opportunity, a dog that doesn’t bark in the night. It is a glorious country with reasonable prices, marvellous infrastructure, fabulous landscapes and historic towns and cities rich in culture and architecture. The climate’s not bad and the locals largely speak English. Why would it seem totally normal to say we’re going to Florence for the weekend, but not Freiburg, Mainz or Cologne?

Stephan’s explanation was simple. The Federal Republic of Germany is exactly that: federal. The budgets for tourism are held at the level of the individual länder.

Since most non-Germans don’t know where or what Nordrhein Westfalen or Schleswig-Holstein are, the branding doesn’t really work, so Germany doesn’t really advertise its many attractions overseas. It would make much more sense to pool the money and advertise the country. We wondered if we could suggest that the German government did exactly that.

I tell this story to illustrate something very simple. Quite often, the reason we don’t do something is really quite silly. If you don’t have a department for something, or if the budgets aren’t in the right place, nothing happens. Whole valuable fields of valuable business activity are neglected for this reason.

Former marketing professor Mark Ritson has pointed to two woefully neglected activities in the field of brand-building: namely sonic branding and brand partnerships. I don’t think it is a coincidence that these are two activities that don’t really have budgets or departments specifically charged with pursuing them.

To Mark’s pair I propose to add a third – something I didn’t even have a name for a few weeks ago. When reading a piece by the brilliant business writer Roger L Martin, I discovered that more than 20 years ago Procter & Gamble had appointed someone as head of ‘commercial innovation’, which the company ingeniously defined as any innovative activity that doesn’t change the product itself, but seeks to improve and explore new ways for consumers to engage with, use or pay for it. It is distinct from R&D, which seeks to invent new products or materially enhance existing ones.

Mainstream economics tends to discount the importance of product innovation because it treats everything as a commodity, and assumes there’s a straightforward value exchange between volume and price. In the real world, this isn’t true. I can think of many billion-dollar ideas that have emerged through a clever piece of commercial innovation: the Starbucks stored value card, Amazon Prime and the Nespresso subscription programme are just three examples.

How you charge can make more difference to your business than how much you charge. If we were billed annually for our Starbucks consumption, we´d probably all stop drinking coffee! I would further argue that the introduction of London’s ultra-low emission zone (Ulez) would have aroused far less hostility had there been a more nuanced approach to charging, and that the recovery of Britain’s railways after Covid-19 will also depend on coming up with better ideas for pricing. The season ticket is a nineteenth century anachronism.

Maybe the success of your product isn’t being hampered by what it is – that’s the province of R&D – but by lack of commercial innovation, which is the province of, well, kind of nobody. It’s sort of a marketing question, and an economic question, and an operational and technological question. As a result, I think, responsibility for it falls between five different stools meaning that everyone ignores it. Consequently almost any business, including my own could benefit greatly from experimenting with different ways of selling what they do.

As with the German tourist industry, structural and bureaucratic factors have simply led to something very, very important becoming woefully overlooked. If we want to grow the economy, and you want to grow your business, this may well be the first place to look.

This article was originally published in the October issue of Impact.