WHEN JONNEY JHIH started talking about selling laptops under the ASUS brand, it didn’t raise too much concern among established players in the PC industry. Shih is the chairman of ASUSTek (known simply as ASUS), a Taiwanese company that was a contract manufacturer of notebook computers and game consoles. While ASUS was well respected among industry insiders, few consumers were aware of its existence. Conventional wisdom holds that you need to build a trusted brand in order to get people to open their wallets, and establishing a brand is notoriously expensive. Friends and colleagues warned Shih that he wouldn’t get far without brand awareness, name recognition, and heavy advertising.1
When we talked to him in 2013, it was clear that they were wrong. In 2012, ASUS reached the fifth place in worldwide PC shipments, at the expense of more established players, with prominent growth as the overall industry shipments declined. In the first quarter of 2013, ASUS reached the number-three position in worldwide tablet shipments, according to IDC.2
How could a company be so successful with almost no initial brand awareness?
We argue that Jonney Shih, and the $15 billion company that he heads, benefit from a fundamental shift in the way consumers make decisions. Consumers used to make decisions relative to other things—a brand name, a list price, or their own past experience with a company. But today, more and more decisions are based on the absolute value of things. What do we mean by that? As we explained in the introduction, when we talk about absolute value, we are not talking about some universal truth about a product, but about the actual experienced quality of the product for a certain consumer. In other words, we’re referring to a consumer’s ability to get closer to knowing her likely experience with a product.3
While relative evaluations are based on comparisons with whatever happens to be most prominent, or placed in front of you (the “local context”), absolute evaluations go beyond the local context, to use the most relevant information available about each product and feature, and they usually produce better answers. We want to say that absolute evaluations get people closer to the truth, but “truth” is too strong a word here. They get people closer to knowing what to expect.
Here’s one way that ASUS benefits from the shift away from relative evaluations. In the old days, consumers often used their own past experience with a brand as a key quality proxy. When Jane was thinking of buying a new laptop, the most accessible piece of information in her mind might have been this: “In the past, I used a Dell laptop that worked fine.” This was an easy reference point to use, and it led Jane to conclude that the new Dell models on the market must be good, too. Some of this way of thinking will continue, of course, but today Jane can easily find out much better information about any model made by Dell, HP, ASUS, or any other company. Even if you’ve never heard about ASUS before, you can do this exercise right now: Go to a review site such as CNET or gdgt.com and read reviews by experts and regular users. After reading a few reports, you’ll have a pretty good idea regarding your likely experience with a laptop from ASUS. As we are writing this, one laptop from ASUS has a rating of 88 (out of 100) on gdgt.com (the highest score for a Windows-based laptop). It gets a similar score on Decide.com, a tool that aggregates expert and user reviews.4
When quality can be quickly assessed, people are less hesitant to try something new, which means that newcomers like ASUS can enjoy lower barriers to entry. Shih and his team got a pretty dramatic demonstration of this when ASUS introduced its Eee PC in 2007. To say that competitors didn’t take the new product seriously is an understatement. “They laughed at us,” Shih says. But shortly after its announcement, the Eee PC started getting the attention of geek bloggers around the world. It had several things going for it. It was light. It had built-in wireless (unique at the time for its price point). Its operating system was a limited version of Linux, which meant that you didn’t have big memory-hungry Microsoft software. Most important, it was dirt cheap—$399. When the device shipped, users started discussing it online, and you could go to any review site and read the pros and cons from other users. By the end of 2008, this new device from a company virtually unknown in the United States sold almost 5 million units. All competitors jumped on the bandwagon with their own device, creating a new category known as netbooks.
ASUS is not known for its marketing. When Jonney Shih makes product announcements, you cannot avoid comparing him to Steve Jobs and his legendary demos. Shih is passionate, and his presentations can get quite dramatic, but with his business attire, parted hair, and the technical details he cites, it’s clear where he’s coming from—ASUS has a strong engineering orientation, and marketing usually takes a backseat. He has learned a lot, though, by watching Apple. An engineer by training, Shih used to be focused almost exclusively on specs and performance, but by studying Apple’s success over the years, he now understands the advantage of putting the consumer experience at the center. So in the past few years he shifted the company’s focus from its spec orientation to “design thinking,” which better fits today’s environment. The Eee PC was an early product of this shift in orientation.
There were several other interesting things that happened with the Eee PC, and they can give us a taste for what happens in the current information environment. We’ll talk later about the fact that there was no traditional market research done when the product was developed. Or that the adoption of the Eee PC didn’t follow classic diffusion theory. In one area where ASUS did things according to the textbook, it got its biggest surprise. We’ll come back to Jonney Shih toward the end of this chapter, but before we do, we want to go deeper into the shift from “relative” to “absolute” and discuss some research that demonstrates this shift.
EXPERIMENTAL EVIDENCE
You may have heard this story: Back in the 1990s Williams-Sonoma was selling a bread-baking machine. Sales were not great. Then the company added a second bread machine that was much more expensive, and something very interesting happened. Few customers bought the expensive model, but much to the company’s surprise, sales of the first machine nearly doubled. This is a classic example for how relative evaluations work. You may have also heard the advice consultants and scholars frequently associate with this story: If you want to boost the sales of a product, launch a more expensive one. Steering consumers to midrange products by introducing a high-end option sounds like a solid strategy, but how useful is it in today’s shopping environment?
We decided to examine this question. The above advice builds on Itamar’s dissertation and on research he published in the early 1990s with the late Amos Tversky, the leading psychologist of judgment and decision making. In a study that Itamar and Amos published in 1992, participants in one group had to choose between two Minolta cameras, one priced at $169 and the second priced at $239. Another group of participants was presented with the same two cameras and a third, more expensive one (priced at $469). The results of the original experiment were intriguing. The $239 camera was more popular in the second group than in the first one. In other words, just by adding the $469 camera, some people were influenced to choose the $239 camera instead of the cheapest one.5 Just as in the Williams-Sonoma example, this study demonstrates that people’s choice can be greatly affected by the set of options placed in front of them. Specifically, the camera experiment shows that people tend to choose the middle or compromise item among a set of options.
But are people susceptible to this compromise effect when they shop online?
In 2012 Itamar and a PhD student named Taly Reich ran a new study. In it two groups of participants were under very similar conditions to the 1992 experiment. One group saw two Canon PowerShot cameras, and the second group saw three Canon PowerShot cameras. What happened? The results were very similar to what was shown twenty years earlier: Adding a third (more expensive) camera drastically increased the relative percentage of people who chose the mid-priced camera. This wasn’t too surprising. After all, the human brain has not changed in the past twenty years, so we expected this experiment to show the same results when conducted under similar conditions.
But we were more interested in two other groups of participants, who were put in more realistic shopping conditions. People in these groups first saw what consumers usually see when they shop for a camera on Amazon.com: lots of options, a variety of prices, reviews written by consumers, and so on. After they looked at all the Canon PowerShot cameras available on Amazon, participants in these groups were asked to assume that they have narrowed their choice down. Now participants in one of the groups saw two cameras while participants in a second group saw three cameras, as in the original study.
What was the outcome? The compromise effect was gone. It completely disappeared. It vanished.
This new experiment demonstrates the shift from relative evaluations to absolute evaluations. What happens here is easy to explain: Participants in the restricted conditions compared a camera to whatever was in front of them. When there were just two cameras, they compared them to each other, and when a very expensive camera was put in front of them, it dramatically shifted their preferences. But this wasn’t how things worked for the two “Amazon groups.” They were not restricted by the “local context.” This is much more similar to what happens in today’s reality. In many cases today, our decisions are no longer driven only by what happens to be in front of us or is top-of-mind. Instead, we can easily and quickly evaluate things based on a global context—other sources, information, and options that are not under anyone’s control. Judgments are still relative, but the reference points can be based on the best of what’s available out there.6 As a result, a tendency to prefer compromise options has diminished (though it is unlikely to go away).7
Why did consumers used to rely on relative evaluations so much? Relative evaluations derive from limitations that we all share as humans: First, we tend to be “cognitive misers.” What do we mean by that? It’s not necessarily that we’re lazy, but our mind tends to do whatever is easiest. When making a decision, we use only a small amount of information and it tends to be the information that is easiest to access. It may be, for example, the most easily accessible prior knowledge, or whatever we happen to see at the moment.8 This comes at the expense of harder things like searching our brain for potentially relevant information or looking for other options somewhere else. Second, we have a hard time looking at something and assessing its quality, so we do the next best thing and rely on evaluations relative to generic, top-of-mind (though often not very useful) reference points or quality proxies. Such proxies may include brand name, prior satisfaction with other products by that brand, the image of the store where it is sold, or the reputation of the country where the product was manufactured. That’s just the way we are: absolute-value challenged, cognitive misers who are addicted to comparisons. We can’t look at a dishwasher and determine its value or how well it will clean the dishes. But place two dishwashers in front of us, and we will instantly start comparing their features and prices.
When we examine the practice of marketing through the twentieth century, we can say that it was largely geared to communicate values relative to reference points. As consumers, we depended heavily on relative evaluations: We chose one item on the shelf because it looked better or cost less than the one next to it. We evaluated products relative to our prior experience with a particular brand. We evaluated the price of a car relative to its sticker price. In short, we evaluated things relative to whatever was most accessible to us. But what would happen if one morning we woke up and were freed from our addiction to relative evaluations because we suddenly were able to assess absolute values?
PLANET ABSOLUTE
Let’s imagine a planet—we’ll call it Planet Absolute—that is almost identical to Planet Earth. There’s only one difference: Before you buy something on Planet Absolute, you press a magic button and know everything you want to know about it—you know exactly how good or bad that product or service is going to be, and how you will like it after using it. Economists would call this “perfect information.”
How would people make decisions on Planet Absolute?
They wouldn’t rely on a brand to determine the quality of a product. They would just press the button. They would not be too impressed by the fact that a product is made in Germany or any other country with a reputation for high quality. They would just press the button. They wouldn’t even care as much about the fact that they loved the last model of a product. When evaluating a new model, they would just press that button. When a consumer would shop for a car on Planet Absolute, she would not need a bunch of indirect proxies to assess her likely experience with a specific model. While she would still be affected by image and status, she would not need a brand name to assess the car’s quality.
A state of perfect information is of course theoretical and we obviously will never reach the hypothetical Planet Absolute, but in more and more areas of life, we’re starting to get closer to absolute values, which make us less dependent on relative evaluations. The human brain is not changing, but a fundamental shift in our information environment is under way, with far-reaching, evolving implications for consumer decision making. As we pointed out earlier, when we talk about absolute values, we’re talking about a “good enough” answer. We don’t mean to say that people will find the absolute best option in every category. In all likelihood, this won’t happen unless they waste too much time. Furthermore, some ambiguity about the absolute best will remain in many cases, in part because our own preferences are often vague and unstable. However, there is no doubt that, with little effort, people can obtain today high-quality, diagnostic information regarding their likely experience with a product or a service.
It’s also worth emphasizing that we’re not talking about the obvious observation that consumers can easily find a great deal of information these days. The main difference we are talking about refers to the assessment of quality. In the past, consumers had a hard time assessing quality before purchase. This gave rise to much of what we know as marketing—various quality cues such as brands, prices, country of origin, much of advertising, and so on. But this is changing.
WHAT DRIVES THE SHIFT FROM RELATIVE TO ABSOLUTE?
A technological revolution, still in its infancy, is driving this shift, as new tools help us assess the quality of products and services we’re considering. Aggregation tools, advanced search engines, reviews from other users, social media, unprecedented access to experts, and other emerging technologies—these things make it possible for consumers to make better decisions without having to rely on relative evaluations.
Examples are all around us: A woman compares prices of video games at a big retail store. Using “relative” tactics, the retailer can influence her choice by placing a game they want to push next to a very expensive one, making the former look like a bargain. But then the woman scans the bar code of the game, using her smartphone, and finds out that it’s available at the store next door for less than half the price (and even cheaper online). Another example: A young man is considering buying a new TV. In the past, he would evaluate his options relative to his prior experience with a particular brand, say Sony. Today he’s more likely to read reviews on Amazon.com or BestBuy.com, or go to some product rating site.
Some of the tools that we talk about won’t be new to many readers, but this doesn’t make their impact less dramatic. Sometimes taking stock of what has transpired in front of our eyes can be startling, and it’s worth stopping for a moment to look at what has happened in the past decade. Review sites (from Amazon and CNET to Yelp and Zagat) tell us about the reliability and usefulness of products, and help us predict the experience we can expect at restaurants or hotels. Through social media, it’s become so easy to get recommendations from friends and acquaintances. Post a quick question on Facebook or Twitter (“Can anyone make a camera recommendation?”) and you are likely to get customized advice from a knowledgeable friend. Use Facebook’s Graph Search to find out what your friends (or their friends) say about a particular restaurant or movie.9 Assessing value and price has become much easier, too: Mobile apps such as Decide.com, ShopSavvy, or Bakodo inform us about the resale values of products.
Unprecedented access to experts is another fundamental shift that often goes unnoticed. Think about it: At its peak in the 1990s, PC Magazine’s circulation was 1.2 million copies. This may sound like a lot, but today expert reviews are available to anyone who uses the Internet—more than 200 million people in North America alone.10 These days you can also find very quickly and quite accurately how popular (or unpopular) things are. The publisher of our book may publicize it as a “national bestseller,” but claims about the book’s popularity won’t be that effective, because you can see our book’s ranking on Amazon at any time. Similarly, a maker of a new gadget can tell you that “everyone’s talking” about his latest invention, but a quick search on Twitter or a myriad of other tools will tell you if this is indeed true.
And this is just the beginning. In the coming years, we can expect to have access to even more data that will be better organized and interpreted. We explore some of these future trends later on in the book. We’re not going to try to predict future technologies (humans are limited in this respect), but we’ll discuss where things may be going. The cumulative effect of even just the existing technologies, and their dramatic effects on how consumers make decisions, pose a major challenge to established ideas about marketing and related business functions. Simply put, it makes influencing through relative tactics and indirect cues (such as brand and price) much harder.
Aggregation tools and review sites are not without problems, so we’re sure some readers have some (valid) questions on their minds: Can’t these technologies be manipulated by unscrupulous marketers? Isn’t the wealth of information creating tremendous clutter that makes decision making even more difficult? Since people are different from each other, how can an evaluation by one person help another one? What about matters of taste? And will people actually take the time to use these tools? We’ll address these and related questions throughout the book, but here is a brief preview of our answers:
First, can’t these technologies be manipulated? No doubt some companies try (and will always try) to game the system, for example by planting positive reviews. Yet despite alarming articles that pop up periodically in the press about fake reviews, paid bloggers, fake “Likes,” or other manipulations, we think that manipulators will usually have limited impact, and their effectiveness will decline as rating systems find better ways to deal with them. Reviews are not perfect, but the one solution that consumers are not turning to is trusting marketers as the main source for information regarding quality. Consumers are much more likely to migrate to sources they do trust, such as experts, or recommendations from friends and acquaintances (which are much more accessible today). We discuss this in great detail in Chapter 4.
The second question: Isn’t the wealth of information creating tremendous clutter that makes decision making even more difficult? We’ve heard a lot in recent years about the concept of “too much choice” and information overload, the notion that too many options and too much information may overwhelm consumers to a point where they don’t buy at all or make poor decisions. Many observers use these concepts to support their belief that brands and loyalty are more important than ever. We don’t think so. First, the idea that consumers should or will consider all or most of the available information indiscriminately is an unrealistic “strawman,” as we’ll explain in more detail later. The web provides very effective tools for sorting and using the most relevant information. Also, based on a recent review, it appears that the choice overload problem is not nearly as serious as one might expect based on some highlighted findings. The review article, which combined the results of fifty experiments dealing with the phenomenon, concluded that “the overall effect size in the meta-analysis was virtually zero.”11 And with the steady improvement in information and option-sorting tools, the overload problem will become even less significant. While we agree that under certain conditions people can be overwhelmed by too many disorganized options, in most real-world buying situations, options are already well sorted (more on choice overload in Chapter 3).
Since people are different from each other, how can an evaluation by one person help another one find the absolute value of a product? First, the absolute value of a product consists of some components that are universal. For example, everyone prefers reliable products over unreliable products. So evaluations from other consumers and experts can be very helpful on that front alone. But it goes beyond that: There are indeed components of absolute value on which people differ based on their tastes, interests, and abilities. For example, some shoppers for a camera may define quality based on whether a camera is easy to use and fully automatic, whereas other shoppers prefer cameras with sophisticated manual override features. Some people may evaluate a cruise on whether or not it is family-oriented, while other people may evaluate it on whether the cruise is oriented for older people who are sensitive to noisy kids. The good news is that consumers can select those reviews (or expert opinions) according to what’s important to them. They can usually rather easily determine if the source of the information fits their type; for example, when assessing absolute values of cameras or cruises, one can usually determine if the source of the information is knowledgeable about the topic and how similar they are to the reader. Which leads us to matters of pure taste. When it comes to such decisions, it’s true that it’s harder to talk about absolute values. Who’s to say if Midnight in Paris is a good film or if Giorgio Armani is the right perfume for you? But clearly, this doesn’t prevent people from relying on reviews and other tools to find out how those similar to them rate a movie, a book, or a restaurant. Just look at the number of reviews of food, perfume, and fashion (to name just a few categories where personal taste plays an important role). There are tools that allow you to find large groups of people who share your taste, but the key point is that even when an absolute factual answer cannot be determined, consumers clearly prefer it over the answers provided by marketers.
Finally, will people actually take the time to use these tools? People already use—and trust—these tools in a big way, which turns them into an important factor in decision making regardless of any limitations. Consider just three facts:
- Consumer confidence in reviews around the world is increasing. In 2012, 70 percent of consumers surveyed online by Nielsen indicated that they trust online reviews—an increase of 15 percent in four years.12
- Thirty percent of U.S. consumers start their online purchase research with Amazon.com, which, with its wealth of reviews, has become a clearinghouse for product information.13
- Research done for Google in 2011 found that the average shopper consults 10.4 sources of information prior to purchase—almost twice as many as in the previous year.14 Although more studies are needed and the actual number of sources consumers consult varies greatly from one purchase and product category to the other, the trend is clear.
Back to Jonney Shih and the launch of the Eee PC. As we said, there was one thing that Shih and his team tried to do according to the textbook. This was to clearly position the Eee PC and define its target market. But this is where they had their biggest surprise. ASUS tried to position the Eee PC as a low-end device geared at people who haven’t owned a PC before—children and the elderly. But most people who actually bought the Eee PC already had a computer. Many of them were businesspeople and other users on the go who wanted to have a second (lighter) laptop. That’s another (not uncommon) phenomenon in this new information environment: You offer a product or a service and certain “target” segments adopt it and position it as they wish. It’s hard to position things in people’s minds when they have access to all the information they need.
There was also no traditional market research done in developing the Eee PC. We actually doubt that it would have predicted the success of this device. One reason is that if ASUS were to have conducted research, they would have picked a sample from their target market (first-time PC users) and not from the people who ended up buying it. The broader reason is that market research tries to predict people’s preferences, but increasingly, decisions are influenced by the opinions of other consumers and experts. As we discuss in a later chapter, some market research, for example, missed the success of the iPhone: In 2007, a study among ten thousand people around the globe concluded that there is no real need for a convergent product such as the iPhone in affluent countries like the United States.
The adoption of the Eee PC didn’t follow classic diffusion theory. A lot of business thinking is still based on the belief that a product is first adopted by a few innovators who are willing to take risks, then by early adopters, then by the early majority, and so on. This gradual model (which made perfect sense in an environment characterized by high levels of uncertainty) is becoming less relevant when anyone can find useful information shortly after a new product launches. Not long after the Eee PC shipped you could easily find information about it on blogs, review sites, and in mass media.
All of ASUS’s success stories don’t mean that its future is secure. The same forces that enabled its rise may allow the company to fall just as fast. Some marketing experts love to talk about brand loyalty, yet this is another thing that is changing in this new era. When quality was hard to predict, it made sense to stick with a familiar brand. But when you can quickly assess the quality of things, loyalty doesn’t help consumers as much. Brand equity is simply not as valuable as it used to be. Don’t get us wrong. Being Apple is still better than being ASUS. Brand equity is still valuable in terms of name recognition, continuity, and in some cases, emotional attachment and prestige. (As we are writing this, Shih is benefiting in this sense from some highly visible partnerships with Google.) But brands play a reduced role when it comes to assessments of the quality of a product.15
ASUS is not an anomaly. Throughout this book we’ll meet companies that benefit from the shift to absolute evaluations in a variety of industries: HTC in mobile, Pinterest or Instagram in apps, Acer (Shih’s former employer) in laptops, Hyundai in automotive, Shark in vacuum cleaners, Ninja in kitchen products, LG and Samsung in . . . everything.
We realize that some of the points we made in this chapter call for much explanation. From telling people about this book, we have learned that some of our points (such as the decline of brand or loyalty as quality signals) tend to generate resistance (and even hostility) from some marketers. In the next few chapters we’ll go into great length to explain and support these claims. And some other things have to be said here: First, revolutions are messy and rarely happen overnight. The shift we’re discussing here is far from being an instantaneous, smooth ride to perfect information. Second, the trends we describe in this book will not happen evenly across the board. As we explain in Part III, we don’t expect these trends to apply in the same way to cars and toothpastes, to well-connected and to less connected consumers, and to decisions made with or without time pressure. There are categories, segments, and situations where consumers still heavily depend on relative evaluations. Finally, it’s worth mentioning that people are not becoming smarter or more logical. No worry; we’ll all continue to be susceptible to some irrelevant influences and make some error judgments.
For now, even if you’re not convinced about all the implications we described, let’s recap the main point of this chapter, which is the shift in consumer decision making from reliance on relative values to absolute values. In the past, we made decisions relative to other things that happened to be most accessible. Today, in many cases, our decisions are no longer restricted to what happens to be in front of us. In today’s socially intensive information environment, we can easily evaluate things based on the best information out there, and thus get closer to the absolute value of things. We have a much better idea about our likely experience with products and services. So, counter to what we frequently hear, consumers will, on average, make better choices and act more rationally, which takes us to the next chapter. . . .