Podcast: Speaking of Quality Season 6 Episode 5

Title: Trust, Quality, and the Psychology Behind What We Buy

Episode Transcript:

Maxine Cuffe 00:03 

You’re listening to “Speaking of Quality” with Hank Smith, a podcast by The Haverford Trust Company. On “Speaking of Quality,” Hank features authors, business leaders and wealth management experts who share stories from their careers and insights on topics that impact financial wellness. And now, here’s your host, Hank Smith. 

Hank Smith 00:24 

Hello, and welcome to another episode of “Speaking of Quality.” I’m your host, Hank Smith, Director and Head of Investment Strategy at The Haverford Trust Company. On this podcast, we explore topics ranging from leadership and economics to civic engagement and community building. Today, I’m joined by Dr. Americus Reed, the Whitney M. Young, Jr., Professor of Marketing at the University of Pennsylvania’s Wharton School. Dr. Reed’s research focuses on how social identity, social influence, values, attitudes, and judgments interact in shaping purchase decisions and consumer behavior. Welcome to “Speaking of Quality,” Americus. 

Americus Reed 01:07 

Thanks so much, Hank. It’s a pleasure to be here with you today and looking forward to our conversation. 

Hank Smith 01:12 

As I am, too. So, you have been teaching marketing for over 25 years at the Wharton School. Tell us a little bit about how you discovered your passion for research and consumer behavior and kind of all things marketing. 

Americus Reed 01:32 

Yeah, I love that question, Hank. Thank you for that. I started out, I thought I was going to be a musician, quite honestly, and that didn’t work out because people need to eat. So, I was looking for viable ways to have sustainable income, and I was also very aware of the fact, Hank, that I wanted to be in a situation where I had maximum autonomy but very little bureaucracy. And so, I need freedom, but I need structure. And it just turns out that in academia, academia is the great bastion of both of those two phenomena. So, you really are an entrepreneur of ideas, and you have a structure in the sense that there’s a thing called tenure and there’s an institution and a school and the chair of your department and a dean and all of that. But you really are sort of left to your own devices to sort of pursue and create the kind of life that you want to in terms of studying the kinds of things that you’re interested in studying. And so, for me, I have been, for 26-plus years, just fascinated by the question of identity and how do people decide who they are and who they want to become. And more specifically, how do brands, products, services, and organizations play into that self-definition process and that aspirational journey of trying to become something. So, it’s been a long sort of history of studying these topics, Hank, and every time I write a paper, a research paper, it’s fascinating with my research team, we start with a question, we try to answer that question. And what we find, inevitably, is that we’ve got many more questions after we’re done trying to answer that question. So, it’s just sort of a lifelong journey to keep asking and answering questions, if that makes sense. 

Hank Smith 03:20 

Through your research, what are the key factors that affect and shape purchasing decisions? 

Americus Reed 03:32 

In my research, Hank, again, I’m super interested in this notion of constructing a sense of self. And so, in the work that I do, the factors that drive this are a social-psychological kind of approach to understanding how do I fit in and who is my group, who is not my group? Here’s one variable that’s very important, Hank, which is the idea of, like, a person looks out into the social environment, and they see these groups, and these groups have labels. And so, there’s a process that says, which of these groups do I, or can I, affiliate with? And so, you start making these choices about who to commiserate with to be able to create this shared meaning, this shared sense of who we are. And so that’s a process that happens where you survey the social environment, and you’re looking for ways to figure out who are these groups that I can potentially be a part of. And you’re constructing this very dynamic identity in real time, and that’s where brands, products, services, organizations, et cetera, can have some kind of force that intervenes you, perhaps, and guide you down a particular pathway that, in some cases, let’s say for an example, I’m going to try to guide Americus toward being an Adidas person and not a Reebok person and not a Nike person. And so, this is the landscape that’s playing out in the sense that these brands, these companies, these products, they’re trying to create affiliation by helping you as a consumer guide this direction in this journey as to the groups and the labels that you want to take on as part of who you are in adopting a particular identity. 

Hank Smith 05:18 

I want to shift gears just a little bit that we are, the United States economy, is a consumer-driven economy. Consumer spending accounts for anywhere between 70-75% of gross domestic product, GDP. And when I speak to audiences, I definitely emphasize the importance of consumer spending. And I say that the United States consumer has a gene, and the gene says, “spend money” that other societies, developed, Western societies don’t have that gene, right? But we do, and I always attribute it to it, and we could probably spend an entire podcast on this subject, but I attribute it to the sophistication going back decades of Madison Avenue, of advertising. And you think way, way back when it was a print advertising, radio advertising, then TV, and now social media. Kind of take us a little bit through all of that and really the influence that marketing and advertising has on consumer behavior. 

Americus Reed 06:58 

I love that question, Hank. I think that as we step back and try to take a historical lens, sort of view on this, it’s very, very interesting, right? The notion of an advertisement and a product, service, brand, et cetera, is going to try to tell you something good about itself to make you want to buy it. And we are in this western culture of consumption, and those kinds of things, we’re hardwired to react to those kinds of things. So, in that first stage that you were talking about, advertisements, print advertisements and radio and things, then television was then something that happened as well. Now you’ve got visual imagery, and as these different technologies, to your point, I love this point, Hank, as these different technologies emerge, different parameters around the messaging requirements change. So, when television first hit, you’ll remember this well, if you were a presidential candidate that’s trying to push your political message out there, because politics and politicians are brands, political affiliations are brands, you suddenly now had to deal with the fact that, wait a second, what do I look like on television? How do I show up as an entity, as a brand in this new technology? Exact same question is happening with respect to social media. How do I show up the right way on these various different types of platforms that are now constraining, perhaps, the way I can message and or present myself? And the other thing that’s super interesting about this point is that the transition from television, I’ll say it this way, transition from print, radio, television into this new world of social media. The big thing that’s happened is that it’s no longer a one-way street of communication. In an ad, a print ad, a radio ad, a TV commercial, it goes out to the viewing audience, and we take it in or not. But in the case of social media, now there’s a two-way street where we talk to the audience, the audience talks back to us in real time, and it’s a completely different paradigm, if you will, in terms of how we get our messages out there. And the fact that we now expect consumers because they have that gene that you talked about, they’re going to be very much motivated to actually be active participants in this collaborative conversation with us. And so, now it’s very dynamic, and it’s a much harder thing to try to manage if you are a brand, product, service, or organization. So, I love that historical context because it points to the complexity of how the messaging aspects are evolving in real time. 

Hank Smith 09:35 

In anticipation of this call, I’ve been watching the Jeopardy Tournament of Champions, and it’s so funny because 50% of the advertisements are for pharmaceutical products. And I say to myself, every time I see one of these advertisements, who the heck would buy this when they have to list all the side effects, and then you have the complaints of the pharmaceutical industry, why do they spend the billions of dollars on marketing? Shouldn’t that be going to research and development and lowering the cost? Well, there’s one reason they spend that: because it works. 

Americus Reed 10:26 

This is true. I think that there’s a couple of things here that I find really fascinating. The first really is this notion, in the pharmaceutical space, it’s fascinating because I was once asked, why is it, Americus, that every single one of these ads is almost the exact same in terms of how they’re laid out, how they structured, how the music, how they sound? It turns out that in pharmaceutical advertising, they’re highly constrained with respect to the way that they can formulate, format, and put out their messages. So, that’s kind of an interesting special case and for obvious reasons, right? Because we’re talking about, you mentioned this, we’re talking about things that are not risk-free in terms of the consumption, even though they’re meant to help with things. So that’s an interesting point. The other thing which I think is super interesting is you use the word success. Let’s unpack that for a little bit. Let’s talk about how would you define success. One definition of success would be I got more people to buy my product. Okay, that’s a very tough threshold. Another sort of definition of success could be, like, I literally am doing this in order to raise the awareness of my brand, sort of more broadly speaking. Okay, why are you doing that? Well, because at some point, awareness connects potentially to buying. It might be a little bit later on down the road, but I got to start with this first thing first. So, I think the interesting point that you’re making, Hank, is that we’ve got to, as marketers, be very clear about what it is our goals are when we’re setting forth because what you’re talking about is a resource allocation problem. So, I have to pick the one that best suits the goal that I’m trying to determine with respect to how I’m defining success as a brand in terms of where I am in my product lifecycle and so on. 

Hank Smith 12:18 

Let’s shift gears and talk a little bit about The Haverford Trust Company and our investment philosophy, which is, if I can describe it in a very short sentence, it’s about owning large, established companies that are high quality, financially strong, and are growing earnings and confirmed with dividend increases. And while I don’t think our founder, George Connell, articulated it this way, but in owning a call it, a 30-stock portfolio of highly recognized, brand-name companies, it created an attachment with the client. 

Americus Reed 13:20 

Interesting. 

Hank Smith 13:22 

And so, no one cares about this when you’re in the middle of a bull market, and everything is going up. But occasionally we do have downdraft, corrections, and that nasty bear market that comes along every once in a while. And you are, in our view, much better equipped to stay the course if you own great companies with great reputations and great brands because they’re going to weather the storm. They’ve been around over multiple decades, and it’s ingenious. Again, I don’t know that that was necessarily part of his, by the way, Wharton thesis back in the 1950s, just giving a plug to your employer. But it’s the same idea. And these companies, whether it’s Coca-Cola, JP Morgan, Proctor and Gamble, Johnson and Johnson, they’re thought of as high-quality companies doing the right thing. Now, there are always pitfalls in that, but they overcome them very quickly. I mean, look at how Johnson and Johnson in the mid-‘80s responded to the Tylenol crisis. That is a case study in every single business school of how you respond to a crisis. 

Americus Reed 15:12 

Yes. I love that point. There’s a couple of things I want to unpack there, which is super, super important. I think also dovetails very nicely with the original thesis that we were talking about. This notion of brand is asset, and you ask yourself, why are these well-known brands? Because there’s much more that is there, to your point, Hank, in addition to them being well-known. They’re well known because they have a trusted infrastructure, in other words, the people, the stewards of the folks, the thought leaders, the leadership that are at these companies, have created a kind of organizational culture and a systematic sense of innovation in their evolution as a company that you can trust. In other words, I love that point you just made. You know they’re going to make the right decision. And so, when you’re making the right decision, and you’re focused on that North star that is a deeply, well-understood, articulated understanding of who you are as a company, then you’ll be able to successfully weather many, many storms because you have that guiding direction. You have that approach that says, this is not happening randomly. We think these things through with high quality, integrity, honesty, all of these things that are the powerful pillars and cornerstones of not just great companies but great humans. So, you put great humans into this situation that build a great company, and they’re doing it for the right reasons. And you create this portfolio of yes, they’re well-known, but they’re not just well-known because someone’s been repeating them in ads. They’re well-known because there’s a deep understanding as to the trust and the quality and the systematic approach to doing the right things that really endow that company’s sense of who they are and how they interact in the marketplace. Brand is an asset, but brand is also reputation. And reputation is something that, there’s a quote that I remember that says, reputation is built in drops, droplets, but can be lost in bucket loads. So, this is your point. It’s like, listen, and you have to be very careful of that, right? You have to be very careful that you’re not making sudden decisions that go sideways because you can erode all of that trust very quickly if you’re not careful. So, it’s something to be nurtured and to be protected. You use the word protected. I think that’s the right word here because it’s something you have to keep an eye on, and you have to wake up every day with the vigilance to say, what am I going to do today to protect this and to make sure that it endures another day as strong as it’s ever been, right? Always be a little bit better than yesterday, but not quite as great as tomorrow. And so, this is the mentality, and it’s a constant mentality. You never take your foot off the brake, off the gas, excuse me. You’re always thinking about those things. What’s the next step? How do I innovate? How do I be a thought leader? How do I continue to lead the pack, lead from the front, as they say? And so, the great companies do this. 

Hank Smith 18:09 

Let’s shift to the present and the power of social media as a two-edged sword. On the one hand, it allows these brand-new brands to just come out of nowhere and explode, and sometimes at the expense of established brands, not always. Sometimes it’s a new category, but now these venerable firms that have been in our kitchen and our living room with us for generations, they don’t adapt to social. So, tell us about what you’re teaching and what you’re learning with regard to social media and how you’re advising companies because you do have a consulting company, so, if you could also talk a little bit about that as well. 

Americus Reed 19:22 

Yeah. Yeah. So, we have a consulting company. It’s called Persona Partners, and we started it in 2006, some students in my class and I. So, we’ve been working on the projects here and there, very self-selective projects that we really think are great examples where we can learn something and be around really good people that are doing really cool things in the community and things like that with their company. So, thanks for bringing that up. I appreciate that opportunity to plug, as it were. But you’re touching on something that’s really, really interesting, Hank, and that is to say that what I’m really focused on right now, and we were talking about this a little bit before the pod, is I’ve got a 15-year-old daughter, and I’m trying to see through her eyes now because I grew up in a certain way, and things were different. We’ll say it like that. And so, I’m this guy, I’m a digital immigrant. I am learning the tech, and she’s growing up with it, and it’s a different mentality. I’m trying to get inside of her head to see how she views the world, how she consumes information and all of these different things. And I come from that world where I remember a time where there were seven channels on television, and at 1:00 AM, TV actually went off. They played the national anthem, and then they turned television off, and that was it. And you went to bed. 

Hank Smith 20:47 

Well, that’s right. In Philadelphia, it was the national NBC, ABC, CBS. You also had public, PBS, but then you had UHF Channels 17, 29 and 48. 

Americus Reed 21:01 

Yes, yes. The superstation. So, Channel 17, absolutely. To your point, it’s like, okay, we have to erase the, not erase, but we have to sort of reset the entire paradigm and try to understand, okay, you already said this, social media has changed everything. It’s changed what we expect to do. Who knew, like if you would’ve said, Americus, in 1985 when I was a 15-year-old kid, you’re going to be walking around with this phone, and you’re going to be watching videos and streaming stuff and buying things. You’re going to be pressing a button and buying things. Your bank is going to be on this phone. You’re not going to go to a physical bank anymore and take your deposit slip and sign it and hand it to the teller. That doesn’t exist. You’re going to take a picture of the check, and you’re going to do all of these different things. So, it’s a total new paradigm, Hank. And to your point, the smart companies, the smart brands, yes, they have legacy, they’re trusted, and they’re high quality. And that’s because they’re already trying to understand how do we need to evolve to accommodate a new world order, if you will, to be able to adapt to this newer consumer, younger consumer, et cetera, while we keep our older consumers happy, yes. But they’re always ready to make that adjustment, and they’re trying to learn proactively so that they can be ready for those types of changes when they actually do occur. And so what I try to teach all the time from a social media perspective is you got to go try out these platforms and try to see from the perspective of the people who use them, how that experience lands on you, and how that experience is essentially landing on them and how that is directing, guiding, causing them to go down certain consumer decision making paths, but for the fact of that technology. And so, it’s a really interesting set of questions and new challenges to try to tackle. And those great companies that you all steward are already, they know this. I mean, they’re singing to the choir here, but they understand we’re going to keep our eye on this, and we’re going to be able to evolve and adapt as thought leaders very effectively because we are asking the right questions. 

Hank Smith 23:16 

So, it seemed to me that the graduates from your classes and marketing graduates have a real leg up in corporate America because corporate America needs that young person just to stay relevant. 

Americus Reed 23:40 

That’s a hundred percent correct. That’s a hundred percent correct. And so, we’re teaching them, which I love to see that young energy, but they also have to borrow a little bit from us, Hank because, wait a minute, because you know this is true. You got to be fluid, but you also have to be resilient, and you got to be tough. You have to not fall apart. You have to be able to make hard decisions. You have to be able to be in tough environments. You have to be in challenging spaces. You can’t just fall apart. So, you have to bring fluidity, yes, but you also have to bring that, from our times, if you will, that ability to stay strong as well. 

Hank Smith 24:23 

I just can’t thank you enough, Americus, for joining us on “Speaking of Quality.” It’s been a fascinating conversation hearing about your extensive research and keen perspectives on consumer behavior and a number of other subjects that I think we hit as well. Thank you for listening to this episode of “Speaking of Quality.” Our next episode will be released shortly. In the meantime, please send suggestions or questions for me or the Haverford Trust team to podcast@haverfordquality.com. And don’t forget to subscribe, rate, review, and share this podcast. Until next time, I’m Hank Smith. Stay bullish. 

Maxine Cuffe 25:06 

Thank you for listening to this episode of “Speaking of Quality” with Hank Smith. To hear future episodes of “Speaking of Quality,” please subscribe on Apple Podcasts, Spotify, or wherever you listen to podcasts. To learn more about The Haverford Trust Company, please visit https://haverfordquality.com/. This podcast is provided as general commentary and market overview, and should not be relied upon as research, a forecast, or investment advice, and is not a recommendation, offer, or solicitation to buy or sell any securities or to adopt an investment strategy. Any opinions expressed are as of the date this podcast was recorded and may change at any time and are the opinions of that commentator, not Haverford. Any opinion or information provided are believed by Haverford to be reliable at the time of this podcast’s recording but are not necessarily all-inclusive or guaranteed for accuracy. Before making any financial decisions, please consult with an investment professional.