The Behavior of the Consumer

The classical economic theory – to keep it simple – states that if there are two shops “Shop A” and “Shop B” and both of them are selling the same product but at a different price, the consumer goes to the shop with the lower price. There is absolutely no reason why a consumer should pay 10 EUR for a product when he/she can have exactly the same product at the price of 9 EUR. If a consumer buys the product @10 EUR, this is a mistake due to lack of information (he/she is not aware of the existence of the other shop) or an exception that is irrelevant for the economic theory. In this economic theory, the shop with the higher price has only two options: reduce the price or go out of the market.

This model can not explain why many consumers still prefer to buy the same product at a higher price. At a certain point in time, these consumers became too many to be considered as a mistake or an exception.

Then the giant of marketing, Philip Kotler, came. Kotler told us that the real world is a bit more complex: there are not only two P’s (the Product and the Price) but there are also the Place and the Promotion. In other words, the consumer does not make his/her choice only based on the quality of the product and on the price.  The consumer can buy the same product at a higher price if he/she is influenced by the brand, by the advertisement, by the shopping experience, etc.

This represents a first attempt to make the model more complex and more adherent to the real world.

In the real world there are also feelings, emotions, passions – we cannot keep them out.

A consumer prefers to buy in Shop A, paying 10 EUR for the same product that he/she could buy in Shop B, paying 9 EUR, because the brand of Shop A is better then the brand of Shop B. Or because the shopping experience in Shop A is better that the shopping experience in Shop B. Or the consumer likes (or loves) the owner of Shop A, or because the consumer dislikes (or hates) the owner of Shop B, or because the owner of Shop B has a very nice car and the consumer is envious!

I know, in traditional business culture we are not used to accepting this explanation for the behaviour of a consumer. In traditional business culture, we need to find an explanation that relies on rational,  objective and “solid” assumptions.

The world of feelings and the world of business have always been kept rigidly divided.

On one side of the wall there were the world of artists. Many of them considered artists because they were the only ones who can understand feelings and talk about feelings.

On the other side of the wall there was the world of business. Many people in business considered feelings a mistake – something to avoid.

This “Emotional divide” lasted for many years. People from each side, looked at the people of the other side, as not being able to understand their world.

In the past there have been several attempts to create a breach in this divide. Perhaps the best and largest breach was created by Daniel Goleman, with the Emotional Intelligence model. This model debuted in the 90’s. Only 20 years ago! So, no surprise if, even today, talking about feelings in the world of business is still not fully and universally accepted. Many managers and executives started their careers before Goleman’s works, when the Emotional divide was still untouched.

The Behavior of Companies

We often read news of a company deciding to launch a new product in order to increase its market share, or another company deciding to kill an existing product because the analysis of its product portfolio said to do so. We read about a company acquiring another company to become a market leader. We also read that two companies decide to merge in order to develop synergies, i.e. reduce costs, i.e. increase profit.

In most cases, these are true.

But there are two things that are often ignored (or not considered enough):

• Companies are not “alien / inanimate / abstract” entities: they are made of human people and the decisions are made by human people (it is either the CEO, the board, owners, managers or executives who make decisions, not “the company”)
• People working in a company have their own feelings and when they make decisions, to some degree, these decisions are influenced also by their feelings.

Today we know that feelings cannot be segregated from business. We know that the feelings of a consumer are important. We know that, when we choose between two job opportunities, we make our decision also based on our feelings. We know that when an executive makes a decision, after examining all the data, after tons of meetings, of Excel files, of PowerPoint presentations, he/she makes this decision also based on feelings (we call it “gut-feeling”).

Feelings are important in business! We know this. We’re aware of it. When we read an article about it, we agree. When we listen to a speech about it, we nod.

Nonetheless, in our intimate soul, we consider the combination of feelings and business still a bit… weird, don’t we?

If we read in a business newspaper: “Company-A acquired Company-B because Company-A wanted to increase its market share”, we can discuss about the future of the market, about the price of the acquisition, about other competitors…. nothing strange.

Have you ever read in a business newspaper: “The owners of Company-A acquired Company-B because they were envious of the owners of Company-B”? or “The owners of Company-A acquired Company-B because they were afraid of the owners of Company-B”? or “The owners of Company-A acquired Company-B because they have a big ego”?

Maybe this is correct … or maybe it means that we are not yet mature enough to accept it and to put at the same level of importance a rational, fact-based decision and an emotional, feeling-based decision.

Modern management approaches give feelings the importance they deserve.

The combination of feelings, values, beliefs, etc. gives birth to the corporate culture, and the concept corporate culture is now well established and accepted in the business world everywhere (well… almost everywhere).

This statement is mostly accepted everywhere.

But we can dig a bit deeper. We can explore the world of feelings that are behind the culture.

We can explore how people in a company feel.

And we can do this during a time of big change, for example when the company acquires another company, is acquired by another company, or when two companies merge together.

We can explore the feelings of people during an M&A.

We will explore feelings during an M&A, in more detail, in our next article due out August 15^th, 2019.

Sergio Bruno is a Partner at Global PMI Partners, an M&A integration consulting firm that helps mid-market companies around the world by delivering exceptional consistency, speed, and customized execution on the complex operational, technical and cultural issues that are so critical to M&A success. > Read more about our Leadership Team