alchemy-book-summary

Alchemy by Rory Sutherland [Actionable Summary]

This is a comprehensive summary of the book Alchemy: The Dark Art and Curious Science of Creating Magic in Brands, Business, and Life by Rory Sutherland (part of the business book summaries collection). Covering the key ideas and proposing practical ways for achieving what’s mentioned in the text. Written by book fanatic and online librarian Ivaylo Durmonski.

Printable: Download this summary to read offline.

The Book In Three Or More Sentences:

Alchemy offers a refreshingly different way of doing business and solving problems. Instead of relying on what is visible and rational, if we want to make our product seem magical in the eyes of others, we should focus more on the unspoken and the irrational. Rory Sutherland, the vice-chairman of Ogilvy, argues that we all frantically pursue the logical solutions to the problems we encounter. However, this makes us blind to the best solutions because we live in an irrational world. A lot of times, especially in business, the less obvious, illogical solution is the best approach to reach a wider audience and make your product more appealing.

The Core Idea:

Just because something doesn’t look good in a spreadsheet doesn’t mean that it’s not good. Not every solution needs to have a convincing rationale argument to be considered. Humans make judgments not always based on careful investigation and deductive logic. They, we, decide what to buy, what to consume by relying on something much more primitive – emotion and intuition. Both things that cannot be measured nor placed on a graph. That’s why, paying attention to the psycho-logical, as Rory Sutherland calls it, and going with what most consider to be a silly solution often works best.

Highlights:

  • Discovering what works and understanding why something works are two entirely different things.
  • Obeying logic will help you create an ordinary product. Respecting the illogical nature of humans will help you create a masterpiece.
  • Creating magic happens only when you explore counterintuitive things. Things that initially sound irrational.

7 Key Lessons from Alchemy:

Lesson #1: Spend Time Figuring Out Why Things Work

Just because something seems logical doesn’t mean that it’s the best solution.

Economically speaking, offering people money when they do something for you makes perfect sense. However, this doesn’t mean that you should hand money to your spouse every time she’s preparing dinner. Or send a check to your friends when they help you move the couch.

The trick to becoming a marketing alchemist, versatile salesperson, according to Rory Sutherland, is knowing the universal laws and spotting where these laws do not apply. And instead, different, anti-logical solutions should be proposed.

Put differently, not everything that makes sense works, and not everything that works makes sense.

Human evolution, mentioned in one of the examples in the book, perfectly describes the above statement. How we evolved and how we became what we are today is not guided by some mysterious logical algorithm that is mathematically faultless. This happened mainly through trial and error. After thousands of years of mistakes, we became the walking, thinking, grabbing individuals we are today.

Our rise, human evolution more precisely, to use the words of the author, “is like a brilliant uneducated craftsman: what it lacks in intellect it makes up for in experience.”

The important thing here to consider is that knowing why something works is much more important than knowing what works.

Building an ugly, but strong and reliable bridge makes perfect logical sense. But spending more on transforming this construction into a piece of art will provoke emotion. It will “work” better because people, by nature, are drawn to beautiful shapes.

“Logical ideas often fail because logic demands universally applicable laws but humans, unlike atoms, are not consistent enough in their behaviour for such laws to hold very broadly.” Rory Sutherland

Lesson #2: The Opposite Of a Good Idea Is a Good Idea

If you want to challenge the market leader in a specific segment, it makes perfect sense to create a bigger, cheaper alternative to the product you wish to go against. After all, who doesn’t like more bang for his buck?

But Red Bull, the provocative drink that outshined Coca-Cola did completely the opposite. Instead of creating something that comes in a bigger bottle and can potentially taste nicer than Coke, they created a kind of shitty-tasting drink that is really expensive and comes in a tiny can.

How the world responded?

The beverage became one of the best soft-drinks in the world. Consumed by millions. So successful that it funds sports all over the world and most notably Formula 1.

The author explains this phenomenon by providing us with two ways to think about selling a product: “Not many people own one of these, so it must be good’ and ‘Lots of people already own one of these, so it must be good.”

Coke is relatively cheap. Comes in big sizes and it tastes good. People love it.

Red Bull, on the other hand. Tastes funny. It’s available in a small can. Expensive. And often mentioned in the news because of the “strange” effect it has on people.

The two products come with completely different ideologies. If you are in a bar, it would make perfect sense to order Coca-Cola. But you’ll be perceived as ordinary. If you drink Red Bull, however, you’ll be considered extraordinary. Illogical. Impulsive. Wild even. Getting Red Bull in this setting is a conscious choice that comes with a message. A message to everyone looking: “I’m different.” And in a bar, being considered wild and different is probably better than being considered ordinary.

That’s the power of a luxury good. The power of “not many people own one of these, so it must be good.”

“On the one hand, luxury goods would be destroyed if they were too widespread – no one would want a designer bag that was owned by five million other people. On the other hand, many foodstuffs seem to be popular only because they are popular.” Rory Sutherland

Lesson #3: Abandon Logic So You Can Better Understand People and The Market

The choices people, we, make are not governed by rationality. We tell ourselves that what we do is rational, guided by logic, and following a perfectly linear path, but in reality, we’re deciding things based on something else.

Rory Sutherland describes the way we make decisions as “psycho-logic.”

If logic can help us become mathematicians, psycho-logic is the thing that helped us escape the jungle, allowed us to writes stories, build cities, and basically dominate the world we live in.

Understanding how psycho-logic works will help you understand the underlying desires of people. Allow you to add a sip of rare originality to everything you do. In a sense, it will help you spot and understand the non-rational behavior of species. Something far more important in the current economic climate – and not only.

An interesting example mentioned in the book to understand the power of non-rationality is the GPS system.

GPS operates with perfect knowledge and perfect information. The algorithm that powers the device aims to get you from point A to point B through the fastest possible route. Still, a lot of people are regularly ignoring the advice of their GPS for a reason. As stated in the book, “GPS devices know everything about what they know and nothing about anything else.”

What you know about the city you live in can help you tremendously to avoid routes with traffic jams. Things the GPS still can’t predict. Or in other words, “The GPS knows only what it knows, and is blind to solutions outside its frame of reference.”

The GPS can’t comprehend the full picture and that’s why it’s something we shouldn’t always trust.

The same applies to your everyday decisions whether in business or not.

If we only obey the visible. The logical. We’ll end up running an ordinary and unexciting business. We’ll make half-baked decisions. Moreover, unknowingly and sadly for us, we’ll be blind to the alternative solutions – that often work better.

To get the full picture. We should consider the non-visible factors. The emotional patterns and clues that can help us gain the upper hand.

Because, as perfectly described in the book:

“The trouble with market research is that people don’t think what they feel, they don’t say what they think, and they don’t do what they say.” David Ogilvy

Lesson #4: We Try to Solve Problems With Broken Binoculars

When facing an issue, we’re always taking the logical approach and considering solutions based on perfect data and superior technology.

It makes perfect sense to use these things. After all, no one can judge you if your decision based on spreadsheets fails.

Often time, though, the perfect choice is not based on facts, it’s based on unspoken human desire.

Rory Sutherland explains that our decision-making process in business is based on two lenses: marker research and economic theory. But sadly, these lenses are broken and they distort our view. Bend the reality unfavorably for us.

When we conduct market research – the first lens – we ask people what they want. But what people say, is usually not what they think. Nor, they actually do what they say.

The second lens is the economic theory. This is not based at all on humans. It’s simply following a set of predefined heuristics that are only further narrowing our view. For example, the notion that cheaper is better than expensive.

This broken binocular, as portrayed in the book, is providing us with a fragmented frame of reality. In a way, it’s a one-dimensional view of how things are – we’re not getting the full scope.

To fix this, sort to say, and to make the best decision based on the situation, we should focus more on what people feel. Don’t hold what they say too dearly, and calibrate based on the emotional, unspoken desires.

A question that can help us understand this concept is asking questions like, “Why do people go to restaurants?” The obvious answer here is that it’s because they are hungry. But this is the logical answer.

The psycho-logical observation of the situation will tell you that the real value of restaurants lies in something else entirely: social connections and status. You can satisfy your uneasy sensation of hunger for a portion of what you’ll spend in a restaurant if you cook something yourself. But if you go to a restaurant, you’re signaling something else to others. Something beyond a mare appetite for food. An appetite for self-expression and probably wealth – depending on where you dine.

“People are much more comfortable attributing the success of a business to superior technology or better supply-chain management than to an unconscious, unspoken human desire.” Rory Sutherland

Lesson #5: Create Magic by Making People Feel Good

We don’t value things. We value the message they carry. We value what things mean for us and also for society as a whole.

Mathematically, we know that 2 + 2 equals 4. In the field of human psychology, though, 2 + 2 can equal a lot more. It’s up to you, and at the same time not entirely up to you, to determine the end result. When you abandon logic, you can create magic.

Put differently, there isn’t always a correlation between the cost of something and its official price. Meaning that something can cost $100 to be produced but it can be later sold for $500 and people won’t mind. In this situation, your value proposition is simply perceived as worthwhile. The materials are not forming the price, the general public opinion is.

To back his statement, the author shares the following exercise which was used to determine how copywriters think. It was in the form of the following questionnaire: “Here are two identical 25-cent coins. Sell me the one on the right.”

A person using “magic,” instead of logic, came up with the following answer: “I’ll take the right-hand coin and dip it in Marilyn Monroe’s bag. Then I’ll sell you a genuine 25-cent coin as owned by Marilyn Monroe.”

Outstanding answer! And more importantly, it will work.

When people believe that something is more valuable they are ready to pay the higher price.

Actually, a lot of times, things are more effective when they are expensive. Like painkillers. Or when they are tailored for a specific problem. For example, Tension Headache Nurofen. A niche pill that has the same ingredients but with a slightly modified title, and price, it will be a lot more consumed than regular aspirin. It’s the same product, but the perception of the product is different. Hence, sales will rise.

“Wine tastes better when poured from a heavier bottle. Painkillers are more effective when people believe they are expensive. Almost everything becomes more desirable when people believe it is in scarce supply, and possessions become more enjoyable when they have a famous brand name attached.” Rory Sutherland

Lesson #6: Economic Logic Suggests That More Is Better. Psycho-Logic Believes That Less Is More

Interestingly, and contrary to any economic logic, by reducing the possible applications of how a machine can be used, you make it better. Better not in terms of characteristics, but better in terms of human perception.

Consumers start to see your tool, machine, or whatever, as more specific. Affordability and usability are no longer the guiding references that will lead to a purchase. They start to compare your product and to imagine it as tailored for a specific problem.

This is what Akio Morita, co-founder of Sony, did when he invented the Walkman. Instead of adding a recording function, like most of his peers suggested that he should, he vetoed it because he claimed that the extra function would only confuse people about what the device was for.

Some will argue that if something has fewer features it will also convince fewer customers. But these folks can’t see beyond the limiting economical laws. People want to know that they are getting the best tool for the job. And if this tool is doing only one thing, the better.

Offering a tool that is like a Swiss Army knife makes perfect logical sense. But this is not in line with how people see things. As the author states in the book, “By reducing the possible applications of the device to a single use, it clarified what the device was for.”

Once you get this concept – that customers want the best tool on the market for doing X – you’ll start to remove features from your product, not add more. This reduction of usability might seem like a crazy idea, but it’s actually the right approach.

You’ll better demonstrate what your tool is for and also justify the higher price. Experts, or people who want to be experts, will want to use your tool. Others, who are not within your target market will flee which will further improve your positioning.

“The Walkman also exploits a clear psychological heuristic, or rule of thumb – ‘the jack-of-all-trades-heuristic’, whereby we naturally assume that something that only does one thing is better than something that claims to do many things.” Rory Sutherland

Lesson #7: Why Branding Is Important and Why It Should Be Costly?

The only way to establish confidence in what you offer, to convert users from mere observers to actual buyers is by demonstrating how committed you are to what you do. Successfully showcase how expensive the creation of what you’re doing is.

This, by biologists, is referred to as “costly signaling theory.”

For example, in the animal world, some species have evolved with a certain color of skin and adaptability. This camouflage helps them blend with the background and allows them to hide from predators. It basically saves their lives. Others, however, have bright color skin and are not afraid to walk around other animals.

These brave species rely on something else to remain alive – perception. They advertise bravery. And others approach these colored species thinking the following as mentioned by the author: “since something that doesn’t need to adopt camouflage has clearly survived through some strategy other than concealment, and hence it might be best avoided.”

Rory Sutherland explains that reputation, reciprocation, and pre-commitment are the three big characteristics that build trust in the minds of others.

To send a powerful message to the public regarding your brand you need to do costly things. You need to build a brand. To establish your brand as trustworthy. To continuously explain what you’re doing for your customers. To verbalize how difficult what you’re doing is.

Add absurdity. Try out different things. Act boldly. Survive for years. All of these things will signal one thing: A business that survived for so long clearly has what it takes to be considered.

“The Soviets soon found that, without a maker’s name attached to a product, no one had any incentive to make a quality product, which pushed quantity upwards and quality downwards. We often forget that, without this assurance of quality, there simply isn’t enough trust for markets to function at all, which means that perfectly good ideas can fail. Branding isn’t just something to add to great products – it’s essential to their existence.” Rory Sutherland

Actionable Items:

  • Ask stupid questions: Ask questions that no one is asking. Questions, that seem stupid and illogical. Because, as the author puts it, “to reach intelligent answers, you often need to ask really dumb questions.” Sadly, in a common business atmosphere asking something like: “Why do people clean their teeth?” can make others think that you have lost your mind. After all, we all try to look smarter than we really are. But striving for logic in a universe governed primarily by emotions and irrational decisions is not the best approach. And to answer the question above, people don’t brush their teeth mainly for dental health. What they really want is to have a fresh breath, especially when they go out on a date.
  • Create a brand and focus on quality: People are more likely to purchase a TV from a big store instead of a local salesman for a simple reason – the brand. A store has more to lose than a person selling gadgets from his garage. There is clear visibility of pre-commitment and noticeable liability. After all, the store invested in a physical space. If you are a salesman on the street, there is no name attached to your offering, there is no promise of trust. In addition, there is no incentive on your part to make a quality product. But a brand changes the game. You make yourself distinguishable. You show that you’re a reliable person. You signal commitment. Therefore, people are more likely to trust you. As the author puts it, “Branding isn’t just something to add to great products – it’s essential to their existence.”
  • Give users the illusion of control: There is a theory that most of the “door close” buttons in elevators are not actually functioning. They exist, sort to say, to calm people. To create the illusion of control. To make their journey up or down more bearable. Uber did something similar that turned out to be genius. By allowing users to see how long they have to wait, it made everything less frustrating. It seems that people were OK with waiting for their car as long as they knew how long they had to wait. This simple twist removed uncertainty from the equation. If people have to wait for something, tell them approximately how long they have to wait. The waiting experience will be very different (and more enjoyable).
  • Why should people trust me and buy what I sell? Unconsciously, people ask themselves the following question when they consider buying something: “Who do I trust to sell me an X?” Most of the time, we are not looking for the best product in the world. We’re trying to avoid buying the worst possible product in the world. We want to get a good product, yes. But we are also intuitively looking to not end up buying a terrible product. Something quite different from the first. People want to see clear sights of trustworthiness and reputation. Even if you’re not the market leader, if people see you as reliable, they will trust you with their money.
  • Be unpredictable and illogical: How to become an alchemist? Strictly logical strategies will help you keep your job. They will help you solve problems. However, they won’t help you impress others. You don’t want to be ordinary. Not in this world. A world full of products. You want to be perceived as different, better. And the only way to do this is by trying out different, often considered irrational techniques. How to do all of this? Consider the following: Figure out what are the unconscious motives of people; Understand that adding more features is actually worsening your offering; A higher price with fewer features can be more convincing for customers; People don’t make decisions based on logic, they consider getting things based on the message they express.

Commentary And My Personal Takeaway

Pitching an idea to a group of people requires an elaborate, and most importantly, rational explanation of why your concept, your product, will succeed. After all, investors are more open to ideas that introduce cheaper and bigger-size alternatives to existing products.

But this is not actually how the market operates. Rory Sutherland explains that consumers are not obeying logic when they are making decisions. Their reasons are psycho-logical. Not only buyers rely mostly on emotional cues, but they also want the product they purchase to somehow enhance their personality in the eyes of others.

This outcome, as you can imagine, cannot be achieved by following strictly logical patterns. To crack the code of the human enigma you need to try different things – weird, often illogical.

Alchemy: The Dark Art and Curious Science of Creating Magic in Brands, Business, and Life is the type of book that will transform your insane idea into a piece of rare originality. If you are still struggling with sales, and you don’t know how to best present your product, or even worse, not sure what type of emotion you want to evoke in people, this book will surely help you.

Key takeaway?

Becoming an alchemist, a proactive predictor of the human mind, and a kick-ass business owner requires a sip of insanity. Rationality is a weakness in the business world. It makes you predictable. And predictable stands very close to boredom. Things shouldn’t be only effective. They must be also attractive to consumers. Rory elaborates, “The scent was not to make the soap effective, but to make it attractive to consumers.”

Notable Quotes:

“Solving problems using rationality is like playing golf with only one club you will improve your thinking a great deal if you try to abandon artificial certainty and learn to think.” Rory Sutherland

“A flower is simply a weed with an advertising budget.” Rory Sutherland

“Effective communication will always require some degree of irrationality in its creation because if it’s perfectly rational it becomes, like water, entirely lacking in flavour.” Rory Sutherland

“Wearing gold jewellery in South Central LA as a man is a doubly costly signal: it requires that you have the money to acquire the jewellery, but also conveys that you are hard enough to display it in public without fear of theft. I could afford to buy some fairly serious bling, but even on the sedate streets of London or Sevenoaks, I do not think, as a portly and out-of-shape middle aged man, that I would have the necessary confidence to wear it.” Rory Sutherland

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