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Rory Sutherland's 2026 Predictions — Transcript

by The Drum · 3,610 words · 592 segments · language en · Watch on YouTube

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0:05[music]
0:08>> To be honest, my predictions for 2026
0:10are slightly pessimistic.
0:12Uh and the reason is that most
0:15businesses, as far as I can see, only
0:18have two principal modes, one of which
0:21is cost reduction.
0:23And the other one is effectively
0:24regulatory paranoia.
0:27And only perhaps marketing and
0:29innovation and R&D are fundamentally at
0:33odds with that fanatical kind of
0:35preoccupation. In other words, don't
0:37fall foul of the regulator, don't have a
0:39reputational disaster, spend as little
0:41money as you can.
0:44And what I see happening in the short
0:45term is rather worrying, which is that
0:48the bill for AI is going to come due at
0:51some point because literally insane
0:53amounts of money have been spent. If
0:55you're an IT company hoping to recoup
0:57some of your money, how do you sell it
0:59to clients? Well, the easiest way to
1:02sell anything is cost reduction.
1:05In other words, it's what I used to call
1:06the doorman fallacy. I don't know if
1:07anybody's familiar with this, which is
1:09an old IT / consulting trick, which is
1:12you go to a hotel and you say, "How much
1:15do you pay your doorman?"
1:16And they give you a figure, which is
1:18probably in the sort of low six figures,
1:20and you then explain you define the
1:22doorman's role as opening the door. You
1:24replace the doorman with an automatic
1:26door opening mechanism. You lay claim to
1:29all the cost savings that result, and
1:31you walk away not being held remotely
1:34responsible for any of the value
1:35destroyed. Because of course in reality,
1:37a doorman does far more than just open
1:39the door. They hail taxis, they
1:41recognize regular customers, they
1:42provide a measure of security, uh they
1:45provide a measure of status to the
1:46hotel. But the point is that there are
1:49large parts of the business world now, I
1:52would argue procurement will be one of
1:54them,
1:55large parts of the consulting world, who
1:58are involved in these things called gain
2:00share agreements, where consultancies
2:02come in and are allowed to take a share
2:05of any identified cost savings. And yet
2:07none of these people are actually held
2:09responsible for any consequent value
2:11destruction.
2:13An example of that would be an example
2:15of the doorman fallacy would be the
2:16excessive promotion of self-checkout
2:19tills in supermarkets. Don't get me
2:21wrong, as an option, they're pretty
2:24good. I'm in a hurry, there's a bit of a
2:26queue, I'm only buying five things, I'll
2:28scan myself.
2:30What then happens is the finance people
2:32notice that it's cheaper to serve
2:33someone or by getting them to do the
2:35work than it is to provide a till
2:37operative.
2:39And so it goes from being an option to
2:41more or less an obligation.
2:44And those people
2:45are in this extraordinary asymmetric
2:47position, which seems to permeate the
2:49business world, where you can claim the
2:51credit for any reduction in cost, but
2:53you're never held any accountable for
2:55any destruction of value or indeed an
2:57opportunity cost.
3:00And you know, you go back, the hotel
3:02doorman's been replaced by an automatic
3:04door operating mechanism, and 5 years
3:07later you discover the rack rate's
3:08fallen off a cliff, there are vagrants
3:10asleep in the entrance to the hotel,
3:11their most regular, you know, guests
3:13have actually deserted them, but none of
3:16the people who managed to justify their
3:17existence with the initial reduction in
3:20cost are ever held responsible for that.
3:22That falls to somebody else to clear up
3:24the mess, effectively. And in the case
3:26of supermarket self-checkout, one
3:28massive profusion of shoplifting.
3:31Okay? There were lot There were
3:32supermarkets who were a bit like Jesus,
3:34were selling more onions than they were
3:36actually buying. It was like the miracle
3:39of the feeding of the 5,000 until people
3:41discovered that people were checking out
3:43avocados and pretending they were
3:44onions, okay? If you think about it,
3:46it's impossible to do a large family
3:48shop if you have to check it out
3:50yourself.
3:51Now, the alternative to that of course
3:52is self-scanning, which would work
3:54really brilliantly if only humans had
3:56three hands.
3:58Okay? Now, what I think is happening is
4:00the fetishization of cost reduction
4:02comes from effectively one model of how
4:05business works. Those of you who are
4:06familiar with marketing law will know
4:09Peter Drucker said, "There are only two
4:11things in business. Because the purpose
4:13of a business is to find and keep a
4:15customer, there are only two function in
4:17business which add value, marketing and
4:19innovation. Everything else is a cost."
4:21Now, that would seem an absolutely
4:22outrageous thing to say today. It was
4:25relatively normal as a way of
4:27approaching a business when Drucker said
4:29it, or at least it was a tenable
4:31position. And it all comes from two
4:33completely different philosophical
4:35schools, one of which has annoyingly
4:37predominated. So, there is broadly
4:39speaking an Austrian school of
4:41economics, which believes that value is
4:44subjective, therefore marketing, which
4:47contributes perceived value, is every
4:49bit as valuable an op- as operation as
4:52manufacturing.
4:54Great phrase of Ludwig von Mises, who
4:55says, "There is no useful distinction be
4:57made in a restaurant between the value
4:59created by the man who cooks the food
5:01and the value created by the person who
5:03sweeps the floor." And his point was,
5:05"The man who cooks the food, that's
5:07manufacturing. The person who sweeps the
5:08floor, marketing, is the person who
5:11creates the environment in which it's
5:12possible to appreciate the food to its
5:14full."
5:15And in the Austrian school, there's no
5:17distinction between the value created by
5:19those two processes. So, they see
5:20marketing as fundamentally part of value
5:23creation, not as a cost. The other
5:26economic school, effectively the one
5:28that dominated the shareholder value
5:30movement,
5:31uh the sort of Chicago school of
5:32economics, it um
5:34effectively holds that people already
5:36know what they want. Uh they can price
5:39whatever they want exactly because they
5:40have a stable and transitive utility
5:42function, and therefore the only
5:44valuable thing you can do as a business
5:46is to give them that thing at as lower
5:48price as possible.
5:51And unfortunately, because it's so
5:54susceptible to mathematization,
5:57it's the second school that basically
5:58predominates. The first school is
6:00effectively about abstract nouns like
6:02value and appreciation and subjectivity.
6:06The second school fits really well on a
6:08spreadsheet.
6:10Because it actually creates
6:12a mathematical model of economics, which
6:14however ridiculous it may be, is
6:17nonetheless kind of aggregatable and
6:19calculable.
6:21And so, there's a fundamental
6:23philosophical problem, a a distinction
6:25if you like, in what a business is for.
6:28Because to the standard school, it's an
6:31efficiency mechanism.
6:33And to the Austrian school, a business
6:35exists as a discovery mechanism. The
6:37purpose of a business is to continually
6:41explore and discover in an almost
6:43Darwinian way new sources of adjacent
6:46value creation.
6:47So, it's inve- investigative,
6:49imaginative,
6:51and exploratory. The dominant business
6:53model, which I think persists in most,
6:56particularly publicly owned companies,
6:59uh is effectively that business is an
7:00efficiency competition.
7:04And
7:05the problem I've got there is that in
7:06the early days of AI, it will be used
7:09and sold by effectively tech firms and
7:12their running dog lackeys in consulting
7:14firms as a way of basically reducing
7:16headcount. That's how you justify it
7:18because it's more efficient. And it will
7:20be to some extent imposed on people
7:23uh whether they like it or not in the
7:25same way that self-checkout was.
7:28Now,
7:29it's really important I think at this
7:31point to hold on to a few things that
7:32marketers are right about that the rest
7:34of the business world is wrong about. Uh
7:36one of which would be actually quite
7:39often different is better than better.
7:43And I think there's a business
7:44opportunity here, which is that we will
7:46see such an insane profusion of AI and
7:49automation and self-service in many
7:51organizations, there's genuinely a
7:53business opportunity to do the opposite.
7:55One of the other things that I think
7:57marketers are right about, which um
7:59business is a generally wrong about, is
8:01the fact that what contributes to
8:03someone's customer satisfaction is
8:06disproportionately the human element of
8:08any exchange. If you're in any kind of
8:10service business, an experience with a
8:13real human being trumps more or less
8:16anything else in terms of your
8:18evaluation of the service.
8:20Uh great friend of mine, Alex Batchelor,
8:22used to be the marketing director of
8:23Royal Mail. They spent a fortune trying
8:26to uh improve operational efficiency and
8:28reliability of on-time delivery. It had
8:31no effect on brand perception of Royal
8:33Mail at all. They looked at it in more
8:34detail, and they found that there was no
8:36correlation in fact between the
8:38reliability of the service in an area
8:40and how much people like the brand. So,
8:42I think Alex had a theory and went and
8:43tested it. What really determined your
8:45attitude to Royal Mail was whether you
8:47liked your postie.
8:49Literally. You could have a pretty
8:51service, but if the postie was the kind
8:53of guy who went um yeah, I knew you were
8:55on holiday, so I left it in the back
8:57porch, you thought it was the most
8:58brilliant organization in the world. You
9:00could have a fantastically efficient
9:01postal service, okay? And if your postie
9:04was a bit of a bastard, you didn't like
9:06it.
9:07And we we we
9:09The reason that this human component is
9:11so undervalued, I think, in service
9:12businesses is not because it's not true,
9:15it's because it's very difficult to
9:16quantify. Very easy to quantify What
9:19marketing has developed this massive
9:21quantification bias, as Tom was saying,
9:23which is what you can measure quickly
9:26suddenly becomes more important than
9:28vastly more important things that are
9:31difficult to measure at all, like trust,
9:34for example, or which you can measure,
9:37but which are slow, which would be
9:39customer retention, um your customer
9:41experience. You You can test customer
9:43experience, but
9:45broadly speaking, you're probably in a
9:47different job by the time the results
9:49come in because you're looking at
9:50lifetime value rather than short-term
9:52bottom of the funnel stuff.
9:55And so, I can see this intermediate
9:57problem where we have this massive kind
10:00of pressure to
10:03use AI as a form of cost reduction, as
10:05form of head count reduction, because
10:08that's the convenient way to sell it.
10:09Why would you sell it any other way if
10:12you've got that message?
10:14Eventually, I hope, some businesses,
10:18this is the second phase, will start to
10:20say, "Actually, why don't we try
10:23Remember, different Few things marketers
10:25know. Hum- The human experience actually
10:28trumps more or less anything else."
10:31You know, By the way, do you know a
10:32fascinating aspect of that? Is estate
10:34agents go to massive lengths
10:37to make sure the vendor and the buyer of
10:39a house don't meet each other in person
10:43until someone's had a survey and some
10:45documents have been signed, because I'm
10:47not making this up, if one of them
10:48doesn't like the other personally,
10:51they won't sell the house or they won't
10:53buy it.
10:55And I lit- I literally mean I
10:57I I I tell this story and someone said,
10:58"That happened to my mom. The estate
11:00agent said, 'There's someone offering
11:01the asking price.'" And she said, "It
11:03wasn't those shitty people who came
11:04around yesterday, was it? Well, I'm not
11:06selling, okay?"
11:08I mean, that's how the extent to which
11:10personal still matters. And I think
11:12we're in danger of really, really
11:14undervaluing that because we can't
11:15measure it. I think there are people in
11:17call centers who should be paid six
11:19figures. The really, really good people
11:21in call centers are probably valuable
11:23enough to a business to actually pay
11:25them six figures. The reason they don't
11:27get paid six figures is that unlike
11:28sales people, they can't prove their
11:30value.
11:33A few other things marketers are right
11:34about, one of which is that change
11:36behavioral change is slow. And another
11:39one that marketers are right about is
11:40that generally, Bit by Bit and Sharp
11:43this, the more channels through which
11:44you sell, the more people you sell to,
11:46and the more buying situations arise.
11:49What most people are trying to do at the
11:51other side of the business is, "Let's
11:52drive all our customers to the lowest
11:54cost channel."
11:56Because what they're doing is they're
11:57laying the claim for the cost saving
12:00without holding themselves responsible
12:01for lost sales and lost opportunities.
12:04So, this is why websites hide the phone
12:06number.
12:07Okay? Absolute insanity.
12:10So, I was talking to someone who runs an
12:11online hotel, um it's effectively an
12:13online travel agent, and everybody's
12:15going blah blah blah, we need to
12:16maximize online conversion. And he said,
12:18"Okay, it's not a like-for-like
12:19comparison, but a visitor to the site
12:21converts to about 0.5%.
12:23Anybody who phones us up converts to
12:25about 30%."
12:27Are we really, really sure this is an
12:29intelligent thing to do? And that's
12:31another We need to really hold on to a
12:33few things that are really, really
12:35important that marketers understand that
12:37the rest of the business is
12:38diametrically wrong about. You know,
12:40reduce You know, reduce human
12:42interaction, force everybody down a
12:44low-cost channel. All those things, I
12:46think, are really, really at threat.
12:49Now, what's going to happen?
12:52The first phase is basically the same
12:54worse but cheaper.
12:56The first phase. The second phase might
12:58be, and this might be done by
13:00family-owned businesses or founder-led
13:02businesses, which is the same but
13:04better.
13:06Where eventually this starts to be used,
13:09in other words, to improve customer
13:10experience rather than to reduce cost.
13:13Um I think it's very difficult, to be
13:15honest, in any publicly-owned company to
13:18do really serious marketing, because the
13:20pressure on short-term financial results
13:22is simply too great. It's interesting
13:24that four out of the five 2024 IPA
13:27Advertising Effectiveness Award winners
13:29were family-owned businesses, McCain,
13:31Waitrose, Yorkshire Tea, and Specsavers,
13:33and the fifth one was Guinness. And you
13:35have to ask the question, is it only
13:37family-owned businesses that have the
13:39freedom to operate around different
13:41timescales? They're free to have short,
13:43medium, and long-term objectives, and
13:46that that's now been rendered more or
13:47less impossible in companies that are
13:50obsessed with quarterly reporting or
13:52EBITDA or whatever.
13:54The third phase, by the way, will be
13:56when people reinvent things all
13:57together.
13:58A completely new kind of business that
14:01actually So, what happened when they
14:03invented the electric motor is quite an
14:05interesting kind of analogy to use. So,
14:08they invent the electric motor, and the
14:10first thing everybody did, at the time,
14:12factories had a massive great steam
14:14engine at one end,
14:16and then they had enormous rotating
14:18shafts going through the entire factory
14:21building with immense strengthened
14:23floors, uh incredibly heavy equipment,
14:26uh enormous rates of accident, because
14:28all the machinery was working all the
14:30time, and every single bit of machinery
14:32operated off a single steam engine.
14:36And then the second phase was they they
14:37replaced the big steam engine with a big
14:39electric motor.
14:41And the gains were absolutely trivial,
14:43really. It wasn't much point to doing
14:45this.
14:46And it was, you know, I mean, there were
14:48cases if you were close to a source of
14:49hydroelectric power or something like
14:51that, it was actually a money-saving
14:52exercise, but it wasn't that effective.
14:54Only then, when they completely
14:56rethought the whole production process,
14:58did they realize that
15:00unlike small steam engines, small
15:02electric motors are really good. So,
15:04they had every single bit of machinery
15:06operating off a much smaller motor when
15:08it could be turned off when it wasn't
15:11needed, and where it didn't even need to
15:13be in the same place anymore.
15:16And it was only when they reinvented the
15:17process around the technology that the
15:20technology really delivered its
15:21benefits.
15:23So, here's a just a little peculiar
15:25thought experiment.
15:27If you can produce really good content
15:31quite quickly
15:33and really inexpensively,
15:35should you just continue doing what you
15:37used to do, or should you reinvent the
15:40process all together? Now, in the case
15:42of the Industrial Revolution, the reason
15:44marketing got started was originally
15:47most goods were produced a bit like a
15:49Fabergé egg. Someone very rich came into
15:51Mr. Fabergé's shop and said, "I'd like
15:53an egg." And they give gave a brief for
15:56the egg, and then loads of craftsmen
15:58produced an egg, and eventually the
16:01person said, "Yes, I like the egg." And
16:02they bought it. And there weren't very
16:04many eggs.
16:05And then the Wedgwoods and people like
16:07that came along and said, "Well,
16:08actually, we can produce dinner services
16:10in insane quantities, provided they're
16:13all more or less identical."
16:15Does it make sense anymore for us to
16:18wait for someone to come in and request
16:20a dinner service, or should we invent
16:23modern marketing by producing loads of
16:25dinner services and going finding and
16:27going and finding customers?
16:29So, one thing that strikes me in 5 to 10
16:31years' time as perfectly possible is
16:33that ad agencies will work backwards.
16:35That they'll produce content unasked for
16:38and then go and find a buyer.
16:41You might say that some social media
16:42stars are doing this already. There are
16:44celebrities who are capable of all
16:46almost operating like an ad agency
16:48saying, "We can produce this funny thing
16:50for KFC. We'll go and make it, and then
16:53we'll go and see if KFC will buy it."
16:56And that, to me, seems a perfectly
16:58possible future for the way in which we
17:00produce marketing communications. That
17:02rather than doing them Fabergé style, on
17:05demand in response to a request,
17:07given that the cost of producing them
17:09suddenly becomes so much lower, should
17:12we actually do them proactively?
17:14And then this is my final prediction, so
17:15I've run out of time. In that case,
17:18Cannes becomes not a retrospective,
17:22it becomes a trade fair.
17:25So, instead of people going, "This is
17:26what we did last year, isn't it clever?"
17:28Instead, "We've got this stuff. Do you
17:31want to buy it?"
17:32Which is perhaps what it should have
17:34been all along. Every other huge event
17:36that happens in Cannes, you know, if if
17:38you think about it, is a trade fair.
17:40It's not a retrospective. The TV
17:42festival worked this way. "We've got
17:44this format. Do you Danes want to buy
17:47it?"
17:48It strikes me that it's perfectly
17:49possible that the agencies that will
17:51succeed in the future are actually
17:52proactive rather than the other way
17:54around. One last sentence, and it's
17:56purely a tip. I know you're going nuts.
17:59I discovered this by accident.
18:02Totally by accident.
18:04If you're a marketer, don't sell what
18:06you do.
18:08Sell how you think.
18:10Okay? Very simple. The real value of
18:11marketers isn't the marketing department
18:14or what the marketing department does.
18:16If you defend yourself on the basis of
18:18what you do, you're effectively in a
18:19defensive position.
18:22You're endlessly in a kind of Stockholm
18:24Syndrome relationship with the finance
18:25department. You know, "Please justify
18:28all this money you spent."
18:29The real value of marketers and
18:31marketing is how they think.
18:33If you don't have a marketer present in
18:35the room, engineers, utterly rational
18:37people, can make utterly stupid
18:39decisions, because they're not looking
18:41at it from the consumer's point of view,
18:43they're looking at it from some other
18:44point of view. What I discovered totally
18:46by accident, because I ended up speaking
18:47to audiences that didn't work in
18:48marketing, I thought, "I can't talk
18:50about what we do. I better talk about
18:52how we think." What I discovered is that
18:53the market for how we think is literally
18:56100 times bigger and more lucrative than
18:59the market for what we do.
19:01And so, that's the final tip, which is
19:04the real value of of marketing is what
19:06Ritson calls the 180° flip, where you
19:09fundamentally look at something from an
19:11angle and a standpoint that nobody else
19:13in the business looks at it at.
19:15I'll end on that. I'm making this little
19:17Radio 4 program about the Concorde, and
19:19I said, "The interesting thing about the
19:20Concorde, it was all engineers, no
19:22marketers, because they missed one
19:24absolutely crucial problem,
19:26which was a human problem, not an
19:28engineering problem.
19:30The Concorde is absolutely
19:31brilliant if you're flying from east to
19:33west. You leave London at 9:00 in the
19:35morning and you land in New York before
19:37breakfast at about 8:00 a.m. You're
19:39going faster than the Earth rotates.
19:41Brilliant.
19:44The return leg is a complete crock of
19:46okay? Rather than going to JFK at
19:499:00 in the evening, sleeping on the
19:50plane, and arriving in London the
19:52following morning, you have to stay an
19:54extra night in a New York hotel, get up
19:56really early, go to JFK, get on a plane
19:59at 9:00 in the morning, spend an entire
20:01working day in the air, and then land in
20:03London at 6:00 in the evening.
20:05And so many decisions are made now by
20:09optimizing whatever convenient metrics
20:11come to hand like speed and time and
20:13distance and capacity and cost, okay?
20:15And they completely ignore how those
20:17metrics actually translate to human
20:19perception and human behavior.
20:21So, the the thing we got to get across
20:23is not marketers add a bit of magic
20:25fairy dust to the we already do.
20:28What we got to sell is unless you have a
20:30marketer in a room, you're at risk of
20:32doing things which are seriously
20:33dumb.
20:34I hope that helps. Thank you very much
20:36indeed. Thank you.
20:38What a pleasure.

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