People’s buying habits are more likely to change when they go through a major life event

Thursday, May 6th, 2021

In The Power of Habit, Charles Duhigg explains just how much data a store like Target collects in order to shift customers’ buying habits:

Also linked to that Guest ID number was demographic information that Target collected or purchased from other firms, including the shopper’s age, whether they were married and had kids, which part of town they lived in, how long it took them to drive to the store, an estimate of how much money they earned, if they’d moved recently, which websites they visited, the credit cards they carried in their wallet, and their home and mobile phone numbers. Target can purchase data that indicates a shopper’s ethnicity, their job history, what magazines they read, if they have ever declared bankruptcy, the year they bought (or lost) their house, where they went to college or graduate school, and whether they prefer certain brands of coffee, toilet paper, cereal, or applesauce.

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The company can link about half of all in-store sales to a specific person, almost all online sales, and about a quarter of online browsing.

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People’s buying habits are more likely to change when they go through a major life event. When someone gets married, for example, they’re more likely to start buying a new type of coffee. When they move into a new house, they’re more apt to purchase a different kind of cereal. When they get divorced, there’s a higher chance they’ll start buying different brands of beer.

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There’s almost no greater upheaval for most customers than the arrival of a child. As a result, new parents’ habits are more flexible at that moment than at almost any other period in an adult’s life. So for companies, pregnant women are gold mines.

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One survey conducted in 2010 estimated that the average parent spends $6,800 on baby items before a child’s first birthday.

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“As soon as we get them buying diapers from us, they’re going to start buying everything else, too,” Pole told me.

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One New York hospital, for instance, provides every new mother with a gift bag containing samples of hair gel, face wash, shaving cream, an energy bar, shampoo, and a soft-cotton T-shirt. Inside are coupons for an online photo service, hand soap, and a local gym. There are also samples of diapers and baby lotions, but they’re lost among the nonbaby supplies. In 580 hospitals across the United States, new mothers get gifts from the Walt Disney Company, which in 2010 started a division specifically aimed at marketing to the parents of infants.

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Disney estimates the North American new baby market is worth $36.3 billion a year.

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Expectant mothers, he discovered, shopped in fairly predictable ways. Take, for example, lotions. Lots of people buy lotion, but a Target data analyst noticed that women on the baby registry were buying unusually large quantities of unscented lotion around the beginning of their second trimester.

Another analyst noted that sometime in the first twenty weeks, many pregnant women loaded up on vitamins, such as calcium, magnesium, and zinc.

Lots of shoppers purchase soap and cotton balls every month, but when someone suddenly starts buying lots of scent-free soap and cotton balls, in addition to hand sanitizers and an astounding number of washcloths, all at once, a few months after buying lotions and magnesium and zinc, it signals they are getting close to their delivery date.

A wise leader often prolongs a sense of emergency on purpose

Tuesday, May 4th, 2021

The London Underground was governed by a sort of theoretical rule book that no one had ever seen or read, Charles Duhigg explains (in The Power of Habit), and that didn’t, in fact, exist except in the unwritten rules that shaped every employee’s life. One of these unwritten rules was, don’t panic the passengers. Another was, stay in your lane. Then someone spotted the early signs of a fire:

Yet the safety inspector, Hayes, didn’t call the London Fire Brigade. He hadn’t seen any smoke himself, and another of the Underground’s unwritten rules was that the fire department should never be contacted unless absolutely necessary.

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Hayes, the safety inspector, went into a passageway that led to the Piccadilly escalator’s machine room. In the dark, there was a set of controls for a sprinkler system specifically designed to fight fires on escalators. It had been installed years earlier, after a fire in another station had led to a series of dire reports about the risks of a sudden blaze. More than two dozen studies and reprimands had said that the Underground was unprepared for fires, and that staff needed to be trained in how to use sprinklers and fire extinguishers, which were positioned on every train platform. Two years earlier the deputy assistant chief of the London Fire Brigade had written to the operations director for railways, complaining about subway workers’ safety habits.

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No one inside King’s Cross understood how to use the escalator sprinkler system or was authorized to use the extinguishers, because another department controlled them.

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The entire escalator was now aflame, producing a superheated gas that rose to the top of the shaft enclosing the escalator, where it was trapped against the tunnel’s ceiling, which was covered with about twenty layers of old paint. A few years earlier, the Underground’s director of operations had suggested that all this paint might pose a fire hazard. Perhaps, he said, the old layers should be removed before a new one is applied?

Painting protocols were not in his purview, however. Paint responsibility resided with the maintenance department, whose chief politely thanked his colleague for the recommendation, and then noted that if he wanted to interfere with other departments, the favor would be swiftly returned.

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Shortly after the explosion, dozens of fire trucks arrived. But because the fire department’s rules instructed them to connect their hoses to street-level hydrants, rather than those installed by the Underground inside the station, and because none of the subway employees had blueprints showing the station’s layout — all the plans were in an office that was locked, and none of the ticketing agents or the station manager had keys — it took hours to extinguish the flames.

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During turmoil, organizational habits become malleable enough to both assign responsibility and create a more equitable balance of power. Crises are so valuable, in fact, that sometimes it’s worth stirring up a sense of looming catastrophe rather than letting it die down.

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NASA administrators, for instance, tried for years to improve the agency’s safety habits, but those efforts were unsuccessful until the space shuttle Challenger exploded in 1986.

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Airline pilots, too, spent years trying to convince plane manufacturers and air traffic controllers to redesign how cockpits were laid out and traffic controllers communicated. Then, a runway error on the Spanish island of Tenerife in 1977 killed 583 people and, within five years, cockpit design, runway procedures, and air traffic controller communication routines were overhauled.

In fact, crises are such valuable opportunities that a wise leader often prolongs a sense of emergency on purpose.

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Fennell began by interviewing the Underground’s leadership, and quickly discovered that everyone had known — for years — that fire safety was a serious problem, and yet nothing had changed.

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So he decided to turn his inquiry into a media circus.

He called for public hearings that lasted ninety-one days and revealed an organization that had ignored multiple warnings of risks.

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A company with dysfunctional habits can’t turn around simply because a leader orders it. Rather, wise executives seek out moments of crisis — or create the perception of crisis — and cultivate the sense that something must change, until everyone is finally ready to overhaul the patterns they live with each day.

It would create a map of your firm’s secret hierarchy

Sunday, May 2nd, 2021

When An Evolutionary Theory of Economic Change came out in 1982, Charles Duhigg notes (in The Power of Habit), few people noticed, but its message became quite influential:

“Much of firm behavior,” they wrote, is best “understood as a reflection of general habits and strategic orientations coming from the firm’s past,” rather than “the result of a detailed survey of the remote twigs of the decision tree.”

For instance, every big company gives its employees a handbook with the formal rules of how the company works:

Now, imagine what you would tell a new colleague who asked for advice about how to succeed at your firm. Your recommendations probably wouldn’t contain anything you’d find in the company’s handbook. Instead, the tips you would pass along — who is trustworthy; which secretaries have more clout than their bosses; how to manipulate the bureaucracy to get something done — are the habits you rely on every day to survive. If you could somehow diagram all your work habits — and the informal power structures, relationships, alliances, and conflicts they represent — and then overlay your diagram with diagrams prepared by your colleagues, it would create a map of your firm’s secret hierarchy, a guide to who knows how to make things happen and who never seems to get ahead of the ball.

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For an organization to work, leaders must cultivate habits that both create a real and balanced peace and, paradoxically, make it absolutely clear who’s in charge.

There are no organizations without institutional habits

Friday, April 30th, 2021

There are no organizations without institutional habits, Charles Duhigg reminds us (in The Power of Habit):

There are only places where they are deliberately designed, and places where they are created without forethought, so they often grow from rivalries or fear.

Starbucks has succeeded in teaching the kind of life skills that schools, families, and communities have failed to provide

Wednesday, April 28th, 2021

Charles Duhigg explains (in The Power of Habit) how companies are teaching their employees the kind of habits they didn’t learn at home:

The training has, Travis says, changed his life. Starbucks has taught him how to live, how to focus, how to get to work on time, and how to master his emotions. Most crucially, it has taught him willpower.

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For Travis and thousands of others, Starbucks — like a handful of other companies — has succeeded in teaching the kind of life skills that schools, families, and communities have failed to provide. With more than 137,000 current employees and more than one million alumni, Starbucks is now, in a sense, one of the nation’s largest educators. All of those employees, in their first year alone, spent at least fifty hours in Starbucks classrooms, and dozens more at home with Starbucks’ workbooks and talking to the Starbucks mentors assigned to them.

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At the core of that education is an intense focus on an all-important habit: willpower. Dozens of studies show that willpower is the single most important keystone habit for individual success.

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“Self-discipline predicted academic performance more robustly than did IQ. Self-discipline also predicted which students would improve their grades over the course of the school year, whereas IQ did not….Self-discipline has a bigger effect on academic performance than does intellectual talent.”

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Scientists began conducting related experiments, trying to figure out how to help kids increase their self-regulatory skills. They learned that teaching them simple tricks — such as distracting themselves by drawing a picture, or imagining a frame around the marshmallow, so it seemed more like a photo and less like a real temptation — helped them learn self-control. By the 1980s, a theory emerged that became generally accepted: Willpower is a learnable skill, something that can be taught the same way kids learn to do math and say “thank you.”

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Employees with willpower lapses, it turned out, had no difficulty doing their jobs most of the time. On the average day, a willpower-challenged worker was no different from anyone else. But sometimes, particularly when faced with unexpected stresses or uncertainties, those employees would snap and their self-control would evaporate.

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The manuals taught workers how to respond to specific cues, such as a screaming customer or a long line at a cash register. Managers drilled employees, role-playing with them until the responses became automatic. The company identified specific rewards — a grateful customer, praise from a manager — that employees could look to as evidence of a job well done.

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“One of the systems we use is called the LATTE method. We Listen to the customer, Acknowledge their complaint, Take action by solving the problem, Thank them, and then Explain why the problem occurred.”

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There’s the What What Why system of giving criticism and the Connect, Discover, and Respond system for taking orders when things become hectic.

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This is how willpower becomes a habit: by choosing a certain behavior ahead of time, and then following that routine when an inflection point arrives.

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Starbucks isn’t the only company to use such training methods. For instance, at Deloitte Consulting, the largest tax and financial services company in the world, employees are trained in a curriculum named “Moments That Matter,” which focuses on dealing with inflection points such as when a client complains about fees, when a colleague is fired, or when a Deloitte consultant has made a mistake. For each of those moments, there are preprogrammed routines — Get Curious, Say What No One Else Will, Apply the 5/5/5 Rule — that guide employees in how they should respond.

At the Container Store, employees receive more than 185 hours of training in their first year alone.

His top priority would have to be something that everybody could agree was important

Saturday, April 24th, 2021

Charles Duhigg explains the concept of keystone habits (in The Power of Habit) through the example of Paul O’Neill, who took over as CEO of Alcoa with a promise to make Alcoa the safest company in America:

The audience was confused. These meetings usually followed a predictable script: A new CEO would start with an introduction, make a faux self-deprecating joke — something about how he slept his way through Harvard Business School — then promise to boost profits and lower costs. Next would come an excoriation of taxes, business regulations, and sometimes, with a fervor that suggested firsthand experience in divorce court, lawyers. Finally, the speech would end with a blizzard of buzzwords — “synergy,” “rightsizing,” and “co-opetition” — at which point everyone could return to their offices, reassured that capitalism was safe for another day.

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“Now, before I go any further,” O’Neill said, “I want to point out the safety exits in this room.” He gestured to the rear of the ballroom. “There’s a couple of doors in the back, and in the unlikely event of a fire or other emergency, you should calmly walk out, go down the stairs to the lobby, and leave the building.”

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“I’m not certain you heard me,” O’Neill said. “If you want to understand how Alcoa is doing, you need to look at our workplace safety figures. If we bring our injury rates down, it won’t be because of cheerleading or the nonsense you sometimes hear from other CEOs. It will be because the individuals at this company have agreed to become part of something important: They’ve devoted themselves to creating a habit of excellence. Safety will be an indicator that we’re making progress in changing our habits across the entire institution. That’s how we should be judged.”

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Within a year of O’Neill’s speech, Alcoa’s profits would hit a record high. By the time O’Neill retired in 2000, the company’s annual net income was five times larger than before he arrived, and its market capitalization had risen by $27 billion.

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O’Neill believed that some habits have the power to start a chain reaction, changing other habits as they move through an organization.

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These are “keystone habits,” and they can influence how people work, eat, play, live, spend, and communicate.

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At the time, Alcoa was struggling. Critics said the company’s workers weren’t nimble enough and the quality of its products was poor. But at the top of O’Neill’s list he didn’t write “quality” or “efficiency” as his biggest priorities.

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O’Neill figured his top priority, if he took the job, would have to be something that everybody — unions and executives — could agree was important.

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The key to protecting Alcoa employees, O’Neill believed, was understanding why injuries happened in the first place. And to understand why injuries happened, you had to study how the manufacturing process was going wrong. To understand how things were going wrong, you had to bring in people who could educate workers about quality control and the most efficient work processes, so that it would be easier to do everything right, since correct work is also safer work. In other words, to protect workers, Alcoa needed to become the best, most streamlined aluminum company on earth.

He identified a simple cue: an employee injury. He instituted an automatic routine: Any time someone was injured, the unit president had to report it to O’Neill within twenty-four hours and present a plan for making sure the injury never happened again. And there was a reward: The only people who got promoted were those who embraced the system.

Unit presidents were busy people. To contact O’Neill within twenty-four hours of an injury, they needed to hear about an accident from their vice presidents as soon as it happened. So vice presidents needed to be in constant communication with floor managers. And floor managers needed to get workers to raise warnings as soon as they saw a problem and keep a list of suggestions nearby, so that when the vice president asked for a plan, there was an idea box already full of possibilities.

To make all of that happen, each unit had to build new communication systems that made it easier for the lowliest worker to get an idea to the loftiest executive, as fast as possible. Almost everything about the company’s rigid hierarchy had to change to accommodate O’Neill’s safety program. He was building new corporate habits.

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Then, as email habits became more ingrained and comfortable, they started posting information on all kinds of other topics, such as local market conditions, sales quotas, and business problems.

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This is the final way that keystone habits encourage widespread change: by creating cultures where new values become ingrained. Keystone habits make tough choices—such as firing a top executive— easier, because when that person violates the culture, it’s clear they have to go.

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He got fired because he didn’t report the incident, and so no one else had the opportunity to learn from it. Not sharing an opportunity to learn is a cardinal sin.”

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On average, workers are more likely to get injured at a software company, animating cartoons for movie studios, or doing taxes as an accountant than handling molten aluminum at Alcoa.

“When I was made a plant manager,” said Jeff Shockey, the Alcoa executive, “the first day I pulled into the parking lot I saw all these parking spaces near the front doors with people’s titles on them. The head guy for this or that. People who were important got the best parking spots. The first thing I did was tell a maintenance manager to paint over all the titles. I wanted whoever got to work earliest to get the best spot. Everyone understood the message: Every person matters. It was an extension of what Paul was doing around worker safety. It electrified the plant. Pretty soon, everyone was getting to work earlier each day.”

Foaming is a huge reward

Sunday, April 18th, 2021

As Charles Duhigg explains in The Power of Habit, the tingling sensation from Pepsodent helped turn toothbrushing into a habit:

Yet, while everyone brushes their teeth, fewer than 10 percent of Americans apply sunscreen each day. Why?

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Because there’s no craving that has made sunscreen into a daily habit. Some companies are trying to fix that by giving sunscreens a tingling sensation or something that lets people know they’ve applied it to their skin.

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“Foaming is a huge reward,” said Sinclair, the brand manager. “Shampoo doesn’t have to foam, but we add foaming chemicals because people expect it each time they wash their hair. Same thing with laundry detergent. And toothpaste — now every company adds sodium laureth sulfate to make toothpaste foam more. There’s no cleaning benefit, but people feel better when there’s a bunch of suds around their mouth. Once the customer starts expecting that foam, the habit starts growing.”

No one craves scentlessness

Friday, April 16th, 2021

In The Power of Habit Charles Duhigg tells the story of a chemist at P&G who was working with hydroxypropyl beta cyclodextrin, or HPBCD, at the lab, and when he came home, his wife asked if he’d stopped smoking, because his clothes didn’t smell like smoke at all. The new product they developed was a huge success — but only after they learned how to market it:

They spent millions perfecting the formula, finally producing a colorless, odorless liquid that could wipe out almost any foul odor.

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They decided to call it Febreze, and asked Stimson, a thirty-one-year-old wunderkind with a background in math and psychology, to lead the marketing team.

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The same pattern played out in dozens of other smelly homes the researchers visited. People couldn’t detect most of the bad smells in their lives. If you live with nine cats, you become desensitized to their scent. If you smoke cigarettes, it damages your olfactory capacities so much that you can’t smell smoke anymore. Scents are strange; even the strongest fade with constant exposure. That’s why no one was using Febreze, Stimson realized.

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Television commercials were filmed of women spraying freshly made beds and spritzing just-laundered clothing. The tagline had been “Gets bad smells out of fabrics.” It was rewritten as “Cleans life’s smells.”

Each change was designed to appeal to a specific, daily cue: Cleaning a room. Making a bed. Vacuuming a rug. In each one, Febreze was positioned as the reward: the nice smell that occurs at the end of a cleaning routine. Most important, each ad was calibrated to elicit a craving: that things will smell as nice as they look when the cleaning ritual is done.

The irony is that a product manufactured to destroy odors was transformed into the opposite. Instead of eliminating scents on dirty fabrics, it became an air freshener used as the finishing touch, once things are already clean.

When the researchers went back into consumers’ homes after the new ads aired and the redesigned bottles were given away, they found that some housewives in the test market had started expecting — craving — the Febreze scent.

One woman said that when her bottle ran dry, she squirted diluted perfume on her laundry. “If I don’t smell something nice at the end, it doesn’t really seem clean now,” she told them.

“The park ranger with the skunk problem sent us in the wrong direction,” Stimson told me. “She made us think that Febreze would succeed by providing a solution to a problem. But who wants to admit their house stinks?

“We were looking at it all wrong. No one craves scentlessness. On the other hand, lots of people crave a nice smell after they’ve spent thirty minutes cleaning.”

New habits are created by putting together a cue, a routine, and a reward, and then cultivating a craving that drives the loop.

Administrative assistants did not do management, but managers did do administration

Thursday, April 15th, 2021

Has the economic clock started to run backwards?, Tim Harford asks:

As Philip Coggan writes in his epic history, More: The 10,000 Year Rise of the World Economy, Smith’s 1776 book was not the first to note the productivity gains that resulted from specialisation. Xenophon was making similar remarks in 370 BCE.

But why does the division of labour improve productivity? Smith pointed to three advantages: workers perfected specific skills; they avoided the delay and distraction of switching from one task to another; and they would use or even invent specialised equipment.

The modern knowledge worker fits uneasily into this picture. Most of us don’t use specialised equipment: we use computers capable of doing anything from accountancy and instant messaging to filming and editing video. And while some office jobs have a clear production flow, many do not: they are a watercolour blur of one activity bleeding into another.

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In 1992 the economist Peter Sassone published a study of workflow in large US corporate offices. He found that the more senior a person was, the more likely they were to do a bit of everything. Administrative assistants did not do management, but managers did do administration. Sassone called this “the law of diminishing specialisation”.

This law of diminishing specialisation is surely stronger today. Computers have made it easier to create and circulate written messages, to book travel, to design web pages. Instead of increasing productivity, these tools tempt highly skilled, highly paid people to noodle around making bad slides.

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Cal Newport’s new book, A World Without Email, is searing on this point. Examining scientific management studies from the early 20th century, Newport makes the case that manufacturers analysed and fixed their aimless processes a century ago. The gains were dramatic. For example: at the Pullman factory complex near Chicago, people from various departments would wander into the brass works and pester the metalworkers until they got what they needed. After a systematic overhaul, many clerks were hired as gatekeepers and to plan and schedule work. Productivity soared.

Newport argues that knowledge work is long overdue a similar rethink. How often is office work assigned and prioritised by random pestering? Certain disciplines, including producing a daily newspaper, have developed a clear workflow that doesn’t depend on long email chains. A lot of knowledge work, however, is still in the “wander in and pester” stage.

You’ll feel a film

Wednesday, April 14th, 2021

In The Power of Habit Charles Duhigg shares some advertising history:

Hopkins was the man who had convinced Americans to buy Schlitz beer by boasting that the company cleaned their bottles “with live steam,” while neglecting to mention that every other company used the exact same method.

He had seduced millions of women into purchasing Palmolive soap by proclaiming that Cleopatra had washed with it, despite the sputtering protests of outraged historians.

He had made Puffed Wheat famous by saying that it was “shot from guns” until the grains puffed “to eight times normal size.”

He had turned dozens of previously unknown products — Quaker Oats, Goodyear tires, the Bissell carpet sweeper, Van Camp’s pork and beans — into household names.

And in the process, he had made himself so rich that his best-selling autobiography, My Life in Advertising, devoted long passages to the difficulties of spending so much money.

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Throughout his career, one of Claude Hopkins’s signature tactics was to find simple triggers to convince consumers to use his products every day. He sold Quaker Oats, for instance, as a breakfast cereal that could provide energy for twenty-four hours — but only if you ate a bowl every morning. He hawked tonics that cured stomachaches, joint pain, bad skin, and “womanly problems” — but only if you drank the medicine at symptoms’ first appearance. Soon, people were devouring oatmeal at daybreak and chugging from little brown bottles whenever they felt a hint of fatigue, which, as luck would have it, often happened at least once a day.

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“Just run your tongue across your teeth,” read one. “You’ll feel a film — that’s what makes your teeth look ‘off color’ and invites decay.”

“Note how many pretty teeth are seen everywhere,” read another ad, featuring smiling beauties. “Millions are using a new method of teeth cleansing. Why would any woman have dingy film on her teeth? Pepsodent removes the film!”

The brilliance of these appeals was that they relied upon a cue — tooth film — that was universal and impossible to ignore. Telling someone to run their tongue across their teeth, it turned out, was likely to cause them to run their tongue across their teeth. And when they did, they were likely to feel a film. Hopkins had found a cue that was simple, had existed for ages, and was so easy to trigger that an advertisement could cause people to comply automatically.

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Before Pepsodent appeared, only 7 percent of Americans had a tube of toothpaste in their medicine chests. A decade after Hopkins’s ad campaign went nationwide, that number had jumped to 65 percent.

There’s a bit more to the story:

Unlike other pastes of the period, Pepsodent contained citric acid, as well as doses of mint oil and other chemicals. Pepsodent’s inventor used those ingredients to make the toothpaste taste fresh, but they had another, unanticipated effect as well. They’re irritants that create a cool, tingling sensation on the tongue and gums.

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What they found was that customers said that if they forgot to use Pepsodent, they realized their mistake because they missed that cool, tingling sensation in their mouths. They expected — they craved — that slight irritation.

Eliminating systemic racism should be a lucrative undertaking

Monday, April 5th, 2021

It would be in the profit-maximizing interest of firms to snatch up underpaid performers, Steve Sailer reminds us:

If there really is much discrimination, then eliminating systemic racism should be a lucrative undertaking, not one that requires constant paid sermonizing by innumerates about how handing privileges to the politically preferred will turn out to be in our own financial interest.

Of course, if you go far enough back into America’s past, it is easy to find a clear example of an employer who did flourish due to his diverse hiring: Branch Rickey, president of the Brooklyn Dodgers baseball team. By bringing Jackie Robinson up in 1947 to be the first black big-leaguer since the 19th century, Rickey got a lucrative jump on other teams.

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The Brooklyn Dodgers’ example of the payoff from not discriminating is so vivid because:

(1) There really was systemic racism against black ballplayers: the Color Line.

(2) Blacks were as good as whites at baseball. (By the way, it’s often assumed today that whites were surprised in 1947 by how strong blacks were at baseball. In reality, though, black and white stars had often played together in barnstorming exhibition tours and in Caribbean winter ball, so white ballplayers had long publicly praised the talents of their black counterparts.)

(3) Some teams stubbornly resisted integration for up to a dozen years after 1947, highlighting the contrast.

Strikingly, it’s oddly hard to find more recent examples than this of firms that long earned outsize profits by first hiring blacks or women.

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This should remind us that the Women’s Lib battle was quickly and almost painlessly won during the first half of the 1970s. For example, by the time I entered UCLA’s MBA program in 1980, conscious discrimination against women in corporate white-collar hiring was a thing of the past. The only employers I can recall being told were still bigoted against women were Los Angeles’ department-store chains, which, a professor explained, wouldn’t promote shiksas beyond Buyer.

Presumably, some companies took the lead in the early 1970s and outearned their rivals by hiring more women, which allowed them to pay lower wages than the industry standard. But, a half century later, it’s hard to identify these trailblazing corporations because their rivals responded so quickly to this now socially acceptable profit-maximizing scheme.

Before 1969, discrimination in white-collar hiring was less against women per se than against married women. (In contrast, blue-collar jobs that are today 95 percent male were often 100 percent male back then, and good-paying union jobs were usually reserved for men.)

Yet, there had always been a certain number of spinster career women in upscale jobs. For instance, in the 1940 movie His Girl Friday, newspaper editor Cary Grant is desperate to keep his ace reporter (and ex-wife) Rosalind Russell from marrying Ralph Bellamy and immediately quitting the newspaper to be a housewife and mother.

Why the feeling that married women shouldn’t work? The polite assumption had been that respectable women didn’t use contraception, so a married woman was likely to be a mother by the year after her wedding, after which she’d be too busy with child-rearing for paid employment.

But by 1969, The Pill had become socially accepted, plus the burdens of housework had declined due to advances in appliances such as dishwashers and dryers. As Goldin noted, women increasingly went back to paid work after their children were old enough, so it made sense for them to get the education when young that would enable them to hold better-paying jobs.

Hence, most genteel industries rapidly switched over to hiring large numbers of young women in the 1970s.

People may have extra cash to burn on big trips, fancy cocktails and Broadway shows

Friday, February 12th, 2021

Executives in industries devastated by COVID-19 clearly want investors to believe that they’re on the verge of a roaring comeback:

And some evidence suggests they may be right. According to data from the U.S. Bureau of Economic Analysis, the national savings rate has jumped during the pandemic, so people may have extra cash to burn on big trips, fancy cocktails and Broadway shows. And, man, do people miss going out.

According to a recent survey by the Harris Poll, 71% of Americans say they miss socializing in restaurants and bars, 61% say they miss shopping in stores and 52% say they miss movie theaters. Growing percentages of people say they’re planning on splurging on vacations, clothes, cars and sporting events when things return to normal. Fifty-nine percent say they would take a COVID-19 vaccine in order to fly again. After news broke that COVID-19 vaccines work, stocks for airlines, cruise lines and other industries that rely on being face-to-face surged.

Places that have gotten the virus under control have already seen some impressive rebounds in travel and leisure. For example, in China, domestic airline travel came roaring back after the country ended its shutdowns. When Shanghai Disneyland reopened, tickets sold out in minutes.

A Plan which doesn’t rely on there being a greater fool to buy at a higher price

Friday, January 29th, 2021

If you’ve been following mainstream media coverage of /r/WallStreetBets and the wildly swinging Gamestop stock, Eliezer Yudkowsky notes, you may not be aware that /r/WallStreetBets has a Plan at all beyond “Let’s all buy the stock to pump it up, making all of us rich”:

But /r/WallStreetBets has a Plan — a Plan which doesn’t rely on there being a greater fool to buy at a higher price. I was quite surprised, when I first looked into the affair yesterday — surprised enough that I ended up writing this article despite having no specialist expertise or credentials. No, I’m not buying or selling Gamestop, and I won’t be recommending that you do so. I’m writing this because a certain feature of the affair is one I find interesting. On my home planet it would be front-page news, but the media here has other priorities; it hasn’t reported at all the interesting part, anywhere that I’ve read.

So what’s this Plan about? Roughly, it’s to engineer a short squeeze on Gamestop, but with a historically unprecedented twist. No, I can’t just tell you the twist right this minute and stop wasting your time. It legitimately takes some background to explain, unless you’re starting out understanding more than I did. In principle, one could deduce it just from having heard “/r/WallStreetBets has a plan to engineer a short squeeze on Gamestop”; but I had to be walked through several steps myself before I realized.

Sometimes, when you think you’re holding a stock in your account — say, GlomCo stock, for the sake of concreteness — your broker isn’t really holding all the shares of that stock. What your broker did instead, was charge somebody else to borrow some of the GlomCo shares it’s theoretically holding on behalf of end-consumers like you; then the borrower sells the GlomCo stock with intent to buy it back later and repay the loan. Key detail: whoever buys this stock may then have their broker quietly loan it out again in turn, behind the scenes.

Or more concretely, Alice buys 100 shares of GlomCo and holds them at Charles Schwab. Charles Schwab quietly loans those 100 shares to Bob, who short-sells them to Carol, who holds her shares at Fidelity, which quietly loans out 100 shares to Dennis, who sells them to Eileen. If you imagine that GlomCo only had 100 shares in the first place, then at the end of this operation there is “200% short interest outstanding” in GlomCo: Bob and Dennis have collectively borrowed-and-sold (and now owe back) 200 shares of GlomCo, or 2X as much as actually exists. That’s without “naked shorting” or selling synthetic copies of a stock.

[...]

The last I heard, Gamestop had 130% short interest outstanding. That is, short-sellers have collectively borrowed, and now collectively owe, 130% as much Gamestop stock as exists anywhere.
This happens, from time to time, in stock markets. When it does, it creates an opportunity for hedge funds to make a daring play. If a hedge fund can buy up enough of the company stock themselves, they can hold enough that the short-sellers have to go to the hedge fund to buy back the stock.

[...]

Cases surprisingly close to that have actually happened. In one of the legendary cases, Volkswagen was very heavily shorted, and Porsche announced it had bought up over 74% of Volkswagen… while around 55% of Volkswagen shares were held by index funds, effectively unavailable for trading at any price. That these two numbers sum to over 100% is not an error. Prices of Volkswagen shares spiked to where Volkswagen was briefly the most expensive company in the world. Or for another example, Martin Shkreli once engineered a 10,000% price rise via short squeeze on a small company called KalaBios. It’s not just a weird hypothetical theory; it has actually worked and people have collected huge profits on it.

This is what /r/WallStreetBets is trying to do with Gamestop — buy up enough of Gamestop themselves that there’s not enough other Gamestop shares left, on the broader market, to pay back the 130% outstanding shorts. If it works, it forces the short sellers to buy back some shares at whatever price /r/WallStreetBets decides to charge. The stock price is swinging as I revise this; when I wrote the first draft, as of Wednesday’s close the stock price was at $347, for a market cap of $24 billion. Gamestop was under $5 one year ago.

But so far as I know, this scheme has never before been successfully carried out by a large group of retail investors instead of a hedge fund. And there’s a fundamental reason for that! A group of retail investors face a technically interesting coordination problem in trying to engineer a short squeeze, a problem that one monolithic hedge fund does not face. So I will be really interested if /r/WallStreetBets pulls it off successfully, or even mostly successfully.

[...]

What most mainstream coverage I’ve seen, tries to insinuate is going on, is that /r/WallStreetBets is just a horde of suckers on the Internet, trying to buy up enough of some random company that the stock price skyrockets, hoping they’ll all get rich. From reading mainstream coverage, I didn’t realize there was a Plan beyond this; until I mentioned the issue on Twitter, and some more knowledgeable people graciously corrected me. But indeed, if that were all that was happening, it would be a classic “pump” scheme; which can’t generate net profits for all of the buyers, because the buyers are playing a zero-sum game among themselves.

[...]

If too many of them try to sell all their shares back, when the price goes astronomical— then the very very earliest sellers may make a vast profit. But the share price will start dropping fast, and only the earliest sellers will get Lambos.

[...]

If too many people defect and sell 100% right away, the scheme collapses. The stock price may drop precipitously if it looks like that might be starting to happen; and then the scheme is only repairable if that causes enough of /r/WallStreetBets to lock up, hunker down, and wait for the price to go back up again. If instead it panics a large-enough fraction of squeezers into selling 100%, the whole scheme is over.
This is why short squeezes are usually engineered by a monolithic hedge fund — it doesn’t face the same coordination problems internally.

For a hundred thousand people to do the same would be unprecedented! I don’t just mean that the particular scheme of short-squeezing is unprecedented; I mean that I’ve never heard of human beings successfully solving a coordination problem built out of thousands of strangers, with big financial payouts for early defection and zero ability to enforce against defection.

The news now chased the reader

Saturday, January 23rd, 2021

Traditional newspapers never sold news, Martin Gurri reminds us. They sold an audience to advertisers:

To a considerable degree, this commercial imperative determined the journalistic style, with its impersonal voice and pretense of objectivity. The aim was to herd the audience into a passive consumerist mass. Opinion, which divided readers, was treated like a volatile substance and fenced off from “factual” reporting.

The digital age exploded this business model. Advertisers fled to online platforms, never to return.

[...]

Led by the New York Times, a few prominent brand names moved to a model that sought to squeeze revenue from digital subscribers lured behind a paywall. This approach carried its own risks. The amount of information in the world was, for practical purposes, infinite. As supply vastly outstripped demand, the news now chased the reader, rather than the other way around.

[...]

During the 2016 presidential campaign, the Times stumbled onto a possible answer. It entailed a wrenching pivot from a journalism of fact to a “post-journalism” of opinion — a term coined, in his book of that title, by media scholar Andrey Mir. Rather than news, the paper began to sell what was, in effect, a creed, an agenda, to a congregation of like-minded souls. Post-journalism “mixes open ideological intentions with a hidden business necessity required for the media to survive,” Mir observes. The new business model required a new style of reporting. Its language aimed to commodify polarization and threat: journalists had to “scare the audience to make it donate.” At stake was survival in the digital storm.

[...]

In August 2016, as the presidential race ground grimly onward, the New York Times laid down a marker regarding the manner in which it would be covered. The paper declared the prevalence of media opinion to be an irresistible fact, like the weather. Or, as Jim Rutenberg phrased it in a prominent front-page story: “If you view a Trump presidency as something that is potentially dangerous, then your reporting is going to reflect that.” Objectivity was discarded in favor of an “oppositional” stance. This was not an anti-Trump opinion piece. It was an obituary for the values of a lost era. Rutenberg, who covered the media beat, had authored a factual report about the death of factual reporting — the sort of paradox often encountered among the murky categories of post-journalism.

Luxury sneaker markets are a preview of Capitalist Dystopia

Thursday, December 31st, 2020

Luxury sneaker markets are a preview of Capitalist Dystopia:

Buyers now use bots to automate sneaker purchasing to ensure they’ll get as many pairs as possible to resell on online sneaker marketplaces like StockX and GOAT. Retailers, meanwhile, have sought to guard against such bots through raffles, leading to a proliferation of raffle bots. Raffle bots will automate hundreds, if not thousands of entries. Bots themselves are sold and resold for thousands and created in limited supply to ensure they remain effective in an ever-more competitive purchasing arms race.

Consignment and resale stores are the result of side hustles becoming a primary business — one that’s now profitable enough to exist in retail space. Successful buyers market their own guides on sneaker investing. News articles hold forth on the value of kicks in investment portfolios. Enthusiastic YouTubers giddily sound off on whether or not you should “sit or sell,” claiming to possess insight on the potential long-term value of sneakers.

If you can master the tricks of the trade, it’s highly lucrative. Effective resellers can pocket hundreds of thousands of dollars. The terminology of sneaker resale markets offers a more urban version of the language used by Wall Street banks and investment firms.

[...]

Consumers of rare sneakers range from collectors who will display their trophies and keep them as “deadstock” — industry lingo for shoes that are never worn — all the way to simple enthusiasts and those disparagingly referred to as “hypebeasts” — people who covet, wear, and obsess over every new release as a display of wealth.

The global sneaker resale market is valued at $2 billion and expected to triple in the next few years, reaching $30 billion by the end of the decade. This fall, StockX opened its first Canadian warehouse, another expansionary step for a global corporation already valued at $1 billion.