They became adept at losing company property

Thursday, July 9th, 2020

In 1946, T. R. Fehrenbach explains (in This Kind of War), the newly split Korea was struggling:

At his desk one day, Fletcher heard that there was trouble in Samch’ok, on the east coast. He left his office in Seoul to investigate. At a company iron-ore mine, he found agitators were encouraging idle workers to carry away company property. He had the Korean Special Police arrest the agitators, and beat hell out of them.

Back at Seoul, there was some criticism — but nobody had a better idea.

The policy now became one of giving Korean nationals control of the company. The new executives learned some things quickly. They became adept at losing company property, mostly into their own pockets.

Meanwhile, a crisis developed with the Russians just across the border from Seoul Province. The waters that irrigated company rice paddies flowed down from the north, and suddenly the Russians dammed them off. The company agricultural adviser, PFC Peavey, was sent up north to investigate.

The Russians were not offended by negotiating with a PFC. They had political officers masquerading in low ranks in their own forces; they understood perfectly Gospodin Peavey’s desire not to appear conspicuous. They sat down with Peavey and informed him they wanted a portion of the company’s rice harvest in return for the water. Peavey argued awhile. Finally, getting nowhere, he figured, what the hell? He was due to rotate out any day and become a civilian. He agreed to everything. He returned to Seoul, and soon the water flowed south. When asked how he had outwitted the Ivans, Peavey would only smile gently. A few weeks later, he sailed for the States.

When fall came, the Russians asked for their rice. Military Government, of course, with some confusion, explained why they couldn’t have it. Next summer, the New Korea Company had a hell of a time getting water.

A little bit of pandemic risk was just the thing

Friday, June 19th, 2020

Analysts at Munich Re realized that a pandemic could overwhelm life insurance companies — and reinsurance companies, too:

To tackle Munich Re’s exposure, Kraut’s team began attempting to quantify and price this incredibly remote, unpredictable risk. If they managed to do that, they would then need to sell part of that risk—to find someone willing to insure the reinsurer. “No one really had tried to do a transaction at a one-in-500-year return period,” Kraut said. His boss gave it a 50–50 chance of success.

But over the course of two years, the group gradually built up a list of potential buyers. It turned out that there were a few large institutional investors looking to diversify their own portfolios, and a little bit of pandemic risk was just the thing. Munich Re would provide them with annual payments, year after year. In the rare event of a pandemic, they would have to cover Munich Re’s losses. One interested class of investor—if a macabre one—was pension funds, which typically grapple with something called longevity risk: the chance that people will live longer than expected.

“It’s not really good terminology to call it a ‘risk,’ ” Kraut said. “It’s a good thing, technically! But if people live a lot longer than expected, then a pension fund needs to pay out a lot more pensions than they originally calculated.” A deadly pandemic that takes the lives of pensioners, to put it in the most clinical terms, means fewer years of pension payouts, canceling some of the longevity risk. Should no pandemic arise, they would pocket payments from Munich Re.

By 2013, Kraut and his team had put together enough investors—starting with a large Australian pension fund—to take some of the pandemic problem off of Munich Re’s books. But he soon encountered an unexpected hitch: The mechanisms written to trigger the deal relied on a series of “pandemic phases” monitored by the World Health Organization. (Phase 1: Virus is circulating in animals. Phase 2: Reports of human infection. Phase 3: Human-to-human transmission. And so on up to Phase 6: Sustained outbreaks in multiple regions.) Sometime in 2013, however, the WHO abandoned this system for a less specific four phases. Kraut suddenly needed some other organization to delineate the stages of epidemics reliably enough to write into an insurance policy. And he needed someone to monitor epidemics closely, to know when they hit agreed upon triggers—illnesses, deaths, spread. “But you can’t just hire the WHO,” he said.

In studying up on the world of epidemiology, Kraut happened to have picked up a book called The Viral Storm. It was written by Nathan Wolfe. Part memoir, part prescription, the book laid out a vision for how to counter the threat that novel viruses represent to humans. Kraut looked up Wolfe and saw that he’d formed a company.

[...]

Kraut, however, had an even more ambitious idea in mind. What if, instead of simply hedging its own life insurance business in the case of a pandemic, Munich Re could use the same concept to insure other businesses against them? Business interruption insurance, the policies that protect companies against income losses from disasters like fires or hurricanes, often explicitly excluded disease. (And when it didn’t, insurers could still use the ambiguity to deny claims.) The risk was thought to be too large, too unpredictable to quantify. But Munich Re had already proven it could cover its own life insurance risk in pandemics, and now it had a partner in Metabiota that specialized in seemingly unpredictable outbreaks. What if they could create and sell a business interruption insurance policy that covered epidemics, starting with acutely vulnerable industries like travel and hospitality? They could then pass on the payout risk from those policies to the same types of investors who had bought their life risk.

[...]

Where Munich Re’s epidemic solutions division had been struggling to get traction with potential customers, now, in early January, buyers were banging at the door. “That’s just the nature of human psychology,” he said. “Whenever a catastrophe arrives, people immediately want insurance for that catastrophe.” The virus was still confined to China and Kraut faced a grim calculation: Should the company write business interruption policies that would cover SARS-CoV-2, outside of Asia? “You clearly have the human tragedy,” he said. “On the other hand you are in charge of the business unit.” But there were too many warning signs—too much risk for Munich Re. It would have been like selling fire insurance for a house already in flames. Kraut made the decision not to sell.

In a sense, Munich Re had dodged a bullet: Had the company succeeded at selling pandemic protection to corporate giants starting 19 months before, it would have collected almost no premiums and now be paying out on every single one. Kraut acknowledged as much, but offered that if insurers never pay out, “then you lose the reason of existence.”

By March, Metabiota had closed its offices in downtown San Francisco, and its employees joined the legions of new remote workers. “It is painful to see loss of livelihoods, insecurity, fear,” Oppenheim said, “when potentially we would have had tools to prevent that.”

A quiet reservoir of economic strength is forming

Wednesday, June 17th, 2020

A quiet reservoir of economic strength is forming among households flush with cash, the Wall Street Journal reports, and it is reviving consumer spending:

The crisis caused by the coronavirus has pushed millions into unemployment and left them straining to get by. But many consumers in the U.S. and Europe who have held on to their jobs or are getting government benefits have seen their bank accounts swell during lockdowns, according to government data, because of restrictions on shopping and big-spending activities such as tourism.

Consumers with means are driving surprising strength in a number of sectors. People are flocking to home-improvement stores and car dealerships. They want to install pools in their backyards and Jacuzzis in their bathrooms. Spending on furniture has jumped. So have sales of fitness and sports equipment.

And with vacations and summer camps canceled and pool memberships on hold, families are looking for other ways to entertain themselves this summer.

These book sales are not getting equally distributed

Saturday, May 16th, 2020

Wired reports that the coronavirus pandemic is changing how people buy books:

When Andy Hunter launched his ecommerce startup Bookshop in January, he hoped it might carve out a small, cheerful corner of a market dominated by Amazon. Hunter’s pitch was appealing. He offered an easy way to buy books online without further enriching Jeff Bezos, after all. But Bookshop’s success was not guaranteed. In fact, it looked unlikely. Hunter was running Bookshop on a shoestring, working with four staffers out of leftist magazine The Baffler’s Manhattan office, hustling to convince publishers to join its affiliate program and independent bookshops to become partners and receive a portion of the proceeds. It was an optimistic operation. Too optimistic, if anything.

Then the coronavirus pandemic hit. Bookshop’s business boomed.

“It has been a wild ride,” Hunter says. Bookshop went from a well-intentioned startup facing an uphill battle to one of the most popular ways to buy books online in a matter of weeks. The New York Times, BuzzFeed, Vox, and The New Republic are all affiliate partners now. Its headcount has doubled in size. Hunter expects to hit $6 million in sales by May, eons ahead of its loftiest projections from January. If the company’s performance holds steady, it could do $60 million in sales a year, although Hunter is assuming post-quarantine life will be different. “I’m sure that when things open back up, our sales will drop, maybe even cut in half,” he says. “But even then, we’re still one of the top 10 bookstores in the US.”

It sounds like Bookshop’s major selling point is that it’s not Amazon?

The online retailer is the most dominant force in American bookselling today, accounting for over 90 percent of ebooks and audiobooks, and around 42 to 45 percent of print sales, according to BookStat. Into this fray jumps a new online retailer, Bookshop, which is betting that people will see the value in choosing to buy somewhere else—at a business meant to give independent booksellers a chance to grab back some of the market share. “It’s not really about disrupting an industry,” CEO Andy Hunter says. “It’s about reinforcing an industry. Bookshop is about pulling back from the disruptive influence of Amazon.”

Anti-disrupting (reverse-disrupting?) will prove challenging. For starters, there’s Amazon’s grip on consumer habits. Despite recent movements advocating pushback against Amazon, most people in the United States maintain a favorable view of Jeff Bezos’ “everything store.” Peter Hildick-Smith, president of book audience research firm Codex, says that this includes most people who frequent independent shops; just over three-quarters of that cohort also use Amazon, at an average of five times a month, according to a 2019 survey. Even among bibliophiles, Hildick-Smith says, “It’s not as if everybody’s saying, ‘Gosh, I really don’t like Amazon. I don’t shop there.’” The result? “A very skewed market.”

There’s a bit more to it:

These sellers can also sign up for the company’s affiliate program, which offers a 25 percent commission to stores. If, say, a bookseller doesn’t want to deal with ecommerce, they can sign up for this program and essentially outsource their online sales to Bookshop, which uses the major book wholesaler Ingram to fulfill orders.

The affiliate program is also available to media large and small, from major magazines to micro-famous book bloggers, with a 10 percent commission. When it’s time to publish seasonal roundups, gift guides, reviews, or other books coverage, these media companies will be able to hyperlink to Bookshop and get paid if readers buy something they click on.

Anyway, back to how the coronavirus pandemic is changing how people buy books:

Books about travel, foreign languages, and business are on a downward trend—it’s a terrible time to release a guidebook, for instance. But some speciality publishers have been particularly well-positioned to succeed right now. “Sales are up 15 percent over last year today,” says Margo Baldwin, founder of Vermont-based independent publisher Chelsea Green. “Direct-to-consumer web sales have skyrocketed.” With a focus on nonfiction covering sustainability, increased general interest in gardening and eco-friendly domestic activities has been a boon for the indie. “Our gardening books are doing extremely well, including one that hit a regional best-seller list out West, Gaia’s Garden. That was published over 25 years ago,” she says. “People are really turning towards how to make themselves more self-sufficient.”

The NPD Group highlighted this trend too. “We’re watching a solid increase in the cooking category,” McLean wrote. “It’s clear that everyone really is making bread.”

In addition to homemaking books, children’s educational books are in high demand, as parents have moved en masse to homeschooling. NPD found that “juvenile” book sales have been up 80 percent since the beginning of March. Barnes & Noble has seen this large increase in educational and children’s books. CEO James Daunt says that people are also gravitating toward well-regarded novels, both contemporary favorites and canonical books. “Fat ones are selling more than thin ones,” Daunt says. “Those books that everybody is supposed to have read but perhaps hasn’t.”

“Ebooks are up, audiobooks are up, hardcover was up through the Easter holidays, books for children, books for gifts. The sense is that it might just have been a holiday blip,” Hildrick-Smith says; he says he expects the data for after Easter to become available soon, but until then it’s hard to make a strong assertion about the state of the marketplace.

It’s not all rosy—in fact, it’s a dire time for a large portion of treasured indie shops, as these book sales are not getting equally distributed. While the pandemic caused a spike in interest in Bookshop, buyers have also been flocking to Amazon, which was already the dominant force in bookselling. While Amazon designated books as “non-essential” items, thus elongating shipping times, its vast selection and reputation for consistency have kept its position strong.

“Amazon’s market share by default, we estimate, will grow to at least 70 percent of the market on the basis of the month of April, up from just over 50 percent in the pre-Covid period,” Hildick-Smith says.

Their relationships with government and banks put them at the front of the line for bailouts

Thursday, April 30th, 2020

The U.S. Commerce Department reported that retail spending in March collapsed by the largest number on record:

Travel spending — including on airlines, hotels, and cruises — is down more than 100 percent, if you include refunds. Department stores and clothing stores are facing an extinction-level event after having experienced years of decline. Pockets of resiliency and even strength include grocery stores and liquor stores, which in March had their best month of growth on record. Home-improvement spending is up as well.

[...]

Over the past 50 years, the number of American malls grew almost twice as fast as the U.S. population, to the point that in 2015, the U.S. had 10 times more shopping space per capita than Germany. Such abundance makes no sense in the age of Amazon. Overleveraged, overbuilt, and oversprawled, American retailers had a long way to fall as the country moved toward online shopping. In 2017, and again in 2019, physical-store closures reached an all-time high, led by the decay of suburban totems like Sports Authority and Payless.

The year 2020 may bring the death of the department store, marking the end of that 200-year-old retail innovation after decades of decline. Macy’s has furloughed more than 100,000 workers. Neiman Marcus has filed for Chapter 11. More legacy department stores and apparel retailers will almost certainly follow them to bankruptcy court or the corporate graveyard. As these anchor stores shutter, hundreds of malls that were already wobbling in 2019 will be knocked out in 2020.

The pandemic will also likely accelerate the big-business takeover of the economy. In the early innings of this crisis, the most resilient companies include blue-chip retailers like Amazon, Walmart, Dollar General, Costco, and Home Depot, all of whose stock prices are at or near record highs. Meanwhile, most small retailers — like hair salons, cafés, flower shops, and gyms — have less than one month’s cash on hand. One survey of several thousand small businesses, including hotels, theaters, and bars, found that just 30 percent of them expect to survive a lockdown that lasts four months.

Big companies have several advantages over smaller independents in a crisis. They have more cash reserves, better access to capital, and a general counsel’s office to furlough employees in an orderly fashion. Most important, their relationships with government and banks put them at the front of the line for bailouts.

The past two weeks have seen widespread reports of small businesses struggling to secure funds from the federal government. Larger companies do not seem to be experiencing the same delays. In one particularly controversial case, Ruth’s Chris Steak House — a public company with 159 locations and $87 million of cash on hand — announced that it had secured $20 million from a small-business rescue program that ran out of money before it could help countless independents. (Ruth’s Chris later pledged to return the money, and the federal government replenished the pot, though it will likely run out again quickly.)

The digital release has generated more revenue for Universal than the original Trolls did during its domestic theatrical run

Tuesday, April 28th, 2020

Last month, as the nation’s movie theaters were days from closing down, Universal Pictures decided not to postpone the release of Trolls World Tour, but to make it available as a digital rental for $19.99:

Three weeks later, “Trolls World Tour” has racked up nearly $100 million in rentals.

With nearly five million rentals in the U.S. and Canada, the digital release has in three weeks generated more revenue for Universal than the original “Trolls” did during its five-month domestic theatrical run, according to a person familiar with the matter. Its performance has convinced Universal executives that digital releases can be a winning strategy, and may diminish the role of theaters even after the pandemic passes.

[...]

For Jeff Shell, head of the film studio’s parent division, NBCUniversal, the campaign to experiment with the digital marketplace known as premium video on demand, or PVOD, had been a goal long before he ascended to his current job, four months before the coronavirus pandemic struck.

[...]

For studios, the prospect is especially alluring because they retain about 80% of the digital rental or purchase fee — compared with about 50% of box-office sales.

Universal has made more than $77 million in revenue from “Trolls World Tour” domestic customers so far. That means “Trolls World Tour” has generated about $95 million in rental fees from nearly five million customers since its release, based on revenue figures cited by the person familiar with the matter, who didn’t dispute the estimate.

The same amount of revenue during a theatrical run would have required a box-office gross of $154 million, or about the final tally of the original “Trolls” movie. The sequel cost about $90 million to produce.

The original “Trolls” collected $153.7 million at the domestic box office. Universal received about $77 million of that total; about half stayed with theaters.

It is unclear how the $20 rental strategy will affect future sales of “Trolls World Tour” DVDs and digital downloads. Researchers at Universal found 51% of people who rented the sequel said they would have “definitely” seen the movie in theaters. About one-fifth said they rarely or never rent movies from digital services.

The title set digital records at platforms operated by Amazon.com Inc., Apple and Comcast’s own Xfinity service. The movie benefited from a market largely devoid of competition, since studios have postponed most releases, and families sheltering in place are seeking things to watch together.

They still think what Palo Alto brought to the table was computer science

Tuesday, April 14th, 2020

Most Americans remember when Washington couldn’t build a website, Mencius Moldbug says, and Palo Alto bailed it out:

They still think what Palo Alto brought to the table was computer science.

Actually, plenty of people in DC can code just fine. What Palo Alto brought was the ability to execute at scale. Back then, some website seemed important. Now we know what important means.

That works only because demand is typically so steady

Sunday, April 5th, 2020

The shelves are bare, because the toilet paper industry is split into two, largely separate markets, commercial and consumer:

Georgia-Pacific, a leading toilet paper manufacturer based in Atlanta, estimates that the average household will use 40% more toilet paper than usual if all of its members are staying home around the clock. That’s a huge leap in demand for a product whose supply chain is predicated on the assumption that demand is essentially constant. It’s one that won’t fully subside even when people stop hoarding or panic-buying.

[...]

Talk to anyone in the industry, and they’ll tell you the toilet paper made for the commercial market is a fundamentally different product from the toilet paper you buy in the store. It comes in huge rolls, too big to fit on most home dispensers. The paper itself is thinner and more utilitarian. It comes individually wrapped and is shipped on huge pallets, rather than in brightly branded packs of six or 12.

[...]

Because toilet paper is high volume but low value, the industry runs on extreme efficiency, with mills built to work at full capacity around the clock even in normal times. That works only because demand is typically so steady. If toilet paper manufacturers spend a bunch of money now to refocus on the retail channel, they’ll face the same problem in reverse once people head back to work again.

Other industries face similar challenges:

The CEO of a fruit and vegetable supplier told NPR’s Weekend Edition that schools and restaurants are canceling their banana orders, while grocery stores are selling out and want more. The problem is that the bananas he sells to schools and restaurants are “petite” and sold loose in boxes of 150, whereas grocery store bananas are larger and sold in bunches. Beer companies face a similar challenge converting commercial keg sales to retail cans and bottles.

Amazon is opening 100,000 new full and part-time positions across the U.S.

Tuesday, March 17th, 2020

Amazon is opening 100,000 new full and part-time positions across the U.S. in their fulfillment centers and delivery network:

We also know many people have been economically impacted as jobs in areas like hospitality, restaurants, and travel are lost or furloughed as part of this crisis. We want those people to know we welcome them on our teams until things return to normal and their past employer is able to bring them back.

In addition to the 100,000 new roles we’re creating, we want to recognize our employees who are playing an essential role for people at a time when many of the services that might normally be there to support them are closed. In the U.S., we will be adding an additional $2 USD per hour worked through April from our current rate of $15/hour or more, depending on the region, C$2 in Canada, £2 per hour in the UK, and approximately €2 per hour in many EU countries. This commitment to increased pay through the end of April represents an investment of over $350 million in increased compensation for hourly employees across the U.S., Europe, and Canada.

Find corroborating evidence

Friday, March 13th, 2020

In The Catalyst Jonah Berger explains how to change anyone’s mindreduce reactance, ease endowment, shrink distance, alleviate uncertainty, and find corroborating evidence:

For big changes, sometimes hearing from one person isn’t enough. You can follow up multiple times with new information, but the listener is still faced with a translation problem. Sure, you think something is the right course of action, but you’re just one person. How do they know what you’re saying is right?

There’s strength in numbers. That’s why substance-abuse counselors use group interventions. Hearing from multiple loved ones at the same time often provides enough proof to drive action. Corporate boards wait to adopt new practices until they’ve been adopted by several peer institutions. Doctors wait to adopt new drugs until multiple colleagues start using them. And companies wait to adopt supply chain technologies and management strategies until they’ve been piloted by a number of other firms.

In my own research, I found that the incidence of people signing up to use a new website was almost directly proportional to the number of Facebook invitations they received. Invites from two people led to almost double the sign-ups from a single invite; sign-ups were even more likely when multiple invites came in quick succession. As the adage goes, “if one person says you have a tail, you laugh and think they’re crazy. But if three people say it, you turn around to look.”

Whether you’re trying to convince a client, change an organization, disrupt a whole industry or just get someone to adopt a puppy, the same rules apply. It’s not about pushing harder or exerting more energy. It’s about reducing barriers to action. Once you understand that, you can change anything.

Alleviate uncertainty

Thursday, March 12th, 2020

In The Catalyst Jonah Berger explains how to change anyone’s mindreduce reactance, ease endowment, shrink distance, and alleviate uncertainty:

Change usually involves some level of risk. Will a new product be better than the old one? Will a new initiative really save money? Research published in the Quarterly Journal of Economics by three University of Chicago researchers in 2006 found that there is an “uncertainty tax.” People in the study were willing to pay $26 for a $50 gift certificate, but when they were asked how much they’d pay for a lottery ticket that would win them either that same $50 gift card or a $100 one, they were only willing to pay $16, a 40% drop. The uncertainty made them undervalue something that was objectively worth more.

To ease uncertainty, lower the barrier to trial. Don’t just tell people that something is better; allow them to experience it themselves. In the mid-2000s, people didn’t understand cloud storage and worried that it would be difficult to use or that they would lose their work. So Dropbox became part of a vanguard of app firms giving away a version of their service for free. The appetizer helped people to resolve their uncertainty and encouraged them to pay to upgrade to a better version. It helped Dropbox to build a billion-dollar business.

Honda Motor Co.’s Acura division took a similar step in 2008. The luxury brand wasn’t as trusted or well-known as its rivals, so Acura partnered with the high-end W Hotel chain to offer guests a free ride anywhere in town in an Acura. Guests might not have known about or liked Acura, but if they needed a ride somewhere, why not get one for free? The rides removed uncertainty and, according to the company, resulted in tens of thousands of new Acura buyers.

Uncertainty can also be reduced by making things reversible. A few years ago, my girlfriend and I were considering getting a dog. A local shelter had an adorable pit mix puppy, but we weren’t sure we were ready. Would we be home enough? Could we give her enough exercise? There were too many unanswered questions. We started to leave, but then a nice volunteer interjected: “In case it helps, we have a two-week trial period.” Today that girlfriend is my wife, and our dog Zoë is an integral part of our family. The trial didn’t reduce the upfront costs of taking Zoë home—food, shots, a crate, etc.—but it did remove the uncertainty.

Shrink distance

Wednesday, March 11th, 2020

Jonah Berger explains how to change anyone’s mind in his new book The Catalystreduce reactance, ease endowment, and shrink distance:

When new information comes in, people tend to compare it to their existing views to see if it is a close enough match to consider. Psychological experiments going back 50 years have found a “zone of acceptance,” an area close enough to people’s existing beliefs that they’ll consider new information. Incoming content that is too far away from their current perspective falls into a region of rejection and gets discounted.

Doctors deal with this issue when trying to get patients to change to healthier behavior. Sure, an overweight person should walk a mile every day, but for someone who hasn’t worked out in months, that’s a big ask. One solution is to start by asking for less or breaking the change down into chunks.

A doctor I spoke with a few years ago was dealing with an obese truck driver who drank three liters of Mountain Dew a day. She knew that telling him to quit cold turkey would fail, so she asked him to try just two liters a day. He grumbled but made the switch. Then, on the next visit, she asked him to cut it down to one liter a day, and only after that succeeded did she suggest cutting the soda out entirely. The trucker still drinks a can of Mountain Dew now and then, but he’s lost more than 25 pounds.

Product designers talk about such gradual shifts in behavior as stepping stones—a way to make a big shift feel less daunting. Uber’s initial model didn’t depend on persuading people to take a ride in a random stranger’s car. That’s exactly what Mom told you not to do. The company started instead by making high-end black-car service more accessible. Only after that gained acceptance did they move down-market to UberX, a cheaper nonluxury option. If Uber had asked people to make such a big change from the beginning, they probably would have failed. It was too far from what people were used to.

Ease endowment

Tuesday, March 10th, 2020

Jonah Berger explains how to change anyone’s mind in his new book The Catalyst, starting with the advice to reduce reactance and then moving on to his second piece of advice, ease endowment:

Research on everything from investment choices to political incumbency demonstrates that people are over-attached to the status quo, what social scientists call the “endowment effect.” We tend to stick with things we know and have used for a long time. Most of us eat the same food we’ve always eaten, buy the same brands we’ve always bought and donate to the same causes we’ve always supported.

Part of the challenge is that the status quo usually isn’t that bad, or else people would have made a change. An analogy can be made to injuries. Which do you think causes more pain: breaking a finger or spraining a finger? The answer might surprise you. It turns out that milder injuries may inflict greater pain overall, because unlike serious injuries, people are less likely to take active steps, such as surgery, to speed recovery. Milder injuries thus don’t get addressed and become nagging injuries that never quite go away.

Change agents combat this phenomenon by bringing the costs of inaction to the surface, helping people to realize that sticking with the status quo isn’t as cost-free as it seems. A financial adviser I know tried everything to convince one middle-aged client that keeping large amounts of money in a low-interest savings account instead of investing it more ambitiously for retirement wouldn’t benefit him in the long term. He liked things as they were and refused to see the upside of change. Finally, she started giving him regular updates on how much he was losing monthly compared with inflation and higher-return investments. That worked.

Similarly, IT consultants often resort to encouraging employees to upgrade to new machines by saying that they will no longer support the old ones, leaving employees to fix their own problems. The technique doesn’t force people to switch, but makes it easier for them to see the cost of doing nothing.

A sizable fraction consistently took home products that bombed

Monday, March 9th, 2020

When Steve Sailer was in the marketing research business, his wife suggested that he start own product testing firm, because it would have the competitive advantage of needing just one single tester:

P&G and Frito-Lay could hire me to take home a case of their planned product. If I really liked their innovation, then they would immediately bury all existing samples in a landfill, burn the recipes, and fire the executives responsible.

It turns out he’s just one of many such harbingers of failure:

What do Crystal Pepsi, Watermelon Oreos, Frito-Lay Lemonade, Coors Rocky Mountain Sparkling Water, Colgate Kitchen Entrees and Cheetos Lip Balm all have in common?

The obvious answer is they are all failed products. What is less obvious is that they may also share a fan base — a quirky subgroup of consumers who are systemically drawn to flops and whose reliably contrarian tastes can be used to forecast bad bets in retail sales, real estate and even politics. These people are known as “harbingers of failure.”

The study of harbingers emerged from a 2015 analysis of purchasing patterns at a national convenience store chain. (In exchange for the data, the researchers agreed not to reveal the identity of the chain.) Drawing on six years’ worth of data from the chain’s loyalty card program, a team of marketing professors led by Eric Anderson of Northwestern University classified customers according to their affinity for buying new products that were later pulled from the shelves because of weak demand. Of the roughly 130,000 customers whose purchases were logged, a sizable fraction (about 25 percent) consistently took home products that bombed.

Reduce reactance

Monday, March 9th, 2020

Jonah Berger explains how to change anyone’s mind, the subject of his new book The Catalyst, starting with the advice to reduce reactance:

People like to feel like they’re in control — in the drivers’ seat. When we try to get them to do something, they feel disempowered. Rather than feeling like they made the choice, they feel like we made it for them. So they say no or do something else, even when they might have originally been happy to go along. Psychologists call this negative response “reactance.”

Decades of consumer behavior research shows that people have an innate anti-persuasion radar. They’re constantly scanning the environment for attempts to influence them, and when they detect one, they deploy a set of countermeasures.

To avoid getting shot down, allow for agency. Guide the path but make sure people feel like they’re still in control. Smart consultants do this when presenting work to clients. If you share just one solution, the clients spend the meeting trying to poke holes in it. To shift this mind-set, good presenters often share multiple options. That way, rather than focusing on flaws, the clients focus on which option they prefer, which makes them much more likely to support moving forward.

Another way to reduce reactance is to highlight a gap between someone’s thoughts and actions, or between what they would recommend to others and what they themselves are doing. A clever pharmaceutical executive in one of my courses told me about a colleague who was wedded to a failing project. She asked him what he would recommend if someone at a different company was considering doing something similar. Given all the information we have now, he acknowledged, it wouldn’t make sense. Then why are we still doing it? she asked. The colleague shuttered the project a month later.

Highlighting such dissonance encourages people to try to resolve it. In the 1990s, researchers at the University of California campuses at Berkeley and Santa Cruz used this idea to get students to save water during a shortage. They asked some students to encourage their peers to take shorter showers, while completing a survey on what water-saving steps they themselves were taking. Then they timed the student volunteers’ showers. Exposing the gap between students’ attitudes and actions reduced their water use by more than 25%.