Wednesday, August 30, 2017

Recession Strategies

I stumbled across some notes I took at a lecture about ten years ago, just after the cataclysmic beginnings of the recent reception.  The speaker believed that the primary cause of the crisis was being overly focused on short-term financial results to the detriment of long-term functional success.   In my notes, I have a list of the three strategies he suggested to weather and emerge from the present crisis.

His first strategy, which he believed to be the worst approach, would be to take only short-term actions to alleviate the symptoms of the economic downturn – to wait and hope for external conditions to improve and then, once the economy has recovered, the firm could go back to doing the same thing as it had done before … until the next crisis inevitably occurs.

Second was to rely on government intervention.  He stated that there is a trend in western nations to be more accepting of “big government” and to be passively compliant, and even among the public, otherwise-intelligent people seem to be in favor of the nationalization of certain industries, such as banking.   He described how ambitious government reforms failed to prevent a recurring crisis and the ways in which regulation is seldom the path to meaningful and lasting success.

The third option was to remember the nature and purpose of the firm and its role in society, and to assess its operations in light of that purpose.  Economic efficiency and financial profitability are to be seen as the result of successful operations, but not their drivers.   Best case, they should be considered in a historical context, assessing the effectiveness of the organization’s past activities, and where they are lacking, to be considered as symptoms that require attention and investigation.

Naturally, the last option was his thesis, and he noted that many firms that weathered financial crises simply remained focus on their core business.  Even when the market is down, people need goods and services, and there is still ample disposable income for conveniences and even luxuries.   For a firm to change its nature is implementing a long-term change to address a short-term problem, and the firm ends up shedding the characteristics that made it successful, and ensure its success under adverse conditions.

Ten years later, with the recession dragging on, it’s easier to see which firms are still hiding in the bunker and waiting for the weather to change, which have taken hand-outs from government agencies in exchange for relinquishing at some degree of control, and which have rolled merrily along.   There problem is that even firms that take the speaker’s two “wrong” paths can successfully survive, and that their survival reinforces the notion that the choice they made was right.

Wednesday, August 23, 2017

Interfering in the Lives of Others

In a casual discussion, someone accused marketers (and businesspeople in general) of “interfering” in the lives of other people.    It’s a phrase I’ve heard before, generally from people who are unable to elaborate on their slogan philosophies, but this particular fellow was able to build a convincing case.

His case was that people are generally bumbling through life, doing as they please – and what they are doing does not involve a given brand.   The maker of that brand must interfere in that person’s life, to cause them to make a change so that their life will include the brand and that they will purchase and consume it routinely – or for existing customers, to purchase and consume it more often than they were previously accustomed.

This is sound logic and undeniable truth.   In order to sell more, people must consume more – and in order for them to consume more, they must make some kind of change in the pattern of their lives.   A person who already engages in a behavior that requires the product and uses a different brand must be interfered with so that they purchase our brand instead.   A person who does not engage in a behavior that requires the product must be interfered with so that they purchase our product and our brand.

He did back off of the implication that this is necessarily a bad thing: engaging in certain behaviors (or discontinuing others) can be beneficial to the person, one product or brand may have advantages to the consumer over others he may be using.   So under those conditions, a marketer interferes in the lives of people in a way that leaves them better off than they were had they been left to their existing habits and routines.

There remains the question of how often interference is beneficial, but that degenerates into subjectivity and generalization.   One can easily evaluate if a specific brand had a benefit to a specific customer, but if you speak of products brands in general, some are beneficial and some are harmful, and each may be beneficial to some customers but not to others depending on the particulars of their situation.

And this is the point at which philosophy ends and practice begins: the individual marketer must consider the impact of his interference and assess whether it is beneficial.   It is not merely a matter of ethics, but one of practicality: it is only by delivering a genuine benefit that the brand can enjoy sustained sales and positive word-of-mouth from its customers.

Wednesday, August 16, 2017

The Economics of Emotion

In a previous post, I considered the emotional basis of decision making, concluding that all decisions are essentially emotional ones.  The reason we want to achieve an outcome is often to achieve another outcome, but when you follow the chain to the ultimate outcome, it is the desire to effect an emotional state. 

We choose to take action because it earns a monetary profit, but what need do we have for that money?   If there is a specific need (to purchase certain things) it is because we expect to experience happiness because of their consumption.   If there is no specific need and we simply desire to have purchasing power, it is the possession of that power that creates feeling of security and happiness.  In either case, it is an emotional objective.

But what of the other side of the equation – the cost and effort involved in achieving an emotional benefit?   By the same reasoning, these are emotional costs.   The willingness to part with money is a willingness to do without those things (or the purchasing power) that money represents because we estimate we will feel greater happiness from whatever we purchase than with the possession of money.   Or the willingness to perform unpleasant tasks to acquire money is because the happiness that the money will provide is greater than the unpleasantness of what must be done to obtain it.

Thus considered, economics is not about money – as money is an element that can be factored out of the equation.    If we undertake displeasure to gain money, then use that money to obtain pleasure, then money is merely a temporary possession that is used to facilitate an exchange of displeasure for pleasure – of undesirable emotions for desirable ones.

The childish game of “what would you do for a million dollars” is in this context quite illuminating – it focuses on the unpleasant and humiliating activities a person would undertake to gain the pleasure of a reward, and puts focus on the emotions rather than the money, which is merely a token.   This is actually quite realistic.

In considering any job, the worker asks himself whether the labor is worth the wage.  It is not a matter of how much money will be earned, but how much pleasure will be received.   And considering that many of the most unpleasant and degrading occupations pay minimum wage, it can be seen that workers have different levels of tolerance for emotional displeasure in exchange for the same emotional benefit.

So when one asks if a given trinket is “worth” five dollars, it is not merely the amount of money that is considered, but the amount of displeasure that was undertaken to earn that sum and whether it is worth the pleasure of owning and consuming the trinket.   And this is the reason that various buyers place different bids on the same object.

To rely exclusively on monetization is implicitly to ignore the emotional basis of economic decisions, and will invariably lead to serious errors in judgment.

Wednesday, August 9, 2017

The Evolution and Perversion of Economics

The study of economics did not originally have to do with markets - the word originates as Greek "oikonomos" (household knowledge) which referred to the sound management of an estate and the allocation of human effort that was required for the members of the household to produce the necessities they required, preferably before devoting time to conveniences and luxuries.   Economics had nothing to do with the world outside of the household, except in rare instances in which a household produced more than was necessary and could barter with other households for their own excess.

The principles of a well-managed house was scaled up to the management of towns, cities, nations, and nowadays even the world.   It has been stretched well beyond what it was intended to manage, and stretched to a scale at which management may not be at all practicable.  Thus considered, if economics seems unfathomable, it is only because it has overstepped the bounds of its original intent.

The needs of a household and the means to achieve them are quite straightforward, such that even uneducated peasants can manage to figure out how to get by on what they have and to improve their lot over time.  But when men who consider themselves to be smart and sophisticated engage in the foolish behavior of presuming to speak on a grand scale about the needs and means of every household in a nation or in the entire world, complications invariably arise.

Economics is a simple concept that is only made complex by struggling vainly to amalgamate that which should likely not be amalgamated, and complexities and paradoxes arise when such broad and sweeping statements are attempted.  It has, in other words, overstepped its bounds and become entirely insular and divorced from reality.   The academic economist is a man who has bitten off far more than he can chew and is too arrogant to spit it back out and deal with it in smaller bites.

This is not to say that there is no use for the principles of running a household, or even a production facility – merely that when the efficiency of production and trade has swelled to overshadow the meaning of those activities, economics has been misapplied and is quite likely more damaging than beneficial.

Wednesday, August 2, 2017

Right-Sizing Experience Design

Experience design, which focuses on facilitating the peripheral tasks around using a product (chiefly, the acquisition process) is being overemphasized of late.  Largely, the notion of a “design-led organization” is being promoted by the design department, which is composed by narcissistic idealists who imagine themselves to be the center of the universe anyway, but it’s also being embraced by product management groups, who see “design” as a way to promote a product without making any substantial changes or improvements to the product itself.

While it’s good (and quite overdue) that firms are recognizing the need to do more than push boxes and reducing the pain in the process can reduce drop-out in the acquisition funnel, the emphasis on design rests on the false assumptions that the product is perfect as it is, that people are eager to acquire it, and that the friction in the acquisition process is the only thing that is stopping prospects from purchasing the product.

Said another way, experience design can be applied to make it easy to acquire a desired product – but it cannot be used to make an undesirable product desirable.   And in the rare instances in which the acquisition process can be made so attractive that prospects will purchase an undesirable product, it becomes toxic – much in the way that people who get wound up in the excitement of an auction end up purchasing products they neither want nor need – and while a one-time sale can result, buyers’ remorse diminishes the likelihood of their becoming regular customers.

If experience design succeeds at jostling for control, it will ultimately be to the detriment and long-term sustainability of the brand.   It needs to be considered, but is not the paramount concern – hence the appropriate level of emphasis for experience design is partnership, a contributor that plays a supporting role, valued for what it is worth – but never to the degree that more important concerns are subordinated.