The Preference for Tradition

People, in general, are much more inclined to stick to what they know rather than undertake the risk to try something new that has the potential to be even more successful.   There's a certain comfort in a familiar routine and the perception that past results will be repeated if past procedures are followed.  And in many instances, this turns out to be true, which reinforces the notion that they should keep doing what they are doing rather than attempt something different.

As consumers, they purchase the same products and brands to serve the same needs and in spite of their verbal fascination with novelty tend to stick to the well-worn path.   And as professionals, in any act of production to earn revenue, they likewise follow established procedures rather than branch out.   And as managers and executives, they coach their people in the same manner.

For this reason, companies tend to be fond of procedures and policies that prevent deviating from established procedures.   What they did yesterday was adequate and created results that were good enough to earn enough profit to keep the firm sustainable, or at least slow the degradation that occurs naturally over time.

Companies are in that way can be likened to historical amusement parks, where actors do things the way they were done in the distant past rather than taking a more efficient and modern approach.   And make no mistake: their procedures are historical.   A procedure is generally not created or institutionalized until it has proven itself to be sustainable - by which time technology and markets have already evolved.

Once an adequate procedure has been institutionalized, it is defended until a crisis occurs.   The craftsman who produces simple products by hand shuns the use of newfangled machinery other producers who make use of it exceed his quality and undercut his prices to the point that his existing practices are not competitive - and even then, he will often wait until he is in a financial crisis, on the verge of bankruptcy, before he will consider changing his production processes or getting out of the business.  Often, this occurs too late.

The very same behavior occurs in corporations, particularly during financial downturns when risk aversion runs highest: board members and senior executives cling to the past rather than looking to the future, seeing tradition as proven and safe and innovation as unproven and risky.  And in the end, they fail.

Extrinsic Motivation in Marketing

In an ideal world of rational customers, extrinsic motivation would not be necessary.  Customers would purchase items for the value they receive from using them and vendors would be satisfied with getting the business of customers with a genuine need for their product.   The use of extrinsic motivation, adding some additional incentive to convince a customer to purchase a product for which he seems no intrinsic value, is a questionable practice and I find arguments to the contrary difficult to accept.

The main argument in favor of extrinsic motivation is that customers are not rational or particularly intelligent, and that an extrinsic reward can provide motivation to purchase a product whose intrinsic reward is not recognized until it is owned.   Aside of the condescending attitude, there is a grain of truth: people do not know the value of something they have never tried, so the "free sample" is an effective way to get a product into a customer's hands so that he can determine whether he has a genuine need for it - and other forms of extrinsic rewards can likewise be used to convince someone to try a product or brand that they might not have otherwise considered.

But this seems to be rational only if it is used to introduce a new product to the customer.   Once they have tried a product and experienced it, the customers are able to make a realistic objective of whether they value it for its intrinsic value.   So if a firm offers extrinsic enticements on an ongoing basis, there is clearly a lack of intrinsic value.   Interestingly enough, few customers seem to consider an enticement to be an indicator of such a problem - one would think that more people would have caught on by now.

Another argument is that the intrinsic reward may be perceived as being worth less than the effort required to obtain the product, and as such the additional enticement tips the scale in the advantage of one brand over another.  This also seems valid, though it is also a shabby (and costly) alternative to rectifying the problem with the product or acquisition process that causes it to be unacceptable without the additional incentive.    Until the real problem is solved, additional incentives are necessary to convince customers to take the brand's offer instead of a different offer that is functionally better.

A rather interesting argument is made that extrinsic rewards are useful when an individual does not wish to admit to being interested in the intrinsic value.  For example, someone who  purchases a box of cookies claims to have done so because the brand donates to a given charity, and in that way is able to escape the embarrassing admission that they simply wanted a sweet snack.   This seems entirely valid, though it does seem to reflect poorly on the culture itself - it requires customers who are hypocritical and disingenuous, which seem to exist in ample supply.

In all, I'm led back to the initial consideration: that customers are naturally motivated to purchase products that provide intrinsic value and that extrinsic motivation is unnecessary - and this does seem to be the practice in (true) luxury good and B2B  marketing, neither of which typically use extrinsic incentives.

Innovation: Vision, Strategy, and Execution

Lately, there has been a major push across multiple industries to be "innovative" - that is, to come up with wild and crazy ideas that will take the market by storm and build them right away.  It's a spirit of adventure that has not been seen since the years leading to the dot-com crash - and unfortunately, it is the exact same spirit that resulted in the dot-com crash.

As with anything, there is a "right way" and a "wrong way" to approach innovation, and I have the distinct sense that many firms are going about it with reckless abandon, resulting in nonsensical ideas rushed to market and, ultimately, in embarrassing and expensive failures.   It's possible to innovate quickly and effectively, but it require a more measured and sober approach.   Specifically, consider a three step process:

1. Vision - Come up with a bunch of wild and crazy ideas, ignoring all constraints.
2. Strategy - Filter those ideas to see which ones are actually worth pursuing.
3. Execution - Once an idea has been qualified and vetted, seek to bring it to the market quickly and efficiently.

My sense is that many firms are completely skipping the second step and seeking to bring fresh ideas to the market as quickly as possible without asking key questions such as:  Is this idea something people want enough to pay for?  Is it in line with the mission and purpose of the firm?   Is it something that can be done in a financially sustainable manner?   Is it even legal to do such a thing?

Granted, that is a generalization.  There are also problems that arise (chiefly stagnation) when the vision step is omitted and firms remain too grounded in the constraints of business as usual.   This happens quite frequently in stodgy and slow-moving industries where there is higher demand than supply and little competitive pressure.  But such situations are fewer in the present day, where every industry seems to be crowded with firms that are striving to lead the field, desperately trying to be innovative, and making the most tragic mistakes.

It was most often the case in the years leading to the dot-com crash that the strategy step was skipped: a novel idea was struck upon, funded, and built, without any sense of whether it was worth pursuing.   And I see this tragic perspective becoming dominant again in the present day.  And as amusing as it is to watch, it's certainly worth pausing to consider in order to avoid a repeat of those events.

Back from the Break

I’ve taken a month off from posting, and now I’m back at it and will resume posting a meditation/rumination about every five days.  

I wish I could say that I’ve built up a backlog of material, or am returning with a fresh sense of purpose – but no, just took some time to put my mind on other things, and it’s going to be as random and unstructured as before.

On Hiatus

I’m taking a month off from posting –it’s been five years and 500 posts, so I’m due for a break.   I’ll resume in January.