Anyone who has ever watched a reality television show can attest to the fickle positions of the cast members toward their teammates. In the isolated world created by the producers, a sense of “survival of the fittest” immediately emerges with leaders that tend to dominate the rest of the contestants throughout the season with each individual finding their niche in the group.
While “forging alliances” are common and backstabbing becomes a vital component of survival, all conventions of a moral society are completely lost throughout the process. The most heinous example is the elimination in which contestants anonymously vote against their teammates, influencing a sense of detachment from the action. While vocalizing votes could influence a contestant to be held more accountable for actions, the improvement is only marginal since a potentially cruel vote is embraced as the “popular” decision by the crowd.
Contagion Theory attempts to reconcile the behavior by postulating that the formation of a crowd as a whole eliminates individual association and consequences of actions. A cohesive group can withstand ridicule from opponents far better than any member as an individual. In the formation of a crowd, the audacity far exceeds the demeanor of even the most extreme component of the group, propelling behavior to the realm of irrationality.
The contagion dynamic, while comprised of many members, each with unique roles within the group, is essentially a unit without a leader, overarching the actions of the crowd. Without an outside factor of regulation, the crowd becomes unpredictable, further detaching themselves from such insignificancies as cause and effect.
Though viewed by pop culture as rough and reckless, pirates have a strict behavioral code. They abstain from gambling, seducing women, and drinking in their quarters after 8pm. Desertion during a battle can be punishable by death. Each pirate is entitled to a fair share of booty as well as a vote in matters of concern. The mafia, despite reputation, has their own version of the 10 Commandments, including laws that forbid them from looking at another’s wife and taking money that belongs to family members. Additionally, all members are mandated to respect their wives and missing an appointment is considered to be disrespectful.
So what does this all mean? Is it proof that the government needs more regulation? Possibly, but I feel that our current three branch system with checks and balances is sufficient. I think that the real problem faced by financial institutions is accountability. Most egregious financial scandals can be attributed to lack of accountability on the part of the perpetrator. During the Enron scandal, there were several parties involved who doctored the books. Since no singular person reaped benefits, the crowd as a whole disassociated themselves from the illegal actions. The same results occur when the wrongdoing is completely concealed. Just as criminals commit crimes in the evening, when it is less likely for them to be caught in the act, white-collar crimes often take place “behind closed doors.” It is not until a scandal is brought into the light, that the culprit begins to associate themselves with the deeds.
So next time you watch your favorite reality TV show, pay attention to the collusion taking place between the characters, and I am sure that you will easily be able to identify the ringleader of the shenanigans.
Tuesday, October 27, 2009
Friday, October 23, 2009
Hop on the Bandwagon
I flipped through the television channels Wednesday night only to see the Phillies v. Dodgers in their final three innings of game five of the MLB National League Championship. Growing up in the Philly-area, the Phillies have always been my family’s favorite baseball team. I have attended my share of games in the past, but to be perfectly honest, I think I only watched one or two other games this season. For some reason, however, I felt compelled to watch the end of the game – to see the Phillies clinch their spot in the World Series. Speaking of the World Series, which was another game that I watched, I still remember the moment when the Phillies won last year – I could hear the roar of exhilarated fans resonating down the street.
The question is: why did I feel the need to watch the “big game” when I clearly do not have much invested in the team? Of course, millions more watch the Super Bowl each year than tune into the featured Sunday game, but the social circumstances surround the game can mostly explain that. I was sitting in my bedroom watching the game – by myself. I did not watch because I was invited to a party in honor of watching the game, nor did I sit down to watch it with a friend who had already turned it on.
This “bandwagon effect” is a phenomenon associated with herd behavior. As more and more people start to do something, in this case, watch a baseball game, the attention mounts, and the number of followers only escalate further. The theory originates from observing what happens to herds in panic situations; as the members of a herd of animals start to panic, they move together, attempting to force themselves into the center of the herd for more protection. A similar effect happens with people. When looking for a restaurant for dinner, do you walk into the empty restaurant or do you find yourself being gravitated toward the crowded restaurant, despite the lines? The rationale is that the empty restaurant must not be very good, hence the lack of customers. Regardless of the actual quality of the crowded restaurant, the perception is key. A crowd of people conveys the notion that the crowd must be right. In respect to watching sports, as there is more and more talk about an upcoming final game or a close match-up, the desire to watch the game and be “part of something” mounts.
The same effect happens in financial markets. Ever wonder why the price of houses was able to rise so quickly and form the bubble? – Herd behavior. As more people took out mortgages and traded-up and entrepreneurs bought and flipped houses, interest in the market heightened, driving up demand and causing prices to rise. The mass movement of groups of people causes havoc in the financial world – the major peaks of valleys of the stock market are a result a frenzied transactions, amplifying effects. Herd behavior can be observed in every aspect of society in every decision that is made. The idea of “majority rules” is a powerful force, especially when there is no other basis for a decision. The popularity of toys, movies, and clothes are fostered by the hype surrounding them. If enough momentum of a product or event is cultivated, the herd can just take over and propel something into the limelight.
The question is: why did I feel the need to watch the “big game” when I clearly do not have much invested in the team? Of course, millions more watch the Super Bowl each year than tune into the featured Sunday game, but the social circumstances surround the game can mostly explain that. I was sitting in my bedroom watching the game – by myself. I did not watch because I was invited to a party in honor of watching the game, nor did I sit down to watch it with a friend who had already turned it on.
This “bandwagon effect” is a phenomenon associated with herd behavior. As more and more people start to do something, in this case, watch a baseball game, the attention mounts, and the number of followers only escalate further. The theory originates from observing what happens to herds in panic situations; as the members of a herd of animals start to panic, they move together, attempting to force themselves into the center of the herd for more protection. A similar effect happens with people. When looking for a restaurant for dinner, do you walk into the empty restaurant or do you find yourself being gravitated toward the crowded restaurant, despite the lines? The rationale is that the empty restaurant must not be very good, hence the lack of customers. Regardless of the actual quality of the crowded restaurant, the perception is key. A crowd of people conveys the notion that the crowd must be right. In respect to watching sports, as there is more and more talk about an upcoming final game or a close match-up, the desire to watch the game and be “part of something” mounts.
The same effect happens in financial markets. Ever wonder why the price of houses was able to rise so quickly and form the bubble? – Herd behavior. As more people took out mortgages and traded-up and entrepreneurs bought and flipped houses, interest in the market heightened, driving up demand and causing prices to rise. The mass movement of groups of people causes havoc in the financial world – the major peaks of valleys of the stock market are a result a frenzied transactions, amplifying effects. Herd behavior can be observed in every aspect of society in every decision that is made. The idea of “majority rules” is a powerful force, especially when there is no other basis for a decision. The popularity of toys, movies, and clothes are fostered by the hype surrounding them. If enough momentum of a product or event is cultivated, the herd can just take over and propel something into the limelight.
Tuesday, October 20, 2009
Let Them Wear Jimmy Choos
Have you ever sauntered into a luxury shoe store, promising yourself that you will only be window shopping, only to find yourself lovingly holding a pair of Christian Louboutins, on the precipice of purchase, when you realize that they cost nearly as much as a month’s rent?
Very few people can afford to drop $600 on a pair of shoes, let alone $5,000 or more as is the trend with serial high-end shoe shoppers and fashionistas alike. Financial woes perpetuated by high inflation and mounting unemployment have only made such splurge purchases further from the average American’s grasp.
Is the middle class destined to only covet the most luxurious items of prominent fashion designers?
For years, fashion designers have released B lines of clothing, like “Lauren” (Ralph Lauren), “McQ” (Alexander McQueen) and Marc by Marc Jacobs, but even so, those secondary lines still carry high price tags.
One of the first retailers to bring quality, affordable, fashion lines from notable luxury designers is through Target’s GO International line, which rotates through limited edition clothing and accessories lines from a lineup of star-studded designers. Kohls department stores have been successful with bridal guru Vera Wang’s line of clothing and shoes called “Simply Vera,” which is a permanent feature at Kohls. While shoes have been components of these discount designer lines, the main focus has been on clothing.
Stores like Zara have gained devout followings from their designer shoe and clothing recreations at more affordable prices, but two new shoe lines have garnered substantial attention from the fashion world. Christian Siriano, past Project Runway winner launched a line of shoes at Payless Shoe Source this past month at locations nationwide. The launch has increased traffic at Payless Stores and his pumps, which sell for about $35, sold out in less than two weeks at the midtown Manhattan location.
Another new exciting fashion development is the new line of shoes (as well as selected handbags and clothing) by Jimmy Choo at H&M stores. With a launch date set for November 14, it is sure to be a big seller, especially since Jimmy Choo shoes retail in excess of $500.
Christian Siriano’s new line has already proved successful, and I suspect that the new Jimmy Choo line at H&M will be popular as well.
Do discount lines of designer clothing and shoes detract from the sales of the original lines? Definitely not. Those who can afford the original lines would only supplement their wardrobes with discount offerings. As for the impact of these new lines, I think that the result will be a marketing success. The consumers of the new discount lines, finally able to afford the “luxury” offering, after having a taste of high-end fashion, will develop a strong desire to purchase the “real” items at the designer price tags. So before you praise the fashion elite for their philanthropic desire to bring luxury to the masses, take a look at their bottom lines.
Very few people can afford to drop $600 on a pair of shoes, let alone $5,000 or more as is the trend with serial high-end shoe shoppers and fashionistas alike. Financial woes perpetuated by high inflation and mounting unemployment have only made such splurge purchases further from the average American’s grasp.
Is the middle class destined to only covet the most luxurious items of prominent fashion designers?
For years, fashion designers have released B lines of clothing, like “Lauren” (Ralph Lauren), “McQ” (Alexander McQueen) and Marc by Marc Jacobs, but even so, those secondary lines still carry high price tags.
One of the first retailers to bring quality, affordable, fashion lines from notable luxury designers is through Target’s GO International line, which rotates through limited edition clothing and accessories lines from a lineup of star-studded designers. Kohls department stores have been successful with bridal guru Vera Wang’s line of clothing and shoes called “Simply Vera,” which is a permanent feature at Kohls. While shoes have been components of these discount designer lines, the main focus has been on clothing.
Stores like Zara have gained devout followings from their designer shoe and clothing recreations at more affordable prices, but two new shoe lines have garnered substantial attention from the fashion world. Christian Siriano, past Project Runway winner launched a line of shoes at Payless Shoe Source this past month at locations nationwide. The launch has increased traffic at Payless Stores and his pumps, which sell for about $35, sold out in less than two weeks at the midtown Manhattan location.
Another new exciting fashion development is the new line of shoes (as well as selected handbags and clothing) by Jimmy Choo at H&M stores. With a launch date set for November 14, it is sure to be a big seller, especially since Jimmy Choo shoes retail in excess of $500.
Christian Siriano’s new line has already proved successful, and I suspect that the new Jimmy Choo line at H&M will be popular as well.
Do discount lines of designer clothing and shoes detract from the sales of the original lines? Definitely not. Those who can afford the original lines would only supplement their wardrobes with discount offerings. As for the impact of these new lines, I think that the result will be a marketing success. The consumers of the new discount lines, finally able to afford the “luxury” offering, after having a taste of high-end fashion, will develop a strong desire to purchase the “real” items at the designer price tags. So before you praise the fashion elite for their philanthropic desire to bring luxury to the masses, take a look at their bottom lines.
Sunday, October 18, 2009
Glee over the new direction of the music industry
The music industry is perhaps one of the most volatile segments of industry, experiencing rapid changes throughout its history. In order to survive up until now, adaptation has been absolutely vital.
Early classical composers like Beethoven and Mozart struggling to survive, relying on patronages from wealthy families to commission their work. Early dissemination and sale of music was in the form of sheet music, but it was not until the late 19th century that a centralized publishing house emerged in New York City (Tin Pan Alley). The impetus for the growth of the industry was the sale of over 1 million copies of the song, “After the Ball,” in 1892.
Thomas Edison’s development of sound recording devises in 1877 marked a new beginning for the music industry, and Emil Berliner’s launch of disc recordings under his company, Victor Talking Machine Company, helped to popularize newly recorded music.
With the availability of sound recordings, the sales of sheet music shrank drastically, and by the 1920s, it only represented 15% of music revenues. Growth occurred in the industry until 1923 when a new threat came – the radio. From the 1930s through 1950s six major labels dominated the scene – Decca, Mercury, Capitol, RCA/Victor, EMI, and CBS Records.
The music industry again made another turnaround in 1948 when CBS Records introduced the LP to the world. The 1950s marked resurgence in musical consumption with the popularity of rock and roll. The music industry thrived from the veracious teenage music consumers and disk jockeys were paramount in the promotion of new music on their radio shows. Fierce competition among labels ensued to secure the coveted new song slots on popular radio play lists.
Shift in musically tastes and introduction of new genres like reggae, funk, and disco, in the 1970s, led way to the development of independent record labels, siphoning profits from the major labels and marking decline in the industry.
The early 1980s again represent a further turning point in the music industry with the debut of MTV in 1981 and the introduction of CDs in 1983. Indeed, video did “kill the radio star,” and music aficionados looked toward the latest music videos to satiate their music hunger. The most popular videos on MTV translated into high sales of CDs and singles, producing big profits for record labels and their most popular artists.
This model of music videos (and radio play) translated into high CDs sales and consequently big profits for the record labels, but 19-year-old Shawn Fanning’s development of Napster in 1999 as well as the bevy of other “free” music downloading websites changed the face of the music industry forever.
With the ability to stream music literally “at the click of a button,” record labels’ profits are dwindling. File-sharing has never been easier and despite threat of lawsuits, illegal downloading remains rampant. What does the future of the music industry hold?
As I mentioned before, the industry is cyclical. As new technology is developed, changes occur, and in order to survive, the industry has to be willing to change. The inception of the itunes store was a step in the right direction – the first true acknowledgment of the changing musical landscape.
But what next? Just as the radio promoted new songs in the 1920s and MTV brought visual enhancement to musical releases in the 1980s, television shows seems to be the new vehicle for musical promotion.
Every cable TV show promotes downloading artists’ songs that have been featured in the program. Though specific downloads have varying levels of success. One new Fall show has stood out among the rest. Glee.
FOX’s new Fall show, “Glee” chronicles the trials and tribulations of a misfit group of high school singers on the road to the show choir nationals. As a singer, I can appreciate the show’s vocals, as a fashionista, Emma’s amazing wardrobe, and of course, the storyline – it is funny, lighthearted, but at times, serious. Not surprisingly, the show has been consistently the #1 itunes download - I highly recommend it. Of course, the best part is the actual singing. The cast does an amazing job singing a wide range of songs, covering everything from Journey’s, “Don’t Stop Believin’” to Beyoncé’s “Single Ladies.” The songs from the mash-up episode (“Halo / Walking On Sunshine” and “It's My Life / Confessions, Pt. II”) are particularly great. In fact, currently eight of the show’s songs are in the top 100 itunes downloads – an amazing accomplishment. Notably the songs “Don’t Stop Believin;” and “Walking on Sunshine” from the 1980s have sprung back into popularity, due in part to the shows success.
For the music industry to continue to grow and profit, they need to embrace new methods of promoting music and gaining revenue, and I think the new mode of dissemination will be through popular television, but I guess we will just have to wait and see.
Early classical composers like Beethoven and Mozart struggling to survive, relying on patronages from wealthy families to commission their work. Early dissemination and sale of music was in the form of sheet music, but it was not until the late 19th century that a centralized publishing house emerged in New York City (Tin Pan Alley). The impetus for the growth of the industry was the sale of over 1 million copies of the song, “After the Ball,” in 1892.
Thomas Edison’s development of sound recording devises in 1877 marked a new beginning for the music industry, and Emil Berliner’s launch of disc recordings under his company, Victor Talking Machine Company, helped to popularize newly recorded music.
With the availability of sound recordings, the sales of sheet music shrank drastically, and by the 1920s, it only represented 15% of music revenues. Growth occurred in the industry until 1923 when a new threat came – the radio. From the 1930s through 1950s six major labels dominated the scene – Decca, Mercury, Capitol, RCA/Victor, EMI, and CBS Records.
The music industry again made another turnaround in 1948 when CBS Records introduced the LP to the world. The 1950s marked resurgence in musical consumption with the popularity of rock and roll. The music industry thrived from the veracious teenage music consumers and disk jockeys were paramount in the promotion of new music on their radio shows. Fierce competition among labels ensued to secure the coveted new song slots on popular radio play lists.
Shift in musically tastes and introduction of new genres like reggae, funk, and disco, in the 1970s, led way to the development of independent record labels, siphoning profits from the major labels and marking decline in the industry.
The early 1980s again represent a further turning point in the music industry with the debut of MTV in 1981 and the introduction of CDs in 1983. Indeed, video did “kill the radio star,” and music aficionados looked toward the latest music videos to satiate their music hunger. The most popular videos on MTV translated into high sales of CDs and singles, producing big profits for record labels and their most popular artists.
This model of music videos (and radio play) translated into high CDs sales and consequently big profits for the record labels, but 19-year-old Shawn Fanning’s development of Napster in 1999 as well as the bevy of other “free” music downloading websites changed the face of the music industry forever.
With the ability to stream music literally “at the click of a button,” record labels’ profits are dwindling. File-sharing has never been easier and despite threat of lawsuits, illegal downloading remains rampant. What does the future of the music industry hold?
As I mentioned before, the industry is cyclical. As new technology is developed, changes occur, and in order to survive, the industry has to be willing to change. The inception of the itunes store was a step in the right direction – the first true acknowledgment of the changing musical landscape.
But what next? Just as the radio promoted new songs in the 1920s and MTV brought visual enhancement to musical releases in the 1980s, television shows seems to be the new vehicle for musical promotion.
Every cable TV show promotes downloading artists’ songs that have been featured in the program. Though specific downloads have varying levels of success. One new Fall show has stood out among the rest. Glee.
FOX’s new Fall show, “Glee” chronicles the trials and tribulations of a misfit group of high school singers on the road to the show choir nationals. As a singer, I can appreciate the show’s vocals, as a fashionista, Emma’s amazing wardrobe, and of course, the storyline – it is funny, lighthearted, but at times, serious. Not surprisingly, the show has been consistently the #1 itunes download - I highly recommend it. Of course, the best part is the actual singing. The cast does an amazing job singing a wide range of songs, covering everything from Journey’s, “Don’t Stop Believin’” to Beyoncé’s “Single Ladies.” The songs from the mash-up episode (“Halo / Walking On Sunshine” and “It's My Life / Confessions, Pt. II”) are particularly great. In fact, currently eight of the show’s songs are in the top 100 itunes downloads – an amazing accomplishment. Notably the songs “Don’t Stop Believin;” and “Walking on Sunshine” from the 1980s have sprung back into popularity, due in part to the shows success.
For the music industry to continue to grow and profit, they need to embrace new methods of promoting music and gaining revenue, and I think the new mode of dissemination will be through popular television, but I guess we will just have to wait and see.
Tuesday, October 13, 2009
cha-ching
Not fully satisfied with my conjectures based upon the second test, I decided to conduct a third test. I based this test on the first phase of testing, but this time, the price point was lower. The scenario was identical, but customer was purchasing a $200 12MB Canon digital camera instead of a $1,000 television. The three purchasing options were essentially the same: a 15% discount ($30 savings), a $40 gift card, or a free gift valued at $40. The point of this third test was to determine if the anchor effect translated to a similar scenario that involved a lower price point. The results of this third test did not produce striking results, but it can be inferred that the anchoring effect is not as strong when the money involved in the transaction is lower. In this test, 66% chose the discount, 22% chose the gift card, and only 12% chose the free gift. There was not an overwhelmingly high percentage that chose the discount as was true without option three, but there definitely is a wider gap between the number of people who chose option 1 versus option 2 compared to the first test that I conducted.
From a marketing point of view, the best promotion for a company would be to implement a gift card as a marketing technique as opposed to a percentage discount. The gift card presents the highest likelihood of future sales from a customer and, even though not chosen as frequently as the discount option in my study, the gift card was very appealing to the test subjects.
Upon searching, electronics sites I did not find the “gift card” option as a sales promotion (maybe they should hire me), but I did find package deals. Of the respondents in the first test who chose to accept the free gift, the vast majority chose the Blue-ray player because it “went well with the television.” In fact, many sites offered special discounts when blue-ray players were purchased in conjunction with the television, which basically equates to the “free gift” option without the choice.
The main problem with gift cards is also the best aspect of gift cards by a store’s standpoint. What should you do with a gift card that you do not want, especially when there is not enough money on the card to buy things that you want? The answer came to me when searching for statistics on unused gift cards – trust me they are astronomical and a great money-maker for stores (so try to limit gift cards to stores where you know for certain that the recipient often shops at) and I stumbled across a blog called http://frugaldad.com/ -- you can sell them online. Of course, eBay has always been a platform for a plethora of unwanted items, but there is a website that allows people to list their gift cards at a reduced price. Honestly, it’s a win-win situation for everyone. The website does not charge fees, but makes money through traffic, the seller gets money for a gift card that they would otherwise never use, and the buyer gets, in essence, a coupon.
As excited as I was to find this website, the podcast that I stumbled upon via the same original website was even better and quite amusing I might add. The report began by discussing the traditional wedding gift giving practice in Israel. Only 5% of presents are wrapped gifts and the rest are cash, checks, and gift cards, but recently a new trend has entered into the bridal gift-giving scene – the ATM. For a mere $150, a couple can rent an ATM machine and wedding gifts can transfer monetary gifts directly from their bank account to the bride and groom’s (which makes writing thank you notes a bit easier – no more note taking needed). By having an ATM, there is no hassle of finding that perfectly minted $100 bill to give, and the newlyweds are saved from the onus of cashing checks and making deposits. Everything is digital and they can simply take out any cash needed from their honeymoon destination. Right now the ATM rental phenomenon is only happening in Israel, but I suspect that the bridezillas here in the U.S. will be clamoring for their ATMs before we know it.
From a marketing point of view, the best promotion for a company would be to implement a gift card as a marketing technique as opposed to a percentage discount. The gift card presents the highest likelihood of future sales from a customer and, even though not chosen as frequently as the discount option in my study, the gift card was very appealing to the test subjects.
Upon searching, electronics sites I did not find the “gift card” option as a sales promotion (maybe they should hire me), but I did find package deals. Of the respondents in the first test who chose to accept the free gift, the vast majority chose the Blue-ray player because it “went well with the television.” In fact, many sites offered special discounts when blue-ray players were purchased in conjunction with the television, which basically equates to the “free gift” option without the choice.
The main problem with gift cards is also the best aspect of gift cards by a store’s standpoint. What should you do with a gift card that you do not want, especially when there is not enough money on the card to buy things that you want? The answer came to me when searching for statistics on unused gift cards – trust me they are astronomical and a great money-maker for stores (so try to limit gift cards to stores where you know for certain that the recipient often shops at) and I stumbled across a blog called http://frugaldad.com/ -- you can sell them online. Of course, eBay has always been a platform for a plethora of unwanted items, but there is a website that allows people to list their gift cards at a reduced price. Honestly, it’s a win-win situation for everyone. The website does not charge fees, but makes money through traffic, the seller gets money for a gift card that they would otherwise never use, and the buyer gets, in essence, a coupon.
As excited as I was to find this website, the podcast that I stumbled upon via the same original website was even better and quite amusing I might add. The report began by discussing the traditional wedding gift giving practice in Israel. Only 5% of presents are wrapped gifts and the rest are cash, checks, and gift cards, but recently a new trend has entered into the bridal gift-giving scene – the ATM. For a mere $150, a couple can rent an ATM machine and wedding gifts can transfer monetary gifts directly from their bank account to the bride and groom’s (which makes writing thank you notes a bit easier – no more note taking needed). By having an ATM, there is no hassle of finding that perfectly minted $100 bill to give, and the newlyweds are saved from the onus of cashing checks and making deposits. Everything is digital and they can simply take out any cash needed from their honeymoon destination. Right now the ATM rental phenomenon is only happening in Israel, but I suspect that the bridezillas here in the U.S. will be clamoring for their ATMs before we know it.
Saturday, October 10, 2009
something to think about when looking at sale ads
I am conducting a behavioral economics experiment for one of my classes. I decided to test buyer behavior in respect to the most effective sales promotion. The main set-up of my experiment is as follows:
The customer is purchasing a 40” Sony television from a large electronics store. The list price of the TV is $1,000.00. The buyer has three options regarding the purchase.
Option 1: Purchase the television at a 15% discount (a savings of $150)
Option 2: Purchase the television at the list price, but receive a $200 store gift card
Option 3: Purchase the television at the list price, but receive a free gift valued at $200
(iPod touch, 12MB Canon digital camera, or Samsung Blueray DVD player)
As I suspected, the majority of respondents chose Option 1 or 2. In fact, approximately the same number of people chose Option 1 as Option 2.
Of course, that was only phase 1 of my testing, and the next results were very surprising. I decided to conduct the same test again, but this time, I eliminated the third option. A logical conclusion, based on prior results, would be an even split between the two options; however, that was not the case. An overwhelming majority of the respondents chose Option 1 – the discount.
The reason: when faced with two “gift” options versus the one discount option, people were more swayed toward the gift. Needless to say, I was ecstatic to observe these results. Honestly, studies like this are the reason why I love economics.
From a store’s standpoint, giving a discount is the most expensive option. As the price of an item is reduced, the profit margin falls. The free item is a reasonably good option for a store. They secure a sale with the “free gift” and only lose the cost of the free gift. Since the store chooses the free gift, they can purposely choose items with the largest profit margins. The gift card can be a toss up. On one hand, the customer can purchase an item like a video game system in which the list price is below cost. There is always the possibility of the customer losing the gift card. However, the most lucrative situation is also the most likely result of offering a gift card – the customer will reenter the store after the original television purchase and spend more than the value of the gift card, resulting in even higher store profits.
In order to further determine how much the free gift offer sways the consumer, I plan to execute one further test, but this time, the purchase will be less expensive. I want to test whether the same results occur when the item is only $200.
More results to come…
The customer is purchasing a 40” Sony television from a large electronics store. The list price of the TV is $1,000.00. The buyer has three options regarding the purchase.
Option 1: Purchase the television at a 15% discount (a savings of $150)
Option 2: Purchase the television at the list price, but receive a $200 store gift card
Option 3: Purchase the television at the list price, but receive a free gift valued at $200
(iPod touch, 12MB Canon digital camera, or Samsung Blueray DVD player)
As I suspected, the majority of respondents chose Option 1 or 2. In fact, approximately the same number of people chose Option 1 as Option 2.
Of course, that was only phase 1 of my testing, and the next results were very surprising. I decided to conduct the same test again, but this time, I eliminated the third option. A logical conclusion, based on prior results, would be an even split between the two options; however, that was not the case. An overwhelming majority of the respondents chose Option 1 – the discount.
The reason: when faced with two “gift” options versus the one discount option, people were more swayed toward the gift. Needless to say, I was ecstatic to observe these results. Honestly, studies like this are the reason why I love economics.
From a store’s standpoint, giving a discount is the most expensive option. As the price of an item is reduced, the profit margin falls. The free item is a reasonably good option for a store. They secure a sale with the “free gift” and only lose the cost of the free gift. Since the store chooses the free gift, they can purposely choose items with the largest profit margins. The gift card can be a toss up. On one hand, the customer can purchase an item like a video game system in which the list price is below cost. There is always the possibility of the customer losing the gift card. However, the most lucrative situation is also the most likely result of offering a gift card – the customer will reenter the store after the original television purchase and spend more than the value of the gift card, resulting in even higher store profits.
In order to further determine how much the free gift offer sways the consumer, I plan to execute one further test, but this time, the purchase will be less expensive. I want to test whether the same results occur when the item is only $200.
More results to come…
Monday, October 5, 2009
Au revoir Gourmet
It is a sad day for the gourmet snobs. After nearly 70 years of publication, the Gourmet magazine is nearing its final days. In an effort to cut costs and remove deadweight from the company, Condé Nast (often referred to as Condé Nasty by the multitude of disgruntled, newly-unemployed former employees) decided to cease publishing Gourmet in favor of the more profitable food magazine, Bon Appetit.
I am well-aware of the changing landscape of journalism and have heard more woebegone outcries from journalists than I care to recall, but I am still saddened by the loss of Gourmet. With digitalization of virtually every facet of our lives and the abundance of online recipes, it should come to no surprise to me that food magazines were only doomed to fail. However, (and this is quite a big however) I am baffled by this turn of events. I admit to googling recipes, but there is something intrinsically more palatable about the dishes that appear pictured in a magazine as opposed to the myriad of flickering images on the computer screen. Flipping through my Gourmet reminds me why I love to cook and experiment with new recipes. I look forward to receiving my Gourmet in the mail. As soon as I see the magazine, I plop into a chair (often with a cup of coffee nearby) and start absorbing the delectable recipes in the magazine, folding over nearly every corner to indicate new recipes that I absolutely have to make. I occasionally “ooooh” and “ahhhh” as I recount the ingredients of particularly succulent new dinner (and of course dessert) recipes to my mother, pledging to make them for the family. Now what will I do?
I know that I can still continue to browse online for recipes and of course purchase cookbooks, but seeing the dishes in the magazine always pushed me to try new foods as opposed to simply looking up recipes with ingredients that I already know I like. Even the Gourmet makes pork chops look good, almost good enough to eat. Almost. As a concession, there will be a November issue – how else would I make it through Thanksgiving? Not to mention all the new recipes with my favorite baking ingredient – pumpkin. If only they could hang onto December with the Christmas cookie issue; otherwise, I might not be able to try out 10 new cookie recipes this year and stay up baking until 2am.
Alas, this post has very little to do with economics, aside from the financial failure, but I would be remiss in not paying homage to my beloved Gourmet.
Link to the news release.
I am well-aware of the changing landscape of journalism and have heard more woebegone outcries from journalists than I care to recall, but I am still saddened by the loss of Gourmet. With digitalization of virtually every facet of our lives and the abundance of online recipes, it should come to no surprise to me that food magazines were only doomed to fail. However, (and this is quite a big however) I am baffled by this turn of events. I admit to googling recipes, but there is something intrinsically more palatable about the dishes that appear pictured in a magazine as opposed to the myriad of flickering images on the computer screen. Flipping through my Gourmet reminds me why I love to cook and experiment with new recipes. I look forward to receiving my Gourmet in the mail. As soon as I see the magazine, I plop into a chair (often with a cup of coffee nearby) and start absorbing the delectable recipes in the magazine, folding over nearly every corner to indicate new recipes that I absolutely have to make. I occasionally “ooooh” and “ahhhh” as I recount the ingredients of particularly succulent new dinner (and of course dessert) recipes to my mother, pledging to make them for the family. Now what will I do?
I know that I can still continue to browse online for recipes and of course purchase cookbooks, but seeing the dishes in the magazine always pushed me to try new foods as opposed to simply looking up recipes with ingredients that I already know I like. Even the Gourmet makes pork chops look good, almost good enough to eat. Almost. As a concession, there will be a November issue – how else would I make it through Thanksgiving? Not to mention all the new recipes with my favorite baking ingredient – pumpkin. If only they could hang onto December with the Christmas cookie issue; otherwise, I might not be able to try out 10 new cookie recipes this year and stay up baking until 2am.
Alas, this post has very little to do with economics, aside from the financial failure, but I would be remiss in not paying homage to my beloved Gourmet.
Link to the news release.
Sunday, October 4, 2009
To give or not to give. That is the question.
As I walked home from work Friday afternoon, I stopped by a corner market in the Lower East Side to buy a cucumber (I know, very random). When I went to the counter to pay, there were two people in front of me in line – a man in his late 30s and a little old woman, amidst a transaction.
The old woman only had a few vegetables – tomatoes, cabbage, and squash – and the bill totaled a mere $4.06. When the cashier totaled the items, the old women struggled to find enough money to pay.
Everyone has felt the effects of the recession, but some are hit more profoundly than others, especially the low income and elderly. Young people constantly gripe about the taxes being removed from their paychecks for social security, especially since my generation will likely never receive social security benefits. However, despite government money, social security money is, in many cases, insufficient. The average monthly social security benefit for a retiree is $1,160.20 and only $571.90 for a spouse. This, at first glance, may seem sufficient to cover expenses if you live in suburbia, but in New York City, that would not even cover my rent. Granted these numbers are only an average,* but keep in mind, the payments are based on workers’ actual salaries, so low income people receive benefits lower than the national average.
What happened to the little old woman? Did she find another dollar? Here’s what happened: the situation was awkward. I could obviously afford my 59 cent cucumber, and the guy in front of me only had a Vitamin Water and V8. The cashier also looked uncomfortable as the women dug into her purse. As the four of us stood there, the cashier motioned to the man in front of me to put down is drinks, so that she could ring them up. As she did, the man chivalrously told the cashier to add the woman’s groceries to his bill (and who says that all New Yorkers are mean?). I know that the bill was only $4.06, but the moment of generosity was very refreshing to witness. The old woman, needless to say, was absolutely floored and could not believe what just happened. The cashier had a smile on her face so wide that it was as if she witnessed a miracle – all from $4.06.
Watching this scene take place got me thinking. Would this outcome have happened in a variety of situations? To what total would the man have been willing to pick up the check? Did it matter that she was a woman? Did it matter that she was old? Would he have felt differently if she purchased a box of pasta or a candy bar or did he assume since her purchase consisted only of a few vegetables that she was truly in need? What makes someone give money? Possibly, the location made it more conducive to giving. In fact, his wallet was already out – it was quite simple to do.
I pass numerous musicians and homeless people on a daily basis. I like helping others, but it would be unrealistic for me to stop and give money to everyone who asks for it. However, I do find the people fascinating. Living in a very creative area of town, many people sitting on the sidewalk asking for money are playing music or singing. Some simply ask for money, others for a cup of coffee. And of course, there is the man with a cardboard sign with a hand-drawn marijuana leaf who shouts, “can’t you help a brother out?”
Maybe it was because the women did not ask for help or money that it made people want to help her. Honestly, if the man hadn’t offered to pay, I would’ve. Unless the woman was a criminal mastermind scamming people $4 worth of vegetables at a time (which I highly doubt is the case), it appears logical that she was just a normal person living check to check. I have a confession: as I see people sitting on the street, I secretly wonder if they are still living with there parents in a nice apartment, eating free food from the refrigerator, but are just too high to get a job and instead just sit on the sidewalk and play the guitar. Of course, I have never asked. They might tell me though if I did
The point is – everyone gives for a reason. After all, the market is driven by incentives, even if the incentive is a feeling – making someone feel good for helping another. I am not sure that people could accurately articulate what makes them give money or food to a certain person or charity, but I am positive that there is an underlying reason – a reason in which marketers would love to discover.
*All figures are from: http://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/
The old woman only had a few vegetables – tomatoes, cabbage, and squash – and the bill totaled a mere $4.06. When the cashier totaled the items, the old women struggled to find enough money to pay.
Everyone has felt the effects of the recession, but some are hit more profoundly than others, especially the low income and elderly. Young people constantly gripe about the taxes being removed from their paychecks for social security, especially since my generation will likely never receive social security benefits. However, despite government money, social security money is, in many cases, insufficient. The average monthly social security benefit for a retiree is $1,160.20 and only $571.90 for a spouse. This, at first glance, may seem sufficient to cover expenses if you live in suburbia, but in New York City, that would not even cover my rent. Granted these numbers are only an average,* but keep in mind, the payments are based on workers’ actual salaries, so low income people receive benefits lower than the national average.
What happened to the little old woman? Did she find another dollar? Here’s what happened: the situation was awkward. I could obviously afford my 59 cent cucumber, and the guy in front of me only had a Vitamin Water and V8. The cashier also looked uncomfortable as the women dug into her purse. As the four of us stood there, the cashier motioned to the man in front of me to put down is drinks, so that she could ring them up. As she did, the man chivalrously told the cashier to add the woman’s groceries to his bill (and who says that all New Yorkers are mean?). I know that the bill was only $4.06, but the moment of generosity was very refreshing to witness. The old woman, needless to say, was absolutely floored and could not believe what just happened. The cashier had a smile on her face so wide that it was as if she witnessed a miracle – all from $4.06.
Watching this scene take place got me thinking. Would this outcome have happened in a variety of situations? To what total would the man have been willing to pick up the check? Did it matter that she was a woman? Did it matter that she was old? Would he have felt differently if she purchased a box of pasta or a candy bar or did he assume since her purchase consisted only of a few vegetables that she was truly in need? What makes someone give money? Possibly, the location made it more conducive to giving. In fact, his wallet was already out – it was quite simple to do.
I pass numerous musicians and homeless people on a daily basis. I like helping others, but it would be unrealistic for me to stop and give money to everyone who asks for it. However, I do find the people fascinating. Living in a very creative area of town, many people sitting on the sidewalk asking for money are playing music or singing. Some simply ask for money, others for a cup of coffee. And of course, there is the man with a cardboard sign with a hand-drawn marijuana leaf who shouts, “can’t you help a brother out?”
Maybe it was because the women did not ask for help or money that it made people want to help her. Honestly, if the man hadn’t offered to pay, I would’ve. Unless the woman was a criminal mastermind scamming people $4 worth of vegetables at a time (which I highly doubt is the case), it appears logical that she was just a normal person living check to check. I have a confession: as I see people sitting on the street, I secretly wonder if they are still living with there parents in a nice apartment, eating free food from the refrigerator, but are just too high to get a job and instead just sit on the sidewalk and play the guitar. Of course, I have never asked. They might tell me though if I did
The point is – everyone gives for a reason. After all, the market is driven by incentives, even if the incentive is a feeling – making someone feel good for helping another. I am not sure that people could accurately articulate what makes them give money or food to a certain person or charity, but I am positive that there is an underlying reason – a reason in which marketers would love to discover.
*All figures are from: http://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/
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