May 2010 Archives

Uzma Khan:

The finding: Denying people access to a product will make them desire it more and work harder to get it--but will also make them less likely to keep it.

The study: Uzma Khan and her colleagues Ab Litt and Baba Shiv awarded a gift card to an electronics store to people who completed a word puzzle. Half the recipients earned the prize on their first try; half had tried to win it before but failed. Before receiving a card, all were asked how much they'd pay to obtain it. People who'd previously been denied the prize were willing to pay much more but then were more likely to trade their card away when offered the chance to exchange it for a different card.

The challenge: Is the assumption that we want what we like and we like what we want flawed? When a product is hard to obtain, do we lust after it more but like it less once we get it? Professor Khan, defend your research.

Khan: This jilting effect is big. People who initially failed to win a gift card said they'd pay 43% more to get one than people who hadn't, but only 22% of the initially "jilted" group decided to keep the card instead of trading it. In the group that wasn't previously denied access, 57% of the people--nearly three times as many--kept the card. And in a follow-up experiment, the effect transferred to the company's other products. We told half the subjects that they could win Guess sunglasses, contingent on supplies. They were later told we had run out of glasses. In a product evaluation, those people then rated Guess watches lower and Calvin Klein watches higher than the other half of the subjects, who hadn't expected to win glasses and didn't experience the stock-out. Oddly, when we asked the people who'd been denied the glasses which watch they'd like to receive, they chose the Guess watches more often than the Calvin Klein ones.

Facebook's Culture Problem May Be Fatal

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Bruce Nussbaum:

Facebook's imbroglio over privacy reveals what may be a fatal business model. I know because my students at Parsons The New School For Design tell me so. They live on Facebook and they are furious at it. This was the technology platform they were born into, built their friendships around, and expected to be with them as they grew up, got jobs, and had families. They just assumed Facebook would evolve as their lives shifted from adolescent to adult and their needs changed. Facebook's failure to recognize this culture change deeply threatens its future profits. At the moment, it has an audience that is at war with its advertisers. Not good.

Here's why. Facebook is wildly successful because its founder matched new social media technology to a deep Western cultural longing -- the adolescent desire for connection to other adolescents in their own private space. There they can be free to design their personal identities without adult supervision. Think digital tree house. Generation Y accepted Facebook as a free gift and proceeded to connect, express, and visualize the embarrassing aspects of their young lives.

Then Gen Y grew up and their culture and needs changed. My senior students started looking for jobs and watched, horrified, as corporations went on their Facebook pages to check them out. What was once a private, gated community of trusted friends became an increasingly open, public commons of curious strangers. The few, original, loose tools of network control on Facebook no longer proved sufficient. The Gen Yers wanted better, more precise privacy controls that allowed them to secure their existing private social lives and separate them from their new public working lives.

The Shrinking Middle of the Consumer Market

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James Surowiecki:

For Apple, which has enjoyed enormous success in recent years, "build it and they will pay" is business as usual. But it's not a universal business truth. On the contrary, companies like Ikea, H. & M., and the makers of the Flip video camera are flourishing not by selling products or services that are "far better" than anyone else's but by selling things that aren't bad and cost a lot less. These products are much better than the cheap stuff you used to buy at Woolworth, and they tend to be appealingly styled, but, unlike Apple, the companies aren't trying to build the best mousetrap out there. Instead, they're engaged in what Wired recently christened the "good-enough revolution." For them, the key to success isn't excellence. It's well-priced adequacy.

These two strategies may look completely different, but they have one crucial thing in common: they don't target the amorphous blob of consumers who make up the middle of the market. Paradoxically, ignoring these people has turned out to be a great way of getting lots of customers, because, in many businesses, high- and low-end producers are taking more and more of the market. In fashion, both H. & M. and Hermès have prospered during the recession. In the auto industry, luxury-car sales, though initially hurt by the downturn, are reemerging as one of the most profitable segments of the market, even as small cars like the Ford Focus are luring consumers into showrooms. And, in the computer business, the Taiwanese company Acer has become a dominant player by making cheap, reasonably good laptops--the reverse of Apple's premium-price approach.

While the high and low ends are thriving, the middle of the market is in trouble. Previously, successful companies tended to gravitate toward what historians of retail have called the Big Middle, because that's where most of the customers were. These days, the Big Middle is looking more like "the mushy middle" (in the formulation of the consultants Al and Laura Ries). The companies there--Sony, Dell, General Motors, and the like--find themselves squeezed from both sides (just as, in a way, middle-class workers do in a time of growing income inequality). The products made by midrange companies are neither exceptional enough to justify premium prices nor cheap enough to win over value-conscious consumers. Furthermore, the squeeze is getting tighter every day. Thanks to economies of scale, products that start out mediocre often get better without getting much more expensive--the newest Flip, for instance, shoots in high-def and has four times as much memory as the original--so consumers can trade down without a significant drop in quality. Conversely, economies of scale also allow makers of high-end products to reduce prices without skimping on quality. A top-of-the-line iPod now features video and four times as much storage as it did six years ago, but costs a hundred and fifty dollars less. At the same time, the global market has become so huge that you can occupy a high-end niche and still sell a lot of units. Apple has just 2.2 per cent of the world cell-phone market, but that means it sold twenty-five million iPhones last year.

Related: David Reibstein and Michael Silverstein discuss this issue @ Wharton:
Reibstein: How did this book come to be written?

Silverstein: Three and a half years ago, I co-authored a book with Neil Fiske called Trading Up: Why consumers Want New Luxury Goods... and How Companies Create Them. Trading Up is the story of how middle-class consumers around the world are buying products at 50% to 200% price premiums in categories like homes, cars, vacations and food. We call these new luxury goods. Following the release of that book, we began doing a lot of work helping companies understand this premium segmentation. It's a very rich opportunity, with more than $600 billion in sales in the U.S. in homes, transportation, dining, travel, food and beverages, personal products and services apparel, and home goods.

I spoke with some 10,000 people during the past couple of years. Many people would come to me after my presentations and say, "We loved Trading Up, we think it's very insightful, but it's only half the story. You didn't get it all." So I listened. Most of the people approaching me were women, who were heavily into purchasing and acquisition of goods and taking care of their families and very interested in maximizing their budget. The part of the story that they said we missed in Trading Up was basically the trading down side. It was true that consumers were trading up to premium products, but they were also trading down to low-cost products and services, and avoiding the boredom and low value that increasingly characterize the middle. This polarization was reshaping the consumer goods market.

Rebranding the Minivan

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Toyota launches an interesting attempt to market their new minivan as the "Swagger Wagon". They are trying to change the minivan's perception from dull and stodgy to "hip"...

Self-Fab House

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Beth Weinstein:

I recall the first time I discovered a brand-new book that appealed to my latter-day Metabolist sensibilities: with a title from Talking Heads, Houses in Motion was proposing lean, mean and mobile utopian aggregations. [1] This last decade has seen a groundswell of exhibitions, books and design competitions promoting innovation in small, efficient and readily fabricated or assembled dwellings. [2] It has seen an abundance of critically inclined and exuberantly designed deployable structures born of the chance encounter between between Buckminster Fuller's Dymaxion House and Krzysztof Wodiczko's Homeless Vehicle on a CNC milling bed. What a fruitful union that has been, with offspring of shockingly diverse genetic make-up distributed across the globe. Today, four U.S. Department of Energy Solar Decathlons later, and the first European equivalent in the works, it appears that throughout the global architectural community there is a concern and interest, if not obsession, with the development of compact, self-sustaining dwellings.

The Institute for Advanced Architecture of Catalonia, or IAAC, is making sure to cover all its bases in this department. It is one of 19 contestants in the European Solar Decathlon, scheduled to take place in Madrid this June, and it is also the sponsor of several ideas competitions on the topic of ecologically self-sufficient dwellings. And the IAAC has just published the results of the second of these competitions (a third is on the way), showcasing the work of over 100 submissions by students and young practitioners for the design of a Self-Fab House.

Investing in the Shopper Experience

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Ben Ball and Ray Jones [PDF]:

Defining "the shopper experience."
The sum total of everything the consumer encounters on the journey from identifying a need to filling it -- this could serve to define "the shopper experience" in the broad sense. But for the purposes of our recent RETAIL:NEXT survey of retail and CPG industry professionals, we concentrated on the elements of that process that surround the fundamentals: product, price and customer service. Within this realm, we saw: store design and ambience; the availability and use of technology, such as digital signage and self-scan; and other elements surrounding the purchase process, such as how Green or socially responsible the retailer is. In short - our survey looked at the shopper experience in terms of the things retailers do to differentiate an otherwise common purchase experience.

The shopper experience is critical to retailer success.
The impact of the Great Recession on consumers' shopping behavior is still with us. And as we noted in the second survey of the RETAIL:NEXT series Fad or Trend, many of those behaviors look to be permanent. So the first question we asked in the Shopper Experience survey was aimed at understanding just how important the "shopper experience" is to overall customer satisfaction. The answer was unequivocal: every respondent group in the survey had the shopper experience either first or second in their ranking of importance to overall customer satisfaction.

So what influences the shopper experience? What has the highest ROI?
To design this survey we polled a sample of the RetailWire BrainTrust to tell us what they believed to be the key contributors to the shopper experience. The twenty-six elements we wound up with fall into two basic groups. The first, aspects of the store environment itself, from the basic store design to what kind of signage and navigational aids are employed. This group further divides along the lines of technology. For example, signage and navigational aids can be either traditional or newer technology-driven iterations, such as digital signage and electronic shelf labels.
The second grouping encompasses things that influence the shopping experience, but are not physically present in the store. Examples would be inventory management systems that drive breadth of assortment, or shopper buying history which can be used to tailor offers to the store's best customers.

...And the winner is?
Of course we could not resist asking the RetailWire community which retailers they believe are doing the best job maximizing the impact of the shopper experience. They selected their three favorite from among 60 candidates. (Can you guess the top three? Results follow...)

Is Our Fashion Also Our Identity?

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Linda Grant:

It is a commonly held view that fashion and makeup are trivial concerns: Superficial, unnecessary, and concealing by trickery what is held to be 'real' beneath. Fashion is surface, fad, transient. Yet time and again one uncovers moments when clothes and makeup become the things that render us human. Stubbornly, humankind resists the Puritan instinct. In mid-17th-century England, 10 long years of Republicanism, black clothes with no adornment, and the closure of those pleasure pits, the theatres, were forcibly rejected with a return to the monarchy and the adoption of long curly wigs and a great deal of lace and bosom.

The writer is supposed to be above fashion. The writer's eye gazes ever inward toward deep consciousness. The writer cares nothing for how he or she dresses and of course their characters walk about naked, or all they wear is actually described. This myth does not survive the lightest scrutiny. Photographs of Saul Bellow show him in a series of loud checked jackets and snazzy headgear. The history of literature shows that the high-minded denunciation of dress and personal appearance appears to be a late 20th-century phenomenon. Chaucer carefully describes the attire of each of his pilgrims setting out for Canterbury, Shakespeare's Malvolio wears cross-gartered yellow stockings, George Eliot's Dorothea Brooke, on the opening page of Middlemarch, is described as wearing plain dress because she knows it sets off her fine figure.

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