Category: + Fairness

Hurricane Heist?

9/15/2017

by David Hagenbuch, founder of Mindful Marketing & author of Honorable Influence

As Hurricane Irma turned toward Florida, an angry consumer shared a screen shot of a 24-pack of 16.9 ounce bottled water that Best Source Office Supplies was selling on Amazon for $99.99. Inflating the prices of necessities ahead of an impending natural disaster is a tactic that most people find deplorable, but not everyone. Of course, companies taking that tack rationalize their actions, but certain others also make a compelling case for such price hikes.

Price gouging is "the practice of raising prices on certain types of goods and services to an unfair level, especially during a state of emergency." Although it’s not uncommon for companies to increase prices on goods and services to levels that consumers think are too high, price gouging is different.

Consumers are price gouged when the item in question is something they must have (e.g., food, water), but the product’s supply is severely restricted, often to a single seller, so consumers have no choice but to pay the exorbitant price. In contrast, although the new iPhone X starts at a staggering $999, Apple is not guilty of price gouging because it’s possible to survive without the newest iPhone.

In the case of Hurricane Irma, certain sellers reportedly gouged consumers for water, ice, food, and fuel. One Orlando Shell station supposedly sold regular grade gas for $5.99/gallon and premium for $6.99. Even Disney got into the act: A Twitter user posted pictures from Disney’s Art of Animation Resort, which offered small bottles of water for $2 and juice boxes for $2.69 each. A Disney spokesperson later said that the situation was an isolated incident that had been rectified.

To document such abuse, Florida’s attorney general Pam Bondi set up a hotline that received over 8,000 calls about price gouging, which violates Florida law and is subject to “civil penalties of $1,000 for each violation, and up to $25,000 for several violations within a 24-hour period.” Beyond the legal penalties, Bondi promised violators personal retribution: “I will be saying your name all over national television and telling people not to go to your business ever again if you’re stealing from Floridians and taking advantage of Floridians in a time of need.”

Despite the fact that certain states have made price gouging illegal and most people consider it immoral, some claim that capping prices actually makes situations, like those surrounding hurricanes, worse. Writing for Forbes, Adam Millsap argues that pricing gouging laws are what empty store shelves, not natural disasters. The best thing, Millsap contends, is to let supply and demand determine prices like they normally do.

Similarly, in a New York Times article, Andrew Ross Sorkin states that “several respected economists from the Milton Friedman school of free-market theory” support the argument against price gouging laws because artificially low prices “remove the incentive for consumers to conserve essential supplies,” and they discourage sellers from increasing stock.

So, maybe Adam Smith’s “invisible hand” is the best way to determine supply when natural disasters strike. That belief aligns well with an increasingly popular pricing strategy, dynamic pricing, in which firms like airlines use algorithms to quickly increase prices to whatever level the market will bear. Unfortunately, such approaches also tend to have some very undesirable side effects.

For one thing, higher prices naturally favor the wealthy. That advantage is understandable under normal circumstances: People with more money should be able to buy higher-priced items. In the case of natural disasters, however, it doesn’t seem right to price anyone out of the market for food, water, or other basic survival needs.

Also, there’s no reason retailers can’t impose limits on how much or how many of an item customers can buy. Stores successfully ration items all the time. For instance, a grocery store runs a sale on granola and dictates: “Limit, two boxes per customer.” Likewise, arguments against price gouging laws don’t give people much credit. When asked to conserve, most individuals will limit their consumption for the sake of others.

In addition, the notion that businesses should maximize profits at their customers’ expense is both antiquated and short-sighted. Sure, people may have no choice but to pay ridiculously high prices when they’re put between a rock and a hard place, but they won’t soon forget what it felt like to be treated as a means to an end. Firms that price gouge run a great risk of alienating consumers and ruining their reputations.

On the other hand, companies that show restraint and price “to create shared value,” generate considerable goodwill, especially in the face of a natural disaster. A few firms that bolstered their brands by taking this more enlightened and socially responsible approach when Irma struck were JetBlue, Airbnb, AT&T Wireless, and Martin’s Famous Pastry Shoppe.

It’s hard for most people to know how they will react in the face of life-threatening natural disasters like hurricanes Harvey and Irma. Businesses, however, should know not to take advantage of people in such vulnerable states. Companies that do are guilty of various offenses, and one of them is “Mindless Marketing.”

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Fixing iPhones

8/10/2017

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by David Hagenbuch, founder of Mindful Marketing & author of Honorable Influence

One rainy morning many years ago, I was driving to work (my first career position after college) when a car hit me from behind and pushed me into another vehicle. It was a relatively slow-speed collision so the damage to my car wasn’t extensive, but the insurance adjuster called it “totaled” since the repair estimate exceeded the car’s low value. My car wasn’t worth fixing; I needed to get a new one.

That experience reminds me of the many products we use each day but seldom repair when they break. For instance, most of us don’t think of fixing a broken toaster; we look for a new one. This tendency to replace instead of repair places significant strain on our environment, but the practice becomes even more troubling when talking about expensive and easily ‘injured’ items like our ever-present smartphones.

If you own a smartphone and haven’t dropped it or had some other mishap, you’re either extremely careful or very lucky because, “Each year millions of cell phone owner’s drop, sit on, flush, swim with and even throw their phone, which normally results in some sort of damage.” After such an unfortunate occurrence, the question becomes whether to repair or replace the indispensable device, which probably cost at least a couple of hundred dollars, or several hundred-plus if you’re packing a newer iPhone or the latest Samsung Galaxy.

Fortunately, a variety of online outlets will repair broken phones, for example:

However, using an online organization for repairs requires a major sacrifice of time. Many people can’t be without their smartphone for a few hours, let alone several days or more. And, there’s the issue of trust: We don’t know these companies well and can’t watch them make the repair. How can we be sure they’re respecting our privacy when so much of our lives literally rests in their hands?

Also, again, there’s the issue of cost. Is it worth $100 or more to repair even a relatively new device when technology is changing so quickly? As a result, it’s easy to rationalize spending a few hundred more to have a new one.

You may be wondering, "Where are the smartphone manufacturers? Why don’t the cellphone companies have our backs when their products so easily and often get broken?" In the U.S., that criticism has hit especially hard at Apple, which has a whopping 44.6% share of the smartphone market.

For years, the only place iPhone users could get their cracked screens ‘officially’ replaced was at an Apple store. Unauthorized repair centers, like the three listed above, might be able to fix the phones, but if Apple later detected their work on the device, the warranty would be voided.

Apple would suggest that the reason it has kept a tight rein on screen repairs is that it wants them done right, especially “to ensure that the new screen is properly calibrated – and in particular to allow the Touch ID sensor to be replaced without bricking the phone or losing use of the sensor.” Those more cynical about the tech leader’s motives might suggest that Apple wants to drive business to its own stores in order to capture the repair revenue or, even better, to sell users new iPhones and other items, i.e, to replace, not repair.

In any case, there are currently about 270 Apple stores in the U.S. That number may seem high, but it’s not when you consider, for instance, that Illinois and Pennsylvania, the fifth and sixth most populous states in the nation have 12.8 million and 12.7 million residents, respectively, but only nine Apple stores each. Such ratios can mean a loooong time waiting at a Genius Bar.

The good news is that Apple has recently eased its repair site exclusivity. The firm has finally authorized a few select retailers to fix broken iPhone screens. How can Apple guarantee the quality of those third-party repairs? Well, the company has not conceded control completely.

Apple is giving each authorized repair center a highly-specialized and proprietary machine that not only replaces the screens but also tells “the iPhone’s processor, its silicon brain, to recognize a replacement sensor. Without it, the iPhone won’t unlock with the touch of a finger. Banking apps that require a fingerprint won’t work either, including the Apple Pay digital wallet.” Pictures of the closely guarded apparatus can be found on 9 to 5 Mac website.

Currently only a couple of Best Buy stores in California and Florida have these machines that are capable of making same-day screen repairs. However, by the end of this year it’s expected that the equipment will be present in “about 400 authorized third-party repair centers in 25 countries.”

So, the future is looking brighter for all of us clumsy iPhone users, but won’t the delegation of this service take a bite out of Apple’s business? What about its revenue from repairs, the loss of traffic in Apple stores, and the sale of new iPhones? All of the above are real considerations but they pale in comparison to one meta-goal for Apple: maintaining its strong brand.

Apple has become the most valuable brand in the world for a variety of reasons, but the overarching one is strong customer satisfaction. People who use Apple products are almost always delighted because of their look, their performance, and the aura around them. Apple smartly wants to avoid tainting that stellar reputation, which could occur if people become disenfranchised from inconvenient and lengthy repairs.

However, averting a negative product experience is probably only part of Apple’s plan. The company also needs to increasingly position itself as a good steward of resources and as an organization that cares about the natural environment. Allowing smartphones that still have significant useful life to prematurely become paper weights or other waste does not accomplish those objectives.

Likewise, as the market for smartphones becomes more and more saturated and competitors’ product features converge, factors like repair service and social responsibility will likely gain weight as decision-making criteria. Every point of difference matters in a mature market.

Apple’s decision to outsource and broaden its repair network will be very helpful for consumers. The strategy also will prove very beneficial for the firm. As it’s done many times before, Apple has made an adept move that can be called “Mindful Marketing.”

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Scary Good Marketing

6/23/2017

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by David Hagenbuch, founder of Mindful Marketing & author of Honorable Influence

Parents of young children face many challenges as they try to get their kids to do things they don’t want to do, like pick up their toys, take a bath, and go to sleep! Perhaps the biggest battle involves having them eat healthy food, especially vegetables. Is it possible that better vegetable marketing can make this age-old impasse a thing of the past?

When I first saw The Wall Street Journal (WSJ) article titled, “How Schools can get Children to Eat their Vegetables,” I was skeptical. Generations of very capable moms and dads have tried for decades to push produce with relatively little success. How could school districts suddenly crack the code?

What’s more, I’ve spoken to groups about the simplistic approaches that some marketers take, trying to sell vegetables to young people. For example, several years ago an alliance of carrot farmers led by Bolthouse Farms spent a couple of million dollars on a marketing initiative aimed at positioning baby carrots as junk food.

The strategy relied heavily on promotion, including over-the-top television commercials and “extreme” packaging, but it did nothing to make the product itself more appealing to young people. Although media embraced the campaign and suggested it was successful in two test markets, several years later I still haven’t come across the rebranded carrots in supermarkets or seen anyone eating them.

Marketing aimed specifically at kids also can be a concern. Compared to adults, children have less developed cognitive skills and more limited life experience, which makes them more susceptible to marketing tactics based on deception, coercion, and manipulation.

So, I started reading the WSJ article about kids and vegetables with more than a little disbelief. The article did a good job, however, highlighting and synthesizing research results that in general found that kids were more likely to eat vegetables when schools employed several specific strategies. I’ve summarized those strategies here and categorized each (in parenthesis) using the traditional 4Pmarketing mix:

1. Putting vegetables at the front of the cafeteria: When children saw vegetables first, they were more likely to take them, as primacy effect would predict. (Place)

2. Offering vegetables as snacks: Another study found that timing mattered in as much as kids were likely to take vegetables when they were the only thing offered as snacks outside of regular meals. (Place)

3. Making food easy to eat: Children, especially those with braces, were more likely to eat fruit that was sliced into pieces, rather than try to eat a whole apple. (Product)

4. Creating an appealing presentation: Like adults, kids ‘eat with their eyes,’ which explains why children took more healthy food when it was placed in colorful bowls instead of in gray industrial tubs. (Product)

5. Using enticing promotion: Similarly, researchers at Cornell found that kids ate more fruits and vegetables when those items were promoted via attractive signage and brands (e.g., an Elmo sticker on an apple). (Promotion)

6. Tracking purchases: Two elementary schools in Chicago used digital technology to track the food kids took from the cafeteria line and what they threw away. As in a business environment, this kind of data proved valuable for deciding which menu items to keep and which to cut. (Product)

7. Hiring professional chefs: A key factor in making food taste good is its preparation. So, it’s not surprising that when experts were brought in either to cook the food or design menus, the vegetables tasted better and kids ate more of them. (Product)

8. Educating about vegetables: For many people, food will not make it into their mouth unless they know what it is. That’s why children who were taught about vegetables in their classrooms or on field trips were more likely to try them. (Promotion)

It’s worth noting that out of the eight strategies just described, two involved putting vegetables where and when it was most convenient for kids to eat them (i.e., Place) and four involved enhancing the vegetables themselves or their presentation (i.e., Product). Meanwhile only two of the strategies involved messaging designed to put a good spin on produce (i.e., Promotion). In contrast, promotion was by far the main focus of the ultimately ineffective baby carrots campaign described above.

So there’s empirical evidence to support that more systematic, serious marketing strategies can be effective in getting kids to eat vegetables, but what about the issue of marketing directly to children? Is it fair to use such tactics to target impressionable young people who are not seasoned consumers?

If that question were asked about many other, less edifying goods and services, the answer would be “no, it’s not right.” A society needs to protect people who might easily be taken advantage of by unscrupulous others. However, it’s hard to imagine anything but good coming from increased vegetable consumption, especially when the ones eating them are growing children.

There’s also a greater societal good here. The United States is suffering an obesity epidemic in which one in three adults is obese and another third is overweight. Meanwhile, about one in five school-age children (6-19 years old) is obese, which represents a threefold increase since 1970.

Of course, obesity poses serious health risks for individuals, e.g., high blood pressure, diabetes, heart disease, stroke, and certain cancers. Aggregated across the population, such sickness presents a great strain on health systems and comes with considerable financial cost. In 2008, the medical costs of obesity were estimated at about $147 billion, while obesity-related absenteeism was believed to be responsible for lost productivity costing between $3.38 billion and $6.38 billion.

Furthermore, there is the social estrangement the comes with being obese. “Overweight and obese individuals are often targets of bias and stigma, and they are vulnerable to negative attitudes in multiple domains of living including places of employment, educational institutions, medical facilities, the mass media, and interpersonal relationships.” Add to this the unfortunate fact that kids are now experiencing body shaming at younger ages than ever.

Are vegetables the cure for obesity? No, but eating more of them and less of other food, especially simple carbohydrates, definitely helps. Likewise, marketing that is effective in getting kids to eat more vegetables is good because it is in the best interest of the children and society on-whole. In short, strategies that work to get young people to pick produce represent “Mindful Marketing.”

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Is Amazon Bribing Buyers?

6/16/2017

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by David Hagenbuch, founder of Mindful Marketing & author of Honorable Influence

There are many different ways to get people to do things, e.g., ask them nicely, argue it’s in their best interest, or just pay them! There’s not necessarily anything wrong with the last option, unless it’s a bribe, which is what a popular news portal has accused Amazon of offering.

Jason Kastrenakes, news editor for the Verge, chose an intriguing title for his June 13, 2017 article about the enormous etailer: “Amazon is now bribing Prime members to avoid credit card fees.” Bribery is a pretty serious indictment to make of anyone, let alone America’s most prolific ecommerce company. In some situations bribery is illegal (e.g., when it involves foreign officials), and in virtually any context it’s considered unethical. So, what exactly is Amazon up to that has invited such a charge?

Amazon has introduced a new payment option called “Prime Reload” that enables Amazon Prime members to earn 2% Amazon rewards credit each time they transfer money from their checking account to their Amazon Gift Card Balance. To process these payments, Amazon requires a U.S. bank account and routing number, which is to be expected. The program also demands a debit card in order to allow Amazon to “fulfill your reload faster.” Users’, then, receive their 2% bonus whenever they reload their Gift Card balance.

Given there’s no such thing as ‘free money,’ especially in the increasingly-competitive retail sector, it’s reasonable to question Amazon’ motives: Why would a super-savvy, profit-minded company like Amazon, suddenly want to giveaway 2% of every purchase? In 2016, Amazon had sales of $135.9 billion, which means if Prime Reload had been used for every purchase, the firm would have forfeited $2.7 billion for the fiscal year. Relinquishing that kind of revenue doesn’t seem financially sound.

Amazon knows, however, what it’s doing. A key part of the company’s strategy is to avoid costly credit card fees, which average between 2.3% and 2.5% for online businesses where the consumer’s credit card is not present. However, given its size and buyer power, Amazon’s effective processing rate is likely lower, so there probably are advantages beyond avoiding credit card fees.

Another benefit Amazon enjoys via Prime Reload is the temporary use of customers’ deposits in their Amazon gift card accounts. Yahoo Finance suggests that Prime Reload “may encourage people to load large lump sums into their Amazon Balance, in order to ensure they never accidentally pay for an item through their debit or credit card directly,” which would cause them to miss-out on the cash-back bonus. Amazon, then, can act like a bank, earning interest income on this “float,” from the time consumers deposit the money until they spend the excess funds.

There’s at least one other advantage likely to accrue to Amazon through Prime Reload. Yahoo Finance predicts that users of the program will be more likely to make impromptu purchases since “they won't have to do the math as to whether the item is something they can afford. Effectively, it feels the same as having a Gift Card balance ready to be used.” Therefore, Prime Reload might ultimately encourage more purchases from Amazon.

So, Prime Reload seems like a wise financial move for Amazon, but what about the original issue: Does the 2% bonus constitute bribery? This question is particularly relevant to the third/last point—the possibility that customers who participate in Prime Reload will end up purchasing more from Amazon.

The short answer is “no,” that’s not bribery. The main reason is that bribery requires three parties and an agent/principal relationship. Perpetrators offer bribes to agents (e.g., employees) with the hope that they will take actions that are probably not in the best interest of their principals (e.g., employers). For instance, someone says to a purchasing agent, “Here’s $1,000, just for you. I hope your company will sign a contract with our firm to buy its new __________.”

The bribe-brandishing supplier may be offering products that are not the best quality or price; however, the purchasing agent might choose them anyway because of the self-enriching incentive. As such, a bribe pits the interest of an agent against that of his/her principal, thereby compromising the agent’s fiduciary responsibility.

In the case of Prime Reload, there are only two parties (the consumer and Amazon), with no agent/principal relationship—the consumer is both agent and principal. As such, the customer is free to negotiate whatever product-price combination best meets their needs. If the consumer wants to accept a special discount or some other deal from the seller, he/she has the authority to do so, owing no accountability to an employer or any other principal.

Does Kastrenakes really believe that Amazon is trying to bribe Amazon Prime members? Probably not. Beyond the heading, he makes no other mention of bribery, and at the end of the article he says, “[Amazon] is both making a savings and passing some of it along to customers.” So, using “bribing” in the title was likely a somewhat misleading attempt to call more attention to the piece.

The bottom-line is that Prime Reload represents a win-win scenario in which both buyer and seller come out ahead. Furthermore, encouraging more people to use debit cards instead of credit cards may also be good, given that 65% of Americans carry a balance on their credit cards that averages $4,717. In sum, Amazon is helping itself by helping others, which is a key foundation for “Mindful Marketing.”

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Alexa, is this Marketing Mindful?

5/26/2017

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by David Hagenbuch, founder of Mindful Marketing & author of Honorable Influence

“Do these pants look good on me?” If you’ve ever asked a question like that, which most of us have, you probably posed it to a sibling, roommate, spouse, etc. In other words, you asked a real person, not a digital device. Well, technology is tired of being kept out of those conversations; it now has something to say about our fashion sense, or lack thereof.

Amazon, the giant etailer and purveyor of just about everything, recently added to its line of artificial intelligence products a new piece of hardware called the Echo Look, which is able to tell people what to wear, or not wear. The company’s succinct description of the device is it’s a “hands-free camera and style assistant.” Amazon also offers a fuller account of features and benefits on its website:

“With Echo Look, you can take full-length photos of your daily look using just your voice. The built-in LED lighting and depth-sensing camera let you blur the background to make your outfits pop, giving you clean, shareable photos. Get a live view in the Echo Look app or ask Alexa to take a short video so you can see yourself from every angle. View recommendations based on your daily look and use Style Check for a second opinion on what looks best. And, because Alexa is built in the cloud, she’s always getting smarter—and so will Echo Look.”

Amazon already boasts a burgeoning family of Alexa-enabled Echo products ranging from Echo Dots, to the standard Echo, to a new Echo Show. For over two years, hands-free functionality and voice recognition technology connected to the cloud have allowed users to get answers to questions like “Is it going to rain?” and “What’s on my calendar?” So, what’s so special about asking about style?

The big difference is that most, if not all, of the questions Alexa accepts on other devices can be answered with objective information. Reporting the current outside temperature or one’s afternoon appointments doesn’t take judgment; it just requires rapid retrieval of information and accurate regurgitation of facts. However, giving fashion guidance, or any advice for that matter, is a "whole nother ballgame."

Advice is subjective; it’s primarily based on opinion. Granted, that opinion can take factual information into account—the best advice usually does—but the bottom-line is always a judgment call. In terms of clothing, it’s relatively easy to answer objective questions, e.g., “Is this shirt blue or green?” It’s much more challenging to answer subjective ones like “Which shirt looks better on me, the blue one or the green one?” So, how do Amazon and Alexa do it?

The Echo Look website gives some clues, as it says that the device’s Style Check feature “combines the best in machine learning with advice from fashion specialists.” A somewhat more technical explanation is that Style Check uses algorithms. Dataconomy.com (3) provides some helpful explanation of how machines use algorithms to learn, or develop artificial intelligence:

“Machine learning is a type of artificial intelligence (AI) where computers can essentially learn concepts on their own without being programmed. These are computer programmes that alter their “thinking” (or output) once exposed to new data. In order for machine learning to take place, algorithms are needed. Algorithms are put into the computer and give it rules to follow when dissecting data.”

Granted, this description still doesn’t quite explain how technology translates factual information into opinion, but one can imagine that the application of enough decision rules and processing power can eventually allow for the formation of limited expert advice, aimed at a narrow range of easily observable behavior, such as the clothes on our backs.

So, that’s a little about what the Echo Look does and how Amazon does it, but another very compelling question remains—Why? The company offers the Echo Look, with all the features of the standard Echo, for just $20 more ($200 vs. $180). That’s not much more revenue for some significant functionality. Likewise, it seems that the Look could easily cannibalize the standard Echo, i.e., people choose to buy the former instead of the latter. So what’s the rationale for Amazon’s strategy?

As the Wall Street Journal suggests, it’s all about the potential to sell more clothes. Sure, the earnings from the sale of thousands of new hardware devices will be nice, but Amazon is interested in continuing to crack a much bigger nut—the $2.4 trillion global clothing market.

Having purchased online footwear icon Zappos and introduced its own private label clothing, Amazon is already the leading fashion retailer. Last October, Cowen & Co. reported the Amazon was about to surpass the former leader, Macy’s, which has had declining sales. What’s more, there’s potential for Amazon to growth is market share of clothing much, much bigger. According to the Wall Street Journal, the Echo Look also recommends new clothes to its users, which they can buy from Amazon using just a voice command.

Currently, Amazon accounts for a whopping 43% of all online retail sales in the U.S; however, it’s market share of clothing is ‘just’ 6.6%. Analysts at Cowen & Co. expect that share to increase to 8.2% in 2018 and to 16.2% in five years. The Echo Look will likely help drive that growth and perhaps more.

This sales data, past and projected, is informative, but it still doesn’t answer the moral question: Should Amazon or any other clothing retailer market a technology that tells people what to wear? Is the Echo Look and its cloud-based Style Guide software ethical?

Understandably, privacy is a primary concern, especially given the nature of the device: taking rather personal pictures of people, in their homes, and storing them in the cloud. All of this information can be very enticing to hackers, some of whom would even have the potential to commandeer the device’s video camera. An article by Business Insider, however, allays some of these concerns, noting that Echo Look has an easily accessible off-switch, and even when powered on, the device does not listen until it hears a specific “wake” word.

Besides such concerns of creepiness, another problem some may have with the Echo Look is the idea that it’s replacing people: We are not interacting with family and friends if we’re asking a digital device what to wear. That’s a legitimate concern, though, it’s nothing new—for a long time, technology has and will continue to shape our interpersonal interaction. Tech can hurt or help such communication, depending how it’s used. Actually, the Echo Look might alleviate some angst in relationships by handling uncomfortable questions like “How do I look in this?”

Amazon is already very big, and it’s poised to become even bigger with an increased focus on fashion. The firm’s growth has been due to many factors, including that it consistently offers consumers good value. Given an aggressive price point and a feature/benefit bundle that will only get better, the Echo look is likely to continue that tradition, without posing any significant societal concerns. In short, Alexa can call her own style sense a model of “Mindful Marketing.”

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Coliving after College

5/5/2017

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by David Hagenbuch, founder of Mindful Marketing & author of Honorable Influence

With the beginning of May comes the culmination of many college careers and an occasion to ask, “What did you like best about college?” Some may say the social life or athletic events. I’d suggest the academics and instructors, but I’m biased. Did you think of dorm rooms?

The thought of college dormitories may draw a sneer from those who remember cramped quarters that looked and smelled questionable. Of course, people’s perspective of college dorm life is largely a function of their own experience, which can vary greatly based on the time and place. Over recent years, college dorms have gotten much nicer. In fact, some “luxury” dormitories now include outdoor gourmet grilling kitchens, infinity pools, and 55” smart TVs—a pretty cushy experience.

No matter how nice the residences, after spending several years in dorms and finally finishing college, do new graduates really want to continue living in a single room and sharing common spaces with strangers? That’s the time in life when you’re finally able to truly be on your own and enjoy expanded freedom and space. Surprisingly, however, there is significant demand for “adult dorms,” and several companies are capitalizing on the “coliving” craze.

I should preface the rest of this piece by saying that “adult dorms” is the term that many different media have used to describe dorm-like living after college. As someone who works regularly with college students, I certainly believe the term shouldn't imply that college students aren't already adults, because they are.

Although the coliving concept could potentially appeal anywhere, the configuration makes the most economic sense in big cities, where apartment rent is astronomical. For example, the median monthly rent for a 1 bedroom apartment in New York City is $3,400, while San Francisco is a staggering $3,560. It’s not shocking, therefore, to realize that rent as a percentage of income averages 65% in the Big Apple and 78% in the City Bay the Bay.

Companies tapping into the demand for coliving in major U.S. markets include Stage 3 (NYC), Open Door (San Francisco), and WeLive (NYC and Washington, DC). WeLive is a $1.4 billion new venture of WeWork; the company known for shared office space has decided to diversify into shared living space.

What exactly does coliving look like? The description of one market participant’s property provides a window into the world of adult dorms: Common offers “Shared housing for those who live life in common” in three different neighborhoods in Brooklyn, NY, with another planned for Crown Heights, and more on the way for San Francisco and Washington, DC. The company paints the following picture of its Havemeyer housing in the Williamsburg neighborhood of Brooklyn:

“Everything you need to instantly feel at home is included in your membership including fully furnished rooms, linens, free onsite laundry, every kitchen appliance imaginable, weekly cleaning services, high-speed wi-fi, shared kitchen and bathroom staples, all utilities and great friends.”

“We have everything you need to live in community. Head downstairs to our wellness studio to unwind from the day, then to one of our communal living rooms for book club and potluck dinners or sit back and enjoy movie night in the entertainment room. For those quiet moments and stunning sunsets, lounge in one of our outdoor patios or on one of the four rooftop decks.”

Rooms at Havemeyer are not cheap. They start at $1,800/month, which includes all furnishings and utilities, and residents supposedly do not incur any extra fees. When the company talks about sharing, that refers to everything else, including bathrooms; although, for many the ability to easily connect with others is undoubtedly a big part of the appeal.

Stage 3’s Ollie property located on 27th St. in NYC promises “hotel-style conveniences” and has most of the same amenities mentioned above plus butler services from a home manager named “Alfred” who does things like drop off dry-cleaning and pick up prescriptions. Rooms at Ollie rent for about $1,600/month, which reportedly is lower than the areas average studio apartment, which go for $2,000/month.

So, what’s driving demand for adult dorms? There are likely several factors at play. Price appears to be one; although, as the descriptions above suggested, these one-room rentals aren’t exactly inexpensive. However, compared to other housing alternatives for young people trying to make their way in major metropoles, the cost is competitive, especially when factoring in the supplementary services received.

Of course, there’s also the community appeal. For millennials who are used to dormitories and open work spaces at their places of employment, coliving is nothing new. More importantly, many relish the ability to easily meet and socialize with others, which the common living spaces facilitate. A typical apartment renter, in contrast, can feel very isolated. The bottom line is that for most, coliving with peers is a much preferred alternative to moving back into mom and dad’s basement.

So, adult dorms seem to offer a worthwhile value proposition for the right renters. Coliving also appears to be a viable business model, based on the success of the aforementioned companies, as well as their forecasts: The Wall Street Journal reports that WeLive plans to open 70 locations for more than 30,000 residents by 2018. (1) With its community ethos, the coliving concept also seems to support societal values like respect for individuals and stewardship of resources. In sum, this professor gives adult dorms an ‘A’ for “Mindful Marketing.”

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Eating Out at IKEA

4/21/2017

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by David Hagenbuch, founder of Mindful Marketing & author of Honorable Influence

“It’s a big country. Someone’s got to furnish it.” If you remember that slogan, you’re either an advertising geek, a big fan of IKEA, or both. Recently the Sweden-born company known for its simple-design furniture, sold in airport-hanger-sized stores, made a surprising announcement—It’s considering opening standalone restaurants. Add a new slogan: “It’s a big country. Someone’s got to feed it.”

Seventeen-year-old Ingvar Kamprad founded IKEA in Sweden in 1943, as a mail-order business. He began selling furniture in 1948, opening his first physical store ten years later. The company, now headquartered in the Netherlands, owns and operates nearly 400 stores in 48 countries and has annual sales of about $39 billion, making it the world’s largest furniture retailer.

With so much experience in furniture over the company’s 74-year history, why would it now want to start focusing on food? Yes, people use some kinds of furniture to store food, and we often sit on furniture while we’re eating, but beyond those things, what’s the connection?

In his classic business book, In Search of Excellence, Tom Peters (1982) concluded that companies should “stick to the knitting,” or focus on doing what they know best and not become too far flung in their operations. Perhaps IKEA execs never read Peters.

However, IKEA already has restaurants in its stores, which are pretty popular. In fact, some people go to IKEA just to eat, which almost sounds like going to a baseball game to get a couple of hotdogs. Actually, it’s quite different.

IKEA’s restaurants are popular for some good reasons. While the menu is understandably small, it offers a nice selection of Swedish-inspired, yet American-friendly, dishes that are apparently very tasty. I’ve never eaten at IKEA, but I’ve often been tempted by the enticing pictures and smells.

Equally important, IKEA prices its restaurant fare very reasonably, just as it does its furniture. For instance, one can buy a plate of Swedish meatballs with lingonberries, seasonal vegetables, mashed potatoes and cream sauce for just $4.99, hot smoked salmon for $6.99, and Swedish waffles for only $1.99. There’s also a kid’s menu with a variety of options for $2.49 each.

“So, the furniture retailer sells some meatballs”—not exactly. According to Fortune, 650 million people in 48 countries ate at IKEA in 2016, generating revenue of $1.8 billion. For comparison sake, that’s about the same as T.G.I. Friday’s total sales U.S. in 2011. In addition, IKEA already has some standalone restaurant experience via pop-up stores it has temporarily run in London, Paris, and Oslo.

The reason IKEA would want to sell food within its furniture stores is fairly obvious. The longer people stay in a store, the more they buy, and a café located inside the store keeps them from leaving when they get hungry. Or, as Gerd Deiwald, head of food operations for IKEA’s U.S.A., says, "We’ve always called the meatballs ‘the best sofa-seller.”

But, why would an expert sofa-seller want to take the risk of peddling food in standalone restaurants? The short answer is “because it can.” More specifically, the company has the wherewithal to do food service well, so it can capitalize on the market opportunity, which will provide another source of revenue and profit.

The move also would help diversify the firm’s product portfolio somewhat, giving it a valuable buffer in the competitive retail furniture market. Globally, much growth in that market is likely to come in China and India—two countries that are often difficult for foreign retailers to penetrate.

Another advantage that IKEA might realize in running standalone restaurants is cross-promotion. It would be shocking if the furniture retailer didn’t use its own tables, chairs, and other dining accessories in its restaurants. So, as you’re eating Swedish meatballs you’re imaging your home with a new IKEA kitchen table set.

But isn’t that a sneaky way of selling furniture—get people to try it out, so they’ll want to buy it? No. That kind of trial is exactly what helps consumers make informed buying decisions. What better way to decide if you’ll like a particular chair than to sit in it for a couple of hours. People aren’t going to buy any furniture they don’t really want, and the restaurants are a good way for customers to get a better idea of what will work well for them.

Should IKEA, then, open a hotel chain so people can try out its bedroom sets? Probably not—at least not until it gets some experience accommodating customers overnight. In the meantime, the company’s significant food service experience and strong brand equity should give it confidence to jump with both feet into the restaurant industry.

It won’t be easy for IKEA. There’s much more culinary competition outside the walls of a big box furniture store. The company also likely will need to make its menu broader and continually update it. Still, if IKEA does open standalone restaurants, they’ll stand a good chance of success, and offer a fine example of “Mindful Marketing.”

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Frozen in Hope

3/18/2017

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by David Hagenbuch, founder of Mindful Marketing & author of Honorable Influence

A recent arctic blast and some significant snow left many Americans feeling frozen. The frigid experience reminded me of a recent news story about a young girl in the U.K. who actually asked to be frozen, and a judge granted her wish.

No, her desire was not symbolically tied to the popular Disney movie (“Frozen”); rather, her request stemmed from a much more serious need. The fourteen-year-old girl, known as JS, suffered from a rare form of cancer, such that there was nothing modern medicine could do to remedy her terminal condition.

Knowing that her fate was sealed, JS searched the Internet to see if anything could be done to extend her life of just fourteen years. She came across cryonics and spent her final months researching the controversial process in which humans are frozen with the hope of reviving them sometime in the future, when medical advances presumably will make such resuscitation and extended life possible.

However, before contracting with one of just a few organizations in the world that practice cryonic preservation, JS had to surmount two other significant obstacles: 1) the high cost of the procedure, which ranges from $28,000 to $200,000, and 2) permission to undergo the process, since she was not of legal age.

Fortunately, her maternal grandparents raised the $46,000 that JS need to be preserved. However, a court battle ensued between the girl’s divorced parents: Her mother was in favor of the procedure, but her father was not. Shortly before JS passed away in a London hospital, Justice Peter Jackson ruled in favor of her mother, granting the dying girl’s request. After she passed, JS’s body was preserved and flown to the Cryonics Institute in Michigan where it’s now stored in a 10-ft.-high vat of liquid nitrogen.

The case of JS’s death and freezing is both fascinating and tragic, but what does it have to do with marketing ethics? Well, the organizations offering cryonics are marketing a service that an increasing number of people are considering despite its very high price. Again, the cost of cryonic preservation can range from $28,000 - $200,000. Of course, people ‘of means’ often pay that much or more for all sorts of other exclusive and possibly superfluous services, such as entertainment and travel, so why shouldn’t they pay handsomely to hold onto something far more valuable—their life?

The big difference is that when someone books something like a $50,000 European vacation, there’s a high probability that the trip will happen. However, when individuals undergo cryonics, the chance that anyone will ever see them alive again, not to mention healthy, is extremely slim. In fact, one might even say the possibility is virtually nonexistent.

Despite the fact that cryonics has been used for about 50 years, no human being has been successfully unfrozen. Science has no real track record for bringing people back to life. Yes, there have been instances in which people have “died” on operating room tables, etc., and miraculously kept living. There was even a case in 2015 in which a Pennsylvania man was revived after spending 12 hours unconscious in the snow, while temperatures dipped to minus 4 degrees Fahrenheit.

In such situations, it’s questionable whether the subjects had truly passed. In the case of cryonics, however, people must be legally dead before they can be frozen (freezing live subjects is not allowed), which of course adds another degree of difficulty: It’s not ‘just’ a matter of carefully thawing a previously frozen living person; medical technicians also somehow need to bring that person back from the dead. Then, after performing that miracle, they must solve other significant issues, like curing the person of the advanced-stage disease that killed him or her.

All this to say, someone who purchases a cryonics contract is far from holding a guarantee of a second chance at life. These risk-takers are, however, recipients of an ever-so-slim ray of hope: Perhaps at some point in the future, science will discover a way to overcome death and cure currently fatal diseases. Maybe that hope is worth tens or hundreds of thousands of dollars when the alternative is certain, irreversible physical demise.

Cryonics isn’t the only industry to place a price tag on hope. Everyday, people spend significant money on many items that cannot promise positive outcomes. Certain surgeries are extremely risky with low rates of success. Likewise, there’s no guarantee that cancer patients who undergo radiation or chemotherapy will survive. Or, to take a completely different example, only the smallest fraction of people who play the lottery win. The rest enjoy just a brief period of belief, prior to the drawing, during which they imagine that they might be the winner.

So, what’s different when cryonics companies make a similar sale of hope? The main distinction is that other entities have shown they can succeed, or produce positive results. Some of their customers will, in fact, realize their wishes. However, again, cryonics has no history of success and its future prospects are extremely dim.

Furthermore, cryonics introduces an array of other ethical issues, especially if more and more people place hope in the uncertain science, for instance:

Use of resources
Responsibility for bodies if/when a cryonics organization closes
Reintegration into society of people who have been dead for decades or centuries

So, should cryonics be offered at all? That’s a question that has significant spiritual implications, as well as environmental, financial, and social ones. I’ll simply suggest here that if it is, it should be framed as entirely experimental, such that people who participate essentially donate their bodies to science. Those individuals, then, should not be charged. Furthermore, only a limited number of select cases should be accepted—not everyone who wants to add another ten years to his or her life.

There are many positive outcomes that organizations legitimately promise and successfully deliver, some more reliably than others. Restoring to life the frozen deceased, however, is not a current reality, and it may never be one. Consequently, any over-inflation of such hope should be seen as “Single-Minded Marketing.”

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All-You-Should-Eat

3/10/2017

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by David Hagenbuch, founder of Mindful Marketing & author of Honorable Influence

People don’t like limits. We've seen signs of such distaste recently as Sprint, Verizon, and other cell phone carriers have competed to give consumers the best unlimited data plans. If people can use all the data they want for a flat fee, shouldn’t food afford the same option? Of course, many restaurants do offer ‘all-you-can-eat’ alternatives; the question is ‘should eating be endless?’

Olive Garden and IHOP are two national restaurant chains that recently offered specific all-you-can-eat specials. Olive Garden had its “Never Ending Classics,” which allowed consumers to eat all of the spaghetti with meat sauce they could for $11.99, while other entrées, like fettuccine alfredo, lasagna, and chicken parmigiana cost a bit more. For the extra fee consumers could keep refilling with different selections, as well as eat limitless breadsticks and soup or salad.

IHOP’s special was even simpler. For $9.99, customers could consume their fill and more of plain pancakes. The restaurant also offered some other options with finite sides of sausage and hash browns for about the same price. Such tempting treats led some consumers to hold their own hotcake-eating competitions to find which friend or coworker could do the most damage to IHOP’s pancake promotion.

Like Olive Garden and IHOP, TGI Friday’s has employed a limited-time, all-you-can-eat special: Endless Apps. The chain has now decided to make the option permanent, proclaiming “Endless Apps are Back for Good.” So, for the foreseeable future, patrons can purchase an infinite flow of appetizers like BBQ chicken flatbread, mozzarella sticks, and fried pickles for $10 each. Even some sports teams, like the Philadelphia 76ers and the Pittsburgh Pirates, have instituted endless food plans for fans.

The point is, all-you can-eat options are pretty common. In addition to these national players, there are all sorts of local and regional restaurants that provide limitless food for a flat fee. Chinese buffets and pizza buffets are among the most common purveyors. Of course, the purpose of Mindful Marketing is not just to summarize such practices but to answer the ‘should’ question. So again, should restaurants offer all-you-can-eat options?

The main ethical issue this question seems to elicit is that of gluttony: the “excessive ongoing consumption of food or drink.” While we might want to minimize such behavior (“Everyone overeats at times”) it’s worth noting that gluttony has long been recognized as one of the “Seven Deadly Sins,” alongside the likes of greed, wrath, and sloth.

In terms of personal impact, it’s pretty easy to understand how gluttony can be harmful to one physically, e.g., extra weight puts more strain on organs and joints. There also are likely negative social and psychological consequences; for instance, others might not find the gluttony very appealing, and individuals who routinely overeat may not feel good about themselves.

On a society level, the United States continues to face an obesity epidemic, which carries billions of dollars of financial costs. Here are some specific stats from the 2009-2010 National Health and Nutrition Examination Survey, which studied American obesity:

More than 2 in 3 adults are considered to be overweight or obese.
More than 1 in 3 adults are considered to be obese.
More than 1 in 20 adults are considered to have extreme obesity.
About one-third of children and adolescents ages 6 to 19 are considered to be overweight or obese.

Of course, overeating is not the only cause of obesity; other factors like genetics can play a role. Still, “the most common causes of obesity are overeating and physical inactivity.” The question that remains, then, is whether all-you-can-eat options bear some responsibility for this overindulgence.

In my book Honorable Influence, I identify “encouraging overindulgence” as one of the “Seven Sins of Influence” that marketers must avoid. More specifically, I suggest eight questions that can help determine, in a specific situation, whether the marketer is abetting excessive consumption:

Are non-marketing factors unlikely to be encouraging overindulgence?
Is the overindulgence widespread among members of the market?
Are the market’s consumers particularly prone to overindulge?
Are the market’s consumers especially susceptible to marketing influence?
Do members of the target market have difficulty affording the product?
Does one-time consumption of the product represent overindulgence?
Does the product have addictive properties or non-satiating tendencies?
Do specific marketing tactics explicitly promote overindulgence?

The idea is that “yes” answers indicate the marketer may be to blame, whereas “no” answers suggest that consumers are responsible for their own excesses. As I consider these questions for all-you-can eat restaurants, I find myself answering “no” nearly every time, for example:

No, non-marketing factors are likely to be encouraging overindulgence. For instance, people often eat meals out with others, and if one person goes back for ‘thirds’ or loads up on luscious desserts, others are more likely to follow suit.
No, the overindulgence isn’t necessarily widespread in the target market. Many people who go to buffets or other all-you-can eat restaurants show restraint and eat reasonable amounts.

The one question that does give me some pause is #8, not for every all-you-can-eat restaurant but for a few that do things like Captain George’s in Williamsburg, VA does. Captain George’s puts out a truly spectacular spread that it touts as one of the “Top 12 All-You-Can-Eat Seafood Buffets in America!” The restaurant also charges adults $34.99 for the opportunity to partake in the overwhelming selection.

So, what’s the problem? When a person pays more than three times the price of the average Chinese buffet, one feels especially obligated to keep eating—I know from firsthand experience. Early in our marriage, while vacationing in Williamsburg, my wife and I dined at Captain George’s on the recommendation of others. At one point we were about to leave, but we talked ourselves into staying and eating more because we had paid so much for the extraordinary eating experience. We finally stumbled out of the restaurant in pain from having consumed too much.

Did Captain George’s force us to forgo restraint? No, we fed ourselves more than we should have. At the same time, though, the restaurants’ product and pricing tactics really encouraged this kind of overindulgence. I’d bet that many people who dine at Captain George’s make the same “gut-wrenching” mistake we did.

Still, I maintain that Captain George’s is more the exception than the rule. In most all-you-can-eat restaurants, it’s significantly easier for people to leave before they’ve overeaten because they’ve paid much less. Our family sometimes goes to a Chinese buffet that charges about $9 for lunch. The food is great, and when I start to feel full, I have no problem calling it quits because I believe I’ve already gotten good value in the exchange.

Yes, there are some unprincipled marketers who do things that hurt consumers, but most marketers understand the idea of mutually beneficial exchange and take their customers’ best interests to heart. As consumers, we are also accountable for our own consumption. Sometimes that means not eating everything we could. Ultimately, this means that all-you-can-eat options can be “Mindful Marketing.”

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The Price of Happiness

2/17/2017

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by David Hagenbuch, founder of Mindful Marketing & author of Honorable Influence

If Disneyland is “The Happiest Place on Earth,” the price of happiness has just gone up. The Walt Disney Company recently announced that it would increase the cost of admission to its theme parks. Price hikes are rarely popular, but this latest round of increases seemed to elicit an especially grumpy reaction as some have wondered if the family entertainment icon has gotten too caught up in its own magic.

About two weeks ago, Disney enacted the increases, which averaged around $5 for each one-day adult ticket. In Orlando that means a peak-time time ticket for either Animal Kingdom, Epcot, or Hollywood Studios now costs $114 per day. That price is low, however, compared to tickets for the Magic Kingdom and Disneyland in California, which now set a park-goer back $124 each.

It’s important to note that these rates represent the upper end of the price range. Because the company utilizes variable pricing, off-peak midweek tickets run about $17 less in Orlando and $27 less in California. Also, tickets for children between the ages of three and nine cost a few dollars less.

In addition, Disney offers a variety of deals that provide discounts for multiday passes and hotel-park packages. For instance, a five-day pass to Walt Disney World can come in as low as $74 dollars per day. Similarly, one specific vacation package promises the following:

“Enjoy a wide range of must-do experiences at all 4 Walt Disney World theme parks with a 4-Park Magic Ticket and 4-night accommodations nearby at select Walt Disney World Good Neighbor Hotels, packages starting at $1,675 for a family of four.”

Granted, Disney is promoting the entry-level package, but still, that breaks down to about $105 dollars per day, per person, for park admission and overnight accommodations.

So, there are some options that are cheaper than paying $124 for a one-day park pass, yet there’s no getting around the fact that a Disney park experience demands a considerable chunk of change, which leads to the question: Should Disney be charging so much for family-friendly entertainment?

The first consideration in answering this question is supply and demand. When organizations produce goods or provide services that are very unique and very desirable, people will really want to purchase them, which puts upward pressure on prices, especially when supply is very limited. Shouldn’t, then, Disney increase supply in order to help itself and consumers?

Actually, Disney has done that. Over several decades in Orlando, the company has added three major theme parks (Epcot, Hollywood Studios, and Animal Kingdom) as well as Downtown Disney and a variety of smaller attractions. All the while, demand for Disney entertainment has continued to grow. Price increases, then, are another way of keeping demand in check: Some people will not want to pay the higher prices, leading them to opt out, which makes waiting times, etc. more manageable for those still visiting the parks.

Certainly, Disney’s Parks and Resorts bring in a boatload of money: $16.97 billion in revenue, according to the company’s 2016 annual report. Providing so much magic, however, comes at considerable cost, including expenses for things like employee wages, property maintenance, energy, and insurance. Those costs and others totaled about $13.68 billion for the same fiscal year.

“But, wait a minute,” some may be thinking. “That leaves operating income of around $3.29 billion. Why do Disney Parks and Resorts need to make that much money?” Well, exactly how much this business unit needs to make is debatable. The thing, though, is that the Walt Disney Company as a whole has 1.58 billion shares of stock outstanding, with a market cap of over $175 billion. As a publicly-traded company, Disney must provide an adequate return on investment for its shareholders, which means being more than marginally profitable.

It also can be helpful to look at Disney park prices in comparison to other entertainment costs. The price of a one-day adult ticket to Universal Studios in Orlando is $105, while a children’s ticket costs just $5 less. If one is more interested in sports, tickets for section 106 of the Amway Center, home of the Orlando Magic, range from $129.50 to $337.25 each. Or, tickets for a concert by Frankie Valli & The Four Seasons at the Dr. Phillips Center for the Performing Arts in Orlando start at $59.

Of course, there are many other types of entertainment that cost considerably less. Catching a movie or playing mini golf might come in under $10. Ultimately, the question becomes one of costs versus benefits. Although a Disney park ticket might cost 10 times the price of mini golf or a movie, it could easily produce more than 10 times the benefits because of the very unique things one can see and do at Disney, not just for a couple of hours, but for an entire day.

It’s also important to remember that paid-for entertainment is not a necessity. People can survive without any entertainment, although it does make life much more enjoyable. Moreover, there are plenty of recreational things that can be done for free, e.g., a stroll through a park or a conversation with friends. So, Disney can’t be accused of price gouging.

Speaking of free, I know from personal experience that it’s possible to enjoy Disney parks without paying anything. A few years ago our family visited Disney World in Orlando for several days and experienced all four of the major parks at no cost. We got all of our tickets for free thanks to a Disney cobranded credit card we used to save Disney reward points for several years before redeeming them on the park passes. Enjoying Disney and paying nothing is truly magical.

Price increases are something that consumers almost never want, but we should realize that companies need to cover rising costs, provide adequate returns to investors, and manage demand, especially for very unique goods and services that are in limited supply. Yes, a visit to the Magic Kingdom, etc. can be expensive, but the fact that so many people are eager to pay those prices suggests that Disney parks continue to be a great value. Creating happiness at a relatively high price is still “Mindful Marketing.”