Category: Price5d70aa2269

Higher Ed's Big Gamble on Sports Betting

3/26/2023

by David Hagenbuch - professor of marketing at Messiah University -
author of Honorable Influence - founder of Mindful Marketing

For centuries, universities have been places where students study philosophy and sharpen professional skills. Are colleges now becoming locations where young minds learn to place prop bets and parlay their winnings? As more schools find gambling partners, those educational outcomes seem less like longshots.

By now most basketball fans’ March Madness brackets have been busted, which is not a big deal, provided they didn’t put down dollars on those picks. Of course, the risks of such bets increase with the amount of money wagered, but they also rise as gamblers’ ages decline. So why are some universities encouraging their own students to try sports betting?

According to the New York Times, schools that have established such partnerships include Michigan State, Louisiana State University (LSU), Maryland, University of Denver, and the University of Colorado. The executive director of the National Council on Problem Gambling, Keith Whyte, claims that eight or more universities have inked similar deals, and “at least a dozen athletic departments and booster clubs have signed agreements with brick-and-mortar casinos.”

Why would institutions that families trust to guide the next generation down paths of enlightenment and prudence, expose their students to activities that may strain relationships, double debt, and spell insolvency? The simple answer is money.

Many colleges and universities have long felt the pinch of revenue lost from declining enrollment and rising costs, including meeting expectations for best-in-class facilities and services. Corporate sponsorships often have helped bridge such fiscal divides, but when the U.S. Supreme Court legalized sports gambling in May of 2018, the doors swung wide open for all kinds of institutions to enter partnerships with oddsmakers.

In 2020, the University of Colorado Boulder signed a $1.6 million contract to promote sports gambling on its campus, and the deal that LSU inked with Caesars Sportsbook in 2021 is worth seven figures. Higher education may have been a little late to the gaming table, but now that some schools have gone all-in, others are likely to follow.

Of course, money is also a motivator for gaming companies. The ability to realize untapped revenue is understandably attractive to them. However, compared to other demographic groups, the young and green-to-gambling college-age market has special long-term appeal.

I remember years ago a client of our family’s promotional products company, a local bank, had created a special savings account for children called “Mega Bucks.” It featured a variety of kid-friendly incentives, the unambiguous intent of which was to forge relationships with young savers before their bank loyalties could be deposited elsewhere.

“Get ‘em while they're young” is a common mantra among marketers. Given that consumers are creatures of habit, constrained by switching costs, it’s often hard to persuade people to try a new product, especially when they’re satisfied with what they have. So, it’s understandable that organizations from banks to bookstores to bars want to reach the youngest age cohorts able to use their services.

Gambling companies want to do the same, i.e., reach young gamblers for the sake of current and future profits. One of the best ways to do so is through sports since most young people have no history with horseracing or blackjack, but many are avid fans of football, basketball, etc.

In all but four states, these firms can’t target consumers below age 21, but as with alcohol advertising, spillover into younger demographics is inevitable. It’s impossible to keep ads from Caesars Sportsbook and BetMGM that air during televised sporting events from influencing viewers who are 20 or, for that matter, 12, especially when they employ popular celebrity endorsers like Jamie Fox and former NFL quarterbacks Peyton and Eli Manning.

Moreover, actual gambling for those underage isn’t hard to accomplish, as many betting firms provide little resistance thanks to very loose screening processes. For instance, FanDuel Sportsbook PA’s $1,000 No Sweat First Bet, which promises new customers “Up to $1,000 back in bonus bets,” provides the following easy entry:

When you click on “JOIN NOW,” a list of about 20 states appears. Choosing Pennsylvania produces a “Create an Account” form that asks for an email address, username, and password but not a birthdate or age.
A sentence in small type, just above the “Create and Account” button reads, “Users must be 18+ (21+ in MA) to play Fantasy and 21+ to place bets on Sportsbook.” There’s nothing more on the page to prohibit underage gambling beyond that soft admonition.
If someone is inquisitive enough to click on Terms of Use, they’ll find a 161-page document with more than 76,000 words, which does state that underage gambling is a critical offense and FanDuel reserves the right to “to request proof of age documentation from any applicant or customer.” Still, what are the chances that anyone, let alone teenagers looking to try something new and exciting, will find the buried disclaimers or be dissuaded by them?

The experience in Apple’s App Store is similar. Three of the top betting apps (FanDuel, Draft Kings, and BetMGM) have age ratings of “17+ Years Old.” Granted, it’s a standard measure that applies to all kinds of apps; still, it’s easy to imagine how an 18-year-old who wants to bet could interpret the rating as a green light to begin gambling.

When a potential user clicks on “GET,” there’s no prompt to enter an age or birthday before being served the “Install” button. On BetMGM’s website, potential users are prompted to enter their email address and last four digits of their social security number before they’re asked their age. Human nature suggests that the further someone goes in the process, the less likely they’ll be to abort and the more likely they’ll be to rationalize and possibly lie.

However, this targeting of young people for sports betting is pedestrian compared to what some college and universities permit through partnerships that “allow sports betting companies to advertise on campus, in athletic venues and, in some cases, directly in students' email inboxes.” LSU’s contract with Caesars Sportsbook has seen students under the age of 21 receive an email encouraging them to place their first bet.

It’s unimaginable to think that a college or university would send its students any kind of invitation to gambling. As someone who’s worked in higher education for more than two decades, I know that students intrinsically trust communication from their school, which they believe is looking out for their best interests. For many undergrads, a partnership with a betting firm would seem like the Good Housekeeping Seal of Approval on gaming.

Of course, gambling can be exciting entertainment, but at what cost, particularly for those who are still developing their understanding of risk/reward, debt, and addiction? As just a college sophomore, Saul Malek found himself in “tens of thousands of dollars in debt after two years of betting on sports.”

Unfortunately, Malek’s gambling experience is likely to play out increasingly for others, thanks to more universities partnering with betting firms. Even worse, these youthful indulgences may be setting up the gamblers for a lifetime of financial hardship and relational stress.

I recently spoke with a woman who witnessed her father’s gambling addiction firsthand and saw it break up her family. At age nine, she thought it was normal to go to the racetrack on a school night. After her dad drained her mom’s bank account and left her stranded outside her work for hours without a ride while he gambled, her mom left him. Unable to make it on his own, the dad now lives with his grown daughter who must take care of everything for him.

There’s a reason ads for betting often contain gaming disclaimers and phone numbers to call about gambling addiction: It’s a slippery slope on which a simple $5 wager can easily spiral into regular $500 bets on point spreads.

It’s also worth noting that the house never loses. Sure, individual gamblers sometimes make good bets, but overall and long-term, the gaming companies always win – their business models are based on outcome imbalance in their favor.

Marketers can target younger consumers for products, provided they’re properly informed and the products truly benefit them. Back to “Mega Bucks,” There’s a big difference in risks between banking and betting. For colleges and universities to promote sports gambling is madness any time of year, not just March. It’s also “Single-Minded Marketing.”

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Movie Ticket Madness: Should Choice Seats Cost More?

3/12/2023

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by David Hagenbuch - professor of marketing at Messiah University -
author of Honorable Influence - founder of Mindful Marketing

When you need to get away from others for a little alone time, there’s a place you can go: the first few rows of a movie theater. Soon, however, those neck-wrenching seats may be occupied as the nation’s largest movie theater chain implements premium pricing for its cinemas’ more coveted seating. But, is it right to suddenly charge extra for something that’s been free to audiences since Garbo and Gable graced the silver screen?

Many moviegoers are likely giving a two-thumbs-down rating to AMC Entertainment, the world’s largest cinema chain, for its recent announcement that it will charge higher prices for more sought-after middle-of-theater seats.

It’s natural for anyone who pays their own hard-earned money for things to dislike price increases, especially when there seems to be no reason beyond a business’s realization, “We can charge for that.”

Movie theaters, however, have endured very hard times over the past decade. First, streaming services and home entertainment centers lured away from theaters many who realized they could enjoy a cinematic experience in the comfort of their own homes. The pandemic’s quarantines and social distancing exasperated that trend. Most recently, inflation has caused many consumers to monitor more carefully their discretionary spending.

To call these events “challenges” is like calling Tom Hanks “some actor.” Rather, they’ve been existential threats, as Cineworld unfortunately knows. Last September, the world’s second largest movie theater chain and owner of Regal Cinemas, filed for Chapter 11 bankruptcy.

Maybe premium-priced seating is something movie theaters must do to stay solvent. In many other industries, such variable pricing is a staple of their revenue streams:

Live theatre, concerts, and sporting events have long charged more for better seats.
All kinds of service providers, from car washes to hair salons, demand more for higher levels of service.
Many goods producers charge more for their premium products and more sought-after brands, for instance, automakers are well-known for various trim levels (DX, LX, ELX, etc.) and some, like Toyota, offer higher-end vehicles under a different brand, e.g., Lexus.

Ultimately, most product pricing decisions come down to supply and demand. Whether they’re from Gap or Gucci, products that are in greater demand tend to cost more. As price rises, quantity demanded decreases, helping ensure that supply can keep pace.

In free markets, businesses decide what they want to sell, and consumers choose what they want to purchase. No one has to go to a movie theater or when there, purchase a premium seat. It’s their choice to do those things, which makes it hard to argue that AMC is in any way acting unfairly.

So, charging more for certain cinema seats probably isn’t unethical, but is it really an effective business strategy?

A main problem with the premium approach is likely consumers’ perceptions ingrained from years of cinematic experience. For more than a century, moviegoers have freely chosen their theater seats, including those in the center. It’s hard to suddenly start charging for something that people have been getting for free, especially when an upcharge seems unwarranted.

In contrast, the seats in the very front of the theater seem like they should cost less. In fact, why do theaters even have those close-up seats that few people choose and that have been mocked in sitcoms like Seinfeld. Of course, theaters need to cover substantial retail space leases and other expenses, which means fitting in as many paying patrons as possible. However, to demand the same admission price for such suboptimal seating is a big ask.

Here’s what movie theaters should consider instead:

Raise ticket prices slightly, across the board: Again, no one likes price increases, but people who want a true cinema experience can tolerate a modest increase. Moreover, they can understand the need to do so, given the unique pressures theaters have been under, outlined above, and because they see many other organizations doing the same.
Discount the close-up seats: As just mentioned, these seats are significantly less valuable than any others in the theater. Other events often offer discounts on seats with obstructed views, etc. Movie theaters could do the same, or they could get creative and give patrons who sit in those seats something extra like a coupon for a free small soft drink or a popcorn-size upgrade. Consumers may even perceive such incentives as more valuable than a small ticket price discount, and the freebies could be less costly to the theater companies.

In a free market, it’s not inherently unethical for AMC or other movie theater chains to charge more for choice seating, but such a strategy probably won’t sit well with consumers, who have chosen those middle seats for free for so long. For that reason, the ending of this cinematic story will likely be “Simple-Minded Marketing.”

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Play with a Purpose

10/19/2022

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by David Hagenbuch - professor of marketing at Messiah University -
author of Honorable Influence - founder of Mindful Marketing

Bobby eagerly opens his Happy Meal box, tossing the chicken nuggets and fries aside to find the special toy tucked inside. Kids have repeated that ritual for decades, but Bobby is 32. While it’s nice that McDonald’s and other companies increasingly meet the need for nostalgia and help grown-ups relive childhood highlights, is selling sentimentalism a good adult-use of time and resources?

Cobranding with the apparel company Cactus Plant Flea Market, McDonald’s recently released a limited-edition Happy Meal intentionally targeted to adults. At $12.69 each, the big kids’ meals aren’t very wallet friendly. They’ve also disappointed some who couldn’t find a restaurant that had them or who got Cactus Buddy, the apparel brand’s mascot, instead of the classic McDonald’s character they wanted.

Still, buzz has been strong and sales brisk, leading some to conclude that “the promotion has been hugely successful for McDonald’s.” The fast-food icon is just one of many firms that are playing on nostalgia to target adults for kids’ products, for instance:

American Girl Cafes host birthday parties and other gatherings just for grown-ups and the dolls they bring.
Play-Doh has created several varieties of its finger-friendly clay in grown-up scents including mom jeans, latte, six-pack, and lawn scent.
Kohl’s carries a 4 ft. high legacy Pac Man video arcade game for $450.
Amazon has an entire category of “nostalgic toys” that includes the Magic 8 Ball, Lite Brite, Lincoln Logs, Slinky, Spirograph, Candy Land, Operation, Evel Knievel, and Etch a Sketch.
LEGO sells a mini version of Jerry Seinfeld’s bachelor pad from the 1990’s sitcom. [More about LEGO below]

Are these nostalgic products always profitable? Probably not. It’s doubtful that any approach the sales volume they once enjoyed; however, given that their design costs have long-since been covered, manufacturing processes have likely improved, little advertising is needed, and they can be sold online with relatively low overhead at premium prices, most of these items probably do make money — their proliferation is evidence.

So, it seems that selling nostalgic play to adults is often effective marketing, but is it ethical?

Two plausible moral concerns are that when adults play, they waste resources, namely time and money:

There’s an opportunity cost that comes with play – when we’re playing we’re typically not doing other things, like working, so we’re being unproductive.
Play can be expensive. Some people spend thousands and even tens of thousands of dollars a year on hobbies such as mountain climbing, boating, skydiving, and car collecting.

However, there also are very compelling arguments supporting that people of all ages need to play, or be “joyfully immersed in the moment.” While there are undoubtedly other benefits, here are five reasons why adults should play:

1. To learn: Videos like this one of lion cubs stalking and pouncing on each other show how play helps them begin to learn to hunt. Most of us also learned specific and generalizable skills through childhood play.

2. To maintain skills: As we grow older, our physical and cognitive abilities naturally decline. Play is one way to slow that descent, whether it’s by participating in a low-intensity sport or doing word puzzles.

3. To develop relationships: People build bonds with others in many different settings, e.g., work, school, church, and play. Friendships often form among individuals on sports teams, chess clubs, hiking groups, etc.

4. To reduce stress: Life at times has hardships and frustrations. Physical play helps us burn off anxious energy, while mental engagement in play often elicits laughter, positive thoughts, and good memories that help keep bad ones at bay.

5. To serve others: Each of the above reasons for play are pretty intuitive. This last one isn’t, at least it wasn’t for me until I connected with a colleague, RJ Thompson, who takes play to another level that one might call play with a purpose.

Thompson is the director of digital marketing in the Joseph M. Katz Graduate School of Business and College of Business Administration at the University of Pittsburgh. He’s also an award-winning graphic designer and the president of the Pittsburgh Chapter of the American Marketing Association. Those are impressive credentials, but the reason I reached out to him is because he’s a grown man who still loves Legos.

A resident of Bellevue, PA, Thompson recently completed construction of a 45 ft. Lego model of his town’s Lincoln Avenue using over 20,000 of the tiny bricks. What’s more, with only photos for reference and using as many as 30,000 bricks, he spent six months building a 30”L x 30”W x 45”H model of Bellevue’s Andrew Bayne Memorial Library that splits in half to reveal its fine inside detail. Each model cost thousands of dollars.

Why would an accomplished professional spend so much time and money playing with building blocks? Thompson credits LEGO for fanning his creative flame at a very young age and opening for him doors to design, teaching, and entrepreneurship. However, the impact of these epic Lego projects extends far beyond his personal enjoyment of the pastime.

First, the projects have afforded some priceless family time for Thompson and his daughter, who has inherited her father’s curiosity and creativity. Furthermore, with help he moved the massive models from his home to the Library where they served as the centerpiece of a fundraiser that drew hundreds of people and raised $1,500 for renovations to the Library’s children’s areas. Many kids were fascinated by the models and inspired to start their own Lego building projects.

As Thompson’s experience illustrates, play can be more than respite from work, mental relaxation, etc. Those personal benefits are very important in their own right; however, play can achieve a whole other level of significance when used like Thompson uses it, to serve others.

His examples left me wondering, though, with his play becoming so other-oriented, does he still find the same pleasure he once did, building with the miniature bricks? Thompson says he “definitely does,” adding:

“There are some models or kits I see that I absolutely have to have - so there is an anticipatory angle to it where I get excited just as much as my kid does about certain sets. When it first came out, I had to have Dr. Strange's 'Sanctum Sanctorum' model.”

As an artist and a marketer with a heart for play, Thompson shows how a pastime can become even more than a win-win: Purposeful play can have a triple or even quadruple bottom-line of positive impact. Those that sell nostalgic play help bring back fond childhood memories and remind us of the benefits of “Mindful Marketing.”

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Do Subscriptions Make Sense?

7/30/2022

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by David Hagenbuch - professor of Marketing at Messiah University -
author of Honorable Influence - founder of Mindful Marketing

“That’s the gift that keeps on giving the whole year”—such was Cousin Eddie’s inane attempt in Christmas Vacation to console a devastated Clark Griswold after he found out his firm gave him a Jelly of the Month Club membership instead of a generous cash bonus. Clark had good reason to resent receiving a product subscription, but how should consumers feel about more companies moving to subscription models?

If you’re like most people, you’ve noticed a steady rise in reoccurring payments. Decades ago, monthly bills were restricted to things like rent and utilities, but they’ve since expanded to include regular charges for cellphone plans, movie streaming, and online news. And, the list keeps getting longer, as even more organizations find opportunities to automatically tap their consumers’ wallets for things like clothing (e.g., Stitch Fix), meal kits (e.g., HelloFresh), and shaving tools (e.g., Harry’s).

These examples aren’t particularly surprising—each day people wear clothes, eat food, and shave their bodies, so it makes sense to automate the purchase process and save consumers time shopping for such staples. However, subscription services for some other products should make any of us wonder, ‘Why?’

For example, BMW has begun to offer “heated seat subscriptions” in certain vehicles for $18 a month. According to James Vincent, writing for The Verge, “BMW has slowly been putting features behind subscriptions since 2020.” The automaker’s other reoccurring charges include automatic high beams and adaptive cruise control.

There’s also sneaker maker Cloudneo, which offers a “100% recyclable running shoe that’s only available by subscription.” For $29.99 a month, customers receive “an endless supply of shoes.” When pairs are past their useful lives, customers request new ones while returning their old ones, which the company grinds down and melts into plastic pellets used in its new product manufacturing.

These last two examples and several of those mentioned earlier are innovative approaches that reimagine marketing’s 4 Ps. All share strategic similarities as they fall under the subscription umbrella, but there also are significant and sometimes unsettling differences that make me want to better understand: When is subscription pricing right for both companies and consumers?

To answer this question, I turned to someone who has navigated the challenging process of transitioning his company’s signature product from a one-time purchase to a monthly subscription. Jason Kichline is founder and chief technology officer of OnSong, namesake of one of the world’s most widely used music performance apps. It allows musicians to digitally store, sort, and customize their music, saving them time and enabling them to focus on what they do best.

An annual guest speaker in my capstone marketing course, Kichline has told us of his firm’s deliberations about transitioning the OnSong app from a one-time Apple App Store purchase to a monthly subscription. OnSong started to offer a feature-enhanced, subscription version of its product a couple of years ago. This past June, OnSong finalized the monumental move by eliminating the one-time purchase option.

For many companies, the decision to go to full sail on a subscription model is simply a matter of what nets the most money, i.e., will more revenue from reoccurring payments offset sales not realized from potential customers who want a one-time purchase?

Although OnSong certainly considered income projections, it’s analysis was much more circumspect and other-oriented, which is evident as Kichline explains three main reasons for the move:

1. Relationships: “We’ve always placed a high value on supporting our users. A complex and full-featured app like OnSong demands a level of support that goes beyond that of a one-time purchase. A subscription creates the opportunity for a more formal relationship with users and the need to continually provide them with value. Our goal is to make our customers incredibly happy with the level of service, support, and features we offer.”

2. Continuity: “Although OnSong has been successful for more than 10 years, many software firms don’t last as long—they go out of business, or they’re acquired. A developer can keep an app around for a long time for some side money or an owner’s salary, but a buyer typically wants ROI. For this reason, new owners turn many one-time-purchase apps into subscriptions and try to ‘leverage’ the existing user base.”

“Even though app customers often assume they’ll be forced to upgrade to a subscription, we didn’t feel it was fair, so we grandfathered existing users.” Still, because going out of business also leaves customers stranded, we believe that subscribing to OnSong is the best path forward for all. A subscription to OnSong is an investment in the company and its product’s future.”

3. Value-Added: “The defining measure for most consumers is what they receive compared to what they pay. Although a subscription costs more than a one-time purchase over time, it also provides greater benefits, including important updates and improvements in an ever-changing technological environment. A cancelable subscription also reduces financial risk for consumers by allowing for product trial, which is often not possible with one-time software purchases.”

“Looking to the future, OnSong wants to provide a web-based version of the app that will store music and resources in the cloud, as well as manage bands and teams. A subscription model supports this additional functionality and added value.”

Kichline acknowledges that the transition to a subscription model has not been without challenges, which include effective communication with consumers, who can be swayed by public perceptions in social media.

Still, the change has been a good one for OnSong and its customers. After experiencing one “tight month,” the company’s revenues quickly rebounded to previous levels with continuing growth. That success should also be taken as a sign of the strength of OnSong’s value proposition in the eyes of consumers—the benefits they receive from the app are well-worth its reoccurring cost.

For Kichline, key to the whole process has been “having the mind of the consumer.” His analysis above and this summary statement make me ask: Do the subscriptions for BMW’s heated seats and Coudneo’s recyclable running shoes show an understanding of “the mind of the consumer” and a desire to truly meet customers’ needs?

Cloudneo’s product subscription may represent such a market orientation for certain hardcore runners who cycle through sneakers at a rapid clip. They might wear out a pair of running shoes every few months and could easily spend $360 or more per year on performance footwear.

BMW’s subscription is harder to justify. In his Verge article mentioned above, Vince raises good points that call into question the automaker’s motives:

“BMW owners already have all the necessary components [for the heated seats], but BMW has simply placed a software block on their functionality that buyers then have to pay to remove. For some software features that might lead to ongoing expenses for the carmaker (like automated traffic camera alerts, for example), charging a subscription seems more reasonable. But that’s not an issue for heated seats.”

When BMW manufactures vehicles with heated seats, it likely passes on the added material and labor costs to consumers at the time of purchase. So, the automaker is essentially holding back a feature for which customers have already paid so it can charge twice for what is an increasingly common new car addition. Such a motive certainly wouldn’t represent a customer-centric attitude.

As BMW has shown, there are situations in which paying a reoccurring fee for a product makes little sense for consumers. However, when companies prioritize the three principles that Kichline has identified (relationships, continuity, and value-added), subscription pricing is “Mindful Marketing.”

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The Real Beef About Burger Ads

5/22/2022

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by David Hagenbuch - professor of Marketing at Messiah University -
author of Honorable Influence - founder of Mindful Marketing

While Ukrainians mourn their war dead and Buffalo residents grieve victims of a hate crime, a guy in New York cries foul because his hamburgers aren’t bigger. Of course, not every real problem is a matter of life and death, but could some seemingly frivolous lawsuits challenging fast food promotions portray broader communication concerns?

On May 17, Long Island resident Justin Chimienti filed a legal action in a Brooklyn federal court, accusing both Wendy’s and McDonald’s of “defrauding customers with ads that make burgers appear larger than they actually are.”

The lawsuit alleges that the restaurants’ use of undercooked beef in photo shoots leads to promotional pieces with burgers that appear 15% to 20% larger than those customers actually receive. The suit also suggests that Wendy’s exaggerates the toppings that embellish its sandwiches.

Burger King, the third of the big three fast food competitors, was slapped with a similar lawsuit just over a month ago. In fact, the same law firms that sued BK are also representing Chimienti in the most recent litigation.

To many, these lawsuits are the epitome of money-grabbing lawyers eager to profit from a first-world problem--With so many truly important events happening in our world, why should anyone worry that Whoppers aren’t as juicy as they appear in their pictures?

However, Anthony Russo, one of the main attorneys representing the plaintiff, argues that there’s a bigger issue at play--corporate accountability. He maintains that these legal actions will make the companies mend their ways, stop false and misleading advertising, and ultimately give consumers a better idea of the food they’re eating.

That justification sounds good, but it does come from one of the people who stands to gain the most from the litigation. In fact:

“A detailed examination of eight years of consumer class actions in federal court found that consumers received only a tiny fraction of the money awarded in those cases while plaintiff lawyers frequently claimed a bigger share of the settlement than their clients.”

Still, legal action can be an effective way to bring about corporate change, and it usually takes attorneys to move such proceedings through the courts.

Imagining the burger court cases, the defendants might offer a counterargument like:

"When it comes to promoting themselves, don’t individuals and organizations have a right to ‘put their best foot forward,’ and doesn’t everyone expect others to do the same?"

Most people don’t have sections of their resumes labeled ‘Main Flaws’ or ‘Greatest Failures’; instead, we list our ‘Special Skills’ and describe ‘Awards and Recognitions.’ Likewise, no one reviewing resumes expects to see those self-deprecating categories. That’s why interviewers often ask job candidates things like, “Tell me about one of your weaknesses.”

So, shouldn’t companies also be allowed to brag a little and show their best examples versus humiliate themselves with mediocre or bad ones?

Curating top quality products for promotion certainly isn’t unique to fast food chains. Grocery store flyers rarely feature misshapen fruits and vegetables, car commercials don’t use vehicles with scratches or dents, and clothing ads don’t show shirts that are wrinkled or frayed.

As consumers, not only do we routinely see such examples, many of us are involved in the same sort of careful curation of ourselves and the organizations we serve.

During my two-plus decades in higher education, I’ve often helped select ‘best’ examples to help promote my department and university. For instance, when asked to suggest students or alumni who might provide a testimonial, I take plenty of time to think before offering names of individuals who I believe have had very positive experiences.

However, just because we engage in such selective promotion doesn’t mean that we should, i.e., we need to be careful about reasoning from ‘is’ to ‘ought.’

The main moral questions to ask are whether the recipients of the promotion are deceived and harmed.

Personally, I don’t feel misled by pictures of perfect peaches, super clean cars, or spotless shirts. Most people also probably expect the actual items they buy to have at least some minor imperfections when compared to their pictured counterparts.

Depending on the nature and cost of the product, there’s a level below perfect condition that we readily accept knowing that we live in an imperfect world. Furthermore, in terms of food, visual imperfections probably don’t matter as much as they do for many other products because although we eat with our eyes, the appearance of what’s on our plates is short-lived.

That takes us back to burgers and the main moral questions:
Do differences between what Burger King, McDonald’s, and Wendy’s depict in their ads and sell in their stores deceive and harm consumers?

First, it’s important to recognize that for the vast majority of consumers, these fast food restaurants’ ads represent reminder advertising, i.e., most people have already eaten in one or more of the chains, possibly multiple times, so they’re well aware of what they’ll receive the next time they visit.

Second, fast food is a rather low-involvement, low-risk purchase. When deciding what to order, people typically spend a minute or less, not hours, days, or weeks, as they might when selecting some products. Likewise, the average McDonald’s Big Mac Meal costs only $5.99, and customers can buy two cheeseburgers for just $2.00. So, if the beef patties don’t look quite as pretty as the pictures, it’s no big loss.

All that said, there is a difference between misrepresenting quality and misrepresenting quantity. Whether burgers look more or less appealing than their pictures is a somewhat subjective matter. Size is not. People almost always want to get more product for their money, not less, so it’s a problem if a burger’s picture looks 50% bigger than the one we actually receive.

In this sense, the burger lawsuits have more teeth. Consumers will quickly forget whether the Big Mac Meal looked as good in person as it did in the picture, but they won’t forget if they’re still hungry after eating it, especially if they have no more meal money to spend.

Although that’s not a life-threatening problem on par with those mentioned at the outset of this piece, it is a legitimate consumer concern, particularly in inflationary times. Whether they’re spending a lot or a little, people should always receive the amount of product they’re promised.

So, there is a plausible and practical component to the burger lawsuits; however, their bigger contribution is their call for accountability, which also may mean modeling more genuine communication.

It’s not to say that people take their communication cues directly from fast food ads, yet there’s an unsettling resemblance between the idealized product promotions and the utopian pictures many individuals paint of themselves in social media.

When people see large, heavily advertised corporations like Burger King, McDonald’s, and Wendy’s freely exaggerating and glamorizing their truths, it implies permission for others to do the same.

The world becomes a better place when individuals and organizations take care to represent themselves realistically. It’s okay to put our best foot forward, but it must be our foot, not some fantastical version of it. Those who walk with realism are stepping into “Mindful Marketing.”

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Gen Z Students Teach Their Professor About Thrifting

9/10/2021

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by David Hagenbuch - professor of Marketing at Messiah University -
author of Honorable Influence - founder of Mindful Marketing

Remember the excitement of your first time wearing a new jacket or pair of shoes? Did you wonder how the original owner felt when they wore them? You probably didn’t unless you’ve been part of one of the hottest consumer trends--thrifting. For a variety of reasons, it’s now fashionable, especially among Generation Z, to shop secondhand, but this Gen X marketing professor wonders if it’s smart for the apparel industry to embrace a fad that may dissuade people from purchasing its new products.

Scanning my marketing news feeds a couple of months ago, a headline caught my eye, “Letter from Gen Z: Why thrifting is the future of fashion.” Thinking it was a bold prediction, I saved the article to discuss with my fall classes. The semester started, I shared the piece, and I’m stunned how passionate so many students are about thrifting!

However, on the first day of Personal Selling class, before I even mentioned the article, I asked each person to ‘sell us on something important to you.’ With great enthusiasm, a student named Brooke shared how much she enjoyed thrifting. Her tremendous passion for the practice was obvious to all, and very surprising to me.

My impression had long been that shopping for secondhand items was something mostly people on very limited budgets did out of necessity, to save money. Similarly, those who did frequent aftermarket sellers certainly wouldn’t brag about what they’d bought. Apparently, that stigma has subsided, and college students, some of whom come from affluent families, are among those most active in propagating thrifting’s new-found popularity.

To get a better picture of thrifting behavior among college students, I created a brief online survey that I shared with my four classes; about 70 students completed it. The results revealed some surprising behavior, for instance:

70.4% of students had purchased used clothing three or more times, and 54.9% had done so seven or more times.
The most likely places to purchase used clothing were traditional thrift stores like Goodwill and Salvation Army (39.4%), followed by retailers and brands that sell both new and used clothes, such as H&M and Levi’s (33.8%), then consignment stores (22.5%), and finally flea-markets (7.1%).
The strongest motivations for buying used clothing were cost (49.3%), followed by fashion (16.9%), then desire for old/vintage (11.27%), then impact of influencers (2.8%), and last environmental concerns (1.4%).

Before the survey, I didn’t think that so many college students were actively thrifting. To my surprise, only 9.9% of those who responded, said they’ve never purchased used clothing. I was also surprised that the places they thrift are rather evenly distributed.

Comparing the two different findings, it’s remarkable that the percentage of those who are very likely to frequent even the least popular thrifting place, flea-markets (7.1%), is not much lower than the portion of people who have never thrifted (9.9%).

On one hand, seeing cost emerge as the top motivator for thrifting was not surprising; however, I had expected its percentage to be even higher, e.g., 90% or more—again, I always thought that saving money was the only reason people purchased used clothing.

As it turns out, the desires to be fashionable and to own old/vintage clothing were also very compelling. Along those lines, I realized that my simple survey failed to ask about what may be one of the most important motivations!

At the end of the survey, an open-ended question invited respondents to share any other thoughts about thrifting. Seventeen students seized the opportunity and offered responses that included the following:

“I love it so much!”
“I love to thrift and over half of my closet is thrifted.”
“Very cheap way of finding trendy clothes”
“It’s how I get 90% of my clothes.”
“I love that I can find articles of clothing that no one else is likely to have. Thrift finds are one of a kind. I also buy clothes from stores like Target, but my purchases [there] are not as unique [emphasis added] because other people have the ability to buy the same thing. Thrifting grants me a more unique [emphasis added] wardrobe!”
At least 50% of my clothes are thrifted, I absolutely love thrifting - both because it limits waste in the fashion industry and because it’s fun! [emphasis added]

The last two comments contained two words that were both eye-opening and full of marketing implications:

1) Unique: I remember, not long ago, when young people wanted to look like everyone else. To be one of the few people who didn’t have the popular brands of sneakers or jeans was often an ostracizing experience.

Now it seems that many Gen Zers want to own clothing that not everyone else is wearing. Moreover, items that are one-of-a-kind, like those that can be found through thrifting, are even better, as they help express individual identity, which mass marketed products can’t easily accomplish.

2) Fun: In my thrifting survey, I kind of included a question about wanting unique clothing (“old/vintage”), but I completely overlooked the idea that members of Gen Z thrift because they enjoy the thrill of the experience.

For many, thrifting is a kind of treasure hunt in which they may or may not know exactly what they’re looking for, and what they find may be a complete surprise. It’s exciting for almost anyone to come across something special that others are unlikely to locate.

Both of these motives, as well as some of the others, are instrumental to the thrifting behavior of Brooke, introduced above, who has been buying secondhand products for 3-4 years and goes thrifting once every two or three weeks. In those outings, Brooke has found used bargains on everything from American Eagle clothing, to Ugg boots, to Vera Bradley bookbags.

Cost is certainly a motivation for Brooke; in fact, she says she loves saving money and showing people the great buys she gets for ¾ of regular retail prices. She also says that she now has “a hard time spending full price on clothing at retail stores.” However, Brooke also enjoys the excitement of thrifting:

“I get a thrill in not knowing what I’m going to find. You don’t know if you’ll walk in and find brand new Nike shoes for $40 or Lululemon leggings for $30, and that’s the fun in thrift shopping, the unknowns.”

There’s little question that many members of Gen Z enjoy thrifting for a variety of reasons, but what can/should marketers do with that consumption behavior? After all, most clothing brands are in the business of selling new clothes, not used ones. Some, however, have found ways to do both, and apparently make money.

One of those brands is the iconic blue jean maker Levi’s, which has made an entire enterprise out of buying back and reselling its used denim. The company runs a well-developed website, Levi’s SecondHand where it resells its classic jeans, jean shorts, denim jackets, and more.

Even though they’re used, the items aren’t cheap. For instance, the site sells preowned men’s original fit 501 jeans for $38. On a recent Labor Day sale, Macy’s offered the same jeans new for $41.70, or less than $4 more. Levi’s used product site also sells Vintage 501 Shorts for a pricey $78 a pair.

However, a webpage that describes Levi’s SecondHand explains why someone would want to pay a premium for preowned: “Denim from past seasons that’s already beat-up and broken in. In other words, perfect.”—That sentiment is very similar to the survey finding mentioned above about generation Z liking clothes that are old, vintage, and unique.

The company also touts several other advantages of SecondHand, especially sustainability:

“If everybody bought one used item this year, instead of buying new, it would save 449 million pounds of waste.”

“Levi’s SecondHand keeps coveted pieces in circulation. It’s all about connecting people to timeless styles they otherwise may not have found, and most importantly, saving clothing from going into a landfill. Old denim has never looked better.”

A big question that remains is if selling secondhand is sustainable for Levi’s. Sure, used denim may be what consumers want and what the environment needs, but can the company make money in the clothing aftermarket? If not, the program has little potential.

Levi’s SecondHand isn’t yet a year old, so longevity is still not the best indicator. However, if the company is successful selling some used products for only a few dollars less than they sell for new, and others for even more, it seems likely that the firm, free from manufacturing costs and with relatively little added overhead, must make a healthy margin on each piece and turn a profit on the program as a whole. Interestingly, over the past year Levi’s stock price has increased significantly, from $12/share on September 21, 2020, to $26.50/share on September 6, 2021.

Can other clothing companies pull off a secondhand program like Levi’s? Few have the history and brand equity that the iconic jean maker enjoys; however, consumers’ appetite for used clothing and the favorable cashflow suggested above serve as an invitation to other suppliers. Furthermore, the fact that those who have entered the aftermarket include clothing retailers J.C. Penney, Macy’s, Madewell, and Nordstrom, as well as the furniture behemoth IKEA, suggests the viability of selling secondhand.

When you think about it, it’s not unusual for manufacturers and new product retailers to sell used products. Auto dealerships have been doing so for a century or more. Part of the reason people are willing to pay so much for new cars is that they know when they’re done driving them, someone else will buy them. Whether it’s Levi’s or Lexus, high resale value is a hallmark of a strong brand.

Still, an important moral issue remains, which a second member of Gen Z brought to my attention. Katie, also a marketing student of mine, helped me see that consumers have a responsibility to ‘thrift ethically.’ Inspired by a variety of posts she’d seen on Instagram and a visit to a thrift store in Colorado, Katie suggested that consumers shouldn’t shop in “low-volume, high-populated areas” and that they should avoid patronizing secondhand places “outside of their fiscal demographic."

The overarching reason for these sensitivities is that some desirable-brand item that we buy in a thrift shop as a ‘little luxury’ might be the same item that a more impoverished person would buy out of necessity. As consumers, we are often accustomed to there being plenty of products for everyone, but Katie reminded me that what we buy secondhand may be taking something away from someone who needs it more.

Of course, not every product lends itself to a profitable aftermarket, but many do. Consequently, for the sake of environmental, financial, and social stewardship, more companies and consumers should consider how they might responsively market and purchase preowned products. Whether new or used, items that offer value to buyers and profit to sellers, can be considered “Mindful Marketing.”

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Help Wanted, Marketing to Prospective Employees

7/31/2021

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by David Hagenbuch - professor of Marketing at Messiah University -
author of Honorable Influence - founder of Mindful Marketing

While eating lunch at a favorite restaurant recently, my son and I noticed that the menu was much shorter than before. The Italian eatery was no longer even offering one of its standard selections, pizza! After our meal, I asked our waitress about the simpler spread. She explained it was because they couldn’t hire enough cooks to prepare additional entrées.

You’ve likely seen signs in restaurants, ads from retailers, and posts on social media from other service providers announcing pressing needs for more employees. While the recent labor shortage has been a boon to job seekers, it’s been a bummer for many businesses that find themselves perpetually understaffed. However, firms can turn their current recruitment challenges into opportunities if they rethink how they market to prospective employees.

Like many professors, I’ve invested considerable time helping students get jobs, both internships during college and career positions after graduation. What has for decades been largely an employer-oriented sellers’ market has suddenly shifted. Now employers are increasingly competing for new hires. As a result, it behooves businesses to go back to school and brush up on their marketing, not to attract customers but to contract employees.

In a few days, I'll participate on a panel for that purpose, joining three others to engage employers in a discussion of how to recruit college students and recent grads more effectively.

Being both a marketer and a college faculty member, I hope to offer a unique perspective, mainly based on two-plus decades helping get students gainfully employed. I’m fairly familiar with Gen Z’s preferences in the recruiting process. So, in case there’s any overlap between the panel audience and this one--spoiler alert! I’m sharing below my recommendations for more effective marketing to prospective employees.

It’s probably not surprising that this marketer’s suggestions flow from the 4 Ps. Although there are several strategies I could encourage for each marketing mix component, I’ve singled out two for each, not because they’re necessarily the most important ones but because they’re the features/benefits that young prospective employees increasingly seek, which means they’re ones upon which employers need to double down:

Product

Social Responsibility: Gen Z’s desire to align themselves with organizations that make a difference is well-documented. Its members want to have a positive impact on the world, and one of the best ways to do so is to work for “purpose-driven companies.” Firms should be able to communicate clearly and concisely to prospective employees how they help people and the planet.

Attractive Organizational Culture: Decades ago, when I was entering the job market for the first time, company culture was not on my radar screen. Now most new hires want to know 'what it will be like' to work for a firm. I often hear them offer desired descriptors like “low-stress,” “friendly,” and even “fun.” Interviewers should be prepared to talk about their organization’s culture and point to specific examples. They also need to model it in their interactions with prospects.

Place

Work On-Line: Through the pandemic, where work occurs has become an increasingly important point of interest. Many people with whom I’ve spoken have suggested that they’ve enjoyed working from home; in fact, they’d like to continue to work remotely at least some of the time. As might be expected, most Gen Zs are extremely comfortable with digital technology and very used to interacting with others virtually.
Work In-person: At the same time, people also mention that they miss the impromptu interactions that would occur in office hallways and around the proverbial watercooler. In taking jobs, many new grads move away from family and friends, so they’re hoping to make new, meaningful connections. One recent graduate told me it’s harder for her to develop those relationships just from online interactions. So, it seems that employers should provide at least some opportunities for face-to-face interaction.

Promotion

Timely Communication: This past spring a senior student of mine was interviewing with an organization. The process was going well, but more than once he expressed concern, e.g., “It’s been almost two weeks since my second interview and I haven’t heard from them.” Granted, two weeks is not an unreasonable wait, but employers should be sensitive to the fact that more job seekers today have multiple options. So, to not miss the opportunity to make a great hire, firms should at a minimum make clear their timeframe for follow-up communication and even better, move the recruiting process along a little more quickly than it has gone in the past.
Transparent Communication: In keeping with the previous imperative, many college students tell me how much they value transparent communication. Sometimes I push back and ask, “Do you really want to know everything an organization does?” They reply, “No, but we don’t like when they hide important things or try to put a positive spin on something negative.” In short, they want organizations to be open, honest, and genuine. Companies should be careful to model these values in their communication with prospective employees.

Price

Appropriate Pay: Professional sports fans often hear of pro athletes wanting to “get paid.” It’s usually when a star’s current contract doesn’t compensate them in proportion to their productivity. College-age prospective employees don’t have contracts, but they should ‘get paid’ in the sense that they shouldn’t be lowballed; rather, they should be offered competitive salaries and benefits at if not above market averages. These young people aren’t looking to squeeze out every dollar they can, but they do have debt to pay and don’t want to have to live paycheck-to-paycheck. Similarly, unpaid internships should be a thing of the past.
Work-Life Balance: The greatest resource employees give organizations is their time. Although the prospective employees with whom I speak are very willing to work hard, they rightly want to have sufficient time for other needs and interests outside of the office. Employers should monitor and encourage healthy work-life balance. They also should be ready to tell prospective employees about their systems for maintaining an agreeable life equilibrium.

Some sectors, like healthcare, already know well the challenges of employee recruitment and retention: For years, hospitals have labored to hire enough doctors and nurses. Now, many employers share their pain. The above prescriptions can bring some recruitment relief while also helping firms feel better, knowing that they’re practicing “Mindful Marketing.”

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Is Space Tourism an Unnecessary Splurge?

7/17/2021

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by David Hagenbuch - professor of Marketing at Messiah University -
author of Honorable Influence - founder of Mindful Marketing

It’s interesting to see how much people are willing to pay to travel from point A to point B: Is $50 too much for a 15-minute Uber to the airport; is $500 reasonable for a one-way flight from JFK to LAX? For a few hundred thousand dollars, today’s trendiest travel just takes a person from point A and back, but it does include a brief stop in the stratosphere. So, is consumer space travel worth its astronomical price?

For Jeff Bezos, Richard Branson, and Elon Musk, the answer is, of course, “yes.” These three billionaires not only want to be astronauts, they want others to share the celestial experience, provided they can ante up the soaring prices.

On July 11, Branson, founder of Virgin Galactic and a variety of other Virgin companies, became the first of the execs to experience outer space when his corporation’s SpaceShipTwo carried him and a small crew to an altitude 9.5 miles above the earth.

The two other tycoons are expected soon to follow suit, the next being Bezos in his company’s Blue Origin craft on July 20. Interestingly, Musk reportedly bought a ticket on Virgin Galactic about 15 years ago; he likely will also fly on one of his own SpaceX ships someday.

It shouldn’t be long before prosperous private citizens will be boarding spacecrafts and floating in zero gravity. With already over 600 tickets sold to individuals that reportedly include Justin Bieber and Leonardo DiCaprio, Virgin Galactic appears to be leading the space tourism race. However, its competitors are also reserving spots, such as a seat that SpaceX sold to a Japanese billionaire for a trip around the moon.

So, how much does a flight into space set a person back? Seats on Virgin Galactic have been selling for $250K each. and will probably increase after its successful maiden voyage. Still, a few hundred thousand dollars is a bargain compared to a ticket for the upcoming Blue Origin flight with Bezos, which cost the winning bidder a staggering $28 million; although, Blue Origin’s suborbital capsule travels over 62 miles above earth compared to Virgin Galactic’s 9.5.

Those are enormous amounts of money spent on an activity that is essentially entertainment, i.e., there doesn’t seem to be a reason why an ordinary person has to fly on a rocket ship. It just seems like something someone would choose to do for the thrill of it or to claim the one-of-a-kind experience.

However, before anyone starts pointing a finger too vigorously at these affluent amateur astronauts, it’s helpful to recognize that many people regularly indulge in expensive, and often short-lived, entertainment experiences. For some it’s hundreds of dollars to see a sporting event or a Broadway show; for others it’s thousands of dollars to travel to a special destination for skiing or scuba diving. I've been among the indulgers.

A little over a decade ago, a research paper I’d written was accepted for presentation at a conference in Honolulu, and fortunately my wife was able to join me on this first-time trip to Hawaii. Given the unique opportunity, we took a few extra days to visit Kauai, “the Garden Island,” where we decided to splurge on a very special flight of our own—a helicopter tour of the isle, including passes over stunning Waimea Canyon and the spectacular Napali Coast.

I believe at the time tickets cost us nearly $200 each, which before the ride seemed like an extraordinary amount of money for 50-minutes, but we rationalized that it was a once-in-a-lifetime experience, which it was. If there are a few places in the world that are worth a helicopter tour, Kauai is one of them.

Still, with all the needs in the world, it’s worth asking if money spent on such momentary pleasures should be used in other ways. Maybe a $200 helicopter tour doesn’t matter as much because it’s a fraction of the cost of a ride into space, which for most people, whether they can afford it or not, probably more easily crosses the line into what they’d consider to be unnecessary and excessive consumption.

One person who’s made that suggestion is senator Bernie Sanders. During a New York Times interview, he questioned the value of the space tourism race, saying, “You have the richest guys in the world who are not particularly worried about earth anymore.” His accusation reminded me of Oliver Wendell Holmes’ maxim, “Some people are so heavenly minded, they’re of no earthly good.” Are Bezos, Branson, and Musk too “heavenly minded”?

Perhaps Sanders has a point—maybe the cost of space tourism shouldn’t only be measured by its direct costs but also in terms of its opportunity costs, or how money spent on space tourism could otherwise be used. Swiss bank UBS has estimated that space tourism could be a $3 billion industry by 2029. There’s a lot of good that those billions of dollars could do.

On the other hand, perhaps some people are looking at the industry’s impact too narrowly. Maybe space tourism is doing and can do more earthly-good than many realize.

Already, SpaceX’s Dragon spacecraft has lent a big hand by delivering supplies and crew to the International Space Station. Although those are professional astronauts not tourists, the potential payoff from a large end-consumer market has often encouraged companies in certain industries to invest more of their expertise and resources to develop technology and perfect products that benefit others.

Airplanes and computers are two examples. Military pilots flew many flights before there was commercial aviation. Likewise, businesses used mainframe computers long before individuals used personal ones. In these cases, emerging consumer demand attracted competitors into the market, which helped to improve technology and lower prices. The same will likely happen with space travel.

At the same time, there are also examples of earthly-good that the space tourism industry is accomplishing already:

Blue Origin is donating $19 million of the $28 million winning bid for the seat on its New Shepard rocket; the beneficiaries are 19 different space-related nonprofits.
There are likely hundreds if not thousands of people whose jobs are currently tied to space tourism, and that number will continue to rise as the industry ascends.
According to SpaceX, point-to-point space travel, accomplished by leaving earth’s orbit, could soon make possible a 40-minute flight from New York City to Shanghai. In other words, space tourism is leading to a new era of travel for more utilitarian reasons.

Perhaps the greatest thing that space tourism is doing is inspiring the next generation of creative thinkers and risk takers. On his recent galactic journey, Branson spoke excitedly of how space captivated him as a child and how he hopes young people today will take inspiration from his stellar endeavors:

“To all you kids down there. I was once a child with a dream, looking up to the stars. Now I’m an adult in a spaceship with lots of other wonderful adults looking down to our beautiful, beautiful earth. To the next generation of dreamers, if we can do this, just imagine what you can do.”

Launching anyone into space, including ordinary people, is a risky proposition for all involved, in more ways than one. However, current and future benefits to humanity appear to outdistance those costs, making space tourism a stellar example of “Mindful Marketing.”

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Is It Right to Sell Others Short?

4/10/2021

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by David Hagenbuch - professor of Marketing at Messiah University -
author of Honorable Influence - founder of Mindful Marketing

You’re a basketball player whose team just won the NCAA Division I national championship! You run courtside to celebrate with family but your mother is visibly upset. “Mom, what’s the matter? “I’m sorry,” she stammers. “It’s just that . . . I bet against you.”

No athlete, or anyone, likes to be picked to lose. However, life is full of potential successes and failures that people need to predict. For some, those predictions offer significant money-making opportunities. But, is it right to earn a living betting against others?

As for many, the practice of short selling stocks burst onto my radar screen when GameStop’s shares took their rollercoaster ride several weeks ago. With more than a casual interest, I followed the ensuing events, including Robinhood CEO Vlad Tenev’s testimony before Congress. Along the way, I gained a better grasp of what short selling is, but ever since, I’ve been wondering whether anyone should be doing it.

In case you’ve forgotten how short selling works: Investor A borrows from a broker 100 shares of XYZ at $100 per share and sells the stock to Investor B at the same prevailing market price, or $10,000 total. Over the next week, XYZ’s stock price drops to $75. Investor A then buys 100 shares of XYZ for $7,500 and returns them to the broker, pocketing $2,500 in the process, less any interest and commissions the broker has charged.

The Securities and Exchange Commission (SEC) has made short selling legal. However, even with this regulatory approval, the practice should raise at least two red flags, or moral concerns, that lead one to ask: Is short selling ethical?

Before addressing the two concerns, I imagine some may be wondering what short selling has to do with marketing—the other half of this blog’s two-pronged focus. Short selling is marketing in that many stockbrokers, including very well-known ones like Interactive Brokers, TD Ameritrade, and Charles Schwab, market short selling among their investment services, or ‘products.’

For instance, Interactive Brokers’ website contains a Shortable Instruments (SLB) Search tool: “a fully electronic, self-service utility that lets clients search for availability of shortable securities from within [the firm’s] Client Portal account management platform.” The relative ease with which an investor can sell short makes its moral implications all-the-more important.

First Red Flag

‘Selling something that one doesn’t own’ was the short selling issue that initially gave me pause. Peddling another’s property certainly appears problematic, until one begins to consider the many ways in which such leveraged transactions regularly occur: from apartment subleases, to bank loans, to consignment clothing. Individuals and organizations often sell others’ property on consignment.

Of course, just because consignment occurs doesn’t mean it should. Still, the fact that all parties involved 1) willingly participate and 2) typically benefit are good signs that most of these activities are above-board.

Second Red Flag

The prior examples differ from short selling, however, in the second of the two ways: While the participants in apartment subleasing, etc., generally rise and fall together financially, a short seller’s success comes courtesy of two others’ failures, namely 1) those of the company whose stock the short seller has borrowed and 2) the person who buys the stock from the short seller. The short seller makes money when the other two parties lose theirs.

In contrast, consider again the clothing consignment example: If I take an unwanted suit to a consignment shop, both the consignor and I will want a high price when the suit is sold. Conceivably, the suit’s maker also would like its aftermarket products purchased for higher prices because such resale value reflects favorably on the brand, not unlike the way higher vehicle resale prices benefit automobile manufacturers’ brands.

On the other hand, the suit’s buyer would like to pay a lower price, but even he really doesn’t want the price to be too low, since perceptions of the brand are tied, at least in part, to the price that he and others are willing to pay for the suit. Most importantly, each time he wears the suit, he extracts value from it.

The suit is this example is analogous to the stock. Whereas everyone ‘invested’ in the suit seems to want it to retain its value, investors who short stocks clearly want the value of those securities to decline. Short sellers are betting against the very companies whose financial instruments they have borrowed and sold, as well as the individuals on the receiving end of those stocks.

The zero-sum game, or winner-loser outcome, that underlies short selling is certainly atypical of most economic exchanges, but it’s not without precedent. Casinos win when their customers lose, as do many “rent-to-owe” retailers like Rent-A-Center and Aaron's. Any kind of predatory lender falls under the same unseemly umbrella, including certain credit card companies that don’t make money unless people fail to pay off their account balances and become locked into an endless cycle of exorbitant monthly interest payments.

However, many argue that short selling does not do anything nearly so destructive. In fact, some contend that the practice produces several important economic benefits, the primary one being liquidity, “the efficiency or ease with which an asset or security can be converted into ready cash . . . . ”

In my research, I found market liquidity to be the factor cited first and most often in the defense of short selling. However, at least one financial markets expert suggests that advantage is exaggerated.

Dwayne Safer is a chartered financial analyst (CFA) whose career has included significant roles in investment banking, corporate finance, and strategy. For the last five years, he’s been a professor of finance and my colleague at Messiah University. When asked about short selling and market liquidity, he offers a contrarian analysis: “the liquidity offered by short selling for most stocks is negligible.”

Safer supports his suggestion by sharing a Bloomberg Terminal screenshot (below) that shows that shares sold short represent only about 3.5% of trading volume on the New York Stock Exchange (NYSE). He also cites an example from the financial crisis in late 2008, when the SEC temporarily banned the short selling of financial stocks “without any noticeable degradation of liquidity in those stocks.”

Safer recognizes that there may be some “modest liquidity benefit” for certain heavily shorted stocks; for instance, at the time we spoke, 21% of Dick’s Sporting Goods’ shares available for trading were short. Still, he affirms: “If shorting wasn’t permissible, liquidity would be brought into the market by the broker-dealers and market makers who would stand ready to buy and sell shares of a given company to generate trading revenue.”

So, does the elimination of liquidity as a main benefit of short selling leave no morally tenable ground on which short sellers can stand? Not necessarily.

Safer continues by saying that although he doesn’t agree with conventional wisdom that short selling adds significant market liquidity, he does believe short selling offers other meaningful market benefits:

It provides the ability to hedge/protect a portfolio from downward movement in stock prices, mitigating portfolio volatility.
The in-depth research short sellers often conduct can expose fraudulent companies. For example, short selling hedge funds warned about the frauds at Enron, Tyco, Fannie Mae and more recently Luckin Coffee and Nikola.
Shorting helps prevent overinflated securities prices that waste valuable capital and harm investors, as occurred in the dot-com bust in 2001. Former SEC chairman Christopher Cox once stated, "We need the shorts in the market for balance so we don't have bubbles.”

Before beginning to write this piece, I was unaware of these important benefits of short selling. Still, how do we reconcile such consequences with the moral principle of respect, or as my second red flag/concern described: not betting against another person.

That moral principle certainly has merit, but my earlier discussion probably represented too narrow a view of short selling. Safer’s observations have helped me see that there are other factors to consider and parties to take into account, e.g., other investors, firms’ customers and employees, and the economy as a whole.

I’m also helped by remembering a story I heard just a few days ago: A guest speaker in our capstone marketing course mentioned that a former client of his used to tell him, “I pray for my competitors.” This very successful business owner was not being sarcastic—he truly wanted his competitors to succeed both because he genuinely cared about them and because he understood that “a rising tide lifts all boats.”

Returning to the basketball metaphor that began this piece, no serious athlete wants to be on the winning side of a forfeit. Basketball players need competitors, who also happen to have fans rooting for them.

However, choosing loyalties isn’t unique to picking stocks or selecting sports teams. Each day we make dozens of similar decisions when choosing what clothes to buy and where to order takeout. Each selection of a company is essentially a vote against another; however, other people are voting for the competitors. In fact, the next time one of those ‘other’ votes may be ours.

Meanwhile, a ‘no vote’ conveys valuable information to all who are willing to listen and learn from it. When companies assimilate such negative feedback, they make themselves better, their industries stronger, and stock markets more stable.

It’s very unlikely that a mother bets against her own daughter or son for anything, but other ‘no votes’ are not necessarily bad. Short selling a company’s stock can be a good or bad bet for the investor. It also can be “Mindful Marketing.”

Subscribe to Mindful Matters blog.
Learn more about the Mindful Matrix.
Check out Mindful Marketing Ads and Vote your Mind!

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NFT: Not Free for the Taking?

3/28/2021

6 Comments

by David Hagenbuch - professor of Marketing at Messiah University -
author of Honorable Influence - founder of Mindful Marketing

Like most people, I was amazed when an NFT of a collage by the artist Beeple recently sold at auction for $69 million. It’s worth pondering why anyone would pay so much for a blockchain-based asset, but the sudden popularity of NFTs may signal a more important concern: the price that individuals increasingly pay because others can easily digitize and share their work.

Beeple’s nonfungible token has been one of several recent high-priced, head-scratching NFT purchases:

$389,000 for “Death of the Old,” a music video by the musician, singer, and songwriter Grimes
$580,000 for Nyan Cat, “an animated flying cat with a Pop-Tart body leaving a rainbow trail”
$3.6 million for “Ultraviolet,” an album by electronic-music artist Justin Blau, aka 3LAU

So, what do people who pay thousands or millions of dollars for such NFTs actually get? They receive proof of ownership of the digital item, which comes in the form of “a unique bit of code that serves as a permanent record of its authenticity and is stored on a blockchain, the distributed ledger system that underlies Bitcoin and other cryptocurrencies.”

What makes the passion for NFTs puzzling is that people who purchase them gain virtually no exclusive use of their virtual property. For instance, Nyan Cat is ten years old and “has been viewed and shared across the web hundreds of millions of times.” There’s no practical way for the feline’s new owner to stop others from viewing or posting their newly-acquired kitty.

What NFT owners receive amounts to little more than “digital bragging rights.” It’s kind of like holding the title to a car that anyone else can drive. Well, at least the owner can point to the title and say, “It’s mine.”

The possibility that others may be willing to pay even more for certain NFTs can give them value by virtue of their potential resale. There also may come a time when some NFT owners will be able to more readily restrict access to their digital property and monetize their asset.

In that way, perhaps NFTs have become so popular because people notice a troubling trend: Individuals spending their time, energy, and talents to create things of value, only to have ‘anyone with a smartphone’ duplicate and share the work with no consideration of, or compensation for, its creator.

This issue hit home for me recently when I saw this headline in the Chronicle of Higher Education: “Deadman Teaching.” As a college professor, I know how helpless one can feel in front of class when nothing seems to be going right, but the focus of this piece was quite different.

The article described the experience of Aaron Ansuini, a college student who was really enjoying an art history course taught on video by a deeply knowledgeable and enthusiastic “bespectacled, gray-haired professor,” François-Marc Gagnon.

During one of the engaging lectures, Ansuini had a question he wanted to ask his instructor, so he searched for the professor’s name online, thinking it would be faster than locating the syllabus on his laptop. What he found was an obituary--Gagnon had passed away at the age of 83 about two years earlier.

Until then, Ansuini and other students had no reason to think that their professor wasn’t still living. The course syllabus made no mention of his passing, and students had been receiving messages they thought were from Gagnon but must have been from a teaching assistant.

Tom Bartlett the author of the Chronicle article, reached out to one of Gagnon’s children, Yakir Gagnon, a researcher at Lund University, in Sweden. On one hand, the son thought his father would be very happy that his insights were still finding an audience; however, he also wondered about the intellectual property implications and who owned the rights to the work.

As someone who teaches a significant number of classes each week, I can’t help but wonder the same thing: whether ‘digital me’ might keep teaching after my death, but also how copies of my work might be used now without my knowledge or consent. I also can imagine two main objections to such concerns—one related to relevance and the other to responsibility. I’ll try to address both:

1) Relevance: A natural reaction might be, I’m not a teacher, so Gagnon’s case doesn’t apply to me.” However, people in all kinds of occupations write, say, and do instructive things that others will read and watch, if someone digitizes and shares them.

For instance, anyone familiar with YouTube knows its abundance of instructive videos, from cooking rice to repairing cars, which often come in convenient five- or ten-minute clips. Most of the videos are shared with the consent of their creators, but not all, as evidenced in part by many posts that seem prematurely removed. Some pirated videos likely earn money for others without their owners’ knowledge or consent.

2) Responsibility: Even those who understand that unauthorized sharing can potentially affect anyone may still believe that employers own everything their employees do. It’s true that in a principal-agent relationship, the agent (employee) has a fiduciary responsibility to act in the best interest their principal (employer).

In the case of Gagnon, because his university presumably paid him, he (the agent) had a responsibility to do what his principal (the university) required, i.e., to teach art history classes. If for some reason he didn’t want to do that, he shouldn’t have collected a paycheck. However, did paying the professor to teach a specific class during a particular semester give his employer the right to use his digitized teaching to instruct other classes, without giving him or his heirs additional compensation?

In the world before hyper-digitization, such obligations were rather clear-cut: Job performance happened in real-time, largely constrained by a particular place and time. The introduction of early recording and duplicating devices (e.g., video cameras, copy machines) stretched those boundaries.

In the current era of highly-advanced and widely-democratized digital technology, along with broadly-used social media platforms, those boundaries have been blown wide open. Duplication and sharing anyone’s work, including employees’, is incredibly easy and enticingly convenient.

The questions, then, become what employee work is fair to share digitally, where, and for how long. Some may suggest that employers hold complete sharing rights during and even after the agent-principal relationship has ended. Perhaps such broad employer ownership could be justified if agreed to with informed consent, but even then, the agreement would only be fair with appropriate compensation.

What is appropriate pay? It might be a percentage of the present value of projected future earnings from the digitized work. Or, it could be royalties, or residual income, that accrues whenever the work is shared. The latter suggestion may seem unreasonable, but there is strong precedent in the form of television actors who are often compensated with royalties for each episode that airs in syndication, or songwriters who earn money every time their music is sold or played.

Although some undoubtedly do this, it would be unfair to pay a musician to play a piece once, record the performance without her knowledge, and make money by selling her art without her consent. But again, even if there is informed consent, people deserved to be fairly compensated for their digitized work when it’s shared and continues to bring in dollars.

In a sense, everyone is an artist, creating content that benefits others now and perhaps into the future, if digitized and shared. Maybe that future will include more robust ownership standards based on blockchain systems for sharing. The current fervor for nonfungible tokens may be unfounded, but NFTs might be writing a script for more “Mindful Marketing.”

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