Marketing Promotions, Optimism, and Uncertainty

Kellogg Professor Kelly Goldsmith and UC-San Diego Professor On Amir have conducting a fascinating new study about marketing promotions such as the McDonald's Monopoly game or the MyCoke campaign.  They examine whether people act rationally when considering their odds of winning in these types of situations. 

The researchers distinguish between two forms of consumer optimism:  innate and conscious.  In the case of these types of marketing promotions, the scholars argue that innate optimism rules.   This form of optimism is both innate and intuitive.  It tends to drive our behavior in low-stakes situations such as these marketing promotions.  We enjoy the game, and we know the stakes are low.  Therefore, we don't worry about the low probability of winning.  We don't even both calculating the odds.  We overestimate the likelihood of winning something during the promotion, and we engage in it as a consumer. 

Conscious optimism takes hold when the stakes are higher.  Suppose we are considering opening a restaurant. We will have heard all the statistics about the low probability of success.  Nevertheless, we convince ourselves that we can succeed where others have failed.  We become overconfident and plunge in head first to this rather risky endeavor.

The scholars focused on innate optimism situations in their experiments.  They evaluated whether an individual would purchase a six-pack of soda under three "prize" scenarios:  Godiva truffles (more expensive, valued prize), two Hershey's kisses (less expensive, lower value prize), and an uncertain outcome (not sure which prize would be awarded).   Naturally, individuals respond to the high-value prize more than the low-value prize.  However, they responded to the uncertain outcome almost as much as the high-value prize!  The uncertain nature of the outcome seemed to trigger innate optimism and make consumers happy to participate. 

If, however, the researchers primed the respondents to think carefully about the odds in the game, then people are much less likely to purchase the soda!  In other words, when we move them out  of an innate optimism state, then their likelihood of responding to these types of promotions falls!

The Launch of the New Wii U Gaming Console

In November, Nintendo will launch its new Wii U gaming console.  The company hopes to revive lackluster gaming revenues that have resulted from the maturation of the original Wii product line, as well  as the shift to mobile gaming that has hurt the console business overall.  Kyle Orland writes in this article about Nintendo's pricing strategy.  The firm will be pricing at below cost at launch.   In some ways, we should not find that fact surprising; after all, most gaming companies price below cost at launch. However, Orland notes that Nintendo did not have to do that when it launched the original Wii.  It actually turned a profit at the start.  That proved rather unusual though, running contrary to most product launches in the gaming industry's history.

Source: Nintendo

Why do most gaming consoles sell below cost at launch?  Three major reasons exist. First, companies hope to capitalize on network effects.  They want to build the installed base quickly.  As they do so, the value to each customer grows, and the attractiveness of the console to software developers increases as well. Second, the companies hope to use a "razor and blades" model to make money.   A higher installed base of consoles brings with it higher software sales, which can be very profitable.   Third, the cost of producing a console decreases significantly over time.  Those cost decreases occur for two reasons:  economies of scale and learning curve effects.  

For these reasons, Nintendo rightfully can expect to improve console profitability over time.   Still, they will need strong launch sales to kick off this virtuous cycle.  With the explosing of mobile gaming, the question remains:  Can consoles bounce back?  Have their struggles in recent years simply been due to the usual cyclical downturn in the later years of a technological generation, or are they experiencing a permanent disruption to their business due to the emergence of attractive substitutes?

Taking the Bus Together?

Adam Bryant of the New York Times recently interviewed Jarrod Moses, chief executive of the marketing agency United Entertainment Group.   Moses talked about a very unique aspect of his company's culture.  Here's an excerpt:

One of the first things we bought was a tour bus. We use it instead of flying. We take it at least 25 times a year to different meetings throughout the country. There’s an amazing culture that develops on the bus. You learn so much about one another, and you develop this candor and trust that you don’t get in the office. The creative juices just flow, and they flow 24 hours. They could come from a joke; they could come because someone is just overtired. You never know.  The point is that there’s no barrier to entry for the idea. People are wearing T-shirts and shorts. No one is the C.E.O. on the bus. It’s like a band. There’s a magic to it. 

Now I know what many of you are thinking... this silly stuff is for creatives, but not for us.  Well, the point really isn't about whether you should run out and buy a tour bus.  Here's the major lesson from this story:  Environment matters.  When we think about creativity and innovation, we should think about more than just finding highly creative people.  We should think about creating environments where many people can be candid, exhibit creativity, and drive innovation.  Sometimes that means taking people out of their normal work routines.  It means creating a situation where people can engage in divergent thinking and be more candid... where we are diminishing status differences and flattening the hierarchy. 

Avoid the Water Cooler Gripe Sessions!

Source:  WSJ from AFC Enterprises

Cheryl Bachelder, CEO of AFC Enterprises (they own Popeye's Chicken), sat down recently for an interview with Leslie Kwoh of the Wall Street Journal.  She offers some terrific advice to young professionals striving to achieve a successful career.  Here's an excerpt:

My career strategy was to work like a dog. If there was water-cooler stuff going on, I didn’t participate. When the company [RJR Nabisco] was being acquired, I said, ‘I’ll worry about that when it’s done.’ So I became a VP at 30; while everyone else was wondering what was going to happen next, I actually did work, produced results and developed people.  You can’t be a ‘Negative Nancy’ and create great things. I’ve watched mergers, acquisitions, breakups, sales, and all the lost productivity that comes with hallway conversation that does absolutely nothing for the company or your career. It’s just pointless.

Spot-on advice, if you ask me!  Executives should take a lesson from this interview as well. Major strategic events such as mergers and acquisitions, create a ton of water cooler conversation.   Firms experience a significant drop in productivity during these occasions.  It's no wonder that many integration efforts prove problematic.   Why does so much water cooler activity take place?  Often people gripe and complain because of fear, uncertainty, and doubt.  In the absence of information, they gossip, wonder, and worry. If there's an information vacuum, employees fill it! As a result, leaders need to share information proactively during these moments of uncertainty. They need to alleviate fear quickly, promote transparency, and get people focused on the key priorities ahead. If not, productivity will suffer.

The Art of Persuasion

Yesterday, I taught a group of executives a case study about a friendly fire accident in the military that took place in 1994 (based on Scott Snook's incredible book).  Interestingly, many people have a caricature in mind when they think about the military.   They think that commanders can simply give orders and expect everyone to follow them.   In their minds, executives think, "We have it much harder in the business world.  We can't just order folks around."   However, executives would be wrong to think in this manner.  Even military commanders have to persuade.

Stephen Ambrose wrote the following about General Dwight D. Eisenhower:

“Although none of his immediate superiors or subordinates seemed to realize it, Eisenhower could not afford to be a table-thumper. With Montgomery’s prestige, power, and personality, for example, had Eisenhower stormed into his headquarters, banged his fist on the table, and shouted out a series of demands, his actions could have been disastrous.” 

Interestingly, Eisenhower reflected in his writings about where he had learned about the necessity of persuasion. He described what he had learned from General Fox Conner, one of his mentors, under whom he first served in the early 1920s. Eisenhower wrote:

“He (Conner) laid great stress in his instruction to me on what he called the ‘art of persuasion.’ Since no foreigner could be given outright administrative command of troops of another nation, they would have to be coordinated very closely, and this needed persuasion. He would get out a book of applied psychology and we would talk it over.” (Source: Jean Edward Smith)

Helping the Other Party in a Negotiation

Jim Sebenius has written an interesting new working paper.  Sebenius is a negotiations professor at Harvard Business School.   Sebenius argues that a good negotiator thinks about the other party's "behind-the-table" barriers.   In other words, what challenges may the other party face within their own organization?  What pressures are they feeling?  How will they be judged by their organization?  We can succeed in achieving a successful outcome if we seek to understand the other party's "internal negotiation problem." Why?  The other party will be more likely to agree to a negotiated solution if it helps them achieve certain internal goals and overcome certain internal obstacles that they face.   What then should a person be doing in the early stages a negotiation process?  Learning!  You should be trying to understand the other party's internal predicament, constraints, and pressures.  Put yourself in their shoes.  Try to appreciate the ways in which they will be judged, rewarded, and perhaps punished based on the outcome of this negotiation.   Moreover, you should seek to understand how you might help the other side "save face" if the solution involves certain "bitter medicine" for his or her organization. 

Google, Motorola, and Android

When Google purchased Motorola's cellphone business, it became vertically integrated.  In other words, it now owns produces the mobile phone hardware and the software, much like Apple.   We all know that Steve Jobs extolled the benefits of vertical integration in the various businesses in which Apple competes.  He believed fervently that one could only produce a "magical" device if you made both the operating system and the hardware.  

Vertical integration has many benefits, but it also comes with certain challenges.  In particular, it can be quite challenging when you start out competing in one portion of the value chain and then enter a downstream business.  Google did so when it began by making Android and then acquired a cellphone maker.  In so doing, Google now has entered into competition with its customers.  After Google's customers for its Android software include Motorola's competitors: Samsung, HTC, and the like.  That competition with customers can be a tricky thing to navigate at times. 

According to this article in Fast Company by Farhad Manjoo, Google has chosen to deal this sticky situation by "erecting a firewall between Android and its new Motorola division. The new rules ensure that Motorola's hardware teams get no more access to Android's engineering teams than any other device maker would."   Surely, the firewall helps allay customer concerns that Google may be favoring its internal Motorola division over other cellphone makers.  On the other hand, such a firewall clearly diminishes the very benefits of vertical integration that presumably drove Google to make the deal in the first place!   What's the explanation here?  Could Google have underestimated the push-back from customers when they made the acquisition?  Or has Google chosen this firewall strategy as a temporary transition mechanism as they work through customer relationship issues?  Surely they won't leave the firewall in place forever, will they?  If so, then why buy Motorola at all?  What value does owning the hardware business bring if you don't make the software and the mobile device work together harmoniously?

The Promise and Peril of HR Software

Michal Lev-Ram wrote an interesting article this week in Fortune magazine.   Lev-Ram examines new HR software systems being sold by the likes of IBM, Oracle, and SAP.   These systems, among other things, attempt to improve the performance review process.   The systems attempt to make goal-setting and performance review a year-round process, as opposed to an event that occurs once or twice per year.  The software includes virtual rewards, as well as methods for distributing real rewards.  The systems also enable employees to set goals throughout the year and track progress, as well as to solicit feedback throughout the year. 

The key question:  Will employees actually USE these types of systems to enhance performance evaluation and constructive feedback?  Or, will employees view these tools as cumbersome, time-consuming, and distracting?  Such systems only create value if employees invest the time to use them.  Moreover, they only help drive talent development if they become more than an evaluative tool.  They have to be formative/developmental tools as well.   If employees view them as strictly evaluative, they aren't likely to enjoy using the systems.  Moreover, they may simply not take the time necessary to obtain optimal value from them. 

In the end, talent development and performance evaluation only will improve if such systems are implemented along with a broader systemic change in processes, norms, and leadership behaviors.  Without such systemic change, new software alone won't have the desired effect.

Insiders vs. Outsiders: Sweeping Generalizations Don't Make Sense

I read an interesting blog post this week on the HBR site.  The post consists of an interview with Harvard Professor Gautum Mukunda.   Here is an excerpt (video posted below as well):

The finding: The best leaders tend to be outsiders who don’t have a great deal of experience.
 
The research: Gautam Mukunda studied political, business, and military leaders, categorizing them into two groups: “filtered leaders,” insiders whose careers followed a normal progression; and “unfiltered leaders,” who either were outsiders with little experience or got their jobs through fluke circumstances. He then compared the groups’ effectiveness; for instance, with U.S. presidents, he looked at historians’ rankings from the past 60 years. He discovered that the unfiltered leaders were the most effective—and also the least effective—while highly filtered leaders landed in the middle of the pack. 
 
The challenge: Is searching for a leader with a long, impressive résumé a waste of time? Is experience a predictor of mediocre performance? Professor Mukunda, defend your research.
 
Mukunda: I was surprised by how unambiguous the data were, but they confirmed what I suspected: If you choose an insider who you know can do the job well, most of the time that person won’t perform any differently from any other top candidate with lots of experience. Such insiders—I call them “filtered leaders”—might be good, but they probably won’t be brilliant. It’s the unfiltered leaders, the outsiders without lots of experience, who perform the very best.

I'm highly skeptical of such a sweeping generalization.  I don't think we can argue that outsiders are ALWAYS preferable to insiders, that unfiltered folks are always preferable to experienced individuals.    The bottom line is: It depends!  Certain circumstances call for an outsider or a person with fresh perspective, while others lend themselves to an insider or someone with deep experience in an industry or company. Each company needs to assess its situation and make the right choice for that organization, given its strategy and culture, AT THAT POINT IN TIME.  The right solution for Company XYZ in 2012 may not make sense in 2018, as conditions change.   Moreover, the search for that superstar outsider can be a futile one, as I've written about in earlier blog posts.  We sometimes become enamored with the outside "star" hire... and then feel very underwhelmed a few years later.  

Struggles at Zynga

As many of this blog's readers know, Zynga - the social gaming company - has suffered recently.  According to this Fortune magazine article, "Shares are down nearly 74% since its stock market debut. User engagement has dropped 53% in less than three years according to social game analytics firm dystillr."  What has happened to the firm?

Several factors explain Zynga's struggles.  First, the company's games lack the depth of some traditional console-based video games.  Therefore, the games appear to have a limited life span.  Many users seem to tire of the games fairly quickly. Here we see a catch-22.  Zynga's games don't require the kind of upfront investment to develop that console-based games need.  However, the payoff down the road may be more limited - less risk, less return.  Second, the company depends upon Facebook a great deal.  As Facebook users have shifted toward accessing the social networking site via mobile technology, Zynga user engagement has declined.  Zynga appears to make less profit on its mobile games, as opposed to games that users accessed via Facebook on their laptop or desktop.  

Beyond that, I think Zynga's difficulties point to a bigger trend in the video game industry.   The shift toward mobile and social gaming clearly has disrupted the console-based gaming business.  Most of these mobile and social games require much less money to develop.  However, they also appear to have a limited lifespan in many cases.  Therefore, we have moved to a situation where gaming companies may need to innovate much more quickly.   Users appear to require new versions and new experiences much more often now.  They enjoy mobile games, but they "consume" them very quickly.   The new winners in the video game business will be those firms that can churn out streams of hits.  

The question remains:  Will those winners be able to develop franchises (a big hit followed by a stream of sequels and spinoffs), or will they have to develop unique new games much more often than in the past?   In the movie business, sequels generally make less money than original films.  Video games defied that logic for many years.  In console-based gaming, sequels proved to be an engine of profitability.   Can that happen long term in mobile gaming, or will consumers demand variety and newness to a much higher degree?

How Big Companies Act Like Startups

Soren Kaplan wrote a terrific article recently for Fast Company.   Kaplan explained how some large companies try to act more like startups in an effort to jumpstart innovation.  He outlines four key practices/principles that invigorate innovation:

1. Follow customers home:  In other words, conduct anthropological research.  Go into customer homes and observe them in their natural settings using various products and services.

2.  Tap outside collaborators:  Bring in experts and innovators from outside the firm to bring fresh perspectives, explain their research, and educate folks about how things are done elsewhere.

3.  Stay small:  Don't think in terms of bet-the-company type projects.  Think instead in terms of low cost, rapid experimentation.

4.  Use the best, invent the rest:  Creating a new product or service doesn't mean inventing the entire thing from scratch.  Often, you can combine off-the-shelf components with proprietary innovations to develop a unique new product.

Do We Grow More Creative As We Age?

The conventional wisdom suggests that we generate fewer breakthrough ideas as we grow older.  An article in Psychology Today challenges that notion.   In the short essay, Dr. Gary Small, Director of the UCLA Center on Aging, offers an interesting perspective.  He says,  "There are neuro-circuitry factors that can favor age in terms of innovation".  Small emphasizes that empathy plays a major role in creativity, and we tend to become more empathetic later in life.   I found that point quite fascinating, given that design thinking stresses the importance of observing users in their natural setting and then empathizing with users - their problems, struggles, and needs.  

In addition, Dr. Small argues that we become better at pattern recognition as we age.  That makes some sense too.  After all, intuition does play a major role in the creative process.  Intuition essentially is the ability to recognize patterns based on deep expertise in a particular domain.  We refine our pattern recognition ability through a breadth and depth of experiences over time.

Having said all that, I have written previously on this blog about research showing that scholarly productivity in many fields does decline with age, though the peak performance differs based on the field of research.   Thus, we want to take this particular article with a bit of grain of salt.   The argument, though, that empathy and pattern recognition improve with age, makes a good deal of sense.  It suggests that innovation teams may want a good balance of young and old members, rather than simply stacking the groups with "the best and brightest young minds." 

What are the Top Five Personality Traits Employers Seek?

Meghan Casserly of Forbes reports on some interesting new research byUniversum, an employer branding firm.   The company surveyed over 400,000 people over the past year, and they tried to identify the top five personality traits that companies desire in job candidates.   The top five are:

1. professionalism
2. high energy
3. confidence
4. self-monitoring
5. intellectual curiosity

What does self-monitoring mean?  It refers to the ability to work independently.  Can a candidate figure out how to plan and complete a project without being told what to do each step of the way?  Interestingly, we know that many employees value autonomy.   Having control over the work you do can lead to higher intrinsic motivation, and ultimately, higher productivity.  However, many employees have a hard time working independently when they are given autonomy for the first time.  They are accustomed to being provided lots of direction and guidance.  Employers rightfully look for candidates who have had some experience working on their own.  They want people who have already worked through the kinks of having autonomy for the first time.

For students entering the workplace after graduation, showing that you can work independently is crucial.  Students should consider the types of projects that they have done at school.  Have they completed a major independent study or thesis?  Have they led a campus organization or planned a major event on campus?   Did they complete a project during an internship?  

Devil's Advocates: Improving Information Sharing

Garold Stasser and his colleagues published a series of influential studies in the 1980s and 1990s regarding information sharing in groups.  Stasser's research examined groups in which members possessed a mix of shared and unshared information.  Shared information represented data which all members of the group possessed.  Unshared information proved to be unique to a particular individual.  Stasser created a series of experimental studies to examine how groups behaved in this type of shared/unshared information circumstance.  

For instance, in one study, he created a murder mystery with a series of clues.  If people put the clues together successfully, they could identify the culprit and exonerate the other suspects.  Stasser compared how individuals and groups performed when trying to solve this murder mystery.   He found that individuals actually outperformed groups.  Stasser argued that groups struggled because members tended to not share, discuss, and integrate privately held information effectively.  

Recently, Brian Waddell, Sukki Yoon, and I conducted a new study using Stasser's murder mystery.  Our research will soon appear in the academic journal, Management Decision.  Our control groups worked on the same mystery using the same instructions provided by Stasser.   In our experimental condition, we assigned one member to play the role of devil's advocate.  We asked that person to question assumptions, probe lines of thinking, and encourage people to think differently.  We compared the results of the two types of groups.  We found that groups with a devil's advocate performed much more effectively than the control groups.  Here is a chart summarizing our results:

B. Waddell, M. Roberto, and S. Yoon, (Forthcoming). "Uncovering Hidden Profiles: Advocacy in Team Decision Making." Management Decision.

Flattery Can Lead You Nowhere

Sun Hyun Park, James D. Westphal And Ithai Stern have conducted some interesting research on "flattery" in the workplace.  We all know that some folks like to kiss up to the boss.  We can debate whether it helps the subordinate's career or not, but another interesting question is whether such flattery has any impact on the boss.  These scholars find that it may have a detrimental effect on firm performance, because of the effect it has on the boss' mindset.  In their research, Park, Westphal, and Stern don't find a direct link between flattery and firm performance.  Instead, they found that flattery can boost a CEO's self-confidence (or what they call self-enhancement).  As a result, CEOs can become less likely to change a firm's strategy when performance begins to suffer.

In a strange sort of way then, flattery can make leaders stubborn.  They become more entrenched in their existing positions, because they believe that they can work things out without any major changes in strategy.   Perhaps the finding is not earth shattering, but it is thought-provoking.  Moreover, the rigor of the research should be applauded.

What's the practical implication?  I think the advice for leaders goes beyond "surrounding yourself with people who are not just yes-men."  Leaders need to recognize that they are likely to receive many accolades, even from those who may be willing to challenge them on occasion.  Compliments come with success, formal authority, and status.  I've worked for a number of leaders with whom I've had disagreements at times (and with whom I've felt comfortable expressing dissent), yet I'm quite sure I've also complimented them quite a bit on their successes.  Leaders need to recognize that a steady stream of compliments can begin to affect their decision-making moving forward.  It may make them more reluctant to change.  Therefore, leaders need to always stimulate a robust dialogue about new strategic options, even when the current path seems the right one. 

Argo: lessons in planning?

I'm reading the new Tony Mendez book called Argo.  The Ben Affleck movie based on the book comes out soon.  Mendez, a former CIA agent, describes the amazing rescue of six diplomats from Tehran in 1980, after they had remained hidden and protected by the Canadian embassy while so many Americans were held hostage in Iran.  I think the book offers some interesting lessons in planning and preparation.  The plan was creative and bold, yet they prepared for many scenarios.  It was careful AND creative, meticulous AND adventurous.  I recommend the book and look forward to the movie.

Can Redbox Disrupt The Ticket Business?

For years, Live Nation Entertainment's Ticketmaster business has held a dominant position in the ticket retailing business.  In fact, many artists and consumers have explained about Ticketmaster's power in this market.  Now, a new rival appears to be emerging.  Redbox has announced plans to sell tickets through its ubiquitous kiosks.  At first, Redbox plans to focus on selling surplus tickets.  In other words, the company will be trying to help unload tickets that otherwise aren't selling for key events (bad seats, leftover tickets, etc.).  

The question, of course, is whether the move to sell surplus tickets will eventually translate into a broader ticket retailing business.  We know that many disruptive innovators start out at the low end of the market, selling what appears to the dominant incumbent players to be "inferior" products or services. Gradually, however, the disruptor begins to improve its product, and it gains traction outside of a fringe consumer segment.  At that point, the disruptor becomes a major threat to the incumbent players.  We saw this happen as Redbox and Netflix disrupted Blockbuster.  Could Ticketmaster be facing a major threat in the coming years? 

Do Leaders Experience Less Stress Than Front-Line Workers?

A new study by Gary Sherman and colleagues at Stanford and Harvard offers some interesting insights regarding how people experience stress in the workplace.   The scholars note that the conventional wisdom suggests that people feel more stress as they achieve higher levels of formal authority in an organization.  However, they found the opposite to be true.  The researchers discovered that leaders had lower levels of the stress hormone cortisol and lower self-reported anxiety than non-leaders in the organizations they studied.  The scholars argued that leaders may feel less stress because they have a greater sense of control.  Because they have more autonomy regarding the type of work they do and decisions they make, leaders may not experience the same type of anxiety that other workers do. 

For more information on stress, I highly recommend a new book co-authored by my Bryant University colleague Jim Segovis.  The title is:  Work Stress and Coping in an Era of Globalization.  The book offers a sound scholarly treatment of the subject of stress in organizations. 

The Washington Post Enters the Healthcare Business?

Reuters reports this morning that the Washington Post has acquired Celtic Healthcare, a home healthcare and hospice services provider here on the east coast of the United States.   I have to admit to being puzzled by the move.  I'm curious to learn more about the rationale for this acquisition.   As many of my readers know, the Washington Post has moved away from a reliance on the newspaper business given the disruption that has taken place in that industry.   For a number of years, the company generated strong growth from its other major line of business - the Kaplan education unit.  However, that unit has been plagued by the controversies surrounding for-profit educational institutions in the past couple years.   Therefore, perhaps the Washington Post is looking for another new line of business from which it can generate the growth that is lacking in the core newspaper business.    The question, though, is how investors will react to what looks like a strategy of unrelated diversification.  Why would the Washington Post be better at operating a healthcare company that a firm focused in that industry?  

Reuters offers a brief statement by Donald Graham, CEO of the Washington Post, explaining the deal:  "Our acquisition of Celtic Healthcare is part of the Post Company's ongoing strategy of investing in companies with demonstrated earnings potential and strong management teams."  While that may be true, strong earnings and great management talent alone do not justify an acquisition in an unrelated business (in most circumstances).  The question is what value can the Washington Post add to this business.