Stopping my mental pricing bias

Many years ago (ok it was 1983), before he was a big-time star, I saw Jerry Seinfeld do a stand-up routine in Boston. He did a bit that went something like “I can’t compete with my father’s stories about the old days.” His dad would say “When I was your age a car cost a quarter and house cost a dollar” You win dad. It was clear that his dad had an internal pricing bias. I recognize this because I even see it in myself.

I’ve written about XM radio and how I felt the $15/month price was unreasonable and I avoided doing it for a few years. But I finally relented and admit that I like having it even though I am not in my car to get the benefit as much as some other people. It’s really a good service on long trips and I enjoy having the option. $15/month turned out to not be too expensive after all once I readjusted my own value proposition. Your results of course may be different.

On the other hand, from the moment Spotify came around I jumped aboard. The $10/month individual fee for unlimited choice without ads was a slam-dunk value proposition. Don’t tell the folks at Spotify but I’d be willing to pay more. Because I have in mind that back in the 80’s and 90’s I was buying lots of CDs (which I NEVER listen to anymore), and was easily spending more than $200 per year buying music.

I went through a period where I did not buy any music but listened to what I had purchased already. Unless you’ve been around nearly as long as have I you may not understand. Even now I am spending less yearly than I did all those years ago on a dollar for dollar basis. Spending $200/year on music in 1987 was not a big deal. And in today’s dollars $200 in 1987 would be $436.98.  It’s pretty clear to me that Spotify could raise prices a bit and afford to pay the artists more.

I have other pricing biases like hotel rooms. Having been around for a while I remember when $100 for a hotel room was a small fortune. Despite knowing that ‘things’ get more expensive over time it’s not easy to throw off the bias I have when I see a simple hotel room with no frills costs $200 or more depending on what city and time of year you are traveling. The $99 hotel room (which was quite adequate) in 1987 would be more than $200 today. In that context it doesn’t seem so outrageous.

Then there are airline tickets. Somewhat anomalous to the general upward trend since prices for airlines seats actually have declined in real dollars since 1987. And in 1987 there were still people smoking on planes, they served a lousy (but ‘free’) meal and the seats were uncomfortable. The Atlantic Monthly had an article about that in 2013. Yet people still feel that airline prices are too high. That’s a kind of reverse pricing bias.

How about renting an apartment in New York City? Back in the early 1980’s I rented a 2-bedroom apartment on Manhattan’s east side (it was a 5 floor walkup) for about $500/month. In 2017 dollars it would be about $1,100. And if you think you can rent a 2-bedroom apartment no matter how small for $1,100 you probably believe in the tooth fairy. Paying 40% of your salary to live in NYC is not at all unusual. My half share was probably closer to 25% of my salary back in the 80’s. (Clearly I was underpaid).

We Americans pay less for food today on an adjusted for inflation basis than we did 30 years ago. Yet we spend more to eat out than we did. I guess that leaves more time to ‘consume’ media and content. Americans also like to complain about the cost of gasoline and transportation (my monthly commute to NYC costs more than $350 and does not include subway fare in the city). This translates to $160 in 1987 which fairly closely matches what actually happened.

As it relates to marketing, pricing biases make marketing goods and services all the more challenging. Marketers put a great deal of effort gaining understanding how consumers (i.e. PEOPLE) are actually behaving at the same time trying to keep their own and our own biases out of the picture. is a good idea but probably not sustainable if people actually don’t have the will and time to spend 30-45 minutes cooking. Throwing the unused food out drives people crazy. $10 for a home cooked meal seems like it might be ok until you realize that you have to do the cooking and take out is no more expensive and SO much easier! The price bias there is cooking healthy at home maybe should not be as or more expensive than take-out.

Those marketers that ignore the existence of pricing biases do so at their own risk. Not to mention their client’s risk.

Do you have any good examples of pricing bias?

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When it comes to clients who should deliver the bad news?

When you’re involved in a service business it’s no secret that not everything goes right all the time. Making the client aware of the bad news is probably one of the least pleasant things we professionals experience. But in that client relationship who should be the one to deliver that not good or ‘bad’ news? For me it was always the owner of the relationship. In most cases it’s the business development specialist or (old school) salesperson that had brought in the business in the first place.

I’ve been fortunate to have some terrific project managers on my team over the years and I always appreciated their efforts in being on the front line of the client relationships that I had initiated. I always wanted them to be the ones delivering the good news – we were ahead of schedule on something, had better results than we had forecast and other day to day account activity.

Upon occasion things did not go well, I always was willing to be the one to deliver that bad news in as timely a manner as possible. I note willing since sometimes the project manager would take that on directly with the knowledge that I was behind them to lend support. I believe that was appreciated all around and we had clients almost always more than happy to work with any member of our team.

In times of crisis the worst thing that can be done is to hide and not communicate. Clients don’t like bad news any more than anyone else. But what I’ve found they dislike even more is lack of communication.   In the absence of communication people always make up their own narrative as to what they think is going on and it’s usually not favorably inclined toward the agency.

Working with Google, Facebook and Amazon for example does not offer many direct lines to communicate with a person within those organizations. This is done intentionally in this self-service world of customer service. Certainly if a company spends enough money on any of those platforms, a real-live person will get involved. However there can be other situations in which the platform’s policy is invoked and the client’s participation in the platform is suspended ‘temporarily’. This is the kind of thing that makes a client apoplectic – and that’s not without good reason.

Even if the problem is not of the agency’s doing, helping the client resolve and deal with the issue is paramount and communicating what is being done and when becomes the critical thing. If you’re on the front line be sure to have the relationship owner standing right with you – and hopefully they’re smart enough to be taking bullets for the team.

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‘Please don’t litter’ – a marketing success story

Back in the day (that is when I was much younger), littering was a notable problem in the United States. There were seemingly constant campaigns delivered under the ‘Keep America Beautiful’ organization banner. The crying American Indian “Iron Eyes Cody”: was prominent and is one of the most famous print and TV (from Marstellar) PSA’s (Public Service Ads) of all time. At the time it was all called…pollution.

Before those brilliant ad campaigns came out littering was something people did not think much about. Flicking your cigarette butt was even thought of as kind of cool. Someone else would surely clean up what you throw out of your car window.

The first thing this marketing success story accomplished was awareness. Awareness is always the first step in successfully changing a behavior. And the behavior did change as Keep America Beautiful (founded in 1953) reports that the actual count of overall litter has decreased by 61% since 1960 (see below). In the case of litter – simple awareness was tantamount to solving the problem. Beyond the print and TV ads, there were billboards, posters and rallies all designed to make people aware so that they would self-regulate.

Therefor the awareness was enhanced with a second element – the frequency and ubiquity put out by Keep America Beautiful.

A decrease of 61% over 53 years (1960-2013) is an incredibly impressive statistic. Even more so because in 2013 there were 135 million MORE people in the United States than there were in1960. More people should equal even more litter. But instead of staying flat with population and overall litter rising 75%, overall litter decreased 61% over the period. That’s a lot of litter that did not happen.

Today the fight is far from over with tens of billons of dollars annually being spent in combating litterbugs. Yet there’s not a current ongoing campaign asking people to not litter or pollute. And you see people litter and pollute every day and it’s both puzzling and aggravating to me. Personally I’d love for our team to work on a new ‘Don’t Litter’ campaign with the full knowledge that it would be big shoes to fill to approach the success of the original campaign.   Below is an excerpt from a study by the Shelton Group that I found interesting.

In Shelton Group’s 2013 Green Living Pulse™ study, “throwing trash out of the car window was the only environmentally related behavior that a majority of Americans (63 percent) would be very embarrassed to get caught doing.

People “get” this issue. It’s tangible. Hollywood makes movies about it (i.e., Wall-E). Children of the ’70s have the PSA image of the “crying Indian” and Woodsy Owl’s admonition “Give a hoot! Don’t pollute!” burned into our brains. “Dispose of your trash responsibly” has become one of our nation’s cultural norms.

According to Keep America Beautiful, the actual count of overall litter has decreased 61 percent since 1969. So what’s created this success? It’s taken 40 years of pushing multiple behavioral levers, including education and fines and making the desired behavior incredibly convenient. 

Children’s perceptions were influenced in the ’70s with well-executed PSAs (Woodsy is still around: His updated mantra is “Lend a hand — care for the land.”) and supplemental classroom curricula. Municipalities instituted fines for littering and began seriously investigating illegal dumping sites. Finally, curbside trash and recycling pick-up has become the norm. Green Living Pulse 2012 found that 60 percent of recyclers have access to curbside, mixed-bin recycling. If you make it easy, Americans are much more likely to participate.” 

Do you remember? Do you still litter?

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Smartphone prices are not based on their utility

My Samsung Android phone is 19 months into its two-year contract-life and of course the battery is losing its ability to hold a charge.   And before you iPhone acolytes speak out, I’ve heard first-hand that iPhone’s batteries are no better or worse after 500 or more charges.

This has happened to me with virtually every smartphone I’ve owned. Six months or so before I can turn in the phone for the newer version, the battery life peters out and I’m forever looking for an outlet or carrying around a portable charger. It’s highly aggravating.

Most Americans have become accustomed to purchasing smartphones as part of a contractual agreement with a mobile carrier such as Verizon, T-Mobile, AT& T, Metro PCS or Sprint. The cost of the phone is subsidized by the contract price so it does not feel like the user pays $600 or more for the phone. This is not the case in China, or Europe as smartphones are not sold tied to a contractual obligation. Today in the U.S. people can decouple the arrangement and pay for the phone separate and then purchase a data plan with ‘no contract’. It’s more expensive than the lock-me-in plans to nobody’s great surprise.

When I was traveling frequently to China several years ago Chinese people would scrimp and sacrifice to buy the latest iPhone for $700 U.S. when their salary might have only been a $1,000 U.S. per month. It was partly status but also the general utility that a good smartphone provides. After all, what other possession do people of planet Earth have today that gets more attention and use than a smartphone?

We already know that people look at their phones an amazing amount of times each and every day. We also know that the smartphone that Jeff Bezos, Warren Buffet and Oprah Winfrey use are basically the exact same phones used by non-billionaires like you and me.

Back to the utility of smartphones: In an article from 2015 Time Magazine noted that people look at their phones on average 46 times per day with 18-24 year olds looking at their phones 74 times per day on average. I think this is possibly a low number since I recall seeing people I am with look at their phone 30 times during a meeting.

If you leave your home or office without your phone you will almost always go back to retrieve it.  As in the old American Express card ads with Karl Malden ‘Don’t leave home without it’.

Why shouldn’t a smartphone cost $1,000 or more? By the end of each year (if you average the 46 times per day), you will have looked at your phone 16,790 times. Over two years that’s $.06 each view. And I bet you look at it more often than 46 times so it’s even less expensive per view.

The end result for me is that when it comes to a smartphone I am suggesting that if you can, go for the best you can buy – battery performance, storage, warranty etc.  You will not find a better bargain around.

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AARP – does it have a long-term future?

In April of 2012 I wrote a post on what I felt was the need for AARP to change its messaging and to re-brand. Some of the recent television spots feature AARP CEO Jo Ann Jenkins in which she promotes AARP can help by being a resource. However the spots also indicate that AARP recognizes it can do a better job of communicating its value proposition and connecting with its core audience.

It’s important to note that AARP is a non-profit organization. The overall revenues are impressive none-the-less. According to its 2015 Consolidated Financial Statement, AARP’s largest sources of income were*:

  • royalties for the rights to use AARP’s intellectual property (name, logo, etc.) paid by commercial providers of products, services and discounts available to AARP members ($838,649,000);
  • membership dues ($295,180,000); and
  • advertisements placed in its publications ($149,604,000).

*source Wikipedia

That adds up to $1,283,433,000 for those of you scoring at home.

In order to be a member of AARP you have to be 50 or more years old. In the United States as of the 2012 census there were more than 108,000,000 people 50+. Today, 5 years later ,there are even more. As of 2014 there were roughly 37.8 million AARP members. That there are more than 70 million Americans saying NO (I am one of them) to AARP represents a huge business opportunity for AARP.   Yet as in the past, the organization continues to miss on the messaging.

While the official name of the organization remains AARP, in 1999 it ceased to represent the American Association of Retired Persons and instead focused on people over 50. Of course that change did not register in the minds of actual people.

So really AARP is a 50+ club where we special people get things that the under 50’s do not. Exclusivity IS cool and simply aging into a deal is also kind of cool. So why not change AARP to something like the ‘50+ is fabulous’ club?   Sure there are many people (yes BOTH men and women), that do not wish to be identified as being 50 or more. Well it was unlikely AARP was going to get them to become members easily in the first place. Why bother trying to appease and appeal to them?

In its two minute spot a clear depiction of benefits is in evidence. The support could have gone further in noting how much John saved on coffee and donuts this year at Dunkin’ Donuts. Or how much Mary saved on movie tickets in a year with their 25% discount on tickets. The fact that 7 million Americans get their health insurance via AARP branded insurance is also interesting.

It’s questionable at best whether the offer of a free tote bag and the AARP magazine is really a benefit to the member or just a way for AARP to put more ads in front of the member. My opinion is that the premium does nothing but reinforce the dowdiness of the organization.

AARP can and should do better. What’s stopping them?

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Alibaba still wants to win in the United States

Last week Alibaba and Jack Ma, (Chairman Jack Ma that is) arranged to host a Gateway 17 conference in Detroit, Michigan. It was the first time Alibaba has hosted such a conference outside of China. ‘Gateway ’17 is Alibaba’s road show to promote greater U.S. exports to China, where a growing middle class — already some 300 million or more strong — is showing an insatiable appetite for consumer goods.’ From the Detroit Free Press

The purpose was to sell American small business on the ‘Chinese Dream’.

I note that Alibaba ‘still’ wants to win in the U.S. and that’s in part because it’s been kind of trying on and off since at least 2010. Full disclosure – Alibaba was a former client of our company back in 2011 and 2012. Our work was on the business-to business-side. That time coincided with the huge growth’s consumer platforms Taobao and Tmall and to us it seemed like Alibaba’s enthusiasm on strategic sourcing in China and Asia for U.S. businesses was lukewarm.

This past Monday evening my friend Michael Zakkour of Tompkins International (and Forbes contributor) proceeded to give a very interesting talk at SUNY’s Confucius Institute for Business.  It centered on Gateway 17 as well as other a good amount of considerations related to China. The talk was entitled “The Road to Global Leadership: How China is Using Diplomacy, Steel & Technology to Create the Chinese Dream”.

While I do my best to keep up with China-market related activity the fact is that I have not been in China in four years. Which in China is more like 10+ years at the rate of change I had experienced there prior. Michael discussed the desire expressed on the part of Mr. Ma (now the richest man in Asia to be even more than what many Americans think – ‘The Amazon of China’. Mr. Ma has far higher aspirations than that. touches Chinese consumers as well as non-Chinese in so many aspects of daily life from shopping (Taobao, Tmall) to payment platforms (Alipay is a giant platform).

“When you get a feel of being successful, problems come,” he said. “We know only if our customers succeed, we will be successful. Serve the people, that was what I learned.”

So why now? Why will this effort to reach U.S businesses be more successful than Alibaba’s efforts in the past? After all Mr. Ma has promised President Trump that he will create more than 1,000,000 jobs in the United States.

According to Bloomberg (and also to Michael Zakkour) it’s for several reasons including creating markets outside of China as believe it or not the growth prospects for Alibaba in China are not quite as bright as they’ve been in the past fifteen years. Mr. Ma wants to help American businesses reach the more than 500 million Chinese consumers (and growing). In Chairman Ma’s eyes when it comes to the future of Alibaba’s influence the world is not enough.

Will Alibaba’s renewed U.S. effort be successful? A big difference today from 6 years ago is that most Americans are familiar with Alibaba to some degree (i.e. China’s Amazon). I think it is dangerous to underestimate Jack Ma and Alibaba but success in the U.S. is far from guaranteed. Jeff Bezos is taking notes to be sure.

Game on.

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How Spotify looks like Amazon once did

As I thought about writing this post announced last Friday morning that it was making an offer to buy Whole Foods for more than $13B. I am thinking a lot about as to what kinds of changes Amazon might bring to Whole Foods. is also moving closer to an IPO in order to raise cash despite its continued user growth. Expenses continue to outpace revenues – which were in excess of $3B last quarter. It’s a rare occurrence when the phrase “lose money but make it up in volume” isn’t a death sentence. But that’s where Spotify is today, and where was for a very long time.

Given that Amazon is now nearly twenty-three years old (on July 5) and Spotify just turned 11 it’s interesting to compare where Spotify is today to where Amazon was in 2006.   It took Amazon until 2001 to turn its first quarterly profit. Spotify is still seeking its first quarterly profit which does not appear to be imminent.

Back in the late 1990’s I bought a few shares of Amazon stock. I always have liked Amazon’s business model and back then I was aware that all the money Amazon was bringing in was going into creating distribution centers. At the time Amazon was almost solely focused on book selling. Yet by putting money into infrastructure, I (like many) figured Amazon was preparing to ship everyone else’s stuff. And that’s what happened. Of course before that happened a friend of mine who was giving me some investment advice directed me to sell my Amazon shares feeling that Amazon was going to drown in its own debt. So I subsequently did sell my shares for a small profit. We’re still friends (although that one still stings) but the moral of that story is never take advice on equities from a bond trader.

So take Spotify as a comparative. Where Napster failed, and where Limewire, Kazaa and Grokster’s file sharing went afoul of the law and were shut down.; Spotify has ‘succeeded’ in the sense that it has a vast coterie of artists who have accepted its pay-per-use model. Building that infrastructure is expensive. Really expensive. And still many artists like Taylor Swift and others feel that Spotify keeps too much of the fees it charges users. All the while Spotify continues to rack up losses ($600 million last quarter). Something’s got to give right?

One thing that’s important to keep in mind is the way Spotify’s users feel about the service. As far as I am aware, users (myself included) LOVE the service. The Spotify platform utility is really good with a great UI, intuitive search and just the right amount of relevant suggestions on other music one might consider based on your prior listening habits. The reward for Spotify is massive adoption with more than 140 million users and still growing rapidly. Jeff Bezos of Amazon has focused on delighting Amazon’s customers. Spotify has that same singular focus which is a long term winning play.

The way it can work for Spotify and artists is for Spotify to continue to get bigger. More users means more revenue for everyone and there’s certainly sure to be a critical mass tipping point where Spotify becomes profitable – and stays there.

Does that scenario sound familiar? It should because in several ways it’s similar to the arc of Amazon. Spotify has not delved deeply into subscription video and publishing, but you can be sure that it’s in their future plans. Video and publishing success for Spotify will not be easy, but with a large user base it has one heck of a good start.

As a musician myself I have been concerned about artist compensation, which will be an ongoing battle with Spotify. However, the ability to listen to a vast catalog of music, anywhere, anytime, has me listening to more music in the past few years than I had in many before that. I assume I am far from unique in that sense. And as a musician, more people listening to more music, makes me very happy.

One last note as it pertains to Apple Music. Apple too has been great for music listening overall. But I feel that it has lost the higher ground to Spotify. The same can be said of Pandora, which like Apple has modified its offerings to consumers to be similar to Spotify in some cases. Does Spotify have too big an advantage? I am willing to bet yes.

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