Preferences matter, but less than you think
April 12th, 2007 by 
Chris Harris
Starting a new business is about offering your customers a new choice. Maybe your widget is faster, uses less energy, costs half as much, or maybe it’s easier to buy because it’s closer. Therefore, studying how people make choices is a big part of microeconomics, and it should matter to you. The trick with studying choices is that there’s a lot of psychology involved. In fact, often the psychology of how a decision is made trumps the objective merits of the product or service. Anyone who sells a general commodity product or service knows what I’m talking about (think insurance, air travel, and rental cars).
Consider this comprehensive study of 84 speed dating sessions in the UK by Michèle Belot and Marco Francesconi, Can Anyone Be “The” One? Evidence on Mate Selection from Speed Dating, which found that (unsurprisingly) people evaluating dates in 3 minutes rely heavily on certain easily observable physical attributes. Both men & women prefer their partner be young. Women like tall men, and men prefer thin women. No surprises so far.
The preferences for these prospective dates accounted for around 30%-40% (for males) and 45% (for females). The bulk of what matters - was the pool of potential partners in each “round.” Thus, it seems that being a desirable person improves your chances of being picked after a 3 minute date, but being more desirable than your competition in the same room you’re in matters more!
There was a very consistent theme that men & women would both select the same percentage of partners in any given around, regardless of the “attractiveness” of that group. Reinforcing the theory that people tend to compare alternatives they have in front of them much better than they can compare alternatives over longer periods of time or distance.
What are the implications of this for your business?
Most businesses try to avoid becoming a commodity by changing their offerings fundamentally to avoid direct comparison with the competition. This can be expensive & time consuming. Perhaps all that’s required is to change the way you sell it - to make your product or serve the big fish in a much smaller pond. Some examples where businesses have changed the context in which they sold their products are:
- Companies selling high margin warranties after selling you a low-margin product. Once you’ve bought the TV for a rock bottom price at the store, they have the opportunity to basically be the only ones selling you a warranty on that TV because you can’t buy a BestBuy warranty for a TV you bought at CircuitCity!
- Grocery stores often separate their organic foods from their nonorganic (and much cheaper) alternatives so that they require significantly more diligence to compare to each other. Moreover, the organic tomatoes are often next to even more expensive items which makes them “seem cheap” in that context.
- Autorepair places tend to charge less for standard services (say lube & break jobs) than they do when you take it in for a more customized service because once you’ve taken your car there - you’re only deciding whether to do the work or not - it’s less likely that you’re going to drive out of there and see who can do the custom job for cheaper.
Maybe your business can benefit from considering the context of your sales and/or marketing a little more?
Posted in Entrepreneurial, Psychology, Solutions | 
April 16th, 2007 at 1:40 pm
[…] We’re delighted to be part of the latest edition of the Carnival of the Capitalists blog round-up. An excellent post be Chris Harris is featured this week: […]
May 11th, 2007 at 2:57 pm
Hong Nguyen
English 126-0138
May 10, 2007
The Truth Behind Outsourcing
The United States has always been a country with many opportunities and a lot of wide range jobs available. However, as the time passes by these opportunities seem to be diminishing with the constant hiring of oversea workers. The outsourcing market is growing tremendously and expected to grow even more in the next couple of years. Companies are planning to outsource both low end and high end jobs in the United States and offshore. This new cheaper workforce seems to be a far better advantage for employers and companies seem to be taking advantage of the situation. The increase in oversea hiring means a lot of change for the economy, for the better or the worse it remains a mystery. While outsourcing provides companies with lots of benefits for some it’s considered to be a hazardous threat. Only the truth can settle this matter and by analyzing evidence we can come to the right conclusion.
Though outsourcing seems to have its advantages it may possibly be lies to cover up the truth. Outsourcing jobs is used by companies mainly to cut the cost of operations. Companies outsource in order to compete with other companies and at the same time make a profit (Otterman,2007).Profit and money is everything and there is no denying it. Some may argue that outsourcing is good because it creates cheaper goods but it only provides producers with the choice to sell cheaper goods. Given the opportunity companies don’t do what’s best for the consumer; they do what’s best for them, making profit. Though jobs are outsourced and goods are made for less money, products still remain relatively high because companies can. Outsourcing jobs can also mean lost of jobs for many Americans especially for those in the high-tech field. (Cyber Futuristics, 2007). According to Denise Dubie reporter for Network World, one of the biggest challenges employers face is finding qualified employees. Since this is such a difficult task they have to turn to oversea workers. Not only do oversea workers provide a bigger employment pond for companies they are cheaper too (Dubie, 2007). This however seems to be merely one of the excuses given by companies to excuse themselves for acting on their own behalf. Edwin J. Feulner, Ph.d says “The United States has the best educated, most productive, most adaptive workforce in the world.” If the United States provide educated, productive, and talented people, what more can companies ask for? Companies claim to outsource due to a small workforce available but here they are laying off people who are well- qualified for these jobs and ignoring the many others to outsource to foreign counties where education is a minimum and skills are lacking (Gollsby, 2007).According to Dubie 500 of the fastest growing North American companies turned to offshore services and 55% intend to move their work overseas (2007). This possibly could be due to the cut in cost rather then the search for talented workers. Though corporations seem to be thinking their getting a deal by hiring these offshore workers some companies who have tried regretted their decision. A company who outsourced many operations to India found how hard and costly it was to communicate with their workers. They also concluded that Indians are not productive and at times took 2 weeks to get a job done when it could’ve been done in 2 days in the United States by a skilled worker (Bartlett, 2006).
Business people, companies, corporations factories are driven by money, achievement, and fear. They fear failure, lost of power, and appearing weak. They are competing with one another and by being in competition they ignore the rest. They don’t care about employees, or consumers. They make quick decisions without considering all the details which result in long run failure, what they feared. Outsourcing at first glance seems the way to go due to smaller wages but the long run effects can be damaging. Companies who plan inefficiently risk heavy loses and customer dissatisfaction (Goolsby, 2007). Customer dissatisfaction can mean lost in sales, and profit which can destroy the whole concept of outsourcing jobs to begin with
Edwin J Feulner in an article titled “The Truth about Outsourcing “ asserts that even though employees are losing their jobs due to outsourcing they can easily find another one, often times at a higher salary. After doing research this seems very vague because
June 1st, 2008 at 3:26 am
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