Sunday, January 11, 2009

What consumers really want - not what media and politicians think...

(photo credit: nzgabriel)
(A work in progress...)
Where are we going and how?
Consumers Herd, Politicians and Media Only Follow...

Some interesting data converge:
  • Bell Curve says that 80% of any group are simply consumers, not market leaders or leaders at all. They buy what everyone else is buying. And this Bell Curve describes everything we do - everything. Call it the Pareto Principle, or the Long Tail - it's the same deal.
  • Media feeds this bulk group with uniform tabloid-style "journalism". Most of their reporting is death, dying, destruction, and the latest celebrity gossip. Academic ideals on a "journalist's code" are really just ways to sell their classes and courses, not produce real change. (There is no such thing as a "public's right to know" - it's only a justification for feeding their sensationalism addictions.)
  • Political parties have both become more split and diverse. There is a growing "center" which is neither Donkey or Elephant, but will vote split-ticket with abandon. Consider all those in California who voted in Obama and out (for the 2nd time) gay marriage.
So the people who thought they actually "controlled" these herds of consumers are finding that they really are just following the herd themselves.

And as the Internet becomes more used and widespread, that herd is becoming more "niche-fied" - meaning that people are able to find and stay within the niches they want and feel comfortable with. So the world has become more and more "long-tail". And there are fewer 1950's style "big head" type masses. So customers have more and more choice - because it's now possible. Meaning that there is no Model T in every color - black. Ford had to succumb to demand for different colored cars - but his Model A became one of his biggest hits when he did so. Beginning of the Long Tail.

The simplicities of the Bell Curve/Long Tail:
  • Business is always working to find what people need and make these into what they want.
  • People need basics, necessities. People what what makes them feel good.
  • Fads are wants which don't line up with needs. Trends are wants which align to needs. Blips are trends which aren't efficiently linked/associated with needs. Movements are wants and needs closely aligned. Evolution is a series of movements.
  • Generally, all cultures trend toward improved survival. (An overall observation is that as cultures improve their peoples' quality of living, birth rates decline and environmental care increases - as does investment in other "humanities".)
  • To date, the most effective way of improving quality of living globally is to let free-market commerce continue - as this brings higher-paying jobs to low-wage areas, as well as humanitarian concepts such as "human rights". The least effective methods of social reform has been by any government agency or dictator or King.
  • And what is all this but letting people chose their own way-of-life niches?
  • As communication improves, choice improves - and responsibility increases as a person will now hear about their bad choice from their neighbors. That is how environmentalism works with commercial interests to improve things.
Example: If the enviros' ideas cause the cost of doing business to raise, business will increase the cost of their product - when that product cost gets too high, people will quit buying it. Too many products with too high cost - and the business moves out of that area = net loss of living quality, unless that product was really more a want than a need. A business that can tell people that their higher costs are due to meeting environmental issues, will cause either acceptance of their higher prices, a lessening of the pressure by the enviros (and so reducing prices) - or the business still can't make a profit and shuts down.

Example: Taxes. California found out that when it raises taxes on the rich - they move out of state and take their businesses with them. Net result: fewer million/billion-aires living in state and lower tax revenue. Factually, this is happening on both coasts - the heavy population areas try to soak the rich to pay for public services. However, the smart rich are much quicker than governments and reorganize their businesses so that they no longer fall under than new rule, either before the rule goes into effect or quickly after.

Example: Tax breaks. California also used to have a credit for installing solar panels. I knew some friends who started and kept a business going of just building and installing solar panels in California. Made a mint. When the tax credit dropped, they dissolved their business. Went somewhere else and did other things.

Example: Subsidies/Welfare. For decades, there were payments to low income families which had fatherless children - single moms. Result was an increase in numbers of single mothers with lots of kids. The system could be gained so that they didn't have to get jobs, just keep having kids. A change in this system got the majority of these people into at least part-time job under threat of no welfare payments at all. And the numbers of teen pregnancies dropped for awhile, as well as causing an increase in marriages staying together. Freakonomics? - Yes, and no.

Example: Want to get rid of gang activity? Clean up the neighborhood and paint out all graffiti. New York drastically dropped it's crime rate by cleaning up the graffiti off its subway cars, and also cracking down on people avoiding tolls to those subways. (See Gladwell's "Tipping Point.")Enforced the rule of law - which exists to protect quality of life interests, really nothing else. Laws are changed when they are percieved to decrease some population segments' quality of living.

Example: Rise of home schooling due to failures of government-sponsored schools. Spelling Bee and Geography Bee winners are now routinely home-schooled students. Private colleges and universities are turning out a higher percentage of successes (jobs on graduating, lack of corporate criminals) because they have input from the people they service - and who pay their salaries directly. This is called accountability.

Example: Ex-urban dwellers tend to vote center-right. (Ex-urban: people who have been able to move from urban central areas. Frequently move to suburbs, but also are moving to smaller towns and rural areas.) It was thought they voted more Republican, but this isn't necessarily true - they vote with their pocketbook. Democrats picked up more House seats by getting fiscally-responsible (conservative) candidates to run - because Republicans were spending as bad or worse than the Democrats before them. Obama really only pulled ahead of McCain when the stock market tanked and housing bubble burst. But now that he is saying he wants to increase the national debt - even before he is in office - that support is evaporating. Remember the pocketbook.

Key datum: Politicians and News Media only follow the herd.

So what do media and politicians do - and what do they think they do? Practically, they follow the wants and needs (in that order) of the bulk of their publics. What they think they do is lead.

When politicians and news gets too far off center, they lose support. How are elections won? By appealing to the center. In primaries, the centers of the respective parties run to the extremes - but candidates have to be centrist to get enough support to get the final tally in their favor.

When news media consistently moves away from common sense, they lose viewers and readership. And low ratings cause their advertising support to move as well. Because commerce follows the pocketbook.

What of the Internet? This is a growing trend (along with ecommerce) because it's ability to quickly match want with need. Faster than ever before.

And because people search for their wants/needs, businesses that are online quickly find out how to get products that people are looking for and then produce them and deliver them in a manner which is quick, economical (remember the pocketbook), and sensible (remember "common" sense).

So our current online economy continues to expand while the slower brick-and-mortar businesses continue to decline. (And politics find they need to publish more stuff on line, while news agencies simply are going out of business - like record companies, they can't hold onto their apparent monopolies any more.) However, the hybrids, such as Wal-Mart, where you can order individual products online and have them delivered to a local store are tending to survive much better. And anything you can deliver online (like movies) will increase your bottom line - and not just because it costs less to produce and deliver - it fits wants and needs together for instant gratification. Ebooks are also booming - as Amazon can tell you.

Who actually does lead the herd?

Farmers and ranchers can tell you - it's the boss cow. But that boss cow can change, depending on what that herd wants and needs. If you have sweet-feed in your bucket, certain cows will get their first. If there are thirsty cows, others will take the lead. Best grass - there are a few individuals who have a particular "nose" for better grazing, and will be on the edge of that herd constantly looking for it.

For our consumer herds, they have their influencers and their evangelists. These are people who are actively seeking solutions to life-problems. And when the find them, they tell the people around them about it - and because they are trusted, their immediate circle will try it. If that product works out to be useful and sensible, they will tell others around them. As long as that feedback continues to be more positive than negative, the adoption continues.

(The funniest stuff I see currently is these sites which say they are keeping track of "trends" on the Internet - what they post as trends are simply fads. The products are non-sensical, only apply to really narrow niches, and never turn out to really amount to any economic sense on the long run.)

Madison Avenue is really behind on this, since they've been mostly mis-trained into thinking they are "market leaders", when all they've ever been able to do it to find where people are already going and then tell them what they already expect to hear. They've only ever just worked effectively to augment existing word-of-mouth. Nothing more.

One recent story I heard was where Pepsi was starting it's new look and so delivered a series of cans of their products, all about 40 minutes apart. Probably a fine marketing gimmick for someone working in a metroplex high-rise. It backfired only when this one carrier had to sit outside one "influencer's" house and bring him in one package after another, precisely on schedule. He lived on what seemingly was the edge of rural/suburban nowhere - and there weren't any other deliveries that guy could do and still make it back to deliver the next package. Needless to say, the product wasn't well-reviewed by the recipient. More like, the company gave itself a black eye.

But if you wanted to predict really sensible solutions, you'd have best-sellers all over the place.

Let's take Detroit. Needs a solution, not a bail-out. Situation is that unions and bureaucratic Washington have driven their costs up beyond what is competitive in a declining market. And they weren't able to shift from safe, comfortable SUV's and trucks over to economical small cars almost instantly. The market changed rapidly with the price of oil skyrocketing. They quickly found themselves selling neither what people needed or wanted.

What have people traditionally loved to do with their cars? Customize them. Which car was probably the all-time most customized vehicle? The Volkswagen Beetle. They even used to be imported from Mexico until only a few years ago.

Do any of these current automakers have a similar product they could revive like that? Ford had the Model A. There's your idea: bring back a version of the Model A with it's simple structure and build it in such a way that you could disassemble and rebuild any part of it. Put it on a straight frame - or make the body and bottom able to be separated (like older cars with a separate frame, or the Volkswagen with it's bolt-on body - not this locked-in uni-body nonsense). Set it up so it fits a wide variety of engine mounts. Sell a very simple, stripped down (but safe) version of it - no electronic anything. Buyers of that car can have anything they want (customize it), while you give them what they need - affordable transportation. And it fits a wide variety of niches, because it reflects the attitudes (and pocketbook) of its owner.

Detroit could sell tricked-out versions of this car, right next to a single-color stripped-down version. And even sell add-on's - factory installed, or shipped to your garage so you can do it yourself. Imagine - custom-equipped cars, built with your name on it. There's a European car which is being built with colored panels - so you can have any color you want, and can even change the color yourself for different occasions. That point was why convertibles have always been popular.

This is exactly why iPhones are the rage - and will continue to be, as an extension of the cel-phone. Wants (entertainment, social connection) and needs (ready, portable communication) combined. And they are customizable - mostly on the inside, but that's what is wanted - carry everything around with you that you could possibly want as far as digital goods. And access to stuff you could have (if you can afford to pay for it.)

When you connect this up with my other approach to Economics - that it's not just Supply and Demand, but also Service and Information - you then see a broader application, and a way to build a profitable business around any product.

Luck to us all.
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