In Marketing, Freakonomics Trumps Logic

"Legalized abortion," according to Steven D. Levitt and Stephen J. Dubner, "was one of the greatest crime-lowering factors in American history." Their conclusion: "Legalized abortion led to less unwantedness; unwantedness leads to high crime; abortion, therefore, led to less crimes." That's freakonomics, or the law of unintended consequences. Freakonomics in politics Why did Congress, especially the House of Representatives, have such a difficult time in reaching a consensus on what to do about the deficit? The reason seems to be gerrymandering. Take two Congressional districts sitting side by side, each with an even split between liberals (blue) and conservatives (red), or Democrats and Republicans. When these two districts nominate candidates for office, both parties would likely pick moderates. And the results of the subsequent elections would be in doubt until the votes are counted. But that 's not what party leaders really want. What they really want are as many "safe" districts as possible for themselves and as few as possible for their opponents. By adjusting the boundaries of Districts A and B, the party in power can create two new districts. What started out as two districts split 50/50 is now one district split 62.5/37.5 and the other split 37.5/62.5. Now who do you suppose gets elected in these heavily skewed districts? Not moderates who might campaign for votes in the middle, but extremists whose campaigns are strongly oriented to either the right or the left. Freakonomics in marketing Why has per-capita consumption of beer in the past three decades declined some 15%? It was the 1975 national roll-out of Lite beer. "Everything you always wanted in a beer. And less." Logic suggests that light beer should have increased the beer market. Joe Sixpack could now drink more beer, not less, because light beer didn't fill you up as much. Furthermore, light beer should have broadened the market, especially among women. (Look at the success of Michelob Ultra among the fitness crowd.) It didn't happen. Why not? Because logic has nothing to do with marketing. Broadening a category "dilutes" the category, making it seem less authentic, less desirable. The same thing happens with brands. And yet, logic suggests otherwise. Logic suggests that you should want everybody to buy your brand. That broadens the market, makes the brand more valuable. Or does it? What destroyed Sears, Roebuck & Co., once the largest and most-profitable department-store chain in America? It was the "softer side of Sears." "Our strategy," said former CEO Edward Brenner, "is to make the store so appealing that the customer walks out with a pair of jeans as well as a lawnmower." Wake up, Sears. It's not the softer side that accounts for the brand's longevity. It's the harder side of Sears. The side that sells brands like Craftsman, Kenmore and DieHard. Ten years ago, Sears had 40% of the major-appliance business in America. Today, that share is about 30%. To lose one-fourth of your core market in a decade is a major disaster for any brand. Burger King is following the same path. After its second-quarter results showed drops in sales and profits, according to one report, "the quick-service chain has been testing smoothies, salads, parfaits and oatmeal at 100 locations." Then there's the California Whopper with guacamole, Swiss cheese and bacon. (Designed to appeal to the Chipotle crowd?) When I worked as a consultant for Burger King years ago, I had one consistent response to every proposed new menu addition. "Veal parmesan!" Veal parmesan was one of Burger King's kookiest (and least successful) menu additions. Freakonomics at Five Guys It was the June 7, 2009, visit by Barack Obama, an event which generated a raft of TV and print publicity. But that 's not the whole story. Compare Five Guys to Burger King. Five Guys sells burgers, hot dogs, french fries and veggie and grilled-cheese sandwiches. That's it to eat. Plus Coke and bottled water to drink. Yet per-unit sales at Five Guys last year ($1,123,100) was virtually the same as at Burger King ($1,153,100.) And last year, Five Guys sales were up 4% and Burger King sales were down 5%. So if you were running Burger King, what would you do? Expand the menu? Or do the opposite? So far, the dozens of CEOs who have run Burger King in the past few decades have made the "logical" choice. Expand the menu. The almost universal emphasis on expansion is good news for entrepreneurs who wants to harness the power of freakonomics. But not for brands. When everybody else is going in one direction, just do the opposite. Narrow your focus so you stand for something. Then keep your fingers crossed that that "something" will lead to a PR coup.

In Marketing, Freakonomics Trumps Logic

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