Tuesday, July 25, 2006

Economists are really, really not marketers

I love Cory Doctorow and BoingBoing. But they've got a recent post about a NYT article (subscription required) called, "What the Naïve Consumers Don’t Know, Can Help You." And, while interesting, it's so wrong it's just funny.

The basic point of the NYT article (and the MIT and Harvard economists whose research it's based on) is that since some customers buy low-end, low margin products... other customers must be supporting that behavior. Or, as the NYT writer puts it, "...sophisticated consumers have somehow learned how to game the system by having enough naïve consumers around to subsidize them."

Here's one of the examples given:

For example, you see an offer for a room at Nontransparent Hotel for $75 (which costs the hotel $100 to provide). The guy checking in behind you also rents a room, but will rack up $70 in fees from the minibar, the phone and garage parking (all of which cost the hotel $20 to provide). You, on the other hand, were not tempted by the minibar, used your cellphone for calls and took public transportation to the hotel. The other guy subsidized your room.

I love economists. How is "the guy behind me" in this example unsophisticated? He wanted a relaxing drink in his room, didn't own a cell phone (which costs me $150 a month), and had to park his $45,000 car. Which makes my main point... value depends, greatly, on perception. NYT say, "naïve." I say, "four times my income."

If you go on to read the rest of the article, you'll find such nuggets of wisdom as:

  • It’s a perpetual battle between the firm that fools consumers into paying fees and the smart consumer who can avoid them

  • Now that the world is more complicated with more products, there are more opportunities for people to make mistakes

  • Outsmarting companies is hard work

  • Consumers responded to direct costs more than to shipping costs

  • Even the most sophisticated people find it hard to game the system when it comes to fees

  • Even the most knowledgeable people make really dumb decisions even when provided all the information

Right. Because we don't make buying decisions with an Excel spreadsheet and actuarial tables. We make them with our gonads. We are sitting in a hotel room at 11:42 pm on a business trip. We cannot sleep. We cannot go out, because we need to be up at 6:30 am to catch our flight tomorrow. We are bored. It is probably a little warmer (or cooler) than we would like. There is no "good" cable in this farglisher hotel. There is something on HBO that we would rate as a "2" on a scale of 1-10 in terms of our interest level. The bar downstairs was noisy and smoky (they still allow smoking in bars in this state?). What are we watching? "Grease 2?" Is there a minibar? Please, God. Please. For the love of Mike... Let there be a minibar. I think it was behind the fold-down... YES!  Minibar! Score! We will drink not one, not two... but all three Coronas in there and, maybe... maybe... get to sleep before 1 am.

I don't give a fat rat's ass about “Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets" -- the name of the economists' paper that appears in The Quarterly Journal of Economics. You suppress NOTHING in that hotel room that matters. You want a beer, you want it now.

It ain't about the economics, professor. It's about "Grease 2," getting to sleep and the satisfaction that comes from knowing that the company will reimburse for any expenses under $25 a day without a receipt. Myopia that.

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