‘Peloton doesn’t offer discounts’

One of the challenges of running a business is seeing a business from the customer’s perspective. Internally your worldview is all website updates and payment processing, employees and benefits, and hiring and HR. Externally the customer wonders: does this do what I want?

Enter jobs-to-be-done.

Job-father Bob Moesta joined Customer Camp to conduct a mock-interview with Amanda about her Peloton purchase. It’s really good. You don’t even need to conduct ‘JOBS’ interviews to get something good from watching. For instance, framing.

Amanda wanted a Peloton. After getting and liking an Oura ring, and hearing her friends talk about Peloton she wanted one. It was better than a treadmill—if she wanted to run she could just run outside. So, Amanda and her husband watched for a Black Friday deal. None came.

A holiday deal? Nope. Is there any discount? No. There’s not really a Peloton discount, and Amanda was hearing about shipping delays (thanks Covid). So Amanda and her husband ordered one, financed with Affirm.

“Finance a stationary bike?!?!?” – Boomer

Well not really, it’s a 0% loan. It’s basically a payment plan. Actually Amanda notes, it’s like a gym membership.

Now here’s the magic trick business model: Peloton pays Affirm a commission for each bike sold and financed. 50M$ in Q3 2020. Peloton doesn’t offer discounts but it does offer 0% financing. And that’s the magic.

This, as regular readers know, is Alchemy. The financial picture is the same for Peloton: they have a retail cost and accept less than that to sell more units. The question is how much less and to who? Having Affirm be the who and the amount be vague creates value. Buyers hold Peloton in higher esteem and it just feels good to finance something at 0%. As one friend told me “it’s free money.”

To the accounting office it’s the same. To the market it’s different.

Numeracy + Psychology

One of the consistent behavioral psychology findings is the framing effect. People judge what is pointed out and consider the number attached to it. Two out of every three dentists approve chewing no-sugar gum. Sure, but do they caveat that with increased flossing? Heck, no one cares. The thinking goes that if it was flossing that was important someone would have mentioned it.

This effect is most often seen in medical communication and Matt Yglesias captures it perfectly here:

But that headline is good. It’s salient – 4 people. It’s got friction. The real surprise is that they didn’t say ‘warn’ rather than ‘said’.

This kind of psycho-logic-magic needs countered with another kind of psycho-logic-magic.

We can assume two things work: (1) that people pay attention to and value what someone points out to them. This is normal, helpful, and completely understandable. It works. Most things that most people say are relevant to our lives. (2) that new news works. Different is interesting. This is also, normally helpful and understandable.

Here’s the pitch. This is the angle, the message. Here’s the psycho-logic-magic for vaccine interventions: opportunity cost.

If you’re pro-vaccine point out all the things that will be back to normal once people get it. Grandparents will visit grandchildren. Sports will resume. Christmas won’t be cancelled. Freedom and fellowship. Dining out and date nights. Cruise ships and college trips. Find whatever people value and point it out. People do not consider the opportunity cost unless it is explicit.

Closing note: if SkininTheGame is the ultimate signal, my wife had her second dose last weekend.

Influential Words

Could: a verb used for clicks as in, this <insert news> could have these economics effects on your portfolio.

More: a pronoun used to show relative position, though the original may not be stated, as in, Laura got more for her money at Herr’s.

Deal: a noun used to show relative rather than absolute spending. As in, I got a great deal on my new SUV.

Largest increase or fastest growing: an adverb/verb combination demonstrating increase in a small group. As in, pickleball is America’s fastest growing sport. Antonym: Large N, small p.

The theme here is relativity. People are relative thinkers; see corporate greed or cheating college. Words matter because they frame our approach. Listen closely. Consider the focus. Do the words hint at who was at fault? If this were a movie why is this the script? Need to change how people understand something, or apply some extreme ownership?

Part of the reasons pickleball IS so fast growing is my participation. Thanks too to Tim for a conversation long ago that planted this seed.

Framing as a Fire or as a Fight

One way to change an experience, and all experience is subjective, is to change the framing of it. Our food takes longer because we make it fresh. Via a16z:

“There has been some interesting work in the linguistics community asking if we should be using war as a metaphor for the virus. There’s a lot of discussion about ‘front line workers’, which is a war metaphor, but unlike people in the military, they didn’t volunteer for this degree of risk.”

Gretchen McCulloch

McCulloch goes on to consider how things would be different if the pandemic were described as a fire or natural disaster. What if outbreaks were flareups, people sheltered temporarily, and we extinguished the threat?

Some added stress of this pandemic is from our ambiguity aversion: we don’t like the feeling of not knowing.

So we use metaphors. Fights are: Us vs them, victory is this mark, loss is this, collateral damage is undesired but expected.

This post isn’t to say that Fire or Fight is better for the pandemic, but to think about using framing in interesting ways. Here’s one we’ve featured before:

This ad frames opportunity cost. It says, you’ve got 1,200 dollars. Do you want a new iPhone or a nearly-new iPhone and tickets to the ballet?

Framing works not because people can’t do the thinking by themselves, but that they don’t because thinking about all this is hard. We’ve evolved to process information where available equals important. That’s often good enough, so we stop thinking.

This is all good news. It’s why Alchemy is possible. Using the right words changes the focus which changes the understanding which changes the actions.

Would the pandemic be different if we viewed it more as a natural disaster? Maybe. Would our understanding, focus, and concept be different? Certainly.

Leave the selfie stick/mindset at home

“Well, my advice to everyone that goes to a national park is to leave your selfie stick behind and leave your desire to get that perfect selfie behind and just soak in the beauty of the park itself because that will stay with you a lot longer than this selfie kind of mode will.”

Tim Cook, Outside podcast

One theme of the podcast between Cook and Michael Roberts is the classic, am I using technology or is technology using me? Sometimes that manifests in taking selfies rather than enjoying spaces.

But it’s Cook’s framing that’s my favorite idea. Don’t want to take selfies, design the choice to be easy, and leave the selfie stick at home.

But, what if we apply this to the selfie mindset. Take the stick but leave the mindset?

The way we think about problems greatly affects the way we solve problems. One way to approach situations then is to ‘bring along’ a new mindset. For instance, someone can consider how to argue well or to learn something with Fermi Knowledge. Bringing that desire to a new project, situation, or group will affect how we act.

It’s easy to think of bringing along of tangible things but we can bring along ideas too, and framing them that way might make them easier to pack.

Mister…Horse Racing

From, An Economist Walks into a Brothel.

“The incentives are different depending on if you plan to sell or race a horse. If breeders raced their own horses instead of selling them, they might pair two different mares and stallions to breed. Selling well takes having the right pedigree and characteristics of a sprinter, both of which encourage in-breeding, but maximizing the odds of producing a good horse is more complicated. Ideally, breeders would match the male and female characteristics, balancing out weaknesses.”

Allison Schrager

What’s remarkable about Schrager’s description is the homogeneity of breeding. If outperforming in investing is about being different and being right there’s not a lot of being different at the track.

And this kind of makes sense. There’s better ways to “WIN BIG” than racing horses, where the returns probably aren’t financial but social.

To sell well, a horse shouldn’t just be (lineage) fast but it should look fast too. Like Munger’s fisherman, sales is a question of incentives, metrics, and framing.

Tracking Tom Update.

Tom Brady passed for a paltry 196 yards this weekend and is now only ahead of pace by 36 yards. However, the combined record of the remaining teams on the scheduled is 13-24 (Lions and Falcons).

Bad teams plus a rigid playoff picture means that our framework seems to be holding: more unknowns will inhibit rather than enhance Tom Brady’s passing yards for the season.

Framing Celebrity Photos

From An Economist Walks Into a Brothel:

“On April 1, 2002 Us Weekly first published it’s Star, They’re Just Like Us weekly series featuring pictures of celebrities doing mundane tasks like getting coffee or pumping gas. Before this, everyday pictures weren’t worth much but Us Weekly humanized celebrities by showing them looking less glamorous and people loved it.”

Allison Schrager

Just Like Us is fascinating. The most mundane media yet we scroll.

The context something is presented in changes the way the something is viewed. From power lines to work from home, context matters. That someone changed non-glamorous or every-day to just-like-us is a bit of Alchemy.

When a quarter and dime are the same size.

Collect a quarter, a dime, a notecard, and a pen. Trace the dime with the pen on the notecard. Press and repeat to the point where the ink softens the paper and the circle easily pushes out.

Make extra for the neighborhood kids – and the neighbors who are kids at heart.

You’re reading this and I’m writing this so we both know there’s a catch. But like with comedy, we’re here for those moments.

It seems like the quarter won’t fit because it’s larger. But what does that mean? There’s two approaches. 

  • The quarter’s diameter is larger than the dime’s diameter.
  • The quarter’s circumference is larger than the dime’s circumference.

But we can change the framing and get the larger quarter through the dime size hole.

  • The quarter’s diameter is NOT larger than the dime’s circumference.

One of the largest lessons from Herbert Simon’s Confessions of a Pricing Man was that all value is perceived value. The starkest way to understand this is to think of the expression, you couldn’t pay me to. For example, you couldn’t pay me to sit outside on a hot Florida Saturday surrounded by tens-of-thousands-of-other people watching a game I don’t understand or care about

Yet people pay good, and sometimes a lot, of money to watch college football.

In a literal sense this expression doesn’t work so well but in a figurative sense it shows that all value is perceived value—and that all perception is malleable. As Rory Sutherland said, “you can always use a bit of psychology to make products better.” 

People don’t like investing in stocks when the numbers are red. People do like red painkillers, believing they work better. And half of all Ferrari’s are, you guessed it, one color

Framing things in a new way is how we make the impossible easy. 

Want more? Check out this pay-what-you-want placebo prescription pdf.

What is an accident?

The way we frame things matters. People are relative thinkers: more, a lot, and sorta—only matter when we ask, compared to what?

One framing is words. Vegetables, innovations, saving and investing, solitary confinement, and designated driver all affect our actions. This idea was brought up in a NYT piece on Avalanche School:

“As we packed up our notebooks and travel mugs, however, I wondered why these case studies were called accidents. To call these deaths and burials accidents implicitly perpetuated the idea that the randomness of nature was the killer, not the shortsightedness, cowardice or hubris of people.”

Heidi Julavits

This approach to auto ‘accidents’ comes up in Tom Vanderbilt’s Traffic too. Names matter.

Jocko Willink developed “extreme ownership” as an accident antidote. With avalanche accidents and auto-accidents we externalize the blame. It wasn’t my fault. But Willink’s idea enters and synchs our history to our actions. Sometimes it’s a weak coupling, but it’s never an absent one. We hurried, and we got sloppy, and the odds tipped against us.

If we were to extend the idea names matter and affect how we understand the world we’d get something like the movie Arrival.

We believe in design and words are one tool in that collection.

 

 

Framing Employment

Framing is so important because it’s a way to get ‘free value’. Things well framed are perceived as well done—and perceived value is all there is.

I ran this one question poll on Mechanical Turk, Amazon’s data collection service, and Twitter to see how people perceive the same news. Each option describes the US labor market from mid-March to mid-April.

The question was, which one of these is the best (or least bad) way to describe what’s happened.

Over the last month..

The most important data isn’t that one section of the pie is larger than another but that there are sections of the pie. If  “135 million people remained employed” took the king’s share there would be nothing to figure out. In the many slices though we get many ideas.

Jason Zweig demonstrated this magnificently in a recent WSJ column. Imagine you’re of a certain age with a certain income and a certain promise of social security. It’s likely more than you realize. Zweig wrote:

The $2,000 a month that you and your spouse will each receive in the future has a present value of $772,235, according to OpenSocialSecurity.com.

That’s roughly what it would cost an insurance company to provide each of you with a guaranteed, inflation-adjusted $2,000 monthly payment for the rest of your lives (assuming you file for retirement benefits at age 70 and your spouse at 62).

So your expected Social Security payments are like a giant phantom annuity—a bundle of inflation-adjusted bonds you don’t own but whose income you have the right to receive. The same is true—usually without the ability to keep pace with inflation—if you are fortunate enough to have a defined-benefit pension plan.

Much of poker is played by the number. Professionals fold many more hands than they play because the numbers tell them that. But people don’t like to feel like automatons. They want action. When Annie Duke started teaching clients how to play poker she had to reframe how they saw the game.

Duke’s insight was to get her clients to choose to play by the numbers. She appealed to their meta side. They had to see the analytical next to the emotional and make a choice from those two options.

People are relative thinkers and many many decisions come down to framing one thing against another. It works for news, marketing, home purchases, dinner options, and dates. It works for everything.