Software companies have a great business model: spend a lot making something once, but each sale costs almost nothing. Google took a bunch of effort to create but takes much less now. Movies are like this too. Businesses with low marginal costs and high sales are very profitable.
That structure applies to decisions too.
Rather than make a decision each time, we can design decisions. Atomic Habits, James Clear’s best-selling book explains this (and embodies it, books are low marginal cost too!). Decisions with low marginal costs and accumulated effects are very beneficial.
Google’s advertising is golden because many people use the service many times. But payoffs also come from one person facing the same design many times or from many people facing the same design once. Framing tradeoffs is one design decision:
Tradeoffs work because they shift the important information. This ad is great because it forces us to think about what we don’t get and is important relative to the first. Part of the reason we want a new phone is to take and share awesome pictures.
Imagine we go back to March of 2020, Morgan Housel told Derek Thompson. The Federal Reserve Chairman, the White House, and the Treasury Head go on television with this warning: We are about to enter the second Great Depression, it is that bad, if not worse. We can prevent that. However, in 2022 there is going to be 10% inflation as a consequence of avoiding thirty percent unemployment.
That would have worked.
We know there are tradeoffs, we just don’t try to think of them. But highlighting the exchange shifts how we think, and maybe how we act.
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.
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.”
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.
In August we passed 700 blog posts, and many address ideas of behavioral economics, tendencies (née biases), and decision making. Yet for all those published pixels, issues still creep into my life like a palmetto bug in the kitchen.
On a dog walk with a neighbor, I mentioned an overnight trip to the beach which cost $200 for the hotel. We both agreed it was a good value for the time of year, location, and quality of the building.
However, put a beach trip through the JTBD machine and the opportunity cost neglect shines through.
Briefly reviewed: Opportunity cost neglect is the idea that people are terrible at coming up with alternatives for options they select. For example, when students were asked if they would buy an expensive iPod or a cheaper one, they chose the expensive one. However, once the researcher reminded them they could buy the cheaper version and spend the savings on music for said iPod, the students mostly switched their choice. If it’s not apparent, we don’t consider it.
Our $200 hotel room was like four two-day theme park tickets. In Florida that is a bargain price. It’s also about the cost of one day of crafting, which we did the previous weekend. It’s more than renting Mulan on Disney+, which at $35 seems expensive however a family of four costs twice that (with snacks) at the actual theater.
All these were recent reminders of how much context affects perceived value.
☝️ Some nice opportunity cost work; if you’ve got the cheaper product then highlight the opportunity cost.
While I felt like Homer Simpson (D’oh!), it is fun to see these ideas in the wild. It was a path of JTBD I hadn’t looked at before and like a mental nudge, a good reminder to look for ways opportunity cost lives in our lives.
Opportunity cost neglect also matters with time. It’s not until we highlight what we could have spent time on that we see the true cost. That’s why these pay-what-you-want features are short. The goal is to scream up the sigmoid curve of ideas.
Netflix added fifteen-million subscribers in March, double their expectations. This makes sense. Most people watch Netflix on a television. Most people search for Netflix around November and December of each year.
In 2018, the Netflix annual report noted, “We compete with (and lose to) Fortnite more than HBO.” Director of content, Ted Sarandos told Variety their biggest competitor was sleep.
Does Netflix really compete with Fortnite and sleep?
Well, kinda, but probably not as much as we think. There’s a human tendency psychologists call opportunity cost neglect. It’s our inability to compare across categories. For example, when researchers went to a Toyota dealership and asked the ‘just looking’ customers what they might buy if they didn’t buy a new car, almost everyone said they might buy a Honda.
But they also might buy a vacation, a remodeled kitchen, or two-semesters of college for their oldest daughter. A dollar is a dollar but that’s not how people think.
In another study, researchers asked people if they would buy an iPod with 40gb for $399 or an iPod with 20gb for $299. Most college students chose the larger size for more money.
However, when researchers added ‘and with your $100 in savings you can buy better headphones or download more music’ the students flipped their answer. Now it made sense to buy the smaller and cheaper option but have money for music.
Asking people, If you don’t watch Netflix, what might you do? is a murky question. If people don’t compare across categories, then they’ll probably bring up what comes to mind: Amazon, Hulu, HBO, or play Fortnite.
To untangle this web of apps and find which activities compete with Netflix we need to ask what job do people hire Netflix to do?
Bob Moesta has pioneered the JTBD research (I’ve added my own thoughts) and he says that company growth will come from “horizontal integration, not vertical integration.”
This observation came after an interviewee told Moesta what she did after work. Some nights she ran, some nights she ate ice-cream, some nights she played video games. Superficially we don’t think that Nike, Ben and Jerry’s, and Microsoft’s Xbox compete. But for this woman, they do. For this woman the JTBD is ‘unwind after work’.
If that’s true does Netflix compete with Nike, Ben and Jerry’s, and Microsoft’s Xbox too? Let’s take some guesses.
Netflix competes with babysitters. Parents use Netflix to keep their kids out of the way. During the quarantine of 2020, it’s very likely that many WFH parents use the service for spot supervision. When my daughters were younger, my wife and I certainly did.
Netflix competes with comedy clubs. Yes, going-out and staying-in are two very different jobs. The former is a date single people have, the latter is a date married people have. But for a good laugh, Netflix stand-up specials are tops.
Netflix competes with serialized television. Many of the top shows on Netflix are the same characters is the same situations with the same friends. Customers who watch these shows hire Netflix for the familiar.
Netflix competes to be in the Zeitgeist. I tried to watch Tiger King. I wanted to join the conversation, to mosey over to the digital water cooler. I couldn’t. Every Fantasy Football League has someone who did not want to play but they did not want to be left out more.
Netflix competes with boredom/family time. Why do Netflix searches peak around Thanksgiving and Christmas? Is it a coincidence that these are the two times of the year many are too lonely or too together?
Netflix doesn’t compete with Fortnite. Netflix is lean-back, Fortnite is lean-in. Netflix is consume, then converse. Fortnite is consume and converse. Netflix is same-level. Fortnite is level-up. Though both digital apps with millions of users, the Netflix and Fornite overlap is small. We think these two companies compete because they are easy to compare.
Netflix doesn’t compete with sleep. Are there any shared benefits between sleep and Netflix?
The JTBD research is a very helpful tool figuring out what people want, not what they say they want. Moesta has written a few books but he’s a great speaker so start your intro to JTBD on YouTube.