Tag: opportunity cost

Give the Gift of Gift Giving

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Screenshot 2023-12-20 at 4.51.33 AM.png

Via Schwab: Read the article

It’s not a terrible list of nine ideas, but it is a superficial one. The problem is that each of the ideas has to do with money, which isn’t really what gift buying is about. 

#2, Set a budget. #4, Don’t go into debt to pay for gifts. #7, Don’t buy more online just to get free shipping. I violate #7 most years. 

Gift giving is really about connection. It’s about our relationships with other people and symbolizing them. Gifts are a proxy. They’re an artifact. They mark something intangible as tangible. 

Here’s what I would have written for Schwab. 

It’s that time of year again. Last year, at this time of year, Americans spent $1,600 dollars on holiday gifts. There are work parties, family parties, white elephant, and fireplace stockings to stuff. There are kids, parents, parent’s kids (those dang sibling gift exchanges) and more. 

It’s too much. 

It’s okay to say it’s too much. 

Because here’s the thing – it’s too much for them too. 

Here’s a two-step plan for making this year a great season. 

Step 1: Buy the gifts you’re excited for. Kids love presents. Dads love new socks. Teens love new hoodies. If you know the perfect gift for the perfect person – get it! That’s what this is all about. 

Step 2: Share your priorities. When our money goes to one thing it doesn’t go to another. It’s the “opportunity cost”. We mostly understand that when it’s said but we forget when it’s not. So spend your money intentionally. 

“Dear Mother-in-Law, here is some chocolate/coffee/flowers. We’re trying to spend a little less this year because we are saving up for a big family trip to Florida. We know the kids will love exploring the sand for shark’s teeth, soaking up the sunshine, and splashing in the waves.”

Instead of a vacation maybe it’s college or a new, more reliable, safer car for your spouse. Whatever it is, make sure it’s intentional. And make sure the gift receiver understands that it’s important. 

“It’s better to give then receive”. That’s advice you don’t understand until you’ve gotten older. Then it’s obvious. By not getting someone something you’ve let them become the giver rather than receiver. Your in-laws have “given” you a slice of tuition, vacation, or locomotion. They’ve connected. 

Some people won’t get it. But if you live intentionally and remove the frivolity from not just the gift-giving but the rest of your financial life, they’ll start to see it. 

Happy Holidays from all of us at Schwab. 

Happy Holidays. 

Selfie with Chewie

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“May 28th we get Boba Fett and Fennec Shand at the Disneyland version of Galaxy’s Edge,” recalled Disney expert Jim Hill, “This is not in the timeline and we are in a moment, that to accommodate what Star Wars fans say they want to see, Disney theme parks are creating story bubbles.”

The canon, timeline, and story arcs do not matter. The back-to-the-future time travel restrictions are gone.

During a five-day four-night family vacation ya just want to see Chewie.

Me and Chewie, 2017

Similarly, when California Disneyland pitched the flying Spider-Man stunt, Paris Disneyland gave a demurred response.

“There’s research that shows,” Len Testa said, “one of the things people enjoy most about being in the parks is meeting characters.” And that’s what Paris chose, more Marvel meet and greats.

🤳

JTBD supply language is canon and source material. It’s engineering marvels. It’s THE Star Wars or Iron Man or Harry Potter.

JTBD demand language is the fan fiction and vertical video remixes. It’s character selfies. It’s what the people want.

Good products navigate between the absolutism of canon and the requests of the people.

Good products navigate between advanced engineering and more selfie opportunities.

Build or Buy and a Better Approach

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‘Build or buy’ choices are everywhere; from ordering take-out to business acquisitions. Bob Iger started to ‘buy’ when he noticed that the most popular parade characters weren’t from Disney but from Pixar. 

The first-level question may be ‘build or buy?’ but each has an important second-level angle. 

Build – what do we hope to learn from this experience? In Acquisitions Anonymous #148, Jesse Pujji talks about a supplement brand. 

Successful DTC brands have a successful product, distribution, and marketing system. 

Most of the product innovation, Pujji explains, is gone. Supplements are an established part of many production facilities. You could start one in thirty days. That part of the learning advantage is gone. 

So too is the distribution thanks to Amazon, Shopify, and 3PL

Common products delivered in the same way make it a game of good messages to profitable niches. That’s something a person learns by doing. The only built solution is social ads – which have become expensive. So rather than buy a supplement brand, Pujji suggests, to build one because you can’t buy the knowledge. 

Buy – what are the opportunity costs? Humans are generally bad at considering what else? Ask people about not buying a Ford and they say they’ll buy a Honda. It’s part of our mental accounting. 

Hack this system by making the choices explicit. Think like The Price is Right. It’s a choice of this or that. Did Disney debate their options? To be a fly on those walls….

Bob Iger had to buy Pixar, Marvel, and Star Wars because Disney could not build those things. Though many brilliant people could work on that project, Disney faced the innovator’s dilemma. Creation is rowdy, rambunctious, and most important to Disney – unprofitable. 

–

We’ve the tendency to think this or that and if this is good then that is bad. Life’s far more complicated. The opposite of a good idea may be another good idea. So ask why, ask about the second level aspects, and what else might happen here. 

Copying the Inflation Buster

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I don’t check my home equity every day, goes a joke among the Vanguard-Buffett-DCA crowd, why should I check my stock portfolio? It’s a riff on the availability heuristic: if I think it, it’s important.

‘Home’ is super available. Vacation rentals, of someone’s home. A chunk of net worth is home. Neighbors move. During Covid we were stuck in our homes. People began to work from home. After Covid the home market exploded. After that rates ran up. ‘Home’ is everywhere. 

Good copywriting, said Bob Bly, “enters the conversation people have in their mind.” Let’s look at a good Rocket Mortgage ad.

Transcript: “Buying a home? Rocket mortgage will cover one percent of your rate for the first year at no cost to you, saving you hundreds even thousands. With Inflation Buster that means more mini-vacations, a lot more lattes, and more date nights. Now imagine if rates drop within three years of your home purchase. You get exclusive savings when you refinance at that new lower rate. It’s more cash in your pocket. Save when you buy today and refinance tomorrow. Visit inflationbuster.com to get started.”

The good. Rapid fire: It’s not a house, it’s a home. One percent is a nice whole number, and worth more (psychologically) than 0.99999999%. First year… appeals to our myopia. More mini-vacations… highlight the opportunity cost. At no cost to you, and if rates drop… avoids our ambiguity aversion. Visit… as a call to action. 🧑‍🍳 😘

The bad. None!

The interesting. A picture is worth a thousand words, and this video is good. 

We’ve tracked ‘average’ monthly home payments (1971-2022). On a four-hundred-fifty-thousand dollar home, Inflation Buster saves about $200 a month. Put another way, it’s a year of payments on a four-hundred-thousand dollar house instead of the more expensive one. None of that factors into this ad. It’s not the customer’s language. 

Interest rates and home prices are not the important metrics. Only monthly payment matters. That’s the conversation in this ad.

The Morgan Housel side effects

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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. 

Numeracy + Psychology

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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:

https://twitter.com/mattyglesias/status/1361266437130706945?s=20

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.

Framing as a Fire or as a Fight

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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.

Opportunity Cost Neglect: Beach Edition

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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.  shotonaniphone

☝️ 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.

Does Netflix compete with sleep?

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Does Netflix Compete with Sleep?

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.

December search spikes as well as the March 2020 one.

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?

No.

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.

Sure.

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.

Ok.

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.

Thanks for reading and supporting.