Wednesday, December 30, 2009

Another reason I'm selling too much...

2010 crop.  It could be too many of us are postponing the joy of profitability because of an intrinsic brain bias.
We’re trying to do a cost-benefit analysis of the time lost versus the pleasure or money to be gained, but we’re not accurate in our estimates of “resource slack,” as it is termed by Gal Zauberman and John G. Lynch. These behavioral economists found that when people were asked to anticipate how much extra money and time they would have in the future, they realistically assumed that money would be tight, but they expected free time to magically materialize.
Hence you’re more likely to agree to a commitment next year, like giving a speech, that you would turn down if asked to find time for it in the next month. This produces what researchers call the “Yes ... Damn!” effect: when the speech comes due next year, you bitterly discover you’re still as busy as ever.
Dr. Shu and Dr. Gneezy demonstrated another effect of this fallacy by giving people gift certificates good for movie tickets and French pastries. Some got certificates that expired within two to three weeks; others got certificates good for six to eight weeks.
The people who received the long-term certificates were more confident than the others that they would redeem the gifts — a logical enough assumption, given all the extra time they had. But they just kept putting it off, and ultimately they were more likely to let the gift go unredeemed than the people who had received the short-term certificates.
Once you start procrastinating pleasure, it can become a self-perpetuating process if you fixate on some imagined nirvana. The longer you wait to open that prize bottle of wine, the more special the occasion has to be.
If you’re determined to get the absolute maximum out of those frequent flier miles, you can end up wasting them, as Dr. Shu found in an experiment offering people a chance to use discount coupons in the course of buying a series of plane tickets. Once the subjects were told that they might have a chance at a free flight worth $1,000, they scorned lesser awards and hung on to their coupons so long that in the end they had to use them for much cheaper flights. [More]

I wonder if the atmosphere of economic struggle also compounds our error in calculating the benefit of enjoying today. It certainly seems sorta foolish to be cashing in miles or not hoarding gift cards.  In fact, this could be good news for retailers who have a lot of gift cards yet to be redeemed.
Gift card redemption rates have been discouraging this weekend, she said. They averaged 10 percent, based on a sampling of malls, she said. In good years, those rates are anywhere from 30 to 40 percent. That confirms that gift card sales were just "lukewarm," she said. [More]

While gift cards skew holiday sales numbers, they also represent potential profits as the longer they are held, the less likely that they will be redeemed.  From an issuer's perspective, an expired or lost gift card is about as good as it gets.

It makes you wonder what the utilization rate for seed freebies is. 


buffalobill said...

John, after reading this post I ended up surfing from one page to another. I found this article which you may find interesting. At Christmas, my son made the remark that Ag and hunting were the two biggest growth industries in Detroit. This seems to bear that statement out.

ThomasMoore said...

John - I have never seen you write n this topic : "Does debt make you a better manager ?"

We missed buying some adjoining land in the last three years. I know that had we gone into debt I would have sold more at prices above what I ended up selling at, in order to make sure the payments could be made.
As it was I didn't need the cash and waited too long, complacency I think. Lean men more aggressive than fat men someone said.