Wednesday, July 28, 2010

Lateral Innovation - Network Problem Solution from Nature

I analyze "adjacencies" and "lateralities" in innovation to discover solutions from industries a sector specific or vertical expert perhaps may not choose to.  Here is an excellent example of engineering solutions for network problems validated in natural organisms through the research of Atsushi Tero at PRESTO, Japan Science and Technology Agency in his recently published paper in the Science, "Rules for Biologically Inspired Adaptive Network Design".  The abstract:

"Transport networks are ubiquitous in both social and biological systems. Robust network performance involves a complex trade-off involving cost, transport efficiency, and fault tolerance. Biological networks have been honed by many cycles of evolutionary selection pressure and are likely to yield reasonable solutions to such combinatorial optimization problems. Furthermore, they develop without centralized control and may represent a readily scalable solution for growing networks in general. We show that the slime mold Physarum polycephalum forms networks with comparable efficiency, fault tolerance, and cost to those of real-world infrastructure networks—in this case, the Tokyo rail system. The core mechanisms needed for adaptive network formation can be captured in a biologically inspired mathematical model that may be useful to guide network construction in other domains."

The researchers grew the slime mold using 36 oat flake template representing cities around Tokyo, while they placed the mold itself on Tokyo.  The paper states:

"Overall, we conclude that the Physarum networks showed characteristics similar to those of the rail network in terms of cost, transport efficiency, and fault tolerance.  However, the Physarum networks self-organized without centralized control or explicit global information by a process of selective reinforcement of preferred routes and simultaneous removal of redundant connections."

Power's Impact on Behavior

For CPG companies such as P&G and Unilever, whose shopper is mostly a woman, the concept of empowerment to purchase for the household is an important topic.  Also, retailers large and small look at the buying "power" of the geo- and demo- graphics to price in their locale, for example.  So, what is the impact of "power" on the individual.

Here are a few strategic insights from the work of Adam Galinsky, Kellogg School of Management at Northwestern University (details here) and Joris Lammers, Tilburg University (details here) in their work "Illegitimacy Moderates the Effects of Power on Approach", download here.

"“Power activates a person’s behavioral approach system and underlies our motivation to act, while powerlessness activates our behavioral inhibition system to restrict action and risk-taking,” said Galinsky.

“But, in illegitimate power scenarios, the powerless are more likely to act without direction in an attempt to change the situation, and the powerful may inhibit their actions for fear of losing their undeserved seat at the top.”

Another study from them published in the Psychological Science here, "Power Increases Hypocrisy, Moralizing in Reasoning, Immorality in Behavior" sheds light on a few interesting conclusions.  Following are excerpts from a review in the Economist:

"...powerful people who have been caught out often show little sign of contrition. It is not just that they abuse the system; they also seem to feel entitled to abuse it."

Dr. Lammers and Dr. Galinsky introduce a new term "hypercrisy":

" intriguing characteristic emerged among participants in high-power states who felt they did not deserve their elevated positions. These people showed a similar tendency to that found in low-power individuals—to be harsh on themselves and less harsh on others—but the effect was considerably more dramatic. They felt that others warranted a lenient 6.0 on the morality scale when stealing a bike but assigned a highly immoral 3.9 if they took it themselves."

The research linked above and the Economist's conclusion paint a bleak picture though:

"Perhaps the lesson, then, is that corruption and hypocrisy are the price that societies pay for being led by alpha males (and, in some cases, alpha females). The alternative, though cleaner, is leadership by wimps."

Thursday, July 15, 2010

Publishing and Piracy

From the Financial Times article "Publishers fear threat of digital piracy as sales of e-books grow" here:

"Tom Weldon, deputy chief executive of Penguin (part of Pearson, which owns the Financial Times), said: “The only way to fight piracy is to publish digital content across as many formats as possible, through as many channels, at a fair price. If we go for exclusive or proprietary formats, we’re completely screwed.”

At the same event, Shriti Vadera, who helped negotiate the UK government’s last anti-piracy deal with record companies and internet service providers, said the book industry was way ahead of the record companies, which “didn’t see [the piracy threat] because they weren’t listening to their consumer”.

Africa - Business Growth, New Consumers

Boston Consulting Group recently published a thought provoking report "The African Challengers: Global Competitors Emerge from the Overlooked Continent".  The report calls the perspective that a continent with only 4% of the world's GDP is "out of date".  The report states:

"Between 2000 and 2008, Africa's annual GDP grew by 5.3% (adjusted for PPP), compared with 4% globally.  The rise in commodity prices partly explains this performance, but exports and local demand also played strong roles."

As always, the BCG report is thorough, with explanation and data to back up claims, and visuals and graphs to explain the information.  Download the complete report here.

List of the top global challengers according to the report:

This growth has the affect of opening up the markets for imports of consumer goods, and new services as the shopper/consumer strength grows with the PPP.  Exciting times!  And with the FIFA World Cup 2010 providing a showcase opportunity, BCG's timing is apropos and perhaps African markets are moving from Frontier to Emerging.

Wednesday, July 14, 2010

Consumer Behavior and Pricing

I was first educated on the art of pricing by a good friend Mr. Dennis J. Crane of the Business Navigation Group, details here.  Thanks Dennis!

A recent and an excellent report from UK's Office of Fair Trading, "The impact of price frames on consumer decision making" here, defines the various pricing strategies of retailers into price frames.  These are:

"A baseline treatment in which consumers see straight per-unit prices.

Drip pricing where the consumers see only part of the full price up front and price increments are dripped through the buying process.

Sales in which a sale price is given and a pre-sale price is also given as a reference to the consumer, 'was £2 is now £1' (actual pricesare identical to the baseline treatment).

Complex pricing where the unit price requires some computations, '3 for the price of 2'.

Baiting in which sellers may promote a special price but there is only a limited number of goods actually available at that price.

Time limited offers where the special price is only available for a pre-defined short period of time."

The report is extensive in its details on the process used.  Tabular formats break down the complexity of the analysis and the results.  Couple of key conclusions from the report are:

"The evidence from the controlled experiment shows that, in contrast to the predictions of standard economic theory, price frames do matter for consumer decision making and welfare. Consumers make more mistakes and achieve lower consumer welfare under the price frames we investigate as compared to straight unit pricing (the baseline)."

"The ranking of the price frames, starting with the worst – that which causes the greatest welfare loss - is as follows:
(1) drip pricing
(2) time limited offers
(3) baiting
(4) sales, and
(5) complex pricing.

If you are interested in a quick review of the report, please see the Economist article "You've been framed" here.  The Economist concludes that:

"Although consumers clearly lost out there were no corresponding overall gains for retailers. Sales volumes were virtually the same whichever way prices were presented. The main effect was on the distribution of sales. The first shop to lure shoppers sold many more goods, as consumers grabbed at poor deals. That made some firms better off but others (which would have offered better deals) were worse off. Most price frames made for lousy matches between shoppers and retailers, a bad result all around."

Do the manufacturers become the winners in the end?  Should manufacturers remain with the business they know?  Is a combination of an organization that is a manufacturer and a retailer work best?  That is, WalMart, Tesco, etc. with private labels or P&G with its eStore.  Questions abound, experiments continue...

Tuesday, July 13, 2010

Consumer Long-Haul Airline Travel

How fundamental a shift is to occur in long haul airline consumer travel, the Economist describes the growth of Emirates, Qatar Airlines and Etihad Airlines here.  Interestingly, the Economist dissects the complaints of the European carriers, disqualifies them and only offers that continued success is to follow.

The impact on the "business" of airlines in the West will be fundamental and foundational.  In the Air Transport World article here.  Note that the comments at the end of this article are particularly poignant:

"Pointing to that order, CAPA commented that the eventual size of Emirates will be "significant enough to make irreversible the airline industry's transformation from a heavily regulated, nationalistic anachronism to something approaching a real business. No longer can traditional competitors hope to stave off this threat to the status quo, as they have been hoping in recent years while the airline expanded threateningly. This order marks a genuine turning point in that process of change. It is so large in fact that competitors' business plans will be reshaped by it.""

The Economist's Adam Barns (Gulliver here) provides both business and consumer insights in the audio below:

Monday, July 12, 2010

Global Consumer Data - Telecommunications

From the Economist

Consumer Insight - Razors

Previously, I linked Dan Ariely's take on consumer, shaving and razors here.  Here is a video on an emerging trend from Wall Street Journal in razors and blades.  I agree as I am a part of this trend since one year ago.

Friday, July 9, 2010

Consumer Insight - Behavior of "Addiction"

Excellent insights on human behavior in "Gambling Severity Predicts Midbrain Response to Near-Miss Outcomes" by Henry W. Chase and Luke Clark in The Journal of Neuroscience here.

"During gambling, players experience a range of cognitive distortions that promote an overestimation of the chances of winning. Near-miss outcomes are thought to fuel these distortions."

This applies to all activities that are competitive, yet for the astute, this applies to activities where some sort of fulfillment is desired as well.

If you do not have access to the above article, see a recap here at the Economist - "IT IS not the thrill of winning, but the thrill of almost winning that sets a problem gambler apart from those who just fancy a flutter. A strong reaction in the brain in response to “near misses” is correlated with a greater tendency to compulsive gambling, according to new research."

Wednesday, July 7, 2010

Gaming the Social Web

Good article by Eliot Van Buskirk, "Gaming the  System: How Marketers Rig the Social Media Machine" here. "If clout is the new currency, in other words, it already has its share of counterfeiters."

Biggest IPOs in History

Tuesday, July 6, 2010

Education Statistics in the Poorest Countries of the World

I have been consulting in the development sector for the past few years.  I found the data above of great value representing extremes in education in some of the poorest countries in the world.

South Asian Consumer Insight - Jaipur Literature Festival

"As the [India's] economy has boomed, and its middle class has grown, book sales have shot up.  Most books in India are still sold in small family-run shops, but book chains are moving into malls and airports.  Keen to exploit this growth, several foreign publishers, including Hachette, and HarperCollins have launched in India in recent years."

States the Economist article here.  While consumer products, luxury brands, etc. remains aspirational goods, anything related to educational is imbued int he psyche of the culture.  This perhaps is yet another avenue for democratization of the "class" structure in India.

"Room was also made for a group of writers who are little known, even in India: Dalits, formerly known as “untouchables” at the bottom of Hinduism’s caste system. Omprakash Valmiki, whose Hindi autobiography, “Joothan: A Dalit’s Life”, has been translated into English, read poems about the routine wretchedness of the lives of poor Indians. Another Dalit, Ajay Navaria, surprised some of his listeners with his expletive-peppered verses."

See the festival's website here.