Why is research so risk averse?

This post started life as a response to Ellen Woods’ well thought out Greenbook post on the paradox of risk, which you can read here. However, here is an extended version of my thoughts on the difference between the herd and good for the individual, in terms of risk, risk avoidance, and its implications for marketers and market researchers. In this post I want to concentrate of two issues: 1) the difference between what is good for the economy and the individual, and, 2) the difference between the short-term and the long-term. The difference between what is good for an economy and what is good for an individual. Most innovations fail, most entrepreneurs fail, most new products fail – the failure rate is typically quoted as being in the 80% to 90% range. Given these high failure rates, the logic for each individual entrepreneur is that they should not risk everything on some new change, idea, or innovation. However, the benefits to the economy of the few innovators and entrepreneurs that succeed is massive. Indeed, I think the number of entrepreneurs in the US is one of the keys to its success over the last 100 years – a success […]

An illustration of what happens when evidence, marketing, and customers are ignored

Marketers and market researchers are always looking for stories that provide evidence for the value of what they do. Sometimes we get the evidence in the form of stories where people implement the research and the campaign and there is a positive outcome. But it is rare for the other story to be told, what happens when marketers, market research, indeed the whole principle of evidence based decision making, is ignored. However, the New York Times has a very clear expose of what happens when evidence is ignored, the story of Ronald B Johnson’s 17 months at the top of US retailer JC Penney. It would not be fair of me to steal all of the story, and I would not write it as well as Stephanie Clifford has written it, so please read it here. However, a few of the key points are: Johnson arrived with a stellar reputation after helping build the Apple stores. “many of his ideas were not tested and soon backfired” “he was pretty sarcastic about our marketing and how ridiculous it was” “He ignored a study Penney had just completed on customer preferences, and gave merchants a one-sheet grid explaining what prices they could […]

The Myth of the Poverty Premium

There is a widespread view that people in poverty pay more for their products and services than richer people. This price difference was described by C.K Prahalad and Allen Hammond as the poverty premium, in an article in the Havard Business Review (HBR) in 2002 – which Prahalad expanded on in his book ‘The Fortune at the Bottom of the Pyramid’. However, an article by Ethan Kay and Woody Lewenstein in the April 2013 edition of the HBR cast doubt on the theory, and showed results of an experiment that illustrated that the poverty premium is not always present. The implications for this theory being wrong can have major implications for marketers and by implication market researchers. The idea behind the poverty premium is that more affluent shoppers can buy more efficiently, for example by driving to discount stores or by buying in larger pack sizes. At one level we can see this is true, the price paid for a can of Coca-Cola in a convenience store in a poor neighbourhood is likely to cost more than the proportionate costs of one can of Coca-Cola purchased as part of a multi-pack from the local equivalent of a WalMart. Kay and […]