Firing failures

Organizations that don’t tolerate failure not only stop their employees from learning from their mistakes but also create a risk-averse culture that fears trying anything new… Obviously, we should reward and retain people who know how to make good decisions, but most of the time, we just reward good outcomes. As long as organizations behave this way, we will be stuck with conservative, risk-avoiding behavior, and we will keep firing some of the wrong people.

Dan Ariely provides a nice potted summary of the consequences of firing people for making mistakes.

Popcorn profits

For many theaters, the transition to selling snacks helped save them from the crippling Depression. In the mid-1930s, the movie theater business started to go under. “But those that began serving popcorn and other snacks,” Smith explains, “survived.”

Natasha Geiling provides a fascinating account of how we came to eat popcorn at the movies. Early cinemas, who were trying to replicate a high-class theater experience, didn’t want anything to do with popcorn. Because it would have ruined the expensive carpets and upholstery, many cinemas expressly forbade popcorn.

During the Great Depression, however, many cinemas were saved because they started selling popcorn and other snacks at a high markup.

In a way, cinemas have now come full circle. Many new cinemas are following what I think of as the Alamo Drafthouse Model. They’re no longer trying to replicate an experience based on the theater, but one that owes more to our behavior when watching movies at home combined with what we want from a nice night out. Many newer cinemas offer a nice meal along with good wine and beer. Often the experience will be tied to the film itself, offering something that we couldn’t get just watching Netflix on the couch.

The paradox of peanut butter

A closer look at [Trader Joe’s] selection of items underscores the brilliance of Coulombe’s limited-selection, high-turnover model. Take peanut butter. Trader Joe’s sells 10 varieties. That might sound like a lot, but most supermarkets sell about 40 SKUs. For simplicity’s sake, say both a typical supermarket and a Trader Joe’s sell 40 jars a week. Trader Joe’s would sell an average of four of each type, while the supermarket might sell only one. With the greater turnover on a smaller number of items, Trader Joe’s can buy large quantities and secure deep discounts. And it makes the whole business — from stocking shelves to checking out customers — much simpler.

Swapping selection for value turns out not to be much of a tradeoff. Customers may think they want variety, but in reality too many options can lead to shopping paralysis. “People are worried they’ll regret the choice they made,” says Barry Schwartz, a Swarthmore professor and author of The Paradox of Choice. “People don’t want to feel they made a mistake.” Studies have found that buyers enjoy purchases more if they know the pool of options isn’t quite so large. Trader Joe’s organic creamy unsalted peanut butter will be more satisfying if there are only nine other peanut butters a shopper might have purchased instead of 39. Having a wide selection may help get customers in the store, but it won’t increase the chances they’ll buy. (It also explains why so often people are on their cellphones at the supermarket asking their significant other which detergent to get.) “It takes them out of the purchasing process and puts them into a decision-making process,” explains Stew Leonard Jr., CEO of grocer Stew Leonard’s, which also subscribes to the “less is more” mantra.

from Inside the secret world of Trader Joe’s.

This is an interesting example of the paradox of choice. One of the criticisms of the paradox of choice is that, in fact, increasing choice has no impact on satisfaction:

Over the past ten years, a number of such experiments have been done by academics to evaluate the asserted paradox of choice for product categories ranging from mp3 players to mutual funds, and a paper was published in February (Scheibehenne et al) that conducted a meta-analysis of 50 of them. (h/t Tim Harford) Across all of these experiments, the average effect of increasing choice on consumption or satisfaction was “virtually zero”. Further, this meta-analysis showed a positive average effect of increasing choices for those experiments that, like the jam experiment, tested the effect of choice on consumption quantity rather than some measure of satisfaction as the outcome. That is, when it comes to sales, more choice is better.

In Trader Joe’s we have an example of a store that limits choice and still has a fiercely loyal customer base. Of course, this is correlation and not cause. Additionally, as the Trader Joe’s article points out, limited choice is just one of a number of reasons why people love Trader Joe’s. These other reasons are why customers trust Trader Joe’s to filter their choices for them.

I’m still halfway through Barry Schwatz’s book, and haven’t made up my mind about the paradox of choice yet. Nevertheless, having an example of the successful application of the idea is useful.