We Can't All Be Winners
The “harbingers of failure” study reminds us that we could equally seek customers with the opposite quality: an unerring nose for products that the mass market will despise. Perhaps it shouldn’t be a surprise that such people exist.
Capital Thinking • Issue #524 • View online
While I’d prefer not to reveal too much about my voting habits, it has been a very long time since I was on the winning side: I didn’t vote for Boris Johnson, I didn’t vote for David Cameron and I didn’t vote for Tony Blair.
I was on the losing side in all the referendums, too.
Politically, I am Crystal Pepsi. I am Colgate ready meals.
Why my purchase choices have the kiss of death
Tim Hartford | The Undercover Economist:
Steve Eisman, the investment manager made famous by Michael Lewis’s The Big Short, did a lot of homework in his quest for terrible assets to bet against.
But when he was introduced to another investment manager — Wing Chau — he saw the opportunity to accelerate the decision-making process: “Whatever that guy is buying, I want to short it.”
For Mr Eisman, Wing Chau was the equivalent of a watch that is six hours off: a perfect guide, as long as you realise that you need to look at the opposite side of the deal — or the clock face.
A few years ago, four business school academics won attention for the discovery that the same logic may work for retail products.
Eric Anderson, Song Lin, Duncan Simester and Catherine Tucker found what they called “harbingers of failure” — consumers who simply adored the Ford Edsel, the Betamax video format, or those squeezy bottles loaded with Heinz EZ Squirt ketchup in bright blue, green and purple, a kind of edible paint.
These people thought nothing cried out “sophisticated lady” more loudly than a packet of Bic disposable knickers.
Product development teams have long prized the idea that “lead customers” could give them insight into where the mass market might be going.
A celebrated example is the mountain bike, a product assembled by enthusiasts who, starting in the early 1970s, modified old bikes by adding balloon tyres and motorcycle brakes to cope with demanding off-road conditions.
Fifteen years later, the mountain bike was a mainstream retail product.
Pointing to such examples, Eric von Hippel, a professor at MIT, argued that companies shouldn’t just show product ideas to focus groups made up of generic, average consumers.
They should find the early adopters and the trend setters, and pay particular attention to them.
But the “harbingers of failure” study reminds us that we could equally seek customers with the opposite quality: an unerring nose for products that the mass market will despise.
Perhaps it shouldn’t be a surprise that such people exist.
Prof Anderson and his colleagues suggested that companies could identify harbinger customers by examining their purchase decisions, and then use them as a guide to what not to stock in future.
They also concluded that these customers provided a strong signal of a product’s prospects: “The more they buy, the less likely the product will succeed.”
Recently, the plot thickened like a glob of EZ Squirt: a research paper from professors Simester and Tucker and Clair Yang reported on “The Surprising Breadth of Harbingers of Failure”.
This study found that “not only are there customers who are harbingers, but there are also harbinger zip codes”.
*Featured post photo by Ivan Diaz on Unsplash