Wednesday, May 27, 2015

Merchandizing, Part II: Small business report

The University of Michigan ran an experiment to study how people make "hiring" decisions and to assess the effectiveness of those methods.  Their base hypothesis was that more information always resulted in better outcomes.  They used admissions to the U-of-M Graduate school of Psychology as a proxy for the hiring process and they used academic success (GPA, graduation rate) as the proxy for a successful "hire".

Their hypothesis was wrong.

They split the incoming class into three groups.

The first group was admitted solely on the basis of documentation, that is, transcripts and standardized test scores.

The second group was admitted solely on the basis of  four hour interviews with multiple Psychology Professors.

The third group was filtered using both selection criteria.

Their hypothesis was  that the third group would trounce the first two groups and that the second group (interviewed by Psychology Professors) would beat the first group.

In fact, the second and third groups were in a dead-heat and they were both trounced by the first group.

What happened?

While it is easy to dismiss documentation like GPA and standardized test scores, one must remember that both items cover a carefully designed, wide "span" of knowledge.  In the case of the GPA, it typically condenses four years of performance as assessed by approximately 30 instructors over an absolute minimum of 1800 hours of "work".  A four hour interview cannot cover the breadth of knowledge that underpins a solid undergraduate course of study.

Nor is it likely to fairly assess how we handle ourselves when we are struggling with illness, lack of sleep or other distractions.   Nearly everybody looks like a star when their game is "on".  Champions are the ones who turn in a solid performance even when working through a slump.

The dead-heat between the second and third group was more difficult to figure out.

 Humans have very limited "buffer" in our thinking processes.  We tend to solve difficult problems iteratively, like combing knots our of our hair.  Each time we iterate we tend to amplify the graphic information (like face-to-face interviews) and discount the pallid information (like any form of text).

Lets assume we have to comb through the problem 20 times to sort through all of the candidates as we assess them on a criterion-by-criterion basis.  Further, lets assume that we amplify the graphic information by 10% and discount the pallid information by 10%.  After 20 iterations we are left with the ratio of =(110% divided by 90%)^20  If you run that calculation you will find that the graphic information is weighted 55 TIMES (5500%) more than the pallid information.  That is, the pallid information is discounted into irrelevance.

As a merchant...

Most academic literature is oriented toward supporting the decision maker to produce the "best" decision.  The typical advice is to pre-filter all of the candidates on the basis of the pallid information so the decision maker could literally throw a dart and select a suitable "hire".   Then use the interview process to select solely for "chemistry".

As a merchant, we want the customer to choose our products even if they are not the absolute, most mathematically defensible optimum.

As a small business we often find ourselves competing against competitors with greater economies-of-scale,  supply chains that are more robust and a willingness to engage in loss-leader pricing for tactical and strategic reasons.  While those prices provide short-term optimums for the customer it is suicidal for the smaller merchant to attempt to match or beat.  Staying in business involves engaging the customer's emotions before their intellect.

The way to make that happen is to make your offerings more graphic than your competition and to parade those offerings in front of your customer before they start their selection process.

What is graphic?

This is probably best shown with examples.  I will use "seed catalogs" as examples.

This is a picture of....text.  This company is in business in spite of their catalog.  Great customer service.  Great prices.  Weak graphic presentation.

This is a "mug-shot".  This example has great production characteristics.  It shows three dimensionality.  It has vivid colors and sharp lighting and focus.  But it is a noun.  It shows a static subject rather than an active verb.

This is an "implied verb".  The viewer can script a mental story around this picture.  Most importantly, they can easily fit themselves into the narrative of that story.
This is a "fantasy anchor".  This is Holy Grail of images.  It gives the viewer a ready-made story.  It emphasizes relationships.

Lex Wexner

In the mid-1960s Mr Wexner was a successful business man who owned several discount stores in the Columbus, Ohio area.

Like all of the other discount stores of the era, his stores were cavernous barns filled with folding tables.  Clothing was folded and stacked on the tables.  And, like all of his competitors, he knew that the key to selling more product per square foot was to have more product stacked on the tables.

European vacation

He was successful enough that he was able to afford a vacation in Europe.  One day, while walking past a butcher shop he experienced a change-of-plans.  He  stopped walking, turned around and entered the butcher shop.

Lex Wexner is a man who candidly admits that  every person in America has enough clothes in their closets to last a hundred years.  The key to success is " to create a demand to stimulate people to buy."

Mr Wexner had sufficient self awareness to realize that he was not hungry nor had visiting a butcher shop ever been on his itinerary.    Something had, out-of-the-blue, stimulated an instinctive "buy" impulse.

Mr Wexner took many, many pictures of that butcher shop.  Once attuned, he started taking pictures of shops every time he felt even the tremor of a buy impulse.

It turned out that the critical signal at the butcher shop were the strings of sausages and cured hams hanging from the rafters.  Other butcher shops had trays of raw meat nested down in crushed ice.  Compared to the raw meat, those hams and sausages looked like food, which is a little bit amazing since Mr Wexner is Jewish.

Mr Wexner ran an experiment after he arrived back in Ohio.  He took one of his discount outlets and eliminated the folding tables.  He hired a local firm to custom-make racks with spacers that allowed him to evenly space product at approximately 1/6 then product count of a typical clothes storage rack.  He also experimented with racks that displayed the product from different angles so the customer could see the product from several different perspectives. That reduced density allowed the blouses to "poof-out" and look almost as if somebody were modeling them.  The customers could simultaneously see the neckline, the buttons, the hang and the sheen of the fabric.

All of his competitors thought he had gone stark, raving mad.  After all, everybody knew the way to sell more product was to have more product on display.

His customers thought he was a genius.  They could suddenly visualize how that blouse or pair of slacks might look on them.

Mr Wexner's low density displays allowed his customers to put the "I" in the picture.

Mr Wexner blew his competition out of the water.  Not only did he slay them on a sales-per-square foot basis, his carrying costs for merchandise was less than 10% of theirs.

Graphic pictures are images that show your customer the "I" in the pIcture

 Index of Small Business Reports


  1. Interesting report, and it IS about presentation... Re the first part, I wonder if the 'presentation' to the profs was the decider in both 2nd and 3rd groups.

    1. Well, of course it was. If you rely primarily on interviews you will end up hiring proficient con-men.

      They know how to produce compelling narratives to make even mediocre grades seem exceptional. A close relative with Stage III cancer, working three jobs, providing day-care for younger siblings all while doing Ethnobotanical research on non-native plants for anti-psychotic properties.

      Translation: My aunt had cancer sometime during the last 8 years, I was employed by three different fast-food joints and was fired within a week at each one and my mom trusted me to watch my 12 year old brother while she ran to the drug store even though I was stoned on my azz due to some very potent MJ.

    2. Good point... Didn't think of it quite 'that' way... sigh

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