Monday, August 30, 2010

What is the 'best' school?

Recently, Forbes put out a report on America's best colleges (Ewalt) from a somewhat different perspective--from the students' points of view. Based on feedback from students, Forbes ranked the top 610 out of 6600 private and public universities. Along with give-aways like Princeton, MIT, and Stanford making the top 20, lesser known schools like Williams College (no. 1), Claremont Mckenna College (no. 7), and Ponoma College (no. 17) also made the scoreboard. Well, what do we make of this list? Perhaps academicians would have chosen a different list, as would corporate executives, government officials, and taxpayers in general. Would all these groups have chosen Williams College as the number one school? Probably not, but whose opinion really counts? It should be the student's, right? After all, the student is the one attending.

It all comes down to the simple question of, 'who is the customer?' Who is the school catering to? The 'best' school will be defined as the school that creates the most value for its intended audience. But who is the audience? This is where it gets tricky. Most educational institutions, both public and private, cater to the values of many groups simultaneously. They are all performing a balancing act that make it nearly impossible to tease out which school most effectively provides for the needs of all its constituents. Here are just a few different customers of post-secondary educational institutions and why client retention in these groups is a must:

Students: Colleges want to attract high-caliber students because the student is the customer in the most direct sense. The product is education and the students are the ones who consume it. The quality and satisfaction of the students contribute greatly the the school's reputation.

Professors: Colleges want to bring in the most notable professors in various fields because the professors are the skilled labor that make the product of higher learning what it is. They are the engineering behind the product. Without quality professors, the school has no competitive advantage.

Donors: Ever wonder why a particular building on campus is named after someone you've never heard of? It's because that person paid the school for the recognition. Many wealthy people donate to academic institutions for the prestige. If a college is serious about improving, it needs funding. Therefore, the better it caters to its donors, the more funding it will have to turn out a better product.

Parents: In most cases, parents will be the ones paying for students' education, so the school better be pretty darn convincing that the knowledge it is disseminating is worth the investment. Especially in private institutions but also to a degree in public institutions, parents are writing the checks. The best schools will be the ones who pay heed to the values of parents.

Academicians/Scholars: The opinions of intellectuals in various academic fields hold a lot of water when it comes to the reputations of schools. Academic institutions invest a lot of money in turning out research that appeals to these scholars and their organizations because it demonstrates their academic prestige.

Corporate executives/government leaders: After students graduate, where do they find jobs? Smart academic institutions will pay attention to future employers because parents will pay for students to go where they can build a foundation for a solid career. The best education is meaningless if it doesn't justify the fiscal investment. What do potential employers think of the school? Definitely worth a consideration.

These groups just name a few 'customers' that may play a role in how a college strives to be its 'best.' Sure, the popularity of the school amongst its students counts quite a bit, but it is by no means the only thing to consider. Just like any other business that must consider the values of a diverse customer base, academic institutions are in a constant struggle to maximize satisfaction amongst a diverse range of constituents.

Ewalt, David M. (2010, August 11). America's Best Colleges. Retrieved from

Saturday, August 28, 2010

The Consumer Psychology of the Mosque at Ground Zero

Recently, there has arisen a hotly contested issue with the Islamic faith in America. Before I tread on such sacred ground, I want to make clear that I am not taking a side but rather pointing out the consumer-oriented psychological implications behind the issue. And I believe it would help for those making the decision, as well as for those forming an opinion as to which decision should be made, to understand the psychological reasons behind either building a mosque a ground zero or not building a mosque at ground zero. The decision is really, like anything else, a consumption decision.

Those who are making the decision--as well as we who are forming an opinion--are choosing between alternatives to maximize their satisfaction. At the base level, deciding whether or not to build the mosque at ground zero is no different than choosing between the meaty, cheesy allure of a quarter pound burger and the health benefits of a light salad. Each choice reflects a set of values and the choice that will be made will reflect the values that are most important to the decision-maker. Is flavor more important or is health? In the same way, we might ask in regards to the mosque issue, 'Is freedom of religion more important or is patriotism?' Building a mosque at ground zero is a clear win for expressing freedom of religion but it is a smack in the face to those who understand 9/11 as an American tragedy. Similarly, not building the mosque at ground zero eases patriotic tensions but sends the message that some religions are allowed to be practiced more freely than others.

What complicates this matter is the fear of what economists call 'negative externalities.' Sometimes, when we make choices based on our values, the consequences of our choice ends up affecting people who weren't involved in the decision. That is an externality. When it effects them badly, it is a negative externality. Sure, if we decide in favor of religious freedom, we can see ourselves as more tolerant, but what if that provides a gateway to more violent, religiously motivated terrorist activities? On the other hand, the patriotic alternative could also produce negative externalities. In not building the mosque at ground zero, the Islamic faith may become viewed as increasingly more un-American--causing Muslims who are nowhere near ground zero to get the brunt of the hostility.

So, what is to be done? Like I said, I'm not taking a position on what should be done. But I will say what I believe will be done. When all the cards are played, decision-makers will make the choice that most closely alligns with their values based on all the information they have. Even considering possible externalities, those in charge of deciding whether or not to build at ground zero will be deciding based on their values. Similarly, we who are not involved in the decision but still indignant as to what decision should be made are asserting our own values by the opinion we form. It all comes down to what is more appealing to the decision-maker--the burger or the salad.

Thursday, August 26, 2010

The Consumer Psychology of Supporting Aging Inmates

I recently read an article on the expense involved in keeping aging inmates alive in prison. Though I'm sure this issue has been prevalent since the dawn of prison reform, I can say with confidence that it is probably even more pressing today with the average person living longer and the cost of health care skyrocketing. The prison system itself has its pros and cons. Some say prison is good for society because it provides a means of either reintegrating disadvantaged people who engage in criminal behavior back into society or protecting society from those who will not be reformed. On the other hand, some ask, 'Why should they get free ride while we slave away all day at work just because they killed someone and we didn't?' The issue is intensified when we are speaking of the elderly, however. They are older and maybe a bit more helpless but, at the same time, they are getting an even 'freer' ride because they cost more. The question, then, to be considered in what we should do with older prisoners is one of investment.

The consumer in this situation, the one who is making a decision based on his or her values, is the taxpayer. The individual taxpayer must ask himself, 'To what extent am I willing to give up my purchasing power so that elderly criminals can be taken care of?' or, more simply, 'when does it get too expensive?' At its core, the decision is no different than buying any other product. Take a house, for example. If you are shopping for a house, there are houses that will cost too little. You wouldn't think about buying a house that is falling apart. By the same token, there will at some point be a house that you decide has a cost that is beyond your means--and you will not buy that house. Similarly, many taxpayers may have some level of sympathy for elderly prisoners and would be willing to contribute to their well-being to a certain extent. Yet, at some point, the cost of health care for elderly prisoners will be too high for taxpayers to even consider.

Or perhaps we will never reach that point. Perhaps, we will prefer to complain about the rising costs of taxes than to tread upon such ethically unsettling ground. Regardless, I wish merely to point out that it is a question of values. The taxpayer--or consumer--will always be willing to pay as much as he or she sees as beneficial. Even if the only benefit becomes avoiding dystopian conflict, the taxpayer is always asserting his values when he opts for how his tax dollars are to be spent.

Monday, August 23, 2010

Consolidating Consumption

More and more it seems, consumers are trying to get as many diverse benefits out of any given product or service as is possible to provide. The amazing thing is that no matter how advanced we become as human beings, we'll always be subject to the constant of time. There will always be twenty-four hours in a day and, though we can become wealthier and wealthier in other respects, the amount of time we can accumulate will always be the same. So, what happens when we have the same amount of time but increasingly more stuff to cram into it? Consolidation. Consumers are looking for products and services that do everything.

I've noticed a few different examples of this as of late--and there are probably better, more insightful ones that I simply haven't thought of. The first is the increasingly high demand for well-equipped crossover vehicles. There are more and more automobiles on the market that people don't know what to call--cars or SUVs. The answer is that they are both. Consumers in this newly prevalent line of vehicles enjoy a dual convenience of the smooth, compact ride of a car and the powerful, off-road capabilities of an SUV. Even longtime performance-oriented car makers like BMW and Porsche are pushing crossovers. Most of the time, the crossover version of an auto maker's sedan will also have all of the entertainment and technology features that its smaller counterpart has as well. The auto market is increasingly cranking out vehicles that have something for everyone.....and everything for someone.

I've also noticed lately an onslaught of fitness centers opening up. Just in my everyday driving, from work to church to shopping, I've noticed probably seven or eight. Clearly, there must be some sort of demand for gyms in my neighborhood. Why is this market segment exploding so? I would suspect that it is for the very same reason as above: consolidation. Consumers are trying to get more for their time. Exercise can be down without the facilities provided in fitness centers. Yet, in a fitness center, a consumer has a wide range of diverse exercise equipment all in one place whereas they may just have a treadmill or a Billy Blanks DVD at home. Moreover, gyms provide another service to go along with exercise that is easy to neglect in a schedule stretched thinly: it fulfills the need to socialize. Just about everyone I've heard speak about 'going to the gym' has mentioned some other person that they went with or had a conversation with while they were there.

Lastly, and most obvious, is Apple. The IPad, IPhone, and IPod are striving for consolidation more and more. Consumers have a plethora of electronic applications that they use: music, reading, GPS, phone service, web surfing, watching videos, etc. Apple is seeking to do it all. Often the most persuasive draw to an electronic device is its versatility. I don't think there are cell phones in existence anymore that don't have cameras--and most will have email as well as some web browsing option. Amazon's new Kindle, sure, can store up to 3500 books but it also has a batter life of one month and is capable of surfing the Internet via Wifi. We need not even mention the 'Apps' of an IPad or Iphone, which have created an entire industry in and of themselves. In the market of electronic devices, consolidation is without a doubt where things are going.

How consolidated can products and services get? I'm willing to bet we're only on the tip of the iceberg. We already as part of our everyday lives take for granted products and services that provide multiple benefits to us--like those mentioned above. In the future, who knows, maybe there will be fitness centers inside buses with IPads connected to each treadmill for the daily commute to work. A stretch of the imagination? Perhaps, but as both demand and competition for consolidation of benefits becomes more intense, we'll definitely see more and more package deals in the marketplace.

Thursday, August 19, 2010

How Much Did the Joneses Pay?

We've all been in this situation. We buy a product and feel justified in the expense as its value is integrated nicely into our lives. Then, a few days later, a friend of ours gets back from shopping with the very same item. Only, they tell us what a great deal they got on it--paying far less than we ourselves paid for the same thing. Suddenly, we're indignant. 'I guess,' we begin to think, 'that it's worth less than I thought it was. I got swindled!' But did we get swindled? Just because our friend paid less for something that we were willing to pay more for, does that mean that we were ripped off?

I've seen a few things as of late that make me ask these questions. First, I saw a video of an investigative journalist attempting to reveal the shady practices of a used car dealer. Two different people went into the dealership to try to get the lowest price on the same car. One person was able to get the salesman down to $4000 less than the other person was able to do. I also, later the same day, read an article on confidentiality of salaries. Employers apparently don't want their older employees to know that they are paying younger employees higher salaries. Somehow, we feel that there is injustice in these scenarios. Why should we pay more for the same item? Why should we make less for doing the same job? Is there injustice?

Well, maybe. It depends on how much value we place on comparing ourselves to others. The phrase, "keeping up with the Joneses," is originally from a comic strip in the early 1900s. The Joneses were affluent neighbors who were always talked about but never seen. When we 'compare ourselves to the Joneses,' we are saying that the value we place on a product or service is at least in part determined by the value someone else places on it. Sometimes, we'll even reason our way out of a purchase by saying to ourselves something like, 'would most people pay this much for this item?'

The question is, 'why should we care what other people think?' Why does it matter, just as long as I am content with my wages, that my co-worker makes more money than I do? Why does it matter, as long as I enjoy my purchase, that my neighbor bought it for less than I did? Well, quite possibly because we are social creatures and our values as individuals are at least in part intertwined with the whole. Perhaps there is no such thing as how much I value an object or activity apart from how much we value an object or activity. So, which is it? Should we care about how much the Joneses paid or not? I don't know. But it is worth considering next time you find yourself in such a situation. Ask yourself, in such a case, how much is this object or activity worth to me? Try leaving the Joneses out of it.

Monday, August 16, 2010

Is Interest Bad?

It occured to me the other day that there is a stigma to paying interest. Putting something on a credit card and paying interest on it over a period of so many months is often considered a poor financial decision. Likewise, many people think that the finance guy at a car dealership is ripping the customer off when they lower the monthly payment by extending the term of the loan. Is this the right attitude to have? Is paying interest unwise and charging interest evil?

Certainly, it is always better to be able to pay for things outright. No one would dispute that if you have the money to buy the 2000 dollar television, you should just buy it instead of putting it on the Visa. Likewise, if you can easily buy a car in cash, it would not be smart to finance it. If everyone always had the money they needed when they needed it, interest wouldn't exist. As it is, however, most people do not always have all of the money they need. Most people, from time to time, feel the need to borrow.

So, is it wrong for lenders to take advantage of borrowers by charging interest? No. No one should be obligated to lend their own money just to satisfy someone's need for instant gratification. The lender charges interest--interest being the amount that makes it worthwhile for the lender to temporarily give up his or her own money. Interest, to the borrower, is the amount he or she is willing to pay in order to have now what could instead be had later. In other words, when we buy a car and pay interest, we are in reality paying for the benefit of getting the car immediately. When we buy the TV and pay off the Visa card in six to eight months, we are willing to pay a couple hundred dollars interest because we want to watch the TV now!

Interest is neither or good or bad. It simply is. It's just another item available for purchase in a mutual transaction. Certainly, anyone can get through his or her life without ever paying interest, but he or she will most likely rent a house, walk to work, and have no college education. Financing a good or service may never really be a need but it may be a bad enough want to justify shelling out some interest.

Wednesday, August 11, 2010

Mark-Up Revulsion

Consumers are without a doubt a difficult bunch to please. I know; I am one. Most of the time, consumers aren't happy unless they feel they've gotten some sort of deal--unless they feel they've one-upped the seller. It often doesn't matter how cheap or expensive the selling price of the item in question is. Rather, it is how much of a cut of the profit the consumer can take back from the seller that makes all the difference. Consumers thrive on 'ripping sellers off' or, perhaps the more consumer-friendly corrolary, preventing sellers from 'ripping them off.' Consumers, in other words, take great pleasure in whittling away the profits of those from whom they buy, but they cannot tolerate sellers actually making money off of them. If there is one thing that sets consumers off more than anything else, it is mark-up.

There is perhaps no funnier thing than seeing a person frantically chug a Venti latte all the while complaining about the profit starbucks makes off of one its flagship sizes. It's not that they are unwilling the pay five bucks for the beverage. They do, over and over again. It's the fact that Starbucks is making more money off of the latte than the consumers feels it should. Many consumers just can't stand the fact that someone else is making money off of their purchase. They, of course, would never expect to be given their purchases for free--but they demand getting pretty darn close.

Some consumers are willing to spend a little more on the 'good cause' factor--if they see that the seller is doing something the consumer deems as worthwhile with the profits. Everyone loves philanthropy. Certainly I would not contest that it is good to help out those in need. Yet, there are many needs and only so much profit to fill them. Which 'good cause' should the seller focus on? If focusing on one 'good cause,' the seller will attract business from one set of consumers. If focusing on another 'good cause,' the seller will attract business from another set of consumers. In other words, the consumers that buy the seller's products on their 'good cause' merit are only doing so because it gives them pleasure. The seller's profits, sure, are going to a 'good cause'--but one that is upheld by the buyers. Therefore, the principal is the same. The consumers are still trying to get everything possible out of the sale.

Well, what is the reason for mark-up? Is it because sellers simply need to make a living? Is it because sellers are greedy and want all the money for themselves? Well, the answer is neither of these and both of them. The reason for mark-up is specialization. The reason why Starbucks is able to make such a high profit on your morning latte is because you have your own job to do and don't have time to make your morning latte. It's not merely because the people who work for Starbucks need to make a living. It's also not because people at Starbucks are trying to suck all of your money out of you. It is merely because at $5 a latte you say I'll take one whereas at $6 dollars a latte you say I'll make one. The simple economic fact is that we as consumers will pay whatever amount we are willing to give up in order to not have to make the product or provide the service ourselves.