The Meaning Of Backstory In A Nutshell

October 27, 2011Comments Off on The Meaning Of Backstory In A Nutshell

Blogger Matthew Yglesias describes his recent experiences switching back and forth between an Apple iPhone and an Android phone–and comes to the conclusion that, for him, the difference is all about “vertically integrated systems.” Yglesias says, “for all its virtues, Android can’t consistently deliver that basic original iPhone experience of a really good really responsive touchscreen. They’re years behind. And I think it may just not be possible to do unless you’re writing specific code for specific hardware and working closely with suppliers all up and down the chain. I tweeted that I didn’t like Android’s screen responsiveness and a bunch of folks tweeted back ‘that’s a hardware issue, don’t blame Android.'”

Now, if you’re an Android programmer, it’s totally understandable why you’d want to point out to an irritated customer like Yglesias that problems with the touchscreen are not your responsibility and therefore it’s unfair to blame you for them. Most of us have been in the same position in our work lives. But from the consumer’s perspective, the unfairness of it is completely irrelevant. Who cares why my phone doesn’t work terribly well? I’m no technical expert. I just want the smooth effortless responsiveness I get from a great product like an Apple iPhone–and I don’t want to have to think about how it happens.

Yes, I know it’s not really magic. But I want it to seem like magic!

Yglesias’s story–which millions of other people have experienced in one way or another, not just with cellphones but with products ranging from car insurance to cable TV service–illustrates perfectly the importance of backstory, as we explain it in Demand, and why the boring drudgery of “working closely with suppliers all up and down the chain” is such an essential element of demand-creation magic.


Steve Jobs As The New Harry Potter

October 25, 2011Comments Off on Steve Jobs As The New Harry Potter

Even in death, it seems, Steve Jobs is still creating waves of demand. I liked the wizard-themed illustration for this Wired news story about how the Jobs biography has become a publishing phenomenon. The only problem for the book industry is that it’s hard to picture a series of sequels depicting our hero’s future adventures . . .

A Coach-And-Six For Every American–The Secret History of Demand (Part IV)

October 23, 2011Comments Off on A Coach-And-Six For Every American–The Secret History of Demand (Part IV)

In Part I of this series, we looked at how the story of coffee embodies many common themes from the historic evolution of demand; in Part II, we explained how the transition from medieval to modern times brought the emergence of demand as we know it today; and in Part III, we looked at how major technological breakthroughs have driven big changes in demand. In Part IV, we’ll consider how a single invention–Ford’s Model T–unleashed a cascade of demand-changing events that ended up transforming American society.

Henry Ford’s Model T vividly illustrates how technological development can pave the way for an economy-wide reshaping of demand. In his classic Wealth of Nations (1776), Adam Smith had distinguished between true demand, which can be acted upon, and a more nebulous, less concrete form of demand that is closer to day-dreaming. He illustrated the difference using a homely analogy: “A very poor man may be said in some sense to have a demand for a coach and six; he might like to have it; but his demand is not an effectual demand, as the commodity can never be brought to market in order to satisfy it” (Book I, Chapter VII).

A century and a quarter later, Henry Ford, with a major assist from the technology of the internal combustion engine, rendered Smith’s analogy obsolete. At the time, the automobile—the modern transportation equivalent of a coach and six—was a luxury good, a plaything available only to the wealthy. In 1905, just 24,250 cars were sold in the United States, most of them priced over $1,375 (in a country where the per-capita income was still under $500). Against this backdrop, Ford had the vision to imagine a mass market for the automobile.

He set about devising manufacturing, managerial, and marketing systems that could make it possible. By 1908, he had largely solved the equation with the design for a mass-produced car that was reliable, sturdy, easy to drive, easy to maintain, and available at a price that many middle-class Americans could afford—$850. Over the next eight years, as sales grew from just under 6,000 units (1908) to over half a million (1916), economies of scale at Ford’s Highland Park plant drove the price steadily downward, until by 1916 you could buy a Model T for $360—half the price of the closest competitor.

By transforming the automobile from a luxury good into a basic necessity that tens of millions of Americans could afford, the Model T launched a physical and economic transformation of the United States, comparable in many ways to the revolution stimulated by the steam engine. Yet it’s worth noting that the infrastructure needed to support the automotive revolution did not exist prior to the introduction of the Model T. As historian Richard Tedlow notes:

If one wanted to make a case against the possibility of a mass-marketed automobile from the viewpoint of an analyst in 1900, there are plenty of arguments near at hand. Many of these have already been mentioned—the lack of consumer purchasing power, roads, gas stations, repair facilities. To this list we might add the absence of rules of the road, of useful maps, of an insurance system, of licensing. In short, the whole infrastructure—both corporate and governmental—that we take for granted as members of an automobile-ized society was absent. (New and Improved, page 117)

All of these infrastructure elements came about after and in large measure because of Ford’s great breakthrough, which stimulated demand for cars by producing a vision of affordable personal mobility that excited millions of people. And once these millions started buying Model Ts—and later, other models of cars—other entrepreneurs, as well as government agencies, moved to respond to the new demand for supporting infrastructures, from repair shops and insurance agencies to the vast Interstate Highway System, which was not created until the postwar boom of the 1950s.

The direct impacts of the car on demand in America are obvious. For three generations, millions of families attained middle-class status thanks to well-paid jobs at the Big Three automakers in and around Detroit or at the hundreds of firms that supplied them with parts and services. Add in the millions more who owed their livelihoods to auto-related services, from mechanics, gas station attendants, and highway construction crews to auto loan underwriters and insurance agents, and the volume of demand directly generated by this one piece of our national infrastructure is clearly staggering.

But the indirect effects of the automotive revolution were even greater. Convenient personal mobility helped create demand for such disparate goods as roadside hotels and restaurants, suburban houses, supermarkets and “big box” retailers. And as many historians and sociologists have noted, the mid-century migrations of Americans to the Sun Belt and to suburbia would have been impossible—or least far more difficult, and less massive—if not for two crucial infrastructure innovations: the mass ownership of automobiles and the invention of air conditioning. Imagine an America without the automobile and you must picture a country without shopping malls, theme parks, “big box” retailers, “edge” cities, and exurban office parks. It’s also a country in which cities like Los Angeles, Dallas, Phoenix, Las Vegas, and Atlanta probably never outgrew their status as mere local or regional hubs rather than the international business centers they are today.

Some inventions become the wellsprings of big businesses in their own right. But the really revolutionary inventions–like Ford’s Model T–end up launching dozens of businesses and revolutionizing demand in ways that are almost too numerous to count.

The Willat Effect And Demand Variation

October 20, 2011Comments Off on The Willat Effect And Demand Variation

One of the things I constantly marvel at is the incredible variety of human tastes, interests, and preferences that seem to emerge in almost any advanced society. This variety proclaims itself in countless ways: for example, in the thousands of clubs, associations, and societies organized around a seemingly endless parade of specialized obsessions; in the ever-changing array of fashions in clothing, hairstyles, home decor, and other realms of personal esthetics, which employ thousands of designers in creating new product lines several times a year; and in the continually ramifying worlds of art and literature, which reflect the apparently bottomless delight humans take in drawing ever-finer distinctions among genres and categories.

(As this chart from Bloomberg BusinessWeek illustrates, not only are there romance novels; and, within that category, small-town romance novels; and, within that, small-town romance novels centered on crafting; but, within that, there are entire lines of small-town crafting romance novels focused on particular crafts, like quilting or knitting. And I don’t doubt there are readers who visit Barnes & Noble and find themselves saying to the salesclerk, “Yes, I like quilting romances–but not Hawaiian style! Don’t you have anything good and sexy about a beautiful young trapunto specialist and her lusty batting supplier?”)

Now it turns out that psychology professor and “self-experimenter” Seth Roberts has a theory about the evolutionary basis for this seemingly endless human proclivity for demand variation. He calls it The Willat Effect, and he believes it arises spontaneously whenever people have the opportunity to minutely compare several similar but different items. “Side-by-side comparisons create connoisseurs,” Roberts says, and through self-observation he posits that such comparisons not only tend to magnify our perception of small differences but also tend to make us desire higher-quality items. (Roberts first noticed the effect when a friend gave him five different varieties of limoncello, the Italian liqueur, to drink. After sampling and comparing them, he found he was no longer satisfied by cheap limoncello but recognized and craved the enhanced experience provided by the more expensive brand.)

I don’t know whether Roberts’s theory will hold up under extended scrutiny by social scientists. But it certainly explains a lot. Looking back to prehistory, it’s easy to imagine how sheer growth in human numbers, with associated effects such as urbanization, could have caused The Willat Effect to kick in. As soon as a town gets big enough to have ten or twenty tailors rather than just one or two, people start to notice small differences among the garments they produce–and over time, a proliferation of various clothing styles and the desire for increasingly sophisticated refinements (gold threads, blended fabrics, embroidery, contrast linings, etc. etc.) would be the almost inevitable consequence.

People sometimes think of our taste for endlessly varied goods and services as being wasteful (cue the cliched comments by the exasperated spouse: “Nobody needs a hundred different pairs of shoes!”). Yet demand growth, economic development, job creation, and prosperity all depend upon that taste. Perhaps I like Roberts’s theory of The Willat Effect because it suggests that “connoisseurship” is not a corruption of human nature that afflicts people who have too much time and money on their hands, but rather a natural instinct that automatically kicks in whenever humans have the opportunity to compare, and to choose.

Calvin Demonstrates How Not To Think About Demand

October 18, 2011Comments Off on Calvin Demonstrates How Not To Think About Demand

Based on this Sunday comic strip by the immortal Bill Watterson, I think it’s safe to say that the precocious, obnoxious Calvin doesn’t have much of a handle on how demand actually works:

Susie Derkins: “Where’s the demand? I don’t see any demand!”

Calvin (behind the counter of his lemonade stand, which bears a sign saying “$15.00 glass”): “There’s lots of demand!”

Susie: “Yeah?”

Calvin: “Sure! As the sole stockholder in this enterprise, I demand a monstrous profit on my investment! And as president and CEO of the company, I demand an exorbitant salary!”

Read the rest to find out how Calvin’s troglodytic thinking drives Susie to join the Occupy Wall Street movement decades before there ever was such a thing . . .

Connecting The Dots In Health Care–A Continuing Challenge

October 15, 2011Comments Off on Connecting The Dots In Health Care–A Continuing Challenge

I’m just getting around to commenting on this ten-day-old Washington Post column by Sarah Kliff, describing her personal experience and reporting about the issue of electronic medical records. Kliff describes how much easier and more efficient it was to get care at a D.C. clinic that has spent time and money upgrading to digital record-keeping–and how much frustration is still built into the experience because only a small fraction of health care providers have reached the same level of sophistication. As a result, sharing data among doctors, hospitals, and other medical facilities is extremely difficult and inaccurate, leading to lost time and potentially dangerous errors.

The article is interesting–and so are the reader comments that follow, which reflect a wide range of opinions about digitizing medical records, including the angry reactions of some health care professionals who consider the currently available software “junk” and more trouble than it’s worth.

Kliff’s story underscores one of the qualities that makes CareMore–the California health care company we profiled in Demand and that Adrian wrote about in his recent Atlantic magazine article–so unique: The fact that care is routinely coordinated and integrated, with all the dots connected for the patient, using electronic tools as well as traditional forms of communication.

It also reminds us that simplistic, ideologically-driven views of economic and social policy are rarely helpful in solving real-world problems. In this case, the flawed assumption is that “free markets” and “competition” are the keys to driving efficiency and consumer-centered quality. That’s true in some markets. But when it comes to medical record keeping, we need to figure out how to increase cooperation among providers, not competition, since our current, fragmented “non-system” simply makes life worse for health care professionals and patients alike.

Before The iPod, There Was The Selectric

October 13, 2011Comments Off on Before The iPod, There Was The Selectric

I enjoyed this story on Slate by engineer/author Witold Rybczynski. It uses the Postal Service’s issuance of a new series of stamps as a peg on which to hang brief biographies of some great industrial designers of the 1920s, 30s, 40s, and 50s. The list includes familiar names like Raymond Loewy, who made the Sears Coldspot refrigerator an Art Deco icon, as well as less-familiar ones like that of Walter Dorwin Teague, who designed everything from cars and passenger jet interiors to the original Kodak Brownie.

I was especially intrigued to read about Eliot Noyes, who was hired by Thomas Watson to serve as a design consultant for IBM. Noyes hired the great graphics designer Paul Rand to create the classic IBM logo and also played a role in getting architects like Eero Sasrinen and Marcel Breuer involved in IBM projects. Noyes himself designed the famous Selectric typewriter, which set the industry standard for both usability and beauty.

You youngsters may not realize it, but back in the 1950s and 60s, IBM had a worldwide reputation for exceptionally elegant, stylish visual design that embraced not just its products but its headquarters buildings, its advertising and packaging, and such corporate showpieces as the IBM pavilion at the 1964-65 New York World’s Fair, with its amazing egg-shaped theatre. In combination with a lineup of innovative, reliable, and handsome machines, this design flair helped cement IBM’s image as “the thinking person’s corporation.”

It was a far cry from the image of IBM as “autocratic oppressor of corporate drones” that Steve Jobs later mocked in the 1984 ad–in fact, it was almost as coolly impressive as Apple’s image today. And it certainly contributed (to an extent that would be difficult to quantify precisely) to IBM’s role as one of the great demand creators of the post-war era–just as Apple today is using sheer physical beauty as a powerful tool for selling computers, phones, and tablets.


The End Of Innovation? Not So Fast

October 12, 2011Comments Off on The End Of Innovation? Not So Fast

Kevin Drum, a smart blogger about politics, economics, and assorted other topics, posts here a relatively lengthy thought piece about the current and future state of technological innovation in America. Drum makes a lot of different points, all of them thought-provoking, so I recommend reading the whole thing. But I think he’s fundamentally correct about his major thesis, which is that it’s highly unlikely that we’ve left behind forever the era of big technological breakthroughs (and the demand creation they stimulate).

As Drum says, most emergent industries are the offspring of a handful of major inventions, like steam power and electrification, and it seems plausible that we have a long way to go before we finish exploiting the ramifications of computerization. So it’s more likely that we’re in a lull marked by numerous small-scale developments while the next huge breakthrough is in the works, rather than that there are no more big breakthroughs ever to come.

(Of course this conclusion, even if true, is no reason for complacency about our recent societal neglect of support for basic scientific research, which, as we explain in Demand, could delay the arrival of that next big breakthrough, causing needless economic drift and stagnation in the meantime.)

I also like another more minor point Drum makes, which is that some recent innovations we might be inclined to write off as trivial are actually worthy of respect. As Drum says, “Once you have a certain level of food, shelter, sanitation, and so forth, you start adding nonessentials. Basically, luxuries, whether you call them that or not. Entertainment. Vacations. Restaurant meals. Fancier clothes, faster cars, and bigger houses.” Therefore, “Above a basic level, the whole point of productivity improvements is to provide us with more fun. Facebook may show up as a smaller contribution to GDP than a nationwide chain of movie theaters, but so what?”

I agree–which you might expect me to do, since as a writer I make my living providing such nonessential goods as ideas, insights, and information (rather than food, clothing, or shelter). But who would want a life made up of nothing but necessities? I’m not even sure I’d call it “life.”

If You’re In Denver . . .

October 9, 2011Comments Off on If You’re In Denver . . .

. . . you’re invited to come to the legendary Tattered Cover bookstore in Denver’s LoDo district on Monday evening, October 10th, to hear me speak about Demand. (Details here.) We’re hoping for a lively conversation. And of course Joyce Meskis’s amazing bookstore–famous as America’s first book superstore and an impressive demand-creation enterprise in its own right–is always a worthwhile place for any book lover to visit. Hope to see you there!

Like This Post? Tell The World!

October 8, 20111 Comment

Kevin Drum, a smart blogger about political, economic, and social topics, links here to a Julian Sanchez post about how the ubiquity of social media–and in particular the increasingly ready availability of crowd-sourced opinions on products and services–may end up making traditional marketing and advertising less relevant. Drum and Sanchez even go further: As rating services like Yelp grow in power (they ask), don’t the “quality signals” provided by (for example) the branding of chains like McDonalds eateries and Marriott hotels become less necessary and useful? And if that happens, won’t the playing field be increasingly leveled, giving small operators the local companies an enhanced ability to compete effectively with giant, well-funded corporate brands?

It’s too soon to tell whether the long-term impact of sites like Yelp will be that great. But it seems to me that, in the short term, companies need to think about Yelp, Tripadvisor, Zagat, Amazon reviews, and similar services as being amplifiers and accelerators of traditional word of mouth. Which means that the necessity of pushing your product and service quality from “good enough” to “magnetic” is likely to be greater than ever.

If we are moving into a world where the key to sales is getting people to brag about you to their friends–and to thousands of strangers!–then making your customers genuinely excited about your offerings is likely to be the new holy grail of demand creation.

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