Archive for the ‘Marketing Thrift’ Category


The Power of Conspicuous Consumption

September 8, 2009

The most obvious, and most common, way to think about spending money is that this is an individual decision. Within this broad framework individuals receive pay for the work they have done and then decide how much money should be spent on housing, on clothes, and on discretionary items. Some people spend carefully. Some spend less carefully. And some spend in ways that guarantee financial problems for themselves.

This simple and compact world view has been the basis of many editorials about thrift and forms the philosphical underpinning for many of the questions I get when I occasionally do media interviews on the subject. And this particular narrative does contain some truth.  No less than The Pope has repeatedly warned against the moral dangers of materialism.  And while thrift and materialism are not perfect opposites, my life experience suggests that those who spend their leisure hours emersed in activities other than shopping or plotting how to acquire their next posession are far more likely to handle their money responsibly — to spend and save in ways that are in line with their long-term economic well-being.  It doesn’t always work this way, but often it does.

But this view also has an important ommission that has practical implications for the way we think about spending decisions.  Consumption, and particularly conspicuous consumption, takes on added social meaning when an individual feels powerless relative to others in society.  A Hispanic woman, who speaks English with a Spanish accent, may believe that others who meet her for the first time will assume that she is poor and less educated. How might she compensate for this? She may choose to purchase a Louis Vuitton  handbag or drive a BMW even if she cannot really afford to do so. Expensive luxury brands tell the world “I am not as powerless as you think I am” and they appeal to some segments of the population who can least afford to purchase them.  Look in the mirror. Will people meeting you for the first time assume by your appearance and speech that you are likely to be reasonably successful at life? If the honest answer is “yes” it is easier for you to handle your money responsibly.

Is there evidence of this effect? Yes. A recently published paper,  Desire to Acquire: Powerlessness and Compensatory Consumption, provides some experimental evidence that feelings of powerlessness and the willingness to spend more money to compensate for that feeling are related. 

As we move forward with efforts to teach responsible spending and saving, to understand why some people are better at it than others, we need supplement the common moral narrative with the understanding that the psychological value of conspicuous consumption varies across individuals in accordance with their own self-perceptions of power and position. Lifting up those who feel powerless is more likely to change self-defeating spending behavior than recriminations that make them feel worse than they already do.


Executive Paternalism

August 18, 2008

Improvements in public policy can gently coax people to save more money. But many of the important day-to-day savings decisions happen in the workplace. This post speaks to the libertarian paternalistic executive, an executive who would like to help their employees save more money, but does not want to infringe on their rights to do with their money as they please or to implement policies that will cost their company a lot of money. Here are a few ideas that will accomplish that.

  1. Implement the provisions of the Pension Protection Act  that now make it much easier for you to automatically enroll new employees in your 401(K) plan and to set default asset allocation of the plan to a lifecycle fund rather than a cash account. 
  2. Scrutinize the fees that your financial service provider charges for offering products in your plan. Pay particular attention to the annual management fees. Seemingly small differences in annual management fees can make big differences in the amount of money your employees have when they retire. 
  3. Limit the number of investment options in your 401(K). You don’t need that many options to allow employees to construct a diverse portfolio. Too many options will confuse them and often delay their asset allocation choice, leaving them with whatever default option is contained in the plan.
  4. Target women for financial educational seminars. Women are more likely to listen to financial advice than men. They also face more large financial decisions in their golden years because of their longevity relative to men.
  5. Be careful with your own conspicuous consumption. That consumption may put pressure on subordinates to mimic you, and thereby demonstrate that they have the same tastes as you. People tend to view others with similar tastes as smarter than those with tastes that are far afield from their own. Your employees want to look smart in your eyes. It is easier for them if they do not have to spend a lot of money signalling that they think like you do.

These are just a few ideas.  If you have additional ideas you are more than welcome to post them.


Repositioning Thrift

August 3, 2008

One story that I always tell my MBA students is about the demise of Oldsmobile. For many years, decades really, Oldsmobile was an aspirational car for the retired and almost-retired crowd. If you wanted a big luxury car with a little more of a sporty appeal than a Cadillac then Olds was the ticket. But then, gradually, tastes for automobiles began to change and General Motors found themselves with a dying brand, a nameplate that was losing sales year after year.

What did GM do with Oldsmobile? Well, they tried to do what marketers call reposition it. And a radical repositioning it was. They wanted the public to think of Oldsmobile not as a big, dowdy ride but an exciting, sporty car for the younger driver. They were trying to totally reinvent its brand image. To do that they brought out new, completely redesigned, models with racy body lines and higher revolution engines.
Accompanying this new engineering was a very expensive advertising campaign with the slogan “This is not your father’s Oldsmobile.” Even though those advertisements have been off the air for years now you may remember that phrase — its exposure was so broad and so often repeated.

Did it work? No. Oldsmobile was discontinued in 2004. Why didn’t it work?  Well, GM certainly had and continues to have a myriad of problems so I doubt there is only one answer. But here is an important part of the answer. No one believed that it wasn’t “their father’s Oldsmobile.” The nameplate had such strong perceptual associations with images and thoughts of being old, having the added problem that the word “old” was imbedded in the name of the vehicle, that no amount of reengineering and marketing communications could change it. In marketing, we understand that changing people’s minds about a product, or an idea, or a political candidate, is immensely difficult. And GM failed with Oldsmobile.

I think we are failing in how we communicate the goals and benefits of savings to younger workers. The average 25 year-old does not aspire to “retire.”  Much like the “old” in Oldsmobile the word “retirement” brings with it a host of perceptual associations, often born of the stereotypes of “tired” old people. The twenty-something set does not look forward to the day when shuffleboard is their daily recreational activity. Even the word “thrift,” a word that is contained in the title of my book on the subject, conjures images of someone knitting while scanning the paper for coupons. These are not thoughts and images that inspire action.  Retirement seminars, retirement planning sessions, on-line retirement calculators all suffer this important deficiency in the way they are  presented, or packaged.

Younger people do aspire to “financial independence.”  Rather than speaking of retirement, conversations and tools which help people determine how to save so that they will achieve financial independence earlier in life are likely to be better received.  While the economics of a “Financial Independence Calculator” or a “Financial Independence Planning Session” may be nearly identical to their retirment counterparts the marketing is much better.

We need to begin speaking in new terms to the Millenial generation, a group that on the whole saves very little. The language of “pensions,” of “retirement,” of “security,” while certainly effective for those who remember the Great Depression are less potent now than the language of “independence” and “self-determination.”  The math can remain the same, but the marketing needs to change.