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How Fundamental Business Strategies are Being Usurped by Consumer Behavior
By Al Berrios (contact Al Berrios)

Imagine you go to the podiatrist to get an in-grown toenail removed. Simple procedure - numb your toe, cut it out. Unfortunately, the podiatrist accidentally gave you the wrong dosage of anesthesia, causing your whole system to go into shock. Luckily, you recuperate, but the experience left you in worse shape than you were when you went in.

You feel wronged and unwilling to pay the additional expenses. Your first impulse is to consult an attorney. However, before you get a chance, the podiatrist visits you at your home to apologize for his error and agrees to cover any additional expenses you incurred because of his treatment. Do you continue to pursue a lawsuit or accept his apology, unexpected, yet sincere?

It's always been the medical industry strategy to clam up and deny mistakes. This way, they're legally protected when the lawsuit hits. However, this stance assumes patients will always sue. In a break from established practice, though, doctors are apologizing for their mistakes and patients are accepting their apologies and not suing. This, in turn, lowers the cost of lawsuits and consequently, the cost of insurance for doctor and patient alike.

Welcome to the world of consumer behavior strategies, where irrational business behavior works to lower costs and improve profitability.

Why is This Happening and How Can You Apply This to Your Business?

Four years ago, Kraft purchased Nabisco in a landmark deal designed to give them the lead amongst Big Food companies. The thinking went, develop a few solid billion-dollar brands instead of diversified portfolio of million-dollar brands. (P&G, Unilever, and Nestle still think similarly). Kraft's strategy was ultimately derailed by an unexpected change in consumer eating habits - healthier eating. Whether because of persistent government advertising of obesity as a leading killer of Americans or consumers' desire for alternative food options (other than the brand-extensions Big Food has been serving up for the last 5 years), consumers quickly adopted healthier eating (not lifestyles; more on that in a minute), leaving Big Food holding the bag, full of unhealthy, un-innovative products.

Today, beverage companies and QSRs are also jumping into the healthy-eating runaway train, despite the increased costs of manufacturing all-natural, no-fat, no-cal, no-carb, low-sucrose-fructose, multi-vitamin foods. The irony is that industries have spent the last half-century perfecting their manufacturing to reduce their costs, just to have to completely alter their efficiency in order to address this predictable consumer behavior.

The behavior isn't new, it's just expressed differently in this industry. Healthy lifestyles are niche, but healthy eating is pent-up consumer demand for choice in the food industry. As al berrios & co. research has discovered ("Teen Obesity is Exaggerated; 67% of Teens 13-17 Choose To Work Out"), consumers don't all obsess about their weight, like popular culture has lead us to believe; further, al berrios & co. believes it's a fad, like being seen on a razor scooter and flip-flops was just four years ago.

(Editor's Note: Personally, I believe that living a healthy lifestyle requires too much of a commitment to be widely adopted by consumers, unlike healthy eating, which is why it will become part of American culture.)

No Behavior is New

Because no behavior is new, it's predictable. And thanks to the media and word-of-mouth, behavior among a segment of your population is similar and identifiable. To put this theory into perspective, let's look at Attorney General's Elliot Spitzer's lawsuit against former NYSE Chairman and CEO Richard Grasso. ("Grasso: The Day After").

The first recorded instance of public disgust and distrust of the stock market dates back to 1857, where a panic forced the exchange to shut down for 10 days. Other Wall Street panics, in 1871, 1929, 1971, 1987, and more recently 2000, have all needed offenders to compensate the victims and placate their sense of fairness.

The routine was the same each time: investors jumped in head-first into an investing craze and because the market at that time wasn't sophisticated enough to handle the volume of capital and transactions investors threw at it, it went into meltdown and broke. When the dust settled, heads rolled, the economy was bailed out, and things returned to normal.

You can almost set your watch by the inevitability of mob mentality. Mr. Grasso simply played his role as all others before him and took advantage of the system. Although I support Mr. Grasso, I also acknowledge that he allowed his self-interest to prevent him from preparing for the resentment people normally feel when he walked out like a bandit and they lost. The good news is, like all others before him, his actions will prevent others from duplicating them, ultimately improving the system. And that's where behavior plays a role in usurping business strategy - if it wasn't for the way people felt about being wronged, nothing would ever have been done to improve the system. Otherwise, leading business strategy would have maintained the status quo.

There will be another investing craze and there will be another Dick Grasso, because human nature never changes. The difference is that now that you know what to expect, you can prepare and avoid the cop-out excuse of being caught by surprise by recurring human behavior.

RELATED ARTICLES
> "My Day In A Mob: Blackout 2003"
> Intro

READ MORE
ZIMMERMAN, RACHEL "Doctors' New Tool To Fight Lawsuits: Saying 'I'm Sorry'", THE WALL STREET JOURNAL, May 18, 2004; Page A1

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