Author: Awareness News

Since the beginning of mankind, evolution has gone far changing fundamentally the way we live our daily life despite little or no change in our biology since thousands of years: we now have healthcare, language, our habits.

Still the most fundamental things of our nature did not change much.

Humans’ most basic needs did not disappear as we are still subject to biology (we need safety, sheltering, food, sleep…). But steering from survival we also have needs that, still biological, are necessary for a pleasant existence. The overall desire to feel accomplished, recognized and respected is one of them.

The american psychologist Abraham Harold Maslow theorized about human needs as being hierarchical. He put the Esteem needs towards the top of the pyramid in his famous Maslow’s Hierarchy of Needs chart. The framework is still used today as the basis for many consumer psychology studies (brand managers know this well!).

All these needs are shared with our ancestors, even though the ways we satisfy them today are much different.
For this article, we want to focus for a moment on the esteem needs and how we deal with them.

Travelling back in time, we realize that the way we perceive status and accomplishment has changed dramatically. Back in the early 20th century,  recognition of prestige and success was relatable with something that today is considered as basic income level goods: simply owning a car or having access to products and appliances like a toaster, a vacuum cleaner or a radio were status symbols upon release.

Thanks to a mass economy of scale, globalization and technological advancements prestige is less correlated with these things and access to common goods and easy mobility is somewhat granted for a big percentage of the world population. Following our previous example, having a toaster in the 50s was somewhat a luxury whereas today it is just a machine taking up space in a kitchen. This means that what was considered a luxury in the past, is now considered common, which forces people to search for something original, unique and that makes them feel special in comparison to their peers.

As a result, people are going a long way to present themselves as accomplished and successful. Evidence has shown time and time again that luxury purchases are overwhelmingly emotional and driven by perceptions regarding self-identity and self-comparison. Since luxury goods have the ability of changing the perspective of who we are, they deliver emotional benefits regarding self-esteem, power and overall satisfaction regarding the consumer and his identity.

A paper of 2015 about preference of luxury goods concluded that luxury products are associated with success and considered a way to satisfy needs of social integration. In the study, most participants stated that luxury items helped them to highlight their personality and demonstrate their self-value, improving their confidence and self assurance, meaning that, through the purchase of expensive items or services, people get a feeling of accomplishment that enhances their idea of self-worth.

This is relatable to the concept of “conspicuous consumption” that was first introduced by the economist Thorstein Veblen. In essence, so-called luxury products serve a purpose beyond their utilitarian value, by providing a more visible one: the status value of the product. They provide the chance to publicly display individual economic power.

More recent studies further confirmed this vision, as Rayo and Becker (2006) suggested, the purchase of certain items was mainly motivated by a desire to advance in the social ranking and was viewed as an investment in self-image that could be projected to surrounding outsiders. Also, Manolis and Roberts (2008) defended that conspicuous consumption is a result of a motivational process where the individual wishes to improve social status by displaying consumption of products that symbolize a certain social position.

As a result, it is important to talk about “Veblen goods”, a very particular type of goods that contradict one of the most important laws of economics, the law of demand. As opposed to the “typical” goods, these are subject to an upward sloping demand curve, that is, as the price rises, so does the demand. This phenomena seems to question the rationality of economic agents, since ultimately individuals ask for the best price. But as we see, real life is different.

Just Imagine that you are online shopping and an advertisement pops-up: “Gucci bag at 19.99$, limited offer!”, what’s your first thought? It’s fake, right? At least, that is what most people think, and who can blame them? Gucci and other designer brands are associated with luxury, quality and exclusiveness. All of these attributes seem to lessen as the price goes down. Other examples are hyped sneakers, produced in limited quantities, as demand rises, so does the price. However, demand does not stop increasing since desirability is linked to exclusivity, to scarcity.

In behavioral economics and marketing, this lesson is well known and the markets for Veblen goods are increasing horizontally and vertically, with more and more exclusive and vintage products gaining traction in a stock market manner. These kinds of effects are part of our decision-making process as we don’t know the absolute value of any product or service, because, objectively, the value of anything is nothing more than a human construct. Brands are the most exemplary case for a psychological construct holding value.
If you’re offered (for free) a no brand version of your favorite piece of clothing and one from your favorite designer, you would probably go for the latter, even if the two items were exactly identical.

What if I have to decide on something I’ve never seen? To evaluate such a decision, our brains go for the relative price, comparing it to the most similar choice. What if we have no reference? Well, that’s difficult…for your brain too.

This human brain feature is called reference dependence. We rely on a reference point to make a judgement. This is usually well known by marketing departments and is a crucial way to find untapped business opportunities. Suppose you, as a company, are the product architect of a brand new product: a fine piece of jewellery with a rare material that no one has ever heard about. You will have to decide a price point for launch, which will influence future perceptions of the jewel. That is, you have to decide on the positioning of your product in the market. But how to proceed when your product doesn’t have anything directly comparable? Where you’re going to put your product next on the shelves, will also correspond to where it is positioned next in the consumer’s mind. New car price tagged the same as a Ferrari will not be regarded as a Prius!

After all, price is associated with quality and this abstraction can be more elaborated (that is the job of brand managers). With luxury goods, elasticity of demand is different than with consumer products, and price plays a vital role in consumer decision making. Price is a handy heuristic for quality.

The “You get what you pay for” goes far beyond the physical characteristics and attributes of a product, and most of the time those attributes don’t even matter. Blind tasting experiments with expensive wines showed that the majority of consumers can’t differentiate wines over a certain price threshold and even the most renewed sommeliers have troubles if blindfolded of the label.

So is it all in our minds? It was proven in a study made by Stanford and Caltech scholars regarding wine tasting that when looking at the MRI scans of the participants’ brains, not only did people rate more highly the most expensive wines, as they also enjoyed the experience of drinking them more.

Another take on the matter from Michael Norton, a professor at Harvard: “There’s an extra boost when you go up in the quality of experiences. So, it’s possible that a $10,000 bottle of whiskey would be more than twice as pleasurable than a $5,000 bottle of whiskey because it’s such a peak experience way out in the extreme.”

As an endnote, luxury serves a purpose beyond the experience itself and it is quality that goes on the sociological side. When people are satisfying their egos and amplifying their self-value through expensive items and services, they are also sending a message to everyone around them. This can only be achieved by publicizing that lifestyle and receiving public recognition and praise.

A very famous example of using luxury to reinforce social status came from Louis XVI along his bride Marie Antoniette. Royalty historically used luxury and wealth as a power statement.

In essence, there is a general acceptance in our society that possessing some items qualify an individual as successful and that gives them access to exclusive social circles that are recognized as powerful, wealthy and prestigious.

Through this article, it becomes understandable that Veblen goods and luxurious experiences serve a very important purpose for human beings as they satisfy a need that is sometimes unclear due to its intangible attribute. Mainly, the need to be accepted and recognized by others which is present in all of us. Ultimately, luxury is rational in the eye of the beholder: is human made, and human needed. Definition of luxury transcends time, but it’s materialization is very much unfixed, ever changing, and far from absolute.

Scarcity makes luxury. Not diamonds.

     

The corporate world surely can be a challenging and high-pressured environment to work in. It is a place where people with very different backgrounds, education and beliefs have to collaborate and work together.

In the hopes of building and sustaining a successful project within competitive industries, organizations have to look deep inside their own dynamics with the goal of harmonizing everyone’s interests in the search for a common goal.

Human behaviour is considered one of the most difficult things to understand completely but one thing is certain, we are creatures of habit. Our brains are subject to numerous stimuli every day and forced to make millions of decisions, so as an evolutionary feature, we evolved to have programmed patterns, routine processes that allow us to save our much needed mental energy.

The American psychologist William James once compared habits to water, he said “water hollows out for itself a channel, which grows broader and deeper, and, after having ceased to flow, it resumes, when it flows again, the path traced by itself before.”, revealing this way, how we systematically repeat behaviours without even realizing it. These habits show up in our daily lives in the form of automatic routines: we don’t have to think about the route for work or university, and we end up drinking the usual morning coffee in the same shop without realising it.

However, it is possible to redirect the path this water takes and adjust behaviours by creating new habits.“The Power of Habit” explores this deeply. According to the author,  the best way to get rid of a bad habit is simple: create a new one. From a more scientific perspective, we form habits following a 3 step loop: Cue (the external or internal stimulus that makes you perform the habit), Routine (the act of practicing the habit)  and Reward (the satisfactory feeling from performing the routine) which can be anything. From a feeling of accomplishment by finishing a task to a dopamine release when you open social media and see dozens of messages and likes. By being able to identify the cue, that is, what triggers a bad habit, you can change your routine to a new one and adjust the reward accordingly.

However, one must understand that there is no secret formula to do it. It depends on multiple factors like will power (highly subjective), personal background and it’s even harder when dealing with the habits of possibly thousands of employees that, altogether create what is the company culture. Some habits appear harder to change than others and some people can go a lifetime without realizing or being able to change any of them.

Some explanation could be found when looking to groups of people that are designed to fight (bad) habits. It is not enough to get used in fighting habits or even change it for a new one. As shown in a study from the California’s Alcohol Research Group for the Alcoholics Anonymous, in most cases, respondents revealed that when a stressful event occurred, the habit tended to come back, as they found comfort in the reward associated (quoting William James, the habit path never entirely disappears). In this perspective, organizations might have to play a vital role.

As stated, habits depend a lot on will power and this is highly correlated to the environment surrounding each individual: social norms, peer pressure and other phenomena can either make the ground for beneficial or bad habits. Is about which group and which norms you’re exposed to that determines how your behavior will be beneficial or not. As for drinking (often a group activity), take the AA: they try to provide individuals with a feeling of inclusion, understanding, and offer a base of support to fight addiction (assigning a mentor, sharing with fellows struggling like them…). By finding a common ground and goals to move towards together, organizations might have the base to form a stronger group identity: a culture.

Some organizations fail to succeed in the corporate world for the lack of an identity, something that everyone in the company embraces and fights towards. But even though a unifying culture is vital for success, it is even more imperative that this culture is the right one for the organization.

Take what happened at the Rhode Island Hospital a couple years back. This hospital, one of America’s leading medical institutions, was known as a place with many internal tensions. The relationship between doctors and nurses was difficult and after years of strikes by the nursing staff, the situation remained similar by the lack of effort of the administrators.

Nurses came up with a damage limitation solution: they created a blackboard where they could all see the doctors they would work with on the operation room and they would write those names with different colours, so that each nurse knew what to expect when entering the room, if the name was written in red or black, they knew they shouldn’t even make a suggestion or they would be in trouble.

This way, nurses thought they would avoid unnecessary conflict. But how wrong they were… Without noticing, the nurses created a habit: if the name is written in black or red, I will not intervene and correct the doctor’s decision, no matter what.

The result? Malpractices, one after the other, that sometimes, led to deaths.

Whenever a surgeon (human after all) was about to make a mistake, due to past conflicts, nurses would simply follow their habits and not intervene; these habits were instilled through unwritten rules that have been interpreted as part of the culture.

Sometime after, due to all the pressure from the media, the administration came to their senses and applied measures that eventually conceded nurses a voice and created new habits that changed the organization’s dynamics. However, it remains a perfect example of how an undirected bad culture within an organization, can lead to harmful outcomes (in this case, for the health of patients). Corollary: in moments of crisis and public exposure, organizations have a unique opportunity to make changes. When everyone involved is in some way or another negatively affected and there is a sense of collective struggle, the chance to set aside divergences and move towards a common goal, rises.

Let’s relate to the covid-19 pandemic. For a company to survive these uncertain times it is essential to maintain its culture. However, with most people having to work from home, the overall company dynamics had to be changed or completely reinvented. By looking at some top renown companies we can see the path that company cultures’ development is taking.

For instance, Google has allowed its employees to work remotely until the end of 2020. Besides, it also provided a work from home allowance of 1000$ for equipment costs. Such action made it possible for workers to create their own home office environment with less propensity of getting distracted and more sustainability.

Take instead the measures taken by Target. Target’s main priority was to ensure employee safety by extending sick leave for everyone and offering high-risk workers a thirty-day paid leave in case they were uneasy to come back to in person work. In addition, Target also offered financial aid to employees working in the stores (and implemented similar programs for ones who wished to contribute.)

On the influence of leaders, we have an example from a firm: Alcoa, an aluminium company. When their new CEO, Paul O´Neill took over in 1987, everyone was confused by his presentation speech. His main goal, he said, was to “make Alcoa the safest company in America”, he added, “I intend to go for zero injuries”. Every shareholder in the room was surprised, not only did he not talk about raising profits and cutting costs, he intended to transform one of the most risky workplaces into the safest in the country. One year after his speech, the firm hit an all time record of profits, and by 2000, when O´Neill left, the annual Net Income of Alcoa was 5 times larger. So, what happened?

The CEO was aware of the power of good practices, good examples, and more importantly, of the impact of a good culture. By defining a clear goal that everyone could work towards and support (relatable), Paul created a culture where everyone felt part of something bigger and got each worker excited to do their best for a company that defended their interests.

With this measure, everything improved: happy workers were more productive, less accidents meant less costs and more available workers, but, more importantly, in order to achieve the goal of zero injuries, everyone had to be well aware of what everyone had to do. In other words, the change of a habit triggered a chain reaction. It made workers not only be more careful and productive, but they also felt entitled to give suggestions to improve the company: they felt like they mattered more, and had a saying in the path the firm took.

This just goes to show that even though managing thousands of workers, pleasing shareholders and simply put, running an organization, can be difficult, it is possible, even with simple ideas, to create a good culture, unite everyone and run a successful business.

More recently, Dan Price (CEO of Gravity Payments) made the news cutting his own wage to reach a minimum salary of 70k$ for all its employees. Deemed as a madman by the media, actually had a more interesting effect: its company valuation went from ~4 b$ to ~11 b$ dollars in 4 years. More than 10% of the company have been able to buy their own home, in one of the US’s most expensive cities for renters. Before the figure was less than 1%. People even started having babies all of a sudden.

The examples presented painted very different pictures, however, both help prove the argument that an organization is much more than the individualities and much bigger than an idea.

Companies and institutions are made of every single person involved in the final product or service provided, and without a common ground, an identity or a culture to unite the interests of everyone, it is only by chance that success lasts.