Monday, January 25, 2010

Nothing Succeeds Like Success!

Marge Simpson's Pretzel Wagon

In my Finding a Good Dentist Post, I mentioned briefly the habit or psychological effect that occurs with many people, in assuming that a business or person who appears successful, is often the best place to do business. People shun businesses and services that are not slick, smooth, and marketed, and are drawn to people and businesses that "look professional":

"And yet, many people assume that the Dentist with the flashy office is "successful" and therefor must be "good". For the same reason, people will drive by a locally owned diner that makes excellent gourmet food at cheap prices, and eat instead at McDonald's - because the McDonald's is shiny and new and flashy, and obviously successful. So it must be "better", right? (This effect is prevalent in any industry, and probably the subject for another article)."

OK, well, here is that article.

The impulse to be attracted to businesses that appear successful is probably natural. And to some extent, it may be a survival skill. If you are shopping for a mechanic, the shop that is clean and well organized may be a better place to take your car, than the shop that is cluttered with junk and dirt, and surrounded by abandoned and wrecked cars.

And similarly, a restaurant that appears to be dirty, unclean, or unsanitary, is not a good place to eat. We are naturally drawn toward a restaurant that appears to be clean, sanitary, and busy.

These are, perhaps, well-ingrained survival skills dating back centuries. And yet, we should not let "flash" blind us when making economic decisions. Oftentimes, a business or person who appears to be successful and prosperous is not exactly what they seem. And often, shady businesses and persons hide behind a false front of prosperity.

This phenomenon was neatly illustrated in an episode of The Simpson's, when Marge's "Pretzel Wagon" franchise is upstaged by the slick-looking Fleet-a-Pita truck:

Lenny: Wow, check out that van! It looks like it doesn't even need our business!

Carl: Hey, let's go!

The writers of that episode (where have they all gone?) nailed this human instinct down in two lines - that we are attracted to businesses that look successful or act like they don't need (or want) our business. In recent years, some businesses have adopted this as a wholesale model. For example, Starbucks thrives by insulting and belittling its customers - and by convincing them that some pimply-faced teenager working for minimum wage is a skilled "barrista" worthy of worship. Psychology sells! And idiots buy.

Con Men play upon this basic urge of ours. You are more likely to find a con men dressed in a sharp suit than anyone else. The average working Joe has to roll up his sleeves and work for a living. His suit will be creased and worn. But the crook rarely dirties his fingers, and his shoes will be the shiniest ones in the room. When someone appears to be too slick, too well dressed, too perfect, your suspicions should rise.

For example, an acquaintance of mine wanted to partner in a business venture. He always wore expensive suits and Italian loafers and was as slick-looking as an Italian model. He visited me in my office and complained that our gravel parking lot was ruining his expensive shoes. I realized right then that it was not going to work out. While he had a great facade of slickness, he did no real work, which is why he was looking for a job in the first place. I told him to take his Italian loafers and take a hike.

But similarly, many businesses use (sometimes literally) a "false front" to make the business appear to be larger or more successful than it is. And in many instances, people are drawn to what they perceive to be a "successful business" thinking it will provide the best bargains, than to some alternatives which are far better.

Nowhere is this more true than in the car business. As I (and many others) have noted, the best bargains in automobiles are to be found from an individual owner, selling a personally used car, that is 1-3 years old with relatively low mileage. An individual, such as yourself, selling their own car, is at a horrible disadvantage to the car dealer, as they cannot offer financing or other services (temp tags, registration, etc.) and moreover their negotiating skills are more likely to be on a par with your own.

And this disadvantage is reflected in the NADA, KBB, and Edmunds "book" prices for used cars. A car sold by an individual will generally sell for 20%-30% less than the same USED car sold by the dealer.

20-30%. That's a LOT of money. Add in the fact that if you are buying from the owner of the car, you can better find out how well it was cared for, are more likely to have service records, and can judge how well the car was treated. At a car lot, the cars are all generic and there are no "back stories" to them. The abused clunker and the creampuff sit side by side, and you have little or no way of distinguishing between the two.

And yet, the majority of people buy their used cars from used car dealers. Why is this? I think the answer is multifaceted, but it has largely to do with the image of success.

When I ask people why they go to a used car dealer, the answer I receive most often is the most puzzling: Trust. Used car dealers are routinely rated near the bottom of the barrel (sometimes below lawyers!) in terms of trustworthiness. They have been reviled in stories and jokes since time began. And yet, people cite it as one main reason for going to a dealer. Why is this?

I think the answer is that people are enthralled by the trappings of success. The dealer has shiny signs, bright lights, rows of clean cars, salesmen in suits, impressive buildings. All of these taken together project the image of a profitable and successful business. People are drawn to that like a moth. Of course, they rarely think as to who is paying for all these trappings of success. And the answer is, of course, the customer, which is why dealers have to charge 20-30% more for their product than the individual with no overhead.

A person selling their own car, from their home, has no "flash" to sell. They are just like you and me. They cannot hype the product as well as a salesman. They may tell you the truth about the car, which is not bad per se, but not as open-ended as the mystery of the used car on the salesman's lot.

Of course, the individual seller cannot offer financing, slap temp tags on the car, and take your old car in trade. So those factors are highly important as well. But the "hassle" of going to your credit union and the DMV, as well as selling your own car, are well worth 20-30% off the purchase price. And yet so few bother to go this route (which is all the better for you and me).

This is, of course, not to say that all car dealers are crooks and all individual sellers are saints. There are "curbstoners" out there who sell cars for a living, posing as individual sellers (often to skirt dealer laws). And there are individual sellers who think they are just too clever and will ask more for a car than it is worth. But it is not hard to spot such folks (usually by their over-inflated asking prices and egos) and just walk away.

The same effect, as I noted above, occurs with restaurants. People will drive by very good restaurants, often local institutions, to dine at some chain restaurant, such as McDonald's or Bennigan's. When asked why they do this, they often reply that they like the certainty of the chain restaurant - knowing what will be on the menu and at what price. They live in fear of getting a bad meal.

And yet. the food at many chain restaurants can be wildly inconsistent, as can be the service. And since the food is often prepared by teenagers working for minimum wages, the idea that such places are cleaner or more sanitary than a family-run restaurant can be flat-out wrong (search on YouTube if you don't believe me).

But more important that that, the local restaurant is more likely to offer good food, regional food, and often at better or more competitive prices. But to go to such establishments often takes a modicum of courage. When traveling, one is naturally reluctant to stop at a local diner. In the back of your mind, you expect to walk in, have the screen door creak shut, and have everyone in the place stop talking and slowly turn to look at you. At the counter, an overweight local Sheriff slowly drawls, "You-all ain't from around here, arya, boy?" Suddenly the hamburger at McDonald's sounds a lot more attractive, even if some high school teen behind the counter has spit in it.

But the reality is, many of the local, family-owned businesses are not that way at all. You are served with grace and speed, and the food is often better, healthier, and cheaper than the chain restaurant down the way.

And in addition, you are supporting a real business run by real people - not some mindless chain that is run from a corporate headquarters, that pre-cooks the entrees and then hires the least-skilled and least-paid labor possible to thaw and serve it for you. These chain restaurant survive and thrive because people patronize them. The really great restaurants of the world struggle as a result.

Again, this is not to say that every chain restaurant sucks, and that each Mom-and-Pop "dive" is a gem in the rough. There are some locally owned restaurants that should not be in business, and there are some chains that are quite good, when the entrees are thawed properly.

In order to find the good local spots, though, you have to be willing to take risks. Risk-takers reap the rewards in life. Is there risk? Well, some, but not much. At the very worst, you may have a bad meal. Yet even that trivial risk is too much for most Americans to take. They live in ragged fear of the bad meal. And so they settle for a known quantity - endless mediocre meals at chain restaurants. I'll take risk, thanks.

This effect can also be inverted. For example, as I noted in my Wal-Mart blog, many people are surprised to find that the quality and prices of food at Wal-Mart (yes, Wal-Mart) are on a par with, or better than the "upscale" grocery chains. And yet, many folks turn up their noses or refuse to shop there, because they have preconceived notions as to what the store is all about. So they go with the "safe" choice, pay 2-3 times as much for their groceries, and come home with wilted lettuce.

In finding real bargains in the world, you have to strike a balance, I think. There are successful businesses out there that provide real bargains, or at least reasonable deals (all that anyone should hope for, really). But there are also lesser known channels of commerce that can provide a real gem of a deal, in terms of quality or pricing. It is worthwhile to seek out such bargains and not be blinded by a flashy office, a nice suite, or a neatly printed business card.

But this takes judgment, and by that I mean judging the product or service offered, not the packaging it comes in.

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