Why Legos Are So Expensive — And So Popular

Lego

A lot of people wonder how Lego, selling a now un-patented product, can command both massive market share and sell at twice the price of the nearest competitor: Megablocks.

Rhett Allain, in his WIRED article addressing why lego sets are so expensive, unsatisfyingly concludes “Honestly, I don’t know much about plastic manufacturing – but the LEGO blocks appear to be created from harder plastic. Maybe this would lead them to maintain their size over a long period of time.”

While lego offers a superior product, that doesn’t wholly account for why they sell so well.

Chana Joffe-Walt offers a much better explanation in her NPR Planet Money article:

Lego did find a successful way to do something Mega Bloks could not copy: It bought the exclusive rights to Star Wars. If you want to build a Death Star out of plastic blocks, Lego is now your only option.

The Star Wars blocks were wildly successful. So Lego kept going — it licensed Indiana Jones, Winnie the Pooh, Toy Story and Harry Potter.

Sales of these products have been huge for Lego. More important, the experience has taught the company that what kids wanted to do with the blocks was tell stories. Lego makes or licenses the stories they want to tell.

Lego isn’t just selling a product, they are selling a story. Still, I doubt that alone fully explains the difference.

I think Warren Buffett offers the best explanation. Talking about the brand power of See’s Candies, he comments:

What we did know was that they had share of mind in California. There was something special. Every person in Ca. has something in mind about See’s Candy and overwhelmingly it was favorable. They had taken a box on Valentine’s Day to some girl and she had kissed him. If she slapped him, we would have no business. As long as she kisses him, that is what we want in their minds. See’s Candy means getting kissed. If we can get that in the minds of people, we can raise prices. I bought it in 1972, and every year I have raised prices on Dec. 26th, the day after Christmas, because we sell a lot on Christmas. In fact, we will make $60 million this year. We will make $2 per pound on 30 million pounds. Same business, same formulas, same everything–$60 million bucks and it still doesn’t take any capital.

… It is a good business. Think about it a little. Most people do not buy boxed chocolate to consume themselves, they buy them as gifts—somebody’s birthday or more likely it is a holiday. Valentine’s Day is the single biggest day of the year. Christmas is the biggest season by far. Women buy for Christmas and they plan ahead and buy over a two or three-week period. Men buy on Valentine’s Day. They are driving home; we run ads on the Radio. Guilt, guilt, guilt—guys are veering off the highway right and left. They won’t dare go home without a box of Chocolates by the time we get through with them on our radio ads. So that Valentine’s Day is the biggest day.

Can you imagine going home on Valentine’s Day—our See’s Candy is now $11 a pound thanks to my brilliance. And let’s say there is candy available at $6 a pound. Do you really want to walk in on Valentine’s Day and hand—she has all these positive images of See’s Candy over the years—and say, “Honey, this year I took the low bid.” And hand her a box of candy. It just isn’t going to work. So in a sense, there is untapped pricing power—it is not price dependent.

The reason Lego is awesome and Megablocks is not has as much to do with what’s in the consumers’ mind as the product on the shelf. It’s the experience you have with Lego that makes it so amazing.

Remember the first time you played with Lego? You want to pass that experience off to someone else. No one wants to show up to a kids birthday party and announce to everyone they took the ‘low bid’ on a relatively cheap children’s toy.

Lego is a safe bet and we want to reduce uncertainty.

“It was not what people did not know that proved their undoing; it was what they thought they knew that wasn’t so.”

Were witches losers in a reproductive game?

Speaking about the great which hunts, in Mobs, Messiahs, and Markets: Surviving the Public Spectacle in Finance and Politics, Will Bonner writes:

But there’s another sense in which the witch trials turn out to be about sex, after all. You could see them as a variation of the reproductive game, only this time not centering around the winners but centering around the losers—the kind of people it would be easy to blame if anything did go wrong somewhere.

Most witches were alienated from ordinary family life’t hey were seen as different by their neighbours; they were disliked and feared. It was easy for a housewife to imagine that the childless old woman in the shack outside her home was eaten up inside with envy and ready to do her in. Even more important, the outsiders often had land that could be grabbed if they were convicted.

… Witches were feared as plague spreaders, as poisoners, and as workers of black magic on the community. They were the losers in the reproductive game.

… And that is the problem with the neocortex. It can always find plausible reasons … cunning justifications … and impeccable logic to do what it means to do anyway, and means to do for the most senseless of reasons.

In fairness this is only part of Bonner’s explanation of the witch hunts. The other part is largely the same one Charles Mackay lays out in Extraordinary Popular Delusions and The Madness of Crowds.

It was not illiterate fools who drove the persecution of the witches. It was the bigger semi-literate fools. It was not what people did not know that proved their undoing; it was what they thought they knew that wasn’t so.

A simple association trick to use when introducing yourself

Assume that when people think of you, they will store your name, a mental picture of you, a few words they associate with you and a few stories about your behavior. From this they will make all the decisions they have to make about you.

Name association is a good start for promoting yourself because you can do it in a self-deprecating way. Decide what you want people to remember when they think of you. Then say things about yourself that create those images.

You can say,

“I’m just an old war-horse. I’ve been around here forever.”

or

“Back in 1967, when I started managing in this division …”

or

“I can look at this issue from several different perspectives. I started out in engineering, then went through marketing, and now I’m in product development. I can tell you, they look at the world differently in all those places.”

All of these are ways of linking your name to experience.

Dinosaur Brains: Dealing with All Those Impossible People at Work

Another reason to read fiction

From Jonathan Gottschall’s The Storytelling Animal — fiction shapes our minds.

Research results have been consistent and robust: fiction does mold our minds. Story—whether delivered through films, books, or video games—teaches us facts about the world; influences our moral logic; and marks us with fears, hopes, and anxieties that alter our behavior, perhaps even our personalities. Research shows that story is constantly nibbling and kneading us, shaping our minds without our knowledge or consent. The more deeply we are cast under story’s spell, the more potent its influence.

stories make societies work better by encouraging us to behave ethically. As with sacred myths, ordinary stories — from TV shows to fairy tales — streep us all in the same powerful norms and values. They relentlessly stigmatize antisocial behavior and just as relentlessly celebrate prosocial behavior. We learn by association that if we are more like protagonists, we will be more apt to reap the typical rewards of protagonists (for instance, love, social advancement, and other happy endings) and less likely to reap the rewards of antagonists (for instance, death and disastrous loss of social standing).

Still curious? Stephen Greenblatt argues literature makes life much more worth living. Evan Hughes explores what fuels great fiction. And we tackle the question: Is reading fiction good for you?

A Guide To Spotting Pretzel Logic On The Campaign Trail

Politicians often offer arguments that make no sense.

“Fallacies are used all the time in campaigns,” says Sam Nelson, director of forensics at Cornell University’s school of Industrial and Labor Relations.

“Human beings are busy. We have all kinds of information around us all the time, we don’t have time to logically think through every argument, so we’re looking for short cuts,” Nelson says. “The issue is whether you can recognize these short cuts that are really fallacies and avoid falling for them.”

Luckily, Scott Neuman at NPR put together an awesome guide to spotting the top five logical fallacies — The Latin is optional.

ARGUMENTUM AD VERECUNDIAM — ‘APPEAL TO AUTHORITY’
What it means: There’s nothing like name-dropping a Founding Father, a former U.S. president or a Nobel laureate to boost your argument. But that still doesn’t change the substance of the argument.

Why it works: “It’s the devil we know as opposed to something new, which we’ve never tried,” Nelson says. “There’s always risk in change. Some people are big risk takers, but most people seek safety.”

Examples from the campaign trail:

Mitt Romney, July 29
“Ronald Reagan was one of our great foreign policy presidents. He did not come from the Senate. He did not come from the foreign policy world. He was a governor.”

The Take-Away: “As Reagan’s presidency has grown more distant, his star has sort of grown. He’s a very appealing authority figure,” Clayton says.

President Obama, Aug. 1
“You do not have to take my word for it. Just today, an independent, nonpartisan organization ran all the numbers on Gov. Romney’s plan. This wasn’t my staff. This wasn’t something we did. An independent group ran the numbers.”

The Take-Away: “This is a shortcut for most citizens who aren’t willing to do the hard policy analysis. Obama is saying these people did the work so you don’t have to,” Nelson says.

Still curious? The formula Cicero laid out to win an election in 64 BC still works today.

How Elite Firms Hire

There’s a lot of psychology at play here.

Lauren Rivera, examined hiring processes in three types of elite professional service firms: investment banks, law firms, and management consulting firms. “These types of firms share important similarities, allowing for a robust comparison.”

Her results are fascinating.

You have 10 seconds to make an impression – most resumes go straight to the trash:

Because professionals balanced recruitment responsibilities with full-time client work, they often screened resumes while commuting to and from the office and client sites; in trains, planes, and taxis; frequently late at night and over take out… [E]valuators tended to do so very rapidly, typically bypassing cover letters (only about fifteen percent reported even looking at them) and transcripts and reported spending between 10 s to 4 min per resume.

The process is very subjective:

[M]ost firms did not have a standard resume scoring rubric that they used to make interview decisions, evaluators reported “going down the page” from top to bottom, focusing on the pieces of resume data they personally believed were the most important “signals” of candidate quality.

When evaluators do select resumes they try to pick out people like themselves:

[R]oughly one-third of evaluators did not use educational prestige as a signal. One of the primary differences between these two groups was their own educational history, with those who had attended “top” schools being more likely to use educational prestige as a screen than those who had attended other types of selective institutions.

Elite credentials matter

[E]valuators drew strong distinctions between top four universities, schools that I term the super-elite, and other types of selective colleges and universities. So-called “public Ivies” such as University of Michigan and Berkeley were not considered elite or even prestigious…

Elite schools are better signals (let other people do the pre-screening for you.) After all, no one ever gets fired for hiring a Harvard MBA:

Evaluators relied so intensely on “school” as a criterion of evaluation not because they believed that the content of elite curricula better prepared students for life in their firms – in fact, evaluators tended to believe that elite and, in particular, super-elite instruction was “too abstract,” “overly theoretical,” or even “useless” compared to the more “practical” and “relevant” training offered at “lesser” institutions…

[I]t was not the content of an elite education that employers valued but rather the perceived rigor of these institutions’ admissions processes. According to this logic,
the more prestigious a school, the higher its “bar” for admission, and thus the “smarter” its student body.

[…]

In addition to being an indicator of potential intellectual deficits, the decision to go to a lesser known school (because it was typically perceived by evaluators as a “choice”) was often perceived to be evidence of moral failings, such as faulty judgment or a lack of foresight on the part of a student.

Extracurricular’s matter

[E]valuators believed that the most attractive and enjoyable coworkers and candidates would be those who had strong extracurricular “passions.” They also believed that involvement in activities outside of the classroom was evidence of superior social skill; they assumed a lack of involvement was a signal of social deficiencies… By contrast, those without significant extracurricular experiences or those who participated in activities that were primarily academically or pre-professionally oriented were perceived to be “boring,” “tools,” “bookworms,” or “nerds” who might turn out to be “corporate drones” if hired.

But you can’t signal that you are signalling.

Across the board, they privileged activities that were motivated by “personal” rather than “professional” interest, even when activities were directly related to work within their industry (e.g., investing, consulting, legal clinic clubs) because the latter were believed to serve the instrumental purpose of “looking good” to recruiters and were suspected of being “resume filler” or “padding” rather than evidence of genuine “passion,” “commitment,” and “well-roundedness.”

Do evaluators think that grades are an indicator of intelligence?

[M]ost evaluators did not believe that grades were an indicator of intelligence. Rather, they provided a straightforward and “fair” way to rank candidates, particularly those within a given school… [G]rades were used to measure a candidate’s moral qualities. An attorney (Asian-American, male), believed that grades were an indication of a candidate’s coping skills, “It tells me how they can handle stress; if they’d had their feet to the flames before. If they’ve gotten good grades at a very competitive school, they’re probably pretty sharp and can take care of themselves.”

Read what you’ve been missing. Subscribe to Farnam Street via Email, RSS, or Twitter.

Do your Christmas shopping at Amazon.com and support Farnam Street.

Sources:

(1) Rivera, Lauren. 2011. Ivies, Extracurriculars, and Exclusion: Elite Employers’ Use of Educational Credentials. Research in Social Stratification and Mobility. 29: 71-90. http://www.sciencedirect.com/science/article/pii/S027656241000065X
(2) Caplan, Bryan. 2011. How Elite Firms Hire: The Inside Story. Library of Economics and Liberty. http://econlog.econlib.org/archives/2011/11/how_elite_firms.html

Is addiction about the reward or the anticipation of that reward?

Is addiction about the reward of dopamine or the anticipation of that reward?

Neurologist Robert Sapolsky explains that it’s the uncertainty of the reward that drives behaviour. “Dopamine” Sapolsky argues, “is about the pursuit of happiness not the happiness itself.”

Interestingly, we are able to keep our dopamine levels up for decades and decades waiting for the reward (think, “American Dream”). This is perhaps one reason why we’re able to goto school, work hard, for an uncertain payoff.

Robert Sapolsky is the author of Why Zebras Don’t Get Ulcers.

Read what you’ve been missing. Subscribe to Farnam Street via Email, RSS, or Twitter.

Shop at Amazon.com and support Farnam Street

Brand Attachment Through Emotion

There is a ton of psychology at work in Apple’s new virtual assistant Siri and if they succeed, it will be much harder to change phones.

This :

The Siri group, one of the largest software teams at Apple, fine-tuned Siri’s responses in an attempt to forge an emotional tie with its customers. To that end, Siri regularly uses a customer’s nickname in responses, as well as those of other important people and places in his or her life.

And this:

For Siri to be really effective, it has to learn a great deal about the user. If it knows where you work and where you live and what kind of places you like to go, it can really start to tailor itself as it becomes an expert on you. This requires a great deal of trust in the institution collecting this data. Siri didn’t have this, but Apple has earned a very high level of trust from its customers.

Read what you’ve been missing. Subscribe to Farnam Street via Email, RSS, or Twitter.

Shop at Amazon.com and support Farnam Street