B000U5KFIC EBOK (57 page)

What else, from the psychology textbook, can help our new business?
Well, there is that powerful "monkey-see, monkey-do" aspect of human nature that psychologists often call "social proof." Social proof, imitative
consumption triggered by mere sight of consumption, will not only help
induce trial of our beverage. It will also bolster perceived rewards from
consumption. We will always take this powerful social-proof factor into
account as we design advertising and sales promotion and as we forego
present profit to enhance present and future consumption. More than
with most other products, increased selling power will come from each
increase in sales.

We can now see, Glotz, that by combining (1) much Pavlovian conditioning, (2) powerful social-proof effects, and (3) a wonderful-tasting,
energy-giving, stimulating and desirably-cold beverage that causes much
operant conditioning, we are going to get sales that speed up for a long
time by reason of the huge mixture of factors we have chosen. Therefore,
we are going to start something like an autocatalytic reaction in chemistry,
precisely the sort of multi-factor-triggered lollapalooza effect we need.

The logistics and the distribution strategy of our business will be
simple. There are only two practical ways to sell our beverage: (1) as a
syrup to fountains and restaurants, and (2) as a complete carbonatedwater product in containers. Wanting lollapalooza results, we will naturally do it both ways. And, wanting huge Pavlovian and social-proof
effects, we will always spend on advertising and sales promotion, per
serving, over 40 percent of the fountain price for syrup needed to make
the serving.

A few syrup-making plants can serve the world. However, to avoid
needless shipping of mere space and water, we will need many bottling
plants scattered over the world. We will maximize profits if (like early
General Electric with light bulbs) we always set the first-sale price, either
(1) for fountain syrup, or (2) for any container of our complete product.
The best way to arrange this desirable profit-maximizing control is to
make any independent bottler we need a subcontractor, not a vendee of
syrup, and certainly not a vendee of syrup under a perpetual franchise
specifying a syrup price frozen forever at its starting level.

Being unable to get a patent or copyright on our super important flavor, we will work obsessively to keep our formula secret. We will make a
big hoopla over our secrecy, which will enhance Pavlovian effects. Eventually food-chemical engineering will advance so that our flavor can be
copied with near exactitude. But, by that time, we will be so far ahead,
with such strong trademarks and complete, "always available" worldwide
distribution, that good flavor copying won't bar us from our objective.
Moreover, the advances in food chemistry that help competitors will almost surely be accompanied by technological advances that will help us,
including refrigeration, better transportation, and, for dieters, ability to
insert a sugar taste without inserting sugar's calories. Also, there will be
related beverage opportunities we will seize.

This brings us to a final reality check for our business plan. We will,
once more, think in reverse like Jacobi. What must we avoid because we
don't want it? Four answers seem clear:

First, we must avoid the protective, cloying, stop-consumption effects of aftertaste that are a standard part of physiology, developed
through Darwinian evolution to enhance the replication of man's
genes by forcing a generally helpful moderation on the gene carrier.
To serve our ends, on hot days a consumer must be able to drink container after container of our product with almost no impediment
from aftertaste. We will find a wonderful no-aftertaste flavor by trial
and error and will thereby solve this problem.

Second, we must avoid ever losing even half of our powerful trademarked name. It will cost us mightily, for instance, if our sloppiness
should ever allow sale of any other kind of "cola," for instance, a
"peppy cola." If there is ever a "peppy cola," we will be the proprietor of the brand.

Third, with so much success coming, we must avoid bad effects from
envy, given a prominent place in the Ten Commandments because
envy is so much a part of human nature. The best way to avoid envy,
recognized by Aristotle, is to plainly deserve the success we get. We
will be fanatic about product quality, quality of product presentation, and reasonableness of prices, considering the harmless pleasure
we will provide.

Fourth, after our trademarked flavor dominates our new market, we
must avoid making any huge and sudden change in our flavor. Even if
a new flavor performs better in blind taste tests, changing to that
new flavor would be a foolish thing to do. This follows because,
under such conditions, our old flavor will be so entrenched in consumer preference by psychological effects that a big flavor change
would do us little good. And it would do immense harm by triggering
in consumers the standard deprival super-reaction syndrome that
makes "take-aways" so hard to get in any type of negotiation and
helps make most gamblers so irrational. Moreover, such a large flavor
change would allow a competitor, by copying our old flavor, to take
advantage of both (1) the hostile consumer super-reaction to deprival
and (2) the huge love of our original flavor created by our previous
work.

Well, that is my solution to my own problem of turning $2 million
into $2 trillion, even after paying out billions of dollars in dividends. I
think it would have won with Glotz in 1884 and should convince you
more than you expected at the outset. After all, the correct strategies are
clear after being related to elementary academic ideas brought into play
by the helpful notions.

How consistent is my solution with the history of the real Coca-Cola
company? Well, as late as 1896, twelve years after the fictional Glotz was
to start vigorously with $2 million, the real Coca-Cola company had a net
worth under $150 thousand and earnings of about zero. And thereafter
the real Coca-Cola company did lose half its trademark and did grant perpetual bottling franchises at fixed syrup prices. And some of the bottlers
were not very effective and couldn't easily be changed. And the real Coca-Cola company, with this system, did lose much pricing control that
would have improved results, had it been retained. Yet, even so, the real
Coca-Cola company followed so much of the plan given to Glotz that it is
now worth about $125 billion and will have to increase its value at only
8 percent per year until 2034 to reach a value of $2 trillion. And it can hit
an annual physical volume target of 2.92 trillion servings if servings
grow until 2034 at only 6 percent per year, a result consistent with much
past experience and leaving plenty of plain-water ingestion for Coca-Cola
to replace after 2034. So I would guess that the fictional Glotz, starting
earlier and stronger and avoiding the worst errors, would have easily hit
his $2 trillion target. And he would have done it well before 2034.

This brings me, at last, to the main purpose of my talk. Large educational implications exist, if my answer to Glotz's problem is roughly right
and you make one more assumption I believe true-that most Ph.D. educators, even psychology professors and business school deans, would not
have given the same simple answer I did. And, if I am right in these two
ways, this would indicate that our civilization now keeps in place a great
many educators who can't satisfactorily explain Coca-Cola, even in retrospect, and even after watching it closely all their lives. This is not a satisfactory state of affairs.

Moreover-and this result is even more extreme-the brilliant and
effective executives who, surrounded by business school and law school
graduates, have run the Coca-Cola company with glorious success in recent years, also did not understand elementary psychology well enough to
predict and avoid the "New Coke" fiasco, which dangerously threatened
their company. That people so talented, surrounded by professional advisers from the best universities, should thus demonstrate a huge gap in
their education is also not a satisfactory state of affairs.

Such extreme ignorance, in both the high reaches of academia and
the high reaches of business, is a lollapalooza effect of a negative sort,
demonstrating grave defects in academia. Because the bad effect is a
lollapalooza, we should expect to find intertwined, multiple academic
causes. I suspect at least two such causes.

First, academic psychology, while it is admirable and useful as a list
of ingenious and important experiments, lacks intradisciplinary synthesis. In particular, not enough attention is given to lollapalooza effects
coming from combinations of psychological tendencies. This creates a
situation reminding one of a rustic teacher who tries to simplify school
work by rounding pi to an even three. And it violates Einstein's injunction
that "everything should be made as simple as possible-but no more simple." In general, psychology is laid out and misunderstood as electromag netism would now be misunderstood if physics had produced many brilliant experimenters like Michael Faraday and no grand synthesizer like
James Clerk Maxwell.

And, second, there is a truly horrible lack of synthesis blending
psychology and other academic subjects. But only an interdisciplinary
approach will correctly deal with reality-in academia as with the
Coca-Cola company.

In short, academic psychology departments are immensely more important and useful than other academic departments think. And, at the
same time, the psychology departments are immensely worse than most of
their inhabitants think. It is, of course, normal for self-appraisal to be more
positive than external appraisal. Indeed, a problem of this sort may have
given you your speaker today. But the size of this psychology-department
gap is preposterously large. In fact, the gap is so enormous that one very
eminent university (Chicago) simply abolished its psychology department,
perhaps with an undisclosed hope of later creating a better version.

In such a state of affairs, many years ago and with much that was
plainly wrong already present, the "New Coke" fiasco occurred, wherein
Coke's executives came to the brink of destroying the most valuable
trademark in the world. The academically correct reaction to this immense and well-publicized fiasco would have been the sort of reaction
Boeing would display if three of its new airplanes crashed in a single
week. After all, product integrity is involved in each case, and the plain
educational failure was immense.

But almost no such responsible, Boeing-like reaction has come from
academia. Instead academia, by and large, continues in its balkanized
way to tolerate psychology professors who mis-teach psychology, nonpsychology professors who fail to consider psychological effects obviously
crucial in their subject matter, and professional schools that carefully preserve psychological ignorance coming in with each entering class and are
proud of their inadequacies.

Even though this regrettable blindness and lassitude is now the normal academic result, are there exceptions providing hope that disgraceful
shortcomings of the educational establishment will eventually be corrected? Here, my answer is a very optimistic yes.

For instance, consider the recent behavior of the economics department of the University of Chicago. Over the last decade, this department
has enjoyed a near monopoly of the Nobel prizes in economics, largely by
getting good predictions out of "free market" models postulating man's
rationality. And what is the reaction of this department, after winning so
steadily with its rational-man approach?

Well, it has just invited into a precious slot amid its company of
greats a wise and witty Cornell economist, Richard Thaler. And it has
done this because Thaler pokes fun at much that is holy at the University
of Chicago. Indeed, Thaler believes, with me, that people are often massively irrational in ways, predicted by psychology that must be taken into
account in microeconomics.

In so behaving, the University of Chicago is imitating Darwin, who
spent much of his long life thinking in reverse as he tried to disprove his
own hardest won and best loved ideas. And so long as there are parts
of academia that keep alive its best values by thinking in reverse like
Darwin, we can confidently expect that silly educational practices will
eventually be replaced by better ones, exactly as Carl Jacobi might have
predicted.

This will happen because the Darwinian approach, with its habitual
objectivity taken on as a sort of hair shirt, is a mighty approach. Indeed,
no less a figure than Einstein said that one of the four causes of his
achievement was "self criticism," rapking right up there alongside curiosity, concentration, and perseverance.

And, to further appreciate the power of self-criticism, consider where
lies the grave of that very ungifted undergraduate, Charles Darwin. It is in
Westminister Abbey, right next to the headstone of Isaac Newton, perhaps
the most gifted student who ever lived, honored on that headstone in five
Latin words constituting the most eloquent praise in all graveyard print:
hic iacet quod iuortale fuet-"here lie the remains of what was mortal."

A civilization that so places a dead Darwin will eventually develop
and integrate psychology in a proper and practical fashion that greatly increases skills of all sorts. But all of us who have dollops of power and see
the light should help the process along. There is a lot at stake. If, in many
high places, a universal product as successful as Coca-Cola is not properly
understood and explained, it can't bode well for our competency in dealing with much else that is important.

Of course, those of you with 50 percent of net worth in Coca-Cola
stock, occurring because you tried to so invest 10 percent after thinking
like I did in making my pitch to Glotz, can ignore my message about psychology as too elementary for useful transmission to you. But I am not so
sure that this reaction is wise for the rest of you. The situation reminds
me of the old-time Warner & Swasey ad that was a favorite of mine: "The
company that needs a new machine tool, and hasn't bought it, is already
paying for it."