The Cost of Zero Cost

This is the second blog in which I refer to the book "Predictably Irrational". The author Dan Ariely through this chapter, exposes the irrational behavior of humans when it comes to discount offers and FREE offers.

When was the last time you stopped by when you saw an advertisement that talked about discount sale or a FREE promotional sale? Not too long ago,I am sure. There is something mysterious about the words "FREE" and "DISCOUNT" that causes excitement in us. No wonder every stall in an exhibition has freebies like scratch pads, post-its, pens to attract consumers. I know some people who visit exhibitions only to collect freebies and give bad feedback on companies that may have the best products but not enough freebies in their stalls. After I started flying Kingfisher airlines I have stopped buying pens as I have stock pile of silver and red pens that I been collecting from the free-kit that the airline gives.

The malls and stores in USA have exploited this irrational exuberance by having "SALE" earmarked for every week of the year. Thank GOD we have only 52 weeks in a year !. One of my weekend chores, when I was in USA, was to skim the reams of advertised fliers that come with the newspaper and identify the best deals of the week. In the excitement, that I get a terrific deal, I end up buying things I do not really need - just because it is available at a discount. My wife recently purchased shirts for me that were on sale - Buy 1 Get 1 FREE. She bought a trouser to match the shirt and the shopkeeper showed her another offer - Buy 2 and Get 3 FREE , and she took the bait. I ended up with more clothes than I needed and also payed more for them.

The "Predictably Irrational" book talks about an experiment wherein the author gives Hershey's kisses chocolates to the kids during the Halloween festival. He then offers to exchange one Hershey's kiss chocolate for one big Snicker bar OR getting a small Snickers bar for FREE. There is no prize for guessing what the kid chose - Of course , the FREE small Snicker bar. On rational terms the big Snicker bar was a good deal as it has more chocolate than the small Snicker bar and the Hersheys kisses chocolate, put together. This irrational behavior was not restricted only to the kids, the same experiment done with MIT students yielded a similar result.

So do you think you have a handle on FREE !? OK. Here's a quiz. Suppose I offered you a choice between a free $10 Amazon gift certificate and a $20 gift certificate for seven dollars. Think quickly. Which would you take ? If you jumped for the FREE! certificate then you are like most of the people. A close look would reveal that $20 gift certificate for seven dollars delivers a $13 profit. That's clearly better than getting a $10 certificate free. This is the irrational behavior in action. ( Note : This paragraph was taken verbatim from the book, as I did not want to rewrite and lose the impact that the original paragraph had.)

What is it about FREE ! that's so enticing? Why do we have an irrational urge to jump for a FREE item, even when it's not what we really want? The possible answer to this is that, most transactions have an upside and a downside, but when something is FREE! we forget the downside. Humans are intrinsically afraid of loss, so when we see no visible possible loss when we choose a FREE item, we grab it. But the loss takes invisible forms like the time wasted going after the FREE offer. I was once a victim to this act.

When we visited Orlando for a long weekend to go to Disney world and Universal studios, we were lured into an offer of discount tickets to these amusement part if we attended a presentation by the real estate agent who was selling time-share apartments. Even though I was in USA on a temporary assignment and was not interested in any real estate, the lure of discount coupons made me accept the invitation. We ended up spending almost half-day attending the presentation and visiting the model apartments. Even though we saved few tens of dollars we lost precious hours of entertainment at the Universal studios.

The irrational behavior around the word FREE ! can be used positively to drive social policy. If the registration fees for electric cars are made zero (FREE) then it would make more people buy them. If the critical health checkups are made FREE it may get more people to go through them and early detection of severe illness is good for the individual and the hospital (they will get to treat them). It is during these tough economic times that "FREE" offers from governments can boost the economy. One such example is what the German government did - It offered 2500 Euros to people who junked their old cars to buy new ones. Sales of cars did pick up after this offer.

But as a consumer I am more conscious and avoid going for any shopping that has a big SALE sign written all over its face. I prefer to do internet shopping so that I can buy only what I want ( I do look at the advertisements that pop-up, but they are not as enticing as the SALE I see in the malls/stores). While I control myself, I have to admit that I have little control on the irrational shopping behavior of my wife :-).

- Ram

360-Degree Feedback

As an engineer when I hear of feedback and degrees it reminds me of the control systems, bode plots and the associated eagerness to find if the system is stable or oscillating. Control systems was one of the subjects I used to avoid as they had poles and zeros and they used to scare me. The "360 degree feedback" I am talking about in this blog is one of the fundamental means used by employees to assess themselves. The total angle in a circle is 360 degrees. For getting a complete assessment about oneself one is expected to seek feedback from his/her manager (90 degree guy), his peers ( 0 and 180 degrees) and his reportees (270 degrees). If the feedback is just restricted to these people then the better term for this feedback would be "PLUS" or to make it sound better "POSITIVE". However one would seek feedback from "others" who could be his/her peer/boss in the past, people from the support organisation etc.,. It is when we add these others to the list that the feedback becomes a complete circle and justifies the "360 degrees" title.

This type of feedback is usually sought before the yearly Performance Management or when a person is planning to attend a leadership course (I am enrolled for an Analog Leadership program and I am in the process of seeking 360 feedback. Now you know how I landed up with this topic for this week's blog). The success of these type of feedback lies in the questionnaire used. For quite sometime the simplest (the less appreciated) questionnaire was to ask a set of three questions:

1. What are my strengths ?

2. What are my Weaknesses (in the recent years this term is replaced by "Development Needs")

3. How can I be more impactful.

Such an open-ended question never helps in making a proper assessment. Typical skills (strengths or weaknesses) like Commitment, Quality, Hard Working, Team player etc., is the feedback one gets. It hardly changes from one year to the other. So over a period of time one loses the useful-ness of this format of feedback.

Then there are a few 360 degree feedback tools developed by HR professionals. It has numerous questions and the respondent is expected to rank the feedback-seeker on a scale of 1 to 5. The seriousness of answering these questions drops exponentially as the number of questions increases. Also rarely would one rate a person 5 or 1( 1 being the lowest and 5 being the highest). So the dynamic range reduces to 3 options and in many cases the tendency is to play safe so people could end up rating 3 for many of the questions. To add to these discrepancies it is tough to base-line the scores between different respondents. The criterion I use to rate a person - say 5 for a question would be very different from what others use. The numerical based feedback system has the above discrepancies. The extensive data and the statistics drawn out of them may impress some and they may feel that the feedback mechanism is foolproof. But more often than not, it may not be effective.

The feedback system I was asked to use for the leadership program is called a targetted feedback. When I went through the process I could see some merits of this system over numerical based feedback. In this targetted feedback system, the list of skills which an individual is being rated is decided by the HR professionals depending on the experience level of the individual and the management position. In that sense the skills that matter for a given position is being assessed for the individual. From the list of the skills each respondent is asked to choose three skills that he/she thinks the feedback-seeker is good at and three others skills where he/she needs improvement. For each skill a set of behavior patterns are listed. So the respondent has to choose which of the behaviors of a skill the feedback-seeker exhibits. In the final analysis the feedback-seeker gets to know the skills and the behaviors that majority of the people feel he is good at and where he needs to improve. Unlike numerical feedback people would be more open to receive subjective feedback.

For now I trust this system more than the numerical based system. May be I may write another blog if I find issues with this system (I am yet to get the final feedback summary).

Irrespective of the feedback system used, I believe the best person to assess an individual is one-self (that's why one is at the center of the circle). So while one seeks feedback from others, self introspection should be the top priority. Also direct feedback (not anonymous) that one receives from the boss , peers, reportees or others has a lot more value as he is aware of the context for which the feedback is given.

Seeking feedback is just the beginning in the journey of self-assessment. Taking actions on the received feedback is the most important part of one's self development. It is difficult to make tangible actions for behavioral improvements but there are a few ways to make the actions more tangible. Some of the development needs are addressed by training and some through specific coaching or mentoring. The training part is easier as one can enroll in the available training courses however the coaching/mentoring is a little more difficult as one needs to have access to the right mentor or coach. Having an external coach could be expensive and you will be lucky if the organisation is willing to pick up the bill. One of the easiest and effective solution is to read self-help or management books that is related to the skill that you need to develop and there are a plethora of books available, one can google and find the best book. But the best action is to find a role in the organisation that has scope for exhibiting the developmental skills, this is more easier said than done.

While one can pursue one or more of the above actions, what I have found most effective is the constant reiteration of the development need. This then gets registered in one's sub-conscious mind. When this happens the mind finds ways to experience the needed behavioral changes.

Good luck - be open to feedback, internalise it and sharpen your skills.