Freakonomics in marketing.

September 1, 2011

Why did the crime rate drop substantially in the 1990s?

According to the authors of Freakonomics, it was the January 22, 1973 Supreme Court decision in the case of Roe v. Wade.

“Legalized abortion,” according to Steven D. Levitt and Stephen J. Dubner, “was one of the greatest crime-lowering factors in American history.”

Their conclusion: “Legalized abortion led to less unwantedness; unwantedness leads to high crime; abortion, therefore, led to less crimes.”

That’s freakonomics, or the law of unintended consequences.

Freakonomics in politics.

Why did Congress, especially the House of Representatives, have such a difficult time in reaching a consensus on what to do about the deficit?

The reason seems to be gerrymandering.

Take two Congressional districts sitting side by side, each with an even split between liberals (blue) and conservatives (red), or Democrats and Republicans.

Now when these two districts nominate candidates for office, both parties would likely pick moderates. And the results of the subsequent elections would be in doubt until the votes are counted.

But that’s not what party leaders really want. What they really want are as many “safe” districts as possible for themselves and as few as possible for their opponents. And how do they set up these safe districts?


By adjusting the boundaries of Districts A and B, the party in power can create two new districts. What started out as two districts split 50/50 is now one district split 62.5/37.5 and the other split 37.5/62.5.

Now who do you suppose gets elected in these heavily-skewed districts? Not moderates who might campaign for votes in the middle, but extremists whose campaigns are strongly oriented to either the right or the left.

Here’s how it works in Georgia. With the addition of one House seat thanks to population growth, Republicans are counting on redistricting to convert a previous eight-to-five advantage to a future ten-to-four advantage.

Looks like the stalemate in the House will continue for many more years to come.

There’s statistical proof that this is true. Compare the average incumbent Senator up for reelection with the average incumbent Representative.

The Senator seems to have a big advantage. It’s a more prestigious position with greater PR potential. Furthermore, a Senator serves six years instead of two, giving the office holder more time to build a rapport with his or her constituents.

In spite of the disadvantages, an incumbent Representative is more likely to win than an incumbent Senator. In the past 10 Congressional elections, incumbent Representatives have won 94 percent of the time versus only 86 percent of the time for incumbent Senators.

Freakonomics in beer.

Why has per-capita consumption of beer in the past three decades declined some 15 percent?

It was the 1975 national roll-out of Lite beer. “Everything you always wanted in a beer. And less.”

Logic suggests that light beer should have increased the beer market. Joe Sixpack could now drink more beer, not less, because light beer didn’t fill you up as much. Furthermore, light beer should have broadened the market, especially among women. (Look at the success of Michelob Ultra among the fitness crowd.)

It didn’t happen. Why not? Because logic has nothing to do with marketing. Broadening a category “dilutes” the category making it seem less authentic, less desirable, less like the real thing.

Freakonomics in cola.

Why has per-capita consumption of cola been declining at the rate of about 2 percent a year?

It was the July 29, 1982 launch of Diet Coke, followed six months later with an international roll-out.

What happened in beer is happening in cola. In the long run, broadening the category is undermining its authenticity, causing cola drinkers to look for new, more-authentic beverages.

The same thing happens with brands. And yet, logic suggests otherwise. Logic suggests that you should want everybody to buy your brand. That broadens the market, makes the brand more valuable. Or does it?

Freakonomics at Sears.

What destroyed Sears, Roebuck and Co., once the largest and most-profitable department-store chain in America?

It was the “softer side of Sears.”

“Our strategy,” said former CEO Edward Brenner, “is to make the store so appealing that the customer walks out with a pair of jeans as well as a lawnmower.”

As a typical ad said: “I came in for a DieHard (battery) and left with something drop dead (pants suit).”

Meanwhile back at the cash registers, things are going soft, too. Sears Holdings revenues (Sears plus Kmart) declined from $53.0 billion in 2006 to $43.3 billion last year while profit margins declined from 2.8 percent to 0.3 percent.

It’s extremely difficult to build a brand. There are millions of companies (and millions of brands) vying for a share of consumers’ minds. Only a few hundred at most have eked out a position.

That’s why any relatively well-known brand is well known for a reason. What possible idea is linked to the Sears name?

Wake up, Sears. It’s not the softer side that accounts for the brand’s longevity. It’s the harder side of Sears. The side that sells brands like Craftsman, Kenmore and DieHard.

Ten years ago, Sears had 40 percent of the major-appliance business in America. Today, that share is about 30 percent. To lose one-fourth of your core market in a decade is a major disaster for any brand.

And yet, where is Sears putting its money? In expanding its soft-goods lines, like the 2002 purchase of Lands’ End for $1.9 billion in cash.

Burger King is following the same path. After its second-quarter results showed drops in sales and profits, the chain is planning, according to one report, “major menu changes aimed at broadening BK’s consumer appeal. The quick-service chain has been testing smoothies, salads, parfaits and oatmeal at 100 locations.”

Then there’s the California Whopper with guacamole, Swiss cheese and bacon which Burger King rolled out nationally late last month. (Designed to appeal to the Chipotle crowd?)

“Those who cannot remember the past are condemned to repeat it.” When I worked as a consultant for Burger King years ago, I had one consistent response to every proposed new menu addition.

“Veal parmesan!”

Veal parmesan was one of Burger King’s kookiest (and least successful) menu additions.

Freakonomics at Five Guys.

What made Five Guys the fastest-growing fast-food chain in America?

It was the June 7, 2009 visit by Barack Obama, an event which generated a raft of television and print publicity.

But that’s not the whole story. Compare Five Guys to Burger King.

Five Guys sells burgers, hot dogs, French fries and veggie & grilled-cheese sandwiches. That’s it to eat. Plus Coke and bottled water to drink.

Yet per-unit sales at Five Guys last year ($1,123,100) was virtually the same as at Burger King ($1,153,100.) And last year, Five Guys sales were up 4 percent and Burger King sales were down 5 percent.

So if you were running Burger King, what would you do? Expand the menu? Or do the opposite? So far, the dozens of CEOs who have run Burger King in the past few decades have made the logical choice.

Expand the menu.

The almost universal emphasis on expansion is good news for entrepreneurs who wants to harness the power of freakonomics.

When everybody else is going in one direction, just do the opposite. Narrow your focus so you stand for something.

Then keep your fingers crossed that that “something” will lead to a PR coup.