When is everyday low pricing the right tactic?

When stores like Wal-Mart, Sam's Club, and Costco began their rapid expansion in the 1990s, supermarkets were thrown for a loop. The limited service, thinner assortments, and “everyday low pricing” of items in these “supercenters” — including foodstuffs — created enormous cost savings and increased credibility with consumers. What was a Safeway or a Stop & Shop to do in the face of such brutal competition?

A new paper from Stanford GSB looks at the strategic pricing decisions made by grocery firms during that period in response to the shock to their local market positions by the entry of Wal-Mart. The paper answers the age-old question in the supermarket industry: Is “everyday low pricing” (EDLP) better than promotional (PROMO) pricing that attempts to attract consumers through periodic sales on specific items? Investigators find that while EDLP has lower fixed costs, PROMO results in higher revenues — which is why it is the preferred marketing strategy of many stores.

The research is also the first to provide econometric evidence that repositioning firms’ marketing approaches can be quite costly. Switching from PROMO to EDLP is six times more expensive than migrating the other way around — which explains why supermarkets did not shift en masse to an “everyday low pricing” format as predicted when Wal-Mart entered the game.

From this article from Stanford's GSB. Ex-Apple exec Ron Johnson can attest to the switching costs of going from EDLP to PROMO pricing; it cost him his job at J. C. Penney.

I'm a Costco regular, but I'll buy groceries at Safeway or other grocery stores sometimes just because or geographic convenience and longer shopping hours. If you have proprietary products, that also allows you to sidestep, to some extent, the EDLP war of attrition.

For commodity products, however, the more retail moves online, the less tenable it is for stores to rely on the sheer convenience of physical store proximity to bypass the EDLP game. The paper above looked at the entry of Wal-Mart, but of course the modern day successor to Wal-Mart as an e-commerce gorilla is Amazon. If you are selling the same commodities as Amazon, it's a brutal game, especially as the eventual customer expectation will likely be same-day delivery AND every day low prices for most retail goods. In that scenario, the findings of the researchers above would not hold. 

Books that changed minds

I really enjoyed this piece from The Chronicle of Higher Education in which 12 scholars named books that changed their minds and discussed why. All are worth reading, here are three that were of particular interest to me.

On Daniel Coyle's The Secret Race:

Like all academics, I am intolerant of plagiarism. It is anathema to me, and though I am capable of a "hate the sin, love the sinner" position in individual cases, I have never been able to understand why people do it. The rewards are so meager, the risks so high, and doing the work for real is so much more satisfying. Hamilton, though, as he describes the milieu for young professional cyclists in the 1990s, portrays a world in which being invited to dope is the sign that you’re being taken seriously. It’s not just that if you don’t dope, you’re definitely not going to win; doping is a prerequisite for staying in the game.

It turns out that doping isn’t like plagiarism at all. Because what became clear to me as I read The Secret Race is that when I was a Ph.D. student, in the 1990s, although I would rather have died than plagiarize, if someone had said to me, "The only way you are going to be able to do top-quality scholarship and get a tenure-track job is if you take a cognitive-enhancement drug that is illegal and dangerous to your health—everyone who gets the jobs and who is able to publish good work is taking it, and you owe it to yourself to stay in that peer group"—I would have taken the drug with very little agonizing.

We have to design society so it isn't a rigged game, or we shouldn't be surprised when people cheat.

On Julian Jaynes' The Origin of Consciousness in the Breakdown of the Bicameral Mind:

Jaynes taught psychology at Princeton, back in the days before psychologists had walled themselves off from literature, and he noticed that in the Homeric epics, the gods took the place of the human mind. In the Iliad we do not see Achilles thinking. Achilles acts, and in moments of strong emotion, he acts as the gods instruct him. When Aga­memnon steals his mistress and Achilles seethes with anger, Athena shows up, grabs him by the hair, and holds him back. Jaynes argued that Athena popped up in this way because humans in archaic Greece had no words for inner speech. So when they felt compelled by this strong internal force, they attributed that sensation to the gods. "The gods take the place of consciousness."

Moreover, Jaynes thought that in these moments, the ancient Greeks heard with their ears the gods speak. He thought that the inability to name the sensation as internal altered the sensation so that in moments of powerful feeling, moments when one feels pushed from within by one’s own overwhelming rage or joy, the Greeks heard the cognitive trace of that emotion audibly, as if it were coming from outside. "Who then were these gods that pushed men about like robots and sang epics through their lips? They were voices whose speech and direction could be as distinctly heard by the Iliadic heroes as voices are heard by certain epileptic and schizophrenic patients, or just as Joan of Arc heard her voices."

I'd never heard of this theory of the Greek Gods, that they might represent our own inner voices. It certainly explains their human foibles.

Finally, on Virginia Valian's Why So Slow? The Advancement of Women:

In Why So Slow?, Valian clearly and persuasively reviews evidence on implicit bias: stereotypes and associations that can affect behavior without conscious awareness. Our implicit assumptions about men and women influence actions and decisions in subtle and pervasive ways. We might, for example, judge a man "a natural leader" but a woman as "bossy and aggressive" for exhibiting the same behavior, or we might offer a job to a male candidate over a female candidate because he better fits our implicit prototype of what someone in that role is like. Such disparities might seem small, but over the course of a lifetime they have large and lasting effects.

The remarkable and terrifying thing about implicit bias is that it operates even in people who explicitly endorse egalitarian beliefs. Good intentions aren’t enough to override our unconscious psychological processes. And because they’re unconscious, we often don’t realize there’s a problem to be fixed. In fact, women are just as likely to exhibit implicit bias against women as are men.

Anyone who's read books like Daniel Kahneman's classic Thinking, Fast and Slow knows the human mind has all sorts of bugs. I suspect someday we'll turn to computers for adjudicating many legal cases or making medical diagnoses specifically to circumvent all of our implicit biases and other faulty mental shortcuts. It's not imminent. I mean, we won't even let computers call balls and strikes in baseball when we have mountains of evidence that computers would do a vastly superior job, and that's just a form of entertainment.

But as the saying goes about the arc of the moral universe, if we want to optimize for justice, we have centuries of human behavior to indicate we can't get of our own way. Computers continue to replace humans in many jobs in which they're superior; why would it be any different with objectivity?

My dad is smart

Through a Google search, my dad found a physics research paper he wrote years ago. The title: “Nuclear magnetic resonance study of the diffusion of bound and free fluorine interstitials in alkaline-earth fluorides doped with trivalent impurities.”

The abstract:

When alkaline-earth fluorides are doped with trivalent impurities, interstitial fluorines are created to maintain charge neutrality. We have performed NMR dipolar-energy relaxation measurements over a wide temperature range and have observed the diffusion of both free and locally bound fluorine interstitials F−(i) in the extrinsic region. We have observed that these motions depend strongly on the host-crystal lattice parameter. In particular, we have observed that the motion of F−(i) which is at the nearest neighbor (nn) site to the trivalent impurity dominates the relaxation above room temperature in CaF2: Y3+ but is unobserved in BaF2: Y3+. In addition, a second type of bound F−(i) motion, characterized by a much smaller activation energy, appears over a very narrow temperature range (150-185°C) in CaF2: Y3+, but over a large temperature range (below room temperature to 130°C) in BaF2: Y3+. SrF2: Y3+ shows similar behavior over a temperature range (54-160°C), which is intermediate between that of CaF2: Y3+ and BaF2: Y3+. Possible explanations in terms of the motion of a more remotely bound F−(i) [e.g., at a next-nearest-neighbor (nnn) site] and the motion of F−(i) near clusters of dipoles are discussed. We measured activation energies for all these F−(i)motions. A comparison of our results with those by other techniques (specifically, EPR, ENDOR, optical spectroscopy, ionic conductivity, ionic thermocurrent, dielectric and anelastic loss) is also given.

It's a strange feeling realizing your dad will always be smarter than you by a wide margin. I still have to teach him how to use his new Mac, though.

Deliberate underexposure with Nikon DSLRs

Nikon has been killing it with its DSLR sensors in recent years in terms of how much detail can be pulled out of the shadows, and Deci Gallen has a great piece on a creative way of shooting that exploits that capability.

As photographers, we strive for correct exposure but the ability of modern Nikon cameras to find details in shadows opens up a debate as to what correct exposure actually is. More and more, I find myself technically exposing wrong with post-processing in mind.

As a wedding photographer, my wife and I often find ourselves shooting portraits when the sun is highest in the sky: conditions generally considered to be unfavorable in portraiture. In the past these situations were addressed with fill flash, reflectors or frantically searching for open shade. The current range of Nikons gives us another option – creative underexposure.

...

Having the ability to draw details from shadows so cleanly has changed not only how we shoot and post-process, but also the equipment we need to take certain kinds of shots.

Our flash triggers have been mostly redundant for 2 years now and our flashguns only really come out on the dance floor. We don’t use reflectors at all. The extra couple of minutes spent in post is negated by the time saved setting up equipment while shooting — allowing us to spot and shoot scenes quickly, taking advantage of beautiful but often fleeting lighting conditions.

Check out the piece to see some examples of what's possible.

I had skipped some generations of Nikon DSLRs and found myself picking mine up less and less given the weight of a fully loaded body, but I just picked up a D750 recently and it has won back my mindshare from other cameras like my iPhone.

The D750 isn't in their pro line of DSLRs, with their built in vertical grips and magnesium body construction, but that means it's much lighter. I love that it has integrated WiFi so I can quickly get pictures from my DSLR to my iPhone. It's something Nikon should've added years ago and that all modern DSLRs should have as a default feature, and I doubt I'll ever buy another camera that doesn't mark that checkbox.

And yes, the shadow recovery is fantastic. I've pushed shadows in RAW photos out of the D750 up to 4 stops, and I've heard that 5 stops is possible. Even before reading Gallen's article I'd been shooting as he recommends, usually with exposure compensation of -0.3 to -0.7 turned on by default. To me, it's far more convenient to shoot this way and bring shadows up in Lightroom than to shoot two or three photos at different exposures and blend them using Photoshop or something like HDRSoft's Photomatix Pro. Call it the lazy man's HDR.

Wanderers

Wanderers is a very short film about what it might be like when humans move into outer space, and “The locations depicted in the film are digital recreations of actual places in the Solar System, built from real photos and map data where available.” It's like a highly condensed version of Interstellar, without the expository dialogue, though I think at one point if you squint or possess a 5K iMac display you can see Matthew McConaughey floating around Saturn.

For more information and stills gallery, please turn to: www.erikwernquist.com/wanderers (Just in case my website runs slow, here is a link to an imgur album version of the gallery: http://imgur.com/a/Ur5dP) Wanderers is a vision of humanity's expansion into the Solar System, based on scientific ideas and concepts of what our future in space might look like, if it ever happens. The locations depicted in the film are digital recreations of actual places in the Solar System, built from real photos and map data where available. Without any apparent story, other than what you may fill in by yourself, the idea of the film is primarily to show a glimpse of the fantastic and beautiful nature that surrounds us on our neighboring worlds - and above all, how it might appear to us if we were there. CREDITS: VISUALS - Erik Wernquist - erik@erikwernquist.com MUSIC - Cristian Sandquist - cristiansandquist@mac.com WORDS AND VOICE - Carl Sagan COLOR GRADE - Caj Müller/Beckholmen Film - caj@beckholmenfilm.se LIVE ACTION PHOTOGRAPHY - Mikael Hall/Vidiotism - mikael@vidiotism.com LIVE ACTION PERFORMANCE - Anna Nerman, Camilla Hammarström, Hanna Mellin VOCALIST - Nina Fylkegård - nina@ladystardust.se THANK YOU - Johan Persson, Calle Herdenberg, Micke Lindgren, Satrio J. Studt, Tomas Axelsson, Christian Lundqvist, Micke Lindell, Sigfrid Söderberg, Fredrik Strage, Johan Antoni, Henrik Johansson, Michael Uvnäs, Hanna Mellin THIS FILM WAS MADE WITH USE OF PHOTOS AND TEXTURES FROM: NASA/JPL, NASA/CICLOPS, NASA/Goddard Space Flight Center Scientific Visualization Studio, ESA, John Van Vliet, Björn Jonsson (and many others, of which I unfortunately do not know the names)