econlife - The Surprising Reason That We Love Our Pumpkin Spice Lattes by Elaine Schwartz

We are about to witness the earliest (and maybe biggest) Pumpkin Spice Latte (PSL) launch ever. A week earlier than last year, the Dunkin’ pumpkin menu will roll out on August 21. At Starbucks we have to wait until August 27.

Perhaps because we were used to the Tuesday after Labor Day, the official Starbucks launch date feels much sooner. Below, you can see they made the switch last year:

Commenting on its popularity, a Dunkin’ employee suggested that pumpkin syrup be available all year round.

That would be a big mistake.

The Pumpkin Spice Latte

The Dunkin’ fanfare includes eight stores temporarily named Pumpkin’ where 250 guests will get some free pumpkin flavored coffee and a lip balm named Munchkins. (The eight stores will be in eight locations that together spell pumpkin–maybe Paducah, Utica, Memphis…we shall see.) Although apple cider doughnuts are new to the Dunkin’ menu, it’s the Cinnamon Sugar Pumpkin Signature Spice Latte that is creating the buzz.

Meanwhile Starbucks is engaging in its own product differentiation:

Our Bottom Line: Diminishing Marginal Utility

With all of this happening, there still is just one reason for the huge popularity of the Pumpkin Spice Latte. It is all about how much we enjoy that extra cup.

Given a pile of chocolate chip cookies when we are hungry, the first is delicious and so too is the second one. But then the extra pleasure we get from each subsequent cookie plummets. Or, using economic language, we say that the marginal utility diminishes.

Similarly, when Pumpkin Spice Lattes hit the menu, fans rush to purchase them. For whatever reason–taste, anticipation, trendiness–the quantity we demand surges. Next however, the excitement subsides and, sooner or later, we buy less. Like our chocolate chip cookies, we experience diminishing marginal utility. Every extra Pumpkin Spice Latte tastes less good…

However, before we can touch the bottom of our demand curve, Thanksgiving arrives and these limited edition drinks disappear from the menu.

So why do we love our PSLs? Because they are gone for at least eight months.

My sources and more: My first hint that a PSL would arrive early from Dunkin’ came from the NY Times. At the same time, BusinessInsider told us about the Starbucks rollout and this 2014 article described its discovery. Finally, I should add that although I am in Starbucks frequently, I have never purchased a PSL because I am one of the few people who dislike it.

Also, please note that several of today’s sentences about diminishing marginal utility were published in a past econlife and our featured image is from eater.com.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

econlife - How Shopping For Yogurt is Like Buying a Car by Elaine Schwartz

We could say that the wholesome trend in food was led by yogurt. FAGE was the first Greek yogurt sold in the U.S. Then there was Chobani, Danone, and General Mills.

Less than a minute, this 2011 ad for Fage is wonderful:

Now startups have added to the yogurt lineup. Made from plants, their options give us a whole new chapter of choices. We can select Tempt Original Hemp Yogurt or Forager Creamy Dairy-free Cashewgurt. There is almond yogurt and soy yogurt. And during January, Chobani launched nine coconut-based yogurts.

According to WSJ, there are a whopping 306 yogurt varieties at a typical supermarket. But here we have a paradox. There is so much more to buy.

Yet people are purchasing less:

Sales are up for the newer market entries like Icelandic, a thicker kind of yogurt known as skyr (pronounced skeer). However, they remain a tiny slice of the entire market:

Where are we going? To how assortment size affects what we buy.

The Riddle of Choice Fatigue

For a long time (as reported in a past econlife) marketing scholars, behavioral economists, and psychologists have concluded that too many decisions can impact our subsequent behavior. Called choice fatigue, we get tired out from too many options. Consequently, we buy less or select an easier alternative.

But now, researchers point out that it isn’t that simple.

In fact, we have a “decision-making timeline” that can determine whether we experience choice overload. When we start to make a purchase, elaborate assortments entice many of us. However, once we actually have to choose among them, we might back off and buy nothing.

In one experiment with jelly beans and another with chocolate, Stanford researchers observed more buying with the first option than with the second one:

1. First decide whether or not to buy something. Then choose from a big assortment.
2. First choose from a big assortment. Then decide whether or not to buy something.

The results indicated that people want to make a purchase when they see they have many choices. However, they are less likely to buy the item if initially they have to choose from many possibilities. At first the benefits loom larger (#1). But then, the cost of choosing could be daunting (#2).

Our Bottom Line: Demand

Choice fatigue provides some insight about the demand side of markets. Too many decisions can be exhausting. Increasing cost (defined economically as sacrifice), they can make us buy less.

However, choice can also be appealing when it requires no effort.

So, returning to where we began, the yogurt section of the supermarket can indeed attract us. Then though, we see how many decisions we have to make.

Like buying a car, we wish we had a default deal rather than debating each option.

My sources and more: This WSJ article reminded me that we haven’t looked at choice fatigue in awhile. Slate summarizes some of the past research that got a second look in this Stanford paper. And thanks to Fortune for more yogurt facts, Mental Floss for Fage info, and foodrepublic for differentiating between Greek yogurt and skyr.

Our featured image is from foodrepublic.com. Our choice fatigue discussion was previously published in a past econlife.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

econlife - The Value of the Brands We Love the Most by Elaine Schwartz

Below we have a branding “horse race” that starts in 2000 and ends in 2018.

Coca-Cola leads the pack when the “race” begins. But then Apple becomes a threat as it starts to move upward in 2011. It quickly passes Disney, McDonald’s, and starts to threaten the leader. Meanwhile, Marlboro slips out of the top 15 while Amazon enters in 2014, keeps climbing, and soon pushes Microsoft aside. (Amazon’s ascent is amazing.)

Do take a look. The numbers represent the value of the brand in millions.:

But what are we really talking about? Let’s see what it means to have a global brand.

Global Brands

A brand is a personality that distinguishes a good or a service from all others. It can relate to a taste, a texture, a technology. It can shape what a consumer experiences. When a brand is doing its job, it adds to the value of the good or service. And of course, brands help firms compete.

The question though is how a brand can get a dollar value. Some say you can calculate the cost of creating the brand. Others suggest pricing the brand as though you were selling it. A third possibility is the income generated because of the brand.

You can see that none of the brand valuation methods is precise. Perhaps for that reason, one leading group said Apple’s brand was equal to $214 billion in 2018. Also saying Apple was the #1 brand, Forbes arrived at $182 billion.

For us though the key is the impact. Businesses need to know the value of their brand. Employees and stockholders care about the profit from a well-managed brand. Investors want brands to create value. Consumers use brands to judge what they buy.

Demand

As economists, we could also say a successful brand shifts our demand curve to the right. The utility it creates can give us more satisfaction and more pleasure. It can make us believe that the good or service is more useful, healthier, or stylish. The brand increases our demand.

In addition, when brands promote loyalty, our demand becomes inelastic. Defined as a relatively minor response to a price change, inelasticity means that purchases slip only slightly even when price substantially goes up. With the brands we love, we are happy to pay more. For that reason, a similar or identical generic product is usually cheaper.

Below, a somewhat inelastic (more vertical) demand curve shifts to the right because of the extra utility from a compelling brand:

Our Bottom Line: Standardization

Like weights and measures, brand valuation has been standardized. Composed of 120 member nations and 43 others that participate, the International Organization for Standardization (ISO) has published the variables firms can use to calculate their brand’s monetary value. The group that did our YouTube GIF, Interbrand, relates the ISO metric to its ranking.

My sources and more: You might enjoy (as did I) going to Interbrand’s report to see the ranking of the top 100 brands. To take the next step, the Forbes list is a possibility. Finally, getting more technical, I suggest this paper, Interbrand’s explanation for its metric, and this ISO report.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

econlife - Why We Suffer From FOMO by Elaine Schwartz

Today, some thoughts about FOMO…

Every morning, I walk and listen to one or two economic podcasts.

Years ago, the choices were few. Because there was just Econtalk and Planet Money, my decision was an easy one. On Mondays, I listened to each new academic discussion from Econtalk. Then Tuesday, I looked forward to Planet Money. After that, This American Life and Radio Lab were Wednesday and Thursday possibilities. As for the rest of the week, having heard all the new podcasts, I could even select an episode from a Great Courses lecture series.

No more.

Ranging from Amicus to Trade Talks, and Outside/In to More or Less, and Crazy Genius to Mismatched, my podcast series library is currently at 70! I guess it makes sense that most mornings I suffer from FOMO.

FOMO

FOMO (Fear of Missing Out) and its sister symptom FOBO (Fear of a Better Option), both drive us to consider every alternative. However FOMO pushes us to do more while FOBO holds us back. The Boston Globe called the FOMO phenomenon a “hallmark of the digital age.” With social media telling us everything our friends are doing and much more, we have a slew of vacations, movies, Netflix series, restaurants to ponder. And it can be exhausting.

Legend has it that FOMO was first described by a marketing strategist in 2000. Four years later, an HBS student newspaper column spread the word and then the academics started investigating FOMO. Still now, it appears every once in a while in a headline like this one from Bloomberg: “Investing in An Age of FOMO is Hard.”

You might enjoy (as did I) this excerpt from the 2004 HBS Op-Ed that connects FOMO, FOBO, and FODA:

“…FOMO and FOBO are irreconcilably opposing forces, the antithesis of yin and yang, and can drive a person towards a paralytic state I’ll call FODA, or Fear Of Doing Anything…”

“…Notice that as a person becomes more and more FOMO, the energy needed to maintain such an active social life is tremendous. On the other extreme, practicing aggressive FOBO will only serve to alienate your friends. Poor management of the trade-off’s between the two forces leads to FODA…”

So yes, we can observe FOMO, FOBO, and FODA. But a behavioral economist would say it is really about decision fatigue.

Our Bottom Line: Decision Fatigue

Behavioral economists have concluded that too much choice can impact our subsequent behavior. Called decision fatigue, we tire from too many choices.

At a German car dealer, researchers observed consumers’ behavior. They watched them choose among four styles of gearshift knobs and 13 kinds of wheel rims. There were 25 configurations of the engine and gearbox and 56 color combinations for the interior. As the decisions accumulated, the (more expensive) default option became more attractive. They even saw that if those 56 colors were initially presented, buyers chose the default sooner.

Buying a car returns us to my massive podcast library and the stress of wondering about all of the alternatives we might not choose. Because that concern fatigues us, it affects the quality of our decision-making. It can even result in FODA…

Which then takes me to my Audible novel rather than one of 70 podcasts.

My sources and more: If you want to learn about decision fatigue, do read this excellent NY Times Magazine article from John Tierney. And, this is the HBS Op-Ed that initially popularized FOMO.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.