Tuesday, November 10, 2009

The Incentive's Always Waiting at the Liquor Store for Me

Those who know me know that if I believe any one thing unshakably, it is that people respond to incentives. Incentives and people's choices when faced with them show their preferences, and these preferences are a window into the sort of person they are.

We make choices constantly. It seems that we are hard-wired to be decisionmakers. Just think for a moment how many choices you make before you leave the house for the morning, and you'll see what I mean.

I have long been fascinated (and even worked for a time) with people's behavior in retail outlets, especially grocery stores. Grocery stores are where most people have their longest contact with the economy, so it is a place where competing preferences and incentives are constantly in intricate interplay.

Now, there has been a lot of interesting work done on people's retail behavior, including (but not limited to): how to pick the fastest checkout lane, price discrimination (getting people to pay different prices for the same stuff), and the deadweight loss of Christmas.

One sector of retail behavior that has always fascinated me is people's behavior in liquor stores (or the liquor sections of grocery stores). I have been observing this behavior (and admittedly participating in it) for some time, and I wanted to offer a few observations.

First, I think there is a lot of signalling involved in buying liquor. The particular liquor one chooses conveys information about that person. The bunch of dudes with a cart full of thiry-packs of PBR is sending a different message than the old codger with a liter of bourbon or the couple with pretentious eyewear with the wine from somewhere foreign.

I think much of this has to do with brand image and how this relates to one's own image. It is the ultimate victory of the advertising industry, in my opinion. You don't want to send the wrong message, especially with a product that, in a lot of ways, sends negative messages anyway.

This is, of course, silly. A consumer product is an inanimate object, devoid of moral force. It is simply another commodity, and what it says about you should not be a factor in your incentive calculations. But, the problem is that, well, this seems to be true. We fall for it all the time and liquor is no different.

Second, the mantra, "incentives matter" plays out in interesting ways in the liquor store. I see this operating in two ways:
  1. The person who seems to float between different sections and different potent potables, seemingly in a quest for the most "bang for the buck," as it were. These are incentives at their most pure: what am I getting for what I am giving up? To put it another way, what is the opportunity cost of going for a lot of cheap booze or a little better stuff? To put it yet another way (the way the most calculating and hardened drinkers think about it, I imagine) what is the highest alcohol content per volume that I can get at a certain price?
  2. The items left in the liquor department of grocery stores often tell an interesting (and occasionally depressing) story about people and incentives. I've seen discarded packages of diapers, allergy medication, coloring books, contraceptives, bread, milk and motor oil in liquor departments. Liquor went up against all of these things and (seemingly) won out. This might say more about the person than their purchases, but that's the whole point. By making this choice, they convey information about themselves.

Lastly, it is fascinating to me to conjecture on how people change their liquor buying decisions based on external factors. Of course, there are the people who will buy the same thing no matter the time, place or company (people who respond to the whole brand image thing I talked about earlier).

I wonder, though, how people's liquor buying decisions are altered by the people around and the time of day and also the place itself. The crowd at the average liquor dispensary is very different on a Tuesday afternoon than it is on a Friday evening. To give but one possible scenario:

You are standing in front of the beer case at your favorite liquor emporium. You are ready to go the "most bang for buck" route and grab the one thirty-pack of PBR that those dudes left behind. All of a sudden, an attractive (depending on how you define this) person walks up next to you and appears to engage in the same behavior.

The question becomes: do you change your PBR decision and go for a twelve of Stella Artois? Or a local microbrew? Or an armful of forties of Steel Reserve? How does the presence of this other person influence your beer incentive scheme?

Well, enough of this talk. I am going to pour another beer from the $6.99 case that I bought this afternoon.

Go ahead. Pick out my signalling, analyize my decisions and figure out my incentive scheme.

You know you want to.

Oh, and cheers!


the iNDefatigable mjenks said...

I was with you up until the words "Steel Reserve" popped up. Then I had to excuse myself to vomit.

Dad said...

So when I occasional switch to Crown Royal. I should take note of whos is standing next to me.