Warning light

Have you had a traffic ticket lately? You may have been manipulated, dear reader. And it may be very hard to figure out if you were just unlucky (or foolish) or actually manipulated….

We’ve talked briefly about speed limits before (here), but I don’t think we’ve mentioned traffic lights and other traffic signs. So let’s take a look at the basic traffic light:

They’re generally a good idea. In fact, people thought they were such good things that in the mid 1980s, they supplemented the humble traffic light with a camera to catch folks who ran the light.

Traffic cameras were a simple concept – municipalities installed them because they believed that they could reduce accidents. There was also a cost-saving rationale: a camera costs less than a police patrol, theoretically freeing up the police to use their time more intelligently elsewhere.

There were worthy aims, but they quickly got corrupted by a number of other dynamics. For one thing, municipalities quickly realized that while a police car could occasionally catch a light runner, cameras caught them all, and that meant a lot of money came in through fines. One camera, one single camera, for example, was found to bring in more than $2M a year – 3,000 tickets a month.  Worse still, municipalities quickly found that buying these cameras, putting them up, maintaining them, etc… was a huge pain, and that some helpful corporations would be happy to put them up and keep them up – well, for a fee, which was usually a set percentage of the total tickets issued by the camera. What could possibly go wrong?

By the middle of the 1990s, many municipalities and companies had become quite reliant on the fees generated by traffic cameras, but there was a looming issue. Over time, many cameras generate less and less fees, as more and more motorists get used to them and stop getting caught. So what to do?

Some cities got a brilliant idea, and a very manipulative one: people may have gotten used to the location of the light, yes, but what about if you changed the duration of the light? Specifically, the yellow light?

It turns out that motorists basically have a good feel for how long a yellow light lasts. They go through the traffic stop when they estimate that they can cross on a yellow. But if you tweak the light to make it last less than people expect, you can catch a lot of motorists who thought that they were in the clear.

Yellow light duration is set, believe it or not, by state law. It is usually around 4 seconds. It turns out, if you shorten it by even a second, you throw off enough motorists to make the camera very profitable. That’s what the towns of Chattanooga (where the private contractor, Lasercraft, who installed the cameras reduced the yellow light duration from 3.8 seconds to 3 seconds), and Nashville (where the police issued tickets along a stretch of road where the yellow lights were also reduced to 3 seconds) figured out fairly quickly.

They were not alone. In city after city, yellow lights were tweaked by just one second, just before red light cameras were installed. That one second made a huge difference, though – a back of the envelope calculation showed that a 3 second yellow light catches more than 200% more than a standard yellow light. At roughly $100 a pop, that’s a fair return on a tiny investment…

But of course, some motorists decided to fight the tickets. After all, this is the US, right? We’re allowed to confront our accusers in court, and that’s what a number of motorists did, once they figured out that many cameras could be badly calibrated. This became a pain for the contractors and municipalities – it’s hard to make money if you have to prove each infraction. So cities began to change the nature of the infraction: Albuquerque, for example, reclassified traffic infractions from criminal offenses to public nuisances – a minor change, but one that effectively means that infractions can no longer be challenged in court. Other cities passed similar ordinances that made it effectively impossible to challenge a red-light camera-issued ticket.

Even with that effort, however, it turns out that motorists eventually adapt to the cameras and revenues plummet. So a couple of companies had a good idea: with a slight tweak, the cameras could be calibrated to snap pictures of cars that did a ‘rolling right’, i.e. did not come to a full stop before turning right on red. In most municipalities, you are supposed to come to a complete stop before turning red. Most police rarely enforce that rule, however, but it turned out to be relatively simple to make sure that cameras could ticket ‘rollers’.

But companies like RedFlex had one more problem: catching a ‘roller’ was fairly useless, because the cities couldn’t be bothered, in most cases, to ticket them. So the cameras would catch perpetrators, but the city wouldn’t fine them, and the companies couldn’t collect the additional revenue. The solution? The new contracts that companies proposed to municipalities started to include a clause which forced the city to fine ‘rollers’. Under those new contracts, cities would agree to fine rollers, which provided a new revenue source for themselves and for the companies that they outsourced the service to.
How much of all this is manipulation? Some folks argue that the fundamental premise of red light cameras is flawed – it is a revenue generator masquerading as a WATOC. There are several studies that show that red light cameras actually increase accidents, for example, so the idea that municipalities deploy them for safety is inherently manipulative (and naming the law after someone who was killed by someone running a red light, as Florida did, is sheer icing on the cake). Playing with yellow light duration is a great manipulation – it’s impactful, very hard to spot, and even when discovered can easily be explained via ‘technical errors’.

Over time, I would expect to see continued innovation and manipulation on this front. Many municipalities have outlawed red light cameras because the public hates them and they are manipulative, but they are very effective revenue generators for states and municipalities – even small states can raise $40M+ a year via red light cameras, and that money is hard to turn down in a recession. So expect some interesting twists here going forward, as players find increasingly creative ways to catch folks who run red lights…

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Posted in Government, Uncategorized | 4 Comments

Professional credit

Anyone who likes manipulation must love credit cards.

They are beautiful, are they not??

For the past few years, credit cards were one of the biggest profit center of the banks that gave them out. I could write a whole book on how banks could manipulate customers via credit cards, but let me just list my favorites:

  • Low minimum payments: The monthly minimum amount that your card company asks for is usually only slightly more than that month’s worth of interest. As a result, if you’re foolish enough to just pay the monthly minimum, you are essentially just paying interest – you’re not actually reducing the balance. To put it in some numbers, if you had $1,000 on a credit card and paid off the minimum amount every month, it would take you… 152 months (or more than 12 years!) to pay off that balance. In that time, you would have given the credit card company more than you borrowed (around $1,100) in interest alone. And don’t kid yourself – up to 1/3 of cardholders pay the minimum amount on their cards at least some months of the year.
  • Games with APR: so you think you know your card’s interest rate, do you? Most cards’ interest rate hover around 18% (the good ones, anyway). But most cards also have a hidden rate, the Penalty rate, that is buried in the card’s agreement. The credit card company can charge the user the Penalty rate (which is closer to 20-35%) whenever some conditions are triggered: skipping a payment, a late payment, or even (amusingly enough) being late on some other, non related payment. So, if a consumer is late on a payment for a dishwasher, for example, his credit card interest could double overnight. And banks do not need to disclose the change to the user – he’d have to work it out himself.
  • Dual-cycle: This is one of my favorite all-time manipulative tricks. The core idea of a credit card payment is that you pay interest on the outstanding balance. But some cards calculate the balance in interesting ways. In dual-cycle balance cards, for example, the balance is calculated over two cycles (two months) instead of one. So if you have a balance of $1000 in January and pay $990 on Jan. 30th, your balance would be $10. But a dual-cycle card would charge you February’s interest rate on $500 of balance, because your balance in January was $1000.

We mentioned that some math would be required, right?

  • Creative fees: You would expect banks to charge fees for many things card-related – after all, they have your credit card number right there, and fees can conveniently be charged right on it! So banks learned to charge fees for late payments (just after they hike the rate to Penalty levels), or for skipping payments. Those were relatively reasonable, but as banks learned the power of fees they started to create them for all sorts of things: foreign transactions, cash advances, even reward redemption. Then they got more creative still – paper statement fees ($1/month), penalty fees for NOT using your credit card ($75/year), or even early payment fees (if you pay your balance before you get a statement). These kind of fees are always manipulative (they’re hidden, they are usually small, and they are designed to affect a lot of people) but credit cards are the second most sophisticated user of these types of fees.
  • Amusing due dates: Pay your bill on time is sage advice for credit card holders. Of course, that becomes harder to do as banks started to manipulate the due dates. Several years ago, most statements were due at the end of the month. Then banks systems allowed them to create due dates that were basically driven by the day the user got his card. But soon banks started to experiment with due dates that were more manipulative – dates that fell on week-ends, for example, which made payments on that date effectively impossible, changing the due date every month (to ‘catch’ consumers who paid every month at a set date), or even creating a due date such as the 10th of the month, but writing in the small print that the due date was the 10th of the month at 2:00am (i.e. an effective 9th of the month date that would make a lot of cardholders late, subjecting them to late fees and penalty APRs).
  • Differential rates: okay, one last one. Credit cards can have different rates: a 0% interest rate on balance transfers, for example, followed by a 19% rate for purchases and 23% for cash advances. If you pay off the whole balance, then there is no issue, but if your balance from all three of these activities is higher than your payment, then the credit card company has to decide how it will allocate the payment. As a rule, credit card companies always used to allocate payment to the cheapest debt (lowest interest rate) first, leaving all the high interest debt intact. Someone who transferred a $2000 balance to a card, for example, and then bought $500 worth of merchandise would have a balance of $2,500. If she paid off $1,000 of that, the bank would allocated the $1,000 to the balance transfer (at 0%), and calculate their 19% interest charge on the full $500 of new purchases. As an aside, banks can play with this order-of-payments mathematics in quite a sophisticated manner, but that is the subject of another post

There are plenty of other tricks that credit card companies can use – some to avoid usury laws, some such as setting up minimal interest payments, and others, but that is not the purpose of this post. Over the years, the credit card industry got a lot of bad press for these practices, and finally a new law was passed this summer to prevent a lot of these practices. The CARD act passed despite a lot of lobbying from the banks, and provided for a fair bit of new protections for credit card holders. It made it harder to levy and create fees, especially random ones like the more recent ones. It provided for more disclosure to consumers, and made it harder to use some of the manipulations highlighted above. It also protected students and young people, who are usually some of the less-savvy credit card users.

So banks had a dilemma. There were still many, many ways to make money on credit cards, but capping fees and such would severely eat into the bank’s profits. So what is a bank to do?

Nooooo! Come back, please!! We need you!!

Well, they turned to “Professional” cards, or “corporate” card. Banks used to issue these to small business owners and senior executives at large corporations. They were basically credit cards but without some of the manipulative tricks I mentioned above. The reason was simple – the average balance of a credit card is $3,000, which is enough to make real money to the bank but small enough so that some of these tricks don’t trigger a strong response from consumers. But a small business owner or a CEO could charge $20,000 a month on his credit card, and they would notice even a small increase in interest charges, never mind a doubling of the APR. So banks always issued some professional cards to those types of users.

After the CARD act was passed, though, the banks noticed that professional cards were not included in the legislation. Since they are credit cards in all but name, banks began to market them aggressively to their credit-card customers (after adding most of the penalties and tricks used above, of course). One market research company reported that applications for professional cards went up 256% this year compared to last, as banks begin the painful migration of millions of credit card users to “professional” cards.

These new cards sound good – Business Platinum Card, for example, but they also carry all the tricks of their predecessors. For example, an MBNA Business Platinum Card’s APR can convert to Penalty APR if the holder is late twice (by 3 days) within a whole year. The CARD act makes it impossible to charge this kind of penalty on normal credit cards, but professional cards carry no such protection.

As the WSJ reports, those professional cards applications used to be targeted at owners and CEOs – so they asked for the business name, the revenues, etc… The new professional cards ask applicants a single question – ticking a box that says “I am a business professional with business expenses.”

This is a good example of the natural life cycle of a corporate manipulation. If a manipulation or a set of manipulations is too successful, it tends to attract government scrutiny. Often, that threat can be eliminated or mitigated through lobbying and other efforts, but once in a while the government will ban or regulate the manipulation. And then, of course, the manipulators have to find new tools in their arsenals to respond. So expect a lot more offers from your local bank for their “professional” card over the next few years…

Posted in Banking | 7 Comments

In the news – a mosque and a circus

I don’t usually like to pick current events to analyze for manipulation, for two reasons. One, it’s harder to divorce oneself emotionally from the content of a current event, and two, usually you need some time for the details behind a good manipulation to emerge. Things that seem very important today will look quite a lot less so in ten or twenty years, and tongues start to reveal secrets and that’s when you learn some really interesting things.

Sometimes, though, you get too good an issue to ignore. So let’s talk about the Mosque at Ground Zero.

Unless you’ve been living under a rock, you know, of course, that there’s a recent controversy in the news about building a mosque near the hallowed area of Ground Zero in NY. Some claim it’s an insult and it should never happen. Others that this is precisely what freedom of religion means. Even President Obama weighed in on the issue. So it’s now officially a National Controversy.

A mosque. Well, the one we're talking about probably won't be as big as this one...

To begin with, a reminder – as I mentioned before, within this blog I have very little interest in the content of a story, or the absolute right or wrong of a topic. I am far more interested in the underlying manipulation exercise itself. In other words, I want to focus on the underlying manipulation issues, not the legal or moral issues that others have already discussed ad nauseum.

So, what’s so manipulative about this topic? Let’s look at it from both angles.

Those who oppose the mosque have used a number of interesting techniques. As Salon points out in a very good piece, the project was actually completely non-controversial for many months. Thanks to the efforts of a dedicated few, mostly right-wing bloggers and pundits, however, the issue is now a national obsession. So how did they do it?

First, intelligent word choices. It turns out that this “Mosque at Ground Zero” is neither a mosque, nor at Ground Zero. The project, Park51, is essentially a large complex that is pretty close to a Y. Calling it a mosque is a pretty big stretch – the project is 13 stories high, has auditoriums, sports facilities, daycares, a 9/11 memorial… and a prayer room. Yes, people will pray in it, but if that’s a mosque, then a number of YMCA could be called churches, and several buildings in NY ought to be named synagogues.

As to the Ground Zero issue, the project is two and a half-blocks from ground Zero. It’s not visible from ground zero, and you need a good 3-4 minutes to walk from one to the other. If you define “Ground Zero” as encompassing the Park51 project, you’d have to define a space that includes most of the South-West corner of Manhattan, and which would include several churches, a cemetery, a marina, an Amish market, a number of gyms, several hotels, and some pretty strange establishments. Take a look. Hallowed ground this is not.

Blue: actual Ground Zero. Pink line: "Ground Zero" defined to encompass the project

This may be one reason why New Yorkers are generally more supportive of the project than outsiders – they actually know the area under discussion, and we are less likely to be swayed by catchy buy inaccurate labels.

But, of course, calling something “A large, Y-type project with a Muslim prayer room in downtown Manhattan” is very different than calling it “A mosque on holy Ground Zero”. Which one generates a more visceral response?

Beyond the emotional impact of the name, the opponents of the project have succeeded in creating the vocabulary. This project is not a mosque and it’s not at ground zero. But, if you can repeat something enough times, it becomes familiar, and familiarity is one step removed from truth. In other words, if you repeat something enough, it becomes truth. What started as a small nickname on a blog got picked up by more and more right-wing media, and papers such as the Post. Eventually, mainstream newspapers and media started to refer to the story, and there was no easy alternative to “the mosque at ground Zero” story. The result of repeating the term over and over? The opponents of the project essentially managed to frame the debate into a series of terms that were emotionally charged, even if they were inaccurate, and made it so that even attackers had to use the “mosque at ground zero” vocabulary to talk about the story. And with each repetition, even to discredit the opposition, the media reinforced the emotionally-laden vocabulary.

The third trick is selective disclosure. Islam is a major religion, and there have always been mosques in NY, some of which are very close to the old Trade Center towers. The area in question was used as a prayer area for hundreds of Muslims until 2009, for example. Masjid Manhattan, an area of prayer for Islamic city employees, is 2 blocks from the Park51 project. So there are several “mosque near Ground Zero” already in place.In fact, Muslims pray at ground Zero, in front of the main fence, fairly regularly in any case.

And, of course, the final one is appeal to emotion. Opponents of the projects essentially escalated the rhetoric over the course of a few months. What started out as “an islamic center near ground Zero” became “a mosque at ground zero”, then a “Mega-mosque over ground zero” and now the rhetoric is growing even more. The point, of course, is portray the project as an insult to America and to tap into powerful emotional forces – 9/11, America, patriotism, and more.

In short, the opponents of the project have done a very nice job of manipulation. And, if you remember my previous posts, one of the hallmarks of a great manipulation is that even when exposed, it’s hard to rally against it. In this case, none of the analysis above is secret – but it will not sway a single opponent of the mosque. A very good manipulation in that sense.

What of the other side? Are they innocent victims of an evil (right-wing) world?

Not quite. To be fair, on this issue, the bulk of the manipulation has come from the opponents to the Parks 51 project. But its promoters have also used some of our bag of tricks.

One trick, for example, has been the use of corporate not-for-profit groups to back the project. The Parks 51 project has 3 main backers. Soho Properties, a real-estate developer with connections to the Arab League, is one. The other two are The Cordoba Initiative, and ASMA, the American Society for Muslim Advancement. Both of these are registered non-profits, have websites, and generally look imposing. But they are, to some extent, shells – both entities have been founded and are run by Feisal Abdul Raufman, a Sufi Imam, and his wife is the director for both. They both work out of the same address, and both were very tiny organizations prior to this controversy.

Now, there is nothing wrong with an Imam pushing for an Islamist center, but doing so through two corporate shells seems to be somewhat manipulative – it implies a greater level of support for the project than a single man could provide, and a broader set of resources and expertise than what is essentially a simple two-person husband and wife team.

There is also the financial question. Building 51 Park would cost would cost $100M. Some folks have questioned where the money will come from, but they are missing the point. Soho Properties can buy the site for, let’s say, $15M – traditionally, this might be $5M of equity, and $10M of debt. The original plan of the developer was to put up condos, but he was convinced by Mr. Raufman to go for a large-scale islamic center instead of condos. Why? Well, only they know, but consider this: if Soho built condos, it would need to front the development cost ($20+M) and get a bank to provide the rest. Then it would be on the hook to sell each condo at enough to repay the bank and make a profit, and these are hard times for real-estate developers. It is a hard way to make a buck. If the developer built an Islamic center, though, the odds are excellent that a willing patron could be found in the Middle East – or in the US – who would front a large amount of the cost as a charitable donation to a worthy cause. This means that Soho would not need to use its own equity in the deal, and could structure the deal so that its financial returns would be much, much higher with a lot less risk.

In the same vein, Mr. Raufman would go from being an Iman at a small NY mosque to essentially running a $100M complex.

Did these considerations figure in the motivations of the backers of the project? Only they truly know, but it’s important to understand that behind the facade of a noble Islamic cause lies some pretty compelling economics for the two backers of the project. And this structure and funding issue is probably the one area where the backers have been the least transparent thus far, which would seem to indicate that it is indeed a very favorable structure (especially if they are allowed to use the non-profit tax exemption of Mr. Raufman’s foundation to pass through some of the project’s financials).

"Money? We never even thought about it!"

I’ll close this blog entry with a relatively sad summary. I am a student of manipulation. I have studied and worked with masters at manipulating media, politics, and consumers. I appreciate, perhaps more than most, a good play. Yet this kind of dynamics makes me sad. Why? The manipulation of the right-wing bloggers that began the attacks on the project several months ago have worked, to some extent – they have stirred up controversy, raised their own profile, and maybe succeeded in blocking the project itself. But their avowed political goals were to stop the spread of extremist Islam, and their little victory has largely been a Phyrric win in that sense: had they done nothing and if that center was built, the impact would have been minimal – I don’t believe that a sports center and a prayer area would convert a lot of Christians to become radical muslims. But what they have done – this perceived attack on religious freedom, this portrayal of everything as a fight between American values and Islamic ones will probably do more to fuel extremism here and abroad than a hundred Ground-Zero mosques could have ever done. So the manipulators succeeded in their short-term goal while defeating their own long-term aspirations.

Similarly, the main backer of the project, Mr. Raufman, has written 3 books of religious tolerance of Islam and why extremism is bad and why Americans can and should embrace moderate Muslims. They are thoughtful and moderate (if a bit boring) books, and Mr. Raufman has spent a good deal of his life trying to show how to reconcile Islamic faith and US secular life. Now, with this project, Mr. Raufman has clearly failed: even if he gets this center built now, the amount of bad blood and resentment that has been created is far, far superior to any good that his previous 30 years of career have done. In other words, Mr. Raufman’s vision for this center was an ode to reconciliation and partnership, and it has now become a symbol of discord and intolerance. Succeed or fail in the short term, Mr. Raufman has thus failed in his own long-term goals.

So, for all the gallons of ink that have and will continue to flow into this debate, for all the manipulation tricks that one or both sides deploy, each step takes both sides away from their own goals. That is, in many ways, why this circus is destructive for all concerned…

Posted in Government | 3 Comments

How it all began…

So I thought I would share with you all the incident that got me started thinking about manipulation, many years ago… I will change some details, but I will keep the core of the story intact.

At the time, I was a team manager at a top-tier management consulting firm. We were working for a large client that sold all sorts of consumer products, from soaps to cosmetics and even food. As it turned out, I was working with a small team to try and find a way to boost the profitability of one division, the one that handled soaps, detergents, and other similar products.

Okay, it was not the sexiest division ever.

As it turns out, this was difficult. Soap is a mature industry – people are not buying more and more soaps and dishwashing liquid every year. It’s a mature, stable industry, where every box that you gain is lost by someone else. And since the industry is dominated by large, powerful players, everyone has access to the same tools – the same distribution channels, the same marketing resources, etc… – it’s very difficult to make lasting changes on behalf of one player or another. Which is why, of course, some of these companies pay high-priced consultants to do it for them.

One day, my team and I were brainstorming ideas in a conference room. The table had dozens of different bottles and boxes, basically samples of the client’s products that were meant to stimulate ideas. One of the analysts was playing with a soap bottle when he flipped the top by mistake, and dumped a huge squirt of soap on his pants. As he got up, red-faced, he joked that the easiest way to sell more soap was to simply make the hole at the top of the bottle larger.

We all laughed about it and went on to other ideas. Later in the day, however, I started to think about it. It couldn’t be that simple, right? A larger hole would simply mean that consumers would squeeze less hard and adapt, right? But what if they didn’t?

Eventually, I asked the analyst to go out and test his idea. Get a few bottles with different sized nozzles, give them to consumers, see what happens. Of course, the details took some time to iron out, but a couple of weeks later we had the results.

They were surprising results. It turned out that people didn’t adapt. People thought in terms of squeezes, not the total amount of soap. They basically squeezed the bottle or tipped the box, and if more stuff than they needed came out, they didn’t care – people were concerned about having too little soap, never about having too much. In fact, if you gave a buyer a bottle with a large nozzle and then gave him one with a smaller nozzle, he would squeeze it harder until he got as much soap as he had with the larger nozzle.

Given those findings, the client decided to try a large-scale test. All the bottles in one region were changed – the nozzles were doubled in size, they were painted red to draw attention to them, and a banner proclaiming “new, easy to use nozzle!” was painted onto the bottle. Then everyone sat back to see what would happen.

It's all about the nozzle.

Six months later, the results were in. The company had sold 46% more soap in the region during the test than in the six months preceding the test.

It’s hard to emphasize how ridiculous those results were. In the industry, a 2% change was considered a huge win. An almost 50% increase was pure science-fiction. And if you add the fact that the change didn’t cost the client anything (save our fees), that buyers were as happy with the products as before, and that competitors didn’t react (because it was not an obvious price or distribution change), then you have a very happy company. In fact, this single change generated several hundred million of dollars across the entire company’s product line over the next few years.

Not only was this one change one of the most successful initiative in the group’s history, it was conceptually different from what the company – and everyone else in the industry – had done up to that point. Most marketing and sales projects focused on what I’ll call one a complete sale: getting a new customer to buy your product. Companies changed prices, bought ads with sexy sirens on the screen, or paid supermarkets for prime shelf space, all in the hope of convincing some consumers to buy their bottle of soap rather than their competitors’.

This was different, though. It was not a complete sale – The ‘double nozzle’ effort didn’t convert a single customer from the competition. It was essentially just a subtle way to encourage buyers to buy more of a product, mostly by leveraging an innate perception that consumers have that ‘more is better’. Instead of convincing a small number of people to do a big thing (change their favorite soap brand), it convinced a very large number of people to do something very small (use up a little – 46% – more soap every they squeezed that bottle). It was a fascinating concept, and that is when I started to research this type of play in other areas.

The ‘double nozzle’ was actually a fairly typical example of manipulation. It focused on changing a small behavior in a lot of people. It leveraged a built-in preference of those people. And there was an element of dissimulation – the company drew attention to the new nozzles, but did so under the banner of “easier to use”. All three of these elements are common to a lot of manipulation efforts.

To finish that story, other companies eventually caught on to the nozzle manipulation. Competitors promptly changed their own nozzles and dispenser, and as a result the overall market grew substantially. In the course of a couple of years, the entire category got a growth boost of almost 50%, since eventually everyone followed the same path. One of my great pleasures in those years was to see industry analyst reporting this boom, attributing it to everything from “international demand” to “new dishwashing machines that consume more soap” to “increased marketing spend”. Not one of them ever caught on that it was due to slightly larger nozzles…

Posted in Retail | 4 Comments

This post is censored, part I

Censorship is an interesting topic. Done well, it can be a very good manipulation tool – it’s hard to object to something that you don’t know about, after all. It’s a blunt instrument, to be sure, but it can be an effective one. This is why governments have always tried to gain some types of censorship powers. Even in the US, a fairly censorship-lite country, various tools have been developed to allow government agencies to do things under the cover of night. I wanted to do an entry on one of them: tell me, have you ever heard of a National Security Letter?

Not this type of letter.

Well, I guess you couldn’t tell us if you have. A National Security Letter is a letter that the FBI and other agencies can send to someone to demand records – almost any kind of records: bank statements, web history, telephone calls, etc… The manipulative aspect of a National Security Letter is that a) the agency doesn’t need a judge or a warrant to use it, and b) it comes with a lifetime gag order – the recipient is never allowed to reveal to anyone, even to an attorney, that he received it.

In other words, in theory, if you ever receive a National Security Letter, you have to obey it without any kind of recourse – no legal challenge, no going to the press, not even telling your wife about it.

The reason I wanted to use this tool as the subject of a full blog entry is because it has several interesting manipulative elements. Let’s look at a few of them:

First, how did such an egregious breach of due process ever get passed? Some agencies, such as the FBI, wanted something like the National Security Letter for a long time (not necessarily for evil purposes, by the way – conceptually, being able to ask for records without the record owner being able to alert others of the fact could be a very useful tool in crime fighting). But since Americans are generally wary of secret, unstoppable orders, this remained on the wish list of agencies for years as an interesting idea and no more. But, in 2001, in the wake of the 9/11 attacks, the Senate passed the Patriot Act,  and the bit about National Security Letters was tucked into it (Cute quiz – everyone knows that John Ashcroft drafted much of the Act under Bush, but who wrote the predecessor bill to the Patriot Act, the 1995 act that basically set the ground rules for the government’s ability to modify core rules and laws in the fight against terrorism?)

Seriously. It was him. Look it up!

The provision of the Act that allowed National Security Letters is relatively tiny, and it didn’t draw a lot of attention mostly because it was drowned in a lot of other issues, but also because the administration argued, quite reasonably, that it was a going to be a rarely-used tool – how many letters could the CIA send out, after all?

Well, as it turned out, 192,000+ letters, that’s how many. From the FBI alone. In just 3 years. What was supposed to be a sleepy, seldom-used power became almost a past-time for federal agents.

Obviously, not all of these letters could be terrorism-related. In fact, even though the language was carefully crafted to allow the letters to be used for almost any purpose, the FBI still managed to overstep its bounds: an internal audit of 10% of its NSL requests found more 1,000 violations of the law.

Beyond how it was passed and used, the very nature of a NSL is manipulative – the gag order makes it essentially impossible for a recipient to fight a NSL. When one recipient decided to fight a NSL, he had to get help from the ACLU, his own lawyer, go undercover for several years, and essentially hide his identity from the media – not an easy decision to make for anyone. Most of us would find it much easier to hand over the information requested, even if we knew that the requested had no right to it.

This is why the FBI and others used (and abused) the NSL tool – its very nature made it very difficult for recipients to resist. The alternative, by-the-book solution, getting a warrant, was more complex, and warrants can be fought legally, both before and after they are served. NSL, on the other hand, cannot be fought, which is why the FBI and others now use NSLs even when there are other, legal ways for them to obtain the same information.

"If you did nothing wrong, you have nothing to fear!"

If you read the WATOC post (here), you already know how agencies have traditionally defended the use of NSL – it was a necessary tool to defend the nation, it was a critical tool against terrorism, etc…. As more and more evidence of abuse has leaked out, however, there has been increasing calls for reform coming from Congress. In time, this particular manipulation tool may yet be scaled back.

National Security Letters are an extreme form of manipulation by our common definition: they are technically legal, they rely on the lack of disclosure, and they are designed to shape behavior to benefit the manipulator. But there is a fundamental difference this type of manipulation and corporate or media manipulations: most corporate and media manipulations rely, ultimately, on the audience’s desires and greed to work their magic. Government manipulations can do so too, of course, but more often than not they rely much more heavily on fear – in this case, for example, the fear of terrorism to get the law amended in the first place, or the fear of the recipient of the letter to dissuade him to fight its demands. This is a key difference between government manipulation and corporate manipulation, and it’s a theme that I’ll revisit in a couple of posts…

Posted in Government | 3 Comments

An impartial judge

Few people like their cellphone company. Check some of them out at Brand Mojo, and you’ll see that people prefer leaky oil companies to their cell phone carriers. Why do consumers almost universally hate an industry that provides one of the most useful services around – after all, what would we do without them?

So very, very lonely....

Well, part of the answer is that cell phone companies spend an inordinate amount of time and effort trying to manipulate their customers. Cellphone companies could provide, on their own, enough material for a year of this blog, but I want to focus this week on one particular technique, arbitration. Or, more accurately, mandatory binding arbitration.

Arbitration is a logical concept, in theory – let people take simple disputes to an arbitrator instead of a judge. No lawyers, simplified rules, faster conflict resolution – what’s not to like? In fact, in the 1980s, courts liked arbitration because they saw it as a way for employees and others to defend themselves against big corporations: arbitration was much cheaper (so hourly workers could afford it), and it would free up  the courts for more serious business. So the law provided the framework to let people, companies – even states – to choose arbitration to settle their disputes, instead of going through the hassles of the standard judicial system.

Fast forward a couple of decades, and corporations started to think that arbitration might be a good idea from their perspective as well. Companies do not, as a rule, like to get sued. Juries are unpredictable, and small matters can end up with big penalties. So arbitration began to look like a good way to ensure that consumers suing the companies could only win modest real judgments (arbitrators usually cannot award punitive damages, which is the real painful part of jury judgments).

Of course, for this to work, everyone needs to opt-in this mediation business. So companies started to put specific language in the core contracts that consumers or buyers needed to sign before being allowed to do business with the company. So, if you pull out the contract of service of your favorite cell-phone carrier (you have kept it handy and read it regularly, right??) you will notice that, when you signed it, you have:

  • Agreed to use arbitration instead of any jury trial for all your disputes with your carrier (this it the “binding” part of Binding Mandatory Arbitration).
  • Agreed to abide by the decisions of the arbitrator, without any form of appeal (the “mandatory” part of Binding Mandatory Arbitration).
  • Agreed to let your cell phone carrier choose your arbitrator (if fact, Verizon had at one point the language “your arbitrator may be an employee of Verizon” – you have to give them points for gumption!).
  • If you insist on bringing the carrier to court despite your mandatory arbitration, you agree to pay the carrier’s legal costs to get your suit thrown out of court and back to arbitration.
  • Finally, you agreed that you cannot be part of a class action of any kind (companies hate class action lawsuits, as those typically involve very large sums of money).

"I did what??"

By the way, there is no way to avoid this contract – all cell phone providers demand that you sign it as a condition of service. Even using the phone essentially binds you to the above. Of course, don’t take my word for it – check out AT&T’s 2,500 page Guidebook of Rules here yourself. It’s fun. Go ahead. We’ll wait back here.

In and of itself, this would be manipulative enough – but it only got better over time.

Arbitrators, unlike federal or state judges, do not get paid by the state. They get paid by the people whom they arbitrate for. As a result, implicitly or not, arbitrators depend on large corporate clients for their livelihood. It’s hard to rule against the guy who pays your salary, after all. Even if some arbitrators were unbiased, since your carrier can choose whom they pick as arbitrator, it would be relatively easy for them to select arbitrators that are… relatively sympathetic to the carriers.

And this is what happened. The Pubic Citizen survey in 2007 found that consumers lost 94% of the time in California, for example.

This is not good.

Now, not all arbitration is that stacked. Several studies (Warning: PDF) show a better win rate for consumers, but there is usually a catch (in this case, for example, the study looked at consumer-initiated arbitration. Consumers who start arbitration against their carriers are rare – most of the arbitration proceedings that are relevant are initiated by the carrier themselves).

With this type of win rates, carriers became bolder. They started to add more and more conditions to their terms of service. They added confidentiality clauses (you can’t talk about losing your arbitration proceedings). They added language that actually started to override laws, like shortening the amount of time consumers had to opt out of service, or reducing the impact of consumer protection laws.

Eventually, this landed the carriers in trouble. In 2008, a Washington State appellate court, for example, found AT&T’s terms unconscionable, and voided the mandatory binding agreement for one customer who had been overcharged by the carrier for years.

But even with this occasional backlash, arbitration is still a good manipulation technique. It is easy to defend (“less expensive than lawsuit!”), easy to hide (“it’s right there on page 1,562!”), and quite effective (90%+ win rate for the carriers). Taken altogether, these are compelling arguments for why all carriers in the US have turned to it.

In fact, binding mandatory arbitration is now found in far more than dusty carrier service terms. Many employment agreements have them (check yours now!), credit card contracts, and even mortgages. So, like it or not, you will probably become quite familiar with arbitration at some point in your life. When you do, drop by here and leave a comment behind and let us know how it went!

Posted in Cell phones | 14 Comments

Caveat Emptor

I want to talk a little about the reasons for the existence of this blog.

There is a good reason for this – the readership is picking up (if I read these charts properly, anyways!) and it’s good to a) welcome new readers! b) thank the commenters (Donto and gcagle last week), and c) disclose some of my own viewpoints so that readers can analyze my posts with the appropriate ‘filters’.

Welcome new reader Steve M. from Chattanooga

First, and most importantly, this blog is not meant to demean manipulation or to portray manipulators as evil. We all try to manipulate those around us – it’s part of human nature. Admittedly it’s not usually our proudest feature, but we all have it; some of us are just better at it than others. In fact, my team and I have spent decades advancing the art of manipulation and charging a lot of money for that expertise. Manipulation is a tool, like an axe or a hammer. The tool is not evil, although those using it can be.

Having said this, some things have changed in the last few years. Manipulation has become more mainstream, and the use of mass manipulation in corporations, politics and media has grown tremendously. There is no counter force to this trend, though – no one is teaching consumers how to spot and resist manipulation, or citizens how to better avoid government manipulations, or media readers how to be more critical readers. This is the fundamental reason for this blog, then – to act, in its small way, as a way for people to discuss manipulation, disseminate examples, and get better at spotting it and reacting to it.

As such, this blog usually doesn’t have a specific ‘content’ agenda. We care about the manipulation itself, much more so than the underlying issue or player.By studying the manipulation, we strip it out and then can decide on a viewpoint on the underlying issue free (or more free) of the manipulation technique itself. For example, in the last blog post, you may well believe that Internet censorship is a good thing. Or you may believe that it is an evil abomination. Either way, there is real benefit to discussing the issue without the veil of WATOC manipulation. That is the purpose of this blog, rather than advocating one side or the other.

Beyond being a fun place to discuss the art of manipulation, the other major purpose of this blog is to talk about some of the trends and the ‘rules’ of manipulation. As such, we tend to showcase stories that have some insight on manipulation as a whole rather than one-off incidents. For example, let’s take a simple example – Vitamin water.

Delicious, purple-pink vitamin water

Vitamin water is an interesting business. It was started by a health enthusiast, Darius Bikkof, back in 1996. The basic idea was simple – adding a couple of vitamins to water to make it generally healthier. Vitamins are an interesting health additions: you need several vitamins to function properly, and it’s hard to overdose on vitamins. Your body needs a certain amount of each vitamin, but if you take more of it, you tend to simply urinate out the excess. So putting some Vitamin B and C into vitamin water meant that, at best, you got some needed vitamins, and at worst, you tended to pee out the excess.

The company started slowly, selling to health-food distributors and stores. The packaging was cute and cheery, the water did contain some vitamins, and consumers bought it in increasing quantities, eventually generating $350M of revenues for the company.The company was eventually bought by Coca Cola, who used its awesome distribution network to bring Vitamin Water to all the remote corners of the world who had not yet experienced the wonder of vitamins pre-dissolved in water.

Now, one of the general rule of manipulations is that companies tend to use manipulation more when a product has exhausted its initial strong growth phase. Coca Cola paid $4B for Vitamin Water in 2007, a very high price, and soon thereafter had to start to think about how to justify that price by increasing Vitamin Water’s market share.

Over the next couple of years, Coca Cola started to increasingly emphasize the health benefits of Vitamin Water. The issue, of course, is that while Vitamin Water does contain vitamins, it is not, broadly speaking, particularly healthy – most adults tend to get most of their vitamins from their normal diet, and don’t really need supplements, in water or without. Vitamin Water also has a fair bit of sugar, which is not great for you (about the same calorie content as a can of Coca Cola, in fact). So Coca Cola had a problem – how to promote Vitamin Water as increasingly healthy, when the underlying product really couldn’t live up to those claims.

How did Coca Cola do it?

Basically, it began to resort to manipulation. In 2002, the Vitamin water names were “Talking rain” and “VitaZest”, cute marketing names that didn’t mean much. Today’s names are “Defense” and “Rescue”, names that seem to imply much more of an action than the early original names.

Slogans changed as well. The early slogans for Vitamin Water were essentially focused around it being a better water. In 2003, for example, the company’s main tag line was “Drink better water”. The later ones increasingly focused on the idea that Vitamin water could do outrageously good things to your health:

In fact, Coca Cola started to go well beyond cute slogans. Over time, the Vitamin Water line was promoted as being able to “reduce the risk of eye decease”, or “promote healthy joints”. The cute, funny, tongue-in-cheek marketing of the early years gradually gave way to more and more outrageous health claims.

In fact, eventually a group of scientists at the Center for Science in the Public Interest sued Coca Cola over these deceptive claims, and got an early victory this week when a federal judge ruled, essentially, that Vitamin Water is not healthy.

Coca Cola did more manipulation than these claims, of course. It redefined serving sizes, for example. Coca Cola advertised “50 calories” on the bottle, which is actually not bad for a sugary drink. You had to read the (really) tiny writing on the back to realize that there are 2.5 servings in one bottle. This is plain manipulation – there is no good reason to assume that a bottle has 2.5 servings of anything. But the company realized that putting the true calorie count on the bottle was going to be a problem, and so redefined a serving size to suit its needs.

So what’s the moral here? Vitamin Water is not a bad thing, objectively speaking. Its makers argue in court documents that it is, in fact, a healthier alternative to sodas. And it is, in some ways. It doesn’t use preservatives, and doesn’t cram the bottle with artificial flavors. But the story illustrates three points fairly well:

  1. The difference between marketing and manipulation. The early Vitamin Water marketing was, well, marketing. It advertised the product as it was, with a funny irreverent style that worked well. Like all marketing, it focused on the product’s qualities and not its defects, but the overall message was generally truthful. Over time, however, this shifted into manipulation: subtly altering the messages to essentially trick consumers into thinking the product was far more healthy than it was. The line between marketing and manipulation is not laser-clear, but neither is it as fuzzy as some people claim: if it is deceptive, it is likely manipulation, not marketing.
  2. Another point is why I chose this story for today in the first place. There is a general rule that corporations tend to resort to manipulation more when times are tough. When a company has a success on its hands, it usually doesn’t resort to manipulation, simply because it doesn’t need to. But when there is a product that is struggling, or when it overpaid for a company, or when competition is too fierce, companies often turn to manipulation. Pharmaceutical companies are often guilty of this, but many, many companies succumb to the temptation at one time or another. I don’t think anyone at Coca Cola sat down and decided: “let’s try and push this thing as super-healthy; let’s change the packaging, make outrageous claims on the benefits, find sports endorsers, and generally manipulate consumers into thinking this thing will make them healthy.” Rather, it was a slow process of committees trying to fight the competition (who had exactly the same water+vitamin formula, after all), trying to expand the brand, and trying to ride the health megatrend that eventually led the company to where it is today.

And finally, to illustrate the ‘content’ part of this post… generally, Vitamin Water is not a terribly bad product. You may love it and drink it daily (only if you’re 12 and up, though, according to their guidelines!), or you can hate it, but the point of this post is not to suggest that you should love them or hate them – just to study their use of manipulation and to learn from it.

The ancient Romans had a saying – Caveat Emptor: “Buyer beware“. This is still true today, in many cases, and it is as good a tag line for this blog as any.

Posted in Basics, Retail | 6 Comments