Free samples

Posted: May 22, 2023 | Author: helytimes | Filed under: America Since 1945, business |1 Comment

I was in See’s Candy the other day, as I am on many a weekend, and it dawned on me that two of the classic Buffett/Munger businesses, Costco and See’s Candy, are places that offer delicious free samples.

Go to a Costco and you’ll likely get a tasty snack or two, go to See’s and you’ll get whatever the day’s sample is (yesterday it was salted dark chocolate caramel).

Buffett and Munger are all about urging people to be rational, and managing their own emotions (“I can’t recall any time in the history of Berkshire that we made an emotional decision”) but a huge part of their success and what makes them interesting is their awareness that some businesses are sort of magical. They’ve got a grip on customers that’s beyond rational, that exists in the worlds of love and nostalgia and strong emotion. Buffett raving about the iphone, for instance:

If you’re an Apple user and somebody offers you $10,000, with the the only proviso [that] they’ll take away your iPhone and you’ll never be able to buy another, you’re not going to take it

If they tell you [that] if you buy another Ford motor car, they’ll give you $10,000 not to do that, [you’ll] take the $10,000 and buy a Chevy instead.

I mean, it’s a wonderful business. We can’t develop a business like that, and so we own a lot of it. And our ownership goes up over time.

Or See’s:

People had “taken a box on Valentine’s Day to some girl and she had kissed him … See’s Candies means getting kissed,” he told business-school students at the University of Florida in 1998. “If we can get that in the minds of people, we can raise prices.”

“If you give a box of See’s chocolates to your girlfriend on a first date and she kisses you … we own you,” the investor said in “Becoming Warren Buffett,” an HBO documentary.

(That U Florida interview is one of my favorite Buffett texts, you can see not just the sunny old grandpa but the rapacious capitalist).

There is an accounting term that attempts to quantify some of this, goodwill, but this quality is not measurable in any exact way. In Munger’s famous talk on The Psychology of Human Misjudgment, he talks about how he didn’t learn about any of this at Caltech or Harvard Law School. Being rational is wise, even a moral duty as Munger often says, but you’ll miss out on human decisionmaking if you don’t look for and acknowledge the power of essentially magical forces at work.

The gap between rationality and the way people actually behave due to romantic attachments, sentimentality, brand loyalty, etc is a source of humor, as well as an opportunity for price increases. Buffett and Munger seem to see both.

One example I can think of where free samples didn’t work: the teriyaki place at the mall. Did you have these? At the mall food court the kid at the teriyaki place would often have a plate of free samples. Yet the one time I tried a full plate it was kind of repulsive. I didn’t finish. Too sweet or something, or just not good at scale.

Coke has no taste memory. You can drink one of these at 9 o’clock, 11 o’clock, 3 o’clock in the afternoon, 5 o’clock. The one at 5 o’clock will taste just as good to you as the one you drank early in the morning. You can’t do that with cream soda, root beer, orange, grape, you name it. All of those things accumulate on you. Most foods and beverages accumulate on you — you get sick of them after a while. There is no taste memory to cola.

So says Buffett, perhaps related to “the teriyaki problem.”

Maybe the free sample method only works with a quality product. Sometimes the samples at Costco are bad. Remember when they used to give a sample at Trader Joe’s? Covid has killed that I guess. It worked on me.

Giving out free samples, in both See’s and Costco’s case, represents a strong investment on serving customers. Giving out free samples is a pain in the butt. A business that has the abundance to consistently deliver is probably confident and well-managed. Is this blog a form of free samples?

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