Friday, July 5, 2019

Summer Repeat - The Sunk Cost Trap

It's been an interesting several months since BaselWorld.  Although Swiss exports nudged themselves up a wee-bit during May, it is getting pretty clear that a return to the amazing results of the early 2000s are not coming back anytime soon.  Curious to relate, I spoke with a brand owner who had been visiting the EPHJ this past June, and word around the campfire was not particularly hopeful.  Consider that for a moment, these are people who make their money on being hopeful, convincing brands and watch makers to purchase the latest tools and supplies.  When these folks are pessimistic, it tells you that there may be a longer recovery ahead, and the other thing that it tells you?  This might be as far as the industry is going to recover.  

And for many brands, they are still living through and willingly placing themselves in the classic Sunk Cost Trap.  So as we are in the middle of a long holiday weekend here in the US, I thought I'd re-heat some leftovers this morning.

The Sunk Cost Trap

I think we have all experienced this in one way or another throughout 
our lives.  For those of you not familiar, the Sunk Cost Trap is the 
tendency of normal, sane people to foolishly and (if we're being 
honest) irrationally follow a plan that is clearly not succeeding in its 
expected outcome.  


Well, because we feel that we have "SUNK" too much time, and or 
money into the exercise and we further feel that all of that time and 
money will be wasted if we changed course.  

Sound familiar?

The Sunk Cost Trap explains why we keep books that we'll never 
read, and clothes that we've never worn. 

The Sunk Cost Trap explains why some brands continue to "sink" 
hundreds of thousands of dollars into failing partnerships, celebrity 
ambassadors and the on again, off again retention of the same PR firm 
that tends to get signed for a year, then replaced the next year, only to 
be signed again the year after that.  It's a bit like the Olympics or the 
World Cup, except that it's every two years instead of four.  
Because they've sunk too much money into it now to walk away.

The Sunk Cost Trap explains why blogs and magazines will continue 
to keep a brand's ads running even though the brand has not paid for 
an extended period of time.  This is two-fold:
1.  Time spent and money not received
2.  Fear that walking away will ensure that the  brand will never 
advertise with them again - which is pretty silly when you consider 
that they are giving the brand free advertising already and not getting 
paid.  What exactly is it that they are afraid of losing?

The Sunk Cost Trap explains why someone who really only wants 
one nice watch will buy several discounted through the grey market 
assuming and hoping that the value of those watches will somehow 
magically increase in the not-too-long term so that they will be able 
to flip those watches and have a nice enough profit to then afford that 
one nice one...  
Which never happens because - you guessed it - they are then 
trapped by the notion that if they sell the watches they bought on 
the grey market they will be losing money.  Which, of course, they 
will.  So they hang onto the not-so-loved watches in the hope that 
things will change.  Which, of course, they won't.

The Sunk Cost Trap explains why a retailer who continually hoses 
the brand manager by not paying their memo account when they 
actually sell something will not be confronted by the brand manager.  
Why?  Simple, the brand manager has sunk too much time and too 
much money into the partnership, and even though they often wait a 
ridiculously long period of time to get paid (making several expensive 
trips to the retailer to count the safe and prove to them that, in fact, 
they have sold the watches and need to pay), this "partnership" will 
live on.  Often without the brand manager getting paid, and inevitably 
seeking new professional opportunities, because sooner or later that 
brand manager reports to the brand itself, and although they have kept
on the brand manager probably longer than they wanted to because of
(you guessed it) the Sunk Cost Trap, the brand manager is the easiest 
thing for them to change.

The Sunk Cost Trap explains why an honest retail  partner will get 
shafted by a brand who will not provide them with a limited edition 
watch to sell to their client (at full price) because they want to try to 
sell it at their own boutique.  Even though they do not have anyone 
who wants to buy it.  But the fear of having had it, and not selling it?

You get the idea. 


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