Friday, May 4, 2018

Repeat - The Sunk Cost Trap

This originally ran over a year ago, but following BaselWorld and the noticeably reduced attendance of brands, retailers and journalists, it's a topic that could stand to be aired out again.  Because this year both wealthy and modest brands were willing to break the habit of a lifetime and skip BaselWorld.  And what it underscored was the reality that not only is the business changing, but after several years of financial (and emotional) losses, some shot-callers had finally accepted that they had to keep their hearts and their wallets in separate locations.  Barry Hearn would be proud ; )

What Barry Hearn Could Teach the Watch Industry - 3

3.     Make sure your heart and wallet stay in a different place

Which brings us back to today's repeat:

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.  Why?  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.  

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.  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.

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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