A lady once walked up to me in a CVS.
"You look like a good shopper."
"How's that?" I asked.
"You've been standing in front of the toothpaste for ten minutes."
I couldn't argue with the facts (though I do contend her watch was a teeny bit fast). To any outsider, I was doing just that: standing in front of the toothpaste in a CVS. Of course, my long-time (and highly sophisticated, and good-looking) readers will know there was another thing going on beneath my world-class shopper exterior.
On this day, the immediate activity was math. CVS often brings this out in me. Some people play little memory games like Sudoku to keep their aging brains sharp; I wander into CVS and try to save seventeen cents on household items. It's all due to their ExtraCare program, a membership system offering rotating weekly sales and deals to shoppers who sign up for a rewards card.
The puzzle I was trying to solve was whether I would do better to go with the Colgate 'buy one, get one 50% off' deal or pay for two individual tubes of a different brand at full price to get a $3 coupon for my next visit. It was a very close call and I was utilizing the full complement of skills I honed as a double mathematics and economics major to make my decision (1).
In these kinds of situations, I sometimes recall a lesson I learned from a book called Gang Leader for a Day by Sudhir Venkatesh (2). Venkatesh, a sociology professor, researched this book by immersing himself in a Chicago gang for nearly a decade. One story he shares comes in the form of a business case challenge from a gang member.
As I remember it (though I do feel like I'm making some of this up) the deal involved two options for a drug sale. The first option was to make one sale of the drugs at a 20% profit. The price for future sales would be negotiated at the time of the next sale. The second options was to arrange a series of deals, each separate transaction within the series resulting in a 10% profit. For simplicity, let's say each percentage point in profit is equal to one dollar and the proposed series is one deal every first Sunday of the month for a year.
No brainer, says Venkatesh, take option two. Over the series, the total profit will be larger. $120 is greater than $20. Plus, it covers us in case something changes with the price...
Wrong, comes the response. In this business, uncertainty is to be avoided at all costs. Dealers could die, go to jail, or just get chased out of the area. When there is uncertainty, all contracts are one day arrangements and smart business means jumping at any opportunity for short-term gain.
I've always thought this example contained a number of profound insights into how people use money. The balance of long-term investment and short-term profit, for example, is a challenge businesses tackle each day. When conditions are predictable, businesses invest in new technology or in educating employees. If there is uncertainty about the future, businesses opt to chase short-term gains at the cost of developing employees or maintaining depreciating equipment.
The same thinking is seen in employees. Those hired 'at-will' start looking around for options at the first whiff of uncertainty in the company outlook. Why invest any more effort into a sinking ship? But those convinced of a longer-term or more stable future - such as students pursuing advanced degrees or certifications - seem more inclined to invest consistent time and effort at the cost of short-term earnings available through part-time work.
The lesson from this book proved highly useful for me in understanding the hidden signals sent by management in my first job. When investments were significant and employees were being encouraged to take training programs, I did not worry about the long-term outlook despite some issues with clients and revenue. I became concerned later (and was, unfortunately, proven correct) when these forward-looking initiatives dried up despite reports of healthy profit margins. I expect understanding this simple rule of thumb will continue to prove a valuable resource for me in the next step of my career.
The understanding has proven useful in more trivial ways outside of work. One such instance came on this day at CVS. I was essentially presented with the same choice the author of Gang Leader for a Day considered - do I take the sure thing now at the risk of losing out on a possibly larger payoff later? Unless the numbers make a deviation obvious, my default strategy is always the former.
It's not like I think CVS is going under tomorrow. But I do consider ways the coupon option might backfire. The receipt - which I believe the NFL uses to measure first downs - is still easy enough to lose. I might also not go to CVS again until after the coupon expires. And of course, I know myself too well - with coupon in hand, I might go to CVS next time and buy something I never purchase on my own dime. Though I do enjoy the odd bag of M&Ms, I must acknowledge such purchases eliminate the 'savings' I realized that time I took an hour to buy toothpaste.
So, the next time you see me standing around a CVS, come over and say hello. I'll have plenty of time to chat.
And bring over a calculator, if you have it.
Footnotes / admin, math, and who gives a shit?
0. Admin!
Since I'm not sure if I (a) ever finished this book or (b) even got this lesson from the book at all, I've chosen not to go with the official layout of these 'LCB' posts (where I list the book, the author, and the approximate season I finished it).
1. Is this how math class goes at Colgate?
This is an example of how the options for unusually challenging trips to CVS present themselves:
Deal 1: Two tubes of toothpaste @ $5 each, second one 50% off.
Deal 2: Two tubes of toothpaste @ $5 each, $3 coupon for next visit.
On the surface, deal 2 is better. Over the liftetime of two trips to CVS (the current one and the next one), I would save $2.50 on deal #1 and save $3 on deal #2.
So, no brainer? Not quite. I do the math to make sure considerations like tube size do not change the calculus ('calculus') above. If deal #2 involves smaller tubes, it might make sense to go with deal #1. In some cases, I also consider the brands in the decision (though in the case of toothpaste this is never a factor I rely on).
A last note before I go: the above is definitely a guess at an example. It is close to what I experienced on the day, no doubt about it, but I do not remember the exact numbers. As I like to say around these parts, I'm not here to defend the numbers, just the formula.
2. Well, sort of, maybe...
Or I should say, I believe I learned, as I read it so long ago I may be confusing it with Off the Books, an earlier Venkatesh book I read only the first half of after enjoying Gang Leader for a Day. As I remember it, the books were fairly similar and I decided I'd had enough of the topic.
