The science of persuasion

August 28, 2010

Robert Cialdini‘s work is important to understand.

His 6 Weapons of Influence:

  1. reciprocity, (giving a United Way pin)
  2. scarcity, (limited quantities available)
  3. authority, (basketball shoes)
  4. commitment,
  5. liking  (Tupperware example) and
  6. consensus (social proof).

Understanding these techniques goes a long way to understanding franchising.

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Social proof: “Fitting in” as a franchisee serves somebody’s interests

April 7, 2010

Behaviour is influenced much more that that we commonly think.

Bob Cialdini suggests a very useful model in his Science of Persuasion.

Social proof is a central one used in franchising. What our peers believe to be true is very persuasive to us.

Social proof:

a psychological  phenomenon that occurs in ambiguous social situations when people are unable to determine the appropriate mode of behavior. Making the assumption that surrounding people possess more knowledge about the situation, they will deem the behavior of others as appropriate or better informed. Wikidpedia

“Normal” in franchising is initially set by the franchisor for their newbie.

Another “Weapon of Influence” (authority) helps the franchisor orient the new franchisee to a subservient, look-to-Big-Daddy mentality.

However, this new “normal” is eroded as franchisees become more experienced. It all seems to go one way.

Sharing information between peer franchisees defuses the power of social proof and authority as behaviour-modifying techniques.


Earnings Claims in CDN franchising: $75,000 for 12 days work?

February 11, 2009

sipnsnackThis is an advertisement in today’s Toronto Star.

It is a listing under the “Franchising” section. At least 50% of the ad space in this section is hyping the Canadian Franchise Association’s upcoming The Franchise Show.

The Canadian Franchise Association bills themselves as “the national voice for Canadian franchising“.

Let’s see exactly what this alleged franchisor has to say for itself:

1. Earn $75,000 per year for 1 day of work per month. I guess that corresponds to $781.25 per hour (8 hours per day). Or if you wanted to work 2,000 hours per year, you’d be making $1,562,500 peddling branded drinks. This is what passes for investor protection in Ontario, more than 8 years after the passage of the Arthur Wishart Act (Franchise Disclosure).

2. Note how the extremely unknown franchise system trades on transnational brand titans such as Pepsi, Doritos, Lays, Red Bull, etc. This is a classic persuasion technique the confers legitimacy by associating with authority (this time, marketing or brand strength that “Attracts Customers like a Powerful Money Magnet!“)

3. It promises a system: it bundles locations with package. Why the heck at these revenue per hour figures doesn’t the franchisor just hire some flunky to stock the machines? This goes to the usual “turn key” proposition of a “proven system” that usually turns out to be nothing of the kind.

4. The flash “Now Launching in the GTA!” serves two masters: (a) it explains why no one has ever heard of Sip-N-Snack and (b) it lures those that want something new, special or up-and-coming. The phrase “This here poo-collecting franchise is the next McDonald’s…” is a related rhetorical come-on for the overly-trusting.

5. Placing the advertisement in the franchise section is intended to confer legitimacy or utilize social proof: other better-known franchise brands in the ads around this ad. This is important because this might well be the cheesiest fly by-night equipment business opportunity scam imaginable.

6. The total price point is important. At $16,995, if this were a total scam, very few investors would sue to recover their loses. The cops usually won’t investigate anything under $250,000 and the retainer for a lawyer is +$1,000. Like 99% of the defrauded, they won’t even report it to the local police and the Competition Bureau is a bloody lapdog.

7. Note the recognizable logo: Pespsi-Cola. And 5 exclamation points. This must be a hot deal!!!!! (Just because it is corny does not mean it isn’t really effective on a certain percentage of the population.) Fraud cuts across many socio-economic levels.

8. If this is a scam, the money is quickly sent away; well beyond the reach of any litigation or police investigation. Con games are well-thought out beforehand and the three-card monte table is quickly folded up.

9. But still if 10 people bite, that’s an okay return on investment for the franchisor and it keeps the revenue wheels turning at The Toronto Star, too.

10. Canada is a well-known white-collar crime incubator as recently portrayed by the CBC Marketplace in Buying into the pitch to become rich. In all confidence games, more than 50% of the marks are good for a second fleecing.

Any comments, particularly from those knowledgable about business opportunity frauds are welcomed.


Risk Compensation: Why franchise laws & regulations cause more risky investing

January 27, 2009

noparachute1All franchise laws should be immediately repealed.

Everyone would be better off knowing that they’re in an airplane with an empty parachute.

Specific franchise laws give a false sense of security that, paradoxically, causes investors to behave in a more risky way than if there were no laws.

BTW: The push for franchise laws (with very rare exceptions) has always been by the franchisor and the franchise bar, not by franchisee investors or their advocates.

  1. The U.S. has had state and federal franchise laws for +40 years.  Alberta, Canada since 1971, Ontario since 2000. The outcome is the same: still very high investor risks.
  2. Relationship laws have existed since 1956 in the U.S. The toughest state law (Illinois) doesn’t seem to have had much positive effect, one way or the other.
  3. Direct regulatory federal laws in the U.S. and Australia, although they have the statutory power, are not used, except on the occasional token, hapless, no-name franchisor.

The primary mechanism that causes this INCREASE in risky investment behaviour is found in a theory called risk compensation:

Risk Compensation is an effect whereby individual people may tend to adjust their behaviour in response to perceived changes in risk…Another way of stating this is that individuals will behave less cautiously in situations where they feel “safer” or more protected.

The more we feel safe, the more risk we feel we can take on without additional costs. [Wikipedia]

Risk compensation is most clearly shown in studies of cars equipped with ABS brakes. The stated intent of mandatory ABS brakes was to reduce injuries and death due to collisions.

  • The irrefutable evidence, however, is that drivers (unintentionally, for sure) compensate for having ABS brakes systems by driving faster, following closer and taking corners more sharply (ie. they increase their risky behaviour).
  • The collision rates stays constant because of the human tendency to compensate for improvements not only in brakes but seatbelts, bicycle helmets and even parachute design safety improvements.

Note: Booth’s rule #2:

  • The safer skydiving gear becomes, the more chances skydivers will take, in order to keep the fatality rate constant.

Everyone’s first instinct is to cry for a law or an improved law against human behaviour. Risk compensation theory indicates that this is a fool’s errand and it is consistent with my study of franchise law over the last 10 years.

Opportunistic franchisors and their advisors know this human, perfectly non-rational characteristic to compensate for perceived “safer” situations.

Predators rely much more on their abilities to read human nature accurately, than do their prey. (It is wise to remember that there are only 2 principle ways to succeed: doing good work or cheating.)

Additionally, the Authority of the State is most clearly manifested in a law or regulation. Since the state holds a monopoly on coercive action (exercised by the police, military, courts, etc.), any franchise law signals a state “sanction” of sorts.

In this way, the state’s ultimate secular authority and legitimacy is attributed to the most poo-filled franchise system. It gives credence and camouflage to an industry without control or standards.

The Science of Persuasion: In the very important book Influence: The Psychology of Persuasion, Bob Cialdini calls authority his 5th of 6 “Weapons of Persuasion”:

  1. The logo of the FTC, the ACCC or the Ontario Legislative Assembly confers a legitimacy that can be exploited by some (badge of authority).
  2. Government guaranteed loans confer an aura that “This must be okay because the government and a Big Bank is risking their money, too” to even the most wicked scam (authority).
  3. The threat of  a lawsuit triggers (1) the fear of poverty and shame (bankruptcy) but also (2) of being perceived by other as behaving in an anti-social or near “criminal” way (social proof).
  4. Oh how charming everyone is, before you sign and how much you’ve become a shithead when you start to question the status quo (liking).
  5. How franchises that you should be paid to run, can instead be sold for 100,000s of  $ because of some “secret sauce” spiel (scarcity)

There is much hard science behind being persuasive that can be used for good or ill.

Take a look at this 3:11 video book review and imagine how Cialdini’s 6 Laws (reciprocity, commitment & consistency, authority, social proof, liking, scarcity) are used to snare franchisees.


Pickpocket signs & Disclosure Docs: The same outcome

January 5, 2009

Disclosure documents are the fraudulent sales agent’s best friend.

They:

  1. give the [to me, intentionally designed] false impression that some body in authority is overseeing franchising (note the federal agency’s logo, illusion of relevant information, see Robert Cialdini, Authority as “Weapon of Influence”) and
  2. identifies very efficiently and early the sucker’s major source of ignorance and fear (the obstacle the predatory member of the selling mob needs to overcome to close the sale).

Pickpocketing (or “the cannon” in professional thievery lingo) usually consists of two, three or four people working in a mob (a group of experienced specialists). It is an ancient underworld art that has been profitably practices for centuries. It relies on distraction, manual skill and very close cooperation between specialists within the criminal group.

The operation consists of 5 basic steps:

  1. Fanning: determining which pocket the wallet is in,
  2. Pratting the sucker: pushing the mark (intended victim) around gently in order to distract his attention and to get him into a good position for the next operations, (usually done by the “stall”, sometimes by faking drunkenness),
  3. Put the Duke: someone else the “hook, wire, or tool” puts their hand (“Duke”) into the victim’s pocket and removes the poke (wallet),
  4. Cleaning: the hook then transfers the wallet to another member of the mob who
  5. Stashing: takes the wallet off-site so if the next mark objects, the whole day’s take isn’t at risk.

A “Beware of Pickpockets” sign is very helpful to pickpocket professional thieves because:

…whenever a sucker sees this sign he feels the pocket in which his money is located to discover whether his pocketbook is still there, thus relieving the mob of the necessity of fanning him [see Step 1, above].

The Professional Thief: An astonishing revelation of criminal life, The University of Chicago Press, 1937

Disclosure documents assist opportunistic sales agents in a similar way. They not only trade on false authority but provide an efficient means of defining the next mark’s fears.

  • Defining a sucker’s fears goes a long way toward getting the chump to sign.

Disclosure laws have never been designed to protect potential investors and they are emphatically not a step toward Relationship Laws.

Disclosure and relationship laws are McLaws (intentionally ineffective) in protecting investors’ interests against the major ROI threat: future franchisor opportunism.


Coerced sterilization: We do not stand alone

November 25, 2008

compulsorysterilizationWir stehen nicht allein: “We do not stand alone”.

This image (mother and nursing child) is a 1936 poster. The woman is holding a baby and the man is holding a shield inscribed with the title of Nazi Germany’s 1933 Law for the Prevention of Hereditarily Diseased Offspring.

This was their compulsory sterilization law.

The couple is in front of a map of Germany, surrounded by the flags of nations which had enacted (to the left) or were considering (bottom and to the right) similar legislation.

The countries which had enacted compulsory sterilization laws were:

  • United States (date illegible; Indiana enacted first laws in 1907)
  • Denmark (1929)
  • Norway (1934)
  • Sweden (1935)
  • Finland (1935?)

The countries where were considering compulsory sterilization laws were:

  • Hungary
  • United Kingdom
  • Switzerland
  • Poland
  • Japan
  • Latvia
  • Estonia

Social proof is a very powerful persuasion technique. It tries to influence opinions by having the uncommitted view the proposal (or law in this case) as common internationally, modern and progressive.

Social proofs act on the individual by having them want to “fit in” with those they perceive as more knowledgeable. It triggers competition between “us” and “them”.

  • “If the Yanks are doing it (forced sterilizations) it must be the thing for Germany to do,” goes the internal dialogue.
  • “If we don’t do it, we will be left behind.”

Undue Influence: The Case of the AUS Professor

October 20, 2008

Publicly funded institutions can become co-opted or captured by special interests.

Some university faculties have a better or worse reputation for pandering to special interests when compared to other disciplines. Business schools are not well respected by other faculties for their independence of thought.

I’ve seen it at my old school and confirmed it in other universities as well.

The Greeks defined 3 modes of persuasion:

  • logos (reliance on facts and figures: can be true or false),
  • ethos (authority, honesty of speaker, morality), and
  • pathos (appeal to emotions, sense of injustice, outrage).

Franchisees appear in front of public hearings and rely almost entirely on the rhetorical device of an appeal to justice: “It’s not fair that they did this and that.” Policy makers listen and judge its “truthiness“.

  • Generally, their narratives are concrete, visceral and credible.

Big Franchising responds if they have any remaining credibility, directly with at times shaky logos and ethos.

1. Consider the following article in Australia’s SmartCompany: Survey reveals drop in franchising disputes as franchising inquiry continues.

It says:

A new survey of Australia’s $130 billion franchise sector has shown disputes between franchisees and franchisors have declined, with just 2% of Australia’s franchisees classified as being in dispute.

Let’s stop there and list the persuasive assumptions that this single sentence relies upon:

  • survey: a scientific, logical, rational, independently verifiable academic study that is reviewed by other academics [did it appear in a refereed academic journal? no],
  • $130 billion sector: size matters: infers that big = successful, growth is good [uses social proof, is a huge credit crisis and run-away cancer growth good?],
  • declining number of disputes: situation is getting better [what is a dispute? how many have abandoned? is the mean dispute big or small?],
  • just 2% of franchisees in disputes: tiny problems, inconsequential, minuscule [can use anchoring to deceive].

This opening sentence is strictly a blatant misrepresentation, lacking in any connection to formal logic or any verifiable measure. The “just 2%” is a hallmark give away as to lack of any journalistic standards or any pretense of editorial oversight. Shame on SmartCompany but why is a university named?

If the 2008 Report is similar in method to the 2006 Report, it may be junk science: bought and paid for by its funders, the Franchise Council of Australia. Franchisor-controlled associations are well-known for blocking any changes to a statute, regulations and public regulatory body mandate.

You decide.

2. Next, let’s take a look at more detail into the role of the Griffith University. See the FCA’s media release: THE POWER OF ONE STRONG SECTOR REVEALED IN POSITIVE RESEARCH FINDINGS

Authority is clearly defined as another Weapon of Influence by social psychologist Robert Cialdini that can be applied to universities. They can be used to give the impression of academically rigorous research when really the work is simply a consultant’s report.

  • I don’t begrudge business admin profs or their peers earning the vast majority of their income from consulting to one or the other industry.
  • What I wonder is whether it is appropriate for an academic to overstates their conclusions (either intentionally or unintentionally) during a time of national lawmaking?

    You decide if Professor Powell has exercised undue influence or abused his duty:

    “The continued growth and maturation of Australian franchising is impressive, particularly considering the current economic outlook, a recent change of government, and a franchising sector that has faced close government scrutiny” said Professor Michael Powell. Pro-Vice Chancellor (Business), Griffith Business School.

    Did Professor Powell interfere with the Parliamentary Joint Committee on Corporations and Financial Services’s Inquiry into the Franchising Code of Conduct? I checked the 140 written submissions and didn’t see his name.

  • The test could be: Did he know or would he be reasonably been expected to know that his publicly funded authority could be used used to influence [inappropriately interfere?] with the operation of a  parliamentary committee?
    1. True scholastic work is published in refereed professionally-recognized journals to ensure high quality (an editor and reviewing peers, correct methodology, usually a very, very narrow scope, transparent auditing, meets ethical and conflict of interests standards, vetted before publishing, etc.). There is a whole series of checks and balances to weed out biases [innocent and not so innocent].
    2. Consulting work, no matter how many PhDs are piled up, has none of these centuries-old safeguards in place.
    • Blurring these lines is not fair, especially during a time of a fairly controversial public lawmaking process.

    Academic research is a credence good and as we have seen, is susceptible to cheating because “Joe Public” cannot determine if it is the appropriate quality or quantity.

    I have read enough articles and progressed far enough in a good school to seriously question the validity and reliability of this work. I imagine any academic that values their reputation would not rely or quote this report in their submission to the Joint Committee.

    Unfortunately, some scholars are more closely attuned to serving dominant commercial objectives rather than the pursuit of reality-based truth (as opposed to power-based truth) as is their duty as a tenured academic.

    My qualifications only go so far to speak on behalf of academic rigour and the arguments not made [eg. sunk costs as the primary and unique source of franchisor opportunism] in the current Australian public hearing.

    If a second opinion were to be sought, I believe Gillian K. Hadfield might be an appropriate candidate. pdf CV


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