The Trouble with Making Assumptions and Over-Generalizations
Issue 160, May 16, 2024
We’ve noticed a disturbing trend over the past three years. To put it bluntly, organizations including governments, are making many assumptions about their stakeholders and constituents. The assumptions stem from over-generalizations, past knowledge, or due to wearing blinders. In each instance, we will discuss how you, the consumer, will bear the cost and impact of these behaviors.
Failing to See the Total System
Let’s take a US political case in point: global trade. In the current presidential election cycle, there are assumptions and over-generalizations made by both political parties about the future of US-based manufacturing. Whether it’s “Make America Great Again,” infused by the assumption that by increasing tariffs on products imported from other countries, US-based manufacturing will grow, and consumers will “buy American,” assuming American-made products will be cheaper. Or, the alternative, “Rebuild America’s Infrastructure,” which is focused on reinvesting in US-based manufacturing, particularly in products that we have limited to no capacity or capability, including computer chips, sustainable energy systems and even apparel. In either scenario, the assumptions and over-generalizations don’t consider or reveal the downstream impacts to American consumers.
Whether it’s the increase in tariffs on one side and the necessary investment to build or rebuild manufacturing on the other, the result will be price increases on many of the products that consumers use daily. Companies surely are not going to absorb paying higher tariffs to import products to meet demand, nor will companies absorb the investment to improve or create new production capabilities and capacities with technology.
Who pays? The consumer. The assumption and over-generalization in each case is that the economy will grow, Americans will buy US-based products, America will move ahead of other countries in certain manufacturing sectors, and prices will actually come down for consumers. In each case, the predicted outcomes may seem likely but when considering these initiatives from the systems perspective, there is a downstream impact.
Failure to Connect the Dots
Another political goal is focused on increasing the minimum wage. Some politicians believe that part of the solution to lifting some of the population out of poverty is by raising the minimum wage. The strategy is somewhat shortsighted. Yes, some workers will benefit from increased wages and experience improvements in their quality of life. But companies, particularly restaurants and fast food operate on thin margins so there isn’t much wiggle room in their balance sheet to absorb the increase in labor costs. In this case, a higher minimum wage results in price increases passed along to consumers. This result already happened in California in response to their new “living wage.”
Price Gouging, Insular Decision Making and Kicking the Proverbial Can
In retail, consumers got price gouged during the pandemic from the essential stores, and now customers are victim to creeping price hikes, packaging downsizing, and being forced to manage shrinkflation.
Companies often communicate that price increases are the result of cost increases across their supply chains, whether materials or transportation, they say they simply have no choice but to raise prices on consumers. A domino effect does play out. Many companies, seeking safety in numbers with industry-wide price increases and/or seeking to take advantage of consumers (and other companies), believe that everyone is simply going to suck up the increase in costs. There are other companies that join the crowd and regardless of whether their costs have increased, they raise their prices. One domino falls impacting all the subsequent dominos until the last domino representing the consumer or constituent bears the weight of all of those that fell before.
In many ways, some companies are making a series of assumptions about the market, reading the tea leaves based on what has happened previously, and using the past to inform the present. In the end, making an insular decision is not unlike the idiom of missing the forest for the trees.
And then in the business world, think of an overly stressed CEO who believes the stock market is going to have a field day with the downswing in performance based on the current quarterly financial statement. This assumption leads to pre-empting the market reaction by raising prices and making layoffs to ensure the balance sheet looks better next quarter. The assumption hides the underlying problem of why the organization is underperforming in the first place. FTX and Enron are both great examples of CEOs’ false assumptions leading to bankruptcy.
We have written about unprepared urgency, and here is one more to add to the list: uninformed action (read assumption) that leads to unintended consequences (read failure).
Shortsightedness Comes Up Short
Let’s go back to making assumptions about price hikes in context of organizational decision-making. Increasing event registration fees, subscription service prices, and membership dues are at risk in this current inflationary environment. Our observation is that organizations misunderstand the level of acceptance among their consumer base to accept higher prices. Just because customers have had to adjust to fluctuating prices in the past doesn’t mean they will anymore. We also suggest that the assumption that consumers and constituents won’t see the bigger picture (as they experience the expanding impact on their own pocketbooks) is misjudgment at its worst.
Consumers’ historical accommodating “suck it up” behavior is not proving to be the case in today’s economy. A price increase in isolation is one thing, but when every company is taking the opportunity to hike prices, it is something different. The same when elected officials seek to solve a problem or challenge in the short-term, the public wakes up realizing how they will be impacted. The over-generalization is that consumers and constituents will fall in line.
Personal Budgets and Brand Trust
We admit that home economics can be complex. Managing shrinking budgets puts pressure on heads of households, led by individuals of all generations. This can backfire dramatically; if companies misjudge the market in times of disruption and assume incorrectly that their customers will accept dynamic pricing, these companies are likely to breach trust as customers lose confidence in their preferred brands. How many times have you tried to book an airfare that changes between the time you select the flight and get to the checkout? This is not exactly endearing, even to a traveler enlisted in a brand’s frequent flyer program. The alternative is price promotion which exacerbates the race to the bottom, that equally erodes trust when quality is replaced by value at any cost. Consumers have so much choice today that unless they have an authentic, transparent, trusted relationship with a brand they will cross the metaphorical street to the competition.
Generation Z, who is soon to become a major force in the economy, has a commodity mindset. They lack brand loyalty, deftly research the “best deal,” and are the most tuned into their day-to-day budgets. They are the generation who, according to the Wall Street Journal, is carrying the highest level of debt compared to any generation of the past. We explored commoditization and the dissolution of brand loyalty across Generation Z and Alpha in our book “The Truth About Transformation.” The very real generational shifts and their impact on organizations remain a blind spot for most of the organizations we interact with.
The Wall Street Journal further puts this all in perspective: “For about three years following the Covid-19 pandemic, food companies pushed through a series of sharp price increases, saying they needed to recoup their own rising costs—and that consumers would adjust to stick with their favorite brands. As a result, the portion of U.S. consumers’ income spent on food has reached the highest level in three decades.
“Fast-food prices in March were 33% higher than 2019 levels, according to the Labor Department, while grocery prices were up 26%. Now, some consumers are hitting their limits. Restaurant chains and some food manufacturers are reporting sliding sales or slowing growth that they attribute to consumers’ inability—or refusal—to pay prices that are in some cases a third higher than pre-pandemic times.”
Nearly every restaurant in California, including fast food establishments, has increased prices as a result of the increase in the minimum wage. They communicate that they simply had no other options. Many Californian mom-and-pop restaurants fear they will go out of business as they do not have the profit margin to absorb the increased labor costs. The dominos are falling fast as the cost of supplies, from napkins and cardboard boxes to food provisions has increased. And now labor is factored into the equation.
Ironically, many major food-service brands claim they have been blindsided and caught by surprise that consumers have pushed back and pulled back. That is a gross assumption at scale.
An Incomplete Picture
What’s going on here? Assumptions are examples of tunnel vision and wearing intentional or unintentional blinders. Believing that the pathway to solve a particular problem, improve financial results, or mitigate an issue in the marketplace is straight and narrow will result in unintended consequences across the system and most often passed on downstream to the consumer.
Assumptions are not informed or thoughtful. Assumptions do not solve systemic problems. Assumptions are not holistic.
Taking things for granted is a byproduct of not being able to see what we don’t see. Strictly speaking, the mind can only focus on one thing at a time and only for a few brief minutes at a time. Understanding complexity requires energy and we aren’t programmed to expend any extra or irrelevant energy. Based on our evolution, we are programmed to conserve energy to survive.
As a result, we default to energy-saving mode and simplify what we think we need to see or know to understand about any system. That is if we even recognize that there is indeed a system.
Consider why blinders are put on carriage horses. They are to ensure the horses don’t get spooked by what they are pulling or distracted by anything in the periphery. The horses cannot easily turn their heads to see what’s happening.
To continue the metaphor, all too often we put those blinders on ourselves. That brings the world into focus in one linear direction. Wearing blinders is like making assumptions that can become a root cause of failure. Certainly, when facing the need to transform an organization, assumptions obfuscate any ability to see solutions holistically using systems thinking.
Like Mindedness
If making assumptions can be a fatal mistake, why do so many organizations and individuals do it? How many leaders and managers assume consumers think the same way in the assessment of the products and services they offer? Making assumptions can be motivated by stereotyping (bias, conscious and unconscious) as well as power positioning and maintaining control.
Here’s another more insidious example of making controlling assumptions. The proliferation of AI-generated imagery in marketing has a dark underside. Let’s say you have an influencer campaign on social media (who doesn’t?). Your organization wants to appeal to marginal communities and instead of hiring spokespeople who represent those communities, you create AI-prompted personas who are deployed as influencers. Typically, marketing teams are not representative of marginal communities, so how authentic are these avatar influencers? Created by assumed prompts from people who are outsiders, the AI influencers are destined to be flawed. Making assumptions has consequences. Trust is an issue, but more importantly, so is credibility. Fake spokespeople are a shortcut to a fast track to high-risk outcomes.
The Downstream Slide of Assumptions
Let’s take a deeper look at assumptions; they happen all the time professionally as well as in private life. Life coach Kelli Richards writes on LinkedIn that making assumptions has some key negative organizational outcomes. We have augmented her list with our own insights.
· Miscommunication and Misunderstanding. When we make assumptions, it often leads to communication breakdowns. The root cause is bias and stereotyping. The result is dysfunction and a lack of empathy with the market.
· Poor Decision-Making. Assumptions are not fact-based. Or if they are fact-based assumptions, be sure the facts are still relevant. In either case, they can lead to poor outcomes. Understanding the context of today, not yesterday, is a necessity. Consider our case study from last week revealing the media company’s board lacking any representation from the majority of its niche market customers.
· Ineffective Problem-Solving. Critical thinking is the essential tool to avoid creating solutions for non-existent problems or solutions that don’t address the actual issue. Seeing an issue or problem from a linear perspective ensures the solution is not reflective of the system or systems and will surely lead to unintended consequences across the organization and downstream, now and in the near future.
· Missed Opportunities. Making assumptions turns a blind eye to alternative possibilities. That includes product development, entering new markets, establishing partnerships, and hiring nontraditional talent.
· Financial Consequences. Assumptions don’t pay attention to market trends or economic indicators. Think of the 90% of failed startups and many of the brands of the past.
Taking Consumers and Constituents for Granted
The litmus test for taking customers for granted is experiencing diminishing returns. Event registration is down. Subscribers are abandoning you. Renewals are declining. Traffic is down on your website. It’s Marketing 101, but is anyone talking to anyone else? How often do organizations check in with their stakeholders? How resistant are managers to a different opinion? How open is leadership to constructive criticism? Why don’t’ organizations dismiss their assumptive and over-generalized thinking and do the hard work that is necessary to be fact-based?
It takes confidence matched with humility to be comfortable with taking the harder road. Mindfulness prevents taking anyone or anything for granted. Paying attention prevents assumptions.
In today’s terms, consumers and constituents are literally paying the steep price of others’ assumptions. The advocacy viewpoint is that consumers and constituents are finally pushing back and saying enough is enough. As brand loyalty shifts to commoditization, consumers seek to better manage their finances. Our technologies and digital platforms increase everyone’s ability to connect and communicate, so, organizations (companies and governments alike) need to wake up. Transparency rules. We are savvy and resourceful.
Bottom line? Making assumptions is the last thing you want to do in our disruptive economy, fractious social culture, and tech-infused communications platforms. Put more simply, do you like to be taken for granted?
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