Marketing, Decision Making and Learning – the Munger/Buffett Way

Anand
Current: Advising 3 companies in Valley, 1 in India
A love for Ben Franklin: The original ‘renaissance man’. Inventor, Philosopher, Businessman, Diplomat, Politician, Librarian, Scientist, Engineer
Special Meetings: Mohnish Pabrai, MD of Pabrai Funds leading to a new way of thinking driven by values and sound principles, not buzzwords
Ideas are big, but DON’T BE OVERWHELMED. You have a lifetime to learn and apply these principles!!

Munger/Buffett Track Record
Buffett
Berkshire Hathaway: Coca-Cola, Gillette, ABC, Wells Fargo, See’s Candies, Saloman Smith Barney, GEICO, NetJets, Costco, AmEx, Washington Post. WITHOUT scandals, greeds or creative accountings
Early students of Ben Graham,
‘Moat’ Philosophy – Moat for sustainable competitive advantage
‘Cigarette Butt’ Investing and approach to evaluating ideas/business – Just do it and make a bit of $???
Munger
Modern day Ben Frankin
Fair business at a great price vs. great business at a fair price
Buy own, work for and invest in a great business with a fair price than the other way round!!!!
Notion of worldly wisdom to build latticework of mental models and lollapalooza results

Key Themes
- Meet the eminent dead
- Meet the one-legged guy in an ass-kicking contest
- Worldly Wisdom: “man with the hammer” tendency
- Invert, always invert
- Lattice
- Multi-disciplinary approach
- Web of derserved trust
- 6 themes of influence
- Self-serving bias
- Ability to kill your best ideas
- Inventing vs. method of invention
- Bad bridge vs. bad business
- How do you build a 2 trillion $ brand from scratch?

Meet the eminent dead
Instead of explaining concepts in the abstract, it’s a lot more fun to make friends with the eminent dead!!
- Ben Franklin
- Carl Jacobi
- Charles Darwin
- Adam Smith
- Linus Pauling

Worldly Wisdom
The man with the hammer… would want to make everything look like a nail so that he could use the hammer. So go back and add other tools to the hammer so that not all problems look like a nail. If I can’t solve the problem with these skill sets, add more skill sets!
The one-legged guy in an ass-kicking contest. You can never win. Build other tools so that the problem is varied and not with that one tool that you have.
Evolutionary Biologist would come out with hypothesis then change. Darwin proposed it.
Don’t make the decision then justify. Go and observe and come out of comfort zone.
How to acquire Worldly Wisdom??
- Making friends with eminent dead across fields
- 6 themes of influence (tbi)
- Self-serving bias: Appealing to bias, not to rationality
- Causality vs consequence

How do acquire and retain WW?
Always invert. Ask the opposite question. “If I know where I’m gonna die, I will never go there.” If you know one thing you’re not going to do, that eliminates a lot of possibilities.
Pavlovian Models (See ‘Building a $1 trillion brand’)
Borrow from one subject to improve another like Linus Pauling
Look at reading list from SFI http://www.santafe.edu/

Multi-Disciplinary Approach
Arrive at a checklist of tools that you have. Ways to think of a problem. What not to do. Etc.
Tools to evaluate marketing and business problems
Avoid man with hammer tendency
Costco: Optimize on a single variable (to the extreme) à What is really interest is that they are doing everything Walmart is doing, but they can negotiate with all suppliers, hence get HUGE discounts, and provide for a fee (membership). Paying for value
Gillette: commitment and consistency
Nebraska Furniture Mart: Customer service, low prices
Knowing when to apply the “extraordinary routine” like when you need to fly a plane

Case Study: The 6 themes of INFLUENCE
From “Psychology of human misjudgement”, Charlie Munger speech at Harvard Law School, 1995
Look for reinforcing effects in marketing situations (for Lollapalooza results)
RECIPROCITY
- LinkedIn recommendations: Help people to help yourself
- Chain Letters: cascading effect of reciprocity to reach a million people
COMMITMENT AND CONSISTENCY
- Only one sperm can get in then it shuts off. One idea is in, your head shuts off.
- Physics: people resist change when they like the old idea and they won’t look like an idiot
- Phil Zimbardo: Stanford prison experiment
o People who play prison guard played the role as humans will commit and be consistent
o The power of thought, commitment and being consistent with it
SOCIAL ACCEPTANCE
- Tupperware Parties. If everyone has it, I have to have it too. And when your friend is at your place, you’re more likely to make the purchase
LIKING, AUTHORITY AND SCARCITY
- Work for somebody because you like him
- Nobody cares who created it. I like the iPod I’ll buy it
- #1 brand always has the highest market share
- Brand loyalty
- Scarcity by Steve Jobs. Show it once, and everyone wants it. Then make people give Apple discounts to sell it.
Real Estate and Car Dealers: Scarcity and Authority to sell you something
Coke & New Coke: Commitment and Consistency. Something you are familiar with.
Darwin vs. the rest: That’s why people don’t like his theory
“Limited Edition” items: Scarcity

Case Study: Incentive caused bias
Apple employees can’t be convinced that Apple sucks
TRUE MEANING OF AGENCY COSTS – never try to work against what people are paid to believe
Fedex shift/hour compensation example: Each employee was paid by shift. So instead of that, they would be paid by the hour and track performance each hour. Incentive caused bias
Commission driven with CRM updating system to drive Salespeople to work

A return to values…
Are you comfortable with this appearing in the front pay of the NY Times tomorrow morning? Use this as a guide to make decisions.
WWJD?
If you build a bad bridge it will collapse. There is no consequence of building bad business. Everyone has to put in their part.
Web of deserved trust: best way to succeed is to deserve what you get
The ability to kill your best ideas – do it before others can do it so that anything that you allow to get out of your lab is going to cater to the highest standard
Makes financial sense to gain others trust

Can you build a $2 trillion brand from first principles?
“Practical thought about practical thought” – Charlie Munger

Lessons:
1. Trademark your name, protect it strongly to build scarcity
2. Have a product with UNIVERSAL appeal
3. Leverage on classical conditioning and operant conditioning (conditioned reflexes)
4. Liking, Scarcity, Social proof
5. Always invert and turn it around – what should we NOT do?
6. Exclusive product that people can’t get ANYWHERE
7. Don’t get bad effect of successes (like Microsoft, etc.) Use principles to build company up