- Indra nooyi

- Upstream dominated by agribusiness

- Next step is processing of food where the they would process raw material foods that
could be more easily distributed to consumers – remove nutrients and vitamins that
attract bact
- Final segment is distribution such as safeway and mcdonalds  divided into grocers,
quick service restaurants and casual and upscale restaurants
o Consumers have grown to eat more demand and supply has increased for
supersized portions
o Mammals are attracted to food in salf sugar and saturated fats, increased
prevalence in food has increased consumption
o Nutrient dentisty had decreased over time as a result of loss of biodiversity and
removal od nutrients
o Add value to their products through food fortification – adding fiber omega 3
fatty acids
- Catalyzing a quiet revolution, influx of nitrogen into the food system has resulted in
ecological effects such as reduced drinking water and oceanic dead zones
- Both mass users of nitogren rich contamination
- Reduced costs of processed foods by limiting the ingreidents to primary crops – corn
and soy. They use derivatives instead
-
-
- I believe business stakeholders in the food industry are to blame because their goal is to
keep production cost low by eliminating ingredients that are nutrient dense such as soy
or corn. By doing this it leaves consumers to have a variety of unhealthy options that
contain high amounts for salt, sugar, and saturated fats which have low nutrient dense.
Furthermore, because these food companies have low prices on food, they have enough
revenue to have locations that are convenient to their consumers. This leaves
consumers having limited options of healthy choices leaving them to choose unhealthy
choices. As well the high cost that companies price healthy food options at can deter
people away which leaves them to choose a cheaper, more affordable option.

Yes, I believe PepsiCo can be apart of the solution to eliminate the obesity epidemic.
Their human sustainability goals outline commitments such as display calorie count on
packaging by 2012 which is a step in the right direction. Although the company started
out as selling sugary drinks and processed foods, it can rebrand itself by following
through with their goals. In today’s world it is necessary for companies to keep being
relevant and fit within the current social norms otherwise companies will become less
profitable. Therefore, if PepsiCo wants to maintain their success, I believe that PepsiCo
will start executing solutions that will fix the problems they have caused themselves.

A fundamental assumption underlying economic theory is that the market, through

consumer choice, represents the most efficient mechanism through which to satisfy
societal needs and interests. The notion of a free market is often combined with the
notion of freedom because consumers have the power to address social needs through
their purchasing decisions. But a fundamental assumption underlying this assertion is
that consumers make choices rationally.

In 1974, two economists published an article that has had profound implications for our
understanding of how people make decisions in their everyday lives. Nobel Prize
winners Amos Tversky and Daniel Kahneman presented strong evidence to suggest
that when faced with a decision, people do not engage in what many believed to be a
rational, calculated process where they collect all relevant information, evaluate that
information, devise alternatives, evaluate those alternatives against criteria and then
make a decision. Instead they found that, due to bounded rationality, people use
heuristics or mental shortcuts that supplant this time-consuming and arduous
process. Bounded rationality simply means that decision makers do not have the ability
or resources to process all available information and alternatives to make what rational
thinking would suggest is an optimal decision. Therefore, their rationality is by default
bounded in its reach. We therefore use these shortcuts all the time without even
knowing it. As economist Dan Ariely said in his TED talk, “We wake up in the morning
and we think that we made decisions. But many of these decisions do not reside within
us”.

In the last decade or so, consumer psychologists have become a highly valuable
resource for business because they can help develop marketing strategies that exploit
consumer irrationality. As a consequence, business can avoid having to respond to
consumers as independent actors who voice needs freely and instead shape those
needs by tapping into their psychological vulnerabilities. Many of these strategies have
become so commonplace that they represent an expected consumer-corporation
battleground. Consider the compliance heuristics where, for example, consumers will
be more apt to purchase a product (like a cigarette) if it complies with recommendations
coming from authority figures (like a doctor). The social validation heuristic, which
suggests that people feel pressured to comply with something that many of their peers
have done, is often exploited through messages meant to make consumers feel isolated
if they don’t purchase a product that a high number of people already have. And we’ve
all experienced the scarcity heuristic where marketers emphasize the scarcity of a
product because irrational decision-makers have a greater tendency to want something
that they can’t have.

Studies have also shown the power of persuasion heuristics where, for example, people
have a greater tendency to perceive an advertisement to be of higher quality if it is
longer in length and full of lots of facts and figures. Marketers also know that
consumers are more likely to agree with people they like, which explains why many
strategies use actors who are more attractive, share similar challenges on a daily basis
or possess more general likable habits. What is more, consumers are often persuaded
to think that something is correct when there is consensus among a group of people. It
comes as no surprise then that many ads start off by saying that many experts share
the opinion even though that opinion is not supported by fact.
But the above tactics, while effective, are relatively old and a growing number of
consumers have pushed back on these tactics. In response, marketers have grown
quite sophisticated in their efforts to exploit consumer vulnerabilities by focusing on
subtler decision-making biases. One of the most common is representative bias where
decisions are based on anecdotal information that people believe is representative of all
situations. For instance, many of us have likely generalized a couple of instances of
bad customer service by suggesting that this bad service is endemic in all situations. If
consumers didn’t naturally have this bias, it is unlikely that the insurance industry would
be as profitable as it is today. Insurance is quite dependent on exploiting consumer
belief that, although statistically, the probability of a particular event occurring is
extremely low, it could still, however remote, happen to them. Buying insurance
essentially means that one is betting that this extremely low probability event will
happen. As a consequence, if consumers behaved rationality, they would calculate that
the cost of a premium far outweighs the cost of this event occurring, once you factor in
the probability. This means that the greater the irrational behaviour of the consumer,
the greater the premium and profitability. It is no surprise then that advertisements for
insurance do not highlight the benefits of spreading risk across multiple consumers and
instead focus on instilling fear that the remote is possible and worth a high price to
avoid.

Unlike applying the representative heuristic to advocate for the necessity of your
product or service, it can also be applied to the way in which people are objectified into
particular categories often based on one or two characteristics that become
representative of that person. Wearing a backpack and using a skateboard will generate
a particular stereotype while coming out of a limousine taxi in a business suit will
generate another. Because it is our nature as human beings to feel accepted by
broader society, we behave in ways that validate and reinforce these stereotypes. In
other words, to gain acceptance, people work to excel in that stereotype. Naomi Klein’s
No Logo explained the strong impact of identity marketing where companies establish
(or draw on) particular role identities or stereotypes and then market behaviors
associated with those role identities. For instance, marketers can prey on a woman’s
desire to be a wonderful grandmother by validating this stereotype through a child’s
appreciation for a toy. Similarly, marketers aim to associate the drinking of Gatorade
with top athletic accomplishments so that aspiring athletes associate success with the
consumption of this product. The survival of the jewelry industry – and perhaps the
diamond industry – is highly dependent on reinforcing the socially constructed notion
that a man’s symbol of commitment and love towards a woman is dependent on
purchasing her a diamond ring. These examples surround us daily but only became a
popular marketing strategy in the 1990s when marketers realized that consumers
behave irrationality when they think purchasing a product/service helps them conform to
a particular identity they have in society.

Closely related to representative bias is sample size bias where decision makers often
succumb to the results of a small sample. In a small sample, the odds that results will
stray away from the mean is much greater than with a large sample. Flip a coin 10
times and there is a greater chance that the frequency of ‘heads’ will stray away from
50%. But flip the coin 1000 times and the number of times ‘heads’ emerges will be
much closer to 50%. Casinos are very effective at exploiting sample size bias when
they advertise that a particular slot machine produced an exceptionally high number of
wins in a given time period. An irrational consumer will think that their chances are
greater at this machine when in fact the casino simply chose a short time period
(sample size) that happened to produce a high number of winnings. Increase the time
period and this machine will be no different than others. As a similar example,
consumers are often strong-armed into purchasing warranties for electronics.
Salespeople often refer to multiple instances of malfunction of a very small sample size
of products to convince consumers that they should get a warranty. One cannot help
but balk at the contradiction associated with a retailer’s promise of quality products on
the one hand and the very strong recommendation to buy a warranty that bets that it will
break down on the other.

Another important heuristic is availability. The availability heuristic is a tendency for

people to base their judgments on information that is readily available to them or easier
to gather regardless of whether that information is relevant or not. How many of us
have researched a symptom of an illness by googling the symptom, which presents
completely inaccurate and alarmist information that in most cases is not grounded in
any scientific research? Food and beverage companies have often been accused of
commissioning studies that demonstrate health benefits associated with a novel
combination of nutrients. The publication of the results of the study in the media
exploits the availability heuristic as consumers eagerly search for the new product with
those stated nutrient combinations. Then the food producer makes sure that they are
on the shelf as these consumers search for the product.

Perhaps a more egregious example of exploiting the availability heuristic is Target’s use
of predictive analytics. Unfortunately, when the media caught on to the story, the
debate about its use was whether this was effective analytics or simply something
creepy. Very seldom do we hear a debate about whether these sorts of initiatives have
a fundamental impact on how we perceive reality. Consider the example. Target tracks
purchasing decisions of women so that they can predict, based on particular purchases
at time 0, that they will be delivering a baby 9 months later. Because the expectant
mother is going to be more sensitive to these messages at around the 8-month mark,
Target can tap into her availability bias by presenting her with information that is not
necessarily in her best interests but in the best interests of Target. A rational woman
would be able to assess the merits of such an advertising scheme to ascertain whether
this is something she really needs. But because of the availability heuristic, her
determination of what is or is not appropriate or necessary to consume at 8 months is
no longer driven by genuine market needs but instead by her increased sensitivity to
these messages that appear nicely timed, almost fate-like. This notion that consumers
are more apt to purchase products and services they otherwise would not when they
are presented at what seems like a serendipitous coincidence is well established in
research. In such a situation, consumers convince themselves that the product/service
is needed because of its association with their present condition/stage of life. Most
consumers don’t realize that this was planted for the purpose of exploiting this
vulnerability.

Another very powerful heuristic is anchoring. It suggests that people will rely too heavily,
or anchor, on one trait or piece of information when making decisions. Anchoring could
fall under the availability bias but is more specific in that it provides a reference point
that severely skews a person’s evaluation and decision even if that reference point has
very little to do with the decision itself. A very simple example was illuminated in a
powerful experiment where subjects were asked to estimate the percentage of African
countries in the United Nations (UN). Prior to the subject’s guess, the subject spun a
wheel to reveal a number. The median answer of the number of countries in the UN
varied substantially depending on the number that was spun. Subjects that spun a
lower number like 10 had a mean guess of 25 African countries in the UN while subjects
that spun a higher number of 65 had a mean guess of 45 countries. As another
example, when real estate appraisers were tested on their appraised value of a given
house, there was a statistically significant difference between those appraisers that
were exposed to price lists prior to the appraisal and those who were not. Several
scholars have replicated this and other experiments demonstrating how anchoring can
heavily influence a decision-maker’s analysis. Anchoring is the fundamental pricing
strategy of Hudson Bay Company. Walking into any The Bay store, consumers are
bombarded with red “sales” signs that give the illusion of immense savings but only
when anchored by an inflated regular price.

Another bias is the fallacy of regression where people confuse exceptionally good or
exceptionally poor results to continue as if they were average. A rational decision-
maker would recognize that after a particularly good or poor result, the next result will
more than likely be closer to the average. Instructors of a flight simulator couldn’t
explain why students performed so poorly relative to previous exceptional student
performances. They didn’t realize that what caused the change was not that top
performers simply prepared less or that the second time around was harder but that
they simply regressed to the mean their second time. As an example closer to home,
students often think that what explained a poorer grade after an exceptionally good test
grade was that they were simply less prepared or the test was much harder the second
time around. This is the fallacy of regression because the more likely reason is that
students simply regressed closer to the mean the second time.

Years ago a flurry of companies produced amber beads as an alternative medicine for
teething infants. One company claimed that:

“Baltic amber offers a natural, drug-free alternative to the relief of teething pain in
children using analgesic and anti-inflammatory properties”

There is no scientific evidence to suggest that the components of amber beads are
associated with pain relief of infants who are teething. So then why do these products
still exist? Parents take action with alternatives like amber beads when their infant’s
pain is at its peak; that is, when it is particularly exceptional. So when parents resort to
 the amber beads, they subsequently see a reduction in pain exhibited by their
infant. But the reason wasn’t the amber beads but that the pain, once at a peak level,
simply regressed back to the average level. Using this as an illustration, there are many
advertisements that position a product/service as the savior in times of desperation to
ultimately exploit this consumer fallacy.

Finally, scholars have found that people make very different decisions based on how a
problem or situation is presented to them. For instance, marketers have learned that
people respond very differently based on which of the following two statements are
used following an online purchase:

1. Check the box below if you would prefer not to receive emails with special offers and
promotions
2. Check the box below if you would prefer to receive emails with special offers and
promotions

Which of the two statements elicited more consumer willingness to receive special
offers and promotions? Turns out that whether the consumer wants to receive special
offers or promotions is less important than whether they have to physically check a box,
meaning that using the first statement elicited substantially more consumers willing to
receive these promotions. As another example, meat sales were substantially higher
when they were advertised as 75% lean rather than 25% fat. A golf course found that
golfers responded much more favourably if they charged a regular price for ‘prime time’
shots and a 20% discount for other times compared with charging a premium for ‘prime
time’ shots and a regular price at other times. Even though the two sets of prices were
identical, the way it was presented or framed severely impacted the consumers’
perception of what was fair.

The above mentioned 1974 paper that illuminated some of these biases was so
powerful that it remains one of the top cited articles in the social sciences today with an
army of researchers confirming and reconfirming that people use these shortcuts to
make decisions and thus make decisions that are likely not in their best interests. This
is a very powerful notion, one that many students of business struggle with. After all, it’s
hard to accept that one’s decisions are not made objectively but are in fact reflecting
efforts to social engineer society into a particular and rather narrow construction of
reality.

Now imagine the implications for business if marketers are aware that consumers do
not make calculated decisions when purchasing products or services but instead base
their decisions on these aforementioned heuristics. The goal of business is no longer to
meet the needs and wants of society but instead to exploit these decision-making
biases to create and shape needs/wants in ways that better align with profitability.

Consider a recent article, in which the author ultimately prescribes how marketers could
take advantage of the heuristics of consumers to increase sales. In other words, rather
than work to better meet the needs of consumers, the idea is to exploit the limitations
consumers have in making decisions so that companies can sell products/services that
have higher margins. Understanding the real needs of consumers plays second fiddle
to exploiting their cognitive limitations to manipulate and shape those needs so that they
want/need those products and services that better align with financial goals.

Irrational behaviour
Are we control of our decisions
Organ donations
- Form countries of the lef : check the bch and want to donate if they don’t check the box
& don’t join,
- Countries on the right  opt out if you don’t want to pariticpate and don’t check they
join
- Decisions are not based on us
- Influence  and control of our decisions
- Illusion of decision making
- Happens after we die
- Case study to physicians
o Decided that meds are not working to the patient, hip replacement therapy ,
give ibuprofen and pulled the patient on ibuprofen,
o