Business Strategy

The Secret Deals Behind Big Businesses

It’s amazing to see how small businesses grow big in time. Businessmen truly exert so much effort for their companies to excel and become successful. But more than the hard work they do, most of the people behind big businesses are also good in making deals and in creating strategies. Have you ever wondered why lightbulbs have limited life spans? Or why people always want a brand new car? Do you think these have something to do with the success of big companies today?

An author named Jacques Peretti has written a book with the title, The Deals That Made the World: Reckless Ambition, Backroom Negotiations, and the Hidden Truths of Businesses. The book contains revelations of some deals made by successful businesses today. Here are some of the deals mentioned in the book.

The Great Lightbulb Conspiracy

As I’ve asked above, have you ever thought about why lightbulbs have limited life spans? If not, maybe now you’re thinking about it. Lightbulbs having a limited life span was because of a secret cartel deal made by the electric industry in the early twentieth century. Before in 1901, there was the Centennial Bulb which was known to be the world’s longest lasting light bulb. In fact, it had continued to burn for 117 years. It was truly an ideal product to the consumer, however, it was a threat for business.

Due to the threat brought by the Centennial Bulb, some of the biggest light bulb manufacturers all over the world gathered in Geneva in 1932 to create a secret alliance called Phoebus. Their alliance stopped anyone from making a light bulb which can last for more than size months. The CEO of Osram, and the founder of Philips Electronics made this happen by imposing a global policy on the life-span of a light bulb. They put any company that did not follow their rules out of business.

Aside from these rules being imposed to light bulbs, the cartel would soon enforce another global policy which is for ovens and refrigerators to have expiration dates as well. The cartel Phoebus succeeded and built-in obsolescence became standard to almost every product we have today.

How Chevrolet Made You Want a New Car Every Year

Decades later, planned obsolescence took a step further when businesses went after marketing techniques which are connected to human psychology. They realized the risk that came with shoppers knowing that the products they are purchasing would eventually break. Therefore, they’ve decided to restart the credibility of consumerism in the minds of the consumers.

The CEO of General Motors, Alfred P. Solan Jr. found a way to upgrade a model of a car by the 1950’s. He thought of making changes which are so novel and attractive that the buyers will have dissatisfaction with the previous models. Because of the changes and added features, buyers will want a new one even though their current cars are still working well. More than making consumers want to have the newest car model, his idea was implanting in the consumer’s mind that there was always a better one coming. Therefore, when somebody bought a Chevrolet, they are instantly aware that there was a better one coming that will make the new car obsolete.

Due to this idea, the car industry focused more on changing and improving cars’ aesthetics more than their performance and reliability. This idea was also successful because today, consumers are aware that the new product they have bought, not just cars, would soon become obsolete.

Invention of the Multi-Billion-Dollar Diet Company

In 1945, there was a statistician named Louis Dublin who was working in an insurance agency Metropolitan Life in New York. However, he had been falling behind his numbers until a deal saved his career. He learned how his customers’ weight hugely affected health premiums and realized that he could charge policy holders more by lowering the starting point weight. This way, they will be categorized as overweight or obese that would raise their health risk. The system he invented unintentionally provoked a nationwide fat panic which made people believe that there were overweight and at risk of different health problems.

In 1963, a housewife from New Jersey named Jean Nidetch started to host group confessionals where they discussed overeating problems. It became a proper business in 1968 having five million people enrolled.

The Men Who Made You Spend Painlessly

In the late 1990’s, when the internet was still fresh to people, Max Levchin, an entrepreneur, and Peter Thiel from Silicon Valley, planned to earn from it. They are the people behind one of the largest online payment systems today which is PayPal.

While they were brainstorming for the platform, they had both spotted a gap which is developing the software to make the online payments possible. In 2000, they planned with Elon Musk, who advised them to sell the platform to consumers by removing the neural pain. It pertains to the psychological feeling people experience when the brain parts with cash money. It was discovered that cash can hinder in spending, however, by making the payment immediate, the brain will have no time to register pain, which is how exactly PayPal works.

It’s amazing to know that aside from coming up with new or improved products, businesses also put effort in conducting psychological studies to become successful. Being good at numbers is not enough when it comes to business. It takes wise and brave people to make deals and create strategies for a successful business, even if it means taking some risks.