Cognitive Biases and the Trouble with Moral Local Shopping

So, the other day, after picking my son up from school, I stopped in at the local hardware store to pick up something or other, maybe a sack of nuts few screws. The nuts screws would have been cheaper at Lowe’s or Home Depot, but I try to shop local when I can. That is, I am happy to pay a higher price for the satisfaction of feeling like I’m supporting the local economy rather than a big corporation, for a sense that the employees are well paid and well treated (whether true or not), and with the idea that sometimes it’s really convenient to have a local hardware store, and it would be a shame if it went out of business and I had to drive over to Lowe’s or Home Depot every time my nut sack screw drawer was empty.

Now, as often happens when you run an errand after picking your son up at school, we were in the middle of shopping when he announced that he needed to use the bathroom. So, I found one of the very nice employees there and asked if he could, you know, use the bathroom.

He said no. More specifically, he said that normally he would let us use it, but the assistant manager was in the store that day, and he was worried that the assistant manager would tell the owner, who had a policy that customers could not use the bathroom. He apologized, and recommended that we go across the street to Dunkin’ Donuts, where they have nice, clean bathrooms, and they don’t give you a hard time, even if you come in to use them without buying anything.

Okay, so what the hell?

The standard story that we tell each other and ourselves when we are bemoaning the loss of little mom-and-pop stores is that these big chain stores are run by heartless corporations, that local business owners know and care about their customers, that they see them as people, rather than just sources of revenue. Why then do Lowe’s and Home Depot have open, well marked bathrooms, while my local hardware store has frightened employees who steer me towards Dunkin’ Donuts?

Of course, this isn’t really about bathrooms. Let me tell you another story.

A couple of days ago, I found a cool looking coffee shop that seemed to emphasize ethical sourcing of its beans, and was staffed by a bunch of people with various tattoos, piercings, and hair dyes. My initial thought was, “Hey, this is cool. I could work here instead of Starbucks, and I could encourage people I know to come here, too.”

As you probably know, the way wifi works at Starbucks is that you click a button in your web browser, agreeing to terms of use, and that’s it.

At this place, they had access to a paid wifi service. Now, they offered free access as well, but I had to go back up to the counter, wait in line again, and ask for the password, which was handed to me on a small card, and gave me access for two hours.

This, like the bathroom, is not a big thing. It’s a little thing, but it’s an annoying little thing. I can’t even tell you how much I paid for my coffee, or whether it was more or less than I would have paid at Starbucks. AND, given the choice, I would favor the smaller business on general principles, but this little thing left me soured on the experience.

My point is not to argue that Lowe’s, Home Depot, and Dunkin’ Donuts are offering public bathrooms as part of a philanthropic effort to prevent public urination and bladder infections. I’m sure that these corporations are just as calculating and heartless as we all imagine them to be. There is only one reason for these corporations to provide nice, clean public bathrooms: the costs (in space, supplies, and cleaning) are outweighed by the benefits (in customer satisfaction and loyalty).

Remember a few years ago Starbucks did not have free and open wifi. For a while they put time limits on it, or required that you use a Starbucks card to access it. So why did they make it so easy now? Well, presumably for the exact same reason that Dunkin’ Donuts lets you use their bathroom: because it makes financial sense.

Sure, there are downsides to having free, unlimited wifi at your coffee shop. Sometimes you’re going to get a customer who milks a single cup of coffee for six hours, taking up a table and an outlet. It has to be hard not to look at that customer and get resentful, to feel like they are ripping you off, getting away with something. But here’s the thing. Whatever that customer is costing you, you are more than earning back from the people who came to your coffee shop because you have free, unlimited wifi. Maybe you even earn it back from that same customer, who uses your table all day on Monday, and then picks up his coffee to go on Tuesday, Wednesday, Thursday, and Friday.

The problem is that the guy who is sitting there using the wifi all day is cognitively salient. After all, he’s sitting right there! All day! It is easy to sit there and brood about how he is cheating the system, getting away with something. The extra customers you get are less salient, because it is easy to imagine that they would have come in anyway. If someone is on the wifi for only half an hour, why would it matter if you have a two-hour limit?

I suspect the difference is that open, unlimited, easy-to-access wifi makes you feel welcome, while limited, closed wifi makes you feel at best like a supplicant and at worst like a would-be criminal who is being scolded in advance.

Why am I so sure that free, open, unlimited wifi is the financially smarter move? Because big corporations like Starbucks and Panera, with lots of data and people who are trying to maximize profits, deliberately switched to the unlimited system.

What puzzles me is why small business owners don’t look at this and say, “You know what? If I am going to compete with these big stores, I should set up free wifi and a nice bathroom. I should try to make my customers feel as welcome and comfortable as I can.”

I suspect that there are two problems here. The first, which I have already alluded to, is one of cognitive biases. It is true in a wide range of contexts that negative events impact us more strongly than positive events: it is emotionally more painful to lose five dollars than it is emotionally gratifying to gain five dollars. So the guy who is freeloading on your wifi is more emotionally salient than all of the people who come for the wifi, spend money, and then leave again before you get mad.

This is a place where the cold, calculating nature of the disembodied corporation has an advantage. It can actually crunch those numbers and discover that this is one of those circumstances where you can cast your wifi upon the waters, for you will find customers after many days.

This may be the difference between the owner and the employee as well. If we use the bathroom, maybe the owner perceives that cost in a direct, emotional way that the employee does not, despite the fact that the employee is more likely to be the one who has to clean the bathroom.

The second problem, I think, is the moral language that we often use when discussing shopping locally, where it is presented as a moral duty to support local businesses. I think that there might be some good, rational reasons to shop locally when possible, but I think that the moral framing causes more harm than good. Small-business owners will often use this as a sort of crutch: “If you’re not shopping local, it’s because you’re a bad person, not because I provide an inferior product at a higher price.” It seems to me that if you’re going to start an independent coffee shop, you need to ask yourself, “What can I do to provide the most satisfying experience for my customers? How can I use my local knowledge and connections to create something wonderful that Starbucks could never pull off?” Every now and then you find something like that. When I lived in Santa Fe, there were a few different places that successfully did this, and I would rotate around, working in various locations, and spending way too much money on coffee.

Of course, the moral argument — this vague sense that small businesses are somehow better than big ones — is one that I buy to an extent. It is one of the reason why I’m willing to pay a little bit more to re-nut my sack. But when the moral argument takes center stage, it eliminates the incentive on small businesses to think creatively about what they’re doing — or at least to copy uncreatively the best practices of their most successful competitors.

27 thoughts on “Cognitive Biases and the Trouble with Moral Local Shopping”

  1. The problem for the small biz owner is one of scale. He or she can’t afford to have limited seating preempted by wifi squatters. Starbucks can afford to offer free wifi because their broader portfolio of space cushions them against local or temporary costs of the policy, which will be more than offset by driven policy- increases in goodwill and business. Their size also motivates professionalism and rationalization of policies across venues and enables empirical testing of the costs and benefit of alternative policies.

    1. I disagree with your first point and agree with your second.

      A wifi squatter only costs you money at the point where a customer walks in, sees that there are no available seats, and decides to go elsewhere. This has actually happened to me many times at Starbucks, but I can not recall a single time when it has happened at an independent coffee shop. In fact, speaking personally, if there are at least a few people sitting in a shop, obviously lingering, I find it a more attractive place to go. Small businesses have many challenges of scale. I strongly suspect that wifi is one of those only if your shop is really, really small, with only a few tables. For most independent coffee shops, I’ll bet those offsets kick in even at the single-store level.

      Yes, the fact that the scale of corporations like Starbucks motivates professionalism and rationalization of policies is exactly the point. It is also exactly why I often wind up at Starbucks, when I would fundamentally prefer to be at an independent coffee shop. Also, yes, they can afford empirical tests that independent stores can’t. But independent stores can make use of the lessons drawn from those empirical tests.

      1. Why should Scale be a problem for small Coffee outlets? If it makes business sense to offer free wifi, the effect should be similar over long periods of time. This is assuming the client profile of a Starbuck shop and small coffee shop is the same – i.e. people visiting small coffee shops have the same propensity to be a wifi squatter as a typical Starbucks customer. Do you agree or am I missing something?

        1. Absolutely I agree. The fact that Starbucks has free wifi suggests to me that they have run the numbers, and that the long-term trade-off winds up with a net positive. It’s just that it is hard to see that trade-off as the small business owner.

      2. Regarding the purchase of (independent) empirical tests… I wonder if this kind of thing is better than being able to focus on one shop’s customer base and walk around, observe and chat with customers. Should make it possible to do more of what they like, and fix what they don’t like. They might quickly find out about the disappointments you describe, and do something about it. I loved chatting with the co-owner of Five Leaves in Brooklyn, and the food was good to boot!

        I agree with the point made in the article that local shops should take note when major corporations decide it’s ‘worth it’ to offer free wifi and clean toilets. What I don’t like about local shops taking notes is when they start sourcing from (insert cheap labor country here) and their offerings look just as chintzy – no incentive to shop there. Bad example, but this is true for me when it comes to Mitre10 (the underdog) and Bunnings (the superchain).

  2. Sometimes it works out. A while back I make a commitment to only eat chocolate which has been fair trade certified, something I have (mostly) been successful with. It did eliminate most sources of chocolate from my diet. If I’m in a normal supermarket, usually the only option is to go for Cadbury’s milk chocolate, which I enjoy less than dark chocolate but, hey, it’s still tasty. Trying to find fair trade dark chocolate in supermarkets is an ongoing frustration.

    Fortunately, I recently discovered a brand called Alter Eco, which do fair trade chocolates ranging from 47% to 85%. The victory for me is that while it may be a little pricier, it’s incredibly delicious. It’s a little harder to find but I know a shop not too far out of the way.

    But if it weren’t tastier, what would I do? Would I pay more for inferior chocolate that is ethically sourced? Would I swallow my principles and go for the easiest, cheapest, tastiest option? Thankfully I don’t have to make that choice, but I’m not exactly drowning in alternatives here.

    The interesting thing is, though, it’s the opposite situation to the example in the blog post – the little guys are, ethically, ahead of the game. It certainly does make things easy when the smaller companies provide a better and more moral service – charging more for the final product is something they can easily get away with.

    1. Yes. I think that ethical sourcing is actually an area where small businesses might have advantages. There might not be enough of a particular raw material that is ethically sourced for a large, multi-national corporation to use. A small outfit, on the other hand, might easily be able to supply all of their needs.

      Often I think it is the case that the little guys are ahead of the game ethically. What frustrates me is when you’ve got a little guy who is doing the right thing ethically and providing a superior product, but then makes some completely avoidable mistakes that alienate their customers.

      I’m glad that you’ve found a chocolate that’s doing the right thing and not undermining themselves.

  3. Really insightful and thought-provoking piece. I do have one quibble with your assumptions, though. You say:

    “Whatever that customer is costing you, you are more than earning back from the people who came to your coffee shop because you have free, unlimited wifi.”

    But the cost structure for the mom and pop is not necessarily anything like the cost structure for Starbucks. In fact, it almost certainly isn’t. Here is a very specific example:

    When you offer free wi-fi, you have certain fixed and variable costs of offering that, the biggest of which is probably paying an IT person to set up the access system, administer it, and troubleshoot if there are any problems. Let’s say one IT person can handle the wi-fi access for a five-mile radius area. Starbucks can spread the cost of that IT person across dozens oflocations in a five-mile radius. A mom and pop shop probably still has to hire the same number of IT workers (i.e., one) for a single shop, effectively paying 50 times the amount for that wi-fi that Starbucks is paying.

    gginat already brought up the issue of scale, and I am not sure your response really addresses that. Curious to hear your thoughts on that.

    Still, fun read. Thanks.

    1. I agree that, in many areas, economies of scale mean that large corporations might be able to do and offer certain things that are out of reach of a small business. However, I don’t think that this is one of those cases. Yes, there are certain costs associated with setting up wifi, but the comparison here is between free, unlimited wifi, like what you have at Starbucks and Panera, and limited wifi, where you log in and then get kicked out of the system after two hours. I suspect that the cost for those two implementations of wifi are identical. If anything, the free wifi might be cheaper.

      1. I suspect that the cost for those two implementations of wifi are identical. If anything, the free wifi might be cheaper.

        And your suspicions are true. How many of us have Wifi in our house? Do you need to constantly change it or somehow “maintain” it. It’s not a household pet that you need to feed and shelter, it’s just a appliance.
        The real cost comes on the internet access side. There it’s costing you probably on order of $100 – $300 a month for business class DSL/cable. This is where Starbucks et al can extract the discount, by going to the local ISP and saying we’ll buy n connections if you will give us the discount price for that number.

    2. Wifi does not need much servicing, infact employing someone to man a counter to hand out passwords and access cards will cost more I believe.

    3. The problem with that example is, limited WiFi requires setting up too, so they’d still be paying the IT person.

  4. My father spent the last two years wearing a diaper when he went out in public because he couldn’t count on ‘public’ restrooms.

    So I have strong feelings on the issue. Your local hardware store is run by someone who apparently is a very bad and very stupid person. Making it so employees are in fear of providing what customers need is both economically foolish, as well as being morally reprehensible.

    I hope you at least dump on them on yelp or the like. This is just crap behavior.

    1. Maybe I’m naive, but I’m inclined to think that he is not so much bad and stupid, as he is a person whose cognitive biases have led him down a slippery slope of bad and stupid behavior. In fact, just in our neighborhood, I can think of multiple examples of small businesses that have this same dynamic: nice store, great people working there, but when the owner is around, the quality of service plummets.

      But yes, it’s crap behavior.

      A friend of mine pointed out that things like wifi and public restrooms are precisely the sort of thing that lend themselves to a collective / municipal solution. If a town set up a network of wireless internet access and restrooms, it would provide a genuine public service (which is what governments are for, at least in principle), and would help to level the playing field for local businesses without the resources and/or knowledge to compete with chains.

  5. There’s a locally-owned cafe about five blocks from my house, with 100% ethically sourced coffee, great service and an owner who’s truly obsessed about what he does. In fact, when reporters are looking for someone to represent the “Seattle artisan coffee” ethos, they track him down and stick a camera in his face.

    Unfortunately, they have free WiFi and the shop is full of all-day campers. The environment is so much nicer than the sterile Starbucks right across the street that I can never find a place to sit. This makes me one of those people who walks in, shakes his head and leaves. Then I go across the street and get an inferior product that I can sit down and drink in a less comfortable, but acceptable environment.

    There’s a cafe in another neighborhood that turns off WiFi completely on weekends. Yes, completely. Why? Because they want people to talk to each other. Guess what, they do, And the place is always full and probably does more business than they would if they were full of campers.

    1. That’s really cool. I actually love the idea of coffee shops that would have wifi-free hours. In another conversation, someone actually suggested something like that as well. The focus could be on conversation, or I could imagine something more like a wine-bar or cigar-bar, where the idea is to go in and really experience the coffee. My instinct is that there are few places in the country that could actually support something like that — Seattle, San Francisco, Portland, maybe New York. I would love to be proven wrong, though.

      Actually, I think there’s a way to make “No Wifi” work. The whole thing seems to me to be in the framing of the thing. If you say, “We want to create an old-world environment where people have conversations over their coffee,” you’ve identified a service you’re providing. Contrast that with, “We’ll give you wifi, but you have to leave after XX minutes,” which immediately creates an antagonistic relationship with the customer. Even if people are taking advantage of the free wifi, they don’t like being treated like they’re taking advantage.

      I also think that the solution Panera has come up with seems like a good one. You have free wifi, but you incorporate a reminder to your customers to be good citizens. You say something like, “Please stay no longer than 45 minutes if others are waiting for a table.” To my ear, anyway, this frames it more like you’re trying to create a nice environment, and you’re encouraging your customers to help out in that. A lot of people will self-police just fine, and if you have squatters who are taking up valuable real estate during busy times, you have laid the groundwork for saying something to them.

    2. A local indy coffee shop full of all-day Wi-Fi campers also exists in my neighbourhood (Silver Lake, Los Angeles). I’ve been there once, and will not be returning. As I opened the door, the sound of clacking keyboards dropped a few decibels, and some of the residents looked me up and down. I then searched in vain for somewhere to sit (each four-seater table had just one occupant), before taking my so-so coffee home for the first and last time.
      A week later I visited a high-end roaster’s flagship coffee shop in Downtown LA. No free WiFi. No tables occupied by media brainstormers, no resident screenwriters or eBay addicts – Just a fine jolt of espresso, a brief view of local life, and away we go. Something wonderfully Italian about the whole thing.
      If you need the toilet, visit a restaurant. You might even get to piss on ice if you’re lucky.

      1. It’s interesting. Based on comments here and elsewhere, it seems there is a market out there for coffee shops where customers can actually be free of other people’s computers. Sort of like the quiet car on a train.

        My guess is that this is a much smaller market than the pro-wifi coffee market, but it is a niche that I would love to see filled in those places that could support such a thing.

        The more I think about it, the more I think that the trick might be that you need to go all in or all out. Either set up a wifi coffee shop, in which case you just make it as convenient and easy as you can, or you set up a wifi-free coffee shop, in which case you focus on providing a different — as you say, Italian — type of atmosphere. I still suspect it is a mistake to offer limited wifi, where you will still have people on their computers, but they will feel antagonized.

  6. As regards access to bathrooms, a retail store may be liable, under the Americans with Disabilities Act, if it allows individuals to use its bathroom if that bathroom could not accommodate an individual with a disability (e.g., if the bathroom was not wide enough to accommodate an individual who used a wheelchair). I would not be surprised if smaller retail stores are less likely than chain stores to have ADA-compliant bathrooms, which would explain their unwillingness to make those bathrooms publicly accessible (and, yes, making exceptions for individual customers in specific incidents can be probative as to whether the bathrooms are generally accessible to the public).

    Similarly, smaller retailers might be highly sensitive to the litigation risk that attaches to providing open WiFi. Highlighting this concern, although the theory of contributory negligence to copyright infringement has not achieved any traction to date, individuals have been sued under this theory for leaving their WiFi connections open and thereby “aiding” an unauthorized user who was observed by the copyright holder to have downloaded copyrighted content. Even if the smaller retailer were likely to prevail in any litigation brought against it on this or a similar theory, the risk of incurring litigation costs might dissuade it from bothering with open WiFi whereas a chain would be able to spread the potential litigation costs amongst many stores and might already have sophisticated corporate counsel.

    1. The ADA issue that you raise is an interesting one. This is not something that I had thought of, but you’re right, this is probably a specific place where economy of scale hurts many small businesses. I’m no expert in this area, buy my guess is that ADA requirements kick in for employees if your company is above a certain size. At that point, there may be little marginal cost to making that bathroom available to customers as well.

      The wifi argument I am more doubtful of. It certainly seems prudent to set up a login redirect screen, where customers would have to agree to terms, like no illegal downloading. This is what most places have, in some form. However, once you have wifi set up, I don’t think you help yourself on the liability issue by, say, limiting customers to two hours of wifi.

      1. Jon,

        Without getting too in-depth as to the ADA’s requirements, the statute distinguishes between spaces restricted to employees and those in which customers are given access. As to the former, generally speaking, a retail store’s obligation to provide ADA-compliant bathrooms kicks in when an employee has a disability and seeks an ADA-compliant bathroom as a reasonable accommodation. As such, a small retail store might be able to put off potentially costly structural alterations for quite a while if its employees happen not to require ADA-compliant bathrooms.

        But, just as you wrote, this isn’t really about bathrooms.

        Instead, I was motivated to comment on your post because it struck me that you jumped to a fairly sweeping conclusion about the rationality, vel non, of certain choices by small, local businesses that ignored fairly obvious structural issues, including the transaction costs related to litigation risks, which make it hard to generalize about the wisdom of a specific policy in a particular store.

        This does not mean that your local store’s policy should not annoy you.

        This does not mean that you should not patronize a chain store, if you like.

        This does not mean that your particular local store’s policy is a wise — or even an informed — decision that reflects a data-driven, market-savvy economic cost-benefit analysis.

        This does not mean that local stores should ignore the strategic decisions of larger retailers in their assessments of consumer desires.

        But it calls into question whether you have a particularly strong basis from which to infer that your local hardware store was acting irrationally (by falling prey to an unconscious cognitive bias) when it adopted the policy that led to its refusing your request to use its employees-only bathroom.

        Finally, just to clarify, as I stated in my initial post, it is unlikely that a store would be liable for providing open WiFi to its customers who then used it to commit copyright violations. But it is not an completely irrational concern given that several stores have been sued under the theory I outlined. Although these suits were not successful, it is fairly certain that the stores incurred litigation costs in defending the actions. And while it is probably unreasonable for a small retailer to worry about the WiFi-liability issue using a straight cost-benefit risk analysis, questioning the reasonableness is much easier when your livelihood does not depend on avoiding potentially catastrophic, if admittedly highly unlikely, events.

        1. Sure, on the wifi thing, the argument you’re making is solid, but not actually at odds with the point I was making. Yes, there is a low-probability, catastrophic downside associated with letting the public use your wifi system. Yes, a Starbucks could weather such an event better than an independent coffee shop could. This would suggest that not offering wifi might be a rational business decision for a small business, which inherently needs to be more cognizant of risk. This would be another possible benefit of the wifi-free coffee shop that a few people have argued in favor of, where the aim would be not to compete head-to-head with Starbucks, but to carve out a slightly different niche.

          However, the comparison I focused on is between the sort of wifi that Starbucks provides — where you click something agreeing to terms and conditions, and then you’re on — and wifi where you have to ask for a password, and then get kicked off after a fixed amount of time. Basically, while the concerns you raise are legitimate, as soon as a business offers wifi of any sort, they have potentially opened themselves up to this sort of litigation. I don’t think that shifting from time-limited wifi to time-unlimited wifi engenders any additional risk in this regard.

  7. A similar argument applies to return policies. Retailers with more restrictive policies may save some money due to fewer returns, but it’s likely to be costing them far more in reduced sales.

  8. Logistical problem/argument against public restrooms in small local businesses: A big box chain is pretty likely to have its own building, that maybe it built with the intent to occupy as a Lowes Home Depot etc. A locally owned business is a lot more likely to rent space in someone else’s building, and may not physically possess a public restroom. Maybe the restroom is shared with another business in the building. Maybe the only access to the restroom is through the office. Maybe the business’s insurance will throw a fit if the public is let into non-public areas. Maybe the landlord will. Maybe, as discussed above, there are ADA problems. Cut the local business some slack, go across the street and pee, and come back and make your purchase.

  9. This is a thing we have discussed in Norway over and over again: Why are Austrian, Irish and Canadian companies and town councils so much less stingy with minor things? — The Canadians so relaxed. Irish ski boot shops (Yes they exists: In Chamonix.) may serve you free beer, when your friends are fitting boots. And Austrian towns have free ski hill busses. Not as an experiment. But year after year. While Norwegian towns allways stops things like this after a while…
    Because the points is not to-make-money.
    The important thing is the fear that someone, someday may cheat you for something.

    The fear of being cheated for some wifi-time, is more important that attracting customers back.

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