Zero-Sum vs. Win-Win Games Mental Model (Arms Races, Relative vs. Absolute Skill)

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Zero-Sum vs. Win-Win Games Mental Model: Executive Summary

If you only have three minutes, this introductory section will get you up to speed on the zero-sum vs. win-win games mental model, including arms races and relative vs. absolute skill.

The concept in one quote:

What is bad for the tumor is not necessarily good for me. - the late Amos Tversky Click To Tweet

(from Richard Thaler’s “ Misbehaving – M review + notes)

Zero-sum vs. win-win games, briefly: in some games (like athletics and poker), for one person to win, another person has to lose an equal amount – the change in utility from playing sums to zero, hence it’s a zero-sum game.  

In other games (like most transactions in a capitalist economic system), both parties win because they walk away with increased marginal utility.

If I’m a farmer with a thousand bushels of wheat, and you’re a rancher with a thousand cows, if you trade me some of your cows for some of my wheat, we’re both better off: a win-win game.

Key takeaways/applications: zero sum games inevitably tend toward being “arms races.”

Even as a lot of effort is expended at increasing our absolute skill – the speed at which we run a race, or the power of our weaponry – nobody ends up better off in the end because what actually matters is relative skill, or the difference in ability between the two parties, which actually tends to narrow as absolute skill increases.  

Zero-sum games should be avoided whenever possible for this reason; win-win games are much easier to win at – because nobody has to lose.

Two brief examples of zero-sum vs. win-win games / arms races / relative vs. absolute skill:

Positional vs. interests-based bargaining.  In no less a tough-guy field than negotiation, the savviest and most accomplished professionals recognize the importance of playing win-win rather than zero-sum games.  

Fisher, Ury, and Patton’s landmark “ Getting to Yes ( GTY review + notes) explores an empathy-driven approach to negotiation, which allows us to get what we want without giving in – it can, as the authors put it,

“change the way we deal with our differences – from destructive, adversarial battling to hard-headed, side-by-side problem-solving.”  

The idea is to bargain based on interests rather than positions.  Conflict, they explain, is often in our heads rather than reality.  A position might be “I want the orange” – and there’s only one orange for two people – but the authors point out that if one person wants the peel for baking, and another person wants the flesh for eating, both parties can get what they want.

Similarly, a developer who wants to put up a new building, and a group of residents who want the feel of the neighborhood to be maintained, might be able to find a solution that works for both sides.

What can business managers learn from the Cambrian Explosion?  Much of modern biodiversity traces back to a period – the “Cambrian Explosion.”  Why?

It is of course multicausal, but in “ Other Minds ( OthM review + notes), Peter Godfrey-Smith posits that one (of many) potential contributing factors was feedback effects, n-order impacts, and an arms race.  Whereas previously, animals had not interacted very much:

“from the early Cambrian onward there was definitely predation, together with everything that predation encourages.”  

This led to extreme selection pressure ( trait adaptivity) on the hunted to improve their defenses, which led to selection pressure on the hunters to become better predators, and so on and so forth.

The important insight here is that predation is a zero-sum game: for the lion to eat, the antelope must die.  So predators got more and more powerful and prey got better and better at evasion – but this increasing level of absolute skill didn’t allow anyone to win, because what matters is the relative skill (how much better the predator is at catching the prey, or vice versa).  There are obvious parallels to human athletics and business, as we’ll explore.

If this sounds interesting/applicable in your life, keep reading for unexpected applications and a deeper understanding of how this interacts with other mental models in the latticework.

However, if this doesn’t sound like something you need to learn right now, no worries!  There’s plenty of other content on Poor Ash’s Almanack that might suit your needs. Instead, consider checking out our learning journeys, our discussion of the Bayesian reasoningsleep/rest, or selective perception mental models, or our reviews of great books like “ The Genius of Birds” ( Bird review + notes), “ Deep Survival” ( DpSv review + notes), or “ Seeking Wisdom” ( SW review + notes).

Zero-Sum Games & Arms Races: A Deeper Look

It turns out that there aren’t only zero-sum games – there are negative-sum games, where playing them actually destroys value.  One obvious example is “MLMs” (multilevel marketing companies), where the business model is (essentially, reductionistically) built on getting people to buy products they’ll never use and probably wouldn’t benefit from if they did use them.

Another is nuclear war, as the cult classic War Games observes.  In the movie, a teenage phreaker (what hackers used to be called) accidentally sets the U.S. nuclear arsenal into launch mode; mutually assured destruction is avoided at the last minute after the computer figures out that nobody wins when playing the “nuclear war” game:

Most people with any degree of self-interest thus have a strong  incentive not to start a nuclear war.  It doesn’t take a supercomputer to realize the only winning move is not to play.  However, as we’ll explore, given  schema bottlenecks hyperbolic discounting, and a number of other mental models, we often fail to realize that we’re playing these sorts of zero-sum or even negative-sum games in our own lives.  (For ease of expression, I’m just going to broadly use zero-sum to refer to any “bad,” non-win-win game.)

My favorite example of a zero-sum game is the rat race – no, not the corporate kind that Peter Gibbons opts out of in “Office Space,” but instead the kind that comes before that (and increasingly way before that).  I’m talking, of course, about the college admissions lunacy that has infected many American parents – and their teenagers.

As Peter Thiel puts it in “ Zero to One ( Z21 review + notes), discussing a hyper-competitive culture where even middle schoolers are thinking about college applications:

“for the privilege of being turned into conformists, students (or their families) pay hundreds of thousands of dollars in skyrocketing tuition that continues to outpace inflation.  Why are we doing this to ourselves?”  

Thiel goes on to point out that this race doesn’t necessarily lead anywhere you want to go.  Discussing his reward for all his hard work – a prestigious Big Law job – Thiel observes in a couple other interviews and presentations:

When I left the firm, after seven months and three days, my coworkers were surprised. One of them told me that he hadn’t known it was possible to escape from Alcatraz.

Now that might sound odd, because all you had to do to escape was walk through the front door and not come back. But people really did find it very hard to leave, because so much of their identity was wrapped up in having won the competitions to get there in the first place.

[…]

I have been a little bit more where — I grew up in Northern California. It was this’d say a lot of these people may not understand this larger theory about society, but they are somewhat oblivious to it, and it pushes progress. Now, certainly my own experience would hyper-tracked process, where my eighth grade junior high school yearbook, one of my friends wrote in, “I know you’re going to get into Stanford in four years.”

Four years later I got into Stanford, then I got into Stanford Law School. You won all the conventionally tracked competitions; you ended up at a big law firm in Manhattan.

From the outside, it was a place where everybody wanted to get in. On the inside, it was a place where everybody wanted to get out.

Now, that’s not to disparage Big Law, nor an Ivy League education.  One of my two best friends is a graduate of Harvard Law School who’s planning on a Big Law career.  There are people for whom that’s absolutely the right route, and there’s nothing wrong with that – everyone’s  utility function is different.

But the college-and-career arms race sucks in a lot of people who end up someplace they don’t want to be.  Shawn Achor cites research on the rate of depression and alcoholism among lawyers in The Happiness Advantage (THA review + notes); meanwhile, employee engagement is well-known to be extremely low.

And the nature of arms races is they get worse and worse over time.  Megan McArdle’s The Up Side of Down (UpD review + notes) contains a hilarious bit on this – in passing, McArdle notes that a friend of hers, with a two-year-old child, was applying for a preschool and was asked – no joke – about the child’s aspirations.  Remember, the kid is two years old.  The father, sensibly, quipped:

“Right now we’re working on not eating used gum off the street.”  

And it’s pretty funny, from a distance – but it’s no laughing matter in terms of what we’re doing to ourselves as a society by not only condoning, but encouraging, this sort of profoundly irrational behavior among our teenagers.  Because there’s a huge  local vs. global optimization and  opportunity cost issue here.

Zero-Sum Games / Arms Races Trait AdaptivityRelative vs. Absolute Skill

To understand why, we need to take a brief detour into the idea of relative vs. absolute skill – inextricably linked to arms races.  Michael Mauboussin provides some great exploration of this in the context of athletics, and the stock market, in “ The Success Equation ( TSE review + notes)

Mauboussin points out the counterintuitive fact that middle-of-the-pack professional athletes today – say, backup linebackers, or talented-but-raw fourth-round draft picks – are stronger, faster, and pretty much better in every way than the top players from decades ago.

In other words, a reasonably competent college football team of this decade could probably beat the pants off a Super Bowl winning squad from the ’70s.

The mechanism here is that in zero sum games, it doesn’t matter how hard you work.  This is one of the reasons, as I mention in many places on this site, that hard work is overrated.

Think about it this way.  Way back before anyone treated running as a serious sport, if you put in the effort to run a sub-7-minute mile, you were probably pretty impressive.

Today, a sub-7-minute-mile isn’t even table stakes for serious runners.  You have to put in way more effort than that.

But if someone else puts in the same amount of effort as you, and merely one minute more, then all your effort was for naught – the other guy will still beat you.

This shows up in the business world, too; it’s one of the reasons that status quo bias is so dangerous.  As Howard Schultz puts it in “ Pour Your Heart Into It ( PYH review + notes),

“we [humans] are seldom motivated to seek self-renewal when we’re successful… when the fans are cheering, why change a winning formula?  … because the world is changing…

even when life seems perfect, you have to take risks and jump to the next level, or you’ll start spiraling downhill into complacency without even realizing it.”

But it goes beyond this.  Even if you’re working your tail off, it may not matter that you’re improving if your competitors are improving faster.

For example, in “ The Halo Effect ( Halo review + notes), Phil Rosenzweig points out the necessity of evaluating relative rather than absoluteperformance – for example, K-Mart didn’t go bankrupt because its business was horrible.

In fact, they made much progress during the 1990s on issues like inventory turns and customer experience… unfortunately, Wal-Mart and Target just got much better much faster.

The classic investing example of an arms race is the original Berkshire Hathaway textile business from which the modern Berkshire Hathaway derives its name.  Every few years, more capital had to be poured into the business to buy new equipment, which promised massive savings and efficiencies… yet for some reason, margins in the business never got any better (in fact, they often got worse.)

Why?  Well, every other textile mill bought the same new machines, creating an “arms race” environment where everybody spent a lot of money but nobody’s competitive position really improved.  

As described by Charlie Munger at a lecture at the USC school of business (via Peter Bevelin’s Seeking Wisdom – SW review + notes, pgs 228 – 229),

I’ve never seen a single projection incorporating that second step [of the analysis – which is to determine how much of the  investment savings are going to stay home and how much is just going to flow through to the customer.  

So you keep buying things that will pay for themselves in three years.  And after 20 years of doing it, somehow you’ve earned a return of only about 4% per annum.  That’s the textile business.

And it isn’t that the machines weren’t better.  It’s just that the savings didn’t go to you. (Note: slightly paraphrased for clarity.)

Let’s bring this back to teenagers.

There are only so many slots at top schools; there are only so many slots at top law firms (or consulting firms, or investment banking firms.)  If more and more people want to apply – or even if the same number of people want to apply, but all of them are working harder and harder to get there – then we’re in this same position of absolute skill increasing, but relative skill either staying the same or, more likely, narrowing.

And the variable that people never mention here is that the desired “slot” – whether at Harvard, McKinsey, or wherever – is not increasing in  utility.  Sure, Ivy League schools provide great networking opportunities, and help put you on the path to a high-paying career.  But there is some definable  utility to that, and it’s not increasing at the same rate as the effort people are putting in to get there.

This leads to massive  local vs. global optimization problems.  Students are being  incentivized to do one thing and one thing only – get their resumes padded enough that they get into school.  There are few valid “vantage points” ( schemas) in which a kid with a near-perfect SAT score, strong grades, and demonstrated leadership is not someone to be admired, supported, and told “we’re proud of you, son.”  And yet this is, today, often not enough.

What are the consequences?  Well, whenever you optimize for one thing, you’re leaving behind another thing.  And in this case, those other things are pretty gosh-darn important.

Students come into college with perfect transcripts, but, in many cases, without basic human skills like  empathy or the ability to make good decisions.  Students sacrifice integrity for performance, cheating on tests because the grade is more important than the lesson.  On both of these topics, Enter Title Here is a PHENOMENAL novel; one of my favorite of all time.

These are all  opportunity costs of playing in the arms race.  One of the worst might be adolescents’ routine sacrifice of  sleep / rest – getting up early for athletics; staying up late to finish homework.

When I was in high school a decade ago – and it’s gotten worse since then, mind you – my mom brought home a book by a former college counselor that included a supposedly perfect college applicants’ resume.

I ran the numbers on all this fictional student’s volunteer hours, classes, extracurriculars, etc and decided that my confidence interval on their average sleep on weeknights was somewhere between 4 and 6 hours, versus the 8 – 9 + that science says teenagers need.

The consequences, both short-term and long-term, are chilling.  Dr. Matthew Walker explores in Why We Sleep (Sleep review + notes) that  sleep is critical to a broad range of important outcomes for adults and teenagers (especially teenagers), including:

– learning and  memory

– empathy

– proper brain development, including the avoidance of mental health issues like depression (including suicidal depression), anxiety, or even schizophrenia

– immune function and cancer prevention

– cardiovascular health

In addition to all these long-term consequences, natural experiments – a/b tests – have shown that letting high schoolers get merely one more hour of sleep can reduce fatal car collisions in the 16 – 18 cohort by 70%, and can boost their scores on the SAT as if you’d taken them up a bunch of IQ points.

Is a high-paying, high-prestige career worth all that?  It’s worth something, for sure – but not the brutally high price that many are paying.

Perhaps there are other games out there that nobody’s playing that have a better return on time invested?  That was the core insight that led me to launch ACM.

Stories are more  salient than statistics, so if you’re really interested in both the short-term and long-term well-being of any teenager you care about – your own child, a younger sibling, a nephew or niece, a grandkid, a friend’s kid, a kid you mentor – please consider purchasing two copies of Rahul Kanakia’s Enter Title Here – one for you, and one for them.  And talk about it.

As Peter Thiel puts it in “ Zero to One ( Z21 review + notes)

Winning is better than losing, but everybody loses when the war isn't worth fighting. - Peter Thiel Click To Tweet

Of course, we can’t avoid arms races all the time.  I’m not suggesting that our military should be disbanded, or that we should turn off our antivirus software.  If we happen to work for a business in an industry with arms-race characteristics, we have no choice but to play (at least until we find another job.)

But arms races are so detrimental that if you’re aware of them, and able to avoid even a few that you otherwise would’ve played without even knowing it… well, you’ll be better off in the long run.

Zero-Sum Games Inversion: Win-Win Games

One rule espoused by Don Norman in “ The Design of Everyday Things ( DOET review + notes) – and, of course, by a lot of other smart thinkers – is the classic “don’t bring me a problem unless you have the solution.”

I always try to follow that tenet, and the solution to zero-sum games is to play win-win games instead.

What is a win-win game?  Stephen Covey explains in The 7 Habits of Highly Effective People ( 7H review + notes):

“Win/Win is a frame of mind and heart that constantly seeks mutual benefit in all human interactions.  

Win/Win means that agreements or solutions are mutually beneficial, mutually satisfying…

It’s based on the paradigm that there’s plenty for everybody: one person’s success is not achieved at the expense or exclusion of the success of others.”

Covey cites the aforementioned “ Getting to Yes ( GTY review + notes) as a great example.  Others who study  social connection agree: storyteller-researcher Brene Brown, in “ Daring Greatly ( DG review + notes), explores the dangers of the scarcity mentality to our mental health, and advocates that in both our personal and professional lives, we look for another way.

You can see, intuitively, how most functional human relationships are based on win-win.  Your relationship with your significant other, or your kids, should never be zero-sum and adversarial.  If things are going well, then both parties are better off – win-win.

Most people intuitively recognize this, and few people would try to play zero-sum games with their friend and family.  However, a lot of people believe that you can’t play win-win games in the cutthroat world of business – that it’s eat or be eaten.  Overlord or sucker.

That’s not actually true, most of the time.  I cited “ Getting to Yes ( GTY review + notes) in the introduction, and it’s certainly a powerful resource on the topic.  Similarly, the principles mentioned above by Covey are actually part of Franklin Covey’s popular “All Access Pass” corporate learning solution offered to clients ranging from SMBs to giants like Marriott and Pepsi-Cola.

Franklin Covey is actually Askeladden Capital’s largest portfolio position.  This is for a lot of reasons; one of the most important ones is that they eat their own win-win cooking.

Prior to launching AAP, Franklin Covey sold individual courses.  They eventually realized that since it didn’t cost them anything to give customers additional courses for free, taking a Six Flags Season Pass type approach would meaningfully benefit customers – while dramatically benefiting Franklin Covey itself.

As CEO Bob Whitman explained on a conference call in November 2017,

Historically, as you know, we’ve sold this content to clients one course and often one team at a time.  Two years ago, we determined that converting our historical course-by-course sales and delivery model to a subscription model in which we would provide our customers:

1, unlimited access to our entire collection of best-in-class content;

2, the ability to assemble, integrate and deliver this content to an almost limitless combination of delivery modalities in 16 languages worldwide, and:

3, at a cost per population trained, which was less than or equal to that offered by other providers for just a single course; and then, of course, with an array of affordable add-on implementation services.

 We postulated it out being an extremely valuable value proposition for our customers, one so strong it would have the potential to change the basis for competition in our industry and would be extremely compelling ultimately for our shareholders.

As you can imagine, customers LOVE the fantastic value proposition of the All Access Pass – who wouldn’t want to get seven times the value for the same price they used to pay?  (You should let your corporate training / learning manager know about it, stat.)

Franklin Covey’s revenue growth has dramatically accelerated as customers adopt the solution.  Whitman (pictured at left) went on to explain, on the January 2018 conference call, how much more like-for-like customers are buying now:

In the traditional facilitator business, the initial sale may have been around $15,000.  Over 3 years studying that group of people, they had spent an average of around $32,000 rounding. And now with the renewal rate and the add-on services, we’d expect over that same 3-year period substantially higher, something in the range of $89,000 difference.

This idea of building clients for life where… we go in and work with them to make sure they’re getting real value out of the offering, expanding their populations, expanding the number of solutions they’re utilizing, adding on services where it’s useful to them and then renewing and continuing that virtuous cycle, we believe, is a great way to do business.

Some sharp readers may ask – reasonably – well okay, this kind of win-win thinking works when you have an intellectual property based business.  But me, I work in a tough, cutthroat industry, and this kinda stuff just won’t fly.

Or will it?  I’ll give you two more examples.  The first comes from Kip Tindell’s “ Uncontainable ( UCT review + notes).  The Container Store competes in a category – storage solutions – that many other retailers, including well-regarded ones, have tried and failed to exploit.

Although The Container Store has had a rough time recently thanks to the general struggles of bricks-and-mortar retail combined with a heavy debt load from an overpriced buyout, they’re still doing far better than many of their specialty retail peers, who’ve hit bankruptcy or are heading that way.

Cofounder Kip Tindell strongly believes in  empathy and  win-win thinking.  This is evident throughout the book, but perhaps nowhere more than in their unique approach to vendor relationships.

Many retailers – such as Wal-Mart and Amazon, explored respectively in “ Made in America ( WMT review + notes) and “ The Everything Store ( TES review + notes) – take the zero-sum approach to vendor relationships.  There’s only so much profit to go around, and we want it.

That’s a tenable approach if you’re at the top of your industry, but for smaller players like The Container Store, it’s not gonna work.  As Tindell explains, they know they’re not necessarily going to win on volume relative to, say, Wal-Mart, so they try to find other ways they can help out – such as ordering products in downtimes to smooth out demand, etc.  

This pays off in the long-term – TCS had the support of its vendors through the very challenging 2008-2009 downturn, and vendors will even make win-win decisions like colocating facilities that they would never make for another company.

Finally, in Richard Thaler’s “ Misbehaving ( M review + notes) – my favorite book of all time – there’s a great chapter called “ Misbehaving in the Real World” where Thaler applies his behavioral economics research to helping a ski resort, and car company GM, improve their businesses.

One key insight in win-win thinking is that nobody has to lose.  Remember the fundamental principle of capitalism: thanks to differences in marginal utility, you and I can both be better off after a transaction.

Thaler found lots of such approaches, using models like  fairnesssunk costs salience, and so on.  For example, a fun “racecourse” that cost only a buck or two was a lot of fun for skiers, but it was a big hassle for them to fish their money out of all that ski gear.  Eliminating the fee didn’t cost the resort nearly as much  utility as the joy experienced by the skiers – who were then more likely to come back.

Similarly, selling people “value packs” of tickets early in the season provided them with transactionalutility – and helped the resort hedge against the risk of a light snow season, while also providing cash up front for working capital.

Application / impact: in any business – even if you’re trapped in an arms race – there are ways to apply win/win thinking.  Go look for them.

Win-Win Dose DependencyWin-Win Or No Deal (BATNA)

As with most mental models, more is not always better.  One thing to remember – that I will admit, openly and honestly, it took me many years to grasp – is that win-win thinking isn’t always best.  It’s dose-dependenta trait  adaptive in some circumstances but not others.

Take this example from Brad Stone’s “ The Upstarts ( TUS review + notes): IBM veteran John Wolpert, the founder of “Cabulous,” another yellow-cab platform, turned down Bill Gurley of Benchmark because, according to John Wolpert:

Wolpert was conceiving of a service that empowered those yellow-cab drivers.  It would make the traditional taxi businesses more efficient and help drivers boost their earnings.  THis was his fatal mistake […] Cabulous was doomed by civility. 

“I tried to be the nice guy.  was very into the win-win in those days.  To a fault. I’ve learned a lot about negotiation since then.  [Gurley wanted to invest but the round was already full.]  I was a Boy Scout.  I was going to go with the date that brought me.”

One theme I noticed throughout the book is that Uber refused to play win-win with anyone else… and that made it hard for people who did want to play that way.

The truth is that if someone refuses to play fair, you can’t always work around it.  As Fisher / Ury / Patton point out in the aforementioned “ Getting to Yes ( GTY review + notes):

“in positional bargaining, a hard game dominates a soft one.”

They thus propose the idea of a “BATNA” – a “best alternative to negotiated agreement” – and stress how important it is for negotiators to have one.  You have to be able to walk away if the other party won’t play ball.

Stephen Covey makes similar points in “ The 7 Habits of Highly Effective People ( 7H review + notes), highlighting the idea of “Win-Win Or No Deal” – basically, if you can’t come up with a solution that is good for everyone, don’t settle for a solution that’s good for some but bad for others.

This pops up a lot – for example, in “ Mistakes were Made (but not by me)MwM review + notes), psychologists Carol Tavris and Elliot Aronson note the  dose-dependency and  trait adaptivity of forgiveness.  They, like the elderly Americans interviewed by Karl Pillemer in ’30 Lessons for Living”(30L review), stress the importance of not letting  sunk costskeep old family rifts or feuds going.

On the other hand, Tavris/Aronson make it very clear that unilateral forgiveness isn’t the answer, either.  If someone’s taking advantage of you, and they keep taking advantage of you, and you keep trying to play win-win but they keep trying to play win-lose, continuing to play the game with them will just result in you continuing to lose.  I was in this situation recently, and it was a hard – but important – lesson to learn.

I think Richard Thaler, as usual, has a great angle.  In “ Misbehaving ( M review + notes), he explores his and others’ research on  fairness, and observes that most people do want to be fair.  But most people also don’t want to be suckers, and we all know – intuitively – that if we leave ourselves open to it, someone will eventually come along and take advantage of us.

Thaler’s metaphor of a farm vegetable stand is great.  He notes how he’s seen many farms put fresh produce out on a stand with a lockbox for cash.  Yes, some people could (and probably do) walk away with free produce, but enough people will be fair to make it worth the farmer’s while.

But if you leave the lockbox open… well, eventually someone will come and take all the money.

The solution is simply not to play the game.  Play win-win with the people who will play back with you – keep the vegetable stand open.  But don’t leave yourself open to being on the “lose” side of win-lose.

See “ Getting to Yes ( GTY review + notes) and ‘The 7 Habits of Hiighly Effective People” ( 7H review + notes) for a deeper exploration of how this works.

Finally, here’s a snippet of a research report I wrote on an apparel retailer, Ascena Retail Group (ASNA), in 2016, demonstrating what arms races often look like in the real world. 

Some analysts are excited over Ascena’s new CRM-driven personalization efforts, and their potential to drive loyalty, more purchases, and so on.  Count me in a different boat – I’m increasingly concerned that the customer engagement tactics being implemented by Ascena are so widespread among competing retailers that their actual impact on any individual company’s results will be diluted at best and nonexistent at worst.  I touched on this topic a few months ago in my discussion of why fashion-forward mall concept Express (EXPR) looked more like retail beta than alpha, but further reading since then has convinced me that this is the case.

Let’s start here: my research tool turns up no fewer than 61 transcripts from apparel retailers during the past six months that mention “CRM,” “engagement,” “personalization,” or “loyalty.”  Digging into a few of them,  Francesca’s (FRAN) called their CRM efforts a “game-changing opportunity,” while New York & Company (NWY) has a new CRM team in place (not to mention a focus on email marketing and personalization) and seem very excited about their prospects.  

The Gap (GPS) CEO Art Peck called their CRM opportunity “tremendous” on the Q1 call a few weeks ago, noting it would enable “the opportunity to know our customers holistically, and increasingly communicate with them as individuals and personalize their experience.”  Chico’s FAS (CHS) CEO Shelly Broader said a quarter ago that she was “awestruck by the loyalty, dedication, and enthusiasm” of customers, but after poor Q1 comps, the tone has shifted to more personalized marketing (and the company has its own shared services plan too).   

There are plenty more examples I could cite, but hopefully the challenge here should become clear: retail is a zero-sum game.  It’s a fixed pie with a starving adolescent (Amazon) stealing from everyone else’s plate at every opportunity.  Brick-and-mortar retailers are left to fight over an increasingly small portion of pie – and if every retailer is implementing the same sort of analytics and marketing solutions to drive customer loyalty and engagement, it turns into an unwinnable arms race.  The net effect will most likely be that nobody actually benefits.

To put it another way, imagine retail as a street race.  If one driver puts a turbocharger on their car, they’ll have an edge – but if every driver puts a turbocharger on their car, all that’s happened is that everyone has spent money to keep up with the Joneses but not actually gain any competitive edge.  You can’t not spend the money, or else you’ll be left behind – but spending it won’t automatically yield a blue ribbon.

Retail executives clearly didn’t watch War Games enough times, because we’ve seen this movie play out before with discounting – far from being a magic bullet to reinvigorate comps, when everybody started playing along, it turned from something that helped to something that hurt.  There seems to be less of a risk with personalized marketing, but I really can’t see how this will end up benefiting any one retailer disproportionately.  (And I could make the same argument for many of the sourcing initiatives around “chasing” hot inventory, and so on.)