Clever Geek Handbook
13 February 2026

The Match King

Recommendation

Readers who love fascinating stories with unforgettable characters will thank professor and market expert Frank Partnoy for his book on 1920s business icon Ivar Kreuger. This remarkable figure was a global financier, Greta Garbo’s close companion, and an adviser to prime ministers, kings and a U.S. president. Though he was one of the world’s greatest con men, he has somehow slipped, all but forgotten, from popular history. Partnoy resurrects Kreuger in all his tragic glory: a successful, well-known entrepreneur whose abrupt fall from grace and apparent suicide – by a bullet through the heart – coincided with the Great Depression. Kreuger’s financial chicanery led to comprehensive U.S. securities reform in the early 1930s. BooksInShort considers this business biography a rollicking good tale. It holds particular lessons for those looking to make sense of recent financial history: how a brilliant businessman made some innovative – and eerily familiar – promises to greedy, willfully ignorant investors.

Take-Aways

  • In the 1920s, business genius Ivar Kreuger, “the Match King,” controlled a financial empire, including the largest safety match manufacturer in the world.
  • One of Europe’s richest men, he could quickly win the trust of anyone he met.
  • He also was a consummate con man, organizing elaborate Ponzi schemes to secure new capital to pay earlier investors.
  • In 1922, Kreuger traveled to America to raise funds for his newest business plan.
  • He hoped to lend money to national governments at attractive rates in return for the match-selling monopolies in their countries.
  • Kreuger dazzled U.S. investors, Wall Street and the press with his inventive capital raising and consistently high returns, supposedly based on the humble match.
  • In an ironic twist, he successfully established match-selling monopolies in many countries, all the while manipulating his companies and accounts.
  • His fraudulent financial house of cards collapsed after the 1929 stock market crash.
  • In 1932, when Kreuger died – an apparent suicide – his investors panicked.
  • Partly due to Kreuger’s fraud, the U.S. government instituted new securities laws.

Summary

Across the Ocean to Get Money

In 1922, Ivar Kreuger traveled on the German cruise ship Berengaria from Southampton to New York City – the destination for entrepreneurs seeking money. In the Roaring ’20s, everyone wanted to get rich on the next big deal. A hugely successful Swedish businessman, the 42-year-old Kreuger quickly impressed his fellow passengers with his wit, charm and business acumen. He carefully planned every conversation with these wealthy voyagers, striving to create the perfect impression. He would need their goodwill, admiration and, later, their money.

“He must surely have been the best-liked crook that ever lived.” (Frederic Whyte)

Kreuger’s holding company, Kreuger & Toll, routinely paid 25% dividends based on its investments in Swedish filmmaking, real estate and banking, and in Kreuger’s primary business, the Swedish Match Corporation, which produced two-thirds of the world’s safety matches. His new plan: raise money in the U.S. to lend to governments in return for rights to sell his matches exclusively in their countries.

“Lee Higg”

At the time, Lee Higginson & Co., known as Lee Higg, was one of New York’s leading investment banks. Kreuger cleverly maneuvered to meet Donald Durant, head of its “syndicate department.” He detailed his monopoly plan to Durant, who arranged for him to meet the firm’s partners for lunch at its offices near Wall Street. Kreuger was an instant hit with the bankers, who agreed to help secure financing for his new venture. They viewed the impressive Kreuger, with his perfect manners, cosmopolitan air and confident demeanor as “the whitest of the white shoes.” Plus, they believed that he might give them the opportunity to overtake their primary rival, the mighty J.P. Morgan & Co.

“Everything in life is founded on confidence.” (Ivar Kreuger)

Kreuger and Durant soon embarked on capital-raising road shows. They set up a new company, the International Match Corporation, in tax-advantageous Delaware. The initial shareholders were Swedish Match and a number of Swedish banks. The new firm issued convertible gold debentures, or bonds redeemable in either cash or gold. Lee Higg quickly sold $15 million worth of the innovative paper, “one of the largest security issues of the year.” Kreuger sent his brother, Torsten, to act as his emissary in proposing the monopolies to governments in Latin America and Europe, starting with Poland. Kreuger’s scheme was off and running, but he had one major problem: getting his newly raised funds out of America.

“Investors would give cash to Ivar, and trust him to use it to generate yet more cash.”

In New York, Kreuger dispatched his new hire, Swiss-American Ernst August Hoffman, to Zurich to investigate its tax and financial regulations. Since Switzerland lived up to its reputation as a “banking and tax haven,” Kreuger established a secret conduit company there, the Continental Investment Corporation, to use to move funds from the U.S. to Europe. Kreuger had Hoffman – the only other person who knew about the company – reregister it in Liechtenstein to avoid U.S. taxes on International Match’s earnings.

The “Black Hole”

Spinning an intricate web of subsidiaries, affiliates and shell companies, Kreuger created a black hole that would prove impenetrable to U.S. auditors looking into his stateside business. Kreuger went to such convoluted lengths because he was desperate for money. He had to keep paying the double-digit returns he promised his investors. His legitimate companies couldn’t earn enough to pay those dividends, so – without informing his partners at Lee Higg – he erected an elaborate Ponzi scheme, using funds from new investors to pay current backers. But unlike Charles Ponzi, Kreuger owned real businesses, including the successful Swedish Match. He used complicated, inventive, “off-balance sheet financing” to hide his debts. A Swedish accountant described Kreuger’s financial empire as “the Greatest Speculation Venture in Sweden.” By 1922, Kreuger’s estimated net worth of “at least 25 million kronor” placed him among Europe’s richest people.

“Ivar believed that if he kept raising cash to pay earlier debts his businesses would grow fast enough to survive, even if they continued to pay high dividends.”

Oblivious to Kreuger’s financial chicanery in Europe, Durant continued to trust him. Besides, he believed Kreuger’s handpicked American auditing firm, Ernst & Ernst, would relay any discrepancies in Kreuger’s accounts to Lee Higg. A.D. Berning, a junior Ernst & Ernst auditor, worked on the International Match account, but not on the accounts of its affiliates. Needing Berning’s acquiescence to his inventive bookkeeping, Kreuger tucked the auditor snugly in his back pocket by underwriting extravagant trips for the young man and his wife.

“The message from Ernst & Ernst was that if Ivar decided he didn’t like some numbers, they easily could be changed.”

By late 1924, “International Match was a strange looking operation,” with only two financial documents: a “Statement of Assets and Liabilities” (which “could easily fit in a wallet”) and a handwritten “Consolidated Profit and Loss Account.” Oddly, though established only in 1923, the company showed income for 1921 and 1922. But the Lee Higg partners didn’t worry about such details. Kreuger was a visionary; they were sure they would profit greatly from him. And they did: In 1924, they sold additional International Match securities, “participating preferred shares,” that paid off the gold debenture investors 19 years early and with 5% more than promised.

Poland and France Board the Kreuger Express

Poland’s government was the first to agree to the monopoly deal in return for a $6 million loan from International Match at 7%. Kreuger trumpeted his Polish deal in America to secure a new round of backers. He invented “B Shares,” each with only “1/1000 of a vote.” In this way, he could raise money without ceding power to his investors. Lee Higg raised 90 million kronor from “the sale of 900,000 Swedish Match B Shares.” Kreuger also asked Durant to find investors for more preferred shares for International Match.

“According to one source, by early 1929 investments in Kreuger & Toll were the most widely distributed securities in the world.”

In 1925, Kreuger set up the new firm Garanta in Amsterdam to “take over the entire match industry in Poland.” To honor his agreement with the Poles, Kreuger had to secure $17 million quickly, so he sold more high-dividend preferred shares. He also hired a different auditor for Garanta. Karl Lange, who had been fired from a Stockholm bank for “arranging a secret loan to himself,” was just the kind of man Kreuger needed to audit his clandestine company. He had Lange transfer $17 million from Garanta directly to him.

“As is the case for many business people, Ivar walked a line between sharp business practices and maintaining an ethical reputation.”

With such complex arrangements, Kreuger’s monies in and out were impossible for anyone to trace. Yet, by 1926, International Match was “one of the most widely held stocks in the U.S.” In 1927, Kreuger arranged to lend France $70 million for a match monopoly. He raised the money by creating the innovative (read: complicated) “convertible debenture derivative.” Once again, manic investors threw their cash at Kreuger. With the French agreement, Kreuger had outpaced J.P. Morgan & Co. to become “the superman of finance.” He built his famous “125-room Match Palace in Stockholm,” reserving “the Silence Room” for only himself. He and his associates traveled extensively, concluding match monopolies with a dozen countries. By the late summer of 1929, Kreuger was at the peak of his success, hobnobbing with movie star Greta Garbo and U.S. President Herbert Hoover, and appearing on the cover of The Saturday Evening Post and TIME. Then, beginning in September, stocks began to fall, slowly at first, then faster.

$125 Million for Germany

In October 1929 – ever the gambler – Kreuger promised to lend Germany $125 million. Again, he would have to get it from American investors, a challenge, considering the severe market drop. Lee Higg and its consortium could have been left holding the new securities, Kreuger & Toll “American Certificates.” So, to boost confidence in the issue, Kreuger announced he would buy back any unsold securities, in one year’s time, “at cost.”

“If everyone saw Ivar as a shining beacon of confidence, his securities would maintain their value, even if the rest of the market crashed.”

Kreuger could have backed out of his agreement with the German government, but his ego would not let him. The timing of his greatest deal, on October 28 and 29, coincided with “the most spectacular two-day decline in the history of financial markets.” Suddenly, Wall Street wanted an inside look at Kreuger’s finances. As usual, Kreuger not only didn’t panic, but, in a show of bravado, increased the International Match dividend. By now, his bankers and competitors had become more suspicious. According to Kreuger’s reported earnings, his profit margins were an astounding 20% on matches, a product priced at a halfpenny a box. It didn’t compute.

Forged Certificates

With his back to the wall, Kreuger sloppily counterfeited “42 Italian government bills” and forged a match monopoly agreement with Italy. Kreuger stored the documents in his safe at the Match Palace. In December 1930, some banks took Kreuger up on his offer to buy back almost $4.4 million in unsold American Certificates. Convincing a reluctant Lee Higg to issue $50 million in gold debentures, Kreuger quickly moved the funds to Liechtenstein.

“The world now saw an epic betrayal: a villain, not a hero; a schemer, not a planner; a destroyer, not a builder. Ivar became the Judas of the financial markets.”

By this time, rumors swirled about deficits at Kreuger & Toll. Kreuger sent Durant and his fellow bankers a memorandum listing the firm’s assets. Though they could not verify the list, they still agreed to a final loan to Kreuger. In 1931, the value of his companies’ securities precipitously dropped; bankers and analysts speculated that he had to be in serious financial trouble. The usually abstemious Kreuger began drinking and smoking heavily; he disappeared for months at a time, shunning “all human contact.”

“Ivar’s primary company, Swedish Match, survived the scandal and maintained a substantial share of the global match market.”

At the end of the year, Kreuger returned to the U.S., meeting with President Hoover and delivering upbeat speeches across the country. In New York, Durant held firm: He could raise no more money for International Match. To boost his company’s share price artificially, Kreuger used Lange as an intermediary to buy his own stock, but the ruse did not work. Price Waterhouse sent an auditing team to investigate one of Kreuger’s firms, Ericsson, a phone company. Kreuger owed IT&T some $11 million on an Ericsson deal. At the same time, Swedish Match had a $2 million loan payment due. Further expensive interest payments waited just around the corner.

“Few of the people Ivar touched had happy endings. The list of his 15,000-plus creditors ran for 200 pages and included such mainstays as Harvard College and the Chase Securities Corporation.”

The growing demands for cash took their toll: In February 1932, Kreuger physically collapsed and began alternating between “mania and depression.” Two of Kreuger’s associates searched the Match Palace for collateral. They came across the forged Italian bills, supposedly worth $100 million. Swedish authorities used search warrants to collect Kreuger’s business documents and made inquiries into the phony Italian bills.

“Greta Garbo had remained Ivar’s friend until the end...Even after Garbo became a star, Ivar had remained her personal and business advisor.”

Kreuger sailed to Paris and, on March 11, 1932, bought a 9 mm pistol. The next day, when he didn’t turn up for a meeting, his associates discovered his body in his apartment; it appeared he had shot himself through the heart. When investors learned of Kreuger’s death, they panicked – the New York Stock Exchange “recorded the largest single trade in the history of the markets: a sale of 673,800 American Certificates of Kreuger & Toll.” Their value at day’s end? Pennies.

A Mixed Legacy

The investing public had revered Ivar Kreuger and made him one of the world’s most famous and admired men. But as word of his “financial manipulations” became public, investors quickly pulled out of his many companies. Lee Higg soon went out of business. With the news of the forged Italian bills, Kreuger, once a bright symbol of the exuberant 1920s, became known as “the greatest swindler in all history.”

“He was not merely the greatest financial fraudster of the century. He was a builder, as well as a destroyer. He was a victim, as well as a perpetrator. He was a hero, as well as a villain.”

The U.S. Congress called Durant and Berning to testify at its hearings about the scandal, and soon “securities reform” became the rage in America. President Franklin D. Roosevelt invoked Kreuger’s name when pressing for stiff new regulations. The Securities Act of 1933 called for “Generally Accepted Accounting Principles,” and a year later, the Securities Exchange Act established the Securities and Exchange Commission (SEC). Both laws passed because of Ivar Kreuger, the infamous “Match King.” While Kreuger’s reputation was destroyed, he was not just a massive Ponzi operator. He created real and lasting value in the businesses he founded: Swedish Match today has 12,000 workers in 11 countries. In addition, at the time of his death, he owned viable banks, mines, railroads, film companies and real estate. And whether current Wall Street wizards know it or not, Kreuger was the progenitor of many of Wall Street’s dizzyingly complex financial products and markets.

About the Author

Frank Partnoy, former investment banker and corporate lawyer, wrote F.I.A.S.C.O.: Blood in the Water on Wall Street. He is a professor at the University of San Diego.

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The Match King

Book The Match King

Ivar Kreuger and the Financial Scandal of the Century

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13 February 2026

Yes!

Recommendation

Yes! is an entertaining book – to match the title, it’s a blast! Noah J. Goldstein, Steve J. Martin and Robert B. Cialdini provide, as the subtitle indicates, 50 distinct examples, explanations or techniques to help you become more persuasive. They present the general principles of persuasion and discuss an abundance of specific, detailed uses. The authors offer numerous studies (their own and others’), hypothetical situations, and elucidations of what to do and what not to do. They advocate the idea that you can and should test persuasive strategies. They are convincing, and they write wittily and breezily. BooksInShort recommends this useful book to anyone engaged in persuasion, including executives, marketers, trainers and salespeople.

Take-Aways

  • When they think about persuasion, most people emphasize their own experiences too much, rather than depending on data or techniques.
  • Increase your persuasive power by understanding six core principles: “reciprocation,” “authority,” “commitment/consistency,” “scarcity,” “liking” and “social proof.”
  • A small gift or favor will make you more persuasive. People will want to pay you back.
  • The public believes in authority, so enlist higher-ups on your side.
  • People want to be consistent and committed, so show how your proposal aligns with their values.
  • The rarer something is, the more people want it.
  • Individuals want to be liked, so practice seeing the good in them.
  • People tend to follow the majority. By establishing norms, you can get them to act as you wish.
  • Fear paralyzes people, so use scare tactics only if you offer an antidote to fear.
  • Admit your errors. Demonstrating honesty increases your influence.

Summary

The Nature of Persuasion

Persuasion is a curious thing. Because it is based on human psychology and because life gives everyone direct experience of that psychology, people depend too much on their own experiences when they try to persuade others. In fact, people aren’t even especially good at figuring out what persuaded them or at understanding why they did something. Instead, they jump to conclusions based on faulty data. The result is that persuasion is seen as an “art” and treated as a mysterious phenomenon. But whether you are innately gifted at persuading other people or not, you can use specific scientifically tested techniques that have proven to be reliably persuasive. Many of these techniques draw on one or more of “the six universal principles of social influence”:

1. “Reciprocation” – People Want to Treat Each Other Fairly

If you give someone something, even a soft drink, he or she will want to repay you. This can take the form of agreeing to your suggestions or making a larger purchase from you. To apply this principle, consider what you could do for others. How could you help them? What could you give them? You will have an automatic persuasive edge with people you’ve helped or enriched. This is the essence of reciprocity, which you can apply in small ways. If you do something extra for someone, even scrawling a brief personal message on an attached Post-It Note when you send a document, that person will agree with you more easily and respond more quickly. However, the value of doing something nice for someone changes over time. People value a favor most highly right after you bestow it. In fact, its value to them will diminish over time, but – as the person who did the favor – you’re likely to value it even more highly as time passes. This can create tension, so take these attitude shifts into account when you request a reciprocal favor.

2. “Authority” – People Want to Follow the Experts

You face a quandary if you need to persuade people of your worth or convince them about a topic you know well. You want to demonstrate how good you are and how expert, but you don’t want to seem like an egotistical braggart. Instead, get someone else to speak for you. You can even pay a speaker, since people generally disregard “situational factors.” People don’t pay attention to how a situation shapes other people’s actions, so they trust what they see more than they should. You can use this predisposition in your office. If two people work together, designate each one as a specialist in some area, then refer related calls to them accordingly. People will give more weight to the so-called specialists’ words, even if they don’t know anything extra. If you work alone, display some sign of your expertise for visitors. Even posting a diploma helps.

3. “Consistency” – People Want to Act in Alignment with Their Beliefs

The human desire to be consistent plays out several ways. If you want someone to do you a large favor, he or she will be more likely to do so if you lay the groundwork by asking for a small favor first. This will establish a specific image in the person’s mind. If you’re trying to make a large sale, selling a small sample has a similar impact. This also works when you label a person. For example, if you tell a man that you can discern that he is good, he’ll be more likely to be good in order to align his actions with your favorable perception. To get people to perform a “socially desirable behavior,” like voting, get them to agree to it in public. The more actively you can get someone, including yourself, to commit to an action, the firmer the commitment will be. So write your plans, don’t just ponder them. Shape surveys so people make active choices about a course of action, rather than just agreeing by default. When scheduling appointments, get the other person to select the time, so he or she is invested. To boost turnout at a meeting, ask potential attendees how they’d like to be reminded of the session.

“The primary purpose of this book is to give readers access to fifty secrets to successful persuasion that have been validated in scientific studies and that can be used in wholly ethical ways.”

To change people’s previous behavior, appeal to their desire for consistency. Don’t tell them that they did something wrong. Instead, frame the new choice as being more akin to their values. Use a variation of this idea to reshape relationships that aren’t going well. For instance, if you work with someone who doesn’t like you, ask him or her for a small favor. That takes nerve, but people who grant you a favor are more apt to shift to seeing you more positively, because that would align their actions and their attitudes. This tactic also helps when you ask for donations. Request a tiny amount of money; explain that even a penny helps. Setting such a small threshold gets people to give, and many will give more than if you had asked without that small specific entry point.

4. “Scarcity” – If It is Rare, People Want It

When General Motors announced that it was discontinuing the Oldsmobile due to falling sales, sales shot up. Why? Because people realized it wasn’t going to be available. The car became scarce and people want rare things. This is powerful since people are loss-averse: They prefer avoiding losses (or even the thought of losses) to acquiring gains. You don’t have to discontinue your product. Just explain what it offers that the customer cannot get elsewhere. By contrast, you can inadvertently make an offer unappealing by making it free, since that communicates that it lacks value. Instead, spell out how much the gift would cost, then emphasize that you are giving it to people without that cost to them. This works in service situations. If a restaurant gives away mints after a meal, customers take them for granted. If servers give customers mints with a personal touch, tips increase. If the servers give people mints, and then more mints, or mention how nice the group has been, tips climb still higher.

5. “Liking” – People Want to be Liked

In the service industry, you can observe a foundational persuasive technique at work. People can tell the difference between a server’s “authentic smile,” and a fake or forced smile. Customers like receiving authentic smiles and are more apt to like you if you greet them with one. If you’re serving their table or checking them in at a hotel, people are apt to judge your performance as superior if you say hello with a genuine smile. Admittedly, such positive, genuine expressions don’t come easily in every situation. You could train your staff in emotional skills, but that’s costly. Instead, practice seeing the good in people. This is very valuable with someone you dislike. Try to reflect on what he or she does well. Look until you find something admirable and you’ll like the individual more easily.

“Researchers are often on the lookout for ways to apply their scientific knowledge to make existing policies and practices even more effective.”

People also are more prone to like you if you share their “personal characteristics.” These can be large, complex traits, like beliefs, but it also works with smaller traits, even ones you don’t choose, such as a shared name. When floods damaged Quincy, Illinois, in 1993, it received a lot of help from people in Quincy, Massachusetts. More people responded to mail surveys from people with names similar to theirs. This surprising tendency applies in many areas. People are more likely to choose careers that sound like their names (“dentist” and “Dennis”). If you move, you’re more likely to move to a state with a name like yours (“Florence” to Florida) or to a street that sounds like your name. People are even more likely to marry people with similar names.

“Many classical findings in social psychology demonstrate the power of social proof to influence other people’s actions.”

You can use this tendency several ways. Make projects more attractive to workers by assigning them to people with like names or make a sale by echoing the prospect’s name. For instance, call your proposal to “Mr. Peterson” at Pepsi, the “Pepsi Proposal” or the “Peterson Plan.” To get a student to read, suggest a book where the main character shares the child’s name (give Harry Potter to “Harriett”). Activate a related form of connection by mirroring someone’s body language or repeating a menu order back to the customer verbatim – that makes tips go up. You can also use mirroring literally: People are more likely to act honestly when they see themselves in a mirror or know they are being observed.

6. “Social Proof” – People Want to Act Like Their Peers

When you make a decision based on your peers’ opinions and your context, you are relying on social proof. Once you realize the power of this persuasive technique, you can use it to get people to do as you wish. Hotel guests responding to a program urging them to reuse towels were more prone to comply when told how many other people had cooperated. This worked even better when the information was more specific, such as how many guests who stayed in that same room had complied. Generally, people tend to align themselves with social norms. If you can establish these norms clearly (as a library mandates silence), people are more likely to follow them. They’re also more inclined to act as you wish if you offer testimonials from people like them who did so. If you’re a teacher, this means quoting an average student, not the class whiz kid.

“Broadly speaking, this research provides a valuable insight into human behavior: An ounce of personalized extra effort is worth a pound of persuasion.”

eBay demonstrates how to persuade people. Starting an auction with a high initial bid can convince people that the item is worth a lot, but starting with a lower price diminishes the barriers to entry and brings in more bidders. Their presence provides social proof of the item’s desirability. Yet if other factors raise barriers to access (misspelling the product’s name), a low price isn’t as effective.

“Reduce multitasking when the stakes for...decisions and interactions with others are high.”

In related reasoning, if you attach a handwritten note to a document, people are more likely to trust its contents if your handwriting is neat. And if you have the skill to write a rhyming message, people hear that as even more credible. Make it easy for people to remember your messages. Post them visibly where people make related decisions. Hang messages about excess drinking in bars, not doctors’ offices. Shape your messages to the right cultural context. To reach someone from an individualistic culture, as in the U.S., accent the benefit to the individual. If you’re trying to persuade someone from a collectivist culture, such as South Korea, emphasize the community benefit.

Other Approaches to Persuasion

Too many choices can overwhelm people, so to persuade them to buy, limit the number of items on the sales table. To frame potential sales choices, add a higher-priced option. Since that choice demarcates the high end of the scale, customers now can choose something from the new middle...including the previous high end. Fear can also paralyze people. Faced with too much fear, people freeze rather than act. If you provide information on how to resolve a scary issue, such as a health crisis, the fear may become an incentive to buy. People must do all they can to resolve their fears. Other physical or emotional situations can impair their judgment. A mere lack of sleep makes people worse at distinguishing credible statements from faulty ones.

“[Use] social influence strategies...as constructive tools that help build authentic relationships with others, highlight the genuine strength of one’s message...and ultimately create outcomes that are in the best interests of all parties.”

When you’re working in a group, take group dynamics into account. This doesn’t mean voting on every decision; you might not decide to vote on any decisions. But even if you are the brightest, best-informed person present, enlist others’ perspectives. You’ll get new insights, put many minds to work on common issues and help the group form more functional teams. Groups often founder on “groupthink,” when everyone thinks about a subject the same way. You could assign someone to play devil’s advocate to generate more creative solutions, but involving a real dissenter works even better. Sometimes using a devil’s advocate may produce overconfidence because people mistakenly think they’ve considered all the alternative views.

“When these tools are instead used unethically as weapons of influence...any short-term gains will almost invariably be followed by long-term losses.”

Even errors can be useful. Trainees learn more from case studies where people make mistakes and use “good decision making” to learn from their errors, than from case studies that simply model the desired behavior. Acknowledging your service’s limits also increases your credibility. Progressive Auto Insurance offers free rate comparisons with other firms’ fees. Often, Progressive offers the lowest rates. The rest of the time, it points potential customers toward their lower-priced competitors. When you admit a weakness or a limitation in your offering, you appear especially credible. This can work in modified ways. Admit your product’s small weaknesses in the process of pointing out its larger attractive features. If you make a mistake, don’t cover it up or pretend it didn’t happen. Admit it and explain your plan to correct the situation. This will show you are honest, which increases your influence.

“Those who behave in an untrustworthy manner can do little to regain the public’s trust.”

You can boost your persuasive powers with just one word: “because.” If you explain why you want something, people are far more likely to agree to it, even if the reason makes little sense to them. On the flip side, make it easy for people to figure out why they want to buy your product. Ask them to name one reason why they might buy it, but not 10 reasons. If you ask for 10 reasons and they name six, they’ll feel as if they’ve fallen short. To apply a variation of this tactic, ask a potential customer to list a lot of reasons to choose your competition’s product. When the customer finds that hard to do, your offering will look good. If you’re launching a customer loyalty program, give people a “head start.” Rather than offering a free item after they buy 10 things, give them a reward for buying 12, but start them with credit for two purchases.

About the Authors

Noah J. Goldstein teaches at the UCLA Anderson School of Management. Psychologist Robert B. Cialdini also wrote Influence and Principles of Ethical Influence. Steve J. Martin is managing director and Cialdini is president of a consultancy that helps organizations improve performance by using the principles of influence.

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Yes!

Book Yes!

Fifty Secrets from the Science of Persuasion

Profile Books,
 


13 February 2026

Habit

Recommendation

If you want to read a new, refreshing marketing book, look no further. Consumer behavior expert Neale Martin has produced an entertaining, informative explanation of how the conscious and subconscious minds work together in the context of sales and marketing. He has put in years of extensive groundwork updating the principles of marketing to reflect new findings in cognitive psychology and neuroscience that say much of the way people act is governed by unconscious habits. In the process of explaining the brain’s biological miracle, he also teaches readers why some products fail and what marketers must understand to improve their odds. BooksInShort thinks this intellectually invigorating book is a real keeper, especially for marketers who want to learn how each customer’s two minds (unconscious and subconscious) work together.

Take-Aways

  • The human mind simultaneously works in the conscious and subconscious modes, also known as the “executive” and “habitual” levels.
  • The habitual mind controls about 95% of human behavior.
  • It resides in the brain’s limbic or “dinosaur” system.
  • In the real world, habit, not rational thought, dominates buying decisions.
  • People do the same things daily 45% of the time, often while thinking of something else.
  • The habitual mind learns through repetition and reward, and works automatically.
  • Try to keep your customers by becoming routine to them.
  • Customers are satisfied when they experience a product or service that exceeds their expectations, but even that does not make them loyal. Repeat buying is a habit.
  • Marketers can create habit-forming behavior by making a product’s design intuitive.
  • To automate repeat buying, emphasize your brand name and build customers’ trust in it.

Summary

The Habitual Mind

The unconscious mind determines 95% of human behavior – a fact that traditional marketing theory overlooks. Instead, traditional theory posits that customers know what they are doing and why. This fallacy has dominated marketing theory for 50 years, but new discoveries in cognitive psychology and neuroscience prove the need for a fresh approach.

“The habitual mind makes us consciously different.”

Humans evolved using their conscious and subconscious minds to make decisions at different levels. When people make conscious, self-aware decisions, they are using the “executive mind.” When people make subconscious decisions, they are using the “habitual mind,” which is housed in a separate part of the brain. The habitual mind works with the executive mind, not against it. The interaction of the two minds goes largely unnoticed, but a research study found that people carry out the same actions every day 45% of the time, usually while thinking about other things.

“Marketing’s greatest success can be directly linked to aligning products and services with the habitual mind, whether on purpose or not.”

Marketing strategy has never drawn upon the power of habit. That may explain why some 80% of new products either don’t meet their sales goals or fail completely. When an item is introduced, consumers have to learn about it. To succeed it must link up with an idea that already exists in the customer’s subconscious. Ads and product placement alone cannot shape this mental process.

“All that we are, all that we think and imagine, and all that we do emerges from this ungainly arrangement of neurons packed densely inside our skulls.”

Marketers don’t recognize that the subconscious mind controls the executive mind’s decision making. Take high customer turnover, another habit-driven phenomenon. Many companies lose 20% of their customers yearly and half after five years. Surprisingly, 85% of departing clients said they were satisfied, but they left anyway. Studies find that “satisfaction explains only 8% of repurchase.” Monthly, 1%–2% of cell phone customers leave their providers. This “churn” costs the industry $9 billion annually. Companies have tried customer loyalty programs to combat turnover, but they’re so common that they don’t generate long-term benefits.

“For all its remarkable abilities, the executive mind has the limitation of being able to consciously focus on only one thing at a time.”

To maintain customer relationships, feed the habitual mind, not the executive mind. Actually, you do not want customers to think about you. You want them to repurchase your product automatically. If they think about you, they can think about your competitors, too.

Most product failures happen when product developers’ executive minds overdesign ordinary processes or products, and make them too complex for the average person. The cell phone shows how handset and accessory manufacturers, wireless providers and software engineers each injected their designs into a single device that was supposed to be customer-friendly, but is not. Problems emanate from designs that do not revolve around a tool’s intended functions.

A Look at the Brain

The human brain is a three-pound mass of about 100 million neurons, “each making an average 10,000 connections with other neurons.” This makes the brain one of the most complex creations in the universe. The brain has three areas: the “hindbrain, the limbic system and the cerebral cortex.” The hindbrain’s structures – the pons, medulla oblongata and cerebellum – are the oldest parts of the brain. They evolved over the past 200 million years, and are known collectively as “the dinosaur brain.” They handle “automatic and integrative” procedures. The emotional, habitual mind resides in the limbic system. Habit memory is created as neural circuits strengthen over time in the basal ganglia. Conscious memories reside in the hippocampus, while other types of memories are stored in other areas.

“Habits are created by repeating enough steps enough times to train the habitual mind.”

The habitual and executive minds have a complex relationship. The habitual mind learns by repetition, while the executive mind benefits from reasoning. The executive mind focuses on one thing at a time and delegates routine activities to the habitual mind. When the executive mind detects a new event, it focuses on that. For example, many people talk on the phone while driving, but a driver who enters an unfamiliar neighborhood will focus on the new environment to find the right address. The same process exists in shopping and travel, where consumers choose known brands to make buying decisions easier. This subconscious link to brands is so powerful that most consumers can recognize Coca-Cola’s logo even if they can see only 5% of it. Yet, billions in dollars go to waste yearly due to ads that don’t register in the mind.

“The stronger the existing habit, the more effort is necessary to dislodge it from an unconscious to a conscious process.”

In the real world, habit dominates buying decisions. People are more likely to buy a product in the future if they’ve bought it in the past. This pattern is true whether the consumer actually likes the product or not. People buy products without really knowing why, so customer satisfaction surveys and similar research efforts are a waste of money.

“Instead of focusing on customer satisfaction, companies should be dedicated to customer habituation.”

People’s routines rely on different types of memory systems (such as “skills, habits, stimulus-response conditioning” and “priming”), which are linked to the unconscious learning process. Memory is a hazy scientific area between the conscious and unconscious. Emotion is the bridge between memory and the functions of the rational mind. Feelings thus play a key role in how people make conscious decisions, including how they select, recall and process names and events into memory. Ads that are devoid of emotion, such as lists of product attributes, are dead on arrival. Instead, people act in response to ads and messages that resonate emotionally. For example, your message will have more impact if you present it when people feel good. A consumer in a good mood puts more data into his or her memory. That’s why print ads placed closer to upbeat stories have a higher recall rate.

The Fallacy of Customer Satisfaction

About 90% of companies say that customer satisfaction is a key driver of their marketing. While most companies try to meet expectations, truly happy customers generally have encountered a product or service that went beyond that level. To generate higher customer satisfaction, your company has to underpromise and overdeliver. However – and this is where marketing goes wrong – customer satisfaction does not promise loyalty. Happy customers are not necessarily repeat customers. People usually buy items out of habit without judging the individual products. However, consumers can change their habits more easily than they can change their behavior. The subconscious or habitual mind makes behavior more important than attitudes, since attitudes and beliefs change, but behavior is more constant.

“You have to sell the executive mind, but you must win the habitual mind to keep a customer.”

For customers to become habituated to your product, it must migrate from the executive mind to the habitual. This is a slow process. If a product moves through the stages of “awareness, interest, evaluation, trial” and “purchase,” then the executive mind will put it into the habitual mind. But, if the customer becomes dissatisfied at some point in the process, the executive mind will take over and re-evaluate the product. This lets the customer consider new products and disarms habitual, automatic decisions.

How People Form Habits

To boost habituation, make your product’s design intuitive or teach customers habit-forming behavior. As a rule, products with fewer features are better for habituation, but developers often give products too much capacity, especially in software and electronics. For example, most consumers “use less than 10% of a cell phone’s features.” Having too many add-ons makes a product too complex, which diminishes habit-creating behavior. To help consumers habituate to your products, follow a minimalist philosophy at the very beginning of the design process. Address a product’s standard usage, its frequency of use, audience make-up and context as you design it. Be warned that corporate organizational structures often impede a habit-oriented design process. Companies are geared to create goods that appeal to the executive, rational mind but not to the habitual, unconscious mind.

“The real fight for customers is taking place in their unconscious, habitual minds.”

The brain’s prefrontal cortex, where it forms and stores mental models relating to categories and rules, processes new products. When a new product category aligns with the brain’s existing beliefs and associations, brand identification can flourish. Thus a marketer who is introducing a new product must both get people comfortable with its features and address the brain’s structure, which leans more toward the known than the unknown. To be accepted, new items must link to or meld with one of the existing categories in the brain.

Advertising and Sales

Word of mouth (WOM) is the advertising technique that best incorporates these principles. Research endorses the power of WOM, which has become increasingly important in the Internet world of social networking and instant messaging. However, advertisers who want to succeed in social networking must become authentic members of the online communities they target, not just paid shills whom users will identify and stigmatize as commercially motivated outsiders.

“Discoveries in how we categorize and [in] the role of working memory promise to radically alter our perceptions of branding, positioning and advertising.”

Similarly, salespeople must establish their credibility by demonstrating competence and honesty. To develop long-term relationships, salespeople must think beyond their current transactional relationships, which are often adversarial. That posture keeps the sales process in the executive mind, which is always alert for excuses to re-examine any relationship, instead of letting it shift to the unconscious mind.

“The brand is the key to successful customer habituation.”

Some popular sales promotions use coupons to break through the merchandising clutter by offering price reductions or special deals. Promotions can compel customers to adhere to new rules. For example, marketers can train a consumer who prefers a certain cereal brand to wait for a weekly coupon before making a purchase. Carefully choose your promotions since they affect your brand’s promise and your company’s reputation. A promotion might create product awareness to appeal to consumers who want to try new things. Public relations activities have a similarly important role in the sales process since PR can build credibility and create positive feelings that reach and reside in the habitual mind.

Making Repeat Buying a Habit

To automate repeat buying, emphasize your brand and build programs that increase customers’ trust in it. This sets up a self-reinforcing cycle that keeps the purchasing activity viable in the customer’s subconscious mind. Brand recognition stimulates brain activity and affects the areas of the brain associated with self-identification and reward. To set up an automatic buying mindset, show customers the physical brand, including the logo, brand marks and packaging. For instance, the Coca-Cola bottle shape alone triggers a strong consumer response. Marketers should be aware of how, viscerally, a customer makes a buying decision. If a person’s favorite beer is not available in a bar, he or she may respond to seeing the logo of another brand and immediately buy it, even if it is more expensive. Similarly, people may buy generic medications for themselves, but they buy brand name medicines for their sick children.

“Our memories are remarkably unreliable; as a result, much of our advertising money is wasted.”

Researchers can use qualitative statistical techniques, such as “conjoint analysis,” to distinguish habitual buying behavior from pure quantitative sales data. Then, they interpret this information to detect shifting customer behaviors, such as whether buyers are planning to stop shopping at their stores. Market intelligence reports can even detail how people move through phases as they make buying decisions.

Behavioral Training

The main stages of behavioral training are reinforcement and punishment, nonverbal reinforcement, conditional reinforcement, timing and shaping. Behavioral training provides access to the habitual mind, which learns through repetition and reward, rather than from listening to explanations. It responds to the way an action is associated with an outcome. Marketers can use the right types of response mechanisms to, in effect, train their customers. This training happens when buyers learn to navigate through a new store or to find what they want on your Web site.

“We recall memories better when our mood at retrieval matches our mood at storage.”

For effective customer training, make all your public interfaces as intuitive and easy-to-use as possible. Marketers should look at each stage of the customer-contact process, from call centers to service to deliveries, to see if every contact rewards customers instead of punishing them. With every complex or emotionally taxing contact, businesses may be missing opportunities to create habitual behaviors and thus encourage repeat customers.

About the Author

Neale Martin is an expert in consumer behavior, customer satisfaction, and bridging the gap between technologies and markets. A consultant and educator, he helps communication and networking companies launch innovative products and services.

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Habit

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The 95% of Behavior Marketers Ignore

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