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Source: The Unexpected 47

of basic change. For the bulk of Indians, the peasants in the villages, the
padlock was (and for all I know, still is) a magical symbol; no thief
would have dared open a padlock. The key was never used, and usual-
ly disappeared. To get a padlock that could not easily be opened with-
out a key—the improved padlock my employer had worked so hard to
perfect without additional cost—was thus not a boon but a disaster.
A small but rapidly growing middle-class minority in the cities,
however, needed a real lock. That it was not sturdy enough for their
needs was the main reason why the old lock had begun to lose sales
and market. But for them the redesigned product was still inadequate.
My employer’s competitor broke down the padlock into two sep-
arate products: one without lock and key, with only a simple trigger
release, and selling for one-third less than the old padlock but with
twice its profit margin; and the other with a good sturdy lock and
three keys, selling at twice the price of the old product and also with
a substantially larger profit margin. Both lines immediately began to
sell. Within two years, the competitor had become the largest
European hardware exporter to India. He maintained this position for
ten years, until World War II put an end to European exports to India
altogether.
A quaint tale from horse and buggy days, some might say. Surely
we have become more sophisticated in this age of computers, of mar-
ket research, and of business school MBAs.
But here is another case, half a century later and from a very
“sophisticated” industry. Yet it teaches exactly the same lesson.
Just at the time when the first cohorts of the “baby boom” were
reaching their mid-twenties—that is, the age to form families and to
buy their first house—the 1973–74 recession hit. Inflation was
becoming rampant, particularly in housing prices, which rose much
faster than anything else. At the same time, interest rates on home
mortgages were skyrocketing. And so the mass builders in America
began to design and offer what they called a “basic house,” smaller,
simpler, and cheaper than the house that had become standard.
But despite its being such “good value” and well within the means
of the first-time homebuyer, the “basic house” was a thumping fail-
ure. The builders tried to salvage it by offering low-interest financing
and long repayment terms, and by slashing prices. Still, no one
bought the “basic house.”
Most homebuilders did what businessmen do in an unexpected fail-
ure: they blamed that old bogeyman, the “irrational customer.” But one