twointwomillion
New member
My wife bought dried sausage and I noticed that it had shrunk by about a third!
You know what hadn’t shrunk… the price.
I’ve written an entire essay about how to make things cheaper without making them cheaper.
One of those ways is to give less product for the same price, instead of increasing the price.
To a mainstream economist, there’s no difference between an increase of 33% of the price and a saving of 33% in the cost.
To a consumer there is!
Why?
Because the latter is less noticeable.
If you suddenly get a little less, you might not notice. If you have to pay 52% more, maybe you will. Especially if you’re very familiar with the price.
But,
Here’s the thing…
YOU HAVE TO BEWARE OF THE QUANTIFICATION BIAS.
More on that in Paradigm Shift: Drastically Increase The Odds of Success.
The stuff that’s less easy to measure is just as important as the stuff that is.
I can measure profit. So reducing cost by giving less will yield more profit… for a while that is.
Because here’s what happens al too often:
Companies go too far. They see the numbers going up and to the right, so they keep cutting back on quality ingredients, the volume of the product, and so on.
The consumer doesn’t notice at first (because it takes a while for system 1 to notice these things) until one day she says:
‘Hey, wait a minute… something is off! Since when did this product get so small? And I remember it used to taste way better.’
And so she stops buying.
And suddenly revenue plummets.
Even worse… if the company doesn’t connect the dots and realize why that’s happening. (Because of this time delay.)
From their perspective, the consumer suddenly snapped. [1]
Grant Cardone for all his absolutely terrible advice has said something good once: ‘A sale is never ruined by 1 moment.’
There’s some truth in that. The consumer wasn’t put off by your 1-time behavior but because the accumulation of all those small events pushed it over the threshold of noticeability.
Worse still is when the company finally realizes what they did wrong and tries to quickly revert, the revenue doesn’t go back up.
Why? Because the consumer has written off the brand, so they don’t return.
(The fix would be an acknowledgment, solving the problem, and some kind of irresistible offer.)
So be very careful with optimizing the quantifiable metrics and undervaluing qualitative ones.
Instead, blow your user’s mind.
Think about what would excite you and then keep doing that. [2]
Ben & Jerry’s fills the icecream to the brim. It would be a mistake to adopt the potato chips model and fill the tub halfway.
As we've said in Do You Have Customers Who Deeply Love You? optimize for user LOVE!
[1] This is usually when recent shifts are blamed. An ad campaign. A cheeky marketing campaign. A new sales plan etc.
[2] Also, don’t worry so much about redundancy. As COVID has shown, too much optimization introduces fragility. Covid-19 And Human (Ir)Rationality — PART 1
You don’t want to be in a position where you’re dancing this fine line of max revenue and consumers are still barely tolerating your actions. It’s better to have a large surplus of user love with a working business model. Think of it as having a bank account with social capital that you can spend or save. If it’s at zero then one small misstep will make you go negative. If it’s positive with a good margin, you can afford some mistakes which’ll always happen. But when they do, your users will give you the benefit of the doubt.
Don’t forget that a good business is a function of not just growth but also longevity.
[3] This was an experiment in writing a less formal/sciencey essay and telling a story. Lmk if you liked it.
EDIT: U/dustinsmusings caught an arithmetic error which is now corrected. No, I’m not stopping with pure math to do K-1 math. As Steve Jobs said: “Here’s to the crazy ones. The misfits. The rebels.”
EDIT EDIT: I have a newsletter on the site for those of y’all that want to be kept in the loop with future essays. (Link to the essay on the site: https://www.younglingfeynman.com/essays/foolme)
EDIT [sup]3:[/sup] Essay is now updated to reflect Dustinsmusings’ addendum.
You know what hadn’t shrunk… the price.
I’ve written an entire essay about how to make things cheaper without making them cheaper.
One of those ways is to give less product for the same price, instead of increasing the price.
To a mainstream economist, there’s no difference between an increase of 33% of the price and a saving of 33% in the cost.
To a consumer there is!
Why?
Because the latter is less noticeable.
If you suddenly get a little less, you might not notice. If you have to pay 52% more, maybe you will. Especially if you’re very familiar with the price.
But,
Here’s the thing…
YOU HAVE TO BEWARE OF THE QUANTIFICATION BIAS.
More on that in Paradigm Shift: Drastically Increase The Odds of Success.
The stuff that’s less easy to measure is just as important as the stuff that is.
I can measure profit. So reducing cost by giving less will yield more profit… for a while that is.
Because here’s what happens al too often:
Companies go too far. They see the numbers going up and to the right, so they keep cutting back on quality ingredients, the volume of the product, and so on.
The consumer doesn’t notice at first (because it takes a while for system 1 to notice these things) until one day she says:
‘Hey, wait a minute… something is off! Since when did this product get so small? And I remember it used to taste way better.’
And so she stops buying.
And suddenly revenue plummets.
Even worse… if the company doesn’t connect the dots and realize why that’s happening. (Because of this time delay.)
From their perspective, the consumer suddenly snapped. [1]
Grant Cardone for all his absolutely terrible advice has said something good once: ‘A sale is never ruined by 1 moment.’
There’s some truth in that. The consumer wasn’t put off by your 1-time behavior but because the accumulation of all those small events pushed it over the threshold of noticeability.
Worse still is when the company finally realizes what they did wrong and tries to quickly revert, the revenue doesn’t go back up.
Why? Because the consumer has written off the brand, so they don’t return.
(The fix would be an acknowledgment, solving the problem, and some kind of irresistible offer.)
So be very careful with optimizing the quantifiable metrics and undervaluing qualitative ones.
Instead, blow your user’s mind.
Think about what would excite you and then keep doing that. [2]
Ben & Jerry’s fills the icecream to the brim. It would be a mistake to adopt the potato chips model and fill the tub halfway.
As we've said in Do You Have Customers Who Deeply Love You? optimize for user LOVE!
NOTES
[1] This is usually when recent shifts are blamed. An ad campaign. A cheeky marketing campaign. A new sales plan etc.
[2] Also, don’t worry so much about redundancy. As COVID has shown, too much optimization introduces fragility. Covid-19 And Human (Ir)Rationality — PART 1
You don’t want to be in a position where you’re dancing this fine line of max revenue and consumers are still barely tolerating your actions. It’s better to have a large surplus of user love with a working business model. Think of it as having a bank account with social capital that you can spend or save. If it’s at zero then one small misstep will make you go negative. If it’s positive with a good margin, you can afford some mistakes which’ll always happen. But when they do, your users will give you the benefit of the doubt.
Don’t forget that a good business is a function of not just growth but also longevity.
[3] This was an experiment in writing a less formal/sciencey essay and telling a story. Lmk if you liked it.
EDIT: U/dustinsmusings caught an arithmetic error which is now corrected. No, I’m not stopping with pure math to do K-1 math. As Steve Jobs said: “Here’s to the crazy ones. The misfits. The rebels.”
EDIT EDIT: I have a newsletter on the site for those of y’all that want to be kept in the loop with future essays. (Link to the essay on the site: https://www.younglingfeynman.com/essays/foolme)
EDIT [sup]3:[/sup] Essay is now updated to reflect Dustinsmusings’ addendum.
