Tag Archive for 'Marketing'

How to Annoy People

Published
by
Victor Nicollet
on December 6, 2011
in Strategy
. 0 Comments

Here is a hypothetical situation :

The kingdom is in trouble, and the King must enact a new law. Of course, such a law will make many people happy for years, but some people will be annoyed by it for a few days. He has two possible choices :

Law A will make 20% of the people happy at the cost of annoying 1%.

Law B will make 90% of the people happy at the cost of annoying 10%.

Which law should the monarch enact ?

This is not the kind of problem that engineer types like me enjoy — no matter how much we try to abstract away the details and build a sound foundation for that decision, some ethics will inevitably seep in.  Is it right to annoy an additional 9% of the people so that 70% more people become happier? Where do we draw the line in term of percentage, and in terms of annoyance — a few days might be fine, but what about a few months or years?

As you might expect, this is not an entirely hypothetical exercise. It is, in fact, the very core of the opt-in versus opt-out debate. Above, law A is opt-in : only 21% of the population knows about its effects, but at least there will be very few complaints ; law B is opt-out : it ensures that 100% of the population knows about it, but it will annoy the 20% who will have to manually opt out.

My start-up hosts discussion forums for associations. Every one of our customers has faced the same decision : should they send an e-mail to their association members telling them « please come and sign up on our forums » or should they import their member directory and let naysayers unsubscribe ?

With the opt-in approach — please come and sign up — the initial e-mail is followed by a small number of sign ups, usually from the more active or dedicated members, and will be ignored by everyone else. If the number of initial adopters does not reach a critical mass, the forums will simply die off and be forgotten by everyone.

With the opt-out approach — import all the members — everyone will be notified every time a new message is posted, as would happen on a mailing-list. A forum message from a friend is a lot more interesting than a « please come and sign up » e-mail and drives more members to connect and participate. The critical mass is reached far easier (and faster!) and the forum becomes an essential part of the community. However, those who did not wish to participate will receive e-mail that is literally unsolicited, and they will complain about it — while the number of active users increases significantly, the number of complaints and unsubscription requests increases even faster. The delicious irony of it all is that the number of complaints is driven up because the communication tool helps those annoyed members find each other and speak up in unison.

Before continuing, let me fend off two possible problems.

First, the opt-out approach is not intended to be a sneaky trick — we always strongly advise customers to send a preliminary e-mail to all their members in advance, telling them about the plan to move to a new discussion system. Not only does it keep things civil and honest, but people who absolutely hate receiving messages from their community can ask to opt out before it is too late. Online communities have trouble blooming when 10% of the messages are complaints about the very existence of the community, so it is in everyone’s interests to keep naysayers out.

And if anything else fails, we can wipe out members from our system on demand.

The second problem will be familiar to readers of Seth Godin — permission. Through the eyes of a permission marketer, to import all  the members without their prior explicit opt-in consent is absolute heresy.

I find this view a bit too extreme. Well, it does make sense when trying to sell things that 99.99% of the people will not care about, such as viagra or cheap hotels in Bangkok. But members actually care about what is going on in their association, and — based on our experience — only a minority of members ever asks to be completely removed from the forums. Most members only unsubscribe from individual discussions that they do not care about, and choose to remain available on the forums as a whole.

It feels sad that so many people would miss out on a great experience just so a handful of curmudgeons can spare the effort of clicking an unsubscribe link.

Back to the point.

As far as I can tell, the approach that helps most members get involved in an online community is :

  1. In advance, send them an e-mail telling them that the association is about to move to another online community system — in our situation, it could be described as a mix between a forum (for those who wish to be very active) and a mailing-list (for the occasional participants) — and that each of them will receive those communications on an opt-out basis.
  2. You will receive messages saying « this is a bad idea » or « I don’t want to receive those communications » and you should take steps to make sure that no person who opted out at this stage is ever imported into the forums. Unless they ask for it later, anyway.
  3. After enough time has passed — at least 48 hours for large associations — import everyone into the forums, and write a welcome message there explicitly asking them to say hello when they reach it for the first time.
  4. If any other people request to be completely unsubscribed, you may simply remove them from your forums and they will stop receiving messages. If you need to absolutely make sure that all their data has been wiped from our database, drop us a line and we’ll take care of it for you.

We have had several customers build a thriving online community for their association with this approach, and have even seen a few « get me out of here » naysayers change their minds and come back online, once they understood everyone else was using it.

Where do you stand on the matter ?

Article image © Carlo Piana — Flickr

The Three Components of Negotiation

Published
by
Victor Nicollet
on November 10, 2011
in Strategy
. 0 Comments

We negotiate several times a day, even if we do not recognize those occurences as such — « accept or walk away » is a fairly instinctive, if somewhat inefficient, negotiation strategy, and it goes hand in hand with the modern « take it or leave it » strategy employed by most mass consumer shops.

What is negotiation anyway, and why does it happen?

It happens because when humans cooperate, they get a cake that is bigger than the sum of its parts, and they need to decide how to split it. For instance, if I grow potatoes and you breed cattle, we could decide to put together my delicious Désirée tubers and your tasty Charolais steaks, which is a big improvement over otherwise potato- or beef-only diets. And then, we would argue over how much of the final mix each of us would get:

ME: We both contributed equally, so let’s get 50% each.
YOU: Breeding cattle is harder than watching potatoes grow, so I want 65%.
ME: Suit yourself, I know a guy who only asks for 55%.
YOU: Fine, I’ll go as low as 60% because I like your blog.
ME: I just told you I know a guy who…
YOU: …and that would save you the effort of finding that guy before lunch.
ME: Right. 60% it is, then.

You were a good negotiator, so you managed to squeeze 10% out of this. What happened? Let’s break this down.

Irrational Arguments

« We both contributed equally » might be true. Maybe I spent as much time growing my potatoes than you spent working in your ranch. But that is not my argument. What I have written between the lines is that it is fair for equal efforts to receive equal rewards.

And fairness is not a rational argument. It is a subtle way to circumvent rational thinking and aim for our unconscious ethical programming and, by definition, make decisions that are not in our best interest. In the eyes of a good negotiator, this is a loophole to be exploited.

There are many other such loopholes in the human mind. My favorites are:

Reciprocity is an atavistic impulse to give back whenever we receive something, even if that something is mostly unrelated to our objectives. In the example above, going from 65% to 60% is cleverly framed as a gift instead of a simple acceptance of my terms, which makes me unwilling to further haggle over whether it should be 57.5%.

Imprinting is our tendency, when we have no idea how much something is worth, to go with the first guess, clue or hint that we find about it. By suggesting a 50-50 trade, I imprinted you on the idea that potatoes are about as valuable than meat, and this serves as a basis for your « reasonable » 35-65 counter-proposal instead an extreme trade like, say, 3-97.

Guess what the market rate for potatoes and Charolais steak is? 3-97. I would like to correct my previous sentence:

You were a good bad negotiator, so you I managed to squeeze 10% 37% out of this.

And then, there’s a slew of emotional manipulation that does not appear at all in my example above. You can feign disappointment to try and get more out of a deal — “I really hoped you, of all people, could get this done for me.” You can pretend to be offended, shocked or angry in order to cause a large shift in the terms being negotiated — when you haggle in a bazaar, quote a price that is too low and you will be told that it is insulting, and kicked out of the store.

There are many other examples. Go read this blog article and read Predictably Irrational by Dan Ariely.

Rational arguments

You might expect this section to be as rich as the previous one, but it is not. There are only two different rational arguments you can say in a negotiation: “I will  not accept this outcome because [credible reason]” and “You will accept this outcome because [credible reason]“. Let’s examine our conversation with this convention:

ME: Suggests 50-50
YOU: No, because [breeding cattle is harder than watching potatoes grow], suggests 35-65
ME: No, because [I know a guy who only asks for 55%]
YOU: Suggests 40-60
ME: No, because [I know a guy who only asks for 55%]
YOU: Yes, because [that would save you the effort of finding that guy before lunch]
ME: Accepts 40-60

This is the reason why the most fundamental principle in negotiations is be willing to walk away. If you cannot or will not walk away, and the other guy knows this, then you can no longer say « No, because » and this cripples your ability to negotiate properly.

Typical reasons why I will not accept an outcome:

  • The costs are greater than what I get out of it. Maybe I’ll ask for more money, or non-financial benefits (exclusive rights, free advertising…)
  • It’s too risky for me. Maybe I’ll ask for insurance, or add terms to our contract that provide me with acceptable protection.
  • I can get a better offer elsewhere. You can either match that offer, give me something I cannot get elsewhere, or give up.

Typical reasons why you should accept an outcome:

  • There are additional benefits you did not take into consideration, such as not spending the time to find a better offer elsewhere, or my goodwill in terms of future trades, or my reputation as your client/provider.
  • If you do not accept now but change your mind later, I will not be able the same offer to you again in the future.

These reasons do not have to be true, they only have to believable. I don’t know anyone who would accept a 45-55 split on potatoes and Charolais steak, but you don’t know that, so I can still bluff my way through our negotiation, bringing you down from 65% (which is still a 32% win for me) to 60%. If you knew that no sane person would accept a 45-55 split, you could certainly call my bluff and even bring me back up to 10-90 or so.

How you present those arguments is a matter of style. Here are four different ways of presenting the same argument (you will not get more than $30k for an APL job) :

  1. No one else in town hires APL developers like yourself, so you either accept this $30k job or get out.
  2. I am certainly interested in your APL skills, but I would be losing money if I paid you more than $30k.
  3. We are looking to fill our APL development position, but I am not at liberty to offer you more than $30k.
  4. We have interviewed several candidates with your skills, and most of them are below your wage requirements.

Some aggressive types would prefer approach 1, while manipulator types would go with 2 (which is a lie), passive types would hide behind a third party authority using 3, and sneaky types would try to get an even lower salary quote by withholding the $30k figure in approach 4.

Alternative Benefits

This is a subtle but essential part of many successful negotiations. It’s not only about the money. In the above example, I traded 5% for the ability to get my food in time for lunch — a concept that had not been mentioned at all before. You decided that instead of matching my requirements as I expressed them, you would offer me something that was unexpected and which, to you, cost less than 5% but still, to me, was worth at least 5%.

Going down alternate routes is an excellent way to get a stuck negotiation moving.

Article Image © William Neuheisel — Flickr

Pipelines

Published
by
Victor Nicollet
on June 1, 2011
in Strategy
. 0 Comments

You’re a company. Your customers give you money in return for something. They usually start out without any knowledge of your existence and end up giving you money, and the paths they follow are one of the many customer acquisition pipelines you have created (perhaps unintentionally) for your company.

They are called pipelines because they usually convey a continuous flow of customers from point A (never heard of you) to point B (gave you money). Each is comprised of segments:

  1. They just heard about you: maybe you sent them an e-mail, called them on their phone or contacted them through a friend. Or maybe they did a Google search for your product and you were on the results page. Or they saw an ad for your product somewhere. Or your product was recommended by someone they trust. Whatever the reason, they are now aware of your existence. Some of these people will move on to the next step, which is to…
  2. Learn more about you: most of the time, they will visit your web site and sometimes look for references online or in their social circles. Sometimes, they call you, or have you call them, or even ask for a meeting and quick presentation. Either way, some of these contacts will decide that your company or product is interesting enough to…
  3. Try out your product: this could be a free limited-time trial, a demo version, an on-site pilot, a trailer video, a sample tray in a shop, or any other form of discovery that lets them actually experience your product without any serious commitment on their part. You can get away without a demo version if your product is either cheap enough that buying it once does not count as a significant commitment (such as buying a candy) or popular enough that it can convince customers on reputation alone (such as Half-Life 3). Anyway, based on the trial or the reputation, they will decide whether they…
  4. Become customers: this is the interesting part, where you get money in return for whatever you provide.

The number of people at each stage in the pipeline decreases: not all people who hear about you will even visit your website, not all people who visit your website will download the demo, and not all people who download the demo will buy the full version. Since having more people at the bottom of the pipeline is a good idea, a lot of efforts will go into making the pipeline more efficient — losing less people along the way. The customer conversion rate represents the percentage of customers that go from point A to point B, and you usually want the CR to be as high as possible.

In practice, there are two other important things to keep in mind : the customer acquisition cost is how much money you spend on a given customer (on average) to get them through the pipeline. If your pipeline costs you $200,000 in advertisement, phone bills, salesman wages and bonuses, to turn 1,000,000 people into 1,000 customers, then your CAC for that pipeline is $200/customer. The customer lifetime value is how much you can expect to earn from that customer over time, after subtracting the cost of the products you sold. If a customer pays $5 for a book that cost you $2 to manufacture, and never comes back, their CLV is $3.

What matters, then, is not the customer conversion rate, but your net profit per customer : CLV – CAC. A pipeline with a CAC of $200 that leads to a book-buying CLV of $3 is a pipeline that wastes $197 per customer in marketing-and sales-related costs: you spent $200,000 to have 1,000 customers buy $5000 worth of books (of which you only get to keep $3000) for a net loss of $197,000 ! In short, your job is making sure that the CLV – CAC difference is as high as possible in all your pipelines.

The reason why increasing the CR is a good idea is that a higher rate means more people come out of the pipeline, so the total pipeline cost is divided among all of them, and thus the CAC decreases. If I were to double the conversion rate on the above $200,000 pipeline, I would get 2,000 customers and the CAC would decrease to $100. Usually, a higher CR means lower CAC, but this breaks down when increasing the CR costs money: if you paid an additional $300,000 to get the better advertisements and salesmen that allow you to jump to 2,000 customers, then the CAC would actually increase to $250 ! Similarly, lowering the price usually means more people will become customers, which increases the CR and decreases the CAC — but it will also have an impact on the CLV, since you are now earning less money on every customer. If the price drops by $10 and the cost drops by $7, you just lost $3. Per customer.

Optimizing Pipelines Is Hard

The entire issue of sales and marketing can be summed up in a single short sentence:

You have to tweak the customer pipeline, which costs money, and you have no idea whether the conversion rate will improve enough to pay for the changes.

Usually, people have reasons to leave the pipeline other than the price. By finding those reasons and addressing the underlying issues, you increase the conversion rate. So, your course of action is:

  1. Find out why people are leaving the pipelines.
  2. Find out how you could eliminate or mitigate that issue.
  3. Estimate how much it would cost, how the conversion rate would evolve, and the resulting acquisition cost.
  4. Pick the solution that improves the acquisition cost the most, and implement it.
  5. Go to step 1.

Steps 1 and 3 are the difficult ones.

Step 1 is difficult because you need to determine why people who are not your customers don’t buy your product. Do you have an on-site satisfaction poll ? Do you send them a quick e-mail ? Do you have their contact information at all ? Do you even know what your conversion rate is ?

Step 3 is difficult because you actually need to estimate how many people would buy based on that one change. This is even harder, because people can always find new reasons not to buy, so that number will probably be smaller than your estimates from step 1.

These steps usually turn into the easier sequence known as A/B testing:

  1. Guess, or pay an expert to guess, why the people might be leaving the pipelines.
  2. Implement a solution that addresses the issue.
  3. Compare the new (B) and the old (A) conversion rates.
  4. If the solution actually improved profits, keep it !
  5. Go to step 1.

This solution does work, but it has two pretty heavy limitations. The first is that the solution from step 2 needs to be fairly cheap — it would be insane to implement a new major feature only to discover that no one cares about paperclip-shaped assistants. So, if the actual reason people are not buying is that a critical feature is missing, you will not find out through A/B testing.

The second limitation is that A/B testing has high fixed costs, because you need to actually change page layouts and shopping cart workflows for every test. These costs are one-shot, so they will be spread over all the customers coming out of the new pipeline — spending $1000 to get from 10,000 customers to 15,000 customers is a bargain, spending that same $1000 to get from 10 to 15 is not. So, unless your existing pipeline already has a fairly good throughput, A/B testing solutions to significant issues might just be too costly.

Article image © Brian Cantoni — Flickr

Diagon Alley – When to Jump on the Bandwagon?

Published
by
Victor Nicollet
on January 10, 2011
in Strategy
. 3 Comments

In J. K. Rowling’s Harry Potter series, Diagon Alley is a fictional place in London filled to the brim with magic-related shops and institutions, hidden away from the eyes of non-magical humans. It makes sense, if you’re a wizard wishing to establish a new shop and seeking as large an audience as possible, to do so in Diagon Alley: not only would you benefit from the existing infrastructure that keeps Muggles away and allows easy access to wizards, but you would also have improved access to the customers of existing shops that happen to be in the area. More wizards walk through the alley in minutes than would walk through any other street in London over the course of an entire week.

In Paris, I enjoy the services of our very own Diagon Alley. It is actually called Rue Monsieur-Le-Prince, and it can be found stretching from the Luxembourg gardens near the Senate and north up to the Place de l’Odéon. Instead of magical shops, it is home to a massive number of Japanese sushi restaurants: Itadaki, Tokiotori, Kiotori, Yokorama, Top Sushi, Sushi Yaki and Sushi Royal among others. The number of such restaurants is surprising: this is a short, narrow one-way street, much smaller than the nearby Boulevard Saint-Michel and Boulevard Saint-Germain, which means that you literally cannot walk ten feet without seeing a sushi restaurant. The local market for sushi food is beyond saturated, and the competition between restaurants is fierce — a quick strategic analysis would determine that a new restaurant would enjoy far less competition if they were to establish themselves anywhere else.

This is not caused by a heavy immigrant population. In fact, the area is known for its high real estate rates and is out of reach of the average immigrant budget.

Nor is this a unique situation: Rue Saint-Anne is a sister street on the other side of the Seine where most of the Donburi and Okonomiyaki traditional Japanese restaurants can be found. All together, clustered on a single street.

This makes no sense. Why is this happening?

Back in 1991, Paul Krugman penned Increasing Returns and Economic Geography: as transportation costs decrease and economies of scale increase, Krugman argues, it becomes more efficient for a given industry to concentrate in a single location, because the transportation costs involved in having to move the products are paid for by the economies of scale involved. For instance, building cell phones in a single city and selling them in an entire country is cheaper than having a cell phone factory in every city.

Sushi restaurants have minor economies of scale as far as production goes: fresh fish is a bit cheaper when the delivery does not involve a one-hour detour (especially since small daily deliveries are involved to keep the fish fresh), and it’s easier to set up a new sushi restaurant in a building previously housed another that went bankrupt, because the fridges and tools and kitchen are already there. But does this explain everything?

Actually, there are economies of scale in marketing here: being an exotic food, a local market alone is not enough to support a sushi restaurant because most people don’t eat there daily. To survive, a restaurant must have a brand strong enough to cover a wider area. Few sushi restaurants have the power to create their own brand, but a dozen of them on a single short street is enough to make Rue Monsieur-Le-Prince the de facto location where sushi and yakitori can be eaten. This, in turn, creates an incentive for more sushi restaurants to appear there: customers are loyal to the street, not the individual restaurants, and a cleaner (by virtue of being newer) restaurant might attract more customers.

Of course, there’s still niche sub-markets within the street:

  • There’s at least one restaurant open for lunch or dinner, including holidays and week-ends.
  • There’s at least one restaurant open on afternoons.
  • The restaurant closest to the large Luxembourg underground station also happens to be the largest, in order to have as many customers as possible with average food quality.
  • There are two restaurants with quiet, clean private rooms for business customers.
  • There’s at least one restaurant with a nice second-floor view on the Boulevard Saint-Michel.
  • There’s at least one tightly packed chinese-friendly restaurant.

In conclusion, while there are advantages to finding your own market and having a monopoly there, there are also advantages to sticking close to existing competitors in the form of economies of scale in production and marketing: if you use mainstream tools, you will find more support for them ; if you provide a well-known kind of service, you will have an easier time convincing your customers that they need it.

Be Careful What You Ask For

Published
by
Victor Nicollet
on December 3, 2010
in People
. 4 Comments

Jumo is a brand new social network that lets you connect with the causes and organizations that you support. They started their open beta recently, so I chimed in to see what was going on over there.

I didn’t get past the signup form. Not because of any bugs or technical difficulties, but because of this:

So, it turns out that to connect to Jumo, you need to have a valid Facebook account. Why not? Letting your users connect through Facebook is a good strategy to gather information easily (it lets the user import his personal information from Facebook instead of typing it by hand). Requiring a Facebook account is probably a bit too extreme in my opinion, especially when it’s technically unnecessary, but I can live with it, especially since my Facebook profile is designed to contain only public information.

The showstopper here is that I need to grant permission to post on my wall. I’m utterly and irrevocably paranoid about my online image, so anything that looks like me saying things I don’t actually want to say is grounds for immediate rejection. I have absolutely no idea what Jumo is going to do with this permission once granted, and the last few times I’ve seen that permission granted by my friends, shady applications flooded their walls with advertising for other third party sites said friends knew nothing about. I’m pretty sure Jumo is not going to do that, but them asking for permission can only mean one thing: sooner or later, a message from Jumo will appear on my wall without letting me review its contents first.

Ultimately, this is a gamble: by asking for wall access, Jumo is willingly throwing away all the reputation-obsessed people who will not grant that permission, but earns the right to post a message on the walls of all those people who don’t care enough about Jumo to write that message of their own accord. And they’re playing their cards just right, because people like me are a minority. But that doesn’t mean it’s not a cheap, dirty trick.

Get Rid of your Brand

Published
by
Victor Nicollet
on November 29, 2010
in Strategy
. 1 Comment

Brands are universally recognized as being a good thing to have—a form of crystallized identity that lets your customers recognize that they’ve heard about you, or bought from you, before.

On the other hand, brands require certain sacrifices. First, for a brand to be meaningful, you need to support it by being reliably exceptional. The «exceptional» part isn’t the hardest, because unless you’re entering a market that’s already fairly saturated (say, creating a new take-away chinese food outlet) your very existence is exceptional. Or maybe it is the hardest, but I don’t want to discuss it right now so you’ll have to wait until later. On the other hand, the «reliable» part requires some pretty sexy logistics: if Coca Cola tasted differently every time you bought a new can, the brand wouldn’t stay around for long, which means most of the engineering firepower was applied to creating an easily reproduced (and transported/stored) beverage, instead of having a great but easily messed up taste.

Second, you simply cannot be an ass to your customers. In fact, if screwing your customers over is part of your business plan, you actually want to avoid having any kind of brand that would let customers recognize you. Acquiring a non-brand is fairly easy if you stick to online-only presence, generic logos and a content-free domain name. If a bittorrent download website proves utterly unhelpful and annoying, are you going to remember its name? Was it torrentroom, torrentreactor, torrentz, torrentscan, torrentornottorrent … ?

In fact, the business model of torrent download websites can be summarized as follows:

I’ve been searching for my sanity and ended up on this page. The only piece of information here is found at the bottom: «total 0 torrents found» and basically everything else on the page is just a clever setup engineered to trick the visitor into believing my sanity can be found at these five locations. The blue «sponsored search results» heading is a blatant lie—those five lines are not search results, they’re going to appear exactly as shown regardless of what you’re searching for (except the initial bold text, replaced with your search keywords), and it’s all designed to be as desirable as possible: TRUSTED DOWNLOAD (trusted by whom?), Fast Download, Full Version, Rapidshare, sizes of 1.31 GB or ~700MB that are fairly typical of movies, and near-100% health.

Clicking through leads to a web site that will try to extract as much money as possible from you before you finally notice that my sanity is nowhere to be found.

I can accept that some people online are stupid enough to pay an anonymous shady website in the hopes of watching that movie without paying the movie publisher. I refuse to believe that anyone would be fooled more than once by this tactic. But just to be on the safe side, you don’t want people to remember you after you’ve done this to them.

This no-branding, screw-the-customer approach works pretty well for areas where:

  • Relying on repeat business is impractical
  • There are no dominant brands that own the market.
  • There is little to no contact between potential customers.

Torrent search websites are one example: repeat business is impractical for the same legal reasons as the absence of dominant brands (as soon as you become noticeable, the RIAA/MPAA shut you down), and people tend to remain anonymous while searching for torrents so there is no contact between such people.

Another example would be plumbers. Repeat business is hard to get (the better you are, the longer your customers can go on without calling for you again), there are no top-of-mind plumber brands around that people can think of, and there are no communities for people with plumbing needs to talk to each other. This is an excellent environment for all kinds of shady deals. A recent example a friend had to deal with:

  1. Your water heater takes its own life.
  2. Being a creature of the night internet, you google around for a nice replacement model.
  3. You look for a plumber who can deliver and install that replacement model. No helpful plumber reviews online, so you call several and pick one.
  4. The plumber comes, removes the dead heater and carries it away.
  5. As he works, he asks innocently why you picked that specific model, and you answer without suspecting anything.
  6. He goes back to the warehouse to fetch the new model.
  7. You get a phone call from him, explaining that he’s looking at the model right now, and it doesn’t have the feature you are looking for. But he has a cheaper model with that feature.
  8. You agree for the cheaper model to be installed. Unsurprisingly, it sucks.
  9. You call the maker of the model you initially asked for, and find out it did have that feature.
  10. The plumber does not return your calls.

What probably happened was that the plumber never had the model you were looking for in the first place, so he resorted to bait-and-switch to funnel you into buying the model he did have. Annoying, but clever nonetheless.

Low-Cost Software

Published
by
Victor Nicollet
on November 5, 2010
in Strategy
. 2 Comments

Low-Cost is all about having a dirt cheap base product, such as plane trips, combined with additional fees for almost every single thing you can imagine, such as carry-on luggage, using the restrooms during the flight, or wearing a blonde wig. In the B2C and B2IB (Business-to-Itty-Biz) worlds, the Low-Cost model works when it seems fair. Asking people to pay for what they use is fair in two ways:

  • Share the cost: What I use costs the company money. They went to great lengths to drive the base price down, so it’s only fair that I participate in any additional expenses I cause.
  • Avoid free riders: If I don’t have heavy luggage or use the restrooms, I won’t have to pay for the kerosene spent carrying around other people’s luggage or the water for their restroom usage.

That’s why a Low-Cost model cannot charge for wearing a blonde wig : the wig doesn’t cost the airplane company anything, so there’s no reason they should charge you for it.

This obsession with fairness goes head-to-head against traditional economic theory. In a traditional economic world with purely rational agents, everyone agrees that a printer that prints 100 pages/minute costs more than a printer that prints 20 pages/minute. In our real world, if the 20-pages printer is the exact same hardware as the 100-pages printer with a speed inhibitor tacked on, bloody murder will be screamed. Of course, big businesses don’t care — it’s a game everyone plays, so they’re going to negotiate discounts and settle for the higher price anyway — but if you’re targeting the B2C/B2IB market and they find out you’re into that kind of backstabbing, you’re done for.

If you’re going for a product with multiple prices, or with additional features available for a fee, remember that customers will be looking at the price difference through two very different lenses:

  • Is it worth it? Does that $5 feature provide me with happiness or productivity that exceeds $5?
  • Is it fair? Does that $5 feature cost the provider anything close to $5, or are they just gouging me for the fun (and gross margin) of it?

In the software world, we’re all concentrating on the first question, but we had better keep away from the second one : writing software is dirt open-source cheap.

It’s fair to ask for some money when you’ve spent weeks working on a feature. It stops being fair when you cripple your software to create a cheaper version. And by «cripple» I do not necessarily mean removing or blocking existing features: willingly straying from the optimal design to be able to monetize a feature that would have been an immediate consequence of that optimal design.

Are you providing some of your users with daily backups, instead of guaranteeing that you will never lose their data?

Are you trying to sell data recovery features by selling a product without a revision history tool?

Are you actively fighting third party data conversion tools to force customers into buying your own data extraction plug-in?

Are you limiting the number of anything (users, posts, files…) that the users are doing with your software on their computers?

Prove It for Breakfast

Published
by
Victor Nicollet
on October 18, 2010
in Strategy
. 4 Comments

You’re saving an important document on your computer and all of a sudden, it explodes. Maybe the power went out, maybe the hard drive joined the choir invisible, or maybe the application just bluescreened. Either way, you lost your work for the past five minutes (because you’re hitting Ctrl + S every five minutes, right?)

I have some bad news for you: the computer went down while it was writing on top of the file. What used to be a though-provoking bullet-based presentation has now turned into the software equivalent of a week-old roadkill.

In the software industry, we need higher reliability. You don’t want your bank to say «your payment is safe, unless a random crash occurs in the next five minutes», what you expect is nothing less than «should the apocalypse strike within the next five seconds, your financial transaction will be safe with us» and this causes us technical types to run around in circles looking for better ways to keep your data crash-proof.

So, obviously, every single database vendor out there advertises itself as being completely and irrevocably crash-proof. Usually as part of a huge bulleted list of features. Boring.

Here, CouchDB is the one with the outstanding marketing message. The CouchDB server cannot be shut down by any safe means, the only way to stop it is to cause it to crash (or kill it with a task management tool, or power off the computer). They’re basically implying that their crash protection design is so good, crashing the software is the normal shutdown procedure.

One way to be outstanding is to make difficult things appear effortless — routine events no more remarkable than tying your shoes or drinking water. Where every other software package makes crash recovery sound like an exceptional effort worthy of being included in a feature list, CouchDB shrugs, an unimpressed «I eat crashes for breakfast» look on its face, and goes back to manhandling your data.

So, what do you eat for breakfast?

The Outstanding Economy

Published
by
Victor Nicollet
on September 25, 2010
in Strategy
. 2 Comments

Not so long ago, this world was a world where everyone died within miles of the place they were born.

If you wanted to have dinner, you could eat stale bread at home, or you could eat stale bread at a friend’s home, or you could eat somewhat less stale bread at the village inn or tavern. If you wanted to eat something really outstanding, you would go to a large city and spend what probably amounted to your life’s savings to eat a meal by a top chef. And you would be happy because it had meat in it. And spices. Then, the industrial revolution happened, and its main accomplishment was that it turned masses of people living in the country with access to plain, bland commodities into masses of people living in the cities with access to plain, bland commodities. It also had a very interesting side-effect: it sparked a century-long downward trend in transportation costs.

In 1610, even the richest merchant in Western Europe could not get their hands on a plain mango, because mangoes only grew in the east indies and were months away by ship or caravan. Until the advent of refrigeration, most of the western world knew of mangoes only in their pickled form (this led to the apparition of «to mango» meaning «to pickle» in some parts of the US).

In 2010, advances in refrigeration technology (fruit last longer), air travel (fruit travels faster) and cultivar development (the main cultivar of mangoes, Tommy Atkins, was picked because it provides the longest shelf life) mean that everyone in the western hemisphere can buy a fresh mango for the equivalent of ten minutes of work at the average wage.

On a local scale, inhabitants of major cities have hundreds of restaurants available to them for dinner, conveniently placed within an hour of their home by car or public transportation.

And of course, using the internet, anyone has access to any piece of information available online, and can buy unique hand-crafted pieces from an equally anonymous person on another continent.

Too Many Choices

When you only had access to a handful of options, you could become knowledgeable about each one. You could know how good was the food at every restaurant in town, because there were only five. You could have an opinion on everything, and if you didn’t, you could ask your friends, which is how reputations spread.

As the number of options increased, the reputation system could not follow because there are too many alternatives for any individual or tight social group to handle. This led first to the apparition of reviews (a trusted third party specializes in having an opinion on everything, and shares it with everyone), but the number of product categories has increased (meaning you now need a reviewer reviewer to determine whom you can trust) and they now differ on several variables (weight, battery life, size of the app store, price…).

So, we end up subject to the availability heuristic (people only remember and discuss exceptionally good and exceptionally bad things) and satisficing (people will settle on the first thing that’s not too horrible).

There are two obvious strategies one could follow from here. One is the classic approach to marketing, which you probably experienced on a daily basis for decades: create something that isn’t exceptionally bad (so it isn’t knocked out by the availability heuristic), advertise the hell out of it so that it’s the first thing people try (and settle on it through satisficing), and watch the cash come in. If you can set up a subscription-based system with lock-in, that’s even better. This is a great strategy for conquering a new market, but it’s extremely inefficient at stealing market share on existing markets.

The other strategy relies on creating an outstanding product—something that is so exceptionally good, the availability heuristic will kick in and customers won’t even remember there were any competing products in the first place. While this strategy can be used for conquering new markets, the classic approach is cheaper because it can afford using a cheaper product. On the other hand, the only way to steal market share is to create something that is obviously and undoubtedly better than the alternatives.

So, it’s a matter of outstanding vs. satisficing. What side are you on?

Related Posts

Picture credit: Sergey Prokudin-Gorsky under Creative Commons.

Facebook Pages vs Web Pages

Published
by
Victor Nicollet
on September 20, 2010
in Strategy
. 2 Comments

If you’re doing anything that involves dealing with many people, you need to have a web presence. It doesn’t have to be a billion-dollar corporation or a trans-national association. My wedding will have a web presence because it involves several people and losing an online web site in your history or bookmarks is harder than losing a fancy piece of paper, and because a web page can provide so much more features than dead tree paste.For instance:

Where will the wedding be? → link to Google Maps (though Alix prefers Mappy)

When will it be? → click a link to add it to your Outlook / Google Calendar

How do I get there? → see a list of hotels and train schedules

Who is coming? → use the RSVP feature

This is turning into a wedding organization checklist, which isn’t the point. The real question is, should I create a Facebook Page or a normal Web Page?

Advantages of Facebook Pages

  1. It’s easy: you don’t need any technical abilities to set up and maintain a Facebook page.
  2. It’s free (as long as you don’t buy ads).
  3. You get a clean and readable page layout, a discussion forum, a photo gallery, a simple web analytics suite, and a readily available Open Graph node (something people can Like)
  4. The wall of your page acts as a multimedia mini-blog with automatic subscription for Facebook users (when they Like your page, all your updates show up in their feed) and RSS subscription as well.
  5. People trust Facebook pages, because Facebook would not allow harmful or offensive pages

Advantages of Web Pages

  1. You can use any web domain. Not having your own domain name can sound unprofessional, and it can reduce your Google Ranking.
  2. You can create a web page for anything, without being limited by the Facebook terms of use or the possibility of Facebook simply wiping out your page from existence on a whim.
  3. You can have a real blog, with updates of a meaningful size.
  4. You control your web page, which lets you include any special features that Facebook does not allow (a store locator, files to be downloaded, dynamic data, restricted areas, multiple languages, a link to a twitter account).
  5. People explore web sites: they come in non-standard formats with non-standard information, so there’s curiosity involved.

So ultimately, it’s a matter of independence versus commodity. If you don’t need the benefits or social standing of having a standalone Web Page, go for a Facebook Page instead. Otherwise, be independent, but be prepared to pay the cost (in time and money).

On the long term, having a Facebook Page ultimately serves a different purpose from your Web Page, so you should strive to have both.

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