A counter-intuitive strategy results in enhanced sales and high margins, often because people are willing to pay a premium for normal, regular goods and services? In his book Predictably Irrational, professor and author Dan Ariely provides experiments to show people’s irrational behavior as they spend. Ariely says most people don’t know what they want unless they see it in context. That’s why some firms provide the context for irrational spending with counter-intuitive strategies. Consider aspects of Costco, Starbucks, and Apple’s strategies:
At Costco, people pay an annual membership fee for the “privilege” of shopping–to spend! This counter-intuitive Strategy generates the bulk of Costco’s profits. Yet, most businesses haven’t been able to copy it successfully.
Starbucks’ coffee demands a premium. Why? Starbucks’ doesn’t merely sell coffee and other products. Indeed, Starbucks’ strategy is to provide the “Third Place” for folks to gather: home, work, and Starbucks. Why do people pay so much repeatedly to consume products and hang out at Starbucks? One reason is Starbucks doesn’t mind if you stick around and buy nothing. Starbucks knows enough people will spend. And the longer folks stay in the location, the greater the probability they will spend. Starbucks is not only selling coffee and other products but creating a gathering environment—an excellent counter-intuitive strategy!
Apple charges a premium for newly released phones (and other products) that do not make existing phones obsolete in the short to medium terms. For example, iPhone X bought last year is in perfect condition today and will function excellently with Apple’s new operating system, iOS 12. Nevertheless, Apple upgraded iPhone X, confident folks will pay a premium for essentially the same product they bought one year earlier.
Strategy Is About Choices
To take advantage of a counter-intuitive strategy, a firm must realize that strategy is about choices of what it plans to do, and what it won’t do to reach and retain customers. That’s it! It’s not about growth as so many businesses state. It’s the strategy that will cause growth or decline. Growth, per se, is the result of the strategy. Developing a proper counter-intuitive strategy starts with a basic knowledge of attitudes and insights of your existing and likely customers and target markets.
Regularly, firms must use validated market research tools and techniques to stay close to economic, social, and market environments to understand developments affecting prospective customers.
Counter-Intuitive Strategy Isn’t Enough
A counter-intuitive strategy isn’t enough. A firm must apply counter-intuitive thinking as it examines it’s on going business activities to develop value creation solutions that doesn’t diminish customer care. For example, managing working capital requires counter-intuitive thinking. People would not expect the ideal inventory level to be zero. But it is! To be sure, the uninitiated would think a firm would be better off with lots of inventory so it would eliminate the possibility of being unable to fulfill an order. Just-in-Time inventory systems are popular because holding inventory represents cash tied up and not available in the rest of the business. The faster inventory turns the better. Effective working capital management is crucial to a business’ success.
It is counter-intuitive but an excellent business practice to put properly trained and intrinsically motivated frontline workers in right jobs, remove direct supervision, and empower these workers to serve customers. This approach will create more value in the business than a hierarchical system with un-empowered, poorly trained employees with lots of supervision. That’s why Southwest Airlines and FedEx and others put people first and customers second.
© 2018 Michel A Bell
Keys to Mission-Focussed Business
Why Target Failed in Canada
The post Counter-intuitive Strategies Can Yield High Margins While Being Attentive To Customers’ Needs appeared first on Michel A Bell Stewardship Blog.