Living in trouble

Ways to protect your price when negotiating a sale

Whenever we have to negotiate a sale, we confront the fact that sellers and buyers naturally disagree about price, based on the endowment effect. Science has demonstrated a bias among owners to over-estimate the value of any item they possess. This bias does not make the potential buyer correct, but it ought to give the seller pause. Your buyer is very unlikely to accept your initial offer, all other issues being equal. Fortunately, science is also showing us some ways to better protect the seller's price. 

Harvard Business Review: Why Buyers and Sellers Inherently Disagree on What Things Are Worth, 2016-May-13 by  Carey K. Morewedge

One effective tactic is to direct the attention of buyers and sellers to the information that they ignore. Asking buyers to first think about the valuable attributes of the good they might acquire leads them to value the good more. Asking sellers to first think about what else they might do with the money they would receive—the opportunity cost of owning the good—seems to also reduce the price they demand to give up what they own.

Another effective tactic is to change the reference price that people use to evaluate the good. When buying or acquiring a good, one might remind sellers of cheaper alternatives, like used versions of the same good or similar more economical goods. When selling or trading a good, one might remind buyers of more expensive alternatives to what one is offering.

A third tactic is to get buyers to touch, hold, or imagine owning the good. Experiences like interacting with a product through a touchscreen, receiving a coupon for it, or temporarily being the highest bidder for it in an auction all have the potential to induce the endowment effect for the product if they make us feel like we own it.

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With creating new things, beware the How overwhelming the What

Dave Owens at the Vanderbilt University business school agrees that everyone is creative, and he also notes that in many business, people who don't see themselves as creative professionals have major influence over how things are created. And that changes the what. So if we're planning a new product or process, we have to be self-conscious of what values and power structures we are serving. 

Ozy: A Design Expert on Maximizing Creativity in the Workplace, 2016-Mar-16 by Eugene S. Robinson

“My biggest insight was that you could look at a product as being the manifestation or outcome of a set of interpersonal and organizational ‘negotiations,’ or battles, over subjective decisions,” Owens says, looking much younger than his nearly 50 years. At Dell, “the operations people won most of the battles,” he says, leading to machines that were cheap, modular, efficiently produced and not much to look at. Contrast with Apple’s machines, “you could see that design and marketing had won quite a few more battles — their machines were expensive, hard to produce and beautiful.”

That realization led to certain recondite truths that stretched well beyond all of the laptop and tech making its way past him. Mostly, the ideas that how we build the building blocks affects what we build, and that we actually need the stuff we build to live. “Yeah, take away all the designed stuff and most of us wouldn’t last more than a month,” Owens says with a laugh.

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To lead our teams to greatness, we have to spend more time showing them how to work together

My experience over the years is that when managing a team, selecting the right members is much less important than creating the right conditions so they can work. In volunteer projects, we often have no control over the participants. What a relief to find that how people are allowed to behave matters more than anything they bring to the table.  

Only Dead Fish: On High Performance Teams, 2016-Mar-5 by Neil Perkin

This lengthy New York Times piece on the lessons that Google has learned from its lengthy quest to find out what makes an exceptional team [found...]

Team composition, longevity, degree of hierarchy, and the mix of personality, background, skills of the team members all made no difference. 

Instead, further research revealed that the group norms ('the traditions, behavioural standards and unwritten rules that govern how we function when we gather') that the team operated to seemed to play an important role in how successful a team was. Analysis of over a hundred groups for more than a year showed that the right norms could raise a group’s collective intelligence, and the wrong ones have the opposite effect (even when individual intelligence was high).

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Why employees are always in training

As a company grows, it's nearly impossible to control the quality of the people. If we plan to build a company, we have to plan on constant training. Otherwise, we'll follow Chipotle and General Motors into national scandal. 

Harvard Business Review: How one fast food chain keeps its turnover rates absurdly low, 2016-Jan-26 by Bill Taylor

“People go out of calibration just like machines go out of calibration,” CEO Crosby explains. “So we are always training, always teaching, always coaching. If you want people to succeed, you have to be willing to teach them.”

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Is targeted advertising a problem? Is signaling the solution?

I don't have the time to wade through everything Don Marti and others have written about the 'evilness' of targeted online advertising. However, I do think they are correct to worry about it. As a marketer, I'm most concerned with the plausible idea that it causes people to ignore advertising at a higher rate. As a human being, I'm concerned that it may reinforce problem behaviors such as gambling addictions.  Tq160219bd

Although it will never go away, mass advertising via broadcast media is NOT the answer for any EXCEPT the largest advertisers. However, there's another form of advertising which is not getting much attention is this discussion, and that's sponsorship. Not permanent sponsorship but temporary sponsorship and multiple sponsors who can keep a web site going. Someone still has to sell and maintain those sponsorships, but for niche web sites, this seems a much more useful approach than highly targeted advertising. I hope to see it flourish and slowly reduce the amount of mechanically targeted ads chasing us around. 

Don Marti blog: Targeted Advertising Considered Harmful, Updated 2015-May by Don Marti

In a market with asymmetric information, signaling is an action that sends a credible message to a potential counterparty.

Advertising spending is a form of signaling that shows that a seller has the money to advertise (which the seller presumably got from customers, or from investors who thought the product was worth investing in), and believes that the product will earn enough repeat sales to justify the ad spending.


How the Verizon Wireless 'Smart Rewards' Program Backfires, Erodes Customer Loyalty

For our family wireless service, we switched from AT&T to Verizon several years ago, and we've found them eager to provide reliable, high-quality service. So we've been loyal. A couple of months ago, I ran a price comparison and found that Verizon remains a superior value.   IStock_000019396853XSmall

So when Verizon launched their Smart Rewards program, I expected it would offer good value to its customers. Since we'd been customers for a few years, we started the program with over 100,000 points, and I spent a couple of hours trying to find a way to spend them for something we'd really enjoy. 

I was very disappointed. Most rewards require us to spend a substantial amount of our own cash. Freebies are very hard to access. And how come they can't let us convert even a small part of the points to paying off our bill, the way American Express does? Or maybe we could use it to get more data for special occasions?

So then I started searching to see what other people thought and found others equally miffed. In fact, the whole program is more geared to Verizon collecting data rather than rewarding customers. All of which contributes to their soaring profits. 

When rewarding our customers we have to look first at two big issues: 1) What benefits do our customers look to use to provide? 2) What values do we share with our customers? 

Ad Exchanger: Verizon Rewards Program Draws Customer Ire, Putting Mobile Data Sharing at Risk, 2015-Nov-5 by Allison Schiff

Many Verizon customers perceive that the company's Smart Rewards loyalty program – which, it should be noted, requires users opt in to be tracked for advertising purposes through Verizon Selects [emphasis added]– leaves much to be desired. As one Redditor commented in September, “It mostly exists to con you into buying things from partners at prices that aren’t particularly competitive.”...

It’s an aggressive move into digital ad monetization, a space typically populated by Facebook, Google, et al, and the opportunity for advertisers is clear. As Gartner research director Martin Kihn put it in a previous interview with AdExchanger, Verizon is creating “a mini-Facebook killer for mobile sales.”

For its part, Verizon is framing its intentions, as least to consumers, as a help-us-help-you sort of play. An email received by some Verizon subscribers in late October pointed to an explainer page claiming that the combination of the Verizon/AOL data sets “will help make marketing you see more personalized and useful to you across the devices and products you use.”...

All users start out with at least 10,000 points when they join, with the chance to win [emphasis added] additional points for doing fairly easy, run-of-the-mill stuff like paying bills, opting for electronic payments or upgrading devices. For example, participants can get 10 points for every dollar spent.

Although points can’t be applied to a phone bill [emphasis added], rewards run the gamut from the chance to enter sweepstakes to discounts off Verizon products, meals at local restaurants, travel and select merchandise.

Users can also put their points toward gift cards – say, 1,000 points in exchange for $10 off a $100 Denny’s gift card, meaning the customer is still responsible for shell out [emphasis added] $90 – or enter live auctions to win gift cards or merchandise.

The Motley Fool: Verizon Communications Inc. Earnings: Solid Wireless and FiOS Results Propel Shares Higher, 2015-Oct-20 by Joe Tenebruso

Verizon added 1.3 million new monthly wireless subscribers in the third quarter, which topped analyst expectations of only 1.1 million, according to Bloomberg. In addition, Verizon continues to show signs of strong customer loyalty, with its retail postpaid churn rate remaining low at 0.93%, a 7-basis point improvement from the year-ago quarter. That's impressive because it shows that Verizon is not only adding new customers, it's also doing an excellent job of keeping its existing customers....

More importantly, Verizon remains a cash-flow-generating machine. Even after adjusting for a non-reoccurring $2.4 billion gain related to the monetization of tower assets in the first quarter, operating cash flow increased to $26 billion in the first nine months of 2015, up from $23.2 billion during the same period of 2014. And adjusted free cash flow (excluding the tower sale) totaled $13.5 billion during the first three quarters of 2015, up from $10.5 billion in the year-ago period.


To sustain our business, we have to keep managing the relationships

When we discover a new customer and they really like us (really!), we may fool ourselves into expecting smooth sailing. While it's good to experience the sun shining on us, we have to keep steering our business by accepting responsibility to manage the relationship.  Tq150908bw

Years ago I was very upset when my partner wanted to resign an account that was ready to flood us with new business. I wasn't the one in charge of the relationship, and my partner was hearing that customer demand many changes to the terms of business. The customer was quickly becoming unmanageable. 

We can't control our customers, our luck, or much of our environment. The best we can do is prepare and decide what's good for our business, what our customers are allowed to expect, and what value we expect in exchange. 

The Likeable Expert Gazette: Fly the Friendly Skies, 2015-Sep-4 by Michael Katz

People who've never worked for themselves often make this same erroneous assumption about running a business: They think it will be a steady climb, when in fact, it's anything but.

In my experience, it goes something like this:

Up ... up ... down ... sidewayssssss ... up ... more up ... down ... down ... what the ... maybe I should get a job again ... oh look, leveling off ... AMAZING! ... sideways the other way ... AAArrrrggggg!!! .... down ... UP ... UP ... what the hell just happened?

And that's all before lunchtime.

My point is simply this: It's September, the time when we all get serious again and "go for it." Nothing wrong with that; I intend to do the same.

Just remember, no matter how long you've been at it, it's never a straight shot and there's always a lot of bobbing. And even if you have a couple (or several) bad months in a row, it's to be expected. It doesn't mean you're failing.

As they say in flight school (I'm assuming), no matter what appears to be going wrong, don't forget to keep flying the plane.