A counter-intuitive strategy delivers huge sales and high margins. People pay a premium for plain goods and services, once the firm offers them in a special form. Professor and author Dan Ariely’s book, Predictably Irrational, shows people’s crazy spending. Ariely cites experiments to support his thesis. He concludes that most people don’t know their needs and wants unless they see them in context. That’s why firms use counter-intuitive strategies to push odd spending. Let’s review Costco, Starbucks, and Apple’s strategies.
Costco charges an annual membership fee for the “privilege” of shopping. People pay to spend? That’s crazy, but true! This counter-intuitive strategy makes the bulk of Costco’s profits. Yet, most firms haven’t been able to copy it.
Starbucks’ coffee demands a premium. Why? Starbucks doesn’t sell coffee alone, it sells and other products. But Starbucks’ strategy is to present the “Third Place” for folks to gather: home, work, Starbucks. People pay much to consume products and hang out at Starbucks. Why? 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 higher 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 work well with Apple’s new iOS 12. Yet, Apple upgraded iPhone X, confident folks will pay a premium for virtually the same product they bought one year earlier.
Strategy Is About Choices
To gain from a counter-intuitive strategy, a firm must understand strategy. It is the firm’s choices of what it will and won’t do to reach and keep customers. That’s it! It’s not growth as so many businesses state. It’s the strategy that will cause growth or decline. Growth, per se, results from 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.
Is a counter-intuitive strategy enough? No. A firm must apply counter-intuitive ideas, too. It must offer results that create value for clients. These ideas must separate it from the crowd. But the firm must be open and honest. Working capital is an area where the firm has scope to use this style.
Active working capital management is vital to a firm’s success. Managing working capital calls for counter-intuitive logic. The uninformed suppose a firm might do better with lots of supply to reduce stock-outs. They don’t expect the ideal stock level to be zero; but that’s it! That’s why, firms use Just-in-Time inventory systems to keep inventory at zero. It is popular because inventories are cash tied up and not available in the rest of the business. The faster inventory turns, the better.
A counter-intuitive business practice puts trained and intrinsically motivated frontline workers in right jobs. It removes direct control, and it allows these workers to be their best. This is real empowerment. It is a style that creates more value in the firm than a traditional reporting model. The latter has unempowered, poorly trained employees with much guidance and it destroys value. That’s why Southwest Airlines, FedEx and others put people first and clients second. And this approach creates much value for clients and others.
© 2018 Michel A Bell