SMB Impossible, Part II

In last month’s post, we got into a meditation on business turnaround principles, as demonstrated by the philosopher Robert Irvine (the host of Restaurant: Impossible). Restaurant: Impossible is my guilty pleasure, my Keeping Up With The Kardashians. And I thought it might be beneficial to try and divine real-world business lessons from a staged, pseudo-realistic makeover show. This is roughly like learning about culture and teamwork from Survivor.

Here is a brief review of the three turnaround principles from last month’s article:

1) Who You Are Is Meaningless; What The Market Wants is Everything

This means that you should get over yourself and your original concept, and make what the market will buy from you at high margins.

2) Knock On The F*#@ing Doors

This means that you should stop pretending that you instinctively know your customer’s mind, and show some hustle with phone calls, surveys, meet-and-greets, and other opportunities that force you to come out from behind your desk to engage the customer.

3) Simplify! Cut Down The Menu and Make Everything Delicious

This means that if you are working your ass of but not profitable, you’re most likely stretched too thin, with too many unprofitable and probably low quality offerings.

And now, let’s pick the conversation back up, and learn what else the great Robert Irvine has to tell us. For the remainder of this article, I consulted heavily with Gary Sutton’s insanely practical turnaround handbook, The Six-Month Fix.


4) You Are Ignorant, So Fix Your Ignorance

At the beginning of a standard episode of Restaurant: Impossible, Irvine typically asks the restaurant owner how they started the restaurant. The story usually goes something like this: “Well, I spent 15 years in the manufacturing / software / live bait / other completely unrelated industry, and wasn’t fulfilled. So I took my child’s college fund and all other life’s savings, and went into a business I knew nothing about with a person whose relationship with me I would never want to damage. We are no longer on speaking terms, and I am $25k/$50/$100k/$3M in debt.

The follow-up is always, “What knowledge or experience about the restaurant industry did you have when you started?” Invariably, the answer is, “None.”

Then, “Do you know what your average daily/weekly/monthly food cost is?” –“No.”

–“Do you know what your current food inventory is, and how fresh it is?” –“No.”

There are some businesses that people romanticize. They say, someday I’ll quit the rat race and own a restaurant/bed-and-breakfast/art gallery/eBusiness/really-popular-blog. As if with any of these endeavors, simply hanging the “Open” sign rings the cash register. Restaurants and hospitality businesses are difficult on a good day. The costs are high, the staff typically young and inexperienced, the patrons ungrateful, the economy flaccid, the kitchen chaotic, yada yada yada. Even people who’ve spent years in this industry have a tough time because certain elements like tastes change quickly.

Accept that you are ignorant. Even if you’ve been in your industry for your entire career, accept the philosophical stance that at any point in time, “I know nothing.” Then, get on top of the basics. What are my costs (fixed vs variable)? What’s my breakeven point? What are my product margins? That’s it. Start with your costs and your profitability. Knowing that makes everything easier.


5) Forget The Grand Plan, and Stop the Negative Cash Flow

The Six-Month Fix, by Gary Sutton

Once you fix your ignorance, you can proceed to fix your loses. Those managers who are aware of their costs and still losing money are usually under one of the many common illusions in business. These are illusions like, “We’re shooting to acquire this one massive contract, and once it comes in things will get better.” Another is, “We’re just holding together until our game-changer product comes out later this year/next year/in five years.” I’m cribbing heavily from Sutton here.

The illusion in the restaurant business is usually, “We are the only authentically Italian/Lithuanian/Madagascarian/Martian restaurant in at least three miles, so if we can just wait until the economy picks up…” Just as an FYI, the economy is a great scapegoat. I’ve made this mistake too, blaming the economy for the lackluster effects of poor execution. The list of companies that created their greatest profits in the middle of, nay because of, an economic downturn is large and humbling.

This is not the time for holding tight to illusions, egos, misguided concepts or unrealistic assessments of the future. This is the time for adaptation.

There is one caveat: I am not saying that we mortgage our future by killing off investment in future products, or anything like that. Cash is king, but it is not God. We all have to be actively figuring out how our offerings are going to be better tomorrow. That’s what a business is. But we will be judicious about it.

So rank all your current products or services by profit margin, and kill the bottom half of the list. Or see if prices can be raised on low-margin products without affecting sales too dearly. Rethink costly expenses like travel. Find out where your employees hours are being wasted (too many meetings, anyone?). Be open to all options that will save you from having to lay off employees.


6) Figure Out Your Core

As Tim Ferriss would council, focus on the 20% of your offerings responsible for 80% of your revenue, and make them outstanding.

In the last section, we discussed one side of the Coin of Delusion: hanging onto an outdated identity or long-shot possibility as a justification for not taking action. Like, “The economy will bounce next quarter.”

The flip side of that delusional coin is the notion of being everything to everyone. The restaurant that promotes itself as a bistro AND pizza joint. And they sell sushi. And coffee drinks. And they’re a music venue…

Diversifying your product (profitably) is fine if it doesn’t interfere with your core business identity. Sutton tells the story of a manager at Home Depot who, as a test, let a vendor sell pantyhose at a kiosk that was near the cash register. The test ended up being wildly profitable, and could be more so if it was expanded. The manager took this idea to his superiors, expecting to be instantly promoted and given a medal for original thought.

The idea was axed, and the manager was asked to remove that profitable kiosk. But why?? Because it’s Home Depot. What home improvement problem is solved by pantyhose, other than the potential attractiveness of the occupants? Their executive management said, correctly, “Fuzzy direction kills more businesses than competition or dying markets.”

There are some very general businesses, but most successful ones find success by distinguishing their product and their customer better than their competition does. This is like a pub that says, “We have many things on the menu but we are famous for how good our hamburgers are, and we tailor our business to the after-work crowd from our working-class neighborhood.”

In any business, you have to be able to do something better than all the other guys, and that something has to heavily influence the purchase decision in your favor. What do you do better than anyone else?


7) By the Time You Become Aware of Employee or Culture Problems, It’s Too Late

Of all the elements of Restaurant: Impossible, the one that adds the real umph is the human drama. The owner has their whole livelihood on the line, usually mortgaged many times over. They are typically desperate to turn around their failing business through long hours and pressure on the staff. In every case where Irvine finds business dysfunction, he also finds dysfunction on a managerial, which is to say a basic human, level.

This typically plays out as a Come to Jesus meeting between the manager and the staff. You can tell that it’s the first honest conversation that’s they’ve all had in a while. The manager is resentful that the staff acts lazily and unprofessionally, leaving him/her to clean up the mess and put in all the extra hours. The staff tries to articulate as best they can that they’ve never been properly trained, that there are no established procedures for anything, and that their personal boundaries are violated by the manager’s step-in-an-do-it-myself attitude. Crying is usually involved.

Trust is a tricky subject. Managers can screw up trust very unintentionally. I’ve known very well-meaning managers who put a lot of time and effort into developing a specific company culture, who then inadvertently screw up that trust by stepping in an controlling a process that they’re supposed to have delegated. They can’t help themselves.

Fight opaqueness and politics. Healthy culture does not begin with Foosball tables in the office (although there’s a lot to be said for that). Healthy culture starts with transparent conversations and honest assessments about collective strengths and weaknesses. The moment you feel you need to “puff up” or in any way massage or sugarcoat a communication “to the troops” (I hate that pejorative term), your culture is already dying.

Actually I’m wrong about that. Healthy culture starts with the manager being able to hear criticism of his/her performance voiced by his employees, value it, absorb it dispassionately, and fix it. Some would argue that should be a two-way street, but I disagree. The manager is setting themselves up as a leader. They set the example of how to take the criticism of a transparent conversation and use it to make improvements. “The troops” will do likewise if they have the good example to follow.

SMB, Impossible: Transferable Principles of Successful Small Business

May 31, 2015 1 comment

One of my guilty pleasures is the show Restaurant: Impossible with Robert Irvine. Whenever I take a trip out to my parents’ place in Woodstock, they always have a backlog of the show on their DVR.

I’ve always loved stories about fixers, from Winston Wolf to Michael Clayton to Ray Donovan, to real life practitioners like Judy Smith and Gary Sutton. And of course, Chef Irvine. I love the romantic fiction that a special breed of grizzled, hard-knocks teachers can fly in like The Pros from Dover and set everything straight. And of course, those fixers who do not live in complete fiction are still presenting a stage-managed pseudo-reality. We accept this when we watch – that their pronouncements are “for entertainment purposes only.”

Still, there are learnings here for us to take. Let’s take Irving as our example. For those who have never seen Restaurant: Impossible, it’s exactly what you think it is. Irvine has to make-over a failing restaurant within two days and with a $10,000 budget. He’s an imposing former military man, and his brand of love is, as you would expect, a little on the tough side. He’s also a showman and a bit of a self-promoter who raised some controversy in 2008 for resume-padding, so we know better than to take his lionized self-portrayal at absolute face value.

I have no doubt that, in general, the incompetencies, lack of standards, ugliness and muck that he identifies are not completely off-base from how they are portrayed on the show. Among the sloppiness he finds are thing like business partners who no longer like one another, mountains of financial debt, no processes and procedures for running the business, no clear responsibilities, no real leadership, bad food, ugly decor, dirty kitchens, untrained staff, and naturally no customers. There may be exaggerations, and some circumstances where Irving is off base, but for the most part I’d be willing to accept that the initial problems are pretty damn bad.

Irving’s next step is to make some major adjustments to menu, decor, responsibilities to whip things into shape. Let’s see if we can’t take some of these restaurant turnaround actions he would institute, and broaden them out a bit so that we can apply them to our own businesses. Here are my first three principals. More to come in a follow-up post. Let me know your suggestions in the comments.


1) Who You Are Is Meaningless; What The Market Wants is Everything

The first obstacle to making a profit that Irvine typically finds is that the restaurant owner has a great deal of ego wrapped up in the restaurant’s identity. It’s as if to say, “Regardless of the dynamics of the world around me, this is WHO WE ARE!!!” These are the establishments that are still preparing Beef Wellington table-side like they did in the 60’s, even though no one today orders it.

There have been some restaurants that didn’t survive the make-over, with some of the doomed owners going on record saying that they undid a lot of Irving’s changes because that’s “what their customers wanted.” And then they went out of business. I have no idea the individual circumstances, but I’m picturing one of these diners in a college town who has somehow made regulars out of the five retirees in the neighborhood. And someone comes in and says, “Are you crazy? This is a college town! That’s the market!” And then the idiot owner points to the five retirees and says, “These are my long-term, valued customers, and I’m going to orient my business around them!”


2) Knock On The F*#@ing Doors

One recent episode I binged from my parent’s DVR involved a restaurant in Downer’s Grove, IL that insisted on being THE high-end grocer/bistro of the area. They had a huge rack of $60+ bottles of wine that hadn’t been turned over since they opened, and they wondered why. They were located in a residential complex, and so the first thing that Irvine did was something that the owners had never once thought to do: he knocked on the neighbor’s doors, introduced himself, and asked what they thought of the grocer/bistro. Surprise, surprise…no one went there because it was way overpriced.

If you’re in a small business that’s not executing well, the easiest thing you can do is come up with an internal hypothesis: “Oh, it must be the economy,” or some such. The thing that takes guts, and the thing that you have to do, is find some potential customers and effing ASK them. “Hi, I’m Mr./Ms. Blank, and this is my company/product. This is the price. Would you ever buy something like this for yourself?” I personally suck at this. I’m a digital marketer, which means I hide behind an Adwords or Facebook ad platform all day and “divine from analytics” that which should be changed. This is completely stupid. Find potential customers and ask the question!


3) Simplify! Cut Down The Menu and Make Everything Delicious

Here’s another common business problem that plagues the best of us. I happen to be fighting this very phenomenon right at the moment. Irvine orders five or six things from the menu to test the service and the food quality. And most times he’s served reheated frozen food. Of course it sucks.

How many times have managers you known tried to expand their way out of a problem? “Oh yeah, we can do that too. And that too. And THAT too!” If only we added this competency, we wouldn’t have lost that last sale…right?

This is repugnant. Even a staff operating at peak efficiency can only do so many things well. Focus on the 20% of what you produce that’s creating 80% of your good results and start cutting. Take what’s left after the cut and improve it. Improve the quality, improve the presentation, improve the customer experience and customer service. You probably have the skills to execute really well if you’re not asked to execute EVERYTHING.


What other general SMB principals (if any) can we take from the tough-love make-over gurus like Chef Irvine? Let me know in the comments.


The Psychology of Social Media In a Crisis

One of the large parts of professional Social Media management is the role of a crisis. When something urgent and negative happens, people feel emotionally compelled to share information without necessarily evaluating the truth of that information. This is particularly so when someone is 1) physically or effectively close to the disaster, 2) tending to think about themselves rather than thinking of others, and 3) experiencing negative emotions from reading the information. It may seem obvious, but it’s still important that it’s been studied and proven, that our tendency to share information during a crisis is based on self-centered emotional release rather than the benefit of others.

Earlier this year, my colleague at Social Media Beast wrote an article for businesses dealing with Social Media crises. These are truly perilous situations if handled incorrectly. Whatever legitimate negative publicity kicked the mess off is bad enough without the additional Social Media wildfire of rumor, speculation and trolling.

Though it’s hard for many to see it this way, these times of emotional frenzy can also be opportunities to test and strengthen your brand and place you top-of-mind if handled authentically and deftly.


Here are some key points from my colleague Katie’s article:

1) Have a plan. Obvious, but yet everyone gets caught flat-footed and plan-less.

2) Already have a structure in place that allows for consistent monitoring and rapid response.

3) Move quickly, but without defensiveness or any other attitude that would inflame the situation. Remember that, as we said above, triggering readers’ emotions will only cause more tweeting-sans-thinking.

4) Become a go-to resource for the kind of information and service that defuses tension.

5) Keep learning. Revise your plan so the next one is handled smoother.


After spending over 10 years in marketing, I’ve been personally involved in a number of situations where an angry customer became a product evangelist when the responsiveness and customer service were truly worthy.

Social Media Psychology: SM Is Worse For You Than You Thought

March 31, 2015 1 comment

For all the time we devote to social media, you would think that it would register some meaningful improvement to our lives. You would expect that social media would do something psychologically beneficial for us: elevate our mood, increase our energy, or help us get more out of the day.

But the more research that comes in, the more social media looks to be a wasteland of clickbait and sadness.

Social Media and Psychology: How to Kill Productivity and Happiness

According to a recent study in Computers in Human Behavior, personal social media use not only correlates inversely with productivity (we already knew this in our hearts), but correlates inversely with happiness as well. The correlation is true regardless of how good a multitasker you are, and regardless of how well you can focus your attention on a subject.

The study notes that to date, we have all kinds of research on how distraction can impede someone’s performance at a task. And though it seems obvious that personal social media use would be classified as a distraction, there is not a lot of present research on whether or not social media specifically impedes performance.

However, the psychology of social media is not just about efficiency. Maybe we are willing to give up some efficiency for something that makes us happy. We must, after all, be getting something out of all the time we spend on social media; if it’s not something tangible like efficiency, then it’s something intangible like happiness.

Except that’s wrong.

Social Media and Happiness: Less (of the Former) Is More (of the Latter)

The researchers also took happiness scale evaluations during their social media usage experiment. Social media lowers happiness, and it does so in two ways.

First, it lowers happiness directly. This largely has to do with self-comparison to one’s peers. As the report hypothesizes:

Many news stories published by popular media outlets are concerned with negative impacts on happiness from social media. One story in particular, entitled ‘‘Facebook: The Encyclopedia of Beauty?’’ discusses the rampant unhappiness that can be found in college-aged females living on campus. The story gives accounts of self-esteem issues and other negative effects from over-usage of social media.

Secondly, social media increases a sub-category of stressors that researchers our now labeling “technostress.” Technostress is defined by psychologists as “‘any negative impact on attitudes, thoughts, behaviors, or body physiology that is caused either directly or indirectly by technology.”

This is not something that’s only experienced by people who are uncomfortable with computers and devices. The article cites a University of Edinburgh study, which found that “the more Facebook friends a user has, the more likely you are to feel stressed out by the social media.” And there is already a very good foundation of research supporting the notion that increases in stress diminish happiness. So, if social media ads stress and stress diminishes happiness, then you can get the rest.

The study revealed that personal social media use lowered productivity by way of causing distraction. This finding is in line with what’s call Distraction-Conflict Theory, which says basically that distractions cause some of the information necessary for the primary task to fall out of short-term memory. This is no surprise to anyone who’s ever used social media.

What was a surprise was that the effect was just a dramatic among poor multitaskers as it was among people who rated themselves great multitaskers. As the report puts it, “This result lends support to the common rhetoric that people are not as good at multitasking as they think they are.”

In Summary

So, in three points, here’s what all this means for us:

1. Social media makes you less productive despite how good a multitasker you think you are.

2. Social media makes you unhappy in the long run, both directly and by adding stress.

3. We’re probably still going to spend all our time on Facebook and Twitter anyway…

That last point is not from the report, but we both know it’s true.



Testimonials: The Right Way and the Wrong Way

February 28, 2015 Leave a comment

Nothing supercharges lead generation and sales quite like social proof. One study published in the Wall Street Journal noted that social proof was more influential in changing behavior than the prospect of saving money.

Content Marketing Leaders Spill on Using Testimonials Effectively

Tim Paige of produces a fascinating podcast about digital marketing effectiveness called Conversion Cast. Earlier this month, he interviewed the Strategic Director of Orbit Media, Andy Crestodina. The subject of the episode was testimonials. Andy talked about a small business case study where the proper implementation of testimonials resulted in a 97% boost in leads.

Tim Paige, Producer of Conversion Cast

First, the wrong way (and what everybody tends to screw up). Whatever you do, do not put your testimonials on a dedicated testimonials page. It’s tantamount to hiding your best credibility indicators in a section of the site where no one ever visits. Think about it: when was the last time you ever clicked on a testimonials page?

Testimonials belong on the main pages of your site (products, about us, etc.). They should be woven into the content. As Crestodina puts it, they should be “pixels away from the claims” they justify.

Think about testimonials as the sources that you’re citing to back up your claims, like footnotes. Except that you don’t want to put them at the bottom. Better to place them along the side of the page, as well as in-line (block quotes), and also at the bottom. Just so long as they are visually tied the the claims that they back up.

Andy Crestodina, co-founder of Orbit Media

Crestodina also makes a point that you want to use a variety of formats. He refers to video testimonials in particular as the “atomic bomb of marketing.” They convey passion and sincerity through body language and inflection. So don’t simply settle for a bland quotation or a logo array.

KissMetrics Schools Us On the Psychology of Social Proof

In a blog article on social proof, KissMetrics offers some fascinating wisdom on implementing testimonials and social proof.

First, and maybe most interesting, testimonials can backfire if they’re phrased in a way that suggests that many people are doing something incorrectly. We refer to this as negative social proof. They site the example of the signage used in the Arizona Petrified Forest to reduce theft. Here’s what happened, in their own words:

Their findings were shocking. The sign with the negative social proof was not only unable to reduce theft, it actually increased the likelihood that people would steal the petrified wood from the forest! In this case, the sign read:

“Many past visitors have removed the petrified wood from the park, destroying the natural state of the Petrified Forest.”

The researchers found that this sort of sign encouraged more stealing (it tripled the amount of theft) because it was evidence that many other people were already stealing from the forest. Instead of discouraging people, it made them more confident that stealing was “okay.”

In our case, an example of a testimonial that would case the same problem would read like this:

“Like so many others, I have been writing testimonials incorrectly for years until I read this article.” –John Q. Wrongness

Here are some KissMetrics pointers for getting the most out of your social proof (testimonials in our case):

1. Include pictures next to your quotations.

This is based on a recent study published in the Psychonometric Bulletin and Review stating that pictures next to examples of social proof tend to inflate the subjective measure of truth.

2. Include testimonials from people who demographically match your buyer personas.

More research, this time from Current Directions is Psychological Science, that shows people tend to gravitate to, and be influenced by, people similar to themselves (duh).

3. Go for status.

All things being equal, we will tend to value the opinions of the more notable and influential people. Titles matter. The words of recognized industry leaders matter. So concentrate your efforts on gathering some marquee testimonials.

Marketing Psychology: Price Framing

January 30, 2015 1 comment

Price framing is one of those topics that everyone seems to have heard of, but every person you ask will give you a different definition of what it is and how it works. Yet if you’re managing a web store with thousands of products, for example, understanding how to present prices and products in the most optimal way can make an enormous revenue difference.

Let’s take a moment to talk about how price framing works and why it has an effect on consumers.

First of all, when we talk about price framing, we’re talking about changing the context of a price presentation – without substantially changing the price itself – in order to encourage more purchases. This is the reason you’re charged $39.99 rather than $40.00 for iPhone earbuds. But that’s just the tip of the iceberg.

What Do You Mean I’m Not Being Rational?!

One of the most amazing things about how price framing works is that it shouldn’t work at all. Up until a few decades ago, economic theory took utilitarianism as a given. When making a choice whether or not to buy an iPhone, both economists and psychologists assumed that you made a rational calculation of the pros and cons of the choice, and selected the outcome that, to the best of your knowledge, would be most useful or advantageous to you.

So it shouldn’t matter at all how a price is presented to you. The price is the price, and you should make the same calculation of advantages regardless of context.

Except that the rational action theory of economics turns out to be mostly bullshit.

If rational action theory were true, your tendency to purchase a $39.99 item (when you would not have purchased a $40 item) would be based solely on the utility of the one-cent savings. I think we can all agree that something else is at work here. This is an example of how marketers have always been decades ahead of economists.

The first people who noticed that people don’t make explicitly rational outcome choices were psychologists Daniel Kahneman and the late Amos Tversky. They are the grandfathers of what’s now called behavioral economics. They discovered through controlled experiments that people use cognitive shortcuts, called biases, to help make choices. These shortcuts don’t always produce rational decisions.

For example, Kahneman and Tversky discovered that, when people are given a choice of losing $10 for sure, or having a 50-50 chance of losing $25, they tend to avoid the certain loss even though rationally speaking it’s the worse choice.

Other pioneers have significantly advanced the study of these cognitive shortcuts. Two of the most prominent are Richard Thaler (author of Nudge), and Dan Ariely (author of Predictably Irrational).

So, what affect can these biases have on consumer behavior (and specific to us, on price presentation)?

Here are three major principles that may be helpful:

1. People evaluate prices relative to a reference point

Up until recently we believed that, when evaluating a potential purchase, people made comparisons to absolutes. Is this iPhone worth the 400 units of currency that I will part with?

Well, it turns out that we evaluate purchases on relative terms. We’re looking for the value that’s reasonable. But what’s reasonable can be determined by many things.

In a Psychology Today article called “Pricing and Framing: When Are We Likely to Pay More For Products,” Dr. Gizem Saka gives us the scenario of the bread maker:

…You have two options. A standard quality break maker is for sale for $80; and a higher quality bread maker is sold at $120. You compare and contrast the two machines. You tell yourself you are not an expert maker, and you go with the $80 one.


Now when you go to the shop, you have 3 options. You can spend $80, or $120 or $475. Rationally speaking, adding an irrelevant option should not change your decision between the $80 and the $120 ones. The pros and cons did not change; quality of the bread makers remained the same, and you are making the same salary. You know that you are never going to spend $475 on a break maker…

But the thing is, now you do would feel more comfortable buying the $120 one. After all, you are not buying the most expensive alternative. You have found the middle ground, and you are probably happier, compared to someone who buys the cheaper version with only two options.

This is a form of psychological anchoring that Saka describes is widely known as the irrelevant third option, or in business terms, the loss leader. It is a super-premium product that may not be profitable in its own right but makes the next option down seem more attractive.

This is the most famous use of the principle that the attractiveness of an option will change depending on what’s presented with it. But this is only one example of the effect one can have by introducing or removing options.

2. People evaluate price differences relative to the level of the initial price.

The scientific name for this is the Weber-Fechner Law, if you want to Google it.

You will tend to be more motivated if a $20 price is lowered to $10, than if a $120 price were lowered to $110. Again, there’s no good reason for this. The economic advantage to you is the same in both scenarios.

Ernst Weber was a 19th century scientists who discovered that the stronger a stimulus is, the more change you have to make to it before we can perceive the change. If you’re carrying three pounds of stuff and I add a pound, you will notice the change much more easily than if you’re carrying 30 lbs and I add one.

Fechner improved on this idea by figuring out the mathematical relationship between intensity and perceived change (it’s a simple logarithm, if you care).

The Weber-Fechner law is why you have a hard time paying $5.00 for a Starbucks Sugar-coma Mocha, but you have an easier time coming down $5,000 on the asking price for the house you’re selling. This is especially important when studying price elasticity – the variation in dollar amount that people are willing to pay for the same item.

3. Losses hurt more than gains give pleasure.

This is part of what’s called the Endowment Effect, for you Googlers. People tend to ascribe more value to that which they own. Therefore people try to avoid losses more than achieve gains. People want to avoid late fees more than they care to take advantage of early-bird discounts, even if the value is the same.

One working paper from a USM student described how this effect was studied on the “discount for cash” gasoline consumers in the 80’s.

It’s illegal to do so now, but it used to be that gas stations would charge you a special surcharge if you wanted to pay with a credit card (trying to recoup their extra processing fees). The credit card companies, fearing backlash insisted that any such price difference had to be termed a “cash discount” rather than a “credit surcharge.”

It turns out they were right to fear: those paying for gas by credit card had a significantly more negative reaction to the transaction if they “paid a surcharge” rather than simply missing out on a “discount.”

Further Research

Research is still young in this field, fleshing out the details of principles like these. The results are fascinating. For example, one working paper from the Harvard Business School found that it makes a big difference in preference depending on whether a price is “all-inclusive” or “partitioned.”

If you split out a price into line items, the way budget airlines are more prone to do, people will tend to prefer the deal if the secondary item is top-notch for the price (incredible in-flight service, full-service meal, etc), and oppose the deal if the secondary item is lackluster (one movie option, snackbox, etc.).

Why is this? because the secondary item is easier to evaluate compared to its price than the primary item (the plane trip itself). It’s easier to see if you’re getting a deal or not. So if your secondary items aren’t that high-quality for the money, all-inclusive is the way to go.

I’m excited to see what new principles we’ll be able to add to these three as research develops. If you have some to add (and can cite your source), please use the comments to let people know!


Applying the 80/20 Rule to Marketing: A First Look

December 31, 2014 Leave a comment

One of the many great lessons I’ve taken from Tim Ferriss is the active application of the 80/20 rule to projects and endeavors.

The 80/20 rule, known more formally as the Pareto Principle, states that 80% of your effects are usually generated by 20% of your inputs. For example, in B2B sales it’s often the case that 80% of the revenue comes from 20% of the customers. If you’re running a PPC campaign right now, it’s highly likely that 80% of your traffic comes from 20% of your bidded keywords. The ratios are not always exact, but the point of the principle is that in any given situation, the vast majority of our effort may not be achieving substantial returns.

This is why analytics have become so important to marketing over the last ten years, and why CMO’s have become obsessed with ROI tracking. The moment that companies could finally calculate the direct effect of advertising, most senior executives had a heart attack at the inefficiencies they saw (there’s a reason they call is “spray-and-pray”). The last decade of marketing has been about reallocating resources to where they demonstrate measurable results.

Pareto 101: Baby and the Bathwater

It’s easy to assume that just because you find an 80/20 dynamic somewhere, it’s always a problem that must be fixed. It’s not. The 80/20 dynamic will always tend to exist, even in optimized systems. It’s part of what happens when a system finds equilibrium. Sometimes expending effort on the lower 80% is absolutely necessary to maintain the top 20%.

Here’s an example: if you sell technology, you may decide that you only want to offer technical support to your top 20% of customers (let’s say “enterprise” customers). They are, after all, the ones who are supplying the majority of the revenue. You can do that, but your brand will be damaged by the refusal of support to the other 80%. So that may not be the world’s best idea.

Now, it’s tempting to apply the 80/20 rule only from a monetary perspective.  But because many marketing departments in the SMB world are staffed by only a handful of people, it may be more interesting to apply it from a time perspective instead. What tactics – hacks – can you apply to marketing that will have the highest gains compared to the amount of time it takes to implement and sustain them?

Where do we face this challenge at its most stark? Digital content marketing.

Content marketing – including blogging, social media, case studies, whitepapers, etc. – is a hugely important part of the digital marketing world. If you produce enough informative, interesting, trust-inspiring content, people will come to your website looking for more of your sage wisdom. They will trust you and your products, because of your authoritative works. They will share your content with their friends and colleagues, who will in turn link to your site and establish those all-important backlinks that are necessary for organic rankings…and then you’ll rule the world…

…in theory…

Content marketing is also incredibly labor intensive, even when content is actively repackaged and repurposed. Marketing Directors tend to fall in love with it because the only expense is salary – a sunk cost. But without an audience actively sharing your content, linking to it, or using it in a specific evaluation of whether or not to buy, it consumes more value in time than the results it generates.

Try This At Home

You want a fun activity? Select an SEO agency at random (these are the agencies who are supposedly the best at using tactics like content generation to foster backlinks and organic search results). Take a look at how much content they’re generating on their own behalf (it’s typically a lot). Then, go to the Moz website and enter their main URL into the search tool. Look at their Domain Authority score (this is how much authority the domain has achieved based on backlinks, social shares, age of domain, etc. – this is the necessary prerequisite to high search rankings). Anything under 50 is pathetic. An agency that knows anything about SEO should have an authority in the 80s or 90s. How did yours score?

Most companies, including the SEO agencies who should know better, produce a ton of original content that no one reads, no one shares, and has no effect on trust, authority or ranking. This is a ripe area for the 80/20 rule to be applied.

Looking to Apply the 80/20 Rule To Marketing

Andy Crestodina, the Strategic Director of Orbit Media, is one of the most successful appliers of Content Marketing for the purpose of search optimization. His book, Content Chemistry, discusses the concept of “atomizing” content. That is, creating one large unit of content that can be broken down and repurposed through many different media. For example, an eBook that also serves as a blog series, the basis for an infographic, the outline for multiple webinars, etc.

This is an example of applying the 80/20 rule to content marketing: creating content that can be atomized and repurposed with minimal extra labor. But this is just one example. Imagine how we could apply this principle to other channels like database marketing, telemarketing, and even traditional channels.

Time to open up the floor. Where in your experience can marketers pick up the most true gains with the least amount of implementation time and effort?

These could be ideas at the tactical level, like headline-writing, simple web forms, or building your influencer network. But I’m really looking for the subtle, couterintuitive ideas that on one’s talking about. Did you ever try a marketing experiment that made no logical sense and have it pay dividends, the way some people increase the fat content of their diet in order to lose weight?

What’s your best marketing time-hack?


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