Lessons from Sandwiches

I was recently coaching a great digital business based out of Halifax and we were looking at the issue of menu costs. The business theory is very simple; minimize choices on offer. By doing this, you reduce the inventory cost and the business becomes simpler.

He had tried this with his business and found that the revenues went down. I then remembered lessons I had learned from my experience at Amano (still miss you terribly Johnny RIP).

Consumers in our sandwich shop would always choose one of three sandwiches – and 80% of the time, they would have just one sandwich. But if you only offered the consumer the three sandwiches they want, they will really not like the lack of choice and go somewhere else.

This is very odd but it is a real phenomena. How would we feel about going to supermarket that didn’t allow us to ‘browse’? I know I don’t want to buy biscuits, but I want to see them there either to satisfy my sadomasochistic instincts or to congratulate myself on not buying them!

Most people feel the same way. Hence, you must avoid the temptation of only giving consumers what they want to buy? What they want to see and what they want to buy is not the same thing.

I also learned last week (during a fantastic pitching event in Winnipeg, Manitoba) that most consumers use the same formula to choose a bottle of wine at a restaurant. They will choose the second least expensive in any given category. Amazing and yet – they want choice. One of the whole points of a wine list is to be able to browse and choose thereby looking cultured.

This is not the same as ‘confusion marketing’ which mobile phone companies shamelessly use. This is where you deliberately confuse the consumer with too many choices and confusing ones, so that they choose one which is not the best for them.

Websites suffer from the same problem and Alan Sugar (whom I have to say really impressed me with his Biography) has always used menu pricing to help consumers feel they have choice in what they want to buy.

So the lesson; theory is great and just because you are doing something very clever in the digital world; basic rules of psychology still have to be understood and applied.

07
Apr 2011
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POSTED IN Business Ideas Business Practice
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  • chrispadfield

    There is also a lesson here in pricing psychology. Lots of digital businesses will create a product (price plan) that no one will ever buy because it makes the plans they want (need) to buy look cheaper.

    The economist did a really interesting thing for their newspaper as well. Prices are made up but the point stands:

    i) Digital Edition : £30/year
    ii) Print Edition : £100/year
    iii) Print & Digital Edition : £100/year

    Now obviously category ii) is a pointless item that no one will order; however by making iii) look better value (you get the digital edition for “free”) – it shifted a lot of people who would have just bought i) to buying the bigger bundle.

    p.s. your point about the wine bottle is the reason why the only bottle on a wine menu you should never buy is the 2nd cheapest. Because it is the most commonly bought by a huge margin – restaurants also know to make their most margin on it. The margin is often considerably higher than the cheapest or 3rd cheapest!