Improvements in Perception
“Solving problems using rationality is like playing golf with only one club.” – Rory Sutherland
By Capital Thinking • Issue #874 • View online
Terrible Business Plans, Wonderful Businesses
Ben Carlson | A Wealth of Common Sense:
Imagine you’re an investor and I make you the following pitch of a business plan:
We’re going to open a new chain of grocery stores. The stores will sell zero branded items. No Coke. No Budweiser. No Lucky Charms. Everything will be private label.
There will be no advertisements on TV or social media. Nothing in the store will ever go on sale. There will be no coupons accepted, no loyalty rewards cards and no Sunday newspaper circulars.
There will be no self-checkout kiosks. The aisles in the stores will be narrow and the stores and parking lots will be relatively small.
Who wants to invest in this company?
Michael Roberto, a professor at Bryant University, likes to give his students this pitch to gauge their response. Of course, most people would assume this is a terrible idea.
Then Roberto tells them this store already exists. It’s Trader Joe’s, only one of the most successful grocery chains in the world.
Freakonomics did a deep dive into the grocery store that has a diehard following by many of its customers. They discovered how this unorthodox business plan has allowed Trader Joe’s to outsell every other grocery store chain on a per square foot basis.1
There’s a lot more that goes into the store’s success besides being different than most grocery stores (the culture, the people, the quirky products they sell, their private label strategy, store location, etc.) but it’s always fascinating to discover business models that sound insane in theory but work in practice.
Here’s another one:
Let’s say you would like to compete with the likes of Coke and Pepsi in the non-alcoholic, cold beverage space.
Here’s the pitch: Put the drink in a tiny can, sell it at a high-end price, ensure it’s an odd color and make it taste kind of disgusting.
When you perform taste tests before launching this drink, ignore the fact that the agency running the test claims it’s the worst reaction to a newly proposed carbonated beverage they’ve ever come across.
Don’t worry about the subject who claimed, “I wouldn’t drink this piss if you paid me to.”
I just had one of these drinks recently and it made me feel like my heart was going to jump out of my chest all night.
What is this drink?