Why does Hollywood keep churning out atrocious sequels?

Money.

A simple answer, but explaining why it works can be edifying.

Between 1996 and 2016, 532 of the roughly 13,000 movies produced have sequels. (Vox, 2016) Of those 532 sequels, only about 25 earned a critic rating better than their original.

That means 95% of all sequels over that 20-year review rated worse—sometimes much worse—than their original. Professional and amateur critics alike lambasted them. Whatever your favourite genre, from Blair Witch to Rambo, Bridget Jones, or the Ocean’s Eleven franchise, the sequels were often formulaic: the same characters solving the same problems. Wash. Rinse. Repeat.

Yet on average, sequels earned 8 times their original movie’s revenue.

A paradox, it seems. How can a sequel be bad yet still make so much more than its original?

If there’s a movie franchise of sequels that you love, you might notice that overall production quality is neither excellent nor really bad. Usually, it’s good enough.

While it seems villains, story lines and scripts roll off a factory conveyor belt, so do the cast and crew, including the extended “business”, like the marketing and distribution teams, finance and IT. Compared to the first time around the block, re-assembling the team and business systems is quick and easy, i.e. low budget, when you can simply copy the template.

But that speaks to only the cost side of the equation. No one made money by making something cheaper. You only make money by actually selling what you make.

As a producer, it helps enormously that you’ve validated your business idea in round one when the original movie has earned millions. Add to this solid customer feedback: your fans are literally telling you what they want more of.

And that’s exactly what that amorphous movie industry we call Hollywood does: it gives the fans what they want. (Usually!)

Sequels are made for the fans, not the critics.

In fact, in any business, you want to have some critics. Your product should not be for everyone, only your tribe of loyal fans.

Here’s a rule of thumb: the harder it is for your non-fans to identify themselves out of your target audience, the weaker your product and marketing design.

Movie sequels might not push creative or technical boundaries. Some might not even be “art”. But if there’s proven demand and you’ve built a business system to satisfy it profitably, then you’re surely onto a winning formula.

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Image credit: Decider

Is bad grammar costing you? Yes and no—it depends.

Whether you spell it correctly as lay-by, or lay-buy, laybuy, or even lay bye (!), I suspect the audience likely to buy with lay-bys probably won’t notice the difference. (American: “layaway”. A lay-by sale is where the seller lays the product by, or away, until the buyer has paid all instalments.)

This is more than merely a grammar Nazi’s concern with language rules, though. If your sales copy is riddled with errors, what does it say about your lack of care for the actual product or service you’re trying to sell me? Or worse, is it an indictment of your lack of care for me, your customer?

In the management consulting work we do, I review countless business websites, contracts, presentations, financial reports and policies and procedures. While I expect an occasional typo or convoluted line editing, severe errors jolt the flow of reading. When I can’t resolve the writer’s intention by the context of the sentence, bad language leads to ambiguity and uncertainty.

Typos happen to us all, especially in quick-fire replies on text apps and tiny screens. I’ve often hit “Send” before proofreading, so I try to not be too judgy—people in glass houses and all that.

In fact, some auto-corrects are quite endearing, or they make for serendipitous metaphors. (Some are hilarious: google the “DYAC” memes for a little dopamine distraction.)

And some rules should be broken. A micro message or Zoom chat is more personal with slang or text speak than the starched tone if we spelt words in full, like “tmrw”, “pls”, or “BRB”.

Regardless of the medium, though, error tolerance is easier when there’s a strong relationship between reader and writer. But without this relationship, first impressions count. In a prospective customer’s first contact with your brand—your website or a social media post—there’s only that first message to judge you by. Errors can literally cost you money.

For example, a UK-based stocking retailer, then named Tights Please, improved sales conversions by 80% after correcting a misspelling of “Tihgts” to “Tights” on their catalogue page. (CXL, 2020).

Even copy that you did not author can affect your business’ credibility. When I’m searching online for accommodation or a pricey gadget, I rely heavily on other customers’ reviews. I’m usually much more likely to trust a well-written review than reviews filled with unqualified hyperboles (“amazing”, “best ever”) or with language errors.

A 2017 study reported by Indiana University supports this, where the researchers note how 2 types of errors affect a reviewer’s credibility. Misspellings, like “lite”, “radicle” or “definately”, are more easily forgivable as “errors of knowledge”, a typical challenge for non-English speakers or artsy creative types.

Conversely, typographical errors, like “wsa” (“was”) and “regualr” (“regular”) are seen as “errors of carelessness”, which more easily erode our confidence in the writer’s authority.

Beyond first impressions, ongoing impressions count, too. A Harvard Business Review article (2013) reported a study where professional success was correlated with language proficiency. For example, “Professionals with fewer grammar errors in their profiles achieved higher positions,” and, “Fewer grammar errors correlate with more promotions.” Further, “Grammar skills may indicate several valuable traits, such as . . . accuracy in their work . . . critical thinking . . . intellectual aptitude.”

Whatever you publish—your website, content marketing, or internal company reports and emails—you want your reader to not just like, but want to, engage with your writing. You want to strengthen trust and credibility.

Ultimately, you want each message to achieve its purpose, like educating a customer and influencing their buying decision.

So does bad grammar cost you? For each error, the context suggests “it depends”. But given enough errors over time, the answer is surely “yes”.

If your copywriting is fraught with errors, how much credibility, influence, or revenue are you losing?

Are you still measuring productivity as profit ratios on your income statement, or sales conversion rates, or widgets per worker? If you’re an owner in a small or medium business, it’s time to introduce a different metric to measure performance: learning.

A lot of traditional methods for adapting to change involve rigorous, detailed and slow change programmes. This approach often leads to perfect product designs and intricate changes to sales and production methods, but by the time the solution reaches real customers, it’s not what they want.

Unless you’re in a well-established business selling proven products or services to customers whose needs seldom change, you’re unlikely to remain competitive with industrial-era management.

Without learning, concepts like agile, MVP (minimum viable product) and pivoting are mere clichés. Specifically, the learning is about validating your ideas as quickly as possible.

Lean validation improves your organisational learning to respond to market needs and be more successful, or at least to stay in business during tough times. Here’s how it works…

As a customer-centric business, your starting point is to define your customer, problem and solution hypotheses. The customer hypothesis describes our assumptions of who we think our customers are. It could be based on demographics, but more likely, a good customer hypothesis identifies people in specific situations or with specific behaviours or preferences.

E.g. people who want to do something about global warming but do it as conveniently as possible.

Then define this group’s problem hypothesis. The problem is not just the symptoms we might observe, e.g. “People aren’t recycling.”

Go deeper to find the root cause behind what we think the customer’s problem is. E.g. “They forget to put out recycling the night before,” or “They don’t know how to sort the 7 different types of plastics,” are two discrete causes. Each one might need a different solution.

But don’t worry about the solution just yet, because so far we’ve likely made multiple assumptions. We need to eliminate them by proving or disproving them, transforming them from assumptions into facts.

Identify as many core assumptions as possible. Focus on the riskiest ones that, if incorrect, would break your business, or at least guarantee product failure.

Then ask, “What do I need to learn?” Starting with the most risky assumptions, design your MVP as an experiment to test your hypotheses.

To test your assumption, figure out what you actually need to build in order to learn if the assumption is valid. What you build is not necessarily the MVP itself – imagine investing the time and money in building an actual product that no one wants!

A good experiment helps you to fail fast. Which is quicker and cheaper: building a survey and collecting 100 responses (from the “right” customers) or building a prototype and trying to sell it to 100 customers?

Decide on the minimum success criteria. How many “yes” responses will be good enough? Just 1? Or 10% of all responses? Or maybe 100%? How many responses in total would yield a statistically reliable result?

Now get out there and test your hypotheses. Using the data you gathered from real customers, is your assumption validated? If yes, move to the next stage of development, which is to test your next riskiest assumption.

As soon as an assumption is invalidated, it’s time to pivot to a new set of hypotheses. E.g. for the same type of customer, instead of the problem hypothesis being forgetting to put out their recycling, work with an alternate hypothesis that they don’t know how to sort their recycling. Then figure out new assumptions, design your MVP to test the riskiest, set your success criteria and run the experiment.

Only once all assumptions are validated would it make sense to invest in changing your product, sales and production processes to actually start selling the new product.

The goal of being agile in business is getting solutions to market quickly, but achieving that is by learning to fail fast.

There are very few brands that are truly remarkable and worthy of global renown. Even the most successful brands reach only an itsy bitsy fraction of the world’s population. In other words, “big” brands are successful despite their limited reach.

It’s good to have a grand vision for your business, but the surest way to get there is with small goals. That includes starting with the smallest market possible.

That might sound absurd, but aiming to please everyone leads to mediocrity. We end up with a business designed by committee.

If you reflect on when you started your business, I bet you over-estimated how big your market was. It’s normal. You wouldn’t be an entrepreneur if you weren’t optimistic.

Most start-ups and new products far underperform their up-take projections. So don’t plan to fail. Capturing the whole market doesn’t happen in one step.

When we limit our audience, we automatically pay a lot more attention to each special customer. Focusing on a select group of customers makes us lean, agile and efficient. Loyal fans can help us fix our product until we’re ready to scale up.

For your next product launch, imagine refining your marketing so that only your ideal customers respond. It will need you to define your audience precisely – vague, abstract criteria won’t do. Compared to trying to sell to the masses, a well-defined target audience is a small audience.

Then imagine if everyone who responds buys from you. Now imagine that everyone who buys from you is so delighted they’re compelled to spread the word.

Win your first loyal customers, then build from there.

If limiting your target audience sounds scary, ask yourself which you’d prefer: a mediocre business for the masses, or a remarkable business in a profitable niche?

Slicing a pizza into 12 pieces instead of 8 won’t give you more pizza. Surprisingly, such a pithy concept is not always obvious in different contexts. Offering customers more choices could mislead them about your product or have them walk away.

In the 1984 cult flick, This Is Spinal Tap, a character claims his sound system is louder because his volume dial goes up to 11 while everyone else’s dials topped out at only 10. (Fun fact: IMDB rates the movie at “7.9 / 11”; all other movies are rated up to only 10.)

In a study published in 2019, the researchers explored how the number of settings, e.g., blenders with 4 vs 7 speeds, influences judgments of a product’s maximum output. They found that consumers not only perceived a greater precision, i.e. more control over the device’s settings, but they often mis-attributed a higher maximum output in the product with more settings.

This “more levels, more power” mis-attribution happened despite the device’s maximum output specifications in watts. (Journal of Consumer Psychology, Nov 2019)

Offering too many choices can cause negative responses in other ways. E.g. carrying inventory of 50 styles of jeans might not lead to more revenue than if you simply offered 2 styles.

The logic is understandable – with more to choose from, each customer is sure to find a style that’s just right for them. After all, being able to choose from a wide variety epitomises the principles of free market, where consumers have the freedom to pick a solution that’s just right for them.

But we seldom behave rationally, especially when purchasing. Having too many options can lead to choice overload, mental fatigue and indecisiveness. When it’s hard to decide, it might be easier to just not decide.

Researchers at Columbia and Stanford universities published compelling findings in 2000: customers at a grocery shop were much more likely to make purchases of a promoted brand of jams after visiting a table of 6 jam samples than a table of 24 samples.

It also depends on where customers are in the buying process. A high choice variety early on can encourage exploration. But too many choices at the moment of truth – just before checkout – easily dissuades an indifferent shopper.

Each industry, product and type of customer is different, so finding the balance between too much and too little choice should be validated empirically. And once you’ve found the right settings in your business, don’t expect them to remain static.

Continual market research will help keep customers satisfied and coming back for more.

A Stradivarius violin, made in 1721 and named “Lady Blunt”, sold for $15.9 million in 2011. (Youth Orchestras of Fresno) “Strads” are renowned for their sound quality, which is the most popular reason for their exorbitant prices.

Except, in a study published in 2017, high-quality, recently-made violins sound better and expert musicians cannot tell the difference between Strads and well-made modern violins.

Which begs the question: if Strads are indistinguishable from much cheaper violins, why are they 1,000 times more expensive?

Many reasons have been offered. They’re scarce: of the roughly 1,100 string instruments Antonio Stradivari made around the 1700s, only about 650 survive today. (Wikipedia) But scarcity isn’t enough – without demand, the price is zero, let alone a high price.

One other interesting reason is attributed to a “little ice age” in Europe from 1645 to 1715 that slowed tree growth. (The Conversation) The quality of sound that wood harvested from this time can never be replicated. But this wood was available to other makers. More importantly, this is still a function of quality, which we now know is not a factor.

Could it be the Paris Hilton effect, that they are famous only for being famous? Even if you don’t know about violins or classical music, you’ve probably heard of Stradivarius.

Or are they like fashion, or art, where the function is irrelevant but the status or expectation of appreciating value is the driver?

No doubt these factors each play a role in Strads often selling for 6 figures. But the most plausible explanation is story.

Many pieces can trace their ownership to their original owners. Some are named, like “Lady Blunt”, adding to their rarity. One particular cello has a dent purportedly caused by Napoleon Bonaparte – it was bought for $20 million in 2008.

This paradox of a high price tag for something that’s as good as a much cheaper competitor is not unique. It happens all the time across many industries. It’s well known that expensive wines taste better than cheap wines, until you test the wines without the price tag to find no difference in their quality. As many car buyers hear, “half” the price of a BMW is in the badge on the bonnet. A Breitling tells time just as well as a Seiko.

For premium products, the biggest component of value is in the the perception of value. And the only way we can influence perception is through story.

It could be from a once-off publicity stunt that gets viral videos circulated. Or more realistically and more predictable, in your marketing of regular and consistent messages to your customers.

How are you designing and building the story around your product?

(Image credit: CNN Style.)

You might have never heard of Looksery, a Ukranian company founded in 2013, but you’ve probably been entertained by their product. Snapchat saw the value in their app and, after barely 2 years, bought out Looksery in 2015 for about $150,000,000. (TechCrunch, 2015)

It’s the type of success most entrepreneurs dream of – building a business that can sell for millions within a few years.

So what did this start-up do to create so much value so fast?

Looksery had developed video filters that overlay your selfie video with animated enhancements in real time. Their software can make your selfie look skinnier or plumper, add wrinkles or a flower wreath, or just for fun, animate your image with a puppy face or turn you into a monstrous ghoul.

Personally, I think the app is bollocks and, for the most part, its utility to the end user is nothing more than frivolous fun. If I were looking for business ideas, I would have shot down this one before I even opened my mouth to suggest it.

But that’s precisely the problem most of us entrepreneurs have, whether imagining new business ideas or getting creative about rejuvenating our existing business.

Interestingly, behind the scenes, the Looksery selfie animation app relies on seriously smart computing. It overlaps with the same types of algorithms used in self-driving cars to avoid running over pedestrians, face recognition systems, and deep fake videos.

Still, an impressive computing concept dressed up as a goofy selfie modifier would strike me as a dumb idea. Without hindsight, I would have thought it would have no viability as a business. Evidently, I’m not the target market.

And Looksery’s app isn’t the exception. There’s a surprising array of imaginative, ingenious and downright weird niches that actually make money, like beer wrapped in taxidermied roadkill and nappies for chickens. This should, in fact, encourage us to be far more adventurous in our ideation process.

Just remember to validate your ideas. When you can actually sell your product, regardless of how idiotic it seems to you, you might have the kernel of a potentially lucrative business.

What might look like a dumb idea doesn’t mean it won’t appeal to hundreds, maybe millions, of customers. When you build a business around efficiently delivering any product with demonstrated demand, this can make your business attractive to investors for growth, or anyone looking to acquire your technology.

If you want to build a business with value, the only dumb idea is to start a business without validating that customers will actually buy your product.

When launching a business or new product, a penetration pricing strategy of super-low prices can successfully build a customer base very quickly. After grabbing a foothold in the market, you can then raise prices to more sustainable levels.

Except, you don’t want to be too successful in the low-price land-grab. The absurd case of MoviePass’ failure in September 2019 highlights the risks.

MoviePass’ value proposition was for members to be able to visit a movie theatre once a day for a monthly fee of only $14.95. When regular ticket prices ranged from $16 to $19, it was a compelling offer.

What’s in it for the cinemas? In case you didn’t notice, cinemas make their money from their (exorbitant) margins on snack bar sales.

For a while, membership grew steadily. But then new owners of MoviePass decided they wanted to rapidly grow the few thousand members to 100,000. They dropped the monthly membership fee to about $10.

Within 3 days, membership exploded to 150,000.  The rapid rise overloaded the servers and users were unable to book and redeem their tickets.

Further up the supply chain, the credit card company issuing the membership cards couldn’t churn out more than 30,000 cards per month. Some members waited months for their cards. A cornucopia of related maladies ensued.

Surprisingly, despite the negative publicity, MoviePass managed to keep most members and limped along for several months.

The business model was built on the typical model of discounted gym membership. If most members under-utilise the service, their revenues would cover the costs of the few high-utilisation members.

But fun fact: most people like going to movies much, much more than they like going to gym. There weren’t enough low-use members and the gym model didn’t apply.

Ultimately, MoviePass was under-resourced and out of cash. With a plethora of other questionable decisions, it closed abruptly. (The Verge, 19 Sep. 2019)

The key lesson is to test your strategies with a limited segment of your market to validate your models.

Penetration pricing is a well-proven strategy, but you need more than hopes and dreams to turn it into long-term success.

Red Bull's success seems to be its singular focus on selling just one thing. Clearly It dominates the energy drink market. It sold roughly 1 can for every human on the planet in 2019 – 7.5 billion cans (Wikipedia) – being 10% of the 75 billion cans sold since founding in 1987.

As good entrepreneurs know, success is more likely when focussing on a single niche – a specific product or service for a narrowly-defined market segment. Rather than trying to be a one-stop-shop for everyone, a niche business ensures each function – like brand positioning, marketing message, quality, production systems and supplier relationships – reinforces other aspects, concentrating and magnifying the effect in each area.

In a niche business you’ll more likely get one thing right for one type of customer rather than spreading yourself thin across diverse product lines and markets.

So it might be surprising to know that with such a strong brand and product, Red Bull the business does not manufacture Red Bull the drink.

Every aspect of production and distribution of the Red Bull product is entirely outsourced. Red Bull is not in the energy drinks industry, and not even the soft drinks or beverage business. As one author puts it, “Red Bull doesn’t make anything…except money” (Harvard Business School).

And in making money, Red Bull has many revenue lines. From owning more than just one Formula One team to several soccer teams, other sports teams and various extreme sporting events, Red Bull draws revenues from a variety of sources and businesses. For example, having bought the soccer team “New York Bulls” for $25m in 2006, its value has 10-Xed to $290m today (Athletic Interest).

Although Red Bull benefits from being the first in its market – co-founder and CEO Dietrich Mateschitz created the energy drink market – there’s no shortage of competing products.

So what exactly is Red Bull’s continued success?

The one thing that puts Red Bull ahead of the rest is its singular focus on marketing.

After launching, students were hired as brand ambassadors to hold parties and build market traction. As you may have noticed, this quickly grew into sponsoring athletes and extreme events like Red Bull Air Race and Red Bull Rampage (Red Bull Bike).

Its marketing is so effective, for example, that although Red Bull invested an inordinate $50m in Felix Baumgartner’s 2012 breaking of the sound barrier in freefall from a balloon, the value of publicity achieved was estimated at over $6 billion.

And that’s why Red Bull doesn’t distract itself with production and distribution.

In fact, so good is Red Bull’s marketing as a premium drink that, unlike the product, profits are quite healthy. While it costs just 9 US cents to make one can, they wholesale at $1.87 and the suggested retail price is $3.59.

Yet earning that premium price doesn’t come cheaply. Of Red Bull’s revenues – $6.1b in 2018 – roughly one third goes toward marketing costs. That may seem like a high cost, but the return on investment is equally impressive, proving that the business model and focus on the core business of marketing pays off.

Red Bull’s success is indeed its focus – its focus on its core business of growing and maintaining the Red Bull brand. In short, everything and everyone at Red Bull, from capital to labour, is focussed on just one thing: marketing.

When it comes to focus in your business, it’s not enough to think about your niche – your product-market combination. You need to focus your entire business model around your core business.

[Image credit: Mountain Bike Action Magazine, Christian Pondella/Red Bull]

For every customer complaint you get, 25 other unhappy customers never return. They simply disappear and you won’t know why.

Customer experience (CX) is fast becoming the dominant factor in customer retention, challenging the mainstays of price and product as brand differentiators.

It might seem like we’re doing an OK job when complaints are low, but Esteban Kolsky sounds the warning bell: “Only 1 out of 26 unhappy customers complain[s]. The true enemy is indifference.” (HuffPost)

Worse still, all those departed customers might not be complaining to you, but they’re very likely telling others. “Those who leave will tell at least 15 of their buddies just how disappointing your business is.” (smallbizgenius).

So how can you find out if you’re doing a good enough job satisfying your customers’ CX expectations?

The best – and only – way to find out is to ask your customers. I recently wrote that only your target audience has the right to judge your business. (“90% Of Everything Is Crap”) For the same reason and, experience being a personal, “inside job”, your customer owns your CX.

The savvy entrepreneur will pre-empt customer churn by systematically getting regular customer feedback. The best way to assure a high response rate to your survey is to keep it short. And you can’t get a survey any shorter than asking just one question!

There are 3 popular indicators to gauge CX and each has its specific question:

- NPS: net promoter score – how likely are you to recommend us to a friend or colleague?

- CSAT: customer satisfaction – how would you rate your overall satisfaction with the service you received?

- CES: customer effort score – how easy is it to buy from us (or do any other specific action)?

The only response needed from each customer is to rate their score on a scale of 0-10, where 0 is bad and 10 is good.

But the problem I often see with these metrics is that they are mis-applied. E.g. I commonly see NPS data used to measure satisfaction, or CSAT to forecast customer loyalty.

In reality, though, the only insight the response data can offer is how customers answer each specific question. Specifically:

- NPS can only tell you how referable your business is;

- CSAT tells us only about satisfaction; and

- CES shows only how much ease or friction customers experience.

Depending on your marketing goals and strategy, it’s best to tailor your survey to ask the right question and use the right indicators.

For example, if your business strategy prioritises organic growth, then use NPS. To assess operational performance or make product and service improvements, use CSAT. And if you’re chasing customer retention and loyalty targets, you should rely on CES data.

Check your current business strategy and your CX metrics – are they aligned?

As a popular science fiction author, Theodore Sturgeon laboured for decades defending good science fiction from critics who claimed all science fiction was bad. He argued that science fiction was no different from any other literature: while most are indeed bad, some are excellent.

This principle should apply to all endeavours, from creative literature to film and advertising, medicine, law, software apps, and even leadership. In every field, only a few exemplars rise above the morass of mediocrity.

As Sturgeon highlighted, if all you’re looking for are bad examples, there’s plenty to find. Hence his eponymous law, “nothing is always absolutely so”, more popularly cited as Sturgeon’s Revelation, “90% of everything is crap.”

This could just be another way of articulating the Pareto effect, AKA the 80-20 principle. But I think it’s more nuanced than simply an objective measure of what we do and the results we get.

Thing is, who decides what’s good or bad? Who’s the observer doing the measuring? And what are their criteria?

It seems most sources I’ve found on Sturgeon’s Law reference generalised ratings, like a travel establishment’s stars, how many accolades are lavished on a TV commercial, or how many weeks a book listed as a best seller.

Closer to the work of entrepreneurs, we love to cite the Big Four as paragons of the consulting world, the stars to aspire to emulate. But they’re good examples for only a specific audience – usually big corporates with big budgets. I can’t think of too many scenarios where a small business hiring a Deloitte or E&Y would be good. It would be really hard to churn out anything that's both appropriate to small business and within a reasonable budget.

Within each rating system, behind each average rating is a collection of high and low individual reviews. High-ranking billets on Trip Advisor have a collection of poor reviews. Low-ranked restaurants often have a few good reviews.

Affirming Sturgeon’s Law, there are very few of anything that are all atrocious or all excellent. If you look deeper at individual ratings, I often see that bad ratings come from people who shouldn’t be there – they’re not the target market.

In your business, “good” is defined by your audience. Just like the Big Four are good only for some clients, your work could be the best thing for just your niche, but 90% crap for everyone else. Whether it’s your internal leadership, your advertising, or the thing you sell to your customers, you don’t get a say in defining “good”. Only your target audience has that right.

Applying Sturgeon’s Law to your business, you have 2 priorities:

1. define exactly who it is you’re trying to please and,

2. get their regular input and feedback on how you’re doing.

Without this, having a business that rises above the 90% crap would be a crapshoot.

A client hired me to help improve her firm’s cash flow and profitability. A key point in our coaching revolved around how to price their services and our ensuing conversation had her settle on higher rates that put her old price list to shame. Here’s how we got there…

I started by asking how she came to her current prices, whereupon she referenced various cost inputs, like salaries and other typical business overheads. We talked through the billable hours and the rates for each service, break-even points and other good ol’ accounting principles. It was easily apparent why she wasn’t making much profit. (Hence investing in the coaching!)

Having modelled the operations and financials, we played a game of “What if?” We experimented with operational factors, like billable hours, staff unavailability, and the price points of each input. This pseudo sensitivity analysis was eye-opening: the business was – by her own metaphor – skirting the precipice leaning over the abyss of business failure.

We’d already explored that there was very little wriggle room to cut costs – they’d already done a great job with that. (Why would anyone hire a coach to help do the easy stuff, eh?)

So we took a new approach: instead of what-iffing marginal increases to the rates card, we explored a single fee to cover all services. (A related discussion later helped us streamline services to reduce the menu of choices. This not only eliminated the infrequent services, reducing the internal complexity and skills needed to fulfil the remaining services, but the reduced palette also reinforced the new brand as a specialist service for just her target client.)

Back to raising her fees, her first suggestion still looked like a marginal increase from the current rates. When I probed into the reasoning for this marginally better price point, her feeling was that, putting herself in her customers’ shoes, it felt reasonable, safe, and unlikely to frighten away her client base.

That’s when the coach stepped in to challenge “safe” and “reasonable”. (Because you don’t get coaching to be even more comfortable in your comfort zone, right?)

I suggested she double the rate.

She took several seconds to process that.

Then we doubled the rate again.

And again.

Now we were well out of her comfort zone. What was initially scary turned to a near-catatonic mood of OMG-I’ll-lose-all-my-clients.

While we worked through the mini trauma, the principle for everyone wanting to raise prices is that the benefits to her clients could still be argued, rationalised and bought into by her clients.

Specifically, we explored the value to her clients in terms of their gain. As a corporate attorney crafting commercial agreements, negotiating and giving strategic advice on big deals for her clients, what she’d be charging would usually be less than 1% of the reward her clients would enjoy from those deals. She needed to sell the business case – the return on investment ratio of benefits over costs.

Also, she had decades of specialist expertise and a track record that put her streaks ahead of her competitors. Her sales slant had to focus on her years of know-how and not a consulting rate per hour.

With all of this, her paradigm mutated from one of, “How can I charge so much?” to be replaced with, “How can my clients afford to not hire our service?”

So that’s what she did.

In a follow-up conversation months later, my client confirmed that by positioning their services using a business case approach, she eliminated many of their high-maintenance clients and replaced them with far more valuable clients.

But the real gem from their new sales approach was this: not only were her clients valuable to her business, but her services were also valued and appreciated by her clients even more than the old ones.

Encouraging customers to buy from local businesses just to save jobs is misguided. We see popular memes and authors espousing the need to buy more from local industries – wine, tourism, textiles – because thousands of jobs are at stake. I’m sure the message has some effect, but it shouldn’t be the only message.

Despite the well-meaning intention, expecting consumers and business to shift their buying criteria for no tangible benefit is not sustainable. As an entrepreneur, this appeal should rank as one of your last ploys to entice a customer’s patronage.

The employment rate is a surely a key performance indicator for any nation’s economy because it reliably predicts and affects almost all other aspects of running a nation. So the only entity accountable for directly affecting employment is government. Preferably not through the current trend adding even more jobs in government, but through policy that creates the environment conducive to stimulating business, thereby indirectly increasing employment.

But whatever the environment, entrepreneurs don’t start businesses to create jobs. The only place job creation should exist as a mission statement is a government department.

Don’t get me wrong. Lockdown is decimating employment levels and creating hardship for thousands. Losing a job is traumatising for both the worker and the boss. At the macro view and micro, individual level, unemployment is a blight. But nobody buys local purely for the sake of buying local. “Buy local” is not a sales pitch.

As an entrepreneur, your business exists because it solves a customer’s problem. In this, value is created for your customer where the benefit of your solution outweighs your price tag.

As a consumer, whether the benefit is a tool that helps us make money, save money, enrich our life, reduce pain, or even lift our social status, we spend our money because we expect greater value in return.

That being said, buying local to save jobs does have its value, just like any other charity, except there’s a limit to how much customers can spend on charity. Whether your customers are businesses or consumers, that limit comes fast: the feel-good from charitable spending is quickly sated. Beyond this, a “buy local” campaign quickly peters out when more-substantive factors, like functional and economic utility, dominate the decision criteria.

If you’re relying on artificial conditions to prop up your business (and save jobs), then there’s a problem with your business model. Sure, play on the heart-strings in your sales pitch if it works, but only as a bonus benefit.

Don’t conflate government’s job of reducing unemployment with your customer’s problems and needs. Your job as entrepreneur is to help your customers buy your product because it’s the best product to solve their problem, and their problem is not to keep you in business.

When you’re shopping and you see prices ending in 9s, like 49.99 or 1,999.99, do you also round up to the next round number? Do you also enjoy a brief moment of smug satisfaction that you weren’t fooled by the retailer’s pricing mind-trick?

I often feel irritated and mis-trustful of retailers who use charm pricing – reducing the left digit by 1 – especially for higher-priced products. I wish they’d just use a round number when there’s basically no difference between 10,000 and 9,999.99, instead of forcing me to make micro “corrections”.

Except, depending on what you’re selling, rounding your prices is not always a good thing. There’s a case for the 99 effect and there’s a place for convenient, rounded prices.

Even for high-priced items, decrementing the first digit by 1 still has an unconscious effect in the buyer’s mind. Although R199.99 is as good as R200.00, our minds instantly and subconsciously get attached to the smaller first digit.

Despite the mental maths of rounding up, the lower first digit takes hold before we’ve even finished reading the rest of the price. Irrational as it is, R199.99 feels closer to R100 than R200, and it’s this feeling that persists despite the rational correction.

Charm pricing also creates a psychological sense of uniqueness, raising the perceived value of the product. This could be reinforced literally by adjusting the cents across different product lines. E.g. instead of prices ending in only 99, vary them to 98, 95 or 90.

Gumroad, an e-commerce retailer, A-B tested  several products at alternate price points to prove this. In some cases, products priced at 1c less achieved over double the conversion rates as the same product at its rounded price. For example, products priced at $2 earned a 2.39% conversion rate (users who bought it as a percent of users who viewed the product), whereas the same products priced at $1.99 enjoyed a 5.2% conversion. That 1c discount made a massive difference in turnover.

But there might be times where the 99 effect could work against you.

If you’re selling anything positioned as luxury or high quality, a rounded price is more likely to strengthen this positioning. Have you noticed how top-end restaurants, hotels and boutique retailers list their rates in whole numbers, often using only even numbers?

The rib eye steak is R148, not R147.95 or R149.90. The oyster starter is R18 per oyster, not R17.99 (assuming the establishment even lists its prices!)

Prestige pricing – whole, rounded numbers – makes it easier to convey the price and create a sense of quality. With less attention on price, the value to be perceived lies in other attributes.

But even luxury brands might need to use charm pricing. If you’re going to run a discount promotion, your sales tactic should switch from fancy pricing (round numbers) to value (99 effect). E.g. a half-price sale shouldn’t cut your R200 list price to R100, but to R99.99.

How are you using your prices to reinforce your buyer’s perception of value for money, or quality and prestige? Does your pricing support your intended product positioning?

Word of mouth validates that you're keeping a promise worth making (and worth paying for). But, with a few exceptions, it's also a very slow way to grow. If you want to grow faster, then you need to market better and word of mouth isn't marketing. It's the natural (and unpredictable) consequence of delighting your customers.

Many SMEs don't market well, assuming they market at all. Most only do so when it's convenient (i.e. never) or absolutely essential (i.e. too late). Consequently, they get caught in feast or famine cycles: either desperately generating more demand, or struggling to keep up with the demand that they've generated. Few achieve an equilibrium between these extremes.

Most companies have administrative, operational, financial and employment systems. But very few have marketing systems, so very few market systematically. And without systematic marketing, it's very difficult to build a continuous pipeline of sales and escape the feast or famine cycle.

Marketing is the only business activity that directly drives growth. Everything else - operations, finance, admin, employment - is essential for sustaining growth, but is not a direct driver. If you aren't marketing every day, then you're squandering growth opportunities every day.

Most SMEs can't afford lavish promotional campaigns or world class creative talent. But however modest your marketing may be, doing it systematically will be much more effective than doing it sporadically.