Get Online Innovation Training
This week, the American Society of Mechanical Engineers (ASME) released an online training version of my 24/7 Innovation book. The course includes all of the materials from the book plus a series of questions after each chapter to test your retention.
The cost is $100 and can be ordered online from the ASME website.
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Oscar Wilde Was Right
A recent blog entry of mine focused on how price impacts perception. Today’s topic is on how perception drives price. Many times, the cost of something is driven by what we paid in the past – even when the rules have changed.
Seth Godin recently wrote about how Apple will be charging $3 for online video rentals. This price is roughly what BlockBuster and others have charged in the past for their physical product. But with digital content, the rules have changed. Although productions costs are significantly less for downloadable videos (there are no manufacturing and distribution costs), the price remains the same.
What we paid in the past often drives what we are willing to pay in the future. Sadly, this not only robs consumers of better pricing, but it might also rob an industry of a game changing opportunity. If movie studios charged only $1 per rental, it might wipe out the piracy. I do like the new Netflix online streaming video model: unlimited viewing for one fixed price. Time will tell how this all shakes out.
The point is, price is often determined by what we paid in the past, not by value or even by production costs.
Oscar Wilde once said, “A cynic knows the cost of everything and the value of nothing.”
I did an experiment a few years back. I called it PW3 – “Pay What We’re Worth.”
In determining the fees paid to a professional speaker, traditionally the speaker sets the rate before the work is done.
With PW3, as an experiment, I turned this model upside down. Instead of quoting a standard rate, the client would determine my fee after the work was done.
The plan was to send the client a blank invoice after I gave a speech, and they would pay “what I was worth.”
The only stipulation was that we would have a conversation about value up front. I wanted to learn the value they got from previous speakers. How were the concepts reinforced after the presentation? How were ideas implemented? How was value measured?
What I discovered was that Oscar Wilde was right. Companies were happy to pay me what they paid their last speaker or what they had in their budget. Discussions of value were often painful and fruitless.
The result? Nearly all of my clients that year opted to pay my standard rate.
Only one client applied a subjective value system. They surveyed all of the attendees after my speech. If I received a 5 out of 5, I would receive 100% of my standard fee. A 4 out of 5 would yield 80% and so on. Of course this is not a measure of real value.
In your life, how do you determine what you are willing to pay for goods and services? Is it based on what you paid in the past? Is it determined by how much money you have in your bank account? Or is it determined by the “real” value you receive?
In your business, how do you determine what you will pay your employees or consultants? Is it based on market rates (which may or may not be a determinant of value)? Is it based on your budget? Is it based on what you paid your last consultant? Or is it based on the “real” value you receive?
Don’t be fooled. Value and cost are not related. Stop being a cynic. Determine the value of everything – and decide what you pay based on that.
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Innovation Quotes of the Day
Man can only have a certain number of teeth, hairs, and ideas. There comes a time when he necessarily loses his teeth, his hair, and his ideas. – Voltaire
Ideas must work through the brains and arms of good and brave men, or they are no better than dreams. – Ralph Waldo Emerson
Don’t worry about people stealing an idea. If it’s original, you will have to ram it down their throats. - Howard Aiken
The human mind treats a new idea the same way the body treats a strange protein; it rejects it. – P. B. Medawar
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Goals That Work
I recently received an email from a reader of this blog. He describes what he calls a “loophole” in the goal-setting process: either you achieve a goal and then invalidate it with counter-productive behaviors, or you see that a goal won’t be achieved so you give up totally. He then describes what works (something I suggest on this blog): setting a theme. Here are his thoughts.
I am still setting goals on 43things.com. Very difficult except for shopping list type goals like “buy a new hat”.
I’ve been sleeping 12 hours per day. I had set a goal to get up at 6am and have an afternoon nap. I’ve been doing exactly that, except I go back to bed at 7am until 11am! The other day I set a new goal: “have a morning productivity score of 80/100.” This all-or-nothing goal didn’t work because as soon as I knew I couldn’t reach 80 I let the whole thing go and scored 25.
Goals that have worked are like ongoing themes which are achieved when the first example of the theme is achieved.
One goal was “perform a miracle of friendship.” What I had in mind was that it would take a miracle for someone who wouldn’t make time for me to change their mind. However it was achieved in an immediate, unexpected way. Within a day I remembered a friend who keeps sending me his poetry and that I received some the day before. Previously I found it boring (and the opposite of “bored” in the Thesaurus is “caring”) then I realized I could write and send him a special poem just for him. It rhymed too.
I achieved the goal of performing a miracle of friendship and it will also be an ongoing theme.
This same concept holds true for organizations. Employees are not stupid. They will do what they need to in order to hit their performance targets – even if the end result is detrimental to the overall performance of the business. People are motivated by a clear sense of direction, purpose, vision, or theme. When individuals are incented to “do the right thing” rather than hitting targets, you will find increased creativity, improved performance, and a happier workforce.
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Increase the Price – Increase the Pleasure
I wrote a blog entry entitled, “How to Lose a Sale By Charging Too Little.” In it I describe why charging too little reduces the perception of value.
According to a recent Stanford Graduate School of Business study, there are biological reasons why price impacts perception.
Subjects were given a number of wines for tasting and were told their price. Some of the wines were given to tasters more than once, with a different price tag each time.
What did they find?
The same wine, when given a higher price tag, tasted better.
Surprisingly, according to fMRI scans, the pleasure centers of their brains light up more, even though the “taste” centers do not. The body knows the wine tastes the same. Regardless, it is enjoyed more when it is more expensive.
“We have known for a long time that people’s perceptions are affected by marketing, but now we know that the brain itself is modulated by price,” said Baba Shiv, an associate professor at the Stanford Graduate School of Business, and one of the authors of the study.
As the recession looms on the horizon, companies may be tempted to drop their prices to stay competitive. But there may be powerful biological reasons not to do so. Price can drive perception. And perception is reality.
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