Take a Risk - Roll the DiceThe Law of Diminishing Returns

The old ways of doing things in the kitchen and bath industry get less and less effective with each passing day.  Any incremental gains industry owners do make to these business processes achieve a net negative to their operation (i.e. instead of losing 8% margin, they lose 6% when they should have changed things dramatically to lose 1%).  Meanwhile, the competition is already streamlined and gouging into their market share in huge chunks as the months go by.

It sounds like reverse psychology, but it’s actually safer for kitchen and bath dealers to adopt new processes and technology.

Take these examples for starters:

More Dangerous Places to Be Safer Places to Be
Generating leads with direct mail, trade magazines, radio & TV. Generating leads with your website, blog, social media, & content strategy
Quoting with design software Quick quoting with newer strategies so design software never has to be touched early on in the sales process
Guessing on your closing rates and other important business metrics Knowing exactly what your closing rates and other important business metrics are in real time

It’s the fear of losing which drives us to avoid making the tough decision to implement change.  If you’re still not convinced, answer these questions below from Predictably Irrational and see how you do.  The hints are at the bottom, so remember to cover up the screen and don’t cheat.

Extra Credit

Consider these examples from Predictably Irrational (answer each question on your own for fun and extra credit – I’ll explain at the end the purpose of the example):

  • Scenario 1: You go to buy a pen for $25 but 15 minutes down the street you remember that the very same pen is on sale for $18.  Do you make the drive?
  • Scenario 2: You go to buy a suit for $455, but a customer whispers in your ear that it’s on sale 15 minutes down the street for $448. Do you make the drive?
  • Scenario 3: You get to walk with $1K or you can flip a coin.  If it’s heads, you walk with $2,500.  Tails you walk with nothing.  Which one do you pick?

Don’t Cheat (these are the hints)

  • Hint 1: In scenarios 1 and 2 you save $7 each time, so there’s no reason not to answer them both identically.  Did you answer these differently?
  • Hint 2: In scenario 3, the mathematical answer using expected value clearly shows the coin flip as the better choice.  You didn’t take the safer route, did you?

Aren’t we all so…predictably irrational?

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