Clever Business
2015-06-01 | Text: Ekaterina Hvorova | Photo ©: Denis Cristo / shutterstock, Tyne & Wear Archives & Museums, Gobierno de Chile | 6517

Sometimes the only way to succeed in business is to do something truly original. We’ll be taking a short tour of unconventional business solutions – some of which can still be used today.


Overheard at the market

A watermelon vendor sets out a sign: “One watermelon – 30 rubles. Three watermelons – 100 rubles.”

Customer:

“One watermelon, please.”

He pays 30 rubles and takes a watermelon. Then he repeats the procedure two more times and says to the vendor:

“I just bought three watermelons from you for 90 rubles, even though it says here that you’re selling them for 100 rubles. You’re a fool!”

Once the buyer leaves, the vendor says:

“It’s like that every time: they take three watermelons and then tell me how I should do business!” 


First, let’s take a look at American businessman Robert Taylor.  The 1970s are right around the corner, and there isn’t a store on Earth that sells small bottles of liquid soap with built-in pumps. Robert Taylor has just thought of producing them, but he can’t get a patent on his idea – liquid soap itself is already used industrially, and simple pumps were invented thousands of years earlier.  That means that anyone can produce liquid soap dispensers, and as soon as Taylor starts selling his, he will be crowded out of the market by major corporations.

Taylor comes up with an ingenious move. He places an order for the production of 100 million soap pumps, at a cost of $12 million – in the process putting himself deep in debt. What’s clever is that at the time there were only two businesses in the United States capable of making the pumps, and it would take them several years to complete the order. Meanwhile the small firm of Minnetonka, founded by Taylor, managed to seize the entire market for liquid soap, leaving its competitors kicking themselves.

Two years after he begins to sell liquid soap, Robert Taylor will sell his business concern to Colgate-Palmolive for $61 million – a fivefold increase over his initial investment.

And now we go to Africa, where the firm Nike has just set up production of its sneakers. The advantage of placing production in the world’s poorest countries is obvious – cheap labor will significantly lower the cost of production. But there’s another problem – the firm’s own employees are stealing the finished product in incredible numbers. They are not only taking shoes for themselves and their families, but for all of their neighbors as well. Entire African villages are now walking around in Nike sneakers. People with some of the world’s lowest per capital incomes are wearing shoes that cost as much as they earn in a year. Nike’s head office tries to fight theft, but none of the obvious solutions work, as they are either too expensive or lead to unpredictable consequences.  When security at the factories was increased, the levels of theft only rose: now workers had to carry more sneakers out of the factory so they could bribe the guards, who also had friends and neighbors. Bringing in security guards from the United States was also unacceptable – it would have been prohibitively expensive.


Nike had to bring in an outside specialist before they found someone who could propose a surprising but effective solution. To prevent theft the firm divided its paired product into two parts: right sneakers would be produced in one country, and left sneakers in another. The shoes would only be matched up in Europe or the United States, where theft-monitoring posed no problems. 

The next stop on our journey is the company Colgate. It’s the late 20th century, and the market for toothpaste is already jam-packed. The company’s stockholders, however, are still demanding greater revenue. Without thinking up anything on its own, Colgate creates an open contest for the best idea to increase sales. One contestant proposes a very simple and cheap solution: widen the opening in the tube of toothpaste – at the time openings were only 2 millimeters in diameter. While company management initially ignores that suggestion, for lack of anything better they nevertheless decide to try it. The effect is astounding. The logic is simple: if you can’t increase the market, then increase the amount of your product consumed per usage, and consumers will be forced to purchase your product more often. Consumers who are used to covering the brush’s bristles completely will, out of habit, continue to do so with the new tubes as well, and an accompanying ad will convince them that it is the right way to brush. From the standpoint of hygiene, that is pointless – a pea-sized dob of paste is enough to clean one’s teeth well. To be fair, some toothpaste manufacturers write about this in their instructions – but who reads the instructions on a tube of toothpaste?


Since then many companies have started paying special attention to increasing how much their buyers consume per usage of their product.  And sometimes those companies are able to find solutions that cost absolutely nothing but greatly increase their sales. For example, in the 1960s Alka-Seltzer was the first to play this trick: instead of one effervescent tablet, the characters in their commercials started using two. Sales of Alka-Seltzer skyrocketed. Later producers of chewing gum picked up on this tactic and started using it. In their commercials you’ll often see characters who want clean teeth put two pieces of gum into their mouths right away, even though one is enough.

Here’s another story, one that takes place at Procter & Gamble. Once a person came into their office and, in exchange for a substantial sum, offered to tell them how to increase sales of a popular shampoo by 150%. Since the man’s fee was not small, management decided to solve the problem on their own. They called in all of their marketing experts and admen, but even after long meetings they were unable to find a way to increase sales by that much. Procter & Gamble then called back the man off the street and paid him the money he asked for. When the deal was complete, he said: “Look at the bottles of your shampoo. See the instructions? After all of the instructions, you just need to add one phrase: ‘Repeat if necessary.’” Once that was done, shampoo use actually did increase, since most people began to shampoo their hair at least twice every time they bathed.

Our last example in this series has to do with the producers of candy bars. Many of you have probably noticed how producers have recently started putting two small bars in each wrapper instead of one large bar – the mass in both cases being the same. Here’s why: if you once ate an entire candy bar at a time, or maybe half of one, then your purchasing habits have not changed at all.  But, if you used to cut big bars into three pieces (which is probably what most buyers did), after eating the same amount of chocolate, a much smaller piece of the bar remains in the wrapper.  Psychologically, it’s very hard not to put that piece into your mouth. Now many people eat a candy bar in two sittings instead of three.

Leaving behind those who still think they decide how much and how often they consume, we move on to the year 1970, to the World Cup in Mexico. People all over the world are glued to the game, which is broadcast on television channels worldwide. It’s an excellent time for ad campaigns. Television time, however, is very expensive, so marketing experts from Puma are racking their brains: how can they conduct a large ad campaign without spending big money? They find a very elegant solution. As a rule, before the match the camera shows the stadium, the team members, and finally the leading players in close-up. And now, a few seconds before the whistle blows, beginning the match, the legendary Pele bends down in front of the camera and begins to tie the laces on his shoes. When he does so, the entire world sees not only the shoes, but also a close-up of the Puma logo. Even though Pele had worn Puma shoes on the field and advertised them in the past, the standard ad had not been effective everywhere and for everyone. On the other hand, this new “unobtrusive” ad proved to be dozens of times more effective and profitable than anything else. Puma, having only spent money on a check to the footballer, got free airtime on the world’s main television channels and made it into many textbooks on advertising and marketing.


In 1984 Nike uses a similar method to advertise their sneakers. The company develops Air Jordan sneakers especially for basketball player Michael Jordan. Since they did not meet game regulations – on purpose, one would think – for every game Jordan played in them, he was fined $5,000. Nevertheless, he continued to play in them. In the end Nike took on all of his fines and paid Jordan $500,000 in royalties every year. Air Jordan sneakers are still popular and generate $300 million for Nike annually. Jordan also gets his cut – $90 million each year. 

Another enormous but free ad campaign took place in Chile. On August 5, 2010, there was an accident at the San Jose Mine that left 33 people trapped underground. A three-month rescue operation was shown on televisions world-wide. During that period the miners were supplied with food and water. People throughout Chile and beyond gathered aid for the trapped miners and followed the rescue effort.  Along with food and other essentials, eyeglass manufacturer Oakley sent the miners sunglasses, which would seem useless, given the situation. But three months later, when the miners came to the surface, it turned out that during their time underground their eyes had grown unaccustomed to sunlight, so they put on those sunglasses when they came to the surface.  The faces of the Oakley-wearing rescued miners were shown on many television channels and printed in many magazines and newspapers.



But we have already moved on to the United States. Here there is stiff competition between two big publishers who put out yellow pages-type telephone directories every month. The market is full, and the two publishers try to discredit one another, undercut each other’s prices, and try to draw over each other’s employees. None of these methods work, and the companies lose no ground to one another.

As a rule, consumers bought both directories, preferring neither one nor the other. But the phonebooks contain practically the same information and cost very little – about one dollar. Office workers have two telephone books on their desks and use the one they grab first. 

The competition between publishers would have gone on for many years had one of them not brought in an external consultant, a specialist in such matters, compensating him generously for his services. After analyzing the situation, he suggested the following: “Next month put out a book that is smaller but contains the same amount of information. It has to be small but thick.” Do think that suggestion cost anyone a million dollars? Surprisingly, it did: two months after that company changed the format of their telephone books, the other went broke. Here’s why. When office workers got the new telephone books, they put them on top of each other, as usual. It used to be that the two books were shuffled back and forth on desks, each one taking turns on top. However, when one directory stayed large and flat and the other became a smaller volume, the smaller directory always remained on top. When the time came to buy new telephone directories at the end of the month, businessmen realized that they had only used the directory on top for the entire month. The next time they only bought that one.

Now let’s go back a little over a century ago, to 1897. Herbert Dow has just founded a company that produces potassium bromide, widely-used in medicine and the production of film. He has already patented his own inexpensive production method. At a certain point demand begins to fall and Dow decides to get his product onto the English market. American bromide costs 36 cents per pound. European equivalents are more expensive, a German cartel having set the price at 49 cents. When Dow refuses to “play by the rules”, his European competitors decide to squeeze him out of the market by undercutting him. In hopes of bankrupting Dow, they begin to import European bromide to America, first at a price of 15 cents per pound, but then for 12 cents and eventually 10. European prices remain unchanged. How does Dow react? He completely stops production and begins to buy up the cheap bromide. Repackaging it, he puts it on sale in Europe for “only” 27 cents. European consumers get a product that is even cheaper than what Dow made himself. In the end the cartel loses its market, and Herbert Dow restarts production. Later Dow Chemical conquers the magnesium and dye markets exactly the same way, and Dow becomes known for his success in fighting monopolies.  Today Dow Chemical is the world’s second largest chemical company, second only to BASF. 

We finish our brief journey in Moscow at the turn of the 21st century. It isn’t a story about increased sales or unusual ways of beating a competitor, but it does show a subtle understanding of human psychology, which is what allows us to mention it in our article. A new business moves into an office that was once occupied by a copy center.  The new business has nothing to do with photocopying, but out of habit locals keep going there to make copies. After a few days they put up a sign: “We do not do photocopies!” Twenty-four hours pass, and a postscript appears: “We do not, have not, and will never do photocopies!” Another five days or so and a new phrase is added to the sign: “And we don’t know any place that does!” In a week the announcement is removed, and a new one appears in its place: “Photocopies: 1 page – 1,000 rubles.” No one goes there to have copies made any more.

 

Sign up for eRazvitie.org on our Facebook page not to miss new articles.

dsf
Default AJAX