Decision Quality Blog

I recently republished a paper I wrote some years ago about the how’s and why’s of tuning up your go-to-market strategy.  Here’s the lead on it . . .

At some point it occurs to every executive. Maybe it’s a nagging thought in the middle of a meeting or while playing chess with a tough opponent. Maybe it’s a raging impatience. Hopefully it’s a strategic and permanent insight. “It” often sounds like this: “”We’re spending all this time, money, and resource on marketing, sales, fulfillment, information technology, and about forty other things. Tell me again how they all fit together“?

Or let’s put it in the positive.

The demand side of our business, the supply side, and the supporting infrastructure must all line up through clear strategies and initiatives that serve customers and produce value.

Well you’ve just defined a go-to-market strategy.

• Go-to-market strategy: A coherent set of choices that align your people, processes, products, premises (physical and virtual channels), and partners to deliver your brand promise, the desired customer experience, and tangible value.

This paper can also be downloaded on this site.

Although piracy continues unabated off the Somali coast, “we the people” have largely moved on to more compelling matters like the Palin book barrage, Lou Dobb’s retirement, and oh yes, Health Care reform.  A couple of items did sneak into the popular press in the past week that cause me to wonder “what were the thinking?”

The first that comes to mind is the case of a British couple named Chandler. 

The Chandlers, married for 28 years, took early retirement about three years ago, sailing around the world. In an entry on a Web site in June they wrote that they were headed for Tanzania, after initially delaying a voyage there “because of the Somali pirate problem.”

You already can surmise the rest: They got within range of the bad guys who grabbed them, apparently in plain view of a Royal Navy boat (another matter entirely).  Now the pirates are issuing videos, ransom demands, and death threats.

If you’re the Chandlers, this is clearly not good.  But I am left asking, not only “what were they thinking?”, but what was the alternative they rejected when they chose to go whistling by pirate land?

One of the big decision traps is a failure to grapple with uncertainty.  One of the big ways that shows up is the understandable assumption that the future will look like the past . . . in other words, all the interesting uncertainties are known and accounted for.  Another version is a failure of imagination: You have no interest in thinking about what you don’t know and what could go wrong.  Finally (but not exhaustively), you may have identified the key uncertainties and decided to go forward anyway.

I have no idea the Chandler’s thought process, but at least according to the news item, the Chandlers were aware of the whole pirate problem.  If your intent is to sail around the world on a 38 foot boat (hardly a yacht by the way), sticking reasonably close to land is probably a good idea, but not something you’re going to have much luck with when it comes to crossing either the Pacific or the Atlantic. 

Tanzania is just south of Somalia, separated by a chunk of Kenyan coast line. 

• Choice A is keep to the coast.  Key Risk Factor: Capture by Pirates.  Probable outcome: Held for ransom; death possible.
• Choice B is to head east towards India. Key Risk Factor: Weather.  Probable outcome: You get wet; death possible.

Meanwhile, news of another pirate attack, this one on a ship called the Maersk Alabama raises another version of the same question, “What were they thinking?”

Somali pirates attacked the Maersk Alabama on Wednesday for the second time in seven months and were thwarted by private guards on board the U.S.-flagged ship who fired off guns and a high-decibel noise device.

Hmmmm, something about the name of that ship is familiar.  Oh, wait . . .

Pirates hijacked the Maersk Alabama last April and took ship captain Richard Phillips hostage, holding him at gunpoint in a lifeboat for five days. Navy SEAL sharpshooters freed Phillips while killing three pirates in a daring nighttime attack.

I guess the whole thing worked so well the last time the locals thought they’d try to crash that party again.

Four suspected pirates in a skiff attacked the ship again on Wednesday around 6:30 a.m. local time, firing on the ship with automatic weapons from about 300 yards (meters) away, a statement from the U.S. Fifth Fleet in Bahrain said.

An on-board security team repelled the attack by using evasive maneuvers, small-arms fire and a Long Range Acoustic Device, which can beam earsplitting alarm tones, the fleet said.

In this case, the pirates live to play another day.  It doesn’t matter what they were thinking.  The ship owners looked at the same information available to the Chandlers, framed the problem statement differently, and came up with what appears to have been a superior choice.

Note to owners of 38 foot sail boats: Think about taking another route.

I’m always on the lookout for pieces about decision making at work, or better still, great examples of decision traps at work.  Richard Thaler writes about one of those traps called “escalation of commitment” in the New York Times when he describes a game that’s sometimes called a dollar auction.  I’ve seen it done several ways but a common form is to auction off a $20 bill.  It goes like this . . .

Bidding starts at $1 and goes up in $1 increments. The winner pays the [auctioneer] whatever the high bid was, and gets the $20. Here’s the catch: the second-highest bidder also has to pay, but gets nothing in return.

Typically, a few brave or stupid [bidders] — nearly always male — open the bidding but fairly quickly only two bidders remain and they discover they are in a war of attrition. The bidding slows when someone bids $20, but then resumes with neither wanting to “lose.” If the two students are particularly stubborn, prices can go over $50. [I have seen it go higher than that]

The dollar auction game was invented by a pioneer of game theory, Martin Shubik of Yale, and it illustrates the concept of “escalation of commitment.” Once people are trapped into playing, they have a hard time stopping. (Consider Vietnam.) The higher the bidding goes, and the more each bidder has invested, the harder it is to say “uncle.” The best advice you can give anyone invited to play this particular game is to decline.

Another version of this same trap is called “sunk cost thinking” which is exactly what it sounds like:  You stay with an investment or keep doing something because you’ve already paid for it. It is one of the big reasons why the US is still prosecuting wars in Iraq and Afghanistan and why tax payers continue to pour billions of dollars into rescuing firms that should be shuttered.

I haven’t actually tried it (and probably won’t), but Thaler holds up yet another example of this decision trap at work.  It’s a company called Swoopo, a self-described “entertainment shopping” company.  It works like this . . .

Swoopo sells new merchandise using unusual auction formats. Let’s concentrate on one of them, the so-called penny auction.

Typically an item — say, a laptop that retails for $1,500, is offered for sale. The bidding starts at a penny, and goes up in one-cent increments, but it costs bidders 60 cents to make a bid. Each auction has a scheduled closing time, but as the deadline nears, that time is extended by 20 seconds whenever someone bids.

The site’s home page displays several attractive objects for sale with closing times fast approaching. It is mesmerizing.

One winning strategy might seem to be this: Bid at the last second, just before an auction is about to end. To “help” you do so, the site offers an automatic bidding program called a Bid Butler that allows you to make bids in the last 10 seconds. Alas, others can also use this automatic program, and you soon discover that just as the clock is ticking down and you’re about to make your big score, a bunch of other Bid Butlers get busy, the price jumps by a few cents, and the clock adds more time. Items can remain “in their final seconds” for days.

What makes this procedure so devilish is that while bidders are looking at what seem to be amazing bargains, the Web site is raking in the money. Because Swoopo collects 60 cents for each penny bid, its revenue is the selling price multiplied by 60. This means that if a computer you covet sells for $100, seemingly a bargain, Swoopo collects $6,000 in revenue, a very juicy profit.

Tags: DollarAuction, EscalationofCommitment, Vietnam, MartinShubik, Swoopo