Jason Kottke has a terrific post about a sidewalk stand that increases profits by improving trust.
“Next!” said the coffee & donut man (who I’ll refer to as “Ralph”) from his tiny silver shop-on-wheels, one of many that dot Manhattan on weekday mornings. I stepped up to the window, ordered a glazed donut (75 cents), and when he handed it to me, handed a dollar bill back through the window. Ralph motioned to the pile of change scattered on the counter and hurried on to the next customer, yelling “Next!” over my shoulder. I put the bill down and grabbed a quarter from the pile.
I walked a few steps away and turned around to watch the interaction between this business and its customers. For five minutes, everyone either threw down exact change or made their own change without any notice from Ralph; he was just too busy pouring coffee or retrieving crullers to pay any attention to the money situation.
Ralph probably does lose a little bit of change each day to theft & bad math, but more than makes up for it in other ways. The throughput of that tiny stand is amazing. For comparison’s sake, I staked out two nearby donut & coffee stands and their time spent per customer was almost double that of Ralph’s stand. So, Ralph’s doing roughly twice the business with the same resources. Let’s see Citibank do that.
When an environment of trust is created, good things start happening. Ralph can serve twice as many customers. People get their coffee in half the time. Due to this time savings, people become regulars. Regulars provide Ralph’s business with stability, a good reputation, and with customers who have an interest in making correct change (to keep the line moving and keep Ralph in business). Lots of customers who make correct change increase Ralph’s profit margin. Etc. Etc.
And what did Ralph have to pay for all this? A bit of change here and there.
Ralph the Coffee & Donut Man has done two things to improve his business. First, he’s put himself at risk rather than the customer (caveat venditor). Whether it’s a hard-headed ROI calculation or a social statement, he’s come out way ahead. Second, he’s changed the character of his relationship with his customers. Instead of insisting on a simultaneous exchange of coffee and cruller for cash, he delivers the goods and ignores the mechanics of the transaction. He’s depending on reliable protocols for the money side of the deal. To his “business logic” (as the consultants call it), the money’s an afterthought.
Many of us, like Roland, see the similarity between the Ralph protocol and the Xpertweb protocol. Once the order’s delivered, the vendor’s free to start on another revenue cycle. Upon delivery, the customer is trusted to pay according to his satisfaction.
In both environments, the delivery and the customer’s response are visible to bystanders, which probably reinforces compliance, but the urge to treat fair work with fair payment is probably genetic, since animals do the same thing.
Trust. You can take it to the bank.