The Curve by Nicholas Lovell is a book that will help you to think about your business differently and particularly about how to think about your customers and how to make money from them.
For example, at one point he discusses the difference between ‘free’ and ‘cheap’ by quoting a famous experiment in which psychologist Dan Ariely set up a table to offer customers two kinds of chocolate: a high-quality Lindt truffle or an ‘ordinary’ Hershey Kiss.
“A large sign above the table read, ‘One chocolate per customer’. Customers could only see the chocolates and their prices once they stepped up to the table.
“Ariely started the experiment by setting the price of Lindt at 15 cents [the cost price was 30 cents] and Kisses at 1 cent. [The customers] acted with a great deal of rationality: they compared the price and quality of the Kiss with the price and quality of the truffle, and about 73% of them chose the truffle.
“The purpose of the experiment was to see what impact ‘free’ had on people’s rationality, so Ariely then lowered the price of both chocolates by 1 cent. ‘What a big difference free made. The humble Kiss became a big favourite. Some 69% of our customers (up from 27% before) chose the free Kiss, giving up the opportunity to get the truffle for a very good price.’
“Ariely repeated the experiment in different circumstances and with different conditions. His conclusion is that free is a very powerful motivational price. It gives us an emotional charge that increases the perceived value of what we are getting. More than that, we will often take the free option because it is perceived as being lower risk, as eliminating the possibility of loss.”
Coming from the digital world where freeloaders, people who use services but don’t pay for them are important, Lovell understands how businesses need to give value away in order to win customers. The most important thing today is to win the attention of consumers, and then to work out how to make a profit from them.
Freeloaders provide the context in which your shop can be valued by customers. For example, when Waitrose gives away free meal suggestions to shoppers, it solves a problem for busy people about what to eat and frames their thoughts about what to buy. Relevant information is often the best thing to give away for free.
How you make money out of it requires you to think about what the potential is to attract customers who will be prepared to pay a lot for what you provide. The superfans underpin the success of many digital businesses. They are the equivalent of the £50 basket shoppers that you want to encourage.
The Curve is about understanding how you make profits from the superfans. For example, the company behind Pocket Frogs gave away the app to millions. The game had three price points: 99 cents, $4.99 and $29.99. The 8% of people who chose the latter accounted for 49% of its revenue, worth around $1.5m. That is 8% of the small fraction of people who actually paid anything.
Lovell’s book will challenge how you think about business, will help you look at the world differently and will give you an edge in winning tomorrow’s consumer over to your shop.