Money down: One trick to improve your business’ conversion and retention
Monday, April 15, 2019/
Nick Kokonas questioned everything.
On his way to creating Alinea, named the best restaurant in America and the best restaurant in the world, Nick Kokonas blasted through long-held assumptions about what fine dining meant.
Why did the host need to stand on a podium?
Why put candles on tables?
Why do diners have to call for a booking and not choose what suits them?
Why did fancy restaurants have tablecloths?
But the one particular assumption I want to focus on is why couldn’t restaurants charge a deposit for bookings?
In his discussion with Tim Ferris, Kokonas mentions how behavioural economics shaped his view of addressing a yield issue in the restaurant.
In a nutshell, the restaurant was losing 5-8% of revenue each night through no-shows and short-seated tables (a booking for four where only two turn up). Kokonas wondered how asking for a small deposit ($20) on high-demand nights would change diner behaviour.
People told him it wouldn’t work, that people wouldn’t pay. They were wrong.
Skin in the game
People take something more seriously when they have contributed.
For example, people are more likely to take advice when they’ve paid for it, they are less likely to attend events for which they’ve been given free tickets, and owners will always take their business more seriously than their employees.
Known as the endowment effect, having ‘skin in the game’, or a small vested interest, it is a strategy you can use to improve conversion and retention. Customers will be more likely to turn up if they’ve paid some money in advance. It will only work, of course, if they value what you are selling enough to outweigh the effort (time, money) you are asking them to contribute.
Some ideas for you.
- Spending time listening to customers and replaying what you understand of their issue, in their language.
- Personalising the offer as much as possible so they psychologically take ownership (for example, the conference photographer takes your photo before offering it to you to buy).
- Letting them handle the product so it is harder to give it back (for example, test driving a car).
- Charging a fee for a proposal so they value it more and can rebate it against work that proceeds.
- Giving customers a generous allocation of points upon joining so they immediately feel something is at stake.
- Letting customers accrue points or discount tier access so it’s harder to walk away (for example, a ‘years of membership’ discount).
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