The Pricing Newsletter

September 2019 issue

Howdy Pricers,

Twenty-six years ago we experienced a very unusual September. Whereas Septembers normally last for just thirty days, the September of 1993 was different. Nicknamed the eternal September, its effects still linger to this very day.

The eternal September marks the period in which AOL allowed non-technical users to participate in regions of the internet that were once reserved for the world's computer gurus. As a result, the status quo changed overnight. These new users took part in activities that were foolish, caused harm, and laid waste to the order that had once reigned supreme.

As pricers, we're finding ourselves in a sort of endless summer of our own. Historically unprecedented low (and even negative) interest rates and legions of zombie companies are causing havoc to the economy. Businesses no longer have to worry about prudent competitors; they now must concern themselves with firms that have no plan for ever earning a profit, surviving instead through continuous raising of capital from foolish investors desperate for yields.

The original eternal September did not herald the end of the internet, but it did signal a change to the internet. Similarly, the low interest rates of today do not mark the end of economics in the world of business, but they do signal a fundamental change to the ways that its lessons can be applied - at least for now.

Pricing Question from a Reader

Today's question comes from reader R. B.

In the old days, gas station attendants would fill up customers' gas tanks for free. Now drivers do it themselves. This shift in responsibility from company to customer has clearly saved gas stations a bunch of money. How can I do something similar for my software company?

Welcome to the World of Shadow Work

In economics, we have a term for what you're describing: shadow work.

Many businesses start out with a full-service concept. The companies will do anything and everything to keep their customers happy. After a while, however, owners discover that this approach can be quite expensive. As a result, they look to cut costs. While economies of scale and scope can help, a healthy bottom line can also be achieved by having customers take on responsibilities that were once seen as obligations of the vendor.

Can Anything Be Shadow Work?

Business owners would squeal in delight if every task could be handed off to their customers. Profitability would skyrocket because businesses wouldn't have to incur any expenses or perform any work. Of course, this is a clear impossibility. Few buyers would knowingly pay businesses without receiving something of value in return. Clearly some tasks must be kept in-house.

So how should businesses decide which tasks they can pawn off on their customers? Every case will be different, but here are a few characteristics of tasks that can be turned into shadow work:

Some forms of shadow work aren't just accepted by consumers - they're actively preferred. For instance, when I go to the supermarket, I always bag my own groceries. I exercise much greater care than any cashier to ensure that my produce isn't bruised or mishandled. Not only that, but I'm also faster, I can arrange my purchases in my bags to my own preferences, and, as an added bonus, I don't have to make small talk with anyone.

Of course, not everyone feels the same way that I do. There are plenty of folks who care little for the state of their produce (or don't even buy produce, favoring boxed and frozen goods instead). There are also those who would rather not perform such menial tasks that are so clearly beneath them.

Understanding the preferences and cultural norms of your customers is key for the introduction of any shadow work initiatives.

Shadow Work for Software Companies

There are many types of software products, but I think the most exciting developments in the field of shadow work can be seen in the world of video gaming. Let's take a look at a few ways that today's most successful video game companies benefit from the use of shadow work (or something fairly analogous to it):

It's important to remember that shadow work isn't just about offloading as much work as possible onto one's buyers. Instead, it's about identifying tasks that others can perform more efficiently, more effectively, or more enjoyably.

Of course the offloading of shadow work is rarely free and without risk. Sometimes it requires the creation of infrastructure. Sometimes it requires a rethinking of how a product is designed. Most importantly, sometimes its long-term effects may be hidden behind short-term increases in profits.

As with anything in life, the benefits of shadow work are not without their own share of risks. Caveat emptor.

Questions come from readers like you. If you'd like your questions answered, send them my way.

Pricing in the News

From the Blog Archives

Notable Pricing Quote

"The price of inaction is far greater than the cost of making a mistake." -- Meister Eckhart

Shameless Commercial Plug

People are spending tons of money buying premium cars, premium cheeses, and premium homes.

In fact, it seems like everyone is trying to market himself as the premium option. Most, however, do so poorly and without success.

Fortunately, I've written a premium book. Learn what it takes to create and market products that are truly, and undeniably, premium.