Hanging on by my Fingernails!

 It is the eve of my 46th birthday, and I want to tell you about possibly the most astonishing, unexpected thing that has happened to me in my more-than-four-and-a-half decades:

The scab is from the kitten. I have almost the exact scratch in my wedding photos 23 years ago, when the old deceased cat was a kitten.

After almost forty years, I have stopped biting my nails.

I have bitten my nails since I was seven years old, when someone told me that the piano teacher would cut your nails if they were too long. (That, at least, is the reason I remember. Who knows why we do what we do?) I'm almost afraid to say it out loud lest I jinx it, but the more I analyze that thought, the more I realize that it's a fear of accountability. So let me say it again:

I have stopped biting my nails.

I do not understand it, but from the timing, I guess that it has something to do with protein. Since I started  eating a metric ton of protein, both to support my daughter who needs it, and at the hest of the dietitian, food has become very dull. The fact that I can find and consume protein with a minimum of effort makes this a very first-world problem, and yet I grow weary of it, you know? I have lost almost ten pounds, some portion of which I can instantly regain if I increase my portion sizes of anything or decrease my protein intake. Currently I'm in a rut, waiting to break out of a plateau.

But I've stopped biting my nails.

"I will believe it's true," I said, hedging my bets, "if I make it through the show without biting my nails off." And my nails survived through tech week, through performance, through strike, through the week-and-a-half of postshow stress dreams. They survived Thanksgiving. They survived yesterday, when I microplaned my thumb while grating cheese and shaved off the top layer of my thumb nail. But I didn't shave my thumb! Because it was protected by a fingernail! 

(It turns out that fingernails won't protect you if you microplane your knuckle, however. At that point I decided we had enough cheese.)

I look down at my hands multiple times a day, to make sure that my nails are still there and still growing. And sometimes I just look in astonishment at my nails! on my own hands! I'm considering getting a manicure, because I can! 

Often, as I approach my birthday, I find myself fighting a malaise, as I consider how many things I have not done over the past year, and whether they would have mattered anyway. But this year, through no real action of my own, a thing has been done to and for me. My nails have grown, on their own, without my agency, without my doing anything except not biting them, which I didn't do on purpose. If I had felt the urge to bite, I certainly would have done so. I don't understand it. But it's the very definition of gift, unsought, unexpected, unhoped for because impossible. 

I have stopped biting my nails! Happy birthday to me!

The Tempest

We have been recovering these past weeks -- first from the show, and then from the vicious and highly contagious combination of a cold and pinkeye. The cold and pinkeye we will decline to share with you, but here, have a show: The Tempest, by William Shakespeare.

The video quality is not what we could have wished, but after the first scene it evens out. If you watch nothing else, catch the pageant of the goddesses, starting at 1:47:00, and appreciate the perfect marriage of Sibelius and fog machine.

For those watching for Darwins, the oldest, Eleanor, plays Trinculo the clown, and Caliban is the boyfriend of the second Miss Darwin. I cast them against each other because a) they are both fantastic individually, and b) I knew they'd commit to stupid shenanigans under a gabardine. My third daughter's boyfriend appears as Francisco, the youngest of the Neapolitans. Date a Darwin, get pulled into community theater.

Pricing Chronicles

 If you're connected with me elsewhere on social media, you may well have already seen this, but it seems reasonable to post a link:  As you may know, since a year after the time that I started this blog, I've been a professional pricer.  During that time I've managed pricing for Dell Computers, Wendy's, Scott's Miracle-Gro, and now an industrial tooling company called Hyperion.

Now that I have a fairly wide range of pricing experience (and may in the not too distant future want to write and consult more widely on pricing) I've started a Substack specifically to write about pricing.  It's called PricingEvolution, which long time readers of this blog may recognize as being a bit of an in-joke as well as a reference to developing one's pricing abilities.

Here's a link to the substack main page.  Subscribing is free, and although I plan to enable some paying levels in the future, I can assure you that the articles themselves will never be paywalled.

So far, I've written a post about my career progression from Classics major to VP of Global Pricing. 

One about the dynamics at play when some customers are attached to a specific product while others are attached to the price the product is sold at, based on my experience at Wendy's when we moved the Jr. Bacon Cheeseburger off the $0.99 Menu.

And today's post which is about how Starbucks has experienced the dangers a brand faces from deep discounting, and their attempt to back away from the strategy as they call down their revenue and profit guidance for the year under the leadership of their new CEO.

PricingEvolution will always be focused specifically on pricing; it's not a personal blog.  And DarwinCatholic will continue (at least at the slow level that is has run in recent years.)  But if you'd find it interesting to see my writing about pricing, do please go ahead and subscribe.

Education, Expertise, and Interest

I feel like every few weeks I see one of these posts in which someone with multiple education degrees asks how a homeschooling parent could possibly be qualified to teach all subjects to all ages when said degree holder is despite years of training only qualified to teach specific ages and subjects.

This kind of thing points to some real problems with credentialism within our modern education system.  However, I want to leave that to one side and address two points which I think are worth highlighting.

First, learning to manage and teach a classroom with twenty children is very different from teaching your own children. I'm not convinced that we necessarily need a four year degree and then an advanced degree as well just to teach someone how to plan and manage classroom teaching.  I suspect that we could successfully train and credential people a lot faster while giving them time while in college to devote themselves to a subject matter rather than teaching itself.  However, productively managing a classroom full of kids is a definite skill, and learning it is going to take time.

By contrast, teaching children at home is often a lot more like parenting than it is like managing a large number of other people's kids in a formal schoolroom environment.

Yes, there are times when it is important to seek out some specialized materials or techniques. After quite successfully teaching the first four kids to read using the 100 Easy Lessons book, MrsDarwin had to seek out a specialized curriculum for teaching kids with dyslexia to read for our fifth child.  And then for the sixth and seventh, she was able to go right back to the old system. Special needs required special techniques. 

But a lot of the time, teaching younger kids at home is a lot like doing any other activity with them. You sit down to read or do an activity, you provide some guidance, you make sure they do their activities. While there will be occasional kids who will need something special, teaching most kids to read and do basic math is not hard for the average parent to do with a few easily chosen books.  And teaching young kids about history and science is quite honestly often just a matter of sitting down and reading aloud, or even turning them loose to watch some decent TV programs on an interesting topic.

The second topic I'd like to address, however, relates to somewhat older kids, and it has to do with teaching expertise.

While I think it's pretty obviously misguided to think that someone needs one advanced certification to teach math to third graders, but a different one to teach them science, and so on -- I can see why someone would think that someone teaching middle school or high school science, history, literature, etc. should have pretty in depth knowledge of all those topics.  How is a parent going to be an inspiring expert in all those fields?

For one thing, it's worth being honest: most high schools and middle schools also do not offer an inspiring expert in each of these fields. Certifications set minimum, but they don't create inspiriting personalities or deep expertise. You can bet that your certified high school biology teacher can explain what the Krebs Cycle is, but that doesn't necessarily mean he will have an infectious enthusiasm which makes numerous students go into biochem. A lot of well trained teachers (like a lot of trained professionals in other fields) are going to be just okay, even as others are going to be brilliant.

But even so, wouldn't the middling high school biology teacher who knows about the Krebs Cycle be better for teaching kids about biology than a parent who may not remember the Krebs Cycle at all?

So here's where I find myself wondering a bit.  Because, as in this example, a lot of adults do not remember learning about the Krebs Cycle. Indeed, you could even work in a lot of other areas of biology without thinking about the Krebs Cycle often.

Let's picture two different ways that studying biology while being homeschooled in high school might go. 

In one case, the parent picks out a solid high school biology and makes the student read the book. The parent may not remember a lot of the topics covered well, but if they run into trouble the parent does some Wikipedia work or otherwise helps look up questions.

In the other case, the student reads a half dozen popular science books on topics that seem interesting about animals and watches a lot of documentaries and YouTube science videos. The student's knowledge is very spotty, perhaps, compared to reading a comprehensive biology textbook.  However, the stuff he reads he finds really interesting and retains.  Perhaps this leads to a longstanding adult interest in a few biology related topics, and he continues to read about those through the rest of his life.  Or if he feels really inspired to go deeper into the topic, he takes biology when he goes to college and perhaps even ends up majoring in it.

Which of these is a better science education, the one which mimics a traditional classroom with a solid survey text, perhaps rather uninspiring but thorough, or the one which is spotty but driven by interest?

I think that in a number of cases, homeschoolers may end up covering some topics more in the latter fashion. They may never do the broad survey study which modern middle and high schools emphasize.

However, it may also be worth asking: how much good are these broad survey courses achieving in many average schools across the country? Are there perhaps many cases in which an interest-driven approach to learning, while in places spotty and shallower (though also with certain areas of depth) actually leaves many homeschoolers retaining more education 20 years later than some of their traditionally schooled peers? Does the breadth of a traditional course count for much if most of it is never retained by most students? 

I don't think there's any question but what a deep and broad course taught by a passionate expert, which really inspires people to love the topic, is the ideal.  But ideals don't always happen, and often people are picking between various non-ideal options. 

I do wonder whether if homeschoolers are often ending up pursuing topics with more interest, even if also less thoroughness and expertise, they end up better served for the long run.

Darwiniana

I no longer call myself a writer, for the simple reason that I don't write anymore. There are plenty of reasons I've let what skill I had atrophy -- some good, such as taking on other responsibilities or nurturing relationships with my older children; some poor, such as an unwillingness to practice, or a willingness to be distracted, or a weariness with trying to shape ideas into words in an environment where curious and critical youth are constantly looking over my shoulder. 

That said, writing is how we communicate over time and distance. Whether or not I feel like writing (usually not), I do want to communicate. So, have a pomodoro's worth of writing.

***

Here's what was on the 2024 bingo card: The Tempest! I am directing, and we are in the midst of rehearsals. This should be a lovely and magical show, so if you're anywhere in the Central Ohio area over the second week of November, come and see it! Tickets are available here.

It turns out that Sibelius wrote an entire suite of Tempest incidental music, so here, enjoy Juno's glorious blessing, and then come hear it live with harmonization for Ceres and a chorus:

***

Here's what I should have expected to be on the 2024 bingo card: the doctor leaning back and saying, "Well, you're perfectly healthy, but you could lose twenty pounds. Would you like to talk to a dietitian?"

This is why women of a certain age put off checkups: because we know we're going to be told to lose weight. If I knew how to lose twenty pounds, I certainly would have done so by now. "It's a matter of portion control," said the doctor, and there was certainly some control going on because I did not immediately torch the office, nor scream into the void, but meekly said "Sure, I'll talk to a dietitian," when I desired to say, "Go to hell." 

Perhaps there is a gendered difference in the reception of this message. Darwin, who is a better person than I am, does not have his ego wrapped up in whether one carries twenty extra pounds and so did not respond as if this was an extraordinary request and a judgment upon my very existence as a pre-perimenopausal grandmultipara, and this lead to a tense weekend between us until I got over myself. And at my next meal, I watched my damn portion.

***

Not on the bingo card: the week after my appointment, my oldest daughter (the one who was so sick during her last semester of college, who no doctor would pay much attention to whether at the college clinic or at the ER, who had surgery in June and has been recovering very slowly) and I were at the OB/GYN reviewing her bloodwork, where she was diagnosed with PCOS (not a surprise) and insulin resistance (unexpected). She was prescribed Metformin and needs to eat 80 grams of protein a day and watch carbs, and the GYN recommended a continuous glucose monitor.

Well. It may be beyond human endurance to be asked to lose twenty pounds by sensible portion control, but it turns out that it is simply in the nature of parenting to alter one's diet in solidarity with one's child. And it turns out that eating small portions of high protein and low carb is conducive to losing weight in a person with no health problems otherwise, and I have dropped eight pounds. And as, between you, me, and the wall, I do not actually believe that anything short of starvation would cause me to lose twenty pounds and hit a weight I have not seen for more than a decade and two pregnancies ago, I'm okay with that.

***

Also not on my 2024 bingo card: my son has fallen in love with a female and has moved her into his room. 

Dammit, my old cat is 18 years old, and I have been looking forward to a pet-free existence. And now we eat dinner like this: 

No one has any respect for my nerves.

Replacement Level Fantasy

The older members of the family sat down over the last two nights to watch the first three episodes of Amazon Prime's streaming franchise Rings of Power, our kibitzing enhanced with long distance friend Brandon via Messenger.

Paradoxically, the second season is both better and less fun to watch and discuss than the first season.

The first season was so epically bad (or such bad epic, if you prefer) that we'd spend a good hour or two after each episode discussing how it could have been written, both to be more interesting and to draw more directly on the what Tolkien says in the appendices about the Second Age.

This time, it's still not a very believable presentation of Tolkien's world. And although the new concepts this time are more interesting (and less gimmicky) they're still locked in to a number of not-very-good things from last time.

However, Season Two is at least a basically credible replacement level fantasy series. In this regard, it at least makes sense as its own thing (though with a chronic and very modern tendency for all travel to happen in no time at all.)

It's still a weirdly empty world, populated at least as much by ruins and vagabonds as by settlements, but that seems to be a trend in some fantasy worldbuilding.

As such, I think it will tend to get a better reception than the first season. But as I say, I'm finding it less interesting because I don't actually like to read or watch replacement level fantasy. I can enjoy fantasy and science fiction, but I expect it to be really good and interesting.  It not a unique requirement I put on genre writing.  I try not to read replacement level fiction at all, though I suppose to the extent I sometimes put up with it it's in the historical genre.

Some additional discussion which contains spoilers regarding the first three episodes follows:
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Galadriel, fresh from having been spent two thirds of last season being buddies with Sauron-in-disguise, is less weirdly impulsive than before, but she still seems like a much less important character than the Tolkien one, who spent centuries at the right hand of Melion (a semi-angelic being in elven form who has powers approaching those of a pagan-type god.)  She and Elrond have a falling out over the question of whether the elven rings (which were thrown together in the last episode of Season 1 -- in the Appendices they take 90 years for the elves to make) should be used or should be destroyed because Sauron-in-disguise was around for their making.

This happens in the context of the rings very quickly and obviously healing the mysterious blight which was affecting all things elven in Season One. Galadriel, Gil-Galad, and Cirdan take on the rings and are immediately impressed with the results.  Elrond, however, is unconvinced.

We don't get any very cogent discussion of why the two sides hold the views they do. The most we get is a discussion between Cirdan and Elrond in which Elrond argues, "Sauron is bad, and he helped influence the making of the rings, so the rings are bad," and Cirdan argues, "There has been lots of beautiful poetry written by alcoholic and unpleasant poets."

Contrast this with the discussion in LotR of whether the One Ring can be used for good. There Galadriel explains that the One Ring would allow her to have dominion over others, exercising power of their wills in a way which is in and of itself wrong. Even though she might achieve results which are seeming good, the thing the ring allows her to do is wrong.

What we never really get in RoP is a discussion of what the elven rings allow you to do. They heal the mysterious elf blight, but that in itself (never hinted at in the books) was a gimmick problem, and the rings are a gimmick solution.

We're told that they "give power over the unseen realm" but what does that even mean?  Power how?  To do what?  What is the unseen realm?  To be honest, I'm not clear the showrunners care much.  The conflicts here are pretty shallow and I don't think we're expected to think about them much.

Meanwhile, the dwarves are having their own problems. Apparently they grow all their food underground using shafts of sunlight, but the mountain is no longer healthy, and this means all the shafts have closed up due to earthquakes and the dwarves are in danger of starving. But maybe they can get magic rings from the elves to solve the problems if only Durin and his father than get over their mutual pride and stop holding resentments.

Why is the mountain restless?  Why don't dwarves either grow food above ground or eat something that doesn't require light?  Look, we can't expect answers to these questions.

The Numenorian Expeditionary Force has gone back home to Numenor, where the old king has died. The Queen is getting ready to be crowned his successor, but it's mostly being kept secret that she was blinded in the pyroclastic flow in Season One which had a very selective effect on various characters.  

The weirdly modern anti-war movement in Numenor has resulted in the relatives of various people who died in the expeditionary force shouting at or even striking the queen, but she's pursuing a strategy of having important hug moments with those people rather than treating them like people who struck a queen.

Some nobles, including her right-hand-cousin Pharazon, decide to have a treasonous conversation in a public drinking establishment about how they'd rather he be kind than she -- and get challenged publicly on it by a loyal Numenorian -- but this isn't the sort of kingdom where that comes to anything. Instead, we wait to see if the queen can make it through her coronation without giving away that she's blind, and if an eagle will show up during the coronation as a good omen.

The good omen eagle arrives! But Pharazon approaches it and suddenly the whole crowd acclaims him instead.  Suddenly it's his good omen instead of hers!  And maybe we've becoming kind, we're not quite sure.

If you're thinking: this is now how monarchies work!  Well, you're right.

Even if you were writing War-of-the-Roses-with-dragons I would expect to see some more interesting elements of power and intrigue going on here. And if seeing an eagle the size of an Apache Gunship show up is really important to these people, why are they so easily distracted by someone else walking up to it? Is this even real set of beliefs?  It doesn't seem like it. 

But Tolkien's Numenor isn't just some replacement level pre-modern kingdom. These are the men who participated in the war against Morgoth. They were set up on this island within sight of the semi-divine land of Valinor. They have a powerful empire with outposts all over the mainland, where they increasingly rule over the men of the mainland. (In the series, these outposts are all oddly abandoned and semi-ruined, and Numenor doesn't seem that great an empire.)

The thing which eats at the Numenorians in Tolkien, however, is that they are so close to being immortal elves, able to enter Valinor, but they can't quite. They've become jealous of the elves and resentful at their mortality. They've become attracted to elements of mysticism and the occult in search of ways to make themselves immortal like the elves.

The desire to overcome death and become immortal is a pretty universal human with for the powerful.  Look at the Silicon Valley titans who want to either make their bodies immortal or upload their consciousnesses to computers. It also gives a real and deeply human reason for the Numenorians to dislike the elves -- and a weak spot for Sauron to exploit when he interacts with them. 

But in Season One we instead get Numenorian trade unions who are worried elves will steal their jobs. I kid you not.  (Or in the semi-high-flown language of the series: I do not jest.)

And in the struggle between different factions we get in Season Two, none of these interesting themes are present. We just get vague superstition (Will there be an eagle?) and generic anti-war complaints and an unexplained dislike for the elves which results in people being horrified that the queen wants to keep the "elven made" palantir around.  (Real queens should only Buy Numenorian!)

There's lots more that's going on, but none of it is particularly interesting.

If you want fights and cool looking scenery and everyone having something to mourn and something to feel insecure about, you'll enjoy this. But this doesn't have any of the interesting world or thematic elements from its source material.

A few weeks ago, I posted a first chapter to a book that I'm writing "for work", writing about pricing in the context of my experience a decade back managing pricing for the fast food chain Wendy's.

When I say "for work" it's not at the request of my current employer. But as the company I work for moves towards being sold by the private equity company that owns us, I am thinking about starting a price consulting company as my next step. And if you want to be a pricing consultant, it doesn't hurt to have a "business card" kind of book which shows off your expertise on pricing.

Often these books are written to impress other pricers, and so they are focused on mechanics of pricing theory or how to run a pricing department. My thought is to try to write a somewhat more accessible book aimed as business owners and the general public, and explaining through the medium of something we all know (fast food) how pricing works in a business.

My hope is this would be moderately successful as a book, as an advertisement to potential clients, and as a "here, let me give you a copy of my book" tool when seeking business.

Anyway, I probably will not post the whole thing here in installments, but I did think I would post at least one or two more chapters in order to get feedback and to write the way I'm used to: with a live audience.

So, here is. As before, feedback very much welcome. Is it readable? Would you enjoy this book?

Chapter 2: The Power of Pricing

Picture, if you will, that you manage a successful fast food franchise restaurant. Over the last year, your total sales were $2 million, with expenses of $1.8 million, meaning that you made a 10% profit.

One day, you are cleaning up and – after rubbing an old bronze lamp which mysteriously surfaced in the maintenance closet – you are visited by the Business Genie, who offers you just one wish.

By magic you can choose to:

1. Increase your prices by 1% while selling just as many items every day
2. Increase your volume by 1% (selling 1% more items every day at the same prices and costs you have now)
3. Decrease all of your costs by 1%

Which should you choose?

Would the effect of each be the same? All the changes are 1%, after all.

Not at all.

Given this set of assumptions, the price increase is the best choice. It would increase your annual profits by $20k. Next best is the cost reduction, which would be an $18k increase in profits. Going with the volume increase will net you only $14k in increased annual profit.

It’s pretty clear why increasing your price 1% on $2M will result in a $20k impact, and why decreasing $1.8M in costs by 1% results in a $18k decrease in costs, but the reason why I’m estimating the cost increase which comes with selling 1% more volume at $6k could use additional explanation. For the moment, I’ll just say that if you sell 1% more burgers, you have to buy 1% more burgers, but you don’t necessarily have to pay 1% more in rent and 1% more in wages.

Since in this example your annual profits were $200k to start with, that 1% increase in price has boosted your total profit dollars by 10%.

Professional pricers love to share this kind of example. Indeed, if you’ve read a number of books on pricing or attended multiple pricing conferences, I owe you an apology, because you’ve probably heard this kind of thing many times before.

But although to some extent we pricers share this kind of example because it makes us and our services important, there’s a vital lesson to be learned here. Too often, decision makers trying to grow their business put most of their effort into pulling on the less powerful levers in their business (cutting costs or increasing volume) and miss the power of the pricing lever.

So indulge me here (or skim ahead if you must) while I discuss these three levers and why the pricing one is so powerful.

Increasing Volume

If you want your business to make more money, perhaps the most natural thing to think of is, “How can I sell more?”

As a professional pricer, I’d love it if more people hired me to analyze their pricing. As an author, I hope lots more people buy this book. When you run a QSR location, you want more people pulling into the drive thru.

At first blush, it might seem like more volume is simply more volume, but when it comes to analyzing the advantages and pitfalls of volume and how you get it, it’s worth looking at the type of incremental volume you’re getting.

There are two basic ways we talk about more sales in the QSR industry: more tickets, and larger tickets.

More tickets means more individual people buying food from the restaurant. Whether someone walks into the store and approaches the register, or, like about 80% of customers they pull into the drive thru, each customer order is a ticket.

All other things being equal, more tickets means more revenue. But how do you get more tickets?

There are so many ways: Have a welcoming dining room experience so seniors and young families pick your location as a place to come get something to eat and socialize. Offer exciting new limited time menu items which people want try before they are gone. Open earlier or stay open later, so that people wanting to eat at odd times come to your store. Advertise so that people who see or hear your ads crave the food you serve.

Some of these tactics come with their own extra cost. Being open longer hours means you have more wage expenses to cover. Advertising always has some cost, whether it’s a radio jingle or just a vinyl sign on stakes out by the road. New food offerings have an R&D cost and perhaps the cost of bringing in new ingredients which are only used in that specialty product. And, of course, no one will be craving your seasonal product if you aren’t advertising it somehow, even if it’s just a delicious picture on the drive thru sign.

But even setting aside the extra cost of trying to get more volume, when those extra people come to your store they all buy food, and that food has a cost. This means that if you get ten extra people into your store each day, and each of those people spends ten dollars (10 tickets X $10 = $100/day), your profits don’t go up by one hundred dollars. Your profits increase by $100 minus the cost of the food on those tickets and minus any money you spent to bring those extra people in.

How much cost is involved in selling that extra $100 worth of food can be a tricky question.

In my simple example which opened this chapter, the overall store has 10% margins.

Say that in this example where ten more customers come in each day, you didn’t spend any more on advertising and you didn’t increase the hours you are open. You also don’t have to bring in extra staff in order to serve the additional customers who come in ordering food. Let’s also assume that any additional work you need to do in order to serve those extra customers does not end up increasing the cost of your maintenance or utilities.

In that case – if we use our simple assumption that your cost structure is 30% food cost, 30% labor cost, 30% site costs – your labor costs and site costs remain the same. On the extra revenue you make from serving those ten extra customers each day, you’ll make a 70% margin instead of a 10% margin.

Or in the case of our Business Genie offering to increase volume by 1%, if that increase in volume incurred no extra labor costs or site costs, the increase in annual costs would be $6k ($20k in revenue minus 30% food costs on that $20k) and the increase in profits would thus be $14k.

What this breakdown is getting at is the difference between what are called variable costs and fixed costs. In this very simple model, we’re treating food costs as variable costs (you can’t sell more burgers and fries without buying more patties, buns, and fries) while treating labor and site costs like rent as fixed.

The distinction is clearly important. It matters a lot to the profitability of selling one more hamburger that that hamburger itself only increases your costs by the expense of its ingredients.

However, the distinction isn’t truly fixed. With sufficient volume, all costs become variable. Imagine that instead of one or ten more hamburgers a day, you sold 1,000 more each day. Now you definitely need more people. And a bigger fridge to store your patties. Maybe you even need a bigger location or to open a second location to serve all that customer demand.

And of course, short of our magic Business Genie, getting more people to visit your store each day seldom comes free. Usually you’ll be doing something to get those people to come: putting up signs or running ads or announcing a discount. All of those ways of increasing your volume have their own costs. And if you are going to spend money in order to increase your sales volume, you need to ask yourself what the actual profit on the additional sales volume will be, versus the cost of your volume driving activities.

As you make that calculation, you’ll need to think about what costs are going to increase as your volume increases, and that answer will vary depending on how many additional people come, when they come, and what they order.

***

Getting more people to visit your store each day can be hard. Wouldn’t it be great if you could simply get all the people who already visit your store to each buy a little bit more?

As I said, there are two ways to increase your volume at a QSR: more tickets or larger tickets. Since it’s hard to get more people to visit your store, it’s often tempting to instead focus on getting your existing customers to buy more items or more expensive items on each ticket.

The classic example of expanding the ticket in fast food is the phrase everyone has heard, “Would you like fries with that?”

Or to take things one step further, “Would you like to make that a combo?”

The fast food combo is a great example of expanding the ticket. It takes a customer who is already buying an item, and encourages him to add two more items: fries and a drink.

Of course, the combo price also represents another pricing trade off: a discount. When you buy a combo meal, the price is lower than if you had bought the entrée, fries, and drink each à la carte. Discounts present a whole other set of pricing trade-offs which we’ll address in a later chapter.

The other way of expanding the ticket may not seem as immediately obvious: offer the customer an option which is more expensive, but also more enticing, than what they would otherwise have bought.

If I head to a local Wendy’s planning to pick up a standard cheeseburger, but end up buying a Big Bacon Classic or a Pretzel Baconator, I’ve just increased my ticket size even if I’m still just buying the one sandwich.

These two approaches to increasing the ticket – selling more items to each customer or getting the customer to trade up to more expensive items – represent two important ways of maximizing the profitability of your existing customers in any business.

Both these approaches to expanding the ticket – adding fries and a drink or upselling the customer to a more expensive product – allow us to think for a moment about another important QSR dynamic: Not all products have the same profit margin.

Up till this point we’ve talked about an average food cost of 30% of revenue. That’s a typical overall food cost ratio for a QSR location. But not every item is 30% food cost. Some are less, and some are more.

A hamburger on the value menu (back when the popularity of the $0.99 or $1 price point for value items made it essential to have several value sandwiches at that dollar price point) often had the highest food cost percentage on the menu. When I ruined my future coworker’s college experience by taking the Junior Bacon Cheeseburger off the value menu, a rapid increase in bacon costs had driven the food cost of that item up above 60%.

Fountain soft drinks and ice tea had some of the lowest food cost on the menu. A fountain soft drink consists of water which has been put through the ice maker, more water which has been carbonated with a tank of CO2, and a bit of sugary flavor syrup. Water which flows into the store in the pipes from the city water supply is very cheap, and only very small amounts of the CO2 and syrup are needed for each cup. Often, the cup is the most expensive part of the drink.

While a full size hamburger or chicken sandwich is around 30% food cost, a soft drink might be only 10% food cost with much of that coming from the cup (not literally food, but considered part of the food cost since “food cost” in QSR is essentially what “material cost of goods sold” would be in a manufacturing business.)

This means that adding a soft drink to a fast food meal not only increases the size of the ticket, but also significantly increases the profitability. French fries are not quite as high margin as soft drinks, but they are significantly more profitable than sandwiches, so the drink-and-fries combo is a real profit maker.

It’s worth a brief digression on why fountain drinks are so profitable. You would not do nearly as well adding a bottled or canned drink to a meal. Why?

Napoleon said: “Amateurs discuss tactics, professionals discuss logistics.”

The general would thus have appreciated the wonderful thing about fountain drinks: when a customer pulls out of the drive through with a 30oz Coke nestled in his cup holder, most of the weight he’s driving off with is in a vehicle for the first time.

The cup, lid, and straw were brought to the location in a truck, as were the canisters of compressed CO2 and the flavor syrup. But cups and lids are stackable and very light. A case of 500 cups might weigh around 25 pounds.

By weight, the largest contribution to the final drink which had to be carried to the restaurant by truck is the flavor syrup. A soda fountain mixes carbonated water and flavor syrup in a 5:1 ratio. So if a 30oz cup (which with lid and straw weighs less than two ounces) has 10oz of ice and 20oz of soda, it contains just over 3.3oz of flavor syrup.

Only about 5oz of the 30oz drink had to be trucked to the store. The rest of the weight arrived via the city water pipes, and is thus incredibly cheap. Pipeline systems are expensive to install, but once in place very cheap to operate.

A 30oz fountain drink thus only has a freight-weight which is 75% less than a 20oz bottled soda. That makes it cheap (as well as somewhat more environmentally friendly) because liquids are heavy and thus shipping liquids on trucks is expensive.

If you watch for trends in the prices when you go grocery shopping (and as a professional pricer, I can’t help doing so) you’ll notice that in periods when trucking costs increase significantly, heavy products (which often means liquid products) increase in price: soft drinks, bottled water, milk, etc.

That’s because when a comparatively cheap product weighs a lot (like a 8.33lb gallon of milk which retails for $3.49) the cost of transporting the product from its source to the store becomes a significant part of the overall cost. And thus, changes in the cost of transportation (due to diesel prices or availability of trucks and truckers) have a larger effect on the cost of those products than on ones which are lighter or more expensive.

So to bring this digression back to its beginning: fountain drinks are among the cheapest things on the fast food menu. When a customer rounds off the ticket by adding fries and a drink to his meal, it not only expands the ticket, but does so with items which are higher margin than the entree they are added to.

Decreasing Cost

Tell a manager that he needs to increase margins, and the first thing he will typically think of is to reduce costs.

Psychologists point out that we humans are loss averse. We are particularly aware of having things taken away from us, sometimes so much so that we focus on avoiding loss even when making a different choice would provide a good chance to gain even more. Costs take our money away, and so we tend to be very aware of them.

However, as the hypothetical which begins this chapter points out, reducing cost is a pretty good way to increase profits. Moreover, it can seem like the way which is most under the control of the manager.

Increasing your sales means relying on more customers to show up, or each customer to buy more.

Increasing your price relies on the customer’s willingness to pay higher prices, rather than going to a competitor or buying less.

Find a way to reduce your costs, and you can rely on having those savings in hand.

In our example, the cost reduction was magical, which of course makes it very simple. But let’s take a few moments to think about the different ways that a business can reduce cost.

As mentioned in the previous section, costs can be broken down into fixed costs and variable costs. Perhaps the simplest cost reduction is to reduce the cost of the materials used to make the product you sell. If you sell hamburgers, and you can get your ground beef, buns, lettuce, and tomatoes for less money (while keeping your prices the same) you will make higher profits.

There are three ways you might achieve this: A commodity cost reduction, negotiating with your suppliers, or reducing the quantity or quality of the materials you use to make your product.

The cost of raw materials varies over time. General inflation is when all prices in the economy go up by roughly similar amounts because the money supply gradually increases. It’s normal for there to be low but steady inflation over long periods. Modern central banks try to fine tune the economy to make sure that there is low single digit inflation: not too much, but always some.

However, various goods your business might buy – whether foods like beef, wheat, and bacon or industrial materials such as steel, aluminum, and coal – also vary in price over time independently from general inflation, based on changes in their availability.

For instance, here is the data from the Federal Reserve showing the price of a pound of bacon in the US since 2008. After remaining relatively flat for more than two years, in mid 2010 the price of bacon increased by about 30%. It was this increase in the price of bacon, during my time as pricing manager at Wendy’s which caused us to remove the Jr. Bacon Cheeseburger from the $0.99 menu.

Over long periods of time, due to inflation, the general trend is upwards. However, there are periods when the price decreases. For instance, according to this data, in October of 2022 the average price of a pound of bacon reached $7.60. Since then the price has varied – currently it sits around $6.80, about 10% below the high – and has not again reached the high from the fall of 2022.

If you had set the price of your restaurant’s bacon cheeseburger based on that 2022 price, and your cost of bacon has since fallen 10%, you could increase your profits by just keeping your prices the same.

It’s nice work if you can get it, and if your competitive environment allows you to keep your own prices stable when your costs fall like this, you should do so. It will allow you to increase your profit margins and build a cushion against the next time costs rise.

But commodity market deflation cannot be summoned up at the business owner’s wish. So while it’s true that you can use a conveniently-timed decrease in commodity costs to increase your margins, you are dependent on events for the opportunity.

If cost increases aren’t coming to you via the commodity markets, another approach to reducing your costs is to simply demand that your suppliers decrease their prices if they want to continue doing business with you.

Will that work?

Outside of a wish-granting genie, the difficulty with reducing your material costs in this way is that if you are simply paying your supplier less for the exact same quality and quantity of materials, you may be increasing your profits, but unless the broader market cost is going down, he is seeing his profits shrink.

One thing that surprised me working in the quick service restaurant industry was that major restaurant chains do not actually get their ground beef significantly cheaper than consumers do at the grocery store.

The market for beef is controlled by the fact that the total demand is moderately stable and the supply cannot change too quickly since it takes about two and a half years to produce beef, from breeding to slaughter.

Cattle growers and processors work at narrow profit margins, but they won’t choose to sell below their costs. Thus there is a clear bottom limit to what price they will sell at, no matter how big the McDonald’s or Wendy’s supplier contract might be. Nor can a potential competitor produce the millions of pounds of beef needed upon demand.

As a result, once the supply chain for fast food beef has been optimized for efficiency, there are only very small, incremental savings which can be wrung out of it.

For the consumer, on the other hand, there is another source of savings available, since grocery stores are sometimes in a position to sell short term excess amounts of beef at a discount. Or, failing that, grocers may choose to bring customers in their doors by making ground beef a loss leader.

Large companies like fast food chains are committed to wringing every last ounce of metaphorical fat out of their supply chains, and those efficiency savings definitely go to increasing their margins by driving their costs down, but even so there is extremely limited benefit to be found in simply demanding that vendors cut prices.

That’s why chains are often tempted to take the third route and reduce costs by reducing quality or size.

The power of reduced size can be seen in the patty sizes of value menu hamburgers. When I was managing prices at Wendy’s, it was the era of the $0.99 or $1 menu, with each major chain offering several items at the dollar price point. Today, due to overall food price inflation, value menu prices are higher.

However, either way, the hamburgers you see on these menus, such as the McDonald’s Classic Burger, the Wendy’s Jr. Hamburger and the Burger King Jr. Whopper use beef patties half or less the size of the standard quarter pound full size hamburger patty.

McDonald’s has the smallest value patty, at 1.6oz. Wendy’s value patty is 1.8oz, and Burger King’s is a full 2.0oz

This means as the three major chains competed to provide value menu offerings, the chains with the smaller patties always had a cost advantage against those with larger ones. The difference between a 1.6oz beef patty and a 2.0oz one is small enough to be non-obvious to customers. And yet, spread across millions of burgers, a 20% smaller amount of beef is a very significant savings.

These kinds of money-saving product size changes are so common among consumer packaged goods that the tactic has earned its own name: shrinkflation, so named because in terms of value per dollar it is a price increase on the customer achieved through subtle reduction in product size.

Packaged products ranging from potato chips to potting soil have seen package sizes reduced over the years (while prices remain the same or higher) as a way to increase margins by cutting costs.

Because fast food menus feature single serving items, such changes in size are less frequent. Customers may not notice if your patty is 1.6oz instead of 2.0oz, but they’ll certainly notice if you take away another 0.2oz ever year or two.

However, other forms of cost reduction are more easily achieved. Sometimes this involves taking out preparation steps or moving to cheaper ingredients: no longer toasting the hamburger bun on the grill, or going from full leaves of lettuce to chopped lettuce.

But there is, of course, a risk. Take too many of those moves, and your customers will start saying that your product just isn’t as good as it used to be.

If a product becomes perceived as too cheap as a result of repeated cost cuts which are also quality cuts, it becomes necessary to either introduce new, higher quality products while relegating the old ones to a down menu value position, or to conduct a product refresh in which quality is put back into the product. Sometimes this kind of product refresh, if marketed correctly, can even create an opportunity to increase the price.

We’ve looked at three ways to reduce the cost of producing the product. But could you reduce your fixed costs instead?

These might be some of the most difficult. Rent seldom decreases. No worker wants to accept a pay cut. But one key way to reduce fixed costs is through efficiency. If you could run your restaurant with fewer people, even if those people made more money per hour than before, your costs would be lower.

Sometimes this might involve time saving technology which allow one worker to get more done. But other times it might be as simple as thinking about the best times to be open.

Why is it hard to find a restaurant open in the middle of the night?

It takes a certain minimum number of people to run a quick service restaurant. At a slow time, you might be able to get away with one person who ran the register, poured the drinks, and wore the drive-thru headset, while a second ran the grill and a third ran the friers. But if business is slow, those three people would be serving fewer customers.

If the number of customers coming in the hours after 10pm is low enough that your crew is sitting around half the time, you would save money by not being open until midnight.

Of course, everywhere there are trade-offs. If your location becomes known for not being open late, it may be that fewer people will stop at other times. If someone remembers that she came at 11:30 and found it closed, she may not bother to stop by when it’s 9:45, even if you are in fact still open.

But while the existence of trade-offs means that it’s important to test, and there may be some other loss when you make a cost-saving change, it is certainly possible to optimize costs. It’s just not quite as easy as the magical 1% with which we started the chapter.

As we saw, decreasing costs has a significant impact on profits. However, as this discussion of costs has shown, decreasing costs is complex. The ways you might try to decrease different kinds of costs vary significantly. Paying less for your ingredients is different from using less ingredients which is different from using less labor which is different from trying to pay less rent or utilities.

Every successful business owner is focused on keeping costs down, but achieving significant cost reductions in order to boost your margins can be a tall order unless you’ve been lax with costs in the recent past.

And so, at last, we come back to pricing.

Increasing Prices

Why is it that increasing prices has the largest effect on your profits in the example with which we started this chapter?

Increasing prices is the only way to increase your revenue without any increase in expense. If you charge $6.99 for a hamburger instead of $6.39, your revenue increases by $0.60 while your expenses remain exactly the same.

The risk, of course, is that at the new higher price, fewer people will buy.

People will pay your prices if they consider the product to provide as much or more value than the next best option, taking into account their relative prices.

That “value” of course is a thing which is different for different customers and at different times. And the customer always has the option of buying nothing at all, if none of the options provide sufficient value for him to part with his money (or if he simply doesn’t have the funds available.)

We’ll spend much of the next chapter looking at how an increase in your price may cause some people to decide your product does not provide enough value for the money, and thus not to buy. The relationship between the increase in price and the loss of unit sales is called Price Elasticity, and it is something you can measure for your business in order to make intelligent (and profitable pricing) decisions.

But for now, the important thing is what increasing your price does: It allows you to make more money on each interaction with the customer. Each item you sell, to each customer who comes in the door or up the drive-thru, makes you more money without costing you any more than before the price increase.

That makes it the most powerful way of increasing the profitability of your business. It’s just math. Your revenue is the largest pool of money in your business, and if you can increase it without increasing your costs, your profits will go up.

The reason why people do not simply raise prices every day is that if you are not careful, and you increase your prices beyond the value your customers think you offer, you will lose sales and may end up worse off.

Our job, as pricers, is to figure out how to optimize your prices: how to make sure that your prices match the value of your products in the best way to meet your profit and sales goals.

To do that, we need to understand how changes in price cause changes in sales volume. That is the subject of the next chapter.

Two Parties: Both Dysfunctional in Different Ways

For several weeks after President Biden's disastrous debate performance, it looked like the Democrats might, through sheer inertia, end up running an election with a candidate who was clearly not mentally fit to run a campaign, much less a country. But in the end, the party leadership won, and Biden reluctantly announced that he would not seek reelection. Over 48 hours the party rapidly converged on a new consensus that rather than have any kind of new primary process or open convention, everyone would endorse Vice President Harris, and now here we are with a Trump/Harris race instead of a Trump/Biden race.

One line that some writers have tried is: In an era of weakened institutions, the Democratic Party still functions. They were able to push Biden out when it became clear that he was too debilitated to win, thus showing themselves a more functional organization than the Republican Party, which went from assuming in January 2021 that Trump was over in public life to having him nominated, yet again, to the chagrin of many careerists inside the GOP.

I think, however, there's a more interesting contrast to draw, because both parties are broken, though in very different ways. In both cases, there is increasing estrangement between the traditional party base and the elites (elected officials, professional operatives, and staff.)  Both parties are undergoing a re-alignment.  But in the case of the Republicans, it is the base that is running away with the party and losing their elites while with the Democrats the elites are changing the party and in danger of losing or fracturing the base.

There is an extent to which the Trumpification of the GOP has been a unique phenomenon.  I do not think most commentators give sufficient credit for Trump's success to the fact he was already a famous businessman and reality TV star before he came down the golden escalator to announce his bid for the GOP nomination.

But that takeover was made possible by a long term dissatisfaction with the party elites on the part of the base. The long term dynamic in the GOP was that the staffers and operatives and elected officials were to the left of the base, particularly on cultural issues. 

Sure, Republican elites liked lowering taxes and decreasing regulation. But most of them like the idea of abortion still being quietly available if some respectable girl got pregnant too early in life. They thought it was fine if two men got married. They went to Church but thought of it more like the Rotary Club than a means of salvation. They found gun rights activists a bit embarrassing. At root, they had mostly gone to the same colleges and law schools as their opponents across the aisle, and they had more culturally in common with elite Democrats than they did with their base of voters.

Some things worked. The judicial philosophy endorsed by the Federalist Society of reading laws to mean what they say (and not what the judges thought they ought to say) would eventually lead to the overturn to Roe v. Wade and of some of the country's most restrictive gun laws.

But the GOP base knew that it was not respected by its elites. Sometimes it came out egregiously, as with Romney's pathetic attempt to portray himself as "severely conservative" when his actual record was of a Harvard trained private equity executive who had governed as a decidedly liberal Republican during his time as governor of Massachusetts. 

This simmering dislike and distrust of the party elites by the base made it easier for some people to talk themselves into the idea that Trump (also hated by the party elites) was a good tool to use against them. For these Republicans, Trump became a protest vote not just against the Democrats (who happily labeled any GOP nominee including Mitt Romney and John McCain as a crypto-fascist radical) but against the party elites themselves.

The fact that so many party elites didn't want to work with or for Trump ended up letting further-right staffers (including some very good Christian conservatives) get more prominence in the White House during Trump's first time. So in one sense, the fact that the base nominated and then elected a candidate the elites hated (because they considered him ignorant, embarrassing, and ill-suited to governing) did actually lead to a fairly conservative administration, despite the fact that Trump himself clearly does not care much about most conservative issues (as shown by the new GOP platform pushed through by Trump which stakes down "moderate" positions on keeping abortion and same sex marriage legal.)

And now, of course, there are the MAGA ideology grifters, busy inventing some sort of program to peddle as the old elites are squeezed out. But in general, there's a policy and expertise vacuum now in the GOP due to the base's embrace of Trump.

On the Democratic side, as in the pre-Trump GOP, the elites are to the left of the base. But while with the old GOP this mean that the elites were near the center of the ideological spectrum while the base was off to the right, for the Democrats this means that professional Democrats are way off on the far left of the country's range.

Given the way that the left has entrenched itself in academia and the media, they feel like they are right in the middle of the spectrum, because they are very much in tune with the elite colleges they went to, the elite media that cover them, and other Democratic activists. But compared to the Democratic base which has in recent decades consisted of Blacks and other racial minorities, union workers, and lower income families, agenda items like sex changes for kids are decidedly out of the mainstream.

So far, however, the elites seem to be holding on in the Democratic party. Their roots in academia and upper middle class meritocratic culture seem to cause certain dysfunctions, in particular the extreme representationalism and "it's my turn now" dynamics which have controlled recent primary processes. Most Democrats seem to agree that Kamala Harris is not the most talented politician among the crop of governors and senators who would normally be considered.  However, the value system of Democratic elites is such that passing over a Black woman when it is "her turn" due to having been the Vice President (a job which, in turn, she got because Biden had pledged to pick a Black woman and she was the candidate available who fit that description) is virtually impossible.

For the very online, mostly female, upper middle-class group which has increasingly become the noisy and dominant sector of the Democratic coalition online, having Kamala Harris as their candidate is a meme come true. For the rest of the party, it's at least a huge relief to have a candidate who is lower on the actuarial tables and capable of stringing several sentences together competently.

This cautious, highly managed Democratic party, deeply convinced that they are the smartest and best people to be running the country if only the voters would shut up and get in line, is the one which just brought us the unnerving spectacle of a president whom people are now willing to admit was not fully functional for the majority of his term as president. 

At first, when news of this broke, people were actually willing to get on the air and argue, "Sure, our guy is stumbling and mumbling and clearly not able to govern, but it's not really about him, it's about the whole team." Translation: Just vote Democrat and let us figure out who is going to actually be in charge.

Some on the Right have tried to argue that selecting Harris as the nominee after all the primary elections are over is a violation of democracy. Perhaps in some procedural sense it is, though it's worth noting that the modern primary system wasn't put in place until the 1970s.

While one can see why they'd prefer to run against Biden, I think their outrage is misplaced. It's not the party changing its selection process to swap in Harris which is the violation of the democratic elements of our republic. The massive problem here is that Biden was not much up to the job of governing when elected and became less able to govern through his four years, up to the point where it's pretty clearly not Biden running things. And yet, rather than admitting the president was no longer capable and letting the vice president succeed him in office, the administration chose to cover this up and let unelected staff increasingly run the country. Not only were they not elected to that task, but they no longer were held in check by a chief executive who was up to determining they were out of line and firing them.  And despite the fact this was clearly something at least tacitly known by many among the government, they were fine to prevent a real primary from taking place in hopes they could coast to a second term -- until they got caught by the debate.

This is not how our system is supposed to work, but for portions of the Democratic base, this was just fine. Is it enough of the base of the Democratic coalition to hold together?  That remains to be seen. Over the last eight years the share of unmarried college educated women voting Democrat has skyrocketed, while at the same time the working class (particularly men -- even some Black and Hispanic ones) has been drifting towards the GOP.  Who would have imagined twenty years ago that the head of the Teamsters Union would be speaking at the Republican convention rather than the Democratic one.

Where we sit is that we have one party where the base has turned out to re-nominate a candidate who denied the results of the 2020 election and tried to hold on despite having lost. (Though he did so incompetently enough I don't think there was much danger of his succeeding.) And the other party which was quite happy to turn the running of the country over to unelected staff while concealing that the elected president was effectively unable to govern.

It's not a good spot to be, and both parties seem determined to go further in this direction until something pulls them back.

What Is A Price?

If you think about running a pricing consulting company some day, it might help to have a book about pricing which you can talk about and give to people to show that you know a lot about pricing.

And if one of your interesting resume items is that you one managed pricing for Wendy's and can tell everyone all sorts of things about how fast food pricing works, you might just consider entitling your book Drive-Thru MBA: Everything You Need to Know About Pricing I Learned in Fast Food 

And if you were writing such a book, you might decide that between the introduction, where you talk about your pricing career and how you took the Junior Bacon Cheeseburger off the $0.99 menu, and the chapter where you dive into price consultant talk and explain why taking a 1% price increase will increase your profits more than getting a 1% increase in sales or a 1% reduction in cost, you should have a Chapter One where you say some interesting things about what a price is in an engaging way.

If I were in fact working on such a project, this might be the draft that I came up with.

What do you think, would you read this book?

Chapter One: What Is a Price?

The question at first seems so basic as to be nonsensical. We see prices all the time: On the shelves at the supermarket. On the windshields of cars at a dealership. On an Amazon page. On the drive thru menu board.

Prices tell us what it will cost to get the product or service on offer. For us as customers, we often think of this limited definition and go no further. But I would like to suggest that prices do so much more. When a business offers us a price, they offer us a chance to render judgment on their entire business model in a package so simple, so easy, that we often don’t think what a powerful tool is in front of us.

How so?

Say I arrive at a restaurant for lunch.

Do they have a comfortable dining room with padded seats and a decorative fireplace, or do they have a few basic tables with plastic chairs?

Do I pick up my food from a service window, or do they bring it to me?

Is my food made to order or is it prepared in advance and sitting under a warming light?

Perhaps we could imagine a truly choose-your-own-adventure world where customers made each of those decisions.

You’ve reached the door of the restaurant. Do you want the dining room to be cheap and utilitarian? Pay one dollar and enter the basic dining room. Do you want it to be comfortable and well decorated?  Pay three dollars and enter the nice dining room.

Do you want your food brought to your table by a pleasant server? Pay three more dollars for service. Happy to carry the food to your own table on a tray? Pay fifty cents for the self-serve option.

But of course this is not what we see.  Instead, the price of all these elements is bundled together in the price you pay for the product. When you get a chicken sandwich from McDonald’s or your funky local bistro, the price for the different levels of service and experience offered by those two establishments is bundled into the price you pay for the sandwich.

It’s entirely likely that the difference in the cost of the actual sandwich between McDonald’s and the local bistro is just a couple dollars. The reason you might pay $4.99 at McDonald’s and $12.99 at the bistro is that the bistro has other costs that it needs to cover. 

The $12.99 chicken sandwich doesn’t just pay for the sandwich, it also pays for the dining room, the staff, the plates and cutlery: all the things which might make you enjoy the experience of eating that sandwich enough to pay more than twice as much as the fast food alternative.

When you decide whether to pay the price for a product, you decide whether the value you would receive is enough to justify the price.  But that term “value” doesn’t just cover the product itself. It covers the entire experience of buying and using the product and even the way that you found out about it.

Value, in this case, is every factor you consider when you decide how much you are willing to pay for the product. When considering the value of a chicken sandwich, the factors may be different on different occasions.

If I am driving from one appointment to another, and I have only fifteen minutes to pick up some food that I can eat in the car along the way, I don’t assign any value to how nice the dining room is.  I want a place with a drive thru which is on my route. But confronted with a McDonald’s and a Chick-fil-A, I will pay the slightly higher prices at the latter (even knowing the piece of chicken is often slightly smaller on their sandwich) because I think the taste is better.

On the other hand, if I’m meeting a coworker for lunch, I would happily pay the $12.99 price at the local bistro. To some extent, that’s because the food is better. But it’s mostly because the bistro offers a nice dining room where we can have a conversation in good surroundings. If I had to choose between two bistros, one with better food but a dining room like a Chick-fil-A, and the other with acceptable food but a very nice dining room, I might well pick the nicer dining room for a lunch meeting. In that case, the dining room and service is a major part of the value I’m willing to pay for.

In yet a third case, if I’m picking up lunch to take back to the office and eat at my desk, all I care about is the best food. I might still happily pay bistro level prices, but I’d be willing to do it at a hole in the wall or food truck with better food over a bistro with a gracious dining room.

What these examples show is that different products and companies offer different value propositions to different customers in different circumstances.

To be successful, a business does not need to be the best value to all customers at all times. But it must be a good enough value at its current prices to enough customers that it can sustain itself.

The cheap and easy food of middling quality, the bistro with the congenial dining room, the hole in the wall with amazing food – all of them offer value in different ways, and for the right place should be able to sustain themselves. But the reason each restaurant survives is not simply the value of the sandwich they sell as a sandwich, it is the overall value of the experience they provide: sandwich, location, speed, dining room, service, etc.

If a business does not provide the right combination of things to offer enough value to enough customers at its current prices, it will not make enough money to survive.

So what is a price?

Price is the way we discover whether we are delivering enough value to the customer to sustain our business.

If that sounds important, it is.

If you aren’t providing value to your customers, that’s not a lot that pricing can do to help you. In the long run, a business can only be successful by providing customers something they want.

But if you are providing something that customers want, finding the right price to capture your share of that value can be the difference between a successful business and a failing one. 

How can you find the right price?  Stay with me and we’ll find out, one hamburger and chicken sandwich at a time.

No, It's Not 1933

 I've seen it online and I've had people express the concern to me in person: I'm really worried that if Trump gets elected, it could be the end of democracy in America.

Or as a Facebook status I saw being shared around stated it somewhat more bombastically: "If you ever wondered what you would have done if you had lived in Germany in 1933, you might find out come November."

I've been on record since 2016 on why the Nazi analogies show zero understanding of what Weimar politics were actually like (multiple parties with violent paramilitary wings battling it out openly in the streets, in a country with very few functioning institutions of classical liberalism.)

The first Trump presidency had some distinctly positive results and also some bad ones. Trump's full dive into conspiracy theories to argue that he had not actually lost the 2020 election was perhaps its worst hour, ending in the bathos of MAGA protesters storming the Capitol building.

With that as the final note, and the ground that Trump has covered since, I don't think we have reason to think that a second Trump term would be any better than the first, and some good reasons to think it could be worse. There are legitimate reasons to worry about Trump being elected. (There are also extremely legitimate reasons to worry about Biden being elected.)

But all of this "what you would have done if you had lived in Germany in 1933" talk is, frankly, far more dangerous than either candidate.  Nor is it only happening in odd corners of social media.  Here's the latest cover of The New Republic:

And every few days a newsletter from Yale historian and best selling author Timothy Snyder lands in my inbox informing me yet again that the US is on the brink of a complete fascist take-over.

Back in 2016 there was an essay which was much discussed in conservative circle entitled The Flight 93 Election.  It's basic contention was: If Hillary is elected, the US is over. Totally over.  She is like the terrorists who took control of Flight 93 on 9/11. It's possible that if we fight her and take over the plane, we'll crash. But if we don't, we're absolutely going to crash. So we need at all costs to elect Trump, even if he may himself destroy the country, because it's the only slim chance we have of the country not being totally destroyed.

I thought it was a bad argument then, and I continue to now.

However, with all this "it's 1933, what will you do?" talk across the left, I'm concerned that Flight 93 has become the dominant paradigm for partisans on both sides.

This is incredibly dangerous. Why?

Say that someone really thinks it's true that if Trump is elected he will turn the US into a fascist dictatorship along the lines of Nazi Germany. Isn't it a constant trope of ethical dilemmas and fiction that stopping Hitler justifies...  pretty much anything? Overturning an election. Attempted assassination. Civil war.

So either these claims of "this is like 1933" are a massive exercise in irresponsible hyperbole (in which case people should stop) or they are a way of saying that people really should overturn elections and commit violence if necessary in order to keep Trump out of power. After all, isn't that what people would do to stop Hitler?

This would be increase the danger to our country even if the GOP under Trump really is pretty dangerous and bad.  Why?  Because once one side of the political spectrum starts engaging in force instead of politics, things can head into a death spiral where the only way to win is to be more successfully violent.

Look at Spain as it spiraled into the Civil War, or Germany as it plunged into chaos at the end of WW1. Back in 1919 (14 years before the Nazis came to power) just as the German Republic was trying to pull itself together, the Spartacist Uprising ended up with the Social Democrats and the Communists fighting it out in the streets of Berlin -- not just with small arms but with machine guns and field artillery. Around the same time the attempt to create a Bavarian Soviet Republic ended in similar street fighting.  In both cases the government ended up seeking and getting the support of veterans paramilitary organizations which, over the following fourteen years, would be integrated into the support of the Nazi party.

So to put it simply: one of the things that caused Nazism was upending the political order to try to defeat the right.

Not only did these kinds of breakdowns in political order make people willing to support an apparently strong man to restore order, the repeated use of political violence and intimidation and fear of those by both sides is what created the permission structure for civil strife and then oppression.

Fanning political division by telling your side that they're going to be destroyed and oppressed if the other side wins makes it more likely that both sides will resort to violence and oppression.  It is a no win tactic, and it is the tactic most likely to lead to violence and oppression.

This is the number one thing I think Americans need to learn about the actual history of oppression. It's not some sneaky thing where after everything has been quiet and normal for years you suddenly wake up and realize that you're living under a vicious dictatorship because you weren't awake enough to notice it coming.

Rather, oppression is invited in because people think they need it on order to protect them from the other guys who are even worse. And the real, bloody, heavy handed oppression is enabled when people enter into a war footing. That might be an external war: oppression under the Nazis was worse and bloodier in the territories they conquered than in places like Italy that still had semi-functional government. Or it might be an internal war. The most oppressive left wing and right wing governments of Central and South America during the Cold War and since mostly sprang from long simmering civil wars in which one side was trying to root out the side's militias.

So am I some sort of Dr. Pangloss insisting that everything will be fine?  What should someone do if they really think that if Trump wins in November he may try to do illegal or oppressive things?

No, I'm not simply being sunny. I'm not saying that people should be calm simply because I don't think anything bad will happen.  I'm saying that even if it's true that Trump is absolutely terrible and bent on doing evil and illegal things, the best things to do would be:

- Vote for someone else
- If he wins, remain peaceful
- Make legal challenges to illegal actions (remember that despite all the attempts to undermine our courts from the political left, they stood as a bulwark against both the attempt to overturn the 2020 election and other Trump over-reaches)
- Vote against his party in the next elections

What you should not do is engage in this kind of behavior or make excuses for it:

And what you should also not do is push the entire situation to become more extreme by upping the rhetoric. When either side claims that this is a Flight 93 election and the country will be destroyed if the other side wins, they increase the danger for all sides.

We are all in this together, and the only way to go from being a two party state (where the other side always has a good chance of winning) to knowing your side will always win is by yourself becoming the dictator. 

New Phone Who Dis?, or, The Apple Divorce?

Sorrows Altar, Our Lady of Consolation, Carey, Ohio. From Wikimedia Commons

I spent two days without a phone, and I have to say it was everything I hoped it could be.

There's a freedom in not being tethered to one's phone, and it breeds a jaunty attitude toward time and space and directions. I took my daughter and a friend on a birthday expedition to a shrine an hour out in the countryside, equipped as the Neanderthals with only printed-off directions. Getting there wasn't difficult. The shrine is invested in getting pilgrims from the highway to the parking lot, so the signage is clear and easy to spot. We spent a hour in the cool environs of this minor basilica improbably set in a small town in the midst of Ohio fields. The girls explored the lower church with its tributes of crutches and braces, and costumes for the famed statue of Our Lady, while I sat in blissful uninterrupted silence in the upper church. At the Sorrows altar, I prayed for everyone I know who's suffering, and for those I don't know are suffering, and I gazed at the massive windows, all red and blue glowing in dense patterns, without expecting my pocket to buzz with a text or a missed call.

And we got lost finding our way out of town. Twice we went wrong directions and had to turn and retrace our route to the Shrine. On the third try, we found our way back to the highway. I haven't been lost driving in a long time, thanks to Maps and directions and a computerized Irish voice telling me to go past this light, then turn right. But you have to rely on your common sense when your phone dies.

 With no provocation, the screen of my five-year-old iPhone 8 stopped working Wednesday night. I was a bit miffed, I must say -- I had not recently dropped the thing, my kids are all too old to plunge it in the toilet (as happened to a previous iteration), and though it had stopped holding much charge and my screen protector was flaking off little splinters of glass, there was nothing to indicate that it was about to give up the ghost. Darwin took it to be inspected by geniuses while I went on pilgrimage, and the geniuses were baffled and quoted a higher price to fix the screen than it cost to replace it with a comparable model. Common sense dictated the latter course, particularly as the old phone held less and less charge. 

Alas, it turns out that I don't use a phone as intended, which is charging it nightly so it can update, and backing it up regularly. Darwin and I have a shared Apple ID, which predates either of our personal email addresses. From that ID I can back up some shared functions (though not necessarily under my own name or with my own data), but some contacts and messages on my old phone, some dating back years, seem to be lost in the ether. "Is it time, after all these years," Darwin mourned, "for us to get an Apple divorce?"

As Quintin Tarantino said in Pulp Fiction, I don't want to get f*cking divorced. I don't want another account. I don't want to create another password. It's miserable enough trying to remember the passwords I already have as I reinstall apps on my new phone. On the other hand, I went to text someone I really need get in touch with, only to find that my entire message history, and indeed the contact itself, is gone. I synced my phone with iCloud and recovered... five messages from December 2021. Photos, it seems, do sync. I am not a notable photo historian, but it's nice to know that all my boys' videos of jumping off the couch and karate-chopping Lego creations are still extant, taking up all our data. 

Not only do I not want to get divorced, I don't even want to be on my phone that much. A year or so ago, I deleted the one social media app I use, though I still checked it through the internet browser (with a time limit). On my new phone, I haven't opened a browser tab for it. What do you know -- after looking at my email and playing my daily Wordle and checking the weather, there's not much reason for me to be clicking around. I want to click around. I want to fill five or ten or 30 minutes with dopamine hits. But now, there's no dopamine source. Let's keep it that way.

Will I have to establish my own Apple ID? I guess there are good reasons to do so. It won't bring back my lost messages, though. Some of them I can access through the messenger app on my computer, though some, like the 14-person family chat, seem to be lost to the mists of time. I don't know that anything of value is gone -- only the time I spent messaging, perhaps. 

I recently read something I'd written 19 years ago, and felt the severe and mortifying lash of the Total Perspective Vortex. Frankly, if some digital catastrophe destroyed everything I'd ever written before the age of 30, maybe 35, I'd count myself fortunate. Lord have mercy on us, and may we learn humility a gentler way than reading our own past writing. But may it be there when we want to read it.

Ten Price Commandments

Much of my time at work the last few months has been taken up with a profitability project.

Up until recently, we suffered from a problem a surprising number of mid-size companies have: we knew overall how profitable we were, and how profitably various product lines or manufacturing plants were, but we didn't have good data on what individual items cost, and thus on which items and customers were more and less profitable.

Over the last six months, we did a major project to get that item level cost data, and so now for the first time we have good, detailed information on which items and customers are profitable and which are not.

You might think that this would make it easy to increase our profitability: just take the stuff you're losing money on and increase the price or (if the customer won't accept the higher price) stop selling it.  Ta da!  Higher margins.

But everyone can come up with all sorts of excuses for why this just isn't possible: This is a strategic loss leader!  If we don't match (money losing) competitive pricing on this product, customers won't buy our other profitable products.  If we win this business (at a loss) it will lead to winning other (profitable) business, or maybe we'll build up enough sales volume that our cost of producing it will drop.

On and on it goes.

Those of us in the finance department decided it was necessary to put together a clear and short summary of what rules we needed to follow around pricing and profits.

"We need a ten commandments of pricing," I joked.

"Yes, that's exactly what we need," the CFO replied.  "Can you write one?"

I cheerfully signed up to write a pricing decalogue. After all, I write all the time, often about religion, and I'm a pricer, so why not?

Then I found myself staring at a blank page and feeling like everything I wrote was just variations of "don't lose money".

In the end, my solution was to think about how the actual ten commandments are structured.

The first three commandments are a basic statement of what is true: There is one God. We should worship him and no others.  Then the following seven commandments explain how we should live in relation to others due to those truths.

I tried to structure my pricing commandments the same way.  The first three attempt to sum up what is true about pricing and profitability.  The following seven then describe how we should conduct business based on that truth.

And here they are:

1. A good price is lower than the value of the product to the customer (better than the price of the next best alternative plus the difference in quality/service) but higher than our cost to produce the product and run our business
2. Price is the way we discover whether we are delivering enough value to the customer to sustain our business
3. We as a business exist to turn a profit: if we are selling below cost, we are not paying for our people and our owners
4. A market segment where we command strong margins is a segment the market is telling us to be in. A market segment with low margins is one where we are not currently delivering value.
5. Customers who offer us high margins want us. Customers offering low margins do not. Believe them.
6. New business that starts at low margins must come with a business plan for how it become higher margin and checkpoints at which we see if we followed the business plan
7. Never sell below product cost (cost of material + manufacturing before fixed overhead): sales at negative product margin do not help with absorption or overhead, they are a deadweight loss
8. We should seldom sell at a product margin below our SG&A rate
9. Acquiring business by pricing at low or negative margins buys us bad business: we want new business at accretive margin rates
10. Retaining business by matching a competitive price which brings us to low or negative margins retains bad business: sometimes we need to let go