Personal MBA: The Expectation Effect

Personal MBA: The Expectation Effect

Everybody loves surprises. If I ordered a box of cigars from a company and received them within the standard five to six business days, I would be satisfied with my purchase. If I received them within two business days and the package included a 50% off coupon for my next order, I’d be ecstatic. My perception of the quality of this business would instantly go up. I would indeed make my next order with them, not only to take advantage of my coupon but also because of their propensity to go above and beyond. It’s this sort of scenario that Kaufman describes as, “the expectation effect.”

In this section of his book, he gives the example of Zappos, the online shoe store. They not only employ strategies to reduce risk, like free, no questions asked returns, but they also employ a strategy that I mentioned above to exceed the expectations of their customers. They don’t advertise it, but they offer free expedited shipping. Their customers expect to wait five to six days to get their shoes, but they’re pleasantly surprised when they show up earlier than expected, often the next day. These two strategies of risk reversal and exceeding expectations work on the psychology of their customers and make it practically a no-brainer to purchase from them again in the future.

Another example I thought of is Krispy Kreme. Their doughnuts are good when they’re packaged at a grocery store, but when they flip that hot light on, and you can get them fresh out of whatever machine they use they just melt in your mouth. Now the quality of their product alone does a pretty good job of keeping their customers returning, but as a bonus and often a surprise to most customers, they give away a free doughnut to everyone who comes into their shop when their “Hot and Fresh” light is on. This small act all but ensures that most people will buy more doughnuts right then and there because they are so freaking good.

I run a pipe tobacco subscription service, called The Tin Society. Each month I send out pipe tobacco samples along with other pipe related goodies to my subscribers. Kaufman’s idea here has made me begin to think of how I can build in some strategy to exceed my subscriber’s expectations on the front end. I already employ the expectation effect in my customer support strategy. When I make a mistake, or I see that a customer is deeply dissatisfied with their products, I try to go above and beyond to recapture that satisfaction. Often this involves giving away tobacco or accessories. I’ve seen fruit from this practice, but now I’m thinking that I’m only utilizing this effect as a defensive strategy.

I think it’s good to identify and consider this phenomenon as an entrepreneur, but I think Kaufman may take this concept a little too far in this section. He makes some very definitive sounding statements where he explains, “A customer’s perception of quality relies on two criteria: expectations and performance. You can characterize this relationship in the form of a quasi-equation, which I call the Expectation Effect: Quality=Performance – Expectations.” I agree with his first statement, performance and expectation are the two critical factors that determine a customer’s perception of the quality of a product or service. I think he goes too far with his formula. He is saying that if the performance of your product or service exactly meets the expectations of your customer, then they perceive no quality at all. This may be true for some products, but I can think of numerous examples where exceeding expectations doesn’t affect my future purchasing decisions. If I buy a can of Coke, based off of past experiences I already have some expectations as to how it should taste. If it meets those expectations, then I’m fully satisfied and will continue with future Coke purchases.

Kaufman clarifies his point toward the end of the section where he states, “The purpose of the Value Delivery process is to ensure that your customers are happy and satisfied, and the best way to ensure customer satisfaction is to at least meet the customers’ expectations, surpassing them whenever you possibly can.” I can wholeheartedly agree with this statement. As entrepreneurs, our value delivery should at least meet the expectations that we’ve created for our customers. It’s when we go above, and beyond that, we lay the foundation for customer loyalty and grow our list of brand ambassadors.

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