by Gary North
In this report, I will show you how to reach down and scoop up an extra $7,500. My guess is that approximately 96% of you won't even bother to find out if I'm telling the truth. Why 96%? Because 4% is 20% of 20%.
Pareto's law rules!
I feel like a man who sees a $100 bill floating down a gutter across the street. It's right in front of you. I call to you, "Hey, look! There's a $100 bill in the gutter. I can see it." Will you look down? I don't even ask that you pick it up. Just look down. Am I lying? Am I crazy? Are you willing to find out? Just look down.
If Pareto's 20/80 law holds, about 20% of 20% of you will even bother to look down. Of those who do look down, 20% of you will actually bend over and examine it. And of those who examine it, only 20% will take it home.
That goes for the next $100 bill. And the next. I think it will add up to about one $100 bill every two months — maybe less time. I don't mean for one year. I mean indefinitely. Let's say 25 years. That means $7,500.
It might be over $10,000. It might be more.
I'm doing this as an experiment. I want a good example of Pareto's law for a book I'm writing. I can think of no better example than subscribers who will not take action to scoop up risk-free, tax-free money, even when the information comes from someone they presumably trust.
My point in my book will be this: Think of how difficult it is to get people to take self-interested action based on information provided by someone they have no reason to trust.
A HIDDEN BONANZA ON-LINE
Last week, I was facing a 2004 expense for $1,050. I had to pay half in advance. It's a product that I have to have, by law.
I figured out that I have been paying too much. I had done nothing about this for five years. Inertia! So, I went onto the Web, did a Google search, found an alternative seller, filled out an on-line form, and got an immediate quotation: $750 a year. Naturally, I took it.
The whole procedure took 20 minutes: 10 minutes to fill out the on-line form, 10 minutes to get it processed on the phone. (I used the phone because I can get free flight miles on my credit card.)
Then I told my subscribers. I found out within hours from some of them that they had been doing some hard-nosed shopping and could beat the price I was quoted.
Are you overpaying? You can now find out, in a matter of minutes.
The local seller has lost my business. He will never get it back. He has a nice little business, but it's tied to an old model, a pre-Web model. The Web in this business doesn't require a salesman. It's all done by electronic forms. Once the digital sales program is on-line, all the company needs to do is keep current with pricing.
The item I bought is something you buy, too. You are probably paying anywhere from $300 to $400 a year too much. In fact, if you knew where to go on-line, you could put this after-tax money into your wallet and actually receive a better product.
Will most people do this? Not this year. Can they? Yes. Why won't they? Inertia. They just keep paying the new bills mailed out by the old company.
But, year by year, word trickles out. Attrition conquers existing businesses. The days of wine and roses are over for newcomers in field after field. The good old boys can survive, though with declining revenues. They have large client bases — people governed by inertia. But the newcomers in the field will not be able to get a foothold.
How strong is "buyer inertia"? Very strong. I'll prove this to you. I'll run a test. You can participate. Test your commitment to the old ways with their old prices.
HERE'S THE DEAL. . . .
I can save you at least $300 a year from now on. That's tax-free money because it's after-tax money. You are overpaying by at least $300 a year. You have no choice but buy. By law, you must buy this product, just as I do.
So, I'll make you a deal. If I save you this money, you promise to subscribe to my digital newsletter, Remnant Review, for one year: 12 issues/$129. That is 43% of $300. But I'll probably save you $400 a year. After that, you will keep saving money, year after year.
I'll make it an even better deal. I'll show you where the money is before you subscribe. So, you will be able to save the money, and you still won't have to subscribe. I won't police the deal. I won't make you subscribe first. I'll leave it to your conscience.
It's easy money for you. It's incredibly easy money. There is zero risk at your end.
Here's how you look down at the gutter. Click on this link, and then click SEND. Wait 60 seconds. Then click the SEND/RECV button to download my report from your Internet service provider. My report is titled, "Money in the Gutter." Graphic title, right?
My email software counts the number of letters that are sent to my autoresponder address. This way, I can see how close the response rate comes to Pareto's 20/80 law.
With this information on tax-free money only a few mouse clicks away from my subscribers, I still won't get more than a 4% response. I don't mean people who actually take the free money. I mean people who are willing to see if it's really there.
Only a small fraction of those people who see that this deal is real will actually take it. Pareto rules!
I would like to believe that 100% of you will send for my report. It costs you no money to receive it. Then 100% of you will go through the 10-minute procedure to fill in an on-line form. Then 100% of those of you who really can save $300 to $400 (80% of those who fill out the form, I think) will subscribe to Remnant Review, as per our agreement.
What response will this offer get? This:
20% of you will think, "I really ought to click & send to see if I can save $300/year." (80% will think, "This can't be true, so I'm not interested in finding out. I've made up my mind. I don't want to be proven wrong, not even for $7,500." Or else they won't even read this far in this issue. Too busy.)
20% of these 20% will actually send for the report. (80% of 20% will say, "I'll think about it tomorrow.") We are down to 4%.
20% of those who send for it will go to the site and fill in the form's click-buttons to see if I'm telling the truth. (80% will think, "My time is just too valuable: over $7,500 per 20 minutes.") We are now down to 20% of 20% of 20%: 0.8%.
20% of those who fill out the form will actually buy, even though they really can save 50%. (80% will think, "It's just not worth $7,500 to call a toll-free phone number.") We're down to 0.16%
80% of those who buy will subscribe, as agreed to.
I will be on the good side of 20/80 only in the final step. That's because Americans are more honest — four times as honest, I would guess — than they are pro-active, even for large chunks of tax-free money.
Here is my point, which I am now testing: Those people who are willing to invest 20 minutes to save $300 to $400 a year for the rest of their lives are few and far between. This may be hard to believe, but it's true. But among those few who are willing to reach down into the gutter and retrieve $100 every two months, most are honest.
I trust most people who read my newsletters. First, I trust them not to change their behavior, even for money. But, once someone makes the change, I trust him to pay me for services rendered.
BUT THAT'S NOT ALL!!!
As those late-night TV ads say, "But that's not all." When you subscribe to Remnant Review, you will also receive my report on how any high school student can get an accredited 4-year college degree from any of four major universities for under $10,000, while staying at home and having a full-time job. Assuming that you have a child or grandchild who is thinking of going to college, you can save at least $50,000 per child, plus show the child how to save enough money to make a down payment on a house on graduation day.
I have offered this report before. There were almost no takers, despite the fact that half of middle-class families in America face the problem of financing college for at least one child.
Again, Pareto's law rules. Tax-free money in enormous quantities ($50,000 per college-bound child) does not motivate the vast majority of people. "Oh, well," they think. "It's only money." Saving huge wads of money does not motivate them. It's too boring.
That's the point I am making in my book. It's what makes selling so difficult. It's what makes running a profitable business so difficult, unless you sell a solution to a problem that is both immediate and demanding — plumbing, for instance.
Inertia rules. But you can prove me wrong in your case. Click & Send.
THE FUTURE OF YOUR JOB
As a buyer, you're going to love my report. As a seller, you're not going to like its implications if there is any possibility that you or the company you work for is facing competition from the Web that is anything nearly so fierce as the competition that my local salesman now faces. He sells an in-house product for a nice commission. He is going to lose that commission from me, forever.
On-line sales forms today are cutting salesmen out of the economy. To the extent that your income is dependent on face-to-face retailing, either by you or by a sales force, your economic future may be in big trouble. It turns out that most products and services do not require face-to-face selling. If the selling price is low enough, people don't care about faces. They don't need high-powered salesmen to get them to buy. Low prices get them to buy.
The Web is punching commissioned salesmen in the face. Actually, it isn't. We consumers are, and the Web is our chosen instrument. "Look, Ma, I'm George Foreman!"
Let's say that you're among the 20% who do send for my report. You read it. Then you go on-line and find out how many $100 bills you can put into your wallet this year, next year, and the year after. But when you "sign on the dotted line" or call the toll-free number to use your credit card (and get those tax-free flight miles), think about what you are really doing. You are making an end run around the industry's sales force. You are acting in your own self-interest. You are deciding to put those $100 bills in your wallet instead of a salesman's.
Do you feel guilty? I didn't.
Do you think you owe it to the salesman? I didn't.
One of the reasons why I have moved to the Web is because I saw the Web's freight train coming at me in 1996. I knew it was the death knell for information sent on pieces of paper. I know: a few people still like to be sent pieces of paper. They think the information loses value when they print it out on their desktop printers. They would rather have information delivered by second-class mail a week later instead of a digital image sent immediately. These people mostly have gray hair, except for the ones with white hair.
For people under age 35, the Web is where they do business. They are price-sensitive. They know how to shop. They are not interested in you and your problems. They are interested in themselves and their problems. Aren't we all! But they, unlike people over age 35, have grown up with computers. They know how to use the Web to eliminate the middleman.
Every time you use Google to help you make a purchasing decision, you are abandoning the old models. Most large companies have not yet learned how to use the Web to maximum advantage, but these slow learners are getting squeezed. Price competition is a way of life in Asian exporting nations. It is also a way of life for Web addicts.
The thing that is getting squeezed hardest from abroad is labor costs. The thing that is getting squeezed hardest on the Web is the information advantage. Google and Yahoo are bringing buyers in front of sellers who could not afford to get their stories to buyers prior to the advent of search engines. Now there are so many sellers on-line who can get out their stories about better prices that companies that have gained their market advantage by the price spread between wholesale and retail are facing a whole new world. They are being driven to the digital wall.
I don't know if my local seller is complacent or not. I know this: he is facing competition undreamed of in his industry as recently as five years ago. It doesn't matter if he's complacent or not. He is a retailer, and the in-house product line he sells is being underbid by almost 30%. The local salesman cannot overcome this price competition indefinitely. Buyers are wising up. They can shop around on-line.
One of the reasons why price inflation has been held down, despite monetary inflation, 1995 to August, 2003, is the spread of better information, either at Wal-Mart or on the Web. It is getting ever less expensive for price-sensitive buyers to locate price-competitive sellers. As the cost of information falls, the profits attributed to ignorance also fall. This ignorance comes in two forms: buyers' ignorance about lower prices and sellers' ignorance about which potential buyers are ready and able to buy. The Web is overcoming this two-fold ignorance.
Sellers who think that this information revolution will not continue to erode the profits of old-model sellers are dinosaurs. If you are working for a company that has an economic advantage based on the ignorance of buyers, you had better get your résumé into the mail or on-line. Your employer is headed into attrition mode, if he isn't already well into it.
The Web and search engines are like low tariffs: they are great for buyers, and they are great for price-competitive sellers, but they are a disaster for non-price-competitive sellers and their employees. Falling information costs increase the amount of trade, just as reducing tariffs does. But for those firms whose markets were protected by the old barriers — barriers to knowledge — the handwriting is on the wall. They must adapt or die.
If they adapt, anyone on the payroll who is not in a position to increase sales or decrease costs is expendable. If they don't adapt, everyone on the payroll is expendable.
Every time you buy on-line at a low price, you are hammering the nail into the coffin of some seller who refuses to adapt. The same can be said of every purchase at Wal-Mart. Wal-Mart is merely acting as the economic agent of its customers. Don't blame Wal-Mart for driving mom and pop businesses into bankruptcy — businesses like Montgomery Ward. Blame instead price-sensitive buyers who keep asking, "What have you done for me lately?"
Every time you buy on-line or at Wal-Mart, think to yourself, "What is the buyer of my output doing these days? Where is he shopping?" Every time you rejoice in making a good deal as a buyer, think to yourself, "Are my competitors making changes that will cut me out of my market?"
We have met the enemy, and he is us.
January 29, 2004
Copyright © 2004 LewRockwell.com