MARKET surveys and input analysis are old story. The latest is the money lab. Laboratories where experiments are conducted by experts to gauge and measure the reaction of the target consumer are being increasingly used in companies world over.
Kay-Yut Chen and Marina Krakovsky’s book Secrets of the Money Lab explains the concept and the working of the idea of money labs. While Chen is a pioneer in the field, Marina is a journalist. Marina first met Chen in a money lab of the HP.
“The idea of testing business ideas and confining your mistake to the lab is so obvious when you hear that you may wonder why more companies don’t do it,” say the authors, adding that most cutting edge businesses do. The lab experiments reveal what spreadsheets and averages do not. It is mainly because the market is no longer a simple philosophy of demand and supply.
The book uses anecdotes throughout to explain concepts. On averages, Nassim Nicholas Taleb, former derivatives trader had said, “Never cross a river because it is on average 4 feet deep.” Why? Because the Average tells you only half the story – it says nothing about the spread, the variations on the high and low side. In some places the river may be only two inches deep, but elsewhere, it may well be ten to twenty feet deep, deep enough to drawn a nonswimmer.”
A money lab uses a set of people to do virtual business, some sellers and some buyers. Going by the instinct of the ‘customers’ and the results of the game, companies choose to pitch or remove policies. For instance, an experiment in the lab by the HP showed that incentive programme to the top three retailers could backfire in two ways. A whole lot of retailers may lose interest in product because they felt at the outset they cannot win and the top sellers knew that they would anyway make it and hence were not interested.
There is this interesting anecdote of the great physicist Richard Feyman. He took a break from his PhD to join the war in 1941. He was given a job for making a gear design work. But Feyman was foxed. All that he had learnt in physics was not good enough to work. He went to the mechanical engineer for help. The engineer sorted out his problem in a snap. This he had gained from his hand-on job. Moral of the story is: “Learn the science, but be the engineer.”
The book is only a roadmap. It showcases some of the initiatives taken by successful entrepreneurs in their pursuit to multiply profits. Economics is also a science now, a social science, if you will. It has as much to do with psychology and emotion as money. Foreword to the book has been written by George Akerlof Nobel laureate in Economics.
(Penguin Books Ltd, 80, Strand, London WC2R ORI, England)