Paybuyer Phone Service and the Tie-Breaker Principle
When two choices appear equal, people use tiebreakers to decide. This simple principle explains the outsized power of small payments to influence certain purchasing and product searching decisions.
Consider frequent flier miles. All other things being equal, people choose an airline that gives them miles over ones that don't. That tie-breaking behavior forced all major airlines to quickly copy American Airlines, which offered miles first in 1981.
Miles have become one of the most successful business ideas not just of the last quarter-century but in the modern history of capitalism...If you believe the popular idea that a mile is worth about a cent, the 14 trillion unredeemed miles that travelers hold are more valuable than all of the United States currency in circulation....
- David Leonhardt, New York Times, 4/20/06
Consider the overwhelming popularity of rewards credit cards (among people with the credit to qualify for them), which are replacing basic cards. All other things being equal, consumers choose a rewards card over a basic card because it gives miles or a 1% rebate of some sort. According to the New York Times, "Consumers with cash reward cards stop using other cards. Industry consultants estimate that consumers put about 75% of their charges on a single reward card." A small payment breaks the tie.
Consider the dominance of toll-free numbers on national sales lines. Callers receive around a 5 cents a minute subsidy for calling toll-free numbers. Although this subsidy is small, when buyers don't know how to distinguish between the sellers in ads and directories, they strongly prefer to call sellers with toll-free numbers over sellers with toll numbers. A small payment breaks the tie. That's why toll-free calling has mostly replaced toll calling on national consumer sales lines.
What will happen, then, when sellers can pay imminent buyers a lot more than 5 cents a minute to call? What will happen when sellers can pay on the order of .25% to 2% of a sale per call* where the caller has no obligation buy from the seller doing the paying?
With Paybuyer, sellers will be able to offer EV payments that large. For instance, an auto insurer could pay $15 EV to a caller about to buy car insurance for herself, and $150 EV to a caller about to buy car insurance for a business.
- ($15 EV is a 1 in 100 chance to win $1,500)
- ($150 EV is a 1 in 100 chance to win $15,000)
By enabling payments of this size to go to hot prospect callers, pay-the-buyer phone service could sooner or later supplant toll-free service on sales lines, just as toll-free once supplanted toll.
Similarly, online "Yellow Pages that pay" may eventually replace online Yellow Pages that, like basic credit cards, pay nothing.
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* Not counting transaction costs, the formula for the maximum amount an advertiser can, without losing money, pay a prospect for exposure to a sales message is:
max payment = (probability of a sale message leading to a sale) x (lifetime value of the customer).