The Cobra Effect. When solving a problem becomes a problem
"The Cobra Effect is a solution that actually exacerbates the current problem. In an effort to attract customer attention, to increase sales efficiency, we announce promotions and organise sales. And then we are surprised to find that our 'good intentions' have had completely unexpected and sometimes negative results. Why is this?
The term 'cobra effect' comes from colonial India. The people of Delhi were suffering from an infestation of poisonous snakes. The local governor decided to tackle the problem by offering a large reward for every snake killed. The reward turned the snakes into a source of income, and enterprising townspeople began actively breeding them to make money. The bounty was abolished and the snakes were thrown into the streets. Good intentions led to a terrible result: the cobra population multiplied.
Coca-Cola, Amazon and even the US government have fallen into the trap of the 'cobra effect'.
Entrepreneurs offer gifts, discounts; they update the product with the best of intentions, but often get the exact opposite of what they expected. The conclusion is simple: artificial incentives are not always a 'superpower'. They can both bring results and 'kill' a good business. The team at Betonlogos has found out how to avoid this problem.
It is very common to hear that in e-commerce, an unrealised product is a lost revenue. It is therefore suggested that a product added to the basket but not paid for should be taken into account. After all, the customer has shown an intention to buy it. Right? In principle, yes. So what do you do? Remind them, offer them a discount. But you have to be very careful. What kind of discount should you give and under what conditions? One of the most famous marketing failures was the case of a late discount of 30%-50% on goods left in the basket for more than 30 or 60 days. Users were willing to wait two months or more to get a significant discount. Betonlogos marketing managers do not recommend using this technique.
An online shop offers free trials of promotional products. This is a good marketing move if it is something small, such as samplers. Or it is a way for the seller to build a base of potential customers. In the case of real goods, it is a matter of pure psychology. What is easy to get is not valued. In most cases, a low entry threshold attracts a non-target audience and increases the cost of serving these customers. As the marketing experts of Betonlogos Czech Republic point out, this technique can even lead to the closure of the company.
Free promotions with a low barrier to entry
Discounts on products left in the shopping basket
The bank linked managers' bonuses to the number of accounts opened. Bottom line: over several years, employees created more than a million fictitious customers. In essence, each employee's KPI is a digitised result of their activity. If a salesperson's goal is numbers and not business development, there is a disconnect between their interests and the real goals of the company.
Salespeople can sell what brings them income and not act in the best interests of the company. It became a classic case of anti-marketing when the reason for the decline in sales in a furniture chain was ... mattresses. More precisely, the greed of the salesmen: they were lured by a generous bonus from the mattress supplier. The shoppers began to persistently 'direct': 'Why do you need a new bed? Just change your mattress - your sleep will improve and you will save money.
Faced with falling sales, companies often start to change internal processes and increase the advertising budget in the hope of attracting more customers. The entrepreneur gets the opposite result. He acts spontaneously, without a clear system to track responses, without thinking through the sales funnel. Advertising costs increase, the company's financial situation deteriorates.
Frequent changes in niche and product range
In an effort to attract new customers, companies try to adapt to their needs by changing the range or functional characteristics of the products they offer. This can cause dissatisfaction among existing customers and create difficulties in production and logistics. Choosing a niche with insufficient demand or too much competition can lead to difficulties in attracting customers and selling goods.
Supply problems
In dropshipping, the supplier is the backbone of the business. If you want to increase profits, change the process. For example, change suppliers. But there are risks: delays in delivery, out of stock, quality problems. The 'cobra effect' - the wrong supplier can turn out to be dishonest, irresponsible or undisciplined.
The 'cobra effect' is most obvious when a dropshipper, in an attempt to sell as many goods as possible, sets unreasonably low prices. This has a negative outcome: additional costs and an untargeted audience.
How to avoid the 'cobra effect'?
Betonlogos advises you to monitor your customers' reactions and analyse their purchase history. Betonlogos specialists will help you systematise your customer base, diagnose the needs of a "warm" audience and identify the reasons for declining sales.
Avoiding the 'cobra effect' helps:
Data analysis. Effective analysis helps you anticipate the potential negative consequences of certain strategies. Before making any changes to your sales processes, review the data and assess potential risks.
Test before you scale. Test new strategies and promotions on a limited scale before rolling them out.
Analyse expectations. Carefully study customer feedback and consider customer needs and preferences.
Manage expectations. Discounts and promotions should be an incentive to buy; their purpose is to balance demand. Try to avoid delayed decision situations. Customer expectations should be aligned with real business opportunities.
Formal KPIs
Inappropriate increase in advertising budget
Trying to improve the user experience by making frequent changes to the design and settings of an online store can create confusion for those using the site. The unfamiliar is intimidating and annoying. If the interface changes too often, it can lead to dissatisfaction and customer churn.
Frequent changes to web design
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