Bottles and Glasses – finding value from the human factor

I’ve really been interested lately by how much value can  be created from leveraging the human factor in a transaction.  The example that I think sums it up nicely is found, as ever, in Wine. And as they say, in vino veritas.

I’m constantly calculating value equations, for one I enjoy it as a process, and I also enjoy what I call a ‘win’ when I get at least value that is optimized, or at best a really great deal that is far beyond what I should have got from the exchange.  It is something of a pursuit in and of its own.  One that recently resonated with me was calculating the price of wine at our weekend getaway, The Waterclub in Atlantic City.  The equation is somewhat complex, but basically works as follows:

We get $50 of comp dollars or ‘free money’ to spend.  That money can be used in the bar to buy a glass of wine at marked-up prices, or in the gift shop at slightly less marked up prices.  The catch is that in the bar the comp dollars are worth 1:1 but in the gift shop they are worth 2:1.  In other words I can spend $50 at the bar, or $25 at the store for my free money.

This trip I picked up a bottle of Chardonnay Ferrari Carano, with a ticket price of $20 ($40 comp dollars).  That same wine was selling by the glass in a restaurant for $15 ($15 comp dollars) for a 5 oz pour.  And here is the mathematical equation.  Since a glass is 5oz and a bottle is a fixed size 750ml or 25.36 oz. We could calculate that one bottle would be 5 glasses, or $75 (or $75 comp dollars) and it seems that the logical choice is to buy the bottle at the store.

However, frequently in these situations the actual pour that you receive is not measured accurately, and 5 oz is on the smaller size of a bar serving, so what happens is that the server gives you more, something from 6-8 oz for the same price.  Suddenly, in doing so the value equation has changed.  The break-even on that bottle is a pour that is about 1/3 of a bottle, or 3 glasses out of one.  It is something that isn’t uncommon with the right bartender in the right frame of mind (tipping helps influence that frame of mind..) with the Chardonnay the savings weren’t really there, but with another wine I enjoyed there it was quite evident.

A place where they pour really heavily seems to be the steak houses, they serve a Cabernet for $23 per glass that retails in their shop for $50 per bottle, and they pour around 8 oz glasses as standard.  That makes one bottle in the bar come in at $69 of comp, vs $100 in the shop.

What I found most interesting is that frequently when calculating value we don’t think enough about the human influence within an equation.  In this case, on paper it (quite rightly) the bean counters figured out their profit, but in reality, the people influence the value equation in our favor.  If we had looked at it purely mathematically, as it has been calculated, we lose a variable that has value, and is something to be aware of and also leverage.

Whilst pouring a glass of booze is perhaps an easy way to see how mathematical variables and profit can be influenced, it shouldn’t be the extent of the exercise, the lesson here is that when you remove fixed parameters from an equation (a bartender doesn’t have the limits of one bottle to pour from) you have the ability to control the value chain.  This is in fact a way to create advantageous positions that can increase value beyond the theoretical maximum.

What we are doing is looking for negotiation points, creating opportunities for increased value.  Another human factor example we can look at would be something like booking a flight.  If we do it online we face restricted coded in rules and regulations, if we do it with a person we have the opportunity to negotiate a fee reduction, or when the codes are incorrect we can find value by not having that human factor .  I am not saying that every time it will be the best move, and sometimes companies will add on a fee for speaking to a human, however, if we can find places where it makes sense, we can opt to interact with someone and perhaps use that as an opportunity to find value beyond the mathematical theory.

Anything where there is a degree of separation between the bean counting price setters, and the people delivering the product will offer this opportunity, and as such we should price that in as an opportunity cost for cutting them out of the equation.  The best way to leverage the human factor is to be nice, after which nice+cash is always a great solution.  I have found people who act in an obnoxious manner, yet still might tip will suddenly be poured exactly 5 oz measures, so it is worth noting that being pleasant gets you the most in such situations.

I think the best value I have had (other than that Hall Cabernet) was an upgrade from Coach to Business class on ANA from Japan to New York, basically coming down to a slight mix up on their part, a polite reaction on mine, and a bump up in the process.  There isn’t an app that would do that.