Knowledge Bank Blog, Behaviour Change, Pricing & Promotions

Avoiding the Cobra Effect

How many of you have heard of the Cobra effect?

It originates from an event during the UK’s colonial rule of India. There were a lot of cobras in Delhi. The British Governor was worried and wanted to get rid of them.

He decided to try to solve the problem with an incentive scheme. He placed a bounty on cobras. Bring in a dead cobra and get some cash.

Initially it seemed to work. People killed cobras and brought them in. They got cash. This made them want to find more cobras. But then came a problem. Some people started farming cobras.

All of a sudden the administration was getting a lot of dead cobras. They decided the scheme wasn’t as smart as they first thought and stopped it. But by then the cobra farmers had a big population of cobras to deal with. And now they had nobody to sell them to. So, they released them all. Delhi was swarming with cobras.

The “cobra effect” occurs when an attempted solution to a problem makes the problem worse.

Trying to rid the environment of cobras led to…more cobras.

Why are we talking about this? Ultimately our industry is about encouraging the right shopper behaviours. Retailers and manufacturers do this via ranging, merchandising, pricing, promotions and activation.

Many of these things work. They influence the right shopper behaviours. However, some of these things look like they are working to start with but then create problems over time.

For instance, you start promoting. You attract shoppers to your brand. You promote some more. Then some more. Until at some point you’ve trained shoppers to only buy your brand on deal. Average price paid drops. Category value declines.

As economic reality bites, shoppers are going to be asking themselves questions. Do I need to buy this product? Do I need to buy as much of it? Do I need to pay this price? The answers to these questions will make a huge difference to category value. To retailer success. To Brand success.

So how can you incentivise more of the right shopper behaviours?

Driving Paired Purchases (Buy A then B). This is about usage dependencies. If you buy gin you are likely to need tonic. If you buy steak you may want a steak sauce. Many products are secondary products. They depend on the usage of primary products. It’s an odd person who eats mustard straight from the jar or likes to relax at the end of a long week with a large tonic. The more you can build usage dependencies the more you create buying dependencies. This really helps the secondary product. But it also helps the primary product. Neat gin anyone? What paired purchases can you create?

Driving Loyalty Not Promiscuity. Many brand owners have been riding the penetration bandwagon. The one that says brand growth is only about penetration. If you want to grow, you need a bigger shopper base. You can’t argue with the fact that having more shoppers is a good thing. But anyone can drive penetration. Just do really deep discounts. It brings in new shoppers. But then your competitors do the same. They get the new shoppers. The same shopper can appear in the penetration figures of multiple brands. You get the shopper but you don’t get much of their spend.

What if you spent less time and energy trying to recruit shoppers (then re-recruiting them & re-recruiting them) and spent more time and energy keeping them? Recruit them once and then build loyalty. Reward them for buying your brand each time. Locking in their purchase behaviour so they don’t even consider buying something else. E-Commerce – a channel that encourages repeat purchasing – is accelerating. Are you taking advantage?

Paying More. Any category has a pricing ladder. For instance, you can pay 2p a coffee (instant) to 40p (pods) to £3+ (coffee shop). That is a lot of money that can move around a category. How that money moves around will determine the winners and losers over the coming months. A big trade down effect = price led winners and lower category value.

So, the key for many categories and brands is to encourage shoppers to buy (or continue buying) higher value products. Heinz Ketchup rather than private label. The premium version rather than the standard version.

To do this your product needs to be noticeably better than alternatives. You need to have strong benefit led communication so that shoppers are crystal clear about why you are better. Then consistently remind them. You will get bored before shoppers do.

Ask yourself – are you giving shoppers good enough reasons to pay more?

Think about the behaviours you want (need…) to drive over the coming months. Are you incentivising the right ones in the right way?

Make sure you get rid of the cobras.

Feel free to forward. Have a good weekend. Speak to you in a fortnight.