Theory of Constraints Handbook - James Cox Iii [430]
Pay Per Click
Situation: This template applies to manufacturers of equipment or capital-intensive products.
“The company gains a decisive competitive edge in large markets by providing its equipment in a way that does not involve (almost) any risk for the client.”37
This template may fit in situations where at least some of these statements are true:
The initial investment that is required to purchase the equipment is not negligible.
The level of usage that the customer/prospect needs is highly uncertain.
Using the equipment is beneficial to the customer/prospect.
The initial investment required is very high for the customer/prospect.
The income stream is tied directly to the equipment and is unstable.
In other words, this template may apply if customers/prospects want the equipment but regard the investment in the equipment as too risky. Alternatively, lack of experience causes the potential customer to doubt both the benefit and the level of usage.
Example Mafia Offer: “Mister Customer, most equipment suppliers put all the risk of purchase on you. At best, you might be offered a lease or rental agreement. We can reduce your risk to 5 percent of the purchase price and you pay only as you use the equipment. Since you pay per use, our incentive is to maximize your uptime and quality. Then you can focus on your business instead of worrying about when and if to buy.”
Operational Improvements Required: S-DBR38 or the Velocity Scheduling System,39 Project Velocity System,40 or CCPM,41 depending on the situation. Using these logistical applications of TOC ensures that the current deliveries are not deteriorating and exposes excess capacity. This ensures that the only investment that is required for Pay-Per-Click offers are the totally variable costs42 of the equipment.
Gain Sharing (My Mafia Offer)
Situation: This template applies to any company supplying a product or service to any other company or individual. This template does not yet have a corresponding S&T.
This template may fit in situations where at least some of these statements are true:
The selling company is putting all the risk on the customer/prospect.
The customer/prospect has some doubt about the results or benefits that will occur.
The selling company is confident in the results that can be achieved by the customer.
The results gained by the customer can be measured.
The customer/prospect cannot afford to purchase the product/service outright, but could pay if the promised results were realized.
In other words, this template may apply if customers/prospects want the product/service but regard the investment as too risky. Alternatively, past experience or lack of experience causes the potential customer to doubt that the promised results actually will be realized.
Example Mafia Offer: “Mister Customer, most consultants charge by day or project, putting the risk of actually getting bottom-line results on you. At best, some consultants will offer to get paid as deliverables are met, but these deliverables are typically based on the completion of some task, not your bottom line. So, our offer is that you only pay us if and when your profits increase. If we don’t increase your profits, you don’t pay.”
Operational Improvements Required: S-DBR43 or the Velocity Scheduling System,44 Replenishment,45 Project Velocity System,46 CCPM,47 or nothing, depending on the situation.
Mafia Offers have been created for all different types of companies. The majority of companies, we estimate 75 to 80 percent, can develop a good Mafia Offer. Moreover, about 30 percent of the companies that have completed Mafia Offer Boot Camps48 have been service companies. The toughest situations are:
E-commerce sites that don’t hold inventory and sell the exact same SKUs as the competition. However, there are some good offer opportunities for these companies and the key is to either (1) make the price comparison more difficult or (2) make them choose you, all else being