Avoiding a Zero-Sum Game

We use the term "zero-sum game" fairly often, but I suspect most people don't stop and think about the meaning of it. A zero-sum game is a game in which one party can only gain what the other party loses. If there is $100 between two players, one player can end up with as much as $100, and the other with $0, but there's no way to convert the winnings to $101 or more. Zero-sum games assume that the entire possible pool of wealth or winnings already exists.

In business, we play a zero-sum game when we assume that the only way to build our business is to steal business from a competitor. When Blue Nile entered the jewelry industry, the outrage that followed was due to the belief that Blue Nile had stolen customers from the rest of the jewelry retail establishment.

But was that true?

To a certain extent, it was. Diamond buyers who did not enjoy or trust the jewelry retail store experience—or who were intrigued by doing business a different way—converted to Blue Nile customers.

But it is also conceivable that Blue Nile created an entire category of diamond buyers who did not consider themselves diamond buyers before. Today, nearly 80 percent of American couples buy engagement rings, which means that 20 percent of couples only buy wedding bands or no rings at all. How many of those couples were persuaded to buy a diamond ring because Blue Nile gave them a feeling of control over the process? How many couples would never walk into a jewelry retail store, but decided to buy a diamond ring because they could do so online? I can't quantify it for you, but I can tell you this: When businesses innovate at the business model level, they don't just steal from competitors. They create additional value, which is the opposite of a zero-sum game.

When imagining your business, imagine ways that you can bring new buyers to the jewelry-buying party. The jewelry manufacturing and design world is completely saturated, and consumers have more jewelry-buying opportunities than ever before. If you don't think of new reasons to entice them—reasons beyond "buy mine, not theirs"—you'll get lost in the noise.

The B-to-B Zero-Sum Game

One of the things I am constantly asked by jewelry producers is "Which trade show should I do?" It's harder than ever to prove a return on investment (ROI) for doing shows. Designers and manufacturers play the whack-a-mole game of jumping in and out of trade shows. But trade shows aren't your only marketing option.

I'm a fan of trade shows—when the show is the right target for your audience and when it does a good job of bringing in prospective buyers. But using trade shows as a zero-sum game, instead of recognizing that there are many ways to reach your audience, is not a sound marketing plan. If you could divert some of those trade show expenses to other marketing approaches that are as good as or better than trade shows for drumming up new business, why wouldn't you?

For most people, the answer to "Why not?" is "I'm scared." Fear of not being  seen, fear of missing out on a potential new independent retailer, fear of not being able to get a great booth space next year, these are all reasons that producers stay locked in the zero-sum game of trade shows, even when they know they are not getting a return on that investment.

How do you get out of the B-to-B zero-sum game? Look at all your marketing activities in the harsh light of ROI. If you can get a decent ROI on any marketing activity, then you should keep doing it.

How do you calculate that?

A good benchmark for ROI in a discretionary consumer good is 5.88 percent. What that means is that your net operating profit from the show, divided by your total expenses for the show, must result in a 5.88 percent or greater return.

Let's do it as a trade show example:

1. Show costs are $42,000.
2. Sales at the show are $36,000. Cost of goods for those sales are $18,000, for a net profit of $18,000.
3. Sales to contacts from the show in the subsequent six months are $50,000. Cost of goods for those sales are $25,000, for a net profit of $25,000.
4. Total net profit from show sales is $43,000. That's the $18,000 net profit from at-show sales added to the $25,000 net profit from post-show sales.

$43,000 - $42,000 / $42,000

$1,000 divided by $42,000 = 2.3% ROI

If a specific trade show isn't giving you a sufficient return on investment, you could do a different trade show. You could also consider a variety of alternatives, including direct sales outreach, e-mail marketing outreach, sending look books, and advertising in very targeted publications. In other words, if all you can expect to get from a certain category of promotion is 2.3 percent, then why play the zero-sum game? Choose another promotional approach that delivers more.

Of course, this is an entirely made-up example. But the point here is important: If you assume that there is no way to bring new players to the party, then you are not in business. Why? Because the business of business is creating new value.

What does it mean to create new value? It means finding new customers that weren't even in the market before. It means selling products that weren't sold before. It means selling in ways that weren't used before. It means taking 2+2 and making 6. Never play a zero-sum game. Creating value is where the real fun is in business. It's like magic, and it sounds like a cash register.