Monday Memo
A Byte of Knowledge
We love the way billionaire investor Peter Thiel thinks about building startups.
He's doesn't just look for raw talent or intelligence in the founders he backs...
That stuff is table stakes.
What he really wants to see is a business where there is a very powerful narrative around the company.
The kind of narrative that sucks in the best and brightest like a magnet.
Thiel says when evaluating entrepreneurs, he always asks himself:
"What will motivate the 20th or 30th or 40th employee to join this company? It’s probably not financial and it’s probably not fame or anything like that. It has to be that they believe that there’s something incredibly powerful and valuable about what it’s doing.”
Cause at that stage, it isn't about the money or the perks...
Those first few dozen hires are true believers.
They've must be convinced this company is doing something incredible. Something that creates real value in the world.
That's what gets them to leave their cushy gigs at Google or Facebook...
And pour their blood, sweat, and tears into a scrappy startup.
And the only way to spark that kind of conviction?
Storytelling.
Weaving a tale so compelling, so captivating...
That it stirs people's souls and ignites their imaginations.
Get that right and you'll have a never-ending stream of A-players beating down your door...
Ready to run through walls to help you achieve your vision.
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Something to Ponder
You can slave away on what you think is a brilliant campaign...
Crafting the perfect copy, obsessing over every pixel of the design...
But until you put it out there in the real world?
You're just guessing.
Like Jerry Seinfeld once said...
"If you think of something and you think, hey, I think this is good, and you tell someone, 99% they're going to, eh, they're not going to react the way you want. And this is despite the fact that you yourself will heavily critique your work. That's right. That doesn't do you much good. I don't judge the work. The audience does."
The same can be applied to business.
The market is what decides if your message hits the mark or falls flat.
You might think you've got a killer offer or a clever headline...
But the true test is how potential customers react.
Do they buy? That's the only metric that matters.
We Asked – AI Answered
Our Question:
"How does Uber's surge pricing strategy - which increases prices during peak demand - actually increase rider demand? It's very counterintuitive."
ChatGPT's Answer:
On the surface, you might think higher prices would deter riders and decrease demand. However, there are a few key psychological and economic factors at play:
- Perceived Value & Urgency
- Surge pricing taps into the scarcity principle of influence. When something is scarce or in short supply, it's perceived as more valuable. Riders may think, "Wow, rides must be really in demand right now if prices are this high. I better request one ASAP before they're all taken!"
- This sense of urgency is heightened by the fact that surge prices are often displayed with a multiplier (e.g., 2.5x the base price). The higher the multiplier, the more intense the feeling of scarcity and need to act fast.
- Interestingly, research has shown that people tend to overvalue the worth of something they believe is scarce or limited. So even if the actual utility of the ride hasn't changed, the perceived value goes up due to the surge pricing.
- Driver Incentives & Reliability
- Uber's surge pricing algorithm is designed to predict areas where demand will be high and proactively incentivize drivers to head to those locations. This helps ensure a steadier flow of available rides.
- The psychology of loss aversion also comes into play here. Drivers don't want to miss out on the opportunity to earn more money during a surge. They're highly motivated to capitalize on those peak windows.
- This improved reliability due to more drivers on the road is a key factor in increasing rider demand. Studies have shown that consumers are often willing to pay more for a service they perceive as more dependable and responsive.
- For example, if a rider knows they can count on getting an Uber quickly to make it to an important meeting or catch a flight, they're more likely to use the service, even at a higher price point.
- Behavioral Economics & Anchoring
- The anchoring effect is incredibly powerful. Once a high price point is introduced, it becomes the new anchor that subsequent prices are judged against, even if that initial anchor was arbitrary.
- In the case of Uber's surge pricing, a rider might see that prices have surged to 2.5x the base fare. When prices later drop to 1.5x, it seems like a comparative bargain, even though it's still higher than the original price.
- This is similar to the marketing tactic of listing a product at a high MSRP, then showing a lower sale price. The MSRP becomes the anchor that makes the sale price seem more attractive, even if the MSRP was inflated to begin with.
- Anchoring can also work the other way, making base prices seem like an even better deal after a surge. If a rider decides to wait for prices to drop after a surge, the base price will feel like an absolute steal in comparison.
GOT 15 SECONDS?
Thanks for reading the Monday Memo.
Until next time!
The AI Marketers
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