Maximizing Profits Doesn't Mean Screwing Your Customers

from the rinse,-lather,-repeat dept

A few years back, we wrote a post debunking the ridiculous notion spread by some that Craigslist was somehow “anti-capitalist” or not “maximizing profits” because it actually offered most of its services for free. As we noted, much of Craigslist’s long-term success was because of these decisions — which in all likelihood did increase overall profits for the company in the long run by building up further trust in the company. It may not have maximized profits for this quarter, but it most likely was doing a pretty good job in generating profits for the long haul by keeping customers happy, rather than trying to squeeze them for every immediate dime (and who was just saying that Silicon Valley doesn’t have a long term view?)

Now we’ve got another similar story, as the LA Times is positively amazed that the popular virtual world Habbo Hotel limits its users to spending no more than $35/month, on the theory that many of its users are teenagers, who could get sucked into spending on stuff, which could lead to eventual backlash. Its CEO made this clear in a recent interview, saying: “We didn’t want a situation where teens were raiding their parents’ credit cards to be able to play…. We really don’t want teenagers to spend more than the price of two movie tickets a month on Habbo.”

So, how does the LA Times describe this decision? It points out, partly in jest, that “turning down money seems un-American.” Again, even if this wasn’t meant as a serious comment, it’s similar to the silly claims about Craigslist. Habbo Hotel has simply made a strategic long-term decision on ways to best maximize its success for the long haul. And, part of that probably included the calculation that Habbo would have been in quite some trouble if news stories started showing up about kids bankrupting themselves buying virtual trinkets for their Habbo Hotel world. Limiting how much people can spend isn’t anti-American or anti-capitalist or even anti-profit maximization. It’s just taking a much longer term view of the best way to maximize profits over the long run.

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Companies: habbo hotel

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Comments on “Maximizing Profits Doesn't Mean Screwing Your Customers”

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60 Comments

Re: Re:

Um. What about entrenpenurs who has built his business around purely voluntary exchange and had not ask the government for subsidies or use the law to strong arm somebody.

They may also make lot of money and is “greedy” too. But their actions isn’t immoral but rather their actions benefit society

Perhaps you mean those bastards who steal, lie, and manipulate people? That what our government and evil megacorporations do on a daily basis.

John Lewinsays:

Re: Re:

Hmm. A recently-retired police officer friend of mine recently told me he was surprised by how good the majority of people are. As he described it, he had spent so long looking for and surrounding himself by the worst in America (to arrest them), he assumed the whole country was comprised of the worst kinds of folk. Imagine his surprise, after retirement, when he discovered that the vast majority of people here are actually very good people.

I share this with you because you seem to be surrounded with some pretty questionable people. Consider stepping back a bit before characterizing the ‘American Values.’ You may be pleasantly surprised.

Commander Corysays:

Greed

I’ve often thought that in recent years the USofA perhaps should be renamed the United States of Ferrenghi (sp? – ala the race of creatures depicted on StarTrek).
Greed and exploitation seems to be the objective and state of affairs in business and the guvmint. The idea of the greatest good for the greatest number (of citizens, not consumers) is dead and gone. RIP

billsays:

kind of makes sense to me

I never played those games because people who are willing to spend the most to get the best equipment/cards can clobber you. It’s like those card game Magic the Gathering, or Yu Gi Oh. The best cards are super expensive and rare so you always lose unless you spend a massive amount of money. This sort of levels the playing field.
But that said I’m willing to bet that they are using this as a marketing scheme to try and become the Wal-Mart of online gaming.
It’s is simple economics. They are only hoping to increase there profits by selling more. They aren’t trying to save anyone any money this is just another marketing scheme. This move to limit spending may only increase their profits if they have a compelling game that is.

U. Surysays:

Re: Ima Fish

“I wish someone would tell that…. to the credit card companies.”

Right! With interest rates approaching 30%, you can get better terms from Bruno, over in Jersey.

Also: Notice how… if teens are not tracked for either the military or prison, they are encouraged to go in debt to finance a college “education.” Most – except for the Trust Fund babies – are thousands of dollars in debt upon leaving school – and more likely to be fearful, stressed, anxious – prime targets for the booze and pharmaceutical industry and other predator/manipulators and behavior modification specialists ready to market a desire for (fill in the blank).

The tie-in to technology? Well, among other things, a lot of whiz bang gizmo gadgets with flashing lights and wide screens this and that to stand in line for for three days (medium cool; medium crazy kewl), and virtual kill the pixels and sports with with drum/percussion/bass thumping in the background specially designed to induce (fill in the blank, again). But hey! I thought Pong was fun. Go figure. Maybe it’s just me.

As to who cares? (I always thought that would have been a great album title for Pete Townsend & Co. – also: Who’s on First, Who Says, Who Gives a Hoot, etc.) Unfortunately, not many. Not many at all. Excuse me. I’ll just fade away now.

Kaelessays:

Re: Re: Ima Fish

This is VERY true (about student debt), luckily my college isn’t too too expensive, but then again, it’s not stanford or carnagie mellon.

Anyhow, my point is that it is possible to work and make enough money to live and get through college, at least where I am (oklahoma). I’m only 23, I work for an ISP as a sysadmin and am still going to school. Before this year I was working as a waiter at a denny’s clone, and still made enough to live on and pay for school. I just didn’t have time nor money for anything other than that.

Anonymoussays:

Re: Re: Ima Fish

Ok, maybe a little bit of a stretch there – “…go in debt to finance a college “education.” Most…are thousands of dollars in debt…and more likely to be…prime targets for the booze and pharmaceutical industry”

This is stupid. Are you stupid? Because this is stupid. First of all, I don’t know what college you went to but when I went to college I actually learned things in college that made me a more well rounded, knowledgeable adult. So the quotes around education can only be from someone who either A) Never went to college or B) went to a shitty college.

In addition, student loans are not considered in mortgage loans, military recruitment or security clearances. Student loan debt is actually a form of “good” debt – because once you graduate the loan doesn’t get any bigger. So unless you don’t pay your $100-$200 a month, you don’t have to worry. The people who are prime targets for the booze and pharmaceutical industry are the uneducated. I’ve met a lot of executives and higher ups who don’t drink a drop, but I’ve never met a bum who would turn down a 40. Face it, poor people and stupid people are the targets of the booze and pharmaceutical industy. Poor people drink tons of alcohol to drown their sorrows and stupid people pop pills until they can’t feel their problems anymore.

And Behavior modification specialists? Are you serious? You make the choice every time you spend a single dollar. Again only the stupid people fall in line – people who go to college tend to be better at finding the real incentive in others. This makes them better able to make an informed decision and this gives them a better position in life.

On TOP of everything else, About.Com says this:

“…high school graduates [in their lifetime] can expect, on average, to earn $1.2 million; those with a bachelor’s degree, $2.1 million; and people with a master’s degree, $2.5 million.”

So seriously, you are retarded.

Observersays:

Re: Money

When are these people’s that want all the money in the world, going to learn that I have not seen a Brink Truck behind a hearse!

Of course not, that’s not the way it works. The way it works is that they leave their wealth to their children. Most wealthy people got that way by inheritance, not hard work.

hegemon13says:

Re: Re: Money

“Most wealthy people got that way by inheritance, not hard work.”

Um, if you change “most” to “some” or “a few,” then you have a true statement. Your claim, however, is logically impossible. Inheritance money runs out over time. It is not possible for “most” wealthy people to get that way by inheritance, or there would be no inheritance to get.

You attitude is common in the US right now. Hate the wealthy because they have what you don’t. Call them lazy and greedy to justify your own misplaced feelings of entitlement. I am not at all wealthy, but I have known many people who are, both in and outside my family. Incidentally, they are some of the most financially unselfish and generous people I know. No, they won’t hand you a check to buy a new car or TV. But they will give thousands or millions to make sure that children get to eat.

The FACT is that most wealthy people get there through business ownership and/or investment, and by not falling for debt traps. Fortunately, anyone in the US can take that path if they so choose. Me? I’m a writer. I love what I do, and I am willing to accept that I won’t get rich doing it. Unless, of course, I actually finish my novel and it ends up being a best seller. I’ll hold my breath for that about like I hold my breath for the lottery (for which I don’t buy tickets).

Obsereversays:

Re: Re: Re: Money

Um, if you change “most” to “some” or “a few,” then you have a true statement.

No, it is the vast majority. Most wealth people were essentially born that way. There are the exceptions who won the lottery, got a lucky streak in Vegas or on Wall Street or at the horse track, become a movie star or rock star, etc., but those are exceptions.

Your claim, however, is logically impossible. . Inheritance money runs out over time. It is not possible for “most” wealthy people to get that way by inheritance, or there would be no inheritance to get.

Except none of that is true. Money can make more money, no hard work required. It’s called capitalism, perhaps you’ve heard of it? All that is required is for the inherited wealth to be invested in ways that it generates even more wealth. True, it is possible for an ignorant person to squander an inherited wealth but that is true for wealth acquired by any means. Your claim is just untrue.

You attitude is common in the US right now. Hate the wealthy because they have what you don’t. Call them lazy and greedy to justify your own misplaced feelings of entitlement.

Now you’re just lying. I don’t hate the wealthy and I didn’t call them “lazy” or “greedy” and I would appreciate it if you would apologize.

I am not at all wealthy, but I have known many people who are, both in and outside my family.

So have I. That hardly makes you or I any kind of expert. I suggest you go look at how many of the really wealthy came from really poor families. It is very few.

Incidentally, they are some of the most financially unselfish and generous people I know. No, they won’t hand you a check to buy a new car or TV. But they will give thousands or millions to make sure that children get to eat.

And most will then be sure to write it off their income taxes as well. As the wealthy pay fewer taxes, guess who picks up the slack?

The FACT is that most wealthy people get there through business ownership and/or investment, and by not falling for debt traps.

Yeah, business ownership and investments that they inherited, that is. Didn’t mention that did you?

Fortunately, anyone in the US can take that path if they so choose.

Hardly. Very few get to choose their parents.

Me? I’m a writer. I love what I do, and I am willing to accept that I won’t get rich doing it.

Let me guess, you’re a fiction writer, right?

Anonymoussays:

It CAN mean that

Maximizing profits doesn’t necessarily mean screwing your customers, but it certainly can mean that. It depends on your business model and whether you are a corporation with investors. While short-term, high-return business practices that screw customers may not be in the best long-term interests of the business, most investors aren’t concerned about that. They realize that they can usually make more money with a series of short-term, high-return investments than with a single long-term investment. That’s just the way the math and the market works: Buy a company, milk it, dump it (lather, rinse, repeat).

simpiltonsays:

Re: well put

This company is simply looking to build a loyal customer base by preventing kids from running up huge debt on their site. More companies should take this approach because at the end of the day, parents will feel more comfortable about letting kids spend their allowances on this site, as a result they will have more customers and more newcommers.

Profit is necessary in order to fulfill a great company’s mission/vision; a means, not an ends. Starting a company to ‘make lots of money’ will fail in the long run: Versus offering a real value, product, service…

If companies would operate with this statement in mind, the marketplace and the economy as a whole would be much much better in this country. This is why Google is so successful. If a company focuses on making a quality product that is in demand, the money will come.

Anonymoussays:

Whats all this yammering about greed? The post was about stupidity–an excessively narrowminded view of what constitutes savvy profit-maximizing behavior.

Greed has nothing to do with this. Greed is just the combination of enthusiasm for profits with no scruples. If habbo hotel refuses to let kids spend more than $35/mo it doesnt necessarily have anything to do with scruples, but only savvy business practices — as they OUTRIGHT SAY.

Dan Brookssays:

Whats all this yammering about greed? The post was about stupidity

Re: “Whats all this yammering about greed? The post was about stupidity.”

Consider that parts of the post are… “Limiting how much people can spend isn’t anti-American or anti-capitalist or even anti-profit maximization. It’s just taking a much longer term view of the best way to maximize profits over the long run.”

or…”the ridiculous notion spread by some that Craigslist was somehow “anti-capitalist” or not “maximizing profits” because it actually offered most of its services for free.”

or…”generating profits for the long haul by keeping customers happy, rather than trying to squeeze them for every immediate dime.”

These states from the original post are unrelated to greed?

Geez. The only thing really stupid is your post, and your lame attempt to restrict the comments of others who are paying more attention (and have more wit) than yourself.

But I will say one thing for you, your nome de plume is most appropriate.

Faraday Van der Linden-Nowzohoursays:

Maximizing profit

It really is exciting to see how some businesses are changing their strategy and shifting their mindsets to customer care and with that create long term profit. It would be even more exciting if the banking industry would fallow the same strategy. The way they allow our teens to build up debt by giving them unlimited credits is just disgraceful and unethical business strategy. It’s time for parents to take action and try to put a stop to that!

Posttalsays:

just good buisness....

This is old school business 101.
I owned a catering business years ago (roach coach type)and found that lots of little stops made the business more secure that a few big stops.Or to related it to this..lots of parents allowing there kids to play are better than fewer kids playing even thought the fewer may be high rollers..until there money runs out.
Remember the old story of the tortoise and the hare..slow and steady wins the race.

Craig Newmark

I sat next to Craig (of Craigslist) on a plane once and I can tell you that he really doesn’t care about maximizing his profits.

He likes helping people, first and foremost. He likes working for a small company. He understands the joy that comes from just being a nice person.

Why should he turn into a greedy jerk when he’s better the way he is?

Ferinsays:

What my profs used to say

One of my profs who worked in the tech industry for a while always brought this mindset up as a lesson to us about what we’d face when we got jobs. He alwasy felt the “throw away long term stable profit for short term gains” was a result of allowing too much crazy investing on wall street, and allowing quarterly earnings statements and investors to drive the company.

linlusays:

Re: What my profs used to say

Our company just stopped making quarterly expectation statements so they can focus on long term gains. It’s about time. We (employees) were getting dinged for taking more time off than we had projected two months in advance – “um sorry me or my kids got sick, life happens”. I guess upper management realized this would continue to happen and that all it did was cause them to be beholden to the group that takes its profits and runs.

Long Vs. Short Term Profit

The classic example of this dichotomy is the car business. The pricing strategy of US companies is almost always to make the maximum profit on each unit. To charge exactly what the market will bear, not leaving any money on the table. And to do this on each and every unit.

The Japanese approach was to plot profitability on a curve. If the maximum profitability of a line of cars was at a million units charged at $x price, then $x was the price regardless of losing money on the first 300,000 units or 500,000 units sold.

There are advantages and disadvantages to each approach, if followed slavishly. But nobody can deny that through the 80s and 90s the Japanese took huge chunks of the market by delivering superior value. Customers got better cars with more features for less because Honda or Toyota expected to make money by lowering cost over the life cycle of the product but keeping the price the same.

luciensays:

Wow, it’s getting hot in here. First of all, a couple good books for Observer to read: Millionaire Next Door (very interesting; may change your thoughts on money for life, I kid not) and Outliers which talks about “success” (defined in our modern world as affluent) in business and its origins.

I’m neither rich nor poor but I can tell you one thing, college is only useful to those students who value it while they are attending. Do I also need to point out here that the youngest billionaire on our planet is a college dropout who started facebook.com from his dorm room??

Of course a college education is important, blah, blah, blah, blah……I dropped out to start my own business and was making six figures within five years. Scary? Not as scary as sitting in classes when I was sitting on a great idea at the time……..I can always take night classes…..oh, and I was attending a pretty well known school–you may of heard of it?…..Princeton!?

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