Wednesday, August 5, 2009

Are you smarter than a first grader?

To encourage my kids to get an early start on saving, I offered to match each of their initial deposits in newly opened bank savings accounts when they turned seven years old. When I made this offer to my two older kids, the novelty of having a bank account of their own was too much to resist, and they each promptly plopped down the cash they had accumulated from odd jobs, gifts, lemonade stands, etc. It was relatively painless for me.

Recently, when my youngest (and perhaps craftiest) turned seven, things took a different turn. At first he wanted to race to the bank like the others. I was busy and didn't get right to it... and it would cost me.

During the delay, my first-grader realized that the bigger his initial deposit, the more "free money" he would get in the form of a match from Dad. The good news is he is now actively seeking any chance to make a buck to build his war chest. The bad news is he will be happy to wait until college to make his initial deposit, as he understands my matching funds will instantly out-pace any compounding of interest from the local savings bank.

In other words, he Dollarized the value of my fatherly largess. He understood that the more money he put away to invest, the more he would make from Dad.

Dollarization in business can help in a similar way. Once a customer understands that he or she is spending money to get money in return, a moment of recognition arrives signaling that more buying equals more savings.

So think of your product or service as a free bank account for your customer. Your are not selling a product or service, you are selling money.

PS: I am currently working on a retroactive adjustment to my matching-funds policy to prevent my first-grader from leveraging his initial deposit by borrowing from Grandpa. Kids learn fast these days!