What do Red Box and credit card companies have in common? Red Box rents DVDs for $1 per day. They provide an inexpensive way for you and me to watch new releases in the comfort of our own home. Great deal for us! But, how do they make much money off such a low rental fee? Sure, they could do it on volume. However, why would they take the risk that all of us would follow sound financial principles by returning our DVDs the very next day?
Credit card companies loan us money for anything and everything our heart desires. For those of us who follow sound financial principles and pay off our monthly credit card bill each month, this is a great deal. Why would the credit card companies take the risk that all of us might follow sound financial principles?
Both Red Box and the credit card companies know their risk is almost non-existent. They count on human nature to kick in. Human nature will not follow principles. Human nature follows convenience and comfort.
Red Box makes their money off those of us who do not return the DVDs the next day. They know human nature is to procrastinate, forget, get busy, etc. That $1 rental quickly turns into a $5-30 rental! There is nothing wrong with Red Box’s model.
Credit card companies know human nature is to overspend and fail to pay off the bill in full each month. They can count on it! They make their money off human nature. And, they make tons of it. There is nothing wrong with their business model.
What other companies have businesses based on human nature? How about that gym membership? The Massage Envy subscription? How about the Groupon coupons that are purchased but never redeemed?
How much money are we piddling away by letting human nature rather than discipline lead our lives? Companies bank on human nature and get their monies worth. Do you?