🏨 The Doorman Fallacy
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Today, you’ll learn about the doorman fallacy, thanks to Nudge podcast.
In the quest for efficiency, businesses often cut costs, only to realize the true value of those items too late. Rory Sutherland's "doorman fallacy" illustrates why short-term savings can lead to long-term losses and how to avoid this pitfall.
Small savings can cost you big
Imagine a hotel with a doorman. Accenture comes in and says, 'How much do you pay the doorman? Let's replace him with an automatic door to save £60,000 a year.'
This approach is short-term. It’s micro-efficient, but macro-inefficient.
The role of the doorman goes beyond opening the door. It's about recognition, status, security, sharing gossip about dodgy activities, hailing taxis, and more. Opening the door is just a small part of his job.
Replacing the doorman might seem like a brilliant cost-saving at first, but two years later, the hotel's rack rate falls, there's a vagrant asleep in the doorway, and regular customers miss the personal touch Bob provided.
Rory Sutherland
Why it matters
In today’s post-ZIRP era, this lesson is even more applicable.
I’d still advocate for cutting too deep rather than not deep enough - whether that’s employees or expenses - but it’s important to be aware of this phenomenon to minimize the impact of overcorrecting.
The doorman fallacy applies to any business, including yours. Here are two other examples:
Many telecom companies now use automated phone systems for customer service, which frustrates customers with complex issues and leads to damaged brand reputation.
Hotels that use automated check-in kiosks save on staffing, but guests often miss the warm welcome and personal attention from front desk staff, resulting in fewer repeat bookings.
So yes, the doorman fallacy is a helpful heuristic, but don’t let employees weaponize this as a way to keep on spending.
Instead, keep it in the back of your mind the next time you think about cutting costs.
Next steps
Here’s how to avoid the doorman fallacy:
Assess the full value. Look beyond immediate cost savings. Consider the broader impact on customer experience, brand perception, and long-term revenue.
Engage stakeholders. Involve employees and customers in decision making. They can provide insights into the intangible benefits of certain roles or services.
Run pilots. Before making large scale changes, run small tests to gauge the impact. Monitor both qualitative feedback and quantitative outcomes to make informed decisions.
Prioritize customer experience. Always weigh cost-cutting measures against their potential impact on customer loyalty. It’s often more expensive to acquire a new customer than retain an existing one.
Your thoughts
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