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May 15, 2006
Beware of constant numbers
The fuel-thirsty RV I drove for the past two weeks has a 70 gallon tank. I discovered quickly that some gas stations have pumps programmed to shut off after dispensing $75 worth of fuel (or $50, in some cases). This amounts to around a third of my tank; a friend with a large van reports that the pumps often stop for him, too.
I am told that this limitation is imposed by the credit card companies, presumably to reduce fraud and keep no-signature transactions small.
This is a rare example of a lose-lose-lose situation (as compared to the more common lose-lose situation). Both the credit card processor and the gas station are losing volume, and profit, and the already-antagonized-by-gas-prices consumer is being further annoyed.
It is also an example of the danger of constant numbers in business processes.
Inflation, efficiency, scarcity, competition. The numbers are always going to change. Some go up and others down, and always more than we think possible.
In computer software design there is the Zero-One-Infinity Rule, which suggests that zero and one are the only constant numbers you should worry about. Beyond one you want a limitless formula.
I am sure that the person who came up with the $75 pay-at-the-pump limit used a reasonable formula: “Three times the cost of a full-tank in a full-size car.” The mistake was in programming that day’s answer into all the pumps instead of programming the formula into the pumps.
Gas prices also caught some car rental companies off guard recently. Corporate rental contracts had fixed per-gallon costs for cars returned without a full-tank of gas. This was a great profit center until retail prices rose above the contract rates, which were set at constant numbers instead of a ‘premium over average retail rates’ or some other formula.
A century ago, Frank Woolworth resorted to selling hammers disassembled -- the head and handle separate -- to maintain his promise that everything in the store was five or ten cents. From 1903 to 1970 Hershey shrank its chocolate bars 12 times to avoid crossing its own nickel price barriers as costs increased.
Yet businesses continue to marry themselves to constant numbers. Dollar stores continually seek new lows in quality to maintain their premise. Each year inflation chips away at the profit in the 99 cent value menu and the iTunes music store. How small can the burger get? Will they make the songs shorter?
Check your code, your contracts, and your business processes. Trade your constant numbers for flexible formulas.
Posted by Bob Pritchett at May 15, 2006 10:47 PM
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