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Categories: Theory of Constraints
Mafia Offers: Beyond the setup

Mafia Offers: Beyond the setup

By Bob Sproull

Review

In my last post I discussed how most companies answer the questions about your capabilities and why customers and prospects should buy from you. We also discussed the basics of developing a good Mafia Offer and three basic questions that must be answered honestly about your company as a precursor to developing a good Mafia Offer.  I also asked you to answer three general questions as they apply to your company’s capabilities, your industry in general and to your specific customers. In today’s post, we will add a bit more on Mafia Offers and then provide some examples of what good Mafia Offers look like.

More on How to Create a Good Mafia Offer

If you are a typical business owner or manager, you are always looking for ways to become much more profitable. Ensuring that your business is successful is not simply a matter of beating your competition’s prices or service.  Instead of focusing on offering a less expensive product (or service) to your customers and prospects, what you really should be doing is working on increasing the value of your product or service to a level that they cannot refuse your offer?  This is the heart of a good Mafia Offer.

A mafia offer is an offer that can be crafted for any and all businesses with the net result of being a customer or prospect order closure rate of 80% or more.   Think about that for a minute.  Eight out of ten offers being closed by all customers and prospects who review your products or services offerings. Sound too good to be true? The truth is, if a Mafia Offer is put together the right way, it is entirely possible to achieve an eighty percent closure rate!  If customers and prospects say yes to eighty percent of your offers, imagine what would happen to your profits!

The foundation for a good Mafia Offer is based upon using and capitalizing on the lessons from the Theory of Constraints (TOC). You are very much aware that the concept of supply and demand is behind every instance of buying and selling. The bottom line is that even if it costs you near nothing to produce a product, if the demand is high, then you will be rewarded with a high market price. Market price and value are functions of supply and demand.

What if you could develop a way to significantly increase the demand for your products that was well above your competitors? Doesn’t this translate into your company’s products being able to be sold for a much higher price than your competitor while? A good Mafia Offer is an offer that is so good that it would be illogical for your customers and prospects to turn it down.  In other words, it would be illogical for your customers and prospects to buy that product or service from anyone but you.

Dr. Lang explains that “the Theory of Constraints tells us that in any business, there is always an internal or external constraint that limits the system’s performance relative to its goal.” This means that in terms of profitability, profits will not be improved until the constraint is first identified and then exploited. The Mafia Offer builds on this fact and has as its basis, focusing on constantly improving the output of the constraint and then constructing an offer that is so good that customers and prospects will actually pay more for your products because of their perception of value for your products or service.”

Mafia Offer Examples

In the Theory of Constraints Handbook, Chapter 22, Dr. Lisa Lang [1] provides numerous examples of what a good Mafia Offer looks like for a variety of industries.  One of the things we know from the first law of forecasting is that forecasts are always wrong.  The second law of forecasting tells us that the further into the future you go, forecasts become even more wrong.

If the forecast is too low, then production lines go down and throughput and revenue goes down.  In addition, when the product is eventually received, companies are forced to work overtime to play catch-up.  In addition, because companies are forced to expedite shipments, profits erode even more.

If the forecast is too high, then carrying costs increase and cash is tied up in unnecessary inventory.  In addition, damage and obsolescence increases which also eats into profits. So if forecasting isn’t a good way to order future products, what’s a company to do?  Here is an example of a Mafia Offer which address these issues. (Note: This example has been modified from Dr. Lang’s Chapter 22 of the TOC Handbook to reflect a generic product.)

[1] “Mr. Customer, don’t give me orders based upon forecasts of how many pieces of product you need because forecasts are typically always wrong. Instead, tell us every day how many pieces of product you use and we can guarantee on the one hand, that you won’t have to hold more than two weeks-worth of our products.  And you know that your marketing department was complaining that they can’t make the changes they want because you have six months-worth of inventory? Well, now you will only have two weeks. On the other, at the same time we will guarantee that we will never have stock-outs.  And if we ever do stock you out, we will pay you xxx$’s per day per part. We offer you all of this at the same competitive price you pay today and of course you will have a lot less cash tied up.”

Take some time to analyze this Mafia Offer and imagine how you would react to it if one of your suppliers made you this offer.  Look closely at the benefits and guarantees and ask yourself, “How could I possibly turn down this offer.  Think about what it would mean if you only had to hold two weeks-worth of your suppliers products without any worries of stock-outs.  And if you did have a stock-out, this supplier would pay you xxx$’s per day per part.  Think about what happens to your cash on hand.

Next Time

In my next post, we’ll go through more examples of Mafia Offers so that you can see what a good Mafia Offer looks like. As always, if you have any questions or comments about any of my posts, leave me a message and I will respond. And to all our US readers, have a happy 4th!

Until next time.

Bob Sproull

References:

[1] Theory Of Constraints Handbook, James F. Cox and John G. Schleier, Chapter 22: Mafia Offers: Dealing With a Market Constraint, Dr. Lisa Lang, The McGraw-Hill Companies, 2010

Bob Sproull

About the author

Bob Sproull has helped businesses across the manufacturing spectrum improve their operations for more than 40 years.

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