Fable
The two ferries by the river
On a river there had long been two ferry companies. The one on the north bank charged by the trip: whether carrying people, goods or mail, the boat counted as one trip once it left shore. The fare slip only recorded the number of crossings, and passengers had to pay as soon as they boarded, even if the boat was turned back halfway by wind and waves.
The one on the south bank was the exact opposite. They posted only a price list at the dock, and instead of trips it listed how many copper coins for a person to reach the far bank, how many for goods to reach the far-bank warehouse, and how many for a letter to reach the recipient's hands. No payment if the boat didn't reach the far bank, and on stormy days the boat operator swallowed the cost of an empty run.
One summer the wind and waves were especially rough. The boats on the north bank succeeded in crossing only three out of ten trips, but the books recorded money for ten trips. The boats on the south bank also crossed only three times, and the books also charged only for three trips; the fuel and labor for the remaining seven trips were covered by themselves. The north bank accountant was beaming, while the south bank boat captain was so worried he could not sleep all night.
By autumn the river slowed, and a boat on the south bank could make twenty crossings a day, all completed, all paid for. The north bank still honestly charged by the trip, with prices unchanged for three years. Passengers therefore flocked in whole groups to the south bank. The north bank's chief manager scratched his head and said: our boats are as good as theirs, so why have the people run off?
The boat passenger representative put it bluntly: you charge for the boat moving, they charge for me arriving ashore. In summer we paid for seven wasted trips, and in autumn they run more and we're happy to pay. In the end, you count your effort, they count my results.
The north bank later changed its rules once: regardless of whether it was stormy or clear, payment was collected only upon reaching the opposite shore, but the unit price also rose by twenty percent. Old ferry passengers reacted very differently: those who crossed often thought it fair, those who crossed occasionally thought it expensive. So the north bank added options—those who made fewer than ten trips a month paid per trip, those who made ten or more paid by the number of shore arrivals, with a further discount on the unit price.
This compromise made the accountant discover a secret: customers priced by usage cared about frequency, while customers priced by outcome did not care about frequency but about whether they could stop worrying entirely. The mental accounting of the two customer types was completely different.
Later the accountant put the two ledgers on the same page: the usage ledger reviewed daily, the results ledger reviewed at month-end. Who bears the risk and who takes the incremental gain were finally written clearly.