Fresh Perspectives on Growth

Who values who

2006-09-15T08:30:00.000-07:00

Most people get the whole customer value thing wrong. I heard a famous keynote speaker and guru the other day talking about customer life time value and how we can identify customer value. She recommended we estimate the sum of what our customers are worth (purchase volume, frequency, etc.). I read another article (click on title to see the article) from the folks at Maritz and they made the same mistake. This approach is wrong. Dead wrong.

Customer advocacy only occurs when customers value you. It's about their perceptions of you. The customer doesn't care how rich they or their friends are when they decide if they like YOU. Could you imagine a wealthy person saying, "I value Joe because he likes me for my money?" It's absurd. Yet, these experts are asking you to do the same thing. Don't.

If you want higher customer advocacy, get customers to value you more than ever. Then, you'll achieve the results you want.

Microsoft fails to understand buzz

2006-03-09T19:11:00.000-08:00

At first, it appeared that Microsoft was "going to school" on Apple. They leaked the existence of a product code-named, "Origami" in the attempt to create an Apple-level amount of buzz about the product.

However, Microsoft has created a disaster for themselves. From our perspective, there is a difference between simple buzz and advocacy - a nuance that appears to elude Microsoft. Advocacy is active positive communication (buzz) about something. Antagonism is active negative communications about something (also called buzz). Simply receiving buzz isn't enough for a company, it needs to be positive to be useful.

For example, there has been recent "buzz" in the political world about the Dubai Port World deal. None of the "buzz" was favorable. Rather, it was all negative. That is why the deal is now dead. Therefore, it is dangerous to instantly be happy when your product or company has buzz.

This is where Microsoft messed up. If you have read much of this blog or read our book, The Paradox of Excellence, you will know that we think expectation management is critical. We create positive buzz or advocacy when we positively surprise our customers - when the actual is better than the expected. Unfortunately, Microsoft didn't adhere to this philosophy - to its detriment.

Microsoft succeeded in creating lots of unrealistic expectations about what Origami was going to be. For weeks, there has been broad speculation about the potential of a truly exciting and exceptional new product. Yet, the actual product failed to capture our imaginations. In fact, it was such a disappointment, there is now a serious backlash. You know you're in trouble when ABC news calls your product the "Sum of Two Failures" and CNN says it looks "paper thin" (the non-flattering meaning). This is buzz, but sounds more like the buzz that comes from machine gun strafing than it does from the heart palpitations of gadget geeks worldwide.

Apple must be breathing a sigh of relieve. Not only is Origami a bust, it is clear that Microsoft still doesn't understand what it means to create brand advocacy.

Surprise, Surprise, Surprise

2006-03-08T10:29:00.000-08:00

I'm not mimicking Gomer Pyle. I'm giving you the secret to creating more value and growing your business. The secret is to deliver positive surprise.

The other day, my son made his first big purchase, buying himself an iPod Nano. After three months of hard work, saving and scrimping, he had finally accumulated enough money. On Saturday, (after he had ordered it and before it had arrived) he came to me with some serious buyer's remorse. He started to realize how much money he had spent to buy this product, how much he had sacrificed to get it and he was filled with regret. As it normally is with kids, this remorse was temporary. But, what happened next teaches us a lot about why Apple is so successful.

He had purchased the Nano to listen to music and to see pictures. What he didn't know was the iPod had games. He was ecstatic. He had received something for free. He didn't know the iPod had a clock and a stop watch. His watch is on the fritz and he basically got a free watch. The iPod had many features he didn't expect and it was smaller than he remembered (especially after seeing his dad's big clunky one). As a result, he was surprised. Positively and substantially surprised. As a result, he has moved from remorse to advocacy.

If we want to build value with our customers, we also need to create positive surprise. There are several implications.

1) Apple plays up big general features, but leaves the small, cool features as surprises. Customers aren't told in advance (or aren't told as often.)

2) This means they UNDER market some features. For many marketers, this is very difficult. We want to "sell" everything we have to sell. Yet, the lesson of Apple is less is MORE.

3) Advocacy doesn't come from simply satisfying a need. It comes from exceeding an expectation. Apple had satisfied my son's need (want) for music to take with him. Yet, even before he got it, he was disappointed and sad. Yet, advocacy came when the product did things DIFFERENT than he expected. MORE than he expected. That is when he became an advocate.

4) Companies that want to create value must follow the same course of action. Creating positive surprise is the key.

Spoiling the Surprise

2006-01-07T14:30:00.000-08:00

Ted Landau has written a great article in The Mac Observer about Apple's rumor sites and about movie trailers. It captures a big issue - the issue of positive surprise. Landau says that rumor sites and trailers steal the thunder of the actual experience and news and create an artificially high level of expectations. I agree.

In order to build value, we have to create positive surprise. Without positive surprise, companies are only delivering what is expected - and customers don't value what is expected, regardless of its performance or utility.

A good example of this is Disneyland. The first time you visit Disney - the experience is filled with positive surprises. However, by the time you visit Tomorrowland, there is no positive surprise. As a result, value may actually decline because what originally was a surprise is now tired and predictable.

Expectations are what AT&T needs to manage

2005-12-29T10:05:00.000-08:00

According to an article on hostreview.com, AT&T is about to launch "its most ambitious and aggressive brand campaign in its more than 120-year history." What is fascinating about this campaign is a why they are doing it. Check out the quote from the article below:

"The research showed a remarkable 85 percent correlation across all customer groups as to what brand attributes are most highly valued. 'Our customers told us that, above all, there are three things they expect from us,' said Whitacre. 'They want innovation thats meaningful, that makes a real difference for them. They expect us to earn their trust by keeping our promises and standing behind our products. And they expect us to treat them fairly, with no surprises. 'Your world. Delivered.' is our way of pledging to all of our customers from a teenager in California to the CIO of a global company that AT&T's passion to invent and SBC's drive to deliver have come together to deliver what matters most in their lives.'"

Customers want the company to keep its promises, stand behind its products and treat them fairly without surprises. WOW! These are truly revolutionary insights! Was AT&T surprised by these findings? Were they shocked that customers want to be treated with respect and honesty? Horrors! What's a marketer to do?

Underlying this entire plan is the need to overcome the Paradox of Excellence. Yet, I fear the company lacks a clear understanding that without shaping those customer expectations and without setting realistic expectations in the customers' minds, AT&T will have done little to get customers to believe in their brand again.

Brand shifting - a new loyalty distinction

2005-12-24T09:45:00.000-08:00

We tend to think of brand switching as a binary activity. Either we buy from brand A or from brand B, but not from both. However, real customer behavior doesn't support that binary pre-conception. In fact, most customers often multisource. This is true for both consumer and business purchases. For example, I shop at both Albertson's, Safeway, Trader Joe's, Target and Costco for items I would traditionally find in a supermarket. The same is true for business travel. I use multiple airline carriers and rental car companies - depending on pricing, availability and location.

The true customer behavior is neither black nor white, rather it is gray. The real issue is the weighting of spending customers apply across the various vendors. We call this BRAND SHIFTING. Customer don't eliminate your brand - they merely shift the volume away from your brand to another. So, let me ask a question. What mechanisms do you have in place to identify BRAND SHIFTS? Can you declare with any confidence that your business is suffering from BRAND SHIFTS?

For example, for companies that sell into a multi-supplier environment, what % of the business are you getting? How has that changed over time? If you don't know the answers to these questions, you have no ability to know the true impact of customer attrition on your business.

Expectations around opt-in mail lists

2005-12-23T07:49:00.000-08:00

A month ago, I signed my son up for baseball using an on-line registration tool. Regretfully and despite my attempts to avoid it, I somehow made it onto the registration company's opt-in list. Now, I don't have any "relationship" with this on-line registration company. My relationship is with my local little league. Yet, this organization seems to think they have a relationship with me and has put me into their spam list - a frustration all of us suffer every day.

The company, active.com, thinks transactionally, not relationally. They have been taught by relationship marketing experts that getting my name and spamming me will improve my relationship with them. It doesn't and won't. So if your organization does the same thing - stop it. I never had a relationship with the company and if you do the same thing - I won't have a relationship with yours. The only trust between me and the organization is they will accurately place my order with the league and not lose, misplace or exploit my credit card information. Putting me on the spam list (I distinctly remember disabling that request) has LOWERED my perception and trust in the company. Moreover, like the loser in high school who clings onto you and thinks you are their best friend because you walk past them at school, Active.com thinks it has a relationship with me because I was forced to use its service. We aren't friends and I certainly don't advocate for them.

Now to the opt-in. Like all good, legal opt-in programs, there is an opt-out program. You click on the unsubscribe and you are removed from the list - at least that is the expectation! With Active, I got a promotion offer email on Dec 9th and unsubscribed. I thought I had unsubscribed to Active.com. But nooooo. It was like wack-a-mole. The next day, I got the local events newsletter. So I subscribed to that. Then today, I got the monthly newsletter. I unsubscribed to that. Unfortunately, my unsubscription letter said they took me off the weekly newsletter list (not monthly) - I guess as a threat that they still may send me the monthly letter I just unsubscribed to.

Who knows what evil lurks in the hearts of Active.com, perhaps they have a semi-monthly newsletter or a holiday letter or a Chinese New Year's offer. Who knows? I will - when I get yet another spam I don't want from a vendor I don't have a relationship with. Active, like many misguided companies believe that if I am on their current subscriber list, they are building a relationship with me and building value - they aren't. Furthermore, the clever marketing manager who designed the scheme that we only unsubscribe to a specific piece of spam and not all spam and thinks they are beating the system is a fool. He or she is simply unaware of or indifferent to the impact this behavior has on their brand.

This transactional mindset has defeated any relationship-building benefits that could be derived from their "customer communications."

Sell what is in your bag

2005-12-20T10:09:00.000-08:00

My first sales manager always said, "Sell what's in your bag." By this, he wanted us to sell what we had today and not what we might have in the future. Stay focused on the current products and current business. This was good advice 20 years ago and is still good advice today.

Now, customers always want more and expect to pay less for it. We wrongly believe our job as marketers is to give the customer what they want. If we give the customers what they want - they will only want more. In fact, the faster we supply the customer's wants, the less satisfied they will be and the faster they will expect further and more dramatic improvements. This treadmill is impossible to sustain.

We recommend a different course. As marketers, we need to reinforce our value to our customers so that they are happy with what they currently have. This is just a marketer's version of sell what's in your bag. If we can develop a way for customers to appreciate us now, they will more likely appreciate us when we improve the products and services we deliver.

Charles Kettering, the famous R&D head at GM said, "The key to economic prosperity is the organized creation of dissatisfaction." This is how GM created the annual car model. However, we marketers have missed a key word here - ORGANIZED. We want to keep our customers completely satisfied until we, and not our competitors, have the next product for them to buy. Only at that time do we want them to have any dissatisfaction. And then, we only want them to be dissatisfied on the attributes we satisfy with our new offerings.

Vendor strategy affects customer satisfaction

2005-12-08T11:55:00.000-08:00

An often overlooked contributor to poor customer satisfaction is a company's vendor/supply chain strategy. In talking with a mentor of mine, Jake Levy today, we talked about the importance of strong vendor relationships in delivering a consistent customer experience and positive surprise. In fact, Jake takes it even further. He posits supply chains can do more to damage a relationship with a customer than any sales person can.

Here's his argument. The typical company loses 10% of its customers per year. This is horrible, but that's where it is. However, if a company has a major supply chain disruption or quality issue, that one event can cause a lot more than 10% of customers to leave. True, very true.

There are two implications to this: CEO's, general managers and Supply Chain executives need to recognize and eliminate the possible impacts of changes in suppliers to the end customer's satisfaction and experience. Small changes that cause unexpected customer surprises can wipe away all economic benefits derived from the vendor switch. Organizations that don't take a holistic view of the interrelationships of actions across various functional siloes can unwittingly hurt their businesses.

The second implication is for sales executives. By recognizing you are vulnerable to unexpected problems with suppliers that affect customer satisfaction, you should be more diligent and proactive about improving communications with current customers NOW before these problems occur. Otherwise, you will lose customers when you shouldn't.

T-Mobile Gets it right

2005-12-07T08:26:00.000-08:00

Truth in advertising. A lot of companies talk about it, but few marketers follow through with it. In a world of wireless hyperbole where customers are told their vendor is "raising the bar," T-Mobile takes a different approach. They recommend the customer check to see "if T-Mobile coverage is right for you with Personal Coverage Check".

What T-Mobile is doing is setting realistic expectations of performance. That way, they don't waste their time to acquire a customer who ultimately will become dissatisfied and leave. It leads to higher profits and more loyal customers. This was reinforced in the LA Times when writer James Granelli informed us that T-Mobile is "is now ranked generally as the best or second-best wireless carrier in the nation."

T-Mobile is a great example of a way to reduce the Paradox of Excellence by keeping customer expectations in check.

Value-Reinforcement Marketing

2005-12-05T09:49:00.000-08:00

Dave and I have been thinking about this idea of value-reinforcement for a while and believe it will become an important marketing trend in the future.

Value Reinforcement Marketing is when a company affirms the benefits of existing offerings to current customers in a way that reinforces that customers' positive perceptions about the value the company delivers.

Marketers spend the majority of their marketing budgets on acquiring new customers and very little on communicating with existing customers. Moreover, when there is communications with existing customers, it is rarely value-reinforcing communications, it is often transactional or promotional in nature (such as price discounts for additional purchases).

Value-Reinforcement Marketing is different in several ways.

1. Dollars are spent marketing to existing customers. It is oriented towards someone who already receives the company's benefits, rather than someone who might receive these benefits.
2. It is designed to turn customers into advocates, not turn prospects into customers (although if often does indirectly).
3. It is designed to reinforce existing (although dormant) perceived value not create new perceived value in the customer's mind from scratch
4. More effective than acquisition marketing because recipients already have a predisposition to like the company because they are already customers
5. Oriented towards the retention of trust and value, not creation of trust and value. This, again, is less expensive
6. More relational and less transactional in nature

Benefits of Value-Reinforcement Marketing

Companies who reinforce their value receive many positive benefits including:
1. Top line revenue growth
2. Increased market share
3. Substantially improved margins through lower support costs and higher average selling prices
4. Increased stature in marketplace (brand perceptions, etc.)
5. Bigger barriers to customer switching

Companies who derive a bulk of their revenues from existing customers are strongly encouraged to better align their marketing communications dollars and begin Value-Reinforcement Marketing

Punishing Customer Loyalty

2005-12-01T08:34:00.000-08:00

David Sims writes on TMCnet that broadband companies are punishing loyal customers by giving discounts to new subscribers, instead of existing subscribers. This article highlights two hidden common elements that affect loyalty: Entitlement and Comparison.

When a company transacts with a customer, there is an exchange of value. One delivers a service and the other provides monetary compensation for that service (or good). This is the free market. These parties willfully exchanged their value for the other's value. As Martha would say, "It's a good thing!" Yet, ever-increasingly, customers believe that over time, they are entitled to improved performance (without an additional exchange of value). They want more and more for less and less.

The second element is comparison. As consumers, we are always comparing what we have with others. Watch kids at a school cafeteria when they open up their lunch boxes. Each one looks at what the other got to see how their lunch compares. Customers are no different. They want to know if they got a good deal. It is human nature to want to feel like we are treated fairly. This has become an issue for airlines. For the longest time, consumers thought everyone paid the same price for the same plane ride. Once airlines moved to yield management-driven pricing where prices are optimized and vary widely, customers become quite irate. It also applies to this example David gives about broadband customers. They are (or should be) happy with the price they are paying for the service they are getting. Yet, when they see a solicitation for new customers that offers a lower price then they paid (or can pay), they become angry and resentful. They recognize clearly they are less valued by their supplier. In return, they value the supplier less.

The lesson here is customers inherently feel entitled to decrease how much they value their supplier by expecting more for less and hypocritically become upset when suppliers decrease how much they value that customer when they offer better prices to new customers.

What's a smart company to do?

Aside from buying The Paradox of Excellence in bulk and hiring Fresh Perspectives (always good ideas), executives must recognize money
is a proxy for value. If you want customers to give you more money, they have to value you more highly. You must shape the comparisons customers make so they see the value you already provide and avoid marketing actions that cause negative comparions. Moreover, by highlighting your great performance in context over time, you can begin to eliminate the customer's sense of entitlement.

True loyalty does not require bribery

2005-11-18T20:55:00.000-08:00

Companies should strive for monogamy, not polygamy

One day, just for grins, I decided to do a test. I wanted to know how many “loyalty cards” I had in my wallet. Here is what I discovered: I had 19. Now, if all of these cards were for different categories of products, I’d be telling you a different story. However, they aren’t. I had cards for five different restaurants, five different airlines, three different hotel chains, two different driving ranges and a few miscellaneous ones. In the world of “loyalty”, I am more of a philanderer than a loyal monogamist.

What is loyalty anyway?

To be loyal is to feel a devotion, duty or attachment to somebody or something. Yet, with 19 cards in my pocket, how “loyal” am I? When I fly to Atlanta, I am likely to use my Delta card. Yet, when I fly to Boston, I fly JetBlue. Am I loyal? I don’t think so. Would the industry describe me as loyal? Again, I don’t think so. Then, why do we insist on calling the card in my wallet a loyalty card if it doesn’t make me loyal? I think the better term would be to call it a bribery card because that is how it is perceived and used. The airline provides an incentive, a bribe, that if I buy from them, they will give me some undeserved benefit – such as a free ticket. I willingly accept this incentive. However, I am not sure it materially changed my mind as to which airline I would fly. I fly enough that I can get tickets on multiple airlines.

Why does corporate monogamy matter?

Many industries are zero-sum games where any gain in sales is 100% at the expense of another brand. Every time a company can win a sale, they win twice. First, they gain the profits from that transaction. Second, they keep the competitor from having the profits from that transaction. In flat markets, growth is always at the expense of the competition. Also, monogamy is a sign that customers truly value the services you provide more than they do the competition. When value is high, customers are more likely to share their positive opinions with others, lowering sales and marketing costs and improving overall marketing effectiveness. It acts as a virtuous cycle.

Conditioning the customer

These so-called loyalty cards are a very negative tool for most businesses as they tend to de-value, not build corporate value. An analogous example would be the use of coupons. After decades of using coupons to drive sales, P&G, the giant consumer package goods company realized that couponing was hurting the brand and devaluing the products. Therefore, they moved away from using this technique. They realized it was merely a price discounting tool. The couponing conditioned the customer to wait for the special. The same is true with loyalty cards. We are conditioning the customer to expect some reward simply for buying their service. This builds costs into the system and doesn’t build as much brand loyalty as would be expected. It is merely a price discounting method.

Where does true loyalty come from?

We are loyal when we feel connected to a brand, a service, a product or a company. When we value what they do or stand for. Yet most companies don’t know how to engender this connectedness. We build value when customers experience a result, a level of service, etc. that exceeds their expectations. Therefore, in order to exceed expectations, we need to uncover what they are first. Once we know the customer’s expectations, we need to shape them in a way that makes it possible for us to exceed them.

Stop comparing the ideal scenario

2005-11-17T16:06:00.000-08:00

My VERY SMART friend Raj Setty has it right when he says "It is good to compare to an ideal scenario when the objective is to improve and perform better. However, most of us carry out this comparison to complain or to feel miserable."

Unto Death Do Us Part

2005-11-17T15:07:00.000-08:00

In this article, Computing Business columnist Bryan Glick got it wrong. Unfortunately, he's not alone.

Here's the traditional view of loyalty creation: Find out what the customers expect and give it to them. Sounds simple. But, let me paint two pictures. First, this assumes the expectations are economically possible to exceed. Second, that exceed those expectations will result in sustained loyalty.

The problem is neither of these assumptions are necessarily true. For example, cell phone performance is up 174 times over the last 20 years, yet customer loyalty is extremely low. Walker Information did a study recently that found 31% of wireless buyers are at risk of switching. Obviously, something is amiss. The problem is customers expect land-line performance from their cell phones - which is economically and politically (cell towers, etc) challenging to deliver. That is why the INDUSTRY, not just one company is facing the problem.

The second assumption is exceeding expectations will result in sustained loyalty. The problem with this idea is it presumes customer expectations are static. They aren't. In the study we just completed, we found that improvements in performance don’t always lead to loyalty and retention. We learned that half of those people who expect to switch IT outsourcing brands in the next three years currently believe their service is staying the same or getting better. Moreover, we found that 13% of those customers who expect they will switch vendors if performance stays the same over the next two years are from customers who are satisfied with their vendor’s current performance.

Forcing people onto what we call The New Feature Treadmill (to be discussed at a later date), will only lead to fatigue and frustration. Sound like how you feel? Well, now you know why.

The Soup

2005-11-17T10:01:00.000-08:00

Over the last several days, we have been talking with executives involved in IT Outsourcing about our recent release. What is astounding to us that these executives don't consider it news that less than 40% of customers expect to be with their primary vendor three years from now. Not news? They already knew this and don't seem concerned?

What ???

Yes. It's true. In each discussion, we received ho-hum, yeah...we knew that...kinds of responses. Like this news wasn't news to them. We were shocked. And still are. Dave and I started to talk about it more and we think the underlying problem is what we call "The Soup."

"The Soup" is where we live. It is our environment, our circumstances. We live in "The Soup" so we don't see that we and the soup are separate. Ask a fish to descibe water. They can't - it's just there (also they don't speak very well). However, because they don't live in "The Soup", outsiders can see it for what it really is - a smelly, hot environment that will get you eaten up if you stay in it.

This is where the IT Outsourcing firms are right now. They have no awareness that they're living in "The Soup." As outsiders, we can see they are in trouble. Come on, only 38% of current revenues are safe! This is trouble with a capital "T". Yet, don't we all fall into the same trap? Don't we all become unaware of or comfortable with the status quo in our own environments. To loosely paraphrase the Bible, "How can you say to your brother, 'Let me take the soup out of your eye,' when all the time there is soup in your own eye?"

Commoditization is on the rise

2005-11-16T09:58:00.000-08:00

We just released a study of IT Outsourcing customers and found that only 11% of these customers see their current, primary IT Outsourcing vendor as highly differentiated or unique. This is an astounding figure given the investments these companies are making in people and systems. Most executives are misguided as to how to combat their rising commoditization. They could benefit from a reading The Paradox of Excellence, our new book on the topic.

People who want to read the entire press release can find it at IT Outsourcing Press Release

Credit Card Solicitations Reduce Brand Value

2005-11-15T18:27:00.000-08:00

What is it with these credit card companies and their sponsor brands? Don't they see they are hurting their brand image? I have always been fascinated by this. After I graduated from UC Irvine, the first 5 communications I got from the school were all credit card solicitation requests. What value did I have for UCI? I was a piece of data to be sold to the highest bidder. Not an alumni who might give money at some point.

All kinds of companies are on this bandwagon. My smart friend Mike Kelly, CEO of Techtel (Techtel.com) and I were talking about this today. Undesired credit card solicitations are not benign communications - they are negative communications. Every time we receive these communications, we think less about that brand. At home, my wife and I receive almost two solicitations every day. Ask my wife what she thinks of Chase! I can't image what kind of investment that company would have to make to restore their tarnished image in her eyes.

Today, I received a solicitation from Nordstroms thanking me for being a valued customer. So valued, they sold my name to a third party credit card company (wasn't even for a Norstrom card). What does that do to my feelings about Nordstroms? Don't bet they went up. One of the key ideas behind The Paradox of Excellence, our new book, is this notion having positive, brand-reinforcing communications, not continuously bombarding customers with negative experiences.

You'd think they would have learned by now. Guess not.