Monthly Archives: June 2012
In a recent post, I wrote:
“Bob Thompson shared the results of research he had been involved in some years ago. When customers were asked what constituted ‘customer-centricity’ they came up with: product quality/fitness for purpose; customer service excellence; being treated fairly; and price. Bob made a big play, as do others, about price only being fourth on the list. I will be writing a post on the price myth soon.”
Can you count on customers to tell the ‘truth’?
Before we can grapple with the ‘price is not that important, other stuff is more important‘ myth we have to grapple with the customer/market research myth. Why? Because the people who make customer related claims – including on the matter of price – almost always refer to the results of customer surveys and market research.
Research simply discloses how a specific bunch of people responded to/answered a set of questions given the way that these questions were worded/framed and how/when the research was conducted. ‘That is it – that is all it tells you! You cannot use it to make declarative statements of ‘truth’ about what matters to customers nor what they actually do when they are shopping in the real life shopping environment. Even if we assume that all bias has been stripped out of the surveying/research process we are confronted with this: people deceive themselves whilst being convinced that they are espousing the truth – neuroscience suggest that this is a fundamental feature due to the design of the brain, which is really many brains in one.
Asking about price, and how much it matters or not, is like asking about sex. Why? Because the question is laden with meaning which puts one’s identity, self-esteem and ‘social face’ at stake. If you are a woman and answer that you have had many partners and love sex then you are likely to be thought of as being ‘loose’ and looked down upon. And you, the woman that is being asked that question know that and so you modulate your answer – you lie. Now imagine that you are a man. How likely are you to say that you have had no sex at all in the last three months? I recently took part in a speed awareness course where only 2 people out of 23 claimed not to be ‘better than the average driver’ Was it because most of us in that room (including me) are deluded or is it some of us were not willing to admit that we are not good drivers in front of our fellows? Possibly and most likely both.
First the price question will be answered differently by different segments and you cannot average it out – to some people it might matter a lot, to others not at all. Second, there will be a ‘right’ answer (socially desirable) given the current circumstances – have you noticed how thrift is in and conspicuous spending out? Third, what people say (and even think they do and what matters to them) is often very different to what is so. And even when you educate them on what is so they tend to ignore it – they were blind to it for a very good reason.
In short,the scientifically correct thing to do is to be skeptical about what people say: you simply cannot count on human beings to have accurate insights into themselves or their behaviour. And you cannot count on them to tell the ‘truth’ as it shows up for them if their ‘social identity’ is at stake.
What is our relationship to price?
Take a look at what is happening on the high street. We go and try out products and get advice in stores and then go home and buy it online because we can get the same product cheaper. Is this why so many stores have closed in the UK and why high streets are littered with empty or boarded up shops? Remember Gateway? The online PC seller who opened stores and designed/delivered a great shopping experience? It ended up closing the stores. Why? Consumers tuned up at the stores got great advice and then they went home and bought online from Dell because Dell was cheaper. What was the fear with the internet? Ease of finding/comparing prices. Why? Because it would enable buyers to buy from the cheapest seller. Why do offline retailers fear smartphones? Because they enable shoppers to compare prices and either buy it online (cheaper) or head for a store down the street that supplies the same product at a cheaper price.
Look at Ryanair and Easyjet – these low cost airlines exist because they have come up with a low price value proposition for air travel that speaks to people whose first and foremost requirement is price – cheap. Look at IKEA – it had done the same for furniture. Then there is WalMart in the USA and Matalan in the UK – doing very well by selling merchandise at value prices. In short these players are doing well because they are playing the price card well.
Price can also be an indicator or quality and thus assuage our concerns about being swindled/making the wrong choice. For example, experiments show that if you have a high end product and a low end product then you can do better by introducing a ‘in between product’ in terms of price. When you do that what happens? You make more money because you help people to buy. Most people will buy the ‘in between’ priced product – these people fear buying the ‘cheap’ products (quality concerns) and are not up for buying the top priced product. Note: it is essential that the shoppers is uncertain about the quality of the products for this behaviour to show up.
What is my point of view on Price?
I say that price does matter especially in the current economic climate. We are all sensitive to price – our sensitivity depends on our sense of our financial well being. It depends on current savings, current income and how we see the future. If our income/savings are low then we will be price sensitive. Last summer I spent some time in the New Forest and in particular in a locale where only the rich can afford to live – property price are high. Yet, I was shocked to see busy ‘cheap stores’ nestled in amongst the expensive stores. Then I got that there are plenty of old folks who have retire in this locale. They have used their savings to buy their homes and their incomes are limited and so they use the ‘cheap’ stores. Finally, the future matters, if the future looks bleak then we are more price sensitive than if the future looks bright.
I say that we will not willingly pay more than we have to for the same product if all things are equal. A great example of this is insurance – most people buy on price as they assume that all companies, all policies are alike. Only those that have made a claim, become wise to and factor in what the policy covers and the claims experience. That means that if store A wants to charge us more than Store B for an identical product then the people at store A have to invent differences and communicate these differences so that the customer can justify paying the higher price.
The central challenge of business continues to be inventing differences – real and imagined – so as to get the customer to pay a higher price than s/he would otherwise pay. The factors that companies have to play with are: product and product development; marketing and the art/science of impression/perception management (notice the interest in neuroscience and neuromarketing); service (not the function called Customer Services) and in its broadest/modern sense Customer Experience; and business model design – what you charge for, how you charge…. Apple does it through great products. Zappos does it through great service. Amazon does it through the ease of the purchasing process. USAA does it through the ‘community’ and ‘integrity’ and ‘service’. Zane’s Cycles does it through the customer experience and ‘community’………
Put differently, the justification for investments in marketing, in service, in the customer experience are based on counteracting the buyers propensity to buy on price if all things are equal. That means that the purpose of marketing, service, customer experience is to ensure that all things are not equal in the minds of buyers. Manipulating perceptions – the role of marketing – used to be enough because only marketer had access to media. Media exists to shape minds – always. Marketing no longer works that well due to the democratisation of voice. Which is why there is pressure to actually be different: stand out products; stand out service; stand out customer experience. This requires a fundamental change in organisational behaviour: investments have to move from marketing (impression management) to the product and/or the operations that enable buyers to buy, own and use the product. Few organisations have made that shift in priorities and spending. Which is why so much customer talk is simply empty talk. Now compare that with the companies that stand out in terms of product-service-customer experience: do you notice that they don’t spend anywhere near as much on marketing as their competitors?
What is the good news? Whilst price matters it is not the only thing matters. Our dignity matters to us - we are selves who are aware of ourselves and who are driven to relate to ourselves as worthy/important/as mattering. And this need is as important as the need for a ‘good deal’. As such this provides an opening for organisations who honour our need for validation, for dignity, for wanting to feel there are good guys out there and that we live in a ‘good’ world. Which is why companies like Zappos and Zane’s Cycles are doing well – they charge premium prices in turn for honouring us ‘as the best of ourselves’ . And enough of us are willing to pay the premium price and talk about these companies as if they are our friends. Because they show up for as being our friends. Amongst friends, price is not the most important thing, it is trust, it is looking after one another, it is acting equitably/fairly. It is giving a helping hand now, in the full knowledge that our friend will be there when we need that hand in return. As and when that expectation is violated by our friend/s then we speak out – think Netflix.
The heart of strategic thinking is difference, few choose to be different
The heart of strategic thinking is difference. In order for you to act strategically you have to have a particular foundation in place. What is this foundation? It is an existential quality you cannot buy it, yet you can choose to be it. Be what? Be courageous: the willingness to leave the herd, create/follow your own path, be ok with the fear/uncertainty/doubt and criticism.
Few, in big business, choose courage over security. Which is why for all the talk of innovation, innovation is rare, an exception, in big business. Having given into and being gripped by the need for security, the Tops and Middles, in big business, love ‘proven’ formulas pushed by brand name gurus and consultancies. The interesting thing about formulas is that they are available to everyone and if they catch fire they make you/your business the same as every other business. That is the very opposite of what strategic thinking and innovation is about.
Meet Ling Valentine who is different and built a successful business on this difference
Ling Valentine has built a successful online business (LingsCars.com) by daring to be different, breaking the rules. You are confronted with that difference as soon as you hit her website. In a world of blandness the LingsCars.com website oozes personality – Ling’s personality. And as a visitor you either love this website or hate it. Before you read further go and check out the LingsCars.com website.
You either liked it or hated it? If you liked it then great because Ling’s focus is on ‘selling you a car’. If you hated it then that is also great by Ling. Ling doesn’t want you – you are boring – she wants people with a personality who are going to be a good fit with Ling and the way that she does business. How is this working out? As she says on her website “You can trust me! ….. in 2010 I rented out over £35milion of cars (RRP)”. It occurs to me that it is working out great.
What can we learn from Ling and LingCars.com?
Use the principle of ‘impute’ to attract the right people to you and drive the others away
One of the key lessons that Steve Jobs learned from Mike Markkula was that of ‘impute’. It is clear that Ling is practicising ‘impute’ powerfully through the design of here homepage. And thus narrowing down visitors to those that are a good fit for her business. Put differently the design of the website is so bad that it is great at selecting the visitors who find this bad to be great! Notice how the design conveys both Ling’s fun personality and comes across as ‘cheap’ thus living the promise of ‘cheap cars’.
Here is the bit that is really hard for big business: you have to turn away , filter out, the ‘wrong’ customers so that you can design and deliver the value proposition and customer experience that shows up as great, the best, for the ‘right’ customers – the ones that you are targeting.
Focus on the one or two domains that matter – the difference that makes a difference
Did you notice Ling’s focus on LingsCars.com? Did it scream out at you? Yes, it’s selling. Ling is focussed on selling you a car. There are plenty of offers and sales messages on the home page. Did you notice the livechat? What you may not know is that Ling and her small team don’t necessarily wait for visitors to reach out to them, they reach out to customers and lead them through the buying process helping them to buy.
Now compare that with other websites. The key question that most websites fail to answer well is this one: what is the fundamental purpose of this website? As a result most websites end up being a ‘dog’s dinner’ of objectives and functionality – every powerful group in the business wants a say and real-estate on the website particularly the home page.
Educate customers and openly/effectively address the barriers (skepticism) to buying
As I spelled out in this post if people are hanging out at your website they clearly have a need and think you can help them with that need. So you do not have to sell to them. You have to help them to buy. That means getting that people have to overcome concerns-worries-fear before they will purchase from you.
Leasing a car is a big deal and Ling understands this. Importantly, she acts on this understanding – you’d be amazed at how many Tops/Middles fail to act as if insight is enough in itself. LingsCars.comaddresses the worries-concerns about leasing a car head on. How? By being upfront about all the charges thus spelling out the total cost. By explaining the charges – why they are there, what they cover. In short, she addresses the skepticism through education and transparency. Which builds trust – it occurs to me that she is practicing ‘Extreme Trust‘. This is the opposite of what her competitors do. Notice the difference: Ling is not claiming to be different (marketing/PR) she is being different!
Want to learn more about Ling and LingCars?
Ling giving the keynote presentation at the Future of Digital Marketing 2012:
In an earlier post in which I shared my take on an informal discussion that took place between 10 – 12 customer oriented / customer centred gurus, authors, consultants …….. In these follow-up posts I want to address/respond to some of the points that raised in the comments to that post and to this post by Steve Towers on a customer focus and Ryanair.
Colin Shaw: customer-centricity is essentially a state of mind
Colin Shaw asserts that customer-centricity is a state of mind. This is what he writes (bolding is my work):
“Customer Centricity for me doesn’t mean you give the Customer everything they want. We have always thought Customer centricity is about how you are ‘orientated. For example if your boss asks you to work late, if you are family orientated you would say ‘no I need to get home and see the family’. If you are career orientated you would say ‘you are happy to work late’. Therefore with the same set of circumstances, dependent on your orientation, you make a different decision. The same thus applies with decisions that affect a Customer. Thus Customer centricity is a state of mind…”
Notice that Colin leaves aside the troublesome issue of what kind of ‘state of mind’ it is. Is it a ‘state of mind’ where you use your armoury to exploit the weaknesses of your customers to make money (extraction)? Is it the ‘state of mind’ where you use your knowledge/expertise/ resources to create genuine value for customers (do the jobs they want done.treat them the way they want to be treated) and have put in place a business model that allows you to get your fair share of the value that you create? Is it some ‘state of mind’?
I will come back to this central point at the end of the post. First I want to deal with the widespread belief – though not spoken bluntly – that it is naive to think that you can act generously, do the right thing by customers, to treat them fairly.
Customer-centricity does not require your business to be a ‘patsy’
Does any serious thinker assert that customer-centricity involves/requires that the organisation give the Customer everything that he wants? No. If a customer bought an economy ticket and then insisted on sitting in first class then I suspect that all of us would say that the airline has the right to insist that the customer take his seat in economy or pay the upgrade fee if there is a free seat in first class. Let’s take government, must the government let the Customer not pay his taxes because he does not want to? No, I say that the true mark of customer-centricity in this case is ensuring that the everyone who is obliged to pay taxes does so – the right amount at the right time. To let some people get away with not paying taxes is to be ‘not customer-centric’ as it penalises all the Customers who do pay taxes.
Let’s address another point that is related to this point: the fear that customers will act unreasonably and bleed the company dry if the company acts generously towards even a few customers. Is this a realistic fear? Allow me to share with you some personal stories and examples of companies that do well by being generous towards their customers.
a) A car with four bald tyres, the owner doesn’t have the money to replace them
My brother runs an automotive business – sales, servicing, valeting – and one day a young woman came in and left her car to be serviced. He did the service and in the process noticed that all four of the tyres needed to be replaced – they were worn out and under the legal limit. When the young woman came to pick up her care he showed her the tyres and told her that they needed replacing. She agreed and told him that she did not have the money to get them replaced. She paid him what she owed for the service and was about to drive away. My brother asked her to stop and then got busy replacing the tyres – all the time this woman was telling him she could not pay him. When he was finished he told her that the tyres wer free of charge.
This young woman could not believe what had happened and asked him why he had done what he had done. He told her that he noticed two baby seats in the car and so it was clear that she was a mother and responsible for 3 lives when she was driving that car. And given that he was not willing to let her drive a car with bald tyres. “This is what I would do for my sister”. This young woman drove away in tears.
The next day this young woman turned up at his garage and insisted on paying him for the tyres. When she would not take “No” for an answer my brother took her money and asked her where she had got the money from. The young woman told him that she had borrowed the money from her mother. He asked her why she had done that? She told him that she had driven away in gratitude and felt an enormous pressure to repay his kindness, his generosity.
How does this story end? This act of genuine kindness has resulted in my brother getting more business. How through ‘word of mouth’: people talk and this young woman talked with her family, her friends and her work colleagues and some of these people she knew started using my brother to get their cars serviced and buy ‘new’ cars.
b) Try out these cars and take the one that you like
A middle aged man bought a used car from my brother. He looked it over, he drove it, he asked questions and my brother spelled out what was so about the car. Several days later this chap rang up my brother to complain – something big had failed in the car and he was not happy. My bother asked this man to come over and see him and he did. My brother looked over at the car and agreed with the man – that this should not have happened. This took the man by surprising as he was expecting a ‘fight’. “What would you like me to do?”. The middle aged man responded “Fix it and give me a ring when it’s ready.”
At this point my brother showed this chap six cars and invited him to look them over, try them out and pick one. Why? The repairs on the man’s car would take some time and cost a considerable amount of money – it was simply not economical to repair the car. The man was delighted, tried out several cars and picked one. What did he say when he was leaving? “I was expecting that you would be like all the others. I was expecting a fight. Instead you listened to me and did right by me. I won’t forget.” What happened?
This middle aged man became a loyal customer. He came back and bought a car for his wife and later one for his daughter. Guess who services these cars? My brother does.
Notice: it was possible to take a course of action that worked for the customer and for my brother. Let me share with you an important fact. My brother has to be more ruthless than any big business. Why? Because his is a small business – it involves him, his partner and two employees. He does not have the luxury of a big bank account.
c) Treat me badly the first time then shame on you, treat me badly the second time and then shame on me!
Robert Axelrod in the Evolution of Cooperation shows that in tournament of tournament where many algorithms were playing with/against each other the best performing algorithm was/is ‘Tit for Tat’. That is to to say the optimal ‘strategy’ for interacting with others is as follows: start out by trusting/cooperating and then reciprocate whatever the other party does.
One day a middle aged woman came to have her car serviced. When she came at the end of the day to pick up the car she was not able to pay for it: she claimed that she had left her purse at home. My brother told her that it was not a problem and that she could come back and pay him the next day. So she drove off, happily, without paying and then didn’t come back to settle her bill. At least not for some six months.
Six months later this woman turned up at my brothers garage for work on her car. My brother remembered her and the unkept promise. He reminded her that she had failed to keep her promise. And he refused to work on her car until the bill was settled and she paid in advance for the work. She made excuses (she had forgotten) and promised to pay at the end of the day – for everything. My brother refused. She left. My brother told everyone of his contacts in the car business about this woman. Those that do know her or know of her refuse to do any work unless they are paid in advance.
Over the last eight years this is the only time, the only customer, who has taken advantage of my brother’s way of doing business: treat customers the same way that you would treat your mother, father, brother, sister and then ruthlessly apply ‘Tit for Tat’.
d) Zane’s Cycles and the lifetime service guarantee
In his book ‘Reinventing the Wheel’ Chris Zane share how he outmanoeuvred his formidable competition and built a brand and a successful business by doing something totally unheard of in the cycle business: offering every customer a lifetime service guarantee. What does this look like?
“… anyone who buys a bike from us can bring the bike back in for any needed tune-ups and repairs that result from everyday riding wear and tear for the entire life of the bike. When we started the program back in 1995, opinion was split about it: our customers absolutely fell in love with it although my competitors and supposed experts were convinced it was going to lead me into bankruptcy.”
Caution: before you go out and offer a lifetime service guarantee apply the same rigor in analysis and operations that Chris did to be confident that is is a winning proposition rather than one that does lead to bankruptcy.
Incidentally, Zane Cycles is not the only business that does well by doing right by customers. Another such business is Zappos.
Customer-Centricity is an orientation towards customers, but what kind of orientation?
Back to Colin and his perspective: customer-centricity is an orientation towards customers:
“We have always thought Customer centricity is about how you are ‘orientated’. For example if your boss asks you to work late, if you are family orientated you would say ‘no I need to get home and see the family’. If you are career orientated you would say ‘you are happy to work late’…..”
Let’s grapple with this and see how this measures up. The behavioural school of economics (‘heuristics and biases) says that human beings have certain way of being in the world that leaves them open to taking courses of action that are not in their best interests. This is illustrated in depth by Daniel Kahneman in his book ‘Thinking fast and slow’. In the book ‘Nudge’, Richard Thaler and Cass Sunstein show how the ‘choice architecture’ – design/framing of choices – has a huge effect on human decisions and behaviour. This leads to an interesting question and the heart of the ‘customer-centricity’ question as I see it.
Let’s imagine that you are customer oriented per Colin’s definition and you study the latest research into human decision making and behaviour. You also get to know your customers in detail: wants, needs, decision making, behaviours, foibles ……. Now you are fully armed with all the insight that you need to design the ‘choice architecture. And you are confronted with a choice: to design the ‘choice architecture’ so that you can make money by exploiting the weaknesses of your customers or design the choice architecture such that you help your customers to make the best choices for themselves? Example: mobile companies and plan/tariffs – do you make it so that your customers will pick plans/tariffs that are not right for them and make you money or do you genuinely strive to help your customers make the right choice for them? Another example: health insurance plans.
As I see it this is where Colin and many other Customer gurus are silent. Some are not silent at all, they say that the whole point of all the Customer investments is to get information that allows you, the company, to ’tilt the table’ in your favour.
I am not in agreement with this point of view. It strikes me as the same old wolf just that now he is disguised in sheep’s clothing because the little pigs got wise to the wolf. What do you say?