Why big data and analytics will not make you the next Apple

Are  ‘big data’ and ‘analytics’ the latest fads?

In my view there is a little too much hype around ‘big data’ and the power of analytics to drive business growth and profitability.  Can ‘big data’ and ‘analytics’ help you improve operations?  Yes – they can help you better staff and manage your call centre  or improve your supply chain or target your marketing better.   Will ‘big data’ and analytics make you the next Apple?  Highly unlikely.  Why does that matter?  Because whilst you are busy optimising operations someone else is inventing a future in which your optimised operations become redundant: think music, think publishing, think mobile phones.  Let’s explore this further.

What are the root causes?

Years ago when I worked in the business planning & analysis team of a brand name drinks company I noticed something interesting.   Managers could drill down and find out which particular markets had failed to make their numbers.  Great – we know which business unit is underperforming.  But why is this unit doing better or worse than expected?  This is where the fun started.  First, there were almost as many opinions as the people we asked.  Second, there was no easy to work out whether the answers given by local management held any resemblance to the ‘truth’.  When I dug further I found out that local management did not know why they had failed to make their numbers (revenues).  When they were asked, the local managers simply came up with the most plausible story.  So month end because a ritual where HQ asked questions and the local managers invented plausible stories.

Lesson 1:  For any complex event there are a multitude of plausible answers and working out the ‘real reason’ is notoriously difficult.

Lesson 2:  Without a sound grasp of the root causes it is difficult to formulate a sensible course of action to address the situation.

What do we do about it?

Lets assume that you have all the data and analysis has been done.  You know there is a problem.  What do you do about it?  Is it easy to get all the actors – who have to play ball – to agree on the course of action to take?  In my experience the answer is no: the more ‘strategic’ the issue at hand the more difficult it is to come to an agreement on a sensible course of action.  Let’s take a look at the recent banking crisis.  Did all the main actors (the western economies) come to a consensus on what course of action to take?  No.  Just take a look at the Euro crisis: why is it that the leaders of the EU cannot agree on the right course of action?  First, because different people have different ideas about what constitutes the right course of action.  Second, the right course of action from an objective perspective may simply not be viable from a political perspective.

Lesson 3: The more that is at stake the harder it is to get all the actors to agree to a single course of action and then act to play their part and execute that course of action

Lesson 4: If you are unable to act decisively and as a single unit then all the data, analysis and insight is worthless

Does it really tell you what you need to know to thrive in the future?

Larry Freed has written an article that resonates with me.  He points out that you need to be clear on what you know and what you do not know.  I’d say that you need to be clear about what data and analytics is telling you and what it is not telling you.  Larry, talking about a website, asks do you know:

  • Why visitors come to your site (to research, to buy, to complete a transaction, to get product support, to learn more about your company before interacting with you through another touch point, etc.)?
  • What influences visits to your site (a referral, a social media interaction, a failure to resolve an issue with a call centre, an advertisement, a news story, a previous affinity with your brand, etc.) and which customer acquisition sources result in traffic that is the mostly likely to convert?
  • What visitors need from your website? How needs differ by population segment or other segmentation that is useful to your business—perhaps first-time vs. repeat visitors, heavy users vs. light users, etc.?
  • What visitors expect from your website? Do men and women have the same expectations? Old and young? Do people who arrived as a result of a Google ad have the same expectations as those who arrived because of a TV ad?
  • What channel your visitors prefer, and are there ways you can influence that preference so they frequent less costly, more profitable channels?
  • How customers view your business, compared to the way non-customers view your business, relative to your competition?
  • How your customer profiles and expectations change in response to market and broader economic conditions? And what, if anything, you need to change as a result?”

Colin Shaw in a recent post makes the same point in a different way.  Here are some relevent extracts from his post:

“Google and Facebook, as Eli Pariser discusses as a part of TED, are engaged in the process of quantifying preferences from the timing and frequency of online clicks, and using this information to alter web content. The stated goal of this practice is to “personalize” the web experience.

A lesson gleaned from Dell’s 1990s laptop boom illustrates the point that preference and value are two different things. Dell let its customers customize all aspects of their computer’s hardware – from screen size to keyboards to RAM – everything but color. Nobody thought to customize color, because a laptop was supposed to be black or gray. However, when color laptops were introduced, sales skyrocketed and we all learned that color was indeed an important factor.

Imagine if Google and Facebook had monitored “clicks.” They would infer that because customers did not indicate a laptop color preference, it doesn’t drive value and is therefore irrelevant.”

Lesson 5: there is an assumption behind all predictive analytics and that is “all things being equal” – that is to say that predictive analytics assumes that the future will be a replay of the past.

Lesson 6: human behaviour is shaped by the ‘structures’ in which human beings are embedded, change the structure and you are likely to see human beings change their behaviour. Think about how the recession (e.g. job losses) have changed the shopping habits of consumers in the western economies.

Why won’t big data and analytics make you into the next Apple?

Apple was busy creating a new future (a break from the past) rather than exploiting the past.  If you take a look at the US automotive industry the big US automakers were busy building and selling gas guzzlers because the analytics showed that these were the cars that Americans were buying.  At the same time Toyota was busy living into a very different vision of the future: hybrid cars and electric cars.   Who was right?  According to the data and the analytics it was the US automakers.  What would you say now?  Toyota?

If you are not inventing the future you can still prosper by picking up the weak signals that point towards a new trend.  I once asked Bob Greenberg (R/GA) the secret of his success and he told me it was his ability to see these trends and act upon them before others.  You might imagine that analytics might help you to spot trends.  My experience of traditional analytics is that the modelers do all they can to strip out the outliers and create a normal distribution so that the maths works – in doing that they filter out the ‘weak signals’ that point towards these trends.

Perhaps it is best to end by remembering what Colin Shaw points out: how would analytics have disclosed that customers wanted to customise the colour of their laptops and that once this option was made available then Dell’s laptop sales would surge.

What do you think?  If I have it wrong then please do educate me.

Howard Schultz/Starbucks: 18 insights and lessons from a customer experience master

It is worth learning from the masters

You may have noticed that I am an avid student of all things customer.  Over the last few months I have been reading Onward by Howard Schultz and I have found it to be an insightful and inspiring read – I recommend you buy it and read it!

Perhaps, I love the book because it validates my point of view (bias) on customer-centricity and customer experience – as a philosophy rather than a strategy or simply tactics (I’ll get into that distinction in a follow up post).  For today I simply want to share with you some stuff in the book that resonated with me in the hope that you may find it useful too (any stuff in bold is my doing).

18 insights / lessons from Howard Schultz

“A well built brand is the culmination of intangibles that do not directly flow to the revenue or profitability of a company, but contribute to its texture. Forsaking them can take a subtle, collective toll.” (p23)

“I always say that Starbucks is at its best when we are creating enduring relationships and personal connections. It is the essence of our brand, but not simple to achieve. Many layers go into eliciting such an emotional response.  Starbucks is intensely personal.” (p23)

“Unlike other brands, Starbucks was not built through marketing and traditional advertising.  We succeed by creating and experience that comes to life, in large part, because of how we treat our people, how we treat our farmers, our customers, and how we give back to the communities.  Inside the company, there had always been an unspoken level of trust….” (p27)

“I suggested something to the group as the ideas began to percolate. “The only filters to our thinking should be: Will it make our people proud? Will it make the customer experience better? And will it enhance Starbucks in the minds and hearts of our customers?”” (p75)

In my head I knew that no silver bullet would transform Starbucks overnight, but in my heart I was on the lookout for a big idea – what would be the next Frappucino, the most successful new product in Starbucks’ history?” (p75)

“But there was an even more important reason that I chose to eliminate comps from our quarterly reporting. They were a dangerous enemy in the battle to transform the company…….The fruits of this comp effect could be seen in seemingly small details. Once I walked into a store and was appalled by the proliferation of stuffed animals for sale.  “What is this?”  I asked the store manager in frustration…..The manager didn’t blink. “They’re great for incremental sales and have a big gross margin.” This was the type of mentality that had become pervasive. And dangerous.” (p89)

“In any well run retail business, there is, by definition, a maniacal focus on details……..In 2008 I felt very strongly that many of us had lost our attention to the details of our business…..Like a doctor who measures a patient’s height and weight every year without checking blood pressure without checking blood pressure or heart rate, Starbucks was not diagnosing itself at a level of detail that would help ensure its long-term health….We thought in terms of millions of customers and thousands of stores instead of one customer, one partner and one coffee at a time. We forgot that “ones” add up.” (p97

Their instruction at this “seeing” exercise was to consider each retail experience not as a merchant or an operator, but from the point of view of the customer. What did they witness, smell and hear? What non-verbal cues enhanced the experience? ……That journey helped put our leaders back in customers’ shoes, providing an enlightening and for some emotional exercise that underscored how important it was to put the customer at the centre of every meeting and business decision.” (p107)

“Starbucks coffee is exceptional, yes, but emotional connection is our true value proposition.  This is a subtle concept, often too subtle for many businesspeople to replicate or cynics to appreciate. Where is emotion’s return on investment? they want to know. To me, the answer is clear: When partners like Sandie feel proud of our company – because of their trust in the company, because of our values, because of how they are treated, because of how they treat others, because of our ethical practices – they willingly elevate the experience of each other and customers, one cup at a time.” (p115)

I have always believed that innovation is about rethinking the nature of relationships, not just rethinking products and as Michael explained how Ideastorm was helping Dell listen to customers and improv its products and services…..Thee was definately something here for Starbucks.  A chance to reconnect with customers we had lost touch with.” (p120)

“..one of the most important pieces of advice I’d heard upon my return…….”Protect and preserve your core customers.”…..”The cost of losing your core customers and trying to get them back in a down economy will be much greater than the cost of investing in them and trying to keep them.“” (p129)

“Some corporations are built, or rebuilt, on data driven business plans and hired guns with formulaic strategies. They may succeed, but they lack soul.  Starbucks is, by its founding nature, different……..transformation was not only about tightening nuts and boltsIf we did not also feel, if we did not have conviction in our values and believe that we really were in the business of human connection – on our farms, in our offices, in our stores, in our communities – then we were doomed.  We had to preserve our humanity.” (p131)

“But what many or our people had in spirit they lacked in business acumen and tools…….We also observed too much waste…….Something subtler was being wasted: our people’s time and energy……The fault did not lie with our people in the stores.  They were doing the jobs they had been asked to do with the resources and training they’d been given.  For all the brand’s marketing success, Starbucks needed a more disciplined operations system…..” (p145)

Growth had been a carcinogen. When it became our primary operating principle, it diverted attention from revenue and cost saving opportunities, and we did not effectively manage expenses……..Then as consumers cut their spending, we faced a lethal combination – rising costs and sinking sales – which meant Starbucks economic model was no longer viable.” (p149)

“As I stared at the list of 600, a lesson resonated: Success is not sustainable if it’s defined by how big you become.  Large numbers that once captivated me – 40,000 stores – are not what matter. The only number that matters is “one”. One cup. One customer. One partner. One experience at a time. We had to get back to what mattered most.” (p152)

“Kristen summed up Lean’s benefit well: “We were spending too much of our time fixing moments , but not actually solving problems. But fixing moments, like mopping a dirty floor, only provides short-term satisfaction.  But take the time to understand the problem – like how to keep a floor from getting so dirty in the first place – solves, and maybe eliminates a problem for the long term.”” (p278)

“At it’s core, I believe leadership is about instilling confidence in others..” (p302)

“There are companies that operate huge global networks of retail stores, like us.  Others distribute their products on grocery shelves all over the world, like us.  And a few do an extraordinary job of building emotional connections with their customers, as we have learned to do.” (p311)

My recommendation

Buy the book – it is a great read and has lots of real world lessons and insights.  For most business people it is likely to be a challenge because Starbucks is Starbucks because it is not built on nor operates on conventional business wisdom and practices.

A great example of using Relationship Marketing to deliver a memorable customer experience

On relationship marketing

About ten years ago relationship marketing was in vogue.  Marketing departments were abuzz with the talk and the promise of relationship marketing.  And I noticed Seth Godin’s Permission Marketing in many a marketing department.  Since then the word relationship has been jettisoned and today we are left with customer marketing, customer life-cycle marketing and CRM (marketing).  Why?

I believe that many who started on the path of relationship marketing have collapsed two distinct categories of marketing into one.  In one form of relationship marketing you use marketing to cultivate and grow relationships – the emotional bond between you and your customers. This form of relationship marketing I refer to as Relationship Marketing: it is the real deal – at least in my book.

There is a world of difference between Relationship Marketing and Customer Life-Cycle Marketing

In the second form of relationship marketing you use the ‘relationship’ – the customer life-cycle, the customer journey – to organise and execute your marketing to customers.  This second form of marketing is simply a different, perhaps a cleverer, way of doing direct marketing.  Whilst it may drive up response (because of getting the timing right) it does not necessarily increase the bond between you and your customers – that is to say that it does not strengthen the relationship and increase loyalty.  This form of marketing is best described as Customer Marketing or Customer Life-Cycle Marketing.

It is a shame that so many marketers have settled for Customer Life-Cycle Marketing rather than Relationship Marketing. I get lots of direct mail and I throw most of it away before opening it up.  I am on the Dell database (as I bought a computer from them many years ago) and they continue to send me a catalogue.  When I receive it, I throw it away.  I am a Sky (pay TV) customer and part of their customer marketing database.  So I receive the magazine, I read it and then I put it in the bin.  The magazine does not build any emotional loyalty between us.

Practiced correctly, Relationship Marketing packs an emotional punch, generates a memorable experience and drives up customer engagement and loyalty.  Allow me to share an example with you.

Direct Recruitment: a great example of Relationship Marketing

About two days before my birthday I received some post, one looked like it contained a birthday card so I opened it eagerly.  And this is what I saw:

On touching the card I realised it was a top quality card and I was immersed in trying to figure out which of my considerate friends had been the first one to send me such a fine card.

So I opened up the card and was greeted with a handwritten personal greeting from Sarah Owen who runs the Direct Recruitment agency.  I was surprised and delighted at the same time.  Sarah and I met back in 2007/2008 and each year she sends me a birthday card and each year it comes as surprise. No other company remembers and celebrates my birthday – arguably the most important day of the year for me.

Once I came to grips with my surprise and my delight I noticed the third piece of the card – see below.

This is a great piece of direct marketing:

  • It offers me an opportunity to help a friend;
  • It spells out the benefits for me of helping out a friend; and
  • It compliments me in the very first sentence “..someone as talented as you….”; and
  • The last sentence is a great finish “We really do value your recommendation, so thank you in advance for thinking of us.”

What Impact Did This Have On Me?

Frankly, I feel valued both as a human being and as a professional.  And in return I value Sarah and Direct Recruitment.  More than that I feel indebted to Sarah and I feel a desire to find opportunities to refer people to Direct Recruitment.  I have absolute confidence in their professionalism.  Indeed  I have phoned Sarah to thank her.

The Lesson and the Opportunity

There is a wide open space to deliver knock-out customer experiences for your customers through Relationship Marketing. That means using marketing to build relationships by creating emotionally engaging customer experiences that matter to your customers. How about using special occasions like birthdays, Christmas and anniversaries (first time the customer bought from you)?

So few companies who claim to be customer focused actually take advantage of these opportunities. I wrote a post on that back at Christmas time: “With so much customer focus why am I not drowning in thank you cards?”

Finally, please do remember that there is world of difference between Relationship Marketing (as I have described here) and what too often passes for relationship marketing: Customer Marketing, Customer Life-Cycle marketing and CRM