Wednesday, March 22, 2017

Experiential Competition

In an environment of intense competition, customers flock to providers who offer the best value proposition.  For manufacturers, the means of competition is a choice between offering better quality and lower price to tailor the features to the needs of a given market segment and provide a desirable solution at an affordable or advantageous price.   For retailers, the means of competition is a selection of product offerings that appeal to their chosen segment.

The constraints of reality, however, lead to commoditization where customer needs are similar.  Manufacturers will produce and retailers will offer a product with the same features and qualities at roughly the same price as their competitors.   The variations will be eroded by competitive pressure to gain market share by imitating the choices made by other vendors.

As a result, both quality and price gravitate toward commoditization and competitors must find more subjective an idiosyncratic means of competing for their desired market segments.  In practice, the means of competition become aligned with customer and consumer experience.

The term “experience” bas become nebulous, but is understandable in the reductive sense: it is about reducing the friction of interactions surrounding the product (obtaining and using it) while increasing the non-functional benefits of consumption (psychological and social factors).   Distinction is easy, but distinction in a manner that is relevant to the interests of a specific market is exceedingly difficult.  It requires more speculation, and is more difficult to address – because while it is simple to observe where customers are experiencing pain, it is difficult to imagine opportunities that might delight them.

Where experience becomes the distinguishing factor, the features and price of the product seem irrelevant – though in truth they are highly relevant to the market and compromising upon them will have disastrous consequences.   If the core value proposition is neglected or violated, the experiential components will be deemed irrelevant and the product will not succeed.   But so long as they can be preserved to the standard defined by the commodity, they are of little importance in winning consumer preference.

This shift toward experience-driven competition has been disconcerting to suppliers because it implicitly shifts control of the market from the producer to the consumer in a far more obvious way.  That is, consumers were always in control, as the ability to “vote” with their buying dollars is the measurement of the success to any decisions made internally within the supplier.   Hence the ability to “sell” is gained from proactive control, but from reactive accommodation.

In that sense, the notion of experience can be recognized as an opportunity for suppliers to engage in a more passive and receptive manner with their buyers, which reflects the manner in which this engagement should have been considered all along.   But the relevance of these decisions to the success of the firm has become more explicit and distinct.

Wednesday, March 15, 2017

Dilemmas in Consumer Motivation

I’ve had some interesting discussions about a recent post I did about the “Core Motivation of Consumer Behavior” that generally on the topic of the source of that motivation.    I’m not sure that this shapes up into a single topic, more of a meandering about related topics – so what follows may be a bit disjointed.  That said, here goes:

I previously mentioned that all consumer behavior is the result of irritation with the status quo: either the customer seeks to defend the status quo against a threat that has arisen or the customer seeks to improve his status quo because he has become dissatisfied with things as they are.   The nature and degree of this irritation must be assessed to decide whether a given product (good or service) is likely to have the desired impact and whether the cost of the product (price and effort) is less than the cost of taking no action.   This remains true, and is a very basic concept.

The first dilemma is that irritation is entirely subjective: a condition that one person finds irritating may be entirely innocuous to another.   Some people are particularly sensitive to some stimuli.

The second dilemma is that the evaluation of benefit is also subjective: how much it is worth to an individual to achieve a certain goal is difficult to quantify, particularly where the emotional costs are unknown.

A third dilemma is that the evaluation of cost is subjective:  while the money-cost of something is mostly objective (though it is subjectively evaluated by the individual’s budget) the effort-cost of acquisition and use is entirely subjective.

A fourth dilemma is the variance in the assessment of the effectiveness and efficiency of a solution:  until the solution has been purchased and implemented it is not known whether it will be at all effective in solving the problem, so in advance we can only speak about the degree to which a prospect believes a solution will be effective, which is also subjective.

A fifth dilemma is the lack of information about the universe of a given customer’s need: people have more than one problem, and the value of solving a problem is assessed in the context of their entire portfolio of concerns, hence the same problem may be prioritized differently by each customer.

All of these dilemmas make it difficult to assess the motivation of customers, both individually or in aggregate.  And this may be the reason that many seem to simply want to ignore core motivation and begin at the point where the customer has committed to purchasing and has decided on the cost he is willing to undertake.   To do so is to act without knowledge, hoping for the best.   And this is not a very good approach.

Wednesday, March 8, 2017

Profit as a Byproduct of Value

If it is maintained that “the love of money is the root of all kinds of evil,” then the pursuit of profit for it’s own sake is the cause of a myriad of dysfunctions of the commercial system.   And there is ample support for that premise: the misconduct and abuse that occurs on a grand scale is invariably the result of a singular focus on profit (increased revenue and decreased expenses) to the exclusion of all other concerns.

Put in its proper perspective, money is simply a tool used to store and transfer value, and this it follows that the creation of profit is merely a byproduct of creating more value than was consumed in the act of creation, and this in turn becomes the premise for a healthier and more productive outcome, and one which was at the onset the purpose of most commercial undertakings.

Wealth, a temporary incarnation that is derived from profit, is then a representation of the creation of value: those who have wealth have earned it by contributing value for which they have been compensated by the beneficiaries of their undertaking.   And in this sense, wealth is not dysfunctional, nor detrimental in the societal sense.  It is, in smaller words, an indication of having done good, and of having created more benefit for others than one has consumed for oneself.

In this sense, profit is a byproduct of the value that has been created: the firm does not generate a profit by doing nothing else, but finds itself profitable by virtue of the value-creating operations it has established and perpetuated.

Or at least, this is a possible route to wealth, the alternate being to take value without providing greater value in return, which can only be successful in the short term because it depends on other stakeholders to voluntarily participate in an exchange that is to their detriment.   But once such an operation has exhausted the supply of ignorance that would lead another party to agree to such an exchange, it cannot perpetuate.

And it’s in this sense that an individual or organization that seeks profit for the sake of profit is generally successful for a short amount of time – unless it accidentally ends up creating greater value than it consumes, which is possible though highly unlikely.

Wednesday, March 1, 2017

How (not) to Crush Innovation

I was drawn to a discussion that was intended to be about fostering innovation – but which, like many, degenerated quickly into the typical litany of complaints about the barriers to innovation.   But there is some value in analyzing that, as removing barriers will achieve some progress and considering the reasoning behind the complaint (and its possible solution) would suggest a good practice that may not foster innovation, but will at least refrain from smothering it.

And so, I’ve taken some notes and added some thoughts.  This is likely not a comprehensive or systematic list, just an analysis of a conversation such as it was, but it seems like good working material nonetheless:

Innovation initiatives do not have a clear goal.

A group of people is assembled for the purpose of “being innovative” without a clear sense of the problem they are meant to solve or the goal they are meant to achieve.

Solution: Set a clear and well-articulated goal for innovation initiatives.

Innovation is used for efficiency improvements.

Rather than seeking a novel solution to a problem, the innovation initiative is geared to preserve business as usual while making process or technical improvements.

Solution: Remove constraints to solving the problem or consider a different approach.

Innovation is done by committee.

While many can contribute knowledge to an innovation effort, having large groups is poisonous to creativity: they tend to discuss matters superficially and seek to build consensus rather than exploring unusual ideas.  The result is groupthink and preservation of the status quo.

Solution: Separate the task of information gathering from the process of innovation and conduct innovation in smaller groups.

Innovation is squelched by institutionalized employees.

Long-tenured employees have a great deal of subject-matter expertise, but also a greater level of devotion to the status quo and are defensive if past decisions.   Newcomers with truly novel ideas area quickly intimidated or bullied into silence.

Solution: Moderate innovation sessions to ensure that every idea gets a fair hearing and every participant is able to contribute.

Innovation is squelched by risk-averse administrators.

Any new idea is perceived as being “too risky” to pursue, so the innovation team becomes reluctant to stray too far from the well-worn path.

Solution: Separate the evaluation process from the innovation process. 

Innovation is time-boxed.

While there is a need to come to a conclusion, innovation efforts that are too constrained are unable to spend sufficient time in the information gathering and brainstorming processes.  To innovate quickly often means leaping on the first idea.

Solution: Provide ample time for an innovation effort and set a goal of coming up with several different solutions before moving forward.  Ensure there is sufficient time for each activity.

The “innovation space” lacks quiet and solitude

Collaboration and information sharing are important parts of innovation, but coming up with a solution often requires time to think and reflect outside of a circus atmosphere.

Solution: Schedule both collaboration and incubation periods during an innovation effort.

Innovation efforts become competitive and contentious

In the struggle to have “my idea” implemented, participants in innovation efforts can be competitive with one another, attempting to silence others.

Solution: Moderate to reduce competition among participants, reward team rather than individual efforts, and eliminate the presence of supervisors and management from parts of the process where their presence might encourage participants to attempt to show off.

Innovation is relentless and participants burn out

The constant need to innovate creates a mental overload.  While many creative people will labor long hours when they are on the trail of an idea, long hours do not make people creative and often create weariness and drain enthusiasm.

Solution: Where intense thought and concentration are required, schedule short sessions with ample breaks.   Consider returning innovators to routine duties for a period between innovation initiatives.