Thursday, October 11, 2018

Advertising and the Natural Capacity for Attentiveness

Physiology tells us that the human brain is largely identical from one person to the next, buy psychology clearly demonstrates that this organ is used in different ways by different people.   There is some argument over whether slight differences in the biological organ cause some to behave differently from others, or whether this is merely a matter of their upbringing and training – but it is moot, as the brand does not have the ability to raise its customers from childhood, it must confront prospects such as they are.

Some individuals seem to have a natural proclivity to focus their mind on a very specific goal and disregard all the rest of the world.   Some of the greatest inventors and artists have demonstrated this single-mindedness to great ends.   Others seem to be scatter-brained, unable to attend to one thing and constantly hop from one thing to the next, unable to see an idea to completion before something else “pops up” in their minds.

Some individuals can read a book with perfect satisfaction, whereas others consider reading to be intolerable.   Some can focus their minds on reading in a noisy environment, others cannot.  By the same token, some individuals can work in an environment of distraction, giving their attention to a certain subset of stimuli of their choosing, others cannot.

Some individuals can maintain attentiveness to their tasks, and to do what might be considered excellent work even when they are deprived of sleep or even intoxicated.  Others produce horrible work when they are slightly tired or barely intoxicated.

The most sought-after individuals are those with high levels of concentration, who seem to be able to focus their minds when others cannot.  Such men are precious, but such men are rare.  One cannot expect a market to operate as if every prospect can keep pace with the fastest and best, any more than one can yoke horses together and expect the slowest and weakness to keep up with those with unnaturally high strength and stamina – it tends to be the other way around.

In addressing the mass market, a brand may attempt several campaigns that function at different levels of attentiveness – and in general will find that the speed of the least attentive prospect sets the pace of sales.  If they gave as much care to their audiences as they do to their campaigns, realizing that each must be reached within the limit of its natural capacity for attentiveness, they would find that the performance of their campaigns to be as efficient and effective as their targeting.

Thursday, October 4, 2018

Reasonable Expectations

Not every customer expects the best – they know they can’t afford it, and sometimes they just want a basic solution at a cheap price for something that is not that important.  They have reasonable expectations – some might go so far as to say they have low expectations – and delivering something beyond those expectations is not going to impress them.

Moreover, delivering capabilities beyond basic functionally may frustrate and annoy a certain segment of the market.   Those customers who pursue a basic product understand that they are not getting the bells and whistles of  a more expensive model, and this is often the result of careful consideration: the customer knows that the additional functionality comes at additional cost, and has determined that the incremental value of the upgraded version is not worth the incremental price.

For example, consider the customers who choose to shop at a discount merchandiser.   They are well aware that they are not going to get the same level of attention and service as they will in an upscale boutique, but they are also well aware that the exact same product will cost less than half as much because a discount merchandiser spends less on rent, staff, and d├ęcor.  

It is also not necessarily a trade-off of price versus quality: a customer may choose a discount merchandiser for the sake of avoiding the level of “service” that boutiques provide because he finds being constantly “served” by sales associates to be an unpleasant experience.   That which the retailer considers to be a premium is actually undesirable to certain segments of the  market.

As a result, not every firm has to be “the best” at everything – because what is “best” is determined by the customers, and not everyone wants the same things, either from the product experience or the retail experience.   In fact, many of the largest and most successful retail brands are downscale mass-marketers – whereas those that serve the upscale market tend to be smaller, trendier, and more short-lived.

Thursday, September 27, 2018

Employees as Stakeholders

It is a common failing of employers to be entirely self-centered: to seek to accomplish what they want with indifference to the welfare of their employees.    Performance appraisal systems are similarly aligned: employees are given goals based on the needs of the organization and expected to meet them, with no consideration of the employee’s personal motivation.

Particularly in the present day, employment in a specific firm is a choice, and if an employee’s personal needs are not being met, they will leave.  Or they may feel compelled by other factors (a poor job market) to remain with a given organization, but tend to do the very minimum to keep their job until environmental factors change.   And companies that manage their workers in a self-centered and inconsiderate manner find that they are uncompetitive: they are not as efficient or as innovative as firms who manage their people well.

For people, motivation occurs when they perceive the benefit of undertaking an activity is worth the cost and risk associated to it.   Few management systems consider this: the employee’s only motivation is to keep their job, gaining nothing more than they have now, in exchange for an increasing level of exertion.  In time, the balance shifts to the point the individual loses his motivation.

Historically, the motivation for employment was extrinsic – people work to earn a wage – but in the present day, compensation factors less and less into what people consider to be the factors that create job satisfaction.   They are motivated to do something meaningful, to develop skills, to experience growth.  These too can be considered part of their compensation, the benefit they receive from working, and increasingly this compensation is being withheld or even taken away.  

Obviously, something has gone seriously wrong with management in general.   Job dissatisfaction and even hostility toward employers is not something to occurs in rare instances, but has become so pervasive that it is part of the culture.   Everyone hates Monday (the return to work), stories of frustration with superiors and organizations are a staple of casual conversation, and few people have anything positive to say about their working lives.   

The reason is a systemic issue with the priorities of organizations.  The objectives of an organization are generally geared toward the investors, with little consideration of the customer, and even less of the employees.   And when this becomes exaggerated, companies lose the stakeholders whose needs are not served.  This is not, by any means, effective management.


Thursday, September 20, 2018

Design and Experience

If you seek information about design from professional educators, or read the blogs of the unemployed, you will quickly get the sense that design is about art and experience.  A designer crafts objects that give pleasure to those who use them, either through the aesthetic experience of through ease of use and ideally a combination of both.   

None of this is wrong – but neither does it consider why it is important to deliver a pleasurable experience, or more aptly, the importance of the usage experience in the greater context.   It would seem axiomatic that users would prefer a pleasant experience to an unpleasant one (though there are in fact instances where people actually desire an arduous experience, this situation is atypical), the point of using something is rarely to enjoy the user experience, but to achieve an outcome by means of that experience.   

Where the quality of outcome is diminished to facilitate the pleasure of the user experience, then it undermines the purpose of undertaking the task at all.   In this sense, focusing on experience to the detriment of efficiency and effectiveness leads to ultimate failure: we enjoy the process of performing the task, but fail to achieve the outcome for which the task is undertaken – or at best, we achieve an inferior outcome.   In smaller words, design for experience alone results in an easy way to do a poor job.

There are few instances in which experience is the sole reason for undertaking a task – and these are all leisure activities that are done for the pleasure of doing them, not for the sake of achieving a desired outcome.   That is, they are entertainment activities, that have no value after their performance has ended.  Because there is no outcome, or the outcome is entirely unimportant, the experience is all that matters.  But this encompasses very few activities, and those activities are of very little importance.

Here, consider that value is subjective and that each person may seek a different value from the experience he is performing.  One person may play recreational softball because he enjoys the experience of playing, whereas another may play because he wishes to socialize with his teammates and not care about the game at all, and still a third may be seeking for psychological reasons to win the local league championship.   Whether they are ultimately pleased with a game, or the entire season, depends on whether the value they sought was delivered.

And this is where experience must focus on the user rather than the object: to design a solution that provides value, one must research the users to know what value they seek. For some, it is the value of the experience, but for most it will likely be the value of the outcome.   To claim to “design” without knowing what end is to be achieved is contrary to the basic principles of design itself.

Thursday, September 13, 2018

The Consumption Value of Esteem

A generic product is usually consumed for its functional value – it is a means to an end, and the consumption experience is evaluated according to the effectiveness of the product in achieving the desired end.   A branded product, however, is usually consumed for a non-functional reason: the consumer seeks the product for its functional value, but any brand of that product would be equally effective in achieving that functional value – so the choice of brand is for reasons other than functionality.

Once such reason, arguably the most significant, is the esteem of the brand.   To consume a brand is a statement, “I am the kind of person who uses this brand,” and in that sense the brand aligns to the perceived personality of the perceived user (perception being significant in both instances, as few consumers conduct much research to determine the actual personality of the actual users of a given brand).

The most common and easily understood aspect of esteem is in social recognition of conspicuous consumption.  A person consumes a given brand because of the expectations that others will witness this consumption and, in so doing, recognize or at least consider the consumer to be in line with the kind of person that consumes that particular brand.   It is part of their declaration of social identity, whether the identity that they are declaring is actual or desired (as people commonly seek to associate themselves with what they wish to be rather than what they actually are).

A less recognized aspect of esteem is self-esteem, the declaration of one’s own standing to oneself – regardless if the act of consumption is witnessed by others.   The individual consumes the brand not so that others will recognize them, but so that they will recognize themselves – to feel that they are the kind of person that consumes a particular brand, even if no-one is there to witness it.   Brands that are privately consumed, in the home for example, still rely upon this form of esteem.

And while it is generally considered that the desire for esteem is always upward bound, this is not always so: a person of integrity may wish to be identified precisely as they are, and at certain times in history (the present included), there is a certain fashion to nostalgie de la boue, which would cause an individual to adopt a brand of a lower stratum of society.   The three are by no means mutually exclusive, and in fact they can often be witnessed in combination.

Thursday, September 6, 2018

Failing to Accept Failure

While perseverance and tenacity are generally admirable qualities, they can be taken to far – to the point that they become dysfunctional.   In individuals, we can quickly recognize those who have a pathological need to spin their histories to make even their most dismal failures sound like success stories.   In organizations, we can also witness those who insist on propping up unprofitable products and programs for years in spite of the harm that they are doing to the health of the organization as a whole.   Nobody wants to fail, so there is a lack of knowledge, education, and etiquette for failure – except to deny it and keep fighting a losing battle.

Ironically, working in new product development in a change-averse organization has taught me to anticipate failure.   There is seldom much excitement about the prospect of success, and every review and checkpoint that a new idea must go through seems to be based on the presumption that the product will fail – the sponsor must work hard to develop an ironclad case that addresses every imaginable contingency, and those along the approval gantlet can be very creative in imagining contingencies that would cause the product to fail.   As a result, very few new products have been introduced in decades.

But it’s been remarked that there is no such rigor for existing products.   Shall we continue to offer a product or program that has been losing money for years?   The default answer is “of course.”   The decision has already been made, people have already committed, and we have to work hard to make keep a failing product afloat.  How embarrassing it would be for everyone who signed off on that product, and how detrimental to all those whose profession is to support it, if we were now to admit that it is a failure.

And so, the failing product lines trudge on, their expenses compensated for by successful product lines.  The successful product lines do not evolve, and they cannot be competitively priced because their revenue must compensate the firm for the weight of one or more failing products that the firm refuses to abandon.   There is no periodic checkpoint at which an established product must re-prove its merit in the same way (and certainly not to the same level of rigor) as a new product.  There is no sunset plan to elegantly phase out a failing product or program.

The exception to this seems to be when there is a change in management.  A new leader can be objective about standing products and programs – he had no part in their creation, nor in their perpetuation to date, so he can call something a failure without losing face because it was someone else’s work.  Often, this “someone else” is the previous leader, who is already being demonized in his absence.   Even so, this seems to happen less and less in the present day: new leaders enter an organization without making a splash, and barely a ripple, as they perpetuate the old products and programs without many dramatic changes.

And this reflects back on a cultural intolerance of failure – “success or death” rather than admit to having made a mistake, or admit that times have changed and a once-successful product or program has lost its appeal.  The more it happens, the more difficult it is to see perseverance and tenacity as noble qualities when they lead, inexorably, to catastrophic failure instead of success.

Thursday, August 30, 2018

The Need for the Hard Sell

In a conference session about marketing, there was rather a long digression on the difference between selling and offering that seemed to be belaboring the difference in the hard-sell and soft-sell approaches, in favor of the latter.   In the presenter’s mind, the days of hard selling are over and it’s time that all industries switch to a soft sales process.    I cannot disagree more.

Soft selling is a tool, a good tool, and the right tool for most jobs – most, but not all.   The soft sell works when there is a motivated and informed customer, who has accurately recognized and diagnosed his problem, correctly identified the solution (product) he needs to achieve his desired goals.   And while customers today are more informed than the information starved masses prior to digital media, there is a significant difference between “having access” to information and actually “accessing” it – and then understanding and applying it.

For the customer who does not recognize that he has a problem, who has not accurately diagnosed it, who does not feel empowered to solve it, or who does not know the correct way to solve it, hard selling is still necessary.   You cannot simply sit back and wait for the customer to come to you, but must convince the customer that he can and should leverage your product to solve a real problem.   You have to go to him, help him recognize the problem, show him the solution, and make him feel empowered and motivated to act.

All of this can be snake-oil in the wrong hands: making people believe they have problems when they really do not, suggesting your product is a solution when it really is not, and stirring people to action that they really don’t need to take.   It depends on the situation.   And the soft-seller is not immune to unethical selling – when he passively allows a deluded person to purchase his product and shrugs off any responsibility for the negative consequences because he played no active role in helping the customer make the appropriate decision. He is the proverbial “good” man who does nothing when action would prevent harm, which is not a very good man at all.

Ethics in salesmanship means matching customer problems to commercial solutions – regardless of the sales tactic – a prerequisite to which is accurately recognizing the level of sales assistance that is needed.   Where customers accurately recognize and diagnose problems and identify and employ solutions, stay out of the way and give them what they ask for.   Where the cannot do all of those things, provide assistance – and whether it is ethical assistance or unethical pressure depends on the customer, the product, and the situation.

It is no more correct to soft-sell in all circumstances than it is to hard-sell in all circumstances – and to suggest otherwise is an act of ignorance and immorality unto itself.

Thursday, August 23, 2018

The Slow Pace of Technology Today

Something I recently read stuck in my mind: that the pace of technology has slowed considerably in recent years.  The author pointed out that the twenty-year period from the mid-1980s to the mid-2000s brought a whirlwind of change, and every couple of years there was some revolutionary new capability: the personal computer, networked computing, the Internet, cellular phones, mobile computing, and so on.   But in the past fifteen years or so, nothing of that magnitude has happened.

While progress has not ceased, its has been limited to making minor efficiency improvements: processor speeds are getting a little faster each year, display resolution a little better, network speed a little faster, components a little smaller, etc.  But no new device has come out that has changed the way that people interact with technology in any significant way, or extend it into any aspect of life in which it didn’t previously exist. That is, technology hasn’t delivered anything truly impressive or impactful in more than a decade now.

It may be that we have reached a point where the core technology – the computer – has been fully extended.  It is as fast, as small, as portable, as connected, etc. as it needs to be for any functional purpose.  Engineers are out of ideas for new ways to apply it – or at least, new ways that are meaningful to the market, or at least valuable enough for the majority of people to see it as a must-have device or capability.

And in daily life, there does seem to be a certain ennui and even distaste for technology – the tendency of people to question the value of technological advances and even seek to moderate their technology consumption, questioning if it is really worth the money, time, and attention to adopt the latest fads, or even continue using previous fads once their novelty has worn off.

I’ve looked for examples to the contrary, and have thus far been unable to find anything that has been as impactful.   The only thing that comes close is wearables – the Apple Watch, Google Glass, and FitBit – but even these technologies failed to have much of an impact.  They certainly haven’t become a must-have technology that makes their predecessor (the smartphone) obsolete, or even extended the capabilities in any meaningful way.

So I’m left without grounds to dispute – the pace of technology really has slowed, the really has been nothing new and revolutionary – and likely the next step, societally, is to find a more sensible integration of technology into life – which means questioning the value that technology affords.   That, at least, seems a refreshing notion.

Thursday, August 16, 2018

Brand Unawareness

A fellow shopping for auto insurance asked an unusual question: what repair shop would we use in his location for body work.   Some years ago, he had an accident and was sent to a shop that did rather a poor job, leaving him so displeased that he changed insurance companies.   And then, when he had another claim, the new insurance company sent his car to the very same body shop for repairs, and he was again disappointed.  He wanted to change insurers again, but wanted to make sure that the new company would not send him back to the same shop.

In the years I spent in the insurance business, I had listened in on many phone calls – a few hundred or so – and this is the only one I can recall in which a shopper took this level of interest in our suppliers.   Everyone cared about the price, and to a lesser degree about the kinds of coverage that price included, but nobody seemed particularly curious about exactly how the benefit of the product would be delivered: what company is really going to do the work that they are paying for in advance?

There are many buying situations in which consumers are unaware of the brands they are purchasing when the company with which they are directly transacting is merely passing on the product of another firm.   No insurance company, to my knowledge, has a nationwide network of repair centers that it owns and controls, but sends claimants to a local provider.   And where the product is a good rather than a service, the invisibility of its providers is clear: you have no idea what brands you are consuming when you order a meal in a restaurant, nor what company refined the copper in your computer.  You are only aware of the brand of the seller, not the maker.

And in the present day, where most firms are vertically dis-integrated and business operations are outsourced, chances are that when you consume any product, you are consuming dozens or hundreds of brands that you are not aware of.   The more complex the product, the more hidden brands you are consuming without being aware.  I would venture a guess that no-one, ever, has investigated the full supply chain of every product they use – there simply isn’t enough time in the day.

That’s not to say that the brand of a supplier is of no value – it is of great value to their direct customer, the reseller, though invisible to the ultimate consumer.  And in this space, the values of the reseller are significantly different: is the supplier reliable, will delivery be timely, is the quality of goods consistent, and so on.   These are entirely different to the values that customers espouse, or pretend to espouse, in evaluating the brand of the reseller.   They are generally concerned only with the last link in the supply chain.

Thursday, August 2, 2018

Targeting the Gullible Market

A brand is trusted by its existing customers because of its past behavior: if the brand kept the promises it made, then it is trusted to repeat the same behavior in the future, and this trust extends to any new promises that the brand makes to the customer that has already experienced its reliability.  But when approaching a prospect, who has not interacted with the brand, earning trust is difficult – the brand has not had the opportunity to keep its promises to the prospect, and the promise itself is not trustworthy because it comes from an unknown brand.

Granted, some level of trust depends upon the trustor – whether or not the prospect has a trusting nature.   In general, a brand that approaches any market can depend upon the trust of the most gullible members of that segment – but a more measured approach would consider the qualities of an individual who will trust without experience and seek to define a target market in which gullibility is baked in.

The inherent problem is that gullible people are not respected people – their peers and acquaintances know them to be exceptionally gullible and do not put much credit in their endorsements.    In that way, a brand that targets the gullible may have some success in gaining the initial trust of people whose recommendation carries little weight with the rest of the market.   Hence the short-term and unsustainable success of many new products.

And even the gullible market segment is not sustainable: the most gullible individuals can be fooled once into putting trust in a brand – but if the brand fails to keep its promise to them, then it will be difficult to make a second sale even to the same individual.   They are likely to extend credit to brands once, but not a second time once their trust has been violated.

One notable exception are individuals in whom there is an unfortunate coincidence of gullibility and narcissism: the person who has been tricked, but whose ego will not allow them to admit that they have been tricked.  These individuals will give rave reviews of horrible products, pretending to be satisfied so as to avoid admitting having made a mistake.  Going by the number of five-start product reviews on websites, there are quite a few of them, who feel compelled to repurchase and advocated for a bad product to maintain their self-esteem.

But, again, this leads to the problem of second-hand trustworthiness: it is not only the brand, but its users and advocates, that must be regarded as trustworthy in order for the brand  to gain acceptance in the broader market.  The testimony of dupes and fools is no more convincing that first-hand promises made by a brand, and it may in fact be more damaging to have the wrong kind of brand advocates.

Thursday, July 26, 2018

Generational Marketing Mistakes

Being as it’s about halfway through 2018, it seems that market researchers have suddenly become aware that the next generation is entering their adulthood.  They haven’t figured out what to call them yet (centennials, generation Z, iGen or whatnot) and there’s not a lot of agreement on when, exactly, the generation began (somewhere between 1990 and 2000, depending on what they’re trying to prove) … but apparently, they are understudied and there’s money to be made by being the first to market with a study that defines what this new generation is all about.   Even if it’s completely premature and wrong.

The same thing happened with the Millennial generation: studies came out describing their attitudes and habits when the generation itself was prepubescent and hadn’t had time to form attitudes and habits.  And sadly, the “findings” that were published in the early days tended to form a cognitive filter.  So the profile of the Millennial today – pushing forty, paying a mortgage, advancing in their career, and otherwise doing the “adulating” thing – has changed little from the time when they were teenagers still living at home and working part-time jobs.   

And though I would happily be proven wrong by time, I strongly suspect the same is happening with the market research on Generation Z: they are talking to teenagers about their spending and financial habits, about their tastes as consumers, about their attitudes toward the workplace – well before they have had any experience leading an adult life.   

I’d feel a bit less panicked about it if I were to see a present-day study of the Millennial generation – and better, to see it done by one of the experts who studied them prematurely, who admits to having jumped the gun and come to the wrong conclusion.  But sadly, these are the same “experts” who see the new opportunity in misrepresenting the next generation – to admit they were wrong in the past would be to discredit their present work.

And their clients are little better.   Rather than recognizing their folly and straightening themselves out, updating their research in order to better serve the Millennial market, they are simply moving along. They are writing off the last generation and pursuing the next, gearing up to make exactly the same mistake.  Lather, rinse, and repeat - and watch as history repeats.

Thursday, July 19, 2018

Chewy: Pooching Customer Recovery

Recently, a colleague of mine had an issue with an online pet store – which would be one of those unremarkable “yeah, these things happen” incidents except for how poorly the company handled the attempted service recovery.  

A bit of background: the colleague in question adopted a shelter dog that had a number of serious health issues – it’s an ongoing saga – and she ordered some medications from Chewy, an online pet supply store that has only recently opened its pharmacy business.   And here’s how they attempted to recover after bungling the order:



The lame humor in the message, bad puns that elicit more of a groan than a laugh, might be understandable and perhaps mildly amusing in the course of routine correspondence.    In the wake of a botched order, being cheeky with the customer is probably not a good choice.   And when the botched order prolongs the suffering of someone’s pet because it was a pharmacy order, it’s definitely not a good idea to kid around.

The second problem is that what is being described in the message, an inability to merge orders, has nothing to do with what Chewy had done wrong.   They had mishandled a prescription, initiating a game of phone-tag with themselves and the veterinarian to straighten things out, and causing further confusion as to whether the problem had been addressed.

The third problem is that the offer of a refund, which generally a nice gesture, is not something that helps recover from the problem: it is not that they caused the customer a loss of money, but a loss of time by mishandling the order.   A more appropriate action would be to expedite processing and provide free overnight delivery to help minimize further delay.

And the fourth problem is the missing fourth step of the basic apology model: to provide some reassurance that the problem will not recur in the future, so that the customer won’t be as hesitant to engage with the brand again.   To omit that step seems either arrogant (believing future business can be taken for granted in spite of the problem) or dismissive (not really caring if the customer does business with the brand in future).

In all, none of these things constitutes an egregious error – but it is the combined effect of a lot of small problems that makes this a model for poor customer service in a critical situation.

Thursday, July 12, 2018

Bad Ambassadors

The desire of brands to win advocacy is a generally good thing – it causes firms to think beyond the one-time sale, to providing a product that leaves customers so satisfied that they will not only repurchase but also advocate to other prospects in favor of the brand.   However, like any good thing, it can be done to excess – and at some point pursuing advocacy for the sake of having advocates becomes harmful to the brand.

The consumption of a product is for its functional benefits – but the consumption of a brand is often for non-functional benefits.   I add “often” because some brands are valued for their reputation for quality in terms of functional benefits, but in most cases products are commoditized: the offering of one brand is no better or worse than the next in terms of its functional qualities, such that the only difference is psychological.  This is generally true of most crowded markets where product offerings have become commoditized.

One of the chief psychological benefits is social recognition: Brand X and Brand Y are functionally indistinct, but are associated with certain social groups.  “We” use Brand X and “they” use Brand Y.   So the distinction between the brands is social identity – belonging to one group rather than another.   Hence a person chooses the brand that aligns with the identity to a group to which they wish to belong, and shuns the brand that aligns with any group whose membership is mutually exclusive to the desired group.

And therein lies the problem: when a brand is selected by a group that is considered undesirable by its existing consumers, the alignment of the brand becomes unclear: is it still aligned with “us” or is it now aligned with “them”?  And if it is no longer “our” band, then there is no longer any value to being associated with it – and possibly value in distancing from it because it is no longer in line with the identity of the desired social group (and is in line with the identity of an undesirable social group).

Where the undesirable group has selected the product of its own accord, there is very little that a brand can do to regain its esteem: brand exists in the mind of the customer.   If the brand decides to go with the flow, to embrace the new breed of customers it has attracted, it can remain viable, though the character of the brand and the qualities of the market it serves will undergo a dramatic transformation – in effect, the brand will have changed markets.    If the brand resists the flow, rejects the new breed of customers and attempts to retain its loyal market, it may find that it is fighting an uphill battle.   Success at this will be very difficult.

However, it is very often the case that the brand initiated this selection: it marketed to the undesirables in an attempt to grow its market, foolishly believing that its loyal customers would remain loyal even when the brand became adopted by the undesirable new customers.  It seems to be counting ambassadors, failing to recognize that not all ambassadors are good ones.  This is suicide.

Thursday, July 5, 2018

Putting People Before Profit

At a recent event, one of the attendees stood up and proudly shared a very dubious success story:  he had been listening in on a phone call in which one of his company’s service representatives was dealing with a customer who was closing an account, and the rep spent about fifteen minutes with the customer to talk them into keeping the account open with a one-dollar balance in case it would be needed again.   In the speaker’s opinion, the rep had done a wonderful job of saving the account.

Not everyone applauded at the end of his story – maybe three-quarters of the audience – though there is no telling how many of them thought the story truly represented a laudable success or were just clapping to be polite.   It is to be hoped that most of them recognize that what this fellow was praising as a success story was not at all a good thing, and a sign that the company is paying attention to the wrong numbers.

In case it isn’t obvious, the value of a one-dollar account is negligible.  At current rates, a dollar of capital might earn five cents worth of revenue while incurring about three cents in expenses, leaving the company with a two-cent gross profit every year the account remains open.   If the account remains open for fifty years, it will earn one dollar and, after G&A expenses, add a couple of dimes to the company’s bottom line.  Meanwhile, the fifteen minutes of CSR time likely had a fully-loaded cost of around 15 dollars.   Net loss, fourteen dollars, even if you don’t discount the value of future revenues for inflation.

The reason the speaker thought this incident to be a success is because he’s thinking of one statistic: the number of customers the firm has.  It’s likely because he’s being managed to do so – incentivized to grow and retain the number of customers without paying attention to whether the accounts he’s getting and keeping are at all profitable.   The more such accounts he creates and saves, the more his company loses rather than gains on the bottom line.   It's counterproductive performance, and the sign of a siloed and blindfolded culture in which each department thinks of its own goals regardless of their impact on the organization as a whole.  

The firm likely has enough good customers to keep it afloat – it can afford to take some losses.  But this is also a myopic perspective.  Every dollar in expenses incurred to retain unprofitable accounts is a dollar in interest that should be spent on retaining the profitable ones (or a quarter in interest, if the firm keeps the rest for itself).   I checked his company’s interest rates , and they are far below the market leaders – so much lower that it doesn’t make financial sense to do business with his firm.    Chances are, the cost of maintaining unprofitable accounts is at least part of the reason.

How many good and profitable customers are leaving his firm, which cannot pay to retain them because of the losses taken to retain unprofitable ones?  One can only speculate.   The truth is kept well away from the public, and perhaps is even unknown to decision-makers at the company, who continue to watch and press upon their employees to chase a growing head-count without consideration of whether the “heads” are worth having or how long the firm can sustain itself in this manner.

Thursday, June 28, 2018

Defending the Routine

Everyday life is boring and uneventful: people follow their well-worn paths and make little progress through small and safe steps, avoiding risks and anything that is out of the ordinary for them.   And as dull and boring as it seems, we are creatures of habit – and like being creatures of habit.  We will defend our humdrum lives against the incursion of anything that might change the status quo.

While we seek to minimize risk, we do not seek to eliminate it entirely.  We recognize, at times, there is a need to take unusual risks to make unusual progress.  It is not always acceptable to continue along the path of small and safe steps – but instead to take a calculated risk where there is a chance of loss but the potential to make greater than normal progress.

This is not something that most people seek to do often – an unusual level of risk is not part of daily life, and it is not sustainable.   Take any risk often enough, and the odds of failure will eventually play out: the risk-taker will lose, and if he has staked too much upon the chance, his loss will leave him unable to continue to take chances.   He will be physically, financially, or psychologically crippled and forced to change his habits to return to the mundane, until such time (if ever) he is able to recover the ability to step outside of the safe and the usual again.

And while there is an attraction to risk, our appetite for actually participating in a risky proposition is actually quite small.  We often satisfy our desire for risk indirectly – literature, film, spectator sports, and even history provide the vicarious thrill of seeing someone else take risks, attempting to empathize with the risk-taker rather than stepping into the actual role.  

For most people, most of the time, entertainment and fantasy is the extent to which they will engage in risky action.   For the armchair quarterback, his daily life is not at all affected by whether his favored team won the match – though he finds emotional rewards in witnessing this simulacrum of action.   Even if he has placed a bet on the game, it’s seldom enough that winning or losing will make a difference in his life afterward.

This considered, attempts to modify behavior in a significant way – to cajole an individual into deviating from his usual practice – is a very difficult proposition, and the prospects of success are limited if the consequences of gain or loss are significant.   



Thursday, June 21, 2018

Customer Loyalty or Customer Apathy?

In my research into customer loyalty, I’ve come across an interesting paradox: that customers who state that they are not loyal to a brand and even those who feel dissatisfied with its products intend to purchase the same brand the next time they have a need.    It’s not just an unusual few who respond this way: the majority of those who are dissatisfied intend to repurchase the very brand with which they are not satisfied. The percentages vary by product, but it tends to range between 65% and 85%.

In some instances, switching costs can be prohibitive.    There are financial costs, the need to learn to use a slightly different product, the effort and time of identifying a replacement, added difficulty to obtain it, and so on.    Even a less expensive brand may be more costly to use when the fully-loaded costs of acquisition and utilization are considered.

There are also the psychological costs of switching, not the least of which is the humiliation of admitting that the previous decision to purchase an existing brand was a terrible mistake.   Many people will doggedly pursue a course of action they know to be wrong, or repeat it, simply to defend their self-esteem for having made the decision to pursue it in the first place – and the magnitude of this humiliation is even greater when it is an item that is conspicuously consumed, such that others will recognize the change and take it as an admission of a poor decision.

There are also matters of prioritization: rare and lucky is the man who only has one problem to solve and everything else in his life is absolutely wonderful.   So a person may recognize the need to switch brands, and even have the desire to do so, but there are other things that are of greater priority for them – addressing their dissatisfaction with this particular purchase is not the most pressing matter they have to deal with, so they continue to accept partial success while they devote their time and resources to dealing with bigger problems.

There is also the threshold and tolerance for pain, both physical and psychological: a person may recognize something as a problem, but consider it to be a mere nuisance and not worth the time to deal with it.  Because it is not causing them enough pain, it is not worth dealing with.   As a rule, people don’t seek to fix small problems – they may complain, but unless the problem is serious, they are not motivated to invest effort to address the issue.

There is also the fear of change in general.   Even an unsatisfactory product experience is a familiar one, and there is doubt that a different product will actually yield an improvement.   What is unknown is unproven, and arouses suspicion – that it may be no better and possibly worse that the known imperfect solution.   And so, it’s more comfortable to deal with the devil you know rather than face the risk of making matters worse by changing routines.

I expect the precise reasons for “loyalty” to brands varies greatly by the product and its use – but the factors I’ve considered likely come into play to some degree for any dissatisfied customer.  But most importantly is that the statistics and these supporting reasons make it clear that loyalty cannot be taken for granted – or more precisely, apparent loyalty cannot be taken for genuine loyalty.   It may simply be apathy.

Thursday, June 14, 2018

The Pseudoscience of Irrationalism

In my studies of economics, I find myself stuck in the industrial era: the foundational works, which were generally written in the mid-nineteenth to mid-twentieth century.  I keep looking for more current information, considering the economics of the present day, and I am constantly disappointed by the quality of modern “scholarship,” which seems takes the opposite approach, giving further testament to the utter wrongness of the binary fallacy.

Specifically, there seem to be many unqualified scholars who play upon the obvious flaw of classical economics: that it is optimistic.  The classical economists took as a premise that men act intelligently at all times, with full awareness of circumstances and their own long-term self-interest in mind.    So the present-day economists switches to the opposite extreme, taking as a premise that men act unintelligently at all times, with no awareness of circumstances and no consideration of their long-term self-interest.

The problem with both schools of thought is that they suffer from binary thinking: all or nothing, always or never, black or white, with nothing in between.    The presumption is that if something is false, then its exact opposite must be true – which is childish, primitive, and utterly wrong.

Of the two camps, I still gravitate toward the classical – they are not perfectly correct, but they are mostly so.   Man is not a perfectly logical creature with flawless perception – but he is a generally logical creature with fairly accurate perception, in the modern day more so than a century ago because of the accessibility of information.  He is not a hapless fool, but can be fooled.

When an individual is seeking to pursue a personal goal, he tends to act consciously and deliberately, applying his reasoning to the best of his perception and intellect.   Very little is accomplished accidentally – though much is done imprecisely, with imperfect knowledge and imperfect reasoning.

The more challenging the circumstances, the less chance that imprecision will result in success.  If a person is to succeed in high-stakes situations, and to do so routinely, it must be by the application of his best knowledge and reasoning.   And for those who do not think for themselves, they are more likely to mindlessly emulate the success rather than the failure of others.

On a societal scale, the success or failure of a society is merely the aggregation of the success or failure of those individuals of which it is composed.   Hence a culture that fails to apply knowledge and reasoning is not sustainable, and will invariably fall to one that is superior in those regards.  But again, these are generalizations: we can recognize that imprecise or even improper action may sometimes lead to success, and the intelligent man recognizes that this is an exceptional situation whose occurrence is improbable.

And this is likely the proper reaction to the black swan: to recognize that it is an exception, an unusual occurrence that cannot be denied – its truth must be accepted.  But this does not mean that the appearance of an exception disproves a theorem, and it should certainly not serve as the foundation for a diametrically opposed school of thought, or an approach that is based on unusual circumstances.  

Such things are best relegated to the side-show: a curious novelty of no particular significance in the long run.    And this, I expect, is the fate not only of the theories, but the theorists as well.

Thursday, June 7, 2018

UI vs. UX vs. CX

At first, it may seem a good thing that user experience (UX) has become a popular trend - if done well, there is the potential to make significant improvements to a broad range of products and services that are currently rather inadequate and unsatisfying.    The problem is, it's not being done well, which not only makes things worse instead of better, but threatens to discredit the legitimate practice.

The problem that occurs when UX becomes trendy is that people who don't understand it attempt to do it, without actually learning anything about it, and the results are tragic.   This may be an individual practitioner who wishes to add a trendy new acronym to his resume without having any training or credentials, or a department manager who insists that his people can take on this task, even though they lack knowledge and credentials.

What facilitates this hubris is that UX is so poorly described - its nothing new, but an attempt to mash together two distinctly different disciplines:  user interface design (UI) and customer experience management (CX).  The first is concerned with usability (can a person use software on a computer or mobile device) and the second is concerned with usefulness (does a customer derive value from interacting with an organization).   

The relatively new field, or fad, of UX ttempts to encompass both - such that practitioners who have expertise in one area attempt to do the other.  The result is a compromise that leaves one of the two tasks sorely neglected: a person with a marketing background who knows a few tricks in Photoshop feels he can also do the design work, or a designer who can kludge together a survey feels he can do market research – so with an ample supply of narcissism and hubris, each believes he can do the others’ job as well or better than a bona fide expert.    Like stewardesses who think that their extensive flight experience makes them qualified to fly the plane.

That said, the guilt is not always with the employee, and is very often on the side of the employer.  I have been in contact with several UI practitioners who feel they are being forced into the UX space by their employers - who, without providing any instruction or resources, expect someone with an art-school degree to do marketing work ... or else.  So it's also true to say that, in their greed, firms wish to save the salary of a pilot by ordering the cabin crew into the cockpit.  

Whether they just wish to be trendy or have a desire to find a competitive advantage in saturated markets without making significant investment, they have forgotten the lessons taught by Adam Smith a few centuries ago, or Xenophon a few millennia before that, about the division and specialization of labor.   

Ironically, the lesson has only recently been remembered, or re-rembered, by IT departments, who are slowly recognizing that the generalist "unicorns" have burdened their systems with mountains of amateurish, inefficient, and poorly written code that will take many years and dollars for specialists to clean up.  So perhaps this delusion has simply migrated to the design/marketing wing, and one can expect it will drift elsewhere when that discipline finally comes to its senses.  

But while inefficient code can lurk for decades in the back-end systems, causing relatively minor problems that frustrate system users who are mostly employees, an ill-conceived experience is thrown directly into the faces of the customers - who have little tolerance for sloppy and inefficient service, and who are for most organizations the chief source of revenue.    The results of a poor UX are far more damaging, and potentially devastating to the firm.  







Thursday, May 31, 2018

Dissatisfaction and Psychological Motivation

The greatest and most certain source of customer dissatisfaction is the failure of a product to satisfy the need for which it was purchased – which in turn has many possible causes, the first of which is the misidentification or misunderstanding of need and the criteria by which the need will be fulfilled.  This occurs more often where the product is a good (which the customer lacks the skills to successfully employ, or even to select the right good) but is also quite common in services (when the customer has provided incorrect or insufficient information for the service provider to take the correct action).

The problem begins in the process of selection: the customer is unable to choose the correct product because he does not know what will solve his need – sales can be of some assistance, but because sales tends to focus on “selling” it’s rare to encounter a sales professional whose ethics can overpower his mercenary interest in talking to the customer out of buying the wrong product.   A perfect product, proficiently employed, cannot result in satisfaction if it is the wrong product in the first place.

To back it up another step, to select the right product to serve a need, one must understand the need – if the need is not understood, everything after it (the purchasing and use process) cannot succeed except by accident.

Where needs are practical, satisfaction of need is fairly straightforward because the problem can be objectively diagnosed and the results objectively assessed – the use of the product effected the exact change that was desired.  I would propose that for the great majority of products in the present day. 

But where the needs are psychological, satisfaction of need can be extremely difficult.  Who can say, with certainty, what will cause a desired change in emotional state – to make a person happy, or to mitigate their anger, even when that person is oneself?   And how can person who means to serve another know what their psychological state is and how it can be positively affected?  

It seems a trivial thing, but it likely has a very large financial impact on developed markers.  Given the evolution of customer services, we are as a culture extremely good at diagnosing and correcting functional problems – and I would posit that, with some exceptions, the “kings” have been worked out of most product experiences insofar as their ability to satisfy the customer’s functional need - they at least have the capability to solve the need if selected and employed appropriately, by objective and observable criteria.

Thus considered, it is the emotional criteria that are the most likely cause of the greater proportion of customer satisfaction in the present day.   It is not that the product does not deliver its functional purpose, but that its employment does not address the psychological need for which it was sought, not was the correct product even selected because the need was not sufficiently understood.

Thursday, May 24, 2018

Finance: The Third Level of Consequence

Where economics focuses on financial outcomes, it is functioning at the third level of consequence, ignoring two levels of consequence that precede it.  This may be the reason that the financial approach to economics finds itself so often frustrated, unable to form a reliable model or explain the phenomena that naturally occurs in the market.

The first level of consequence is corporeal: the human being is a mind that is contained with the fragile case of a body.  Therefore, the first consequences of concern at the prospect of any human action is the jeopardy it poses to the integrity of the body and mind of the actor.   Any injury or debilitation in pursuit of a specific goal is a permanent consequence, whose cost must be factored into the greater “budget” of life.  In general, we expect that we will maintain our present state – to emerge from any activity in more or less the same condition in which we entered into it.

Costs to corporeal integrity may be objectively calculated according to the projected value, accounting for the risk of damage and the value that is placed on the type of damage inflicted.   But while it is easy enough for an actuary to put a dollar value on the debilitation of another person, it is not so easy for a person to assess the value of their own debilitation – nor is accepting the actuary’s figures a sign of assent or agreement of value.  

The second level of consequence is social: the human being is a social animal, who benefits from participation in society.   There is no method to reliably quantify the degree to which we value the engagement with others nor the value that can be placed upon our identity and esteem in a social context, but they are nonetheless valued.   And just as we expect participation in an activity to have no effect on the integrity of our bodies, so do we expect participation to have no effect on our social standing.

It is likewise futile to attempt to monetize human relationships.   We may decide to engage in some activity that will harm our esteem by the same vague estimations of potential outcomes: how will our esteem and relationships suffer as a consequence of our involvement, and what is the likelihood of our involvement being observed or detected?   But what is the financial value of damaging a social connection?

It is only on the third level of consequence that we begin to consider anything that can be assessed financially.    On this level, we begin to consider the consequences an effect will have on property: whether we will gain or lose value, or the fundamental nature of property will be changed in an undertaking that decreases or augments its value to us.

Even then, assigning a monetary value to property is a highly subjective matter – even when one attempts to objectivize it, this is generally done by the market value of the property were it offered for sale.  That is to say, the value is considered to be that placed upon it by someone who does not already own it, not the value placed upon it by the owner – which is always greater.   If it were not so, we would choose to possess nothing, the money offered in exchange for it being more valuable to us than its possession – hence to possess anything at all is to value it more than its market price.

Thursday, May 17, 2018

The Meaning(lessness) of Life

A paradox to consider: we speak of time as being a precious commodity, but also as a nuisance.   We find that we have too much time on our hands, but in other instances we feel that we have too little.   Is this merely a an academic meandering, or are there practical implications to this duality in our perception of time as a commodity?

Perhaps the most undesirable time are the scraps of time that are spent waiting for something else to happen: you arrive at the doctor’s office on time for an appointment, but the doctor is running “a few minutes” late, so you are relegated to the waiting room.   Ten minutes pass, then twenty, then half an hour, then longer – and your irritation grows with each passing moment.  Most often, this delay is inconsequential – there is nothing else on your schedule and you had no better use for the time.  It’s simply the sense of being trapped for an interminable amount of time that creates irritation.

But even when the time is know, it is a nuisance.  Let’s say that you don’t arrive on time, but instead fifteen minutes early, and the appointment takes place at the proper time.   What do you do with those fifteen precious moments of your life?   Fiddle with your phone, pick up a magazine and read an article you’re not interested in, or make small-talk with your fellow temporal prisoners?   

Nothing that you do during this time is particularly meaningful or pleasant.   You usually don’t have the equipment to do something worthwhile, there isn’t time to leave and come back, there are few tasks that fifteen minutes is sufficient to complete or even make meaningful progress, and you often cannot give your full attention to something for the risk of missing your turn.

Daily life is riddled with these scraps of time – when you are ready but it is not yet time to go, when you have arrived and it is not yet time to start the activity you came for.  Our “standard” daily routine is arranged to minimize scraps of time, but any activity outside the usual is often accompanied by these “not yet” moments of waiting.   Think about a day when you must travel by airplane and check into a hotel for a meeting the next day – practically the entire day is spent waiting on something to happen.

There is also the time we spend in activities that are not meaningful in themselves, but are done in preparation for more meaningful things.   Take the travel example, the entire day is spend in activities that are not meaningful except as a means to do something else – the meeting that will happen the next day.   Or consider college education, which is four years of activity that is merely in preparation for getting a job in which you will do meaningful things.

And even on the job, are the things you do every day really that meaningful?   They are routine duties, done to earn a paycheck.   Does balancing the ledgers or counting the stock have a meaningful impact on the life of the worker?   Aside of receiving his wage, is there any motivation to do these things, or to do them well?

And even for meaningful work, is it meaningful to the worker?   Let’s say you are the doctor that others come to see, or a surgeon who daily performs life-saving procedures.   Aside of the salary you receive, is this meaningful work?   It is certainly meaningful to the patient – but is it meaningful for you?

It was not my intention here to go on a nihilistic rant, though it seems to be headed in that direction.   All of life is not meaningless, and there are in fact meaningful moments where the things that we do have an impact on our lives in some significant way.   But most of life is spent on those moments in-between – when we are waiting for something to happening, preparing to do something, or doing something that is valuable to someone other than ourselves.

None of these moments in time are meaningful, and as such most of them are entirely undesirable.  We may take some satisfaction in the good we do for others, and we may even take satisfaction in finding some way to pass the time – but the moments in life that are precious to us, those for which we seem to have not enough time, tend to be few.

As a general principle, paradoxes do not exist.   When you seem to have encountered one, you must check your premises.   And the flaw in the premise of the paradoxical value of time is that it is a commodity – that one second is the same as the next.   And in this regard, time is not a commodity: some moments matter, some don’t.  In all, I’m led to the conclusion that most simply don’t.

Thursday, May 10, 2018

The Newness of Personal Finance

In my studies of personal financial management, it has occurred to me that money and wealth are relatively new things.   Human beings have roamed the planet for about 200,000 years, developed agricultural settlements perhaps 10,000 years ago, and have only been handling money and wealth for about 100 years.

In the modern day, 92% of people (in the US, a developed economy) have checking accounts, and 76% of them hold investments (stocks, bonds, etc.) though generally only in their retirement accounts.  So money and investing seems entirely normal, but things were not always thus.

During the early twentieth century, only 8% of the (US) population lived in towns and cities. Even as late as the 1950s, 45% of the population was still rural, living in isolated agricultural communities that, in an economic sense, had not changed much since the advent of agriculture itself.

Granted, “money” has existed for longer than that but it was not part of daily existence for the vast majority of people.   Most people lived on self-sustaining estates, producing and handling the goods they consumed without engaging in trade.   Only the heads of estates and the merchant class routinely engaged in trade that would require the use of money.   

And even when money found its way into the hands of the working classes, it was seldom held for very long.   The worker’s wages were paid to landlord, grocer, clothier, and other vendors – sometimes the same day they were received, but seldom longer than a week.  Few people amassed wealth, and living hand-to-mouth was considered entirely normal.

Therefore it has only been since the 1950s that people have worked in professions in which they are paid in money, and had sufficient income to have money “left over” at the end of the monthly consumption cycle.   It was only since the 1980s, with the creation of personal retirement accounts (IRA and 401k) that most people became involved in investing, or even considered the necessity of saving money to pay for their own retirement.

So it is little wonder that people are so woefully unskilled at managing money and investments – it is something that is very new to most people, and not something that they can learn from their elders (even their grandparents lived in the hand-to-mouth age).  Given that the academic world is disdainful of financial topics and discussion money is considered a social taboo, there are few venues through which a person can learn to manage their money and investments.   

We are, for the most part, ignorant primitives doing our best to handle some new and unfamiliar technology without any instructions or guidance, and no established authorities that are willing or qualified to guide us.