Thursday, April 12, 2018

Everything That Has a Beginning Has an End

It’s been observed that marketers put an inordinate amount of focus on acquiring new customers and are often neglectful of providing the service necessary to retain existing ones – but there is one part of the relationship that is altogether ignored.  There is virtually nothing in the literature about bringing a customer relationship to a graceful conclusion.

It could be argued that ending customer relationships gets so little attention because it is not profitable – but the profit motive is not applied consistently, vis the lower importance given to retention than acquisition where retention is considerably more profitable.  

And to suggest that ending a relationship well is of no value is to ignore the value of word-of-mouth: ending a relationship badly leaves a very bad last impression, one which may overshadow the merits a brand earned earlier in the relationship when the individual is asked by others about his experience with a brand.   The reluctance of customers to enter into service contracts likely does not arise from previous customers’ experience in signing the contract or using the service, but from the antics of firms that do not handle the end of the relationship well.

There is also the damage done to the customer himself, as termination of service is seldom forever.   A person may become irritated with a service provider, terminate the arrangement, and switch to a different provider – but when the new provider’s service is found to be inferior, the customer may return.  The manner in which termination of service is handled may significantly impact his willingness to return.

It is more likely a matter of arrogance and denial for a brand to assume the customer will always need it and that there will never come a time that the customer can do without the product.   I ran into that attitude repeatedly in the auto insurance industry – the refusal to acknowledge that there is any situation where the customer will no longer need the product (such as old age) or would wish to do without it even temporarily (such as moving to a city with excellent public transportation) led to a complete neglect of the termination experience.

And there is likewise too much emphasis placed on customer retention – the desperate scramble to avoid losing future business from a customer who wishes to terminate.    There seems to be the belief in the existence of some magic phrase that will make a customer who no longer needs a product think that he does, nor instantly dispel the series of offenses that caused them to wish to switch to a different brand.  

Where the customer has reached the natural end of their consumption, or where the behavior of a firm has been so egregious that the customer seeks to terminate the relationship, there need to be plans to say “goodbye” gracefully – in a manner that leaves a  positive last impression that will win referrals and cause the brand to be considered should the customer need it again.

Thursday, April 5, 2018

It's Just Breakfast

Theories of rational decision-making often focused on a very narrow and informed decision: an individual must choose between two options and has complete information about both – hence he makes a logical decision based on the likelihood of each option to achieve a desired outcome.

In an actual purchasing situation, the customer has a very complex decision and little information.    In a typical American supermarket, there may be 100 or more different options in the breakfast cereal aisle.   The customer is not an expert in breakfast cereal, and knows only a little bit about some of the options and nothing at all about most of them.   

And while the ostensible problem the product solves is nutrition, there are many other concerns: would a young adult male consume a cereal that is primarily marketed to elderly women?  What would his friends think of him if they saw it in his cupboard?

So in the cereal-buying situation, and virtually every consumer decision, the consumer is not able to act as the perfectly rational and perfectly informed individual that are presumed by the logical decision-making process.   

This is not to say it is not possible: one can study about nutrition, learn about all 100 breakfast cereals on the market, document the decision-making process to carefully exclude any subjective or nonsensical criteria, and so on – but it is not at all reasonable to expect anyone at all to put in that level of effort.   

It’s just breakfast, after all.

Thursday, March 29, 2018


Most of the “skills” we possess are merely patterns of behavior to which we have intentionally conditioned ourselves.   We learn that a given behavior is connected to a given outcome, and this becomes part of our mental programming.  It is not always intentional: connections are formed based on experiences, whether or not we mean to make associations, they are made.

Consider the Razran experiment, which a group of students was treated to a series of luncheons.  For the test group, the same music was played each time.   Later, the students were asked to evaluate a number of pieces of music and indicate what the music made them think of – naturally, the group associated the music that had been played at the luncheons with food or eating.  No such association was made by a control group.   It is simply because the two coincided that the connection was made.

However, conditioned reflexes are a temporary adjustment that requires reinforcement.   Once Pavlov’s dog had been conditioned to associate a bell and food, it would salivate at the sound of the bell even if no food was presented.  But if the bell was sounded and no food was presented, the association would in time be broken.     It is not a matter of a coincidence always/never occurring, but an assessment of the possibility of a coincidence.  The probability is not consciously calculated, but unconsciously assessed according to the recentness, frequency, and intensity of the association and related stimuli.

In more complex behavior patterns, a person develops skill at a task my learning a pattern of activities and behaviors that lead to success.   He continues to follow the same pattern in the past, expecting the same outcome in the future.   If he fails to receive that outcome, he tries the same activity again, assuming he did something wrong.   It takes a few attempts for it to dawn on him that the procedure that worked in the past is no longer working (generally because of a change in the conditions) and to consider a different approach to achieving his goals.  The more complex the pattern or the more protracted the process, the sooner the individual will recognize the problem, hence it is harder to train and harder to break training.

And so, conditioned behavior is natural part of human life, and is often used in obvious and beneficial ways.   We develop good habits and learn skills by conditioning ourselves – and when we raise a child, teach a student, habituate a customer, or train an employee we are leveraging the exact same mechanisms to condition them.   

Thursday, March 22, 2018

Crisis and Everyday Ethics

Ethical dilemmas are often posed in the scenario of a crisis situation.  If there are only so many seats on a lifeboat, or so much space in a bomb shelter, whom do you take in and whom do you turn away? It is presumed that the choices people make in a difficult situation reveal their true character.  

The same is said of companies who face a crisis, and people watch to see “who comes first?” as a way of gauging the company’s ethical values and true character.   Do the managers set up golden parachutes from themselves?   Do they seek to protect profits?   Or do they take care of their customers and employees?

There is a strong distaste for firms that put profits first, and the widespread perception that when companies are faced with a product recall, 93% of US adults believe that this is an opportunity for the firm to “show their true colors and demonstrate whether they care about customers.”   Particularly in industries where human life is at stake, people expect firms to put profits aside and do the right thing.

Unfortunately, the traditional approach of companies is first to attempt to cover up the incident so that no-one will ever realize that a mistake was made.   If it cannot be hidden, to maintain a stiff upper lip and show no sign of panic so that people think that they are well in control of the situation.   This sort of cold reserve that causes a leader to be regarded as cold and unconcerned, or even ignorant or in denial, in non-emergency situations.

There is some merit to the notion that people will recall companies that have to issue defects as being incompetent, but survey results do not bear that out.  One survey reported that more than 90% of respondents agreed that “even the best run companies can make mistakes that can lead to product recalls.”    As such, only 10% of people assume that a company that made the mistake is incompetent – and it is presumed the majority seek competence not in the form of perfection, but in being effective in responding when mistakes occur.

From another perspective, this can be interpreted to imply that 10% of the market will judge a company by its behavior in a crisis situation - but 90% of the market will see behavior in a crisis as an exception, and will be trusting and forgiving of a brand that mishandles a crisis, but maintains a high standard of ethics in its ordinary (non-crisis) operation.

In the end, crisis and non-crisis behavior are not two entirely separate things.    When it comes to individuals, it's found that their behavior in a crisis situation reflects the values and behaviors that person practices in everyday life: there is very seldom an instance of crisis in which a person's actions  are diametrically different than their everyday character - and likely the same is true of firms as well.

Thursday, March 15, 2018

Identifying Key Attributes, Features, and Meanings

When it comes to attributes, features, and meanings, there is a staggering array of possibilities.  Rather than taking the “kitchen sink” approach and attempting to be everything to everyone (which is quite often impossible), a maker must identify which of the attributes, features, and meanings is important to a given consumer.   Ideally, the product will be loaded with everything the customer desires, without the added expense of anything that they do not desire, to maximize profit.   But how does one know what qualities are important to the audience?

There is no clear answer, and the sources I've read each seem to have their own take, with very little overlap.   Each of these qualities can be considered in and of itself or in comparison to competitors’ offerings:
  • Functional Goals.   What is the user attempting to do with the product?  What problem are they attempting to solve?  What qualities are necessary to achieving their desired goals?
  • Durability.   How long will the customer expect the product to last?  Do they expect it to be serviceable for a long period of time, or is it something they will use once and throw away?  Are they willing to pay more for a more durable product?
  • Convenience.  How easy is it to use the product to accomplish the goal?   Is the customer willing to undertake much effort, or is it a benefit of the product to make the task effortless?
  • Reliability.   How well does the product perform its intended function?  Is there a chance that it will fail?  Is it something that requires a lot of maintenance and repairs?   Does the product perform well under a variety of environmental conditions?
  • Difficulty.  What will customers need to know/learn in order to use the product properly and effectively?  How much of an inconvenience is it?
  • Performance.  Can the power, speed, or other capabilities be improved to complete the task faster or better?
  • Aesthetics.   Is the product attractive and packaged properly?  Does it convey the appropriate impression?
  • Technology.  Has the technology progressed since the last time the product was updated to provide anything that will improve the product?
  • Value.  Do customers feel the benefit of the product is worth its price?   Can the benefits be increased or the price decreased?
  • Meaning.  Does the product speak to the appropriate emotional desires of the customer?  Do they feel it is appropriate or desirable for the kind of person they wish to be perceived as?
  • Market.  Is there a more profitable market segment to whom the product can be positioned?

It is particularly important to engage customers and prospects in answering the questions – the success or failure of a product does not depend on what insiders think of it, nor even the industry press, but on the way that it is perceived by the customer.

Thursday, March 8, 2018

Locking in Customers

There are various practices that are used to lock-in customers so that they continue to purchase a service or reorder a product rather than switching to a competitor.   Term contracts for services such as cable television and wireless phones are common examples: the customer must repurchase each month and must pay fees to cancel their contract.  This is meant to add to the cost and inconvenience of switching – but more importantly to make the customer feel that they are committed so that they don’t even consider switching or terminating service.

There are also switching costs to products – such as the cost of replacing a library of videotapes with DVDs when changing to a different kind of player, retraining employees when changing to a different software package, and so on.  These costs are often described in terms of the money price, but there is also a psychological effort involved when it comes to consumer products.   It’s simply less pleasant to have to deal with a new product or a new provider, even if the cost and time involved is the same.     The difference between as switching cost and a lock-in is that the latter is intentionally created by a supplier.

Likewise, there are strategic differentiations that a firm uses to entice customers to repurchase: offering a unique product or feature, selling at a lower price, having a long duration, and so on.   It is arguable whether these are lock-in tactics because they give the buyer a reason to prefer their brand, but the buyer doesn’t lose anything by purchasing a different brand.

There’s a specific mention of the social and emotional involvement with a brand.   When a customer feels a social connection to a person who provides them with service, or a social connection to other customers of the brand, this causes them to be reluctant to leave.   However, unless this is set up intentionally, it is not a lock-in.  And in some instances, this works against the brand (when a hairdresser leaves a salon, her customers will often follow her because their attachment to the employee is stronger than their attachment to the brand.)

Customers can also become emotionally attached to the brand itself when it becomes a part of their identity.   A person who feels they are a Cadillac-driver is inclined to purchase the brand even if there is no connection to their salesman or the dealership, even if it is less suitable and more expensive than other brands.   While brands covet this level of commitment and seek to foster it, it is ultimately the choice of the customer to become and remain loyal to a brand.

Thursday, March 1, 2018

Innovation: A Matter of Vision

Depending on how it is done, innovation can have a very brief shelf life.   If your firm depends on novelty to sustain its market, anything “new” quickly loses its flavor.    This is particularly true when competitors notice that a firm has discovered something that excites the market and move quickly to imitate it.  In a very short amount of time, the quality that was unusual and unique to one specific brand becomes ubiquitous and everyone is offering it.

There are, of course, some protections afforded to manufacturers to give them exclusive demesne over a slightly differentiated product – but since business has gone global, these protections have no teeth.   It’s nearly impossible to prevent a manufacturer on the other side of the globe, or even on the other side of a political border, from copying a product.   Even manufacturers in the same nation, subject to the same legal system, are quite adept at finding loopholes that enable them to adopt and imitate any quality that customers find attractive.

In such an environment, innovation gives a company only a short-term advantage: it enjoys consumer preference between the moment it delivers something unique to the market and the moment its competitors take away this advantage by replicating that quality.   Hence, the constant atmosphere of panic at many firms to “innovate or die” is an attempt to constantly stay a step ahead of imitators that are hot on their heels.

But all of this is predicated on certain premises: that the competitors recognize the value of the innovation and wish to imitate it.   Particularly in an atmosphere in which innovation has become rampant, there is much greater value in being able to evaluate innovation than to be nimble in imitating it.    Not all new ideas are good ideas, and quickly imitating a bad idea can be devastating – as such an evaluative step is critical.

And this provides an opportunity for sustainable innovation: an idea whose value is seen by the market, but whose profitability is missed or underestimated by competitors.    It is impossible to conceive of an innovation that cannot be imitated – but rather simple to conceive of one that will not be imitated.

An entrepreneur is defined by his willingness to take risks that others will not, to bring something “new” to the marketplace that customers will find more appealing than existing options.      The difference between the successful entrepreneur and the dilettante whose ideas result in a string of failures is in the ability to preform an accurate assessment and prediction.   And the ability of the entrepreneur to stay ahead of his competition is in seeing the value that they do not.   Their lack of vision is its own impediment.