Saturday, March 30, 2013

Price Sensitivity and Opportunity Cost

It's occurred to me that conversations and decisions on the topic of price sensitivity tend to neglect the notion of opportunity cost, and particularly in times of economic hardship, it is likely more influential to buyer behavior than it normally is ... though given that the present financial downturn has persisted for at least five years, we may need to revise our perception of "normal," as the lessons learned during the present slump and the behaviors to which consumers have become habituated will likely persist even after the storm has passed.

Cost of Production

The cost of production is relatively straightforward: the producer considers their variable costs, overhead, cost of capital, and required return in providing a good to the market, and the very least the customer can expect to pay is a price that covers those costs, which for some is the basis of their consideration of a fair price.

However, costs of production are very rarely considered by the customer, who are primarily concerned with their own needs rather than the needs of the producer.   It is especially rare in cultures that do not engage in haggling, but have the expectation that the price as marked is not negotiable.  For the majority of purchases in US markets, that is the case: we do not haggle with the grocer over the price of a melon, as is common in some eastern cultures, but take it or leave it based on the demanded price.

As an aside, I'm often surprised by the number of people who do not seem to recognize when haggling is appropriate.   People seem to take the price of items such as furniture or jewelry to be non-negotiable, and the only realm in which they feel haggling is possible is in the automotive sector or private sales.  Of course, there is another species of customer who seems to feel haggling is appropriate in venues where it is not, much to the chagrin of others who are waiting to be served while they waste time hectoring store clerks for a better deal.

And of course, all of this is a diversion, the point being that production costs are an indirect influence on the customer's assessment.

Need-Based Cost

Another common approach to evaluating prices is in the customers' assessment of their needs: whether worth the cost to satisfy a need, or whether the consequences of failing to fulfill the need necessitate paying the cost. It is essentially a binary decision - to buy or not to buy in a specific instance, not yet considering alternative methods for suiting a need (see next section).

It stands to note that vendors cannot accurately assess the needs of a customer and how much it is worth to have those needs fulfilled.   The customer knows these things with certainty, and the vendor can only guess.  They very often guess wrong, covetous of profit per sale and indifferent to sales volume.

Need-based pricing is a common consideration when a vendor that assumes the customer will not purchase in future if he does not do so immediately.   It's also a negotiation tactic used to place artificial pressure on the buyer to create the impression of a now-or-never (or "limited time only") deal when such is not the case.   When it works it can result in a good profit on a one-time sale, but when it fails it fails disastrously and devastates the potential lifetime value.  And from the consumer's standpoint, it can be quite amusing to see how a vendor who has pulled that trick squirms when you fail to react.

But again, I digress: needs-based considerations are generally a preliminary decision (the customer would not be in the market at all if his needs were inadequate to the price) under normal circumstances - and that it only takes precedence in the customer's assessment in certain instances by dismissing all other bases.

Alternative-Based Costs

Alternative-based costs derive from needs-based costs: in this instance the customer recognizes that the cost of neglecting the need is unacceptable, but is considering cost in a comparative versus binary manner: there are other alternative that can be chose to address the need, and the customer assesses whether one possible option is the most efficient use of his budget.

This may be a product-based decision (a customer needs to clean a floor but is choosing between a vacuum cleaner and a broom) or a brand-based decision (a customer has tentatively chosen a vacuum cleaner and is now choosing between a Hoover and an Oreck).  The binary test of whether the item is adequate to solve the problem has been satisfied, and the customer is considering more qualitative factors (how effective, how easy to use, etc.) in considering an option, mindful of his other options.

It seems to me that the alternative-based approach is grossly overemphasized by sellers, as evidenced by marketing messages and promotional tactics that present comparisons to similar brands and products.  That's not to say it's invalid, nor to say that buyers do not similarly overemphasize alternative-based criteria, but ultimately the price that a buyer is willing to pay is based on the fulfillment of need, and they can be very intelligent and diligent in identifying other options, outside of what a firm considers to be its competition.

However, success at alternative-based appeals relies on the premise that the customer is able to afford an array of equally satisfactory options.   Which is to say that it functions well under "normal" market conditions, but falters in times of financial hardship.

Opportunity Cost

The topic of opportunity cost is often pointedly ignored in discussions of price sensitivity, largely because it is very difficult to focus in a meaningful way.   It pertains less to the purchase of an item in question and more to the entire budget of a customer and a holistic consideration of needs.  That is to say that it asks the question "Would I rather have this product, or would I prefer to have something else I might obtain for the same amount of money?"

That "something else" opens up a universe of possibilities that cannot be conveniently discussed or considered - but is again fundamentally derived from the needs-based decision by broadening the consideration.  Whereas alternative-based cost considers other products that might be obtained to service a need, opportunity cost considers other needs that might be satisfied with a budget.  In times of hardship, opportunity costs tend to take precedence in buying decisions.  Lacking sufficient budget to fulfill their every desire, the customer is not choosing between products but between needs.

Most vendors are loath to consider opportunity costs.  For vendors of luxury goods, making a prospect aware of more pressing needs is a losing proposition.  But even when the product in question is a necessity, it is culturally inappropriate to intrude on another person's financial affairs.   It would be highly inappropriate for a salesman to ask a customer the questions necessary to demonstrate that if he drank one less cup of coffee a day and switched to a cheaper brand, that would enable him to afford a car payment that's $25/month higher.  Not to say that some won't try, but it's taking a risk of offending a potential customer.

Even so, it seems that opportunity costs are a significant factor in the customer's perspective on price in times of economic hardship, and there may be instances in which it is less offensive and even welcomed for a vendor to encroach on that territory.  Taking the same example, a customer who is negotiating an auto loan with a banker expects to be asked, in a general way, what their "other expenses" are each month, and may even be tolerant of a bit of intrusiveness if the banker might help them discover ways to be able to afford a higher loan.  However, this seems unusual: the perception of the consumer is that banker has less at stake in the decision, is in a position of greater power, and is providing a supporting service rather than selling a product.

To end with a digression, as it seems that's the way things are going, the customer perception of banking is entirely wrong: the banker's profit from the loan is at stake, he is not in a position of power given that there are other sources of a loan, and he is in fact selling a loan product.  Most people don't seem to recognize that, and assume an overly docile negotiating position, to their own detriment, when dealing with certain vendors.

Convergence and Conflict

The main thrust of this meditation is to propose that opportunity cost is woefully neglected in the present market - but I've also sensed that, aside of the obvious diversions, I'm touching on yet a different concept: that of the convergence and conflict among these various perspectives on pricing.

Arguments of whether a given product is worth the price are common.  Not only is it implicit in the setting and negotiation of prices, but it's also implicit in any product review, and often surfaces in casual discussions about products and brands.   The source of disagreement may be in whether a price is justified among two people who share the same perspective but it is also common, and perhaps even more common, in discussions or negotiations between people who are taking different perspectives.

That is, one person may conclude a product is worth its price based on production cost criteria, another may conclude it is not based on needs-based criteria, a third may feel it's a good deal based on a consideration of alternatives, and a fourth may disagree because he is considering opportunity costs.

As such, in negotiation and agreement, it's likely necessary to identify the perspective before debating the criteria that underlie a conclusion - or when the debate is entirely internal, to the mind of a buyer faced with a purchasing decision, to be more deliberate in considering the various perspectives.

Tuesday, March 26, 2013

Lifetime Value versus Market Share

In a discussion forum, someone asked "When will companies finally figure out that market share is leading them in the wrong direction?"   My sense is that it was a rhetorical question, asked in a tone of despair at the failure to adopt a lifetime value metric, and with the sense that lifetime value is not sufficiently considered in decision-making.   I'm inclined to agree.

Market share is inherently a short-term metric that focuses on one-time sales and neglects to consider the profit (rather that revenue) derived over a longer period of time.   Firms speak about the market share they had last quarter, the market share they hope to achieve next quarter, and implement myopic strategies to push immediate sales to the neglect, and often to the detriment, of customer loyalty.   Market share thinking does not care if a person has ever purchased before, nor if they every purchase again - it's about making sales right now.

Another participant in that discussion alluded to the fable of the little red hen, which is a favorite of mine when speaking to those who don't seem to recognize the problem of myopic marketing plans.   Nobody wants to help the red hen to plow the fields, plant the seeds, pull the weeds, cut the wheat, thresh the stalks, grind the grain, and so on - but all the other animals in the barnyard show great interest when there's bread to be eaten.  It's particularly germane to the financial services industry, whose business it is to help clients manage their wealth - but who show utter disinterest in helping those who are not yet wealthy manage their investments to become so.   Products and services are restricted to those with sufficient liquid assets, generally about $1 million, and anyone with less is unqualified and treated with disdain.

Perhaps they fail to consider that the vast majority of wealthy individuals were not born into wealth, but earned it slowly over their lifetimes.   They certainly fail to consider that those who spend years managing their own finances do not suddenly feel the need for assistance when they have achieved success on their own - and often resent the firms that come crawling out of the woodwork when they've made their bread.

Granted, that's an individual perspective - I've only known a small number of people who have amassed wealth in excess of $1M, but I have heard the same story from a few of them, who feel a sense of disgust when they hit the magic number and firms that could not be bothered to serve them, and even those who treated them with an air of contempt while they were struggling to build their wealth, suddenly come calling.

It would seem to make sense for firms that seek to serve the upper income levels to take a look not at the present market of qualified customers, but to consider what their customers looked like before they became qualified - and to reach out to customers who are not in their desired income bracket, but who show signs that they eventually will be.  I'm not aware that's a common practice - they are still fighting over share of market, showing up on the doorstep of "new" customers who have matriculated into the market they prefer to serve, and wondering why it is so difficult to gain their trust and their business.

This is true of other industries as well, and I do see some signs of improvement in this regard.  Consider the Mercedes-Benz C-class of automobile, affordable to the lower ranks of the bourgeoisie, as an overture to a long-term relationship.   It is likely easier for Mercedes to usher them into an S-class vehicle after providing them with years of service that it is for them to woo affluent prospects whom they had previously treated with disdain.  I've seen information about an A-class (which has not yet hit the American market) at an even lower price point to begin the brand relationship even earlier in life.

Naturally, there is some argument that reaching out to scruffy people denigrates the brand, and that a luxury product that stoops to serve the lower income brackets loses its appeal to its wealthy customers.   Said another way, there is not nor should there ever be an entry-level Rolls Royce, but it should remain aloof as a trophy for those who have arrived at a certain level (I understand their target market to be individuals with a new worth of $30M or greater) an unavailable to them until they have qualified, if for no other reason than to maintain the prestige of those who have earned their rewards.

But arrogance is not becoming, and many brands wish to perceive themselves (or to be perceived as others) as luxury when they are merely premium brands.  Mercedes is an excellent example - even their most elite model is not a luxury car, but a premium one (people choose between a Mercedes and an Audi or BMW, not between a Mercedes and a Rolls or Bentley) - and pretensions to the contrary are counterproductive.

As such, a luxury brand must remain aloof, keeping a distance from the customer until they are qualified to join the club of the economic elite, but other firms must be careful to be objective and humble about the status of their brands.  Automobiles, clothing, jewelry, and the like have the qualifications to claim luxury status, in that their conspicuous consumption is a badge of social distinction to their owners.  The car you drive speaks to the world of your status, the brokerage house that manages your money does not, nor do many other categories of product.

I sense that I have transitioned to an entirely separate meditation about the nature of luxury, having wrung out the original topic of the difference in the nature of short-term and long-term measurements of success - and may need to consider splitting this meditation in future.

Friday, March 22, 2013

Empowerment, Neglect, Incompetence, and Mistrust

I've heard the phrase "customer wants to do things for themselves" a bit too often lately, to the point that I'm beginning to feel it should not be accepted without some reluctance.   Perhaps it's a dour state of mind, but I sense there is value in questioning this notion, because I have the distinct sense it is not as axiomatic as it might seem, and that the motives have less to do with wishing to empower the customer than to conceal a flaw in the customer-vendor relationship that stems from neglect, incompetence, or mistrust.

Primarily, it's in conflict with another set of premises.  First, the customer purchases a product to achieve a goal, and they wish to achieve this goal with as little cost as possible.   Second, the notion of cost is not merely in the money-price of the item, but in the effort to obtain it.   This is particularly clear when the product in question is a service rather than a physical object, the customer seeks a vendor to perform the service is paying for their competence to do it well, or the convenience of having someone else do it.

So when someone insists that the customers want to do something for themselves, it begs the question of "why?"   I'm not confortable with some of the answers to that question - as they lead to the conclusion that self-service by the customer is a hack for poor service by the vendor.


In some instances, perhaps many, the notion that "the customers want to do this for themselves" is a disingenuous rephrase of "we don't want to do this for them."   At best, the service provider has failed to accept the responsibility of contributing their effort; at worst, they are looking for ways to shirk the duties they know they should be performing.

Consider the example of grocery-store self checkout kiosks: I don't suspect that a survey of customers, if one was ever done, suggested that customers really wanted to perform this menial and monotonous task of being their own check-out clerk; instead, I suspect that it was a financial decision intended to reduce staff expense by asking customers to do a task so the store could save the cost of paying an employee to do so.

Neither do I accept the premise that the cost-savings to the company are passed along to the customer because there is no direct connection between performing the task and saving any cost on purchases.   It would seem a natural incentive to adopt self-service by offering customers a discount, even a few percent, for performing the task to encourage them to do it - and I have never seen a single self-service checkout that offered such a thing, and the suggestion that there is some vague connection to price reduction seems specious.


In other instances, the customer wants to do a task because they do not feel confident the service provider can do it properly.  And so it follows that if you want something done right, you have to do it yourself - which seems acutely inappropriate when you are hiring a professional to do it for you.

An example for this premise is self-service stock trading.  Brokers and financial advisors, for all the resources at their disposal and claims of expertise, are woefully unable to achieve consistent success in identifying profitable investments.  And so, their customers feel that even with less information and experience, they are capable of doing as good or better a job of evaluating and selecting investment opportunities as the "professionals" who have failed to serve them adequately.

In this example, unlike the checkout kiosks, there is a financial incentive for the customer  to engage in self-service trading in the form of substantially reduced commissions.  So likely the waters are a bit muddied - but saving ten dollars on a commission for a modest investment seems unsound if the customer believes in the competence of a professional trader: if he could earn a few percent more by choosing a better investment, this would more than compensate for the higher commissions.   And sadly, this proves out to be true in the perception of the customer - because a person who engaged in self-service trading and achieved poor returns would go gladly back to using a full-service broker and there would be a revival in the profession.   Given that has not happened and a substantial number of investors prefer self-service trading to broker-assisted trading, the complete lack of faith in the competence of financial professionals is indisputable.

Arguably, this may fall into the category of neglect - I don't sense that they are mutually exclusive at all - but my sense is that the root of the customer's desire to serve themselves is not a false premise created by a business that wants to hire fewer employees, so much as it is belief on the part of the customer that the vendor lacks competence.


In other instances, likely the worst-case scenario, the customer wants to do a task because they do not trust in the service provider, and only by taking on personal involvement in the service can the customer be certain that their interests are actually being served.   It is not merely that the customer feels the provider is incompetent to do a good job, but that they feel the provider has ulterior motives to exploit the relationship.

An example to support this premise is the popularity of healthcare web sites, in which people who suspect they have a condition that needs treatment consult reference information and converse with others who have similar problems to decide what course of treatment they need before seeking a physician to provide it.   Even if they do not presume to tell the doctor how to treat them, they will cast a suspicious eye on the healthcare provider who suggests a different course of treatment.

Again, it's a gray area, and it could be that people do not trust in the competence of healthcare providers - but it's my sense that mistrust plays a larger role: that doctors will prescribe a costly or long course of treatment because it's in their financial interest to do so, or are required by an insurance company to use an inferior but cheaper treatment in order to be compensated for their work.   This is a common refrain in the healthcare debate that has been going on for decades, the chief casualty of which has been the trust in the healthcare industry in general.

Begging the Question

Ultimately, all of this is speculative and general.  Each customer has his own preferences for the level of service he expects a vendor to provide, but even that is superficial.   For any given instance, I cannot accept the premise that a significant number of customers have ever expressed a preference for self service without asking the reason that it should be so.

When someone within a business suggests that customers want to do things for themselves, I strongly suspect that this attitude is simply a dodge for wanting to cut costs by providing a lower level of service - and suggest that if the level of service is diminished, the result may be a loss of business.   There should be some research to determine whether the compromise is acceptable to customers, at the very least.

When a customer responds that they would like to do certain things for themselves, research the reasons they feel that way.   Do they feel that the service provider cannot serve their needs adequately, do they distrust in them, or is there some other reason that has not been identified that they feel that the value they receive is better served by doing it for themselves?

Where the numbers work out right, such that the cost-savings of "empowering" the customer to do certain tasks outweighs the revenue-loss of disappointing customers who expect better of a service provider, then enabling self-service may make financial sense, at least in the short term.

But I'd like to conclude this meditation with a different consideration: doesn't it seem that customer self-service is merely a hack to avoid solving a deeper issue that should be addressed?  If the customer does not feel your service suits their needs, would it not be better to improve the quality of service?  If the customer doesn't trust you, would it not be better to address this serious problem with your relationship?   My sense these questions are, or ought to be, entirely rhetorical.

Monday, March 18, 2013

Creating Products that Captivate Customers

I've recently read Built to Love, which considers the emotional nature of the relationship between customer and brand.   The basic premise of the book seems sound: that customers may purchase a specific brand without much thought.  They need the benefits of the product, and if a given option offers the right features at an affordable price, they will likely buy it ... but will feel lukewarm about it.   To truly engage the customer, to earn loyalty and referrals, a brand has to stimulate an emotional reaction.

It's likely an important topic in the present competitive environment, in which most products are highly commoditized in terms of their quality and features, and competition tends to be on price - which is a losing game.  What differentiates one brand for another is the way that customers feel about it - a much squishier notion that seems to defy quantification, but nonetheless important, perhaps even critical.

The mystical qualities of emotion make it difficult to tract - to argue that a given brand makes people feel safe, sophisticated, or happy is largely speculative, and even asking the customers themselves does not produce reliable results.   Ask a person why they choose the iPhone rather than the Android and they will speak of the products features and ease of use - they will not mention that it makes them feel fashionable, that they feel others respect them for seeing them use it, that they fear being perceived as uncool if they use any other brand.   Suggest that this might be their real motivation, and they will likely deny it vehemently.

It's not just in the consumer market that emotions play a role.  Ask any IT manager why he chooses to use an Oracle database server and he will likewise explain the cold, sterile logic that a person who makes business decisions is expected to apply.   He will never admit that he fears taking a risk on a different brand that is cheaper and offers better features, or that he feels safe by using a brand that others use, or that he feels a sense of comfort in belonging to a clique of other executives who use the same brand.   But it's undeniable this comes into play.

In all, the authors make a very solid case for the influence of emotions on consumer behavior - but fall a bit flat with the advice for leveraging them.  How do you get beyond the pretenses to discover peoples' true emotions about a product?   How do you design a product to reinforce emotional outcomes?   How do you create an advertising message to appeal to or adjust emotional perceptions?     There's a strong case that these things ought to be done, but paltry advice on how to do it.

At yet, half credit for doing half the job.  My sense is that to understand human emotions, the reasons they arise, and the way that they can be reinforced or redirected, is likely more to do with social science (behavioral psychology) than business (marketing and product design), so further research in other areas may be needed to provide a plan that will enable us to successfully execute on these directives.

Saturday, March 16, 2013

How Fast is Too Fast?

The notion that interactions should be as fast and easy as possible seems to be accepted without question - but lately, I've been questioning it.    People roll their eyes, snort, and make sarcastic remarks along the lines of "Yeah, like our customers want things to be slow and difficult," but from what I'm seeing, I'm led to consider that there truly are instances in which the customer feels like a task should take a little more effort, and they feel uneasy when they something seems too easy and too fast

To back up a bit, I'm referring to acquisition and servicing transactions in the digital channels, where it is possible track the clicks and seconds to arrive at a rather precise estimate of how long it takes to complete a flow, even across multiple visits, down the level of how many seconds it takes to fill in every "blank" in an online form.

This level of granularity enables interaction designers to be extremely precise and focused, and it can result in dramatic improvements:  if a question is oddly phrased, then making it clearer, restructuring it, providing help text, or even moving it to a different place in the flow can have dramatic consequences: a question that a user might ponder for 30 seconds before answering can be improved so it takes less than five.   Do that for each of twenty questions in a flow, and you can turbocharge a ten-minute task to require less than two minutes.

The problem is that when things go this fast, doubt arises.   It's very similar to the way that too low a price for an item causes customers who have doubts about quality.   In the same way, if a task is too easy (especially if it's a "complicated" task like applying for a mortgage or getting an insurance policy), people feel very uneasy, assuming that they did something wrong - they abandon the online channel and pick up the phone (or leave altogether) because the task went so quickly that they fear the product is not what they really need.

I can say with confidence that this happens in the digital channels, but I expect it applies in other channels - and the discomfort and anxiety is even worse.  A customer on the phone or in a store can feel very uneasy about a transaction that goes too quickly because there is a person who represents the interest of the seller, who is pushing them.   At best, there's the sense that the operator or clerk has not been attentive enough and has not asked enough questions to understand their needs, and will put them in a product that will not be satisfactory.  At worst, there's the sense that they are being fast-talked and hustled, either to buy something quickly or just to get them off the phone without serving them adequately.

In all, I don't think I can maitnain the axiom that faster is always better - and as absurd as it may seem, sometimes it's better to require the customer to invest more time.   I am absolutely certain that an objective measurement of the amount of time it takes to complete a task cannot be the sole measurement of quality - it has to be benchmarked against a more subjective measurement of how much time the customer feels that a transaction should take, or their level of comfort after completing it.   Did it take too much, too little, or about the right amount of time?

Benchmarking against customer expectations so will likely lead to the conclusion that some things are done too fast.    And as much as I feel uncomfortable at the prospect of rigging a transaction to take more time than is absolutely necessary, it does seem entirely reasonable to conclude that it can in some instances result in greater customer satisfaction.

Thursday, March 14, 2013

Overthinking and Underthinking

There’s a vending machine in my office that I’ve used at least a thousand times, and only now paid attention to the way the contents are stocked.   Maybe I’m thinking too much about things (a habit I can’t seem to break, but it’s served me well), but the way in which beverages were arranged struck me as the outcome of a conflict of interests in which the wrong interest may have won.

Specifically: this is one of those vending machines in which the bottles are fetched by a mechanical device that carries them to a dispensing slot.  (I’d share a photo, but photography is verboten in the office and twenty minutes on Google failed to produce a satisfactory shot.)    In itself that’s a very clever innovation, as the old machines that dropped the product agitated the content, which can be amusing to anyone who doesn’t get sprayed, but is less amusing to the customer.

But I digress (something of another habit, same disclaimer) …

In particular, I noticed that the merchandise was arranged to put the most popular items (bottled water and name-brand cola) nearest the top, with more unusual items (sports drinks and pineapple soda) nearest the bottom.   Presumably this was done to put the most popular items at eye level, such that a person who approached the machine would see what they most likely wanted right away.

It’s a valid and logical choice from a merchandising perspective, though likely more appropriate to getting attention from passers-by in a pedestrian area than dispensing beverages in an office building (where it might make more sense to put more high-margin items in a more prominent location), but consider the other consequences of this decision:
  • In terms of operations planning, it’s likely a poor choice because the mechanical device that fetches the drinks from their shelves must travel furthest for the most popular items, increasing wear and tear on the machines.
  • In terms of work design, it’s likewise a poor choice because the serviceman who restocks the machine must bend and twist his body repeatedly to reload the items that most frequently need restocking.
  • In terms of quality control, it’s also a poor choice because warm air rises and cold air pools, meaning that the most popular items which rotate quickly are situated in the warmest part of the compartment, and the slow-moving items are kept in a place they would cool more rapidly
  • In terms of customer experience, it’s also a poor choice because the buyer must wait longer for the more popular items because the mechanical arm travels further.
So, again, the decision to stock the most popular items at eye level served one purpose (merchandising) but undermined at least four others (sustainable operations, work design, quality control, and customer experience), so I can’t help wondering if this was the right choice.   While I am likely guilty of thinking about this matter far too much, the vending company is likely guilty of thinking about it far too little, which I expect is decidedly worse.

Sunday, March 10, 2013

Universe of Experience

Much of what I've read lately about customer experience seems to focus almost exclusively on two phases - the acquisition process and the period of ownership.   I can't disagree that these are likely the two most important parts of  the entire universe of experience that exists between brand and consumer, but it also seems to me that a great deal is left out.

The brand contact during the period of acquisition seems to be of greatest interest to firms, as it leads to their most treasured moment: the moment at which the consumer gives them money.  There are those who distance themselves from the mercenary aspect of business, and feel the desire to get money debases what they do - but there's really no getting around it: revenue is the critical factor for companies.  Even those who want to sweep it aside and talk about the benefit customers get from their product put a great deal of effort into getting the customer to buy it in the first place.   Revenue is even a critical factor for nonprofits, some of which seem far more concerned with appealing to donors than to achieving the social good ... but that's chasing a diversion a little further.

Switch back: there is disparity between the interest of buyer and seller in even the two most obvious periods of experience: the seller is more attentive to the a pre-sale experience (from getting known through the purchasing flow) whereas the buyer is more focused on the post-sale experience (owning and using the product).   There is some overlap - sellers recognize the post-sale experience is significant to getting repeat business and buyers find some value in a pleasant pre-sale experience.

But even at that, these two perspectives seem focused on a very narrow part of the broader brand experience.   When a customer notices a story in the media about the firm that provides a brand, that is part of their experience.   When a customer sees or interacts with another person who is a consumer of the same brand, that is part of their experience.   When a customer sees a discarded packaging in which a product once was contained, that is a part of their experience.   When a customer discards a worn-out product, that too is part of their experience.

Some these experiences/touchpoints derive from the acquisition and ownership periods, but others do not, and as such, they receive little attention - but each of them contributes in some way to the customer's overall conception of the brand, and I think they have the potential to do so in such a significant way that they merit greater consideration.

I feel I'm unraveling at this point - though  likely I never got raveled in the first place - thoughts popping up about the various incidents in this broader concept of experience.  Likely pouring them out in a stream-of-consciousness fashion is unlikely to be useful or remotely interesting, so I'll end this and begin compiling a list, perhaps to post it here when it's more developed and organized.

Wednesday, March 6, 2013

Considering the Whole System

There are days, quite many of them, when working with the IT department leaves me deeply frustrated at their myopic and blasé attitude toward the goals of the organization.   Even on a good day, IT people are difficult people to work with, their minds so much in the machine world that they completely miss the big picture in the human world.   I realize I’m speaking in stereotypes, but I can’t genuinely apologize because a stereotype would not exist if there weren’t large numbers of people who conform to it … but let me be more specific:

It is all too common for technology workers to focus on the technology to the exclusion of everything else – nothing exists to them outside of the server room.   The system is up and running, and no error messages are being thrown, so everything’s hunky-dory and there’s no cause for alarm or any need to take action.  When designing a new system, the goal is to have “zero defects” such that the system runs efficiently and the lights stay green on the dashboard that monitors system performance.

What they fail to realize is that the computer systems are one component of a larger system: the value delivery system.   Just because the computer system is running smoothly doesn’t mean the value delivery system is running smoothly – it may in fact be horribly broken.  And what’s worse, the value delivery system may be broken by design, built so that the computer system will have the appearance of flawlessness, while outside the server room, Rome is burning.

Likely I’m still in the clouds – let me switch out the telescope for a microscope:  consider the problem of a single question-answer pair in ordering a customized product.   From a technical perspective, everything checks out if the question is displayed properly, if the user is able to provide an answer, if the system is able to receive that answer, and if the system is able to process the answer to arrive at a predicted output.

There’s not a concern for whether the user is able to understand the question, or to answer it accurately – because when that process breaks down, the computer system does not throw an error.   The value system, however, has a serious malfunction: the customer does not get what they want (or need) because they have not been provided enough guidance to answer the question.    

If the user is confused by the question, or feels uncertain enough, they will not answer it, and may abandon the process if the question is mandatory.   When that happens, the computer system does not throw an error.     The attitude in the IT department is that it’s not their fault if the customer is too stupid to use their system correctly – and there is far more tolerance for this attitude than their ought to be, because it is poisonous to customer experience and the success of the firm.

When a user abandons a transaction online because it is awkward, it should be taken just as seriously as if the IT system had crashed, because it’s tantamount to the same thing: the value delivery system has experienced a catastrophic failure for that user because of the poorly designed interface to the computer system.

The value system, like a computer system, can have redundancies and backups.  Specifically, there are other channels a customer can use to complete their order – they can call or visit a store – so ultimately, the value system doesn’t fail completely, though chances are some customers will bail out entirely when they encounter an obstacle.   Granted, providing phone or in-store service is much more expensive for the organization and much less convenient for the customer ... but again, not a technical issue.

The irony is that the IT department does spin up when something happens in the server room.  If the primary system is constantly failing and the backup system saves the day, they are not blithely indifferent – but instead, they show very great interest in fixing things so that the primary system does its job properly.   If only they had the same level of dedication to the value delivery system, and the ability to recognize that every time a customer abandons a transaction, that is just as big a problem for the company as a computer system failure.

Ultimately, I’m struggling to find a way to get the IT department to recognize that their computer systems are a component in a larger system, and that while their component may not be setting off its own internal alarms, it is still malfunctioning terribly.  I’m not sure if I have a clear method for doing this, but my sense is that getting them to consider the whole system, not just their part of it, might be a metaphor they can grasp.

Friday, March 1, 2013

Product Value Versus Acquisition Experience

I had a frustrating conversation with a half-witted colleague about the difference between the value delivered by a product and the value of a pleasant acquisition process.   Perhaps "half-witted" is harsh - he was a young guy with a few years of experience, at the level of proficiency where he knows enough to think he knows everything, and it may be a while before humility sets in and he sorts things out.  I hope it will happen before he does much serious damage or annoys too many people.

The point of contention was this: he considered the acquisition process to be part of the product, rather than a part of the acquisition cost.  In effect, if you can make the acquisition process pleasant or entertaining, the product itself doesn't need to deliver value to the buyer.   This is not a unique perspective, as I've heard it from more seasoned individuals who ought to know better, as well as executives who recognize that it's cheaper and easier to improve the acquisition process than to improve the product's actual value.  And it's poison.

Taken to its logical extremes, this means that such a person would feel justified in delivering a product that offers no benefit whatsoever to the buyer, but who nonetheless purchases it because the shopping and buying experience is so engaging that they pay no attention to the fact that what they are buying is essentially worthless.   This is exactly what swindlers and con-artists do, and I don't think it's an exaggeration to suggest that it is thoroughly unethical.

As such,  there is considerable danger in attempting to combine two things that ought to be kept separate, such that we pursue success in both regards rather than considering one to be a substitute for the other.   We want the customer to find the acquisition process to be pleasant, or at least as non-unpleasant as we can offer; but ultimately the function a company serves is to provide them a product or service that delivers an actual benefit.

Even as a customer experience practitioner, I must admit that the value the customer derives from the product is far more important than the pleasure they take from the acquisition process - and if any compromise is to be made, a more difficult acquisition for a more valuable product is to be preferred over a more pleasant acquisition process for a less valuable product - at least if we're to have any claim that our ultimate interest is serving the best interests of the customer rather than conning them out of their money for a product that delivers no value.

This is often seen in frivolous commercial products that attempt, through advertising, to generate a level of enthusiasm that leads them to purchase a product that they will later realize is junk.   They may waste a little cash, or in some instances quite a lot of it, and hopefully learn to distrust advertising. In other instances, the consequences are not so trivial - to be encouraged to make a disastrous investment with your retirement fund, to be encouraged to take medication that is a placebo with serious side effects, and the like.  When we create the thrill of anticipation, along with a quick-and-easy process for acquisition, we are doing harm.   And when we equivocate or suggest that the acquisition process is a substitute for product value, we intend to continue doing so.

Perhaps there's the counter argument of "a fool and his money," and I don't think I can deny that - but when we advocate making fools of people for the sake of parting them from their money, we can no longer claim innocence from the consequences.