Thursday, August 29, 2013

Long-Term Brand Loyalty

A casual conversation about the longevity of marriage got me to thinking about the longevity of brand loyalty.  I spent some time speaking with, or rather listening to, a man who was very pessimistic about the longevity of marriage.    He had just been through his third divorce.  He was twenty-seven years old.  Naturally, it made me wonder if he had any idea what “marriage” meant – he had some expectation of what it ought to mean, but was obviously not very devoted to the concept.

Statistics on Marriage and Divorce

I’ve long been skeptical of the pessimistic statistics about marriage – that over half end in divorce.  Census statistics support that figure, but it seems a bit dodgy because a person who remains married is counted only once, whereas a person such as the serial divorcee who was speaking to me counts three times, as do each of his wives, who may also have generated additional divorces to add to the statistic.

Digging a bit deeper, statistics also indicate that only 15% of people have ever been divorced.   Even if you trim away about 25% of the remainder as those who never have married, primarily children who are too young for marriage and the odd lifelong bachelor and spinster, there are still likely 60% of the population who married once and never divorced.  So in the end, is that 25% of the population has never been married, 15% have been divorced one or more times, and 60% have been married only once (whether still married to their spouse or widowed).

That paints a much brighter picture about the institution of marriage than the media would care to promulgate: people who remain loyal to a partner all their lives outnumber people who are disloyal by a ratio of about 4 to 1.

Analogy for Brand Loyalty

Loyal to to a brand is not perfectly analogous to loyalty to a spouse, in that it is generally accepted that a company sells products to many people – such that the customer cannot expect to be the “one and only” customer of a brand.    Though it does seem a bit ironic, in the nature of a philanderer who expects loyalty of their spouse, for a brand to expect to become the “one and only” to each of their millions of customers.

It’s generally accepted that brands and customers have an open relationship, the terms of which are that a brand is free to pursue other relationships at will and loyalty is expected of a customer so long as their individual needs are being fulfilled.  That is to say, so long as a brand serves the needs for which it was purchased, the customer doesn’t mind if the brand wants to be appealing to other customers as well.

But therein lies the problem.  If a brand, in pursuit of new customers, changes something about itself that sufficiently detracts from its appeal to exiting customers, their loyalty will be lost.   This is most evident when a brand changes something to do with the functional benefit of a product.  It is also evident when a brand changes its service experience.  And in some instances, it occurs when a brand changes its culture or image (when a person feels the use of the brand is a reflection of their culture or status).  That is to say that people in general are willing to give loyalty, but it is not unconditional.

I have not seen statistics for brand loyalty that parallel the marriage statistics I presented earlier, but it does seem entirely reasonable that they might be about the same for many products: 25% of the population has never tried the product at all, 60% are generally loyal to a single brand, and 15% of the population has no brand loyalty and jumps from one brand to another at a whim.

I don’t expect these numbers to be that far off.  Browsing through my pantry and my wardrobe, and generally looking about at the things that I presently own, I do have the sense that a majority are brands that I have been purchasing all my life, and “about a quarter” seems about right for the brands that I have intentionally changed in the past several years.   I don’t expect that this is unusual.

Pessimism about Customer Loyalty

I also have the sense that companies are overly pessimistic about customer loyalty, in the same way that serial divorcees are pessimistic about loyalty of their future spouses.  A man who cannot keep a wife wishes to believe that his behavior is normal and that there’s something wrong with the women he's encountered – and in the same way a brand that cannot keep its customers wants to believe that its behavior is acceptable and that there’s something wrong with the customers, who will not give loyalty to the brand.   But this is mere posturing and, worse, it leads to an abdication of responsibility for making the relationship last.

That is to say that a 27-year-old who has divorced multiple times is likely a terrible husband.  While he feels that his ex-wives have failed him, he is the common element in each of those failed marriages.   And I strongly suspect that a similar conclusion can be drawn from any brand, or any professional in charge of a brand, that if they feel that their customers are disloyal, they are neglecting (or perhaps refusing) to consider the part they have played in the failure of that relationship.

In all, I am left with the sense the pessimism about long-term customer loyalty is not an accurate reflection of reality, and aggrandizes the customers who churn in an out because their behavior is more dramatic than that of the contented (or patient) customers who remain.   It’s far easier to get hired as a consultant, or to get budget allocated to a department, if there is an implicit promise to win new customers than it is to get hired or funded to maintain the loyalty of existing ones, and an inordinate proportion of time and money is spent chasing customers who have a history of serial disloyalty in hopes they will finally settle down with a good brand.

All of this ignores a less distressing reality: that most customers are loyal to most brands, provided that the brand remains loyal to keeping the promises it has made, implicitly or explicitly.   So it should be somberly considered whether it is really worthwhile, in the end, to neglect a loyal customer based in pursuit of new business that may not be faithful, or even have the desire to be faithful, to the brand.

Sunday, August 25, 2013

The Nature of Trade in General

I've recently read Cantillon's Essay on the Nature of Trade in General, a piece written in the early eighteenth century about the fundamentals of economics, and while it pains me to admit it, I think that the French may be onto something in their approach to the topic that makes their approach particularly relevant to the present day.

The more popular English school (Adam Smith and those who followed) tends to have forgotten or pointedly ignored a foundational premise, which seemed to be dispensable for a time when demand struggled to keep pace with supply, but is become of increasing importance in the present day: why should man choose to engage in productive activity at all?

That is to say: the English school takes production to be an end in itself.  Eveyrone must be productive because the only alternative is to not be productive, and to not be productive is sinful, wasteful, and bad in all regards.   And so, the English school fails to consider the very reason for economics, and in doing so has missed a few subtle but significant points that have been damaging to the western approach to economics.

Production is for Consumption

Cantillon recognizes, from the start, that production is not an end in itself, but is a purpose-driven activity that serves an objective: providing goods and services for consumption.   This would seem to be self-evident and require no further consideration, but a great deal of dysfunctional behavior has arisen from failure to consider this.

Primarily, the present-day emphasis on customer experience reflects the fact that many companies have focused so much on profit that they have forgotten the very reason that people give them money - the desire to consume their products.  Many products are marginally satisfactory and a customer service is barely tolerable because firms focus on maximizing profit by minimizing the value they provide in exchange for the price consumers consent to pay.    Meanwhile, firms that recognize that production is done for the sake of consumption focus on maximizing the benefit delivered by consuming their products, and find that by doing so they earn considerable profit from highly satisfied and rabidly loyal customers.

The consumer has also been forgotten in the design of many products - engineers make things that meet certain qualities that they feel are important (durability, speed, efficiency, etc.) without considering whether these qualities deliver value to the consumer.   Why should we endeavor to make a vehicle that has a top speed of 150 mph or faster when most customers will never drive faster than 80 (on the highways, maybe 50 on surface roads)?   Why should we make computer processors faster when the typical user's needs are more than served by present capabilities?   Why should we invest a dime in any capability that does not serve the need of the customer?    Such questions are seldom ever asked, which indicates that firms are more interested in pursuing the qualities they admire (or are best capable of pursuing) rather than considering the needs of the consumers.

A product that ignores the needs of the customer, being suitable for the needs of consumption while being wildly overdeveloped in ways that are essentially meaningless, had been viable for many years, but only for the lack of options.   Given a plentitude of choices, customers will take the option that best serves their needs and is indifferent to excellence in regards that do not matter to them.

With this in mind, the French perspective becomes poignant, and production for production's sake becomes a meaningless and very expensive ritual for producers to continue to pursue.

Production beyond Consumption is Waste

If the needs of the consumer are ignored and production for production's sake pursued, then the objective of a firm is "more."   To make more widgets, to sell to more customers, to increase market share, ad infinitum.    And while demand exceeds supply, there is always the ability to locate a consumer for an additional unit of production.

But the limit is not infinite - as the world economies develop and more people are included in the marketplace, there are fewer people who are not included, and less potential to continue with growth.    There is a theoretical limit at which point people are producing and consuming all the goods they possibly can, and though it has not been reached, each day we draw closer.

Consider the example of food: in the most developed economies (United States and Germay), lack of food is not a problem, but its abundance certainly is.  Simply stated, when there is too much food, people grow fat consuming the excess, and yet the rule of "production for the sake of production" encourages the cultivation of even more.     While I'll concede that the dream of a world where no-one is starving is worth pursuing, the dream of a world where everyone is morbidly obese is dysfunctional.

With this in mind, and with the terminus approaching, firms must consider a sustainable level of production rather than infinite growth - and the path to sanity is the same: to consider that production is for the sake of consumption, and when the needs of consumption are satisfied, further production is wasteful and even harmful.   So stop pursuing it.

Focus on the Consumption = Focus on the Consumer

In all, the premise provided by the French economists of the eighteenth and nineteenth century is one that yields a valuable insight to the world of the twenty-first.   If we are mindful that production is done for the sake of consumption, we are reminded that the quantity and quality of our products must be aligned with the needs of the consumer, and that the mindless pursuit of more quantity than is needed and more features than are wanted must be mitigated by considering the extent of consumer needs in addition to their nature.

For most industries, this has not yet reached the point of crisis - but it is already impacting their success to some degree, and it seems reasonable to predict that this will only become more pronounced in future.

Wednesday, August 21, 2013

Getting Urgency Right

As a customer, I've found myself if a few situations lately in which a seller has turned me to the competition - not because they were not interested in selling, and not because I was not interested in the product, but because they made a critical mistake regarding the urgency of the purchase.   In their desire to march me to the cash register, they made some critical mistakes that soured me on the prospect of buying from them.  This is not a new experience, and I have a sense it's a much broader problem that sellers mistake their customers' level of urgency and behave in a highly inappropriate manner in attempting to close the deal.

It's likely worthwhile to consider the nature of urgency itself, because like many terms it has been garbled by misuse - something is said to be "urgent" simply because someone feels a sharp desire to have it, which is to say that it's important to them - but that does not make it urgent.   Urgency is more than the importance of taking an action.   It pertains specifically to the speed at which it must be done - which is to say something is only urgent if there is a cost to doing it tomorrow rather than today, or next month rather than this week.   If there is no consequence for failing to act immediately, then it is not urgent, however important it may be for reasons other than time.

From the perspective of the seller, revenue is urgent all the time.   Having money today means being able to invest or spend it before it loses its value - though that's less important in the current economy.  These days, a dollar in January is worth 99 cents in December because inflation and interest rates are nearly flat.  There once was a time it would be worth only 90 cents, or even less, because of the rates of inflation and interest were much higher.   But even though the financial rationale for urgency is less poignant, it still remains a psychological need that relates to security - the more time it takes a customer to decide, the more likely it is they will decide to buy from someone else.   There is an almost palpable sense of fear that failing to close the deal today means losing the deal forever.

That shouldn't be a fear for brands that are confident in their quality of their product and the fairness of their pricing - in such a position, a firm should have the confidence to say "take your time and shop our competition, we're confident you will be back."  For that reason alone, companies that want customers to close the deal as soon as possible seem a bit shady and convey the sense that there is a better deal to be had somewhere else and they are nervous the customer will find it, given time. In the incidents in which I have walked away from a too-eager vendor, this anxiousness has been the "red flag" that made me step back from the "buying" process and back into the "shopping" one to find a different vendor, and I don't think I'm alone in this.

As I consider this problem, I also recall instances in which the vendor's lack of urgency caused me no small amount of frustration: I was at the point where I was ready to purchase and a salesman continued to provide information about the product.   Or in a more direct sense, having to wait in line to complete a purchase represents a situation in which the customer's sense of urgency is poorly accommodated by a vendor who puts its own processes ahead of the customers' priorities - though this is generally for a different reason (the customer's sense of urgency comes from a desire to use their own time efficiently, rather than an immediate need for a product).

The essence of the problem in either instance is the seller's inability to appropriately accommodate the customer's level of urgency - to rush them into completing a purchase too quickly or to prevent them from completing the purchase quickly enough.   Given that, I don't expect there can be a single answer to the question of how fast is fast enough, because it largely depends on the customer's priorities - which differ from person to person and moment to moment.

Consider the way in which customers purchase an umbrella.   When it is not raining, there's little sense of urgency and the customer can inspect the merchandise casually, considering whether it is durable and the color he might prefer and whether he might get a better deal if he waits a week or a month for a sales event.  When it is raining, all of this is set aside - he does not care about the style of the item or its durability, color, or price (within reason) but needs a quick solution that will help him avoid getting wet.

In the same examples, the seller must react accordingly.   The attempt to close the deal on an umbrella on a sunny day is difficult to the point of being nearly impossible - and attempting to convince the customer that it might start raining at any moment is not likely to give the customer a sense of urgency he lacks.  By the same token, discussing the features and qualities of the item during a rainstorm is likely an annoying waste of time to a customer who is in urgent need of a solution and isn't thinking about the value of the product beyond its ability to serve the needs of the moment.

Of the two, a seller whose urgency exceeds that of the buyer is likely the more detrimental.   It's rare for an eager buyer to break off of the process and seek another vendor because the seller is not moving quickly enough, likely because the eager buyer recognizes he will have to invest time (that he doesn't want to spend) in finding another vendor.   On the other hand a leisurely buyer who is confronted by an anxious seller is willing to take time, not necessarily in interacting with vendors, before making the purchase and is more inclined to stall or walk away.

And it's also inherent to the nature of commerce that, for financial and psychological reasons, sellers are more prone to want to create a sense of urgency than to encourage slower pace - though the (few) sellers who do so are likely to be regarded as qualified and confident in the quality and price of their product.   As such, a less stressful selling process is likely not only a more pleasant experience for the customer, but gives them a long-term impression of the quality of the brand.

But ultimately, success is a matter of properly assessing and accommodating the customer's level of urgency - and the more difficult prospect of letting the customer control the speed of the process rather than attempting to control them to suit the seller's own desires.

Saturday, August 17, 2013

The Myth of Artificial Intelligence

In the present age of fascination with computer technology, there is an inordinate amount of attention being paid to the phenomenon of "artificial intelligence" - and the misinformed belief that computers are capable of thinking.   The faith that uninformed individuals place in computers' intelligence is in many ways similar to a belief in magic - and its truly amazing how many people who seem otherwise intelligent subscribe to this belief.

The irony is that there was a time, a few centuries ago (and in certain circles of developed nations even today) in which people strongly believed in the supernatural, and many very important decisions were made based on the belief in otherworldly forces that control anything that cannot be adequately explained.   Diseases were attributed to evil spirits in the blood and human behavior was guided by angels and demons whispering in our ears - and such nonsense was proffered and accepted with just as much earnestness and conviction as people believe in the inner workings of computer technology today.

Individuals who are knowledgeable about technology recognize that computers do not think - they merely execute programs, which is to say that they follow processes that implement the intelligence of the human being who wrote the programs.   In effect, they are mindlessly following their instructions, much in the way that a person might blindly follow orders.  Any intelligence a computer system seems to exhibit was instilled in it by the person (or persons) who wrote the instructions that the machine executes - and much in the way that a person who merely does as he is told is not regarded as a thinker or decision-maker, the machine does not think or make decisions because it is merely doing as it is programmed.

By its nature, any computer program is designed to solve a problem.  When a problem is narrowly defined (identify which number is largest or add two numbers together and report the sum) the program is not regarded as intelligent.     There may once have been a time when people regarded a simple calculator as a mathematical genius, but most people are now sophisticated enough to recognize it is dumbly performing specific functions and is remarkable only for the speed and precision with which it does so - which is valuable and a bit amazing, but nothing like "intelligence."

As the program gains complexity (subtract the smallest prime number in a set from the square root of the largest number in the set and report the difference as an absolute value) it becomes difficult for human beings replicate the process of logic that has been performed.   We appreciate that the computer is more accurate or faster at preforming a task than is a human being, but still do not consider it to be intelligent because we can perceive the very simple logic by which it operates even if we cannot match its speed or accuracy

However, when relationships among a large set of data are evaluated in more complicated ways (consider the return and risk of various investment options along with the resources and risk tolerance of an individual to provide him with an investment plan for retirement) if is difficult for human beings to conceptualize how the programming works - and they regard it as being intelligent simply because they do not understand how it does what it does.   It would require reading tens of thousands of lines of code in order to comprehend the way in which it evaluates input and arrives at a conclusion - but ultimately, the instructions are individually quite simple, though tedious and convoluted in aggregate.

So in the end, the belief in artificial intelligence reflects a failing in human intelligence: if we do not understand the way in which a computer is able to evaluate data and arrive at a solution, we proclaim it to be intelligent - much in the same way that a person in the Medieval era would have proclaimed to to be the result of magic or the will of the gods.   The two are essentially no different.

It also doesn't help that the definition of "intelligent" is problematic.  Cognitive psychologists have argued for decades and have no firm agreement of what constitutes intelligence in a human being, and some of the definitions are loose enough that a computer (or even a calculator) might satisfy the criteria.   And the best that has been offered for assessing computer intelligence is Alan Turing's principle of AI, which loosely suggests that a computer can be considered intelligent if it can trick a person into thinking they are interacting with another human being- a gut-check as to whether seems to have a quality we are unable to clearly define.

A Turing test measures the perception of the person who is making the assessment as well as the predictive ability of of the person who programmed the system - and as such the machine is merely a channel.  We do not think a telephone or a typewriter is intelligent because it has said something clever or profound, but recognize that it is a (dumb) device by which we are receiving the message created by a human being - yet we fail to apply the same logic to realize that a computer or digital device is merely a delivery mechanism for a message created by its human programmers.   And just as a typewriter cannot deliver a message unless a human being works the keys, so does a computer fail to deliver a response unless a human being has provided instructions.

If we consider "intelligence" to be the ability to follow instructions to the letter, machines may seem to match the definition so long as the user limits himself to acting within certain parameters - that is to say that if you ask a machine that is programmed to calculate income taxes a question about income taxes, it will provide an answer that seems intelligent.  Ask it a question about gardening, and it will fail to provide any response or even an intelligible excuse for lacking that knowledge, but spit out an error message that vaguely indicates that it doesn't understand the question.  

The irony of this is that many would regard such a user as stupid to preserve the reputation of the machine, which cannot think outside of its narrow programming.   When we begin to believe in the power of a physical artifact so strongly that we make excuses, exceptions, and find some other source to carry the blame for its failings, we have clearly departed from the realm of intelligence and have returned once again to religion - and as is all too evident in the present day, the proponents of dogma will stubbornly maintain a failed argument in spite of all evidence to the contrary.

Tuesday, August 13, 2013

Payday Price Discrimination

An accidental observation has got me thinking - or more aptly, it's got me nervous about what others might be thinking.   Specifically, a multivariate test of a design treatment that gave greater prominence to pricing and payment options had a drastically different conversion ratio during one week than the next.

Specifically, one week there was a large take-rate difference in the design option that made a favorable payment option more prominent, and the following week the take-rate difference was significantly less.   Someone instantly recognized that the second week was a pay week for people who are paid bimonthly, on the first and fifteenth, and reasoned that people are less attentive to cost or financing options when they are flush with cash.

It wasn't long before someone suggested that people might even be willing to pay more for a product after a recent payday than later in the month.   It was one of those things that's said with the kind of smile that suggests "if anyone questions the ethics of this I will play it off as being just a joke, but if nobody glares at me then let's give it serious consideration."  Fortunately, it was set aside, but I have the gnawing sense a seed has been planted.

Ethical Quagmire

There is likely some truth to the matter: that many people fail to budget personal expenses and spend more liberally when they have more money in their bank account.  And as such, it would likely be profitable to increase prices after paydays (as many companies issue paychecks on the first and fifteenth of the month, or every two weeks, it follows a fairly predictable pattern).  Especially in smaller towns with a few major employers who are all on the same pay schedule, local merchants are likely able to predict when they will get a rush of customers whose temporary wealth has put them in a spending mood.

But at the same time, I have the sense that the practice is ethically dodgy.   Payday price discrimination has nothing to do with the value of goods or the cost of supplying them or even the value that customers place on the benefits of ownership, but merely predicting when customers will be less mindful of their budget so that a merchant can take advantage of a moment in which they are cognitively vulnerable to making reckless spending decisions.  It seems to me in the nature of taking advantage of a customer who is drunk or mentally impaired, in that it has nothing to do with the value of the benefits being provided, merely exploiting a moment of inattentiveness for money.

It's particularly disturbing to me in the digital age because it is now much easier to raise or lower prices in an instant without any evidence of the price having been different just days or moments ago.   In the pre-digital world, items carried price tags and sales promotions were done with ink on paper, meaning it would represent considerable cost to change prices (to re-label merchandise in a store or print up a price list) such that there would be some hard evidence that something sketchy was done.   If products have no physical labels and prices are disclosed on a website, they can be changed with a click of the mouse, and unless customers undertake the effort to record price information, they will be unaware of the change or assume it's their own memory that is at fault for having imagined the price was lower yesterday than it is today.

The ability to instantly change prices is compounded by the ability to profile users as individuals, to track their online behavior and gather information from various sources in order to detect a single individual's price sensitivity and predict the moments in which their judgment may be impaired, such that a price may be instantly changed for one specific user, rather than all customers at once, such that the price that is offered to a specific shopper at a specific moment can be based on a very accurate prediction of their vulnerabilities.   To some in the marketing industry, that is highly interesting - but to the consumer, it is highly disturbing.

It's Already Being Done

There is the argument that such things are already being done - again facilitated by technology that reads demand of the moment and adjusts prices accordingly.  A CX practitioner who works for a rental car company openly admitted that his firm flexes the pricing of rental cars according to inbound flights - such that prices are higher at times when flights are arriving and travelers are likely to be in desperate need (anyone who failed to reserve a rental in advance, or whose plans have changed at the last minute, is going to get seriously gouged).  And I have personally experienced fluctuations in airline ticket prices - checking airfares during a break at work, returning home to purchase the ticket at a higher price, then checking the price the next morning to find the price had gone back down.

However, I don't have the sense that these vendors are adjusting price according to my failure to consider value, but merely adjusting to a perceived demand pattern without considering the reason for the pattern itself.   That is, the system that decides when to raise or lower prices is based on the demand of the moment but does not consider what is driving that demand.   That's pretty much how the stock market and commodities exchanges have always done business.   And it's often times done in slow motion - consider that a hotel at the beach does not generally change its prices by the moment, but it is certainly known (and accepted) that prices are higher in seasons when there is elevated demand.

The difference here is that reacting to demand in the market is different to exploiting moments of weakness in individual consumers.   To raise the prices of all automobiles for all consumers during the early months of the year because people often go car-shopping with their tax refund seems like a reasonable business practice - but to raise the price for a specific customer because she is female, uneducated, young, recently divorced, and just got paid last week seems highly questionable.

However, a practice is not to be deemed ethical simply because it's already being done or because people seem indifferent rather than outraged by it.   Common practice and emotional response are poor metrics for ethics.   Likewise, the covert nature of an action does not necessarily mean it is unethical, though such is often inferred.   If anything, the fact that sellers are more knowledgeable should translate into an ethical imperative for them to be more circumspect about their behavior, because they cannot claim ignorance.


Even having meditated on the matter, I am still of two minds about the ethics of payday price discrimination.  It seems to me a greasy practice, something that customers would strongly object to were they aware of it - and perhaps that is the more important consideration for customer experience.

Friday, August 9, 2013

Goods, Services, and Products

There are few things quite as annoying as being interrupted in the course of conversation by a persnickety individual, particularly when they interrupt a sentence to point out a "fact" that is completely wrong.   In particular, I abandoned a conversation with a tedious individual who felt compelled to interject "or services" whenever anyone mentioned the word "products" - as exasperating as the experience was, it has caused me to reflect on the terms and reconsider some basic definitions.

The main problem with this individual, aside of making a nuisance of himself, was that his notion of "products or services" is entirely wrong.  "Goods or services" is the distinction between whether a product is a physical object or an action performed by a provider, and both goods and services are comprised within the concept of "products."  

It's a matter of vocabulary, really, and culture does seem to have shifted in the past few decades to be tolerant (and even supportive) of people who are use the wrong words rather than insisting that they learn to speak their own language properly ... but reflecting on this distinction a bit further, the entire notion of classifying a product as a good or a service seems to misdirect attention from the value of products.


A "good" is a physical artifact like a coat or a car or a can of beans.   The problem is that focusing on the physical object is a superficial consideration of the value that goods provide to their consumers.  With few exceptions, the purpose of buying a coat is not to possess a coat, but to be protected from the cold or to be fashionable - which is to say that ownership of a good is a means to satisfy survival and social needs.  Seen in that way, a good is merely a physical artifact whose importance derives from the benefit derived from using it.

While this seems obvious, it is very often forgotten by producers who obsess over the qualities and features of the goods they produce.  They compare their products to other products, ignoring the needs of consumers, and provide features and functions that increase the cost but do not offer benefits related to consumers needs.   In reality, the physical properties of the product are far less important then their ability to serve needs, which savvy consumers recognize instantly and unintelligent ones learn eventually.

There is some validity to the notion that customers desire seemingly qualities in the products they purchase that serve no functional purpose - some consumers do obsess over the qualities and features of the goods they own.  These people are nerds, plain and simple.  But even the desire for nerd superiority is generally not derived from the self-satisfaction of product ownership, but the social need to feel superior to anyone who does not own a good that has the same qualities and features, which is a defect of consumerism and likely of psychology.


With services, the connection between the product and the benefit is more closely connected, such that there is a decreased tendency to become distracted by its intrinsic qualities.   A barber is paid to cut hair because the customer wishes to be fashionable and a doctor is paid to treat a condition because the customer wishes to be healthy, such that the need a service addresses is fairly obvious.   There is in most instances little argument that the customer is paying someone to go through the motions for their amusement (though hiring a performing artist is an obvious instance in which that is the entire point).

This is not always the case, especially when considering a luxury service.  There are many aspects of a beauty salon that cause the experience of getting a haircut to render pleasure to the customer, aside of the final result.  The entire leisure industry is built around providing services that are intrinsically pleasant to the consumer, even if there is no final result except a brief lingering sense of relaxation and pleasant memories.  And in those instances there is the tendency to become distracted by the qualities of the service provided.

But in an economic sense, the line between good and service becomes blurred.   When a person purchases a chair, they are paying for the service of the carpenter to build it (and the service of a woodsman to harvest the wood, a metal-worker to make the nails, a miner to harvest the ore, etc.)   On the income statement of virtually every business, the cost of labor far exceeds the cost of materials - so it could rightly be suggested that any "good" we purchase is in fact a bundle of services that are performed in a remote location and previous time, the value of which are evident in a physical artifact, and the cost of the performance of action is greater than that of the physical materials on which services were performed.


The concept of a "product" relates to benefits rendered by whatever is provided, be it a good or a service.    When the ultimate end is considered, the means by which a service is rendered seem entirely incidental: a customer who has a need to be served is largely indifferent to the mechanisms so long as the need is satisfied.

That is to say that a customer looking to satisfy the need of hunger can address it by purchasing groceries (goods) or visiting a restaurant (service), or a person with a wound can address his need by purchasing a bandage (good) or visiting a clinic (service).   The distinction between good or service pertains to the means by which a need is satisfied - but the satisfaction of the need relates to a product that could be either good or service.

Thus considered, producers of products would be well advised to consider the need for which their product is purchased rather than the qualities and features of the product itself, which are largely incidental and may in some instances be completely irrelevant to the customer's motivation.

This also speaks to the need to broaden the horizons of the competitive arena, and to recognize that the producers of goods must compete with the producers of services, and vice versa, because their products are interchangeable for a customer in search of a solution to a need.

Monday, August 5, 2013

The Luxury Strategy

I recently read Kapferer and Bastien's book on Luxury Strategy, which started off dismally enough: a couple of snotty Europeans insisting that no-one born outside of France, Italy, or England quite grasps the concept of luxury accurately, particularly Americans.   A couple of chapters into the book, I found myself in complete agreement with them.

Their definition of "true" luxury pointedly excludes providers who are merely better than average or those which have a level of quality that is not strictly necessary to accomplish the basic function.   Luxury is a very small and highly exclusive group of brands, the superlative items that are affordable only to the top one percent (or even less) of the population - and in that regard there is definitely a distinct difference, though the point is largely moot for anyone who works outside of the fifty or so firms worldwide that produce goods in this category.

What is of interest to the rest of us, who work in the lesser strata of the hierarchy of consumer products, is that the notion of quality on any level (except the rock-bottom of the economy goods market) derives from some of the basic principles that define the luxury market, but executes them far less effectively.   And more importantly, the factors that lead to a impression of quality cannot be sustainably faked, but must derive from practices that genuinely follow at least some of the laws of luxury.

In particular:, consider three of the qualities of luxury borrowed by some premium products:
  • A premium product appeals to hedonism rather than functionality, and the focus must be on the pleasure that the consumer derives from the product rather than the specifications and features of the product itself.
  • A premium product is merely an artifact in a service experience that is focused on the needs and desires of the customer, such that if those needs and desires are not addressed, the artifact is not regarded as premium
  • A premium product conveys a benefit related to the self-esteem of the owner, such that ownership and use of the product is regarded as a kind of privilege to which they are entitled 
There's a great deal more to be said in regards to luxury, as it was rather a lengthy book, but these three examples serve to explain why even a premium product is capable of commanding a price that exceeds the value of the mere functional benefits delivered, and implies the very reason that some brands are unable to sustain the price premium they hope by attempting to instill a sense "luxury" into a product without changing any other of their practices.

Ultimately, this means that there are very few brands that fall into the luxury category, though many claim to be.  But the pretenders are not luxury, are not genuinely attempting to become luxury, and do not have a sufficient understanding of what "luxury" truly is ... but a luxury strategy, like a luxury product, is not for everyone.

In all, it's given me a great deal to meditate upon, and much to reconsider about the notion of quality as I previously understood it.

Thursday, August 1, 2013

Eating Cheeseburgers with Toothpicks

I heard a clever analogy about the misuse of the mobile platform: that performing a complex task on mobile is "like eating a cheeseburger with a toothpick."   You can do it, but it will be sloppy and tedious, not to mention disgusting for anyone else to watch.  In essence, it's like being a sideshow freak in that it's the uncanny "talent" to do something that seems impractical and even a bit nonsensical.  It's mildly interesting to see someone else do it, but it's not something you'd care to try at home, and it certainly isn't going to become "the new way" that everyone is going to want follow.

That makes perfect sense to me, but many in the CX profession (or business in general) seem inclined to adopt the opposite perspective.  They are so impressed with mobile that they think it's going to replace the desktop computer as the primary means of accessing the Internet or any digital services in the future - and that we should in effect stop designing silverware because in the near future everyone will be eating every meal with toothpicks.

That is not to say that we should disregard the value of toothpicks, either, because they are the right tool for some jobs, such as consuming an hors d'oeuvre at a cocktail party.   I do think the metaphor can be handily extended that far at least - in that people at a party don't want to break off from their groups to sit down and eat a plate of food with a knife and fork, but just want a quick bite while doing something else ... for which a toothpick is the perfect delivery device.

This corresponds well to what some of my colleagues in customer experience are saying about their own experiments in mobile: they find that customers are using it to reference quick "bites" of information, and that when they place more complex interactions of the smartphone platform, they get very little use and often an increase in the voice channel to undo the damage.   They still feel the need to facilitate these transactions in mobile, but only to the degree that the revenue contributed by the fringe element of mobile enthusiasts who will suffer through an awkward interaction for the sake of using their favorite toy is sufficient to cover the cost of development.

The adoption rate of mobile for all but the most basic transactions is a lot lower than the enthusiasts like to admit, and companies who adhere to the "mobile first" approach are subsidizing the strange behavior of a small segment with profit taken from the majority of customers who do not see fit to undergo the tedium of using an inconvenient platform just because they can.   From a big picture perspective, that's just bad business and makes no financial sense.

In all, there's likely a sensible position to take between the two extremes, and financial results are likely the best way to gauge whether it is worthwhile to accommodate mobile transactions - taking into account the revenue earned in the mobile channel, the cost of accommodating the mobile channel, and the degree to which the latter is merely cannibalizing the former.

Granted, there's also an argument to be made that providing a mobile option is requisite to customer experience - but that is also a vague claim that is not backed by any reliable proof.   If you can demonstrate that customers who use the mobile channel rather than (or in addition to) the Web contribute more revenue or remain loyal to the provider for a longer period of time for a given transaction, rather than in a general sense, then the transaction is certainly worth putting on the mobile platform as well - provided, again, that the marginal increase in revenue covers the additional expense.

I don't have the sense that many people are diligent in their approach to mobile, and are so overcome with excitement about the potential of this new medium that they are leaping into with with wild abandon and the assumption that anything you shovel onto the platform will be a success (someday).   In time, recklessness will come home to roost when they recognize that they have made a very costly and unwise decision.