Thursday, February 22, 2018

The Best-Laid Predictions

Forecasting and future planning, in all their myriad forms forms, represents a struggle against an invariable truth: that the future is unknown.   At best, our most careful research and attentive modeling is based on the assumption that what is true in the recent past will continue to gold true in the future.  The most horrific blunders in history are laid upon that foundational assumption – but then, so have the greatest success.   To fail, to succeed, or to act at all requires some sense of what will happen in the future, particularly in reaction to something that does not exist at all in the present.

This can be difficult to observe in the aggregate: when financial plans fail, they do so with a shrug.  Something went awry “in the market” or “in the international economy” and there is not even the ghost of an attempt to recognize the flaw in the analysis – generally because in spite of the catastrophic failure, there are firm plans to apply the exact same analytical model to the very next decision.   The model was perfect – the world went wrong, and it’s assumed that the world will follow the rules next time and the model will work.

But where predictive models can be observed in a more granular manner, the inherent flaw of the present-future assumption becomes clear.    Ask an individual person what he plans to do in the future, and you can plainly see how he will speculate, confabulate, and make up plausible stories about a hypothetical situation in which he plainly has no clue how he will actually behave.    Even the most sincere respondent, reacting to the most unbiased instrument, doesn’t really know what he is going to do in a real situation that has not yet arisen.

When investigating behavior, you are implicitly making people think about things they do not normally think about – and often hectoring and harassing them until they lie in a manner that suits your preferences.    As a subject why he chooses to purchase a given brand of mustard, and he will shrug and say, perhaps, that “I like it.”   Press upon him, asking the reason he should like this brand over another that is virtually identical in all regards, and he will struggle to respond.   If you don’t like the lie he tells you, press him further until he tells a lie that you like – and then write that down and include it in a study where you declare, with pompous certainty, that you have identified “the real” reason consumers prefer one brand over another.       Use that as a basis of making your strategic decisions … and see what happens.

Consider that the very act of studious observation takes the customer out of the context in which a decision is made, if they ever are in such a context to begin with.   Consumer taste-tests of products rest on the assumption that customers consider the taste of a product to be the critical factor in making a buying decision – and do not consider for a moment that it will be any other factor.   In rare instances in which stores offer samples at the point of purchasing decision so that a customer can compare the flavor of two products they have not yet purchased, this may hold true – but this seldom ever happens.   And this is why Pepsi consistently beats Coke in blindfolded taste-tests, yet consistently sells less across virtually all markets where both are offered.

In one sense, asking the customers for their opinion seems a better course that relying on insider opinions – and it may be a more democratic method of deciding among options, but it is not necessarily accurate.   Customers do not know how they will decide in real-life purchasing situation and are speculating.   Observation studies can be very useful in exploring the present and recent past and, certain enough, the patterns of the past will tend to perpetuate if nothing else is changed – but they do so in a very superficial manner: one can easily observe and measure what is being done, but this does not accurately indicate the reason it is done – and it is the reason and the conditions, more so than the superficial act, that is most useful in the prediction of future behavior.

Thursday, February 15, 2018

Customer Responsibility

In an earlier post, I expressed a rather sour perspective on the level of irresponsibility shown by customers and the manner in which their failures are invariably blamed on the firms that attempt to serve them.   But this begged the question: what is the source of this responsibility.

In researching the concept, the general conclusion seems to be that responsibility is a character trait that encompasses a few different skills and practices.   In general …
  • Goal Selection – Responsible individuals are aware of their goals and has prioritized them appropriately.
  • Activity Selection – Responsible individuals consider whether engagement in an activity will achieve their desired outcomes
  • Self-Discipline – Responsible individuals show dedication and tenacity in the completion of activities that progressively achieve their goals
Returning to the earlier material, the dissatisfaction that results when a person has selected the wrong product to achieve his goals is a dysfunction of the activity-selection task and the dissatisfaction that results when a person fails to use the product in a correct manner is either activity selection (when he does entirely the wrong thing) or self-discipline (when he does the correct thing, but not for long enough to ensure the goal has been achieved).   

But still, I am led to the same conclusion: while proper marketing can inform a potential consumer of the benefit of the product and proper documentation can inform him of the correct way to use it, neither of them does any good if they are ignored by a customer who feels that the tasks of product selection and use are someone else’s responsibility – and not his own.

So while I don’t have the solution to the problem, I do have a little more insight into the nature of the problem.   I wouldn’t go so far as to say that responsibility is not the cause (as it certainly is), but I do believe it is not the root cause.   The root cause is a matter of attentiveness – simply paying attention to what is important.   

Perhaps the roots could be traced further, to the problem of discretion – as one can be very attentive to the wrong things – but this becomes a chicken-or-egg argument: is a person inattentive because they are indiscreet, or indiscreet because they are inattentive?   Anyway, I do not believe discretion to be a problem that firms can address in the market, though they can work on the attentiveness of the consumer.  

Still, I see little prospect for a solution here.   Ignorant people can be quite stubborn in their ignorance, refusing to give attention even when great effort has been undertaken to bring things to their attention.   And so, I’m still stuck of the fatalistic notion that there are “good” customers and “bad” ones, and the firm can only seek those who are made “good” by other means.   So I’m not entirely satisfied yet.

Thursday, February 8, 2018

Habituation and Inertia

Retailers have always looked for techniques to provoke customers to spend more or purchase higher-margin items – but much of what has been done thus far are merely pseudo-psychological “tricks” based on specious theories and scant evidence.   It is only within the past few decades that computers are powerful enough to handle the calculations, and “reward card” programs enable retailers to recognize the buying activity of individual customers, that any real science can be applied.

It’s also observed that most of our buying behavior does not involve decision-making. It’s habitual.   When we purchase a product for the first time, there is intense thought and scrutiny – but if we are satisfied with the outcome, we tend to purchase the same brand automatically the next time, and the next.   People remain “loyal” to the same brand for decades not because they repeatedly re-evaluate their options and find that a given brand is superior ever time, but out of laziness” they do whatever seemed to “work” last time to avoid the effort of decision-making.

However, this analysis considers the point of decision, which loses context of the shopping behavior.   The decision of “Brand A or B” is an event made in the context of the shopping excursion – everything that led the individual to be standing at that particular shelf at that particular moment to make that particular decision – and all this must have taken place for that decision to be relevant at all.

Consider this: people fall into patterns for habitual purchases.   A person may have fallen into the pattern of doing their grocery shopping at a particular store.   Beyond that, they have developed the habit of using a shopping list, pre-making many of their buying decisions before they even arrive at the store.   And beyond that, they pattern they take as they proceed through the store, gathering items, is also subject to habituation: a carefully-considered trick to cause a person to purchase your brand of multivitamin is totally missed by a consumer whose weekly routine doesn’t involve walking down the vitamin aisle at all.

To their current brand of preference, the habituation and inertia of the market is an asset: once a customer has become habituated to a brand, it is very difficult for anyone else to break that habit and take the customer away.    This is also a strategic advantage to established brands, in that the cost and effort required to break habitual patterns is significantly higher than that required to maintain them – which is very often zero, but it generally takes no effort on anyone’s part to cause things to remain the way they are (if no-one is putting any effort into causing them to change).

The corresponding disadvantage, however, is stagnation in the marketplace: while the established brand can rely upon inertia to preserve their market share, they must disrupt this inertia in order to gain market share, and any act of disruption for the sake of growing into new markets or acquiring new customers jeopardizes the stasis required to maintain existing ones.   That is, the change necessary to break the non-buying habit also has the tendency to break the buying habit.

Thursday, February 1, 2018

Sales as a Dialogue

When trust has been established between a vendor and a customer, the customer may grant the vendor permission to participate in the earlier phases of the process.  For example, a hardware clerk might be approached by a customer who wants to buy a nail, but by asking a few questions about what the customer is attempting to accomplish he might help them recognize that they should use a bolt instead.

In that situation, a poor salesman might sell them a nail, knowing that they will fail and eventually return to purchase a bolt.   At the same time, a poor customer would turn a deaf ear to expert advice and insist on getting a nail.  Because the trust of customers has so often been betrayed, they may be reluctant to listen.

Ultimately, both the seller and buyer benefit from a more interactive process of information-sharing, but it takes time to build that rapport.   This is another reasons that companies that are impatient to make a sale often blow a deal they might have otherwise won: the customer must not only have confidence in the product, but in the seller.

Sales is a dialog, which is a reason that face-to-face selling is recognized as the most effective way to sell: the salesman may begin with a patter, but eventually interacts with customers, responding to their specific questions and sensing their level of comfort to know when it is appropriate to ask for the sale.

The problem with marketing, long before the Internet, is that it is not done face-to-face: a message is sent out that is hoped to have mass appeal, is hoped to be reaching the right people, is hoped to be reaching them with the right message.   There’s no way to know, and there’s no way to adapt the message or receive feedback until the customers buy (or don’t).   Effective marketing is getting in closer touch with the needs and interests of each customer.