Everything That Has a Beginning Has an End

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

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

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

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

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

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

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

Business, Nonprofit, and Government

Some of my readings on strategy, sustainability, and stakeholder relations have led me to an idea about the similarity and differences between business, nonprofit, and government organizations.   I don't believe it's ever been stated quite the way I have come to understand it, and I have the sense that considering them in this manner helps to better understand the way in which these organizations relate to the stakeholders who receive the benefits they deliver.

A bit of a disclaimer: any mention of "government" seems to attract opinionated imbeciles from search engines: this is not a political blog, and I don't care to engage in political discussions.   Comments will be moderated and correspondence ignored accordingly.

Back on point: I am led to the sense that businesses, nonprofit organizations, and government agencies have a similarity in their core purpose and differ only in ways that are largely incidental to the fulfillment of their purpose.  Understanding this difference can help an entrepreneur evaluate whether his idea would best be accomplished by starting a business, founding a charity, or petitioning a government agency.

The similarity is this:  all of these organizations function to organize capital and labor to deliver a benefit to certain members of society.    From a functional perspective, they are interchangeable but for one thing - whether the people who receive the benefits they provide are willing and able to pay the expenses of providing those benefits.

• A business provides value to customers, who pay individually for the value they receive.   The organization is willingly financed by the same people it serves.
• A nonprofit provides value to beneficiaries, who do not pay individually for the value they receive.  Instead, the organization is willingly financed by donors who wish to gift the value to the beneficiaries.
• A government provides value to certain members of the public, who do not pay individually for the value they receive.  Instead, the organization is unwillingly financed by taxpayers, pay taxes to avoid having violence done upon them.

Granted, that is speaking in ideal terms and in a general sense.   For example, there are government agencies that collect fees that are willingly paid by those who receive the benefit or privilege of their service - the cost of obtaining a hunting license ostensibly pays the salaries of game wardens.   But my sense is that these general statements hold true in most instances.

My consideration of nonprofit and government organizations will trail off from this point forward - as I currently work in the commercial sector, I am primarily interested in how the relationship to financiers and beneficiaries functions for a commercial organization, but the other types may pop up by way of drawing similarities or contrasts.

Investors and Customers

I have stated that commercial organizations are financed by the customers they serve, and I will stand by that statement - but there is another set of stakeholders who also consider themselves to be the financiers of a commercial organization: its investors.

In terms of operating expenses, it should be clear that investors pay no part of the operating expenses of a business - they intend to profit from their investment, not to be roped into having to provide a constant stream of financial support to the business.   This sometimes happens when a business is poorly managed and cannot cover its expenses - it must borrow money or raise capital from investors (generally new investors, by issuing bonds or releasing treasury stock).   But in a successful and sustainable operation, all ongoing expenses are paid out of the revenue collected from customers.

Investment capital, however, is less clear.   Starting a business requires a lot of cash, and until a product is rendered there are no customers to provide revenue.   This is where investors come in: they provide the investment capital to found a business (or in some instances to expand its operations) in exchange for the promise of a future return.   It does seem possible for customers to found a business by paying in advance for products to be delivered in future, but I expect such situations are rare.

However, I stand by the assertion that customers finance the organization - the revenues of a business repay the investors for the investment capital they provided.  This is most obvious when a business borrows money from a bank - the amount it required to establish the operation is repaid, over time, from the revenue contributed by customers.  At some point, the loan is paid off by the customers.

When investment capital is generated by the sale of stock, the situation is less clear: the stockholders are not repaid (unless the firm repurchases all its stock and goes private, which is rare), but instead maintain an ongoing interest in the operation.  The customers repay the investment capital through revenue, but it is a debt that is never entirely paid off: so long as shares are outstanding, the inventors are constantly owed some portion of the revenue.

As much as I'm attempting to avoid ethical issues, I am feeling a bit queasy at the notion of a loan that is never repaid - but I suppose all organizations are a bit questionable in this regard: the donors to a nonprofit gave funds without any expectation of being repaid, and the taxpayers who support a government have no expectation of repayment and did not freely choose to provide funds.   And neither charitable of government beneficiaries have any right to expect to receive value.   But this gets a bit off topic.

Ownership and Control

The notion of "ownership" becomes very hazy in all regards.  In western culture, it follows the general principle that someone who pays for something owns it.   But in organizations of all kinds, this becomes hazy.

The donors to a nonprofit clearly do not have ownership of the organization, though the organization must appease their demands for the sake of getting future contributions from them.   The taxpayers of a government do not have ownership of the organization, but the organization must appease their demands to avoid being overthrown.   And the customers of a business do not have ownership of the firm, but their demands must be appeased in order to generate revenue.

Business investors, however, are problematic.   They are owed a return on their investment, as explicitly promised to creditors who loan capital or implicitly promised to shareholders.   It seems to me that they have little "right" to control the business in any way except to ensure the repayment of the funds they are owed.  And while investors show little interest in the day-to-day operations of a firm and relegate this task to employees (management), the strategic direction of a firm is another question.

It does not seem at all reasonable for an investor to demand that, in exchange for a loan of money, they have perpetual control over the strategic direction of an organization.  This is particularly true when the amount of the original investment has been repaid, in full and with interest.   A bank that loans money to a business has no rights other than to collect payments as agreed upon - but again, the perpetual debt to stockholders becomes problematic.

And again, the problem of ownership and control is not unique to commercial organizations.   Nonprofit organizations can often "go rogue" and completely ignore the interests of their donors so long as they have working capital.   Government organizations can completely ignore the interests of citizens until they have gone too far and incite a revolution.   Businesses can ignore their investors and customers until they have gone bankrupt.  This, too, merits consideration - but not here and not now.

Customer Relations

Of all the beneficiaries and financiers of organizations, my sense is that the relationship with the customer is most clear, direct, and ongoing.  Except in rare instances where a company provides a rare, unusual, or once-in-a-lifetime service, the business must constantly take into account the interests of its customers and ensure that its operations provide ongoing value in order to receive ongoing revenue.

Its relationship with investors is of no consequence - or should not be of any consequence.   Rationally, the investors should also be interested in providing ongoing value to the customer, because doing so is critical to the firm generating the revenue necessary to repay their investment.   But there are instances in which investors run a company into bankruptcy because they are interested in something other than profiting from their investment, or because they do foolish things to generate short-term returns while damaging the company's potential to provide long-term returns.

In that sense, the rational investor should be content to leave the management of the firm in the hands of the employees it has paid to management, so long as the firm is profitable and stable enough to provide the required or expected return on their investment.  Any encouragement should be for the sustainability of the firm.

Ultimately, that brings me to the conclusion that the customer is the most important stakeholder of the business, whose needs should be served above all others - it is neither a moral obligation nor an option, but a functional requirement that must be met in order for the firm to retain the customers who provide revenue to sustain its ongoing operations.

The Broader Scope

To summarize and make sense of all of this, the key point of this meditation has been that business, nonprofit, and government organizations all exists as means of coordinating capital and labor to deliver benefits to certain members of society, and that the difference between them is largely functional and financial: it is the difference in identity and interests of those who receive the benefits and those who pay for the benefits to be provided to the recipients.

In this regard, the function of a business is clear cut because the financier and beneficiary are essentially the same person - the operating expenses are paid, and the investment capital is repaid, both by the customers who receive the benefit - and because the customers contribute the revenue voluntarily and have the ability to stop their contributions at any time, their interests must be the primary concern of the organization.

Where the interests of financier and beneficiary cannot (or will not) be sustainably served, a nonprofit organization or government agency is the only effective alternative for establishing an organization to provide benefits.    This becomes a bit of an ethical quagmire, because what is "effective" is not always "ethical" - but I'll save that meditation for another time and another venue.

Flexibility Earns Loyalty

A company that wishes to have loyal customers must establish long-term trusting relationships with them by demonstrating (not merely claiming) an interest in serving their needs.  This is most clearly demonstrated when a firm is willing to deviate from standard operating procedure to help customers in unusual situations, even if it is contrary to the firm’s short-term financial interests – and in return customers are willing to continue to do business with those firms even when it is not in their own short-term financial interests.

Consider that “brand equity” is the extra amount of money a customer will be willing to pay for a product of a specific brand, as opposed to a generic product that satisfies the same needs.   The difference in cost is, in a very real way, the financial sacrifice that a customer is making in order to maintain a relationship with the brand.   And they expect reciprocation.

Consider Nordstrom’s chain of department stores and the stellar reputation they have for customer service.  In particular, there are a multitude of legends about its liberal returns policy: refunding without a receipt, even for merchandise the firm doesn’t sell, being willing to take back an item of clothing that the customer has worn but no longer fits.     Many other stores have rigorous returns policies and seem to assume that the customer is cheating them, but being willing to give trust to customers earns Nordstrom’s trust (and loyalty) in return.

Companies with an eye toward efficiency gravitate toward practices that deliver the least value for the most amount of money, which is diametrically opposite to what the customer demands of a vendor.  Those that seek to have impersonal transactions find that they are considered to be impersonal.   The “tit for tat” rule of exchanges, giving and receiving in equal value, is meeting the customer’s minimum expectation – it is not grounds for loyalty.

Friendships and other human relations involve exchange, but it is not specific, exact, or immediate.   Loan a neighbor a cup of sugar and she will return to you some of the cookies she baked, rather than a cup of sugar.   Imagine how awkward it would be to pick up the tab for lunch one day and the next time you dine together the colleague insists he buy you a lunch of the exact same value, to the penny, or settle the difference in cash.   Or even a friend who needs the loan of a trifling amount of money insists on a repayment schedule and an exact rate of interest.    These relationships involve give-and-take, such that precise accounting is not only unnecessary but inappropriate.

Granted, the commercial world involves money and accounting, and a business cannot sustain itself on the vague notion of offering “some” product for “some” money to be paid at “some” date.   They have their own suppliers and employees who expect to be compensated regularly and in specific amounts, and the business must manage its cash flows in order to remain solvent – so people expect there to be more specificity in their relationships with companies.   But the more flexibility that a firm shows in ensuring the customer gets the value he intended from his purchase, the greater satisfaction and loyalty.

Healthy Conflict

It seems to me that I have been asked about half a dozen times over the past week, ‘How is your relationship with ______?” – in which ______ was a team member or stakeholder in a project that is altering the customer experience.   The way in which I answered these questions began to fall into a pattern, and it seems to be culminating into a general method of assessing working relationships.  So I’ve mulled over it a bit more, and here’s what I have come up with …

In general, my assessment of a working relationship seemed to be based largely on the level of conflict and the friction of negotiating toward a common goal and a strategy that was mutually acceptable.    I’ve commented before that I spend at least double the amount of time persuading others to support a design than I do crafting it, and all things considered that might be a gross understatement.

But to lurch back toward the point I was setting out to make, a good working relationship seems to be based on the manner in which the work product is negotiated, and I think I’ve arrived at a ratio of healthy conflict that defines a good working relationship:

• 75% of the time, the other person trusts in my expertise and accepts my decisions.
• 20% of the time, the other person questions my expertise, demands that I explain a decision, and then either accepts it or negotiates to a mutually acceptable modification.
• 5% of the time, the other person completely ignores my expertise, digs in, and insists on having things done their way.

Here’s the reasoning I think that this ratio is about right:

75% Faith

A project team is assembled of people from certain areas – software developers, systems analysts, product managers, operations managers, marketers, and the like – each of whom is an expert in their domain of knowledge.  While they all contribute to the definition of the final solution, the negotiation between them must entail a high level of respect for the expertise of other people.

Said another way, a database programmer may have a suggestion for the way in which the product should be marketed – but should ultimately defer to the judgment of the marketer in decisions pertaining to marketing.  Just as the marketer may make a suggestion about the way in which he things the database should be schematized, but ultimately defer to the expertise of the database programmer.

Even so, I don’t think that an expert, however experienced and knowledgeable, should ever demand or expect complete faith in 100% of all instances.   If that ever happens, he has intimidated his colleagues to the point where they do not feel that they can question something they find to be  unusual, which is not by any means the sign of a healthy relationship.

20% Debate

Debate should account for about 20% of a healthy relationship.  This need not be a protracted argument to come to a decision, but may be as simple as someone asking “why do you propose to do it that way?” followed by an “oh, I see” after a brief explanation has been tendered.

A certain level of debate is healthy, in that it causes an expert to check himself from time to time, and be ready to explain any decision he has made.  Where that doesn’t happen, experts tend to become high on their own fumes and to be less diligent in their work, knowing that they will never be questioned.

There is also the possibility that a non-expert will contribute “out of the box” thinking that an expert will often fail to exercise – because expertise in an area is often based on assumptions of what will and will not work, and it sometimes takes a person who doesn’t accept that a given idea is impossible to get an expert to pause to explore whether it actually might be possible.

A lack of debate can also be a sign of a lack of engagement – a person who doesn’t care about something will not bother to ask questions or make arguments.  Or worse, it is a sign that the “expert really isn’t contributing any expertise, and is telling the rest of the group things that they already know.

5% Inflexibility

The last mode of interaction, inflexibility, is not at all healthy, but I have nonetheless decided to include it because it is entirely inevitable.   People in positions of power like to exercise their authority at times, and even the most complaisant and respectful leader still feels the need to wield his power to see his orders carried out without question.

That’s not to say that inflexibility is the sole demesne of executives and managers – as there are quite a few little tyrants in the lower echelons, people who insist on having their way as a method of feeling empowered, or who sense that if they do not interfere in the work of others they will be perceived as non-contributors.  While they are largely gnats in the grand scheme of things, their buzz can be quite the nuisance at times.

So perhaps the ideal ratio would eliminate this manner of behavior altogether, but I don’t expect it is a realistic expectation to do so, and as such I’ve included it as a “no more than” percentage rather than a desirable goal.

Possible Broader Applicability

While I have meditated on this in the context of a project team, my sense is that this notion of conflict and the ratio of types might be germane to other working relationships as ell: superior-to-subordinate, peer-to-peer, and so on.   But admittedly I haven’t thought much about that broader context, so this is merely a musing without much deliberation.

Trustworthiness Trumps Intelligence

I've been reading a bit on social psychology, and stumbled upon a concept related to interpersonal relationships that I think has a great deal of applicability to brand marketing and customer experience design.   The general notion is that people do not wish to engage with others because they are intelligent, but because they are trustworthy - and moreover, intelligence can be a liability.  And I think the same goes for companies as well:

Trust in Personal Relationships

Assessing the degree to which we can trust other people is fundamental to every human relationship, and a necessary survival skill: we assess whether another creature poses a threat before we begin to consider if there is any possible value in interaction.   While we are drawn to others because we recognize the efficiencies gained by collaborative effort, and while we must often depend on others due to the differentiation and specialization of labor, our first question is merely "will this person do me harm?"  That is, we are distrustful immediately, and develop trust afterward.

Only once we have satisfied ourselves that the other person means no harm can we consider whether working cooperatively with them will be beneficial to ourselves, or if it is merely a one-way street in which we are being manipulated into serving the other party's interest rather than our own, or even to the detriment of our own.   It doesn't take very much experience to recognize that not everyone is truly collaborative, and pretensions of altruism are often a method of deception.

At this point, intelligence works both for and against our willingness to trust in others.   We feel confident that the outcome of cooperation is positive if the other party has the intelligence to formulate a sound plan (though realistically, this is more in terms of insightfulness - their ability to perceive something we do not - rather than intelligence, because it is our own intellect that is used to assess the plan they are proposing).  On the other hand, we have the distinct sense that clever people use their intelligence to deceive others, which causes us to question the confidence we have in a plan that seems intelligent, but may merely be clever.  It is for that reason that we value intelligent people, but are reluctant to trust them.

After the initial encounter, trust has less to do with our gut reaction to a person, and more to do with our experience dealing with that individual.   If previous engagements have, indeed, been mutually beneficial then it is out expectation that future engagements will follow in the same line - and we spend less time scrutinizing the person and their plan and place greater faith that this time will turn out like the last time.   Even so, we remain apprehensive to some degree, until we have had sufficient experience with a person to take it for granted that they are likely to be fair with others.

Trust in Brand Relationships

The way in which we relate to brands and companies is entirely analogous to the way in which we relate to people and groups (respectively), with one marked difference: we are well aware of our interests and theirs.   The customer has a need or aspiration that he wishes to address, the brand or company offers him a promise to serve that interest while meanwhile having its own interest in receiving money in exchange.

The customer is well aware of the primary risk that he is taking on - that the product he is being offered will fail to meet his needs, and that in spite of consumer protectionism and any guarantee or warranty the seller might intimate, he stands to lose the amount of money he gave to the seller - which is significant only in that its loss will prevent him from purchasing an alternative product that would have been successful.  In certain instances there are secondary risks, such as having to take on the disposal cost to rid himself of the product or the damage that may be done to him or his property in the course of using it, but these tend in most instances to be relatively minor.

Germane to this topic, however, the problem is not that companies are unable to convince their intended customers that their products are capable of addressing their needs in a cost-effective manner.  This has been the thrust of advertising and sales promotion all along, and while its success rate is dismal, this is likely the best that can be done given that most of these messages take the intelligent approach and fail to build trust.

That is to say that customers are aware that, in order to get money out of them, companies wish to give them the impression that their products are capable of meeting their needs at a price that's comparable to or less than other alternatives.   But until trust is established, these claims are not regarded as being truthful or reliable, but instead as subterfuge offered by a party whose primary interest is in getting what it wants from others, and doing as little as possible for them in return.

While companies often engage in "brand marketing" or public relations campaigns in order to build trust, it is with some sense of irony that it can be observed how little of the marketing budget is devoted to these initiatives - the majority is spent on promulgating claims that no-one will believe rather than investing in developing the trustworthiness for those claims to be believed.  Hence, the dismal success rate for promotional and product advertising.

Afterthoughts

A few topics came to mind during this meditation, but I set them aside to avoid clouding the fundamental issue:

• Experience - The degree to which past interactions cause us to give trust to someone without as much consideration of their present proposal
• Reputation - The degree to which we grant trust to an unknown person because other people have positive opinions and share anecdotal evidence
• Groups - The degree to which the behavior of some members of a group causes us to regard the entire group
• Cross-Wiring - The degree to which a person is similar in incidental ways (they have a similar appearance, voice, etc.) to another whom we have positive or negative experience

There are likely other topics as well, as trust is a very complex issue, but a critical one for customer engagement.

The Death of Competitive Negotiation

I recently read Richard Luecke's book on workplace negotiations, which focused largely on the tactics used to resolve differences and gain cooperation in the context of an ongoing relationship - which is distinctly different to competitive negotiation, in that tactics that gain a short-term advantage at the cost of damaging the relationship with the other party must be avoided.  In reading the book, I was struck by the notion that competitive negotiation techniques are applicable to a decreasing number of situations - to the point that, for the everyday person, the value of competitive negotiation is practically nullified.

The most familiar instance in which negotiations become competitive to the verge of hostility is in negotiating large-scale infrequent purchases.    It used to be that buying a house or buying a car was regarded as a highly competitive negotiation in which the parties would not refrain from backstabbing and punching below the belt - but it seems to me that this is a dying practice in the automotive and real estate industries.   Vendors who neglect to consider the value of a relationship stand a significant competitive disadvantage, and harm their long-term viability by being overly aggressive in the pursuit of short-term profit.

While a vehicle or a house is an infrequent purchase, they are seldom one-time purchases and the experience is not forgotten by the buyer.   When it comes time to purchase again, even years later, the memory of their experience will lead them to seek a different vendor, and when others ask them for referrals, they will certainly relate negative experiences with vendors and thereby dissuade others from doing business with vicious negotiators.

This can be witnessed in the correlation of certain statistics, namely those that measure customer loyalty and those that measure customer advocacy.   The two are not the same, though they are often mistaken as such, and they are very strongly correlated.

Information technology is likely to be credited: prior to the Internet, it was difficult to get ratings and reviews of most vendors from reliable and unbiased sources.  It was random chance that a person in a prospect's circle of acquaintances had experience with a given vendor and could say anything at all - and even if they had such information, they tend to be reluctant for reasons of social etiquette and self-esteem to say something negative or admit that they had been taken advantage of in a negotiation.   There is much less reluctance, and much greater opportunity, for people to be forthcoming and honest online.

Moreover, the online medium has a quality of permanence: a person may be counted upon to forget the negative aspects of an interaction if it is stored entirely in organic memory, but digital memory is accurate and persistent.   If they chose to share their negative experience, it remains a part of the digital record for far longer than it may remain in human memory.   Additionally, the fact that they have made statements "publicly" will cause individuals to be more resolute, as changing their mind about a vendor is not a private decision, but one that will also be perceived publicly, and perceived as a lack of integrity or honesty.   To publish a negative review is to swear an oath to personally avoid the vendor.

As such, the more gentle tactics of collaborative negotiation are likely worth a great deal more consideration than they had been in ages past, and the hardball tactics of competitive negotiation are becoming largely extinct - or more to the point, those who leverage those tactics are becoming largely extinct.  I expect that's a good thing.

Secrets of Selling Services

I've recently read Stephan Schiffman's book on the secret of selling services.  The author's premise is that selling services is different to selling goods because the lack of a tangible artifact makes it difficult for customers to understand and take interest in the purchase - but as I read it occurred to me that there really isn't a difference between the two, and what is a "secret" in selling services is merely something that has been ignored by those who sell physical goods, and greatly to their detriment.

The reason I take issue with the author's premise is this: even when a good is being sold, the customer is still buying a benefit.   That is to say that whether I choose to purchase a lawnmower to cut my own grass or contract a lawn care service to do the job, I am ultimately seeking the same benefit.  The trust I put in a person to perform the task well is essentially no different to the trust I must place in a product to which I would contribute my own labor.

This has been incorrectly ignored for many years by manufacturers of consumer goods, but I don't think it has been ignored by customers.   The price paid for an item far exceeds the cost of the components and materials from which it is made, and even the labor of fabricating it, because what the customer is seeking is the solution to a problem and considers the degree to which he values the problem being solved.

When a product fails to accomplish its intended end, there is the sense that some part of its failure may be attributable to the way in which it is used, and it does seem to be a common attitude among manufacturers that the customer is to blame when the product fails to deliver its benefit.    But I have the sense, just from my overall impression of the way that people talk about products that fail, that the tendency of the customer to accept personal responsibility is fading - to which I would add, rightly so.

Another facet of the author's premise is that a service is bought and paid for on an ongoing basis, and that any failure of a service to deliver the expected benefit will lead the customer to refuse to renew the contract, and even seek to cancel the existing one.    I cannot disagree, but again do not sense that this is unique to services.

Customers will return goods that "don't work" and will certainly consider other alternatives when the good has been consumed or reaches the end of its lifespan if they are not satisfied with the outcome.   A seller of goods who considers each sale to be a one-time purchase, rather than one purchase in a continual chain of purchases, is very short-sighted.  So again, the necessity of customer satisfaction to ensure the continuation of business relations with them is not at all unique to the services sector.

All this considered, I do not have the sense that the author is teaching anyone the secrets of selling services, so much as mulling over aspects of selling services that are reasonably well known, but may indeed be secret to those who are selling goods and who take too shallow a perception of the value that customers seek by purchasing goods, which further blinds them to the reasons customers return merchandise and fail to develop loyalty to them.

Customer Interaction Styles

I blanch at the way in which customers are stereotyped by vendors - particularly in this recent fad of "personas" that attempt to give the firm a better sense of the kinds of characters it is dealing with, but which are ultimately based on a one-sided set of assumptions that observe customer behavior without much consideration of the reasons customers behave the way that they do.

The vendor-customer relationships is a relationship like any other: each party interacts with the other on the assumption of what they expect their values and motives to be - and this perception ideally rectifies itself over time as they observe how the other party actually is, rather than how they are assumed to be.   Thus considered, behavior is not indelible, but more importantly it is not irrational - people behave in specific ways because they feel it has been successful for them in the past, on the assumption that future interactions will follow the same pattern.

So while it's well and good to make assumptions about consumer behavior, it's also important to consider how that behavior arose - how customers came to be the way that they are - and to consider our own conduct in the relationship.  In our first encounter, they are the way they are because of previous experience with other vendors but in second and subsequent interactions, their behavior is a reaction to our own.


How Customers Are

I'll start by considering, in a general sense, the way that customers behave in an encounter with a vendor.  It is, in essence, a relationship in which they need something they cannot furnish for themselves, and are looking to the vendor to provide it.   The way that customers are, at least at the first encounter, is a reflection of the way they have been treated in the past.

In a broad sense, they are collaborative, neutral, or hostile.  This is not a trinary switch, but a continuum - though I do have the sense that even "continuum" is not quite correct as it is the confluence of three different continuums:

• Collaborative - The customer expects the vendor to be attentive to their needs and is amenable to being advised, believing that the vendor is trustworthy and will make suggestions that contribute to their welfare.
• Neutral - The customer expects the vendor to be indifferent to their needs and is cautious about being advised, recognizing that the vendor has good intentions but, at the same time, is pursuing an agenda that may not be compatible to their personal welfare.
• Hostile - The customer still expects the vendor to be indifferent to their needs but is resistant to being advised, recognizing that the  vendor is pursuing its own agenda that is contrary to their personal welfare.

The three key elements in each of these states are the vendor's attentiveness or indifference to the customer's needs, the objectives they presume the vendor to have, and the effect that the agreement or difference between the two has on the expectations of the customer. All of this derives from the basic consideration of whether the product on offer is really a solution to their needs.

In relation to customer behavior, the way in which they will interact with a vendor reflects their assessment of this relationship: a collaborative customer will be relatively easy to sell, a neutral one tougher, and a hostile one nearly impossible.   And again, this relationship will be level-set based on the customer's previous encounters with vendors who fit the archetype - when buying a car, the customer expects the vendor to act in the same manner, and with the same agenda, as the last vendor that sold them a car.

This is where assessing the customers' attitude toward the industry or product category is significant, as it is the starting point at which their expectations are set and upon which their behavior will be based.   Ideally, the vendor wishes to be approached tabula rasa so that the customer will judge the vendor on its own merits, without the negative baggage created by others - but this is inevitable.


How We Made Them That Way

The notion that customers "are the way they are" is ignoring how they came to be that way - and, too often, assuming that their style of interaction is going to remain consistent and there's nothing that vendors can do to change it.   This is not correct at all because both parties bear responsibility for the relationship - we made customers the way they are, and we can choose to accept, support, or change their general attitude toward us.

As mentioned, "we" begins in a vague and general sense of all marketers, or all markers in a given industry sector (as categorized in the customers' schema rather than our own) but slowly shifts to be appropriate to the individual relationship.   We can act to support their existing attitude, or we can act to adjust it.   Primarily, this results from the way in which a firm interacts with the customer:

• Supportive - We can seek to understand and serve the needs of the customer, and serve them in the way they wish to be served
• Indifferent - We can remain aloof from the customer, proffering our merchandise and expecting customers to undertake the effort to serve themselves
• Parasitic - We can attempt to control the customers, indifferent to their needs but attentive to our own desire for profit

What I mean to imply here is that our behavior toward the customer shapes their behavior toward us.  A firm that is supportive encourages customers to be collaborative, one that is indifferent encourages them to be neutral, and one that is parasitic encourages them to be hostile.  The notion of encouragement is important, as it would be exceedingly ignorant or arrogant to assume our control is such that the customer will react a given way.

But encouragement is important in that it changes the nature of the relationship.  We have the ability to warm up a hostile customer by acting in a supportive manner.   We also have the ability, though we may often lack the interest, to change our own behavior in the relationship, such as when a collaborative customer voices a complain because they expected us to be supportive but found us to be indifferent.

And in that way, we shape the behavior of the customer - we inherit their attitude from the firms they have interacted with in the past, change their attitude during the course of our own interaction, and reset their assumptions for the next firm they will interact with.   We have the ability to do this for better or for worse.

This is not in the nature of an option we may choose to purse.  It is in the manner of a consequence we cannot avoid, not matter how hard we wish it were not so.

Quiet Leadership

I recently read David Rock's book on Quiet Leadership, knowing in advance that it is considered highly controversial in terms of its use (or misuse) of neuroscience in the context of organizational management.  I'll refrain from wading into that debate: my purpose was not to validate the scientific accuracy, but to consider how his theories apply to the customer-supplier relationship.

I expect I'll be doing a lot of that in 2013, as one of my current interests is considering the balance of power in that relationship.  One of the most significant changes in the marketplace is the increasing competition, such that a customer offered a "take it or leave it" proposition is far more likely to leave it, and that suppliers can no longer count on the ability to herd customers into their shop and squeeze them through their internal procedures - a shift that occurred a few decades ago, but to which most firms still do not seem to have adapted very well.

In that sense, the theory of leadership Rock presents is very salient.  The core of his thesis is that the traditional method of management, using threat to demand mindless obedience from the workers, is no longer applicable and never was particularly effective; and that to achieve optimum performance, management must leverage the intelligence of their teams and encourage them to think.

In the marketplace, suppliers never did have formal authority over their customers, but seemed to act as if they did.   By virtue of limited competition, the supplier of any good recognized that they could still use threat (withholding the benefit of the product) to encourage the behavior they desired to elicit from consumers (buying the product).

This power was significantly diminished at the onset of competition, though it remained skewed in favor of the supplier: the customer who refused to accept orders would undertake the additional inconvenience of having to seek out an alternative - to do the necessary research to find an alternative, and to undertake the effort to do business with a competitor.

For brick-and-mortar retail, the cost of switching might require a customer to drive a little further, or accept the waiting period if they ordered from a catalog or Internet vendor.   This is still true in many industries today: consider that online grocery never did catch on because of the additional cost, time, and risk to the consumer.   But for many industries, that is changing.

Dragging myself back to the book: the approaches described in terms of influencing the behavior of employees correlate.   Especially when introducing a new product, a new channel, or even a new supplier, it's necessary to consider the existing mental framework a customer has in terms of the behavioral pattern they have already adopted, or expect to adopt, in order to satisfy a need and appeal to their cognitive processes and a deeper level.

That is to say, rather than commanding customers to buy a product, suppliers must gain permission to enter into the process of determining how to satisfy a need, guiding the customer gently toward the recognition of value.   My sense is the author might pale at this, as marketing is more geared toward convincing the customer "buy this specific product" rather than "consider which product will best suit your needs" and accepting that the customer might choose a different vendor.

But then, marketing at its best is about matching products to needs rather than just pushing boxes, and when we come to the recognition that the product we sell does not fit the needs of the consumer, it is the product rather than the consumer that should change.   So in that sense, exploring the mental framework of the customer might lead us to discover opportunities for product improvements.

My mind is clouded with topics that are spinning off of the mark -it's unlikely I'll bring this meandering to a tidy end and am likely to become frayed further.

Diseased Companies, Jackass Managers, and Sick Individuals

I was dismissive of Charles Sennewald's book, Traits of a Jackass Manager - it's a very thin book, lots of cartoon drawings and not much text, and most of the chapter titles seemed painfully self-evident. But I found my thoughts going back to it, and eventually picked it up and read through it cover to cover.

The book is intended to address dysfunctional behaviors in management, but as I went through I recognized that some of these behaviors are so widespread as to be part of the very fabric of certain companies, and of entire industries.    The customary tone of the superior-subordinate relationship is an indication of organizational culture - a manager is acting in accordance with the culture of the firm, or if he is not, his behavior is at the very least being tacitly condoned and accepted, though not overtly advocated (as yet).

My sense is the examination of the superior-subordinate relationship yields insight beyond the formal authority structure of an organization, as the same qualities evidence themselves in any relationship in which there is power disparity ... which is to say, in all relationships, as even those that are nominally egalitarian will find that each party has some advantage over the other in certain instances.

And from a perspective of negotiation, one of the most critical assessments in the early stages is to analyze the locus of power: to determine who thinks they have power, who actually does hold power, and to adjust your tactics accordingly.  The traits that people involved in a negotiation demonstrate reflect the degree to which that individual feels himself to be in a position of power.

The qualification "feels himself to be" is significant.  A person who lets on that they are in a position of power can be mistaken.  Such a person might also be well aware that they lack power and are overcompensating with their behavior to deceive the other person into thinking they are in a stronger position than they are.  And in either case, it can be a severe liability - just as a wrestler can use his opponent's force and weight to effect a devastating takedown, so can a skilled negotiator leverage to his own advantage the force of someone who is throwing their weight around carelessly in a metaphorical sense.

At this point, I am chasing a red herring ... I've turned away from relationship management and have begun down the course of negotiation tactics, and have to stagger a bit awkwardly back ...

The tone that a person takes in interacting with others reflects their sense of power in regard to the other party.   This is applicable to  manager-subordinate relationships as the author describes - but can be extended to service relationships, in which the provider and the customer each feel themselves to have a source of power, and the negotiation is influenced by this belief.     That is,  a boss who feels himself to be in a position of complete power over his subordinates in prone to behave abominably, and so does a firm that feels itself to be in a position of complete power over the market.

It's curious that such misbeliefs are perpetuated to the present day: if it were not so, there would be no market for a book of this nature - nor any need for the volumes of information written to guide firms and individuals in interacting with customers.  It should go without saying that bigotry, despotism, manipulation, autocracy, and the like are detrimental to morale and performance alike - but if it really were self-evident, would these behaviors really be so widespread?

Pretending to Be Ethical

A person can fake his behavior, but not his character. I should likely qualify that as being in reference to the short term, because character can be developed over longer periods of time - perspectives can change, and values can be adopted - but over shorter periods of time, a person has great difficulty pretending to be something he is not, going through the motions to create a false sense that his actions are driven by motives that are incompatible with his actual motivation.

It doesn't take an expert in "reading vocal tone, choice of words, and nonverbal elements of communication to have a sense that a person isn't being entirely honest. Most reasonably observant people can detect this, and few have the skills necessary to maintaining a facade. They will eventually slip, or crack, and go back to their true nature, such as it is ... generally when they have gotten what they wanted and no longer feel the need to maintain the charade.

The same is true of companies: it's not uncommon for a firm that has suffered from bad publicity to go out of its way to support charities or causes that are aligned against the very behaviors of which the firm has been accused and is often entirely guilty. When a petroleum firm has cut costs by neglecting security precautions and coated the shorelines with oil, it's a boon to environmental charities, but for a very short amount of time.

Companies show their true colors in far less dramatic and far more extensive ways: consider the quality of tech support for electronic products, the difficulty you encounter returning merchandise to stores, or the haggling you must do to redeem a CD at a bank. When you made the purchase, service was impeccable ... once they have your money in their hands, their behavior takes a turn, and should you want your money back, things get ugly.

It's in moments such as those that marketing slogans about customer service are put to the test and often fail. The values espoused in advertising and corporate documents reflect what the firm wants people to think, not what it actually is, nor how it actually conducts itself, nor how it has any intention of ever conducting itself.   The experience you have of a firm in everyday encounters demonstrates its actual values.

It's just as true of good companies as it is of bad ones: there are firms that are legendary for the quality of service they provide after the sale and merchants who simplify the return process, realizing that in order to maintain their reputation they must act in accordance to their professed values - giving up a little profit now means maintaining the trust and retaining the lifetime value of a customer. There are some who would suggest, and rightly so, that this behavior is maintained in order to nurture positive relations in hopes of getting your future business.  Even if that's true, it's not necessarily a bad thing. 

From an ethical perspective, a promise kept is a promise kept - even if there are ulterior motives for doing so. By some standards, it's more admirable to keep a promise if you gain no benefit from doing so - but it may be clutching at straws.   It's difficult enough simply to be good - and when someone behaves in a positive manner, it seems unjustly cynical to muckrake to unearth (or invent) a reason to be sour about it.

I also don't agree that companies should care about customers in a general way, "as human beings" or whatever phrase that is used to connote an ineffable and unconditional love for no particular reason. It's certainly a sentiment that customers, even those who seem to demand it for themselves, are unwilling to return. A company's love of customers is for the value they get from them, and a customer's love of a company is exactly the same.

I'd go further, to say that it would be unethical to suggest otherwise - and ethical to acknowledge the relationship such as it is: a commercial relationship, like a professional relationship, that has a given context and specific conditions: each gets what they expect of the other, with a clear sense of boundaries, utterly devoid of illusions or misconceptions, and both are happy with the arrangement.

This is also likely a critical difference between firms that are highly profitable for a short amount of time and those that earn a respectable (but not astronomical) profit and sustain themselves for a longer period of time: they do not pretend to be ethical, they simply are ethical, and not just in regard to their customers, but to their employees, investors, suppliers, partners, and communities.

This may be scratching at the surface of a deeper meditation - that ethics is not merely being true to one's nature, but having a good nature in the first place, such that their interaction with anyone they affect is either mutually beneficial, or at the very least not harmful. I'll think on this some more.