Category Archives: Experience Strategy

Rapid Revenue Retention: A “Swarming” Approach to Keeping Customers During Recessionary Conditions

Given all the business challenges you’re facing today, the last thing you want to do is drive away customers, particularly your most valuable customers.  However, I can say with total confidence that:

Some of your best customers will leave you based on negative experiences they’re currently having!

How do I know this?  Because, after having worked on customer experience initiatives with many dozens of different companies, I’ve learned that every complex organization is disconnected from their customers’ changing priorities… and the harsh realities of the experience customers have as they pursue those priorities.  (Note:  It turns out that this statement is more than just an observation.  It’s a provable certainty that I’ll cover in another post). As a result, it is highly likely your organization is unintentionally frustrating, annoying, confusing, missing opportunities with, and on the verge of losing some of its best customers.  And your organization is doing this in ways that are impossible to fully see from where you are sitting inside the organization.

I’m not trying to be antagonistic.  I’m just stating something that should be intuitively obvious to anyone that’s ever experienced the joys of being a customer.   Bain’sClosing the Delivery Gap” clearly illustrated this disconnect as follows, “When we recently surveyed 362 firms, we found that 80% believed they delivered a “superior experience” to their customers. But when we then asked customers about their own perceptions, we heard a very different story. They said that only 8% of companies were really delivering.”

disconnect

But wait!  It gets worse!   Not only does the gap exist, the gap is almost always growing.  This is true in any situation where the EXTERNAL REALITIES (customers’ circumstances, needs, expectations, and perceived alternatives) ARE CHANGING FASTER THAN THE INTERNAL BELIEFS held by management about what’s most important to customers.  If this is true in your situation, the rate this gap is growing is proportional to the rate of change in your external environment.

As we’ve entered this recessionary economic period, the external environment is changing quite dramatically and quite unpredictably.   As a result, any organization that turns its attention inwards rather than getting even closer to customers is only going to accelerate customer attrition and, ultimately, the irrelevance of their business.

In previous posts, I’ve started to address the most important strategies for dealing with these challenges.  (See:  When the Going Gets Tough… The Tough Get Closer to Their Customers and Delivering Winning Experiences for the Recessionary Customer Mindset ).   In this post, I’d like to extend these perspectives to one of the most valuable things you can start doing today.

Rapid Revenue Retention – A “Swarming” Approach

Over the past decade, we’ve done a particular type of focused Rapid Revenue Retention effort for clients.  We’ve affectionately call the approach we follow “swarming” or “swarm sensing” because it involves sending a distributed team of people into the field to observe (i.e., to swarm around) the experience customers are having.  The approach we follow is based on Swarm Intelligence; a highly parallelized approach to reconnaissance used by the military.

swarm

The objective is, over an 8-10 week period to:

Identify and prioritize the six most important things the company can immediately start doing or stop doing that will lead to a substantial improvement in customer retention or additional sales

In order to accomplish this objective, we send a team of “swarmers” into the field to live with and talk with customers and prospects; to experience things first hand, from the customers’ perspective; and to identify the specific frustration and confusion points that are leading to attrition or lost sales opportunities.   Generally these efforts have been able to quickly identify improvements that lead to a 3 to 5 point increase in retention and, often, a significant increase in the win rate on new business.  Depending on the size of the business, the benefits of this focused effort have traditionally run into the tens of millions of incremental retained revenue.

Here’s an example:

  • Situation: The company is a leading provider of financial products that get sold through intermediaries (dealers) around the country. The differentiated positioning for this organization was their ability to partner with those dealers in a way that created a measurable improvement in their performance. The President of the organization approached us and said, “I believe we provide a highly superior product but I can’t understand why dealers are leaving us at an increasing rate.”
  • Approach: In order to respond to his request, we had a team of swarmers hit the field and spend about 6 weeks with current dealers, lost dealers, as well as, the customers of those dealers. Like other situations we’ve been in, it’s surprising how immediately apparent the issues are when you’re able to step into the customers’ perspective.
  • Results: In the course of those six weeks, we were able to identify seven immediate interventions that improved both dealer retention and the profitability of the existing dealers. These interventions included improvements to the screening criteria for pursuing new dealers, modifications to the initial dealer training they provided along with the creation of a refresher training schedule, and an attrition early warning process that picked up on changes in dealer behavior and directed sales people to intervene proactively as soon as the dealer started to exhibit the behaviors associated with leaving. Over the course of the 6 months following this effort, the organization was able to increase their retention from 88% to 91% creating a revenue uplift of approximately 20 million dollars.

Organizing the Swarm

We’ve generally done this with a small number of trained swarmers (consultants or researchers) supported by a team of more inexperienced swarmers (employees).  While it’s generally easier for outsiders to approach the situation from a fresh perspective, there are several conditions that can be managed to make it possible to accomplish work economically with inside people.  The keys to organizing the swarm include:

  • Ensure swarmers are capable of seeing things from an unbiased perspective. This can be an unnatural act for anyone that’s been involved in any way in delivering or managing the services being observed.  People who’ve had any involvement in delivering the services being observed are “burdened by knowledge.” This includes being steeped in the processes, constraints, assumptions, excuses, biases, and blind-spots associated with delivering the service.
  • Arm swarmers with the right tools and training. Over the past 10 years, we have developed and continuously improved a “Customer Experience Observation Field Book” and accompanying training that has been effective at helping swarmers better see the experience from the customers’ perspective.

experience-fieldbook

  • Ensure swarmers are able to put themselves in the customers’ shoes. Swarmers must be able to step into and “live” the customers’ priorities.  It’s important that swarmers be able to viscerally “get” what the customer is trying to accomplish, feels their needs, and understands how the customer looks at the experience.  This can be easier to do with inexperienced swarmers when those people strongly resemble the customers in question and have themselves been in similar customer situations.  For example, we’ve found that inexperienced swarmers have done an outstanding job observing the experience at Disneyland, when they themselves fit the profile of the customers whose experience we’re interested in.  However, we’ve had much less success in situations where swarmers come from significantly different cultural, economic, or business backgrounds than the customers in question.
  • Ensure that swarmers have no relationship with the customers being observed or interviewed. The presence of any personal, professional, or organizational relationship with the customers being interviewed will bias: 1) what customers may feel comfortable sharing, 2) what the swarmer is comfortable asking about, and 3) the purity of observations that can be captured.  It is particularly important that neither party has a stake in the findings.  This is one of the reasons why…

One of the most biased and ineffective ways to listen to customers is through your sales and account management executives.

The immediate reaction we typically get is, “We’ll just have our people on the frontlines… the one’s that spend all day with our customers… do this.”  While we understand the advantages, we’ve learned this is generally a bad idea.  There are three multiplicative barriers that get in the way of having salespeople and account executives be a good source of insight.  First, when salespeople talk to customers, they have an agenda and customers know it.  There are often negotiation-oriented and face-saving dimensions to the relationship between the salesperson and the customer.  As a result, customers do not tell salespeople everything.  Second, since sales people show up with their agenda and existing relationship, they generally filter everything they hear through that agenda and relationship.  So, salespeople don’t hear many of the most important things customers have to say.   Third, salespeople don’t accurately report everything they’ve heard back to management.  This is particularly true if, by any stretch of the imagination, what the salesperson heard might reflect negatively on them.

  • Build a capable, well balanced team. There is a profile for the good swarmers.  In our experience, the best swarmers tend to be extroverted, empathetic, open-minded, detail-oriented people who are capable of withholding judgment rather than quickly jumping to conclusions quickly.  Although we generally have a diverse team, you need to have enough of these types of people in the mix.

There are several things that make the Swarm Sensing process different from “mystery shopping.”  Most importantly, the intention is different.  The objective is to aggressively identify the highest impact improvements that can be made immediately.  This requires executive sponsorship and visibility for the effort, as well as, for implementing subsequent improvements.  In addition, the level of depth is different.  Most mystery shopping exercises are more about measuring compliance with expected service standards rather than getting deeply under the covers of what’s working and not working about the experience customers are having.  In a way this makes the swarming effort more like a highly directed ethnographic study.  The most challenging elements of this are equipping, training, and coordinating a distributed team of swarmers to do the work over a short period of time with a very well-defined and highly valuable business objective.

I’d be happy to share more perspective on this approach than I have room to address here.  Shoot me a message or add a comment if you’d like more information.

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Delivering Winning Experiences for the Recessionary Customer Mindset

Layout 1I just received an interesting advertisement from Mimi’s Café.  Mimi’s is a 115-store chain of upscale casual dining establishments known for generous portions of predictably high quality entrees.  In an unusual twist, Mimi’s is promoting a “Just Enough Menu” focused on smaller portions at prices that range from $7-9 for lunch and $8-12 for dinner.  While most advertisements you see promote “more for less,” this advertisement promotes “less for less.”   Although this may be surprising, I believe it’s an astute move.  Not only does it provide a low price incentive but the “less for less” approach strikes a chord with a recessionary mindset that has been taking hold.

The National Bureau of Economic Research (NBER) announced yesterday that the United States has officially been in a recession since December 2007.  I don’t think many people were surprised.  “I think that we’ve got a ways to go, that this is going to be probably a deep and long recession,” said Jeffrey Frankel, a Harvard University economist who sits on the NBER.

Over the past year or so, the focus of our work on customer experience design has transitioned from the strategic to the urgent.  We’ve spent more time helping clients focus attention and investment on collaborating with and retaining their best customers, surfacing and quickly addressing the reasons for customer attrition, and on continually reinforcing that, although everyone seems to have become more conservative,…

Customers are NOT NOT spending!  They are just changing how and why they spend.

Customers are continuing to opt for and engage in experiences that are designed to meet their needs.  It’s just that their needs and priorities are changing significantly.  Organizations that understand and quickly adapt to these changes can not only preserve but enhance revenue in the short term.  Organizations that hang onto outdated beliefs regarding their customers’ priorities will not only lose revenue but will ultimately be seen as out of touch and irrelevant.

While every industry and situation has its own unique behavioral shift to understand, we’re seeing a few overarching patterns that represent a solid starting place.  Increasingly, customers are:

1. Rejecting Conspicuous Consumption

The recession may just provide a cure for a wicked case of Affluenza!  In light of the current conditions, our past consumer behavior looks a little embarrassing; like our evolutionary predisposition to acquire has been running amuck.  The Times of London columnist, India Knight wrote, “I am happy to observe that the decades of vulgar excess are finally over… There is a strong collective sense of us all coming back down to earth. It’s like a huge national reality check and, unwelcome as it may be, there is a possibility that it will result in us straightening out our priorities.”   (See:  Dear Prudence: Recession May Bring Return of Traditional Values).

blingwater_1We’re seeing early indications that there may be an aggressive backlash against indulgent and conspicuous consumption.  Think about it.  How many families need a 5,000+ square foot house other than to store all the stuff they buy to fill it to the rafters?  Is it really necessary to spend between $40… and even $400… for a case of 12 liter bottles of water?  Have I got a deal for you?  A case of Bling H20 (water corked in frosted glass bottles adorned with Swarovski crystals) is currently on special for less than $400/case.  Even at this discounted price, it still makes the EvianPalace” water seem cheap at $15-$20 a bottle.  Similarly, is it necessary to spend three times as much on Renova’s designer toilet paper, $200 jeans, or a $690 on a Porsche baby stroller?

We’re starting to see a return to the more reasonable basics.  In the fashion industry, “the dress, which has enjoyed a lengthy reign over the market, is losing ground to more conservative, versatile, basic pieces that can blend and carry their owners through several seasons. Retailers report excellent sales in practical items such as blazers, denim, basic separates, and trousers.”  (http://www.slate.com/id/2191398/)

It’s starting to look more and more socially unacceptable to buy upscale goods.  A recent investment blog post provides an indicator of some of the sentiment we’re seeing.   “One company that will be hurt by the eating retrenchment is Whole Foods (NASDAQ: WFMI), a favorite of the upper middle class who wants to look down their noses at people who go to regular grocery stores.”  (My emphasis added).  The point isn’t whether Whole Foods shoppers believe in the health and environmental benefits of organic and natural foods; the point is that non-Whole Foods shoppers perceive the Whole Foods shoppers as “looking down their noses at them.”

As I mentioned in a previous post (When the Going Gets Tough… The Tough Get Closer to Their Customers), as customers that are struggling will buy up in order to keep up appearances, the ones that aren’t will tone it down.  I expect we’ll see an echo of the “grunge” music, fashion, and lifestyle movement that arose out of the recession of the early ’90s.  This will create opportunity for new products, entertainment, fashion, and retain outlets.

As we head into the holiday season, we’re starting to see an increased tendency to give “practical” gifts rather than the more luxurious and exotic gifts.  Look for high end companies to jump on opportunities to introduce more discreet chic alternatives.

2. Making Value-Focused Tradeoffs

As the recession has taken hold, most customers are more willing to postpone purchases, trade down, or buy less.  For many customers, yesterday’s “must haves” are becoming today’s “can do with outs.

In the course of making these tradeoffs, customers are buying more quality non-branded or store-branded alternatives.  Michael Barbaro and Eric Dash wrote in the New York Times “Recession Diet Just One Way to Tighten Belt” that, “Over the last year, purchases of brand name cookies and crackers have fallen, according to Information Resources, which tracks retail sales.  Sales of Nabisco graham crackers have dropped 7.5 percent, and Keebler Fudge Shoppe cookies have slipped by 12.3 percent.  Not even beer is immune.  Sales of inexpensive domestic beers, like Keystone Light, are up; sales of higher-price imports, like Corona Extra, are down, the firm said.”

Customers are also making tradeoffs in convenience for price.  This includes shifting from the Marriott to the Fairfield Inn and looking for cheaper flights at off peak times, such as mid afternoon and late evening rather than early morning.  As Barbaro and Dash write, “Spending data and interviews around the country show that middle- and working-class consumers are starting to switch from name brands to cheaper alternatives, to eat in instead of dining out and to fly at unusual hours to shave dollars off airfares.”

In a great article, “Dollar’s fall forces new standard of frugality,” San Francisco Chronicle writer Sam Zuckerman writes, “Now, that shop-till-you-drop, I-want-it-all-and-I-want-it-now era may be coming to an end. It couldn’t last because it was built on a mountain of money borrowed from overseas.”  Zuckerman goes on to summarize some of the ways that customers are throttling back:

IN OUT
Saving Borrowing
Cooking at home Eating out
Fixing the old car New car
Staying at home Foreign vacations
20 percent down No down payment
Debit cards Credit cards
Working past 65 Early retirement
Library Bookstore
Tap water Bottled water
BART Bay Bridge
Patching Remodeling
Public park Theme park
Eyeglasses Lasik surgery
Poker night Weekend in Vegas

We’re also finding that business customers want to see products and services unbundled and priced separately.  Customers want and need to evaluate the individual contribution of each component and are placing a premium on reliability, predictability, and performance.  New products and services that address new customer priorities and put pressure on competitors can be effective but advertising and sales efforts must stress differentiated value and superior price performance.

3. Smaller Scale, Do it Yourself Alternatives

During more optimistic economic times, customers often find I easier to justify making investments in major projects.  For example, homeowners might invest in renovating their home with the expectation that it’ll have a positive impact on their home’s value.   However, as home values are shrinking, homeowners are opting for smaller scale and more focused and necessary improvements driven by livability and value preservation rather than economic gain.  For example, at Home Depot, sinks, faucets, and bath accessories are selling briskly as consumers switch from full makeovers to more focused refreshes.

Barbaro and Dash go on to cite an NPD study that provides another example:  “Carl Hall, a retired construction worker in Detroit, wants to buy a fence for his backyard. But he decided not to buy a finished product at Lowe’s, the home improvement chain where he was shopping recently. With money tight, “I am looking to put it together myself,” he said, adding that he hoped to save $200.”

We’re also seeing anecdotal evidence of a similar pattern with business buyers.   It seems like more companies are breaking consulting and business services projects into smaller pieces and looking for parts that they can do themselves.

Agile companies will create offerings and experiences that provide customers both smaller scale and “do it yourself” alternatives… in addition to offering fully integrated options for those who may continue to prefer that.

4. Regaining Control

People experience an emotional loss of control during unpredictable times.  As a result, we typically see people acting in idiosyncratic ways driven by a deep psychological need to regain control.  For example, people often engage more in collecting hobbies when they feel out of control in their lives.  Depending on their individual interests, they’ll collect figurines, CD, DVDS, coins… just about anything.  Conway’s Vintage Treasures blog, stated, ” “Collecting is a passion and a distraction to a better place, a better quality of life then we can get from say for example, following stock prices everyday…”   Our research points to a deeper reason that has to do with control.  The more people feel their situation is out of control, the more they compensate by engaging in behavior that helps them regain their sense of control.  Collecting is one of those things.   What’s the benefit of collecting another figurine when you already have 200 of them?  Well, it makes them feel like they’re on top of their collection and making progress in small steps towards improving it.

Aside from these deeper control issues, we also see more obvious ways of regaining control.  For example, programmable thermostats and insulation which help gain control over fuel bills are another top seller at home improvement stores.

Another way that customers regain control is by taking advantage of packaged offerings that reduce the actual or perceived costs or level of uncertainty.  These bundled offerings can provide the comfort of “no surprises at a set price.”   For example, while travel agencies report that although overall demand for travel is down, there has been a shift to U.S. and even local destinations, with a rise in popularity of “all-inclusive” stays.  (See:  Americans Flee Looming Recession).  The opportunity for a local bed-and-breakfast might be:  they could offer a package that included dinner at a local restaurant; bicycle rental, horse carriage tour or the like; and tickets to a local attraction or museum.  Those establishments could provide the goods and services at a discount to the B&B (as a “cost” of marketing for the increased business), and the B&B could offer the full package below the retail cost of the individual items while guaranteeing the usage of their rooms.  A win-win situation for all of the businesses!

5. Cocooning, Insperiences, and Staycations

As hard times loom, we tend to retreat to the comfort of our friends and family.  We connect with cozy hearth-and-home scenes in advertisements rather than images of extreme sports, adventure, and rugged individualism.   As we cocoon, insperiences tend to boom.  According to trendwatching.com, Insperiences represent “consumers’ desire to bring top-level experiences into their domestic domain.” This can include high-end entertainment systems, in-home spas, exercise facilities, etc…

As a result, telephone use and discretionary spending on home furnishings and home entertainment should continue to hold up well, as uncertainty leads us to stay at home but also stay connected with family and friends.   Sales of big-ticket electronics, like $1,000 flat-panel televisions and $300 video game systems, are on the rise, according to retailers and research firms. Falling prices for such devices and a looming government deadline to convert to digital television have helped. So has the view, sensible or not, that the technology is a good investment.

Staycations often replace vacations.  Vacations at or around home rather than traveling can be significantly less costly since there are no lodging costs and minimal travel expenses.  Costs may be limited to gasoline for local trips, dining, and local attractions.   In addition, Staycations do not have the stress associated with travel, such as packing, long drives, or waits at airports.  They may also appeal to people who are stressed about being away from work.  (However, it also leads to the downside of working on your vacation.)

6. Small Understated Indulgences

In parallel with reverting to the practical, customers will look for small understated indulgences.  They seek diversionary yet affordable experiences that can make them temporarily forget their worries.   This includes things like going to the movies.  During the height of the great depression, when 25% of families had no income and unemployed labor reached 40%, movie receipts still increased by 22%.

Big indulgences like higher-end restaurant chains, including Ruth’s Chris and Morton’s, will be off since they are either actually too expensive or appear to be extravagant.  In addition, frequently small indulgences that have become habits, like Starbucks, will also take a hit since the total expenditures on those items tends to add up.

There are also a range of interesting anti-recessionary small indulgences.  Chocolates and alcohol generally sell well during a recession.  Another interesting affordable luxury that generally performs well during a recession is lipstick.  The “Lipstick Index” is the result of a time-series analysis that suggests that lipstick sales are inversely related to the strength of the economy.

7. Looking for Empathy

Customers are looking for companies that understand what they’re going through and are ready to help.  In the outstanding New York Times article, “Thriftiness on Special in Aisle 5,” authors  Stephanie Rosenbloom and Andrew Martin write:

“While it might seem counterintuitive for stores to teach shoppers to cut their spending, several chains have concluded that providing such knowledge can spur loyalty and keep customers from trading down to cheaper competitors.

So the Stop & Shop grocery chain is offering “affordable food summits” where consumers are taught how to lower their grocery bills. Home Depot offers classes on how to cut energy bills. And Wal-Mart Stores hired a “family financial expert” who has used online chats to teach several thousand shoppers how to save money for college, whittle away debt and sell a house.”

Whole Foods has redesigned their customer experience around the “Whole Deal” theme targeted at customers who remain committed to natural and organic foods but are feeling a heightened attention to cost.  This experience includes several creative elements that match customers’ shifting priorities : an expanded selection of lower-priced alternatives marketed under their “365″ store brand,  “Money Saving Meal Plans” and “Budget Friendly Recipes” that provide advice for containing costs while maintaining a focus healthy natural and organic foods.   They are even offering “Value Tours” through the store in order to help customers find the most cost-effective solutions.

Another way customers are looking for understanding is pricing.  Astute providers do not necessarily have to cut list prices but they may need to offer more temporary price promotions, reduce the thresholds for discounts, extend credit to long-standing customers and price smaller sizes more aggressively.

Rosenbloom and Martin very eloquently summarize that…

“The golden trend tip for brands in a downturn? Care about your customers. Deliver. Sympathize. Surprise them. Talk to them.”

These seven patterns provide a solid starting place for identifying the specific shifts in customer needs, priorities, and behaviors that may be relevant to your industry and situation.  In the end, companies that focus attention and investment on collaborating with and retaining their best customers, surface and quickly address the reasons for customer attrition, and remember that…

Customers are NOT NOT spending!  They are just changing how and why they spend.

Those companies will be in the best position to deliver winning experiences that resonate with their customers’ changing needs and priorities… and, maybe even, turn a downturn into an upturn.

When the Going Gets Tough… The Tough Get Closer to Their Customers

Whether we like it or not, the current recession will separate the weak from the strong.  For many organizations, I believe the deciding factor will be how well they recognize…

The linchpin of an effective recessionary strategy is aggressive customer focus!

In a downturn, customers’ assumptions about the future are driven by fear and uncertainty more than objective financial realities.  Any recession generates the obvious and predictable belt-tightening; customers delay necessary purchases, choose more inexpensive options, and avoid discretionary spending.  However, it’s critically important to recognize that, beyond these generalities, each recession produces it’s own unique pattern of changes in customers’ needs, priorities, and behaviors.  As a result, a recession can create opportunities for organizations that can understand these changes, think creatively, and use the situation as an opportunity to strengthen relationships with their most valuable customers.

One of the worst things an organization can do during a recession is to take its eyes off of their customers.  However, when threatened, most organizations have a tendency to adopt an inwardly-focused, “survival mode,” mentality.   They focus on operational and financial controls and stop investing in what appears like discretionary initiatives aimed at strengthening relationships with customers.  By taking their eye off of the customer, they end up accelerating customer and revenue attrition while undermining their longer-term competitive strength.  There are three things we’d recommend based on the work we’re doing to help our clients deal with this challenge:

1.      The first priority is aggressive focus on and investment in your best customers and prospects.  During a recession, a relatively small number of your best customers will provide an even larger share of your profits, while the often larger ranks of marginal or unprofitable customers will create even more of drain on the system.   The first thing to do in a recession is to clearly identify who your most valuable customers are and invest in strengthening relationships with those customers.   This includes collaborating with those customers to understand and address their changing priorities, restructuring your offerings around their unique needs and, as necessary, restructuring financial terms.  It also includes focusing sales efforts on the most valuable, winnable customers and making sure that you’re not wasting resources on customers that are not going to buy and that are unlikely to be profitable.

There are many classic examples of the benefits resulting from aggressive, customer-focused investment during times when competitors are retrenching.  For example, Dell invested in their customer-centric telephone ordering and pull production systems during the 1990-1991 downturn.  As a result, Dell was able to capture the strongest competitive position when the economy sprang back.  Singapore Airlines invested $300 million in new seats, entertainment, meals, flight attendant training all aimed at their most profitable first-and business-class customers.  As a result, they were able to not only survive, but remain profitable in the aftermath of the 1997 Asian currency crisis and emerged in stronger competitive position.

A lot of the work we’ve been doing is focused on helping clients collaborate effectively with their best customers.  This starts with the analysis required to clearly determine who their best customers are and continues with the implementation of joint planning processes, closed-loop satisfaction management practices, as well as, more agile, open, and collaborative product development and service processes.  In addition, we’ve been helping clients optimize their selling activities by starting with a clearer understanding of how their customers’ buying priorities are changing.

2.      The second priority is watching, talking with, and listening to customers more closely in order to identify creative ways to address subtle changes in their needs, priorities, and behavior.  It’s critically important to NOT rely on your traditional assumptions about what’s important to customers.  Instead you need an informed view of how your customers’ needs and behaviors are changing as dark clouds appear on the horizon.  You need to think creatively about ways to meet those changing needs and address those changing behaviors in order to strengthen the relationship, generate more value, make their lives easier, or make their businesses easier to run.  Not surprisingly, customer behavior will increasingly be driven by emotion rather than rational consideration.  By getting closer to customers you can identify ways to proactively address customers’ emotional needs and reactions.  Here are a few of the overarching behavioral shifts we’ve been observing as the recession continues to take hold:

  • Sympathetic Frugality and Inconspicuous Consumption. Most people who are struggling don’t want it to show; they’ll make compromises in order to keep up appearances.  However, even the customers that are doing well are becoming more cautious as they see friends and colleagues cutting back or losing their jobs.  Appearances matter.  Inconspicuous consumption refers to purchasing goods or services that convey a lower socioeconomic status. People who have, so far, been unaffected directly by the recession don’t want to rub it in.  As a result, we are starting to see a regression towards a more socially-neutral mean.  While the customers that are struggling will buy up in order to keep up appearances, the ones that aren’t will tone it down.  I expect we’ll see an echo of the “grunge” music, fashion, and lifestyle movement that arose out of the recession of the early ’90s.  This creates opportunities for clever, customer-centric marketers.
  • Exercising Control. People are starting to cut corners in ways that give them the feeling of being in control and of acting responsibly. All inclusive and bundled pricing that creates more predictable and budgetable expense streams will have an advantage.  Companies need to look for ways to help their customers regain a feeling of control. This might include measuring the benefits and savings associated with programs, locking in discounts for the future, etc…
  • Inexpensive Luxuries. During the height of the great depression, when 25% of families had no income and unemployed labor reached 40%, movie receipts still increased by 22%.   As stress and uncertainty levels rise, people naturally look for more inexpensive ways to meet their personal and social needs. This includes affordable entertainment alternatives. Beer, liquor, movies and home entertainment tend to do well during a recession. Product and service organizations that provide affordable alternatives to premium pleasures can benefit from promoting these options.  This includes everything from buying your latte at McDonalds or Duncan Donuts rather than Starbucks… to more economically-oriented entertainment, restaurants, hotels, and vacations.

whole-deal

I walked into Whole Foods yesterday and noticed how effectively they’ve redesigned the experience.    They’ve launched “Whole Deal,” a more value-focused experience targeted at customers who relocal-producer-loanmain committed to natural and organic foods but are feeling a heightened attention to cost.  This experience includes several creative elements that match customers’ shifting priorities : an expanded selection of lower-priced alternatives marketed under their “365” store brand,  “Money Saving Meal Plans” and “Budget Friendly Recipes” that provide advice for containing costs while maintaining a focus healthy natural and organic foods.   They are even offering “Value Tours” through the store in order to help customers find the most cost-effective solutions.  In addition, they are promoting a “Local Producer Loan Program” that highlights the support they provide to suppliers.   Overall, they are meeting a challenging situation by finding ways to add more value for customers, rather than just cutting costs.

3.      The third priority is identifying and eliminating the negative experience elements that drive attrition. Most organizations unintentionally frustrate and annoy customers in ways that they can’t even begin to understand.  Recent studies have shown that, while the economy has been weakening, their tolerance for bad service has been diminishing.  For example, a recent Customer Experience Study (conducted by RightNow and Harris Interactive) found that:

  • 87 percent of consumers have stopped doing business with an organization after a bad customer experience, up from 80 percent in 2007 and 68 percent in 2006.
  • 84 percent of consumers indicated they would tell others about a bad experience – up from 74 percent in 2007 and 67 percent in 2006, In fact, blogging about a negative customer experiences is on the rise: 22 percent of consumers this year have posted negative feedback about a company, vs. only 13 percent in 2007.
  • 58 percent of U.S. consumers said that in a down economy, they will always or often pay more for a better customer experience

In many cases, the negative experience elements that contribute to attrition may be relatively easy to fix without major investment.    The trick is to be able to clearly identify these things with an unbiased and unfiltered, outside-looking in perspective.  Over the past decade, we’ve worked with several organizations to conduct an Urgent, Short-Term Customer Retention Program.  Typically, over the course of 6-8 weeks, we can quickly diagnose the specific breakdowns in the experience that are leading to defection or lost new business opportunities.  For example, we worked with a business-to-business financial services provider to uncover the root causes for why customer attrition was increasing.  Over the course of an 8-week effort, we were able to identify 7 things they could immediately to 3 point increase in retention.  This translated into a 12% improvement in the business’ bottom line.   These improvements included a new template for on-boarding and initiating new customers, an early warning system for changes in customer behavior that preceded attrition, and expanding the schedule of follow up training for customers.

The way through many tough times is finding ways to intelligently create more value for others.  One of the surest ways there is for making sure that you end up being the strong rather than the weak is avoiding the tendency to become self-absorbed and maintain a clear focus on the customers that are, ultimately, the source of your success.

Neuroeconomics Overview: Understanding “The Mind of the Market”

The ways we think about money and make financial decisions are typically far from rational.   We get upset when we find out that another person is getting a better deal, despite the fact that we were perfectly happy a minute ago.  We spend more for well-known brands that have no difference in real quality.  We invest in punishing others for perceived “violations in justice” despite the fact that there are only negative consequences for ourselves.  We spend a lot of money on things we want that, in the end, don’t make any difference in our level of happiness.

Despite the considerable evidence that we think and act irrationally with money, most of this irrationality makes much more sense when you look at our behavior from the perspective of our long history as small bands of hunter-gatherers operating in an environment of limited resources and high risk.   We just haven’t fully adapted to the relatively recent development of our consumer-trader society.

If you’re looking for a good introduction to behavioral and evolutionary economics leading up to the emerging field of neuroeconomics, check out Michael Shermer‘s The Mind of the Market.  The Mind of the Market is an easy to read summary of some of the work of many of the brilliant contributors to this field including:  Daniel Kahneman and Amos Tversky’s groundbreaking work in behavioral economicsLeon Festinger’s study of cognitive dissonanceJohn Nash on the Nash EquilibriumRead Montague’s work on decision making,  Daniel Gilbert’s study of happiness and the problem of affective forecasting, and more…

For a short teaser, read Shermer’s recent essay:  Why People Believe Weird Things About Money

Most business leaders make the assumption that their customers are rational decision makers.  As a result, they make investments in developing products and services that have rational benefits.  Much of our work with clients involves helping them understand how to influence more powerful customers experiences by designing what they do from the seemingly irrational “mental model of the customer.”   If you’re interested in more perspective on this, check out the following Customer Innovations blog posts:

Centers of Gravity: Levers for Shifting the Customer Experience

I’ve heard many executives and consultants talk about the importance of training and motivating front-line employees in order to improve the customer experience.  While I agree that having highly engaged, well-trained, and motivated front-line employees is important, it is very far from sufficient.

In this post, I will make the case that focusing on front-line employees is generally NOT the most important place to start if your goal is to significantly improve the customers’ experience.

In order to make this case, I’m going to refer on one of the most important lessons from military strategy.  In the early 19th century, Prussian military strategist, Carl von Clausewitz introduced the concept of the Center of Gravity (CoG) of any strategic system (e.g., political, military, or organizational system).  The Center of Gravity describes a system’s most critical sources of strength; the elements that are most influential for stable and successful operation of the system.  The optimal military strategy is typically the one that achieves well-defined objectives by attacking the enemy’s “system” at it’s points of maximum influence or vulnerability.

Col. John Warden, ex-Commandant of the Air Command and Staff College and chief architect of the Desert Storm air campaign, has argued that the Center of Gravity of any strategic system consists of five concentric components — leadership, system essentials, infrastructure, population, and fielded forces.  (See:  Reining in” the center of gravity concept – Features – US Armed Forces, Air & Space Power Journal,  Summer, 2003  by Antulio J. Echevarria, II).   This can be shown as follows:

Center of Gravity 1

From this perspective, attacking the enemy’s field forces has relatively minor influence versus attacking leadership, essential resources, or communications infrastructure.  Instead, Col. Warden’s has argued for using airpower to simultaneously strike at each system component thus overwhelming the opponent and irreversibly shifting the state of their system.  This was a key to the success of the Desert Storm air campaign.

The central lesson is that systems change when their centers of gravity change. The experience that customers’ have with any organization is driven by the emergent behavior of a complex organizational system.  If you consider the center of gravity of a complex organizational system it looks something like this:

CoG2

If you want to shift the behavior of an organizational system, front-line employees are actually the furthest component from the organizations’ true Center of Gravity.  However, the most critical components of the organizational system are:

  • Leadership including the aspirations, capabilities, and beliefs of the executives, as well as, the something called the operating state of the organization.  Operating state establishes the context for how the organization works together and includes four dimensions: Power, Identity, Contention, and Learning.   Note:  Operating state is described in more detail in the post: How Employee Experiences Drive Organizational Behavior?
    • Power. Do people have the sense of possibility and the power to accomplish what is important to the organization… and to them?
    • Identity. Do people identify with the mission and the commitment of the organization as a whole or do they identify more narrowly with their function or department?
    • Contention. Can people deal constructively with disagreement?  Can they face up to breakdowns, build alignment, and move forward?
    • Learning. Are people open to learning about the changing needs of customers, real strengths and weaknesses versus competitors, and ways the organization must change in order to continually improve the experience
  • Unwritten rules that drive the real behavior of the organization independent of the espoused ideals and formalized processes and systems.
  • Management systems that define how the organization measures, manages, and rewards performance, as well as, how priorities are determined and resources allocated.

These most central elements create an environment within which processes and technology, along with front line employees and supervisors come together to deliver service to customers.

Most systems are surprisingly resistant to change.  Unless these three components that are close to the Center of Gravity are addressed in a coordinated and holistic way, I would expect that efforts to train, motivate, and engage front-line employees will lead to marginal results.   As Col. Warden has emphasized, shifting the state of an organizational system requires a coordinated, simultaneous intervention on each of the concentric components.

Adaptive Customer Profiling: Integrating Quantitative and Qualitative Customer Analytics

Most business leaders now recognize that organic growth is a direct result of their ability to deliver a differentiated, compelling, and increasingly personalized customer experience.  Effectively delivering such an experience is dependent on the organization’s ability to understand what attracts customers’ attention and what drives customers’ behavior.

As you know, recent advances have lowered the investment threshold for consolidating and analyzing the massive amount of data that most organizations’ have about their customers.  Predictive modeling can then be used to make increasingly effective and individualized decisions about the treatment of customers.  For example, these approaches can be used to leverage customers’ past behavior to predict: the value of each customer, how likely that customer is to respond to specific offers, that customer’s price sensitivity, or how likely that customer is to attrite, as well as, what retention actions are likely to be effective.  (See:  Using Predictive Modeling to Optimize Customer Relationships)

Despite the enormous potential, purely quantitative approaches are insufficient.  In particular, quantitative customer analysis has natural limitations, including:

  • Trying to predict the future based on information about the past
  • Data gathered at a limited number of customer touch-points rather than an end-to-end understanding of the customers’ experience, including the more important non-touch-points
  • Surface level behaviors rather than a deeper perspective on customers’ motives, goals, plans, as well as, how they think and feel about their experiences

Trying to understand the customer based purely on quantitative analysis can feel a little like trying to determine how the furniture upstairs is arranged…  by tapping on the ceiling! Obviously, you’d get a much clearer picture if you just went and took a look… rather than trying to infer what’s going on through indirect and limited data sources.

In addition, inferences drawn from purely quantitative approaches are prone to interpretation errors.  Without an adequate qualitative context for understanding the data, we’ve seen too many organizations draw conclusions akin to “Our customers in South Florida are born Hispanic and die Jewish.

The most powerful results come from the synergy between qualitative insight and quantitative analytics.

  • Qualitative Insight: Leveraging knowledge from in-depth research, observation, elicitation, as well as, listening to the conversations that take place between customers in emerging social networks.  This qualitative insight is used to frame and guide quantitative analysis.
  • Quantitative Analytics: Leveraging patterns in demographic and transactional customer data in order to predict, classify, and optimize elements of the customer experience. This quantitative analysis is to validate, refine, and populate the context created via qualitative insight.

In practice, organizations and the functional departments within them tend to have a strong bias for one of these modes.  More “left brained” organizations or functions emphasize the quantitative approach and feel uncomfortable with going out to actually observe what’s happening with customers.  More “right brained” organizations or functions emphasize the qualitative approach, are out living with their customers, but also tend to make decisions that aren’t supported by sufficient analytical rigor.  As a result, it’s difficult for organizations to put together the pieces in a way that generates a holistic perspective on the customer.

In our customer experience work with clients we are beginning to create Adaptive Customer Profiles that can be used to integrate quantitative and qualitative knowledge about the customer.

An Adaptive Customer Profile is…

… a formal knowledge representation structure used to capture the customer intelligence necessary to effectively customize communications, effectively assign service resources, optimize the presentation of high probability offers, and adapt pricing to customers’ price sensitivity.

Adaptive Customer Profiles for a given business situation generally include:

  • Descriptive Information: Identifiers, demographic characteristics, etc…
  • Potential and Current Value: The expected and current value of this customer.
  • Customer Network Information: The customers’ role and placement in an influence network of customer relationships.
  • Personae Classification: The degree to which the customer demonstrates an affinity for one or more personae classes that exist in the marketplace.  These personae classes are an extension of psychographic segments that define the predominant “mental models” in the marketplace.  These personae are characterized by shared customer goals and preferences, goal-directed behavioral patterns, cognitive schema, and temperamental characteristics.  These temperamental characteristics include the customers’ orientation towards novelty seeking, harm avoidance, reward dependence, and persistence.  (See Cognitive Ergonomics:  Designing Experiences that Fit the Customers’ Mental Model)
  • Relationship State: The level of attachment this customer feels towards our business as evidenced by their transactional and interactional behavior.
  • Context Sensitive Behavioral History: key behavioral indicators derived from inquiry and order history, service records, etc…

Adaptive Customer Profiles are derived through an integrated set of qualitative and quantitative activities.  Qualitative work includes customer observation and elicitation (See:  Observation and Elicitation:  We Like to Watch!) in order to uncover insight that is used to develop an effective personae classification scheme.  Quantitative work involves predictive modeling focused on the leading indicators of customer behavior and measuring the affinity that customers demonstrate for one or more personae.

For example, we are working with a leading healthcare organization to design an integrated patient-physician experience that can adapt to the fact that different patients have fundamentally different mental models associated with their health and the consumption of health related services.  Some customers will be high novelty seeking naturalists; some will be low persistence avoiders; some will be more high harm avoidant active consumers, etc…  The experience design integrates an Adaptive Customer Profiling module that identifies the extent to which each customer fits one or more of the common personae that exist in the marketplace.  Based on that Adaptive Customer Profile, we can then customize patient communications, instructions on courses of treatment, the presentation of wellness programs, etc…

We are also developing a similar personae classification scheme focused on Mass Affluent consumers of financial services.  Almost every financial services company is currently targeting this valuable “segment.”  The issue is that, by its’ very nature, the “Mass Affluent” segment is an exceptionally diverse group of individuals that only share the fact that they have assets and/or income above a certain level.  Companies that attack this market with a mass market mentality will almost certainly lose.  However, financial institutions that can target meaningful sub-segments of this market with a highly differentiated offer can create an experience that is attractive and differentiated with a substantial group of these customers.  You might imagine a hip and differentiated “I Hate to Plan” themed experience for the sub-segment of Mass Affluent customers that are Avoiders… or a more conservative, goal-driven experience customized to the customers that are Achievers.   A financial institution that embeds an Adaptive Customer Profiling process in their interactions with customers could more effectively customize the experience to the customers’ goals, behavior, mental model, and temperament.

Most Efforts to Improve Customer Relationships are Misdirected!!!

Virtually every conversation about Customer Relationship Management is focused on improving the relationship between a company and it’s customers.  While this is might be a valuable thing to think about, I believe it’s largely inconsistent with the kind of thinking required to actually improve the customers’ experience.

While customers are extremely interested in relationships… I think it is quite dangerous to assume that your customers have any interest in having a “relationship” with your organization.

So, what relationships do customers care so much about?  Your customers care about their relationships with other people.  This can include the other significant people in their lives.  In a business setting, it can include your customers’ customers, colleagues, etc…   At a much deeper level, customers care about their “relationship” with themselves; who they are and what they want to be.

We’ve learned that:

You can create a highly differentiated customer experience if you focus on improving the relationships that customers actually care about!

Here are a couple of examples from our client work:

  • We worked with a leading provider of group health insurance.  Group health insurance is sold to employers through brokers.  The most critical relationship to optimize in order to sell more group health insurance is the relationship between the broker and the decision-makers in the employer organization (these are the broker’s clients).  Our experience redesign for this leading group health insurance provider focused entirely on helping the broker be more successful in meeting the changing needs of their clients.  This lead to an improvement in the brokers ability to acquire, retain, and manage their client relationships.  As a by-product, our client sold much more group health insurance.

  • We worked with a leading tire manufacturer that sells replacement tires through independent tire shops.  While this tire manufacturer’s customers (the tire shops) were asking for improvements in service levels like availability and turnaround time on tire orders and improved pricing, etc…   All of these customer requests were “table stakes” sort of expectations.  What we found is that by focusing on the most critical customer relationship (the relationship between the tire shop and the consumer), we were able to identify significant opportunities to improve the relationship between the tire shop and consumer.  These were things that the tire shops would have never asked for, such as services that made it easier for the tire shop to provide tire storage, mobile mounting, enhanced product selection services to the consumer.

  • We worked with a leading provider of broker-dealer services to independent financial advisors.  These financial advisers rely on a broker-dealer for trade settlement, commission processing, reporting, compliance, education, etc…   The financial advisors were always looking for improvements in these basic services.  However, we found that it was most important to pay attention to the how the needs of the end investor (the financial advisor’s client) were changing and how these changes were impacting what it takes for financial advisors to be successful.  We were able to identify significant growth opportunities by looking past what the financial advisors were asking for… to uncover opportunities to make the financial advisors more successful in meeting the changing needs of the investors.  This include programs for client acquisition, on-line client account tools, etc…

  • For a leading provider of assisted living facilities (nursing homes), we realized that the most critical relationship to improve is the relationship that exists between the resident and the primary family caretaker.  This primary family caretaker was typically the youngest daughter of the resident.

  • For the leading jewelry retailer (referenced in early posts), we found that the key to really innovating the customer experience was to focus on improving the relationship between the gift giver and the recipient.

  • The innovative grocery chain, H-E-B, has recently been branding their experience around “Come Home a Hero!”  H-E-B operates in the southwestern US; with a high mix of Hispanic customers.  With these customer segments, the relationship between the person who does the shopping (often the man) and the person that makes the meal and the family that consumes the meal is particularly important.   If you’ve ever been sent to the store for groceries, you know getting the wrong thing can lead to tension.  H-E-B is focusing their experience on the relationship between the shopper and the shopper’s family.   This includes bundled meal selections and many family-oriented services (check out their website for more info).

This list of examples could go on and on.   When we recognized that creating a great customer experience has to do with improving the relationships that customers care about… not the relationship the customer has with the organization… we actually started to tell our clients “stop listening to your customers so much!

Of course, we were doing this to be provocative.  You do need to listen to, acknowledge, and selectively address what customers ask for.  However, if you really want to improve their experience, you need to look past what they ask for and find ways to improve the relationships they really care about.  Listening too much to the “voice of the customer” can lead to over-delivery on table stakes expectations and simple satifiers.  The “voice of the customer” is usually not the place to go to find opportunities for creating a breakthrough experience.

In summary, if you want to improve customer relationship and different your experience in the process… get creative around improving the relationships customers’ care about.  If you can improve the customers’ experience you’ll get the business benefits indirectly.