Tag Archives: recessionary mindset

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.