Is Customer Loyalty Really Dead?

...Or are we just focusing on the wrong customers?

Last week, I was again off to see the Wizard, the wonderful Wizard of Ads (Aka. Roy H. Williams). This was the second time I had the pleasure of spending the day at his beautiful Academy in the Texas Hill Country south of Austin. A very interesting part of his presentation contrasts relational versus transactional buyers.

A relational buyer is a person who doesn't have the time or inclination to comparison shop. When a relational buyer needs something, he simply goes to a likely source and buys it. In the end, a relational buyer's only worry is that a product may not do what he needs it to do. If he is happy with the product and buying experience, a relational buyer will typically return to the same source over-and-over to make similar purchases. He will also recommend a business he likes to others.

In contrast, a transactional buyer is a comparison shopper who prides himself in getting the best deal. He will research the product, then call or visit numerous locations in search of the lowest price. The transactional buyer's only concern is that he may find the product for less somewhere else after making his purchase. Sometime later, if he needs a similar product, he will start the process of comparison shopping all over again.

Can you guess which one is more likely to be a loyal long-term customer? Beyond the advantages of loyalty and repeat business, relational buyers are more likely to provide higher profit margins, higher purchase rates per visit and lower overall transaction costs compared to their transactional counterparts.

Many businesses attempt to increase traffic to their stores through pricing strategies that appeal more to transactional buyers than to relational buyers. The additional traffic that is generated may be very misleading because only a small percentage may actually make purchases during a given visit. The low conversion rate means that actual sales may not offset the price discount used to attract the additional business.

While low prices attract transactional buyers, relational buyers are more likely to choose a source that someone else recommends, is convenient, or simply comes to mind as a source. According to Roy H. Williams, winning the mindshare of relational buyers must be a long-term commitment of providing a consistent and salient message that emphasizes unique value, quality and service.

There is nothing wrong with targeting transactional buyers or both types, but businesses will be most effective if they understand the differences and align messages and pricing strategies with the particular group they wish to target. For more on this and similar topics, you may want to checkout the many classes, books and articles on the Wizard's website at www.wizardofads.com.

The Schools of Quality

Today, I received this question from a friend: "Tell me, in your opinion where is ISO 9000 on the continum from waste-of-time to essential? Is TQM really dead leaving 6Sigma to reign?"

I think this was a pretty relevant question for Managers overseeing product development and manufacturing, so here is my response:

"Six Sigma has definitely become the quality model of choice within
manufacturing (led by the automotive and electronics industries). ISO9000 and TQM provide some meaningful guidelines, but in my experience, too much emphasis was put on passing the audits versus focusing on the right actions to actually improve quality. ISO9000 emphasizes documentation and specifies a format that seems more in line with legal contracts than with internal working documents. TQM has strong emphasis on process definition, but is best known for its Malcolm Baldridge award. When a methodology causes businesses to spend MORE money than can be gained through quality efficiencies, it has been taken too far."

"I believe it is this reaction that led to the popularity of Six Sigma which is more a collection of tools and methods employed through different phases of production. I have spent quite a bit of time learning a very small piece of Six Sigma called VOC (Voice of the Customer) and portions of QFD (Quality Functional Deployment). The tools and methods include excellent ways to capture and prioritize product requirements, and to measure results against the original requirements. The mother of all tools in QFD is something known as "the House of Quality". Good and useful stuff!"

A note to readers: Some years ago, I helped head-up an effort to make a 450 person software development organization "audit ready". We achieved ISO9000 certification and won the Malcolm Baldridge award as a result of our efforts. Early this year, I studied Six Sigma QFD with a friend who was completing his Black Belt certification. I found the tools useful and went on to apply them to my product management and design work. I therefore consider myself a quality practician, not an expert. I welcome other informed contributions on this topic.

The Art of Market Research

When can listening to your customers be hazardous to your company's future? This is a question I have been contemplating for a couple of months. It began with a reference by Roy H. Williams (see Wizard of Ads post) to the taste tests that led to the New Coke introduction.

On the surface, Coca Cola appeared to have conducted a textbook study to pick a soft drink formula that would help them gain market over Pepsi. Instead, the New Coke introduction was one of the most costly errors of the decade.

There are many lessons we can learn from experiences such as these. The first lesson is that it may be inappropriate to apply a scientific study (such as a blind taste test) to a product with Coke's nostalgic connections. Malcolm Gladwell, in his excellent book, Blink, pointed out other flaws in the study inherent to taste tests: the order and amount of beverage consumed can alter one's preference. The idea that a less sweet beverage can taste "sour" after drinking a sweeter beverage is something we have all experienced. A lesser known factor in "taste" tests is that most people prefer sweeter tastes in small quantities and less sweet tastes when drinking larger servings. So lesson #2 is to plan your experiments carefully: be as realistic as possible.

Yet another difficulty in collecting and interpretting data lies in the communications and thought processes of most customers. Kathy Sierra noted recently in her blog Creating Passionate Users that "people don't necessarily know how to ask for something they've never conceived of! Most people make suggestions based entirely around incremental improvements, looking at what exists and thinking about how it could be better. But that's quite different from having a vision for something profoundly new. True innovation will rarely come from what users say directly. This doesn't mean that you don't listen to users--because the truth is embedded in what they say...but you have to look for the deeper meaning behind what they ask for, rather than always taking them at their word."

The conclusions I have reached echo those stated above. As a Product Manager, I have found great value in conversations with customers and in opportunities to observe people working with products I am trying to improve. Theses activities can provide the creative spark for new ideas and perspectives that those of us too close to a specific product may have overlooked. We get into trouble, however, when we try to treat people's opinions and preferences as a scientifically controlled experiment. It is amazingly easy to create bias in experiments when dealing with personal preference - a bias that then becomes magnified through our own biased interpretation of the results. The more we delude ourselves into believing our experiment is scientific and our results conclusive, the more we set ourselves up for errors on the magnitude of New Coke. By recognizing the inherent flaws in approaching human preference as science, we can still reap the benefits of new perspectives while avoiding the pitfalls of over-confidence.

The Product Management Triad

Another excellent article from Pragmatic Marketing...this one from Steve Johnson with one of the most complete descriptions I've ever seen for the key Product Management roles:

"How many product managers do you need? What are their roles in the company? Is product management a support role for sales or marketing communications or development? I'm often asked to contrast product management, product marketing, program management and other titles in a high-tech company. All are poorly understood and are defined differently everywhere I go. An ideal solution for many companies is the 'product management triad'."

"Some product managers have a natural affinity for working with development, others for sales and marketing communications, and others prefer to work on business issues. Finding these three orientations in one person is an almost impossible task. Instead, perhaps we should find three different people with these skills and have them work as a team."

"Start with a business-oriented senior product manager for product strategy. Make this person a Product Line Manager (PLM) or director. Now add a development-oriented Technical Product Manager (TPM) and a sales-oriented Product Marketing Manager (PMM)...."

Thanks to my friend Brian Massey for sending this link to me (and Steve Johnson for teaching me about the "Blog this" tool).

Who Needs Product Management?

Here is an excerpt from an excellent article by Barbara Nelson of Pragmatic Marketing (click the title link to view the complete article on their website):

"You need product management if you want low-risk, repeatable, market-driven products and services. It is vastly easier to identify market problems and solve them with technology than it is to find buyers for your existing technology."

"Product Management identifies a market problem, quantifies the opportunity to make sure it's big enough to generate profit, and then articulates the problem to the rest of the company. We communicate the market opportunity to the executive team with business rationale for pursuing the opportunity including financial forecasts and risk assessment. We communicate the problem to Development in the form of market requirements; we communicate to Marketing Communications using positioning documents, one for each type of buyer; we support the sales effort by defining a sales process supported by the requisite sales tools so that the customer can choose the right products and options."

"If you don't want to be market-driven, you don't need product management. Some companies will continue to believe that customers don't know their problems. Some companies believe that they have a role in furthering the science and building the next great thing. These companies don't need product management; they only need project management, someone to manage the budgets and schedules. But these companies also need to reexamine their objectives. Science projects cannot be made into products in the short-term. Don't expect revenues if your company is focused on the "R" in Research and Development. Product management can guide you in the "D" in R&D, the development of technology into problem-solving products. "

Mind Gym: An Athlete's Guide to Inner Excellence

Mind Gym: An Athlete’s Guide to Inner Excellence by Gary Mack with David Casstevens is one of my favorite books to pickup whenever I need a little inspiration and encouragement. While the many stories and quotes are derived from the world of professional athletics, the book is really about creating excellence in one’s life with applicability to any pursuit and any profession. The main theme is that once one reaches a certain level of competency, the level he achieves in performance will be determined by how well he learns to utilize his mind. With this, the author takes us on a fascinating tour of the minds of some of the world’s greatest coaches and athletes; their successes, their challenges, and the mental tools they employed to succeed. To borrow a line from the book, “it takes years of hard work to become an overnight success”, Mind Gym is an excellent coach along the way.

Notes and quotes:

• Focus on the task – do not let negative thoughts intrude.
• State goals in positive terms – “don’t look where you don’t want to go”.
• Create your own mind gym visualizing yourself overcoming mistakes and doing things well.
• Mental toughness = competitiveness, confidence, control, commitment, composure, courage and consistency.
• It’s not the situation but how you respond to it that makes the difference; it is within your control.
• “I may win and I may lose, but I will never be defeated” – Emmitt Smith
• “Gremlins” get in the way of success: fear, anger, anxiety, self-consciousness, perfectionism, stubbornness, lack of motivation, distraction, and lack of persistence.
• “Your mind is like a parachute – it only works when it’s open. What did you learn today and how will it make you better tomorrow?
• “Each of us has a fire in our hearts for something. It’s our goal in life to find it and keep it lit.” – Mary Lou Retton
• ACT:
  - Accept the present state
  - Create your desired state
  - Take action to get there
• “It’s all about the journey, not the outcome.” – Carl Lewis
• Seek progress rather than perfection.
• SMART Goal Setting:
  - Specific
  - Measurable
  - Achievable
  - Realistic
  - Time-bound
• Fear of failure makes failure more likely: “you can’t steal second with your foot on first”.
• “Obstacles are what you see when you take your eyes off your goal” – Jim Lefebvre.
• You have to learn how to get comfortable with being uncomfortable” – Lou Piniella
• Changing pessimism to optimism, the 3 P’s:
  - Permanence – optimists believe setbacks are temporary, not permanent.
  - Pervasiveness – optimists do not let troubles affect other areas of their lives.
  - Personalization – optimists internalize victories and externalize defeats.
• “Just as you learn not to swing at bad pitches, you must learn not to chase bad thoughts. Learn to turn your negative critic into a positive coach.”
• “Pace instead of race” – learn to slow down and focus when you feel rushed.
• “Try easier….The less tension and effort, the faster and more powerful you will be” – Bruce Lee
• “Failing to prepare is preparing to fail” – Wayne Gretzky
• “The quality of a person’s life is in direct proportion to their commitment to excellence” – Vince Lombardi

The Power of Simplicity

Coming from a software and engineering background, I have been well-indoctrinated into a world where precise wording means the difference between something working or something broken. Unfortunately, preciseness often takes the form of all inclusive lists and long explanations. In many ways, it is this tendency that separates those of us with infinite curiosity and patience to figure things out (less than 13% of the population according to something I recently read) from the vast majority of the population. Every "technogeek" has observed the glazed eye phenomenon when trying to answer the simple question "what do you do for a living?" When we find ourselves in the situation of looking for work, selling our ideas to others, or simply relating to the rest of the world, one of our greatest challenges is learning to boil things down to their essence and let go of all the details, exceptions and other extraneous matter.

Marketing teaches the power of branding, repetition, and a clear message. When your career and success depends on a memorable impression, less is more. To operate effectively in the world of Product Management requires the ability to adjust your style of communication to the audience and need. To deliver a clear and simple outbound marketing message, then to gather, understand, conceptualize and communicate product and business requirements into the organization at a level necessary to implement.

Over the next few weeks, I will be refocusing on simplifying the message I communicate with my resume, my business introductions, and my answers to the simple questions of "who I am" and "what do I Do?" It is a great exercise I'd recommend for anyone: you learn a lot about yourself and your priorities when you limit introductions to 30 seconds and can concentrate your best points to a powerful three.

Products Versus Projects

Last night, I attended a wonderful discussion on the future of computing at a local (Austin) Chapter of IEEE. The main point I pulled out of this is that knowledge (versus "manpower") has become the most valuable asset going into the 21st century and is something that needs to be nurtured or lost. To quote the Speaker, Steve Teleki, "Knowledge workers are currently considered costs when they should be considered capital assets." The speaker went on to suggest that it is in the best interest of all knowledge workers to assume responsibility for staying technically viable and manage their productivity and careers.

As a Product Manager, I was thinking about the implications that our economy and tactical business focus is having on our longer term prospects for success. The business climate of the last few years has created an environment where many technology businesses are run like a series of discrete projects: where teams of engineers, for example, are hired or contracted, then "released" along with the product. There is great emphasis on project management skills these days and I would argue that project management is not the best approach for product or business management. It's all about the event (product launch) and not about growing skills, businesses, and relationships.

Every sales person can vouch for the wisdom that it is a lot easier to keep a customer than it is to acquire a new one. When we plan one release at a time, we limit the ability of the people who sell our products to build the trust and relationship necessary to expand their sales. Our customers mirror the same commitment we provide to them; can you blame them?

When we plan one release at a time, we fail to advance our product capabilities and core competencies through making optimal use of the experience gained from the prior release. Often we do not put in place the measures to improve because without a follow-on, we have no justification for the effort. In the most dysfunctional organizations, poor quality and schedule overruns are introduced because the people creating the product know they will not be the ones who will have to maintain it.

From a business perspective, we know there are many reasons to not take a longer term view and commit beyond the current release, but I believe the potential rewards for doing so are great.

I want to invite those of you who read this to share your thoughts on this topic.

Never Eat Alone by Keith Ferrazzi

I began skimming this book at a local bookstore hoping to pick up suggestions to help me network with people more effectively. A few months ago, I decided to leave a solitary life of working from home to reestablish a career in Product Management/Marketing. Sorry to say, I had allowed my business contacts to wither and now face the task of rebuilding my relationships and my reputation within the high tech community I wish to rejoin. In this endeavor, I found the book both useful and inspiring.

Throughout his book, Keith Ferrazzi emphasizes integrity, building strong lasting relationships, and creating abundance through learning to give and receive freely. These elements are evident in the organization of the book into four sections:

• The Mind-set
• The Skill Set
• Turning Connections into Compatriots
• Trading up and Giving Back

This book has clarified my thoughts about networking which has helped me to become more focused and more confident in my interactions. It has provided me with many ideas to better maintain and deepen my contacts. And, it has provided me with food for thought as I consider how I want to put the lessons I’ve learned from this book into practice. The book is a great read (including the “Connectors Hall of Fame Profiles”) and has lots to offer to those of us who build our careers around networking as well as to those just looking for some advice in expanding beyond current boundaries.

The following are key lessons from Never Eat Alone:

• “Real networking [is] about finding ways to make other people more successful…give more than you get.” Build your network before you need it and make networking, at whatever level you want to take it, a part of your life.
• “Don’t keep score.” By giving and receiving (offering and asking for help) freely, our relationships deepen; our lives become more dynamic and more abundant; we all benefit.
• “What’s your mission?”’ Identify your “Blue Flame” where passion and ability intersect. (Hint: it’s the work you would willingly do for free.)
• Create a Networking Action Plan
  1. Goals for fulfilling mission in 3 years, filling in 1 year and quarterly timeframes sub-goals; two (A & B) priorities for each timeframe; all goals measurable and realistic.
  2. Connect goals to people, places and things that will help you get the job done
  3. List best way to reach out to people who can help accomplish goals
• Create a personal “Board of Advisors” to hold you accountable and offer support to help you achieve your goals. Establish a regular time to meet and check in.
• Think creatively in connecting and expanding your network: friends of parents or siblings, school, church, gym, your doctor, dentist, realtor,…we all know many people outside our primary contacts.
• Get past your fear…it never hurts to ask for what you want.
• Don’t be a “networking jerk”…” this breed of hyper-Rolodex-builder and card-counter fails to grasp the nuances of authentic connecting. Their schtick doesn’t work because they don’t know the first thing about creating meaningful relationships”. At a on-hour get-together, better to “have one or two meaningful dialogues, than engage in the wandering-eye routine and lose the respect of most of the people you meet.”
• Research the people you want to meet. Finding common ground and understanding their concerns helps break the ice. Online tools for researching and networking include Google, Linkedin, Spoke, Capital IQ, Friendster, Ryze and ZeroDegrees.
• Warming a cold call:
  1. Convey credibility by mentioning a familiar person or institution
  2. State your value proposition
  3. Impart urgency and convenience by suggesting a specific follow-on but offering to accommodate the other person’s schedule
  4. Be prepared to offer a compromise that will secure a definite follow-on at a minimum.
• Share your passion. Food, fine wines, sports, …all provide opportunities for building relationships. KF describes how he uses dinner parties to bring interesting people together and suggests making greater use of meal times to get to know people better: never eat alone.
• Make follow-up a habit. When you do, the days of struggling to remember people’s names - and of other people struggling to remember yours – will be a thing of the past.”
• Be a Conference Commando. Come with a plan to use the conference to connect to specific people. Some ideas:
  1. Set objectives for what you want to accomplish, specific people with whom you want to connect, and a plan for doing so
  2. Get an inside track by organizing or assisting the organizer of the conference
  3. Become a Speaker, or at the least, state your name, company, what you do and ask a really informed, insightful question that will create a buzz
  4. Create your own event (dinner or outing) during the conference
  5. Talk to speakers before they present for better access
  6. Become a hub of useful information
  7. Know as much as you can about the people you want to meet, arrange to be where they will be, and master the “deep bump” (let them know your common interest)
  8. Use the breaks to network and promptly follow up on all contacts.
• Connect with other Connectors: restaurateurs, headhunters, lobbyists, fundraisers, PR people, politicians, journalists.
• KF takes the position that the best way to differentiate yourself (to make yourself memorable) is to BE yourself. He also introduced the concept of “Johari Window”: the degree to which people open up to reveal themselves. Communication can be aided by aligning our johari windows to match those with whom we interact.
• Contact rules of thumb:
  1. New contacts need to see or hear your name in at least 3 modes of communication (such as email, phone call, and a face-to-face encounter ) before there is substantive recognition
  2. Once there is recognition, you need to nurture a developing relationship with a phone call or email at least once a month.
  3. If you want to transform a contact into a friend, you need a minimum of two face-to-face meetings out of the office.
  4. Maintaining a secondary relationship requires two to three pings a year.
• Plaxo used to keep contact info up to date sending out an update request every 6 months. PDAs, cellphone and laptop to make use of travel time and short windows to stay in touch.
• Build your brand: what is it that you do that adds value? Develop a Personal Branding Message. “Your message is always an offshoot of your mission and your content…it should include a list of words that you want people to use when referring to you.” Dress the part; live the part.
• Broadcast your brand: Consider creating a personal website. The ins and outs of working with media, mastering the sound bite, and creating a buzz.
• Membership in organizations, writing, learning from and mentoring others, participation in community…networking is a lifestyle that need not be compartmentalized between work and home.