Don Peppers and Martha Rogers: Customer Trust is the Next Big Thing (Trust Quotes #12)
We are delighted to have with us Martha Rogers and Don Peppers, the dynamic duo of the business guru business. Business 2.0 ranked them as two of top business gurus of all time. They’ve written one of the most influential business books in several decades, The One to One Future, and several others, including Return on Customer.
They’ve always had a healthy respect for the role of trust in marketing, but it’s their latest book that particularly makes them timely for the Trust Quotes series: Rules to Break & Laws to Follow: How Your Business Can Beat the Crisis of Short-Termism.
As they put it, “We believe customer trust is probably the ‘next big thing’ in business competition.” Let’s find out why they believe that.
CHG: Martha and Don, thanks so much for joining the dialogue. We’ve known each other for some years now, and you’ve always had a good sense of the power of trust—but it sounds like you’re increasing the focus more lately. What’s up with trust?
DP/MR: The basic ethos governing all human social interaction contains a very strong requirement for trustability. The simple trustworthiness of your statements and actions, as an individual (or as a company or governmental organization), is a key attribute – probably the key attribute – in how your interactions will be interpreted, understood, and acted on by others. The social bond that connects us with others – the fuel that generates our collective intelligence and powers all our cultural and technological development – is based on trustability. As a result, probably the biggest single driver of the increased demand for trustability is today’s rapid increase in the capability of interactive technology, leading to a more and more connected and interactive human race.
CHG: One of the four Trust Principles that I developed in my work (medium-to-long term perspective, relationships not transactions) is built right into your title: “the crisis of short-termism.” First of all, what’s wrong with short-termism?
DP/MR: When we talk about short-termism as a crisis issue, what we are talking about is the business world’s self-destructive, almost maniacal focus on short-term financial results. Obviously, a profit-making business should be cognizant of the short-term results of its actions, but this should not come at the expense of completely ignoring the long-term results. The long term counts, also – the interests of shareholders and other stakeholders are clearly harmed by obsessively short-term thinking.
CHG: Is short-termism on the increase these days? And what does that say about trust?
DP/MR: Unfortunately yes, our verdict would be that short-termism is on the rise. It definitely undermines trust, because one of the central essences of trustability, as you’ve stated so well in your own work on the subject, is self-orientation. That is, the more selfish you think I am, the less willing you will be to trust me. And short-termism is a big flag for most people of self-orientation.
CHG: What is driving all that toxic short-termism? What can be done about it, and who in particular can do it?
DP/MR: Do you know what “IBGYBG” means?
CHG: The Wall Street euphemism?
DP/MR: Yes. It perfectly illustrates what we’re talking about here. Interestingly, during the financial frenzy that constituted the run-up to the mortgage meltdown and panic of 2008, traders and investment bankers were being paid bigger and bigger commissions and bonuses for doing bigger and bigger deals. Cash commissions and bonuses were the short-term compensation banks were paying their people for doing these deals – deals that had significant long-term implications. Ma
ny of the bankers and traders themselves knew that some of these deals posed significant long-term risks. But they had immense short-term motivations for doing them anyway.
IBGYBG is a text message, a kind of short-hand like LOL or OMG. If a trader expressed doubt about the long-term consequences of a deal, he might get a message back from one of his colleagues to the effect that he shouldn’t worry about the long term, because in the long term IBGYBG – I’ll be gone you’ll be gone.
CHG: And what’s to be done?
Two things: First, tie compensation more closely to long-term consequences. We have no problem with paying people a piece of the action to do a deal – a business transaction can be immensely complex, and creativity and innovation should definitely be rewarded. But make it a true “piece of the action” rather than an upfront bonus in cash.
And second, with respect to compensation in general, recognize that people work much more enthusiastically for the intrinsic benefits involved – recognition, credibility, self-reliance, accomplishment. No business should treat its people as if they are solely interested in money – unless they want them to be.
CHG: I’ve always felt that short-termism is inherently less profitable than taking a longer-run strategic vision. You’d think it would be obvious to CEOs; you’d also think it’d be obvious to Wall Street analysts. Someone said the real problem is in the compensation structure for mutual fund managers. Where do you think the key lies for fixing it?
DP/MR: That’s why the opening chapter of our 2005 book Return on Customer: Creating Maximum Value From Your Scarcest Resource, was titled “An Open Letter to Wall Street.” Investors are in fact very interested in understanding a company’s long-term value, but at present there is no better or more reliable indicator of long-term value creation than, well, short-term financial performance.
The discounted-cash-flow (DCF) method for valuing a business is based on forecasting the firm’s future cash flows, but in the end even the most sophisticated predictions rely mostly on aggregate business trends, projections of market growth, and competitor activity, and in any case all such projections begin with today’s numbers. So, like the butterfly whose wings cause a tornado a continent away, small fluctuations in current earnings or revenues wreak massive changes in projected company valuations and share prices, as their effects are extrapolated and magnified years into a company’s financial future.
Ironically, the key to fixing this short-term-only perspective probably lies in applying better customer analytics. That’s why we coined the term “return on customer” and created the financial metric itself. Every value-creating activity of a business involves a customer at some point, but customers create value in two ways: they buy things immediately, in the current period, but they also have memories, which means how they are treated today will effect how much they are likely to buy in the future. A business that understands its customers lifetime values, and makes an effort to track how those lifetime values are impacted by current-period activities will be less likely to make self-destructive, short-term decisions.
CHG: What do you think about new social media and trust? Is it making trust harder to create? Or easier?
DP/MR: Trustability will become even more important as a social and economic norm in coming years, largely because of social media technologies, and the increasingly interactive world they are creating for everyone. This will have effects that reverberate throughout not just our business and economic system, but our society and culture as well.
For one thing, better and more efficient interactive technologies will increase the demand for trustability on the part of people and organizations, including businesses and governments. Organizations, particularly, will need to respond to this demand by implementing policies and taking actions that are more worthy of trust from the beginning – that is, more transparently honest, less self-interested, less controlling, and more responsive to others’ inputs. It won’t be easy because it might be difficult for a business even to understand what kinds of policies improve trustability – from marketing and customer service, to production, distribution and financial reporting. Moreover, the clash between trustability and a company’s own short-term financial interest is real, and will represent a serious and continuing obstacle.
But second, the increase in demand for trustability will inevitably generate an increase in its supply. As a result, we believe that society will benefit from a “virtuous cycle” of increasing trustability, over time, leading to more rapid economic progress, which will lead to even more trustability, and so forth. This will have the effect of “raising the bar” for trustability, meaning that some previously acceptable business and government activities will become less acceptable, as consumer and citizen expectations rise. We can already see this happening with the influence that highly trustable, online businesses are having on the business practices of more traditional, offline businesses.
And third, the dominant role of trustability in human interaction cannot be explained by applying straightforward economic thinking. There are many subtle motivations for human behavior other than rational economic self-interest, and as technology reduces the barriers to interacting, these other, non-economic motivations will become more and more important. Rather than the kind of neoclassical economics still taught in business schools, the relatively new field of behavioral economics is more likely to play a dominant role in explaining how the trustability ethos actually works.
CHG: What are some of the implications for marketing, broadly, of an increasing role of trust in the world?
DP/MR: We don’t trust advertising and marketing messages coming from companies because they epitomize “self interest.” We know these communications are designed with a particular, self-oriented purpose in mind: to improve the bottom line of the companies doing the communicating. Companies are always transmitting their self-interested messages to customers and potential customers, and these messages have bounced off each of us enough by now that we know what to expect.
One survey showed that a scant 12% of people trust “big companies.” Even within companies themselves, just a third of employees believe “their leaders act with honesty and integrity.” Nor do investors trust the companies whose shares they own. Only 2% of investors believe the CEOs of large companies are “very trustworthy.” And 80% of consumers believe businesses are too concerned about making a profit and don’t care enough about their workers, the environment, or consumers.
And the news is full of surveys showing that consumers’ mistrust of business is on the rise. But we think what’s really happening is that consumer expectations are increasing, as they experience best practices by some companies, and as they become increasingly interactive among themselves.
CHG: Interesting; declining trust metrics may be masking a rising standard of trustability. So, what must marketers change?
DP/MR: The primary thing marketers need to realize is that they are facing a trustability standard that is constantly on the rise now. The old “command and control” mechanisms don’t apply as easily to a world where customers can talk back, and also talk to other customers. It used to be that the marketing message was in the sole control of the marketer. Today, that’s no longer the case.
CHG: That’s a huge conclusion right there.
Martha and Don, thank you so much for taking the time to share your thoughts. As always, they are innovative, yet grounded in deep commonsense and an intuitive feel for the customer.
[If you are looking for earlier installments of the Trust Quotes: Interviews with Experts in Trust series, you can always find them in the dedicated Trust Quotes Index.]
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This is number 12 in the Trust Quotes series.
The entire series can be found in our Trust Quotes section on TrustedAdvisor.com
Recent posts in this series include:
Great stuff, Charlie. Thanks for sharing.
I forwarded this to my entire marketing team, including our leaders. Now, if they just trust me enough to stop and read it, I’ll be a happy man. Short-termism is truly deathly in so many ways, internally and externally. I hope we can stamp it out.
Cheers,
LEO