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Incenting Good Behavior? Or Insulting Customers?

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I got my hair cut today by Diane.  Who is great, by the way.

We talked about how good hair stylists are often great trusted advisors.  Their patients confide in them in ways that lawyers, accountants and consultants can only envy. 

And they do it through executing trusted advisor basics.  Listening.  Being concerned about the client—soliciting preferences, and only then offering suggestions.  Letting the client do most of the talking.  Practicing discretion.  And yes, doing a great job on the hair.

But this isn’t about Diane; it’s about what happened to Diane.

She went to an orthodontist.  A new one, a dentist with whom she’d had no prior experience, and therefore about whom she had a mild wait-and-see attitude.

She got a late start, traffic was busy, weather was bad, and she took a wrong turn.  She called to say she’d be a little late.  In the end, she got there about 8 minutes after her scheduled appointment.

The dentist was young, and had a modern-looking office, including a computerized check-in station, toward which the receptionist motioned her.  She input her information and hit enter.

The computer screen confirmed her information, and then—in large letters, having matched her scheduled appointment time against the computer’s internal clock—said:

           You’re Late!

Diane’s reaction was one of quiet shock.  “I really couldn’t believe they did that,” she said.  “I mean, I guess I don’t mind myself; I know they need to run a business, and I was late and that’s my responsibility. But I’m an adult.  Suppose a kid came in and their mom let them log in, and they got that in their face.  It wouldn’t be their fault they were late.  To put that embarrassment and shame on a kid, that’s just not right.”

Diane is a generous person.  I’d have been a bit more peeved.

Is there a case for the dentist?  Sure. Perhaps it was meant as a mild reminder to patients that they share some responsibility for keeping the scheduled patient flow going during the day.  It wouldn’t surprise me if there’s a trend of patients being late, and this guy is doing his best in a humorous way to help shift behavior.

But I’m not buying it.  To me, it comes off as a heavy-handed move by some customer-phobic techno-dweeb in love with what he imagines to be others’ view of him. 

I doubt Diane’s going back.  I wouldn’t.  Would you?
 

Bizarro Customer Service: The Anti Nordstrom

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Ever run across customer service that was just so perfectly, precisely, exactly—wrong? Like Bizarro Superman, or the Seinfeld episode it inspired, a world of 180-degree opposites? My friend Jim entered Bizarro-land this week.

Jim’s an aw-shucks, dumb-like-a-fox Texan: MIT degree, world traveled, he’s currently building a truly special house in a gorgeous location. And when I say “building,” I mean he operated the earth moving equipment and cut the special trees for the special timber-based patio roof himself.

Back home this week, he visited two stores seeking some special pieces of hardware. The first place—Pierce Hardware in Fort Worth—treated him beautifully. It’s not in stock, but let’s go through some catalogs. You need an in-between size? We’ll work with the manufacturer to get something custom. And so on. Jim bought some things, and may buy more.

Then he visited Company B, a national franchise chain I won’t name. When they found out he wasn’t from the area, the salesperson seemed to him to lose interest. When Jim asked if he could take a very fancy brochure home, the salesperson said she had to ask permission from the Vice President of the franchisee.

So far—no Bizarro, just weak customer service.

Then Jim emailed me, describing the “Tale of Two Stores,” about the contrast between the true customer focused experience he had at one store, and the feeling of being shunted aside because he didn’t live within Company B’s franchise area.

And he cc’d the Vice President at Company B.

Now it gets juicy. Following are excerpts from the email Jim received back from the VP at Company B:

"I am aghast at this completely inaccurate account of your interaction with me and my staff at my showroom.

"As you are well aware, you have completely misrepresented our conversation… I am not sure what you [sic] motivation is for coming into a business and communicating a false recount of your experience.

"What would be of value to you and those few people who may read your email is to do 10 minutes of research on the company that you will be writing about before you attempt to blog about customer service / salesmanship.

"You did not do this so I am going to take a few more mintutes [sic] out of my extremely busy day to educate you on our company…

"… The space you walked into was a showroom for a high-end custom product. Again, listening to what the staff is tellling [sic]you and having a little background on exactly what the business you are critiquing does would have helped you communicate responsibily.[sic]

"In regards to the brochure that our Showroom Liason [sic] so generously handed you is exclusively for our clients that schedule in-home consultations with us and for our trade partners, not designed to hand out to someone walking off the street into our showroom. However, even though you were misleading our employee she gave you the benefit of the doubt and gave it to you in the name of superior customer service, which is our passion at XYZ. Again, if you had done even 10 mintes [sic] of research you would have know that we are a national brand with an unsurpassed reputation for exceptional service.

But the irony’s not over yet. She concludes with:

That brochure costs $12.00 so it is my expectation that you will do the right thing and return it.
FYI – I am cc-ing our corporate office and attorney on this email.

 

To recap: here’s Company B’s response to a customer complaint:

  • You’re a liar
  • I can’t imagine your motives for lying
  • Nobody reads your stupid blog
  • You should research us so we don’t have to waste time selling to you
  • I’ll waste 10 more minutes of my valuable time on you
  • You clearly don’t understand our business model, because—
  • If you did, you would have stopped at the trailer park instead of at our high class joint
  • Gimme back my brochure—after all, it’s only right, it wasn’t meant for you
  • I’ll sic my lawyer on you
  • And I’m sure my franchisor thinks this is a dandy way to handle customer relations!

Hopefully her attorney has by now informed her that (s)he has a fool for a client. And if counsel doesn’t have a gut feel for good customer relations or PR, I suspect the corporate office does. Because XYZ does in fact have a fine and well-deserved reputation and great products, and didn’t get there by boneheaded Bizarro antics like this.

That’s why I’m resisting the temptation to name names here. Ms. Bizarro doesn’t represent this company. Heck, maybe she just had a bad day and normally represents the company very well. I once had a day like that myself. Maybe two…

Reputation matters. It is the result of massive accumulations of daily, truly customer-focused behaviors. Sometimes that’s enough to get you off the hook for even Bizarro behavior. Maybe once or twice. Not much more.

Destroying Shareholder Value: One Quarter, One Customer at a Time

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I spoke with a mid-level consultant at a medium-large American consulting firm. His project had an overrun. Question was, how to handle it.

Me: How big an overrun?

Him: $80K—a 50% overrun.

Me: A big percent, but not a big dollar number. Tell me about the client.

Him: Medium sized for us; decent relationship; we do 5-6 projects a year with them.

Me: What do you each say?

Him: They agree they signed a contract saying they were responsible for the disputed work. We thought their interpretation was wrong. We ended up doing the work, but disagree about who’s responsible.

Me: Of the $80K, how much would they agree is their fault?

Him: Maybe $20K of the $80K.

Me: And you?

Him: We think $70K of the $80K.

Me: That is a mere $50K issue. You’re a big company, this is a good client relationship—$50K is chump change.
Why don’t you go to them and say, ‘Look, we value this relationship. There is an $80K overrun here; why don’t you pick the number between $0 and $80K that you think is most fair, and we will pay it.’ Give them total choice. Let their choice reveal their character and their intent, and show good faith on your part. Work the relationship, not the negotiation.

Him: Well, they might take advantage of us.

Me: Of course they could. And if they do, you’ll know if these are people worth trusting in the long haul, or whether henceforth you get tighter controls and/or give this client over to a competitor. Do you want a relationship, or a petty quarrel? How much do you think they would offer?

Him: I’d guess they’d offer us maybe $40K. And I think what you say is the right thing to do. But my [service offering] leadership team won’t go for it.

Me: Why not?

Him: They think we deserve more, and they can get most of it by holding out.

Me: For how much?

Him: They think they can get $70K.

Me: You realize, that is only $30K of difference between the two of you.

Him: Yes, but they are really under pressure to make their profit bogeys. There’s really nothing I can do.

If you’re not sickened by this dialogue, let me break it down.

It sounds like a bad divorce settlement. Two large firms wasting time and creating bad blood—over $30K. A true imbalance.

But it’s worse.

This was probably a good relationship.  Let’s assume it might have generated five projects a year for 8 years going forward. Further, that benefits to the client would have increased as the consultants gained more familiarity and expertise over the years.

Suppose that amounts to a present value of, say, $10M in fees.

Assume that the bad blood generated results in lower trust—more haggling over fees, lower fees, more competitive bidding, more audits, more skepticism over advice—all resulting in, say, 30% reduction in the present value of expected fees.

That’s $3M reduction in present value. For $30K on a quarterly P&L.

Many think it doesn’t matter because it doesn’t hit the P&L. It’s true that FASB rules don’t book present value, at least not through the income statement.

But it is real. The eagle eyes on Wall Street know very well how to discount future streams. Private equity firms know the value of customer retention rates.

In other words, the financial metrics that matter most—those of the market, not of the accounting books—do know the cost of this firm’s decision.

You may think the young manager is at fault for not standing up for what he knew was right. Or, you may think his bosses are to blame.

I think the real culprit is endemic bad business thinking. Business thinking that mindlessly focuses on short-term metrics of short-term behavior, linking the two by short-term incentives. The solution doesn’t lie in more short-term thinking ("I know, let’s analyze imputed market discounts and allocate them across quarterly bonus pools for each decision!").

The resulting behavior is value destruction by any sensible definition. Bad business. They call it financial management. It is anything but.

Yet this way of thinking, as anyone in the corporate world knows, is the rule, not the exception. Anyone who believes in perfect market theory need only look at daily management behaviors to find their disproof; everywhere managers behaving in ways that destroy value. Believing that they’re creating it.

Bad thinking.

Digital and Analogue Social Networks and Pharma

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Here are two big trends in marketing:

Trend 1. Companies organize programs around the customer. This is often called customer-centricity.

Trend 2. Customers are in charge of interactions. This also gets called customer-centricity.

When two phenomena get called by the same name—opportunities for merriment—and suffering—ensue.

Case 1—the occasionally obtuse but always interesting Harvard Business School Working Knowledge series.  In Authenticity over Exaggeration: The New Rule in Advertising,  Julia Hannah explores HBS professor John Deighton and Leora Kornfeld’s "Digital Interactivity: Unanticipated Consequences for Markets, Marketing, and Consumers."  An extract:

5 new rules of digital interactivity:

• Thought tracing. Firms infer states of mind from the content of a Web search and serve up relevant advertising; a market born of search terms develops.

• Ubiquitous connectivity. As people become increasingly "plugged in" through cell phones and other devices, marketing opportunities become more frequent as well—and technology develops to protect users from unwanted intrusions. A market in access and identity results.

• Property exchanges. As with Napster, Craigslist, and eBay, people participate in the anonymous exchange of goods and services. Firms compete with these exchanges, and a market in service, reputation, and reliability develops.

• Social exchanges. People build identities in virtual communities like Korea’s Cyworld (90 percent of Koreans in their 20s are members). Firms may then sponsor or co-opt communities. A market in community develops that competes on functionality and status.

• Cultural exchanges. While advertising has always been part of popular culture, technology has increased the rate of exchange and competition for buzz. In addition to Dove’s campaign, Deighton cites BMW’s initiative to hire Hollywood directors and actors to create short, Web-only films featuring BMWs. In the summer of 2001, the company recorded 9 million downloads.

These 5 aspects show increasing levels of effective engagement in creating social meaning and identity, Deighton suggests, noting that the first 2 (thought tracing and ubiquitous connectivity) change the rules of marketing but don’t alter the traditional paradigm of predator and prey.

In the last 3 (property, social, and cultural exchanges), the marketer has to become someone who is invited into the exchange or is even pursued (as in the case of the BMW films) as an entity possessing cultural capital.

Exactly.

This is Trend 2 type customer-centricity–-recognizing that the consumer is actually in charge.  It means moving away from a “predator and prey” model of control and one-way monologue, to a genuinely interactive two-way model of dialogue.  In this model, the role of centralized control drops drastically, because the marketer and customer collaborate—even blend.

Hmmm.  D’ya think that model might work in the analogue world too?

Case 2. Pharma Voice Magazine, The Forum for the Industry Executive: The Salesforce of the Future  quoting Bill Pollock, CEO of Pharmagistics:  An excerpt:

In the future [of pharma], salesforces will be much more focused, and they will have the ability to look at each touch point, determine what’s the most effective way of communicating with a practitioner, and do so in a personalized way.

As a result, marketers will have to integrate their sales and marketing efforts into everything they do, treating each and every touch point as part of their total sales and marketing mix. This includes their e-portals, inside telesales efforts, Internet-based virtual sales reps, literature, and direct-mail programs—all of these tactics will be considered a part of the entire salesforce effort and must be integrated via the entire marketing program.

Such a trend would mean that pharma companies will need the ability to track everything that is done and monitor the impact of their efforts on their prescribing customers.

This is Trend 1 type customer-centricity.  It retains the predator-prey model and focuses on making sure all the guns are pointed in the right direction—at the customer.  The problem is perceived as one of alignment and control.  The new world isn’t qualitatively different, this model says, just quantitatively more complex.  It retains the focus on centralized control because it’s still an us-vs.-them view of the world.   It is restricted to the first two levels in the HBS piece—there is no conception of becoming "someone who is invited into the exchange or is even pursued…" much less of becoming "an entity possessing cultural capital."   This kind of  "customer-centricity" is not collaborative.  It is customer-centric  in the way a vulture is customer-centric—laser-focused on its prey.

The confusion around the term “customer-centric” isn’t just a matter of definition or market power.  Marketing is only one  battlefield in a much larger contest between a network-driven commerce-based view of the world and a command-and-control-driven competition-based view of the world.

Life imitates art.  Sometimes we learn more about the analogue world by observing pale avatars in the digital realm.
 

Faking Customer Centricity

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Customer centricity is a powerful business concept. But that’s not all it is.

Properly done— Pepper and Rogers and One to One are the class act in this arena—it is key to an approach to business that combines social good and corporate success.

Done right, it’s a goal in itself—not a mere tactic for profitability. Profitability emerges as a byproduct, not as an overriding goal. True customer-centricity yields more profit than profit-centricity alone does.

But this view is up against a lot. The broader approach to business is centered on competitive advantage as the goal, and the shareholder stakeholder as the primary beneficiary. And that has a perverse impact on the idea of customer centricity.

Remember 60s radical Angela Davis? She was a student of Herbert Marcuse, a radical philosopher who developed the concept of “repressive tolerance.” Sounds contradictory (he was a Hegelian, for the philosophers in the crowd), but makes good sense (he was also perceptive).

It means, simply, the best way for a majority to neutralize a threatening minority is to develop an attitude of tolerance. That way, the majority system appears to be un-threatened, and the minority to be un-threatening. The status quo is the winner.

While that idea has some limits (it’s hard to tolerate violent terrorists beyond a certain point), it works pretty well in the realm of ideas.

Which is why “customer centricity” is so easily hijacked by the dominant ideology of competitive advantage. The competitive paradigm—our leading view of business today—is repressively tolerant of customer-centricity. The hijacking turns the new idea into merely a tactic to serve the old idea. Customer centricity is neutralized, subsumed into the competitive paradigm.

Some examples:

1. Is it just me, or has the Ritz Carlton recently stepped up its emphasis on employees using the phrase “my pleasure?” Other companies are copying it. If delivered without sincerity, it results in a hollow mockery of the intended customer focus. Delivered too often, even with sincerity, it risks appearing obsequious—an autonomic reaction, not an indication of customer focus, thus highlighting its use as a tactic, not a goal.

2. How about, “your business is very important to us…” It clearly isn’t, otherwise you’d hire someone to answer the phone instead of routinely kicking me to voicemail hell. Which means it’s another faux version of customer focus, using the hollow shell—the words, in this case—of customer centricity, but in service merely to cost-cutting. If you’re going to put me on hold, then at least have the decency to own the decision—don’t lie to me.

3. Or, “your opinion matters to us.” No it doesn’t. If it did, you’d do something more than a simple check-box card in my hotel room. If it actually did matter to you, the desk clerk would act like he or she cared when I made a suggestion. If it did, you’d use it for something more than employee ratings.

4. Or, "I do apologize for that, sir," when the thing being apologized for is either an objectionable corporate policy or a systems screwup, but in any case has nothing to do with the poor agent doing the apologizing.

The language of relationships—feelings, apologies, empathy—has been evident in business lately. It is ostensibly about personal connections, about taking responsibility, and about focusing on the needs and feelings of the customer.

That’s the theory. In practice, it’s often just more slick sloganeering. If a company really wanted to be customer centric, they’d apologize for mistakes they made, and own up to decisions they didn’t intend to change. Imagine hearing this from a company spokesperson:

"This is a result of the policies we follow; occasionally it severely inconveniences someone and it sounds like that’s what happened here. I can promise you I’ll make sure the company is aware of this result so we can work to reduce it in future—but to some extent, that’s the inevitable result of our chosen policy, and it’s intentional. I’m sorry that you’re caught in it, let me do what I can to resolve it for you right now."

That would at least be honest. Alternatively, one could change the policy in question. But for heaven’s sake, don’t lie to us and fake it.

Fake customer-centricity is like counterfeiting. Counterfeiting harms retailers, or wine merchants, or tech manufacturers, or software writers. Fake customer-centricity harms customers. It turns our commercial relationships into low-integrity lying.

We’ve got enough of that already. Insist on the real thing.

Here’s a video clip that says it all.

We’ve Got the Hamburgers: a Customer Service Classic

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I had a delightful dinner the other night at the home of a client in the Netherlands. It was his birthday, and at the dinner table was a mix of family friends and co-workers—all interesting, in part because all were very well-world-travelled.

One told me the following (possibly apocryphal) story.

When McDonald’s was first entering the market in Moscow, it placed a great deal of training emphasis on the elements of customer service. Fast, friendly, courteous, prompt—these were the principles McDonalds wanted its employees to embody in their relations with patrons.

An employee approached the trainer one day early in the process, with an offer to help. “Listen,” he said, “you seem like a nice person and I’d hate for you to appear foolish in front of the group, so let me explain something to you.”

The trainer was all ears, concerned that he had nearly made a faux pas, and grateful for the help.

“You see,” explained the employee, “we’ve got the hamburgers. The customers don’t. They want them—we’ve got them. They have no choice. They’ve got to go through us. And you don’t want them getting ideas about who holds the power here. Just remember—we’ve got the hamburgers. Now do you understand?”

Of course, it’s tempting to chuckle and say, how quaint, or can you believe the culture in Russia, or how dumb was that guy. Tempting, but wrong.

Because “we’ve got the burgers” syndrome lives on elsewhere.

• While looking at a car at a Saab dealership a few years ago, I asked to test-drive a model. “I really can’t do that now, I’m on break in 10 minutes and tomorrow’s my day off. Could you come back Friday?” Our burgers, our timetable.

• A customer at a discount clothing store was annoyed that the clerk kept talking with a co-worker while checking out—and making a few mistakes in the process. Transaction finished, the employee turned full attention to her conversation. The customer turned to leave, she said, “You know, a simple ‘thank you’ might have been nice.” Not turning to look, the clerk said, “It’s printed on the receipt.” You got your burger, you should be grateful.

• More subliminal, but no less real, is the implicit belief among consulting types that the client is buying knowledge and advice—and therefore is under a moral obligation to pay for any advice given, and to take it willingly. A client looking for the comfort of advance discussions is therefore trying to “get it for free,” and is ethically challenged if they don’t take the advice. How dare you challenge our burgers.

• When a corporate IT department is asked by a user for a capability like Skype, or instant messaging, they may get a lecture on why they don’t need Skype, or IM, but something else instead, and the real solution will take a while, cost more, and not do exactly what Skype or IM would do—but it’ll be great. You can’t handle the truth about our burgers.

“We’ve got the burgers” is not just a metaphor. It’s one symptom of a common disease—the disease of “it’s all about me.”

How about you? What’s your favorite "we’ve got the burgers" moment?

Customers and Strategy Part 2 of 2: Customer Centricity vs. Customer Vultures

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In my last posting I talked about the weakness of current business strategic thinking when applied to issues like climate change, using the current issue of Harvard Business Review as an example.

The same HBR issue offers two object examples. One views customer-centricity as about the customer. The other exemplifies the customer focus of a vulture. It’s a snapshot of old strategy vs. new strategy in action.

First up—in this corner, the Vulture guys.

In How Valuable is Word of Mouth, by Kumar, Petersen and Leone, the authors critique the popular metric of Lifetime Customer Value—typically calculated as the present value of lifetime purchases by a customer. They suggest adding referrals, and introduce metrics and financial formulae to do so.

There are the usual MBA tools: 2×2 matrices with cute psychographic names, NPV calculations, and formulae featuring summation signs, multiple independent variables and exponents.

My aim is not to critique their point—it is to note the language and the mental frameworks of the article.  When it talks about “value,” it means—but of course— the value of a customer to the seller—but not the reverse.  And the term “value” is purely financial. In this mindset, a customer is truly nothing more than a financial variable to be tweaked and optimized for the seller’s ends. Some flavor:

“Understanding how much value a customer brings in [from purchases and referrals can help companies target their marketing…enabling them to achieve superior marketing ROIs and reap the full value of all their customers.

“A year’s projected business gives a number that is normally half of a customers full lifetime value.

“If the cost involved in acquiring type-two referrals exceeds the cost of alternative acquisition methods, type-two customers can be a liability.”

The authors launched a 1-year marketing campaign to test their ideas.  What do they consider of “value” to the customers?  Discounts on subscription fees; financial rewards for referrals; direct mail offering up-sell and cross-sell opportunities.  Price, price and price.

Did it work?  “Extending the campaign to 1 million customers would increase their total value by almost $50 million.”  In other words, it works very well.  For the vultures, I mean marketers, that is.

Second Up—in this corner, Customer-Centricity for the customer’s sake.

In the HBR Interview, a CEO: can you guess the company?

“Some of the most important things we’ve done over the years have been short-term tactical losers

“We don’t make money when we sell things; we make money when we help customers make purchase decisions

“We’re not always asking ourselves what’s going to happen in the next quarter, and focusing on optics

“In the old world you devoted 30% of your attention to building a great service and 70% of your attention to shouting about it—in the new world that inverts.

“Whenever we face a “too-hard” problem, we ask what’s better for the consumer?

“Years from now, I want people to look back at us and say that we uplifted customer-centricity across the entire business world. If we can do that, it will be really cool.”

Here’s a hint: it’s a publicly traded $13B company—up from $150M in 1997. Its stock price has tripled in the last year. Yet only a few years ago, analysts were calling it Amazon-dot-toast. That’s right; meet Jeff Bezos, CEO of Amazon.com.

It’s a stark contrast. One approach values customers only as means to the seller’s own ends—and only financial means at that. Customers are to be managed in the short-term, through—of course—price discounts and price promotions. What else do customers want, after all, besides price?

This is the classic form of customer centricity as a vulture: slick, smart, and born of an ideology that defines competing with one’s customers and suppliers as an integral part of business strategy.

The other approach builds businesses, communities and economies around customer relationships. The time-frame is long—Bezos probably agrees with the dictum “be a good ancestor.” Its cornerstone is not competitive dynamics, but relationships.

 

The slowly emerging strategic ideologies of the future belong to the Jeff Bezos’s of the world, not the tweak-optimizing marketers or the competitive strategists. In a connected world, a knee-jerk belief in dog-eat-dog is no longer the “obvious” choice. It makes strategic sense to think big, long-term and customer centric. For the customer.

Just ask the folks who bought Amazon at 32 last year. Beat the heck out of the vultures.