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Who Do You Trust? What Trust Rankings Really Tell Us

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You’ve probably noticed, from time to time, survey results on trust—which professions we trust the most, which institutions, which messages, channels, and so forth.

The most recent such data—from Nielsen— tells us that web users around the world trust the recommendations of others more than they trust advertising.

Other surveys tell us we put “a person like yourself” ahead of all others. 

Still others tell us the relative trustworthiness of various professions.
There are two messages in these surveys—one explicit, the other implicit.

The explicit message is the headline—we trust doctors more than newscasters, we trust blogs more than advertising, and so on. Those data tell things like “who’s winning,” and how Australians differ from Chinese. Interesting. Food for marketers’ thought. And great for parlor conversation.

But the implicit message is about the nature of trust itself. Which is not at all obvious.

Imagine a survey asked people “How closely are you related to other people?” Now imagine findings like: “Parents top the relation list; followed closely by children and siblings. Cousins are found to be less related, about tied with in-laws. Neighbors and TV sitcom families appear to be the least closely related.”

Silly, because such a survey just re-enacts a trivially true definition as if were a new empirical discovery.

But isn’t trust much the same? We all have an instinctive sense that we trust certain people more than others. If I know you, have history with you, have shared personal moments with you, converse with you, work and play with you—then the odds are far greater that I’ll trust you than I’ll trust someone two degrees away on LinkedIn.

So when Nielsen tells us that consumers trust consumers more than advertising, the headline is about the low trust scores of advertisers.  But perhaps it shouldn’t be.
Perhaps that finding rates a giant, massive “Duh!”

Perhaps the headline should be, “trust linked to personal relationships.”

A major business trust issue today is how to “scale” trust. What can be done to networks of strangers to approach the high level of trust we see in more personal relationships?

Some efforts focus on increasing network size—Amazon’s algorithm for predicting what books you’ll like, for example. It works very well—for predicting books you’ll like. But for whether you should buy a house now in this market?  Hmmm.

Other efforts focus on track records. Of those who recommend buying a house now, vs. waiting—who has the better record of predictions? This helps with investing—but do you trust your investment advisor to recommend restaurants?  Or to play matchmaker?

Still other efforts increase the bandwidth available for us to evaluate others: Facebook and Match.com owe a lot to the ability to let people be who they are, let it all hang out—and share it with others.

The most successful networks will be those that replicate the full human experience—providing us broad markets, rich data—and deep exposure to the humanity of the others that lets us create bonds.

Those are the networks that will end up being trusted. And end up scoring high on trust surveys.

It’s no secret.

The Limits of Needs-based Selling and Consultative Selling

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These are popular concepts in today’s sales world:

Consultative Selling Amazon 568 mentions
Consultative Selling Google 270,000 mentions
Needs-based Selling Amazon 158 mentions
Needs-based Selling Google 22,800 mentions.

Both approaches ask questions to define buyer needs, so that the seller can alter or position the product to address those needs, thereby raising the value to the customer and the likelihood of closing the sale.

This may sound stunningly obvious and commonsensical. To that extent, it’s a tribute to the triumph over the old product-focused approach of convincing people they needed whatever it was you had to sell.

(At the same time, sounding obvious doesn’t mean it gets practiced all the time, or even usually. Product-based selling is far from dead).
The mainstream view among sales practitioners is that needs-based selling and consultative selling represent the state of the art, the high road, professionalism in selling.

But it’s just not true.

Reading the consultative or needs-based books, websites or training programs, you’ll find two beliefs—implicit or explicit—that limit the value of these approaches to selling. Those beliefs are:

1. Their primary intent is to close the sale
2. A secondary intent is to qualify prospects.

Those may sound obvious and benign as well, but look at it from the customer’s side.  Together, those two beliefs mean that if you’re paying attention to me as a customer, it’s only for as long as you think this transaction will result in a sale for you.

That means:

a. while you’re definitely in it for you, you’re only in it for me if it bodes well for you, and
b. while you’re willing to talk about my needs, you’re not willing to do so unless you see a sale close at hand.

Either way, it certainly appears you don’t have my interests very much at heart.

There is another way. It’s called Trust-based Selling®. It says focus on buyer needs, so that you can better articulate them and get them met.  Period.

You don’t focus on their needs because it’ll get you the sale—you do it so you can help them better articulate their needs and get them met.  Period.

You don’t focus on buyer needs in order to screen out buyers who don’t need what you have to sell. You do it so you  can help them better articulate those needs and get them met. Period.

The key difference lies in liberating sales from the transaction.  Trust flourishes only when then quid and the quo have some blue sky between them.  Screening at the transaction level screams “I only care about your wallet;” trust-based sales screens at the strategic customer selection level, not the tactical transaction level.

For needs-based or consultative selling to become trust-based, you need to migrate away from the tight leash of the transaction.  Loosen up.  Get free of the “pay me now or I quit doing this consulting” mentality.

Trust-based selling says, if you consistently do the right thing by your customer, then when the customer needs what you’re selling, you’ll get the first call. And you’ll therefore make more money.

The highest profit comes when you make profit a byproduct—not a goal—of a truly customer-centric sales process.

How Sales Contests Kill Sales

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Salespeople are motivated by money and competition.  If you want them to sell more, offer more money, and have them compete for rewards.  The sales contest is the perfect motivational combination.

Or so goes the conventional wisdom.  But it’s wrong—and many of the best salespeople will tell you so.  Here’s why.

Money and competition are about getting more money from your customers than other salespeople can get from theirs. And contests are typically short-term affairs—usually a matter of months, a year at most.

Salespeople in a contest are therefore in a rush to see who can extract the most cash out of his customers the fastest.  As one of the hoary old “jokes” about sales goes, “selling is the fine art of separating the customer from his wallet.”

I don’t happen to think that joke’s funny, and I doubt too many customers do either.  But that’s the mentality fostered by a race to extract maximum money per short term time period.

It turns customers into objects.  It telescopes time into the (very) near future.  And so it flies in the face of developing relationships based on helping the customer, and based on a longer time-frame that allows the evolution of strategies beneficial to both seller and buyer.

Here’s the paradox (there always is a paradox when it comes to trust).  Sales contests are usually held to juice up short-term results.  But the best short term results actually come from the ongoing execution of long-term strategies.  Sales contests actually hurt long-term performance.

The mania for measuring short-term has led many companies to execute a massive faux pas—managing for the short-term.   You know the saying: “you can’t manage it if you can’t measure it.”  The unspoken corollaries are, “more measurement is better,” and “if we can measure it short term then we’d better manage it short-term.”

None of it is true.  If you were to manage all the other relationships in your life this way—maximizing the short-term monetary benefit you can extract from your spouse, your friends, your children—then you would live a shallow life that will come to bite you.  It is no different in business.

Do you grant your loyalty and future business to someone who views you as primarily a source of their own short-term financial gratification?  If not, why should you expect anyone else to?

Sales contests are just one of the more obvious manifestations of this mania for short-term, treat-‘em-as-wallets, manage-like-you-measure mentality. It infects comp systems and sales process designs as well.

If you’re a sales manager, measure short-term results—but teach everyone that the best way to get them is to manage long-term.

If you’re a salesperson, then—unless you’re a year away from retirement and don’t give a damn about your reputation—act as if you plan to be in service to your customers for a long, long time.

That’s how they return the favor.

And there’s that paradox again.  The best way to make money is to stop selfishly looking to make money.  Instead, be trusted—by being trustworthy.

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.

Call for Submissions for the October Carnival of Trust

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Carnival of Trust Logo

The fifth Carnival of Trust is on its way and will go live on Monday October 1st. The deadline for entries is this coming Thursday September 27th. This edition will be hosted by Steve Cranford of Whisper . Ultimately branding is about trust, and Steve should deliver an exellent carnival.

As I wrote when announcing the first Carnival of Trust my hope and ambition for the carnival is to begin establishing a home base, a center of gravity, for people who are interested in fostering greater trusted relationships in various realms of the world.

While my own material is primarily business-oriented, the Carnival of Trust will be explicitly more broad than business alone. Trust is heavily personal in nature, and I hope the submissions will reflect that—postings that deal with personal trust, business trust, and political trust are welcome, as well as pieces on the nature of trust.

There is a hard limit of 10 postings per Carnival. The host will personally make the decisions about inclusion, in an inevitably subjective manner intended to push the thinking ahead in those broad areas of trust.

I invite, encourage and urge you to submit pieces for the Carnival. You can submit them here.

The first, second, third and fourth carnivals of trust had some great articles I urge you to read if you haven’t already.

And I look forward to reading your articles in the October Carnival.

Quarterly Earnings and the Addiction to Lying: Can Mattel Show the Way Out?

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If you lie, the best time to ‘fess up is immediately. “Immediately” is the only time that “oops” can constitute a full apology.

The longer you wait, the more “oops” looks like a dot in the rear-view mirror. Soon, to make amends, you have to confess. And probably explain. And the longer you wait, the more you have to express remorse, do penance (or pretend that you are) and other forms of disaster recovery.

No wonder CEOs have a hard time with quarterly earnings: the more quarterly earnings increases they show, the harder it is for them to show a quarterly loss; the more they’ll lie to keep the string going.

That’s the conclusion of a very clever study in the spring 2007 issue of the Journal of Accounting, Auditing and Finance. Its authors are James N. Myers and Linda A. Myers, and reported by Mark Hulbert, in the September 22 NY Timess, How Many Quarters In A Row Can Quarterly Earnings Grow? (Hulbert is a rarity—an analytical finance type who speaks completely in common English).

The profs analyzed the heck out of tons of data to answer the question: “absent manipulation, how many companies over a 42-year period would have been expected to put together a 20-consecutive quarter string of increased earnings?”

The professors calculated that no more than 46 companies during that 42-year period should have had earnings-per-share growth for 20 consecutive quarters. But 587 companies actually reported such strings of growth, so the professors conclude that their findings constitute “prima facie evidence of earnings management.”

Additionally: companies that had increased the same percentage over five years but in less linear fashion showed six percentage points less in stock appreciation.

Finally, the longer the string of positive earnings reports, the sharper the plunge in stock price on announcement of a losing quarter. As the professor says:

Together, these various findings paint a picture of extraordinary pressure on corporate management to sustain strings of consecutive earnings increases for as long as possible.

When I was in b-school, we talked about volatility of earnings—basically, a straight line is better than jagged. But we also talked about “quality of earnings,” which suggested that cooking the books (I don’t mean illegal, just, you know, cooking) was worse than not.

I don’t recall realizing there was a tension between those two goals, but it’s clear to me in retrospect that the more powerful of the two in the market was the appearance of low volatility.

In other words, cooking the books is rewarded by Wall Street; and the more you cook them, the more you’d better keep on cookin’.

Is that yet more proof for the cynics? It certainly sounds that way.

Then again, just because everyone’s lying doesn’t mean truth-telling doesn’t work; it could just mean no one’s willing to really try it.

Which brings us to Mattel, whose CEO apologized to China on Friday, September 21, saying China had gotten a bum rap for manufacturing flaws, when design was at fault.

Mattel’s stock price gapped up Friday about 4%, and stayed up on the day. A vote for quality of earnings? One day proves nothing, but as Rick Newman at US News and World Report says,

Mattel messed up, but now the company is bringing a welcome degree of transparency to an issue that seems complex and murky to most of us. So hurry up and pay attention, before the politicians and fearmongers muddle it up.

Was Mattel’s apology genuine, or forced by the Chinese?  I suspect the markets couldn’t care less.

 Could transparency actually be worth financial returns? Now there’s a thought.

The Cancer of Short-term Thinking

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Western capitalism is fighting a form of business cancer. And the most virulent form of it is short-termism.

In physical cancer, some cells go haywire and turn viciously against the body. This is also what happens when certain core beliefs are perverted or taken to extremes. Some examples—the beliefs that:

• greed is good (Hollywood simplification)
• individual pursuit of selfish aims yields public good (mis-translated Adam Smith)
• pursuit of short-term corporate goals ends in long-term social success (what’s good for General Motors hasn’t been good for America for some time now).

Those and other beliefs have resulted in rampant short-termism. A few examples, “ripped from the headlines:”

1. The trend in private equity toward front-end deal fees. Gretchen Morgensen’s NYTimes article quotes Michael Jensen, emeritus of Harvard Business School and the “father of private equity:”
“…these fees are going to end up reducing the productivity of the model… People are doing this out of some short-run focus on increasing revenues."
In other words, private equity is good when it subjects bureaucratic managers to the pressure of markets, with say a 3-5 year timeframe. But when the privateers themselves succumb to the lure of instant front-end fees, the greed snake is eating its own tail.

2. The trend in the mortgage industry to convert relationships to transactions—from integrated loan-making and loan-holding, to separating the entire process into various stakeholders—most of whom get their money up front, now. Short term.

3. The IBGYBG mentality in investment banking during several market crashes detailed by Richard Bookstaber in his book A Demon of Our Own Design, that resulted in people making fast deals that would explode on investors down the road, but that paid off nicely up front for the dealmakers, who said not to worry, because—"I’ll be gone, you’ll be gone," it’ll be someone else’s problem then.

4. Young financiers opting out of an MBA because the opportunity exists to make so much more money in the short term:
“With the growth of hedge funds, you’re getting a lot of really smart people who are getting paid a lot very young,” says Arjuna Rajasingham, 29, an analyst and a trader at a hedge fund in London. “I know it’s a bit of a short-term view, but it’s hard to walk away from something that’s going really well.” Yup on both counts.

5. The current residential real estate recession, driven heavily by speculative buyers betting well beyond their means on continued high prices—“I’ll pay off the loan when I flip it.”

6. The longer term trend in business toward “alignment” of processes—which often assumes the only way to long-term profit is to ensure that every short-term measure is itself profitable.

7. Quarterly earnings pressure, which was one of the original drivers of private equity, back when PE was doing some good.

8. Private equity firms selling equity to the public: “a non sequitur in both language and economics,” according to Gretchen Morgensen’s paraphrase of Michael Jensen .
The private equity movement initially shook up stodgy companies that were permanently-funded by stock, where inefficient managers could hang out draining away value for decades. Private equity would buy them and insist on returns in 3-5 years; it left managers no place to hide, and produced real value returns. But when the 3-5 year people themselves start selling permanent stock to investors, they have become what they started out to fight. Which means they’re either stupid or venal. And while I usually opt for stupidity in explaining conspiracy cases, in this one I’d put money on venal.

Is there any relief? Or is this just another case of cheap hustlers exploiting weak human nature that goes with every business cycle?

Three antidotes can work against short-termism. One is pain. Suffering may not be a sufficient condition for social change, but it’s usually a necessary one.

Second is education. Awareness creation can help.

The third is leading thinkers, and there are some hopeful signs. Martha Rogers has begun talking about a lifetime financial perspective on customers:

"Creating maximum value from your customers involves optimization — balancing current-period profits against decreases or increases in customer lifetime values, to maximize your “Return on Customer.”

This isn’t new in finance, accustomed to present-value thinking in pricing financial assets. But it’s new to management thinking, accustomed to quarterly EPS. Robbing future customers robs enterprise value, says Martha. And she’s right.

The aforementioned Michael Jensen announced last month a paper he wrote with Werner Erhard (the controversial founding father of EST training, and more recently of Landmark Forum) on the subject of—get this—integrity.

Here’s a tasty quote from the abstract:

We demonstrate that the application of cost-benefit analysis to one’s integrity guarantees you will not be a trustworthy person (thereby reducing the workability of relationships), and with the exception of some minor qualifications ensures also that you will not be a person of integrity (thereby reducing the workability of your life). Therefore your performance will suffer. The virtually automatic application of cost-benefit analysis to honoring one’s word (an inherent tendency in most of us) lies at the heart of much out-of-integrity and untrustworthy behavior in modern life.

They are right too. You can’t fake trust; trust is a paradox; motives matter. The act of justifying trust by its economic value destroys not only trust, but its economic value. The best economic results come as byproducts, not goals.

Can clearer business thinking beat short-termism? It can’t hurt.

High-Tech Divorce

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The nastiness level of divorces has been going up, thanks to technology, according to the The New York Times Business Section’s Tell-All PCs and Phones Transforming Divorce on Sept 15, 2007.  Bits and bytes are subpoenaed or surreptitiously obtained from cellphones, blackberries and PCs, and used to deadly advantage by plaintiffs and defendants alike in divorce cases.

This can’t be good for the causes of marital therapy or divorce mediation.

On the other hand, private investigators and lawyers make out well.  And all this technology is causing privacy laws to be rewritten.

This story is being written as being about privacy: how technology is increasingly invading privacy, and how our laws are evolving to protect—or not protect— our privacy.

But is it just about privacy?  What about trust?

What’s striking about the article is it’s an equal opportunity horror story.  It’s horrible to find out the awful things your spouse was doing all those years, the article suggests.  Yet it’s equally horrible to find out that your spouse is planting GPS devices on your car or hiring PIs to track down your every little cyber-indiscretion.

So, which is it? Is it worse to be the spy? Or the spied upon?

The subtext of both is victimhood, and an unwillingness to take responsibility. In short, a shortage of trust.

If I conduct a long-term affair, with elaborate attempts to hide it, then basically I’m a schmoe without much moral ground to stand on. If my spouse discovers me, I have little ethical room for indignation.  I have violated her trust.

If I suspect my spouse of conducting an affair, and choose to buy covert screen-copying software or filch her Blackberry rather than directly and calmly confronting her about my suspicion—then I am a sneak and a thief, and have already convicted her in absentia by my decision to go covert.

Some may quibble about the relative nastiness of each side, but basically it’s all ugly. It’s all about mistrust, lying, and the inability to constructively confront.

What it’s not about is privacy laws. Yet that’s the buzz.  Is email admissible in court? If it was a family computer, maybe so; if not, maybe not. Were passwords shared?  Then emails may be admissible.  And so on.

That’s how we get statements like this, from the article:

“If I were to tell you I have a pure ethical conscience over what I did, I’d be lying,” he said. But he also pointed to companies that have Internet policies giving them the right to read employee e-mail messages. “When you’re in a relationship like a marriage, which is emotional as well as, candidly, a business, I think you can look at it in the same way,” he said.

When did a marital  “ethical issue of conscience” become directly comparable to corporate policies on reading employees’ email?

When we started defining issues of ethics and trust solely in terms of issues of the law and privacy, that’s when.

Technology certainly raises interesting issues about privacy, as it does about private property and copyright law, for example.  But when you have a hammer, the world can look like nails.

We have a hammer—technology. The world is starting to look like the nail of the law—the answer to privacy, property rights, and patent issues.  We need to remember there are also screws and glues, not just nails.  There are relationships, trust, respect, virtues, transparency—even marriages. 

If you have to define marriage solely in terms of legal privacy rights, you might as well be describing flood insurance policies.  Same for any relationship.

Privacy matters can sometimes be trivial next to trust matters.
 

Trusted Politicians

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Sound like an oxymoron?

There’s good reason for that.  Not just in fact, but in principle, it is hard to square politics with trust. Trusting a politician may be an exercise in pre-meditated resentment.

Vietnam-era Secretary of Defense Robert S. McNamara once said,  referring to interacting with the press, “never answer the question you are asked; always answer the question you wanted to be asked.”

That may or may not be a good recipe for politicians; it is certainly bad advice for anyone who would be trusted. It speaks volumes to the desire to control others’ opinions, refuse to engage, and to willingness to appear evasive.

Mark Twain’s comment, “Congress is the only distinctly criminal class” is typical of our desire to believe otherwise—and our continued disappointment when the next politician reveals his colors. “Meet the new boss—same as the old boss,” sang Roger Daltrey years ago.

There’s a reason. Politics requires a continual calculation of how to align with the majority. A minority politician is, pretty soon, a losing politician. Passing legislation requires convincing others; getting elected requires convincing others. The art (or science, increasingly) of politics is combining effective majorities across various issues, while minimizing the perception of the minorities as being on the other side.

That means there is virtually no single principle that a successful politician can afford to consistently endorse.

Yet all the while, we engage with politicians in a mutual conspiracy to deny that this is the case. We insist on believing that politicians believe in principle; and they in turn use the language of principle, in order to gain our votes.

Then we become outraged in the cases when politicians are caught violating their principles—whether it’s Republican homophobes caught with their pants down, or Democratic social liberals invested in subprime mortgages.

Logically, we should not be enraged. Humanly, we are. Because we want to trust, and trust requires some measure of consistency around principles.

The answer may lie partly in losing our innocence. Trust in politics arguably requires term limits. Only lame ducks can afford to vote from principle.

On the other hand, to surrender to cynicism and accept politics as merely an exercise in coalition-building is to move in the direction of single-issue politics—abandoning the middle, and any hope for unity.

Or, to continue to hope for the best—a politician with just enough principles and persuasive capability to actually sway opinion. To create a majority where none existed.  A real leader, in short.

Well, hope springs eternal.