Billy's Forty-Fourth Law: In business, everything takes longer than you think it will.

Hofstadter's Law: It always takes longer than you expect, even when you take into account Hofstadter's Law

Douglas Hofstadter

 

              OK, so I found the very law when searching for pithy quotes on line.  This is another example of a concept from another field, computing science, finding its way into the business realm.  This law is closely related to the Twenty-Third Law…Up is slow and hard, but down is fast and easy.  The difference is the direction and the reasoning. 

I am working with a client whose business needed a bit of a shake-up.  Unfortunately, part of the problem was masked by a very strong division that was effectively propping up the remainder of the company.  When the sales of that division faltered, the truth was revealed. As Warren Buffet once said, ”Only when the tide goes out can you see who’s swimming naked.”

The company’s problems were revealed dramatically, and the owner and I went about developing new strategies and the accompanying tactics for fixing the problem. The owner went about rationalising his staffing levels…fancy talk for downsizing, and reviewing prices, products and even customers.  The work was exhausting, stretching the owner in ways he didn’t think were possible until he was forced to develop new skills and engage in strategies fundamentally different from those previously employed by his firm. 

The firm's owner told me that this was not just a new chapter in his business, but a whole new volume! I was eagerly anticipating the results of these efforts.  When his year ended, I was disappointed.  I had anticipated greater profits, and instead the company broke even.  Now this was a substantial improvement from the previous year’s losses, but still, I believe we deserved a better fate.  The effects of the changes we made clearly took longer than I had anticipated.

The Optimism Bias

When I was doing some research on this subject, I ran across the term, the Optimism Bias. This is the notion that the rational rules of life don’t apply to optimists.  They believe that they are at less risk than others in areas as diverse as driving to smoking.  They believe in themselves and are thus less likely to be realistic than they really ought to be. 

I fell into this trap.  Although I know that the effects of change take time to show themselves in terms of results, I was so convinced that the plan was sound and the execution so well implemented that the results would be nearly immediate. I was kidding myself, another victim of the Optimism Bias. How could a rational, self aware guy like me fall into such a trap?

Illusory Superiority

Part of the explanation is illusory superiority.  This is the phenomenon by which most people believe that they are of above average in fields such as intelligence, problem solving and driving.  (I heard of a study that one exception is looks…more people rate themselves as average of below average looking than above average looking.)  I thought that since I helped come up with the strategies, the normal laws of economics, business and even physics would not apply.  Talk about self-deluded Billy!

Sometimes, the trick is to be patient.  A friend of mine started a business called Travelers Mobile. Fed-up with high roaming charges, he found a source for local SIM cards for prepaid mobile phone plans in the US, UK, and several European countries.  You order the SIM before your vacation, activate it in an unlocked mobile phone when you arrive, and you have a local phone and phone number.  (I am a customer, and had a UK phone number on our last trip to England.)  He was frustrated in all the efforts he put in to the development of the website, logistics and marketing.  He quit working on the business, and his sales slowly went up.  It seems that his efforts were effective, however; it took more time than he anticipated for sales to climb. 

We entrepreneurs are, for the most part, a very optimistic lot.  The combination of the Optimism Bias and Illusory Superiority create this time surprise.  Sometimes, it is best to be a little bit patient before scrapping one idea for the next.  By the way, if you want to get a SIM card for Canada, the USA, UK, Mexico, Europe or Australia, go to http://travelersmobile.com/ and George will get you set up. 

 

Billy’s Forty-Second Law: Learn to tell your story

To influence people, you must learn to tell your story.  Telling your story, warts and all, makes you human and more likeable.  Structuring your story makes you more understandable.

Telling stories is important, and at the same time, it is difficult.  I am working with a client who was asked to put together the story of an investment in a subsidiary company which, unfortunately, went badly.  The reason was for a financier to understand what happened, and how this decision affected the company.  Therefore, my client began to write out his story.  He spent hours trying to unravel exactly what happened, the mistakes he made, where he made them and what the implications of each step in the process.  The result remained an incomplete story filled with missing parts.

Writing is difficult.  Putting your story together is very difficult, and yet is an important communications skill.  I was working with a different client and we were trying to put together a ‘good news’ story based on a recent success the company had with a new client.  We worked together for about an hour to develop a very simple narrative.

Stories are important.  Stories are the things we are made of, both corporately and individually.  There are stories which resonate.  The Horatio Alger…rags to riches story is one of the archetypical good news stories, especially in America. The Steve Jobs narrative is part of what makes the Apple Story.  The Bill Gates rich to richer is not nearly as dramatic. 

Storytelling is ancient…more ancient than writing itself. Stories and myths connect us.  Learning to control the narrative, to make it interesting and to captivate the audience is truly important.  This is the presentation part of the narrative. 

I used to teach presentation skills.  A good presentation has three components…the story, the structure and the delivery. The story is creative, delivery is technique, but anyone can use make their point.  I envision stories to be a bit like a flower.  You start in the middle, and introduce the theme of the story.  Lay out what you plan to tell people and the context in which you plan to tell it.  Then go into your first point…ensuring that you leave the theme, and then return to it. Once you pass through the theme, you can make your second point and so on.  The three part presentation is easy for an audience to remember.  

This structured, whether in a spoken or written form allows the audience to track and understand your story.  This makes is easier to influence, inform and call a client to action.

Billy's Forty-First Law: Sometimes it’s smart not to follow the crowd

If everybody else jumped off the Lions Gate Bridge, would you jump off the Lions Gate Bridge?  (It all depends on the tide and wind conditions)

Sunday February 1, 2015 was Super Bowl Sunday. They anticipate that over 115 million people watched the game.  This does not include the millions watching in pubs and restaurants all across the US, Canada and throughout the world.  None of these people was at the Dubh Linn Gate pub in Whistler BC.  The manager of the Dubh Linn decided that the Pub would remain Super Bowl Free for the entire afternoon.  This despite the huge numbers of Seahawks fans who routinely visit Whistler. How can it be, that a pub could make such a decision?  Are these people crazy or is there something that we are missing. 

Firstly, the pub is not a sports bar.  There are televisions and they will have sports playing without the sound on but this is an Irish Pub.  The Pub’s house band has it in their contract that the televisions be turned off when they are playing. 

Secondly, there were plenty of places in the resort showing the game.  These places were packed with football fans, and those wondering what this spectacle was all about.

So what possessed the manager of a pub to keep the game off during the biggest annual sporting event in the world?  The answer is simple…money. The general manager analysed the difference between Super Bowl Sunday and other Sunday’s during ski season.  She noted that although the pub was full, revenue was actually lower than a typical Sunday.

The problem with the Superbowl, from the pub’s point of view, is that people park.  Some fans were in the pubs at 11:00 AM for a 3:00 PM kickoff and a 6:00 PM end.  This may mean lots of drinking, however; it is less than turning over the seats in the restaurant with skiers on a normal Sunday.  Although the pubs were filled, even the most hard core football fan slows down his, or her, rate of consumption during that long a period.  People also eat less.  They may order snacks, however; they do not order meals. 

At the same time, staffing levels ramp up.  There are more people, and more people who have consumed a bit too much.  This, in turn, increases the staffing costs to the pub.  One local establishment, a bar serving a younger crowd, actually had a cover charge for both the NFC final and the Super Bowl.  The reason, the Seattle factor. (Not only are people from Seattle fans, but the Seahawks are Vancouver’s adopted team.)

So on the Monday after the game, I asked one of the managers what happened with the Great Super Bowl Experiment.  He told me that the patio was full.  This was the usual après ski crowd coming in after a day on the slopes.  He also told me that inside the pub was very slow.  When they compared revenue this year to revenue on Super Bowl Sunday last year, and remember that Seattle was in both games, the revenue was higher without the Super Bowl. Smaller crowds, with faster turnover, provided higher revenue that large crowds with lower revenue.

There are times when good business tactics are counter intuitive.  The decision not to play the Super Bowl at the pub was bold, yet in this case it seems to have worked.  It is great to see an environment analysis, experimentation and results are an important part of the culture. 

This experiment was a success.  It is still important to experiment, and celebrate experiments that are not successful...even down right failures.  To quote business writer Louis E. Boone:

Don't fear failure so much that you refuse to try new things.  The saddest summary of a life contains three descriptions...could have...might have and should have.

 

 

Billy's Twenty-Sixth Law: Never let prospecting campaign affect customer retention.

Sorry, but the ice cream is only for our new friends.

Ally Bank Advertisemen

 

 

http://youtu.be/TxEqmRg-YzM

There are two types of marketing and promotional strategies.  Strategies designed to attract new customers are called prospecting or acquisition strategies.  Strategies designed to keep your existing customers are called retention strategies.  Although both of these are in the marketing realm, they are different and sometimes conflict with one another.

I am amazed in the world of marketing how much time is spent on prospecting campaigns, promotions designed to attract customers.  Teaser pricing strategies hook the new client on price by using an 'introductory rate' and then raise the price once the prospect is used to the product or the service. These campaigns can succeed, however; they put the firm's relationship with your existing customer's in jeopardy.

The Ally Bank Ads illustrate this point brilliantly.  I have provided the link to the 'Ice Cream' advertisement.   This ad points out just how unfair it can be to treat potential customers better than existing customers. Yet many prospecting ads use specials, including price specials, to attract new customers.

The communications industry is notorious for these practices.  Cable companies and mobile phone providers both use these strategies in an attempt to get  customers to change from their existing carrier to theirs.  The battle for those customers willing to change, usually for pricing, is fierce, especially in mature markets that are traditionally 'sticky'.  Sticky markets are those in which the customers tend to make a decision and then stay put.  Retail groceries, financial services and communications tend to retain customers unless something goes wrong. 

It takes something really special to get people to change.  The problem is using these kinds of strategies can attract the wrong kinds of customers.  Most businesses need loyal customers.  These strategies attract a customer more likely to change once the special period is over.  They can also make existing customers feel as if they are being betrayed. 

Companies are simply not using the same creativity they use in acquisition campaigns.  Marketers tend to love the challenge of getting new customers, and leave the retention to customer service strategies.  There are some things that you can do for your existing customers.  Open houses, presentations, and customer only specials are just a few examples.  Many firms view trade shows as a means for acquiring new customers.  You should invite your existing clients to events before and during the trade show.  Use your existing clients for new product and service launches.
 
One other strategy for mining your existing customers is to ask yourself the questions, "Do all of my customers know every thing we do or sell?" It is amazing how often you may not have 100% of your clients' business.  Sometimes, this is intentional, as customers want diversity in their supply chain. Other times, there is an opportunity for you to get more business by your existing customers.  This can also help you develop and expand your product or service mix. 

Using as much creativity on customer retention strategies is one of the most effective marketing and promotional strategies in which you can engage.  Think about it, but keep in mind, the existing customer is less price sensitive than the prospect on the outside needing encouragement to come in.

Year Two: Development

Risk: High

Satisfaction: High

Key Challenge:  Focus

 

It’s difficult to develop an FAQ until you have any questions.

Congratulations... you have survived your first year in business.  The second year of business is a year for growth and development.  Developing your business takes many forms.  The first is obvious…developing a customer base.  In theory, we know our target market before we start our business.  The reality is that we don’t always get it right. 

I heard a great story on this topic.  Some entrepreneurs decided to start a valet parking service in Kelowna BC over the Christmas shopping period.  The thinking was that seniors wouldn’t want to walk in the inclement weather and would use the valet parking service.  When the business started a curious thing happened.  The problem was that seniors didn’t use the service.  As children of the depression, seniors found that paying for parking a car was an indulgence.  However, there were customers for the service.  The sub-twenty-five year old crowd used the service.  They felt that this was an affordable luxury and used the service for status rather than for pragmatic reasons.

The second part of focus is your product or service mix.  As we get a better idea of who our customers are, we can also get a better sense of what our customers want.  This can mean honing,  focusing and expanding our product / service mix.  There is often a ‘disconnect’ between what we offer and what our customers actually purchase.  One metric we use in planning sessions, is to determine the most common products or services purchased by our customer. 

Think of a restaurant menu.  If you were to evaluate your menu, you would see the most popular and the least popular menu items.  You then ask why an item might be popular, or unpopular.  Is it the price?  Is it the menu design?  If there is no obvious reason, then it is an item your customers just don’t want to order from your menu.  The product mix, for goods or services, often reflects the entrepreneur and not the customer.  We start out not knowing what the customer wants, but; after a year we should have a better idea and adjust our product mix to suit the customer. The problem for many entrepreneurs is they are still running the business for themselves and not for the customer!

The third focus issue is the promotional message.  Even when we get our customer and our product right, customers often buy for reasons other than those we considered.  In our valet parking example, the business owner should shift the marketing message to a status message from a pragmatic message.  In businesses where multiple parties make decisions, it is important to create messages for each decision maker rather than an overarching marketing message.  These multiple messages become clear once we see how real customers make decisions.

Selling software to businesses is a good example. This type of sale requires three distinct marketing messages. 

Message one is the user message.  This message focuses on what the software done, and how it helps the users of the software. This user based message is the most common message provided by software companies.  This message is for the product user.   

Message two is the business message.  This is the business case for using the software.  The message is on issues including increased productivity and cost savings.  This message influences the owners, managers and accountants in the customer organization.

Message three is the technical message.  This is the technical case for the software.  This is all of the geeky stuff that the technical people need.  Issues such as compatibility with other programs and systems, customer support and security are often included in this message.  This is the addressed to the Chief Information officer or systems professional whose job it is to install and integrate the software.

The first message is often accurate, but it takes time to develop the technical and business message until you have real users.  There are often hidden advantages we learn from customer usage that we can never learn during the start-up phase.  Updating the message is critical to ensure business growth.

Evaluate your client base...Analyse your product mix...Re-visit your message.  These three strategies are essential ingredients to business development in year two.  Focus takes time and discipline, but focus is an important building block on your road to developing a sustainable business.  

Next time, we move into the third year, the management year.

Billy’s Twenty-first Law: No customer is forever!

…all good things must come to an end.

Geoffrey Chaucer

I was in my local pub, talking about business to my friend Kurt.  We were discussing business in general when he made the point that in his experience as a tool & die maker; any customer lasting for over five years was a rarity.  As business owners, we may provide the best in products and services, and think we are meeting our customers’ need while failing to realize that needs change…and customer/supplier needs change with them.

I remember my first customer.  I did a proposal for a client and he wanted to know if I would be the trainer.  The Business Development Bank, for whom I worked, was moving to a contract model.  Instead of the bank employees providing training, we would find trainers, and then contract the work to outside parties.  The client had no interest in this arrangement, and wanted to know if I would personally do the training personally.  My business was born.

About three years later, the relationship ended.  The organization in question decided that they should take their training in-house.  I was devastated as this was my main consistent bread and butter client.   I had some tough months, and then landed a government contract that lasted several years. 

The point is that nothing lasts forever.   You didn’t necessarily do anything wrong, but if often feels as if you did.  Things change…and those changes affect our businesses.

There is another side to this coin, and that is ‘de-marketing’.  That is the idea of dropping a client.  Just as our client’s change, so to do our businesses.  One of the exercises I perform in the planning process is a customer analysis.  This works especially well in business-to-business situations.  The first step is to rank the customers by revenue, and determine how dependant the client is on their top customers.  We then take the number of clients to attain 80% of total revenue and rate each one.  (It is remarkable how often the Pareto Principal holds, where 20% of the client base accounts for 80% of total revenue.)

We then rate these important customers on the following basis:

·         Profitability

·         Collection Period

·         Risk (i.e. how much waste or how many returns for quality issues)

·         PITA factor (That’s Pain In The A**)

As a group, we ask the question, “Is our company better off with these customers?”  It is amazing how many customers are not worth keeping.  They are no longer profitable, or they pay so slowly that they are destroying our cash flow. 

One of my clients was transitioning from a customer fab shop to a small run manufacturer.  Smaller clients caused huge delays in the production process due to the set-up time between jobs.  A $1,000 job caused delays in $10,000 jobs.  We had to take the counterintuitive measure of ‘de-marketing’ several smaller clients.  When we looked at the business, we needed to realize that the environment and the enterprise had chanted.  Acting like a small fab shop was hurting the business and not adding value.

Things change.  You will go through patches where you are losing clients instead of gaining them.  Marketing is always important, no matter how busy you are.  To quote a former boss of mine (Dave Forsythe of the Business Development Bank of Canada)

“You don’t get smart overnight and you don’t get stupid overnight.”

Great perspective from a good boss. Thanks Dave!

Billy’s Seventeenth Law Axiom Four: Control Counts!

I am the master of my fate:
I am the captain of my soul.

From Invictus: by William Earnest Henley

The need to belong and the need for control are, in many ways conflicting needs. We are both communal creatures and fiercely individualistic.  The control need is one of the dominant marketing messages provided in modern marketing…especially in North America. 

Think about your own reaction when someone tells you what to do.  Most of us hate it!  An important factor that makes us adults is our independence.  We want control of our lives…whether in our working lives, family lives, and financial lives human beings need a sense of control.  Advertising uses the control need.  Examples include Freedom 55 (financial services) and Have it your way (Burger King).  In providing price choice we feed into the control need.  If there is only one price , the customer has no control.  If there are multiple price choices, then the perceived control reverts to the customer. 

The control need is often closely associated with one of the other three needs.  An increased sense of control leads to an increased sense in security.  A lack of control may lead to diminishing status within the tribe.  Our very individual identity provides the foundation for our control need.

Let’s consider this from another angle…the loss of control.  Being a Star Trek fan, I cannot help but use the example of the Borg.  The Borg would assimilate other species into the mass collective.  This led the writers to create the line: “We are the Borg…You will be assimilated…Resistance is futile.”  The key to creating any great villain is to play on fear.  The Borg proved to be one of the great Star Trek villains as they threatened the very thing that makes us human…our individual identity.  The threat to the control need hit viewers at a fundamental psychological level.

Trust messages are control messages as much as they are security messages.  They allow the customer to retain control through you.  A delivery date is a control message.  Amazon created Amazon Prime.  For a fixed annual fee, Amazon guarantees two day delivery. The competitive disadvantage for Amazon over retail stores is waiting vs. instant delivery.  If I go to the book store, I get to start reading immediately.  If I buy through Amazon, I don’t know when I will receive my book (lack of control).  To some customers, this disadvantage might not outweigh the advantages of greater selection and better prices.  When regular customers could trust a two day delivery window, they not only paid for Amazon Prime, but also ordered significantly more from Amazon.

In today’s business world, we often cede control to suppliers and take control from our customers as part of a complex supply chain. One of our manufacturing clients subcontracts a specialty service mid-way through the production process.  Our client loses control of the process.  Only trust makes up for this subordination of control.  Likewise, this same fabricator has the trust of his customers, for whom he produces sub-components. 

Control counts.  Ensure you provide your customer a strong feeling of control by demonstrating that you are the kind of supplier and person, who comes through for them.  Ensure you show them how they can gain a sense of control, or avoid losing that control and individuality so important to the human spirit.

Billy’s Seventeenth Law, Axiom Two: Belonging is powerful!

We all live in a yellow submarine.

John Lennon and Paul McCartney

I am an Old Goat.  That is not just a comment on my age or personality, but a group of regulars at the Dubh Linn Gate Irish Pub in Whistler BC.  My wife and I love the Dubh Linn.  Great food, amazing staff, a great après band, and of course beer!  But it is so much more.  We belong at the Dubh Linn Gate.  Once you belong somewhere, it is difficult to go elsewhere. We are advocates for 'our' pub.  We recommend it to our friends.  I recommend it when I am talking to my fellow skiers when on the lift.  The staff and management know us...they took the time to get to know our names.  They make us feel welcome.  They ensure that we belong. 

Belonging is a fundamental human need.  We are a naturally social animal.  Our ancestors realized that the only way for this small, hairless ape to survive was to form groups.  We needed to associate in order to survive.  The pair bond between men and women is the starting point to survival of the species.  Love is the most primal of belonging needs if only from an evolutionary perspective.

Our first associative experience is the family.  The human child is defenceless, and needs care and nurture for years to become independent.  The extended family becomes the clan…the clans form tribes and so on until we get such units as cities, provinces, states, countries, Kingdoms and empires.  The need for belonging is deep in the human psyche.

We can see evidence of the belonging need throughout society.  The Olympic Winter Games just wrapped up in Sochi, Russia.  My wife and I got up at 4:00am to watch Canada play Sweden in the Gold Medal Hockey final.  Alexandre Bilodeau raced to gold in the Men’s Moguls event.  While watching his performance, I noticed my heart rate racing as he raced the course.  Nationalism, for better or for worse, is a powerful binding mechanism. 

This is true of sports, religion, families and even schools.  James Twitchell, in his book Lead us into Temptation: The Triumph of American Materialism states:

Because increasingly, store-bought objects are what hold us together as a society, doing the work of "birth, patina, pews, coats of arms, house, and social rank"—previously done by religion and bloodline. We immediately understand the connotations of status and identity exemplified by the Nike swoosh, the Polo pony, the Guess? label, the DKNY logo.

 

He links the Shopping Mall as a substitute for Church and logos for religious icons.  Twitchell exaggerates to make his point, but his point is important.   We want to belong.  Businesses want ‘friends’ clients and advocates to help their businesses thrive.  

As you create your message…tell your story…make a compelling presentation, can you show the customer how they will increase their need to belong?  Can you help your customer to join you…to become a part of your ‘tribe’?  When telling your story, are you demonstrating that important belonging need? 

Terms such as love, community, national and together conjure familiar feelings reaching into the depths of our emotional needs.  Even the language we choose, in presentations and ad copy.  ‘It’ (third person) is cold.  ‘I’ (first person) puts the emphasis on the speaker not the listener.  We or Us (second person plural) brings everybody into the conversation.  Consider the following phrases:

• Bill Erichson develops strategic plans for small businesses.
• I develop strategic plans for small businesses.
• We work together and develop a plan specifically designed for your business.

The ‘ownership’ language of the last sentence encourages that sense of association meeting that important emotional need.  This is in a business to business context.  Businesses to consumer situations are more emotional, and therefore building on the associative need is even more important.  This cannot be manufactured or contrived, but must come from your desire to help and to ensure your customer 'belongs' to your tribe!

 

Next time, we look at our place within the tribe and examine the importance of status!

 

 

 

 

Billy's Seventeenth Law: Axiom One - The Need for Security

In previous blog entries, I have indicated that there are four emotional needs that help to drive decisions.  This week examines the first need, the need for security.  Of all of our most fundamental human instincts, the need to survive and replicate the species is the dominant.  If we are in an insecure situation, we react in a manner known as the ‘fight of flight’ response.   Our adrenal glands kick in, and our heart rate and blood pressure increases.  In fact, that tickling in your stomach you experience on a rollercoaster is the body taking blood away from less important organs and channeling them to the heart, lungs arms and legs.  We avoid danger or react to danger instinctively. 

For the most part, people do not live their lives in imminent danger.  Our security need, however; still affects our behaviour, including buying behaviour.  We desire physical security, emotional security, and financial security.  Appealing to the security need is an important part of developing a balanced promotional message.  The ‘trust message’ is a powerful way in which to tap into the security need.  (A great advertising campaign proudly trumpeted that, “Nobody ever got fired for buying a Xerox.)

Closely related to the security need is risk.  Helping customers avoid risk has the added benefit of reducing price as a sole decision making factor.  Customers often make low risk, low reward choices.  For example, given a choice between receiving $5.00 guaranteed, and having a 50% chance of receiving $15.00, most people took the guarantee despite the fact that the second decision has the higher mathematical expectancy.  This example is adapted from the book Priceless: The Myth of Fair Value (and how to Take Advantage of It) by William Poundstone.

One of the most powerful promotional messages is the threats to security.  Financial ads often worry people about their retirement future and security firms show the vulnerability of not having the latest alarm system.  The contra-emotion to security is insecurity, risk or threat.  These bring forth powerful and even irrational buying behaviours.  This form of advertising brings forth the problem very clearly, leaving the customer to draw the conclusion that the solution.

Business groups do not solely use this advertising.  In health, we are encouraged not to smoke due to the health implications.  A Canadian study reported a 17.2% incidence of lung cancer among male smokers as compared to a 1.3% risk to non-smoking males.  This kind of promotion (promoting smoking secession) drives right to the security need, as does the recent series of ads from preventable.ca, discouraging risky behaviours such as Jay Walking, Distracted driving, and medication safety.  They are appealing to the same emotional needs.

When developing a promotional campaign, whether for a website, brochure or a sales presentation, see if there are ways you can show your customer how they increase their level of safety and security as a result of using your product or purchasing from your company.  Assure your customer that they are making the right decision for the specific needs you have identified.  This core human need goes directly to the heart of the decision making process.

Billy's Seventeenth Law: Never underestimate the power of emotions!

That’s the power of Love.

Heuy Lewis

Emotions are powerful things.  Emotions have an amazing impact on decision making…often overriding the rational in favour of the irrational.  Over the next few weeks, I want to examine the influence of emotions on customer buying.  I have begun to read more books and articles on the topic of the brain, and specifically on the ways in which decisions are influenced by the rational and the emotional centres of the brain. Books such as Blink, by Malcolm Gladwell or Buy-ology and Brandwashed, by Martian Lindstrom help explain how we think and how we decide.

I was teaching a marketing course in Penticton BC, and attempting to illustrate the point of ‘customer stickiness’; the notion that the more habitual the buying the more sticky the customer is to the supplier.  This is not a matter of loyalty, but rather a matter of deeply ingrained habits.  (An interesting example of this is in the United Kingdom, where people are more likely to change a spouse than a bank account.  Given the banking situation in the UK, this is certainly not due to any great love shown towards the individual banks.)

As a part of this exercise, I asked everyone in the room and tell us which local grocery story they frequented.  Grocery shopping is very habitual, and I could then move from the difficulty of getting customers to change grocery stores to the challenge of getting customers to change to my students’ potential businesses.   

As we went around the room, one of the participants mentioned that she shopped at Safeway.  Another participant, not a Safeway fan, berated the original respondent for her supermarket choice.  The original participant immediately began to defend her choice of Safeway in incredibly emotional terms.

The whole thing was bizarre.  These two rational adults were getting into an emotional argument about grocery shopping.  They were emotional in their responses to each other.  I didn’t know so much emotion could come from grocery stores. 

According to consulting firm APCO, consumers respond to companies along eight dimensions: Understanding, Approachability, Relevance, Admiration, Curiosity, Identification, Empowerment, and Pride. The company then surveyed customers to determine the most loved companies in the world.  The number one company for 2013, by this measure, is Disney.  By the way, the most hated company last year, according was McDonalds…partially for their treatment and low pay for their employees. 

As we move forward, I will focus on four foundational emotions, where they come from in and why they are important.  Finally, I want to display a model showing you how you can best sell to both the left (rational) and right (emotional) brain, creating a complete promotional message for your customers.

This week’s quote, from my favourite business writer, Tom Peters:

All businesses success rests on something labelled a sale, which at least momentarily weds company and customer.

 

//

Billy’s Fifteenth Law: Always look bigger than you really are.

Perception is reality!

This, again, is a borrowed law.  I have taken this from my business partner George Slade, who is much better at this kind of thing than am I.  Many of the most successful business owners I know are bold; often exaggerating their skills and abilities in order to gain that important sale.  (I won’t go as far as to say lying but…)  George always made sure that our small technology firm looked like a big technology firm.  George began consulting for a large, international firm, but realized that the teams they put onto a project were no larger and no more competent than our small business.

The logic is simple, if KPMG is going to use a five person team for the project, and George can assemble a five person team for the same project, then George is as good as KPMG.  This is not to knock KPMG, or any other large firm, but to present things in a way that assures the customer that they were getting the same value and more personalized service than with the large business behemoth. 

George presents himself well.  He has well produced business cards, letterheads, website and the other accoutrements necessary in his business. His presentations and proposals are first rate.  He goes to the additional expense of printing on heavy bond paper.  He once told me, “It doesn't matter how good you are if you don’t get the job.” 

There is an important marketing lesson behind this law.  There are four primary buying emotions.  They are:

•  Control
• Security
• Belonging 
• Status

People gravitate towards ‘large’ because it seems a safe decision, thus meeting the customers’ security need.  If the customer needs this kind of assurance, then George provides it.  He not only had a clear idea of exactly what he could do for the customer, he had a clear understanding of the decision making processes of his clientele.

George and I were in a meeting with a client and she asked me a question about modeling her financial plan or some other arcane business process.  I thought for a minute, and then responded that we could do that for her. After the meeting, our discussion went like this:

George:  You were figuring out exactly how to develop that model right in that meeting weren't you?

Bill:         I didn't want to provide her with an answer until I knew the solution. 

George:  That’s the difference between you and me.  I would have simply told her in no uncertain terms that we could do it.  I have enough confidence that between you, me and Scott (another associate) we can solve most problems and if we can’t, we can find someone who can.

George knew that we could do it…I needed to have a good idea of how to do it before taking action.  His bold approach got more business than my cautious approach even though the customer gets the same result. It is that kind of confidence in yourself, and in the team around you that lets you be bigger than you may really be. 

So I leave the quote of the week to my friend George:

Say yes first, and figure out how you’re going to do it later. With the vast resources available to today’s entrepreneur, there are very few problems you cannot solve.

Great advice!

Billy’s Fourteenth Law: Know Thy Customer

“If I had asked people what they wanted, they would have said faster horses.”

Henry Ford

Good businesses understand what customers' want and how customers' want to buy. Great businesses know what customers will want and provide it exactly when they want it.  This requires a combination of insight, foresight, empathy and trend spotting.  It involves knowing not only what customer’s buy, but anticipating what they need and how you can best provide it to them.  In short, it means truly knowing your customer!

It is not unusual for business owners to understand their customers from a consumption point of view.  For example, a clothing retailer understands customers' clothing needs or a bookkeeper understands her clients from a financial perspective.  This level of customer knowledge is just the beginning to truly understanding your customer.

In the book The Discipline of Market Leaders, Michael Treacy and Fred Wiersema define three value disciplines in large corporations.  They are operational excellence, product leadership and customer intimacy.  They argue that although you practise each discipline, one emerges as the dominant discipline in the most successful corporations.  They emphasize the nature and importance of this discipline this way.

Companies and organizations whose discipline is customer intimacy really know their customers; not simply from a customer perspective but from a personal perspective. Good B to B firms understand their client's industries and business challenges.  Don’t make the mistake of simply understanding your customers’ needs…understand your customer.

One author and researcher who really ‘gets it’ is Paco Underhill.  He has several books, including Why We Buy: The Science of Shopping, however; the book that best illustrates this point is What Women Want: The Global Market Turns Female Friendly.  Time and again, Underhill provides examples of how firms understanding of women led to understanding a need and subsequently creating a business opportunity.

To desire to understand you must truly love your customers.  I am lucky.  I work with entrepreneurs and business owners.  I understand business and I understand business owners.  I hope this comes from truly caring about both the enterprise and the entrepreneur.  I was working as part of an entrepreneurial training team in the nineties.  The project coordinator told me that I cared more about the participants business plans than they did.  He was probably right!

When it comes to customer intimacy, you really have to care about the whole customer and not simply their commercial needs.  This value must permeate throughout your firm and be evident in everything you do.  Caring leads to understanding and the understanding in turn leads to opportunity. 

Again…your comments are welcome.

Billy's Fifth Law: The Law of Comparative Pricing

The First Immutable Law of Price...Prices are comparative.

The only people who care about your costs are you, me and your mother...and if you are from a dysfunctional family, it's just you and me!

Price is one of the most important and at the same time least understood concepts in all of business.  On the one hand, you may know your costs cold...in fact it is crucial you know your costs, however, your customer neither knows nor cares about your costs.  The customer cares about the price they pay for your goods or services.

To truly understand price (besides taking my pricing seminar or hiring me to advise you on price strategy) begin with the single most important concept in pricing:

Price is always comparative, never absolute.

In order to form an opinion of your pricing, your customers are comparing your prices to something.  Sometimes it is a direct comparison with a competitor.  Sometimes it is with alternatives you offer the customer or with a previous price.  Sometimes it relates to some level of affordability or even a false notion of what the price should be, but in any event, too expensive or too inexpensive is  compared to something.

In a restaurant, people tend to order from the central price points of the menu.  It is amazing how often the modal price point is very near the median price point.  The comparison moves the customer towards a central price...neither too expensive nor too cheap.  The wine list is another matter all together.  The modal wine price point is the second cheapest bottle on the wine list. 

This has implications to menu design and price mix.  You can move your customers knowing where they are most likely too look.  Another tidbit, this one from William Poundstone's book Priceless. Price plays a greater role in decision making when the prices are right justified on the menu.  (The price is more distinguishable and easier to compare to other prices.)

The pricing principle of price lining is based on customers choice.  The notion of three price points representing good, better or best, tends to move the customer towards the centre, unless you move the middle price point. Moving the middle price point can affect buying behaviour, as good can look like better or better can look like best depending on where you have centred the middle price point.  

Even a sale uses the notion of price comparison.  This price is 25% off of the regular price. 

I once taught a youth entrepreneurship here in British Columbia.  We did a special version of the program at the Emily Carr University of Art + Design.  As a part of the program, we applied classic pricing theory to art marketing.  One of the participants held a gallery show about six months after the program and invited me to the opening.  As the artists entered, she enquired how they liked the art...I got, "So Bill, what do you think of my pricing?"  It was perfect. She offered a good price range, multiple items in the middle and one item at a very high price in order to frame her other paintings.  In short, she applied classic price theory to her gallery showing. 

So ask yourself, can you provide your customers with choice.  In marketing, this is affected through your product mix... in sales it can be done using your sales presentation. (A mortgage broker may not affect interest rates, but can show the customers the rate, a price for money, )  

Remember, if you do not offer your customers with choice, they will seek to find a price frame through comparative price.  Create price within, and you can keep the customer from 'shopping around' as they feel they have shopped around within your 'store'.  This provides your customer a sense of control meeting one of the most crucial needs in customer psychology.

 

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