The customer rarely buys what the company thinks it's selling him

from Strategy Speaks: a Peppers and Rogers Blog by Don Peppers

Clayton Christensen classifies sustaining innovations as those that continue to improve a product or service, and move it up and up and up along the customer's need. Often, sustaining innovations achieve a quality far in excess of what most customers actually need, and as quality improves, price and margin improve as well. In fact, Christensen says, competition in sustaining innovations has a tendency to increase the price of the product (in contrast to the common economic wisdom that competition reduces prices). However, at some point below this level of high product quality and innovation, there are disruptive technologies that will always chip away at the higher end products.
He had a table showing different companies that had created innovative products at one time, then been successively replaced by cheaper products always moving up up up in this sustaining innovation trend. So disrupting technologies earn their place at the table at the low end - the simple end, the part of the product category that is either not served at all or very poorly served by the high-end products - and then they too migrate up and devour the incumbents. But soon another wave will come behind them. So General Motors had its business slowly eaten by Toyota, from the bottom up. And now Toyota, competing with Mercedes and BMW at the high end, is going to have its business eaten by Hyundai, and maybe Tata.
Now consider green energy: think about solar power. US and European govts have spent about $16b on this so far. But we have big problems - clouds, air conditioning, nighttime. Solar electricity has been 7 years away from cost-competitiveness for 30 years. So is there any hope for it? Christensen said his daughter was a missionary in Mongolia, and she took him into the capital city, and they happened on a bunch of vendors selling dirt-cheap solar panels, shrink-wrapped with rabbit-ear TVs. But the Mongolians are all NON consumers of electricity, so even this level of inconvenience is still infinitely preferable to non-consumption, right? There are 2 billion people in Asia who are non-consumers of electricity and among this population, solar energy is a booming business, with lots of cottage businesses meeting this need.
One of the other issues Christensen promised to cover was debunking what he called the "gospel of outsourcing."

Customer Loyalty: Is It an Attitude Or a Behavior?

Customer Loyalty: Is It an Attitude? Or a Behavior?

from Strategy Speaks: a Peppers and Rogers Blog by Don Peppers

The people who've tried to define customer loyalty have usually approached it from one of two different directions - attitudinal and behavioral. Although each of these directions is valid, they have different implications and lead to very different prescriptions for businesses. (This is analogous, but I don't think it is precisely aligned, with Estaban Kolsky's distinction between "emotional" and "intellectual" loyalty.)
The attitudinal definition of loyalty implies that loyalty is a state of mind. By this definition, a customer is "loyal" to a brand or a company if they have a positive, preferential attitude toward it. They like the company, its products or its brands, and they therefore prefer to buy from it, rather than from the company's competitors. In purely economic terms, the attitudinal definition of customer loyalty would mean that someone who is willing to pay a premium for Brand A over Brand B, even when the products they represent are virtually equivalent, is "loyal" to Brand A. But the emphasis is on "willingness," rather than on actual behavior, per se. In terms of attitudes, then, increasing a customer's loyalty is virtually equivalent to increasing the customer's preference for the brand. It is closely tied to customer satisfaction, and any company wanting to increase loyalty, in attitudinal terms, will concentrate on improving its product, its image, or other elements of the customer experience, relative to its competitors.

Is Lifetime Value a More Useful Metric than Loyalty?

Is Lifetime Value a More Useful Metric than Loyalty?

from Strategy Speaks: a Peppers and Rogers Blog by Don Peppers

 

 

Let's grant that behavioral loyalty is what pays the bills, but that attitudinal loyalty is also important, especially when it can be used as an indicator of higher behavioral loyalty. I think that's the general, if not unanimous, conclusion of the discussion on this topic.
And when it is positioned as a straight yes-or-no proposition, the concept of customer loyalty, as a behavior, is relatively easy. A magazine subscriber who elects to renew her subscription at the end of the first year is engaging in loyal behavior.

However, the real world is rarely described adequately in strict yes-or-no terms. If the magazine subscriber renews her subscription again in the third year, and perhaps again in the fourth, fifth, and sixth years, doesn't her behavior exhibit a greater and greater degree of "loyalty?" In other words, loyalty is not simply a yes-or-no proposition at all, but is a matter of degree.
And it can get more complicated than that. Consider a new car buyer. The owner of a Brand A car who buys another Brand A when he retires the first one would be said to be loyal, of course, but what about when he chooses to use his dealer's service area, or to get his car financed from Brand A's financial services division? Or what if he owns two cars, but only one of them is Brand A?
The "loyalty" concept is equally difficult to deal with in other categories - most categories, actually. Because most business categories are not simple subscription businesses. If a breakfast cereal consumer buys one box per month of Brand B for her family, and then begins buying two boxes a month, does this mean she is twice as loyal as before? What if she also went from buying one box a month of Brand C to buying three boxes a month? Would that mean she is LESS loyal to Brand B? (Note that we are still describing her behavior, here, even though we might be inferring her attitudes.)
The fact is, a much more useful concept than "loyalty," when thinking about desirable customer behaviors, is probably "lifetime value." The net present value of the expected stream of future profits attributable to a customer is a much more rigorous and useful variable, simply because it is a vector: it has both a direction AND a magnitude. In its ideal state (a state that can never actually be measured precisely, of course), lifetime value would capture all the various behaviors and activities of a customer that have any bearing at all on the enterprise's profit from that customer.

ROC: The Logic of the Return on Customer

Has the Time Come for "Return on Customer" At Last?

from Strategy Speaks: a Peppers and Rogers Blog by Don Peppers

 

There is an interesting and well-informed article discussing Martha Rogers' and my Return on Customer metric in the most recent issue of the UK's Marketing Week magazine. David Reed, who covers the "data strategy" beat for the magazine, writes that while the data side of marketing has benefited greatly from a renewed attention to the financial metrics of success, particularly ROI, this might be a short-term blessing for the discipline. What he means is that ROI metrics typically look at campaign or product profitability figures, but have little to say about the long-term value created (or often destroyed) by marketing efforts. On the other hand, he says, the ROC metric does capture long-term value, because it incorporates changes in customer lifetime value (LTV). [Note, please that Martha and I have trademarked the terms "Return on Customer" and "ROC." We grant permission to people to apply these terms to their own analytics efforts when we deem the terms are used correctly.]
Although Martha and I first wrote about Return on Customer in late 2003, our book by that name didn't appear until 2005. We argued that whenever a customer has an experience with a brand he creates current-period, short-term value, by buying the product or costing money to serve, but he also creates long-term value, because the experience itself makes him more or less likely to do business with the brand in the future. We also suggested the simplest way to measure such future value would be to compare the customer's lifetime value both before and after the experience. If he has a good experience, then his LTV will increase, and vice versa, and the amount by which LTV changes represents the long-term component of the value created by the experience. Although there was no shortage of analysis devoted to forecasting customer LTV, until our book came out the marketing community paid little or no attention to trying to understand or forecast changes in customer LTV. But these changes in LTV, by capturing the long-term impact of short-term events, will do the best job of eliminating the short-term bias of more traditional ROI and pay-back analyses of marketing efforts.

How many reps does the company need to hire?

Customer Strategist Yucel Ersoz: Striking a Balance When Sizing Your Sales Force

from Strategy Speaks: a Peppers and Rogers Blog by Customer Strategist

 

The quintessential question of every organization's sales force strategy is deceptively simple: How many reps does the company need to hire? A sales force sizing strategy can help when determining the optimal sales capacity needed to properly service the marketplace.
Companies, however, are under increasing pressure to reduce the cost of sales, which leads to a tendency to undersize sales forces. Undersized sales forces may appear to deliver targeted profitability results in the short run, but in the long run they cause the company to forego shareholder value because potential growth in territories and client areas are overlooked and competition snatches it instead.
Sales force sizing, therefore, should strike a balance between immediate profitability and long-term growth.

Organizing Sales Teams Around the Customer

Customer Strategist Yücel Ersöz: Organizing Sales Teams Around the Customer

from Strategy Speaks: a Peppers and Rogers Blog by Customer Strategist

 

 

In today's complex selling environment, many organizations have come to realize that relying on new product features is not enough to attract more customers. Many are discovering that they need to organize internally around their customers.
This involves creating new avenues of sustained growth, which hinges on evolving the sales strategy. Sales organizations should adopt a targeted customer segmentation approach that aligns sales with customer segments.
This alignment requires a reorganization that begins with segmenting customers by their transaction histories, buying processes, and needs and preferences. When salespeople understand customers' net present value along with key segmentation, it maximizes conversion ratios and increases activity per customer.
By focusing on segmentation efforts, executives can better assess customers' potential value and ways to realize this value. Different buying processes and decision mechanisms of buyers necessitate different sales services to different customers.
Some customers will require a specialized sales force while others do not. The sales force selling aircrafts to airlines, for instance, will require sales staff with technical knowhow, as well as staff knowledgeable about maintenance and financing. Dealing with a grocery chain, on the other hand, is mostly about hard bargaining.
When organizing a sales force, there are five approaches: