Friday, December 4, 2009

Strategic Planning Analogy #296: Stop Satisfying Customers

It is a commonly accepted principle that if you want to spend less at the supermarket, eat before you go shopping. The idea is that you tend to buy more groceries when you are hungry. Therefore, if you eat first, you won’t be hungry when in the supermarket looking at all that food.

My wife believes in this principle and eats before grocery shopping. She claims it cuts back on purchases.

Me? I have a different approach. I used to work in the grocery business, so when I am in a supermarket, it reminds me of going to work (and the things other employees do to the food when working in a supermarket). For some reason, that takes away my appetite.

If you are hungry, you desire food. That desire (hunger) seeks to be satisfied. That’s why hungry people tend to buy more at the supermarket.

This concept applies to more than just food. No matter what you sell, the general idea is usually to satisfy some sort of demand (appetite). The concept is to find a need and fulfill it better than anyone else. People will purchase from you in order to satisfy that need.

Seeking to satisfy customers—sounds like a rather basic truth, right? Well, there’s only one problem with this approach. Once a customer is satisfied, their desire is fulfilled. The demand goes away.

You may be better off if you eat before grocery shopping, but the grocer is not. The grocer would rather that you came to the store hungry. As a business person, you want hungry customers as well—hungry for what you have to offer.

Unfortunately, once you truly and completely satisfy that hunger, the game is over. If the customer is completely satisfied, then they no longer have that need, so they no longer need to patronize your business.

Think of it like a kidney transplant. If I have a defective kidney, then I desire a new one. When the hospital does an excellent job with the kidney transplant, that need for a new kidney is completely satisfied. I’m not going to say, “Boy, that hospital did such an excellent job, I’m going to come back every month to get a new kidney.” No, I’m all done with that desire. It is fully satisfied. No more new kidneys for me.

The people doing kidney transplants would go bankrupt waiting for repeat kidney transplant business from their patients. The surgeons have to keep seeking out new patients, because they do too good of a job satisfying the former patients. As in the case of the grocer, the more satisfied the customer, the less additional business they will get from that customer.

The principle here has to do with the concept of satisfaction. Many businesses give a high priority to completely maximizing customer satisfaction. Bonuses at these places may even be based on the level of customer satisfaction. The idea is that the more satisfied a customer is, the better.

Unfortunately, as we have seen, if a customer is completely satisfied, then they have no additional demand (since the demand is completely met). In many cases, a fully satisfied customer no longer even needs to be a customer (or at the very least needs you less). So, perhaps complete satisfaction is the wrong goal.

Yes, we want to make customers happy, but we also want to keep them hungry enough so that they keep wanting/needing to coming back. A part of them still needs to be unsatisfied, wanting more.

Therefore, instead of focusing on “Customer Satisfaction,” I suggest a focus on “Customer Engagement.” A lot of literature has been written about how employees are more productive if they are fully engaged with their work. I think the same is true of customers. A customer fully engaged with what you are offering is a more productive customer. They will keep coming back.

Consider Ty Warner and his Beanie Babies. He never advertised them. He refused to sell them to any of the major toy retailers. Ty limited the number of Beanie Babies that any retailer could order (no more than 36 of any style per month), no matter how many they wanted. Then Ty would retire styles while they were still popular.

That certainly doesn’t sound like someone who wants to maximize consumer satisfaction. He made them hard to find, in insufficient quantities, and stopped producing them when they were still in demand. Yet this very “un-satisfaction” approach maximized consumer engagement.

People clamored to the stores to seek out the new Beanie Baby styles before they ran out. There was a mad rush when the new styles came out, and often this lead to fistfights since there were never enough to go around. Customers were tickled to death to be one of the lucky ones to get a particular style. A collectors market came about, with lots of books and web sites to help people trade Beanie Babies with others. Ty had successfully turned “customers” into avid “hobbyists.”

According to Ty, “As long as kids keep fighting over the products and retailers are angry at us because they cannot get enough, I think those are good signs.” Ty Warner understood that his success was not based on satisfying retailers or customers. It was based on engaging them.

A similar principle is used by Jean-Claude Biver, who has had a long, successful career in the Swiss watch industry, currently running Hublot. Biver would always ration his luxury watches. Even during the boom times, he would never ship as many watches as the retailers wanted. Demand always outstripped supply. As a result, the watches always maintained their luxury pricing—no need to discount to reduce inventory. This increased the luxury and exclusivity image of the brand. And in the luxury business, exclusivity and price integrity are extremely important.

According to Biver, “You only desire what you cannot get. People want exclusivity, so you must always keep the customer hungry and frustrated.” Hungry and frustrated? That doesn’t sound like someone striving for consumer satisfaction. No, but it has lead to great success. As in the grocery example, hunger makes people buy more. Hungry people are more engaged with what they are hungry for.

There are many ways to shun satisfaction and increase engagement.

1. Limit supply (never enough to satisfy)
2. Have a continual stream of new products or product improvements (make the old obsolete—not enough to satisfy anymore)
3. Cloak your product in secrecy (secret formula/recipe—like Coke and KFC, lots of mystery leads to increased curiosity)
4. Tie product (or discounts) to exclusive membership (you have to be part of a special group to participate)
5. Every time you ship/sell a product, include a promotion for yet another product (never allow a transaction to appear as the final one).
6. Sell things in installments (you don’t get it all at once)

It’s sort of like the striptease. Anticipation is heightened and made more enjoyable by not giving the audience everything they want right away. They are more engaged in the process.

So when planning your strategic approach, are your goals and tactics centered around creating satisfaction or around creating engagement? How are you planning your production supply versus anticipated demand? Are you trying to leave the customers a little hungry? Are you teasing them?

Striving for total customer satisfaction can be a sub-optimal strategy. When customers are fully satisfied, they no longer need to buy what you are selling (demand is sated). Instead, your strategy should strive towards customer engagement. Keep the customer a little hungry and they’ll come back for more.

Walt Disney once said that the first rule of show-business was simple: "Always leave them wanting more." That’s probably a good rule for your business, too.

1 comment:

  1. Gerald,
    This is a spot-on and timely article. It triggers lots of thinking of possible applications. Just of we think of employees as (internal customers)we see right away the connecting dots. The performance of employees might suffer if they are fully satisfied; engaged employees are not.
    I have touched upon these issues from a different angle in two recent presentations. Here is the link for the second one, which has reference to the first one.