Wednesday, May 18, 2011
Strategic Planning Analogy #393: Laziness is Not Necessarily a Bad Thing
There are a lot of old fables and adages about the benefits of being active/industrious versus the pitfalls of being lazy. Aesop talks about this many times in his fables. And in the Bible, wise King Solomon said, “Lazy hands make a man poor, but diligent hands bring wealth.” (Proverbs 10:4)
However, consider this. We tend to praise the industriousness of the worker bee. It is held up as something to be admired. Yet, the average worker bee lives only about one to four months. Similarly, the Mayfly is a very busy insect. Yet it only lives one day as an adult. It is a very busy no-nonsense day, full of a lot of flying around and mating, but it lasts only one day—then it dies.
By contrast, the three toed tree sloth is considered to be a rather slow and lazy animal. Yet it lives for about 30 to 40 years. The giant tortoise is also known for being rather slow and lazy. Yet it has lived up to 177 years in captivity.
In fact, the general rule in the animal kingdom is that the faster you live, the shorter you live. You can see this with the rate of metabolism in mammals. Generally, the faster the metabolism, the shorter the life. That is why squirrel-like rodents live about two to three times longer than mouse-like rodents. The squirrel-like rodents have a slower metabolism.
So maybe laziness isn’t such a bad thing after all.
Many strategies are built around trying to go after the heavy user segment. Heavy users tend to be what I call “active” customers. They love (or are highly interested in) the category. It is important to them. They love to talk about it and think about it. They may consider themselves experts in the category. And most importantly, they tend to buy a lot of the products in the category, moreso than anyone else. Isn’t it a good thing to have customers who enjoy buying large amounts of what you have to sell?
Not necessarily. There are many reasons why capturing customers who are active in the marketplace buying a lot of product may be a terrible thing for a business’ profitability. Because they are really active in the marketplace and are highly interested in the product, active customers pay more attention to what is going on.
As a result, these active, involved customers may be giving us a lot of business because they have figured out how to beat our system. They know how to only buy our loss leaders. They only buy when on deep discount (and then buy a lot). In other words, they may provide us with a lot of sales volume, but volume without any margin.
Second, high active customers can also often be very demanding customers. They tend to be more involved in the negotiations. They may ask for additional services, special orders, return privileges, free delivery, volume discounts, customization, etc. All of the added costs to meet these demands can wipe out any profitability.
Third, because they are so demanding of discounts and added services, they may be quick to leave us when a competitor provides even more discounts and services. Their active involvement makes them more aware of competing offers and more prone to switch. Because of the large volumes they purchase, small differential benefits add up quickly. Therefore, they actively seek out better alternatives. This starts a downward spiral where we keep making our offer increasingly less profitable in an attempt to keep this customer “loyal.”
This is starting to sound like the animal kingdom. Just as active animals tend to live shorter lives, highly active, heavy user customers may have shorter loyalty. Their lives as a customer dedicated to us may be very short indeed if they find another who offers them more.
Compare that to the lazy customer. They may not consume as much as the active shopper. They may be a lot less interested in what we are selling. Yet, at the same time, they tend to be far less demanding and far less likely to seek out alternatives. Their life as a customer of ours may last a lot longer (and be a lot more profitable).
Therefore, instead of trying to create loyalty among the active heavy users, we may want to consider a strategy aimed at the lazy customer. The top line sales might be lower, but the bottom line return could be very high. And the lifetime value can be very large, because they stick around longer (a longer life).
The principle here is not to confuse activity with profitability. Lots of sales from heavy users may just be increasing our losses faster. In fact, lazy customers may be preferable to active, high volume customers. Customers who are slow to move are slow to move away. And because they demand less, they are usually more profitable to serve.
I was reminded of this when reading an article published on the Harvard Business School Working Knowledge web site. The article, published May 16, 2011, looked at loyalty among bank customers. What they learned was that:
1) Banks focusing on offering high levels of service to high-end customers were most vulnerable to losing their clients to competition.
2) Banks rated lower on service were pretty much immune when new challengers entered the marketplace (especially new challengers entering on the high service side).
The Harvard researchers appeared a bit shocked by the results. They said, “Customers you might expect to be the most 'stuck' are the ones who are disproportionately vulnerable to service competition.”
I was not shocked at all. High-end banking customers tend to be “active” customers. Banking is an important part of their life and they are highly interested in it. They like getting involved in the banking process. Because they tend to be highly demanding, they are drawn to those banks specializing in high levels of service catered to them.
Of course, because they are active, high end banking customers will also be most aware of what is going on in the competitive space. And because this is important to them and they want the best, they will be among the first to see the benefits of switching when they find something better.
By contrast, low service banks tend to cater to more of the “lazy” customer. Banking is not their passion—just a necessary evil. They want to think about it as little as possible. They don’t want to be coddled—they want just get their banking business done and over with, with the least amount of hassle.
As a result, they are not actively looking for a better banking experience. Switching is a lot of work and a hassle to them—it makes them have to think more about their banking. As a result, they tend to stay put and not leave the comforts of the old routine.
This point also seems to be behind recent moves at the Kroger supermarket company. Kroger is quietly phasing out their practice of double-couponing—where Kroger would discount the retail price by double the value of the manufacturer’s coupon (at Kroger’s expense). Double-couponing appeals most to the active grocery shopper. These are the people who enjoy the challenge of trying to “Beat the System” and win at the game of getting the absolute lowest prices on their food. Of course, when these active shoppers “win,” the retailer typically loses, since there is little to no profit margin in the transaction.
All the blogs dedicated to active grocery shoppers are angry at Kroger for doing this. But Kroger’s job is not to help active customers beat the system. It is to make money.
Kroger’s new emphasis is on emphasizing having the shortest check-out lines. They are claiming leadership in helping you get your shopping trip done faster than anywhere else. This is an appeal to the lazy shopper. The lazy shopper doesn’t see grocery shopping as a game where you try to beat the system. No, to them it is an awful chore—to be minimized as much as possible. Nothing would make them happier than to get out faster—so they will love the shorter checkouts.
And since lazy shoppers are less into cutting the coupons and reading the ads and all that other active-shopping stuff, their purchases tend to have higher profit margins. And they are less likely to switch.
There are lots of business opportunities in the lazy shopper space. Just find people who view a category as a necessary evil and help them avoid having to deal with it. For example, there are people who hate shopping and are willing to pay lots of money to have someone else be their personal shopper. There are people who hate having anything to do with paying taxes and will gladly turn it all over (at a healthy profit) to someone else. There are people who hate having anything to do with maintaining their house (either inside or outside). It just isn’t important to them. They will outsource it to others without blinking an eye.
In all of these cases, the lazy customers are far less demanding than those highly interested in the topic, which usually makes the lazy customer more profitable to serve. And they are less likely to leave, because leaving is too much work.
This also works in the industrial space. A manufacturer may be highly interested in the procurement of a few key components in the process, but much less interested in some of the minor components. This could cause the manufacturer to get actively involved on procuring the key components (aggressively trying to extract they lowest possible price), but gladly outsource procurement of the minor components to someone who will take all of the hassle off their hands. Hence, a manufacturing supplier might make more money serving the minor needs than the major needs.
Heavy users are not necessarily your best customers. Heavy users tend to be active customers in that segment. Their activity tends to make them more demanding and more likely to leave. This can make them less profitable, in spite of their large volume. By contrast, the lazy customer may buy less, but be more profitable to serve and less likely to leave. So when developing your strategy, consider the appeal to the lazy customer.
Rather than admiring the busy worker bee, maybe we should be admiring the lazy tree sloth.