Monday, May 28, 2012

Strategic Planning Analogy #453: What Are You Really Selling?

A few days ago, I wanted to get an idea of what I might save if I changed my insurance.  I went to a web site to get a FREE estimate.  All it asked was a small handful of questions.  Then I hit the “submit” button.

Almost immediately after hitting that button, my phone started ringing.  It was someone offering to talk to me about insurance.  At first, I thought that was an odd coincidence, since the insurance company which called was representing a different company than the one on the internet.  While I was talking to this new company on the phone, I got three messages on my phone saying that three other insurance companies were also trying to contact me. 

For the next four days, my phone rang virtually non-stop from dozens upon dozens upon dozens of insurance companies eager to talk to me about my insurance.  It was a nightmare that wouldn’t stop.

I soon realized that I did not receive a FREE service from that internet site.  I paid dearly with time and aggravation.  

I also began to realize that I had never really been a “customer” for that web site.  No, I was the “product.”  They were trying to sell me like a slave to all of these bidding insurance companies. 

Just before hitting that “submit” button, I did not see anything in the fine print saying I agreed to sell my soul to that company (for no charge) nor that I agreed they could re-sell me like a slave in a bidding auction.

And then, after all that aggravation, I decided that my current insurance was a better deal and did not switch to any of those companies.

In the story, I was initially confused about what was the product and who was the customer.  At first, I thought that I was the customer and the insurance was the product.  As it turned out, I was the product and competing insurance companies bidding for me were the customer.   

A similar confusion can happen when designing strategic business plans.  A successful business plan sells a product (or service) to a customer.  And hopefully, the cost to the business of obtaining or manufacturing/producing that product is less than the price the customer is willing to pay for it, so that you can make a profit.

As we will see in this blog, there are a lot of choices one can make regarding products and customers.  And the most obvious choices might not be the most profitable choices.  Therefore, careful consideration needs to be given to these choices.  It should be an important part in the development of one’s strategy.

In addition, if you are not clear in your business plan as to what is the product and who is the customer, you may create confusion within your organization.  People could focus on producing the wrong thing for the wrong person.  The confusion could create inefficiencies and reduce the profitability of the business model.

The principle here is that depending upon how you define the customer and the product, you’ll come up with a different strategy.  And if you want an innovative new strategy, consider less-conventional definitions of products and customers.

1) Selling Slaves
Usually, we think of the people we are appealing to (or advertising to) as the customer.  However, as we saw in the story, you can also look upon these people as the product you are selling.

There’s a popular saying that goes something like this: “If the customer is not paying, then they are not really the customer—they are merely the product being sold to the one who is really paying.”

There could be many options for the real customers who are bidding for your “human slave” product.

a) Insurance Companies – In the story, we saw insurance companies as the real customer.  But here’s another example.  Ever see those commercials on TV where lawyers offer to represent you for free if you suffered from something where a lawyer can successfully sue for damages?  You are not the customer.  You are product, being “sold” to the insurance company on the hook to pay damages. 

b) Government – Governments hand out all sorts of money for things like health care, aid to the poor, help for the disadvantaged, etc.  There are plenty of opportunities to represent people in order to tap into government funds.  The people are the product you are selling to the government.  For example, consider all of those TV advertisements for medical devices and supplies.  The commercial says that this stuff is FREE to you, provided you are on government medical assistance.  Another example is commercial universities which aggressively manufacture students in order to tap government student loan assistance.
c) Advertisers – Advertisers are buying exposure to their ads.  That exposure is to people, so what they are really buying are people.  Therefore, the media are not really selling their media as much as they are selling the people they attract to the media.  So much of the internet business models are based on giving their content away for free in order to attract other sources of income, like advertising.  When you use these internet sites, you are the product being sold, like when Google sells you in order to get paid ads on their search page.  When internet companies talk about monetizing their sites, what they are really saying is that they are looking for more ways to sell you to more people.

d) Investors - For a lot of start-up companies, the original proposal is not the same as what eventually ends up being the business model.  The service can change and the target market can change.  Knowing this, start-ups understand that the real customer is the investor in the start-up.  The people lured to the start-up are merely the product.  The real selling pitch is to the investment community, because they are the only one paying the bills in the start-up phase.  If the investor wants something else, you change the model to please them, because they are the customer.

Using your imagination, I’m sure you can think of a lot of additional customer types which differ from the users (like parents for children’s products, large employers for daycare centers, future acquirers for small start-ups, etc.).

2) Manufacturing the Right Kind of Slaves
If people are merely slaves to be sold in your business model, then you need to think about them differently.  You are in the business of manufacturing people.  Therefore, you need to think of them in the same way other manufacturers think about their product.

When developing a manufacturing a process, a manufacturer must consider several things, including the QUALITY of the product (% of defects), the APPROPRIATENESS of the product (is it what the customer really desires), the FUNCTIONALITY of the product (does it deliver on the desired features), and the PRICE of the product (can you manufacture it cheaply enough).

So, if you’re selling people, you need to consider these same things about your people-manufacturing model.  It’s not just about gathering lots of people.  They need to be the right people (with the right quality, appropriateness, functionality and price).  And what is “right” depends on the people who are paying the bills (your real customer). 

That’s why it’s so important to clearly define the real customer.  Otherwise you won’t know what they want so you won’t manufacture the right kind of people.

Think about Disney.  One of the most important products Disney creates are people who pay to surround themselves (or someone they love) with manifestations of an icon.  In other words, their best product is someone who would buy everything associated with one of their icons, like Buzz Lightyear.  These are the people who buy all the Buzz Lightyear videos, toys, games, dolls, amusement park rides, posters, pajamas, sheets, underwear, and whatever else the image of Buzz Lightyear is on.  Disney sells this person to all of its divisions as well as to any business who wants to license the icon.

Therefore, the manufacturing of an icon lover goes something like this.  First you create an icon.  Then you create a way to get people to fall in love with the icon (like a movie).  Next, you create all the tie-ins to all the ways for this icon lover person/product to be valuable to others.  Then you sell this person to them, principally through licensing fees.

Therefore, Disney’s goal is not just to have a movie which draws a lot of people.  It has to be the right kind of people—icon lovers.  That’s why the movies are designed to create lovable icons more than to create great entertainment.  Those creating the movie have to understand that in order efficiently manufacture the right kind of movie-goers.

Internet sites need to see themselves in a similar fashion.  The goal is not just to attract a lot of eyeballs.  They need to be eyeballs specifically manufactured to appeal to someone who wants to buy those kinds of eyeballs.    And you cannot do this if you don’t specifically plan the whole thing as seamless manufacturing process.   

And if you want to justify your marketing effort to manufacture that person, use the same type of criteria used to justify efficient manufacturing.  Is it the right type of product and is it produced at a lower cost than you can sell it to others for?

The real customer is the one who gives you the money.  And in many business models, these customers give you the money in order to access the people you have accumulated.  To optimize this model, one needs to clearly identify the real customer and then find the most efficient way to manufacture the type of people these customers specifically want. 

This is a two-step strategy.  First you manufacture something to lure the right type of people.  Then you package these people so that they are the most desirable to the people who will pay for them.  In the end, that insurance web site didn’t care if I was made happy (which I wasn’t).  What they wanted was to make those other insurance sellers happy, because they were the customer.  I was merely the second stage of their manufacturing process.

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