Friday, October 26, 2012

Strategic Planning Analogy #473: Multiple Choice

When I was a child in school, I preferred multiple choice tests over true or false tests.  With multiple choice tests, I found it relatively easy to guess when I did not know the answer.  In nearly all cases, the correct answer would be the option that had the most words in it.  So when I didn’t know the right answer, I’d pick the wordiest option.

True or False answers were harder to guess.   You either wrote a “T” for true or an “F” for false.  One was not wordier than the other.  For awhile, I tried to perfect the writing of an answer that looked half-way between a T or an F.  It sort of looked like it could be either a T or an F.   My hope was that the teacher would be biased towards correct answers when grading and that my half-way letter would be interpreted as the correct answer due to that bias.  But that method was not as reliable as the multiple choice guessing method.

In the business world, it often seems as if executives look at sales as being like a true or false test.  The question goes something like this:  “Did you get the sale? (T or F).”  And from the point of view of the executive answering the question, this seems logical.

The problem with this approach is that it does not provide any insight into the selling process.  It doesn’t help us answer a variety of essay questions, like:

  1. Why did we get (or not get) the sale?
  2. What would cause us to get more sales?
  3. What is causing us to lose sales?
  4. What approach should I use to get the next sale?
  5. How can we make our sales more profitable?

Worse yet, I think the true or false approach wrongly distorts the way we look at the selling process.  Yes, from the company’s perspective, getting the sale is a true or false event.  However, from the point of view of the potential customer, the event is much more like a multiple choice question. 

The consumer has lots of choices for how to spend their time and their money.  To them, the choice is rarely binary—it is not “Do I buy your product? (yes or no).”  Instead, the question to them is “Which of my many options is the best choice for how I spend my time and money?” 

The alternatives to the consumer are many.  It can be between very similar products such as “Brand X” soup versus “Brand Y” soup.  It can be a choice between related products, like eating soup at home versus going out to eat at a restaurant.  It can also be between vastly different products.  An extreme example could be a young woman’s choice between going back to college or having a baby.

Choices between extremely different options happen all the time.  For example, a teenager may want to be popular at school.  To get there, the teen may consider a number of different options, like spending their money on the latest clothing fashions, or buying the latest technology gadget, or buying drugs. 

The multiple choice answers are quite varied.  And unless you frame the question properly to understand the real problem being solved (“What will make me popular with my peers?”), you will not understand what is going on in the mind of that person when they are making that choice.    For example, if you sell teen clothing, your biggest problem may be in convincing that teen that your clothes will make them cooler with the in-crowd than the latest smartphone. 

That is why it is so important for executives to look at sales as a multiple choice exercise for the consumer.   It helps orient executives towards understanding:

1.      What problems the customer is trying to solve;

2.      What is the vast array of options that can solve that problem; and

3.      How can I make my product become the best answer for that multiple choice question.

And, as I found out as a child, the best multiple choice answer usually has the most words. Or in this case, the customer chooses the answer with the most attributes related to solving the problem.  And you won’t know which attributes are relevant unless you understand which multiple choice question is being asked.

The principle here is that if you want to increase sales, and do it profitably, you need to have a strategy which makes you the best option to a multiple choice question asked by a large segment of the population.  There are only two ways to create that superiority—natural advantages or bribes.

Natural Advantages
A rational natural advantage occurs when your product or service inherently has features making it meaningfully superior to the alternatives in solving a customer’s problem.  For example, if a consumer has a need for durability in their bicycle, the manufacturer making the most durable bicycle has a natural advantage over others trying to sell to that segment.  It is the natural preferred choice because the durability is a key part of the nature of that bicycle.

Natural advantages come in two varieties:  rational and emotional.  A rational natural advantage would be like that durability in the bicycle.  Durability is a rational excuse for preference.  It can also be rationally shown that the parts of a particular bicycle are stronger and longer lasting and more reliable.

By contrast, an emotional natural advantage occurs when your product or service provides makes consumers feel better about themselves. Usually, that means that your offering provides a superior feeling of self worth over the alternatives.  For example, a status-seeking woman would choose a Louis Vuitton handbag over others because that brand image provides a superior sense of self worth to her.  It’s really not about the durability of the handbag.  It’s the image and reputation of Louis Vuitton which transfers to the owner of the brand, making her feel better about herself.

Sometimes rational and emotional advantages can become intertwined. For example, if you have a movie star known for playing rugged, durable movie roles endorse the bicycle, some of the emotional connection with the actor will transfer to the bicycle, reinforcing the durability advantage.

WARNING: A natural advantage is not the same as a strength.  For example, you may be strong in “quality,” but that is not an advantage if:

a)      There is insufficient demand for quality as a solution with your market; or

b)      Others have a similar level of strength in quality (your quality is not meaningfully superior in the mind of the customer).

Therefore, the goal is not to become strong, but to become different and meaningful.  In other words, a strength must also make your solution superior to alternatives AND relevant in solving the particular problem faced by the customer.

Any efforts in areas which do not lead to difference or relevance are a waste of time.  Therefore, you strategy should emphasize trade-offs in the direction of difference and relevance.

If you do not have a natural advantage over the alternatives (or cannot create one), then the only way to sell your product is to layer on incentives, like deep reductions in price or gifts with purchase.  I refer to these added incentives as “bribes.”  In other words, if you cannot find a way to be “better” than the alternatives, then you need to bribe people to choose you by being cheaper or more convenient than the alternatives.

Bribery is the more difficult path to sales, because it is costly and easily neutralized by price-matching.  Look at Apple.  It has created strong natural advantages.  It has created rational superiority in ease of use and features.  It has created emotional superiority with the “Cool Factor” and the pride and self worth which comes from owning the Apple brand (big emotional attachment).  As a result, Apple can sell millions upon millions of units at a premium price.

By contrast, the competition has had difficulties creating natural advantages over Apple.  As a result, the competitors have to sell their products at a significantly lower price than Apple.  In essence, the competitors are bribing people to forgo the natural advantage of Apple because the price differential is big enough to shift the value equation.

Of course, that price reduction is a high price to pay to get sales.  It makes the competition far less profitable than Apple.  Less profitability makes it harder to keep up in innovation.  And if the competition ever starts getting closer to narrowing Apple’s advantage, all Apple has to do is lower its price a little to get the advantage back.

Therefore, the best sales strategy usually revolves around natural advantages rather than bribery.

So how do you create the natural advantages which lead to a rise in profitable sales? Two actions must take place.  First, you need to fully understand which problems people are trying to solve and all the factors going into how they choose amongst the wide variety of alternatives.  In other words, if you want to be the superior option for the multiple choice question, you need to know what the question is and how the person thinks about the solution (e.g., are my teenage clothes creating superior acceptance over smartphones with the peer group?).  Only after taking these steps will you know which strengths are worth pursuing.

Second, the only way to typically become superior in these strengths is to focus on them more than anyone else.  Given limited time, money and manpower, gaining superiority in one area means forgoing superiority in other areas.  It is a matter of trade-offs—do less in a non-relevant area in order to do more in a relevant area. 

The first step tells you what is relevant and the second step makes you relevant.

To the customer, purchase decisions are the result of answering a multiple choice question:  Which alternative best solves my problem or makes me feel better about myself?  If you want the customer to answer that question by purchasing your offering, then you need to provide superiority on the factors most relevant to the problem being considered.  That is best accomplished by determining the natural attributes which contribute to relevancy and then making the proper trade-offs needed to achieve superiority on those attributes.  Otherwise, you are stuck with the weaker option of bribery.

Relevant superiority in natural attributes does not happen by chance.  It requires forethought and a focused approach to trade-offs.  That only comes by having a strategy.  So if you want strong, profitable sales, start with a great strategy.


  1. Gerald Nanninga,
    This is a great post and if full with rational and emotional reasoning.
    I have always advocated the a prime differentiator in the Blue Ocean Strategy is emotional pride, self-esteem, self-actualization and the like. If I put this post on a blue ocean canvas the value of emotional differentiation becomes clear. I wonder what you think!

    1. Humans are emotional creatures. In B2C and B2B transactions, emotions play a large part in decision-making. When you look for emotional solutions, rather than product solutions, you can come up with far more creative strategies. And I agree with you that this extra creativity can lead to blue ocean breakthroughs. Differentiation at an emotional level can be a powerful way to distinguish your self and create a demand for your product in a way that eliminates direct competition--a way to create your own blue ocean.