Strategic Planning Analogy #456: Who Do They Love?

THE STORY
When I was in college, I was a DJ on the college radio station.  Every day the radio station used to get a pile full of new albums from the record labels.  I was shocked by the huge amount of music being issued.  And pretty much all of these albums were selling at least in some quantity to the public.

I understood why most of the top selling albums sold.  It was pretty good music.  What baffled me were the less popular albums.  Who was buying them?

At first, I thought there just must be a lot of people out there with unusual tastes, who loved a different kind of music than the mainstream.  And to a small degree, this was true.

But when I did my investigation in the sales of these lesser albums, I found out that most were not sold to people who loved these bands more than normal people.  No, most of the people buying their records agreed with the majority that they were lesser albums.

The difference was that these people really, really loved music and loved buying music.  They happened to buy more music than normal people.  As a result, these people first bought all the popular music and still wanted to buy more, so they also bought the lesser albums (because that is what’s left to buy after you already have the popular ones).

So, for the most part, people weren’t buying music from these lesser bands because they loved these bands, but because they loved having as much music as possible.

I don’t think that information would have encouraged those lesser bands.  It implied that even though they sold a bit of music, they really didn’t have many avid fans.  They were just getting money from people who would spend it rather indiscriminately on almost ANY band.  So they didn’t get the money out of love, but out of convenience.   

THE ANALOGY
In the business world, a successful business needs a stream of income.  That’s why we get so happy when sales go up.

But let’s not fall into the trap of thinking that every purchase of our goods and services is an indication of their undying love for us.  As we saw in the story, lesser bands weren’t receiving a lot of love with their sales.  Their customers still loved the popular bands more.  The lesser bands were just getting some of the leftover money from heavy spenders after they had already purchased music from the bands they loved more.

In fact, people often make purchases from companies they hate.  For example, when AT&T was the only service connected to the iPhone, people who loved the iPhone purchased their mobile services from AT&T, even though many of them hated the AT&T coverage and service levels.

So, when considering the sales component of your strategic plan, don’t automatically assume a direct correlation between sales and love.  Otherwise, you may create the wrong strategy.

THE PRINCIPLE
The principle here is that just because your business has an income does not mean that people love you.  And depending upon the type of love relationship you have with your customers, you may need a different strategy.

Let’s face it.  We can’t all be the best or the most popular.  We can’t all even be above average.  And if your offering is not the best, then “best at” strategies won’t work.  For example, if you are not the lowest cost operator, it doesn’t make sense to pursue a lowest price strategy.  It won’t work for you.  Strategies designed to exploit strengths don’t work very well if you do not have a strength to exploit.

So what should you do if you find yourself in such a situation?  Listed below are four tactics to consider doing and two tactics to not do.

“To Do” Option #1: Connect to Another Love

If people don’t love you, then find ways to get yourself associated with something people really love.  As we saw earlier, in order to get sales AT&T connected itself with the iPhone, something people really loved.  AT&T hid themselves in the package.  If you wanted the much-loved iPhone, you had to take the “unloved” AT&T. 

The more and the tighter you can bundle yourself into packages with other items people love, the better you are.  Kmart is not one of the most loved retail brands, so it tries to tie itself to brands that are more loved.  It has done so over the years by creating exclusive selling arrangements with names more loved than its own, like Sesame Street, Martha Stewart, Jaclyn Smith, Selena Gomez, and Sofia Vergara.

“To Do” Option #2: Become Most Convenient

Sometimes being “good enough” is good enough.  That occurs when you exceed the minimum threshold of acceptance and are more convenient than superior offerings.  In other words, it you create barriers making it more difficult to get the superior product, people may say the extra effort isn’t worth it and then settle for your slightly inferior offering. 

For example, you can pursue a distribution strategy which makes it easier for customers to stumble upon your product than the competition.  You can try to tie up shelf space in the most popular stores to block ease of access to competitors.   You can buy up all the key words on search engines to make it more convenient for people to click to your site.

If you are not loved enough to get people to come closer to you, then go out to become closer to them.  For example, those unloved bands can sell more music and more tickets if they get closer than other bands to where the music lovers are.  They can hang out at the music festivals where you can find the people who have more desire for and are more in the mood to spend on music.  Seeking out these people will work better than waiting for them to seek you. You imposed more convenience through your efforts to get closer.

In both option #1 and #2, the idea is to make it harder for a customer to substitute a competitor’s product for your own.  Product bundling, exclusivities, and other such tactics can often serve both purposes—get you closer to where customers want to be and make it harder for competitors to do the same.  

“To Do” Option #3:  Find a Niche

Sometimes, if you narrow your focus, you can find a way to become the best alternative to a niche audience.  You won’t be the best option for everyone, but if the niche is large enough, you will be the best with enough people to make a good profit.  You can then use a “best at” strategy within that targeted niche.

To do so, you may need to change your business model a bit.  You may need to move away from more conventional approaches and make bigger trade-offs.  This could even make you less desirable to the masses.  But if it makes you more loved by a niche, then it can be worth it. 

Many retailers found they could succeed against Wal-Mart by going after the niches Wal-Mart left behind in areas such as superior quality, superior service, a higher level of fashion taste, etc.  Becoming best for a niche ignored by Wal-Mart was a better strategy than being an inferior Wal-Mart imitator. 

“To Do” Option #4: Exit the Business

One of the first questions I like to ask in a strategy session is this:  Why should anyone naturally prefer your offering over the competition?  If you cannot think of a meaningful reason for people to naturally prefer you, I have a second question:  Why, then, should you stay in business?   If you are unloved now, and the first three options aren’t viable, the best option may be to exit the business.

“Not To Do” Option #1: Get Overconfident

If you think that your sales are there mainly because people love you, then you may try to exploit that love by raising prices, cutting features, etc.  But if that love is not really there, then attempts to exploit it could backfire.  For example, if one of those lesser bands charges too much for their music, the money will go to a different lesser band.

Most of the time, customers have alternatives.  Even if you think you have a monopoly, there can still be alternatives.  For example, even if you own 100% of the rail business, people can use other forms of transportation, or maybe telecommute via Skype.  And if you haven’t been using the options mentioned above to curtail alternatives, these alternatives may be even more abundant with easier switching than you think.

Therefore, think it over carefully before trying to exploit the love you think you have. 

“Not To Do” Option #2: Assume Unwavering Loyalty

The marketplace continues to evolve; circumstances change over time.  If you are not well loved, those changes could work against you to cause massive customer defections from your offering.

For example, you may be the most convenient option now, but that does not mean it will always stay that way.  Blockbuster video rental stores used to be the most convenient way to get video.  But then Redbox put video vending machines in far more convenient locations and Netflix let you download video from the convenience of your sofa.  Suddenly, Blockbuster went from most convenient to less convenient.  And since Blockbuster did not have much of any superiority anywhere else, people switched away from Blockbuster in droves.

Similarly, AT&T lost sales opportunities when the iPhone became available on other systems.  Kmart lost business when Martha Stewart took her brand away from Kmart and put it in Macy’s. 

Since preferences are more fickle with unloved brands, one needs to be more vigilant in holding on to whatever small advantage one can maintain.  If convenience is your advantage, keep on top of any developments that can become even more convenient.  If tie-ups with others is your advantage, make sure that you are always tied up with the best deal of the moment.

Never get comfortable in thinking the loyalty is locked in forever.

SUMMARY

If your offering is not the best in the industry, then don’t try to win with a “best at” strategy.  Instead, look for ways to bundle with others more popular, become more convenient or create a niche.  

FINAL THOUGHTS
It’s human nature to think well of our own offerings.  We may love the products and services we sell.  But our opinion is not the one that matters.  In many cases, the consumers may hold a much lower opinion of them than we do.  So pay attention to their opinion and don’t get caught up in your own sense of loyalty.

Strategic Planning Analogy #442: Taking Vs. Receiving

THE STORY
During the 1920s and 1930s, Willie Sutton was one of the most prolific bank robbers in US history. During his lifetime, Willie Sutton robbed over 100 banks and made off with more than $2 million (which would be equivalent to about $30 to $60 million in today’s dollar).

Legend has it that when a reporter asked him why he robbed banks, Sutton replied, “Because that’s where the money is.”

THE ANALOGY
The reporter’s question could be interpreted two ways—Why do you steal or Why do you steal from banks. The reporter meant the first, but Willie Sutton answered the second.

In a sense, the reporter was trying to figure out why Sutton chose a life profession (stealing) which most people found undesirable. Since Sutton had no problems with the profession of stealing, he focused on the most efficient way to do so (go to where the most money is).

This is similar to a strategic question businesses should ask themselves: Why did you choose this path to profitability?

And just as the way Willie Sutton answered his question said a lot about his character, the way you answer this second question may say a lot about the character of your business and its culture.

If your answer focuses primarily on the “path” part of the question, then your culture most likely tends to be focused on building business models that add value to the marketplace. And because you add value to the marketplace, you can extract a profit (a portion of the value added).

However, if your answer focuses primarily on the “profitability” part of the question (saying “because that’s where the money is”), then the character of greed may be starting to overtake your thinking. Rather than thinking about adding value, one is more focused on grabbing as much as possible from where the piles of cash already are. Rather than looking at where to add, you look at where to subtract (what piles to take money away from). It’s starting to slip towards the Willie Sutton mindset.

This is not to say that making a lot of money or profits is bad. But if the money is made in a way that does not add value to the marketplace, then the model is unsustainable over the long run. Just as banks don’t like to be robbed, customers don’t like to be taken advantage of. Willie Sutton spent about half of his adult life in prison and did not get to fully enjoy the fruit of his stealings. Similarly, businesses which do not focus on adding value are punished—taken out of the marketplace so that they can profit no longer.

THE PRINCIPLE
The principle here has to do with the difference between a taking versus a receiving mindset. A “taking” mindset is focused on grabbing money by whatever means possible. A “receiving” mindset is focused on doing something so valuable that customers willingly shower them with money (no need to grab). In the long run, a receiving mindset leads to more enduring strategies.

This principle was brought to mind by the March 14, 2012 editorial in the New York Times by Greg Smith. Smith, an executive in the London office at Goldman Sachs, used the editorial as his resignation letter. In the article, he said he was leaving Goldman Sachs because, to use my terminology, the Goldman Sachs culture had become like Willie Sutton—all about taking rather than receiving. Rather than focusing on adding value to its clients, Smith claimed that Sachs was focused on doing whatever it takes to grab the clients’ money, even if it is not in the best interest of the client.

To quote from the editorial:

“I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them...”

“What are three quick ways to become a leader [at Goldman Sachs]? a) Execute on the firm’s ‘axes,’ which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) ‘Hunt Elephants.’ In English: get your clients—some of whom are sophisticated, and some of whom aren’t—to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym…

“These days, the most common question I get from junior analysts about derivatives is, ‘How much money did we make off the client?’ It bothers me every time I hear it, because it is a clear reflection of what they are observing from their leaders about the way they should behave.”

Smith also claimed that many leaders at Goldman Sachs referred to their clients as “muppets” in their emails. And I’m pretty sure that was not a term of endearment.

So what happens when this culture takes over? Smith got it right when he said “If clients don’t trust you they will eventually stop doing business with you. It doesn’t matter how smart you are.”

A “taking” mindset may work for awhile, but eventually the people being taken figure it out. And they will stop letting you take from them any longer.

So what should you do to keep a Goldman Sachs type of situation from occurring at your business?

1) Be Careful how You Lead
Employees watch how the leaders operate. If the leaders show a “taking” mindset and refer to customers as muppets in emails, then the followers will see this as desirable behavior. The old phrase “do as I say and not as I do” doesn’t cut it. With today’s technology, leaders have nowhere to hide. They will be imitated. So set the right example.

2) Manage the Agenda
How much of your meeting time is spent on the taking agenda versus the receiving agenda? How much time is spent talking about adding value for customers versus taking their money? You have the power to control the agenda. Make sure the receiving agenda gets the proper amount of focus, especially at the point when actual decisions are being made. Make sure it is part of the decision-making equation.

When I was at Supervalu, a wholesaler to independent grocers, we had a saying that our job was to "make the independent grocer as wealthy as possible." This was a true value-added receiver approach, since it assumed we would only be a profitable wholesaler if we first made sure we had profitable retail customers. The problem was that I didn't always hear that phrase at the time when decisions were being made. There was room to improve in getting the phrase onto the agenda.

3) Measure the Pulse of the Organization
Don’t assume that everything is alright. You may have a situation like Goldman Sachs had in London, where the perception of right behavior had gotten out of control. Monitor the mood and culture in your organization on a regular basis. Learn about a drift in the wrong direction early, while there is still the opportunity to rectify the situation.

4) Treat Strategic Planning Seriously
Strategic planning helps focus a company on the bigger, longer term issues. And in the long term, a receiving mindset is almost always the best path. Use strategic planning as an excuse to find ways to add more value to your customers. Use it to build a business where customers want to shower you with money because it is worth it to them in what they get in return. Strategic planning is one of the rare times when you can get people out of their daily rhythm and get them properly focused on the larger goal. Don’t waste that opportunity.

SUMMARY
There are two different mindsets one can bring to the goal of profitability. The “taking” mindset looks for ways to grab money out of people’s hands. The “receiving” mindset realizes that if you focus on building a superior business model for adding value to clients, they will voluntarily give you their money to obtain of that value. In the long run, the receiving approach is preferred, so make a point of proactively enforcing that mindset within the organization.

FINAL THOUGHTS
In the movie “It’s a Wonderful Life,” the George Bailey character runs his savings and loan business with a value-added mindset. His customers are all better off because of doing business with him. In fact, as the movie points out, if George Bailey hadn’t been alive to run that business with a receiver mindset, a lot of those people would have been in a terrible situation. As a result, when George Bailey gets into financial trouble, all his customers come and shower him with money (now that’s being a true receiver). Of course, it doesn’t always work out so dramatically in real life, but I think the title holds true. With a receiver mindset, it is a more wonderful life.

Strategic Planning Analogy #430: For the Birds

THE STORY
For Christmas this year, my wife got another bird feeder for our backyard. The old bird feeder was vertical in design. It brought finches and woodpeckers to the backyard. The new bird feeder is horizontal in design. It is bringing cardinals and blue jays to the backyard.

Now that we have both in the backyard, we are getting both types of birds to visit us. That makes for a pretty view from our window overlooking the backyard.

That is, until our cat goes into the backyard and sits next to the bird feeders. Then the birds go away.

THE ANALOGY
We can think of those bird feeders as being like go-to-market business models. And we can think about the birds as being like customers. The interesting point is that different birds desire different types of bird feeders. Similarly, different customer segments are lured by different business models.

Finches and woodpeckers only eat from the vertical feeder. Cardinals and blue jays only eat from the horizontal feeder. If you don’t have the right kind of feeder, that type of bird won’t show up. In the same way, if you don’t have the right kind of business model, a particular customer segment won’t show up.

And if I tried to appeal to all birds with a single bird feeder, tilted at a 45 degree angle (the average of vertical and horizontal), I would most likely end up with no birds at all. In the same way, an “average” business model which tries to appeal to everyone will most likely fail, because consumers will “flock” to your competitors who do a better job of customizing to individual segments.

THE PRINCIPLE
The principle here has to do with context. In particular, we are talking about the context of customers. It is impossible to know what the right business model to offer is unless you also know what the customer context is.

For example, if I live in an area without any horizontal feeding birds, my strategy will fail if I build a horizontal bird feeder. And if my goal is to reach finches, I’d better build a vertical feeder. In the same way, my strategic decisions about business models cannot be made in isolation. I must simultaneously consider customer issues during business model formulation. Otherwise, I will build a model inappropriate for the customer environment.

Learning #1: Don’t let Technology Be the Driver
With modern technology, we can do just about anything. But just because we can create just about anything does not mean we should. Not everything has a natural consumer draw. If your motivation is merely technology-driven, you will most likely fail.

Consider Sony. They were driven to exploit technology to develop robotic dogs and robotic servants for the home. These projects were costly failures, because they did not serve a specific segment better than the alternatives. Real pets provide greater satisfaction and can cost less.

Years ago, I was working with companies who were trying to create a “digital kitchen,” an attempt to bring the latest computer technology to kitchens. These companies came up with all sorts of inventions, from a refrigerator with a computer in the door to a kitchen-only computer (with a dishwasher safe keyboard!). All these products failed, because they were focused on doing something cool with technology rather than meeting real consumer needs.

Compare this to Dyson. They were driven by a consumer desire—to have a vacuum that does not lose suction. As it turns out, they used a lot of sophisticated technology to solve that problem. But the technology was secondary. The main goal was the consumer context—providing a higher suction cleaning machine, something consumers really wanted.

Apple makes cool technology, but that is not what makes Apple successful. Apple’s success is from customer context—building devices and systems which intuitively work with the customer in an easy manner. Without that intuitive ease of use, Apple would not have had such success.

Technology may allow me do build an exotic bird feeder, but if the birds don’t want it, it is a waste of time. Similarly, exotic products not anchored in providing a clear consumer advantage will fail. Are your R&D efforts focused on exploring the limits of technology or in solving real consumer issues?

Learning #2: Niches are Niches
The bird feeder story shows the value of targeting niches. For example, if I target only birds who want a vertical feeder, I can build the ideal vertical feeder and attract a lot of this niche segment.

The risk is that once you have the success with that niche, there will be a temptation to grow beyond that niche. The thinking usually goes something like this: “If we just add a couple of features to this product, we can broaden its appeal.” Therefore, additional features are added.

Subtly over time, these added features start compromising the superiority of the original product with the original niche. Either they add costs for features unnecessary to the original niche (causing the product to become too expensive for the original benefit), or the new features actually hurt the functioning for the original niche purpose. It’s as if that vertical feeder over time becomes a worthless 45 degree feeder.

This is the dilemma for the Honda Civic. Originally, the Civic was designed for a particular niche—people who wanted a cheap, simple, but reliable car. It was a great success with that niche. Then Honda tried to broaden its appeal by gradually making the Civic larger and offering more features.

Over the years, these changes meant that the Civic was no longer the best choice for those looking for a cheap, simple, but reliable car. There were better options from cars that kept to the original principles. At the same time, the larger, more feature filled Civic was not as good as other large, feature-rich cars. The Civic became the equivalent of the 45 degree bird feeder. And now the Civic is not as successful as before. By losing the context of the original niche, it made something not particularly suited for any niche.

If you want to broaden your appeal, do like my wife did in the backyard—put out two different bird feeders, one vertical, one horizontal. This is the idea of having a portfolio of niches. This is the Proctor and Gamble approach. They do not try to win everyone over with only one type of laundry detergent. They have a portfolio of cleaning products, each specifically designed to optimize a particular niche. All the birds flock to P&G because they have a specific lure for each niche.

Learning #3. Even the Masses are a Niche
Yes, many companies succeed by appealing to a “mass” audience, like Wal-Mart. But even the so-called mass market is not for everyone. Even the most popular bird feeder is not liked by all birds.

In many ways, the mass acts like a large niche. For example, Wal-Mart, for all its size, rarely gets more than a 35% share of any category it carries. There are still lots of people who refuse to shop a Wal-Mart and try to keep them from building a store in their neighborhood.

So just because you have a large, “mass” share, it does not give you the right to try to appeal to everyone. Whenever Wal-Mart has tried to go beyond its base to add higher-priced, more fashionable apparel, it has failed. This went beyond the scope of the “mass” space given to Wal-Mart. It was too much of a niche addition which was out of context inside a Wal-Mart store.

Similarly, when Wal-Mart added groceries to its general merchandise to broaden its appeal, the added size of the store turned off some of the original core. Hard discount dollar stores like Dollar General have been gaining market share from Wal-Mart because they are not burdened by the big size of a supercenter. These dollar stores can provide a level of convenience no longer available from Wal-Mart. Wal-Mart lost that feature in the attempt to broaden the mass.

So there are even limits in the mass realm.

SUMMARY
When designing a go-to-market strategy, one needs to simultaneously consider how it impacts one’s consumer base. For example, a strategy driven by cool technology does not always translate into consumer acceptance. Technology needs to be subservient to the desires of a particular segment if it is to be accepted. In addition, once a niche is appealed to, be cautious about trying to expand the niche. By trying to appeal to new people, you may alienate some of your core. It is usually better to build a portfolio of highly targeted niche brands than to try to appeal to them all with a single offering.

FINAL THOUGHTS
There is a difference between trying to increase market share and trying to increase market satisfaction. If your attempt to increase share decreases satisfaction with the core, you may end up with neither.

Strategic Planning Analogy #371: Strategy by Spying

THE STORY
Back in December, I visited the Museum of Communism in Prague. It was a very interesting museum. One display talked about all of the spying that was done back around the 1950s. The Communist governments in those days did not trust the loyalty of their people, so they continually spied on their citizens in order to assess their loyalty.

The museum showed examples of some of the spying devices used back in the 1950-60s. There was a special camera mounted onto a rifle frame for taking long-range photos. There were also all kinds of tape recorders. However, the most common form of spying was by just getting people to talk to officials about their neighbors.

This was a very expensive and labor intensive program, and the results were usually not very meaningful. Therefore, the spying on citizens by the Communist governments was eventually scaled way back.

Today, it’s a lot easier to know what’s on people’s minds. All you have to do is go to their Facebook page, listen to their Tweets on Twitter, or visit their blog. People today seem willing to volunteer all sorts of intimate details about their lives and their passions—for free. Burglars know exactly when it is safe to break into people’s homes because it is so easy to track where people are.

With data so easy to obtain, it kind of takes away the fun of being a spy.

THE ANALOGY
The communist governments did not get a very good return on all the investments they made into spying on their citizens. Yet today, many businesses are following a similar tactic. They are, in essence, using internet tools to “spy” on their customers. It may be wise to ask if the returns on those investments are worth it.

In fact, customers are so willing to share a dialogue with businesses that it can hardly even be called spying anymore. This has led to a business strategy approach I call “Do Whatever The Customer Says.” The reasoning behind the approach is as follows:

1) Companies succeed by serving the needs and wants of the customers.

2) Customers know what they want.

3) Technology makes it easy to find out what they want. It’s hardly even spying anymore.

4) So use the technology to find out what the customers want and then give it to them. In other words, the strategy becomes “do whatever the customers tell you.”

Unfortunately, these premises are wrong. As a result, the conclusion is wrong. And just as the communists eventually figured out that managing a county by spying on their countrymen was not very effective, companies will eventually figure out that managing a business by spying on their customers is not very effective, either. Just because it is easier does not make it better.

THE PRINCIPLE
The principle here is that although much benefit can be gained by staying close to the consumer and listening to them, this is not an effective way to create company strategy. There are two basic flaws to the “Do Whatever the Customer Says” approach to strategy.

First, companies do not succeed merely by serving the needs and wants of the customers. Instead, they succeed by having a viable business model. As we will see in a minute, these are not the same thing. Second, customers do not always know what they want, particularly when it comes to new and transformational ideas for which they have no prior exposure.

Therefore, if serving the customer is not necessarily the core of success, and the customer is not always knowledgeable about the best way to serve them anyway, then why put them in charge of determining your strategy?

Let’s dive into this a little bit more, to explain this in more detail.

1) Your Goals and Your Customer’s Goals are not Necessarily the Same
Customers’ goals tend to center around things like solving their problems, increasing their enjoyment, or enriching their sense of self-worth (status issues). By contrast, a company’s goals tend to center around things like making a profit, providing its investors with an adequate return on investment, or providing a great income (or status) for its management, etc. As it turns out, you can focus on meeting those customer goals (and succeed wildly), yet still not achieve the company goals.

For example, look at companies like Facebook and Twitter. Both are wildly successful at meeting an aspect of consumer goals. Large sectors of society love them and use them all the time. However, neither company is providing an adequate return on investment. And unless these companies change their business models, I highly doubt they will ever achieve an adequate return on investment.

At the current time, the Facebook and Twitter business models are broken. They will not lead to the types of returns necessary to pay back their investors at an adequate rate relative to the size of their investments (particularly the latest investments in Facebook brokered by Goldman Sachs). And, for the most part, the users do not care about the fact that Facebook and Twitter have broken business models. In fact, they like many of the reasons why it is broken, because the lack of adequate monetization makes the businesses “free” and more consumer-friendly.

Many of the ideas which have been thought of to “fix” the business models of companies like Facebook and Twitter require monetization schemes which the customer does not want. And the consumers have made it clear that if the business model is tweaked too much against them, they will bolt, en masse, to an alternative which does not impose those negative constrains on them. With all the cash-rich investors out their looking for the next “Facebook” or “Twitter”, a start-up with the old broken business model will be well funded and replace them, leaving Facebook and Twitter in the dust if they monetize improperly.

The point here is that just pleasing the customer is not good enough. Pleasing the customer does not necessarily lead to a long-term successful business. Businesses need a viable business model in order to succeed. And since customers really don’t care all that much about your business model, they are the wrong people to ask to develop that business model for you. Their advice will lead to a business model which maximizes their concerns, not yours. And that will lead to financial ruin.

Yes, a successful business model depends upon having customers willing to patronize it, so you cannot ignore their needs and wants. However, if your business model is solely based on doing whatever the customer says, it most likely will not succeed over the long haul. This is because their goals are not the same as your goals.

In other words, you cannot abdicate business model development to the consumer. You must control it internally. You need to make the tough decisions—the difficult tradeoffs—which balance the needs of the customers against the needs of the company. You cannot always give the customer everything they want, because they will want it all and they will want to pay less for it than it costs you to deliver it. These are tough issues to deal with, and require sophisticated strategic planning (and serious thinking time) to resolve. The answers will not come from a quick question broadcast to your customers.

2) Customers are Poor Sources for Transformational Ideas
The second problem with abdicating strategy to your customers is that fact that they are not the best source for creating something new within the unknowns of the future. Customers, for the most part, are focused on near-term concerns. The problems of today are more than enough to occupy their mind.

If you ask a customer what you should change to be better, most of the answers will be incremental improvements to what already exists. In other words, they can tell you how to tweak the status quo. However, they rarely have the insight to create the next great paradigm shift. Consumers have almost never begged for what became the next big revolutionary thing before it occurred. Consumers didn’t beg in advance for the Apple iPod business model or the iPhone Apps Store. Consumers didn’t beg in advance for the Google search algorithm. Consumers didn’t beg in advance for Facebook. They only reacted after it was presented to them.

Why? Customers are great at telling you what bothers them about things they have experienced. However, they are not that good about discovering things for which they have no prior experience. They have not yet experienced the future, so they are not good at articulating the best way to approach the unknown.

Consumers are too busy trying to live today’s life and cope with the current crisis. Their lives are preoccupied just trying to stay afloat while swimming in the current red seas. They are too busy to imagine for you some yet-to-be discovered blue ocean. If you find it, they may follow, but they will not find it for you.

Their job is not to preoccupy their time pondering revolutionary new ways for you to make money off of them in the future. They do not have the time nor the inclination to do so. That’s YOUR job. YOU need to devote the time and energy into envisioning a better future. You can use the customer as a sounding board to evaluate your visions, but don’t use them as the primary source of your vision.

Envisioning a radical new future takes the time and effort that will only occur if you proactively devote meaningful amounts of internal resources to that effort. It will not come by merely asking a question to your customers.

SUMMARY
While it may be true that it is impossible for a company to succeed if it does not please customers, it is equally true that it is impossible to succeed if all you do is what the customer tells you. First, the company’s needs are not identical to the customers’ needs, so if all you focus on is the customers’ needs, you may not fulfill the company’s needs. Second, customers may be good at providing incremental improvements to the status quo, but they are not well equipped at inventing a radically new paradigm for you. Therefore, Strategic Planning should not be abdicated to the customer. This is your responsibility and you need to be proactive at it, devoting sufficient time and effort to the cause.

FINAL THOUGHTS
The Museum of Communism showed that even with all the power behind the communist system, it could not endure, because it was a flawed model. Similarly, all your power will not save you if you have a flawed business model. Eventually, you will fail like Communism. This task is too important to be left entirely to the consumer.

Strategic Planning Analogy #257: Dated Thinking

THE STORY
The dating process has always seemed a bit odd to me. In many cases, people are dating in order to find the person that they want to spend the rest of their life with, someone compatible with their lifestyle. Yet, when these people are on a date, they are acting differently than their normal lifestyle.

For example, they may be a slob, but they dress up and clean up their place for a date, something they would not otherwise do. They may drink the cheap beer when alone, but consume the good stuff on a date. They may love to spend their evenings watching TV, but endure the theater and museums on a date.

How are you supposed to find someone compatible with your lifestyle, if you never live your normal lifestyle in their presence? It makes me wonder how many businesses would go bankrupt if people stopped acting differently on dates. And it does not surprise me that many are disappointed after getting married, because their new spouse stops the unusual activity from the dating and go back to their “normal” ways.

I am reminded of a story I heard from my high school guidance counselor. He said there was a woman who didn’t want the man she was dating to know she was wearing braces, so before her dates she would yank out her braces. After the date, she would push them back in. Ouch!!

THE ANALOGY
Dating is an occasion where people can act differently from “normal.” As it turns out, it is not the only one. It could be time of the day—like drinking coffee in the morning, but never in the evening, for example. It could be time of the month—depending on how close it is to when you last got paid. Behavior can change between when you are with your friends at home versus with your boss at work.

As it turns out, there typically really isn’t a “normal” way of life for a particular individual. The behavior changes based on the occasion. Each occasion creates its own type of normalcy. It is as if we take on a different role depending on the particular occasion. I may have my “Dating” role, my “Being at Work” role, my “Being a Parent” role, my “Being with Friends Role,” and so on.

There is actually more consistency in behavior based on a particular occasion/role than there is in the total life of an individual. For example, behavior on a date may be different than behavior when not on a date, but the behavior when dating is relatively consistent whenever the dating occasion comes up.

Therefore, when creating a strategy, it is better to target the relatively consistent needs for a particular occasion than to target inconsistently-acting individuals.

THE PRINCIPLE
The idea here is that strategies focused on occasion-based solutions tend to be more effective than strategies which target individuals. Individuals slip in and out of roles depending on the occasion. Their needs and desires change based on the occasion. If you try to target one individual all the time, your appeal will have varying degrees of success, depending on which role the individual is playing at a particular time.

As a result, even though there is much talk these days about being customer-centric, real success comes from being solution-centric.

Restaurant Example
For example, let’s look at how an individual, let’s call him “Bob,” uses restaurants. When Bob is on a date, he may be looking for a restaurant that is romantic, that would impress his date. When Bob wants a meal to eat while working late at the office, he may be looking for convenience, low price, and delivery services.

If Bob is having an important business dinner, he may want someplace which is quiet, where they don’t mind if you linger, and shows off his financial strength (i.e., expensive and snooty). When eating out with his children, he may want a restaurant that is moderately priced and kid-friendly. If Bob wants a meal when alone at home, he might skip the restaurant altogether and just nuke something in the microwave.

As a restaurant owner, what would be the best restaurant approach if the strategy is to target Bob? The restaurant would need to be romantic, quiet, kid-friendly, snooty, expensive, cheap, moderate, quick, lingering, and sells things to take home and microwave. Good luck on that one.

There is no single ideal restaurant strategy to target at Bob, because Bob’s needs and desires change based on the occasion. He wants a different type of restaurant for each occasion. If you try to create one restaurant appropriate for all of those occasions, it will not be able to be the best at any particular occasion. The irony is that a single restaurant specifically designed to meet all the restaurant needs of Bob would most likely be a restaurant Bob would hate to visit, because it would never be the best option for any of his occasions/roles.

A better restaurant alternative would be to stop targeting particular people and instead start targeting a particular occasion, like being the ideal restaurant for dating. That way, when Bob is going on a date, your restaurant will be the best choice for that occasion. It doesn’t matter that Bob would never choose you for his other roles, because you are no longer targeting Bob. You are targeting anyone who is looking for the ideal dating restaurant at a particular moment. If there are enough people drifting into the role of looking for a dating restaurant solution, then you don’t have to worry about missing the other occasions.

By choosing a particular occasion, you can focus on being the best at delivering the attributes most important to that occasion. You can downplay attributes less important so that you can afford to do a better job on the ones which are important to the occasion. For example, a dating restaurant could afford to do a more effective job of being romantic, because it does not have to worry about also trying to be kid-friendly. Your brand is strengthened, because it stands for something—the best choice for a particular occasion.

Other Businesses
This principle does not just apply to consumer activities, like eating out. This also can work in pretty much any business, including industrial businesses. For example, a steel supplier could focus any one of a number of occasions:

a) When you need a problem solved in a hurry/emergencies;
b) When you need highly customized and unique solutions;
c) When you need basic commodities;
d) When you are having cash flow challenges;
e) When your project is in a particular area, like the Middle East.

By focusing on one of these occasions, the steel supplier may not get all of the total business from Bob’s Construction Company, but they have a better shot at getting all the business from Bob’s Construction Company when it falls into that particular occasion.

Portfolio of Brands
If you want to satisfy more than one occasion, it is usually better to do so under multiple brands, with each brand owning a different occasion segment. That way, each brand can specialize and own that occasion in the mind of the customer. The individual brands stay pure and don’t get diluted by trying to stand for too many things.

For example, the Lettuce Entertain You Group operates 38 separate restaurant brands. Each brand has its own name and specializes in something different. There are brands for formal occasions, casual occasions, convenience occasions, and so on. Each brand is well known in its location for its occasion segment. And none of the customers really know about or care about the parent company name.

By contrast, the Chevrolet brand is slapped on cars meeting all sorts of different needs, from economy (Aveo) to sports car prestige (Corvette). For many of the cars in the Chevrolet lineup, I’m not sure I even know what need they are trying to solve (Cobalt?). Blandness and lack of brand focus is not a path to success.

SUMMARY
Successful strategies are usually based on being the best at solving some sort of problem for the customer. Consequently, even though there is a lot of talk these days about being customer-centric, real success comes from being solution-centric (or occasion centric). By focusing on a solution/occasion, one can become the best at the attributes most important to that occasion. The same cannot be said of a consumer focus, since consumers tend to drift in and out of problems, depending on the situation of the moment. There is no single strategy that is right for a consumer under all the different situations they encounter, and to try to meet them all under one brand can be a disaster.

FINAL THOUGHTS
Eventually, people like Bob may settle down, get married, and no longer be a part of the dating scene. Life-stage changing events like these can drastically change what someone like Bob is looking for. Therefore, trying to follow Bob through his life changes can be difficult, because it would require you to make drastic changes over time (for which you may not be capable of being the best at) and which might confuse the brand. It is probably better to stick to being known as the best dating restaurant, abandon Bob, and get the next generation of daters. For more on this, see prior blog.

Strategic Planning Analogy #243: Buy My Goods

THE STORY
Imagine, if you will, that you are walking down a city street and encounter a street vendor selling his wares. The Vendor says, “Buy my goods.”

You respond, “Why should I buy it?” The Vendor replies, “So that I can make my sales quota.”

Confused, you ask the Vendor, “But what does your product do?” The Vendor replies, “It provides income to myself and my family when I sell it to people like you.”

A bit baffled by his answers, you ask yet another question, “Is it better than the competition?” The Vendor replies, “It is for me, because I don’t make any income off the competition.”

At this point, you are getting rather angry and perturbed by the vendor’s selfish responses, so you ask one final question, “What’s in it for me?” The Vendor replies, “The satisfaction in knowing that you helped me earn a living.”

At this point, you walk away without making a purchase.

THE ANALOGY
I doubt that a vendor like the one in the story sells many goods. There is nothing in his sales pitch oriented towards customer benefits. All he sees are his own personal benefits. Rather than sounding like a salesman, he sounds like a beggar asking for money.

Any business person would know better than to act like this, right? Not so fast. Although perhaps not as blunt as this salesman, it seems that many businesses these days are so pre-occupied with their internal issues that attention to the customer’s point of view is not getting the attention it deserves.

THE PRICIPLE
The principle here has to do with orientation. A lot of businesses claim to be consumer oriented, but if you look at their actions, it seems like the consumer was forgotten. The current bleak economic situation seems to be making the problem worse, as fear of bankruptcy crowds out thoughts of consumer orientation.

Look at the auto industry. All they seem to be talking about are internal issues—problems with the unions, problems with the dealer networks, problems with credit lenders, problems with regulations, and so on. To the consumer, this is just a lot of “blah, blah, blah.” The message consumers hear seems to be, “Buy from me so that I don’t go bankrupt.” …Sounds a lot like that street vendor.

The customers don’t want to hear about your problems. They just want a good car at a good price that meets their needs. If you cannot do that, then you must be a bad manager, and why should the consumers support that?

The focus on the compensation at financial institutions is sending a similarly poor message. They also sound like our street vendor, with all the talk about how much income and bonuses they make off our transactions, rather than what the customer gets. In fact, it was the ridiculous way in which compensation was given to mortgage firms that caused the housing crisis in the first place. The orientation was on how to get my personal reward for signing up another bad mortgage (internal orientation), rather than providing good financing for the consumer (external).

Circuit City decided that sales help was an excessive cost (an internal focus), so they eliminated their best sales people. Without that consumer-oriented selling force, sales plummeted and now Circuit City is bankrupt, never able to recover.

An internal orientation may look good for a short time. The mortgage firms had a few great years. Circuit City got rid of a lot of costs. However, the long-term ramifications were devastating.

Never take the customer for granted. Try to win over their business every day. And if you screw the customer now, they WILL screw with you later.

Consumer orientation is essential for long-term health. When putting together a consumer-oriented strategy, three factors should be kept in mind.

1) What Problem Am I Solving?
Consumers purchase things in order to solve problems. And the problem they are trying to solve is not how to get you a big fat bonus. Speak in the language (the context) of the customer, and show them how a purchase will solve a pressing problem they are trying to deal with. In these tight economic times, discretionary spending is shrinking dramatically. If you want to sell in this environment, show how your purchase addresses an essential need.

2) Why is my Solution Superior?
Being able to solve a problem is good. Being the best way to solve the problem (at least for some segment of the population) is even better. If you want to win, your strategy must create a point of superiority. I am shocked at how many times I’ve asked a top executive the question “why would a consumer prefer your brand over the competition” and gotten a blank stare in response. This is a question for which every executive should have a rapid and plausible answer.

If you cannot articulate a reason why consumers should prefer you over the competition (other than the silly answer from our street vendor), then don’t expect the consumer to be able to figure it out. Nobody has a monopoly. There are always alternatives. Put into your strategy a believable and defendable reason why you are the best alternative.

3) Why Should we Continue to do Business Together?
Questions 1 & 2 tend to be more rational. However, there is also an emotional element to choice. Are you creating an emotional bond that makes the customer want to keep coming back?

There are lots of ways to sell someone a product or service that will turn them off from ever wanting to deal with you again. Avoid these and build a strategy around emotional bonding.

SUMMARY
At the end of the day, businesses succeed by selling something to someone at a profit. As a result, the consumer is a critical target to orient your strategy around. If all you do is perfect internal procedures or maximize internal rewards, you may cruise along fine for awhile, but eventually the customer will figure out that they are not the focus and they will go somewhere else.

FINAL THOUGHTS
Have you ever noticed how quickly after it starts raining that the streets are filled with vendors selling umbrellas? Now that’s consumer orientation in action, reacting quickly to changing consumer needs.

Analogy #210: Inside the Superhighway

THE STORY
There’s a beltway which surrounds the Washington, DC area. Inside the beltway, pretty much everything centers on the bizarre world of national politics. Outside the beltway is the rest of the country. The mindset outside the beltway is very different from inside the beltway.

There is an old saying about politics in the US. If a politician spends too much time inside the beltway, he or she will totally lose touch with the reality of what is happening outside the beltway. They are blinded by the artificial atmosphere of Washington and mistakenly believe it to be “normal.”

Ironically, this means that the longer a politician serves his/her constituents, the less qualified they are to do so, because they become increasingly unable to relate to them.

THE ANALOGY
Washington DC is not the only place where a person can lose touch with the real world. The CEO’s office can be very similar. I remember talking to a CEO in his office one time, trying to explain to him the reality of what it was really happening in the company. He turned to me and said, “You know, I’m so isolated here. It’s hard for me to know what is the truth and what are lies.”

Other places in business can also feel like “inside the beltway.” Unfortunately, that can include the people who are working on your corporate strategy. Strategists often spend a lot of time trying to look into the future. As a result, they tend to hang out with people on the fringe—supposedly the leading edge of what is to come.

Although fringe people may give a glimpse into a possible version of the future, it is important to remember that they do not represent anything anywhere near normal. If you spend too much time with them, you will start to think this is the new normal. This will make you as irrelevant to today’s marketplace as lifelong politicians who never get outside the beltway.

THE PRINCIPLE
The principle here is that the internet superhighway can create as much of a delusion barrier as the Washington, DC beltway. For people who spend too much time on the internet superhighway—sampling the leading edge of technology—there can grow a false notion that “everyone else” is also out on the edge of technology. This is simply not true.

I’ve recently read about a number of surveys and commentaries regarding technology. Here are a sampling of the findings:

1) A huge percentage of the population wishes their cell phones had a lot fewer features. They just want to make phone calls.

2) In spite of all the hype, very few people actually do much multi-tasking—using multiple media at the same time.

3) Most people never use all of the whiz-bang added features of their technology/software. All it does is add unnecessary complexity/confusion, slow down processing time, and increase costs.

4) There are still millions of people who do not own an iPod.

The point is that if you believe all the technology hype, you will have a distorted view of reality. The world is not as far down that technology superhighway as the leading edge experts would have us believe. Business models and strategies built upon this distortion will certainly disappoint.

Yes, strategists need to have one eye on the future to see what is “possible.” However, they also need one eye on today to see what is “practical.”

Don’t assume that just because something is technologically possible that it is a viable business model. There are lots of people playing with technology that may never become monetized. Just because something is cool does not mean that people will pay anything for it.

Here are a couple of simple rules to live by to help from falling into this trap.

1) Rather than focusing on the technology and all the cool features, focus on the benefits. People want their lives to be easier and more fulfilling. If something does that, there will be demand, no matter how much or how little technology is in it.

The microwave oven is hugely popular because it is incredibly easy to use and provides the great benefit of shortening meal preparation—something a great many time-starved people want. It has nothing to do with the technology itself.

2) Spend some time with the masses. Experience “normal” lifestyles. Don’t assume your lifestyle is normal. Just spending a little time with your own family won’t cut it. I would assume that most of the people reading this blog are wealthier, more highly educated, better read, and more sophisticated than the average person. To experience “normal” you may need to get outside your comfort zone and hang out with people you would not normally interact with.

SUMMARY
It is easy for business people to become isolated from the “real” world. This isolation can cause one to make decisions which are out of touch with reality. One of those areas has to do with technology.

Don’t let the “coolness” of the latest technology blind you into thinking that everyone is immediately ready to spend tons of money on it. As the technology busts of the past have shown, not all cool technology leads to a promising business model.

FINAL THOUGHTS
One time I was visiting the offices of a leading dotcom commerce site. There was one part of the offices where the employees seemed to have all of the latest technological toys. They had the most expensive computers, with gigantic plasma screens. Their internet connections were the fastest available.

I asked what the jobs were of the people who had all that cool stuff. I was told that these were the people who tested the web site. Their job was to see that the web site worked as desired.

I started thinking about that. Now, the average customer using the site is going to have a cheaper, slower computer. They are going to have a much smaller screen. And most will have a slower internet connection. In other words, the average consumer experience will be completely different from what the site testers were using. The abnormal experience in the headquarters will provide virtually no insight into how the site is working for the typical customer.

By contrast, I know someone who used to create radio ads. He would play back the ads on a tiny, tinny-sounding speaker. Why? Because at the time, most of the radio speakers used by the typical customer were tiny and tinny. He wanted to hear the ads on the same type of speakers as the audience was using.

Stay relevant to the customer.

Strategic Planning Analogy #139: Learn Your Love

THE STORY
Once, there was a young man who loved a beautiful young woman. Since he loved the woman so much, he wanted her to have great riches. Therefore, he devised a plan to give her great riches.

He left the United States to go work in a rapidly developing Asian country. The young man figured that he could become richer faster in one of these countries. He was right.

While living in Asia, the young man did well. On a regular basis, he would send money back to the United States to the woman he loved. He would also send her expensive pieces of Asian art.

After many years, he finally had become sufficiently wealthy that he could now fulfill his dream of supplying the woman he loved with great riches. Therefore, he came back to the United States to be with her.

When he returned, the young man expected the woman he loved to be happy to see him. Instead, she was very angry. He asked why she was so upset. She said,

“I never wanted great riches. I never wanted expensive Asian art. I don’t even like Asian art. All I ever wanted was to spend time with you.

“But instead of giving me what I wanted, you ran off half way around the world where I couldn’t spend time with you. You were so busy trying to become rich that you would not come back to visit me or even answer my calls.”

The young man replied, “But I did it for you. I love you so much that I want you to have all the riches you could desire.”

To this, the young girl said, “If you had really loved me, you would have done a better job of learning what was truly important to me. Spending time is what was most important to me. I found someone else who understood this. We recently got married. I saved all your money and your art. You can have it back.”

THE ANALOGY
Many companies talk about how important the consumer is to them. They use terms like being “consumer centric” or “customer first.” They may even talk about a goal of “delighting the customer.”

This professed “love” of the consumer is similar to the love that the young man had for the young woman. Just as this young man devised a plan to please the woman he loved, many businesses devise strategic plans with the aim of pleasing their customers.

Unfortunately, the young man discovered that having great love and having a great plan were not enough. Because he did not take the time to truly understand the woman of his affections, his plan was a failure. Rather than making her happy, he made her so unhappy that she left him for another man.

This also happens all the time in the business world. Companies may profess their love of the customer, but spend so little time trying to understand them that their well-laid plans fail. Instead of giving the customer what he or she really desires, they give the consumer what they think the customer wants. Often times they guess wrong. As a result, the customer leaves them and marries-up their loyalties to another company.

THE PRINCIPLE
The principle here is that customer love without customer intimacy leads to failure. Good intentions and well thought out plans are not good enough. One needs the intimate knowledge of the customer to truly satisfy them.

Although this has always been true, it is even more critical in today’s marketplace. Thanks to web 2.0 technology, consumers have more control of how business works. If you are out of touch, they can use their power to quickly punish you and abandon you.

Facebook’s recent failure with their Beacon technology is a great example. Facebook thought its customers enjoyed sharing all of their information. So, in order to help monetize this fact, they used Beacon to post where Facebook members were shopping (along with some shopping-related ads). They did this without asking permission.

Consumers hated this new intrusion into their lives and made a big stink about it all over the web. Facebook quickly relented and pulled Beacon.

Now you would think that a big consumer products company like Kraft would have figured this out a long time ago. But they have stumbled as well. About a year and ahalf ago, Irene Rosenfeld came back to Kraft to become their CEO (after spending a couple of years at Frito-Lay). What she found when she came back was a company focused almost exclusively on lower costs. Quality suffered. Innovation suffered. And profitability suffered.

As it turns out, customers were willing to spend more, if the product was right. Lower, put still premium prices on mediocre quality weren’t worth much. At that point, one may as well pay a little less and get the store brand rather than Kraft (which is what people did). Being out of touch with the customer was hurting the corporation.

With Maxwell House coffee, Kraft was so focused on beating Folgers that they failed to realize that the customers had abandoned both for Starbucks. Starbucks was more in tune with what the customer was looking for. Kroger pretty much missed the boat on healthy and organic as well.

Finally, Kraft is waking up to what the customer wants in coffee, but it may be too late. Like in the story, customers are only willing to wait so long before they abandon you for another love.

It is very easy for a strategic planning process to get focused on non-consumer issues such as raising margins, lowering costs, improving efficiency, improving supply chain relations, beating up the competition and so on. Although these are important issues, they can blind us to the impact our strategy has on the consumer (the one we profess to love).

In the strategic planning process, we need to continually keep asking ourselves two questions:

1) Do I truly, intimately understand what the customer I love wants from me? and

2) Do I truly understand how my strategic action will impact my ability to please the customer I love?

In business, what we do tends to fall into two categories: things the customer can see (like products, services, and prices) and things the customer is unaware of or doesn’t care about (like how you run your finance department or where you buy your office supplies). You may have a little flexibility on how you approach things in the second category, but never make a strategic decision in the first category without keeping the customer in the forefront of your minds.

Sometimes things which used to fall in the second category move up to the first. For example, most customers used to not know or care where their toys were manufactured. However, after all of the recalls of dangerous toys made in China, country of origin has become an important consumer issue. Therefore, consumer knowledge needs to be continually updated.

SUMMARY
Saying you love your customer is not enough. Well-meaning plans that misunderstand the customer are not enough. Strategic plans need to incorporate knowledge gained through customer intimacy in order to succeed.

FINAL THOUGHTS
Today’s customer is less likely to put up with phoniness and hypocrisy than any prior generation. They are smarter and have more access to knowledge and power. Giving mere lip service to “customer centricity” is more perilous than ever before. There is no place to hide. It’s either authenticity or rejection. Don’t just say you love the customer. Show them you love them by some tangible action which resonates to their core.