Strategy Planning Analogy #558: Counting People

TWO STORIES

1. High School Survey

The US government used to do an annual survey of high school students. The objective of the survey was to track things like the levels of drug use and sexual activity in that age group. Because the writers of the survey were afraid that high school students would lie about their own personal activities, the government asked the students to estimate what percentage of students in their high school they felt were doing each of these types of things.

At first, the government would average all of the responses for each question to get an estimate of how prevalent various activities were. But then, someone dug deeper into the results. What they found was that although the average percentage number was somewhere in the middle, very few of the individual students ever answered with a number in the middle. Instead, there were two clusters of answers on each question—one cluster of students which gave a very high percentage answer and one cluster of students which gave a very low percentage answer. This caused the government to take a second look at the results.

As it turns out, the researchers found out that most students do not hang out with a large percentage of their fellow students. As a result, the students had no idea of the drug and sexual activity of the greater student body. Instead, they only had the reference point of their small band of close friends. 

And these close bands of friends tended to behave similarly to the others in the same band. So, if a student participated in these activities, most of their friends did also, so they concluded that most of the people in the school must also do these things. Similarly, if a student did not participate in these activities, most of their friends also did not, so the student would assume that most of the students in the entire school also did not.

Based on these insights, the government shifted its emphasis from tracking the change in the averages from year to year to tracking the relative sizes of the high and low clusters from year to year.

2. Amazon Music Reviews
Before buying music, I like to read the reviews in Amazon. Over time, I realized that the vast majority of all the music on Amazon has an average ranking of 4.5 out of 5. With nearly everything rated equally, it became impossible to use these average ratings to decide which music to purchase.

But then, I started thinking. The problem with Amazon music ratings is that they are voluntary. This is not a random sampling. People only turn in a rating when the mood hits them. And typically, the mood only hits them if something they hear is especially good or especially bad. And it in the vast majority of cases, the review came from people who thought the music was especially good.

Once I figured that out, I stopped looking at the average rankings of the review and instead started looking at the number of reviews in total for a particular piece of music. My logic was that if only the ones who loved the music send in a review, then the more reviews sent in, the more people loved that music.

This has turned out to be a far more effective way to use the Amazon review process.

THE ANALOGY
Companies like to base their strategies on facts. Sometimes, they try to get their facts directly from the consumer. This tends to happen most often at three phases of strategic planning:

1.     At the beginning, when trying to understand the market place.

2.     In the middle, when testing concepts

3.     At the end, when assessing whether the strategy is working.

The good news is that in today’s interconnected world, there are lots of ways to get consumer input.

The problem is that these sources can often have flaws like the ones mentioned in the stories. Complainers and the people who rate companies online are not a random sample. They are biased towards people who like to rate or towards people with extreme views (like the Amazon music ratings). If you just look at the average ratings and comments, you will most likely come to the wrong conclusion. It may be better to count the reviews, rather than average them.

And even well designed surveys can with random sampling can have flaws. After spending decades in consumer research, I discovered that people will try to honestly answer all of your questions well, but they often just don’t know the answer, so they guess—and often very wrongly (like the high school survey). I have found this to be particularly true when asking people to predict their future behavior in areas where they have little experience (like how they would react to a new strategic scenario).

Therefore, we need to be careful in how we interpret this data.

THE PRINCIPLE
The principle here is that one cannot run a strategic planning process based solely on research, especially if you only look at averages. Part of this is due to some of the research flaws mentioned earlier. Another part is due to the nature of strategic planning itself.

Strategic planning is looking for ways to build a new and better future. It can be about finding new white spaces which have never been exploited. It can be about inventing solutions which never before existed. It can be about building business models that break all the old rules. It can be about finding uncharted “Blue Oceans” of opportunity. In other words, strategy is a lot about trying to get ahead of the curve and be an early adopter of the next big thing.

Of course, if you are trying to lead the way into the future, you may be several steps ahead of the general population. Questioning the general population may not be very useful at such an early stage. 

However, if you wait to move until the consumers can speak as experts, it is too late to be at the front end of the strategic revolution. That’s one reason why Steve Jobs didn’t believe in consumer research. He knew that consumers can’t speak meaningfully about a future not yet envisioned.

But that doesn’t mean that research is useless. As seen in the stories above, there are creative ways to look at data to get insights. But may mean you cannot take the initial results at face value. For example, we saw that instead of averaging out what people say, it may be better to just count how many say something. Therefore, be careful when looking at your results. Don’t necessarily take it at face value. Search deeper for the true implications—especially as the questioning looks into the future or is not randomly sampled.

Other things to keep in mind:

1. Although consumers may be unable to articulate how they will act in an inexperienced future, they can articulate what irritates them in the current state. Knowing the irritations of today can help you when designing the newer future.
2. Some people may be living closer to the leading edge than others. Focusing research on leading edge people may give better results.
3. Even though solutions my change over time, attitudes/concerns/desires regarding the problem may be more stable. If you focus on researching the more stable problem issues, it may give insights into how to develop better, innovative, new solutions.

But probably the most important thing to understand is that strategy is not pure math or pure science. It also has an element of artistic creativity. Creating the future is, by definition, creative. Eliminate the creative and you will never find what you are looking for.

SUMMARY
Although we may want a data-based approach to strategy, relying only on data—or taking the data at face value—will probably lead you in the wrong direction. The future is not precise, so you cannot take just a precise approach to get there. The consumer is not always very helpful or knowledgeable in looking beyond incremental change. Therefore, one will need to also rely on artistic creativity to get to the future. In fact, the creative part is likely be more important than the scientific part.

FINAL THOUGHTS
You cannot find the future if you are only looking backwards. And looking backwards is where the consumers are. Sometimes you have to look forward, to the places where the customers have not yet arrived. Creative insight, rather than research, may be more useful.

Strategic Planning Analogy #417: It also works for B2B

THE STORY
Lately, we’ve been hearing a lot of stories about Steve Jobs. One of my favorites is an interview he had with journalists at the time the iPad was being first introduced.

One of the journalists asked Jobs what kinds of consumer and market research Apple had done to guide the development of this new and different product.

Jobs response? He said, “None. It isn’t the consumers’ job to know what they want.”

And based on the tremendous response of consumers, the Apple iPad has been a great success, even though the customers weren’t consulted on its development.

THE ANALOGY
Steve Jobs didn’t believe in letting customers drive innovation. He didn’t see that as being their job. In fact, on another occasion, Jobs said, “You can't just ask customers what they want and then try to give that to them. By the time you get it built, they'll want something new.”

No, Jobs felt it was HIS responsibility to get out IN FRONT of the customer and develop solutions customers were not clamoring for yet.

In a prior blog, I spoke at length on the pitfalls of seeking innovation via consumer research. This is not to say that consumer research is worthless. It’s a great way to get the consumer’s response to the here and now. It’s just not very insightful if you want to find great, out-of-the-box innovation for tomorrow.

Now some of you may be saying, “Okay, I get that. It is not the consumer’s job to innovate, but to consume what the professional innovators come up with. But that’s the business to consumer world. It does not apply to the business to business world. After all, those business customers are professionals at buying things. They’re paid to do what is best for their organizations. It really is their job to know what they want—for today and for tomorrow. Isn’t it?”

Well, based on some research we will soon talk about, it appears that Steve Jobs approach is just as relevant for the business world as it is for the consumer world. If you want breakthrough sales successes in the business world like Steve Jobs had in the consumer world, copy his approach.

THE PRINCIPLE
The principle here is that B to B customers aren’t much better about knowing what they want/need than B to C customers. Therefore, a B to B strategy of giving the customer what they want can be inferior to a more aggressive approach like Steve Jobs—of giving the customer what they haven’t asked for yet.

Research by Dixon and Adamson
This can be seen in some recent research by Matthew Dixon and Brent Adamson. Dixon is Managing Director of the Corporate Executive Board's Sales and Service Practice and Adamson is Senior Director of the Sales Executive Council, a division of the Sales and Service Practice. Their research is based on interviews with over 6,000 B to B sales reps in nearly 100 companies. The full results of their research will be in their new book, The Challenger Sale: Taking Control of the Customer Conversation, to be issued November 10, 2011. But they let on to some of the key results in a recent HBR blog.

In essence, Dixon and Adamson found that all B to B sales reps fall into one of five categories.

1) Relationship Builders - They focus on developing strong personal and professional relationships and advocates across the customer organization. They are generous with their time, strive to meet customers' every need, and work hard to resolve tensions in the commercial relationship.

2) Hard Workers – They show up early, stay late, and always go the extra mile. They'll make more calls in an hour and conduct more visits in a week than just about anyone else on the team.

3) Lone Wolves – They are the deeply self-confident, the rule-breaking cowboys of the sales force who do things their way or not at all.

4) Reactive Problem Solvers - They are, from the customers' standpoint, highly reliable and detail-oriented. They focus on post-sales follow-up, ensuring that service issues related to implementation and execution are addressed quickly and thoroughly.

5) Challengers - They use their deep understanding of their customers' business to push their thinking and take control of the sales conversation. They're not afraid to share even potentially controversial views and are assertive — with both their customers and bosses.

The Conclusion
Dixon and Adamson then looked as the sales success for of these five groups. What they discovered was that the Relationship Builders were the least successful sales people and the Challengers were the most successful B to B sellers.

At first, this seems counterintuitive. After all, most sales training organizations are set up to help reps become better relationship builders. Conventional wisdom in the B to B world is that if you build a strong relationship, find out what the customer wants and then give it to him, you will sell more. Apparently, conventional wisdom is wrong.

The problem is that B to B customers are a lot like B to C customers. They understand the difference between what a good and a bad version of the status quo is. However, they are not always good at envisioning the potential for something radically different. Therefore, if all you do is build relationships and give your customers what they want, you are not really differentiating much from the crowd. You’re just supplying the status quo, pretty much like everyone else. A closer business relationship, in that situation, doesn’t add that much value. So sales don’t go up much.

No, if you want great leaps forward in sales with business customers, you need to innovate in advance of what your customers even realize they might desire. Apple has sold a ton of iPods, iPads, and iPhones. Customers weren’t begging for them before they existed. The idea did not come up through talking to the customers. Steve Jobs was innovating in advance of his customers.

The same applies to the business world. The reason why the Challengers group in the study sold so much more than the other reps is because they acted more like Steve Jobs. They didn’t try to give the business customers what they were asking for. They didn’t try to get close by doing a lot of relationship building. Instead, they tended to be more confrontational. They challenged the businesses to think differently about their business. They offered solutions which the business customers weren’t asking for.

The Challengers would rethink the whole business of their customers and offer revolutionary answers unlike anything else on the market, like Steve Jobs. The offerings from the Challengers would be true innovation that gave the businesses a true competitive advantage. Naturally, once the business customers realized how much better these innovations were, they clamored to buy them even though they never asked for them (like consumers clamored for iPads). Sales would skyrocket (like the iPads).

So, rather than try to do a better job of what everyone else was doing, the Challengers did something entirely different. The differentiation was what made them stand out and outsell all the other groups.

SUMMARY
If you want to be an exceptional seller to businesses, act like Steve Jobs did with consumers. Challenge the customer with great solutions they aren’t asking for.

FINAL THOUGHTS
Back when Steve Jobs returned to Apple, he wanted to rejuvenate Apple’s image. So Apple came up with a campaign with the slogan “Think Different.” Sales reps for business customers need to follow that advice. And B to B business strategies need to help the sales reps do this.

Analogy #234: Context

THE STORY
Awhile back, I needed to purchase a refrigerator for my house. As part of the search for a refrigerator, my wife and I went to one of those warehouse appliance stores.

There is a reason why these places are called “warehouse” appliance stores. The building was little more than just a huge warehouse. There were no interior walls, no finished ceiling…just a mammoth open area, with row after row after row after row after row of refrigerators.

Eventually, my wife and I agreed on a refrigerator from this store and made a purchase. At the time, I thought we had made a great choice. But then came the shock when the refrigerator was delivered to our house.

The refrigerator was HUGE. It barely fit into the spot designated for refrigerators in the kitchen. When I started filling it with food, it seemed like there was no limit to how much it could hold. I could probably stock enough food in it to meet the needs of a large army of hungry teenagers. And I only needed to meet the needs of my wife and myself.

My first reaction was to double check to make sure they delivered the correct refrigerator. They did.

So then I tried to figure out how I ever convinced myself that this Paul Bunyan-sized refrigerator was such a great choice. Finally, it came to me…

In that large, cavernous warehouse store, all the refrigerators looked small. None came anywhere near touching the high, unfinished roof on the warehouse. There was no kitchen-sized reference point to compare the refrigerators to.

Now, if the inside of my home looked like the inside of a cavernous warehouse, with no interior walls or finished ceilings, I suppose that refrigerator would have looked in my home just like I remembered it at the store. But my home is not a warehouse. So now I have this over-sized white monster in my kitchen.

On the plus side, it’s easy to see where everything is in the refrigerator.

THE ANALOGY
The problem with my refrigerator purchase was that the context in which I purchased my refrigerator (a huge warehouse) was different from the context in which I use it (my small kitchen). The wrong context of the warehouse distorted my thinking and my judgment about the appropriateness of the refrigerator in my kitchen.

The same thing can happen in strategic planning. A supposedly great idea dreamed up by a bunch of old, rich white guys at a strategic planning off-site at a resort (after playing a round of golf) may not seem as great to the targeted customer: a young Hispanic woman who is struggling to make ends meet and has screaming children tugging on her jeans.

These two groups are living two entirely different lives. Their thinking comes from distinctly different contexts. Dreaming up a strategy in one context and implementing it in another may create a mismatch many times worse than my refrigerator problem.

THE PRINCIPLE
The principle here is that strategies work best when they are designed to operate in the context in which they will be implemented. Just as I would have made a better refrigerator decision if I had done it in the context of a kitchen, strategies should be evaluated in the context of where they will be practiced.

We will look at three aspects of strategic context.

1. Environmental Context
Your strategy will not be executed in a vacuum. It will have to fight for supremacy against competitors. As mentioned in an earlier blog, all successful strategies work by taking share from someone else and you should expect counter attacks form the ones who are losing that share. In other words, the mere entry of your strategy will inevitably change the environmental context. Therefore, you must not only design your strategy for today, but also so that it will work in the new context created by your entry.

Strategies succeed by winning a position in the marketplace. If you don’t incorporate the marketplace into your strategy, how will you ensure your ability to win? For example, if your strategy depends on winning with price by having prices 15% below competition, what will you do if competition decides to match your prices? In this case, one needs to understand the pricing context they are putting their product into—how stable is the pricing? Do you have a cost advantage that can sustain itself in this environment?

What if someone larger copies your strategy? As we saw in an earlier blog, this can be devastating.

Just as chess players study the mind of their opponent to determine the best moves, you must study the minds of the opponents in the marketplace.

2. Consumer Context
You would think that it would go without saying that your strategy should be designed to be desirable to the chosen customer. However, given the extremely high failure rate for new products, there must be a flaw in here somewhere.

Companies say they spend a fortune on consumer research and testing. Supposedly, all of this knowledge gathering is supposed to mitigate much of the risk. Just listen to the consumer via web 2.0 technology and you’ll know exactly what to do. At least that’s what people say.

The problem is that much of that research is done under the wrong context. Consumers are often put in sterile, unfamiliar surroundings and asked questions in an abstract form with a professional researcher watching them. This is not the environment in which the item will be purchased or used. It is like asking me in that giant warehouse if I think that refrigerator is too big. The context is wrong, so the answers you get are likely wrong. The closer your research can mimic the context in which a product is bought or used, the more reliable your results will be.

Sometimes, a new product or strategy will be so radically different that the customers have no reliable reference point in their lives to judge it. Sure, they will answer your question, but because they have no internal context for judging it, the answer will be wrong.

Most radical departures which eventually become huge successes were first viewed very skeptically by the consumer marketplace. Because it was so different from their past behavior, they had trouble imagining it within their future behavior. Computers, microwave ovens and other such items might never have come to the market if the decision was entirely based on initial consumer response. Therefore, if your strategy/product is too far outside the context of the consumer’s past, it may not be worth your time to even do the research (unless the research allows people time to interact with the product over a long period of time in the customer’s own environment—long enough to develop hands-on context).

3. Employee Context
Your employees are the ones that have to implement the strategy. If they cannot envision how the strategy works within the context of what they do every day, they will probably fail to execute the strategy well. When explaining the strategy to the troops, be sure to use words that put it into the work-world context. Tell them how their behavior fits into the larger context of the strategy—what is good behavior, what is bad behavior.

The entire context for the employee—job descriptions, rewards, punishments, promotions, etc.—should be linked to the strategy. That way, right behavior for the employee is right behavior for the strategy. Their context is your context.

SUMMARY
Strategies do not exist in a vacuum. They only succeed if they make sense within the context of the way people will interact with it on a daily basis. Therefore, don’t evaluate them in isolation outside of that context. Keep in mind the way competitors, consumers and employees naturally live their lives—what motivates them, how they react to change, how they derive satisfaction. Anticipate how your strategic change will change that context. Then communicate the strategy with language relevant to that context. As part of your strategic planning, try to plan tactics that keep this context in your favor. Take nothing for granted.

FINAL THOUGHTS
I used to work for a furniture retailer whose store was in a giant warehouse building. However, unlike the warehouse store in my story, this furniture warehouse store was divided with walls into 200 little rooms, fully furnished and accessorized, with lamps, paintings, fake windows with curtains and everything. You felt like you were in a 200 room house rather than a warehouse. It was easy to get a feel for how the furniture would look in your home. They were able to make a warehouse building achieve the right context. You can do the same.

Waffling on Research

THE STORY
Once a strategist was gazing at his breakfast and realized that a good strategic plan is something like a waffle. Those vertical and horizontal gridlines in a waffle form the foundational backbone of the waffle. Without them, the waffle would be thin, limp and lifeless. This grid pattern is what keeps the waffle firm and gives it substance.

This reminded the strategist of the foundational work of research in developing strategy. One could think of the vertical gridlines as research into consumer marketplace—how is the customer evolving; what are their unmet needs and desires. One could think of the horizontal gridlines as research into the external environment where the strategy must take root—trends in technology, government regulations, competition, and so on.

Within this gridwork of the waffle, one then looks for the “holes” where one can pour in the sweet syrup. The syrup represents a firm’s investment in a “hole” in the marketplace—an opportunity to serve an unmet need. Without the gridwork of the research, one cannot see the holes in the marketplace to fill.

THE ANALOGY
In our last blog, we talked about the importance of preparatory work in developing a strategy. Effective strategic planning needs to be much more than just an annual off-site meeting at a resort. One needs time to do research prior to decision-making, in order to reduce risk and increase the likelihood of making wise decisions (for more information, see the blog “Strategy Takes A Holiday”).

As we can see in the story of the waffle, research is the backbone which makes it easier to find the opportunity “holes” and makes the strategy more “solid.”

THE PRINCIPLE
The principle here is that strategy is a multi-step process based on the foundation of research. In the last blog, we discussed this on a theoretical level. In this blog we will illustrate this point with an example. The example we will use is the company Urban Outfitters.

Urban Outfitters is a retailer who builds stores around different lifestyles. It offers an eclectic mix of apparel, home goods and other items, centered around a way of life for a particular lifestyle segment. Its largest division is the Urban Outfitter brand, which serves the lifestyle needs of 18-30 year olds who are well-educated and live an urban-minded (almost Bohemian) lifestyle.

The second largest division is the Anthropologie brand, targeted towards serving the lifestyle of sophisticated and contemporary women aged 30 to 45. Anthropologie's target customers are, for the most part, focused on family, home and career, but do so in a more sophisticated fashion than many others.

After doing some research, Urban Outfitters learned that in the near future, these lifestyle segments will not be growing very rapidly. For example, they found that between 2000 and 2020, the 18-24 age segment will only grow 8.1% while the 25-44 segment will only grow 3.3%. As we discussed in an earlier blog (see “Dip Your Ladle in the Right Stew”), the best way to create a growing company is to sell growing product categories to growing segments. Since the core of Urban Outfitters is in a relatively low growth area (retailing to low growth customer segments), the firm would need to look elsewhere for growth.

One thing they found in their research was that the 45-54 age segment would be growing 35% between 2000 and 2020. Such a fact leads one to think that there may be some growth opportunities somewhere in that older segment. Therefore, Urban Outfitters decided to examine this age group in greater detail. What they discovered was the following:

1) This age group is developing a unique lifestyle, unlike the lifestyle of the younger segments and unlike the lifestyles of the previous generation of 45-54 year olds. This uniqueness is based on a combination of factors, including the fact that this is overall a much wealthier group of 45-54 year olds than in the past and the fact that these boomers are used to blazing new trails.

2) This lifestyle centers around the home. In fact, a large number of these consumers have more than one home.

3) They are interested in health & healthy living, nature & the environment, simple luxuries, and enriching experiences.

4) Nobody yet has developed a compelling retail brand offering an eclectic mix of products specifically designed to capture the mood of this emerging lifestyle.

Based on this knowledge gained through research, Urban Outfitters saw a “hole” in the marketplace—an opportunity that was not yet exploited. As a result, Urban Outfitters made the strategic decision to create a new brand to cater to this emerging lifestyle.

The research lead them to believe that the core elements of this lifestyle will revolve around a melding of an indoor life with an outdoor life. The core of the store will be an environment that evokes the feeling of being in a greenhouse. All of the senses will be stimulated. Key merchandise elements will include plants & flowers, flower pots, gardening tools, home furnishings, antiques, and food. The line between art and nature will be blurred. It will be information rich as well as inspiration rich.

The beauty of this strategic decision is that it not only found a growth opportunity in the marketplace that is underserved, but it found a segment which it can appeal to by taking advantage of the lifestyle-oriented strengths the company has mastered in its other brands. It is a great match of company and environment—a hole in the waffle perfectly designed to hold Urban Outfitter’s kind of syrup.

Of course the strategic process at Urban Outfitters is still not finished. Next comes the difficult task of bringing this idea out of concept stage into reality. Then, there is the tweaking of the concept in order to get all the details right before launching into growth mode.

However, without the basic foundation of research, this concept may have never been discovered, or it would not have been appealed to as successfully. Urban Outfitters might not have even devoted so much effort to find a new brand if they had not done the research to see the lack of growth in the core businesses. Therefore, skipping this step or research can be very problematic.

SUMMARY
Strategy requires more than just meeting for a few days each year at some resort. It requires a number of elements including research into the external environment and one’s internal strengths and weaknesses. This research provides the foundation for a robust and strong strategy, just like the horizontal and vertical grids in a waffle provide its strength.

FINAL THOUGHTS
Although a good foundation is an essential element to a great home, it is only a small piece of the process. You are also going to need a vision of what kind of house you want to build on that foundation and method to add want walls, a roof, and so on to that foundation. I’ve known companies who are very good at gathering research data, but awful at the larger work of building and implementing a strategy.

The goal is not to see how much data one can gather, but to see how much knowledge and insight one can gain from the research. It is knowledge and insight which leads to great visions, not books and powerpont presentations full of numbers and charts. In fact, less, but more focused research may be far more valuable than reams of random data. The presentation deck to introduce the new concept at Urban Outfitters was based on research, but had only two charts in it. The bulk of the presentation was focused on the insights which came out of the research and how they can best be exploited.

Watch, Don't Listen

THE STORY
I used to work for a company that gave its executives free access to all of the health care resources of the Mayo Clinic executive program. It was a great benefit. They would test you for all sorts of potential medical problems with a very thorough examination (maybe a little too thorough in some areas, if you know what I mean). Then the doctors would take the time to explain all the results to you in great detail.

One time, the doctors were concerned that I was starting to put on a bit too much weight, so they wanted me to spend time talking to one of their nutritionists/dieticians. This dietician started talking to me about all sorts of subjects, like exercise, food choices, meal portions and the like, but I could hardly hear a word she was saying. I was too fixated on noticing the fact that this woman was significantly more overweight than I was. I had difficulty taking her words seriously, when the results of her own behavior were staring me in the face.

THE ANALOGY
In the story above, it was hard for me to take the advice of this dietician seriously, because it was apparent by looking at her that she was failing in heeding her own advice. I figured that this type of thing is what she did for a living, so she would be more motivated than anyone else to follow through. Being more aware of the health risks, she should have more motivation to lose weight. Being an advocate for slimness, you would think that she should be more motivated to be slim than most people. Being smarter about the topic, you would think she would be more successful at finding what works.

Yet she was fatter than I was. And I’m not all that motivated to be slim. So if she couldn’t follow her own advice with her added motivation, what chance did I have? I couldn’t hear her words, because her actions were speaking too loudly.

In our last blog (see “Stop Listening to Me”), we talked about the dangers inherent in listening to our customers too much. What they say can be too limiting and not take into account everything necessary to create great strategy. Worse yet, customers may not be telling us what they truly believe, based on a desire to please or a bias caused by the interview itself.

If there are problems in asking and listening to our customers, then how can we get their input? As in the story of the dietician, we can learn a lot by observing behavior. It’s much harder for our everyday actions to lie. The cumulative impact of everyday behavioral decisions by the dietician were plain to see.

THE PRINCIPLE
The principle here is to learn through observation rather then intervention. It is less about surveys and more about anthropology. We are to be more like Dian Fossey and her study of the Gorillas in the Mist or Jane Goodall and her study of the Apes. They learned by observing their objects in their natural environment.

There are two worlds where you can observe your consumer, the physical world and the internet world. We will look at each of them.

1) Observations in the Internet World
Rather than using the internet to directly connect to the consumer, you can use the internet to observe what people are saying in general to each other. There are enough people saying enough things online that you can find out what people are thinking on a wide variety of topics.

Now you still have to be a little bit wary of biases out there, particularly if you are pulling data from advertising-supported sites or blogs with a very strong bias in a particular direction. To please their advertisers or fellow extremists, these sites could mis-represent general sentiments. However, a lot of what is out there is just regular people saying what is on their mind. Tapping into this can be a relatively inexpensive way to learn what people truly think—about your company and about how they live their lives.

There are a number of companies out there who can help in this task. A partial listing would include BuzzMetrics, owned by AC Nielsen, Cymfony, owned by TNS, and Dow Jones’ Factiva. They can help you pick up on trends very quickly by aggregating all of the noise on the internet and distill what the key trends are.

The beauty of these types of observations is that you get results relatively quickly and they tend to have fewer biases than traditional consumer research. The problem is that the web chatter tends not to be equally distributed amongst all demographic groups. If your particular target is not well represented in chatter, this is more limited in scope.

2) Observations in the Real World
Sometimes, the best information can come from just watching people live their ordinary lives. For example, if you are marketing to teens, you can learn a lot by just observing teens doing what they do in the places they congregate, such as shopping malls or basketball courts.

Often times, if your observations take place in locations which tend to catch onto trends more quickly (or tend to be places where trends originate), you can learn about trends in their infancy and take advantage of them before the competition. This is particularly useful in categories where there is a strong fashion element, although useful in many other areas as well. The practitioners give it the fancy name of being “Cool Hunters.”

Back when I lived in Minneapolis, I would sometimes go to the Mall of America (one of the largest malls in the world) and just watch the people—what they were wearing and which store bags they were carrying. I would make a note of which store shopping bags I was seeing more of and which I was seeing less of. Then, later, when the monthly retail sales reports came out from all the retailers, I would compare national sales results to my mall observations. Normally, the more bags I saw in the mall, the better the official sale results.

Retailers have been known to follow people around in the store, to see what path they used to get through the store, where they stopped to look at something and so on.
Consumer product companies are famous for observing people over long periods of time to see how they actually interact with their products. They take photos of the inside of the refrigerator, or ask customers to take photos periodically of what they are doing or a whole host of other things. The idea is that once people get over the initial thought of being observed, they will eventually go back to their normal routines. Seeing this “real” behavior gives great insights into what can make or break your success. The practitioners like to give this the fancy name of “Ethnography.”

The real significance can be making observations related to problem solving. Through observations, one can see the types of problems people have, the innovative ways they try to solve them, and the level of success they have had in solving them. I have talked to many executives in the consumer products industry who have told me of all sorts of ways in which their products are used that are not at all as the company intended them to be used. When you see problems where customers are having difficulties, this could lead to the development of new solutions.

SUMMARY
Although strategies should never be totally developed based solely on consumer insight, it is an important element. And often, the best way to get that insight is not by asking the consumer directly, but by observing them in their natural course of activity, be that activity on the internet or activity in the physical world. Good strategists are often pretty good anthropologists.

FINAL THOUGHTS
There’s an old saying, “Do as I say, not as I do.” Well, in my case, I would rather pay more attention to the “do” than to the “say.”

Stop Listening to Me

THE STORY
Auto executive Bob Lutz likes to talk about the disasters one creates when designing cars based on consumer research. Regarding the Ford Thunderbird, he said,

“Ford ruined the Thunderbird by taking [consumer survey] responses too seriously. The original Thunderbird was a sleek, zippy, tightly designed two-seater. Ford asked T-bird customers what they’d like more of: Would they like, say, a little extra room? They would. How about a back seat? You bet. So Ford introduced an “improved” four-seater (and later a four-door). The restyled car was no longer the sleek sportster that had first attracted drivers. It’s mystique paled, and what had been a unique addition to Ford’s line was now just another car.”

The larger, more boring Thunderbird sold poorly enough that it had to be retired.

When at Chrysler, Lutz saw this problem again. In the 1980s, the Chrysler sub-compacts were not selling as well as the Ford Escort. Chrysler asked the customers what the problem was. In Lutz’s words:

“By a vast majority, respondents said they would like the car much better if it were just a little bigger—say four inches longer on its wheelbase. Now, anyone even passingly familiar with the US auto market knows that most people buy subcompacts because that’s all they can afford, not because they have some warped desire to sit with their knees up around their chest. Thus, when asked what they’d like changed about their cars, it’s axiomatic that subcompact owners would like them bigger.”

According to Lutz, the Chrysler executives were so fixated on giving the customer what they wanted, that they embarked on a $170 million campaign to find a way to make their sub-compacts four inches longer and still sell them at the same low price. It never occurred to these executives that Chrysler already had popular cars that were four inches longer for which people were willing to pay a higher price. Eventually, Lutz had to put his foot down and stop the nonsense.

And then, there was the Edsel, one of the biggest design disasters in automotive history. Oh, by the way, it was also one of the most consumer-researched designs in automotive history. Consumers were given choices of many different types of designs on each part of the car. Then Ford took the winners of each part and put it all together. When all of the “consumer chosen” parts were assembled, the total design was a mess that consumers rejected.

THE ANALOGY
We live in a Web 2.0 world. Because the Web 2.0 provides unprecedented opportunities for two-way dialogue, companies are rushing to get consumer interaction—even moreso than in the heyday of Bob Lutz. It is not uncommon these days for companies to have their advertising designed by consumers or even have their products designed by consumers.

In fact, based on what companies are doing, you might conclude that the need for strategy in a Web 2.0 world is being made obsolete. Why develop strategies, when all you have to do is whatever the customer says?

Although it can be insightful to learn what customers are thinking, the examples in the auto industry above point out that if you put too much power in the hands of the customers, it can actually destroy your business.

Just because we have new web tools to better interact with customers does not mean that customers have suddenly gotten any smarter or more insightful. They still say some silly things that could get us into serious trouble. All these new tools merely do is make it easier to fall into the trap of listening too closely to our customer to our own demise.

THE PRINCIPLE
The principle here is that strategies should incorporate many issues which transcend the interests or opinions of customers. If you limit strategy to merely the level of consumer interaction, we can end up making some self-destructive decisions.

The weaknesses of relying too much on consumer input can be summarized as follows:

1) Consumers Don’t Care If Your Business Survives
2) Consumers Can Only Interact Incrementally
3) Consumers are More Interested in Being Polite than in Being Honest

Each of these will now be discussed in greater detail.

1) Consumers Don’t Care If Your Business Survives
One of the chief goals of strategy is to provide a path to long-term prosperity (or at the very least a path to cash out of the business well). Consumers do not typically care about these things. They don’t worry about whether investors (shareholders, banks, hedge funds, etc.) get a return on their investment or whether the employees have prosperous careers. They just want what’s in it for them. And if they are honest, that means they want it all, they want it now, and they don’t want to pay for it.

Very few businesses can develop a sustainable business model around those qualifications. And guess what…in most cases, the customer doesn’t care if you business is sustainable. There are usually enough options that they will just go somewhere else to make their demands.

So if you single-mindedly try to please the customer by giving them whatever they want, and ignore your other stakeholders, you will typically end up with an unsustainable business model.

2) Consumers Can Only Interact Incrementally
Even if customers did care about the long-term viability of your business, they do not have the proper perspective to make long-term decisions. They do not know what is technologically possible. They have full-time jobs and concerns of the immediate. Consumers do not spend 40 hours a week thinking about the potential for where your brand and where it could go in the future.

As a result, consumers can only react incrementally to what is in front of them today. In the case of autos, they may be able to tell you to make them a little bigger or put in more cup holders, but they cannot help invent the future of personal transportation. Nobody was clamoring for a minivan before it was invented. They only clamored for it after a business put it on the market.

Most great business ideas are transformational—upsetting current conventions by providing something completely different than what was in the marketplace. These came out of the minds of visionary business people, not consumers. Nobody asked for the transformational coffee phenomenon of Starbucks, but now they are everywhere.

At Sony, they are proud to say that nobody ever asked for any of those great transformational inventions they have given us over the years. Instead, Sony’s great inventions came out of a deep understanding of consumer behavior (perhaps knowing people better than they know themselves) and a deep understanding of technological possibilities (for which consumers are unaware).

Incrementally, a consumer can suggest a new coffee variation for Starbucks or a new feature for a Sony computer, but beyond that, they are typically not much help. And if your company stays at only the incremental level in its thinking, your company will be passed by from other firms who are thinking transformationally, and who end up taking your customers with them (even though the customers did not ask for the transformation).

3) Consumers are More Interested in Being Polite than in Being Honest
When consumers are asked their opinions, they want to be helpful, but certain biases tend to creep into their responses to cause distortions. For example, there is a bias for consumers to say they will buy your product in your survey at a given price even if they would not, because they want to please you and encourage you. People don’t want to appear to be cheapskates, so they will tell you they are more willing to part with their money for something than they would in reality.

To quote an article in the May 18, 2007 Wall Street Journal, “The moment you ask someone for their opinion I have created a bias because of the natural human instinct to please.” Bob Lutz puts it more bluntly when he says “consumers often lie—albeit for the noblest of reasons.” Lutz’s point is that we tend to give very rational answers when being surveyed, because that is the “responsible” thing to do. Unfortunately, our true behavior is more likely to be driven by emotions.

So even if the consumer has our best long-term interest at heart and thinks about transformational issues, they may still give us answers that do not reflect their true intentions.

SUMMARY
Although consumers can tell us a lot of things, they cannot tell us what our strategy should be. If we let too much consumer commentary affect our strategic decisions, we will most likely miss the mark and allow others to take our business away, because these firms give the consumers what they really want, rather than what they say they want.

FINAL THOUGHTS
Web 2.0 technology is a great tool, just as a hammer is a great tool. But to build your strategic house, you need more than a single tool; you need the entire tool belt.