September 23rd, 2015 · No Comments
Image source: JM Martinez
On 9 September 2015 Tim Cook, Apple CEO, announced that their US clients will be able to change their model of iPhone every year, through a kind of leasing, paying $32 a month.
Image source: Apple web site
From the customers point of view, this option is really interesting. It means being able to enjoy the frequent change of cell phone, as it happens with clothes or shoes, forgetting about the problem of facing a considerable expense that may break this month personal budget.
Nowadays, life is lived differently. A few years ago, I used to buy many songs in iTunes, but now I don’t want to own them. I just want to listen to the ones I desire when I want to, via Spotify Premium.
From the Apple perspective, an initiative like this one is relevant:
It reinforces the idea that a smartphone is a product with fashion inside. So the number of transactions will increase significantly.
The customers loyalty would be practically total, and sustained over time.
It is a coherent practice with the business model of the majority of companies: “ to grow customers”, because its makes their economic value increase. The majority of firms don’t get profitable from “one shot deals”, but from customers loyalty.
To check it’s feasibility, you can use one of the best metrics: the Customer Lifetime Value. Sometimes, a lower gross margin is compensated with a higher amount of transactions, leading to a higher economic value of each customer. It’s easy to check if this is your case.
Another long-term proposal just appeared: Alain Afflelou Óptico (a French optician chain) launched an unusual initiative called “Win-Win”: they offer they clients a lifetime warranty of two glasses -two frames plus 4 graduated lenses- and the possibility of changing the lenses for free when the graduation changes, by paying € 10,90 monthly (€ 11,90 in France), for 24 months.
Image source: My current glasses
In 1991 I proposed to a client company, an optician chain, something similar, like a “glasses leasing”, to promote a more frequent change. The idea was dismissed as it was thought to be economically unfeasible.
The real marketing seeks a sustained customers loyalty -without getting them bored-, more than trying to survive from continuous short-term sales promotions.
The paradox is that the business model of most of the companies is based on their customers loyalty, and instead, many of the new technologies (for example, some based on the “Internet of Things”) are oriented to a promotional “e-push”. For example, I send you an e-voucher now that you are in front of my store.
Marketing is about “to share our lives”, instead of practicing “sporadic sex in some crazy summer nights”.
Other considerations apart, the first approach also makes the shareholders happy.
Lluís Martínez-Ribes, 2015
Tags: Customer Lifetime Value · customer value · Enjoying · fidelización · lealtad · loyalty · Owning
Here’s some bad news, some really bad news: in most sectors, products (or services) tend to become increasingly similar through time. I am often told this by the executives and participants on the MBA on the programmes I run at ESADE and universities in other countries.
When products are seen as similar, the most likely outcome is a price war, with the corresponding reduction in the gross margin. A decreasing profit margin leaves companies with less energy to face the future.
It should come as no surprise, therefore, that the quest for differentiation is such a common goal.
The usual way of differentiating
Kotler (1999) describes differentiation as “the process of adding significant and valued differences in order to make the company’s goods or services stand out from the competition’s”.
Usually, when a company sets out to differentiate its products (which includes services or, in other words, the solution that the company offers its customers), they tend to do so by adding some feature that makes the solution better than the competition’s.
For instance, our airline is the most punctual, we have added vitamin C to our soft drink or we give you more points on your loyalty card.
We could summarize by saying that the usual route for achieving differentiation is underpinned by highlighting the Do and Have features of the product.
This approach is very much in line with the definition put forward by Kotler (1999) or product-based differentiation (Michael, 2010) as it is known, and it is a response to the traditional and predominant view of how customers make decisions when shopping: if they did so consciously, objective improvements in the product should logically lead to an increase in sales.
However, it is not always the product with the best features that triumphs. For instance, the iPhone 6 has been a market leader, even though it is not the best at a technical level. It even has features that are far from new.
Alternative route to differentiation: phase 1
Another way is possible.
I suggest starting with our prime customers or potential customers. What are they like? How do they live? What concerns them? What do they do on Fridays? How are things going for them in the factory? Do they find making shopping lists a pain in the neck? And so on. It is not enough simply to describe them, but you rather need to philosophize on their life and contexts, with the aim of understanding them.
After empathizing with customers, the first stage of differentiation begins: conceptualizing the product or, to put it another way, deciding the role that it will play in the customer’s life.
This is not a matter of inventing a slogan or a claim, but rather thinking of the response that we would really like customers to give if we asked them “Product, what do you mean to my life?”.
Such a question can’t be answered by the typical clichés such as ‘value’, quality, ‘value for money’, service, choice, etc.
If a product does not manage to become part of the customer’s life, the customer can do without it because it is irrelevant to them. It does not give them anything special or different that would make it worth buying.
It is all about the verb ‘Be’: what the product is to me, for my life.
If IKEA asked its customers “How do I feature in your life?”, there would be a big difference between them answering “You are a reasonably priced furniture store’ and ‘It’s thanks to you that I can afford to live with my girlfriend”.
If somebody said to the director of Ferrari “I like the new Ferrari car”, he would probably faint: Ferrari is not a car! Because it plays a very distinct role in its owners’ lives.
Alternative route to differentiation: phase 2
Now is a good time to shift to a verb that the brain understands better: “Feel”. You have to decide what is the predominant emotion that this product should make your customers feel.
Communicating is not just a question of saying things or ideas, but making somebody feel a certain thing, and then being open to hearing what your interlocutor wants to make you feel in return.
Just as Volvo has traditionally evoked the emotion of safety and Red Bull makes you feel like a risk-taker, each product-brand must define the central emotion that it wants to evoke when a customer sees it.
Alternative route to differentiation: phase 3
Once we have been inspired by the Be (what the product is for their life) and the Feel (the dominant emotion), we can move on to the procedure for making it a reality, capturing it and now expressing what it would be good to Do and Have.
For instance, if an industrial company sells technical products so that its customers have a better quality of life at work, and it wants to symbolize that its is focused on making their lives easier, it can differentiate itself at its stand at a trade fair by offering the system in the image to customers so that they can comfortably take a break.
To sum up
- Let’s be practical; let’s start with the abstract. The proposed differentiation process ends just where the traditional route begins: Do and Have. However, by first completing two abstract stages (Be and Feel), we can achieve better synergy, consistency, visibility, relevance and much better commercial results.
- Differentiation is not achieved by adding more features or benefits to the product. This is almost sure to add more cost and organizational complexity and, if these features do not reflect a shared sensation, focus can be lost in the customer’s mind. You need more than worms to catch the big fish.
- Kotler, P. (1999) Kotler on marketing. Simon and Schuster.
- Levitt, T. (1980) Marketing success through differentiation – of anything. Harvard Business Review, January.
- Michael, A. (2010) Differentiation strategy: how to gain competitive advantage through product leadership. BrandUniq
Source: Código 84, number 189
Tags: centricidad en cliente · decisión de compra · Diferentiation · emociones · emotions · empathy · empatia · product · producto · purchasing decision · Quality of life · sentir
You walk into the supermarket one evening after a hard day at work. You are frankly exhausted. You have just been to pick up your two kids from school – gorgeous, the pair of them, but they’ve had an argument and now won’t stop crying. But where is the children’s food section? Oh, they’ve moved it! You ask a shelf stacker who, barely looking at you, disinterestedly points to the new location of the kids’ food section. You eventually find what you are looking for but, when you get to the checkout, you are faced with a queue ten people long. There are no two ways about it, today is not your day. You can’t take any more, so you leave the trolley where it is, grab the kids and walk out. On your way to the car, you take out your smartphone, order food to be delivered home and swear that you will never go back to that supermarket again.
Let’s repeat the scene
I walk into the supermarket one evening after a hard day at work. I am frankly exhausted. I have just been to pick up your two kids from school – gorgeous, the pair of them, but they’ve had an argument and now won’t stop crying. At the entrance, I see a monitored play area for kids and they ask if they can stay there while I shop. They are both smiling again. I head over to the kids’ food section where I find a notice telling me where it has been relocated. A shelf stacker notices that I hesitate and offers to accompany me with a smile. The music is not abrasive and there is a nice atmosphere. My wife is coming back from a trip tonight so I decide to surprise her with one of those cheese selections she likes so much. Next to the cheese, I see a bottle of wine that would go with it perfectly. She’s worth it! She’ll love the surprise. I make my way over to the checkout where there is no queue and I scan the items myself and then pay. Right, now to pick the kids up. Look how lovely they are! I head home in no time at all to get there before my wife arrives.
The shopping experience
The situations described above are the same but with remarkably different outcomes.
This issue is hugely important for businesses because the same soft drink tastes different depending on where you drink it (try it if you don’t believe me). Therefore, a customer’s predisposition, price sensitively and actual shopping behaviour can end up varying greatly depending on how they feel as they shop.
We speak about the “shopping experience”, a term used casually with as many different definitions as there are articles written on the topic.
There was a long-established theory about how consumers decide what to buy, for instance as proposed by Court et al.(2009), who state that customers consider a range of goods/brands to buy, evaluate each of them based on their characteristics and choose one. After using it, they develop expectations for the next shopping process. However, we now know that the vast majority of decisions, including shopping choices, are made unconsciously. In other words, consumers do not create a mental spreadsheet of pros and cons.
The are two key methods not only for improving customers’ shopping experience, but also for increasing the average spend and getting them to come back:
- Reducing effort.
- Stimulating their imagination.
Less effort required, please
In an article published in 2010 in Harvard Business Review (Dixon, Freeman & Toman), the authors argue that we do not maintain customer loyalty by offering an excellent service, but rather we lose it when we give them a bad service. Customer loyalty is not achieved by delighting them but rather by reducing the effort they have to make.
This argument is along the same lines as the theory put forward by Blake Morgan (2015), who uses a highly illustrative example to capture this situation: “Can you imagine a customer climbing up 1,000 stairs to reach you for help only to be told they need to go back down the staircase and climb another one?” Many customers feel this way, for instance, when they have to contract telephone packages and similar services.
It is often the case that the efforts that customers have to make are not detected because they are considered to be ‘normal’: queues, unintelligible information, not being able to locate products, doubts caused by excessive options, unsuitable timetables, sales assistants that can’t answer your questions or who don’t give you the time of day, etc. The effortless shopping experience is not simply a question of the points of interaction between customers and the company, but rather it involves the customers’ entire “journey from start to finish” (Rawson, Duncan & Jones, 2013), including the phase before and after going into the store (whether it is physical or digital).
In the digital world, a click is an example of an effort. Each click reduces the conversion rate by 20%. In other words, if a potential customer has to click five times, it is highly likely that they do not end up making the purchase.
Other statistics show that a shopping experience involving lots of effort for the customer means a high risk of losing them. According to research conducted by Avaya into the impact of customer effort (Wilson, 2014), a bad experience has greater capacity to negatively influence future shopping behaviour than a good experience to have a positive affect. Looking at it from a different perspective, according to a study by McKinsey cited in Blake (2015), companies that focus on providing an effortless shopping experience reap positive rewards, with an increase in revenue of10-15%.
The statistics are closely linked to human biology. When we are faced with problems when shopping, we need to pay conscious attention, which means our slow cortex is activated and we consume high levels of glucose. As a result, we get tired and eventually get fed up. Our brain likes being on ‘automatic pilot. It loves routine (which should not be confused with boredom).
Therefore, the best purchasing decision is the one in which no decision is required.
The rise to power of imagination
Imagination makes us human, as we are the only animal that can imagine. Imagination is the capacity to picture in one’s mind things that are not present for our senses at that time (Robinson, 2006).
When we do something that we like, our brain generates dopamine and we feel good. The latest research (Kent Berridge, 2014) shows that more dopamine is generated when we are preparing or imagining something that we like than when we actually experience it. This is known as the brain’s ‘as if circuit’: the same parts of the brain are activated when we imagine something pleasant as are activated when we are actually enjoying it.
The interesting thing is that retail can act as this moment of preparation/imagination of subsequent enjoyment. To do so, the store must not simply be a transactional space (I swap you a nice bottle of wine for some money), but rather in must be a launch pad for the customers’ imagination. This is achieved through stimuli that trigger certain emotions and make customers visualize a future moment of enjoyment, such as a family meal next Sunday.
If the imagination is triggered, I can assure you that revenue will rise.
One experience and two roles
We have seen that, if we want customers to choose us repeatedly, we have to ensure that we make things easy for them and that they can make their purchase with hardly any effort. We have to be engineers of frictionless shopping processes.
However, we also have to be scriptwriters, creating a sequence of sensations (the shopping process) in such a way that their imagination generates the sense of wellbeing that dopamine gives.
In short, we have to take on two roles, firstly as engineers and then as scriptwriters of an exciting story. It is well worth the effort.
- Castro, D.C. & Berridge, K.C. Advances in the neurobiological bases for food ‘liking’ and ‘wanting’. Physiology & Behavior, 136, 22-30, 2014.
- Court, D., et al. (2009) The consumer decision journey. McKinsey, June.
- Dixon, M., Freeman, K. & Toman, N. (2010) Stop trying to delight your customers. Harvard Business Review, July.
- Morgan, B. (2015) Want a powerful customer experience? Make it easy for the customer. Forbes, 13th January.
- Rawson, A., Duncan, E. & Jones, C. (2013) The truth about customer experience. Harvard Business Review, September.
- Robinson, K. (2006) Out of our minds: Learning to be creative. TEDTalks, February.
- Wilson, M. (2014) Avaya Customer Effort Impact Study Reveals the Cost of Inconvenience. Avaya.
Source: Código 84, number 188
Tags: Dopamina · Efforts · Esfuerzos · imaginación · imagination · interacción · interaction · lealtad · loyalty · senses · sentidos · shopping experience