I’ve been traveling quite a bit recently and have been lucky enough to upgrade to first class on my last couple of excursions. As a first-class passenger, I was treated to what, I guess, is the airlines latest attempt to provide a “VIP” feel.
I got to enter the jetway by walking over a red carpet.
Unless you are an elite member of the airline’s frequent flier program or flying first class, this is a luxury you do not get to experience. Unfortunately, the boarding process got slightly complicated today. It seems the gate agent was having a difficult time making those who were flying coach understand that they could not cross the red carpet. She told them they needed to enter next to the red carpet and this caused some confusion.
Let’s do a quick reality check here.
Note to airlines: Here’s what I want when I fly (and my quick research supports that I am not the only one).
- Board the plan as easily and effortlessly as possible.
- The plane leaves on time.
- The flight is uneventful and not memorable.
- The plan lands on time.
- Exit the plan as easily and effortlessly as possible.
I don’t care what color the carpet is that I cross over. And I object to the fact that airlines (at least United and Northwest) have added to their costs to provide such a gratuitous ‘perk.’ I also object to them making the boarding process more complex. It just shows beyond a doubt that the airlines simply do not understand what their customers want.
It’s not surprising that airlines have no clue what their customers want. And they aren’t the only ones. I see this disconnect in businesses of all kinds all of the time. The focus becomes ‘service’ for the sake of service, instead of actually using service to enhance the customer experience.
If a service improvement does not create value, then you should think twice (or more) before implementing it. I define creating value as doing something someone would be willing to pay more for. That doesn’t necessarily mean that you have to charge more for it, but that you could if you wanted to.
Here’s an example of how you could test a proposed service improvement: Lets say you’re an airline executive and you’re considering creating a special “VIP” lane on the jetway for your top passengers. The only difference between the VIP lane and the other lane is that the top passengers get to walk over a red carpet. Now you need to figure out whether or not you should implement the idea. Simply ask, “Would our customers be willing to pay more to cross over a red carpet?” If the answer is no, then the decision is simple — don’t do it.
Now ask yourself this question about anything else you consider your company’s ‘service difference.’
In the wake of Google’s announcement that they will buy Doubleclick for $3.1 billion dollars, several companies are encouraging the Justice Department and antitrust regulators to take a closer look at the deal (Wall Street Journal, April 16). While the news itself is no surprise, I found it rather ironic the company pushing hardest for more government scrutiny is none other than Microsoft.
Wasn’t Microsoft the company that told the Justice Department years back that the market is more efficient at determining what’s best for the economy? Add this new propensity for encouraging government interference to the growing list of symptoms seems to indicate that Microsoft is no longer the energetic, fast-growth company it once was. In fact, if you ask some analysts, they will tell you Microsoft’s shareholders might be better served if the company spun off some of its fast-growth components instead of having them bogged down by the quickly maturing and sluggish core business.
For other fast-growth executives out there, my recommendation is to spend less time worrying about what your competition is doing and more time figuring out what it is your customers and potential customers really want. Fight tomorrow’s wars, not yesterday’s.
I write this en route to Seattle for a presentation to a group of CEOs. While flying, I’ve had the chance to read a fascinating book, Success Built to Last, by the co-author of Built to Last, Jerry Porras.
Late in the book (talking about what the authors refer to as ActionStyles), they tell a story about Andy Grove, former CEO of Intel (and an author himself). It was a story I knew already, but it was a great reminder. I’d like to share it with you.
The story takes place when Intel and Grove were struggling over the decision of what to do when Intel’s core business at the time, memory chips, was deteriorating.
“What if things continued to get much worse and the board got rid of him? Grove speculated. [Gordon] Moore [co-founder of Intel] said the board would undoubtedly bring a new person in who would have the courage as an outsider to do what few CEOs who are set in their jobs would be willing to do: Dump the core business.”
If you were brand new to your business (or your job) what would you do differently? What would you stop doing? What would you start doing? Why aren’t you doing it now?
I know I’m going to lose sleep thinking about this tonight.
Last week, I was interviewed by John Lindner of the Baltimore Sun as part of his ongoing series of podcasts about bloggers and blogging. Click here to listen to the interview.
As I talked about this blog and how it’s grown in popularity, I was fascinated by the interviewer’s reaction to my explanation of commoditization and the examples of it I gave.
Newspapers such as The Baltimore Sun have been struggling to retain readers in the face of competition from cable, internet, blogs and a multitude of other sources. News has pretty much become a commodity. What newspapers need is a way to differentiate themselves as a news source.
What they have going for them is a news-gathering infrastructure and mass-marketing business model that has worked for generations. What’s tough is the raw materials used to produce newspapers is getting more expensive as is the distribution system. Online features such as the podcast series I was being interviewed for, is one attempt to cultivate a younger audience that has been lost to the internet.
What most newspapers can’t seem to grasp is that the same editorial authority they wielded for centuries to mold public opinion, drive consumer activity and shape the political landscape, is almost tragically out of step with today’s culture of social media, brand hijacking, and instant messaging.
I have to give John Lindner and the Baltimore Sun credit for at least trying to understand the nature of the new conversation, even if they can’t seem to actually get in on it.
Let’s start off with some definitions (granted you may not find them in Webster’s or Black’s Law Dictionary, but they are my definitions and they seem to be working):
- Commodity – any offering that competes with perceived alternatives
- Commoditization – the process where customers systematically eliminate anything a company believes is special or different about itself and reduces the company to its lowest common denominator, typically, though not always, price.
Some key points.
- Our customers commoditize us, we do not commoditize ourselves (and our competitors do not commoditize us).
- Commoditization does not necessarily mean lower prices, though it almost always means compressed margins, or at least significant pressure on margins.
- Commoditization is the single, biggest threat against growth and profitability.
- Commoditization occurs when your customers and/or potential customers stop recognizing or adequately valuing your differences.
I often talk about the fact that virtually every company sells two things. They sell their commodity (whatever the ‘thing’ is that creates revenue) and they sell their wisdom (the ability to use their knowledge about how to apply the commodity in unique ways). The challenge is that most companies attempt to ‘differentiate’ themselves based on what they sell, which is almost always (in a customer’s mind) a commodity.
I believe that every company is, in fact, different. Each one is different because people are different, and a company is merely a group of people. They are different not because of their offering, but because of how they do whatever it is they do. It is in the ‘how’ that the difference and value is created. Help your customers and potential customers understand your ‘how’ and why it makes you different. Do that and you’ll find that the commodity you sell will become more profitable than ever.
If you haven’t heard, Ford Motor Company paid their CEO, Alan Mulally, $28 million dollars in 2006. This included an $18.5 million bonus. Ford lost $12.7 billion in 2006. (Click here to read the article). While normally I am not one to spend a lot of time worrying about what companies pay their CEOs, this news item is simply too outrageous to allow it to pass without comment.
It’s more obvious than ever that Ford and many other large companies are completely out of touch with their customers. When the leaders of a company can get paid that type of money while customers continue to leave in droves, accountability disappears. I own a business and have worked with hundreds of other private business owners. When our companies lose money, we lose money. We understand that it is the customer who controls our future, because we are rewarded when they reward us and we are penalized when they don’t.
What does this have to do with your company or fast growth? If the reward system in your company is not completely aligned with your customers’ interests, then sustained growth is precarious at best. This is why I like private companies better than public ones (and why most of my investments are in private business) – because the only determinate of success is their customers, not some perception on Wall Street.
Take a look at your company. Are your people rewarded or penalized based on how your customers feel? If they are, then fast growth is achievable. If they’re not, what’s the difference between you and Ford?
One of my favorite quotes ever is attributed variously to Benjamin Franklin, Albert Einstein and Rita Mae Brown. It goes: “The definition of insanity is doing the same thing over and over again and expecting a different result.” I think it’s a great statement and it makes a lot of sense. I’ve used it quite a bit myself in an effort to get change started in a variety of situations.
Recently, I’ve discovered there is an evil side to this statement. I’ve encountered people who advocate change simply for the sake of change. What’s worse is that they use the definition of insanity above as the rationale. It seems that when it comes to go-to-market efforts, the definition of insanity…can drive one insane.
Whenever a company or a practice develops a new go-to-market approach, a new message or launches a new offering, it takes time for the efforts to lead to results. In my experience, even under the best circumstances it typically takes 12 -18 months to see a new marketing effort bears fruit.
This hit home recently when I ran into a friend of mine who is in sales. Six months ago he was frustrated with a partnering initiative he had started nine months earlier. He complained that nothing seemed to take hold. But when I ran into him last week and asked how things were going, he was a different person. He told me, “That partnering initiative we started a year ago is really paying off. I mean, it took a lot of blood and sweat, but it’s really working now.”
These two observations (the definition of insanity and my friend’s experience) present an interesting paradox. In marketing, how do you deal with the seemingly contradictory situations where not changing is insane, yet staying the course has proven to yield the best results? Here’s my answer:
- It emphasizes the critical importance of strategic planning in general and go-to-market strategy in particular. When you set out on a mission, you must have a tremendous amount of confidence and passion for the effort. If you don’t, six months of what appears to be a lack of results may easily convince you it’s time to switch approaches. The problem is you’re resetting the clock and the results will move even farther out on your time-line. This is typically the underlying cause of a failed marketing effort. The company went to execution before developing a comprehensive strategy that would guide actions and decisions.
- If you’re going to do something, do it all the way, don’t go halfway. When my friend told me he was starting the partnering initiative I warned him not to do it if he was going to make a decision about its effectiveness in less than a year. Recently, a client of mind who owns a personal training studio decided to start hosting classes to increase awareness of the programs she offers. She understands that it may take months before the class yields meaningful results and that if they’re going to start them, they can’t stop them out of frustration.
- Develop benchmarks to chart progress. Determine ‘what causes sales’, identify qualitative and quantitative measurements for progress. Develop course correction mechanisms. Tweak before you change your path completely. This is the second major underlying cause of a failed marketing effort. Few companies develop mechanisms to take market feedback and make small modifications. Few companies determine the ‘cause of sales’ and fewer still develop progress measurements. They look at their efforts in a binary – it’s getting results/it’s not getting results – manner. And that, if you ask me, is insane.
One of the biggest fears demonstrated by companies in embracing the competitive rules of The Wisdom Age is that if they focus on fewer clients, they will lose revenue and money. A recent study by McKinsey & Company, provides further evidence that this is not the case.
I encourage you to take a look at the study. My take: To succeed going forward, you best clearly articulate who your Best Few Clients are, demonstrate that you fully understand what makes them tick, then over-allocate your resources to solving the problems they face better than anyone else in the world and under-allocate everything else.
Succeeding in The Wisdom Age is about applying your resources against tightly defined client segments.