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Customer acquisition via poor service

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I’m curious. I’ve noticed some web sites, stores, etc. try to gain or retain customers by providing bad service. They hide their prices so you have to start the purchase process to discover pricing (just try finding out how much it costs to make 10 color copies at Fedex/Kinkos. I dare you.). Some web sites don’t have a cancel-my-membership button that’s easy to find and don’t give a customer service number. I’ve had magazines ask that I cancel my subscription in writing.

Do these tactics work? Hiding prices makes me less likely to use a site. Making membership hard to cancel doesn’t stop me from canceling, but it DOES convince me never to come back if I was canceling for a reason that might have been temporary.

How about you? Do you find these things actually work on you, or do you rebel against them? Or do you not even notice?

Meritocracy: A Fine, But Mythological, Idea

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I love the idea of a meritocracy! It’s a glorious myth that makes a wonderful story. But if you look at how resources, wealth, prestige, etc. get distributed, it’s very hard to make a case for meritocracy.

It’s no surprise we believe in meritocracy. We spend our entire first 18-25 conscious years in school. School is a true meritocracy. The more you work at mastering the material, the more you earn good grades. I don’t know about you, but school was the last meritocracy I had the privilege to enjoy.

At my very first job out of college, I was told, “You do the best job of anyone here, but you’re too young to be making any more money.” Sadly, I persisted in thinking that doing a good job was the way to get what I wanted out of life. I still think that way in my gut, even though I continue to see little evidence of it.

Many very successful people talk a lot about meritocracy and how they just worked hard to succeed. That’s all fine and good, but they’re looking at only their own story. They’re not looking at the vast majority of people in the world who work very, very hard, and don’t get rewarded nearly as well. I’ve also noticed that the people who are highly successful/rewarded/prestigious have a tremendously powerful psychological vested interest in believing in and trumpeting the idea of meritocracy. Otherwise they would have to confront the idea that maybe they don’t deserve all that money/power/fame, and it simply came to them because they were born to the right parents, or were in the right place at the right time.

In capitalism, we give the bulk of the value created by an enterprise to the owners. It’s far better to own 50% of the equity in a successful company that you left 6 months after founding it than to work your ass off for 12 years making that same company a success, but working on salary. What matters as far as material reward isn’t the work/merit, but the capital and ownership structure. (That’s a true story, by the way. The company founder never worked again. The employees, while doing reasonably well, are still working at the same or other companies to earn their daily bread.)

If you want to do a good job, by all means, do it. Personally, I like to be proud of my work, and I strive to do the very best. But don’t confuse that with getting what you want. When you’re designing your life, remember that producing good work may be something you do for the psychic and self-esteem rewards. When you’re going after other rewards, say, money, be as clear-headed as you can about what will help you reach that result. Hard work and skill may not have anything to do with living the kind of life you want.

The potential of the one stop shop

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Autumn is here, with a chill in the air. Which is why it was especially traumatic when our Rheem hot water suddenly stopped working last week.

Ever since we had this hot water heater installed 3 years ago, it’s been a problem. We went without hot water for almost a month while going through the Rheem step-by-step troubleshooting procedure, which involved sending us spare parts one at a time, scheduling a repairman to come out and install the parts, and then calling in again when the part didn’t work.

So far we’ve been 11 days without hot water this time (thank goodness for the gym showers!). We’ve been going through the customer service dance again. The contractor who originally sold us the unit is telling us to call the manufacturer. Rheem is saying we have to remove the hot water heater and return it to the contractor and then they’ll replace it. Really? Remove the hot water heater and bring it back to the contractor? By law, we aren’t even allowed to do that, since it connects to a live gas feed. It has to be done by a licensed plumber. Rheem may think it’s very clever, selling us a lemon and making it virtually impossible to get it fixed. The contractor, of course, is telling us that they can’t do anything, and we just have to deal with the manufacturer directly.

What neither seems to understand is that with this kind of behavior, we’re never going to be customers again of either the contractor or the manufacturer. The inability to get decent service has soured us on both parties.

People Want Solutions, Not Vendors

What customers want (in other words, what I want) is one person they can call to solve their problem. They don’t want you to forward them to your vendor, or to some third party. They want to call you and have you work the magic it takes to get the product working again.

Furthermore, you want them to call you, too. That’s the only way you can make sure the service experience is a good one. Our contractor is going to lose our business through no fault of theirs, but through the fault of the manufacturer. The fact that it’s “industry standard” for customers to deal directly with manufacturers does not matter to me. It’s a stupid standard that is making my life miserable.

What I wouldn’t pay for … a contractor who would sell me a hot water heater, install it, and be a one-call service center for me. Would I pay more for this than simply time + materials? You bet. The contractor would quickly get the experience dealing with the various manufacturers, and could streamline which products they recommend to be the ones that don’t break, or that can be quickly fixed when they do break. If they have enough customers, they could even get some negotiating leverage, either for service response time or price. (“I have 100 customers with your hot water heater in the Chicago area. Let’s negotiate a discount on replacement parts.”)

There’s a market niche, but so far, no one’s filling it.

What experience do your customers go through when your product breaks? Is there a chance for you to deliver serious extra value by being a one-phone-call provider for your customers? If so, will it give you the extra bonus of developing relationships or expertise that ultimately helps you work even faster, cheaper, and more easily?

Think about it. There’s power to being the only person someone calls when they need a solution, and that can be turned into a seriously valuable business.

Success Starts When You Stop Using Your Own Product

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Have you checked out your competitors recently? I was just reading a review that says the new Blackberry smartphone is by far the best, speediest, most elegant Blackberry ever. But the reviewer would not recommend anyone buy it. Why? Because it’s still missing a lot of the key functionality that other smartphones have. The hardware is leading edge, but they haven’t truly made the device do anything better.

What I want to know is what kind of smartphone the co-CEOs of RIM use? Do they use Blackberrys? I can’t imagine a worse choice. They should be using iPhone and Android devices for 95% of their calls and computing. We’ll let them use Blackberrys, but only on Sunday. And they’re not allowed to have their IT people set them up; they need to do that themselves. Then they’ll start to understand fundamentally what it’s like to use these devices, and why Blackberry is increasingly falling behind.

I’ve been in Blackberry’s marketing research list for years. I want so badly to tell them why my next phone will be an iPhone, and exactly how and why their platform falls short. But they never ask that. They ask too-specific questions about their guesses as to why I might prefer an iPhone. And their guesses are wrong, because they’re so steeped in their own product.

If you’re in a competitive market, you owe it to yourself to adopt your competitor’s product. Don’t just use it for an hour or a couple of days; really integrate it into your life. Understand its strengths and its shortcomings. Do this a couple of times a year. Only then will you have a hope of being able to take the next step and leapfrog what they’re doing with your own next product. Otherwise, you’re playing guessing games. You might get lucky once or twice, but at the end of the day, you can’t create a vision of a next generation product when you don’t even know what this generation holds.

Know the Lifetime Value of Your Customers

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When that lone customer arrives at your restaurant on a busy night, it’s tempting to make him or her wait, in favor of the party of 12 that’s sure to rack up a huge bill. But it just might not be wise.

When you’re deciding how to structure your business, who to give service to, and when to go the extra mile for a customer, don’t just consider the transaction you’re in the middle of dealing with. Consider the total lifetime of interaction with your customer. The “lifetime value” of a customer is how much you expect that customer to spend over the course of their association with you. That lifetime value is what you want to take into account when deciding how far out of your way to go. I’ve recently had a few run-ins with companies that have taken a short view, much to their detriment.

I eat lunch 5 times a week at the same deli. They discontinued my favorite kind of hot pepper, leaving no condiments that I enjoyed. I asked them to please bring them back, and they refused. I offered to buy my own jar for them to use. They refused. And I stopped eating there. Five days a week, times 50 weeks a year, times $7 per lunch is $1,750 of income a year they were happy to forgo to avoid dealing with the hassle of keeping a jar of peppers around. My new deli is part of a franchise. They are only supposed to serve their approved condiments. I spoke to the owner and he happily kept a special jar of peppers just for me. In the 3 years I’ve been eating there, they’ve made $5,000 and my previous deli has gone out of business.

My friend passes through Reno every year on the way back from the Burning Man festival. He stayed in Harrah’s because they gave him a free upgrade if they had rooms available. He then spent the money he saved in the Harrah’s restaurant and spent even more in the casino. They stopped giving free upgrades, and he changed hotels. It would cost them nothing to give him the upgrade, and instead, they’ve lost year-after-year of restaurant and casino business. Let’s not even consider how much Harrah’s would make on all the referral business my friend would bring. Smooth move, Harrah’s.

To return to the original example, while it may make sense on any given night to forgo seating one person in favor of the party of 12, if that one person dines at your restaurant three times a week, in the course of a year, they’ll outspend the entire party of 12. As unintuitive as it may seem, treating the solo customer well may be a better business decision than handling the occasional bachelorette party. And believe me—the cleanup’s a lot easier, too.

When you make decisions about your customers, do you consider their requests as separate events, or do you consider the lifetime value of each customer before deciding how much to commit to their happiness?

How The Rich Are Different (Hint: Not Much)

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I’ve found the older I get, the more I hear people talk about how some rich or famous person is so smart, generous, insightful, good at business, etc. Only these days, I actually know some of the people being placed on pedestals. I offer you this report as a public service, since I made this mistake for many years, often to my own detriment.

We get confused. We think that if someone’s rich, it means all kinds of other things about the person. We’re probably biologically hardwired to think this way. in our societies, money connotes status, and humans (being primates) seem to believe that status corresponds with all kinds of other qualities.

Let’s be clear:

  • Rich people aren’t necessarily smarter than you (though some are).
  • Rich people aren’t necessarily any better at business than you (no one ever writes an autobiography called “I was born to the right parents and was in the right place at the right time,” but they should. Nor do any tomes get written about the supremely competent who just happened to have bad luck)
  • Rich people aren’t necessarily any more moral than you (no matter what Ayn Rand writes in her fiction books)
  • Rich people aren’t necessarily any more generous, any greedier, or any more insightful as to what the world’s problems are or how to solve them.

The next time you go looking at a rich person and proclaiming how smart they are, how insightful they are, or how much good they’re doing for humanity, stop and double-check yourself. Go find some poor people who are also smart, insightful, or doing good for humanity. Then give a long, hard look and decide whether the rich person actually has all those qualities, or whether you’re confusing bank balance with human attributes.

(*) For the psychologically-inclined among you, this is called the “fundamental attribution error.” We tend to underestimate the role environment plays in outcomes, and overattribute outcomes to personal qualities.

“Strategic Thinking” – The Meaning Behind the Buzzword

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It sounds easy: my client wanted to think more strategically. isn’t that the hot buzzword? “Strategic thinking.” Oooh! Sexy. There’s only one problem: what, exactly, does it mean?

You’d think we would know. But I’ve seen executive teams discuss in all seriousness what the lever does on a piece of machinery. That’s about as non-strategic as it gets. In fact, a general rule is that if you read it in a manual, it’s quite likely not strategic.

What is strategic is when you’re doing something that changes the structure of the business in some basic way. Paint a machine lever red? Not strategic. Decide to outsource manufacturing to China? Strategic, because it changes who you hire, how you manage them, and what they’re capable of achieving. You punt your machines and take on eager young managers who speak Mandarin.

This is the first kind of strategic impact: changing organization structure. This includes outsourcing, selecting vendors (since what you can do now becomes expanded and limited by what they can do), mergers and acquisitions, changing the org chart, going public, and hiring and firing people who will in turn make strategic decisions.

Or consider an entrepreneurial client who insists on answering the phones himself. He’s done it since founding the business 20 years ago and prides himself on knowing everything that’s going on. But now that the company gets a hundred phone calls a day, he decides to install an automated attendant, freeing himself to do other things. This is an example of “business process reengineering,” which is a fancy way of saying “doing things differently.” Changing how a business does something is strategic because different hows give the business different capabilities. If your product is produced on a machine that turns out 100 widgets a day, then you simply can’t bid on a job that wants 500 units by tomorrow. If you can rearrange your factory processes and produce 5,000 units a day, whole new markets open up.

Speaking of markets, choosing the markets to compete in, what to sell, and how to price are all strategic decisions. After all, those decisions determine who you’ll hire, how you set up your org structure, and how you’ll deliver your product or service.

The American Express web site lists 20+ cards. I called a friend in Amex’s strategy group to help me understand the difference between the “Platinum Business” and the “Business Platinum” cards. He said, “I work in strategy. I don’t really know our product lines.” A strategy group that doesn’t know the products? I don’t know what they do, but it seems awfully dangerous to be making organization structure and process decisions without even knowing what your customers are buying.

Everything we’ve discussed so far is cross-functional; they can involve changes that affect many parts of a business. Though it’s possible to make strategic decisions in one area of a company without involving other areas, that’s a dangerous game. If our marketing department starts competing in a new market that cares about delivery time, but doesn’t tell our shipping folks, they can set the company up for failure.

Don’t make the same mistake. Learn when your decisions are strategic.
That means decisions about org structure, process–the HOW–, cross-functional decisions, and the marketing decisions of what to sell and who to sell them to.

If you want to learn more about strategy, my very favorite book is Co-opetition by Adam Brandenburger and Barry Nalebuff. I also liked Geoff Moore’s “Crossing the Chasm.” Both books are circa mid-90s. There are 83,416 other business books that will teach you some kind of strategic thinking. I’m not sure the specific strategic approach is very important (though consulting firms will make big bucks telling you otherwise); to me, the value comes from learning to think at a strategic level consistently and integrate strategic thinking into your daily running of the business.

Is The Marketplace of Ideas Turning Into a Swamp?

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We take it for granted that making things easier is always a good thing. I disagree. Sometimes it is, while sometimes it isn’t. Today, I’ve been contemplating the case where maybe it’s good to make things harder.

Technology has made it so that anyone can produce music or publish books. This is a very good thing, in that it means people driven by the desire to do those things can now do them far more economically. But there’s a downside to technology that enables: it drives the supply of those goods up, without necessarily driving demand up. More supply without more demand means prices will fall. In both arenas—neither of which have been famous for paying creators very much money—we’re seeing so much content being created that it’s hard for anyone to make a living anymore. The very few who manage to rise above the fray capture most of the money, and everyone else has to work as a waiter to get by.

In some abstract way, this may be good for the consumer by giving the consumer more choice (though the book The Paradox of Choice discusses about a dozen reasons why more choice is not necessarily good). But there’s now so much noise in the market that matching that consumer with the perfect author/musician is harder than ever. Unless the musician/author is one of the winners with a huge marketing budget, the consumers will never find them.

There may actually be benefits to markets that are somewhat harder to enter. Fewer players enter, but the ones who do can make enough money to make a living, and the number of entrants is low enough that consumers can at least have a decent shot at discovering the product that’s best for them.

Sad for T-Mobile

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I just visited T-Mobile.com and saw their big ad, emphasizing the amazingness of their 4G network. They haven’t yet realized that people are no longer buying cell phone service. People are now buying a platform and functionality, which happens to run on top of cell phone service. Super-fast streaming does me no good if I can’t super-fast-stream the tools I need/want to keep my life going.

Maybe most people think of their cell phones merely as media, entertainment devices, but I think that’s too simplistic. A vast number of us think of our cell phones as adjuncts to how we do business. I tried the MyTouch 4G from T-Mobile and returned it, because it was hyper-optimized for Facebook, tweeting and texting and watching YouTube. But could it handle a to-do list or a memo pad? Nah. They hadn’t thought to include that. (After 9 hours of downloading Android apps to handle that functionality and not finding a single app that did everything I wanted and was also pleasant to use, I finally gave up.)

Get with the program T-Mobile: the platform is now what matters. The game has changed. Rather than just OEMing Android and the phone hardware, take a good look at how people use their smartphones. Don’t just read the hype. Watch people. Watch teenagers. Watch parents. Watch businesspeople. Then make sure your entire phone experience supports those people’s ability to get their work done.

If you can get the iPhone, do it, and do it as fast as you possibly can. Many people are more loyal to the platform than the carrier, and if you can handle the capacity issues, providing the iPhone with your excellent service will be a big win in the marketplace.

If you elect to stay Android-only, look much closer and more deeply at how people use their phones. Don’t be afraid to hire a team of programmers and have them do as much customization as it takes to produce something both functional and usable. That’s not easy, but it’s doable. You just need to know that’s your goal going in.

Good luck. My contract ended last month, so now I’m free to switch carriers with no penalty. I can buy a Canadian unlocked iPhone and manually trim my existing SIM card to fit, but that will cost me an extra $1,000. Or I can switch to AT&T or Verizon. Or, I’m willing to wait for you to get the iPhone. But not forever…