Overcome the Fear: Three Steps to Effective Pricing

Marketers hate figuring out effective pricing.  It often seems challenging or obscure, and the risk of getting it wrong seems so high.  After all, what you charge for your offerings ends up determining your revenue.  Price too low, and you harm your revenue stream; price too high, and you drive potential customers away.

There are two major schools of thought about pricing:  one that says you should price your offerings to match the willingness to pay of your potential customers and one that says you should price your offerings based on what it costs to produce and deliver them so that you achieve a chosen margin.

Many companies, notably those that manufacture products, use a cost-plus method to determine effective pricing.  The motivation to earn a given margin is certainly a strong one, but this approach ignores market realities.  The economics of any market show that potential customers are willing to pay based on a range of factors, from supply and demand to delivered value to competitive pricing.

That leaves value-based pricing as the more viable approach.  But unless you have a team of econometricians at your disposal, it can be hard to determine the right price to extract enough, but not too much, value from the market and your customers.

The Three Steps to Effective Pricing

Here are three things to do to get your pricing right:

  1.  Know the competitive landscape. You need to know who your competitors are and what they charge.  But that’s not enough.  Don’t forget that “competitor” means anyone―even if it’s the contractor paving the parking lot―competing for the same budget dollars you hope to get.  Know what they charge.  If you can’t find out from public information, ask your sales reps because their prospects are telling them.  On top of that, figure out your competitive position.  Are you a leader?  A follower?  A price-setter?  A price-follower?   A premium offering?  A value alternative?  Once you know that, you can set price compared to your competition.
  2.  Know the history. What have customers paid in the past for your offering?  Other similar offerings?  You don’t have to deliver exactly the same as always, but unless you’re selling to the few truly innovative potential customers or are a completely new offering, you can only change price levels so much―but you can change them.
  3.  Get your packaging right. What do your customers value most about your offering? Can you break out parts of your offering and price them separately?  Can you add new pieces that will deliver additional value?  Do you offer any services your customers especially value?  Make sure your minimal offering delivers value but also make sure you add value where you can.

Once you know the answers to these three questions, you can choose your price level. When I do this, I always sit down and write a price list.  That tells me what I have and what I’m missing.  Once you feel you’ve documented everything you need, you can validate your thinking with a little market research (I usually just call five to ten potential customers and ask if it makes sense).

The last step is one where most marketers should feel comfortable: Test, test, and test again.  Pay attention to how potential customers react.  Are they balking?  Or are they eagerly accepting your new pricing?  Did you get your base product right, but your add-ons are too high?  Make adjustments.  Then keep making adjustments until you don’t see many more needed.

Marketers may hate of fear the idea of doing any pricing analysis, but these three steps can help take the challenge and put it into a context that is much more familiar and easier to approach.  And, I hope, make it less scary.

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Artificial Intelligence – The Next Marketing Frontier (and Danger)

Artificial Intelligence seems to be everywhere all of a sudden, and it’s making its way into the technology marketers use every day.  We’ve been talking to (with?) our smartphones for a while now, and there’s pretty much no mobile device that isn’t just begging to hear your voice.  With Apple adding Siri to the Mac, that now applies to pretty much any device. Amazon even has an eerily lighted cylindrical device that can play Jeopardy! with you―and presumably understand your stuttering, uncertain responses in the form of a question.

The Direction of Artificial Intelligence Operational Systems

It’s only in the past year or two that we’ve seen so-called artificial intelligence technologies make their way into operational systems and software used in business.  And now we’re seeing some form of intelligent capability make its way into marketing.  Here are a few examples:

  • Ad Targeting: Machine learning is working for companies such as Baidu to determine when any given user is most likely to click on what kind of ad, then automatically serving the right kind of ads for that user at that time.  This attempts to maximize click-throughs.
  • Recommendation Engines: We’re all familiar with the jokes about Amazon’s (and other vendors’) “people who bought this item also bought” feature which often make less-than-ideal recommendations.  Applying machine learning to large amounts of data on consumer behavior, however, can improve this dramatically.  Under Armour is using IBM’s Watson to analyze its own customer purchase data with third-party data on fitness and nutrition to serve up far more relevant product recommendations.
  • Preventing Credit Fraud: Banks have been using massive amounts of data to try to determine when a particular credit card transaction has a good chance of being fraudulent.  Now companies such as USAA are using natural language processing algorithms to look at the text within transactions to determine potential fraud even without a previous pattern having developed.

These examples are taken from a pretty interesting list of applications of artificial intelligence in marketing.

The key question for me is:  How will this change marketing?  I’ll offer some thoughts on where this is going, but first indulge me a short background explanation.

There are two main lines of thought in the computer science world about how intelligent systems (from software to robots and beyond) should act and interact with humans.  One says we should be developing systems that are independently intelligent.  Those systems would learn from the initial set of experiences humans provide but then would function on their own, without human guidance and making their own decisions.  If this scares you a bit ―and it should―you can read an incredibly insightful speculation on this in Asimov’s classic, I, Robot.

The other line of thought says intelligent systems should be built to extend and enhance human intelligence.  Sometimes this is called the “Star Trek” school of thought since that is how the computer systems on that show generally operated (and the independent androids were almost always evil―apologies to Mr. Data). The goal here is to help humans advance their own thinking.

A good example of the latter in the marketing world (and a function I really hope to see one day soon!) is the ability to ask your marketing automation systems questions such as “What are the top three paths people who buy our products take through our website?” and have your system know it needs to crunch the behavioral data to develop paths and determine outcomes.  Even better, the system would know why.  In this case, the system is not making decisions on website structure or how to present what information to whom, but it is telling you, the human decision maker, what you need to know to make those decisions.

Most of the examples of intelligence, including machine learning and natural language processing, that are in place today fall into the latter category:  they exist to provide some form of information plus analysis to a human decision maker.  There are a few examples of systems that are given jobs they do themselves (such as the ad server example above), but even those are assigned a specific job and decision-making framework by the humans who control them.

What Comes Next?

I think the next few years will bring a dramatic increase in the intelligent capabilities of all kinds that will be brought into business systems, including marketing systems.  Nearly all these will fall into the data or language analysis category at first.  They will do things such as answer customer-service requests or help marketers make sense of large sets of unrelated data.

But some will start to make some of the decisions marketers make every day.  For example, IBM’s Watson technology analyzed millions of recipes and now can develop a (presumably tasty) recipe given a set of ingredients.  That’s why they let it compete on Jeopardy! but not on Chopped!  Imagine if Watson’s artificial intelligence analyzed the marketing mix of every company in your segment and added in the consumer behavior data.  I’m willing to bet it would make marketing mix and timing decisions as well as any of us could―maybe better.

In the retail business, it’s not hard to envision the day when Apple’s intelligent ear pieces (version one comes out later this month in the form of AirPods) can remember that three days ago you mentioned you needed to buy new socks, and then remind you (literally putting a “bug” in your ear) as you walk by a sock-selling retailer that is doing location-based advertising with Apple.  Today this feels intrusive, but as our artificial intelligence assistants become more intelligent, it will seem less so. It’s more like having your friend notice the socks in the window and asking, “Didn’t you mention you need socks?”

Will Marketing Change?

No.  Marketing, as we sometimes need to remind ourselves, is a discipline, not a set of actions.  We’ll still be doing it.  But our jobs will change dramatically.

The predictions for future jobs are dire.  This article predicts Robots (or some form of artificial intelligence systems) will take over 50% of all jobs within 30 years (the career span of someone 10 years out of school!).  And if you Google “Jobs AI is Taking Over,” there is no end of similarly dire predictions.  Many of those jobs are white-collar jobs.

Some of those will be marketing jobs.  As systems get better at analyzing data and behavior, the jobs devoted to that will disappear.  As systems get better at processing and responding to natural-language requests, customer-service jobs will start to go.  And yes, as systems get better at inductive reasoning, jobs that focus on messaging and positioning (inducing target customer desires) will also go.

The flip side of all these dire predictions is that more intelligent systems will help the marketing decision makers make better, more informed, less biased and faster decisions. Those of us who focus on creative roles and on decision-making roles will get much, much better at our jobs, as our systems help us do better, faster.

Now, if Siri could only tell me where I saw that really cool gadget I wanted to buy.  Or even reliably get me directions home.  Then I’d be convinced we’re on our way to more intelligent systems.

Are you using intelligent systems in your marketing?  Are they helping?  I’d love to hear your stories.

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Three Ways to Find Your Marketing Creativity Again

 

It would be hard to find a marketer who would not agree that marketing has become much less creative and much more process-focused.  We tend to idealize the 1960s world, stereotyped by the television show Mad Men, where the creative team ruled the business and the great idea was the best product marketers had to offer their client or employer.  At the same time, we lament the rise of technology, complaining that marketing and sales automation has forced us into a never-ending loop of justifying our value based on whatever numbers our client or bosses choose to watch.

What Happened to Marketing Creativity?

It’s easy to blame the shift to more process-focused marketing on the rise of marketing technology and the associated capabilities of measurement.  But it’s also true that we have used technology as a crutch, a substitute for our own creativity, in order to get things done faster, or, at times, with less hard work.

Don’t get me wrong:  Automation and measurement are important to a functioning marketing team.  Without it, you can’t scale and you just don’t know what’s working and what’s not. You need automation to deliver just the right message to just the right person at just the right time and to know whether you succeeded and whether the person took the action for which you were hoping.  As marketing gets more and more personal, the need for technology to handle more tasks at a higher level of functionality will only increase.

Is marketing creativity getting lost in automation?  I don’t think so.

Creativity, though, marketing creativity is the role―and the greatest contribution―of humans in marketing (and beyond).  You can’t delegate that to an automation system.  I think it’s time for us, as marketers, to remember it is still human creativity that drives our work; our automation systems cannot be the source of our creativity but rather the tools we use to automate and scale that creativity.

Is your marketing really as creative as it could be?  Here’s an example of using technology as a substitute for marketing creativity.  See if this scenario sounds familiar:

Your digital marketing team is about to launch another email campaign (the last one worked pretty well, right?).  They decide on the new target audience.  They then look at the last campaign in your marketing automation system and copy it.  They edit the content to more closely match the new idea.  They swap out the calls-to-action with new ones (which look surprisingly similar to the old ones―with apologies to Pete Townshend).  They check it over and hit send.

This is how the vast majority of marketing is being done today.  Email campaigns are being copied.  Ads are being tweaked.  Even paid search parameters don’t really change much. It’s comfortable.  It’s easy to understand. It’s low-risk―both from an investment perspective and in how you have to explain the lower results (it was just like the last one―we thought it would work!).  We accept incremental change and incremental results, because we can understand it.  And because our marketing automation systems, which were designed to automate tasks, are being used as a substitute for creativity.

Nobody ever made a difference in any market by doing something just like what they had done before.  You can insert the Apple branding story of your choice here, because the ways they changed thinking and changed consumer preferences is exactly the point (My personal favorite story about how ads changed minds and the market is the “Reach Out and Touch Someone” campaign.).

How do we put the marketing creativity back into marketing?  It’s not easy, but it’s critical if you want to make a difference in your market, to your clients, and to your company.

Three Ideas for Putting Creativity into Your Marketing

Here are three ideas I use to get my creativity back into my marketing efforts:

1)  Kairos

Morgan McLintic, managing director for the U.S. for Lewis Global Communications wrote an interesting piece for LinkedIn, titled Why You Aren’t Creative Anymore.  He discusses the ancient Greek culture’s two different expressions for time:

Chronos, he explains, is the concept we understand as the ticking of the clock as time passes.  It’s the way time gets measured and how time passes.  It’s how we synchronize (notice the root word, chronos) to get a common understanding of when things happen.

Kairos, on the other hand, is a qualitative passage of time, similar to Csiksgentmihalyi’s concept of flow.  It’s the place where we take the time to focus and create.

McLintic argues that the endless distractions and demands prevent us from creating the space for creativity.  We are not just endlessly busy; we are distracted.  We might be with our families, but we are thinking about work.  We might be meeting with a colleague but really worried about the meeting with our CEO tomorrow.  Focus―a key element of flow―is hard to come by.  Plus, we live in a culture that values busy-ness.  We are always under pressure to appear busy, even if we are not.  That ends up creating more stress as we force busy-work on ourselves to meet the expectation we think our surroundings―especially our work environments―force upon us.

Getting that space is hard, probably harder than it’s ever been.  But it works.  Here’s how I saw that happen recently.

I was leading a messaging project for my company.  We needed to not just revise our messaging but simplify it and communicate it in a clear, simple, concise way that anyone―in our market or elsewhere―could understand.  Even if you do every day, you know this is no easy task.  I took the usual steps, interviewing lots of people, consolidating feedback, looking for common threads and so on.  When I looked at my output, I had four PowerPoint slides with messaging statements and explanations― anything but simple.

I threw it out. I found a quiet place and put on the music that, for me, tends to inspire but not distract me (Mozart’s Symphonies No. 40 and 41).  I thought.  I recalled everything every customer and prospect had said.  I wondered why they bought from us.  More importantly, I wondered what they were trying to achieve when they bought from us.  As I sat there, the image came into my head of what must be in their heads.  Then the word showed up that described it.  Then I used the word in just the right sentence.  And that was it.  I had my answer.

Now, I stop just like that for every campaign I launch.  I encourage my team to do the same.  The result is I am starting my work with creativity―the critical element of marketing success.  I’m not letting my marketing automation system be my crutch for marketing creativity; I’m doing the creative work and letting the marketing automation system do its job of automating what I created.

2)  Finding Our Inner Four-year-old

Sir Ken Robinson discusses how our schools kill creativity.  It’s worth the nearly 20 minutes to watch.

He tells this story (slightly edited for readability):

When my son, James, was four in England―actually, he was four everywhere, to be honest.  If we’re being strict about it, wherever he went, he was four that year.  He was in the Nativity play.  Do you remember the story?  No, it was big, it was a big story. Mel Gibson did the sequel; you may have seen it: “Nativity II.”

But James got the part of Joseph, which we were thrilled about.  We considered this to be one of the lead parts.   We had the place crammed full of agents in T-shirts: “James Robinson IS Joseph!”  He didn’t have to speak, but you know the bit where the three kings come in?  They come in bearing gifts, gold, frankincense, and myrrh. This really happened.  We were sitting there, and I think they just went out of sequence, because we talked to the little boy afterward and we said, “You OK with that?”  And he said, “Yeah, why? Was that wrong?”  They just switched.  The three boys came in, four-year-olds with tea towels on their heads, and they put these boxes down, and the first boy said, “I bring you gold.” And the second boy said, “I bring you myrrh.” And the third boy said, “Frank sent this.”

Kids will take a chance.  If they don’t know, they’ll have a go.  They’re not frightened of being wrong. I don’t mean to say that being wrong is the same thing as being creative.  What we do know is, if you’re not prepared to be wrong, you’ll never come up with anything original―if you’re not prepared to be wrong.  And by the time they get to be adults, most kids have lost that capacity.  They have become frightened of being wrong.  And we run our companies like this.  We stigmatize mistakes.  And we’re now running national education systems where mistakes are the worst thing you can make.  And the result is that we are educating people out of their creative capacities.

Trust me, it’s much funnier when he says it.  But he’s right.  He tells the story―now pretty much folklore in the education business:  when you ask a class of kindergartners who is an artist, pretty much everyone raises their hand.  When you ask a class of sixth-graders the same question, only one or two raise their hands.

You probably can’t go to work and act like a four-year-old.  But you can take the time and focus to let yourself play with your thoughts and ideas like you did when you were four, then take what you come up with, and put it into grown-up terms your colleagues will understand.

I can pretty much guarantee you show more marketing creativity than anyone―including you―ever expected.

3) Avoid Groupthink

This should be pretty obvious to anyone who’s ever tried to make a decision in a meeting. You know the pattern all-too-well:  Everyone speaks, carefully avoiding stating an opinion, until the boss chimes in, then everyone suddenly agrees with the boss, showing how what they already said supports their agreement.  This is not just a business phenomenon.

Brainstorming sessions are a really good way to avoid this.  But most brainstorming sessions fall prey to the exact same malady.  We are afraid to offer ideas that might seem too far away from the norm―or worse, too stupid.  We want to be seen as part of the team, and we want to be seen as intelligent.

One technique I have seen used is to let everyone do their brainstorming alone, while in a group.  In this approach, you might hand everyone slips of paper or post-it notes.  Ask everyone to write down everything they can think of, one idea per slip or post-it.  When everyone is done, collect the notes so they are not associated with any individual.  Let the group get together and look at the ideas, then start sorting them out and prioritizing.

Groupthink is a very dangerous and insidious bias that can kill any attempt to offer anything creative before it is even stated.  You probably know this intuitively.  Avoiding the fear of groupthink will let you find a way to offer your marketing creativity and maybe make a big difference in your next project.

These three suggestions are far from the only ways to reestablish marketing creativity.  I’m pretty sure you have a few other ideas (please offer them in the comments below!).

Reestablishing the role of creativity is critical to the success of your marketing efforts and to the success of your organization as a whole.  It’s time to stop letting automation drive all our thinking and let it do its job―automating the creativity humans bring to the work.

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Are You Really Customer-Centric? Or Is It Just Talk?

 

It seems every company wants to show just how customer-centric it is these days.  It’s increasingly common to hear PR machines toss around phrases such as, “We value our customers,” or “We put our customers at the center of our business.”

But it’s easier said than done.  When it comes time to make a decision that pits customer interests against a chosen corporate strategy, do you really make decisions that put your customers first?

A.P. Giannini, founder of Bank of America, said, “The purpose of a business is to create a customer.”  If, in the process of evolving your business, you choose to forsake some (or all) of your customers, you not only have no longer put customers at the center of your business but also have given up the business those customers represent.

A recent stark example of the conflict between a chosen corporate strategy and a customer-centric one is the recent decision by Starbucks to close a number of its brands, including San Francisco icon La Boulange.

La Boulange is a chain of bakery cafes in San Francisco that has a reputation for quality food at reasonable prices and has earned the trust and devotion of San Francisco Bay Area locals. This is important to this story, as earning the trust of San Franciscans, as a whole, is not easy, and locals tend to fiercely defend local brands, often at the expense of national brands.

When Starbucks acquired La Boulange in April 2013, there was a local uproar.  Would they keep the beloved cafes open?  Would we be deprived of La Boulange baked goods?  What would happen to the people working at them?

Starbucks is one of those companies that claims to employ a customer-centric business strategy.  Putting customers first means making a promise to those customers, then keeping that promise.  And, of course, not breaking it.  Starbucks made a promise. They kept that promise—until they broke that promise by making a decision that clearly put their chosen corporate strategy ahead of their customers’ wishes.

Make a promise:  At the time of the acquisition, Starbucks stated it would keep the cafes open and even offer La Boulange baked goods in its Starbucks coffee shops.

Keep a promise:  It held to this promise.  It even opened more locations of La Boulange during the two years since the acquisition.

I cannot overemphasize this point:  Starbucks made and kept a promise to the segment of consumers who value and frequent La Boulange.  San Franciscans breathed a collective sigh of baked-good-induced relief.

Break a promise:  Last week, Starbucks announced it would close all La Boulange locations by the end of September 2015.

The justification for the decision was, in Starbucks’ words, “Starbucks has determined La Boulange stores are not sustainable for the company’s long-term growth” and that the decision was made because “Starbucks continually evaluates all components of its business to confirm they are aligned with key priorities and strategies for growth, which includes the continued analysis of the store portfolio.”  Notably, the decision was not made based on profitability, as the company claims the La Boulange brand achieved 16% year-over-year growth, and industry reports show that the newly opened stores far exceeded expectations.

In a company that claims to put its customers first, what is missing from this decision is any consideration of the promise to the customers.

Which brings me to the difficult question Starbucks faced:  Do we follow our chosen corporate strategy or do we make our strategic decisions by putting our customers first?  I wonder how you or I would make the same decision.

Traditional corporate strategy says a company should choose its competencies, market, and customer segment, pursue them to the exclusion of other options, re-evaluate those choices periodically (or continually), and make adjustments.

Customer-centric strategy demands a different approach.  If the customer is truly at the center of your business, then your business must choose its competencies, approach, and services to focus on the needs (known, unknown, or even unanticipated) of the customer. This is true whether your customer is an individual consumer or another business.

Making the choice between a chosen strategy and customer-centricity is not always as stark or obvious as it is in this case.  Companies face decisions every day that pit delivering value to customers against the chosen strategy of the business.  If your company chooses the chosen strategy and moves away from the customer it created, it must either create a new customer or face the fact that it no longer has a business (at least in that segment).

Starbucks’ mission statement is “to inspire and nurture the human spirit—one person, one cup and one neighborhood at a time.”  The core Starbucks brand will continue to do that. But the La Boulange brand did that exact same thing for a different customer in a different way (appropriate to that different customer).  Despite Starbucks’ statement that this decision was one that keeps their mission intact, it seems that the other decision (to keep La Boulange open) would have done that as well.

So, while the decision does not directly conflict with the mission statement, it does conflict with any claim of customer-centricity.

All of which presents us with a stark example of how even the best companies make difficult strategic decisions when customer interests collide with a chosen strategy.

Have you faced such a decision?  How have you handled it?

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Rethinking Customer Marketing for the Subscription Economy

 

This is not your grandfather’s customer marketing.  A business that depends on—or hopes to depend on—subscription (or recurring) revenue must relate to its customers in a fundamentally different way than a traditional one-time-sale business.  But the changes go deeper than just the customer relationship. To be successful in a subscription business, companies must rethink their own business operations.  Let’s take a look at what that means for marketing.

The question I ask you is simple:  are you actually marketing to your customers?  Or are you just keeping in touch and hoping they’ll stick around?

Customer marketing is one of the simplest business changes you can make to succeed in the recurring revenue business.  You don’t need any new skills or expertise, and the processes you need already exist (I hope) in your current organization.  The work you need to do is translating them to apply to your current customers.

The Journey and the Funnel

You have, undoubtedly, spent much of your marketing career thinking about—and seeing many different flavors of—the marketing funnel.  I’m going to guess your idea of a marketing funnel or customer journey looks something like this:

Before the customer marketing funnel, there is the standard marketing funnel!

This gives your marketing organization a good working model and, I hope, a deep understanding of how someone in the market becomes aware of your product or service and how they get from initial awareness to making the decision to purchase.

You also have a set of processes and practices that make your marketing work, make potential customers aware of your offerings and help them make the decision to purchase. These include marketing campaigns and programs, content development and distribution, branding efforts, and much more.

I hope in reading this so far, you’re thinking:  “Yes, I do all of that really well.  Why do I need to rethink this?”

Customer Marketing:  Before

You might have a function in your marketing organization called customer marketing. Depending on how you’ve organized your team, this function does anything and everything from customer references, to success stories, to customer events and conferences, and to customer loyalty programs.  You probably also have a way to keep customers informed of new products, updates, and other information you consider important, or that you think will help customers decide to buy from you again.

Rethinking from Day One

Day One is the day your customer becomes your customer, the day after the contract is signed, the day the customer starts getting value from your product or service.

It’s also the day your sales and marketing organizations step out of the picture and hand that customer off to your customer success organization.  Every day from then until the customer leaves you, the primary contact for that customer will be in your customer success organization.  That organization is then tasked (maybe via its own sales team) with ensuring your customer renews their subscription or comes back to you year after year.

In a recurring revenue business, the repeat or renewal sale is just as important as the initial sale.  Sometimes, we assume this sale is easier because we’re dealing with a customer who has already decided they get value from our offering.  That makes it no less important.

Rethinking customer marketing means treating your new actual customer on Day One just like the new potential customer who has only just become aware of your offering.  Day One begins a whole new marketing and sales cycle.  Day One means building a whole new relationship with your customer.

Customer Marketing:  After

The goal is simple:  keep as many customers as you can.

The process is simple:  apply your current marketing funnel or journey, programs, and processes to your current customers.

The transition is not so simple:  learn how your customers go from new customers on Day One to a renewal sale.  Then how they do that again next year.  And again the following year.

The transition requires you to examine both your business and your customers in new ways. You need to ask:

  • Why do my customers renew (not your long held beliefs; look at the data), why don’t they, and how do I tell the difference between customers who renew and customers who don’t?
  • What actions do I take right now that make a difference (again, based on the data) in whether customers renew?
  • How am I helping my customers realize value and renew?
  • Are my internal incentives (marketing, sales, and customer success) aligned with a goal of maximizing renewals?

Then you need to redefine your customer funnel or journey. It will look something like this:

The new customer marketing funnel

Then you need to design marketing and sales programs, campaigns, and other efforts around that to help your customers move from purchase to renewal (not to frustration and departure).

Organizations that do this successfully create a microcosm of a marketing team within the customer success organization.  This becomes a team that is charged with the full range of marketing and marketing operations functions (except corporate branding and PR, generally), and is measured on the same goals and outcomes as the marketing organization such as leads (which become expansion or adoption programs), conversions to sales (which become integration and realization of value), and sales (which become renewals).

Transformation to Customer Marketing

Rethinking customer marketing as though it were a full marketing function changes the way you relate to your customers.  It can also have dramatic effects on the success of your renewal programs, bringing your renewal rates to new heights and your churn rates to new lows.

And, if you are having great conversations with potential customers in your market, imagine how valuable those conversations will be once your current customers—your loyal fans—are part of them.

How is your organization evolving customer marketing?  Tell us in the comments!

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Customer Service Success Is So Simple that It’s Hard

 

We all love to complain about customer service.  Most of us have some sort of nightmare story at the ready anytime the conversation turns to the topic of customer service.  And collectively, we have classes of companies we just love to hate:  airlines and cable providers.

I know you can tell any number of stories about how some company (Comcast, anyone?) got it wrong (check out Mr. A**hole Brown has a really good one post).  I’m willing to bet you even have a few choice suggestions on how to get it right.

But your suggestions will likely only fix the issue in your case (or your type of case).  The company that is failing at customer service has a much deeper problem.

The issue is simple:  lack of empathy.  But the solution, which is also so simple—create empathy in your customer service staff for customer service success—is, in fact, very hard to make happen.

Why Is It Hard To Achieve Customer Service Success?

Allow me to start with an idea that will sound familiar from my earlier posts:  When someone buys a product or service from you, they are doing so because they expect that product or service to do a specific job for them.  Sticking with my favorite scapegoat, when someone buys cable television service from Comcast, they are expecting Comcast to deliver entertainment on which they can rely at all hours.

Here’s where it gets complicated (frankly, it’s not really all that complicated for Comcast, but it is for most companies).  The definition of “entertainment” varies widely among the millions of people who are Comcast customers.  Personally, I want my cable company to bring me intelligent, unbiased, detailed news coverage any time of day (largely the responsibility of the news outlets and not even within the control of a cable provider).  Or you might want access to a huge library of foreign films.  Someone else might want endless reruns of TV shows from the 1970s.

Sounds pretty simple for a cable provider, right?  So where do they go so wrong?

Customer service doesn’t happen until something goes wrong.  Service is out.  Channels with my entertainment disappear, or worse, move to a higher tier of premium cost.  Or the CableCARD stops working with the latest update of my DVR.

Then I have to call (chat, e-mail, whatever).  Someone explains the process of why it’s broken.  Then they explain the process the company has set up to fix it.  It’s going to take time.  It’s going to cost me money.  It’s going to require that I sit at home and wait for someone to show up.

There’s a lot of process.  There’s a way to handle the situation.  But there’s no empathy. There’s no one who is capable of understanding why I am actually disappointed and figuring out the best (maybe even the right) way to make sure I get what I need.

Empathy is not a process.  It’s not a set of rules.  It’s not a policy.  It is a human ability. And it requires the one thing the giant customer service organization fears most:  individual freedom to act.

Halfway There

I have a lot of respect for Frank Eliason.  If you don’t know who he is, he is the guy who started @ComcastCares, Comcast’s Twitter based customer service.  It’s generally believed that he singlehandedly taught the corporate world what social customer service means.

Frank recently wrote an article exhorting Comcast to improve its customer service.  He included five suggestions on what they could do to improve.  The last of these was, “Live up to being the Philadelphian that you already are.  We will support you, but you need to support us too.  Treat us in the same manner you would want to be treated.”

I don’t disagree with his first four suggestions.  But they are all process improvement ideas. They don’t do anything at all to get your customer service staff to understand your customers’ problems and help bring solutions that address the actual issues right there and then.

The fifth suggestion (quoted above) gets closer to the mark.  It doesn’t say it the way I would, but it suggests that each and every customer service representative needs to be a decent upstanding human to create successful customer service.  That sounds a bit like empathy to me.

Getting it Right? 

It is nearly impossible to train empathy into an organization.  It’s a uniquely individual skill. People can have empathy, while organizations can’t.  But that doesn’t mean you can’t let your customer service people use the empathy they already have.

Companies such as Nordstrom and Zappos became customer service success standouts for one reason:  every single employee can do (nearly) anything to solve a customer’s problem.  On the margin, this led to stories (unconfirmed) of things such as a customer returning a set of tires to Nordstrom (which has never sold tires), but these stories are a very small group of exceptions to the rule.

The policy of “do whatever it takes to make it right” doesn’t just let the front line employee use their skill and empathy; it challenges them to do so.  Even better, it challenges them to create a story in that customer’s mind about how amazing the customer service provided by that employee was. And it creates a culture that makes employees want to be better at serving customers with empathy because their peers are also doing it.

These companies don’t train an organization to deliver empathy.  They created a culture of customer service success that valued it, paid attention to it in hiring, and challenged their people to do it—and do it better.  This requires trust (often anathema to many large hierarchical corporations) as well as a different approach to dealing with your own people and your customers.

Can You Change?

The obvious question is can a company such as Comcast really change?  Could it ever figure out how to change from a policy- and practice-driven organization to one that lets their people make their own judgments about what is the best practice in every individual situation?

It would be hard.  And it would take time.  Maybe for Comcast, their newly hired chief customer officer will be a start.

What about your organization?  Are you telling your people how to solve your customers’ problems?  Or are you hiring amazing people and letting them figure it out?  If you are the former, can you change?  Do you think your organization can help your people develop empathy?

Customer service success is so simple that it’s hard.

Tell us in the comments how you think your organization might do it.

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Choosing the Right Way To Create Transparency

Creating TransparencyWe hear about transparency every day.  We are told that, in a world where everything is exposed in media (mostly social media), it’s far better to be transparent than to try to hide blemishes, problems, and defects in the hope that they’ll go away or, at least, not be discovered until we fix them.  Marketing blogs and publications are filled with disaster stories about companies that have chosen not to be transparent and success stories of companies that have chosen transparency.

But just like our personal lives, we have to choose the right level of transparency, and we have to choose the topics on which we will be transparent.

The following is a great example.

In November, I wrote about Buffer, a tech start-up that put transparency on top of their values list.  Not only do they talk about nearly everything internally (including personal goals, such as education and weight-loss), but they publish many of their results externally, such as their customer success metrics, for the world to see.

Since then, they have become even more transparent, releasing more and more information publicly.  Two of the ways they have done this have produced very different outcomes.  Let’s take a closer look.

A Transparency Tempest in a Teapot

In December, Buffer decided to make public all the salaries of all their employees, including the formulas they use to determine these salaries.

This produced a small tempest in social media:  some praised their transparency, and others chided them for releasing personal information about their employees or for creating potential envy and dissatisfaction in their ranks.

The question I asked was this:  how does this disclosure benefit the customer (or any other constituent)?  The answer is simple: it doesn’t.  Granted, it does no harm, but it adds no benefit either.

This is a case of transparency for transparency’s sake.  Some have made the argument that disclosing this information is consistent with Buffer’s culture, so it enhances their reputation and brand.  I disagree.  Disclosure is a choice, and we can always find something they are not telling us (they can’t possibly think of everything!), and this choice does not add value to the most important audience of all: their customers.

The Slippery Slope of Transparency

Buffer’s chief happiness officer, Carolyn Kopprasch, also publishes a monthly report on their customer success efforts.  One element of this report shows how quickly Buffer responds to customer inquiries, tech-support requests, and the like (they state 85% of requests are answered in less than six hours though they’re not quite there yet).

This does add some value to their customers (including me) in that it shows what I can expect in terms of response to my requests as well as how well they are doing with all the issues brought to them.

To be clear, I think this disclosure is useful and valuable.  But it also creates a potentially slippery slope.

Not long ago, I sent in a tech-support request and waited four days for a response.  This is not typical of Buffer support or of my experience.  It left me asking about the distribution of response times.  Specifically, Buffer publishes the percentage of responses in one and six hours, but how often does it take a day?  Two days?  Four days?  Was my response in the bottom 10%? 1%? 0.001%?

Which then led to the logical next question:  since we know not all requests are of equal importance or urgency, and Buffer’s resources are limited, how do they make the triage decisions as to which requests get one hour response times and which get four day response times?

You can keep going, asking more and more logical questions until their entire operational plan is public.

Let’s say that Buffer chose to disclose the entire response time distribution and the triage criteria.  Where would that lead?

In our interview, Carolyn noted that most customer service and support organizations train customers to get angry.  Customers learn that getting angry leads either to faster resolution or to a supervisor who has the power to resolve an issue.  This is a version of gaming the system.

Buffer’s disclosure of the triage criteria most likely would cause its customers to game the system.  If I knew the criteria, I would certainly try to adjust my request to get a higher position in the queue and get a faster response.

Clearly this doesn’t help Buffer or its customers; it only adds to animosity and frustration.

Let’s say they only disclosed the distribution of response times.  That would create frustration on the part of customers who were in the bottom 10%, or worse, the bottom 1%.  My assuming my request fell at the bottom is not nearly as bad for my relationship with Buffer as having them tell me exactly how unimportant they deemed me.  We are all better off if I don’t know.

This is, then, a choice Buffer has made about how much information to disclose and where to stop disclosure.  I think they have made a good choice in that what they disclose helps customers understand their efforts better without taking away from the relationship and adding to frustration.

Is this two-faced?  Yes.  But not in a detrimental way.

Buffer values transparency on one hand and says it will keep increasing transparency.  But it also makes choices about just how much disclosure meets their transparency value.  Being transparent is an aspiration.  We have yet to find out how far Buffer will go.

We expect transparency from companies.  But we also expect there are boundaries, just like there are in our personal lives.

How Do You Decide?

You make decisions every day on what to disclose to whom.  Do we tell our customers this fact?  Do we tell the world that policy?

How should you decide?

I propose there is one simple standard embodied in these two questions: Does the disclosure add value?  And if so, to whom?  If it adds value for your customer, disclose.

Tell us how you’ve made your difficult disclosure decisions in the comments.
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Investing in Your Customer (to Avoid Customer Churn)

I had lunch with a friend recently who ran customer success for a SaaS  company.  Customer success in the SaaS business is typically responsible for handling customer support and service to build renewals when they come due while avoiding customer churn (customers who do not renew).

As we discussed the issues surrounding delivering a great customer experience and handling renewal sales, he commented that his biggest surprise was how much customer churn hurt his business.  He noted that every percentage point increase in churn had a multiplier effect on the top line for the business.

I had lunch with a friend recently who ran customer success for a SaaS  company.  Customer success in the SaaS business is typically responsible for handling customer support and service to build renewals when they come due while avoiding churn (customers who do not renew).

I’d be repeating myself if I included a rant on how keeping customers coming back is the only way to realize the return you expect on your investment in customer acquisition.  So instead, let’s talk about investing and how you can apply some very simple investment concepts to your marketing ROI.

Let’s talk bonds to demonstrate customer churn.

I know:  bonds are much less exciting than stocks when it comes to investing, but if you’ve listened to any of the decent advice out there, you probably have a reasonable percentage of your portfolio invested in bonds.

Here’s the thing about bonds:  they provide you with an income stream.  You expect the issuer to pay the coupon on the bond (the debt payment) at the scheduled interval. The market places a value on the bond that is largely based on the dollar amount of those coupon payments, the time over which they will be paid, and the current market interest rates.  If all goes well, you invest a lump sum and get paid back with interest over time.

Sometimes, all does not go well.  I hope it’s rare for your portfolio, but defaults happen. Companies (sometimes even governments) fail to make the coupon payments.  When this happens, you lose your money.  Yes, it’s part of the risk of investing, but it also means your money is gone.  Not exactly the outcome you wanted.

Connecting bonds, marketing, and churn.

Marketers have been talking about a concept called “customer lifetime value” for the past few years.  Whether you are in a business that depends on subscribers or repeat customers, you can look at your customer the same way you look at a bond:  you pay some amount up front (your acquisition cost), and you get a revenue stream that comes in at predictable intervals over time.  As with the coupon payments on a bond, you can use the risk of the market and net present value formulas to determine the value of a customer’s revenue.

But sometimes customers don’t come back or don’t renew.  The difference is that this happens at a much higher rate than bond defaults.  For some SaaS software companies, customer churn (the rate of non-renewals) can be as high as 30% annually.

Let me show you what this does to your portfolio or your top line in marketing terms.

For the sake of simplicity and illustration, let’s assume you have 1,000 customers today, and those customers are paying you $100 per month for your service.  Let’s also say you are a fast growing company, hitting growth rates of 50% annually.  Here’s what churn (or customers not coming back) does to your business over three years.

MRR - Churn Rates
Click on chart to enlarge.

On the chart above, the green line shows monthly recurring revenue (MRR) growth over three years, assuming there is no churn.  The yellow line shows the same growth rate, but assumes 10% churn.  The red line shows the same growth rate, but assumes 30% churn.

If you lose 30% of your customers every year for three years, your revenue is lowered by 56%.

If your portfolio underperformed by 56%, I’m guessing you’d be looking for a new investment adviser.  Likewise, if your revenue is 56% below where it should be, I’m wondering if your CFO isn’t thinking about a new CMO.

I’ve been fortunate to work with many companies who understand the financial leverage keeping customers holds for your company.  And I’ve helped a few gain insight into this leverage.

Which leads me to ask:

– Are you investing appropriately in keeping those customers?
– Does your company know how many customers it’s losing?

Tell us how you’re getting it right (or wish you were) in the comments.

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Getting It Just Right: Measuring Customer Success

In an earlier post, I discussed how to get measuring customer success right.  It sparked quite a few questions about how to choose the measurement and how to ensure it causes you to be aligned with your customer’s business success.  Here are some thoughts about how to get it just right.

The Goldilocks Customer Success Metric

In my earlier post, I compared two public safety companies that had very Measuring Customer Successdifferent measurements of how their customers became successful because of their products.

One was RedFlex, whose most often cited metric was the number of red light tickets issued because of their cameras (though, I don’t think they want to be measured this way).  This metric misses the mark, because it does not measure an outcome that is of value to the people who have to make a decision on the purchase of the camera system.  The goal is public safety, not more tickets.

In contrast, ShotSpotter (SST) measured a variety of outcomes, including number of arrests resulting from gunshots detected and number of convictions made easier because of their data.  The goal—public safety—is the same, but the metrics are directly relevant to the outcome.

Let’s analyze these:

Neither company chose what I’ll call the “papa bear” metric, which is something such as increased public safety.  This metric is far too broad, far too hard to measure, and while both companies do something that affects public safety, neither can claim to have increased it directly.

The number of tickets metric, which I’ll call the “mama bear” metric, is too narrow.  It measures the direct result of the system, but it does not take into account any of the results the activity produces.

The number of arrests metric is the Goldilocks metric (or one of them).  It’s not the direct result of the system (you could measure number of gunshots identified), and it does not claim to be a panacea for all police issues.  It does measure an outcome most of us can link directly to which is increased public safety (criminals get arrested), and one the immediate buyer (police department) and the ultimate buyer (political leadership) can relate to and definitely care about.

One alternative to the number of tickets metric might be to look at the total number of accidents at intersections with red light cameras.  For most of us, fewer accidents mean safer streets.

So How Do You Choose Your Customer Success Metric?

Let’s assume for the moment you are selling to a business.

Papa Bear 

Increase revenue or reduce costs.  I hope whatever it is you are selling to the business does one or both of these, or I suspect your prospective customer will never buy.  That said, with very few exceptions, your product or service probably does not directly do either one, and the outcomes of your product are not “more revenue.”  They should do things that lead to one of these two.

These are the wrong metrics.

Mama Bear 

More twitter followers (sorry, social media folks, this isn’t a business outcome).  This is certainly a metric, but for most businesses, it doesn’t produce something effective, nor does it (in any meaningful way) affect costs or revenue.  It’s too narrow, and too immediate. Other examples are things such as, “keeps all your customer activity in one place” or “ensures everyone knows the correct procedures.”

Those might be things your product does, but they are not why your customer buys.

The Goldilocks Metric (encore) 

If you were selling a product to a marketing department, the outcome might be “produces more leads in the pipeline” or “shortens the time to conversion to a sale.”  Both of those are things your product might do where you can measure the effect your product has on either number of leads or time to conversion, and the metric has a credible effect on the business (in these examples, more revenue).

In another recent post, I discussed Christensen’s idea of “hiring” a product to “do a job.” Your customer has a job they need done (e.g., they need more leads).  That’s something they hire a product to do.  And it’s something you can measure before and after they buy your product, so you and they can tell how effective your product is for them.

Another way to consider this is that every team, every group, and every department in a company has business objectives they can measure.  Your product needs to help their measurement of at least one of those business objectives moving in the right direction.

The Goldilocks metric has to be specific and countable.   ShotSpotter counts the number of prosecutions and convictions that use their data.  You can count number of leads, length of sales cycle, reduction in overhead, etc.

So finding the right metric is really simple:   It is a business objective, and it is countable.

Get that right, and you’ll have no trouble getting your customers to show you just how successful you are for them.  Which is just right.

Tell us how you are measuring your customers’ success in the comments.

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