neil woodcock’s marketing blog

I was reading a book the other day on leadership which caused me to reflect a little about what makes an effective leader. In their book The Leadership Code: 5 Rules to Lead By
(Dave Ulrich, Norm Smallwood, and Kate Sweetman, 2009) the authors
have boiled leadership down to 5 essentials. They wrote the book because they thought there was too much confusing literature on ‘leadership’. Indeed, if you Google ‘leadership’ or ‘leader’ you get >350m hits – a morass of ideas. The key question in the book is “Across industry sectors, geographies and levels, what is it that leaders have to do to be effective”?

The conclusions were drawn from a meta-qualitative
study of the thoughts and experiences of 15 leadership thought-leaders who have carried out a vast number of survey and interviews and have written many books on the subject. The authors asked two questions:

1. Based on your experience (meta analysis) ‘what % of leadership is the same basic stuff – no matter level, sector, geography’. Most people said that between 60-70% of leadership is generic.
2. Then they asked ‘what is it that defines this 60-70%’ (qualitiative analysis). This is where the 5 areas emerged.

So what are the 5 areas:

1. Leaders must invest in themselves to be personally proficient. Effective leaders manage their physical, emotional, intellectual, and spiritual selves well. They learn constantly. They are capable of quick, bold actions as well as great patience. They constantly deepen their insight about themselves. This is especially true in tough economic times when people look to their leaders for hope and confidence.

2. Good leaders know how to be strategists
and are able to answer the question “Where are we going?” They test their big ideas pragmatically, and they work with others to find the path from the present to the desired future.

3. Effective leaders are executors. They ask: “How will we ensure that we reach our goal?” They understand how to make change happen, assign accountability, delegate appropriately, and make sure that teams work well together.

4. These leaders are talent managers
and engage people to get things done now and in a manner that generates intense personal, professional, and organizational loyalty. They help people bring their best to the job at hand.

5. Finally, they are human capital developers
who build the next generation. They make sure that the organization has the longer-term skills, knowledge, behaviors and attitudes for future strategic success.

The first one (Personally proficient) may be the hardest one to train and develop, yet it will give us the personal resource to cope with leadership pressures. We need to look after ourselves:

• Physically – the right nutrition, the right exercise, enough sleep
• Socially – develop a network of good friends, have a laugh, care for someone and know that there is someone who cares about you as a person, not just as a leader.
• Emotionally – be aware of your strengths and weaknesses. Understand your style and where this may be at odds with colleagues. Keep looking to develop yourself and don’t become set in your ways.
• Intellectually – develop the capacity to learn and develop mental agility – this gets harder as you get older and rely on models that worked previously. Constantly challenge yourself. As Marshall Goldsmith (New York Time journalist said “What got you here won’t keep you here”. For example, your previous attention to detail and command of minutia may have been your signature trait that got you to a leadership position – but they may hinder your ability as a leader. Coaching can help new leaders understand how they may have to change to become effective
• Spirituality – try and find meaning and purpose at work that goes beyond ‘doing a job’.

Are leaders born or made – is it nature or nurture? The authors believe half of who we are is what we are born with – our pre-disposition. The other half is what we can learn, about ourselves and about the business we are in.

The good news from the authors is that no matter what our pre-dispositions, ALL OF US, if we are self aware enough, can learn the skills to plug gaps and become more effective leaders.

I was shown a very clever website by a colleague the other day which takes a section of text (or an RSS feed) and converts it into what the site calls a “word cloud” with the words appearing the most in the text being the largest in the cloud . I tried this on this blog and came up with this cloud!  I think it does focus the viewer on many of the key ideas - as well as having more impact to me than a series of paragraphs and bullet points!  http://www.wordle.net/ .

It’s a fun thing mostly, but perhaps this could be used to take a closer look at mission statements or home pages? Must get out more.

  [Read more →]

Customer management programmes can achieve all of these things with a visible return within 3 months if [designed correctly]. In 2009 alone, our clients have identified practical ways of achieving up to 35% increases in revenue (6% market share increase); 28% reduction in costs; 12% increase in EBIT.  Customer management is a vital lever of business performance, and investors and analysts are beginning to take more notice of how well companies manage customers.  Make sure you can tell them.

Ask any manager who has successfully implemented a new customer management strategy or system about the one vital ingredient of success.  Very likely, they’ll say ‘Leadership’. Visible, active, passionate leadership.  Research shows* time and time again that leaders have a vital role in making customer management change happen. Without strong Leadership, customer management projects tend to be reduced to within-function process changes, one-off campaigns, small scale training exercises or customer experience projects with grand aims that end up having little or no impact on the customers’ experience! 

So, it follows, if leaders want to increase business performance significantly (arguably in every industry) they need to lead their organisations visibly and consistently to manage customers more professionally.  A chapter in our forthcoming book is for leaders who want to guide their organisations to become better managers of customers.  Leave a comment here and we’ll send you an e-copy of the leadership chapter, packed with examples, behaviours, tips and techniques for business leaders.  Thanks

Now is the time to take behavioural economics more seriously. Surely the recent financial market collapse is another nail in the coffin of traditional economics, where rational self interest is the primary motivation that is considered. Behavioural economics, the combination of economics, sociology and psychology will prove much more capable of explaining and predicting economic behaviour which traditional economics never did. Behavioural economists often concentrate on cases where people’s actions depart from the systematic, rational strategies Professor John Forbes Nash Jr and his counterparts envisioned in the early 1990s. Despite Nobel recognition for Daniel Kannebahn (prize winner) and Amos Tversky (cited, now deceased), two of the most well known behavioural economists, it appears that the field still does not have much prestige in academic institutions other than as a topic of interest.

Human behaviour, sometimes rational and sometimes not, was always an important factor in financial decisions and has a much bigger impact on economics than traditional economists, and the models that they use, have recognised. The Wall St journal published an article on 10 November 2008 discussing the collapse of AIG. The final statement was that their most senior advisor could see ‘no fundamental reason’ why AIG’s customers panicked“! The article went on to say that “The turmoil at AIG is likely to fan scepticism about the complicated, computer-driven modeling systems that many financial giants rely on to minimise risk”. Warren Buffett, chief executive of Berkshire Hathaway, which owns insurance companies, has been sounding the alarm about the issue for years. Recently, he told US TV interviewer Charlie Rose: “All I can say is, beware of geeks…bearing formulas.” As Tom Davenport said in his blog about the AIG advisor’s comment; ‘if there was ever a better story where traditional econometric models could bring down a company and perhaps even an economy I haven’t read it’.

Why do people buy and sell rationally or irrationally, be that shares, products or services? We have an advantage in the customer management world in that we have for a long time had to understand how events and attitudes drive customer behaviour. But behavioural economic theory can help develop our understanding.  For instance, Kannebahn’s work has an impact on how customer experience is designed. The ‘peak-end’ theory, as he described it, says memorable customer experiences are achieved through a combination of the peak of the emotion felt during the experience (good or bad) and the end experience. The whole experience does not have to be memorable and this knowledge can be useful in designing how you deal with customers over time.

We need to develop further this understanding of behavioural economics and its impact on customer management. We believe that just as there is confusion between traditional economics and behavioural economics in achieving the macro-economic performance, there is a similar confusion over how to generate business performance in a business – i.e. from customers. Economic value from customers is obtained not just through focusing on increasing revenues and decreasing costs, but on the system that influences the customers’ rational and irrational behaviour. This system will be based around the four stakeholder or ‘interest’ groups in corporate life; shareholders, customers, employees and the local community. We write more on this elsewhere. Let me know if you are interested!

It’s more than just customer numbers, churn rates and satisfaction

Following on from my previous blog about ‘The case for Customer Management has never been stronger’, I’ve been asked to provide details on the comment I made about headline customer metrics being misleading. Here goes: Suppose you were going to invest $100,000 in a company. Would you be more likely to choose a company that this year made an excellent profit or one that has made a more modest profit? Of course, you can’t tell from that information. If you had information on customer numbers, customer satisfaction, and customer churn rates – would that help? Only marginally, because our evidence shows that a focus on:

• Customer numbers normally results in a strategy to “acquire at any cost” and the acquisition of a large volume of unprofitable or even loss-making customers
• Customer satisfaction, as normally measured, gives misleading results, as you are asking some customers who rarely transact with you, and spend little with you, what they think of you. Their views will dilute the views of your heavy users and loyalists
• Customer churn is misleading because (1) it is rarely measured, “received wisdom” is commonplace and therefore fictitious figures are given to analysts and (2) the really interesting figures will be the churn of heavy users and loyalists.

If you had a deeper knowledge of both companies, you might realise that the very profitable company has cut costs in advertising and marketing, training, product development, customer service staff numbers and IT investment. It is alienating and losing its best customers, is acquiring risky or loss making ones and is upsetting its people, the best of whom will probably leave.

The question therefore is, despite this year’s impressive P&L, does this company represent a good long-term investment? You would be even clearer about where your hard earned money should be invested if you knew:

• The company knew its customers well
• Had high commitment levels from the top 20% of customers
• Understood why they stayed and why they left
• Developed, delivered and measured a winning proposition to them
• Invested in people and system competencies to service customers excellently and efficiently,

Even if that company produced lower levels of profitability you would have confidence that this business would develop and grow.

Leading analysts are beginning to agree that a company that can show competence in managing customers in these terms, versus its peers, should receive higher valuations. The independent Customer Management Assessment Tool (CMAT™) score may be one way of doing this. Most CEOs are driven by more tangible and higher level drivers such as market capitalisation, return on capital employed (ROCE) and do not yet focus on customer management as a significant intangible driver of shareholder value. If they did, there would be more companies achieving higher CMAT scores. Yet what business lever can increase revenues by 50%, reduce cost by 35% and increase profit as customer management can do?

Short-term earnings vs. long term sustainability

CEOs know there is an uncomfortable relationship between the need for short-term returns, to appease the demands of shareholders, and the requirement for long-term investment and sustainability. When we first wrote about this in 2002, we learned from the Enron, Worldcom and Equitable Life scandals that the balance sheet can be misleading. Sadly, in 2008 we now have a host of examples of this. A company can make excellent profits this year and look good on the balance sheet even though it acquires high risk customers, acquires a competitor which confuses its core business, cuts customer service standards to decrease costs, fires 30% of its staff, encourages a hard-sell policy to existing customers, reduces its marketing budget by half, fails to invest in product development and cuts all of its IT development budgets. There is one US publicly listed company we worked with who, against advice, did all of this and received a triple A investment rating. Subsequently they were acquired at a knock down price by a smaller competitor. Analyst reports and their interpretation of P&Ls can give a false picture of ‘business performance’.

In public companies, the relentless drive for profit growth to please analysts and stockbrokers (the ’shareholders’) quarter after quarter usually results in an increasingly desperate drive to increase revenues and decrease costs, which invariably leads to increased risks and a decreased chance of sustainable corporate profit.

Despite the irony in the comment box, if the company stops growing profit, the institutional shareholders, city analysts and other experts (who, by the way, have typically never run a company in their lives) start worrying and will mark it down, making it a ‘less attractive’ company to invest in – when actually the opposite may be true. CEOs know this, are generally measured on market capitalisation (in some form) and gear their organisations to maximise this. Therein lies the problem – a mis-alignment of objectives you may say.

“The irony is that private shareholders or employees, you and me, do not require the company to make more and more profits. If a company makes, say, $1bn a year, does it really need to make $1.2bn the next year, and $1.4bn the year after that? At $1bn a year, we’re probably receiving a comfortable return on our investment, we know the dividend is reliable and probably low risk. ”

In mature markets, continual quarter on quarter growth is, over a number of years, impossible without taking great risk. We have witnessed this at first hand recently in the global economy. Trying to achieve this may mean taking wholly unnecessary risks; for instance in acquiring customers at any price, in deflecting corporate resource (time and budget) to acquire companies to create ‘false value’ [*1], in reducing investment required to underpin future returns or moving into areas which are not the company’s core competency (e.g. financial services companies moving into property management). Late 20^th century corporate strategy encouraged companies to fund this expansion by ‘leveraging assets’, borrowing against earnings and other assets. It is easy to see now that this strategy can be mis-interpreted and can leave companies very exposed, underpinned by both a precarious balance sheet and a business model far removed from their core business competencies. Leveraging is a fairly late 20^th century phenomenon - IBM did not issue their first leveraged debt until 1979. In 2008, leveraging in this way was commonplace for many large corporations (and private individuals). As one example, Wall Street investment houses had a leverage of around 35:1 – that means that they had $35 of debt for every $1 of asset [*2].

“Richard Branson floated Virgin on the stock market in the 90s and said how excited he was that the public could participate in the success of the brand, and how access to more capital could help Virgin become the world’s leading airline. Sometime later, he bought the company back of the stock market stating that it ‘is impossible to manage this business in a way that the City requires, making increased quarterly profits is unrealistic and forces me to make short term decisions I would not ordinarily make. I’m in the business of building sustainable value and this may mean taking decisions now which reduces short term profitability’”

Recent studies on the financial crisis have concluded that companies, in their desperation to receive a positive response from city analysts, have lost sight of and moved away from the business competencies that underpin any good business; that is the ability to appeal to your target customer base more than your competition, and set up your organisation to do this effectively and efficiently. We have shown in previous articles [*3] that companies that do this well perform better than companies that don’t. Customer management (as described by the CMAT model) correlates very closely with a number of financial performance indicators. In fact we can relate the in-depth CMAT studies directly to the global crisis we find ourselves in. Take the troubled banking sector. Our extensive global CMAT research while at QCi put Canadian banks top of the list in terms of the way they manage customers. Reflecting on the current crisis, it is no co-incidence that Canadian banks have also come out on top of the recent list of the banks who have performed best in the current crisis.

We have spoken with city analysts and brokers over the years about the basic driver of company profitability; customers and the importance of understanding the competence of companies in managing customers. We have noticed an increasing interest, amongst leading city analysts, in this, especially recently. However, it is true to say that most still do not get it. We commented in previous articles [*4] that if analysts showed interest in customer management, they tended to focus on the ‘easier’ indicators of ‘customer’ performance (which do not underpin sustainable profit); ‘growth in customer numbers’; ‘high customer satisfaction’ and ‘high customer retention’, for instance. This remains the case today. Experienced managers know that these indicators may be misleading and certainly do not predict business success.

Our plea to analysts, stockbrokers and economists
is to read this article and others like it and work with us to find a way to better value companies using this customer dimension. The better companies manage customers, the more solid their underlying profitability. Analysts should use this as an important component of their company valuations.

Our plea to CEOs and other directors
of large enterprises is two-fold. Firstly, take a fresh look at your business from your customers’ perspective and improve the effectiveness and efficiency with which you manage customers. There will be a significant prize there worth looking for, which may well carry you more comfortably through the recession and enable you to come flying out of it, leaner and meaner. Secondly, be strong and confident in your discussions with the City that good customer management is the core competency of a business, and underlies sustainable business performance.

Are there any positives emanating from the turmoil and uncertainty in the financial markets at the moment?  Well one thing is certain; like it or not low growth and downward pressure on prices and margins will be the norm for the next 6-18 months! But there is a positive in this  - the environment provides the right motivation to do two things; (1) streamline your organisation even further and (2) move ahead of your competition.  Here’s how:

Whenever we look at large organisations we always find opportunities for streamlining their activities, sharpening their focus, reducing cost and improving revenue streams. Here are some things to look for:

• Contact Centre:
  • Occupancy (time on call+ time on wrap/available time); 25% reduction in total cost is very possible
  • Reduce unnecessary service levels
  • Cost of failure; analysis of this can reduce cost by 25-40%, and have massive impact on customer satisfaction and commitment rates
  • Streaming of sales enquiries into fast moving, empowered teams, reducing cost per order
  • Matching up best employees with best customers in service area; instant rewards possible
  • Multi-skilling agents to improve first call resolution
  • Increasing conversion rates through better contact handling
• Sales force:
  • Using web 2.0 techniques to focus the genius available in your company and outside it
  • Use Sales 2.0. management to
    support reps & managers manage the pipeline (managing the top 7 indicators that drive sales in any sales force)
  • Use knowledge 2.0 technologies to move the performance of the average field sales person (typically 50% of the sales force) more like the best 10%
  • Reducing the number of field sales people through telephone account management, for instance by twinning sales and telephone account managers EFFECTIVELY
    
• Marketing
  • Targeting marketing resource on smaller number of the RIGHT customers
  • STOP unnecessary customer contacts
  • Reduce cost of mailings – do you really need to spend that much on glossy brochure and ‘Premier Customer’ packs
  • Introduce lower cost digital strategies (e.g. email contact, social media interaction, podcasts) in place of the contact strategies you currently use
  • Introduce on-line panels for research in place of more expensive types of research.
  • Use your employees and partners to help you research what customers really need and how you can improve the experience
  • Brainstorm creative promotions, with high relevance to your target customers
  • Setting up propensity models to implement rapid contact management; potentially large customers buying small amounts from you now; people likely to order just once; people likely to defect; people not buying certain lines who have bought them before; people likely to upgrade or buy another product; people who are likely to prefer lower cost channels
  • Become more aggressive with affiliate and aggregator marketing strategies to reduce acquisition cost (sometimes by 10-20%) and increase the number of new customers
• Initiative Portfolio Management
  • STOP initiatives that are not COMPLETELY aligned with strategy (20-30% reduction in project budgets)
  • Combine initiative across different departments

If this is done carefully, customer management effectiveness and efficiency is improved (reducing actual cost and cost to serve) AND SO IS REVENUE AND CUSTOMER COMMITMENT.  Customers often notice the better targeting, see more creativity and relevance, mostly appreciate the no nonsense approach and, most importantly, they continue to hear from you.  The reduced costs of your operation may give scope for increased discounts too, maintaining margins, which customers will appreciate.  Most companies will panic and cut costs across the board but few will attempt to target their cost savings to build customer revenues.  The key is; continuing to manage customers actively and positively during a downturn and not just cutting costs across the board will reap greater rewards when we begin to come out of the recession. Is there evidence for this? Yes, please leave a comment I’ll we’ll send you our report on this.

Thanks, Neil

For by far the majority of brands, the unequivocal answer to this question is…NO. At least, not yet.

Results of recent campaigns, some of which are public knowledge and some of which are not, are clear. On-line advertising on social media networks, in terms of product sales, does not return revenues of any significance to large corporations, compared to traditional channels. Click rates of 0.004% were being recorded on Facebook applications, but for a CPG we know, that click rate has just been (hung, drawn &…) quartered to c0.001%. In other words, you have to target 1,000 people to get 1 response - not a sale, just a response. Assuming a 10% conversion (rates vary from 1-50% depending on the product) then you will achieve 1 sale per 10,000 targets. So to labour a point, you will achieve 100 sales per 1m targets. Plug in your own margin %s to this equation to see what it might be worth to you - normally unconvinving ROIs! Sales are especially difficult to track for consumer product companies, whose consumers normally buy through 3^rd party channels.  But results are not all about click throughs and tracked sales.

As always, the answer is more complicated than YES/NO. Placing content (e.g. copy, advertising, widgets or experiential content) where your target markets chose to congregate on-line probably makes more sense than investing in super-functionality of your website as a medium term strategy. As mechanisms for building brand equity through digital PR or consumer engagement, these mechanisms make intuitive sense and their impact can be measured, but not by ’sales’.

It would be a wise man indeed who predicts accurately how social media will evolve; for instance, 1 in 4 users of social networks are already saying that social media sites could become the main way they access certain types of content in future [Entertainment Media Research’s 2008 survey (pdf)]. However, the point is this; you cannot yet justify developing and placing content on social media sites using ROI logic. But we have to be smarter than this.  Intuitively, experienced marketers know that to be able to engage with your high value consumers where they hold their conversations on-line (or wirelessly at events, in bars, in the street, in the car, through mobiles) will move a consumer from awareness of your brand, through involvement and towards participation and even advocacy. If your consumer planning team are sophisticated enough to have believable brand equity-to-sales models, then maybe you have a chance of pleasing the Finance Director with an acceptable ROI. Otherwise, stop trying to use ROI measures to justify this activity. Instead, understand your target market better than you ever have before, trust your intuition, use PR and brand equity measures and develop a more robust method of modelling brand equity and sales.

The * Pret A Manger * feedback prompt (below) works for me!  Why? Because it’s all the things that a feedback prompt should be; personal, easy, fun, clear, quick to use (and implement, which is vital)  - and it seems sincere. Only problem, I’d like to see a phone number on there for those people who don’t have the time or inclination to meet or write.  Any thoughts?   

[Apologies for the quality of the scan - if you need a clean copy, please contact me or better still, go and get a coffee at Pret and pick one up!]