Re: [projectvrm] Multifunctional Advertising... Challenging Assumptions

[Joe Andrieu < >]

Graham,

 

I base it on the fact that you can either invest in creating value or in controlling it. In an industrial world, control systems gave incredible return on investment, largely due to the natural monopolies of scale, but also due to forced monopolies and "unfair" advantages. We've succeeded in commoditizing a vast portion of the industrial stack, making it easier and easier for new entrants to outsource the industrial part and focus on value added differentiation. With the advent of the Internet, we've also blasted open the strangle hold on the retail channel--it's still powerful, but more and more businesses are likely to go the way of Borders as virtualized operations like Amazon bleed their industrial era advantages dry.

 

All of this is to say that the competitive advantages of the industrial era are eroding. Companies is seeing worse and worse returns on systems of control. Yes, they'll fight tooth and nail, but they are losing. The economics just don't support continued top-down structures when they are primarily there to exploit rather than deliver. Look at what's going on in the music business for a classic collapse. 

 

We also have empowered customers who have access to vast amounts of information and choice, and who often use that information to be very selective about the products they buy and the vendors they choose. There is almost no control over the information channels that reach customers. Influence, yes. But not control like when there were only 3 TV channels.

 

In short, it doesn't pay as much as it used to invest in controlling your customer.

 

The smart choice is to invest in responding to your customers. I agree with Doc's clarification: what we are really talking about is being customer-driven, not customer-centric. (I posted an extensive series about user-driven services a while back: http://blog.joeandrieu.com/2009/04/26/introducing-user-driven-services/)  The return on investment will come from creating more value, more responsively, and with lower acquisition costs through long term relationships. That means more sales and more profits.

 

Your perspective is an important one, because it echoes some of the hardest expectations to shift: that being more customer driven means giving up profits or putting the customer ahead of corporate interests. It doesn't, but the mindset shift takes time to translate the opportunity into the experience and perspective you've earned in your own career. And a lot of mistakes will be made in trying to span that gap. Some will gamble their careers. And, unfortunately, many will lose.

 

I bet that it will unfold like Total Quality Management (TQM). American industry ignored Deming until the Japanese adopted it and started kicking our buts.  It was such a radically different way to think about manufacturing priorities. The overwhelming consensus in legacy minds was that the level of quality Deming was talking about would be too expensive. That it would hurt profits.

 

But the reverse was true. By systematically improving quality, the amount of waste plummeted. Quality initiatives not only won over customers who were happier with their products, it lead to much more efficient manufacturing processes.

 

In time, the entire industrial sector adopted TQM (in its various flavors and perspectives) as standard procedure.

 

I believe the same evolution is likely for VRM and user-driven or customer-driven companies. Yes, it will take an investment. Yes, it will take leadership. But eventually, doing it the old way will be as unenlightened as mid-20th century American manufacturing. It will be wasteful and lead to less popular products, and ultimately, keep companies from making as much money as those who have shifted to customer-driven techniques and processes.

 

-j

 

 

 

On Mon, Feb 18, 2013, at 01:57 PM, "> wrote:

Hi Joe

 

On what basis do you assume that sales in a customer-centric company, particularly one that follows Iain's definition of customer-centricity, will go up?

 

The evidence that is available, e.g. from the Marketing Science Institute's research programme on market-orientation in the early 90s (references available on request) showed that a customer-centricity - and their definition was much less customer-centric than Iain's - was an INFERIOR strategy compared to a market-orientation (that included other orientations in addition to a customer one). On the basis of the MSI's evidence alone, I would expect customer-centric companies, particularly ones that folow Iain's definition, to be significantly less profitable ones that had a more blended market-orientation.

 

Best regards from Cologne, Graham

-- 

Dr. Graham Hill

UK +44 7564 122 633

DE +49 170 487 6192

http://twitter.com/GrahamHill

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Optima Partners

http://www.optimapartners.co.uk

Senior Associate

Nyras Capital

http://www.nyras.co.uk

 

 

Gesendet: Montag, 18. Februar 2013 um 18:06 Uhr

Von: "Joe Andrieu" < >

An: "Graham Hill" < >

Cc: " " < >, " " < >

Betreff: Re: [projectvrm] Multifunctional Advertising

Hi Graham.

 

That's a good point. I didn't mean to dismiss the accounting issues. The ones you raise are structural and quite interesting. For companies that reward based on quarterly profits, the engines that measure those profits are likely to need adjustment.

 

My argument assumes that sales and profits will go up, independent of how they re accounted. I think that's true. But I like what you point out, namely that shifts in accounting to better align with a customer-centric view are hard and not yet proven.

 

So that's an interesting open question: how do we build accounting systems that align profits with customers?

 

-j

 

--

Joe Andrieu

+1(805)705-8651

 

Sent from my iPad

On Feb 18, 2013, at 8:53 AM, Graham Hill < > wrote:

Hi Joe

 

Don't understmate the accounting and operational challenges of moving towards more of a customer-centricity. I have worked on several large projects for major telco, financial services and other Cos, all of which were in part based on becoming more customer-centric. All foundered for one reason or another. One of the reasons was because accounting is arranged around product families, products and SKUs. All of the Cos struggled with creating a matching but orthogonal accounting structure based around customer segments, micros-segments or even individual customers. The costs were too great, the benefits were and are unproven, and so they gave up. 

 

I see little evidence of any real change in major Cos today. 

 

Best regards from Cologne, Graham 

Am 18.02.2013 um 17:28 schrieb Joe Andrieu:

 

Iain,

 

This is less an accounting problem and more one of expectation.

Customer-centricity will increase sales.  That's the shift that has to

happen. Until companies realize that, we're fighting the tide of what

they perceive as best practices for profitability.

 

Local customers buy more, stay with the company longer, and will pay a

higher margin for product. Look at Apple for a brilliant case in point.

 

Unfortunately, Apple *also* shows that loyalty need not be 360-degrees

of customer centricity. They are brilliantly customer-centric in design.

It drives their whole innovation process. They have almost zero customer

centricity when it comes to choice about integration and applications.

They tell you what you can and cannot put on your phone.

 

Eventually, it's all trade offs. I think we need a better presentation

of specific customer-centric behavior and the cost/benefit of each.

Because right now, as your comment points out, Iain, companies believe

they'll lose more than they gain from "customer-centricity". Which tells

me they are hearing the fear points more loudly then they opportunity

points.

 

-j

 

On Mon, Feb 18, 2013, at 08:15 AM, Iain Henderson wrote:

Hi Chris,

I don't see it as an accounting problem; at least not until number/

'quality' of customer's becomes a balance sheet / analyst tracked metric.

There have been attempts at that over the years, but none have made it.

The scenarios i've referred to involved revenue reduction, although there

would obviously be costs alongside any new initiative as well. The point

being made by the CEO's I refer to is that they make lots of money by

having their product teams sell products/ services irrespective of

whether that is the best option for the customer. Revenue reduction

through full migration to genuine customer-centricity would be down to

reduced sales of product.

Make sense?

Cheers

Iain

On 18 Feb 2013, at 15:48, Chris Savage < > wrote:

Iain,

Is this an accounting problem?  Seriously: when you buy a new machine or new factory, your available cash goes down, but it gets recorded on your books as an asset, so everybody understands what's going on.

If the short-term accounting effect of doing customer-centric things is to increase costs without increasing revenue, that is an accounting problem.

On the other hand, if the short-term effect of doing customer-centric things is to reduce revenues, that's scary to CEOs and CFOs everywhere.

So, did you mean "cost them money" in the sense of "increase recorded expenses and hence decrease reported profits"?  Or in the sense of "lower revenues"?

Thanks,

Chris S.

On 2/18/2013 9:59 AM, Iain Henderson wrote:

And a couple more metrics.

Average tenure of a marketing person in the same role - 2 years

That is to say, long term customer satisfaction/ value is someone else's problem.

Average tenure of a CEO in a large B2C organisation - 3 years.

I've had several consulting projects about customer-centricity that hit road-blocks at CEO level; the simple and openly stated issue being that whilst they recognise the logic, they know that to make radical changes (from typically a product-centric strategy to a genuine customer-centric) will cost them money and competitive positioning in the short term. There are ways to get a good blend of customer and product-centricity, but most organisations don't have the data, the top-level buy-in or the patience to pull that off.

Iain

On 18 Feb 2013, at 14:04, Doc Searls < > wrote:

One additional point: most of the time we aren't buying anything, or even considering it. That also narrows the windows of "now."

But there are times we are shopping or buying — or dealing with issues of ownership. Then what? Well, VRM should be there to help with that.

Doc

On Feb 17, 2013, at 11:01 PM, Chris Savage < > wrote:

Well, a couple of things that build on this.

1.  I read of a psychological study that found that the subjective experience of "now" lasts about 3 seconds.  That is, if you ask people about whether some stimulus or whatever the researchers were looking at was happening "now," the general response was "yes" as long as the thing occurred plus or minus 1.5 seconds or so of the time of the asking.

2.  This actually can be converted to a measure of how much attention people have in a day.  If at each quantum of "now"-ness a person can only effectively be attending to one thing, then in a 24-hour day, if we assume 16 are conscious and available, that's roughly 19,200 "moments" of "now" a person has each day.

3.  Advertisers well know how to command (literally, as in, what we are hard-wired for) our attention: loud noises, quick movements, flashes of light, attractive women (to get male attention) etc.  So, on the "tragedy of the attention commons" I was postulating earlier, what we have is a large but non-infinite number of opportunities for folks who want our attention, to grab it.  By going from traditional print to the Internet, we have created a lot more opportunities for that.  There are 19,200 "nows" per day per person, that can input either signal or noise.  Increasing ads (including directed ads) means more noise and less signal, net.  Key point: The pool of available attention is very limited.  (Note: if it's really 3.2 hours per week, that's only about 3,840 moments-of-attention available.)  That very limited pool is what more and more advertisers are trying to colonize.  So it's no wonder, it seems to me, that people are both building taller defenses and getting more exhausted in maintaining them.

4.  There are some behavioral economic studies being done by a guy at MIT that analogies the lives of people in poverty that indicates that their choices are harder to make than non-poor folks, in an analogy to what is called the "suitcase problem."  Suppose you are packing for a weekend trip, and you have a very large suitcase.  Packing is easy: you put in stuff you know you'll need and stuff you might need.  Very little mental effort.  Now imagine going on a one-week trip and all you are allowed is one carry-on-size bag.  Now you have a hard problem: you have to decide what is essential and what isn't, what has to go in first in order to make sure everything will fit, etc.  It's a harder mental task (which various studies have shown truly use up biological energy).  The MIT guy points out that the entire task of facing the economy is, for a poor person, like trying to pack for a week-long trip with too small a suitcase: the suitcase is their money, and the clothes, etc., to go in, are their needs.  Every day is mentally exhausting for poor people, because poor people actually have to do a lot more mental work to get through a day than does a middle-class or rich person.

5.  A similar phenomenon occurs with the issue of allocating our attention.  Figuring out what is signal and what is noise takes work, and it takes more and more work the more noise there is -- like listening to your favorite radio station as you drive further and further away on the long-distance highway.  It gets scratchier and fuller with static, but if you keep listening harder (interesting     idiom there...) you can still hear what they are saying.  With more and more informational static being thrown at us for our 19,200 "nows" per day, it takes lots of mental work just to try to keep focused on what actually matters in a life (kids ... job ... spouse ... spiritual practice ... hobbies/interests).  Fitting all of that into the mental time suitcase can be really hard.  Adding all the noise makes it harder.

Do advertisers ever think in terms of their effects on a limited, shared resource, aka, my brain cycles?

Chris S.

2/17/2013 5:07 PM, Iain Henderson wrote:

Thanks Katherine, your point re number of hours in the day reminded me of a key quote sent to the list a few months back (by Richard Bates, Consumer Focus, UK).

“Consumers are however pressed for time and spend on average only 3.2 hours a week on all consumer tasks. To ensure that consumers remain empowered in the face of the growing information overload and increasing lack of time for shopping, new shortcuts and comparison tools need to be found.”

That quote came from a research study across more than 55,000 individuals, so pretty robust. European Commission Staff Working Paper (2011): Consumer Empowerment in the EU (SEC [2011] 469 final), Brussels: European Commission –  http://bit.ly/J45aRl

Add to that, one of the main effects of The Internet on the individual being that they typically have an awful lot more supplier/ service provider relationships to manage than they did before, and you therefore have a huge volume of 'permissioned' advertising being squeezed into what amounts to a very small amount of time.

In that respect, our job is to build tools that help get a better return out of those 28 minutes, and maybe even one day increasing the time spent because the return on it is much improved.

Iain

 3.2 hours a week is 192 minutes, or almost 28 mins per day.

On 17 Feb 2013, at 15:28, Katherine Warman Kern < > wrote:

Sylvan and Chris,

As a practicing planner who takes pride in being a trusted advisor, I'd like to share some insights from the perspective of my clients.

The reality the consumer has an overabundance of choices and a marketer has an overabundance of tools to choose from.

But the number of hours in a day to make those choices has remained exactly the same.

As the number of choices have increased, the odds that bad choices are made increases.

Share of Voice, as many measuring sticks, is flawed from the start because there is no truly accurate way to measure or project it.  One marketer can spend the same amount of dollars much more effectively than another.  And since few marketers publish their mistakes, no one really knows what really happened. In fact most published accounts of marketing case studies have very little resemblance to what really happened.

I continue to be shocked that no new entry capitalizes on digital technology and social media to offer an improvement over Nielsen to monitor integrated marketing in real time.

K-

Katherine Warman Kern

www.comradity.com

@comradity

203-918-2617

On Feb 17, 2013, at 9:37 AM, sylvain willart < > wrote:

This "tragedy of the commons" made me think when you first posted about it.

The sheep example you mention is well-studied in economic game theory,

and there are some writings as well in Public Economics sudies dealing

with scarce resources,

But I very rarely read this kind of thinking in advertising/marketing.

Only perhaps in "Store Wars" (Corstjens & Corstjens , 90's). Actually,

the hypothesis of the consumer brain being a scarce resource is

sometimes discussed, but never measured. And media planning relying

heavily on measures and metrics, this hypothesis does not well fit in

traditional approaches.

Moreover, you can expect people to protect scarce natural resources

(even if they loose direct advantage) for the sake of a "bigger cause"

involving altruism (a long studied effect in game theory); but who

really cares about the exhaustion of conusmer brain? there is nothing

here a good night of sleep can't fix... (the consumer himself may be

the only one to care, hence the importance of VRM tools IMHO).

Media planning is also competitive by nature, and while planning you

have to care more about your competitors' expenses than your

consumers' ability to process all those ads. An important metric in

media planning is for example the "share of voice" (your expenses

divided by the market expenses), perhaps the dumbest metric ever

invented, as it is known from long it is not robust at all (meaning it

can lead you to make stupid planning choices)

The entropy hypothesis however may be quite appealing, and this metric

is often used in other field of marketing (for measuring variety of

assortments for example). I'll try to dig into it to see wether it has

been used in advertising/intrusiveness research.

 

--

Joe Andrieu

SwitchBook

+1(805)705-8651

 

-- 

Dr. Graham Hill

UK +44 7564 122 633

DE +49 170 487 6192

http://twitter.com/GrahamHill

http://www.linkedin.com/in/grahamhill

Partner

Optima Partners

http://www.optimapartners.co.uk

Senior Associate

Nyras Capital

http://www.nyras.co.uk

 

--

Joe Andrieu

SwitchBook

+1(805)705-8651