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Honesty In Relationships: Part II
Honesty In Relationships: Part II
Absolute Truth
If there is such a thing as absolute truth, it exists outside of this world. As much as we regard honesty, integrity and trust as roadmaps for relationships, they are relative terms. This represents a risk to business continuity. Any decision you make could compromise your business relationships because of the external impression created by your actions. This occurs even at the most basic level: to choose with whom you want to have a relationship. It is a practical need, yet it is also confining. Since “you can’t be all things to all people” your representation of your well-intentioned relationship is exclusive to these choices. When those whom you exclude put you on the wrong side of their loyalty values we call it pigeon-holing. Marketers are often confounded by typecast restrictions that have been molded around a business by customers with whom it has never had a relationship. And most customers depend on pigeon-holing to sort through their decisions.
Theory of Relativity in Business Relationships
There is a relativity formula to relationships:
THE BENEFIT DERIVED FROM A RELATIONSHIP IS COEFFICIENT TO THE PERCEIVED VALUE OF THE RELATIONSHIP.
From this we learn that the perceived value of the relationship will increase or decrease depending on the value of the benefits gained. Also that the desire to establish a relationship is based on the expectation of its rewards.
Value-Add
The critical idea is that, whenever the benefits gained exceed the perceived value of the relationship, then the perceived value will increase to match the benefits. This is how ‘value-add’ expands loyalty and frequency into business continuity. Adding value makes the difference between a performer and a super-performer in business relationships. It is the ingredient that can break a business out of the mold of typecasting e.g. to enable a volume discount producer to enter a luxury market (Toyota/Lexus). It is also the most challenging component of sustaining a relationship, as the constantly rising of the bar of expectations represents greater consequences to underperformance. You can never go back to ‘ordinary’, because that would be a reduction in value. But, that issue aside. everyone can live with thought that continually adding value creates a consensus in relative truth.
Pull the Wrong Lever And You Fall
Perceived value and benefit rewards are so closely linked that misguided use of any levers in the relationship can create schism and distrust.
Take, for example, wholesale price discounting: once the customer has experienced a price discount, this benefit reward can easily become a defining aspect of the relationship. The customer expects the lower cost. In counterpoint, the retailer gets reduced benefit from the transaction, so its sense of value decreases. We now have relativity divergence in truth and trust: the customer’s benefits have increased and the retailers value of the relationship has decreased. Consequently, the retailer may compromise the value of the relationship to the customer, by merchandising lower quality goods, reducing customer service, reducing product selection etc. Retailer’s view of truth: my customer is a price chiseller.
Customer’s view of truth: my retailer is a price chiseller.
Neither position might be true. The reason for the contradiction is that the retailer used a market lever that was counter-productive to increasing the value of the relationship.
The 365-Day Sale
Price in retail has become the most common lever used by retailers to lure customers, and in juxtaposition, customer service and satisfaction has dropped. It has been replaced by refunds, warranties, and call centres. Recall our formula for relativity: the customer expects more from the relationship relative to price, but experiences the negative impact on other important components of the relationship such as service, quality or choice. When relative truths are in conflict, each party will withdraw to its corner, exploit for its own interests and abdicates loyalty when these are not served.
Addiction Vs. Loyalty
It is the predicament of our market mentality that the most successful business is the bottom-feeder in the cost/price matrix. I would argue that customers are not loyal to Wal-Mart – they are addicted to Wal-Mart. Wal-Mart has built its customer relationship on the price lever, and expands the benefit rewards it brings to its customer by expanding its range of merchandise with the same promise. By focusing on this one lever, Wal-Mart has worked this relativity formula consistently into tremendous profitability. How does the formula work for Wal-Mart? The benefit its customer gains from shopping at Wal-Mart (price) is maximized by consistently shopping at Wal-Mart for all its needs, and so the perceived value of the relationship to the customer has matured into a dependency. The consequences to the retail sector are widespread. Everyone is chipping away at price and we live with a discount mentality. There is no consumer segment that Wal-Mart will shirk from if it can consistently achieve its goals. PRICE is now the relative truth that has redefined many marketing relationships and reduced them to just this one lever.
But price-sensitivity is not the only lever for the sustainability of a relationship. As long as it is built on honesty and trust as defined by the customer’s needs within the relationship there are other levers that influence purchase decisions.
Segue
I had planned to spend more time in this entry discussing these other levers. Let’s say for now that the purpose of this entry – to demonstrate how truth is relative to the customer and that a practical business action could have a correspondingly unfavourable customer reaction – is served. Every action a business takes has consequences that are broader and deeper than it usually prepares for. This is because it rarely focuses on truth relative to its customer’s perspective.
Honesty in Relationships: Part I
When goals-achievement is the number one priority of a business, the temptation to disguise weaknesses is a real challenge for marketers and legal departments. I remember a copywriter complaining that her clients always ruined her copy by insisting on accuracy. The creative fabrication sold the product so much better.
Too many businesses market their beliefs without testing their own integrity. Expressions like ‘Best’, ‘Leading’, ‘#1’, ‘Lowest Price’, ‘Largest Inventory’, ‘Top Rated’ and ‘Most Successful’ appear throughout marketing copy. The customer who finds a lower price elsewhere will not trust such a claim again. Once the veil of honesty is damaged by the revelation of deception, whether big or small, trust evaporates and is hard to recover.
The Alchemy of Concealment
The temptation to deceive or conceal the truth is part of the human psyche.
Q: “How’s business?” A: “Busy.”
The truth remains agreeably hidden. But, when truths are revealed there can be significant consequences. Consider the impregnable Bike Lock that was opened using a Bic pen. Is it possible that the market leader in bike security products didn’t want its vulnerability to be known? Or was it an unfortunate embarrassment? However framed, doubt formed in the mind of the customer. There are PR companies that specialize crisis communications, when a damaging truth is exposed in an unforgiving world of customers demanding an explanation. Enron. Blatant. No mercy. Once a lie is exposed, society has the will to vilify the perpetrators and to extract their confession.
A Study of Truth & Deception
As a child my elders posited my future in advertising. My wisdom of nine years replied, “Why would I work in a job that is about telling lies.” I had experienced the disappointment of the picture in the ad being better than the product inside the box. Another rule I picked up was: “Don’t trust show-offs. They only please themselves.” A business that exaggerates its delivery cannot be sustained.
As an adolescent, in order to get out of trouble, I learned that the most believable lie is the one that is closest to the truth. Marketers are often pressured to tell the ‘closest’ version of the truth to make their employers or clients succeed. I learned a law similar to the law of gravity when it comes to misleading people: the bigger the deception, the bigger the fall when the truth comes out. And the truth has a way of coming out. I won’t reveal the details of how I learned that lesson, but it was learned well. The more we mislead customers, the greater the repercussions we will have to endure.
At the age of 19 I came to the realization that, if I acted in good conscience, there would be no cause for deceit. As a customer-centric marketer for 11 years, and a career marketing professional of 20-something years, I am able to demonstrate to my clients that if a promise is not credible and deliverable to their audience, it is counterproductive to their objectives.
Putting Values on Truths
Honesty in marketing relationships is about truly representing and supporting what is important to each customer. Failure to deliver on a marketing promise is tantamount to a lie in the customer’s dictionary of business terminology. Your integrity is really defined by your commitment to the relationship. Any actions and statements that could prove damaging to the relationship need to be thought out ahead of time and revised.
The focus of customer-centric marketing is to understand truth from the customer’s perspective. Touch Marketing, the technique I practice within my studio, is the determination and communication of customer values (their truths) with emotional relevance and the demonstration of commitment to support those values. This is counter posed to the product (or brand) as ‘the hero’
By looking through the other end of the telescope I have come to realize that trust is what bonds a relationship, and honesty is the basic ingredient.
Touch Marketing is not just honest and emotionally relevant – it engenders attachment, loyalty, frequency and continuity within a marketing relationship. Experience is the truth the customer believes.
The next part of Honesty in Relationships will discuss how to shift perspective away from what the business inherently believes towards the customer perspective.
If All the Raindrops Were Customers and Shareholders, Oh What a Joy That Would Be.
So who is “standing outside with his arms open wide”?
Great question.
I want to discuss the dichotomy between shareholders and customers:
Goals-oriented boards have their jobs hinging on leveraging maximum wealth to shareholders by producing the best financial results possible (within the realm of the law, so we are told). So the shareholder can actually compromise customer values based on the mandate they give to the executive.
If the shareholders were all individual customers were there might be some sort of democracy at the Annual Meeting, where the customer/shareholder would get to vote on whether they wanted 10% less product in the same packaging for the same price, or keep the product the way they need it and earn a lower dividend.
In the goals-oriented enterprise both ends are fighting the middle and compromises are felt at either end of the spectrum through customer attrition or shareholder revolt. The only way to beat the trap is technology. The advances in product shelf-life, time to market, distribution and communications infrastructure are seen through packaging, production engineering, product formulation, paperless communication et al. Technology is the most significant reason the wealth mountain keeps growing and that products keep pace or exceed current levels of customer expectations. Ironically, tech stocks are the most volatile for shareholders to invest. Just think of it as new snow hitting the peak. Avalanches happen from the top down. But I am going off at a tangent. In the goals-oriented business, if you don’t have your technology working for you then you can’t demonstrate increased competitive efficiencies to support quality merchandise or services at a convenient and affordable price.
In the customer-centric world I like to use the model of the local barber. Same chair, same scissors, same smile and customers that last for years. There is a way out of the rat-race and your customer is your best ally.
In order to maintain the balance of customer values and loyal retention, shareholders need to be put in touch with that customer-centric philosophy and review their expectations of short-term gain. We live in a day-trader mentality where there is no concept of loyalty. To the absolute contrary, the day-trader whizzes in and out of stocks without a thought of any consequences but his own. It is the antithesis of relationship building. I won’t dignify it with a metaphor because it verges on something crude. I don’t imagine a day-trader regards his customer relationship with any of the stocks he trades. I also doubt that a day-trader is as aggressive in his/her retail habits as they are in their stocks trades.
Can shareholders be in touch with a customer-centric philosophy? Absolutely. Shareholders are a different segment of the marketing audience. They are as responsive to the concept of one-to-one orbiting relationships, because that supports their own expectations. What they are not hearing is the customer-centric philosophy within the heart of the enterprise. A shareholder can comprehend the sense of the position only when it is communicated centrally to the goals of the corporation. A shareholder will extend their trust to a management vision, whatever it may be, for a period of time, to see what will come out. When the prediction fails to materialize then the bottom falls out.
What if loyalty, frequency and continuity were central to the management vision of the company, and they were able to demonstrate their success not just in dollars and cents. It takes a quantum leap out of the day-trader mentality to comprehend that a business that keeps its customers, can also keep its shareholders, even when it is not doing quite so well.
So the answer to the original question: who is standing outside with his arms open wide? It is the CEO who doesn’t have to compromise his customers to meet his shareholders expectations and doesn’t have to compromise his shareholders to support his customers’ values.
Wouldn’t that be something?
The Fool’s Gold Rush
Early adopters are frequently thought to be the leading edge of the next mammoth venture, inviting speculators and venture capitalists to whet their expectations for the next iPod/iPhone/Blackberry revolution. Yet, in many cases early adopters turn out to be the only segment that values the product or service and the venture stalls beyond this low-hanging fruit. This is probably not what a myriad of high-tech hopefuls want to hear right now. But I am not the voice of despondency. The dot.com meltdown did that already. I am saying that there is a way to eliminate the threat of over-promising and getting burned.
How does the over-promising come about? The goals-oriented marketer defines a market, measures performance based on test marketing (or early adoption) and extrapolates based on an exponent of the total market volume. Call this building Castles in the Air, based on a model built on the ground. We love to do it and dream of success delivered through incomparable genius. It’s exciting, and on paper it works for accountants as well as marketers. Take a business model, then maximize it to the power of ten or a hundred, or a thousand. Be as greedy as you dare. “Gee! If we only tap into 5% of the total market we’ll be gazillionaires. And our product is 25 times better than anything out there.”
How to avoid getting burned: The customer-centric marketer researches the values a customer has in regard to a particular product or service, and then defines the market potential according to those values.
Example: Grocery Gateway – goals-oriented approach: online order, home delivery, early adopter uptake is great, shows significant growth potential. All things being equal, 2 million shoppers in the GTA. Wow! Sink $30 million dollars into this and see where the rainbow ends.
Result: Grocery Gateway is now the private property of the Longo’s chain with 15,000 claimed customers and a constant viability issue how to make more money. Could be lots of reasons: logistics, costs, customer experience. The point is, when it launched, the world thought that Ship of Grocery Retail had embarked on a Dramatic New Course. Reality is that it is a niche segment for which the early adopters are probably still loyal customers. Plus $30 million invested. I think it is a good idea, but that all other regional online grocery delivery businesses are marginal players. Perhaps, one day, like the funeral home, school bus or waste management businesses some entrepreneur will buy each in turn and figure out an economy of scale to make a ton of money -– but on such thin margins I doubt it. More likely it will be the customer database that has more value than the retail business, and Longo’s that holds onto it.
Had the analysis been using a customer-centric methodology, the research would have come out differently, distinguishing between those who like to shop, those who don’t trust the Internet, those that are comparison shoppers, those whose strange work ethics prohibit ordinary shopping habits, those who are agoraphobes, insomniacs et al. And the answer might have been “You need $4 million” and there are only 15,000 potential customers for this service. $30 million for a GTA based distribution franchise sounds chunky to me. I think they were hoping for 150,000 customers – less than 10% of the market. Instead they have less than 1% of the market.