I came across an article from 2012, “Is Your Company Hooked on bad profits?” by Fred Reichheld, a Bain Fellow, that is very relevant to today’s tech companies. Bad profits are revenues earned at the expense of customer relationships. These bad profits are generated usually with short-term revenue goals that over a longer period make your customers more likely to churn.
Examples of bad profits
As a consumer, you probably have many examples you can list of bad profits. Some of these are banks charging late payment or bounced check fees not in line with their costs. It could also be rental car agencies charging you more per gallon if you do not return your vehicle with a full tank of gasoline than you would pay for a fine French Bordeaux. It could be a wireless phone company charging you crazy international roaming fees. Maybe a fitness center locks you into a one year contract because they know you won’t be happy in a month. And it could be a free to play game company tricking players into spending premium currency by creating misleading buttons. Remember how AOL made you jump through about twenty agents to cancel its service? Unfortunately, these examples are too numerous to list. Continue reading
When I wrote about dumb companies and smart CRM last month, one surprising concern I heard is that the CRM would be interpreted as spam by customers. The value, however, of smart CRM is that customers consider it relevant and value it.
My definition of spam
What most people consider spam is communications (primarily email but it can be push notifications, SMS messages or even robo-calls) that has not meaning to the user and the user easily sees that. It is communications that is sent to thousands or millions of customers (or potential customers) with the hope that a fraction of a percent will respond to it.One element that does not define spam normally is frequency. I met only get one message from a company (say a Canadian pharmacy selling cholesterol medicine) but because the message is undifferentiated and clearly not written for me personally, I consider it spam. Continue reading
I recently met with a former colleague who has been leading marketing efforts for one of the top five US game companies for the last ten years, and she told me about one small thing they did that has had a tremendous impact on their success and culture. The company has gone from being a relatively small game developer with no external financing to a part of one of the largest, multi-billion companies in the video game industry. What is amazing that over the ten years, the company has not experienced any serious downturns or down-sizing, which in the game industry makes it the exception to the rule.
The secret to success
I was speaking with my colleague about what they do differently that leads to this success and she mentioned how at the beginning of every year they cancel all meetings. Then they start from scratch scheduling necessary meetings. There are multiple benefits to this tactic: Continue reading
Although I have written many times about customer satisfaction and how good experiences positively impact customer lifetime value, I have not presented a good way to measure it. As we all know, if you do not measure something, it usually does not get done. A recent article in Bain & Company’s Insights newsletter, “Who Should Run Your Net Promoter System,” does a great job of explaining how to measure customer satisfaction and how to manage the measurement process.
What is the Net Promoter Score?
For such a powerful metric, the net promoter score is very straightforward. It is the answer to one question, on a scale of 1-10: How likely is it that you would recommend the company to a friend? Those who are answer with a 9 or 10 are considered loyal enthusiasts who will keep buying and refer others. Those who answer 7 or 8 are passives, satisfied but unenthusiastic customers who are vulnerable to churning. Those with a score of 0-6 are considered detractors, unhappy customers who can damage your brand and impede growth through negative word-of-mouth. Continue reading
Two personal, and comparable, experiences recently showed directly how customer service impacts lifetime value. As many of you know, I travel frequently on business and rent a car about 40 weeks per year, making me a “whale” to car rental companies. I am also relatively loyal to companies, I limit my choices to two companies and probably use my favorite 75 percent of the time.
The Ace Rent-A-Car story
A few months ago, I rented a car from ACE Rent-A-Car. I had rented from Ace about 15 times already in 2014, for 30+ weeks, from its Chicago location.
After going out for dinner one night, I discovered that my rental car had a flat tire. Unfortunately, the car I rented did not have a spare tire (yes, there are cars now that are sold without a spare). It was about midnight in Chicago and it was cold so I called Ace with my problem even though I had waived roadside assistance. The first two times I called I was placed on hold 5-10 minutes and the person had no idea how to help. The third time I called they were friendly but explained they could not help because they were acquired by Budget Rent-A-Car (still not sure if it was a system-wide acquisition or the O’Hare location) and gave me a phone number for Budget. I was annoyed as it was getting quite late and I did not feel it was appropriate to rent cars that did not have a spare (and not let the customer know). Continue reading
There was a great blog post on the Mode Blog, “Facebook’s Aha Moment is Simpler Than You Think,” which provided a straightforward strategy to creating Aha moments. Aha moments when a player or user understands the value of your product are widely considered the key to growth.
The key point of the post was that you create the aha moment through simple math and strong messaging; it is not a complex task that requires advanced analytics. Take Facebook’s self-defined aha moment, acquiring seven friends in ten days. In practice, this is not a binary. Some people may fall in love with Facebook after getting three friends in a week; others may need to get twenty friends in thirty days. This fact does not take away from the aha moment, it is actually the point of the aha moment. The blog post states, “Facebook’s decision to define their ‘aha moment’ in such simple terms suggests they weren’t trying to optimize it to be precise as possible. Other “aha moments”—30 follows, 1 file upload, 2,000 messages—follow the same pattern: they emphasize simplicity over science…. Because “aha moments” aren’t about precision, but about defining a core principle and a quotable rally cry for the entire company. “
Defining the aha moment
To create a useful aha moment, you need to tie it to a metric that defines customer value. Keep in mind that it is not one “moment,” Facebook’s aha moment is over ten days and requires seven different actions (friending seven people).
The most useful metrics for quantifying your aha moment are based on retention. Customers who find value come back. If you identify which actions separate retained customers from lost ones, you will know what drives customer value and then have your “aha moment.” Continue reading
One phrase has wiped billions of dollars off the balance sheets of individuals and companies: “This time is going to be different because….” It is how people often rationalize jumping on a trend or bubble, even when past experience shows it will not last. The rise of Trivia Crack (which I play frequently), and the commentary accompanying it, is the latest example of this phenomenon.
The housing crisis
During the height of the US housing market bubble, I remember seeing multiple experts explain why the steep run-up in prices was not the same as past bubbles. They explained that it was due to changing demographics, realignment of wealth, new consumer behavior that favored home ownership over other asset classes, and other arguments that made them sound very smart on CNBC. Years earlier during the dot.com boom, experts (many of them the same) explained how that was not a bubble and companies would no longer be valued on profitability (but on market share) and how the economics have changed.
In each of these boom times, experts and laymen alike refused to look at past history, such as Tulip Mania, and picked facts to justify a difference where none existed. Turns out these arguments, while factually correct in some cases (i.e. demographics have changed in the US) were simply noise and did not truly impact the underlying asset value.
This same phenomenon is evident in the technology and digital game space. A game becomes very popular and immediately the entire industry thinks there is a new formula for success. The company behind the game may sell for millions and literally hundreds of companies try to “fast-follow” or add the mechanic to existing products. Continue reading
In Peter Thiel’s hot book, Zero to One: Notes on Startups, or How to Build the Future, he makes many interesting observations (some I agree with, some I do not) but one in particular is particularly valuable. Thiel asserts that great companies are not great because they beat their competition, they are great because they do not have competition. Although he does not quote Blue Ocean Strategy, it is very consistent with their thesis and data that shows that companies that create new markets have much higher economic returns than those who come up with new strategies to defeat their competition.
Thiel’s point about the benefits of creating what he refers to as a monopoly, what I call a blue ocean opportunity, resonated with me as he use basic economics to prove the point. At its core, classical economics shows competition will drive out excess profits. That is why although Exxon makes a lot of money, they do not make a higher return on investment than another oil company. Whatever you are doing, somebody else will copy.
Thiel points out that, “Americans mythologize competition and credit it with saving us from socialist bread lines. Actually, capitalism and competition are opposites. Capitalism is premised on the accumulation of capital, but under perfect competition all profits get competed away. The lesson for entrepreneurs is clear: if you want to create and capture lasting value, don’t build an undifferentiated commodity business.“ Instead he advocates building a virtual monopoly, a company so good at what it does that no other firm can offer a close substitute. Continue reading
I often learn things from sports that are very applicable in business and Duke Basketball Coach Mike Kryzewski’s (Coach K) 1,000th victory provided one of those moments. In all the post-victory analysis, one theme kept resonating: Coach K treats every single player differently. He takes the time to understand the player and then uses that understanding to get the most out of them (and help them develop).
The Battier story
Shane Battier, whom I have written about before, told the story that most resonated with me. When Shane Battier was at Duke early in his career, Coach K kept probing to determine what was important to him, and it was not how many points he scored. When Coach K asked, “are you ready to lead this to team and be an All-American,” that motivated Battier. Battier went on to be an all-American that year (2001) and Duke won a national championship.
Many books on leadership and coaching extoll a strategy of what to say to employees to motivate them, but it is not optimal to pursue a one-size-fits-all strategy. A pep talk may work great for one employee while a cynical employee may get de-motivated. Motivating by financial incentives can work great with some people while others will then just do the minimum needed to get the financial incentives. A laid back approach works fantastic with certain employees while others will take advantage and spend all their time playing Trivia Crack.
If you want to be as successful as Coach K, you should spend time with every individual employee and get to understand them. Then work with them to build a plan that works for them and optimizes their contribution to the organization.
- Duke basketball coach Mike Kryzewski’s (Coach K’s) incredible success is largely due to treating every player differently.
- What motivates one person may not motivate somebody else.
- The best way to lead is to understand each individual and build a plan for each that optimizes their contribution.