HBR: Are Sales Incentives Becoming Obsolete?

What sales incentives are you using in your lumberyard? Are your outside salespeople making an impact on their customers? Below is a blog from the Harvard Business Review by Andris A. Zoltners, Sally E. Lorimer, PK Sinha:

Are Sales Incentives Becoming Obsolete?

To motivate, manage, and reward B2B salespeople, many companies use sales incentive plans that link large commissions or bonuses to individual results metrics, such as territory quota achievement. As digital channels continue to reduce and redefine salespeople’s role in customer buying, these traditional sales incentive plans are becoming less effective at driving sales outcomes.

The right sales incentive plan creates a double win. Salespeople win because they are rewarded for their hard work and good performance. The company wins through a better-motivated sales team that produces short-term results and is more likely to achieve company goals.

For a sales incentive plan to produce this double win, there are two necessary conditions:

  • Salespeople must have a large impact on sales results by focusing on activities that add value and directly influence customer buying decisions.
  • The company must have the ability to measure individual results by separating out each salesperson’s contribution and determining how much an individual’s actions affect the outcome.

Today’s multichannel world increasingly challenges both of these conditions.

Before the proliferation of digital information and buying channels, buyers usually relied on field salespeople’s help and expertise when purchasing. Salespeople “owned” relationships with customers, and had considerable impact on purchase decisions. This made it easy to measure individual sales results. In many cases, incentives linked to sales performance were an effective way to motivate and reward individual salespeople.

Today digital channels make buyers more informed, connected, and socially influenced. Buyers no longer view salespeople as their primary connection to companies they want to do business with. For simple product purchases such as office supplies, many buyers are self-sufficient. They get information online and purchase through websites supported by inside sales and service. Field salespeople no longer have impact on buying decisions. The first necessary condition is no longer true.

For complex solution purchases such as customized manufacturing equipment, buyers usually rely on a combination of digital channels and salespeople. The internet allows buyers to easily gather preliminary information about solution alternatives. But when solutions are complex and expensive, digital channels are usually not enough. Buyers want to collaborate with salespeople to reduce uncertainty. Often, they want input from multiple salespeople and technical specialists from the solution provider, in addition to help from digital channels. Salespeople have impact on purchase decisions. But because that impact is shared with multiple sales roles and digital channels, the company’s ability to measure impact and attribute it to a specific salesperson is limited. The second necessary condition is no longer true.

More and more selling situations today are failing to meet one or both necessary conditions for traditional sales incentives to work. Multiple influences on buying reduce individual salespeople’s impact and the ability to measure it. This blurs the connection between individual effort, results, and incentive pay in the minds of salespeople. Incentives become fuzzy and are no longer effective at rewarding and motivating individuals.

New Sales Management and Culture

Companies can no longer rely on large, individual, short-term sales incentives as a primary means of managing salespeople. Instead, they must change their sales compensation plans while emphasizing other ways to direct salespeople and shape sales culture.

Sales leaders must change compensation plans to look more like management bonus plans, designed to encourage people to work together to make the company and its customers more competitive and prosperous in the long run. Changes include:

  • Changing the metrics for determining incentive pay. Instead of short-term individual results (for example, quarterly territory sales), the metrics that determine pay should reflect annual company and team performance, along with individual effort contributing to team results (for example, going above and beyond to meet with key decision makers or to engage product specialists to help customers).
  • Shifting the pay mix more toward salary. Companies should also provide a smaller (but still reasonable) incentive opportunity for salespeople.

In addition to changing sales compensation, sales leaders and managers must take a more active role in managing salespeople. This involves changes such as:

  • Deploying new sales team structures. They must work alongside other channels (internet, inside sales) to meet customer needs.
  • Hiring salespeople with new capabilities. In addition to having solution sales skills, they should be comfortable using digital communication (email, video calls, social media) with customers, appreciate the value of analytics for enhancing the sales process, and be able to orchestrate customer buying across multiple channels.
  • Using performance management, coaching, training, and sales data and tools. Guide salespeople instead of relying on incentives as a primary means of controlling sales activity.
  • Establishing a new sales culture. It should be focused on teamwork and customer success.

Incentives are embedded in the culture of many sales forces, and changing that culture may be difficult. Yet change is necessary for companies to affect sales force behavior and drive results in today’s multichannel sales environment.

Original Page: https://hbr.org/2017/08/are-sales-incentives-becoming-obsolete

 

HBR: Don’t Persuade Customers — Just Change Their Behavior 

“If you are a company, you might think it would be easy to sell this person a solution to their problem. However, it’s not as easy as that – there are deeply ingrained habits here that won’t just go away.” What are you doing to motivate the consumer to change their behavior?  Below is a blog from the Harvard Business Review by Art Markman:

Don’t Persuade Customers — Just Change Their Behavior 

Most businesses underestimate how hard it is to change people’s behavior.  There is an assumption built into most marketing and advertising campaigns that if a business can just get your attention, give you a crucial piece of information about their brand, tell you about new features, or associate their brand with warm and fuzzy emotions, that they will be able to convince you to buy.

On the basis of this assumption, most marketing departments focus too much on persuasion.  Each interaction with a potential customer is designed to change their beliefs and preferences.  Once the customer is convinced of the superiority of a product, they will naturally make a purchase. And once they’ve made a purchase, then that should lead to repeat purchases in the future.

This all seems quite intuitive until you stop thinking about customers as an abstract mass and start thinking about them as individuals.  In fact, start by thinking about your own behavior.  How easy is it for you to change?

Consider your own daily obsession with email and multitasking.  Chances are, you check your email several times an hour.  Every time you notice that the badge with the number of new emails has gotten larger, you click over to your browser, and suddenly you are checking your emails again.  This happens even when you would be better off focusing your efforts on an important report you are supposed to be reading or a document you should be writing.  You may recognize that multitasking is bad and that email is distracting, but that knowledge alone does not make it easy to change your behavior.

If you are a company, you might think it would be easy to sell this person a solution to their problem. However, it’s not as easy as that – there are deeply ingrained habits here that won’t just go away.

Let’s go through some of what is required to create different habits.  The point is to recognize how much work goes into changing behavior.

First, you have to optimize your goals. Many people err in behaviors like email by focusing on negative goals.  That is, they want to stop checking their email so often.  The problem with these negative goals is that you cannot develop a habit to avoid an action.  You can only learn a new habit when you actually do something.

For marketers, this means focusing on how to get consumers to interact with products rather than just thinking about them.  As an example, our local Sunday newspaper often comes in a bag with a sample product attached that encourages potential consumers to engage with products.

Second, you need a plan that includes specific days and times when you will perform a behavior.  For example, many people find that they work most effectively first thing in the morning, yet they come to work and immediately open up their email program and spend their first productive hour answering emails (many of which could have waited until later).  So, put together a plan to triage email first thing in the morning and answer the five most important emails and leave the rest until later in the day.

Now that many people have calendar apps that govern their lives, it gets easier to put things on people’s schedule to keep them engaged with a business.  For example, services from hair salons to dentists can schedule appointments and send an email that links to Outlook and Google calendars.

Third, you need to be prepared for temptation. Old behaviors lurk in the shadows waiting to return. If you have an important document to read, and you know that you will be tempted to check your email, find a conference room in the building and use that as a home base away from your computer to get your reading done.

To keep customers from falling back into the “bad habit” of stopping off at the drugstore for oops-we-ran-out-of-it products like laundry detergent or diapers, Amazon makes it easy to schedule regular shipments right to your home. You never need to stop at the drugstore again – or even to remember to check how much laundry detergent is left in the bottle.

Fourth, you need to manage your environment.  Make the desired behaviors easy and the undesired ones hard.  If you want to avoid multitasking, then remove as many of the invitations to multitask from your IT environment.  Close programs (like Skype) that have an IM window.  Only open your email program at times of the day when you are willing to check email.  Shut off push notifications on your phone when you have an important task to complete.

Marketers need to work with their designers to come up with packaging that encourages consumers to put the product into their environment. As I discuss in my book Smart Change, Procter & Gamble helped increase sales of the air refresher Febreze by redesigning a bottle that originally looked like a window cleaner bottle (and cried out to be stored in a cabinet beneath the sink) to one that was rounded and decorative (and could easily be left out on a counter in a visible spot).

Finally, you need to engage with people. Many people feel pressure to accomplish important goals alone, but there is no shame in getting help from others.  Find productive people within your organization and seek them out as mentors to help you develop new habits.

The “positive peer pressure” technique is frequently used in service companies and organizations like Weight Watchers and Alcoholics Anonymous, but can be used by any business that’s trying to encourage repeat visits. For instance, a fitness center might offer a few free or discounted personal training sessions to new members to help them get in the habit of working out – and making them less likely to quit.

None of these factors works by itself.  You need to create a comprehensive plan to change your behavior.  Otherwise, the constant temptations to multitask will sap your productivity despite your best intentions.

This same set of principles applies for marketers.  No matter how motivated consumers may be to try your product or service, or how unhappy they may be with their current situation, if you do not focus on a comprehensive plan for changing their behavior, then you are unlikely to have a significant influence on them.

Your business will not succeed just by trying to change attitudes and preferences.  You will succeed by helping people to develop goals, create plans, overcome temptations, manage their environment and engage with others.  You will influence your customers only when you give them as much support as you would need to change your own behavior.

HBR: 6 Reasons Salespeople Win or Lose a Sale

What selling styles do you think home builders/contractors buyers prefer? Below is a blog from the Harvard Business Review by Steve W. Martin:

6 Reasons Salespeople Win or Lose a Sale

Why does a salesperson lose a sale?

It’s a question I’ve studied for years, as part of the win-loss analysis research I conduct.

There’s a tendency to assume that the salesperson lost because their product was inferior in some way. However, in the majority of interviews buyers rank all the feature sets of the competing products as being roughly equal. This suggests that other factors separate the winner from the losers.

In order to identify these hidden decision-making factors, more than 230 buyers completed a 76-part survey. The research project goals were to understand how customers perceive the salespeople they meet with, explore the circumstances that determine which vendor is selected, and learn how different company departments and vertical industries make buying decisions. We had six key research findings:

#1: Some Customers Want to be Challenged

What selling style do prospective buyers prefer? The survey shows 40% of study participants prefer a salesperson who listens, understands, and then matches their solution to solve a specific problem. Another 30% prefer a salesperson who earns their trust by making them feel comfortable, because they will take care of the customer’s long-term needs. Another 30% want a salesperson who challenges their thoughts and perceptions and then prescribes a solution that they may not have known about.

From a departmental perspective, under 20% of accounting and IT staffers want to be challenged, while 43% of the engineering department does. Over 50% of marketing and IT prefer a salesperson who will listen and match a solution to solve their specific needs. The sales department equally preferred having a salesperson listen and solve their needs and being challenged; HR was equally split across all three selling styles.

There’s an interesting explanation for selling styles preferences, which is based on whether the buyer is comfortable with conflict. Seventy-eight percent of participants who preferred a salesperson who would listen and solve their specific needs agreed with the statement: “I try to avoid conflict as much as I can.” Conversely, 64% of participants who preferred a salesperson who challenges their thoughts disagreed with the statement and are comfortable with conflict.

#2: It’s Really a Committee of One

Whenever a company makes a purchase decision that involves a team of people, factors including self-interests, politics, and group dynamics will influence the final decision. Tension, drama, and conflict are normal parts of group dynamics, because purchase decisions typically are not made unanimously.

One critical research finding is that 90% of study participants confirmed that there is always or usually one member of the evaluation committee who tries to influence and bully the decision their way. Moreover, this person is successful in getting the vendor they want selected 89% of the time. In practicality, it can be said that a salesperson doesn’t have to win over the entire selection committee, only the individual who dominates it.

#3: Market Leaders Have an Edge

In most industries a single company controls the market. Compared with their competitors, they have a much larger market share, top-of-the-line products, greater marketing budget and reach, and more company cachet. For salespeople who have to compete against these industry giants, life can be very intimidating indeed.

However, the study results provide some good news in this regard. Buyers aren’t necessarily fixated on the market leader and are more than willing to select second-tier competitors than one might expect. In fact, only 33% of participants indicated they prefer the most prestigious, best-known brand with the highest functionality and cost. Conversely, 63% said they would select a fairly well-known brand with 85% of the functionality at 80% of the cost. However, only 5% would select a relatively unknown brand with 75% of the functionality at 60% of the cost of the best-known brand.

Not surprisingly, the answer to this question differed by industry. The fashion and finance verticals had the highest propensity to select the best-known, top-of-the-line product, while manufacturing and health care had the lowest.

#4: Some Buyers Are “Price Immune”

Price plays an important role in every sales cycle. Since it is a frequent topic during buyer conversations, salespeople can become fixated on the price of their product and believe they have to be lowest. However, decision makers have different propensities to buy, and the importance of price falls into three categories. For “price conscious” buyers, product price is a top decision-making factor. For “price sensitive” buyers, product price is secondary to other decision-making factors such as functionality and vendor capability. For “price immune” buyers, price becomes an issue only when the solution they want is priced far more than the others being considered.

Study participants were asked to respond to different pricing scenarios, and their responses were analyzed to categorize their pricing tendency. From a departmental perspective, engineering would be classified as price immune; marketing and sales as price sensitive; and manufacturing, information technology, human resources, and accounting as price conscious. From an industry perspective, only the government sector would be classified as price immune. Banking, technology, and consulting would be price sensitive, while manufacturing, health care, real estate, and fashion are price conscious.

#5: It’s Possible to Cut Through Bureaucracy

The most feared enemy of salespeople today isn’t solely their archrivals; it’s buyers’ failure to make any decision. This is because every initiative and its associated expenditure is competing against all the other projects that are requesting funds. Do the departments have different abilities to push through their purchases and defeat their company’s bureaucratic tendency not to buy?

The answer is yes. Based on the research results, sales, IT, and engineering have more internal clout to push through their projects as opposed to accounting, human resources, and marketing. Therefore they’re better departments to sell into from the salesperson’s perspective.

#6: Charisma Sells in Certain Industries

Imagine three salespeople who’ve pitched products that are very similar in functionality and price. Which would you rather do business with:

  • A) A professional salesperson who knows their product inside and out but is not necessarily someone you would consider befriending
  • B) A friendly salesperson who is likable and proficient in explaining their product
  • C) A charismatic salesperson who you truly enjoyed being with but is not the most knowledgeable about their product

While top selection in every industry was the friendly salesperson, the media and fashion industries selected “charismatic salesperson” more than most, and the manufacturing and health care industries had the highest percentage of “professional salesperson” responses.

Many salespeople behave as if buyers are rational decision makers. In reality, human nature is complicated, and a mix of factors — some rational, some not — determine how buyers evaluate sales reps and who they select. Ultimately, it is the mastery of the intangible, intuitive human element of the sales process that separates the winner from losers.

 

 

HBR: Your Sales Training Is Probably Lackluster. Here’s How to Fix It

Have you ever used NRLA’s Learning Management System (LMS) for online technology training? Do you have your Certified Building Materials Specialist (CBMS) designation? If not, your company may be missing out. Below is a blog from the Harvard Business Review by Frank V. Cespedes and Yuchun Lee:

Your Sales Training Is Probably Lackluster. Here’s How to Fix It

U.S. companies spend over $70 billion annually on training, and an average of $1,459 per salesperson — almost 20 percent more than they spend on workers in all other functions. Yet, when it comes to equipping sales teams with relevant knowledge and skills, the ROI of sales training is disappointing. Studies indicate that participants in traditional curriculum-based training forget more than 80 percent of the information they were taught within 90 days.

As alarming as those numbers are, they shouldn’t come as a surprise if you consider how sales training is usually conducted. On-boarding, for example, is usually a one-off session in which reps are expected to absorb large amounts of information in a limited amount of time. Then, further training is usually limited to new production introductions or annual “kick-off” meetings to set quotas, where reps are flown in, given information and marching orders, and “fired-up” by a motivational speaker or exercise (more hot coals, anyone?). Further, on the off-chance that training is consistent and continuous, reps aren’t usually provided with coaching or given serious performance evaluations during which development (not only compensation) is discussed.

Although curriculum-based training — classroom-type courses typically focused on a selling methodology and activities like time management — has its place, it should only be treated as a foundation.

To increase retention and effectiveness, companies should offer reps additional training at times of need, provide them with access to supplemental material that reinforces what they’ve already been taught, and allow them opportunities to practice their skills in time frames connected to actual buying processes. They can do so by using the same technologies that are “disrupting” their customer-contact activities: videos and mobile apps that reps can view on their devices before, during, and after training initiatives.

In addition to providing reps with easier and timelier access to information, videos and apps improve comprehension when someone hears information, they remember about 10% of it three days later, but, when a picture is added, retention increases to 65%.

Here are some ways to incorporate better technology into training:

Before. Salespeople must learn about strategy and sales tasks at your firm, not only a generic sales methodology. They must learn how other functions affect, and are affected by, selling activities: for example, product management, marketing, pre-sale application support, and post-sale service. They don’t need to know how to do those jobs. But increasingly they do need to know what those jobs are and how they affect customers.

Because of this, on-boarding should be treated as an on-going process, not a one-off event. This can be achieved through a smart combination of on-site and on-demand videos that can be used anytime and anywhere while delivering consistent messages to your reps.

Consider Salesforce Commerce Cloud. To supplement their quarterly “boot camps” for new hires, the company uses a mobile platform to give sales reps access to the most relevant content, product positioning, and messaging. As one new rep testified, the videos quickly brought her up to speed on company messaging and customer stories. As a result, she felt more connected to Sales Commerce Cloud and confident in her corporate knowledge and relevant sales tasks before her start date.

During: In order for reps to develop new behavioral skills, they must practice a behavior multiple times before it becomes comfortable and effective. And it has to be related to a relevant task. If salespeople are motivated by a deal, they’ll be more incentivized to learn. In other words, in order for training to be effective, you’ll need to deliver the content at a time of need.

Technology can help make this happen, allowing reps to continuously learn from mobile content that is customized to their needs. When combined with traditional training, this approach helps reps turn product, market, and selling factoids into coherent narratives and behavioral models.

For example, Pacific Life Insurance Company, which sells insurance, retirement products, and mutual funds to financial advisors via its field wholesalers, uses video coaching. This allows its wholesalers to record their practice pitches and share them with their regional sales managers (RSMs), who give feedback from their mobile devices when and where reps need it. This helps Pacific Life leverage its scarcest resource: face time with advisers.

Additionally, each wholesaler must articulate a positioning statement for a particular investment product via a five-minute video. Regional sales managers then select the best videos and use them as examples of engaging sales presentations. This helps the wholesalers refine, rather than improvise, their presentations, established best practices, and creates consistency. It also builds confidence in reps, increases their competency, and establishes continuous improvement process.

After. Like other professionals, salespeople improve by identifying specific areas where they must improve and then receiving clear feedback on performance. Feedback is crucial to getting people to practice the right things, eliminate bad or outdated habits, set priorities, and clarify accountabilities owned by the rep versus the manager or the firm — all keys to effective sales leadership.

Technology can help extend the reach of good sales managers. Pacific Life, for example, faces an increasingly common challenge: How can sales managers effectively coach a geographically-dispersed salesforce while minimizing time taken out of the field for training? Mobile video coaching has allowed RSMs to coach wholesalers without the need to be in the same time zone. It also enables managers to identify potential weaknesses and improve wholesalers’ message delivery, rather than have them practice on advisers.

 

Unlike many today, we do not intend to oversell the power of technology. Selling is not reducible to a two-minute YouTube video or a 17-minute TED talk, and managers who can’t or won’t do coaching and performance reviews will be ineffective regardless of the technologies they employ. Since companies already spend a ton on sales training, the leverage resides in how you spend that time and money, not how much.

 

 

Original Page: https://hbr.org/2017/06/your-sales-training-is-probably-lackluster-heres-how-to-fix-it

 

HBR: Obsess Over Your Customers, Not Your Rivals

“The brands that remove obstacles and encourage progress along their customers’ journeys are the ones that win repeat visits, repeat purchases, and word-of-mouth referrals” Are you removing obstacles in your customers’ journeys? What are your customers’ decision traps, pitfalls, friction spots, and quit points that they frequently encounter on their journeys? Below is a blog from the Harvard Business Review by Tara-Nicholle Nelson.

Obsess Over Your Customers, Not Your Rivals

The starting point of most competitive analysis is a question: Who is your competition? That’s because most companies view their competition as another brand, product, or service. But smart leaders and organizations go broader.

The question is not who your competition is but what it is. And the answer is this: Your competition is any and every obstacle your customers encounter along their journeys to solving the human, high-level problems your company exists to solve.

When I led marketing at MyFitnessPal and was asked about our competition, I think people always expected me to rattle off a list of other nutrition-tracking smartphone apps and weight-loss programs.

What I actually said was that we were on a mission to make it easier to live a healthy life than an unhealthy one. So our chief competition was anything that makes it harder to live a healthy life. This included biology (fat tastes good, sugar is delicious, and our brains are wired to want more of both); mindless eating; and the billion-dollar advertising and marketing budgets of companies that make fast food, junk food, and processed food. Our competition was the fact that in many situations healthy food is actually more expensive and less convenient than unhealthy food is.

If we had viewed Weight Watchers as our competition, we probably would have spent a lot of time trying to do what it does, just a little better. Maybe we would have raised money to get more-famous celebrity spokespeople, or tried to come up with some sort of next-generation points system.

Sure, someone in your company needs to understand the marketplace: who your competition is, what other products are on the market, and how they are doing, at a basic level. But there’s a point at which paying attention to other companies and what they’re doing interferes with your team’s ability to immerse itself in the world of your consumer. Focusing on competitive products and companies often leads to “me-too” products, which purport to compete with or iterate on something that customers might not have liked much in the first place.

In my recent study of over 2,000 consumers, over 50% of them said that they use digital and real-world products and content at least three times a week in an effort to achieve their goals around living healthier, wealthier, and wiser. The brands that remove obstacles and encourage progress along their customers’ journeys are the ones that win repeat visits, repeat purchases, and word-of-mouth referrals.

Once you’ve redefined your competition as your customers’ obstacles, it’s relatively easy to stop propagandizing the war with another product or company. Stop setting goals by reference to other companies. Minimize how much meeting time is devoted to talking about rival companies and products. Discourage product design approaches that focus on assessing or iterating on what is already out there.

Instead, reinvest your team’s time and effort. Here’s how.

First, rethink what you sell. Most companies think they sell a product. To transcend strictly one-time, transactional relationships with your customers, your company must think about selling a transformation: a journey from a problematic status quo to the new levels and possibilities that will unfurl after the behavior change you help make happen.

A real-estate search engine might actually “sell” wise decision making, through the process of making the largest transaction their customers will ever make. CVS Health “sells,” well, health.

Next, rethink your customers. They are not just the people who have purchased your product or the people who follow you on Facebook. Your customers are all the people who grapple with the problem your business exists to solve.

Now, focus on their problems. Engage in customer research, online and in the real world, to understand and document their journeys. I don’t mean their customer life cycle with your brand. Map out your (redefined) customer’s journey from having the problem you exist to solve to no longer having that problem. That may be the journey from unhealthy to healthy living, or from being broke to being a good steward of their finances.

One of the most important takeaways from your customer insights research should be a deep understanding of the decision traps, pitfalls, friction spots, and quit points that people frequently encounter on their journeys. Look to user data, surveys, ethnographic research, online listening, subject matter experts, and even third-party data to discover roadblocks. Use this information to do a continuous “competitive analysis”:

  • Understand the obstacles your customers face
  • Learn how and where people get stuck
  • Solve those problems
  • Understand how people overcome the obstacles and get unstuck
  • Understand what stops others from achieving this success
  • Solve those problems
  • And so on

Here’s the “competition” rubric we operated under at MyFitnessPal:

Competition is: Everything that makes it harder for people to live a healthy life rather than an unhealthy one.

More specifically: Biology, food autopilot, the cost of healthy food, the tastiness and convenience of unhealthy food, and everything that makes it hard to build healthy habits such as food tracking and home cooking.

Innovations driven by obstacle-as-competition insight:

  • In-app bar code scanner to make it easy to track packaged foods
  • Massive food database, so users never have to enter nutritional data
  • Social features and challenges for support, accountability, and competition
  • Recipe-logging features for home-cooked meals
  • Content, marketing, and PR campaigns featuring user success stories, advice on making and breaking habits, cost-effective recipes and cooking tutorials, and other messages tailored to remove the frictions commonly encountered on the journey from unhealthy to healthy.

And it’s working. People who have even a single friend on MyFitnessPal lose twice as much weight as people who don’t use the app’s social features. MyFitnessPal users who log home-cooked recipes lose 40% more weight than those who don’t. The bar code scanner and food database are consistently mentioned by users who have lost weight despite having been unsuccessful with all manner of diets before. And over 120 million people worldwide now use the platform.

Amazon CEO Jeff Bezos once said, “If we can keep our competitors focused on us while we stay focused on the customer, ultimately we’ll turn out all right.” I take this one step further: If you can stay focused on eliminating the obstacles along your customers’ journeys, your company will turn out much more than all right.

HBR: The Five C’s of Opportunity Identification

Are you asking your customers what frustrates them? What are their pain points with the competition? Below is a blog from the Harvard Business Review by Scott Anthony.

The Five C’s of Opportunity Identification

Simply asking “what job is the customer trying to get done?” can be a powerful way to enable innovation, because it forces you to go beyond superficial demographic markers that correlate with purchase and use to zero in on frustrations and desires that motivate purchase and use.

Seductive simplicity hides a rich, robust set of opportunity identification tools. Through our experience utilizing the “jobs-to-be-done” concept in a range of settings, my colleagues and I have developed five tips for would-be innovators: the five Cs of opportunity identification (modeled after marketing’s famous four Ps — price, product, place, and promotion).

  1. Circumstance. The specific problems a customer cares about and the way they assess solutions is very circumstance contingent. A parent looking for a convenient way to diagnose whether their child has an ear infection thinks and acts very differently from someone who suffered a broken arm. In the first circumstance, MinuteClinic and other convenience-oriented, kiosk-based solutions work wonders; in the second they clearly fall short. Create a simple “job-circumstance” matrix that has primary jobs-to-be-done on one axis and common circumstances on the other axis. It is a simple way to visualize opportunities for innovation.
  2. Context. Ask a customer to report what they did in the past and you are likely to get something that bears only a loose resemblance to reality. Ask a customer to describe what they will do in the future and you are going to get guesses that are less than accurate. As innovation thought leader and former Procter & Gamble executive Karl Ronn puts it, “You have no conscious memory of how you do routine tasks.”

The trick is to get to context — to find a way to be with the customer when they encounter a problem and watch how they try to solve it. Ronn, who helped P&G turn Swiffer and Febreze into billion-dollar brands, believes that small-sample contextual research is much more valuable than larger sample focus groups.

  1. Constraints. One of the time-tested paths to growth is to develop an innovative means around a barrier constraining consumption. Southwest’s discount airline service, which attracted people who might otherwise take the bus or not travel at all, and Nintendo’s Wii gaming console, which appealed to families looking for simple entertainment, are but two examples of companies reaping the rewards of this strategy. One warning: understanding why a customer doesn’t consume is critical. If it is because existing solutions are too expensive, require specialized skills, or are inconvenient, then innovate away. If it is because of basic indifference, be careful. Success might not be quite as attainable as you thought.
  2. Compensating behaviors. One of the biggest challenges facing the would-be innovator is determining whether a job is important enough to consider targeting. One clear sign is a customer spending money trying to solve a problem. After all, it is easier to shift spending then to create it. Even if customers aren’t spending money on a comparable product or service, they may be spending time by following a compensating behavior. That is, a customer using a product or service in an unintended way to try to solve a problem.

A classic example of an innovation springing from a compensating behavior is Intuit’s popular QuickBooks product. About 20 years ago, Intuit noticed that a number of customers of its personal financial software package Quicken self-identified as small business owners. That couldn’t be right, Intuit thought, because Quicken lacked the ability to do dual-entry accounting, the cornerstone of any robust financial system. It turned out small business owners had a very simple job to do: make sure I have enough cash to meet payroll at the end of the month. Professional packages were too complicated, so they used Quicken instead. Intuit quickly developed accounting software that hid the accounting, and took over the market lead in a month.

  1. Criteria. Customers look at jobs through functional, emotional, and social lenses. Quality is a relative term; you can only determine if a solution is good by first understanding the criteria that matter to a particular customer. Have a look at my picture in my bio below, and ask yourself what matters to me when choosing a barbershop. I don’t care about the ability to do fancy styles, shampooing, or hair coloring. I want something simple, reliable, and cost-effective.

QB House, a business with branches in Singapore and other regional markets, nails these criteria. The company has designed a set of processes to deliver simplicity and reliability. Its tagline is “10 minutes, just cut.” QB House isn’t for everyone — you don’t see many people with perfectly coiffed hair when waiting there — but it does a wonderful job of appealing to customers like me who are looking for the basics.

Finding the job not done well that serves as a platform for innovation need not be guesswork. Methodically looking for the five Cs can bring clarity to the search for innovation opportunities.

 

HBR: What Most Companies Miss About Customer Lifetime Value

Are you measuring your customers’ lifetime value? Are you investing in and enabling customer capabilities? Below is a blog from the Harvard Business Review by Michael Schrage.

What Most Companies Miss About Customer Lifetime Value

For managers and marketers alike, the power to calculate what customers might be worth is alluring. That’s what makes customer lifetime value (CLV) so popular in so many industries. CLV brings both quantitative rigor and long-term perspective to customer acquisition and relationships.

“Rather than thinking about how you can acquire a lot of customers and how cheaply you can do so,” one marketing guide observes, “CLV helps you think about how to optimize your acquisition spending for maximum value rather than minimum cost.” By imposing economic discipline, ruthlessly prioritizing segmentation, retention, and monetization, the metric assures future customer profitability is top of mind.

For all its impressive strengths, however, CLV suffers from a crippling flaw that blurs its declared focus. The problem is far more insidious than those articulated in venture capitalist Bill Gurley’s thoughtful CLV vivisection. In fact, it subverts how customers truly become more valuable over time.

When my book Who Do You Want Your Customer To Become? was published, five years ago, its insight was that making customers better makes better customers. While delighting customers and meeting their needs remain important, they’re not enough for a lifetime. Innovation must be seen as an investment in the human capital and capabilities of customers.

Consequently, serious customer lifetime value metrics should measure how effectively innovation investment increases customer health and wealth. Successful innovations make customers more valuable. That’s as true for Amazon, Alibaba, and Apple as for Facebook, Google, and Netflix. No one would dare argue that these innovators don’t understand, appreciate, or practice a CLV sensibility.

Pushing organizations to rethink how they add value to their customers stimulates enormously productive discussion. A fast, cheap, and easy exercise for clarifying the innovation investment approach emerged when I operationalized my book’s principles. The simple but provocative tool generates actionable insights. Having facilitated scores of workshops around it worldwide, I know it gets results.

Ask people to complete this sentence: ”Our customers become much more valuable when…”

The immediate answers tend to be predictable and obvious. For example, customers become much more valuable when “they buy more of our stuff” or “they pay more” or “they reliably come back to us” or “they’re loyal to our brand.”

There are no prizes for recognizing that these initial responses reflect the variables that go into computing traditional CLVs. While everyone agrees these things are important, participants in the exercise quickly recognize how limited, and limiting, those instant answers are.

It doesn’t take long before the answers start to incorporate an investment ethos that sees customers more as value-creating partners than as value-extraction targets. For example:

Our customers become much more valuable when…

  • they give us good ideas
  • they evangelize for us on social media
  • they reduce our costs
  • they collaborate with us
  • they try our new products
  • they introduce us to their customers
  • they share their data with us

Almost without exception, these follow-on answers are disconnected from how the firm calculates customer lifetime value. But, almost without exception, these responses push people to revisit and rethink how customer value should be measured. At one company the immediate response was to look for correlations between CLV and net promoter score. At another, the conversation led to discovering a core group of top-quintile CLV clients, who served as essential references for closing deals with firms identified as top-decile CLV clients. Those reference firms instantly won renewed attention and special treatment.

The more diverse and detailed the answers, the more innovative and insightful the customer investment. The most-productive conversations came from cross-functional, collaborative interaction — not just from marketing, R&D, or business unit leaderships.

For example, for a global industrial equipment provider, customers became more valuable when they performed more self-service diagnostics and shared that information with the firm. That led directly to the firm’s technical services teams offering cloud-connecting APIs and SDKs that let customers customize remote diagnostic gateways for their equipment. Customers embracing self-diagnostics inherently boosted their CLV. Not incidentally, information access swiftly redefined how the company qualified prospects and computed lifetime customer value.

By investing in and enabling new customer capabilities, firms create new ways for customers to increase their lifetime value. Making customers better truly does make for better customers.

But in keeping with the segmentation spirit of CLV, the question can easily be edited and modified to produce targeted insights. For example, at one workshop we used two versions of the sentence: “Our best customers become much more valuable when…” and “Our typical customers become much more valuable when…”

The innovation investment insights for one’s best customers proved qualitatively and quantitatively different from those for one’s typical customers. Forcing people to rigorously define the distinctions between typical and best frequently leads to even greater creativity around customer value.

My favorite CLV vignette emerged from a session at a global financial services giant in London. As the responses grew longer, richer, and more detailed, one of the participants called attention to an interesting fact. Some of the answers, he observed, began with “we,” as in, “Our customers become much more valuable when we do something.” The others, however, began with “they,” as in, “Our customers become much more valuable when they do something.”

“What is the difference between the potential customer lifetime value when we do something versus when they do it?” he asked. After a few moments of silence, the conversation went to a whole other level of engagement, around how the firm wanted to engage with and invest in its customers.

The best investment you can make in measuring customer lifetime value is to make sure you’re investing in your customers’ lifetime value.