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ОглавлениеChapter 1
Start with the customer
Something strange happens to people when they cross the doorway into their workplace. We all have this blind spot. We spend much of our non-work time acting as a customer and thinking like a customer. We see businesses through the viewpoint of the customer. But as soon as we enter our workplace, we lose that perspective and start thinking like a supplier. We all need to work hard to combat this and look at things from the customer’s point of view. Great business leaders can do this persistently and with ease, but they are rare. The rest of us need to work at it. There are two aspects to this to look out for.
Understand what really matters to customers
The supplier (that is us, the marketers and creators) will often misjudge what is important to customers about the product or service. For example, when a hotel manager and conference organiser for a big conference are asked about how they organise the coffee breaks at a big event and what really matters to the conference guests, the manager comes up with a list like this:
• great tasting coffee;
• clean crockery;
• nice buns, snacks and biscuits;
• immaculate table linen;
• smiling helpful staff.
This list describes things that do matter. But when you ask the guests what matters to them, they have different priorities. Their list is like this:
• high-capacity washrooms so I don’t have to queue;
• fast access to tea and coffee;
• drinks other than tea and coffee;
• lots of space to hang out with people;
• somewhere to make a quick phone call.
The customer list is not about the features of the coffee and catering service. It is about whether I can do what I want to do in the coffee break. We can have no doubt the items in the manager’s list do matter to the conference guests. But the chances are they take these catering things for granted. The guest’s list is about things that if they are not in place, then the experience is frustrating. The customer list shows us things where we could be exceptional.
The ability to focus on benefits that matter rather than features that don’t
In my consulting business Differentiate, when we do the work in POSITION, we ask our clients to determine the features and benefits that will attract customers. They generate a list and a ranking. We then ask the customers to come up with their list and ranking. The management team usually get about an 80% match with the customer view. Most typically the difference is that the management are convinced that things that are difficult to do or expensive to produce are valuable for the customers. But the problem is the customer places no value on our investment and hard work. They only value things that help them achieve something or experience something that they desire and value.
Here is an example where we asked conveyancing lawyers what mattered to their customers in choosing a conveyancing firm to complete their house purchase or sale. Here are their top seven features and benefits of their service that matter to customers. The emphasis in this list is based on their competence and hard work:
Conveyancing lawyers’ list of what is important (is what they do)
1 Service consistently good.
2 Will get deal done quickly.
3 Has good admin back-up.
4 Has experience and knowledge.
5 Works hard on my behalf.
6 Proficient at conveyancing.
7 Can rely on info they give.
These are all important and worthy attributes. But when we asked the customers, the emphasis was different. The customers are after getting the deal done, being updated and a proactive approach. What they care about is the outcome:
Conveyancing customer list of what is important (is the results they achieve and experience they have)
1 Will get deal done quickly.
2 Foresees and solves problems.
3 Keeps me updated.
4 Calls back quickly.
5 Answers phone quickly.
6 Takes responsibility and is proactive.
7 Service consistently good.
If we want to start with the customer, we must shake off the supplier’s mindset and get a customer’s mindset. We will look at how to do this in detail in PINPOINT and POSITION.
Now we will explore why starting with the customer is so fundamental to growing our brand, the four things all successful businesses have in place, some examples of successful businesses and the four insights about customers that we must understand.
High-growth businesses have four things in place
Have you noticed that when things are going well for a business everything seems to fall into place? Customers turn up, they buy the products, staff want to come and work for the firm, the business has spare cash, people are having fun at work. It feels like that growth will continue forever.
As an example, Daniel Priestley’s Dent company runs a programme called Key Person of Influence for entrepreneurs who want to raise their profile and accelerate their growth. The way Dent runs their business makes it look easy. They promote their scorecard with advertising, they have a lot of free content, they run events which seem to fill up easily, people who come to the events sign up for their strategy sessions and their Key Person of Influence course programmes are full.
On a different scale, Google appears to effortlessly attract a higher share of advertising £s $s and €s each year. Google seems to find it easy to be the most popular search engine with the most users.
Big food brands such as Marmite, Kellogg’s, Coca-Cola, Walkers, Danone and Wall’s Ice Cream make it appear they don’t have to sell their products, they just put their products on the supermarket shelf and people buy them, the brands seem to sell themselves.
To the outsider or the competitor, it seems these successful players have secured a position that gives them an unassailable advantage. Smaller competitors feel like they must work harder to get the same results. To some extent it is true that these successful businesses have secured an advantage. But what we can be sure of is that it did not and does not just fall into their laps. They may make it look easy but it is not easy; these businesses work relentlessly to ensure they have four things in place:
1 A value proposition for their customers that is relevant, distinctive and differentiated.
2 They communicate it with sufficient power.
3 They make sure they deliver it every time and every day.
4 The business has basic economics that work.
These four success factors for business were shown to me by Mike Harris16 during a training and mentoring session and when I saw them it was like a bolt from the blue. There is not really anything else that you need to do to create business success. High-growth businesses have all these four things working together. Businesses that struggle are missing one or two of them or are just a bit weak on one or two of them.
I can hear you thinking, there is another success factor Chris has not mentioned. What about people? A well-motivated, professionally managed and skilled workforce is perhaps the most important factor for success. This is true. Without a great team, we cannot create success. But what we are examining in this book is what the team is setting out to achieve. I will leave other books to examine the skills of leadership, recruitment and team motivation. Attractive Thinking is all about what our team needs to do to attract more customers. Let’s examine each of these four success factors.
A value proposition for customers that is relevant, distinctive and differentiated
Our value proposition is what we do for or will offer to our customers that will make them willing to offer us a payment. If we are selling textiles to garment makers that might be some functional things such as the fabric, the quality, the colours, patterns, the quantity, the delivery timing. It might also be some emotional things such as the brand name, the presentation and logo, the sales relationship, the previous experience of our service.
If like Dent we are selling a training course, it could be the business results I could expect, the networking and people I will meet, the track record of the trainers, the number of hours of training, the training materials. It will certainly be some emotional stuff about how I feel towards the trainers and the people I meet and see around me.
If it is food brands then taste, quantity, packaging, convenience, availability when I need it, how well it fits with my needs or meal occasions. There are also important emotional responses to how the experience of the food and the brand makes us feel. Brand reputation, packaging style, brand name, logo, what my friends and family think, perceptions of quality and fitting in with my lifestyle all matter.
The things described so far make the value proposition relevant to the customer. They ensure we design a product or service that answers our customer’s need. But relevance is only the base line for getting started. The successful business needs to go further and be distinctive and differentiated. By distinctive, I mean capable of being recognised and noticed and understood. So, for food brands that is usually a combination of great visibility and availability in lots of shops and sometimes topped up with TV or other media advertising and sponsorship. It also includes packaging, naming and descriptions that attract customers and make it clear what it is. By differentiated, I mean just how many other people offer the same as we do. In what way is our product different and distinctive?
So, for example, just how many people offer entrepreneur training targeting the same need to the same people that Dent do? What is it that makes the Dent offer stand out? In their case, it is a whole mix of things. The network their clients get to meet, the success track record of the trainers, the intellectual property (IP) in the way they explain their tools and methods, the way they run their workshops, the way they run their sales process.
In many markets the opportunity to differentiate is much harder. In food brands there are so many me too products and brands with marginal differences. Think about yoghurts, orange juice, biscuits, soft drinks, chocolate bars. The leading brands end up focusing on being available in more places and using their superior marketing budgets to create awareness and recognition in the customer’s mind and invest in visibility in the shops.
We will explore the whole subject of creating value propositions that are relevant, distinctive and differentiated in PINPOINT and POSITION.
Communicate with sufficient power
As we get into the ‘How to do it’ section of this book in Part II, we will learn that the Attractive Thinking approach to brand strategy and business growth is simple. What we must do is to create a product or service that solves a customer’s problem. Once we have done that, we need to let them know about it. When the customer discovers our offer, provided we have perfectly solved their problem, they will buy it. We do not need manipulative marketing methods and do not need to trap people into buying things they don’t need. We just need to let them know about it and make it easy to buy.
When I worked in big food brands, I did not really understand how simple this is. We were always under pressure to shift more product. The factory was making it, we needed to sell it. Now this pressure to keep the factory busy and sell is real, essential and perfectly proper for a food-manufacturing business. But in the midst of this we would forget that it would be easier to sell what the customer wants than what we have already got.
This became much clearer to me when I started selling consulting services to marketing directors and CEOs. I tried all sorts of means to persuade them that they needed the Differentiate brand strategy process and this included all the usual techniques of advertising, direct mail, telephone sales, speaking at conferences, getting trade press coverage and writing articles. But one day it dawned on me that the only time we ever got any business was when a client prospect called us. It was never when we called them. When we called them, they were busy and preoccupied with other things. When they called us, they wanted to talk to us about a project where they needed some help. Their need had arisen, they had a problem they needed to solve and we could discuss it.
The clear lesson from this was that we had to concentrate on a process that led to them calling us when they needed us. What did that mean? It meant researching what the client’s biggest problems were that we could help them with. Then designing a service that addressed these problems and then finding ways to let them know about it and keep reminding them that we existed so that when the time was right for them, they called us.
This is the Attractive Thinking approach to ‘communicate with sufficient power’. For the Attractive Thinker, this just means let enough people know about what we offer as frequently as possible, so that when they need it, they remember we have the solution and are able to get hold of us or our product and then buy it.
Those successful businesses I mentioned earlier all have significant budgets attached to letting people know about it and making it easy to buy. Dent advertises and promotes its scorecard and brand accelerators as in-store ‘product for prospects’ and uses telephone sales to follow up leads. Food brands use advertising in TV, print, outdoor, digital and sponsored events to keep in the consumer’s mind and use in-store merchandising and promotional activity to draw attention to their products in store or online. Litmans (a lace and fabric supplier to the garment trade) attends the major trade shows to get buyers’ attention as well as some limited advertising. This is followed up by telephone sales and appointments.
In PROMOTE, we will explore how we come up with a budget and get this right for our businesses.
Making sure we deliver it every time and every day
This is a simple idea but hard to do. When we satisfy customers and make them happy, customers tell others about it and they come back and buy again. If we fail to deliver the quality or the service and the customer is frustrated, then we run the risk of losing them as they start to consider alternatives.
In food brands there can be a tussle between the commercial need to hit annual targets and the marketers’ desire to protect the reputation and quality of the brand. Small ‘adjustments’ to product specification will improve profit margins and create an instant rise in profits. If we do this once no-one notices, but if we do this several times the reduction in quality starts to show. Version 2 may be similar to version 1, version 3 very similar to version 2, version 4 very similar to version 3, but version 4 ends up quite different from version 1. Some big food manufacturers have been doing these product tweaks or ‘value engineering’ for decades.
This has opened up the opportunity for niche quality food suppliers and new brands. The opening for these has often been created by quality reductions amongst the big brands. For example, Ben and Jerry’s ice cream and more niche companies such as Purbeck Ice Cream have changed ice cream markets. The bread and baking business has enjoyed a resurgence away from the big bakeries of Hovis and Mother’s Pride in favour of handmade artisanal and sourdough breads.
In contrast, Mars, who are the world’s biggest private chocolate maker, have stuck to their guns on product quality. This is partly because they are a family-owned business and the family have chosen to protect product quality rather than inflate short-term profits. They continue to quietly grow sales even in their mature markets and consumers still regularly trust and buy their products. Unfortunately, the same cannot be said for some other chocolate manufacturers who have been financially engineering products and moving manufacturing to new locations (in food, location affects product quality). This has opened the door for quality providers such as Lindt to move in and pick up more of their customers.
Similar things happen in other industries. In service industries, we put in fewer hours or miss a deadline and the client notices, or we put on cheaper junior staff to support the project. In tech, the support for when things go wrong is not there; the customer cannot get an answer and drifts away.
In PERFECT, we will explore how we design products that work for customers.
The business has basic economics that work
Whether or not profit is the primary purpose of your business, if it does not make a profit (or persuade investors that its asset price will grow in the future e.g. Uber, Airbnb, Amazon, Google, Facebook) then it will not survive. We need cash and profit to pay for the previous three success factors. This is the fourth success factor. It really boils down to two measures:
Profit – does it cost more or less than the customer is willing to pay to deliver the product and service the customer wants?
Cashflow – will the business have enough cash to do everything it needs to do, or will it run out of money? If the business cannot support its early cash requirements, then are there options to secure loans or investor equity capital to see it through the development period?
As marketers and creators, we need to run the numbers and track performance. If we create a business plan and have that verified with our team and a finance professional, then we can get on with building a brand and invest in that as long as we track:
• sales volumes;
• sales revenues;
• pricing;
• cost of goods;
• overhead expenses;
• working capital;
• speed of payment by customers.
If we have these under control, then the profit and cashflow will follow. We need to understand this. Financial control is an important subject that is a whole separate discipline that we will not be covering in this book.
Who is responsible for each of the four things you must have in place?
Have a think about who looks after each of these four things in your business:
1 A value proposition for their customers that is relevant, distinctive and differentiated – who does this?
2 Communicate it with sufficient power – usually sales and marketing.
3 They make sure they deliver it every time and every day – usually operations, technical, customer service.
4 The business has basic economics that work – usually finance.
Many businesses do not have a function that is dedicated to creating and managing the value proposition. In consumer products branded businesses, the marketers assume responsibility for it. But often it is spread across different functions and the CEO is the only person who manages it. The CEO has many other things to do and needs some help.
Summary of the four things we must have in place
If things are not going too well and our competitors are doing better, then identify which of these four success factors are the problem:
1 A value proposition for their customers that is relevant, distinctive and differentiated.
2 They communicate it with sufficient power.
3 They make sure they deliver it every time and every day.
4 The business has basic economics that work.
One of the ways to fix number 1 is to reduce the price, but that messes up number 4. We may have to do that in the short term to survive. But we really need to fix the value proposition. In Part II, PINPOINT, POSITION, PERFECT and PROMOTE reveal the Attractive Thinking way to do this.
Attracting vs extracting
As a business leader we are driven by numbers, especially financial ones. These could be a matter of survival (cashflow), growth targets (revenue), generating returns (profit), or controlling costs (profit). We need profit as a means to retain freedom and control over the destiny and direction of the firm. The financial success of a business is a function of some critical numbers:
1 Prospects – the number of prospective customers.
2 Customers – the number of prospects who buy.
3 Volume – the number of sales made.
4 Price – the price achieved on each sale.
5 Revenue – which is volume {multi} price.
6 Costs – how much it costs to make each sale.
7 Overheads – the permanent infrastructure cost to run the business: Labour, premises, IT.
8 Profit – which is revenue less costs and overheads.
9 Capital invested – how much money has been spent to set up the business.
10 Working capital – how much money is tied up in the business e.g. stock or unpaid invoices.
11 Cash in the bank – and future cashflow.
12 Assets – things that we own that will produce income e.g. property, IP, machinery, systems, processes, customer lists, distribution agreements, franchisees, brand reputation.
13 Return on assets/capital – which is the ratio of profit to capital and working capital.
14 Share price or shareholder value – our current numbers plus the shareholders’ view of the prospect of us improving these numbers in the future.
That is a lot to keep an eye on, so we need to establish priorities. I find that if we focus on the number of customers, the price achieved, the cost of goods/services and make sure we collect on invoices promptly, the rest of the numbers fall into place. But it will be different for each business and for different business leaders.
Which numbers are the right ones to focus on? This depends on our situation. It will also be influenced by our need for quick wins and immediate gains vs our desire to create sustainable longer term growth or profit. Remember Collins and Porras in Built to Last17 produced some convincing evidence that purely focusing on the short term will not be as successful in the long term vs an organisation that invests in the future and knows its purpose.
How to choose the numbers you should prioritise?
There is one overarching factor that will determine how we make decisions, and this is whether we are focused on attracting more customers or extracting the most profit from our existing customers. This is also related to whether we are after quick wins and short-term gains in profit or want to build a long-term sustainable business. This mindset will drive the priorities and your decision making.
Attractive Thinking is about building a long-term sustainable business whilst also getting quick wins and short-term profits. It does not accept that there is a choice between the long term and the short term. What we must do is make our offer to customers more valuable and more visible and more available so we will attract more customers. Whereas the extractive approach is about the quickest and easiest way to maximise short-term gains. Let’s look at some examples of Attractive Thinking and the extractive approach.
The extractive approach is summed up by Figure 1.1. The extractive mindset looks at customers in much the same way as the cowboy here with his lasso. The customer is there to be targeted and captured, or even trapped into buying our stuff and preferably more stuff than they need. The customer is our victim. This is how customers sometimes feel when trapped by deals and offers. A good example is mobile phone contracts that force us to pay for more than we need each month; insurance companies that silently increase prices to people who renew their policy without shopping around; banks coming up with ever more hidden ways to charge customers whilst pretending to offer free banking, whilst knowing that we will find any excuse to avoid switching banks. These behaviours of entrapment may then be coupled with a drive to reduce the costs of servicing customers to the point where the customer experience is compromised, and it becomes difficult and stressful for customers to deal with the organisation.
Figure 1.1 Source: 123rf.com; copyright Svetlana Alyuk
Once it is stressful to deal with organisations (think of call centres for banks/phone/broadband) then customers don’t really want to make contact and would rather avoid interactions. The experience of switching is stressful, and customers feel that even if they switch, the new company may be just as bad as the one they left. Customers and providers end up with an uneasy relationship characterised by a reluctant inertia on the part of the customers to switch and providers focused on reducing servicing costs whilst ramping up prices for the customers. This flares up when customers have a frustrating time talking to call centres or chat lines and call-centre staff find themselves unable to help customers due to the constraints and rules they are bound by.
Another characteristic of the extractive approach is the use of marketing programmes where the focus is on up-selling, capturing customers, maximising the profit from each customer. The marketer is like the cowboy with the lasso. These marketing programmes will tend to involve aggressive selling, special offers only available to new customers, complex ‘loyalty’ programmes to buy customer loyalty, pricing designed to confuse customers into spending more than they need such as buy two get one free or bundled tariffs for energy, phone and broadband (Figure 1.2).
Attractive Thinking is different. It is about adding value for customers and seeking to attract more customers with better products rather than extracting value from the customers we already have. The attractive approach does not start with how to sell what we have already got and how to capture or trap customers into buying more stuff. Instead it seeks to understand the customer and find out what needs or problems they have. Then we work out how the business can produce and deliver a solution to that need or problem. This ‘attractive approach’ or ‘value adder approach’ is18 conjured up by this image of the person who is placing the final piece of the jigsaw. They have focused on identifying the shape of the hole in the jigsaw and then built the piece that makes the jigsaw complete. As a result, they are now ready to offer this perfectly shaped piece to the customer, so the customer’s puzzle is now complete (Figure 1.3).
Figure 1.2 Source: Marketoonist.com
The attractive approach to business focuses on designing and building better products that help people solve problems in their day-to-day lives or day-to-day business. Remember that definition of marketing outlined by the Marketing Society ‘to create sustainable growth by understanding, anticipating and satisfying customer need’. This is the ‘attractive approach’ and is in contrast to the ‘extractive approach’ that focuses on how to get the most money from customers. The idea is that our business exists to make something that will solve a problem or address a physical or emotional need for people. This will mean that marketing and selling this ‘something’ will be easier. The marketing and selling job is now just to let people know about it and make it easy to buy. The marketing programmes associated with the ‘value adder’ and the attractive approach are: Advertising and social media to build awareness; incentives to try to experience the product; free sample products; partnerships to reach new audiences; distribution drives to create greater availability; digital that is easy to use and makes your ‘something’ easier to buy.
Figure 1.3 Source: Ayzek (GoGraph)
Mars have become and remain one of the world’s largest privately owned food companies by building and designing brands and products that address specific human needs. All their brands were designed by starting with a need or problem that consumers have and then building products which offer outstanding quality and value for money to address that need. Mars Bar provides an energy boost, Snickers satisfies hunger, Twix accompanies a break, Dolmio makes your favourite Italian food easier to prepare, Maltesers are a chocolate hit without the calories and guilt, Pedigree makes feeding your pets easier. All these brands have had to adapt and modernise over the years as they run up against issues with changing consumer trends and priorities around healthy eating, attitudes to convenience, and intensified competition from other brands and from high-street innovation in cafes, sandwich bars, veterinary practices and home-cooking preferences. However, Mars continually adapt recipes, formats and availability to make sure the product remains a better product and is easy to buy. They make products that address real needs and problems, then the core of their marketing is brand building for awareness and reputation, and distribution and merchandising drives in the retail stores to make the product more visible and easier to buy.
In general, the consumer product giants, Unilever, P&G and Reckitt Benckiser take this kind of approach to building their brands. They seek to offer the best product in the market to satisfy consumer needs, they then can build a brand that has a reputation for doing that. Ariel washing powders and liquids, Cillit Bang cleaners and Dove soaps all deliver products that perform and offer value for money. These branded manufacturers know it is quite easy for their consumers to switch to another product. They also know if the product is not available in one store, their consumers will buy a competitor brand rather than go to another shop to find their preferred brand. They know that product must be easily available and easy to buy. They know they must delight the customer with every purchase and every time they use the product. They know that people can easily forget (lose awareness) of their brand, so awareness and recall is important. Unlike switching a bank account or broadband contract, switching your chocolate bar or soap powder choice is easy and painless and carries little risk. Trying a new product is also easy, painless and has negligible risk. They cannot trap their consumers; they must satisfy and delight them.
Interestingly these businesses have also seen the marketing science evidence (see Chapter 2) that shows that the size of their business and the amount of profit they make directly correlates with the number of customers and consumers that they have on any given day. They understand that market penetration is the biggest driver of profit. They are focused on attracting more customers to build their brands. Other sectors and businesses where this ‘value adder’ or ‘attracting more customers’ approach is prevalent exist in the high street such as coffee bars. Coffee bars are always trying to make their stores and products better. Costa talks about using better coffee beans; Caffè Nero celebrates their baristas; Starbucks focuses on welcoming ambience. Many restaurants, supermarkets and fashion stores take a similar approach, looking to make their offer more attractive, more suited to customer needs and always offering good value for money. These businesses relentlessly pursue better products and service as differentiators to attract more customers. They know they are solving day-to-day problems for everyday people and if their customers spot something better or have too many bad experiences they will try something else.
Industries dominated by value extractors are open to disruption. Several industries that were not delivering value, service and quality have been disrupted. Think about short-haul air travel before the arrival of low-cost carriers. Low-cost airlines such as EasyJet and Ryanair blew open the traditional high-cost approach taken by British Airways, Air France and many national carriers. They did not just attack price and value with low fares, they also focused on making their offer better. Tickets became easier to buy and to exchange. Tickets did not carry a series of complex provisions about return trip dates. We bought a simple ticket for one journey and that was that. The legacy carriers had created a complex system to protect the high charges they levied on frequent business passengers whilst offering some lower fares to leisure passengers. The low-cost carriers removed those barriers completely. However, now Ryanair and EasyJet are the established players, we have seen them adopt some value-extractive approaches in their pricing and marketing.
Unfortunately, train tickets are still like airline tickets used to be and remain complex with conditions that are easy for customers to breach and find themselves stranded. However, trains often have an effective monopoly on a route. Where a business can get monopoly control on a sector then the extractive approach looks irresistible. You can force customers to pay higher prices for a worse offer of product or service.
What is it that causes a business leader to choose between a value-adding approach and a value-extracting approach? There are three factors that will influence you:
1 the type of market and customer engagement with the product or service;
2 the existence of monopoly control over customers;
3 long vs short term and the commitment of management to building a sustainable long-term business.
Type of market
There are three market conditions that make the value extractive approach very risky and where more businesses will favour the ‘attractive approach’:
1 a market where consumers or customers find it easy to switch brands, no stress, no bother (think how easily you can switch your choice of chocolate bar vs how easy it is to switch bank accounts);
2 a market where people care about what they buy and what they choose (think of how you feel about which clothes you wear, or which drinks you consume vs how much you care which energy supplier you have);
3 a market where people enjoy the process of considering their choices e.g. buying clothes, choosing a coffee bar, restaurant or holiday.
Even though short-term gains can be had by saving costs, reducing quality, creating barriers to brand switching (loyalty programmes), in markets where the consumer is free to choose and it is easy to switch brands, the value-extractive approach is risky since the customers can easily ‘find us out’. The attractive approach is more obviously needed in markets where customers care about having the best product for their mood and needs and find it easy to switch (e.g. chocolate bars) whereas the extractive approach tends to arise when it is hard for customers to switch and also they don’t really care which brand or product they use and tend to feel that everyone is just as bad or as good as each other (e.g. bank accounts).
The converse is also true: That in markets where it is difficult or hard work for the customer to switch then the value extractive approach will seem more appealing. Customers generally do not enjoy spending time switching a bank account, shopping around for insurance, finding a new phone contract or switching their energy supplier. Most of us would rather be out enjoying ourselves, reading a book, meeting friends, watching TV, playing sport or whatever we really enjoy. If we know our customers are reluctant to switch, then it is tempting to find ways to make more profit from them as many will stick with you rather than endure the pain of a switch.
Another customer belief that encourages businesses to adopt the extractive approach is where people tend to believe that all providers are the same and just as good or bad as each other. If they switch, they are just jumping out of the frying pan into the fire. If the bank treats us badly, are we sure the next bank will be better?
Monopoly control over the market
The eighteenth-century economist Adam Smith was one of the first to note the conflict between the benefits of the free market that ensures economic prosperity for many and the desire of the business leader and property owner to exert control on the market so that they will not only obtain a price for their goods and services but can also ‘extract a rent’. By ‘rent’ he means the ability to charge for non-productive activity: ‘It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.’ Adam Smith explained that in a perfect free market the self-interest of the business person will be harnessed to provide what customers need. Free competition will drive businesses to deliver what customers want. The one that does it best at a fair price will be more successful and this creates prosperity for the whole economy. This drives a productive economy that makes things and services that add value for customers and expands the wider economy. This is what underpins ’Attractive Thinking’.
However, Smith also identified that businesses will seek to find ways to ‘extract rent’ (i.e. charge more) from the population. The ability to ‘extract rent’ can come from various sources:
• Owning property – rent apartments, houses, commercial property.
• Securing patents – blocking competitors out permits higher prices.
• Legal monopoly – e.g. a rail line can charge extra for high-demand periods.
• A famous brand – enables manufacturers to extract higher prices.
These are tools used in ‘Extractive Thinking’. Rent in Smith’s view does not add value, it extracts value. It is not inherently bad, but it does not add to the total productive economy. My point here is that if our business can extract rent in some form, it encourages us to take an extractive approach to customers. We will see later that whilst the extractive approach looks easier and will produce short-term gains, it is not the best way to create long-term value and a sustainable business.
Long term vs short term
Short-term value extracting is an easier and cheaper way to raise short-term profits. Management are clearly tempted to extract as much value as possible. We have seen this in the food industry. Here are a couple of examples.
Food and consumer product companies can get carried away and use an extractive approach. In November 2016 Mondelēz decided it would reduce the amount of chocolate in each Toblerone bar rather than put the price up to reflect increased costs. They also ensured the bar looked the same size on the shelf when in its box. This required them to create larger gaps between each chocolate peak in the bar. This was to maintain the size impression and the price point whilst delivering less. There were so many complaints about this that in July 2018 they reversed this decision. In trying to extract from/deceive/confuse customers they were losing customers even if they made a bit more profit on every bar.
The Mondelēz/Toblerone example is an extreme example of an approach adopted by many food companies to ‘value engineer’ their products to make more profit in the short term. They were caught out because it was so obvious. Other food brands have not been explicitly ‘caught out’ but end up offering worse value and a product that is not as good therefore consumers become less attached to the brand and product and over time the brand either grows less quickly or goes into decline.
Early in my marketing career, I was involved in a case study where we did the opposite and added quality back into a famous brand. I worked in the McVitie’s marketing department and we were concerned about the amount of chocolate on the biscuits. We were worried the quality was not good enough. We had an idea the quality of the product was not as good as it used to be (this was hard to prove). This was a big concern when we were experiencing price competition from retail own-label products that were remarkably similar. We were asked by Eric Nicoli, the Managing Director of McVitie’s, to create a business case to increase the chocolate on each biscuit.
After considerable consumer research and financial modelling, we presented a case for adding £1m back into the annual costs of the product and showed the sales increases we would need to create more profit. We also argued that continuing to lose market share to private label was not a viable position. It was not an easy argument to win. It is much easier to present an argument on how we might save money by financially engineering the product. In that case the saving would be guaranteed, the risk of losing sales seemed slight. But the reverse argument of let’s add £1m to the cost and we might get more sales and we might get higher prices in the future was a harder one to trust. But it was the right decision and we won the day (in the end). Critically this argument would not have been won without the Managing Director championing the idea and the wider support from the board of directors.
Attracting vs extracting
We must recognise how we make decisions like this about what we produce, deliver and sell, how we price it, how we manage quality, how much this is led by customer need and how much this is led by short-term profit. Following this discussion of Attractive vs Extractive Thinking, we will know which of these approaches we favour instinctively. We will also have a sense of the balance of our decisions: are they mostly ‘attractive’ and ‘adding value’ or are they mostly ‘extractive’?
All businesses operate with a mix of these attractive and extractive elements. The first question is how we maintain the balance, the second question is what is driving the agenda in our business and the third question is how we prioritise between the 14 critical numbers (that I listed earlier in the chapter) when making business decisions.
Attractive Thinking will show us how to make these decisions so that we attract more customers, create more value for our customers and build a profitable and sustainable business in both the short and the long term.
Game changers or market disruptors are usually value adders
Businesses and brands that disrupt industries usually create considerable growth opportunities both for them and other insurgent incomers. Disruption is not the only growth strategy, but when a business gets it right it is often spectacular. If they get it wrong, it is usually spectacularly expensive.
But what binds together all disruptors is that they always add value for customers. They always start with the customer. They deploy Attractive Thinking to attract customers away from established players to a new way to get a service or product. Very often they attract new customers into a market by making the product or service easier to buy, more affordable or more enjoyable to use. What is true is that they never start by using Extractive Thinking. Some switch to it later in their development but no-one ever disrupted an industry or market by seeking to extract more money from their existing customers. What is also true is the disruptors successfully grow their market:
• Monzo, Tide, Revolut are providing banking that is easier and more convenient to use and cheaper to run by harnessing mobile technology.
• OFX, TransferWise, Travelex and others took most of the foreign-exchange business away from traditional retail banks.
• First Direct established banking without branches and extraordinary customer service.
• Amazon: (need I say any more?).
• Virgin Atlantic brought value and service to transatlantic airline travel.
• Celebrations chocolates reinvigorated the casual chocolate gift market when Roses and Quality Street were taking it for granted (my own small contribution to this list).
• Pharmaceutical switches: Every time a medicine is switched from being restricted to prescription only to being sold over the counter then the product ends up being easier to buy, more people can be treated and often it is cheaper, so real value is added e.g. Nurofen, Ella One, Zantac, Voltarol, Imodium.
In mobile phones there were three disruptions. The car phone, the mobile phone – which started large and heavy and got smaller – then the iPhone, which killed Nokia. Apple chose a careful balance of value extraction (locked systems and high prices) and value adding (stunning design and ease of use) to attract customers and grow their business. I would argue that the value add created by Apple through superior design and functionality was so huge that they were able to extract additional rent through high prices and locked systems without much harm. They built a monopoly control over their users. But as Samsung and Huawei have chased them with similar design, lower cost models and better distribution, the dynamic of the market is changing, and I would argue that only an Attractive Thinking approach will work in the future. Apple is now pursuing privacy control as a point of difference.
Another category of disruptive business that create massive added value for consumers are the new tech platform intermediaries that facilitate transactions between providers and customers: Airbnb, HomeAway, Expedia, Booking.com, Uber, Deliveroo. They have grown customer demand for products and they have sometimes brought down prices (Uber taxis vs black cab, Airbnb vs hotels). They have created opportunities for providers to earn extra money or even make a living (room renting on Airbnb, Uber taxi drivers).
But as these businesses start to exert control on the markets, they are no longer disruptors, they are the market. Then the temptation to become value extractors arises and these platforms are extracting too much value. The platform charges either the customer or the provider a fee or commission. The question is: Does the fee provide enough value to the customer and the provider? If they get this balance right, they will continue to prosper and be true disruptors and value adders. When they get this wrong, it is likely the markets will slow down as providers refuse to deliver stock to the platform and customers resist the charges.
Attractive Thinking is the best approach. This is not a moral or principled position that this is somehow superior but is a practical belief that it just works better. In the next chapters we will examine some rules and evidence about customers and markets and how they work to demonstrate why Attractive Thinking is the best way. Then we will look at how we can offer value in PINPOINT, POSITION, PERFECT, PROMOTE and PITCH.
Four insights from customers are pivotal
If we are to start with the customer, it is helpful to focus on the different steps that the customer will go through when they buy our products and services.
There are four steps in the customer experience (Figure 1.4). Some marketers call this the customer journey. What matters for us is how well we perform at each step. We must succeed at all of them to make a sale and create an advocate who will recommend our product and service to others.
Figure 1.4 Four moments in the customer experience
Once we understand how well we perform at each step, we can decide what is the priority area to attract more customers. Either we need to develop stronger ‘pull’ strategies (e.g. brand building and advertising), adopt a ‘push’ approach (e.g. improve distribution and availability), improve our likability (improve design or customer experience) or increase our visibility (more promotion or on shelf or web standout).
The problem or need
A fundamental truth of business (and life) is that no-one ever put their hand in their pocket to spend money unless they experience a problem or need. People don’t buy your stuff to be nice to the brand; they don’t buy it just because they like us (they probably won’t buy if they don’t like us). They hand over their money or their credit card because they have an issue or need or want to get something done and they have decided we can help them. These problems and needs fall into various categories. Here are a few:
• physical e.g. hunger, tired, cold, hot, lose weight, get fitter;
• emotional e.g. bored, seeking to impress, wanting to be social, lonely;
• financial e.g. security, managing money, saving, creating income;
• success e.g. business, social, personal goals, happiness;
• family and friends e.g. express love, stay close, communicate;
• safety e.g. manage risk, avoid danger, protection.
The United Nations has produced another list based on its global goals for sustainable development (Figure 1.5). This list also indicates for us several human needs and problems that different businesses could address. These are things that occupy our minds, and everyone is preoccupied with at least some of these. Look to see if your business can act to work in one of these areas.
Figure 1.5 United Nations Sustainable Development Goals. Source: United Nations, www.un.org/sustainabledevelopment/sustainable-development-goals/
The customer starts with a problem and not a brand
Too often, I see business owners, managers and marketers assume that people are thinking about their brands and choosing between brands depending on whether they like the brands and what features and benefits they offer. But the customer does not start with our product, they start with a problem. The problem will be related to something on one of these lists.
