By Adrian C. Ott

While attending a recent presentation on customer loyalty, a question from a member of the audience sparked my imagination.  

"Do Millennials care at all about loyalty?  Does loyalty to products and brands still exist?" 

When I looked around the room, there seemed to be a mood of skepticism about the topic of customer loyalty. 

Another woman responded, "It is hard to be loyal because there are so many options out there today. There are always new products that seem interesting."

Are they correct?  I remember my parents unquestioningly buying Ford automobiles, or insisting on filling up at "Herb's" corner gas station. 

Are loyal customers an endangered species in the business world - soon to join the fate of the dinosaur? or the typewriter?  Are executives and marketers deluding themselves?


Only 2.5% of Consumers are Loyal

No doubt, our relationships with brands have significantly changed.  The Financial Times cites a two year analysis of 685 brands using data from 32 million consumers that in 2008 the average brand lost a third of its most highly loyal customers. These customers were lost to price and promotions from other brands - something brand marketers considered improbable in the past.

B-to-B executives constantly complain about pricing pressures and reverse auctions as vendors are deemed as replaceable. Even products and services that were considered fortresses of differentiation reach commodity status at a record pace.

The CMO Council and Pointer Media Network study further reveals that 80 percent of brand sales are attributed to only 2.5 percent of shoppers - not 80/20 as previously thought.  Searching for traditional brand loyal customers is like looking for a needle in a haystack.  These figures suggest that such customers could be considered as endangered species.


Tilting at Windmills of Unwavering Customer Allegiance

According to Merriam-Webster's Online Dictionary, "loyalty" is an act of unswerving allegiance. Synonyms are: faithfulness & fidelity.  These terms connote an unquestioning devotion - an effect on our emotions that drive our actions.  Analogous to a marriage where using competing products constitutes a terrible act of adultery - something to be avoided at all costs.

Consider the products and services you use personally and for business.  How many of those items truly stand out for you? How many would you drop if something better, (or cheaper with equivalent quality), came along?

Rather than tilting at windmills in pursuit of unwavering allegiance, a more pragmatic and fresh approach is needed.  Let's stop focusing on diminishing returns of 2.5% of customers and think about the rest of the 97.5% of customers out there.  Don't they have money to spend?

Customer engagement today is different because there is a greater risk of distraction.  Time is limited. We multitask as we juggle different types of technology. The Internet and globalization have enabled a plethora of products and services that vie for our time and attention.  We can buy products and services from across the globe. 

Consider a teen that has choices to spend his time on World of Warcraft, The Wii, Halo3, a social network, or texting.  He actively considers competing alternatives on how to spend his time. Understanding the forces that compel a customer to spend time with a product or banish it as "background noise" is key. 

Traditional customer loyalty is blind to the alternatives. Today's customer has access to all the alternatives. When customers are compelled and see value in an offering, they give a share of their time and attention to what they deem as the best alternative.  The following chart highlights these differences:




This demonstrates that the term "Loyalty" is an imprecise way to describe contemporary customer relationships.  Ask around and you will find few, if any, customers that view their relationships with brands as a faithful, loyal marriage - many don't even consider it a betrothal. 


Customer Engagement: Speed Dating versus a Faithful Marriage

There is simply not enough time in our day to devote our attention to all the products and services we purchase and consume. This results in varying modes of engagement. 

Customer traction is possible, however the reasons are not uniform and not always based on emotions or attitude.  Behavior can be just as profitable as words of affection.  For example, some people always buy the same brand.  However it is not because it tugs at emotional heartstrings as branding agencies would like us to believe. The product simply works. We don't want to think about it further. We want to move on to more important decisions in our lives. 

With hectic lifestyles, most customer interactions are like speed dating combined with a few serious brand relationships where customers are willing to invest more of their precious time and attention. Alternatives are waiting in the wings that are ready and willing to replace your products and services.  Distractions from technology abound. 

Changing our mindset to address the reality of today's distracted, multitasking, digitally-savvy customers calls for fresh approaches to engage them.  

Future blog posts will describe strategies based on our work with leading clients, and three years of extensive research with innovative companies who have gained sustainable traction in this hyper-competitive environment. 
(Hint: These strategies involve entirely new ways of thinking that go well beyond social media, and tactical loyalty programs.)

Food for Thought: Dogs are loyal, customers are not dogs.


What do you think? Is the term "Loyalty" outdated?  Is there a better term? Is there a difference in the way the generations engage with products and services?   


© Copyright 2009, Exponential Edge Inc.  All Rights Reserved 

 

        

By Adrian C. Ott        

Not far from my home are the grounds to a large western rodeo.  Dusty pick-up trucks drive around town sporting bumper stickers that say, "Cowboy up!" 

"Cowboy Up!" means that when you fall off the horse you have to get back up, dust yourself off, and keep trying. It is a shift in attitude from "can't" to a positive "can-do" with confidence.  It is a non-complaining spirit that becomes contagious. 





Indeed, the economy is rough right now.  If we are not hurting personally, we have family and friends that are experiencing pain.   We are suffering the consequences of lost jobs, lost income and lost opportunities. Businesses are suffering as well.

Employees and the media whine about why things don't work...and then we wonder why they don't. Have you ever heard of a situation being solved by whining?  During tough times, it is far easier to lay low, burrow into deep trenches and say "No" rather than having the courage to say, "Yes, let's try to make this work.' 

But we have the power to change all of that.  The U.S. is the most entrepreneurial country in the world today. The Silicon Valley specifically is renown for fast-paced innovation. Gains are not made by abiding by rote learning, and hard and fast rules. Winners thrive on change and flexibility to act. When a start-up, or new technology or new market doesn't work, we learn from it and move on.

We should not let fear of the economy keep us from pursuing risks in penetrating new markets, and higher-potential opportunities.  Risk-taking is a wild ride even in good times. Let's not hobble our employees, entrepreneurs and venture capitalists with more rules, more taxes, and more reasons not to contribute.

Take a look at your product and service portfolio for your business.  Is it comprised entirely of safe bets and low reward product extensions?  Or do you have a portion of your new offering pipeline invested in a few high risk, high reward opportunities? 

Now is the time to "Cowboy Up!" on innovative market opportunities, lest we stay on "safe" ground and get kicked in the head by our competitors.


(c) 2009 Exponential Edge Inc.  All Rights Reserved

        

by Adrian C. Ott

I hate to do things twice.  Re-work, system crashes and "do overs" are very frustrating.  Why?  Because they take precious time that could be spent elsewhere.  We all want to do things once and move on. 

With the proliferation of social media platforms we are hitting a saturation point - Facebook, Ning, Twitter, LinkedIn, MySpace, Biznik, Plurk, corporate networks, industry communities and others .  My head is spinning.  My colleagues and clients are telling me this as well.  How many communities can we participate in and still have a life? 

In 2007, we predicted in Fast-Forward 2010: Social Media Shake-out  that people will make decisions as to where they will spend their precious time.  Once social media is understood, customers will avoid duplicating efforts.  Customers will strive to be more efficient with their time by consolidating their regular social media interactions to a number of favorite communities. 

Customers will gravitate toward communities that give them the biggest return and highest value for their time. Critical mass (or what economists call "network effects") plays a key role because the value of social networking lies in locations where others congregate.  If we need to reach John, do we need three social networking sites to link, friend or follow John?  One will do nicely thank you. 

This scenario is beginning to play out as customers are flocking to sites like Facebook and Twitter. Mark Zuckerberg of Facebook recently stated that they have more than 200 million users.  If Facebook were a country it would be the fifth largest in the world.  Indeed, a few mega-communities will dominate, however I don't envision a one-size-fits-all. We have different dimensions to our lives and sometimes we like to keep things separate (e.g. work and personal).  What I foresee is:

• Customers will belong to one to three mega communities.  These will house our master profiles. For example, Facebook for friends.  LinkedIn for business.  Customers want to manage a limited set of profiles.  This is why we see many sites with system generated user pictures in the members list.  Most people don't want to bother setting these up multiple times. 
• Customers will belong to a limited number of niche communities:  Customers will focus on a few communities that offer unique value-add to their life and interests.  For example, a professional industry community, a personal hobby community, a civic service community etc..  Certainly everyone has niche preferences, that's what makes us all different and special. We expect that most people will participate somewhere in the range of 2 - 10 niche social media communities. Note: This is not in the hundreds or thousands, therefore not every company will be able to build an active community.  Let's not confuse customer service with an emotional customer attachment.   
• Certain niche communities will reside inside a mega community: This enables companies to reach and leverage users that are already registered in a larger community.  LinkedIn groups are an excellent example of people with shared interests coming together. 
• Consolidated reporting and propagation tools will increase in popularity:  Tools that allow one to see a  consolidated view on their desktop of activity across their social networks are a great time saver.  Certain social media users will opt to broadcast to their communities using a single propagation tool to save time getting the word out.  We are beginning to see this with tools such as TweetDeck (www.tweetdeck.com) that enables Twitter users to segment and filter Tweets and Facebook entries, and Minggl (www.minggle.com) that crosses many of social communities.

Customer decisions to save time and avoid "do-overs" is driving this trend to consolidate their social media interactions. Customer want to accomplish more in less time.

Executives need to be mindful of these narrowing choices as they make their social media investment plans. The game stakes have been raised as sites reach critical mass.   In certain markets they may have already missed the wave to build a proprietary community because critical mass has been achieved through other means.  Alternatives need to be considered.

        

by Adrian C. Ott
     

I recently moderated the 2009 Silicon Valley Chief Alliance Officer Roundtable that was hosted by Cisco.  This was my second year moderating this annual event that was organized by the ASAP Silicon Valley Chapter.   

Twenty-seven VP and C-level senior executives responsible for alliances and channels from firms such as Intuit, Adobe, HP, Microsoft, EBay/PayPal, IBM, SAP, Oracle, Cisco, Seagate,LinkedIn, Salesforce.com, Capgemini and others attended this meeting. 

The executives represented an excellent view of trends and best practices shaping the technology and alliance landscape.  "The companies represented today, contribute $464 billion to the U.S. Economy. With a total combined market cap of $859 billion, these companies not only shape Silicon Valley's economy but also the world's high-technology landscape," welcomed Jim Chow, President of ASAP Silicon Valley.

According to Steve Steinhilber, VP of Strategic Alliances at Cisco, "As we have seen in the last few months, markets can change overnight.  Sharing ideas and best practices in meetings like this is vital to staying on top of today's fast-paced environment."

The topline findings are:

1. A majority of executives view strategic alliances as more important in a downturn, but several challenges to growth such as regaining momemtum after cost reduction, and overcoming business risk confidence issues impede forward progress.
2. Executives are continuing to invest in disruptive technologies (e.g. Cloud Computing/Software as a Service (SaaS)) and new market penetration opportunities.
3. New business models such as SaaS are changing the role of channel partners.  This will result in new compensation and services models for the channel in line with these new models.
4. Most companies are re-evaluating their alliance portfolios but also changing the measures by which they value and resource the relationships.  For example, evaluating the financial viability of even the largest partners and customers has become a necessity. 
5. The need for new partner evaluation criteria is surfacing as new partner models such as talent-swapping emerge.
6. Partner metrics beyond revenue are evolving that are increasingly tied to profitability and "Forensic Accounting."
7. Internally communicating the value the partner organization remains a key priority in light of downsizing and cost reduction.
8. Current macro-economic shifts in wealth distribution in the U.S. and abroad are expected to impact the partner portfolio mix.

As best summarized by Erna Arnesen, VP of Global Services Channels and Alliances at Cisco, "What we are seeing right now in this time of economic crisis is a more engaged and frank dialogue across the strategic alliances community....This will put all of us in a unique position to increase our focus on joint revenue, contribution, and investment returns."

To access our white paper with complete findings and our analysis of this event:

http://www.exponentialedge.com/sv_chief_alliance_summit.html

 

        

By Adrian C. Ott


The recent credit market crisis causes us all to reflect about how we approach our businesses. We’ve undoubtedly encountered staff reductions and realized evaporating sales opportunities as companies and consumers retrench their spending. Worst of all, many of us have realized losses to our personal investment portfolios,

Although painful, the bright side is that these changes offer an upside for businesses seeking growth – to take advantage of this, we need to reset our thinking to visualize opportunities in this new landscape. 

Below are five approaches that help you to not just survive, but thrive in an economic downturn:

• As markets dissipate, new industries emerge. Although spending is curtailed, businesses and consumers still need to purchase goods and services. What has changed is that they are spending differently. Adapting to new markets that emerge during these times is pivotal to success in this new market climate. Although real estate mortgages are imploding, foreclosure, and credit counseling services are booming. Print and media advertising is declining, but internet advertising is growing – Google’s recent strong financial results are a testament to this transition.

Alternatively, offering products and services that help companies to downsize or reduce costs could be a vital new revenue source. Rather than further entrenching into your existing market that is going nowhere, consider new market green fields.

• Are you shifting investments in your offerings and marketing campaigns to reflect the realities of economic down cycles? Consider shifting your offerings to reflect buyer realities. Assisting companies to outsource software as a service instead of implementing in-house creates a lower entry point, fewer staffing requirements, and less stress on capital budgets.
• Can you offer services that help customers achieve greater ROI on existing assets rather than buying new equipment?
• Can you help them make existing employees more productive?
• Can you reduce organizational disruption to reduce stress on remaining employees.

Can you make your offerings less financially stressful and easier to digest for your customers?

• Avoid peanut butter budget cuts. Rather than cutting expenses by 10% across the board, use this as an opportunity to “prune the tree” by eliminating less desirable programs in order to focus growth and energy on a few key areas. Use this as an opportunity to rethink what you are doing.
• Your competitors are also cutting back…and are distracted. Markets that seem impossible to penetrate during strong economies present opportunities as competitors curtail efforts. This may evoke a strong entry opportunity that can take hold when markets turn upward. The key is to be poised to take advantage of it. If you can execute a focused strategy quickly while your competitors are consumed by organizational changes and loss of employees to execute, you will achieve the upper hand.
• Start Executing. Although we often want to lick our wounds with corporate change, getting your organization adapted to changes and in motion again is paramount.

As one of my tennis coaches once told me, “If you are losing, change something in your game because you are not doing something right.” In this same spirit, if your firm is struggling, use the downturn as an opportunity to  capture a new market opportunity and re-focus and poise your business for the upturn.

        

Last week I was invited to lecture at U.C. Extension by my respected colleague, Gary Katz, CEO of MO Partners www.mopartners.com.   I enjoy these opportunities because I am able to test some of my latest ideas. Most students at U.C. extension are college graduates who work full-time in Bay Area businesses.  They are continuing their studies to remain current with the latest trends in their field.  

Sharing ideas with the students not only enables the class to explore intriguing new ideas, but provides a terrific real-world perspective outside of my client network. 

A Student Question on Product Porfolios:

After the class a student e-mailed me:

Thank you for your presentation last night.  You mentioned that when the engineering group presents 120 products to the marketing group, the marketing group needs to sort out the product category and marketing priority.

In my experience, the engineering group's goal is to provide the product that meets the functional requirement provided by the marketing group based upon the market inputs. Therefore, the marketing group shall have known about the marketing priority of the products and have guided the product production forecast and new design requirement. It seems to be contradictory to your example. Would you please explain?

My Response:

To answer your question on product priorities, many large companies have more than 100 products and services in their portfolio.  Although marketing may define the requirements for each product or service upfront, the entire offering portfolio must be prioritized in relation to market priorities.  These priorities may have shifted from the time that the original requirements are created and by how engineering executes the offering based on the market information.

Product releases may include:

• minor releases (e.g. a 2.01.01 bug fix and features)
• a major upgrade (from 1.0 to 2.0 version)
• brand new products

Marketing needs to differentiate the marketing investment between these different types of releases. For example, product launch investments may be categorized as "A", "B" or "C" priorities.  The market investments associated with each varies.  An "A" launch may be at a big event with all hands on deck.  A "C" launch may only include an announcement on the website and combination with other "C" launches into an installed base e-mail communication.

Several companies that I work with differentiate these priorities not only by the type of release but also by whether the offering is an extension to an existing market or penetration into a new market.

An acquisition complicates such priorities. Product and services in the new company must be prioritized in terms of markets and products relative to existing products so marketing knows what types of campaigns to launch and how much to spend.  Marketing cannot afford to execute 100 campaigns and needs to define relative priorities.  We've helped client with models to determine these priorities. 


Prioritizing the Product Portfolio is Important

Prioritizing the product portfolio enables marketing to focus investment on products that will provide the greatest ROI and not over invest in cash cow products.    Although marketing is in involved in prioritizing individual product requirements, attention to the product portfolio is also important.

 

        

By Adrian C. Ott

I was invited to speak at this year's Strategic Planning Annual Conference in Marina Del Rey, California.

While attending the conference, I had the opportunity to sit in and listen to presentations by other strategic thought leaders.  Although I was unable to attend every session, key topics in this year's conference were:

1) How to increase the pace and quality of decision making
2) How value chain analysis can result in better customer understanding
3) The role of the Chief Strategy Officer
4) How technology innovation is more predictable than you might think.

I will write about these topics and my thoughts on implications in subsequent postings.  In addition, I will share information about my presentation on Customer BehaviorNets.  You will hear more about this in the coming months.

        

by: Adrian C. Ott




On January 16, I was invited to moderate a Chief Alliance Officer meeting of twenty-one senior executives of some of the largest firms in the Silicon Valley.  Participants included Senior VP, VP and Sr. Director Representatives from firms such as IBM, Paypal, Cisco, BEA, BMC, Symantec, Cognos, Philips Electronics, Oracle, Symantec, Borland, Informatica, Intel, and others. 

This annual event was sponsored by the Association of Strategic Alliance Professionals (ASAP) Silicon Valley Chapter.  This was an open dialogue between the executives to share the latest trends and best practices.

Below are a few insights we uncovered:

• Silicon Valley Alliance Executives see major change ahead caused by enterprise software industry consolidation and new business models such as Software as a Service (SaaS) and IPTV. 

          80% of the attendees characterized the level of change occuring in their alliance ecosystem to
          be "significant" over the next three years.

          20% see "moderate change."

          None of the executives saw "no change."

• Business Ecosystems Are Becoming More Diverse Making Strategic Bets More Difficult 
• SaaS (Software As A Service) Dis-Intermediates Existing Business Models and Creates New Paradigms 
• Technologies such as e-communication and behavioral targeting offer promise to managing increasingly complex global partner ecosystems 
• Approximately 30% of alliance and partner organizations are adopting some form of social media and community technologies like blogging and virtual tradeshows,  but most are "wait and see."

For our free white paper that shares more detail on trends, best practices and our assessment of the implications, please click here: http://www.exponentialedge.com/autopub/siliconvalleychief.html 

        

Our senior strategy team at Exponential Edge had the opportunity to collaborate on what we see as salient trends and opportunities for our clients and community in the coming year.  Here are the ten (not in order):

1. New Platforms Take Hold
2. Customer Behavior Trumps Traditional Market Approaches
3. Digital Demographics Become Increasingly Important for All Industries
4. Privacy is the New Black
5. Marketing and Sales Redefine Themselves to Adapt to Dramatically Changing Customer Relationships
6. Remote Monitoring and Testing Proliferates
7. Business Ecosystems Become Increasingly Diverse
8. Selecting Technology to be Incorporated into Offerings is more than an IT Vendor Decision
9. Strategic Planning is Becoming More Frequent and Intensive
10. Mining the Internet

If you would like a Free White Paper that describes these trends and opportunities in more detail, please click here www.exponentialedge.com/toptentrends.html  to download a copy.

        

By Adrian C. Ott



This week I attended the Harvard Business School (HBS) Centennial Gala at the Computer History Museum in Mountain View.   About 400 Bay Area HBS alums attended.  Many of whom are notable VC's, and senior executives. It was great to catch up with old colleagues and classmates.

Dean Light gave an interesting presentation on the future of HBS.  He spoke about setting direction for the school's research for the next 50 - 100 years.  Key directions he cited were:

• More research on the Health Industry.  This is an industry that clearly needs help with business models
• More research in Science Industries.  Innovation is a key theme for selecting this area.
• Teaming with the Kennedy School of Government on Green and Social Enterprise

He also articulated that although the research content will change, many processes such as the case method and teaching classes in Boston (vs. remotely) will remain the same.

Indeed, the school has the enviable position of taking a long term (50 year) view on its strategic direction and processes.  This is a result of its strong worldwide reputation (brand) and limited perceived competition.  Very few businesses I know can do the same.  Industry disruption is causing businesses to hold strategic reviews more often.  This results in frequent course corrections to process and business models.