Word Of Mouth Has Become More Powerful
Social Web
The world is changing because of the internet, an obvious statement if ever one was made. What I am talking about is word of mouth has become more powerful than ever before. Numerous businesses particularly small businesses know that word of mouth is one of their best ways of garnering new clients. Unfortunately too many businesses don’t do enough to focus on this. They don’t systemise the process of ensuring that their customers do talk to others.
Presently Google is by far the most dominant search engine on the internet but it is also clear that with the advent of the rise of the various social media sites such as Facebook, Twitter etc that what we know is real time search is becoming more and more important. We know that for a large number of service providers e.g. accountants, doctors, medical specialists etc we talk to our friends and family to determine to get their recommendation on who to use. The rise of the social media sites and also a large number of review sites e.g. Tripadvisor.com etc that we are putting out to these forums and asking people for recommendation for service providers, hotels, restaurants etc.
There is no doubt the internet is driving us more and more into recommendation based searching. I have utilised Twitter to ask for people I communicate with their opinions on things on microphones, monitors and other software tools. I have utilised this advice to then search further based on some of the links that have been sent to me and it has definitely affected my purchases. The likes of Tripadvisor and other websites that are providing reviews on hotels and restaurants etc these are having a profound impact on the various service providers people are selecting.
Unfortunately businesses aren’t necessarily what are happening because of the power of the internet. They are still locked in to the traditional way of marketing themselves by talking about their product and feature and trying to put up a glossy image or front as to what they do or provide. But the bottom line is that people who have experienced your product or service are writing reviews on websites and are telling their friends in a way that is so much easier than ever.
A business must focus more on being what they want to be rather than saying what they want to be. The future in this recommendation based internet search is for businesses to recognise they must provide phenomenal service to their customers, systemise the word of mouth marketing process and then drive the recommendations through the internet to other people.
Search is changing on Google to the utilisation of these other sites to review recommendations. It’s not just simply the book reviews on Amazon, these are reviews of restaurants, motels, hotels, airlines etc real-estate agents, plumbing, electrician every service provider you can think of.
Word of mouth marketing if it wasn’t important before has just become more important with the development of the web. How are you marketing to your customers? How are you providing fantastic service? How are you systemising the work of mouth marketing process? How are you reviewing the reviews of your products and services on the internet? Get ready for the recommendation optimisation internet. Not the search engine optimisation.
Photo by tobiaseigen
Are Putting Your Customers Through Unnecessary Processes?
In the last post I covered the issue of the unnecessary fees and charges that are being imposed by businesses small and large. Further on this line of thinking, too often businesses are making their customers or clients go through processes which may make sense from the internal operation of the business, but in no way make sense to the customer.
Recently I had to get a washing machine serviced and also an air conditioner fixed. I had a look at a website of a particular company (a small Brisbane company) that stated that they had a division for washing machine repairs and also air conditioning repairs.
So I contacted them and mentioned that I had these repairs and I was put through to the air conditioning division, where I then spoke to a person about the air conditioner and then I said “I need to also book in somebody to come and have a look at the washing machine repair.” To which my reply was “That’s not my division, I will need to transfer you back to the main switch.”
So back to the main switch I went and it was like calling for the first time. I then got transfered to the washing machine division and I go to go through all my information again because this was the washing machine division.
I had given all my personal contact address details, phone numbers and everything to the first person, but I was asked to go through the process again because their internal operations were obviously separate and they couldn’t, in any way, merge the two. It was an unnecessary process and this just happened to me very recently so I am highlighting it. However, there are many examples that I could utilise.
We need to think of business from the customer’s perspective. We need to understand what is success as judged in the eyes of the customer; how are they experiencing our business?
It is only through a deep understanding of the customer that is both understanding of the behaviour of the customer, through observation, but also understanding the numbers that come out of dealing with our customer base. We need to understand exactly what they don’t like about our processes and redesign it to remove the unnecessary processes. The end result of unnecessary processes is customers who are not completely satisfied.
The repairs to my washing machine and air-conditioner have been completed successfully. But what is the story I am telling people – it is the story of the first contact.
Unnecessary Fees And Processes
Invoice
Recently I have been noticing a rise in fees that have been added to various accounts with some amusing names (handling or processing fee). Telstra last year tried to implement a fee where you had to pay extra to pay over the counter your bill. This fortunately was removed by the public pressure.
Some banks charge you more to use the over the counter services than the electronic services. Other organisations also have fees and charges that appear on the bill and they don’t have to be the large public companies that are mentioned earlier.
These fees and charges are possibly being seen by some of the internal accountants and financial officers as ways of raising additional revenue without increasing the price of the good or the service.
But the impact from the customer point of view, far out weighs any benefit that these unnecessary fees and charges incur. It is not just the large companies that are doing this practice. Many small businesses seem to be adopting the practice but be careful.
Recently I had my car serviced and when you look through the bill there was four separate little fees, none of which exceeded $5, that were added on after the labour component and the parts component, etc. It leaves a sour taste in your mouth as a customer. The additional revenue that the business has charged adds up across all customers, but what is the impact on the customer.
Instead of the service or the experience being remembered, the little fees and charges take a bigger significance. It is always the little things in business that have a big impact and unfortunately these little fees are having a far bigger impact than most businesses are crediting.
So have you gone down the path of imposing some little fees, service charges or levies on your clients? If so I would seriously reconsider these and just consider increasing the price and accordingly, increasing the experience the customer has.
Stop trying to find new customers.
Sales & Marketing focus on obtaining a new customers
To often in business we focus on garnering a new client or customer. Even to the exclusion of retaining an existing customer.
The marketing and advertising dollars are focused significantly on the new customer market.
Countless studies (in Australia and internationally) show that the cost of a new customer vs. retaining an existing customer is somewhere between 6 and 20 times more expensive. Retention of our existing customers needs to be given a much higher priority that often it is in business.
The sales people are excited by the thrill of the chase, so they want to always deal with new customers. Probably a lot of businesses incentive systems for their sales people focus on new business also. Whilst in business we need to grow there needs to be a balance also in the focus on retaining new customers.
Customer retention affects business profitability.
In the insurance industry it was determined that if insurance clients could be retained one more year, that it would increase the profit by 75%. I am sure that this is the case in a lot businesses, that if customer retention can be increased, then the bottom line impact will be extremely positive.
The example that we could look at for this is the motor vehicle industry. Lexus put a extraordinary amount of effort in to retaining their current customers and internationally they have by far the highest repurchase rate of any vehicle. This is superior to any of the European marquees; Mercedes Benz, BMW, etc and also to the other brands within the Toyota stable as well. It is through the focus of the after sales service that Lexus has been able to have such a high retention rate.
This means that Lexus gets greater revenue during the lifetime of that relationship with the customer and also gains greater new sales from the customer.
The Rate of Customer Churn must be reduced.
So how do we address the churn rate; and that is firstly focussing on the after sales service. It is also focussing on how to constantly maintain contact and impress the customer to ensure that they keep coming back.
Lexus know exactly what a customer is worth to them during the lifetime and what it costs to obtain a new customer vs. selling another product to their existing customer base.
- Do you know in your business what the churn is costing you?
- Do you know what the lifetime value of a customer is?
- Do you know what is the average length of time a customer deals with you?
These are important numbers because a small improvement will lead to a large improvement in the bottom line.
Profit As Altruism
George Gilder has written extensively about entrepreneurism. Recently I read a piece by George where he called ‘profit an index of altruism’.
Often profit unfortunately in our society is automatically associated with greed. There is no doubt that there has been (unfortunately) cases of excessive profits and greed that has been espoused by some sectors of the business community.
This should not mean that profit gets a bad name as a result. It would be crazy to replace a flawed system with a failed system. The profit motive may be a flawed system but everything else are failed systems.
Profit is what is necessary to feed the spirit of entrepreneurism the world over. It is only through small-medium businesses that are willing to a risk and to explore the mysteries of business that society as a whole is better off.
It is only through the profit motive that inspires entrepreneurs to have a go that employment increases, general welfare of our society increases and we as consumers are served with better products and services for our enjoyment.
Altruism is considered to be inspired by something other than profit. But as George Gilder states profit is an index of altruism. Through profit society is better off.
Profit is good – don’t demonize it. Profit motivates positive society change benefiting all. We must be careful of regulation that would in any way stifle the entrepreneurial spirit that will lead to a better world for all.
Stop Chasing Profits
In business we are always told to focus on the bottom line. For instance – ‘the bottom line is all that matters’ etc
I believe that this focus is wrong.
The persistent focus on the bottom line can lead to poor decisions being made. Activity for the sake of activity could be happening, inefficiencies could be allowed to continue, unprofitable services/products/or customers could still be provided, but the bottom line still be healthy. Focusing on profit does not tell us the story about what is happening to cashflow, customers, or employees.
It is not uncommon to hear “We have been profitable, but I don’t know where the cash is.” All of these comments and issues are symptoms on the focus being purely on the profit. Obviously we can’t ignore profit, but we need to stop being primarily focused on the bottom line.
At the end of the day the profit and loss statement is a history statement, it is a statement of decisions made by the business and by its customers in the past. There is a story to be told, the numbers do talk. But it is a story of what has gone on in the past.
Also connected to this is what period and how soon after the end of the period are we looking at, when we are looking at profit? That is if the profit and loss statement is for the year ended 31 Dec and we are looking at in February then it is late and the somewhat irrelevant.
The profit and loss statement is only of use if we are looking at it very soon after the end of the period. It will soon become ancient data and decisions made on the basis of the profit could well be wrong based on where the customer has moved to.
We need to be collecting information that informs us as to where the future of the business is going. This is through the use of ‘lead indicators’ or ‘metrics’, indicators that illustrate the value being built or that is driving the current performance of the business.
Chasing profits can lead to poor decisions. Stop chasing profits.
How are you keeping the score?
In Brisbane we have enjoyed the Brisbane International Tennis Tournament. It is part of the world tennis circuit and is one of the lead up tournaments to the Australian Open held in Melbourne this week.
We went to the tennis arena to watch some of the matches which was most enjoyable. The thing that is quite obvious though (in watching any sporting match, but lets just for the minute focus on the tennis) is the use of a scoreboard. The tennis scoring system dates back to when the date when the game was founded and has some little quirks, but anybody new to the game after a short explanation will understand how each game is scored; from 15, to 30, to 40, potentially ‘deuce’, to ‘game’. Then the first to 6 games (subject to tiebreak situation) wins a set. The matches are best of 3 or 5 sets. (Obviously there are many nuances in the scoring of tennis which I wont go into.
My point is that the scoreboard clearly shows the progress of the match. It is very clear to all, the players, the spectators what the score is and what has happened.
Is this the case in your business?
Do you have a scorecard that is simple to understand? A scoreboard that after a short explanation everybody can understand? Can everybody understand how the business makes money?
There would not be many variables that the scoreboard would measure. It must be easily understood and relevant. There may be separate scoreboards for separate divisions or areas of the business.
FedEx use a system whereby they have what they call a ‘Hierarchy of Horrors’. These are all the things that could go wrong in dealing with their customers. All parcels are tracked to determine how their service ranked against this hierarchy of horrors and an index which they call a ‘Service Quality Index’ is kept. Every morning this service quality index is emailed out to every office. Everybody knows from this index how FedEx is going.
Yes, they have quite a sophisticated IT solution and for any small business, they could not hope to emulate the same sort of scoreboard, but the point is that they have considered what actually matters to the customer and developed a scoreboard around that. It is something that everybody in the business has input into and I believe that a system of a scoreboard that everybody understands is important to manage the business.
There are other things to lead the business, but from the management view point, we need to (like the tennis) have a scoreboard that is simple and relevant for all.
Picture – Richard Fisher
Price is Not based on Cost.
Recently a graph of relative prices of various liquids was posted on ReflectionOf.me blog. The graph shows that HP Black Ink is the highest relative price with oil being the lowest. The comments people are leaving are also interesting. A lot are railing against Hewlett Packard and there is a discussion of the cost of the various liquids.
But PRICE is NOT based on COST.
Price is set by the value the consumers perceive. Price is affected by the competition and sometimes by the heavy hand of regulation.
So why would HP Black Ink so higher relative to other the liquids?
Remember price is a marketing tool. The price of the ink needs to be taken with the price of the underlying printer. For the consumer level printer HP make nothing. They have set the price low to get the printer into your house or office and then they can sell you the ink and make the profit.
But please price is not set by the cost of the item.
How are you setting your prices? If you are not differentiating your product or service from everybody else then you will be lead down the both of lower price. HP are differentiating their printers from the competitors which then leads to the ink sales.
Price is a marketing tool
The Mysteries of Business
Malcolm Gladwell wrote a piece called Open Secrets for the New Yorker. In this amongst other things he talks about how a lot of the demise of Enron could have been read from the publicly available data and that some analysts did. Malcolm goes onto talk about Gregory Trevertons work of the distinction between puzzles and mysteries. With a puzzle there is information missing and to solve the puzzle the missing piece is needed. Mysteries though the information is all there the answer just needs to be found.
Roger Martin writes in his great book “The Design of Business” about ‘the knowledge funnel’ where things start as a mystery and then move to heuristic and finally to an algorithm.
It is my belief that too many people in business rely on false heuristics to lead and manage. As a result they do not get the full efficiency gains that can be obtained from measuring what matters.
Additionally there is the biases and assumptions that we all have which can lead us down the wrong path. Too often information is being collected from clients that really is only vanity information. It is not useful information to truly understand the customer.
True understanding of a customer is not done by a view dorothy dix questions on a survey but rather by observation of their behaviour.
Firstly it is necessary to start with the strategic objectives. We can not be all things to all people. What is the direction of the business? Armed with this we need to understand our customers and prospective customers. With this we will know what is success in the eyes of the customer. The information is there the business needs to have a culture of not making assumptions, removing biases and looking at the information. From all this we can then design a set of metrics that can direct the business. There will be mysteries to solve both inside and outside the business but this process will direct the value creation.
In this blog this year I will be exploring further the mysteries of business. Mysteries of the customer, of the team, of management, of leadership etc. Let the data tell the story.
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