Category Archives: Corporate Strategy

Innovating Along the Edges

If you want innovation, go to Switzerland. According to the Global Innovation Index, those Swiss are the most innovative people on the planet. Next is the UK, then Sweden. The Dutch are pretty damn innovative too, coming in at number four. Then you have the good old USA rounding up the top 5.

My fellow Canadians? Less innovative, apparently. We’re at #16. Those damn Luxembourgians and Icelanders even beat us (ranking 9th and 13th respectively). But hey, we beat the Japanese (19) and we’re miles ahead of China (29), Russia (48) and India (81).

Pillars of Innovation

So, what makes a country innovative? And, by extension, what lessons can we learn about encouraging innovation generally? The publishers of the index look at five pillars of innovation: Institutions, Human Capital and Research, Infrastructure, Market Sophistication and Business Sophistication.

If you look at these, it makes sense that the better off the country, the more innovative it will be. These are the countries that can invest in education and the infrastructure needed to support innovation. I would also add risk taking to the prerequisites of innovation. I suspect that may be why my fellow Canadians are less innovative on average than Americans.

But, if you talk to Sandy Pentland, there is another factor to consider: Physics. Specifically, Social Physics.

The Physics of Innovation

If we look at innovative environments, the most successful example is a city. Cities, especially some cities, are hot beds of innovation. New York, for example, or San Francisco, or Boston, continually crank out more innovative ideas per person than most places you could name. Why are cities more innovative, per capita, than rural regions? Sure, there are aspects of the five pillars there: good universities, lots of smart people, sophisticated marketers. But the main reason may come down to the nature of networks you find in a city.

Alex “Sandy” Pentland just happens to live in an innovative city – Boston. And he works at MIT, one of the most innovative institutions in the world. There he heads up perhaps the single most innovative department, the Entreneurship Program at MIT’s Media Lab. So, it’s fair to say that Pentland knows a thing or two about innovation. But what really fascinates Pentland is the way people connect and, by doing so, spread ideas. This is what he refers to as “Social Physics.”

Some cities promote innovation because they promote a certain type of network connectivity. In order for innovative ideas to spread, there needs to be two types of connection: exploration and engagement. The first offers a clue to why cities may be particularly innovative. Sparks of creativity tend to come from interface areas, or the edges of social groups, where different ideas and viewpoints come into contact with each other. If you’re surrounded by people who look, speak and think the same way you do, you get an “echo chamber.” There is no diversity in your exploration. But if you’re in an environment that lends itself to encountering diverse ideas and points of view, your exploratory connections become “mash-ups” of innovation. As Steve Jobs said, “Creativity is just connecting things. When you ask creative people how they did something, they feel a little guilty because they didn’t really do it, they just saw something. It seemed obvious to them after a while. That’s because they were able to connect experiences they’ve had and synthesize new things.” But you can only see that “something” if you’re in an environment that allows connections.

Back to those Swiss

So, the five pillars of innovation aside, perhaps the Swiss advantage in innovation comes from the fact that it’s a pretty small country that has 8 million people and 4 official languages. Also, 74% of those people live in a city. That mean’s that there are lots of social “edges” coming into contact with each other.

Once they settle on a language, I’m guessing the Swiss have some pretty interesting conversations.

Google’s New Brand Launch – Function Driving Form

What would happen if you created an advertising agency run by engineers?

You’d have Google. That’s what.

Last week, I was on the road. I went to Google something on my smartphone, and noticed the logo had changed. I thought at first it was a Doodle commemorating some famous typeface designer, so I didn’t spend too much time digging into it. But on the next day, when the new Google word mark was still there, I decided to see if this was deliberate and permanent. Sure enough, Google had quietly swapped out their brand identity. And they did it in classic Google style.

I wasn’t a fan – at first. But I was looking at it from a purely aesthetic perspective. I prefer classic serif faces. I love the elegance of the curvatures and strokes. Sans serif faces always seem to me to be trying too hard to be accessible. They’re like the puppies of the design world, constantly licking your face. Serif faces are like cats – stretching luxuriously and challenging you to love them on their terms.

But the more I thought – and read – about the branding change, the more I realized that the move was driven by function over form. Google was creating a visual and iconic language with the change. It was driven by the realities of maintaining an identity across a fragmentation of platforms and contexts. One can almost imagine the requirements document that had been put forth to the design team by the various Google engineers that decide these things – a logo that minimizes visual friction and cognitive load – scales well on all screens from nano to peta configurations (and eventually yocto to yotta)– acts as a visual wayfinder no matter where you are in the Google universe – and looks just a little whimsical (the last of these being a concession to the fine arts intern that was getting lattes and Red Bull for the group).

In the last month, Google has announced a massive amount of corporate change. Any other company would have taken the opportunity to mount a publicity event roughly the size of the Summer Olympics. But Google just quietly slipped these things into their weekly to do list. The logo dropped on a Tuesday. A Tuesday! Who the hell rebrands themselves on a Tuesday? There was no corporate push from Google other than a fairly muted blog post, but in researching this column, I found commentary on the change on pretty much every major media. And they weren’t just reporting the change. They were debating it, commenting on it, engaging in it. People gave a damn, either for or against.

That’s when I realized the significance of Google’s move. Because function was driving form – because engineers were dictating to designers – the branding had to be closer to its market. The rebranding was being done to make our lives easier. It wasn’t there to launch some misguided agency driven interpretation of an envisioned future, or slide Google into some strategic position in the marketplace. It was done because if wasn’t done, Google couldn’t do all the rest of the stuff it had to do. Google didn’t tell us what we should think of the move. They just did it and let us decide.

If function determines branding, then it’s living in the right place – the intersection between the market and the marketer. I’ve previously chastised Google for their lack of design thinking, but in this case, maybe they got it right. And maybe there’s a lesson there we all need to learn about the new rules of branding.

Who’s Who on the Adoption Curve

For me, the Adoption Curve of the Internet of Things is fascinating to observe. Take the PoloTech shirt from Ralph Lauren, for example. It’s a “smart shirt”. The skintight shirt measures your heart rate, how deeply you’re breathing, how stable you are and a host of other key biometrics. All this is sent to your smart phone. One will set you back a cool 300 bucks. But it’s probably not the price that will separate the adopters from the laggards in this case. In the case of the PoloTech shirt, as with many of the new pieces of wearable tech, it’s likely to be your level of fitness that determines which slope of the adoption curve you’ll end up on.

polotechIf you look at the advertising of the PoloTech, it’s clear who the target is: dudes with 0.3% body fat and ridiculously sculpted torsos who live on protein drinks and 4 hour workouts. Me? Not so much. The same is true, I suspect, for the vast majority of us. Unless we’re looking for a high tech girdle to both hold back and monitor the rate of expansion of our guts, I don’t think this particular smart shirt is in the immediate future for me.

As I said, much of the current generation of wearable technology is designed to tell us just how fit we are. Logic predicts that these devices should offer the greatest benefits to those who are the least fit. They, after all, have the most to gain. But that’s not who’s jumping the adoption curve. In my world, which is recreational cycling, the ones who are religiously tracking a zillion metrics are the ones who are already on top of the statistical heap. The reason? Technology has created an open market of bragging rights. Humans are naturally competitive. We like to know how we stack up against others. But we don’t bother keeping track until we’re reasonably sure we’re well above average. So, if you log onto Strava, where many cyclists upload their tech-tracked rides, you can find out just who is the “King of the Mountain” at your local version of the Alpe d’Huez.

This brings about an interesting variation on Roger’s Technology Adoption Curve. Wearable technology often means the generation of personal data. Therefore, an appetite for that data will accelerate the adoption of those respective technologies. We don’t mind being quantified, as long as that quantification paints us in a good light. We want to live in Lake Wobegon, where all the women are strong, all the men are good-looking and all the children are above average.

Adoption of new technologies, according to Rogers, depends on 5 factors: Relative Advantage, Compatibility, Complexity, Trialability and Observability. To this, Rogers added a sixth factor – the status conferring potential of a new innovation. Physical fitness, by its nature, begs to be quantified. Athletic ability and rankings go hand in hand. Status is literally the name of the game. Therefore, there is a natural affinity between wearable technologies that tracks physical performance and fitness.

This introduces some interesting patterns of adoption for new additions to the Internet of Things. Adoption will rapidly saturate certain niches of the population, but may take much longer to cross the chasm to the general masses. And the defining characteristics of the early adopters could be completely different in each case. As more and more things become “smart” the factors of adoption will become more fragmented and diverse. Early adopters of Coke’s Freestyle vending machine will have little in common with early adopters of the PoloTech shirt.

The absorption rate of technology into our lives has been increasing exponentially, seemingly in lock step with Moore’s Law. Every day, we are introduced to more and more things that have technology embedded in them. The advantages that this technology offers will depend on who is judging it. For some, a given technology will be a perfect fit. For others, it will be like trying to squeeze into a high tech shirt that makes us look like an overstuffed sausage.

Can Alphabet Spark Corporate Innovation?

As I was reading Walter Isaacson’s new book, The Innovators, which chronicles the rise of the digital revolution, something struck me. From Charles Babbage to Sergey Brin, the arc of digital innovation has gone through three very distinct stages.

In the beginning of the digital revolution, some 150 years ago, the innovator was the inventor and the gentleman scientist. They maintained and nurtured academic networks but often worked alone. The primary way they spread ideas was through publishing them in journals. If, as in the case of Charles Babbage and his Differential Engine, there was prototyping required, they would find a patron and then hire the people required to fabricate the prototype. They did this because they could. In this time, innovation was not a particularly resource-intensive endeavor.

But, as we moved into the 20th century, things changed. For the next 6 decades, Isaacson’s innovators tended to be found in one of three places: an university, a government funded lab or a corporate lab. Innovators were generally cogs in much bigger machines. Why? Because the scope of innovation had changed. It had become much more resource hungry. You needed the bulk of a Bell Labs in order to turn out a prototypical transistor.

One also gets the sense that many of the innovators Isaacson profiles were barely tolerated within these more corporate environments. Brilliance often comes coupled with abrasiveness as its dance partner. Many of the forebears of the digital revolution seem to be – not to put too fine a point on it – assholes. If you read between the lines you get the sense that both the innovator and their place of innovation would be immeasurably happier if their paths diverged. But, given the realities of the world at the time, they both needed each other.

Starting in the Sixties, a new breed of innovator emerged – the innovative entrepreneur. Almost without exception, they started within a larger organizational context, but soon found a way to break free and build a company around their innovativeness. Gordon Moore, Robert Noyce, Bill Hewlett, David Packard, Bill Gates, Paul Allen, Steve Jobs, Steve Wozniak, Larry Page and Sergey Brin – all took a new path to innovation. Thanks to the introduction of venture capital, innovation could become the road to riches.

This all becomes more than academically interesting in the light of Google’s announced corporate re-org. Essentially, they’re trying to buck the trend of innovative evolution. Page and Brin feel that innovation can still be contained within the boundaries of a corporate structure, as long as that structure is – well – innovative enough.

In theory, their logic looks sound. The biggest complaint I hear from current Googlers is their feeling of inconsequentiality within a massive organization. Breaking the big boat into a bunch of smaller life rafts could solve that problem. If you could somehow provide innovators with enough room to stretch their mental muscles and yet support them with the enormous resources Google/Alphabet has at their disposal, it seems like a no-lose scenario. Essentially, Alphabet should be able to provide a steroid powered incubator for innovation.

Yet, I remain skeptical. I suspect innovation may defy the best-laid corporate logic. You can sketch out an org-chart that seems like a stable platform for entrepreneurialism, but I think the entrepreneurs may still squeeze out through the cracks. Even if they’re not egotistical jerks, they are, by their very nature, individualistic. They defy authority. Their dreams are tough to contain. Where you see a supportive incubator, they see a restrictive cage. Corporations tend to excel at incremental innovation, but disruptive innovation comes from individuals who don’t play nice at company picnics. And that’s the type of innovation that Alphabet is betting on.

Alphabet is an interesting development in corporate structures. I hope it works. But I’m not sure you can harness entrepreneurialism because it, like information and the human spirit, yearns to be free.

Why Disruptive Change is Disruptive

There were a lot of responses to my last column, looking at why agencies and clients have hit the point of irreconcilable differences. Many of those responses were in agreement. In fact, none were in outright disagreement. This surprised me. A lot of Online Spin readers are people who work for very big agencies. I can only conclude that you elected to show your dissention through your silence.

But there were many that fell in the “Yeah-but” category:

Tiffany Lyman Otten wrote,

“This, like anything, is a sign simply that agencies must evolve – again.

Jill Montaigne adds,

“Yet, our own ongoing advertiser conversations confirm that rather than walking away from their traditional agency relationships, clients desperately need and want their agencies to evolve.”

David Vawter chimes in,

“As long as there is something to sell, people will be needed to create and produce the ideas that sell it.”

Agreed. But…

All of the above comments pointed to a new trend in the marketing ecosystem – that of a network of specialists, often in the form of micro-agencies, that appear to be finding niches to hang on to in the tidal wave of change that is sweeping over our industry.

I used to head one of these agencies. Our area of specialty was in user behavior with search interfaces. We did well in this niche. So well, in fact, that we were eventually acquired by a bigger agency. Bigger agencies are always vertically integrated. As such, they offer clients the one-stop shop model. They move to that model because that is the model they know. It is the model they are programmed to create. It is an organizational form that is dictated by their P&L targets. There is no operational wiggle-room here. They simply can’t become anything else.

Tiffany, Jill and several others all used the word evolve, like it is a magical formula for survival. But evolution is like a tree. Once your branch has been determined, you have to evolve outward from that branch. You can’t suddenly leap to another branch. If you’re a chimpanzee, you can’t suddenly decide one day to evolve into a budgie. You can evolve into a new type of chimpanzee, but you’re still a chimpanzee.

What does happen in evolution, however, is that the environment changes so drastically that the tree is dramatically pruned. Some branches are lopped off, so that new branches can sprout. This is called punctuated equilibrium, and, as I’ve said before, this is what I believe we’re going through right now in marketing. Yes, as David rightly notes, “As long as there is something to sell, people will be needed to create and produce the ideas that sell it.” It’s just that the form that takes may be dramatically different that what we currently know. It could be – correction – will be a marketing ecosystem that will be dominated by new species of marketers.

We tend to equate evolution with change – but evolution is a very specific kind of change. It’s change in response to environmental pressures. And while individual species can evolve, so can entire ecosystems. In that bigger picture, some species will emerge and thrive and others will disappear. What is happening to agencies now is just a ripple effect from a much bigger environmental change – analogous to a planet size asteroid slamming into the business and marketing ecosystem that evolved over the past two centuries.

Big agencies are the result of corporate evolution in the previous ecosystem. We are quick to take them to task for being slow, or dumb, or oblivious to client needs. And perhaps, in the new ecosystem, those things are true. But those are the characteristics of the species. No agency intends to be dumb or unresponsive. It’s just an evolutionary mismatch caused by massive disruption in the environment.

These things happen. It’s actually a good thing. Joseph Schumpeter called it Creative Destruction. But, as the name implies, it’s a zero sum game. For something to be created, something has to be destroyed.

Why Agencies and Clients are Calling It Quits

“Love on the Rocks – ain’t no surprise.”

Neil Diamond

In yesterday’s Online Spin, Maarten Albarda signaled the imminent break up of agencies and clients. Communication is close to zero. Fingers are being pointed. The whisper campaign has turned into outright hostility.

When relationships end, it can be because one of the parties is just not trying. But that isn’t the case here. I believe agencies are truly trying to patch things up. They are trying to understand their one-time life partner. They are desperately gobbling up niche shops and investing in technology in order to respark the flame. And the same is true, I believe, on the client side. They want to feel loved again by their agency of record.

I think what’s happening here is more akin to a break up that happens because circumstances have changed and the respective parties haven’t been able to keep up. This is more like high school sweethearts looking at each other 20 years hence and realizing that what once bonded them is long gone. And, if that’s true, it might be helpful to look back and see what happened.

The problem here is that the agency is a child of a marketplace that is rapidly disappearing. It is the result of the creation of the “Visible Hand” market. In his book of the same name, Alfred Chandler went to great lengths (over 600 pages) to chronicle the rise of the modern organization. The modern concept of an advertising agency was a by-product of that. Vertically integrated organizations came about to overcome some inherent inefficiencies in the market – notably the problem of geography and the lack of a functional marketplace network that came with rapid expansions in production and transportation capabilities. Essentially, markets grew too rapidly for Adam Smith’s “Invisible Hand” to be able to effectively balance through market dynamics. Organizations grew to mammoth size in order to provide internal efficiencies that allowed for greater profitability. You had to be big to be competitive. Agents of all types filled the gaps that were inevitable in a rapidly expanding market place. Essentially an agent bridged the gap between two or more separate nodes in a market network. They were the business equivalent of Mark Granovetter’s “weak tie.”

Through the 20th century advertising agents evolved into creative houses – which is where they hit their golden period. But why was this creativity needed? Essentially, agencies evolved when advances in production and distribution technologies weren’t enough to expand markets anymore. Suddenly, companies needed agencies to create demand in existing and identified markets through the sparking desire. This was the final hurray of the “visible hand” marketplace.

But the explosion of networking technologies and the reduction of transactional friction is turning the “visible hand” market back into the “invisible hand” market of Adam Smith – driven by the natural laws of marketplaces. The networks of the marketplace are becoming more connected than ever.

This is a highly dynamic, cyclical market. Straight line strategic planning doesn’t work here. And straight line strategic planning is a fundamental requirement of an agency relationship. That level of stasis is needed to overcome the inherent gaps in a third party relationship. Even under the best of circumstances, an arm’s length relationship can’t effectively “make sense” of the market environment and react quickly enough to maneuver in this marketplace. And, as Albarda points out, the client-agency relationship is far from healthy.

The ironic part is all of this is that what was once an agency’s strength – its position as a bridge between existing networks, has turned into its greatest vulnerability. Technology has essential removed the gaps in the market itself, allowing clients to become more effectively linked to natural networks of customers through emerging channels that are also increasingly mediated by technology. Middlemen are no longer needed. Those gaps have disappeared. But the gap that has always been there, between the agent and the client, not only still exists, but is widening with the breakdown of the relationship. Agencies are like bridges without a river to span.

If you read the common complaints from both sides in the presentations Albarda references , they all come from the ever-widening schism that has come from a drastic change in the market itself. Simply put, the market has evolved to the point where agency relationships are no longer tenable. We on the agency side keep saying we need to reinvent ourselves, but that’s like saying that a dog has to reinvent itself to become a fish – it’s just not in our DNA.

The Rhythm of Strategy

I confess – I poked the bear a little last week. Not too much. Just a little. I purposely oversimplified one side of an argument to set up a debate. I knew there would be those that would swing to the other side in defense of strategy. I initiated an action, for which I knew there would be an equal and opposite reaction. I sometimes do that, because I believe in waves, or oscillations, or rhythms. Call it what you want – I believe in them because they always beat stasis or straight lines. Nature doesn’t move in straight lines.

You didn’t disappoint. You very ably defended strategy. And you did it in an intelligent and nuanced manner – unlike, say – Donald Trump. From a post in response by Rick Liebling: “I would … argue that the “seizing of opportunities” is not the antithesis of strategic thinking, but rather the result of it.  A strong brand strategy helps a company understand what it should, and just as importantly, shouldn’t do. This type of discipline is what allows a company to seize those very opportunities.”

And from Nick Schiavone: “I believe that Principles, Vision and Execution are more critical to “success & satisfaction” than strategies, ideations and systems when it comes to launching, building and sustaining brands.  The end result is really an ongoing, experiential relationship between a special “customer” (i.e., a person of need or desire) and the product or service provided under the auspices of a special “preparer.”(i.e.,  a person of art & science). “

Here’s the thing. When I said much of a businesses performance comes down to luck, that sounded disparaging. But it’s far from it. Luck could also be defined as the circumstances of our environment. They are the factors that lie beyond our control. And they tend to be rhythmic in nature. Sometimes they’re good, sometimes they’re bad. Sometimes they’re huge swings in either direction – what Nassam Nicholas Taleb calls “Black Swans.” And if you look as strategy as Rick Liebling does, then strategy is simply being very good at detecting these rhythms and responding to them.

But that’s not how we typically look at strategy. In fact, our entire mythology and methodology around strategy tends to run in decidedly straight lines. Strategy should be decided on high and be disseminated down to the front line masses. In the case of brand strategy, it may be determined by an agent working on your behalf and delivered in the guise of branding guidelines and polished ads. It should be decisive and unerring. It should plough forward, despite circumstance. Phil Rosenweig’s point in The Halo Effect was not that we should just surrender to the whims of fate, but that we shouldn’t kid ourselves about the importance of fate and our ability to control it. There is no single, “straight line,” universally applicable recipe for dealing with fate.

The problem with strategy, as it is practiced in most organizations, is that it blinds us to fate. We tend to execute in spite of circumstance, rather than in response to it. Rather, strategy in the new marketplace should perhaps be renamed “sense-making.” It should embrace the rhythms and oscillations of fate rather than dampen them in the name of strategic thinking. Organizations should become one massive sensory and experimental organ, constantly monitoring the environment and responding in a rational and opportunistic way.

Finally, let’s not discount the impact of effective leadership and management practices. I said last week that leadership, when isolated from other variables, only accounted for 4% of an organization’s performance. Management practices accounted for another 10%. That sounds ridiculously low, but only because we tend to excessively canonize those things in our business mythologies. Let’s approach it in a more rational way. Let’s imagine that two companies, A & B, both launched this year with $10 million in sales. Over the next 20 years, both companies were subject to the same rhythms – positive and negative – of the marketplace. But, because of superior leadership and management, Company A was able to more effectively capitalize on opportunity, giving it a 14% advantage over Company B. In 2035, what would be the impact of that 14% edge? It’s not insignificant. Company B would have grown in sales to $21 million, growth of just over 100%. But Company A would have sales of almost $290 million. It would be almost 14 times the size of Company B!

It’s not that I don’t believe in strategy. It’s just that it’s time to rethink what we do in the name of strategy.

Is Brand Strategy a Myth?

BrandStrategyThemeOn one side of the bookshelf, you have an ever growing pile of historic business best sellers, with promising titles like In Search of Excellence, 4 +2: What Really Works, Good to Great and Built to Last. Essentially, they’re all recipes for building a highly effective company. They are strategic blueprints for success.

On the other side of the bookshelf, you have books like Phil Rosenweig’s “The Halo Effect.” He trots out a couple of sobering facts: In a rigorous study conducted by Marianne Bertrand at the University of Chicago and Antoinette Schoar at MIT, they isolated and quantified the impact of a leader on the performance of a company. The answer, as it turned out, was 4%. That’s right, on the average, even if you have a Jack Welch at the helm, it will only make about 4% difference to the performance of your company. Four percent is not insignificant, but it’s hardly the earth shaking importance we tend to credit to leadership.

The other fact? What if you followed the instructions of a Jim Collins or Tom Peters? What if you transformed your company’s management practices to emulate those of the winning case studies in these books? Surely, that would make a difference? Well, yes – kind of. Here, the number is 10. In a study done by Nick Bloom of the London School of Economics and Stephen Dorgan at McKinsey, the goal was the test the association between specific management practices and company performance. There was an association. In fact, it explained about 10% of the total variation in company performance.

These are hard numbers for me to swallow. I’ve always been a huge believer in strategy. But I’m also a big believer in good research. Rosenweig’s entire book is dedicated to poking holes in much of the “exhaustive” research we’ve come to rely on as the canonical collection of sound business practices. He doesn’t disagree with many of the resulting findings. He goes as far as saying they “seem to make sense.” But he stops short of given them a scientific stamp of endorsement. The reality is, much of what we endorse as sound strategic thinking comes down to luck and the seizing of opportunities. Business is not conducted in a vacuum. It’s conducted in a highly dynamic, competitive environment. In such an environments, there are few absolutes. Everything is relative. And it’s these relative advantages that dictate success or failure.

Rosenweig’s other point is this: Saying that we just got lucky doesn’t make a very good corporate success story. Humans hate unknowns. We crave identifiable agents for outcomes. We like to assign credit or blame to something we understand. So, we make up stories. We create heroes. We identify villains. We rewrite history to fit into narrative arcs we can identify with. It doesn’t seem right to say that 90% of company performance is due to factors we have no control over. It’s much better to say it came from a well-executed strategy. This is the story that is told by business best sellers.

So, it caught my eye the other day when I saw that ad agencies might not be very good at creating and executing on brand strategies.

First of all, I’ve never believed that branding should be handled by an agency. Brands are the embodiment of the business. They have to live and breathe at the core of that business.

Secondly, brands are not “created” unilaterally – they emerge from that intersection point where the company and the market meet. We as marketers may go in with a predetermined idea of that brand, but ultimately the brand will become whatever the market interprets it to be. Like business in general, this is a highly dynamic and unpredictable environment.

I suspect that if we ever found a way to quantify the impact of brand strategy on the ultimate performance of the brand, we’d find that the number would be a lot lower than we thought it would be. Most of brand success, I suspect, will come down to luck and the seizing of opportunities when they arise.

I know. That’s probably not the story you wanted to hear.

Feed Up with Feedback Requests

Sorry Google. I realize this is my last chance to tell you about my experience. But you see, you’re in a long line of companies that are also desperate for the juicy details of my various consumer escapades. Best Western, Ford, Kia, Home Depot, Apple, Samsung – my in box is completely clogged with pleas for the “dets” of my transactional interactions with them. I’ve never been more popular – or frustrated.

I appreciate the idea of customer follow up. I really do. But as company after company jumps on the customer feedback bandwagon, poor ordinary mortals like myself don’t have a hope in hell of keeping up. It could be a full time job just filling out surveys and rating every aspect of my life on a scale that runs from “abysmal” to “awesome” The irony is, these customer feedback requests are actually having the opposite effect. Even if my interactions with the brand are satisfactory, the incessant nagging to find out if I “like them, I really like them” are beginning to piss me off. In the quest to quantify brand affinity, these companies are actually eroding it. Ooops! Talk about unintended consequences.

So, if we accept the fact that knowing what our customers think about us is a good thing, and we also accept the fact that our customers have better things to do with their lives than fill out post-purchase surveys, we have to find a more elegant way to get the job done.

First of all, customer feedback should be part of a full customer relationship continuum. It should be just one customer touch point, not the customer touch point. You have to earn the credibility that gives you the right to ask for my feedback. Too many companies don’t worry about gauging satisfaction “in the moment.” If you don’t care enough to ask if I’m happy when I’m right in front of you, why should I believe that you’ll pay any attention to my survey. But too many companies jam this request for feedback on their customers without doing the spadework required to build a relationship first.

Worse, because compensation is increasingly being tied to feedback results, you get the “please say you’ll love me” pleading on the sales floor. See if this sounds familiar: “You’ll be receiving a survey from head office asking me how I’ve done. I don’t get a bonus unless you give me top marks in each category. So if there’s anything I can do better, please tell me now.” There are so many things that are just plain wrong with this that I don’t know where to start. It’s smarmy and disingenuous. It also puts the customer in a very awkward position. When it’s happened to me, I just murmur something like, “No, you’ve been great,” and run with all speed to the nearest exit.

The next thing we have to realize is that not all purchases are created equal. Remember the Risk/Reward matrix I talked about in last week’s column about how our brains process pricing information? While this applies to our motivational balance going into a purchase, it also provides some clues to the emotion landscape that exists post-purchase. If the purchase was in the low risk/low reward quadrant, like the home improvement supplies I picked up at Home Depot this weekend, it’s a task that has been crossed off my to-do list. It’s done. It’s over. The last thing I want to do is prolong that task by filling out a survey about said task. But, if it’s something that falls into the high risk/high reward quadrant, such as a major vacation, then I am probably more apt to invest some time to give you some feedback. The Rule of Thumb is: the higher the degree of risk or reward, the more likely I am to fill out a survey.

The final thing to remember about customer surveys is that you’re capturing extremes. The people who fill out surveys are usually the ones that either hate you or love you. So you get a very skewed perspective on how you’re doing. What you’re missing is the vast middle of your market that may not be sufficiently motivated to toss you either a brick or a bouquet.

I’m all for getting to know your customers better. But it has to be part of a total approach. It begins with simple things, like actually listening to them when you’re engaging with them.

How Our Brains Process Price Information

On-Off-Switch-For-Human-BrainWe have a complex psychological relationship with pricing. A new brain scanning study out of Harvard and Stanford starts to pick apart the dynamics of that relationship.

Uma R. Karmarkar, Baba Shiv, and Brian Knutson wanted to see how we evaluate a potential purchase when the price is the first piece of information we get as opposed to the last piece of information. They used both fMRI scanning and behavioral tracking to see how the study participants responded. Participants were given $40 dollars to spend and then were presented with a number of sample offers. In all cases, the price represented an attractive bargain on the product featured. But one group was given the price first, and the second group was given the price last.

There was another critical difference in the evaluation process as well. In the first phase of the study, participants were shown products that they would like to buy, and in the second phase, they were shown products that they would have to buy. The difference between the two was how they activated the reward center of our brain – the nucleus accumbens. I’ve been talking for years about the importance of understanding the balance of risk and reward in our purchase decisions. This study provides a little more understanding about how our brain processes those two factors.

In the first phase, participants were shown a variety of products that they would consider rewarding. These would fall into the first quadrant of the risk/reward matrix I introduced in my column from 5 years ago. The researchers were paying particular attention to two different parts of the brain – the nucleus accumbens and the medial prefrontal cortex. For a layman’s analogy, think of you and a five year old walking down the toy aisle in a department store. The nucleus accumbens is the five year old who starts chanting, “I want it. I want it. I want it.” The medial prefrontal cortex is the adult who decides if they’re actually going to buy it. In the study, the researchers found that the sequence in which these two parts of the brain “lit up” depended on whether or not you saw the price first. If you saw the product first, the nucleus accumbens started its chant – “I want it.” If you saw the price first, the prefrontal medial cortex kicked into action and started evaluating whether the offer represented a good bargain. In the case of the reward products, although the sequence varied, the actually purchase process didn’t. In most cases, participants still ended up making the purchase, whether price was presented first or last.

But things changed when the researchers tried a variety of products that fell into the second quadrant of the risk reward matrix – low risk and low reward. These are the everyday items we have to buy. In the study, they included things like a water filtration pitcher, a pack of AA batteries, a USB drive, and a flashlight. There was nothing here that was likely to get the nucleus accumbens starting to chant.

Now, it should be noted that this follow-up study did not include the fMRI scanning, but by tracking purchasing behaviors we can make some pretty educated guesses as to what’s happening in the respective brains of our participants. Here, presenting prices first resulted in a significant increase in actual purchases over instances when price was presented last. If price comes first, we can imagine that the prefrontal cortex is indicating that it’s a good bargain on a needed product. But if a relatively boring product is presented first for evaluation to the nucleus accumbens, there’s little to excite the reward center.

An important caveat to this part of the study comes with knowing that the prices presented represented significant savings on the products. After the simulated purchases, participants were asked to indicate a price they would be willing to pay for the product. When the price was the lead, the named prices tended to be a little lower, indicating that if you are going to lead with price, especially for quadrant two products, you’d better make sure you’re offering a true bargain.

If anything, this study provides further proof of the value of knowing a prospect’s mental landscape. What are the risk and reward factors that will be motivating them? Will the media prefrontal cortex or the nucleus accumbens be calling the shots? What priming effects might an early introduction of price introduce into the process?

When I wrote about the risk/reward matrix five years ago, one commenter said “a simple low-high risk/low-high reward graph is not very useful for driving just in time and location based offers, discounts, etc.” I respectfully disagree. While more sophisticated models are certainly possible, I think even a simple 2X2 matrix that helps map out the decision factors that are in play with purchases would be a significant step forward. And this isn’t about driving real time variations on offers. It’s about understanding the fundamentals of the buyer’s decision process. There’s nothing wrong with simplicity, especially if it drives greater usage.