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You can’t manage from the board room or the balance sheet alone

I like watching Under Cover Boss because apart from it being interesting on many levels, it never fails to highlight how businesses cannot be run solely from either the balance sheet alone or from the ivory towers of a head office, despite claims of the best management reporting and a transparent, open and communicative culture.

I recently watched an episode which featured a company called Pet’s Corner who I’d Pets_Corneractually not heard of before. However, it transpires that they’re a pet shop chain with 89 stores currently, mostly across Southern England and the Midlands. They’ve grown mostly by acquiring smaller pet shops and then rebranding them to look and feel like the Pets Corner corporate brand.

Overall the business is looking to expand significantly by opening a new store every month, albeit having been in the red for the last 2 years. As a way of trying to return the business into the black, they decided to significantly cut staff costs based purely on the balance sheet numbers alone in addition to the fact that sales figures overall were down with no signs of growth. Hence the reason for going undercover.

The board wanted to know that when they scaled, they weren’t just going to scale up their current problems into their news stores increasing their financial issues. They wanted to understand and fix any current issues first to ensure that they had the best chance of scaling successfully. Within the first day of the Product Development Manager, Steve Charma going undercover, it was quite clear what was wrong. In the first store that he visited, the impact of the staff cuts were clear. There was one Shelves-emptystaff member alone responsible for a thousand foot plus store. That one staff member, stocked shelves, served customers, unpacked deliveries and answered queries but more interestingly, had to shut the shop to go to the toilet and at lunch time. The result was missed sales opportunities and customers left to wait longer than desired. In addition, the manager’s position had been vacant for 3-4 months and the shop signage was failing to draw footfall from the Tesco store next door.

None of the impact of these issues could have, or would have been determined from the view from head office alone or from management reporting. Further stores visited highlighted stockroom and stock storage issues, damaged products, empty shelves and further lost sales opportunities, none of which were visible from head office and despite the fact that the company spent £100,000 per year on mystery shopping.

One store however, was bucking the trend. The in store team had taken the initiative and had been running a Pets day where customers could bring in their exotic pets and discover other rare animals and exotic breads. Steve Charma was initially not happy due to the fact that head office didn’t know this was going on and they hadn’t been consulted. He was more concerned about brand standards and health and safety issues.

Exotic lizard However, when sales at the half way point in the day were 10% up on the store average, his view quickly changed. A lack of management and leadership, shortfalls in sales training, staffing levels and product storage issues were the barriers to scaling. Ironically all of which had been initiated by head office without consultation, consideration or even observation with the ‘troops on the ground’.

Despite that, they staff were mostly doing a great job, delivering good customer service and in some instances, taking the initiative to increase sales and the customer experience. Overall quite an eye opening experience for the board who at the end of the programme, committed to significant changes. However for me there was a key takeaway which in hindsight is so obvious, but still so frequently overlooked.

MBWA as management guru Tom Peters called it. Management by walking around. You can plan all you like in the board room but without consulting staff and understanding the impact on customers, the best intended plans will fall short. You can cut costs on the balance sheet, but without consulting staff and considering the impact on customers, isolated decisions made on paper without intelligence from the ground, can and will  have the opposite effect to what’s intended. Such is the value in engaging both staff and customers regularly on future decisions and plans, in addition to key decision makers getting out and about regularly to see where the real business operates, which isn’t in the boardroom or on the balance sheet.

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Customer loyalty or a marriage of convenience?

Customer loyalty. The end game in delivering a great customer experience. Companies strive for it and it’s often the discussion at many boardroom meetings mentioned in the same breath as profit, sales and shareholder value. But there’s an issue of congruence here. Saying one thing yet doing something different and you don’t need to look far to see this playing out. Take the insurance industry for example. Loyalty sign

The debate over the practice of the automatic renewal of insurance policies for customers has risen its head again this year as it did in 2012.

The BBC Radio 4 programme Money Box revealed back in March this year that some customers were being overcharged as a result of auto renewal policies.

In July, the new incarnation of the FSA, the FCA (Financial Conduct Authority) said that “automatic renewal can lead to customers being treated unfairly.” A term introduced initially back in 2008 by the then FSA, who launched their project around ‘Treating Customers Fairly (TCF)’ as part of their ongoing strategy from the early 2000’s to address mis-selling and the fair treatment of customers.

More recently in October, the Money Box programme re addressed the issue amidst concerns about ‘sharp practices’ from insurers and the impact on customers. A representative from the Insurance industry argued that the benefit of automatic renewals are that they ensure that no one accidentally forgets to take out insurance, for which the consequences could be a breach of law or loss of cover in the event of an accident or event. Fair point indeed and a useful mechanism deployed in the right way but I would argue that it’s the way that auto renewals are conducted that is the issue here which also calls into question the value of customer loyalty.

Recently a business contact of mine had their auto renewal notice through for their house insurance policy. £253 for the year was the new price and on the back of no claims in the previous 12 months. The letter made no reference to a price increase and contained the usual text around not needing to take action for the policy to roll over giving piece of mind etc. etc. Hands over house image

Out of curiosity, my contact decided to check a well know comparison website and was able to get a comparable policy for £180. Not content with saving £73, she checked the insurers own website posing as a new customer and was able to get the same policy for £121, over half the cost of the original renewal quote.

On the face of it, this potentially ‘sharp practice’ whilst not illegal as such, seems counter intuitive to delivering a good outcome for some customers and does little to create an environment that fosters customer loyalty in an industry where customer churn is rife and consumer perception is far from positive.

So for me, this scenario raises a number of questions;

1. If the annual price increase is legitimate, why not bring it to the attention of the policy holder at point of renewal and explain the reason?

From the insurer’s perspective, they may not like communicating bad news to customers about price increases and so they might hope that customers either don’t notice or don’t check. By not doing so the insurer potentially ‘gets away with’ the annual price rise balanced against the risk of ‘getting caught’ and the customer leaving. Also, there is an element of ‘caveat emptor’ here or buyer beware and a responsibility of the customer to check – assuming they have the capability to do so, which is the complaint that the FCA are currently investigating. However in the interests of a genuine long term customer relationship, surely you’d mention something as important as a price rise wouldn’t you?

Alternatively, as in the case of my contact, having checked the price elsewhere, they have now switched insurers and avoided the price rise. In addition though, the way this auto renew was handled created a feeling of mis-trust about this particular insurer and their price rise motives and a heightened perception that insurers in general are untrustworthy and that price rises are illegitimate. Not a great outcome for anyone concerned.

2. By treating customers in this way, do (insurance) companies actually value customer loyalty?

The short answer appears to be no based simply on a view of their actions. Maybe the company perception is that because the market is transactional and that customer loyalty doesn’t exist anyway and so why try and keep customers by continually giving them the best price every time.

Maybe companies count on the fact that customers are mostly apathetic about insurance seeing it as a necessary evil in some instances and so they won’t spend the time each year searching comparison sites to get a better deal. Time that customers could spend on something much more entertaining than insurance.

Maybe companies also count on customer inertia against comparing and swapping policies that they’ll let the policy automatically renew in order to take path of least resistance.

Seth Godin talked about ‘Two kinds of loyalty’ in a recent blog here; ‘the loyalty of convenience’ and the loyalty of ‘I’m not even looking’. I’d suggest that insurance is a loyalty of convenience which is only as good as it is just that – convenient. Significant price rises aren’t convenient.

3. Is it all about new customers? New customers only sign

They’re like shiny new things aren’t they?  I’ve heard it many a time; “How many new customers have we gained this quarter?” “How’s our market share increased?” In the same breath though are companies also asking “What’s our customer attrition like and “why are customers leaving?”

It probably follows the 80/20 rule in that 20% of customers will probably always shop around based on price. Just because the 80% don’t, it doesn’t necessarily mean that they’re hugely loyal or brand advocates. Maybe it’s just currently convenient.

4. How much is a new customer worth?

What’s the lifetime value of an insurance customer over say 10 years versus 12 months? I’d wager that it’s significantly higher for a customer that stays 10 years if managed properly. Would you even breakeven on a customer over a 12 month period given the acquisition cost per head? It feels unlikely and yet insurance company behaviour is actively driving the market towards transactional rather than value based behaviour and away from cultivating real customer loyalty. It could be argued that the only way you demonstrate value on insurance is when you make a claim. That’s when you know it works. Otherwise it just sits in the background and you never realise the true value of it.

Technology makes it increasingly easier for most of us to shop around and make comparisons and social media makes it quicker and easier to highlight and publicise poor customer experiences or companies that deploy ‘sharp practices’. Companies however can keep customers loyal as long as they follow the basic rules of cultivating any relationship which include fairness, openness and transparency.  Congruency is also hugely important. If you say you value customers, you have to act in a way that demonstrates that and I’m not convinced that the way auto renewals are currently handled represent the best outcome for customers. Loyalty is increasingly a two way street and needs to be viewed as such by both parties. As long as companies don’t give customers a reason to change, most will remain loyal as long as it remains convenient.

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Book review: Dan Pink ‘To sell is human’

This is Dan Pink’s most recent book and follows ‘A whole new mind’ and ‘Drive -the science of motivation’ and the accompanying TED talk on motivation which can be found here if you’ve not seen it. I’m a big Dan Pink fan so I’m a little biased. Drive should be read by everyone – parents, teachers and business people alike.

As indicated by the title it clearly explains a lot about motivation – which we could all benefit from understanding more about. The other thing I like about Pink’s writing, is that it’s backed up by research and lots of it. Mostly social science and behavioural psychology research which he uses effectively as cases studies and evidence to reinforce his points.

tosellishuman

On the back cover is the line ‘We’re all in sales now’. And we are – in the new economy, whether we realise it or not. He goes onto explain, ‘Each day millions of people earn their keep by convincing someone else to make a purchase. They sell planes to airlines, oil shares to sheiks, cars to drivers. They sell consulting agreements, magazine subscriptions, time-shares, double glazing, broadband, fitted kitchens, car insurance, life insurance, pet insurance! Some work in fancy offices with glorious views, others in dreary cubicles, but most look exactly like you.

In fact, each and every one of us spends a lot of our time trying to persuade others to part with resources – money, time, effort, attention – though most of the time we don’t realise we’re doing it. Parents sell their kids on going to bed. Spouses sell their partners on moving the lawn or putting the cat out. We sell our bosses on giving us more money and more time off. And in astonishing numbers, we go online to sell ourselves on Facebook, on Twitter, and in Match.com profiles. What businesses, politicians and academics seem not to have realised yet is that we’re all in sales now.”

I remember being part of a ‘traditional’ sales team a few years ago – complete with a mobile phone and company car which were displayed like badges of honour, and people saying to me ‘I could never do what you do. I could never sell to people’. But I agree with Dan Pink in that ‘we’re all in sales now’. So if we are, why not understand how we can be better at it, to consistently get more of what we want and to make the process easier and more likable for all involved as no one likes being ‘sold at’. The answers lie within the pages.

I won’t rewrite the whole book here and spoil your voyage of discovery if you choose to read it but these are some of the highlights;

Pinks new sales process follows ABC – not ‘Always Be Closing’ which is the traditional sales approach and one I was taught, but rather ‘Attunement, Buoyancy and Clarity’

Attunement is about really listening to and understanding customers or potential customers and has three rules to success;

  1. Increase your power by reducing it
  2. Use your head as much as your heart
  3. Mimic strategically

Buoyancy is about mind set, the questions we ask ourselves and about ratios of positive to negative emotions we experience and the effect they have.

Clarity is just that. Clarity of message or ‘pitch’ and what it is exactly that you want others to do.

Within the sections, Dan Pink continuously reveals useful and actionable insight.

In attunement, he dispels the myth that to be in sales and perform well, you need to be extroverted. In fact, quite the opposite as extroverts tend to talk too much and listen too little which is the opposite of attunement. He introduces ambiverts who from research far outperform extroverts in sales. They just tend not to fit the stereotypical view of sales people.

In Clarity he discuss the shift in perspective from problem solving versus problem finding due in part to the new status of information asymmetry between buyers and sellers. Buyers now have access to a wealth of information, product reviews and views on the internet and through social media, which redresses the previous imbalance where the seller held and controlled all product information putting the buyer at a distinct disadvantage.

He also talks in Clarity about frames of reference which leads to a great questions when framing your own offering by asking ‘compared to what?’ Being able to answer this and see things in different frames or perspective as your customer does is a subtle art but one that’s worth pursuing to great effect. Other frames he discusses include experience frames and purchases – material purchases versus experiential purchases with the latter being more fulfilling and memorable to people who bought for the experience rather than the possession or item itself.

The two questions for instant influence borrowed from ‘Instant Influence’ by Michael Pantalon are intriguing. I think I’ll try these first on the kids though to perfect, before unleashing on prospective customers but I can see them working!

One thing I have applied straight away is Pink’s six pitches. He touts it as a successor to the elevator pitch. You know, it’s what you’d say in about 60 seconds if you happened to get into a lift with your prospect and you’ve got 60 captive seconds with them before they get out.

It’s a really insightful and a great exercise to do. I’ve written all six pitches and it really makes you think clearly about your message and what you’re trying to convey.

The 6 pitches are; pixar logos

  1. The one word pitch
  2. The question pitch
  3. The rhyming pitch
  4. The subject line pitch
  5. The Twitter pitch
  6. The Pixar pitch

The ‘serve’ chapter at the end of the book pulls everything together by looking at what it is to truly serve with a personal and purposeful approach. He outlines research experiments by Adam Grant and David Hofmann that indicate that purpose is a performance enhancer and a significant one to boot. In one study, two groups from a U.S University call centre were tasked to raise money from previous alumni for the school. Before starting work the target group read case studies about pupils who have benefitted from receiving scholarship from the school and how it had changed their lives. The stories made the work personal and purposeful. The control group just read random stories. The result was that the target group more than doubled the amount of money raised compared to the control group. That’s double. Who wouldn’t want their sales team to double their performance?

Pink’s parting gift at the end of the book is that “you ask and answer these two questions at the core of genuine service;Dan Pink selling quote

  1. If the person you’re selling to, agrees to buy, will his or her life improve?
  2. When your interaction is over, will the world be a better place than when you begin?

If the answer is no to either of these, you’re doing something wrong.”

This book will definitely be a go to reference source for me to make sure I get the most out of it. I hope you do too.