Have you ever had an interaction with a company that merited special consideration? What happens to a company when they have the right policy in place but make the wrong decision? Here is a recent example: http://overheadbin.msnbc.msn.com/_news/2012/04/25/11392324-dying-veteran-protests-spirit-airlines-no-refund-policy?chromedomain=usnews&lite
As detailed by this story, a terminally ill veteran was denied a refund by Spirit Air Lines. Why? In an effort to keep costs low, Spirit does not offer refunds. Why is this the right policy but wrong decision in this case?
The analysis of this airline ticket example is essential to understanding when and where to make exceptions to your refund policies. The paper “Refundability and Price: Empirical Analysis on the Airline Industry” by Seong man Moon & Makoto Watanabe of Sogang University is the seminal work in this field. The conclusion of the research is that the premium is paid for a refundable ticket is directly correlates with the distance of travel. This tells us that a long flight such as the one between Florida and New York (1010 miles) can turns out to be the most significant determinant of the relative price between refundable and non-refundable tickets. However if you look at a flight between Los Angeles and Las Vegas (236 miles) the difference in ticket price between refundable and non-refundable is negligible as the customer has the option of making the five hour drive.
So how can you as an entrepreneur use the sophisticated pricing model of the airline industry to deliver better customer service?
1. Understand the nature of the product or service you deliver. If you provide a time sensitive or essential service such as critical health care or something that is difficult for the customer to substitute, this calls for strong scenario analysis planning. Be prepared to make exceptions and deal with customers on a case by case basis even though you may have a sound structure of customer policies. The potential cost of bad publicity is significant especially when a remedy only takes a little compassion and extra effort.
2. If you are selling easily substitutable products like apple pie and lemonade be prepared to offer customer service that rivals Zappos. Make sure your customers walk away with a positive memorable experience even if you have to give out an extra cup of lemonade.
3. Empower employees to use creativity to solve problems. Great Customer service pays off. Reflecting on the Spirit Airlines example, how much money was saved by not refunding the ticket $500-1000? Now if just one or two people choose another airline over Spirit due to the bad publicity, this business decision will result in a potential loss.
Making exceptions to rules or policies makes for remarkable customer service. Happy customers lead to profitability. Just ask Steve Jobs or Tony Hseih of Zappos why exceeding customer expectations is important. Both of these men created considerable wealth and loyal customers–something I know you are also capable of.
I woke up this morning thinking about James Earl Jones saying “If you build it they will come”. Of course 23 years ago when these words were uttered in Field of Dreams Kevin Kostner built a baseball stadium in the middle of an Iowa cornfield. If we change the context of the quote to today’s retail market, how would this be understood? I would suggest that the “voice” speaking to us in contemporary terms would be creating an app or an e-commerce website that both engages and successfully generates revenue without the overhead of commercial retail property. The former CEO of Best Buy Brian Dunn was quoted in a March telephone interview with Bloomberg Business Week as saying “The one critical thing we offer the world is choice. We provide the latest and greatest choice of all technology gear, from Apple (AAPL) products to Google (GOOG)products, and that brings more opportunity to help people put technology to use. That is a great place for us to be.” A week later Best Buy posted a $1.7 billion quarterly loss, announced the closing 50 stores and now Brian Dunn is looking for a new job. The failure to recognize the significant cultural shift in retail consumer behavior ultimately may bankrupt Best Buy and several other Big Box retailers unless they embrace the new customer dynamic.
Lets pinpoint this paradigm shift of consumer behavior so that we can benefit and become both thought leaders and adapt our business to meet the needs of the modern marketplace.
Before shoppers had access to apps and extensive exposure to e-commerce websites, the only way you could comparison shop was to go from store to store. Now we can walk into a retail establishment, look at the wares, scan a QR code and instantly find the same item online for less money. As we depart the commercial property we are able to use smart phone apps to comparison shop and purchase the item.
So what is the answer to the ideal retail operation?
Lets summarize, learn and be proactive to the new demands of today’s consumer:
1. Bigger isn’t always better. Again as I have reminded you before, focusing on a niche market and perfecting your operation and processes will create memorable customer engagement. This will allow you to compete in qualitative areas that the customer cares about rather than focusing on price comparison. Remember if you have to compete on price someone will always sell for less.
2. All new and current operations need to be built in a scalable manner that will allow the seamless execution of mobile technologies and platforms. It won’t be long until a majority of e-commerce will be done on smart phones. Again “if you build it they will come” but make sure it is “app friendly”.
3. Educating customer’s remains critically important, however the methods in which you do this have changed. Many customers are not interested in walking into your retail venture and receiving a sales pitch. Using social media to educate and engage whether is it a blog, YouTube video or an app, teach customers what they need to know by using their smart phones.
The last question in my mind regarding this subject is what will become of the strip malls and the shopping centers that once housed these mega stores? Will your local Best Buy turn into an Urban Farm? Probably not, If I were to guess probably a “Cash for Gold” store.
May all your efforts lead to productive apps and all your limbs be mobile.
Until next time, be good and cultivate your community of friends.
With a global economy gyrating with sweeping political changes, technological breakthroughs and new emerging global markets, an entrepreneur must think and act strategically. One of the most overlooked assets small businesses fail to capitalize on is intellectual Capital. In his prophetic article “Shocking Truths About the Future” (Business Strategy July/August 1996) Futurist Alvin Toffler talks about the shift in the world economy from a base of financial to intellectual capital. Toffler states “Knowledge is no longer just a factor of production. It is the critical factor of production”. Lets take this relatively esoteric concept of Intellectual Capital and break down the components:
Thomas Stewart in an article entitled “So you Think You’re Company is so Smart” (Fortune April 30, 2001) delineated three crucial elements:
1. Human Capital is the talent, creativity, skill and ability of a company’s workforce. This shows up in innovative strategies, plans and processes that the people in an organization develop and then passionately pursue.
2. Structural capital is the accumulated knowledge and experience that a company possesses. It can take many forms including processes, software, patents but most importantly, the knowledge and experience of employee strengths, abilities and challenges. Essentially the entrepreneur will have a strong understanding of the feasibility of opportunities based on the capability of her staff.
3. Customer Capital includes the established customer base, positive reputation, ongoing relationships and goodwill the company has built up overtime with its customers.
Given these three components how has Whole Foods used Intellectual Capital as a competitive advantage to carve out a strong customer base in the grocery business where mega chains such as Wal-mart and Kroger previously dominated?
Whole Foods invests heavily in Human Capital. They spend time and money selecting Team Members (note they are not called employees implying a much more important role in the company’s success) by carefully screening job applicants to find those that love and have a passion for both customer service and natural food. Each Team Member is carefully trained so they can demonstrate and explain the benefits of the company’s organic and natural food. (Remember if you want to sell more, help educate customers and they will choose to buy more). As a result, Whole Foods routinely lands on Fortune’s “100 Best Places to Work”
The Structural Capital component for Whole Foods comes from its increased knowledge of “local sourcing”. As we become more connected globally, there is increasing concern by many consumers on how and where their food is produced. Whole Foods has transferred this into a competitive advantage strategy of acquiring locally grown products.
Finally, with an immense amount of Customer Capital, Whole foods knows that its customers do not shop at the store searching for the lowest prices. Rather store managers and team members have the autonomy to recognize and stock their store with regional food preferences that local customers demand. The ability to quickly react and mix locally demanded products has created in the words of Matthew Mell “Disney for foodies”.
As we enter the Spring here in North America lets re-energize the Bank of Social Capital because no matter what the Federal Reserve may dictate, Ben Bernanke can’t diminish the value the relationships and goodwill you create.
Until next time, be good and cultivate your community of friends
Target statistician Andrew Pole may know that a family member is pregnant before you do. A summary of the process that Pole used was published last month in Forbes. http://www.forbes.com/sites/kashmirhill/2012/02/16/how-target-figured-out-a-teen-girl-was-pregnant-before-her-father-did/ . Here is a brief recap of the article written by Kashmir Hill in Forbes
“An angry man went into a Target outside of Minneapolis, demanding to talk to a manager:
“My daughter got this in the mail!” he said. “She’s still in high school, and you’re sending her coupons for baby clothes and cribs? Are you trying to encourage her to get pregnant?”
The manager didn’t have any idea what the man was talking about. He looked at the mailer. Sure enough, it was addressed to the man’s daughter and contained advertisements for maternity clothing, nursery furniture and pictures of smiling infants. The manager apologized and then called a few days later to apologize again.
(Nice customer service, Target.)
On the phone, though, the father was somewhat abashed. “I had a talk with my daughter,” he said. “It turns out there’s been some activities in my house I haven’t been completely aware of. She’s due in August. I owe you an apology.” (From Kashmir Hill’s article on Forbes 2/16/12)
How did Andrew Pole know this customer was pregnant? He was able to identify shifts in purchases by women from scented to un-scented lotion at the beginning of the 2nd trimester. Pole was able to track and establish that in the first 20 weeks, pregnant women loaded up on supplements like calcium, magnesium and zinc. Many shoppers purchase soap and cotton balls, but when someone suddenly starts buying lots of scent-free soap and extra-big bags of cotton balls, in addition to hand sanitizer and wash cloths, it signals they could be getting close to their delivery date. (Charles Duhigg–New York Times 2/16/12)
As you can see from the example, customers started becoming uncomfortable with Target sending baby product coupons to expectant mothers. Not only was the element of surprise undesirable but the notion of the invasion of privacy was expressed by several customers. With all of the analyses and work that Target put in, they weren’t going to give up. To mitigate a concern for privacy Target began mailing the baby product coupons with advertisements that they know pregnant women wouldn’t buy such as wine glasses and lawnmowers. Now when the expectant mother gets the coupon booklet, she doesn’t feel singled out, as she thinks that everyone on the block is receiving this mailing. However what the consumer doesn’t know is that Target is still sending these coupons exclusively to pregnant women.
Essentially on a behavioral science level, Target has recognized and understood the importance of a Keystone Habit. “If you can change a keystone habit, you unlock all these other patterns in someone’s life or in an organization, According to Charles Duhigg in his new book “The Power of Habit: Why We Do What We Do in Life and Business, “One of the characteristics of a keystone habit is that it creates a culture. That’s why it seems to have such a profound influence on other patterns in our lives,” including how, what and where we consume. In life as Duhigg points out there are only a few of these trans-formative moments where people will actually change their buying habits, hence the profound and compelling strategy Target is using.
The data mining done by Andrew Pole is phenomenal in several ways that we can incorporate in building an analytic system that will be scale-able as your business grows.
1. Track and profile your customers as much as possible. Using a tool to analyze purchases will help you assemble data that could help predict future customer behavior
2. Once a customer profile is established make sure you cater to the buying habits in a non-invasive way. Customers don’t like the feeling of being spied on but they like the opportunity to save money in return for loyalty
3. Understand a keystone buying habit. Know when these habits are going to change and strategically position your venture to benefit from the paradigm shift in customer behavior.
Until next time keep working on analyzing habit loops, check you mail for a “targeted” sales circular and ALWAYS PAY FOR PURCHASE WITH UNMARKED BILLS.
Until next time, be good and cultivate your community of friends
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How can an 11 year old wanting to buy Nerf Darts teach us how to maintain both personal and business relationships? I have one word for you: Walgreen’s. Is it just me or does it seem that when you go to buy the $.39 toothpicks advertised in the weekly sales flier, the item is either sold out, scans at the wrong price or that particular location never has and never will carry toothpicks. As I went into Walgreen’s today I did not intend to buy Nerf Darts although my son did mention that he would like some extra ammo for an upcoming birthday party. As I went down the toy aisle I saw a closeout on the exact replacement darts he uses. Along with my other purchases, I brought them up to the register. Two out of the 5 items scanned incorrectly and my total came to $54. Upon closer examination I was incorrectly overcharged nearly $25. When I questioned the manager for the correct price, her answer was, I can refund your money but I can’t sell you these items at the marked, posted price–company policy (Whatever the price scans at is what Walgreen’s will sell at). This is a classic case of a self-defeating policy. While a computer managed system of SKUs (Stock Keeping Units) certainly can be efficient, it does no good if a manager does not have the authority to over-ride and use her own judgement. I left the store and will contact the manager tomorrow.
As usual I started to frame my experience and question what I could learn. In a poll conducted by IBM among 1500 CEO’s from 66 countries and 33 industries more than 60% responded that the singular element of CREATIVITY will help companies navigate successfully through the increasingly complex global economy. (here is a link to the poll http://www-03.ibm.com/press/us/en/pressrelease/31670.wss ) The situation described above happens in business even at the best companies. However the Walgreen’s manager did not use creativity to respond to an error and take advantage of an opportunity to make me a loyal customer. The Walgreen’s manager had a chance to offer me some type of goodwill but dismissed the opportunity using company policy as a damaging crutch. While there may be many codes of company policy that are valid, make sure that the freedom to be creative is a part of your business culture.
Go out there and be creative, the worst that can happen is a mistake. I love learning from mistakes. At this point my mistakes are too many to count but I will get up tomorrow, learn and try to do better.
Until next time, be good and cultivate your community of friends.
A few weeks ago on a Sunday night I was traveling through Penn Station in New York City. After getting off the 1 train from the upper west side, I needed to connect to New Jersey Transit for a train to Newark and my eventual destination. After a day full of meetings, my head was throbbing and I set off to buy a bottle of cold water as an attempt to relieve the pounding. If you have visited Penn Station you probably know there is a Duane Reed drugstore with a great location that is always very busy. I had about ten minutes before my train departed for New Jersey and I went to get some water. As I entered Duane Reed, the lines at checkout were long but if they moved quickly, I could get my water and catch the train in time. Bottle of water in hand I got in line anxious to check out as the time was ticking down for my departing train. It was 6:47 pm and my train was scheduled to depart at 6:53 when it was my turn to check out. As I was checking out I noticed my bottle of water was frozen. Opening this bottle would not only cause it to explode and get me wet but the water was not immediately drinkable since most of it was frozen. The whole time I was waiting in line, the Duane Reed “shift manager” was chatting up the cashier slowing her down. As I realized this bottle of water wasn’t going to work and since the shift manager was sitting by idly, I asked him if he would get a bottle of water for me that wasn’t frozen. He promptly replied that “he was not my slave and I could get my own water and get back in line”. All I wanted was a bottle of water for the train ride back to Newark. I wasn’t advocating ownership of humans as property nor did I think the request of an idle employee was over burdensome. With that kind of response, I left the store and bought water from the deli next door (albeit at an increased price relative to Duane Reed). What the Duane Reed shift manager failed to realize was that our interaction was taped on their security system and I am a persistent person that doesn’t tolerate mediocre or poor customer service. The next day while on the train to another meeting, I called the store manager at Duane Reed and let him know of the incident. He said he would check into it and get back to me. Within ten minutes my phone rang and an embarrassed apologetic Duane Reed manager stated that he had watched the video tape and he had no excuse for how his employee acted. He offered to personally deliver a $25 American Express Gift Card to me if I was in the area and he asked that I not hold a grudge against his store or Duane Reed. This was true redemption. I told the manager I was on the train and I live out-of-town. He offered to put the gift card in an envelope and personally mail the gift card to me. Additionally in the future anytime I am in Penn Station, he asked me to come by the store and ask for him personally. Two days later I received the American Express gift card mailed to my home in Skokie. The ownership and responsibility the Duane Reed manager took for his employee’s indiscretion are admirable but even better he worked hard and convinced me that he really cared about the way I felt. Take a lesson from a Duane Reed manager and take negative customer experience and use it as an opportunity to build trust. My first stop in Penn Station on my next trip to New York will be Duane Reed looking for this store manager that understands what customers want.
Please share how you enhance your customer’s experience with your company.
Until next time, be good and cultivate your community of friends.