Tuesday, March 24, 2009

Message to retailers: stop hyperopia now!

Bill writes: Is the American consumer dead or just dormant? An incessant barrage of news reports suggests that we have officially begun a new age of frugality, trading shopping mall binges and dinners out for saving accounts and home cooked meals. Shoppers are clipping coupons, switching to store brands, and picking out cheaper cuts of meat. The tried-and-true, knee jerk way for retailers to appeal to the newly frugal customer is to compete on price by issuing coupons and holding yet another sale. An intriguing article today in the New York Times suggests they might want to pursue a smarter alternative.

According to the story, we are experiencing a rise in a phenomenon that consumer psychologists call “hyperopia,” or excessive obsession with preparing for the future. According to the piece, we’re likely to regret our excessive frugality. “People feel guilty about hedonism right afterwards, but as time passes, guilt dissipates. At some point there’s a reversal, and what builds up is this wistful feeling of missing out on life’s pleasures,” according to Ran Kivetz, a professor of marketing at the Columbia Business School. The story reports Kivetz and a colleague found that consumers who were asked to imagine how they would feel about their purchases in the distant future shortly before Black Friday spent more money and bought more indulgent items than consumers who were asked to imagine how they would feel the following week. In the fable of the Grasshopper and the Ant, Aesop described “two types of people: the virtuous Ant who saves for the winter and the improvident Grasshopper who’s punished with starvation.” Another consumer study found that even the most disciplined Ants found ways to “pre-commit to indulgence” -- more than a third of participants selected a less valuable spa gift certificate instead of cash so that, as one participant wrote, “I’d have to pamper myself and not spend the $ on something like groceries.”

Retailers need to change how they think about their stores. If they pursue a purely transactional approach, merely bringing in merchandise and promoting it in hopes of a sale, they will miss an opportunity to appeal to the more hedonistic Grasshoppers among their customers. Retailers might consider finding their Grasshopper customers, inviting them in for open houses where representatives from the retailer and various manufacturers demonstrate products and experiences. These open houses would allow people to come into stores and see, feel, think and experience without obligation. Retailers could give the visitors a small gift certificate for use at another time. This would appeal to the indulgent, hedonistic Grasshoppers, and even to the more frugal Ants, awakening the “inner Grasshopper” in all of us.

Other thoughts on treating hyperopia?
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Friday, March 20, 2009

Can we do an MRI in Aisle 11?

Ron writes: The search for the perfect predictor of advertising effectiveness continues. According to a recent story in the New York Times, a Yale undergraduate is using magnetic resource imaging to “study brain waves and determine why people respond to some advertisements but not others.”

Emily Yudofsky became curious about the potential of neuromarketing in high school, when she worked in a laboratory that did research on the consumer response to Coke vs. Pepsi. Yudofsky’s neuromarketing company will specialize in research on public service advertising, hoping to develop anti-smoking or don’t-drink-and-drive campaigns.

The article suggests neuromarketing is “tremendously controversial,” both because it is seen as “creepy” and, as scientists point out, “just because a neuron fires does not mean a consumer likes Coke better than Pepsi.” If neuromarketing is indeed effective, we will see it used for more commercial applications. It is tempting to believe that brain scans can provide a complete understanding of how consumers make decisions. However, no matter how refined this technology gets, it won’t be a substitute for the observation of behavior and the resulting insights that bring true understanding of the consumer. At least not yet.
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Tuesday, March 17, 2009

In the trenches

Bill writes: Best Buy’s incoming CEO Brian Dunn started with the company 24 years ago as a salesman, and in some ways never left his roots. He still spends a great deal of his time on the sales floor, “where the rubber meets the road,” he says (see Wall Street Journal article “Best Buy Confronts Newer Nemesis,” March 16). In his quest to now differentiate Best Buy from competitors Wal-Mart and Amazon.com (now that Circuit City is history), Dunn has used a series of store visits to provide inspiration.

In the olden days of shopkeeping, owners minded their stores at all hours and lived upstairs when the lights were out. Nothing got past them since they were always there. In a world of multi-unit retailing, bosses are far removed from the action of the floor, often held hostage in meetings to consider new companywide dental plans and how to defer equity awards. Still, they take it as an article of faith there’s no substitute for being in the trenches, and “make time” to do store visits as often as they can.

While Brian Dunn’s efforts should be applauded, there may well be a limit to how much inspiration can occur when a CEO makes a guest appearance. Certainly there is value in talking with the troops, where good ideas might arise and unaddressed problems can surface. At the same time, these are all too often staged as goodwill/PR events to rally the troops, and the real value back to the CEO is diminished. One legitimate substitute for management’s inability to be in stores all the time is the use of video-enabled behavioral analytics, which provides a volumetric assessment of how shoppers use the stores and what are the effects of the experience the employees provide. It’s an interesting way to fuel inspiration and find out what’s really happening with thousands of customer actions, interactions, and transactions, when you can’t be everywhere—or anywhere—at once.
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Friday, March 13, 2009

On second thought, bring back the lasers

Ron writes: Getting a hard count of how many people pass through New York’s Times Square every day is an important measure for a number of commercial interests—setting retail rents and outdoor advertising rates most particularly. According to this article in the New York Times, the Times Square Alliance pays $100,000 a year for a team of Russian immigrants who are paid $8 an hour to count the masses. The NYT reports that high-tech gadgets such as video recordings, vertical cameras, and even lasers have been considered, but that the immense volume of traffic overwhelms the technology. Instead, the human tide is counted by “dozens of Russian immigrants armed with clipboards, folding chairs and counters.”

Still, the low tech hand clicker approach employed by the Russians doesn’t work perfectly either. According to one of the counters, “When people walk en masse, it’s useless.” So when Times Square is most crowded, and counting accuracy is most important, the low tech method breaks down, too.

Having worked with many companies to help them understand customer traffic and behaviors, I know the best results come from employing both higher tech solutions such as video cameras, along with a low-tech, more labor-intensive approach. Perhaps if the Times Square Alliance employed this one-two punch, they would be able to get true head-count fidelity.

Even so, the most crucial assessments would still elude them—like how many people are actually stopping into the stores and buying, and who and how many are actually looking at the billboards. Those are the numbers worth real money.
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Tuesday, March 3, 2009

Getting out of line

Bill writes: It’s becoming less necessary, but going into a bank to conduct business is sometimes still unavoidable. You’ve certainly noticed how increasingly rare it is to enter the queue without the guys-in-ties from branch management trying to short-circuit the wait time by asking if they can be of service. “Do you have a straight deposit?” they will ask. “I can help you over here.” When I first began observing this, I thought I was seeing an especially perspicacious new generation of bank officers—ones seemingly well-schooled in queue dynamics and the importance of efficient transaction flow.

That was then, but today it’s all about skimming cream from the queue. Once they have you one-on-one, sitting at a desk to get your deposit processed, it’s open season—an opportunity to cross-sell, up-sell, and otherwise create awareness for a wider, profitable range of financial products. Customers are part of this dance, willing to give up the drudgery of line-waiting in return for listening to a brief spiel. It’s actually not a bad trade-off. There may well be a new product or service worth hearing about, and the customer at least gets the transaction accomplished and a comfortable place to sit.

It’s not altogether different from the trade-off people make when they agree to attend a time-share pitch—a 90-minute commitment in return for a gift or free trip or other incentive (not that I want to conflate bankers with those who hawk condos in hotel ballrooms).

But it brings up an interesting idea, especially in today’s economy. In return for you doing this, I’ll do something for you. Horse-trading, barter, swapping—call it what you will—it may be how things get done with increasing frequency. And then you won’t need any money. Or to go into a bank line.
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Monday, March 2, 2009

Success beyond accidents of the marketplace

Ron writes: It might be easy to dismiss McDonald’s strong sales performance as nothing more than the result of a heightened consumer desire for inexpensive food during tough economic times. But having worked with the company for more than a dozen years on a number of advanced analytic projects covering operations, marketing and HR, I know this is only one of a host of even more salient factors contributing to the very positive numbers coming out of McDonald’s. A recent story in the New York Times explains how the company has won over skeptical customers with its thorough, nearly obsessive effort to get things right. Here are a few of the key ingredients that have contributed to McDonald’s supersized success, even as the economy and the rest of the restaurant industry have struggled.

A clear, customer-focused goal: McDonald’s has single-mindedly united its people behind “Plan to Win,” an internal playbook that encourages employees to “focus on quality, service and restaurant experience rather than simply providing the cheapest, most convenient option to customers.”

Adjustments based on brutal facts:
McDonald’s discovered that customers were becoming more interested in dining early or late, so stores were opened earlier and stayed open later. Executives “pored over data to determine what consumers were eating and drinking and where McDonald’s could expand to capitalize on changing trends.” McDonald’s transformed beverages from an afterthought to a central offering, resulting in higher sales and plaudits for its coffee quality.

Grounded, open leadership:
McDonald’s selects leaders who have restaurant experience, not merely academic credentials. Jim Skinner, McDonald’s CEO, never graduated from college but rose steadily through McDonald’s ranks. He’s comfortable mingling with everyone from coworkers to restaurant staff. According to John W. Rogers Jr., a McDonald’s board member, Skinner has “created an environment where these guys have been allowed to shine.”

Patience: Some changes at McDonald’s took time to implement, such as rebuilding restaurants, improving employee training, and reconfiguring the drive-through. Luring skeptical customers back to the restaurant took years, not months. As McDonald’s president, Ralph Alvarez says, “The lesson there is, be patient.”
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