Gratitude-based Marketing

Since the mid-1900s, most of the world has been involved in what is commonly referred to as “The Industrial Revolution”. Essentially, this is the ability to make goods and services at an increasingly lower cost of production and to penetrate an increasing number of markets. And that’s fine.

In the 1980s, companies started to move away from an emphasis on production getting involved with marketing; the customer is king. This, too, is fine. But up to a point. And that point is viewing marketing as an extension of production. To be clear, The Industrial Revolution has so marked our way of thinking that our view of marketing is conditioned by those same processes. For example, when looking at many web-based businesses we tend to ask “What is your cost of customer acquisition?”, or “What is the Return on Investment on that campaign?”. And we all take this approach as valid. But is it?

In previous articles, as with clients, in the ROKC method  we always split the business processes into two categories, productive and consumptive, with an emphasis on how each and every process provides a Return On Key Component, ROKC. We stand by this approach but it is important to add a nuance to the consumptive part. Although consumptive processes need to maximize the ROKC for the company, the transaction is not complete unless the company’s product or service helps the client maximize their own ROKC. This means that by design the client is part of the consumptive process.

By not viewing the client as outside the company, the ROKC method stimulates leaders to move away from the old “zero-sum-game” mentality wherein both sides “take” from one another to a more inclusive form of reflection in which one party “give” and the other “receives”. To be precise, it is initially the company who gives and the customer who receives but in a second step it is the reverse, the customer gives and the company receives. This approach helps us move away from the production-centric frame of mind most commonly used to one focusing on the relationship the transaction creates between the parties.

Of course it is difficult – if not impossible – to control the way a customer receives your goods or services but it is possible to develop a marketing program in which the company focuses on instilling a sense of gratitude in their customers. For example, when building an app or website the user interface is built with the objective of insuring an excellent user experience. Many do this quite successfully and the user expects this. However, is this enough to create engagement? The answer is usually “No”. By building a user interface which leaves a customer feeling grateful for the experience many customers will seek to engage with the company. The customer will move from only providing feedback when things go wrong to doing so when things go right. The relationship become a virtuous cycle that can go far beyond that initial customer contact to their whole community bringing in more business.

Through gratitude marketing the ROI on your marketing operations are no longer calculated in terms of the number of sales transactions you have with a customer, it includes the new customers they bring in; their feedback on the product or service; faster product or service development; faster time to market; lower risk of failure; fewer customer service calls; fewer returns to process; and so on. Go on, give it try. It can’t hurt.

Competitive Advantage

The term “competitive advantage” gets bandied about quite a bit in business literature, meetings as well as among any number of business-minded people. Regrettably, everyone gives it their own respective meaning and no one agrees on any of them.

I often feel the hairs on the back of my neck rise up when someone uses this term because they don’t use it the same way I do, and  I use it  quite often. In particular with regards to the Return On Key Component method and my particular definition of the key component:

“A key component is a company owned and/or controlled asset that provides a competitive advantage in the markets in which the company operates.”

Initially, this sentence expressed exactly what I wanted to say: it is an asset owned/controlled by the company, it provides a competitive advantage, and that competitive advantage can only be measured on the basis of the market in which the company operates. It was “perfect”. Or, so I thought.

In defining the key component I was actually falling into the same trap as everyone else. The term “competitive advantage” in this context was clear in my mind but was it clear in anyone else’s? The answer is “no”.

There are essentially two uses for this term. The first is inward-looking. For example, a business may develop a process that they say gives them a competitive advantage. If this were the case, the shareholders should fire management right away. Any process that gives the business a competitive advantage will interest a large number of customers. By spinning-off this new key component into a separate company management is fulfilling its fiduciary responsibility to shareholders by maximizing their return on investment. Therefore, a competitive advantage must be market defined. Conversely, if the competitive advantage can only be defined with reference to the internal processes of a company then it is an efficiency.

Thus, the second definition of competitive advantage is market-oriented. It is this definition which is at the basis of the ROKC methodology. A competitive advantage means that the company owns an asset that does not help it do a better job but that helps the customer do a better job. In other words, the competitive advantage the key component provides satisfies the needs of the client, it helps the client obtain a certain outcome. The business only exists to make the benefits of its key component available to its customers. The company uses its internal processes and manages the risks in an effort to make benefits of its key component available to its clients in the form of a product or service.

If we return to the definition of the key component it may be better to state:

“A key component is a company owned and/or controlled asset that facilitates and improves the way clients in a given market achieve a specific outcome.”

Well, this statement is good as a first stab but I’m sure it can be improved. Any suggestions? Please send them to me or write them in the comments below.

In any case, the next time you use the term “competitive advantage”, please be sure that you are using it with respect to a market – not an internal process.

Process vs Product

Traditionally, when we talk business we look at a product. The product can be anything from a mousetrap to a toaster to a hotel room to a financial instrument to a company. We look at the whole. This is quite normal because a whole product is very tangible.

On the other hand, when we look a business although we want to do the same thing – look at the whole – we cannot. We have to look the process. As we have argued before, the impressive productivity gains in the US are the result of companies shedding those processes that were inefficient for them and then buying them back on a fractional basis when needed from companies serving multiple clients.

Therefore, when launching a new business do not look at the while product but look at where your business can insinuate itself into your client’s processes.

Defining your business in this way means not providing the final answer but the expertise required to work collaboratively with others to find the answer.

Disruptive Company Mythology

Disruptive companies are a journalistic myth attributed to those businesses that devise a business model that extends an established market to a encompass a segment that could not be satisfied through the traditional model. I call it a myth because once the business scales up to compete with status quo economic actors the legislative and regulatory rules by which the latter operate are imposed drastically increasing the cost of doing doing business, thus making them uncompetitive.

AirBnB, Uber, Aereo,… Are all challenged by entrenched players who have built and who defend their companies based on legislative and regulatory norms. If these disruptive upstarts want to play in their market then they must play by the rules.

To date, there is no disruptive business that has truly influenced the cost of doing business at scale. Nor will they.

Are you a Dragon slayer?

A very dear friend of mine sent me with wonderful video, The Secret To Happiness, by Arthur Brooks, President of the American Enterprise Institute. You should really watch it if you have the time.

In his discussion, Mr. Brooks argues that at the root of all happiness are four aspects of a person’s life:

  • Faith
  • Family
  • Community
  • Work

Although he does not go very deeply into the reasoning behind this conclusion because he is focused on work, I have some thoughts of my own that I want to share.

Having studied happiness – mostly due to my own discomfort – in different countries and cultures around the world I came to the same conclusion as Mr. Brooks. The major difference between us is maybe in how we explain it. In this video, there is a slide he posts showing these four elements as interlocking parts of a puzzle. In my view, they are concentric circles with faith at the center, family and community the next two while work is the dynamic element that holds them together.

My reasoning is as follows. Whenever we communicate our thoughts there are a whole bunch of assumptions and premises that underly whatever is being said. We don’t think much about them because they are givens for us. And, we think everyone shares them with us. However, if we take a deep hard look at these assumptions and premises we realize they are based on some common set of values – culture – we share with our community.  A collective experience or consciousness we share with our society. Maybe those values have been shaped by our immediate and extended family but their impact will not be significant since it is relatively new as compared with the communities long history. Similarly, one’s personal experience can have an impact which will be an even weaker influence except in cases of severe trauma.

Therefore, it is the collective experience that warrants a closer look. All communities define themselves by a shared history, shared stories, shared myths. It always fascinated me how two cities in Italy, only 40 kilometers from each other, could have such distinct identities. Even after 150 years of national unification one is hard pressed to find a national identity. The same is true in other European countries where city, provincial and regional identities are more important than national ones.

Interestingly, all European nations have very strong national education systems which serve first and foremost to assert the central government’s view of the historic collective experience and identity over that of smaller administrative geographies. Thus, education is less about learning and much more about political cohesion; it is a socialization process.

Even the US it is possible to see a similar role for education. It is far more advantageous for society to have its youth believe in the same values as society on the whole than to identify with smaller subsets. If you think about this it makes sense. No matter how good is an educational system it will still be faced by the uneven ability of people to learn as a result of which those who “fall through the cracks” can either fight against the system or accept their fate and be part of the system. The former is much more costly to a community making the latter more beneficial.

Assuming that this reasoning holds it fair to conclude that a common set of values based on a collective experience – no matter how mythical it may be – provides certain benefits to society. But can we stop there? No. Once you start questioning the legitimacy of the above you are forced to concede that faith plays a fundamental role. Without faith that collective consciousness will not be accepted.

Again using the European experience as an example, the king got his legitimacy from God. Before that, the Egyptians, Greeks and Romans got their legitimacy from the gods. In Eastern societies, legitimacy came from the gods or a lineage of esteemed and pious ancestors.

Faith, understood as a belief system, is at the center of the human condition. This is consistent with how societies evolve over time given the difficulty science has had to supplant faith. I will never forget a French episode of “Who Wants To Be A Millionaire”, a popular gameshow, in which a French contestant  requested help from the audience on which celestial body orbits Earth: the sun, the moon, Mars or Venus. 56% of them said it was the sun, 42%  said it was the moon and 2%  said Mars. Poor Copernicus and Galileo, they must have been turning in their graves! Sarcasm aside, the point is illustrated.

Therefore, most appropriate model for understanding people is a series of concentric circles with faith at the center, a great big dot; community next, a fairly thick slice; family, a thin circle; and lastly, a very thin line, for the individual and their experience.

So far so good but this is too static a representation. A person may be very well adjusted knowing where they come from, have a strong sense of their community and the belief system they share but unless they are putting this to good use they will be dissatisfied. They need to feel that their community values them. They need to feel that they are participating in a positive manner to their life and the lives of others. This requires that we add a dynamic element to the discussion: work.

From this point of view, happiness is the result of an individual’s belief/faith, community, family, self and how they interact with the collective.

Think of this situation: A person who grows up in America it taught and learns that going to school and getting a good education will bring them a good job and lifetime of security. The person goes to school, gets a bachelors, a masters, a doctorate, and post-doctorate degrees but then no job in their field. Instead they work part-time at a museum as a guide for the yogurt exhibit. Will they be happy?

Take another situation: A person is taught and learns that they live in a meritocracy. In their job, they do a great job but their boss takes all the credit for themselves, pays employees who perform less well more, and then fires them on some trumped up reason. Will they be happy?

If your answer to both situations was “no” good for you.

One of the stories I like to tell is about a young man who leaves the security of his village to slay a dragon. When he returns from his odyssey he is received in one of two ways: as a hero or with indifference. Within the context of his community he will be perceived as a hero if there was a dragon, or dragons, that threatened their existence. If there are no dragons – and nobody even knows what a dragon is – then his return will treated with indifference. You need to have a dragon threat in order to be a hero; in order for that special quality you possess to be of value.

Are you a dragon slayer in a community without dragons?

Would you buy a product that is over 90% defective?

Many businesses employ significant resources on quality. Undoubtedly, many names pop into your mind when reading the word “quality”, like: Six Sigma, Seven Sigma, Total Quality Control, ISO something or other, and so on. There is a whole industry sector built around this subject employing hundreds of thousands of people to make sure product and services live up customer’s expectations. Producers of these goods and services want to make the best possible product so the customer will come back for more. Seems reasonable enough. Nothing new here.

And yet, when it comes to social platforms it seems just the opposite is true:

  • 96% of businesses already on Facebook do not advertise on Facebook.
  • On Facebook, just 0.2% of total status updates actually reach users for whom that content is relevant, and 1% of that  actually engages.
  • 1% of visits to e-commerce sites come from social channels and less than that generate orders.

Based on this information it seems reasonable to conclude that these platforms are very effective for engaging with members nor for inciting them to action. Consequently, all the articles about viral marketing and the efficiency of social are the exceptions, not the rule. Therefore, the value of social must lay elsewhere. But where?

Obviously this article’s title is a bit provocative but it does get the idea across: there is no value in a product that is over 90% defective. The value must therefore be in the all the other chatter. If you consider social is the equivalent of digital word of mouth then the value is in eavesdropping on what is being said. Businesses can use these platform to listen in on actual and potential customer expressions about their products and engage with them efficiently in an a posteriori way; probably most of the 1% user engagement.

If we look at social from this point of view, this is a numbers game which can only be played by companies with lots lots of transactions, that is big business. A local store or restaurant would derive only little benefit from social and that would probably be at the expense of other more efficient activities.

This perspective is quite consistent with rise of Big Data where sophisticated search techniques are used to find meaning in these large volumes of data. So, as I once wrote on LinkedIn, if you are a SMB, “Don’t drink the Kool-aide”. Social is not an efficient use of your company’s resources.

Communicating With Customers

In the ROKC approach to business we do our best effort to break a business down into its component parts:

  • Key component
  • Competitive Advantage
  • Transformational Process – Production
  • Transformational Process – Consumption
  • Risk Management

where all processes and risk management activities focus on maximizing the return on key component. And, each business component has an opportunity associated with it that a good leader can use to build a business.

In other words, you may have a key component which provides the opportunity to build a business. But an examination of the competitive advantage may be perceived as low in which case it is difficult – if not impossible – to actually build the business. Conversely, the competitive advantage may be high but the transformational processes may be difficult to achieve once again nipping the business in the bud. Or, the transformational processes may be easy but risk management too consumptive of resources leaving no excess value to reinvest in the business and return to investors. Exploiting all these opportunities to create a viable and robust business requires a skilled leader; a leader who may need to evolve with the business as it grows or a series of different leaders for each growth phase the business goes through.

In many situations the founders do an excellent job of getting the business off the ground but lack the management skills to take it further. They should not let their egos get in the way and reach out to those with the managerial skills to grow the business. This period is a great opportunity for the founders to learn the skills they need to develop and then take the reins at a later time. By way of an example, take a look at Google. Eric Schmidt was brought in and ran the company for many years while Larry Page learned from him, then Larry stepped in to the CEO spot. No harm in that.

In fact, many founders excel exploiting the competitive advantage their key component provides them with and can even give it expression in a product or service. The real challenge comes when they have to make the product or service acceptable to their customer base. We call this the Transformational Process – Consumption: How to make a product or service that customers want to consume.

The TP – Consumption includes a vast array of processes that depend on the product or service that his been made which in turn depends on the competitive advantage which takes us back to the key component. For example, in a market that is still very production oriented the importance may be placed on the product features or benefits, whereas in a consumption oriented market the emphasis might be place on the brand or other intangibles. Consequently, how and what is communicated to customers will vary accordingly.

One of the best presentations I have come across to illustrate in a very pragmatic and amusing way is a TED Talk from 2009 done by Rory Sutherland, a British “Ad Man”. In this talk, Rory makes a very persuasive case for generating value from the intangibles of a product using communication to influence customer perception.

“Advertising adds value to a product by changing our perception, rather than the product itself. Rory Sutherland makes the daring assertion that a change in perceived value can be just as satisfying as what we consider “real” value — and his conclusion has interesting consequences for how we look at life.”

(Source: Life lessons from an ad man – TEDGlobal 2009)

Here are links to other Rory Sutherland TED Talks.

Competitive Advantage clearly defined

Excellent synopsis. Makes me want to read this book,The End of Competitive Advantage: How to Keep Your Strategy Moving as Fast as Your Business, by Rita Gunther McGrath. Thanks.

The only question I have is how “competitive advantage” is defined, or not. It seems that a competitive advantage can be derived from any part of a business. Although this may be the case, I don’t think it goes far enough.

I would argue that competitive advantage is derived from the ownership or control of a particular asset. For example, a parcel of land might be more competitive than a neighboring parcels because of soil quality, sunlight, access to water and other such factors. This definition is consistent with the history of the world – most of it anyway – and the political, social and economic institutions that have been created. In other words, the asset owner can not only stake their rights to the property but the state will protect those rights. Based upon this certainty, a property owner can build a business that employs the asset if, and only if, it creates enough value to mitigate all the risks inherent in the business.

Over time, the asset may lose its innate qualities and consequently its competitive advantage or a new way of achieving the same benefit may make it less competitive or even obsolete. As the Fujifilm example illustrates a leader must be aware of these risks and manage them in a timely manner or become a Kodak.

By defining the competitive advantage in this way we take take the discussion from the general to the specific and better understand how leadership, strategy, processes, risks and market combine to create economic value.

Business leadership focuses on consumption

Today’s Harvard Business Review article When Marketing is Strategy by Niraj Dawar bears a striking resemblance to my own 2011 article in which I analyze how business in the developed world has shifted from an emphasis on the production of goods and services to their consumption. In his article, Mr. Dawar, does an excellent job – certainly more eloquently than me – of analyzing this new perspective.

Interestingly, he echoes my own point of view that business leaders are still, too often, mired in an industrial revolution mindset.

“Yet business strategy continues to be driven by the ghost of the Industrial Revolution, long after the factories that used to be the primary sources of competitive advantage have been shuttered and off-shored.”

A mindset that is no longer as relevant as it used to be.

I highly recommend both articles.

Is the Key Component the same as the Unique Selling proposition?

A recent reader of “ROKC, Leadership built on the Return On Key Component” wrote:

“I browsed the book a bit, especially the what is a business and key component chapters. I understood key component as basically unique selling point and how to maximize returns by focusing on USP ie he takes familiar concepts and builds his own business management approach.”

The Key Component is reflected in the Unique Selling Proposition but they are not at all the same thing. This reader is making a common mistake by starting in the middle. The reader is assuming that there is a Competitive Advantage. What if there isn’t? What if the competitive advantage is no longer strong enough for the market? What if the key component needs to change? In the last case, a change in the Key Component means a change in the Competitive Advantage and consequently in the Unique Selling Proposition.

The Competitive Advantage sits in between the Key Component and USP, and is market specific. The Key Component is an asset – concrete, if you like – while the USP can be communicated in a myriad of ways depending on the product. Mixing the two means taking short cuts and lots of assumptions, which can be quite dangerous.

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