It’s been a rough couple of months and we should talk about something fun and not political, but CRM centric. I know! Let’s ask how the election influenced CRM. Seriously, there’s a nugget in there that ought to get us all thinking about business and keep your mind off that other stuff. Come on, it’ll be fun.
I am not the only one who saw this but isn’t it amazing how the pollsters got the election prediction exactly wrong? How could that be? They used modern analytics, big data, and more buzzwords than a software salesman.
It would be easy to say, as some have, that we need to look at our analytics packages with a degree of skepticism and do some careful recalibrating. But I say no, that’s not where we’re going to find answers. The answers reside in big data or more precisely almost-big-enough-data or almost-the-right-big-data.
My colleague at the Enterprise Irregulars, Sameer Patel, pointed out, “Technology didn’t fail us. We ignored the technology and used phone polling. Our data science team here at Kahuna reminded me that phone polling response rates have dropped from 1/3 to as low as 1/20.”
This implies that people who were targets of phone polls were either not interested in talking or possibly gave the answers that pollsters expected rather than saying what they really thought. The result could have easily been data that was in multiple ways not representative of the population. Clearly the results indicate something like this happened.
It’s not just in politics that you see this phenomenon, it’s highly prevalent in business too and, as a matter of fact, the vendor community is contributing to the data dissonance as much as customers. As a researcher, I can tell you that it’s almost impossible to conduct a survey these days.
Any survey results you see that quote a small population should make you skeptical. Getting a few hundred people to respond is so hard that you sometimes just have to take what you get and hope for the best. It’s no one’s fault. You are very busy and we create surveys with the ease of someone eating a bag of Doritos.
Vendors don’t make things any easier when they conduct their own versions of the Net Promoter Score (NPS). The NPS methodology asks you to rate something on a scale of 1 to 10 with 9 or 10 being the key segment. So too many vendors browbeat customers into giving high scores and then publish the results as if the survey was impartial. Of course any sane customer will know the results are inaccurate based on just casual experience. Then vendors will wonder what’s wrong with the survey. But it’s not the survey, it’s a refusal to take in bad news.
So here we are after many years of big data, still drowning in it and doing a mediocre job of turning it into usable information. It’s not our algorithms that are hurting us it’s our thumbs on the data scale that are turning our digital disruption into gibberish. I ran across a funny story recently in which a machine learning algorithm was trained to be racist just by following a certain person’s Twitter feed. All of this seems to reinforce the old IT adage of GIGO or garbage in, garbage out.
There’s little point in spending big bucks on new digital analysis tools if we can’t bear the information it reveals. Make no mistake about it, that’s what we’re doing every time we browbeat customers into giving us rave reviews. With raves, we’re great and we don’t have to do the hard work of changing anything because, hey, if it ain’t broke, don’t fix it. Right?
As I wrote in one of my recent books if you want to know what your customers think, you have to ask them how they feel. Getting to the emotional core helps people to reveal much more than you’ll ever get by asking survey respondents to rate something on a scale of 0 to 10 because their answers often surprise even them. I know many good vendors that don’t want to hear this and they commission polls that provide quick snapshots of purely quantitative data that ultimately reveal nothing. You can still quantify the feelings ratings but it’s a little more work but for some tastes it’s less accurate. I disagree.
But all this makes me think of election night listening to Chris Matthews on MSNBC discoursing on yard signs of all things. Matthews said that when you call people they might not tell you the truth about their beliefs or they might tell you what you want to hear instead. But a yard sign tells you exactly how someone feels because the act of putting one out says this is what I think and I am not ashamed to say it.
To improve business and CRM we need to cultivate more yard signs.
Zuora has been the champion of the subscription economy, as a differentiator for companies that sell products as services and have to bill and collect monthly rather than engaging in a single one-time transaction, since it was founded in 2007. Few people realize the complexity of running such a business where customers may pay little up front but more over time and the billing, finance, and commerce implications can be profound.
Keeping it straight is the company’s niche and in the process it compiles huge amounts of data that it is now analyzing (anonymously) to spot trends in its industry. The Subscription Economy Index (SEI) is its attempt to glean new economic information from this market’s data.
Some Zuora findings include:
- Subscription businesses grew revenues nine times faster than S&P 500 company revenues (15.1% versus 1.7%) and four times faster than U.S retail sales (15.1% versus 3.6%) from January 1, 2012 to September 30, 2016. [Figure 1]
- The combined annual revenue of companies in the SEI is more than $9 billion, a figure that has increased 20 times over the past five years, and there are 10 times the number of companies included in the SEI since 2012.
- B2B subscription businesses grew fastest: 22% per year for 2015 and 2016; in that time B2C grew 16%.
- B2C churns more annually (31%), than B2B (24%).
This analysis is important for subscription companies and may be important for the broader economy as well. It’s tempting to say these are small numbers and a small base but that might be missing the point. It’s true that subscription revenues are small in comparison with businesses that sell whole products and collect for them up front. Nonetheless it’s easier to grow revenues when you’re a $100 million company than it is when you have revenues of a billion. So the comparison with the S&P 500 strikes me as less interesting. A better comparison would be among peers.
On the other hand, subscription revenues are smaller in the present but they can be substantial down the road, one reason subscription vendors track customer lifetime value. This is exactly the point that SEI is meant to support. For subscription businesses to have a future they must be diligent at understanding customer activity and needs, which is what the index supports. With so much at stake, a subscription company cannot afford to miss customer signals that could indicate brewing dissatisfaction as well as enhancement requirements or other needs.
Subscription vendors like Zuora, have become adept at reading tealeaves and forecasting the future of their businesses and this might be the greatest revelation for the general economy. Subscription companies have generally displayed greater awareness of customers and their requirements and as the subscription economy has spread they have educated consumers about what can be reasonably expected from vendors. This has placed conventional vendors at a competitive disadvantage by raising customer expectations of all vendors.
Finally, the churn numbers represent a broad sample but they should not be praised. Top performing subscription companies operate with churn around ten percent or less. These churn numbers show the reality that it’s hard to get to that point. But this might turn out to be the most useful bit of information to other subscription vendors. Beating these churn numbers should be on every manager’s mind.
I’ve been writing about customer loyalty a lot and not just to sell my book, though you can buy it any time you want. Seriously though, markets everywhere are cooling. Where they were once ripe with new categories and products, today everybody seems to have the new stuff and growth is falling back to the baseline of organic growth. That’s why loyalty is so important today and it’s also why there are so many questions about how to promote and improve it.
Loyalty is an up and coming part of the software business. On the established side, there are companies like IBM and SAS offering solutions and there is a healthy community of startups with names like Yotpo, SailPlay Loyalty, and Stellar Loyalty. I’m still learning the market so I don’t know every vendor out there but the thing that got me hooked on studying this area is the great chasm between conventional loyalty ideas, and the software that supports it, and what really works.
We’re all familiar with loyalty and rewards programs that provide points, miles, and other goodies when we make a purchase. Let me expose my bias here. That’s not how to promote loyalty. The data is conclusive: customers who shop for discounts and rewards are a fickle breed, able to change vendors on a moment’s notice.
Creating a transaction in which product or value goes one way and a reward follows is simply discounting. There’s nothing wrong with judicious discounting but when you make it a habit you enter a situation where you routinely give up margin and fail to make your profitability metric. The challenge for most vendors, especially retailers, has always been what to do to keep customers coming in if not for rewards. It’s an important question, especially today.
The answer is engagement, which is hard to do until you conceptualize a more full-bodied relationship model. I’ve listened to a lot of vendors tell me all about speed and accuracy, funky websites, and who knows what else in their efforts to define engagement. But that’s engagement from the vendor’s perspective and too often nobody studies the customer side.
In a true relationship there’s some amount of emotional bonding between the customer and the vendor. As a practical matter, your customers don’t want to have a beer with you, that’s a different kind of relationship. But they could get a warm feeling when thinking about doing business with you or more likely solving a problem using your solution. Certainly there are brands in your own life that you prefer. You might not care what gas you buy for your car, but you may have a favorite butcher shop or other business you preferentially seek out. I’d say the latter is a business you are engaged with.
It’s relatively easy to become engaged with a local vendor and much harder to similarly bond with a national brand, but it can be done. In my recent research I stumbled upon companies that have perfected bonding and while I’m obliged to not mention their names right now, they have developed unique ways to attract and develop emotional bonds with their customers.
For instance, they usually find ways to sponsor community activity between themselves and their customers. Some build community through a rather conventional software solution while others develop real life user interactions. In both cases customers bond with each other and with the brand around using the vendors’ products.
Another idea that works well is philanthropy. You might be familiar with the philanthropy model of Salesforce or Google in which the company donates one percent of its technology, employee time (on a voluntary basis), and resources. This can take many forms. For instance one company I know sponsors a fundraising arm to help groups sell products and make profits for worthy causes, much like the Girl Scout cookie model. However you do it, you can develop emotional bonds that drive engagement and it works.
An October article by Adrianne Pasquarelli in Advertising Age raises the idea of cohesive branding as a key element in the success of market heavyweights like Google, Apple, Amazon, and others. Cohesive branding is simply an integrated set of overt and subtle attributes that throughout the customer experience blanket the products, messaging, and customer touchpoints. According to the article, “…what makes brands like Apple valuable is their cohesiveness as a connected business system. Apple communicates with its customers through its hardware, software, and retail stores to deliver one consistent narrative or ecosystem.”
I’d go further and say that part of cohesion is engagement and by extension community. If messaging is implicit in products, services, and if messaging can lead to cohesion, then certainly things like community and one’s stance on philanthropy can too. The path to improving your loyalty numbers does not, thankfully, run through greater rewards or steeper discounts. It’s about leveraging engagement and for the first time in history we have the tools to do it in modern CRM.
Business devours technology in an effort to get ahead in an unwinnable arms race. Often the technology is designed to support the status quo, which is a problem because almost by definition an arms race can only be won by leapfrogging the competition and even then the gains will only be temporary. So it is with the digital disruption and that’s what fascinates me about it.
To break down the messages that I am hearing, we live in fast changing times motivated by new digital products and their adjacencies entering the market almost daily. Virtually all of your competition is adopting new technology and the only prudent thing is to adopt the same technologies. But the real question is what are we going to do with this stuff?
But too often we only consider what the new technology is good for after we buy it and have our first disappointments along with the inevitable buyers’ remorse. That’s the heart and soul of the hype cycle and most often it’s the way new technology enters business. True, an early purchase is necessary for early adopters often figure out the best use of a new technology only once they buy it and play with it and their success is essential to driving early majority adopters to make the same purchases. Are you an early adopter? Of course eventually the technology commoditizes and virtually everyone buys the new thing.
The digital disruption might be different in two important ways. First everything is changing at once and, second, without a clear understanding of the need and utility of new innovations it could be a long time before some of them are adopted.
Back in the good old days, the fact of computers was revolutionary enough to disrupt large sections of life and business. But for a very long time a computer was simply a storage and retrieval device. Records that were once paper based became mere components of databases. We got over the concern of losing data and at the same time, moved out huge numbers of file cabinets and their contents. Good.
Today, though, computers have become small and powerful enough to do much more than record retention and systems of record are rapidly giving way to systems of engagement and, now, to systems of intelligence. This is where we are and it’s why we need to pull up for a moment and reconnoiter and figure out where we’re going.
Systems of intelligence pose the real and intriguing possibility that they can participate in business processes with, or in place of, humans. The natural concern as I, and many others, have documented is the loss of jobs if and when this catches on.
However, I think the real opportunity for intelligent systems won’t be in enabling business processes to go human-less; the real opportunity is for these systems to begin doing jobs that have gone unfilled and that’s what business agility is all about.
Forrester analyst, Craig Le Clair says there are ten dimensions to business agility and from what I can see they all need support from systems of intelligence. Some have that support today while others need it and, most importantly, they all need to interact system-to-system, intelligence-to-intelligence. According to Le Clair’s 2015 article in Forbes,
“Two are market dimensions: market responsiveness and channel integration. Three are organizational: knowledge dissemination, digital psychology, and change management. Five are process-focused: business intelligence, infrastructure elasticity, process architecture, software innovation, and sourcing/supply chain.
I can honestly say that I don’t understand all of these dimensions and few of us do at the moment. But it’s duck soup to see that systems of intelligence will be required to sit on top of all of it, with the possible exception of BI. Little of this makes sense if you’re still living off a business model that touts sustainable differentiation.
In the agile era just ramping up, companies seek temporary advantage, race to exploit it, and move on when the vein has been mined out. Agile businesses need to be concerned with issues of governance, knowledge dissemination, infrastructure elasticity and all the rest. That’s why my point is that the digital disruption might be real but it is also a harbinger of a new agile business model. The two go hand in hand.
So before you run out and buy the next new digital thing because everyone else is, consider your business model and whether you need to refactor it. Chances are that when you do enter the technology market you’ll make better purchase decisions and you won’t wallow in the hype cycle. That will be a good test of how agile you really are.
This is going to be political but you won’t be able to tell which side I’m on (if you choose to read on). You might ask, why on earth would I get involved even tangentially in politics right now and the simple answer is that it impacts CRM and I have a viewpoint. But as I say I’m not picking or revealing a side.
I’ve been doing research in business agility lately—a fascinating area that I believe will definitely impact CRM soon—and that brought me here. Business agility is the opposite of what we’ve been practicing for my adult lifetime and even before. The old paradigm consists of the belief that you establish an unassailable position in the market and then dominate by defining all of the world’s problems as your nail for which only your hammer will suffice. It’s admittedly crude and a holdover from analog days when we couldn’t hope to collect and analyze enough data to support better decision-making.
As I say, the idea is old and I can easily trace it to the Rolling Stones’ “Satisfaction” but of course it’s older,
“When I’m watchin’ my TV
And a man comes on to tell me
How white my shirts can be
Well he can’t be a man ‘cause he doesn’t smoke
The same cigarettes as me”
I love the line “Well he can’t be a man ‘cause he doesn’t smoke/The same cigarettes as me.” Sure the logic is tortured by a non sequitur but that’s part of the song’s charm because it reflects the pre-digital disruption times in which it was written. It’s also a case in point that tells me we’re at the end of the paradigm of establishing an unassailable market position and all the rest.
In an agile world we acknowledge that there are a lot of competent products and vendors out there and that the most we can hope for is to gain temporary advantage. When the advantage evaporates or the market moves on to the next bright, shiny object, an agile company shifts too. In this we realize that just as there are no longer sustainable advantages, there will no longer be subject matter experts who know and understand every nuance of a version, for instance.
Instead we’ll field platoons of knowledgeable problem solvers adept at synthesizing knowledge of business problems and of a vendor’s capabilities. In this way we arrive at solutions rather than one-size fits all products.
The move in this direction has been ongoing for some time. I deem the rise of the subscription economy as the starting point for the transition. With subscriptions, of course, you deliver a continuing service not a static product and you constantly take the temperature of your customer base identifying situations where evidence suggests customers are confused/unhappy/ broke/or in need of something that doesn’t exist yet. Most of this is less than good and if a subscription vendor can insert itself into these situations just in time, there’s always a chance of saving a client and selling more even if this only means that all they’ll buy are more seats.
So what’s the political connection? Very gingerly I say this. One side is marketing a problem that only it can fix while the other is marketing raw competency in an agile framework. I won’t argue about either side’s negatives or anything else. But I will say that to me one side is looking in the rearview mirror and adding a non sequitur while the other is looking through the windshield at the changing tableau ahead. In this formulation I think of one as embodying the aspects of an agile business while the other is trying for a sustainable advantage that might no longer be available.
I won’t venture a guess about how the election will turn out but in a funny way I think life is imitating business right now, or at least marketing, and agility could be about to make a star turn.