Fake loyalty
Tien Tzuo, CEO of Zuora, wrote a post for re/code that was so good it deserves broader circulation. While the focus is on customer relationships in subscription businesses, it’s also about loyalty and having just written a book about customer loyalty (available next month), it resonated with me.
My research is full of old style approaches to customer loyalty that, shall we say, aren’t really about loyalty so much as they are about customer coercion. You can coerce a customer into being loyal, what I refer to as performing loyal behaviors, but they don’t exhibit true loyalty. Customer loyalty should be about inspiring customers to defend your brands, to preferentially seek out your products, and to buy them even when they aren’t discounted, have a coupon attached, or involve the award of so-called loyalty points. My research found that customers who behave loyally because of such inducements are easily attracted by the next enticing offer so their loyalty is often more closely associated with the discount or reward than with the brand.
A great example that Tzuo explores, and that I had overlooked, is called the “negative option” an arrangement that keeps you exhibiting loyal behavior as long as you fail to cancel a service or promotion. The negative option is something of a relic but you can still see it operating in the market today. Tzuo uses Columbia House, the now bankrupt vendor of music and AOL as examples and they’re really good ones.
If you are too young to remember Columbia House, then good for you. The basic offer was some large number records, tapes or CD’s for a penny as long as you agreed to be a member and receive a monthly shipment until you’d bought an equal number of recordings at full price. After that point you could cancel the service but human inertia often prevented or delayed that event. As a result people appeared to be loyal but weren’t. They were trapped.
Even today according to Tzuo, AOL has 2.1 million subscribers to its $20 per month dial-up service. As he says, “These AOL customers surely aren’t shelling out for the ‘convenience’ of their painfully slow dial-up service.” He’s right, too, having a dial-up account today is likely more habit for most people, though it’s also possible a few still don’t have cable where they live.
The negative option lives on in the subscription industry in the form of automatic renewals from month to month as long as a credit card stays active. In these circumstances, customers who appear loyal to the negative option might not be using or otherwise engaging with the vendor despite what appears to be loyal behavior. Businesses in this situation have a ticking bomb on their balance sheets for while the revenue is good, it can disappear at any time and at some point, the negative option practice will generate a good deal of bad will toward the brand.
Companies like Totango, Gainsight, and even Zuora use their analytics and large customer datasets to understand customer behavior and to spot true loyalty as well as the warning signs of its opposite. Vendors are becoming more aware of the problem of the negative option and more generally, customer behaviors that appear loyal but which might represent inertia or laziness so that they can head off unpleasant surprises like a spontaneous social media campaign that damages a brand.
The rise of the subscription economy and its culture has placed a bright spotlight on issues of customer retention, engagement, and loyalty. The days when you could sell a product set for a lot of money and move on to the next prospect are ending and being replaced by various forms of subscription and the requirement for greater customer intimacy. But the negative option is from another time and ought to seem out of place today as we focus on retention, subscriptions, and customer intimacy regardless of the markets we serve.
What was most interesting to me from researching my book was that customers aren’t necessarily interested in amazing experiences that cause delight. Delight is another fad that’s come and gone or should at least be on the way out. Very often customers want and expect simple basic competency and effectiveness so that they can get on with everything else they have to do. This in itself is great insight because it shows that inspiring customer loyalty is within anyone’s grasp if we simply avoid creating a circus and focus on what matters most to customers.
Through the CRM Lens
This is delicate and I will be scrupulously neutral in these paragraphs so as to offend no one, but I thought it would be fun to attempt an interpretation of the current political climate from the perspective and sensibilities of CRM. Can this really work? You be the judge. This will be different from any other analysis you might have come across because I do not wish to discuss candidates. I am all about the customer.
There are two CRM issues that inform politics this year and I have written about both—empowering the customer in Solve for the Customer—and engaging the customer to produce loyalty which I write about in my new book, You Can’t Buy Customer Loyalty, But You Can Earn It (available in May). First empowerment.
It has been said so often that it is a cliché of our times that the power in most vendor-customer relationships has transitioned from vendors to customers thanks to the ubiquity of the Internet and social communities that readily share information, often cutting out the vendor in the process. This is not precisely what’s been going on in politics because, as a free society we’ve always had an abundance of information, at least in theory, through a free press.
But in reality, until cable news appeared and the innumerable web outlets for every viewpoint, much was left unexplored because of space limitations in newspapers or time limits for newscasts thus information was held closely with some cooperation from the fourth estate. You need look back no further than the nature of scandals of the last several decades and compare them to the kiss and tell histories of earlier times to know that many opportunities to show political leaders had feet of clay were in olden times avoided.
So political customers, like people in every other aspect of life, have become empowered with information they never expected to have even a generation ago. This abundance of information has not served the political process very well based on this cycle but not because transparency is bad. Information has now shown that the political practitioners have for some time turned a blind eye to their customers. They have ceased to be engaged at precisely the same time that technology has made engagement more commonplace in almost every other aspect of life.
The failure to engage can now be seen clearly in the vitriol that the electorate express for establishment politicians. In issue after issue, one side or another has campaigned with promises to do better or to fix something and then failed to deliver. In the most non-controversial example I can find, the rising American living standard driven by increasing productivity in the workplace, has been replaced by a stagnation or outright decline that is well documented and keenly felt throughout the working and middle classes. This is analogous to a vendor repeatedly missing an opportunity to meet a customer’s needs in a moment of truth. Such a repeated failure is lethal both to vendors and politicians.
The customer response has been a form of populism that expresses itself differently depending on one’s position on opposite sides of the political divide. Worse, in many cases, the establishment’s response is a tone-deaf attempt to bring voters back with still further promises of future benefits.
It’s as if a customer has returned to a store with a defective product and all the vendor can think of doing is to offer a big discount on a future purchase. In the CRM world, when these tactics have been tried, customers have often gone bananas. You need only survey sentiment sites or search for your favorite company while appending the word “sucks” to see the lingering effect.
Solutions for the political process are analogous to repairing the vendor-customer relationship. First, acknowledge the problem and validate the customer. This means listening more than talking or marketing which is very hard to do once a live election is underway. But until you’ve listened you might not understand what needs to be fixed and you won’t have the credibility to make the attempt in any event. It’s easier to do this in business.
The next step is to quickly transition from diagnosis to prescription. This is also difficult, but not impossible, because it involves revising the traditional political scripts, which mostly deal with old pieties and not with specifics. It is complicated by the fact that at this point short attention span customers want actions and not plans, but such is the nature of elections.
Business is fortunate in that elections happen every day—customers buy or they don’t, they engage or give up on you, but if you lose a relationship, you aren’t out of it totally. Each new day is a chance in business to get it right with no need to wait until after an election which can be months in the future. Politicians should be so lucky.
CRM and GDP
I was gob smacked when I read this: “Electric light, the first reliable internal combustion engine, and wireless transmission [radio, my insert] were all invented within the same three-month period at the end of 1879” in Robert Gordon’s, “The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War.” It’s a book full of surprises emanating from an analysis of major inflection points identified by dates like 1870, 1920 and 1940. Gordon’s point is that major innovations spark major trends in how we make a living and that they happen with regularity. It’s the same idea embodied in long economic waves named after the Russian economist, Nicolai Kondratiev or Kondratieff.
It takes a while for inventions like these to percolate through a culture. As a matter of fact, each of these inventions represent networking innovations which, while they were brilliant, required great private efforts and investments to become mainstream. Electricity was only as good as the delivery system to the home or factory and then great investment in lighting and even more in electric motor driven machines was needed to derive value and that took decades.
The same is true for the other inventions. Engines need cars, which needed assembly lines and reliable roads, filling stations, and mechanics, and eventually the electric starter and automatic transmission, which made it possible for more women to drive. Finally, radio needed millions of receivers and content, content, content.
They all required prolonged rollouts driven by private sector purchases yet each also delivered increasing value as network effects took hold. With these innovations fully networked (or should we say socialized?) their impact on economic activity was profound, but until all was in place, these innovations looked alternately like interesting science projects or loss leaders. With full rollout, though, they became engines of productivity and drivers of accumulating GDP. Computers and information technology look very similar.
We saw the first inflection point in the IT/PC revolution back in 1996 or so. Prior to that computers and networks were a cost that seemed like a good idea but whose ROI remained in doubt. But the mid-1990’s proved to be an inflection point when all the investment in the PC rollout became the motive force for a sustained economic recovery that rivaled the 1960’s in duration.
In 1996, many smart people were baffled by the continuing rise in productivity and GDP in the absence of an uptick in inflation. But that’s exactly what to expect when a new paradigm makes it all the way to the mainstream.
I see CRM in much the same light as those Victorian era inventions and the original information revolution of the 1980’s and 90’s. What will it take to see another economic expansion like the 1990’s in the near future? The end customer has already invested heavily in Wi-Fi and handheld devices and many are now buying into wearables, all necessary prerequisites, while industry is still investing and re-investing in customer facing apps and devices like bots and drones.
It is amazing that we’ve derived as much value as we have from CRM in the last 20 years. CRM was mostly a system of record when it emerged and its records were incomplete at best. Yet almost from the beginning CRM was able to reduce the time and effort required to deal with front office issues and thus boost productivity. Now, though, I think we’re moving into a new CRM era in which productivity further accelerates but this time it’s increasingly the productivity of the customer that draws attention.
Earlier IT inventions and deployments have been fully accounted for and depreciated. Buying a few hundred PC’s doesn’t drive a company’s productivity any more; the business simply devours them. The newer inventions taking shape, and most importantly, the network effects that will ensure their success include truly exotic ideas like robotics, drones, the IoT, and analytics driven business processes. All of them intersect with CRM in some ways and all have a great deal to do with making customers’ lives better and ultimately driving GDP.
When we think of GDP growth we often look at the productivity of the worker. But as Gordon points out in “The Rise and Fall of American Growth” inventions that make the standard of living more affordable and also higher have a multiplicative effect because rising living standards get plowed back into an economy in the form of higher demand for even more sophisticated goods and services. As this election season amply points out, after decades of stagnation, the public is hungry for rising living standards.
I think GDP growth through CRM requires that we take CRM’s role up a level of abstraction or maybe it’s time to make a new level. We need to add a technology to the list equal to electricity and the internal combustion engine and CRM is only its application like a light bulb is to an electric dynamo. The technology is the software platform. It is both the automation of software development and the integrating factor for so many disparate branches of the software tree from social to analytics, to code generation to process automation and more. All of these services, when merged through the software platform, are capable of order of magnitude improvements in business and in living standards that are required for raising GDP.
But it’s still early. At the moment we are mostly looking at the pieces and parts of the solution. It’s as if we understand electricity well enough but fail to grasp the importance of electric motors. Or we understand the internal combustion engine but fail to see the need for a good road system. It all goes together. All of our technology—collaboration, social, mobile, analytics, workflow, journey mapping, code generation, the IoT—comes together in the integrated business process just as sure as the automobile revolution reached its zenith with interstate highways and drive-in restaurants. That’s why the platform is so important and it’s why I think the platform will be the key driver in the next boost in GDP and living standards.
Birth of the modern
Nearly every generation sees the birth of what for it will define modern life as going forward. As uncertain as the twenty-teens have been so far, some day in retrospect economists may pinpoint this decade as important as the tipping points of 1870’s and the 1920’s. If that turns out to be the case there may be no better event to symbolize the beginning of the era than the Salesforce fiscal year kick-off in San Francisco this week.
It has been an eventful year so far for the company, its city (with the Super Bowl festivities taking over much of downtown), and even the nation. On the day after polling began in the presidential primaries (which were eventful in their own right) Salesforce CEO Marc Benioff laid out an annual plan and announced a reshaped product line that will contribute much to the story of what will be the new modern in enterprise software.
Just back from the annual confab of the rich and the forward looking at Davos, Switzerland, Benioff gave revenue guidance to the financial analysts pegging his company’s work product at $8.1 billion for the fiscal year that was only a few hours old. As a subscription company Salesforce can be reasonably sure of its guidance because most of those revenues are already under contract as unbilled deferred revenues thus making climbing the $8.1 billion mountain much easier.
Benioff mentioned the Fourth Industrial Revolution as a topic of discussion in Davos, which might correspond to the launch of a new long economic wave (aka a K-wave). Long waves are often associated with the late Russian economist Nicolai Kondratiev and I correlate K-wave formation with what I see as the inflection points around us today.
The product line received the lion’s share of visibility, but in one way, it seemed to me under reported. While the technology was impressive, its impact on business is the real story and that will take years to write.
The Salesforce product line has been renamed using a Lightning moniker attached to nearly every cloud, so for instance Sales Cloud Lightning is now how we reference what was once simple SFA.
Lightning-izing the product line brings a great deal of complexity to the technology but this is largely hidden from the user so that we can more truthfully refer to the product line as sophisticated rather than complex. This is important because it directly affects the perception of new modernity.
For a very long time, CRM product sets have been on a ramp up to complexity as vendors, including Salesforce, layered subsystems on top of subsystems. These included collaboration, community, analytics, journey mapping, wireless and mobile accessibility, and more.
The evolution of the multi-tenant, metadata driven cloud platform was a key piece of the puzzle. Under this umbrella, all complexity can be consolidated and managed so that users can construct business processes on the platform without necessarily getting hip deep in code. But that’s not sophistication. Sophistication happens when one can achieve Arthur C. Clark’s vision that new technology should be indistinguishable from magic. I think that’s where we’re going.
Salesforce didn’t get all the way to magic with its Lightning announcement but it certainly put down a marker, which I believe will serve as a reference point for the birth of the modern.
Fundamentally, the technology is easily accessible by those who need it but it has been abstracted. A new layer that supports the user as if it was an assistant in a business process hides the complexity with a sophistication that begins to border on magic. So users are reminded, they are presented with data and information to enlighten their activities, and data that surfaces within a business process directly or through inference, is captured and teed up for future analysis that will again inform users in their processes. This is cool stuff.
Let’s have a look at the announcement’s big parts.
Lightning—the platform
Everything starts with the platform now known as Salesforce Lightning. Co-founder Parker Harris has, over several years, guided his developers to build a platform and stack that makes the magic possible. The Lightning-ization of Salesforce is largely the story of building the new platform full of services and of enabling all the apps to access these services and deliver them to the customer and employee facing applications.
Sales Cloud Lightning
SFA has been reimagined and added to so that it is a very different species than the one we started writing about in the 1990’s. Then SFA was a system of record, a tool for tracking basic contact information and the size of an order or a deal. The latest incarnation includes:
CPQ from recently acquired SteelBrick, which will accelerate, and for many companies standardize, the configuration, pricing, and quoting process.
Lightning Voice, an embedded telephony service that will see use in sales as well as service. Lightning Voice will enable reps to connect with prospects within the Salesforce application with all of its suggestions and prompts. Its functions include click-to-call, auto-logging of calls, and call forwarding.
SalesforceIQ Inbox, which brings the email inbox into the CRM suite through a suite of iOS, Android and Chrome apps that weave together Sales Cloud data with email and calendar apps of one’s choice.
Sales Wave App is just what you’d expect, analytics for the sales process. It is one of the sources of the information and suggestions that will change selling. New dashboards for things like pipeline trending were things that early SFA users could only imagine.
Salesforce1 Mobile. The big news here is full offline capabilities for iOS and Android devices. There are also 20 new Lightning Sales Components but I am getting tired and I recommend looking over the press release for even more detail. Check out Sales Path and Kanban.
Service Cloud Lightning
The Service Cloud got the same treatment in that service processes have been re-imagined but I’d say that this process of enhancement has been more evolutionary than revolutionary over several years. Nonetheless there were some big announcements including Field Service Lightning, which provisions CRM tools to dispatchers who will receive suggestions for service assignments based on location, technician training and skills, and availability. An Omni-Channel Supervisor gives call center managers more insights to better manage agents’ workloads.
Milestones
Salesforce is also noting its 49th and 50th product releases in the coming year. These milestones will also bring to market further enhancements in virtually every part of the product line. For instance, the company will release Heroku for the Enterprise aimed primarily at developers of highly scalable customer-facing apps. There will also be Marketing Cloud announcements later in line with enhanced uses for Journey Builder, which in my estimate may be the most important part of any CRM going forward.
Briefly, journey mapping enables vendors to bring scientific management to what have always been chaotic customer-facing processes. When used appropriately journey mapping will significantly enhance the customer experience and drive better engagement. It’s going to be a big deal.
Pricing and packaging
Salesforce continues to use a gold, silver, bronze approach to product packaging and pricing and it has taken this opportunity to reset the packaging to reflect the bulging product line. It would be a sales nightmare to sell this product line a la carte and it would also be counter-productive to the user who needs all the pieces and parts to fulfill the vision of modern sophistication. So Benioff told me that the company will continue with three levels of pricing, albeit at somewhat higher rates, and it will pack more technology into each level. See the company for details.
Finally
The Lightning-ization of Salesforce completes the solution set transition from a system of record to a system of intelligent engagement. Using all of the capabilities together makes it difficult to do business as we have always done it, which is a good thing. I don’t think it’s possible to sandbag deals any more or generally hide things from the boss. CRM is no longer a chore to be performed on Friday afternoons. It is an assistant that will enable many people to work better, smarter, and maybe more productively.
But long as customers are still involved, nothing I have seen will truly accelerate business processes beyond the acceleration on the vendor side. Customers will still think and deliberate about offers thus presenting us with a kind of speed limit much as the speed of light is the ultimate speed limitation in the universe. But these re-imagined tools do something as important as speeding up customer-facing processes, which I have discussed here before. They open the door to managing many more customer situations per employee. This will of course raise productivity but even more important from a sales process standpoint, they make it possible to expand skinny pipelines, to make them fat and thus enable revenue acceleration if not exactly shortening individual deal times.
Cloud research
Last year uber-analyst Esteban Kolsky and I did a research project to better understand cloud computing’s uptake and related issues and last week Financial Force, our sponsor, made the results public. The findings are interesting to me because they reveal a more or less typical adoption cycle for cloud by which I mean that some of the downstream effects are only gradually becoming apparent.
One of the appealing parts of cloud computing, aside from its favorable cost model, is its consumerized packaging—people have the expectation (and rightly so) that they can get up and running with little fanfare and not much input from IT. Cloud has been a liberating force throughout business for this very reason. Back in the day, words that rolled off the tongue a little too easily were, “Our system won’t let us do that,” but that’s a thing of the past and cloud computing is responsible in large part for the shift.
What’s less obvious though, in a world where lunch is not free, is that the cloud comes with its own baggage too. We found that the vast majority of companies surveyed had many cloud apps and nearly half (46.3 percent) were using 4 or more. With this come some subtle issues. For instance, usually a cloud app doesn’t exist in a vacuum, it needs to be integrated and with lots of them it becomes something of a logistical challenge getting data to where it can do the most good. Also, each distinctly different app can come with a different cloud and tool set or at least user interface for maintenance.
This didn’t surprise me. For a long time, I’ve been articulating that the platform is the new competitive software battleground because it determines what works easiest with what. Platforms provide a degree of standardization for app builders in the same way that a motherboard imposes a set of standards on what can be plugged into it. To be clear, there are many ways to get apps to communicate but in many situations, when two apps have been built to the same platform standard, life is quite good.
Through this research I developed new empathy for the folks in IT for many reasons. Old IT was a reflection of the technology it supported. In the mainframe era it was bureaucratic, rigid, and limited and many people associated these attributes with the people of IT rather than their jobs. But in new IT, the people responsible for making cloud computing work are quite the opposite. IT has learned to team with line of business units, to be supportive of business initiatives, and to do what it takes to make the business successful. But therein lies a new issue.
It seemed to me that, at least in some cases, IT has been left to clean up after departments that go ahead with an implementation without necessarily accounting for the downstream eventualities that can cripple a project like integration and performance. Somehow this all comes back to platform too. One of the reasons for the proliferation of disparate clouds in some organizations is that no one considers the implication of having three clouds for three separate apps rather than one cloud in common among them. It’s no one’s job at the line of business level where many decisions are made and in these cases some businesses were slow to promote platform standards.
The result is that at the front end, the lines of business run well with their cloud systems but often that’s because the people in the engine room are working hard, or harder than necessary, to keep all the cloud balls in the air. So add a new job to IT’s growing list. The information technology department has developed some good partnerships with the lines of business and now it’s time to use some of that good will to help set up standards and to show the departments some best practices.
Other issues worth considering—there are more but you’ll need to download the report—include cost considerations and performance and to a great degree, they come down to platform too.
Briefly, you’d think the arrival of cloud computing would have banished concerns about cost but that’s not true any longer—if it ever was. Many organizations have capped IT spending, or nearly so, making it difficult to find thousands of dollars in a budget for new systems in order to save millions by replacing old systems. It’s crazy but true. So speed of implementation is one of those areas you don’t see advertised or even written about very often, but it is becoming a real concern, at least for cloud vendors looking to generate initial revenue from a customer. So, of course, platform is a big factor in deployment, especially for the time to deploy the next app on the platform.
Performance is right up there as a customer concern too and platform is important here as well but so is the speed of the Internet connection and the number of integrations running. While most of our study population had “more than four” cloud apps, it’s not unreasonable today to see companies with a dozen or two cloud systems running the business.
At some point every business will have to face the need to rationalize or refactor its cloud deployments—it’s a natural part of cloud’s success. This reconsideration should happen around your business’s platform strategy. If you don’t have a strategy it’s a good time to develop one.
