The Myth of the "Foot in the Door"

Given our average deal size we used to think we needed to have a scaled down offer to get a foot in the door. Once in, we could then grow the account. We were wrong.

Considering the current economic situation, I know that many companies may be tempted to come up with a “door opener.” A subscale and/or entry level product/service intended to get a foot in the door with a new client and/or a new business division. You’re also probably thinking about going down market into smaller accounts. Although this shift may help satisfy short term revenue needs it will do little to nothing in helping grow your business. Most likely those accounts will not expand and/or even be retained next year.



Here’s how I know. Looking back at the new accounts acquired over the last four years we found some interesting trends and confirmed some things that we knew intuitively (click on the image). When we measured the value of customers in their first year against the average time spent engaged with the client a few key insights emerged. First, three “clusters” of accounts emerged;

1. Customer that grew to beyond $800K in their first year
2. Customer who had first year revenues between $350-$600K
3. Customers who represented under $250K in total billings from the year.

Let’s start with the bottom and work our way up. Customers in cluster 3 had an average value of $150K. Accounts on the lowest end of the spectrum in the “One and Done" zone” (under $10K for example) were “workshop”…our “foot in the door” offer. Guess what, of the 8 that fit that description zero, zippy, nada, grew beyond the initial workshop. The other bad news…only 2 accounts led to follow on work and no company in that grouping was retained the following year.
I was speaking with Larry Emond, CMO of the Gallup Organization the other day and he mentioned that they saw a similar trend; “We found that only 4% of customers who were acquired under a certain price point grew to be substantial customers.”

On the other end of the spectrum are the occasional customers who are big right out of the gate. The “Rare Birds” zone in cluster 1 includes those few customers who start big and for the most part remain large customers YOY. The key to success with this cluster is that they had/have a tendency to have a need for multiple service lines and/or desire a complex solution. This group was looking for a strategic partner versus a vendor for an immediate need. Year over year retention was also good at over 50% and if they used multiple services lines it was almost a sure thing they be retained….and grow.

As Larry also mentioned; “Our big customers today came in as big customers…”. We’ve had the same experience and have grown our top 5 largest accounts by an average of 90% over the last two years.

Customers in cluster 2, the “Sweet Spot” represented the best of both worlds. Although their value was not as high as the “Rare Birds” they were more plentiful. They also had higher price points, high percent of follow on work and YOY retention than the “One & Dones.” Retention rates although not as high as the "Rare Birds" was good (a little over 33%). Bottom line – they represent the model that we need to build our coverage and services bundle against. We have also realigned our resources to help account development/retention activities against this group.

Why do low price point and short engagement acquisitions perform so poorly? We discovered five main reasons for this;

• Length of the engagement – too short to learn business/issues/meet folks/create a relationship, etc.
• They get the “B” team - the "A" team is on existing accounts, as a professional services firm that measure FTE productivity this will always be the case.
• Short term need vs long term problem - we were successful in building a relationship with target buyers within targeted accounts. So much so that they decided to “give us a try.” The problem with that is that it was usually a piece of work that wasn’t strategic.
• Size matters – our win rate and retention rate dropped dramatically on companies that had under $1B in revenues. The only exceptions were situations we were able to sell a solution as the first engagement.
• Culture/Attitude – some companies just don’t have a culture of working with outsiders. This very difficult to know until you’re in the door.

So as you are thinking about 2009 focus on aligning resources and efforts on;

1. Retaining and expanding your biggest customers with new lines of business.
2. Find your "sweetspot” based on this type of analysis…what is the right mix of services and price.
3. Targeting big companies with big needs…there are many out there now just make sure you have the right offer.

Because at the end of the first engagement…a foot in the door just isn’t enough.

Insurance Companies...turn down the TV!

Why? Why do insurance companies insist on spending so much of their advertising on TV (over 60% of their total ad spend as I mentioned in the Video post below)? I’ll know more in early 2009 based on our current research effort on the Commercial Insurance industry so check back with me to see how well I do. Until then here’s a possible explanation.

My guess is the industry is at a similar point in its advertising thinking as Hi-Tech was 10 years ago. Because the Insurance business operates in a “sell thru” model using captive and/or independent agents they focus their advertising spend in mass market vehicles like Network TV. This is similar to how companies, like IBM and HP spent their money ten to twelve years ago to support business partners. Spread the “Brand” as far and wide as possible so partners can sell under it. The reason they did this…feedback from partners consistently beat up manufacturers on their lack of Brand support. Partners also told them to stay out of demand gen and selling, mostly because it threatened the partner.

That was until hi-tech companies starting paying attention to partner performance. In the past, revenue from the partner channel was collected and not driven. Manufacturers did brand advertising and tossed some marketing development funds (MDF) at the channel and hoped for the best. Today, it’s a whole different world…at least for some. The channel is now a valuable and increasingly important source of revenue, especially for new customers and solutions. As a result of this new focus, manufacturers now want greater control over those investments and better returns…not to mention tracking required by Sarbox.

Companies, like HP have now become much more involved in driving channel sales through their channels. To a point of creating collaborative demand generation campaigns on behalf of partners...telling them what campaigns to run against which customers with what budget. As a result, the internet has become a much more important vehicle. My point, HP’s B2B internet advertising spend in 07’ was 22% of the total spend (TV total was only 25%, with a little over a half going to Network). Insurance companies average spend on the internet...2%.

Insurance companies have the opportunity and need to start thinking the same way. We’ve heard from Carriers that they have a difficult time getting captive agents to grow their book of business and sell new service lines. We also heard that when it comes to non-captive agents that they would like them to better target “profitable” customers. Both needs can be addressed by getting more involved in generating and/or directing business development at the agent/customer level.

To get started companies should:

• Begin directing the TV audience they’re targeting to internet sites with real offers just like the big boys of Fin Serv do…like CapOne.
• Start using Web 2.0 tools to drive demand to agents, even better start helping them undersand how to use the tools.
• If you have to spend on TV, reallocate the budget to Cable so it can be better targeted.
• Finally, approach agents with a value proposition built on helping them build their business don’t just push products to them and hope for the best.

Again, this is just my opinion, but I’ve seen the movie before...or in this case, the TV commercial. Check back next year and see if I’m right.

Results of the 2007 B2B Advertising Spend in Financial Services Assessment

By Scott Gillum
We just finished our annual assessment of B2B Advertising spend in the Financial Services industry (for high resolution video click here and select watch in high quality). Results for 2007 showed that as an industry, Financial Services firms reduced their B2B advertising spend by close to 15% over the prior year.

• The mix of the total advertising spend was similar to the prior year with a slight increase in internet spend (9%, similar to what we saw in our Digital Marketing in FS research) and radio.
• The mix of print advertising as a percent of total spend (typical 30% of total spend) shifted to magazine (up to 14% from 7%) at the expense of newspapers (12% down from 21% in '06).

In sub-segments, the Retail Banks sector, already feeling the effects of the downturn, dramatically cut back advertising spend last year by over 20%.

• Local newspapers were the hardest hit, with only half of the advertising dollars from the previous year. Consumer magazines picking up much that spend, one of the few bright spots from last year.
• The internet continues its streak of growing as a percent of total spend up to 14% from 13%. A milestone was reached by CapOne, which invested more advertising dollars on the Internet than in Network TV which is the first time ever we've seen that. Could this be a trend…yea, I think so.

In the Insurance industry no real change…unfortunately. Overall spend was only down slightly from $48M to $46M with no real change in the mix.

• Local newspapers lost ground (14% of total spend compared to 19% the previous year) with magazines picking up that shift similar to what we saw in Retail Banking, but for the most part all other categories remained the same.
• Advertising spend on the internet was a pathetic 2%...the same as 2006. While the rest of the Financial Services industry is shifting dollars out of TV and into the Internet, the Insurance industry continues to buck the trend, in fact, TV as a percent of total spend increased last year from 60 to 62% of the budget.

I’ll try to provide a reason for this (if i can) in my next blog.

Lines of Businesses, Verticals and Services…Oh, Boy

by Scott Gillum

Why can’t we all get along? On my flight home the other night I sat beside a woman who headed a line of business at an Environmental Waste compnay. She mentioned how they recently realigned the organization to a Verticals, LOB’s and Services model and that they are struggling with the transition…it sounded like I was talking to myself.

We made the same decision this year. After advising and helping companies tranisition their organization to this structure for years, it is only now that we are beginning to feel their pain. And boy, are we feeling it.

Here are some of the common challenges:

• Everybody will be in Everybody’s business – early on in the transition you’ll experience the “blob.” Everyone involved in the reorg will pretty much be stuck in the same place. Vertical guys will want to define products, LOB’s will want to do their own sales and marketing, etc. It will take time for the “blob” to spread out. Give it time.
• Lane Violations – as the “blob” starts to spread out people will begin to find their lane. The challenge will be those who refuse to stay in their lanes. Lane owners will need to be protective of their space and tell others to "get out"…easier said than done.
• I think there for I am – just because you’re the new head of a Vertical or LOB doesn’t mean you know how to do the job. You’ll find that it will take time for folks to truly understand what they are supposed to do…try 6 to 12 months. And for some…never.
• Marketing, Selling, Scoping Work, Pricing, etc. – yep, all these functions will be debated over and over...where they best fit, who should do what, at what point in the process, etc.
• Compensation – OMG, the elephant in the room. Yes, it will look easy on paper…Verticals = revenue…LOB’s = profit and/or contribution...Services = customer loyalty/satisfaction, but boy does it get messy. It should create a healthy tension in the organization as long as its managed with an iron fist that is covered with kid gloves. This one will take time to sort out and all those lane violators will want to make up their own rules and/or change the ones that exist. At the end of the day, err on the side of the customer and/or what makes best sense for the organization.

Tips on how to survive...and maybe thrive in this new world:

• Clear Definitions on the Role…and how to do the job – almost everyone will get the logic and/or rationale for the change and intuitively understand what they are suppose to do. The challenge is they may not, or most likely will not, know how to do it. I've seen this story a dozen times....create the org chart, make the announcement to the company; lay out some targets…now go. The missing piece? No one has given anyone instructions on how to do their job. Invest the time to be crystal clear on what and how you want the job to be done. It will go a long way in keeping the “lane violation” from causing problems.
• Hiring from the outside – it’s taken me a while to come to this but I think you may be better off hiring new blood to run the Verticals, especially if they are new. If your business is product focused and has been aimed at one or two specific industries consider hiring in talent from the industry you want to penetrate.
• Verticals go forward – the role of the vertical should be to understand the needs of the industry/customers (market sensing), the positioning of competitors, manage pipeline, and position the organization/product/services value proposition to be successful. They may also own account management activities. If they do, a line should be established on how big an account should be to warrant that type of coverage (more on that later). Notice I didn’t say develop products and/or services because they shouldn’t! Vertical folks will be invaluable resources for informing new products/services and adapting existing, but they should not drift into the LOB lane…they own products. If done right they should have an idea of what customers will be 2-3 years out and should challenge the organization to catch up with offers (click below).
  
  
• LOB’s go deep – the role of the LOB should be to develop a standard set of products and services that fit common needs of customers across industry and meet a defined profit target. They may or may not own the P&L, it depends on the industry but they should control PRICING. Enabling the sales organization (the Vertical) with good content to support their business development efforts and informing the services/solution organization on their needs is core to their role. LOB’s should also understand which channels support what products/services and provide them with the right funding/incentive model.
• Services and/or solutions go long - this group may often feel like the orphan in this new model but don’t neglect their needs, voice or insight. Most likely, they know the needs of the clients as well or better than the verticals, and how well products/services/solutions actually work. This group should focus on serving the needs of existing customers and finding ways to improve, strengthen and expand that relationship.
• Create a “Practice” – a “practice” is a cross organizational group that is focused on supporting a Vertical. It should include representatives from the Vertical, LOB and Service/Solutions groups. The purpose of this group is to decide on how to go to market. What segments/sub-segments to target, what to sell to whom by when, and to align and/or optimize resources against revenues. This gets the three groups talking, listening and focused on running the business effectively and efficiently and it can go a long way in helping define roles and responsibilities (see graphic above).
• Not every ‘customer’ needs to be in a Vertical – small and some medium customers don’t need and/or fit into a Vertical. Their needs may not be that unique and/or warrant the type of coverage of other larger customers. Additionally, if you’re deploying a geographic vertical coverage model it just doesn’t make sense in some areas. A dense concentration of customers like the Northeast can support a vertically aligned sales force but in the upper Mid-West…forgettaboutit. Run the territory models on what makes sense.

Good luck and godspeed.

From Webcast to VODcast

In July 2001 our cost per attendee for a public or private event skyrocketed to $589 per attendee from previous year average of $70. Attendance at our events dropped like a bag of wet cement… from an average of 125 to 25. The change happened almost overnight and we knew that the recession was ”ON”… as you probably and painfully know travel budgets and event spending are one the first things to be cut.

As a professional services firm that sells services through the dissemination of intellectual property we couldn’t just turn off speaking at events. Seminars and events drove close to 40% of our leads so we made the decision to shift almost everything online. Typically, we would do at least 30 plus events a year. In the second half of 2001, we ran 14 web events and 2 live events. It turned out to perfect timing because 9/11 put a nail in the coffin of live events. By the end of the year we were able to double our average attendance and our cost came back down to $100 per attendee plus…we add 700 names to our “opt-in” list.

Fast forward to 2008, we haven’t done a webcast in the last three years. Why? Because the format became overused and the effectiveness of reaching our key audience has been severely limited. Also, business has been good…we didn’t need to.

Yesterday we did our first VODcast and more are planned. Why? Because what is old is new again but this time you can see the presenter. A bad economy means the business slows, pipelines begin to get thin and business development using events is uneconomical…see above. But here’s something else we have noticed, people are going back online looking for free advice that they used to get from “experts” when they had budgets to pay for it.

We also learned during the last down turn that when you use a new technology there is the “novelty” factor. People will tune in just because they’re curious which boost your registration/attendance rate but it doesn’t last long…you have maybe 6-8 months before the novelty wears off.

So I happened to be the lucky guy (if you want to call it that) that got to go first. I found the experience to be very challenging… much harder than doing a live event and/or traditional webcast. Here are a few things I learned from the experience…starting with the basics.

• What is a VODcast – it stands for “video on demand” and it’s a pre-record video that may or may not have other assets integrated into it.


• Shorter is better – the VODcast came in at a little over18 minutes, for a 45 minute presentation I did live at a conference…and it’s still too long. If I had to do it over again, I’d chop it up into 2 minute segments and make it a series…still might.


• Personality/Sizzle – you need it, and I obviously had none. I get energy from the audience…the camera gave me nothing and it shows. Got to work on that, rehearsing into a mirror sounds hokey but I think it will help. Open to suggestions here…


• Color and lighting matter – we used a conference room with bright lights and burnt sienna colored walls…not good. Learned that lesson the hard way.


• Bandwidth matters - depending on the length of the video and the number of viewers you may need to check with the IT folks on the impact on your IT infrastructure. We had to move the video to a host server to handle to the load.


• Communicate the format – because this is a new format you have to explain how it works…a lot. We had calls from folks asking for the dial-in number. Communicate instructions often and on everything (email, registration page, under the event listing on your website, etc.).

All in all, this is the future, so you might as well try it. I’m convinced that it will soon replace traditional web and podcast. Additionally, it provides the viewer with a much better experience…there is no call-in number, no applet to download, it eliminates many of the technical issues of the past. In fact, I’m doing a webcast today for client. I’ve already received three emails asking for the call-in number….it was sent to them days ago. Bring on the Video!

Best Practices from the Last Downturn

Every “expert” and every business publication seems to be giving advice on how to manage the downturn nowadays and it’s great to have those thoughts and ideas. It struck me the other day that we’ve gone through this before (remember the “Dot.com” bubble) but no one seems to be talking about what we’ve learned from that past experience.

So I became interested in learning if there were any “best practices” that we could use to help make better decision this time around. I’ve talked to a few clients, folks here and looked at some work we did with clients during the post bubble burst years (2002-2003). From that research I’ve pulled together nine “best practices” and have listed them below.

1. Cut Fast and Deep – the last go around folks were very optimistic that the economy was going rebound quickly so they delayed decision or cut less than they should have given the reality of the situation. We did exactly that and went through three rounds of RIF’s needless to say it was painful and demoralizing…ever heard the expression “There are two ways to die: get shot or bleed to death?” Well, we choose the latter. This time around we went back and looked that the low point of the recession, the point at which our revenues bottomed out (let’s say it was 30%) and we took that percent and cut expenses to that level last month, even though our revenues are off forecast only by… let’s say its 15%. It gives us a cushion in case things get worse and allows us to preserve cash which we didn’t do the last time…which is the next topic.
   
2. Cash is King – got to have it, keep it and watch it like a hawk. Customers will take liberties with payment terms and there may be nothing you can do about it. If DSO starts to tick up, pull down on a line of credit (if you have it…and do it now) to give yourself some cushion to absorb cash flow issues. This killed thousands of small business during the last go around.
   
3. Little Things Mean a Lot – as you tighten the belt be careful what you cut. Yes, you should control travel cost and really asked yourself whether or not to you really need to be there but there are little things that you may be tempted to cut things that may mean more to your employee and/or customers than you realize. If you experience a RIF, be careful not to cut other little things that may demoralize the remaining staff. For example, if you have bagels or donuts brought in one day a week continue to do that. The cost savings is minimal and the unattended message that you may end up sending is that the company has cash flow issues…spooking the folks that remain. Keep in mind their senses will be heightened and if you have inexperienced staff (recent graduates, for example) it will kick in the fight or flight reflex. The last thing you want is the remaining employees to be unproductive because they’re job hunting.
   
4. Strengthen the Core – this is a great time to refocus your core business, customers, partners, markets and employees. In the good times companies have a tendency to drift away from their core…what built the business. If you’re a software company focus on building, supporting and refreshing your offerings…put the transition to a “services” company on hold until the recovery. Take a long hard look at your customers, partners and markets…are these the folks you want or will need in the future? If the business is hard to get or maintain it is expensive…think about what you can really afford. I heard through the grapevine that a profession services firm recently pulled out of 15 markets, including Asia. Their comment on doing it…”those markets will be there in the future we can reenter when its right.” This can help guide your decision with bullet #1 - Cut Fast and Deep.
   
5. Take a “Pit Stop” – many companies have been operating with inefficiencies in their go to market engine for years. The demand for meeting quarterly performance has kept many CEO’s from taking the car off the track for a “Pit Stop.” Now is the time. It’s a good chance your stock is down and not going anywhere soon regardless of your performance so take advantage of this situations to do some work on the engine, flush the systems, and get the car ready for the next 500 miles. Actively look for opportunities to gain greater efficiencies even if it means setting aside funds as a write off. Take the hit now, MasterCard recently announced their 3rd quarter earnings and they took a $500M after tax charge to settle a lawsuit with Discover card. That lawsuit had been out there for years and was settled a while ago but they took the hit this quarter…there’s a reason. We’ve spoken to a number of CEO’s recently who said that they regret not doing this in the past.
   
6. Adjust Your Message…Carefully – yes, you need to realign your value proposition to today’s economic reality but be careful. The temptation is to jump to a “cost” message but not all of your customers maybe feeling the pain…yet. If you abruptly switch a message from “growth”, “revenue performance,” etc. to one of “cost savings, “ be forewarned that it can damage your brand and/or confuse your customers. Know how your customers perceive your value and how it varies by segment or type of customer (and don’t guess, do your homework) and finds ways to enhance it with key messages that play today around value for the money.
   
7. Focus on Strengthening and Deepening Relationships - the good thing about a downturn (if there is one) is that it’s a great time to strengthen and expand your relationship with your best customers…and it’s worth the investment. A “spending freeze” takes the pressure off your interactions with customers. It can go from you trying to sell something to them, to you talking to them about their situation and needs. Customers may no longer be in the “buy” mode but they very well may still be in the “learn” and “shop” phase of the buying cycle so take advantage of that to introduce them to new information, services, and employees (senior executives in particular). This “value added” period can go a long way in growing your business when they start buying again.
   
8. You May Have to Give Some to Get Some – your customers may need to do business with you differently during this down turn. You don’t have to go to the extent of a Microsoft or IBM in creating special demand generation and financing programs to help partners and/or customers but think about their situation and how you might be able to help. Chances are the gesture will speak volumes and relating to the bullet above goes a long way in deepening the relationship and increasing customer loyalty.
9. Lastly, Prepare for the Upturn NOW – bad times, just like good times don’t last so start preparing your recovering plan now. Many companies use times like these to create an aggressive plan to gain/buy/steal share from competitors as soon as they sense the start of a recovery. Don’t become financial myopic and only focus on cost reduction. Something that we have learned from the past is that companies have a tendency to turn over the keys to the CFO in times like these and for good reason…they drive out cost, watch cash flow, etc. Unfortunately, they can hang onto the keys a little too long. As Beth Comstock, the CMO of GE told me (in her first stint on the job) during the recovery after the “burst”; ”...finance did its job of controlling cost but it impacted growth… the CEO is looking at my role as being the Chief Growth Officer…” .

Draft a plan and have your organizaiton commit to coming out of the downtown stronger, leaner and more aggressive than you went in to it. It will help focus the organization during this challenging time. To do that you'll need to learn from the past (see above) and be ready to invest. Now get started!

Direct Marketing Done Right

Click on the image to the left. Now this is how you market in a down economy. Over the past year I’ve focused on the virtues of Web 2.0, but it’s time to give a “shout out” to ol’ school direct marketing, especially when it’s done this well. It’s from Boden, a children’s clothing catalog company.

This letter is a virtual clinic on how to do DM right.

Things to love about this piece:

• Quick Service Number – immediately connected to my account info…none of this nonsense of explaining who I am, they know me as a customer…and that I’ve bought, a lot apparently, in the past. Most likely, it also serves as a tracking code as well. Bonus incentive: if I use it when I call I get free shipping, which I probably would have received anyway but they’ve given me an incentive to give them the tracking code.


• The Opening Sentence/Paragraph – it’s about me (actually, my wife) right out the gate. You’ve maybe got 2-3 seconds to connect with the reader nowadays, and you can’t start out with what you want or who you are because the reader doesn’t care. I also know what you thinking, how is it that your wife shared a letter like this given the comments that we bought “armfuls” last year and we were “one of their best customers.” Two reasons; 1) she’s an ex-agency person and appreciates a good piece like this, and 2) the letter mentions that we’re not buying as much this year…there’s the positive spin.


• Use of Levity/Comedy – this is extremely hard to do well and it is a bit edgy but I love it…makes you want to read more. The use of British humor (this is a UK based company) also adds to it. Folks have been saying for a while that the best creative has been coming out of London for years. Got to admit I’m seeing more and more evidence of that…but I also have to giving credit to the Geico Gecko (the Martin Agency) for paving the way here as well.


• Personalization – from the owner/founder Johannie Boden herself. Have no idea what her first name is or even if she’s even a real person… could be Tommy Bahamas’ sister for all I know, but I like the personalization. Hands down, DM from an individual to an individual always has the best response rates. Writing good copy that sounds likes it’s coming from a real person and not just a signature, that’s another story…maybe even another post.


• Customer Buying Behavior – they’re obvious tracking and have noticed a change in my wife’s habits; this is critical in a down market. Watch your best customers and their transactional behavior…probably should have started last year but it’s never too late.


• The Solution/Offer – Dolla, Dolla, Bill Yo…Cash Money$$$. Look up DM best practices and “the experts” will tell you that you should test multiple offers… 50% off, half off, or buy one get one free, and you should, but in today’s economy real money is a real winner. Simple, real and it can be combined with other promotions. Ol’ whatshername came up with a custom solutions just for us. She determined that the most likely reason we haven’t been buying lately is price –and she’s dead on…their cloths are on the high end. Back to school this year meant going to Macy’s with a hand-full of 10-20% off coupons.


• Limited Time Offer – yep, got to have it. And the time period is getting shorter and shorter. Seeing an interesting trend with the use of limited time offers. This use to be the go to “hook” for PC manufactures and mass merchandisers now I’m seeing it in all kinds of retail situations, and most interesting is it's use in fund raising. Mobile opens up a whole new dimension look for that next year on Google’s G1 phone. Instant offers feed by GPS that expire very quickly…use it now or lose it.


• Creative – notice that the offer gets a third of the page, and is very colorful with offsetting large and small images. The $20 offer is supersized and next to information on where to redeem it. Your eyes are drawn to it immediately and it’s the motivator that determines whether you’ll invest the time to read the text above it. It is also perforated and complete, so if I only read the offer and tossed the top, I would have everything I need to understand and use it. Notice how they personalized the offer…”…I run out soon.” Love it!

At the end of the day the ultimate measure of good DM is performance/results. In my house, it killed but then again we were an easy target…they knew us all too well.

US Airlines…Nickle and Dime Nosedive

Last week I took a flight to Orlando. Since I fly a good bit and I have reached a preferred status (whatever that means) on USAir, I got bumped up to first class. Big deal! No meal, a 30-year-old plane, a terminal and jet port that looked out of a third-world country. I know I sound like a whiner, but hang on, I have a point.

The industry that led the way on defining the customer experience in the glory days of “jetting” and customer loyalty with reward cards has lost its way. In particular, the U.S. carriers are lost in a forest of bankruptcy. As the rest of the world moves towards enhancing customer experiences and building customer advocacy, the airline industry seems to be doing everything it can to move in the opposite direction.

For example, the airline I mentioned above now charges $15 dollars for the first (yes, the first) bag checked. As a result of that brilliant money making idea, we now have flights delayed because everyone is trying to jam their bag into an overhead. Or how about charging for water, tea or coffee? Brilliant. Yes, on this same airline coffee and sodas will now cost you two dollars. On the flight down the price of beer and wine was $6; two days later on the return it was $7. It’s probably close to $10 by now.

Maybe you’re saying that they have to do that because of fuel cost, labor cost, etc. Well then, how is it that Virgin Airlines, in particular Virgin Atlantic in the States is able to make money in this industry despite its new planes, expansion of routes, etc. Because Sir Richard knows it’s about the Customer Experience!

Southwest Airlines has turned this into a whole campaign. The strong, well managed will make the weak pay for this approach. The bottom line is that “nickel and diming” your passengers/customers isn’t going to make the airline profitable again. In fact, it will probably do the opposite.

What will help restore profitability to the airlines? Well I’ve a got a few ideas: how about we start with Innovation…and then good management practices and …and then decent labor contracts, etc.! BusinessWeek ran an piece on the performance of innovative companies in its September 22, 2008 edition (see image to the left) . Companies known for delivering innovative customer experiences have an average stock return of 2.5% and revenue growth of 5.1% from 2004-07. Those with innovative business models were more impressive with a 16.6% return and 7.2% growth.

So I say to the airlines, to get flying again…innovate yourself out of this nosedive…and give me back my free coffee!

Digital Dissonance

The Digital Disconnect in Financial Services

I’ve just returned from the Financial Services Marketing Symposium in Orlando where I saw and heard some really interesting things.

First, I saw an affinity card program from a company called ServerSideGroup that can be issued for small groups, like a church congregation or a local school. Second, I heard the CMO of CapOne, Bill McDonald declare that “Web 2.0 is about consumers selling to consumers” which I think is great way to describe it. So if you look at these two things together you see a potential revolution in the way credit cards are marketed. In one scenario, you have the marketing scientist at CapOne trying figure out the “killer” value prop that will get you to open the third DM piece they sent you that week and fill out that credit application; all based on sophisticated models that try to figure your “profile” based on various data sources that really don’t know you from Eve.

In the other scenario you have Betty, who teaches your children at Sunday school, calling you about the new St. Joe credit card that will become a valuable fundraiser tool for your church…you don’t need divine powers to figure out which value prop will win. Look around your industry and you’ll probably find a similar analogy.

So you would expect FS companies to be all over Web 2.0 right? Well you would expect that, but you’d be wrong according to our research. MarketBridge just completed an industry research project on the use of Digital Marketing in the Financial Services industry. The research was conducted in partnership with SourceMedia the publisher of American Banker , The Bond Buyer and other FS focused publications. The study drew nearly 250 respondents across a variety of titles and functions within financial services. Nearly 40% had executive-level titles and close to 20% had marketing budgets of $100 million or more.

Here’s what we found out;

• Marketing is in the Driver’s Seat… More than 60% of respondents said they had a “reasonable” to “very good” understanding of digital marketing. When asked how organized their companies were to plan and implement digital marketing strategies, more than half said they were “adequately” to “well organized.” Over 90% of the respondents said Marketing was the key influence in driving the Digital Strategy. Nearly two-thirds of the group said that a Centralized Marketing organization owned the strategy, and nearly that many said Marketing owned execution.


• But it’s using Web 1.0 tools and platforms… Half of the respondents said they spend 0-10% of their budget on digital. The majority of respondents (65%) are spending the most on what they are familiar with, mainly their own Web sites. Relatively few (15%) are spending toward “Web 2.0” vehicles like blogs, social networks, video, etc. The situation in the Insurance industry is even worse, with Insurance companies on average only spending 2% of their advertising budgets on the Internet.


• Why? It’s not the reg's or the legal department, only 35% cited regulatory issues as a top concern. The majority of respondents said their top concerns were lack of experience with new digital marketing platforms, and the inability to prove ROI.


• The Root Cause… They’re not investing enough time, money and resources to do the necessary piloting to learn how to use the platform and tools, develop processes or do reporting . It’s a chicken and egg thing. Spend on those things that have a proven result even though they are, for the most part, only measurable at the tactical level and not at the campaign or program level. Show short term results vs long term success.


• The Fix... Long term programs (…and I’m talking a year or more) aimed at key market segments with clear value props. By taking a long term approach marketers will be able to experiment with Web 2.0 tools because they work best over time, not in a short term campaign. Think I’m making that up? We’re working with a leading Insurance company now on a 3 year long program. It involves a dozen or so partners, aimed at Boomers for a product that they won’t be able to sell to some folks in the segment for another 2 years.


• Why? In the current environment, FS institutions have to be focused on creating deeper more meaniful relationships with customers. They need to be focused on creating customer “advocates.” Firms that take a “wait and see” approach to going Digital will see their customers disappear and their traditional marketing tactics become less and less effective as they sit on the sideline waiting for the perfect ROI. Creating Customer Advocates for the brand, products and services is the goal because it's all about…or soon to be all about Consumers selling Consumers.

Got to go, Betty’s on the line…

Fallout of Financial Services Mess

Wow, what a couple of weeks it's been for the Financial Services industry. Investment Banks have disappeared, the government owns the world's largest insurance company and Congress is debating whether taxpayers should foot the bill to get us out of the largest financial debacle since the great depression.

So what might all this mean to sales and marketing folks in the industry? Our Financial Services practice and I have spent the last week and a half looking at the changes and have come up with a list of potential areas that may be impacted...negatively or positively. I've even gotten feedback from a colleague in Europe on what this might mean internationally. Keep in mind that the crisis is shifting everyday, so this is like trying to look over the horizon while standing in quick sand.

Here we go:

1. Greater regulation across the industry will reduce the number of 'innovative" products making it more challenging to differentiate by product. As a result, companies will need to increase the importance on competing through superior distribution, and having an unique segment aligned value proposition.
2. A greater need for solution sellers vs product pushers – In this environment, sales channels with reps that can sell value will be essential. " Additionally, the need to sell new services “bundles” necessitates more sophisticated reps. Product Pushers" who sell on price will continue to erode already pressured margins. We may also see someone like Progressive use their direct model to commoditize more products/services perhaps some low end products in the Commercial Insurance market. If you are an agency or broker, move up the value chain to selling sophisticated service solutions. Wholesalers and/or Aggegrators may help facilitate that shift. Relationships are still key but "best price" will continue to be the key consideration driver.
3. A significant need to lower the cost to sell – Increased regulation most likely will add cost and/or impact margin. Companies will have to find a way to do more with less. They may also look to new lower cost channels to distribute products. Relationships + low cost, self service channels = success. Because solution sellers are hard to find and more expensive, there will be a focus on finding ways to create “leverage” for channels/reps.
4. Customers will have greater leverage – Good customers will be in the driver’s seat. They will be more cautious, demand greater value and lengthen sales cycles. Profitable customers will be highly valued and targeted, see bullets 6,7, and 8.
5. New risk models or new underwriters – There may be a need to rethink how companies evaluate, take on, sell and/or manage risk. This may also be impacted by new regulations.
6. Improved segmentation & predictive modeling – Cost pressure and increased competition will force the need to improve targeting, increase yield of programs and campaigns, and get the most out of existing customers (increasing cross sell and upsell opportunities).
7. Increase focus on retention and loyalty – Investment banks, now bank holding companies or a part of a Retail bank will now have to fund their activities on customer deposits rather than "funny money". Look for them to come after your best customers.
8. New competitors, "Super Banks' & consolidation – Look for the pace of consolidation to pick up with the recent changes. The banking landscape has changed with Goldman Sachs and Morgan Stanley becoming bank holding companies. This sets them up to either acquire banks themselves and/or merge or being acquired. Existing players, such as BofA and Barclays, are picking up the pieces that will help them expand services.

My colleague, Mathew Stewart in our London Office chimes in;

1. Safety in geographical diversification--Major international banks will seek a more geographically diversified portfolio. Being active in U.S. and Europe is not sufficiently diversified to protect against the crisis, as UBS discovered. Those who were strong in China, India, and Brazil have faired better. For example, HSBC’s huge U.S. write-offs were counterbalanced by spectacular gains in their Asian operations, so their shares have stayed stable. Santander, a European bank, has faired well due to its involvement in Brazil, and is now buying up businesses from cash-strapped competitors, e.g Royal Bank of Scotland. Some of the bigger banks will seek to copy HSBC and Santander – most do not have sufficient reach, and are more likely to merge with a domestic competitor.
2. Domestic mergers lead to channel rationalization headaches. More domestic banking mergers mean more headaches around how to combine two different sets of distribution channels. These are tough decisions. Huge investment has been sunk into branch networks, a regulated sales forces, broker networks and brands. Exit costs are very high. Banks need a rational basis on which to base their channel rationalization decisions.
3. You’ve killed your partner channel. What do you do now? Over the past 10 years many of the reputable agents and intermediaries have come to rely more and more on cheap credit deals for their income. When the banks stopped lending they were the first to go bust – not just the charlatans and quacks, but some good people who will not now come back to the market in a hurry. When the bank is ready to expand again, how do they rebuild the partner channel?
4. Look again at Buy vs. Build. Mergers also present dilemmas for product portfolio managers. There are make or buy decisions for different product categories-- e.g. should a bank sell its own general insurance? Difficult to know what will happen here. Will the drive for more transparency in investment products actually extend into all FS products?

The Customer Experience...and why your company can't deliver it

Let the bloggin resume, thought that you might enjoy hearing this story.

What your customers (and your sales force) are trying to tell you about the customer experience

Pick up any book on Customer Service and the first tip on how to improve or provide a good customer service experience is to “listen to the customer…” This advice is so incredibly obvious and intuitive that you shouldn’t need a book to tell you that! Yet putting it into practice is incredibly hard to deliver. Why? customers want...at least one company's customers

We recently completed a project for a Transportation Company on improving its customer service operation. Our task was to find out what their customer wanted in a good customer service experience. We surveyed over 500 customers, conducted multiple focus groups and held one-on-one interviews. And after all that data collection, what did the customers say they wanted?

They wanted the company to…get ready for this…”know them.” Know them and their business, and have an understanding of their business so that you can anticipate their needs and be a valuable partner. Doesn’t sound too difficult to deliver, right?

In this company’s case, it is difficult. They have no customer service standards and no rules to govern interactions. Oh, they also lack a centralized customer database or incentives to capture and archive customer conversation and data. To make matters worse they deliver customer service in a decentralize environment with over 100 centers, all operating independently.

Given that scenario you would think that this company could implement some simple fixes that would have a big impact—and there are some simple fixes. But what is interesting is why the company is in this state in the first place. When you get to the core issue you begin to understand the challenge.

At its core, this is an operations driven company, and customers can sometimes get in the way of efficiency. Their culture and core operating model is to move a box as quickly as possible from point A to B without damaging it. Customers who have special needs and/or require assistance slow the process down. In this company’s environment, delivering good customer service can sometimes be too costly and/or too inconvenient. The bottom line is that the process is more important than the customer.

So what does this tell us? Well, it may begin to explain why your company can’t deliver on customer expectations as well.

This is the introduction to a white paper on improving the customer experience that will be released soon. To receive a copy of the full story please click here.

Thank You Howard

This goes out to Howard Chen from Ritek USA who's inspired me to get back on the horse and start posting again. Howard sent me an email looking for some thoughts on entering new markets. I thought it was appropriate to share that question and my response as my first post in nearly a year.

Howard's questions was...

I am trying ot market our products into a few new markets. What will be the best way to do it?

My response was...

Entering into new markets is very difficult unless you have existing customers who have other divisions that are currently serve those industries. So I’d suggest that you first start looking at your existing customers that fit that profile…if, you haven’t already. Get introductions into those industry verticals from your existing customers.

Second, focus on those industries that have similar needs to the industries you are currently serving…we call it “adjacencies”. Remember “new” takes a long time and is costly. Try to find ways to eliminate “newness” …e.g. new customers, new needs, new applications, etc.

Thanks Howard and look for a new post next week. I'm back!

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