A recent McKinsey article makes the following statement: “At the end of the day, customers no longer separate marketing from the product - it is the product.  They don’t separate marketing from their in-store or online experience - it is the experience.  In the era of engagement, marketing is the company.”  Right on!

McKinsey makes the case for the “job” of marketing to be pervasive throughout the entire company.  That the old “push” marketing model just doesn’t cut it anymore with customers, that they need to be engaged through a comprehensive and well-crafted range of experiences from the first contact on.  It’s not a monologue with the customer anymore, it’s a dialog.

And the typical, functional silos that we typically create in our organizations where we “own” various aspects (and many time arbitrary) aspects of the customer experience, makes it very problematic to create the kind of seamless and engaging experiences that customers are increasingly demanding now.

The software industry is clearly no exception to all of this.  The traditional “packaged”, buy-install-use-repeat model tends to lead software companies to a “product-centric” mentality that tends to operate as though the software is the only thing that delivers the experience and that customer engagement is all about an engaging software user experience.  Other touch points like phone support, online customer portals, out-bound sales often appear to the customer as disconnected, disjointed and just plain disorganized.  Hardly an “engaging experience” for the customer.

And, the “cloud” delivery model takes this notion of software-is-the-experience to the extreme.  For many cloud solutions the only way customers can engage is through the company’s online website.  Trying to boil the entire customer engagement to a website experience (think Skype) can, in itself, be a very limiting form of engagement for a customer.  

There’s no question in my mind that software industry is moving inexorably to the cloud.  As a result we need to consider new ways of engaging customers in comprehensive and compelling experiences.  We certainly have examples of this - the top social networking sites are good examples.  And from these I see is engagement that isn’t necessarily about the software in and of itself, it’s about what the software enables the customer to do.  That’s where the “magic” happens.  The software is a key component for sure, but it’s more of a transparent provider of the compelling experience (think Angry Birds.)

My point is not that on-premise software is bad and cloud is good in delivering engaging customer experiences, my point is that both have their unique challenges in delivering these experiences AND that we need as an industry to stop thinking we just need to deliver a great piece of software.  Software is NOT the end, it’s the means.  Then end, is the customer’s engaging and value-rich experiences from purchase through use.  

And this begs the question of how we deliver such experiences to our customers?  The McKinsey article clearly points out the answer: “companies must elevate the role of customer insights.”  That’s it, we must become much better at gaining customer insights that inform us on what experiences we need to deliver and where the cloud delivered approach can have a distinct advantage.  More on this in my next week’s blog. 

And, if you’d like to read the McKinsey article I’ve referred to in this blog, let me know and I’ll be happy to send you the link.

I was at the Portland Business Journal’s first (annual?) Biz Growth Expo & Conference yesterday, at the Oregon Convention Center.  My main interest in attending was to hear from a company that is arguably the world’s best customer experience creator worldwide - Disney.  Even watching the opening video that beautifully and dramatically presented the many businesses that Disney owns, brought back many powerful memories of my several visits to Disney’s theme parks that many of us experienced at from an early age.

No surprise for Jack Santiago, a Disney “facilitator” who led the first morning session, as he emphasized that part of the Disney “magic” is founded on uniting employees and customers around a common purpose: “We create happiness by providing the finest entertainment for people of all ages, everywhere.”  And, while he was quick to state that Disney isn’t perfect (who is?) they strive for perfection and settle for excellence!  

Throughout Jack’s presentation, he emphasized knowing their customer - which by the way is their guest.  To do this, Disney has worked hard to develop an open and collaborative culture where their employees, who are “cast members” can freely communicate with their managers, who are “leaders”, on how to improve every possible detail of the guest’s experience.  This process they call “guestology” which includes demographics (knowing) as well as psychographics (understanding).

For example, Disney knows that the average family unit visiting their parks is made up of four individuals.  That knowledge shapes many aspects of the park’s infrastructure, processes and approach.  Rides, as a result, have seats for four because they know that the family group enjoys the rides better when they’re together.  Small detail, better experience.

Guest understanding is exemplified by the way they structure the theme park entrance.  They understand from observation that 82% of the guest’s turn to the right when they enter the park and, of course, they also exit on the right as well.  This helps determine the best shops and facilities to put on each side of the street.  Cameras, sunscreen, sundries on the right while entering and guest services, restrooms and souvenirs (plastic memory enforcement) on the way out.  Details...

Disney’s approach to operationalizing and personalizing the guest experience is based upon guestology along with delivery systems, quality standards and integration - the four pillars of their experience strategy.  Jack emphasized the need for every organization to establish their quality or service standards.  For Disney it’s Courtesy, Efficiency, Safety and Show.  However, the order of these is critical because not every situation can accommodate all four.  Therefore, their operating priority is Safety, Courtesy, Show & Efficiency.  

Which brings me to some more Disney “magic” - this involves a Disney janitor; you know the ones that seem to almost invisibly keep the theme parks incredibly clean.  Well, one day one of these janitors was approached by a family (happened in this case to be five) who were looking for directions to Tomorrowland.  Instead of just pointing out (courteously of course) what direction to go, he took up as a baton and became the leader of this families personal parade all the way to their destination!  The picture Jack showed on the screen clearly said it all, you could clearly see the delight three little children had in exuberantly following their parade master.  Great experience, priceless memories.

This janitor clearly got the concept of a common purpose - his happiness was their happiness - the power of the “cast” in applying the quality principles and purpose.  Efficiency in keeping the park clean came AFTER safety, courtesy and show for the guests.  What common purpose unites your “cast” with your “guests”?  By the way, this kind of employee commitment doesn't come from an executive edict or a policy manual - it comes from the heart!

The way Disney combines their service standards with the delivery systems was the last area that was touched on in this session.  Essentially, Disney sees their delivery systems as three primary areas: Employee/cast, Setting & Process or Who, Where & How.

When you combine the service or quality standards with the delivery systems you end up with, in Disney’s case, a 4x3 matrix.  Creatively solving this for every square in every area of the customer’s experience (not just the obvious ones) takes an organization from average or less to “best in class”.  This is the fourth pillar of their strategy and it’s constantly being worked on to improve every detail.  Magic is hard work!

Disney is of course a for-profit corporation, with a fiscal responsibility to it’s shareholders.  Putting the guests and the cast first in delivering decades of superior customer experiences, to literally generations of people throughout the world makes good fiscal sense.  Seven out of ten visitors to Disney’s theme parks are returning guests.  

If you’re interested in more information on the “business of Disney” I recommend you visit the Disney Institute website: www.disneyinstitute.com.  Also, some books are available for further reading (links to Amazon): 
This all compels me to think about my business and also the software companies that I serve because both, like Disney, are service businesses.  What is our common purpose, what are our service standards and how do we integrate them into the relevant delivery systems?  

In short, how can we all do a better job in serving our respective customers by providing them a sustained, superior and memorable customer experience?  One thing for sure, it’s all in the details...

I, like all Netflix customers this week, received a short, not-so-sweet but to-the-point email the other day:

"We are separating unlimited DVDs by mail and unlimited streaming into two separate plans to better reflect the costs of each. Now our members have a choice: a streaming only plan, a DVD only plan, or both.Your current $9.99 a month membership for unlimited streaming and unlimited DVDs will be split into 2 distinct plans:   
              Plan 1: Unlimited Streaming (no DVDs) for $7.99 a month  
              Plan 2: Unlimited DVDs, 1 out at-a-time (no streaming) for $7.99 a month

Your price for getting both of these plans will be $15.98 a month ($7.99 + $7.99). You don't need to do anything to continue your memberships for both unlimited streaming and unlimited DVDs.
These prices will start for charges on or after September 1, 2011."

As any customer would, I looked for the added benefit from the price increase.  What they are now providing me is “choice”.  So, it would appear that the new "choice" that I now have is to either pay 60% more for the same service, or reduce my service substantially and “save” $2 per month.  Of course I always have the choice of canceling the service altogether.  

And it’s no surprise that there’s been a customer backlash growing from this, some appearing to opt for Choice #3:
  • “no need to give me until september, netflix -- I'm canceling immediately. just don't use it enough to justify $16/month.
  • “I'm with @zpower. Netflix's price hike was enough for me to cancel service today.”
  • “@netflix You've gotta be kidding me. How bout I choose option 3: cancel my subscription altogether? Yeah, that sounds good.”
So, let’s cut to the chase - this is a price increase, pure and simple, but not just a price increase, it's also a change in the customer experience since price is always a part of the overall customer experience we deliver.  While we all seem to get this at one level (usually as the consumer) we seem to miss it when we’re one the other side of the fence setting the prices - except when we use discounting to “get the deal”.

When we look at price as part of the complete experience, we have to realize that Netflix customers’ perception of the overall value is built, in part, by this price point.  Therefore, when Netflix increases their price, it changes the overall experience their customers have with their service.  And with today’s web services subscription model, switching costs can be pretty low.

If we change prices, we’re asking customers to accept a different value proposition (a price increase is always a negative experience for customers.) And if the increase isn’t offset by a corresponding experience improvement, as perceived by the customers of equal or greater value, we have just degraded the overall experience.  And have directly increased customer defection (demand curve).

Going back to Netflix, what was the communicated value improvement?  Choice.  True, I now have the choice to pick unlimited DVDs separately from live streaming, but is this  result in a net positive experience?  Clearly not, since the two together have formed a key part of the total experience, for the price offered.   Breaking them apart is no improvement to the customer experience - certainly nothing I was asking for!

How might this price change be perceived as an overall improvement or at least neutral?  There are many ways, here are just a few that I can think of off the top of my head (as a Netflix customer):
  • Provide better selection of streaming options - something that customer perceive as a negative experience (correct a negative experience)
  • Offer two concurrent DVD’s instead of just one (increase the amount of existing positive experiences)
  • Add a new source of content on one or both options (add a new positive experience)
  • Change the way the more current run movies are delivered by streaming them like Comcast’s On Demand viewing (reduce the customer requirements for receiving an experience)
Of course all of these options incur a higher cost and investment by Netflix, potentially.  But herein lies the heart of the issue: by simple raising prices and not providing an offsetting positive experience, the customer will conclude that the company is simply “lining their pockets” at their expense.  The same experience for a higher price is just the same as a lesser experience for the same price - both are a degraded customer experience!

Which brings me to one other key issue - Netflix is just one alternative for customers.  BitTorrent, Redbox and others are all readily available alternatives.  By changing prices and therefore changing the overall experience negatively, customers will reevaluate their available options in light of this new experience set being provided.  So, anytime we change our customer’s experiences we change our value advantage - possibly to the point of eliminating it.

The majority of the software industry’s revenues come from recurring revenue streams, just like Netflix’s.  One thing that I have seen software vendors do all too easily is to increase support & maintenance plan subscriptions to try to offset lower software license sales.  Doing so without corresponding customer value improvements, is a recipe for disaster.  One that Netflix may be quickly experiencing.  How about your pricing approach?  Do you treat it as an integral part of the overall experience or just one of the “4 P’s” that is just an isolated variable?

In last weeks blog I looked at what makes good & bad strategy from a resource-based viewpoint drawing from Richard Rumelt’s recent work on this topic.  I ended by sharing some of my thoughts on how we could adapt Rumelt’s “kernel of a good strategy” that starts with the “outside-in” view of the customer, instead of the more common “inside-out” view focused on the company’s resources and capabilities.

By way of reminder (you can read this from last week’s blog below), Rumelt lists three essentials of a good strategy: diagnosis, guiding policy, coherent actions.  I believe these are a good framework for building a strategy but can be misapplied if we start with our own resources and move out to the customer.  What do I mean by this?

Well, in the resource-driven approach we focus our diagnosis on internal deficiencies that need to be addressed - improving customer service, faster time-to-market, addressing a competitive disadvantage.  It’s all about us and what we need to do.  This is where we get off-track, I believe.

So, essentially, it’s how we’re setting up the problem statement, or what Rumelt refers to as the “challenge to overcome”.  I believe, a market/customer-driven strategy will be setting up the problem by asking the question: “What is the customer’s problem we need to solve?”  This is a fundamentally different question and very different challenge to overcome.

Are we going to build our strategy around solving OUR perceived problems or our customers?   I suspect a lot of companies think they are doing that, but how do they go about coming up with their diagnosis?  The primary subject, if we’re really honest, is all to often focused on our selves - benchmarking our capabilities, comparing our products to the competitors, looking at our own financial and operational metrics (often obsessively) - very little is about the customer and market.  

What if we took this energy and applied it to really understanding what the customer’s needs and expectations were?  What they needed to do to serve their customers better?  What improved their operations or improved their bottom line?  Do we even know?  What are their marketplace dynamics and issues?  Have we asked them?  Do we carefully study their world?  

By making our customer’s problem our problems, we set up our strategy for success because we’re now really focused on true value-creation; first for our customers and, in turn, for us.  At VALUE:driven we call this “diagnosis” the Value Statement.  A succinct statement of what we need to do to solve our customers, high value challenges.  

Then we come to the “guiding policy”.  Which is essentially how we’re going to go about delivering this to the customer within a specific timeframe.   Yes, it may include developing or improving some internal capabilities, but only to the end of providing what the customer needs.  Great efficiencies can be discovered here because, all to often, we find that we’re doing things that the customers just don’t need us to be doing!  Scrap them - or at least, reduce them by making them as cost efficient as possible.  How many times have we found ourselves looking for cost reductions in all the wrong places?  Reducing critical capabilities that are the most valuable to the customer?  It’s easy to take this approach when you’re inside-out focused and building your strategy with the wrong focus, solving the wrong problem.  At VALUE:driven, we call this guiding policy the Value Strategy - how we’re going to deliver the required customer experiences that solve their identified problems.

And finally, “coherent actions”.  This is execution, pure and simple.  Well maybe not so simple... I don’t want to minimize the difficulty here, however, if the first two are done properly this isn’t usually so troublesome.  But, I want to call attention to two aspects of this:

Coherency - is the action we’re taking fit the approach that we decided in the policy.  Many companies don’t adequately articulate the strategy in a way that creates focused engagement and action by the organization and thus fail to deliver.  

Coordination - all aspects of the organization are working together to deliver on the strategy.  Typically we focus on communication and collaboration to address this.  And, yet, many times we still see a fragmented, frustrated and inconsistent effort across the organizational “silos”.  

I maintain that having a customer-driven strategy, if I may call it that, helps in the execution, tremendously.  How?  By enabling the organization to have a clear and compelling view of the customer’s problems to solve.  Too often, we tell our organizations that we’re customer-driven, but we don’t act like it.  This creates incredible dissonance within the organization and can tend to build a cynical view of the next “grand strategy”.  People don’t fully engage and embrace the strategy and poor execution results.

When our organization know’s what it needs to do to clearly deliver value to our customers, they engage energetically.  And, because we’ve clearly identified what we need to do for our customers, it’s much easier for the organization to make the tough choices to deliver in a coordinated way.  Some organizations, even find over time that they’re organizational structure needs to change to more consistently and effectively deliver for the customers.  Now that’s a radical concept!  I call that a "Value Culture."

So, where is your organization today?  Is the customer truly driving your strategy or are you?  What do you need to do to make the shift?  What can you do to move in this direction?


    John Geffel

    Value is a much abused, misunderstood and misused word, everyone thinks they provide it but so few show real evidence that they do!

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