Management

"We took our eye off the customer."

"We took our eye off the customer."

That is a quote from Mike Duke, the chief executive of Wal-Mart's international division attempting to explain why Wal-Mart has had it's hat handed to it by Tesco the leading retailer in England. How have they done it? In a nutshell by understanding their customer and giving them what they want when they want it.

According to a recent article in the Wall Street Journal, Tesco has twelve million members in its Clubcard program which gives cardholders discounts in return for their name, address and other personal information. Tesco then actively mines the data they collect to make operational and strategic decisions. It seems to be working. Tesco has 31% of the grocery market in England, nearly double that of Wal-Mart and next year Tesco plans to invade Wal-Mart's home turf by opening stores in California.

When Wal-Mart entered the British market, Tesco turned to its databases and searched out customers that always buy the cheapest item. They identified 300 items that these price-sensitive customers buy most often and lowered the price on those items. The result: customers didn't defect to Wal-Mart.

Every three months, Tesco uses its data to send a packet of coupons to its customers. The packets typically contain three coupons for products the customer buys regularly and three for goods that the customer might like, or that Tesco wants them to try. Fifteen to 20% of all Tesco coupons are redeemed, the typical industry average is just 1 to 2%.

What can a small business that can't afford to put a big loyalty card program like Tesco's into place learn from Tesco? Here are a few things:

  1. Information about your customers is valuable and is worth giving a discount to get. Some of our customers at PromoterZ have wondered if they should give a discount coupon to a customer every time they give feedback. Our position is always the same: yes! The information is invaluable. Where else are you going to get it? Even if every customer gave feedback (which they never will) and got a discount, you would still be in a better position to compete because you would understand your customers better.
  2. Use the information you gather to stay in touch in appropriate ways. Tesco sends out coupons that it knows its customers want to receive. In your efforts to stay in touch with your customers are you sending what your customers want to receive or what you want to send? How can you know what they want to receive? Go back to number 1 and ask them. One of our PromoterZ customers, Sport Clips, uses the system to send first time customers a coupon just in time for the next haircut.
  3. Focusing on understanding customers and meeting their needs is powerful--so powerful it can even beat Wal-Mart!
Unhappy customers tell on average 22 other people. If you ticket price is $50 that is $1100 in revenue. How would you like to know before they tell 22 others? Learn more

I'm Sorry, This Movie is Late. That will be $400 Million Please!

I'm Sorry, This Movie is Late. That will be $400 Million Please!

In the old movie rental days I always knew my family was paying a lot in late fees. Apparently, we weren't alone. Netflix, highlighted in Businessweek as number 29 on their Hot Growth list, changed all of that. Here's another great story about an innovative company not only competing with the big boys, but completely changing the rules.

How well is it working? Last year Netflix's profits doubled to $41 million while Blockbuster and Movie Gallery lost a combined $1 Billion! Now get this, $400 million of that billion was due to late fees that Blockbuster had to give up in order to compete with Netflix. Netflix is getting close to 5 million customers and is expected to do nearly a billion in revenue this year. Not bad for a company that many thought would never succeed because we all want "instant gratification" when we rent movies. Apparently, some of us are willing to plan ahead a little.

Perhaps even more important than dropping late fees, Netflix competes by understanding its customers and their tastes and building customer loyalty. Seventy percent of Blockbuster's rentals are new releases. For Netflix the number is only 30 percent. Instead of pushing whatever Hollywood's latest offering is, Netflix actively looks for films that it's customers want (what a concept). The average user on Netflix rates over 200 films (talk about customer feedback). Combine that with rental history and Netflix can predict pretty well what will rent and what won't. This information allows it to actively pursue films from independents that others won't take a chance on.

Of course the future of movie rental is sure to change. While there is plenty of debate on the timing, it is almost certain that web distribution of movies will grow. Netflix plans to be there and will bring along its 5 million loyal customers...

More happy customers. More repeat sales. More referrals. Learn more

5 Steps to a Sales-Doubling Buzz Force!

5 Steps to a Sales-Doubling Buzz Force!

Interested in doubling your sales? That is exactly what Proctor & Gamble did with their Dawn Direct Foam dish detergent. How did they do it? With a word-of-mouth marketing program called Vocalpoint. According to a recent article in BusinessWeek, this is how it works:

Procter and Gamble looks for customers that match their target criteria, in this case moms and particularly those with large social networks. They find most of them by advertising online and through referrals. Participants are asked to talk to their friends about new products. In return, P&G promises a stream of new product samples, "a voice that is going to be heard," and specific messages to share. So far 600,000 moms are participating.

According to Steve Knox, the CEO of Vocalpoint, the most difficult challenge with word-of-mouth marketing is making it predictable. His solution: find a strong reason why a person would want to share product information with a friend. The article goes on to say--and this is very important--that the message given to the participants is always different from the one P&G uses in traditional media.

For example on the Dawn campaign, traditional ads stressed the grease-cutting power, But the message sent to the Vocalpoint mom's focused on how fun the foam was for kids to use--so fun they would be asking to help wash the dishes. They also received a sponge shaped like a foot and a dozen $1.50 coupons. The result: sales in the three test markets were double those in markets where Vocalpoint was not used.

Sound expensive and difficult to manage? I don't think it has to be. Here are five simple steps to get your Buzz Force going and your sales increasing:

  1. Make it worth their while. Proctor and Gamble offers two things: product samples/discounts and a sense of empowerment. Both make their participants feel like a VIP or an "insider." That is your goal. Price the coupons such that you will be happy to see your "buzz force" using them and remember the pay-off is not just your participant coming back in with the coupon but the friends they are talking to and the feedback they are giving you.
  2. Invite your customers. The need to invite is obvious, the method can vary. Proctor & Gamble places ads to attract those interested. That can be expensive. Why not just invite your customers as you complete your transaction with them? There are several ways to do it. You can start by asking for feedback and then follow that up with an invitation to stay in touch. Another option is to invite them to join a birthday or some other kind of club and then develop the relationship from there. Finally, is the direct approach. "Interested in joining our fan club? You get discounts and sneak previews you can pass along to your friends."
  3. Give them a message worth telling. Hopefully your business is so remarkable that your customers will be anxious to tell their friends about you, but don't leave it to chance. Remember Proctor and Gamble always gives their buzz agents a specific message that is easy to share with friends. Put yourselves in your customers' shoes--what would be an easy way for them to tell their friends about you? Maybe it is "privileged" information: "Did you hear Subway is coming out with a new sandwich?" Maybe it is a great deal. "Hey, next time you need a hair cut let me know, Sport Clips gives me great coupons." Or maybe it is something just plain remarkable, "I got two movie tickets today from my insurance guy!"
  4. Give them another message worth telling. This shouldn't be a one time campaign. Stay in touch regularly. Those who have "opted-in" want to hear from you. The more ideas you give them to talk to their friends, the more likely one will work for them and you'll start seeing their friends.
  5. Listen and Learn. Perhaps this one should have been first rather than last, because it is very important. Those who join your buzz force can become your best source of market intelligence. They know and like your product, they know how people react to your product, and they are willing to put some effort into your product. Ask them what they think and listen carefully. Look to their feedback for message ideas and ways to improve your offering. How do you think the Proctor and Gamble folks figured out kids like the foam? It didn't happen in a board room.

Still sound like a lot of work? There are tools that can be used to greatly streamline the time and effort required to manage a word-of-mouth marketing program (Caution: shameless plug approaching). PromoterZ is one such tool. In simple terms, it gives users a quick and inexpensive way to invite participants, gather feedback, send messages (including online coupons), and even includes an easy online way for the buzz force to pass the word to their friends. It handles the logistics so that you can focus on the message. Check it out at www.promoterz.com.

Promoterz is the hands-free, word-of-mouth marketing service that takes care of the details so you can focus on business. Learn more

Innovation 101

Innovation 101

I've been doing some house repairs lately and faced one particular challenge that I think illustrates how the innovation process works, see what you think.

The Problem: Figure out a way to reduce the dust storms generated when sanding drywall "mud." This problem is especially frustrating when the mud guy (that would be me) lacks any recognizable skill, resulting in a process that must be repeated several times before arriving at an acceptable level of quality.

Constraints: This is strictly a do-it-yourself, teach-your-sons-how-to-work, project. Hiring professionals is not an option.

Any ideas? Here is what we came up with.

Idea #1: Contain the dust. Plastic sheeting is pretty cheap and we reasoned we could use it for a ground cover on future camping trips, so we bought plastic and hung it from the ceiling around the area we were preparing to sand. Remember the movie ET after the government guys moved into the house? It looked something like that.

Results: A whole lot of dust trapped in a very small space. Because the space was limited but the dust generated was not, it very quickly became impossible to even see the surface to be worked on. This, of course, added to our quality problems. Also, despite the use of breathing masks, our lungs are probably still coated with white stuff.

Idea #2: Instead of using an electric sander which generates a lot of dust and tends to "launch" the dust into the air, return to the old fashioned way and do it by hand. In theory, at least, the dust would gently fall to the ground and not coat surrounding areas.

Results: Depending on how you look at it, this is either a "wimp out" solution or a "muscle building" exercise. Either way, time commitment went way up and son involvement tended to drop off. Also, it didn't really solve the problem. Dust still settled everywhere just not at the volume or rate that the electric sander generated.

Idea #3: This idea came in the shower while attempting to wash the white dust from my hair. I tell you that only because that is where the best ideas seem to come. Here is the thought: what if you could connect the output of the electric sander to the hose of a shop vac? The dust would be whisked away before it could float or settle on anything.

Results: With the concept of attaching the sander to the shop vac in mind, the next challenge became figuring out how to hook the two together. It turns out the hose of the vacuum was of a much wider diameter than the output of the sander. We also wanted the attachment to be flexible enough so that it could handle various angles, but strong enough to keep the two firmly joined throughout the back and forth motion of sanding. Duct tape immediately came to mind. Unfortunately, my sons had recently made wallets out of duct tape and none could be found. So we settled for a masking tape prototype.

The masking tape prototype worked admirably and proved the concept. We did have to use two hands to keep the two together because the tape wasn't strong enough on its own, but the dust was immediately whisked away completely solving the original problem.

As we waited for yet another layer of mud to dry, we hit upon the idea of using an old bicycle tube to join the two together. What if we cut off a piece of the tube, attached one end to the vacuum hose and the other to the sander? Initially, we left the tube long for added reach and flexibility. But we quickly discovered that the inner tube kinked easily and blocked the air flow. We solved that problem by shortening the tube so that it was just long enough to go over the end of the vacuum hose and the output of the sander.

Eureka! The thing works like a dream. No dust launched in the air, no dust settling on the counter top. Everything goes straight in the vacuum.

Did we invent something new? Depends on how you look at it. After we got our sanding done we did a quick search and discovered several dust free sanders on the market. Everything from a hand sander that attaches to your vacuum for $17.89 to professional "systems" that cost up to $1,000. One thing we haven't found is anything that let's you hook up the electric sander you already have in your garage to the vacuum cleaner in your closet.

So how does this apply to your business? Innovation is an absolute necessity for growing a successful business, but it can be difficult to turn into a repeatable process. Here are some principles of innovation that, if applied consistently, will deliver breakthrough innovations:

  1. Identify the need clearly and in a specific way. Defining the problem may seem like a no-brainer, but it is in fact the most important step. It is best if you and the others working on the problem can experience it yourself. For example, be your own customer. See what it feels like.
  2. Identify and question your constraints. No sense wasting your time and resources on solutions that aren't an option. Having said that, don't allow assumptions to become constraints. List what you think are your constraints and then question every one of them to make sure they are real.
  3. Find as many perspectives as you can. If you think you, or anyone else in your organization, is the only source of all ideas worth pursuing you are doomed for failure. Involve everyone you can in your problem solving/brainstorming sessions and listen to what they have to say. Different perspectives combined is where the creative fireworks start.
  4. Prototype, prototype, prototype. The quicker you can try things out, the quicker you will learn and get on the right path. Many grand solutions have been planned and worked on for months or years only to find out that they will never work. The quicker you can test, the more likely you will get to a real solution quickly.
  5. Think about something different. Once you have identified the problem and spent some time trying to solve, don't be afraid to take a break. In fact, make it a point to take a break and think about something different. Our brains are amazing things. Some of the best ideas come when we're not focused directly on a problem but have thought about it and then stored it away for consideration. So go play with some toys, go for a run, take a shower, wash the dishes, mow the lawn, go for a drive. I've found routine activities that don't require my full attention provide the most fertile ground for new ideas.
  6. Have fun. As humans we do our most creative work when we are happy. Buy some toys, use crayons to doodle, do what ever it takes to remind yourself to relax and let the right side of your brain do it's work.

Oh, I almost forgot. To get your Amazing Dust-Free Sanding Coupler, send a check for $9.99 made out to Dave Free to P.O. Box....

When you pass out a Promoterz bounce back card you automatically build an accurate customer list, increase repeat sales, increase referrals and prevent lost business. Pretty powerful little card. Learn more
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