Digital - A Coming of Age

Within any generation there is always someone who is a link between the old order of things and the new.

We’ve just commemorated 100 years since the First World War started, and for me it feels remote, but real.  I didn’t know anyone who served, but my grandparents did who I knew, so I feel a connection.  With the Second World War, things are different.  When I was 10, I remember celebrating at school 40 years since the end of the war.  At 10 that seemed a long way past, but my grandparents served in it and could bring it to life with stories and artefacts.  For my kids though, all of this is a fading memory - stories we tell, but it may as well be like the Battle of Waterloo.

This connection between the old order and the new is explored in a book I’m currently reading called The End of Absence by Michael Harris.  In it, he discusses the time we’re in now and how anyone born after 1985 is essentially a digital native - someone who has never experienced a world without the internet; a world without always on connectivity.  For us others - those born before this time - we’re essentially digital immigrants.  Describing this group, Harris says:-

“For those of us who have lived both with and without the vast, crowded connectivity the Internet provides, these are the few days when we can still notice the difference between Before and After […] there’s a single difference that we feel most keenly; and it’s also the difference that future generations find hardest to grasp.  That is the end of absence - the loss of lack.  The day dreaming silences in our lives are filled; the burning solitudes are extinguished."

This is thought provoking stuff.  Realising that my kids (and a lot of those I now work with), just simply think differently.  They’ve never experienced a time when there was genuinely nothing there.  No kids telly on, nothing on demand, no chat, no connectedness.  When I tell my son to get off his computer, I turn around to see him on his phone.  Kick him off his phone and he’s flicked the telly on.  It takes real effort to switch everything off so he’ll actually consider walking out the door to call for friends… and then they sit around their house playing Xbox.  I tried.

So this got me thinking about the implication of this within the working environment.

For many of us, we work in companies established pre-1985 or staffed with management from before this time.  We have computers, tablets and smartphones; intranets, instant messaging and email.  We even have social networks for staff, with “friends” and wall posts and “status updates”. We’re thoroughly modern and fill every piece of time, every empty space within some activity.  Responding to a ping on the phone, an email arrived - we sit in meetings only half listening as we type on our laptops and then check our phones.  This is a state Harris references and one that writer Linda Stone referred to back in 1998 as “continuous partial attention”.

Yet despite this, we’re not as modern as we like to think.  

Many companies still have a Digital department of some kind or a Head of Digital role - as if all things digital is somehow separate to what we do.  It’s as if we’re in both the Before and the After - one part of the company in the pre-1985, pre-digital age and the other ring-fenced in the digital age.  This does some ludicrous and you can’t imagine a company such as Facebook or Google having a Head of Digital role - they are simply digital companies (although strangely they do).  The point is, the world has changed, people have changed, but the way we do business seems to still be a mismatch of old and new.

This point was brought to life in an article I was reading about airlines entitled Passengers Become Data Mines as Ryanair to Emirates Hone Offers.  In it, Ryanair CEO Michael O’Leary is quoted as saying:-

"I used to say that my ideal customer had a pulse and a credit card, but I’ve revised that view radically. […] In the next five years, with each of my 90 million customers, I’ll know when you’re traveling, where you’re traveling, and I can send you a direct offer.”

This shocked me.  

We’re in 2014, this is a relatively new airline (setup in the 1980’s) and yet it seemed a surprise to them that there may be value in the data they hold and process for 90m customers.  This is though also understandable because companies still aren’t digital natives - they still have their digital marketing and data analysis functions somehow separate to their older, more established traditional sales and marketing functions.  They’re an add on or an extension rather just being one single company.

If we go back to Marketing 101 and the 4Ps of the marketing mix we have Product, Place, Price and Promotion - this was something created in the 1960s by marketer Edmund Jerome McCarthy - a set of marketing tools based on the age but which is still taught today.  

A company like Ryanair has really focused on these 4P’s - it’s “Price” has been refined by pairing back its “Product".  By choosing carefully the airports it uses to get the best rate for a given destination even if it’s not quite the best airport in terms of distance, it has truly honed “Place”.  Promotion you could argue has been a mixed affair, but there probably isn’t a person alive in the UK who doesn’t know the airline, it’s CEO and the kind of message he had long stood for (such as removing toilets from planes).

But within this 4Ps mix, there is nothing about the customer.  It’s the old world order of making a product people want, at a price they are willing to pay - and then shouting about it loudly in the right places.  It’s all push.

Take a look at the new world however through a different lens.

Freemium models support many of the latests products/services, with apps (and some products) giving away their product in the knowledge that they can monetise customers either through targeted advertising or in-app purchases - and this is where data comes into play as a key part of the marketing mix.  Even airlines have a form of this with their ancillary services - the basic service is paired right back and then customers are encouraged to top this up with ancillary services as they need - a kind of pick and mix of products.  This is all pull.  

Speaking of this, CEO O’Leary is quoted as saying:-

"Ryanair’s data will let the carrier know how often travelers head to particular destinations, whether they travel alone or as a couple or group, if they routinely book insurance or car rental, and be able to customize its offers accordingly and target the passengers with special offers […] We know who you are [and] the clever airlines are going to make a fortune in the next 10 years”

This thing which will make a fortune is the missing piece - it’s the digital native addition to the marketing mix.  It’s the bit about the customer, about what they do and about what they want.  

It’s personalisation and it is truly the 5th “P” of the marketing mix.  I’m not the first to point this out, but it really is the difference between the Before and the After.  The increased connectivity and the computing power, scale and flexibility this has afforded, as well as the increased expectation of a customer base in “continuous partial attention” mode means that personalisation is critical to success.

As we transition from companies and people born of this pre-digital age to the next generation of digital natives, there will be change, there will be new ways of doing things.  We cannot stop it but for many of us, and for many of the companies we work for, we’ve yet to embrace it.  In the book End of Absence, Harris says of this:-

“Technology is neither good nor evil.  The most we can say about it is this: It has come. […] We can only judge, only really profit from judging, the decisions we each make in our interactions with those technologies.  How shall we live now?  How will you?"

Rallying cry for innovation - and faith

I've spoken about VRM - Vendor Relationship Management before on this blog and it's one of the topics that I feel is currently mis-understood and undervalued in terms of its future impact on customer relationships and loyalty.  Like many new things, people think it irrelevant, unworkable or simply solving a problem that doesn't exist.  It was great then to see today on the ProjectVRM mailing list, Doc Searls, author, journalist, blogger and VRM evangalist, discuss these challenges and to put them into context.

I've repeated the majority of Doc's post here for those without access to the ProjectVRM list:-

[..] Nobody is ever interested in a new category before it is given shape by applications people want once they see them. Personal computing, starting in '76, was positioned as "a way to do your checkbook and keep recipes." Really. None of the early hardware makers were especially successful, with the conditional exception of Apple, thanks to Visicalc. IBM took a look at Visicalc and introduced the PC in '82. But even then the PC succeeded in business in part because Attachmate and other companies sold micro-to-mainframe cards that turned $2500 PCs into $1000 IBM 3270  and DEC VT-100 and -200 "dumb terminals." But by then Visicalc had a foothold, as did Wordstar and DOS. Lotus 123 picked up where Visicalc left off, and a wave of applications followed. The Mac succeeded in part because of Quicken, which really did, finally, eight years after PCs were born, make balancing a checkbook easy. Quicken was an invention that mothered necessity, as were the rest of the early programs. Still, business dismissed PCs from '76 to '82, and ordinary people dismissed them until at least '84.

Likewise the Internet was nowhere until graphical browsers showed up. We forget that Bill Gates saw no way the Net could make money for itself, or anybody, until it was clear that Netscape's browsers and Web servers would threaten Microsoft to the core. That was in '95, when the Net's protocols, which we still use today, were up to decades old. Smartphones were Palm's idea, but not many people took advantage of the apps on them, because they were too hard to get and use. Once Apple showed how it could be done, the market exploded. That was more than a decade after Palm began. I remember an early VRM meeting at Berkman where Paul Trevithick said "Nothing that requires a user install will succeed." That was true, then. But not long after that, Apple made user-install easy, Google followed, and now all of us install apps with ease all the time. Yet it would be easy to say there was no appetite for the Internet in '93, or smartphones in '05. All we needed were inventions to mother necessity.

So, likewise, it's easy to say nobody cares about managing relationships with vendors, because, obviously, they don't. Or, do they?

What about the stacks of loyalty cards people keep on keychains, in their wallets and purses, or in the armrests of their cars? That's a crude form of management. What about clipping and carrying coupons, or spending hours or days adding up "points" from credit cards to trade in for miles on airlines? (I have a friend who is obsessed with doing that.) What about going over stacks of receipts and trying to match them up with credit card bills — arduously reviewing old calendars to see what we did and when, so we can minimize our tax hit? Is there no management in that?

Think of all the pain points any one of us deals with in relating to vendors — or anybody. All those pain points are potential business opportunities. Not all of them will be pursued, but none of them are worth dismissing because nobody seems interested in dealing with them now. As Henry Ford said, "If I'd asked people what they wanted, they'd have said 'faster horses.'" To my Irish grandmother growing up in The Bronx, the biggest problems were horse manure piling up in the streets and the danger of fire from gas light. Neither problems were relieved by the industries of the time. Yet both horse-drawn wagons and gas light were obsoleted by new inventions. 

[..]Everybody manages data today already.

We do it with folders on our hard drives, with bookmarks and tabs in our browsers, with boxes in our mail programs, and with every online service that organizes files for us. Are all these in such a complete and final state that they are un-improvable? Or is there opportunity here for many kinds of new approaches? Again, it's easy to say "nobody is interested." But it's not wise to bet against relieving whatever causes people pain. Or what opens up new opportunity where almost nobody is looking.

[..]

And most of us don't care about advertising. (Though some do, and we respect that.)

Fixing advertising's problems, or pursuing its opportunities, is almost entirely a vendor-side issue. My own attitude toward advertising is kind of like Ford's toward horses and trains: those things will keep doing what they're best for, and we'll go invent something else. My guess is that, if VRM succeeds, it will help brand advertising and hurt adtech or alter it for the better. But VRM's purpose has nothing to do with any of that.

Still, business senses that we are on to something here, so we can't help talking about it, and, in some cases, getting invited to conclaves where advertising is a big issue.

For example, yesterday I attended one of those things here in New York. The word "intention" was used a lot. The context was using "big data" to "intuit" what customers "intend," without ever having to listen to what those customers want to say, directly, to the "brands" doing the advertising. So the talk was about "listening in" on "conversations" among "consumers" in "social spaces" so those consumers could be "delivered" a "better experience." It was the sound of one hand slapping, not two hands clapping. A few voices  from within the business were raised, saying "Are we listening to ourselves? Do we not realize that we're abusing people's privacy, and that this will have consequences?" As usual those voices were mostly not heard. But the wilderness from which those voices were raised is called the marketplace. 

Are those voices pointing toward actual requirements, as you suggest? Well, let's look at what the market is already doing.

Today the most popular browser extensions are ones that block advertising and turn off tracking. Governments (especially in Europe) want to switch off tracking altogether, because their citizens are tired of it. These are significant trends. Look up "privacy" on Google or Bing and see how many results you get, and the order in which they are prioritized. Is there no market for solutions here?

Personally, I don't want legislative relief. Anti-adtech laws today will protect yesterday from last Thursday with legal code that won't change for decades, or perhaps ever. On the whole that's not good in a vital and fast-changing marketplace. I'd rather come up with technic fixes that will take care of business without new laws. (Though perhaps with legal decisions based on standing laws. Those are likely to happen in any case.)

Finally, just because a glass is 1/Nth full doesn't mean that it's X/Nths empty, or can't be filled. Faith, St. Paul tells us, is "the evidence of things unseen." Without it we wouldn't have civilizations, or markets. There would be demand only for the hides of animals and sharpened rocks.

VRM isn't complicated. It's only about giving customers means toward two things: independence and engagement. To see how that can be done, one needs to stand on the side of the customer. So that's what we're doing. 

Easier to critique than create (3 steps to a great idea)

There was an interesting blog post a couple of weeks ago entitled "1.0 is the loneliest number" by Matt Mullenweg where he discussed how to bring something to market. Arguing that ideas need oxygen to grow and if they stay in development for too long then they are actually dying. Matt says:-

If you're not embarrassed when you ship your first version you waited too long. Usage is like oxygen for ideas...every moment you're working on something without it being in the public [domain] it's actually dying, deprived of the oxygen of the real world.

Using Apple as an example, Matt highlights how the iPod was first reviewed as "No wireless. Less space than a nomad. Lame." and "$400 for an MP3 player!... it wont sell, and be killed off in a short time...". The iPad has received similar reviews for it's lack of flash support or camera or weight - but as Matt says, it shipped. This now means Apple have a chance to understand how it works in real life - it now has the oxygen it needs to develop.

The reason for this is that it's easier to critique than it is too create. Creating something new is hard, however once the idea has been floated, it is much easier to then shape this - adding to it, extending it - helping it to grow.

As with many things, the 80/20 rule normally applies here with only 20% of features being used 80% of the time. This means you don't have to wait for it to be perfect or for it to contain everything - you simply need to get it out there. As author Jay Heyman says:-

“Perfect is the enemy of good – if you keep prodding, tweaking and tampering with something good, trying to turn it into something perfect [..] it is possible you might never get there at all, in effect turning a good idea into no idea.”

You also can't beat first mover advantage; the fact that Tesco was first to launch it's loyalty programme gave it a distinct advantage over competitors subsequent attempts.

The increasing connectedness of consumers however also means that this critique is more readily available and almost immediate in it's feedback.

At Loyalty World this month, Nectar provided details on their new iPhone app. Members wanted it - the app has been downloaded 280k times and was #3 in the free download chart within 4 days. Members used it - up to 57% of users opt in to mobile offers, generating £4.4m in incremental sales in just 2 months.

But what was their feedback?

Well Jan-Pieter Lips, MD of Nectar indicated that the feedback had been "great start". This wasn't a negative though - this was recognition that consumers expect to be able to feed into the development of products and services. Consumers are now used to having their say on almost everything a brand does and increasingly are expecting the brands to listen.

Gap is the classic example of this. Forgetting that the brand is where it is because of it's loyal customers, they failed to consult them on their recent aborted logo change. Within just a week of launching it's new logo, the brand backtracked quickly saying:-

“Ok. We’ve heard loud and clear that you don’t like the new logo. We’ve learned a lot from the feedback. We only want what’s best for the brand and our customers. So instead of crowdsourcing, we’re bringing back the Blue Box tonight.”

You can argue how much of this feedback was as a result of genuine concern/dislike for the logo versus simply a "lynch mob" mentality, but either way, once in the spotlight, it's hard not to pay attention.

Whether it's launching a product, app or loyalty programme, the advice would seem to be:-

1. Get your product out to market quickly - Making sure it is "good", but not waiting for it to be "perfect"
2. Listen to consumer feedback - Let consumers tell you what's important, what's missing and what's a priority
3. Apply feedback and repeat

It's certainly easier to critique than to create so let your customers help out - turning a good idea into a great one and at the same time allowing them to feel part of the process.

Breaking the mold

Seth Godin made an interesting point in one of his latest blogs when he said:-

Your industry has been completely and permanently altered by the connections offered by the internet. [..] Not a little different, not just email enabled or website marketed, but overhauled.

Whilst additional channels to consumers such as email, IM and social networks can be utilised in traditional ways - essentially lowering the cost per contact - it’s how these can be really leveraged to completely overhaul the process – to break the mold - which is most interesting and retention marketing is not immune from this.

Within loyalty we talk less and less about the actual transaction and more and more about the interaction. 

Loyalty programmes are beginning to focus on recognising and rewarding this interaction – in all its forms – because we know that interaction with the brand leads to positive customer sentiment – and this in turn leads to increased consideration and transactional behaviour.

I’ve spoken previously about Dell and how they interact with their customers through IdeaStorm.  Well it looks like brands are increasingly seeing the benefits of involving consumers in decision making.  MyStarBucksIdea for example allows customers to share, discuss and vote on ideas, but also crucially to be able to see how the ideas have been actioned – this isn’t an empty suggestion scheme, it’s a true interaction.

UK clothing retailer New Look is embracing interaction across many channels.  It’s New Look TV through YouTube allows consumers to interact by uploading videos of themselves and their friends, interacting via Facebook with all of it linking back into the main New Look website.  For those really keen on getting close to the brand, the MyLook website allows consumers to share their views, make suggestions and connect directly with New Look.

One brand that really excites me is GiffGaff, a new UK mobile brand. They are taking this interaction one step further with the launch of what they describe as the people-powered mobile network.  Their model is very interesting because while they have elements of the “ideas” model - allowing members to nominate and feedback on suggestions - they have linked this back into a currency in the form of rebates off your mobile bill. 

So in theory, the most active brand advocates – those who provide suggestions, take part and recommend friends - are able to have their calls for free.

This is ground breaking.  A loyalty programme which rewards not based on the brands share of customer spend but on their share of customer voice.

And this makes sense, but you have to overhaul your approach to loyalty and recognise that the interaction – both between the brand and between individuals – can bring in additional (and potentially higher) revenues through both retention and word of mouth.  Lauren Freedman, president of the e-tailing group says:-

Customer engagement has become a metric to be reckoned with, where failing to engage consumers via community and social media will have brand and bottom-line implications.

This is a real epiphany for many brands though – and I’m guessing for many loyalty agencies.  Being so used to loyalty meaning points equalling prizing – to rewarding the behaviour after it has happened - they haven’t realised that the real focus has always been on building relationships.

Loyalty programmes don’t add value if you simply dish out points like toffees – to gain growth from the programme you have always had to encourage the behaviour you want, using the currency to reinforce good behaviours.  The change now however is that “good behaviour” is not just the purchase itself, but the interactions that lead up to the purchase.

Points aren’t however dead – there will always be a need to recognise the interaction that is the purchase - but brands that haven’t yet realised that retention marketing means more than simply a deferred discount and a box of wine are missing the opportunity to unlock the real value.

This new interaction loyalty – in essence this Lean Forward Loyalty – which recognises and rewards individuals for getting involved with a brand, for sharing it with others, for interacting with it on an ongoing basis is where the future lies.

Recognising and rewarding those customers who actually “add” value to your brand – through their thinking and participation – ensures that your overall proposition remains appealing to the consumer, whether they want to be actively involved or passively entertained.

Might be time for an overhaul – might be time to break the mold.

Here’s an idea – Get involved!

Ideas.

They can be a powerful thing.

Many of the fastest growing companies are based around an idea and the innovators who had it.

Take Innocent Drinks – a company famously setup by three individuals who were passionate about their idea for a smoothie made with fresh, natural ingredients. They came from nowhere in 1999 to almost single handedly create and then dominate the market for smoothies in the UK. Nine years on though and all is not rosy with Innocent - sales are down by 20% as competition increases in the smoothie market and customers trade down. Innocent's answer to this would appear to be to innovate – whether it's their flavoured water brand "This Water" or their new Veg Pots (think a Pot Noodle for the 21^st century with 3 of your 5 a day veg!). There have been comments about whether this will actually work for them as a brand, but if they don't innovate they will always be at the whim of an ever more competitive market.

This is actually a problem for many companies as they switch from business innovator to business as usual. The company can become stale with the original innovators moving on and "managers" moving in - the product or service meanwhile goes through the normal cycle - moving through the growth stage when everyone is happy with profits and market share is maximised, then the maturity stage with competition increasing and profits/prices declining.

Companies can go one of two ways at this stage – they can lift their heads upwards and look ahead, essentially innovating (as Innocent has), or they can look down and gaze at the navel that is EBITDA (essentially how do we cut costs). Now don't get me wrong, a company won't last long if it isn't profitable, but a short term myopic focus on only the bottom line at the exclusion of investment in the future is a recipe for disaster – and this investment doesn't have to be a lot of money.

As James Gardner, Head of Innovation at LTSB says in his latest blog post when discussing the five key considerations for a company starting an innovation team – #1 Make sure you have money - #2 Make sure you don't have too much money. He goes on to say "if you get a big amount of money, you need to create a big return. But most truly interesting innovations don't generate big returns at the start. Certainly not the sort that make them the most attractive investments in the short term. Ergo, the money gets taken away again".

The take-away here though is "make sure you have money". I've seen a number of companies with Ideas schemes which purport to be a way of driving grassroots innovation whereas in reality they are simply programmes for identifying cost savings (that focus on EBITDA again) rather than truly focusing on new ideas (and the requisite budget this demands).

James really does put his money where his mouth is though. In looking at how to involve employees in the ideation process, they have created an innovation programme which both involves and engages the employees. Entitled "Innovation Market", they developed a stock market style solution for the submission and valuation of ideas. Based on the principles of the Wisdom of Crowdswhere the many are smarter than the few, LTSB have democratised the process of idea generation and selection.

The solution works by giving employees a virtual currency (beanz) and this currency can then be used by employees to buy into an idea. As with a company listed on the real stock market, the price tends to reflect the perceived value, so people seeing that the idea has legs early on can get in cheap, and then as its popularity (and likelihood of getting implemented) increases, so the price increases. Employees can make windfall gains by buying in low and selling high which can then be used within their innovations store for real-world rewards such as high-street vouchers.

Dell created a similar solution with its Idea Storm programme. This essentially allows people to submit an idea and for this idea to be voted on by other members of the public. Using just two buttons to either promote or demote the idea, Dell has created a simple process for ensuring popular ideas bubble to the top. The programme has been running now for 2 years and in that time has had 11,345 ideas contributed – this is the equivalent of almost 22 new ideas every working day – and to help them work out which ideas might have legs the community as a whole has promoted these ideas over 650k times.

These types of schemes work well for two reasons.

Firstly, R&D or innovation teams only have so much capacity – creating a way for the wider community to contribute- whether this is your own employees like LTSB or your customers like DELL – can help to focus this effort on the right ideas.

The second reason is that by involving your employees or customers in the programme you benefit from increased engagement and loyalty. People feel empowered and appreciated – and where an idea is actually implemented they get a sense of achievement in having contributed to this, even if this was simply helping to identify it as a good idea.

Now as good as the first reason is – this is essentially a loyalty blog and so it's the second point that most interests me.

There are many ways to generate loyalty, whether it's a reward programme or a communications programme, but as discussed previously, to generate long term emotional loyalty you need customers (and employees) to get involved – to get engaged- you want active participation, not passive inertia.

You can’t however simply setup an innovation programme through the HR or marketing department - for the programme to have real benefits it needs to be real, not simply another marketing programme. Employees or customers will quickly realise there is no substance to the programme if ideas are not taken forward and this will have a even worse effect on engagement then if you’d never even started.

As discussed earlier though, innovation is a strategic endeavour - something that needs to be invested in - and so requires executive leadership and sponsorship. This is made even harder when you consider that the average innovation programme can take up to 18 months to show returns – a little under half the tenure for an average CEO.

The alternative though to innovating in an increasingly competitive market is to cut costs - but as Greg Estes, portfolio manager at Intrepid Capital Management says "It’s generally very difficult to cut costs significantly for more than four quarters. After a while, though you may be widening profit margins, you're shrinking the entire firm."

A company may not always be fortunate enough to have innovators as leaders, but leaders can be innovative by providing support to allow ideas to take root and flourish. This may not only help to grow the company by opening up new markets, but also by engaging and increasing the loyalty of both employees and customers.