Human Behavior, Likability and CRM: How important is it?

Human Behavior, Likability and CRM: How important is it?

Recently, in today's technology-obsessed world, great emphasis has been put on the Operational aspects of CRM (Customer Relationship Management): Data, software, metrics, data analytics, etc. Some university professors and textbook writers are mistakenly leaning too heavily on the data side without thinking clearly about what it interprets: human behavior.

Which is why the practice of CRM today is too often underused and improperly applied, resulting in additional cost and business failure. One thing we can all agree on is the concept of Customer Lifetime Value (CLV), which, put simply states that once you spent the money to acquire customers (Customer Acquisition Cost), your profit will increase disproportionately if you are successful in keeping them over the long term.

So how to keep customers? Let's get a start on the road to long-term customer retention by analyzing the title of the practice that is supposed to guide companies to success in delighting and, more importantly, keeping customers:

Customer Relationship Management. Three nouns, which, by their order, tell us what we are supposed to be doing: First, the Customer, who is our focus. Next, Relationship. We all know that word because we all have them, and the business context is no different. What is a relationship? It is a mutually satisfying exchange between two entities; in the case of your boyfriend/girlfriend/partner/mother, is success determined by different factors than business relationship? In the broad sense, no.

Don't agree? Lets' take a closer look. In the book, "Customer Relationship Management: Concepts and Technologies" by Buttle and Maklan (4th Ed., Routledge, 2019), Customer Value is represented as an equation:

                                    Value= Benefits/Sacrifices

            Is that any different than the relationship between two people?

Further, Forrester Research is quoted in the same book as the "4 I's": the level of "Involvement, Interaction, Intimacy and Influencethat an individual has with a brand over time." How different is that from your relationship with your mother, father, wife, etc.?

Scott Galloway, in his groundbreaking book, "The Four: The Hidden DNA of Amazon, Apple, Facebook and Google" (Portfolio, Penguin, 2017), attributes the fantastic growth of these four companies to what he calls "Evolutionary Anthropology", the primal appeal to our most base instincts. In the book he depicts it this way:

This further cements the proposition that CRM must go way beyond technology to understand and Manage the Relationship with the Customer based on behavior; technology is only a useful tool if we understand the behavior that produced the results we are trying to analyze.

Now to the main point (finally) of this article. Again, drawing from The Four, Galloway writes about the T Algorithm, which are the eight characteristics that The Four have in common in their DNA. One of these characteristics in Likability. Galloway says, "Perception is a company's reality that makes the importance of being likable, even cute, the fourth factor in the T Algorithm" (op. cit, p. 192).

So how important is it to be likable to have a successful  and long-lasting relationship with your customer, which should be your CLV goal? I believe that the  importance of likability (in the human sense- can data measure likability?), and even the word, is massively misunderstood and underemphasized, if acknowledged at all.

Let me give an example from my own experience. My bank, which is a global bank whose name everyone would recognize, messes up regularly and in ways that seem at best incompetent, even stupid. So why don't I pull my money out of this bank and switch to another? The switching cost to me is virtually zero; I might even make some money out of the other bank's excitement to get me as a customer; the only risk is that they could be as ditsy as my current bank. The  only reason is because the people with whom I have human interaction, a relationship, with, are genuinely likable. 

Let's go back to the equation I cited earlier:

                                    Value= Benefits/Sacrifices

If you believe this equation is accurate, which I do, then it is clear that the repeated mess ups of this bank are either not much of a sacrifice, OR that, behaviorally, I consider likability a benefit.

Referring to Forrester's 4 I's I cited earlier, which factor is increased by likability: Intimacy. So the point is that the value of likability cannot be underestimated.

The perception of Likability has played an underestimated and under recognized role in the success of dictators throughout history, with some horrible consequences.

Let's take a quick glance at some dictators that caused unconscionable death and destruction: Hitler, Saddam Hussein, Stalin, Mao. Were they likable OR were they portrayed as likable to their followers and constituencies? The answer that history is increasingly giving us is yes. 

Here are a few examples:

In her book, "Hitler at Home" (Yale University Press, 2015), Delpina Stratagakos reveals her discovery that Hitler's propaganda staff, led by Goebbels, 

They were able to engineer a complete transformation of Hitler’s public persona,” says Stratigakos, interim chair of architecture in UB’s School of Architecture and Planning. “They accomplished this by focusing on his private life — by showing him playing with his dogs and with children, and at home in architectural spaces designed to evoke a feeling of warmth. By the end of the 1930s, news stories around the world described him as a caring, gentle individual with great taste in home décor.”

“It was dangerous because it made him likeable,” Stratigakos said. “After reading these stories, people would feel like they knew the ‘true’ Hitler, the private man behind the Führer mask, and that maybe this person was not as bad as all of the news coming out of Europe seemed to suggest.”

In the article, "5 Reasons Why Horrible Dictators Always Catch Us Off Guard, "

Cracked.com humorously but accurately analyzes the ruse or even reality of likability as reasons dictators are successful in transforming the masses. Their analysis is taken from biographies of these dictators, which are linked in the article. Examples:

·     Reason No. 5 is "You'd Probably Like a Dictator If You Met One", the article cites that Saddam Hussein became endeared to his American captors, who shed tears when he was hanged.

·     Reason No. 4 is entitled "You Can Commit Genocide And Be A Doting Parent" in which they cite Stalin's love for his children and his wife and his avocation for growing lemons;

·     Reason No. 2 is called "Nearly All Dictators Are Artists", in which they cite the well known fact that Chairman Mao was an accomplished poet.

Why is this important? Because CRM is, in the final analysis, the management of relationships with people with the goal of creating a following that results in purchases and long-term profits. You can have all the marvelous software, data and AI in the world, but it won't get you business for long if people simply don't like you.

On the other hand, as a company, if they DO like you, it can overwrite mistakes and even stupidity that really should impair or end your relationship with your customers.

Sun Tzu's Six Principles- Wait- 2,500 year old strategy still works today? Yes, It does

Timeless, spot on and still studied today, 2500 years later.  Sun Tzu wrote a lot about Strategy and Leadership, but these six principles are the cornerstone of his teachings, and continue to apply to business today.

First, here they are:

1. Win all without fighting
2. Avoid Strength, Attack Weakness
3. Deception and Foreknowledge
4. Speed and Preparation
5. Shape your Opponent
6. Character-based Leadership

Now, let's look at their application in today's business world:

Principle 1- Win all without fighting

1. Gain business and/or market share without:
1. Spending large sums on gaining that share-eg., advertising; advertise cleverly and use social media for your advantage;
2. Compromising your product by reducing price and/or quality
3. Do not use price as a strategy- fashion merchandising which makes your offering special will get you an advantage (Inditex)
4. Analyze costs of growth- more business does not necessarily mean more spend (Think Big, Be Small)

Principle 2- Avoid Strength, Attack Weakness

1. Find your Market NICHE- what separates you from your competition?
2. Don’t try to COPY dominant product- IMPROVE or REINVENT it;
3. Find a customer who has not been served or served properly;
4. Find a new Geography- eg., urban vs. rural
5. Fill a need- eg., Untuckit
6. Incumbents have more money than you so do not compete head on;
7. Incumbents may not have the will to enter a new market segment-it will cost you less to start up than it will them.

Principle 3- Deception and Foreknowledge

1. THOROUGHLY research and know your market, your customer- what they have, what they need, what their shopping habits and fashion choices (Untuckit);
2. Never stop research and discovery-even for a day;
3. Use all available resources provided by technology (AI, CDP, Social media);
4. Always be first-do something new every day
5. There is no limit on disruption (Amazon)
6. Keep your competition guessing;
7. Know your capabilities- don’t bite off more than you can chew;
8. FOCUS on what you do best;
9. Have better fashion insight than your competitors- hire the team that can see the future.

Principle 4- Speed and Preparation

1. Speed to Market- be faster better cheaper (maybe)
2. Gather the best information available
3. Never give yourself too much credit for what you did yesterday;
4. Prepare your offering with Common Sense;
5. Use the best technology available for information and customer service;
6. Have better and faster service than your competitor;
7. TALK to your customer;
8. Be decisive- sometimes you will fail, but not if you don’t try;
9. Shorten your design/delivery cycle;
10. Think It Through.

Principle 5- Shape Your Opponent

1. Make your competitors chase you- not the opposite- make them play in YOUR sandbox;
2. Second is last- be FIRST
3. Update/change/grow your offering faster than the competition (Apple)
4. Your fashion and product/brand image should be an EXAMPLE your competitors want to follow;
5. Your offering must be simple, accessible, easy to understand and buy.

Principle 6- Character-based Leadership

1. Hire PEOPLE, not RESUMES;
2. Hire by CHARACTER fit, with at least the following characteristics:
1. Courage
2. Will to Succeed and Win
3. Intelligence
4. Loyalty
5. Likability
3. A leader will only succeed with a strong TEAM whose skills complement each other;
4. Build Great Captains, whose character and skills will help you as you grow;
5. Challenge to change and react, never sit;
6. Original Thinking-the Fashion Industry is build on CHANGE;
7. Open- Minded Management
8. Humility- Never get too impressed with yourself;
9. Lead By Example-all the above won’t work if it is not part of your style.

Sounds simple, right? How many of you business leaders can state with perfect honesty that the above is exactly your management philosophy, style and execution? (I can)

When we attend the funerals of those brands and institutions that have passed on, we can look at the above and always find the causes.

Study it. Learn it. Succeed. Or don't.

The Nouns and Adjectives of Our Times

"Like Sands Through the Hourglass, So Are the Days of Our Lives" (opening line of NBC Soap opera series, now in its 54th season, since 1965)

That phrase would suggest that once time, or the past, has flowed through the hourglass, that it is gone baby gone.

Is that true for marketing today? The lessons and principles that got us to this point are totally changing, due to the unstoppable march of technology? So, for example, if we are teaching or learning Digital Marketing, let's focus on the SEOs and Analytics. Forget that Four P's stuff, right?

I believe the answer can be found in the grammatical structure of the names we have given to most of our university courses: Digital Marketing, Global Marketing, Competitive Strategy, International Finance, etc.

As a refresher, above graphic is what we learned in Grade School:

So that means, for example, Digital is the adjective that describes the noun Marketing. So Marketing is still the thing and Digital is a way of doing it, right?

That logic calls upon us to have a thorough understanding ofMarketing first.

And, in studying marketing, do we focus on the funnels and fishes of today and never mind the basics like the Four P's? No. Marketing has been going on since the Agora of Ancient Greece, and maybe before. Has it fundamentally changed? No. I want you to buy my stuff, so how do I convince you to do that? And at what price can I sell it to hopefully make a profit? Finally, who wields the power? The Customer.

Am I oversimplifying this? I don't think so. 

In the classes that I teach, such as Digital Marketing and Competitive Strategy, I respect not only the fundamentals of the Noun, but the timeless nature of some of the principles (like the soap opera mentioned above). In Competitive Strategy, we must understand the nature of Strategy first, then we will explore how to be Competitive. Not the other way around.

And, I give proper respect to the masters of the art, despite the era of their origin.

For example, Sun Tzu wrote about 2500 years ago. Here are his Six Principles:

1. Win all without fighting
2. Avoid Strength, Attack Weakness
3. Deception and Foreknowledge
4. Speed and Preparation
5. Shape your Opponent
6. Character-based Leadership

I think it is easily seen how these principles relate to business today. In case there is any doubt, please refer to my article "Sun Tzu's Six Principles- Study Them and Succeed" , also published here on Sourcerer's Blog

As another example, British General Basil Liddell Hart wrote extensively on Strategy and Leadership. His 1954 book Strategy remains a textbook for all time.

And, of course, Michael Porter, whose books, like Competitive Strategy andCompetitive Advantage, and concepts such as the Five Forces and The Value Chainare still taught as the foundations of the study of strategy at every university level. But, Porter wrote in the 1980's, with little or no concept of a digital, global future.

THAT is where the adjectives come in. Digital and Global are how we achieve our goals today. But without a thorough understanding of the main, enduring concepts, we will surely fail to execute with today's technologies and tools.

One course/study name defies the grammatical logic of noun/adjective: Customer Relationship Management. What? Three NOUNS? Does this destroy my argument? 

Of course, I don't think so. I believe the title gives equal weight to all three nouns, telling us that they are all equally important. But here, the true meaning of the subject can be found in the order in which the nouns appear: The Customer is first, the development of a Relationship is next, and if we want to be successful in keeping that relationship, we better learn Management . At the end of the day, Customer relationships are no different than Personal Relationships. Agree?

So the moral of this story is, while time passes (like sands through the hourglass) and things change due to technology, some things never change and we better learn and respect what got us here.

The most important thing that has not changed: we are PEOPLE selling to PEOPLE.  And the people what has the power is the CUSTOMER.

Toys 'R Us "Reimagined": What will be different this time? Or, is this another investor scheme to milk the asset?

This is what Geoffrey looked like a couple of months ago. Now reports state that he has found a new home and master. Bloomberg reports:

"About a year after shuttering U.S. operations, the remnant of the defunct toy chain is set to return this holiday season by opening about a half dozen U.S. stores and an e-commerce site, according to people familiar with the matter."

Wow. How and why? We don't really believe it is because of the opening line in the article, do we?

"Maybe American kids will only have to live through one Christmas without Toys “R” Us."

More likely, this is the reason:

"This group tried to sell the intellectual property, but opted to keep it to garner a better return. As owners of the intellectual property, they have been collecting licensing and other fees from the units still operating and selling them private-label goods. "

Greedy Investors played a large part in killing Toys 'R Us the first time (see my article....), so no surprise they can't let the dead rest in peace. 

What we need to understand is, will they succeed or not and why?

Here are some of the facts/questions that need to be asked:

1. Consumers have moved on- not since it has been gone, but much before that- so why would TRU figure in their shopping plans next holiday when they just can buy it from Amazon or Walmart BOPIS (Buy Online, Pickup In Store)?

2. Buying online takes away from the experience for the kids? As a former kid, I can say that the real experience is when you have that toy in your little hands...

3. Smaller Store Size?It is said that the new plan foresees stores of 10,000 square feet which will be focused on "events." The old stores were 30,000 to 70,000 square feet. So now we plan to cram inventory and happy, active kids in a store 1/7 the size?

4. The new plan includes an ecommerce site-This to compete with Amazon and Walmart. We know that there are TWO main paradigms for online success, a la Amazon: 1. Price 2. Selection.

So, what is the chance that the new TRU will:

            a.Reduce prices to compete with Amazon and Walmart?This decision is not very likely to be made by investors (who will be running the company despite who they put in front) that are already losing money and have taken a risky investment to recover it;

            b.Be able to afford a bigger (I doubt if better) selection than Amazon and Walmart?So, who wants to bet on this one?

5. How much credit will the industry extend to the revived TRU? How many vendors will decline to sell to them at all? At best, this will be very restricted. Toy suppliers have suffered due to the expiration of the old TRU, and they will almost certainly want to put their money on a winner.

6. How much will Prime Day take out of the holiday toy business? Don't underestimate this- Now Prime Day is not just an event for Amazon, it is an event for the entire US ecommerce world. And this year it will doubtless be bigger than ever. If you are a Mom or Dad trying to compile an impressive Christmas Tree, you will be laser focused on the Prime Day toy bargains. So TRU could open into a market that has already spent a chunk of its Christmas Toy money. 

Conclusion:

There is no doubt that the US market, especially the toy market that has not changed in years, is open for disruption. That being said, there is no indication that the new TRU will do anything disruptive, much less enough to get noticed.

This is more likely an attempt to get the last milk out of the cow before putting it out to pasture. Is this cynical? I would offer that it is just reality that either nobody is facing, or they are just not telling...

Repost: Toys ‘Rnt Us- From Category Killer to Comatose

June, 2019. Media reports that Toys 'R Us will reopen for the 2019 Holiday season. In another article, "Toys 'R Us 'Reimagined': What will be different this time? " I analyze the information about the revived company and its chances for success. More likely, what killed it the first time is the reason TRU will stay dead.

Of all the sad retail stories I have heard this year,  this has to be the saddest. Not because the firm has gone from Category Killer to near death; the sad part is just how long the illness has been allowed to continue. Not all the sequence of failure is clear to me-but information and statistics from research into the company’s  and the industry’s history since 2004 keeps leading me to one persistent suspicion: The company was killed (it is all but dead now) by greed of executives and financiers who could not see through their own pockets to make changes that would help the company get back on its feet.

Toys R Us declared bankruptcy in September of 2017. But the story of its decay goes back at least as far as 2004.  Weighted under unpaid debts of around $800 million including $400 million in interest payments that it had been laboring under since a leveraged buyout in 2005. Here’s the first greed part:

Judge Keith Phillips approved $21 billion in bonuses for Toys "R" Us executives, garnering public criticism. The U.S. trustee assigned to the case, Judy A. Robbins, said the idea of big bonuses for a bankrupt company “defies logic and wisdom.”

(Seeking Alpha, https://seekingalpha.com/article/4139668-toys-r-us-announces-store-closures-list)

Understatement: Logic and Wisdom. What good use could $21 billion have been put to? And what is the justification for an executive who is ostensibly a person who cares about the company to ask for a bonus in  that situation at all, much less a salary? Where I grew up, “bonus” is for when you do good-and only then.  OMG.

There are definitely MOAT issues that attributed to the slow and painful death of Toys R Us. We will discuss those below. But beyond that, there had to be management and process failures going back to 2004. At that time, Toys R Us and Amazon were embroiled in a lawsuit where Toys R Us claimed that Amazon breached a contract between the two for TRU to be more or less the exclusive retailer and manager of Toys on the Amazon website. In its counterclaim,

Amazon, of Seattle, denies that it breached its agreement with Toys "R" Us, saying the language of their contract allows for exceptions that permit Amazon and other merchants to sell products that compete with offerings from Toys "R" Us. Amazon further alleges that it urgently needs other merchants to list competitive products on Amazon because Toys "R" Us has failed to keep toys and other items in stock. During key holiday-shopping weeks, Amazon alleges, Toys "R" Us has been out of stock on more than 20% of its most popular products. Amazon also alleges that Toys "R" Us has failed to provide Amazon with a comprehensive selection of toys for sale on the Amazon site -- in particular, low-priced toys (Wingfield, Nick. Wall Street Journal, Eastern edition; New York, N.Y.[New York, N.Y]29 June 2004: B.7.

Toys R Us won this lawsuit, garnering a $51M settlement from Amazon (http://abcnews.go.com/Technology/story?id=78306080)(Amazon don’t do that (exclusives or let anyone control their website business, or even pricing) nowadays, and this may have been one of the key lessons learned). But Amazon’s claims seem very real, in view of what is happening now, 13 years later.

Inexplicably, the next year, three hotshot VC’s (considering what happened since, remind you that VC once stood for Viet Cong) KKR, Bain and Vornado took Toys R Us private with a buyout of $7.5 billion, from which point the company was saddled with the above mentioned $400 billion in debt payments. On this subject, and not knowing how the debt was structured, I can’t help but get a feeling that someone made money on this deal.

Just two months after the above article, the WSJ reported, “Toys 'Were' Us?; Undercut by Big Discounters, Toys 'R' Us Is Indicating It May Get Out of the Business.”  The article reports that TRU’s MOAT had been breached by Walmart and “In a surprise move, the once-dominant toy retailer said it is exploring a sale of its core 1,200-store toy chain” and reported an analysis that said, “Given the competitive threat of Wal-Mart today, Toys 'R' Us will not be able to continue as a going concern in the long term without drastic structural changes." (Joseph Pereira, Rob Tomsho and Ann Zimmerman. Wall Street Journal, Eastern edition; New York, N.Y.[New York, N.Y]12 Aug 2004: B.1.

The sale happened. And then what? Was Toys R Us somehow frozen in time between 2004 and 2017 when they finally declared bankruptcy? How many billions were collected by the VCs and the company’s executives while the company died a slow death?

Let’s look at where the distribution of the toy business is today:

So what is evident here? First, WM and the mass merchants  now dominate the toy business. Why go to a shop to buy toys and only toys? Here is the sad part—the answer, in Toys R Us heyday, was NOT the prices, which is the only weapon WM can use to penetrate their moat. It was the EXPERIENCE. Kids dragged their parents to TRU because it was FUN. I don’t care who you are, Walmart is not FUN.

So here’s screwup number 1, TRU. In your sadness about the declining sales and challenges, you let Geoffrey the Giraffe become Bad Santa. You had the experience nailed, and you let it die. Now you are.

Next- If I am a category killer in a category that is dying or declining or flat, what should I do?

Clearly, find something else to sell. Babies stuff is a difficult business with birth rates not growing and economy not healthy. So what? 1. Pet Toys- Pet ownership has skyrocketed in US and globally during the period. 2. Grown up kids toys like Xbox etc. 3. Expand your target audience and maybe change your name to Fun Stuff R Us or something better than that. What not to do? Nothing, and that is what you did.

I know. You think that kids nowadays are not interested in toys. I thought so too.

Suprisingly, the facts state otherwise:

While toy sales have declined, the percentage is really not that much since 2005.  So let’s forget that excuse.

What is true is that, since TRU broke up with Amazon, they forfeited the online business to them. As has most everyone else:

Note to self: see Target lurking there in the grass. Watch who eats the carcass of TRU.

So, like everything else, about 50% of the online commerce is forfeited to Amazon. Now it seems to me like the hierarchy of jungle cats where all must genuflect to the leader. Until, that is, someone has the balls to challenge. Not rocket science.

So what will become of the toy business after Toys R Us is only a story? Anybody with half a brain will see that the toy business now is inextricably connected to the current world of technology, and that children who grow up in the tech world only want to play with stuff that is in synch with the world around them. I think that this is a virgin business; nobody has thought this through. I see a future that is fun and in sync with Alexa.

As far as Toys R Us, they could be part of this future because they still have about 1500 locations. Let’s be clear: there are only two things that Amazon envies: 1. Brick and Mortar and 2. International Business. But that would require a selfless quest on the part of management.

Survival/MOAT/Sustainable value growth is my business. I could make this happen. So I suppose TRU management could do. As it is, it is a big short.