The power of an Apology

Please click on the title to read this note by Peter BREGMAN that we came across on the Harvard business's blog site. A very nice note on the power and the need of an apology.

We thought Peter should have gone further. Giving an apology , in our view is only step one. Something more should follow.

We hear customer service reps now start the conversation with " i'm sorry this has happened, i will try to solve it". What we tell them is "this happened last month as well....and a few months before..."

How do you accept an apology that is automated and built into a response?

How do you distinguish between a sincere apology and "systematic" one?

What stops us, over time, from getting skeptical about apologies?

An apology must lead to a correction in behavior. If this does not happen. In fact, an apology is only relevant when the apologiser understands the error of his way and the better course of action. And then decides to implement that course of action.

It used to be said that it takes courage to apologise. That's no longer true.

It takes courage to apologise and ensure the mistake is never repeated again.

Ritu and Venkat

Building up a comprehensive theory of business

After 3 days of debate, and at the cost of sounding pompous, we decided to go on with the title. Do read on.....

PART A: Why industries and companies exist
- All organisations are in the business of processing information. Be it the software business/ tire business/ pharma...industries rise from the ability to convert matter from one form to another.

- Industries differ in the type of information they process.

- Within industries, companies differ in how efficiently they process the information.

Effectively, all competition boils down to innovation, which is the application of creative and original thinking to business issues.

When innovation ends, businesses become commodities.


B. The role of organisation structure:
Within companies, organisational structures are created to maximise the efficiency of information exchange. Two critical drivers of structure are therefore:
- people
- information technology

Organisation structures inherently move in the direction that best aligns its people and its information technology. Organisation structures fail when this match of people and information flow is misaligned.

i.e.

A command and control system fails when the maturity and competency of people is high and they demand more "lateral" freedom. If the access to information within the organisation is also easy, rigid structures come in the way of development of people and ideas.

A matrix structure fails when the employees have not yet learned the benefits of collaboration. Furthermore, if information is not easily available, the "gate keepers of knowledge" inherently become the power centres. The matrix fails.

When processes and systems of an organisation are insufficient for information to flow freely (horizontally and vertically) in an organisation, "politics" becomes critical.

C. Organisational Politics

Politics in an organisation, like in all other fields, is the development of power "implicitly". Implicit power is necessary when:
- explicit power is not well defined.
- explicit power is not efficient (i.e. the processes prevent recognition of the value creation within the organisation).

"Perception management", an integral part of office politics, becomes important when an organisation lacks transparency - in structure (information flow is weak and hence the performers and non-performers are both invisible) and in its processes (definition of value adding activities is actually not clear so people don't know what is expected of them).

D. Talent management:
Given that (and this is true mostly of developing economies) the number of higher level educational institutes has not kept pace with economic growth, talent is indeed scarce.

Unless organisations invest to develop talent,
- the talent it already has will disappear, seeking more competent companies.
- the dissipating talent will be hard to replace
- insufficiently trained people will be elevated higher up the organisation.
All three are key reasons to why industries rise and fall over time.
Lack of talent means lack of innovation means lack of excitement means exodus of talent.

Industries commoditise for lack of ideas. Period.

Ritu and Venkat

Luxury Fashion Executive Domenico De Sole: 'Stay the Course with the Brand'

(Click link to read the artical)
Published April 15, 2009 in Knowledge@Wharton, this is an interview with Domencio De Sole, the chairman of Tom Ford International, and the person believed responsible for the turnaround of Gucci in the 80s.

A fascinating discourse on brand management. Some excerpts.

Knowledge@Wharton: What kind of strategy would you suggest a luxury goods company follow?
De Sole: The strategy for all luxury goods -- and I think excellent managers understand this strategy -- should be the traditional set of managing for cash in difficult times. Watch your costs very aggressively. But, at the time same, stay the course with the brand. Discounting prices really doesn't make a lot of sense. At the end of the day, it is imperative for luxury companies to deliver good value. It doesn't mean the price has to be lower. Just make sure that whatever is delivered is a good value -- great quality, great fashion, great brand.... The savviest people know that the number one [strategy] is to stay the course.

Knowledge@Wharton: In what ways do you think that the financial downturn has changed consumers? You started out talking about this, about how consumers are now pushing back on price. They are much more sale and discount conscious. Will this be a long-term change or, as you touched on earlier, might they revert back to their old ways once the recession is over?

De Sole: Again, nobody knows the real answer. But my instinct tells me that this difficult time is going to last. It's not going to be fixed in a few months. I think that people obviously are very concerned. But my experience is that at the end of the day, the consumer forgets. People love luxury brands. Historically, if you think about it, during the Stone Age, people were buying bracelets and earrings made of stone. So it's something that's part of human nature. My sense is that things will get back to being good. The real issue is, that it's going to last some time. I think that it's going to be a year, or two, or three. But nobody knows.

ritu and venkat

Lessons for Indian retailers from Why we buy (Paco Underhill)

Indian demographics tilted towards the youth (and reduced wealth in older age) makes for a phenomenally different shopping experience, compared to the West.

I went back to Paco's "Why we Buy" recently, after reading his book "Call of the Mall". I was disappointed with "Call of the Mall", and went back to Why we buy to understand what it was that i enjoyed about the book when i read it in 2000.

Paco's book in 2000 was a mix of social observation and science fiction. India had maybe 3 malls back then, so it was interesting to read what we believed would be the future of Indian retailing (the science fiction part). I have always believed that Indian retailing will not pick up till we have better road connectivity. Else malls would be located in the city center where high real estate prices and immense competition would severely limit their sustainability. (this has been the case to this day)

In 2009, as i re-read the book, i still felt a bit of "science fiction " to it.
But Paco makes an interesting point. Understand your customers and build the shopping experience around it.

This got be thinking about what the profile of the Indian mall shopper is today. Specifically, the grocery shopper in the new super(hyper) markets springing up around the country. Young family: Age 27-40; husband wife with zero, one or more kids.

No baby boomers!
No single male or female shopper (very very rare).

This is a very homogeneous profile.

The aged in India are financially less well off, and would often avoid driving on the manic roads to go to a super market 15 miles away. The mom and pop store in India is definitely continuing to thrive with home delivery options keeping his customers loyal to him.

Young men and women, who live with their parents, do not shop for grocery.
Independent men and women order home delivery or shop closer to home, thereby maximising leisure time on the weekends.

The literacy rate in India is low, and it implies that a number of couples in the 35-50 age group have only recently gained upward mobility. Their use of technology is limited. A stores have a lot of "help".
1. self check out counters are non existent.
2. store workers weigh and price all non-packaged goods (fruits and vegetables. This also helps to control pilferage.

Home and apartment sizes are very small, implying that households have to shop at least once a week. Since both the husband and wife work, shopping is then a chore that has to be done. The browse to buy ration ( amount of time browsing a category before buying a product) is very low. Decisions are made on brand recognition and price. Period.

(Interestingly, supermarkets have not yet begun to integrate play areas or eating areas within the store in an attempt to prolong the visit. The idea so far has been to maximise store space with as many products and brands as possible. Consumers in a rush want convenience, not choice. The Indian grocery shopper is always in a rush)

Given these characteristics, i am surprised that malls:
- do not package all goods, including fruits. I believe this comes from the belief that Indians like to feel everything before they buy. True of my parents generation, not of mine. (and my parent's generation does not visit the super market)

- have too many brands.... when the browse to buy rate is low, this is not a good idea.

- do not offer home delivery options (within a 5 km radius for example)

Why we buy continues to be a fascinating reading and extremely relevant for a market taking its first steps to becoming a consumption society.

venkat

Targeting your consumers through appropriate distribution

I read this note a couple of days back (i am sure it was the businessweek online, but i am unable to trace a link to it and put it here for perusal) about HP (the computer guys) using different types of retail outlets to get closer to their customers.

Eg: a fashion/ clothes store for young women. HP places its products here- the ones that have fancy prints all over- and allows the women to use the hardware and software to try various outfits "virtually".

We think this is a wonderful idea. Ritu and I are not "mass market" marketers. We like to think about goods that cost upwards of USD50-75 a unit, hence cause consumers to think about their purchase. For brands that operate here, we recommend complete ownership of the distribution channel. i.e go online or have your own exclusive stores. Retailers take away control. If yours is a product that requires consumers to be educated, do it yourself. No retail.

What we like about HP's idea is that it allows you to be present in a wider range of stores, closer to the consumer that you want to reach. The consumr you want to reach.

Targeting your distribution. That's an exciting idea. We talk of targeting communication al lthe time....this is a step further.

And you're not keeping your entire range there. Just a relevant product that gets consumers excited about computers, feel at ease with them, and check out these new machines from HP.

What other applications can i think of? Sampling coffee in a high end retail store...where the lady (or gent) has to wait while the better half is getting the fitting correct.

Its an intresting line of thought and we will reflect more on this.

Ritu and venkat

marketing during an economic boom & disposable income sensitity tests

Price sensitivity tests must be accompanied by disposable income sensitivity tests as marketing teams develop the business case for launching new products.

Ok, this comment may sound very eccentric. We can't put a fix on it, but we think the logic is correct. We will continue to work on it.

"Marketing in a recession. Sales in a recession. HR in a recession." We are reading these headlines everyday. Prominent management gurus giving their inputs on how to maximise shareholder value in a recession/ downturn when consumers and employees lack confidence. We dont dispute most of these writings, except the ones that advice management to "re-look" pricing and make pricing "more attractive" (read discounts/ bulk deals etc) in a downturn.

Our take is this. Marketers should be as careful of how they market in a "boom" as they are in a "bust". More so in a boom, because these phases of expansions set up expectations (over optimistic) of the success of a brand or marketing approach. Fundamentally, does economic health determine how good a product is functioning?

-Was a Porsche a better car in 2007 than today?
-Is my Axe effect any less now than last year?
- Are the Himalayas any less beautiful today than 2 years ago?

A brand is a promise of a product/ service experience. It is based on a product and its differentiation (or lack of it). If the promise is maintained and communicated/ delivered over time, the brand becomes a signal. Fine.

Why then do consumers opt in and opt out of products, often siting economic conditions as the key. We believe that the value proposition of these consumer changes. In a boom cycle, the consumer feels richer and freer to purchase certain products which seem "an indulgence" when money is tighter. These are risky consumers and marketers must identify them early. Hence price sensitivity must be in conjunction with disposable income sensitivity to a product.

These fickle consumers will cause sales to rise during an expansionary period and decline during a recessionary period. This means that factories produce more when demand is higher, and less when it is lower.

Profits will rise in a boom, and fall in a bust. The number of consumer rises in a boom, and falls in a bust. This should not be surprising to a company. But it often is.

In fact, if the marketing processes included a sensitivity simulation of the economy on future purchases, all of these swings would be built into the business model for a new product.

1. The marketing team must start with a definition of the "core consumer" set for a product. The people for whom the product is an essential part of life.

2.Then identify Identify how sensitive the customer to a change in his disposal income. Not price sensitivity. But income sensitivity. What happens when the consumers income falls be 15%, 30%, 50%. This is a critical lesson for us from the current business environment.

3. What this will mean is that the business has identified a "economy independent" set of consumers around which its business is to be built. any new consumers in a "boom" should be taken as a bonus, and these earnings set aside in a war chest.

Any decline of consumers in the "bust" should be offset not by lowering pricing and inflating demand, but by digging into the war chest to continue R&D and marketing expenses in a low volume environment. (A sort of "oil surplus fund" that Russia created some years ago, to put aside its oil surpluses for a rainy day.)

Why should a business not work that way?

Adjust production to changes in the "peripheral" consumer set that a brand has attracted, but be focused on the core group. Pricing has no significant role to play in a recession. At least no more significant than during an expansion.

if you care mr.ceo, show it

For over a year i have struggled with the customer service approach of a large mobile service provider whose network carries my calls.

My monthly billing is very high (compared to Indian usage rates) and i should be easily among the top 5% of their customers in terms of revenue generated. And yet, i am treated with suspicion, and made to feel irrelevant.

A bill goes missing, i am told it will take 8 days. Since i have already paid the bill and only require a copy for official records, i ask why 8 days to send a bill by email. No reason...its policy. So i talk to the supervisor...." i will do it for you today (and only because its you)", he says. 24 hours later, nothing. So i call back, a new supervisor promises the same. 24 hours later nothing. By now i am feeling like they are taking me for a ride. No one seems to be interested in solving the problem...just closing the call.

So i call some friends working in the company and behold- the bill appears the next day.

And all this while, i am left with a feeling of helplessness. When i want to report the incident to the supervisor's manager, i am given an email id which says that i should get a response in 8 days. I want to be heard today. Not 8 days later.

I am bitter. I know that this company has perhaps the best network in the country, i cannot shift. So i must continue to suffer their indifference.
Bitterness, frustration are outcomes of a sense of helplessness. I felt the same way when i met the school bully! Till i threw my first punch at him.


What right does a company, that exists because i buy its services, have to make me bitter?

On a marketing blog, my own feelings are irrelevant. What's useful is that i have reflected now on what customer service processes should achieve:

- listen to the customer. Understand his problem.
- treat the customer as you would like to be treated. Dont mess with his time. And behave as you would if you were standing in front of him, and not in some undisclosed part of the world.
- empower the customer (and your front line staff to solve problems, not just pass on the buck). If you can, give the customer some alternatives and let him choose his solution.
- close the issue in the first call. Or stay with the customer and the issue till it is closed.

I do not spend time with people that do not respect me.

I had a vastly different customer service experience with the Taj group of hotels, just as recently. (www.tajsafaris.com). I had a problem with a policy, the lady at the desk said she could not sort it out. I asked to speak to her supervisor. She could not sort it out and suggested i email. When i said i would not email, she offered to connect me to her boss.

In an ideal world i would have liked her to sort out my problem. But i noticed that this was an organisation where senior management were not afraid to come in front of their customers. They did not hide behind emails. I got his mobile number and called.

The gentleman said he understood the problem, and would look into it and get back to me. If there was a reasonable chance of sorting it out in my favour, he would.

I dont care anymore that he does not sort out my problem. But by giving me his mobile number and direct email id, he showed that he trusted me. He heard me out.

Some organisations may be in the service business and some may be in the manufacturing. But all customer service departments are in the customer contact business. There can be no excuse for not respecting the one reason why a company is in business. The customer.

Venkat

Power Pricing

...by Robert J. Dolan (Author), Hermann Simon (Author)

A very interesting book indeed, I would recommend it to managers looking to sensitise themselves to Pricing without getting into very technical treatment.

As a pricing manager myself for the Western European region, I had the opportunity to apply a lot of pricing concepts. And the application of pricing is a tremendous source of competitive advantage.

For example, elasticity. How much more or less do consumers buy given a price decrease (or increase). Now consider a company that sells through multiple channels….wholesalers/ retailers/ the internet.
How is channel elasticity different for each trade channel. How much saving does awareness of this fact, generate for a company.

Product elasctities. Consider than you have 50 SKUs of a single product. Elasticity for toothpastes may not be the same as the elasticity for a “tooth whitening” paste or a “breath freshening” paste.
Or that a 200g paste has a different elasticity than a 100g paste. Do you capture such variations?

Then the entire notion of price setting itself. Does a new product always have to be priced high. (Not if the product category is old and very competitive!)

What market place parameters influence pricing? In the auto industry, for example, the Original equipment Manufacturers are never keen to give more than 30% of the component business related to a particular model to one supplier. They create competition.
How about the fact that some consumers hang on to really outdated car models (not as old as antiques, but old enough). The tires on those cars could be a very old design. Yet, the “hockey Stick” concept suggests that as the product enters its “end of life” phase, it may present an opportunity to increase prices so as to milk the last sales from its die-hard customers. Wow.
Another interesting topic was the flow of goods between countries. A “price corridor” is now the recommended answer, suggesting that some countries increase prices and others decrease prices so that the differential between them is low enough to discourage price flows. It raises a very deep question: Do grey market flows happen because prices are out of equilibrium or that supply and demand are not synchronised in a particular market. Figure this out before you attack pricing, else even the smallest differentials are sufficient for some intermediaries to act.

Consumer goods in competitive markets represent very interesting pricing challenges. My request to any practitioner is to start with the questions:
- What does this product do for the consumer
- How does the consumer value this benefit from the product?

Most of us take the market prices as a given while position new entrants. Its simpler. But knowing what value products create in the lives of consumers, and maximising this is a very important goal of the marketing team.

Venkat