Shareholder value vs. Customer value

There was a great column published this week by Joe Nocera entitled “Down with Shareholder Value“. In that column he challenged the long-held notion that the end-all and be-all of a corporation is the maximizing of shareholder value.  He point out that this “truth” has really only been with us for around the last thirty years. He discusses how this this singular focus has resulted in a fair bit of unintended, and not highly desirable, consequences.  He calls forth new theories coming out of business schools that look at a more holistic and long-term context for defining long-term strategic advantage and corporate success.

But he notes that one of the reasons why shareholder value is used as a measurement stick is that it can be distilled down to a simple set of metrics.

Metrics are important. No, essential. Without them, we cannot instill the feedback loop that improves performance.  But if we move away from standard profitability measurements for guiding improved performance, what then do we have?

I would argue that it is not only shareholder value but also customer value that is critical to define and measure against to guide long-term growth. Tools such as the Net Promoter Score (NPS) can become powerful tools – if strategically used — to help guide the tiller of the modern corporation. But the problem is that few use NPS and other measurements of customer value strategically – though that is the topic for a future post.

Marketing and the Sense of Belonging

I read a fine post on Only Dead Fish the other day. It dealt with the question of how we find community in our fragmented world. Another question occurred to me: what does the fundamental human desire for community have to do with marketing?

Belonging is in our DNA. The instinct to congeal into tribes and villages is powerful. But it’s not unconquerable: post-war American society did a great job quashing it. For generations we were told that happiness equals stuff rather than happiness equals belonging. We moved to suburbs where we could set ourselves apart, with lots of room for our possessions. It didn’t really work out.

Now belonging is back. Open source aligns programmers and users in a shared purpose. The Internet and social media allow disparate people to form communities despite boundaries that would have kept them in different universes a couple of decades ago. People share information, opinions, and ideas. And sharing is the basis of open innovation, and the basis of community.

What’s the implication? How can we build communities in ways that help us build our business?

We need to realize that the old marketing model, by which I try to persuade you to think the way I want you to think, is on the wane. In the new model, we empower and share. We have knowledge, and we want to share it, to make you smarter and more able to do your job.

When we market, we need to be conscious of the community we’re creating. When you share knowledge and empower people, you build trust. And trust is the basis of community – and business success.

The Problem With Lists

A very worthwhile post on Marketing Sherpa about third party lists appeared recently. Adam T. Sutton rightly points out that most business rely heavily on them, and shouldn’t. He also reiterates Brad Bortone’s wise words:

…effective email marketing is based on relationships. These relationships hinge on expectations, promises, and trust.

In truth, third party email lists are a piece of the puzzle, and they’re sometimes appropriate. But the core of marketing is establishing trusted relationships. Which is why, most of the time, you’re better off investing in your own database.

When you do use a third party list, the hardest nut to crack is profiling. A lot of marketers profile based on description (“he’s an engineer, works for a 8 billion dollar company”). Instead, you need to profile their persona – find out the problem they want to solve. Knowing their company’s annual revenue won’t get you closer to a sale.

With the right persona, you can gradually increase the relevance of your communications to the people on the third party lists, until they begin to trust you.

Until then, they’re just another name on a list.

Why I Didn’t Buy an iPhone

When I brought home a new smartphone the other day – an HTC Droid Incredible – my wife asked me a fairly sensible question: “Since you’re buying something that looks like an iPhone, why not buy an iPhone?”

She asked a simple question, and expected a simple answer. But for me, the answer was complex, one I had pondered for many weeks. Finding my opportunity to share the thought map in my brain, I launched into a long explanation, but she soon got bored and walked away. Oh well.

But wait, it really is interesting! So here are my reasons – it boiled down to 3 issues:

1. The product itself. That doesn’t mean the phone – the core of the product is the network. I’ve found that Verizon’s network is available where I need it.
2. Customer service. Verizon has done an amazing job with their service. Their people always walk me through the steps when I have a problem, and give me their email address and telephone numbers so I can get back to them if need be. That’s made me a brand evangelist for Verizon.
3. The Ecosystem. We don’t buy products like smartphones in isolation: we buy a participation in an ecosystem. Which ecosystem did I want to be part of, Apple’s or Google’s? Since we’ve adopted Google Apps and moved our own corporate ecosystem into the cloud, we’ve benefited from their innovations. The Google ecosystem is evolving quickly, and I want to be part of that evolution.

So cool as the the device is, the hardware isn’t the point – what matters is the quality, the service, and an innovation-driven ecosystem.

Well, I found the answer interesting.

Hey, are you still there?

This Time Ford Really Has a Better Idea

Industry underwent a sea change last week, and somehow, it slipped by in the guise of a typical marketing story: Ford is asking its customers how to design cars.

The US auto industry? The guys who insisted that Americans didn’t want small cars until the Volkswagen ambushed them? Who thought Americans would buy anything they sold, handing Japan a mandate to take over the category of “reliable family car?” The arrogant institution that refused to believe we wanted higher mileage cars? Yes, this is a big story.

It was quite amazing to see this most hidebound of American industries embrace the power of community-based value networks to drive innovation. The upshot: ideas that were on the edge of management thinking 15 years ago are now entering the mainstream. I hope other car companies are taking notes.

And I look forward to seeing the kind of cars they start building, now that they are finally – finally! – listening.

Ulterior Motives

A recent post on Social Media Explorer grapples with the issue of intention. If markets are conversations, how do you converse honestly with someone when your ulterior motive is to make a sale?

Jason Falls’s concern illuminates the problem with our short-term business ethos. Companies are under pressure to boost their stock prices and sales figures each quarter. Individuals are driven by the same short-term intention. The relationships that result are all started for the purpose of short-term gain, with the single transaction the only justification for participation.

Little wonder people are turned off. They’re not dumb. But then Jason asks:

If we act, though, not as marketers, but as members of the community, network or environment in which we’re participating with the audience, do we chip away at that mistrust?

The answer is yes. In fact, companies can and should not just be participants, but facilitators in a community. To name just three, Intel, Adobe and National Semiconductor are known for hosting vibrant online support communities. By enabling continual discussions not just between them and users, but also user-to-user, they’re building their customers’ trust.

To move from activity-based to community-based marketing is to gain customers’ trust. Instead of trying to control the conversation, and push your idea out, you let the users control the conversation, learn from each other, and in many cases, take themselves through the sales process. A frightening thought to control freaks, but the companies that practice community-based marketing are earning trust, building long-term relationships, and yes, making sales.

Home and the Range: Why Brand Evangelism is Crucial

As part of our new kitchen remodel, my wife and I have been searching for a new range – a fairly big commitment, given the appliance’s cost and longevity.

We finally found a Viking range that was perfect – it had all the features we needed, and only cost about twice what our budget and sanity dictated. My next thought was to start looking online for brand evangelists, to reassure myself that this was the one to buy. It’s comforting to hear people swear by the product you’re paying big bucks for.

What I found instead were detractors. Lots of them. In fact, one comparison site had 26 pages of detractions about the range I was considering. Operating problems, service problems, all of that.

This got me thinking about the nature of customer listening on the Internet. Of course, we all know that the Internet draws extremes, which means that rabid evangelists and detractors will comprise a large part of the commentary on a product.

But extremes aside, the Internet means that customers are listening to each other as well as to companies. So companies need to be sensitive to the cost of short-term decisions – made to reduce customer support costs – that have long consequences. If you screw up the relationship, your detractors’ posts will be around for a long time.

Viking appears to have no strategy in place to build brand evangelists. And when you don’t build evangelists, you risk abandoning your brand to detractors, who will control the conversation.

One of our neighbors has a Viking range, and he loves it. But my wife took a look at those 26 pages of complaints and said, “No way.”

Moral: your customers are listening. If you aren’t cooking up a strategy for building evangelists, prepare to get burned.

True Fans

A very worthwhile post at Conversation Agent about Kevin Kelly’s concept of 1,000 true fans (the number needed for an artist to make a living):

… you need to connect with your true fans. Why? Because they are the ones who:

* Love your stuff and share it
* Buy your product and services
* Help you build community around them
* Evangelize both the community experience and your products and services

Another way to put it: your customers are the source of your success. A true fan (or evangelist) is one who is committed to your success.

Too many businesses think of customers as a source of money, and they view the relationship as transitory. But we know that the greatest predictor of long-term revenue growth is Net Promoter score (a promoter is another word for true fan).

The core is to find, develop a relationship with and nurture those who are committed to your success, for they can reach where standard marketing messages cannot.

My Two Scents

January is prediction time, and Futurenow predicts that “scent” optimization is in. Basically, that’s designing marketing materials so that they carry a strong scent of information. The target sniffs, says “Hmm, there’s something worth finding out here” and follows the trail all the way to conversion.

There’s some validity to the idea of “scent” optimization, perhaps. But it strikes me as a weaker idea than “engagement.” Scent works fine for customers who know what they’re looking for. But if you’re dealing with more complex products in the consumer or corporate domain, you need to focus on how to engage customers: to learn what’s important to them, to educate them in ways that increase their confidence, and efficiently identify those who are ready for the sales conversation.

My 2010 prediction: we’ll develop customer communities that provide resources, discussion, and customer engagement.