Showing posts with label MBA. Show all posts
Showing posts with label MBA. Show all posts

What are the top 3 causes of wrong customer insights?

(This is an excerpt from Chapter 1 of the book Why Consumers Don’t Buy: GO & STOP Signals)

Marketing mistakes are often attributed to wrong customer insights. The standard refrain is that mistakes happen because managers do not listen to the “voice of the customer.” However, the problem is not so simple. While not listening to the “voice of the customer” has often landed companies in trouble in the past, this does not seem to the main cause of consumer insight failures. We believe that consumer insight failures can be attributed to three major causes: (i) incorrect beliefs about consumer behavior, (ii) a hedgehogian approach to strategic decisions, and (iii) incorrect beliefs about market research.


Incorrect Model of the Mind

          Our mental models – that is, our beliefs about how things work – shape our thought processes. The accuracy of our predictions, inferences, and judgments about the world depend on the validity of our mental model of the world. If an astronomer’s beliefs about the solar system are incorrect, then his predictions about the eclipse are also likely to be incorrect. If an engineer’s beliefs about the properties of a material are incorrect, then his prediction about its tensile strength is also likely to be incorrect. In like vein, if a manager’s beliefs about how the human mind works are incorrect, then her predictions about consumer behavior are also likely to be incorrect.
The mental model of consumer behavior among MBAs and managers has been influenced by traditional economics model of rational consumer. The traditional literature in economics portrays consumers as homo economicus – rational and deliberative beings always making decisions to maximize their long term utility. At first blush, this parsimonious utility maximization model of consumer behavior seems reasonable. However, a more careful scrutiny reveals that when it comes to predicting consumer behavior the traditional utility maximization model and its extensions do not have much descriptive validity beyond some basic economic transactions. This is because the traditional economic models are more prescriptive than descriptive. That is, these models do not describe actual everyday consumer behavior; instead it characterizes how a “rational” consumer ought to behave. Mind you, in economics the word rationality is not used as most people use it in everyday parlance. This is rationality as defined by the mathematical models of economics. If you are a Star Trek fan, then think of Mr. Spock, the emotionless extraterrestrial humanoid from plant Vulcan who served as the first officer aboard Captain James T. Kirk’s space ship. Because he can exert complete control over his emotions and mind and he can perform complex computations in his mind in a jiffy; Spock comes very close to economists’ portrayal of a rational being. 
One doesn’t have to think for long to realize that ordinary earthlings do not behave like Spock. Therefore, their behaviors do not always conform to the tenets of rationality as prescribed in economics.
Here are some illustrative examples. One tenet of rationality is that a homo economicus should have consistent utility for money. For example, a rational consumer should always have more utility from $40 than from $20. So if a rational consumer finds a $20 discount attractive, then she should find a $40 discount even more attractive. But real-world consumers often violate this tenet of rationality. If you are like most consumers, then you would be delighted to get a $20 discount on a dress that is usually sold for $100, but would be considerably less excited by a $40 discount on an appliance that is usually sold for $2000. Although everybody knows that $40 can fetch twice the purchasing power, somehow $20 on $40 definitely seems more attractive than $40 on $2000. Clearly consumers don’t always value $40 more than $20; their valuations are influenced by somewhat arbitrary reference points in their minds.
Another tenet of rationality is that a homo economicus should have reasonably stable preferences for products. Only then can a homo economicus efficiently maximize utility. But this is seldom the case with real-world consumers. Real-world consumers’ preferences for products are hugely influenced by the salient cues in their immediate environment. They learn to spontaneously respond to the cues that they have previously seen in their environment, oftentimes without even being aware of such cues. For example, consumers often use prices and brand names as cues for quality. Brain scanning studies have shown that the same wine actually (i.e., physiologically) tastes better when it is priced at $25 than when it is priced at $5. The same energy drink can be actually less efficacious – provide less energy – when it is sold at half the price. For Coca Cola fans, the same cola – when served in two differently branded packs – seems tastier when it is branded as Coca Cola than when it is branded as Pepsi Cola. What these studies tell you is that, unlike the elusive homo economicus, real people do not have stable preferences. Consumers’ preferences, and by extension the utilities that underlie these preferences, are very labile.
If managers and public policy formulators work with the assumption that consumers are deliberative and emotionless utility maximizers, then their predictions about consumer behavior are likely to be way off the mark. Real-world consumers are quick thinkers, relying on fast and frugal heuristics, and emotionally sensitive beings, intrinsically motivated to avoid negative emotions and seek positive emotions.

Hedgehogian Thinking

Isiah Berlin, a British philosopher and thinker wrote an essay titled “The Hedgehog and the Fox” in 1953, in which he argued that influential thinkers can be divided into two categories: hedgehogs and foxes. This analogy was inspired by the ancient Greek warrior-poet Archilochus, who is reported to have noted that the fox knows many things; the hedgehog one great thing. Hedgehogs have one very effective way of dealing with adversity – it uses its sharp spines or quills to protect itself and inflict pain on its foe. When a hedgehog encounters a foe, it rolls itself into a ball such that its quills point outwards. Although the purpose of comparing a hedgehog to a fox is not very obvious, Berlin used this adage to argue that like hedgehogs, some people view the world through the lens of a single defining idea. In contrast, others, like foxes, draw on a wide variety of experiences and for them the world cannot be boiled down to a single idea.
Berlin’s ideas are very relevant for business managers. Mispredictions of consumer behavior—or incorrect consumer insights—caused by a hedgehogian view often result in misdirected business strategies. Managers often fall in love with one idea that seems powerful. They become obsessed with this seemingly powerful idea. They come to believe that this one particular idea will always beget successful marketing strategies. For example, some managers fervently believe that low prices and sales promotions are good for business. If they experience success with lowering prices and running sales promotions in one context, then they mindlessly try to implement the same strategy in all contexts without considering that consumer behavior varies across contexts. A sales promotion might help a pizza delivery chain, but it might completely backfire for a formal dining restaurant. As another example, some managers adopt a new packaging that is trendy because it has worked for others. So they start mindlessly adopting the new packaging in all categories. And some, like a recent New York Times article documented, are falling over each other to create “emporiums of cool” user experiences. Why? Because they saw some case studies suggesting that improving user experience improves financial bottom lines.
Instead of understanding the basic GO and STOP signals that driver behavior, when managers see consumer behavior through the lens of a single (often previously-successful) idea, it often leads to incorrect predictions about consumer behavior.

Not Understanding the Difference between Asking & Testing 

The third cause of incorrect prediction is incorrect beliefs about market research. Lamentably, many managers either do not test their consumer insights, or if they do, they use incorrect methodologies to test consumer insight. Managers often do not test consumer insights because they do not trust traditional market research. For instance, the technology marketing guru Steve Jobs is reported to have said "Some people say, 'Give customers what they want.' But that's not my approach. Our job is to figure out what they're going to want before they do. I think Henry Ford once said, 'If I'd asked customers what they wanted, they would have told me, "A faster horse!"' People don't know what they want until you show it to them. That's why I never rely on market research. Our task is to read things that are not yet on the page." Those are some strong words from one of the legendary marketers of this century. Are his words justified? Is market research unreliable?
The answer is both yes and no.
In a sense, Steve Jobs was wrong.
In some situations market research can provide very reliable answers. For repetitive and habitual behaviors, the traditional market research techniques that use past behavioral data to predict future behaviors can be very reliable. In the past few decades, market researchers and academics have developed impressive models to predict repetitive and habitual behaviors of consumers using their past behaviors. For example, John Little and Peter Gaudagni of Massachusetts Institute of Technology published a paper in 1983 which is now widely acknowledged as a classic. They demonstrated that if we know (a) your grocery purchase patterns for the past six months and the prices of coffee brands in your store during this period, and (b) next week’s prices and promotional schemes on all coffee brands in your regular grocery store, then we can predict with over 80% accuracy what brand of coffee you will buy on your next trip to grocery store. Over 80% prediction accuracy - isn’t that impressive?! In fact, the Nielsen research company uses behavioral data collected from retail stores to develop such models, and packaged goods giants such as Procter and Gamble, Unilever, and Colgate routinely use such models to predict how consumers will react to price changes and promotional schemes. Ignoring market research in such environs would be simply foolhardy.
In another sense, Steve Jobs was right.
However, traditional market research techniques are much less reliable when it comes to behaviors in novel contexts. Powerful innovations often entail changing the status quo – putting consumers in a new retail environment, offering them a new pack that they have never seen, or offering them a new-to-the-world product. In such instances marketers don’t have reliable past behavioral data to predict behavior. So it is not easy to predict how consumers will behave in such situations. For example, it is not easy to predict how many people will buy a 3-D TV using traditional research approaches. A 3-D TV entails a behavioral change – putting on a pair of 3-D glasses each time one switches on the TV. It is not easy to predict how many people will be willing to change their behavior. In a similar vein, it is not easy to predict how many people will buy the revolutionary personal transporter Segway using traditional research approaches. While we are not suggesting that market research ought to be entirely ignored in such consumption contexts, we do agree with Steve Jobs that traditional market research, as it is currently practiced, ought to be taken with a grain of salt.


What is it difficult to predict customer behavior?

Customer insight is the ability to predict customer behavior based on insights about psychological determinants of the behavior. Deep customer insight refers to insights about unconscious psychological determinants of behaviors that customers themselves are unaware of.

Every marketing manager acknowledges the importance of customer insights. In fact, most managers assiduously claim that they are always customer oriented. Organizations small and big incorporate customer insights or words to the effect in their vision and mission statements. Yet, there are more instances of customer-insight failures than of successes in the marketplace. More new products fail than succeed. More campaigns end up being ineffective and wasteful than not. 

Why is it that even well-trained MBAs and competent marketing managers fail to predict customer behavior correctly? In this video, I discuss the challenges of leading a customer-centric organization with Irene Rosenfeld, chairperson and CEO of Mondelēz International.

Should you change your brand positioning?

First published in Fox News on June 12, 2018. This thought piece was written in response to media reports that IHOP (International House of Pancakes) is planning to re-position itself as IHOb (International House of Burgers). 


Repositioning a retail brand is a tricky business fraught with risk. Sometimes it is a soaring success and sometimes it is a flaming failure. In 2011, JC Penney tried to go through a major repositioning – an exercise that could be instructive in evaluating International House of Pancakes’ recent attempt to reposition itself from IHOP to IHOb – from pancakes to burgers.
The JC Penney case study shows that even seasoned executives make costly mistakes repositioning a retail brand. JC Penney’s repositioning was led by Ron Johnson, an industry veteran who had successfully positioned several retail stores. Johnson was a part of the executive team that transformed Target from a discount store to a unique brand that sells chic yet affordable products. Johnson used the same focus on customer experience for Apple, to make their Apple Stores a runaway success and one of the most profitable retail outlets.
However, when Johnson tried to reposition JC Penney based on the same principles, it backfired. In 2011, Johnson tried to reposition JC Penney from a discount store to an upscale store that sells chic yet affordable products. He expected the repositioning to revitalize the brand. But as soon as JC Penney’s new positioning was announced, sales precipitously declined. Sales fell by more than 25 percent, and the losses were even steeper. Not surprisingly, the stock market’s notoriously fickle investors responded and JC Penney share prices fell by 51 percent. On April 1, 2013, after a little over a year at the helm, Johnson was fired from JC Penney. What lessons can IHOP learn from Johnson’s failure at repositioning JC Penney?
The JC Penney repositioning was a disaster because it fell between two stools. By repositioning JC Penney as a higher-end brand, Johnson was trying to move away from value-conscious, discount seeking, coupon-cutting customers to customers who care about shopping experience and ambience. Unfortunately, the repositioned JC Penney appealed to neither customer segment. Value-conscious customers stopped coming to JC Penney because the repositioned brand did not offer them what they wanted. And the new customer segment that Johnson was chasing was not convinced that the new JC Penney could offer the same experience or ambience that other premium stores do.
If IHOP loses the distinctive association as the best pancake place in customers’ minds, their gustatory responses to IHOP pancakes will change. If IHOP is no longer seen as the pancake specialists, then chances are that IHOP pancakes will not taste as good as they used to.
There is a very good chance that IHOP’s repositioning to IHOb will also be caught between two stools. IHOP has been around for more than five decades and has developed a reputation as the best restaurant chain for pancakes. When most American customers think of pancakes, IHOP is the first brand name that pops up. The immediate accessibility of this unique and distinctive association is at the core of IHOP’s brand equity. Such high top-of-mind brand recall and the distinctive brand identity of IHOP are probably the most valuable assets that IHOP owns—the strongest “GO” signal for IHOP customers. But such a distinctive positioning can sometimes be a constraint. Customers’ attitudes towards pancakes are changing because of increasing health-consciousness and aversion to carbohydrate-rich foods. Not surprisingly, IHOP’s revenues have plateaued in the past few years. This lack of growth is probably the impetus for the current repositioning attempt.  But the JC Penney case study suggests that this approach is fraught with risk. Very high risk.
If IHOP repositions itself as IHOb, it would neither appeal to customers who like pancakes nor to customers who like burgers. Although customers who love pancakes might also frequently eat burgers, the associations evoked by burgers have little in common with those evoked by pancakes. Burgers are savory, pancakes are sweet. Burgers are meaty and hardy, pancakes are soft and fluffy. Burgers are eaten in red and yellow restaurants, pancakes in white and blue ones. Burgers come with fries, pancakes come with fruits.
If IHOP loses the distinctive association as the best pancake place in customers’ minds, their gustatory responses to IHOP pancakes will change. Taste is a top-down perception. If IHOP is no longer seen as the pancake specialists, then chances are that IHOP pancakes will not taste as good as they used to.  Customers will look elsewhere, possibly the local diners for their favorite breakfast food. And when they want a burger, they will go to a place that’s best known for burgers—McDonalds, Burger King, or the local burger place—not to a pancake place that is pretending to be a burger place. If this happens, then the decline in IHOP’s sales and profits would be precipitous and irreparable.
Manoj Thomas is the co-author of the book, "Why People (Don't) Buy: The GO and STOP Signals," and is the Breazzano Family Term Professor of Management at Cornell University’s SC Johnson College of Business.


What is the difference between product management and brand management?


MBA students often wonder how product management is different from brand management. Brand management is a form of organization wherein a multi-brand company organizes itself around the various brands it sells. Compared to the functional form of organization, this form of organization is an effective way to decentralize decision making in a multi-brand company without losing centralized oversight. This form of organization was introduced by Procter & Gamble, USA, in 1931. It was swiftly adopted by companies around the globe; Unilever, Johnson & Johnson, Nestle, Mars, Hasbro, all customer-centric companies with a collection of brands started organizing themselves around their brands. Brand management became a staple course in all business schools. For decades, brand management was one of the popular career paths for MBA graduates. At every top-tier business school, MBA students used to compete with their classmates to get the coveted assistant brand manager position with a reputed consumer product company. A brand management position at Procter & Gamble used to be the dream job for many MBA students in most business school campuses, not just in the US but globally. However, the popularity of brand management jobs has dwindled with the growth of technology-oriented companies such as Apple, Amazon, Google, Facebook, and LinkedIn. These mono-brand companies have only one brand that is usually managed at the highest level. So they do not have brand managers; instead they have product managers. Product management is in many ways similar to brand management, but in some ways it is also distinct from brand management. In this video, I discuss the similarities of product and brand management roles with Bill DeGroot and Anvar Varadaraj, two managers who have experience in these roles.

What are the 3 top skills for product management?


What skills are critical for brand or product management roles? What separates the winners from the also-rans? Although this is an important and often-debated issue, I’ve not seen any empirical research on this. An answer to this question would be useful for MBA students and aspiring brand managers. 

So I requested two MBA students at Cornell University – Mike DeCoste and Suman Dasgupta – to do a study to find out what skills matter the most for brand and product management jobs. I did not expect a conclusive answer to the question. What drives career success is far too broad and nebulous a question to be conclusively answered by one study. Nevertheless, the insights generated by even attempting an answer seemed promising. So Suman and Mike did a semester-long study to identify critical skills for marketing leadership positions. They began by doing one-on-one exploratory interviews with eight Johnson alumni at middle and senior management positions. Based on the insights from these interviews, they came up with an exhaustive list of skills that are considered relevant for marketing positions.

Then they designed a survey to rank the relative importance of these skills. The survey was administered to the members of several professional networks. Fifty eights managers at different stages of their careers – Associates (29%), Managers (24%), Directors (25%), and Executives (22%) – completed the survey.  Not surprisingly, the largest representation was from marketers in the consumer packaged goods industry (41%), although other types of marketers, notably business-to-business marketers (17%) and service marketers (13%), also responded to the survey.

What skills matter the most? Identifying consumer insights, strategic thinking, and oral communications were the three skills that received the highest importance ratings for marketing jobs. Identifying consumer insights refers to the ability to identify new cause-and-effect patterns, behavioral patterns that consumers themselves might or might not be aware of, to predict consumers’ response to a marketing stimulus. Strategic thinking refers to the ability to formulate a competitive product and market (i.e., positioning) strategy that can guide tactical marketing decisions and P&L forecasts. And oral communication refers to the ability to prioritize the right elements of a message, to use the right tone, stories, metaphors and body language to persuade internal and external stakeholders.  The graph below depicts a summary of the importance ratings collected on a five-point scale.

Another important finding is how the perceived importance of these skills changes by experience level. The skills considered important at the junior levels are quite different from those considered at the senior levels. Managing cross-functional colleagues (e.g., getting co-operation from Supply Chain and Finance) and managing up (e.g., influencing a supervisor) are perceived to be among the three most important skills at the associate level, but not at the director or executive levels. The proportion of respondents choosing the top-two boxes on the five-point scale are shown below. The usual caveats apply – the sample size is small, and survey responses reflect the respondents’ beliefs that might or might not be accurate. Nevertheless, there are some pointers here for MBA students on what many recruiters expect from a marketing manager and how the expectations change over time.