In my years in industry as an individual contributor, manager and so-called, senior executive, the issue of employee incentives often came up. Not just when discussing sales people, but all employees. Management was always looking for how to incentivize people for even higher performance, while balancing that against the idea that these people were already getting paid.

On my drive in this morning I heard a news piece on what has to be the most unnecessary performance incentive to which I have ever been exposed. The Philippine government, in partnership with private individuals, is offering a cash bonus of some $200,000 to the first Filipino athlete at the Olympics to bring home a Gold Medal to the Philippines. Apparently the Philippines has never won a Gold Medal. Closest they came was a Silver Medal in boxing at the Atlanta Olympics.

Let’s think about this rationally (or even irrationally). Is there any amount of money you could offer an Olympic athlete to get them to perform better than their best. Is money really likely to provide a greater incentive than to stand on that center platform in front of the whole world? If money really mattered, why would professional athletes compete in the Olympics where they do not get paid?

I appreciate that giving money to people who might need it is a nice thing, it is impossible for me to believe that this incentive is going to impact the person’s desire or ability to win a Gold Medal. What’s the lesson for managers: If you are going to offer an incentive, make sure it is relevant and necessary or don’t bother.

Mitch

I recently had the opportunity to speak in the Republic of Ireland as well as Northern Ireland. While there I was interviewed on BBC Radio Ulster regarding my take on how to deal with the economic downturn facing some companies and industries. You can listen to the interview if you like.

While speaking to one of my audiences we got on the subject of CMO (Chief Marketing Officer) tenure and the fact that it is so short (19-23 months according to various sources). I pointed out that the CMO position (as a separate and distinct person) exists primarily in large, publicly traded companies and that one reason I believed that the CMO has short tenure was due to the combination of two things:

1. When their company experienced difficulties making their sales and profit goals, the CEO was expected to take action
2. Since the CMO position was not well understood or valued by Wall Street, it was a position the CEO could either eliminate or change thus appearing to be taking decisive action without scaring the Street.

One member of the audience, Aiden Gordon of Jardine, Lloyd, Thompson, Ireland Ltd. had an insightful idea to share. He suggested that the main reason for CMO turnover was that too many of them followed a three step process:

1. Rebrand
2. Relaunch
3. Resign

Whether your company has a distinct person with the title of CMO or a Marketing function tasked with helping increase revenue and company value, that function must be tied to identified business outcomes so that you can tell if Marketing is helping the company get closer to its goals or just further from the start (to paraphrase our Principal, Bayard Bookman’s favorite line).

Mitch

Still Wal*Mart continues to remember one of the keys to how they became the world’s largest retailer and highly profitable as well. Two reasons really:

1. They have been in touch with their customers. (Sam Walton was famous for spending lots of his time in the stores and making his senior execs do the same. I’m not sure if that culture is as strong as it was, but the second secret clearly is.)
2. They are relentless about removing costs that don’t add value. And that they continue to do. I know many Wal*Mart suppliers complain about Wal*Mart’s ruthless push for cost reductions, and some of that may be justified, but Wal*Mart people are big believers is getting non-value-added costs out of their supply chain.

Three examples:

1. Wal*Mart has pushed on suppliers to shrink their packages to fit the contents. Suppliers often like bigger packages for shelf space ownership reasons as well as consumer perception. Wal*Mart sees excess packaging as waste (which it is) and is getting its suppliers to comply.
2. Cutting out the middleman. Wal*Mart has been famous for this, including their well known penchant for not wanting to deal with manufacturer’s reps. However that is a minor middleman compared to other supply chains. An example is coffee. Apparently, until recently Wal*Mart bought its private label coffee from a supplier, who bought from growers who used a roaster. Now, Wal*Mart buys coffee from a co-op in Brazil cutting out several “middlemen” who apparently weren’t adding any value
3. In today’s $5/gallon diesel world, truck transportation costs are a more significant contribution to total delivered cost. Wal*Mart has increased their sourcing of food stuffs to local growers. This reduces the cost of transportation. It does increase Wal*Mart’s vendor base, but with computers, that is a trivial cost compared to transportation costs. This is also allowing smaller, local suppliers to sell to Wal*Mart where they could not have done so before.

And for those of you who are focused on “green” these initiatives, and others reduce waste which is greener by definition. Think Lean in your supply chain and your demand chain (marketing/sales) and you will gain a competitive advantage.

Mitch

My wife’s Garmin died last week. Well, at least it appeared to have died. Since we are going to Irelandthis week, and planned to bring it with us, I needed to try to resurrect it. It demonstrated all the conditions of a dead battery, but when plugged into the car charger, it did not seem to charge. A quick look at the fuse in the car charger appeared to be ok, so I was stumped.

Last Saturday, I decided to go online to www.garmin.com and see if their online support would be of help. It wasn’t. No FAQs or such on anything related. So, I decided to email technical support with my “issue.” I sent the email off and got a prompt auto-reply that I would hear from them in about 3 business days (weekends not included). Since we were leaving on Thursday, I did not hold out much hope for help, but at least they did set my expectations. And considering my two month wait with American Airlines, (see a prior post on this blog) three days did not seem so bad (though it was not likely to help me in time).

Since it was my wife’s Garmin, I sent the email from her computer with her name. A couple of hours later she casually mentioned that we had heard back from Garmin and did I want to read the email. I said, it’s probably just an auto-response about how long it is going to take. She said no, it’s an answer.

Wow, was that unexpected. Read the response, fixed the Garmin. How cool was that. Now that’s how customer service in the digital age should work.

Mitch

Ok, another airline example, but this is a good marketing example. It has to do with Southwest Airlines. If you do not fly them often or at all you probably think they still have the “cattle call” boarding process that rewards people who arrive at the airport hours early with the best seats on the plane. Actually it hasn’t been that way since they began to allow Internet boarding passes. Today, you can get your boarding pass 24 hours in advance, and first come first served in terms of boarding. With two exceptions and an additional benefit. (I’ll get to the cool marketing idea soon, stay with me.)

Boarding on Southwest is by boarding number, the lower the number, the earlier you board. And, now they have you line up by exact number so there is no need to stand in line at all until boarding starts. They actually now have the easiest boarding process in the industry. And it’s still fast. (But I digress.)

So, how else can you get a low number: Two ways. One is to fly them a lot. If you do, they reward you with a low number (usually below A-30) no matter when you get your boarding pass. The second way is to pay a Business Select fare. Usually about $10 more than full-fare and potentially a lot more than the lowest fare. The reward is boarding number usually between A1-A15. Again, no matter when you get your boarding pass.

So what’s the cool marketing idea. Well it is actually the whole way in which you board and get your low number, but they have added a really good promotional idea recently. Now, when they announce boarding they call the “Business Select customers A1-Ax.” That way everyone knows that if you buy a Business Select fare you can be an early boarder. Free promotion every time they board a flight. I like it a lot.

Mitch

Back to two of our favorite subjects: customer service and airlines.

The AP reported on May 20th that once again the U.S. Airline industry had received “dismal” grades from their customers. But then who is surprised? I doubt even the airlines are surprised. Once again Southwest came out on top (and they make money), while U.S. Scareways(excuse me US Airways) came in last. Their supposed target merger partner, United Airlines, came in next to last, so that merger is unlikely to improve anything. Likewise with Delta and Northwest which were the next two on the bottom of the list.

Southwest’s score improved to 79 from 76 and the next airlines on the list were American and Continental at 62. Quite a gap from #1 to #2.

The director of the research center at the University of Michigan that conducts this study, Claes Fornell, suggested that consumers were not necessarily blameless in this cycle as they continue to buy the lowest airfare possible. He believes this has created a cycle of cost cutting and a business model that “leaves no one happy.”

I suggest another hypothesis: People buy on price becuase the “product” being provided is undifferentiated, so why not. In other words, the consumer’s price focus is a result of the universally dismal level of “product” provided, so the only thing left to consider is price. If all providers “suck” why pay more?

So which came first, the price focus or the universally dismal service? I’m sure the airline execs would suggest that the price focus came first, it justifies their actions. Even if that is true, why is it that Southwest can make a profit and provide a better than average “product?” Because they have “cost advantages” goes the traditional thinking. What cost advantages can they have that have not been available to the other airlines? Southwest is not a start-up airline. I submit their cost advantages come from knowing where to cut costs that don’t add value for the traveler. The other airlines appear to have no clue what is of value to the customer.

Several years ago I wrote an article about TED (The United Airlines low-cost competitor) predicting it would fail because United had no idea what aspects of Southwest to emulate. It failed for the reasons I predicted.

So what can the airlines do? I suggest they read Moments of Truth. This decades old book about how Jan Carlzon turned around SAS by focusing on what was valuable to the customer is dead on and industry related, so it won’t be a stretch to apply what he talks about.

There is no question in my mind that if an airline understood what was valuable to its target market, it could provide it profitably. Southwest figured out how to do it for their niche. They can’t be the only smart people in the airline business … or maybe they are.

Mitch

This is a guest post from one of our co-workers, Jeff Krawitz. He is referring in this post to the Who/What/How marketing/sales framework used by us in our work with clients. Who refers to Who is buying, What refers to What are they buying, and How refers to How do they want to buy it. Levels 1, 2 and 3 of the framework drills you down into more specifics for each to “force” the user to find answers that help the company achieve its goals and create more loyal, profitable customers. If you want to know more you can download a free white paper.

I have always found How #3, the Value Delivery System (VDS), to be the most difficult to get across in our workshops. I explain it and try hard to define it, but often with more limited success than I would like. An example I sometimes use is to suggest that when they communicate with a customer in a routine way (an invoice for example), do something to allow the recipient to derive some positive value from it.

I recently did a half-day Customer-Centric Marketing workshop at a top financial services company in Iowa. I went through each of the nine boxes of the Who/What/How matrix giving examples and definitions. For What #2, I suggested that instead of sending clients monthly reports filled with numbers, find out what each client is saving for and show them a picture of that item filled in enough to indicate how close they are to achieving their goal. In other words, show them their progress in their terms, not strict financial numbers. I told them that one of my goals was to visit Antarctica and touch a penguin, and that the first financial management company that could help me get to that in my terms would win my account. (I also suggested that they should send me a map of Antarctica filled in proportionately to my financial chances of getting there).

When I got the How #3, the VDS, I just didn’t feel I was getting the concept across as well as I would have liked, and I felt that all my examples were falling flat. At least I thought so.

When I got home the following Monday, I received a simple “thank you” note from Michele, the person who had sponsored by workshop with the company. However, along with the note was a book. A large “coffee table book called, Planet Earth. In it were a few sticky bookmarks with Post-Its from her. One note was attached to a picture of penguins in Antarctica saying “I hope I get to meet you when you retire!”

I guess she did get it and then added something to a routine event that makes it valuable and special. That’s a Value Delivery System.

Jeff

The be great at marketing, you must learn to think like a customer. Great companies excel at this skill. One of the examples I have used in my books and papers is the Proctor and Gamble of old. Proctor and Gamble themselves were great marketers and innovators because they could and would think like a customer. Unfortunately, some of their more recent successors either never learned the importance of the skill or felt they could short-circuit the process with enough “market data.”

I am thrilled to see that in A.G. Lafley’s (the CEO of P&G) new book, Game Changer, he cites as one of his principles the need to “keep the customer at the center of all our decisions.” You may remember that A.G.’s promotion to CEO of P&G was met with skepticism … to say the least. (The stock price plummeted on the announcement that he was going be CEO). You may also note that his tenure as CEO has seen a turn-around in P&G’s fortunes and an increase in their stock price.

To insure that his people re-learned to think like a customer he has instituted several programs that require R&D and marketing people to spend time out with customers rather than conducting focus groups or other artificial research environments.

Isn’t amazing what the simple act of great marketing can do for a company. If you can remember to think like the customer rather than hope the customer thinks like you, your company, product line or division will go far.

Mitch

Since I fly a lot, people have asked me a bunch of questions about the current American Airlines maintenance debacle. Questions have ranged from “do you feel safe flying” to “how can they do this to their customers.” As you might expect, I have lots of thoughts on these topics.

First, yes I do feel safe flying. The airline industry has an impeccable and improving safety record. In addition, pilots have a self-preservation motive to make sure the planes they fly on are safe too.

However, the customer issue is a whole different thing. American Airlines instituted a policy last year that no longer allows customers to talk to them about ANYTHING that is not current flight related. If you have a question, feedback, complaint or issue you have to email it to them. And their email response is no where close to prompt in my experience.

However this policy has probably done one thing for them. They have found an effective way to reduce customer complaints.

Regarding the current debacle, who knows. I have found that most airlines operate as if passengers are an inconvenience to the efficient movement of airplanes. And, since most of the airlines benchmark their performance against each other, the bar is not very high.

The better airlines, like Southwest (who was also caught cutting maintenance corners) are usually full and a full airplane is less comfortable than a ½-full airplane. So, flying on the other airlines can have its advantages when they are not full.

However, now that the “majors’ (not that Southwest is not a major, but Jet Blue certainly isn’t) are reducing flights, their flights are full too, so their benefit over Southwest has been reduced. And with Southwest if you buy a business fare or if you fly them a lot, you can guarantee yourself an aisle or window as you prefer no matter when you book.

Anyway, as long as the employees of the airlines hate their management, and airline management operates as if customers don’t matter, nothing is going to change no matter what the lawmakers try to do. Safety is not really an issue in my opinion, and you can’t legislate good service. The market has to demand good service, and since the airlines appear to have banded together to remove that it makes it tough for the traveler in normal times, much less with the current debacle.

 Mitch

As we teach in our Lean Marketing Workshops, lack of results is usually a failure of process not people. Deming reported that fact many years ago.

We have been reading Hard Facts, Dangerous Half-Truths, & Total Nonsense and found the authors have identified additional research that further supports this truth. One example they cite is the old General Motors plant in Fremont, CA.

That plant was closed in 1982 because it was one of the worst GM plants in the country as measured by defects per car built and cost per car built. The plant also suffered from wildcat strikes and “rampant drug and alcohol abuse.” The plant was re-opened in 1985 as a joint venture between GM and Toyota, but it instituted the Toyota Production System (called Lean Manufacturing or Lean Thinking outside of Toyota).

85% of the initial workforce consisted of rehired former GM employees. The first year the plant produced cars, its output was among the highest quality and lowest cost cars produced in any plant in the U.S. Same people, new process, better results.

And least our senior management readers get too smug, the authors also note that Toyota is the ONLY automobile company where changing the CEO has had NO impact on company performance. In other words, the processes the company uses are so robust, there is little noticeable effect on the company due to any single person change … even the CEO.

They just keep relentlessly moving to #1 in revenue and profit.

Mitch