Category Archives: Applying "The Alpha Factor"

• Starbucks’ customers prove it’s an Alpha

  Monday, July 21st, 2008 by Wes Ball

  If there was any doubt that Starbucks had attained Alpha status, it’s certain now.  With all the talk of downsizing and closing of stores due to “over-expansion,” many pundits have thought that perhaps Starbucks is just another one of those sad stories of poor management caught in an economic downturn.  The truth, however, is being displayed clearly through their customers.

  An article in The Wall Street Journal today by Janet Adamy and Anna Prior discussed the customer response to store closings.  Reminiscent of the customer outrage that saved Coca-Cola, when it made the terrible mistake with “New Coke,” we are seeing one of the strengths of an Alpha at work again through Starbucks.

  One of the key benefits of becoming an Alpha company is that you can weather difficult times and even bad management decisions better than “normal” companies can.  That extends to the point that an Alpha’s customers will often save it from really bad mistakes.  We are witnessing this at work right now.   By having made themselves the customer expectation leader so that every other coffee shop wants to either emulate or overcome it, Starbucks has made itself a part of American life that people don’t want to have to do without.

  According to the WSJ article, all across America — from major metropolises like Manhattan to small towns in Mississippi and Nebraska — Starbucks customers ranging from local neighbors to business owners and managers to city mayors are contacting Starbucks headquarters to lobby for their local stores.  Starbucks has made itself a draw for attracting people and businesses into a community and for attracting employees to businesses near a Starbucks store.

  None of this would be happening, if Starbucks had simply managed its business to be a top moneymaking machine, as business schools teach us to do.  It has only been due to Starbucks’ focus upon fulfilling high-level customer emotional needs (self-satisfaction and personal significance) that it is enjoying this level of customer support.  Customer expectations from a coffee shop have changed significantly all across America due to Starbucks.  No cost-side management could ever have created this phenomenon.  Only by understanding and fulfilling these revenue-side customer needs has Starbucks made itself anything more than one more pretty good coffee shop.

  Hopefully, Starbucks’ management will recognize that the reason behind their slowdown is not just “over expansion,” but also (and probably more importantly) a loss of focus upon continuing to raise customer expectations by driving them into higher and higher emotional fulfillment (again refer back to The Alpha Factor for a discussion on the core concepts of self-satisfaction and personal significance in driving purchase decisions).  There has been a noticeable decline in customer experience in Starbucks stores wherever I travel.  When I talk with store people, this focus seems to have been replaced with more focus upon new equipment.

  Bad move.  Luckily, being an Alpha, they have time to get back to the focus that got them where they are.

  Posted in Applying "The Alpha Factor", Business | Comments (0)

• How to weather an economic downturn – Part 2

  Tuesday, July 8th, 2008 by Wes Ball

   

  How retailers react, and what you can do about it  

   

  In an economic downturn, retailers react (just as consumers do) on the news of a potential downturn.  As soon as they see consumers pulling back in fear, they do not take a leadership role, but rather they start looking for ways to minimize risk.  Guess what the outcome is?  A downturn.  But that doesn’t have to hurt you, if you sell through them.  It can actually be the best time to strengthen your position and sales.

   

  Let’s start by understanding what retailers do when they start to fear a coming economic slowdown.  The first and most obvious thing they do is put together a plan for pulling back rather than looking at how they might take control and make themselves the leaders now and after the downturn.  Much of what they do is self-destructive and also harms the marketers selling through them.

   

  From the top down comes the order to cut costs, extend payment schedules (whether or not they actually negotiate longer terms), reduce in-stock inventories and increase special orders as a percentage of total sales (if they even offer such services), pressure their marketers to offer promotional discounting (that may or may not be passed along to end-users), become tougher on asking for other promotional allowances, and (occasionally) create new ways to get money from marketers without ever having to sell product.  That’s ugly.  But it’s the environment almost anyone selling through retail has to face. 

   

  In making these cuts and “innovations,” they typically reduce the knowledge levels of their sales staff (the higher-paid people usually get cut first) and reduce the selection of product, despite the fact that broad selection is one of the most important things customers expect from a retailer.

   

  Then they usually put even more emphasis on “store brands” that make them the exclusive place to go to get them.  This usually doesn’t have much real effect upon store traffic, but it does steal sales from their branded products (and makes for bad relations with the marketers who sell through them).

   

  All of this is “functional” innovation that they do in an attempt to make themselves “leaner” and more attractive to customers.  Most of it backfires.  That’s why retailers are in such a mess today.  Unfortunately, most brand marketers have allowed themselves to be sucked into the trap of relying upon retailers to “sell” their product.  So when tough times come along, it’s time to stop being lazy and start thinking strategically.

   

  So what can you do when faced with this?  Firstly, get excited.  This is an opportunity to make great gains for yourself both in overall sales and in gaining long-term support from your retailers.  It may even force you to innovate in ways you never would have without this impetus.

   

  Assuming that you have not given up on retailers and have decided to take distribution into your own hands (a decision that many smaller marketers are choosing), there are many things you can do that will help you now and also after the economy improves.

   

  Here are just a few ideas –

   

  Innovate to address the core needs of the retailer:

   

  1. Retailers want more customers in their doors. They don’t want to save money – that’s their desperation move.  They need traffic.  And they want it to stay in the store for a longer time period.  (For every minute a customer is in a store, their average purchases increase geometrically.)

  ·         Create ways to drive more customers into the doors of those retailers who have given you (or commit to give you) extraordinary perks in their stores.  We have had great success in getting otherwise ruthless retailers to dramatically reduce the demands placed on a marketer who drives traffic into their stores.  This can be done through marketer-sponsored ads that

  ·         Don’t forget “dealer listing” ads.  They have been poorly used by most marketers in the past, but they are a great value to retailers.  List one retailer per ad, not 20, and make it appropriate.  (We used this to great advantage by placing billboards listing one retailer across the street from a competing retailer who would not support our efforts.  The next year, the recalcitrant retailer got “on board.”)

  (This is a “Satisfaction” innovation.)

   

  1. Retail buyers want to be “heroes.” 

  ·         Using the ideas above, make your buyer the hero to be able to offer what top management really wants.  (In some cases, we have had to go around the buyer to the VP or even the CEO level, where those benefits are recognized and supported.  We’ve never had a buyer stay angry about that after his boss told him how excited he was with what was being offered.)

  ·         Offer an exclusive on a new product to your buyer at a key retailer from whom you want to get a greater commitment.  It can even be a re-packaged older product, but it will often represent a value to them.

  (This is a “Significance” innovation.)

   

   

   

  Innovate to go beyond your retailers:

   

  Don’t allow yourself to be limited by the short-sightedness of your retailers.  Sometimes, they don’t want to be helped by their brand marketers.  You don’t have to stop selling through them to make yourself stronger and to increase your sales.  For instance…

   

  1. Build your brand’s influence.  

  ·         Don’t count on retailers to sell your product.  If you are going to work through them, only allow them to be the place customers go to get it, not the place to learn about it.  The result will be immediate and future influence, which equals greater retailers support.  (Remember, retailers want to have products that attract customers.  Make yours their lead attractor.)

  ·         Make sure what you are “selling” is what customers really want.  (Beyond the obvious things they tell everyone, discover what they really wish they were getting.)

  ·         Start to drive higher customer expectations.  Once you understand what customers wish they were getting, you have the key to driving higher expectations.  If you innovate for “Significance” and “Satisfaction,” you will become the most influential brand.)

  1. Find ways to make your product available in more places.  There are more places to sell product today than every before.  The internet has become just one new way to expand the availability and influence of your product.  
  2. Go in the backdoor to increase sales through your retailers.  Many retailers offer online sales, so you could easily use your product’s website (and other information venues) to lead customers to retailers who have given you extraordinary commitment.

   

  These are only a few ideas that have worked to overcome the resistance retailers put up.  The fact is that once end-users get past the initial time of holding back as fear of a downturn is created, they want to buy the products that will address their satisfaction and significance needs.  Retailers may stand in the way of you getting your product to those customers, so do what is needed to attract customers to what you offer.

   

  If you combine that with innovating ways that make your retailers see you as they path to greater satisfaction and significance, you will be far stronger on the back side of a downturn than your competitors are.

  Posted in Applying "The Alpha Factor", Business, Uncategorized | Comments (0)

• How to weather an economic downturn – Part 1

  Friday, June 27th, 2008 by Wes Ball

   

  How consumers react and what you can do about it

   

   

   

  In an economic downturn, consumers react even before there is a real downturn due to the growing media coverage that creates fear.  It’s a strange paradox that a real economic downturn doesn’t even have to exist for the effects of one to start.  So, what can you do about it?

   

  Start by understanding what consumers (and most buyers of all kinds) do when they start to fear a coming economic slowdown.  The first and most obvious thing that happens is that they think about pulling back and weathering the storm.  They look for ways the might cut costs or financial commitments in things that don’t affect their self-satisfaction or personal significance – the two critical factors that Alpha companies address, often to the exclusion of focus upon product functionality.  Consumers start asking, “What can we cut out that really won’t make a difference.”  What they mean is things that won’t diminish how they feel about themselves or how they believe others see or feel about them.

   

  The second thing that happens is that they start to fulfill their need for feeling good about themselves and life in general (self-satisfaction) by increasing their purchases of items they believe will accomplish that.  That’s why every recession is accompanied by increased sales in alcoholic beverages and fairly stable sales of splurge items like high-end ice cream or fancy coffees.  These items help them believe they are not “doing without” across the board.

   

  Thirdly, they desperately look for fulfillment of the significance needs by looking for items that make them believe others will admire them for buying and using it.  Recessions typically see much less negative effect upon “image” products, such as designer clothes (although the money may shift to “knock-offs” or “outlet” purchases) or other items that reflect well upon the owner.  Right now, according to recent sales figures, while American and even Japanese auto dealerships are struggling to survive, Mercedes dealers are only barely down in total.  The best dealers who have proven themselves capable of selling these cars are at about even with last year.

   

  So, how can you react to a market already reacting to a possible future downturn?

   

  1. Don’t believe that you have to follow the pack into discounting and other profit-robbing promotional offers.  They harm you now, and customers remember how little you valued your product even after times get better.
  2. Look for ways to appeal to self-satisfaction and personal significance needs of your customers. This can be as simple as making sure the customer service training you never really put in place is not only in place, but is being taken seriously.  It may require revamping of your approach to satisfying customer needs that has been overdue for some time, but you thought you could get away without addressing.  It may require some deep analysis of what customers have NOT been telling you and your researchers, but have been telling other people they really desire but aren’t getting.
  3. Innovate, but not necessarily with new or better products.  Focus instead upon how to create new and higher customer expectations than your competitors address, especially in ego-satisfaction.  Product innovation can often be helpful, but a downturn is usually the worst time to introduce new products UNLESS they drive and satisfy emotional, experiential, and ego-satisfaction needs.  Product innovation is far more costly and less effective almost any time than is innovating new ways to drive higher experiential expectations, but especially in a downturn (or a feared one).

   

  How can you innovate to drive new, higher ego-satisfaction expectations?  Start by changing your marketing research from looking at what happened yesterday and from believing the superficial answers most customers give to researchers (such as, “Price was the deciding factor”).  Delve deeper for things customers wish they were getting, but aren’t.  Most importantly, discover the things they never even mention, because they don’t believe products in your category can be expected to satisfy those needs.  Then innovate to satisfy those things that you can to address at least satisfaction and possibly even significance.

   

  Posted in Applying "The Alpha Factor", Articles, Business, Uncategorized | Comments (1)