Category Archives: Customer loyalty

Acquisition and Retention: The Yin and Yang of Customer Strategy

For customer retention, which of the following do vendors commonly perform:

  1. Provide outstanding service and loyalty benefits
  2. Impose switching costs through technological impediments and contractual restrictions
  3. Engineer convoluted pathways for customers who want to terminate services
  4. All of these

The correct answer, of course, is All of these. Every enterprise must retain customers. It’s a strategic challenge, and the path can be rocky. But two things are clear: 1) vendors have multiple tools at their disposal, and 2) customers don’t always benefit.

There’s a lot of confusion about customer retention. Some people ask, “which is better: acquisition or retention?”, implying that the matter is either-or. Some argue that companies invest too much on acquisition and too little on retention. Some assert that retention is preferable to acquisition because retention costs less. And finally, some mistakenly believe that retention tactics create only benign outcomes for customers.

With zealots on both sides, it’s easy to fall into the either-or trap, but it’s a false dichotomy. Without acquisition, there’s no retention. No business can survive long-term without acquiring and keeping customers. And as a practical matter, churn is inevitable: Business needs change, customers become insolvent, or they get acquired. Because revenue contribution from each customer is uncertain, companies must build sales pipelines to keep new opportunities flowing. On the other hand, profit margins from existing customers are generally higher than for new ones, so keeping customers is also very important.

In fact, every effective customer strategy involves:

  • Account acquisition: how do we identify, cultivate, and capture new opportunities?
  • Account retention: how do we keep our customers?
  • Account revenue growth: how do we facilitate increased spending or “share-of-wallet”?
  • Account win-back: how do we resuscitate past clients that can continue to benefit from our product or service?
  • Account divestment: how do we jettison customers that we can no longer support profitably?

At startup companies, acquisition and retention are immediate concerns. But as companies mature, customer strategies become more complex. Businesses can alter their core offerings or delivery models. In addition, customers can stop buying for many reasons – some preventable, some not. Along the way, once-lucrative accounts can become financially less attractive. Customer strategy isn’t complete unless it addresses all five challenges.

A key business development challenge for every organization is matching its capabilities with external opportunities, and customer strategy must address this mission. That defies relying on “industry standards” for guidance. I searched for “customer strategy best practices,” hoping for insight like “on average, machine tools manufacturers dedicate 28% of their marketing spend on capture, and 72% on retention.” Nothing. Nada.

It’s not hard to understand why. Customer strategies are based on corporate strategies, which are influenced by present and future product portfolios, competitive market position, market share, operating costs, cost of capital, risk capacity, risk tolerance, economic and regulatory forecasts, and industry maturity and growth rate – to name a few. Does Company X spend too much on customer acquisition and too little on retention? Devoid of context, it’s impossible to judge. The most useful clue is whether Company X achieved its quarterly revenue target. If so, they possibly had the right proportion of acquisition and retention. When you have next quarter’s achievement percentage, ask me again. There might be a different answer.

Even without industry standards, I took a swing at generalizations:

Acquisition-intensive companies tend to be

  • New business ventures
  • Companies that are pivoting their business model
  • Operating in young or emerging industries
  • Selling capital goods with low potential for add-on sales
  • Expanding into new markets
  • Services companies that recognize a large portion of revenue at the time of contract signing

Retention-intensive companies tend to be

  • Software-as-a-service (SaaS) companies
  • Offering other subscription-based products or services
  • Providing a low-cost entry product or service that can be readily expanded
  • Selling a product or service with high potential for ongoing consumption
  • Dedicated to supporting a key client or small number of clients
  • Expanding into new markets or developing products targeted toward their legacy accounts

Most companies are in between, confounding our ability to compliment – or assail – their approaches. Blue Apron, for example, must be equally rabid about acquiring new customers and preserving those they’ve signed. It’s a conundrum: for troubled Blue Apron, client retention depends on gaining economies of scale. And how do you achieve economies of scale? By acquiring new clients! Acquisition and retention, therefore, exist in a mutually supportive relationship. I know – it’s complicated. But it’s hardly rare.

Flawed accounting? For most companies, acquiring customers consumes a sizable chunk of the marketing budget. In B2B, buying lead times can drag on for months or years, and conversion rates (ratio of prospects who become customers) can be frustratingly low.  “Depending on which study you believe, and what industry you’re in, acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one,” wrote Amy Gallo in Harvard Business Review (The Value of Keeping the Right Customers, May 2014). In fact, every executive I spoke with for this article shared that their company’s customer acquisition costs consistently exceed retention costs.

But “cost analysis regarding retention requires sophistication, and results vary widely between companies,” CFO-turned-novelist Pat Kelly told me. “There are many [retention] cost drivers,” and not all of them are aggregated into overall retention costs. For example, much of what companies spend on software development and logistics operations are crucial for customer retention, but most companies don’t categorize them as retention costs. On the other hand, marketing, sales, and lead generation are easier to parse. Many companies know their cost/lead down to the penny. Little wonder that spending on acquisition appears so lopsided. “It’s worth the effort to get better at tracking retention costs, but companies will never get to the right answer,” Kelly said, adding “it’s more important to be directionally accurate.” That’s solid advice. We can endlessly debate the accuracy of acquisition-retention multipliers, but acquisition almost always costs more than retention. Still, for most companies, whatever benefit precision provides doesn’t change the fundamental fact that you still can’t retain a customer that you haven’t first acquired.

Recommendations:

  1. Balance is key. Companies that get heavily invested in a single component of customer strategy risk harming stakeholders. Comcast abused a customer that they clearly couldn’t afford to relinquish. Solar energy companies inflated acquisition numbers to appear more attractive to investors. And American Express Foreign Exchange offered impossibly low rates to prospects, only to raise them without proper disclosure.
  2. Never use cost considerations as the dominant rationale for favoring retention. Acquisition, retention, growth, win-back, and divestment strategies must first align with the strategies of the organization.
  3. When defining your customer strategy, consider the right measurements. These should include minimum churn rate, expected churn rate, industry growth rate, enterprise revenue growth target, actual revenue-per-account, forecast revenue-per-account, economic forecasts, and foreign exchange rates (for international companies).
  4. Know the right customer for your company, and if that’s too difficult, at least know the wrong one. “Think about the customers you want to serve up front and focus on acquiring the right customers. The goal is to bring in and keep customers who you can provide value to and who are valuable to you,” said Jill Avery of Harvard Business School.

“If you do a good job, your customers will refer new customers, and that’s vital for every organization,” another CFO, Stan Krejci, shared with me today. But he cautioned executives not to see retention as isolated policies, processes and procedures. “Retention is a performance issue,” he said. A company’s obligation to its customers is to consistently fulfill its promises and to provide ongoing reciprocal value. A company that can do those things won’t likely resort to staffing customer call centers with Retention Specialists, and contriving technological and contractual handcuffs to reduce churn.

Acquisition, retention, growth, win-back, divestment. The elements of customer strategy are inter-dependent. “Retention feeds acquisition, and acquisition feeds retention.” Krejci said. “It’s circular.”

Three Myths about Customer Loyalty

We’ve met the characters in the HBO series Silicon Valley in real life. The sardonic, whip-smart software developer Gilfoyle. The dweebie, hoodie-wearing tech entrepreneur Richard Hendricks. The Type A-on-steroids venture capitalist Russ Hanneman. The over-the-top greedy, predacious CEO Gavin Belson. Most of us can name similar people within our own orbits, though maybe as extreme.

While they are believable personalities, we also know them as caricatures.  Not all tech entrepreneurs are geeks. Not every VC is a fast-living cocaine addict. And not every CEO gladly sells his or her soul to elevate their net worth. Yet, when it comes to customer loyalty, we mistakenly spin occasional facts into proclamations of consistent truth. This is how myths are spawned.

Three myths. When used as a basis for strategy or tactics, the following proclamations can be deleterious. Just like the caricatures on Silicon Valley, they can be true, but they are not universal, as others suggest. Yet, I see them often:

1) loyal customers buy more and spend more. Loyal customers can be plenty loyal without ever being heavy users or big spenders. An occasional traveler can have a strong preference for a specific car rental agency. That does not mean he or she invents reasons to rent more cars, routinely springs for a fancier model, or splurges on upgrades.

2) loyal customers advocate for the product or brand. To illustrate just one reason this doesn’t always happen, visit your local drug store or pharmacy, and look at every product in the personal care aisles. Then, ask yourself whether loyal consumers of [name or type of product] broadcast that they use this item, and elaborate on their experiences.

3) it costs more to acquire customers than to keep them. Many give this as rationale for investing in loyalty programs. But not every prospect needs an expensive marketing campaign to convert, or to solidify a habitual brand preference. Not every new customer grinds through a tedious, protracted process before buying. Depending on the industry, company, and selling model, some customers can be converted for darn cheap. It’s keeping themthat’s sometimes difficult, elusive – and expensive. While loyalty programs can be strategically valuable, it’s fallacious to cite marketing cost advantages as the reason for having them. Loyalty programs – and the processes surrounding them – must also make sense for business strategy.

Silicon Valley entertains us with more than personality caricatures. It also satirizes companies whose executives become intoxicated on false assumptions and misguided expectations. The show teaches us why it’s vital to maintain clearheaded understandings of cause and effect. That includes what customer loyalty produces, and what it doesn’t.

Fandango’s VIP Club Inspires No Loyalty

I don’t usually blog about my bad buying experiences, but occasionally there’s a debacle that oozes horrible from every pore. When that happens, I take it as a civic duty to write about it. It’s a way to help others avoid the folly I’m about to describe.

This incident started last Saturday when I asked my octogenarian mother to accompany me to dinner and a movie that evening. We agreed on Three Billboards Outside Ebbing Missouri. I went online to select a showtime and seats.

I was presented four purchase options. One was to buy directly through the theater’s website, and the other three were through different ticket services. The theater’s webpage loaded slowly, so I bailed and clicked on a link to a ticket broker called Fandango, a service I had never used. The Fandango page popped right up, and I quickly selected two adjacent seats. My mom and I would go to the 7:40 pm screening, which allowed a leisurely 6 pm dinner, and an unhurried amble around the block to the theater. Perfect for mom!

But not long after I completed the ticket transaction, it began to snow. A lot. Then, right on cue, my cell phone rang. It was Mom. “Hi Dear. It’s really a mess out there. I’d rather you not drive over,” she said. “Let’s do this tomorrow.” Her tone of voice imparted that any protest would be futile.

“Sure,” I said. “I’ll swap the tickets. We’ll go Sunday.”

“Call the theater and tell them your mother doesn’t want to venture out in the snow,” she helpfully suggested, adding, “They’ll understand.” Awwwww! How adorably pre-internet!

“Well Mom, it’s like this, I bought these online through a ticket bro . . . .” I cut myself off in mid-sentence. My mother does not use the Internet or email, so my e-commerce explanations have always ended with her changing the subject to something less baffling. I pivoted to a simpler, more dependable assurance: “Don’t worry, Mom. I’ll take care of it.”

After I hung up, I armed myself with my newly-minted Fandango confirmation number and pulled up the Fandango website. I navigated to the section for refunds and exchanges, and populated the requisite fields. Although I’m not a chat fan, that was my only option for interaction. I clicked Submit.

Immediately, Fandango returned a little informational box that showed I was #82 in the service queue, and the expected wait time for chatting with a chat-person was fifty-seven minutes. Fifty-freaking-seven minutes! For a ticket exchange. Fortunately, the box dynamically updated my position in the queue, which meant I could do other tasks while I endured the inconvenience.

The queue melted slowly. 78 . . . 66 . . .61. I felt like the 50’s and 40’s went on interminably, but still, I hung in there. When my position nudged south of 40, I felt encouraged. Over halfway there . . . Can’t be long now . . . 10 . . . 9 . . . 8 . . . It’s happening! Finally, #1! Yes, there is a God! But please – this would be a terrible time for a power failure, or for my router to spontaneously reboot. Relief. Then . . . It happened. The Fandango chat-person I had waited almost one hour to chat with burst onto my screen, like a long-lost friend. “Hi. I’m Chelsea.”

I explained my issue by typing, “I purchased one adult and one senior ticket for tonight’s 7:40 show of Three Billboards at AMC Shirlington, and now it’s snowing in Virginia, and the senior doesn’t want to go out in the snow. Can I exchange my tickets for tomorrow?” Chelsea replied by asking me to be patient while she “investigated.” Investigated? This didn’t bode well.

A few minutes went by, and with her investigation apparently completed, Chelsea responded that I could have a refund, but Fandango requires that I enroll in their VIP Club to process the transaction.

“You’re kidding, right?” I typed, concealing the magnitude of my dismay. Had I used all caps and followed my question with six exclamation marks, Chelsea would have had a more accurate impression.

“No, I’m not,” Chelsea retorted. It was the most meaningful clue I had indicating she wasn’t a chatbot. But her response was wrapped inside bloated Fandango policy mumbo-jumbo that I was too angry to parse. Over an hour had transpired since I initiated my exchange request, and Fandango was browbeating me into joining their VIP club. That seemed wrong. Here I was having a terrible experience, and Fandango wanted me to sign up for . . . their VIP Club?  Damn the ticket exchange! Joining the VIP Club for the sole purpose of exchanging my ticket would send Fandango the wrong message.

As you probably guessed, my chat session with Chelsea did not end on an upbeat note. I’ll just say that if she had any confusion regarding my opinion about the exchange policy, it’s because she stopped reading her screen.

At this point, I became wistful about my mother’s quaint suggestion to call the theater to facilitate the exchange. It reminded me that in many ways, online commerce has not lived up to its promise. Contrary to what pundits often assert, it certainly hasn’t “put the customer in charge.” Far from it. This vignette underscores how, for consumers, the most banal transactions have become unbearably complicated.

Pre-Internet, a moviegoer tendered payment to a cashier at the theater’s ticket window, a machine would spit a generic paper ticket, and an usher would rip the ticket in half when the patron entered the theater. The experience was pretty easy for customers, but cumbersome and labor-intensive for theaters. But the bigger pain for theater operators was their dearth of information. Which consumers went to which movies? How often? What were their demographics? Who did they go with? What were their buying proclivities? They knew very little, and what they did know required expensive and time-consuming research.

Today, information power has swung all the way to theater operators and their channel partners, where it’s likely to stick. Every activity involved in a customer’s movie journey is tracked, measured, archived, and data-mined. And in Fandango’s case, contrivances such as VIP Club membership as a vehicle for ticket exchanges have been established to fatten their information power even further. The ancillary systems driving an online ticket transaction in 2018 are so deep and expansive that it would take hours to figure out how it all works, and even longer to understand where the data goes. Sure – it’s sophisticated, but from the customer’s point of view, it’s hard to think of what I have described as progress. “Your position in the queue is now . . . 82. Please be patient while we investigate . . .”

I don’t blame bad customer experience on technology. I blame it on the executives who misuse it. When that happens, you get Fandango, hour-long service queues, unresolved transaction problems, the coldness and anonymity of online chat, and weird demands to join a VIP Club that you have no interest whatsoever in joining.

My resistance to joining Fandango’s VIP Club emanates from a widespread marketing practice euphemistically called engagement, and marketers delude themselves into believing that customers find it appealing. Many routine activities that consumers do online uncork a torrent of follow-on stuff from vendors, including post-purchase satisfaction surveys, confirmations, confirmations of confirmations, reminders , promotions, deals, newsletters, thank you correspondence, updates, and gratuitous advertising. All from the one-off car rental I made with Budget when I travelled to Chicago in 2017, or the pair of comedy club tickets I purchased from Ticketmaster. Extinguishing outreach from these vendors and their “partners” compares to scraping a wad of chewing gum off my shoes – you never quite get rid of it. “What part of unsubscribe don’t you understand?” Little wonder that I cringed when Chelsea delivered her membership ultimatum.

Back to Fandango and their VIP Club coercion. I have a question for marketers to ponder: if a person bolts from your company after completing just one transaction, and he shrilly Tweets to four gazillion followers that he’ll never buy from you again, is that churn? Or, does the scenario merit a category unto itself?

Fandango, if you’re listening, some lessons for your next strategy meeting from this permanently alienated one-time customer: 

  1. If your business model adds friction to the most basic transactions, tweak your model.
  1. Develop scenarios for the most common service transactions – say, a ticket exchange. Then figure out how to blow your customer’s socks off with how easy it is to accomplish through your service.
  1. Sell your new customers (you know who they are!) on your VIP Club by first delighting the daylights out of them (see #2). From there, your VIP Club membership sales pitch will sing, and conversions will soar!
  1. Integrate your ticket exchange process to an open-source weather or road condition app. A tiny bit of BI (Business Intelligence) would have tipped off your service software that the reason I contacted Fandango was to reschedule a movie reservation.
  1. Accept that not every person who purchases through Fandango wants a relationship with your company. Some just want to purchase a movie ticket. Shouldn’t you design a way to make that happen profitably?

There’s little doubt that information technology enables better outcomes for both customers and businesses. Like with any technology, as some problems are solved, new ones are created. Pre-Internet, our professional watchword was “give customers what they want!” IT has encouraged a mutation of that ideal: “give customers what we want them to want.” In that regard, Fandango has made their intentions abundantly clear through their ticket exchange policy.

A post-script: The weather cleared up, and my mom and I saw Three Billboards the following night. I thought the movie was OK, though not great. But my mom and I had a wonderful time together.

The Difference Between Loyalty and Habit – and Why It Matters!

If you ask me to define a word, I usually start by describing what it is, or what it means. “A screwdriver is a hand tool used for turning screws and bolts. Also good for opening paint cans. Also, a cocktail made from vodka and orange juice.”

Loyalty and comfort are different. These words are better understood by grasping what they are not. The way William Gass described comfort in a 1986 New York Times book review of Home, by Witold Rybczynski:

“. . . . comfort means . . . the absence of awareness. The air is perfect when it isn’t noticed; in tepid water my finger cannot distinguish the water from itself; in a comfortable chair, without being numb, I enjoy the lack of feelings in my back and rump. Each performance, like virtue, is an unconscious habit. In the zone of the mind, an idea I can serenely take for granted, which seems certain and remains unchallenged, is like a custom recliner where the mind may snooze. My spirit, likewise, prefers familiar surroundings; it is at home and without anxiety in its own neighborhood and country. I go out of doors there as calmly as I go to bed. In addition, comfort, ideally, has no consequence but continued comfort; the padded chair is not supposed to postpone our back pains until tomorrow. Finally, if I become self-conscious about my comfortable condition, the snug swiftly becomes the smug while mind and spirit turn arrogant, dogmatic and parochial.”

In other words, concentrating on comfort makes us less comfortable. Loyalty, a form of mental comfort, has similar properties. Loyalty is a reflexive choice, absent insight. Loyalty enables consumers to bypass circumspection, reach for their wallets, or to strait away click on the Buy Now button. When we dig into reasons for loyalty, we become less loyal. For example, when we understand that we buy Product X because it’s bigger, faster, stronger and cheaper, we start to wonder, which alternatives have superior attributes to Product X? That sets off a deluge of comparison shopping, which makes marketers tear their hair out and scream for help.

Consultants to the rescue!
Experts sell executives on a panacea for the problem:  keep fixing, improving, tweaking, and changing their products. And when those tactics sputter or stall, they hawk the merits of implementing the mother of all projects: transformational change. This assures another few years of steady, billable work.

Unfortunately for companies, these investments can be self-defeating. Anything that causes habituated customers to stop and think imperils the probability of repeat purchases. “Without a value proposition superior to those of other companies that are attempting to appeal to the same customers, a company has nothing to build on,” A. G. Lafley and Roger Martin wrote in a Harvard Business Review article, Customer Loyalty is Overrated (January, 2017). “But if it is to extend that initial competitive advantage, the company must invest in turning its proposition into a habit rather than a choice.”

If you’re a habit, then someone stopping to think becomes your arch enemy. “We don’t claim that consumer choice is never conscious, or that the quality of a value proposition is irrelevant. To the contrary: People must have a reason to buy a product in the first place,” Lafley and Martin say. The problem is, once consumers have made a choice, vendors don’t usually nudge them to a marketer’s holy grail: ingrained, reflexive action. What Lafley and Martin describe as “an ever more instinctively comfortable choice for the customer.”

Oddly, vendors seem resolute on forcing their customers to stop, and think. An example: Don’t Market to your Customers; Educate Them Instead. Or, “we’re excited to announce some major changes to our product line.” Why do marketers give customers such easy chances to reappraise their preferences? I’m not sure. Maybe they don’t know when it’s a mistake. Maybe they don’t believe in the competitive power of sameness. Or, maybe they don’t expect that in their zeal to change things up, a measurable amount of revenue will sail out the window.

Buying into Lafley and Martin’s ideas requires recognizing that ultimately, driving customer habit, rather than loyalty, is key to sustainable revenue. “If consumers are slaves of habit, it’s hard to argue that they are ‘loyal’ customers in the sense that they consciously attach themselves to a brand on the assumption that it meets rational or emotional needs.” That pithy sentence upended a ton of why-you-must-build-customer-loyalty hype that I’ve read online in the past 12 months.

Innovate, and die! MySpace versus Facebook illustrates this contrast. To grow its social network platform, MySpace tinkered with what Bloomberg Businessweek called “a dizzying number of features: communication tools such as instant messaging, a classifieds program, a video player, a music player, a virtual karaoke machine, a self-serve advertising platform, profile-editing tools, security systems, privacy filters, Myspace book lists, and on and on.” I never used Myspace, but I gather that if I logged on four times each day, I would have needed to re-learn the website’s navigation each time. Facebook, on the other hand, studiously avoided building habit breakers into the user experience. The rest is history. “The real advantage is that to switch from Facebook also entails breaking a powerful addiction,” Lafley and Martin said.

“The essence of brand loyalty is, customers have to remember you and what you stand for,” Sampson Lee wrote in a blog, Stop Trying to Eliminate Customer Effort . When it comes to brands, he might be right. But for product purchases, I don’t care that people remember what I stand for as much as I care that people just remember my product.

Still, I find loyalty and habit hard to tease apart. In formulating a working definition of loyalty, I made two categories.

Category I – Sincere, genuine customer loyalty. The kind of loyalty that’s unencumbered by noodling numbers on a spreadsheet, less bothered by “justifying the business case” and “Show me the ROI!” The kind of loyalty that just oozes, “Don’t think – buy!” Call it haboyalty or loyit – whichever you prefer. It contains these essential elements:

Memory. Whether through a capability, design, packaging, acquisition experience, or something else, repeat purchases only happen when customers remember a unique attribute associated with the product or service.

Habit. Growing and deepening buying habits will improve the probability of follow-on revenue.

Inelasticity. Loyalty is not loyalty if bonds are easy to rip apart. In the words of an actual consumer: “I drive a 2016 Lincoln MKX. I only look at Fords [Lincoln is a Ford Division]. My dad worked at Ford, and I have deep loyalty to the Ford Motor Company. I look for a car that’s a little nicer and has got enough room for my golf clubs but isn’t sloppy big. The MKX is sort of a mini-SUV, though it’s not an SUV.”

If you know which famous person said this, give yourself a pat on the back. It was Microsoft’s Steve Ballmer. Not exactly your consumer every-man, but he could be. I sense that his loyalty involves commitment. Love, maybe? Regardless, Ford can reliably forecast selling at least one unit of this ugly car next year. Ballmer’s not a candidate to jump from Ford to buy a Cadillac Escalade  – or any other brand.

Category II – Contrived loyalty. I use this term in deference to marketers who still like to think of their practices as loyalty-inducing, even when they are not. Some examples:

Switching costs. The blog, Switching Costs: 6 Strategies to Lock Customers into Your Ecosystem offers a helpful list for developers tasked with building shackles connecting them to their customers. “If you look closely at companies like Adobe, Salesforce, Google, or Rolls Royce, you’ll see that their dominance is no mere coincidence. Customers stay because they are locked into their ecosystems through high switching costs.” Check out the article if you want to learn more about “Base product and consumable trap,” “Data trap,” “Learning Curve trap,” Servitization trap, and Exit trap.” Trap was possibly coined by a clever content marketer, now jobless.

Loyalty clubs.
Frequent buyer points. Rewards. Discounts. Exclusive events. Lapel pins and fan gear. Nothing wrong with offering any of these to customers. But they’re marketing expenses – perks designed to mitigate the risk of customer churn. To test whether customers are true loyalists, claw back these benefits, or squish them down. Then, see what happens.

Contracts. “Terms of service are two years. Early termination subject to penalties and fees.” It’s a stretch to regard adherence to contract terms as loyalty. But the customer-retention metrics look great on the marketing dashboard!

In another swipe at a sacred marketing platitude, Lafley and Martin wrote, “The death of sustainable competitive advantage has been greatly exaggerated. Competitive advantage is as sustainable as it has always been. What is different today is that in a world of infinite communication and innovation, many strategists seem convinced that sustainability can be delivered only by constantly making a company’s value proposition the conscious consumer’s rational or emotional first choice. They have forgotten, or they never understood, the dominance of the subconscious mind in decision making. For fast thinkers, products and services that are easy to access and that reinforce comfortable buying habits will over time trump innovative but unfamiliar alternatives that may be harder to find and require forming new habits.”

Habit versus conscious choice. The boundary between Category I Loyalty and Category II Loyalty is not as crisp and clean as it sounds. There’s fuzziness and overlap. But marketers should not allow themselves to become confused. The former involves de-emphasizing rational choice. The latter means repeatedly reminding customers to stop, think, and decide.

Longues habitudes de vie! ¡Viva los hábitos! Long live habits!

Do Corporate Values Matter?

Visit the website of a great company, and you’re certain to find a values speil.

UnderArmour dedicates an entire web page to explain its Mission and Values. Whole Foods describes its Core Values, offering a subtitle, What’s truly important to us as an organization, to drive home the point. IBM outlines Our Values in a nearly-tweetable 153 characters: “Dedication to every client’s success; Innovation that matters, for our company and for the world; Trust and personal responsibility in all relationships.” Brevity you’d expect from a company that sells productivity solutions.

But value statements alone don’t make companies wholesome. Right now, UnderArmour is piggybacking off the brand appeal of the Rio Olympics, without shelling out a penny for sponsorship. A term has been coined for this, with an appropriate tint of bellicosity: ambush marketing. “Technically speaking, that’s not against the law . . .” a radio commentator said yesterday.

The disclaimer, technically speaking, should trip a circuit in the company’s Department of Competitive Ethics – assuming one exists. Danger Will Robinson! Fortunately, UnderArmour has a superb excuse: its admirable Core Values are silent about the morality of siphoning revenue from the investments of others – a tactic that’s existed since the birth of sponsorships.

Whole Foods strayed from one of its core values, healthy eating. “We sell a bunch of junk,” said CEO John Mackey in a 2009 interview, adding that the company had “veered off-course” by selling junk food and products that are unhealthy for consumers, according to a case study from the University of New Mexico.

IBM, too, has been muddied by ethics issues. And this April 20, 2012 post from exIBMandenjoyingit represents how the most aspirational corporate values can have the rug ripped right out from underneath:

IBM is thoroughly corrupted inside and my former colleagues are playing the game. As US employees we accepted the internal corruption ourselves. We saw organizations providing bogus sales numbers yet we look the other way because we too may have been paid on those numbers.

The IBM help desk in India participates in the corruption by closing older tickets and informing their internal customer to open a new ticket so that their time to resolution is not badly affected. This fish stinks through and though from decades of internal brain washing reducing employees [sic] integrity a little bit at a time.

Glad to be gone but I wonder if my soul is intact.

For these companies, public values statements did not inoculate them from ethical problems. If anything, they manufactured embarrassing hypocrisies. Despite producing stern values proclamations, unethical [stuff] happens at these companies and many others, seemingly unabated. Do corporate Core Values Matter? Or, are companies better off not defining them?

One researcher has examined these questions. Edward J. Conlon, faculty director of the Notre Dame Deloitte Center for Ethical Leadership within the Mendoza College of Business at the University of Notre Dame, studied corporate values by surveying at random the stated values of 150 multinational corporations.

The top ten values Conlon and his colleagues discovered, along with the number of surveyed companies that included the word or phrase:

1. Integrity (111)
2. Concern for customers (62)
3. Respect for all (58)
4. Teamwork (49)
5. Respect for employees (45)
6. Innovation (37)
7. Ownership of actions (31)
8. Excellence (30)
9. Safety (24)
10. Quality (23)

Curious that integrity was so dominant. I wonder what, if anything, companies do to establish and perpetuate that value.

In a follow-on exploratory survey of alumni from Notre Dame’s MBA program, “70% of respondents reported that their employer had a formal values statement, although 27% couldn’t recall any of the values it actually contained. Still, all of the respondents to the survey believed that the company had clear values. And for those reporting a value statement, most felt there was a strong correspondence between the statement and what was truly important to the firm’s managers and owners.

“The survey also included an experiment on the impact of values statements on employee judgments, assessing the extent to which a stated company value affected judgment when that value could be served by favoring some options over others. Overall, the simple inclusion of a value in a value statement didn’t affect decisions respondents made in the experiment. But when a value was frequently discussed with one’s boss, or when it was included in formal performance evaluations, it tended to have a greater effect. Discussions with peers and subordinates, or more casual discussions of values, didn’t have the same impact,” according to a Notre Dame column, Do Corporate Values Make a Difference? (emphasis, mine.)

Values are not a checkbox. “Corporate values and Guidelines for Ethical Conduct? – sure! We’ve got them. Let’s move on to the next topic . . .” Many executives feel safer by having these documents in the inventory of corporate communications and marketing collateral. But too often, they collect dust. What’s key is how they are used, as the Notre Dame follow-on survey uncovered. That goes well beyond including it in marketing fluff for wowing prospective customers and employees.

“When you lead an organization – big or small – you are inevitably going to cross decisions where it’s not obvious what the right thing to do is,” said Tom Linebarger, Chairman and CEO of Cummins. “In other words, there are consequences on both sides. When those things come up, you have to apply good judgment and ethical frameworks to think through the thing.”

His advice: “not to use a financial framework first, and use my ethics to rationalize my decision later . . . instead, think about what you should do and then figure out what the financial consequences are, and then figure out how to mitigate those. The post-rationalization is a slippery slope.”

Linebarger should teach a course on marketing and sales ethics, because he has aptly described the conundrum biz-dev professionals face every day: make goal, but in accordance with corporate values. And you thought Marketing and Sales were mis-aligned? Look higher, my son!

In The Vision and Values of Wells Fargo , five primary values are given “that are based on our vision and provide the foundation for everything we do:”

• People as a competitive advantage
• Ethics
• What’s right for customers
• Diversity and inclusion
• Leadership

Odd that Wells Fargo cited ethics – but didn’t indicate whether they meant ones that are good, or bad. In fact, the value mentioned just below ethics, What’s right for customers, is open for debate. In November, 2015, The Wall Street Journal published an article, At Wells Fargo, How Far Did Bank’s Sales Culture Go? Regulators examine whether San Francisco-based lender pushed employees too hard to meet quotas. Here, in the interest of transparency, what’s right for customers should carry an asterisk, followed by the explanation, “provided we meet our audacious revenue targets.”

“Some of the worst transgressions start out by a very simple decision to maybe choose the more expedient way or the more financially attractive way with some post-rationalization for the next one and the next one, and before you know it, you’re down in a place thinking ‘how did I ever get here?’ and wishing you weren’t there,” Linebarger said.

He’s right. Perhaps the greatest benefit of having a statement of Corporate Values is that it lets people know when they’ve deviated from what’s ideal, and possibly how far they’ve gone.