Category Archives: Innovation

Doused Fyer: Does Our Obsession with Audacious Innovation Make Us Suckers for Scams?

 

What’s the difference between aggressive marketing and a sales scam?

The aftermath of the 2017 Fyer Festival  explores this question, and lawyers are debating the answer. Was the event a wayward business venture, or a get-rich-quick scheme? The festival’s originator, entrepreneur Billy McFarland, claims honest intentions, but blames faulty planning and bad circumstances for the festival’s demise.

Over-promise, then don’t deliver. Embedded within the debate lies a festering boil, epidemic in sales: the gap between a company’s marketing speil, and what customers get. With the Fyer Festival, though, it’s not a gap, but a chasm. Some question whether McFarland even had the wherewithal to deliver the flamboyant sales vision he created. Was he committed to keeping his promises? There are at least eight lawsuits pending against McFarland and his company, Fyer Media, and the courts will sort out the answers. The Fyer Festival has become “the focus of a criminal investigation, with federal authorities looking into possible mail, wire and securities fraud,” The New York Times reported on May 21st. This is not your run-of-the-mill business belly flop.

What was promised.  In 2016, McFarland promoted a mega-party scheduled for April, 2017 featuring music, celebrity chefs, gourmet food and luxury accommodations. Fyer Media showcased the venue as an island in the Bahamas called Fyre Cay – which doesn’t exist. One ticket package, the “Artist’s Palace,” was offered for $400,000, and provided four beds, eight VIP tickets and dinner with one festival performer.

To prospects, McFarland scrupulously maintained the festival’s high-end image. Rapper Ja Rule (whose real name is Jeffery Atkins) was touted as a celebrity business partner. Advertising listed musical acts by G.O.O.D Music, Major Lazer, and Migos. Fyer Media targeted millennials, and they sold about 8,000 tickets. To pump up revenue, the company also encouraged customers to pay $1,500 in advance for a digital Fyer Wristband to facilitate cashless transactions for “incidentals.” That added nearly $2 million to the top line.

But a few weeks before the event, as the Fyer hype engine was rocking at full throttle, a harrowing story was unfolding behind the scenes. According to a May 21 article in The New York Times,  In Wreckage of the Fyer Festival, Fury, Lawsuits, and an Inquiry,

“Expenses were swelling: Bed frames and beach chairs were rush-ordered; beach umbrellas had to be flown in, rather than shipped, because of late payments, according to three production staff members. Essential production tools, like walkie-talkies, never even arrived. Back at Fyre Media, the company credit cards were being declined for everyday office purchases.

Employees said they feared that their boss was using funds from their booking app to fund the festival. But Mr. McFarland reassured them in April when he said that Comcast Ventures, the investment arm of the cable and media giant, had agreed to invest up to $25 million in Fyer Media. In fact, Comcast had considered a deal, the company said, but passed ‘after conducting thorough due diligence.’ Mr. McFarland did not tell his employees.

As the festival date neared, the production crew’s wages, paid by wire or cash, arrived late, or short, and then stopped altogether, five members of the crew said.”

“As late as that Thursday evening [before the first weekend of the festival], Mr. McFarland and Ja Rule had continued to assure talent agents that all systems were go. But by Friday morning, both weekends of the festival had been cancelled. Within a few days, Mr. McFarland and the rest of his executive team had left the island, their site strewn with mattresses, empty Champagne bottles and other detritus.”

On April 1st, McFarland was still scrambling to find a location to accommodate the prospective partiers, scheduled to arrive on the 27th. McFarland finally secured a venue, Roker Point on Great Exuma Island. It was too little, too late. The festival was doomed.

What was delivered. Instead of luxurious digs and lavish buffets, arriving customers got tents, and cheese sandwiches on white bread. And lots of horseflies. Vendors lost money, too. Luca Sabatini claims his Miami-based company, Unreal Systems, lost about $10 million. Adding to the dismal ambience, a storm dumped heavy rain on the disappointed partygoers.

The Fyer Festival became a safety crisis. Many attendees could not leave readily. As they struggled to make arrangements, Fyer Media provided them this message on their website:

“Fyre Festival set out to provide a once-in-a-lifetime musical experience on the Islands of the Exumas. Due to circumstances out of our control, the physical infrastructure was not in place on time and we are unable to fulfill on that vision safely and enjoyably for our guests. At this time, we are working tirelessly to get flights scheduled and get everyone off of Great Exuma and home safely as quickly as we can. We ask that guests currently on-island do not make their own arrangements to get to the airport as we are coordinating those plans. We are working to place everyone on complimentary charters back to Miami today; this process has commenced and the safety and comfort of our guests is our top priority. The festival is being postponed until we can further assess if and when we are able to create the high-quality experience we envisioned. We ask for everyone’s patience and cooperation during this difficult time as we work as quickly and safely as we can to remedy this unforeseeable situation. We will continue to provide regular updates via email to our guests and via our official social media channels as they become available.”

The Fyer Festival provides an iconic recipe for a business fiasco: combine a shaky business model, lame assumptions, empty promises, opaque management, unpaid workers, stiffed vendors, jilted customers, and environmental wreckage. Blend and pour. Top off with a generous dollop of management arrogance. Serve.

Selling the vision is the easy part . . . Was McFarland dishonest in selling something he didn’t yet have? Before you answer, remember that selling things before they are available is not new or uncommon. Real estate agents sell resort property “under development,” and companies in many industries sell future services like maintenance plans, for which they may not have capabilities to provide. Lately, Tesla accepted deposits for its solar energy roof tile systems pending future installation. I’m not sure if anyone batted an eye.

What drives sales of not-yet-available products is the abiding hope that vendors will deliver what’s expected. That – and legal contracts. Contracts are created to protect sellers and buyers, and that helps facilitate transactions. But customers must never forget that when vendors write contracts, they prioritize and protect their own interests. Always. Check the fine print: customers generally bear whatever risks the vendors don’t want or can’t afford, and absorb the costs when they come home to roost. The truth about whether the Fyer Festival’s terms of sale offered adequate – or any – protection to its customers will unfold in the coming weeks.

McFarland’s “killer skill.” Customers of McFarland’s earlier entrepreneurial venture, Magnises, “complained that offers, like Beyonce tickets, never materialized, and that annual dues were charged to their credit cards months early . . . Still, he had a way of engendering trust.”

This irony galls me. But I shouldn’t be surprised. It’s rare to find anything written about strategy, tactics, and best practices that’s coupled to maintaining moral or ethical foundations. It’s all about money. We worship revenue production and profit performance. We laud “audacious risk takers” and developers of “the next great thing.”

We enthusiastically offer them advice and encouragement, but we don’t scrutinize their premise, motives, or intent. Senior managers fire functionaries for what they deem misbehavior or “not living up to the company’s ideals,” but they don’t banish their peers after they exploit customer trust. Had the US government not stepped in, Elizabeth Holmes, who admitted that the blood analysis company she founded, Theranos, is a fraud, would still be enriching herself while imperiling her customers. Now she has been forbidden from running another lab for . . . two entire years!

The same apathy allowed a company like SwanLuv to get launched. And the same apathy enabled Billy McFarland, a checkered serial entrepreneur, to execute a harebrained venture like the Fyer Festival, and sell 8,000 tickets. As long as there’s a pot of gold at the end of the entrepreneurial rainbow, who cares if people get hurt or die as the result of someone’s misguided aspirations?

“We’ve moved from an industrial economy to a consumer economy to a service economy to an information economy to what you might call a flagrant-exploitation economy – one in which branding and ‘storytelling’ have replaced advertising and possibly even reality. It’s not just that we’re being sold the sizzle more than the steak. It’s that we’re being sold the sizzle instead of and at the expense of the steak,” Carina Chocano wrote in a New York Times article, False Front.

“Cultivating authenticity” – the new watchword for marketers. “If everything lived up to its hype, the world would be burdened with far fewer bad movies, miracle vitamins and optimistic campaign promises,” Chocano says. “Wells Fargo employees spent five years creating millions of fake accounts for unsuspecting customers in order to charge them additional fees; the year before this practice was uncovered, a news release introduced the bank’s new brand campaign as one that would ‘eschew product promotion for storytelling.’ [President Trump] has agreed to pay millions in fraud settlements to thousands of students of his ‘university,’ with its $35,000 ‘Gold Elite’ program; his daughter, whom he has employed for much of her career, has published a book in which she writes about ‘cultivating authenticity’ and presents herself as an accomplished businesswoman. It’s a brand that she’s selling – the have-it-all sizzle of a self-actualized career woman and loving supermom in fashionable shoes. Who cares whether, somewhere behind it, there may be the equivalent of an undeveloped gravel pit and some unboxed disaster tents?”

Say it loud! I’m fake and I’m proud! Chocano believes that the scam economy might be entering its “baroque phase.” Even for the wary, it’s difficult to distinguish between real products and knockoffs, legitimate email from phishing, and honest companies from scammers. For the latest artifacts, check out Hoax Slayer or the US Federal Trade Commission website. Our culture and basic antipathy for commercial regulation has made the US fecund for “dissemblers, operators, and downright swindlers,” Duke University professor Edward Balleisen writes in his book, Fraud: An American History from Barnum to Madoff.   “Some of the psychological impulses that show up again and again in the history of business fraud reflect widespread aspirations or anxieties,” Balleisen says. In particular, “the passion for easily attained wealth.”

If you want an antidote, ask a preschooler. The Muppets, featured on the children’s TV show, Sesame Street, help young children develop skepticism, and might inoculate them to scammers. In one episode, a character named Lefty offers to sell Ernie one of his products. “I got something you need, and I can sell it to ya real cheap,” he says. Ernie gives Lefty five cents for a bottle of air, which he accepts. After pouring the air into Ernie’s furry hands, Lefty keeps the bottle, explaining that Ernie’s payment did not include the packaging. Other episodes show Lefty selling Ernie similarly worthless products, including an empty box and the number 8. Kids as young as three understand Ernie’s folly. In just 15 years, however, a child’s skepticism gets neutralized. Blame it on powerful sales messages, clever “content marketing,” or the constant drumbeat of honors bestowed to those who got rich quick. It’s a shame such memorable consumer lessons are only offered to the very young.

“The big generational shift since [the ‘70’s],” Chocano writes, “is from cynicism and avoidance to an admiration of the hustle and an enthusiasm for all the enthusiasm, which has dovetailed perfectly with the new laissez faire. The more Wild West the business environment, the more the hustler is elevated to folk hero or legend, much the same way that the robber barons once were.”

What distinguishes aggressive marketing from a con artist is intent. A revenue-driven marketer who lacks moral scruples meets the criteria for the archetypal con artist.  Companies should care about how they generate their revenue. So should the people who work for and support those companies. In the meantime, watch out for more Billy McFarland’s breathlessly hyping their digital snake oil online, and for more Fyer Festivals.

After the Festival debacle, Ja Rule, McFarland’s business partner, reportedly said in a Fyre Media Company meeting: “That’s not fraud, that’s not fraud . . . False advertising, maybe – not fraud.” Three denials in the same sentence – a scammer’s telltale tic. Lefty couldn’t have expressed it any better.

The Unfinished Business of the Internet

These days, people have reasons to keep secrets in Washington. But I have a good grapevine, and as soon I heard scuttlebutt that Vint Cerf, Google Vice President and Chief Internet Evangelist would be speaking this week in Northern Virginia, I knew I wanted to be there.

Odd that in the Internet age, finding details about this event wasn’t easy. No announcement. No informational website. No registration page. And zero search results. I only knew that Cerf was speaking at the Thomas Jefferson High School for Science and Technology (TJHSST)  on June 6. When I contacted the school, even the front desk personnel weren’t aware. An hour later, I got a call back from an administrator. Yes, Mr. Cerf would be speaking at 3 pm.  I headed over and found the auditorium packed, and the energy palpable.

In the back rows sat a smattering of parents, who, like me, finessed their way in to learn from this iconic person. “I wouldn’t have missed this for anything,” a dad told me, adding “My daughter thought Cerf was speaking because he developed Ion (the moniker for TJHSST’s intranet). I told her, ‘no, he pioneered The Internet!’”

In the early ‘80’s, Cerf was co-inventor of the now-ubiquitous TCP/IP protocol that allows communication between disparate IT devices. He was involved in the development of the first commercial email system. And he formed ICANN – the Internet Corporation for Assigned Names and Numbers – the organization that makes it possible for you to read this article online. It’s not often that I anoint anyone as a Rock Star, but it fits here.

Cerf began his talk with a summary of the early beginnings of the Internet. He and TCP/IP co-inventor Bob Kahn were prescient, deciding not to patent TCP/IP because they recognized that doing so would inhibit growth of an industry that had not yet even formed. “The result,” he said, “was that many people adopted the Internet.” On January 1st, 1983 when the Internet was first turned on, “there was no central control, which allowed aggregate global collaboration.” The key insight he and Kahn discovered was that open architecture allowed millions of people to connect rapidly.  Seems obvious today, but back then it was a revelation.

Cerf spoke about other technology milestones, including the World Wide Web (1993), the MOSAIC browser (1993), and Netscape (1994).  But the heart of his talk was on “unfinished business.” Each point covered an issue that touches us daily, and each has a highly uncertain future.

  1. Strong authentication. The Internet has many structural impediments that make it difficult to ensure that identities are genuine.
  2. Cryptography. “Anonymity is still important because in some parts of the world it’s unsafe to speak up.”
  3. IPV6 address implementation. Rapid change and expansion in IoT, cyber-physical systems, and mobile devices present great connectivity and data challenges.
  4. Long-term digital preservation. The Internet is a fluid system, and unlike printed material, it’s not always possible to archive something in its fully-original form.
  5. Stable identifier systems. “Domains and URL’s are not stable,” Cerf said. Web pages can be taken down as easily as entire websites, or they can be redirected to new websites. This complicates academic and scientific research.
  6. Broadband wired or wireless access. Not everyone – or every place – has equal access to the Internet.
  7. Internet of Things (IoT). There’s an “avalanche of devices coming into being.” Cerf asked, “What happens when you have hundreds of devices connected in a house, and you move to a new house?” It’s not trivial to reconnect everything. Also, with voice-recognition devices such as Amazon or Alexa, how will the underlying AI adjust results when different voices use the same words?
  8. Misinformation, disinformation, and critical thinking. Last year’s presidential election underscored the perils.
  9. Consequences of malware and buggy software. The Smart Machine Age has increased our reliance on software to make critical life-and-death decisions. But programing is still subject to flaws.
  10. Ethics of software-based decisions. With IT, the “right” choice is not always an ethical one.
  11. Digital literacy. In a technology-dependent world, our understandings of how things work has not kept pace.

I intended to beat the crowd leaving the auditorium when Cerf wrapped up his talk. It was the end of school, and even a short delay would have me dodging students, and sitting in my car, snarled in a sea of boxy orange school buses. But the moderator allowed audience questions, and I indulged a few minutes to listen to the first one. It was from a student who asked Cerf for his opinion on net neutrality, and specifically, about the Trump administration’s efforts to roll back regulations. Cerf’s answer was thoughtful and measured. He shared that in the 1990’s, there were about 8,000 Internet Service Providers, but broadband changed that by reducing the number to zero, one, or two providers for most of the US population. Cerf told the audience that if you’re a broadband provider selling subscription video entertainment, the natural inclination would be to slow down data on a Netflix – or similar service – because it competes with your cash cow. He said, “the simple idea is don’t inhibit competition,” and that it would be “a big mistake to abandon those rules.”

“The Internet was a stupid platform when it was originated,” Cerf said. I take that to mean that the Internet was never good at protecting us from ourselves. The unfinished business of the Internet tells us that in that regard, we still have a long way to go.

Will Today’s Essential Sales Skills Become Obsolete in the Smart Machine Age?

In 2015, nearly four million babies were born in the United States.  Today they are toddlers, and many will be asked what they want to be when they grow up. Expect hesitation. The question will not be as easy to answer as it was for my generation. By the time these kids hit twenty, many of the jobs their parents and relatives performed will have vanished.

According to author Edward Hess, professor at UVa’s Darden Graduate School of Business Administration, about half of all current US jobs will be displaced by 2040. His recent book, Humility is the New Smart, cites a 2013 study by Carl Benedikt Frey and Michael Osborne which examines the impact information technology will have on labor and employment. Frey and Osborne estimate that as many as 80 million US workers will be directly affected during this upheaval.

People may disagree with these dire predictions, but it’s hard to deny the profound influence that the Smart Machine Age (SMA) will have on how people will work, and on how many will be working. Nascent developments in artificial intelligence, robotics, and driverless vehicles show great promise. But for society and the labor market, not every outcome will be benign.

If half of today’s jobs will be displaced, which ones will endure? That’s hard to say, but right now, if a machine or algorithm does what you do, it’s time to dust off your resume, and pray that the software that judges it will respond favorably. There’s more displacement coming. In an article, Automation and Anxiety: Will Smarter Machines Cause Mass Unemployment?, The Economist magazine offers a glimpse:

“. . . most workers in transport and logistics (such as taxi and delivery drivers) and office support (such as receptionists and security guards) ‘are likely to be substituted by computer capital’, and that many workers in sales and services (such as cashiers, counter and rental clerks, telemarketers and accountants) also faced a high risk of computerisation.”

In the SMA, jobs that are easily substituted by computer capital won’t be highly paid, and there won’t be much need for workers to do them, either. Yet, there’s hope. Smart machines and AI remain persistently cruddy at performing a myriad of valuable skills. Hess believes that the ones that will endure “will require high-level thinking, creativity, and high emotional intelligence. The consensus view is that humans will be needed to perform those skills that either complement technology, or constitute what machines can’t yet do well, and that list includes critical thinking, innovative thinking, creativity, and the kind of high emotional engagement with others that fosters relationship building and collaboration.”

Given Hess’s prediction, sales professionals can be forgiven for feeling a tad smug.  After all, no profession better exemplifies this rare combination of abilities. At least that’s the message we repeat to ourselves. Such “killer skills” are consistently mentioned whenever a salesperson is honored, recognized, or rewarded for high revenue production. But before anyone gets bullish and puts a deposit on a designer surfboard or a Ferrari GTC4Lusso, a sobering thought: the SMA has already nibbled away low-level jobs in sales and retail. Ominously, technology has a pattern of progressing from nibbling to gnawing, before becoming a full-on feeding frenzy. Temptation confronts senior executives every day. You can’t find a CFO on the planet who is unaware of the ratio of Sales, General, and Administrative costs to overall revenue at his or her company. And the number is seldom “good enough.”

Sales survivors who believe their skills will be coveted into perpetuity might want to reassess their hubris.  The “essential” skills that portend success today won’t be especially helpful in the SMA. In fact, for a variety of reasons, some will become liabilities. First, the nature of work itself will change. Traditional employees will become outsourced contractors. Goal-directed teams will rapidly coalesce and evaporate just as quickly. Decision processes will become more opaque. These developments fundamentally change how goods and services will be sold. It doesn’t matter whether the product is industrial pumps or property management services. Second, strategic success – and its measurements – will undergo massive change. It won’t be expressed simply in terms of revenue. Consequently, sales enablement will become much different.

The New Mental Model. Success in the Smart Machine Age favors companies that adopt what Hess calls a “new mental model.” Today’s sales organizations champion some skills that will be valued in the SMA – but others that are currently popular will get in the way.

1. Legacy model: individuals win

    SMA: teams win

For many decades, sales forces have been designed, staffed, and managed under a model where reps are “individual contributors.” The concept permeates everything from culture to process to compensation to hiring and professional development. Today, individual quota achievement as the key metric of job success. In the team-oriented SMA, that model creates substantial risks.

2. Legacy model: play cards close to the chest

    SMA: transparency

While Hess is referring to the organizational tactic of hoarding information, sales operations have long engaged in this practice. When it comes to taking responsibility for activities on the customer “front lines”, corporate boards and outside departments are reluctant to get involved. “What happens in Sales stays in Sales!” In the SMA, revenue generation will become a key part of every department in the company – from HR to Legal to IT – as well as Marketing and Sales.

3. Legacy model: Highest-ranking person can trump

    SMA: Best idea or argument wins

The person who coined the aphorism, “[Stuff] flows downhill,” probably worked in Sales as a “direct report.” In the SMA, titles, job description, and tenure won’t matter as much as the quality of an idea.

4. Legacy model: Listening to confirm

    SMA: Listening to learn

Today’s sales rep listens for confirmation. Sure, sales pundits talk a good game about why salespeople need to “shut up and listen,” and how “telling is not selling.” But today’s sales managers and coaches still goad reps to focus on listening for “trigger events” and “buying signals.” Today, listening to learn without having a specific sales goal in mind is a luxury. In the SMA, it will be a necessity.

5. Legacy model: Telling

    SMA: Asking questions

A bright spot for the sales profession’s evolution into the SMA. Asking questions to expose the truth has been an enduring part of sales culture.

6. Legacy model: Knowing

    SMA: Being good at not knowing

This element represents prominent awkwardness for sales professionals. Today’s sales culture insists that salespeople possess business knowledge, industry knowledge, competitive knowledge, best-practice knowledge, and product knowledge, not to mention common sense and street smarts.  “Know everything you can about your customers!” For reps, admitting a knowledge gap isn’t a career-enhancing move. Hess believes this unattainable interpretation of knowledge is becoming obsolete. “In the SMA, Old Smart will become the new ‘stupid.’ . . . NewSmart is a new definition of human smart that reflects the increasing cognitive capabilities of smart machines and is measured not by quantity – how much you know – but by the quality of your thinking, learning, and emotionally engaging with others. NewSmart is not about always being right, being perfect, and knowing more than others.”

7. Legacy model: IQ

    SMA: IQ and EQ

Another bright spot! Building rapport has long been considered an essential skill for top producers.

8. Legacy model: Mistakes are always bad

     SMA: Mistakes are learning opportunities

Sales organizations aren’t forgiving about mistakes, which range from screwing up a demo to failing to get an appointment with a C-Level executive to losing a deal. That culture makes them very weak on learning. “Just move on . . .” A terse, but all-too-common synthesis following a failed revenue opportunity. In the SMA, successful companies will be more open to admitting mistakes, and using knowledge to prevent them in the future.

9. Legacy model: Compete

     SMA: Collaborate

It’s nearly universal in sales organizations for reps to be indoctrinated with competitive spirit. And not just us against rivals, but you against each other.  In almost every organization, salespeople are ranked against their peers. There are monetary bonuses and other perks provided to “top revenue producers.” Reps are lauded when their individual accomplishments merit recognition – but rarely appreciated for leadership, let alone encouraged to lead. Evidence? A verbatim job description from a website that typified many I examined: “This is an individual contributor position that will not coordinate the activities of others.” In the SMA, sales teams will operate as teams, and not just be referred to that way.

10. Legacy model: Self-promote

       SMA: Self-reflect

“Customers buy from people – not companies!”  Today, removing self-promotion from selling compares to the result when helium is removed from a “happy birthday” balloon. The message is still communicated, but not nearly as well. How will sales professionals adjust to the introspection needed in the SMA? I’m not sure. Maybe a good start would be to subdue the ethos that everything a rep does centers on him or her making quota.

Does the advent of the SMA mean that hiring executives need to discover skills in sales candidates that were previously not considered predictive of success? Emphatically yes, if they believe that buyers and sellers will engage differently, and that the definition of success will extend beyond an individual’s percent-of-goal to include outcomes not previously measured or rewarded.

In 2037, a sizable portion of the four million babies born in 2015 will be newly-minted college graduates – or at least the product of what we now call post-secondary education.  As we progress further into the SMA, will most companies rely on uniquely human skills to generate revenue? Will AI become smart enough to substantially cannibalize the roles of legacy sales hunters and individual contributors? Will “pure” sales roles even exist?  Fun to ruminate on, but hard to predict. As we enter the SMA, the only certainty is that the most valued job skills – the ones likely to provide health, happiness, and prosperity – won’t be the same as today.

Additional resource: for related articles about Professor Hess’s May 16, 2017 lecture at the Darden Innovation Summit, please click here.

 

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!

Virginia Gives Tesla’s New Sales Model a Faint Green Light

Earlier this month, I visited friends in Beverly Hills, California, and rode in their new Tesla Model S. The car accommodated six adults. Two sat up front, and four snuggled into a back seat designed to hold three. I loved the quiet, and especially the acceleration. If there were celebrities milling about, I didn’t see them. The scenery was all a blur. But it was a blast getting to the country club.

When I returned home, I initiated an online search, How to buy a Tesla in Virginia. The top result, Edmunds.com, gives some up-tempo prose. Kudos to the writer:

“If you are in the market for a new Tesla car or truck, your search should begin at Edmunds.com. Our expansive network of Virginia Tesla car dealerships gives car buyers the ability to start shopping for their new or used vehicle from the convenience of their desktop. Once you locate Tesla car dealers in Virginia, you can compare online price quotes to find the lowest possible rate. Whether you are interested in a car, truck, SUV, wagon, or minivan, the comprehensive listing of Virginia Tesla car dealerships at Edmunds.com is a great place to start.”

The first hint of weirdness, though, comes in the first sentence from the word truck. Tesla doesn’t yet have one available for purchase. The “expansive network of Virginia Tesla car dealerships” is impressive. The list covers much of my state, making an alphabetic span from Alexandria to Woodbridge. There’s even a link to find Tesla dealerships in Lynchburg, located in Campbell County, which voted 71% for Trump and 24% for Clinton. Not a superb target demographic if you’re selling an all-electric vehicle. Strange . . . why put a dealership there?

Then, my website peregrinations guide me toward an answer. Each time I click a link, I receive an identical result:

Sorry, there are no car dealers in your area. Please try a selection below.

The online experience proceeds downhill. The try-a-selection-below path demonstrates what happens when software gets flummoxed. Edmunds.com simply coughs up a different list. One that shows makes of cars from Acura to Volvo. Fail!

Other sites are no better. “No Virginian should buy a new Tesla without being fully informed about the new car market. TrueCar shows you the average price other people are actually paying for new cars at Virginia Tesla dealers.” Please! Now you’re trying to play me.

Of course, there are no Virginia Tesla dealers. My suspicions are confirmed – online car buying services just re-use the same copy for all vehicle makes. “Change Toyota to Tesla . . . ” I can hear the Marketing Director saying it now.

Evidently, Edmunds and TrueCar have teed up their websites in preparation for the first franchised Tesla dealers, broken links, be damned! When – or if – that day will come remains unclear. “In Virginia, as in most states, it is generally illegal for manufacturers to sell cars directly to consumers, partly to prevent car makers from undercutting their franchisees. But there are exceptions to that rule. And Tesla says those apply, in part because its cars are so unconventional that traditional car salesmanship will not work,” Laura Vozzella wrote in a November 29 Washington Post article, Tesla’s Bid for Second Store in Virginia Draws Fire.

Tesla, which is licensed to sell cars in 23 states, wants to open its second store in the Old Dominion, just outside Richmond. Tysons Corner, Tesla’s current Virginia location, is called a Gallery. Staff are allowed to talk about the vehicles, but cannot discuss sales or arrange test drives. But Don Hall, president of the Virginia Automobile Dealers Association (VADA), doesn’t want even that to happen. “For the last 29 years, I have fought as a gladiator to protect the rights of Virginia auto dealers and their franchise system. This system is under attack by the likes of Tesla and many others out there who believe the franchise system is a dinosaur and no longer works . . . Let’s all strap on whatever it takes to win.”

Some sales advice for Gladiator Don, which I’ll throw in, no extra charge: if you want to convince Virginians to support the business model you cherish and aspire to protect, mention a few feel-good phrases like dealer value-add, consumer rights, buyer protection, and excellent customer experiences. And describe how crushing Tesla’s direct-to-consumer sales innovation brings benefits to car buyers, and not just to your association members.

For Don, a full-frontal sales pitch should be familiar territory. He espouses the same go-for-the-jugular approach that made auto dealers notoriously unpopular with consumers. Something he likely feels he must do to bolster an industry that holds not one, but two spots in the Better Business Bureau’s (BBB’s) top 10 industries for customer complaints. In 2014, Auto Dealerships – New placed 4th on the BBB’s list. Auto Dealerships – Used placed 6th. And while I’m at it, Auto Repair and Service ranked 10th. Not all of that complaining was directed toward dealership repair facilities, but no doubt, some of it was.

Checkered customer satisfaction ratings possibly explains why over the past 10 years, VADA has found it necessary to invest over $4 million in campaign contributions and gifts to Virginia politicians to maintain its hegemony in auto sales. Their effort seems to be working. Achieving Tesla’s strategy is far from assured. “If [Tesla] wants a carve-out, it better be such an incredibly compelling argument,” Republican Del. Jackson H. Miller said. “And I’m not sure Tesla has that.” The commissioner of Virginia’s Department of Motor Vehicles will rule on the matter in December (author’s note: see the update at the end of this article).

“Tesla has argued that dealers, who are used to quick sales, price markups and profitable maintenance work, could not shift gears to its cars. With new, highly sophisticated technology, Teslas are more time-consuming to sell. Tesla offers the cars at set prices whether they are purchased at a retail store or through the company’s website, leaving no room for markup. And with few moving parts or oil, they offer little opportunity to profit from service – an important source of revenue for many conventional dealers,” according to The Washington Post article. “It’s not a Ford versus a Toyota versus a Hyundai. It’s a whole different product,” said Marcus Simon, a Democratic state delegate from Fairfax. “There’s not many moving parts to the thing. It looks different, works different, smells different . . . It’s more like buying a computer or electronic device than a car.”

Tesla’s management knows what dealers would have to do to make a profit selling their cars, and it wouldn’t be pretty. Would dealers gouge customers with unnecessary add-on fees, as they did with undercoating and “appearance packages”? Would they steer them to more profitable gas-driven models? And would an intermediary injected into the sales process destroy Tesla’s carefully cultivated customer trust?

It’s understandable that Tesla wants to drive away from the franchise sales model. As a prospective car buyer, I hope they succeed in navigating that road, not only in Virginia, but throughout the US.

Update: On November 30, Richard Holcomb, Commissioner of the Virginia Department of Motor Vehicles, allowed Tesla’s petition to open a second Virginia store. “After careful review of the entire record, I find that there is no dealer independent of Tesla in the community or trade area of Richmond to own and operate a Tesla franchise in a manner consistent with the public interest,” he wrote.

In an email, Tesla’s VP of Business Development, Diarmuid O’Connell responded, “Tesla applauds the Commissioner’s decision to allow us to open our new store and service center in Richmond, Virginia. . . This decision will allow Richmond-area consumers to learn about and purchase their Tesla vehicles in closer proximity to their home. We intend to swiftly begin construction.”

As of December 1, 2016, a search of the Virginia Automobile Dealers Association website yielded no response to Holcomb’s decision.