Immersion Active presents Ageless Marketing

Trust Flows from Cultures of Trust

Thoughts on a culture of trust from our new book in progress, Firms of Endearment (edited):

Costco is another FoE with a high customer trust score. However, CEO Jim Senigal doesn’t spend much time thinking about building trust with customers. He’s more devoted to maintaining consistency with Costco’s core values:

1. Obey the law

2. Take care of our customers

3. Take care of our employees

4. Respect our suppliers

5. Reward our shareholders

Senigal’s passion for taking care of customers begins with holding the markup of any branded product to 14 percent and to 15 percent on private label products.

Not long ago Costco own brand of 35mm film began flying out the doors because its was so much cheaper than Kodak film. The supplier kept lowering the wholesale price because of the increasing volume. This put Costco in the position of exceeding its gross margin commitment. Some in management feared that lowering the price might erode brand equity. Dealing with the problem cleverly, Costco lowered the price, but added more rolls to keep profit margins in line with its commitment.

Much like L. L. Bean, Costco customers have blanket permission for returns: no receipts; no questions; no time limits, except for computers, which have a six months’ grace period. Costco trusts customers; customers trust Costco. So where’s the news in this? Trust is always strongest in relationships where it runs in both directions. Countless companies want customers to trust them, but do not reciprocate. But FoEs like Costco and L. L. Bean understand the payoff from nurturing and trusting customers. Yes, occasionally a customer will abuse the system, but FoEs won’t compromise benefits that flow to the many because an occasional miscreant pops into the picture. After all, the orchardist does not cut down the apple tree when a few bad ones show up in the branches.

Costco has a culture of trust. Its disposition to trust customers extends to all stakeholders, starting with employees. Jim Senigal sets an example that makes it clear to employees that Costco executives aren’t into taking advantage of employees, customers, suppliers and others for personal gain. To demonstrate this, Senigal’s compensation is pocket change in comparison with the pay of most CEOs of major corporations. The average compensation (not including stock options) for CEOs in the top 50 companies in revenues in 2004 was $10.7 million. Though Costco ranks 29^th in revenues, Senigal’s total income in 2004 was $550,000: $350,000 in salary and a $200,000 bonus.

Despite his paltry income relative to his peers, Senegal humbly brags, "We pay much better than Wal-Mart. That's not altruism. It's good business." A full-time clerk or warehouse worker earns more than $41,000 a year, plus a health-care package that far surpasses Wal-Mart’s health coverage. Wal-Mart employees get less than half what Costco workers earn. The irony – or call it counterintuitive truth – is that Costco's labor costs are only about half of Wal-Mart's. Because Costco workers feel valued, they are significantly more productive. Moreover Wal-Mart’s high employee turnover necessitates the hiring and training of more than 600,000 new workers each year. This is a huge cost that Costco doesn’t have. It’s annual turnover is just 6%.

Thus, enumerated bulleted “how to statements” on building trust, such as contained in David Maister’s book The Trusted Advisor (see yesterday’s post), ring as hollow words, for even a con artists follow those steps. Enduring trust flows not from tactical actions but from strategic principles embedded in a culture of trust.

Trust Is a Report Card Grade, Not a Vision Item or a Mission Goal

“Trust is possibly THE business issue of the decade.” Thus began this week’s bi-weekly Inspiration e-newsletter from Customer Service World. The piece cited “five steps in trust-building” from David Maister’s book The Trusted Advisor.

1. Engagement
The client’s attention becomes focused. You earn the right to tell and hear truths.

2. Listening
When done successfully, this is the stage in the process when the client comes to realize that the advisor understands him or her.

3. Framing
The root issue is stated openly. The client thinks “Yes, that is exactly the problem here…” This is usually the stage where the client becomes consciously aware of the value being added by the advisor.

4. Envisioning
A vision of a solution is sketched out. The client begins to feel “Could we really accomplish that? That could become a really interesting outcome.” You generate joint clarity of objectives.

5. Commitment
Steps are agreed upon. A sense of commitment is renewed. Reaching this stage allows problem resolution to begin. The client’s mindset is “I agree. I understand what needs to be done. I’m with you. Let’s do it.”

Those are all good steps, but as tactical actions they are insufficient to achieve the end goal of trust. Granted that Maister’s Five Steps to trust-building are presented in the context of B2B relationships, I don’t see matters much differently than how we frame them in Firms of Endearment:

The Wisdom in not Focusing on Building Trust with Customers

We can’t tell you how many vision and mission statements we’ve seen citing building trust with customers as a primary objective. You’re not in business to build trust. Trust is not a primary objective. Serving customers beyond compare is. Customers reward the companies with trust and loyalty commensurate with the devotion the company gives to their well being.

L. L. Bean CFO Lee Surace is not your garden variety chief bean counter. He loves his company; he loves L. L. Bean employees; he loves everyone in the L. L. Bean economic ecosystem. And he loves his job, which he regards with almost priestly humility and reverence:

For me, this business is not all about money. You have a sense that you are really improving people’s life … When you become aware of the social responsibility that you have not only with your workers, but also with all your suppliers, vendors, customers and your community, you realize that this business is not about how much money you are going to make as a company.

The culture defined nearly a century ago by passionate outdoorsman L. L. Bean, named by the Wall Street Journal's as one of the Top Ten Entrepreneurs of the 20th century, remains intact today. Unlimited guarantees are part of that culture. As one story has it, several years ago a customer returned a threadbare coat bought in the 1950s and received a new one in exchange in fulfillment of L. L. Bean’s guarantees without time limits. The $1.5 billion outdoor equipment and apparel company, like the orchardist, tends to its stakeholders’ needs and interests and they in turn reward the family-owned company with loyalty and the means for continued growth and profitability. Unlimited guarantees say to customers, “We trust you.” Customers’ respond, “We trust you, too,” by giving the company their loyalty.

Trust building begins with a culture of trust. Trust is the fruit of relationship building that rests on high-grounded principles such as L. L. Bean’s culture embraces. Trust is a report card grade on how well you are meeting customers’ needs. But there is more … to be continued.

More on Whole Foods

John Moore from over at Brand Autopsy appended a comment to my August 23 post in which I challenged the conventional wisdom of customer centricity. In that post I invoked the image of Whole Foods as a company that has it right. Instead of making “or pretending) that customers are the primary stakeholder, Whole Foods looks at all its stakeholders like good parents of a brood of five or six looks upon their children: no favorites.

To ensure that John’s comments get read by more readers because they are important words, I’m reprinting his comments here:

David … interesting post. As a former Whole Foods marketing guy, I thought I’d add a little texture to your “share of heart” thinking.

Every five years, Whole Foods brings together a group of stakeholders to design the company’s five-year strategic vision. It’s a process the company calls FUTURE SEARCH. What’s remarkable about this process is they hand-select devoted customers and vendors to participate alongside 12 other internal company stakeholder groups.

At the last Future Search, held in 2003, I marveled at the insights these customers provided. They provided us with a real-world perspective we would have been blinded from because so many corporate retreats are exercises in company navel-gazing.

Whole Foods Market’s Declaration of Interdependence is inclusive of customers and is definitely designed to emotionalize the business to capture the hearts and minds of all stakeholders.

In Firms of Endearment (scheduled for release in Spring, 2006), we write about companies as participants in economic ecosystems. Whole Foods operates in an economic ecosystem that is populated by a half a dozen primary stakeholder groups:

• Customer
• Employees
• Suppliers
• Alliance partners
• Shareholders
• Community and government

Traditionally, owners and executive employees have ranked first in most companies even though the mission and vision statements allege the customers come first. Firms of Endearment (FoEs) have a strong consciousness about the importance of all stakeholders, that is, the total fabric of the economic ecosystem in which they operate.

Whole Foods is an exemplar of that consciousness. Thanks, John, for enriching our learning about an outstanding FoE.

Why Companies Should Not Be Customer Centric – Really!

It has become fashionable to single out customers as the most important stakeholder. Customer centricity is a flawed concept. It pays patronizing homage to one category of stakeholders at the potential expense of other stakeholders. There is nothing neither noble nor pragmatic about being customer centric.

In the first place, the doctrine of customer centricity as usually promoted is less about caring for customers than about exploiting their wallets. “One to one” marketing mavens Don Peppers and Martha Rogers built a sizeable consulting enterprise around this idea. They counseled clients to forget “share of market” and instead pursue “share of wallet.” A more humanistic and yet more productive approach is the pursuit of share of heart. This is what the companies we feature in our new book Firms of Endearment (FoE) strive for. But they don’t restrict their efforts to gain share of heart just to consumers. They strive for share of heart in all stakeholder groups.

Rather than holding out one stakeholder group or another as the most important stakeholder group, fully developed Firms of Endearment (FoEs) give attention to the well being of the entire economic ecosystem in which they operate. While service to each stakeholder group is important, without a healthy economic ecosystem all are in jeopardy.

Peak performing companies will increasingly not be shareholder centric, nor customer centric, nor employee centric, nor self-centric. Their business models will be more holistic, more systems centric. The models will be economic ecosystem centric. The attention given stakeholders will be proportionate to a stakeholder groups' contribution to the well being of the economic ecosystem.

While successful enterprises will increasingly operate according to the laws of nature via economic ecosystem business models, they will not follow the classical (in business) Darwinian predator and prey business models. Here is how Whole Foods expresses this idea (which can be seen in its entirety in the Whole Foods Declaration of Interdependence):

Satisfying all of our stakeholders and achieving our standards is our goal. One of the most important responsibilities of Whole Foods Market’s leadership is to make sure the interests, desires and needs of our various stakeholders are kept in balance. It requires participation and communication by all our stakeholders. It requires listening compassionately, thinking carefully and acting with integrity. Any conflicts must be mediated and win-win solutions found. Creating and nurturing this community of stakeholders is critical to the long-term success of our company.

Why Companies Should Not Be Customer Centric – Really!

It has become fashionable to single out customers as the most important stakeholder. Customer centricity is a flawed concept. It pays patronizing homage to one category of stakeholders at the potential expense of other stakeholders. There is nothing neither noble nor pragmatic about being customer centric.

In the first place, the doctrine of customer centricity as usually promoted is less about caring for customers than about exploiting their wallets. “One to one” marketing mavens Don Peppers and Martha Rogers built a sizeable consulting enterprise around this idea. They counseled clients to forget “share of market” and instead pursue “share of wallet.” A more humanistic and yet more productive approach is the pursuit of share of heart. This is what the companies we feature in our new book Firms of Endearment (FoE) strive for. But they don’t restrict their efforts to gain share of heart just to consumers. They strive for share of heart in all stakeholder groups.

Rather than holding out one stakeholder group or another as the most important stakeholder group, fully developed Firms of Endearment (FoEs) give attention to the well being of the entire economic ecosystem in which they operate. While service to each stakeholder group is important, without a healthy economic ecosystem all are in jeopardy.

Peak performing companies will increasingly not be shareholder centric, nor customer centric, nor employee centric, nor self-centric. Their business models will be more holistic, more systems centric. The models will be economic ecosystem centric. The attention given stakeholders will be proportionate to a stakeholder groups' contribution to the well being of the economic ecosystem.

While successful enterprises will increasingly operate according to the laws of nature via economic ecosystem business models, they will not follow the classical (in business) Darwinian predator and prey business models. Here is how Whole Foods expresses this idea (which can be seen in its entirety in the Whole Foods Declaration of Interdependence):

Satisfying all of our stakeholders and achieving our standards is our goal. One of the most important responsibilities of Whole Foods Market’s leadership is to make sure the interests, desires and needs of our various stakeholders are kept in balance. It requires participation and communication by all our stakeholders. It requires listening compassionately, thinking carefully and acting with integrity. Any conflicts must be mediated and win-win solutions found. Creating and nurturing this community of stakeholders is critical to the long-term success of our company.

Nike's Just Do It Just Blew It

Nike just blew it. At least in my judgment. Inspired by Dove’s enviably successful and artfully executed real beauty campaign, Nike has taken the plunge into reality advertising. Instead of an airy swan dive, it chose an inelegant butt-first splash.

Nike terms its new alleged reality campaign the  "'Big Butts, Thunder Thighs and Tomboy Knees" campaign.

This really awful execution of a terrific idea seems more like the product of one of those edgy New York boutique shops than the work of Nike’s long-time agency, Wieden & Kennedy. Reality is not about crudity, despite the extent to which crudity has been exploited in TV reality shows which are anything but reality. Reality shows are  distortions of reality. And Nike's new "reality advertising" is a distortion of good taste.

Somehow I think an in-your-face ad that invites those who don't like the lady's butt to kiss it is not very much in synch with today's mainstream values.

I’d love to hear from my readers. Read today’s Advertising Age article on Nike’s new reality advertising venture. Click on the picture in this post to blow the depicted ad up in size.

The Secret to Multigeneration Marketing

In my call for ideas for new topics, reader Arnold Howard suggested “How the generations differ, and how they are the same.” Great suggestion, Arnold.

Ever since RCA market research head Wendell Smith changed the face of marketing in 1956 with his essay on market segmentation in the Journal of Marketing, the idea of segmenting consumers has been the most influential theory in marketing.

Smith’s idea got a big boost in the early 1960s when ABC owned network television’s last place for viewership. But ABC had something the Eye and the Peacock didn’t own: the youngest audience. So ABC got with Nielsen to cook up a new way of looking at TV audiences: through the prism of age. Until that fateful compact, the basic television audience reporting unit was households, not age groups.

Today segmentation by age, gender, ethnicity, income and by just about every other index of beingness is de rigeur. The trouble is, segmentation by definition is exclusionary. As such, when a marketer divides markets into buckets of differences, he or she will inevitably exclude from marketing efforts potential buyers.

Arnold Howard’s topic suggestion is a good one because in today’s marketplace, with its almost infinite diversity, segmenting consumers can eliminate a large number of potential customers.

What’s the solution? Not eliminating market segmentation, but using it more mindfully. What do I mean?

New Balance exercises considerable mindfulness with great skill. It’s brand persona projects values into the marketplace that have universal meaning. “Connect with yourself. Achieve New Balance.” Regardless of age, those ideas are appealing.

New Balance mindfully employs market segmentation in its channel management practices. The inventory and marketing collaterals used in Foot Locker are quite different than the inventory and collaterals used in Nordstrom’s.

Hallmark’s marketing is also based on universal values, with love, family togetherness  and friendship heading the list.   

By invoking universal values, a brand’s reach can be extended across generational divides. For many companies being able to do this will spell the difference between continued growth and fading into history. I’ll tell you why in the next post.

Emotions: The Reality You Have Before You Think About It

I was trying to get across to a friend one day the idea that emotions never deceive us. “That can’t be, she said. “Everyone knows that decisions based on emotions are less reliable than decisions based on reason.”

But Joanie, along with “everyone”, is wrong. Emotions are incapable of deceiving us because they are analogues of reality. Like the needle in a car’s fuel gauge, emotions move proportionately with what moves them.

Where we go wrong is with our feelings. Feelings arise from the conscious mind’s attempt to figure out what our emotions are trying to tell us. We label feelings with such lexical markers as fear, anger, love, joy, or surprise. But we don’t always read our emotions and label them correctly. In fact, we can’t read most of our emotions because they are not strong enough to reach awareness. Yet, even background emotions can be strong enough to have a big influence our moods, decisions and behavior.

As I explained these things to Joanie, I could see that she still wasn’t getting it. She continued insisting that emotions can’t be trusted as much as reason can. It was at that point that another friend whom members of a professional group I belong to affectionately often call Mother Wisdom stepped in, “Joanie, I think what David is saying is that reality is what you have until you start thinking about it.”

Mother Wisdom had it right. Reasoned thinking often distorts the message emotions are sending to us.

Emotions are not some airy essence wafting through our incorporeal minds. They are a physiological phenomena caused by stimuli that generate changes in various body states such as in heart beat, blood pressure, adrenalin flow, body temperature, galvanic skin response.

Emotional awareness depends on the relevance of a stimulus to your interests. Someone holding a gun to your head is relevant enough to your interests for you to be quite aware of the changes in body states that you read as fear. On the other hand, a gift from your significant other of something you’ve long wanted will trigger body state changes that you experience as love and joy.

Messages conveyed by emotions can also be distorted by the influences of others. This is a common outcome in focus groups. A person might express what comes first to her mind in answering a moderator’s query, only to change her mind after hearing another person’s view, creating a gap between reason and reality.

Often, a top-of-mind response in a focus group is the reality of a matter, while a revision of that response is not. That’s why I often recommend to clients that they give panelists written surveys to answer key questions before convening the focus group.

A Lesson for Marketers (and Everyone Else): The Politics of Face

Zack Lynch, managing director of NeuroInsights, is an economic and social forecaster advising global organizations on the impact of neurotechnology on business, government and society. He also maintains a blog, Corante, which often has postings that capture my interest.

His August 5th post, The Politics of Face, reported a study in which pictures of recent candidates for Congress were flashed on a screen for one second. Volunteers were asked to select the candidate they thought was most competent. Their answers predicted the election outcome almost 70% of the time.

The results of this study are transferable to marketing, especially in marketing directed to the 40-plus population. Not only do people in this segment of the consumer population rely more on first impressions, research has shown them to be more resistant to changing from their first impressions. You better get it right the first time; unlike younger people, these folks may never give you a second chance.

If you do focus group testing of ads or other issues where panelists are asked to make choices, it’s not a bad idea to do the one-second projection. What you will be getting is right brain responses before the left brain gets involved and muddies the picture.

Ever since Rene Descartes dissed emotions as just plain unreliable when he formulated the modern scientific method we've slavishly accepted the notion that reason is a superior tool for truth finding than emotions. However, via contemporary brain research, it’s becoming clearer all the time that reason is often less dependable than emotions.

The volunteers in the above study were basing their picks on emotional responses, which are light years faster than the mills of reason. I’ll say more in the next post. In the meantime you might find it interesting to visit Zack Lynch’s Corante site and read The Politics of Face.

Meaning – The Big Challenge That Boomers Face Widely Overlooked in Marketing

Madison Avenue culture has shaped marketing for the better part of the past century. It has been the single biggest influence on culture at-large. But Madison Avenue needs and extreme makeover.

Proctor & Gamble’s A.G. Lafley recently said, “We need to reinvent the way we market to consumers. We need a new model. It does not exist. No one else has one yet.” P&G’s global marketing officer, Jim Stengle succinctly summed up marketing’s biggest problem a short wile later. “Marketing is broken.”

The old marketing model is broken for one big reason: Marketers (and researchers that serve marketing), who are supposed to understand consumers’ minds, are mostly clueless as to where the mind of the market is today.

I know. That’s a humongously big and sweeping charge to make, but just reflect a moment about what motivates human beings. All willful behavior breaks down into two motivational categories: comfort and pleasure seeking; avoidance of discomfort and pain.

These two categories have two dimensions:

• physical (like fine dining for pleasure and aspirin      for a headache to avoid pain)
• psychological (esthetic appreciation of a fine      automobile for pleasure) and a gift of flowers to someone you’ve hurt (to      cure the pain of guilt).

Most marketing is overly focused on idealized pursuits of pleasure seeking and pain avoidance. Inbeing this way, most marketing fails to address consumers’ need for meaning in their lives. Without a sense of meaning, people suffer psychological pain (which then can induce physical pain, from backaches to stomach ulcers).

Today’s 86 million young adults generally have idealized and somewhat narcissistic images of their life’s meaning. Life is all about self. And it’s been that way among the young from time immemorial.

Today’s 132 million middle-aged and older adults generally have more realistic and less self-centered images of their life’s meaning. While the young dream of what they want to be in the future, older people tend to strive to be what they want to be in the present. Much of that striving revolves around the pursuit and expression of life meaning.

The search for meaning is the number one task of the inner self in midlife – the time of life that dominates culture today. Ninety percent of midlifers are boomers.

By now, most readers have seen the new Dove campaign that has replaced the idealized images of life that have been a staple in marketing personal care products with images of real people in real life contexts. The campaign first broke in Europe.

Results surpassed all expectations. Dove Firming Lotion sales, for example, exceeded forecasts by 110 percent in Western Europe in 2004. In the UK, Dove Firming Lotion sales rose from 280,000 bottles in 2003 to 2.3 million bottles in the first six months of 2004.

Idealizations are out. Realism is in. It all has to do with culture shifting from a foundation built on fantasies of what I would like to be to grounded self-images of what I can and should be. Doen’t sound very elegant, does it?

That’s because we’ve been so brainwashed by Madison Avenue, Hollywood and catwalk glitzy fashion that its hard to find beauty, grace and inspiration in the mundane. But when you manage to find those things in the ordinary, you wonderfully transcend to a higher state of human beingness where the real meaning of your life resides.

___________________

This concludes the 7-part thread inspired by Daniel Pink’s A Whole New Mind. Does anyone out there want to suggest a new topic?