CCO Council Blog

By Curtis Bingham

One of my favorite stories to illustrate the costs associated with lost opportunity centers around a major market research firm that decided to scuttle what was initially an eagerly anticipated new practice area. The firm decided that there wasn't a market for this new area and the associated research. A few years later, however, this firm’s biggest competitor had a booming practice – its largest by report volume and revenue – in this very same area. Not only that, but the competitor's most widely read analyst was writing about this area exclusively. Somehow, the competitor created a very successful business in the same market that was deemed unprofitable and unfit for entry by the first firm. How could one firm fail where a competitor succeeded so completely?

From a business perspective, it may make sense to scuttle a project when sales are lackluster and the new product or service simply isn't gaining traction. Yet, in this case and with the benefit of 20/20 hindsight and a competitive outlook, that was exactly the wrong decision. How could this research firm have made a different (and more profitable) choice?

In talking with executives, I identified three problems. First, their initial foray into the marketplace was too general; they didn't investigate and so couldn’t address the specific needs of their customer base, which they spent no time up front attempting to understand. So, the product they delivered didn't provide sufficient, immediate, and practical value. This oversight created their second problem: a marketing issue. Although undertaking a new practice area, targeted to a different role within existing client organizations, the marketing department didn’t equip the sales team to identify the right buyers. Nor did it equip sales with the right messages to effectively convey the new product’s value. This resulted in the third problem: poor sales execution. Because the sales team was uncomfortable and ill prepared, they gave up prematurely. Their rationale was, "We can't figure out who owns the function in the company that corresponds to this practice area, therefore we can't sell the research."

So the company scuttled what could have been a $100M opportunity. If they had spent time up-front to find out who would actually buy the new product and what specific research these prospective buyers were looking for, they could've avoided this disaster and saved a huge amount of money.

There are two lessons to be learned from this story: You need to clearly identify prospective purchasers and you need to spend time with them to understand how your product/services address Customer Purchase Drivers. As I've written elsewhere, customers base their purchase decisions on the attributes of a product or service that enable them to do four things: 

1. Make more money 
2. Reduce costs 
3. Mitigate risks 
4. Satisfy an emotional need

Only by understanding these Customer Purchase Drivers can you develop products and services that are guaranteed to be successful in the marketplace. Only by spending time with customers beforehand can you avoid making a $100M mistake.

By Curtis Bingham

Last January T-Mobile announced that it would do away with the two year contracts on its phones. The last weekend the new pricing plans showed up on their website.  To lure customers away from others, T-Mobile is offering unlimited voice and data for between $50-70/month. What is notable, though, is that now they are doing away with the two-year contract that everyone loves to hate, along with the very steep early termination fees that everyone loves to hate even more.

The question?  Are long-term contracts anathema to customer loyalty?

According to the American Consumer Satisfaction Index for May, 2012, mobile carriers such as AT&T Mobility, Verizon, Sprint and others have scores in the 69-70 range, whereas the no-contract carriers such as TracFone have a score of 76.  By way of reference, Apple’s score for their iPhone is 83.

Cell phone carriers tease you with a discount on the phone and then lock you into a two-year contract in exchange.  The penalties for early termination are ~$200. Rather than subsidizing a $650 iPhone and charging higher fees for the duration of the subscriber’s tenure, T-Mobile is breaking ranks with the industry and allowing you to either pay up front the full cost of the phone, or pay an additional fee above the data plan for two years until the phone is paid off at which time the monthly fee reverts to the lower amount for service.  In essence, you pay the exact same if you pay up front or over time.  The biggest difference is in captivity and penalty.

Loyalty is an attitude of allegiance, and is most accurately measured by a history of repurchase, especially in the face of competition.  When you have no competition, enforced long-term contracts, or even legislative mandate, you don’t have loyalty, you have captivity. Dissatisfied captive customers will often exit given the first opportunity, such as a new competitive offering, expired contract, or legislative revolt led by other captive customers. Software as a service (SaaS) companies are providing strong and favorable alternatives to long-term software and service agreements. Lawsuits have been successfully settled against VISA and MasterCard for their anti-competitive clauses in their merchant agreements. 

Can you have loyalty AND service contracts?  Or do the service contracts simply mask bad behavior that wouldn’t be tolerated by customers in the absence of the lock-in?  Or would your company be better off in the long run by foregoing the easy up-front money of the service contract and investing in creating an enjoyable customer experience that eclipses competitors?

What do you think?

By Curtis Bingham

1. Take owndership of Innovation at the highest level

Innovation is about risk, and only executives can take the kinds of risks required for truly transformative innovations; that is, innovations that yield the highest ROI and form the strongest competitive advantage.

2. Identify the “North Star” that focuses innovation on real customer needs and inspires employees

Executives complain that ideas for innovation are plenty, but too often unfocused or even useless to customers. What matters most to customers AND the business? Customer executives need to clearly set the opportunity bar and make transparent the scale and source of growth opportunities.

3. Form powerful alliances with both early and late-stage internal innovators

If company innovators aren’t asking for the CCO’s input before launching an innovation, the innovation failure rate will be needlessly high and customers will suffer. CCOs should share ideas borne from countless hours listening to, measuring, and analyzing customer needs, wants, and desires.   

4. Create conduits to customers to enhance innovation efforts

The CCO is uniquely qualified to identify customers with whom the company has strong, stable relationships; whose needs are relevant to the innovations in development; and who are most likely to provide candid insights and direction for those innovations.

Forming such alliances (3) and subsequently facilitating such customer connections to ensure that customers are involved at the earliest stages (4) helps focus and refine the innovations and dramatically increases the likelihood of their successful launch and implementation.

5. Inject the Customer into the innovation processes, including the innovation reviews, stage gates, and funding decisions

It is tragic how frequently critical decisions are made in a customer vacuum. CCOs need to insist upon and help define customer-centric valuation metrics as innovation success criteria. The metrics and the levels of customer involvement should be dependent upon the investment and most especially upon the customer impact upon launch

In summary, any innovation strategy that does not include customer participation deserves to fail. But because CCOs are uniquely positioned to incorporate customers into the innovation process and to do so in the earliest stages, they can provide opportunities for resources to be used more wisely and efficiently and for customers to receive greater value faster and with fewer relationship-damaging dissatisfiers.  And ultimately, the company realizes a much higher ROI on its innovation efforts.

By Christopher Benoit

Curtis and I were in the office discussing our approach to strategy planning for 2012. Like everyone else, we often feel overwhelmed by the “Whirlwind” and a regular exercise for us is evaluating what we’re doing, what we think we should be doing, and what we probably should stop doing. I’d like to think it’s a continuous improvement process; certainly it’s continuous!

When Curtis touched, once again, upon the question of future activities, he made the observation that it’s so often difficult to tell what’s working; i.e., which activities are yielding acceptable – let alone optimum – ROI. I expressed my agreement, citing findings from HBR’s September 2011 article, Learning to Live with Complexity. To quote authors Gökçe Sargut and Rita Gunther McGrath, “In a complex system, the same starting conditions can produce different outcomes, depending on the interactions of the elements in the system”, which interactions, by the way, “are acting continuously and unpredictably”.

Sound familiar? Business, technology, the interrelationships between people and systems today are nothing if not complex.

I made my final point to Curtis, by asking the (I thought, rhetorical) question, “What do we know? How, within the complexity of variables and parameters we are (all) operating under, can we gain any comfort from thinking, let alone acting as if, we know what we’re doing?”

Curtis’s response caught me by surprise.

“That’s a great question! What do we know?”

He immediately hopped up, went to the whiteboard, and wrote the heading, What Do We Know at the top center. For “ideas” people like Curtis and me, the next two hours of brainstorming were gratifying in and of themselves. But beyond that, we ultimately were able to distill a list of “facts”; i.e., knowledge that Curtis and the business had gained from their experiences over time, many of which could be and had been repeated to yield specific outcomes. We started out looking for “buttons we could push” to achieve desired results and ended up with a set of clear guidelines to determine, and filters to evaluate, our future activities. It gave our strategy planning a shot in the arm.

Turns out, we “know” a lot. At least, we know enough to move forward with the confidence that even if some of our activities don’t produce the results we’re after, we’re undertaking the “most likely to succeed” of the seemingly limitless options we face every day. A bonus is the satisfaction of believing we’re capitalizing on the value of our time by applying it as productively as we know how.

You and your organization probably know more than you think you do. When was the last time you examined what you know, as a means of clarifying your future direction and focusing your future activity? None of us lacks for experiences, especially in today’s business environment where we’re all doing so much more with so much less. But unless we set aside the time to distill and organize from those experiences “what we know” – for ourselves and our organizations – we could be, at best, blindly applying the knowledge of others that we hope will prove beneficial but without a sense of confidence that our direction is grounded in experience, and at worst, wasting our valuable time.

By Curtis Bingham

Once upon a time, Netflix was an innovator and a giant slayer.  They offered a great product, enormous selection and a unique delivery system for DVDs.  By allowing customers to rent DVDs online and have them mailed to them, they put Blockbuster and video stores in general, out of business.  Next, Netflix wowed customers by offering a selection of movies to stream online via the same account.  No hidden fees, problems were addressed early and customers were loyal and excited about the product. 

They were once a company that “got it right” with their customers, but in the last three months, they have managed to squash 7 years of good will with some bad decisions that were poorly executed by the company.

I do a great deal of writing about companies and Chief Customer Officers that get it right, creating superb customer experiences that drive loyalty which in turn drives revenue and profits. While this can be instructive on how to be successful, sometimes it’s better to know what NOT to do to avoid complete and utter catastrophe.  Netflix is a study in both extremes, and whether or not it survives its own blunders time may only tell.

Early last summer Netflix announced a price increase…not just any price increase, but one that raised rates as much as 60% depending on the plan a customer was subscribed to.  The reaction was immediate and pervasive.  Angry customers blogged, tweeted, Facebooked and used every communication vehicle they could find to voice their disgust.  Netflix was silent.  After a short period of being ignored, the customers did what dissatisfied customers always do: they voted with their feet and left Netflix in droves. Still Netflix did nothing. 

Customers are never fans of unjustified price increases.  Netflix showed a complete disregard for their customer base when increasing the price of the service without a justifiable increase in value.  Price increases of this magnitude force customers to reevaluate decisions that used to be automatic.  They used to happily pay their bill every month and now they were determining if it was worth the price.  Many decided it was not.

Months later, CEO Reed Hastings came out with an apology, but it was several months overdue and it included a new bombshell: instead of the traditional online and DVD service found in the same convenient site, he was splitting the company into two entities.  Netflix would only stream video and Qwikster would continue in the spirit of Netflix’s original intent of DVD rentals.  Neither site will communicate with each other, so you will have to have separate queues for your movies and your credit card will be charged twice by two different companies.  Wait…what?  So, he is sorry for the price hike, but the price hike remains AND he is taking the most convenient part of his service and making it considerably more complicated?  How does this make things right for the customer? Does this sound like a company that cares about customers?

Companies are in business to create value for customers.  The price they charge is derived from the value provided.  When the value erodes, the price can’t be expected to remain the same or even increase without a backlash.  In 3 months, Netflix managed to destroy their service value and instituted a price increase.  Netflix is paying for these blunders both in a dropping stock price and in reduced Wall Street guidance as they lower customer acquisition expectations for Q4.   

Where is the customer in all of this?  Leaving, but it doesn’t have to be that way. 

Netflix could institute some changes to quickly bring departed customers back and save face with current disgruntled customers.  How?  By taking it all back.  Clearly, they have a strategic direction to split the company into two entities so they can pursue different customer segments.  Not all people who stream videos also watch DVDs and vice versa.  However, they can make the two services talk to each other to maintain consistent history, ratings, and recommendations. They could also go back to a single charge for those who use both services.  Small changes, but they reflect the biggest issues customers have with splitting the services up.

The largest gesture Netflix can make is to own their pricing miscalculation.  Reed Hastings belatedly apologized for the mistake and admitted it was quite a gaff, but he didn’t make it right.  Take action and correct the pricing scheme.  Grandfather current customers and make it an offer to those that left that they can return for their pre-June pricing plans.  It would energize the customer base, regain a percentage of lost customers and it would be a positive PR boost to a company that desperately needs one. 

Will Netflix do this?  Sadly, no.  They have stated publicly that they won’t recover the customers they lost.  Instead, they are rolling out announcements regarding new content agreements to justify their price hike.  This just increases the customer disconnect and will make them only too happy to jump on a number of very promising competing services such as Amazon and Apple that have gladly stepped into the breech. 

John Woods said “The purpose of a business is to create a mutually beneficial relationship between itself and those that it serves.  When it does that well, it will be around tomorrow to do it some more.”  Will Netflix be around tomorrow?  It is too early to tell.  However the prognosis is not good. 

By Curtis Bingham

Authority is the currency of the C-Suite. I’m not talking about the chest-beating, testosterone-laden, “hear me roar” type of authority. Instead I’m speaking of the “Our customer has a problem, let’s everyone work together to resolve it and make more money in doing so” type of authority. Most chief customer officers or similarly titled loyalty executives do not own all customer-facing personnel and therefore must lead by influence to effectively resolve customer issues or enhance the end-to-end customer experience and ultimately, increase revenue and profits.

Even as a direct CEO report, the chief customer officer or other loyalty executive may be challenged to obtain the authority needed to get the job done. There are three types of authority for the CCO: borrowed authority, positional authority and earned authority.

Every CCO or loyalty executive has some Positional authority derived from the position and title they hold within the organizational hierarchy. CCOs relying upon positional authority may own many if not all customer-facing personnel such as service, support, consulting, and sometimes marketing and sales. Using positional authority the CCO can point to his or her direct reports and say, “make it so” in order to address customer issues. Beyond the initial bump in influence when the CCO catches people’s attention as something new and unexpected in the organization, this form of authority tends to be static and may not carry the weight of either borrowed or earned authority. Borrowed authority is gained through the strong, vocal, and very visible support of the CEO. The more prominently the CEO advocates for the CCO and reinforces customer-centric imperatives, the stronger the halo-effect and the greater the influence the CCO has over the organization. Borrowed authority is strong in the early days of a CCO’s appointment but tends to wane as the attention of the CEO turns to other initiatives. Earned authority occurs when CCO led initiatives are seen to be successful both internally and externally. Authority is earned as the CCO leads peers, executives, and employees to recognize how customer insight and centricity can be valuable aids in achieving their own business, department, and personal goals.

Many CCOs begin with positional authority and borrow heavily additional authority from the CEO. The most effective CCOs with the longest tenure are those who quickly earn their own authority. Ultimately, such earned authority can eclipse both positional and borrowed authority in power and value. Earned authority is the strongest and most sustainable type of authority, enhancing both positional and borrowed authority as it increases.

How can a CCO effectively earn greater authority within the organization? There are three ways to do so:

1. Own actionable customer insight
2. Develop strong relationships with management, peers, employees, and customers
3. Demonstrate quantifiable results tied to revenue and profitability

The 2011 CCO Council Summit to be held on October 18-19 in NYC is entirely focused on accelerating the development of this earned authority. Regardless of whether you are new to the role or very experienced, you owe it to yourself to attend! It isn’t too late—click here to register.

Note: This article is excerpted from the Bingham Advisory, a ground breaking publication designed to define and clarify the role of the chief customer officer in today's global business fabric. Authored by Curtis Bingham, the worldwide expert on CCOs, The Bingham Advisory is scheduled to launch at the 2011 CCO Annual Summit and will enlighten, instruct and drive important conversations for the valuable role of the CCO.