Archive for category Problem Solving and Decision Making

A State Model of the Customer

Somewhere I heard/read a description of the states through which the customer must move to realize a sale. I recall Awareness, Interest, Desire, and Action or similar synonyms. These focus on marketing and sales. I would add Oblivious at the beginning and Satisfaction at the end to round out the complete business process.

Oblivious is a given. In the beginning the customer may not know your product exists or is even possible and definitely does not know that you exist. The customer Profile is a tool for analyzing the different aspects of your customer. Where your customer is. What he reads, watches, and browses. What he wants, values, and needs. How he can be motivated to buy. I suppose we could coin the 6 W’s of the customer- who, what, when, where, why, and how.

Awareness is a preliminary requirement. The customer needs to become aware. This may be a result of a few of the P’s of marketing. Promotion, Placement, Packaging, Publishing, Page-rank can all play a role in making the customer aware of your product. Promotion covers the range of awareness generating activities. Packaging can be promotional at the point of sale or in a more viral fashion if a potential consumer notices your packaging somewhere else. Page-rank comes into play if the customer is aware of the general type of product or can find you by indirect searches- such as cold and flu symptoms to find a cold remedy. Awareness is often closely coupled with interest if the product/value is compelling, but it is possible for a customer to be aware of something for a long time without becoming interested and learning more.

A key challenge in generating awareness is the strong resistance most people have developed to anything that remotely resembles advertising. Ad clicks on web pages can be a few per ten thousand views. I know I’ve developed an unconscious ability to defocus my eyes when I see something that might be advertising.

Interest may be developed slowly with an incremental awareness building campaign, or in the best case may come directly from the same promotion which creates the initial awareness. Generally interest begins when a customer relates your product to some need or value.

Desire is when the customer wants the product. The features/benefits/value have been accepted. Desire does not equal purchase. There are millions who desire the latest big screen TV or smartphone who fail to act.

Action is the tipping point where the perceived value emotional or otherwise exceeds the price resistance, spousal disapproval, and other disincentives and the customer actually buys.

I notice- in keeping with the newer product life cycle management and concurrent business models Satisfaction now appears in some lists. I see this as a critical addition. It can encompass the entire production and fulfillment cycle through to actual customer satisfaction.

Satisfaction is the point at which the value has been delivered and the customer is and remains satisfied. All aspects of product manufacture, quality, delivery, performance, support, and warranty can factor in customer satisfaction.

It is useful to consider how actions taken in a marketing or product plan contribute to moving the customer through these states. If you use the 31 P’s of marketing each of the selected P’s and activities implemented under that P should have a clear connection to advancing through the states.

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The 5 P’s of Marketing

The first marketing book I read defined the5 P’s to be considered in a marketing plan- what I would now call a product management plan. These still seem to be the most common 5 P’s.

  • Product
  • Price
  • Promotion
  • Placement
  • Positioning

The first 4 P’s were defined in the 60’s and are classic marketing. Product covers all aspect of the product- features, specifications, performance, and value. Price is based on market pressures and how the product is positioned in the market- high value, high performance, or lowest priced. Placement is how the customer gets the product and covers all aspects of distribution channels through to the placement on a store shelf in front of the customer.

Positioning appears to be a later addition which I find fits well. How do you position you product in the hearts and minds of your customer- is it higher priced but worth every penny; is it the lowest priced? To some extent position is a mix of the first 4 P’s, but it is critical in establishing a plan and profitability.

Some authors substitute People instead of position which I think is a mistake from a marketing perspective. Most definitions of People that I have seen are more about roles in implementing a product or a selling process than about marketing.

Over the years I’ve encountered many more P’s which either duplicate, replace, or expand upon the “true” 5 P’s. Or is it true 4 P’s or 7 P’s, 8 P’s, 9 P’s, 10 P’s…?

  • Presence – covers customer awareness, are you perceived as a player in the market? probably a subset of promotion.
  • Performance – an aspect of product.
  • Process – a departure from classic marketing- what is the complete process whereby the product is created/delivered. This is more business line or product line management.
  • Physical evidence – a subset of promotion, what does the customer see- samples, brochures, etc to give the confidence.
  • Packaging – a combination of product and promotion, and physical evidence. How does the package promote your product on the shelf? Does it instill confidence or create desire? Does it add value- e.g. no drip spouts or easy open caps?
  • People – again largely described as a general management issue- who implements your product plans. Some authors also list a customer profile in their definition of people.
  • Persistence – primarily a sales factor. Do your sales people persist?
  • Pull versus Push – a subset of promotion. Push relies on forcing product into the distribution chain and expecting it to sell. Pull is creating a demand directly with the end consumer an expecting that demand to pull through distribution channels.
  • Personal Credibility- I suppose this could cover corporate credibility, but I have only seen it used to describe a salesman’s personal credibility. So this is a P of selling not marketing.
  • Personalization – Some web oriented authors think this is a new market enhancer. The auto industry offered a degree of personalization with its interior and exterior color choices and optional equipment. Gen X&Y may not remember when it was common to order a car from a large menu of options. The web has allowed highly personalized ordering such as Dell custom configuration and personal customer experiences such as igoogle and my.yahoo.
  • Profile – who is the customer? what do they value/want? Where are they? Where will they find my product? I like this for fundamental marketing since the original 4 P’s do not explicitly mention a customer.
  • Participation – allow the customer to interact to define the brand- usually through social media.
  • Peer to Peer – using social media to interact with and involve the customer.
  • Predictive Modeling – nice if you can rely on the models.
  • Purchases – huh? not sure who thinks this is a P of marketing. It is the ultimate goal  so I guess it is worth mentioning.
  • Post Purchase – as part of an integrated product or business plan customer satisfaction and support post purchase are important to insure repeat business, manage support and warranty costs, and realize potential secondary revenue opportunities.
  • Partners – again usually an implementation detail- are we talking production partners or channel partners?
  • Points – not a fundamental P. Point clubs and incentives fall under promotion, and perhaps price.
  • Prizes – not a fundamental P. Prizes fall under promotion, and perhaps price.
  • Pro Bono – not a fundamental P. Giveaways fall under promotion, and perhaps price.
  • Privileges – not a fundamental P. Privileges fall under product, promotion, or perhaps price.
  • Personas – added for ‘inbound’ web marketing. Persona is a customer profile.
  • Publishing and PageRank – added for web and search engine based marketing. These fall under promotion and reflect the use of a new technology and media.
  • Profit – probably a sub calculation of Price

When I started this I was trying to rationalize how many P’s there are to consider in marketing. I give you the 32 P’s of business and product management and marketing. The relationship between the P’s in not a simple indented list. It also appears that the P’s are to some extent a function of your market decisions and your target customer.

The P’s in the 60’s still describe marketing, but seem a bit dated. The customer is not mentioned and the old silo organization appears implicit. There is an implied handoff to product design, engineering, manufacturing, and eventually sales is on the hook to deliver the market projections. I think a more concurrent product management approach adjusted for the realities of your market is in order. 

My preferred top level P list:

  • Profile – know your customer first
  • Product – define your performance/value
  • Price – exploit your value, calculate profit too.
  • Promotion – develop awareness and desire, I think this needs to include credibility and corporate reputation.
  • Positioning – to some extent a combination of price, promotion, and placement, but worth listing.
  • Placement – how your product reaches your customer
  • Process – in a more integrated collaborative business environment marketing does not have the luxury of specifying a product and sales targets and leaving it to operations and sales to meet the goals. The entire process of implementing and delivering the product should be considered.

Please feel free to use these 32 P’s as a checklist to make your own list of P’s for your planning.

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How to look successful while killing your business

Most of us like technology and like to show rapid progress. This combination tempts us to focus on the easy fun tasks in a project and to defer the challenges. There is certainly a place for rapid prototyping, agile programming, scrum, and mock-ups, especially when these tools are used to learn and resolve questions at minimal investment. Unfortunately I have seen many cases where these relatively empty shells are perceived as substantial progress..The end result is often described as the last 20% of the work takes 80% of the time. The reality is that by focusing on the easy work the accomplishments are overestimated and the remaining work which may even be impossible is grossly underestimated, but you look good because you’ve completed 90% of the tasks on the list.

I encountered a perfect example of this when I was interviewing a programmer with a masters degree for a business I owned. He listed a failed robotics venture on his resume and I asked him where he’d focused his effort and what critical challenges had to be addressed for that venture to succeed. He’d been spending investors’ money 20 years ago to develop a humanoid bipedal robot. I was thinking balancing on two legs, processing visions information, recognizing shapes, and coordinating hands and fingers would be on the list. His reply was that fast processors could handle that complexity. He had found a plastic material which looked like skin because he felt that people wouldn’t be comfortable working around a robot that didn’t have lifelike skin. I repeated my question about solutions to the fundamental challenges. He didn’t acknowledge any issues with these critical tasks which are still not well implemented today. Looking at the requirements bipedal motion wasn’t necessary. Wheels would work fine for a robot in an industrial environment. A hand which could do useful work coupled with vision to accommodate a varying environment should have been at the top of the list. Skin should not have occupied a single brain cell. At least I didn’t waste too much time on the interview. I wonder what the investors who had backed his venture were thinking.

The DOD had an atomic powered airplane project which is another example of focusing on noncritical tasks while trivializing deferring the impossible. An incredibly detailed set of plans was produced including menus for the crew which listed which days prunes would be served. Critical issues such as thrust versus weight were also on the table, but were not resolved before the extraneous details were generated. The issues which killed it centered on thrust versus weight which was probably not insoluble, and more intractable issues such as shielding a flying reactor and what happens to a lightweight reactor in a plane crash. There was some need for some basic data on weight and floor space required to support the long missions made possible by nuclear power, but this data already exists since every ship in the navy has to accommodate crews for weeks or months at a time. These questions could have been answered with a quick estimate of calories per day, weight per calorie, and volume per calorie. The money spent detailing crews quarters, menus, etc should have been spent on the fundamental go-no go issues.

The best way I know to avoid this is to identify the critical requirements. Then understand what must happen to meet these requirements, and finally ask yourself what might go wrong? A requirements tree is a quick visual way to begin this process. The requirements tree can be extended many levels and can include potential failures or a tabular Failure Mode Effects Analysis (FMEA) process can evaluate the risks. I usually add the failure risks to the tree during brainstorming and use the FMEA as a checklist for tasks, reviews, and to close out a safety analysis procedure.

Ironically one of the more maligned speeches of this decade said it well-There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don’t know. But there are also unknown unknowns. There are things we don’t know we don’t know. And if one looks throughout the history of our country and other free countries, it is the latter category that tend to be the difficult ones. I think in a separate speech he also referred to things we think we know which are wrong. I’m not going to discuss politics in this blog, but I have to admit I was surprised by the honesty. The points are to be aware of what you don’t know, where you might be wrong, how certain you can be in your decisions, and to  focus some effort on analyzing, resolving, and managing the possibilities. 

If all you have are simple tasks by all means dive in and go full speed ahead. If you have a difficult project with some uncertainty take the time to identify and face the uncertainty head on at the beginning. Don’t create a false sense of progress by doing lots of easy tasks and avoiding the ones you know might be show stoppers.

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Interest Based Negotiation (IBN)

I had occasion to read Interest-based Negotiations at Kaiser Permanente which describes an effective use of Interest Based Negotiation on a massive scale. Kaiser had a combination of union labor issues, increasing competitive pressure, and rising costs. A combination of IBN and a Labor Management Partnership have been used since the late 90’s to resolve issues, reduce costs,and  improve internal efficiency and patient care. The net result is consistent with Lean and continuous improvement or Kaizen teams found in manufacturing.

IBN (also called integrative) uses team processes to determine all parties’ actual requirements and interests. Often the interests are not in conflict even when initial bargaining positions may be in harsh opposition. One example cited in literature describes two young girls arguing over an orange. Using distributive bargaining their mother cuts the orange in half and gives each girl half. Neither girl gets what she wants. Had they analyzed their interests (fundamental requirements) they would have found that one girl wanted to eat the orange, the other wanted the peel for baking. IBN would have given each girl 100% or what she wanted and revealed the absence of conflict.

Distributive negotiations typically assume an “us or them,” zero sum situation. A position (I want it all.) is assumed. The position statement doesn’t describe why something is desired and is usually based on assumptions and decisions about what must be said to get the desired result. The combination of withholding of information and adversarial approach precludes trust and successful communication resulting in conflicts which can be almost impossible to resolve. Distributive negotiation is not inherently adversarial, but the assumption that there is only one pie and someone gets the big piece often leads to adversarial positions.

Distributive and Integrative (or Interest Based) are defined and discussed as if they are separate techniques for negotiating. I find this to be a somewhat artificial distinction. Many situations/issues have a distributive component and many bargaining position focus on the distribution, but I believe this is often incomplete analysis of the situation. Life is not so black and white and rarely fits well into the words we use to define it. Looking at all parties’ interests should always be done to find opportunities to redefine the issue and find unapparent possibilities.

IBN is not limited to labor union negotiations. Many years ago I applied IBN to save a capital equipment sale which had polarized. We were negotiating a custom capital equipment sale to a large manufacturer. The customer’s VP of manufacturing stated that exclusivity was an absolute requirement. Our business manager replied that they could have exclusivity if they placed multiple orders and there was ongoing business. Since the system was for a pilot line to demonstrate scale up or a research product the customer absolutely wouldn’t commit to multiple systems. At this point both gentlemen puffed up their chests and bristled visibly with our man almost leading our team out of the room. I was the engineering and project manager and just wanted to build a fun piece of equipment and did not want to walk away from a few million dollar sale. Being less emotionally involved I could see that the conflict was not in fundamental requirements. The customer wanted to insure that we did not sell useful technology to their competition. Our business manager just wanted to preserve his ability to make his sales goals. I suggested that we offer conditional exclusivity. We offered exclusivity for one year after the initial sale with extensions based on future equipment purchase. We also offered and option to extend exclusivity for a few hundred thousand per year if the pilot line was producing promising results but the customer was not ready to commit to more systems. The exclusivity extension fee was comparable to our profit on a system so our business manager was happy.  The fee was 10% of the system cost so the customer had an economical way to protect the technology if it was still considered promising. By breaking down the positions and understanding the underlying requirements we found a solution which did not compromise either sides needs.

Interest Based Negotiation is not about partnering or even sharing fairly. It is about recognizing that the fundamental needs that drive bargaining positions are often so different that we are not even talking about sharing the same pie (or orange.)

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Information Display

"Information Dashboard Design" is an excellent resource for any type of communication- dashboards, webpages, proposals, powerpoint. The book draws heavily on behavioral and perceptual science and frequently quotes the work of Edward Tufte. Unlike Tufte, this book gives clear examples and prescriptive advice on how best to layout any kind of presentation to quickly and effectively communicate.

There are many guiding principles which are clearly illustrated with examples of both good and bad designs.

Key principles include:
Top-left position is the first place western eyes look- this position should be reserved for most important data. Poor presentation puts a big distracting logo or picture in the top left- this may work if the first thing you want to communicate is corporate identity.

Borders, pictures, and excessive use of color and bold draw the eye and usually distract from the message. White space is an excellent separator. Table borders and legends on graphs are often more visually ‘heavy’ than the data they present.

Gimmicks like gauges are usually more distracting than informative. The more shiny, 3d and detailed they are the more they obscure your message.

Although directed at dashboard design I find this book helpful for proposals, PowerPoint, and Excel layout. The concept of putting data out front where it will be the first thing your reader sees is universal and grows increasingly important as we become more overloaded with sensory input.

 

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Cost Sensitivity

Teams making decisions are often somewhat jaded when it comes to costs. Large numbers thrown around day after day reduce sensitivity to costs. I recall one manager who liked the phrase “lost in the noise.” When a team was debating a $5-10,o00 dollar subassembly he’d walk in and say, “Go for it. $10k is lost in the noise.”

Unfortunately the product was about $2M and the business was running less than 5% net profit. With profit on a sale around $100k the extra $10k cost reprents a 10% drop in profit.  Expressing the cost as a 10% reduction in profit clearly expresses the impact on the bottom line and puts more pressure on the cost decision.

Although it is equally accurate to describe the  cost as 1/2% of the system price this clearly makes it easier emotionally to disregard the cost. 0.5% doesn’t sound like a significant change.

Effect on net profit as a basis for decisions and cost analysis can help prevent cavalier decisions which will damage the business.

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Requirements Analysis Tree

Constructing a tree or matrix to analyze and document goals and requirements helps to clarify the goals and document the thought process.

Beginning with an obvious fundamental truth or goal provides a solid, unchallengeable foundation. If your analysis doesn’t begin with a fundamental truth you need to work your way up the tree until you find the true fundamental requirement.

A very common error is to consider decisions and assumptions to be requirements. A requirements tree which begins with “add nifty techy features to the product” is misleading. A need for new features is a common assumption. The new features may be a decision as a result of some conscious or unconscious thought process, but most often the perceived need for new features is an assumption resulting from personal infatuation with nifty high-tech features.Engineers and programmers seem to universally perceive increasing complexity to be more elegant and valuable than simplicity.

Constructing a requirements tree which begins with a fundamental truth and derives detailed requirements logically can clearly show secondary requirements and decisions.

Top Level Requirements Tree

Top Level Requirements Tree

For most business purposes “Make Money” is a fundamental undeniable truth and therefore a good beginning. Make money by “Selling Widgets” is the first decision or assumption. The true requirement is make money. Selling widgets is one way to make money. Subsequent requirements are derived from the decision to sell widgets. Placing the assumption that we are sellers of widgets in the diagram as an obvious decision or assumption allows questioning this fundamental assumption. Maybe we should lease widgets, or if we’re Google, maybe we should slap an ad on the widget and give it away.

Technical features- where many people prefer to begin- are third or fourth level decisions and may be lower priority than cost or market placement.

The process is also creative. Notice that- without going anywhere near a book on marketing- we’ve just about derived marketing’s infamous 5 P’s (7 P’s or 8 P’s in recent books.) Promotion, placement, price, performance, positioning, product are all suggested from the requirements.

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Requirements Analysis

Fundamental to any decision process is an understanding of goals and requirements. In many cases decisions are debated without a clear awareness and agreement of the underlying requirements. Additionally many assumptions and decisions are perceived to be requirements. I recall an engineer working for me on a large capital equipment project told me he couldn’t develop part of the machine because he couldn’t meet one particular requirement. When I told him it was not a requirement he replied, “in that case it’s easy.”

Requirements can be diagrammed in a requirements tree or matrix with certain fundamental or primary requirements leading logically to secondary requirements and decisions. All requirements are not created equal. A requirements tree helps prioritize requirements and aids when evaluating trade offs.

Requirements depend on perspective. At an executive level a planning process may lead to a decision to add product features or reduce product cost. This decision is then communicated to the product team as a requirement. In spite of the divine nature of management edicts it is still valuable to understand the decision process and priorities that led to the requirement.

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