Rainmaking Secrets

CNN named Richard D’Aveni as one of the top management thinkers of the world. His book Hypercompetition (1994) introduced market analysis and mapping tools that have been adopted by a number of leading consultants firms including McKinsey.

D’Eveni’s latest book, Beating the Commodity Trap: How to Maximise Your Competitive Position and Increase Your Pricing Power (2010) reveals the three most common commodity traps companies face:

1. The deterioration trap. A number of industries suffer from the emergence of a dominant low-end competitor such as Zara which caused the “Zarafication” of the European fashion market.

In the deterioration trap, prices go down and benefits go down too.

2. The proliferation trap. Many industries suffer from product proliferation. In the motorcycle market, for example, Japanese motorcycle making and American niche rivals such as Big Dog and Victory have surrounded Harley’s position.

In the proliferation trap, prices go up or down, while benefits go up and down in all directions, around local firms products.

3. Escalation. Industries such as consumer electronics are experiencing price decline while benefits are increasing. In other words, the market witnesses and escalation in the ratio of benefits offered by the product to prices charged. This is what Apple did in iPods, reducing prices while improving functionality, in the process outthinking an entire raft of digital competitors.

In the escalation trap, prices go down and the benefits go up.

D’Aveni argues differentiation is not enough to beat the commodity trap. Specific strategies are required to:

1. Escape the commodity trap

2. Destroy the commodity trap

3. Turn the commodity trap to your advantage

D’Aveni’s practical strategies are based on research into thirty diverse industries - from restaurants, to retailing, to automobiles. Beating the commodity trap is a must read. Extinction is the price of fading to the commoditization war.

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Talented business development professionals are always in scarce supply.

In The Differentiated Workforce: Transforming Talent Into Strategic Impact (2010) authors Brian Becker, Mark Huselid and Richard Beatty urge companies to manage their strategic talent like a share portfolio.

So, which business development positions are strategic?

Here are some key questions to remember when assessing whether a business development position is strategic.

1. Strategic business development staff are those who significantly enhance the probability of achieving your business strategy.
2. Strategic positions have major revenue enhancing or cost reducing impact on the firm.
3. Strategic positions have a strategic impact on the firm’s customers.
4. Poor performance is immediately detected.
5. The selection of a wrong person is extremely costly.

Virtually all senior business development professionals I meet, who hold positions in their firm’s senior hierarchy believe they are ‘strategic’. But that is not the case.

As a first step, you need to identify your strategic capabilities.

1. Identify and review your capability criteria
2. List possible strategic capabilities
3. Assess each for present wealth creation impact
4. Determine the most important three to five business development strategic capabilities for your business.

The Differentiated Workforce will end up, well thumbed, on most HR professional’s book shelves. The smartest Business Development Leaders I work with have already read it.

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I can’t think of any company better than Harrah’s Entertainment – the Casino Operator – at using customer analytics to segment their customer base. Harrah’s analytics allows it to estimate the potential life time of millions of individual customers.

• Diamond customers have a prospective lifetime value of $100,000.
• Platinum customers have a prospective lifetime value of $20,000.
• Gold customers have a prospective lifetime value of $2,000.

Recently, Harrah’s added a new category Seven Star. Seven Star customers are reward members with a yearly value of $50,000 or more.

Seven Star and Diamond customers have lifetime values of at least fifty times those of Gold customers.

James L. Heskett, W. Earl Sasser and Joe Wheeler in The Ownership Quotient report that Seven Star and Diamond customers made 20 percent more recommendations to friend to visit Harrah’s properties that Gold customers the previous year Further, their recommendations to friends recruited customers that were 73 percent greater than those recommended by Gold customers.

The Ownership Quotient is a remarkable book which shows you how to put the Service Profit Chain to work for competitive advantage.

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Answer these questions, yes or no:

1. Are you an above average driver?
2. Do you have an above average ability to judge humour?
3. Does your professional judgement place you in the top half of your organisation?

If you are like most people, you will have answered yes to all three questions. Social psychologists call this the illusion of superiority, which suggests people have an unrealistically positive view of themselves. Remarkably, research shows the least capable people have the largest gaps between what they can do and what they actually achieve. In other words, the least competent are often the most confident.

The illusion of superiority is often combined with two other illusions: The illusion of optimism and the illusion of control.

The illusion of optimism makes people see their future as brighter than others.

The illusion of control makes people behave as if events are subject to their control.

These three illusions are probably driving CEO’s to continue to fuel multi-trillion dollar global mergers and acquisitions where most deals destroy rather than create value for the acquiring company.

To gain insight into how we consistently make bad decisions you should read Michael J Mauboussin’s latest book Think Twice (2010).

Mauboussin is Chief Investment Strategist at Legg Mason Capital management and adjunct professor of finance at Columbia Business School. He is also the author of the brilliant and acclaimed book More Than You Know.

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Western companies struggle to cope with contradictions. Our language is typically bipolar: right and wrong, true and false, black and white.

By contrast, Eastern cultures see opposites not as contradictions but as complementary. Edward de Bono talks about a Western stone culture and an Eastern water culture. Physician Barry Johnson talks about similar issues in his book ‘Polarity Management‘.

Hermann Simon, in his book Hidden Champions of the 21^st Century talks about how hidden champion Gore, the world leader in Teflon based products has included specific polarities in its company’s philosophy.

The principle of freedom allows each employee to do what he or she considers is right. This freedom has limits. It is restricted by the “waterline” principle.

As soon as a decision could hit the corporate ship below the waterline, a colleague must be consulted to share the responsibility.

As Simon puts it, “while the freedom principle encourages all employees to make use of their full potential, the waterline principle is intended to guarantee that the company does not suffer any serious damage.”

Profound advice!

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Market leaders are always under pressure to meet high expectations. High visibility projects can come in many forms.

Klais, a world leader in organs produced the only bamboo curtain in the world.

Belfor, another world leader in fire and water damage removal, restored 100,000 books after a large fire at the University of Vienna and earned a high profile mitigating the damage caused by hurricanes Katrina and Rita in Mississippi and Louisiana.

Otto Bock - leaders in prostheses - created high visibility by providing a service for theirs and all competing brands at the Beijing Paraplegics.

High visibility projects are often high risk. That’s why when they come off; customers comprehend why you really are number one.

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Ambitious long term goals are one of the markers that distinguish the extraordinary from the mediocre. So, what precisely is a long term goal? Given the obsession with share market’s quarterly results, you might think a long term goal is 3 months or roughly 100 days.

Hermut Hormann, CEO of Voith, world leader for water turbines asks himself how the company will survive in the next 100 years.

Now that really is a long term goal.

In Hidden Champions of the 21^st Century Success strategies of world market leaders; Hermann Simon examines the time horizons that “hidden champions” - medium sized, unknown companies (with annual revenues under $4 billion).

His conclusion: “The goals are long term and executed over generations rather than quarters.”

What is you organisation’s definition of a long term goal?

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Researchers at Caltech and Stanford University recently organized a wine tasting experiment.

Twenty people tasted five cabernet sauvignons that were separated solely by their retail prices, with bottles ranging in cost from five dollars to $90. Although the samplers were told that all five wines were different, the scientists lied: there were only three different wines.

This meant that the same wines often reappeared, but they had different price labels. For example, the first wine offered during the tasting. It was a bottle of a cheap California cabernet - was labeled as a five-dollar wine (its actual retail price) and as a $45-dollar wine, a 900% markup.

The subjects reported that the more expensive wines tasted better. They preferred the $90 bottle to the $10 bottle and believed the $45 cabernet was far better than the five-dollar rubbish.

Of course, the wine preferences of the subjects were clearly nonsensical. Instead of acting like rational agents - getting the most utility for the lowest possible price - they were choosing the spend more money for an identical product. When the scientists repeated the experiment with members of the Stanford University wine club, they got the same results. In a blind tasting, these so called experts were also misled by the made-up price tags. Isn’t it remarkable how powerful our expectations are?

These experiments and a number of other remarkable experiments on how customers make decisions comes from a remarkable book by Jonah Lehr, The Decisive Moment. If you want to know when we go for instinct and when we go for analysis, read this fascinating book. In the meantime, remember that when you price, managing perception is critical.

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Competition

“A competitor is a guy who goes into a revolving door behind you and comes out ahead of you.”

-Anonymous

Selling

“It doesn’t do any harm to dream as long as you get up and hustle when the alarm goes off.”

-Anonymous

Motivation

“Motivation is when your dreams put on work clothes.”

-Parts Pup

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Handling complaints and recovering from delivery slip ups seems to be a dying art.

Great brands deal with customer problems quickly and well.

In our customer experience and sales training with clients such as Toyota, we use a six step recovery approach which resolves around the profound but simple act of an apology.

The HATRIC Six Step Approach to Customer Problem Solving:

Step 1. Hear out the customer without interruption or judgment.

Step 2. Apologize for the problem with sincerity and regret.

Step 3. Take responsibility for the problem and following up.

Step 4. Resolve the problem then and there if possible.

Step 5. Immediately refer the problem on to someone who can solve the problem - if you need help.

Step 6. Compensate the customer so they leave better off that before the encountered the problem.

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