Archive for March, 2010|Monthly archive page

Consumer Spending: The New, Not So Good, Normal

It is not an understatement to say that the current recession has been the worst slowdown since the Great Depression. For the first time in almost 80 years, US per capital spending has fallen two consecutive years.  According to a recent Booz & Co. study, this recession has triggered a seismic shift in consumer needs and spending habits towards value enhancement.  This change will have painful implications for unprepared firms in the consumer goods, retail, entertainment, hospitality and apparel sectors.

This ‘new normal’ will likely persist even after the recovery gains more momentum due to many factors:  high levels of household debt, lower employment and an aging population.  As well, existing trends will continue to encourage frugality including:  higher Web usage (for shopping and research); the growth of private label products and; the rising importance of discount sellers like Walmart and Amazon.

On two different occasions, Booz interviewed 2,000 US consumers across demographic, geographic and socio-economic lines to understand their spending plans, habits and behaviors.  The conclusion?  a wave of frugality is sweeping all demographic groups and segments. Higher levels of belt-tightening were noted among women and lower income groups. Other key findings include:

Consumers are driven more by price considerations – Conspicuous consumption has been replaced by a new value consciousness that dictates trade-offs between product performance, brand image and price. This trade-off is manifested by increased levels of online comparison shopping; trading down to lower-priced private label & value brands and a higher frequency of coupon clipping.

For the majority of consumers, value has become the most important purchase attribute – Right now, value brands are perfectly positioned to exploit consumer frugality.  However, consumers will continue to buy higher price point products as long as those product’s performance and image can clearly justify a price premium versus lower cost alternatives. 

Traditional segmentation strategies may miss new value seekers – Traditionally, retailers and marketers segment consumers primarily by demographics.  However, the study presents a more nuanced view of how consumers could be segmented by value-seeking behavior.  For example, 68% of all consumers reported exhibiting higher price sensitivity and increased  value-centered activities.  These activities include higher online usage (e.g., searching for lowest cost items, purchasing through online discounters) and increased purchases through lower cost offline retail formats.    

Firms can take a number of steps to mitigate revenue risk and build market share:

1.     Continue to drive product and brand differentiation

Negative growth periods often trigger heavy price discounting as firms look to protect market share.  To sustain this, firms usually dial back on differentiation-enhancing plans like advertising and functional upgrades.   This approach is misguided as declining differentiation reduces brand price premiums and harms competitiveness versus private label or low cost alternatives.  Companies must maintain their focus on differentiation by continuing investments in advertising, the customer experience and product performance. 

2.     Improve the value proposition

Decreased consumer spending does not automatically lead to value brand share increases.  Many best practice leaders like P&G, Benckiser and Kelloggs have maintained share in difficult times by improving product performance & convenience, right-sizing formats, and clearly communicating and aligning pricing levels (for consumers and retailers) to product value.

 3.     Optimize the Customer Experience

Look for opportunities to improve value and differentiate along the entire purchase and support spectrum.  Enhancing the customer experience can improve loyalty, foster cross-selling & up-selling and increase customer satisfaction.  Properly executed, customer experience initiatives can also raise operating efficiencies and reduce cycle times.

 4.     Know your consumer better

In order to sustain and communicate value, the ‘new normal’ requires companies to deepen their understanding of consumer’s needs and habits.  To do this, firms could undertake new segmentation strategies based on purchase behavior as well as using advanced qualitative research tools to explore sub-conscious and cultural drivers of behavior.

5.     Maximize opportunities for on and offline distribution

New retail formats like kiosks, co-branded stores as well as fully built out e-commerce platforms are 3 examples of how companies can simultaneously improve product distribution and reduce risk at a lower delivered cost.

 For more information on our services and work, please visit the Quanta Consulting Inc. web site.


Want to Perfect your Client Experience? Use Behavioral Psychology

Whether you sell to consumers or businesses, optimizing your Client Experience (CE) is crucial for improving loyalty, operating efficiencies and service levels.  In some competitive industries like financial services, hospitality, transportation, telecom and retail, getting the CE right can be a key strategic differentiator and driver of long-term profitability.

The CE is an amalgam of on and offline customer interactions, from awareness building & product knowledge transfer to selling & post purchase support.  When designing CE systems, most firms look first to accommodating internal needs (e.g., structure, people, rules, process) first before considering what customers want or how they think.  In particular, little attention is paid to how customers really want to be treated or how their behaviors and impressions are driven by sub-conscious drivers.  Of course, getting the structure, people and processes right is an important element to improving performance.  However, it is not the only factor to consider.  All CE designers can benefit from incorporating the insights of Behavioral Psychology (BP), in areas like process design, employee training, technology deployment and resource allocation.

In a groundbreaking Harvard Business Review article, Richard Chase and Sriram Dasu outlined 5 key operating principles companies can leverage to improve service performance and customer satisfaction.

 1.         Finish Strong

Most service providers believe that the beginning and end of a customer interaction are equally weighted in the eyes of the customer. From a BP perspective, they are mistaken. The end is far more important because it’s what the customer remembers later on. Of course, a strong first impression and overall performance is important.    However, a firm is better off with a relatively weak start and a modest upswing at the end than with a great start and a mediocre finish.

2.         Get the Bad Experiences Out of the Way Early

According to BP, in a sequence of events involving good and bad outcomes, people prefer to have undesirable events come first – so they can avoid dread – and to have desirable events come at the end of a sequence – so they can savor them.  This insight has important implications for services like health care where providers must deal with anxious and inexperienced people on a regular basis.

3.         Segment the Pleasure, Combine the Pain

BP can teach customer service leaders in the hospitality, theme park and health care industries many things about how good and bad experiences should be structured and timed.  For example, customer experiences seem longer when they are broken into discrete segments. In addition, people have an asymmetric reaction to losses and gains. Most people would prefer small wins spread over time.  On the other hand, most people would prefer losses to occur in once incident.  These learnings teach companies that they should break pleasant experiences into multiple stages to stretch out the enjoyment and combine unpleasant activities into a single stage or event.

4.      Build Commitment Through Choice

Most of us are happier and more empowered when we believe we have some control over a process, particularly an uncomfortable one. Usually, it does not even matter if the control gained by the customer is largely symbolic. Consequently, savvy service managers in industries such as telco, transportation and hospitality will allow customers some measure of control over their customer experience even at the risk of introducing extra cost and complexity.

5.         Let People Have Their Rituals

Most customer service designers don’t understand the importance of ritual in people’s lives. Most of us find comfort, order and meaning in repetitive, familiar activities.  People unconsciously see these rituals as trust-building mechanisms between unfamiliar parties. Rituals are particularly important in sectors with longer-term encounters like professional-services and health care where certain activities like the exchange of business cards, establishing credentials and timely follow ups help mark key moments in the relationship.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Twitter: Can they make (big) money?

To answer this question, you need to consider 3 key issues: 1) Can Twitter create a strong offering for users, businesses and partners? 2) Can Twitter develop a revenue model around this offering? 3) Will their business quickly scale while warding off competitors? To help address these questions, I have referenced some excellent Twitter insights from MIT’s Technology Review.

Twitter’s performance to date is compelling. RJMetrics, a business analytics firm, estimates that Twitter has 75 million accounts , with 15 million responsible for most of the traffic. Twitter has helped usher in the Real-Time Web, in which information is generated and consumed almost instantaneously through interconnectedness with social networks, blogs, and other news sources. CNN Breaking News, for example, has nearly three million Twitter followers. Increasingly, Twitter is the first stop for people seeking real-time news. While it’s easy to talk about paradigm shifts it’s often hard to measure and document; the Company will not share numbers, and third-party measurement of Web audiences remains dodgy. If the Real-Time Web is the next, big thing, how will Twitter capitalize on it?

Strong Offering?

Billions of tweets today do not simply translate into a viable, long term business. To build a big business, Twitter must continue to attract new users, retain existing users and drive usage. All of this is dependent on making tweet-borne information actually useful to the right people at the right time. Fortunately, this is happening. Twitter is evolving from being a trendy provider of banal and trivial (for businesses) personal information to a source of topical, high value information such as breaking news, stock quotes or product recommendations. The Company is striving through technology and product management to improve the relevancy, usefulness and reach of its data stream while minimizing spam. At the same time, the firm is aggressively adding new applications such as StockTwits (for real time stock quotes) and Twitpic for photo distribution. Similar to iPod’s experience, attracting application developers and making it easy for them to work with Twitter’s technology will be crucial to expanding the service’s appeal. A couple of deals suggest that Twitter’s data stream is beginning to bear fruit.

Revenue Model?

Recently, Twitter inked important first step deals for $25 million with Google and Bing to feed real-time tweets. This will make Twitter profitable for the first time, while legitimatizing their value proposition to search engines. Outside of these successes, however, Twitter has yet to identify the winning revenue model. There are many potential ways to monetize tweets including keyword-based advertising, sales of market research data (e.g., product mentions) and placement of sponsored tweets. Or, it could be something completely different that has yet to emerge.

Figuring out the right revenue model is only half the battle. To demonstrate a business case to marketers, Twitter will still need to track and measure user behavior. This is especially challenging for the firm, because the most common unit of Web usage, page views, doesn’t really apply. Tweets, after all, aren’t pages; they’re the units that make up data streams moving across many platforms and being consumed in a myriad of ways.

While Twitter data in theory should be salable to companies, so far the marketplace is tentative. A recent survey by Kognito, a business intelligence firm, found that only 14 percent of market research companies surveyed had immediate plans to mine social-networking data at all.

Twitter’s own internal documents point to an optimistic (or delusional) future. By 2013, the Company is aiming to have 1 billion users, taking in $1.5 billion in revenue and $1.1 billion in net earnings. Can they get there?


Creating a market has placed Twitter squarely in the cross hairs of some well-funded industry giants like Google and Facebook, who are working on similar offering, as well as a slew of start-ups. Though Twitter’s head start is an important first mover advantage, it may not prove to be sustainable from a operational or technological perspective. Reaching a billion users will pose significant operational challenges including attracting enough talented employees and providing user support. Moreover, there are questions as to whether the existing technology foundation can support anything close to a billion users leveraging a wide variety of apps. The Company has no apparent ownership rights to the basic technology for micro-blogging so competitive product parity is very likely. Moreover, developing key word, real-time searches and location based services based on data streams is not easy and there is no magic algorithm on the horizon (unlike what Google was able to develop) that can deliver highly relevant, spam-free results every time.

It is still very early in the game and Twitter is hardly alone among online social-networking sites in its struggle to find a lucrative and glitch-free business model. The path to market success in technology is rarely an obvious one as Google’s experience demonstrates. Google’s scalable growth was fueled by selling ads based on keywords not through deploying superior search technology (although it needed be good!). The next 12 months will be crucial for Twitter to ‘jump the shark’ and emerge as the overwhelming consumer choice.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Will Toyota’s Stumble Trigger a GM and Ford Comeback?

The planets GM and Ford may be perfectly aligned for a startling comeback.  Toyota, long considered best in class for quality and manufacturing, is staggering from major product recalls of 8 million vehicles.  Their recent results are bleak; Toyoya has been hit by double-digit declines in market share and profitability not to mention serious reputational damage.

At the same time, GM and Ford have been slowly emerging from the throes of a near-death experience.   GM has been bolstered by government funds, the culling of redundant brands and union concessions.  Ford has benefited from early moves to improve quality, divest weak divisions and raise debt.   Both firms have been handed a once-in-a-generation chance to improve their image and recapture 20 years of lost market share.  Can they pull it off?

Much will depend on if GM and Ford 1) can continue the substantial improvements made over the past 3 years in reliability, design and production efficiency (according to analysts and consumer surveys) while 2) still hoping Toyota continues its rocky ride.

Like Toyota, Detroit has belatedly discovered the religion of reliability.  In the past, passenger car reliability was ignored as GM and Ford relied heavily on highly profitable (albeit gas guzzling) Pick Ups and SUVs.  Reliability only mattered until the warranty period ended. However in 2008, GM and Ford’s vulnerable product portfolios were hit by the double sales whammy of a harsh recession and $140+ per barrel oil pricing.  Consumers either stopped buying altogether or quickly shifted to less expensive, value-driven passenger cars.   As a result, corporate profits and overall market share plummeted, threatening the viability of each producer.

This shock triggered a rapid reassessment of the business from executive management down to the line worker. No longer could they ignore the cost, brand and pricing implications of poor quality.   Detroit’s culture changed because it had to.  The core mission of both firms went back to their roots: build attractive, interesting and reliable cars that address current and emerging consumer needs for the markets that matter. The longer term focus these days are on achieving high ratings on independent benchmarks such as Consumer Reports magazine and J.D. Power Associates.

Once attitudes change, better quality-focused processes and reporting systems must follow.  GM and Ford understand that if they wanted to emulate Toyota, it isn’t good enough talking about quality; you have to develop new design, purchasing and production competencies that built long term reliability into every vehicle.   So far, they are making significant strides.  As an example, at Ford it now takes 72 hours (versus 30 days in the past) for a warranty claim problem to get back to the design engineers and suppliers for troubleshooting. In other case, GM vastly increased the amount of punishment each model is designed to endure.  GM used to build vehicles to a certain mileage requirement. Now, they’re built not to fail.

Because so much of a car’s value is delivered by external suppliers, achieving systematic change would be next to impossible if there were not improvements in the traditional manufacturer-supplier relationship.  Until recently, GM and Ford pursued an adversarial, almost cutthroat relationship with their suppliers, usually purchasing exclusively on price.  In contrast, Toyota views their suppliers as partners in the business and work together in many areas including shared R&D and training. 

Of late, GM and Ford are working hard to redefine the way they works with many suppliers.  For example, they now require collaboration between engineers and parts makers; new, jointly-managed troubleshooting processes have been set up and; both stakeholders now work towards shared long term goals around reliability and innovation.

It is too early to assert that GM and Ford will regain their lost glory.  Toyota’s setback may not be anything more than a clumsy misstep.  The next 12 months will be crucial to see if there will be a paradigm shift in the highly competitive automotive sector.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Analytics: Data x Math x Computing = Profit

The holy grail of CRM, the ability to leverage and monetize internal data, is now within reach of most medium to large enterprises. Low cost computing power, new software tools and sophisticated math skills have converged to enable high-level data analytics, a powerful capability that can drive incremental revenue, improve workflow efficiency and enhance customer satisfaction.  Basically, advanced analytics uses special algorithms to comb through large databases of transactions looking for important causal relationships between variables that can be leveraged to improve the efficiency and effectiveness of a program or process. For example, Internet Services and Retail companies are mining millions of their transactions to uncover critical (and hitherto unseen) insights about consumer and supplier behavior.  In other cases, some firms in the Consulting and Software industries are using observations from their own mountain’s of data (as well as the clients they serve) to launch new practices focusing on data management and consulting. 

The business of helping firms make sense out of proliferating data is growing quickly. This industry, which includes leading IT players such as IBM, SAP, Microsoft and Oracle, has estimated revenues in excess of $100B.  The markets is growing at almost 10% a year, roughly twice as fast as the software market as a whole.

I found 3 ‘best practices’ firms, in MIT’s Technology Review and The Economist magazine, who are using data analytics with great success:


IBM is a pioneer in the use of mathematical models to analyze huge data sets.  IBM’s analytics business began as an internal project undertaken by in-house mathematicians, who wanted to learn how to maximize revenue per client by analyzing years of sales data.  The insights discovered in their work prompted them to retool their sales teams by account size & industry and to tweak their service offering.   The result was $1B in new revenues and better sales coverage.  Not surprisingly, IBM concluded that others could benefit from these capabilities and they built an entirely new business analytics and optimization group within IBM Global Business Services to support it.  To date, this group has already trained 4,000 consultants

And they are busy.  IBM mathematicians are using high-quantile modeling in its workforce analytics practice to help clients make decisions about human resources issues such as how best to deploy their sales people.  In other cases, their mathematicians are using stochastic optimization algorithms in their human resources and marketing practice areas to help clients find new customers and determine the right mix of experienced and junior programmers to staff large software projects.


Walmart generates reams of data through their Retail Link inventory management system.  The Company is using sophisticated analytics to crunch this data in a myriad of ways, turning information into a powerful profit accelerator.  In one impressive example, Walmart’s analysis showed that they should offload inventory management to their suppliers and not to take ownership of the products until the point of sale.  This new strategy allowed the firm to decrease inventory risk, conserve cash flow and reduce its costs.


Like many telecoms providers, Cablecom has grappled with churn.  Using advanced data analytics, Cablecom discovered that although customer defections peaked in the 13th month, the decision to leave was typically around the 9th month (as indicated by things like the number of calls to customer support services).  To reduce defections, Cablecom offered at-risk customers special deals 7 months into their subscription.  The results were impressive:  customer defections fell from 20% of subscribers a year to under 5%, enabling the firm to save significant marketing acquisition costs while boosting customer satisfaction.  

Regardless of your data management objectives and strategy, there is gold in those terabytes of data.

For more information on our services and work, please visit the Quanta Consulting Inc., web site.

Accelerating Green Product Growth

It would not come as a surprise to most marketers to learn that many ‘green’ products have not fulfilled their sales promise.  Strong environmental awareness among North American consumers has not translated into high market share for green-positioned products. Although enviro-friendly products have made inroads and enjoy solid growth, they still lag their conventional cousins in virtually ever category.  For example, in the US building material market, exterior green materials are only forecasted to achieve a 15.7% market share by 2011 (source:  BCC Research). Hybrid cars, though trendy, made up only 3.6% of the 2009 US vehicle market, and this with the benefit of lucrative ‘cash for clunkers’ incentives (source:  Despite historical awareness around the environmental impact of synthetic detergents and cleaners, green alternatives attained no more than a 5% share (on average) in their respective US categories.

There are many reasons for the disparity between promise and results.  For one thing, psychological factors such as inertia, laziness and insincerity could be creating a disconnect between what a customer intends to do and what they actually do.  Another important barrier is price.  It is tough for green products to build market share in a recessionary environment when they often carry a 25%-100% price premium over traditional brands. Furthermore, in many categories such as detergents and cleaners, green products perform worse than the leading brands.  Finally, marketers need to acknowledge that many green products have been poorly positioned, distributed and promoted. Early introductions were often opportunistic initiatives, not based on deep consumer understanding or best practices. “Green is a marketing term, not a scientific one, and in consumer marketing overall, green is probably overused,” says Brian Sansoni, a spokesman for The Soap and Detergent Association.    

Environmental consciousness is no longer a fad and its financial implications are felt well beyond market share.  According to a McKinsey survey, 33% of consumers indicate they will pay a premium for green products while 87% care about the environmental impact of products and want to take tangible steps to mitigate climate change.  Although green product growth rates are often two times that of traditional products, only 33% of consumers have bought or are ready to buy green products.  What can firms do to help green products capture more market share?  

 Better understand consumer and market dynamics

Not all green consumers are the same and many are savvy enough not to buy a product just because it trumpets green benefits.  Furthermore, executives now can benchmark different green product market experiences to understand what works and what doesn’t.

Get the value proposition right

Environmental benefits, by themselves, are no longer enough to attract many consumer segments.  To improve consumer and trade appeal, marketers need to improve green product value through price reductions and/or enhanced product performance.

Enhance your green credibility to improve brand image  

Companies should embrace emerging, consumer-focused environmental standards.  As well, marketers need to quantify and communicate the green benefits and impact of their products.  Marketing communications must avoid misleading consumers by claiming green benefits that are not real or are mandated by regulation.

Optimize the marketing mix 

 To penetrate the mass market, green products need the support of ‘best in class’ on & offline marketing and sales programs.  This would include insights-driven and sustained advertising exposure, widespread, multi-channel distribution and impactful promotion programs that encourage trial and repurchase. 

Have realistic expectations

The popularity of environmentally-friendly products is on the rise but conventional alternatives will still dominate, at least in the medium term.  Despite this, firms will need to continue investing in green product development and marketing while coping with a more complex product portfolio and supply chain.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Management Best Practices: BRAC

Can a Bengali-based Non-Governmental Organization (NGO) teach for and not-for-profit enterprises important lessons on strategy and helping society?  Yes, if it’s the Bangladesh Rehabilitation Committee (BRAC), considered by The Economist magazine to be one the largest, fastest-growing and most business-minded NGOs around.

BRAC was founded serendipitously in 1970 by Sir Fazle Hasan Abed in response to a deadly cyclone.  Its original mandate was to provide credit to the poor farmers and trades people  (who hitherto would never qualify for bank financing) of Bangladesh, one of the World’s poorest countries.  Success in microfinance encouraged BRAC to venture forth into new activities to help the disadvantaged including education and healthcare. Today, BRAC’s global scale is truly impressive with over 7 million microfinance group members, 37,500 non-formal primary schools (BRAC educates 11% of Bangladesh’s children) and more than 70,000 health volunteers.

As the World’s largest NGO, BRAC’s employs 120,000 staff (the majority are women) who regularly and positively impact the lives of 110 million people.  Ian Smillie, who has written a book on BRAC, calls them “undoubtedly the largest and most variegated social experiment in the developing world. The spread of its work dwarfs any other private, government or non-profit enterprise in its impact on development.”

In many ways, BRAC is a unique organization, offering many management lessons for not-for-profit as well as private enterprises:

  1. It’s all about the recipient (or client’s) needs – By thoroughly understanding the beneficiary’s economic and social needs plus the cultural milieu they are a part of, BRAC is able to effectively deliver a variety of different services while leveraging core capabilities.  For example, in addition to operating clinics and schools for the poor, BRAC runs tea plantations, dairies and retail stores that employ, empower and serve their target recipients.
  2. Success is about innovation and execution – Although BRAC was the pioneer in Bengali microfinancing, they did not rest on their laurels when other NGOs joined the fray. Today,  BRAC has grown to become the largest global microlender, disbursing approximately $1B per year. The competencies developed in Bangladesh have been successfully transplanted to other lending programs around the World.
  3. There is potential (and money) in ignored parts of the market –   BRAC’s work is an excellent example of what Clayton Christensen calls Disruptive Innovation.  BRAC devised new, inexpensive ways of getting credit, healthcare and education to needy recipients (especially to disadvantaged groups like Women) in a variety of countries and economic systems. These service and organizational “disruptions” allowed BRAC to grow larger than many Western charities in some countries, despite the latter’s multi-decade head start.
  4. Continuous measurement and learning is a virtue and a necessity – BRAC is a NGO that operates like a performance-driven business.  Given ongoing demands for help and the constant shortage of resources, BRAC relentlessly focuses on results, research and continuous improvement in order to maximize efficiency and effectiveness. For example, where programs can not be sustained from internal funds, they are cancelled.  David Korten, author of “When Corporations Rule the World”, called BRAC “as near to a pure example of a learning organization as one is likely to find.”
  5. Self-funding (read: cash flow) is key – Unlike most NGOs, around 80% of all disbursements are generated internally from operations.  Not only does this free up considerable focus and expense away from fundraising, but it also instills financial discipline and allows for greater strategic and tactical freedom of action.  In particular, BRAC can respond faster to crises as well as experiment with new programs.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.