Dancing Shoes for Honeybees Customer Empowerment and Personal Mobile Technology Don Peppers New Marketing Summit Boston 14 Oct 2008

Competing in the customer-centric dimension Maximize the value created by each customer Maximize the value created by each product Share of customer Market share Customer Needs Satisfied Customers Reached Product-Centric Marketing Customer-Centric Marketing

Customers create value in two ways… Short term: They buy products in the current period, generating sales and costs Long term: They change their intent to buy, or their likelihood of buying, in future periods Suppose a good customer calls you with a complaint…

Short term: They buy products in the current period, generating sales and costs

Long term: They change their intent to buy, or their likelihood of buying, in future periods

Suppose a good customer calls you with a complaint…

The “Goldfish Principle” Some species of tropical fish have no territorial memory Businesses operating on the Goldfish Principle have no customer memory To customers, a company with no customer memory may appear nonsensical, or even hostile

Some species of tropical fish have no territorial memory

Succeeding against your competitors… Why does a customer choose you instead of one of your competitors? Two marketing professors asked thousands of business executives this question… Answers in all industries are remarkably similar: “ ...trust, confidence, strength of customer relationships...”

Why does a customer choose you instead of one of your competitors?

Two marketing professors asked thousands of business executives this question…

Answers in all industries are remarkably similar:

“ ...trust, confidence, strength of customer relationships...”

Now consider your customer value proposition A customer creates the most value for you when you create the most value for him But when does this happen? Maximizing the value customers create requires you to earn their trust

A customer creates the most value for you when you create the most value for him

But when does this happen?

Maximizing the value customers create requires you to earn their trust

Customers are social animals… Bees and ants share information about new discoveries for the benefit of the group Ants leave chemical trails, and honey bees do a complex kind of dance

Bees and ants share information about new discoveries for the benefit of the group

Ants leave chemical trails, and honey bees do a complex kind of dance

The Honeybee “Waggle Dance” Source: Bienentanz, Gesellschaft fur Kommunikation, Berlin, 2002

Now suppose you were a food source for bees… But a bee will only do his dance to tell the other bees about you if he was satisfied with the nectar Moral: In the absence of communication among your customers, advertising rules Once your customers communicate with each other, it’s the customer experience that counts Bright colors and a sweet fragrance can get any exploring bee to take a look

But a bee will only do his dance to tell the other bees about you if he was satisfied with the nectar

Moral: In the absence of communication among your customers, advertising rules

Once your customers communicate with each other, it’s the customer experience that counts

Our reputation precedes us electronically now… Disappoint one customer and thousands of others will soon learn of it Yankelovich asked consumers what they would do if a business violated their trust: 76% would tell friends and associates 12% would write about it online!

Disappoint one customer and thousands of others will soon learn of it

Yankelovich asked consumers what they would do if a business violated their trust:

76% would tell friends and associates

12% would write about it online!

And we’ll never be less connected, always more If Facebook were a country, its population would make it 12 th largest in the world Between Mexico and the Phillipines In 2006, one out of every eight couples who married in the US met each other online!

If Facebook were a country, its population would make it 12 th largest in the world

Between Mexico and the Phillipines

In 2006, one out of every eight couples who married in the US met each other online!

Social network power As the cost of connecting continues to plummet, consumer connections blossom And consumers increasingly influence other consumers Customer review sites spring up everywhere Tripadvisor.com, Angies List, epinions Ratemyprofessor.com (universities and instructors) Vault.com (employers) Healthcarecommision.org.uk, healthgrades.com

As the cost of connecting continues to plummet, consumer connections blossom

And consumers increasingly influence other consumers

Customer review sites spring up everywhere

Tripadvisor.com, Angies List, epinions

Ratemyprofessor.com (universities and instructors)

Vault.com (employers)

Healthcarecommision.org.uk, healthgrades.com

Honeybees dance about everything! You can’t un-Google yourself. Linda Kaplan Thaler, CEO, Kaplan Thaler Group

You can’t un-Google yourself.

Linda Kaplan Thaler, CEO, Kaplan Thaler Group

Customers assert their new social power easily August 2007 – HSBC forced to reverse course Over the summer it had dropped its policy of free overdrafts for university students By using Facebook, students connected with others to organize a protest of this new policy Soon HSBC reinstated the free overdraft policy

August 2007 – HSBC forced to reverse course

Over the summer it had dropped its policy of free overdrafts for university students

By using Facebook, students connected with others to organize a protest of this new policy

Soon HSBC reinstated the free overdraft policy

The rule of “preferential attachment” Networks of customers evolve over time… A social network starts with two people knowing each other, then a third is added, and so forth Each new friend is added to the network by his or her connection to an existing member Preferential attachment: While each new attachment is random… … each new member is more likely to connect with someone who already has more connections Preferential attachment means networks form in a path dependent way

Networks of customers evolve over time…

A social network starts with two people knowing each other, then a third is added, and so forth

Each new friend is added to the network by his or her connection to an existing member

Preferential attachment:

While each new attachment is random…

… each new member is more likely to connect with someone who already has more connections

Preferential attachment means networks form in a path dependent way

Networks grow in an evolutionary fashion Adaptation and “fitness” are key determinants of the influence or wealth of various participants A “fitness landscape” is filled with local optima that attract individual participants

Adaptation and “fitness” are key determinants of the influence or wealth of various participants

A “fitness landscape” is filled with local optima that attract individual participants

Path dependence leads to unpredictability In 2007 the Wall Street Journal examined 25,000 user posts on six “sharing and collaboration” Web sites 13% of Netscape’s “most popular” postings were done by a single user 900,000 registered users on Digg, but one third of home-page postings come from just 30 users Reddit’s most widely read user, Adam Fuhrer, has millions of page views, including MS Vista reviews Adam Fuhrer is just 12 years old, and attends an elementary school in Toronto

In 2007 the Wall Street Journal examined 25,000 user posts on six “sharing and collaboration” Web sites

13% of Netscape’s “most popular” postings were done by a single user

900,000 registered users on Digg, but one third of home-page postings come from just 30 users

Reddit’s most widely read user, Adam Fuhrer, has millions of page views, including MS Vista reviews

Adam Fuhrer is just 12 years old, and attends an elementary school in Toronto

The only way to succeed: Build and maintain a reputation for trustworthiness

Build and maintain a reputation for trustworthiness

The need for more trust has boosted business Lack of trust slows transactions down and imposes frictional costs When more trust is required , business thrives, as obstacles are reduced Case in point:

Lack of trust slows transactions down and imposes frictional costs

When more trust is required , business thrives, as obstacles are reduced

A study of one financial firm’s 6700 customers separated referral value (“CRV”) out of LTV 68% of these customers expressed their intention to refer the company to other people, but Only 33% followed through 14% generated new business for the firm, And just 8% actually became profitable customers Also, highest spending customers are not always the most valuable in terms of referring others Analyzing a customer’s referral value Source: “How Valuable is Word of Mouth?” Harvard Business Review, October 2007

A study of one financial firm’s 6700 customers separated referral value (“CRV”) out of LTV

68% of these customers expressed their intention to refer the company to other people, but

Only 33% followed through

14% generated new business for the firm,

And just 8% actually became profitable customers

Also, highest spending customers are not always the most valuable in terms of referring others

At one telecom company Source: “How Valuable is Word of Mouth?” Harvard Business Review, October 2007

DoubleClick identified network “influencers” Quantitative survey of 6000 Web users found 1000 influencers with certain traits “ People often ask my advice about…” “ I am an expert in certain areas…” Influencers Use the Web more than twice as much Pay more attention to online ads, and want more relevant messages But also more likely to clear their cookies regularly, as well as fast forwarding through video commercials

Quantitative survey of 6000 Web users found 1000 influencers with certain traits

“ People often ask my advice about…”

“ I am an expert in certain areas…”

Influencers

Use the Web more than twice as much

Pay more attention to online ads, and want more relevant messages

But also more likely to clear their cookies regularly, as well as fast forwarding through video commercials

Influential people within social networks Influencers and connectors are curious and inquisitive people. They want to know but they don’t want to be sold to.

Influencers and connectors are curious and inquisitive people.

They want to know but they don’t want to be sold to.

In 2005, one influential blogger wrote about his bad service experience with Dell Computer This “Dell Hell” story cascaded online as more people commented about their own bad experiences Then Businessweek and The New York Times picked it up Dell’s reputation suffered terribly, and its financial results declined, as well One year later, a UK consulting firm analyzed the incident and concluded it was not really Dell’s fault at all Most of the controversy was generated by errors and misinformation, passed along by a few key influencers And sometimes influencers are just wrong! Source: Paul Gillin, The New Influencers, 2007

In 2005, one influential blogger wrote about his bad service experience with Dell Computer

This “Dell Hell” story cascaded online as more people commented about their own bad experiences

Then Businessweek and The New York Times picked it up

Dell’s reputation suffered terribly, and its financial results declined, as well

One year later, a UK consulting firm analyzed the incident and concluded it was not really Dell’s fault at all

Most of the controversy was generated by errors and misinformation, passed along by a few key influencers

So be careful when you try to generate “WOM” A cautionary tale: Staples’ word-of-mouth marketing campaign, called Speak Easy Despite its careful architecture, the press portrayed it as sneaky and manipulative You can’t manufacture “authentic” word of mouth If it isn’t spontaneous, then it isn’t authentic!

A cautionary tale: Staples’ word-of-mouth marketing campaign, called Speak Easy

Despite its careful architecture, the press portrayed it as sneaky and manipulative

You can’t manufacture “authentic” word of mouth

If it isn’t spontaneous, then it isn’t authentic!

WOM is inherently unpredictable JupiterResearch: Only 15% of viral marketing efforts actually generate positive word-of-mouth! No matter how delicious your nectar is… … you can’t always control what the honeybees will dance about

JupiterResearch:

Only 15% of viral marketing efforts actually generate positive word-of-mouth!

No matter how delicious your nectar is…

… you can’t always control what the honeybees will dance about

The human brain is a “prediction engine” Complex tasks are managed easily, until something violates our expectations… “ Our brain is structured for constant forecasting.”

Complex tasks are managed easily, until something violates our expectations…

Groups can be intelligent prediction engines, too Groups of people make collective decisions much better than even expert individuals do As long as a group includes a diverse set of people making independent decisions It isn’t the number of experts in the group, but the diversity of perspectives that counts “Decision markets” predict sporting events and election results with great accuracy The market for orange futures predicts Florida weather more accurately than meteorologists do

Groups of people make collective decisions much better than even expert individuals do

As long as a group includes a diverse set of people making independent decisions

It isn’t the number of experts in the group, but the diversity of perspectives that counts

“Decision markets” predict sporting events and election results with great accuracy

The market for orange futures predicts Florida weather more accurately than meteorologists do

Where were you at 11:39 am, January 28, 1986? Four key space shuttle contractors Rockwell built the Challenger and its engines Lockheed managed ground support Martin Marietta manufactured the external fuel tank Morton Thiokol built the solid fuel boosters “ No clues” on the day of the event, and the actual investigation required six months to complete But by 11:50 am, Thiokol’s stock was down the most and remained lowest throughout the investigation

Four key space shuttle contractors

Rockwell built the Challenger and its engines

Lockheed managed ground support

Martin Marietta manufactured the external fuel tank

Morton Thiokol built the solid fuel boosters

“ No clues” on the day of the event, and the actual investigation required six months to complete

But by 11:50 am, Thiokol’s stock was down the most and remained lowest throughout the investigation

Where were you at 11:39 am, January 28, 1986? How did the market know ?

How did the market know ?

Diverse perspectives are the key The most important requirement for making intelligent group decisions and predictions: A d i v eR s i t y of perspectives

The most important requirement for making intelligent group decisions and predictions:

A d i v eR s i t y of perspectives

Businesses can harness “decision markets” Rite-Solutions (software for military applications) began internal stock market for product ideas in January 2005 55 stocks listed on “Mutual Fun,” each with detailed description, and each trading at $10 per share initially Employees bet up to $10,000 in “opinion money,” and also lend support by volunteering to work on project Winners share in proceeds of new products if successful Biggest win so far is a type of 3-D visualization software initially rejected by “experts” in R&D department One year later, VIEW accounts for 30% of sales! Source: “Under New Management,” New York Times, 26 March 2006

Rite-Solutions (software for military applications) began internal stock market for product ideas in January 2005

55 stocks listed on “Mutual Fun,” each with detailed description, and each trading at $10 per share initially

Employees bet up to $10,000 in “opinion money,” and also lend support by volunteering to work on project

Winners share in proceeds of new products if successful

Biggest win so far is a type of 3-D visualization software initially rejected by “experts” in R&D department

One year later, VIEW accounts for 30% of sales!

Decision markets are now widely employed Best Buy uses its own decision market, called “TagTrade,” to predict: Which products will sell best in which stores Whether sales forecasts are accurate, and whether marketing programs will be successful Google uses decision markets to predict: Demand for Gmail subscriptions Product launch timetables GE, Microsoft, Intel, other companies are all experimenting with decision markets Source: Wall Street Journal, Sept 16, 2008

Best Buy uses its own decision market, called “TagTrade,” to predict:

Which products will sell best in which stores

Whether sales forecasts are accurate, and whether marketing programs will be successful

Google uses decision markets to predict:

Demand for Gmail subscriptions

Product launch timetables

GE, Microsoft, Intel, other companies are all experimenting with decision markets

Moore’s Law and Metcalfe’s Law Gordon Moore Bob Metcalfe

Networking and computation: Implications 100 million+ Google searches every day How were these questions answered before Google? Last year 3000 new books were published… … every day! In 2008, more new and unique information will be generated than in the previous 5,000 years The amount of new technical information is roughly doubling every two years By 2015, it will be doubling every 72 hours!

100 million+ Google searches every day

How were these questions answered before Google?

Last year 3000 new books were published…

… every day!

In 2008, more new and unique information will be generated than in the previous 5,000 years

The amount of new technical information is roughly doubling every two years

By 2015, it will be doubling every 72 hours!

In the words of William Gibson: “ The future is already here. It’s just not evenly distributed yet.”

“ The future is already here. It’s just not evenly distributed yet.”

What we can expect in a PMT-enabled future: Personal mobile technology will dramatically change our lives in three general areas: Transacting and doing Connecting and networking Sensing and understanding

Personal mobile technology will dramatically change our lives in three general areas:

Transacting and doing

Connecting and networking

Sensing and understanding

1. Transacting and doing “ A mobile phone is just a credit card with an antenna…” Richard Fairbank Founder and CEO, Capital One

“ A mobile phone is just a credit card with an antenna…”

Richard Fairbank

Founder and CEO, Capital One

1. Transacting and doing Commercial transactions can pay the costs of connectivity and technology Free SIM card, just apply You must be 16 to 24 43 free minutes a month 216 free texts a month Earn more by clicking ads or buying products How Blyk uses its customers’ social networks

Commercial transactions can pay the costs of connectivity and technology

Free SIM card, just apply

You must be 16 to 24

43 free minutes a month

216 free texts a month

Earn more by clicking ads or buying products

1. Transacting and doing Commerce will drive technology further Partnering with Thales, maker of inflight entertainment systems Soon to offer 1-to-1 entertainment and advertising to passengers

Commerce will drive technology further

Partnering with Thales, maker of inflight entertainment systems

Soon to offer 1-to-1 entertainment and advertising to passengers

1. Transacting and doing Excerpt from Jetera’s promotional film for advertisers

Excerpt from Jetera’s promotional film for advertisers

1. Transacting and doing Entertainment, fun, amusement, games Portable multimedia players Mobile gaming Automotive infotainment Real-time reality shows “ Concerts” with PMT devices sounding like different instruments or voices Sports events viewed from others’ seats Coming soon?

Entertainment, fun, amusement, games

Portable multimedia players

Mobile gaming

Automotive infotainment

Real-time reality shows

“ Concerts” with PMT devices sounding like different instruments or voices

Sports events viewed from others’ seats

2. Connecting and networking Location-based services

Location-based services

2. Connecting and networking Location-based networking Traffic reports based on actual real-time traffic

Location-based networking

Traffic reports based on actual real-time traffic

2. Connecting and networking Location-based presence When you access Facebook or Twitter, don’t you want to know who else is “present”? PMT allows “presence” and “location” to be combined Real-time traffic and weather reports, with local comments and details from other users Go to the mall, the game, or the concert, and detect which friends are there with you, locally Coming soon with PMT?

Location-based presence

When you access Facebook or Twitter, don’t you want to know who else is “present”?

PMT allows “presence” and “location” to be combined

Real-time traffic and weather reports, with local comments and details from other users

Go to the mall, the game, or the concert, and detect which friends are there with you, locally

3. Sensing and understanding Technology will get better and better at enhancing our bodies

3. Sensing and understanding But sensory enhancements will be first

3. Sensing and understanding Collective power of sensory inputs What would “the news” be today without on-the-scene people videoing crimes and disasters? Now imagine millions of mobile, networked cameras uploading their images, 24/7 How “real” will real-time news actually be? And soon you’ll be sorting through these images with software that recognizes locations and faces!

Collective power of sensory inputs

What would “the news” be today without on-the-scene people videoing crimes and disasters?

Now imagine millions of mobile, networked cameras uploading their images, 24/7

How “real” will real-time news actually be?

And soon you’ll be sorting through these images with software that recognizes locations and faces!

3. Sensing and understanding “ Cloud sensing” using collective inputs Source: Economist, Sept 25, 2008 Earthquakes can be detected using a few thousand individual laptops Jesse Lawrence Asst Prof of Deep Earth Seismology Stanford

“ Cloud sensing” using collective inputs

Earthquakes can be detected using a few thousand individual laptops

3. Sensing and understanding Network-enhanced understanding Sensory inputs drive our brains – our “prediction engines” As a network with linked senses, the collective human race is destined to become more intelligent on its own Voice-analysis lie detectors and emotion sensors Molecular “sniffers” and pheromone detectors Sensors operate both locally and remotely, by proxy Ad hoc “smart networks” of connected users anticipating events, collectively Coming soon with PMT?

Network-enhanced understanding

Sensory inputs drive our brains – our “prediction engines”

As a network with linked senses, the collective human race is destined to become more intelligent on its own

Voice-analysis lie detectors and emotion sensors

Molecular “sniffers” and pheromone detectors

Sensors operate both locally and remotely, by proxy

Ad hoc “smart networks” of connected users anticipating events, collectively

We are already merging with our technology

Give your honeybees dancing shoes Improve your “architecture of participation” Make it easy, interesting, and rewarding for customers 3M relies on “lead user” customers to experiment with home-made improvements and upgrades National Semiconductor provides an online platform for customers to design their own product improvements Customers generate 20,000 new ideas each month! Innocentive signed up 30 blue-chip firms and more than 90,000 independent professionals, from 175 countries Source: “Under New Management,” New York Times, 26 March 2006

Improve your “architecture of participation”

Make it easy, interesting, and rewarding for customers

3M relies on “lead user” customers to experiment with home-made improvements and upgrades

National Semiconductor provides an online platform for customers to design their own product improvements

Customers generate 20,000 new ideas each month!

Innocentive signed up 30 blue-chip firms and more than 90,000 independent professionals, from 175 countries

Help your honeybees dance with PMT Have fun, and let your bees have fun! People like to connect with other people – your corporate mission should help them do this! Provide useful, location-based information Let customers sign up “buddy lists” for checking their friends’ presence at your location Facilitate networked, moderated reviews of products and services, including your own

Have fun, and let your bees have fun!

People like to connect with other people – your corporate mission should help them do this!

Provide useful, location-based information

Let customers sign up “buddy lists” for checking their friends’ presence at your location

Facilitate networked, moderated reviews of products and services, including your own

And remember: People are just big honeybees!

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Management consultants in customer strategy issues

Magazines, newsletters, research white papers

Offices around the world Norwalk, Minneapolis, London, Brussels, Istanbul, Dubai, Sao Paulo, Mexico City, Singapore, Sydney