How Involving Customer Create Business Value

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This document is about open innovation process and how companies should create a third space between them and customer that enable collaboration and co-creation. The third place can be about social media, masscustomization, open innovatio or co-creation. This document explain how new ideas diffusion to the market can be enhanced and secured.

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How Involving Customer Create Business Value

  1. 1. Whitepaper: How involving customers create business value Mashup of learnings from behavioural economics, social influence, loyalty, open innovation and advertising research Author: Toni Keskinen, Business Designer
  2. 2. Exec summary: The successfull introduction of new ideas in the market relies on a few major facts. 1. the idea must be good enough 2. it must be accepted by the oppinion leaders (or at least by anyone who is prepared to pay attention) 3. people must be capable of understanding it’s benefits compared other alternatives. In order to reach major market with profit it also needs to become well known and trusted. At best the idea, service or product reach the tippin’ point. The biggest mistake a company can do is to launch new idea by major advertising campaign. The outcome of such decision results often slow adaptation and potentially major losses. In a study of 200 new products, Lehmann and others looked at the origin of new product ideas and how they correlated with market success. Introduction of these internally developed new products failed in 75% of cases. The general thumbrule has been 80%. Major advertising campaign does not change this ratio but actually makes the losses even bigger and re-introduction of the product harder. This paper aimes at introducing different aspects of successfull service or product introduction supporting the market diffusion and acceptance in a way that the likeliness of success should exceed 90%. This paper looks at single purchases and continuous customer relationships parallel and tries to create perspective to differences in these two different market types. Toni Keskinen, Business Designer Taivas Business Design Oy Twitter: Toni_Keskinen LinkedIn: http://www.linkedin.com/in/tonikeskinen
  3. 3. Understanding the new service The book ”Advertised Mind” explains how people handle impulses they get via their senses. The nervous system works in a way that all impulses are initially handled in the oldest parts of the brain, limbic system. The limbic system is responsible for people’s emotions. This results the fact that before entering persons concious mind, the impulse has an emotial tagging attached. The limbic system is like an autopilot for a person, it can not be neglected. The initial impulse from limbic system is not accurate but it does classify impulses in a few cathegories: eg. danger, joy, neutral. The limbic system can be trained and eg. Company logos create direct emotional responses when the brain has been trained to give a right emotional tag to the impulse. Training people’s brain isn’t a task that can be done easily or in short notice. Another interesting thing is people’s capability to handle mixed messages. People are more likely to recall visual signals than the actual message. Eg. In a case of TV ad that started by showing a car driving on a road people recalled the ad as car advertisement. The ad was actually selling car insurance. In case you are introducing something totally new to market you easily get neglected or people don’t ”get you”. This is why the introduction of new ideas should not start by advertising, unless you are prepared to pay a very big price for it. PICTURE Message adaptation: new idea, up-grade, familiar Different information channels have emotional tagging as well. If you listen to news or read a newspaper the writing and the advertising has different tagging. Currently people’s radar for commercial messages is difficult to get thru. When a persons radar for eg. Car purchase is on, they seek car advertisements. Other than that can easily be blocked. In case you are introducing something new, it doesn’t create any tagging to customers radar. The outcome is low recall and diffusion of new idea.
  4. 4. The time for advertising is after the people have tagging for your proposal created and teached thru other channels. After that advertising pays off and accelerate the market adaptation. Training people’s brain One of the best ways getting thru to the concious mind of a customer is to ask questions and make the person think. When people stop to think, they actually train their brain to respond to what you are offering them. A great example of this was a newspaper that had declining circulation and problems generated by free newspapers and free on-line news. They asked people to answer some questions about their newspaper. The questions were about customers experience and contents of the newspaper. After some time all +30.000 people received an email from the chief editor of this newspaper reflecting exactly the customers responses. Reading the editors direct comments on the respondents answers strenghtened the learning and mirrored back their appreciation. One year later these respondents purchased in average 15% more often than others who were not influenced and their customer satisfaction was increased by 7,5%. 90,3% of the respondents had also noticed positive changes in the newspaper in which nothing had actually changed. The people were just trained to notice value they had neglected before. One way of training people’s brain and make certain that the new idea diffuse the market and gets approval is using Open innovation process. In case of open innovation directly with customers the customers are made to think. Co-creation with customers enable companies to see customers emotional responses live, study customers capability to understand the value and mirror it back to the company’s developing team. The collaboration, co-creation, testing the adaptation of alternative concepts and on-going evaluation of the development. Major upside is that the customers could actually come up with ways to improve the innovation or recognize the reasons why the innovation is difficult to adapt. In order to ensure the people’s capability to understand the concept prototypes of products or conceptual illustration of service support people’s capasity to give feedback. In case the new service or product actually is good, your only barrier to market success is your capability make people understand the value you are offering. The question is, why do companies make these projects with so low numbers of involved people. The diffusion of new consept would be dramatically more effective with higher numbers. The first case enclosed earlier was about making people understand the newspaper’s value. Making a similar case in which customers are asked about their tasks and how well the company’s service or product fulfills their need and whether they need to make sacrifices would be much more effective in scale. The respondents could be divided in segments according to responses and responded with accuracy that would enable offering the new service or product as an answer to their needs. All respondents would feel that they had influence and their response was valuable for the company. Which is true too. Beeing transparent and having a dialogue would make a major difference. Dialogue makes sense considering behavioural economics in many ways. You train your customers brains, you respect your customers enough to give them an answer and as an outcom you generate trust and that result approval by the market, positive word of mouth and stronger relationship. You are in the business of doing instead of business of promising. The price for the previous methodology is very low compared to national advertising campaign but the effect is much much higher considering awareness, approval,
  5. 5. diffusion and preference. You create actual market opportunity as an outcome resulting commercialisation of your idea at accelerated speed at low cost. Advertising has major role in expanding the idea once the market has a strong seed starting to grow. Making customer dialogue an innovation platform Companies have data on their customers from the angle what are they currently buying. This data could be enriched by tags available by location, purchase history and behaviour, demographics, RISC monitor etc. Still the best potential outcome is that you increase the propability of your customers adaptiveness to your offer. CEM platform takes this futher by tracking customer intention. Tesco’s success is a great proof of the power of individual communications along with general media and customer driven development. Epaphiny type of software that eg. Amazon is using tracks customers behaviour in search and visits at certain products and cathegories. At best you have adaptation to your customer behaviour at rather deep level. At best this could result Tesco effect below: Adaptation to customer behaviour has major influence in sales. Understanding customer translate as relevance. Tesco only gives back 1% to their customers and still they have one of the worlds most influential loyalty programs. At best you can appear to be a psychic for the customer which has tools to predict what they would like to buy next. However, it doesn’t take the relationship to the optimum level. The optimum level comes from collaboration and dialogue. When you are working with your customer you become WE in the eyes of the customer. This kind of collaboration can be translated as TRUST as an outcome of RESPECT. When you ask something from your customer and don’t answer, it means you are not paying attention but exploiting your customer. The worst case scenario is customer satisfaction questionnaires which are handled anonymously. Your customer is telling you that everything went wrong and you didn’t do anything about it. If 1% of all customer that were dissatisfied could make a major damage by blogging and starting an online campaign against you. Pay attention to your customers! The direction is to move from push to pull.
  6. 6. The problem is in most cases that the interface to the customer is thin unless your company has a person who has a relationship with the customer that is your customer’s social interface to the company. If this is the case your company has a face which represent the relationship. Otherwise your company and the customer have little in common. This could be described as the UI effect. The relationship with the brand could be fully virtualized resulting user interface relationship instead of brand or social relationship. In such a case the biggest threat to the company is to change the interface and risk losing virtual customers making the experience in comprehensible or as difficult as it would be to learn how some other companys user interface would work. Change in the user inteface easily launch competition and change consideration. At this point it comes to consideration what are your strenghts compared to the other companies: Trust, value, price, brand, respect... The dimensions in this consideration has to do with relationship and relevance. ’If the company is having a dialogue with the customer it is possible that the
  7. 7. introduction of a new idea to the market goes from aggressive sales and advertising resulting intrusion to offering customer a solution to need that he has expressed. Considering behaviour economics there is a major difference between these two in perseption and capasity to approve the new offering. The dialogue with the customer has been training the customer’s brain to see the problem that would be solved by the solution. Companies regularly address this challenge with practical approach in which the open innovation process mostly concern rather small groups of people. Qualitative interviews and group testing are done along the innovation funnel. In case the innovation funnel and customer dialogue are connected your new offering will be realised as a solution to what customers were asking for. You’ll have orders and positive word of mouth live and online as an outcome. Listening to the customer increases relevancy and turns sales in to service Experience. To fully make most of the idea, company need a third place between company and customer. The hot spot for collaboration. The collaboration ”place” could be composed of on-line service, research, social media, or masscustomization actually operating as customer listening platform.
  8. 8. However, listening is not enough. You need to pay attention. Paying attention equal dialogue resulting learning and trust. Relationship. In case of a single purchase the third place enables customer to get easily exactly what he wants to get. Having fixed products and services result more sacrifices for the customer. It also result situation where some of the people decide to choose totally different solution. Most products are offered to suit the middle part of the bell curve. Designed to the average. Having modular offering which enable solution tailoring for purpose result higher conversion rates in sales and translate as marketshare. Becoming more relevant for the customer also result less discounts. When the customer gets exactly what he’s looking for it doesn’t require us much price motivation. Here’s an example. This customization interface which enable you to choose the most suitable phone, how many talk minutes you want, how many SMS you’d like and what kind of data
  9. 9. package you prefer enable people to learn what 3G package could mean for the person. Once the 3G packages were legalized in Finland, this solution resulted major marketshare. The interface gave continuous feedback and advice for the customer who was looking for a solution. The most important thing was learning and finding exactly what the customer was looking for. Feedback in this case was continuous and real time. In a relationship and upgrade offers or introduction of new services are best enabled with open dialogue. The collaboration within the ”third place” has strategic value for the company. Customer listening programs like MyStarbucks idea or Idea Storm by Dell have the challenge that they primarily collect people’s ideas. Collection of ideas is important, but commercialisation and successfull introduction of new ideas require more than that. The narrow interface in push to pull picture can be turned around by dialogue resulting broad emotional relationship along the relationship dialogue and customer experiences in several channels. Diffusion of the new idea Kirsti Lehmusto, senior marketing advisor at Taivas, who was responsible for spreading Habbo Hotel from Finland to new countries at low cost, defined a method described as ”silent launch”. The adaptation of a new idea can be pictured around communication nodes. In case you launch your idea to ten customers randomly, it’s most likely to result low spread in the social media. By choosing 10 most connected people you can make certain that you idea, in case it is good, becomes known by major share of the network. Silent launch model was actually built on this social mechanism. In order to collect data and turn the idea diffusion in to money and marketshare, you need data about your customers. In many cases just having the message out and approved is a major result. Virtual game worlds
  10. 10. are using this data and collaboration very effectively. Eg. EA Games community is very impressive way of both creating the new game, testing and launching it. They even have valuation/member which states how developers have valued your feedback or advice. Becoming one of the top participants is something young players are prepared to work for. Cost/value in introduction of new The silent launch was originally using social networks and ”social currency” in spreading the idea of new in to the market. However, slightly modified model has proved to be very successful in both B2B and B2C cases. This picture explaing the B2B way compared to traditional launch: The basic idea is to co-operate with influencers prior to finalizing the offering. This collaboration result trust and acceptance by the most influential decision makers. Once the solution is becoming public, the key oppinion leaders are allready supporting the idea. As an outcome the breakeven for the investment comes much faster. Also the launch don’t rely as much on paid advertising but networks and PR. Advertising has major role after the introduction.
  11. 11. Avoiding Utopia In creation of new, it’s good to pay attention to customers oppinions. However, the oppinions might take you to wrong direction if you are not careful. The famous research story tell about a group interview which was about choosing colours for radios prior to launching them to the market. People were supporting yellow and said that was fresh and best coulour of all. After the discussion people were adviced to take one of the radios as a gift for the participation. They all took black radios. The creation of new easily result an Utopia. People would love to get something really special, but in the end they are not willing to pay as much as it would require to make it real or they are not as brave in their own choices as they would like to be. Real choices, real purchase consideration set apart good ideas from bad ones. Creation of a dialogue that has such consideration result much better outcome than oppinions in general. Inside Out Companies have structural challenges in adapting the kind of approach that was explained above. The change is only possible if it’s done gradually inside out. The company must first change their own way of thinking and their way of operating. Once the company feels confident it’s time to connect with the best customers, best suppliers, etc. At the launch of new idea, companies should concentrate on the customers that have best relationship and to whom it’s easiest to create most relevant value ”1”. Once they aprove new idea, it can be spread to target group ”2”. Offering relevance is most imporant and relationship strenghten along the adoptance of new idea. If the product or service has the thing that can make it a major game changer, the relevancy increase first with customers who have better relationship with the brand ”3”.
  12. 12. Sector 4 equal general public. At best, the game changing product or service can be introduced to the general public effectively. Eg. Apple Ipod was first quite expensive design MP3 player which reached the ”1” sector easily. As the technology, design and usability were superior, Apple iPod attracted a lot of new customers who were not formerly Apple customers ”2”. When the price level became acceptable for everybody, the iPod became acceptable to groups ”3” and ”4”. Eventually, iPod changed the game. One of the most fantastic cases of practicing right methods and ideas in vast scale is EA Games. They launch all their products in their user community. Initially the new game is introduced for the most highly ranked members in the community (ranking's made according to relevancy of their feedback by the developers. No money involved, just social currency ), then beta version to the larger community and eventually ready made game. Members can buy the game 24 hours earlier than everybody else. On the way they also engage with gaming magazines and generate awareness of their new game in the community. Eventually, when their new game has strong approval and diffusion in the community they start advertising it. Not all games ever reach that point though that would make it interesting to the general public. You can only expand the whole market in case the game has something special about it that is capable of expanding the userbase. The active community though takes care of support in developing the game by feedback, debugging it and increase the awareness of the new game. The members are so valuable they should show in the balance sheet of EA Games. Considering the company’s valuation that is mostly immaterial, they actually do, in a way. Taivas Group Unioninkatu 13, 00130 Helsinki, Finland +358 9618 420 www.taivas.fi

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