Devangshu Dutta
June 8, 2010
REVIEW: FLIP THE FUNNEL: Joseph Jaffe (John Wiley & Sons)
I’ve read Joseph Jaffe’s book across multiple air journeys, nationally and internationally. I agreed with the principles described and saw parallels with excellent services businesses over the past few years. However, the implications didn’t quite strike me in the gut until I realised – while writing this on board an aircraft – that the journeys I had taken with this book had also been with just one airline.
My loyalty to this airline is not because of the mileage card I hold, although their mileage programme is certainly among the best in the world. It is not because they were the cheapest or the most on-time, though they compete favourably with other comparable airlines.
My loyalty to them is because of what they did during the Mumbai floods in July 2005. Those who remember the chaos, through personal experience or through media, wouldn’t blame airline staff for abandoning their counters, and leaving the airport to try and reach home as early as they could. Certainly most of them must have felt helpless in the face of increasingly desperate passengers who couldn’t expect to depart any time soon. Jet Airways stood out as being the only one in Mumbai’s Terminal 1-B whose team felt responsible enough to stay back at the airport to be available to the passengers. Not only did they ensure that the passengers stuck in the terminal were safe, but that all waiting passengers got three meals a day! Whether or not they were flying with Jet Airways.
Now, in telling you about incident, I have closed the loop and given you a living example of the “flipped funnel” that Jaffe describes in the book.
The normal marketing funnel is described by the process Awareness, Interest, Desire and Action (or “AIDA”) which underlies the spray-and-pray approach of traditional marketing. The result of AIDA is that a lot of customers become aware of a business, brand or product. Some are interested enough to seek out the product. However the number who move on to the next stage of actually expressing desire to buy is lower, and those who actually buy are fewer still, as amply demonstrated by carts being abandoned before actually checking out.
Jaffe points out that the AIDA principle was created in times of abundant growth in the US, but is a suicidal funnel to fall into when resources are scarce. It is lopsided, with more money being spent on customers who will not buy. It is linear and does not capture the complexity of buying behaviour. It is open and incomplete because it only handles potential customers up to the point where they become actual customers, but does nothing with them thereafter. AIDA also inherently assumes customer churn, hence the opening focus on creating awareness among potentially new customers.
The alternative principles Jaffe describes are simple: getting more customers to buy from us and more often (repeat purchases), to spend increasing amounts with us (loyalty), and finally, to recommend us to their friends and associates (referrals). However, to do this requires dramatically different thinking from AIDA spray-and-pray. Jaffe’s alternative model – ADIA (Acknowledgment, Dialogue, Incentivisation and Activation) – focuses on customers more than prospects.
Acknowledging customers itself is such a major stumbling block for so many companies, such as the retailer whose front-line staff would prefer to fold and put away garments than meeting the eyes of the customer who has walked into the store. In some cases it may be about using technology effectively rather than as a barrier. When the taxi company can recognise the number you are calling from and close your order in less than 120 seconds, why does the telephone company that issued that number make you jump through burning hoops for 5-10 minutes before they will allow you to request a duplicate bill?
That acknowledgement should lead to an on-going dialogue, before, through and well after the purchase is done. This would be supported by constant incentives for the customer to buy more from you. It is not about having a loyalty programme, as Jaffe quotes studies that demonstrate that loyalty programmes alone don’t produce loyalty; in fact there are enough businesses that do not run loyalty schemes but have what can only be called fan followings.
The final link in that funnel is building that community of evangelist enthusiasts who will carry your brand message farther and far more effectively than any traditional form of marketing could. Religious organisations have known this for thousands of years – it is high time that businesses and other organisations recognised the power of the community as well.
Jaffe acknowledges that Seth Godin actually came up with the term “flipping the funnel” over 3 years ago, when he released the e-book of that name (available on sethgodin.typepad.com) primarily about using social media effectively. Jaffe, to his credit, has applied the principles more fully across the marketing and customer service process.
Jaffe recently sold his business, crayon, but has kept his title “Chief Interruptor” at the acquiring company. If you want to make your marketing really pay, you’ll find it worthwhile letting “Flip the Funnel” interrupt your normal marketing thought-process.
(This review was written for Businessworld.)
Devangshu Dutta
May 31, 2010
Are you being carried, or are you carrying others?
To know the answer to that question, bear with me while I take you on a short mental journey through the emerging landscape of “ethical business” and to the stories at the end of this piece. (Okay, you can cheat and skip ahead, but I would really prefer you to read through the whole thing.)
For the most part sustainability and responsibility – or “corporate social responsibility” (CSR) to use the proper jargon – is seen as more relevant to the western economies, rather than the emerging economies like China, India and Brazil.
The pressure to do the ‘right thing’ is like a carpenter’s vice, whose one jaw is public opinion and the other is regulation, together squeezing ever tighter on corporate business. Clearly, there is a significant portion of customers in western markets who are vocal in expressing their opinions on business practices that are seen as wrong or unethical. On the other side, judicial implementation of regulations is also extremely stringent.
In fact, in the last 10-15 years CSR and sustainability have become far more important to top management in western economies since the real penalties in terms of negative impact on the brand and financial penalties through regulation and litigation are extremely high. Multi-billion dollar businesses certainly have much at risk, as demonstrated by well-documented PR disasters of large brands and retailers in the last decade or so. The variety of issues they have faced has covered sweatshop factories, child-labour, product safety, food adulteration and many others.
Since the mid-1990s there has been a steady increase in CSR initiatives, or at least an increase in initiatives that are labelled under the CSR umbrella. There is no doubt that there is good intent behind many CSR initiatives.
Some of these are focussed on improving the core business processes and practices of the company, and have measurable improvement goals that also have a positive impact beyond the company itself. These can truly be called socially-responsible corporate initiatives.
However, one can’t help but question many others which are fuzzy in their impact on both within the business and outside. The motivation of this type of initiative seems to be a two-pronged PR effort: firstly to get positive PR for “good work” mostly unrelated to the business and secondly, more importantly, to avoid negative PR for poor or questionable business practices in the company’s mainstream products or services.
Lest I sound too cynical about the corporate efforts, let me say this: there is also lack of clarity and agreement in non-corporate circles about what constitutes “corporate social responsibility” or “responsible business”. The label is relatively new to mainstream management thinking and very mutable. Social responsibility, ethical business, sustainability are all terms that are broad-based, used interchangeably, and are open to interpretation which can change with the context. (I wrote about this in an earlier column “Corporate Responsibility – Beyond Babel” about 18 months ago.)
And that brings me to four separate incidents that happened recently, which are (in hindsight) neatly threaded together with a common thought process. (Thank you for your patience so far!)
The first was a discussion recently initiated by an international organisation about what could motivate Indian brands and retailers to make moves in the area of corporate responsibility, whether regulations needed to be tighter or whether it would be consumer pressure that would bring about a change. The underlying assumption – right or wrong – was that, as corporate entities, Indian retailers and brands were not sufficiently motivated to take significant and visible steps towards making their businesses more sustainable and socially responsible than their current state. The discussion was inconclusive, with many different, all potentially valid, points of view on the subject.
Very soon thereafter, I had the opportunity to participate in a dialogue with Gurcharan Das, the philosopher-author who, in his last corporate role, was Managing Director – Strategic Planning for Procter & Gamble worldwide. The dialogue primarily centred on his latest book: “The Difficulty of Being Good”. There was much debate and discussion on the wider consequence of individual actions and especially of those in positions of authority, highlighting the importance of individual choices.
A few days later, in a totally different context and with an entirely different person, the third incident occurred, when I was told an updated version of an old story to demonstrate the power of “a few good men” (and women). The story was as follows:
“50 people were travelling in a bus. Part-way through the journey, the weather suddenly turned stormy, with massive thunder and lightning bolts cracking all over the place. At times it seemed as if lightning would strike the bus and kill everyone on board. Then, someone proclaimed that there was someone on the bus whose end had come, who the lightning was seeking, and that it would be better for everyone else to get that person off the bus. The driver stopped the bus, and each person was sent off by turn, to go and touch a tree at a distance. 49 people got off the bus and returned unharmed after touching the tree. Then, as the last person got off and walked away from the bus, the bus was struck by a massive bolt of lightning.”
I thought this was a gruesome but effective moral science tale! During the next few hours I went about my activities, but kept mulling over the lesson(s) in that little story.
Then, that very afternoon, I got an email containing the following thought: “…when it looks like the whole place is going to implode – with pollution, disease, and war; famine, fatigue, and fright – there are still those who see the beauty. Who act with kindness. And who live with hope and gratitude. Actually, they carry the entire planet. (Mike Dooley)”
In looking back to the article 18-months ago, I closed the loop: it is the individual manager, who is also a citizen in a community, a consumer, and as a parent a stakeholder in future generations, who has to make the choices. His or her choices – both right and wrong – do have an impact beyond his or her own life and business. The so-called triple bottom line – profit, people (community) and planet (environment) – are irrelevant unless the first question is answered: “what does this mean for me?”
So as we go about our day, launching and growing brands, opening new stores, creating new products, I offer you this thought to reflect upon: are we carrying, or being carried? Is the bus safe because of us, or are we the ones the lightning is seeking?
[Go to the earlier post: “Corporate Responsibility – Beyond Babel“, December 2008]
Devangshu Dutta
May 21, 2010
A lively discussion / debate took place on Retailwire.com about whether retailers were using chargebacks as justifiable penalties for poor performance by vendors or an unjustified means of generating income for the retailers.
The fact is that fees, discounts and chargebacks are becoming more common, and in private conversations – when no retail customer is within earshot – vendors will verify this. Retailers say that such chargebacks are only compensation for vendors not complying with processes that have been clearly laid down and agreed to, since non-compliance creates extra costs for the retailer, or loses the retailer margin.
But is vendor performance really becoming worse with each passing season? Or is it that difficult trading conditions or insufficient skills are making buyers take this easy road to margin?
It’s an open secret that merchandise quality and delays – the two most common causes for chargebacks – are easily overlooked when the market is hot and the product is in demand.
Chargebacks are a dangerous tool in the hands of a lazy, short-term thinking buyer who is incentivised on gross/realised margins from season to season; to him/her they are a quicker way to get to that bonus check for the season. Pragmatic vendors, for the most part, don’t want to antagonise the buyer because that risks not just business with the current retail customer, but any retailer that the buyer moves to in the future.
It’s ironic that vendors are mainly cited as “partners” when it comes to sharing the retailer’s pain. I don’t recall any retailer calling such vendor-partners up to a stage for distributing checks to share extra margin in particularly profitable years. Comments are welcome from anyone who can remember that happening; we’ll all have something inspiring to quote in industry meets, then. (And I’m really hoping some comments quoting such incidents will appear soon!)
The Retailwire discussion on this topic (with comments justifying both sides) is here – “Clothing Vendors Take a Chargeback Hit” – and the original article in Crain’s New York Business is here – “Retailer fee frenzy hits designers“.
Devangshu Dutta
February 28, 2010
Who knew that a mere vegetable – the humble purple, shiny brinjal, eggplant, aubergine – could create such an uproar?
And why retailers and consumer product companies should be concerned about genetically modified (GM) crops is a complicated story with multiple twists and turns across political, economic, social, scientific and philosophical landscapes.
At their basic level, brinjals have so far been possibly equally hated and loved for their flavour and texture across the world. But their newest avatar – Bt Brinjal – is now being viewed on the one hand as an evil alien transplant that will kill everything good and natural, and the first step of capitalist monopolies to dominate food crops in a large and growing market, while on the other hand it is seen as a saviour of the embattled farmer, an eco-friendly alternative to pesticides and a well-thought out scientific solution to agricultural productivity.
Though it might appear that genetically modification is a 20th century invention, the fact is that such food is not new. Since the time we began farming some 10,000 years ago, we have been carrying out genetic screening and selection, and modifying to create plants and animals that suit our purposes. All farmed products are a product of artificial rather than pure natural selection, as humans have pure-bred and cross-bred strains of crops that are seen as more beneficial in terms of nutrition, hardiness and ease of cultivation.
However, there are some important differences between earlier efforts and now, which underlie the recent loud and violent debate. Let me outline the concerns as seen from the anti-GM side of the table.
Previous genetic selections and modifications happened not just over generations of plants, but generations of human beings. By default, this allowed time to try and test different variants and arrive at varieties that met multiple criteria – profitable cultivation, nutrition, taste, durability and safety. There are concerns that not enough is known about the eventual impact of the new GM crops on human and environmental health, and the speed of adoption frightens people. (In 1948 a Swiss chemist was awarded the Nobel Prize for his work on DDT’s effectiveness as a pesticide, just a few short decades before it was banned from widespread agricultural use for – among other things – apparently causing cancer, and being acutely toxic to organisms other than the pests at which it was targeted.)
In the past, if some variety was wiped out due to climatic variation or pests, it was very likely that alternative varieties were close at hand to substitute it. (Estimates about the number of brinjal varieties in India alone vary widely, from 2,000 to over 3,500 though most of them are not actively cultivated in any significant number.) On the other hand the agricultural information and supply chain today is far more integrated, allowing a previously unknown speed and completeness of adoption of new technology and inputs, frequently at the cost of traditional knowledge. Extinction of natural species is not just due to hunting or disasters, whether man-made or natural. If a new engineered variety is profitable in the foreseeable future, farmers would very likely replace other varieties without examining the long-term impact. (This is true also of other inputs, like overuse of heavily promoted synthetic fertilisers or pesticides.)
Previous ‘engineering’ was restricted to pollination, grafting and selection, whereas now we are attempting to manipulate individual genes or sets of genes, and transplanting genes across species (from a bacterium in the case of Bt). This approach is similar to how we look at most things, today – individually, separate from or devoid of the natural context, ignoring any interaction with other elements (other genes, in the case of genetically modified crops). While in some cases there may be no significant impact on the outcome, our knowledge of genetics is far from complete and holistic to be able to confidently make the statement about no long-term harm.
All agriculture in the last 10,000 years was based on the assumption that future generations of the crop could be raised from seed saved from previous generations. Current genetically modified varieties, on the other hand, are seen as corporate intellectual property created with huge investments, where the return of investment is sought from fresh seed being sold by the company to the farmer for each planting. This is one of the most violently opposed aspects of GM crops, not just in developing economies like India but in developed economies such as the US as well.
I believe I’ve listed the major concerns of the anti-GM side of the debate above, with the rider that not everyone on the anti-GM side shares all the concerns equally.
Unfortunately, the debate is neither simple nor clear as emotions and stakes run high on both sides of the debate.
Pro-GM groups and individuals express the view that their opponents are stuck in the past and are standing the way of progress that is urgently needed to solve immediate human problems.
For one, proponents of genetic modification will point out that the humongous increase in human population needs new strains of crops that can grow more with fewer inputs in terms of water, fertilisers and pesticides. Without such crops, we run the risk of widespread food and water shortages around the world. ‘Green’ concerns may also be quoted in favour of GM crops. The argument is that using genetically modified crops would actually do less damage to the environment than conventional crops, for instance by needing lower doses of pesticide, or producing more crop from smaller patches of land.
Another concern quoted by the pro-GM group is that publicly funded organisations do not have the skills, the scale or the funding to undertake massive and rapid research for the breakthrough agricultural solutions needed in the short term, and that fundamental research needs to be carried out by commercial for-profit organisations. Obviously, as an outcome of that, the profit from the intellectual property needs to be protected such that it can provide adequate returns over a period of time.
For now, most governments (including in India) are playing it safe by maintaining the current status, and disallowing the introduction of GM crops, although there are opposing viewpoints even within each government.
As consumers, also, we could take the view, as many consumers are taking, that what exists (or what existed many years ago) is the best and safest option, since it is the most proven. We could give more muscle to producers and sellers of natural, organically grown varieties, by choosing to buy only such merchandise and rejecting GM foods completely.
I wish it was that simple.
I wish we could say that everything artificial is harmful and everything natural is beneficial. I wish we could blithely accepts labels such as ‘Franken-foods’ for genetically modified crops, treating them as a monster creation.
I wish we could say that one side or the other is adopting more robust scientific methods so that we can take clear and well-informed decisions.
As consumers, unfortunately for us, the truth is not so clear. There are pros and cons on both sides, which will get quoted in and out of context, to support different arguments, for and against genetic modifications.
More importantly, both for consumers and the industry, what is not clear is how complete separation of GM and non-GM products can be maintained. Once GM foods enter the supply chain, it is likely that they will mix with non-GM produce, whether at the farm, in storage or in processing. The current compliance standards in the global food sector offer no confidence that the non-GM and GM supply chains can be sealed off from each other and monitored separately, such that retailers and consumers can make their choice with complete confidence that they are buying what it says on the label.
In this case, more time, and a more robust and holistic investigation may be the only solution. The Environment Minister has asked us to ‘watch this space’.
Now what we end up with in terms of individual, social and economic health will depend on what kind of effort and intent goes into that space. Industry, consumers, scientists, farmers, and governments, all have a role to play in shaping that intent. We all choose whether we want the green organic genes – or the other kind, be they blue genes, purple or yellow.
Devangshu Dutta
January 5, 2010
If we were to look at phrases that have cropped up during the recent recessionary times in the consumer goods sector, “private label” has to be among those at the top of the list.
From clothing to cereals, toothpaste to televisions, there is hardly a category that has not seen retailers trying their hand at creating own labelled products.
The first motivation for most retailers to move into private label is margin. On first analysis, it appears that the branded suppliers are making tons of extra money by being out there in front of the consumer with a specific named product. The retailer finds that creating an alternative product under its own label allows it to capture extra gross margin. Typically the product category picked at the earliest stage of private label development would be one for which several generic or commodity suppliers are available.
At this early stage, the retailer is aiming for a relatively predictable, stable-demand and easily available product whose sales would be driven by the footfall that is already attracted into the store. A powerful bait to attract the customer is the visible reduction in price, as compared to a similar branded product. If the product can be compared like-for-like, customers would certainly convert to private label over time.
However, maintaining prices lower than brands can also be counter-productive. In many products, while customers might not be able to discern any qualitative difference, they may suspect that they are not getting a product comparable to one from a national or international brand. And while private label can drive off-take, the price differential can also erode gross margin which was the reason that the retailer may have got into private label in the first place. Over time, such a strategy can prove difficult to sustain, as costs of developing, sourcing and managing private label products move up.
The other strong reason a retailer chooses to have private label is to create a product offering that is differentiated from competitors who also offer brands that are similar or identical to the ones offered by the retailer. Department stores, supermarkets and hypermarkets around the world have all tried this approach – some have been more successful than others. The idea is to provide a customer strong reasons to visit their particular store, rather than any of the comparable competitors.
Of course, when differentiation is the operating factor, the products need more insight and development, and closer handling by the retailer at all stages. A price-driven private label line may be sourced from generic suppliers, but that approach isn’t good enough for a line driven by a differentiation strategy. In this case, costs of product development and management increase for the retailer. However, to compensate, the discount from a comparable national brand is not as high as generic nascent private label. In fact, some retailers have taken their private label to compete head on with national brands – they treat their private labels as respectfully as a national branded supplier would treat its brand.
So what does it take to go from a “copycat” to being a real brand?
Third Eyesight has evolved a Private Label Maturity Model (see the accompanying graphic) that can help retailers think through their approach to private label, whether their product offering is dominated by private label, or whether they have only just begun considering the possibility of including private label in their product range. The model sketches out a maturity path on five parameters that are affected by or influence the strength of a retailer’s private label offering:
In some cases, retailers may have multiple labels, some of which may be quite nascent while others might be highly evolved, clear and comparable to a national brand. This could be by default, because the labels have been launched at different times and have had more or less time to evolve. However, this can also be used as a conscious strategy to target various segments and competitive brands differently, depending on the strength of the competition and their relationship with the consumer.
The interesting thing is that size and scale do not offer any specific advantage to becoming a more sophisticated private label player. Some extremely large retailers continue to follow a discounted-price “me-too” private label strategy where even the packaging and colours of the product are copied from national brands, while much smaller players demonstrate capabilities to understand their specific consumers’ needs to design, source and promote proprietary products that compare with the best brands in the market.
For a moment, let’s also look at private labels from the suppliers’ point of view. As far as we can see, private label seems to be here to stay and grow. Suppliers can treat private labels as a threat, and figure out how to ensure that they retain a certain visibility and relationship with the consumer. On the other hand, interestingly, some suppliers are also looking at private label as an opportunity. They see the growth of private label as inevitable, and would much rather collaborate in the retailer’s private label development efforts. This way they can maintain some kind of influence on the product development, possibly avoid direct head-on conflict with their own star branded products and, if everything else fails, at least grab a share of the market that would have otherwise gone over to generic suppliers.
If you are retailer, I would suggest using the Private Label Maturity Model to clarify where you want to position yourself, and continue to use it as a guide as you develop and deliver your private label offering.
If you are a supplier concerned about private label, my suggestion would be to gauge how developed your customer is and is likely to become, and ensure that you are at least in step, if not a step ahead.
Of course, if you need support, we’ll only be too happy to help! (Contact Third Eyesight to discuss your private label needs.)
