Blinded By Certainty

In reality, very little in our lives is absolutely certain. We can be certain the sun will rise in the east and set in the west. We can be certain death will follow life. And we can be pretty darn certain Steve Jobs will wear a black turtleneck and jeans at his next public appearance.

But we’re certain about a lot more things than we should be.

A recent University of Michigan study by Brendan Nylan and Jason Reifler shows that the more certain we are about particular ideas or situations the more we become blind to facts that discredit our certainty. In fact, in many cases opposing facts are not just ignored but actually strengthen our prior beliefs.  A recent Boston Globe article provides an excellent summary of the research.

From the article:

Most of us like to believe that our opinions have been formed over time by careful, rational consideration of facts and ideas, and that the decisions based on those opinions, therefore, have the ring of soundness and intelligence. In reality, we often base our opinions on our beliefs, which can have an uneasy relationship with facts. And rather than facts driving beliefs, our beliefs can dictate the facts we chose to accept. They can cause us to twist facts so they fit better with our preconceived notions. Worst of all, they can lead us to uncritically accept bad information just because it reinforces our beliefs. This reinforcement makes us more confident we’re right, and even less likely to listen to any new information.

Both the research and the article focus primarily on our political viewpoints, but while reading I couldn’t help but think of people I’ve come across in the business world who were unbelievably certain about their viewpoints based on information or experiences that seemed less than obvious to me. I immediately thought of dozens of people, and I bet you’re thinking of many such people now.

In fact, it was so easy for me to think of other people that fit the bill that I couldn’t help but think the man in the mirror was not immune to this universal human fallacy.

In my experience in the business world, we often assume with undue certainty that past experiences will reflect future possibilities. We say things like, “We tried that before and it didn’t work” or “I know what our customers want.” While our past experiences are extremely valuable and are very important for informing future decisions, we simply don’t have enough of them to blindly ignore changes in circumstances, timing and other variables that could significantly alter results for a new effort.

So how do we overcome our natural instincts in order to make better business decisions?

1. Be aware of the problems with certainty
   You’ve read this far, so maybe you’re awareness is already active. I know that I am reassessing all the things I “know” to try to truly separate what is fact and what is assumption. I very much value all my experience, and I know I make better decisions because of what I’ve seen and heard along the way. But I want to make doubly sure that assumptions I make based on past experiences are tested and validated before I turn them into absolute fact.
2. Actively seek alternate points-of-view
   In my experience, the combination of multiple experiences provides a much more solid foundation for decision making than basing decisions on singular past experiences. Techniques I’ve used, like The Monkey Cage Sessions, are based on the incorporating viewpoints from people in different functional areas and levels of the organization. While it’s acceptable to discount data or opinions that are in opposition to a decision I might make, I want to be sure I’m not simply rationalizing opposing information or viewpoints solely because they are different from my biases.
3. Envision alternate scenarios
   I addressed this some in a previous post, “Obscure and pregnant with conflicting meanings”, where I discussed a technique I called “Scenario Imagination.” I’ve since read an excellent interview with Daniel Kahneman and Gary Klein where they detail a similar and better technique they call “pre-mortem” (which is also a better name than mine). Whenever we make decisions, we have a tendency to assume our decisions are going to produce the best possible results. These pre-mortem techniques have us imagine worst case scenarios to try to dissect potential problems before they occur.
4. Be flexible and plan for contingencies
   Once we admit we’re not 100% certain, we can move forward with plans that are flexible and able to react to changing conditions. To be clear, I’m not saying we should just be wishy-washy and not make clear decisions. What I’m saying is that we should be open to new facts and be sure we have created an environment that allows us to change course when warranted.

If we’re aware of our certainty biases and take active steps to address them, I believe we can significantly improve our decision-making in our businesses.

What do you think? Upon self-examination, have you turned beliefs into facts in your mind? How would you suggest addressing these biases? Or, do you think is all a load of hooey?

Don’t let your brand go LeBron

In case you missed it, last week NBA superstar and Cleveland-area native LeBron James elected to leave the Cleveland Cavaliers in favor of the Miami Heat. He announced his decision midway through an hour long, nationally televised special conceived by his team of personal advisers. It all came across as incredibly self-absorbed and spectacularly anti-fan as he essentially broke up with Cavaliers fans in front of a national audience. He repeatedly referred to his decision as being about “business” and hoped his fans would understand.

But they didn’t understand.

When shown an image of fans burning his jersey, James seemed temporarily startled before stating that he couldn’t “get involved in that.” His Sports Q rating, which determines an athlete’s popularity and advertisers use to determine whom to endorse , was the highest in the NBA pre-announcement, but it’s sure to take a hit now. In fact, this post calculates a drop in Q score could cost him as much as $150 million.

But what does this all have to do with retail?

I think there’s a lesson we can all learn about dangers of making business decisions without fully considering the effects of those decisions on our customers. After all, our businesses wouldn’t exist without our customers, and we continue operations at their pleasure.

We’ve probably all been in those meetings where a suggestion motivated by self-interest groupthinks its way into a spectacularly anti-customer business decision. I imagine that’s the type of meeting that occurred with LeBron and team when they hatched the national TV special idea.

A retailer colleague of mine recently told me a story of such a session at his company. The head of the call center was complaining about volume spikes that kept hitting the call center. Her call center operations were deemed a cost center, so the metrics she used to measure her operation were all cost related. These spikes in volume were jacking up her costs, and she was making a lot of noise about it. My colleague noted the spikes in volume were following promotional email blasts that were widely considered very popular because they drove a lot of sales. No one would even consider stopping those emails, so the group began to latch on to the idea that they simply close the call center on days when the promotional email went out. Seriously. Luckily, my colleague was able to pull the group back from the brink and save them from going LeBron. But it was close.

We have to be careful that we don’t get so caught up in our own perspectives that we lose sight of our customers’ perspectives. Because we have direct control over the experience we provide, it’s sometimes easy to let that control be dominated by our own needs without considering the needs of our customers. When that happens, we’re seriously in danger of going LeBron.

Consider a few potential scenarios:

Does your company’s loyalty program makes its rewards intentionally difficult to redeem in order to reduce costs? If so, you might be going LeBron.

If your return policies make your job easier while making your customers’ returns a lot more difficult, you might be going LeBron.

If you promote a sale of up to 70% discounts and bury only an item or two at 70% off within a sea of items that are less than 20% off, you might be going LeBron.

If you choose to leave in place an onerous process for customers to check the status of their orders because it saves you time and money, you might be going LeBron.

Whenever our needs get way out of line with our customers’ needs, we’ve got a business problem that could be deadly. We provide products, services and conveniences that our customers value enough to give us their hard earned cash in exchange. But the relationships we have with most of our customers are somewhat fragile. When we make business decisions that are primarily motivated by our own self interests (especially those motivated by some subsection of our businesses and driven by short sighted personal motivation), we risk potentially fatal damage to many of those relationships. We don’t want be caught startled that our customers are burning our jerseys. We don’t want to go LeBron.

Instead, we can best succeed by regularly considering our customers’ needs and desires when making business decisions. Such consideration will help us maximize the customer engagement cycle and lead us to solid and profitable growth.

What do you think? What examples have you seen of companies going LeBron?

The Monkey Cage Sessions

I’ve seen a lot of strategies and “solutions” fail over the years primarily because the solution was crafted before the problem addressed was thoroughly understood.

Many times, the strategy or solution was the result of a brainstorming session filled with type A personalities (me included) ready to make things happen.

You may be familiar with the type of session I’m referencing. Usually, there’s a guru consultant leading the charge. He separates the group into teams and gives them Post-It notes and colored sticker dots. “Write down as many ideas as you can in the next 20 minutes. Don’t think too much. Be creative! No idea is dumb. Stick your ideas on the wall. Now go!” After 20 minutes, a leader from each group presents their best ideas to the rest of the room. Then each person in the room is allowed to vote for maybe six of his or her favorite ideas using the colored sticker dots. A few people are assigned the winning ideas and off we go.

Those types of session frustrate me. I’m concerned there’s too much action, too many unspoken assumptions, and not nearly enough serious thinking.

Over the years, I’ve developed a problem solving technique that I’ve found to work a lot better. I call it the Monkey Cage Sessions. The technique is all about thoroughly identifying the problems from all angles before developing carefully considered, thoughtful and collaborative solutions.

It’s got an intentionally silly name because the process should be fun.

Here’s how it works:

Step 1 – Define the problems.

We start by gathering a group of cross-functional people – ideally from different levels of the organization – together in a room to talk about the problem or problems we’re trying to solve. This could be as simple as enhancing a Careers page on the corporate website or as complicated as building a complete company strategic plan. It’s important to define the general scope of the problem, but it should be defined fairly loosely so as not to stifle the discussion.

The rules of the meeting are fairly simple. We only discuss problems. No solutions. This is a license to bitch. Let it be cathartic.

I usually stand at the whiteboard, marker in hand, and write down everything everyone says. There is no need to be overly structured here, and anything anyone says is legitimate. We throw it all at the wall and we’ll sort it out later.

Sometimes people want to debate whether or not something another person says is really a problem. If someone said it, it’s at least a perceived problem. It’s legitimate. Also, there is often an attempt to offer an explanation for why a problem exists. The explanation is covering for another problem, so that problem should be written down.

People are always tempted to offer solutions, even when they think they’re offering problems. For example, someone might say it’s a problem that we don’t have a content management system. Actually, a content management system might be the solution to a problem. What problem might a content management system solve? Beware of any problem statement that starts with “We need…” and be prepared to break down that need into the problems needing the solution.

Sometimes the problems offered up are very broad and vague. In those cases, it’s important to work with the group to dissect that broad problem into its component parts.

This first session generally uncovers a LOT of problems, but the problem is still usually not completely identified yet. Which leads to…

Step 2 – Categorize the problems

While the chaotic approach of the first session works well to get an initial set of problem descriptions, it’s important to create some order in order to prepare for the problem solving stage. So Step 2 involves writing down all of the problems and sorting them into logical categories. I don’t have any pre-determined set of categories. Instead, I prefer to the let the problems listed dictate the categorization.

Step 3 – Widen the circle

We probably have a pretty good description of the problems now, but we’ve also still likely missed some. For Step 3 we send the typed and categorized list of problems to the original group as well as a widened circle of people. The original group will likely have thought of a couple more issues since the day of the meeting, and the new group of people will almost definitely add new problems to the list. Since this is the final stage of problem description, we want to give this step at least a few days to allow the team to think this through as completely as possible.

Step 4 – Develop the solutions

Finally, we can start solving the problems. Woo hoo!

Now it’s time to gather a subset of the original meeting to start working towards solutions. There should be at least a few days between Step 3 and Step 4. We want to give people some time to think over the full problem set. The group should enter the Step 4 meeting with at least some basic solution ideas. There is no need to come into the room with comprehensive solutions that solve every problem on the list, but the solutions considered should certainly attempt to solve as many problems as possible (without causing too many new problems).

I usually find that by this point many of the solutions are fairly obvious. But there should be good discussion about the relative merits of each suggested solution, and the solutions should be measured up against the problem list to determine how comprehensive they are.

I like to end the meeting by assigning people to lead each of the proposed solutions. Obviously, any suggested solution from this session will need to be fleshed out in a lot more detail, and the leader from this meeting is responsible for determining the viability and solution and then potentially leading the development and ultimate execution to completion.

Subsequent progress is then handled via a separate execution process.

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I’ve had very good luck over the years using this technique. Some of the primary benefits I’ve found are:

1. Better understanding of the problems
   As the initial meeting wraps up, most people are inevitably feeling enlightened about the problem. They’ve outwardly expressed their own assumptions (which sometimes even they didn’t know they were making) and they’ve understood the perspectives and assumptions of others. They’ve seen the problem in an entirely new light.
2. More comprehensive solutions
   The heightened understanding of the problem and the critically important time between steps to allow the team to be more thoughtful in their ideas. Those ideas are usually pretty all-encompassing solutions to start with, but the discussions in Step 4 lead the team to collectively choose the best of the best of the solutions offered.
3. Better execution
   Solutions are nothing but fancy ideas until their executed. And poor execution can cause even the best ideas to fail. The process of fully defining the problems and sharing that work with wide circles of people is an incredibly important stage that sets the foundation for success in execution. When the execution team provides input in the process and understands the basis for the solution, they are far more supportive in the effort. They are also far more prepared to make the daily, detailed decisions that are often the difference between success and failure.

So, that’s the Monkey Cage Sessions. I hope you find it helpful. If you try implementing the process in your business, I’d love to hear how it goes.

What do you think? Would this process work in your organization? Have you ever used a similar process?

“We tried that before and it didn’t work”

“We tried that before and it didn’t work.”

Man, I’ve heard that phrase a lot in my life. And truth be told, I’ve spoken it more than I care to admit.

But when something fails once in the past (or even more than once) should it be doomed forever?

I was lucky enough to hear futurist Bob Johansen speak last week at Resource Interactive’s excellent iCitizen conference, and he said something that really stuck with me:

“Almost nothing that happens in the future is new; it’s almost always something that has been tried and failed in the past.”

It’s so true. Think about Apple’s recent successes. MP3 players floundered before the iPod came along. Smartphones existed in limited fashion before the iPhone changed the landscape. And tablet computers had been an unrealized dream for quite some time. In discussing the tablet computer in 2001, Bill Gates famously said that “within five years I predict it will be the most popular form of PC sold in America.” When that didn’t happen, it wasn’t hard to find people predicting the tablet’s failure: “The Tablet? It isn’t RIP. But it’s certainly never going to be the noise Bill Gates thought.” But then along came the iPad and its million units sold in the first month alone. And don’t get me started on e-books, which many loudly proclaimed were bound to fail. Jeff Bezos begs to differ.

We humans have this tendency to throw the baby out with the bathwater when something fails.

But the reality is that the success of any new idea — be it a product, a promotional idea, a merchandising technique, a sales tactic or website functionality –  is dependent on many different variables. Execution matters a lot. But we’re also dependent on many other situational contexts in the idea’s ecosystem, like timing, audience/customers, design, the economy, and the general randomness of life. Even slight tweaks to any of those variables can be the difference between success and failure.

In the others words, we shouldn’t automatically assume a past failure of an idea means the idea was bad. To be clear, I’m not suggesting there aren’t bad ideas that deserve to remain in the trash heap. However, we should at least break down the failure of an idea that we must have considered worthy at one point. (Why else would we have tried it in the first place?) What went wrong and what went right? Was it the execution? The positioning? The audience? Did we even have enough data points in our measurement that our findings of failure are statistically significant? Did it really fail?

Once we’ve broken the failure of the idea down into its component parts, we’ll have a better sense of whether or not the idea itself was at fault. We’ll have a much better understanding of the problems we would face if we tried it again, and that better understanding will give us a better platform from which to base our next attempt if we so desire.  We’ve all heard the stories of Thomas Edison’s thousands of failures before he finally got the incandescent light bulb right. Would we all be in the dark today if he gave up?

What do you think? Have you good ideas junked because of past failures? Was it the idea or something else?

Bought Loyalty vs. Earned Loyalty

Acquiring new customers is hard work, but turning them into loyal customers is even harder. The acquisition efforts can usually come almost solely from the Marketing department, but customer retention takes a village. And all those villagers have to march to the beat of a strategy that effectively balances the concepts of bought loyalty and earned loyalty.

I first heard the concepts of bought and earned loyalty many years ago in a speech given by ForeSee Results CEO Larry Freed, and those concepts stuck with me.  They’re not mutually exclusive. In the most effective retention strategies I’ve seen, bought loyalty is a subset of a larger earned loyalty strategy.

So let’s break each down a bit and discuss how they work together.

Bought loyalty basically comes in the form of promotional discounts. We temporarily reduce prices in the form of sales or coupons in order to induce customers to shop with us right away.

Bought loyalty has lots of positives. It’s generally very effective at increasing top line sales immediately (especially in down economies), and customers love a good deal. It’s also pretty easy to measure the improvement in sales during a short promotional period, and sales growth feels good. Really good.

And those good feelings are mighty addictive.

But as with most addictions, the negative effects tend to sneak up on us and punch us in the face. The 10% quarterly offers become 15% monthly offers and then 20% weekly offers as customers wait for better and better deals before they shop. Top line sales continue to grow only at the cost of steadily reduced margins. Breaking the habit comes with a lot of pain as customers trained to wait for discounts simply stop shopping. Bought loyalty, by itself,  is fickle.

But it doesn’t have to go down that way.

We can avoid a bought loyalty slippery slope when we incorporate bought loyalty tactics as part of a larger earned loyalty strategy.

We earn our customers’ loyalty when we meet not only their wants but their needs. After all, retail is a service business. We have to learn a lot about our customers to know what those wants and needs are so that we align our offerings to meet those wants and needs. Which, of course, is easy to say and much more difficult to do. But do it we must.

To earn loyalty, we have to provide great service and convenience for our customers. But we have to know how our customers define “great service” and “convenience” and ensure we’re delivering to those definitions. Earning loyalty means offering relevant assortments and personalized messaging, but it’s only by truly understanding our customers that we can know what “relevant” and “personalized” mean to them. And a little bit of bought loyalty through truly valuable promotions can provide an occasional kick start, but we have to know what “valuable promotion” means to our customers.

We earn loyalty when the experience we provide our customers meets or even exceeds their expectations. As such, our earned loyalty retention strategies have to start before we’ve even acquired the customer. If we over-promise and under-deliver, we significantly reduce our ability to retain customers, much less move them through the Customer Engagement Cycle we’ve discussed here previously.

But earned loyalty can’t just be the outcome of a marketing campaign. It’s much bigger than that, and it doesn’t happen without the participation of the entire organization. Clearly, front line staff in stores, call center agents and those who create the online customer experience have to be on board. But so too do corporate staff, including merchants for assortment and marketers for messaging. And financial models for earned loyalty strategies inevitably look different than those built solely for bought loyalty.

Since customer expectations are in constant flux, we have to constantly measure how well we’re doing in their eyes. Those measures must be Key Performance Indicators held in as high a regard as revenue, margins, average order size and conversion rates. (Shameless plug: the best way I know to measure customer experience and satisfaction is the ACSI methodology provided by ForeSee Results). Our customers’ perceptions of our business are reality, and measuring and monitoring those perceptions to determine what’s working and what’s not is the best way to determining a path towards earning loyalty.

Earning loyalty requires clear vision, careful planning, a little bought loyalty, lots and lots of communication (both internally and externally), and some degree of patience to wait for its value to take hold. But when the full power of an earned loyalty Customer Engagement Cycle kicks in, its effects can be mighty. The costs of acquiring and retaining customers drop while sales and margins rise. That’s a nice equation.

What do you think? Have you seen effective retention strategies that build on both bought and earned loyalty? Or do you think is all just a crock?