ZOMBIES/PHANTOMS/SHADOWS3 THREATS TO YOUR CUSTOMER EXPERIENCE INITIATIVES

@gdrummond @quarry

GLEN DRUMMONDCHIEF INNOVATION OFFICER

MARKETINGPROFS 2013 B2B AGENCY OF THE YEAR

YOUR CUSTOMER EXPERIENCE INITIATIVE IS IN DANGERIf the quality of your customer experience and the success of your CX initiatives hinge on the quality of your customer insight, then it's critical to ask yourself: How often do we go back and take a fundamental look at the way we've thought about that customer insight and the quality that has gone into the process of defining it?

WE ALL KNOW CUSTOMER EXPERIENCE MATTERS

Many companies have embraced the importance of delivering a better customer experience. In maturing and well-established markets, company success requires a new way of thinking that recognizes that great experiences distinguish great products (and services) and, ultimately, create highly desirable brands.

SO WE’RE ALL TRYING TO UNDERSTAND CUSTOMERS

But, amidst the hectic pace of attending meetings, building metrics, analyzing data and implementing programs, when someone says “the customer,” what is it he or she actually means? How often do we take the time to ask: “How is it that we ‘know’ what we believe we know about our customers?”

As customer experience professionals, we go to notable lengths to get “inside the head” of customers, but we pay dangerously little attention to how our own minds make sense of that knowledge.

AND SO, WHAT COULD POSSIBLY GO WRONG?

“THEORY OF THE BUSINESS”Peter Drucker’s 1994 Harvard Business Review essay diagnoses what can go wrong: the “theory of the business” becomes detached from reality. Cognitive science provides insights on why that happens.

To illustrate what can go wrong, let’s do a thought experiment.

• Take your mind back to the dark ages of Europe, and form a mental picture of a Viking.

Do you have that image?

• Now, holding that image in your mind, consider the question on the next slide.

WOULD YOU ENTRUST THESE KITTENS TO THE CARE OF YOUR VIKING?

We’re guessing you gave an emphatic “No!” But, why is that?

“THE PROTOTYPE EFFECT”

As we think about a category, we experience

some examples as more central, salient and “exemplary” than others.

In the case of the thought experiment, the Viking you likely imagined—a rugged adult male with an apparent proclivity for violence— is a “prototype” of the category Viking. You could have pictured an elderly woman, a pre-teen or a young mother. Instead of a warrior, you might have pictured a dairy farmer, fisherman, weaver or merchant. Each of those would likely be more than suitable for taking care of our kittens.

Yet, you probably didn’t.

“THE PROTOTYPE EFFECT” AFFECTS OUR SENSE OF PROBABILITY.

IT EXERTS A COGNITIVE PRESSURE THAT SHAPES THINKING BEFORE WE KNOW IT IS BEING SHAPED.And, in the case of our theory of the business, it shapes our thinking about “customers”. Why does that matter?

Looking at the infamous case of General Motors (GM) and its fall from global market dominance in the 70’s, Peter Drucker argues that GM’s longstanding consumer segmentation model—based on income—was the culprit. Income was no longer the most strategically relevant way to categorize customers. Drucker proposes that psychographics and lifestyle patterns were the way GM might have anticipated the introduction of the minivan and the compact car—but didn’t.

“REALITY HAS CHANGED, BUT THE THEORY OF THE BUSINESS HAS NOT CHANGED WITH IT.”

PETER DRUCKER THE THEORY OF THE BUSINESS, HBRThrough the lens of cognitive science, GM’s “prototype” customers were not targets for minivans or compact cars when, in fact, real customers responded to these innovations in a significant way.

WHAT SHOULD WE CALL A MENTAL MODEL OF THE CUSTOMER THAT NEITHER CONVEYS NOR ELICITS STRATEGIC CUSTOMER INSIGHT AND YET IS STILL INFLUENCING DECISION-MAKING IN YOUR ORGANIZATION?

WE CALL THAT A ZOMBIE SEGMENT.

THREAT #1 ZOMBIESEGMENT• Cognitive prototypes for

“Customers”• Strategically brain dead• Still shuffling aroundWhen your mental model of the customer is structured by dimensions that are no longer the ones that are most strategically relevant, you have something that is brain dead, but still walking around your office halls. You have zombie segments.

WHERE DO WE INSTINCTIVELY RUN?When we’re faced with the challenge of a segmentation model that has slipped out of touch with reality, where do we go? There is a predictable pattern that emerges that we’ve seen over decades of business experiences.

THE TIDY

REASSURANCE OF NUMBERS

Based on the uncertainty of making sense of our world, we look to numerical information, which presents itself as “objective fact.” But, does having numbers mean that we escape the “theory of the business” problem?

Let’s try another thought experiment. Do you see a white triangle?

If you see a white triangle, that makes you human. The problem is, the white triangle is not really there. It only appears to be.

Why does this happen?

“THE REIFICATION EFFECT”

As we organize experiences into structured wholes, we perceive the whole as more “basic” and “real” than the parts.

It’s easy to demonstrate that the white triangle we see is not there. It’s harder—except through business failure—to demonstrate that customers we see are not there.

IT MAKES US CONFUSE ABSTRACTIONS FOR “REALITY.”

“THE REIFICATION EFFECT” AFFECTS OUR SENSE OF REALITY.

“THE ODDS OF DEVELOPING SUCCESSFUL NEW PRODUCTS BEGIN TO TUMBLE WHEN MANAGERS COLLECTIVELY BEGIN TO ASSUME

THAT THE CUSTOMER’S WORLD IS STRUCTURED IN THE SAME WAY THAT THE DATA ARE AGGREGATED.”

CLAY CHRISTENSENTHE INNOVATOR’S DILEMMA

WHAT SHOULD WE CALL A MENTAL MODEL OF THE CUSTOMER THAT WE’RE AT RISK OF PRODUCING WHEN WE MERELY LOOK AT THE DATA WE’VE GOT AND INFER THE ROOT CAUSE OF CUSTOMER BEHAVIOR?

WE CALL THAT A PHANTOM SEGMENT.

THREAT #2 PHANTOMSEGMENT

• Market segments defined along the lines for which data happen to be available

• A numerical commonality mistaken for a real strategic insight

• You see them, but they are not really there

When coincidence is confused with causality—when a pattern perceived is mistaken for an external reality—you have phantom segments.

“AGREEMENT”AND “ACQUIESCENCE” ARE EASILY CONFUSED.Phantoms are a particular problem in segmentation models based on “loyalty.”

Think about your own experiences; have you ever been thanked on the phone for being a loyal customer and thought to yourself: “No, really, I’m not loyal at all. I just look that way to your computer.”? In those cases, those companies have a reified image of you as a “loyal” customer.

WHAT ELSE AREN’T WE SEEING?When our models of “the Customer” are formalized in customer segmentation models, it is wise for us to ask: “Are we missing anyone that might be strategically relevant?”

“INATTENTIONAL BLINDNESS”

The failure to see something obvious while focusing on something else.

If we can miss a moonwalking bear that’s right in front of our eyes, what are the odds we are certain to spot emerging customer needs and trends?

IT MAKES US NEGLECT PEOPLE WHO HOLD CLUES ABOUT TRENDS THAT SHAPE OUR FORTUNES, FOR BETTER OR WORSE.

“INATTENTIONAL BLINDNESS” AFFECTSTHE SCOPE OF OUR CURIOSITY.

The way we categorize customers plays a big role here; it can lead us to fall prey to inattentional blindness.

For example, if we categorize customers according to a demographic dimension such as income, it’s possible, even likely, that no representative member of the set will point us towards the group of people united by a strategically relevant attitude or problem they are trying to solve.

USUALLY THEY SHOW UP FIRST AMONG ONE’S NON-CUSTOMERS.”

“THE FIRST SIGNS OF FUNDAMENTAL CHANGE RARELY APPEAR AMONG ONE’S CUSTOMERS.

PETER DRUCKERTHE THEORY OF THE BUSINESS, HBR

“Customer” segmentation can be accidentally prophetic. We design for people we see in the model. As a result, people we can’t see in the model have fewer reasons to become our customers.

WHAT SHOULD WE CALL A POTENTIALLY VIABLE SEGMENT THAT HAS A STRATEGICALLY ACTIONABLE COMMONALITY, BUT IS OBSCURED BY OUR CURRENT VIEW OF “THE CUSTOMER”?

WE CALL THAT A SHADOW SEGMENT.

THREAT #3 SHADOWSEGMENT• Real people, with a strategically actionable

commonality

• Obscured by the existing segmentation perspective

• Hiding in plain sight

• A haven for disruptorsWhen your system of categorizing people obscures a strategically relevant commonality in your marketplace, you have shadow segments—and a likely haven for competitors and disruptive threats.

PRECISELY BECAUSE THESE FIRMS LISTENED TO THEIR CUSTOMERS... THEY LOST THEIR POSITIONS OF LEADERSHIP.”

“GOOD MANAGEMENT WAS THE MOST POWERFUL REASON THEY FAILED TO STAY ATOP THEIR INDUSTRIES.

CLAY CHRISTENSENTHE INNOVATOR’S DILEMMA

AVOIDING THE APOCALYPSEThe situation may look dark, but it’s not hopeless...

TIP #1:SHIFT SETTINGS FROM AUTOMATIC TO MANUAL

If the problems in the theory of the business—those we’ve personified here as zombies, phantoms and shadows—originate in the mind, then the answer is to become deliberate and methodical about how we form our perspective. Mistrust automatic point and shoot “common sense.” Slow down and put thinking about customers on “manual” settings.

TIP #2: FOLLOW A PURPOSE-BUILT PROCESS

• Frame the research problem carefully

• Meet members of the study population in their environment

• Study the problem-space, not the market-space

• Look for “tensions in motivation”

• Don’t stop when the research is finished

MYSTERY

DATA KNOWLEDGE

INSIGHT

INNOVATION

TIP #3:PERSONIFY YOUR INSIGHTSAs we work under the nearly constant cognitive pressure exerted by zombies, phantoms and shadows, the personification of strategic segmentation insight exerts a countervailing cognitive pressure that holds these threats at bay. Richly crafted personas, based on an understanding of target customers’ motivations, goals and behaviors, diminish the power of these threats over our imagination as we craft strategies and engagement plans, and produce creative and tactical executions.

TO WARD OFF THESE THREATS, DOWNLOAD THE FULL ARTICLE AT QUARRY.COM/3THREATS

GLEN DRUMMONDCHIEF INNOVATION OFFICER, QUARRY

gdrummond@quarry.com @gdrummond @quarry