Friday, December 14, 2007

Long-term customer satisfaction surveys would provide valuable feedback

A better approach to understanding the customer experience would be long-term feedback over the life of a product. Initial surveys are only a small part of the picture and are often tainted by excitement or frustration and provide no indication of the product's durability. Why don't we do long-term satisfaction and reliability surveys to help us better understand how to win repeat business?

Come on, man, we live in the now. Why do we care about what people think long-term? Haven't you noticed that we're just focused on hitting our numbers for the quarter, even if that means cannibalizing sales for the quarter to come? Besides, what would happen to our sales numbers if the products we sold last year and the year before lasted forever? Do you really want to be out of a job just because you built a piece of hardware that was less perishable than a banana?

If you're struggling with this, take a look at the automotive industry. When the trade publications are doling out their various "sedan of the year," "truck of the year," "sport utility of the year," (repeated ad nauseum for every conceivable segment and manufacturing origin) awards, they're not thinking about long-term quality. All they're concerned with is placating their advertisers--the manufacturers--by giving them a boost any time they come out with a model redesign.

And don't think the manufacturers don't have this figured out either. Is it any coincidence that there are three big automakers in each region, model updates typically occur every three years, and only updated models are eligible for the awards? The manufacturers cooperate with one another such that each time one of them redesigns a vehicle, they get an award. Anyone who's not part of this elite club has to target their vehicles to a specific segment, such as crunchy urban transplants living off the grid in Oregon (Subaru), or hip new moms who want to appear to be conscious of their child's safety all while hoping that a euro wagon will keep people from noticing that their boobs aren't as perky as they used to be (Volvo).

And of course all of these awards lead consumers to believe that they are getting a quality product, so each year's award winner gets a nice little bump in sales while the others continue selling to their loyal customers and wait for their turn to capture the swing business.

Politics are the same way. If you are firmly entrenched in one party or another, you have probably noticed that during the primaries the ads and stump speeches really jive, but once the general election rolls around, you wonder who on earth the candidates are talking to. That's because in politics and commerce, the assumption is that the core is locked up, so the marginal investment to capture incremental customers or voters needs to focus on the swing.

Back to the original point, we don't waste our time or money with long-term surveys because long-term customers don't use this information to make a decision. They're sticking with us either because they like our quality or because they like something we alone offer and don't care that our quality is lousy. But those swing customers, well, we don't really want them to know what the long-term data says--we just want them to see the fancy ad that was ostensibly placed by an objective third party (but in reality was some outfit who took our money to conduct some surveys so we could win a contest where we were the only entrant).

Thanks for the suggestion!

Monday, December 10, 2007

Continuous cuts should be explained more clearly

I joined the Huge Company as a result of a series of acquisitions. While I realize that cutting costs, usually in the form of people and benefits, is what Wall Street means when they use the word "synergy," it seems incongruous that on one day I can receive a memo celebrating being number one in our industry, and the next day a memo outlining yet another cut in employee pay or benefits, citing "industry benchmarking" as the reason for making the cuts. Did we become industry leaders by hiring mediocre people and expecting them to deliver mediocre results? How can we be expected to aim for the top when our compensation and benefits are constantly being reset to aim for the middle?

This is a great question, and in order to answer it I had to dig through the file of important memos (that are sent to people like me in order to make us feel important even though we had no hand in the decision) until I found the one about our "people strategy."

The Huge Company people strategy is based on the classic three pillar model of retention, development, and rewards & recognition (with a hidden fourth pillar of executive compensation). The details of the strategy are as follows:

1. Retention: our organization has a long track record of retaining employees and valuing contributions from all levels of the organization. Going forward, our strategy will be to gradually eliminate these loyal staff and spread this work across the remaining employees. Preference for elimination will be given to those with the most experience and will be done through layoffs, early retirements, or the cutting of benefits such that "it's no longer worth it to stick around."

Any new hires that cannot be avoided or further delayed will be made in Asia or other low-cost geography, preferably those without labor laws or unions. In order to maximize productivity, domestic employees will start each workday with conference calls to Europe and, after those whose families have not left them put their kids to bed for the night, end each day with conference calls to Asia. Retention will be further enhanced by offering employees working vacations in such world-class resort cities as Singapore, Frankfurt, and Houston. Those who remain will also be encouraged to stick around to reap the benefits of a rising stock price even though stock options have not been granted to non-executives for several years.

2. Development: Employees will be encouraged to broaden their horizons and develop new skills in order to prepare themselves for increased levels of responsibility at the same pay. A rich database of online classes that were last updated before the group tasked with creating said classes was eliminated are available to employees for a nominal fee that can be conveniently deducted from your paycheck. Seminars, university classes, and other external training opportunities are highly encouraged as well. Check with your tax adviser regarding potential tax deductibility of these activities. Employees completing management or other training may have the opportunity to be promoted all the way to middle management. All executive positions will be filled with external candidates.

3. Rewards & Recognition: The company founders had a philosophy of sharing the wealth in good times by rewarding everyone with a share of the company's profits. While this strategy worked well for the first several decades of our existence, the world has changed considerably. The formula of revenue minus cost equal profit has grown significantly more complex, thus necessitating a new breed of senior leader with the advanced analytical skills necessary to complicate this apparently simple arithmetic. While the previous formula, due to legal requirements, will still be used to report our quarterly and annual results, a new formula will be used for calculating bonuses and other rewards to rank and file employees.

This new formula is not disclosed to anyone and is subject to change at any time up to the day on which bonus award notifications are distributed. Rank and file employees will be eligible for a bonus after executive bonus plans are fully funded, and the bonus amount will be between 0.15% and 20% of the percent of salary that executives are awarded as their bonuses. Since executive base salaries are typically between 200% and 1200% of the average salary of their subordinates, this means that actual bonuses paid will be equal to between 0.0125% and 10% of the bonuses paid to executives.

In addition to annual bonuses, managers have a discretionary fund equal to 1% of their payroll that they can use for spot bonuses at any time in order to keep critical but discouraged employees from resigning and to trick young, ambitious types into thinking that someone is watching what they are doing and grooming them for advancement.

Stock awards: see executive compensation.

4. Executive Compensation [CONFIDENTIAL Not to be shared with employees]: Very simply, the formula is this: internal performance will be measured at the executive level by said executive's ability to remove as many people from his organization as possible without outright mutiny from those who remain. Preference is to be given to those with the most seniority and working knowledge of products and processes, followed closely by young, intelligent, ambitious people who, under the appropriate tutelage, could become the leaders of tomorrow in this or any organization but who could also undermine our short-term objectives if their ideas and enthusiasm are not snuffed out. Executives will be rewarded with a bonus that is roughly equal to the combined salaries of all those they eliminated the prior year, minus the cost of rehiring replacements in low-cost geographies.

In addition to these generous bonuses, executives will also receive one stock option for every dollar in average annual salary earned by those employees eliminated during the year. In order to facilitate the exercising of these options, certain executives will be eligible for interest free loans direct from the corporation that do not have to be repaid in the event the executive is fired or otherwise dismissed.

So there you have it--a clear explanation of the people strategy. Granted, this does not get into all the details of the specific cuts you may have been wondering about, but you should be able to read this document and determine which category motivated the particular cut you will be fuming about from the moment you receive it until your next 5:00 a.m. conference call. Thanks for the suggestion!

Saturday, December 8, 2007

Composite material could lighten laptops

I am fond of aircraft technology and recently learned that aircraft now use composite materials that are as durable as metals but much lighter. Since I carry my notebook computer every day, I began thinking that the outer cover could be made from composite materials such as carbon fiber instead of plain plastics in order to reduce weight.

Wow, what a novel idea. In fact, I really hate taking out the trash because the trash cans are so heavy. So while we’re at it, maybe we could make trash cans out of carbon fiber too. Let’s get some engineers on this right away. Why don’t we also call marketing and yell at them for not thinking of this earlier. And then we’ll call our ad agency to see how we can incorporate this into our brand building campaign. What a brilliant notion! And to think, nobody but you has ever thought of this!

Of course, the only problem with the composite trash cans is that unless you also started making my trash out of carbon fiber, the whole package wouldn’t really get much lighter. I bet your laptop would suffer from the same problem—it’s not the plastic that makes it heavy, but the internal parts like hard drives, monitors, DVD readers, and the hardware that holds it together that really add weight. And if you’re anything like me, that bag you carry around for work has papers, pens, and various other items that together weigh many times more than the plastic covering your notebook.

Moreover, your assertion that carbon fiber is much lighter than plastic is actually a bit off, too. It’s not substantially lighter; it’s just a lot stronger. So you need less material to make a part of similar strength. But considering that there’s really not all that much plastic covering your laptop to begin with, using a thinner layer of plastic would save you a few grams at best. And I won’t even get into the challenges regarding directional strength or elasticity of carbon fiber. But maybe, given your passion for this topic, you could take some night classes in materials science and bone up on that for me.

And no discussion of weight, or rather, mass would be complete without a physics lesson from someone who got a D- in that subject in high school and never formally studied it again. Using cycling as a comparison point, most cyclists understand that whether they reduce mass from their bodies or from their bicycles, it is all the same in terms of the effort required to accelerate the mass. That is why most cyclists subsist on diet coke and black coffee (with the Lycra used as a subversive means of shaming them when they stray from this regimen). But I digress.

Anyway, the same concept of accelerating mass holds true in other applications, such as carrying your computer bag up a flight of stairs. Now you and I have never met, and it could be that you’re a lean, fit, endurance athlete-type that weighs in at a buck and a half American. If so, good for you (perhaps you could think of carrying your laptop as training). But if not, then losing mass from your body would yield the same benefit as having a lighter computer and would result in health benefits besides. Having just returned from Texas, where the world’s two largest PC makers are headquartered, I would wager that most of the folks designing these things could shed three or four laptops worth that they don’t need anyway.

Oh, and we didn’t discuss cost yet either. Again, using bicycling as a point of reference, a carbon fiber bicycle frame costs about four times as much as a similar frame made from aircraft-grade aluminum. And remember, the cheap plastic covering your laptop is not aircraft grade aluminum, but cheap plastic. So aluminum is going to be more expensive than plastic by a similar factor, if not more. Perhaps our customers would let us get away with adding half again more to the cost of our notebooks just to save a few grams. Hey, you never know.

Tell you what, why don’t you quit your job and start a composites manufacturer that makes notebook cases. Then, after your idea has been enthusiastically approved by our product teams and executive bean counters, we’ll hire you to build the cases for us. Deal? Thanks for the suggestion!

Friday, December 7, 2007

For-use-only charge extended warranty could be marketing coup

Why not change the paradigm on offering extended warranties?

My suggestion is to have a set price for a three-year warranty and only charge the customer if they use it. I used to purchase extended warranties but never used them. I now say “no, thank you” and hope that the product will be OK. Most of the time it is. But if we had a "pay-when-you-use-it" warranty available, I think this could be a selling point for our customers.

Thanks for the suggestion. You’re absolutely right that a for-use-only charge would be a viable product support model. In fact, we already offer this option—it’s called “paying for the repair.” If you’ve ever taken your car to the mechanic, you’re familiar with this concept. The mechanic looks at your car, tells you what’s wrong, and then fixes the problem. You then pay the mechanic for the repair part plus a little more for his time. Everybody wins—you didn’t waste your money on an extended warranty until you needed it, you paid only what the repair cost, your car now works, and the mechanic got paid for his inputs. It’s a novel concept, I know, and I’m surprised that you didn’t recognize it.

Now I know what you’re thinking—“that’s not really a warranty.” Again, surprise, you’re absolutely right! It’s not a warranty, but then again, neither is an "extended warranty." Extended warranties are really insurance policies that cover the cost of the repair should you need it. But in order for them to be viable to the insurer and to the consumer, they rely on risk pooling. If you don’t know what risk pooling is, then call Keith Crocker. Or get your own MBA. But very basically, it relies on the unknowability of the future and consumers' willingness to pay a little up front to transfer risk.

Your proposal suggests charging for the warranty only when there is no longer risk but just certainty. Now if you think this is a good idea, I recommend conducting the following experiment: let your insurance policy on your vehicle lapse. If you don’t want to wait that long, just write to your insurer and tell them you’d like to cancel your policy because you never use it. Once you receive confirmation that it has been cancelled, jump in your car (be sure to fasten your safety belt!), bring it up to a reasonably high speed, and then crash it into the nearest telephone pole.

Once you get out of the hospital (or if you were able to jump out before impact or by some other means avoid injury do this right away), call your insurance carrier and tell them you would now like to renew your policy since you now--finally!--need it.

Your insurer may in fact be willing to offer you a policy that will cover the repair and any medical or other expenses. Do not however, be surprised if the premium is equal to the cost of the repair and expenses, plus about three times what you were paying in premiums before the experiment. And that, my friend, is roughly what we would have to charge for pay-when-you-need-them extended warranties. In thinking about it, it’s a brilliant concept. If I were in charge of this product, I would hire you to be my first sales agent. Paid on straight commission, of course.

Thanks for the suggestion!