Families and people vs institutions

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I had an experience today of visiting Bamburgh Castle. It is a historic castle on the Northumberland Coast. Quite spectacular and is like many tourist sites on a sunny half-term holiday. Lots of people having a lovely day out. But what was remarkable was something about the way it was run and how that affected the experience.

It is not run by the National Trust or English Heritage which are large bureaucratic institutions that have an agenda they like to impose on visitors. It is run by a private family who owns the property.

This had such an impact on the experience. All the staff were really friendly and enthusiastic about welcoming visitors. There is no need to book in advance they welcome as many people as the site can hold with Covid restrictions. As a result they were busy but not unduly crowded. I am sure they are more financially successful than English heritage or National Trust or Historic Royal Palaces. But everyone who came joined in and had a nice time. And all respected the need to social distance and queue up where needed to see something.

Also, the exhibits and notices were not lecturing or making a point. They just described what we could see and illustrated the historical context. I felt like I had an insight into the family, their artefacts and the history of the building. No woke, no worthy education. Just for fun and interest.

I wish more places could be run by families and not by institutions.

2020. A year that changed us or a year that revealed our true selves?

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It is New Year’s Eve as I write this and there is no party this evening, so I started reflecting on the year before I move on to plan for 2021. A few thoughts came to mind

Time to move on

2020 was the year I resolved to move on from my strong preference for Britain to remain in the EU. The 2019 election and Withdrawal Agreement really decided it. The recent Brexit trade deal concluded it. One of my big reasons for Remain was that the disruption was not worth an uncertain benefit and certainly not for a future that might be worse. But now we have done it. We must make it work. The EU will move on without us and probably in a direction we would find difficult. There are opportunities and the disruption of trying to reverse the process could destroy the country.

Never ever give up

Now might seem to run counter to what I just said about Remain. However, the inspiration for this comes from my work with Anna Maxwell and the new pharmaceutical company www.maxwellia.com. Anna and the team have had countless challenges thrown at them by potential investors, the potential for lack of funds, the regulator, potential competitors, yet Maxwellia has ended the year in a much stronger position and poised for a groundbreaking new product launch in women’s health. Most people would have given up. Not Anna. Congratulations. The investors and the team believe in Maxwellia because of this determination.

With reference to my points about Remain, I am not giving up, I am moving on to what is best for the time being.

Is there a new normal?

In many ways there clearly is a new normal, we are wearing masks, we have been conditioned to avoid close physical contact, we have had to get used to much less social contact (absolutely none on New Years Eve!). But has this changed us as people. Has it changed what drives us? Many say things will never be the same again. I am not so sure about that. What we have seen through the pandemic and Brexit that the products, services and ideas that flourish are those that solve a problem for people. This is Attractive Thinking and this is how it works. Read about it in my book click here

My own self catering business flourished once the restrictions were removed. People had been cooped up and they were desparate to get away from their four walls and go somewhere else. We had a product that solved that problem. Look around you at the businesses that are doing well. They have understood what their customers’ problem is and they found a new way to solve it. In our case, it was offering flexible cancellation policies that did it.

Speak out for what you think and believe

Not getting out as much has given time for some other things and I found the confidence to say things as I believe them to be. This is nerve-wracking since people may not agree with or may not like it. But I have been astonished at how many people do want to listen and do support things as well as disagree sometimes. I stuck my neck out at Kingston Rowing Club on safety matters. They retaliated and made me safety advisor. Which has been challenging fun and frustrating. But speaking out has made it easier for people to follow, to debate, to challenge, to comply and support the club. I also launched a new Podcast on risk management called Safety is Freedom. Safety is Freedom defines an attitude and an approach to risk management. The podcast explores the subject of risk management and decision making through the experiences of successful people in adventure sports, business, finance, medicine, healthcare, military, aviation etc. Safety and Freedom are mostly seen as opposites, but is that right? Find the podcast click here

Ironically I have not done much posting on this blog, but maybe I can change that for 2021

Now I am going back to the first thought. Time to Move on. 2021 beckons. I might hazard a few predictions in the next post.

Happy New Year

A rallying cry for marketers to get back to the basics of why people buy stuff

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I will be speaking at Impact 2020. The Market Research Society annual conference together with David Penn and Danny Russell. #mrslive #mrx

Here is the headline for the session

Bonfire of the Vanities: Time to Consign Behavioural Economics to the Flames?

Does BE tell us anything about making brands more attractive, resilient and sustainable over time? Or is it just a ‘box of tricks’ for short-term kicks? Join David and Chris to explore its limits in research.

The programme is available here

I will be using some themes from my recent book Attractive Thinking and this blog introduces the subject and explains that Attractive Thinking is a rallying cry for marketers to get back to the basics of why people buy stuff. #mrslive #mrx #attractivethinking

Attractive Thinking is a rallying cry for marketers to get back to the basics of why people buy stuff. People only buy things when it solves a problem or a need that they have. People do not buy brands because they like them or because of a brilliant marketing campaign. They buy things because it will help them in some way, solve a problem and address a need. Usually, this is both emotional and functional.

The central premise underlying Attractive Thinking is that the purpose of a business is to solve a problem and address a need for their customers in a way that will make a profit for the business while providing them with great products. This is what enables a brand and business to thrive.

The evidence for this comes from the work of Ehrenberg, Sharp, Field and Binet (amongst others). Ehrenberg showed that it is market penetration that matters not customer loyalty, attracting more customers is what drives growth, not trying to hang to the ones we have through incentives. Sharp showed us that the marketers’ job is to get their brand noticed and remembered. Marketers must make their brands iconic, memorable and recognisable. Customers have a weak and transient relationship with most brands. they like the brand for as long as they need it and if they notice it and understand how it helps them. It is a bit like our relationship with our friends. the ones we see and spend time and are rewarding are the ones we like the most. Field and Binet showed us that the most effective way to spend marketing money is to split the investment between brand building (creating an emotional connection) and brand activation (stimulating people to buy). All these observations are related to each other.

When we understand this we know the marketers’ job is to create something that solves a problem for people, then make sure they know about it and make it recognisable and easy to buy

Behavioural Economics has a role to play in doing this more effectively in that it offers to tools to deliver some of the tasks mentioned above. But it is a tool to help with these tasks it is not a set of marketing tricks that can help us create growth from nowhere. If we can use it to get noticed, to be remembered, to help people understand what we offer, to reach more customers, then it can add value. But if we try to manipulate people to be loyal to buy things they don’t need, then we are spending money inefficiently.

The answer is to recognise the drivers of successful businesses. They all have the following things in place

  1. A value proposition for their customers that is relevant and distinctive
  2. The communicate this with sufficient power
  3. They make sure they deliver it every time and every day
  4. The business has basic economics that work

The method to achieve this is to keep coming back to five fundamental questions that drive brand strategy. If we have good answers to these then we will get growth. When we are struggling it because we are not addressing one or more of these questions properly.

  • Who are our customers and what is their problem?
  • How can we solve the problem and stand out?
  • How do we create a product or service that delivers this?
  • How do people find out about it and where do they buy it?
  • How do we engage our shareholders, colleagues and customers in these tasks?

Looking forward to a lively debate with the audience.

Marketers must learn how to talk about the brand to their colleagues

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Pepsi, Coca Cola, marketers, marketing, drinks cans

Marketers have long argued that their voice should be heard in the boardroom and the CMO should be seated on the board to champion the cause of the customer throughout the business. This is the right thought. But then a senior Pepsi marketing executive goes on the stage at a swanky event in Cannes and says this about their customers

“They have this mindset of somebody who likes to live out loud – they’re more likely to clap at the end of a movie, cheer out loud at a sporting event,” he explains. “We’ve gotten very deep with understanding our consumer, which has been one of the big unlocks of really being consumer-first and consumer grounded in everything we do. “We want to really celebrate them and help them live their lives more unapologetically and feel these moments of unapologetic enjoyment with them.”
Source: The Drum 19th June 2019

This is precisely this kind of deep consumer nonsense that damages the credibility of marketers and it is why we are often not heard properly. The statement is at its best hard to understand and sounds totally detached from reality and especially when it is made at a fancy event in Cannes.

I used to work at Pepsi in the 1980’s and 1990’s we knew that the drivers of brand growth were easy to understand and hard to execute

  • Product and package innovation to make the product more relevant to peoples needs
  • Distribution and visibility at the point of sale to ensure people could buy it
  • Share of Voice in media to keep the brand in people’s minds
  • Brand icons that people would recognise
  • Sponsor pop stars to get attention and memorability
  • Run the Pepsi Challenge to position the product as a challenger and get trial
  • Instore pricing and promotion to get attention
  • Recognise that 70% of our customers also drank Coke and work out how to get their attention more often

If we talked about these things to the business team, everyone understood and agreed they were priorities. They sound business-like. The whole team worked their socks off to make it happen and market share almost doubled in 4 years as a result of their work.

Later in my career at our consultancy SYNESIS, we did research into how marketers could gain influence around the business. We found that the most effective marketers did three things.

  • Spent more time with the business understanding what the business can achieve, listening and selling their ideas and less time with their agencies
  • Spoke in a language that was clear businesslike and everyone could follow
  • Showed they understood the financial impact of their decisions and actions

It is frustrating to see these lessons are still not being understood in some of the world’s biggest companies. I have seen a lot of other debates that show lessons are being learned about how marketers need to act if they are to be taken more seriously. The Marketing Society does great work on this subject click here 

This is a subject that will be at the core of my book Attractive Thinking – The five questions that drive brand strategy and how to answer them. this is due out on 1st November click here

Attractive Thinking book cover by Chris Radford

Water Companies have very different prices by region

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Updated with response from Wessex water CEO

This is a simple story about a monopoly that seems poorly regulated by the government. Regional water prices to domestic households vary by 70% between areas.

We discovered this because we own a self-catering holiday home in Swanage. We also own our home in Teddington and have been trying to work out why our water bills in Swanage are so high compared to Teddington. I have discovered that Wessex Water charges a 70% higher price than Thames Water.

It transpires that whilst Thames Water charge us £2.57 per m3, Wessex water charge £4.38 per m3. This is 70% more than we are charged in Teddington. We challenged Wessex Water about this and they said yes that is correct and there is nothing we can do about it. They are a monopoly and they can charge what they like.

They tried to deny that they were a monopoly when on the phone, but they confirmed that we have no choice and have to buy water from them. In my book that is a monopoly.

Wessex Water also operates a complex pricing charge with standing charge plus a rate. Thames Water just charge a rate.

I am wondering if you think this kind of discrepancy and charge is justified? It seems to me that Dorset residents are being heavily overcharged for water by a local monopoly that was established by government.

I have written to the press to alert residents of Purbeck to this situation, I have contacted the company, the local MP, Ofwat, and the Competition and Markets Authority.

Response from Wessex Water CEO Colin Skellett –

which is very thorough and very helpful. Interestingly, as customers we have always found Wessex to be very helpful.

Dear Mr Radford

Thank you for your email about the difference between charges for your properties in Wessex Water and Thames Water. You are right that the charges are significantly different, and I understand your concerns. The variations reflect differences in geography, the level of investment required, efficiency and service levels.

Let me start by assuring you that Wessex Water is efficient – it is consistently rated by our regulators as one of the most efficient water and sewerage companies. We also provide high standards of customer service and environmental performance. For example, it is now 40 years since Wessex Water had to replace any restrictions on customer use of water and we had no customers affected by the “beast from the east” storm earlier this year.

Our charges are higher because we serve a largely rural area for water supply. The more economic urban areas within the Wessex Water region are served by Bristol Water and Bournemouth Water companies. Thames Water has the benefit of serving a largely very dense, urban population.

On a per customer basis, compared to Thames Water, we have to operate and maintain more than double the length of water main, seven times the number of service reservoirs and water treatment works and five times the number of water pumping stations. Because of the density of population, Thames Water treatment works are on average nine times larger than ours, with resulting lower unit costs.

Quality regulations over the last 20 years are particularly focused on the improving standards at coastal treatment works and the environment at sites of particular ecological value. We have a large coastline and many sites of ecological value, which means that we have had to invest more per customer than Thames Water, which is more urban and has no coastline.

We continually seek to deliver services more efficiently and to keep bills to a minimum. We have recently submitted our business plan for 2020-2025 which, despite record levels of investment, will result in charges decreasing in real terms up to 2025.

I hope this explanation is helpful.

Yours sincerely
Colin Skellett
Group Chief Executive

My reaction and response

Dear Colin

Thank you for taking the time to explain and to do it with so much care and detail.

So my summary is that it costs more to distribute and supply water in rural areas and because we have regional water companies that cost is taken by each water company and therefore passed on to their customers. There is no national adjustment, people in rural areas pay more for their water. It is a political decision based on the way the industry is organised.

I will raise this with the MP’s concerned, but not as an accusation that Wessex Water is a rip-off. More that water is very expensive and the cost is unevenly distributed.

I can confirm we have always had good service from Wessex and that Thames is less good and less responsive when we have asked for help.

FYI suggestions about your service – not a complaint
Our only significant experience with Wessex was when we had a very large water bill (£995 in 6 months) and in response, you delayed seeking payment and you came out to test our meters and installation in general, to see if we were paying for someone else’s water. In the end, we concluded we had some problems with a water softener and toilet cisterns and maybe had suffered at the hands of some extravagant guests in our house. Our usage has halved since we corrected these issues.

Your engineer helped us as much as he was allowed to by your protocols. and we checked all the external fixtures and checked that the house had no leaks by testing the meter in different ways. He did a series of checks to make sure we were not paying for the neighbour’s water. Under pressure from me, he gave some suggestions as to where we might have had leaks in the house and what might do. But I ran up against the usual thing with suppliers whereby the supplier is reluctant to help beyond the limits of their legal responsibility.

So my suggestion is that when the engineer comes out, if there is any way they can be encouraged to advise on how to get problems fixed inside the house as well as outside, then that would complete the service. I realise that the installation in the house is a customers responsibility to pay for.

The other big difference would be to make it much easier to see how much water I am using. 6 months is a long time in which we can waste a lot of water and run up a large bill. If we had been alerted earlier then we would have acted earlier. Trying to read the meter in the street on a regular basis to check usage is unrealistic. Plus the numbers on the meter mean nothing to me, so even if I looked then I would have no idea what was happening.

If you could fix that then I think customers would really feel like you were trying to help. It might also conserve water. And if it really costs £900 a year to supply the water to my house then this is now a large bill that we need to pay attention to.

 

Have our universities lost their purpose and become value extractors?

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It was reported on the BBC this morning that fewer than two in five students think they are getting value for money from their courses. This is based on a survey of 14000 students. The students want more teaching time. They want more contact with the teachers in return for their £9250 a year.

York University - Value Extractors

Graduates outside the university library at York

What is going wrong?  One response was quite alarmingly complacent. The spokesman said that things were getting “better” as 38% of students were satisfied with the value for money vs 35% last year. This is a statement that seems to miss the point about the 62% who are dissatisfied.

This reminded me of my son’s recent experience at York University and his reaction to what he was offered and how the institution related to him. He liked his teachers, he wanted more input from them. He received about 5 hours a week input. But he felt the university was more preoccupied with new buildings and a massive plan to expand the capacity of the university. Today the Universities Minister Sam Gyimah, warned universities about generating courses just to put bums on seats

My son also noticed the very high salaries paid to the top management who remained invisible to students and he felt did not contribute much. (The vice chancellor received £293,000 last year, so it needs 32 students fees cover this alone).

So what is wrong? Why are so many students dissatisfied or frustrated? I wonder if the government and the new professional management has created a whole new breed of value extractors who have lost sight of the purpose of the universities. The focus seems to have shifted from quality research and education to expanding the numbers and generating income to fund the expansion.

I believe the future value of our universities is the research they do and education they provide to students. Both of these are a public good that benefits the whole of society. This is their purpose. The fact the students report dissatisfaction with the education should be a major cause for alarm. The students have pointed to one thing that would raise quality and that is more contact time.

My daughter had a different experience at Cambridge. The students at Oxford and Cambridge are more satisfied as they get double and treble the contact time offered by other universities. This is largely funded by Alumnae grants and donations. But again their higher satisfaction indicates that contact time matters.

My definition of value is based on what value the universities add by what they do, the research and education. This is very different from the value definition provided by ministers and the universities. This is just about the price that students can charge for themselves when they leave. The value is about the higher earnings that the students will enjoy in later life. Interestingly, the Institute for Fiscal studies is going to produce a report on how different courses and universities deliver on this.

This distinction is important.  A value-adding brand or organisation starts by focusing on its purpose which should be based on what it can do to help its customers (in this case teach them well). A value extracting approach just looks at the numbers and says what is the least I need to put in to get the highest price and quickest return.

The problem for the value extractor is that the customers tend to rumble what they are up to and look elsewhere. There were 4% fewer applicants for university places in 2017.  In contrast, a value adder attracts more customers and keeps the ones they have. They create long-term value.

I hope our universities are paying attention, we need them to work for our country.

What is the purpose of business? (part 1)

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What is the purpose of business

Photo by rawpixel on Unsplash

In business “purpose” is initially expressed in terms of making a profit or maximising shareholder value. Business is considered a purely financial entity. Is that right or should a business do more than that?

Maximising shareholder value was the defining objective for many business leaders and became very popular with top business executives in the 80’s and 90’s. Later it was then criticised for making businesses focus just on the short-term results demanded by Wall Street and The City.

There has also been much discussion about businesses having a purpose beyond money. Some people argue that business needs this. Paul Polman of Unilever talks about the idea that businesses must create long-term value. To do this Unilever has a 10-year sustainable living plan focused on environmental impact, removing gender bias, ensuring suppliers are sustainable, caring about public health and nutrition. Even though these initiatives may not maximise short-term returns, they will ensure Unilever creates long-term value. So, in the end, Paul Polman provides a financial justification.

Some brands convey they have a purpose beyond money. Disney defines itself as existing to “Create Happiness” Sony talks about “providing customers with “Kando” (i.e. to move them emotionally – and inspires and fulfils their curiosity). This influences everything they create and do. This kind of mission and purpose is designed to ensure their products and services will attract customers, that they can motivate and attract staff and the business creates real value for customers, staff and shareholders.

There are agencies set up to help brands find their purpose and use it to transform their business and go beyond just profit and financial goals e.g. Purpose, Caffeine, Brand Pie.

My friend Simon Tuckey talked to me yesterday about the fact that the reputation of corporate business with the wider public is at an all-time low. Business leaders need to address this and one way to do that is to demonstrate how the wealth they create and the activities they perform help to the wider community through finding another layer of purpose.  This could be supporting charities or local community initiatives or new business initiatives that are seen to contribute (add value) rather than just take (extract value) from society.

I have struggled with much of this discussion about purpose. On the one hand, having a purpose that is not just financial makes sense and is intuitively attractive. I have long thought that businesses are like people. We all know as individuals, if we purely behave selfishly, we find it harder to achieve what we want. One aspect of this is that people with purpose are usually more attractive and are more likely to attract followers than people who seem to have no purpose and just drift.

For a business entity, similar rules apply, if they solely behave selfishly and purely financially then it defeats the goal to maximise financial returns. Then customers turn away, people do not want to work for them and this means investors find the investment less attractive. As a result all businesses, to differing degrees, invest in their reputation with customers, programmes to attract and reward and care for staff and programmes to manage and enhance their corporate reputation.

But businesses are selfish, financially motivated entities which have to perform financially to survive. So sometimes, this discussion of purpose can get out of control. I believe that businesses should not distract themselves with a purpose that is not connected to its financial purpose, nor one that is unrelated to the core activities.

Business must have a purpose that is financial. Paul Polman alluded to this when he says that he wants to create long-term value

My next post (part 2) will describe why this matters and how this works.

What we measure matters – how to measure value?

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I talk a lot about value adders and value extractors. This distinguishes between those organisations and brands that create value for customers vs those that focus on extracting as much value as possible from existing customers.

I just finished reading Mariana Mazzucato on The Value of Everything. She is an economist who discusses the idea of value creators and value extractors and applies it to the wider macroeconomic context.  She looks at how classical economists like Adam Smith and Marx defined what creates value for the economy and contrasted this with those who extract rent or value from the economy. They identified producers who create things and create value e.g. a factory making cars) vs those services or extractors who just extract value or rent from the surplus profit that was made by the producers (e.g. the bank, the lawyers, the landlord). This implies value is created by creating something.

Mazzucato then explains how neoclassical economists have changed our assessment of value so now we don’t make this distinction. Now measurement of value now purely looks at what someone is willing to pay for something. That price defines its value and its contribution to the economy.

Mariana Mazzucato The value of everything

GDP used to use at the classical view and reflect the value of what is produced. Now neoclassical view prevails and GDP measures value purely on the basis of price and what people pay for things and not what an investment actually does or what goes into it.

So GDP includes banking, asset management, investment banking but excludes government investment in valuable infrastructure, education and healthcare. This government investment has no price and is treated as a cost. The value of this government investment is excluded from GDP.

Yet these investments are essential so that the producers, the tech firms, the banks and others can go about their business. Mazzucato points out that many businesses that claim to have created value, could not have done so without massive government investments in infrastructure, internet and science research.

The implication is that GDP overestimates the value of some services such as asset management and investment banking and underestimates the value provided by governments. She then goes on to criticise many financial services firms for the methods they have used to extract value. She demonstrates they have been so brilliant at extracting value that they have not had to make any productivity gains in the past 50 years. In the meantime government and producers have been consistently making productivity improvements under pressure from limited tax revenues or intense competition.

Mazzucato goes on to argue one of the problems is what we measure. If GDP were measured differently then we would make different decisions about how to grow the economy, we would value production and the provision of valuable consumer services and government investment more highly than we do now. And we would place less value on industries and businesses that extract value.

I took three things from this.

  1. It matters what we measure, it affects our decision making
  2. What businesses need to do is create real value for their customers, it is the engine of growth, it is the engine of profit
  3. Real value comes when you provide something that solves a problem or address a need for your customers.

There is quite a bit more to this argument and I will be discussing this in future blogs

To attract customers – be available in all channels

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Robert CrowderLast night I was having a discussion with Robert Crowder who is the chairman of SkiClub GB and owner of Crowders Nurseries and www.crowders.co.uk.  We were talking about retail and the role of e-commerce for garden centres in particular.  Robert reminded me of such a simple truth that to maximise growth opportunity it is essential for the product and service to be available in as many channels as possible. Especially channels that are growing like e-commerce.

Being in the right channels

This morning Robert sent me these quotes as follow up to our discussions.  This is from today’s trading update from the Chairman of the John Lewis Partnership:

Charlie Mayfield John Lewis“Although we expect to report profits up on last year, trading profit is under pressure. This reflects the greater changes taking place across the retail sector. We expect those to quicken, especially in the next 12 months as the effects of weaker Sterling feed through. We will now accelerate aspects of our strategy. This will involve a period of significant change, investment and innovation to ensure the Partnership’s success.”

Continue reading →

Pensions firms will they attract and educate or just extract?

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Rob Gardner RedingtonRob Gardner of Redington has just thrown down a challenge to the Pensions industry. click here. His quote (below) is in response to the success of Auto Enrolment.  Auto-enrolment is handing a whole new batch of customers to pensions firms.  Will the firms lean forward and seek to help these customers with great products and advice that help them secure their retirement.  Or will they just take this new crowd of customers and work out how much money they can extract from them.

 

 

Rob puts it differently in his article in Pensions Expert

For the first time in decades, we have a captive audience of pension savers. We could do what we have always done and hope some of it sticks. Or we can take up the challenge and recognise that the workforce of today will want to engage in a different way.

We could simply direct employers to the Pensions Regulator website, or we can start to develop communications fit for a world where Siri and Alexa capture the imagination of a new breed of savers. On the whole, the population lacks both the confidence and knowledge necessary for financial security. 2017 must be the year we really start to address this.

Redstart Financial EducationAs well as being a pensions investment consultant and co-founder of Redington, Rob is campaigner for better financial education (Redstart) so we can all create a more secure financial future for ourselves.