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Customer ruthlessness dominates innovation

Customer ruthlessness dominates innovation

Theo Levitt is right that creativity is thinking up new things whilst innovation is doing new things.  However Watts Humphrey is more right when he reminds us that innovation is the process of turning ideas into manufacturable and marketable form.  Sustainable innovation needs to be inextricably linked to the market.

The following unedifying tale from October 2001 sounds apocryphal but unfortunately it’s not.

In the aftermath of 9/11 the Western world was in collective shock; well most of the Western world that is, except Ryanair.  Reminding us why we all hold them in the esteem we do, they decided that there would never be a better time to negotiate with their aircraft suppliers and so summonsed Boeing and Airbus to their base in Dublin.  They directed the sales representatives from both aircraft manufacturers to two adjacent offices separated by a glass partition and started to negotiate.  Realising that both suppliers were petrified at the impact 9/11 might have on future air travel demand, they asked Boeing for their keenest price for an order of 50 aircraft.  When Boeing produced the number they left the office, walked next door and asked Airbus for their price, whereupon Airbus beat Boeing’s quote.  They then returned to Boeing’s office, and repeated the process until eventually Airbus decided it was time to bow out of the macabre negative auction.  Boeing came away with the order for 50 new 737–800s.

The harsh truth, whether we like it or not, is that in the online world our customers are regularly running similar negative auctions to get deals which best suit them.  This has a big impact on how marketers should perceive innovation; increasingly customers are sacrificing creativity and certain aspects of the buying experience in return for lower prices.

To go back to the aforementioned airline, customers are prepared to sacrifice being treated with manners and politeness in return for cheaper fares.

This is a pattern not just confined to the airline industry.

With the massive increase in mobile usage and data trends, marketers have got very excited about m–commerce and mobile advertising; however the trend we observe is not one of users excitedly using their location–based adverts to purchase bargains on impulse but rather customers using free–in–store–wifi and 3G to search for items to see if they can buy them cheaper online.  Creative media planning is playing second fiddle to the ruthless customer.

Groupon and its competitors want customers to buy group deals, and enthused by the initial customer experience go on to become regular customers.  However customers return to the experience provider far less than Groupon might want and even during the first experience buy very few additional “upsell” items.  What’s more, many providers report stories of customers contacting them directly, explaining that they’ve seen the Groupon deal and asking if they can do the deal directly with the provider.  The provider invariably says yes because they don’t need to give Groupon a commission.

We did some work last year with a software–as–a–service high–potential web startup.  The most popular pages on their site weren’t the product pages but rather the support pages.  The company wanted to show off their shiny products on the product pages, but the customer wanted to see what the product was really like by visiting the support discussion pages.

Ruthlessness is a dominant personality trait for the online customer and marketers need to line up their innovation and creativity with it.

Sociologically there is no question that we need to be very careful how we measure progress.  Throughout human history the process of trading has been a broadly enjoyable one and a central tenet of human interaction; the mutual experience of buying and selling can create strong bonds.  We can overdo the schmaltz of course, but the independently owned off–the–beaten–track record shop where music mavens meet to discover the latest music has been beaten by online retailers who are happy to work off sub–1% margins.  The white goods retailer who supplies the entire town, knows his customers by their first name, and will take a support phone call personally on the weekend if Mary is having trouble with her washing machine or Joe’s dishwasher is playing up is under relentless pressure from a faceless nameless online retailer who will supply the goods 25% cheaper and to arrive the next day.

There is every chance that eventually there will be a reaction to the current market, which on occasion appears to know the price of everything and the value of nothing.  However the fact remains that the marketplace dynamics at the moment are ruthless.  As marketers and business leaders we can yearn for days of yore, we can wish for a new and better future, or we can man up and meet market demands as they currently exist.

Whatever the future brings, our digital marketing strategies must reflect the ruthless nature of the marketplace dynamics today.  And our customers’ desire for a bargain must be what drives our innovation.

By Gareth Dunlop

Gareth formed Fathom in 2011 and has been in the business of design performance for over two decades.

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