Identifying & Winning Customers

1. Identifying & Winning Customers Prof. Stephen Lawrence Deming Center for Entrepreneurship Leeds School of Business University of Colorado Boulder, CO 80309-04 19 ESSAM 2011

2. Agenda • Global Cultural Differences • Hofsteder cultural dimensions • Overcoming customer resistance • Prospect theory • Finding your first customers • Crossing the chasm • Convincing customers to buy • WIFM

3. Global Cultural Differences Hofsteder Cultural Dimensions

4. Hofstede Cultural Dimensions • Power Distance (PDI) • Acceptance of unequal power distribution • Individualism (IDV) • Extent of identification with a group • Masculinity (MAS) • Degree of differentiation in gender roles • Uncertainty Avoidance Index (UAI) • Measures cultural concerns about the unknown • Long Term Orientation (LTO) • Cultural focus on the future; “time-horizon” http://www.clearlycultural.com/geert-hofstede-cultural-dimensions/power-distance-index//

5. Overcoming Customer Resistance –Prospect Theory

6. Prospect Theory Kahneman and Tversky http://www.trendtraders.nl/default/img/web_co2.jpg

7. Examples of Customer Resistance • Webvan (online groceries – 1999) • Burned through $1 billion in 2 years • Segway PT transport vehicle (2002) • Sales 100X less than forecast • TiVo digital TV recorder (2004) • Rave reviews, but slow sales • U.S. $1 coin (2007) • Available, but never used Gourville, Why Consumers Don’t Buy, HBS Note, 9-504-056, 2004

8. Asymmetric Perceptions of Risk • Which bet would you choose? • A sure $20 • A one-third chance of gaining $60. • Which bet would you choose? • One-third chance of losing $60 (with a two-thirds chance of losing nothing) • A certain loss of $20 • Most choose 1a and 2a • Sure $20 gain (risk-aversion) • Expect $20 loss (risk-seeking)

9. Risk Framing Effects • Which do you choose? • A new drug can save 200 of 600 people suffering from a fatal disease • A second new drug will allow 400 of 600 affected people to die • Most people choose (a) • Risk averting in (a) • Risk seeking in (b) • We fear losses more than we value gains

10. Endowment Effect • People value items in their possession more than those items not in their possession • Innovation demands change • Giving up a known endowment (possession) • Getting a new unknown possession • Old benefits valued at 2-3X than new • New costs valued at 2-3X larger than old Gourville, Why Consumers Don’t Buy, HBS Note, 9-504-056, 2004

11. Prospect Theory Subjective Gains Status Quo Objective Losses Objective Gains Rational (subjective = objective) Subjective Losses Gourville, Why Consumers Don’t Buy, HBS Note, 9-504-056, 2004

12. Costs Benefits Costs Benefits Costs and Benefits Scenario 1 Scenario 2 Scenario 3 Costs Benefits ? Consumer Response Gourville, Why Consumers Don’t Buy, HBS Note, 9-504-056, 2004

13. Rules of Prospect Theory • Individuals are sensitive to gains & losses • Aversion to losses • Losses loom larger than gains • Reference points (framing) matters • Evaluations relative to status quo • Decreasing marginal sensitivity • More not proportionally better than less Gourville, Why Consumers Don’t Buy, HBS Note, 9-504-056, 2004

14. Making Matters Worse • Timing • Upfront costs vs. accrued benefits • Example: Compact fluorescent bulbs • Uncertainty • Certain costs vs. uncertain benefits • Example: Corporate intranet • Qualitative benefits • Costs are quantitative, benefits qualitative • Example: Online troubleshooting Gourville, Why Consumers Don’t Buy, HBS Note, 9-504-056, 2004

15. Entrepreneur’s Curse • Problem #1 – Self-Satisfaction • Problem #2 – Clash of Perspectives • Problem #3 – Curse of Knowledge Sees product for 1st time Needs/benefits not obvious Skeptical of claims Mid-valuation of benefits Status quo includes features Long experience with product Benefits/needs obvious Fully trusts technology Self-selected believer Status quo includes new product Entrepreneur’s View Customer’s View Gourville, Why Consumers Don’t Buy, HBS Note, 9-504-056, 2004

16. Capturing Value High 2. NoSale 3. Long Haul Required Behavioral Change (value capturing) 1. Tinker 4. AWinner! Low Low High Degree of Product Benefit (value creation) Gourville, Why Consumers Don’t Buy, HBS Note, 9-504-056, 2004

17. Resistance Strategies • Accept Resistance • Brace for the long haul • Look for 10X improvements • Minimize Resistance • Make an innovation behaviorally compatible • Seek out the unendowed • Find believers • Eliminate the old Gourville, Why Consumers Don’t Buy, HBS Note, 9-504-056, 2004

18. Lessons • Focus on savings and cost reduction • Painkillers versus vitamins • Minimize required behavioral change • Even if benefits are fewer • Frame product appropriately • Positive emphasis • “We save lives” vs. “We prevent deaths”

19. Crossing the Chasm

20. Crossing the Chasm http://www.dealingwithdarwin.com/images/gm_pic.jpg

21. Crossing the Chasm http://www.stsc.hill.af.mil/crosstalk/1999/11/paulk1.gif

22. The “Chasm” • Techies and Visionaries • Enthusiastically embrace new technologies • Pragmatists • Want to see a total solution • Won’t settle for 80%; only 100% • Want a whole product solution to problem • Firms typically • Try to satifice across many customers, • But completely satisfy none Moore, “Crossing the Chasm – and Beyond,” in Strategic Management of Technology and Innovation, Burgelman et al., 2004

23. How to “Cross the Chasm” • Focus on a single industry or segment • Put all your eggs in one basket • Develop 100% of a whole solution for this narrower niche • Gain a committed beachhead among pragmatists within the niche • Grow into other niches with success Moore, “Crossing the Chasm – and Beyond,” in Strategic Management of Technology and Innovation, Burgelman et al., 2004

24. How can we convince customers to buy?

25. Framing • Focus on the customer benefits of your offering • Do not focus on its features • Focus on reducing losses (pain) if possible • Add in benefits if available • Focus on benefits as necessary • Diminish perception of costs (e.g., 3 easy payments)

26. “Tune your Radio to WIFM” • WIFM – “What’s In it For Me?” • This is the favorite and only station your client listens to • Know why they are buying • Remind them why they are buying • Only talk to them about how this deal will help them!

27. Identifying & Winning Customers Prof. Stephen Lawrence Deming Center for Entrepreneurship Leeds School of Business University of Colorado Boulder, CO 80309-04 19