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

Identifying & Winning CustomersProf. Stephen LawrenceDeming Center for EntrepreneurshipLeeds School of BusinessUniversity of ColoradoBoulder, CO 80309-04 19

ESSAM 2010

Agenda

•Global Cultural Differences▫Hofsteder cultural dimensions

•Overcoming customer resistance▫Prospect theory

•Finding your first customers▫Crossing the chasm

•Convincing customers to buy▫WIFM

Global Cultural DifferencesHofsteder Cultural Dimensions

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.geert-hofstede.com/

Hofstede Score Comparison

BRIC Hofstede Scores

http://cindyking.biz/how-cultural-differences-impact-international-social-media/

Uncertainty Avoidance

http://ausweb.scu.edu.au/aw03/papers/edwards2/fig4.jpg

Hofsteder IDE vs. PDI Metrics

http://www.emeraldinsight.com/journals.htm?articleid=883443&show=html

Overcoming Customer Resistance –Prospect Theory

Prospect Theory

Kahneman and Tversky

http://www.trendtraders.nl/default/img/web_co2.jpg

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

Asymmetric Perceptions of Risk1. Which bet would you choose?

a. A sure $20 b. A one-third chance of gaining $60.

2. Which bet would you choose?a. One-third chance of losing $60 (with a two-

thirds chance of losing nothing) b. A certain loss of $20

3. Most choose 1a and 2a▫ Sure $20 gain (risk-aversion)▫ Expect $20 loss (risk-seeking)

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

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

Prospect Theory

ObjectiveLosses

ObjectiveGains

SubjectiveLosses

SubjectiveGains

Gourville, Why Consumers Don’t Buy, HBS Note, 9-504-056, 2004

Status Quo

Ration

al (s

ubjec

tive

= obje

ctive

)

Costs and Benefits

Costs Benefits Costs Benefits

Scenario 1 Scenario 3

Gourville, Why Consumers Don’t Buy, HBS Note, 9-504-056, 2004

Scenario 2

Costs

Benefits

ConsumerResponse ?

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

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

Entrepreneur’s Curse•Problem #1 – Self-Satisfaction•Problem #2 – Clash of Perspectives•Problem #3 – Curse of Knowledge

Long experience with productBenefits/needs obviousFully trusts technologySelf-selected believer

Status quo includes new product

Sees product for 1st timeNeeds/benefits not obvious

Skeptical of claimsMid-valuation of benefits

Status quo includes features

Gourville, Why Consumers Don’t Buy, HBS Note, 9-504-056, 2004

Entrepreneur’s View Customer’s View

Capturing Value

2. NoSale

3. LongHaul

1. Tinker4. A

Winner!

RequiredBehavioral

Change(value capturing)

Degree of Product Benefit(value creation)

High

Low High

Low

Gourville, Why Consumers Don’t Buy, HBS Note, 9-504-056, 2004

Resistance Strategies

• Accept Resistance1. Brace for the long haul2. Look for 10X improvements

• Minimize Resistance3. Make an innovation behaviorally

compatible4. Seek out the unendowed5. Find believers6. Eliminate the old

Gourville, Why Consumers Don’t Buy, HBS Note, 9-504-056, 2004

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”

Crossing the Chasm

Crossing the Chasm

http://www.dealingwithdarwin.com/images/gm_pic.jpg

Crossing the Chasm

http://www.stsc.hill.af.mil/crosstalk/1999/11/paulk1.gif

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

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

How can we convince customers to buy?

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)

“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!

Identifying & Winning CustomersProf. Stephen LawrenceDeming Center for EntrepreneurshipLeeds School of BusinessUniversity of ColoradoBoulder, CO 80309-04 19