I, like Zach, had the opportunity to hear Jack Welch speak on Tuesday. He said some very insightful things that Gave us a look into the life of one of the greatest leaders in corporate America. His 21 years at GE set the standard for great leadership in this country. One thing stuck out though that he kept repeating over and over- how important your employees are.

In business classes today you’ll constantly hear that the number one goal of companies is to maximize shareholder wealth. While in many instances that is true, it is not necessarily the primary goal. You will not have happy shareholders with happy customers. And you will not have happy customers without happy employees. With employees empowered to listen to customers and deliver based on their desires, a chain of satisfaction is formed that starts with the employee.

So how do you empower the employee? You listen. Don’t just bark out orders because you have a title. The biggest part of being a leader is being able to listen to those under you. This can be seen even in the Bible days since one of the greatest leaders ever was also the greatest servant (and listener).

In Donald T. Phillips’ book Lincoln on Leadership, he talks about how Lincoln didn’t spend his time in his office leading, he was with the troops almost all the time, continually listening to them, seeing what was actually going on, getting valuable information first hand, and then making a decision. That’s what made him one of the greatest presidents of all time.

So What?

Leadership is about more than having a title or an office to sit in and delegate from. An effective leader spends more time out of his office listening to employees and customers, allowing them to have input in the process. If this type of leadership worked for Jack Welch and Abraham Lincoln, then I’m willing to bet it will work for others as well.

Austin

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1. Lead With Purpose
2. Three Attributes of a Leader
3. Win a Free Book

The Irresistible Offer

One of the biggest requirements of having a company where people are loyal without a loyalty program is a selling quality product or service offering. Take Starbucks for example. Yes they have a loyalty program, but let’s be honest- even without their rewards system, they would still have very loyal customers. They offer a superior product, or at least the perception of a superior product, and people can’t seem to get enough of it. This is where the irresistible offer comes into play. It is defined as an offer central to a product, service, or company where the return on investment is communicated so clearly that it’s immediately apparent you’d have to be a fool to pass it up. (This definition comes from “The Irresistible Offer ” by Mark Joyner). So basically an irresistible offer has such a high ROI that the consumer would be stupid if they didn’t buy it.

One excellent example of an irresistible offer is Domino’s (or rather what they used to do). Domino’s used to have the 30 minute guarantee. Order a pizza of your choice and have it delivered hot to your door in 30 minutes or less, or its free! How could anyone ever pass this offer up. You get cheap, okay tasting pizza, very fast. And if it’s not there fast, you don’t even pay for it and you still get to eat it! They were really on to something (until the government made them cancel this offer due to safety reasons).

So the big secret is: offer something that everyone wants, and have the value to them be so great, that they have a very difficult time turning it down.

Sell a Second Glass

Well obviously we all want to sell a superior product, but sometimes that is not always possible. So now what? Well one way is to offer your customers a “second glass.” The basic premise for this strategy is that it is much cheaper to sell to an existing customer than it is to find a new customer. That is ultimately our goal: customer loyalty. So the idea here is to keep your current customers buying and buying and buying. Some ways to do this include up selling, cross-selling, following up, and continuity (subscription).

On a quick side note: The home shopping network will no longer sell products that do not have a second glass offering. They understand the importance of repeat customers.

McDonald’s has been King when it comes to many of these techniques. For example, when you order a double quarter pounder, what is the first question they ask you… “Would you like cheese on that?” followed by, “Would you like fries with that?” A simple question has helped make them the largest fast food chain ever. The follow up is another easy way to keep them coming back. Simply call or email your customer thanking them for their purchase and telling them you’d love to see them in the future. How easy!

I understand a lot of this seems simple, but these are very easy steps that can be taken to greatly increase future success. Just think of a local restaurant or store you visited recently. I’ve been to plenty of “ma and pa” stores where I don’t even get offered a drink. And they have none of my information, so I don’t receive a follow up from them. If they sent me an email that said “receive $1 off your next purchase,” I can almost guarantee I’d go back.

So What

Customer loyalty doesn’t always have to revolve around a rewards program. A superior product, or an irresistible one, or a product that offers a second glass can all be good ways of ensuring your customers will keep coming back.

Are there any companies you can think of that fall under these categories? What are you currently doing to make sure your customers keep coming back?

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1. Customer Loyalty: The Gold Standard
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Ok. Now that I have created the biggest rabbit trail ever, let me get back to my original thought. Yesterday morning, I was listening to The Herd on ESPN Radio. The Host Colin Cowherd discusses the week’s biggest sports news and asks for listeners’ opinions (via text, email or phone). He pointed out that during one of the Tampa Bay Rays’ games this week, the team would be giving away 20,000 tickets to help fill the stadium. The Rays are currently in first place in the American League. The Rays also have a problem filling seats. This seems to be a paradox. One of the best teams in the MLB cannot fill their seats in late September. This is why the 20,000 tickets were given away.

Colin Cowherd asked a very smart question: “Why don’t more teams do this?” I thought about it trying to come up with a good answer. Maybe dilution of seat value? No, I don’t care how much the person next to me paid, as I long as I get to see my team play. So basically I couldn’t come up with an answer.

In my opinion, The Rays did the best thing possible. They used operating leverage in their favor. For example, The Rays have a very large asset (the stadium) with fixed costs (for the most part). Whether there are 20,000 people or 40,000 people, there will still be the same amount of people working, the same amount of power will be used to turn the field lights on, and other obvious fixed costs will remain the same. So if 20,000 people decide to not come to a game, that means you already have $0 from those 20,000 people. But if you give away those 20,000 tickets, virtually every dollar spent on concessions is pure profit (minus the cost of the food) that the team would have not had before.

It also helps to get young fans hooked so that they will come back when they are older. A great example of this is shown in the book Rework written by Jason Fried and David Hansson. One chapter called “Emulate Drug Dealers” says it all. Basically drug dealers know their product is good and are willing to give a little away for free to get the customer hooked, and buy more at a later point.

So I pose this question to you: Why don’t more sports teams give away tickets? Maybe I’m missing something and just don’t get it. I’d love to hear what you think…

No related posts.

Take for example HD video playback. It was announced before the release of the PS3 that it would offer Blu-ray disc capabilities. This would enable better quality game play, and the ability to watch true HD 1080p movies. Xbox 360 soon added an external HD movie player that was sold separate of the system for a hefty $199.99. Also when the 360 was released, if you wanted to play games wirelessly, you had to purchase an adapter for $99.99. PS3 offered  built in wireless. (Recently, a new 360 was released that has built in wireless. However, HD videos cannot be played since “HD Movies” are no longer in production, and Microsoft decided not to add the Blu-ray feature). In addition, if you want to play online on Xbox 360, also known as Xbox live, you have to pay. PS3 offers Playstation Network (PS3) for free. Now all this post has been up to this point is background information. The real purpose of this blog post is to ask a question. Microsoft recently announced that it would increase its 1 month Xbox live membership cost by 25% and its 12 month membership by 20%. Why? Why when the economy is in an all time low, and consumer confidence is at an all time low, and the rest of your products cost a considerable amount more than the competition, even when the competition offers a superior product (in terms of included free features and, in my opinion, better game video quality) would you choose to raise your prices???

The answer: Does it really matter if prices are raised? Zach, a co-author of this blog, has always preached that a great strategy is to create a product that does well when the market is up, and just as importantly, if not more, when the economy is down. One would expect that in a recession, consumers spend much less of their income on things such as gaming. This however is not true. People tend to stay inside more and spend more on home entertainment. One example is going to a movie vs. staying home. On a Friday night for a family of four, a trip to the movies will cost about $40 (just for the tickets). Add in a large soda, large popcorn and candy, and you’re somewhere around $60!!! That should be illegal. So why not just visit your local gaming store and for the same price, buy the latest game or 2 Blu-ray movies?

This is exactly Microsoft’s approach. Gamers seem to not be too sensitive to price changes, as long as they are not too big of a change. (Xbox live went from $7.99 to $9.99 per month and $49.99 to $59.99 per year). So maybe Microsoft is going for the stereotype of “expensive = good” as described by Robert Cialdini in his book Influence, The Psychology of Persuasion.

Question: Would you as a consumer continue to play Xbox live if its prices were increased by 20 to 25%? Or would you find a less expensive substitute, such as PS3?

-Austin

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Getting Personal

So what should your company do? Many people have the preconception that customers either want high quality at a high price, or low quality at a low price. Until recent years, there has not been a middle ground due to this misconception. In their book “Mass Affluence,” Paul Nunes and Brian Johnson argue that there is a segment of customers in the marketplace that are not currenlty having their needs met. They either have to pay too much for a product that does more than they want (say a $100 electronic toothbrush) or an inexpensive item that doesn’t do enough (A normal $2 toothbrush). A solution to this is a middle-of-the-line electronic toothbrush for around $10. Consumers wanting more functionality but not top of the line will finally have their needs met.

Raising the Bar (and Price)

In America, in order to avoid having to compare too many options, many people have created a shortcut when purchasing items. This shortcut is “expensive = good.” This is great for merchandisers. A good example of how retailers can cash in on this is told by Robert Cialdini in his book Influence The Psychology of Persuasion. Cialdini one day receives a phone call from a friend who owned a jewelry store. A certain type of jewelry was not selling well so she informed her head saleswoman to sell the jewelry at “price x 1/2″ (The owner was going out of town so she just left a note). The saleswoman misread the not and accidentally sold the jewelry for twice as much. When the owner returned, every piece of jewelry that was increased by 2 was sold out. Why? People used the shortcut of “expensive = good.”

So What?

The so what for this entry can be taken in many different ways, and I would suggest that each company take an individual approach to pricing. Many people think “sales are down so I should lower prices.” This can’t be more wrong for companies who are trying to differentiate themselves with quality. I’m not telling you to do it, and can’t be held responsible if sales decrease, but you might want to consider raising prices instead of lowering them. It just might surprise you.

-Austin

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1. Higher Prices = More Business?
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Maslow and Herzberg

Take any Intro to Management class and the chances are the first few days you’ll learn about Maslow’s Hierarchy of Needs and Herzberg’s Two-Factor Theory. Maslow outlines the needs of humans in pyramid style with basic needs at the bottom and more specific needs towards the top. Herzberg’s two factors do sort of the same thing however his two factors are either motivators or hygiene factors. Both will be explained more later.

[Don't] Show Me the Money

Contrary to popular belief (and according to Maslow and Herzberg), money is NOT a primary motivator for employees. Author, psychologist, and business man Dr. Clotaire Rapaille supports this theory in his book, The Culture Code. He states “Money alone is the worst reward for an American employee.” Why? Well according to Herzberg, salary is a hygiene factor (a factor that does not motivate if present, but, if absent, results in demotivation). So salary is important but should not be used as a reward to not watch basketball in March. So if not money, then what?

The obvious answer would be to address the motivating factor and not the hygiene factor? But how? Well Dr. Rapaille offers some tips based on how our culture operates. He says that promotions and accolades should come with responsibilities that may help the employee to do a more effective job. This is right on track with the theories that were previously discussed. A manager shouldn’t just reward or promote an employee with money; they should tap into the appropriate motivator for that specific employee. In addition, employers should put a premium on keeping staff inspired as well as holding regular staff meetings that listen to employees’ input. Both of these give the employees a feeling that they are an integral part of a company’s success, which is a HUGE motivator that managers can target. The employee will feel a sense of ownership and greater responsibility and hopefully watch less sports in the office.

There is no “I” in Team (but there should be!)

Another important way to motivate employees is to address them and reward them as individuals and not as a team. This may go against a lot of people’s beliefs, however it makes sense. For example, if a team reward is to go off to a resort if a certain level is hit, the employee will only carry his weight in the group and no more. He only needs to work hard enough to achieve the trip and then he’ll just do average. However if he is motivated on a personal level, he will attempt to address his motivation factors (maybe subconsciously) and work harder than if he was part of a team.

Back to the Madness

I believe knowing these factors and how employees are motivated is only the first step to keeping employees motivated and focused on work and not basketball. But there is no “one size fits all” handbook for managers. I believe each manager must tailor a program that fits each individual employee and doesn’t reward with money or restrictions (by outright banning of watching games in the office). A great example of this is a creative approach a CEO took in Baltimore, Maryland (Read story here). He got in on the madness and held on office-wide pool with the winner receiving a vacation getaway. His theory was that it’s better to address the issue upfront and allow for a little watching on breaks, as opposed to watching games while working (more like not working). It also prevents employees from partying too hard and not coming in to work the next day. Two birds with one stone… I like it.

So What?

I believe a lot can be taken away from fact that nearly $4 billion will be lost this year due to a basketball tournament. It shows that Americans love their sports as much as their jobs (maybe more). It also shows that managers need to always be on their toes thinking of creative ways they can keep their employees motivated and focused, yet still allow them space to breathe when events such as March Madness come around.

-Austin

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