Transparency: Do Customers Want to Peer Inside the “Black Box”?

From politician salaries to calorie counts on restaurant items, “transparency” is a key buzzword in government and business circles. However, high interest in cloud computing, data warehousing “to go,” and other analogous concepts beg the question of whether customers really want to peer inside the black box or whether an opaque approach works best.

Increases in the call for transparency are legion. Health inspectors post food safety grades for eating establishments. Websites track lists of political campaign donors. And restaurants redesign bars, kitchens, and more to show patrons how drinks and meals are prepared. All this, in order to give customers a window into processes for product and service creation.

And to be sure, there’s definitely even more opportunity for transparency in product creation, especially in financial services. As an example, Michael Lewis’ Big Short cites how via the securitization process, hundreds of subprime mortgages were packaged up and divvied into “tranches” of investment quality. Through securitization, it was tough to estimate the contents of a particular asset-backed security. One hedge fund manager exclaimed; “I didn’t know what the (expletive) was in the things. You couldn’t do the analysis. You couldn’t say, ‘Give me all the ones with all California in them.’ No one knew what was in them.”

Creating a product with so much complexity that teams of MBAs are necessary to decipher its contents surely is a recipe for confusion. And on the ugly side of things, perhaps that was the intention. Regardless, in an age of social media where a company’s reputation can be destroyed in five minutes or less, this avenue will not ensure long term success.

However, a key question is whether customers really want to peer inside the black box. After all, investment banks had very little difficulty offloading these impenetrable structured products. Plenty of hedge, pension and even sovereign wealth funds lined up to buy these complicated products—and most with no questions asked.

In the analytics market, there’s an adage that business users really don’t care how a particular solution works, just so long as it meets their needs. And while this may be true in some instances, there’s also ample opportunity to enlighten consumers (or in this case application users) as to the “value” received through peeling back the curtain on how a product or service is designed and delivered.

What say you? Do your customers really want transparency? Do they really need to know what’s in the black box?

The Science Behind Moving from Clutter to Clarity

Previous retailing philosophies included such gems as “stack it high and watch it fly” and “more choice is better.” However, some multi-national retailers have discovered that reducing store inventory can actually improve the customer experience and boost sales. Increasing sales by reducing customer choice may sound like a paradox, yet retail experiments validate that shoppers don’t want clutter and instead prefer clarity.

A previous column, “When Less is More in Customer Choice” cited that many marketers believe innovation and competitive differentiation arise from giving customers more choices and options. But through the strategy of offering more choice, marketers may actually end up increasing complexity, costs and causing customers “mental fatigue.” And avoiding mental fatigue is what retailers are after, especially when they learn that simplicity in store layout and merchandising can lead to sales increases!

Cleaner, simpler and less chaotic is the new mantra for retailers. This means removing towering aisles of product twelve feet high, reducing in-aisle displays, and fewer bins of “grab bag” mixed product. Inevitably though, these improvements in the shopping experience will most likely lead to fewer products stocked and potentially a drastic reduction (10-15%) in SKUs.

But how does a retailer choose which products to eliminate, especially when there are so many variables (year-over-year sales comparisons, seasonality, pricing, profitability and trade promotion dollars, etc.) to consider? More than just traditional rules of thumb or guesswork, analytics and experimentation help retailers get this mix right.

Babson College professor Thomas Davenport has identified eighteen analytical trends that are relatively well established among retailers, such as assortment optimization and shelf space allocation, pricing optimization and market basket analysis among others.

These analytical processes help optimize categories and merchandise quantities effectively allowing retailers to “give space back” to shoppers without sacrificing sales and gross profit. In addition, retailers are using analytics to help decide which categories could benefit from private label sales—or store brands—which tend to carry higher margins.

Retailers are also experimenting with control groups to project how remodels will impact sales. Through testing and experimentation, retailers can discern which changes most improve metrics such as customer experience scores, sales, gross margins and inventory reductions.

For some retail managers, the idea of removing product, reducing aisle height, and even giving space back to customers is contrary to “what works.” However, customers are voting with their feet—and subsequently their wallets.

A win-win outcome is possible where customers gain a more satisfying shopping experience via brighter stores, cleaner merchandising displays, more room to maneuver carts in aisles, and less maddening clutter. And retailers benefit with improvements in category and overall store sales, inventory carrying costs and customer satisfaction scores.

Customers are already facing too many choices on a daily basis. More choice isn’t always better and in fact, reducing customer choice may be the best option for your enterprise.

Questions:

• Are there locations that you refuse to enter or shop because of clutter or too many choices?
• Are you willing to pay more for a clutter-free shopping environment?

Customer Experience: Healthcare by Design

Image credit: Jim Roof Design

As health care insurance premiums rise year over year and out-of-pocket expenses rise in tandem, patients are beginning to realize that they no longer must accept 1960s-style doctor offices and plastic plants in the hospital lobby. In fact, in response to consumer-driven trends, some health providers are feverishly updating their office decor. Yet, these improvements cost extra dollars that some hospitals and doctors say they cannot afford. Are improvements to the overall patient experience worth the investment?

A hulking magnetic resonance imaging (MRI) machine sits in front of a painted backdrop of a country hillside, a bubbling brook, birds alive with song, and willow branches gently hovering above the water. Looking at the image behind the MRI machine, do you feel more or less anxious regarding your exam?

That’s a question that hospital administrators are asking themselves as they look to design principles to help re-engineer the customer (patient) experience.

Though shabby carpets, medical charts, and plain stark white walls remain the mainstay of hospital and doctor office waiting rooms, some medical practitioners are starting to realize that better design can reduce anxiety, increase patient satisfaction, and even lead to better health outcomes.

An article from Atlantic MagazineThe Art of Healing” cites how hospitals, doctor offices and clinics are taking cues from cutting edge retailers like Starbucks and Best Buy to redesign the patient experience. Author Virginia Postrel writes that since MRI and CT scans usually frighten patients, research shows that “simple elements like nature photos can ease their stress.” In support of this point, Ms. Postrel mentions, “Other studies with subjects ranging from the severely burned to cancer patients … have found that looking at nature images significantly reduces anxiety and increases pain tolerance.”

And it’s not just the sprinkling of nature images throughout the health care provider that’s working. Architectural configuration is also coming into play where designers are ensuring that patient recovery rooms get a good dose of sunlight and hospital rooms have access to windows with a clear view of blue skies and trees. One study cited by  Postrel found that patients with a view of nature had shorter hospital stays and required less “high-powered medication.”

The renewed focus on patient experience by some healthcare providers is long overdue, but not completely altruistic.

While the Atlantic article notes that it is certainly more costly to incorporate good design principles into the healthcare setting (sometimes an additional 10-15% expenditure), doctors and hospital administrators are realizing that patients have much more choice on where to spend their health care dollars. Indeed, such trends as more private pay patients, adoption of consumer-driven health plans, and websites ranking hospital care are pushing health care providers to up the ante in providing a better patient experience.

Ultimately, despite a renewed emphasis on designing a better health care experience, most patients would choose the best doctor in a substandard environment over a competent doctor in aesthetically pleasing surroundings. However, as consumers arm themselves with newly available information on satisfaction ratings of doctors and hospitals, error rates, and even outcomes, consumers will drive the health care system to improve not only the quality of care, but also the overall customer experience.

Questions:

1) Should your health care provider look more like a day spa?
2) Suppose you had an elective surgery where a significant portion was private pay, would you be willing to spend 10-15% more for a better patient experience?
3) Has your hospital or health care provider taken into account better design principles? Have these improvements made a difference in your perception of the provider?
4) Will the passage of the Health Care and Education Reconciliation Act of 2010 accelerate or impede health care aesthetics re-design?

Customer Experience: Smells Like Memories

Scientists have researched olfactory perception and discovered it’s quite common for people to associate memories and experiences with certain smells. However, it’s probably fair to say that most businesses haven’t given much thought as to what their showroom, waiting room or lobby smells like. In an effort to design a better customer experience, does your business pass the “smell test”?

Some smells bring us back to places, memories, or points in time. In a New Yorker article titled, “The Dime Store Floor,” author David Owen visits childhood haunts to recapture smells from his youth. In his journey, he checks to see if his old dentist office still smells of “volatile solvents and fear” or the basement in his childhood home still reeks of “dust and damp and plywood and clothes dryer exhaust.” Indeed, some smells linger on. Owen discusses how decades later, he can still generate a mental image of the smell of a museum he frequently visited as a child.

If you think about it long enough, chances are you can mentally reproduce a smell from a memorable time or place. That’s because the human mind creates deep sensory links to a variety of smells, and these sensory links are especially prevalent when attached to an emotional experience.

This familiarity is well documented in the research of Dr. Rachel Herz of Brown University. The whitepaper “I Know What I Like: Understanding Odor Preferences” cites three findings regarding the power of olfactory perception:

• Like or dislike of various smells is due to our emotional associative history with the odors in question
• Culture can influence our emotional attachment to smells
• Context sets the stage for perception of smells

First, the whitepaper mentions, “Whether we have a preference for a certain smell or not is due to our acquired emotional associations to that scent.”

For example, let’s suppose you run an auto repair shop. It would be pretty difficult, outside the installation of a coffee maker in the lobby, to change the odor of your business. Not to fear—the research of Herz and others show that what matters most is the pairing of odors to the customer experience.

In an experiment, Herz and other researchers noticed that when an “unpleasant odor was paired with a positive emotional experience, subsequent evaluations of that odor were more favorable and when a ‘pleasant’ target odor was paired with a negative emotional experience, subsequent evaluations of that odor were more unpleasant.” So yes, it’s possible that over time your customers could ultimately begin to love the smell of auto grease and car exhaust—provided, of course, that you’re offering them an incredible customer experience every time they walk into your repair shop.

Cultural differences also matter in olfactory preference. A supermarket poll by the Times of London cites that Britain’s top five favorite smells are: fresh bread, frying bacon, coffee, ironing, and cut grass. But if you plan on marketing a new chewing gum in Britain, just don’t try “wintergreen” as most Brits associate wintergreen with medicine! When it comes to “smell”, cultural associations matter, so do your homework and know your customer!

Finally, when it comes to smell, context sets the stage. Herz mentions an experiment where a particular odor is labeled “vomit,” when in actuality it’s parmesan cheese. Simply labeling an odor can influence end user perception of how it smells. To this point, Herz cites a clever example for marketers to think about: Are you selling a pine-scented disinfectant or is the smell actually “Christmas Tree”?

When designing a customer experience, smell matters. What associations are your customers forming from scents emanating from your business? What emotional attachments are you creating?

Questions:
• Are women more sensitive to some odors than men? Which smells?
• Suppose you plan on opening a maternity shop, which smells should you probably avoid?
• What odors do you powerfully associate with past experiences? What smells can you visualize—even from events decades ago?

Craigslist: One Place CRM Isn’t Welcome

craigslistWith no recommendation engine, graphical improvements, or image search, Craigslist is a website stuck in the past. And while business best practices often include heavy investment in sales, marketing, and customer service, Craigslist eschews these functions–yet continues to grow its revenues. What makes Craigslist a “classifieds killer” and how is it able grow its business with little attention to the customer experience?

Craigslist seems to defy the odds. As an online classifieds website, it doesn’t accept payment for most advertising (with the exception of some job posts, and apartment listings in large cities). And recently the site begrudgingly charged for listings in categories frequented by prostitution services–and only then in order to assist law enforcement. Yet estimated revenues for the website top out at $100 million per year!

How can a company that cares little about maximizing profit, stay in business much less be termed wildly successful? A Wired magazine article, “The Tragedy of Craigslist” (September 2009), may provide some answers.

Gary Wolf, author of the article, noticed that Craigslist founder Craig Newmark and CEO Jim Buckmaster break just about every rule in business.

First, customer service is almost nonexistent. While founder Craig Newmark makes a diligent effort to respond to customer service requests and complaints about spam, there are many queries that never receive a response. Also, if you happen to do something on Craigslist that the community considers a “no-no,” such as starting too many conversations in user forums, your posts might be met with a haiku similar to:

Frogs croak and gulls cry
Silently a river floods
A red leaf floats by

Moreover, users complain that posts sometimes don’t show up, or are deleted by Craigslist staff without notification. And if your posts are too often “flagged” for inappropriateness by the Craigslist user community, you may find yourself completely locked out of future listings.

The Wired article notes that Craigslist has no marketing staff or sales teams. Business development is unnecessary because at Craigslist, postings are–for the most part–no cost.

And that’s exactly how Craig Newmark would have it. Newmark believes that the best way to run a business is to provide customers a basic foundation/infrastructure to interact and transact and then step aside.

Could Craigslist improve its user interface, design a recommendation engine, or allow third-party advertising on the site? Sure, but so far Newmark and Buckmaster have shown little interest in innovation. And with 47 million unique users every month, Craigslist figures, Why tinker with success?

Newmark has long believed that Craigslist is a community service, much to the dismay of its for profit competitors–those dying periodicals formerly known as daily newspapers. In fact, according to the article, revenue from newspaper classifieds is off nearly 50 percent in the past decade.

It’s hard enough to compete in today’s challenging economic environment, much less compete with free, as newspapers such as The New York Times, or San Francisco Chronicle have discovered.

However, where there is indifference and customer dissatisfaction, perhaps there’s also opportunity for competition. And while market momentum is currently with Craigslist, technological innovation coupled with a focus on customer value may leave a crack in the door–and a fighting chance for someone to dethrone the giant.

Your Friend the Algorithm

magnifying glassWith exponential trends of data growth and computational power colliding, the world is literally drowning in data. There’s too much data, and not enough analysis.

Fortunately, companies are using technology to capture and integrate data and sophisticated mathematical procedures to analyze data and make better decisions—decisions that ultimately improve the customer experience.

An article from The Economist,Business by the Numbers”, highlights how companies are using algorithms to make book recommendations, choose optimum delivery routes for packages and even route calls to agents that can best diagnose a particular problem.

While the term “algorithm” sounds like geek-speak, the article notes algorithms are nothing more than, “a step by step method for doing a job.” Coupled with the power of a computer, “algorithms can execute tasks with blinding speed using vast amounts of data.”

But how do algorithms improve the customer experience?

Take for example, something that on the surface sounds easy, but actually is very complex—package delivery.

We often take for granted the operational efficiencies and supply chains of companies we rely on for package delivery. For example, we need a package delivered to Manhattan by 10am the next day. Using any of the global shipping companies, we would have a high degree of confidence in that package arriving on-time. However, peer behind the curtain and you’ll see some pretty advanced algorithms make all this possible.

The Economist article mentions how UPS uses algorithms to route millions of packages each day:

“The simplest routes are easy to draw up. If a driver only has three destinations to visit, he can take only six possible routes. But the number of possible routes explodes as the destinations increase. There are more than 15 trillion, trillion possible routes to take on a journey with just 25 drop off points—and an average day for a UPS driver in America involves 150 destinations.”

Now add other variables such as transportation schedules, special delivery times and shipping options (plane, train, truck, boat etc) and you’ll begin to see there is a real science to ensuring timely package delivery.

Algorithms help tackle complicated challenges—especially necessary as companies race to take care of their “best” and/or most profitable customers.  I am sure you will agree that our world is becoming more—not less—complex. As data volumes and decision options increase, algorithms and the systems that run them take on added importance.

Powerful and well designed algorithms are only part of the story in how companies are taking better care of customers. As the Economist article points out, an algorithm is only as good as the systems, data, processes and people behind it.

 Nonetheless, algorithms are helping companies increase competitiveness, improve efficiencies and enhance the customer experience.

Where Artificial Intelligence and Marketing Collide

AI image2When you think of the term ‘artificial intelligence (AI)’, what comes to mind? The Terminator or Hal 9000 in Stanley Kubrik’s 2001: A Space Odyssey? Marketers might be surprised to know that while visions of cyborgs are probably decades away, artificial intelligence is changing the way we sell to, market, and service customers – right now.

The field of artificial intelligence is often dismissed as the purview of pseudo–philosophers, science fiction writers, or hack–scientists with too much time on their hands. However, artificial intelligence applications and technologies are not confined to imaginary worlds. In fact, AI is helping companies across the globe create operational efficiencies, lowering costs, and improving the customer experience.  read more