Want Magic? Spill the Secrets of Your Black Box

With the rise of cloud computing, it’s easy to get the impression customers don’t care how a particular process or product works—that they only care about results. And the process of hiding—black boxing—the inner components of a product or service, definitely makes sense when competitors are snooping for clues. However, in the name of transparency, giving customers a “window view” of your daily processes might just be the key differentiator you’ve been seeking.

Watch Apple CEO Steve Jobs give a keynote presentation and you’ll probably come away with the belief there’s more power in “magic” and “mystique” than exposing the inner workings of a particular product or service. However, in some instances you can also create “magic” by showing customers the value creation process.

Take BMW for example. An article in the Financial Times titled; “Benefits of a Showroom Bypass” cites how BMW is now offering buyers a way to circumvent the dealer showroom and custom build a car of their very own.

Customers can customize their own automobile from paint and interior colors to installation of custom features such as grills and moon-roofs. But the real magic begins when BMW films the entire production process of a customer’s specific car – all the way down to showing the Vehicle Identification Number (VIN) – and then ships the DVD to the buyer.  Imagine receiving a DVD in the mail showing how your specific car was built –now that’s magic!

If customers are not appreciative of the value your company delivers, perhaps a new strategy of additional transparency can win them over.  Some examples to increase transparency include:

  • Show customers your ingredients, components, processes, configurations etc. “Behind the scenes” tours anyone?
  • Help customers analyze trade-offs similar to what Progressive Insurance does by showing competitor rates
  • Give them more references – i.e. 90% of your customer base, not just the 2-3 customers who love your product/service

To be sure, too much transparency may disclosure your “secret sauce” to competitors. But where possible, “throw back the hood” of how your product or service is created or delivered. It may just end up telling a more magical and differentiated story than your competitors!

Question:

  • What’s the right level of transparency to engage customers, while still maintaining a bit of mystique in how your product/service is built and/or delivered?

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?

Supply Chain Traceability – What’s in Your T-Shirt?

Does it concern you that cotton from a t-shirt originated in Uzbekistan? You might care if reports are true that cotton harvested from this country came from forced or child labor. In fact, consumers are increasingly asking manufacturers and retailers to ensure goods and services are produced with sustainable and ethical business practices. With goods processed between countries and multiple supplier touches, traceability in the supply chain is more important than ever.

Consumers are becoming more and more interested in the make-up of products they’re buying. The ability to trace products through the entire supply chain—whether from field to fork or source to consumer—is becoming a competitive weapon for some companies, especially if they can authenticate then promote goods produced with sustainable business practices.

A Financial Times article cites that ethical spending has increased significantly in the past 20 years. As an example in the United Kingdom, “The amount of spending and investment influenced by ethical considerations almost doubled between 1999 and 2008 to reach £36 billion.” The FT article mentions the growth of fair trade and certified organic products as part of this growth trend. And fellow DailyFix author, Ted Mininni, says these types of goods, “are increasingly being added to retail assortments”—and in growing numbers!

However, one of the major challenges for both retailers and manufacturers alike is authenticating ethically sourced products. There’s more to the process than taking the supplier’s word for it.

In the case of organic bananas, the FT article notes, “the food company Dole labels each of its organic bananas with a three-digit number that, when entered on its website, reveals details of the farm where that banana is grown.” Identifying where a banana is sourced, however, is simple compared to such products as sweaters or t-shirts that pass through multiple suppliers and countries.

In “The Elephant and the Dragon,” author Robyn Meredith confirms that products often “zigzag” through the global supply chain from factory to factory. “A cheap toy may be assembled by parts from 12 different factories,” she says. And something as sophisticated as an automobile might contain five to seven thousand parts.

Fortunately for marketers, the challenge is not beyond the capabilities of today’s technologies. Some progressive companies are engaging in a purposeful effort to build effective policies (including auditing), technologies (supply chain analytics and infrastructure) and processes to track and monitor the extended supply chain.

Of course, implementing a data-driven supply chain infrastructure is only half the battle—supply chain managers, operations personnel and marketers must learn how to use it! Marketers, working alongside operations, will need training on the various tools and systems used to access data for reporting and query purposes. And marketers may also choose to make supply chain data available directly to consumers—similar to Dole’s web portal—thus enabling them to verify product origins for themselves!

Ethical sourcing, trade, manufacturing and retailing will continue to be a hot button for consumers. However, as seen from this article, jumping into this marketplace requires much more than just fancy signage and/or promotion. A real commitment to corporate responsibility and sustainable practices must be much more than lip service; it involves significant investment in people, processes, technology, and strategy. As seen from the complexity in supply chain traceability alone, it’s definitely not an effort a company should take lightly.

Questions:

• Does it matter to you how a product is made? Are you interested in the origins of the products and services you consume?

• The Financial Times article says that companies should make information about their supply chain public—or consumers will do it for them. Do you agree with this statement?

The Mysterious Effects of Madoff on Marketing

madoffRecommendations come from myriad sources such as friends, family, co-workers, online reviews and even e-commerce algorithms. Studies have shown that recommendations are trusted more than information proffered by media sources or corporate advertising. However, with daily reports of fraud and deception in political and financial spheres, a tide is building that threatens to wash us all in cynicism and suspicion. With “pay to play”, “pay per post” and other hidden agendas, should recommendations still be trusted?

By now you’ve likely heard of Bernard L. Madoff. This hedge fund operator is accused of the largest corporate fraud in United States history, to the tune of $50 billion dollars lost. In a SEC complaint, Mr. Madoff—a former NASDAQ chairman—is accused of a “stunning fraud of epic proportions” by essentially running a Ponzi scheme where new investor money was used to cover losses and pay-out returns to previous investors.

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