New Support for Marketing Analytics

strategy+business magazine:

Skeptics abound, but the high-tech approach to consumer data seems to pay off.

Title: Performance Implications of Deploying Marketing Analytics (Subscription or fee required)

Pennsylvania State University (Photo credit: Wikipedia)

Authors: Frank Germann (University of Notre Dame), Gary L. Lilien, and Arvind Rangaswamy (both Pennsylvania State University)

Publisher: International Journal of Research in Marketing

Date Published: November 2012 (online), forthcoming in print

Consumer surveys and myriad other forms of research have long been the grist for marketing decisions at large companies. But many firms have been reluctant to embrace the high-tech approach to data gathering and number crunching that falls under the rubric of marketing analytics, which uses advanced techniques to transform the tracking of promotional efforts, customer preferences, and industry developments into sophisticated branding and advertising campaigns.

Tom Peters (Photo credit: vacekrae)

Fueled in part by Tom Peters and Robert Waterman’s seminal 1982 book In Search of Excellence, which coined the phrase “paralysis through analysis,” skepticism about the approach remains widespread. ... This new study, involving Fortune 1000 companies, offers yet more ammunition for supporters of marketing analytics.

The more a company uses these techniques, the more it will reap positive and sustainable performance achievements, the study’s authors say. Firms facing intense competition or operating in industries with rapidly changing customer preferences have the most to gain. And the gains can be substantial—a modest increase in the use of marketing analytics by one set of companies translated to an average increase in return on assets (ROA) of 21 percent, or US$180 million a year.

Proponents of marketing analytics say that the approach not only adds to the power of advertising campaigns and other sales efforts, but can also point the way to new products and improve decision-making processes. Marketing analytics achieves all this, ... by increasing the ability of a firm to track the outcome and impact of marketing variables and thus to explore a wider array of options.

Critics, however, say the mountains of data actually get in the way of decision making. ... A 2009 survey of 587 C-level executives at large international firms revealed that only 10 percent of their companies used marketing analytics on a regular basis, the authors of this study noted.

Image via CrunchBase

In their own study, the authors surveyed 212 senior executives at randomly selected Fortune 1000 firms. ... The companies included Amazon, Apple, Boeing, Charles Schwab, Ford, General Mills, Harley-Davidson, Hershey, Hewlett-Packard, IBM, Johnson & Johnson, JPMorgan Chase, Kraft Foods, Oracle, Pfizer, Starbucks, and UPS. Using several databases, the authors also computed the return on assets of many of the companies in the sample during the two years leading up to the survey.

Image via CrunchBase

On the basis of the survey answers, the companies were listed on a scale that showed how much they used analytics and how much importance they placed on the approach. A shift in the rankings from the 50th percentile to the 65th (a relatively small movement) meant an average increase in ROA of 21 percent for firms in highly competitive industries or those facing fluctuating customer preferences. For the other firms in the study, that same shift on the scale resulted in an average gain of 8 percent in ROA.

Crucially, the ability of employees to process large amounts of data ... directly influenced the degree to which the firms used the analytical techniques, the authors found. It was particularly important for top management to nurture a culture supportive of data-driven marketing efforts, their analysis showed. ...

Image via CrunchBase

From previous studies, the authors cited two companies that had benefited from analytics. One was the German mail-order company Rhenania, whose president credited the approach with saving the firm, increasing its customer base by more than 55 percent, and quadrupling its profitability in the first few years after the system was implemented.

marriott (Photo credit: MATAVI@)

The second example was the Marriott Corporation, which found itself in the 1980s without enough downtown locations to build new hotels in numbers sufficient to maintain growth. Using an analytics approach—and factoring in the changing location needs of both leisure and business travelers—the company developed the Courtyard by Marriott spin-off, which became a multibillion-dollar chain in its own right.

Although doubts about marketing analytics persist in many industries, the authors urge skeptical managers to give the approach another look. For one thing, ... companies that embrace it would reap significant competitive advantage, they say. ...

“Our study provides a strong rebuttal to executives who believe that information gathering and analysis result in excessive delays and ‘analysis paralysis,’” said one of the authors, Gary L. Lilien, in a press release. “On the contrary: When analytics is deployed with strong support from key executives, organizations thrive in competitive industries and react well to today’s customers, who frequently change their product preferences.”

Bottom Line:
A company’s performance increases the more it uses marketing analytics to align its advertising and other sales campaigns with consumer and industry trends. Firms that promote a culture conducive to data-driven marketing methods can see significant improvement to their bottom line, especially if they operate in highly competitive industries.

'via Blog this'

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How to Become Ubiquitous

Image via Wikipedia

Harvard Business Review
8:04 AM Thursday July 14, 2011
by Dorie Clark | Comments ( 22)
This post is part of the HBR Insight Center Marketing That Works.

… I steeled myself for the onslaught: replying to the hundreds of emails that had built up while I'd been on a luxurious 12-day vacation to Spain. Like many professionals, I have a complicated relationship with holiday — coveting the idea of relaxation, while dreading the idea of being out of touch. …

The trip had been incredible — the best of Barcelona, Madrid, and Marbella — but I returned feeling guilty and slightly panicked. … And that's when I spotted Mimi, one of the most connected players in town. She smiled and walked over to my table. "How's it going?" she said. "You're everywhere."

In that moment, I realized you don't have to be present in order to be ubiquitous.

Ubiquity, of course, is a major marketing goal. You want to be top of mind for your customers, so they're calling you (not your competitors) … .  Here are four strategies to consider:

1. Schedule your social media presence. … Every few months, I'll lock myself away for an afternoon and come up with a few hundred nuggets to post on Twitter. You can schedule them weeks or months in advance via services like Hootsuite or Tweet Deck. … Similarly, you can use Wordpress or other services to schedule upcoming blog posts.
2. Respond quickly when it matters. … If you have a corporate assistant, ask him or her to monitor your email and call you if anything urgent arises. If you're a solo practitioner, shell out for a virtual assistant through a service like Elance. …
3. Enlist messengers. Perhaps the best way to seem like you're everywhere is to get other people talking about you. … Specifically ask for referrals (which "forces" people to talk about you), cultivate reporters, attend networking events, and create a robust portfolio of content, from blog posts to white papers. …
4. Go somewhere cool. Sometimes, inevitably, you'll miss something important because you're away. … You may never make [your suitors] happy — but you can at least intrigue them. "I'm on vacation" is a fairly boring, lazy-sounding excuse. But — "I apologize for the delay in getting back to you; I just got back from Puerto Rico"… is a fascinating conversation starter. So consider this your permission to go somewhere fabulous and make the best of it.

What are your strategies for becoming ubiquitous? And how do you ensure the people who matter are talking about you?

Dorie Clark

Dorie Clark is a strategy consultant who has worked with clients including Google, Yale University, and the National Park Service. She is the author of the forthcoming What's Next?: The Art of Reinventing Your Personal Brand (Harvard Business Review Press, 2012).

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The value proposition in multichannel retailing

Consumers love low prices, but retailers shouldn’t overlook the way shoppers perceive value online and in stores.

McKinsey Quarterly
MAY 2011 • Jeffrey Helbling, Josh Leibowitz, and Aaron Rettaliata
Source: Marketing & Sales Practice




… Yet while price competition is tough, our consumer research and client experience show that perceptions of value still matter in the ever-more-complex multichannel-retailing environment. Retailers can employ proven tactics to shape perceptions and take advantage of the fact that consumers care about more than just the price tag when they buy.
A recent survey we conducted¹ shows that price is just one of a range of factors consumers take into account when buying products: they also consider the degree of trust they have in a retailer, its product assortment, and their previous buying experiences (Exhibit 1). So even in the most competitive product categories, … retailers can look beyond price and actively shape perceptions of the value they offer. None of this happens by chance; retailers can implement strategic moves to get credit for superior value.

Exhibit 1: Consumers consider more than price in deciding whether to purchase a product.

Consider, for example, how consumers view leading sellers of women’s apparel in the United States (Exhibit 2). While actual average prices at Kohl’s and JCPenney are similar (the x-axis), consumers clearly perceive Kohl’s as offering lower prices (the y-axis). Amazon.com—which typically has among the lowest prices in categories such as consumer electronics—charges more for similar types of apparel than Kohl’s and JCPenney do, yet retains a “halo” of value among the consumers we surveyed.

Exhibit 2: There is a gap between what US retailers charge for women’s apparel and how their prices are perceived.

In our experience working with dozens of offline, online, and multichannel retailers, we’ve found that they can use certain pricing moves to play the value card. The first is identifying key value items—products that have the greatest impact on value perceptions. … Second, these items must be priced competitively to create a public perception that a retailer offers good value, and discounts on them can be recouped with higher prices on less visible products. Finally, prices should be the same no matter which retail channels a consumer uses: stores, the Web, or catalogs.
Retailers also can carefully craft product assortments in ways that influence value perceptions. For instance, in categories with clear “good,” “better,” and “best” ranges—such as flat-screen TVs—retailers can display models side by side, attract consumers with hot prices on good models, and then encourage trading up by clearly articulating the features and benefits of the better and best options. …
Second, value “heroes” with low price points should be overrepresented in online, in-store, and external marketing. An apparel retailer, for example, can disproportionately showcase $15 men’s business shirts in marketing materials while keeping the majority of its product assortment well above that price point. Third, tactics such as free shipping, in-store pickup, generous return policies, and price-match guarantees are critical drivers of value perceptions. For the consumer pondering the wall of TVs—or, for that matter, browsing a Web page of them—any money saved by purchasing one elsewhere may seem trivial compared with benefits such as free shipping, in-store pickup, a range of financing and extended-warranty plans, and options for expert installation.

About the Authors

Jeffrey Helbling is a principal in McKinsey’s Chicago office, Josh Leibowitz is a principal in the Miami office, and Aaron Rettaliata is an associate principal in the Pittsburgh office.

Notes

¹ Multichannel pricing survey of 6,000 US consumers and price checks (conducted during September and October 2010) of more than 1,100 items at 20 retailers.

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The Future of Direct Mail Marketing: 5 Key Demographic Trends | Deliver Magazine

Deliver Magazine
February 28, 2011 | by Paula Andruss


Where’d John Doe go?
…Be prepared to see some major demographic shifts, says demographic trends analyst Peter Francese, chief among them the absence of the “average American.”
Francese, who consults for advertising agency Ogilvy & Mather, recently authored 2010 America, a report commissioned by Advertising Age that highlights some significant population changes the census will reveal.
Here are five things he says marketers need to know about today’s consumer:
1. There’s no longer an “average American.”

Image via Wikipedia…But I can predict with a high degree of certainty that the 2010 census will essentially put the last nail in the coffin of the “average American,” because he or she no longer exists.

2. We’re now a multisegmented nation and a multigenerational society.

Image via WikipediaIn our 10 largest cities and four states — California, Texas, New Mexico and Hawaii — no race or ethnicity is a majority of the population anymore. …

… The 2010 census will show that for the first time in American history, married couples will be a minority of U.S. households. … Now, married couples with children make up fewer than 21 percent of all households — or roughly one out of every five.
Also, the number of people who live alone is growing very rapidly; they’re now more than 27 percent of households.
The third dimension of complexity is that we are becoming a multigenerational society. … Multigenerational households and a multigenerational America means that older people (in their late 50s, 60s and 70s) have a bigger impact on what their children and grandchildren are doing and buying.
3. The multicultural shift is driven by immigration.
…  So a higher proportion of the younger population — the children and young adults — are African-American, Hispanic, Asian or multiracial. As the older population ages and more of them pass on, the younger generation becomes a greater share of the total population. Young adults and children are quite diverse, whereas older people are not. Eighty percent of Americans over the age of 65 are white non-Hispanic, but that’s true of less than 60 percent of children.
4. Don’t treat each generation or age segment as independent entities.
It’s essential to address the multidimensional nature of our society today, and more important than ever to know more precisely who your customers are. In-depth interviews and surveys are vital tools for more effective direct marketing. We can’t assume that just because somebody is 60 or 70 years old that all they’re going to want is a hearing aid or health insurance, and there’s no point in marketing anything else to him. …
5. Direct mail will continue to play a crucial role.
Direct mail reaches people in their home and it offers something in writing, in their own language, that is of specific interest. It’s the ideal way to really target a specific part of a population that has a need that is unique for that group. …
In all of these groups, thinking of direct mail as a primary means of communication within your specific and detailed set of customers, and giving it the priority it deserves, can be very successful.

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7 Reasons Why Small Businesses Should Take a Look at Foursquare

Small Business Marketing Blog from Duct Tape Marketing
posted by: John Jantsch

Mon Jan 04, 2010
…The idea behind location awareness is that people will use the GPS capabilities in today’s mobile devices to check-in, tweet, review, and refer and add their location while doing so. Today I would like to talk about what I think is one of the first location aware services that is already beginning to impact small business.

Image via WikipediaThe service is called Foursquare and while it’s receiving lots of hype from the bleeding edge social media types as the next Twitter, it may be totally foreign, or at least nonsensical, to many small business owners. While I want to use this post to introduce you to Foursquare, keep in mind that my primary point of view is that of the small business marketer and what I believe Foursquare has to offer, and not really the Foursquare user per se.

Having said that I do first feel the need to give you an overview of Foursquare.
The big picture
Foursquare is a location enabled service that allows users to “check in” when then stop at a bar, restaurant, park, bookstore or really anywhere they want to list. The service further allows users to connect with friends and alert them of your location if you choose. …  Foursquare also turned this activity into a game: a point that I believe led to its current role as a leader in this evolving space. …
Foursquare is self-described as – “Think: 50% friend-finder, 30% social cityguide, 20% nightlife game.”
Users compete with check-ins to earn points for their city, badges for various types of activity and to become mayor of frequented spots. …
Users also add and update information about businesses, write tips and make suggestions for anyone to consume. …

Image via CrunchBaseFoursquare is set-up around cities and enhances the kind of neighborhood, hyper-local, branding and community building that is so important to local type small businesses. The service is currently available in a growing list of cities and is driven by iPhone, Android and Blackberry apps. Check out the Foursquare help page for some more detail.

… I’m not ready to suggest that every business rush to Foursquare as the next red hot thing, not yet anyway, but I do want to point our a handful of reasons that many small business should start paying attention to this growing force, even if you don’t get it.
Below are seven reasons why I think Foursquare may hold promise for small business
1) Hyper local, tech savvy, evangelists – Foursquare user are people that really love their neighborhoods, getting out and evangelizing the businesses they love. This tech savvy, early adopter is exactly the kind of consumer business should kill for as they often influence large circles. Embracing Foursquare and giving these tech leaders the tools to promote your business is just plain smart business.
2) Online offline – …Foursquare is yet another way for local business to use the efficient online tools to drive more in-person, offline activity. People are physically checking in to your business and talking about online in what can turn into a tremendously effective one-two punch.

Image via Wikipedia3) Make offers – On a recent trip to Chicago I checked into my Marriott on Foursquare and immediately received notice that three nearby businesses had a special offer for me. … You can visit the Foursquare business page to get your business signed up. …

4) Track and reward – Foursquare’s gaming functionality allows businesses to create special promotions for mayors and badge earners and in effect setting up a competition among their most loyal fans. The image below comes from a special promotion hosted by blynk organic, a restaurant in North Carolina. By creating and communicating Foursquare’s tools and platform you can begin to educate customers and create Foursquare advocates for your business. Some bars and restaurants routinely promote free offers for mayors.

5) The power of making it a game – One of the most intriguing aspects of Foursquare is the game. It’s amazing what some folks will do in order to win a game, come in first or, in this case, be the mayor of a popular spot. …
6) Automated CRM data – … Every business should find ways to capture everything they can about a customer. Obviously email is a great tool and can be very effective for follow up marketing. … Foursquare can provide business owners with check-in stats for users. What this means is that the customer that comes in every day can now be tracked and even incentivized to get a free cup of coffee for every tenth check-in. It’s like the digital/social version of the loyalty card. …
7) Sync with Twitter and Facebook - Like all good social media platforms Foursquare understood the need to integrate with platforms that others already use. Foursquare users have the option to tweet or add a Facebook status update every time they check-in. What this means is that a Facebook user with a few hundred friends might expose your business by way of a Foursquare check-in to thousands of Facebook walls. While many of those folks on Twitter or Facebook may not be in your part of town, I’m thinking it’s still a pretty good thing for the brand.

While I’ll caution again that Foursquare might not be the highest priority for many businesses, it’s something that is coming and will be put to use by businesses outside of the retail and entertainment world (I can already imaging how real estate agents could use this.) Businesses that get how to use, stimulate adoption and promote Foursquare now could hold a significant advantage when and if Foursquare becomes the next Twitter.
Sidebar: Look for Facebook or Google to acquire Foursquare before the year is over.
Image credit: Joshua Kaufman

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Rediscovering the art of selling

Even after researching products on their own, many customers still enter stores undecided about what to buy. For retailers, that’s an opportunity.

McKinsey Quarterly
OCTOBER 2010 • Josh Leibowitz

Retailers as far back as the legendary pioneer Marshall Field once focused intensely on clinching sales once customers walked into stores. But recently, the industry has been missing opportunities to make sales. New technologies, extensive retailer Web sites, mobile-shopping tools, and in-store Internet kiosks have separated customers from sales associates. Content to let consumers research products independently, many retailers have been reducing in-store sales staff and eliminating commission-based models. This approach has resulted in lower costs, but it has also reduced incentives for those left on the floor to make sales.

Image via WikipediaMany retailers assume that customers walk into stores for purely transactional purposes: they know what they want and just need to buy it. Yet McKinsey research indicates that as many as 40 percent of customers remain open to persuasion once they enter a store,¹ despite undertaking extensive product research, reading online reviews, and comparing prices on their own. Retailers that fail to have knowledgeable staff on hand to help customers make decisions, or even to create arresting in-store visual marketing materials, are losing sale after potential sale. …

Bolstering the sales staff

Many retail executives argue they can’t afford to provide high-value sales help. Simple arithmetic suggests they can’t afford not to. …[There’s] a powerful and straightforward business case for investing in frontline sales staff: when done correctly, adding salespeople offers one of the more attractive payback opportunities in retail.
Consider the case of home electronics sold through discount stores—the ultimate self-help format, where consumers typically undertake product comparisons independently before ultimately going to a store to make a purchase. With an average selling price of $200 and an average gross margin of 10 percent, or $20 per sale, the cost of hiring a good salesperson is recouped by selling just one additional product per hour on the floor. When the profit margin from up-selling or cross-selling accessories is added, just one additional sale every two hours is needed. At one self-help apparel company, for example, providing extra sales assistance during select hours increased the conversion rate by 1.5 to 2 times, driving fitting-room use 37 percent higher and recouping the cost of the extra human help within an average of 10 to 15 minutes during normal selling hours.

Building the right frontline sales force

Watch skilled salespeople at work and you soon realize that … selling … boils down to four basic steps: open, ask for needs, demonstrate, and close. Surprisingly few frontline sales associates know these steps well, and fewer do all four consistently. …Having staff that understand and enjoy the sales process is paramount, and that means attracting the right employees, training them effectively, and rewarding them appropriately.
Effective sellers share common traits: they are motivated by helping customers, have extroverted personalities, and are passionate about their work. Our research indicates that, at most, 45 percent of frontline employees across multiple retailing sectors have the personality and attributes to be effective sellers (for examples of right and wrong behaviors in frontline sales, see the interactive, “Secrets of making the sale”).² Retailers need to redesign the way they hire and deploy staff into selling roles to attract employees with the personality and attributes required to succeed. In addition, we found that few retailers provide training with the specificity and quality to effectively support sales associates in their mission to sell more. …
Secrets of making the sale
Frontline sales staff can win or lose sales through their interactions with the customers.
Launch Interactive

Improving the in-store experience

Better visual merchandising can make a big difference in helping consumers make certain buying decisions, accelerating the payback on frontline staff. Consider one self-help retailer that simplified its point-of-sale signage for digital cameras to make comparing products easier for both consumers and sales staff. …[The] retailer … used “photo-enlargement sizes” and “distance to picture object.” Memory cards emphasized the number of photographs a card could hold, rather than describing them in gigabytes. Because sales staff could use the visual displays as a way to sell products to customers without having to memorize technical details, they were more confident and achieved more sales per hour.
Examining the way consumers make decisions also makes a difference. At one leading personal-bath-care chain, for example, executives realized that people preferred to shop by “scent” rather than “function”—they preferred all vanilla products in one area, rather than all shampoos in one area and all soaps in another. Reorganizing the entire merchandising layout from a function-based to a scent-based display resulted in increased category sales, as customers bought multiple products with the same scent, rather than just one. … Paying attention to these kinds of customer behaviors remains invaluable, despite the unprecedented access to product information, reviews, and prices that consumers have online.

About the Author

Josh Leibowitz is a principal in McKinsey’s Miami office.

Notes

¹ See David Court, Dave Elzinga, Susan Mulder, and Ole Jørgen Vetvik, “The consumer decision journey,” mckinseyquarterly.com, June 2009.
² The survey was completed in August 2008 and received responses from 1,675 frontline employees across eight retail subsectors: apparel and footwear, department stores, discount stores and warehouse clubs, drugstores, groceries, large specialty stores, off-price retailers, and small specialty retailers.

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How centered leaders achieve extraordinary results

Executives can thrive at work and in life by adopting a leadership model that revolves around finding their strengths and connecting with others.

McKinsey Quarterly
OCTOBER 2010 • Joanna Barsh Josephine Mogelof and Caroline Webb

• Exhibit: Five dimensions of centered leadership

…[The] global financial crisis and subsequent economic downturn have ratcheted up the pressure on leaders already grappling with a world in transformation. More than half of the CEOs we and our colleagues have spoken with in the past year have said that their organization must fundamentally rethink its business model.

Cover via AmazonOur work can help. We have conducted interviews with more than 140 leaders; … Through this research, we distilled a set of five capabilities that, in combination, generate high levels of professional performance and life satisfaction. We described this set of capabilities, which we call “centered leadership,” in the Quarterly in 2008 and subsequently in a book, How Remarkable Women Lead.¹ …

Five capabilities are at the heart of centered leadership: finding meaning in work, converting emotions such as fear or stress into opportunity, leveraging connections and community, acting in the face of risk, and sustaining the energy that is the life force of change. A recent McKinsey global survey of executives shows that leaders who have mastered even one of these skills are twice as likely as those who have mastered none to feel that they can lead through change; masters of all five are more than four times as likely.² Strikingly, leaders who have mastered all five capabilities are also more than 20 times as likely to say they are satisfied with their performance as leaders and their lives in general (for more on the research, see “The value of centered leadership: McKinsey Global Survey results”).
While such results help make the case for centered leadership, executives seeking to enhance their leadership performance and general satisfaction often find personal stories more tangible. Accordingly, as this article revisits the five dimensions of centered leadership—and their applicability to times of uncertainty, stress, and change—we share the experiences of four men and one woman, all current or former CEOs of major global corporations.

Meaning

We all recognize leaders who infuse their life and work with a sense of meaning. …[Meaning] has a significant impact on satisfaction with both work and life; indeed, its contribution to general life satisfaction is five times more powerful than that of any other dimension.
Whatever the source of meaning …, centered leaders often talk about how their purpose appeals to something greater than themselves and the importance of conveying their passion to others (for more on conveying meaning to others, see “Revealing your moment of truth”). Time and again, we heard that sharing meaning to inspire colleagues requires leaders to become great storytellers, touching hearts as well as minds. These skills are particularly applicable for executives leading through major transitions, since it takes strong personal motivation to triumph over the discomfort and fear that accompany change and that can drown out formal corporate messages, which in any event rarely fire the souls of employees and inspire greater achievement.

Image via WikipediaAvon Products CEO Andrea Jung described how meaning and storytelling came together when her company faltered after years of rapid growth. … Suddenly, it became harder for her to see where her momentum would come from. What’s more, she had to streamline her cherished community.

To remain true to her personal values, Andrea rejected the “more efficient” approach of delegating to managers the responsibility for communicating with employees about the restructuring and of sharing information only on a need-to-know basis. Instead, she traveled the world to offer her teams a vision for restoring growth and to share the difficult decisions that would be required to secure the company’s future. The result? Employees felt that Andrea treated them with honesty and humanity, making the harsh reality of job reductions easier to accept and giving them more time to prepare. They also experienced her love for the company firsthand and recognized that both she and Avon were doing all they could. By instilling greater resilience throughout the organization, Avon rebuilt its community and resumed growth within 18 months.

Positive framing

Positive psychologists have shown that some people tend to frame the world optimistically, others pessimistically.³ Optimists often have an edge: in our survey, three-quarters of the respondents who were particularly good at positive framing thought they had the right skills to lead change, while only 15 percent of those who weren’t thought so.
…When faced with too much stress (each of us has a different limit), the brain reacts with a modern version of the “fight, flight, or freeze” instinct . … This response equips us … not for coming up with creative solutions. Worse yet, in organizations such behavior feeds on itself, breeding fear and negativity that can spread and become the cultural norm.
When Steve Sadove took over Clairol, in 1991, for example, the company had been shell-shocked by a significant decline in sales volume. “I remember going to a very creative person, who did all the packaging and creative development,” Steve told us, “and saying, ‘Why don’t we do anything creative?’ He opened some drawers in his desk and started showing me all of this wonderful work that he’d done. Nobody was asking for it; people kept their head down in that culture. So part of my role as the leader was to create an environment that was going to allow innovation and creativity and make it OK to fail.”
Fortunately, we can all become aware of what triggers our fears and learn to work through them to reframe what is happening more constructively. Once we have mastered reframing, we can help others learn this skill, seeding the conditions that result in a safe environment where all employees are inspired to give their best.⁴
Steve found ways to stimulate creativity, such as exploring opposing points of view in discussions with colleagues. …[He] convinced others that speaking up wasn’t just tolerated but encouraged. He helped colleagues reframe the way they reacted to dissent, … Steve and his team introduced a winning hair care brand, Herbal Essences, and ushered in a golden period of growth for Clairol.

Connecting

With communications traveling at warp speed, simple hierarchical … are becoming less and less effective for leaders. For starters, leaders depend increasingly on their ability to manage complex webs of connections ... Further, leaders can find the volume of communication in such networks overwhelming. While this environment can be challenging, it also allows more people to contribute, generating not only wisdom and a wealth of ideas but also immeasurable commitment.
The upshot: CEOs have always needed to select exemplary leadership teams. Increasingly, they must also be adept at building relationships with people scattered across the ecosystem in which they do business and at bringing together the right people to offer meaningful input and support in solving problems.

Image by mrkathika via FlickrMacy’s CEO Terry Lundgren learned firsthand about the power of connecting the internal community in 1988 when, 15 months after joining the retailer Neiman Marcus, he became its president and CEO. Shaking things up was core to his role:…Employees greeted him with widespread skepticism. “They were all thinking, ‘Who is this 37-year-old guy who is going to tell us how we should run our fantastic business?’” So Terry held a town hall meeting in the library across the street from company headquarters, in downtown Dallas. He invited anybody who wanted to come. The first time, he recalls, “I had only about 30 people show up! I thought it was going to be a little bit bigger than that, but I tried to be very direct and use the time mostly to listen and respond.” He kept holding meetings, noting that “it really moved the needle quickly in terms of getting things done in that company.” By the time Terry left, the twice-a-year meetings filled a 1,200-seat auditorium.

Image by Getty Images via @daylifeToday, as Terry leads Macy’s, he connects the dots internally and externally in many ways, from scheduling a monthly breakfast with new managers to forming relationships with peers who have led companies through change. Terry has also emphasized corporate connectivity, regrouping Macy’s stores into 69 districts, each tasked with creating “My Macy’s” for its customer base. …Terry’s top team believes its efforts to connect managers more closely to one another and to customers, through enhanced information sharing and product offerings tailored to local needs, help explain the company’s trajectory.

Engaging

Of survey respondents who indicated they were poor at engaging—with risk, with fear, and even with opportunity—only 13 percent thought they had the skills to lead change. …[Risk] aversion and fear run rampant during times of change. Leaders who are good at acknowledging and countering these emotions can help their people summon the courage to act and thus unleash tremendous potential.
But for many leaders, encouraging others to take risks is extremely difficult. …What’s more, to acknowledge the existence of risk, CEOs must admit they don’t, in fact, have all the answers—…

Image by epSos.de via FlickrDoug Stern, CEO of United Media, has a number of ways to help his people evaluate risks and build their confidence about confronting the unknown. … Doug follows an explicit process anytime he’s facing a new, risky project (for example, selling some of his company’s assets). The process helps everyone—…prepare by devising risk mitigation strategies using these steps:

• asking the team to imagine every bad scenario, even the most remotely possible—…
• giving everyone a chance to describe those scenarios in detail and then to “peer into the darkness” together
• devising a detailed plan for countering each nightmare—…

Once fears have surfaced and been dealt with, the team has a protocol in place for every worst possible scenario and a set of next steps to implement.⁵

Managing energy

Sustaining change requires the enthusiasm and commitment of large numbers of people across an organization for an extended period of time. All too often, though, a change effort starts with a big bang …only to see energy peter out. The opposite, when work escalates maniacally through a culture of “relentless enthusiasm,” is equally problematic.⁶ Either way, leaders will find it hard to sustain energy and commitment within the organization unless they systemically restore their own energy (physical, mental, emotional, and spiritual), as well as create the conditions and serve as role models for others to do the same. …
While stress is often related to work, sometimes simple bad luck is at play, as Jurek Gruhn, president of Novo Nordisk US, can attest. Nine years ago he was diagnosed with Type 1 diabetes. Working for a world leader in diabetes care, Jurek was no stranger to the illness … “My first reaction was, ‘You may have Type 1 diabetes, but you could also have a lot of other diseases that are much worse.’” So, he told us, “I went to the hospital for two or three days of testing and then went back home. We had our Christmas break. After that, I was back in the office. My wife, who is a physician, said to me, ‘That was a quick process!’ I basically took on my disease as a task.”

Image by Siebuhr via FlickrJurek realized that one key to living a normal life with the disease is to embrace life, at work and at home. “A healthy lifestyle is important. I have five kids: … Sometimes they completely drain my energy, but they can energize me a lot. …I eat breakfast now every day, I exercise much more, and I started rock-climbing on a regular basis.” Everything improved—his physical condition, mental focus, emotional satisfaction, and spirit. He even learned to face what drained him most—unhealthy conflict at work—by addressing it directly and quickly, much as he handled his diabetes.

Even for leaders without such a challenge, Jurek sets another valuable example: “I saw this comedian who said that a man’s brain is filled with boxes, and one of them is empty. Well, when the day’s really tough in the office, I go into my empty box for 10 or 15 minutes and I do nothing. If I completely switch off for a short period of time, I get my energy back. Now, I’m not switching off every 15 minutes after working for 15 minutes… But I do not work weekends unless I really have to. And I’m not one who wakes up and the first thing is the BlackBerry. No way!”
Centered leadership is a journey, not a destination, and it starts with a highly personal decision. We’ll leave you with the words of one executive who recently chose to embark on this path: “Our senior team is always talking about changing the organization, changing the mind-sets and behavior of everyone. Now I see that transformation is not about that. It starts with me and my willingness and ability to transform myself. Only then will others transform.”

About the Authors

Joanna Barsh is a director in McKinsey’s New York office, Josephine Mogelof is a consultant in the Los Angeles office, and Caroline Webb is a principal in the London office.
The authors would like to thank Aaron De Smet and Johanne Lavoie for their extraordinary contributions to this work.

Notes

¹ Joanna Barsh, Susie Cranston, and Geoffrey Lewis, How Remarkable Women Lead: The Breakthrough Model for Work and Life, New York: Crown Business Publishing, 2009.
² The online survey was in the field from July 6 to 16, 2010. It garnered responses from 2,498 executives representing all regions, industries, functional specialties, and tenures. Respondents indicated their level of agreement with statements representing various dimensions of the leadership model. We then aggregated their answers into degrees of mastery of each dimension.
³ Martin E. P. Seligman, Authentic Happiness: Using the New Positive Psychology to Realize Your Potential for Lasting Fulfillment, New York, NY: Free Press, 2004.
⁴ Michael A. Cohn et al., “Happiness unpacked: Positive emotions increase life satisfaction by building resilience,” American Psychological Association, Emotion, 2009, Volume 9, Number 3, pp. 361–68.
⁵ Psychologist Gary Klein has developed and applied in a variety of settings a similar approach that he calls the “premortem.” For more on this technique, and on the broader problem of executive overconfidence, see “Strategic decisions: When can you trust your gut?” mckinseyquarterly.com, March 2010.
⁶ Edy Greenblatt, Restore Yourself: The Antidote for Professional Exhaustion, Los Angeles, CA: Execu-Care Press, 2009.

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A Better Choosing Experience

When consumers are overwhelmed with options, marketers should give them what they really want: ways of shopping that lower the cognitive demands of choosing.

strategy+business magazine

Image via Wikipediaby Sheena Iyengar and Kanika Agrawal

Illustrations by Andreas Samuelsson

Image via WikipediaWhen Baskin-Robbins, now the largest ice cream chain in the world, opened in 1953, its line of 31 flavors — one for every day of the month — was a novelty. … Cofounder Irvine Robbins said, “We sell fun, not just ice cream,” and part of the fun for customers was the experience of seeing and tasting so many new flavors. The company continues to emphasize variety; …

Today it seems obvious to offer consumers more choice — but the experience is no longer a novelty, or nearly as much fun. Whereas in 1949 the average grocery store stocked 3,700 products, the average supermarket today has 45,000 products, and the typical Walmart has 100,000 products. Online are even more options, … Starbucks, … recently launched the However-You-Want-It Frappuccino, with “thousands of ways to customize your blended beverage.” Cold Stone Creamery claims that its menu of mix-ins provides more than 11.5 million ways to “customize your ice cream treat.” Long gone are the days when an array of 31 flavors knocked our socks off.
Consumers have grown accustomed to having a lot of choice, and many people still express a strong desire for having more options. But that doesn’t make it a good idea. There are neurological limits on humans’ ability to process information, and the task of having to choose is often experienced as suffering, not pleasure.
That is why, rather than helping consumers better satisfy their preferences, the explosion of choice has made it more difficult overall for people to identify what they want and how to get it. … [You] can outthink and outperform your competitors by turning the process of choosing into an experience that is more positive and less mind-numbing for your customers. …
The goal of a new approach to choice should not be to manipulate consumers into making choices that aren’t right for them, but rather to collaborate in a way that benefits both of you. … To accomplish this, here are four actions you can take:

1. Cut the number of options.
2. Create confidence with expert or personalized recommendations.
3. Categorize your offerings so that consumers better understand their options.
4. Condition consumers by gradually introducing them to more-complex choices.

Offered together, these actions can distinguish your company. … [You’ll] be one of those rare companies whose offerings rise to the top by raising customer spirits.

The Multiple-choice Problem

Image by s.alt via Flickr…[In] the mid-1990s, … Sheena Iyengar conducted a study of shopper selection at … Draeger’s, a specialty grocery store renowned for its huge selection of produce, packaged foods, and wine. Iyengar realized that although she greatly enjoyed visiting the store, she often walked out empty-handed, unable to settle on just one bottle of mustard or olive oil …

… Iyengar and her collaborator, Mark Lepper, set up a jam-tasting booth near the entrance of the store. Every few hours, the booth switched between offering an assortment of 24 jams and an assortment of six. The researchers wanted to know which assortment would attract more people and which one would lead to higher sales. They observed the shoppers as they moved from the booth to the jam aisle, which boasted 348 varieties.
As might be expected, 60 percent of the incoming shoppers stopped when 24 jams were displayed, but only 40 percent stopped when six jams were displayed. Clearly, people found the larger assortment more attractive. However, when these same shoppers went to the jam aisle to pick up a jar, the shoppers who had seen only six jams had a much easier time deciding what to purchase.

By observing the shoppers and eavesdropping on their conversations, the researchers discovered that the small assortment helped people narrow down their choices, whereas the large assortment left them confused and unsure of their own preferences. Of those who stopped by the large assortment, only 3 percent ended up buying a jar of jam — far fewer than the 30 percent who bought jam after stopping by the small assortment. … Iyengar and Lepper calculated that people were more than six times as likely to buy jam if they saw the small display.
… People like the idea of choice. … In short, they believe that having more choice gives them more power and satisfaction.
But they overestimate their own capacity for managing these choices. Psychological studies have consistently shown that it’s very difficult to compare and contrast the attributes of more than about seven different things. When faced with the cognitive demands of choosing, people often become overwhelmed and frustrated. As a result, they may forgo the choice altogether, reach for the most familiar option, or make a decision that ultimately leaves them far less satisfied than they had expected to be.
We see this frustrated response to “choice overload” even when the decision has serious consequences. …[At] the request of Steve Utkus, the director of the Center for Retirement Research at the Vanguard Group, Iyengar and her collaborators, Wei Jiang and Gur Huberman, tried to determine why so few of the 900,000 employees covered by Vanguard were participating in their … 401(k) plans. Analysis of the data revealed that participation fell significantly as the average number of funds in a plan rose. By controlling for individual-level variables such as age and income, as well as plan-level variables such as the size of the company and the extent of employer matching contributions, Iyengar and her collaborators showed that the decline in average participation rates was due to an increase in choice. When plans offered only two funds, 75 percent of the relevant employees participated; when plans offered 59 funds, the percentage of participants fell to 61 percent. …
Moreover, Iyengar and Emir Kamenica discovered that the employees who participated made worse investment decisions, on average, when they chose from plans with more options. For every 10 additional funds offered in a plan, employees allocated 3.28 percent less of their contributions to equity funds (as opposed to bond or money market funds), and they were also more likely to avoid allocating any of their contributions to equities at all. … Even employees in their 20s, who should have been allocating 80 to 90 percent of their contributions to equities (based on the accepted wisdom of financial advisors), became more likely to entirely avoid equities as the number of options rose, undermining their long-term financial well-being.
The deleterious effects of too much choice have been observed in other situations as varied as buying chocolate, applying for jobs, and making healthcare decisions. … People keep expressing a desire for more choices, and businesses keep expanding product and service options in order to fulfill this desire — but it often does more harm than good.
Don’t marketers have to give consumers what they want? Yes and no. … When consumers say they want more choice, more often than not, they actually want a better choosing experience. They want to feel confident of their preferences and competent during the choosing process; they want to trust and enjoy their choices, not question them. … The following four means will help you meet that challenge.

Image via Wikipedia1. Cut their alternatives. … Most companies avoid reducing the number of products they offer because they’re afraid of losing shelf space to their competitors. But careful trimming can lower costs, increase sales, and improve the choosing experience for consumers. In the mid-1990s, when Procter & Gamble Company winnowed its 26 varieties of Head & Shoulders anti-dandruff shampoo down to 15, … sales jumped by 10 percent. In a similar case, the Golden Cat Corporation got rid of its 10 worst-selling offerings in the small-bag cat litter category. This led to a 12 percent increase in sales and slashed distribution costs by half; the end result was an 87 percent profit hike. Another example comes from a 2001 study that tracked an online grocer that had made substantial cuts in the number of products it offered, … Not only did sales rise an average of 11 percent across 42 categories, but 75 percent of its customer households increased their overall expenditures.

… Potential consumers should be able to zero in on a product’s defining characteristics and explain why it is (or is not) appealing to them. If people respond vaguely or inattentively, that’s a signal that the choices you offer are not distinct enough and should be consolidated.
2. Create confidence through recommendations. Reducing options works well when the variations between products are relatively small. But for highly differentiated goods — books, prerecorded music and video, clothes, and many housewares — you can’t get away with offering a small selection. … Instead, you have to offer a wide variety while helping consumers navigate the complexity so they still have a positive choosing experience. …
Through study and practice, experts in any field learn to simplify, categorize, and prioritize information, and to recognize patterns. This allows them to create order out of seeming chaos. …
In high-choice conditions, the ideal consumer is the most expert consumer. That doesn’t mean someone with in-depth expertise in any one type of product. … However, novice consumers can become expert general consumers by learning to rank and structure their choice sets the way that experts do.
Marketers can thus help novices make more-educated guesses and create confidence in their choices by giving them easy access to expert reviews and recommendations. … Even non-expert advice can prove useful when there is consensus among a large number of reviewers or when the consumer trusts the source. This is one reason for the popularity of shopping websites with user reviews …
Another way to give consumers access to recommendations, … is to set up automated systems that generate suggestions based on consumers’ expressed preferences. These systems, …are software programs that guide people by analyzing their prior purchases or their answers to survey questions. If consumers are willing to invest a little time teaching a well-designed system about their preferences, then the system can serve as a personalized expert for them. People don’t usually trust programs as much as they trust other people, but trust in well-performing electronic agents tends to develop over time.

Image via CrunchBaseFor example, the Internet radio service Pandora has acquired 50 million users who tune in for an average of 12 hours a month, even though (or perhaps because) they cannot directly choose what they’ll hear. Pandora’s “mission” is to “play only music you’ll love,” and it accomplishes this by combining human expertise with an automated system. First, trained analysts determine the musical attributes of every song in the database. …Then, when users tell the system what music they like, it searches for other music with similar attributes. As they listen to their personalized music streams, users can let the system know how well it matched their preferences. Eventually, the system comes to “know” the users well enough that they no longer have to provide feedback. They can just sit back and enjoy.

3. Categorize their options. You can also help novices by teaching them to emulate expert judgment. For an expert, there is no completely unique product or service; rather, each offering is a distinctive combination of attributes that the expert has seen before. Thus, where the novice sees 100 different items, the expert sees maybe seven or eight relevant qualities interacting in novel ways, with one or two important features that immediately stand out. The trick is to get the novice to see things as the expert sees them.
The easiest way to do this is to categorize. For example, Best Cellars, Wine Enthusiast’s Retailer of the Year in 2009, makes the choosing process a breeze for its customers by consulting with oenophiles in advance. It draws on their advice to limit its variety to 100 high-quality, reasonably priced wines. Since 100 wines could still be an overwhelming number for novices, Best Cellars divides the wines into eight simple categories, such as “fizzy,” “juicy,” and “sweet.” The novice has to deal with only eight units of information now, which can be managed fairly easily. Once the novice has chosen a category, he or she can choose a wine within that category by reading the detailed labels that accompany all the bottles.
… By pre-sorting the wines into categories, the retailer helps novices look at the world through expert lenses. Best Cellars cofounder Joshua Wesson says, “We all want simplicity when it comes to these types of decisions…. We try to make wine shopping as much fun as wine drinking.” Note that this is the flip side of what Baskin-Robbins did in its heyday. Both retailers have thrived by creating a better choosing experience. Back then, this meant giving customers more choice; now, it means giving them less.

Image via WikipediaTo simplify the choice process, limit your categories to no more than 20, with 10 or fewer options in each. When you hold to these limits, consumers are likely to feel empowered by the number of choices, and are unlikely to miss any offerings that weren’t included. Iyengar and her collaborators, Cassie Mogilner and Tamar Rudnick, discovered this when studying the magazine aisles in several Wegmans supermarkets. The number of magazines available at various branches ranged from 331 to 664, but this number had no effect on buyer satisfaction. What mattered was the number of categories, … that each display provided. Arranging the magazines under a wider range of subheadings created the perception that the store offered more choice, even when the number of magazine titles was comparatively small. Customers in these stores also reported greater enjoyment of their overall shopping experience.

…[The] categories established by a marketer or retailer provide a framework for making sense of a large assortment, thus keeping consumers from being discouraged by the daunting task of choosing. …[These] categories … also provide a general overview of the field, which catalyzes consumers’ understanding of it and the development of their preferences within it.
4. Condition them for complexity. For certain kinds of decisions, you can set up consumers for success by encouraging them to learn from, and build upon, their own previous choices. This is especially valuable if your product is customizable.
For example, Iyengar and her collaborators, Jonathan Levav, Mark Heitmann, and Andreas Herrmann, conducted a study with a major German car manufacturer that allows customers to design their new cars from a long list of options, choosing everything from the engine to the rearview mirror. They presented the first eight design choices in different sequences to different groups of car buyers. One group had to choose  [design elements from categories that went from high choice to low choice]. A second group of buyers encountered the same choices in reverse order, starting with the design elements that offered the fewest options and ending with the ones that offered the most. Although both groups eventually saw 144 total options across eight categories, the buyers who moved from high choice to low choice had a much harder time. They began by carefully considering every option, but they soon grew tired and settled for the default. In the end, they wound up less satisfied with their cars than the buyers who had progressed from low choice to high choice.
This research shows that people can handle a large number of options, if they start off in the shallows and then slowly move toward the deep, all the while building skill and nerve. Beginning with fewer options not only warms up consumers, it helps them better figure out their own preferences, which in turn enhances their choosing experience. Over time, practicing this choosing technique will condition consumers to cope with increasing complexity.
An Open Invitation
Each of these forms of customer engagement can be technologically enabled, …. But the heart of this method lies in better design of the shopping experience, fueled by better awareness of human capabilities. When you take this approach, … your goal is to invite consumers to enter into a collaborative, mutually beneficial relationship with you.
From the outset, your design shows them that you understand how they think and respect their desire for both control and simplicity. The message is clear: In the short run, you are helping them navigate a bewildering and even debilitating world of options. In the long run, you are inviting them to choose you.

Author ProfileS:

• Sheena Iyengar is the S.T. Lee Professor of Business at Columbia University and a recipient of the Presidential Early Career Award. She is the author of The Art of Choosing (Twelve, 2010), from which this article is adapted.
• Kanika Agrawal is a research assistant at the Columbia Business School and a graduate of Columbia’s MFA program in writing.

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