Identifying winning customers
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Identifying & Winning Customers. Prof. Stephen Lawrence Deming Center for Entrepreneurship Leeds School of Business University of Colorado Boulder, CO 80309-04 19. ESSAM 2011. Agenda. Global Cultural Differences Hofsteder cultural dimensions Overcoming customer resistance

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Identifying winning customers

Identifying & Winning Customers

Prof. Stephen Lawrence

Deming Center for Entrepreneurship

Leeds School of Business

University of Colorado

Boulder, CO 80309-04 19

ESSAM 2011


Agenda

Agenda

  • Global Cultural Differences

    • Hofsteder cultural dimensions

  • Overcoming customer resistance

    • Prospect theory

  • Finding your first customers

    • Crossing the chasm

  • Convincing customers to buy

    • WIFM


Global cultural differences

Global Cultural Differences

Hofsteder Cultural Dimensions


Hofstede cultural dimensions

Hofstede Cultural Dimensions

  • Power Distance (PDI)

    • Acceptance of unequal power distribution

  • Individualism (IDV)

    • Extent of identification with a group

  • Masculinity (MAS)

    • Degree of differentiation in gender roles

  • Uncertainty Avoidance Index (UAI)

    • Measures cultural concerns about the unknown

  • Long Term Orientation (LTO)

    • Cultural focus on the future; “time-horizon”

http://www.clearlycultural.com/geert-hofstede-cultural-dimensions/power-distance-index//


Overcoming customer resistance prospect theory

Overcoming Customer Resistance –Prospect Theory


Prospect theory

Prospect Theory

Kahneman and Tversky

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


Examples of customer resistance

Examples of Customer Resistance

  • Webvan (online groceries – 1999)

    • Burned through $1 billion in 2 years

  • Segway PT transport vehicle (2002)

    • Sales 100X less than forecast

  • TiVo digital TV recorder (2004)

    • Rave reviews, but slow sales

  • U.S. $1 coin (2007)

    • Available, but never used

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


Asymmetric perceptions of risk

Asymmetric Perceptions of Risk

  • Which bet would you choose?

    • A sure $20

    • A one-third chance of gaining $60.

  • Which bet would you choose?

    • One-third chance of losing $60 (with a two-thirds chance of losing nothing)

    • A certain loss of $20

  • Most choose 1a and 2a

    • Sure $20 gain (risk-aversion)

    • Expect $20 loss (risk-seeking)


Risk framing effects

Risk Framing Effects

  • Which do you choose?

    • A new drug can save 200 of 600 people suffering from a fatal disease

    • A second new drug will allow 400 of 600 affected people to die

  • Most people choose (a)

    • Risk averting in (a)

    • Risk seeking in (b)

  • We fear losses more than we value gains


Endowment effect

Endowment Effect

  • People value items in their possession more than those items not in their possession

  • Innovation demands change

    • Giving up a known endowment (possession)

    • Getting a new unknown possession

  • Old benefits valued at 2-3X than new

  • New costs valued at 2-3X larger than old

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


Prospect theory1

Prospect Theory

Subjective

Gains

Status Quo

Objective

Losses

Objective

Gains

Rational (subjective = objective)

Subjective

Losses

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


Costs and benefits

Costs

Benefits

Costs

Benefits

Costs and Benefits

Scenario 1

Scenario 2

Scenario 3

Costs

Benefits

?

Consumer

Response

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


Rules of prospect theory

Rules of Prospect Theory

  • Individuals are sensitive to gains & losses

  • Aversion to losses

    • Losses loom larger than gains

  • Reference points (framing) matters

    • Evaluations relative to status quo

  • Decreasing marginal sensitivity

    • More not proportionally better than less

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


Making matters worse

Making Matters Worse

  • Timing

    • Upfront costs vs. accrued benefits

    • Example: Compact fluorescent bulbs

  • Uncertainty

    • Certain costs vs. uncertain benefits

    • Example: Corporate intranet

  • Qualitative benefits

    • Costs are quantitative, benefits qualitative

    • Example: Online troubleshooting

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


Entrepreneur s curse

Entrepreneur’s Curse

  • Problem #1 – Self-Satisfaction

  • Problem #2 – Clash of Perspectives

  • Problem #3 – Curse of Knowledge

Sees product for 1st time

Needs/benefits not obvious

Skeptical of claims

Mid-valuation of benefits

Status quo includes features

Long experience with product

Benefits/needs obvious

Fully trusts technology

Self-selected believer

Status quo includes new product

Entrepreneur’s View

Customer’s View

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


Capturing value

Capturing Value

High

2. NoSale

3. Long

Haul

Required

Behavioral

Change

(value capturing)

1. Tinker

4. AWinner!

Low

Low

High

Degree of Product Benefit

(value creation)

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


Resistance strategies

Resistance Strategies

  • Accept Resistance

    • Brace for the long haul

    • Look for 10X improvements

  • Minimize Resistance

    • Make an innovation behaviorally compatible

    • Seek out the unendowed

    • Find believers

    • Eliminate the old

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


Lessons

Lessons

  • Focus on savings and cost reduction

    • Painkillers versus vitamins

  • Minimize required behavioral change

    • Even if benefits are fewer

  • Frame product appropriately

    • Positive emphasis

    • “We save lives” vs. “We prevent deaths”


Crossing the chasm

Crossing the Chasm


Crossing the chasm1

Crossing the Chasm

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


Crossing the chasm2

Crossing the Chasm

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


The chasm

The “Chasm”

  • Techies and Visionaries

    • Enthusiastically embrace new technologies

  • Pragmatists

    • Want to see a total solution

    • Won’t settle for 80%; only 100%

    • Want a whole product solution to problem

  • Firms typically

    • Try to satifice across many customers,

    • But completely satisfy none

Moore, “Crossing the Chasm – and Beyond,” in Strategic Management of Technology and Innovation, Burgelman et al., 2004


How to cross the chasm

How to “Cross the Chasm”

  • Focus on a single industry or segment

    • Put all your eggs in one basket

  • Develop 100% of a whole solution for this narrower niche

  • Gain a committed beachhead among pragmatists within the niche

  • Grow into other niches with success

Moore, “Crossing the Chasm – and Beyond,” in Strategic Management of Technology and Innovation, Burgelman et al., 2004


How can we convince customers to buy

How can we convince customers to buy?


Framing

Framing

  • Focus on the customer benefits of your offering

    • Do not focus on its features

  • Focus on reducing losses (pain) if possible

    • Add in benefits if available

  • Focus on benefits as necessary

    • Diminish perception of costs (e.g., 3 easy payments)


Tune your radio to wifm

“Tune your Radio to WIFM”

  • WIFM – “What’s In it For Me?”

  • This is the favorite and only station your client listens to

    • Know why they are buying

    • Remind them why they are buying

    • Only talk to them about how this deal will help them!


Identifying winning customers1

Identifying & Winning Customers

Prof. Stephen Lawrence

Deming Center for Entrepreneurship

Leeds School of Business

University of Colorado

Boulder, CO 80309-04 19


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