Maria Franzoni Ltd

by Merlin Stone

In two recent research projects, I've been focusing on how the web has influenced relationships between companies and customers. My conclusion has been that the influence is generally positive, but can be negative. For example, if customers feel more empowered, they can make worse decisions or end up more quickly in dispute with their suppliers - mainly because a little knowledge is a dangerous thing.

If you ask a medical practitioner what they fear most, a common answer is the patient who has browsed their condition(s) intensively (and often endlessly) and come up with a false self-diagnosis. Perhaps I should write a blog on how the web stimulates hypochondria (not just in medicine but in any customer service situation).

More practically, any supplier faced with increasing frequency of customer self-advice or self-diagnosis needs to follow these ten rules:

1. Don't react with anger or frustration, but find out what your customers are doing. Ask them how they have reached their conclusions.

2. If you think they have gone the wrong way about it, tell them, and tell them why, but allow them to come back with a counter-argument.

3.. Make sure that where the customer goes, you go too. Make your advice prominent

4. Ensure that the advice you give also handles the objections that might be posed by other advice givers.

5. Give customers the tools to reach the right diagnosis or conclusion, tools that take into account the great variety of customer situations and needs. Where possible, help them simulate how life will be after they have made their choice.

6. Take account of the possibility that the customers most likely to exploit the ability of the web to put them in the position to "beat you up" may be "bad customers", ones you want to get rid of (if you can).

7. Build this "bad customer" possibility into your diagnostic approach and your and processes for advising, selling and servicing.

8. If possible, help your customers get advice from "good customers", which in this situation means ones who give good advice. Monitor the dialogue where you can.

9. Learn from your successes and failures.

10. Train your staff in how to handle customers who use the web in this way - and make it fun, because some of the things customers - and companies - do in this situation are quire funny (even if they are also sad).

by Merlin Stone 

Managing good and bad customers 

Who are good customers?

In the private sector, good individuals are broadly defined as a mixture of some or all of the characteristics below.

1. Good net value. This means that they yield value to the supplier which is more than it costs the supplier to service them, taking into account all costs. Consider the bank customer who keeps a reasonable current account balance, never going into overdraft without permission, and rarely going to the branch, preferring instead to use cash machines. This customer is of higher net value than a customer with the same average balance who constantly moves into a small overdraft and uses branch services. Even though this customer would pay higher bank charges, these are unlikely to compensate for the extra administrative costs triggered by staff constantly checking to see whether the overdraft will be paid off. Although the bank might try to optimise charges to the latter to make the account profitable, it will not always succeed.

2. Moral (i.e. unfraudulent). This means that they stay on the right side of the law in all their dealings with the company. Note that some companies do quite well out of meeting the needs of customers who in other respects are immoral, but stick to the law while interacting with the company e.g. casinos or betting shops used for money laundering.

3. Prudent. This means that they live their lives within the resources available to them. Note that some companies make a very good living out of the imprudent, even if it does necessitate charging usurious interest rates!

4. Punctual. This includes, for example, paying bills on time and arriving at transport locations on time.

5. Responsive in a relevant way to communication. They respond to marketing communications that are relevant to them (in the sense that they are likely to lead these customers to evaluate seriously the possibility of buying the product or service). However, they do not respond to ones that are not (the latter is known as the "schoolboy brochure" phenomenon at the Motor Show, but is experienced by many companies with strong brands – interestingly the World-wide Web has proved to be a very cost-effective way of handling these). One of the major problems faced by companies is to manage communications cost-effectively (whether or not they are solicited in the first place) when they have a low probability of leading to retention or development of revenue. Of course, if the communication is solicited, this does not necessarily imply poor targeting, as the customer may respond in other ways than anticipated by the company.

6. Responsive to other initiatives e.g. willing to try new products

7. Happy to give relevant and truthful information to the organisation and to update information previously given. This allows the organisation to determine the appropriate "treatment" for the individual, but also to save resources by not offering inappropriate treatment. This also applies to complaints (see below).

8. Healthy in habits (e.g. moderate drinking, not smoking) and perhaps even in genes

9. Safe e.g. in driving and as a pedestrian, and perhaps in sporting habits

10. Observing rights and responsibilities (e.g. prepared to learn how to work with the organisation to achieve mutual benefit, such as installing security devices, looking after credit cards, following a healthy life style)

11. Complaining only when "justified", in which case the organisation can improve its service and reduce later complaints

12. Prepared to recommend to other individuals if service/product is good. etc.

13. Persistent – i.e. unlikely to switch – though this of course depends on the product. Persistent customers for undertakers are rare (though if the family is the decision-making unit, persistence can exist). However, there are strange bedfellows, so to speak. Persistent customers for wedding wear might also be persistent customers for lawyers, because they can afford to be , and hence possibly good customers for financial services advisors.

14. Stable or predictable

Who are bad customers?

Bad customers have characteristics largely the opposite of those listed above. For most organisations, the key bad characteristic is current and/or likely future unprofitability, though there are circumstances in which unprofitable customers are highly valued e.g. as recommenders. Companies may include in their definition of bad companies debtors, switchers, liars, or those with court judgements against them. Charities, public sector bodies or private sector bodies acting on behalf of these organisations often focus on such customers.

As companies seek to manage customers more as individuals – but remotely, so some bad customers learn to exploit this tendency. This is most visible in the areas of credit and debit cards and the Internet, but also in insurance and banking. Bad customers learn very quickly because the incentive is often very large (the potential gain) and in some cases transfer their learning very quickly (often to other individuals within an organised criminal network, but sometimes also within their ethnic or professional group or geographical locality). For example, government benefit frauds are often organised within ethnic groups or families. Tampering with utility meters often spreads geographically.

Certain industries always have a relatively high risk/value ratios at the level of the individual customer. These are typically industries where there is a large insurance, credit or consequential liability element involved. They include:

• Insurance itself

• Any industry where maintenance contracts are sold

• All pure credit industries e.g. bank loans, credit cards

• Any continuous supply which takes place under credit terms e.g. utilities, industrial supplies

• Any situation in which claims are hard to validate

• Products where failure or misuse can cause significant damage to the customers, leading to high incidence of product liability claims

However, other areas of high risk include:

• Service industries where complainers – having taken the service – typically ask for reimbursement of the full value

• Products or services where the costs the organisation has to incur to serve the customer after the initial purchase may greatly outweigh the revenues if the customer behaves in a certain way e.g. cherry picks all the high cost, low or zero revenue parts of the service

• Situations where entitlement documentation can be forged

To give the reader an idea of the extent and variety of "bad customer" situations, and their typical correlates, here are a few examples which differ from the usual example.

• Certain apparel shoppers (mostly women – because they are the majority of apparel shoppers) buy merchandise knowing that they are going to wear it once, before taking it back to the shop to exploit the shops liberal returns policy. Shops develop strategies to deal with this, typically taking the merchandise to the back office and smelling it for signs of body odour, deodorant, perfume etc – sure indicators of the garment having been worn for an extended period. If this is suspected, management is called in and the customer is challenged

• A very high percentage of claims on holiday insurance policies are fraudulent, particularly those involving claims of lost cash. Insurers are dealing with this by developing databases of frequent claimers

• Certain flyers forge airline boarding passes to obtain frequent flyer points. One airline found that there was a correlation between forging and choosing ethnic meals

• Certain utility users always pay at the very last minute, when they are about to be disconnected or have a prepayment meter fitted. One utility found this to be correlated with ethnic group

• Certain customers make a habit of claiming that different types of cleaning and washing fluids damage the item being cleaned – or of course their skin! They are traced by keeping properly computerised records of complainers' identities.

• Certain small businesses persistently claim that their suppliers are short-delivering them – maintaining that they were too busy to check the delivery in the presence of the deliverer. Companies deal with this by sending double-checked trial deliveries.

Bad customers are not to be avoided at all costs. Some organisations have as one of their objectives to serve customers defined as bad (by these organisations and/or by other organisations). Examples include police forces, social welfare agencies and charities. As we have mentioned, private sector organisations can design products for bad customers (tamper-proof electricity meters and phone booths, insurance products with specific risks excluded, service products with prepayment tariffs). Similarly, slack product or service design can turn apparently good customers into bad customers, and indeed whole markets from basically good to quite bad. For example, recruitment of customers for cable telephony or motor insurance irrespective respectively of their propensity to pay their bills or to switch on price led to many more customers turning bad.

Managing bad customers

Here are some simple rules to help you.

1. Define good and bad customer, recognising that most customers are a mix of good and bad attributes

2. Remember that bad customers often occur in groups, may work together, may collude with your staff, and get better and better at being bad if you let them i.e. they learn. So your picture of "badness" should not assume that the situation is static

3. Don't be afraid to "think the unthinkable", in terms of how "badness" may be distributed, but make sure that you base your analyses on hard evidence, not prejudice, and that you stay clearly within the terms of the various laws that determine what you can do. These include laws covering data protection, racial and other types of discrimination, employment, and specific industry regulations

4. Ensure that your databases and data sources allow you to identify good and bad customers

5. If you can, measure the performance of your business in terms of the net value you obtain from each customer – including all exposures and not just routine costs. Where you do not have individual customer revenues and costs, use research-based estimates.

6. Estimate your net exposure to bad customers, and calculate whether it is worth while investing in reducing exposure

7. If it is worthwhile, make sure that your systems at the point of contact with customers allow you to identify bad customers, and also predict whether a new customer will be good or bad

8. Where the data you need to do this is somewhere else, obtain it, and if possible, develop relationships with your competitors which allow you to identify bad customers and warn each other about them – subject to the provisions of the Data Protection Act and any special industry regulation

9. Develop, test and refine alternative strategies for dealing with bad customers, combining limitations on dealing (and in extreme cases refusal to deal) with techniques to reduce exposure to bad customers who have "got through"

By Frank-Jurgen Richter

If businesses did not make a profit they would, in effect, be giving away their money, and would fail - putting many associated people out of work: their staff, suppliers and customers. But some firms are accused of profiteering - making unreasonably large profits.

In the western world the service industries and the oil firms spring to mind. Yet in the case of the water, telephones and electricity sectors they have a huge expenditure programme to meet - in terms of maintenance, renewal and expansion of their reach. The oil firms must explore, spending vast amounts on ventures that while likely to produce oil (or gas) may eventually have no yield. Pharmaceutical firms are likewise hampered - research on new drugs is very costly and may not develop a useful product.

No business, however, can justify a vast salary regime. Managers after all are just bosses as in your corner shop- they ought to be prudent entrepreneurs, mindful of their customers´ needs and the costs of goods to fill the shelves: the wrong goods will not sell, and too many errors will lead to a change of manager, or to the failure of the business since no profit is created to expand future business.

On July 30th 2011 there was a call to gather in Datran, Kuala Lumpur to 'occupy´ and protest against increasing economic and social inequality. By November 4th there were said to be 2,500 "Occupy" communities spread round the globe all acting mainly peacefully and asking their governments and businesses to become more socially conscious and not to be profiteers. There is a collective judgement that a few people are undemocratic, commanding obscene salaries and having no fear of legal repercussions if they fail in their management tasks.

There is a similar unrest expressed against the laissez-faire capitalist movement run by some governments. Ministers determine what projects will be undertaken by the people´s elected Parliament 'for the good of the people´, and they often spend a vast fortune on tasks that ultimately are failures. Failures because of many factors, but most being poor specification, meddling during the project so varying the goals and simply poor management of a project that had not been properly evaluated. The government is, like banks and some major firms, unconcerned by the downside risk of a project as no one is seen to be the manager responsible, and no one gets sacked.

The people are thus angry at all forms of unevaluated expenditure, especially in these austere times - they would prefer to dispense with much direct taxation. They wish to have low levels of direct tax (yet still support some obvious public services like the police, military, education and perhaps health service) so they would have more cash in their pockets to spend on goods carrying indirect taxation. If an individual wished to buy bread or a luxury item it is their choice, and would be taxed accordingly. But if they have little cash to spend, through being made redundant for instance, they may not even be able to buy any bread. It is said that we, as individuals, may be better decision makers than governments or managers of large firms as we evaluate risk at each operation: we are spending our limited savings. Academically we know we do not do this efficiently, but surely we will be better than governments who seem not to consider risk at all?

What can we do about this? Well, in fact, nothing much rapidly. It is said that the top 10 per cent owns 70 per cent of the world´s capital -and this is not going to change overnight. The inequality is measured by economists as the Gini Coefficient and shows the worst country as Namibia (0.847 - with 1.00 being the theoretical worst). As we said, it will take a long time to alter national stereotypes or national inclinations to saving or wealth management - which in the case of the Orient often goes back as far as the edits of Confucius. However, that is too facile an argument - as Ireland, Italy, Finland and Australia are relatively equal (all under 0.622), and they do not carry implicit Confucian values. However, Italy and Ireland, although 'egalitarian´ nations, suffer in the European banking crisis.

So again, what do we do about this? One of the complexities of modern life is money or more precisely, the borrowing of money for projects that may not perform well leaving us in debt: which we can´t pay except by further borrowing and betting that bit harder on future winnings. The whole thing becomes untenable without lifting the levels of trust in each other, as we did in the days before much cash circulated-we bartered our way through life, trusting the others to pay in the future. It will be tough on everyone if we collectively wipe out our debts by defaulting. But somehow we must begin again; we must trust deeply, to get the cash circulating and to pay a reasonable salary at each level of society. Then the 'bread winners´ will be able to hold up their heads and indeed buy bread once more.

Frank-Jürgen Richter is founder and chairman of Horasis that hosts the yearly Global Arab Business Meeting held in Ras Al Khaimah

Innovative and creative employees - entrepreneurs within your business - are a rarity. However, Stephen Archer argues that this doesn't have to be the case.

Intrapreneurs are employees within a company who will undertake something new, without being asked to do so. They are innovative and creative - people who can transform an idea into a profitable venture for your business. They act like entrepreneurs, but they work for you.

As any business or HR manager will know, such individuals are a rarity, however, this needn't be the case. Every employee can become more creative and entrepreneurial if their company adopts a different approach to their development and cultivates a culture where innovation and creative thinking is encouraged and supported.

One of the main problems facing many UK businesses at the moment is that they have lost sight of the importance of fostering creative thinking and innovation. In doing so, they are placing their business at risk and giving the competition a serious advantage.

Wear a raincoat

We can't lose sight of the fact that the economic crisis has turned many offices into high pressured working environments, where employee engagement and confidence has been eroded. Is such businesses energy, creativity and innovative thinking has been lost. However, what has also emerged is a blame culture where business people are blaming their current poor business performance solely on the recession and external factors. But this is a bit like complaining that you are wet because it's raining. How about wearing a raincoat? Businesses have a duty to prepare for the future upturn and ramp up their competitiveness.

The actual 'raincoat' for business is not act in defence; it is to attack. Sun Tzu in the sixth century said that you may survive though defence but you can only win by attacking. One of the oddest paradoxes of the business world is how many business owners never even see themselves in a competitive situation. Absurd! Competition in so many forms is ever present and can never be ignored.

Innovate

So what can businesses do to be more competitive? It is in times of adversity that some of the greatest innovations have appeared and in today's straightened times there is a healthy pressure to differentiate, become more competitive and establish more intrinsic value in the organisation. Does this come about by exhortations by the CEO or by establishing a culture of freedom to think and innovate? It may be the former but it must be the latter.

It is down to business managers and the HR department also to establish a culture where intellectual power within the company is harnessed to the betterment of innovation and in so doing equals motivation, productivity and profits. An energised workforce is an effective and content one. Most people in an organsiation have enough sight of what is going on to be able to contribute to innovation. However, we are not talking just about suggestion boxes. I am referring to special projects and cross functional work groups to establish innovation in products, service and operations. Managers need to make it clear that this is not a one off; to create sustained motivation, people must feel valued. Leadership has to be consistent and authentic in the way that it empowers teams to be creative. Here are some ways of encouraging creativity and innovation:

Understand and know what the market wants, but know more about what your competitors are offering and how they behave. Competitors of all kinds are the minimum benchmark for which to aim. Equalling the value of competitive offerings is rarely going to suffice – always ensure you are moving to stay ahead. Look at every weakness in competitor offerings and operations and use advanced brain storming tools such as 'meta planning' to develop and refine the winning concepts.

Empower people to implement their innovations

Make it clear that a business must always develop its products and services. NEVER stand still. Even those lucky enough to have patent or intellectual property protection must seek to acquire more advantages. If in any doubt about this then compare the fortunes of General Motors to Honda in the past decade.

The customer is always a good start point for innovative thinking and should be a central focus for the whole business. The customer and their relationship is central to business success. Do not rush to copy some competitors' ways of caring for customers (e.g. automated telephone services!). Develop new ways to engage with customers in a way that customers want. They will repay you over and over. This is how Virgin Atlantic took so much business away from the likes of British Airways.

Treat internal employees as customers and friends. The best innovation can come from co-operation between employees – this is an effective way of bringing out Intrapreneurs . Identify and appoint innovation 'champions' around the business. These people will be the leaders on innovation development and manage the process. They must drive the culture.

Any function has scope for innovation – always. HR, finance, customers service, manufacturing, legal, they all must innovate and an innovation culture that embraces all the functions will be a better joined up organisation.

Lead people to look externally for inspiration and don't be afraid to steal other people's ideas. Some of the best ideas and simplest innovations are from businesses that already have had such a drive or survived times of stress. Copy best practice. Sometimes copying is the best route. However, copy it, and then improve it. Look at how the Japanese destroyed the UK motorcycle industry, they copied the UK and made the products better.

Managers should promote external focus from all departments. Many businesses suffer from internalism and parochialism. They stunt growth, innovation and sap energy. Assume that your business could be killed off by new entrants to the market or new innovations - people or technology based. Get people to think the un thinkable, develop thinking around scenarios that may seem unrealistic. Remember, in 2007 the idea that several banks would fail was unthinkable.

Lastly, companies must look forward, not back all the time. Create a 'can do' rather than 'can't do' culture. There are 'no but's'; only 'yes and'

In the end, innovation is an attitude of mind. It can be developed and sustained through consistent behaviours in the business. The value is enormous and in truth no one has a choice in the matter. Everyone must adapt, change and innovate and we can all become Intrapreneurs.