The $20 Brand Bond

Amazon LogoLet’s talk about lifetime value of a customer for a few seconds. I use the term “a few seconds” purposefully.

Recently I bought one of those discount vouchers for a neighborhood deli, where you pay something like half of face value and then cash in full value when you’re at the restaurant. This one wasn’t from Groupon or Living Social, but from Amazon Local. When I went to cash it in, the deli was out of business. Tough times always for restaurant retail. It happens. Went to another place for lunch. Oh well.

I got home that night, went to the customer service web page for Amazon Local, found the template under Contact Us, and submitted a one-sentence email notifying them of the event. How long did the response take? Less than a minute. Full credit.

Yep, Amazon Local “bought” this voluntary endorsement for a whole twenty bucks. Plus my ongoing loyalty. My lifetime value to Amazon the Brand just increased a good deal more than twenty bucks, perhaps a hundred times that, maybe more. Why? Well, first because they respected me and my time, but more so because they laid the pipe to assure me that if something bigger ever needed to be addressed, I could count on them.

What did they do right internally to cause this function to be enacted externally? For one, they fully empowered their staff, someone in a call center likely on the other side of the world. There is no way in that brief turnaround their staff person had to ask anyone for permission to do anything. They saw an issue, they jumped on it, case closed.

We look for WOW THE CUSTOMER moments in business all the time. We spend hundreds of millions of dollars on advertising to get someone to sample a new product or service, so that somehow a WOW THE CUSTOMER moment can occur. This one cost an entire twenty-dollar bill.

Compare this experience to another I wrote about earlier this year, where try as I might, I could not get one of the largest retailers in the world to help me locate a $5 replacement part for a thousand-dollar appliance I had purchased from them. That retailer competes with Amazon, probably does not know it, and will never get another dollar from me. If you have a moment, go read the transcript I shared from that interaction. Coincidentally, I happen to have shared that post with a rising star at Amazon back when it happened who was aghast when he read it. He had no idea of the contrast to come.

This is not meant to be a lionizing of Amazon. Full disclosure, they were a minority investor in my previous company and proved to be a formidable competitor, daunting in many respects, not the least of which was their near-rabid obsession with precision, time to market, and transaction perfection. They had vast resources to call on that were not available to me, but they used them wisely and never skimped when it came to the customer experience. That is a big part of how they got to be best in class, and consistently one of the top performers in the Internet Retailer Top 500.

Germane to Amazon’s perfection is a mandate of setting a customer service standard that is so extraordinary and so rare it can seem financially irresponsible to emulate—so much of net margin goes right back into the expense line to serve the customer. Market analysts often shiver when they report on Amazon, wondering how their eye-popping trading multiples can last, with so much volume but so little relative profit. Amazon seems to pay little mind to these analysts, instead worrying instead about customers. That leaves them no choice but to focus on lifetime value, calculating it in complex equations with net present value back to the reinvested capital that most others would probably harvest.

How tempting it is to consume the fruit of that harvest, but harvest has to come each year, and that is why we focus on brands. Here I lionize the customer service commitment as an essential and grounding component of the brand promise. It is the shortest business case study in the world, yet almost every company you encounter gets it wrong.

A service culture in the information economy puts the CEO at the bottom of the hierarchy and the customer at the top. The customer is the boss. The people closest to the customer, individual contributors like those in customer service, are the ones who interact with customers. They make or break your brand. How much discretion and authority are they usually granted? None. How much should they have? As much as you can pile on. They own the customer relationship, so they own your future.

Go on, hire the highest paid consulting firms and retain power player ad agencies. Hold multi-day off-sites for brainstorming retention strategies. Give motivational speeches about reframing your mission and vision.

Or just be really, really, really appreciative of your customers. Love your customers, every single one them, embrace them as strategic imperatives, bonds that build moats.

What’s the ROI on world-class handling of those who frequent your brand? You tell me.

Advertisements

Innovation Finds a Way

If there is one thing the history of evolution has taught us, it’s that life will not be contained. Life breaks free, expands to new territory, and crashes through barriers, painfully, maybe even dangerously.  — Dr. Ian Malcolm (Jeff Goldblum), Jurassic Park, 1993

When not engaging in polite conversation over the past few weeks that involved either unsound journalistic ethics at News Corporation or the pending apocalypse of the U.S. debt ceiling, the most popular question I tended to encounter was, “Do you think we’re in a stock bubble?”  Truth be told, that has been a raging topic all year.  The cover story in the current issue of Fortune is “Tech Bubble 2.0” with a reasonably balanced assessment of Is It or Isn’t It.   My assessment?  Got me.

Here’s what I know.

It’s sure not 2000.  The internet is real now and so are an incredible number of businesses being launched of late.  This new wave of entrepreneurial enterprises sits upon real business models either with real revenues and real profits or real revenues and reasonably predictable profits at scale.  The business models are new, unexpected, but sound.  Some are working wildly well and bringing buckets of cash to their corporate bank accounts with pleased and well served customers, employees, and shareholders.  Others hold promise to do the same, aren’t quite there yet, but don’t take a lot of imagination to understand how they will scale to profitability because their models make sense.

Corporate earnings appear for the most part to be sound, albeit with heavy cost controls in place that aren’t doing much for the unemployed.  If you are buying the major indices across the board — domestic and international, large and small, growth and value — fully diversified along with fixed income to your own level of acceptable risk, you probably aren’t having trouble sleeping at night (except, of course, when you think about resolution to the debt ceiling).  Are the markets volatile?  They are, but they always are.  Are the fundamentals and multiples reasonable?  Well, I’m not an economist or a trader, but the Dow looks pretty understandable to me.

So how about that bubble?  Major players in venture capital have issued their opinions and are easy to search on other blogs, I am hardly qualified to comment.  Is it likely that some valuations are products of hope, optimism, or hyperbole?  Tell me anytime when that’s not the case.  Have you ever heard a Realtor tell you it’s not a good time to buy a house?  It’s always a good time, if it’s the right house at the right price.  My sense is, same with equities, preferred and common, private and public.  Bubble is a broad and complicated idea, always easy to assess in hindsight, virtually impossible in the crystal ball.

That’s what I know.  Sorry if I disappointed.

Here’s one thing else I know: the innovation all around us is astounding.  I can’t remember a time when there was so much happening so quickly and so much of it actually looked like true value creation.  Here is small sampling of the mind-blowing advances all around us:

Apple — the iPhone was a game changer, the iPad is a life changer.  I think the iPad will change everything about media for a generation.

Netflix — another game changer, first movies by mail, then movies on demand, easy and affordable, changing entertainment distribution paradigms at every turn.

Zynga — will people buy virtual goods?  They will.  Can a tiny segment of your audience underwrite the ability for everyone else to play free and still create profits?  Indeed.

Pandora — here’s technology that lets you create your own radio station that not only plays the songs you already like, but introduces you to new music you probably will like.

LinkedIn — not long ago if you had your resume online you were job hunting, afraid of being caught by the boss; now you must have your resume online or you don’t exist.

Hulu — one new brand aggregator derives more advertising revenue from network created content than the total online revenue of all the suppliers combined; wow!

Groupon & Living Social — coupons used to be the least cool way in the world to shop; call them time sensitive Daily Deals and online drives consumers back to storefronts offline.

Twitter — people communicate in less than 140 characters and the world is connected through snippets of information that can alter public opinion and evangelize democracy.

Facebook — connect people with friends, redefine the verb like, open your platform, create the most display ad inventory imaginable, then enjoy the value of 750 million accounts.

Again, this is just a sample of very cool companies doing very interesting things, among them, creating jobs and creating wealth.  Each of these represents incredible creativity, brilliant execution, and deep levels of passion.  People are working hard, people are working smart, people are being rewarded.  With > 9% national unemployment still our challenge, it is inspiring to see there are paths out of the malaise.  There are lessons to be learned in the current Silicon Valley run-up, first among them, the key is innovation.

It is ironic this “Tale of Two Economies” comes at a time when so much of the nation’s economy is suffering, and so many job losses lead the gloomy headlines.  It’s also ironic that it comes just as we lose a much beloved company, Borders, which in its day reinvented our notion of what a bookstore could be.  When the first wave of internet companies changed the landscape, Borders leased their digital real estate to Amazon.  They never recovered.  I asked a former VP of mine her sense of this recently, to which she replied: “They just forget to keep innovating.”

Perhaps the former CEO of Intel, the incomparable Andy Grove, said it best and most succinctly in the title of his 1996 book: Only the Paranoid Survive.

While I will always be reticent to render an opinion on the fair market value of a company, I can give a resounding endorsement to so much outstanding work I see going on all around us, much of it disruptive, as it should be in an entrepreneurial landscape that favors creative destruction.

Given a choice to share an opinion on the bubble versus the landscape, I’ll take the landscape.  I like what I see.  I would like to see it spread.  The old jobs aren’t coming back, innovation and automation pretty much assure that, there is little point waiting.  Let’s hope the new business models work so that new jobs will replace them and all boats float with the rising tide.  Many companies will fail, but the direction seems right.

Creativity tempered by sound judgment is the currency of the new economy.  It remains largely an open playing field for anyone who wants to relearn on a daily basis everything they thought they knew.