Buyer Psychology and Customer Value: Why People Buy Starbucks coffee?

How Starbucks Differentiated in a Commodity Market

Hint: it is probably not because of the quality of the coffee.

This post was inspired by a question on Quora that asked if Starbucks coffee was really superior and how the company made it addictive. What i found very interesting about this question is that the quality of the coffee is not really that important. There are other psychological and emotional reasons why Starbucks is so successful worldwide.

After all, contrary to what most people believe, we all make purchase decisions emotionally and then (sometimes) justify them rationally. This is true in B2B and B2C, it is true for $1 or for $1 Billion purchases. And it is critical for all marketers to understand.

Continue reading “Buyer Psychology and Customer Value: Why People Buy Starbucks coffee?”

Embracing Market Disruptions – the End of TV as We Know It

Market Disruptions Strategy

Many products, especially technology products, are marketed as revolutionary or game-changing. Most people know better than to trust marketers at face value on claims like these.

Disruptions to the market could be defined as those who alter the balance of an industry between supplies, consumers, existing and new competitors and alternatives – Porter’s five forces. These changes alter the industry’s profitability, growth rates and expectations for future growth.

Examples of true disruptions include when streaming TV and movies over the Internet (Netflix, Hulu) became a viable alternative to in-store rentals (RIP, Blockbuster) or when computer components enabled smaller companies (Dell) to compete at lower costs than industry leaders (IBM, HP).

Market leadership is not powerful enough to stop market disruptions

In the majority of cases, the new technology was available to industry leaders who chose to disregard it as a fad or inferior to their existing technology. There were clear signals of the market disruption, which leaders chose to ignore.

Sony ignored the digital music revolution, allowing Apple to dominate the market with the iPod and iTunes. Sony had everything to win: the company invented portable music with the Walkman a few decades ago. Sony owns movie and music publishers and distributors. Sony produces consumer electronics, computers, and mobile phones. The company’s mission is to innovate around content to deliver new experiences. And yet, Sony chose not to participate in the disruption. Continue reading “Embracing Market Disruptions – the End of TV as We Know It”

10 Fundamentals of Social Media Marketing

There are many guides, best practices and tips for social media marketing out there. This is a different list. These are 10 principles that are fundamental for organizations that are building a social media plan. The goal is to help you establish a mindset that will help you come up with a strategy. I learned these principles after more than a decade of working on social media and community strategies for startups to Fortune 50 organizations..

To start on a light note, let me share an extended version of an entertaining way to explain social media 101

Social Media Explained


OK, now let’s get to the important stuff. For each principle I provide a summary and a link to an older post where you can read more on the topic.

The 10 fundamental principles for social media marketing

1. Social Media is not a strategy. Social media is interaction, it’s a channel, a tool that can be used for many things – like email, or video conferencing technology or a CRM system or in-person meetings. Social is most effective when integrated with other parts of the business to support a business strategy. Read more.

2. Social strategists are coaches. A mature social team crafts the strategy, provides a technology foundation, guidelines and coaching to enable multiple groups in the organization to be active in social media. If the social media is the only one participating in the conversation, you are doing something wrong. Read more.

3. Social Media is changing fast. My 14 year old daughter has no idea what Foursquare is. Her group use Instagram and Vine more than Facebook and Email. AOL is history. Be aware of social network and style preferences for each of your target audiences. Prepare to be adaptive. More stats.

4. Social media marketing will go away. Soon. Why? Because everything will be social or will have an aspect of social. Every well-rounded marketer must have social media skills and experience. Just like every well rounded marketer requires knowledge of SEO, web technologies or digital marketing. It’s just marketing.

5. There is no social media ROI. The exact value of a Facebook like or a Twitter follower is zero. At least until you come up with an integrated plan to engage fans and create value, they are worthless. If you are measuring ROI for social media activities you are doing something wrong. You must measure the contribution of social media tools and tactics to greater company strategies. Like customer acquisition, branding, support and customer feedback. Read more.

6. Correlation is not Causation. When measuring Social Media effectiveness it is easy to say things like ‘people who follow us on Twitter buy 40% more and buy 3x more often’. We are inclined to believe customers buy more because they follow us on twitter, while the opposite is more likely to be true: customers who like us, are loyal and buy more are likely to follow us on twitter. Correlation does not create value. Read more.

7. Don’t oversell social media. Ads on Facebook or Linked in is not Social Marketing, it is just Advertising. Publishing discount coupons on twitter and other social channels is just taking advantage of an audience to run promotions. Measure value holistically and take into account all costs (including effort, focus and cost of opportunity). Read more.

8. Most communities fail and die. It is alluring to ‘own’ our community of customers and advocates. The reality is that it is very hard to create a community. A better strategy is to fish where the fish are and participate in existing communities. We talk a lot about social media success, we need to talk more about our failures and learn from them. Read more.

9. Becoming a social business is not about adopting social tools, and launching a social campaign. It is about changing your culture to be more customer centric and putting the customer at the center of the business. Read more.

10. Social is just one of five key factors that are changing our world along with mobile, sensors, data and context. Read more about the Age of Context in this post.

If you are building a social strategy for a company, let me suggest this presentation by Warren Lee of Adobe. It provides a useful framework for organizing a team, integrating it with other areas in marketing and specific KPIs that is well aligned (is a good example even) with point #5 above.

Please share your thoughts in the comments below


Welcome to The Age of Context – and Contextual Marketing

The Age of Context and Contextual Marketing

What is the future of technology? How will technology impact your business and how does it impact marketing?

The preceding two questions are very important. Companies that are not able to adapt to rapid changes in technology are left behind to die. Examples abound, even innovative companies that were ahead of their times in their use of technology such as Blackberry, Blockbuster, Circuit City, among others. Most business executives recognize the need to evolve, as do most marketers. After all, that’s why I named this blog the Adaptive Marketer.

My oldest daughter just turned 14. I have had to explain rotary phones, cassette tapes, film cameras and typewriters to her. Kids born today will have to ask their parents to explain what a music CD and a DVD are. The evolution of these technologies has created and destroyed entire industries who failed to foresee the importance and impact of these new technologies. Any business person should be asking: What is the next revolution? Where are things going? How will these changes affect my business?

I found many answers in The Age of Context by the dynamic duo: futurist & technology blogger Robert Scoble and writer and storyteller & writer Shel Israel.

Continue reading “Welcome to The Age of Context – and Contextual Marketing”

Marketing Leader Interview with Augie Ray

Marketing Augie Ray

Augie Ray is a good friend and a true thought leader in interactive marketing, social media and customer experience. He is a voice of customer leader at a Fortune 100 financial services firm. I met Augie when he was the lead Forrester  Research analyst covering interactive marketing and social media.

You will find Augie’s perspective refreshing and insightful.  Enjoy.

Continue reading “Marketing Leader Interview with Augie Ray”

Innovation – How Silvercar is Disrupting the Car Rental Business

Disruptive Innovation Example

It is a cycle we see too often: companies grow successful; an industry matures adopting many common practices, some good and some bad. Then these companies get complacent and fall asleep at the wheel. They stop innovating and often try to take advantage of consumers because of their position. And by doing so, they and create an opportunity for new entrants to disrupt the market.

It is easy to point at history and study how companies that were market leaders fell in this trap: Blockbuster, Motorola, Circuit City and Radio Shack are good examples. It is a lot harder to predict which markets or companies will be disrupted. But it is much more interesting to observe when it is actually happening in front of us.

This week I witnessed disruption in the rental car industry. I traveled to Dallas for a day and decided to give Silvercar a try. I am glad I did. How is the Silvercar experience better than the established companies who are asleep at the wheel? Let me recap my experience: Continue reading “Innovation – How Silvercar is Disrupting the Car Rental Business”

Customer Experience – Where the Rubber Meets the Road

I just spent 40 minutes on hold trying to talk to a TV/internet company. Chances are you have been in a similar situation where you have been waiting while you hear a recording (over and over) like the one I was hearing “Due to higher than expected call volume you have waited longer than we would have liked to. Your call is important to us”Phone - Customer experience

It seems the call volume is always higher than expected. Saying this sounds like a lie. It starts eroding trust before I have spoken a word with a “customer service: representative. Dear company: If my call is important to you , why don’t you hire more people to talk to customers?

With all the talk about customer experience and loyalty, you would expect companies would know better. Especially in a space that is fairly commoditized and in decline: cable TV is probably going the way of the landline phone and movie rentals,  it’s a matter of time until we get all our TV on demand.

I have four or five companies I can choose from for internet and TV service. Their service is pretty much the same. All of them offer VoIP phone, HBO, 200+ channels, HD, DVR, etc. Looking at their advertisements and promotions it looks like they are all competing on price. I asked around the office, and most of my co-workers shared stories of poor service with their current provider. It was pretty uniform. This seems to be a market where a company that focuses on service could stand out.

A great customer experience would be a good strategy to differentiate in a commodity market and to keep more paying customers. Over the last 5 years I have spent more then $7,000 with this company. Add wireless service and the average lifetime customer value is probably much higher than that. Right now I am about to cancel my service and take may business elsewhere.

If the waiting message was completely truthful it would probably say something like: “Due to our executives being unable to understand and quantify how wait times and customer experience correlate with customer loyalty and revenue, we have not hired enough staff to respond to customers in a timely manner. Your call is a cost to us, one that we try to avoid, not an opportunity to engage and satisfy customers. Thank you for waiting and keeping our costs low.”

That’s where the rubber meets the road. Over the last 10 years there has been a surge of companies who have Chief Customer Officers, customer advocates and other organizations who are tasked with transforming the organization. I was one of them – for a few years I was the SME in charge for Broad Customer Connection at a Fortune 50 company, even if it was not my full time job.

The problem is that while companies who create these teams have the best of intentions, often times the customer experience teams are not really empowered to make the transformational changes in the organization and end up doing surveys that no one reads. Even when there is a level of empowerment, when it comes down to dollars and cents it takes a real commitment to customer experience to make the hard decisions. This only happens when the people in charge fundamentally understand and believe in the financial mid and long-term benefits of customer experience.

For customer experience to be successful, it needs to drive the company strategy. From defining the culture (look at Zappos) to making financial commitments to go beyond the customer expectations. At Rackspace, for example, there are no call centers, no ‘hold’ music, and no customer service representatives. Customers wait an average of 6 seconds to talk to a technical person who will take ownership of solving their problem.

You don’t want to have a customer experience team that ends up doing stupid surveys as David Meerman points out in his latest post. Providing an acceptable customer experience is no longer optional. Building a company to deliver great customer experiences can be a source of sustainable competitive differentiation and a successful business strategy.

Coffee and getting your customers to Love you

Love coffee

What does coffee and love have to do with growing a business? Let me start with a story. Hang on. It has an important message for marketers and businesspeople.

Get customers to love you like I love Coffee
Get customers to love you like I love Coffee

Yesterday, my friend Roxanne made fun of me claiming to be a ‘coffee connoisseur’ on my twitter profile. I didn’t mean to brag about my expertise, I really meant to say I love coffee, good coffee. But just a few years ago I did not drink coffee at all. What happened?15 years back I lived in Mexico. NAFTA was in vogue and I was an entrepreneur (now I am an intrapreneur – an entrepreneur inside a a company) looking to expand my business. I visited a cousin in Xalapa, a beautiful town in the mountains with perfect weather for growing coffee. My cousin had a plantation and told me about his coffee business. I was intrigued.

I went to Inc. magazine’s forum and wrote a post looking for a business partner. Someone who would be interested in exploring the idea of exporting coffee to the US. That’s how I met my friend Fernando Labastida  who loves coffee and had the entrepreneurial bug. A few weeks later I arrived in Austin. Fernando took me to a coffee roaster where we learned about the roasting process and to coffee houses from Mozart’s on the Lake to Ruta Maya to the famous Captain Quackenbush’s Intergalactic Dessert Company and Espresso Cafe.

After learning about the craft of growing, sorting and drying coffee with my cousin in Xalapa, then learning about the delicate art of roasting coffee in Austin, visiting the multiple coffee shops in Austin and thinking about the potential business, I was hooked.

Although I was not a coffee drinker just a few weeks back I had learned the proper way to taste coffee. I learned about acidity, caramelization, the importance of roasting beans of even size, the difference of roasting in a pan versus using hot air, the chemical processes that occur when roasting, grinding and brewing coffee. I became a connoisseur. And I fell in love.

At the end, we did not start a coffee import business for various reasons, one of them being the required scale of investment to make the economics work. However, I ended up with a great friendship and a passion for good coffee. And I learned one important marketing lesson:

You can’t love what you don’t know.

(and neither can your customers)

You cannot fall in love with your sweetheart before you meet her. A preacher once told me it was important to read the bible, because you can’t love Jesus unless you know him. Your customers cannot fall in love with your products, your brand, your company without getting to know it. What should marketers do about this? Three things come to mind.

  1. Enable customers to try your product. If you sell food, offer free samples. If you sell software promote free trials. What if you are in the professional services business? Your product is your knowledge, let customers sample it too by offering free advice or workshops, free articles or white papers.
  2. Get customers who try and love your product to share their love. Social media is the easiest way to do this. Let this be your guiding principle for your Facebook strategy. Enable customer reviews, and embrace them (the good and the bad, you can learn a lot from what your customers say). Add social sharing buttons to your website and your blog. Hand out extra business cards to your satisfied customers. Ask them in person to recommend you to friends.
  3. Make it easy for customers to experience your product without using it. Make them feel like they are using your product. This can be done via technology like 3D video maybe but it can be much simpler: you can do it via narrative. Instead of talking about features and benefits, tell customers about how they will feel when (or after) they use your product. If you sell a convertible let your prospects imagine the feeling of the wind in their face, the openess of the road and the warmth of the sun.

The fundamental idea is that knowledge creates a connection. Knowledge can create love (if your product is good). Even more important, knowledge is a prerequisite of love. If your customers learn about your business primarily via your website, how much knowledge are you sharing? How many interesting stories do you share? How do you talk about your people and your unique way of doing business so that people can identify with you?

Let your customers love you, by telling them more about you and letting them experience your product before they buy.

The Genius behind Steve Jobs’ ability to Innovate

Why was Steve Jobs such a Good Innovator?

Image courtesy of aaipodpics via Creative Commons

Like I said in my last post, I am not a fan of Apple products. I have a Windows Phone, I love my Zune, and a month after I joined Rackspace I retuned my MacBook Pro to the IT department to get a Dell Windows 7 laptop. I have worked with Apple products for many years, I sold many Macs when I was in the digital imaging business in the early 90s and here are iPods, an iPhone and an iPad in our household.

Yet, as a marketer and a business man it would be foolish not to recognize the unique ability in Steve Jobs to transform industries:  personal computers, music, cell phones, animated movies and publishing. Steve also had his share of failures : The Apple Lisa, hiring John Sculley, NeXT, Apple TV (so far), Ping FM, and others.

You have probable read a dozen ‘Leadership lessons from Steve Jobs’ articles, but I have a slightly different perspective that I want to share. These are the three reasons Steve had an incredible ability innovate, according to the Adaptive Marketer:

1.  Steve clearly understood customer needs

Apple is famous for not doing traditional customer research . A few days ago Guy Kawasaki came to Rackspace and told a group of us at Rackspace “the day you see Apple doing a focus group is the day you must short your stock”. It is easy to come to the conclusion that Steve ignored customers creating customers on his own.

It is true Apple does not do customer focus groups, there is no feedback section on the website and after 5 years there is only one iPhone form factor despite customers who have asked for a physical keyboard, larger screens or a smaller, lower-cost version.

But there is a difference between not accepting direct customer feedback and not understanding customer needs. Steve was frustrated with the user experience in the first iTunes-enabled phone, the ROKR. Steve understood customer’s frustration with smart phones in general. He understood customer needs, and used his technology and user experience genius to create products that served those needs.

In fact, Steve Jobs’ first press quote, published in the July 1976 issue of Interface magazine read “If we can rap about their needs, feelings and motivations, we can respond appropriately by giving them what they want.” referring to his customers for the Apple I, hobbyists.

2. He understood it success is not a result of having the best technology, but in offering the best user experience.  

This ability is especially important in the technology industry where most product managers, marketers and executives are fixated on the virtues of the latest technologies that we often miss or misunderstand customer needs. Steve was a geek at heart, but he also deeply understood the importance of customer experience.

Probably as important, he understood the power of simplicity. If you look at his product launch keynotes (and if you are a marketer you must), the message was concrete and simple to understand.

In 2005 when he launched the iPhone, he did not have slides with a hundred features, technologies and capabilities. Instead, the iPhone was presented as a phone, a music player and a browser: three concepts that everyone understood. He did not talk about how many megapixels in the camera, how many megahertz in the processor, or the details behind multi touch technology. It was simply a phone, a music player and a browser.

In terms of technology, there was nothing revolutionary in the iPhone. The Windows Mobile phones available in 2005 could do everything an iPhone could do. But Windows Mobile was not simple. The best technology does not always win. Otherwise we would all be using Amiga computers.

3.  Steve was relentless in making his dreams a reality.

In a previous post, I summarized Marcus Buckingham’s perspective on leadership: Great leaders are restless for change, impatient for progress and deeply dissatisfied with the status quo. The possibility of a better future burns them and propels them. Great leaders see the future so vividly they have no choice but to do everything in their power to make this future real.

Steve really was an example of this.  When the iPhone was announced, there was no market for $599 phones. There were only a handful of phones that were so expensive. If you worked at Motorola, for example, and proposed launching a $599 phone, the response would be that market research showed there were not enough buyers willing to pay so much for a phone, especially a phone that did nothing new. 

Apple iPhone will fail….The iPhone is nothing more than a luxury bauble that will appeal to a few gadget freaks. In terms of its impact on the industry, the iPhone is less relevant.said Mathew Lynn, from Blomberg in2007

Yet, Steve said Apple would sell 10 million phones in the first 18 months. And he did.

There was no market for iPads, either. Tablets had been available for years. Microsoft issued me a Toshiba tablet when I joined in 2004, which was interesting but I used mostly as a normal PC. When the iPad was launched people were confused about the use case. Why would anyone need one? Seemed like a cool toy for people with a couple hundred bucks laying around.

As my friend John Smolucha points out in a recent blog post“Even more impressive, nearly 75% of Apple’s revenues come from just two products: the iPhone (53%) and the iPad (20%). The first iPhones began shipping in June 2007 and the iPad only became available a year ago, on April 3, 2010. I don’t know about you, but I’m not aware of any other company that generates nearly 75% of its revenue from products that didn’t exist five years ago, while doing it during a global economic downturn.”

Steve believed in his dreams beyond what rationality, beyond market research, beyond corporate practices and policies. He had a vision and worked tirelessly to make it a reality. Yes, he was a micromanager, but only because he was a perfectionist and did not accept any deviations from his dreams.

If you want to learn more about Steve, I recommend the Steve Jobs biography by Walter Isaacson.

Is Your Loyalty Program Demonstrating Your Loyalty?


Like most business people with global responsibility, I fly quite a bit. I have been a Platinum member for a couple of years and have flows withAmerican almost a million miles now. A few weeks ago I headed to the counter and asked to be added to the list to get upgraded.  After all, I have 18 segment upgrades in my AA Account.

“No can’t do. You cannot use your segment upgrades anymore” said the AA Lady. Wait…what? Last year because I was transitioning to a new job, I did not fly much, and when I flew other airlines were more convenient. I did not get enough miles to qualify for Platinum – or Gold. I missed by just about 2,000 miles. I was demoted from Platinum elite member to member.  And if you are not Gold, you cannot use your earned segment upgrades. American won’t allow me to use the upgrades I earned by being a loyal flier for years.

Then, I got an email yesterday where American is asking me to pay $559 to retain my elite status at Gold and enjoy benefits such as checking two bags at no extra cost, which I get at Southwest.

What American does not get is that I am the same guy they used to pamper with free upgrades to business class on an intercontinental trip, complementary access to lounges and other perks. Now that I am traveling again, I don’t feel compelled to use AA – for them I am just a guy. In reality, I am a business traveler, and I spend more than I would like on travel – and American knows it.  American’s loyalty program failed to prove loyalty to me as a customer .

American has lost my loyalty and the loyalty of thousands of customers. Now American is in bankruptcy and at their current market ($218 million) Apple could buy the airline with the profits they make in a day and a half. But the goal is not to pick on American or rant about my experience, I am using it as an example of having the wrong idea about what a loyalty program should be.

“ Loyalty programs should be about demonstrating loyalty to your customers, not about bribing customers to do business with you”

Here is the problem: Most Loyalty programs are focused on rewards, which ends up being the same as bribing the customer to do business with you. Ironically, there is no loyalty in bribery: as soon as the bribe stops, customers will go elsewhere.

What if you thought about a loyalty program in a different way? What if the goal of your loyalty program is to demonstrate your loyalty to customers? Customers that feel appreciated, that feel they trust a company, that believe a company will stand by its principles, will become a loyal customer. Customers will be loyal because they will want to do business with you. Not because you bribed them. Seth saysLoyalty can be rewarded, but loyalty usually comes from within”

Maybe that’s why Forrester Research found no correlation to a small negative correlation between customer loyalty and having a loyalty program.

The key driver of loyalty is good, consistent, trust worthy service that meets the needs of your customers.

The old customer marketing funnel based on the AIDA model (attention, interest, desire and action) is obsolete. The new marketing funnel needs to be customer focused. The new customer model is CSLA (horrible, but hey, acronyms suck anyway):  Costomer -> Satifaction -> Loyalty -> Advocacy

  • You create a Customer when they buy a product or service from you
  • Customer becomes Satisfied when you meet or exceed expectations
  • Satisfaction drives Loyalty, which is repeat purchases
  • Satisfaction  and Loyalty make the customer an Advocate that promotes your product or service via word of mouth