identifying & winning customers prof. stephen lawrence deming center for entrepreneurship leeds...
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Identifying & Winning CustomersProf. Stephen LawrenceDeming Center for EntrepreneurshipLeeds School of BusinessUniversity of ColoradoBoulder, CO 80309-04 19
ESSAM 2010
Agenda
•Global Cultural Differences▫Hofsteder cultural dimensions
•Overcoming customer resistance▫Prospect theory
•Finding your first customers▫Crossing the chasm
•Convincing customers to buy▫WIFM
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.geert-hofstede.com/
BRIC Hofstede Scores
http://cindyking.biz/how-cultural-differences-impact-international-social-media/
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 Risk1. Which bet would you choose?
a. A sure $20 b. A one-third chance of gaining $60.
2. Which bet would you choose?a. One-third chance of losing $60 (with a two-
thirds chance of losing nothing) b. A certain loss of $20
3. Most choose 1a and 2a▫ Sure $20 gain (risk-aversion)▫ Expect $20 loss (risk-seeking)
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
•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 Theory
ObjectiveLosses
ObjectiveGains
SubjectiveLosses
SubjectiveGains
Gourville, Why Consumers Don’t Buy, HBS Note, 9-504-056, 2004
Status Quo
Ration
al (s
ubjec
tive
= obje
ctive
)
Costs and Benefits
Costs Benefits Costs Benefits
Scenario 1 Scenario 3
Gourville, Why Consumers Don’t Buy, HBS Note, 9-504-056, 2004
Scenario 2
Costs
Benefits
ConsumerResponse ?
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
•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•Problem #1 – Self-Satisfaction•Problem #2 – Clash of Perspectives•Problem #3 – Curse of Knowledge
Long experience with productBenefits/needs obviousFully trusts technologySelf-selected believer
Status quo includes new product
Sees product for 1st timeNeeds/benefits not obvious
Skeptical of claimsMid-valuation of benefits
Status quo includes features
Gourville, Why Consumers Don’t Buy, HBS Note, 9-504-056, 2004
Entrepreneur’s View Customer’s View
Capturing Value
2. NoSale
3. LongHaul
1. Tinker4. A
Winner!
RequiredBehavioral
Change(value capturing)
Degree of Product Benefit(value creation)
High
Low High
Low
Gourville, Why Consumers Don’t Buy, HBS Note, 9-504-056, 2004
Resistance Strategies
• Accept Resistance1. Brace for the long haul2. Look for 10X improvements
• Minimize Resistance3. Make an innovation behaviorally
compatible4. Seek out the unendowed5. Find believers6. Eliminate the old
Gourville, Why Consumers Don’t Buy, HBS Note, 9-504-056, 2004
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”
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”•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
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”
•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!
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