They tell me The Queen is a good movie, so how much will it cost me to buy the DVD? The list price is £19.99, but I need to travel to town to get it. That will take me about an hour and 20 minutes both ways which, at the average wage works out at about £18. Then there’s my travel costs, say £4. So while the retailer thinks he’s selling me a DVD priced £19.99, it’s actually cost me £41.99.
Hey, hold on a minute. Consumers don’t go around carrying stopwatches and calculators, measuring the time it takes to go from A to B and calculating what this means in terms of pounds and pence. Besides, if they happen to be in town already, it’s no extra cost at all.
True. Nevertheless, no matter how vague the calculation, consumers regularly factor these time and cost considerations into their decisions. It’s what drives shopping behaviours such as "I might as well while I’m here". Behaviours which, in turn, drive retail strategies.
Right now, for example, HMV is in crisis precisely because consumers have decided it’s easier to buy top ten items such as The Queen from supermarkets like Tesco, or online from players such as Amazon.
Now. A question/ as HMV’s crisis unfolded and deepened, which if any of its marketing or financial metrics really warned it about this dimension of consumer value?
Dig deeper into the question and it turns out to be a lot less superficial and trivial than it appears at first sight.
Corporate metrics measure costs and value from the company’s point of view. Financial metrics such as costs, margins and sales revenues register the costs incurred by the company, and the benefits accruing to the company. Ditto marketing metrics such as brand awareness, preference or market share. They measure things that matter an awful lot to marketers, but little to consumers. For all our talk of customer focus, customer insight, accountability and effectiveness, none of the metrics we obsess about actually register costs or benefits from the consumer’s point of view.
There is a very simple reason for this. We are still mesmerised by industrial age assumptions. During those formative years of marketing the problem of measuring consumer value looked as if it had been solved neatly and simply. The company embedded value into the product in the form of attributes, qualities, features and functions, and the test of this value was whether consumers purchased it. Sales revenues were, therefore, the measure of consumer value. A proxy, but a pretty accurate proxy nevertheless.
Today, the realities behind this assumption are disintegrating fast – much faster than our commitment to the metrics it created. This is leaving companies and brands exposed, especially those companies obsessed with the wrong, organisation-centric metrics of "cost and benefit to us".
To see the emerging challenge, take a very simple example: the feed the family process. It involves many different steps including remember the family’s likes, dislikes, dietary requirements etc. Fit this to occasions (routine, celebration, entertaining etc). Find or think of appropriate menus and recipes. Make shopping list. Plan shopping trip. Journey to shop. Search store for correct items. Choose substitutes if items are out of stock. Queue and pay. Carry to car. Load car. Travel back home. Unload car, unpack and store. Prepare ingredients. Combine and cook. Serve. Eat. Clear up and wash dishes. Put away utensils. Dispose of peel, packaging, leftovers etc.
If we look at this list we find many different types of personal cost and value. There’s the expenditure of physical energy: moving and carrying. There are emotional lows (stress, boredom) and highs (stimulation, satisfaction). There’s time spent. There’s the cost of acquiring the information needed to make the right decisions versus the value of information gained. There’s money spent, not only on goods but travelling too. There’s return on attention: the bother or reward of having to focus my mind on this task rather than some other issue. And of course, there’s satisfaction (or otherwise) with the final outcome.
Now. How many of these person-centric metrics register on companies’ metrics? Probably just one – money. And as we’ve seen, even that’s not likely to represent the complete monetary picture.
What metrics would the brand manager for, say, Heinz Baked Beans focus on? How do metrics such as sales revenues, volume, market share, promotional uplifts, advertising costs and uplifts, repeat purchase rates and shifts in brand preference connect to the consumers’ metrics? Or are they just ships passing in the night?
End-to-end process costs
Modern metrics myopia tends to miss two critical dimensions of consumer value. The first is end-to-end process costs: not only the price and value for money of the product (or service) itself, but the costs of searching for it, acquiring information about it, buying it, preparing it for use, repairing or servicing it, and so on.
Take advertising, just one step in the process. Effectiveness metrics measure all sorts of things: how many people saw the ad, how many people remembered it, whether their attitudes or preferences changed, whether there was a resulting uplift in sales. But every single one of these measures is narcissistic, revolving around costs and benefits to the organisation. Costs or benefits to the consumer don’t register at all.
The second dimension of missed value is harder-to-measure non-monetary costs and benefits such as value of work done, return on attention, value for time, emotional pluses and minuses, and cost of acquiring necessary information. Yet without them, it’s impossible to understand real consumer value. They are the metrics that matter to people in their lives. There’s an upside to this. While most companies are still working outwards from internally generated metrics to the consumer, smart companies are realising the value of working inwards, back from consumer metrics to the things they do.
In the feed the family process, for example, every step along the way requires a certain investment of work, time, attention and so on. How can the brand help consumers reduce their levels of unproductive investment and increase the returns they generate from these investments, step by step? How can it do so in a way that also positively affects company metrics? Where are the real pinch points and high points?
Asking such questions helps peel another layer off the metrics onion: the way different measures act as carriers and infiltrators of different – and hidden – assumptions. For example, a focus on sales, costs and margins both reflect and reinforce the assumption that "we make our money by selling more at a lower cost/higher margin". This is very different from a model that says "we make our money by helping our customers improve their metrics".
Take an example. At one stage, packaged goods manufacturers were utterly brand centric in everything they did – their business models, their mindsets and their measures. It was the be all and end all for Coke to grow volumes and revenues by taking market share off Pepsi or vice-versa.
Then, increasingly powerful retailers turned round and said "your brand wars are doing nothing for my metrics. I don’t care whose brand wins if consumers are switching the same spend between brands. What are you doing to grow my category sales?" Slowly, the emphasis shifted from pure brand measures to brand plus category measures
Likewise, brand managers introduced line extension after line extension following the logic that "shelf space taken up by my brand is shelf space not given over to my rival". But then retailers looked at their own metrics (such as sales per square foot) and started delisting poorly performing lines.
Slowly, over time, brand manufacturers had to accept that the only way they could improve their own brand-focused metrics was by doing things that also helped retailers improve their metrics. They had to work back from the customer’s metrics to their own.
Today, something similar is happening in the relationship between consumers and their suppliers. Measures, metrics, accountability and effectiveness are the subject of a massive bandwagon. But before you hitch yourself too firmly to this bandwagon, ask yourself: are you sure it’s travelling in the right direction?
Alan Mitchell, www.alanmitchell.biz