thinking: relating- celebrating :-)

Had a great conversation the other week about the growth fixation of business.

The idea is that with most businesses we focus on growth all the time – however we can get to it.  As mentioned previously growing business with existing customers seems an obvious but overlooked area for most.

The follow-on idea was just imagine you can’t get the obvious growth angles like customer numbers and revenue – what would you focus on?

My guess is quality improvements for existing customers would have to be at the top of the list.

And it is getting to be much cheaper to go to market with some of the systems and processes on offer.

David Cowan has written again about the reducing cost of those systems…

“My Internet Law
The time and money required to produce (design, develop, secure, test, launch, scale) a typical data-oriented form application on the web drops in half every 2 years.
This seems to have held true since the public emergence of the web in 1994. Do you agree? I don’t have much hard data, but McCain proposes new internet laws with far less.

For example, I recall the large systems integration firms charging as much as $20 mlllion to completely outsource development of a web application. (I forget the name but I recall a DFJ-backed pay-me-to-advertise-to-me startup that spent as much in 1996 with someone like Perot Systems and the app still never worked.)

Is there any doubt that most apps today can be launched with as much scalability for $300,000? The implied factor of improved efficiency is 0.5 to the sixth power over a 12 year period.

Cheaper hardware (Moore’s Law) accounts for only a small fraction of this effect. The real gains seem to come from decoupling and automating specific steps of the process. Major disruptions that come to mind: Microsoft FrontPage, SSL, Exodus hosting, Apache, Java, ActiveX, Javascript, Shockwave, Flash, load balancers, PHP,  XML, Ruby on Rails, web service APIs, AJAX, Amazon S3, DIY communities (Ning).”

We could quibble about the significance of some of his picks but it does make sense.

Not sure you can extract a reliable formula for this but the point that development costs are roaring lower makes huge sense. I have based a business on open source.

It is the only way to compete in the longer term I believe.

Guy Kawasaki has blogged often about this idea. Marketing and sales are still going to be much larger. The analogy might be production costs for a movie going much lower but marketing costs increasing at the extreme as competition for mind-share escalates.

In the future more businesses can be competitive but will need to do much more to get noticed and win business.

There is a still a certain level of novelty around online networking now / the equivalent of “free ink” is available but it won’t last. More of us will be in the advertising and communications sector for more of the time.

The idea of a Moores laws echo is a good one for gaining attention but the math doesn’t really hold up and for the reasons I’ve mentioned the game is being played elsewhere.

So production cost are lower – marketing costs are rising.

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Thanks to the reader who spotted this paper by  Bronwyn E. Howell which was presented at a conference in Rome, Italy, September 17-20, 2008.

Abstract:
Using an efficiency-based framework, this paper analyses the performance of New Zealand’s telecommunications sector under competition law-based sector governance (the period from 1987 to 2001) and under industry-specific regulation (2001 to 2007). The framework considers the productive, allocative and dynamic efficiency effects of each regime, and the nature of the strategic interaction of sector participants.

The analysis reveals that substantial gains in all forms of efficiency were achieved during the 1990s, both compared to historic New Zealand and contemporary OECD benchmarks.

Under industry-specific regulation, however, transfers to consumers appear to have reduced, transaction costs have increased and delays are being incurred in the deployment of new applications and technologies relative to the competition law regime as participants engage in strategic gaming with politicians and the regulator and respond predictably to the range of incentives offered under the regulatory regime.

The paper concludes that on balance in the New Zealand circumstances, the regime based predominantly upon competition law appears to have outperformed the industry-specific regulatory regime, albeit due in large part to sector participant interaction shaped by contractual obligations imposed by the government on the incumbent which have prevailed unchanged under both regimes.

Keywords: Competition, Regulation, Telecommunications, New Zealand, OECD, Performance, Efficiency

by Howell, Bronwyn E., From Competition to Regulation: New Zealand Telecommunications Sector Performance 1987-2007 (August 14, 2008).
at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1227862

Is it just me or are these academic papers long in execution and way too diplomatic in their language. (Based on reading a downloadable full copy.)

It is good that someone researches the area and tries to make sense of it but it does seem like a bit of  a sideshow when the policy is being decided elsewhere – most of the time – or am I wrong about that?

Right at the end the author notes

“Pursuit of efficiency, not pursuit of competition, must be the goal.”

Uhuh… still feeling slightly underwhelmed but maybe I’m being too partisan.

As often happens the last post on customer service prompted a flurry of emails. Thanks to Philip for the ideas in this extended sequence as quoted below. In effect a guest post…

“Churn is a well known issue in the telecommunications sector but I was piqued by your comment, “In fact many companies treat all customers the same and that is a fatally flawed strategy”

Yes, I think that’s right too. But equally that’s hard to do and the bigger the company, with systems then the harder to start making exceptions.

So how does a company, medium or larger scale figure out if there something to this idea of treating customers different so that they would be encouraged to translate that into a business action.

I mean it has to ultimately make them some money – somewhere right, even if that initially only comes out as good news stories and praise as decent company ?

How does a company design a loyalty program? or a pricing scale?

or a something that acknowledges and rewards their long term customers?  so that even if the customer service wasn’t great one night/day/weekend, or there is a hot special with someone else, the customer still feels OK to do business with their long term provider.

I don’t think it’s an easily answered but the more I thought about it . . .

How about I counter that while your statement  “In fact many companies treat all customers the same and that is a fatally flawed strategy” appears to be right
- it is fact incorrect.
(dum-a-dum- dummmmm)

Big spending customers get volume discounts, so they ARE treated differently. New customers can get introductory offers to join, so they ARE treated differently, Seniors get a deal ???

So it’s the people in the middle, you are talking about here.

Not big spends in corporate terms, nor people who churn as a way of life as they hunt out deals) but just business people or maybe better put, busy people,  who cannot be blowed, to getting on to new platform, or phone etc  and reprogramming their handsets with all those numbers (do I really have her phone number after this many years?)

So is your point is that there is a market, I mean a dollar in keeping them right?

Now if you could figure out the numbers for that – that would be a business”
Philip

Thanks Philip – what do the rest of you think about this? I’d say that I am in the neglected middle part of the customer group. In my view there is more than a dollar in reaching this group and that is one of the ideas I  was trying to reach.

I still maintain a view that segmenting customers and offering segment messages is the way to go but the temptation is just to go for velocity and hope customers stay for the ride.