Why Valentines Day Is Literally Going to the Dogs

Not Feeling the Love?

Time Business and Money, the same folks who brought you “Wine  Drinkers Will Pay More for Bottles with Hard-to-Pronounce Names,” proclaims Valentine’s Day ”a  pale, pink shadow of its former self.”  Instead of passion, it’s more likely these days to bring on a sense of obligation, dread or just plain apathy.

How can this be, when the National Retail Federation‘s annual survey paints a rosey picture:

• 60% of  Americans plan to celebrate the holiday
• 91% of those in relationships will celebrate
• They will spend on average $131  on gifts for spouses, significant others, friends, children, parents,  classmates, teachers, pets and co-wothers.
• Average spending is expected to increase $4 from last year.

Underground Survey says…

But Kit Yarrow has done his own survey. And according to Kit, most of the dozens of consumers he interviewed weren’t really enthusiastic, and few said that they thought of Valentine’s Day as a romantic event.  The three most common responses he heard:

•  “I don’t care.”
• “I feel obligated.”
• “I  feel left out.”

It’s a Man’s Job

According to the NRF survey, men spend more than twice as much as  women – an average $108 compared to $53 for women.

And while many men gripe that that they do it to say out of trouble, many women also say it doesn’t really mean that much to them either:

Caroline, 36, is one of many who refer to Valentine’s Day “a Hallmark  holiday.” “It’s a made-up marketing thing,” she says. She expects her husband  will give her “some gummy hearts and a bouquet of flowers like last year,” which  she says is nice, but not necessary. “I tell him he doesn’t have to get me  anything but he wants to. It’s sweet. He’s great. But is it romantic? I don’t  really look at it that way.”

Many singles aren’t feeling the love either, and many say they feel even worse to see their co-workers and friends receiving flowers, while they don’t.

What’s Marketing to Do?

Considering this ambivilence,  there’s been such a push to expand  Valentine’s Day beyond romance. Spending on sweethearts  is projected to decrease while overall spending goes up as more is spent on dogs, cats, friends, co-workers, parents, teachers  and kids. TRF report predicts:

• We’ll spend $815 million this year just on our  pets.
• This includes dog cookies decorated like a box of chocolates for pets
• Heart-shaped pencil cups for office friends.

Either marketers are getting desperate  or consumers simply aren’t feeling the love.

 

Did You Really Spend 13 Hours on Hold Last Year?

Please Hold For Prompt Service…

Brad Tuttle shared this on Time Business & Money.

A new poll commissioned by text-message service TalkTo shows that 53% of American consumers say that they spend 10 to 20 minutes on hold each and every week. How much does that add up to each year?

“This adds up to…13 hours annually spent waiting for a company that swears via automated message “we care about your business” to answer the darn phone.

Other findings of the survey:

• 86% of consumers report being put on hold every time they call a business.
• 48% believe the customer service representatives who answer phone calls are not helpful.

Lessons Learned? None

The data corroborates and amplifies the findings of previous polls cited by Tuttle. For  instance:

•  60% of consumers who call to complain get nothing.
• 71% are “tremendously annoyed” because they can’t get a live customer service agent on the phone.

So, you’d think American customer service would work to clean up it’s act, and call for improved customer help lines, shortening wait times and providing more meaningful assistance, right?

Well, you’d be wrong.

The survey indicates instead that the solutions companies are considering are even worse than the original problem. Instead of listening to what customers really want, many companies are just buying into the more convenient notion that texting makes more sense than communicating with a real human being.  Stuart Levinson, CEO of TalkTo, an app for service request texting, is a case in point. He writes:

“This research shows how poorly the phone performs as a customer-service channel. Everyone’s calling less and texting more. It’s time for businesses to catch up with how customers want to interact with them.”

Really?  Tuttle cites data that demonstrates just the opposite:

• In 2012, the average American’s monthly text total recently declined for the first time ever.
• A 2011 Consumer Reports study on the state of customer service finds that calling was the favored mode for seeking assistance, with in-person visits as a close second. Only 2% favored live chat, and even less preferred e-mail.

Amazing. So customer service is not about the customer at all; it’s about lowering their expectations and insulating yourself from the voice of the customer.  As long as we all collude in lowering the bar for customer service, we can all cost cut our way to prosperity – on the backs of the customer.

In the land of the blind, the one-eyed man is king. I’d say this provides a tremendous opportunity for a real thought leader to differentiate itself in the market.

 

Study: US Could Save Trillions on Health Care

Now that government spending increases are trending down, it’s an opportune time to tackle healthcare costs

Where There’s a Will There’s A Way

Now that President Obama has bent the spending curve, reversing the spending increases of the former administration, the time has come to address healthcare spending, without making unnecessary cuts to Medicare and other social program beneficiaries. Serious economists have pointed out that there is actually no need for such benefit cuts, and the core  U.S. economic issue isn’t spending, at all, but income inequality.

Now, a study by the  nonpartisan Commonwealth Fund, titled Confronting Costs: Stabilizing U.S. Health Spending While Moving Toward a High Performance Health Care System, finds that the $2.8 trillion U.S. healthcare system can be held to an annual spending target without spending cuts to Medicare, Medicaid, and other government programs by implementing measures to encourage providers to accelerate adoption of more cost-effective care.

The results would be that families, employers and government budgets would receive  relief from their growing financial healthcare burdens.

Commonwealth Fund President Dr. David Blumenthal believes the approach could win bipartisan support in upcoming deficit talks as a more politically acceptable alternative to cutting popular entitlement programs including Medicare.

There is an urgent need for such measures:

• The United States has the world’s most expensive healthcare system.
• Government forecasters say it will cost more than $9,200 this year person.
• Costs continue to outpace inflation and restrain overall economic growth.
• Americans die earlier and experience higher rates of disease than people in other countries.

Efficiency, Not Benefit Cuts

Although deficit hawks are attempting to turn the discussion to entitlement program cuts, the Commonwealth Fund study finds that benefit cuts are neither necessary nor inevitable. Instead, the study calls for the federal government to set gross domestic product per capita as a target for overall healthcare spending growth. According to the U.S. Centers for Medicare and Medicaid Services.In 2007, before the current slump in growth, healthcare spending rose 7.6% vs. GDP per capita growth of only 4.1 percent.

It’s Not Brain Surgery

‘The Commonwealth Fund study notes that changes that are already taking place could be accelerated, including financial rewards for physicians and hospitals that participate in coordinated team-based treatment strategies. The benefits for It Medicare’s 50 million beneficiaries would include:

• Better protections against catastrophic illness.
•  Incentives aimed at better outcomes for lower costs than under the current fee-for-service structure.
• Freeing up resources for physicians and hospitals by reducing administrative costs.
• Permanent elimination of a Medicare pay cut for physicians that Congress has repeatedly delayed.
• And, of course, healthcare savings.

The report estimates that its recommendations could save $1 trillion on healthcare spending over 10 years. Savings would include:

•  $242 billion savings for state and local governments.
• $189 billion fom employers.
• $537 billion for consumers.

Inevitable Change

In other words, not only isn’t it brain science, it’s a no-brainer. Of course, recommendations of this kind were originally included in the Affordable Care Act (ACA, or “Obamacare”) , but politicized as “death panels.”  There is certainly no doubt that cost reforms are needed, and now that the health care reform barrier has been breached and the ACA has created a platform for reform,  progress is inevitable.

 

The “Lake Wobegone Effect” in Comparison Marketing

Saving to Keep Up With the Joneses

In the Wall Street Journal, Carolyn T. Geer highlights recent surveys of investors by entities including T. Rowe Price and ING.

The Question: Does the knowledge that your friends and neighbors are saving more than you cause you to boost your savings?

The Answer: It works, but the effectiveness varies very much with the approach.

The “Lake Wobegon Effect”

People have a natural desire to avoid being average and ordinary. This phenomenon is known as the “Lake Wobegon Effect,” named after a fictional town created by writer and radio host Garrison Keillor, where:

All the women are strong, all the men are good looking, and all the children are above average.

The question is for financial consumers is: Will consumers be more inclined to maximize their 401(k) contributions or increase their insurance coverage amounts if provided peer comparisons?

What the Studies Show

Matt Fellowes, founder and chief executive of HelloWallet, which works with employers to provide financial guidance to their employees via the Web and mobile devices, confirms that peer comparison is one way that economists and others are attempting to modify financial behavior. He believes that cluing investors in on their peers’ financial decisions can influence the decisions they make about their own money, if you show them convincingly that what they’re doing doesn’t meet the norm, but “it doesn’t work for everyone. It’s not a silver bullet.”

According to an ING study of U.S. consumers:

• More than half of respondents say they would be motivated to save more for retirement if their sagings didn’t measure up to those of their peers.
• Yet one-third say they would not be motivated to save morel.

Why the mixed results? Apparently, the approach can be quite effective if done right, but the wrong approach can also be demotivating. Stanford University economist John Beshears and colleagues say that when some employees are told of their co-workers’ higher savings rates, they are actually less driven to save. But the companies that have studied the effect also say that the approach can be fine-tuned to avoid demotivation, which I will explain below.

Marketing Applications

Web-Based Tools: ING has created a free, Web-based tool that lets investors measure themselves against others on a range of saving, spending and personal-finance matters called INGCompareMe.com. Deb Dupont, director of the ING Retirement Research Institute, conducted a test market of the concept with employees of several of its retirement-plan customers, that yielded the following results, which were promising enough to launch the tool:

• 21% increased their contributions or joined a plan.
• HelloWallet members showed similar results, according to Matt Fellowes.

The Right Approach: Two Important Variables

The right approach needs to take into consideration two important variables:

1. Don’t Demotivate: Fellowes explains that you must be careful not to use “shock and awe” tactics that demotivate consumers:

We’ve tried: ‘You are $5 million behind on your retirement savings! What is your problem?’ But emotionally what happens is people shut down and move on.

2. Don’t Set The Bar Too Low: One problem with peer comparisons that reference  average workers is that it can set the bar too low.

To strike the perfect balance, “HelloWallet has reframed the issue for consumers as follows:

You are making $5,000 a month now. In retirement, you’re only going to be making $2,000 a month, based on your current savings rate. On average your peers will be making $4,000, but the very best savers among them will be making $7,000.

This highlights what the best, most financially healthy people in a peer group are doing and provides a more realistic target, while piggybacking on the natural desire to avoid being ordinary.

Assisting Complex Financial Product Decisions

Having applied this approach in product comparisons, I have found that the approach can be a valuable aid in helping consumers make complex financial products. In particular, I find that when presenting consumers with their choices, it is even more helpful to include not only a comparison to average consumers but a “best practice” comparison. For example, employers considering an employee benefit program can be shown what kinds of benefit plans their most successful competitors are adopting. Individual consumers considering a plan of insurance can be shown what kinds of options successful peers have chosen.

Choice Architecture: Marketers and sales professionals can improve the effectiveness of their approaches by making use of an effect known in behavioral economics as “choice architecture.”

Marketers and sales professional should be aware of certain behavioral tendencies that tend to impede decision making involving complex insurance and other financial products.  Consumers are reluctant to make a switch to a different insurance carrier or among different plans when the choices are complex – something known as status quo bias. Inertia, or the tendency not to change, is especially significant when choices are complex.

Other studies show that by reframing the choices for the consumer, you can help guide decision making for consumers facing complex decisions in selecting better plan options.

Implications For Financial Marketers

The implications for companies in crowded markets such as insurance and investment products and services are great. It can mean steering consumer toward decisions that will ultimately save them and the company money and improve consumer outcomes.

Companies like Progressive Insurance, for instance, use comparison shopping tools to differentiate themselves in a crowded field as a more consumer-oriented and trustworthy choice. Their “name your own price” message conveys that the consumer can save time comparison shopping through the use of their online tools. Their perky spokesman, Flo, and her price gun personify consumer values such as friendly, good spirited personal service and a personal touch. This is all intended to break down consumer resistance to switching companies, and has generated incredible recognition.

The response to these advertisements demonstrates that the message can generate strong brand associations with core consumer values that can be illustrated in sensory terms.  But an important question remains – how to turn brand recognition and leads into conversions?

In other words, once the consumer reaches out to their local agency or makes an online query, how can the sales professional better parlay this into a consistent consumer experience that results in conversions to more profitable product lines and cross selling opportunities/share of wallet.

This is where choice architecture can be vital. In providing comparisons with other carriers, the sales professional has invaluable opportunities to more effectively clue in consumers on their peers’ financial decisions and influence their buying decisions.

Related Articles:

For more information about how behavioral economics can help guide consumers’ buying decisions, with research results from Sibson Consulting, reference my related articles below.

• Behavioral Economics Can Improve Health Plan Enrollment Decisions
• Where Brand Meets Customer Service: A Symphony of Touchpoints
• Time vs. Money in Your Pitch

 

Study: Cute Animal Pictures Increase Your Productivity

Kevin Allen in Ragan’s PR Daily explains that he takes the time to look at a baby animal every day, even though he’s a baby animal enthusiast. It’s just that he spends so much time on the Internet.Fortunately, Japanese researchers (who else?) have shown that this increases productivity. The Atlantic Wire highlights a study at Hiroshima University:

“A team led by Hiroshi Nittono had 48 male and female students perform a visual task where they were asked to look for double digits in a series of random matrices with numbers. The students were asked to give as many accurate responses as possible in three minutes. Then, the students looked at pictures before doing the task again. One group looked at cute baby animals, another at less cute adult animals, and a third at pleasant-looking food.”

Results: the group that looked at the baby animals was the most productive.

I’m curious whether marketers can use the effect to stimulate people to buy more.

 

Panetta/Burns Plan: 1 in 4 Americans Has an Opinion About an Imaginary Debt Plan

The Washington Post’s Wonkblog reports that a new poll from Public Policy Polling found:

• 39% of Americans have an opinion about the Simpson-Bowles deficit reduction plan.
• 25% also have an opinion on the Panetta-Burns plan.

Of course, there is no “Panetta-Burns” Plan.  But that didn’t stop people from expressing opinions about it. The survey results:

Panetta-Burns’ nonexistent policy proposals were supported by 8% and opposed by 17% of the voters surveyed.

Simpson-Bowles’ real policy proposals had stronger favorables, with 23% support and 16% opposition.

Related:

• 11 shocking, true facts about the deficit reduction plan.

 

Unlearning Multitasking

“Multitasking is a polite way of telling someone “I haven’t heard a word you’ve said.” – Dave Crenshaw

I have highlighted research about the problems with multitasking, which shows that the brain actually cannot effectively do two things at once. Dave Crenshaw, founder of Invaluable Inc., has written a book summarizing this research, called The Myth of Multitasking: How Doing it All Gets Nothing Done.  It shows that multitasking –which is really switchtasking – is a less effective and efficient way to work.

Switching costs results when people must go back and review what they’ve done before they resume work on a task. The more complicated the task, the greater the cost. Saying you are good at multitasking is like saying you’re good at using a less effective method of getting things done. No matter how good you are at switchtasking, you will get less done than the person who focuses on one attention-requiring activity at a time.”

Test Yourself

Dave uses the following demonstration to show why multitasking doesn’t work. Referencing the form in this link, Dave’s takes you through an exercise to prove the downsides of Multitasking:

The results may prove to you the following problems with multitasking:

• Things take longer
• Number of mistakes increase
• Stress levels increase.

Unlearning Multitasking: You Can (Un)Do It!

So can multitasking be unlearned?

Peter Bregman’s book on how to overcome the problem of switchtasking, titled “18 Minutes: Find Your Focus, Master Your Distraction” has garnered such credits as the Gold medal from the Axiom Business Book awards, best business book of the year by NPR, and was selected by Publisher’s Weekly and the New York Post as a top 10 business book of the year.

Peter conducted a personal experiment to give up multitasking. His objective was to sustain focus on one thing at a time for that period of time. His personal findings:

1. Being free of multitasking was delightful.
2. I made progress on challenging projects.
3. My stress level dropped dramatically.
4. I lost patience for things that wasted my time.
5. I had patience for useful and enjoyable tasks.
6. There was no downside.

He says there was no downside, as no project was left unfinished, and no one expressed frustration when he didn’t answer calls or return emails immediately upon receiving them. Peter holds that the best way to fight distracting interruptions is to create productive ones, a practice that can be easily implemented in 18 minutes a day. In the short videos below, Peter briefly reviews the methodologies provided in his book:

Introduction:

Part 1: “The Run Walk Method”

Part 2: Tip on To Do Lists

Part 3: How To Leverage Your Weaknesses

Part 4: How To Get the Initiative to Get Things Done

Related Post:

• For 10 tips on how to do it, see my article, Unitasking Improves Performance: 10 Tips.

 

 

 

Behavioral Economics Can Improve Health Plan Enrollment Decisions

A Brave New World Of Health Insurance Choices

Christopher Goldsmith of Sibson Consulting’s provocative article written for the Society for Human Resource Management (SHRM) explores how behavioral economics can help guide decision making with the complex choices consumers face in selecting better health plan options. This article summarizes that information.

The Problem: Choice and Complexity

Health care reform means more choices for consumers and a more complex decision process than before. Senior citizens will now need to make choices each and every year regarding their Medicare coverages: whether to enroll in traditional Medicare, supplement it with a Medicare supplement policy and a Part D prescription drug plan, or enroll in a comprehensive Medicare Advantage plan instead.

Health insurance marketers face the challenge of guiding consumers through a fundamentally more complex decision process in a way that helps them make more informed and better choices. The most important questions marketers face are:

1. How to help simplify a complex decision process for the consumer.
2. How to empower the consumer to make the best choices.
3. How to differentiate your company in a field of similar products.

Behavioral economics—the study of how people make choices, drawing on insights from psychology and economics—can be useful in designing and communicating employee health plans.

Rational vs Emotional Decision Factors

Decisions regarding health often involve irrational, or emotional elements, where behavioral biases cloud rational judgment. For example:

• Unhealthy Habits: Despite numerous public health messages, many young adults nonetheless choose to become substance abusers or overweight.

• Not Taking Advantage of Preventative Services: Even if they understand the value of preventive health care and preventive care services offered under their plans without deductibles, co-payments or co-insurance, many still fail to take advantage of free health screenings or physical exams available to them.

• Lack of Interest in Health Care Research: When making decisions about hospitals and surgeons, few consumers research data about hospital costs, mortality, readmission and hospital-acquired infection rates.

• Failure to Plan: When enrolling in Medicare, many consumers fail to research the options available to them that would assist them in making an informed decision.

Behavioral Economics and Open Enrollment

Understanding these behavioral tendencies enables organizations to create more effective communications and incentives to make better decisions that produce better outcomes. This is particularly important during the open enrollment process, to steer employees toward cost-effective health plan options. Organizations increasingly want employees to migrate from more expensive PPOs to consumer-directed health plans (CDHP), which have lower costs in exchange for greater employee cost sharing. However, Goldsmith points to three behavioral biases that impede this goal:

• Loss-aversion bias. People tend to overvalue the prospect of losing something of value and to undervalue the prospect of gaining something of value.

• Value system bias. Deeply rooted value systems and selective filters necessitate substantial evidence to the contrary or significant influence to effect behavior changes will change.

• Status quo bias. Inertia, or the tendency not to change, is especially significant when choices are complex.

Optimizing Choice Architecture

Reframing Experiment

Health plan participants considering  the 3 choices below are likely to resist moving from a PPO to a Healthy Living Plan or CDHP because of the potential loss of their current doctor-patient relationship while undervaluing the financial gains or the prospect of improved quality of care available through a rigorous provider selection process.

Original Enrollment Presentation

Choice Architecture

There are also behavioral biases that the organization could leverage in its open enrollment materials to better position the new product offerings that could result in better results. Designing communications in ways that appeal to these biases can put a new perspective on the choice that makes it easier for consumers to consider and evaluate their options.

“Choice architecture” describes how the various options are framed, ordered and explained.  Figure 2 below illustrates how the default option, order of the options, plan names, presentation of decision-making factors, and use of color elements can be used to influence choice:

Reframed Enrollment Presentation:

Results:

Preliminary testing with various focus groups show many people who chose the PPO Plan in Figure 1 subsequently chose the Healthy Living Plan or Thrifty Consumer Plan when presented with the design used in Figure 2. The expected result of this presentation of the data is better outcomes for the employees and the organization.

Incentivizing Lifestyle Changes

Sibson Consulting’s Healthy Enterprise Survey

Encouraging Wellness Program Participation: One increasingly popular way to promote more healthful lifestyle changes is by using incentives to increase participation in the organization’s wellness programs, as shown in the chart above from Sibson Consulting’s Healthy Enterprise Survey.  Studies have shown that, compared to a control group:

• Sustained tobacco use quit rates are 3X as high among participants receiving incentives.
• Obese participants tend to regain their weight when they stop receiving incentive payments.

Designing Effective Incentives: Sibson’s research finds that participation in an organization’s health risk assessment activities increases as the as the incentive value increases, but incentives must be well designed to achieve desired outcomes:

• Too low incentives fail to motivate behavior change.

• Too high incentives can create a “choking” effect that impedes performance.

• Too distant incentives lead people to devalue the reward.

• Too long a qualifying period encourages procrastination, and, as the deadline nears, the perceived cost of change magnifies resulting in lower participation.

• Misguided incentives cause the reward potential to crowd out the intrinsic motivation to focus on health.

• Too many incentive elements makes the complexity is overwhelming.

Using Behavioral Economics to Effect Change

In the preceding experiment, we examined how reframing the enrollment choices aided consumers in evaluating their plan choices.  In that example, two behavioral biases were considered in designing the enrollment material:

• Clue-seeking bias. When faced with complex decisions, people look for clues, which they hope will be relevant to rational decision-making.

The revised enrollment chart provided relevant clues like “thrifty” and “elite standards” to show how the plans would actually work for the customer: Providing discrete columns for the major benefits of each plan (ie. “Your annual payroll deduction,” “Company Deposit into your Account, ” etc.) allows the consumer to quickly pick up cues about the benefits offered.

• Framing bias. Because people make decisions within a larger context, they look to their experiences and the environment to establish a frame of reference.  Therefore, how choices are presented has a substantial influence on the decisions people make.

The original chart, by placing the PPO option at the top, appears to suggest that it is a default option, or a standard-bearer. The revised chart, by placing it at the bottom as a “Legacy Plan” counters some of the intrinsic biases that impede change mentioned above (loss-aversion bias,  value system bias, and status quo bias.)

Countering Behavioral Biases

According to Sibson Consulting:

Some behavioral biases can serve as bridges to better outcomes.

Sibson offers some examples of “countering” behavioral biases that can be used to help employees make more informed and considered decisions:

Marketing Applications

Marketers need to bear in mind that the enrollment materials they design have real consequences in terms of workforce behavioral bias, choice making and engagement. Marketers can use principles from behavioral economics to help customers make more rational decisions regarding their health and their health care benefits. This begins with taking a systematic look at those outcomes you’d like to effect, and the consumer choices that would enable them. The ordering of options, highlighting of decision factors, naming of programs, structuring of incentives and selection of defaults can impact the outcome of the enrollment choices that consumers make.

 

 

Research: The Secret to Happiness Is In How You Twitter

Happiness Is Socially Contageous

The Department of Mathematics and Statistics at the University of Vermont finds that your level of happiness is linked to the mood of those you network with on Twitter –  up to three links away from those you directly interact with. The study published in the Journal of Computational Science, and reported in the Huffington Post,  is titled “Twitter Reciprocal Reply Networks Exhibit Assortativity With Respect to Happiness.” Try tweeting that! The researchers analyzed 40 million messages posted to Twitter over six months and found:

• Positive mood seems to spread through a network, and so does depression and emotional problems.
• The more connected users tend to be happier.

Assortativity  is their way of saying that happiness is not random, but that upbeat people manage to find and link with each other. The study focused on connection not just in the sense of following others, but in the sense of a mutual connection in which people have replied to one other.

Methodology: This study used a ‘hedonometer’ for measuring sentiment in text that scores 10,222 of the most used words in the English language on a happiness scale from one to nine. Examples of happiness scores:

• ‘Love’ scores 8.42.
• ‘Special’ scores 7.20.
• ‘Never’ scores 3.34.
• ‘Sad’ scores 2.38.
• ‘Die’ scores 1.74.

The average happiness score of a word is measured by an average of 50 independent evaluations, and the happiness of each user was evaluated by applying this hedonometer to all tweets by the user.

Insights: The study found that contentment levels are more similar among nearest neighbors, and drops off the more others are removed from them in social networks. Those scoring high on happiness, have happier immediate twitter interaction neighbors than those whose happy neighbors are 2 or 3 links away.  The further from a happy neighbor one is, the more happiness declines.

Another finding: Once your network approaches 150, it appears impossible to keep up regular meaningful social contact. (This is known as the “Dunbar number,” named for anthropologist Robin Dunbar who proposed that 150 is “roughly the maximum number of relationships it’s possible to pragmatically maintain.”

Dr. Raj Persaudand Adrian Furnham write:

150 appears a kind of fundamental limit of our social universe and there are even some theories that our brain cortex size has evolved to cope with this number and no more. Indeed one theory of unhappiness is that our modern world has become too socially complex and as a result we suffer. For example, we no longer live in communities which help us achieve the magic Dunbar number.

“Do you tweet?”

Proviso: Causality isn’t proven. We aren’t sure whether happy people just tend to find each other and, conversely, “misery loves company”, or whether happiness is viral, although previous research is said to support the latter contagion theory:

• The Framingham Heart Study that observed 4739 people from 1983 to 2003 found happy and unhappy people tend to cluster, and that happiness spreads up to three degrees of separation (to  friends of  friends’ friends.)
• A study by James Fowler and Nicholas Christakis of Harvard Medical School found that those who are surrounded by happier people and who are central in a social network are more likely to become happy in the future.
• Other research suggests that obesity, alcohol use and smoking are influenced by social networks.

The Harvard Medical School study by James Fowler and Nicholas Christakis mapped connections and influences among nearly 5,000 individuals with data from the Framingham Heart Study over 20 years. Participants in that study listed contact information for their closest friends, family members and neighbors, connecting the researchers to more than 50,000 social ties. They used the Center for Epidemiological Studies Depression Index — a standard set of questions psychologists use to measure happiness — to analyze the cheeriness of the study participants.

They found that when someone gets happy, that person’s friend experiences a 25% increased chance of becoming happy. A friend of that friend experiences a nearly 10% chance of increased happiness, and a friend of that friend has a 5.6% increased chance of happiness. For instance, A friend who lives within a mile and becomes happy increases the probability that you will be happy by 25%. These effects don’t occur between co-workers, and decay with time and geographical separation. According to the authors, as reported in Chief Happiness Officer:

That means a stranger’s good mood can do more to lift your spirits than a $5,000 raise, which only increased happiness 2 percent.

Fortunately, this study found sadness to be less contagious because, according to the study, sadness makes you pull away from others, giving them less exposure to your bad mood.

Implications: The research is provocative in many ways. For instance:

• Eating disorders might be spread through social networking.
• The future may see faster spreading epidemics of psychological dysfunction due to social networking.

Dr. Raj Persaudand Adrian Furnham raise the question:

If we should increasingly regard emotions as kinds of infectious diseases, does this mean we should screen more carefully who we mingle with, and even quarantine some?

 

Market Validation: If You Build It Will They Come?

Ready, Fire, Aim?

Build it and they will come? If that were true, Marketers would be out of a job, wouldn’t they?

Rob Adams, senior lecturer at the business school at The University of Texas at Austin, and director of Texas Venture Labs, agrees. He should know. He is a leading voice on market validation who authored a book titled If You Build It, Will They Come? Three Steps to Test and Validate Any Market Opportunity.  A former software executive, entrepreneur and fund manager, he has founded or financed more than 40 companies that have launched more than 100 products with transactions exceeding one billion dollars of capital. The book is a quick read with insights and best practices gleaned from his own experiences. His core proposition:

Companies can improve their performance by moving from the common Ready, Fire Aim approach to a Ready, Aim, Fire approach.

Ready, Aim, Fire

To give yourself a better chance of avoiding the 90 percent failure rate of most new product startups, move “aim” – market validation, that is, – up to the front. Rob’s recommendation?

Invest 10% of your product development budget up front to make sure the remaining money is spent right.

Case Study: Using a formula given in the book, Rob Adams provides an example that he has implemented to launch a startup marketing campaign. For the sake of simplification, the figures have been rounded.

• $1 million: Initial budget.
• $500,000: Allocated to product development.
• $500,000: Allocated to launch, sales and marketing.
• $50,000: (10% percent of $500K) Spent over an intense 60 days of market validation before product design even begins.

Why: The Case for Investing in Up Front Validation

What is the rationale for such a large expenditure on validation?

I would rather have my name on a $25,000 hole in the ground than a $1 million hole in the ground.

1. Wasted Resources: In an article in Inc., Rob points out that more than 65% of new products fail, for a total loss of $260 billion a year in the U.S. alone. With start-ups, the failure rate jumps to 90% – numbers that have been constant over thirty years.

2. The Customer is the Key to Your Success: Products usually fail to generate enough revenue because they don’t sell well enough, and can’t generate enough revenue to cover their expenses. That means that customers either feel they’re not compelling enough, or not worth the value for the price. Startups typically can’t survive the failure of a company’s first product.  The failure of a new product in an established business can risk the company’s stability, depending on:

• the strength of other revenue streams.
• How many resources were lost on the failed product.

And Rob is quick to point out that, while investors or a parent company might cover shortfalls for a while, the offering must eventually generate returns that justify the capital and the risk that went into creating, marketing, and selling it, or the company will tend to fail.

3. Leapfrogging the Competition Puts You At the Leading Edge: Another important reason for Market Validation is to leapfrog the competition. Innovation tends to follow a fixed path, with one big idea begetting another, and so on. That linear approach to innovation doesn’t always get companies ahead of competitors, especially in the digital age. Consumers often learn that as soon as they buy the latest technology, the next big thing quickly emerges, making their purchase obsolete. Businesses often learn the same difficult lesson as they bring products and services to market, only to be trumped by companies with more sophisticated offers and deeper pockets. Companies have to continually innovate in an unending, linear cycle just to keep up. Companies that leapfrog the competition have an opportunity to change the game.

Case Study – Apple: Apple’s reinvention of the computer from a business to personal asset created a game-changing new industry, as did their reinvention of the mobile phone from a telephonic device to a mobile computing platform. More recently, while traditional laptop vendors focused on the technology- adding more speed, more memory, bigger screen size- Apple focused on how people use the technology, and made innovations on adding battery life, ease of use, and quick Web connectivity, and making their machines virtually bullet proof against virus. The result: unless Apple severely stumbles, their customers are committed and wouldn’t consider another vendor. Until other laptop manufacturers can make a compelling case, Apple has the corner on this market. Rather than trying to compete on price or technology, Apple discovered a way to leapfrog competitors on customer focus. The compelling case for Apple isn’t based on either technology or  price – Apple is the most expensive in the market for comparable performance. For Apple’s market, price isn’t the deciding factor. Yet, without Market Validation, opportunities like these may not be recognized.

What: Market Validation: Real-Win-Worth Analysis

Market Validation is performed to probe, test, and validate a market opportunity before you invest  large sums of money into product development. Whether you are designing, building, or selling products, whether you’re in a large corporation or a tiny start-up, whether your business is service- or product-based, Market Validation will significantly increase the likelihood your product will succeed in the market.

Developing a Real-Win-Worth Methodology: Using a Real-Win-Worth strategy of market validation (Is It Real? Can We Win? Is It Worth Doing?) has helped me to launch products to bypass the market share of major competitors. Real-Win-Worth was developed by by George S. Day, a Geoffrey T. Boisi Professor of Marketing and a codirector of the Mack Center for Technological Innovation at Wharton as a strategy tool  for “undertaking a systematic, disciplined review of your innovation portfolios and increasing the number of major innovations at an acceptable level of risk.”

To do this, Day recommends two tools that can increase the proportion of major innovations in your portfolio while carefully managing their risks:

• A risk matrix enables you to estimate each project’s probability of success or failure based on how big a stretch it is for your firm. The less familiar the intended market and the product or technology, the higher the risk.The R-W-W (“real,” “win,” “worth it”) screen helps you evaluate projects’ feasibility. The first step in using this tool–asking “Is it real” questions–helps you determine whether customers want your innovation and, if so, whether you can build it.

6 Questions to Ask Yourself

To evaluate the risks and potential of an individual project, you should be able to answer and score these three fundamental questions about the market opportunity: Is It Real? Can We Win? Is It Worth Doing?  To do so, ask these six fundamental questions:

1. Is the market real? Explore customers’ needs, their willingness to buy, and the size of the potential market.
2. Is the product real? Evaluate the feasibility of producing the innovation.
3. Can the product be competitive? Determine whether the product can compete in the marketplace.
4. Can our company be competitive? Investigate how well suited the company’s resources and management are to compete in the marketplace with the product.
5. Will the product be profitable at an acceptable risk? Explore the financial analysis needed to assess an innovation’s commercial viability.
6. Does launching the product make strategic sense? Determine whether the project fits with company strategy and whether management can support it.

How: Using the Risk Matrix

Assemble a team to assess each innovation project’s potential risk using these criteria:

• How closely target customers’ behavior will match current customers’
• How relevant the company’s brand is to the intended market
• How applicable your capabilities are to the new product

Worst Practice Study: McDonald’s once started offering pizza, assuming that the new product was closely adjacent to existing ones, and targeting its usual customers. The problem is that it violated McDonald’s service-delivery model: employees couldn’t make and serve a pizza within 30 seconds, and the project failed.

How: Using the R-W-W Screen

This tool is used to repeatedly test each project’s viability throughout a product’s development. The R-W-W screen exposes faulty assumptions, knowledge gaps, sources of risk, and problems suggesting termination.  To use it, you need to develop a set of criteria such as the following:

Best Practices Study:

The Background: I served as Director of Marketing for a financial services company that was a major competitor in the Variable Annuity marketplace, which is one marked by keen competition and slim margins. This company was typically a late follower rather than an early entrant, and often found itself in the defensive position of competing on product features and cost, which placed great pressures on product profit margins.

The Opportunity: I identified an unserved niche market – people on the cusp of retirement. The problem is that annuitants who wanted to tap the cash in their contracts were subject to surrender charges (CDSC – Contingent Deferred Sales Charge) for the first 7 contract years or more. While this type of annuity was an excellent tax-deferred savings and accumulation vehicle for those saving for future retirement, there was no product appropriate for consumers in their 60s who were either just about to retire or recently retired and might need more immediate access to their contract funds.

The Organizational Challenge: The challenge was to move the organization from the late follower mentality to first-to-market to develop a new product solution that would place the company in a position of leadership and surpass the competitor’s market share.

The Process:  I needed to change the mindset of the organization through a process people could buy into. To do this, I needed to get buy-in across disciplines by identifying easy wins that would have impacts early on. Using a R-W-W template, I looked at behaviors and needs in the marketplace, and verified the need – a segment that was unserved.

• Real? I performed product concept testing among mid size financial planners and confirmed that it was a viable concept up front – before asking the company to put resources into development.   I developed a recommendation for a 3-year  contingent deferred sales charge product that would serve people on the cusp of retirement who had until then no product for their needs.
• Win? Rather than develop individual products to serve segments where Manulife had no channel presence, we confirmed that there was a viable market and perceived need among mid size financial planners for this product.
• Worth? We determined internally that such a product was actuarially feasible and would be a good fit for the company’s sales model. It would not cannibalize existing products, for example.

Result:  The company, which had not typically been a first-to-market company, was first to market with this product. Sales goals were exceeded profitably, and we usurped the leading competitor’s market share.

The R-W-W methodology enabled us to leapfrog the competition. In this age, companies have to continually innovate in an unending, linear cycle just to keep up. Market Validation can help you  uncover new opportunities to leapfrog the competition into positions of market dominance.