“Well, that is a part of the magic of Apple. And I don’t want to let anybody know our magic because I don’t want anybody copying it.”
– Apple’s Tim Cook in 2011 in reply to a question on how Apple does it.

Product launch events or major announcements at developer conferences are not something new. The surprise element at these events is critical and viewed as powerful to brand strategy. A new product feature or information is something all companies try to protect from being leaked. Accordingly, many companies use operational secrecy as a strategy, limited not just to its communications department but as integral to its corporate culture. The secrecy helps develop trust in the team and fellowship among employees. Companies have internal security teams and employees can even be fired for leaking information. Some companies have gone so far as to spreading disinformation about product plans to its own employees. When Apple’s iPod was launched, its own employees were as surprised as all others.

Many corporate governance experts view hiding information as lack of transparency in not disclosing information to the marketplace or stakeholders. But companies especially in the technology industry like Apple, Nokia and Google are getting a reputation for non-disclosure of their next innovation. However, these companies thrive on constant and discrete product innovation. They have built fanatic consumer loyalty and enjoy a high level of profitability with high volumes by avoiding ‘me-too’ products.

Apple’s private supply chain

Three traits of Steve Jobs’ success with Apple that stand out are attention to detail, constant feedback and secrecy around its famed product unveiling. Apple is known to maintain pre-launch secrecy of its products going as far as placing electronic monitors to track it’s yet to be released products across its supply chain. So the company, shipping it’s yet to be released products in tomato boxes to avoid detection is not surprising. Apple even took its fixation with secrecy to the courts. The secrecy culture began with the release of its first Macintosh. Competitors like Microsoft and Sony already had information about it before its launch.

When Jobs walked out with an envelope in hand during an Apple keynote, not many suspected that it would contain the ultra-thin MacBook Air. The surprise and wow on the faces of the audience was a moment to capture. Apple is reportedly working on the iWatch and could also announce Apple Television in future.

Nike’s secret labs

Reportedly, Nike has a secretive lab at its headquarters in Oregon known as the Sparq performance center. Other Nike’s mysterious R&D labs are ‘Zoo’ and the ‘Innovation Kitchen’. The idea behind such secretive labs is simple. Nike does not want details of its R&D leaked out. No photos should be clicked in these highly restricted areas where not many employees have access.

Google’s secret projects

Google also has its well-known ‘Google X lab’ to work on secret projects like space elevators, driver-less cars and Google Glass. Though the projects are not secret anymore with the company releasing information via various channels, the idea is to fuel public perception and foster an internal culture. But you just might not know the next big idea coming out of the secret lab.

I’ll be back

You have heard about product recalls. Every company (from toy manufacturers like Mattel to automobile companies like Toyota to food product manufacturers) recalls its product or takes corrective action for its services, sometime or the other during its lifetime. Some researchers suggest that each year more than 2,500 product recalls occur in the U.S. alone. The idea is to protect the reputation of the company (which is committed to safe practices) and avoid fallout with the customer.

The trend nowadays has been towards recalling the founders or CEOs who have performed brilliantly in the past and left the company. Of course the anticipation is that the founder or returning CEO will be able to affect a turnaround of sorts at the troubled company. The idea here again (as with a product recall) is to protect the company’s failing reputation and avoid losing customers.

A Back to the Future approach

A common factor among companies recalling their CEOs is the preference for insiders who know the working of the company and more importantly, the industry in which they operate. They have had a successful track record at running the company and know how to respond to a challenging situation i.e. they already have CEO-level experience.

Comeback CEOs

CEOs or founders who return to the company are commonly being referred to as ‘Boomerang CEOs’. Let us take a look at some of them –

Return of Steve Luczo at Seagate

In 2009, Steve Luczo returned to Seagate Technology Inc., a data storage company, as CEO replacing Bill Watkins. Earlier, he was CEO from 1998 to 2004. In 2012, Fortune Magazine named him one of the Top 50 Businesspersons of the Year for turning around the company. Seagate was struggling with declining market share, rising costs, and massive debt. The company’s market value was less than $1.5 billion at the time of hiring Luczo. In 2007, an attempt to organize the company into business units had failed. When he came back, Luczo corrected this by overhauling the entire management team and reorganizing the company back to a functional structure. Shares rose from mere USD 5 in 2009 to USD 37 in three to four years later.

Lafley’s return to P&G

In May 2013, P&G, the world’s largest consumer product maker replaced its CEO Robert McDonald with Alan George Lafley. Lafley re-joined P&G as President and Chairman. Earlier, Lafley had been CEO with the company from 2000 to 2009. Lafley’s job is to improve sales of products, bring in new products and cut costs.

Mike Ullman’s return at J.C. Penney

Myron Ullman, ran J.C. Penney Co., the retailer from 2004 to 2011. In February 2012, he was replaced by Apple’s Ron Johnson. Johnson’s strategy “everyday low pricing” did not work as sales dipped $4.3 billion, with a loss of almost $1 billion. Johnson had dropped several brands, sales initiatives and coupons. By April 2013, Ullman was back as CEO. Ullman immediately promised bringing back three or four of private label brands dropped earlier by his predecessor.

Narayan Murthy’s return to Infosys

In May 2013, Infosys, an IT leader from India recalled its founder Narayan Murthy as Chairman. Infosys was clearly struggling in changing market conditions as competitor Cognizant displaced it from the second spot in the IT market in India.

Founders Dell, Schultz and Page return

Other famous leaders and founders who returned to their companies include Michael Dell to Dell Inc. in 2007, Howard Schultz to Starbucks in 2008 and Larry Page to Google in 2011. Howard Schultz was CEO from 1987 to 2000. Starbucks shares rose from USD 20 when Schultz returned in 2008 to around USD 58 in 2013. On his return as CEO, Larry Page immediately carried out a major reorganization of his management team in order to eliminate bureaucracy and lobbying while stepping up innovation.

Comeback King, Steve Jobs at Apple

But, the entire comeback CEOs would look to emulate charismatic leader Steve Jobs, founder of Apple. He was ousted from the company in 1985 in a power struggle. He became CEO again in 1997 and turned Apple into an iconic global brand.

Using market input

Any company that uses market input to tweak its product offerings is making a wise decision. In other words, being committed to solve the customers’ problems and customizing product offerings is a must. But how do companies do it. A good starting point is identifying what customers are really trying to achieve. A narrow-minded approach would limit a supplier to specific products the customer is buying. A research has found that customers quietly dump the suppliers without complaining (TARP research has found a 1 to 26 ratio for every customer who complains to those who do not). So it is very important to ask the customer what they want and get their feedback on various issues they are facing. Among many ways to listen to the customer like surveys, standard forms, observation, interacting at point of sale, net promoter score or via social media, a combination of all might work to the best advantage. There is no one best solution.

Let us see how some companies e.g. Apple, HP and Xerox are listening to their customers.

Does Apple listen to its customers?

Quote
“I only wish I could find an institute that teaches people how to listen. Business people need to listen at least as much as they need to talk. Too many people fail to realize that real communication goes in both directions.”
— Lee Iacocca, Former CEO Chrysler Corporation
Unquote
“A lot of times, people don’t know what they want until you show it to them.”
— Steve Jobs, Apple

The above two quotes made by two great leaders contrast each other w.r.t listening to the customer. You may ask, “So does Apple not listen to its customers?” The answer, it does, perhaps in its own unique way. In their book, authors Fred Reichheld with Rob Markey, describe in detail how Apple advocates the Net Promoter Score (NPS) for methodically listening to customers. The NPS concept tracks promoters (i.e. those who will recommend the product or service to a friend or a co-worker) and detractors on a 0-10 point scale.

NPS is used for daily management of Apple’s stores and evaluate store performance and correspondingly make improvements. A central NPS team is responsible for analyzing customer feedback from all the stores. The analysis reveals reasons for a promoter’s keenness or a detractors disinterest as per the NPS concept. The store managers then call every detractor within 24 hours as findings suggest that they purchase significantly more Apple products and services than the others. An hour spent on calling detractors was fetching more revenue with additional sales.

How HP listens to its customers?

Procter & Gamble (P&G) wanted to digitize and use technology for business decisions. In 2003, HP began a 10 year contract to manage P&G’s internal tech services. In 2012, when the contract came up for renewal, P&G wanted to make its IT operations stronger and work with offerings from many vendors. HP was open to the deal. So in cases where HP’s hardware or offering did not meet P&G’s requirement, HP was willing to work with other vendors to fill the gap. HP and P&G realized that this would make the IT operation stronger. As a result P&G extended the contract for five more years and a 50% increase in annual value.

HP researchers are also known to visit the customer location and film the business process for a day so as to suggest how HP could help them. HP is also known for its “Day in the Life of a Customer” concept.

How Xerox listens to its customers?

Xerox listens to its customers via Relationship Surveys, Transactional Surveys and social media. It uses facilities like Real-time alerts and processes involving Lean Six Sigma techniques to addresses customers’ requirements. The company has programs like the ‘Xerox Corporate Focus Executive Program’ to build relationships with its top 100 accounts. In another program, 36 company officers take turns to be “Customer Care Officer of the Day” to listen to the customers and solve their problems.

Xerox conducts business live events across the country like the “Xerox Focus Forward”. These events are aimed to connecting Xerox with current and future Xerox customers and explore opportunities. The event shows its customers how Xerox can help solve real business problems.

It is in my genes to code

A majority of software developers take pride in the software they code. Put them in a support job function and they seem lost and highly disinterested. They believe, it is in their genes to code and a support job would be menial and below their dignity. This is particularly true in emerging countries, where a call centre employee would be looked down upon by someone in an IT/software job and even an IT networking job function for that matter. After all, they earn probably double the salary or more and enjoy more prestige in the society.

‘Give me a development project, I have so much experience’

Consider this scenario. A global IT company has bagged a project to support an important client’s applications and the project is worth millions. The company has put some of its best application developers to support. Within a few days of hiring the resources for the project, people managers are busy, not with project work but concerns from their resources allocated for the project. Typically, an application developer complains about the project being a support one which does not require much development work. They are concerned about their coding experience going to waste. HR managers hear this often – “Other application developers are coding ground breaking applications aka changing the world and here we are stuck providing mere support, application fixes and debugging.”

No, doing support is not a crime or punishment

Well consider this. The thing that software developers should hate the most is that they rarely communicated with the end users, the ones who actually use their application. The developers are given a list of requirements, stated what is expected and that is it. In the end, they never find out whether their work meets the requirements of the actual end users. They also never get a chance to find out from the end users about how to improve the application or get an honest feedback albeit appreciation on the work.

The whole point of writing code is not ‘we make, you take’

What is the whole point of writing software? It is to develop something useful that adds value to the life of some or many. A ‘we make, you take’ approach leaves the customers ignored and passive. If you do not communicate with the people who use your output, you are losing out on an overall learning or growth opportunity. Sadly, many developers take a negative approach and do not indulge in anything that distracts them from the love of their life – coding. However, side-stepping support totally is a big blunder.

Engineers in the pursuit of happiness

Many organizations do a good job of listening to their customers. But a gap exists because only the sales team is involved and the developers are not involved. These developers are the very people who actually make the end product and their insight would be invaluable. Well, how do you involve the developers? Take the example of Automattic, the company behind the famous content management system – WordPress. Every new hire that joins Automattic, initially finishes three weeks of support before moving on to coding or any other role. The three weeks support role is mandatory for everyone irrespective of the role in which they are joining. Why so? It forces the developer or the new hire to see software through the customers’ eyes. By directly communicating with the actual users of the software, the company can find out what the problems are in the software and what one can do to streamline it. The company recognizes that their software and services are not perfect. In fact, they have job positions titled – ‘Happiness Engineers’. They believe when things go wrong people are not wary about asking for help. Happiness Engineers help those people and it is their passion to make products more understandable to the people who use them and more importantly to the company. A developer in that role can do wonders.

The organizing committee (London Organizing Committee of the Olympic Games and Paralympic Games – “Locog”) of the London 2012 Olympic Games had a unique challenge before them. They had to price over 8.8 million tickets (of which 75% would go on sale to the public) for 26 sporting events and ensure impartial affordable access to everyone planning to attend the event. What was more challenging was the demand uncertainty, as they had to price all events more than a year and a half in advance (March 2011) of the Games, set to begin on 27 July 2012. The London 2012 Chairman, Lord Coe termed it the “the daddy of all ticket strategies”.

Three principles of the ticketing strategy:

1. Tickets need to be affordable and accessible to as many people as possible.
2. Tickets are an important revenue stream to fund the games and
3. Fill the venues for all events.

Some important elements of the ticket pricing strategy:

• 90% of the public tickets would be priced at £100 or less, 66% at £50 or less, while 2.5m tickets would be priced at £20 or less.
• Increasing the number of pricing tiers to keep prices low while maintaining revenues. However, the tiers did not have a fixed number of seats. Those who bought tickets at a higher price were guaranteed better views of the sport. Demand at various price points helped ascertain the number of seats.
• In all, there were about 26 different pricing plans with details on how to promote and the target audience.
• Pay-your-age pricing plan for youngsters. There were approximately 1.3m tickets for youngsters 16 years or under at the start of the games who could pay their age in pounds.
• Discounted tickets to those over 60 years of age. (flat £16 price)
• A Ticketshare scheme (120,000 free tickets – ‘prestige tickets’) was put in place wherein thousands of schoolchildren would get tickets.
• High and low, price points for the opening ceremony.
• No free tickets policy to prevent any public outrage.
• No bundling of tickets for popular and less popular sports. In the past, this strategy had been used at previous Olympics to increase sale of tickets sales and popularizing less known sports. However, ticket holders typically ignored the less popular sport.
• Public Transport was included in the ticket price plan to reduce traffic and increase participation.

By January 2012, 3.8m tickets had been sold. Let the games begin!

Is The Price Right?

Many companies face this question – What should they charge for their products? Right pricing has always been a tussle between the seller and buyer. Traditionally, brands set the price based on competitors offering, market conditions (supply/demand), ROI etc. Then came along value-based pricing wherein a customer would pay a price that would reflect a product’s true value. However, marketers would argue that such a strategy is subjective because value means different things to different consumers. A discount strategy would probably work better instead. In addition, factors like loss aversion play a role – the value of a few cents is much higher when it is deducted rather than added to the bill value.

Case in point

Starbucks charges its customers 10 cents for every paper cup they use. If the customers bring a reusable travel mug, they get a 10-cent discount on any Starbucks beverage. An ideal pricing strategy can be – set one default price and charge 10 cents extra for the paper cup instead of offering a discount for getting a mug.

In January 2011, jcpenney announced its “Fair and Square” pricing strategy. As per the new strategy, the company removed frequent deep-discount sales it had been offering and instead reduced the base price of all items by about 40%. However, the new pricing strategy did not work as in a few months the store traffic declined by 10% and sales by more than 20%. To the customer the ‘fair’ (low) price feels like cheap product whereas a higher priced product offered at a discount appears to be of higher value. Similarly, a few years back Macy’s had reduced the number of coupons it offered to its customers. However, within a year, it restored the coupons, as it realized that consumers preferred them.

In 1992, American Airlines had announced a simplified pricing system (four kinds of fares instead of 16). The pricing strategy was adopted to save $25 million annually by reducing administrative burden with so many fare types. However, in six months American Airlines withdrew the new pricing plan admitting that it was a failure. Competitors were easily undercutting their simple fares.

In April 2012, P&G reported that its sales increased 3% in the quarter. Its competitors, Unilever PLC and Colgate-Palmolive reported sales increase of 8.5% and 6.5% respectively. The problem lay in P&G’s price war strategy to defend market share and not profits. P&G managers reduced prices to hold market share. This resulted in lower margins for the company. In the end, aggressive pricing strategies should be combined with innovation. P&G’s rivals innovated better in many product categories and were more successful.

In September 2011, Bank of America announced that it would charge 5USD per month as debit card fees. Customers were not happy with this decision and by end of the year the number of closed accounts increased by 20% as compared to a year earlier. In July 2011, Netflix increased its prices by 60% for DVD and video streaming rentals. Customers did not like the unjust move and many users cancelled the service.

Points to ponder

• Do not price the product too low thinking that customers want cheaper products. The customer might consider it of low value.
• Do not price the product too high unless it is well differentiated or unique otherwise the competition with similar offering will win.
• Know your customer and what he/she wants. If the majority customer is in the middle-income group and prefer discounts, price accordingly. Similarly, if the majority customer is high-income group, then they might not prefer cheap products considering them to be of inferior value.
• If the customers know the cost, they set the price.

Will the business idea work?

A business idea has to be viable to succeed. It has to pass both the logic test (does it make sense, add unique value?) and the economic test (can it work profitably?). If it passes the one test but fails the other test then the business is bound to fail. There are various quantitative and qualitative market research reports, focus group results etc. to aid the feasibility of a business model. There is also the narrative and the numbers test. However, until a business is set up in the market; it is very difficult to know if it will really succeed.

The real world lesson

On paper, it is very easy to formulate a business idea, estimate revenue and costs, write up profitability and future cash flow reports. However, actual market experience alone will give the correct picture. It may also take numerous iterations in the real world to find a business model that works. Therefore, does this mean that a detailed business plan is a waste of time and that businesses should just take the plunge right away? Certainly not. A good approach would be develop a unique idea, prototype quickly and then move to the market even faster. The key is to learn from failure and rapidly iterate to adapt the business model.

Testing your business model

Many successful businesses have demonstrated how you can test your business model before you can take the plunge.

Apple specialty stores

Steve Jobs was not happy with the placement, sales support and customer service Apple products was receiving in the traditional consumer electronic retail channels. He realized that buying the product was an important element of the overall customer experience. He wanted to build Apple specialty stores that would improve the buying experience for the customers. However, Jobs did not go out and set up a store right away. In fact, the first store was a prototype (design studio) set up right inside the Apple campus to test the business model. A key learning for Steve Jobs here was that it was not about a layout with grouping products, but what the customer could do with Apple products. When Jobs was comfortable with the arrangement after several iterations, the company set up its first specialty store in the real world.

Microsoft’s Retail Experience Center

Microsoft is using a 20,000 square-foot facility called the Retail Experience Center (REC) to educate third party retailer partners like Best Buy and Wal-Mart on the New Microsoft experience and how it envisions people will be using its technology. Microsoft has also created a fictional store chain called Contoso, to demonstrate how its products can be displayed well online.

P&G – India tailored Business Model

Gillette developed a new razor for India after testing it on Indian men studying at MIT. Though the test was successful, the product was a failure when launched in India. To identify the cause of failure, P&G sent over a team to India to study the shopping and living habits of Indian customers. They found that lack of running water or a comfortable bathroom to shave in were the reasons Indian consumers avoided the P&G razor. P&G developed a low-cost, well-designed and affordable product with 80% less parts. The product was successful. However, P&G did not stop there; it developed an India-tailored business model with local manufacturing and distribution. P&G plans to introduce the product to other emerging countries and developed countries like the U.S. in the future.