Should have known better

Yeah it takes a slap in the face like this one to get me writing again.  Just checked into a nameless hotel.  Now I understand why they stripped off the nameplate.

But since I’ve decided to consolidate my hotel share with SPG, I needed an SPG property.  If I’d bothered to check Tripadvisor I’d have known better.  But I probably still would have stayed, to drive towards Platinum.

Shows how powerful the draw of status can be, given that I just reached Gold in just 13 weeks.  Not like it helped much – there’s no upgraded rooms and doesn’t appear to be much to gain here.  But it should be better at my numerous stays over the coming weeks all over the US and Asia.

And I’m looking forward to my first Aloft experience in 2 days.

The first was the introduction of the browser in the mid 90’s.  Suddenly you could research product details, examine similar products across different sellers, and read professional reviews published by magazines online.  Consumer immediately eliminated the information imbalance that had existed for all of civilization, where the seller always knew more than the buyer.

The second came quickly after the first, with the widespread usage of search, which allowed consumer to learn a huge amount about a specific category or product in a short period of time, including prices and sellers, in just a few minutes.  This meant that it was likely a consumer knew more about a specific product or category than an associate standing in a retail store who had received 8 hours of training before getting thrown on the floor.

The third was the advent of ratings and reviews, thanks primarily to BazaarVoice and Amazon.  Now consumers had a pool of primary research to draw from to evaluate the qualitative differences between products. It also exposed flaws and other non-obvious positives and negatives, putting consumers even farther ahead of sellers.

The fourth and fifth waves started nearly simultaneously – the social wave and the smartphone wave.  Social tools allow near real-time feedback from trusted sources and the crowd when a decision needs to be made, and mobile access allows the use of all tools anywhere, any time.  Both are rapidly transforming the nature of commerce, with Amazon’s recent overt effort to divert shoppers while actually in a competitor’s store representing the beginning of a brutal competition for customers.

The sixth wave, which is just now getting started, is the model wave.  There’s now enough information available on an individual to build a meaningful predictive model around ability to spend, share of wallet, propensity around certain products and categories, and many other potentials.  When the vast trove of behavioral and attribute data is run through parallelized processors, really interesting models can be developed.  And when event and transactional data is run through grid-based, in-memory rules processing, very fast decisions, offers, suggestions, and other behavioral “nudges” can be made.  Its the ultimate in information arbitrage: in order to get ahead of consumers, companies need to figure out what consumers want before they know it.

So marketers need to start finding great options for the technology to enable the sixth wave (I know a good one that happens to sign my paychecks) and great talent that can develop and administer the models themselves.

What to do?  Most standard database approaches are not sufficient for big data, given their disk-based I/O limitations.  The trend now appear to be in-memory computing, an area my employer happens to be pretty good at.  So we’re learning from the huge computing farms of the financial services industry and seeing what the future might look like for consumer marketers.

More to come on the subject, but think of huge chunks of your customer database kept in memory, with business rules, models, and other processes absorbing a constant stream of data and driving continuous real-time responses.

With a day to think about it, I underemphasized the impact of program design on fund rate.  The art of design in this case is finding a balance between perceived fund rate (what the customer sees as the fund rate) with the actual fund rate (the resultant rate after breakage) while still meeting program objectives and staying fair to the customer.

A lot has to do with whether a redemption is a good thing or a bad thing.

In retail, you have to assess how much incremental revenue a redemption will generate, either through incremental spend during the visit (i.e. customers typically spend $50 when redeeming a $5 reward) or through incremental visits (i.e. overall member frequency increases by 0.75 visits/year when they reach a minimum spending threshold).  For many retailers, generating visits is so expensive that they want redemption, since that generates a visit.  In this case they want a low breakage rate.

In airlines, a redemption is pure cost, albeit low (the incremental cost of filling another seat is very low, so as long as they leverage existing capacity effectively, costs are not high).  The main benefit to the airline is share of travel wallet, so there is little benefit on the back end other than keeping customers happy and maintaining positive brand image in the social sphere.  Breakage here is a good thing, since it keeps costs down.

Other industries have similar considerations.

I’ve always visualized this as a multi-dimensional optimization problem, meaning the real challenge is framing the problem properly.  That’s why we’ve always spent a good amount of time understanding the behaviors that matter, the revenue generation possible, and the sources of cost in order to drive towards a set of solution options to consider.

I listened to an Invisible Hand podcast today with Douglas Hubbard on How to Measure Anything, and was struck by the similarities between his methodology and how we have to approach modeling of client businesses in relation to customer loyalty.  Topic for another day…

1. There’s always something new.  A work environment doesn’t stop at the desktop any more, so virtually anything can be part of the workspace.  Twitter is now a work tool.  So is IM, Expensify, and Tripit.  Any worthwhile marketing solution these days is web-based (excluding analytics, more on that some other day), and with improved integration options, these solutions can be part of the workspace in minutes.
2. Someone else does it better.  Expensify is a great example of this as well.  Fast, easy, inexpensive, and I can (and have done) expense reports while waiting to board a plane.
3. It’s virtually impossible to change everything.  Ripping out one system and replacing it with another is tough enough.  Doing that to every system is essentially impossible.  A long-term migration plan to consolidate on one platform is great, but by the time its done, most of the apps will be obsolete by someone else (see #1 and #2).

Why is this on my mind?  I’m seeing big companies (and I mean really big) try out ideas for the first time in a long time, using tools that would never have been considered just a few years ago.  It’s great – finally the SV mindset of using right tool for the job is gaining acceptance everywhere.

I think the separation between mission critical and not so mission critical is allowing interesting ideas to flower, extending, improving, and leveraging the talent already on hand.  While my area of interest is focused on marketing, this trend seems to be everywhere now, and bodes well for the future competitiveness of US companies.

Social has that same feel, doesn’t it?  Where the user base has entered the late majority, where there is a critical mass of interesting content, and where the apps growing up in the fertile soil of social foundations (Facebook, Twitter, OpenSocial, etc) are finally getting interesting.

To me, its clear we’ll look back on these last 2 years of the social boom as just the beginning, just as browsing brochure-ware sites was in the mid-late 90′s.  The ideas coming out of retail, CPG, manufacturing, financial, and travel make it obvious there will be an explosion of new ways for people to interact with people or companies.  Wish I could share what I hear but an NDA is still an NDA.

What all this travel has done is re-acquaint me with the joys of frequent flier programs and access to key seats.  Now I crave Economy Plus on United, fly Delta, AirTran and Virgin America primarily to get wi-fi, and travel with 2 laptops (one small enough to work on) when I don’t get a prime seat assignment.

If United could just keep its prices within a few percent of every carrier, I’d shift to them every time.  Realizing this and its impact on my behavior is a great reminder of why loyalty program and status still play such an important role in relationship marketing.

It’s pretty clear that this holiday will be brutal for some retailers and great for consumers.  Merchants are going into this holiday season much better prepared than in 2008, when most assortments and marketing had already been planned and placed when the Lehman Brothers bankruptcy on September 15, 2008 crippled the banking system and the economy seized up in response.

What are they doing?  From what I’ve seen, I’d characterize the changes in three categories:

1)      Leaner inventories – The bulking up that normally precedes December appears to be far more muted.  Fashion items are coming in lighter, with companies ready to fall back on basics in the last weeks before Christmas if necessary.  10/25 shipments are where most Black Friday goods are shipped, so we’ll really see what inventories are like in another week or so.

2)      Earlier promotions – Last weekend looked a lot like a December weekend in terms of promotions and sales.  It looks like everyone is on the same page and ramping up the noise level early to tap into holiday budgets even farther in advance.

3)      Lower risk tolerance – This is more subtle, and shows up in many places.  From what I’ve seen, it looks like trusted brands, proven categories, and quantifiable marketing are all in vogue.  Expenditures need immediate return these days, since its almost impossible to take on debt to finance long term initiatives.  There is a little risk-taking at the margin (just enough to add a splashy item or two to advertising), but almost everyone appears to be hunkering down with their safest bets and preserving cash.

As we go into a second weak holiday, it’s likely there are a lot of companies that have been slowly burning through cash that may be in dire straits come January.  With the debt markets essentially closed to small and mid-size businesses, there may not be enough lifelines to keep everyone afloat through 2010.

In an ideal world consumer confidence comes back enough to keep the worthy players going, the worst locations get shut down and converted to housing (infill is good – more density around the remaining locations and less rural land turned into subdivisions), and the debt market finally loosens enough to let CFOs do their jobs.

My intent was to make sure entrepreneurs confronted the fact that in the vast majority of cases, they are taking market share or spending from someone else, so must plan accordingly. Start with a great product or service, but understand how to keep customers engaged.