Return on Involvement (“the Other ROI”)

Return on Involvement (“the Other ROI”)

Imagine this conversation between two shoppers at a car dealership:

Consumer #1:   I want the one I read about in the latest issue of Car and Driver magazine: It has a six-cylinder turbo engine, a double-clutch transmission, a 90 strokebore, and 10:1 compression ratio.

Consumer #2:   I want a red one.

Involvement describes a person’s perceived relevance of the object based on their inherent needs, values, and interests.  Most marketers and salespeople grapple with the challenge of finding ways to get their customers interested in what they sell.  Indeed, a highly involved customer is The Holy Grail of Marketing.

Why is this so?

Our motivation to attain a goal increases our desire to acquire the products or services that we believe will satisfy it. However, as we see in the case of Consumer #2 at the car dealership, not everyone is motivated to the same extent. Involvement reflects our level of motivation to process information about a product or service we believe will help us to solve a problem or reach a goal.  Think of a person’s degree of involvement as a continuum that ranges from absolute lack of interest in a marketing stimulus at one end to obsession at the other.  Inertia  describes consumption at the low end of involvement, where we make decisions out of habit because we lack the motivation to consider alternatives.

As our involvement increases we think more about the product (“I’ve spent the last three days researching mortgage interest rates”) or we experience a strong emotional response (“I get goose bumps when I imagine what my daughter will look like in that bridal gown”).

Not surprisingly, we tend to find higher levels of involvement in product categories that demand a big investment of money (like houses) or self-esteem (like clothing) and lower levels for mundane categories like household cleaners or hardware. Still, bear in mind that virtually anything can qualify as highly involving to some people—just ask a “tool guy” to talk about his passion for hammers or plumbing supplies.

Cult products such as Apple, Hydrox, Harley-Davidson, Jones Soda, Chick-Fil-A, Manolo Blahnik designer shoes (think Carrie on Sex and the City), and the Boston Red Sox—command fierce consumer loyalty, devotion, and maybe even worship by consumers. A large majority of consumers agree that they are willing to pay more for a brand when they feel a personal connection to the company.

In our 24/7 world where consumers are bombarded with marketing messages, selling involvement is harder than ever.  But, it’s well worth the effort to explore strategies to boost customers’ motivation to acquire a product, service or specific brand.  This requires investment of time, money, — and especially creativity.  But the payoff is well worth it – this is what we can think of as Return on Involvement (“the other ROI”).

Join us for a one-hour webinar on May 11, 2017 and learn more about “the other ROI” with Michael Solomon.

Michael R. Solomon, Ph.D.
Photo Credit: Meghan Duthu
BENEFITS, NOT FEATURES: 30 QUOTES FROM FAMOUS PEOPLE

BENEFITS, NOT FEATURES: 30 QUOTES FROM FAMOUS PEOPLE

BENEFITS, NOT FEATURES: 30 QUOTES

  • Reid Hoffman: Founder, LinkedIn

If you are not embarrassed by the first version of your product, you’ve launched too late.

  • Tim Cook

A great product isn’t just a collection of features. It’s how it all works together.

  • Marco Arment: Founder, Instapaper

Making a product better often requires removing features.

  • Kathy Sierra

The secret to building great products is not creating awesome features, it’s to make users awesome.

  • Jay Abraham

Sell the benefits, not your company or the product. People buy results, not features.

  • Dave McClure: Founder, 500 Startups

Features are like having sex. You make one mistake and you have to support it for life.

  • Paul Buchheit

Pick three key attributes or features, get those things very, very right, and then forget about everything else … By focusing on only a few core features in the first version, you are forced to find the true essence and value of the product.

  • John Wesley

Our old system was just not able to accommodate our newest product features. Our goal was to get a stable, scalable, system that would help us speed new products to market.

  • Kevin Systrom

The best feature is less featureless.

  • Douglas Crockford

We see a lot of feature-driven product design in which the cost of features is not properly accounted. Features can have a negative value to customers because they make the products more difficult to understand and use. We are finding that people like products that just work. It turns out that designs that just work are much harder to produce that designs that assemble long list of features.

  • Eric Ries

I would say, as an entrepreneur everything you do – every action you take in product development, marketing, every conversation you have, everything you do – is an experiment. If you can conceptualize your work not as building features, not as launching campaigns, but as running experiments, you can get radically more done with less effort.

  • Steve Blank

We now know that something between 85 and 90 percent of most software product features are unwanted and unneeded by customers. That is an enormous amount of waste of time and money that ends up on the floor.

  • Sergey Brin

We are focused on features, not products. We eliminated future products that would have made the complexity problem worse. We don’t want to have 20 different products that work in 20 different ways. I was getting lost at our site keeping track of everything. I would rather have a smaller set of products that have a shared set of features.

  • Jakob Nielsen

Even the best designers produce successful products only if their designs solve the right problems. A wonderful interface to the wrong features will fail.

  • Cindy Alvarez

What features your customers as for is never as interesting as why they want them.

  • Alan Cooper

Reducing a product’s definition to a list of features and functions ignores the real opportunity – orchestrating technological capability to serve human needs and goals.

  • Jefferson Han

If you watched companies such as Sony and Samsung grow, they focused first on features and then on industrial design, which made their products look and feel better.

  • Tony Fadell

No amount of data will tell you if a feature should be in the product, because it doesn’t exist. You need to have a very clear leader with a clear point of view…otherwise, you get a mishmash of features and stuff that doesn’t make a lot of sense.

  • Ram Shriram

You want to do a few things really well because you want to come out with a product that is fully baked, even though it may be lacking in a few features or whatever, rather than the one that’s all-achieving but not doing anything too well.

  • Gregory Benford

It turns out that if you optimize the performance of a car and of an airplane, they are very far away in terms of mechanical features. So you can make a flying car. But they are not very good planes, and they are not very good planes.

  • Scott Adams

Normal people…believe that if it ain’t broke, don’t fix it. Engineers believe that if it ain’t broke, it doesn’t have enough features yet.

  • James Surowiecki

Technology is supposed to make our lives easier, allowing us to do things more quickly and efficiently. But too often it seems to make things harder, leaving us with fifty-button remote controls, digital cameras with hundreds of mysterious features and book-length manuals, and cars with dashboard systems worthy of the space shuttle.

  • John Carmack

The cost of adding a feature isn’t just the time it takes to code it. The cost also includes the addition of an obstacle to future expansion. The trick is to pick the features that don’t fight each other.

  • Jeffrey Gitomer

I don’t want features, I want value. I don’t want benefits, I want value.

  • David Karp

Every feature has some maintenance cost, and having fewer features lets us focus on the ones we care about and make sure they work very well.

  • Stephen Baker

Prices are coming down. And they have the features and benefits people want.

  • Tim Locke

Hardwood floors are very popular features in new homes. Many individuals are also installing hardwood floors when they renovate their residences. Consumers realize that this feature adds value to their investment.

  • Emmett Shear

This is true for most new products. The majority of people you’re competing with are non-users. They are people who have never used your service before. And what they say is actually the most important. What they say is the thing that blocks you from expanding the size of your market with your features.

  • Carl Sagan

The fossil record implies trial and error, the inability to anticipate the future, features inconsistent with a Great Designer.

  • Leah Culver

Learn not to add too many features right away, and get the core idea built and tested.

Image: Imani Clovis

Asset-light business model is the key to success for start-ups

Asset-light business model is the key to success for start-ups

Asset-light business model is the key to success for start-ups

Asset-light business model is the ket to success for most start-ups. Around eighty percent of new businesses fail not because of a bad idea but because of choosing the wrong business model. They start with high fixed costs and no revenue. At the core of this bad implementation lies the ill-conceived notion that a heavily invested business would generate high revenues. Some have flourished, but most have floundered. People give too much concentration on acquiring operational resources for the company. But not enough gets done on generating at least break-even revenue. This has resulted in a majority of start-up flops.

Well, it doesn’t have to be that way. There is still hope for entrepreneurs. Seasoned business people have extolled the virtue of starting small with zero assets and leveraging the enormous power of technology. Put it another way, it means adopting an asset-light business model at the very early stage of the company.

At the Berkshire Hathaway Annual Shareholders Meeting held in April 2016, Warren Buffett commented that asset-light businesses are the ideal investment opportunities. They generated significant cash flow by investing in some asset-light businesses in the early years of the company. At the heart of today’s most successful start-ups lies the emergence of asset-light business model empowered by deep-pocket private investors who are disappointed by the returns from other investments. The business model helps companies exploit new revenue opportunities faster than more mature and established firms. On closer inspection, it is not hard to find some common traits and features of several new generation businesses.

Uber

The disruptive trend towards asset-light business model has bolstered the bullishness of Uber’s investors. The model has enabled its strategy of growth over the pursuit of profits because of the lower cost of expansion. Uber does not own or maintain any vehicles because it uses the gig economy for its survival.

Zalando

What started off as a simple online business in 2008 selling flip-flops from a Berlin flat has developed into large e-commerce selling goods to 15 countries. Zalando sales revenue is rising by around 15% a year. Guess their business. Selling other brands through the Internet. Surely, the asset-light approach is nimble and sustainable.

Wendy’s

One of the ways to adopt an asset-light business model is through outsourcing as Wendy’s has done. It has reduced capital and the amount of real estate they own and managed through franchising their American outlets. Many fast food giants have followed suit and have taken advantage of such scalability.

Capital equipment OEMs

Most OEMs have transferred the task of designing and manufacturing the systems and subsystems to suppliers as new parts sold by vendors are replacing certain obsolete ones thereby passing on the operational complexities and costs associated with producing them using the capital-intensive equipment.

OYO Rooms

An innovative business model whereby partnering with existing hotels and getting a percentage of commission from them has made OYO Rooms a huge success. The brand owns hotels without having to build them from scratch thus resulting in huge savings, less risk, and exponential growth path.

Snapdeal

From homegrown online start-up to an e-commerce giant Snapdeal has managed to garner a huge customer base just by leveraging technology. The Internet has made it possible to reach a wider range of market than ever before with lower asset requirements. In just over five years it has managed to achieve a valuation of USD 5 billion making it attractive to future investors.

Hotels

Accor group of chain hotels and InterContinental hotel franchises some outlets to other hotel operators. They manage but not own some others. Only a minority of the outfits is owned or leased by the companies. Here the bricks-and-mortar is the property of someone else. Similarly, Marriott owns only a tiny fraction of the hotels that bear its brands.

Airlines

Utilization and not the acquisition of aircraft is key to stellar returns in the aviation industry. Lan flights use their aircraft to service both passengers and cargo. Likewise, DHL and Cathay Pacific share aircraft for their cargo and passenger routes respectively enjoying the advantages of increased utilization of their capital intensive wide-bodied aircraft.

Types of asset-light business models

Boston Consulting Group points out the most common types of asset-light business models based on the sources of differentiation.  They are outsourcing, asset-sharing, licensing in, and licensing out. Inherently these models help companies to keep costs low, diversify risks, and to branch out into new markets. Companies outsource the supporting systems so that they can free up their resources and concentrate on their core business. Similarly, asset-sharing helps in lowering operational and labor costs. Licensing in and licensing out has helped companies to foster valuable strategic alliances in a cost-effective manner.

Lessons for start-ups

It is only natural for a wide-eyed entrepreneur to get overwhelmed and intimidated by the sheer enormity of all these successful businesses. But they all started off with zero capital. All they had was the founder’s drive. Their success lay in adopting an asset-light business model that had virtually no cost and was easy to exit in case the business failed. An asset-light business model start-up company to be successful and to have the edge over others in the market should have the following essential qualities:

  • Start with the potential for future growth by paying attention to the market demands
  • Do strive for a wider and deeper reach of the target market to achieve quick scalability
  • Follow the trends consistently and continuously for long-term business sustainability
  • Invest in cutting-edge technology such as software, systems, and subsystems
  • Take fewer risks i.e. less capital-intensive investment, equipment, and real assets
  • Explore cost-effective measures such as sharing resources with other entrepreneurs

The growth path of traditional old businesses was linear which implies that it took a considerable amount of time to expand the business sometimes even took the founding entrepreneur’s lifetime to achieve the desired scalability and financial success. An asset-light business start-up, on the other hand, can grow exponentially bypassing many of the life cycles of a traditional business by adopting an asset-light model enabled by modern technology. Today advanced e-commerce software has made it possible for companies to find success with a mere fraction of the cost and time.

Photo Credit: Suhyeon Choi