Why customers are fundamentally unpredictable

Born in 1957, raised as part of a liberal and progressive family in Calcutta, schooled by the Jesuits from 1965-66 to 1978-79: there is much in my background to explain why I espouse many of the beliefs of the Sixties. It begins with my family and my faith; it manifests itself in how I’m passionate about community and in communal activities, in a participative society, in a collaborative workforce. It underpins my interest in the “maker society”, in open source, in emergent behaviour, swarming, and servant leadership. It is to be seen in my attitude to ownership of material goods, it is to be seen in my attitude to ownership of ideas. It affects how I think about nature and the environment, and informs my beliefs in stewardship. It defines my approach to tolerance and to forgiveness, to war and to peace.  It even influences the way I read and write, what I eat, what I cook.

And it influences the music I listen to. Take a look at the image below:

It’s a collage of 100 album covers, and represents the first 100 albums I would buy in vinyl if they were available at a reasonable price and in reasonable condition. I’ve “owned” these albums before, sometimes multiple times. I’ve paid for them time and time again, in vinyl format, on prerecorded cassettes, as CDs, as 25th-anniversary-with-extra-tracks-you-never-knew-you-needed-(and-you-were-right!), sometimes even in DVDs. Do I hear you say “sucker”? Yup, that’s me.

I’ve managed to buy quite a few of them on mint vinyl already, not as reissues but by being in the right place at the right time. But.

But given a chance, I would buy them as a single transaction, a job lot, a bundle. Even if there was some further negotiation to be done with respect to the sequence in which I would receive them, and the time over which that would happen.

It’s not just about music. I travel a lot. And I’d love to go to an airline and say, I’d like to buy 100 flights. Return. Most of them are on sectors you fly. I will use those flights up in a year. It may not be just me travelling. I will vary the class of travel, “turning left” for longhaul business travel and for at least one family vacation.

It’s not just about travel. I read a lot. And I’d love to go to a bookstore and say, I’d like to buy 100 books. Most of them are on subjects you stock. I will use up those credits in a year. It may not be just me doing the buying, I will vary the class of book, “turning left” for signed numbered limited editions occasionally and for at least one set of family presents.

Music. Travel. Books. Clothes. Eating out. In some ways it’s all the same to me. I want to tell someone what I’m in the market for, build a relationship between that “person” and me. Tell them how much I’d be prepared to spend and over what period and for what class of thing. Work with them to figure out the sequence, frequency and timing.

And expect them to invest in that relationship as a result, be my friend, guide, partner through that process.

But it needs them to think differently, in order to view what they do differently, move from the product perspective to the customer perspective.

Without that fresh perspective, we’re going to continue to see abominations like region coding on DVDs. Which customer was that designed for?

Let me give an example of something that does not work.

Let’s take Premiership football in the UK. Most grounds have capacities in the 30-50,000 range, with a few clubs below 30,000 and a few above 50,000. All of them have fan bases that are multiples of that number, large enough fan bases to warrant the payment of very large sums of money to acquire “exclusive” rights to the live games.

And then someone chooses which games are broadcast live in the UK…. it would appear that if you didn’t live in the UK, you can watch pretty much all the games live. So my brother in India gets to watch his choice of UK-based Premiership game live, while I can’t. Go figure.

OK, so the hardened supporter buys a season ticket to go to all the games. Guess what? Analog is scarce, so there are waiting lists for many of the clubs. [That’s true for most sports at an analog level, and why touts make real money: Lord’s, Wimbledon, Twickenham, the O2, the story’s the same.].

Since I can’t get an analog season ticket, the smart thing to do is to buy a digital one, right? Wrong. Because you can’t. You’re only the customer. Someone else decides what bundle of matches you get to watch, a bundle designed to disappoint every customer.

Which brings me to the nub of this post.

Customers are fundamentally unpredictable.

In the eyes of people trying to sell them things, that is.

Why is this? It’s because customers want to buy things their way, in terms of the nature of upfront commitment, the choices represented, the frequency, the sequencing, the bundling and the discount. And the ability to change everything.

I want to be able to buy 100 books or flights or albums. Or 10. Or 1000. I want to be able to buy it all from one provider, even if that provider has to source some of the services from elsewhere. I want to be able to choose what and when and how. And to change my mind. Of course, if I do change my mind, I will have to pay for it. But only as and when I exercise that “right”.

I don’t want a buyer’s market, I’m happy to see the service provider make a turn on the service provided. Everyone’s got to eat.

The trouble is, it’s been a seller’s market for far too long. Based originally on natural scarcity and monopoly, now more often based on artificial scarcity, regulatory arbitrage, ploys and schemes you don’t want to believe. All designed to ensure that business becomes more predictable….. at the cost of customer service, service quality and even freedom of choice.

This will change.

Customers will choose to make long-term commitments with companies that give them simplicity, convenience and freedom of choice. In many industries, the early movers have provided simplicity and convenience but not freedom of choice, as a consequence of which there are people who believe that the freedom of choice is not important. That’s a big mistake.

A time is coming when the customer decides on the bundle of products and services to be acquired, not the provider. In fact, that bundle will comprise services from more than one provider…. the services themselves will commoditise, but there will be a premium payable for simplicity and convenience, payable to the “prime” who constructs the multiprovider bundle. The customer chooses the bundle.

A time is coming when the analog components of that bundle will last, as they used to last. Cars. White goods. Entertainment systems. All examples of analog goods that used to be built to last, and are now designed for rapid obsolescence. This won’t be tolerated any more. Planned obsolescence will no longer be accepted.

A time is coming when everything, as a result of commoditisation: every bundle, every analog item, every digital item, will come with a published cost of change. The cost of change will be payable in two forms: an “option price” for the right to change, and  an “execution price” to make the change. The penalty for change must be published upfront.

A time is coming where the maintenance and repair of what is purchased will also be commoditised: where you can choose to go where you like for analog spare parts or digital equivalents. A time is coming when every customer will have the right to look under the hood, to tinker with the product or service, to make changes personally, A time is coming when the current warranty system will be overthrown, when the principle goes back to “fit-for-purpose” rather than “will work for a year or so”.

A time is coming.

Why has this time not come already? Because companies have designed products and services with the overriding principle of aiding predictability rather than meeting customer needs. 

A time is coming.






21 thoughts on “Why customers are fundamentally unpredictable”

  1. How lovely to hear from you, Kathy. You’ve been a real inspiration to me when it comes to even *thinking* about what the customer wants. Glad you like it. Have a great new year, see you soon. Maybe SXSW? I have a 12 minute session on multiplayer work.

  2. Clive, customer “unpredictability”is only in the context of the anchors and frames used by the vendors. The same can happen with intelligence communities.

  3. My friend Vinnie Mirchandani (@dealarchitect) proposed this idea to Delta some years ago. It went something like this: ‘I fly around 100K miles a year. It looks as though the cost I pay works out something around 15¢ a mile. I am prepared to commit to that amount for use over a year.’ Didn’t go anywhere.

    Co-incidentally, I am likely to be on an extended tour of the US and have tried to find an ‘all you can eat’ flight price for consumption over 3 month period. No luck so far.

    When you look at what’s proposed, it might be attractive to us but requires a vendor to blink – who might that be? Who would be prepared to make that sort of offer? To what extent would we pay premiums? Where are the negotiation points that make this a worthwhile deal for all concerned?

  4. @Dennis think of what apple did to the music business. They had no assets in that market, saw a role as intermediaries providing simplicity and convenience. Built iTunes. Knew that the phone would replace the dedicated device, went there next. There are many similar opportunities for new entrants to come in. The incumbents can do it but it’s harder for them, too much emotional investment in their status quo.

  5. @JP – oh for sure but that example (Apple) required few physical assets to get off the ground (sic) although since then they’ve invested huge amounts in data center, supply chain optimization and other techs to remove friction in all parts of the chain. Still working on it and spend mega $$s to get there.

    In ‘my’ world of enterprise apps there is a sense they have to go this road but you’re right – getting off your champagne diet is hard and especially so when it has been so successful in the past.

    I still think there is merit in the airline example…

  6. @Dennis the airline industry has a real problem with change, and (I think) has never made money anyway. Ever. Despite subsidies and tax breaks. And (largely) poor service. Their whole industry is based on structures that militate against the customer model. The security fiasco. The way air traffic control is run. The airport operators. The landing slot pricing. The segment flying rights. Cartelised all over the place. Disruption will come from someone who arbitrages the yield pricing.

  7. Probably airlines are not the best place to start from the vendors’ perspective – I think change will come from where less capex is required upfront. As far as I know airline cost structure is quite a mess currently so it’s much more difficult to package & bundle… (well, only if you want to make any money… thes still believe they do..)

  8. You’re asking for “InterRail” for airways – http://www.interrailnet.com/ – I know many students who took an “all you can eat” bundle to travel round Europe. I don’t see why air travel should be any different.

    Regarding buying books – is an Amazon voucher too far removed from what you want? Perhaps Amazon needs to move into the library space – pay £200 per year and download as many books as you like (and lose them at the end of the year).

    But, as you say, too many businesses are in the business of sticking to their business models.

  9. @peter I agree that airline cost structures are messy. perhaps the better way to look at them is that they’re fossilised. unwilling, unable to change. that cannot last.

  10. @terence Interrail is a goodish example, but Amazon voucher less so. Vouchers tend to drift towards anonymity, I want a real relationship between participants. Happy to see them with a pay-once-a-year-eat-all-you-like model. Frequency will depend on the particular market

  11. I agree with you, except on the planned obsolescence front. In some few cases, planned obsolescence is built in as a “feature,” as a cause… because it’s simply cheaper to make something that breaks. In many cases, though, it’s a function of “good enough to last until the next iteration,” because it’s for a product whose life-cycle is tied to time-limited features. Let’s look at MP3 players. If I told you you could buy a music device that would last your lifetime for $500, rather than spending $100 (or so) every year for the next 20 years, would you do it? Of course note. Because in less than a year, new features, software and capacity would be built into the new models. We already worry that our new iPhone is going to be obsolete before we pay off the credit card. Making it as cheaply as possible makes sense: if new features warrant a new device after X months, building something to last 2X months doesn’t make sense, since it drives up the cost and limits the number of customers who can afford it, your profit, and your ability to quickly bring out a newer, better model.

    The same holds true with planned obsolescence as it applies to fashion/culture. Sometimes customers want something new because it’s cool, hip, etc. That’s why we have Top 40 hits and new clothing designs every year. I’m not saying it makes good economic sense on an individual basis, but (ever since about the 1950’s), *new* took over as a cultural benefit. Before that, we valued what was tried-and-true, what was classic or had historical resonance, etc. A culture of “newness” was part of what came out of the industrial revolution and the Baby Boom economy. I have some hope that the Internet is helping quash this (see Patton Oswalt’s brilliant essay on ETEWAF on Wired), but for the time being, people like new for the sake of new. Building in additional years of sturdiness into an object meant to signify “this year’s style” is inefficient.

    On the other hand… I would subscribe to a service that gives me new equipment every couple years in order to better use the related content. Oh, wait… I already do that with my cell phone. With a 2-year service agreement, I can a massive mark-down on my phone. I get a new DVR every couple years with my digital cable subscription. And Best Buy now provides a “buyback guarantee” for hardware I get there, to use against future purchases. So, yeah… the model could certainly apply to other things (including fashion… I believe you can now rent expensive shoes a la Netflix). But working around planned obsolescence isn’t the same, I don’t think, as eliminating it.

    Transparently planned/marketed obsolescence… that’s an interesting idea.

  12. JP,

    Great points. I think that in any industry or sector if there is a consumer demand for “bundling” then market forces dictate that a “bundler” or “aggregator” will emerge as an intermediary.

    The first example that comes to mind is of the “de-bundler”, one you can easily relate with from your childhood years in India – the neighborhood Kirana (grocery) store. They are in most cases more than willing to break down packaging and sell items in the quantity the buyer can afford to pay for (they might be even willing to sell 10 matchsticks from a match box to a poor Rickshaw puller who cannot or does not want pay for the full box in one go; or has no place to store many matchsticks without them getting wet. So he pays for the cost of storage by paying a premium on what he has to spend for the de-bundled item).

    Many book lending libraries/networks in India used to do the kind of bundling you are alluding to. Deposit a lump-sum for 1 year or 3 years, read a new magazine/book every week/month and end of the period get your deposit back.

    I think that most large organizations are not well tuned to understand all the nuances of customer requirements esp. the niche ones. Or the costs for them to address those requirements are very high. So perhaps intermediaries who can be focused on a specific niche are likely to do a better job of “bundling”; “de-bundling” .

    Now can such “bundlers”/”de-bundlers” emerge in the new economy. Someone who say bundles some Google, salesforce.com, facebook, amazon, paypal, oracle etc. services/tools for the tailored requirements of a customer/customer segment? Why does the aggregation need to happen at the IT corporation level (M&A of technology firms e.g. salesforce.com acquiring rypple etc.) or at the level of system implementation at customer site (system integrators). Can it not happen at level of “bundlers” who then sell the “bundled” service to customers?

    Food for thought.

  13. @andy I can agree with that, the proviso on “planned obsolescence” but only if we are dealing with the true cost to the environment. So a throwaway mud-based lightly glazed tea cup is fine, dust to dust, easy on the biodegrade, but plastic bags are not…. so we just have to be careful about “cheaper”…. cheap to build, cheap to dispose of, fully biodegradable, not using up any rare minerals or excessive energy, then OK….

  14. @deepak yes of course large organisations find it hard, if they’re still in the “any color you like as long as it’s black” mindset. Monopolists rarely feel good about change.

  15. JP, A couple of thoughts about your record collection. While the ‘one bundle’ request is an undoubted convenience. What if it comes at the price of not wandering into that dingy shop in Soho, Camden, wherever? The physical delight in leafing through and discovering stuff which you did not expect, the memories that get elicited, and the grin of just being there?

    There is (i believe) a pleasure in, indecision, whim and non-sense which an individual is often not aware of, UNTIL it is removed?
    How about we differentiate your piece to reflect ‘bundle purchases’ as more suited to some kinds of transaction.
    An clumsy example might be petrol (as it is properly referred to!) Buying the stuff for your car is a hassle and a pain. BUT, I remember the feeling of buying the same stuff for my microlight as almost joyful… liquid which would take me across the countryside, on adventures and give stupid amounts of pleasure.
    What i am suggesting i suppose, is that plane tickets in bulk, sure. But meals, art, creative and emotional-content stuff still involves us, such that the decision and act of buying is part of the experience?
    PS, what are you guys going to do to stiffen up your batsmen? (am planing to drop in on one of the days here in Sydney. Trust all is well, Mike

  16. Mike, it’s like all the studies of the new generation. As Pew Internet sought to show, people with a second life do have a first life. The super communicators of the new generation are more likely to be in face to face communications than their peers. In a similar way I may use digital means to find music, and use the time created to spend even more time in analog ways to do the same time, have greater reach.

    Staying up for the cricket tonight, so let’s talk via twitter? ping me

    Nice to hear from you

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