Archive for June, 2017

Uber Masters Abandoner Remarketing

Friday, June 23rd, 2017

Uber didn’t invent targeted offers but the world’s largest taxi company sets itself apart from other brands by the innovative ways with which it uses the fledgling marketing tactic to deepen customer engagement, as I’d highlighted in Mastering Targeted Offers – The Uber Way.

I recently saw Uber’s mastery of another “next gen” marketing tactic, namely, abandoner remarketing.

For the uninitiated, abandoners are those who visit a website (or fire up a mobile app), click around but leave without making a purchase; and the act of following up with them and persuading them to convert (i.e. make a purchase) is called abandoner remarketing.

I abandoned all my bookings during a week in the recent past when I suspected surge pricing. I say “suspected” because, as I highlighted in Uber Creates Loyalty To The Deal But Not For The Brand, the fare estimate displayed by the Uber app no longer mentions whether it’s subject to surge pricing or not.

At least 50% of the B2C – and 90% of B2B brands – I come across regularly don’t provide any evidence of even tracking conversions, let alone employ remarketing techniques to win back their abandoners. Most of the others that do take abandonments seriously use Retargeted Ads to remarket to people who fail to convert. But not Uber.

The world’s largest taxi company uses a combination of cross-sells and special deals – herewith termed “targeted offers” for the sake of convenience – to remarket to its abandoners.

During the week week following my spate of abandonments, I got the following Targeted Offers from Uber:

  1. Whenever I fired up Uber, the app placed the highlight on the uberPOOL icon. For the uninitiated, this is the ride share (“car pool”) product recently introduced by Uber. An uberPOOL ride typically costs 40-60% of uberGO, which is Uber India’s entry level private cab product. Sensing that I’d abandoned surge rides the previous weeks, Uber perhaps thought that I was price sensitive and tried to propose a cheaper offering
  2. I got an email from Uber summarizing the number of uberGO rides I’d taken the previous month along with the fare I’d paid. The email also simulated my savings had I chosen uberPOOL instead of uberGO. This was obviously yet another attempt to draw my attention to a lower-priced alternative
  3. For the first time ever, I started seeing cabs with wait times exceeding three minutes. On one occasion, Uber showed me two options with varying wait times and fares: 3 minutes @ INR 75 and 12 minutes @ INR 60. In this, I see an attempt by Uber to make my preferred product cheaper if I was willing to live with a slight delay in getting picked up
  4. My wife got a targeted offer of 50% off “to make up for the cancellations you experienced in the last 2 weeks”
  5. My daughter also got the same offer
  6. I got 50% off but for a different reason: “to make up for the long wait times you experienced in the last 2 weeks”.

Uber’s targeted offers were personalized and based entirely on my actions of the previous week. Contrary to what some people may think, I didn’t find them creepy at all. In fact, I thought Uber’s responses were very smart and reflected a strong intent on the part of the company to deepen its engagement with me.

Now let’s examine the relevance / accuracy of these targeted offers.

To me, a taxi is a private mode of transport. When I think of Uber – or its chief rival Ola for that matter – I’m not thinking of sharing a ride with a stranger. Therefore, I won’t order an uberPOOL (or Ola Share) at any price – even if keep ditching uberGO only because of surge price. So, Uber wasted its first two targeted offers on me. But I don’t fault the company for making them: It’s only by proposing and testing my response to its cross-sell offers that Uber can learn my preferences and make better offers going forward; besides, the offer for uberPOOL may have worked on many others who don’t mind a compromise on privacy in return for a lower price.

From the way the app kept switching between the two fare-wait time options every few seconds in TO #3 above, I felt that Uber was running an A/B test on me. But two can play the A/B testing game. I never intended to take a cab for that journey and fired up the app only to test Uber’s response to my previous week’s abandonments.

My wife did experience one cancellation during the previous week. So TO # 4 was totally relevant.

My daughter had booked an Uber the previous week. While the cab came in two minutes, the app displayed a wait time of 154 minutes. So TO # 5 was well-grounded in data (though not in reality!)

I abandoned my bookings because I suspected surge pricing or was A/B testing Uber. So the trigger for the last targeted offer – long wait times – was wrong.

But I’m not complaining. 50% off is 50% off – I’ll take it regardless of its rationale. When I convert on it, I’m guessing Uber’s algorithm will tag me as a big sucker for its targeted offers and keep making more of them going forward. Mission accomplished!

Oh wait, just as I was about to publish this post, I got an offer from Uber for 50% off on my next 10 rides. This is the mother of all targeted offers I’ve got from Uber so far.

Looks like Uber’s algorithm has fulfilled my wish!

How Relevant Is “Crossing The Chasm” After 25 Years?

Friday, June 16th, 2017

As the title of our website’s WHAT WE DO page proclaims, GTM360 helps growth-stage companies in technology-intensive industries to “cross the chasm” and break into the mainstream market.

In a recent MEDIUM article titled 25 Years Later, ‘Crossing the Chasm’ Has Withstood the Test of Time, author Tiffani Bova has a fireside chat with Geoffrey Moore, the author of “Crossing the Chasm”, the classic published nearly 25 years ago.

When asked how relevant the principles of chasm marketing are in today’s world, Moore quipped:

“With over a million books sold, and it being in its third edition, (I have) only made small updates to the book (including new company examples). However, the frameworks have remained consistent and continue to be completely applicable to today’s B2B businesses.”

I pondered about the “completely” part of Moore’s reply and left a detailed comment below the article. A lightly-edited version of my comment is given below.

—–

I’ve been in the B2B technology space for three decades and read “Crossing the Chasm” a decade ago. During this period, I’ve come across two major categories of enterprise software:

(A) New versions of good old transaction processing-cum-analytics software viz. ERP, CRM, CBS e.g. SAP, Salesforce and FLEXCUBE respectively

(B) Altogether new genres of software viz. Enterprise Chat, Social Media Management e.g. Slack and HootSuite respectively.

CATEGORY A

Purchase of Category A software continues to be quite centralized and the TALC persona of the buyer company asserts itself at some stage of the process. Therefore, I’ve no hesitation in agreeing that the key takeaways of chasm marketing continue to be relevant for this category.

For the uninitiated, TALC refers to “Technology Adoption Lifecycle”. TALC spans five segments of the market with varying sizes, namely, Innovators (5%), Early Adopters (10%), Early Majority (40%), Late Majority (40%) and Laggards (5%). A given buyer company belongs to one of these segments and exhibits the traits of the correponding TALC persona.

CATEGORY B

When it comes to Category B software, purchase decisions are quite decentralized. Slack’s founder once said that his company initially targeted end users directly, created excitement, got individuals in sales, marketing, and other functions to sign up for the platform using their personal or corporate credit cards, and used the critical mass of business users as a fait accompli to get the enterprise to purchase and roll out the platform across the whole company. As you can see, the buyer company’s TALC persona hardly comes to the fore in the buying process.

Even if we stretch the notion of TALC to individual buyers, the same messaging resonated with all of them without any ostensible attempt to segment them into Innovator / Early Adopter or Early Majority cohorts. This vitiates the basic principle of chasm marketing, which is, “what works in Innovators and Early Adopters segments does not work in the mainstream market comprising Early Majority, Late Majority and Laggards”.

Chasm marketing proponents could counter this by positing that all Slack buying companies were themselves Innovators / Early Adopters, that’s why the same messaging worked with all of them. While this is consistent with the “what works here does not work there” mantra of chasm marketing, it would amount to an admission that Slack? hasn’t yet entered the mainstream market. If Slack  – and, by extension, all Category B software? – are still on the left side of the chasm, how can we assert that chasm marketing principles are relevant / valid as they try to go over the right side of the chasm? Or that they even face a chasm?

—–

In short, chasm marketing is certainly relevant for Category A software but I’m somewhat undecided about its applicability for Category B software.

As of now, bulk of the software industry’s revenues comes from Category A software (Source: McKinsey).

Ergo, “Crossing the Chasm” is still very much valid for the B2B technology market taken as a whole and will continue to be relevant for the forseeable future.

As if to prove this point, there’s no shortage of companies I come across virtually everyday that are facing the chasm and need a drastic change in their approach to cross over to the mainstream market.

Not just companies – even entire technologies.

In closing, let me post Geoffrey Moore’s response below:

GTM360 – Response from Geoffrey Moore

Crossing the chasm is at its core a B2B model focused on high-risk purchasing decisions that get reviewed by multiple constituencies within the enterprise before they are confirmed. For the bulk of the 20th century this was IT. In this century, consumer IT developed a very different path to market based on low-risk adoption decisions going viral – a very different model. We talk a bit about it in the appendix to the third edition of Crossing the Chasm. Nowadays we can see some blending of the two. In the freemium model, for example, you start with the consumer path but at some point look to close a B2C deal. In the SaaS model you often “land” with a given early adopting unit but seek to “expand” by crossing the chasm to pragmatic later adopters. In data-driven business models you would like to get the signal-collecting edge devices deployed for free (or as close to it as you can get) and then monetize the analytical and predictive value of the data streams via B2B contracts with interested parties. In each case, when you get to the big contract signed by the enterprise executive, you should see “chasm dynamics” prevail.

Geoff

 

Why Branch And Digital Channels Will Coexist Forever

Friday, June 9th, 2017

I noticed a huge crowd during a recent visit to my bank branch.

I happened to spot the bank’s Head of Relationship Banking – let me call her Sonia – in the branch.

I asked her how come their branch was so full when finsurgents have been predicting the death of branches for so long.

Sonia told me that, let alone die, their branches are growing. Despite the fact that branches are expensive – think mounting real estate costs – her bank is opening new branches and expanding many of its existing branches. As a matter of fact, there was a vacant space right below where we were standing and the bank was negotiating a deal with the landlord to rent it for expanding the branch in which we were having this conversation.

I then quoted her bank’s nearest competitor’s claim that 60% of its transactions were happening digitally and ribbed her by asking if her bank wasn’t so successful with its digital banking initiatives. She shot back saying 90% of their transactions were happening on digital channels. While she didn’t mention it, I know for a fact that the help desk at the entrance of the branch pushes many customers out of the branch, telling them to use ATM, Internet / Mobile Banking for carrying out balance inquiry, statement printing and other routine transactions.

Despite all that, this bank is growing its branch network.

What gives?

According to Sonia, the key reasons for her bank to expand its branch network were as follows:

  • Many branches were seeing rising footfall of customers who walk in to open new accounts, apply for a credit card and inquire about car / home / business loans
  • New account holders prefer to learn their banking ropes in a branch before moving to digital channels
  • Heavy use of cash and cheques in business banking, both of which involve branch visits. In fact, I’d visited the branch that day to withdraw petty cash from my company’s bank account. (For the uninitiated, unlike a personal savings account, it’s quite painful to get a debit / ATM card for a company’s current account, so I’ve not bothered to get one).

Now, before some financial zealot predicts the imminent death of this bank for its continuing use of branches, let me assure you that this bank is the most valuable bank in India and is also the #1 brand across all industries in India.

From what this banker said, it follows that people prefer a branch when

  1. They’re totally new to banking
  2. They’re new to a certain financial product (even if they’re familiar with the basics of banking).

i.e. when they’re considering “new banking products”.

Going by the following reports, the above inference seems to be universally true:

  1. According to an SMF study, over 60% of people would go into a branch when making a big decision.
  2. As Jeffry Pilcher, CEO/President & Publisher of The Financial Brand, points out in Branches Refuse to Die, “While the majority of consumers prefer online or mobile banking, … a surprisingly high number of consumers still visit the branch. It might be tempting to dismiss the findings and assume these branch visits were triggered by consumers who were frustrated that they weren’t able to accomplish some financial task in digital channels. But that would be a mistake.”
  3. According to McKinsey, while customers want digital, it’s not to the “exclusion of other channels, which remain critically important.”

For reasons highlighted in my blog post Secret Of Survival Of Bank Branches, banks also prefer a branch for selling new banking products.

So, branch is the mutually-preferred go-to channel in the “new banking products” scenario.

In every part of the world, there will always be

  • People who will enter the banking system to open new bank accounts
  • People with bank accounts today who will want a credit card tomorrow, a mortgage five years from now, and a retirement product ten years from now.

The number of people in each of these two categories will depend upon the demographics of a country – or even the specific geographic region of large countries with heteregeneous demographics like USA, China, and India. However, there will always be a market for new banking products.

In short, customers and banks both prefer a branch for “new banking products” scenario and the market for “new banking products” is inexhaustible.

Ergo, branches will never die in the forseeable future.

This long-held belief of mine was reinforced recently when I read that payment banks were opening branches. This new category of banks in India are licensed to operate solely on mobile phones. But they’re still setting up branches. One of them is PayTM, which has a valuation of $9 billion. The near-decacorn is a pure-play fintech without any bank DNA, so it hasn’t suffered from legacy thinking when it decided to open branches.

That said, branch networks won’t be immune to growth of digital channels. But the churn in branch count driven by digital channels will be specific to individual banks rather than being a secular issue that sweeps the entire banking industry. In other words, some banks will open new branches whereas others will close existing branches.

Let me elaborate this by using a metric called “Ideal Branch Count” or IBCO, which is the number of branches required to service the market for new banking products. I’m using the term “service” a little broadly – it includes the execution capacity required to fulfill demand and the marketing efforts required to generate the demand in the first place.

If a bank has fewer branches than IBCO, it might open new branches. If a bank has more branches than IBCO, it might shut down some branches.

IBCO depends upon the individual bank. Other things remaining the same, a bank with higher productivity will have a lower IBCO than another with lower productivity.

IBCO is also impacted by the country – or even specific geographic region of large countries with heteregeneous demographics – because of the link between demographics and size of market for new banking products market.

I doubt if IBCO is affected too much by the size of the Millennial population in a given demographic. While people of this generation like to do many things on mobile phones, buying new banking products is not one of them. I anticipated this in my blog post titled Will Millennials Bankrupt Neobanks? published two years ago. I’m convinced about this from recent personal experience and research findings e.g:

  1. The Millennials I saw in the branch were glued to their smartphones but they’d still come to a branch.
  2. The aforementioned SMF study reports that “72% of those under 30 would go into a branch when making a big decision, versus just 61% of those over 50.”

There could be other factors that shape OBCO.

But whatever be the factors, IBCO will not be zero for any bank.

If I were to take a wild guess, IBCO will be around 60% of current branch count for overbranched banks and 150% of current branch count for underbranched banks. In other words, overbranched banks may slash their branch network by 40% whereas underbranched banks may grow their branch network by 50%.

Even if all banks in the world turn out to be overbranched – which is impossible IMO – there’ll be enough branches left for a long time.

Digital channels aren’t going away, either.

Therefore, branch and digital channels will coexist with each other forever.

Optimizing the channel mix is an area of opportunity for fintechs to partner with banks. More on that in another blog post.

Indian IT – Crisis Or No Crisis?

Friday, June 2nd, 2017

Wipro lays off 600 employees due to poor performance. Cognizant fires 6000 employees consequent to its annual appraisal. So on and so forth.

Notwithstanding all the bad news that dominates the media, rumors of existential crisis for the Indian IT industry are grossly exagerrated.

That’s because, whether you use a bell curve or a parabola or good old gut feeling, 5-10% of any IT company’s workforce are non-performing at any given time. Indian IT employs 4 million people directly. 5% of that works out to 200,000 people. As of now, layoffs total to 56,000, which is no where close to 5%.

So the media is making a mountain out of a molehill.

That’s also what NASSCOM co-founder Saurabh Srivastava says in his Economic Times op-ed dated 27 May 2017.

Now, let’s come to the remedies proposed by media pundits.

  • Reskill employees on digital technologies. Fact is, for the last 4-5 years, IT companies have retrained their employees on S-M-A-C technologies that form the bedrock of digital transformation. Fact is many such retrained employees are on the bench. Problem is cloud software requires far less resources than onprem and custom-developed software, which have been the mainstay of the Indian IT industry for most of its 30 years existence. As I highlighted in my earlier blog post, IT services companies are seeing an 80% drop in billing for SAAS implementations. Furthermore, few Indian IT companies have understood the change in mindset required to engage with the CMO organization, which is by far the largest driver of digital engagements. Top to bottom, there’s a surfeit of sensitivity about how to sell digital technologies. Therefore, reskilling more employees on digital technologies without addressing the other challenges will only worsen the problem.

  • Indian IT should look inward and focus on mobile broadband triggered explosion of market in India. Since the dawn of the Indian IT industry in the mid 1980s, there has always been a huge opportunity to provide IT services in India. But the industry achieved global scale only by going West. That’s because the West is where the money is for IT services. India gets 70% right for a fraction of IT spend as the West, which spends many times more money to get IT 100% right first time. (Some companies in the West spend more and still get IT wrong, but that’s a story for another day.) As a result, while there’s a lot of work available in India, I doubt if the Indian IT industry can make the big bucks it’s used to by looking inward.

  • Form labor unions to protect employee interest. This is a horrible idea. If you’re above a certain age, you’d recall the number of industries virtually decimated by militant labor unions e.g. textiles. Extremely leftist in their thinking, Indian labor unions behave more commie-like than even their counterparts in Russia and China. India has moved on from those days and a return to that era won’t help an industry that generates $150 billion in annual revenues largely because it has been free of labor unions.

These are extremely simplistic remedies and raise questions on whether their proponents have ever set foot inside an Indian IT company.

Going forward, if the number of layoffs increase and reach the 5% mark, would that spell doom for the industry?

I don’t think so.

Year after year, world-class IT companies – from the West and even Japan and China in the East – shed their non-performers. Typically known as “clearing the deadwood”, their annual retrenchments amount to 5-10% of staff strength. So far, it has been socially and politically difficult for Indian IT companies to do the same. The present market uncertainties have provided the Indian IT industry with the opportunity to carry out long-overdue house cleaning. While this will cause pain in the short-term to employees of the industry, the industry itself will emerge more competitive from the exercise. And, as Parag Naik points out in his email to the The Economic Times, eventually the good quality people who work in the industry will also thrive.

Does this mean the industry can be blasé about the future?

No. The Indian IT industry faces a looming crisis on the horizon from growing automation, digital challenges, H1B restrictions and Trumpism-driven Middle America outsourcing.

How can the industry avert this looming crisis? Based on my experience of working in the Indian IT industry for over two decades, I can think of the following imperatives:

  • Go up the value chain from project management to program management
  • Gear up to win large digital transformation deals
  • Help customers avoid building software systems from scratch.

More on these in a follow-on post. Watch this space.

(Spoiler alert: These imperatives will call for new capabilities that go well beyond coding, testing and other technical skills that have been the mainstay of the industry so far.)