Choices

Everything in life is about choices. Everything that has happened to you or will ever happen to you is a function of the choices you have already made or will make. When you focus on loyal customers, you are making a choice that will have a great impact on how you do business. You will move from forever searching for new customers to forever improving how you deal with current, loyal, repeat customers.

There is a wonderful experiment that helps explain the benefits of focus. The experiment is known as the Funnel Experiment and was developed by W. Edwards Deming, the father of modern management, to describe variations in manufacturing processes.

In the experiment, a funnel is mounted on a fixture with the small opening of the funnel pointed downward. The small opening of the funnel is suspended about 1 1/2 feet above a large paper target that measures 3 x 3 feet. A marble that is slightly smaller than the small opening on the funnel is dropped into the funnel. The marble falls through the hole and comes to rest on the paper. A small mark is made to note where the marble lands.

In the experiment, this process is repeated a few hundred times. A circle is drawn around all the marks that note where the marble has landed. The circle is no bigger than an inch or two in diameter. All of the marks could be covered with a teacup. There is little human intervention in this part of the experiment, so the marble lands in slightly different spots because of random chance. The size of the circle represents this natural variation. This natural variation is passive because there are no changes to the system.

In the second part of the experiment, the marble is dropped through the funnel and its landing spot is marked. This spot is the bull's-eye. A second marble is dropped through the funnel and its landing spot is marked. The difference between the bull's-eye and the landing spot for the second marble is precisely measured. The funnel is adjusted according to this difference. If, for example, the second marble lands 1/2 inch to the right of the bull's-eye, the funnel is moved 1/2 inch to the left to adjust the aim. A third marble is dropped and, once again, the funnel is adjusted to correct the aim. This process is repeated a few hundred times. A circle is drawn around all the landing spots. This time the circle is nearly as big as the entire 3 x 3 feet piece of paper. This circle represents active, or controlled, variation.

The results from this experiment show that passive, or random, variation produces a small circle. Active, or controlled, variation produces a much larger circle.

In manufacturing, the lesson of this experiment has to do with management and human intervention. When equipment and processes are allowed to operate without adjustment, quality is a known factor and predictable within close margins. When equipment and processes are forever being adjusted or changed, quality and predictability decrease dramatically. Deming advised manufacturers to recognize this phenomenon and operate systems on a passive basis. Change or adjustment should be in the form of refinements to the system, not the operation of the system or the system itself.

For example, in the experiment, Deming's theory would suggest a funnel with a smaller opening or a more perfectly round marble. Deming would say make improvements to the materials, but do not change the system.

Let's apply this information to the principles that create loyalty: Joe owns All County Appliance Repair. Joe has a fleet of trucks and a staff of repair technicians that are on call to repair washing machines, refrigerators, stoves, and other household appliances. All County's value proposition is "same day service." All County is well known as a reputable business providing a dependable service. Any improvement Joe makes to the business should focus on his current value proposition. If Joe expands his inventory to include parts and supplies for a greater variety of brands, he is refining his value proposition. Longer hours and emergency service on the weekend further enhances his value proposition. His clearly defined value proposition increases customer loyalty because customers know what they can expect from All County. These refinements are equivalent to narrowing the hole on the funnel or using a more perfectly round marble in the experiment.

Joe's business is doing so well that he decides to expand. He decides to offer new appliances as well as the repair services. From the customer's perspective, this is really a new business endeavor. Some of his customers might buy a new refrigerator from him, but more likely they will be confused. They'll wonder if Joe is really more interested in selling appliances than offering repair services. They'll be suspicious about repair estimates. "Is Joe telling me the truth about the condition of my refrigerator? Is he raising the price on the repair to influence me to buy a new appliance?" Selling new appliances does not enhance Joe's value proposition for his repair business. Selling new appliances is the equivalent of adjusting the funnel in our experiment. It is changing the system or introducing a new system rather than refining or improving the current system. The results become less predictable. His value proposition is not focused, and the task of creating loyal customers has become more difficult.

I'm not suggesting that Joe shouldn't sell new appliances; he can open a new business across town that sells new appliances. This new business can have its own value proposition. The new business can have a value proposition, assurance, and differentiators that focus on customers of the new enterprise. Joe's new endeavor should represent another system.

The point is that a value proposition has to be focused to be effective. A differentiator must be focused to be effective. A single business that does dry cleaning, sells casualty insurance, and offers fresh produce has little chance of developing a loyal clientele.

Many major American businesses totally ignore the principle of focus. Mergers and acquisitions, product line extensions, and new product lines are seldom entered into with the goal of benefiting customers. More likely these tactics are used to exploit customers.

Mutual Benefit is an insurance company with a 150-year history. The company had a loyal clientele demonstrated by its high retention of policyholders. Mutual Benefit believed it could sell investments and investment advice to these same policyholders. The company reasoned that its clients were already familiar with and trusted the company. Mutual Benefit was motivated more by additional revenue than service to its clients. The company was not focusing on improving or refining their insurance products, it was introducing an entirely different product line. In relation to the Funnel Experiment, they were moving the funnel wildly rather than improving the marble. Ultimately, Mutual Benefit became one of the largest insurers to ever file reorganizational bankruptcy.

But Mutual Benefit was not alone. Many major companies bought other unrelated or barely related businesses in hopes of exploiting their relationships with customers. Gartner, the IT research firm, purchased Tech Republic, the online information service, for $80 million. Within two years, it sold Tech Republic for less than $30 million. This was an expensive lesson by anyone's standard. Xerox went into the financial service marketplace and learned the same lesson. Kodak's venture into pharmaceuticals was a similar lesson. Coca-Cola and Transamerica learned the same lesson from their experiences in the movie business. Ford Motor Company, General Electric, and a host of other companies have spent enormous sums to purchase companies only to have to divest themselves of their acquisitions for pennies on the dollar. The activities of these companies demonstrate their lack of focus on their existing customers.

The process of becoming more focused can be intimidating. You may feel that narrowing your value proposition will limit your customer base. You may be skeptical of focusing and just depending on current customers instead of developing new customers. Your skepticism can be reversed: Focus your thoughts and use the powers of your subconscious mind.