Netflixocrites

I can’t even begin to count the number of tweets I’ve seen in the past week or so harping on Netflix’s stock price drop on its announcements of customer attrition and reorganizaton.

Is the firm’s actions the right move or the wrong move?

I don’t know. But I’ll tell you what ticks me off: The number of people who blab on and on about how organizations need to innovate and reinvent themselves and make difficult decisions, and about how bigger isn’t better yada yada yada — and then turn around and blast Netflix for its recent decisions.

Isn’t Netflix doing exactly what many of these people have been advocating ever since they appointed themselves business strategy experts?

These people are nothing but Netflixocrites.

If you have canceled your Netflix subscription, I’ve good news for you: Your decision isn’t a proof point that Netflix made a bad decision.

Why Google Won't Become A Bank

Search Engine Watch published an article titled Why Would Google Become A Bank? and basically answered the question in the first paragraph by saying “Because that’s where the money is.” The article goes on to list a more specific set of reasons including:

  1. Increased value for AdWords ads.
  2. The power of the coupon just got better.
  3. Further diversification of revenue streams.
  4. Data.
  5. Android and Chrome usage increases.

My take: Don’t hold your breath waiting for Google to become (or launch) a bank. It isn’t going to happen. Here’s why:

1. It’s not where the money is. The prospects for mobile payments is certainly bright. But the question that remains to be answered is: Who’s going to make money from these payments? If you, your bank, or anyone else thinks that consumers will pay a fee or a premium for the “privilege” to make a mobile payment, you (and they) are sorely mistaken. Banks’ ability to make money from transactions — mobile or not — has seen its ups and down in the past few years (up on credit cards, then down on credit cards, up on debit cards, then down on debit cards). Retail banking is simply NOT “where the money is.”

2. Nobody in their right mind wants to be regulated to the extent that banks are. For the past few years, regulatory changes have hacked away at banks’ ability to make money. The Card Act, Regulation E, Durbin’s Folly, the list goes on. From a new entrant standpoint, it’s simply too risky and unpredictable to enter the industry. Firms like BankSimple and Movenbank are getting into the industry by either leveraging other firms’ bank charters or by avoiding the need for one altogether.

3. They don’t have the support infrastructure. Google isn’t a B2C company, it’s a B2B company. It has no competency — let alone capability — to provide transactional customer support. So I hear you say,”but they’ll outsource that.” No, they won’t. Outsourcing a critical business function doesn’t absolve you of the need to know how to manage and integrate that function into your business

4. It doesn’t fit with the firm’s business model. Even if you argue my three previous points away, the most important reason why Google won’t become a bank is that it just doesn’t fit with its strategy and business model. Google’s strategy and business model is unique and ambitious: It aims to be the center of the universe in INFLUENCE.

Why did Google acquired Zagat? To influence your choice of restaurants. Why did Google launched Google Advisor? To influence your choice of banks.

Google doesn’t want to process mobile transactions, open bank accounts, and deal with your stupid little banking questions.Google wants to influence who you do business with. And not just in banking and financial services, but everywhere.

When Google is influencing all of your day to day decisions, then every provider in the world will be kissing Google’s shiny black boots looking to participate. And THAT’S how Google will make money. Not by becoming a bank.

Why Proponents Of Klout Are Missing the Big Picture

Jay Baer wrote a blog post titled Why Critics of Klout Are Missing the Big Picture in which he argues that  “influence measures help business create order from chaos.” Baer goes on to write:

“What’s important is to recognize that more and more and more and more of our behaviors occur online and often with the social media realm. And if companies are going to succeed in a chaotic, real-time environment, they need some mechanism – even a flawed one – to triage promotion and reaction. So yeah, Klout isn’t perfect. But instead of rehashing the same old “look how screwed up their formula is” argument, let’s focus instead on how advanced metrics will enable companies to deliver highly specific interactions with customers based on perceived influence.”

My take: Baer makes a good and valid point. But I think Baer and I might disagree on what the “big picture” is.

Baer’s definition of big picture  seems to be “making sense of chaos.” My notion of the big picture is “making the right decisions.”

And, using my definition, what I see are marketers making questionable business decisions based on people’s Klout score.

The best example I can give you to demonstrate this is the bank that’s reserving the best spots in its parking lots for its customers with a high Klout score.

Let me state this is no uncertain terms, and aim it directly at the bank with which I do business:

If you reserve the best spots in your parking lot for some pimply-faced 25 year old (who spends too much time on Facebook and Twitter and has somehow managed to get himself a high Klout score) instead of for me, then I’m pulling my millions out of your bank.

If you think I’m kidding, try me. And I’ll also pull my kids’ accounts (they’re Gen Yers, btw — not little kids), too.  THEN you’ll learn who has INFLUENCE. And when dear-old Mom and Dad (who turns 80 this year!), ask me to take over the day-to-day management of their finances, their money is getting pulled out of your bank, as well. THEN AGAIN you’ll learn who has INFLUENCE.

All because you made the bad decision to reward one group of customers over another.

Bottom line: The purpose of a business metric isn’t just making sense out of chaos — it’s taking action. And unless your customer base is made up of just heavy social media users, then making decisions on what to do based on Klout scores may lead to sub-optimal decisions. 

Tectonic Shifts In Banking Channel Preferences

The American Bankers Association (ABA) released the results of its 2011 survey of US consumers’ preferences of banking channels. The survey of more than 2,000 U.S. adults found that:

62% of adults prefer to use the online channel to do their banking — up from 36 percent in last year’s survey. And for the first time, the majority (57%) of customers 55 and older say they opt to do their banking online, a significant increase from 20% in 2010. The popularity of all other banking methods has declined since last year’s survey, with preference for branches dropping from 25% to 20% and preference for ATMs dropping from 15%to 8%. The least preferred method of banking was the mobile channel, which dropped from 3% in 2011 to 1% this year.

My take: I have three reactions to these findings:

1.  The shift is too dramatic. I’ve been doing consumer research in the financial services industry for most of the past 12 years — looking at the adoption of online banking, online bill pay, account aggregation, eStatements, PFM, etc. — and I have never seen, year over the year, the kind of change reported by the ABA. 

From 2010 to 2011, the percentage of 55+ year-old consumers that prefer to bank online nearly tripled from 20% to 57%. Why? What the hell happened between last year and this year that suddenly made Boomers wake up to the benefits of online banking?

Even the shift among all adults — from26% to 62% — is huge, but it’s hard to tell how much of that shift is being influenced by the 55+ segment (it shouldn’t be too much if the sample is representative). Did Gen Yers wake up one morning and discover online banking? And are you trying to tell me that a significant percentage of them shifted their preference from the branch and ATM? No way.  

2. We need to ask more specific questions. Whatever the reason for the tectonic shifts in preferences, the results of the study convince me that we researchers need to get a little more specific when asking about channel preferences. Specifically, we need to ask about channel preferences for specific types of interactions and transactions. Eight percent of consumers might say that they prefer to bank by ATM, but the reality is that they can’t do everything they need to (potentially) do with a bank through the ATM. 

3. The mobile number is out of whack. If asked, before I saw the results, to guess what percentage preferred the mobile channel, my guess would have been a lot higher than 1%. I would have guessed that it would have doubled from 3% to 6%. That number might seem to low to you, but keep in mind that only about 15% of US adults are using mobile banking. So 6% of 15% would mean that 4 out of 10 mobile bankers prefer the mobile channel to all others.  But the percentage didn’t double — in fact, it dropped. Very counter-intuitive.

Stop The Banking SMadness

The “logic” behind the justification of social media as some new emerging “power” channel in banking is so twisted and misguided, that it just HAS TO STOP.

In an article titled Mobile and social to emerge as power channels for banking, Finextra recently wrote:

“Social networking is becoming more popular, with 57% of adult Internet users [in the UK] using online social networks in 2011, up from 43% in 2010. The UK data is in line with international trends. A just-published survey of 12,000+ Canadian consumers issued by JD Power & Associates finds social media emerging as an increasingly important alternative to traditional retail banking channels. More than 60% of retail banking customers responding to the poll say they use social media. Among customers who use social media for banking purposes, 24% indicate they use it to discuss their banking experience or inform their bank of a customer service issue.”

First off, the last sentence is completely misleading. Sixty percent may be using social media, but that doesn’t mean that all use if for banking purposes. So when the last sentence says that “among those who use SM for banking purposes,” we have no idea how many that actually is.

If it’s 10% of the 60%, then 24% of that means that only 1.5% of Canadians use social media to discuss their banking experiences or for service issues. Ooooh….1.5%!

More importantly, however, is the false logic behind the claims. Just because a large percentage of people use a technology doesn’t make that technology relevant to all applications. 

Using the logic from Finextra (yes, I’m singling them out, but let’s get real — they’re hardly the only ones singing this tune), the following would be true:

McDonald’s to become “power” channel for banking!

Everyday, 27 million Americans — nearly 10% of the total population — visit a McDonald’s location. And that number is growing by 1 million every year. Over the course of the year, on average, Americans visit McDonald’s 33 times! Among Americans who visit McDonald’s, 99.9% make a payment (some just use the restroom) while they’re there. 

But wait, you say, the two examples aren’t analogous. After all, banks can’t take a customer service question at a McDonald’s.

True enough, but they can leverage McDonald’s to influence consumers’ choice of payment mechanisms (and you better believe that, as a result of the recent interchange regulations, this is going to happen a lot more frequently).  And with 27 million Americans visiting McDonald’s every day (and making a payment there every day) which channel — social media or McDonald’s — is more likely to emerge as “an increasingly important alternative to traditional [marketing] channels”?

I’m not arguing that social media isn’t important. Just trying to bring a little perspective to the situation. And trying — probably in vain — to turn down the volume a notch or two on the social media hype.

More Likely To Purchase: Quantipulation In Action

How many times this week have you heard about some research study that found that one consumer segment is XX% more likely to purchase your products than another segment?

These studies and claims come out every day. And every one of them is a shining example of Quantipulation: The art and act of using unverifiable math and statistics to convince people of what you believe to be true.

The problem with these “more likely to purchase” claims is that they’re leading you to make bad marketing decisions.

For example, it’s popular these days to claim that Facebook fans are an important segment of your customer base because they’re “more likely to purchase” than other customers are. DDB (a very reputable advertising and marketing services firm) conducted a study last year and found that:

“Facebook users who like a brand’s page on the site are thirty-three percent more likely to buy a product, and 92 percent more likely to recommend a product to others. “Fan status is indicative of high purchase intent, especially when compared to any traditional form of advertising, and is an even greater predictor of advocacy with over 90% noting that being a fan has a positive impact on recommending a brand to friends,” said Catherine Lautier, Director of Business Intelligence at DDB.”

The implication of this is that: 1) If marketers can drive up their brands’ Facebook fan count, then more customers will become more likely to buy, and 2) Marketers should focus their marketing efforts on Facebook fans because of higher purchase likelihood.

But there are a few problems here:

1. What does “more likely to purchase” mean? If in a survey Customer A (Facebook fan) says he’s “very likely to purchase” and Customer B (non-Facebook fan) says he’s “somewhat likely to purchase”, what does this really tell you? How much more likely is “very likely” than “somewhat likely”? Isn’t timeframe important? Is that very likely to buy in the next 2 weeks or very likely to buy at some point in the future? Even if Customer B says “not likely”, does that mean we should give up on marketing to him? Really? People don’t change their opinions? After all, he’s already a customer — and isn’t the cost of acquisition 5x higher than the cost of retention?

2. The absolute numbers might not be compelling. In the DDB study, only 36% of Facebook fans said that they were very likely to purchase. Which means that 27% of non-Facebook fans were very likely to purchase (you do the math). Assume that your company has 10 million customers, of which 1 million are Facebook fans. That means you’ve got 360,00 Facebook fans who are very likely to purchase, and 2, 430,000 non-Facebook fans that are very likely to purchase. Which group do you want to market to?

3. Causation versus correlation. Do Facebook fans become “more likely to purchase” after becoming Facebook fans, or did the fact that they were already “more likely to purchase” lead them to become Facebook fans? Granted, their act of becoming a Facebook fan helps marketers better identify them out of the pack. But if — as the numbers above indicate — the differences in likelihood to purchase aren’t that compelling, then it’s simply not a very helpful segmentation tool.

Bottom line: Don’t be quantipulated into believing these “more likely to purchase” claims.

Urca (Or How One Bank's Wealth Management Strategy Is Completely Backwards)

The title of this post could probably win the award for the most SEO-unfriendly blog post title. Ever. Nobody searching on Google is going to find this post, let alone click on it.

Unfortunately, it’s the only title I can think of. Mostly because it’s the most appropriate title I can think of.

If you’re wondering — and I know you are — Urca is Acru backwards.

And now you’re thinking: “Aha! That clears it up. Not.”

According to Financial Brand, Acru is:

First Cherokee State Bank’s new sub-brand created around its wealth-management division, described as “a revolutionary new retail concept where wealth strategists give away financial wisdom at no charge.”

At the risk of quoting too much from the Financial Brand article, the following caught my attention:

  • “Our community space design is intended to be as comfortable as your own living room — great coffee included,” it says on the Acru website.
  • “We want you to come in and stay for a while.”  “Everything Acru does starts with a conversation,” bank spokesman Rob Kremer explained. “We believe coffee houses facilitate conversation.”
  • “The goal at Acru is to remove the transactional element from financial services and create a more interactive, relational environment,” added [Acru CEO Matt] Hames.

So why did I title this post Urca? Because Acru’s strategy is completely backwards:

1. Advice shouldn’t be free. One of the biggest problems in the retail banking industry today is the misalignment between what consumers pay for and the value they get (at least, their perceived value). People don’t like paying $5 month for the “privilege” of writing checks or using a debit card, and they certainly don’t think it’s fair that they have to pay $35 each time they overdraw on their account. It’s analogous to the $100 doctor’s visit that lasts for 5 minutes: You’re not paying for her time — you’re paying for her expertise to make a diagnosis and write a prescription. If a bank wants to get radical, it should charge for advice and give away the transactional stuff.

2. Most people don’t need wealth management advice. Is there a shortage of qualified wealth management advisors in Georgia? If there is, shame on all the existing providers of wealth management services (Merrill, Schwab, etc.) who have overlooked the opportunity. The mass market doesn’t need wealth management advice — it needs everyday financial management advice.

3. Physical location doesn’t matter. Coffee houses facilitate conversations? REALLY? Most of the coffee shops I go into are populated with geeks with their laptops plugged in, silently working away. People don’t want to go somewhere to get financial advice. They want it in the moment: At the point of transaction (when they’re at Best Buy ready to drop a grand on a HDTV) or at the point of decision (when they’re reviewing their finances at home at 9pm on a Thursday night). Acru’s wealth advisors are available from 9 to 5, Monday thru Friday. That’s when I’m working. What’s the rest of the wealth management advice-needing population doing those hours?

I’m willing to bet that Acru will generate more profits from selling coffee than it will from selling wealth management services. Any strategy that centers on getting customers to come to you is completely backwards from the convenience and value that consumers want from their financial services experience. 

Toilet Paper And Online Banking

Bank Innovation Monitor released a study recently which proclaimed that “consumers show deep ‘love’ for online banking.” The study found that:

“Only 3.8% of Americans over the age of 18 are not aware of online banking. However, it is not just that the vast majority of consumers are aware of online banking or using many online banking functions; consumers “love” online banking. Which online banking service is most “loved” by consumers? That would be online bill pay, the stickiest and most-killer of all banking features.”

My take: Americans “love” online banking no more than they do toilet paper.

Let’s compare the data:

  • 96% of Americans are aware of online banking (source: Bank Innovation Monitor). 96% of Americans are aware of toilet paper (source: my unscientific estimate, based neither on surveys nor personal observations).
  • 100% of Americans who bank online can’t live without it (source: OK, I made it up). 100% of Americans who use toilet paper can’t live without it (source: yep, made that up, too).

Now, let me ask you this: Although you might be fiercely loyal to a particular brand of toilet paper (the reasons for which I will not now, nor ever, ask you about), do you “love” your toilet paper?

If the answer to that question is YES, click here.

If the answer to that question is NO, keep reading. 

Bank marketers need to be careful to not confuse usage/dependency with an emotional attachment.

If consumers “loved” online banking so much, then wouldn’t it hold that they would “love” the providers of that service, i.e., the banks?

But, as we all know, consumers don’t love their banks. Nor do they love online banking. It’s simply a convenience that many of us have grown to rely on, and would be unwilling to give up. But that attachment is far from something we would call “love.”

Consumers don’t love online banking. In fact, most don’t really care about financial services or financial services providers very much at all. I would venture to guess that average Americans spend more time figuring out what restaurant to eat out at on a Saturday night than they do figuring out which bank to do business with.

If consumers truly loved online banking, than providing a measurably better online banking experience should get many of them to switch banks, right?

Good luck pursuing that path.

Toilet paper advertising is probably a good role model for bank advertising.

What does toilet paper advertising try to do? It tries to get people to care about their decision. It tries to get people to see that the choice in toilet paper is important. And if it’s successful in doing that, then the advertising can persuade consumers that one brand is superior to another.

Final point: I hope the people who clicked on the link above came back to read the rest of the post.

P2P Lending — The Bank And Credit Union Way

I’ve often thought that banks could easily squash P2P “lenders” like Prosper and Lending Club by creating an online lending marketplace of their own. In addition to the organic traffic they could drive to the site, they could refer loans they decide to pass on themselves, and give the option to investors/savers looking for higher rates of return than they’d get with CDs to lend money in the marketplace.

Lending Club charges a processing fee ranging from 2.25% to 4.5% of the loan amount, and hits investors with a service charge of 1% of each payment received from a borrower. Seems to me that banks could easily underprice that.

But there’s another P2P lending opportunity for banks and credit unions to capitalize on.

Do you know how much money is lent between family, friends, and acquaintances? I doubt that you do, because, as far as I know, Aite Group is the only firm to have estimated the volume of P2P transactions that occur in the US.

We’ve estimated that US consumers borrow (and presumably, repay) nearly $75 billion from each other (and not from financial institutions or other types of businesses, legal or otherwise) each year. On average, every household in the US makes two loan payments to other people for money they’ve borrowed.

That last number is actually pretty useless, since a large percentage of households don’t make any P2P transactions for the purpose of repaying loans. But in our research on consumers who use alternative financial services (e.g.,  payday loans, check cashing services, etc.), borrowing from family and friends is the second most popular source of funds (after overdrawing on their checking accounts, which might not count).

In fact, of the alternative financial services customers that Aite Group surveyed, one in four borrowed from family or friends three or more times in 2010, and more than one-third did so more often in2010 than they did in 2009.

This is a huge P2P payment opportunity for banks. Note that I didn’t say it was a P2P lending opportunity.

How are these loans and agreements documented? I have no idea, but my bet is that in many cases they’re not documented at all. After all, among friends, verbal agreement is just fine, right?

But if there was a cheap (i.e., free) and convenient way to capture the details of that loan, and a way to actually transfer the money between participants — cheaply and conveniently — don’t you think a lot of people would use it?

The money in the P2P lending space for banks isn’t from loan processing fees or from taking a cut on the interest rates. The money is in the movement of funds.

To date, banks, as a whole, have floundered with their P2P payment offerings. CashEdge and Zashpay have gained some traction, but have hardly become household names. PayPal is a household name, but the vast majority of their business isn’t P2P.

Why haven’t P2P payments taken off?

Banks are marketing it all wrong. They’re pitching the “electronic” aspect. Big deal. People don’t care about channels and methods. They simply care about what’s the most convenient thing to do when they want to do it.

Instead, banks should be marketing convenient alternatives to transacting certain types of P2P payments — repaying loans to other people being one type.

Banks could provide an online capability for the parties to document the terms of the agreement, establish repayment parameters, and enable either the automatic or manual transfer of funds. All for the low fee of a P2P transaction, and not a cut on the loan. No future disagreements about the terms of the agreement, and proof of payment.

In addition to improve the way existing customers transact P2P loans between family/friends, this approach might help attract un- and under-banked consumers who could fund an account that could either be a savings account or take the form of a prepaid card account. 

The real winner, though, will be P2P payments. By driving trial of the service, consumers may find it convenient for other use cases. 

Quantipulation: ROI Versus Success

[This is a follow-up post to Quantipulation. I thought I could get away with just floating a few ideas out there, but some comments I’ve seen suggest that there’s a lot more to quantipulation than I wrote about, and those comments are correct.]

Quantipulation — the art and act of using unverifiable math and statistics to convince people of what you believe to be true — is commonplace in the marketing world, but perhaps nowhere more so than in the social media environment. Especially when it comes to everyone’s favorite topic: Social media ROI.

Whenever I use the term ROI in my reports, the editor where I work asks me to spell it out. As she rightly says, there may be people who aren’t familiar with the term. I don’t tell her this, but if you don’t know what ROI is, I don’t want you reading my reports.

There’s another reason why she’s right: There may be people who define ROI differently than I do. I won’t tell her this, either, but those people don’t deserve to read my reports.

ROI = return on investment. It doesn’t mean return on influence or any other “I” word you can dream up. And despite what some quantipulators would have us believe there’s only one formula for ROI: Financial return divided by financial investment. The only “variable” piece to the formula is the timeframe you use to quantify these variables.

That won’t stop some people from trying to redefine the formula, however.

The most egregious example comes from a firm called Digital Royalty. I won’t besmirch my blog by linking to the offending post. Instead, I’ll point you to Anna O’Brien’s brilliant (and very funny) critique of it.

Here’s another example of ROI quantipulation:

My bet is that tthe firm that put this chart together wanted to include other ROI components, but since it would have messed up their inverted hour glass figure, they decided to leave them out.

Then there’s attempt at redefining social media ROI:

This guy has decided that the ROI unit of measure should be “conversation”. He goes on to tell us that we can measure the “value” of conversation by looking at participation, engagement, influence, imagination, energy, and stickiness. But not increased revenue or decreased cost. Sweet.

There are (at least) two things going on with these attempts to redefine ROI. One is bad, the other is good. 

The bad: An annoying attempt to demonstrate thought leadership. Ugh. Not the way to do it. Anna O’Brien said it best in her blog post: “Random metric names and symbols is not an equation.” (Maybe she didn’t say it best, because it should be “are not an equation”).

There is a good aspect to what the ROI quantipulators are doing, however. They’re raising the very valid point that there are other measures of success beyond ROI. 

There’s a formula for that, too. The one I like is from Pat LaPointe who writes a blog called Marketing NPV. Pat’s formula says that success can be measured by dividing the value added by the resources used. And as this formula implies, “value” can take on the form of many of those measures that those other people wanted to use to calculate ROI.

But this isn’t the whole formula.

Pat added something on to this formula that, as far as I’m concerned, qualifies Pat as a marketing genius. Pat’s formula for calculating success is:

(Value Added/Resources Used) * Perception

What Pat recognized was that what you might consider to be “value” might not be viewed as valuable by other people. Other people like, say, your CEO or CFO.

We’re living in an ROI culture. Suggest that your company do something, and somebody will ask “what’s the ROI on that?” If you want to get up in front of your management team and suggest that your company do something because you “feel” it’s the best thing for the company to do, go for it. Just don’t send me your resume when you’re on the street. 

That doesn’t make your feeling wrong. But being right doesn’t make you successful. Persuading others to do the right thing does. 

This is why quantipulation is so important:  Quantipulation is an attempt to influence perception. To be a successful leader, innovator, or change agent, you have to shape, change, and confirm people’s perceptions.

There’s a reason I call quantipulation an art. Successful quantipulators know that it’s about more than just the data – it’s about logic and emotion. And there’s no formula or recipe for figuring out how much logic and emotion to mix in with the data.

The examples of ROI quantipulation shown above fail not because they’re wrong, but because they fail to influence perception. Those formulas simply confirm for the social media believers what they already believe. That’s easy. Converting the heathen is hard.

Had those social media ROI formulas made any attempt to link social media results to the conventional definition of ROI — financial return — they might have been more persuasive.

Last thought: Quantipulation is not inherently bad or evil. Yes, it’s a play on the word manipulative, which doesn’t have positive connotations. But I prefer to take a more realistic view: It is what it is. And it’s a necessary skill for today’s business world.