Paul Wallbank – Brilliant Communications

Tag: consumer

A world of criminal sheep
Notorious unpaid blogger Michael Arrington recently described his battle with a bank over direct debit charges.

To overcome a fraudulent recurring charge on his credit card, Arrington cancelled his account only to find the bank moved the recurring charges to the new card, a ‘service’ designed to avoid fraud and save customers the hassle of re-establishing legitimate direct debits after a new card is issued.

Both of those are noble reasons but the core of this philosophy lies in a contempt for customers which can be summarised in two principles.

A customer is;
1. A sheep to shorn of any available cash through sneaky fees and shady business practices
2. A criminal
In the 1980s business school view of the world, customers are criminally inclined sheep who have to be regularly shorn to enhance profits and controlled so they don’t go anywhere else.

Only businesses operating in protected environments can get away with this today and the two obvious sectors are banking and telecommunications.

The telco industry long soiled its nest with consumers with dodgy charges and a contempt for customers which reached a peak (nadir?) with the ring tone scams where kids had their phone credits pillaged by fees they never knew they had signed up for.

While those dodgy charges paid the handsome bonuses of telco executives, it proved to another generation of consumers that these companies see their customers as sheep to fleeced on a regular basis.

Ironically it’s that lack of trust that dooms the telcos in the battle to control the online payment markets – their practices of the 1980s, 90s and early 2000s mean few merchants or consumers will trust them as payment gateways.

One of the strengths banks bring to that market is trust. Like cheques, credit cards succeeded as a payment mechanism because people could trust them.

In screwing customers over direct debit authorisations, the banks are damaging that trust as Arrington says “I really don’t think I’m going to be giving out my credit card so freely in the future.”

That’s a problem for businesses as direct debiting customers have been a good way to ensure cash flow and reduce bad debts but when clients perceive there is a high risk of being ripped off they will stop using them.

Businesses that insist on direct debits will be perceived as potentially dodgy operators who rely on locking customers into unfair contracts rather than providing a decent service for a fair price.

So the banks’ position of legal power works in their short term interest and against them – and the merchants using their services – in the longer term.

While bank and telco executives with safe, government guaranteed market positions will continue to treat customers like criminal sheep it’s something the rest of us can’t get away with.

The winners in the new economy are those who deserve to be trusted by their customers and users, if you’re abusing your market and legal powers then you better hope politicians and judges can protect your management bonuses.

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August 27, 2012
Finding the perfect customer
With the rise of social media we’ve spoken a lot about customers’ ability to rate businesses and overlooked that companies have been rating their clients for a lot longer. The same technologies that are helping consumers are also assisting companies to find their best prospects.

A business truism is that Pareto’s Rule applies in all organisations – 20% of customers will generate 80% of a company’s profits. Equally a different 20% of clients will create 80% of the hassles. The Holy Grail in customer service is to identify both groups as early as possible in the sales cycle.

Earlier this week The New York Times profiled the new breed of ratings tools known as consumer valuation or buying-power scores. These promise to help businesses find the good customers early.

While rating customers according to their credit worthiness has been common for decades, measuring a client’s likely value to a business hasn’t been so widespread and most companies have relied on the gut feeling of their salespeople or managers. The customer valuation tools change this.

One of the companies the NYT looked at was eBureau, a Minnesota-based company that analyses customers’ likely behaviour. eBureau’s founder Gordy Meyer tells how 30 years ago he worked for Fingerhut, a mailorder catalogue company that used some basic ways of figuring out who would be a good customer.

Some of the indicators Fingerhut used to figure if a client was worthwhile included whether an application form was filled in by pen, if the customer had a working telephone number or if the buyer used their middle initial – apparently the latter indicates someone is a good credit risk.

Many businesses are still using measures like that to decide whether a customer will be a pain or a gain. One reliable signal is those that complain about previous companies they’ve dealt with; it’s a sure-fire indicator they’ll complain about you as well.

What we’re seeing with services like eBureau is the bringing together of Big Data and cloud computing. A generation ago even if we could have collected the data these services collate, there was no way we could process the information to make any sense to our business.

Today we have these services at our fingertips and coupled with lead generators and the insights social media gives us into the likes and dislikes of our customers these tools suddenly become very powerful.

While we’ll never get rid of bad customers – credit rating services didn’t mean the end of bad debts – customer valuation tools are another example of how canny users of technology can get an advantage over their competitors along with saving time in chasing the wrong clients.

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August 26, 2012
ABC Sydney Mornings: Explaining the Cloud
Paul Wallbank joins Linda Mottram on ABC 702 mornings to discuss how technology affects your business and life.

This week we’re talking cloud computing from 10.40am this Wednesday May 9 on ABC 702 Sydney. A lot of this topic has been covered in my posts on The Connected Business.

During the show we’ll be covering the following topics on cloud computing.
- What is this? How does this – or how is it meant to – work?
- What can you put there? Anything?
- What use is it suited for? And NOT suited for?
- Is it meant to be archival storage? or is it meant to be something more dynamic?
- Can anybody access it? Is there substantial technical limitation?
- Is it secure, safe? If yes, why do many people seem to be making lots of scary noises?
- Does it work better for:
We’d love to hear your views so join the conversation with your on-air questions, ideas or comments; phone in on 1300 222 702 or post a question on ABC702 Sydney’s Facebook page.

If you’re a social media users, you can also follow the show through twitter to @paulwallbank and @702Sydney.

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May 9, 2012
Tracking the end of the consumer society
I’m currently researching a presentation about the retail industry.

One of the things that leaps out when researching consumer behaviour is the savings rate.

For twenty-five years from the early 1980s to mid 2000s, the savings rate collapsed in Western economies; below are the US and Australian rates.

US Savings rates 1950 to 2020 – St Louis Federal Reserve

Australian Savings Rates 1980 to 2012 – Reserve Bank of Australia

The graphs show the same thing; households spent their savings over the 25 years which drove the consumer economy. It’s no accident that period was a good time to be a retailer.

Being on a deadline, I don’t have time to analyse these number further right now, but one thing is clear; most of the consumer boom from the Reagan Years onwards – or the equivalent from Maggie Thatcher or Paul Keating – was driven by households reducing their savings.

That couldn’t last and didn’t. Businesses and governments that are basing their decisions on what worked through the 1980s and 90s are going to struggle in the next decade.

Looking at these figures raises another suspicion – that graphs showing non-real estate investment by businesses and government would show similar declines over the 1980-2005 period.

It might be that golden period of what appeared to economic success was just us living off society’s collective savings.

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April 12, 2012
Why we should give Gerry Harvey a break
Gerry Harvey’s been having a bad year. This time last year he was moaning about the Internet stealing his business and now his profits are down.

In Mark Fletcher’s Newsagency Blog, Gerry gets a serve for dragging the entire retail channel down.

Mark quite rightly points out that Gerry’s problems are of his own making and his chain’s difficulties aren’t necessarily those of the rest of the industry or even shared by individual franchises within the Harvey Norman group.

While I’ve been as critical of Gerry as anybody else, maybe it’s time to give him a break.

It’s worth considering how Gerry made his billions. When he started in business in the late 1950s, it was tough for the average person to get credit. At best working families could get something put aside at the local store or enter into an Encyclopedia Britannica style subscription plan.

Gerry and his generation of retailers changed that. They made credit available to the masses who could suddenly afford to buy household appliances and electrical goods without years of savings.

I remember my parents buying things from Norman Ross, Waltons or the ACTU’s Burke Street store (Bob Hawke once stepped on my mum’s foot while she was shopping for a sofe) because working class people could get credit there.

Gerry was at the beginning of the consumer revolution that defined the second half of the Twentieth Century.

In the late 1980s financial deregulation changed the game again and Gerry’s business took off as credit became even easier to get with new providers entering the market. First we saw three month interest free offers and by the mid-2000s six year interest free deals were available.

These deals were so good that Harvey Norman franchisees often made more money selling the credit deals than on the actually product that the ‘no interest’ loan had been taken out to buy.

For Gerry, this was insanely lucrative as his business was able to clip the ticket at almost every level of the retail and distribution chain while moving much of the risk and capital cost onto franchisees and landlords hungry for high traffic anchor tenants.

In 2008 this entire model changed as the credit boom came to a crashing halt and consumer spending with it.

Business models based on cheap credit now have to find something else that works and this is what Gerry Harvey is now struggling with.

To complicate matters, the Internet has changed the distribution model that worked for Harvey Norman and other bricks and mortar retailers. All of them are now having to make a major shift in the sales cultures.

Adapting to this new world is tough for everybody and we should have some sympathy for Gerry Harvey as our businesses and jobs are being affected by exactly the same forces.

How Gerry adapts, or doesn’t, could be a bellwether for our own industries.

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March 3, 2012