My local public library has a service counter rectangular in shape and with 2 tills on each long side. If you approach the tills on the right hand side, you can check in books, but not check out. Conversely, if you approach the left hand tills, you can check books out but not check them in. If you have some books to return and you also happen to want to borrow some more books (a pretty common occurrence, I would assume), you are expected to go to the right hand side, first. Then, the attendant logs out from your account, you both walk to other side of the counter, where s/he logs in again in order to check out the new books.

‘Is this because the computers on each side of the counter run different programmes?’, I asked. No, it is exactly the same on all computer terminals. The process is designed this way because someone once thought that users would/ should first drop the books, then go away to browse the shelves, and later come back to the counter to check the new ones out. Never mind that this is not the way users actually behave in the library, and that the existing design is frustrating and time consuming for both users and attendants. It is the status quo, the way things have always been done, but certainly not a user centred view of the library usage experience.

In today’s environment, it is no longer enough to have a great product: you need to also provide great customer experiences. Regularly, you need to replicate your customers’ journey, and verify how easy or frustrating it is to learn about your offers, contact you, acquire or install the product, or even dispose of it at the end of its useful life. At each touch point, consider how you can add value by making life a bit easier for the customer and, then, put the processes in place to do so.

Kensington, the provider of computing accessories best know for its notebook lock system, actively seeks to eliminate what it calls the ‘pain points’. The pain points are any type of situation that negatively impacts on the ‘mobile computing experience’. For instance, Kensington noted that packaging constituted a significant pain point for its customers who bought accessories – e.g., a USB – in airports. Indeed, you won’t have any scissors to hand, and most likely you will be in a hurry and not able (or willing) to stop in a shop and ask for some. So, Kensington redesigned its packaging so that it would be easy to open, but still secure enough for the retailer.

What about your organisation? Are processes developed to fit actual shopping experiences, or do you expect customers to behave in ways that fit the existing processes?

The UK government has just announced plans to use credit bureaus to fight benefit fraud. The exact role of these agencies and the process for screening benefit applicants are yet to be decided[1], but there are high expectations regarding the savings that such collaboration may generate.

How do credit reference agencies work?

These agencies collect data from various sources, such as previous lenders, utilities or the court. The information helps organisations see your borrowing and spending habits, and whether you defaulted on previous loans. The credit history and spending behaviour is also used to calculate your credit score.

A potential lender or a company with whom you wish to establish a relationship – e.g., a mobile telecommunications operator – will usually consult your credit report before deciding whether to do business with you and on what terms. So, if credit scoring and credit reports are so widely used by private firms, isn’t it a good idea to extend their application to the management of public money?

Yes and no.

Credit bureaus collect data not traditionally gathered by benefit agencies, and may help develop a more complete picture of the citizen’s sources of income and spending patterns. That, in turn, could help tailor advice to the applicant – for instance, regarding areas of overspending – though, as far as I am aware, that is not the plan at the moment. It may also help identify non-declared sources of income or, exactly, who leaves in a given address and, thus, detect fraudulent claims, as intended.

An additional benefit may be dissuasion – a bit like the effect that installing highly visible speed cameras has on the average driving speed on a given road. Specifically, potential fraudsters may be discouraged from making fraudulent claims if they believe that there is a higher likelihood that they will be caught.

But there are problems, too.

It is important to realise that you do not have one definitive credit rating. Each agency will calculate its own rating, based on the information that it collects and the algorithms that it developed. Moreover, credit reports often contain errors[2]. This may be because of something as simple as the wrong door number on your process, to something fairly complicated like a contested charge. Correcting such mistakes can be an expensive and frustrating exercise, likely to be most punitive to those elements of society already under financial pressure.

Moreover, credit-scoring systems rely on historical data, which is detrimental to transient members of the population such as students, poor people and the homeless, as well as to those who conduct their transactions mostly in cash and/or use prepay services. A further limitation of relying on historical models is their relevance to predict future – for instance, while economic recessions are cyclical, economic crisis of the nature and extent of the one following the sub-prime problems in the US in 2007 are relatively rare events, with its unique effects and modelling challenges.

Furthermore, setting-up and running credit checks has costs, which will reduce the net benefit of using these agencies to fight benefit fraud. And that is without considering the actual costs of investigating and prosecuting fraudsters, which may exceed any money to be recovered.

Lastly, running credit checks tends to be a highly mechanistic process, relying only on data that can be quantifiable and handled by the IT systems in use. The inability to handle qualitative data is a major weakness of most screening systems: evidence from default rates in the subprime loans market suggests that customer screening that relies solely, or predominantly, on quantitative data tends to systematically under-predict the default rate.

As a tax payer, I am in favour of initiatives that cut on benefit fraud, including this one. Using credit bureaus has its merits, but also its pitfalls that I hope the Department of Work and Pensions will take into consideration. Above all, I can not help but feel discouraged that in 2008-09 the public money ‘lost’ to benefit errors represented about 4 times that lost to fraud. I don’t know why there is such a high level of financial losses due to clerical errors, but it strikes me as very odd and inefficient. Surely, there is something that government could learn from private firms there, too?!

[1] A report is due in the Autumn
[2] Consumer welfare groups advise individuals to check their credit reports regularly, at least once a year

Pricing is a key element of the marketing mix. It is so important that large organisations such as GE have whole departments managing it. Price a product too high, and you may kill it; price it too low, and you leave money on the table. But pricing decisions impact on other variables, in addition to direct revenue.

In early 2008, Tesco slashed the price of a whole chicken from £3.30 to £1.99. This price reduction might have fit perfectly with Tesco’s strategy of offering good value to its customers, as embodied in the brand promise ‘Every Little Helps’. However, it attracted the wrath of animal welfare groups and generated intense public debate.

Apple, too, attracted considerable negative attention when it cut the price of the 8Gb iPhone from $599 to $399, in 2007. Even Steve Wozniak, co-founder of Apple, weighted in on the issue saying that the $200 price cut had been “too soon, too harsh“.

And while some authors say that price is the easiest element of the marketing mix to adjust, it is still far from simple. In an era of decreasing inflation and increasing visibility of firms’ actions (such as price lists published on the company’s website, or price comparison services), any change is likely to be noticed. It is, thus, crucial for firms to get their pricing strategy right.

The key to pricing is to focus on the value of the product on offer, not its cost. In turn, this means, taking an outside-in approach that 1) focuses on the customer and 2) takes into account the marketing eco-system[1], as discussed next.

Focusing on the customer means valuing what the product does for the customer, not what the product is, as discussed here. Take water, for instance. Technically, there isn’t much difference between water in a plastic cup and water in a plastic bottle: essentially, it is H20 in a PET container. Yet, the little piece of plastic on top of the water bottle dramatically changes the value proposition for the customer, over and above the additional cost. The lid (or cap) on the bottle offers portability as well as storage capability. In my (admittedly limited and non-scientific) straw poll of MBA programme members, the portability / storage proposition is worth four times more than the H20 itself. No surprise, then, that the world market for bottled water is worth a staggering $80bn / year.

Does this mean that performing a search on Google, reading a pdf document or using open-source software have no value in the eyes of the customer? Far from it. The answer is in understanding the marketing eco-system.

The importance of the marketing eco-system in pricing decisions is well illustrated by Seth Godin’s reflections on the price of news and biographies. His point is that value propositions need to be assessed in broad terms (though he did not use these exact words, of course). We need to consider the availability of substitutes[2], that is product offerings that deliver similar value even if they have very distinct features. Another aspect of the eco-system to consider is the firm’s relative market power, represented by the set of actions available to each firm and the expected (re)actions of competitors. Moreover, pricing decisions need to take into account the whole product portfolio – individual web searches aggregated become a new product that search engines can sell to businesses and advertisers; while using the Adobe Reader software acts as a taster to Adobe’s other products, a bit like car dealers offering test drives.

Price, in its many forms and guises such as rents and fees, is a key element of the marketing mix. Adopting an inward-looking and narrow focus is likely to be costly for the firms, particularly in an environment of low inflation and easily accessible information. I believe that firms need to focus on the perceived value for the customer, and honestly assess the extent and range of competitive offers, their actual market power, and the impact of the individual pricing decision on the overall product portfolio strategy.

If you would like to discuss any of these issues, feel free to contact me.

[1] I say ‘eco-system’, instead of ‘environment’, to emphasise the co-dependencies between the various elements
[2] Naturally, substitutes in terms of the value proposition, not the product features