Personal Preference Bias

I’ve read and heard a fair amount from critics of JC Penney’s disastrous everyday-low-price strategy. But, much of it is too simple.

Critics speak of JC Penney’s customers as if they are all the same. I’ve read things like maybe they liked sales prices or JCP has to attract a new customer base to replace the old one.

While JCP sales were down considerably, they were still doing 75% of the volume they did the previous year. That is a huge decline for a retailer, but the sales didn’t go to zero and that says something. Three-fourths of customers didn’t mind the change.

In my experience with consumers and retailing, it is not uncommon for about 25% of sales volumes to come from promotions and coupon offers such as the sales JCP use to run. A fair part of that percentage are folks in whatever product category that are bargain hunters. Another chunk are from folks who are not typical bargain hunters — they may shop on value — but they may just come across a deal too good to pass up. I was recently perusing Kohl’s and saw a griddle for half the price I’ve seen elsewhere. I’m not a typical bargain hunter, but I popped on it.

There’s no reason JCP can’t satisfy value shoppers and bargain hunters alike. Other retailers have figured out how.

Even low-price leaders Walmart has “Rolbacks” in the aisle. Target has a dollar section near the front. Old Navy has clearance racks hidden in the back. Banana Republic has its mall based-locations, carrying higher priced, in-season fashion. But, they too have limited clearance sale space in the back. They also have separate Factory Stores where you don’t get the latest, but you get good stuff at sales prices.

Management at these companies recognize that not everybody is the same and they try to find ways to satisfy varying consumer preferences in creative ways that don’t detract from the experience of others. That’s typical retailing.

In my opinion, that’s the key insight that escapes JCP CEO Ron Johnson — everyone is different.

Johnson was in charge of retailing at Apple. Certainly, many folks rave about the Apple store experience. But most of these ravers have very similar preferences when it comes to electronics — they love Apple!

So, Johnson didn’t have very tall task in delivering a retail experience that satisfied a relatively narrow consumer segment. He made a store for Apple devotees.

Ask yourself this. Does Apple need a store? Not really. Apple products would sell with or without their stores.

Johnson is remaking JCP to satisfy a segment of consumer that is smaller and more narrow — a group that he likely sees himself in — than the group that JCP was satisfying before he arrived, which is not usually a successful strategy.

I call this personal preference bias. Successful managers usually find ways to overcome their own personal preferences and give more weight to the varying preferences of their customers.

It’s an easy mistake to make. Ron Johnson probably thinks he learned from his former boss, Steve Jobs, that designing things to meet your personal preference is good. And, there might be something to that when you are trying to innovate from ground zero.

Steve Jobs wasn’t even Steve Jobs

I’ve been noodling on a post for a while about the effects Steve Jobs has on the business world. He’s seen as a hero and other leaders want to also be heroes. They love hearing about this guy who was so difficult, meticulous and sort-of command-and-control. It makes them think they can do it too.

But, they usually turn out to be envious goats who take the batta-batta-batta-“iPad”-swing, miss, then get fired.

The leaders of Intuit don’t want to be Steve Jobs. This is from an excellent piece in Forbes about innovation at that company.

Plenty of companies are a religion, where people take their cues from the top. Intuit is a science lab, where anything can be tested and proven incorrect. “When you have only one test, you don’t have entrepreneurs; you have politicians. When you have lots of ideas you have entrepreneurs,” says Cook.

He’s found a kindred spirit in Smith, who became CEO in 2008. “Genius and a thousand helpers are not going to solve the problems of today or tomorrow,” says Smith, 48… “There are very few Steve Jobses out there. We run small teams and lots of rapid experiments. No politics. No PowerPoints.”

I agree. I’ve seen innovation choked by politics in organizations that take their cues from the top. I’ve seen those same organizations languish and go through multiple leaders who all had the same general idea — their idea, whatever that was.

Other ideas could not get the resources even for a small test because those would take resources away from the leader’s idea. Too bad the hit rate for new ideas is so small. That’s the key insight that the leaders either don’t realize or think they can outsmart it. Or they don’t care because they’ll make a decent sum whether they produce or not.

But, I even think the Steve Jobs story as command-and-control genius is overplayed. No doubt the guy was hard-charging genius. But his greatest genius of all was opening his products to benefit from lots of small tests that would come through the iTunes and app communities.

If iPods and iPhones were just music boxes and phones, I would probably have neither. But, along with these devices, Jobs created a wide community to create stuff for them to make them more useful with minimal political drag on which apps and podcasts could be made available.

This resulted in lots of small bets placed by the thousands of developers and podcast creators and that resulted in tons of content and functions that more and more people found useful, even if it was just a handy way to kill time while standing in line at the grocery store or as a pacifier to keep me from saying truthful, but career-limiting, things in business meetings.

I bought my first iPod when I got tired of listening to the few podcasts that I followed on my computer and discovered that listening to those podcasts while exercising and traveling was something I valued. That was a start.

So, now I have both. And since then, I have found many other ways to make them useful — most of which are not produced by Apple. I have three music boxes: my library, Pandora and another app that lets me tune in radio stations. I play Words/Chess with Friends, but with Family. I ask Siri stupid questions and occasionally, it gives me a useful answer. I don’t get lost. And so on.

The key point: It was those many other things that made iPod, iPhones and iPads the success. I don’t believe any of Apple products would have been nearly the success if they only stored music and surfed the web. iPods probably would have been slightly more successful than the Nomad MP3 players if all they did was store and play music.

So, congrats Steve Jobs. You figured out how to make money off Wikipedia’s operation model and Wikipedia itself (another tool I often refer to through my Apple devices) (I wonder if there is a Wikipedia article on that?) and fool most folks into thinking it was all you.

Bureaucrats and innovators, part two

This is from Peggy Noonan’s column in the Wall Street Journal today:

Then he turned to the rise and fall of various businesses. He has a theory about “why decline happens” at great companies: “The company does a great job, innovates and becomes a monopoly or close to it in some field, and then the quality of the product becomes less important. The company starts valuing the great salesman, because they’re the ones who can move the needle on revenues.” So salesmen are put in charge, and product engineers and designers feel demoted: Their efforts are no longer at the white-hot center of the company’s daily life. They “turn off.” IBM and Xerox, Jobs said, faltered in precisely this way. The salesmen who led the companies were smart and eloquent, but “they didn’t know anything about the product.” In the end this can doom a great company, because what consumers want is good products.

I agree.  This reminds me of a few of my previous posts where I write about the secret of good business, bureaucrats vs. innovators and bureaucrats and innovators.

Jobs just uses the term salesman in place of bureaucrat and product engineers in place of innovator.

Salesmen stifle innovation by favoring their own projects and restricting other projects.  That lowers the chance that the company will discover something truly valuable for customers.

I’ve witnessed projects that showed early promise get nixed because they weren’t the saleman’s project.  I’ve also seen projects that show no signs of promise continue to get resources, because it is the salesman’s project.  The salesman can sell others (for awhile) that the project is working, even when all measures suggest it is not.

Rupert Murdoch on Education and Technology

I think Rupert Murdoch makes some good points about technology and education in his Wall Street Journal opinion column this weekend.

Regarding integrating technology into education (emphasis added):

If you read the front pages of the New York Times, they will tell you that technology’s promise has not yet been realized in terms of student performance. My answer is, of course not. If we simply attached computers to leeches, medicine wouldn’t be any better today than it was in the 19th century either.

You don’t get change by plugging in computers to schools designed for the industrial age. You get it by deploying technology that rewrites the rules of the game.

Our children are growing up in Steve Jobs’s world. They are eager to learn and quick to embrace new technology. Outside the classroom they take technology for granted—in what they read, in how they listen to music, in how they shop.

The minute they step back into their classrooms, it’s like going back in time. The top-down, one-size-fits-all approach frustrates the ones who could do more advanced work. And it leaves further and further behind those who need extra help to keep up.

I think Murdoch’s solution imagery is vivid:

These days everyone is for education reform. The question is which approach is best. I favor the Steve Jobs model.

In 1984 Steve introduced the Mac with a Super Bowl ad. It ran only once. It ran for only one minute. And it shows a female athlete being chased by the helmeted police of some totalitarian regime.

At the climax, the woman rushes up to a large screen where Big Brother is giving a speech. Just as he announces, “We shall prevail,” she hurls her hammer through the screen.

If you ask me what we need to do in education, I would point you to that ad.

I think that’s a good image to keep in mind.  Whenever you find yourself reading about or debating education reform, think about who plays the role of the helmeted police, the totalitarian brain washer on the screen, the hypnotized minions in the audience and the lady throwing the hammer through the screen.