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What VCs Want: Insights from Silicon Valley's Harvard Business New Venture Contest

I recently attended a business plan competition sponsored by the Harvard Business School Alumni Association of Northern California. This event is part of an activity that is being staged in nine cities across the globe by the Harvard Business School Arthur Rock Center for Entrepreneurship.

Seventeen new ventures competed, presenting their concepts to an esteemed panel of 15 judges from the VC industry (such as IVP, NEA and Mayfield Fund) as well as a few corporate VC execs (Comcast and BMC) and angel investors. Another set of promising startups showcased their wares to more than 200 attendees at this successful event.

What I found most intriguing were the questions the team of Sand Hill Road VCs and other investors asked that revealed interesting insights about what they were seeking, and the inner workings of the Silicon Valley. Here's what I heard:

  1. Herd mentality can work in positive ways: VCs have often been criticized for chasing the same idea. Although it causes pain for the VCs (and investors) that bet on the wrong entrepreneur, it is good for innovation. As one attendee said to me,"When you run a 100x multiplier on an idea, where start-ups are iterating different product and business models based on customer feedback, you will innovate faster. With all the money flowing into Silicon Valley, where else can you run multiple projects in parallel and see which one succeeds after only a few years?" I wonder what other problems this type of parallel innovation could solve (we're seeing a bit of this in green tech).
  2. Being the first to disrupt an industry is not always a good thing: Although the VCs and angels were seeking disruptive opportunities, they are inherently investors balancing risk and reward. Being the first to disrupt can be expensive especially if it involves working through expensive legal and government approvals or if the market needs to be evangelized and primed. There is a large real estate development in Northern California where the initial developer spent millions gaining zoning and fighting environmental battles. They ultimately went bankrupt in the process. A second company took over the unfinished eyesore with approvals in place and much of the expensive grading complete. They profited handsomely from the development. The tech landscape is littered with failed first movers that were too early for broad customer adoption, but their efforts ultimately educated the market and paved the way for the successes we now think of as "first" through our revisionist memories (early social networking sites, MP3 players, touchscreen interfaces).

  3. "Frictionless" customer adoption essential: Even for large established brands gaining the attention and time of busy customers is difficult. For an unknown start-up, adoption spells the difference between success and failure. I frequently heard from the VCs ...
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Six Ways to Prevent Corporate Tunnel Vision

Success breeds complacency. Business school case studies are chock-full of innovators that truck along, and Pow! in comes a new player and customers are suddenly gaining value from somewhere else. Such formerly high-flying firms default to the approaches that brought them initial success, even when markets change.

Such upheaval is evident everywhere in the business world today. Did you know that big-box retailer Walmart now competes with Comcast, and Netflix for movie streaming on TVs? Or that a business-to-business network equipment giant Cisco now competes with Kodak and Sony for consumer camcorders?

Most market incumbents stick with their current products, business models and industry for their entire existance, such that they don't see opportunities to move--or the risk of new entrants. Such tunnel vision presents a tremendous opportunity for savvy executives looking outside their current base to grow revenue or maintain leadership.

To Win, Look B.E.Y.O.N.D. Business Boundaries

My work with large corporate clients has uncovered a set of six questions that can uncover hidden risks and opportunities--I call these questions the B.E.Y.O.N.D.™ evaluation (Business Models, Encroachment, SimplifY Products, Overall Customer, Next Wave,and Distribution).

  1. Business Models: Can a competitor come in with a new business model and explode the economics of your industry? Industry players often cluster around a fixed group of business models or pricing structures. Automobile manufacturers, for instance, all earn revenues from a combination of sales and interest on loans and leases, but does it have to be that way? Could a competitor create a free or near-free car and charge for mileage, the way cellular service companies give away phones and charge for minutes? (Electric car company A Better Place is looking into it.) The point is that inside many companies the incumbant business model can feel like the "way things are done" right until someone else comes and shows a different way. The key is to rethink your options before someone else does.
  2. Encroachment: Do you evaluate the same competitors now as you did three years ago? Digital convergence, globalization, and the battle for limited consumer time and attention are causing businesses to expand beyond traditonal industry boundaries, as Walmart has expanded from retail CD and DVD sales into streaming video. Industry landscape analysis must take these shifts into account. Remove the industry blinders.
  3. SimplifY: Can your category be simplified? Is "good enough" at a lower price sufficient for most customers? Companies ranging from Japanese automakers, to Southwest Airlines, to Costco have built their success by simplifying or providing lower cost options within existing categories. Who is doing the same in yours?
  4. Overall Customer: How well do you evaluate the broader ...
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If Money Were No Object, Would People Shop More? [Stats]

In a prior post, I shared research that senior executives, if given an extra hour each week, overwhelming say they would spend the time either with friends and family or engaged in a hobby (such as exercise). It turns out that a preference for leisure is not unique to ultra-busy executives. When my firm, Exponential Edge, asked the same question of other groups(managers/individual contributors, business owners, and people not employed outside the home), friends and hobbies still won out. Only 6.3 percent of the 570 U.S. respondents surveyed said they would use the extra hour to shop online or in a store.

But what if money were no object? Would the answers change?

The Majority (74%) Would Not Shop More

Seventy-four percent of respondents said they would not spend more time shopping no matter their financial situation.



Money changed the priorities for a quarter (26%) of respondents as indicated in the chart below. Of this group, 41 percent would spend the extra time shopping either on-line (16%) or in a retail store (25%). Further analysis of the underlying detail reveals that the bulk of respondents that favored shopping were either in the manager/individual contributor or not employed categories. With the exception of retirees, these respondents were younger and less-affluent, so more wealth may conjure for them opportunities to acquire a backlog of items they cannot yet afford.


Several respondent remarks provide insight into the findings:

"Love my work, but the best time of my life is with family and friends and getting away from my   office and my computer. I will always treasure that most."

"Balancing between stuff that needs to be done for work, the house, kids, etc.... no time for me."

"The @#!$ [expletive] computer sucks up all of my free time."


We all know that the best of intentions do not always translate into behavior. This is nonetheless a good barometer of attitudes pertaining to the tradeoffs between time and money.

About the data: Findings were collected from 570 adults (age 18+) via a nationally representative online questionnaire for the groups surveyed in the U.S. by Exponential Edge Inc (www.exponentialedge.com) from September thru November 2009.



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Adrian Ott has been called, “One of Silicon Valley’s most respected, (if not the most respected) strategist” by Consulting Magazine. As CEO of Exponential Edge® Inc (www.exponentialedge.com), she helps businesses gain market advantage in today's turbulent economy. Follow her on twitter at @ExponentialEdge

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The Rise of the Inattention Economy

Have you ever paid for a subscription service and forgotten to cancel it? Have you ever purchased a product with a rebate but forgot to file it because the rebate form was buried under a pile of papers on your desk? Welcome to the inattention economy.

The attention economy has gotten plenty of, ahem, attention. Competition for limited attention spans has led many companies to get louder, either literally, or figuratively via social media, deep discounts or misguided attempts at technological differentiation. No doubt, the attention arms race has escalated - but this has been to little avail as customers have found ways to tune it out.

Information Overload: 82% of Social Media Customers Connect with Fewer than 10 Brands 

It is estimated that the average American is exposed more than 1600 advertising impressions and comes in contact with hundreds if not thousands of products every day. If you spent every waking hour devoting attention to the products you use, and spent just ten minutes per product, you would only be able to interact with 96 products.

More realistically, combined with work and family demands most people can only devote serious attention to a single-digit number of products each day - a scarcity that drives time-onomic decision-making.  A report by ForeSee Results indicates that 61% of U.S. Online Shoppers who use social media only follow, friend or fan five or fewer brands.Another 21% (totaling 82% surveyed) follow, friend, or fan ten or fewer brands. The bottom line is that only a select set of brands will get the attention and ongoing social media conversations that companies desire.

Rather than competing in a red ocean of attention, some companies have turned to the inattention economy. Take banking, telecoms or insurance as an example. These are all products most consumers consider "important", but that still doesn't mean they are willing to devote attention to the products. People just want them to work - precisely because they don't want to pay attention. Companies that succeed in these categories aren't the ones yelling the loudest, they're the ones who are staying quiet.

Do You Honestly Want a Social Media Conversation with Your Insurance Company?

When low attention priority companies over-communicate with customers they annoy. Do you really want to have a continuous social media conversation with your bank, insurance company, or utility software provider if the service is working? Such companies best serve customers by not making a lot of noise but by prudently communicating high value, providing a fair deal, and by providing responsive, personalized service when customers demand it.

This approach can be lucrative. According to Javelin Strategy & Research only 11% of customers in the U.S. switch banks every year. For most people this is not an economic decision - their current bank doesn't necessarily offer them the best ...

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Walmart Wants Access To Your TV

This article was originally posted on Fast Company.com where Adrian is an expert blogger.

Walmart's intention to acquire VUDU's on-demand video service may seem like a curious move for a big-box brick-and-mortar retailer. Although eroding DVD category sales is a culprit, my sense is that this move is more strategic and could be more far-reaching if they succeed. Walmart is making a bid to own the customers' zone of attention (and ultimately wallet) through their TV.

Despite the proliferation of the Internet, consumers in the U.S. spend far more time watching TV (both live and recorded) than surfing the Internet or participating on social networks.If they are successful, the substantial position Walmart enjoys today by controlling shelf space in the retail store could extend to the online video world.

VUDU connects a library of more than 16,000 titles directly to internet-ready TVs or Blu-ray players. Through VUDU,users can rent or purchase movies without the need for a cable/satellite service.

No doubt, this market is crowded and complex. The Walmart/VUDU combination competes with the likes of TV cable providers such as Comcast who offer their own on-demand video services (and now content) through triple-play bundles (TV, phone, Internet).  A slew of digital content delivery services also compete here.

A Shift from Resell to an Integrated Digital Customer Experience

What I find interesting about Walmart's pursuit of this market is a shift in their business model from traditional retail/e-commerce. Perhaps competing with Apple in the digital music category has taught Walmart a thing or two about the need to offer an integrated customer experience.Walmart.com's digital music store frequently offers lower prices than Apple, but it has not put a dentin Apple's dominant U.S. market share (did you know Walmart has been selling MP3s for 4 years?) The instant gratification of an integrated iTunes/iPod experience seems to outweigh the dimes and nickels saved on sites like Walmart.com - time-onomics over economics.

If VUDU gains broad customer acceptance, Walmart would own the customer's primary interface to video content. This would earn it not only earn a greater share of customer time and attention, but would also give the retailer access to a treasure trove of information about customer preferences and behaviors. If used well, this information can drive greater share of wallet for content, and make Walmart properties even more attractive to advertisers. Walmart has already tested the waters in advertising space by offering its Smart Network on TVs in its retail stores as well as selling advertising space on Walmart.com.

We should also not rule out the impact this move might have on other parts of the value chain. As a major consumer electronics retailer, Walmart could leverage its relationship with TV suppliers to gain preferential placement for VUDU inside the television sets and devices it sells. By placing itself above Netflix and Amazon.com's Video on Demand, it could gain greater attention and customer adoption, just as the top items listed in a Google search reach the largest number of viewers. We might see a similar tactic from Best Buy with the streaming service it is developing with Sonic Solutions, Roxio CinemaNow group to set itself as the default service baked inside the consumer electronics that it sells.

Moreis Yet to Come

Walmart's acquisition of VUDU shows promise, but the company is going to have to fight its way to the top.Many hefty players, such as Comcast, AT&T, Sony, Apple, Hollywood studios, and other retailers, are pursuing strategies for market leadership and, in some cases, competition will exist. The question remains whether Walmart will be agile in pursuing actions needed to succeed in this fast-paced market given a business model that differs quite significantly from their traditional (and highly successful) retail core.

We can expect to see interesting strategic alliances and industry moves in the near future, as different players jockey for a position in the digital media market. Ultimately, the consumer has about 16 waking hours in their zone of attention. Those companies that command a significant share of that time will be in a position to lead the pace and profits for the rest of the industry.

What do you think the industry players will do next?

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Adrian Ott has been called, “One of Silicon Valley’s most respected, (if not the most respected) strategist” by Consulting Magazine. As CEO of Exponential Edge® Inc. (www.exponentialedge.com), she helps businesses gain market advantage in an exponential economy. Follow her on twitter at @ExponentialEdge

Adrian is the author of the forthcoming book The 24-Hour Customer: New Rules for Winning in a Time-Starved, Always-Connected Economy (Harper Collins, August 2010).

 This article reflects the author's opinion and does not represent those of clients and affiliates.

© 2010 Exponential Edge Inc., All Rights Reserved

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Where Would CMOs Like to Spend More Time? [CMO Poll Results]

In my prior post, I explored how senior executives would prioritize their time between leisure and work if they had an extra hour of time. Unsurprisingly, these executives overwhelmingly chose leisure.

But what if you had extra time to work?

The CMO Club, (www.thecmoclub.com) asked executives in their group what they would do if they had an extra five hours a week to work. Would it be spent with the marketing team? Peers? Agencies? Customers?

Out of 120 CMO's that responded almost half (43.7%) would spend more time with customers and another third (36%) would spend more time alone thinking and planning. Only 14.1 % would spend it with the marketing team. And only 3.1 percent would spend time with C-Level peers or agencies.

"Every week I feel like I haven't spent enough time with our customers. Five extra hours would help me solve that problem." stated one CMO respondent.

Another CMO responded, "I need to put down my Blackberry, get off email, stop sitting through update meetings and think and plan. That's where I can really make a difference."

Tools that enable CMOs to focus more time on customers and avoid distractions will clearly be a welcome addition.  

 

 

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Adrian C. Ott has been called, “One of Silicon Valley’s most respected, (if not the most respected) strategist” by Consulting Magazine.As CEO of Exponential Edge® Inc. (www.exponentialedge.com) she helps businesses gain market advantage in an exponential economy. Follow her on twitter at @ExponentialEdge

Adrian is the author of the forthcoming book The 24-Hour Customer: New Rules for Winning in a Time-Starved, Always-Connected Economy (HarperCollins, August 2010).

This article reflects the author's opinion and does not represent those of clients and affiliates

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How Would Senior Executives Spend An Extra Hour a Week? [Stats]

From senior executives to soccer moms, it seems that everyone is overbooked and overwhelmed. But what would you do if you had an extra hour of time? Would you catch up on your inbox? Start a new project? Relax and play more?

This is precisely the question we asked of C-level/VP and Directors of major U.S. corporations: if you had an extra hour, how would you spend it? Although we always think of executives as hard-charging, globetrotting workaholics, only 2.8% indicated that they would catch up on work.

Of the 135 senior executives we surveyed, more than 70% would spend the extra hour in leisure. Specifically, almost 40% would spend it with family or friends. Another 37% (36.6%) would spend it exercising or with a hobby.

Although there is considerable buzz about social networks in the news, senior executives still prefer more traditional forms of networking. More than a third (33.7%) indicated that they would engage with family or friends in person or on the phone while only 6% would engage with their family and friends on-line through social networks or other on-line communications.

Of course, the best of intentions do not always translate into behavior. However this is a good barometer of where busy senior executives would prefer to spend their extra time. Here's how their responses were distributed.

 

 

 

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Adrian C. Ott has been called, “One of Silicon Valley’s most respected, (if not the most respected) strategist” by Consulting Magazine. As CEO of Exponential Edge® Inc. (www.exponentialedge.com). She helps businesses gain market advantage in an exponential economy. Follow her on twitter at @ExponentialEdge

Adrian is the author of the forthcoming book The 24-Hour Customer: New Rules for Winning in a Time-Starved, Always-Connected Economy (HarperCollins, August 2010).

 This article reflects the author's opinion and does not represent those of clients and affiliates.

© 2010 Exponential Edge Inc., All Rights Reserved

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Tablets and Smartphones: Pawns in a Land Grab for Customer Attention?

iPad? Kindle? Nook? Nexus One? iPhone? There's no shortage of discussion and comparison of the suddenly crowded e-reader/tablet/smartphone markets.

Yet, the feature comparisons about the hardware devices are a red herring.

Perhaps all of these devices are pawns in a quest for the ultimate prize: customer attention. The real goal of all the players is to capture limited attention via a direct route to an application store ecosystem. Whoever controls customer attention will be in the best position to gain default control of the customer's wallet and industry profits.

Consider how Apple developed a sizeable lead with both its App Store and iTunes. According to the NPD Group iTunes downloads comprise 69% of all U.S. legal digital music download with Amazon trailing at 8% during the first half of 2009. Once a consumer starts using an application store ecosystem inertia takes hold--users no longer take the time to even consider whether there are alternative options, much less exploring and comparing those options. Although music can be purchased from other sources, it is simply more expedient to buy it in iTunes. Instant gratification and inertia are powerful competitive forces in today's hectic world.

Customer Choices Today Are More Important Than You Think

We usually think of technology markets as very fluid--today's winners are tomorrow's losers. But when it comes to customer time and attention, the stakes are very high. In a well-designed customer ecosystem switching costs are quite significant--not in dollars but in time.

Figuring out what is portable from one device to another (say via switching from a Kindle to an iPad) and learning a new system are all quite costly in terms of time. And therefore few customers will be willing to change. Who wants to fiddle with migrating movies and eBooks to a new ecosystem when family, work, and personal pursuits demand so much of our attention? In a Time-Value Tradeoff the odds are always in favor of the incumbent.

The cold (though increasingly hot) war between Apple, Amazon and Google is all about gaining a foothold in a larger land-grab for customer time and recurring revenue streams. The iPad is yet another way to expand Apple's share of customer entertainment time--which is exactly why Amazon and Google are desperate to counteract it.

Viewing the world through scarcity of customer time and attention, we can understand why so many players are jumping into the application store game: Blackberry, Nokia, Microsoft, as well as Amazon and Google (including the curious Google Wave App Store). Who wouldn't want to own the toll-road to the customer?

There are ...

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The Apple iPad: So Many Devices, So Little Time

My back-ordered Kindle DX finally arrived a few days ago, well over a month after I ordered it. But instead of opening it, I set it aside. Why? Because the hype over Apple's iPad was running at fever pitch. Maybe, I thought, the Kindle DX was about to become hopelessly obsolete—and I should just ship it straight back to Amazon.

So, I tuned into the live Apple announcement with baited breath. While watching the glitzy Apple introduction on-line I was impressed – it had color, it worked with iPhone apps, it played movies and music and I could read books and newspapers from the big screen. This was a slam-dunk – who wouldn’t want all of that?

Then I heard more.

  A Change in Digital Routine

 Apple went on to talk about iWorks, using the device for presentations, keyboard accessories, 3G connectivity, and storage. My head started spinning. Not because of the features and functions - after 20 plus years in the tech industry I am quite comfortable with speeds and feeds. Because such a multifunctional device raised many questions about how it would fit into my digital life and routines.

I’m not without gadgets. I already own a laptop, a Blackberry, an iPod (and now a Kindle, at least temporarily). If I added an iPad to the horde how would I make all of this work together? How would I sync my files? When and for what would I use my laptop, the iPad, and my smartphone?

With the Kindle, the fit with my digital life is relatively straightforward; no conflicts with my laptop or my smartphone. I could take it to the beach and not worry about where my work files were located. I wouldn’t have to think about it much. Like most people I’ve got more important matters on my mind.

With the iPad (or a netbook for that matter), I need to plan for where my data would be stored and when I would use each device. It was all getting so complicated. I started to ask: am I willing to take the time and alter my routine for this new device? Is the value of the iPad greater than the time it will take me to reorganize my life to accommodate it?

Apparently, I’m not alone. A poll conducted by Gadget Lab indicates that 71% of those who would not buy an iPad already own a laptop and a smartphone and they already felt covered.

Time-Value is a Key Driver in Customer Decision-Making Today

The lesson here for innovators and marketers is this: we need to factor customer time into decision-making. Consumers already own devices, they have software. They want their digital and personal lives to run seamlessly.

So the ...

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Is Customer Loyalty a Thing of the Past?

By Adrian C. Ott

While attending a recent presentation on customer loyalty, a question from a member of the audience sparked my imagination.  

"Do Millennials care at all about loyalty?  Does loyalty to products and brands still exist?" 

When I looked around the room, there seemed to be a mood of skepticism about the topic of customer loyalty. 

Another woman responded,
"It is hard to be loyal because there are so many options out there today. There are always new products that seem interesting."

Are they correct?  I remember my parents unquestioningly buying Ford automobiles, or insisting on filling up at "Herb's" corner gas station. 

Are loyal customers an endangered species in the business world - soon to join the fate of the dinosaur? or the typewriter?  Are executives and marketers deluding themselves?


Only 2.5% of Consumers are Loyal

No doubt, our relationships with brands have significantly changed.  The Financial Times cites a two year analysis of 685 brands using data from 32 million consumers that in 2008 the average brand lost a third of its most highly loyal customers. These customers were lost to price and promotions from other brands - something brand marketers considered improbable in the past.

B-to-B executives constantly complain about pricing pressures and reverse auctions as vendors are deemed as replaceable. Even products and services that were considered fortresses of differentiation reach commodity status at a record pace.

The CMO Council and Pointer Media Network study further reveals that 80 percent of brand sales are attributed to only 2.5 percent of shoppers - not 80/20 as previously thought.  Searching for traditional brand loyal customers is like looking for a needle in a haystack.  These figures suggest that such customers could be considered as endangered species.


Tilting at Windmills of Unwavering Customer Allegiance

According to Merriam-Webster's Online Dictionary, "loyalty" is an act of unswerving allegiance. Synonyms are: faithfulness & fidelity.  These terms connote an unquestioning devotion - an effect on our emotions that drive our actions.  Analogous to a marriage where using competing products constitutes a terrible act of adultery - something to be avoided at all costs.

Consider the products and services you use personally and for business.  How many of those items truly stand out for you? How many would you drop if something better, (or cheaper with equivalent quality), came along?

Rather than tilting at windmills in pursuit of unwavering allegiance, a more pragmatic and fresh approach is needed.  Let's stop focusing on diminishing returns of 2.5% of customers and think about the rest of the 97.5% of customers out there.  Don't they have money to spend?

Customer engagement today is different because there is a greater risk of distraction.  Time is limited. We multitask as we juggle different types of technology. The Internet and globalization have enabled a plethora of products and services that vie for our time and attention.  We can buy products and services from across the globe. 

Consider a teen that has choices to spend his time on World of Warcraft, The Wii, Halo3, a social network, or texting.  He actively considers competing alternatives on how to spend his time. Understanding the forces that compel a customer to spend time with a product or banish it as "background noise" is key. 

Traditional customer loyalty is blind to the alternatives. Today's customer has access to all the alternatives. When customers are compelled and see value in an offering, they give a share of their time and attention to what they deem as the best alternative.  The following chart highlights these differences:




This demonstrates that the term "Loyalty" is an imprecise way to describe contemporary customer relationships.  Ask around and you will find few, if any, customers that view their relationships with brands as a faithful, loyal marriage - many don't even consider it a betrothal. 


Customer Engagement: Speed Dating versus a Faithful Marriage

There is simply not enough time in our day to devote our attention to all the products and services we purchase and consume. This results in varying modes of engagement. 

Customer traction is possible, however the reasons are not uniform and not always based on emotions or attitude.  Behavior can be just as profitable as words of affection.  For example, some people always buy the same brand.  However it is not because it tugs at emotional heartstrings as branding agencies would like us to believe. The product simply works. We don't want to think about it further. We want to move on to more important decisions in our lives. 

With hectic lifestyles, most customer interactions are like speed dating combined with a few serious brand relationships where customers are willing to invest more of their precious time and attention. Alternatives are waiting in the wings that are ready and willing to replace your products and services.  Distractions from technology abound. 

Changing our mindset to address the reality of today's distracted, multitasking, digitally-savvy customers calls for fresh approaches to engage them.  

Future blog posts will describe strategies based on our work with leading clients, and three years of extensive research with innovative companies who have gained sustainable traction in this hyper-competitive environment. 
(Hint: These strategies involve entirely new ways of thinking that go well beyond social media, and tactical loyalty programs.)

Food for Thought:
Dogs are loyal. Customers are not dogs.


What do you think? Is the term "Loyalty" outdated?  Is there a better term? Is there a difference in the way the generations engage with products and services?   


© Copyright 2009, Exponential Edge Inc.  All Rights Reserved 

 

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