Your Customers Don't Pay for Complexity. YOU DO!

• By: Dave Burr
• On: 12/21/2009 09:48:09
• In: Marketing
• Comments:

This is a difficult article to write because I can't provide the details I'd like. The parties involved would immediately recognize themselves. So I will start in the most abstract terms: "Market efficiency" , in business, is very poor.

That means that if it is difficult for you to deliver a service, think long and hard about whether you should offer it simply because it provides some marginal competitive advantage as indicated on a comparative list of features. The odds that you will make back your investment are poor indeed. Customers will rarely pay for process complexity and the resultant overhead. In fact, this basic tenet of economics is what drives innovation - it IS true!

If you are going to add complexity, have a long-term plan for eliminating it, and price the initial offering of the new feature according to that plan, treating, at least intellectually, the short-term losses as "market research." If you don't have a plan, you will paint yourself into a corner.

Here is a true example with not enough detail to be interesting, probably, but at least I am keeping myself out of trouble:

A manager at Apex Analytics, an information-gathering company decided that it is possible that his/her customers might want their information throughout the day, in fact, hourly, as opposed to the standard industry practice of daily. Mistake number one is that the manager went to all current customers, conducting a "poll" to ask them if they would like to have their information more frequently. Obviously, most or all said "yes", if for no other reason than on principle. Why not? Mistake number two was acting on that information without a plan. Because technology doesn't exist to deliver the information at this frequency without a major sacrifice in quality, the manager needed to hire full time employees to manually scrub the data all day long so as to make good on the promise. And guess what the customers pay for this new feature? ZERO.

In fact, how many new customers has the company signed because of this "feature?" ZERO. Would the company have been in a non-competitive position by *not* doing this? NO. The company's profits as a result? LOWER

In fairness, in theory, it is possible that a few of these customers might be marginally more reluctant to switch to another supplier, assuming that they ultimately build processes that rely on this more frequent data. But even if they do that, that pain is a very small component of the overall switching costs within the industry in question, so that rationalization is a real stretch.

What SHOULD have happened? The manager should have created an internal initiative to determine what his/her company could have done for a cost that was commensurate with the additional revenue (zero) that they would create. Maybe it was something short of the ultimate, but it could have been *something.* In the meantime and with no real way out, the move will hurt the company, at least marginally, every day.