Archive for the ‘psychology’ Category

Buyer’s hubris harms revenue growth from acquisitions

Wednesday, September 3rd, 2008

Accenture recently released a report entitled “Leveraging Sales & Marketing to Maximize the Value of Mergers and Acquisitions.” This report quantifies what many people have felt about M&A—as far as growing revenue long-term, it’s not a successful strategy. Among Accenture’s findings was that while 56% of companies studied grew faster than their industry groups in the two years before they made a large acquisition, only 33% duplicated that feat in the two years following the year the deal closed.

The report lays out reasons this is so: disruption to customers, loss of key customer-facing staff, unexploited opportunities to market to new customers. (They also provide suggested remedies—they are consultants, after all.)

After living through three significant acquisitions (being bought twice, buying once), I believe there is a deeper reason that drives what Accenture observed—buyer’s hubris.

In spite of rhetoric like “merger of equals,” “best of breed,” and so on, in my experience buyers develop a mindset that they are superior to the company they purchased—smarter, with better products, processes, etc. (Otherwise, perhaps the shoe would be on the other foot!) This is especially true when the merger consolidates the businesses of two once-competing companies.

I recall pleading with one acquirer to retain the name of our company’s flagship product—it had brand value and keeping it would signal to the large customer base that the product itself wouldn’t be retired. At first, the integrated marketing group (led by the buyer’s VP of marketing) thought this was a crazy idea. But, after much discussion, the group reluctantly agreed. That acquiring company no longer exists, but the product—with that old name—lives on and supports many of those same customers.

Buyer’s hubris extends to the acquired company’s customers. Rather than being carefully cultivated, they are frequently taken for granted. (What they need is to be resold on the new company. This is rarely done, in my observation.)
Similarly, the people who support those customers are seen as suspect. Those people may have competed—in some cases, successfully—against the buyer’s sales team. (Perhaps sour grapes is a reason the customers are not treated as carefully as need be.) At any rate, it’s difficult to trust former competitors. As a result, they are not welcomed; their opinions are not solicited.

When consolidating a market, real humility on the buyer’s part is required. There’s a lot of human nature obstructing that, and perhaps it’s unrealistic to think hubris can be overcome. Until that day, however, we’ll continue to read studies documenting poor growth results from mergers.

(Thanks to New York Times Dealbook for the pointer to this research.)

Related posts:
Ultra-competitive mindset costs dealmakers

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Posted in acquisitions, growth, integration, psychology | Comments

The deep attraction of the locally-produced

Sunday, July 27th, 2008

While reading a review of Rob Walker’s “Buying In,” in today’s New York Times Book Review, I got to thinking about why I buy a certain type of beer.

The review points out Walker’s description of the rebirth of Pabst, which after decades of decline began to grow again, led by young people seeking an unpretentious and less heavily-advertised beer to drink. Picking up on the weak signals, Pabst marketing shrewdly capitalized on the image by embarking on a low-profile campaign focusing on small-scale sponsorships of happenings favored by their market segment.

Yesterday, I took the kids and some friends and went on a tour of the Troegs Brewery across the river in Harrisburg.

I only drink local beers–Troegs, Stoudt’s, Lancaster Brewing. And reading the book review made me ponder why this was so. Local beer is fresh, sure. Brewed in small batches. It has more taste than the mass-produced beers. But this didn’t explain it all to me. To me, the local aspect is predominant.

Was there a “deep metaphor” at work here? With apologies to the Zaltmans, authors of “Marketing Metaphoria” and coiners of the phrase “deep metaphor,” I think so. Something deep in my psyche makes me yearn for Troegs Sunshine Pils and revolt at the thought of Miller Genuine Draft.

Similarly, we get our vegetables much of the year from Spiral Path Farm, a CSA farm located about an hour from here, which we’ve visited.

At any rate, if this is so, it perhaps explains another phenomenon–when a big national bank buys a local bank, within two years a new local one springs up to take its place. Or does that only happen in my town?

Related Post:
“Marketing Metaphoria”: Deep yearnings about the products we buy

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"Marketing Metaphoria"–the deep yearnings behind the products we buy

Tuesday, July 1st, 2008

Father-and-son team Gerald and Lindsay Zaltman, authors of “Marketing Metaphoria: What Deep Metaphors Reveal About the Minds of Consumers,” assert that beneath our purchasing decisions lie deep, unconscious frames of how the world works. Companies who can understand these frames and connect their products with them can own key positions in their marketplace and build tremendous brand power.

Did you ever wonder why nearly every Budweiser campaign centers around guys drinking together? According to the Zaltmans, it is because they are reinforcing the brand’s association to connection, one of the seven heavyweight “deep metaphors” that account for more than 70% of the metaphor usage found in their research. The other “giants” are:

  • Balance
  • Transformation
  • Journey
  • Container (keeping things in or out)
  • Connection
  • Resource
  • Control

An example of deep metaphor usage is the Michelin advertising image of a baby sitting in the tire. The deep metaphor of container is at work here–high-quality, well-designed tires provide a safe cocoon for the occupants of the car. And by extension Michelin owns the safety position with tires. Other brands must find other metaphors to occupy within our brains (say, journey or control).

As a way of showing how understanding deep metaphors can help companies create innovative products, the authors describe how the hearing-aid company Oticon redefined its product category. Oticon interviewed hearing-aid wearers about why they frequently didn’t wear their devices. They learned that typical hearing aids were gawky-looking and prominent, thereby stoking users’ deep fears of being broken, ugly containers. The company then created a new product that was smaller and sleeker, resembling a high-tech cellphone device more than an old-fashioned hearing aid, and combined it with an advertising campaign reinforcing the “escape” metaphor.

The authors urge readers to use this type of “workable wondering” to reimagine their innovation approaches, not just to find new ways to package or promote the same old products. I agree. When marketers use psychology to understand customers deeply, and respond to those unspoken needs, they’re doing a service. (If they’re just trying to get into my brain to sell me more peanut butter, well, that’s just creepy.)

“Marketing Metaphoria” is a fascinating, fresh look at understanding how humans react to products beyond their functional attributes–a topic as old as advertising itself. But in connecting itself with the entire innovation process, it’s more than just a book about communication.

A video interview with co-author Gerald Zaltman, where he elaborates on deep metaphors and how they can be discovered, can be found here.

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Posted in market research, marketing, metaphor, psychology, reading list | Comments

Ultra-competitve mindset costs dealmakers

Monday, May 19th, 2008

Deepak Malhotra (co-author of “Negotiation Genius,” one of last year’s top 5 books) and colleagues have once again dived into the psychology of negotiators and dealmakers in May’s Harvard Business Review (”When Winning is Everything“).

They find that certain factors present in many deals can drive irrational thinking and, ultimately, overpaying for acquisitions. The factors are:

  1. Rivalry – animosity toward a competitive rival for an acquisition, say, can create a “win at all costs” mentality.
  2. Time Pressure – racing to meet a stated or internal deadline can lead to accepting a poor deal
  3. The Spotlight – if people are watching–coworkers or the public–a dealmaker may act less rationally than if the spotlight were off.

Malhotra et al write: “Rivalry, time pressure and a bright spotlight can each fuel competitive arousal. Collectively, they can lead to decision disasters.” They point to the Boston Scientific acquisition of Guidant and Viacom’s purchase of Paramount as two costly examples of this type.

What to do? As in “Negotiation Genius,” Malhotra urges dealmakers, first of all, to be aware that these factors exist. Mere awareness of a feeling of time pressure is a tool to prompt reflection: “Is there a reason this has to be done this week?” Almost always, the answer is no. The world won’t end if the deal is delayed.

As for rivalry and the spotlight, companies can put approaches in place to manage them. Often, it means spreading the responsibility among teams of dealmakers rather than allowing individuals to shoulder the entire burden. [Microsoft might have managed the recent Yahoo engagement better if it had not allowed it to become Steve Ballmer's deal.]

Malhotra and his colleagues are probing into new and important territory in business research. By bringing behavioral economics and psychology into the forefront of dealmaking and negotiation, they are providing a valuable service to businesspeople everywhere.

Most refreshingly, their focus on the costs of dealmakers’ irrationality and aggression is a welcome antidote to the lionizing of ultracompetitive CEOs and moguls elsewhere in the business press.

(Photo: a still from the infamous Steve Ballmer monkey dance)

Related posts:
“The Best Negotating Book I’ve Ever Read“

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Posted in Harvard Business Review, competition, dealmaking, irrationality, negotiation, psychology, rd Business Review | Comments

Follow-up gets results

Friday, April 11th, 2008

If you follow this space, you know I talk about books occasionally. Some PR folks have noticed, and now they send me books from time to time which they would like me to talk about. This has led to the happy/sad situation that I have more books in my pile than I can possibly read.

On a couple of occasions, an action has caused me to pull a book from the middle of the pile and read it next. That action was a simple follow-up. “Did you get the book we sent? Will you get a chance to read it soon?”

At that point I felt a little obligation to get to the book quickly. I didn’t rearrange my schedule or drop other important things to do it. I just made a note to get to this one as soon as I had a chance. As Bazerman and Malhotra wrote in Negotiation Genius, “Humans tend to reciprocate behavior.”

Frequently, I’m asking people to do things on my behalf. I need to remember that respectful follow-up is not hassling people, and it won’t make people do things they don’t want to do. It does, however, raise your request, even for a moment, to the top of the pile.

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Posted in follow-up, psychology, public relations | Comments

When things get tough, you need to negotiate face-to-face

Tuesday, November 6th, 2007

There is a moment early in the movie “Local Hero” where MacIntyre, the executive who is being dispatched to Scotland to negotiate a land purchase for an oil company, complains to a colleague about the trip. “I don’t need to travel there; I’m more of a Telex man.” Yet he goes anyway, and finds the Scots extremely challenging (and shrewd) negotiators. The deal wouldn’t have gotten done via Telex.

I was thinking of this while reflecting on the experience I had negotiating with a client was dragging their feet on signing the contract. Our general manager requested that I travel to New York and try and get the contract closed myself and I protested and said we can get it done on a conference call. He said, “Sometimes you have to go there in person.” And so I did. Here’s what happened…


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Posted in business travel, customer relationships, dealmaking, narrative, negotiation, psychology | Comments

Effective negotiation sometimes means staying with it even after you’ve lost

Wednesday, September 19th, 2007

Negotiating skill is partly personality, mostly hard-won experience. There are a few good books on the subject (I’ve found “Game, Set, Match: Winning The Negotiations Game,” by Henry Kramer pretty useful, despite the silly title), but they don’t substitute for getting in there across from the other party and trying to work a deal.

This is because negotiating is all about psychology–yours, of course, and the other guy’s. And information is hard to come by. Negotiators hold lots of information close to the vest, and release it only when they feel it’s in their interest to do so. This leaves the other party guessing about the motivations and constraints of the counterpart. All in all, it’s a highly complex situation, and optimal results are rare. The best you can do is a deal you both can live with.

Skillful negotiation is the subject of “Investigative Negotiation” by Deepak Malhotra and Max Bazerman of Harvard Business School, which appears in the September Harvard Business Review (link – $$). Malhotra and Bazerman point out several skills of good negotiators–mainly their ability to probe and ask questions that illuminate areas of conflict and expose possible solutions.

I was most interested in one principle they stated: “Continue to investigate even after the deal appears to be lost.” The authors write:

After being rejected, an investigative negotiator should immediately ask, “What would it have taken for us to reach agreement?” Though it may appear costly to continue negotiating when a “no deal” response appears certain, if you’re confused about the reason your deal fell through in the first place, it could be even more costly to abandon the discussion.

Even if you find that you cannot win the deal, you may still acquire important information that will help in future negotiations. By staying at the table, you can learn about this customer’s future needs, the interests and concerns of similar customers, or the strategies of other players in the industry. Keep in mind that it is often easier to get candid information from the other side when you are not in selling mode and there is little reason to distrust your motives. Next time you’ve lost the deal and been asked to leave the room, see if you can stick around and investigate further. You may be surprised by what you find out.

Good advice, though staying at the table can be difficult. If the client has made the emotional commitment to go elsewhere, they may not want to spend any more time with you, especially if they feel you’re still selling them. Many clients also don’t want to make losing salespeople feel bad, so their instinct is to stop talking. It takes a real professional to be able to convince the client to open up after they’ve already decided.

If you’re interested in negotiating and haven’t listened to our podcast with Barbara McFadden on the topic, please check it out.

(Photo by adamci via stock.xchng)

Posted in Harvard Business Review, negotiation, psychology, sales | Comments

Cold calling with dignity (yours and the prospect’s)

Thursday, March 8th, 2007

I had to do some cold calling today, so naturally I worked from Jeff Thull’s script. It’s simply the best approach I know to keep the dignity of the customer intact while you’re interrupting them with an unsolicited pitch. And since I hate getting cold calls, when I do my own cold calling I try to keep that in mind. Here’s Jeff’s 20-second pitch, outlined nicely in his new book Exceptional Selling.

Convey professionalism by identifying yourself and your company straightaway. “I’m John Caddell with Caddell Insight Group.” (Don’t ask how they are doing today.)

Give the prospect an easy way out, and show respect for his/her intelligence by admitting that you don’t know if they need or want what you’re pitching (note: you should have done sufficient preparation and qualification to believe they very well might need your solution). “I’m not sure if it’s appropriate we should be talking.”

Show relevancy by connecting what you do to companies like the prospect’s. “We work with companies like yours who are developing breakthrough technology products…”

Connect more deeply by referencing a generic problem they might be facing. “…and occasionally have difficulty getting their sales forces to embrace the new product.”

Ask for permission to continue. “Do you have a moment to talk?”

There’s lots more to the method, especially if they say, “Yes, I’d like to talk more.” But you’ll have to read the book for the rest.

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Salespeople as Parents – prescription for failed sales

Thursday, March 1st, 2007

Have you ever spoken to a sales person & felt they were treating you like an idiot? We, as sales people, tend to have these types of conversations when we’re trying to close a sale, even if we don’t realize it.

Jeff Thull, in his book Exceptional Selling, calls these Parent/Child interactions. We as parents treat prospects like children, persuading, lecturing, pleading. The prospects, sooner or later, shut down. (Like me talking to my six-year-old.)

An adult conversation, where we and the prospects could talk like businesspeople, would be more effective, wouldn’t it? (Sorry–didn’t mean to lecture. Strike that last sentence.)

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