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CCI
Not Your Neighborhood Think Tank
By Adam Dorris
Market-driven research is the name of the game at the McCombs School’s Center for Customer Insight (CCI), as with other leading players in the think-tank neighborhood. CCI, though, is not your average “mom-and-pop” think tank dedicated to revolutionizing the future of business.
At CCI they not only change the rules, but the object of the game as well. Professors and students work with leading corporations to understand the needs and wants of today’s customers. And by seeking solutions to pressing problems, rather than the dilemmas of tomorrow, CCI helps its business partners reach the future on top.
Thus since its inception in 1997, CCI has become a veritable convenience-storehouse of new wisdom on consumer needs and behavior. Big names like Accenture, Frito-Lay, Dell, Ford, and 3M drop by for help, and CCI brings together a multi-disciplinary team of researchers to meet their needs, tapping resources from across the UT campus. Their findings are invariably both immediately relevant to businesses and theoretically powerful.
By outsourcing research this way, businesses can employ the skills of leading academics and bright students, and yet retain proprietary rights to the results long enough to gain a competitive advantage. On the other side of the win-win equation, professors and students gain valuable access to leading executives, and add to the academic body of knowledge.
CCI is now in its fifth year, and some of its early research—done on behalf of companies that retained rights to the findings—has passed into the public domain. Much of the research originally defied conventional wisdom, yet now seems like common sense, borne out by the events of the past few years. And it was in part due to CCI’s insights that the sponsoring companies have weathered the economic downturn so well. What follows is a small sample of discoveries made by CCI researchers.
A Reality Check for Virtual Markets
As the Internet boom gained momentum, companies believed that online markets would differ significantly from their predecessors in the real world. Free and unlimited access to information, so the theory went, would drive unbridled price competition; and only those online retailers with the lowest prices would profit. Consumers would always search out the best deals, and any web-based start-up with a product or a service to peddle would have a fighting chance. Thus, countless David.coms readied their stones to topple the Goliath brick-and-mortar establishments of the world. Needless to say, established corporations were as anxious about price-reductions as the start-ups were giddy about sales potential.
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However, a study done by UT professors Robert Peterson, Sridhar Balasubramanian, and Bart Bronnenberg debunked that theory handily. The researchers found that Internet customers frequently prefer selection, convenience, and familiarity over pocket-book savings, just as in traditional markets.
Consequently, the Internet is best understood as a new dimension to the marketplace—not a distinct market unto itself. Information and needs beyond the Internet will influence online behavior. So when consumers give up instant gratification to shop online, they may be more interested in saving time and having a broad selection than in beating the local prices. And this means that consumers may be willing to settle for higher prices at Amazon.com, for instance, especially once they’ve grown accustomed to that site.
Those companies that learned this lesson early enough to still be around today have sought to make their commercial sites personal and customizable to build loyalty and lock-in customers.
“New and Improved” Not Such an Improvement
Conventional marketing wisdom holds that adding extra features and accessories to existing products is a good way to boost product sales, because these “bonuses” help to distinguish the product. The more accessories, the more attractive the product, right? Well, maybe not.
CCI’s Wayne Hoyer, along with McGill University’s Ashesh Mukherjee, discovered that not only is this not always the case, but technology-rich features can actually exacerbate mild cases of technophobia. They suggested that added features do make simple products like refrigerators more appealing, but accessorizing complex products like computers frequently intimidates consumers.
This inconsistency results in part because simple products are less threatening to begin with, and the features added to such products are themselves typically easy to use. But products like computers and digital cameras already have an aura of difficulty about them, so “bonuses” like scanners, disc-burners, or faster ‘giga-hertz’ processors may make them seem more confusing.
Is it any wonder, then, that two of the most successful marketing companies for personal computers featured a rainbow of color choices and a ‘dude’ promising that buying a new computer was ‘easy as Dell’?
When an Expense is Really an Asset
Professors in McCombs’ top-ranked accounting department will tell you that virtually all marketing costs should be measured as current period “expenses” for financial reporting purposes. Marketing professor Rajendra Srivastava, with Tasadduq Shervani and Babson College’s Liam Fahey, have no plans to rewrite accounting principles, but they would like business managers to think differently. Certain marketing initiatives actually provide long-term value, they argue, and therefore should be viewed as “market-based assets” for internal reporting and decision-making purposes.
The CCI research team cited the dichotomy of financial results and shareholder value for soaring Internet companies like Yahoo! and Amazon.com at a time when their marketing investments were two to four times greater than their gross margins. Knowing that customers who customize a ‘MyYahoo’ home page or implement the one-click shopping option to buy books are likely to return and develop loyalty to their brands, these pioneering companies were building assets, not merely burning cash.
But the authors stop far short of justifying the frenzied and often wasteful marketing initiatives of so many dot-com era companies. By their definition, market-based assets are rare and not easily matched by rivals. So while AOL built a valuable market-based asset in its customer base, its legions of imitators could not.
In publishing their research, the authors sought to awaken corporate managers to the value of off-balance sheet assets that, if not measured, are rarely nurtured. But as if they had not given their audience enough to think about while lying awake at night, they end with a word of caution: market-based assets can become liabilities in a frighteningly rapid fashion. Any disbelievers should look no further than Compaq and its once-lauded distribution network. When Dell proved that direct is better, Compaq’s market-based asset became an anchor that weighed against change.
New Twist on Supply Chain Theory
Supply Chain Management ranks with TQM and Six Sigma as an important and influential addition to applied management theory, but PointServe founder Ed Powell and chairman Bill Rice saw its inherent limitations. Supply Chain relates to manufactured products, but what about services? With software that helps service providers optimize the productivity of a mobile workforce, the PointServe team had a real-world solution on the frontier of management theory. What they lacked were reputable theorists to explain it.
Through the CCI, the PointServe team joined forces with James Fitzsimmons, Douglas Morrice, and Devanath Tirupati to mesh academic theory with market-driven experience. The five authors coined the term, Service Chain Management, and then subjected their theory to a market test with Tom Meredith, Dell’s CFO and a PointServe board member. After an intense brainstorming and problem-solving session with Meredith, the authors published a paper that highlighted the key similarities and, more importantly, the variations between their theory and its precedent.
At the First World Congress on Productions Operations Management in Seville, Spain, Fitzsimmons spoke on “bi-directional optimization” (the concept that customers often “co-produce” a service), the value of knowledge management, and the different “means and measures” of Service Chain Management. Morrice has teamed with another McCombs professor, Ed Anderson, to build a research model that simulates behavior in the service change management model.
And the PointServe team? They have weathered the tech market downturn and emerged as a leader in software solutions for service supply chain optimization.
Which Expert Advice Do You Follow?
When the time comes to buy a new car or see a new movie, we often look to sources like Consumer Reports or movie critics for expert opinions. However, the explosion of the Internet has increased consumer accessibility to numerous expert opinions. Paradoxically, this means that although we turn to experts to simplify our decision-making, we are now faced with the new challenge of which expert advice to
follow.
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UT’s Susan Broniarczyk worked with Professors Andrew Gershoff and Patricia West, of Columbia and Ohio State, respectively, to demonstrate that consumers often fail to select the best expert advice for their decision.
Specifically, the researchers showed that consumers often should select different experts when seeking a product recommendation versus seeking a product evaluation. That is, an expert may not be equally skilled at evaluating a specific product as he or she is at recommending a “Top Ten” or “Best Buy” list. This is because when giving a recommendation, an expert provides advice only on positive product experiences. However, when providing an evaluation, the expert has to factor in both positive and negative product experiences.
So, where do you turn for advice on what advice to take?
Metacritic.com provides comparative expert reviews for movies, CDs, and other entertainment. The site also provides links to previous reviews by the same expert so that a consumer can get a sense of which expert matches his or her personal tastes. Some stock websites provide access to past analysts ratings so that investors can gauge their success or failure rate.
For information on specific programs at the McCombs School, consult our contacts page. For media information, contact the Communications Director by phone at 512-471-3314 or by email at CommunicationsDirector@mccombs.utexas.edu.
