Forest, Trees and MIT

July 14, 2009

Over dinner last week my father-in-law reported that statisticians at MIT had discovered, through crunching thousands of lines of data, that consumers trust people they have relationship with more than corporate communication when it comes to purchasing decisions. MIT are now trying to define a formula and metrics which can be followed to ensure that this can be tracked.

As too their “discovery” my response was to cast dispersions on how often they got out. As to the formula and metrics, I hope they fail miserably.

Relationships, the anti-metric

What’s funny is they could have saved themselves hours of computing time by going to any car dealership. In every dealership there are a handful of sales guys who have been there the longest that do the bulk of the business. Why is this? Relationships. The guys who have been in a market and industry the longest are normally the most successful. It’s always struck me as odd that even knowing this, sales guys tend to move companies every couple of years.

Alright, I concede that although the MIT crunchers would have discovered that relationships drive sales they wouldn’t have been able to distill the evidence into a definable, trackable, enforceable metric. You can’t track the power or reach of relationships, there are too many variables. The more subjective variables you add the further the model drifts from reality. The only fact that is attributable to relationships in the sales cycle is the fundamental one that those with lots of them tend to sell more.

I’m really not against metrics.

Don’t get me wrong, metrics are very useful. They help you define what type of forest you are in, what season it is and the position of the sun. My concern is when companies and managers focus solely on the metric at the expense of the forest.

I have worked for many companies who focus solely on one tree and didn’t understand how that tree related to the forest. The presumption is that if a defined metric has distilled the forest to a tree then the reverse must be true. It isn’t. I can cite multiple examples where 15 phone calls in a day sold as much as the required 20, where 1 visit to an account a quarter was appropriate even though their quarterly revenues, according to the metric, called for 3 visits.

One company I know was astonished when a particular campaign failed to achieve it’s goal. They were astonished because all the preeminent business school theories on the subject they subscribed to implied that if (a) was executed then (b) would happen. What the theory had not communicated, or possibly left out, was the impact of the relationship the company had with the consumer.

Relationships and metrics, together in perfect harmony.

There are tools and techniques that can be used to build relationships and then leverage them to generate revenue. However they can only be used if the relationship is built first. It’s like learning how to swim by watching Michael Phelps. You can learn all the advanced techniques you like but until you get in the water they’re useless.

I was talking to a friend who is a retail store manager. This particular chain sells extended warranties with their product and they require a minimum closing ratio from the sales associates. They have training workshops, role playing guides and bullet points all designed to have a their associates at an equal level of competence. Their pitch to the associates is that if you follow the plan outlined you will sell extended warranties. If this is true then why is there variance in the closing ratios of different associates in the same store. Simple, relationships.

Here’s the line used by the sales associate with the highest closing ratio for extended warranties in the region.

“Do you want an extended warranty?”

Why does that work for him? Relationship.

Relationships first, cleverness second

Without a basic relationship all the metric improving, funnel filling, sales tracking procedures will not drive more sales or users. Once you have that relationsip, once the consumer is engaged with you in some way beyond stumbling into the store or site, then the metric driven side of sales growth becomes applicable. Not before, after.