Physicists, Piano Tuners, and Market Research

Don't expect most scientists to admit it, but a physics technique called the Fermi Question provides a quick and simple way for business people to determine whether a new market is large enough to be profitable.

Enrico Fermi was one of most well-rounded physicists of the last century, a Nobel Prize winner who was able to switch from practical to theoretical and back to practical, and make it look easy.

Until his death in 1954, Enrico taught the estimating technique that now bears his name. In the absence of definite knowledge or an exact answer, a Fermi Question’s goal is to obtain an informed estimate by making reasonable assumptions.

Fermi would demand that his students at the University of Chicago explain to him how many grains of sand are on the world’s beaches. How far can a crow fly without stopping? How many atoms of Caesar’s last breath do you inhale with each lungful of air? How many piano tuners are there in Chicago?

Fermi Questions required students to use their understanding of the world, and their everyday experience, to make rough approximations in areas of which they had no knowledge.

But as I said, you and I will find the Fermi Question quite valuable as a business tool.

Let's use Fermi’s classic piano tuner question as an example.

Assume that you’re a young piano tuner. You’re about to set off into the world to seek your fortune.

Your favorite uncle lives in Chicago. He says you’re welcome to come stay with him while you get your piano tuning business off the ground. Shall we analyze the market potential before you accept his offer and open a piano tuning business in Chicago?

Start with the population of Chicago: according to estimates from the most recent U.S. Census, roughly 9,400,000 people live in the greater Chicago metro area.

The Census Bureau also helps us estimate that there are two and a half people per average household. Therefore Chicago is home to 3,760,000 families.

Fifty years ago one home in four had a piano, but since the Beatles burst on the music scene, people don’t gather ‘round the piano to sing, anymore. Shall we assume that only one household in 30 owns a piano today? That would lead us to conclude that there are 125,333 pianos in Chicago.

Some performers with critical ears may demand tuning at each changing of the seasons. Those owners are likely offset by others who own a piano, but never tune it. On the average, a fair assumption might be that each of those 125,333 pianos in Chicago are tuned once per year – 125,333 piano tunings per year.

Allowing for commute time across the greater Chicago metro area, perhaps a fair estimate is that a technician can tune three pianos each day. If he works a five-day, fifty-week year, each tuner could service 750 pianos each year.

Divide 125,333 pianos by 750 tunings, and there appears to be enough work to employ 167 piano tuners.

How close did we come?

A quick look at switchboard.com under "piano servicing and tuning" tells us that 126 businesses in the greater Chicago area offer piano tuning.

How many tuners operate out of each business?

We should perhaps gather some hard data on this one with a few phone calls, but if one third employed two tuners, and the other two thirds employed only one, the average would be one and a third tuners per piano servicing business: 164 piano tuners competing in a market which appears to have enough work to employ 167.

Not bad.

Maybe our next step should be to ask for price quotes from future competitors. Then we could determine whether one could make a living performing 750 piano tunings per year. But regardless of the conclusion, we were able to make an informed decision with a couple of quick Google searches and about ten minutes of "think time."

The Fermi Question won't tell you with absolute accuracy whether a business proposition is feasible, but it can quickly provide a ballpark figure to eliminate those which can't work.

Using this technique, could you quickly estimate the number of life insurance salespeople that could make a living in Phoenix? The number of profitable convenience stores in Pensacola? The number of brew pubs in Raleigh?

Would application of the Fermi Question help you to determine whether your bedding store should expand into sofas and loveseats?

Could you make a better decision about whether an additional salesperson could generate enough sales to cover his salary?

Might you use estimates like these to help you decide whether it makes sense to approach your primary competitor with a buyout offer?

I’m not suggesting that you don’t need hard data. I’m a major proponent of acquiring as much market data as is available, or that you can afford. You’d agree, though, wouldn't you, that when the data’s not available, an informed estimate beats an uninformed guess every time?

Tell the physicists to move over. We're co-opting one of their tools.

---

Chuck's Fermi Contest: I'm posing my own Fermi Question.

The Question: How many gas stations are likely to be open for business in Mineral Wells, Texas?

Submit the first reasonable answer, with the logic it took to arrive at your conclusion, and win a copy of Call To Action: Secret Formulas To Improve Online Results, the new book by Bryan and Jeffrey Eisenberg, owners of Future NOW, Inc. and Wizard of Ads^® Partners.

My e-mail address is: ChuckMcKay@fishingforcustomers.com.

---

Oh, and don't be mislead by the internet applications. Call To Action contains some of the best customer-focused business advice I've read. Your "bricks and mortar" company will benefit from the suggestions in this book.

As we speak, Call To Action has hit the major best seller lists. It is:

Number 4 on the USA Today Money list.
Number 4 on the Wall Street Journal Business list.
Number 14 on the New York Times Hardcover Advice Best-Seller list.

This is all the more remarkable when you realize that the Eisenbergs made their book a best seller without bookstore distribution. So far, over 90% of the copies sold were internet transactions.

Send This Page To A Friend

Read more!

Love And Indifference, Part 3

In Love And Indifference, Part 1 we learned that there are actually three groups of customers that do business with you, and they can be sorted by their personal experience with your company.

You'll find those whom you've thrilled with your customer service are recommending you to their friends. Call them Customer Evangelists. Those at the other end of the emotional scale, whom you can expect to say negative things about you, we're calling Vigilante Customers.

And the group in the middle? Those who's basic expectations have been met? Nothing more, nothing less? Call them Passive Customers.

Passive Customers probably make up the majority of the folks who do business with you. They find you convenient, or someone else inconvenient, or maybe they buy from you because the cost of changing from you to a competitor is too high (in dollars, in inconvenience, or any other measure of value).

Make no mistake, these are not loyal customers. They're here for now, because it's less trouble than not being here. And yet, as the largest single group, these are the customers that most businesses count on for future growth. See the danger?

Passive Customers are neither going to bring you any referred business, nor cost you any. And the bad word-of-mouth of the Vigilante Customers is easily going to cancel out the positive recommendations of an equal number of Customer Evangelists.

This means you absolutley must have more Customer Evangelists than Vigilante Customers. Many more.

How many do you have? And how many more do you need? Those are numbers worth tracking, aren't they? But how? How do you track the net positive effect of those Customer Evangelists who haven't been cancelled by Vigilante Customers?

You're going to do it by asking if they are willing to put their personal reputation and credibility on the line by recommending you. You're going to ask customers to answer a simple, one-question survey of satisfaction. Give it to them at the conclusion of each transaction with your company.

The question?

"On a scale of zero to ten, how likely are you to recommend us to your friends?"

That's it. One simple question.

Your results will be more accurate if your customers are allowed to remain anonymous. Make sure that they know zero means "absolutely no chance it will happen," and ten means "Count on me telling everyone I know."

When you've tabulated a significant number of customer transactions, you'll score the survey. Customer scores from zero through six you'll put in the Vigilante Customer column. Scores of seven or eight get tabulated as Passive Customers. Those who've rated their experience with your company high enough to recommend you to their friends, the nines and tens, will be counted as Customer Evangelists.

Now add the columns. Put the total of Passive Customers aside. Subtract the Vigilante Customers from the Customer Evangelists. Express the result as a percentage of the total number of survey respondents.

This is the Magic Number that foretells your company's future.

The median score for most businesses is a mere 16%, but high-growth companies will score 75% - 80%. If your score is below zero, start printing your resume, find a buyer, and get out, quick.

This single-question customer satisfaction survey is too simple not to use, and too important to ignore. Knowing your Magic Number is the surest way to manage the future financial health of your company.

When you mail invoices, enclose a post card that your customers can fill out anonymously and mail back. Hand that post card to customers who've just made a purchase. Ask them to circle the appropriate number and to anonymously drop the card into a padlocked box. As you finish dealing with customers over the phone, ask them to answer a one-question survey, switch the calls to an answering machine with the question, and record the answer. Place a pop-up questionnaire on your web site - one question, no personal information. If you're gutsy, you can even go to your competitors businesses and conduct quick exit polls of their customers to see how satisfied his customers are, and compare.

Implement the survey. Get the information. Use it. Resist the temptation to add more questions. You'll kill the response rate. This is not market research, it's a management tool.

Keep a running total and share the current numbers with your employees. Tell 'em the number of Vigilante Customers, the number of Passive Customers, and the number of Customer Evangelists, as well as the Magic Number for last week, or last month, or yesterday... whatever adds up to enough responses for an accurate sampling.

Ask your staff for great customer service stories. Share them with the other employees. Reward exceptional customer service.

Disappointed in your score? Time to re-focus on how to delight your customers and exceed their expectations. Make them eager to spread the word about their experience with you.

Some companies make this Magic Number the crucial measure of employee competence. Enterprise Rent-A-Car, for instance, refuses to promote branch managers who's branch scores are below the company average.

As happened in Love And Indifference, Part 2, serendipity again stepped in with another example. About an hour ago, the lovely Mrs. McKay got an e-mail from Blockbuster Online:

"Hello Allyson, you may have noticed a delay in the shipment of your DVDs early last week. And, by now, we hope you're enjoying the extra discs we sent you as a token of our appreciation of your patience. Once we identified and fixed the problem that caused your delay, we immediately sent you TWICE the number of titles you were to have received. We realize the extra DVDs may temporarily find you with more movies out than typically allowed by your rental plan. Simply enjoy the extra movies and return them at your convenience."

Delight? Absolutely. Exceeding expectations? No Doubt.

Pity they didn't ask her how likely she is to recommend them to her friends.

Then again, perhaps they will.

Click here for Love And Indifference, Part 2

Click here for Love And Indifference, Part 1

Send This Page To A Friend

Read more!

Love And Indifference, Part 2

I had just posted Love And Indifference, when two oddly-related things happened. First, my copy of Mike Dandridge’s book, Thinking Outside The Bulb, The Art of Creating an Amazing Customer Experience, arrived in the mail.

In chapter 48 of Thinking Outside The Bulb, Mike stated:

“Satisfaction is the bare minimum, the baseline, for customer retention, but it’s no guarantee of your customer’s business tomorrow. Think about it this way, your customer can be satisfied with your company and your competitors at the same time.

“Customer satisfaction simply isn’t enough to keep your clients from switching to a competitor when they perceive a better offer. Note that “better offer” doesn’t always mean cheaper price. In fact, though price may sometimes drive a customer to make the initial purchase from a business, it has almost no effect on retaining that same customer.

“So what keeps customers coming back? According to Gallup surveys, customer loyalty is the main component that drives repeat purchases. And what’s the biggest factor in building customer loyalty?

“You are.

“Gallup found that customers who felt “strongly positive” about the people they bought from were twelve times more likely to continue to buy.”

Then, a matter of hours later, Jeff Eisenberg, co-author of Persuasive On-Line Copywriting and the just published Call To Action, sent me a copy of a Fredrick Reichheld article titled The One Number You Need To Grow, published by the Harvard Business review.

Reichheld reported the results of a study in which the satisfaction of 4,000 individuals was compared to their purchase history over a six to twelve month period.

“First, a definition. Loyalty is the willingness of someone – a customer, an employee, a friend – to make an investment or personal sacrifice in order to strengthen a relationship. For a customer, that can mean sticking with a supplier who treats him well and gives him good value in the long term even if the supplier does not offer the best price in a particular transaction.

“Consequently, customer loyalty is about much more than repeat purchases. Indeed, even someone who buys again and again from the same company may not necessarily be loyal to that company but instead may be trapped by inertia, indifference, or exit barriers erected by the company of circumstance.…Conversely, a loyal customer may not make frequent repeat purchases because of a reduced need for a product or service.”

Reichheld concluded:

“Loyal customers talk up a company to their friends, family, and colleagues. In fact, such a recommendation is one of the best indicators of loyalty because of the customer’s sacrifice, if you will, in making the recommendation. When customers act as references, they do more than indicate they’ve received good economic value from the company; they put their own reputations on the line. And they will risk those reputations only if they feel intense loyalty. …

“The tendency of loyal customers to bring in new customers – at no charge to the company – is particularly beneficial as a company grows, especially if it operates in a mature industry. In such a case, the tremendous marketing costs of acquiring each new customer through advertising and other promotions make it hard to grow profitably. In fact, the only path to profitable growth may lie in a company’s ability to get it’s loyal customers to become, in effect, its marketing department.”

Very interesting. How does one go about turning satisfied customers into your company’s marketing department?

You won't find the answer in a "customer loyalty program."

Dandridge gave us two clues: "you are the biggest factor in building customer loyalty." and "customers who felt 'strongly positive' about the people they bought from were twelve times more likely to continue to buy."

We'll be discussing the answer, and it's implementation, in Part 3 of Love and Indifference.

Click here for Love And Indifference, Part 3

Click here for Love And Indifference, Part 1

Send This Page To A Friend

Read more!

When You Lie To Prospects

We all carry around fragments of things we almost remember. For instance, I can just about recall a statement David Ogilvy made in the late 70's. I've been a fan of Ogilvy since I happened across a copy of Confessions Of An Advertising Man in Bismarck, North Dakota's Owl Bookstore back in 1975.

As I recall, (and this entire statement is subject to revision when I finally find the exact quote) Ogilvy was addressing the American Association of Advertising Agencies when he said "There isn't a school of advertising worth a damn* anywhere in the world, and I'll contribute the first $10,000 if someone will start one."

He later commented that making such an outrageous statement at least twice per decade is enough to keep any public figure in the public eye.

Perhaps the owners of Salary Dot Com are also fans of David O. It seems that they also make outrageous statements for publicity purposes. Shall we look at their statement?

On Monday, May 2, Salary Dot Com claimed that, based on the work she performs, the average stay-at-home Mom should be earning $131,471 per year.

As you may expect, this statement got them publicity. I became aware of it on a segment of Good Morning America.

However, I'm one of those skeptical types who just can't accept any claim without doing the math.** (My friends frequently don't appreciate this aspect of my personality. My clients usually do).

Salary Dot Com made some assumptions: that without any preparation for the job, without training, without a degree or a license, without a demonstration of skills or even references, they have assumed an entry level mother should receive a base pay of $21.73 per hour. They then assume she'll put in 54 hours of overtime per week. Yougottabekiddinme.

The article further assumes two school-aged children. What does Mom do while they're in school? Doesn't Dad have any interraction with his kids? Mom has sole custody, never takes a break, and she and the kids never go to sleep? At $32.60 per overtime hour we need to start docking this woman for television time, telephone time, and the time it takes to read an occasional Redbook.

And finally, Salary Dot Com has assumed that our entry-level Mom could find simultaneous part-time jobs in the workforce as a nurse, and as a daycare center teacher, as a chauffeur, and as a CEO... with no training or experience in any of these careers... while earning as much as people who have chosen those career paths and work those jobs full time. I personally know several CEOs who earn much less than the $612,623 assumed by Salary Dot Com. I would also ask for validation of their assumed salaries for "van driver," "nurse," and "general maintenance worker."

Ok... I reject their assumptions, which means that I also reject their conclusion. Everything from this point forward is based on my observations of the workforce. Your actual milage may vary.

Without training or demonstrable skills a person accepting an entry-level job can expect to start at about $7.00 per hour. Annual salary based on a forty-hour week equals $14,000. As for overtime, shall we be generous and say 25 hours a week? At time and a half ($10.50/hour) add another $13,650 per year.

That's a total of $27,650 for a live-in housekeeper, cook, and babysitter. I'm reasonably sure that a typical family could find such a person on the open market.

Of course, we'd probably have to deduct our live-in housekeeper, cook, and babysitter's clothing, her automobile, it's insurance, her health insurance, and her retirement program. Oh, and let's not forget that as an employee she wouldn't be entitled to half of Dad's net worth.

$131,470 per year my... foot.

Verisimilitude. The appearance of truth.

We started this essay discussing partial memories. If you only remember part of what I wrote today, please remember this: Chuck McKay is not anti-stay-at-home-mom. My mother was a single parent long before it became fashionable. We'd have loved for her to be able to stay at home.

My purpose in writing this is to point out that Salary Dot Com has made an irrational claim that they can't validate.

In other words, they lied.

They might call it a promotional stunt. I call it lying.

I can no longer trust any information posted on their site.

This is what happens when you make unsubstantiated claims which don't "ring true" with people's life experiences. They believe that you lied. They conclude that you can't be trusted. They quietly decide to never do business with you.

_____________________________________________________

* I wonder what David Ogilvy would have thought of Wizard Academy.

** I also do the math on public service announcements. Nearly as I can tell, based on the projections being made in the 80's, the last square mile of Brazilian rainforest disappeared in 1987, and the last American became homeless in 1998. It probably didn't make the news because the last American would have died of Aids two years earlier.

Send This Page To A Friend

Read more!

Love And Indifference, Part 1

You've heard it said that when you please a customer she'll tell an average of three other people, but when you disappoint her she'll tell twenty. It's not true. You may have even heard me say it. Sorry. It wasn't true then, either.

Oh, you can bank on the part about unhappy customers telling twenty friends. But you see, it's not the happy customers, but rather the customers who have merely had their basic expectations met, who will tell three others.

It comes down to personal experience doesn't it? When you thrill shoppers with their purchases and the way they are treated, they are likely to become customer evangelists. They'll be out preaching the gospel of your company and winning converts to whatever the degree of their persuasiveness. Will they tell twenty others? Highly probable.

But the extremely displeased group turn into vigilante customers. In their minds they've been wronged. You could just as well have "Wanted, Dead or Alive" posters up with your name on 'em, 'cause they're out to get'cha. Tell twenty more? Count on it.

Is the opposite of love, hate? Nope. Love and hate are very much the same. Both are expressions of extreme emotional involvement with someone else. As any small child instinctively understands, the opposite of love is being ignored. The opposite of love is indifference.

And we certainly have enough indifferent customers. They form the third group: those who's expectations have been neither exceeded nor violated. Because they don't complain, you've been assuming that they're happy. They are not. They're merely indifferent. They don't love you. They don't hate you. Mostly, they just don't care that much.

When asked "where did you buy that?" they'll likely mention your store. Then, because they have no emotional involvement, they'll forget about you. Tell three? If you're lucky. Quite possibly they won't think about recommending you at all.

Unless, of course, you manage to thrill them, to delight them, to please them to the point that they can't wait to tell everyone they know about their personal experience with you.

How much delight can you offer?

Click here for Love And Indifference, Part 2

---

Earlier today, Bryan and Jeff Eisenberg's new book, Call to Action: Secret Formulas to Improve Online Results, went on sale at Amazon Dot Com and has already shot to fifth place on Amazon's best-seller list.

Download a few sample chapters and see for yourself why this book may be one of the most important you read this year.

Send This Page To A Friend

Read more!

Somebody Tell Lord Leverhulme.

"Half of my advertising is wasted, and the trouble is, I don't know which half." I've seen that quote attributed to a great number of people. My research indicates these words to have been first uttered by William Hesketh Lever (1821-1925), the 1st Lord Leverhulme. He was better known on this side of the pond as one of the original Lever Brothers.

Marketers today still wonder what he wondered. Which half is wasted?

At the risk of sounding arrogant, I know.

Let me explain.

The seminal study of media usage was conducted by the legendary researcher Alfred Politz in February of 1966: The Politz Study Of New York Radio.

Politz studied the patterns of listening to the top ten radio stations in New York City. He detailed the number of people who listened to the radio for one quarter hour per week, the number who listen for two quarter hours per week, and so on, through the heaviest users. He then collapsed the listener distribution data into quintiles (equal fifths).

Until Politz published his study, media buyers only needed two basic figures: the number of people who tuned in at least once each week, (cume persons) and the number who were listening at any given point in time (average quarter hour persons). Fairly straight ahead math could then be used to calculate how long (Time Spent Listening) the average listener tuned in.

Before 1966 media buyers were satisfied to know that the average listener tuned in for, say, 20 hours per week. After the Poliz study we learned that the heaviest users, (the top 20%), will stick with their favorite station for a full 60 hours per week. At the other extreme the lightest quintile would listen for only 2 hours per week.

Within each quintile the average listening might look like:

60 hours

21 hours

11 hours

6 hours

2 hours

20 hour average

Other studies confirmed that consumers of other media were also not equal. This same pattern occurs in television viewing, reading of newspapers and magazines, and even the reading of outdoor signs. Each medium has very heavy consumption at the top quintile, which grows progressively lighter as each additional quintile enters the equation.

Politz made us aware that every single consumer was a different human being. Some were heavy users of media. Some not so much.

The next step in our understanding came in 1979 when Mike Naples authored Effective Frequency, The Relationship Between Frequency And Advertising Effectiveness.

In a project commissioned by the Association of National Advertisers, Naples evaluated the data from a number of existing studies of consumer behavior. He concluded that the first and second exposures to any ad were not effective in persuading a shopper to buy. Naples stated:

"By and large, optimal exposure frequency appears to be at least three exposures within a purchase cycle." He concluded "The central goal of productive media planning should be to place emphasis in enhancing frequency rather than reach."

Media planners everywhere started combining Naples goal of three exposures with Politz audience distribution observations. The new Holy Grail (and 80's media buzzword) became "Effective Frequency."

Using the ratings services cume persons and quarter hour average persons, along with the math developed by Group W Radio from the Politz study, media buyers determined that there is an optimum number of exposures to an advertising message for each listening audience. *

Let's explain the concept with a hypothetical radio station. Our hypothetical station has 111,800 cume persons listening each week, and 16,700 average persons of during during weekday prime time. These 111,800 people listen for an average of 5 hours per week. The optimum number of ads to reach this audience is 17 per week.

That schedule of 17 ads should reach 84,705 different listeners at least once. It will completely miss the remaining 27,095. Of those who do hear the ads, 21,646 of those listeners will hear only a single ad. 12,825 listeners will hear only 2 of them. Thus, the Effective Reach, the number of listeners who will hear 3 or more ads, will be 50,234, or roughly 40% of the cume. That makes sense. Here's why.

Achieving an effective frequency of 3 with each of these five quintiles of listeners requires a schedule of:

First Quintile: 3 ads.

Second Quintile: 17 ads.

Third Quintile: 29 ads.

Fourth Quintile: 53 ads.

Fifth Quintile: 184 ads.

Humm. Let's start with the bottom quintile. What do you pay per ad? How much would you have to pay for 184 ads per week? I'm willing to wager that you can't afford a long term schedule of 184 exposures per week.

Perhaps you could stretch the budget enough to afford 53 ads. That's a schedule which could motivate the fourth quintile. Congratulations. You've broadcast enough ads to persuade quintiles one, two, three, and four.

Of course, we now have another problem.

The first quintile only needed 3 ads to "get it." Run 50 additional ads per week once they understand your message, and it's highly probable that you'll irritate those listeners. Annoy them this much and they'll refuse to do business with you. Somewhere around ad number 17 they'll split to some other radio station. **

Dogone it, you're just never going to get them all. Customize your schedule for the heavy listeners and the light listeners will miss your ads. Plan to impact light listeners and you'll repel heavy listeners. From one end or the other, you're going to miss half.

OK. Which half should we attempt to reach?

Wizard Of Ads ^® Senior Partner Roy H. Williams suggests that on most radio stations 21 ads (plus or minus 2), each week will give you the greatest impact from the least number of dollars invested. You will effectively reach about half of that station's audience.

Of course, you're going to miss the other half of the station's audience. There's no way around it.

Question: On which of the listeners is the advertising "wasted?"
Answer: Any that won't be exposed to our ad three or more times.

Somebody tell Lord Leverhulme that we have his answer.

We're going to reach quintile one, quintile two, and about half of quintile three. We're going to "waste" our ads on the other half of quintile three, and all of quintiles four and five.

However, some good news: the light users of one radio station tend to be the heavy users of another. And the average listener tunes into 3.6 stations per week. Find stations which share the same cume listeners, run 21 ads per week on each, and start getting spectacular results - assuming, of course, that your message is compelling and your offer is appealing.

Oh, and one final caveat. Depending upon the purchase cycle, as few as 2% of those people will be "in the market" on any given week. You'll need to run this schedule next week to get the people who are ready to buy next week. You'll need to run it the week after that to reach the people who are ready to buy that week. You'll need to... well, you understand. You'll need to run it every week that you intend to stay open for business.

---

* All figures based on Radio's New Math, © 1978 Group W Radio.

---

** Program Directors HATE ads which run in double digits daily. Of course, Program Directors also know that about the time the Disc Jockeys say that they'll puke if that song plays again, the listeners are just learning the words. Through the nature of their jobs Disc Jockeys have long Times Spent Listening.

---

Are you a radio professional who wants to make radio incredibly effective for your clients? Let me recommend Radio In The 21st Century, July 14 and 15 at Wizard Academy near Austin,
Texas.

In a whirlwind 48-hours meticulously designed for radio people, Wizard Of Ads ^® partners Ron Covert and Walt Koschnitzke combine their decades of radio management experience and extensive training to help you improve your selling, ad writing, and management skills.

Don't be left out. The 2-day course is limited to the first 20 students.

Send This Page To A Friend

Read more!