Blog Archives - Peter Lofrumento & Associates

Rethinking Your Competition

September 5, 2019 // by Peter LoFrumento// Leave a Comment

When It’s No Longer Who You Think It Is

Have you ever wondered why making dinner reservations on OpenTable is so easy while trying to get your cable company – like Optimum or Comcast – to answer billing questions is as painful as pulling a bad tooth?

Apples-to-oranges comparisons like this are quickly becoming the hallmark of how customers are judging brand experiences.

Image result for apple to orange comparison

Case in point: we were recently asked to evaluate customer brand experiences for a leading financial software company. Typically, you’d expect these customers to rate their experiences against their encounters with similar software companies.

But that’s not what happened.

Most customers took a broader view in their ratings approach.

When asked about their brand experiences with our client, customers made comparisons to account monitoring programs at American Express and earning rewards benefits similar to Amazon Prime.

Customers have begun to expect the same high standard consumer experience across brands.

Grant it, this is a small snapshot.

But perhaps it offers us a glimpse into a larger movement underway, often referred to as liquid expectations, where customer experiences with one brand seep into their expectations of another. It’s experience based on a much broader view of how they spend their money.

The implication for your brand of such a radical shift in customer expectation is clear: customers will compare their experiences with your brand to their experiences with OpenTable, Amazon and Starbucks, even if you sell financial software, car insurance or commercial real estate.

In fact, it may no longer just be the direct competitor right in front of you that you should be most worried about.

But what can brands do to meet these evolving customer expectations?

A good start is to redefine your competition.

In our case, we helped our client to identify those companies outside of their direct competitors who are innovating in ways that could be adaptable to expanding their customer service programs.

The idea is not to provide a similar service, per se, but a similar experience which results in a positive brand response.

If you’re a CEO, COO, CMO or brand manager, here are few ways to navigate your customers’ liquid expectations and keep your brand competitive:

1) Expand your approach: when creating brand experiences, look beyond your industry to see where else your customers are engaging and adapt.

For instance, not only did Uber upend the personal transport industry, but through UberEats, it helped create the on-demand expectation for food from sit-down restaurants. Uber effectively created a more fast and convenient way of accessing this new category.

2) Innovate: customers are now judging brand experiences based on what they see as possible in other industries. As your brand’s manager, consider doing the same. Look to other industries and adapt their innovation as a way of increasing personalized brand experiences.

3) Don’t fear Disruption: it remains an effective competitive tool. Take charge to reshape these expectations so you can foster greater brand engagement and loyalty.

Consider Vans sneakers, a brand that had been struggling over the last few years. It recently made a pop culture comeback with new online offerings that allow customers to create their own designs.

The take-away: Customers now crave brands that offer products and services which combine the convenient and intuitive. If your brand is not evolving to meet this demand, you’re only frustrating would-be buyers.

To be more competitive, don’t simply focus on your industry. Instead, actively listen to your customers to determine what they are engaged in; remember, the real competition isn’t next door, it’s wherever your customers are spending the most time and money.

Image result for cable companies customer

Optimum and Comcast, are you listening?

Talk Ain’t Cheap, It’s Priceless

August 28, 2019 // by Peter LoFrumento// Leave a Comment

How Private Equity Can Use Better Branding

Imagine that the former face of your prominent private equity firm is now more famous for lurid emails to his female assistants, losing important deals to competitors and telling everyone that you fired him after he quit.

Suddenly, your house is ablaze and what you say and how you say it becomes the difference between a severely damaged reputation and your firm’s future growth.

While this true-to-life example comes from a recent situation in which I was asked to consult, it highlights why brand building and communications have become more important than ever for private equity firms.

Think about it: if your firm has a strong brand, then you can withstand such reputational crises, fend off competitors and quickly regain a foothold with proper assistance.

Based on my experience, I’ll go further and suggest that a strong brand helps private equity firms source the best deals, raise the most capital and attract the most desirable employees.

It directly translates into higher awareness, greater cache and stronger deal flow. A strong brand can even result in proprietary deal flow, which means fewer of those troublesome auctions.

The downside to not having a strong brand? Private equity firms that ignore branding and effective communications put themselves at risk of competing solely on price (valuation and terms).

And please don’t confuse branding with making a cosmetic fix.

For example, remember when Bill Ackman’s Pershing Square Capital Management tried to ditch the term hedge fund for the less evil-sounding alternative asset manager? Or when Cliff Asness’s AQR Capital rebranded itself as a diversified asset management company, which came across as sounding so broad as to be meaningless to everyone within an earshot?

These days, due to the proliferation of dry powder and fierce deal competition, it continues to be a seller’s market. So it’s difficult for firms to find quality businesses at price points where their risk-adjusted target rates of return on invested capital are reasonable.

As a result, asset managers face increasing demands from stakeholders. And success is no longer just about returns, but figuring out how to differentiate your firm from the competition and then successfully communicate these advantages to limited partners, portfolio companies, investors, prospects and media.

Getting the best deals is no longer just about competing on price, but on what longer term strategic advantages your firm offers.

This is why private equity firms can benefit from better branding and communications.

Now, how do you accomplish that?

Whether you are in private equity or another business, the process is the same.

To start, be aware of the effective branding trends that are occurring in your industry, and then address them head on.

Here are a few to consider:

1) If you think you are communicating enough with your stakeholders, you’re probably not

These days, your stakeholders, especially investors and limited partners, are demanding proactive and transparent communication.

Don’t be fooled, they know you only call when it’s time to fundraise.

Further, their appetite for information is growing more insatiable. They want information about the portfolio companies in which you invest, from the management teams and competition, to market developments and diversity (an ever-growing concern for those firms whose clients include state and federal pension funds).

2) Differentiate or die

Ok, that’s a bit strong. But since competition is so fierce right now in fundraising and throughout the bidding process, private equity firms must develop and grow their brands or get lost in the clutter.

This means you have to clearly articulate your vision and values to stakeholders in order to win. Capitalize on positive news and demonstrate your expertise to everyone who matters.

A good place to start is refining your investment philosophy and identifying those core values that support it and allow your firm to deliver. Don’t simply focus on what everyone else does – past performance, transparency, excellence. Sure they’re important, but what will really set your firm apart from the clutter are those unique qualities that really position you as different and THE best alternative to the competition.

Also, keep in mind that these qualities have to be based in reality. In other words, demonstrable. Just because you say it, doesn’t make it so.

For instance, consider Goldman Sachs’ odd attempt at rebranding itself as a startup tech company. If Lloyd Blankfein’s pronouncements about being “a technology firm” or “a platform” didn’t convince you, then you had the same reaction as everyone else (Goldman is now a what??).

We can certainly credit them with trying, but it’s hard to create such a quick transformational narrative around a 149-year-old bank as being hip without doing the necessary branding work to get you there.

Don’t make the same mistake. Do the work.

For example, for our challenged PE client mentioned earlier, we conducted objective, third-party branding exercises to hone their messaging and narrative, developed a thought leadership program and identified key differentiating attributes. We then used this information to help reposition our client among its competitors to drive business.

3) It’s about your portfolio companies, not just you

Certainly, the most effective way your private equity firm can demonstrate its performance is through the success of its portfolio companies. So use these successes as opportunities to articulate how your firm is supporting these investments.

This kind of information can boost deal flow, better position your firm as a leader in its field and help recruit the best talent.

4) Channeling success

Picking the right channels to highlight the value your firm brings to limited partners, portfolio companies and other industry stakeholders is as important as your message.

Whether it’s through the media, your website, thought leadership content, social networks or conference appearances, the question to ask is where are my prospective investors and partners consuming information?

That’s where you should be.

As private equity firms increasingly have to compete for dollars and deals, finding a way for your firm to stand out is now more critical to success than ever.

Branding and communications will enable you to differentiate yourself from the competition, and that means being bigger, bolder and braver in your approach.

Remember, what you say and how you say it matters to your stakeholders.

It’s priceless.

Brand Down: When Your Boss Gets The Boot

August 14, 2019 // by Peter LoFrumento// Leave a Comment

Sometimes in business the signs of things to come are right in front of us.

This was the case recently when I was asked to assist the communications department of a prominent lifestyle services company with the sudden departure of their longtime senior executive.

Her departure followed a rash of similar unplanned high-profile transitions that seem to signal a period of waning CEO tenures.

They included Kevin Systrom (Instagram), Indra Nooyi (Pepsi), Matthias Müller (Volkswagen), Lloyd Blankfein (Goldman Sachs), Les Moonves (CBS), John Schnatter (Papa John’s) and Brian Krzanich (Intel).

Some of these chief executives were forced out, some exited having guided their companies to relatively solid success, and some simply retired.

But collectively, they serve as a useful wake-up call for board directors and managers who fail to appreciate the importance of having an effective plan to handle sudden executive changes.

In the case of Instagram, Systrom’s puzzling departure not only disrupted the social media network, but also caused a leadership void in the Facebook-Instagram pairing because Systrom, along with co-Founder Mike Krieger, had shaped virtually everything about Instagram’s culture and product for the past six years.

Where these cults of personality exist – companies whose reputations largely ride on one executive or a small group of them – the firm’s brand becomes particularly vulnerable following the sudden departure of a key executive (a.k.a key man risk).

This is because the event itself creates a notion of instability that not only affects a brand’s trustworthiness among customers, but provides a window of opportunity for competitors to maximize.

It’s much different when an existing CEO or key player announces ahead of time that he or she is exiting and their company has enough time to properly pick a successor and message appropriately for a smoother transition.

But in the case of Instagram and numerous other companies where executive departures occur unexpectedly, there’s an immediate perception of a leadership vacuum, which stakeholders abhor.

And the longer there’s a vacancy in leadership, the more likely the media and your competitors will control your company’s narrative and in turn, negatively impact your brand’s reputation.

Just think about the stories that typically follow a leader’s abrupt departure which feature allegations of customer unrest, poor performance and declining employee morale.

If your company is facing this difficult scenario, there are few steps you can take to avoid damaging your brand:

1. Communicate who is in charge. You need to reassure stakeholders that someone has their hands on the wheel.

That is, the company’s continuity remains uninterrupted. It’s business as usual messaging for stakeholders and the media.

Also, keep in mind that an interim appointment can go a long way to ensuring a smoother period of uncertainty while you search for a new leader.

Setting the tone for an executive exit is as important as planning an entrance strategy for a new leader.

2. Don’t forget your employees. They are your first and best line of defense, especially when dealing with your business partners, customers and social media.

Realize that they are getting calls, emails and texts, and are having social media interactions with your stakeholders and public as these situations unfold.

Use this to your advantage by being proactive: meet with key department heads and managers to ensure they have the right messaging for their staffs. Supporting those most impacted by the change goes a long way to maintaining business continuity.

3. Remember your brand. Your brand is not just the products it sells; it is also the image it creates in the minds of potential customers.

And more often than not, a CEO embodies the company image, and his or her departure can signal a major change in the brand’s promise.

Remember what happened when Steve Jobs returned to Apple in 1997? Jobs’ success turning Apple around and making the brand synonymous with technical innovation also made it synonymous with him. When he fell ill, Apple’s sales and stock suffered with him. Since his passing, the company has struggled to recover in the areas of innovation, performance and public perception.

To mitigate these effects, it’s important to remember that your messaging must be consistent with your brand’s tone and voice.

At best, your messaging should:

* be authentic and complement – not conflict with – the business brand;

* be as positive and affirming as possible given your particular circumstances;

* be obvious both internally to the company and externally to the public.

The Takeaway: Think Outside the Box

When a CEO or key executive leaves your company, the likelihood that your brand takes a hit grows exponentially the longer you fail to address the situation.

Instead of traditional reputation management practices, think outside the box by taking the offensive and immediately showing how your management team is actively engaging partners, customers and employees.

Faceless organizations are easy to turn into piñatas for your competitors and the media.

However, when you demonstrate care, your brand becomes more human. And then you can better control the narrative and curtail a larger brand crisis.

Now that’s a sign of something!

3 Tips to Being Pre-suasive

July 31, 2019 // by Peter LoFrumento// Leave a Comment

Getting Your Audience in the Right Frame of Mind

I was recently asked by a private equity company to help sell the launch of a new co-managed fund to prospective investors.

What a great opportunity to apply pre-suasion!

That’s right. Pre-suasion.

Whether you are in communications like me or a consumer, we’re all too aware of the typical persuasion tools – glowing testimonials, emotional tugs, last-chance opportunities — used to trumpet, convince and sell. Perhaps because they are effective, most of us miss the accompanying truth: for maximum impact, it’s not only what you do; it’s also what you do just before you do it.

In other words, pre-suasion is about how we can best set up a situation to be optimally persuasive. It’s about positioning our message in a way that puts our audience in the right frame of mind to take action.

Practically speaking, when we have a precise goal for a message, say in this instance launching a new fund, the before and during the exchange can have a significant effect on the outcome.

Here’s how: in trying to sell this fund to new investors, our challenge was one of establishing trust. Beyond numbers and sleek decks, it was about getting prospective investors to trust the management team enough to fork over tens of millions of dollars.

Part of encouraging this sense of trust, we structured our investor meetings into three parts: first, discussing a particular instance where the management team missed the mark on an investment; second, discussing their recent investment wins; and third, making the investment pitch for the new fund.

While this approach eventually resulted in a fully subscribed fund, it was the feedback that was particularly surprising: investors often used the words genuine and authentic when describing the management team.

The lesson here: by activating a concept in someone’s mind – for us, manifesting trustworthiness by discussing investment misses first – we’re increasing the importance of that concept (trust) for a short amount of time. This set the stage for persuasion to occur (pitching the investment).

Here are 3 tips to help your team step-up their marketing or sales game with pre-suasion, or simply be more aware of attempts to influence them:

1) Define Your Goal. Before each interaction, define what you want to emphasize. Ask yourself, what are my goals, and then support these with a specific anecdote, image or even a quote. Identify something specific that will reflect your goal and resonate with your audience. These are as your openers to attention in that they begin to move attention towards something while saying this is important to your audience.

2) Ensure alignment. Set up the situation so that the context you’ve chosen is aligned with your request.

For instance, if you want someone to try a new product, you could ask them if they consider themselves an adventurousperson beforehand. By having them think about the fact that they’re adventurous, they’ll be much more likely to comply with your request.

3) Identify commonalities. Tailor your pitch to each audience, always with your overall goals in mind. Identify commonalities up front with those involved in each setting. Consider such shared interests as core values, locations or charitable organizations. Highlighting these commonalities will not only make other individuals feel closer to you, but the process will also make you feel closer to them.

Final Take-a-way: Whether you’re trying to sell a new product or service, or seeking consensus during your Monday morning staff meeting, optimal persuasion can be more effectively achieved through optimal pre-suasion.

If you only concentrate on the message itself, then you’ve missed a crucial component of the persuasion process: the practice of getting your audience in the right frame of mind so they agree with your message before they know what’s in it.

When Winning Is A Curse

July 17, 2019 // by Peter LoFrumento// Leave a Comment

“Be careful what you wish for”…sound advice for any situation, especially in business.

Case in point: our firm was recently asked to assist in the auction of a notable music publishing catalog. The auction ran like most others – bidders were given a period of time for due diligence, which included reviewing the catalog’s financial performance.

While our client, the seller, was pleased with the financial outcome, something fascinating occurred.

The winning bidder did what you or I might do in a similar situation, especially if we really wanted the asset being auctioned: he outbid the nearest competition by close to ten percent.

But the winner’s victory dance was short-lived due to a phenomenon in game theory known as the winner’s curse. This occurs when a winner’s bid exceeds the intrinsic value of the asset purchased.

Think of it as a type of buyer’s remorse, but on steroids.

How did this happen, especially when the winning bidder had scores of executives, lawyers and accountants pouring over the asset prior to the auction?

There are two key reasons for succumbing to the winner’s curse: first, there’s always going to be a level of incomplete information, especially in auctions. In this case, the value of exploiting the catalog’s songs over time is, at best, an informed guess; and second, emotions can run high, especially in ultra-competitive situations where revenues, and egos, are on the line.

During our auction, both of these factors served to cloud the ability of the winning bidder to determine the catalog’s true intrinsic value. Not only did the winner’s curse reveal a flaw in the winner’s approach to auctions, but it provides a framework for us to understand why winning is not always the best outcome, and in this particular case, it would likely prove an unprofitable one.

Adverse Selection, a Song Sung Blue

Music catalog sales often operate as common value auctions. The rights to the music contained in the catalog have a common value to all of the bidders, which is equal to the current revenue its commercial exploitation generates. However, bidders will also estimate future earnings and do so differently, depending on what strategies they employ to exploit songs. Perhaps these songs will be featured in an upcoming movie or part of a Coca-Cola or Apple media campaign.

In our case, each bidder interpreted the available information in their own particular way, but not a single bidder had all of the information to know for sure how much money the rights to the catalog would eventually earn. After all, the appeal of songs is fickle at best, especially over the long run.

Moreover, competition for this catalog was fierce. It included a number of chart-topping songs, which attracted over a dozen bidders including music publishers and venture capital firms.

In the end, the winner forked over an amount other bidders likely thought preposterous. His overly inflated notion of projected returns from the exploitation of the catalog represented a form of valuation Viagra, which he used to justify such an excessive premium. Even though he won the catalog, he ended up overpaying for it.

Clearly the market (the other bidders) didn’t see the value of this catalog at his price. So his win proved too costly. If he were a more rational bidder, he would have anticipated this adverse selection, so that even though his information would still have been overly optimistic when he won, he wouldn’t have paid so much on average.

Getting a Hit, Shading your Bid

To avoid this type of mistake, make a more accurate assessment of an asset’s value and have the discipline not to bid more than that value. This requires establishing a walk-away price before making a bid. One way to accomplish this is to shade your bids. This means setting your opening bid at a fraction of your walk-away price based on competitive considerations. This will help account for the risk of overpaying.

Whether you are purchasing a music catalog, a new house, paid search on Google, or bidding on players in your Fantasy Baseball league, auctions can be profitable and fun. But the phenomenon of the winner’s curse can ensure that sometimes winning comes at too high a price.

So if you are not careful, you may get exactly what you wish (bid) for.

Everyone Has a Plan, Until They Get Punched in the Face

July 3, 2019 // by Peter LoFrumento// Leave a Comment

A Bolder Approach to Entrepreneurship

We got to hear a great deal from UFC superstar Connor McGregor in the weeks leading up to his epic boxing match against undefeated champion Floyd Mayweather.

We heard all about his plan to unseat the record-holding Mayweather using his superior mixed martial arts skills.

But then he got punched in the face.

McGregor’s loss reminded me of the quote from another champion boxer, Mike Tyson, about having plans. And while Tyson’s quote seems straight forward enough, it also packs a powerful punch for entrepreneurship today.

But let me back up for a quick moment.

Years ago, when I first decided to leave the more traditional forms of martial arts to try my hand at mixed martial arts (MMA), I figured I would be ahead of the curve.

After almost a decade of practicing Jiu-Jitsu, followed by several more years of Krav Maga, I was set to excel in MMA.

But soon after the bell rang at the start of my first match, I realized how ill-equipped I really was: you see, there’s no greater stress than staring into a 6’1” tattooed baldie on the other side of a tiny cage, ready to rip you in half. I’ll spare you the details, but for the following six weeks, friends lovingly called me stitches.

This left me confused.

How, after years of martial arts training, could I get beaten so badly? I thought back to those years and realized I was unprepared for the ring. I thought about how my teachers would always pair me up with people my own size for sparing, as opposed to those who were bigger and stronger. And there were so many things we weren’t allowed to do, like looping kicks to the face that transitioned into single leg take-downs, skills necessary to compete in MMA. You know, all the cool stuff!

I realized that I was learning how to defend myself, but in a very controlled setting, a bubble of sorts, and not really learning how to fight. I had no practice against realistic opponents with realistic attack moves. So ironically, the very training that I received to defend myself actually left me unable to succeed in the ring.

My training was flawed. I had to break free of my bubble and evolve. If a match wasn’t going my way, I needed to develop multiple back up plans that will help me find a way to win.

Working in a Bubble

Similarly, many entrepreneurs today are suffering from a flaw in their training and have created a bubble of their own.

The numbers bear this out: from the early 1980s to the mid-2000s, there were 500,000 to 600,000 new companies created every year (US Census). Today, approximately 543,000 new businesses launch every single month (National Bureau of Economic Research).

But despite this explosion in entrepreneurship, nearly 60% of venture backed start-ups fail (Cambridge Associates).

So what’s happening?

For one, many entrepreneurs are mistakenly substituting their business plan for real world interaction and learning.

This starts at the beginning. The process we’re taught is straight-forward: once we have a great business idea, we immediately begin writing our business plan. This is a 25-30 page manifesto, complete with sales projections for the next 3 to 5 years. We use this document to raise money from family, friends and investors, and then start building our product or service. When all is said and done, we expect our target customers to flock to our offerings in droves, all according to our killer plan.

But when you try to predict how customers will react, especially 3 to 5 years in advance, in a bubble, you’re going to get punched in the face.

It’s All About The Marshmallow

Here’s what I mean: when I was in graduate school, one of our management professors challenged us to the Marshmallow Game. We broke off into teams of five, each armed with dry spaghetti, string, masking tape and a single marshmallow. We were tasked with building the tallest structure possible within fifteen minutes. Most groups achieved heights of 8-12 inches, with one even building a 14-inch tower that leaned slightly to the right when the marshmallow was placed on top.

But imagine our embarrassment when we learned that our professor’s wife, a first grade teacher, tried the game with her class and got even better results. One team of first graders built a superstructure that reached as high as 22 inches. We were outperformed by 6 year-olds!

How did this happen?

It has to do with how we’re taught to manage our time. Our class of MBAs spent the majority of the time assigning roles and planning on how our structure would look. Then, with only a few minutes left in the game, began building the structure and placing the marshmallow on top.

In contrast, the first graders spent most of their time actually building their structures, trying out different patterns and ways of achieving the most height without risking collapse from the weight of the marshmallow.

You see, our class of professionals was so confident in our respective approaches that we waited until the very last minute to interact with the most important piece in the game: the marshmallow. We left no time to make any adjustments, just in case we got the structure wrong and it crumbled.

The first graders took a different approach. They started with building a small stable structure with the marshmallow on top, allowing them ample time left in the game to experiment and grow. Unlike the MBAs, they didn’t begin by trying to determine the one right answer to completing the game, but played around to discover what worked best. So in the same time it took each of our MBA groups to build one structure, it took each group of first graders to build 3 or 4. That’s how they outperformed our class.

The lesson here is clear: the more you work on your business plan in your self-created bubble, the more you ignore real world experimentation, the more likely you will fail.

Remember, you can execute perfectly on your plan, but if it’s flawed, you won’t succeed.

Stepping Out of the Bubble: Customer Validation

So consider this instead: forget spending the next 3 to 6 months writing your business plan, trying to convince investors (and yourself) that you’re right, and reach out to potential customers and experiment like those first graders.

Explore the habits of your target customers; test your beliefs on how you think they will behave. After all, predicting human behavior is not easy. Certainly more difficult than predicting how that marshmallow will behave on top of the spaghetti sticks.

For example, some of your target customers may like your product or service better than others and for different reasons. Figure out why and adjust your approach to maximize your opportunities.

What you’ll soon realize is that your business plan is just the starting point. Once you exit your perfect bubble of planning, and rejoin the world, you’ll be able to make the adjustments needed for your business to succeed.

Entrepreneurs aren’t supposed to be clairvoyant, able to see around the corner before anyone else. Instead, they are more like private investigators, who use facts from real world interactions to back up their claims on how customers will react.

So if you think that workout enthusiasts will go crazy over your new energy drink, then why not presell a few dozen cases before running a full production line?

If you think busy families will spend $50 per day on your new subscription meal-kit service, then start with a simple web page to test their responses and track customer retention.

We need more than hope that our ideas will be successful, we need proof that our assertions about customers are based in fact.

Business planning gets you half way there, but it’s the ability to then manage and adapt your plan that ultimately determines success.

Being punched in the face is part of launching any business. Just make sure when that punch comes, you’re not like Connor McGregor and get caught flat-footed.

#1 Mistake That Makes Us Wrong More Than We Think

June 15, 2019 // by Peter LoFrumento// Leave a Comment

There is no expert as authoritative – in his or her own mind – as the know-it-all.

No one is more sure that he or she is right about everything, that he or she knows the exact right thing to do and when exactly to do it.

Even if that makes the more experienced people in the room roll their eyes in disbelief.

Such was my experience this week when I walked into a pitch meeting for a new client.

The know-it-all in the room quickly revealed himself, and sadly, it was the CEO!

His behavior was textbook: he found his way into every conversation and answered questions not even directed at him. He acted as though he was the smartest person in the room despite having little to no experience in the area under discussion.

While we can politely jest about this CEO’s behavior, it can pose a real problem when your resident know-it-all keeps on getting in the way and shutting down key decisions or suggestions. Or, if we are honest with ourselves, when that person is you or me.

We call this misplaced confidence the above average effect, which is a cognitive bias that causes us to overestimate the positive and underestimate the negative relative to others around us.

Think of it as an organizational flu – it infects everyone that it touches and has the ability to inhibit real growth.

But like any infection, rooting it out begins with recognizing its symptoms:

Symptom #1: We Are (Always) Better Than the Competition

Healthy competition is good. Even motivating.

But believing we are better than the competition anchors us to the notion that positive or negative trends will continue to go in our favor. In our above average world, we believe that we know best. This bias clouds judgment and results in an underestimation of the competition, a misunderstanding of the needs of customers, and a belief that change is not required to maintain current success.

Remember, being better than the competition is a mirage; a fleeting state of being that can change in a moment of innovation or crisis.

Instead of trying to be better, try to be different. That is, how are you and your company different from the competition? Being different allows you adapt to change more effectively. Being different not only allows you to establish the playing field, but allows you to control it.

Symptom #2: Everyone Should Be Like Me

When executives who suffer from the above average effect compare themselves to others, they tend to highlight their own strengths and focus on everyone else’s weaknesses. Suffice to say, this doesn’t help companies build and maintain high performance teams who value diversity of skills. Instead, these executives overvalue the traits they believe have made them successful and devalue those traits that have made others successful.

Think of it this way: these executives play checkers, where things are either black (their way) or red (your way). Instead of playing chess, where each piece is different, but each is most effective when used in their area of strength.

Symptom #3: Failure Is Never an Option

It’s not that above average effect executives aren’t afraid of failing. They are. And profoundly so.

They just do a good job of covering it by being overbearing, controlling and passing the blame. Because, well, they know better; so if a plan fails, it’s clearly not their fault.

Ultimately, this false belief results in an unhealthy view of risk. And you’ll see this when sales teams set unrealistic goals or when your boss is sold on an idea and requires you act on it, no matter how bad it is.

Healthy people try, fail, learn from their failures, and try again. If you are not failing every so often, then you are likely not taking enough risks. And if you can’t remember the last time you failed at something, then chances are you aren’t growing as much as you think.

So how do avoid succumbing to the above average effect?

* Remember that we are not as good as we think.

Confidence is good; overconfidence is dangerous. I think the best executives are acutely aware of how much they don’t know. They have no need to be the smartest person in the room, but have a real desire to learn from colleagues, staff and friends.

And the easiest way to do that is to be open, show an interest in each other’s success, and create an environment of positive exchange that provides value for everyone.

* Our competition is better than we think they are.

While I was sitting in that pitch meeting this week, the CEO told us anecdote after anecdote as to why his company was superior to all of his competitors.

Just like him, we weave stories around the market and our competitors in a way that make us seem the most favorable and likely to succeed. This helps us feel safe and in control. It’s an unfortunate fable that does more damage than good.

Instead, ask yourself whether the competition can solve a problem I’m trying to solve better than me? The sooner you’re honest and get to the point where you’re outlining the competition’s advantages, the sooner you can work to offset those advantages and create some of your own.

* We are the sum of our choices. Don’t play victim.

Executives suffering from the above average effect are quick to assign blame and pull out all the excuses as to why something did or did not happen.

But by not owning up to our actions, we are taking away our part in doing anything different. We simply remain stuck while we continue to complain and feel miserable in our status quo of negativity. Break free by making a move, doing something different, or trying something new. Grow.

And growth means we must fail occasionally. By doing so, we learn how to avoid mistakes, gain credibility, cultivate our support systems and keep focused on what matters most.

Walking out of that pitch meeting this week, I do admit to fighting the urge to tell that CEO, ‘since you know it all, you should know when to shut the heck up.’

But instead, I took the meeting as a reminder what not do.

And to remember that it’s what you learn after you know it all that counts.

Sold Out!

June 1, 2019 // by Peter LoFrumento// Leave a Comment

Top 2 Ways to Beat Ticket Scalpers: Supply & Demand

We’ve all been there before. It’s Thursday morning and you realize that your favorite band or sports team is playing on Saturday. But tickets are long sold out and all that’s left is the unappealing option of paying a hefty premium to a ticket scalper.

I mean, er, ticket broker.

Kidding aside, the resale ticket market is booming. Northcoast Research recently estimated that this secondary market is moving north of $5 billion.

But why?

One reason is that to appear more fan-friendly, recording artists such as Metallica, The Chainsmokers, Jimmy Buffett and Green Day have been reducing the cost of their concert tickets well below market value. While seemingly good-natured, by making their tickets less expensive, they are allowing ticket brokers to capture much of the revenue without bringing lower prices to a majority of fans.

This occurs when ticket brokers take advantage of these lower prices and limited supply to buy concert tickets in bulk, and then resell them to fans at astronomical mark-ups.

During a recent consulting project for a major recording artist, we were tasked to come up with a solution for the second leg of her U.S. tour that would keep lower-priced tickets in the hands of her fans, while reducing the ability of brokers to acquire these seats.

During the first leg of her tour, our client charged $75 for every seat, regardless of location. This was well under market value. Brokers acquired a majority of the seats and marked them up to over 200% of face value. By pricing her shows under market value, our client was inadvertently doing herself a disservice as brokers captured the excess revenue through scalping.

After careful consideration, we offered a three-fold solution: first, we had our client increase the amount of her shows being offered on the second leg of her tour. This enabled us to increase the supply of tickets, ensuring that low-priced tickets would always be available to fans; second, we reserved a number of higher priced tickets for sale (‘VIP’ seating ranging from $95-$200); and third, we offered all tickets as paperless and instituted an ID system for ticket purchases to further exclude brokers.

The result was a relatively sold-out tour and virtually no broker involvement.

This strategy worked due to the law of supply and demand. Simply, excess demand occurred on the first leg of the tour because tickets were priced at $75 apiece. Since this price didn’t reflect true market value, the quantity demanded exceeded the quantity supplied and a shortage was created. After the entire quantity of tickets supplied was sold at $75 apiece to fans and brokers, demand still remained at various price levels which were above the $75 mark.

Ticket brokers, taking advantage of this low price and limited inventory, responded to this remaining demand by raising the price of tickets to market-clearing levels, capturing revenue that could have gone to our client.

By increasing the supply of tickets, we created a new ticket price equilibrium where market value now equaled face value.

In addition to these supply and demand effects, we also employed price discrimination by creating a two-tiered pricing schedule (VIP and general seating). This allowed our client to capture extra revenue as fans self-selected their seats within these two tiers. We knew that fans had different elasticities of demand, but we were unable to separate those elasticities. We therefore presented a price schedule, making sure that we marketed the new VIP seats as more exclusive. This helped us to distinguish among groups of buyers.

This sort of price discrimination was achievable because our client met three specific conditions: she was the price maker for the second leg of her tour; we identified at least two groups who were willing to pay different prices (low price seats (high elasticity) v. VIP (relatively inelastic)); and utilized paperless tickets and an ID system that prevented buyers in one group from reselling tickets to the other.

In this way, she was able to charge each group what they were willing to pay.

Overall, winners included the fans that were able to see more concerts than usual, and for a majority of them, at a reduced price. And our client, who happily recaptured revenue from the brokers. Losers were the brokers, who suffered from reduced access to tickets and from us eliminating the difference between the market and face values of the tickets.

Our takeaway from this experience was that to reduce scalping, you should charge a more accurate price in the first place.

Now it’s time to order those tickets!

3 Tips Managing Your Brand Crisis

May 25, 2019 // by Peter LoFrumento// Leave a Comment

Boeing Gets Its 737’s & Reputation Grounded: 3 Tips For Managing Your Brand Crisis

Brand leadership is easy when things are good and everybody’s happy. When times grow tough, however, a brand’s true authenticity is quickly revealed.

For Boeing, times couldn’t be tougher. Since the heartbreaking second crash of its 737 Max plane this week, the U.S. has joined several dozen other countries in grounding the aircraft, adding to Boeing’s woes as more than $25 billion has been wiped off the company’s market value.

And things aren’t looking up anytime soon.

Boeing investors ended this week by rushing into derivatives markets to protect themselves from further steep falls in the company’s share price. The sale of puts soared to 237,000 contracts on Tuesday – 20x the average daily volume – and has remained elevated since. At the same time, the cost of hedging against a further 10% fall in Boeing shares has close to doubled.

The market is simply reflecting what most of us are already thinking: Boeing’s handling of this latest tragedy hasn’t been very good.

Of course, given the scope of this crisis, Boeing would certainly face difficult questions and investor fallout.

But adding unnecessarily to its woes has been Boeing’s lack of effective leadership in its response.

Brand reputation is a fragile quality. Leadership, especially in times of crisis, is necessary to preserve it.

Here are three tips that you can distill from Boeing’s missteps this week that will help maintain your brand’s reputation when challenged:

1) Core brand values come first. For Boeing, its core brand value is safety. In fact, on Boeing’s website you can read its brand value statement: “We value human life and well-being above all else and take action accordingly.”

Following the second crash, Boeing could have been proactive and grounded the 737 Max jets themselves while addressing safety concerns. Instead, they took the path of least resistance, foregoing their core brand value by announcing, “we have full confidence in the safety of the 737 Max 8.”

The company missed a critical opportunity to lead with its core brand value: safety.

Here’s why.

According to reports, there are roughly 380 737 Max 8s in service. In North America, Southwest operates the largest fleet with 34, while American and Air Canada each have 24.

The question these numbers raise is what kind of company which values life ‘above all else’ – and has such a small number of these planes in service – would display absolute confidence in an aircraft after two deadly crashes inside of five months? And to do so before the NTSB completes its investigation.

The answer is a company that is now perceived to be more concerned with its own corporate reputation and bottom line than the lives of passengers. Boeing had the chance to lead by grounding the planes because they truly ‘value human life’.

Takeaway: Don’t abandon your core brand value when things get tough. If you do, the price you pay in the Court of Brand Reputation is steep.

2) Own your Sh*t! Boeing is largely responsible for its current reputational position. By reaffirming the safety of the 737s and not taking any action, the company put itself on the defensive. With more than 40 countries insisting on grounding these planes, Boeing put itself into the unenviable position of defending the continued use of the 737 Max, even as airlines and regulators argued for safety.

Takeaway: Own up to the challenges that come your way. Show your stakeholders that your core brand value is authentic enough to withstand scrutiny.

3) Understand Your Situation. In one of its more puzzling moves this week, Boeing announced that it had a software update to the 737 Max that makes “an already safe aircraft even safer.”

Excuse me, what? Haven’t you been insisting that the aircraft is already completely safe?

Absent the circumstances of the crashes, such an announcement makes sense. But in light of the ongoing investigations, what could have been a meaningful software announcement for its business only frustrated Boeing stakeholders further. It’s difficult to message an important software safety upgrade for an aircraft you’ve been professing absolute confidence in for several days.

Boeing’s executives misread the situation in a way that dangerously delayed a successful response.

This troublesome misread is reminiscent of the United Airlines case in 2017. If you recall, instead of apologizing for humiliating a passenger, the airline’s CEO (Munoz) apologized for the inconvenience caused to other passengers. As a result, the company and Munoz both came under intense criticism. Munoz had to apologize again and United suffered a major reputational setback that translated into heavy revenue losses. All of this happened because United Airlines misread the gravity of the situation. It is, therefore, necessary to understand a crisis thoroughly to ensure a timely and correct response.

Takeaway: With the right approach and messaging, your brand can survive almost any challenge. Remember that when you face a crisis, your customer also faces a crisis. Put them first and then be their source of information and communication. If not, they will find it elsewhere and your brand’s reliability will suffer.

Moving forward, Boeing might do well to adopt an approach to their corporate culture in which bad news can not only flow, but also be recognized and acted upon.

A resilient brand responds and adapts to adverse circumstances. So that in those tough times, your brand can emerge from a crisis strengthened, both internally and in the eyes of key stakeholders.

Nothing Stays in Vegas Anymore

February 5, 2019 // by Peter LoFrumento// Leave a Comment

Top 3 Brand Reputation Management Lessons Courtesy of United Airlines

It was the shriek heard around the world.

The seemingly mild-mannered Dr. David Dao being forcibly removed from United Airlines flight #3411 earlier this week. It was a move that caused United Airlines’ stock to lose $800 million in value on Tuesday, and the company to suffer nearly a full week of severe reputational hemorrhaging.

If you’re like me, you’ve seen, heard and read enough about this sad incident, so I will spare you from any recap. Instead, let’s take a quick look at several lessons from United’s experience that brands should take note of in this digital age of reputation management:

1) Nothing Stays in Vegas anymore.

If no news is good news, then bad news will travel globally and fast. As humans, we are wired to share stories. And with social media, any crisis can go viral in a matter of seconds. So if something happens, understand that the likelihood is great that someone will have pulled out their phone and recorded it. Brands should adapt their social media policies and practices to accommodate this fact — and this means being proactive on social media when something does go wrong.

2) Forget the lawyers and put people first.

Most crisis teams include attorneys. Rightly so, but there are situations, like in the case of United, where their counsel to refrain from admitting anything is less than useful. Just re-read United CEO Oscar Munoz’s first statement on Monday. His corporate double-speak – “I apologize for having to re-accommodate these customers” – failed to address the most important part of his apology, which is acknowledging the violent behavior that led to Dr. Dao’s suffering.

It only goes to prove that empathy and sympathy go a long way, and even saying sorry can quickly defuse a crisis-in-the-making. Why? A heartfelt apology can reduce anger and importantly, provide your customers with the feeling that they are being heard.

3) Be Consistent.

If you recall, Mr. Munoz’s first statement was from a leaked internal email intended only for United staff. While it reassured employees, it did little to provide any comfort to an already outraged public. In the minds of United, they wrongly thought they could communicate different messages to different audiences. They forgot a simple truth: in our new world order, everyone is listening during a crisis. You have to assume that what you say internally will eventually become part of the public conversation. So please be consistent in your messaging.

Nothing stays in Vegas anymore, and that has put brands under intense public scrutiny. To avoid United’s reputational fate, own the issue by being proactive (especially on social media), putting people first and ensuring consistency in your messaging. This will enable you to bring any crisis to a resolution in the way you want it to be managed or resolved.