The Science of Economics

Remember demand? It was always seen with supply and it was used to make markets until some wise guys told us that the two could go their separate ways. If you keep all things constant except for supply you can run the table, or so they said.

It reminds me of the old joke about the poet, the engineer and the economist stuck on a desert island and down to their last can of beans. The three hungry people take turns strategizing how to open the can — naturally they have no tools — and the story goes something like this.

The poet suggests using a rock to try to dent the can and thus get it partially opened. The engineer begins calculating how he might heat the can in a fire causing it to explode, but each idea is quickly shot down as being potentially wasteful of the precious contents. When it is the economist’s turn he starts with, “Assume we have a can opener…”

Listen to Denis Pombriant (5:52 minutes)

It’s Not That Simple

Not to belittle the dismal science and its practitioners, but that kind of over-simplification has been around as long as there have been, well, economists. To tell the truth, it wouldn’t even bother me much except that I’ve been reading the iconoclastic economist Paul Ormerod lately and that’s pretty much his view too. According to the cover of his book, Butterfly Economics, economics needs to, “…become a science more like biology — less dependent on ‘laws’ and ‘forces’ that provide mechanistic predictions, and more open to the idea that people are influenced by what others do.”

The reason for over-simplification is that economics tries to hold up a mirror to reality which is very complex and dynamic and the only way to do the job is to simplify it down to a single point in time when you can make an observation or a prediction. It’s sort of like the social sciences’ equivalent to Heisenberg’s uncertainty principle — you can figure out the position or the speed (or something like that) of a sub-atomic particle, but not both. Assuming demand is constant and supply is what matters is one of those little fibs we tell ourselves to enable us to make any sense whatsoever of the real world, but it fails badly.

Sometimes I think that CRM as it is constructed today is nothing but a supply side overlay of a demand-oriented world. Think about it. Management, which is a vendor word, is used because vendors need a way to keep control of a situation in which they have figured out supply by taking some educated guesses about customers’ needs and now they have to stoke demand. That, I think, is what people like Shoshana Zuboff have in mind when they write critically about mass production and mass marketing.

Listening to the Voice of the Customer

In point of fact, control on the part of the supplier is at best an illusion and that illusion went out the door when the Internet made information ubiquitous. Without a vendor’s ability to arbitrage information, the customer (the demand side) rules, and so the question becomes, why is CRM so focused on supply? Perhaps you disagree with this, but most of the marketing that I see is about promoting what you have, not asking what the customer needs. The same is true of sales, and the call center in the majority of organizations hardly, if ever, makes outgoing calls to gather information about customers’ future needs.

The situation is changing though. The CEO of one company that I follow which is completely focused on helping companies capture the voice of the customer tells me that business is up 150 percent year to date. The same is true for other companies that focus on nurturing leads rather than slamming them closed and companies that tailor collateral content and marketing messages.

I think it’s obvious that we are seeing a change in the marketplace, but the change is not an incremental one. By virtue of their improved access to information, this generation of customers, which is richer and better educated than any in history, has been singing a very different tune for some time now. These people are us, and in addition to being smart and wealthy, we’re also time starved and consider ourselves unique. All together that makes us sometimes rather cranky and prone to abandon a transaction for any reason or no reason; if things aren’t perfect we keep looking.

Pressure to Perform

All this places many new pressures on CRM and in the market I am seeing lots of five-year-old companies emerging that have a very different view of the world — the customer’s view. As a result, they focus on things like the customer experience and their processes go far upstream from the transaction to engage the customer on the pre-cognitive level. Many of these companies have figured out ways to engage customers on higher levels, to conceptualize the experience long before it happens, and to be ready for whatever demands come from the customer.

One reason my CEO friend is experiencing great growth is that her company is selling to very large companies in a classic early adopter scenario. No one, save a cranky analyst or two, is calling a top in the supply side revolution but tops are so hard to spot without hindsight. Nevertheless, tacitly, early adopters are voting with their feet and repositioning to get a better handle on demand. In truth, you need both supply and demand, but that rediscovery is still in the future. Right now, demand has been so neglected for so long that I am betting that it will have a pretty good run before it’s all over.