This is the first of four installments of our conversation with Thales S. Teixeira, Lumry Family Associate Professor at Harvard Business School. Readers can find information on his book at https://www.decoupling.co/.
To read Technology Didn’t Disrupt Your Industry: Q&A with Thales S. Teixeira, Part IV, click here.
To read Technology Didn’t Disrupt Your Industry: Q&A with Thales S. Teixeira, Part III, click here.
To read Technology Didn’t Disrupt Your Industry: Q&A with Thales S. Teixeira, Part II, click here.
To listen to [Podcast] Technology Didn’t Disrupt Your Industry: Q&A with Thales S. Teixeira, Part IV, click here.
To listen to [Podcast] Technology Didn’t Disrupt Your Industry: Q&A with Thales S. Teixeira, Part III, click here.
To listen to [Podcast] Technology Didn’t Disrupt Your Industry: Q&A with Thales S. Teixeira, Part II, click here.
To listen to [Podcast] Technology Didn’t Disrupt Your Industry: Q&A with Thales S. Teixeira, Part I, click here.
Many industries, such as retail and hospitality, are facing challenges they’ve never faced before. We’ve come to use the word “disruption” as a go-to term to describe these new challenges. But we don’t always look at the root cause of disruption, and we’re quick to point fingers, claiming that this technology or this new service was itself the disruption, the thing that messed it up for the established brands.
However, Thales S. Teixeira, Lumry Family Associate Professor at Harvard Business School, states that we’ve been looking at disruption all wrong, that we haven’t focused sufficiently on consumers and their behaviors. Teixeira explores and expounds upon this idea in an upcoming book, Unlocking the Customer Value Chain: How Decoupling Drives Consumer Disruption. For more information, readers may visit
https://www.decoupling.co/.
We recently spoke with Teixeira about the book and his ideas on disruption, the challenges brands face, and an approach for achieving real customer centricity.
Could you give us a little background about you, your work, and the genesis of the book?
I joined the Harvard Business School as an Assistant Professor about nine years ago, in 2009. At the time, I was doing research on advertising and the psychology of attention. My first few years there was developing this area, which I eventually decided to call the “economics of attention.” I have a website,
http://www.economicsofattention.com/.
Basically, I do research on understanding how attention is acquired in the marketplace, how it’s distributed, how it’s priced, and what its value is. I try to help CMOs and other executives who are using consumer attention for branding and marketing purposes to move to a much more consumer attention point of view. At this time, I started getting questions from executives who invited me to talk about economics of attention on this idea is of disruption, particularly digital disruption.
Being a faithful academic, I said, “I can’t help you” because I didn’t do any research there. But I started visiting a few startups at the time, and the first startup that I visited in 2010ish was Facebook. At the time, it was growing fast. I wasn’t even on Facebook at that time, but it was growing, and I met with some of the executives. When I visited their old offices, I asked them, “How are you disrupting the online media market?” and they explained to me their process and they said, “Professor, we are doing it very differently from the others. This is our approach.”
Since then, I’ve visited Netflix, and I’ve talked to and visited Airbnb, talked to executives at Uber and Amazon, Wayfair, Birchbox, and many other bigger and smaller tech companies. Every time I asked them, “How are you planning to disrupt market x,y,z that you’re in?” and they would tell me, “What we’re doing is very different.” But the more I heard this, the more I realized it was a common pattern; they were basically doing the same pattern of disruption. It was just applied very differently in each industry.
When I was learning about this, I started writing a few articles and a book agent came to my office and said, “I’d like to talk to you.” I generally accept short meetings, so I decided to talk to him, and he basically tried to convince me that I needed to write this book because I had basically found the “recipe” for disruption, and it applied in many, many markets, and he thought there was a lot of potential. The book came much as an outsider’s book with this agent, but other people that I’ve given talks to in the audience said, “I need a book. I need to really think about those things.” So, that’s how the book came out.
How do you see people learning and changing? Do you see a rewiring of the circuitry of the brain from the neo-cortex and the other pleasure centers of the brain? Are we now engaging with shorter attention spans?
No, those are mostly the micro-consequences of consumer’s higher order needs changing. Their needs and wants are changing. Their behavior is changing. Consumers now have more options, so they have more ability to choose, and when they do that, they want to choose cheaper products. Consumers are also more time-pressed, and we’re growing accustomed to more convenience, and we don’t have as much time to solve our needs and wants. We want it faster.
What’s going on is basically something where consumers are just trying to minimize the monetary, the effort, and the time costs of acquiring goods and services. That explains much of the reason why consumers start shopping on Amazon, and once we observe certain customers shopping more and more on Amazon, they take this benefit, and they want to apply it elsewhere, as well.
They become more likely, those who shop on Amazon, and have an Amazon app on their phone, they’re more likely to download and use Uber. And when they use Uber and Amazon, they’re more likely to use Airbnb. And when they use these three, they’re more likely to use other convenient and less-time and lower-cost apps like Venmo, Birchbox, and you name it. Basically, digital disruption is the result of consumers changing their needs and wants and their behavior.
Do you think the new disruptive technology brands, since they don’t have any legacy issues and don’t have to reinvent themselves, have it easier? Or do you think this is, fundamentally, a flaw in humanity that is being exploited?
No, so my view is very—because I’m a marketing professor—consumer-driven. Consumers have always had their evolving needs and wants, and as a consequence, they change their behaviors to adapt to their evolving needs and wants.
What has happened is, with this evolution, that same class of companies has become faster at delivering the evolving consumer needs. This class of companies is what we call tech startups. They have the highly consumer-centric view, and I’ve visited and talked to many executives at large companies, large auto manufacturers, large retailers, telecom companies, and all of them tell me they’re very customer-centric, but when you observe their decisions in the board room, they’re not really that customer-centric. They’re much more competitive-centric. They focus on their competitors. They say they cater to their customers, but that’s not their priority, and as a case in point, when you look at what executives are trying to optimize, in terms of the metrics that they care about, traditional retailers really focus a lot on same-store sales.
Basically, their way of acquiring more customers and creating higher revenues is by increasing the number of stores. If you increase the number of stores, you get more sales and more customers. So, what do they do? They bank on the number of stores that they have to launch new products, and they try to build more stores. The same with traditional banks. Metrics in traditional banks are revenue or profit per branch. If you want to increase revenue, you increase the number of branches. Telecom companies have these metrics of how much revenue they have per mile of fiberoptic cable. The consequence, when you really focus on that metric, is—say you dug up more tunnels; you put more fiber optic cables; you put more infrastructure; and you connect more homes. That’s the way you increase your revenues.
The point that I’m trying to make is that these larger companies don’t think of customers as the end goal. They think of customers as the way to retrieve financial metrics. Their goal is really to exploit stores and branches and infrastructure, whereas startups don’t have these infrastructures. They don’t have these stores. Startups go directly where it matters, which is, “How can we cater to the customer and build something the customer wants to get their business?’”
That is translated into startups having different metrics. Startups have metrics such as customer lifetime value, average revenue per customer, engagement per customer, average revenue per active user, per monthly user. These are all metrics that are very customer-centric in the way that they’re built, and so that is a major challenge. Basically, consumers are changing their behavior and startups are just faster at delivering what they want.
At the end of the day, there’s a big challenge, as some of these startups have pushed innovation, and they don’t have legacy systems or overheads. But, they also are free from the profit motive, as well. If you look at Uber or you look at Airbnb—those companies are not profitable. Due to the circuit of money you have in places like Silicon Valley and New York, they don’t have customer lifetime metrics in any way, shape, or form, but they don’t have the profit motive, correct?
I would say, “Yes and no.” I would just like to qualify a little bit. Basically, all companies have profit motives. The question is the degree of that, relative to other motives like growth, scaling, and return on investments. Things like that. It turns out that you have to look at these startups, and some are actually profitable on their operations, but because they are growing fast and investing in other countries and other products, much of the money becomes reinvested in the business, so they’re not net profitable in the sense that they can get some of the money after all the operations investments and give back to the investments, because that’s not the purpose anyway.
And other companies are not even profitable in an operational business. That’s the traditional kind of simplistic thinking, that it takes four dollars to make a pizza, and you sell it for three dollars. That point scale will never improve your business, so we have to qualify what we mean by profitability. I happen to believe that many of these businesses are profitable in certain aspects. It’s just that when you look at the numbers, they are taking in so much cash because they want to grow fast and become the biggest one that we don’t see the profitability. But, I would say that all businesses have a profit motive. It’s what stage in the life cycle the business is and what the priority is that dictates that profitability is not the most important thing.