Uncategorized – trust patterns

February 9, 2020February 10, 2020 by Ron Hofer

What’s the ROI of trust? – a multi billion $ case study.

After 35 years working at Boeing, Dennis Muilenburg stepped back as it’s Chairman on the 23rd of December 2019, just one week after Boeing announced the complete production stop of the Boeing 737 max. This didn’t come as a surprise, as the Boeing 737 max was expected to be the next Cash Cow, accounting for three quarters of Boeings net income streams in civil airplane production with more than 5.000 preorders. There were no kind words and congratulations for him as usually when a chairman steps back. Boeing distanced itself from Muilenburg announcing that it would be necessary now to repair the trust in Boeing.

Muilenburg leaves a company in deep crisis. For decades Boeing, one of the biggest US companies in the manufacturing industry, the biggest US exporter and one of the biggest US employers with more than 150.000 employees was leading the head-to-head race with it’s European rival AIRBUS on civil airplane production. In 2018 Boeing won the race again with 806 delivered machines versus 800 machines at Airbus. In 2019 the head-to-head race came to an abrupt ending. AIRBUS increased it’s amount of delivered machines up to 863 but Boeing left the race with a total of only 296 machines! In 2019 they lost two third of their total expected delivered planes! Even loyal US clients like American Airways and United Airlines switched from Boeing to AIRBUS. United Airlines for instance ordered 50 AIRBUS A321XLR – the equivalent AIRBUS product to a Boeing 737max – worth around 6 Billion US Dollars. Boeing lost the race. Boeing’s reaction? It announces to repair trust towards their clients and institutions. If you need a „return-of-investment“ example for trust management and trust design. Here it is.

The ROI of a trust based organization
Due to lost trust, Boeing lost two third of their market and will need years to join the race with AIRBUS again. There are more than 400 Boeing 737max worth an estimated 40 billion $ sitting on employee parking sites not to be delivered until 2021, which costs an estimated 1 billion $ per month. Additionally they expect the total of contract fines due to delayed delivery of machines to reach around 10 billion $ and even worse: the development of a new alternative for the „New Middle of the Market“, called 797 which could compete against the Airbus A321XLR is stopped, due to the expensive efforts to repair the 737 max disaster. (The 797 would be a replacement for the Boeing 757 which was produced until 2005 – 15 years ago.) Trustworthiness is a longterm investment and it pays off. AIRBUS is completely sold out until 2024.

Or was it just bad luck?
For Muilenburg, it wasn’t a lack of trustworthiness, it was just bad luck – an „unlucky combination of unexpected events“ leading to 346 dead passengers and crew members. Here is the thing: The Boeing 737max crashes near the Coast of Java and in Addis Abeba weren’t the first deadly 737 crashes. Since 1967 a total of 210 Boeing 737 crashed and 5.010 people died – without harm to the Boeing market value and order book. This case was different. This case was about lost trustworthiness towards all stakeholders involved. And as a consequence, the Federal Aviation Administration decided to check every single of the 400 planes on the parking sites once a solution for the technical issues is accepted. The FAA switched from a trust based relationship with Boeing, in which the major part of testing was not proceeded by FAA staff but Boeing staff to checking every single plane. A binding promise of Boeing that only planes with the new safety standards built in will be handed over to airlines didn’t suffice – anymore.

Or maybe a case of bad PR consulting?

Or was it just a case of bad Public Relationship Management? Didn’t Muilenburg and his Management Team show enough grief? Should the full page Financial Times announcement stating „deepest sympathies” have been double the size? Should they have apologized? When trust is in question, the right communication does make a difference. But to repair trust, you need to act, to proof that your competence and intentions are as expected.

Promise doesn’t work when trust is in question.
Proof does! Take Johnson & Johnson’s former CEO James Burke*. In 1982 a similar crisis happened to Johnson and Johnson. Their cash cow, Tylenol, which accounted for 17% of Johnson & Johnson’s net income was laced with cyanide most probably by a blackmailer and 7 people died taking it. Burke immediately reacted quite differently than Muilenburg. He spent about 100 Million Dollars in proofing, that Johnson and Johnson does care about it’s customers. He pulled Tylenol from the shelves, stopped advertising it, tested 8 million pills by the end of the first week of the recall, offered customers coupons to make up for the bottles they might have to throw away, and had the company design a new tamper-evident triple seal, which was adopted by other pharmaceutical companies. Within months, Johnson and Johnson’s stock regained its previous heights. He wasn’t alone – although there was criticism the organization surrounding him supported his way of dealing with the crisis.

The root cause is not a person but the culture
Muilenburg failed in managing the crisis and given the devastating impact it is more than understandable that he needed to step down. But he isn’t responsible for most of the decisions leading to a plane with deadly malfunctions. The decision to save costs by pimping up the old 737 model instead of redesigning a new model from scratch was made way before he became chairman in 2015. As a matter of fact, Boeings loss of trustworthiness started way before and it infiltrated the whole organization. Take the Amsterdam accident in 2009, when Muilenburg was still working in the military division of Boeing. On the 25th of February 2009 flight TK1951 – a Boeing 737 – 800 (the predecessor of the 737 max) – crashed shortly before landing at Schiphol Airport, Amsterdam and nine people were killed. An expert study that sharply criticized Boeing was never published by the Dutch safety authorities, and its key findings were either excluded or played down in their accident report. It took the Dutch Safety Board, which had commissioned the study, more than 10 years to reverse course and publish the study — a day after The New York Times detailed the findings In January 2020. The Times’s review of evidence from the accident showed the study’s conclusions were relevant to investigations into the Boeing 737 max crashes that killed 346. It turned out, that the Dutch removed or minimized criticisms of Boeing after pushback from a team of Americans that included Boeing and federal safety officials.

Boeing – a lack of trust throughout the organization
There were at least three proven letters of employees urging the upper management to investigate and redesign the aircraft. What happened to the engineers writing these desperate notes to their managers? These guys would be the connect back to when Boeing had an engineering heart – Nurdy but full of compassion to design safe airplanes – the 90s when Boeing was making a good 6% margin with good products. 6% margin wasn’t enough the management back then decided and turned the purpose of Boeing upside down towards a company with one main task: increasing market value (which also came in handy, as the upper management of Boeing is paid out to a large extend in Boeing shares). They defined the new parameters of what success meant for the organization and these parameters were solely about the „now“. A situation we know from people who consume too much alcohol. The long term impact of decisions fades out. The short term impact is key. Today there is no trust retainer left for Boeing.

Trust is a company asset
Boeing had the competence to design a safe and economic aircraft but the intentions got corrupted. It wasn’t about longterm relationships any more. The upper management decided to put short term profit before longterm trust. Now that we can look back, one could say they decided to sell the family silver as dearly as possible to maximize profits. That family silver of Boeing was the trust their business partners invested, worth many billion of US Dollars – a key company asset which should be part of P&Ls, shareholder communication and M&A assessments.

What about your organization?
Do you think a scenario like this could happen in your organization? How can you be sure? Do you know of any KPI or measurement used at your organization to have a clear view on how much your organization runs on trust?

*I found this story in the Harvard Business Review on trust by Sandra J. Sucher, a professor of management practice: https://hbr.org/cover-story/2019/07/the-trust-crisis, the detailed story can be found here: https://hbsp.harvard.edu/product/390030-PDF-ENG

July 15, 2019July 15, 2019 by Ron Hofer

Trustworthiness is the Achilles heel of digitalization

Forget about „Jobs to be done“ (JTBD) – the future is about „Decisions to be made“ (DTBM)

http://customer-focused-innovation.com/jobs-to-be-done/

Most certainly you are familiar with the „Jobs to be done“ (JTBD) Framework?
Ever heard the quote “People don’t want a quarter-inch drill. They want a quarter-inch hole.”? This quote, which was made popular by Theodore Levitt, forms the foundation for the Jobs-to-be-Done Theory: the notion that people only buy products (like drills) to get a “job” done (e.g., create a quarter-inch hole). The Jobs-to-be-done framework allows to mind shift from optimizing the same product again and again towards identifying innovative ways off the beaten path to serve a given need (job).

I believe that this framework needs to be rethought or at least extended to fit the future of digitalization. Of course, people will still have Jobs-to-be-done and might hire your company to do the job for them. But the future is about something much deeper and mightier than doing jobs for you – it is about making decisions for you.

We already get a glimpse of that near future when we think about robo investor services making trading decisions for you, ebay agents making decisions on when to participate how in auctions for you or hr-agents pre-analysing the company fit of applicants.

These AI based solutions do not only do the job for you, they make a lot of – sometimes quite important – decisions for you. They deliver convenience on a much deeper level – as long as you can trust them.

Did you ever not fall asleep, because you were busy thinking about how to get that quarter-inch hole Theodore Levitt was talking about into your wall? Probably not. Companies addressing Jobs-to-be-done make our lifes easier – for sure. Companies taking over the decision making for you deliver convenience on a much deeper level – if you can trust them. Did you ever not fall asleep, because you were thinking about the right strategy for your retirement planning? Maybe… What keeps us up at night are Decisions-to-be-made not Jobs-to-be-done. And AI based services promise to make those decisions for you – more competent than you and in your best interest.

In some years time we might „hire“ autonomously driving cars to do the job of bringing us from A to B. But while doing so, the car will make an endless list of small and profound decisions for you. From which route to take and at which shop to pass by to how to react when irregularities occur.

The tricky thing is: these systems are way too complex for us to rationally assess their capability and motivation. The decision-making happens in a virtual, code based, non-linear and often undocumented interconnection of systems, products and partners. No way you can fully assess if these systems are for certain capable and on your side. You have to trust that they are. And if you don’t trust them you won’t hesitate to leave.

Trustworthiness is the Achilles heel of the next wave of digitalization. We need to design and manage trustworthiness as thoroughly as we design products and services. We need to design systems centered around trustworthiness. We need to generate a solid understanding of trust themes relevant to our customers, employees and partners and how we could address them through out our company, throughout all parts of our business model. We need to measure and optimize our trustworthiness – and cultivate trustworthiness in our organisations’ governance and culture.

A Decisions-to-be-made (DTBM) framework would be a great first step towards this kind of trust centered Design approach.

If you are interested in the development of a DTBM framework – contact me 🙂

June 5, 2019June 9, 2019 by Ron Hofer

Trustworthiness – the single most important Selling Proposition of the future

an intruigingly simple model to understand how to create trustworthiness as a unique selling propositions for the future “decisions to be made” economy.

Apple Card – A new kind of credit card. Created by Apple, not a bank.

Recently I hosted a Workshop on Trust Design at the Universal Home summit in Gelsenkirchen, Germany – an initiative of leading tech companies to design a positive and integrated future home experience.
At the end of my workshop, I asked the 50+ Executives of Companies like Innogy, Telefonica, Miele, Dornbracht, WMF, ABUS, Medion and Vaillant a simple question in 4 scenarios: „How many games can a soccer coach lose before he gets fired?”

The participants had to write down the amount of games lost before getting fired for 4 different types of coaches:

The coach appears to be highly competent
and has good intentions towards the club
The coach appears to be highly competent
and has shady intentions towards the club
The coach appears to be less competent
and has good intentions towards the club
The coach appears to be less competent
and has shady intentions towards the club

Before I share the results of this survey, just a few words on why I actually asked this question.

The driving forces to be seen as trustworthy

What are the driving forces to be seen as trustworthy? A question many experts, authors and researchers answer with a variety of qualities like fairness, honesty, openness, integrity, warmth, competence, motivation, communication, transparency, reliability and so on – too many interrelated qualities to actually build up strategies on trust.

Two experts on trust, Rachel Botsman, lecturer at Oxford University, and Professor Andreas Suchanek – a leading expert in Company ethics and trust – who teaches and researches at the HHL Leipzig Graduate School of Management, independently came up with quite similar models on trustworthiness, which seem to be a good starting point for a solid and simple model.

In his book „Unternehmensethik“ Professor Andreas Suchanek defines two key qualities for trustworthiness: “Competence and Integrity“

Quite similar, but with other terms, Rachel Botsman defines the key qualities for trustworthiness as on the one side „Competence and Reliability“ and on the other side „Empathy and Honesty“.

Both authors distinguish between the ability to act and the reason to act.

In behavioural Science, we find the same qualities in the established formula to explain human behaviour – the so called B-COM model. According to the model, behavior is influenced by:

capability (can the person do it?)
motivation (does the person want to do it?) and
opportunity (Is it the right moment to do it?).

When we ask ourselves if we should give somebody the opportunity (the third factor in the B-Com model) to act, trust is the influencing parameter. Trust that somebody is capable and has the right motivation.

Rachel Botsman condenses these two qualities into an intriguing simple formula for trust:
the HOW (Competence, capability, reliability etc…) and
the WHY (intention, integrity, empathy, honesty etc…).
Let’s quickly dive into these two sides of trustworthiness:

The HOW
This quality is all about the actual ability to act as expected or promised. It’s all about questioning, if someone (or something) can do what it claims to do. Can I trust that bridge? can I trust that chair? Can i trust that the car won’t break? Can I trust that their data protection system is up to date? Rachel Botsman calls this quality „Reliability and Competence“. „Competence comes down to how capable a person is to do something. Does he or she have the skills, knowledge and experience to do a particular role or task, be it cut my hair, mind my children or fly me to Uzbekistan“.

Andreas Suchanek calls this quality „Competence“: „Especially in economy, competence is an extremely important part of trustworthiness. We might be fond of somebody, but if we don’t believe in the persons’s competence, we will not cooperate with him / her, no matter if as client, employer or Investor. Same with companies: if the company appears very likeable, but their products and services are of minor quality or even faulty – we will not buy them.“

Chris Malone and Susan T. Fiske, authors of „the human brand“ – who study how we relate to brands – base their work on a similar pair of qualities. Competence is one of them: „Perceived competence traits include: capable, intelligent, and skilled.“
The WHY
Andreas Suchanek calls the WHY „Integrity“ and sees it as the „actual core of trustworthiness, as it reflects an attitude to meet justified expectations on trust. He defines main „ingredients“ to be considered :
act according to your promises, official regulations and moral values, taking into account that it sometimes involves opportunity costs.“

Rachel Botsman uses a variety of terms for the WHY like „Empathy, honesty, Intention and Integrity“. For her, the WHY question is all about „What are their interests and motives towards me?“. Basically it’s whether their intentions are aligned with yours“ What do they gain by lying or by telling the truth?“.

Chris Malone and Susan T. Fiske call it „Warmth“ (a term coming from Psychology), “a measure of “worthy intentions” i.e. how worthy (or unworthy) the intentions of other people are towards you. Perceived “warmth” traits include “warm, friendly, honest sincere and trustworthy”. As much as I love the ideas around “the human brand”, they see trustworthiness only triggered by the WHY (the warmth) and forget, that the HOW is as important for trustworthiness.

Take the brand „Made in Germany“: it was mainly build around the HOW side of trustworthiness – the outstanding quality of the products and services produced in Germany. Most German companies still focus on this dimension of trustworthiness. “Our clients trust in our products and services! So the better the quality of our offering, including durability, data and privacy protection, innovation … the more they trust us.” – true, but as we learned they miss out on the second quality – the WHY.

The importance of WHY in trustworthiness will be dominant in the future

The economy of „jobs to be done“ (i.e. a washing machine doing a job for you) is shifting towards an economy of „decisions to be made“ (i.e. in which shares to invest your savings) . An autonomously driving car will still do the driving (the “job to be done“), but with this more and more decisions (including which route to take, how to act in emergency cases or where to make a break) are delegated to „the car“ . We experience this trend in many areas of our life, like:

Robo Investments decide where to invest your savings
Banking Algorythms decide if – and with which conditions – you get a loan
Social network algorithms decide which kind of information you get

The „jobs to be done“ industry was measured by HOW capable companies are in doing something for you – and usually the evaluation of this quality was easy. Can a Miele washing machine wash my clothes with care? Well just look at your clothes and the HOW can be measured. The economy of “decisions to be made“ will be measured by WHY companies are making specific decisions for you – and most often, we can not evaluate this as easy as the HOW. Digital algorithms are not as easy to be evaluated – we need to be able to trust – or we leave.

HOW and WHY together define how trustworthy a person, a company, an employer or partner is seen – which kind of behaviour we expect from them. The WHY is extremely underestimated in Communication, Content, Product Design and and Sales Strategies. Boeing for instance is still seen as a company competent in building great airplanes (the HOW), but with hiding their Boeing 737 max failures far too long and even charging extra for life saving technology, the second quality in trustworthiness, the question on „are they on my side?“ „do they come with good intentions?“ – the WHY – is lost for many passengers – and investors.

Companies with far-sighted marketing strategies – like Apple – understood this early and readjusted their stategy accordingly. But before I dive into this, here is the result of the soccer coach survey I did:

The results of the soccer coach survey
Now you might see the soccer coach survey from another perspective. What I actually did was to put those two key qualities of trustworthiness into a matrix and made the participants rate four sets of HOW and WHY combinantions with a trust score (how many games can he lose before getting fired).

The How-Why Trust Matrix – how many games can the coach lose before ge gets fired?

Of course the highly competent coach with good intentions got the highest trust retainer of 10,8 lost games before getting fired. And the coach with low competence and shady intentions he has to leave after only 4,2 lost games. The amazing thing is, that it did not matter if a coach is highly competent but with shady intentions (7,5) or not competent with good intentions (7,4). It might be a sheer coincidence that these two combinations score with about the same value of 7,5 and 7,4. It could be a hint, that, the multiplication of the HOW score and the WHY score results in a solid overall trust score, which could be used for trust measurements and benchmarks. Something we should further investigate.

i.e. a high trust in HOW score (let’s say 4 out of 5) times a low trust in WHY score (let’s say 2 out of 5) equals the opposite situation (trust in HOW 2 and trust in WHY 4).

Apple’s communication shifted from HOW to WHY

The interest charge wheel to “encourage you to pay less interest”

A great example of how companies use this insight to design and foster trust can be observed with Apple launching the Apple Card this year. When we scroll through the Apple Card site, we will mainly see features and content confirming, that Apple is „on our side“, that Apple has good intentions. Note how qualities like “ease of use” and “simplicity” – the unique selling proposition Apple had dor the last 10 years – are still mentioned, but the clear focus today is on showing the good intentions of Apple. With Tim Cook, Trust has become the most important Unique Selling Proposition of Apple – or should I say Unique Relationship Proposition?

The dimension of time completes the trust model

So far we looked at trust as a snapshot, but, as we know, trust increases and decreases in time. There are two main factors to be considered:

1. consistency
We all know the effect of consistent, predictable behavior. Take a baby-sitter who is most of the time super motivated and in time – but sometimes not. The inconsistency has a strong impact on how trustworthy we see the baby-sitter.
Both, Professor Andreas Suchanek and Rachel Botsman, include consistency in their set of qualities. Professor Andreas Suchanek uses the term „integrity“ for the WHY quality in trust. Integrity means „the quality of being honest and having strong moral principles that you refuse to change“ and Rachel Botsman uses „reliability“ as one part of the HOW quality. I think consistency should be seen as a third dimension in trust. It addresses the HOW and the WHY qualities in trustworthiness.

2. expectation
When we evaluate someones trustworthiness, we base our rating on general and individual expectations from our past experiences. Amazon conquered the online market with an extremely generous return policy. Customers could send back anything to their dislike. They didn’t have to explain why and the return itself was made as easy as possible and for free. All that came with high costs for Amazon. What Amazon gained with the policy was consumers trusting that Amazon – unlike the competition – is on their side, whenever a problem occurs. The same policy applied today has become a standard expectation of customers. In 2018 Germans returned 500 million goods using the policy. You can’t beat the competition in trustworthiness with a generous return policy – you just have to offer it not to disappoint customers (and reduce your trustworthiness). Using the KANO model, a generous return policy moved from being an „attractive quality“ (which nourishes trust when achieved fully, but does not cause mistrust when not fulfilled) to „a must-be quality“ (Which, when done well, customers perceive as a given, but when done poorly, decreases customers’ trust). Expectations change and when we measure trustworthiness, we need to consider the customers’ expectation baseline as a reference .

The trust score model – even an increase of the trustworthiness score could be problematic, depending on what is expected to be standard behaviour

Summary
Trustworthiness is too important not to be properly measured, designed and managed. The definitions of trustworthiness can be condensed into an overall trustscore as a multiplication of two factors: the trust in WHY a person / organisation would act in a certain way and the trust in HOW the person / organisation would act. The trustscore needs to be put into the context of time, including general and individual past experiences on what a “normal” WHY and HOW rate would be (the expectation on trustworthiness) – and the consistency of past experiences.

Within the next posts, I will elaborate this model and how we can use it to design trustworthiness. Interested?

Contact me to see what’s in it for your organisation!
ron.hofer@trustpatterns.org

June 3, 2019June 4, 2019 by Ron Hofer

Trustpattern #004 „Eternal trial phase“

FUNK offers an APP-based telecommunication contract which can easily be paused, adjusted or even canceled on a daily basis.

„You can end our collaboration any time with a days notice!“

A brilliant offer my colleague Willi Schneider – an Interim Manager – always mentions in his first meeting with potential new clients. Usually consultants are eager to work based on long-term retainers – so why does he offer this option – obviously to his disadvantage? He creates trust in the early phase of the customer relationship:

He proved that he is convinced in the quality of his work and therefore they can be convinced as well (you could cancel but you won’t!)
He offers a „trust retainer“ towards his clients – which makes the client’s trust in him grow (you could book me out for the next year just in case and then cancel after some days – but I trust that you handle our relationship with care)
He eliminates so called „trust friction“ in their decision making (can we really trust in his competence and intention? – well we can cancel anytime if he promised too much!)

One of the key drivers to be seen as trustworthy is communicated self-limitation – obviously to ones disadvantage.

It’s like the gesture of two open hands held up. It makes you pretty vulnerable and limits your ability to defend yourself IF the other person would have the intention to harm you. It communicates „you can trust me“ (because I trust you). Same with offering your hand for a handshake. You show that you trust the other person – and at the same time increase your trustworthiness. You offer kind of a trust retainer which triggers feelings of trust at the counterpart – a fascinating interrelationship of trust.

The „eternal trial phase“ pattern is using this phenomenon. Especially in the initial phase of relationships, when both partners try to figure out, if they should collaborate, we usually demand commitment before access.

In commerce, we invest trust (with a payment, our data, our efforts, our time etc.) based on promises made (Marketing). We need to trust, that what we experience after we commit ourselves is what was promised. This creates an uneven trust balance – we have to invest trust without the other party doing the same. This seems to work mainly due to a general trust into legislation and laws which make us assume that we don’t get tricked.

The trust pattern „eternal trial phase“ redesigns this uneven trust balance towards a system in which the buyer’s commitment can easily be withdrawn anytime in the relationship – to the disadvantage of the selling partner.

Freenet’s revolutionary FUNK App is based on the „eternal trial phase“ trust pattern.

With the FUNK APP, Customers can switch, cancel or downgrade as they wish whenever they feel unhappy with the overall Freenet experience.

In comparison to the standard 24 month contracts customers are used to sign, the FUNK APP idea appears to be a rather vulnerable business model .
But from a Marketing perspective, the FUNK APP seems genius to me! Freenet understood, that the standard 24 month contracts are often seen as an unfair trick telcos use to rip off their clients. Offering the „eternal trial phase“ – customers’ trust friction is reduced to a minimum – allowing a smooth purchase decision.

The FUNK APP’s main objective is to communicate trustworthiness. The message is clear: there is no need to trust Freenet beforehand. „As we are absolutely convinced of the value we offer, we can make the verification and (if needed) cancelation of our offering extremely easy – „no strings attached“.

The „eternal trial phase“ pattern …

reduces initial trust friction
eases decision making
triggers a trustful relationship right from the beginning
and customers appreciate it. They pay slightly more (The FUNK APP offer sums up to about 30,- € a month for the premium package) as long as they want to be commited.

I am convinced that this new way of selling telco contracts will result in an extreme increases of new customer acquisition and – although made as easy as possible – will decrease the customer churn rate.

What about your offering?
How could an „eternal trial phase“ offering look like in your industry?
Get in touch and we will figure it out!

March 9, 2019June 3, 2019 by Ron Hofer

Trustpattern #003 “Hidden delight”

**What Marketeers most often don’t sell is what the consumer might want in the future**

When we started offering discounts for special clients at the digital consultancy USEEDS° I founded in 2008, we used two discount alternatives. The first discount scheme seemed to be the industry standard. You define a discounted retainer with the client – a fixed minimum amount of days or EUROs they would have to order in the years to come. The alternative discount scheme was a discount percentage which increases, the more a client orders within a period of time – without any obligations to order anything. The first scheme was sometimes the basis for odd discussions with clients on how much they still need to order and what kind of additional forced projects we could come up with to reach the limit. The second scheme always produced positive surprise followed by discussions whether we should transfer the money back or use it for additional projects our clients always wanted to do but couldn’t finance – „hidden delight“.

Why don’t You get money back from Amazon, if you paid for 48 hours of access time, but only needed 3 hours to watch the film?

I know the question sounds absurd, but it helps to look at pricing mechanisms from a different perspective, the perspective of trust building.

The two most common ways to reduce pricing without loosing margin are limitations (less Gigabytes, limited time, reduced features etc. than the consumer might want in future) and bundles (more months, more of the same, more Gigabytes etc. than the consumer might want in future). Both are continuously mentioned as reasons to feel disappointed and tricked – reasons to lose trust. Why is that and how can the „hidden delight“ pattern change it?

With limitation and bundles, Marketers sell less than the consumer might want in future or more than the consumer might want in future. What they most often don’t sell is what the consumer actually might want in the future.

Limitation and bundles force customers to make a bet. And every time the bet turns out to be a bad bet, the customer will transfer the disappointment onto the relationship.

Have you ever signed a one year fitness centre membership (more than you might want in the future) and „saved“ months of fees? Have you ever learned later on, that you actually joined the fitness program only for some months but still the payments were due month per month? It occurs to me, that the fitness centre industry only exists, due to the one year (or sometimes even two year) contract model. They know that the usual member will become a „sleeping“ member within months. It allows to intensively overbook the fitness centre and sell not 12 months for the price of 10, but 3 months for the price of 10.

Members who notice that they where somehow tricked – at least not advised to their benefit by the fitness centre agent – will not prolong the membership (well they actually wanted to leave earlier anyway 😉 or come back later. They also will not recommend the fitness centre in the neighborhood and might try to trick back. The consequence of limitation or bundle pricings are often frustration and distrust. No one will thank you for a benefit signed years ago but many will complain about a loss once happening. So the initial advantage in selling becomes a nightmare for selling again.

My wife was an extreme Adobe enthusiast for the last 15 years. Back in the days we had long disputes on whether „Illustrator“ (her favorite drawing software from Adobe) or „Freehand“ (the competitor from Macromedia I preferred) was the better choice. She insisted on the Adobe software and partly this preference seemed to originate from her deep trust in Adobe. This trust was broken some months ago, when Adobe granted her a 3 month free try out for a pool of stock images. She accepted („well it’s for free let’s see maybe it’s useful“) but never actually used the service and didn’t know, that she needed to unsubscribe it weeks before the trial period ended to prevent it to become an expensive one year contract („Adobe wouldn’t do that to me“). From that moment on she was reminded monthly – when the next 50 € were booked out of her bank account for a service she never uses – that she can’t trust Adobe any longer. 15 years of buying Adobe software equals a 5 digit amount of sales volume. Seems that Adobe is not aware of the return on investment in trust.

ING the biggest Digital Bank in Germany chose a different route in their mortgage division. Additionally to an extremely competitive interest rate, they offer a further 0,1% reduction, if the customer opens a free of charge current account at ING and uses it as the main bank account. Let’s say the customer signs a mortgage of 250.000,- € for 10 years – that makes the 0,1% reduction worth more than 2.000,- € for using a for free current account. Bianca de Bruijn-van der Gaag, lead of the „home tribe“ and therefore responsible for mortgages at ING explains: „I know 0,1% is a lot. But the current account allows us to stay in a deep high frequent relationship with that customer for years. It gives us the opportunity to prove, that we are the right bank for further banking related business. It pays off in the long run“

We are used, that Telcos force us to sign a 24 months „membership“, gas and electricity providers have special offers with a min. of 12 months „membership“, car leasing contracts often can’t be cancelled within the first 36 months, if you want to pay back your mortgage earlier than planned, you have to pay an „early payback fee“ to the bank and once you buy the yearly public transport subscription (12 months for the price of 10) it will be extremely hard to cancel it, let’s say because you move to another city. Bundles ensure that customers are forced to stay longterm – well at least for those 12 or 24 or 36 months.

Companies which care about trustful longterm relationships act differently. „hidden delight“ is one of their secret weapons. Take Transport for London. When they introduced the oyster card in 2003, they offered the opposite of the examples above. With Oystercard you pay the regular price of a standard ticket per travel but if you use it to an extend, that a day pass or week pass would have made more sense, they retrospectively switch you to the special day or week rate offer. „Travel as much as you like in one day and we’ll cap your fare so you don’t pay more“. Transport for London sells what the consumer might want in the future. Transport for London solves the cognitive inconvenience to predict one’s travel behavior – an uncertain bet – and offers a „hidden delight“ model. At the end of the day (or week – depending on the card) Oystercard users get a refund, if a cheaper ticket would have made more sense. A frequent positive surprise.

Definition Trust pattern #003 Hidden delight
The „hidden delight“ pattern describes behaviours in a relationship, in which one party changes conditions like pricing or service intensity retrospectively to the benefit of the other party.

„Hidden delights“ allow the continuous communication of good news along the way. And they help to sell. The Oyster card „cap your Fare“ offer was initially installed to make the Oyster Card attractive to customers. Longterm attraction in contrast to potential longterm frustration of bundles and limitations.

Now apply the „hidden delight“ pattern on your business.
What would happen if a bank doesn’t offer a special trading offer for the first 6 months, but reduces the trading fees depending on the length and intensity of the customer relationship. Wouldn’t this create positive longterm bonding? Wouldn’t it foster a trustful relationship? (And yes, if you do the math banks would make a good margin). Or Vodafone? What would happen with your trust towards Vodafone, if you don’t have to decide between plans because you know you always retrospectively get the plan which best suits your consumption? would it make you relaxed about telco plans? Would it make you stay longer with Vodafone?

PS.:
A friend of mine just recently experienced the Amazon example. She wanted to watch a film and bought a 48 hour rent at Amazon. Within the 48 hours she didn’t watch the whole film. So she would have needed to buy another 48h rent to watch the rest of the film. Does that feel fair? Well she contacted Amazon via chat and told her story. And „one minute later I could watch the rest of the film without double payment – it was a very positive surprise“. A customer care agent repaired the trust. The „hidden delight“ pattern creates trust systematically.

Also see
Trustpattern #001 „Put it on my tab“
Trustpattern #002 „adversely trigger“

January 14, 2019May 5, 2019 by Ron Hofer

We need more flowers and less fish

Every time I join the International Management Summit of the SYZYGY AG at one of our locations, there is one very special and surprising moment which tells a lot about SYZYGY. When I check into my hotel room there is always a little present and a personal note waiting for me, written by my CEO, Lars Lehne. So far so good. The amazing thing about it is the kind of present.

Presents tell us a lot about the person giving the present and about the relationship he seeks. There are neutral presents such as the good old Chocolate, Soap, Wine, award winning book on Digital Transformation or my favorite: the empty but company branded notebook. And there are very personal presents. Books with an attitude, books which dare to polarize, books like the last two books Lars Lehne gave us as presents. Both of them reflect his belief system and both of them are dealing with what I call ‘trust patterns’ in collaboration.

The first book is „Give and Take“ from Adam Grant.

Adam Grant is Wharton’s top-rated professor for seven years straight. He is a leading expert on how we can find motivation and meaning, and live more generous and creative lives. „Give and Take“ is a condensed summary on 20 years of studies on the long-term impact of a giving versus a taking attitude in relationships. Adam Grant and his team at Wharton University studied how those two attitudes influence long-term success in a variety of fields such as sports, law, medicine or business consultancy.

Guess who is on average more successful?
The one who always helps out, always has an open ear, helps you prepare for exams without expecting a direct benefit in return (the basis for trust patterns!)?
Or the one who takes advantage of those givers where ever they can?

Yes – unfortunately no surprise there – the taker is generally more successful.

BUT, Adam Grant found something very surprising in the details. Although Takers are on top of the success leader, followed by matchmakers and then givers at the bottom, the most excellent 2% on the very top of the whole scale, above all Takers, are also Givers. The book has a strong message: a giving attitude in relationships is the better long-term strategy for competitive advantage and excellence, but you need to apply it carefully not to burn out and be exploited – which makes you end up at the very bottom of the success scale.

The second book is „The art of possibility“

„The art of possibility“ is co-written by Rosamund Stone Zander, a family therapist applying her knowledge on corporate organizations, and her spouse, Benjamin Zander, the famous conductor of the Boston Philharmonic Orchestra. „The art of possibility“ describes how leadership can boost creativity and motivation in organizations. Just like in a famous orchestra.

In one chapter they share an insight they call „Giving an A“. „Giving an A“ describes how people who experience an unconditional retainer of trust in the beginning of a relationship (similar to trust patterns!) are on average much more productive, creative and motivated. It sounds so obvious but yet, how often do we experience just the opposite when we get to know somebody new – that feeling of being tested, that hesitation to grant trust which sometimes nearly feels like suspicion and distrust. It is reflected onto how we see ourselves. We start to distrust our own capabilities and creativity.

I can highly recommended these two books – and with that said – working at SYZYGY with Lars as our CEO. There is this saying „a fish rots from the head down“, meaning, that the way upper hierarchy levels act and think have an enormous impact on how things are done in an organization. They overwrite any initiative of lower hierarchy levels.
In this case I would like to creatively change the saying into „a flower smells from the head down“ 😉

We need more flowers and less fish.

December 20, 2018April 18, 2019 by Ron Hofer

Altruismus versus Egoismus – why we cooperate

This is a wonderful documentary in three parts on the “survival of the most altruistic”. Unfortunately only in German language …

Folge 1/3: Oder weshalb wir kooperieren

Folge 2/3: Oder was uns zu Egoisten macht

Folge 3/3: Oder wie wir die Welt verändern können

“Erst kommt das Fressen, dann die Moral”, stellte Bertolt Brecht so anklagend wie resignierend fest. Wer kennt das nicht: Den Sturmlauf aufs Buffet, wenn die Hühnerkeulen auszugehen drohen. Bislang bestand kaum Zweifel, dass der Mensch ein egoistischer Raffzahn ist. Die Finanzkrise scheint dieses Menschenbild gerade wohl zu bestätigen. An der Börse wird gezockt bis zum Abwinken, ohne Rücksicht auf Verluste. Die Verlierer campen auf der Straße und fordern Fairness und Solidarität. Gutmenschen vs. Egoisten? Arm gegen Reich? Macht gegen Moral?

Forschungsergebnisse aus den unterschiedlichsten wissenschaftlichen Disziplinen zeichnen in ihrem Zusammenwirken ein anderes Menschenbild: Der Mensch als soziales Wesen, das Werten wie Großzügigkeit und Gerechtigkeit den Vorzug vor schierem Eigennutz gibt. Doch wie passt dieses Bild in den Kontext unserer bestehenden gesellschaftlichen und wirtschaftlichen Strukturen? Ganz nah dran am Puls der Zeit erforschen wir Zusammenhänge, die auf den ersten Blick unfassbar scheinen. Wir werfen einen interdisziplinären Blick auf die Befunde, die das “Gute” im Menschen beweisen sollen und fragen nach dem Sinn altruistischen Verhaltens im Kampf ums Überleben. Wir nehmen den Zuschauer mit auf sein ganz persönliches Abenteuer, an dessen Ende er sich selber fragt, wie viel Altruismus wohl in ihm steckt.

December 3, 2018April 12, 2019 by Ron Hofer

The business rationale in Trust patterns

„Yes, you didn’t order it but it is very good!“

The Milanese Cheese seller smiled at me from behind his cheese stand and didn’t really understand, why i wasn’t amused about the extra „Fior di Latte“ he snuck into my cheese selection. Fior di Latte is a wonderful cheese, similar to Mozzarella, but much creamier inside. I love Fior di Latte. But I also love to decide for myself, if I want to buy it, especially when it doubles the amount I have to pay.

The „Sneak into basket“ trick he applied is one of the so called „dark patterns“ used in eCommerce nowadays. Dark patterns range from „Hidden Costs“ to „Price Comparison Prevention“. All these tricks have in common, that they generate an unfair advantage in a business relationship. One could say dark patterns are the saving belt for Product Managers and Marketeers with over ambitious short-term sales goals. I guess with this simple trick the cheese seller sold quite a bit of Fior di Latte to new customers.

What he didn’t know was that I lived just around the corner for another 4 years and yes ever since then I quit my „business relationship“ with him and bought my cheese at the market stand right next to him. Business relationships evolve quite similar human relationships. Our relationships are not re-evaluated from scratch everyday. It is to a very high extent set at the initial moments of interaction (the introduction phase) and re-evaluated in moments of conflicts with the preset expectations. Black patterns, especially applied at the beginning of a relationship, define it to be based on distrust and low engagement.

The future of business is based on longterm relationships

We are in the business era of „everything as a service“ – meaning next to everything we used to buy is now available as a digitalized pay-per-use equivalent. And if it isn’t yet it will be tomorrow. Angela Merkel, the German chancellor, just recently predicted, that “everything which can be digitalized will be digitalized in the near future”. EaaS comes with an unbeatable set of competitive advantages in comparison to leasing or selling based business models. But they have one weak spot: EaaS based businesses derive little earnings or even losses in the beginning of the customer relationship. Every new customer produces initial onboarding efforts and running costs increasing the payout time for these relationship based businesses up to years. And usually these business models not only make the purchase decision much easier, but also the decision to switch the service partner (sell your car and buy a new one versus changing from car2go to drivenow). Robbie Kellman Baxter discusses the underlying opportunities and challenges of this business model in detail in her book „Membership Economy“.

The key success factor of EaaS business cases to break even are engaged customers.

It’s the level of engagement (activation, recommendation and retention) of their customers which makes EaaS profitable and this engagement is highly dependent on the quality of the relationship companies have with their members.

Just recently at the digital agency USEEDS°, we calculated the business opportunities in a fully digitalized wealth management service based on a „pay-per-use“ purchase model. For the customer this service is a highly attractive alternative to classical consulting fee based models. But for the bank the beauty of a scalable fully digital system only flourishes, if tens of thousands of customers actively use the service for years to reach the Return on Investment. The core lever of successful relationship businesses is the long-term loyalty and engagement of customers. There is no place for dark patterns in this business model.

We need patterns to boost long-term relationships

The success of relationship based business models is highly dependent on the quality of relationship they set in the introductory stage. All follow-up attempts to influence the relationship with Customer Loyalty or Customer Engagement programs are less efficient and effective. We analyzed 300 companies in their approach to set a positive relationship at the moments of truth (moments of introduction, trouble or expectation conflicts) and discovered a set of patterns which could be applied to any business. (we will present and discuss the patterns in future articles at trustpatterns.org )

The longterm business advantage in Trust patterns

Patterns trading an initial disadvantage for the company for long term Customer Loyalty and Engagement are the opposite of dark patterns – so we call these patterns Trust patterns. Trust patterns create an initial „unfair advantage“ for the customer (the reacting partner) not the company (the acting partner). Trust patterns foster the quality of relationship towards that feeling of loyalty and trust – a feeling of belonging. They are not magic. nor manipulative. Trust patterns suggest an initial investment to set positive, long-lasting relationships, in which the investment generates returns in time.

We are not talking business romantics here

Without a solid business case next to a great purpose vision and attitude, any endeavor is damned to vanish. Trust patterns in business are an extremely valuable building block in membership business which only derives the expected long-term revenue streams and return on investments, if you clients a held in a positive AND active relationship. And membership business is a mega trend around industries. According to a 2018 study* with 1200 teenagers in Germany (12 – 19 years old) , the amount of netflix users doubled within one year to 47% market penetration. Spotify grew by 28% from Q3 2017 to Q3 2018 toward 190 Million users worldwide. The ownership model will still be around, but undeniably, membership business and the „everything as a service“ mantra in digitalization are the new business paradigm.

Trust patterns define the necessary sustainable and profitable ways to make long-term business success happen AND spread the idea of trustworthy and fair relationships in our society.

*by 2018 JIM-Studie 2018 des Medienpädagogischen Forschungsverbunds Südwest

November 14, 2018March 11, 2019 by Ron Hofer

The power of Trust Patterns

Our dream about this blog is, that the ideas behind Trust Patterns will spread and many of you see the potential in trustworthy, long-term relationships, no matter if with foreign countries, your customers, clients, colleagues, neighbors, spouse or kids. The format of patterns seems to be ideal to help you easily experiment with and adopt the ideas and mechanics behind the Trust Patterns we identified in our research. I could write a whole different book about the power and beauty of patterns as a format to capture experience. Patterns are containers filled with ready to use best practice, they can set new norms, they are vivid sources of inspiration for innovation and they can help to predict future behavior in unknown set ups.

When we design something, no matter if physical, digital, processes or organizations, laws or regulations, brands or relationships, we have to consider many interdependent factors and make lots of decisions in an interrelated landscape of problems and solutions. Patterns help to make these decisions based on best practice sample. If the pattern has worked well for many previous design projects, there is reason to believe, that even if we don’t completely understand the problem or the mechanics behind a pattern thoroughly, we will derive a good solution. Patterns are mechanics you could plug and play in your solution.

Patterns make best practices accessible

I am half Bavarian and as such I have a copy of the famous „Bavarian Cook Book“. The structure of this 1.6 million copy bestseller was written by a Bavarian teacher, Maria Hofmann, back in the 1930s and is still seen as the cooking bible in Germany. It is based on the idea of patterns, in this case cooking patterns. There are about 100 basic recipes (cooking patterns) which are described in depth (e.g. how to make yeast dough) and about 1700 recipes based on those patterns (in this case dumplings, bread, Pizza, cakes, etc.). Patterns are best practice building blocks ready for reuse. They offer a condensed description of a proven mechanism or interdependency between multiple factors, which can be adopted for individual context related use.

Take another example, the „radio button“ pattern in the Interaction Design pattern library. It is a best practice mechanic connecting expertise in Screen design, Interaction Architecture, Usability, Legal and Coding practice. It can be applied in any kind of interface in which a user should select one of more than two options, such as in voting in elections, choosing a color for an item to purchase, selecting the right frequency for a SOS call at sea or selecting the media source on your in car TV. Using the pattern guarantees efficient coding, including all states and rules, that people understand it’s meaning and usage and that the way to offer options is legally save and according to quality standards such as the German TÜV. All in one building block – ready to be reused again and again.

For the same reason In Computer Science, patterns became very popular as they can be reused, making coding much more efficient. „Design patterns“ gained popularity in Computer Science. Design patterns can speed up the development process by providing tested, proven development paradigms which consider issues that may not become visible until later in the implementation. Patterns help to build on the experience of others. They are a powerful way to capture and share knowledge.

Patterns inspire
(Pattern based innovation)

Patterns can be used to re-invent systems in ways unusual in traditional design thinking processes. A paradigm in Design Thinking is, that we should always start with understanding the problem in it’s depth and then get creative in problem solving. Problems are usually documented in „How might we…?“ question, which set the focus for finding solutions. But in real life, there is another process to find innovative solutions, contrary to this approach. I bet it also happened to you once. You see a great solution for a problem, for instance how airplanes used Anti-blocking systems to allow a safer landing – and apply it to another context, let’s say cars. Often a great solution in one context is the inspiration to improve in another context. You didn’t start with the problem, but with a great solution for a problem. Eric von Hippel is one of the forerunners of this kind of innovation. Back in 2016 he established the idea of „Lead Users“ to innovate. His idea was to identify solutions from similar contexts and apply them to yours. Jed Laskowitz, CEO of the JP Morgan Case investment unit for instance was so impressed by the Netflix membership model, that he risked a multi-million earning stream and asked his organization to find ways to apply that model (the solution) to brokerage services of JP Morgan Case. It resulted in a „trading for free“ membership even though the bank had previously charged $24.95 for each online trade. Patterns help to trigger these „What if …?“ based innovations in a structured way.

There are many Pattern collections available made to inspire „New to the world“ innovations. All of them are generated by analyzing systems, clustering them in sub sets with similar cause and effect pairings and describing them in a rather abstract way, ready to be applied by and transferred to other contexts. A great example of those kinds of pattern collections are the Business Modell Innovation Patterns. In 2011, Prof. Oliver Gassmann and his team started the CTI project Business Model Innovation at the University of St. Gallen. The goal was to develop a methodology for business model innovation for incumbent firms. The analysis of more than 250 case studies culminated in the book “The Business Model Navigator,” written by Gassman, Frankenberger & Csik in 2014. It contains 55 Business Models which reappear throughout diverse industries and help to identify totally new ways to set up your business model. (https://bmilab.com/book)
For instance, the razor and blade model, in which one thing is sold for a very competitive price (razor) to make customers frequently buy the other thing (blades). We can see the same pattern for printers and cartridges, … – now apply this pattern to your business. What could be the razor, what could be the blades?
Or coming back to the Bavarian Cook Book: what if I apply the „how to smoke a fish“ pattern and apply it to vegetables?

Patterns predict

Patterns are predictions. They connect a cause with the most likely effect, which makes them extremely powerful means used for decision making. „Pattern recognition“ the active search for these cause and effect pairings is crucial in all aspects of our life. If there is a dog growling at you without leash, you predict a certain intention and act. If a customer bought twice at your shop, there is a high probability that he might become a long-term customer, if the client asks for a second meeting to discuss details of a project, there is a high probability, that he wants to work with you. Patterns are everywhere. In Psychology pattern recognition describes a cognitive process that matches information from a stimulus with information retrieved from memory. Quite the same happens in predictive analytics. Data is retrieved from diverse sensors and Data sources and then matched with expected intentions. Those expected intentions can then trigger behavior. An early example of this is learning to count. When parents repeat „1, 2, 3“ multiple times to a child, utilizing the pattern recognition, the child says „3“ after he/she hears „1, 2, „ in order. In predictive analytics the same would happen. The pairing of the Data retrieved (sequence of 1 and 2) with the expected intent (3) would lead to the output „4“ (just kidding ;). These patterns are extremely powerful, as they allow us to artificially predict intentions and trigger behavior in complex situations. For instance, pattern recognition can help to predict the “customer lifetime value” (CLV) of a customer. The CLV is a common metric used in Marketing to predict how valuable a specific customer will be in the overall future relationship, which could be years ahead. The CLV is based on a complex, interrelating set of data like how much money a customer spends, the number of returns they make, their ZIP code, transaction records, website interactions, customer-service conversations, social-media profiles, marital status or age. Via pattern recognition, the data of a single customer is connected with a most likely (future) intention and in case of a predicted CLV above average, it is the basis for customer tailored actions, such as special offers or faster reaction times. This is basically just a digital version of what store owners have been doing since the beginning of time — judging a person’s worth based on how the person looks like or how the person behaves.

Another example for prediction by patterns are the „High Value Activities“ Amazon and other eCommerce companies use to influence future behavior of their customers. Through pattern recognition, they find specific activities (other than purchasing an item or service) that in itself have no value to the company, but increase the probability of a future behavior with positive impact for the company. For instance a pattern such as „customers who at least once watch an Amazon Prime film within the for free trial period have a much higher chance of becoming paying Prime members“ can result in innovative Marketing activities to influence customer behavior (watch a film at least once).

Patterns can become norms

Have you ever seen a person holding a hand between the closing metal doors of an elevator? Have you ever experienced a kid touching the TV Screen to switch programs? Have you ever bought online in the assumption, that you can send back the item for free, if it doesn’t please you? Patterns, if they are applied often and accepted well, can define new expected conformities, norms, expectations and behavior.
With the Nobel Prize winners in Economic Sciences, Daniel Kahneman and Richard H. Thaler, we saw a rise in data-driven behavioral economics – unfortunately most often applied to so-called “dark patterns”, which make customers act to the benefit of companies. Or should I say “short-term benefit”, as those customers will try to leave or trick back in the long term.

For deep relationships, we need the opposite – “Trust Patterns” – in which all parties experience a “retainer” of benefits, trust and value which makes them loyal, long-term partners.

Trust Patterns can make this world – little by little – a better place

Trust Patterns will make best practice samples accessible and adoptable for all of us, Trust Patterns will inspire and motivate us to use trust based long-term relationships as a reciprocal advantage, Trust Patterns will help to integrate reciprocal altruism into data driven systems and last but not least, more and more Trust Patterns might become norms in society. We believe that using patterns as the form to document the best practices samples we found will motivate many of you, to apply more Trust Patterns in relationships and thus make this world little by little a better place.