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June 16, 2006

Hey, What About Me?

Deloitte Research gives us a handy path to the illustration of Clayton Christensen's disruptive innovation. On numbered page 6 of their downloadable paper, the diagram of a value gap attacked by innovation stresses the problem of improvements that are "missing the mark." In this case, customers have already decided on what their quality requirements are worth and have stopped asking for more quality.

But let's cut through the innovation buzz right away: what is vitally important is that the customer's preferences do not consist only of quality issues. The value gap arises from the "customary" product not meeting preferences well enough.

Cued by that, let's look at the issue of "profiling" the potential customer. In a highly general view, this profile should be able to account for at least a few simple things like:
- what's good for the person,
- what the person wants; and
- what the person needs.
In fact, as we cover those items from top to bottom, we earn more and more permission to take a critical place amongst the prospective customer's set of reasonable alternatives.

Prospects can make this tough to figure out, though. The sources of their apparent resistance can range from indifference to confusion, and can be passive or active.

One view on this problem comes from the question, how do we get to know the customer? Do they want us to know them? We start out not knowing them, and we're trying to get to persuade them. But in really tough instances we may have to solve problems ranging from their anonymity (versus our knowing how to find them), on through these:
- their secrecy (versus our knowing what's good for them);
- their privacy (versus our knowing what they want); and
- their security (versus our knowing what they need).

It is an unusual list, but the items are related by the idea that the prospective customer is actually taking some risk by getting discovered or exposed, in which case they will psychologically work to minimize that risk. Offbeat?

Maybe, but not so much. This corresponds to our real-life experience in which being pigeonholed by others reduces our ability to get what we really want. In effect, other parties are actually competing with us for the right to define our identity.

My real point: the notion of risk is significant to the notion of preferences. Furthermore, preferences are critical to the notion of identity.For us suppliers/marketers, then, the underlying principle in engaging the prospect is to get the prospect's permission to "cast" them in a role that we want them to play. We'll get that permission due to preferences.

Marketing to an identity is an effort very well paved in the customer relationship management practice. Any number of references and cases are easily obtained, such as work still found online from MIT's Sloan Management Review about demographics, psychographics, and branding. This particular work brings up the idea that identity is a result of layers of multiple personalities, and furthermore that a cetain hierarchy of these layers may be persistent for one prospect -- although not consistent across more than a small percentage of many prospects.

What is going on in these layers or hierarchies? Maslow's Hierarchy of Needs has long given us a representation that proved very helpful in taking the prospect's temprature and generating some segmentation of general populations. But the most interesting twist on that view is that people are not fundamentally "rational" in their behavior, and they might for example routinely prioritize entertainment over safety. Psychographics has to account for those kinds of things if it is really to be of any reliable use.

Without saying that psychographics hasn't been or isn't effective, the identity definition model that follows below takes on the hierarchical issue without needing caveats. It's not so much a hierarchy of personal progress that matters; instead it's an architecture of identity.

Agreed: the prospect's challenge is to choose who to be. The result of solving the challenge is a predisposition, and the predisposition is what the marketing initially engages.

This challenge would have little importance if the prospect had no need to be social. So a major point of what follows is that solving the challenge is done in terms of factors that affect perceived and actual relationships -- notably, comparisons of one's own identity against either (a.) the apparent identity of others or (b.) the identity that they appear to ask of you.

With that selectivity behind its pertinent factors, the following model illustrates the construction of the identity that the prospect puts into in play:

This self-construction by the prospect can range widely in nature, from being tacitly intuitive to explicitly calculated, as well as ranging from being passively conducted to aggressively.

Regardless, it starts with a prospect's self assessment of two things:
- how they want to fit in (association), and
- how they think they do fit in (accommodation).
The model here identifies association and accomodation as the two key dimensions of the "demographic". The point to remember is that the prospect is determining his/her own demographic.

The prospect then takes that demographic into the realm of immediate experiences. This happens either actually, or by the prospect's forecasting or hypothesis. The model here refers to that "realm" as the "location" . Location, which is predominantly a mental coordinate, has three interacting components:
- negotiation
- position
- status
These components have individual definitions, but right away lets point at what they mean to the prospect:
- association (how I want to fit in) is a result of balancing negotiation and position.
- accommodation (how I think I do fit in) is a result of balancing position and status.
- I need to have my sense of association and of accommodation be compatible with each other.

Now, to get to the particular definition of the components, first note the central role of "position". Position is the product of current goals versus current constraints. Goals may be determined by some decision calculus related to a value system such as ambition, competition, or morals. But goals can be highly sensitive to the situation at hand. Meanwhile, constraints are defacto limitations or dependencies that exist in the way current circumstances are arranged, especially when imposed by other parties or by natural laws. Since both goals and constraints change all the time, the position in the current moment may or may not be reasonably similar to the last time we checked.

Next let's look at "negotiation". What gets negotiated is deviation versus tolerance. Deviation refers to rules, while tolerance refers to expectations (or as some put it, mental models). It doesn't matter yet whether the rules at hand are synthetic (contrived, arbitrary) or natural (circumstantial, self-evident), but moreso whether they seem inevitable. Meanwhile, expectations build up from the impact of actual experiences, so their strength is subject to the influence of new impacts even if the current strength is high. Deviation from rules is a possibility, but the amount of deviation is often bound up in the attractiveness of some imagination or ethic. And tolerance framed by expectations can set boundaries around sensitivity and acceptance -- but those boundaries may be flexible because of changing expectations. Balancing deviation and tolerance often produces what we commonly see as the main signs of differentiation or character-type.

The third component of location is "status", which in this model is a component still under study. But to date it refers to the prospect's environment and particularly to the fit in the environment. Generally, this pertains to the actual external circumstances in which the prospect is having current experiences, as opposed to the more internal mental coordinates of position and negotiation. The common form of this status crosses the mind as, for example, a sense of whether "I belong here" or whether "I'm in good shape here". We anticipate that statuswill also break out into at least two factors, not just to environment -- or that "environment" is the placeholder for a pair of more precise items -- but for now we have enough of a working distinction, and we note that environment can change a lot or a little, depending on at least the prospect's mobility, obligations and luck...

All of the items to which the "location" components refer are what this model calls "conditions".

As seen in the diagram, the prospect's overall predisposition is formed from the way that conditions determine location, which in turn determines the demographic and finally the identity.

The prospect faces the world in terms of those conditions. The conditions posed to the world are dynamically establishing themselves all the time, both separately and against each other. As described above, these dynamics are what the model calls "governors", and it is the governors that comprise the likely interaction with the world. This is, in other words, the "interface" that the prospect has with the world. Typical influences are on one side of the interface; while on the other side, underneath that interface, the derivation of identity is constantly being repeated to generate the prospect's likely response.

In the big picture, the model describes what goes on between (at bottom) the sense of identity that the prospect is forming or maintaining, and (at top) the typical influences that everyone might suspect surrounds them. From bottom to top, the prospect does not decompose an identity to figure out how to face the world; instead, this hierarchy of states is all there all the time, and the typical influences are running the pathways that derive the prospect's sense of identity in the moment.

For influencers working on prospects, there are many types of influence -- from (at top) authority to features -- thus there are many ways to try to "form" a prospect's momentary identity for more correspondence to the influencer's agenda.

It can be important for the influencer to understand things lower in the hierarchy to be more quickly effective. Remember the basic tension:
- how they want to fit in (association), and
- how they think they do fit in (accommodation).

For example, if the prospect thinks "I look good in yellow, but the group that I want to belong in thinks that red is cool", then the prospect is trying to balance association (red) and accommodation (yellow). The prospect has to gauge, "what's my risk of not embracing red, versus my opportunity to get away with yellow?"

Or what if it is important to the prospect to NOT be associated with a group that likes red (accommodation)? Then a preference for "not red" can become highly activated, leaving plenty of identity room for deviation from the norm (association). This is a scenario that, in revolving around a change of goal, relates to the popular notion of the "tipping point", in which rapid adoption of a new standard takes place when an early instance of the new standard proves to satisfy a preference of either unusual or previously unsuspected importance, AND the environment proves to be a reliable supplier of more instances. Put that way, it is easy to recognize that tipping points and disruptive innovations both address the value gap between what is customarily offered and what is actually preferred.

[This article developed from related studies of dynamics in behavioral economics and complexity theory, which other articles at Archestra will eventually discuss with links to this one.]

Posted by Malcolm Ryder at June 16, 2006 9:06 AM

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