Tesla Archives - Customer Strategy

August 29, 2019

NPS (26) – Activating Promoters (so they really do recommend you) – 26th article in a series on the Net Promoter System®

Maurice FitzGerald / Blog, Net Promoter System, NPS / Customer Experience, marketing, Net Promoter System, NPS, strategy, Tesla /

Welcome to the 26th article in my series on the Net Promoter Score and System. This time the subject is money! We are talking about the Net Promoter System. The key word here is ‘Promoter’. Read on… You can read all of the prior articles on our blog page here.

So, you have identified a lot of Promoters, Passives and Detractors. As humans, we like the sense of accomplishment that comes with putting out fires. It is tempting to spend all our time on Detractors. After all, we understand their problems. We know what to do. As for Promoters, well, it is far less clear what we should do. Here are some examples and ideas.

Tesla’s Promoter program

Tesla is in the fortunate position that a lot of people love their Model S cars. They have taken the principle of activating Promoters to a new high. Existing customers are invited to enter the company’s referral program and receive a referral code. If one or more of their friends or colleagues use the referral code when buying their own Tesla, the Promoter receives ever-increasing rewards. In early 2017, the rewards were as follows:

Every referral means an additional ticket in a periodic prize draw for a Ludicrous P90D Model X.
Two referrals mean a Tesla sports bag.
Three brings a Tesla jacket.
New Tesla wheel rims come with five referrals.
Promoters get invited to the next major Tesla event after ten referrals.

The top Promoter in 2015 had 188 referrals and won the car. There is a client-side incentive to accept referrals too. If you buy through a referral, you get a $1,000 price reduction. Tesla prices are not negotiable in the showroom, and a purchaser can simply enter the referral code when ordering online, or in the showroom.

Using an existing platform, or creating your own

Rewarding loyalty from existing customers is relatively easy. My wallet contains everything from Starbucks and Café Nero loyalty cards with sequences of punch holes, to airline loyalty cards. Putting a system in place to encourage your fans to refer their friends can be more complex. There are several online platforms for the work, and I have no particular preference among them. Starbucks, Virgin America, Staples, Lands’ End, Microsoft and other companies have used Extole (www.extole.com) for their online referral programs, allowing Promoters to use Twitter, Facebook, email and text messages to share their experiences and link to web pages and social media. Both the referrer and referees are eligible for rewards.

At the simplest level, if you operate at retail level and use a physical loyalty card that tracks ten coffee purchases (for example), one approach would be to give a 50%-off refer-a-friend coupon to each customer who completes a loyalty card. While it is true that the coupon will not necessarily be used for a new customer, the same is true of Extole and other systems for consumer businesses that do not have exhaustive records of all customers.

Promoters may not have purchasing power

Where your customers are companies, end users of a product or service often have no authority to order from you. They have some influence over the person who can order from you, and you need to stimulate them to exercise that influence. But it may be a mistake to believe that individuals cannot help. Things have been changing radically in high-tech and it is easy to see how the trend is spreading elsewhere. In the old (but recent) days, anyone buying software in a medium to large company had to go through the IT department and they in turn went to procurement. The reason was that you needed new hardware to run the new software, and the IT and procurement people controlled hardware purchases.

Let’s suppose you have happy end users of software in a company. You would like them to consider your new product. Ensure it is available in a free version that limits (for example) the number of users. This is how messaging application Slack got started. Individual groups of users that did not have to pay anything spread their enthusiasm to departments and whole companies. Since it is Cloud-based software, no new hardware is required to run Slack. This means that departments can order it online, on their own. At a greater scale, this is also how Salesforce.com grew and beat Siebel. Sales organizations could decide to use Salesforce.com even without the agreement of the IT department, as no new hardware was needed. Of course, whoever was buying still needed a budget.

Conclusion

Promoters are not the only people who should be ‘activated’ to help you. After all, most people who would like to recommend your company have probably not answered your survey. However, Promoters are a great starting point. You know you can approach them with confidence, since they have already said they are likely to recommend you. Start with Promoters, then talk to others who seem to like your company a lot.

Next time

The next article will be about where and how you should concentrate your implementation energy, based on personal experience.

As is often the case, the above is a slightly-edited version of a chapter in one of our books; in this case Net Promoter – Implement the System All of our books are available in paperback and Kindle formats from Amazon stores worldwide, and from your better book retailers.

May 27, 2019

Tesla, Elon Musk, and the new financial apartheid

Maurice FitzGerald / Behavioral economics, Blog, Cost, Cost reduction, Psychology, Strategy / Cost reduction, Elon Musk, financial apartheid, Financial news, layoffs, New York Times, Tesla /

José Luis Martínez* started work at as usual at Tesla’s Fremont plant on a January morning earlier this year. He was in his third year as a ‘maintenance technician’, ensuring that production equipment worked as expected at the advanced electric car factory. A new model was hitting the market and sales forecasts were optimistic. Good times. Just before the morning break, his supervisor, Miguel Ángel, came over to him and handed him a piece of paper. It was the end. The end for him, his friends Frank and John, and about 30 other maintenance technicians. The end of his well-paid job, potentially the end of the American dream his father and mother had when they arrived from Mexico a generation earlier. How had this happened? What was he going to tell his pregnant wife? How could his supervisor’s story be true; that their rich CEO, Elon Musk, needed to eliminate over a thousand jobs here in California to reduce costs? It couldn’t be true. Someone must be lying. Please be lying…

…..

I have written extensively about what I politely call cost reduction communication errors. What I have read about Tesla in the press over the last few weeks goes a lot further than a simple communication error, and not in a good way. Let me give a little background and update you on the latest Tesla-related news. Then I will close with some behavioral economics theories.

Senior executives behaving as though cost restrictions don’t apply to them

My first experience with senior executives behaving as though restrictions didn’t apply to them was with Compaq. We went through a rare bad patch around 1999 and needed to put some cost controls in place. A corporate leadership team member went to Norway, Sweden, Denmark and Finland to explain how serious the situation was, and how the teams all needed to work on reducing cost. He had a major problem communicating this as it became known before his arrival that he had leased a private jet to minimize the time it would take to get around the four countries. It is irrelevant whether that saved cost in some imaginary or real way. It destroyed his message, and nobody seemed to take any particular action after he left. We then had to work on the various initiatives in detail, country by country, facing a bit more resistance than usual because of the communication mistake.

The leased private jet example is part of a wider phenomenon whereby the most senior people do not change their own spending habits while making “difficult decisions” that only affect others. Personally, I think of this as cowardly leadership. Issuing travel freezes for your business from the comfort of your Gulfstream as you cross the Pacific is perhaps the most egregious, though unfortunately common example of a complete disconnect between leadership and employees. A G550 costs about $45 million. This is the same as 300,000 advance-booked return flights from Chicago to Atlanta on United by people who now have to jump through hoops to bring in business or cut costs due to the travel freeze. As a general rule, the easiest way large corporations can cut travel costs significantly is to temporarily ground or totally eliminate their corporate aviation fleet. The symbolic value of such a move is also high. Employee reaction will be “Wow, we really need to get serious about reducing cost.”

A new extreme

Tesla and Elon Musk have now achieved a new extreme. I am not making this up. It is quite easy to find articles that report Tesla’s cost reduction efforts in a consistent way. This is one of several that even mentions elimination of toilet paper as one of the cost-saving measures. Given the automobile part of the company makes a loss that may even seem reasonable to some. Even I was hesitant to be openly critical until I read the New York Times article about CEO pay. Elon Musk received a compensation agreement in 2018 that has a maximum payout of $2.3 billion if he hits all milestones, according to the article. $2.3 billion! I won’t attempt to calculate the number of airfares or rolls of toilet paper that could buy. However, I will estimate that it would pay the annual salaries of at least 25,000 Tesla employees. Employees like José Luis.

Elon Musk’s home country used to have a system where a rich white elite controlled the country and believed that different rules should apply to part of the population. It was called apartheid. What we are now witnessing at Tesla is apartheid 2.0: financial apartheid. The person at the top lives one way. Everyone else lives by different rules. I have no reason at all to believe that Musk, a South African, had any time or sympathy for Apartheid while it existed. And we are all familiar with discussions of the societal effects of extreme income disparity. What we tend to skim over is the psychology of being rich; is there a sort of ‘financial Apartheid’ in the mind of the wealthy? There is quite a bit of experimental evidence that suggests that the elite believe they do not have to obey the rules ordinary people follow. Here are two examples:

Experiments show the elite do not play by the same rules as the rest of us

Way back in the 80s, Paul F. (real name not mentioned in this NYT article) moved from being a trader to managing his own bagel business in Manhattan. He delivered bagels to offices each morning and anyone taking one was asked to put money in a box beside the bagels. It was an honesty system and he saw consistent variations in honesty over the years. In one office, executives were on the highest of three floors with lower-level staff on the other two floors. The executive level was the one with the most missing payments, meaning stolen bagels.

More recently, Paul K. Piff, a researcher at the Institute of Personality and Social Research at the University of California, Berkeley, has conducted a study linking bad driving habits with wealth. He stationed students at crosswalks and observed the make and approximate age of cars that stopped to let pedestrians cross (as required by law in California) and those that did not. Guess what? 100% of cheap old cars observed stopped. Quite a few of the most expensive models just kept on going. BMW drivers were the worst. Read a summary here. A lot of other experiments exist.

There is a large scientific literature on the nature of ‘ingroup’ versus ‘outgroup’ thinking – including the scapegoating of those not in our own group, the tendency even to consider them subhuman. While it is not too hard to be believe that some extremely rich think of the poor as subhuman, there’s a more interesting phenomenon: they may mentally delete the poor. Here is one such study, as reported by Scientific American.

So therefore?

So, what’s the bottom line for José Luis, Frank, John and people like them in a world where their CEO could conceivably be paid billions? Well… the billions need to come from somewhere, and it seems like it was their turn to be the source this time. I doubt Elon Musk will get a turn.

*Fictitious name and person.