Content Intelligence Blog

4 min read

Stop Relying On Your Gut When It Comes To Consumer Choice

Oct 2, 2015 12:37:55 PM

“Knowledge of yourself will preserve you from vanity.�? – Miguel de Cervantes

Here’s a case study illustrating why, despite having reasons to be confident in our intuition about how customers view the world, relying on that intuition can lead us astray. (Names have been changed.)

Steve had a problem. The emergency department of the Community Hospital was empty.

Well, not empty, but it was not nearly as full as it should have been.

Emergency departments are the “front door�? to hospitals, and account for roughly half of the inpatient admissions and drive a large share of revenue for the hospital. A slow emergency room is more than a medical puzzle (it’s not as if patients were simply not having emergencies). It’s a dire business problem.

Steve had a hunch about what was going on. Deep down, he knew he’d find his missing patients at another local hospital, let’s call them Memorial Medical Center, a competitor that had recently renovated their emergency department.

But this didn’t make sense to Steve. Community and Memorial Medical Center both served a neighboring town, but his hospital was just a five-minute drive while the competitor was over a half hour away. In addition to being closer, Steve’s perception was that his emergency room had lower prices and shorter wait times.

In emergencies, Steve intuitively felt that surely these three advantages were more of a priority than renovated private rooms, right? So why were patients flocking to Memorial Medical Center’s ED? It didn’t make sense.

Why is intuition about customers often wrong?

Steve isn’t alone. The sheer number of decisions that managers must quickly make doesn’t allow for the luxury of finding all the data they need. By necessity, thoroughly vetted solutions often give way to time constraints and the temptation to at least partially rely on one’s “gut.�?

There’s a lot of terms for this sort of decision making: “Intuition,�? “a feeling in your bones,�? “instinct.�? But there is a strong appeal in applying your spidey sense – it feels natural and it is efficient. In a 2003 Harvard Business Review article, Eric Bonabeau describes the allure but also the very real dangers of relying on one’s own intuition for business decision-making.

Managers are in a bind. A customer-orientation is a high priority in today’s competitive marketplace. Probably everyone would agree that the customer’s perspective should be at the center of the business operation.

But our intuition about customers’ needs and perceptions is often wrong. The problem is that humans are just not very effective at understanding and predicting others’ perspectives and preferences. Research in a wide variety of contexts has consistently demonstrated that “people often build on their own preferences in predicting those of others.�?

In other words, we can’t get of the way of our own preferences and intuition.

When Steve tried to predict local healthcare consumers’ perceptions of the competitive ER options, they perceived their ED to have a strong competitive position, with particular advantages in wait times, location, and pricing. This made the loss in patient volume even more puzzling and seem solely attributable to the competitive hospital’s new construction and private rooms.

vLens-1

In God we trust. All others must bring data.

Steve recognized that his own intuition may not be correct, so he went about gathering evidence from actual consumers before creating his strategy to increase patient volume.

Customer research revealed some startling insights:

  • While Steve and his team had focused on one main competitor, consumers were considering more options. In reality, Community Hospital competed with more options than they thought - some up to a 40 minute drive away. Many companies feel completely confident when asked to list their main competitors. However, when I surveyed 421 past executive students who had completed growth strategy projects, 28% indicated that customers brought up competitors that they had not considered. That’s a pretty big surprise that significantly shapes strategy.
  • Consumers didn’t share the Steve team’s assessment of the competitive situation. Their competitor Memorial Hospital was not just valued for having private rooms, but consumers also perceived them as having better staff, more appropriate patient care, and shorter wait times! In fact, the only distinct thing perceived about Community Hospital was that it was the closest option to town.
  • Local consumers put much less emphasis on price than the Steve and his team expected.

vLens-2

New Insight Leads to New Action

Steve and his team acted quickly on this customer data:

  • They implemented a 29 Minute Guarantee for service, which required the least amount of investment in order to produce a return. This strategy was about refining their process and trumpeting successes to the public.
  • They moved to a hybrid Hospitalist model and hired a full-time general surgeon so patients needing a consult didn’t have to be transferred. This improved the perception of their ability to provide necessary care to patients.
  • The facility underwent renovations to go from 8 semi-private beds to 11 full private rooms to neutralize their competition’s advantage in this area.

Actions Lead to Results

Upon executing their strategy, Steve’s team reversed losses and produced an immediate volume increase of 7% in the first half of the year. The parent health system thought the program was such a success that it is now being rolled out to a sister facility.

The lesson learned here? Even very experienced business leaders should fact-check their gut. We can all benefit from updating our intuition with good data every now and again.

Intuition Adjustment

If your understanding of customers is off, this means your strategy is off. This is actually good news, because it’s easily fixed. It is often surprising how much growth opportunity is revealed in conversations with customers about their choices. This represents a quick and efficient way to “adjust your intuition�? and get real insights into growth.

Steve’s team used this information to build an effective strategy that created new, unique value for local customers. In this and many other contexts, the goal is to be different from competitors in ways important to customers. When this happens, you win the customer’s choice.

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Topics: General

Joe Urbany
Written by Joe Urbany

Cofounder of Vennli and Professor at the University of Notre Dame

Joe is a core marketing faculty member in Notre Dame’s MBA program and past Associate Dean of the Mendoza College of Business with numerous publication credits related to customer decision making and growth strategy.

In 2010, Joe Urbany co-wrote a book entitled Grow by Focusing on What Matters: Competitive Strategy in 3-circles. The premise of the book is that growth and competitive advantage are about effective positioning. The model facilitates speed of understanding and action by focusing strategic attention on what impacts customer decisions. It has been applied in over 800+ MBA projects at Notre Dame. Co-founded in 2013 by Joe, Vennli is based on this proven model. Vennli brings the model to life through the use of collaborative technology and providing a platform that makes an already faster and more intuitive process even more accelerated and streamlined.

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