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Chip Conley

January 2, 2008

Is there a HIERARCHY OF NEEDS in home development?

I became a born-again Maslow nut during the post-dot-com, post-9/11 period that we Bay Area hoteliers like to refer to as the “five-year hangover” starting in January 2001. After five years of phenomenal times for Bay Area hotels, we experienced a bubble burst heard round the world. Suddenly assets became liabilities. Someone once told me that all businesses have a start-up phase, a throw-up phase, and a grow-up phase. My goal in 2001 was to graduate to the grow-up phase as quickly as possible.

Burning the midnight oil reading Maslow and his iconic Hierarchy of Needs gave me the confidence to take a contrarian path in the hotel industry wreckage that was 2001-2005. Rather than purely living in trench warfare for half a decade, we decided to focus on the higher needs of our employees, customers, and investors. Creating peak experiences for these three constituencies helped us to create peak performance for my company. And, almost exactly seven years later, our annual revenues are triple what they were back then.

OK, how does this relate to residential real estate? I was scooping sun-dried tomatoes on my spinach salad at the new Whole Foods Market that moved into my ‘hood (thank you John Mackey!) when a business colleague came up and slapped my back. Given that I don’t have too many back-slapping friends, I immediately recognized the fraternizing embrace as a real estate developer I’ve known for years. He told me he hasn’t been sleeping well for months because all of his residential real estate developments were going “sideways.” Wasn’t that a movie a few years ago about drinking a lot of wine? Now I understand the reference. But, and this is the honest to God truth, he said he’s been reading my book PEAK and he’s now sleeping so much better. I wasn’t sure how to take this. I have a few books bedside that are my trusted version of Sominex. Fortunately, that wasn’t what he meant. He said, “Now I understand the pain and suffering you were going through a few years ago and why the Hierarchy of Needs was your savior. I’m applying your Maslow theory to my little debacle and it’s amazing how relevant it is and how easy it is to teach everyone in my company about this.”

Suddenly, I realized that what we’d experienced in hotels seven years ago was being repeated for home developers, investors, brokers, and, certainly, home owners. The bubble bites, doesn’t it!? But, my conversation with this developer was truly enlightening as it’s one more piece of evidence to suggest that this PEAK theory is relevant to all kinds of industries. Let’s first examine the problem.

The problem is the bubble has burst, which means that home buyers have moved from the fright of not buying quickly enough (for the last few years, waiting six months could cost you 10% in a price increase) to the fright of whether buying a home in this marketplace is a prudent investment. So, based upon the idea that people need their base survival needs addressed first, smart home developers are first and foremost figuring out ways to communicate the safety and intelligence of making the investment. One clever developer I know created a forty year line graph showing the ebbs and flows of Los Angeles residential real estate values and then the specifics around their neighborhood. What this graph demonstrated was the idea that values do go up and down – this isn’t the first time there’s been a marketplace devaluation. But, the neighborhood graph of values showed that this particular area had held its values historically better than the overall metro market. So, in essence, this developer was trying to allay the survival fears of the home buyer to say, “I know you have worries about home values, but this is a safer bet given that this neighborhood has performed better over time.”

But, just addressing a buyer’s survival needs isn’t enough. As my developer friend told me, “We have become much better listeners. The second level of your Customer Pyramid suggests that customers make a commitment when they have both their expectations AND their desires met. Rather than dropping our prices like all of our competition is, we’ve chosen to add value or provide upgrades to the homes that specifically address the desires of the customer. A year ago, we might have charged them an extra $10,000 for hardwood floors. Now, we provide it for free. We try to have our salespeople come up with three desires per customer that we can translate into value. We show these prospective buyers just how much they’re saving on these upgrades, but it also means we aren’t cheapening the values in the neighborhood. In fact, we’re improving the values because we’re creating better homes.”

So, I asked my colleague, “I understand how you address the two lowest levels of the Customer Pyramid – expectations and desires – but how do you address the “Unrecognized Needs” of the customer to create the self-actualized experience that is found at the peak of the pyramid?” He said he was still trying to figure that one out. Since then, I’ve given it some thought. Why not make a special offer to the prospective buyer: as icing on the cake, we will offer you $5,000 to be used in one of the three following ways: (a) we throw you the most over-the-top housewarming party, anniversary, or birthday party for you and all your friends in your home, (b) we give you a $5,000 credit at Best Buy for you to buy whatever kind of home entertainment system or technology you want, or (c) we donate $5,000 to the charity of your choice in your name. While other developers will drop prices at the drop of a hat, you can create a memory or something of real value by “investing” your $5,000 in a manner that truly makes a difference for the buyer.

If you’re in the residential real estate field or just own your home or condo, just remember Winston Churchill’s line (although Winston wasn’t particularly Maslovian): “When you’re going through hell, just keep going.” As I learned with the hotel biz, “this too shall pass.” Rather than fighting in the trenches every day and just dropping prices as your solution to get sales traction, consider how you can appeal to the higher needs of your prospective customers. I promise it will differentiate you in the marketplace. In a time when everything has become commoditized, differentiating yourself and your product is the sign of a peak performer.

Posted by Chip Conley at 9:25 PM | Add Comment

November 26, 2007

Maslow-Minded Merchandising

OK, it's that time of year when we all become transactional. We overstuff our bellies on Thanksgiving Thursday and then overextend our credit on Black Friday when America's malls remind us that capitalism is alive and kickin' in the good old US of A. But, what if a retailer were to take a more transformational approach to their customers during this busy time of year? Or, what if you or I were to purchase experiences rather than possessions as a way of gifting our relatives and friends?

Abraham Maslow suggested that we all aspire to self-actualization in the course of our lifetime after we've had our base needs met. In my book PEAK, I suggested that peak-performing companies move beyond the transactional nature of most customer relationships at the bottom of the pyramid so they can address their customer's higher needs (which are often unrecognized or unspoken by the customer). A great company creates peak experiences for their customers in a way that almost transforms them into a self-actualized customer.

I was reading the SF Chronicle today where I saw a Business page cover story on how Apple is remaking their already-successful retail stores. The first line of the article is "Not a cash register in sight." Ron Johnson, who runs Apple's retail stores worldwide (and is quoted in my book), tells the reporter, "We try to pattern the feeling to a five-star hotel. It's not about selling. It's about creating a place where you belong." Apple's "Genius Bars" (friendly technical support, especially for those self-actualized Apple customers who pay $99 annually as part of the Procare program which allows them one hour a week of extra training and attention) have been expanded. It's almost like a hotel that came to realize they were making big bucks on their lobby bar so they decided to extend the bar. Well, at Apple, they're dispensing wisdom, not cocktails, but they're finding this relationship-driven approach to selling computers to be highly profitable. It's a far cry from Radio Shack.

In fact, Apple has now banished the cash registers so that their "concierges" who help customers find their products can just whip out a portable scanner on the spot in order to facilitate the payment for the goods. Notice that the transaction is the last step of the process and is completely understated. Has this worked? You bet it has. Conventional wisdom in 2001 (when Apple opened their first stores), suggested computer retailing was passe as Dell's "Direct" approach was going to take over the world and Gateway was going out of business. Yet, Apple became the fastest retailer of any kind to ever make it to $1 billion in sales. Now, they're up to $4.2 billion annually just in retail sales.

So, how can you apply Maslow's Hierarchy of Needs to your shopping habits this holiday season? First of all, just remember that most of us have way more stuff than we need and we have precious little storage space to "stuff" all this additional stuff we're going to receive these next few weeks. Take a lesson from MasterCard - who frankly would appreciate it if we all bought billions of dollars of useless crap for each other - which reminded us that what's most important in life is what's "Priceless." What's priceless in our lives isn't the material possessions, it's the experiences and memories we create with our loved ones. The big gift I give the 11 members of my extended family each Christmas is an annual family vacation. Last year, it was an art-themed weekend in LA. This year, we're going (along with an additional 3 family members) to the Ahwahnee Lodge in Yosemite where we'll have a traditional white Christmas and experience the legendary Bracebridge 17th century English yuletide ceremony (which has been celebrated annually for 80 years at the Ahwahnee and has to be booked a year in advance).

If you want to create a transformational holiday experience - as opposed to the typical transactional approach - consider the following three questions: (a) what kind of unique experience can you create that your family or friends will remember for years? (b) what kind of gift can you give that will self-actualize your gift recipient (for example, how about donating $100 to a teenager's favorite cause?)? or (c) what's an educational experience you can gift someone that will boost their sense of esteem and will benefit them for years to come? In sum, as the feverish shopping season kicks into gear, consider a new approach to creating a more meaningful season of giving.

Posted by Chip Conley at 10:45 AM | Add Comment

November 13, 2007

Living Green: Tapping into the Hierarchy of Needs

This weekend I had the opportunity to peek into the Green Festival here in San Francisco. Years ago this public tradeshow was primarily full of folks wearing tie-die. Today the crowd is as mainstream as a crowd can look in hippy-dippy San Francisco. I saw guys in suits and soccer moms with their kids in tow--all there to learn a little bit more about the burgeoning green marketplace.

Given that I’ve got Maslow’s Hierarchy of Needs on the brain (the foundation for my new book, Peak: How Great Companies Get Their Mojo from Maslow), I started wondering, "How does ‘living green’ address the higher needs of employees, customers, and investors?” Strangely enough, the more I considered it, the more I realized that the green movement is a perfect example of how any company can genuinely address the higher needs of their key constituents as it can have a transformative effect on people (the reality is that there are many companies today who are not “genuinely” or “authentically” doing this but they’re just providing “greenwash” to make themselves look environmentally responsible).

So let’s consider each of these three constituencies in relation to the key themes of the Hierarchy of Needs pyramid, which progresses from SURVIVAL needs (physiological/safety) at the bottom to SUCCESS needs (social/esteem) to TRANSFORMATION needs (self-actualization) at the top. The Employee pyramid’s progression is MONEY, RECOGNITION, and MEANING. So, do employees have their Meaning needs addressed when they work for a company that’s genuinely taking an environmentally sustainable approach to their business? Absolutely. Creating a Green Task Force at Joie de Vivre was a magnet for proactive problem solving, especially from many of our younger Gen X employees. For many of us, making a difference creates greater meaning in our lives than making a buck.

What about the Customer pyramid? The progression there is from MEETING EXPECTATIONS (survival) to MEETING DESIRES (what could be defined as “success” for a customer) to MEETING UNRECOGNIZED NEEDS (when a customer feels transformed by buying from the company). The initial purchasers of the Prius were definitely self-actualized customers who were having their unrecognized needs met. Four years ago, how many people could say they were helping the planet while buying a car? The core customer for the Prius used to be an eco-minded person who wanted to have a transformative effect based upon the car they chose to buy. What’s interesting is with time the largest market segment for the Prius has become the customer who is looking to save money due to the car’s fuel efficiency. And, the number one reason that people buy a Prius today? 57% of Prius owners say they bought the car because it “makes a statement about me” (this was just 34% nearly four years ago) while lowering emissions (which used to be a primary reason) has fallen to fifth place in the top seven reasons why people buy a Prius.

While many of us wonder whether some investors are truly human as opposed to just being Return On Investment robots, I do believe the Hierarchy of Needs has relevance here, too. The survival and success needs of investors have to do with being in TRANSACTIONAL and RELATIONSHIP ALIGNMENT with the entrepreneur or company in which they are investing. An investor who is looking to experience transformation from their investment is what I call a LEGACY INVESTOR, someone who sees that their role as an investor can make a difference in the world. When a legacy investor invests in a green company or in a company that is at least operating using environmentally sustainable principles, there’s no doubt that investor is feeling a little more self-actualized and proud of how they are making the world a better place.

In sum, companies that focus on transcending the bottom of the pyramid--the survival needs of employees, customers, and investors--are able to address the higher needs of these constituencies. We all have roles in the world of business, whether that role is being an employee or a customer or an investor. Whatever our role, most of us want to feel good about how we make a difference with the actions we take. Companies that are “living green” create inspired employees, evangelistic customers, and proud investors by giving them a sense that they are transforming the world in their own small way.

Posted by Chip Conley at 11:03 AM | 1 Comment

October 22, 2007

Want to create change? Tell a story.

I was a freshly-minted adult when I graduated from Stanford Business School half a lifetime ago (23 years to be exact). Along with my classmate Seth Godin who was also a youngster when he graduated, I found all the theory that filled the biz school classrooms to be rather stale. Seth and I were so bored that we created our own independent studies course where we interviewed interesting businesspeople and asked them to share their rules for success (the result, “Business Rules of Thumb,” was the first book for us both…good luck finding a copy). We found these corporate leadership stories to be much more compelling than any decision tree or manufacturing bottleneck analysis. Two years ago, Seth even wrote a book on storytelling called “All Marketers are Liars,” in which he suggested that successful marketers don’t talk about features or benefits, they just tell great stories.

Since then, I’ve read a lot of great books on storytelling but I’ve yet to read one that so systematically and convincingly explains the steps for creating the drama and landscape for storytelling as the one I’ve just finished. Authors Richard Maxwell and Robert Dickman, who are consultants in the entertainment industry (if there ever was an industry based on spinning a tale, that’s it), have written The Elements of Persuasion which came out a few months ago. They suggest that all successful stories have five basic components: the PASSION with which the story is told, a HERO who leads us through the story and allows us to see it through his or her eyes, an ANTAGONIST or obstacle that the hero must overcome, a moment of AWARENESS that allows the hero to prevail, and the TRANSFORMATION in the hero and in the world that naturally results. Sounds a like a Hollywood hit to me. But, reading this book, I became convinced that great leaders are also able to express their reality and vision using this arc to define their story.

I was reminded of this last week while giving a presentation about my book PEAK: How Great Companies Get Their Mojo From Maslow. I was speaking to this group, not knowing that the wife of one of our employees was in the audience. For those of you who’ve read PEAK, you know this is a tale of how I launched my impractically-named company (Joie de Vivre Hotels) more than 20 years ago because of the passion I felt for the hospitality business’ approach to making customers feel good. I talked about how I was burnt out at the age of 25 having spent my first two years out of biz school getting pummeled in the rough-and-tumble world of commercial real estate development and construction. Starting Joie de Vivre (mindful of the company’s mission statement – defined by our name: “joy of life”) and growing it to be one of largest boutique hotel companies in the world was exhilarating. But, in our fifteenth year, we experienced the worst hotel downturn since World War II and Joie de Vivre was particularly exposed since all of our hotels were in the same region, the San Francisco Bay Area. Having all of our eggs in one geographic basket led me to not take a salary for three and a half years, during which time I became a real Abraham Maslow nut reading all kinds of books by this mid-20th century psychologist. I then applied his self-actualization-driven Hierarchy of Needs theory to how we created deeper relationships with our employees, customers, and investors. In the end, Joie de Vivre flourished during a difficult time and a new psychology of business was sprouted, which I applied to the company and came to realize was being used – in various forms – in other peak-performing companies.

So, I was telling this story on my book tour and the employee’s wife I mentioned came up to me after I spoke. She said she’d told my tale to probably 50 people because it was like describing a Jimmy Stewart film in which the good guy wins in the end. As she was describing my story back to me, I realized she was following that arc of PASSION – HERO – ANTAGONIST – AWARENESS – TRANSFORMATION that “The Elements of Persuasion” speaks of. So, I asked her, “Why do you keep telling this story?” And, she responded, “All of us need the inspiration to believe that if you persevere with your passion, you will one day succeed. Your story gives people strength.” While I don’t recommend going through the fire the way my company did, it is more than gratifying to know that our story is now inspiring others.

So, the next time you’re trying to persuade your colleagues about a particular strategy or idea, consider telling a story. Maybe tell a true story of someone who’s tale might mirror what you’re trying to articulate. If it’s your own story, all the better. Or possibly tell a future story that describes the positive, transformative outcome of what might happen if your team pursued your path. Facts and figures can help rationalize your story, but it’s the raw emotion that will draw people in and help them to remember just what you had in mind. Change happens when people are inspired.

Posted by Chip Conley at 2:50 PM | 1 Comment

October 8, 2007

Change Management: Creating Peak Experiences For Strangers

One of the most basic tenets of corporate marketing is that a company should focus its promotional investment on its target market. In other words, market to those who are most likely to buy from you. Seems simple enough and, having run a niche-oriented boutique hotel business for more than two decades, I can say that this focused approach creates great bang for the buck.

But, I want to share a story with you that may shift your thinking from being a marketing mercenary to being a marketing missionary. A marketing mercenary focuses on the return on investment (ROI) associated with marketing to their target market. 95% of what my company, Joie de Vivre Hotels, does fits this category. But, every once in a while, it helps to throw a "Hail Mary pass” - a marketing promotion that is more about your company's mission than it is about your product. If you can get this right, you will develop huge long-term benefits because you will create stories, memories, and goodwill that will last longer than any short-term marketing mercenary initiative you and your company could deploy.

Let's take a step back before I tell you my story. As a devout believer in Abraham Maslow's Hierarchy of Needs, I know that what engages the human spirit most is what's at the peak of his pyramid: self-actualization, that transformative feeling when what ought to be, just is. For an employee, that's when you feel that you are being "all that you can be" and you are getting great meaning or inspiration from your work. For a customer, that's when experiencing a product or service gives you that transformative effect of "it doesn't get any better than this," or as MasterCard calls it, that "priceless" feeling that is truly intangible. Any company that can do this will create evangelistic customers as you see with those who are part of the Apple or Harley-Davidson flock. Companies that create "peak experiences" for their employees and customers naturally engender greater loyalty. These companies have much lower employee turnover and tend to spend far less in marketing. Fortunately, Joie de Vivre has employee turnover that's one-third the hospitality industry average and our $200 million company spends less than $50,000 annually on print advertisements for our 40-50 hotels, restaurants, and spas. So, I guess we "get it."

Creating peak experiences for employees and customers is a no-brainer. You gotta do it. But, recently, we created a peak experience for a bunch of strangers - albeit strangers who had something in common with each other and the company. To celebrate the 20th anniversary of Joie de Vivre, we invited 10,000 people (I'm assuming mostly women) from the state of California with the name “Joy” to a JOY PARTY at our luxurious Hotel Vitale on San Francisco’s waterfront. Our company has spent 20 years understanding the significance and responsibility of having a name associated with such a positive emotion so we thought it would be provocative to invite these women together to share their experience of living with this name their whole life. Excuse the pun, but we ended up with a roomful of joy (or Joys) -- 125 women sharing the name with dozens and dozens of husbands, significant others, friends, children and even a few media there to capture the occasion. What was miraculous was how these strangers bonded in their storytelling so quickly. As if they were long-lost friends. It was remarkable how much they had in common and how many of these women had gone into the service or helping professions. One who received a special award from Joie de Vivre that night talked to the group about the Seeds of Joy non-profit she'd created to help facilitate more poetry therapy in the world. Others spoke of how their name was a daily reminder of their purpose in life (something we often talk about in our company - why not name your company after your mission statement?!). It was one big "joy bubble." Lots of tears of joy flowing. For the couple of dozen Joie de Vivre employees who came to the event, it was truly a highlight of their time with the company to see that we could conceive of and create such an event that brought what will be a lifetime memory to these women. And, since the event, we've shared many of the emails and letters we've received from these Joys with our employees (25 Joys received a free hotel room at the Hotel Vitale so they could have a Joy slumber party).

Creating a peak experience for a stranger? A waste of marketing dollars? I don't think so. While I think it could be dangerous to allocate the majority of your marketing funds to a missionary event like this, I also believe that the word-of-mouth (which has been huge for our JOY PARTY) and internal and external goodwill that comes from this kind of marketing proves that being a "karmic capitalist" pays off in the long-run. Doing good can mean your company will do well. The next time you're thinking about how to make a splash with your promotions, think about making a difference in someone's life in a profound way that will serve as a peak experience for them. While other marketing ploys may fade with time, those marketing initiatives that have a deeper mission attached to them will stand the test of time and give you a remarkable long-term ROI.

Posted by Chip Conley at 2:01 AM | 1 Comment

September 28, 2007

Change Management: What's the Divorce Rate in Your Company?

We live in a promiscuous era, don’t we? America is experiencing a divorce epidemic and the future of the American family is at stake. Is this statement a myth or reality? Turns out it’s a myth. The divorce rate in America has dropped for more than a quarter century and is now one-third lower than it was in 1981.

OK, if that’s the case, then maybe all these stories we hear about employees, customers, and investors being short-term oriented and less loyal are also myths. Actually, while marriage may be making a comeback, sorry to say loyalty in the workplace is become a quaint old notion. The average length of tenure of an American employee has dropped by 6% in the past twenty years (it’s dropped by 17% among men and actually has gone up among women as they have stayed in the workforce longer). In the era of the Internet, customer brand loyalty has plummeted, especially amongst products that are seen as commodities in the marketplace. If employees and customers are defecting, it’s not surprising that investors have decreased their loyalty as the average length of holding a public stock has tumbled from more than six years to approximately one year. Promiscuity (or at least divorce) may be on the decline in homes across America, but the workplace seems to have become a “rent-a-relationship” kind of world.

Fred Reichheld has written a number of books on the value of loyalty in the workplace and he’s proven that building lasting relationships with employees, customers, and investors creates a more sustainable business model for any company. One of his most illuminating studies found that a 5 percent increase in customer retention rates led to increased profits between 25 and 95 percent depending upon the industry. So, if “Loyalty Rules” (as one of Fred’s books is named), why do companies put so little attention on the quality of the relationships that are being created in the workplace?

I’m a bit of an Abraham Maslow junkie and have long marveled at how his “Hierarchy of Needs,” introduced more than fifty years ago, seems to have universal relevance. Most of us are familiar with the idea that we all have base, survival needs like food, water, sleep, and safety and, as we satisfy those needs, we can focus on our social/belonging or esteem needs….in essence, the way we connect with others and see ourselves in the world. For a lucky few, self-actualization is that transformative need at the peak of the pyramid that allows certain people to have continuous peak experiences in their lives. Being a Northern Californian, all this kind of inspirational talk is familiar. What’s ironic is that many business leaders are introduced to (or reacquainted with) Maslow in business school or in corporate universities.

My own reconnection with Dr. Abe occurred when my company was on the verge of bankruptcy. In the post-dot-com, post-9/11 world, being a San Francisco Bay Area boutique hotelier was a struggle and, if I didn’t learn a thing or two about loyalty during that time, I knew I was going to be out of business. Each day during the early part of 2002, when there seemed to be no limit to the depths the Bay Area hotel industry could fall, I would come home from work weary and a little battered and crack open another Maslow book. His theory of human motivation has an awful lot to do with actualizing potential or, as the U.S. Army says “be all you can be” (the phrase came from their internal Task Force Delta team which sort of ripped off Maslow’s quote: “what man can be, he must be”).

I’ve always believed a great leader knows how to tap into potential and actualize it into reality. What Abe Maslow helped me realize is that a great business leader deeply understands the motivations of their employees, customers, and investors. And, from that I started to realize that there was a Hierarchy of Needs pyramid for employees, customers, and investors. But, unfortunately, most companies get so caught up with the base survival needs in these relationships that they lose track of the higher needs of each of these three groups. Business has a natural tendency toward the tangible which impedes many companies from moving to the priceless (to use a MasterCard word) intangible elements at the peak of the employee, customer, or investor pyramids.

I’m thrilled to be blogging for Fast Company about this subject of how creating “peak experiences” can create peak performance for any company. At the very least, I might be able to help reduce your company’s divorce rate with these three important constituencies: employees, customers, and investors. Psychologist John Gottman created a landmark study on marriage and found that successful relationships averaged a 5 to 1 ratio of positive to negative interactions. Other studies in the business world have put this ratio at 3 to 1 with respect to what drives productivity in employees. If your workplace is more focused on giving feedback only when something is going wrong, as opposed to celebrating what’s going right, you may end up with a high divorce rate with your employees (I’m proud to say that at Joie de Vivre, our employee turnover rate is one-fourth the hospitality industry average). These same ratios can also apply to your relationships with your customers, and, miraculously to your investors too (although I know many of you don’t believe a human Hierarchy of Needs may have anything to do with the Return on Investment Robots we call investors).

Maslow posited that studying healthy functioning humans told us more about psychology than studying unhealthy dysfunctional humans (Freud). Similarly, most of us believe that studying best practices in business teaches us more than studying worst practices. I believe there’s a qualitative difference between a human not being sick versus actually feeling healthy or truly alive. Similarly, this idea can be applied to companies. Think of a company that’s not sick but not really alive. Then, imagine a company that’s living up to its potential and is full of a spirit of being alive. If humans aspire to self-actualization, why can’t companies – which are really just a collection of people – aspire to this peak, too? The self-actualized company creates deep relationships with its employees, customers, and investors, and, in so doing, develops a workplace that has a remarkably low divorce rate. The health of any organization is simply the accumulated health of the individual relationships that constitute it. This is true for families and it’s true for companies.

Posted by Chip Conley at 12:56 PM | 13 Comments