The Ends Game: How Smart Companies Stop Selling Products and Start Delivering Value
by Marco Bertini and Oded Koenigsberg, MIT Press, 2020
“A day without laughter is a day wasted,” Charlie Chaplin once said. Teatreneu, a popular comedy club in Barcelona, put this proposition to the test as part of an effort to combat declining audience attendance. It charged each customer 30 euro cents for every laugh during a performance, up to a limit of €24 (US$28.47). Facial recognition technology was fixed to the back of the seats to capture the reactions. No laughs, no pay. Overall ticket prices increased by €6 (US$7.12), and attendance rose 35 percent.
Paying for the outcome, or end, you want — laughs, in this case — is less wasteful than buying a ticket whose price was set before the show. But what happens when people game the system by repressing their laughter somehow, therefore paying less than they should? This illustrates the central message of the superb, nuanced, and wide-ranging book The Ends Game — a must-read for anyone involved in strategy, business model design, marketing, customer relations, or organizational development. The authors, Marco Bertini and Oded Koenigsberg, professors of marketing at the ESADE Business School and London Business School, respectively, convincingly argue that playing the “ends game” can produce superior results for both companies and customers — but it takes skill to play it well.
Bertini and Koenigsberg make an impassioned and ambitious case for rewriting the rules of commerce. They argue that although customers want to buy a solution to a “job that needs to be done” (in the words of Clay Christensen), they’re offered only the means to buy that solution, typically by taking ownership of a product. This is due to a “a combination of neglect, inertia, fear of change, and comfort with the status quo” on the part of companies. Buying a product (e.g., an engine) isn’t always a good proxy for the end goal (e.g., reliable high performance).
Reserving particular wrath for healthcare, education, and advertising, the authors focus on three forms of waste in the exchange between companies and customers: (1) access — customers can’t get the product (e.g., a car) they want because of the cost or a lack of stock; (2) consumption — they don’t or can’t use what’s offered (e.g., bundles of TV programs or a car that sits unused 90 percent of the time); and (3) performance — the product doesn’t deliver the value customers expect.
“Lean commerce,” in which the fortunes of companies depend explicitly on delivering value to the customer, is a much more efficient model. To determine value, the authors use an end or outcome that can be easily understood, verified, and quantified. Feeling happy or amused is hard to measure, but measuring a laugh is easier.
‘Lean commerce,’ in which the fortunes of companies depend explicitly on delivering value to the customer, is a much more efficient model of commerce.
Until recently, many industries had little (if any) data on what happened after a purchase; companies had to rely on assumptions — “anecdote and guesswork” — about customers’ wants, needs, and purchase journeys. Advances in technology have enabled a shift. Sensors that track heart rate, temperature, speed, and volume on devices, for example, can now record how products and services are used and how well they perform. The Abilify MyCite pill contains an ingestible sensor that digitally tracks whether patients have taken their medication, for instance.
Companies that are able to collate and analyze usage or impact data — no small undertaking — can personalize their offerings more effectively, generate incentives for improvement based on analyzing behaviors and anomalies in performance (e.g., health and fitness), and make predictions (such as the remaining useful life of an aircraft engine). These capabilities help customers get closer to their end goal.
Customers have a role to play, too. Participation requires customers to feel that they benefit proportionately as outcomes improve. Sometimes the understanding of value is wrapped up in a payment-by-results contract — prevalent across the public sector — which takes some skill to structure and monitor. How can you prove that your actions as an organization (and not other factors) were central to the customers achieving their desired outcome?
In one example, Orica, the world’s largest provider of commercial explosives and blasting systems to mining companies, bases its contracts on the quality of broken rock it provides — the smaller the rock, the easier and cheaper it is for the mining company to dispose of it. Orica takes care of the necessary planning, provides the materials, and manages the blast. “The quality of the outcomes is now not only more quantifiable and verifiable, but also more predictable,” Bertini and Koenigsberg note. “Mining companies can make better decisions on how to conduct any given project, save a considerable amount of time and money, and capitalize on opportunities that might have otherwise been uneconomical.”
A less intrusive alternative involves setting up a “game” in which customers can see progress toward the end goal by sharing their data; this requires clear rules and a set of rewards. U.S. auto insurance company Progressive offered to adjust premiums — in a personalized quote — by tracking customers’ on-the-road driving behaviors. “In so doing, the company has transformed the murky process of setting the price of auto insurance, typically based on poor proxies of driving ability and risk pooling, into a fun, interactive contest that aligns the actions of customers every day and every mile with the price they finally pay,” the authors write.
Of course, such transparency comes with a higher expectation of accountability. If you promise customers that you’ll fulfill the end they’re interested in, and they can see how well the product or service is performing, you’d better deliver. By the same token, companies involved in more intimate relationships with customers must use the data they collect carefully and ethically.
Why wouldn’t more companies make this shift if it can attract a bigger customer base that is more loyal and willing to pay? Some, like Adobe, already have, by moving from selling products to offering subscriptions, unbundling their products, and using metering to track individual consumption. Moving further toward performance models in which customers’ costs are based on the extent to which the organization has helped them achieve an outcome or end they care about requires courage, creativity, and a sense of perspective. At root, this shift is hard and full of risk. It’s easier to refine a product you love and change the pricing model than to take a fundamental look at what you’re asking customers to pay for and how well you’re serving them.
Nonetheless, the sheer range of case studies in the book show that this approach is “not a phenomenon at the fringes of the economy.” Careful readers may find themselves searching for more emphasis and exposition of performance-based models, including the role of gamification. And an accompanying visual playbook would have helped readers apply the concepts and case studies packed into this highly useful tome. That said, The Ends Game provides powerful ammunition to those who believe you can construct a business that profits only when its customers do. Aligning cost with performance is no joke.
- David Lancefield is a strategist and coach who has advised more than 35 CEOs, led 15 digital transformations, and was a senior partner with Strategy&, PwC’s strategy consulting business. He is a contributing editor of strategy+business.