Marketing Should be the Value Engine of your Company

Marketing the Value Engine of Your Company

This post originally appeared as a guest contribution in the Blog for the Austin chapter fo the American Marketing Organization

Peter Drucker, the father of modern business thinking, said that only marketing an innovation create value – everything else is basically overhead. He also said that marketing is the distinguishing function of an organization. Quite an endorsement about the Marketing function – but also a great responsibility.

In contrast, many people consider marketing to be deceptive, superfluous and buzz-wordy. Unfortunately, some marketing is one or all three of these. Unfortunately, marketers rank right next to used car salesmen in terms of reputation and trust. Interesting dichotomy.

What other teams in your company think about the marketing department: is it creating value for the company or spending money on funny ads? Maybe more importantly, we should ask ourselves, was Drucker wrong? Continue reading “Marketing Should be the Value Engine of your Company”

Marketing, Pricing and Value: what I learned during Black Friday

This post originally appeared as a guest contribution on Rags Srinivasan’s Iterative Path blog.

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Like most people in the US, during Black Friday week my inbox received an onslaught of promotional emails from every company I have done business with. All of them, without exception were promoting sales and discounts.

In a previous post on this topic we established “When a marketer’s creativity runs out he defaults back to price discounts. “ Creating a promotion or a sale is the default way to generate sales in the short term. Even though we know, deep down, that short term discounts erode value and train customers to expect discounts as JC Penney learned the hard way.

It was Black Friday and we decided to stop by the Factory Outlet in San Marcos – my daughter had an eye on a pair of UGG Boots that I was hoping to get at a good price. This is what I found: It was not that surprising to find a line outside a popular store, especially on Black Friday, but there were a couple facts that made this experience interesting for me as a student of marketing and consumer behavior:

Continue reading “Marketing, Pricing and Value: what I learned during Black Friday”

No Excuses. The Ball is in Your Court.

During a leadership meeting at Rackspace this week, Jo Dockery, one of the smartest Rackers, was presenting. She had a slide with a great quote:

Never Gets Easier You Get Better

I loved the quote. What made it special is that it puts the ball on your court. Stop complaining about external circumstances. It encourages you to stop blaming external factors. They are just excuses. Life is hard, deal with it.  

You might have heard Have you hear a story about the guy who gets shot. As he is lying in the ambulance, he is smiling. The paramedics are puzzled as to why someone who has been shot might appear happy and ask him about it. He said “I have been shot, there is nothing I can do about it. I can choose to be happy or sad. I choose happy.  ” You don’t control the circumstances but you control how you will deal with them. 

The grass always seems greener o the other side.  If feels like other people had it easy: They are lucky,  they inherited money, are liked by the CEO, were at the right place at the right time, etc. – and you didn’t.  Maybe that’s why you are not successful. I have thought about this myself, maybe even more than once. Let’s call bull. Life is hard, maybe even unfair. Work is hard. Everyone has problems.

Stop blaming the environment. Stop blaming others. Stop blaming your situation.  You won’t change the world around you, You won’t change your boss. But you can change you.  The ball is on your court. You can do something about you. You can change your attitude, your behavior and your skills.

The alternative is to sit tight, delay success, and wait, hoping things will improve and everything will be easier. It never happens. Life is now.  

You just get better. 

You become clearer on your goals. You figure out how to win. You acknowledge your limitations. You ask for help. You learn. You plan. You study.  You spend time and effort to improve.  You get more resilient. You work harder. You get smarter. You practice.  You ask for help (yes, again). You keep trying. You keep getting better, and better, and better.

How are you getting better today? 

People say I am lucky. But a funny thing happens: the harder I work, the luckier I get” – unknown

Picture courtesy Brian Hindle via Flickr under Creative Commons –

How can a higher price result in more sales?

Value and Price

The concept of sales going up with a higher price is counter intuitive. It goes against the basic concept of price and demand taught in school. It defies the ‘law’ of demand. But it is real. Here are a few examples:

  • I wrote about a post about doubling price with no decrease in sales and a dramatic increase in profits in A Pricing Lesson from the Concorde it’s one of my most popular posts.
  • Here is a story of doubling the price of software and selling ten times as many copies.
  • Another software product originally selling at $3K was doubled in price with no impact to sales volume.
  • An entrepreneur quadrupled subscription prices with no impact on unit sales, effectively finding a 4x sales increase with the same demand..

But the question we need to ask us is Why? Increasing price is fantastic for any business because the additional revenue goes straight to the bottom line. If you have been reading this blog, you know I am a fan of leading with value rather than discounts. Not that I every advocate abusive pricing, which is simply a form of bad profits.

Back to the question – Why is it that customers are willing to buy more products at a higher price? The answer is straightforward: price communicates value. Maybe we can be bolder: price establishes value in the mind of customers.

Imagine I told you I just found a wonderful whiskey that sells for $5 a bottle. It is not credible. Your first thought may be that I don’t even know what is good whiskey (and you’d be right, but that’s another story). Conversely, when you are at a restaurant and you see a bottle of wine priced at $150. you immediately assume it is of very high quality.

You can charge more money for a product and see higher sales when your price and the value you deliver to customers is not aligned. In other words, when you are leaving money on the table.

How do you know if you are in this situation? The first and most common clue is when the price for your products or services is determined using a cost plus model. You have a target profit margin that gets added to your total costs and that becomes the price. This happens often when finance is in charge of pricing. The alternative is value-based pricing.

Building a value-based pricing model requires understanding your customers, what aspects of your product or service they value, and how they quantify that value. Often times, the value customers put in a product or service is determined by pricing anchors. Pricing anchors are prices in the mind of the customer that provide a range of costs for a product, a service or to solve a problem.

Pricing anchors are the reference points customers use to judge the relative price of your products. In a future post, I will explore how you can set these anchors using techniques such as Goldilocks Pricing.

For now,  imagine you need to replace the furnace in your home. You may think a furnace is going to cost you somewhere between $700. and $1200. (these are the numbers that came to my mind)  Whether those figures reflect the range of prices in the market is irrelevant. When you call the repairmen you will judge the price based on the range established by these anchors.

As in the post about the pricing lesson of the Concorde, when your price and the expected price are misaligned, you can make a correction without an impact to demand. You can also do this with products that don’t have a strong price elasticity.

Understanding your customer segments, their anchors, their values and their price expectations is fundamental for value-based pricing.

Let’s look at another example: As told in the book Playing to Win , when P&G was re-launching the Olay brand they did test on three prices:

  • At $12.99 the sales were good. It was affordable to the mass market.
  • At $15.99 sales tanked. Not expensive enough to be considered a premium cosmetic for the mass market, and to cheap to be a credible quality product for the prestige shopper
  • At $18.99 sales were great. A good value but not too cheap for premium shoppers, yet credible as premium and still affordable for Mass market

Launching at $18.99, Olay became a $2.4 billion dollar business for P&G with double digit growth and fantastic margins.

Pricing can make or break a business. I want to suggest another resolution for the new year (the first one is at the end of this post): understand the value model for your products and services, and use it to review your pricing strategy.

Is Your Marketing Message Visual, Understandable and Effective?


Patton Oswalt, the famous comedian, has a skit where he made fun of movie titles he thought were lame like “Something’s Gotta Give” or “Audacity” because they don’t tell you what the movie is about.

He then talked about the move Texas Chainsaw Massacre and he explained how as you hear each word, an image is forming in your mid. “Texas….Chainsaw…Massacre…. sounds like a great movie! I want to go! You can see the movie in your head, for free!

How does that compare to the messages that we marketers sometimes create? let’s look at some examples:

Take a look at this copy from a Toyota print ad ‘A quantum leap in interior refinement, and the uncompromising new shape of things to come from Toyota’. A lot of words, very little meaning. I can’t see a movie, or even a picture in my head.

Or this email I recently received from Dell – the headlined read “Get end-to-end solutions that go beyond making ends meet”. Can you guess what they are talking about? The message showed a banner that read: ‘Enjoy free shipping and easy returns on’. Then a headline promised ‘Turn big ideas into cash big flow’ .Now I was seriously confused. What movie is in your head? it went on: ‘One Place. Countless ways to better manage your business’ finances.’. Do you have a clue what is Dell trying to tell me in this email? Continue reading “Is Your Marketing Message Visual, Understandable and Effective?”

What can we Learn from Nature this Season

Copyright (C) 2013 Gerardo A DadaI grew up in a place known as the ‘City of Eternal Spring’ where homes don’t have A/C or heating and where trees are green year round.

Maybe that’s why I have a special appreciation for the beauty of the fall foliage. It also made me think why trees get rid of their leaves this time of the year.

The leaves are beautiful, and perfectly fine. It’s not like the tree does not want them or that it feels it would be better off without them. The tree probably invested resources, energy and maybe effort in creating the leaves. So why drop them?

It’s getting ready for the hard times. Mother nature has made trees smart enough to know tough times are coming and while the tree wants to keep the leaves, it must get rid of them to focus maximum energy and protection on its core. The tree is smart enough to know it cannot support its core and the leaves, and that if it tries to do that it would probably die. So the leaves go. Could we consider this wise and courageous?

How many things in life, or in marketing are very nice, we want them – but like leaves in winter, create a distraction of resources and energy that we cannot afford?

When people talk about focus, often we hear the things they plan to do. Those with a more pragmatic approach know focus is about the things you will stop doing.

  • If you don’t have a list of things you will stop doing, you are not really focused.
  • If you don’t have a list of customers and markets you will not serve, you can’t say you are focused.
  • If you don’t have a list of marketing tactics you won’t pursue in 2014, you are not focused.
  • If you don’t have a list of the projects or tasks that would be nice to do but you won’t, you are not focused.

It’s hard to let go.  A few months ago I realized I would not be able to keep my responsibilities of my job, my family, this blog and my new photography blog. Like the tree that lets go of a beautiful leave, I had to make a decision to stop working on posts for my photography blog. Sometimes I catch myself with ideas for a good post, but then I remember I can’t do all, and I have to move on and focus on the important things in my life.

It takes discipline. It’s hard. A few years ago I heard ‘The most important thing is that the most important thing remains the most important thing. It is not only a tongue-twister, it is a very wise saying – an important one.

As we start making plans for the next year – for your business, your marketing plan or your personal life – what leaves will you drop this year?

Does Your Marketing Formula Pass the Correlation Test?

Math FormulaFinding the return on investment for marketing activities is like the holy grail for CMOs. There are countless articles wit ideas on how to determine social media ROI, content marketing ROI, video marketing ROU, and so on. We all have heard ‘I know 50% of my marketing spend is wasted, but I don’t know which 50%‘.

Every marketer has a hypothesis of what works. Otherwise, how could you do your job, You have one, right?

We should keep in mind, marketing leaders are not always looking for a mathematical formula, we are often looking for something more basic, more essential. We need to answer the questions: is this working? Should we do more? Could we have the same results with less effort? How do we know?

This is not a post about how to determine ROI (for my POV on social media ROI you can check my slideshare from 2009). This post is about how to make sure you have found a formula that works. Success without repetition is luck. Good marketers know what works, and can have predictable success.

There are many challenges that make it very hard to understand what marketing activities work. Here are three:

  • The Delusion of a Single Explanation: We would like things to be simple. Marketers would try to find correlation between two factors: satisfaction score and revenue growth, attending a webinar and purchasing, etc. In reality, most  outcomes depend on a multitude of factors.
  • Confusing Correlation and Causation. Maybe we have observed people who visit a webinar buy more from us. But do they buy more because of listening to the webinar, or did they decide to listen to the webinar because they wanted to buy more anyway? Phil Rosenzweig, author of The Halo Effect (great book, by the way), observed the consulting company Bain & Co claims on their website “Bain clients have outperformed the stock market 4 to 1” implying working with Bain leads to better performance. It is very possible that high performing companies are the only ones that can afford to hire Bain.
  • Customers buy on emotion. Emotions are hard to understand and to map to a formula (anyone who is      married knows that), how people buy cannot be put in a spreadsheet. But marketer will try anyway. It is almost impossible to understand what are the customers intentions. A UT professor shared with our class ‘I saw someone at Costco in the checkout line with a dolly on which he had two milk jugs and a 50″ plasma TV. Did he go to Costco for the milk and when at the store  decided to buy the TV or the other way around?’

How do we solve this problem of correlation versus causality? How do we know what we think is working actually works? How do we avoid falling in the traps of market research?

I found one interesting point of view from another industry: the Bradford Hill criteria is used to determine cause and effect in medical tests. If this is the method to determine causation in an industry where being wrong can be the difference between life and death for many people, I figured it is probably good for us to learn from. These are the Bradford Hill checks to make sure your assumptions of cause and effect are correct:

    1. Consistency. “One apparent success does not prove a general cause and effect in wider contexts. To prove a treatment is useful, it must give consistent results in a wide range of circumstances.” In your marketing test, are the results consistent when you try the same technique in different situations?
    2. Plausibility. “The apparent cause and effect must make sense in the light of current theories and results. If a causal relationship appears to be outside of current science then significant additional hypothesizing and testing will be required before a true cause and effect can be found.” Which to me sounds like thinking – does this result make sense? Is this assumption aligned with what we know about customers and about marketing?
    3. Specificity. “A specific relationship is found if there is no other plausible explanation. This is not always the case in medicine where any given symptoms may have a range of possible causing conditions.”. This is a big one, especially because of the delusion of a single explanation we talked about before. What other variables are in play? Can you rule our any other possible explanations? Is your test specific enough?
    4. Evidence. “A very strong proof of cause and effect comes from the results of experiments, where many significant variables are held stable to prevent them interfering with the results. Other evidence is also useful but can be more difficult to isolate cause and effect.”. Right, test one thing at a time. A/B testing and MVT testing tools are helpful, but you need to be careful to isolate one variable at a time. Things like seasonality and external events are not factored automatically in these tools..
    5. Analogy. “When something is suspected      of causing and effect, then other factors similar or analogous to the supposed cause should also be considered and identified as a possible cause or otherwise eliminated from the investigation.” What other explanations can you find for a customer behavior? What similar activities could influence decisions?
    6. Coherence.” If laboratory experiments in which variables are controlled and external everyday evidence are in alignment, then it is said that there is coherence.”. This point encourages us to experiment with the conclusions outside of our testing environment. Examples to check for coherence in marketing: If customers seem to react to certain messages online, test the same assumption offline. Testing theories in different geographical markets, for example, or validate what you ‘learn’ in a focus groups in a real world.

Four more things to keep in mind

  • Marketing optimization,  especially online, can easily trick you into optimizing your marketing for      those buyers that will buy quickly, not for the buyers that will take      longer to buy which could produce a higher customer lifetime value
  • Don’t rule out something just because it did not work before. I have heard many times ‘We tried that last year and it does not work’ . Goes back to specificity. This is a false negative. Until you understand why it did not work, you may keep testing. Maybe you can find a way to make things work
  • Measuring direct influence behavior is easier than building a model that measures leading indicators      to understand customer behavior over time that is difficult to observe and measure.
  • As Albert Einstein said: Everything that  can be counted does not necessarily count and everything that counts  cannot necessarily be counted.

The Modern Marketing Leader – A Manifesto

cmoBookA couple of months back, my friend John Ellett gave me a copy of his book, ‘The CMO Manifesto‘ which I thoroughly enjoyed. The book is the outcome of 50 interviews with CMOs to identify the best practices for the first 100 days of a CMO joining a new company. It turns out, The CMO Manifesto ends up being a very complete and modern description of the role of a modern marketing leader.

Establishing the role of marketing, a manifesto for a modern marketing leader, and best practices for marketing leaders in new roles is  important because of four reasons:

  1. The average tenure of a CMO is around 24 months.
  2. Marketing is becoming more complex.
  3. Most of the organization, including the leadership team, have a distorted, inaccurate or unclear understanding of the marketing role.
  4. Leaders are realizing how fundamental and strategic Marketing is for the success of any business. As Peter Drucker said “Marketing is the distinguishing, unique function of the business.”

Some of the more interesting points in the book I especially agree with:

  • Marketing leaders are change agents for the company
  • As leaders they impact strategy, revenue and the overall success of an organization
  • Focus and clarity (clear priorities) are especially important for a marketing team
  • Customer insights should guide all decisions
  • Vision, optimism and resiliency are essential traits of a good marketer

John organizes the book in 12 best practices for a marketing leader:

  1. Lead positive change
  2. Bring clarity and inspiration
  3. Build Relationships and trust
  4. Channel the voice of the customer and Insights
  5. Focus leads to greatness
  6. Drive agility and accountability
  7. Build capable, committed, collaborative teams
  8. Find the balance between chaos and process
  9. Do plan but focus on action
  10. Continuously measure and optimize
  11. Leverage new tools and technologies
  12. Remain resilient in front of challenges

Another thought leader, Ashley Friedlein, from eConsultancy recently published an update to his Modern Marketing Manifesto, which also happens to have 12 points. This manifesto has a slight digital marketing bias but is quite compatible with John Ellett’s point of view: There are many similarities and a few points that can be complementary :

  1. Strategy. Marketers should sit at the board table and set strategy. Strategy is shaped by knowledge of markets, products, customers and positioning. Digital needs to be part of every strategy.
  2. Revenue. Marketers must be accountable for revenue, have a common point of accountability with sales, and must understand P&L.
  3. Customer experience. Improving CX for the most valuable customers must be the relentless focus of modern marketing.
  4. Integration. Customers do not understand the distinction between mobile and desktop, online and offline, above and below the line. Marketing must focus on providing an integrated customer experience.
  5. Brand. Consumers control the message, forcing brands to be authentic and transparent.
  6. Data. Marketers must turn data into insight and action – hence the importance of research, marketing automation, predictive analytics, etc.
  7. Personalization. Relevance and optimization to each customer and his context.
  8. Technology. Marketers will have increasing ownership if the technology tools.
  9. Creative. We need creativity just as mush as we need technology.
  10. Content. Content marketing and the focus on owned and earned media.
  11. Social. Social is not a choice.
  12. Character. The modern marketer must be accountable, ethical, customer focused, agile, collaborative, innovative, brave and passionate.

What is obvious by reading both manifestos is that the marketing function is getting more complex, is evolving to play a more strategic role and becoming more and more interesting.

It’s a good time to be a marketer.

Content Marketing as an Antidote to Discounting

Flying back from San Francisco, I open the in-flight magazine and a half-page ad by Riedel catches my eye. Riedel a German company and one of the best known manufacturers of high quality wine glasses.


It is a premium brand: a pair of wine glasses especially designed for Cabernet and Merlot retails for about $50. Their customers are either wine enthusiasts or people with a lot of money who don’t mind spending $25 for a wine glass.

It is a nice looking ad, but I was surprised to see the ad’s main message is an offer of  20% discount for a purchase of $100 or more. It does not seem to fit the brand. At the same time, it was not that surprising to see a discount oriented message: it is the easy answer.   ‘What should be the message? I know, let’s offer a 20% discount’

When a marketer’s creativity runs out he defaults back to price discounts.

Continue reading “Content Marketing as an Antidote to Discounting”

The Best Career Advice is to Follow Your Passion

Do what you loveMentoring others gives me deep satisfaction. One of the most common mentoring topics is the question of how to be successful: how to orient one’s career, what is the right job to take, what to do with your professional life.

The Secrets to Success According to Richard St. John’s

One of the top Ted talks (4.6 million views as of today), Richard St Johns talks about the 8 secrets of success, which he developed after 500 interviews of highly successful people. I have to completely agree with these 8 “secrets”.

The second, third and fourth are hard work, focus and practicing until you get good. Simple words, sure – yet working hard, being focused and practicing are difficult to do on a daily basis. Focus is tricky, because there are always distractions and other interests that pull you aside from the road. This is why focus is best defined in terms of what you will not do anymore.

Focusing tirelessly, practicing every day and working hard should drive your life. Many consume more than one self-help books and try to build the discipline to get them done. But they come naturally, almost effortlessly, if you have the first one of Richard St. John’s secrets: Passion. You will need to watch the Ted talk for the other four. (it’s worth it, it is only three minutes).

Developing Passion

You can’t just decide to get passionate about something. Passion is not commanded intellectually. Passion comes from the heart.

Or maybe passion comes from DNA: Marcus Buckingham leads a philosophy that suggests every one of us is ‘strong’ in certain areas or activities that we enjoy: activities that give us satisfaction and make us feel better when we perform tem. His philosophy is that the people that pursue their strengths are happier and that companies that focus on aligning their people with the activities that leverage their strengths are most successful.

What are you Passionate about?

Because you can’t decide to become passionate about something , you must find what you are passionate about and then focus your work on that.

One of the things I am most grateful to my dad is that he exposed me to many things allowing me to discover my passions. He made it possible for me to try many things that I did not like – or that I liked but was not good at, like musical instruments. One day, when I was in middle school, my dad showed up with a  book ‘Positioning. The Battle for your Mind’ . I devoured the book. Right then I knew I wanted to be a marketer. That’s my calling. What’s yours?

My point is that you can’t find your passion unless you spend some time exploring. A few months ago I blogged about my story of passion for Coffee and how knowledge is a requirement for love . You can’t love what you don'[t know. I probably would not be a marketer today if my dad had not exposed me to that book.

Be The Best You Can

You should aspire to be the best you can in whatever area you are passionate about. Note that being the best you can is about your performance relative to your potential. It is different to being the best in the world, which measures your ability relative to others (more ego driven).  but even while you should measure your success in terms of your own capabilities, it is important to understand your level of ability or competency relative to the rest of the world.

In his book Quitter, Jon Acuff tells a story of when he really wanted to be a copy writer at a large agency. One day, an exec at a prominent agency receives him and gifts him the experience to read all the portfolios that had been submitted for consideration by copy writing candidates. The experience allowed Jon to understand where the bar for good and great was, and in his case, to realize that he was not made to be a copy writer.

Passion Makes You Work Hard and Become Great

When you are truly passionate about something you focus, you aspire to learn and get better every day. You work hard and practice until you become good. You try to be the best.

When Mark Cuban got his first job as a software sales person, he read all the software manuals he could get a hold on. He read a manual every single day after getting home no matter how late, and he enjoyed it. “I could not put them down“. Mark quickly became an expert, and a valuable resource for is clients. He pulled away from the rest of the salespeople in software Dallas and found success. The rest is history.

Just Do it

A few months ago, a friend asked me for career advice. He told me he really wanted to be a writer and he was looking for a break. I asked him to show me examples of his work. He did not have any. If you are passionate about writing, you surely have a blog, or a manuscript for a book in a drawer, or poems in napkins, right? I asked. He did not.

How come? He really wanted to be a writer. But he did not spend time on his passion. Maybe he was afraid of not being good. Maybe he was busy. Maybe he never took the time to think about a path to become a great writer and where to get started. Unfortunately, this is a common scenario.

You have to follow your passion. You have to spend the time to explore the world and find what you are passionate about and then you must make time to practice and get better. ‘I don’t have time’ is not an excuse if you spend an hour every day watching TV. Get up 30 minutes earlier. Eliminate distractions. Unsubscribe from 10 email newsletters and a few RSS feeds. Cut back on Facebook. Otherwise, you will be in the same place 10 years from now.

Applying the Hedgehog Strategy to Your Career

In his book, Good to Great, Jim Collins describes a “hedgehog strategy” for organizations that can be very slightly modified to become a very simple but powerful tool for career planning. The concept is based on a VIN diagram with three intersecting circles:

  • One circle defines what you can be really good at. Your strengths and natural skills.
  • One circle defines the activities that you enjoy doing, your passions.
  • One circle defines the activities that fulfill your financial needs. Where you can make enough money.

The area where the circles intersect are the most interesting:

  • I enjoy and am good at things like photography that won’t make me enough money to provide for my family, so they are hobbies.
  • I am also good at things that I don’t necessarily like, I could perform these activities and even make enough money but I will not be happy and probably won’t be very successful. I am a very good salesman, and I know I could make a ton of money in this career – but I would be miserable because I don’t like working on a quota and probably could not deal with the pressure.
  • There are also things that I like,  such as playing the piano, but I am not good at and I won’t get good at. I am delusional is I think I will be a professional piano player, I simply don’t have the coordination not I would be able to develop it.

The place where these circles overlap is the ideal spot for your career: an area you are passionate about, you are good at it, and you can make money. Again, it may sound like a simplistic concept, but I have seen it used as a tool by people in all stages of their career to make smart decisions.

Skills and Passion VIN diagram

 “Love. Fall in love and stay in love. Write only what you love, and love what you write. The key word is love. You have to get up in the morning and write something you love, something to live for.” — Ray Bradbury

 “You never achieve success unless you like what you are doing.” — Dale Carnegie