It’s hard to open a business or a technology publication these days without finding an article about the promise of Big Data. New technologies (Hadoop, Mongo, NoSQL and others) offer businesses the opportunity to analyze very large amounts of unstructured data at a scale and speed that was simply not possible just a few years ago.
The predictions are quite bold: Gartner research recently wrote “…enterprises adopting this technology to outperform competitors by 20% in every available financial metric”.
Before you embark on a big data project it is important to separate the buzz from the reality. This post explores 5 important challenges that can limit the ability of any marketer to turn the Big Data hype into insights, business value, and ultimately, increased revenue.
What is Big Data?
Big Data can be defined a group of technologies that help organizations store and process data sets that meet one of three ‘V’s:
Volume – for example, imagine Facebook’s database of users, posts and likes. Or a credit card company’s transaction log across all customers
Velocity – the speed of data generation. Both examples above also require a system that processes data very fast. All this data is being created in real-time, thousands or millions of items per minute.
Variety – what is also called ‘unstructured’ data: traditional databases operate using very well-defined schemas: name, address, credit card number, etc. Big data technologies don’t require schemas, they are more flexible in this way.
Big Data at the end of the day is a database technology. And it will not replace traditional ‘SQL’ databases, because there are things that Big Data databases cannot do, like maintaining transactional integrity, which is required for credit card payments or really any kind of business transaction. Continue reading “5 Steps to Turn Big Data Technology into Business Value”
When Microsoft announced the Surface there was a lot of expectation of the market. Since I got mine, almost every time I send an email with the signature “Sent from my Surface RT” or every time I use it in a group setting, I get asked about it – they have the market’s attention, or at least curiosity.
The device is not perfect. No device is. Even the iPad 4 has its own share of limitations and bugs. I love mine and I think it is a much more complete and usable device than the iPad. But this post is not about my opinion aout the device, which you can read here on Quora. My observation is that every Surface user I have heard from has generally the same reaction: “Compared to the Surface, the iPad is a toy.” or “Since I got my Surface, my iPad is in a drawer”. The point is not to say the device is better – every customer has to make that decision on its own. The point is that Microsoft has a real fighting chance.
The device launched just in time for the Holiday season. It still did OK, in my opinion, selling a million units in its launch month against 14 million units sold by Apple. Yet the opporuntity was much larger. The problem (or a problem) is that a 32Gb iPad costs exactly the same, $499. This forces buyers to make a concious decision of buying the Surface versus the iPad. Here is the opportunity:
What would have happened it Microsoft had launched the Surface at a price of $275?
There would be no comparison against an iPad at $499. It would make the competitive decision much easier for customers who were not already sold on iPad. A large chunk of the market made of people who don’t want to spend $499 for a tablet wuld probably jump in. It would be a no-brainer compared to a 16Gb iPad mini at $329.
At $275. the Surface would certainly be a better buy than the Kindle HD, which sells for $299, and was selling at a rate of a million units per week at the peak of the holiday season.
The economics make sense
The cost to manufacture a Surface RT with 32Gb of memory, according to iSupply, is $271. Let’s assume Microsoft sells 5 million Surfaces instead of one million, just for the sake of the conversation. If we take $224. of profit from each of these four million units, that would have decreased $896 million in profits for Microsoft.But in reality it only sold a million, so te actual los in profits would only be $224 million.
That would have taken its operating income from $7.77 billion for Q3 2012 to ‘only’ $7.55 billion. hardly a dent, and well above the $6.6B from the same quarter last year. More importantly, it would have added $1.1 billion in extra revenue to bring the quarter from $21.46B to $22.56B, avoiding a miss of expectations (see stock price for the impact of that).
My point: reducing the price of the Surface to $275. would have had virtually no impact to profits and would have had a large impact on revenue. Microsoft could have opted to make this a promotional, limited-time offer, creating a sense of urgency for consumers.
Even at the $275. price, Microsoft would have a profit opportunity in the lucrative accesories market. An installed base of millions of devices creates a large opporutnity to sell keyboards, cases, mice, applications and other accesories. they could have charged a nominal monthly fee for Office.
Microsoft’s opportunity to earn a solid footing in the post-PC era is surely worth more than a 3.5% decrease in profits.
Besides the neglible impact to profits, the only other downside I can think of is the impact to OEM partners. This is an important point, but one on which Microsoft should have decided on when they decided to enter the hardware business. Would Acer and Dell be upset our would they have been thankful for the creation of a market, acceleration of the application base and pressure to be more competitive?. Yet, the upside for Microsoft could be very big:
$1.1 Billion in increased revenue for the quarter, bringing revenue not only in line with expectations, but probably exceeding it.
Creating a product line with $4 Billion in revenue, esentially overnigt would be an incredible business success by any measure.
The stock is near the bottom of its 52 month range at $27.55 as I write this. I can’ speculate the actual impact to the stock price, but I think it is reasonably to expect a jump if microsoft had sold 5 million Surfaces. Every dollar increase in stock price creates $8.3 billion in stockhohlder value. The stock has hovered around $30 for a decade despite very large increases in sale and profits. You could argue an event like this could generate positive momentum.
Microsoft would have earned significant economies of scale, bringng the costs down for them and OEM partners, providing a long-term economic advantage.
It would have eliminated any doubts of the consumer adoption of Windows 8 which would have lifted the entire ecosytem incluidng sales of Windows Phone and PCs, resulting in a benefit to OEM and accelerated porting of applciations to Windows 8. Maybe we would have Instagram on Win 8 by now.
Apple would have sold less iPads. Let’s assume out of the 4 million incremental units two come from would-be Apple buyers. Microsoft is a very competitive company, this would not be an insignificant win.
Imagine the impact of the news “Apple sells only 12 million iPads in Q4, Microsoft sells 5 million in its first quarter”. The brand, PR, employee morale and talent acquisition value of this statement is woth much more then a 3.5% decrease in profits. Imagine the Businesweek cover story “Microsoft is Back”.
When Microsoft priced the Surface at $499 I was very suprised, knowing Steve Ballmer is hyper competitive and a long-term thinker that has demonstrated a discipline to invest in markets for the long term. Microsoft has a lot of smart people, I am sure they spent considerable energy in their pricing startegy.
I believe the Surface will be successful anyway. The 128Gb Pro model sold out in hours. A million units in their first quarter is not bad, even compared to the iPad’s 3.3 million in its first quarter. But I can’t avoid thinking of what could have happened with a more agressive pricing strategy. We probably would be in an alternative future. your thoughts?
For the record, I admire Steve Jobs and Apple and have blogged about it a couple times.
Disclosure: I worked for Microsoft from 2004 to 2008, I am no longer affiliated with the company but still own some stock. As with all post in this blog, this post reflects my personal opinion. I own a Dell PC, a Surface, a Lumia 920 and a Zune. We have an iPhone, multiple iPods and an iPad at home. I have used Macs since the 1980s and sold a few of them when I was in the digital imaging business.
What does coffee and love have to do with growing a business? Let me start with a story. Hang on. It has an important message for marketers and businesspeople.
Get customers to love you like I love Coffee
Yesterday, my friend Roxanne made fun of me claiming to be a ‘coffee connoisseur’ on my twitter profile. I didn’t mean to brag about my expertise, I really meant to say I love coffee, good coffee. But just a few years ago I did not drink coffee at all. What happened?15 years back I lived in Mexico. NAFTA was in vogue and I was an entrepreneur (now I am an intrapreneur – an entrepreneur inside a a company) looking to expand my business. I visited a cousin in Xalapa, a beautiful town in the mountains with perfect weather for growing coffee. My cousin had a plantation and told me about his coffee business. I was intrigued.
I went to Inc. magazine’s forum and wrote a post looking for a business partner. Someone who would be interested in exploring the idea of exporting coffee to the US. That’s how I met my friend Fernando Labastida who loves coffee and had the entrepreneurial bug. A few weeks later I arrived in Austin. Fernando took me to a coffee roaster where we learned about the roasting process and to coffee houses from Mozart’s on the Lake to Ruta Maya to the famous Captain Quackenbush’s Intergalactic Dessert Company and Espresso Cafe.
After learning about the craft of growing, sorting and drying coffee with my cousin in Xalapa, then learning about the delicate art of roasting coffee in Austin, visiting the multiple coffee shops in Austin and thinking about the potential business, I was hooked.
Although I was not a coffee drinker just a few weeks back I had learned the proper way to taste coffee. I learned about acidity, caramelization, the importance of roasting beans of even size, the difference of roasting in a pan versus using hot air, the chemical processes that occur when roasting, grinding and brewing coffee. I became a connoisseur. And I fell in love.
At the end, we did not start a coffee import business for various reasons, one of them being the required scale of investment to make the economics work. However, I ended up with a great friendship and a passion for good coffee. And I learned one important marketing lesson:
You can’t love what you don’t know.
(and neither can your customers)
You cannot fall in love with your sweetheart before you meet her. A preacher once told me it was important to read the bible, because you can’t love Jesus unless you know him. Your customers cannot fall in love with your products, your brand, your company without getting to know it. What should marketers do about this? Three things come to mind.
Enable customers to try your product. If you sell food, offer free samples. If you sell software promote free trials. What if you are in the professional services business? Your product is your knowledge, let customers sample it too by offering free advice or workshops, free articles or white papers.
Get customers who try and love your product to share their love. Social media is the easiest way to do this. Let this be your guiding principle for your Facebook strategy. Enable customer reviews, and embrace them (the good and the bad, you can learn a lot from what your customers say). Add social sharing buttons to your website and your blog. Hand out extra business cards to your satisfied customers. Ask them in person to recommend you to friends.
Make it easy for customers to experience your product without using it. Make them feel like they are using your product. This can be done via technology like 3D video maybe but it can be much simpler: you can do it via narrative. Instead of talking about features and benefits, tell customers about how they will feel when (or after) they use your product. If you sell a convertible let your prospects imagine the feeling of the wind in their face, the openess of the road and the warmth of the sun.
The fundamental idea is that knowledge creates a connection. Knowledge can create love (if your product is good). Even more important, knowledge is a prerequisite of love. If your customers learn about your business primarily via your website, how much knowledge are you sharing? How many interesting stories do you share? How do you talk about your people and your unique way of doing business so that people can identify with you?
Let your customers love you, by telling them more about you and letting them experience your product before they buy.
Successful companies must be able to evolve at the speed of change.
Companies that don’t adapt to the changing world disappear quickly: Blockbuster is a prime example; today we are witnessing RIM (who makes Blackberries) following similar steps.
Technology is the disruptor: cloud computing is empowering entrepreneurs and businesses with computing power that was inconceivable just a few years ago. Mobile devices are making information ubiquitous. Social technologies are enabling sharing of ideas and knowledge in real time. As a result, today’s customer is very different from that of 10 years ago:
Smart – Buyers are armed with knowledge. More than half of all online purchases are influenced by online research.
Connected – Customers have the ability to research, share, comment and buy anywhere, anytime. The ability for customers to compare online and nearby prices while in a retail store is forcing unprecedented price transparency.
Socially Influenced -The new buyer is not alone. He or she is empowered and influenced by the collective knowledge of friends, influencers and online reviewers.
It is all to easy to react tactically to the latest trend or to go for the new buzzword. Only a few years ago companies were racing to build facebook marketing and f-commerce plans, today everyone is talking about how to build a Social Business. Instead marketers should think about Customer Interaction Strategies, and understand how the new tools (Pinterest, Twitter or whatever comes next) support your business strategy.
The new Dynamic Customer Journey, as the Altimeter Group calls it, forces marketing leaders to build a dynamic, adaptive marketing team and to lead the company in its pursuit of being an adaptive organization. Their focus on these two themes is what inspired this post.
This need to continuously evolve and adapt as marketers is the reason why In February 2011 I renamed my blog The Adaptive Marketer. In that post I shared this quote from management guru Peter Drucker, who back in 1968 in The Age of Discontinuity wrote:
“Businessmen will have to learn to build and manage an innovative organization. They will have to learn to build and manage a human group that is capable of anticipating the new, capable of converting its vision into technology, products and process, and willing and able to accept the new.”
How to build an adaptive marketing organization? I don’t have the complete answer, but I can share a few ideas:
Don’t get blinded by shiny objects: Web 2.0, Pinterest, Twitter, Facebook, Google + and the new tools that will appear in the near future, are just that: tools. Think of them in the context of how they can affect your customer engagement strategy and how do they support your business objectives.
Hire multidisciplinary marketers: Don’t hire a Pinterest expert or a Twitter guru. To be adaptive, your team must understand multiple marketing tools and tactics and how they interact with each other. Else, you end up with siloed, tactical activities. As an example, your twitter tactics can support your content marketing strategy which can combined can support your lead generation and revenue goals. Hire marketers that understand how all the pieces work together, and who can understand new tools fit this framework as they are invented.
Build a continuously learning organization. Change is hard. It took us years to begin to understand the internet affected businesses. Then we had to learn about SEO. Next was social media. Content marketing is important again (it has always been). The only constant is change. Build learning into your organization’s DNA. Hire curious people. Encourage experimentation. Build a training plan. Stay up to date.
Keep the customer at the center – Amidst all this change, there is one constant: the customer. While the interaction tools and the buying behavior are constantly evolving, customers should stay at the center of your strategy. The first step is to really understand who is (or should be) your customer, understand what they need and how they need it (including how they want to buy) and design your selling process around the customer experience.
Focus – it is all about the business. Marketers must be increasingly accountable for results. Not only leading indicators like website visitors or facebook followers – actual results. I am talking revenue growth, increase in customer lifetime value, customer satisfaction, loyalty and advocacy. This is what I mean: if you build great products that your customers love, you will probably do alright.
Here we go again – we have a new buzzword, all the social media experts are talking about the “Social Business”
Peter Kim defines social business [link http://www.beingpeterkim.com/2012/03/what-matters-in-social-business.html ] as “a social business harnesses fundamental tendencies in human behavior via emerging technology to improve strategic and tactical outcomes” – interesting but it sounds like something a consultant would say. IBM defines it as an agile, transparent and engaged organization (of course, they sell collaboration, community and social listening tools).
I don’t think it is that complicated. What does it mean to be a social business? To me, it is not about having a team of people monitoring Linkedin, Twitter and, if you are in the ‘leading edge’, Google+ and Pinterest. Those are tools, communication channels.
Photo courtesy of Tobym http://www.flickr.com/photos/48089670@N00/with/66419210/ under the Creative Commons license
What it means to be a social business can’t be relegated to a small rapid-response, crisis-prevention team. The social strategist should be a customer interaction strategist, not the leader of a support team that is trying to move quickly to avert a Comcast-like crisis or a United breaks guitars viral video incident. There is no formula to make content viral either.
To me, running a social business has a much deeper meaning. I say ‘deeper’ because it requires a fundamental culture change that spreads across the business and changes the way the business operates.
Social Business is about being sincerely interested in listening to customers and empowering employees to have an open conversation with them.
What do I mean? On one side Marketing is paying (struggling) to reach to customers to tell the company message while ‘customer service’ is trying to reduce call volume- that is, trying to talk less to customers. Does that make sense to you?
Is your Business sincerely interested in listening to customers and empowering employees to have an open conversation with them? To help you find out, here is a short Social Business test
You are not a social business if you leave people on hold for 30 minutes. If you do that, the message to customers is ‘we don’t want to talk to you’. I am proud to work at Rackspace where on average it takes customers 6 seconds to connect with a person who cares.
You are not a social business if the emails you send to customers come from ‘do not reply’. Think about it: you are talking to customers and telling them, “Please don’t even try to talk to us, we don’t care, your email won’t even make it”.
You are not a social business if you don’t publish your contact information on your site and encourage customers to contact you. How many times have you as a customer navigated nests of pages to try to find an email or 800 number? How many buttons does it take in your phone system for a customer to speak with a human?
You are not a social business if you don’t have a formal customer feedback process, that gives the team designing products and services the opportunity to understand what customers want. A system that makes it easy for front-line customers to pass feedback, makes it easy for customers to volunteer feedback, a system that collects and summarizes it, and a product development team that reads the summaries and acts on it.
You are not a social business if at least everyone in marketing spends time with customers every week. When I was responsible for social strategy for a F500 company back in 2004, every single employee in a division of many thousands was required to spend at least 4 hours interacting with our customer community. Ask your team, when was the last time they spoke with a customer (and listened)?
You are not a social business if you don’t empower front-line empowers to help customers. If you don’t allow them to have an honest conversation with customers.
You are not a social business if you speak to customers in a different language: you can’t connect with customers if you talk to them in consultant-speak, corporate-speak or marketing-speak (I am trying, it is hard). Talk to people like people, like you would if you were having a conversation between two humans (you are).
You don’t have a social business if your social media team spends most of their time fixing customer problems via Twitter and broadcasting self-centered communications and discounts via Facebook.
To drive the point home, you can have a social business even if you don’t have a social media team and if you don’t have a Twitter account. Think about the small business that talks to customers every day, where employees know customers on a first-name basis and not only know about customer’s personal lives but they actually care about them. Everyone in the business understands what customers want, and there is a relationship with customers that goes beyond transactions. To me, that’s a social business.
Twitter, Facebook and Google+ are only tools to interact with customers. They are awesome tools that have incredible potential to transform your business and the relationship with customers. But you may want to start by simply answering the phone and talking to customers.
Update: based on the comments I received to the MarketingProfs post, I want to add that I am not against the philosophy aof social business as expressed in the social media and collaboration circles. I am a fan of Peter Kim and many of the contributions from the Dachis Group. In fact, I have been an advocate of taking advantage of social media for almost a decade as well as empowering employees with enterprise social collaboration (now thwe Enterprise 2.0 conference calls itself the Social Business conference – how quickly buzzwords evolve).
The key point I am trying to make is that we marketers are too quick to chase the shiny object and pursue ‘advanced’ marketing technique when we have not really though about the basics. Markeitng is common sense. Becoming a social business is part of a business strategy that is centered around empowering employees to share knowledge and a personal interactionw ith customers, it is not about a set of ‘social media’ tools that a company can license.
Like I said in my last post, I am not a fan of Apple products. I have a Windows Phone, I love my Zune, and a month after I joined Rackspace I retuned my MacBook Pro to the IT department to get a Dell Windows 7 laptop. I have worked with Apple products for many years, I sold many Macs when I was in the digital imaging business in the early 90s and here are iPods, an iPhone and an iPad in our household.
Yet, as a marketer and a business man it would be foolish not to recognize the unique ability in Steve Jobs to transform industries: personal computers, music, cell phones, animated movies and publishing. Steve also had his share of failures : The Apple Lisa, hiring John Sculley, NeXT, Apple TV (so far), Ping FM, and others.
You have probable read a dozen ‘Leadership lessons from Steve Jobs’ articles, but I have a slightly different perspective that I want to share. These are the three reasons Steve had an incredible ability innovate, according to the Adaptive Marketer:
1. Steve clearly understood customer needs
Apple is famous for not doing traditional customer research . A few days ago Guy Kawasaki came to Rackspace and told a group of us at Rackspace “the day you see Apple doing a focus group is the day you must short your stock”. It is easy to come to the conclusion that Steve ignored customers creating customers on his own.
It is true Apple does not do customer focus groups, there is no feedback section on the website and after 5 years there is only one iPhone form factor despite customers who have asked for a physical keyboard, larger screens or a smaller, lower-cost version.
But there is a difference between not accepting direct customer feedback and not understanding customer needs. Steve was frustrated with the user experience in the first iTunes-enabled phone, the ROKR. Steve understood customer’s frustration with smart phones in general. He understood customer needs, and used his technology and user experience genius to create products that served those needs.
In fact, Steve Jobs’ first press quote, published in the July 1976 issue of Interface magazine read “If we can rap about their needs, feelings and motivations, we can respond appropriately by giving them what they want.” referring to his customers for the Apple I, hobbyists.
2. He understood it success is not a result of having the best technology, but in offering the best user experience.
This ability is especially important in the technology industry where most product managers, marketers and executives are fixated on the virtues of the latest technologies that we often miss or misunderstand customer needs. Steve was a geek at heart, but he also deeply understood the importance of customer experience.
Probably as important, he understood the power of simplicity. If you look at his product launch keynotes (and if you are a marketer you must), the message was concrete and simple to understand.
In 2005 when he launched the iPhone, he did not have slides with a hundred features, technologies and capabilities. Instead, the iPhone was presented as a phone, a music player and a browser: three concepts that everyone understood. He did not talk about how many megapixels in the camera, how many megahertz in the processor, or the details behind multi touch technology. It was simply a phone, a music player and a browser.
In terms of technology, there was nothing revolutionary in the iPhone. The Windows Mobile phones available in 2005 could do everything an iPhone could do. But Windows Mobile was not simple. The best technology does not always win. Otherwise we would all be using Amiga computers.
3. Steve was relentless in making his dreams a reality.
In a previous post, I summarized Marcus Buckingham’s perspective on leadership: Great leaders are restless for change, impatient for progress and deeply dissatisfied with the status quo. The possibility of a better future burns them and propels them. Great leaders see the future so vividly they have no choice but to do everything in their power to make this future real.
Steve really was an example of this. When the iPhone was announced, there was no market for $599 phones. There were only a handful of phones that were so expensive. If you worked at Motorola, for example, and proposed launching a $599 phone, the response would be that market research showed there were not enough buyers willing to pay so much for a phone, especially a phone that did nothing new.
“Apple iPhone will fail….The iPhone is nothing more than a luxury bauble that will appeal to a few gadget freaks. In terms of its impact on the industry, the iPhone is less relevant.” – said Mathew Lynn, from Blomberg in2007
Yet, Steve said Apple would sell 10 million phones in the first 18 months. And he did.
There was no market for iPads, either. Tablets had been available for years. Microsoft issued me a Toshiba tablet when I joined in 2004, which was interesting but I used mostly as a normal PC. When the iPad was launched people were confused about the use case. Why would anyone need one? Seemed like a cool toy for people with a couple hundred bucks laying around.
As my friend John Smolucha points out in a recent blog post: “Even more impressive, nearly 75% of Apple’s revenues come from just two products: the iPhone (53%) and the iPad (20%). The first iPhones began shipping in June 2007 and the iPad only became available a year ago, on April 3, 2010. I don’t know about you, but I’m not aware of any other company that generates nearly 75% of its revenue from products that didn’t exist five years ago, while doing it during a global economic downturn.”
Steve believed in his dreams beyond what rationality, beyond market research, beyond corporate practices and policies. He had a vision and worked tirelessly to make it a reality. Yes, he was a micromanager, but only because he was a perfectionist and did not accept any deviations from his dreams.
Today most people would regard Steve Jobs as the inventor of the iPhone. I want to share the story of the iPhone that I believe is true, even though I don’t have any proof. It is based on storied I heard and observations. None of this is confidential information I gained while I worked at Motorola in 2004.
How Motorola invented the iPhone
Back in 2004 the RAZR was the best selling phone in history. Apple was starting to dominate the music industry with the iPod and was getting ready to launch the iPod nano. Apple was happy, things were looking good.
Motorola had a team in Libertyville working on customer trends, lifestyle, and technology trends. At the time, a few Motorola phones had music capabilities, and the company saw an opportunity to converge the iPod and the RAZR.
The story is that Ed Zander, Motorola’s president at the time, had a meeting with Steve Jobs to share this idea. Apparently, Steve was not very interested in the idea. Then Ed said something that changed Steve’s point of view (and probably the world):
“When you leave the house, you always bring the three things: keys, wallet and your cell phone. That’s it. Your iPod is not in this list.”
At that point, Steve understood Motorola’s idea and agreed to build a product. The Motorola ROKR E1 was launched on September 7th, 2005. It was the first phone to work with Apple’s iTunes, a truly revolutionary concept. Yet it was fatally flawed.
There were a few key problems with the ROKR: it could only store 100 downloaded songs at any given time, probably a limitation imposed by Apple to avoid direct competition with the iPod. There was no USB interface, which made the process of getting music into the phone incredibly slow. Apple did not seem to be particularly excited about the ROKR, Ed Zander complained to Apple about lack of support and undercutting it with the Nano.
However, the biggest flaw was usability. Like most cell phones in 2005, the user interface was not intuitive. Here is where you can see the genius of Steve Jobs at work: Steve understood without great user experience the idea of a music phone was going to fail.
Most likely, Steve became frustrated about the lack of UX focus at Motorola, and thought he would execute on the same idea on how own. Development on the iPhone started that same year, in 2005. . It was a monumental task. Building a cell phone operating system from scratch is not an easy task, even for Apple. The iPhone shipped June 2007. The rest, is history.
The iPhone was not perfect when it launched. At the time, it was a closed system that did not allow any third party apps. Apple asked developers who wanted to innovate to basically create a browser app optimized for the Safari mobile browser. After a few months, Steve saw the opportunity in an ecosystem and opened the iPhone to 3rd party apps. Today, the breadth of iPhone apps is one of the strongest selling points, and the focus of the “There is an App for that” ads.
Before Apple fanatics show outside my home with pitch forks and torches, I am not trying to take credit away from Steve. People who know me know I am not a fan of Apple products (I love my Windows Phone and yes, I have a Zune and it is great), but it would be foolish not to recognize Steve as an incredible innovator.
Today (February 2012) I had the opportunity to present at the American Marketing Association Austin luncheon lunch on the topic of how to establish a premium position in the marketplace.
The key points form the presentation:
Building a premium product is about differentiating by focusing on a segment of customers who are willing to pay more for a product that serves them better. Premium products are created by value.
People buy emotionally – then justify their decisions rationally
What drives business success? What is the one thing any business can do to increase its chances of surviving, thriving and growing?
We are always looking for a single thing that can give us success, the ephemeral silver bullet. It’s called the delusion of the single explanation (read more about this one and 8 other delusions here). In business, like in most cases, it is always a combination of factors that results in success. Strategy is probably at the top of the list. Other factors include execution, passion, culture, and some may even say luck (timing is usually a better description).
While I believe Strategy is the #1 factor, I was looking for a formula to create a strategy that could be applied broadly, to almost every business, of any size and industry, to increase its chances of success. I think I found it.
The Formula for Business Success
Long time ago, probably in the early 90s I saw a magazine ad for Lotus (I believe) which had a central message designed to make small business owners feel empowered. The headline read:
Give Customers What they Want, Make Money, Repeat
Since, it stuck in my mind because of its simplicity and power. I am sure most people read it and thought “d’uh! – of course!’. Some of the most powerful concepts in business and in life are hidden behind simple phrases like this one. Often we fail at the basics. Often we get distracted by complex stuff and ignore the basics. My college professor used to say “Marketing is common sense, which is the least common of all senses. Never underestimate the Power of Simplicity.
Why is this simple customer so powerful? Let’s break it apart:
Give Customers what They want – offers four insights:
Giving customers what they want is very different than giving customers what you sell. This means you must change your marketing and your entire organization around customer needs, not around your products.
Third, it means you need to decide who is your customer. It is very hard for a business to try to satisfy every kind of imaginable customer. You need to understand market segment,s buying behaviors and the type of customer you are better suited to serve. You can start with simple terms – do you want to serve a quality oriented customer, a price conscious customer or one that values full service?
Fourth, the ‘Give’ talks about the delivery model. I think about it as understanding how your customer wants to consume your product. What format, what pricing model, what packaging, what place, etc.
Make Money – This is about having a fundamental understanding of your business metric. Understanding your cost to acquire a customer, your fixed and variable costs, cash flow, profitability, margin, cost of capital – start with the basics. If you talk to owners of small businesses, you may be surprised how many have no clue about many of these metrics. The same can be said of product managers, marketers, and even large companies. Remember the dot com bust? The focus on making money also means your business must be market driven, not technology or buzzword driven. Another no-brainer that is often the cause of business failure.
Repeat – This is a key part. It talks about building the culture, the processes and the company around these basic principles. Listening to customers once is not good. Looking at your balance sheet every now and then is not good management. These need to be habits. Even more than that, they need to be made core of the way you think about your business – as an entrepreneur, as a CEO or as a product marketer in a large company.
I hope this formula can help you and your business, or at least re-think your overall strategy.
Like most business people with global responsibility, I fly quite a bit. I have been a Platinum member for a couple of years and have flows withAmerican almost a million miles now. A few weeks ago I headed to the counter and asked to be added to the list to get upgraded. After all, I have 18 segment upgrades in my AA Account.
“No can’t do. You cannot use your segment upgrades anymore” said the AA Lady. Wait…what? Last year because I was transitioning to a new job, I did not fly much, and when I flew other airlines were more convenient. I did not get enough miles to qualify for Platinum – or Gold. I missed by just about 2,000 miles. I was demoted from Platinum elite member to member. And if you are not Gold, you cannot use your earned segment upgrades. American won’t allow me to use the upgrades I earned by being a loyal flier for years.
Then, I got an email yesterday where American is asking me to pay $559 to retain my elite status at Gold and enjoy benefits such as checking two bags at no extra cost, which I get at Southwest.
What American does not get is that I am the same guy they used to pamper with free upgrades to business class on an intercontinental trip, complementary access to lounges and other perks. Now that I am traveling again, I don’t feel compelled to use AA – for them I am just a guy. In reality, I am a business traveler, and I spend more than I would like on travel – and American knows it. American’s loyalty program failed to prove loyalty to me as a customer .
American has lost my loyalty and the loyalty of thousands of customers. Now American is in bankruptcy and at their current market ($218 million) Apple could buy the airline with the profits they make in a day and a half. But the goal is not to pick on American or rant about my experience, I am using it as an example of having the wrong idea about what a loyalty program should be.
“ Loyalty programs should be about demonstrating loyalty to your customers, not about bribing customers to do business with you”
Here is the problem: Most Loyalty programs are focused on rewards, which ends up being the same as bribing the customer to do business with you. Ironically, there is no loyalty in bribery: as soon as the bribe stops, customers will go elsewhere.
What if you thought about a loyalty program in a different way? What if the goal of your loyalty program is to demonstrate your loyalty to customers? Customers that feel appreciated, that feel they trust a company, that believe a company will stand by its principles, will become a loyal customer. Customers will be loyal because they will want to do business with you. Not because you bribed them. Seth says “Loyalty can be rewarded, but loyalty usually comes from within”
Maybe that’s why Forrester Research found no correlation to a small negative correlation between customer loyalty and having a loyalty program.
The key driver of loyalty is good, consistent, trust worthy service that meets the needs of your customers.
The old customer marketing funnel based on the AIDA model (attention, interest, desire and action) is obsolete. The new marketing funnel needs to be customer focused. The new customer model is CSLA (horrible, but hey, acronyms suck anyway): Costomer -> Satifaction -> Loyalty -> Advocacy
You create a Customer when they buy a product or service from you
Customer becomes Satisfied when you meet or exceed expectations
Satisfaction drives Loyalty, which is repeat purchases
Satisfaction and Loyalty make the customer an Advocate that promotes your product or service via word of mouth
What would have happened it Microsoft had launched the Surface at a price of $275?
