Tag: Business Models

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Embracing Market Disruptions – the End of TV as We Know It

Market Disruptions Strategy

Many products, especially technology products, are marketed as revolutionary or game-changing. Most people know better than to trust marketers at face value on claims like these.

Disruptions to the market could be defined as those who alter the balance of an industry between supplies, consumers, existing and new competitors and alternatives – Porter’s five forces. These changes alter the industry’s profitability, growth rates and expectations for future growth.

Examples of true disruptions include when streaming TV and movies over the Internet (Netflix, Hulu) became a viable alternative to in-store rentals (RIP, Blockbuster) or when computer components enabled smaller companies (Dell) to compete at lower costs than industry leaders (IBM, HP).

Market leadership is not powerful enough to stop market disruptions

In the majority of cases, the new technology was available to industry leaders who chose to disregard it as a fad or inferior to their existing technology. There were clear signals of the market disruption, which leaders chose to ignore.

Sony ignored the digital music revolution, allowing Apple to dominate the market with the iPod and iTunes. Sony had everything to win: the company invented portable music with the Walkman a few decades ago. Sony owns movie and music publishers and distributors. Sony produces consumer electronics, computers, and mobile phones. The company’s mission is to innovate around content to deliver new experiences. And yet, Sony chose not to participate in the disruption. Continue reading “Embracing Market Disruptions – the End of TV as We Know It”

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The Adaptive Marketing Organization

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.

What do you think?

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Establishing a Premium Position in the Market

Most companies that want to charge more simply raise the price and hope the market doesn’t notice. It notices. A premium position isn’t a number on an invoice — it’s a set of decisions about who you serve, what you make them feel, and how consistently you prove it back to them. Get those decisions right, and price stops being the thing customers argue about.

Here’s the framework, expanded from a talk I gave to the American Marketing Association in Austin, with a bit more mileage on it since then.

1. Premium is a segment decision, not a features decision

Building a premium product starts with a choice most companies avoid: which customers you are willing to lose. A premium position comes from focusing on the segment that gets disproportionate value from what you do — and pricing to match that value, not your cost structure. Add-more-features is a commodity strategy wearing a premium costume; real premium positioning narrows the target before it raises the price.

When I repositioned Catchpoint’s internet monitoring product, the unlock wasn’t a longer feature list — it was picking the segment (digital experience-obsessed enterprises) that valued what we already did more than anyone else did, and building the message around them specifically. I go deeper on that repositioning in Creating a Category: How Catchpoint Repositioned Itself for Leadership, and on the broader mechanics of positioning in The Fundamentals of Effective Positioning.

2. People buy emotionally, then justify rationally

Nobody buys a Peloton because of the specs on the flywheel. They buy the version of themselves the purchase represents, then use the specs to defend the decision to their spouse. This is uncomfortable for marketers trained to lead with proof points, but it’s the honest sequence: emotion opens the wallet, logic signs the check.

Practically, this means your top-of-funnel content should sell identity and outcome — who this makes you, what changes for you — and save the feature comparisons for the bottom of the funnel, where the rational justification actually gets used.

3. People buy experiences, not products

Starbucks isn’t selling coffee at four times the diner price — it’s selling twenty minutes of a particular kind of calm, a laptop-friendly seat, and a cup with your name spelled wrong on it. The product is often the least differentiated part of a premium offering; the experience wrapped around it is where the margin lives.

This is why premium brands obsess over the parts of the journey that have nothing to do with the core product: the unboxing, the onboarding call, the way a return is handled. Those moments are where “premium” gets proven or disproven.

4. Price communicates value — don’t apologize for it

A low price is a signal too, just not the one most companies intend. Pricing something aggressively low to “compete” often tells the market the product isn’t worth much, which then requires more selling effort, not less. Premium pricing, held with confidence, does some of the positioning work for you before a salesperson ever opens their mouth.

The mistake I see most often is discounting during the demo. It undoes in five minutes what months of premium messaging built — a version of the same discipline I write about in The Trust Equation: The Foundation for Value-Based Selling. For the most extreme version of this principle in action, see how a watchmaker with zero heritage out-priced Patek Philippe on day one in Richard Mille: How a Marketer Out-Positioned Two Centuries of Watchmaking.

5. Packaging communicates value

“Packaging” is broader than the box — it’s every surface where the customer forms a judgment before they’ve used the thing. Website design, proposal formatting, the weight of the paper on a print piece, the polish of a login screen. Enterprise software is just as guilty of shabby packaging as consumer goods, and it costs just as much in perceived value. A brilliant product with a sloppy interface reads as a mediocre product.

6. Happy, empowered employees create value

Premium experiences are delivered by people, and people who feel disposable deliver disposable service. This is the point that gets cut first when budgets tighten, and it’s the one with the longest memory in the market — customers remember the employee who went out of their way far longer than they remember the ad that got them in the door. Southwest and Ritz-Carlton are different price points telling the same story: invest in the people, and the premium experience takes care of itself.

The through-line

None of these six points work in isolation. Segment focus without emotional storytelling is just narrow targeting. Great experience without confident pricing leaves money on the table. Premium positioning is a system, and like most systems, it breaks quietly wherever one part is neglected rather than dramatically all at once.

That’s the part most “premium positioning” advice skips — and it’s the part worth getting right. (For more on refusing to compete on the market’s terms, see Think Like a Grandmaster: 7 Strategy Lessons from Garry Kasparov.)

This post is a refresh of a talk I originally gave to the American Marketing Association Austin chapter back in 2012. The core ideas held up better than I expected — the original slides are still worth a look: Taking a Premium Position in the Market.

Here are my slides:

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The Basic Formula for Business Success

what makes a business successful

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.
    • Second, it means you must first find out what customers want. really listen about what they want and make fundamental changes to deliver it. Like Domino’s when they changed the recipe for their pizza based on customer feedback.
    • 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.

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Is SaaS reaching critical mass in 2009?

I just read this blog post which starts with a very bold statement “SaaS adoption will move beyond the “Tipping Point” in 2009”.  .  Countless analysts’ reports have prophesized about the explosive growth of applications delivered under a SaaS model for some time now. The reality is that adoption of software via this on-demand model has been quite limited (outside of CRM, thanks to Salesforce.com).

Sometimes it seems like the IT industry is looking for the next big acronym that will revolutionize the way we look at technology. In reality, customers and IT departments are much more cautious than what most vendors and analysts would like them to.

While not exactly the same, there are very few differences between SaaS and the ASP model that was the vogue in the late 90’s. Where is the money? The Forrester slide in the aforementioned blog shows 24% of companies are “interested in SaaS’.  There is a difference between being “interested” and signing a check.

First, I think it is important to understand SaaS is a delivery model that can be broken down into multiple components: hosted offering (off premise), monthly billing based on use, small or non-existent upfront cost and quick deployment. This in contrast with the “traditional” software deployment licensed as a perpetual license, deployed on-premise by the IT department and variable deployment times.

Most SaaS offerings are available to purchase online via a credit card with self provisioning. To enable these self-provisioning and instant-on capabilities, SaaS offerings are usually templetized with limited options. Integration with other systems is not as flexible as with a traditional on-premise solution. I say mostly because there is a wide range of vendors with different models. To support many customers from each server, SaaS vendors usually require multi-tenancy.

In my humble opinion, the SaaS model is not nearly as important as the evolution in the market towards managed services. What is the difference? Managed services are also hosted off-premise by a vendor that also provides software deployment, management and maintenance.  In other words, a managed services vendor takes the pain from IT hosting and managing a discrete piece of infrastructure. If you look at Salesforce.com in terms of implementation costs and resources it probably looks more like a managed service than a true SaaS model.

Let’s look at email as an ideal candidate to move off on-premise IT. Most It departments see e-mail as a business critical service from It but also as a solution that is pretty standard in terms of the ability for It to add value.  Microsoft Exchange Server has a very large and growing market share (70-80%) and is used everywhere from small companies (licensed as part of Microsoft Small Business Server for organizations with 5 users or more) to the largest enterprises.

There are two markets for off-premise Exchange services: Hosted Exchange (SaaS) and Managed Exchange.

Given the advantages of hosted Exchange in terms of cost, availability and security most in the industry (myself included) expected droves of small and medium businesses to go to Hosted Exchange. Microsoft had hundreds of Hosted Exchange partners – from companies like 4smartphone.net  to USA.Net to Microsoft’s own Exchange Online offer. Yet, despite effort from Microsoft and all these partners, adoption had been very limited.

Managed Exchange is a different story. Vendors like HP, EDS and AT&T hosts millions of email inboxes for the world’s largest companies but not in a SaaS model. They manage their Exchange servers on their behalf, with a team of certified Microsoft Exchange IT experts in a datacenter. There is no multi-tenancy, each customer is likely to have a cluster of dedicated Exchange servers. There is no online self-procurement: these are multi-million services deals done in person.

What is my point? Analyzing this data, one can come to a couple conclusions:

  • The SaaS model is especially attractive for the SMB space.
  • Yet it has failed to gain the traction that the industry expected .
  • There are very few success stories outside of CRM. I can’t think of many successful and profitable SaaS vendors. Omniture, Salesforce.com, who else? Wordpress?
  • The SaaS model still has many challenges ahead:
  • The Managed Services model, on the other hand, is very successful and gaining momentum.
  • Many large IT organizations are offloading core low-value IT services like email to managed services vendors.
  • In other words, while SaaS is not being adopted as fast as everyone though, Managed Services have reached critical mass and are already a significant business.

 

Mid 2015 Update

Today I found this old post. How much changes in six years. My first thought was that maybe I should delete the post. Then I thought I should just add this comment to acknowledge my prediction was wrong. SaaS has hit a tipping point and is the future of software – for the most part.

Then I saw the date and read the post and realized maybe I was not so wrong, that many of the challenges have been solved in the past 6 years. The SaaS model itself has matured, and in some cases a hybrid between SaaS and managed services has emerged as the winning combination. The signs that SaaS had hit a tipping point were clear as early as 2010. At the end of that year I joined a SaaS company. But I have to recognize back in 2009 I was wrong in being so skeptical of the speed at which SaaS would mature. Which is OK I guess, ad my track record with predictions has been pretty good so far.