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.
It’s a trick question. It assumes you can have without the other when in fact, the answer is that what is more important is the alignment between strategy and tactics:
Strategy should be based in your tactical ability to execute (which includes your core competency, as the thing you can execute on better than anyone else) and tactics should support the strategy
What is really important about this point of view is that it is not uncommon to find a disconnect between strategy an tactics in many companies:
The strategy is unclear for the teams executing, or
While the strategy is clear, how it should impact and guide tactical work for each member executing is unclear
Strategies are developed in a vacuum by executives that are not connected to the front lines, or worse, by top-dollar consulting companies that bring junior MBAs to craft a strategy with no real context of the business
Part of the problem is that there are very few people who can span both: who can think strategically but can also guide (and roll up their sleeves) to execute. Employees who can bridge strategy and tactics can add incredible value to an organization, when employed properly.
How do you do that? The first step is to take a dose of reality, we need to be self-aware of how strategic we really are. Most marketers consider themselves strategic, but do we even know what that means? Here are some questions to help you assess your strategic ability:
Do you understand the fundamental metrics of your company? Have you read the latest quarterly report and do you understand the fundamentals, and how marketing can influence the key metrics that influence shareholder value?
Do you understand how your company generates profits, cash and customers?
Do you understand the medium-term strategy for your competition? Have you reviewed their IR presentations?
Do you understand your core competency as a company? What are the things your company is really good at and which ones you should avoid?
Do you understand your customers, how they are evolving and how their needs and purchase behaviors are evolving over time? What is the gap between you and your customer expectations and what you deliver today?
Have you modeled the market and competitive landscape, using tools like Porter’s five forces or a simple SWOT model? and, if you have done this consistently, have you been able to predict market evolution?
Do you know exactly how your marketing tactics and the work you are doing today contribute to the long-term success of your company?
These questions are not perfect or comprehensive, they are a start.
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.
Are you pricing your products right or are you leaving money on the table?
The Concorde was one of the most innovative machines ever built. The first and only supersonic commercial aircraft capable of flying at twice the speed of sound is also one of the most beautiful machines ever built. The Concorde story provides an interesting lesson on pricing.
During the first 6 years of operation, the fantastic Concorde lost money for British Airways. Losses were so bad, in 1982 BA’s boss Sir John King gave the responsibilities of the newly created Concorde division to Captain Brian Walpole and gave him two years to turn Concorde losses into profits. If he failed, BA would terminate operations, shutting down Concorde for good.
The COncorde team decided to do some market research. They asked businessmen how much they thought a Concorde ticket cost. The answer, “Most of them didn’t know. It was their secretaries or travel companies doing the bookings. When they were asked to guess, because they were senior, very important people, they all guessed that the fare was higher. ” – explained Captain Jock Lowe, Concorde resource & Planning Manager.
This insight led to a new pricing strategy. Captain Lowe described “So very simply, we said, we’ll charge them what they think they are paying. And so we put the fares up”. There was a discrepancy between what the company was charging and the value customers saw in the product. Have you asked your customers how valuable is your product or service to them?
Concorde ticket prices were doubled to over $7,000, one way, in today’s prices. As a result, Concorde was repositioned to provide a super-elite class for bankers, the rich, and the famous. Concorde became the place to be seen.
Despite the high price, sales were very strong. For one particular day, half the tickets for its first fare-paying London-New York flight were sold out in the first two hours of booking, (source).
Concorde started making money. Lots of it. “We made about $500 million pounds in net, clear profit.”. Estimates point to $50 million pounds in profit per year. That’s significant, even for a company the size of BA.
Many companies build their pricing strategies based on cost + margin. Often, there is a predetermined margin based on an overall pricing strategy or on a corporate profitability target. The story of Concorde sows us the power of market-based pricing and the importance of understanding the true value of the products and services your company offers. Do you know what is the price elasticity of your products?
Bazaarvoice and the CMO club recently published a report about how CMOs think about social media and how they are finding ROI (or not). You will find a number of stats and details in the report itself. I want to share my own perspective on what I think are the implications made evident by the research.
Social is Important. Every marketer knows it. Customers have shifted the way they buy. Social is here to stay, there is no question about it. Every CMO knows they need to have a social marketing plan. This should not be a surprise to anyone, the report simply confirms it.
Measuring results is harder than expected. The report shows social media is harder to measure than what CMOs expected. By looking at last year’s report, it is clear most of them thought by now their social marketing efforts would have matured enough to have a good measurement framework. Today, most marketers are measuring engagement, not actual business impact. Many are still chasing shiny objects. Consider how many companies are trying to grow their Facebook fan pages without a clear reason why they are doing it or a strategy to convert fans into business value.
Social Marketing is too tactical. Without an indication of results, CMOs can’t make investment decisions on social media. As a result, most companies are still in experimentation mode. Only two years ago, social marketing meant blogs and wikis. Last year it has been about Facebook and Twitter. Now GroupOn (which is not even social, IMHO) and Foursquare join the category of shiny objects. Small and large businesses are jumping on the GroupOn mania, getting 25 cents on the dollar, often without thinking through a strategy.
Sadly, without a framework for results, CMOs have a hard time deciding how much to invest in social. According to research by Altimeter, the average large company is investing only $830K per year in social marketing. This budget can cover salaries for a team of three people, maybe a community platform to run support forums and a listening platform. The amount of resources, budget and results in social marketing is insignificant relative to overall marketing efforts. The danger is that a CMO hires a social strategist, two people to “man their Facebook and Twitter pages”, start a blog and ‘check’ – they have a social strategy, they can move on to more important stuff.
CMOs know they need to shift their investments from traditional advertising to social and digital efforts, but they can’t do it blindly. Even if a CMO wanted to shift $20 million dollars to social, they would have a very hard time finding where to spend it.
Reading the results from the research can be heartbreaking. The obvious question is: How to build an effective social strategy? There is no easy answer, however, I want to offer four ideas to help you build social into your marketing strategy:
Social is not a Strategy. Eventually, the word social will go away. Humans are inherently social, most human activity is social. We don’t talk about digital computers or electronic calculators, it is assumed. Companies are in business to make money. According to management guru Peter Drucker, the only valid business purpose is to create a customer. That is a paying customer. Social is not a goal, it is a means to an end. Should you experiment with social? Sure. What I am suggesting is to always think about how each social marketing activity will support your business goals.
Social as a marketing tool. Social tools can help marketing, innovation, customer support and other functions. But this is a blog for marketers. Yesterday I was having lunch with a friend who asked me if he should hire a social media strategist. To his surprise, I said ‘No’. I suggested he should hire a marketer that understands how social media can support the organization’s marketing goals. A marketer that understands how social marketing efforts can work together with ‘traditional’ marketing efforts to create more customers. To make money.
Smart social metrics. In any business functions leading indicators are important. For years, online marketers have measured page views as a leading indicator for customer engagement that then can be converted into paying customers. In the same way that email newsletter subscribers are an engagement metric that companies can leverage to do permission marketing to drive sales, the number of Facebook fans are also an interesting metric that enables permission marketing to drive sales. But you have to think through the experience: from leading indicator to business impact. Build a model that uses social media tools, to drive engagement and activity that then impacts business goals. Take a look at the model in this slideshare from two years ago, and at a more evolved model in Jeremiah Owyang’s Social Media ROI Pyramid
Social drives Advocacy. Social Marketing can be used by marketers in many ways: to build confidence in customers, to learn from customers and monitor your brand to make your organization more customer centric, etc. If you are looking for a quick win, I suggest consider using social media to drive advocacy: tap into Facebook , customer reviews and other forms of social media to empower your customers to sell for you. Word of Mouth is nothing new, it has been around forever. Social Media online makes it easy for happy to customers to drive advocacy and makes it scalable – and often measurable – for marketers.
Good luck with your social marketing efforts. Have fun. Be authentic. Experiment. And learn.
As I reflect on my career I have been thinking about how the marketing profession has changed over the last few years: the internet, mobile devices, social media and now tablets are just examples of drastic changes in the world we live that are changing the marketing profession.
In a way, the challenges marketers face today with social media (“I guess I need a Facebook page but I don’t know what to do with it”) are very similar with the challenges marketers had 10 years ago with the internet (“I guess I need a web page but I don’t know what to do with it”). The way people interact, research information and buy products has changed.
Consumers are evolving faster than corporations. The gap is a threat for existing businesses and an opportunity for entrepreneurs.
A great case study is Blockbuster. The company recently went into bankruptcy and was de-listed from NASDAQ. What I find really interesting is that the rise and fall off Blockbuster happened over a span of only a few years. The chart below shows the stock price for the last 10 years. It is reasonable to assume the business failed because of an inability to adapt to the new world, a new world that created an opportunity that was captured by Redbox and Netflix.
It is easier to be a historian than to be a prophet, of course. I imagine there were conversations in the Blockbuster conference rooms talking about market dynamics and threats – but it is hard to change the status quo. It is really hard to fundamentally change a business when it is generating billions in revenue
Today marketers at large face a similar dilemma. The marketing tools that worked 50 years ago don’t work anymore. Marketing no longer can be only about creating messages and buying media to broadcast those messages. Today’s marketer must think about how to empower and amplify customers to be advocates. CMOs know they need to balance their investments by shifting dollars and focus to digital and social, but the path is unclear. Marketers know mobile is another disruptive change – few know what to do with it.
As Christopher Stutzman from Forrester puts it, “To Avoid Extinction, Marketers Must Replace The Bad Habits Of Traditional Marketing With The Habits Of Adaptive Marketing”. In short, marketers must become adaptive.
I considered choosing a name for the blog that was centered on Social Media, but then I realized that social media is only one of the discontinuities that is impacting marketers. I already had a blog on Mobility. I have blogged about the web too. If I call my blog something about social media, I would have to change the blog in a few years. Or months.
Peter Drucker published The Age of Discontinuity back in 1968 (before I was born!). he 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.”
Last month 1 to 1 magazine published my article “The 10 rules of Customer Centricity” that talked about how customer centricity needs to be a company strategy, not a motto for the marketing team. My last post about Why I joined Bazaarvoice talks about the Bazaarvoice culture and how it was a key factor for me to join this company. Again, culture should not be something that is done by HR, framed and then ignored – its central to a company’s strategy.
The book The Discipline of Market Leadersis one of my favorite books on strategy, I encourage you to read it. It makes the case for three central disciplines that define a company and its primary operating model and its product strategy. The book talks about three main disciplines: Customer intimacy (think Nordstrom), Product Leadership (think Apple) and Operational Excellence (think Dell or McDonald’s). Companies can’t do all three, they need to pick one and run with it.
Culture = Strategy
Company cultureis strategy. It defines your company. It defines who you hire. It defines what you value and reward as an organization. It defines how you create products and services. It defines who you are. It determines your success.
The Engineering Culture at Motorola
Motorola has been for many years one of the most innovative companies in the planet. While I was working there I had the opportunity to visit the Motorola Museum. I was amazed about the number of firsts: From the first car radio (did you know this is the origin of the name -as in Moto- Rola?), the first square TV to almost everything RF/radio related in the world including the system that provided communication to the Apollo XI Lunar Lander.
Then it hit me: Motorola had invented so many markets yet it had been unsuccessful in maintaining market leadership. The company invented the cell phone and by then it had secondary market positions both on the cell phone business as in the infrastructure side. The answer, for me, was the company culture.
An interesting fact: Motorola employees wore badges of different colors based on the number of patents under each employee’s belt. Engineers worked with pride with a silver or golden ID badge. People knew you had to be an engineer to be successful at the company. There were POPI (protecting our proprietary information) audits at every office ensuring nothing as trivial as an org chart or was left at your desk.
As much as Motorola excelled at creating products, it failed at bringing them to market. I saw tons of technologies that should have been successful like the Canopy broad-range internet access network. But most of these failed because marketing was not a core competency. The engineering -centric culture is killing the company. I really hope it can transform itself quickly enough and be a leader again.
The Product/Launch Culture at Microsoft
My four years at Microsoft were some of the most amazing of my career. Ultimately, I decided to leave because of culture. Everyone knows Microsoft hires type-A personalities. Many people know there is a performance grading curve for employees and that the performance measurement is exclusively focused on the fiscal year at hand.
All these factors result in a culture where there is no room – especially in a company this size- for long-term planning or for learning and optimizing a project. It is all about launching new stuff. From my first few weeks I was surprised by the number of emails that announced new things – new products, new initiatives, new marketing campaigns. There was no discussion about monitoring, learning, optimizing. Projects need runway to mature and become successful.
Marketers received a plaque with over a dozen slots for adding badges for each product they launched. I was part of the Visual Studio 2005 launch team. After the product was launched in November 2005, many people left the team starting with the GM. After all, they had a successful product launch under their belt. It was time to get promoted and move to another group. A former boss and one of the people I admire is John Smolucha who shared an analogy about the Columbia shuttle launching and immediately everyone in Houston command center going home. How would you feel if you were an astronaut? “Houston?….Houston?… we have a problem.” . This is how many projects felt at Microsoft.
A great example of this culture is Bing. Microsoft search engine became MSN Search which became Live Search and is now Bing Search – all over just a few years. Maybe next year a new GM will come on board and will re-launch it as something different.
The Culture at Bazaarvoice
It just makes sense: if you focus on making your employees happy, you will be able to attract (and retain) the best talent and everyone will be motivated to do their best job. Customer service experts know happy employees translate to happy customers. The rule applies equally to every area in the organization.
This is how Bazaarvoice defines its culture (from the website): “To us, culture is more than perks and free sodas. It’s the way we work with each other and create a place where people want to work every day, have the opportunity to rapidly innovate, and foster an environment that brings out our best.”. There are many blog posts about culture for you in the Bazaarblog.
In Brett’s words, “The importance of focusing on culture is greater than ever. I spend around 15% of my time focused on culture, and I believe it is largely responsible for our success as a company.”
As I was finishing this post, I read Behind the Cloud, Marc Benioff’s book about building Salesforce.com which reinforces this idea: “My summers at Apple had taught me that the secret to encouraging creativity and producing the best possible product was to keep people fulfilled and happy. I wanted the people who built salesforce.com to be inspired and feel valued. “ (Page 11).
Kip Tindell, CEO of The Container Store, recently said in an interview ” It was Milton Friedman who said, “the only reason a corporation exists is to maximize return for the shareholders.” Well, no. Not really. We actually put the employee first. We don’t even put the customer first. Now, you know we love our customers. But we put our employees first. We believe that if you put the employee first and take better care of them than anybody else, they will take care of the customer better than anybody else. And if those two are happy, if you have the happiest employees and customers around, ultimately your shareholders are very, very happy as well.”
I’ll end this post by summarizing on one point: Culture is not a task for HR or for a marketing VP. It must come down from the top and lived by everyone in the organization: your culture is your strategy.
With only a few weeks left in the year, this is a good time to think about what are the top trends that will impact the Web, social media and customer engagement.I have posted this on the Corporate Social Media strategist group on Linked In, but would appreciate any comments on my blog.
These are the trends I think will be important in 2010:
1. Content is set free and is continuously evolving. What started with RSS feeds continues to accelerate. Content will increasingly be syndicated, aggregated, tagged, rated, mashed-up, re-published, filtered and transformed. Technologies like REST APIs and open ID are enabling this trend.
2. Browsers are dead. Well, not really, but a browser-PC combination is no longer the main way people experience and interact with Web content. Mobile devices, car systems and other internet-enabled devices will continue to grow in importance.
3. Social media maturity. Organizations starts to see social media as a tool that supports a strategy, a new way to engage customers, employees and partners, one that is fundamental to any business and that becomes an integral part of your job. Twitter plateaus, new tools emerge but there is more consolidation.
4. Semantic Web. With so much content available online, tools that help find relevant content become more important: tagging, rating, filtering, recommendations, folksonomies, semantics. The focus needs to be on simplicity.
5. Key challenges need to be solved. Openess will result in a new focus on privacy and giving people control of what and how their information is shared. New technologies introduce new security concerns: viruses, spoofing and hacking in social networks, authentication across multiple sites (passport was not a bad idea, after all), tiny URLs make it impossible to know where you are going before you get there. At the individual level trust and authority become more important, creating an opportunity for reputation management systems, badges, and federated identity.
This is just a starting point, and of course these things won’t happen in 2010 only: they have already started and will go on for some time.
What do you think? What am i missing? I look forward to your comments…
Last week (this was in 2009) at Web 2.0 I presented a session titled The Social Media Trilogy: Three Vital Components for Building a Successful Online Strategy.
The room was designed for 250 held well over 350 and some people were turned away. It looks like this is a topic of interest for most organizations, probably because of the immaturity of this model, which is one of the topics in the presentation. I posted my deck on slideshare.
I am writing a white paper that expands on the presentation and provides a bit more detail as well as social media guidelines and other resources. To get both the white paper and a PDF of the slides please register at www.vignette.com/citizen NOTE: This offer is long gone, sorry.