Pursue the 95%

In a marketing analytics course I am teaching, we began studying marketing metrics as we entered Week 3 of the semester. I am on the lookout for clues about a class’s subject knowledge and willingness to engage during the early stages of the semester. An observation made by a student gives me optimism about how the class will go.

Introducing Brand Penetration

Among the first metrics introduced in the course is brand penetration. Its calculation is straightforward, dividing a brand’s customer count (individuals, households, or businesses) by the total size of the market. How much of the population has a brand captured? I often tell students that interpretation and action are even more important than calculation. What do we do with the information? How can knowing brand penetration help us make more informed marketing decisions?

Interpretation is Everything

An example I shared with the class included a brand having a brand penetration rate of 5%. Once we have the metric in hand, we clarify its interpretation (5% of what?). Then, the all-important question: How can we use this information to our advantage? A refreshing answer came from Justin, seated in the front row. He observed, “95% of the population has not bought the brand.”

Justin’s observation was simple yet powerful. It may be tempting to focus on a 5% brand penetration rate as weak performance in the market; perhaps it is. The flip side is that opportunity may be found among the 95% who have not bought your brand.

A 95% Full Glass

It would be naive to believe all non-customers could become brand adopters. The reality is that not everyone wants what you offer. Some people think it is too expensive. Others think the quality is inferior. Yet others have heard from a friend about a bad experience doing business with you and have little trust.

That said, there are likely new customers to be found among consumers or businesses not buying from you now. There is a tendency to nurture (even cling to) our current customers and not put enough focus on customer acquisition. Sometimes, the pendulum swings too far the other way, and more attention is given to acquiring the customer than serving them once they become customers.

In addition to pursuing more customers in the quest for higher brand penetration, the answer for increasing brand penetration may be to fix internal flaws. A low brand penetration rate may signal marketing mix issues that need to be addressed (e.g., poor distribution, low brand awareness, or price disadvantage). Correcting weaknesses in marketing strategy could yield a higher brand penetration rate.

Seek the Why

Another point of emphasis when I teach marketing analytics is that I caution students about the limitations of metrics. For example, rate metrics like brand penetration are valuable for giving a read on marketing performance. They are also useful for tracking performance over time and comparing to industry averages.

What is missing? Understanding why performance reflected by rate metrics is what it is, good or bad. Rate metrics can signal the need to dig deeper to understand performance, expose problems, or uncover opportunities.

Seek the why for performance. Then, it is your time to shine as a marketer by making decisions that create value for customers and your organization.

How Do You Respond to Competition?

We have a new neighbor, one that many people have fought to keep out of their neighborhoods and towns: Walmart. It is the third one in our city; the new location is slightly more than a mile from our house. And, it is just down the road from a Kroger store. This post has nothing to do with whether Walmart is good or evil. Rather, it contains observations on how to respond to competition. How should you respond when new competition arrives in your neighborhood (or company or office)? Here are three rules to apply when facing competition:

Be Ready before They Show Up

If you are any good at all at what you do, you will have competition eventually. Why? The product life cycle tells us that during the growth stage, increased opportunity as reflected in growing sales and profits attracts new entrants. Those new entrants can be businesses expanding geographically or companies rolling out new products. You have to know that if business is good, competition is not far behind. Likewise, if you are a business that has a reputation for developing talented employees, other firms will be seeking to lure some of them away. Create a culture that customers and employees alike value and would not consider leaving.

Put Your Best Foot Forward

Once competition makes its intentions known, respond by stepping up your game. You have something they want: Customers. Protect the asset that is your customer relationships by revisiting how well you deliver value. In the case of my local Kroger’s new neighbor, Walmart, it has been evident that Kroger was being proactive to new competition. The store has made significant changes to visual presentation, employees are noticeably more customer-focused (not Publix-like but more customer oriented nonetheless), and most evident, Kroger has lowered prices on many items to narrow Walmart’s price advantage. New competition was the inspiration for Kroger to make these changes. Just like an athlete reaches back for that little extra to perform at a peak level when competing against elite competition, step up your game and take on competitors.

Let Competition Make You Better

A tendency exists for competition to be perceived strictly as a negative. For example, when conducting a SWOT analysis competition almost always is categorized as a threat. Rather than being fearful of what competition might do to impact your business, view the prospect of competition as a force that makes you better. In fact, you need not compete at all in that you do not have to battle other businesses to win customers. The battle is internal, within yourself or your organization of how to improve and be a resource to customers. This point is not a suggestion to ignore or be oblivious to competition (perhaps that is why I saw the Kroger store manager walking the aisles at Walmart a few days after grand opening). Instead, let the focus of competition be how you can get better at doing what you do. That will go a long way to fending off competition.

In business, competition is often the fourth certainty, added to the customary list of birth, death, and taxes. If you think you have little or no competition you are either very fortunate or very out of touch. But, if you approach competition as an internal quest to reach peak performance you will likely find external competitors to be less of a threat to your existence.

Marketing to the ‘Easy Spot’

This post is my first in two weeks; one reason for the break was a short vacation to the Lake of the Ozarks area in Missouri. We go there every other June to attend a family reunion on my wife’s side of the family. Going to the family reunion is a tradition that we look forward to every two years. And, we have traditions within the tradition of the reunion- a stop at Lambert’s Cafe in Sikeston, Missouri, to catch some “throwed” rolls, the washers tournament, and trivia contest. Another tradition that has developed over the past three reunions is taking my youngest son fishing. I have never been a fisherman, but fortunately one of our relatives who fishes exposed Ethan to fishing and taught him some basics. Now, we are a two-man fishing team- Ethan catches them and I help get them off the hook.

Fish Where the Fish Are

We have fished the lake at the resort where we hold the reunion enough times to have a feel for where we can find fish. The boat dock in the photo is one such spot. In fact, Ethan refers to it as “the Easy Spot.” A gaze into the water in this area usually finds many fish swimming around, eager to be the next customer on Ethan’s hook. He caught several fish each day in the Easy Spot. It was so easy that Ethan spent less time fishing in other areas as he had done in the past. He knew the Easy Spot would yield catches. While it did, perhaps he missed out on chances to catch different, bigger fish had he tried fishing other areas of the lake.

Fish in Different Spots

The marketer in me could not help but see parallels between Ethan’s choices on where to cast his line and how we decide which customers or segments to target. We certainly should be looking for the Easy Spot, those customers or audiences that we are confident will be interested in the products we offer. Application of the 80/20 rule to market segmentation suggests a large majority of our business will come from a small minority of buyers. Thus, we should find those buyers and drop our marketing line where it will reach them. In a recent blog post, Seth Godin points out that most companies do not have massive ad budgets that they can use to cast a wide net and bombard audiences with brand messages. Instead, Godin advocates targeting a more concentrated audience and building a community with which you can connect and interact.

At same time, a singular focus on marketing to a core audience (aka your Easy Spot) could be problematic. If you are a B2B company and you lose your largest customer that by itself accounts for 18% of revenues, how would you fill that void tomorrow? Even if you do not have to deal with the loss of a major client, balancing customer retention with customer acquisition is a must. Be willing to cast a line in areas besides the Easy Spot. It may take longer to get results, or you may not get any results at all. But, you and I know what the result will be if you do not try casting (targeting) in other areas- nothing ventured, nothing gained.

What Does It Mean to Innovate with Discipline?

Photo by Phillie Casablanca/Flickr
(under Creative Commons License)

I came across a very interesting post on the Reveries blog this week about how Lego let innovation both drive the company and almost drive it into the ground. The post was discussing a review of a book about Lego, Brick by Brick, that chronicles how the company embraced theories of innovation with disastrous results. Lego rebounded by realizing that the growth mantra espoused in B-schools and corporate board rooms is not the only way to go. A return to a focus on committed customers and not chasing trends in the toy market brought Lego back from the brink of bankruptcy. The Lego story has a happy ending, but this mega-brand had lost its way at one point.

What Went Wrong?
The forces that contributed to Lego’s troubles are not surprising. Technology developments changed the toy industry as well as how young people engage in play. So, it was reasonable to think a firm would adapt to changes in the external marketing environment. If toys were going high tech, shouldn’t Lego be developing more technology-intensive toys? The video game generation is highly stimulated and has a short attention span, so developing more pre-constructed toys would address the potential threat of being irrelevant to young people who did not want to spend hours on a building project. Lego was wrong on both counts. The company was characterized as “innovating without discipline.” Generally, innovation is looked at favorably, an essential endeavor to fuel growth. But, it went horribly wrong for Lego.

The Alternative
The Lego story captured my attention for two reasons. First, it was a reminder that even the most astute companies can get it wrong when it comes to pursuing growth. Being wrong is a forgivable sin as long as you learn from it. Lego learned its lesson well. Second, conventional wisdom is not necessarily the strategy of choice. Disciplined innovation for Lego is adding new value to its passionate brand community made up of Lego lovers of all ages. One of the missteps Lego made was to follow the toy industry definition of the target market: Young males.

Innovate on your terms, not the industry norms. Lego regained its focus and brought new products to market that appealed to its customer base rather than continuing to chase prospective customers with products that did not always deliver against the Lego brand promise. While the external environment should not be ignored, keep your customers and brand advocates at the center of all innovation decisions.

What Consumers Want from Local Businesses

Small businesses have been competing in a defensive posture for most of the past two decades. Competition from corporations and chain companies have made it difficult to attract customers and compete on price. But, small businesses are thought to have an advantage that their larger competitors simply cannot match: customer intimacy. Small businesses often avoid having distance put between them and customers. Decision makers, including business owners can frequently be found on the front lines serving customers. In contrast, key personnel in larger firms may become removed from direct customer interaction because of greater demands on their time to perform administrative duties. So, small businesses will be able to battle their deep-pocketed competitors as long as they turn on the charm through customer service, right?

Hard versus Soft Traits
Not so fast- it appears that consumers are not as enamored with “touchy feely” interactions with small businesses as we typically assume. An annual survey by BrightLocal, a SEO agency specializing in local businesses, found that the customer service advantage local businesses are presumed to be able to realize relative to larger competitors may not be so important to consumers. When asked to name up to three “reputation traits” influence choice to patronize a local business, the top responses were:

Reliability (71%)
Good Value (45%)
Expertise (36%)

And somewhat surprising were criteria at the bottom of the list:

Friendliness (8%)
Courtesy (5%)
Localness (5%)

Local SEO chart about which reputation traits are most important to a local business

Source: http://www.brightlocal.com/2013/06/25/local-consumer-review-survey-2013/, accessed June 27, 2013

The findings suggest consumers are interested in functional criteria related to performance and benefits received for price paid. The low importance attached to friendliness and courtesy is a blow to the notion that those traits are potentially the most potent differentiators that local businesses possess.

Don’t Change, Just Get Better
Hopefully, local business owners will not look at the LocalBright study’s findings and make a strategic choice to forego friendliness in order to focus on enhancing reliability, value, and expertise. The personal touch that local businesses can offer is valuable; it is just not valuable enough on its own, evidently. I was surprised at the findings initially but then thought about my experiences with local businesses as a consumer. Being local and even being friendly cannot compensate for businesses whose products or services are not as good as competitors. Local business owners may be our friends or neighbors, and they embody the American entrepreneurial dream. But consumers are not willing to subsidize the dream; they have expectations about the competence local businesses should exhibit and value they offer.

BrightLocal – “Local Consumer Review Survey 2013”

Your Customers, Their Brand

Well, it has happened again. A marketing lesson taught about who owns brands. This time, the pupil was a corporate behemoth, Microsoft. The company first made a splash last week at the E3 show with its upcoming Xbox One gaming console. The splash was followed by waves that developed after Microsoft announced stringent rules on selling and sharing games and regular connection to the Internet to check for updates as well as any new games added to a user’s system. Xbox fans were not impressed, and the decision to become more controlling over gamers’ access to content could not have come at a worse time. Sony is preparing to bring the PlayStation 4 to market this fall and will compete with Xbox One for next generation console dominance. Microsoft is at a decided price disadvantage, with planned pricing for Xbox One at $499 compared to $399 for the PS4. The combination of consumer angst and price differential does not bode well for Microsoft. A poll conducted on Amazon.com to gauge preference for Xbox One versus PS4 was running 18 to 1 in favor of Sony at one point.

Same Song, Different Brand
As I prepared to write this post, I could not help but feel I had written it before… and I have- more than once. In fact, less than a month ago I wrote about how Nutella had to reverse course and give its blessing to a user-created World Nutella Day event. Why does this subject keep coming up? Because brand marketers lose sight of who the real owners of their brands are. Of course, the business legally owns the rights to the tangible brand assets- name, logo, maybe even a slogan or package design (think contour bottle of a Coca-Cola). But, that is where the seller’s control stops. Brands are images in our minds, experiences in our daily lives, and relationships that add value. Brand as image, experience, and relationship is constructed by customers and communities of people who form a connection with a brand. We ascribe meaning and significance that brands hold; those feelings are not dictated to us by marketers (though they often try). Microsoft’s stringent digital management rights policies seemed odd because they came off as rules imposed by the seller rather than a model that benefits users in some way.

A Recoverable Gaffe?
Sony was quick to pounce on Microsoft’s user-unfriendly plans for the Xbox One. However, Sony did not have to say a word as gamers torched Microsoft on social media. Below is an example of the treatment Microsoft’s planned policies received from the gaming community:

No wonder PS4 enjoyed an 18 to 1 preference in the Amazon poll mentioned earlier. Microsoft had little choice but to rethink its DRM policies for Xbox One and make them more compatible with the experience gamers are accustomed to enjoying. But, it seems that Microsoft could have saved itself from being skewered online if it had been more customer-centric in the first place. The Xbox brand sits in the enviable position of market leader in video game consoles. Even a $100 price premium might be feasible given its brand equity and consumer trust of the brand. However, that trust was eroded quickly when Microsoft forgot its customers made the Xbox brand valuable and attempted to enact policies that favored only one side of the buyer-seller relationship. There is still time for Microsoft to recover from its missteps; hopefully the company will keep the customer front and center in its marketing strategy as it brings Xbox One to market.

The True Value of Value-Priced Product Lines

A marketer’s dream is to achieve healthy profit margins on every product sold. The fundamental customer value equation of benefits received compared to costs to acquire and consume suggests increasing value is as simple as either adding benefits or reducing costs. Product positioning can follow one of these two routes, focusing on either value via a benefit provided (e.g., quality, craftsmanship, performance, or image) or cost (e.g., low price or extended payment terms). In order to succeed in staking a distinctive position for value proposition and positioning, it seems inevitable that a decision must be made to focus either on benefits or costs. What if I told you it may be necessary to deliver value through more benefits and lower costs?

Wendy’s Split Personality

One brand that realizes a need to offer value in the forms of benefit focus and cost focus is Wendy’s. The quick service restaurant chain is locked in a battle not only with direct competition from burger chains like McDonald’s and Burger King, but gains by Taco Bell and Subway are an additional threat to business. Wendy’s has experienced modest store sales increases, but management is concerned about sluggish sales of its value menu. Wendy’s was a leader in establishing the value-priced category more than a decade ago, but it has been eclipsed by McDonald’s in appealing to the taste buds of price-sensitive diners. At the same time, Wendy’s has worked diligently to carve out a brand position of quality and premium products that can command higher price points. Can Wendy’s be an upscale burger brand and a value-priced brand at the same time? Not only can it, but Wendy’s must be both.

The Benefits of Multi-Segment Targeting

Positioning a brand to appeal to two different market segments seems to run counter to admonitions to focus and not try to be all things to all people. However, there are compelling reasons to develop separate product lines for upscale and value markets:

Captures greater sales potential – There are sales to be had in both upscale and value markets. A decision to focus on one segment only is a choice to forego revenue opportunities. In Wendy’s case, it is not a great price distance between the premium-priced fast food burger and the value offering. Thus, the brand position is not compromised by selling products at different price points.
Can bring new customers to the brand – Value priced offerings can be viewed as a form of sampling. They can be a way to bring customers into your business to try your products. If they are strictly buying on low price, you have something that appeals to their needs. If they can be up-sold, the value line has served to build brand credibility and opens the door to extending the relationship by selling more profitable products.
It is a competitive necessity – Sometimes, offering a downscale product line may not be a desirable decision, but lack of a value-priced line could put a brand at a competitive disadvantage. In Wendy’s case, it may be tempting to say “forget the value menu- let McDonald’s have those customers and focus on the upscale market.” Nice concept, but it could create a disastrous scenario in which customers switch to a brand that offers greater choice.

There’s the Beef

The above points support a brand segmenting the market to appeal to value conscious buyers as well as tapping more profitable opportunities by offering products that have benefits valued by buyers. I like how Wendy’s has its value menu positioned as “Right Price Right Size.” This approach is not strictly about low price; consumers concerned about calorie intake would perceive value in this product line for reasons other than low price points. Therein is the key consideration: Multi-segment targeting is not about high price and low price; it answers the buyer’s question “what’s in it for me?” Reality is that one product line cannot appeal to diverse customer needs. It is OK to take a brand downstream to serve price conscious buyers… to a point. If brand credibility can be maintained, moving into lower priced markets can be a way to find new customers and fend off competition.

Nation’s Restaurant News – “Wendy’s Aims to Recapture Value-Conscious Consumers”

Being Late Can be Offset by Being Great

Google playing catch up? An odd statement to make about a company that has been lauded consistently over the past decade as one of the most innovative firms in the world. However, that is exactly what Google is doing when it comes to its new Google Play Music service. The monthly subscription service gives users access to millions of songs. Custom playlists and stations, unlimited skipping, and use across multiple devices are features of the service. Sound familiar? Pandora, Spotify, Slacker, Rdio, and Rhapsody are in the game already. Google has to convince music listeners that its new service beats the status quo and that they should modify their listening behaviors and adopt Google Play Music.

It’s OK to be Fashionably Late
Can late-to-market firms succeed in hyper-competitive categories like online music services? The answer is a resounding “yes.” Being first or early to market only assures you notoriety to say you were a pioneer. It certainly does not guarantee success. Otherwise, I would be writing this post on my Commodore 64 computer. Late entrants often benefit by being able to learn from the missteps of pioneers. And, for newer product categories the task of building consumer demand for the product has been borne by competitors that entered earlier. In the case of Google Play Music, the aforementioned competitors along with Apple have transformed how people consume music. Google does not have to convince people that they should listen to music online, only that they should develop a preference for Google’s service.

Answer the Ultimate Question
The failure rate for new products is very high, with estimates being that 80 to 90 percent of all new products do not make it in the marketplace. Thus, the odds are stacked against a new entrant like Google Play Music. This enormous risk is mitigated by Google’s brand equity. If you or I were launching a start-up music service we would likely be prime candidates to be added to the failure rate statistic. However, the launch of Google Play Music as a brand extension in the Google Play platform (which is itself an extension of the Google brand) gives it a level of credibility that most new products must work for years to attain.

For Google Play Music or any other product to succeed, the ultimate question of “what’s in it for me?” must be answered. Customers have to understand how they will benefit from using a product or service. In this case, it is the seamless experience of using Google Play Music along with the suite of Google products. Personally, I am an avid music streamer- I love listening to music while I work. I am giving Google Play Music a try as I write this post (Craig Chaquico’s Acoustic Planet being the album of choice). In the end, I will adopt Google Music Play if I perceive the benefits of the service being superior to Spotify or Pandora. Is it more convenient to access? Is the user interface experience preferred?

Google is a great brand but not a perfect one. It has had its share of product failures over the years, and there is no assurance Google Play Music will succeed. But, if it should fail it will not be due to the order in which it appeared on the market. Similarly, if you are exploring a business opportunity do not automatically be dissuaded if established competitors are present. They exist because no better alternatives have been introduced to the market. That could all change if your offering successfully answers the WIIFM question among your target market.

Forbes.com – “Google Continues to Play Catch-Up with ‘All Access’ Music Service as Critics Sound Off”

Moe’s Knows Three Key Ingredients of Social Media Marketing

Social media is a potentially powerful marketing tool that can build brands and grow businesses. “Potentially” is the key word – harnessing the capabilities of social media has proven difficult for many brands. Also, dynamics of social media consumption (user-driven, highly interactive communication) differ dramatically from traditional marketing communication conducted via mass media advertising. Applying old-school marketing thinking does not usually turn out well in social media marketing.

One brand that appears to get social media and is working it effectively to build customer relationships and grow sales is Moe’s Southwest Grill. The restaurant chain as deftly integrated social media campaigns and mobile marketing into its existing platform. Moe’s has used a variety of tactics to engage customers and drive sales. Examples include:

A check-in program in which customers posting Facebook or Foursquare check-ins earned “chips” toward earning prizes
A Twitter campaign in support of its annual Free Queso Day promotion
A Facebook contest “Raise the Salsa Bar” in which 700 people submitted salsa recipes, one of which will be offered in Moe’s locations nationwide next year
Mobile advertising in support of Free Queso Day, targeting mobile users within five miles of Moe’s locations on the day of the event
Ordering through Moe’s mobile app

Moe’s social media strategy is effective because the company understands three keys to social media marketing success:

Give people a voice by inviting them to participate – Submitting salsa recipes as well as having Facebook fans vote on the 10 finalists
Reward people for their engagement – The mobile check-in program and spreading the word about Free Queso Day through Twitter hashtags and Facebook posts are ways to give something back to customers and encourage them to bring more business your way
Measure performance using metrics relevant to the business – Likes and followers do not translate into dollars; Design social media campaigns so that their impact is traceable. Moe’s measured activity (e.g., the number of mobile check-ins and number of tweets) and outcomes (an increase of 18% in net profit was realized for the Free Queso Day promotion).

Social media is not a stand-alone activity that is separate from other marketing tactics, nor is it separate from overall business strategy. Evaluate your social media strategy to determine if the elements of invite, reward, and measure are in place.

Marketing Daily – “Moe’s Southwest Grill: Hot on Social, Mobile”

Distribution Lessons from ‘Bibles and Beer’

A recent USA Today article shared how some churches are taking their messages to a very nontraditional location: taverns. With names such as “Bibles and Beer,” churches are experimenting with distribution models that take the product to the people. Some church goers may question the appropriateness of using watering holes as a gathering place for bible studies or watching televised church services. But, the practices profiled in the article are a call for marketers to reflect on how they should approach product distribution.

Holding bible studies in taverns to deliver faith experiences is a viable strategy because:

1. Business is down – The number of people regularly attending traditional worship services has been in decline or stagnant in recent years. Alternative distribution models should be evaluated as a means to energize sales.

2. Consumer need exists – Church attendance may be down, but it is not because people do not feel a need to explore their faith. A variety of reasons keep people away from traditional churches; taking a product or experience to environments where people feel comfortable enables them to meet their needs on their terms. Other services have successfully used this type of distribution model such as medical clinics at work sites and supermarkets.

The practice of holding faith-based events in taverns will probably not fundamentally alter the delivery of religious experiences in this country. But, it represents an innovation, adding new value to customers by making it more convenient to explore one’s faith. Can your business apply the “meet them where they are” distribution model to increase sales while meeting customer needs? Do you use the same channels for reaching customers that you have always used? If yes, you are likely missing sales because customer needs are a moving target, changing over time. If your distribution approaches do not adapt to the market, you are likely missing sales that an enterprising competitor will gladly take.

USA Today – “Churches Take Their Message to Taverns”