Thursday, December 21, 2006

Brands for the Chattering Masses

Published: December 17, 2006 NYT

Although most of us do not deal with mass marketing, this article illustrates a potential, fundamental change in HOW TO gain consumer insights and may impact how we all do business in the future!

FOR many, many decades, successful branding — one of the corporate world’s holy grails — involved a clear set of rules. Produce quality goods at the right price. Frame the value in memorable messages seen by millions on television and in print. Then fine-tune the pitch by measuring sales and evaluating consumer responses through letters, phone calls, focus groups and surveys.

Nowhere have those rules been applied more effectively than here, the home of Procter & Gamble, which made a fortune turning Crest, Pampers, and Tide into must-have items on household shopping lists. But the branding game has changed radically, largely because of the myriad choices the Internet provides consumers and because of the economic influence of widespread Web pontificating, known as the blogosphere, which barely existed as a popular force until about four years ago.

As consumers eagerly post word-of-mouth commentary in online communities, message boards and Web logs, a straightforward question confronts brandmeisters: Who wins and who loses as time-tested practices of mass production and mass marketing are undermined by the informed and often cranky voices of the knowledge age?
A possible answer to that question can be found here, on the fourth floor of a 19th-century brick and stone building on Main Street, in the office of Nielsen BuzzMetrics. The company, an A. C. Nielsen unit formed this year in a merger of three smaller companies, asserts that it has welded together technology, communications and business expertise in a new way; in essence, it can gain access to the electronic musings of millions of people to learn about the values, desires and opinions that start marketing trends. Essentially, BuzzMetrics represents the entrepreneurial convergence of brand- and online-business specialists holding M.B.A.’s — several of whom trained at Procter & Gamble — with computer scientists who say they are building the digital equivalent of a crystal ball.

BuzzMetrics’ computer scientists and programmers, led by Sundar Kadayam, a 43-year-old software engineer, say they have developed sophisticated search engines to sweep the Internet and drill down into rich veins of extemporaneous word-of-mouth commentary and conversation found online.

The search engines retrieve phrases, opinions, keywords, sentences and images, and the company runs the data through processing programs powerful enough to sift millions of messages simultaneously. By analyzing vocabulary, language patterns and phrasing, the programs determine whether comments are positive or negative, and whether the authors are men or women, young or old.

“The days of sitting behind the focus-group wall are going the way of the buggy whip,” said Mike Nazzaro, BuzzMetrics’ president and chief operating officer. “We are fundamentally changing the way marketing and market research will be done in the future. We’re providing guidance to marketing decisions that was never possible.”

BUZZMETRICS maintains that blogs and their attendant message boards and forums are tuning forks for consumer sentiment that threaten to upend traditional branding efforts. An influential blogger can undermine a brand faster than any grapevine ever before encountered in the marketplace, as the computer maker Dell discovered. The company’s level of service and quality was denounced by bloggers this year, and the complaints found broad exposure when one popular media site added its critical voice.
At the same time, positive word of mouth magnified by the Internet can be a boon, as Toyota discovered with its hybrid Prius sedan, which has been praised by admirers on sites created just for that purpose.

“There are winners and losers,” said Paul M. Rand, a partner and the global chief development and innovation officer at Ketchum Public Relations. “Companies adapt or go to the bottom. Consumer-generated content on the Internet is a complete disruptor. It forces companies to work smarter and listen harder.”

Marketing executives, awakened to both the threat and the potential, are scrambling to harness data culled online. BuzzMetrics, a pioneer in trolling for brand awareness on the Web, is still a tiny company: it says its revenue for 2006 will be about $20 million. For now, it occupies a sweet spot in a promising new industry, but should search giants like Google move more aggressively into its market, BuzzMetrics may find the going tougher.

“Search is at the core of everything Google does and we are more committed to improving search than ever before,” a Google spokesman said in an e-mail message. “We will continue to innovate our search technology to provide users with the fastest and most relevant search experience on the Web.”

For the time being, say analysts at Forrester Research and Jupiter Research, BuzzMetrics is at the front of its field. In a report published in September, Peter Kim, a Forrester analyst, said that brand monitoring appears poised for enormous expansion as companies shift priorities and resources in the $12-billion-a-year market research business. Emily Riley, an advertising analyst at Jupiter, predicts that companies will double spending on brand monitoring in 2007.
Among BuzzMetrics’ competitors are Umbria, based in Denver; Cymfony, in Watertown, Mass.; BrandIntel, in Toronto; Biz360 in San Mateo, Calif.; and MotiveQuest, in Chicago.

A “brand association map” drawn from online commentary about Nike, as compiled by Nielsen BuzzMetrics. Such maps aim to discover patterns in consumers’ opinions about particular brands.

Monday, December 18, 2006

Building off the last posting, it is important understand the markets you want to participate in and the industries that serve them. An excerpt from a great book, Why Firms Succeed by John Kay (Oxford Press), sheds more light on this issue:

Markets are:
Based on customer needs
Characterized by the “law of one price”
Usually local
Industries are:
Determined by supply conditions
Based on product/production technology
Defined by the markets chosen by firms
Often global

You have to understand how to play in each category – industry participants can be categorized by strategic groups of competitors (global, leading edge, low cost, etc) which then often dictate how you will compete in the local markets. In many instances, you can be a global supplier competing against local competition. John Kay’s guidance is:

“The activities in which a firm's distinctive capability can offer a competitive advantage can be related the all the above in the markets and industries……the primary focus should be on identifying those markets in which it can effectively deploy its distinctive capability”

The example of GM competing in the local China market for their high end Cadillac is a good example of the issues to be considered.

Of GM's Future
By GORDON FAIRCLOUGH November 17, 2006; Page B1, WSJ

BEIJING -- A sleek Cadillac sedan created to tap China's burgeoning market for luxury cars is also General Motors Corp.'s poster model for new-car development as the company tries to slash manufacturing costs while at the same time tailoring its automobiles to fit local tastes.
The Cadillac SLS -- which will be in the spotlight here tomorrow at the Beijing Auto Show -- has been stretched to provide more legroom for rear-seat passengers, since many wealthy Chinese ride in chauffeur-driven cars. Its upright chrome grille presents a more formal silhouette than its sportier North American counterpart. And the interior of the SLS, which will start at $62,500, is more plush, with wood paneling, reclining back seats, indirect lighting and flat-screen televisions
(meeting the needs of the local market).

But underneath, the car is nearly identical to Cadillacs built for the U.S. and Europe -- with the same chassis, engine, transmission and other key components -- helping GM to save money by buying parts in bulk (global industry issues)

As GM and other major car makers fight to survive in a fiercely competitive global marketplace, they are struggling with competing priorities: tweaking vehicles to appeal to the local market, while at the same time trying to wring costs out of manufacturing by hewing to common standards (the dilemma)

"We're trying to strike a balance between global economies of scale and local-market adaptations," says Raymond Bierzynski, GM's head engineer in China.

Unfortunately, GM has not always taken this local market approach. The following an article that appeared last March in the WSJ on their efforts to penetrate the South Florida market with their luxury Cadillac SUV

Lost in TransmissionBehind GM's Slide:Bosses MisjudgedNew Urban Tastes
Local Dealers, Managers TriedAlerting Staid Bureaucracy;Marketing Goes Off Course
Trying for a Revival in Miami
By LEE HAWKINS JR.March 8, 2006 WSJ

In December, General Motors Corp. ran a series of ads across the U.S. showing Cadillacs being driven in snow. The decision to do so was made by the giant car maker's executives in Detroit, where on Christmas Day, temperatures hovered just above freezing.

The ads also ran in Miami, a vibrant car market where GM has bombed for the past 15 years. As Christmas dawned, temperatures there started climbing into the high 70s.
GM is struggling under a financial burden created by monumental pension and health-care obligations. But it's also having a hard time persuading Americans to buy its cars. One reason: GM's cumbersome and unresponsive bureaucracy, the one that ran the snow ads in Miami
(we have hurricanes but not snow in South Florida), has for years failed to connect with the tastes and expectations of consumers outside the company's Midwestern base.

In Miami, where no GM car is a top seller, GM started bilingual advertising much later than its rivals. Some of the ads it did run were duds. One wooed Miami's mostly Cuban-Hispanic population by showing a woman in a Mexican dress standing in front of the Alamo as GM Saturns raced around her (this had a huge, negative impact on the Cuban community). Another was built on the theme "Breakthrough" -- a word that doesn't have a direct Spanish translation.


Wednesday, December 13, 2006

MARKETS VS. INDUSTRIES --Natural Competitor
How Whole Foods CEO Mackey Intends to Stop Growth Slippage;
By STEVEN GRAYWSJ, December 4, 2006; Page B1

This article (an interview by the WSJ) takes the concept of “organic” growth to a new level. It is an excerpt of the growth story of Whole Foods, the leading retailer of “organic” foods.

The key point I want to highlight is the importance of understanding the difference between the industry you participate in and the markets you serve. In MDG, we drive businesses to define their “Addressable Market Space” and then challenge them to expand it (for our alumni, this is the “brown vs. green box” discussion). The logic is that you need the space to grow and defining your addressable market space too tightly will unnecessarily restrict you (for our alumni, remember the Wawa example).

The problem we constantly encounter is that people define their markets by the industry they are in. As pointed out in this article, many of us participate in global industries but serve very local markets. Confusing them can be disastrous. Think of how you define your business in terms of industries and markets and then challenge yourself if it is defined properly. Do you have different competitors in the two categories? Are you organized to win in both environments?

It is also a illustration of how difficult it is to maintain growth momentum......

AUSTIN, Texas -- Since its founding here in 1980, Whole Foods Markets Inc. has pushed organic asparagus and cage-free eggs into the mainstream. With sales last year of $5.6 billion at 189 stores, it has redefined the American grocery experience on its way to becoming the world's largest organic and natural grocer. Lately, though, the highflying company has lost altitude, raising questions about who will define the next step in the evolution of organics: Whole Foods, or a mass-market retailer like Wal-Mart Stores Inc.?

Last month, Whole Foods presented an unusually grim portrait to investors, projecting same-store sales growth in fiscal year 2007 of 6% to 8%, down from 11% in 2006 and a peak of 14.9% in 2004. While most other retailers can only dream about that pace of growth, for Whole Foods, it represents the first significant sales bump after years of fast, steady growth. On Nov. 3, the company's stock tumbled 23%...............

WSJ: Is the natural and organic movement a fad and is it fading?

Mr. Mackey: Something that's been going on for 30 years is hardly a fad. For people who are really interested and committed to an organic-food lifestyle, it's not a fad for them any more than Christianity is a fad for Christians, or Judaism is for Jewish people. It's a value system, a belief system. It's penetrating into the mainstream. I don't see that disappearing anytime soon..........

WSJ: Is the market saturated? Is that why your same-store sales are growing more slowly?

Mr. Mackey: Same-store sales are lower for a multiplicity of reasons. Greater competition. There's cannibalization. I read about the slowdown with the consumer, they're spending less. Is there saturation? Certainly, some of our markets have more stores than others. We've had three consecutive years of double-digit same-store sales growth and our sales per square foot are $900. It's harder to raise the bar if you keep raising it. You can't compound at the same rate. No retailer ever does………..

WSJ: How much autonomy do individual stores have and why?

Mr. Mackey: Competition is on a local basis. And this is a reason to be decentralized. The basic philosophy is, we have a culture of empowerment. If it's a globally sourced product, like private-label, then we'll want team members to sell that in the store. We also allow each store to customize its product mix. If you go to the Austin store, there will be all kinds of small, local producers and vendors -- from salsas to tofu to tabbouleh to hummus, to hundreds and maybe thousands of products that are unique to that store. There'll be local tomatoes that we might sell in an Austin market, and certainly not in Chicago. It's the team leaders making those decisions.

We're being more aggressive on price. If [a competitor carries] the exact same product, then we're going to sell it at a matching or lower price. Those are decisions being made locally. We've got 189 stores. They're all faced with their own unique competitive environments. It's not necessary for me to know everything that's going on everywhere. I could find out, if there's a reason

Monday, December 04, 2006

Wake-Up Call for the iPod
Apple's Hot Digital PlayerFaces Holiday CompetitionFrom New Wave of Handsets
By LI YUANWSJ, WSJ, November 30, 2006; Page B1

In our last blog posting, we talked about the challenge of a new comer—Microsoft’s Zune—to penetrate against a strong incumbent—Apple’s iPod. Here is another twist to this fabulous story that is evolving right in front of us. Apple’s iPod, clearly the category leader of digital, portable music, is confronting a new competitor that offers potential advantage that they will have to meet.

The following is an expert from the WSJ that describes the potential power of “Integration Innovation” – integrating digital music with the cell phone. We talked about this form of innovation in our November Exec Ed class that can lead to a fundamental shift in any industry when the integrated parts have significant new value vs. the components taken separately (examples we used were SAP and Microsoft’ Windows Operating System). We discussed the importance of categorizing different types of innovation (we defined 10) as a way of generating new ideas or concepts. The fundamental driver is creating competitive separation.

Now the article...

Wireless carriers are offering a huge array of gadgets that combine both functions, with a variety of shapes and sizes and growing music libraries. The new dual-function handsets are often low-priced, and sometimes free, with a two-year service contract.

Tim Woolsey, a home-schooled 10th-grade student in Katy, Texas, for example, renewed his contract with Cingular so he could get a Sony Ericsson Walkman phone at the reduced price of $100. He's planning on transferring about 400 of his favorite songs to it from the iPod he got last Christmas. "I carry my phone with me wherever I go," he says. "But I don't always have my iPod with me." (ENHANCING THE CUSTOMER EXPERIENCE – CONVENIENCE)

Indeed, the rollout of the new phones sets the stage for an epic showdown between handset manufacturers and
Apple Computer Inc., whose iPod dominates the digital-music player market. Apple is rumored to be working on a combination music player and phone to compete with such devices. Earlier this month, a report in The Commercial Times in Taipei said that Apple has ordered 12 million iPod phones from Hon Hai Precision Industry Co., a Taiwan-based manufacturer that makes iPods. An Apple spokesman says the company doesn't comment on rumors and speculation.

In any case, the growth potential of the music phone market makes it hard for Apple to ignore. While Apple has sold more than 60 million iPods globally, there are over two billion cell phone users in the world, and analysts believe that close to one billion cell phones will be shipped in 2006 alone.

"The growth rate of music phones will be much faster than iPod mainly because consumers will always need a phone, and it only takes them a short period of time to explore the features," says Suzanne Cross, head of product marketing in North America for Sony Ericsson.

Cellphones that double as music players are already posting strong sales around the world. Sony Ericsson, a joint venture between Telefon AB L.M. Ericsson and
Sony Corp., says that it has sold 15.5 million Walkman music phones in a 14-month period ended in September. Motorola Inc. said in its third quarter earnings call that it shipped 15 million high-quality music phones in the past year. Nokia Corp., the world's largest handset maker, says that it is aiming to sell 80 million music phones in 2006, making the company the world's largest manufacturer of digital music-players.

Some phones, such as the three Cingular phones from Motorola, can tap into the iTunes music store, which features 3.5 million tracks (BUILDING THE PLATFORM). Phone companies are bulking up their offerings as well. Sprint Music Store offers one million songs and Verizon's proprietary music service called V Cast Music has 1.5 million songs. Cingular has partnerships with some of the biggest online music services, including Napster Inc., Yahoo Inc.'s Yahoo Music and eMusic, which have 1.4 million to more than two million songs each. Cingular's customers can subscribe to those services and use them on their phones. Sprint Nextel Corp. says that it has sold more than eight million songs from Sprint Music Store since November 2005; at $2.50 per download, users get one copy on the phone, another on PC. Verizon Wireless charges $1.99 a song for dual delivery to both phones and PCs. Its customers can also pay 99 cents a song online, and then load them to their phones for free. ……….

Verizon Wireless and Cingular even offer a feature that will let a user hold his or her phone up to a speaker playing a song and then match the song against their music database. If the song is available, it will offer the user the option to buy the song by clicking on a link. (ENHANCING THE CUSTOMER EXPERIENCE).

You can see the challenge Apples has even from their position of strength. Consider the challenge Microsoft faces as a new comer with no fundamental difference vs. the iPod. Consider the strength of a platform that can bring consumers access to phones, e-mails, the internet, music, video, etc. all in one device!