Seth Godin and TV 2.0

I’m a Seth Godin fan.  He’s viewed by many as a revolutionary marketing thinker.  To me, though, he’s very good at making sense out of how to apply marketing to an always-on, internet-connected world.  He does so in an unorthodox, contra-Madison Avenue way.

Seth Godin’s telescope brings insights into view.  He then puts these into metaphors to explain what the rest of us see but have difficulty putting into words.

Case in point:

The advertising all of us have absorbed since 1930 is based on a model of control - manufacturers speaking one-way via print and broadcast media.  They controlled the message and its destination. 

It’s a model that has been in place since 1930.  It’s a tick of the second hand on the human clock perhaps, but it’s all most of us have ever known.  

The along came 1995 and internet, and the “new media” soon thereafter to change all that.  Now, every individual with a point of view has the opportunity to reach and affect millions for the cost of an online connection.

Many companies continue to apply old media methods to new media to new media uses - what Godin calls TV 2.0.  Unfortunately, new media and old methods are oil and water.  The two just don’t work well together.

If you want to understand why, then set aside 10 minutes to watch this video interview of Seth Godin.

Pack Your Parachute Carefully

“I do not risk my money until I can verify the facts.”   - Baron Rothschild

I came across a story about Warren Buffett that wonderfully that cuts to the chase regarding risk-taking.

It seems that an acquaintance of Buffett’s was doing his level best to persuade him to invest in a startup he had come across.  Buffett listened until the man had presented his case.  

Buffett then asked him: what did he figure were the odds of the company being successful?

The man mulled it over momentarily and then responded: 50-50.

Upon hearing that Buffett raised his hands and brusquely responded: if I told you a parachute had a 50% chance of working would you jump out of an airplane with it?

The pitch ended there.

The Demise of the Pencil and Pen

How attuned are you to markets?

I won’t test your knowledge of what is taking place in technology or new media.  Not even the experts truly know (though it’s something none of them will admit).  Instead, I’ll invite you to weigh in on a set of products you are certain to have a great deal of experience using: pencils and pens.

How much are annual sales of pencils and pens expected to change over the next 5 years?

1. grow at 7%
2. grow at 3%
3. stay flat
4. shrink at 3%
5. shrink at 7%

You’ll have to hold on a bit to see the answer.

I have never met anyone who does not know what a pencil or pen is, and what they’re used for.  Even three year-olds know.  

However, who really wants to use a pencil or buy an extravagant pen when you can get something that leaves them in the dust?  How about a snazzy iPad 2, Samsung Galaxy or HP Touchpad?  Or, for that matter, an Android smartphone or any of hundreds of brands of laptops and desktop PCs fill the bill also.

Add on one of the thousands of writing and note-taking programs (Word, Pages, Evernote).  For good measure, an all-in-one printer scanner makes the chore of electronically capturing what’s on paper (or printing on the rare occasions that paper is needed) a snap.

There’s two things technology marketers know about product life spans, and the growth outlooks for technology offerings as a whole.

• First, like people, all products have a life cycle.  They are born and then they die.  There’s even a graph that depicts it.  It’s known to every marketing student.  It’s called the Product Life Cycle (PLC). 
  
  Every product starts out as an idea.  If its potential is good, it attracts development capital, and is taken to market.  From there sales grow along the familiar pattern of the PLC curve.  Sales grow with exposure to the market, and level off as the market becomes saturated.  Sales decline when buyers grow tired of the product, or when something better replaces it.  There are two great unknowns upon which every business bets: how high will the curve go (sales)?  how far will it stretch out (time)?
• Second, sales of personal and business technology will only continue to grow during my lifetime (yours too, I’d wager).  Brands may come go (remember the Atari and the Commodore PET?) but consumption of technology will only increase.  There is no horizon in sight.  Computing technology has moved from expensive mainframes housed on elevated floors in air-conditioned rooms to our homes, cars, pockets and purses.  Applications have moved from floppy discs to CDs and now to the cloud.  We don’t know how it all works, but who cares.  When we do a search, check our bank balance or pay for an expresso using our phone, it just works.  Reliance on older technologies - like paper and pen - diminishes in lockstep with the growth in consumption of new technologies.

This is the basis for the story marketers have been telling about new techologies for 50 years.  As Seth Godin noted in his bestseller, All Marketers Are Liars, framing a compelling story about the future is an obligation marketers have to buyers.  

Skilled marketers write stories of promise and a world made better.  Skilled marketers make stories appealing, believable and - especially - wanted.  They create an urgency that craves action.  Buyers have choice, and they ultimately vote with their wallets.  As long as the story continues to satisfy, there will be buyers to hear it.

Now, the curious thing about pencils and pens is what’s not happening.  Sales are not spiraling down as was believed (honestly by the story-tellers).  Quite the opposite.  

If you answered (b) to the quiz you were right.  Sales of pens and pencils worldwide are approaching $20B, growing about 3% annually.  Growth is not coming from recent technology adopters, either.  Sales in China are growing at 4%, with growth expected in the two largest markets for writing instruments - the U.S. and Europe.

The market for writing instruments is alive and well.

It certainly is for Newell Rubbermaid, maker of the Sharpie.  It’s the marker pen made popular by professional athletes who use it to autograph everything from hockey sticks to basketball jerseys.

At 60% market share, the Sharpie holds first place in the permanent market industry.  Now, it’s setting off on a bold mission to expand the size of its attainable market.  The target: teenagers.  The story: a catalyst for creative self-expression.   The media: TV, print, social media.

Teenaged Sharpie users are do-it-yourselfers who have turned ordinary coffee cups into $900 works of art, designed customized skateboards, and even converted pencil cases into purses.  As it turns out, a down-and-out commodity is  a hot item among the demographic who propel the adoption of new technology.

Learnings:

1. Good marketers tell great stories, but make lousy predictions.
2. Old habits die hard.  There is always a market for a good product. 

Did Netflix Blow It?

It was a mere two weeks ago that Netflix announced that it was increasing its subscription fees by as much as 60%.  That launched a tsunami of customer complaints.  Anyone with their pulse on social media felt the blood pounding through the network veins of Twitter, Facebook, Google+ and blogs.

On Monday’s quarterly earnings call CEO Reed Hastings acknowledged that the price hikes are having a ‘negative impact’.  Results were mixed, Wall Street was unhappy, and shares fell 10% in after-hours trading.

Hastings went on to say some other things:

• “We knew what we were getting into.”
• “We feel bad about having our customers upset with us.”
• “We’re feeling great about the decision, as tough as it is."

It is useful to understand what Netflix did, why they did, and which customers are unhappy - and then question what Netflix might want to do next.

What Netflix did: unbundled its streaming video and DVD plans.  Before, one could opt for streaming video and one DVD for $10 a month (actually $9.99).  Now the plans are priced separately - DVDs or streaming video at $8 a month, or $16 for the pair.  For streaming-only subscribers (40% of Netflix’s 24.6 million base) and DVD-only (12% of the base) the price hike isn’t a big deal.  The 60% bump hit he 48% of the base that subscribes to both DVD and streaming.

Why they did it: Hollywood and the changing dynamics of content distribution.  It took years for motion picture studios to get comfortable with videotape and DVDs.  Once assured that they could control distribution and released timing they were off to the races.  In fact, not only did theater revenue not tank as had been feared, but overall revenue increased.

Video streaming is a different game.  Distribution control is in the hands of a few dominant players - Netflix, Amazon and Google among them.  It harkens back to broadcast television where ABC, CBS and NBC controlled the medium for a half-century.  Add cable providers into the mix (especially Comcast, new owner of NBC Universal) and a combined content and distribution player enters the scene.

Not only is there money to be made from content distribution, but there’s a ton of opportunity with advertising.  No one has figured it all out yet.  The economics are complex, and technology is reaching the market faster than strategic options can be lined up.  

There’s are other matters to be concerned about, too:

• What’s occurred in the recording industry in the past decade (e.g. plummeting CD sales).  No picture studio wants to be Napstered.  
• Fringe players who may not be happy staying on the fringe -  Facebook, Apple, Walmart - and who possess the muscle to be spoilers.

There is much at stake.

Content is king.  Rights to the hottest new movies and TV shows are on the line.  That’s where the lever rests on the fulcrum for the studios.  They are jealously guarding hot content and pricing it at a premium.  Therein lies the rub for Netflix.

Netflix cannot grow a profitable long term streaming business with yesterday’s content.  Subscribers want the latest and greatest.  But, to provide that and stay profitable, Netflix has to shed the cost of physical DVD distribution.

Why Customers are Upset: At $10 a month subscribers get the best of both worlds - new releases via DVD, and everything else streamed to their flat panels.  It’s good value.  At $6 more, many would argue that it’s still good value.  

But for the many of the 48% of customers who, by design or inability to migrate near term to streaming video, a 60% bump seems a shot to the gut.  Reading the online comments suggests that these folks were expecting an orderly, steady-as-she-goes migration - not a shotgun start.  As a result they feel caught off guard, backed into a corner and betrayed.

Everyone enjoys hitting the piñata; no one enjoys being the piñata.

What’s to be Made of all This?  Let’s first get something straight.  I don’t believe that Reed Hastings or anyone at Netflix has enjoyed the past two weeks, or is as excited about the upcoming quarter as the scripted rhetoric of the earnings call would have us believe.

I’ve sat in more than my share of similar corporate meetings where the unpleasant trade-offs between having happy customers and happy shareholders end up on the table.  Scenarios are considered.  Spreadsheets tally the financial upside and customer attrition downside.  The CFO usually assumes customers are the stoic kind who grumble at first, but soon settle back into civility and teh uninterrupted routine of paying their invoices.

I’d wager that, though this customer reaction was taken into account by Netflix when evaluating options, it wasn’t the outcome they expected.  Otherwise, they would have had better damage control in place (including a better-prepared call center than was apparently on deck).

Customers fear when upstarts become successful and powerful.  History shows that powerful firms begin to act like monopolies: pay the price or find an alternative.  I’m not accusing Netflix of this.  But I am suggesting that enough of their customer based has a chip on its shoulder to be worrisome.

Can (should) Netflix do anything?  To begin, Netflix is not about to fall off a cliff and into the abyss anytime soon.  How it conducts itself in the next few months will, however, set its course for the next several years.  The situation is not trivial. 

There are three things Netflix should seriously consider:

1. Leave the new pricing as is, and secure in-demand content.  There’s little percentage in retreat.  The issue is about securing the rights to in-demand content.  The studios hold that card.  The sooner Netflix delivers high-demand content (as they intend) the sooner customers receive the value.
2. Expand choice and access quickly for streaming customers.  Nothing neutralizes lingering doubts about a price increase than seeing immediate increase value.  Price increases kick in September 1 - so should new, fresh content.  Lots of it, too.  It’s the strongest incentive they can put on the table for DVD customers to migrate fully to the streaming option.
3. Decrease DVD waiting queues.  These customers feel the price squeeze most, and are at greatest risk of loss.  The biggest complaint among them is the long wait times given the demand for recently released DVDs.  Reducing lead times by increasing the number of DVD copies is the best short term salve that Netflix can offer them.  Make no mistake: these customers now know for certain that they must migrate to streaming video.  Soon.

Netflix can bring its customers along, or risk leaving them behind.  At a combined 48% of their customer base, it’s a no-brainer.  They may not have expected to be on this journey so soon, but Netflix can make the trip enjoyable for them.

Buying for All the Wrong Reasons

Falling in love with your products carries the same risk as falling in love with your stocks: you don’t let go when you should.

There are many reasons why people buy a specific product.  Any product.  Though marketers and their firms would like to think that people buy for the 4-5 reasons summarized in marketing plans, buying motivations operate in a more complex manner.  

Take any well-known product.  If you interviewed a statistically valid sample of buyers to learn why they bought, you’d likely end up with a very long list indeed.  Often, buyers will cite identical (or nearly so) buying considerations - so it’s easy to lump these buyers together and view them uniformly.  This is how buying segments are formed.  Yet, upon examination, other factors may end up being contributors to what may otherwise appear to be a similar buying motive.

Take food products, for example.  Marketers know that taste is a principal buying factor.  But taste perception is not uniform.  As at least 5 distinct tastes can be perceived, people don’t necessarily mean the same thing when they say that they like a product’s taste.  What is salty to one may be spicy to another.  They are not the same, and it would be unwise to treat them as such.  Likewise, laptop manufacturers know that speed represents a whole category of buying factors.  Yet, buyers could equally be referring to disk I/O, application load times, processor, bus, screen refresh rate, and so on.  These cannot be conveniently lumped together into a bucket labeled speed.  What is fast to one buyer does not mean the same as fast to another.  The distinction is not trivial.

Neither is gathering such data.  It takes time and can be expensive - which is why only a small proportion of firms undertake this kind of research regularly.

Why research it at all?  

Because sometimes firms learn a couple of surprising things.  First, people may buy a product  predominantly for a reason that was not anticipated.  Such a discovery can be serendipitous to the seller who, wisely, alters promotion to align the product’s appeal to the market.  Second, the marketing appeal that is promoted by the seller may even harm the acceptance of the product in the market.  Of the two outcomes, this is the frightening one.

Sometimes a potentially good product is doomed by making an appeal (or positioning the product) in a way that defeats its acceptance in the marketplace.

There are plenty of examples: 

•  
  • Ford Edsel (positioned between the Ford and Mercury lines)
  • Brown-Forman clear whiskey (buyers perceived it akin to gin and vodka)
  • RC Cola challenge (how could a distant third cola really taste better than the other two)
  • Alka Seltzer Plus (perceived as improved, not as a cold remedy)
  • Xerox computers - “The machine that doesn’t copy” (no one knew what that meant or what to expect)
  • Life Savers gum (the reflexive thought of “the hole” didn’t compute)
  • Bayer non-aspirin acetaminophen (how can Bayer aspirin make non-aspirin, why would they do it, and why should I care?)
  • Mennen Protein 21 shampoo (why should you care about protein for your hair?)
  • Marlboro Menthol (how many cowboys smoke menthol cigarettes?)

Which brings me to the purpose for writing this blog.

Every company I know (certainly in the technology sector) develops products with a view as to what the primary and secondary market appeals will be.  When you think about it, it’s very difficult not to do so.

Those same companies test out those concepts with industry analysts and customers.  The problem, however, is that those test runs [a] gather anecdotal evidence, and [b] there’s a back-and-forth give-and-take on any issues that arise.  All of which is good.  The only problem with this is such opportunities never arise when buyers are perusing an ad, reading a promotional email, or scanning the seller’s website.  The seller’s proposition sets the stage for the buyer’s expectations.

That task falls to the sales person.

It’s perfectly fine to be passionate about your products.  After all, management knows how much money, time and expertise goes into developing them.  But the reasons a firm loves a product may not synchronize with the sentiments of the market.  In this case it’s the perception of the market that rules.  The customer is always right!

Love your product for what it means to the firm and its development team.  Love it even more for what it means to your customers.  Shareholders will appreciate it.

No One Said Managing Would be Easy

Over 30,000 books are currently available on the topic of managing.  There are both great and popular thinkers and practitioners - Ram Charan, Harold Geneen, Peter Drucker, Jack Welch, Ken Blanchard and Spencer Johnson,  and John Kotter among them.

My favorite read is Drucker’s Management: Tasks, Responsibilities, Practices.  At 800 pages it’s a weighty tome, yet every page begs careful attention for the insights it contains.  The book’s value increases as one gains experience.

Management theory, and its models, are prone to be complex.  After all, marshaling one’s resources and shepherding them through a day in the life of the world toward some goal is no small feat.  The sophisticated theories have their purpose.  But they can mask the fundamental nature of what managing is.

I favor simple models.  It’s far easier to flesh out a simple model to give it texture and applicability than it is to decompose some behemoth and distill it down into its essential elements.

So, here is a simple model - and it’s easy to remember.  It’s specific to the management of people.  

 There are four things that can be managed in people: Knowledge, Skill, Attitude and Activity.

I’ll use the example of managing a sales person to illustrate.

• Knowledge is a straightforward factor to manage.  Knowledge can be taught, communicated, and acquired through reading, observation and experience.  A sales person can learn product specifications, selling methods, how to fill out an order, and so on.  Testing one’s know-how is equally straightforward.  One either can - or cannot - demonstrate recall.
• Skill is more challenging to manage.  Skill is know-how - the capacity to convert knowledge into desired results.  Effectively and repeatedly, such that the outcome is never seriously in doubt.  Knowing 10 different closing techniques is one thing.  Achieving a consistently high close rate is quite another matter.  The more sophisticated the skill, the more complex the behaviors that comprise it, and the more astute a manager needs to be to determine which behaviors must be tuned and reinforced.  But some factors, genetics being one, limit everyone’s ability to apply particular skills well, e.g. inherited muscle composition is a greater determinant of success in long distance running or sprinting than is weight training.
• Attitude is, without doubt, the most difficult factor to manage.  It’s often easily observable: winning attitude, own in the dumps, lack of confidence, success-oriented, customer-oriented.  But attitudes are even more complex than skills to manage.  Especially in a team or an entire organization.  Get a group of managers in a room and ask them how important good morale is to achieving success.  You’ll get strong and ready agreement.  Next ask them how to achieve and maintain good morale.  They’ll be all over the map.  Good attitude is like good art: easy to spot, hard to create.  Managing the attitudes and tenor of individuals and organizations comes with the territory.  There are many formulas for coaching and developing skills, but scant little tried-and-true for instilling or rebooting good attitudes.
• Activity is the appropriateness of an action relative to the result.  Sales people engage in typical activities: prospecting, getting appointments, proving claims, making proposals, closing orders.  Activities are concrete, observable, and measurable.  Which is why activity management is the manager’s sweet-spot.  A sales person may have enviable closing skill, but if that person avoids prospecting they’ll never got the opportunity to close.  Most every sales, marketing or CRM statistic or report of any value measures activity relative to outcomes.  Consider: qualified prospects, sales-qualified prospects, forecastable prospects, conversion rate, close rate.  They each checkpoint an outcome relative to the activity intended to drive that outcome, and typically some comparative standard.  Performing the right number of sales activities at the right time does not guarantee success; but not performing them assures failure.

Knowledge can be acquired.  Skill can be taught, coached, directed and reinforced.  Attitude is the X-factor - easy to see, hear and feel, but inherently challenging to manage.  Activities are the one concrete and measurable factor that managers can get their arms around.

A Great Product at a Great Price

Jack Welch, former CEO of General Electric, was asked this at a business school Q&A forum: what do you think about short term government subsidies so that small businesses can compete with big companies like GE?

Welch’s response: It’s a terrible idea.  The only way for a small company to compete is to offer a great product at a great price.  If you need a subsidy then you don’t have a competitive offering.

Jack Welch is right.

Look at the past few years for online companies alone.  Google, LinkedIn and Facebook.  And consider what could well happen with Zynga, Twitter, Groupon,  Dropbox and Vimeo.

Sure, they’re VC-backed, but none of them started out as sure things.  Each conceived of and delivered a unique offering along with a unique pricing model.  And for some, an entirely new distribution model.  The value proposition is so compelling and believable that each of these companies was able to grow at lightning speed.

A well-marketed product does not mean merely a well-promoted product.  There’s a good reason that business schools still teach the four Ps.  

Find the potholes that are ignored or overlooked in the market.  Do the homework on the competition to understand why they cannot - or choose not to - address that need.  Find a need that, satisfied, affects millions and moves mountains.  Use that as the benchmark to build out an offering that stands apart from the competition, and is strong enough to fill a wide and deep moat around your business.