Netflix Takes a Deep Breath

Neflix CEO Reed Hastings announced today that Netflix has retreated from its strategic move to spin off its DVD mail business under the Qwikster moniker.  Netflix shares immediately rose 6% in premarket trading following blog post.

 

In his blog post, Hastings admitted that customer complaints were the driving force.  “This means no change: one website, one account, one password... in other words, no Qwikster,” Hastings wrote.

 

Presumably, this also means that the reconstituted Netflix is less attractive as an item in Amazon’s shopping cart - if Amazon was even seriously looking at the Netflix streaming business.

 

Is Netflix out of the woods?  Not by a long shot.

 

Following the July price increase (60% if you wanted both the streaming and DVD options combined) and last month’s surprise announcement of Qwikster, customers were furious.  They felt betrayed and confused, given voice to their anger through subscription cancelations that topped 1 million - or 4% of Netflix’ subscriber base.  This move is not likely to quiet them down.

 

It takes considerable time and effort to build a loyal customer base.  Customers must acknowledge the promise of value, experience that value, and come to trust the integrity of that promise.  Isolated situations can cause a customer to experience a letdown with a company (a poor service experience, or a billing dispute); but companies can, if on top of their game, restore the customer’s confidence.  When a customer feels betrayed by the company (a change in policy or offering that sharply “breaks the promise of value”) though, it is more than a matter of a poor customer experience; it is severing an implicit bond of trust.

 

Companies don’t consciously seek to unravel customer confidence, but when they fail to understand the nature of their value proposition, they risk taking actions that later prove reckless.

 

Netflix needs to do something significant this quarter to restore that confidence and re-establish the value promise that many customers believe to have been broken.  Dumping the Qwikster option won’t cut it.

Why Steve Jobs is Missed

I expected the Steve Jobs’ passing would garner considerable headline media coverage and tributes from around the world, but I underestimated the extent of the outpouring.

 

I cannot recall a business person’s passing that was as profoundly felt as that of Steve Jobs.  Not ever.  The reaction from people upon hearing of his death has been compared to that for Princess Diana and Michael Jackson.  After all, Steve Jobs was, in his own right, a global celebrity who had achieved “star” status.

 

I’ve both read and listened to comments from journalists, computer analysts, industry observers, as well as colleagues and contemporaries of Steve Jobs.  During the past week some have drawn a comparison to Thomas Edison, the icon of American inventors who gave us light bulbs, the phonograph and the motion picture camera.

 

Like Edison, Steve Jobs was one of those individuals who comes along once every 75 years to do things that affect lives and hearts, and do it in a way that stirs emotions.  Of the reasons that Steve Jobs is missed, for me there are three:

• Jobs was a visionary and a creator, first and foremost.  His dreams were brought to life through the company he co-founded.  Importantly, his dreams connected to the dreams of tens of millions of people who, through his products, experienced the joy and wonder in using them that Jobs had envisioned in creating them.
• He was imperfect, just like the rest of us.  Adopted, raised in a humble environment, and a first semester dropout at college, Steve Jobs was not born with a silver spoon in his mouth.  He was brash, impatient, demanding, intolerant and difficult to work for and work with.  Achieving early success that made others envious, he suffered the ultimate indignity when he was fired from the company he co-founded by the very same person he had hired to help it.  Even his most ardent adversaries felt for the man at this sad turn.
• Yet, he was his own Phoenix, rising from the ashes.  Jobs defied the odds, making a comeback to Apple as its CEO, and then set out to achieve accomplishments that even the best of fairy tales cannot match.  Steve Jobs became to personal technology what Walt Disney became to childhood imagination, and what J.K. Rowlings became to children’s fantasy books.  Apple redefined the personal technology landscape not through brute competitive force, but by creating offerings that were irresistible to tens of millions of us.  In his own language, Jobs wanted to “seduce” us by cloaking functionality under the most elegant of designs, and creating an experience with the customer that was unique, compelling and without substitute.  

 

Steve Jobs achieved enormous success by giving us things we could only imagine, and appealing to the universal desire for novelty, simplicity, wonder and delight, with functionality sandwiched in between.  Just like Thomas Edison did.

 

The Best Marketing Research

One of the best sources for marketing research is frequently overlooked: our own sales people.

 

By the nature of their jobs, sales people - whether in personal sales, telesales, or online sales - come into daily contact with buyers.  In doing so they quickly learn what the buying hot buttons are (i.e., attributes of an offering that resonate strongly and positively) as well as the red herrings (i.e., attributes of an offering to which buyers are indifferent or, worse, are outmuscled by the attributes of a competitive offering).

 

A Gold Mine in the Top 20%

The best sales people (i.e., those whose performance consistently ranks in the top, say, 20% of the sales organization) typically identify the hot buttons and red herrings quickly, adapting their sales engagements to take accentuate the former and stay clear of the latter.  The top 20%  can let you know what is working, with whom, under what conditions, how often, and why.  They can likewise apprise you of what doesn’t work, and why.

 

The top-performing 20% of a sales organization serves well as a proxy for understanding how customers respond to an offering.

 

These are the ones to talk with - ideally, all of them.  It’s easier to do in a small organization than it is in one with hundreds or thousands of sales personnel.  But, as large organizations tend to cover diverse markets, it’s important to determine if what applies in one market applies to others: New York and Tokyo; small businesses and enterprises; among discrete manufacturers and process manufacturers; among younger and older buyers.

 

The Discipline to Succeed

Consistently successful product marketing organizations - especially in B2B - regularly survey their sales organizations for feedback.  For example, some firms, following introduction of a new offering, will interview their the top 20% of sales performers at 60 days, 120 days, and 180 days post-introduction.  They gather observations, look for trends and similarities, and then compare the feedback from customer interactions to the value-benefit model that marketing developed for the offering for its day of introduction.

 

Doing this enables three important conclusions about the value-benefit model to be drawn:

• what is working as expected (this is what needs to be tuned and amplified)
• what is not working as expected (serves as the basis for adjusting tactics)
• what is working that was not anticipated (potential incremental revenue)

 

Getting the Sales Organization is On Board

Firms that tap into the collective wisdom of their sales organizations, do so in a way that is mindful of their time, and act on what they learn, find willing participants.  And why not?  Improvement that the firm makes in its offering and marketing tactics serve to assist the sales organization in being successful.

 

The key lies in acting on what is learned.  

The Problem with Soundbites

Part 2 in a series about the nature and principles of value propositions, positioning, and competitive advantage.

 

Recap - Value Proposition

Firms exist to create value for customers and, in doing so, compete in the market to earn a profit and achieve the goals of the firm.  A value proposition describes the ability of the firm’s offering to provide greater value to its target customers than the offerings of its competitors can.

 

Those last two words are highlighted for a reason.  The same offering can represent different values to different customer segments, depending on the specific needs of each target group.  In fact, what is valuable to one target market may have no relevance whatsoever to another target market.

 

Like beauty, value lies in the eye of the beholder.  Sales people - especially those who sell complex products to B2B customers - readily recognize this.  A good sales person is skilled at eliciting a buyer’s needs and motives, and then adapting the sales presentation to focus on the attributes of the offering that best fit the buyer’s needs.  Other attributes, no matter how appealing they may be to other buyers, are kept in the background.

 

The Problem with Soundbites

There’s a reason mission statements are crisp: so that they clear and memorable. 

 

It’s hard, though, to find a simple statement that aptly and fully describes a firm’s strategy.  For example, one can say that a firm’s strategy is “to be the low price leader in its industry.”  It’s a convenient shorthand device, but it says nothing about the tactics that shape the strategy.  How are costs kept low?  Is quality traded off to achieve low price?  Are assortment and variety constrained as occurred with the Model T - any color you want as long as it’s black?  Or perhaps the offering is only distributed in urban areas, and not outside.

 

The shorthand form can only be correctly interpreted when it is accompanied by a detailed description of the tactics used to achieve the strategy of low price leadership.  It is much the same with articulating value propositions.

 

Marketers are expected to come up with a memorable and effective soundbite that captures the essence of the offering’s core value.  Just like Apple did with the iPod: twenty thousand songs in your pocket.  But, too often, it is left like that - a catchy soundbite with very little back-up substance.

 

A value proposition soundbite left standing on its own, no matter how catchy, is just like a strategic soundbite: leaves a lot open to interpretation.  And it won’t earn any marks with the sales force.

 

From Soundbites to Value Maps

You can be sure that Apple did not print up cards printed with 20,000 songs in your pocket, hand them out to all their retail sales people, and then tell them to sell a boatload of iPods.  And if they have such a card as part of the iPod product intro, you can be certain that it did not stand on its own: there would have been plenty of back-up material.

 

Value maps are like strategic maps.  Value maps show the linkage of every relevant attribute of an offering to the needs of each target market.  If there are 5 target markets, then 5 value maps are needed.

 

A value map relates relevant and strong attributes of an offering (compared to competitive offerings) to the needs of each segment.  In the case of B2B customers, and increasingly consumer targets, detailed profiles are given that describe key purchase drivers along with effective ways to link the offering’s attributes to each of the drivers.

 

Constructing effective value maps takes good research and effort.  But the results are worth the effort.  Your sales personnel will be the first to thank you for them.

 

Not so Fast on Social Media

If the life of a CMO was not difficult enough, add to the mix what most have suspected for the past year or so -- social media are not the promotional panacea they are believed to be.

On September 29, Demandbase and Focus jointly released a national study conducted in May with executives spanning all sizes of B2B companies.  Its observations:

• Good, old-fashioned personal networks and referrals are still the best source of leads.
• While corporate websites run a distant second for lead generation, they are still seven times more effective than social media.

Companies have had 15 years to experiment with, understand, and refine their use of the web as a calling card.  Progress has been made, sure, but truly effective corporate websites are still in the minority.

Social media are no different, and are still in the early stages for most companies.  They hold both promotional and CRM promise -- particularly as components of a comprehensive online set of tactics -- but the payoff lies down the road once the refinements are made.

As the devil is in the details, the study should be examined fully so that you can draw your own conclusions.

Competitive Myopia

Many companies claim they don’t have competition, yet that’s a matter of public bravado and promotional license.  Their CEOs know better.  

 

But, managements that genuinely believe they have no competitors are short-sighted.  They are living in a world that, sooner or later, will deliver a nasty surprise.

 

There is always competition: known and unknown, dangerous and benign, indirect and breathing down your throat; current and yet to emerge.

 

A firm might have the upper hand on a competitor now, e.g., 17 years if it has a patented drug that is the only effective treatment for a disease.  But patents don’t last forever.  Neither does competitive advantage.

 

Every company has competitors:

• Those known to it who compete directly with a similar, or perhaps identical, offering.
• Those over whom it has a competitive advantage that enables it to satisfy a need of target customers much better than its competitors.  They, however, may have markets for whom their offering represents competitive advantage.
• Those whom they’ve yet to come across, who are working quietly and investing seriously to come up with an offering that may upstage the incumbents.
• Those who are working on a game-changer that will redefine the market, leaving current participants scrambling to react.
• All the other firms in all the other industries who compete for a share of every buyers dollars.

 

Competitive myopia - either arising through denial, or from not keeping a careful eye on external developments - can be the undoing of a company.  No company has an impenetrable moat, an infinite product life cycle, or either regulatory or divine protection from interlopers that goes on forever.

 

There are no guarantees.

 

There are, though, three things that can be done to remain competitive.

 

1. Be vigilant.  Keep your eyes and ears on the market - especially if you hold leading share and enjoy competitive advantage.  The more attractive a position you hold, the more attractive your market becomes to new entrants and upstarts.  As Intel’s Andy Grove believed in choosing the title for his 1999 book, Only the Paranoid Survive, it pays to look over your shoulder
2. Strive to keep your customers for life.  Recognize that attempts to displace you by others is inevitable.  Do no hunker down and simply protect your customer base.  Innovate to find improvements - even disruptive ones.  It is better to defend your customer base by being the master of the new, rather than the protector of the old.
3. Embrace change.  Operate a culture that thrive on change, rewards risk-taking, and prizes agility and execution.  When a new competitor emerges, as it will, if all else has failed, you will be in a better position to press the reset button.

Driving Miss Daisy in her AMG

This week I had afternoon coffee with a CEO at the Woodside Bakery Cafe. Woodside, with a population 5,352, is home to several Silicon Valley executives, some of whom host fund-raising dinners for U.S. presidential candidates.  After, when I returned to my car, I found this card stuck in the driver's side window.

 

Curious, I held onto the card, and called the number the next day.  I spoke to the owner, Crhis Turner.

 

The Offering

How many of us can really justify having a full-time chauffeur living in the guest bedroom - even if you live in Woodside?  In this economy, it turns out, very few.

Also, who enjoys stepping into one of those dime-a-dozen black Lincoln Towncars airport cars - or, worse, riding in a gaudy stretch Hummer or Escalade, its interior glowing with color-shifting mood lighting?  Certainly, not those who are accustomed to better.

Those who have achieved success and now drive that sleek Mercedes Benz AMG S65 or Maserati Quattroporte, have an option: driver-only for hire.  The residents of Silicon Valley’s tony communities can travel to the opera in the comfort of their own sedan, confident that some 20-year old valet will not be taking it for a joy ride (a la Ferris Bueller’s Day Off).

It’s a nice offering: licensed and bonded chauffeurs who live in your area, arrive early to familiar themselves with your vehicle, get you where you want to go and back, and ensure that no one of thing touches your $200,000 worth of European-crafted sheet metal while you’re off enjoying the good life.  

And, speaking of the good life, you get to enjoy it with the peace of mind.  You don’t have to hail a cab, leave your vehicle unattended in some public parking lot overnight - and you have zero chance of getting a DUI.

But best of all, I liked the first line of the copy:

Gratuities are most easily handled with 15% on the bill.

No wondering what’s appropriate, no embarrassment getting it wrong.  And because it’s likely only you (and perhaps another) traveling home, no worries that “For parties of 6 or more, 20% gratuity is automatically added to the bill.”

Business is good.  It’s been around for 20 years, has over a dozen drivers, and need only advertise every 2-3 years to clients who move out of state or die.

 

What about those evenings when you haven’t made chauffeur arrangements, and find yourself unfit to get behind the wheel?  This company can’t help - but there are outfits that can.  Make the call, wait in the lounge (or under the table), and a driver will soon arrive on a fold-up scooter.  He’ll put you in your vehicle, put the fold-up scooter in its trunk, and drive you home where he’ll be met by another driver who will pick him and his scooter up.

Expensive?  You don’t want to know.  But for those who can afford to drive the world’s finest automobiles, a few hundred dollars shouldn't be a problem.