Category Archives: Michael Treacy

Understanding when engagement is, or isn’t, the answer

What would competing solely on information look like? And if you did battle competitors with information, is “engagement” the best way to do so? To understand when and how to compete with information, let’s walk through four simple competitive frameworks.

First, consider that while we live in an age of information, few management experts consider it the basis of market competition. The classic tenant of marketing is there are just three ways to compete: product-focused, operations/cost control, or customer solutions. Each is a choice, and companies within the same industry with similar products can elect to compete on a different dimension.

In 1995 Michael Treacy summed up the old model for competition, drawing heavily from Michael Porter’s masterwork Competitive Advantage, in his book “The Discipline of Market Leaders.” Competition, as backdrop, is defined beyond the cliche of company-fighting-company to a strategy that provides a serious advantage — a structural position that competitors cannot easily duplicate. Treacy’s model looked like this:

Apple, for instance, is a product-focused competitor. You don’t chat with @Apple on Twitter because Apple really doesn’t give a damn about engaging with customers. Steve Jobs was notoriously skeptical of customer focus groups, and while Apple does a brilliant job of managing vertical operations, its real gift is product innovation. Apple has built such amazing products that competitors, even armed with thin flash drives and aluminum, cannot easily displace Macs or iPads or iPhones. Picking one of the three angles of Treacy’s competition leads you to success because it brings focus to your organization. (And you can pick any angle you want; within the same computer industry, Dell is known for customer-solution focus with extensive segmentation marketing, while Acer focuses on operational efficiency to sell inexpensive computers.)

However, this old model misses a new competitive position: Information. Like a fish swimming in water not perceiving H2O around it, or early humans breathing air not realizing oxygen existed, for centuries businesspeople ignored the information flowing around their organizations; information didn’t really have a name until the 20th century. Upon our discovery, we then treated information as a simple fluid, like money or electricity, to be managed in inflows and outflows. The rise of information technology systems in the 1990s sought to reduce the noise (waste) of information input and transmission, and accelerate the dissemination of output, but all the while information was categorized as a force, an ether, a thing, about as negligibly important to macro competition as paper supplies or office furniture.

But in the past 20 years, information has become a vital, focal entity of its own. Information is no longer a subordinate throughput, but an end goal to be desired. Wired magazine co-founder Kevin Kelly writes in his brilliant book “What Technology Wants” that the interlinks of all technology tools — computers, car dashboards, GPS systems, bar codes, television programs, printed materials — have created a global network now with more complexity and contact nodes than the human brain. Kelly does not believe, as Ray Kurzweil does, that information is about to wake up in a singularity of artificial intelligence, but he does note within computer networks a small percentage of digital traffic has no identifiable originating source. Our global information system is talking to itself. Something in there is going on. Information, at some level, has come alive.

Demand is the magnet pulling information forward. Consumers around the world have a seemingly limitless hunger for more content. In the United States, television is still king, with the average human watching 4 hours and 44 minutes a day; mobile and Internet and social media use is rising, but rather than eclipsing TV and radio, those new digital streams are additive, with consumers taking in or sharing from more than two information devices at once. Office workers are migrating to 2 computer screens. The typical U.S. home has 3 television sets. We can’t get enough information, and now with YouTube and iPhone videocams and Facebook, we’re creating our own.

In this chaotic information explosion, confusion reigns. ABC, NBC, CBS and Fox were first challenged by cable, and now by millions of video streaming options on Netflix, Hulu, YouTube, Google and Amazon. Businesses have the opportunity to become leaders via information dissemination with tactics such as “content marketing.” Individuals can arise quickly to become “thought leaders,” gurus, new nodes on the information playing field.

If we want information as badly as products, service, and low prices, then information can be laid on a new grid as a focal point for competitive advantage:

Information is no longer a commodity like electricity or cash to be flowed and managed, but a choice for strategic warfare. Google, Apple, Netflix, Amazon, Zappos, Oracle, HP, SquareTrade, Ford, Tesla, AT&T are all companies competing with layers of information that help set their products apart. You don’t have to be in the information business running a search engine to use information to attract consumers; you can instead position yourself as the information leader in your space to add a new electromagnet for customer attraction. Competing on information is why our agency Mediassociates has this blog and why I spend late nights writing columns for Bloomberg Businessweek.

So: If you decide to compete using information, how do you do it? Different organizations have different customer structures, and your information flow has to support that framework. The first step is to map your “Information Ecosystem,” which breaks information down to its two basic characteristics:

1. Flow — whether information moves more often inbound or outbound
2. Scale — whether information is best deployed to a few or to many.

Flow and scale define the playing field for information strategy. Within the Information Ecosystem live four basic tactics, or information uses:

1. Broadcast. At the top right of the information flow/scale quadrant is broadcast, where information flows outbound to many parties. ABC, CBS and NBC were kings of this in the 1970s, but you’re likely broadcasting yourself if you use Twitter to send out “please click my blog post link” to 3,000 followers. Broadcast is a one-way ticket out, a selfish attempt to push a single message to as many people as possible. You need broadcast if you want to influence many to do one thing, or get many to receive one idea. The advertising industry, Hollywood, and yes, most social-media gurus are built on this model. Broadcast gets knocked about these days, but it is one of four completely valid information strategies, because at some point any organization has to influence the vast network around it.

2. Personalization. The inverse of broadcast is personalization — still an outbound flow, but a tailoring of information to the one or few people who receive it. Your Christmas cards,’s dynamically rendered e-commerce page, the direct mail on your counter are all attempts of various finesse to create the illusion of personal response; but it’s still an outbound push. Personalization is a valid strategy if you have many different constituent groups with varied needs, and if the cost of personalization is offset by corresponding sales increase via personalization. Netflix personalizes because the content presentation on its website is economical vs. the increased sales and usage customized movie recommendations generate; Nike would never personalize sneakers, because the marginal utility of custom shoes would not offset the high production costs.

3. Research. If a business model can leverage inbound flow of information from a mass of customers as a primary differentiator from competitors, research is the valid tactic. Typically this model only works for organizations that can repackage that group inflow as a key product, e.g. Pew, Arbitron, Nielsen, and Experian. However, many business-to-business consulting organizations such as McKinsey use inbound research as a key differentiator; management consultants who complete a deliverable for a European postal reorganization must also submit the findings to the internal knowledgebase, which can then be resold to other clients at hefty margins.

4. Engagement. And the last information strategy is the buzzword of recent years, “engagement,” the use of inflowing information from one or just a few customers. Engagement is valid only if your customer base has a high value skew — a wide range in value to you — or if small groups or individuals can wield great damage or gain to your organization. Ad agencies focus on engagement with their B2B client prospects, because one sale can build a new agency department. Financial service companies focus on engagement with their highest-value investors, because treating a Warren Buffett differently than Joe Sixpack can yield vastly different commissions. The more your customers differ in their needs from you and value to you, the more engagement makes sense. But as a core strategy, engagement only works if huge skews in customer value or influence are within your customer network.

When would engagement make sense? The table below shows the only scenario where engagement should be your core business strategy — where a few people can cause huge swings in your organization’s profits or public perception:

In this scenario above, a “few” have more value than the many — or a few have the ability to swing public perception about your company. Not every industry is like this — gas stations sell about one tank of gas each week to everyone — but others have enormous concentration of customer value or influence in their consumption base. Booksellers, airlines, high-end restaurants, hotels, coffee shops, and ad agencies all have some customers who use them much more than others, so treating this varied group in a different way provides value, differentiation, and competitive defense.

The engagement choice makes sense if a small group of customers could wield positive or negative influence across the majority of others. This is why big companies such as AT&T, Ford or Dell have built social media command centers to engage with a few people to prevent hot spots on the negative side (popular bloggers pissed at a product incident must be managed) and to encourage influence on the positive side (why not invite people with huge Klout scores to the next product launch?). But for many companies, this idea may be overwrought; Klout scores in essence are silliness, and the idea that a small group of bloggers/Tweeters might disrupt a massive business such as Pepsi, or drive huge lift in Pepsi soda and energy drink sales, is suspect.

It’s all a choice on how you compete. Pick your focus from product, operations, customers, or information. And if information is your weapon, pinpoint the corner of the Information Ecosystem strategy matrix that matches your customer structure. In your evaluation process, it is vital to distinguish information as a tool to be managed (and it must be managed by everyone) and as a weapon for competitive advantage (defined as going to market in a way that stymies competitors). Every organization may need a Twitter presence, research, broadcast, or some personalized content, just as you need a website; but information is only a strategic focus if its sets you apart in a way that builds barriers to competitor response.

If products, or low prices, or total service do it better, information need not be your focus.

Like customers, not all information strategies are created equal.

Ben Kunz is vice president of strategic planning at Mediassociates, an advertising media planning and buying agency, and co-founder of its digital trading desk eEffective.

Down with sentiment, up with entrants

Why is the customer not always right? Because focusing on customers is only one of several ways to compete, and product innovation sometimes means not listening to them.

Apple, Groupon, Twitter, Facebook, Dyson. Amid today’s hype about social media, some product-focused innovators enter the market with radically new ideas to gain more value than incumbents listening to customers. Groupon, founded in November 2008, is on its way to be the fastest company to make $1 billion in sales — for making coupons scalable on the Internet. Apple hit an all-time earnings high by moving glass touchscreens to phones and computers. Facebook has scaled rapidly by making email — what it has replaced — more connected with less friction. Dyson revolutionized vacuum design after going solo with an idea that bag-selling incumbents thought no consumer would want.

Michael Treacy and Fred Wiersema wrote in 1997’s “The Discipline of Market Leaders” that there are three ways to compete — customer intimacy, or production innovation, or operational excellence. Each strategy is very different, but one must be picked, because no company can be all things to all people. Customer-focused companies tend to build feedback loops and provide total solutions (ad agencies follow this model, which is why ad gurus on panels typically say customer engagement is everything). Operations focus is what makes FedEx and Walmart shine, delivery goods at extreme efficiency, with minimal customer interaction. And product innovation is what makes Apple produce glittering new toys you didn’t expect, but somehow desire.

This is not to say that companies can ignore customers — every product needs a consumption market, and every operation has inputs and outputs touching buyers. But success requires focus, and you can’t lead in a product category while answering every customer call. The Zappos intense customer care model is brilliant, but would never work for USPS, which must send pieces of paper 3,000 miles for less than 50 cents. In our age where customers are more connected than ever before, people seem to hunger for the new-new thing, and product entrants get the buzz. Google found this out the hard way, when Groupon rejected its buyout offer … and we’ll see if Google’s late entry to local business couponing, Google Offers, catches on.

If Apple launches a 3D screen display in 2012 for its next gen iPad, will you want it? And if its antenna doesn’t work if you hold it the wrong way, will you care? Sometimes what gets talked about most is the radical innovation that customers asked for the least.

Why Apple doesn’t listen

Web strategist Thierry de Baillon suggests Apple’s continued ability to surprise the world with simple products — often without the complex add-ons that tech enthusiasts hunger for — is because it focuses on what people do and not what they want. We responded with this:

In terms of strategy, Apple reminds me of Michael Treacy’s “Discipline of Market Leaders,” in which Treacy proposed there are three basic focal points for business: product innovation, customer service, or operations/low cost. Companies in the same industry can take different positions; IBM, for instance, in the 1970s was customer service-focused, trying to be all things to all people (Dell has taken the customer position since the 1990s with customizable computers and products aligned with consumer segmentation). Apple is all about product innovation — and to hell with focus groups. This is not right or wrong, smart or stupid; it’s merely a focused company strategy that helps Apple lead in a certain area.

Apple leads because it really is not a technology, software or computer company — it’s a design company. It makes tech products pure enough that people lust for them, and for that Apple can charge a premium. A lot of people whined that the tablet missed features (webcams etc.) and cost too much. Of course. Apple will gradually reduce the price while adding feature upgrades as it pushes that device into the broader market masses.

For Apple, innovative design wins. It’s not for everybody, but it certainly is a focused market position.