Monthly Archives: February 2012

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.

Volvo tricked me with a decoy

After a few weeks of hunting I bought a new car, lured completely by a decoy. A decoy, in marketing or sales, is when someone offers you a thing knowing full well that thing isn’t really what you want, but will get your attention. The world is full of decoys — $1 appetizers at bars that get you to buy $20 in beer; $7 movie tickets that coerce you to buy $10 in popcorn and candy. A decoy likely put you in your house — Realtors use a classic strategy of showing you a home that needs repairs right before the pristine home they want to unload on you. That “whew, this house is OK!” feeling was completely a psychological setup, but you knew that, right?

The most successful decoy of the past 20 years was likely the New Beetle, released in 1998 with a brilliant redesign by J Mays. VW rode a wave of new sales, but many were Passats and Jettas purchased by consumers who strode onto the lot curious about the cute new bug, then decided they needed something more.

I just did the same thing, lured by a Volvo C30 and discovered an S60 with more power and room, for a few K more. I’ve always considered Volvo one of the most boring brands in the world. Safe. Secure. Yawn. A hot-hatch design got me on the lot to discover the Swedes have been playing turbo catchup to the Germans.

Decoys are a variation of “price framing,” a concept by behavioral economist Richard Thaler that customers are bad at judging value, so marketers must give them a reference point A to react to. A dress marked 50% off, down from $200, refers to a price of “$200” that never really existed — but makes the $100 price point feel so much better. Some decoys are magnets, pulling you into a sales ecosystem to buy something else. Some can be negative, showing what you don’t want so you’ll move over to item B. Decoys cut through the clutter of commercial capitalism by giving us a beacon. They help us fool ourselves into perceiving value, since we now have something to compare that value with.

I wanted something that I didn’t want, then ended up wanting another thing. The Volvo is a rocket and is safe and has room for the kids. I never would have found it without the impulse to chase a cooler design I didn’t need.

Decoys work really well.

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.

Posted on G+.

The future of variable pricing

Yes, you should charge some customers more than others. To understand this concept of “variable pricing,” let’s play a mind game. Imagine you walk into a restaurant, read the menu and discover this new place serves only pork chops. You call the waiter over and ask, “why only pork chops?,” and he responds “our chef has found the average person likes the average meal of pork chops, so we only serve what the average person wants.” You’d walk out, thinking, wow, idiots!

Most companies price goods the same way — setting an average price that an average consumer will find appealing. The old Econ 101 textbooks talk about markets setting prices, with supply shortages or growing demand pushing prices up, and inventory growth and consumer apathy pushing prices down. But the inference is at any one time, there is one perfect price for any one product, because 100 years ago all marketers could do was gauge overall market demand. Adam Smith’s Invisible Hand moved all prices for a given good in one swoop. Companies do this today; when the iPad 3 launches, Apple will likely price it at $500 for everybody.

But why charge everyone the same price? Shouldn’t the tech-geek salivating over the new iPad 3 be hit with a $1,000 bill, because he’d willingly pay it, and the mom at home who isn’t too hot on tech be charged only $300? Their levels of desire are different, so these customers could and should be charged different prices. If Apple could find an even split audience, it would average $650 per unit for that glorious new tablet with retina display — jacking margins up $150 while keeping everyone happy.

Yet even Apple with all its smarts hasn’t figured out how to charge you or me differently based on our individual need states. Variable prices are used by some marketers, but usually only in four blunt ways: (a) a hook to lure in new customers (see magazine “30% off for subscription” deals), (b) discounts that self-select cheapskates (see grocery store coupons that give only those who clip them 50 cents off a can of beans), and (c) incentives to stop customer defection (try calling your cable company tonight threatening to quit to DISH and they’ll drop your monthly bill by $20). These first three ways differentiate customers to either build new acquisitions, solve a problem of a subset hypersensitive to price, or stop churn. What is common is they all threat mass subgroups of customers the same.

The fourth version of price variation is tied to timing — cycling through price hikes or drops. Apple is brilliant at this, rapidly moving all its products through price reductions (say, an iPhone priced at $500, then $400, $300, $100, of course all with backend data subscription offsets) usually timed to push old product inventory as a newer version launches. But again, it’s treating all segments of customers the same at any given time.

But what if a fifth pricing approach, one-to-one pricing, were possible?

If you and I are different people, we obviously want things at different levels. Desire is not a binary on-off switch; we may both want a new pair of cowboy boots, but you kinda want them now and I’m burning to get a new pair. So I’d be willing to pay $200 and you only $100 if marketers could see inside our heads. By setting the price of the boots at $120, marketers are aiming toward an imperfect average — making me happy, and trying to push you up a little in what you’d pay — but I could give them more margin, and you less, for more overall profit if only prices were tied to our individual desires. I should pay $200 and you $100. The average shoots to $150. We’re happier, and the leather-stitcher is richer.

The only thing stopping marketers from reaching a perfect, one-to-one variable pricing strategy has been the inefficient exchange of information. People’s needs and desires change hourly; demand is constantly in flux, rising and falling like a Twitter meme; no computer systems have been able to track this opportunity to the moment, so marketers take broad cuts at the problem, charging first-class airline passengers more for the illusion of cushier seats, or dropping utility bills for new customer sign-ups. The only organizations good at this are B2B groups such as management consultants, who can take the time to carefully scope the hunger of a potential client and price services accordingly. (The technical term for this price approach is FMA, or “from my ass.”)

This will change soon. All that is needed is technology to identify consumers’ “need state” — how much they crave a product now — and output technology to change the price offer.

What are the input technologies? Mobile phones are soon adding NFC wireless technology to become mobile wallets; apps such as Square and others may leapfrog the technology with customer identification tech tied to your bank or credit accounts. LBS pinpoints your location on maps, and the technology is getting so good Google Maps recently began showing the store locations inside malls as you walk around, differentiating whether you are on the first or second floor. Social media connectivity means your personal ID can be had if you walk into a geo-fenced location. Soon, if you walk into a wine store, they will know who you are, what aisle you’re in, what you like, your customer lifetime value (estimated stream of future profits), and your social network.

What are the output technologies? Digital screens, of course, are getting cheap. E Ink and the like could make labels and price tags variable, morphing instantly based on the customer approaching them.

The future is rather obvious. You and I walk into the clothing store, and the leather jacket tag flashes $500 for you if you really, really want it, but only $300 for me if I sorta, kinda want it. Rather than timing mass pricing to mass market demand, variable pricing would dynamically change to maximize the match of consumer desire with marketer profit.

Does this seem unfair? Of course, but treating people differently is part of life. If you have two children, you send them to two different grades based on their age. You give you wife and mother two different gifts for Valentine’s Day. If you coach track, you push the high school athletes at different levels based on their starting endurance and speed.

Changing pricing to an individual, one-to-one level is simply marketing efficiency taken to the ultimate conclusion. Technology will soon make it happen, just as certain as the coupon in Sunday’s newspaper will let you buy coffee at the supermarket for 35% off while I pay full fare.

One-to-one pricing will happen. I probably shouldn’t have confessed I really want those cowboy boots.

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.

Image: Jef Safi

Why Underdog flies (the formula for going viral)

A joke inside ad agencies is yes, we can make concepts “go viral,” but we charge extra for that. Last night Seth Casteel’s photos of underwater dogs started popping up everywhere in Facebook and Twitter streams, without agency help. Seth has been around for a while — his website has a quote from Cesar Millan, and Seth had a guest segment on the TV show Extra! back in November 2009.

So why now? Why, for a fleeting moment, are people crazy about sharing pics of dogs baring fangs underwater?

Back in 2010, I defined the mathematical formula for viral success.

For your message to spread, the passalong rate must be higher than the absorption rate over a given period of time; that is, if only 1 person passes every 1 message along, and then every first person stops action, you’ll only have a linear path of meme sharing, and you’ll never reach more people than 1 at a time; you need 1.1 people to pass your message along vs. the 1 person who then stops after sharing for the message to continue to scale upward. Antivirus companies such as Symantec use similar models to predict how computer bugs spread. The formula is this:

Viral spread = (Message generation rate – Absorption rate) * Cycle time

The truth is no one can plan or predict how an idea will fit into the cultural context of the moment, or how the pattern of complex passalongs leads to the viral success where the share rate exceeds the stall rate of transmission. For people to get excited enough to share an idea, it has to resonate against a cultural moment, provide a frisson of entertainment or shock, and stand out from competing ideas. This is one reason why marketers spend north of $3 million for Super Bowl ads, because the consumer ecosystem is primed to act on exciting ideas and share them (but only if the ideas are exciting, unlike most ads in this year’s Super Bowl).

Yesterday was a cold February Friday in the Northern Hemisphere in the dead zone weeks after the Christmas holidays and weeks before spring. People are bored, and perhaps funny images of dogs in summery water gives us hope that blasé winter will end. So we share. No one knows why. You can’t predict it. Some things just make a splash.

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.

Originally posted on G+.

Facebook’s mobile advertising problem

Facebook’s registration with the Securities and Exchange Commission is a brilliant read for anyone who works in marketing or social media, because as Facebook prepares to go public it has to lay out everything that could go right or wrong in the future of social. The company is crushing its numbers now, with a cool $1 billion in profit, but read Facebook’s “risk factors” and what leaps out is the challenge of mobile.

Nobody has figured out how to make big money from mobile advertising; advertising rates for mobile ads are absurdly low, from $0.06 to $0.25 cost per click, a signal inside the ad industry that perhaps the back-end conversions from consumers clicking the ads are pitiful, and the macro mobile ad market has missed every rosy forecast of the past decade. Facebook hasn’t even launched mobile ads yet on its app (although that is coming soon) — and yet you know where consumers are headed. Handsets, tablets and other portable screens.

Here’s what Facebook warns in its S-1 filing:

Growth in use of Facebook through our mobile products, where we do not currently display ads, as a substitute for use on personal computers may negatively affect our revenue and financial results.
We had more than 425 million MAUs [monthly active users] who used Facebook mobile products in December 2011. We anticipate that the rate of growth in mobile users will continue to exceed the growth rate of our overall MAUs for the foreseeable future, in part due to our focus on developing mobile products to encourage mobile usage of Facebook. Although the substantial majority of our mobile users also access and engage with Facebook on personal computers where we display advertising, our users could decide to increasingly access our products primarily through mobile devices. We do not currently directly generate any meaningful revenue from the use of Facebook mobile products, and our ability to do so successfully is unproven. Accordingly, if users continue to increasingly access Facebook mobile products as a substitute for access through personal computers, and if we are unable to successfully implement monetization strategies for our mobile users, our revenue and financial results may be negatively affected.

Digiday reported this week that Facebook will soon run mobile ads inside its smartphone app UI. For Facebook, it is absolutely critical that this new format succeed. Google also has been struggling with this issue, because the smaller screens in mobile mean any ads are more intrusive and less likely to be welcomed by consumers; this is one reason why Google bought Motorola Mobility and has pushed handset hardware designed with hot keys that boot search (and the corresponding search ads). As Facebook user growth slows (there are only so many people on the planet) and consumers shift away from PCs to portable Internet devices, the question is will we all want advertiser friends in our pocket?

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.

Originally posted on G+.

The Warshaw Curve, or why Kate Winslet is nude in 3-D

What does it mean that anyone can now easily create 3-D photos and video, or even print objects in three dimensions?

The birth of cheap production technology — film, music, websites, ad crowdsourcing — will probably lead to a “Warshaw Curve,” in my opinion: the idea by video producer Douglas Warshaw that a rise in the supply of any production technology typically creates an inverted, U-shaped bell curve of quality output. Draw a wide “U,” and on the left side write “bad stuff” and on the right write “good stuff,” and you’ll see the logic. In video, we have moved this way with grainy YouTube videos on one extreme and super-HD movie files on the other. In newsprint, we are seeing this with the surviving publishers being lousy local community papers or the high-quality New York Times. Knowledge is flowing this way with new communication networks enabling rapid scientific advance on one end and endless bloggers regurgitating “how to get social media ROI” on the other. Everyone in the middle gets killed when barriers to production or access fall. You have to either focus on more utility with low quality at mass scale (YouTube, IZEA advertising) or quality with artificial scarcity (“Titanic” now in 3-D, million-dollar spots on the Super Bowl).

3-D printing will create this same curve. My kids would love to build cheap Lego sets at home and I might toy with modeling. But, for many years, the output will be prolific and bad. If I want a good pair of running shoes, a mountain bike that won’t break down, a classical guitar, or a watch that flashes status, I won’t print it in the basement but will end up at specialty stores or the mall.

The inverted “U” of quality seems a normal distribution pattern in any network of production. As Len Kendall noted in the past (fall 2009 I recall, that’s right, buddy, I’m learning from you), most social media sentiment is neutral, with only a small percent of people loving or hating a brand. Even in our production of feelings, the majority is blah, with highest response in the extremes of poor or great. Material manufacture will follow the same curve of emotion, video, print, and knowledge, and it is a mistake to assume the peak on the high-quality end will disappear if low-quality output surges.

The real question, of course, is how Kate Winslet will feel having her now-younger self in love scenes projected on the big screen in 3-D.

Revised from my recent comment at Len Kendall and Gunther Sonnenfeld’s brilliant blog. Also posted at G+.

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.

Singularity blinks

So here they are, supposedly the most human-like robots ever created. What’s intriguing is these are in real-space — physical robots like Asimov imagined, vs. the fake-reality Hatsune Miku-type avatars that can be projected as holograms from hidden screens. This raises an obvious question: As we perfect high-definition video panels everywhere, why would we invest in robots that exist to touch? Isn’t it enough to see a perfect rendition of Brad Pitt or Angelina Jolie on a digital panel, an AI version of a late Star Wars movie, pixels that float on screens simulating intelligence?

For all our technology, humans seem compelled to act as animals and touch and feel things. We need to interact in real space. This is why we fly on jets, travel to opposite shores to see people in reality, shake their hands, offer a hug to the good clients or sharp looks to partners who disappoint. This is why telecommuting, for all our fantastic communications technology, has never become a societal norm. The majority of communication is not only non-verbal, but based in physical presence. Unless three-dimensional panels can include some form of haptic feedback allowing us to “touch” the things in the room, we may end up with Asimov’s physical robots after all.

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.

Originally posted on Google+.