Let’s not ‘turtle’ our way through the recession

Millennia of shared experience and painful years of direct experience have taught us to keep our heads down in times of crisis, lest we draw attention to ourselves. All this conditioning has trained us to think that if we don’t rock the boat, we might get through the storm OK.

From our herd instinct we have learned “there’s safety in numbers”. But marketers know that in order to get heard, this is a death wish. Only by standing out will we remain standing.

Now this does not mean, as some marketing agencies have been disingenuously promoting, that we simply “stay the course” and just keep advertising our way out of the recession. This makes sense only if we believe our prospects have money they could be spending with us, but are not, because they do not sufficiently know or appreciate what we are offering.

But this is not the problem. The problem is that they have less money to spend. So we cannot expect that simply repeating the same message about the same products to the same prospects is going to yield the same response it did before the recession. If we are going to be truly relevant to prospects who are facing new problems we are going to have to do it by innovating to find better ways of meeting those new needs.

everything that Jeff Bezos knows

This summer, Jeff Bezos, the CEO of Amazon, talked about Amazon’s acquisition of popular online shoe store Zappos, in an 8-minute video, a talk that he claimed was about ‘everything he knew.’ In short, what he said was:

1.Obsess over customers.

2. Invent. Invent on behalf of customers.

3. Think long term. Not all inventions will pay off immediately.

4. It’s always Day One. There’s always more to invent.

Excited about acquiring Zappos, he said, “I have seen a lot of companies and I have never seen a company with a culture like theirs. That culture and Zappos brand are huge assets I value very much.”

Clearly, Zappos has something ‘different’ about it that has delighted customers, analysts and now the big daddy of the online shopping space.

the Fanatics @ Zappos

Why should such differentiation matter to businesses? In the case of Zappos, they have an almost fanatical devotion to customer service and will go to lengths that other businesses may consider absurd. For instance, their returns policy allows customers to return footwear up to a year after purchase, with free return shipping. Unlike most online retailers, they delight in taking customer calls. They will even refer you to other stores if they don’t have the product you need.

Suicidal, most retailers would say. And yet, about 75% of purchases at Zappos on any day are from repeat customers, a figure that most brands would give an arm and a leg for. Year on year, their revenues are up 30% — even in a down economy. And that investment of extraordinary customer care paid off in an acquisition price of nearly $1B!

That is the power of differentiation. Zappos is certainly not the only online shoe store. In this economy, it is true that customers are shopping around for the best value. The thing to note is, ‘best value’ does not mean ‘lowest price’ for every consumer. Even with few dollars to spare, customers will still look for other ‘value’ benefits such as durability (can use a product longer), ease of buying (spend more time on that job search instead!) or better service (reduce the risk of being stuck with something faulty). Brands such as Zappos have built themselves by offering that differentiated value.

If such behaviors apply to something as discretionary as another pair of shoes, think of what this means for a considered purchase in a B2B environment!

slow death for copycats

What of the converse? If your company is currently selling undifferentiated commodities, you know how difficult it is to market them without slashing the price. In tough times, customers expect the imitator to offer an even bigger discount to compensate for the implicitly greater sacrifice that continued purchase of your product represents to them. Consider this – purchasing your $100K product out of their present $1M budget requires twice the commitment it did back when they had a $2M budget.

With undifferentiated products, your profit margins get more and more squeezed and you watch your bottomline rapidly turning red. Soon you discover that deep discounting is not sustainable unless you have the scale of a Wal-Mart.

finding what makes you different

Companies don’t become differentiated in one day. As the Zappos example demonstrates, differentiation often stems from a company culture, philosophy or vision. Without total commitment from business owners, differentiation simply becomes another fancy word that never actually gets translated into anything. So, first, there must be a desire to innovate at the highest level.

In addition, business teams must do the hard work of identifying relevant areas where they can make a difference. Sometimes, this may mean that a particular business will take time to pay off. This is where owners’ commitment to fund the business and open up other avenues to keep the cash flow going is critical. Some companies such as 3M and Google empower employees to innovate by allowing them to spend some time on free-thinking, creative work not directly related to their job. For smaller companies, helping employees innovate and find the difference can be a big challenge in itself.

avoid zebra innovations

To a zebra, no two zebras are exactly alike. To the human eye, however, the difference in stripe patterns is so negligible as to be non-existent. Don’t let your innovation fall into that category.

Translating innovation into market relevant products and services is a big challenge but this is also when all the hard work finally begins paying off! This involves understanding the market well so that your hard work isn’t irrelevant to what consumers need or will pay for.

When Apple developed the iPod, customers didn’t pay simply for a smaller device that would let them listen to music on the move. The idea was not to offer a better portable music player. Instead, Apple’s innovation lay in giving consumers an easier way to access the music they liked, in units they wanted, rather than having to buy an entire album in the form of a CD.

Ultimately, the only innovations that work are those which offer customers credible differentiation in some form. Does it help them do more? Can they do more with less money? Does it help them spend their time better? Does it make their lives more enjoyable or less stressful? Innovations that create a difference on these lines are the ones that customers are willing to pay for. Getting from conceptual innovation to concrete differentiation is a process that must address these questions.

Finding your own unique uniqueness

InSighting Ideas helps companies develop customer-centric innovation and then ensure that nothing is lost in the translation from innovation to differentiation. We ground our innovation sessions in a sharp understanding of customer behavior and the “drivers” that motivate that behavior. These come from a contextual understanding of the customer’s purchase and use of your product, including a powerful mix of ethnographic research and creative ideation. As a result, our recommendations are all based on insights about what prospects seek and are not getting from other providers currently. We help tap those pain points which exist, and which too often, companies miss.

If you believe that your team could create stellar differentiation to help your company succeed, our five-step program based on our expertise can help you in uncovering unseen customer insights, creating customer-centric innovation and relevant differentiation. If your company would like to straddle the path from innovation to differentiation, contact InSighting Ideas to ask for a free consulting hour on how we can help you create your own opportunities.

Who knows? Maybe we can create $1B of differentiation for Amazon’s next acquisition!

The Ice Man Cometh… and Stayeth

In the 1880′s a new industry evolved: ice. Folks had these fancy new contraptions dubbed “ice boxes” to prevent their perishable food from spoiling. Milk, eggs, meat – all the foods that contributed to better health needed special preservation. The answer came in the form of the icebox. Its only drawback was the ongoing need for ice blocks.

That gave rise to ice harvesters who spent the winters cutting ice from frozen lakes and storing it for later delivery. No matter where you lived, you could get ice delivered. And no need to struggle with ice preservation. The iceman took care of that.

Ice harvesters continued doing what they always had – cutting, storing and delivering ice. They embraced what they knew. Their only improvements came in the form of sharper saws and better ice delivery methods.

Enterprising ice sellers realized that the advent of commercial refrigeration provided an opportunity for ice manufacturing, allowing them to sell ice year round. With their noses to the proverbial grindstone (or ice block), they continued to provide customers with what they thought customers wanted: ice. But the ice manufacturers failed to realize what customers really wanted – an easy, reliable way to preserve food! The home refrigerator was the real answer.

Five Paths to “Upportunity” in Tough Times

In his best-selling Reality Check, Guy Kawasaki finds “upportunities” even in the economic turmoil of 2009. He identifies five “upportunistic” principles to “challenge the known and embrace the unknown”. The ice harvesters of the 1880’s failed to do this. But we don’t have to…

Jump curves. Depicted visually, change can be viewed as a series of S-curves, and the shortest distance between two points is always a straight line. Ice harvesters failed to look ahead to the next curve – ice automation. Ice factories failed to see the curve ahead of them – home refrigeration. Curves are occurring faster every day due to global hyper-linking. Smart businesses are looking ahead finding new ways to connect with their clients. They’re looking to the next curve: “True innovation occurs when companies jump to the next curve – or better still, invent the next curve.”

Make meaning. Focus on making meaning rather than making money. Products should enable people to do things better, do what they always wanted or do things they didn’t know they wanted to. The ubiquitous iPod is the perfect example of the latter. Listening to music has been around forever. Sony’s Walkman enabled listening on the go, but cumbersomely.

The iPod not only broke that barrier, but also launched another innovation: the podcast. Kawasaki writes, “Entrepreneurs who make meaning and change the world also make money. Nothing is more seductive to a venture capitalist than a company that may have a big impact on the world.” Make meaning and the money follows. The refrigeration inventors made meaning. Their predecessors made… well, ice.

Define purpose. Forego the typical jargon-filled, happy-talk “mission statement”. It sounds good, but it’s pretty useless. Develop a ‘mantra’ instead: three or four words that clearly define your distinctive purpose in the world. For example, eBay brings “online commerce for everyone”. Nike stands for “authentic athletic performance”. Target lets people get “cool stuff cheap.” Replace useless flowery mission statements with a purpose phrase that’s real.

Hire passion. Loving what you do far surpasses all the education and experience in the universe. The real power of purpose is the passion behind it. Motivation and attitude trump skill and knowledge every time. Passionate people serve customers as opposed to being customer service agents. Although semantically similar, the concepts are light years apart.

Create buzz. Innovative products that result from the above sell themselves. No marketing required. It’s exactly what causes some things to go viral. Kawasaki refers to this as using digital means to an analog end. The purpose of innovation is not to create cool products; it’s to make people happy. Although literally “cool,” the end result of the refrigeration innovation was families enjoying safe, fresh, refrigerated food.

What’s Next? Look ahead to your next curve. Find your purpose and define your existence. Challenge your known and embrace the unknown. Hire the people with the passion to make it happen. Are you ready to think outside the icebox?

Old Wine in a New Bottle

As late as 1999, Kodak clung to its belief in the permanence of film cameras, slowing down its foray into digital technology. The company had to fight back its way into the market when rivals from outside photography like Canon and Sony had already established an advantage. Kodak simply did not “get” the customer need for convenience that digital cameras catered to.

Most companies are very good at working on what they do well. They find a way to deliver faster, make their product cheaper or add new, ‘irresistible’ features. They ‘six sigma’ themselves until they are extremely efficient at delivering something customers no longer want. After a while, they work to rejuvenate the product by “repositioning” it, even if nothing much has changed. Unfortunately, this strategy isn’t working so well any longer.

Customers Are Running the Asylum

How did the producer/consumer relationship get changed? How did consumers hijack the value chain? We have to reconcile ourselves to the fact that customers have changed in four ways:

1. Customers now depend on other customers, rather than brands. On Amazon, for instance, customer reviews can make or break a product, regardless of what the publisher or manufacturer writes about the offering. Movie viewers rely at least as much on online audience reviews as they do on “professional” movie reviewers.
2. When established companies do not meet their needs, online communities and information allows them to find others easily. An example is David Pogue’s NY Times blog campaign to “Take Back the Beep”, a campaign to eradicate the numbingly annoying instructions we helplessly receive every time we leave a voice message (““At the tone, please record your message. When you have finished recording, bla bla bla… Beep)” He is activating tens of thousands to take on the phone companies that have profited from the 17.93 hours of our lives each of us has paid to hear this over and over.
3. Social networking also allows people to share their dislike of certain brands with a larger audience than ever before. In 2006, Wal-Mart drew much flak when people found that seemingly independent blogs were actually financed by groups associated with the company.
4. In the most interesting (and alarming new development), customers are becoming competitors when existing companies do not produce what they want. Read on…

Skating to Where the Puck Will Be

Companies who miss the real customer need will find that competitors steal a march on them. Spotting the customer need isn’t always easy. After all, rarely does a customer walk up with suggestions for the fantastic new product he or she would like! Companies cannot rely on producing merely what customers ask for at the moment, they must think deeper to identify the underlying need. They cannot just chase the puck, they need to anticipate where it’s going.

Customer need-based innovation comes from a deep understanding of the ‘ultimate benefits’ that customers seek. Marc Bernioff, the founder of the highly successful software-as-a-service, salesforce.com started up his company not to offer customers “better software.” Instead, he understood that most companies wanted to be able to focus on their work instead of dealing with software maintenance and troubleshooting. He therefore designed a product on the premise of “No software” where the user focused on their data and his team would focus on the software!

Freelancers Unite!

There are many such opportunities in every market that companies often fail to see. Think of one of the most common sources of information that you may refer to on a daily basis — Wikipedia. Entirely user-built, this free to use resource has effectively put the Encyclopedia Britannica out of existence.

For instance, did you know that freelance or self-employed workers make up fully 30% of the American workforce? This huge segment of working people lack healthcare and other benefits enjoyed by full-time employees. Out of this need gap arose the Freelancers Union, a non-profit organization that offers such coverage and other benefits and now has 63,000 members. In the case of the Freelancers Union, former labor lawyer Sara Horowitz along with other freelancers built a non-profit, self-sustaining cooperative.

When customer-built brands like Freelancers Union emerge, they focus on creating sustainable customer value rather than maximizing profits. This is terribly disrupting for established companies living with the mantra of “maximizing shareholder value”. It’s a totally different business model… but it’s deeper than that – it’s a different (and competitive) business purpose!

Why? What a sustainable benefit-maximizing company is willing to do for its customers is far greater than what the traditional profit-maximizing company will do. And because one company, like Freelancers Union, is willing to go further, it causes a ground-leveling quake as customers all seek to maximize the value for their money.

Why It’s Sellers Who Must Beware!

In a world where word of something truly new and better can sweep across the global internet in a week, companies need to be more oriented towards maximizing value for their customers – even when the economy is tough. Especially when the economy is tough.

What we’re seeing is customers themselves coming together to create a disruption in the market. What they’re saying in effect is, Seller beware! If you don’t cater to our needs, we’ll do it ourselves!

Whether or not companies embrace this phenomenon, it cannot be ignored. Companies that co-opt customers to build brands together will find that they have a better chance of staying relevant. This has already begun in the form of ‘crowd sourcing’ where companies actively invite consumer participation in building new products. Others who focus on superficial repositioning may find that it’s too late when the customer-led or even customer-owned competition leaves them far behind.