Mind over Marketing

Competitive brand battles can be drawn out affairs, outlasting the tenures of several management teams. They can also be very expensive, often requiring outlays in the hundreds of millions of dollars. In some cases, billions of dollars are involved. It’s not just Coke versus Pepsi. These battles occur in every industry and practically every product category. Visa versus Mastercard. Nike versus Adidas. Colgate versus Crest. Airbus versus Boeing. Caterpillar versus Komatsu. Dell versus Lenovo versus Acer versus HP. Viagra versus Levitra versus Cialis. The list goes on and on.

Brand battles consist of far more than just marketing tactics and consume significant managerial attention. They can define the dynamics of their respective industries for years (or even decades), pushing market segmentation and technological boundaries, driving product innovation, catalyzing mergers and instigating corporate growth and rationalization. Combatants need to arm themselves with a clear understanding of the battlefield and their own competitive objectives and strategy, as well as a thorough grasp of the most important competitive levers, and, for good measure, a gauge of the yardsticks by which success will be defined. But that’s not enough to win.

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Why Brands are Crucial to Innovation

Here’s a thought experiment. Imagine the engineers working in the product development labs at Volkswagen A.G. develop three innovations: a suspension for a smoother ride, a more fuel efficient ignition system, and a better safety restraint system. The strategic question for the company then is: which of its brands will carry each innovation?  It wouldn’t make sense to introduce all of the innovations in all of its brands — not just because that would be too costly, but because the meaning of the innovation would differ depending on the brand that carries it.

So if you had to choose, you would probably suggest that the better suspension naturally belongs in the Bentley and Audi brands while the better fuel efficiency may be best introduced by the Volkswagen, Seat, and Skoda brands. The optimal strategy for the safety system may well be to do something unconventional: to license the innovation to a competitor, in this case, Volvo, to get that brand to first introduce it in its cars. Pioneered by Volvo, the safety innovation would then gain traction and market credibility.

Features or innovations introduced by the wrong brand can fall flat.  A recent example from the news business provides a case in point. Henry Farrell, a professor of political science writing in the Washington Post, describes how Wikileaks grew frustrated that the general public wasn’t paying attention to its highly newsworthy stories. Eventually the organization realized that, in order for its revelations to have any impact, it needed brands such as the New York Times and The Guardian to make the news “impossible to ignore.”
Similarly, every product and feature innovation is a potential story whose impact on the marketplace is a function of the brand that carries it. Innovation is not just about R&D efforts or new product and feature development. Without brands that consumers trust, the story of any innovation is incomplete. In other words, brands are just as critical to innovation success as are new products. Trustworthy brands do three things:

They reduce the customers’ risk of trying new products and features.  American consumers are willing to try a finger-print sensor on the iPhone from Apple, but might not be so eager to try one from Huawei. Similarly, we will soon find out if the fear of ridicule when wearing a set of computer-enabled glasses is somewhat reduced when the glasses are from Google.

They position the innovation and give it meaning. Suspension systems developed by Volkswagen engineers make more sense in an Audi, a brand known for its comfort, than in a Skoda, an economy brand. Similarly, a quick lace-up system on Rockports would be interpreted as adding to convenience and comfort, while the same system would connote performance and speed to action on a pair of Nike shoes.

And finally, brands normalize the new product or feature; they give it credibility. MP3 players were invented as the MPMAN by Saehan Information Systems of Korea, but it wasn’t until the iPod was launched that the market truly took off.

Downstream, marketplace assets such as brands aren’t just nice-to-have complements to upstream assets such as R&D labs. They are a necessary condition for innovation success. Brands facilitate consumer acceptance and pave the market path for innovations.

This post originally appeared in the HBR Blogs under the title: Make Sure New Features Match Your Brand

Marketing TILT

TILT was launched eleven days ago. I am thrilled with the reviews the book has received so far and with the reactions of those who have read it and tweeted about it.

I have done a number of interviews about the book. Soon, a number of articles expanding on the ideas in the book will be appearing in the Harvard Business Review, Strategy + Business, the Ivey Business Journal, and elsewhere.

But none of those activities, not even the launch of the book, has received as much attention or congratulations as this photograph of the Prime Minister of Canada, Stephen Harper, holding a copy of the book at an event in Toronto on Nov. 8th.

Speaks volumes about the power of celebrity endorsement.

Are Apple’s New Features Convincing Customers to Buy?

This blog post originally appeared on the HBR Blogs Network.

Barely has the hype from the launch of the iPhone 5s and 5c subsided that chatter about the iPhone 6 has begun. A larger screen size is rumored. Apple’s product innovation strategy places it on a punishing treadmill. If the company does not deliver new products or new features to the market’s expectations and calendar, investors get jittery and the stock price sags; competitors attempt to steal the lead, and to set a faster pace of innovation. Apple’s brand and customers’ loyalty to it may cushion the dips between new product introductions and help it to fend off the attacks of competitors and the demands of aggressive shareholders, but management is still held to a relentless pace of innovation. It must deliver or move over.

But both management and investors should recognize that the introduction of new products and features is only one element in the competitive game in which Apple is engaged. More important than the development and introduction of new and differentiating features is whether they catch on with customers: are they used as criteria in customers’ choice of a smartphone?

When Apple introduced the iPhone 3G in June 2008, it wasn’t the first smartphone to have the faster networking standard. But because the iPhone had already captured buyers’ attention and imagination, its features quickly became the standard by which all other smartphones were judged. The touchscreen, multi-touch, and dedicated apps were now seared into customer expectations. The inclusion of the "3G" feature in the second generation iPhone’s name made it a special criterion, and one that customers quickly adopted, and that many even identified uniquely (if erroneously) with the iPhone.

With the launch of the latest generation of iPhones, Apple has introduced a new set of features: Touch-ID, a 64-bit processor, and a better camera.　 The question for Apple management as well as investors is: which of these features will become key criteria of purchase? Will customers choose the iPhone 5s over competitors because it has Touch ID? Will 64-bit become the new standard for smartphones? Is the better camera a deciding factor?　And if some of these do become criteria of purchase, will they be sustainable? Will they continue to be unique to the iPhone, or will they be quickly replicated or rendered obsolete by competitors?

These questions go to the heart of innovation strategy. The "3G" criterion, for example, eventually proved not to be very hard to beat, with the introduction of 4G models by competitors. The criterion that remains strongest, most difficult to replicate, and, therefore, longest lasting is the brand: loyal customers demand the latest iPhone. That is their primary criterion of purchase, almost regardless of the product’s features.

The lesson for Apple is that its innovation strategy should strive to build long-lasting and unique customer criteria of purchase, not just better products or features. By innovating on eventually replicable features, it is placing itself on a competitive treadmill rather than building a sustainable competitive advantage.

- Niraj Dawar

To Win, You Have to Do More than Create Better Services—An Interview with RainToday

When managers are asked why their customers buy from their company, very few of them say it's because their company has the best services or product—or even that they have the best price.
Listen to the complete interview here.

TILT website

The brand new website about my upcoming book TILT is up and running -- although, it has not been widely announced yet. 
Check it out here and leave your comments below with your suggestions for improving it. Thanks!

TILT: What Advance Readers Are Saying

TILT comes out in just over two months. Here's what some advance readers are saying:

"Dawar deftly explains why competitive advantage is being seized by companies that understand how profoundly customer relationships have changed in a networked economy, and how your company can achieve similar success."
Don Tapscott, Author of several seminal books, including Wikinomics: How Mass Collaboration Changes Everything

“The democratization of technology, flattening of the earth, and emergent market disruptors are fundamentally changing how we should think about competitive strategy. Niraj Dawar makes a powerful argument for tilting company resources from upstream to downstream value creation in order to capture and retain customers. A must read.”
Rohit Deshpande, Sebastian S. Kresge Professor of Marketing, Harvard Business School

“Tilt challenges us to place customers at the heart of strategy.  With product cycles shortening and product costs shrinking, a deeper understanding of how strategy can be made more powerful is brought to life. A must read.”
Arkadi Kuhlmann, CEO, ZenBanx Inc. , founder and former CEO and Chairman of ING Direct.

“This book will shake any tech startup founder’s product obsession. It provides a fresh new way of looking at market dynamics, customers, and competition.Tilt is essential reading for entrepreneurs and executives building successful businesses, not just better products.”
Vivek Mehra, Partner, August Capital

“In this highly readable and important book, Niraj Dawar offers marketing managers a roadmap for obtaining a sustainable competitive advantage.  By “tilting” towards their customers and interactions with them, marketers will move from product-centric to customer-centric thinking and increase their success in today's highly competitive marketplace.”
Russ Winer, William H. Joyce Professor of Marketing Chair, Stern School of Business, New York University

“Given the changes in the consumer goods industry, Tilt really got me to think in a different way. It puts a new focus on understanding and leveraging any organization’s customers and consumers. An essential read for all current and aspiring C-level executives.”
Chris Barrow, Chief Strategy Officer, Heineken N.V.

Marketing Advice for the NSA

To:       General Keith Alexander, Director of the National Security Agency, Chief of the Central Security Service and Commander of the United States Cyber Command

From:   Niraj Dawar, just a regular guy and a professor of marketing at a Canadian business school

Subj:    Beyond P.R. issues  

As the media’s and the public’s short attention span inevitably shifts from coverage of the NSA’s activities to the next Kardashian story, you’ll be turning your attention from crisis-management to the long game. You'll be re-examining your strategy, methods, and tactics for achieving total information awareness. In this, you could learn from companies in the private sector.

Over the past decade or so, just as the NSA has built up its awe-inspiring capabilities for capturing, storing, channeling, and analyzing information, several private sector companies have built multi-billion dollar businesses doing pretty much the same thing. Sure, none of them has the reach, breadth of coverage, or the coercive power that you do, but they have something you don’t: they know how to get consumer compliance.

Google, for example, knows not just what people search for, the company also know what apps are on their phone, which ones they use, and what they do with each. They know where the phone has been, and by implication, where each individual has been. Facebook has convinced one billion users around the world that their communications with their friends can and should be open to eavesdropping by Facebook, and that this information can and will be sold to advertisers. Google and Facebook know how to get consumers to stop worrying about surveillance and learn to love it.

And that is the reason there is no huge sh*tstorm surrounding Google and Facebook, no whistleblowers to worry about. Their privacy policy mostly causes concern among users only when they're accused of giving you, the NSA, backdoor access through your PRISM program.

So why is the NSA singled out for harsh treatment? The difference is that Google and Facebook provide services that customers have come to view as indispensable: email, search, maps, android operating systems, baby picture sharing, and so on. In contrast, the NSA offers only bland, unsung services such as, purportedly, protection from terrorist plots. And you’ve been modest about beating your drum about even those services.

Now, we do know that the NSA has very efficiently farmed out its upstream information-parsing operations to private sector companies, including Booz Allen, where Snowden spent several productive months. But the real prize, sir, lies in examining how the NSA can use its massive trove of data to develop useful services for Americans. Here are a few examples of services you could offer:

-          Playback any phone call you made or received in the past five years;

-          Hard Drive crashed? Restore all your data from the NSA servers

-          Phone stolen? Find out who stole it

-          Got a new phone? Transfer all your data from the old phone to the new one with one click on the NSA site

-          Automated reminders to call Grandma when you haven’t called her in three weeks

-          A couple of dollars off your next phone plan from Verizon (you could convince them to offer this, couldn’t you?). Or better still, advice to users on which phone plan best matches their phone usage.

You could price these services so every American pays only a few dollars. You could simply add the amount to their tax bill or deduct it from their government transfers. (Perhaps you already do this?).

Of course, by offering these services you might drive a few small start-ups out of business, but that is a small price to pay. What is needed in this business is scale – total information domination. And no one can do that like the government.

Still, when you do offer these services, don’t forget to get Americans to sign up for them – a click indicating they have read the guidelines, policies, and user agreement will give you their consent to collect all the information you want, and to do whatever you want with it (rest assured, no one will actually read those policies). The next time certain senators from Oregon or Colorado ask inconvenient questions at a Senate hearing, or if they impose onerous requirements for warrants and such, you’ll be covered by the End User License Agreement and Americans’ voluntary participation in the NSA’s exemplary privacy policy.

As for foreigners, you already know that you don’t need our consent – you will continue spying on us.

Tilt

Just Marketing has been silent for a few months. I was working on a book.
The book is now written, and will be published by the Harvard Business School Press on November 5th. Here's the Amazon page.
For Just Marketing readers, here's a preview of what the book is about:

Top 10 posts

Just Marketing is closing in on two years of weekly publication. For the end of year festivities, where you'll want to kick up your feet and settle down to read on your tablet, here is a selection of the top 10 posts from the blog:

10.  Customer satisfaction or market share? Pick one
9.    Expect the unexpected 
8.    Why do your customers buy from you? 
7.    Value creation versus value capture  
6.    Why we segment
5.    Santa Claus, the Real Thing? 
4.   Should Facebook break itself up?
3.    B2B brand architecture 
2.   Apple, Directionless? 
1.    What the heck is a brand anyway?  
  
Happy reading, Happy Holidays, and don't forget to leave your comments on the posts.

How Zong Qinghou became the richest man in China

Back in 2003, my former student, Nancy Dai, and I wrote a case study on the rise of the Chinese beverage giant Wahaha. We called the case “Cola Wars in China: The Future is Here.” The second half of that title was obviously a play on Wahaha’s cola beverage brand, Future Cola, and the size and pace of growth of the Chinese market. It was also a reflection of the optimism we found in the Wahaha company, where people were convinced the future was theirs.
 
The case has been used in many MBA and Executive programs around the world to discuss doing business in China, competition between multinationals and local companies, and targeting the emerging market consumer.

In the ten years since the case was written, Wahaha has grown into a giant company, and its founder and head, Zong Qinghou, has become the richest man in China. 

Re-reading the case today provides an interesting set of lessons from Wahaha’s strategy as a domestic upstart in an industry globally dominated by some of the largest multinationals, with the savviest marketing and brand building skills in the world. The case gets to the heart of what made Wahaha such a formidable  challenger.

• Early on, the company realized its advantage resided in getting to the mass rural market first. It sidestepped the intense competition in the large urban centers where the international players were already battling for share, and went into the interior.

• In the smaller towns and villages, Wahaha built a formidable, low cost distribution network of bicycle delivery.

• It created pull for its brand by having large numbers of people call retailers and ask for the brand by name.

• It was able to withstand a bruising disagreement with its bottling partner, the French giant Danone.

• It focused on kids as the key target market, and happiness as the key benefit,  in a market where the one child policy had made kids the focus of their parents’ spending, their happiness mattered to both parents and grand parents.

Although the data in the case are now dated, the case contains several anecdotes that shed light on the journey of Zong Qinghou and the company he has built.

Here's a video profile of Zong:

The Facebook spurious legal notice

This week you probably saw some of your friends on FB post this nonsensical statement:

"...in response to the new Facebook guidelines I hereby declare that my copyright is attached to all of my personal details, photos, drawings, illustrations, paintings, audio, and videos, etc. (as a result of the Berner Convention).
For commercial use of the above, my written consent is needed at all times!
Anyone reading this can copy this text and paste it on their Facebook Wall. This will place them under protection of copyright laws.) By the present communiqué, I notify Facebook that it is strictly forbidden to disclose, copy, distribute, disseminate, or take any other action against me on the basis of this profile and/or its contents. The aforementioned prohibited actions also apply to employees, students, agents and/or any staff under Facebook's direction or control. The content of this profile is private and confidential information. The violation of my privacy is punished by law (UCC 1 1-308-308 1-103 and the Rome Statute).
Facebook is now an open capital entity. All members are recommended to publish a notice like this, or if you prefer, you may copy and paste this version. If you do not publish a statement at least once, you will be tacitly allowing the use of elements such as your photos as well as the information contained in your profile status updates..."

The fact is, you entered into a contract with FB the moment you opened an account. As far as content you post on FB goes, your contract states that:

"For content that is covered by intellectual property rights, like photos and videos (IP content), you specifically give us [as in FB] the following permission, subject to your privacy and application settings: you grant us a non-exclusive, transferable, sub-licensable, royalty-free, worldwide license to use any IP content that you post on or in connection with Facebook (IP License). This IP License ends when you delete your IP content or your account unless your content has been shared with others, and they have not deleted it."

So, FB can use any content you post online in just about any way it deems fit (so don’t be surprised if your photographs appear in an advertisement for a product you have no connection to, which is shown to your friends without your knowledge).

But the fact that so many people posted the spurious notice on their wall suggests a large latent demand for privacy, and for FB to get off its users backs.  It also suggests a level of ignorance on the part of FB users about the uses of their data.

Eventually, over the next few years, users will become more aware of the use of their data (indeed, this week's hoax legal notice is an encouraging sign); and the lines of data use will become clearer. Consumers will demand greater accountability from holders of their data, and control over the uses of their own data. Governments will, as usual, be behind that curve.

And then, someone will suggest a simple market solution to the problem: have users pay for their privacy. Right now, advertisers pay for our use of FB. What if FB were to offer an advertising-free version for, say, $99 per year, with an additional option of $250 per year if you don’t want your data used for marketing purposes – would you pay for it?

Now check out the list of privacy protections Facebook has agreed to offer European users (but not users elsewhere). But some European users want more.

Meanwhile, in North America, those think they have a right to privacy by posting the legal notice on their Facebook wall have become the laughing stock of those that have given up on privacy:

 

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