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Monday, November 30, 2009

XBOX, FARMVILLE AND THE NEED TO PLAY AND SOCIALIZE WITH OTHERS

I’ve been thinking a lot about video games, partly because we have a lot of them in the house (yes, we purchased Call of Duty 2 the day it came out) and partly because I am intrigued by data indicating that sales of video games, an $11b industry, are down 12% year on year (BusinessWeek, November 23, 2009). The BusinessWeek article outlined the extraordinary efforts marketers are going to in order to get new games noticed when launched. The article also questioned whether sales would recover once the recession ends.

A couple of weeks earlier, Fortune ran an article about Gamemaker Zynga, who makes FarmViille, Mafia Wars and Café World for Facebook. (Fortune, November 9). What caught my attention is that Zynga is only two years old and already has revenue of more that $100m per year – it seems that players spend real money to eventually buy virtual goods such as tractors.

But there is something else that links these two articles together – in both cases they fulfill two basic human needs: (1) playfulness – the basic human need to relax, to amuse oneself, to have fun; (2) affiliation – the basic human need to form friendships and associations with others. In 1938, Henry Murray provided what he considered to be a complete list of human needs; playfulness and affiliation were just two of Murray’s 28 human needs.

It might be that sales of video games have taken a dip because of the recession or it might be that sales of video games have taken a dip because consumers are finding other means to relax and have fun, either alone or with others.  If you follow this logic then soon FarmVille players will move onto something else. The problem is that for most of us, the “something else” is beyond our comprehension.

The need to have fun and socialize has not changed; all that has changed is the way in which we achieve these needs.  In 1964, Peter Drucker wrote: “What to the manufacturer is one market or one category of products is to the customer often a number of unrelated markets and a number of different satisfactions and values”. Or: “Because the customer buys satisfaction, all goods and services compete intensively with goods are services that … are all alternative means for the customer to obtain the same satisfaction”. 

To me, the gaming market provides a great example of how we should not see only similar products as potential competitors but to step back and think about the basic need that games are trying to satisfy. On this basis, all products that satisfy the same human needs are competitors.   Now, if only I had a crystal ball…

3:52 pm pst 

Sunday, November 22, 2009

WHY WE DONíT COMPLAIN ABOUT AIRLINE TRAVEL ANYMORE (AND HOW TO AVOID DISAPPOINTMENT THIS HOLIDAY SEASON)

The Los Angeles Times ran an interesting story on November 21, 2009:  airlines continue to get great marks for customer satisfaction and fewer people are complaining about bad experiences with airlines. Industry data doesn’t help explain this phenomenon because, according to the article, airlines are only required to report mishandled baggage, delayed flights and incidents involving pets, tarmac delays and other specific problems, not data on general grievances about fees, rude staff or dirty seats.

Could it be that the airlines are in fact doing a better job at keeping customers happy or might it be that travelers have given up complaining? To understand customer satisfaction (or dissatisfaction), means to understand what customers expect and what they receive. If customer expectations are not being met, then customers are likely to be dissatisfied – the bigger the gap between expectation and delivery, the more disgruntled the customer.  To close the gap, that is to reduce dissatisfaction, means to either improve delivery or lower customer expectations.

While I am well aware that some airlines do a great job and build their brand on customer satisfaction, I think the reality is that we as customers have been conditioned to expect less. I went onto YouTube to look at old commercials and documentaries so as to be reminded about what airline travel used to be like – silver service and fine china service at airports lounges and on planes, free meals (and yes they were meals as we know them), newspapers delivered to your seat, and friendly crew who liked helped customers fly the friendly skies. Air travel was certainly expensive and time consuming and had with it the allure of reaching destinations that many of us had only dreamed of visiting. Air travel was a high involvement purchase, not just because of its cost but also because of the social prestige that went with being able to say you were taking a fight to reach another destination.

But, over time, air travel has become no different to taking a bus. Air travel is cheap and accessible and for many of a necessary means for getting from A to B. Because air travel has become more like a commodity and prices have spiraled downward, airlines are finding new and creative ways to claw back revenue. For example, I read just last week that an airline was putting fixed ads on the back of seats such that sitting in an airline seat is taking on the characteristics of pushing a shopping cart - for the duration of a domestic flight we now have to sit staring at an ad, just as we do pushing a shopping cart around a supermarket.

And so with the holiday season approaching, and with the excitement of traveling to see friends and family, lower your expectations and you won’t be disappointed.

 

6:46 pm pst 

Monday, November 16, 2009

NEW, EXCITING AND INTRIGUING INNOVATIONS

I love lists and two have caught my attention this past week: The 50 Best Inventions of 2009, published by Time and a list of the Most Intriguing New Businesses, published by BusinessWeek (November 23, 2009). I always marvel at new ideas, wonder how people came up with them, try and identify the problem the new idea will solve and, of course, reflect upon whether the ideas themselves will be successful or whether the ideas might lead to other more successful ideas. 

In all of this, however, what I find especially exciting is that innovation is being highlighted. As I have said in a previous blog, since innovation is the engine of economic growth, it is critical to focus our attention on those things that matter if we are to identify constructive ways of getting out of the economic mess we got ourselves into. Add to that the idea that necessity is the mother of invention, and acknowledge that some of our greatest innovations came out of previous recessions (Hewlett Packard at the end of the Great Depression, Atari, Apple and Genentech during the 1980s recession), gives even more impetus to the need to encourage innovation during difficult economic times.

The top 5 inventions on the Time list were:

1.    NASA’s Ares Rocket: to provide more versatility to space missions with respect to the activities that can be performed and the distances traveled.

2.   Tank-Bred Tuna: to solve the problem of diminishing Tuna populations.

3.   The $10m Light Bulb: an energy saving LED light bulb to help reduce the amount of energy used, and related costs.

4.   The Smart Thermometer: to help regulate home heating and cooling by wirelessly turning appliances off and on.

5.    Controller-Free Gaming: to help gamers (e.g., those that play games like Xbox) to play the game by body movement not hand held controllers. The advantage: total immersion in the game.

While the order of the Time list was based on votes, The BusinessWeek 25 Most Intriguing Ideas were not rank ordered. But there were certainly common themes: five related to healthcare (cancer, diabetes and vaccine treatments, online communication with doctors, health and fitness), six related to sustainability (e.g., electric vehicles, reusing waste, harnessing natural resources); and nine related to new media and new technology (e.g., iPhone apps, enhancing online advertising and tracking online behavior).

As a marketer, it is not so much the complexity of the idea itself that intrigues me but the impact the idea will have on the market. Questions I often consider are whether the innovation will encourage consumers to value different attributes, as the Prius has done by encouraging consumers to refocus their discussion of cars around attributes such as eco-friendly and miles per gallon; or whether the innovation will result in a change in behavior, as the iPod did with respect to music consumption behavior; or whether the innovation will lead to a change of opinions, as the anti-aging enzyme resveratrol did, and enzyme which is found in red wine.

Ultimately, for the innovation to be successful consumers need to adopt it but for the innovation to offer a sustainable competitive advantage to the sponsoring organization, the innovation often needs to cause a market shift.  It will be interesting to look back on the ideas profiled in these latest lists and see which of them are successful and, of course, to understand why.

6:28 pm pst 

Tuesday, November 10, 2009

CAN STRONG BRAND MANAGEMENT PRACTICES HINDER CAREER OPPORTUNITIES?

A recent article in BusinessWeek (September 14, 2009) indentified organizations headhunters look to when trying to identify management talent. General Electric, IBM and Hewlett-Packard were cited as organizations that develop executives who thrive elsewhere, The Coca-Cola Company does not.

The reason given is that "the very attributes that make Coke a great company - an iconic brand and an unmatched global distribution system - also make it easy for young mangers to rise without having to develop the entrepreneurial skills necessary to compete in other areas."  

What a fascinating contradiction. According to Interbrand, Coke is the #1 brand in the world.  What makes a great brand? Interbrand suggests that a great brand contains a compelling idea, stays true to its core purpose and values, and is the central organizing principle that guides decision- making within the firm. While strong brands need to stay relevant, strong brands do not constantly change what they stand for. And those who manage the organization’s brands need to ensure that the organization constantly delivers on its brand promise.

But here is another contradiction. In the same study, IBM was ranked the #2 brand in the world, General Electric #4 and Hewlett-Packard #11. What’s the difference then between an executive from The Coca-Cola Company and one from these other three companies? 

It seems that to excel in such an organization with strong brands means to develop a strong mental model as to what the organization and its brands stand for. Perhaps the difference then is that those working for organizations that face more rapid change due to say technological change, are more adept at changing the mental models they hold of the industry, the organization and its brands. This might then explain why some folk transition into new roles in new organizations better than others.

 

 

8:32 am pst 

Tuesday, November 3, 2009

AN OPEN LETTER TO RETAILERS ABOUT KEEPING CUSTOMERS HAPPY THIS HOLIDAY SEASON

Dear [insert the name of your favorite retailer here]

It is hard to believe that another year has passed and I will soon be visiting your store again to buy holiday gifts. 

I am a bit concerned about something, however, and thought I’d drop you a note. It seems that many retailers have slashed inventory this year, perhaps more so than previous years. One of my favorite sources of information, Fortune magazine, said that Abercrombie & Fitch’s inventory is down 42%, Ann Taylor is down 30% and Talbots is also down 30%. I hope you aren’t doing the same.

Look I know there has been a recession going on. And I get it that consumers haven’t been spending as much lately. But let me explain to you the problem. When I come into your store to buy holiday gifts, I have already made a decision to buy from your store. From your point of view, the hard part is over – I am here, in your store, with money to spend.

Let me tell you the things that annoy me the most about holiday shopping

1.     The noise, the crowds and the frantic nature of holiday shopping. I know you can’t do anything about this but I thought I’d start with the easy ones.

2.     Sales associates [I know you probably have a fancy name for them like “Customer Satisfaction Representatives”] who have forgotten that the reason you are in business is because you have customers like me. I do get irked by shop assistants who act as though they have better things to do than work in your store and help me out.

3.     Not being able to find what I am looking for because your merchandise is in illogical places and then spending 20 minutes walking around aimlessly either trying to find someone to help me or trying to find the item myself.

4.     Not being able to find what I am looking for because you are out of stock.

Now, let’s think about that last point for a minute. I want to explain why this point continually haunts me by illustrating with a personal story. A few years ago, we wanted to buy our son an Xbox for Christmas and, as it turned out, so did many other people. Every day for about five days, we visited BestBuy, Circuit City, Good Guys, Target, EB Games, Game Stop, FYE, and Wal-Mart in an effort to locate an Xbox. Each time, we asked three simple questions: (1) what time do deliveries arrive into store; (2) could the sales associate let us know how many Xbox units would be allocated to the store; (3) could we “book” and pay for an Xbox in advance.  The answers were pretty uniform: (1) deliveries come in over night, but arrive anytime in the morning; (2) sales associates don’t know how many units are allocated to the store; and (3) no, you can’t reserve and pay for the product. In addition, many sales associates rolled their eyes at us and, if we asked whether more units were due before Christmas, we would get a fairly standard reply “I don’t know, perhaps you could come back later”, or a more “helpful” reply was “it might pay to shop around”.  It became clear to us was that the burden was firmly placed on our shoulders, the shoulders of the customer, to do the work in order to spend money. Doesn’t make sense, does it? I really hope we are not in for another year like this.

The problem I have in all of this is that I have already decided to spend money at your store but then the burden is placed on me to pursue the products I want to buy. It reminds me of Kmart, who filed for Chapter 11 bankruptcy protection in 2002. There were many given to explain Kmart’s demise. One of them was inadequate investment in technology to such an extent that Kmart could not track, order and distribute inventory into stores. Please don’t fall into the same trap by cutting back on your inventory too severely.

I know this has been a tough year for you and I sincerely hope the holiday season goes well for you as I like your store and hope to visit you again in the New Year.

Yours truly, 

Jenny Darroch

 

6:32 pm pst 

Sunday, November 1, 2009

BIG BRANDS VS. PRIVATE LABELS AND THE RECESSION

In today’s Los Angeles Times (November 1, 2009), I came across a small article suggesting that consumers are starting to switch from private labels back to big-brand names again, you know, the brands supplied by companies such as Procter & Gamble, Colgate-Palmolive and Kellogg. In the article, store brands (also known as private labels) were positioned as inferior to big-brands. And the fact that consumers are willing to buy big-brands again was seen as a sign that consumers are opening their wallets, just a little bit wider.

The October issue of the Costco magazine contained an interesting article about private labels.  When private labels started back in the early 1980s, they were also referred to as generics. The packaging was plain white, the lettering solid black and the product quality inferior. Back in the  early 1980s when I was in College, inferior was just fine because the products were cheap and we were not proud: inferior breakfast cereal, inferior flour, inferior coffee, inferior soap, and inferior toilet paper were definitely better than no breakfast cereal, flour, coffee, etc. But, things have changed and private labels are now considered equal to or better than the national brands – this is certainly the promise made by Dick DiCherchio, the COO of Costco. 

The recession came at a good time for private labels. Positive attitudes towards private labels have increased and this has flowed through to demand as consumers have been forced to take a look at their household expenditure and trim costs. In fact, the October issue of the Consumer Report said that consumers could save 27% by buying private labels.

One advantage big-brands had in the past is that they often led the way with innovation – think the Swifter for example. Even this advantage seems to be eroding as private-labels are striving to become innovators and trend-setters – in fact, in the first half of 2009, private labels accounted for just over a quarter of all new product introductions.

The recession will come to an end. To compete in the post-recession world, marketers of big-brands will need to focus on excellent execution of the current brand strategy and, if they want to remain competitive, stay focused on innovation in order to stay ahead of private labels. For private labels to grow in significance the new emphasis on innovation will need to be maintained and the retail stores themselves will need to pay more attention to their own retail brand because the strength of the private label lies, of course, in the strength of the retail brand.

 

5:28 pm pst 


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