For Discussion: What Makes for Legendary Products?

In discussing what makes for a successful new product, many students will point to promotion as being the key component. They may argue that a product has no chance of being successful if people are not aware of it, and that requires an emphasis on effective promotion. They may even suggest promotion does not need to be that expensive by citing examples of products that were primarily introduced using social media. While promotion is often a critical part of a new product’s marketing strategy, students should know that often it is innovative product design that leads a new product to become legendary product.

To be considered legendary, a product must be truly different in some way so it can withstand competitors that are relentless in their efforts to undercut the product’s market (generally by offering similar products at lower prices). Sometimes they can do this by including a distinctive feature that no other product has. Or maybe they can do it with unique packaging that catches everyone’s attention. Or maybe they can cram many different features into a small box. Whatever it is, companies with innovative product design can earn healthy profits by selling at a premium price.  And, over time, if the marketer continues to innovate, the product may eventually reach legendary status.

With this in mind, a good class discussion topic is to have students identify products they believe are legendary or are on the way to achieving that status. Ask them what the difference is between a successful product and a legendary one. Then ask what it takes for a product to become legendary. Try to broaden the discussion beyond technology products and into everyday products.

Why U.S. Colleges and Universities Should Do a Better Job Teaching Selling Skills

Several times in the last few years we have discussed how honing certain selling skills can offer benefits to nearly all occupations and not just those in selling roles. For instance, in 2014, we noted how being strong in the one crucial skill, the art of persuasion, is not just for those who sell products and services. We went even further in 2015 suggesting most business people would benefit from learning selling skills through self-directed training methods or professional instruction.

Considering the value selling skills may offer, it seems surprising that the vast majority of American colleges and universities are not the best places to go to sharpen these skills. As discussed in this Harvard Business Review story, only a small number of U.S. schools offer dedicated sales education programs. While business programs at many colleges and universities offer a course or two in sales, very few have clearly defined sales programs consisting of many courses.

As pointed out in the story, one reason for the lack of college-level sales programs is that few business faculty have a background in sales. Consequently, there are not enough faculty that fully appreciate the value sales education can offer. Additionally, within higher education, many faculty may perceive sales as being more of a basic front-line occupation while their teaching and research interests tend to lie in higher-level managment issues, such as managerial planning or strategy development

The story makes a strong case that it is time for higher education to re-evaluate the need for sales programs. It points to a statistic from the Sales Education Foundation that states over 50% of college graduates’ first job is in sales. Whether this statistic is true or not, specialized sales education programs not only helps students develop a wide-range of business skills, but formal programs are also a mark of achievement listed on a college transcript, which can then be included on a resume or a LinkedIn bio. Ultimately, the impact of dedicated sales programs at the college-level are students who are more marketable no matter what job they obtain.

For Discussion: Mylan’s EpiPen Pricing Controversy

While many marketing educators, who teach a principles course, do not discuss pricing until later in a term, the impact of pricing decisions can also be addressed earlier to demonstrate potential external forces that affect certain marketing decisions. A good example can be seen with what is happening with the pharmaceutical company, Mylan, and their pricing of the EpiPen product. Over that last few days, the company has been hammered with accusations of price gouging as they raised the price by over 450% in last nine years.

According to this story from Time, the intense reaction has now lead Mylan’s marketing people to offer special discounts to certain customer groups, including customers who experience high out-of-pocket drug expenses. Whether or not this move will dampen the criticism remains to be seen. But, as a topic for a marketing discussion, it should elicit strong opinions.

A Marketing Truism: Fooling with a Loyalty Program Will Create Customer Backlash

Customer loyalty programs tied to frequent purchasing thrive across nearly all consumer product categories. In fact, these have become so popular many marketers have no choice but to offer them. Unfortunately, what may have started out as a promotional strategy for helping build customer loyalty, has often turned into an expensive burden for an organization. For example, the airline industry found trouble when frequent flier rewards programs led to an enormous number of travelers flying for free.

Because loyalty programs are so prevalent in marketing, a generation of customers has now come to expect it. While the original loyalty programs were designed to be more like sales promotions, where customers received only short-term benefits such as special coupons with specific expiration dates, today customers view loyalty program as a necessity if they are to buy a marketer’s product.

While loyalty programs are widely used, some marketers, who see the cost of maintaining such programs as being much higher than the benefit of obtaining greater sales, have chosen to make changes to their program. Their goal in doing so is to realign the cost-benefit ratio in their favor, so the company is realized more benefit than the customer.

But in the social media age, making such changes almost guarantees customer backlash. For instance, as discussed in this story from Fortune, Starbucks adjusted its loyalty program in a way that appears to have a direct impact on customers who purchase less expensive coffee. The previous program awarded points based on the number of purchases while the new program rewards points based on total spending. The loser of this change appears to be the customer who purchases the least expensive “tall” coffee and while it benefits those who splurge on a Frappuccino and other elaborate concoctions.

As expected, customers immediately took to social media to voice their displeasure. While taking a hit on social media and in the news media does not look good, don’t expect Starbucks to reverse course. This is a business decision and one that likely was needed to be made.

In the Tug-of-War For the Future of Retailing Online Seems to Be Winning

The In-Store vs Online Retailing Tug-of-WarIn the U.S. retail industry, by far the biggest names are Walmart and Amazon. Yet, these are big names for very different reasons. Walmart is at the top because of the brick-and-mortar presence they have with thousands of U.S. outlets. Amazon is huge for precisely the opposite reason. For Amazon, it is their virtual (i.e., online) and not physical presence that has brought them to a commanding retail position.

In many ways, these two retail giants are pulling on different sides in a tug-of-war that will shape the future of retailing. On Walmart’s side are traditional store-based retailers that feel the customer experience takes place best when they can interact directly and face-to-face with the customer. These retailers believe connecting with customers on a personal level is the key to forming long-term customer relationships.

Amazon sees the world in a much different light.  Amazon and other online-only retailers feel there are important aspects of customer shopping that cannot be learned by simply talking with a customer while they are in a store. Instead, for them, relationships can be built just as well, if not better, with advanced computer technology that continually monitors shoppers’ online activity. These technologies are adept at learning customers’ needs and, consequently, sending shoppers useful information to help make purchase decisions.

It would now seem that following the 2015 holiday selling season the center of the tug-of-war has now shifted a little more to the side of online retailing. As discussed in this USA Today story, despite what is generally considered to be a strong U.S. economy, Walmart has announced it is closing over 260 stores worldwide and over 100 in the U.S. While the store closings are getting the big headlines from the announcement, it should be noted that Walmart still plans to build nearly 300 new stores in 2016, so there will not be a major change in the number of outlets. However, the company makes clear online sales is where the future lays. This includes direct to home shipment, and orders placed online and picked up at the store.

Image by smerikal

The Concept of Brand Activation

As we discuss in our Promotion Decisions tutorial, promotions are used to achieved five key objectives: 1) building general awareness; 2) creating customer interest; 3) providing product information; 4) stimulating demand; and 5) reinforcing the purchase decision. For many new products, these objectives are accomplished in a hierarchical manner with previous objectives needing to be met before moving to the next. For example, it would be hard to get customers to be interested in a new product (Object #2) without them first being aware of the product (Objective #1). Consequently, the first step in launching something new is to make sure those in the target market are aware of it.

For products marketed by major corporations, all four promotion mix methods – advertising, sales promotion, public relations and personal selling – are used to build awareness. Unfortunately, smaller marketers, who have limited promotional funds, often cannot afford to use each promotional method to meet the awareness objective. However, not fully utilizing the full range of promotions to build awareness may place these products at a distinct disadvantage for several reasons.

First, customers are exposed to messages from thousands of products each day.  For marketers, getting through this clutter to gain customers’ attention is becoming much more challenging. If a marketer limits their message to just one promotional platform (e.g., television advertising) they may miss opportunities to reach a large portion of their target market, who may be receptive to messages through other outlets (e.g., mobile apps). Second, customers are interacting with products in many more ways than in the past. For instance, today a first-time product purchase often occurs without customers ever physically handling a product (e.g., purchase it based on a description on Amazon). So some promotional methods, such as point-of-purchase displays placed in stores, may never be experienced by many potential customers, who do much of their shopping online. Third, awareness of new products is increasingly coming from social media interaction and not from direct messages controlled by marketers. Marketers that are not paying close attention to what is happening on social media may be missing opportunities to engage customers at times that could help bolster awareness.

Understanding how capturing customers’ attention is changing has lead to the evolving area of brand activation. As discussed in this Advertising Age story, brand activation is often presented as a highly coordinated strategy involving all forms of promotion. It also views social media interaction as a key component in generating customer involvement.  Smaller marketers may not be able to follow the full-range of strategies presented here, but they may find useful insight into a few new ways for building awareness.

 

Exaggerating Product Benefits Can Find Marketers in Hot Water

An essential element of a marketing communications campaign is the need to craft a message that can capture customers’ attention. This applies to all forms of communication, including messages contained in advertisements, what salespeople say when meeting with potential buyers, and even how public relations may post messages on social media.

One method for crafting a message that has been used for many years is the Features-Advantages-Benefits approach (i.e., FAB). Features are the key components of a product. For example, for a razor blade manufacturer, it may include a special type of metal blades. Advantages represent what a specific feature does. For instance, staying with the razor blade example, the advantage may be that the metal blades cut hair very easily. Finally, the features are what the marketer believes the customer ultimately obtains when using the product.  In our razor blade example, the message may state that users of the product will look better when in the presence of others. Thus, combining all three components of the FAB, the razor blade manufacturer may say: “Our finely manufactured blades (feature) will give you a remarkably close shave (advantage) that will make you look great (benefit) when you meet that special someone.”

While the FAB approach is a hallmark of an effective marketing message, the “B” part of this often creates problems. Some marketers are tempted to stretch the extent of their product’s benefits and make claims that may not be 100% accurate. In most cases, embellishing the benefits a product offers is not a big deal. For instance, a company selling windshield wipers may make the claim their product “will make you feel really safe when the weather is bad.” Such a claim is relatively innocuous and will not be viewed as being potentially misleading. However, if the company says their wiper blades “are by far the best blades you can buy and will protect you like no other blade,” than that just may draw attention. And that attention may come from government regulators, who may demand the company prove their claim. Those who face scrutiny by regulators for their benefit statements can also face major problems if they cannot prove it.

An example of a “prove it” that did not go so well for a marketer can be seen in this story from the Washington Post. It reports on a $2 million fine imposed by the Federal Trade Commission on Lumosity, the makers of a so-called brain training product. According to the story, the FTC levied the fine because Lumosity mislead customers with its statements that their product improves brain function, including helping “delay cognitive impairment associated with age.”  According to the FTC such claims were not supported by legitimate research.

So the lesson here is if you want to claim your product provides exceptional benefits, then you better be prepared to back this up with good data.

 

While Retailers May Be Losing Sales Due to Warm Weather, It Could Be Much Worse

For retailers, figuring out what to stock in their stores for the holiday selling season is often the most difficult merchandising decision they face. It is especially challenging for retailers selling winter products, such as clothing, footwear and snow removal equipment, because weather prediction is extremely challenging. Consequently, estimating customer demand for winter products is quite difficult. And because retailers must determine how much inventory to order months in advance of the selling season, making the wrong decision on what customers will buy can mean missing out on significant sales (i.e., not enough inventory) or being forced to slash prices (i.e., too much inventory).

As part of their planning for seasonal sales, store-based retailers often turn to weather analytics firms that use highly advanced software for estimating future weather patterns. Their forecasts are especially useful in aiding retailers to not only decide what type of products to sell, but also to suggest when the best time will be to ship products to stores in a particular regional area.

While forecasting the weather has improved and is helping retailers with their inventory decisions, it is far from perfect. For example, even though most weather analytics firms have already predicted a relatively mild winter for much of the U.S., so far temperatures have been even higher than forecasted. Consequently, as discussed in this Advertising Age story, U.S. retailers have already lost a large amount of sales due to unusually warm weather.

Though the amount of lost sales cited in the story, $185 million for the month of November, seems high, it is almost certainly much lower than what it could have been if the science of weather prediction was not where it is today.

 

For Drug Marketers Doctors May Not Be Buyers But They Still Need to Be Segmented

Importance of Segmenting DoctorsIn several posts over the years, we have noted how challenging marketing has become in the pharmaceutical industry. For instance, in 2014 we discussed how changes in how drugs are prescribed will likely result in the need for fewer drug sales representatives. And in 2013, fears of potential legal problems was forcing some drug companies to change their promotional tactics.

The problems facing drug companies are also being heightened by increased competition. The number of companies seeking doctors to prescribe their products has grown in recent years. Doctors are being overwhelmed with promotional messages as competitors battle to be heard.  And, as a result, drug companies will need to adapt their promotional approaches if they want to remain competitive.

As noted in this story from Pharmaceutical Executive, drug marketers need to understand that doctors respond differently to different types of promotions. The story reports on results of a study conducted by research firm, ZS Associates. The results support previous research that points to a continuing reduction in the time doctors spend in face-to-face conversation with sales representatives. A key recommendation from this research is that drug companies need to do a better job understanding what types of promotional methods work best for each doctor. Options may vary depending on a doctor’s preferred method for learning about products; the type of information a doctor want to receive; and how a doctor responds to the frequency of promotional messages.

In essence, drug companies need to work harder in segmenting their customers and, once segmented, use promotional methods that best fits the characteristics of each segment.

Image by a.drain

Disruptive Innovation May Not Be What You Think It Is

At KnowThis.com, we are big supporters of innovation in marketing. We have noted many times how innovation has positively and negatively impacted a variety of industries including grocery stores, textbook publishing, print media and toy companies. Innovation can affect all marketing areas though innovation in product development tends to attract the most attention from customers, the media, financial backers and others.

As we note in our Managing Products tutorial, when it comes to product development, innovation can fall into three categories: 1) an idea that improves upon an existing idea; 2) an idea that is new for the marketer but not new to the industry; or 3) a radically new idea that has not previously been introduced to the market. Of the three categories, the most compelling are ideas that are viewed as radically different. These ideas can transform companies and industries in ways that other innovative ideas cannot. For example, Uber and Lyft have transformed the people transportation market with their unique ride-sharing services.

When marketers sit around and discuss radical innovation, they seek an idea that is so different that it will “disrupt” their industry. The idea of disruptive innovation first emerged in 1995 when Harvard professors Joseph Bower and Clayton Christensen first wrote about it in the Harvard Business Review. Christensen has since that time become the leading guru of disruptive innovation including authoring many books and articles, and also regularly speaking on the subject.

Now, 20 years since the first article, Christensen returns as co-author of a new Harvard Business Review piece. The main point of this writing is that what many believe to be disruptive innovations are not what he had in mind when he coined the term. And as a key example in the article Christensen points to Uber. By Christensen’s definition, while Uber is innovative it does not meet the test for being disruptive. Christensen reasons that Uber is neither creating a new market nor is it solving a need of underserved customers within an existing market. According to Christensen, one of these has to happen for an innovation to be considered disruptive.

Of course, whether or not Uber is labeled as a disruptive innovation does not mean that much, and certainly does not diminish the impact of their business model. Rather, the takeaway from this story is for marketers to understand the theory behind disruptive innovation.  Once they have a good handle on the theory, they may suddenly see marketing opportunities they did not see before.