Archive for the ‘Entertainment & Hospitality Industry’ Category

The crowd makes the decision

Watch out Howard Stern: your role as judge on America’s Got Talent could be in jeopardy, thanks to Crowdsourcing — a proven, web-powered way to raise money and troubleshoot problems. And, this may be just the beginning. Research published in the K@W newsletter (a Wharton Business School publication) shows organizations can now gain significant value by leveraging the crowd to make important decisions on which projects to focus on or which creative execution to choose.

Crowdsourcing is the online process of obtaining needed services, ideas, or funding by soliciting contributions from a large group of people outside of an organization or its supplier network. Raising money, in particular, is very popular. One of its leading platforms, Kickstarter has raised more than $1-billion in pledges for 135,000 projects from 5.7 million donors, a Wikipedia posting notes. Offering an alternative to bank or venture financing is one thing, but can the wisdom of the crowd compete with experts to decide which projects to pursue or talent to back?

New research Professors Ethan Mollick (Wharton) and Ramana Nanda (Harvard) looked at this question by analyzing how theatre projects get funded, and later performed in market. Studying these types of decisions is a good test of crowdsourcing’s potential because they require both a subjective (i.e. artistic taste) and objective assessment (i.e. determine the long-run success of the project). Importantly, the U.S. arts world is a good test bed for evaluating crowdsourcing decisions. Since 2012, more money has gone to the arts through crowdfunding than the government-run National Endowment of the Arts.

The researchers compared the funding decisions by theatre experts and the crowd on six projects. The experts were experienced judges who worked for the NEA. The crowd was participants in a Kickstarter campaign. The findings were thought-provoking. The decisions of the experts and crowd were very similar with a 57% to 62% concurrence on the choices. Yet, decision alignment does not automatically translate into good decisions.

To measure the quality of the choices, the researchers also analyzed the economic impact of the successful theater projects. They found that many of them evolved from a one-night only event into recurring performances that, in some cases, provided dozens of employment opportunities not to mention long-term revenues.

Implications for companies Crowdsourcing decision-making is an appealing tack for many companies. Many decisions, especially ones with subjective criteria, can benefit from multiple lenses that remove the bias of internal experts (e.g., the ‘not invented here’ syndrome), or produce additional opinions when expertise is lacking. Tapping the crowd can be faster and less expensive than finding subject matter experts or using consultants. Finally, relying on the crowd could avoid the internal politicking that comes with high-stakes choices that lack objective data.

A variety of decisions can be made by the crowd. For example, marketers can use it to help them choose the brand messages or advertising creative that best resonates with their target audience. Furthermore, venture capitalists can leverage a community of technologists or consumers to help them decide which startups to fund. Importantly, tapping the crowd does not negate the importance of internal experts, who can still be used to make sure the crowd’s choice passes the ‘common sense test’ and that decisions incorporate all the data.

Tapping an external community, however, will not be ideal in every situation. Many leaders will be unwilling to outsource major decisions given their egos or risk aversion. Furthermore, using the crowd for smaller decisions like picking advertising creative could be impractical and demotivating to staff. Finally, leveraging the crowd may lead to poor results if not properly executed.

Starting out While this research is encouraging, its conclusions should be validated for different situations and industries. One way to do this is to compare the internal decision with the crowd’s choice. To do this, it is best to begin with a pilot. The pilot would have a clear objective with well-defined and articulated choices. To maximize the crowd’s value, the target decision should integrate both subjective and objective evaluations. Managers should also carefully pick the community they want to leverage, within the right online platform. Special attention should be paid to maintaining confidentiality and intellectual property requirements before reaching out publicly. When the pilot is finished, managers should compare the results of each decision and the impact of each process.

For now, Howard Stern can rest easy. Crowdsourcing decisions will never replace thorough analysis, time-tested judgment and gut feel. However, these qualities come with a price, which is often high in terms of cost, time and hassle. If crowdsourcing can be validated for other use cases, then tapping wisdom of the crowd will become an important decision support tool.

For more information on our services and work, please visit the Quanta Consulting Inc., web site.

3 ways to maximize sponsorship ROI

If you followed the World Cup, you would have noticed the many corporate sponsors of the event, the teams and players (i.e. the properties). Sponsoring the right property can give a brand a major boost in awareness and appeal. However, having the wrong approach or property could waste the investment and compromise the firm’s brand image. Fortunately, there are some best practices to follow to maximize a sponsorship’s potential.

Corporate sponsorship is big business. Annual global investment exceeds $25-billion, growing at almost 10% each year. Sports — teams, events and athletes — make up the majority of spend. Growth is being driven by an increase in the number of new properties like rock bands, festivals and charities, the rising value of some properties as well as the growing practice of tiering sponsorship support (think platinum, gold, silver levels).

Sponsorships are an important way for many companies to get their brands in front of elusive, skeptical and mobile consumers who are regularly bombarded by numerous marketing messages. Opportunities can range from naming rights on a stadium and client relationship events to limited edition products and custom advertising programs. Sponsorships can significantly build a business (think Michael Jordan and Nike) or hurt a brand image, as was the case when Kate Moss’ personal issues led to major problems for Chanel and H&M. How do you ensure you get the most value from this powerful but risky marketing tool?

The best programs get three things right:

1.  Align the opportunity to business objectives

Given the range of properties, you need to use a thorough process to filter and analyze the sponsorships to find strategic congruence between the property, brand and target audience. When affinities are lacking, the opportunity and investment could be wasted. In a high-profile program we studied, a mismatch between the firm’s customer base (women, 18-49) and the properties’ core audience (men 18-24) led to a lower than expected ROI.

2.  Promote the sponsorship

Companies often spend a lot of money acquiring sponsorship rights but very little on the promotional support that would magnify its impact. Various studies suggest that underperforming programs spend less than $1 on promotion for every $1 spent on sponsorship rights. The lack of marketing support may trace back to management neglect or the need to limit spending after paying for the rights. In one case, a client of ours believed that becoming a concert sponsor alone would drive their business. Though the sponsorship was deemed a success, management acknowledged that a lack of promotional support resulted in the firm missing out on millions of dollars in merchandise sales. Conversely, higher performing companies spend more than $1.50 in promotion for every $1 in sponsorship. Not only do these firms magnify their sponsorship investment but they also integrate their properties within their marketing mix.

3.  Evaluate performance

Despite the importance of sponsorships, many firms do not effectively quantify the impact of their expenditures. This is not surprising given the difficulty of linking sales directly to sponsorships. Successful companies use a variety of approaches. The simplest way is to survey customers, partners and employees on program impact and lessons learned. Firms can also tie total program spending to key metrics such as unaided awareness or purchase intent, and then link them to sales using regression analysis. The most sophisticated approach uses econometrics to ascertain links between programs, awareness and sales, and then isolate the impact of sponsorships from other marketing and sales activities.

Maximizing sponsorship value can be a challenge, especially when firms have multiple properties, customer segments and marketing tactics. BMO Financial Group is a major sponsor that has figured this out. The bank successfully operates a North American-wide program with dozens of properties and partners including: NBA Basketball (Toronto, Chicago), NHL Hockey (St. Louis, Chicago) Major League Soccer (Toronto, Montreal), amateur sports and the Calgary Stampede.

The Bank looks at sponsorships strategically, with a proven approach to identifying, evaluating and managing sponsorship deals. Each property — whether it is in sports, arts or regional events — aims to reach diverse customer segments within local communities as well as appeal to broader national audiences. The bank magnifies the impact of its sponsorships by integrating its elements with other marketing activities. For example, BMO was able to quickly maximize its sponsorship of the Toronto Raptors during their 2014 playoff run by increasing media advertising and launching a new Twitter campaign.

Finally, BMO sees a deal signing as the beginning of an iterative win-win relationship between the parties and not an end in itself. Justine Fedak, senior vice-president and head of brand, advertising and sponsorships for BMO, emphasizes the importance of long-term partnership. “Similar to marriage, a sponsorship begins with a mutual understanding of shared values and then evolves over time. Gone are the days when you slap a logo on something and walk away.”

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Blockbuster innovation

Companies could learn much about innovation from the Spanish general, Hernan Cortes.  In 1518, Cortes was instructed to sail to Mexico and overthrow the Aztec empire. According to the story, he proceeded to scuttle his boats after putting down a mutiny of some of his staff. This sent a powerful message to his soldiers that there was no retreat. They would conquer Mexico or die in their efforts. History judged his decision successful (if not immoral). His small army of 500 soldiers conquered the country in a mere two years.  What management lessons can be gleaned from this historical episode?

An “all or nothing” strategy seems counter-intuitive when looking at the best way to commercialize risky innovations.  Conventional wisdom says that launching small, measurable experiments or pilots is the best, lowest risk approach to introducing new products or technologies. Though this seems like a prudent tack, it has not necessarily produced market wins. Numerous studies show that the success rate for new products has stubbornly hovered around 10-20%. Fortunately, there may be a better way to commercialize innovation.

A professor at Harvard Business School, Anita Elberse, has studied creativity-driven industries like music, sports, movies and publishing.  In her book Blockbusters, Elberse found that the companies with superior financial returns had strategically focused their efforts and capital on producing movie blockbusters, recruiting superstar athletes or signing popular authors. To use a baseball metaphor, these firms always swing for the fences instead of playing it safe trying for singles and doubles. According to her data, these industries exhibit a ‘winner take all’ dynamic; less than 10% of projects, teams or entertainers produced more than 90% of industry revenue and profit.

In “winner take all” markets, the best strategy is to singlehandedly aim for blockbuster products.  The best way to do this is to focus investment and management attention on proven entities, assets or projects, like a movie sequel, a superstar free agent athlete or a popular book franchise.  Funding a limited number of major innovations is not enough. You also need to front-load your sales and marketing effort to boost initial channel distribution and trigger word-of-mouth effects. Elberse considers a blockbuster strategy a lower risk approach because it improves the odds of success early on and enables firms to cut their losses if results do not pan out.

Applicability to other markets

While Elberse studied the creative and sporting industries, other information-driven sectors may experience similar blockbuster dynamics. Industries with high fixed costs, a low marginal cost (when producing more) and a high marginal profit (on each additional sale) can quickly evolve into “winner take all” markets, particularly when digital technologies reduce customer search costs and eliminate the need for physical proximity between the buyer and seller. There are many reasons for all CEOs to consider this approach for their business:

Rallying the troops

Big innovation bets focus employee and supplier attention, create positive urgency and prevent individual or departmental agendas from stealing resources. 

Reduces complexity

Many R&D projects, particularly small ones, can develop institutional momentum making them difficult to cancel.  Managing this portfolio can generate significant complexity, increasing organizational cost and diffusing effort.  A blockbuster strategy eliminates these wasteful costs plus allows managers to best leverage scale economies in areas like media buying and raw material purchases.

Satisfy real customer needs

Movie studios concentrate investment and time on stories, actors and directors with proven consumer appeal (e.g., a sequel).  The discipline of only targeting key customer needs in profitable segments with real innovation improves the chances of market success.

Elberse’s learnings are relevant to many other industries including education, training, professional services and software. However, not every firm is a good fit. We believe enterprises should have three characteristics:

1.  Self-awareness

Companies that are good at placing the right innovation bets tend to have a good sense of what their core competencies are and where they need to partner or bypass.

2.  Decisiveness

Though having a good innovation evaluation process is important, management still needs to make tough calls quickly in periods of uncertainty.  Moreover, following a blockbuster strategy requires firms to have a culture and performance measurement system that is tolerant of failure.

3.  Nimbleness

Rigid plans lead to risky, binary decisions. Even in the movie industry, extensive consumer research still takes place.  Producers don’t hesitate to make edits or change endings based on focus group research.

Utilizing a blockbuster approach goes against conventional wisdom.  However, there are many examples of hurting companies like AppleIBM and Xerox that followed this strategy and have re-emerged as winners.  Managers should understand their operational dynamics, consider the strong financial business case, and analyze the impact of digital tools like search bots or recommendation engines that create “winner take all” effects.

For more information on our services or work, please visit the Quanta Consulting Inc. web site.

Pricing lessons from the Rolling Stones

Over the years, the Rolling Stones have shown the world about what rock ‘n’ roll is all about.  Back in May, they looked to prove this again by embarking on a 50thanniversary concert tour.  This time, however, the band discovered that they can’t always get what they want.  For the first time in their history, the Rolling Stones had difficulty selling out venues especially the premium seats.  Their difficulties selling tickets offers valuable pricing lessons for other entertainment, sports and premium-product brands.

Initially, ticket prices included $600 for arena seats up to $2,000 for general admission seating in front of the stage.  Not surprisingly, sales lagged from the outset.  The band had to discount prices to fill their first venue, the Staples Center, and subsequent dates.  For the Stones, the impact was lost revenue, a tarnished image and irate fans who resented others getting the same tickets for a lot less money. Though normally aggressive pricers, the Stones clearly overstepped this time.  No wonder some promoters were having a 19th Nervous Breakdown.

The band’s predicament is one that all premium brands can relate to. It is not uncommon for pricing to occasionally overshoot the perceived value or the customer’s ability and/or willingness to pay. The challenge is how to set or recalibrate your pricing and value proposition in a way that maximizes revenue, doesn’t damage the brand or anger customers who paid full price.

Here are a few successful strategies we’ve employed in the past:

Understand your patron

Given economic and demographic realities, the ability of thousands of fans to pay exorbitant concert ticket prices may be a thing of the past.  The Stones incorrectly assumed their fans would continue to see the same value and pay record prices for 70-year-old rockers performing a 40-year-old music catalogue. A more thorough understanding of their customer needs could have led to more segmented pricing levels, early-bird discounts, smaller venues or more delivered value.

Boost your value

The value of a concert experience is reasonably understood.  You pay high prices and get one or two bands performing in a stadium for two hours. Instead of lowering prices, the Stones could have increased the real and perceived value delivered by providing a free gift with purchase (high perceived value with low actual cost), more product (i.e. longer show) or offering bundles (sell a limited edition t-shirt with premium seats).

Communicating high, experiential value is also critical to maximizing sales. Premium quality goods have sophisticated brand values communicated through packaging, advertising and merchandising.  On the other hand, most musical acts tend to have generic brand values, lacking in authenticity or exclusivity.  To sustain premium pricing, brand managers need to ensure all elements of their marketing mix convey an exceptional brand image.

“Succeeding with premium pricing requires that customers clearly understand how your product is superior to substitutes or competitors,” says pricing expert Claire Johnson, senior vice-president and chief financial officer at CIBC Mellon. “The right price point compensates sellers for delivering a better product while leaving buyers satisfied with the value received — and a willingness to repurchase.”

Sell through other channels

When facing unsold tickets or extremely high demand, many acts and teams will use scalpers to distribute their tickets and protect their image. Acts will use scalpers to sell the best seats (so that fans blame scalpers, not the bands themselves, for inflating prices) or to unload excess inventory (so bands don’t look desperate).  Making this strategy work requires the bands to offer bulk blocks of seats and discounts to scalpers. This tack is analogous to premium brands selling their discounted merchandise at outlet stores.

Selectively, lower prices

Price is an important signal of performance, exclusivity and quality.  Reducing the price like the Stones did, especially through clumsy discounting, may provide a short-term revenue and volume lift but may end up doing long-term damage to the brand.  However, there are times when a price decrease is the right strategic move.  The Stones were publicly accused of gouging their fans.  Cutting the price may end up restoring some brand equity by demonstrating fairness and transparency.

The Rolling Stones invested 50 years of hard work to be crowned the “greatest rock ‘n’ roll band.” It would be a shame if poorly considered pricing decisions ended their run amidst accusations of greed, weak sales and sloppy execution.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

 

Big Data boosts advertising

Much has been written about the transformational role of Big Data in improving business performance, but the usefulness of data analysis has spread to almost all aspects of business. Most recently, ad-development managers have been able to make use of Big Data to measure and improve the performance of their traditional and digital advertising programs and tie them more closely to corporate goals. A thought leadership piece by Wes Nichols published in the March 2013 issue of the Harvard Business Review highlights a new framework for designing and implementing cutting-edge advertising analytics.

In the dynamic world of digital and traditional advertising, channel proliferation and social media, any improvement in measuring and refining performance will have an immediate impact on the bottom line and the brand. Traditionally, advertisers have been challenged to realistically measure the performance of their creative and media plans. They have been forced to link sales data with a small number of variables such as media reach and frequency, using a limited number of rudimentary analytical tools like media-mix modeling, surveys, measuring clicks and focus groups.

This popular approach has some significant drawbacks.  It evaluates each medium (e.g., TV, print, digital) independently, and not collectively as consumers in the real world experience them.  Secondly, it is very difficult to measure the impact of one advertising variable, (increased banner ads, for example), on another variable like awareness. Finally, these tools do not easily connect advertising activity back to changes in consumer behaviour like purchase.

Recently, a new set of specialized Big Data methodologies have emerged that allow managers to improve both the effectiveness and efficiency of the advertising plans.  Powerful techniques and technologies can now mine terabytes of data in real time across hundreds of different marketing and business variables in search of key correlations.  The insights gleaned can then be used to dynamically adjust media spend and creative execution for optimal performance.

In his Harvard Business Review article, Mr. Nichols, outline a three-step approach to leveraging next-generation advertising analytics:

Attribution: Gathering and attributing the revenue and strategic contribution of each tactic.  In many companies, this exercise could involve hundreds of variables, ranging from marketing initiatives to economic factors and competitive actions.

Optimization: Using predictive analytics to measure the potential outcomes of different business scenarios based on the interrelationship between tactics and changing market variables. For example, what will happen to sales revenue if you boost online advertising in Ontario, cut it in Quebec and increase prices in the Maritimes?

Allocation: Re-allocating marketing and advertising spend based on the learnings gleaned from the Optimization phase. Ideally, the most successful programs would gain additional funding while others would see less support.

We have witnessed a number of companies use an approach similar to Mr. Nichols’ to generate a 20-40% improvement in marketing effectiveness and efficiency.

Case in point is Electronic Arts, one of world’s leading software gaming companies.  They were looking to boost marketing performance by going beyond simple measurement tools and managerial judgment.  The company decided to use the attribution, optimization and allocation process on the marketing plan of a new game, Battlefield 3.  Hundreds of variables were analyzed including sales results, online chatter, pricing data, advertising reviews and distribution information.  The predictive analytics uncovered some important insights.  For example, a favoured tactic (in-theatre advertising) was under-performing.  Second, digital marketing performed better than previously thought.  And finally, the media launch plan was sub-optimal.  These learnings helped the firm revamp the introductory marketing plan of Battlefield 3, making this launch the most successful in the company’s history.

Despite Analytics 2.0’s potential, firms need to approach it systematically and with common sense as implementation could be a challenge. We have seen analytics projects flounder due to poor data quality and reporting, weak compliance (e.g., data hugging), insignificant management support and insufficient IT capabilities.  Moreover, good judgment and creativity is still vital in the creative and media planning process.  Glen Hunt, creator of many memorable ads including Molson Canadian’s “I am Canadian”, says:  “Big Data represents a big opportunity, but it does not negate the importance of ‘blink’ test intuition and experience.  After all, ‘not everything that counts can be counted, not everything that can be counted counts.’   Or so says, Einstein.”

Big Data has the potential to revolutionize advertising measurement and evaluation, truly delivering higher marketing performance at less cost.  Companies looking to build and leverage these new capabilities would be wise to make them strategic priorities, choose the right business or product beachhead to kick-off and earmark the necessary mandate, resources and investment.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

On location analytics

Imagine yourself a retailing executive. Most likely you want to improve your understanding of actual customer behavior so that you could develop better inventory, marketing, and merchandising programs. What if your firm had the ability to track real consumer behavior across multiple locations, ranging from where they come from, to their buying habits and through to why they made specific transactions.  That would be very powerful – and soon a common occurrence thanks to the emerging field of location analytics.

Simply put, LA collects, aggregates and analyzes a person’s credit card and GPS-device activity (e.g., interacting through social networking sites) to find relationships between place and action on their shopping and purchasing behavior.  LA’s uniqueness traces to its ability to mine insights between the interplay of unstructured data like physical location, geographic context, behavioral activities and social habits. The power of LA is further magnified when it can overlay these location-centered insights with structured data found in existing databases like the census, internal CRM information and traditional geospatial technology that collects static information on roads, homes etc.

A quintessential Big Data application, LA uses sophisticated algorithms, high performance computing, analytical capabilities and multiple data sources to identify hidden consumer and population patterns that can aid decision making and planning.  A number of industries like retailing, real estate development, retail banking, and service firms are beginning to use LA to significantly improve marketing program effectiveness, enhance customer satisfaction and right size operations. This compelling value proposition plus the intersection of business and technology developments is spawning a rapid growth in the market. According to ABI Research, the LA market is forecasted to be $9B by 2016.  No wonder, some of the world’s biggest IT firms including Microsoft, Apple, Facebook and Cisco have recently bought stakes in some leading LA providers.

There are many potential applications for LA services.  Within a large mall, retailers can understand what items were bought, where and when; why did the purchases happen in certain stores and; how were the transactions executed.  More importantly, firms can understand the relationship between these variables in order to get a complete picture of aggregated consumer behavior at the mall.  For example, where do shoppers and non-shoppers come from? Why do some consumers go to one store first? Or, why do people neglect to purchase from a particular store?

Consider another scenario. A restaurant chain wants to open a dozen more outlets across Canada. This strategy requires a significant amount of capital and effort while carrying substantial business risk.  Using LA services can help management understand the relationship between demographics, traffic flows, local eating habits, psychographics, costs and income levels on potential site revenue and build-out costs. As well, the insights generated by LA would help determine the optimal food mix, service levels and store size for each location.

Despite its Orwellian undertones, LA is about helping companies’ track aggregate patterns and predict trends so they could make better decisions; tracking individual behavior has little business value by itself.   Of course, firms will need to ensure there are adequate privacy safeguards and opt-out procedures to maintain consumer trust.

To fully exploit its potential, managers must ensure their LA technology and people investments are aligned to corporate goals and strategies.  As with other Big Data projects, implementing LA initiatives will come with IT and organizational challenges that should not be underestimated.  Before jumping in, companies will need to build out internal LA skills so that they can ask the right analytical questions, manage the data and capitalize on the learnings. Since organizations differ around their scale, IT and business needs, few enterprises (except large firms such as Walmart, McDonalds or Starbucks) would be advised to operate their own LA platforms.  As a result, the market is seeing the emergence of information aggregators or data brokers like IBM who can consolidate and filter data from disparate sources and geographies by sector.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Better pricing

The way many firm’s price their products is at odds with their target value proposition, brand image and possibly, financial goals. A recent essay in the Harvard Business Review, Pricing to Create Shared Value outlines a better approach to pricing products and services. Shared-value pricing asks firms to collaborate with their customers to redesign pricing schemes that will increase total value and trust in the brand.  Properly built and implemented, the business benefits are compelling, including: improved customer retention & acquisition, higher customer satisfaction and greater financial returns.

Pricing gone wild

Pricing sends clear messages about what the company thinks of its customers and how it wants to deal with them. While many brand messages say, “We value you as a person,” the pricing practices often say, “We only care about your money.” For many firms, every customer, product and service is seen as an opportunity to be monetized — often in a sneaky fashion. Fee-driven industries like retail banking, airlines and telecom are notorious for ‘slice, dice and price’ approaches that regularly ‘nickel and dime’ consumers with many small charges. Other firms, moreover, go further by exploiting any consumer disadvantage (e.g., lack of information, limited choice, buying complexity) to keep prices unfairly high.

However, times are changing. Both B2C and B2B companies face immediate and serious business risks from ill-advised pricing decisions.  More positively, some forward-thinking managers recognize that they can increase revenues and improve their value proposition by collaborating with their customers to retool their pricing policies and goals.

A new pricing paradigm

With a shared-value approach, the company looks to increase customer value and reduce distrust by redesigning its pricing policies around a customer’s full gamut of needs (versus their own).  For example, managers could engage customers to help create new discount schemes, more flexible ways to purchase a service or lower-risk ways to consume a product. This customer-centric approach will transfer more value to consumers, improve trust in the brand, and drive higher product consumption  (as new users and current customers are attracted to a better value proposition).  In some cases, a shared-value approach can help increase prices.

Bruce Silcoff, president of loyalty solutions company Fairlane Group, is a pioneer in shared-value pricing.  “Successful, long-term, buyer-seller relationships are built on a fundamental commitment to shared goals and objectives,” says Silcoff. “While our competition still relies on disjointed fee-based pricing models to achieve profitability, we have been successful at attracting new business and garnering client loyalty by linking our revenue and profitability with the performance of client programs.”Advertisement

Marco Bertini and John T. Gourville, authors of the Harvard Business Review article, cited the 2012 London Olympic Games as an example of shared-value pricing in action.  In earlier games, pricing policies were regularly criticized for being inflexible, inaccessible and overly expensive.  For 2012, the London Olympic Committee’s (LOC) stated goal was to make the 2012 Olympics “Everybody’s Games,” a mission with a strong and intrinsic requirement for the five core principles of shared-value pricing.

Focus on relationships, not on transactions
Using a single, inflexible price or a complicated pricing scheme is about maximizing a firm’s revenues and operational efficiency, not fostering mutually beneficial customer relationships. The LOC’s approach was to value customers more than their money.  For example, they introduced a ‘pay your age’ pricing scheme and multiple pricing levels to increase affordability and flexibility.  They also sought to gain trust by guaranteeing that higher priced tickets would carry a better viewing experience than tickets costing less money.

Be Proactive
Managers often price in reaction to competitive moves or customer complaints, but rarely based on what matters to the customer (their needs).  To be proactive, the LOC eliminated a major sore point from previous games — the requirement that customers purchase tickets for popular and less popular sports within a bundle.  In its place, the LOC had each sport stand on its own, with its own flexible pricing plan.

Put a premium on flexibility
Inflexible pricing schemes reduce total value by making it difficult for firms to adjust prices in response to changing needs or to better share value with customers who perceive product value and features differently. To provide flexibility, the LOC introduced multiple pricing tiers to better appeal to different needs.  Furthermore, they refused to fix the number of seats in each tier, thereby ensuring they were satisfying actual versus anticipated demand

Promote transparency
Many companies maintain opaque pricing schemes in order to maximize revenue and minimize churn.  Not surprisingly, this often backfires by generating mistrust and churn. The LOC took a completely different approach. In order to better manage expectations, the LOC communicated regularly and fully on ticket availability and pricing, as well as the key features of the ordering process and pricing rationale.

Manage the market’s standards for fairness
A company’s pricing strategy should not be at odds with its customer’s expectations of what is fair.  The LOC went to great lengths to explain to the public (the people who paid for the games) the facts and rationale around pay-your-age pricing and discounts, as well as the percentage of tickets sold at each price band, corporate ticket allocations, etc. To reinforce that there was no preferential treatment, the LOC used a lottery to allocate the tickets.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Gold medal partnerships

These days, many companies are looking to build their brands, target new customers and launch new services using marketing sponsorships, outsourcing arrangements or business development alliances.  To do this, managers need to master partnership management with complementary firms, government agencies and non-government organizations.   Identifying the need for a partnership, however, is easier said than making one work. A myriad of issues can complicate key business relationships, including poor communication, misaligned objectives between the organizations, and weak integration between the entities.  

Our firm has identified a number of best practices around designing and implementing winning partnerships.  To illustrate these, we will look at two very different examples:  1) the Olympics and; 2) the software industry.

The Olympic Games

Recently, strategy+business magazine looked at the Olympics Games as a model for effective partnership management.  To successfully pull off the games, the International Olympic Committee must orchestrate a tightly choreographed dance of hundreds of sponsors, broadcasters and service firms. The IOC and its corporate partners have developed a world-class partnering model, based on the successful completion of many games (now including London) as well as a few painful experiences (think Montreal 1976).  Some of the IOC’s key learnings include:  

  1. Prioritize the brands

To maximize the value of the marketing sponsorships, all parties need to work closely to uphold the rules around brand usage and exclusivity.  Furthermore, corporate partners will drive better results when they have a clearly defined and powerfully articulated brand message that intersects the needs and desires of all stakeholders.

  1. Cultivate a few key relationships

Better outcomes are achieved by having fewer, deeper and longer term business relationships as opposed to more numerous, shorter term, and more superficial arrangements.  This ‘less is more’ strategy triggers each partner to invest more resources, capital and effort against longer term goals and to work more diligently through teething pains.

  1. Anticipate political pressure

The involvement of the public sector or a NGO usually brings some form of subtle (or not so subtle) political pressure that could run contrary to the financial interests of all players.  Managers should be aware of potential risks when structuring partnership deals and develop contingency plans to handle unexpected problems or political interference.

Software Industry

My firm was engaged to help a software company resurrect a stalled business development alliance with a global IT services firm.  Initially, the client thought they had the key ingredients – great technology and strong personal rapport at senior levels – for a winning relationship. We quickly discovered, however, through internal research that the partnership needed a structural, process and cultural tune-up to realize its potential. Three key lessons emerged:

  1. Align around common goals

At the outset, it is crucial that all players agree on what a successful partnership looks like, how it is evaluated and where their marketing and operational strategies converge to produce a mutually beneficial relationship. Not surprisingly, alliances based on similar long-term objectives & values, a ‘win-win’ deal and a ‘partnership mind set’ have a much greater chance of flourishing.

  1. Establish troubleshooting mechanisms

When disparate organizations come together, there is a good chance that modest disagreements and latent misperceptions could rapidly escalate to derail program implementation.  It is vital to deploy a high-level, cross-organization steering group that can quickly resolve issues before they can jeopardize the entire alliance. Moreover, this senior team can also support ongoing priority-setting and resource allocation.

  1. Foster intra-preneurialism

Rock solid contracts and detailed plans can not deal with all the demands and snafus that come with executing partnerships.  It is up to the ‘people in the trenches’ to make partnerships burgeon.  These vital individuals are most effective when they can act like intra-preneurs i.e. internal entrepreneurs.  To encourage these behaviors, key managers need a high level of empowerment, sufficient resources, and the opportunity to communicate extensively with their counterparts.

Some final and poignant thoughts come from John Boynton, Chief Marketing Officer, of Rogers Communications Inc. “Rogers prefers bigger partnerships. Bigger to us is a deeper, longer term, more integrated relationship. You know when you have a done a good job when you can’t tell who in the room is from which side. Getting one partnership or sponsorship to work on as many levels as possible provides a better return.”  To a prominent sponsor like Rogers, great partnerships are based on strong customer appeal.  “A lot of sponsorships don’t make sense to customers”, says Boynton, “because the target audience doesn’t line up in the “sweet spot”, or that companies choose the sponsorship based on profile or personal interests. Having a very tight overlap with the sweet spot and ensuring the sponsorship addresses the target customer’s “passion” are the keys.”

Despite the best intentions, many business partnerships will ultimately fail.   They need not.  Managers can follow a variety of marketing and organizational best practices to improve their odds of long term success.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

In retail, are you experienced?

Now more than ever, creating a rich shopping “experience” is de rigueur for retailers seeking to be a destination of choice.  Competing on the basis of the shopping experience – for example, delivering useful education, ‘best n class’ service, welcoming aesthetics and engaging entertainment – is not a novel idea.  Many world class firms like Walt Disney, Southwest Airlines and Hard Rock Hotels have built significant businesses by leveraging an experiential-based business and marketing model. Its now the retail sector’s turn.

The evolving landscape

Recent market, technological and consumer developments have put the shopping experience at the center stage of retail marketing and operations. Stores and chains are increasingly seen by buyers as undifferentiated and unexciting; consumer spending has stalled and; pure-play Web retailers and online shopping tools have come into their own.  At the same time, social networking’s popularity is exploding while bored, confused or fickle customers increasingly demand education, aesthetics and entertainment as part of their retail experience.  To stay relevant and competitive particularly in the mid-market and premium segments, merchants will need to regularly orchestrate and promote compelling on and offline shopping memories.  That memory itself will become the one of the products – i.e. the “experience.” 

Evolving consumer behavior is a major factor impacting the customer experience. For one thing, sales channels are changing.  Online sales, already 7% of all transactions, are forecasted to hit 15% by 2019 (source:  Google).  Although in its infancy, mobile commerce is expected to explode over the next few years.  Increasingly, buying decisions are being made before the consumer visits the web or traditional store.  Twenty years ago, 70-80% of all grocery purchasing decisions were made at a store.  Today, it is less than 50% according to Joel Rubinson, former chief research officer of the Advertising Research Foundation.  Typically, consumers will first research products online or canvas their friends and then decide what they will buy before going to a store.  Or, they may forego a trip to the store altogether and make purchases via the Internet. 

Moreover, social networking is enabling consumers to take control of how marketing messages are distributed and consumed – at the expense of company-sponsored sites.  Buyers now attach significant value to online reviews and often spend more money online after reading product recommendations by other consumers.  Facebook, for example, accounts for 38% of social media page referrals online (source: MDC Partners, a marketing firm).  According to pundits, reviews like these are trusted some 12 times more than advertising messages.

These changes have important consequences. When shoppers think about a brand, they now consider their entire buying and service experience.  To be successful, marketing campaigns will now have to encompass and integrate all of the touch points of a company’s relationship with a consumer, including the first moment of contact when a product search begins, through the sale and service, and eventual product disposal and replacement. Though consumers have far more control over marketing messages than they ever have, retailers still have plenty of scope to guide opinions. That’s where experiential marketing comes in.

Who is getting it

Recently, a number of retailers have pushed marketing boundaries to create innovative experiences that integrate entertainment, social media, information and traditional advertising. Two examples were highlighted in a recent issue of the Knowledge@Wharton newsletter:

Macy’s

In 2010, Macy’s hit the mark with a couple of highly successful marketing programs that integrated a number of different experiential elements.   During New York’s Fashion Week, the retailer provided customers with a “magic fitting booth,” which allowed them to “try on” virtual outfits and post images of themselves in their new clothes on Facebook. All year round, shoppers were able to use their phones to watch videos for fashion tips from designers and makeup artists. For the holiday season, Macy’s launched an animated website with an online tool enabling customers to send letters to Santa Claus. The site, which received more than 1M letters, was combined with a fundraising drive for a children’s charity and a mail order guide.

Bloomingdale’s

This merchant understands the critical role of human contact in delivering powerful retail experiences.  Bloomingdale’s 8,000 in-store “associates” play a key role in delivering and enabling experiences.  Their responsibilities include collecting customer information in databases.  This information is then used for marketing programs such as birthday alerts or shopping recommendations based on previous purchases. “What we don’t want to lose is the assurance and authenticity of human contact: the touch, the feel, the laugh, the personal knowledge” says Tony Spring, President and COO of Bloomingdale’s.

Making it real

Incorporating the above elements – plus emerging mobile and location-based services – into the marketing and operational model will lead to further evolution of the shopping experience. To remain competitive and efficient, retailers will need to develop a holistic “customer experience” vision and strategy that integrates both traditional and new media, while addressing every point of the purchase/service continuum.  Making this vision a reality will requires firms to revamp their organizational structure in order to bridge functional silos like digital marketing, public relations, store design, advertising and merchandising.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Traditional Media Fights Back the Old Fashion Way

Given the explosive growth in digital distribution, online file sharing and other disruptive technologies, many pundits and consumers have written off the prospects of traditional content formats like the CD and magazine. There is plenty of evidence to back this up as sales of physical products and the channels that retail them are plummeting.  However, traditional media is not giving up without a fight, and for good reason.  For one thing, physical formats are still a big (albeit declining) business across all customer segments. Secondly, a significant number of consumers will purchase both digital and analog types of music and news, often for different reasons.  Thirdly, traditional media companies have (so far) been unable to develop their own digital distribution channels to compete with the likes iTunes. 

As reported in The Economist magazine, media companies are fighting back by enhancing the look and feel of the physical formats.  These changes include improved production values, more luxurious packaging, unique formats, and limited editions.   For example, Time Inc began printing Fortune magazine on thicker paper in March 2010. Hearst Corporation supersized Good Housekeeping earlier this year, and will do the same for Country Living in September.  Translating this improved product into higher unit pricing will be  key to maintaining magazine profitability.  Over the 2008-2009 period, the number of advertising pages in magazines dropped by 26% (according to the US Publishers Information Bureau).

In the battered music industry, it is not uncommon for a newly released album to be supported by multiple versions, from the basic CD-only package to a more elegantly designed “experience” edition with an accompanying DVD, online content and T-shirt.  Moving upscale and higher value is paying off for some music companies. Deluxe CDs for new and veteran acts accounted for 27% of Universal’s sales from its biggest new releases in 2009, up from 20% in the previous year. Universal believes that the proportion will keep growing.

This approach has precedence.  When faced with the onset of  the low-cost DVD and ubiquitous TV coverage, the live entertainment and sports industries responded with a more upscale and experiential offering as well as tiered pricing and merchandise cross-selling. More recently, two technology giants have recognized that refining their traditional physical products is critical to improving their corporate brands, customer experience and revenues. Apple is considered best practice with its elegant combination of packaging, store design and merchandising.  Microsoft, with their new company stores, is not far behind.  These firms may have discovered that a physical representation on a shelf or newsstand may be a gateway to a brand that exists profitably in many different digital and analog formats, driving awareness-building, trial and repurchase. After all, while consumers may be flocking to digital downloads they also have not lessened their interest in visiting stores.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Follow

Get every new post delivered to your Inbox.

Join 264 other followers