Archive for the ‘Entertainment & Hospitality Industry’ Category
Big Data boosts advertising
Filed under: Analytics, Entertainment & Hospitality Industry, Marketing & Branding | Tags: Advertising, Analytics, Big Data, EA, Marketing
Leave a Comment 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
Filed under: Analytics, Entertainment & Hospitality Industry, Performance Improvement, Retail Industry | Tags: Big Data, Geospatial Technology, Location Analytics, Retailing
Leave a Comment 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
Filed under: Customer Insights, Entertainment & Hospitality Industry, Pricing | Tags: London Olympic Games, Pricing, Segmentation, strategy, Value
Leave a Comment 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.”
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
Filed under: Channels & Alliances, Communications & Telco Industry, Entertainment & Hospitality Industry, Executing Strategy, IT & Technology Industry, Marketing & Branding | Tags: 2012 Olympics, Alliances, brands, IOC, Partnerships, Rogers, Software Industry, Sponsorships
Leave a Comment 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:
- 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.
- 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.
- 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:
- 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.
- 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.
- 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?
Filed under: Analytics, Customer Experience & Service, Entertainment & Hospitality Industry, Marketing & Branding, Retail Industry, Social Media | Tags: Bloomingdale's, Consumer Behavior, Customer Experience, Data Analytics, Experiential Marketing, Macy's, Marketing
Leave a Comment 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
Filed under: Entertainment & Hospitality Industry, Growth Strategy, IT & Technology Industry, Marketing & Branding, Retail Industry | Tags: Apple, CDs Magazines Move Upmarket, Challenge of Traditional Mediia, Digital Content, Magazine Industry, Microsoft, Music Industry, New Media
Comments (2) 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.
Consumer Spending: The New, Not So Good, Normal
Filed under: Analytics, Consumer Goods Industry, Customer Experience & Service, Customer Insights, Entertainment & Hospitality Industry, Marketing & Branding, Pricing, Product Management, Retail Industry | Tags: Amazon, Benckiser, Changing Consumer Needs, Changing Consumer Purchase Behavior, Improving Customer Experience, Improving Value Proposition, Kelloggs, Know Your Customer, Lower Consumer Spending, New Segmentation Techniques, P&G, Walmart
Comments (3) It is not an understatement to say that the current recession has been the worst slowdown since the Great Depression. For the first time in almost 80 years, US per capital spending has fallen two consecutive years. According to a recent Booz & Co. study, this recession has triggered a seismic shift in consumer needs and spending habits towards value enhancement. This change will have painful implications for unprepared firms in the consumer goods, retail, entertainment, hospitality and apparel sectors.
This ‘new normal’ will likely persist even after the recovery gains more momentum due to many factors: high levels of household debt, lower employment and an aging population. As well, existing trends will continue to encourage frugality including: higher Web usage (for shopping and research); the growth of private label products and; the rising importance of discount sellers like Walmart and Amazon.
On two different occasions, Booz interviewed 2,000 US consumers across demographic, geographic and socio-economic lines to understand their spending plans, habits and behaviors. The conclusion? a wave of frugality is sweeping all demographic groups and segments. Higher levels of belt-tightening were noted among women and lower income groups. Other key findings include:
Consumers are driven more by price considerations – Conspicuous consumption has been replaced by a new value consciousness that dictates trade-offs between product performance, brand image and price. This trade-off is manifested by increased levels of online comparison shopping; trading down to lower-priced private label & value brands and a higher frequency of coupon clipping.
For the majority of consumers, value has become the most important purchase attribute – Right now, value brands are perfectly positioned to exploit consumer frugality. However, consumers will continue to buy higher price point products as long as those product’s performance and image can clearly justify a price premium versus lower cost alternatives.
Traditional segmentation strategies may miss new value seekers – Traditionally, retailers and marketers segment consumers primarily by demographics. However, the study presents a more nuanced view of how consumers could be segmented by value-seeking behavior. For example, 68% of all consumers reported exhibiting higher price sensitivity and increased value-centered activities. These activities include higher online usage (e.g., searching for lowest cost items, purchasing through online discounters) and increased purchases through lower cost offline retail formats.
Firms can take a number of steps to mitigate revenue risk and build market share:
1. Continue to drive product and brand differentiation
Negative growth periods often trigger heavy price discounting as firms look to protect market share. To sustain this, firms usually dial back on differentiation-enhancing plans like advertising and functional upgrades. This approach is misguided as declining differentiation reduces brand price premiums and harms competitiveness versus private label or low cost alternatives. Companies must maintain their focus on differentiation by continuing investments in advertising, the customer experience and product performance.
2. Improve the value proposition
Decreased consumer spending does not automatically lead to value brand share increases. Many best practice leaders like P&G, Benckiser and Kelloggs have maintained share in difficult times by improving product performance & convenience, right-sizing formats, and clearly communicating and aligning pricing levels (for consumers and retailers) to product value.
3. Optimize the Customer Experience
Look for opportunities to improve value and differentiate along the entire purchase and support spectrum. Enhancing the customer experience can improve loyalty, foster cross-selling & up-selling and increase customer satisfaction. Properly executed, customer experience initiatives can also raise operating efficiencies and reduce cycle times.
4. Know your consumer better
In order to sustain and communicate value, the ‘new normal’ requires companies to deepen their understanding of consumer’s needs and habits. To do this, firms could undertake new segmentation strategies based on purchase behavior as well as using advanced qualitative research tools to explore sub-conscious and cultural drivers of behavior.
5. Maximize opportunities for on and offline distribution
New retail formats like kiosks, co-branded stores as well as fully built out e-commerce platforms are 3 examples of how companies can simultaneously improve product distribution and reduce risk at a lower delivered cost.
For more information on our services and work, please visit the Quanta Consulting Inc. web site.
Where is Social Media Headed in 2010?
Filed under: Customer Insights, Entertainment & Hospitality Industry, IT & Technology Industry, Marketing & Branding, Social Media | Tags: 2010 Social Media Trends, Branding and Social Media, Club Penguin, Facebook, Linkedin, MySpace, Playfish, Social Media Marketing, Social Media Strategy, Social Media Technology, Swoopo, Twitter, Viadeo, Xing, YouTube, Zynga
Comments (1) Recently, I’ve been asked by a number of executives a direct but complicated question: is it time to jump into social media? Most pundits generally agree that this year, social media will get even more popular, more mobile, and more exclusive. I believe 2010 will be the year social media goes mainstream but not necessarily driven purely by marketing considerations. I weigh in with the following predictions, in no particular order:
Niche sites are where it’s at
The bane of most social media users is information overload and clutter. To cope with this, many users will increasingly gravitate to sites that have the people, content and applications they really want to engage with. As a result, a lot of the early money (and profit) will be generated in the more focused sites (for example Club Penguin for children), as opposed to generic sites like Facebook, Twitter and MySpace. Look for social networking sites to boost their relevancy by restricting access to “qualified” users and to deploy better filtering and alert capabilities to improve the user experience.
Cost savings & support drive adoption
Leading companies have begun to recognize the potential for using internal and open social networks to more cost effectively deliver support, content and special offers in real-time. For example, Best Buy’s Twelpforce leverages Twitter and the skills of hundreds of employees to provide rapid customer troubleshooting.
Regional networks challenge global networks
Regionally-focused social networking sites like Xing (Germany) and Viadeo (France) will emerge as strong competitors to globally-oriented sites like Linkedin and Facebook. The reason, according to Dan Serfaty of Viadeo (France’s largest business network site) is that focusing on local depth will deliver advertisers and partners more compelling value than offering a narrow slice of the highest-powered people around the world. Furthermore, unique and under-developed markets like China and India will naturally germinate their own regional networks, which will be able to leverage large scale economies and inexpensive resources.
Mobile social networking is THE killer app
The next wave of social media penetration and usage will be mobile thanks to the convergence of 3 important developments: 1) heavy social networkers love the convenience of mobile devices that enables ‘always on’ accessibility and portability; 2) the growing penetration of smartphones which combine almost laptop-type functionality with ultra-fast networks; 3) users are being forced to access Twitter etc. using their phones as most corporations ban social networks within their firewalls. Look for the large social networking sites to launch improved and portable versions of their functionality.
Revenue models will mature
Large social media sites will develop advertising models that can properly measure traffic and behavior while demonstrating ROI for advertisers. However, there may be significant user backlash to increased advertising similar to what was seen with MySpace when they went too far trying to monetize eyeballs. Interestingly, other sources of revenue will become even more lucrative. According to the NY Times, sales of virtual goods within social media sites (already a $5B global business) by firms like Zynga and Playfish will continue to grow. Social media sites will also test new revenue-generating applications like social gaming and entertainment shopping (e.g., Swoopo) in order to leverage their millions of users and attract revenue-paying partners. Finally, after 5 years of providing free services, many sites will begin evaluating new subscription models. Linkedin already offers a premium service, although no more than 5% of users have signed up. Considering that newspapers and are beginning to charge for premium content, can YouTube and Facebook be so far behind?
Brand communities will slowly emerge
Social media-based brand communities are taking shape by design and chance. These will be internal employee/partner-centric ones as well as external, customer-based communities. While communities have significant marketing potential for promotion and brand-building, it will be a challenge for firms to establish a credible voice and safeguard brand risk. Look for savvy marketers to develop micro content and marketing programs tailored to different communities.
For more information on our services and work, please visit the Quanta Consulting Inc. web site.
Houston, We Now have a Commercial Space Industry
Filed under: Entertainment & Hospitality Industry, Innovation, IT & Technology Industry | Tags: 2010 Space Industry, Commercializing Space, Making Money in Space, NASA, Orbital Sciences, Private Sector Space, Private Space Travel, Space Shuttle, Space Tourism, SpaceX, Virgin Galactic, XCORE
Leave a Comment Space is no longer the final frontier for private enterprise. One major deal and the emergence of some private operators is an indication that this nascent industry will finally take off (pardon the pun) in 2010.
For the first time, two commercial operators, SpaceX and Orbital Sciences, will begin providing delivery services for NASA as part of a large multi million dollar contract to transport cargo into space. One of the deal’s triggers was NASA’s recognition that the US will face a 6-7 year launch gap beginning next year when the Space Shuttle program is retired. Since the Space Shuttle has essentially been a delivery vehicle for cargo and astronauts, a replacement will be needed to fill the void. A new NASA-developed shuttle replacement program is planned by 2017. However, this timing could be in doubt as the choice of vehicle has yet to be made and the public funding environment remains murky.
Though there are cargo delivery options with non-US space agencies, one of NASA’s major issues is with the cost and reliability of transporting astronauts. After this year, NASA will be dependent on the availability and kindness of Russia’s Soyuz space craft, which carries a $50M per seat tariff. However, many pundits believe a US private industry solution could launch astronauts into space at a fraction of the Soyuz rate. Futron, a research firm, pegs the potential 2021 orbital (read: astronaut transport) market for commercial providers at 60 passengers and $300M in revenue.
Importantly, the SpaceX/Orbital contract may not be the only deal done between NASA and commercial operators. A new generation of suborbital vehicles currently under development could open up new market opportunities for other services such as microgravity science research, astronaut training and remote sensing. For perspective, NASA spends $300M (according to Virgin Galactic) conducting its own suborbital work.
Other than the pending delivery gap, other factors will likely increase the appeal of private sector offerings. Widespread technological advances in computing power, materials and miniaturization are bringing down the cost of blasting objects into space; tight government budgets are restricting the amount of suborbital R&D that NASA can conduct and; there is grudging acceptance in many parts of the US governement that commercial operators could deliver solutions as good if not better than NASA and other government agencies.
Interestingly, 2010 could finally witness the emergence of space tourism. A number of players including Virgin Galactic and XCOR will use their proprietary launch vehicles to begin suborbital trips for the well-heeled. Although the pricey customer experience will likely be no more comfortable than being squeezed into a plane’s cockpit, there has been extensive, global interest. In February 2009, Virgin Galactic claimed they received $39M in deposits from 300 customers. Many developments may facilitate greater consumer demand including: declining payload costs that will help reduce seat fees well below the million dollar threshold; enhanced capsule comfort and; improvements in perception around safety and reliability. Estimates on the size of the space tourism market vary widely. Futron forecasts the 2021 suborbital tourist market at 15,000 passengers and $700M in revenue.
It’s too early to tell whether cargo transport and tourism will be the “killer apps” that kick starts a commercial space industry. Many challenges remain in areas like investment finance, technology and regulations that will need to be addressed. However, it’s a promising start and its happening in 2010.
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iGetit – iTunes and Pricing Digital Content
Filed under: Analytics, Entertainment & Hospitality Industry, Pricing, Retail Industry | Tags: Digital Content, Digital Music, iTunes, Online Pricing Strategy, Online Retailing, Pricing, Spotify
Leave a Comment Are iTunes and other purveyors of digital content leaving revenue on the table with their pricing practices? Many suspected this and now there is empirical research to provide evidence.
Before April 2009, every iTunes song was sold at a uniform $0.99 price. (Only after April 2009 has iTunes switched to a tiered pricing system albeit a crude one). Yet, in virtually every other market, similar products are sold at different price points reflecting diverse product attributes & configurations, local market conditions and different competitive environments. Why do online content retailers like iTunes offer uniform pricing when others practice price discrimination?
Based on what I have witnessed in firms selling digital content, their pricing strategy was not rooted in deep customer analytics and demand elasticity studies. Rather, the rationale for uniform pricing centered on the need for simplicity and the desire to get a $0.99 price point. Revenue modeling was performed in a quick n’ dirty fashion and was driven off of the yearly revenue objective, as opposed to what would be the projected bottom-up demand at various pricing levels. While simplicity and speed are their own virtues, new research suggests that iTunes and other digital content retailers can maximize profits through different pricing schemes.
A new study from The Wharton School of Business studied how buyers and sellers of online music valued songs under different pricing schemes. Studying over 23,000 different song valuations over the past 2 years allowed the researchers to measure total revenue based on different demand projections at various pricing levels. The conclusions were very interesting. The seller’s revenue was maximized at a uniform pricing per song that ranged from $1.46 to $2.30, significantly higher than iTunes’ $0.99 per song.
The Wharton researchers went further and evaluated a variety of pricing strategies. One scheme, which is currently being utilized by iTunes in a limited way, considered a song-specific model. In this strategy, more popular or contemporary music would carry a higher unit price than older music. The results indicated that this tactic would raise total revenues by only 3% versus a uniform price strategy.
The model that maximized revenue (and generated a 30% lift versus the best uniform price point) was where the online seller charged an entry fee for use of the service and then a modest fee per song. The study determined the optimal entry fee to be $21.19 and the optimal price per song to be $0.37. Some firms have figured this out. Spotify, an iTunes rival, has developed a similar “all you can eat” model with its premium service. Interestingly, the research also showed that bundling songs (similar to an album) with a higher package price – but at a per song discount to the $0.99 price point – produced almost identical revenues as the entry fee plus price per song model.
As any COO worth their salt will tell you, there is always extra cost (e.g., complexity, implementation) to deploying multiple pricing schemes as compared to a uniform pricing strategy. However, as the Wharton study proves, it should be possible through comprehensive research and testing to determine the optimal pricing model and price points that maximizes revenue, safeguards customer goodwill and minimizes operational cost.
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