Chapter 12: Maui CEO Gets a Marketing Makeover

We address press relations versus advertising, and learn to apply multiple Harvard-type frameworks to evaluate and refine your offering—capturing pragmatists and their dollars. Positioning relative to your competition is also tackled.

By now, you’ve got a great website, your eBay feedback is going up, and you are sorely tempted to start advertising. What you should be doing, instead, is evaluating and refining your own offering instead.

Press Relations and Advertising

Let me deal with advertising and press relations (“PR”) now. Since you’re still a newbie, you should seek press first, which helps build your brand; advertising comes along later and helps reinforce that brand message. Let me save you $15,000 right now: don’t hire a PR firm. I tried this and enjoyed meeting the good looking, really cool, and sometimes weird people that grace the halls of PR firms. However, the return on my investment was miniscule. Press is one way to legitimize your business. But press is also not as objective as you might think. The PR firm will help you focus the “so what?” message, which is harder than it sounds. I’ve dealt with the press in Asia (launching flash memory products in Hong Kong, Japan and Taiwan); in Europe (launching Intel’s vPro^TM business platform in Belgium, Great Britain and Germany); and in the US (with my small business). In all cases, you must be able to answer the “so what” question succinctly.

Like all activities in business, think about what success looks like: in this instance, success would be getting some TV and radio interviews (which lead to product sales), and getting your press article and/or “interview” picked up online—and written accurately. Then, when someone “Googles” you, they see the articles and your legitimacy is reinforced. Sounds like success, right? The problem is two-fold: one, there are no guarantees that your story will be picked up, even if your idea is cool, neat, and/or unique. This is my point above: despite what you want to believe, and what the PR firm will tell you, most of my readers would spend their money and getting little in return. The second problem, or rather opportunity, is that you can create legitimacy with or without a PR firm at the wheel. Use your testimonials properly, and you will start to establish yourself and/or business as experts in your field. Speaking at conferences, writing articles to the appropriate online journals, and membership in the right organizations can also bolster your early credibility.

My advice is to hire a freelancer to help prepare press kits and distribute your message; I see various packages for this service on Guru.com for $300 and up. I’ll be reviewing additional options in the PR space and will provide up-to-date recommendations on the website; see www.mauiceo.com.

Evaluating and Refining Your Own Offering

I considered titling this section “Online Marketing,” but resisted because the term is misleading. Online marketing implies that I’m going to tell you how to improve your banner ad click-through rate and tricks to make spam look like legitimate direct marketing. Instead, I want you to think of online marketing in this context: your website IS your marketing on the internet. Every good product has a trial period, and you’ve just completed your trial. We need to refine what you’ve got and will use the classic Marketing framework of the 4P’s[1]—which is still very applicable to product businesses like ours. As usual, I’ll use my own experience and put a practical application around the framework.

Promotion

This “P” of the 4P’s typically includes various elements such as point-of-sale promotion, advertising and press relations. You will be able to have and manage your web-based point of sale promotions (like “best sellers” or “March madness.” You are still building your brand/image/reputation, so for now, most advertising is a waste of dollars (except pay-per-click search engine advertising, which I will cover later). And we just discussed PR. What is left? Word-of-mouth promotion.

I have put forth the idea that we don’t focus too much on repeat business, because 1) low-cost leaders attract price shoppers who have little or no loyalty to the vendor; and 2) we’re selling large items of which customers don’t typically buy more than one. Because of these factors, you just can’t change reality, and we have not built an infrastructure or too many processes that focus energy and resources on CRM (Customer Relationship Management) or post-sale programs. There is one very important exception: we need our happy buyer to tell others about us, namely word-of-mouth promotion.

Here’s the challenge, as simple as I can make it: you (the seller) want the buyer to focus their sales-pitch on the pragmatic benefits while avoiding the revolutionary aspects of the purchase.

Differences in People

Let me start this section with an example: a lawyer in Jackson Mississippi just bought a used Yamaha grand piano from you; you first had the piano shipped from your Los Angeles warehouse to a local factory, and had a brand new player system installed. (A player system accepts CDs and “plays” the music on the piano by having the keys move and hit the strings just as the original recording artist intended.) Finally, the piano is shipped from the factory to the customer’s house, installed, and enjoyed immensely by the buyer. Now, consider all the people that will likely hear about or even see the piano—these are all potential customers. Which customer is most likely to buy from you?

A fellow partner in the attorney’s firm
His sister
His child’s piano teacher
His neighbor, a professional pianist
His housekeeper
One of his friends, when they see the piano while over for dinner
A golfing buddy who always has the new Callaway driver

As you look at these potential customers, separate them into two categories: would you call them either an “early adopter,” or “pragmatist”? These terms, and this concept, come from Geoffey Moore, a popular business author[2]. Let’s define “early adopter” as the kind of person who can easily program complicated devices like the new espresso machine; is the person you call when you have computer problems; and is the first to get the Apple iPhone.

Contrast these personality types with the “pragmatist,” who is in many ways the opposite of the early adopter just described. The pragmatist lets others work out the problems first; the pragmatist buys a cell phone that has a good connection above all else—they don’t need all those fancy features. Pragmatists are price-sensitive, conservative, and skeptical. Without knowing our lawyer’s friends and acquaintances firsthand requires us to take a guess as to where to place them on our chart. Go ahead and give it a try before you look. Early adopter or pragmatist?

Here is where I might place them:

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Again, these initial guesses are just educated speculation. I know that attorneys are typically conservative; hey, they still use WordPerfect and have administrative assistants do their typing! I’m also tagging our attorney’s sister and housekeeper as pragmatists, along with the teacher and professional pianist. How many professional pianists, for illustration, would buy a piano sight unseen? Not many, hence the pragmatist classification.

Now, think about the first two natural responses our lawyer has when one of these potential customers says “Wow, I didn’t know you got a new piano!” He would either say:

“I saved $8,000 by buying it online!” or

“Let me show you how these new player systems work!”

The early adopters are going to love our attorney’s second response: the early adopter-types enjoy seeing the new technology and will connect with the message—the “word-of-mouth” message. This is a good start.

How will pragmatists respond to the lawyer’s response “Let me show you how these new player systems work?” Pragmatists are probably thinking, “This guy has more money than sense—why didn’t he just buy a Steinway? Who needs a piano that plays itself? That defeats the purpose.” Pragmatists are practical, to be sure; and a Maui CEO business proposition will naturally connect with the pragmatist’s frugality; low-price can help overcome some of the deepest fears a pragmatist might have buying something like a piano online.

Crossing the Chasm to a Pragmatist and Their Dollars

There are two things about the psyche of a pragmatist that, once known, can help you increase sales to this customer segment. First, pragmatist’s value opinions from people they trust—people who are like them in terms of technology adoption. A fifty-five year female VP of Sales would value someone’s opinion on a product much more if that other person was from Rotary or the local professional women’s association; in contrast, the same woman is not likely to trust her daughter’s friend studying environmental science at Berkeley.

The difference isn’t necessarily about age, although age can contribute to creating one’s philosophical approach around and experience with technology adoption. From a technology adoption perspective, Grandma doesn’t relate to the young whippersnapper; the proud owner of a Ducati motorcycle (high-end, high-technology, and quirky) would not be too influential on a Harley Davidson owner. If you want to reach the pragmatist and their dollars, give them an opinion from someone they trust—another pragmatist—and not an opinion from someone who is utterly unlike them.

The second characteristic to know about pragmatists is how much they value the market leader. A pragmatist will buy a Honda for the good repair history, low cost of total ownership, and so on. They know that if the Honda dealer charges them too much for service, there will be lots of places in town that can service a Honda. Pragmatists stay with the herd. Pragmatists consult with their colleagues; in contrast, early adopters follow their own hearts.

This, then, is the challenge: how can you get your early adopter customer to “cross the chasm” verbally and connect with the pragmatist? Answer: in your post-sale communication with the customer, reinforce the pragmatic aspects of the purchase, and offer incentive for referrals. In our illustration above, let’s see what we could say against common and underlying values of the pragmatist:

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You can reinforce these pragmatist values in post-sale communications, like emails informing the buyer of shipping status. At the bottom of said email, have the signature line reinforce your top two choices. You could send a postcard that emphasized the values and reminded of the referral bonus. Doing so will help you convert that skeptical pragmatist into dollars and an evangelist.

Source: Geoffrey A. Moore, Crossing the Chasm (Collins, August 2002)

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Now that you get the premise of what you can do to “cross the chasm,” here is the actual graph used by Moore. For ease of instruction, I had simplified the segments. As you can see, the size of the market on the right side of the chasm is huge and critical. (This is a graph of the number of new customers.) We have thought about positioning in the context of psychology: differences in people and their adoption of technology. What about differences in product?

Product

Webvan spent more than $1B to create an online grocery business and was managed by top talent. But they went “kaboom!” The Segway was hyped like the Apple iPhone and even had Steve Jobs’ backing, but has sold only 6,000 units in the 18 months after launch. Why have Webvan and Segway failed? Because they were able to capture the technology enthusiasts and visionaries (see chart above), but failed to cross the chasm to the pragmatists, followed by the conservatives, and so on. In addition to thinking about the chasm in terms of people, you need to consider differences in product.

Crossing the Chasm Slowed (or Prohibited) by Product Differences

If your eBay sales aren’t up to your expectations…or you are trying to grow your revenue, consider the following two points: businesses routinely underestimate the psychological costs of behavioral change; and buyers are irrational.

I tried Webvan once and enjoyed the convenience…and then Webvan filed for bankruptcy liquidation. Listen to what their CEO Robert Swan said on the sad day: “Webvan has weathered numerous challenges, and in a different climate, I believe that our business model would prove successful . . . At the end of the day, however, the clock has run out on us[3].” I disagree with the conclusion; in fact, the business model is still around and has been slow to “diffuse.” Safeway has been selling groceries online since the Webvan days, for instance, but even techies like me aren’t using the service yet.

Consider the advantages of buying your groceries from the comfort of your computer (or ultra-mobile PC or smart phone): avoiding crowds; convenience of online ordering; the service of having everything delivered; and how online ordering lets you match up your dietary goals (i.e. low-carb) with recipes and weekly planning. That’s a pretty good list of advantages. How about disadvantages? From the executives’ perspective, they saw the behavioral change as a small cost relative to the advantages. They were wrong.

Customers could no longer pick out the cut of meat they wanted; you get what the Safeway employee picks out for you. Customers no longer saw the in-store end-cap that reminded them to buy something they had inadvertently left off their list. I have no doubt that Webvan executives knew this. What they didn’t count on was the psychology of gains and losses[4]. In 2002, the Nobel Prize was awarded for work that explored why individuals stray from rational economic behavior. In other words, if the advantages outweigh the costs, why do customers still not bite? Two of the reasons cited include:

Customers treat required behavior changes and shortcomings as large losses. These losses—like not being able to pick out your own Rib eye—have a bigger impact on a person’s psyche than similarly sized gains.

Customers weigh the options subjectively, not objectively. If the shipping charge is reasonable, hey, why not order groceries online? For instance, if customers weighed the $10 Safeway grocery shipping charge against the time value of money saved by not driving to the store, sauntering up and down the aisles, standing in line to pay, and loading up the heavy grocery bags…they would see the objective value of online ordering. However, the perceived value, or should I say the perceived costs, of the things you lose when you change the status quo, are higher than an objective analysis would indicate.

I like this example from California: during the various power outages, customers demanded compensation from the local power company when an outage has occurred. To help balance the power grid during maximum use, the power company offers a year-round deduction to your electric bill if you allow the power company to throttle your air conditioner off when it’s really hot and demand for electricity is highest. What’s the difference between what customers demand in terms of compensation after a power outage–and what customers will pay to proactively avoid the problem? Three to four times as much[5]. This is because “losses loom larger than gains[6].”

I implied that Segway was also an example of where the psychology of change was underestimated. My first thought on Segway is actually a memory; I was in downtown Beijing, with the hustle and bustle, and saw a guy in a business suit go flying by on his Segway. As you can imagine, people were staring!

Rogers Five Factors of Diffusion

Let’s put together the concepts from crossing the chasm and how losses loom larger than gains. What does the buyer get when they buy a Segway? Mobility. What do they lose? The health benefits of walking. Segway expected to sell around 75,000 units but only sold an estimated 6,000 units[7]. Had Segway been able to cross the chasm from enthusiast to pragmatist, and minimized the psychology of change, I believe their sales would have been much stronger.

Here’s one more framework[8] you should apply to your product mix. It is believed by certain academics that 85% of your product’s success is determined by the following five factors:

Relative Advantage – the degree to which your new product is better than what it replaces
Compatibility – is your new product compatible with the buyer’s existing practices and beliefs?
Complexity – is the product easy to explain? Easy to use?
Observability – how “public” is the customer’s use of the product?
Trialability – can your new product be experimented with on a trial basis?

Let’s stick with Segway:

Relative Advantage – Segway is a new product category, but its relative advantage is low, because a new Yamaha scooter gets you there faster and is also environmentally friendly (both strengths of Segway relative to walking)
Compatibility – Segway is low here too; there are places to park and lock your bike, but where can you leave your $5,000 Segway outside the health club?
Complexity – Segway is a draw here: it’s difficult to explain, but easy to drive; you just stand on it and lean forward
Observability – Segway scores high here. I will never forget that Beijing sighting of my first Segway. Assuming conspicuous (but environmentally-friendly) consumption is desired, observability is high
Trialability[9] – I’d rate this low as well; who knows where you kick the tires on one of these?

Consider your product line in light of these five factors. Remember that your product will sell more and sell faster if it rates higher in these criterion; success is defined as having low behavioral change required while creating clear value as perceived by the customer. After you consider your products against these conditions, you now know that you should emphasize your product’s strengths and de-emphasize its weaknesses (or improve them).

Product Continued: Your Website

Your website IS your marketing message. You need to take a step back and look at your webpage as if seeing it for the first time—and with a critical eye. Is the visual presentation consistent? Is the content relevant?

Positioning Relative to Competition

Volvo stands for safety. If the Marketing department spent $50M attempting to change this positioning, the attempt would be ineffective; Volvo owns that little slice in your mind representing “safe cars.” Because the positioning is so solid, relative to their competition, Ford, Mercedes, and Porsche can only be “safe as a Volvo.” When we started Maui CEO, you were encouraged to be singularly clear on what product you sold, as a low price leader. Has there been scope-creep? Let’s take a look.

Acting as if you were a customer, follow the process to get to the product website. Did you click on a paid link or search result? (Note this for later.) Was one value proposition more effective at catching your eye? For instance, would someone’s offer of FREE catch your eye more easily than “best price”? Jump around, evaluate, and honestly narrow the choice down to two web-site sources. The results give you insight into your competition’s strengths. Now, do the same thing on eBay.

Let me show you an example from actual eBay data. From April 13, 2007 – July 11, 2007 (90 days), here are the top 5 sellers of doors:

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Compare sellers #1, #3, and #5 (ranked by Total Sales) below: Grand Entrance Doors, Abby Door, and Lynda’s Variety Treasure Box.

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Grand Entrance Doors, the apparent leader, specializes in alder wood doors. Abby Door specializes in wrought iron. And Lynda’s Variety Treasure Box specializes in mahogany doors. See a trend? Each is positioning themselves in relation to the wood of choice. This is a good start, although the business names do not lend themselves to be collaborative with the positioning (except for Abby Door – Wrought Iron Works). Each could do better by focusing more. A quick investigation shows that each company carries all kinds of things other than the doors (hinges, accessories). I’m certain that if you looked at these inventory items from an Activity-Based Costing angle, that you’d have a better return by selling only doors and not wasting your employees’ time boxing up and sending door hinges.

Are you clearly differentiated from your competitor? If you are the mahogany door leader, then copycats face the uphill battle of trying to separate themselves from you. Not to mention the impossible task of underselling you, when you buy straight from the factory in Brazil, while the competitor buys from a distributor.

Technical review

Does your home page load quickly? Are the technologies used distracting? Do all the links work? This is stating the obvious but we’ve all been on websites—recently—where all three of these problems existed, and you moved on instead of waiting. Run http://webxact.watchfire.com/ on your site to give you feedback on your site’s accessibility, content and privacy compliance.

Interactivity (tension on every page)

One of the qualities of a great writer (fiction or non-fiction) is having tension on every page. This is the pure definition of a “page-turner” and gives us a good standard by which to base our website’s interactivity. Since it’s believed that 80 percent of people read only 20 percent of a web page, and don’t like to scroll down web pages, look at your page’s density: break up your content into small pieces without destroying the flow.

One of my recent observations is that websites have information overload in their quest to be interactive. Give your visitors the information they have requested and naught more.

Motivation of Others to Recommend You

Many of the fun cases studied in business schools across America involve channel conflict and motivation. Inevitably, Sales is running on a different track than product management, which of course is in conflict with the ecosystem partners. One of my favorite cases is Aqualisa[10], where Aqualisa the company invented the best shower-head in a decade; priced the product so that the retail establishment made more money than previous products; and saved the plumbers 75% in installation time.

There was one little problem: the plumbers didn’t want to save installation time! It turns out that legal regulation in the UK basically requires new plumbing work (which this and most showerheads require) to be done by a certified plumber—and there was a six-month waiting list. Since these plumbers got a fixed price for installation, and demand for their time was high, they were disincentivized to promote the new Aqualisa heads. (To be clear, the plumbers believed that they would quickly catch-up on the backlog, thus ending their vital position in the cog.)

Since you probably don’t have a sales force (although this isn’t a bad idea—if VA’s can competently act in this capacity), run through each player in your supply chain and assess their motivation to recommend you and/or help you sell product. You might find misalignment to repair and incentives to leverage.

[1] The 4 P’s of Marketing help you determine the right “marketing mix” of products. The idea started in 1948 (according to Wikipedia) and was brought to market by Northwestern’s marketing guru Philip Kotler. See Kotler, Philip, Keller, Lane (2005) “Marketing Management”, Prentice Hall, ISBN 0131457578

[2] Geoffrey A Moore is a managing partner at TCG Advisors in San Mateo, California, and venture partner at Mohr Davidow Ventures in Menlo Park, California. He is the author of the bestsellers Crossing the Chasm, Inside the Tornado, The Gorilla Game, and Living on the Fault Line. If you do nothing else, read Chapter 2 of Inside the Tornado. I personally heard a professor of business at Harvard University say “everything I ever did wrong in my career can be found in chapter 2” [of Inside the Tornado].

[3] http://news.com.com/2100-1017-269594.html

[4] “Eager Sellers and Stony Buyers,” by John T. Gourville, Harvard Busines Review (June 2006)

[5] “Eager Sellers and Stony Buyers,” by John T. Gourville, Harvard Business Review (June 2006)

[6] “Eager Sellers and Stony Buyers,” quoting psychologists Daniel Kahneman and Amos Tversky, by John T. Gourville, Harvard Busines Review (June 2006)

[7] “Eager Sellers and Stony Buyers,” by John T. Gourville, Harvard Busines Review (June 2006) pg. 3.

[8] Rogers, Everett M. (1995). “Diffusion of Innovations,” Fourth Edition. New York, NY: Simon & Schuster.

[9] Helio understands this concept, and offers to send you their brand new Ocean social-networking cell-phone for 30 days—for free.

[10] Aqualisa Quartz: Simply a Better Shower (Harvard Business School Publishing), 2002.