Marketing Idea No. 286: What paying high price actually means

Its often said that price war is the last resort of stupid marketers. However when it comes to over pricing, such beliefs are less commonly held. Unless of course you are the unlucky middle class consumer who is caught between two irrepressible forces: savvy marketers and rich consumers A lot of products can justify their high price of course.

When you pay that extra $500 dollar for a trip in Singapore Airlines, you know that you are paying extra for the legendary “Singapore Girl” service, the exemplary attention to details of the food and the comfort of the chair that is designed in collaboration with BMW.

Not every pricing-quality paradigm is as straight forward though. The price of a luxury car maybe 10 times more than a Mini van for soccer moms, but maybe costs only two times more to make. In that case, the illusive “Quality” gain that the buyer is getting by paying higher is not as great as the clearly significant profit that the seller is getting.

Liquor is a category which is notorious for over pricing by using clever marketing gimmicks, even when the cost increase and quality/value addition is not all that high. Thanks to the rich demand from the rich people, particularly in China and Russia, a Bordeux vineyard wine can charge exorbitantly higher price simply because it has high demand. Then comes the me-too brands. They charge high not because their cost base is high or their product is superior or they have brought innovation. They do it because someone established that high price already and by copying that price, they just want to signal the consumers that this product is worth the same high value. Cloudy Bay, a straightforward New Zealand Sauvignon Blanc whose price; without any apparent change in the production method; rose from about $15 per bottle to about $30 per bottle after LVMH acquired the brand in 2003 and began marketing Cloudy Bay as a luxury product.

And then there is the effect of marketing cost. The world’s biggest Luxury house LVMH has a cluster of super premium brands like TAG Heuer watches, De Beers diamonds, Guerlain perfume, Louis Vuitton handbags, Chateau d’Yquem, Krug, and Dom Pérignon. All of these brand are over priced because such a large portion of their cost base is spent on marketing, not to increase their quality.

Please keep in mind in all of these cases, price doesn’t reflect the quality. It reflects irrational buying behavior. That’s why when a products high price is not because of its high production cost; but mainly due to marketing gimmick, marketing cost, shortage of demand or any sort of irrational buying behavior; that’s when it can safely be said…… you are paying too much.

Marketing Idea No. 285: Why Transient strategy is the excuse you need to not debate over Long term vs Short Term strategy

One of the ancient contradictions of management is long term thinking vs short term thinking. Usually during the yearly strategy plan meetings, all managers magically become long term thinkers, at least on the PowerPoint slides. Then comes the quarterly reviews and the only thing they care about is short term results. Budgets are approved based on long term planning. Budgets are cut based on short term focus. How can we be seasonal short term executioner with the soul of a long term planner, both at the same time? Why do all of us admire Warren Buffet’s long term thinking but follow our boss’s short term directions?

More importantly, is there a way out?

In a world where change is the only constant, both embracing traditional long term thinking or completely abandoning it, are both outdated and dangerous. Check out Fast Moving Consumer Goods or Consumer Electronics, where industry standards change every quarter. Check out the competition between TV category and Telecommunications category, who traditionally should not be competitors. Holding a constant long term strategy might be a luxury that the marketers in these category will never have. That’s why the new buzz word in strategy is called “Transient” strategy.

At its core, “Transient” strategy assumes that no single strategy is a source of sustainable competitive advantage because the landscape, the rules and the players keep on changing so fast. Instead, companies need to be agile: shifting strategies as fast as possible, when necessary, and even adapting strategies that are in the process of implementation to the new environment the company finds itself in.

A curious case study in question is Research in Motion. Only 4 years ago they were the giants at smart phones with their ubiquitous Blackberry everywhere. Their long terms strategy was holding on to their competitive advantage on QWERTY based phones, fast e-mail service and unparalleled security. While they went on to make the safest, fastest, most sophisticated phones; the whole industry moved on to the sexy and bling bling Touch screen phones. Beauty became the new standard, eco system and apps the new buzz word. Fast forward 4 years and the long term source of competitive advantage became the source of long and slow death for RIM.

Friedrich Nietzsche probably had something similar in mind when he said “the snake which cannot cast its skin has to die. As well the minds which are prevented from changing their opinions; they cease to be mind.”

Marketing Idea No. 284: How NOT to choose your profession

Police detectives have lousy jobs. There is no fixed work hours. The pay is low. You spend time looking at graphic scenes all the time. And not to mention you spend most of your working hours with the biggest scums on planet earth.

Considering this, why should people choose police work as a profession? What kind of people really should choose police work because clearly it’s not for everyone?

Police work makes sense probably for people who feel they can play an active role in making society a better place. If you have a penchant for helping people but your overall personality is pleasant rather than aggressive, maybe not police work; but nursing is your thing. If you have a sunny, extroverted disposition and you genuinely like talking to people, you should work in sales or customer service.

Now imagine a situation where someone meant for police work ends up in sales and someone meant for sales ends up in a job in funeral parlor. It may sound implausible and impractical, but that’s happening all over the world every day. Every time when someone chooses a job for pay alone or for family pressure, they end up making these wrong choices. Then society as a whole suffers from getting corrupt policeman and grumpy customer service executives.

Not only psychology, but sometimes you have to read your physiological strengths to understand what you can be good for. If there is person who is over 7 feet tall in America, there is a 17% chance he is in NBA right now. If you belong to Kalenjin tribe in Kenya there is a high chance you will be a world class Marathon runner because of the unique and thin leg structure that those people have.

This is how society can help people become happier. By understanding what they are good at and helping them choose profession accordingly.

Marketing Idea No. 283: The Internet of Things

Coming soon to a future near you, your shoe will interact with your refrigerator indicating what kind of mood you are in and depending on that, the refrigerator will suggest dinner in collaboration with the Japansese microwave sitting beside. Just after that, your ever changing bedroom lights will create the perfect ambience to sooth your flailing nerves.

Use of internet connected smart appliances or popularly known as “Internet of Things” is no longer in the fiefdom of science fiction only. As per Business Insider Intelligence report, 1.9 billion devices today, and 9 billion by 2018 will be connected to Internet which is roughly equal to the number of smartphones, smart TVs, tablets, wearable computers, and PCs combined. It will drive trillions in economic value as it permeates consumer and business life.

Imagine the possibilities this will open up for advertising. Your refrigerator will become your next media space for advertising. Why put the advertising for your “Mint-Goji Berry Chocolate Yoghurt” in TV when it makes much more proximity and relevance sense to put it on refrigerator?

The transformation of media is neither easy nor quick though. For years of talking about the death of TV and radio, both are still very much alive and probably still driving the majority of ad spending. Newspapers have not gone out of business due to digital subscriptions. For all its hype, Twitter is still in red ink and don’t know how to monetize from a Tweet. And the whole world is still trying to figure out how to make money from mobile advertising without annoying people.

But the immense world of opportunity in “Internet of Things” is out there and inevitable. We just have to crack open the way to ride this wave better.

Marketing Idea No. 282: The Future of Advertising Part 3 – Looking Forward

The prophets of doom has announced the death of Advertising quite a few times in the past decade. Yet Advertising is as alive as it were at any time during its illustrious history. Advertising is here to stay. But just like before, it will be facing transition pains.

There are two theories about how Advertising will evolve in coming days. The first is the widely held but less likely one, which is advertising agencies will become a one stop shop for all sorts of client needs.

This of course means the sections that agencies spun off over the years has to be put back. The media planning, media buying, consumer activation, research, digital – all those pieces of the puzzle has to come back together. In fact a lot of agencies have agreed that they were too hasty to sever those entities from the core function. This trend does make some sense because it will ease the shopping around tendency of clients who will obviously prefer to talk to one group of people rather than many.

What seems very efficient on paper however does not necessarily mean the most effective.

Which brings us to the second school of thought. As per this, the future agency will focus on solving consumer’s problems, and not necessarily through Advertising. This view suggests that in future advertising agency structure will be even simpler. Instead of the copywriter, creative, art director, planner, client service etc.; there will essentially be a cluster of problem solvers. Clients will come to agency with a problem, not a brief because most of the clients cannot define a clear brief and can only give glimpses of what their problem is, which the agency has to structurally figure out on their own. Agency then will try to solve the client’s problem by pulling relevant people or institutions from within or outside the agency.

Flag bearer of such idiosyncratic new kinds of agencies are Droga5, Naked and Anomaly. Droga5 has already made buzz in Cannes advertising in 2006 with its “Tagging Air Force One” campaign which is an example of the future campaigns that Advertisers are looking for. The client “Ecko” approached the agency with a very particular problem of launching yet another clothing brand in a crowded market place with a shoestring budget. The campaign consists of a grainy footage of a video showing Ecko’s founder Marc Ecko as a hooded figure creeping past armed soldiers and tagging one of the engines of the Presidential plane Airforce 1 with words “Still Free” in spray paint. The video went viral and dominated the global news for days. It even led to a statement from White House saying that both president and the plane is safe and its an Internet hoax. Both Naked and Anomaly also work with similar pushing the envelope over tried and tested, discussions over briefs, and solutions over advertising kind of work.

In future, Advertising content will also make its journey back to short and succinct. In the old days, advertising messages were short and to the point because the format of the medium (Radio, Poster etc.) forced itself to be. To grab the attention of consumers with unique forms of storytelling and to tap into the growing power of online videos, advertising content became much larger than its previous 15-30 second format. But in future, as more and more advertising moves into mobile and other digital devices like watches, shoes, refrigerators etc., the format of future advertising will also be short again.

A major role of Advertising will always be grabbing attention, but the approach will be more subtle and covert. Advertising will continue to blur its line with other forms of media based entertainment. A key evolutionary role of advertising in future will be to entertain first and pass on message second. It’s a trend that is already seen in Latin American countries. In Argentina and Brazil, advertisements are seen as a source of entertainment like their telenovelas and soap operas. There is no doubt, that trend will be creeping up in other parts of the world.

Marketing Idea No. 281: The Future of Advertising Part 2 – Looking Sideways

When the 80s came, it became clear that the future of advertising lies in two kinds of agencies. The first is the huge global networks, which is basically a collection of agencies coming together like a conglomerate or a group of holding companies. These networks will have the big global clients who want their campaigns to be replicated all over the world with the same effectiveness and efficiency. These network agencies have the scale, money and global presence to rival any multinational company. Some of these networks were formed through mergers and acquisitions, like Omnicom which has BBDO, DDB and TBWA under its ownership and in terms of billing and revenue is the biggest Advertising agency network in the world. Some networks where formed by a group of clever businessmen who purchased undervalued agencies in trouble to form a global powerhouse. Sir Martin Sorel is credited for forming WPP in such a way. An out and out businessman with finance background and never writing a single line of advertising, he is probably the most famous living advertising legend who created this monolith called WPP Group by combining the world famous JWT, Ogilvy & Mather, Grey World-wide and Young & Rubicam.

The world of advertising therefore is controlled by these 6 giant corporations – Omnicom, WPP, Interpublic (Owner of McCann Erickson), Publicis (owner of Leo Burnett and), Havas (owner of EURO RSCG) and Dentsu. Here the odd one out is Dentsu which is actually one single agency from Japan, not a network of agencies.

The second type of agencies are referred often as Creative Boutiques or “Hotshops”. These are smaller, local agencies which often focuses on completely fresh thinking and provoking advertisements and has clients who want to shake the status quo, rather than the safe predictability of the big network agencies.

The other big trend is how agencies spun off their media, public relations and research departments into separate entities. It made sense because that allowed the agencies to bulk-buy media space for multiple clients at one go which allowed big discounts which they passed on to their clients after keeping a commission. Mindshare from WPP is a pioneer in this kind of spin offs.

The biggest trend of them all is actually the advent of digital and new media. All of a sudden advertising’s role as a one way communication with consumer looks dated, compared to the two way conversation that digital and social has to offer. The continuous debate of the death of 30 second TVC has reached its peak, though to be honest, media spending in any of the old guards of advertising called Print, Electronic and Out of Home hasn’t gone down at all. Media fragmentation is happening faster than ever. People are getting bombarded with advertising messages. Giving less and less attention and trust to advertising is the new reality. To fight that Advertisers are continuously pushing boundaries to come up with newer and cleverer forms of storytelling.

The seeds of the future are already sown in this present. The most misused, misunderstood but monumentally important word of this advertising era is about to change the face of future advertising. The word is fondly known in board rooms, marketing meetings and agency pitch presentations as “Engagement”

Marketing Idea No. 280: The Future of Advertising Part 1 – Looking Back

Advertising is probably the only profession in the world where you can finally put your dual major on Philosophy and Business to effective use. Its also probably the only profession where accountants, chemists, professors, dancers, business graduates – literally anyone can flourish. Its an ancient and great form of storytelling that has shaped our world for hundreds of years. As we motor along with advent of digital and social media, where conversation and word of mouth is the new currency, now seems as good a time as any to ask the question; “What is the future role of advertising”?

To predict the future we have to make sense of our present. And to make sense of present, we have to look back how we evolved. That’s why in this 3 part write-up, we will look at the past first and then the present and future of advertising.

The modern advertising owes a lot to quite a few pivotal moments in its history and a handful of remarkable individuals. It was Albert Lasker, fondly remembered as the father of modern advertising, who shaped the early ways of Advertising agency formation and culture at the turn of the century. When Raymond Rubicam hired George Gallup, it gave birth to research as an essential part of advertising. When Bill Bernbach gave his new office DDB, he was the first to put Art directors and Copywriters to work together instead of working in their silos focusing only on their part.

The most important development of Advertising in the middle of 20th century was the development of two school of thoughts, which addressed the question, “How can Advertising be more effective?” One school believed that primary role of advertising is to sell. For them advertising follows a structure where strategy is the key. They believed advertising originate from and appeals to head and therefore rational, to-the-point arguments should dominate. The most famous proponent of this school of thought is David Ogilvy, who was also the first Englishman to become famous in the Madison Avenue, New York, which is the mecca of advertising.

The other school of thought is led by the creative revolutionaries of the 1950s, led by the legendary Bill Bernbach. He claimed that advertising should appeal to heart. It is actually a higher form of art, hence cannot be rule bound. Its primarily role is to entertain, because if the consumer cannot remember you, then there can be no sell. The current day practice of full layout dominated by a picture, with one line copy which is often resorts to witty wordplay or shock tactics is the outcome of this movement in the 60s.

The longevity of both these school of thoughts prove that the answer to the question of advertising’s role probably is a hybrid of both of them.