Marketing Memos

“That’s a dumb differentiation,” was what one bootstrapped founder said to another after both their investor pitches plummeted.

Differentiation, the unholy grail of product marketing, shows that most people have unrealistic notions about what it is. In pure form, differentiation is anything that makes your product different. In practical form it is the difference that causes people to buy your products and not ones from your competitors. Just because your product is different doesn’t mean anyone wants it.

Indeed there are three basic things that can be called differentiation. A product or feature can be different from everybody else’s, it can be better or it can be new. Yet, just because your product/feature is different doesn’t mean anyone wants those differences. Just because your product/feature is better doesn’t mean that people need it to be better, or you may not be ‘better enough’ to motivate customers switching to your offering. And new products (say pink men’s Speedos) might be a new thing, but it is doubtful you will sell many units.

You must create differentiation that matches the desired, unmet and often unknown outcomes of your target customers. The overlap between what they want to accomplish and how your product is different is where sales begin. All too often, techie founders will dream-up differentiations without sound insight into the precise customer desires and degree of demand for them. In some cases the invention/feature imprecisely matches what customers want. Other times the match is precise … for the 37 people that want that particular feature.

Either inaccuracy means wasted effort for no reward.

Two market research steps create solid foundations on which to build products. Qualitative research seeks to understand what customers may want. My particular favorite approach are deep interviews with non-customers (interviewing content customers often yields nothing). Trained interviewers detect points of customer frustration, and then guide the conversation to explore the source of the angst. Once a point of motivation is discovered, surveying determines if enough people share the same frustration and want a similar solution. When done in this order, creation of differentiation is almost automatic (though we always suggest testing proposed product/feature solutions to assure it is architected correctly).

It isn’t enough to have differentiation. It has to be meaningful, otherwise your company won’t be.

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New And Improved is a wonderful slogan for soap. Not so much for enterprise software.

Yet in the past year I have helped two major software companies with their go-to-market messaging for what was essentially New And Improved versions of their existing products. Noticing this brace of businesses had the unfortunate effect of forcing me to think about the essence of New And Improved market outreach – when and why it makes sense, when and how it doesn’t. When we examine the technology adoption lifecycle and the wave-extension variant thereof, we realize that much of technology marketing involves New And Improved products.

We’re just smart enough not to call them such.

In technology marketing, we see several forms of New And Improved products. One is new versions of existing products that have moderate improvements or extensions to the core expected product. Others extend functionality to make the product more competitive, in effect repositioning the product within a segment or market. Other New And Improved products are designed to change the basic competitive field, such as when Apple redefines smart phone or slab markets with new releases.

Other “New And Improved” products are rarely new or improved, and not worth discussing.

There are several primary reasons companies might chose to release a New And Improved offering, and that list includes:

Preserving brand equity: Existing customers like to keep relationships with products, but occasionally need to have their faith in the product reinforced in order to defend against competitor promotions. Laundry detergent is a great example of a product category where everyone offers New And Improved products in order to motivate customers to keep buying them. The improvements are likely cosmetic or minimal, but brand loyalty must be nurtured, even with near-commodity offerings.

Repositioning: Products are often reconfigured to improve competitive positioning. This is especially true when a company augments a product to enter a new segment, but is most common when trying to outmaneuver competitors. Again, the improvement may be minor, but the objective of outbound communications requires telling a story of product improvement in order to change the way some buyers perceive the product.

Strategic advancement: Like Apple releasing new iEverythings, the objective is to take an existing product and move it significantly beyond the competition. Oracle danced this dance for years, masterfully improving their database technology and putting “competitors” far in the backfield. But Oracle and Apple have to communicate their New And Improved products in such a way as to convince buyers that the market itself has changed.

Some day you will have to communicate your New And Improved product to the world. But pitching high tech like you would soap suds is a lousy idea because people are buying much more complex outcomes. Your New And Improved promotional strategy has to be based on the intersection of the purpose (preserving brand equity, repositioning, strategic advancement) and those customers who actually care. Only in the case of strategic advancement do communications need to go to market-wide audiences.

Now you have a New And Improved toolset for New And Improved marketing.

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My web hosting company is a pest (I don’t want to out them, but let’s just say their name rhymes with Juan and Juan).

In a few instances I consulted to a software company, which my web hosting service now resells. Thus, when my hosting company called one day to sell me on their “new and amazing” SaaS offering, I was amused.  I politely told the telesales monkey about my history with the system, and suggested that I was not going to be a customer.

Then they called again … and again … and again. Eight times, and during each episode I asked with growing bluntness that they not disrupt my future days.

They called this morning.

Promotions, and the abjectly unpopular telesales routine, are essential to business. Making people aware of your products and value propositions are required as the first step in the marketing process. But like a neighbor who knocks on your door just to say howdy, what starts as a polite and perhaps quaint interaction eventually devolves into events that require calling the cops.

There is a line between being neighborly and being a stalker, and the same applies to sales.

Overly frequent or inappropriate promotions create dislike in the minds of prospects, or in the case of Juan and Juan, hatred and loathing in the minds of existing customers. Nobody likes a nag. Thus, your campaigns have to stop at some point lest they create resentment, which if prolonged creates reaction. Campaigns should target individuals very well, end after a set number of touches, and most certainly track the prospect accurately. The excuse Juan and Juan’s sales agents make is that I have multiple domain names, that I was getting calls about each, and there was no single account-wide flag to end those calls. The first part may be true; the last part is either an outright lie and the worst example of CRM management in the history of the industry.

Prospects and customers go through several phases of disenchantment. At first they accept new promotions. After the relationship changes from sales pitch to stalking, the prospect/customer quits buying new products because they do not want to deepen the relationship. If more inappropriate sales contacts ensue, they begin disengagement. If pushed further with unending contacts, customers retaliate, typically by telling everyone they know not to buy from the vendor (I for one have stopped three perfect strangers from buying Sony laptops due to a defective unit and a defective tech support team I once had the misfortune of encountering).

It is this last step that is deadly. Churn is inevitable in any industry. But mildly dissatisfied customers don’t make life missions of destroying your public reputation. Promotional campaigns that drive customers to the point of anger do. Thus, any campaign you run must be:

1) Well targeted – avoid aggravating non-buyers

2) Have consistent records – make sure sales attempts are tracked at the individual person, across all methods of contact (that’s what your CRM database is for)

3) Precise – don’t waste their time, which begins with getting your value proposition stated early

4) Finite – let it rest if you have not made a conversion after some small number of contacts (perhaps resuming after a significant time lapse)

In our wired world of social networks, you cannot unleash the wrath of angry customers. Start by not angering them. Just ask Juan and Juan, who if they keep up the harassment here will find new employment cleaning my pool.

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“Silicon Valley invented the technologies that will break apart Silicon Valley,” was the opinion of one Silicon Valley start-up founder in my cabal.

Scott McNealy, co-founder of Sun Micro and the longest running ad lib comedy act in high-tech recently started a fresh round of discussions about the perpetually pending demise of Silicon Valley. He is heading a stealth start-up in Colorado, far from Stanford, Sand Hill Road and giant blimp hangers. This caught the attention of over seasoned Silicon Valley veterans, and apparently McNealy received a number of inquiries concerning the locale for his new technology empire.  In response he listed the “Top 10 Reasons it’s Better to do a Startup in Colorado than California.”

Jerry Brown is spinning in his grave (What?  Not yet?  You’re kidding?  He looks older than Keith Richards’ grandfather!).

Many things make Silicon Valley the incubator for new and world changing technology, but none of those elements are indelible.  There is a lot of tech-savvy venture capital here, but investors around the globe are banking on technology these days (oil and energy investors in Texas are becoming digital sugar daddies).  A cluster of tech talent is tops, but in this century we can hire anyone from any point on the globe to cut code, map schematic diagrams and even digitally collaborate on chip manufacturing plant design. About the only other variable is the Silicon Valley culture that embraces failure, but few things aside from political lies move faster than cultural biases.

And if Silicon Valley’s masterminds are ready for Colorado ski slopes, then they take inertia and vibe with them.

An informal poll of a handful of founders shows me they have no particular desire to be or stay in Silicon Valley.  Several local founders would leave tomorrow if their VC’s didn’t insist on keeping a close watch on their cash.  Those not in Silicon Valley are actively looking for capital elsewhere to avoid relocation.  Even a couple of VCs I know admit that if they had a way to keep tight reins on their portfolio companies, they could care less about the location of corporate headquarters.

In short, nobody is insisting that Silicon Valley remain the center of the technology universe … not even the people in Silicon Valley.

Yet numbers, being stubborn things, may tell a different story.  Spot checking a few Silicon Valley cities (with Cupertino stats shown below) we see that since the dot-bomb era the population is slightly larger, income (adjusted for inflation) is higher, and the number of people with sheep skins is up significantly. A single decade snapshot is insufficient to define a trend, but it seems Silicon Valley is not exactly destined for diaspora.

This does not mean it won’t happen.  After all, residential broadband is still a relatively new commodity and the world is working out novel patterns of employment.  We may well see a hybrid whereby many or most of the sharpest startups land in Silicon Valley for the lucre, maintaining tiny executive headquarters while virtually managing a mass of employees scattered yon.  Nothing guarantees Silicon Valley will be Silicon Valley in the future … the place has a habit of inventing the next new thing, which might be a new “center” of the technical universe.

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I saw a grandmother reading her Kindle this morning.

A seismic shift is occurring in the publishing industry, and before all is done a great deal of corporate blood will be shed.  Nimble organizations will survive and perhaps thrive. Old institutions will die.  The very nature of content is forever changed, and as always, marketing people are both over and under reacting.

Electronic book reading devices (e-readers herein) are getting very successful.  Some reports have e-book sales at 20% of the market, shaving a few years off industry predictions.  One interesting tangent to this is that e-book readers buy more books than people who thumb-through dead trees (and will phrases like ‘thumb-through’ exit our vocabulary?).  This is in part due to the retail price of digital books being about half that of paper, and thus there may ignite impulse purchases, such as is the case with single MP3 files as opposed to buying an entire CD in a jewel case.  Or it may be that people who bought Kindles, Nooks and iWhatevers were voracious bibliophiles to begin with.

The fundamental change in market mechanics is that a bunch of middlemen were obsoleted.  In the old days, an author hired an agent (15% commission) who sold rights to a publisher, who sold books to distributors, who sold books to book stores, who then sold them to you.  Now you can write a book and sell it directly to readers and cough-up as little as 30% to a single mediator (Amazon, Barnes & Noble, Apple and Google).  In effect two middlemen are now standing in the unemployment line with your brother-in-law.  And frankly you can’t even compare shopping at Amazon with shopping at Border’s Books, mainly because Border’s is locking their doors.

Digital publishing has changed the industry more radically than the recently dead Osama bin Laden (praise Allah for a clean kill) changed 21^st century geopolitics.  In the bad old days, a writer would earn 15% or less of the cover price for his books, the rest being divided between everybody in the value chain.  Today the writer, if he self-publishes, makes no less than 60%.  However, by cutting out everyone in the value chain, the entrepreneurial author has to be her own PR, marketing, advertising and social media agency.

Most writers can barely write, much less do real work.

Everybody in the business is trying to adjust, from Simon and Schuster to the neo-beatnik you see tapping his laptop at Starbucks every morning.  The good news is that the value chain disappeared in part to the brutal and beautiful efficiency of digital distribution.  With e-books, there are no warehouses, store shelves, or dust gathering on unsold books that will be returned to the wholesaler.  The cost of product for e-books nears zero and thus the cover price is half of the old variety.  Similar market mechanics apply to magazines, which are scrambling to go digital.

iPads and Android slabs may even save newspapers.

Marketers face problems in this model.  Many traditional means for promoting new books are bombing.  Only 60-70 U.S. newspapers do their own book reviews.  With book stores closing faster than a Jewish deli in Kabul, book signing events are becoming scarcer and moving to more fragmented venues.  Even Oprah has depreciated her book pimping.  Most publisher marketing mavens are looking to social media as the primarily promotional point, but those paths are still not well understood.  The industry’s old habits are dying as hard as the industry (though not nearly as hard as Bubba bin Laden).

Book stores are toast.  Large publishing houses will be margin constrained.  Small press will thrive.  Book marketing people will be confused.

The backhanded marketing lesson herein is that if you want to own an industry, kick the legs out from everyone else.  Circuit City, in their prime, engineered-out everything everyone hated about shopping for consumer electronics, and at that time they were the darlings of Wall Street.  Amazon eradicated the publishing industry value chain, reduced delays in the publishing cycle (upwards of a year from contract to book sales) and caused the old venues for promotion to evaporate.  If in doubt look for what makes your industry weak or inefficient, then use that to change the rules.

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