Archive for the ‘Product Development’ Category

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Capturing True Value

 
We at B2B International are fanatical about capturing value. Too often business to business companies are guilty of commoditising their markets. In this article in the Financial Times by Luke Johnson he talks about the opportunities for capturing value beyond the product itself. However, there are dangers. There is a fine line between capturing true value and ripping people off.

Beware the cost of hidden extras

By Luke Johnson
Financial Times

A central belief of modern business theory is the necessity to focus on a core activity – sticking to the knitting, as it were. But in the 21st century, an era of globalisation and digital transparency, I am not sure this maxim strictly applies.

For very many industries, ferocious competition and perpetual pricing comparisons mean an organisation’s main products are sold at little better than break-even. The internet encourages purchasing decisions based only on price. Qualitative issues are harder to discern on a computer screen – but price is plain (in theory). Hence gross and net margins have been relentlessly squeezed across everything from cars to cameras to home furnishings, as everyone tries to match the cheapest vendor.

In business-to-business transactions, procurement departments and online auctions have led to similar cut-throat pricing. Many suppliers now rely upon the “variation” principle that drives most profit for construction firms – a tendered contract will yield minimal margin, but any deviation by the client leads to supplemental work, priced at lucrative rates.

All sort of companies have adopted the approach of capital goods manufacturers. These producers sell their core range at cost and hope to make up profits through the add-ons. For example, engine maker Rolls-Royce essentially generates its profit from spares, service and maintenance once it has sold its aviation turbines for little return.

Consumer industries are not that different. The carpet trade is an example. After discounts, many traders sell basic floor coverings for a negligible contribution. But they then push add-ons at the point of sale, such as protection treatments at super-high margins. Similarly, electronics retailers sell brown goods at derisory margins, but obtain juicy profits from expensive insurance policies they sell on top. Car rental companies do the same, making the bulk of their profits from items such as fuel surcharges and collision damage waivers. The core activity is almost a loss-leader to attract customers.

The hospitality industry follows this trend. Diners focus on the cost of a main course, so restaurants try to keep these low – perhaps £10. On that the gross margin might be only 50 per cent. They then charge a massive £3 or more for a side order of beans or chips, where the gross margin will be 85 per cent or more. And, of course, restaurants add a service charge, which customers may forget to factor in when deciding how much they can spend. Meanwhile, the live performance sector is notorious for “booking fees” that add 10 per cent or more to the cost of a seat.

The arch exponent of this system is the no-frills airline industry. Airlines purport to sell flights for as little as 50p, but then charge for everything from credit card use to priority boarding.

In a way, even Britain’s Labour government adopted the same philosophy. It kept income tax unchanged for years, but introduced dozens of “stealth” taxes and gradually increased many other “minor” taxes to boost the overall tax burden significantly. Business and government both work to confuse and mislead the citizen, understating the true price (or taxes) to win customers (or votes).

The danger is that these tactics undermine trust in business (and indeed politics) among the public. The vast majority of consumers want to know the true, underlying cost of a product or service before they buy. They feel they are being ripped off if incremental costs are added that were not disclosed at the outset.

Yet commercial concerns must make a return, or they cannot reinvest and reward capital providers, and will eventually go bankrupt. That outcome reduces choice and allows the remaining players to price-gouge. Since there remains vast overcapacity in many industries, there is a tendency to over-produce, meaning goods will be sold at marginal cost. The irony is that the really expensive “core” items – an incredibly complex machine such as a car, for example – might make a paltry profit. The simple “ancillary” thing like finance is the method by which the industry makes much of its profits. As ever, capitalism defies logic but somehow still seems to work.

Posted in Product Development, Value |
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Who wants a better mousetrap?

In this Thursday night insight Paul Hague looks at the phenomenon of The Girl With The Dragon Tattoo and argues that “product” isn’t everything.

Have you read The Girl With The Dragon Tattoo? It’s a great story, there’s no doubt about it, but the story of how the book became a bestseller is even more incredible. Written in his spare time as a hard-working journalist, Stieg Larsson first called it Men Who Hate Women. Having finished his whopping manuscript and without publishing it, he began his second book. When this was finished he wrote his third. And then he had a heart attack and died. Only after his death were the books published.

The publishing of his books is another incredible story. The rights to the books in the UK, where it began its huge success, were bought by Quercus, a small and unknown backstreet publisher. The owner of Quercus became so desperate to shift copies he gave them away to people in parks and he planted dozens on the back seats of taxis and on tube trains. Today Quercus has moved to luxurious offices in Bloomsbury Square, and its revenues trebled to £15m in the first six months of 2010 on the back of the Larsson phenomenon.

So what can we learn from this? It seems to me there are at least five lessons:

1. What you call something is critically important. There is no doubt that sales were lifted by the intriguing and catchy label of The Girl With The Dragon Tattoo. When Marks & Spencer first launched its Vichyssoise soup, it didn’t sell. The name of the selfsame product was changed to Leek And Potato Soup and it flew off the shelves. We shouldn’t underestimate the names of our products. They are our brands, they carry a connotation, and they can positively or negatively affect sales to a dramatic degree.
2. The route to market is key. In the case of The Girl With The Dragon Tattoo it may well have helped that the publisher was small. The desperation to move the books may not have existed with a more prosperous and less hungry company.
3. Success requires critical momentum. Giving the books away in the first instance had a big cost but it kick-started growth. Somebody has to start reading and talking about the book and the sooner the better. Like a plane trundling down the runway, products gain height quickly once the wheels leave the ground.
4. Find a good PR story because it costs nothing. Undoubtedly the strange story of Larsson’s life and death captured the imagination of the media. It resulted in acres of newsprint which cost nothing and awakened the interest of the general public.
5. The product is important, but it isn’t everything. Larsson isn’t Dickens and he isn’t Shakespeare. However, his books have been published in 44 countries and have sold more than 40 million copies worldwide so far. They are a great read, there is no doubt about it but a product doesn’t have to be the best in the world to achieve the highest sales in the world. The debate still rages on as to which is best, a Mac or a PC . I won’t join that one but I will point out that Mac’s have less than a 10% market share and this in no way reflects the performance of the excellent product.

My insight today is that we should always take care to put as much emphasis on the other parts of the marketing mix as the product itself. Ralph Waldo Emerson once said that, If a man can write a better book, preach a better sermon, or make a better mousetrap, than his neighbour, though he build his house in the woods, the world will make a beaten path to his door. I am not so sure that The Girl With The Dragon Tattoo would have had such a large path beaten to its door without a little bit of marketing help.

Posted in Marketing, Paul Hague, Product Development, Routes To Market, Thursday Night Insight |
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The Fruits of Apple’s Success

In this week’s Thursday Night Insight, Julia Cupman takes a brief look at Apple in an attempt to understand how the brand has become so successful.

The iPhone 4 is currently one of the newest and hottest gizmos around, and so in demand that, here in the suburbs of New York, incredibly no Apple store and no AT&T store has one stock.

Back in April this year, Apple announced that it had sold 50 million iPhones so far, 35 million iPod touches, 450,000 iPads, and hundreds of thousands of many of its other products, bringing the total number of devices running on the platform to a staggering 85 million. At the end of April this year, the brand was valued at $83.1 billion – one of the top 10 globally, and up 32% from 2009.

A brief Thursday Night Insight isn’t enough to explore how this global behemoth has risen, consumed, and manipulated the masses, and so I will draw on just three key critical factors that I believe are at the core of Apple’s success:

A strong brand portfolio. Apple has built its own distinct empire: the “i” family, including the iPhone, iPad, iPod, iTunes, iMac, etc. Its brand portfolio covers products in 3 different markets: computers/laptops, mobile phones, and digital music. This means that Apple is protected should there be a downturn in any of these product segments.

In addition, these diverse products have created a platform for new product development, enabling Apple to enter new markets relatively easily (as was the case with the iPad), while also substantiating its leadership position in innovation.

The various products within the Apple family have attracted mass market appeal. Apple’s strong brand portfolio continually nourishes the corporate brand, stimulating and feeding ongoing demand for its offering. Apple and everything it embodies has become a global icon.

A focus on innovation. Apple has revolutionized the consumer electronics industry in bringing the digital world to one’s fingertips – changing communications, maximizing information retrieval, and introducing new forms of entertainment. The company has stood up to giants such as Microsoft, Google and Nokia. In constantly reinventing the wheel, Apple is undeniably a leader in innovation.

Selling an experience. Apple has created a differentiated customer experience model in reconstructing the accessibility and fulfillment of customer wants and needs. Virtually whatever the customer wants, the customer can get, easily and cost effectively. Apps for cooks, apps for traveling, apps for managing money, apps for working out, and hundreds of thousands more. There is even an app that locates public toilets. In short, Apple goes far beyond selling a product; Apple delivers an experience, transcending communications, entertainment, and the infinite world of information.

 
Furthermore, the Apple image plays a key role in seducing and engaging the consumer – from the appeal of the bright, ultra-modern and inviting Apple store; to its attractive products exhibiting elegant design and cutting-edge technologies; to simple yet enticing packaging.

Apple attracts consumers through innovation, and then engages with them by selling an experience, locking them in to the Apple brand. Apple is so in sync with the pulse of the market, that its followers become advocates of the brand.

We probably all want a bite of the Apple. Understandably, b2b marketers might claim they are disadvantaged compared to Apple, as the likes of industrial products are a far cry from sexy consumer gizmos. However, key to successful marketing is the ability to transfer ideas from successful companies, and to adapt and build on these ideas. With that in mind, I leave you with 3 questions as take-aways from this Apple insight:

• What does your brand “look like” today, and what would you like it to “look like” in 5 years’ time?
• Thinking outside the box, and imagining that anything at all could be possible, how would you meet the unmet needs in your market?
• How can the customer’s interaction with your product or service be transformed into more of an experience, encouraging them to engage more with your offering?

Posted in Julia Cupman, Product Development, Thursday Night Insight |
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The Modern Suggestion Box

We read recently on research-live.com that auto maker Ford Motor Company has boasted of going “beyond traditional market research” with the launch of a website where members of the public can share ideas about the types of features they would like to see in future car models.

This initiative – to be found within TheFordStory.com – invites people to make suggestions for vehicle improvements. Ideas that appear on the site can be reviewed and rated by others, with the most popular due to be forwarded to Ford’s advanced product marketing and planning teams for review.

Now, don’t get us wrong. We fully support asking customers to get involved, offer thoughts, feedback, suggestions and ideas about what they really value. After all, it’s pretty much what we do day-in, day-out – so we know it’s of vital importance to the ongoing growth and development of any company.

We would warn, as always, that you can’t just rely on this, though – you cannot expect customers to do the job of new product development by themselves. Their feedback can certainly shape what you choose to do, but it should not unquestioningly dictate it. You still need to investigate, research and test any new concept thoroughly.

Our only question is whether this is really such a ground-breaking and innovative idea as the article would suggest? After all, it does kind of seem like that good old-fashioned ‘suggestion box’ you might find located in your local supermarket for customer comments… A suggestion box for the 21st century, perhaps? We applaud Ford nonetheless for listening to their customers and encourage more organisations to do the same.

Find out more about product development studies by clicking here or reading our white paper, Using Market Research For Product Development.

Posted in Automotive, Market Research, Marketing, Product Development |
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A Recessionary Review of Market Research in the USA

 
As first published in the latest issue of BIG Times, the Business Intelligence Group’s regular newsletter, B2B International’s Caroline Harrison, currently based in our New York office, examines the market research industry in America over the course of the recession:

Hot on the heels of the successful opening of its Beijing office in 2006, B2B International took the decision to expand its operations into a further new continent – North America – and its New York office opened in early summer 2008. Not three months later and we had the meltdown on Wall Street, triggering one of the deepest and harshest global recessions in living memory.

One question it might be appropriate to ask in these circumstances is whether we would have done things differently, had we known what was just around the corner? While I’m sure we would have thought long and hard before making the decision, in truth we probably would have gone ahead as planned.

Why is that? It’s because, as many of you will already know, the market research industry has consistently proven itself to be fairly resilient in times of adversity. Perhaps saying market research is “recession-proof” would be going a bit far, but the industry is certainly able to withstand a degree of external pressure.

Conducting market research is, of course, a means of reducing risk in business decision making, and when do companies most need to play it safe? When times are tough. When things are going swimmingly, you can perhaps afford to take the odd chance and risk making the occasional mistake. When the economy is in freefall, there can be no margin for error.

We have to acknowledge that 2009 was a challenging year for many. Budgets in most industries were cut and – while we can argue all day about the logic behind it – market research spend, like expenditure in many other business areas, was reined in for some. Similarly, a number of our clients were forced to delay projects due to the economic uncertainty.

Yet, overall, levels of enquiries and commissions have not altered significantly over the past 18 months. What we did, however, notice during the height of the recession was a change in the type of research we were being asked to conduct. The more ‘aggressive’ market entry and market assessment studies commissioned by companies looking to expand into new markets and find new customers were replaced by more ‘defensive’ projects such as customer satisfaction. It has clearly been more important than ever to protect what business you do have and look after your existing customers to ensure they don’t defect. In recent weeks and months, as increasingly we see optimism re-emerge in North America – as indeed globally – clients are gradually feeling emboldened. As their business strategies become more ‘adventurous’, so too are the types of research they require.

Perhaps a little surprising to us in America has been the high number of clients commissioning product development studies during the recession. However, most of these have not been of the all-out ambitious new product development variety; rather, they have tended to focus more around improvements to existing products or extensions to an existing product range. While we cannot determine precisely the reason for this trend, we believe it has been a measured response to a real or perceived increased threat by competitors’ products and/or decreased market share. Product improvements are a means of establishing differentiation at the same time as demonstrating innovativeness and reinforcing a commitment to better serving clients’ needs. At a time when the economic environment is forcing many competitors to lie low, product development has the added advantage of giving you something to shout about.

The intensifying of the recession also appeared to curb the movement we had been witnessing towards environmentally-friendly products and services. Many of the first market research projects we conducted upon arriving in the United States in 2008 assessed the potential for introducing ‘green’ extensions to existing product lines or launching an already-successful North American energy-saving product in other global markets. This type of project request became noticeably less common throughout 2009 but early indications in 2010 – across all our offices, not just in the U.S., it must be noted – lead us to believe that environmental issues will once again rise to the fore.

A more general observation that can be made about the U.S.A. has been the optimism throughout the hard times. Perhaps being a pessimist Brit and used to constant negative media coverage about the doom and gloom we’re all facing, being in America has, at times, been like a breath of fresh air. In spite of rocketing rates of unemployment (up from 6% in September 2008 to 9.7% at the time of writing), record mortgage foreclosures, horrendous stock-market declines and trillion-dollar Government bailout packages, what has been noticeable has been the positive messages portrayed in the media. People haven’t denied the economic problems but have been very much of the opinion that “things will get better”, “together we’ll pull through” and “America will rule the world once more.” And there I was thinking the British were supposed to be full of Dunkirk spirit!

In part, I think the presidential election of November 2008, which coincided with the start of tough times, generated a lot of positivity. President Barack Obama’s “Change we can believe in” slogan was a beacon for many. His election was seen as a chance for America to change for the better. Eighteen months on and the general public may not be quite so enamoured with what’s being achieved on the political agenda, but negativity has not taken over. Indeed, as we begin to see signs of improvements here on this side of the Atlantic, we are thankful that things have not been worse.

I will conclude by referring to an observation made to me earlier this week by a British colleague, also based here in New York: “Americans are more confident, more willing to take a risk and therefore more likely to succeed”. That, in a nutshell, sums things up nicely.

Posted in B2B News, Customer Satisfaction Research, Industrial Research, Market Assesment, Market Research, Product Development |
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