by: John Sviokla

It has been reported that Wal-Mart, which represents almost two percent of the Gross Domestic Product of the United States, is "afraid" of Google because the powerful search engine may make comparability of price more transparent, and thereby hit the powerful retailer right in the heart of their value proposition.  If a capable upstart or competitor jumps ahead of you in the demand chain, they can poach your customers, and steal the value that you extract from the entire rest of the customer experience.  All that hard work to build stores, logistics, and low-cost delivery is at risk if the customer is diverted at the very beginning of the demand chain.  Put another way, being first in the demand chain is the most valuable place to be in any value network.

Traditional radio stations are concerned that the new satellite radio systems which can beam hundreds of commercially free channels to the car, the person, or the home, may upend their entire value proposition.  Consumer marketers are scared to death that their traditional means of "getting to market" with their message is under attack for their current customer base, and that the up and coming generation is so interactive media savvy that only the most naive marketer would think that they will sit still for all traditional commercial interruptions.  Anyone who has a digital video recorder -- like TiVo -- only watches 20 percent of the commercial.  Commercials will continue to be important, and even desired by some, but traditional approaches on reaching customers need to be rethought!

Why is all this happening now?  Over the past ten years, there has been an emerging information network that has unloosened information from its traditional moorings.  For example, information about consumer products used to be distributed through very traditional channels, like the television, your Sunday newspaper, and in the store itself.  Today, you often see a beleaguered professional standing in the aisle of a super market, on the cell phone with his significant other, asking which of a set of options should be purchased.  The information and influences are not tethered to their traditional moorings.  Up until recently, information was usually situated in a given context.  When you went to the doctor, you got medical information; when you visited the store, or in your newspaper you received coupons, and flyers.  Today, you can get rich media when you are waiting for your dentist, or in line at the Dunkin Donuts.  In fact, one of the largest television networks in the country is Wal-Mart TV; the television displayed inside Wal-Mart stores. This seems absurd until you realize that over 60 million Americans visit a Wal-Mart store each day.  McDonald’s serves over 50 million people a day, but has yet to realize their potential as a information distribution network. 

The general trend is that information is flowing to those places where there is a flow of people.  With the growth of broadband wireless networks like the ones promoted by Verizon and other carriers, soon tens of millions of Americans will have the ability to see streaming TV, games and other media in their phone – this is yet another extension of the process of information being freed from its traditional distribution moorings.  Already the vast majority of car shoppers come armed with information gathered outside the selling environment. But this is not isolated to cars – it is the core of a broad phenomenon of information flowing to where the people, and the curiosity are. 

In an increasing number of cases, not only is the information moving, but also the ability to transact.  The reason that Google is so scary to Wal-Mart, is not just the facilitation of comparison, but, given the interactive nature of the internet, people can also transact and then choose to pick up the goods, or get them shipped. 

What’s Happening to the “4 Ps” of Marketing?

Why is this phenomenon so important to business leaders? – because the traditional marketing model is insufficient to address the reality of today’s customers. The entire science of marketing has been developed to understand who buys, why they buy, and how they buy.  The traditional marketing mix is made up of product, place, promotion, price -- all consistent with a positioning for the product or service.  The power of this model was to point out the key tools that firms have to bring their product or service to market successfully. 

Each of these concepts becomes much more complex and diffuse in this new world.  "Place" is not so obvious, for the place where people shop is now a combination of physical and informational environments. 

Promotion is not so clear, because while formal, outbound efforts like advertising and couponing will continue, marketers must also acknowledge the self-organized nature of user-defined ratings of products and services. These are influential and out of control of the marketer.  It is now much more about word of mouth -- turbocharged by peer-to-peer communications like the phone and the internet. 

Product is still vital, but the service wrappers around product, and the ability to have that product be easy to purchase is more critical than ever. 

Lastly, price is much more dynamic than it used to be. Price comparisons are much more transparent than just a few years ago, and getting more so.  In many markets, from books to used cars, the influence of the used market is completely changing the pricing dynamics -- with new products competing with used substitutes that can be from 25% to 99% cheaper than their new alternatives.   

What's a poor marketer to do? Well, it is time to do a remix of the marketing mix.  Just as in any remix, the old notions are still there, and underlie the remix, but the new layer on top is hip, and makes the old song come alive again -- with a new audience, new buzz, and new power. 

The Elements of the New Marketing ReMix

The remix is from Place to Presence; from Promotion to Persuasion; from Positioning to Preference; from Price (static) to Price (dynamic); and from Product to Personalization.  These are the key elements of the new marketing remix. There are no organizations that I know of that contain all these elements but we know that those companies that want to win by having superior consumer insight must be able to manage both the mix, and the remix in the future.  Let me explain.

In thinking through the remix, the most important thing is to understand where your demand chain begins, and to then make sure you have "presence" at the front end of the demand chain.  There is nothing more powerful in all of marketing and selling than knowing when and how and "where" a customer begins to come into a market and think about buying something.  These companies are first in line in the demand chain, have first and best knowledge of the flow of customer desires, what they look for and how they shop.

The new upstarts that are first in the demand chain right now are AOL, Yahoo!, and Google, among others.  There are many others in category specific ventures like Edmunds, the popular car shopping site, and Netblue, the upstart company that bought up all many words concerning credit cards on Google. This company now captures those customers who are looking for a credit card, gets them to fill out credit information, credit scores them, and then sells the qualified leads to the highest bidder among the giant credit card issuers.  This entrepreneur realizes that the most important thing is to be first in the demand chain, and by doing so having access to the flow of demand.  By adding qualification through a credit score look up, this company has turned the raw material of customer search into the marketable, refined product known as a hot lead.  If the credit card companies had been thinking presence, and not promotion, they would never have let someone jump line on them like this. 

Wal-Mart's worry about Google is similar; that by dominating the cognitive space of search, Google will -- conceptually -- stand in front of every Wal-Mart store with a comparative shopping guide that may drive customers to a different place

From Place to Presence

The question senior managers need to ask themselves is, in this new world, in which information flows freely, and all customers can actively search for my product or service, and compare competitors and substitutes: Are we first in line?  Are we in all the places we should be where people are searching for products and services?  Do we have a presence in these new marketplaces and marketspaces? Or are we still lashed to offering our marketing and persuasive efforts to customer when they come to our distribution, store, or place of advertising?  In the words of the old joke, are we looking for the key under the light? 

This is a difficult and sometimes painful question to ask because most companies have become successful because they do have a good idea of who buys, why they buy, and how they buy.  In this new setting, management teams need to question their core assumptions about how customers buy, what their buying influences are and where they are migrating.  The other challenge for many management teams is that they are often so busy that their own information tools and techniques are set in concrete. It’s more comfortable to assume that their customer's information consumption patterns are just as stable -- which is a very bad assumption.  Most senior executives don't even know how the Google page rank algorithm works, yet it is the most important thing to happen to advertising since television.  This understanding is not a "technical" issue -- it is a business issue, and one which senior executive teams need to understand because search is at the beginning of every value chain.  The movement from simple place to presence can’t be ignored.

From Promotion to Persuasion

From promotion to persuasion, is another trend.  The fundamental thing going on here is that a company's outbound marketing activity is only a part of the process -- users now are in charge of indexing and evaluating the torrent of information and alternatives they now have.  In fact, information and opinion is generated at such an increasing rate that the only practical way for it to be organized is by the users themselves. 

Put another way, old methods of promotion tried to understand the psychological state of the buyer and put a promotional activity in front of them, preferably while in the middle of the buying process.  Today you need to consider not only the psychological, but the social, aspects of the buying process -- hence the broader concept of persuasion, not just promotion.  Google is the poster child for this notion of social persuasion.  The entire Google business model is based on turbo charging word of mouth -- or social cues.  How is this so?  The way Google’s page rank algorithm works is to rate the most popular sites, by how many people point to them, and more subtly, assess whether other popular sites point to them too.  In other words, it is the world's biggest and most dynamic popularity contest. 

The genius of Google is that they figured a scalable, fast, automatable algorithm to take all the bread crumbs of social interaction, and make them into bread pudding!  So, when you think about it, Google is creating the space of the most persuasive sites on the internet for a given topic.  Then, their business model is to let you as a marketer invite yourself to that party by either buying words or by buying a placement.  They keep their space uncluttered by useless ads because if the community does not click on the ads, they are less likely to appear in the space for long.  Hence, it is a persuasion network that is self adjusting.  This is very powerful indeed, and is driven -- not by the promotional dollars of the businesses -- but by the search and rating behavior of the customers.  It is a market in persuasion, if you will. 

Google is not the only one.  The articulation of social ranking of products and services is springing up all over the place. The most common, and perhaps longest standing metric is frequency.  The New York Times bestseller list has been influential for many people are happy to use popularity as a way to sort through the mounds of book options.  In the interactive marketspaces, this type of frequency ranking is frequent and trivial to implement.  For any product or service Amazon can tell you its ranking in term of purchase behavior, and what products and services are usually purchased with it.  Everything has a user rating on it, too.  These user-driven evaluations, along with the articulation of buying behavior are huge new social influences on what persuades a customer to buy your product or service. 

Word of mouth is a concept as old as commerce itself, but now your reputation is living in a world of forces that are moving with huge velocity, speed, and automated evaluation.  In addition, there are new social worlds of chat and influence.  P&G bought a company called Tremor, whose job it is to monitor and influence the influential teenagers – who can drive the perception of your brand or product.  Now buzz management is part of the marketing plan.  Buzz also happens on line, in user ratings, and passively in chat rooms.  You might say that real men don't do chat rooms.  Put another way, many senior managers are skeptical that anything valuable can be discovered in something like a chat room. 

However, according to a leading market research firm, by analyzing the content of chat room behavior, using a sophisticated scoring mechanism for the content of the chat rooms to identify positive and negative concepts embedded in dialog (and by the way all these dialogs are public domain, for chat behavior is not private speech) they have successfully predicted whether or not a TV pilot will make it to launch, based on the early buzz (or lack of buzz) reflected in the chat rooms.  Again, at a conceptual level, TV shows were always previewed to audiences to see how well they resonated, but the scale and precision of this approach has never been done before, and it is possible to be more scientific about it, and not let a show live or die based on the prejudices of the producer or TV executive. 

Likewise, all products and services out in the marketspaces are leaving many bread crumbs of information about how the customers perceive them and the competition.  Given the “one click away” culture we are evolving towards, marketers need to begin to analyze persuasion, not just promotion.  Also, it is just a matter of time before the traditional broadcasters, in their every widening thirst for content, will begin to report the "most popular" books on Amazon, and the best rated cars by Edmunds, etc. The traditional media will amplify the influence of the interactive media.  The need for moving from simple promotion, to an understanding of persuasion is growing and now is the time to create or participate in those trusted influence points.

From Positioning to Preference

Positioning a product or service is one of the most difficult and most important processes of marketing.  The difference between paying $50,000 for a Mercedes E class, and $30,000 for a Buick is the result of positioning for the product quality of the Buick today is higher than that of the Mercedes.  Great positioning is easy to recognize once accomplished.  Nike's positioning, Apple's, and IBM's are all great examples.  Yet, today, we see the long tail of consumer preferences, and understanding them as vital in positioning a product or service. 

Again, the core idea of marketing given someone's preference is as old as commerce.  When I was a young man going to Filene's basement in Boston, Mr. Sugarman would see me coming down the aisle with my mother and he would not only pull out suits that were my size, but also within the range of suits he knew my mother would let me buy.  By the time I was with him 5 minutes he already had me headed to the dressing room with three "perfect" suits to try on. 

All of direct marketing is based on micro-adjustments made to offers based on analysis of preference.  But today, we have at least four ways to capture preference.  First, there is customer rating of what they like and don't like.  Second, there is the transaction history, from which we can guess at what they like and don't like. Third, there is search behavior which shows people in the process of searching for information.  And fourth, in some instances, there are configuration tools that let customers trade off what they are interested in by designing the product or service they'd like to have -- and this is a more comprehensive articulation of the tradeoffs that customers are willing to make across features and prices. 

With these new tools we have, for the first time, a CAT scanner for customer preferences.  By CAT scanner, I mean as marketers we can observe the customer in the process of searching for information on products and services -- and only intervene when we think it is efficient.  Much of the interest by Yahoo! in buying a piece of AOL was that AOL has a much more complete history, specifically by individual, as to what their search behavior -- that is passive preference -- is.  If an online advertiser has a richer search history, it is possible to increase the efficacy of the online ad by 80 percent (as measured by click through).  Understanding preference is a way to get customers to stay with you.  I have rated over 165 movies in my NetFlix account, and I can't easily move those ratings to another site. I can even share my ratings with others so I can build up a network of trusted advisors within the company as well – again something that increases stickiness. 

I like the recommendations NetFlix creates for me and I am unlikely to change suppliers.  Furthermore, preferences help to energize the persuasion effect I mentioned earlier.  The entire notion of "recommenders" is based on matching you preferences to those of others like you.  In this situation, your product is positioned not as you want to position it, but it is positioned against other products that people see as similar in preference to yours.  This is a new logic of interaction with your customers.  They are driving the core reference of what you are compared to -- hence is more fundamental than positioning. 

From Static to Dynamic Pricing

The shift from static to dynamic pricing is the place where there is the greatest potential to leak value from organizations.  Any manager knows that pricing leverage is the best way to increase the bottom line, because all price increases flow straight to the bottom line.  Unfortunately, creating price leverage is incredibly difficult; report after report states that most businesses are having a hard time creating pricing leverage.  This is due to a combination of lower production costs -- for most businesses are not only more productive today -- they are sourcing from a global base of talent and manufacturing that is constantly lowering the costs of production.  Furthermore, most industries have overcapacity. And if that were not enough, the internet has brought easy pricing comparison to many categories, and increasingly so. 

What is going on today is that price is much more transparent to the end customer.  Price transparency in autos and travel is old news.  What is interesting is that price transparency is becoming so widespread that even the global low cost leader, Wal-Mart, worries that Google may be able to find even lower prices.  (It is important to remember here that Wal-Mart is single-handedly responsible for almost 2% of China's GDP.  eBay is providing the world with real time prices for the value of anything they sell, used or new.  Amazon is enabling the used book market which means that the profitability of a book is now truncated by the speed with which old inventory comes back into the market.  It is no wonder that book sellers are now willing to sell excerpts from books on Amazon, for they must now look to the convenience of being able to download a book, or a section of a book. If you make the person wait for the physical artifact, they might as well buy used.  

Lastly, the natural extension of this argument is that value creation is no longer about product (or service) -- it is about personalization.  This forward looking for sure from today’s reality, but it is important to realize that when all these factors make it easier for people to find comparables, to discover price, to ignore your marketing efforts and listen instead to what other customers are saying, or what Google points them to, you want to make sure that your product/service offering is so well-tailored to their preference and needs, that they are willing to buy from you and buy quickly.  Most organizations are working hard to create new consumer benefit, but you don't want all that consumer benefit to flow to the end customer in consumer surplus.  You want to extract some of it out in higher margins.

What's a company to do?

First, organizations must realize that this is going on.  Second, they need to analyze what the new marketing remix means for them, third, they need to build a plan to create enough experimentation capacity in their organizations so they can figure out what to do about these new marketing realities.  Lastly, they need a clear plan to realize the value they find in the experiments.  Given the dematuring of the marketing mix, now is the time to start!

Original post: http://www.svioklascontext.com/2006/04/marketing_remix_1.html

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