The High Land of Opportunity
Alex Gofman
Hundreds of years ago, the Earth was different, a huge mass of land known as Pangea. Then the continents separated, and began to move apart further and further to leave vast oceans between them. To follow the allegory, the modern distinct ‘continents’ of mass-produced products and luxury are moving apart as well – as ever more products become cheaper and more accessible to the public, while extreme luxury flies higher and higher into the stratosphere of unimaginable excess. Yet this trend differs radically from the geological example, for the modern process leaves between the ‘continents’, instead of water, a huge, fast growing ‘land’ of masstige – a term created from merging the words ‘mass’ and ‘prestige’. While there are many names for the trend (among them mass affluence, premium, and new luxury), I prefer to call it High End. Much like its analogous “the land between”, High End has many inhabitants, and plenty to keep them occupied.
People used to keep up in their consumption with their neighbors’, or with relatives generally at the same income category. Nowadays, many want to be Trumps or Mittals, or at least live some part of their luxurious lives, which was hardly even known or visible to outsiders a mere generation ago. The craze is to ‘differentiate’ oneself from the masses, to find things that bring with them a sense of pride, yet all within the constraints of their growing albeit limited means.
The initial successful companies of this High End trend were mostly from the USA – the country famous for democratizing virtually anything, in this case, the luxury. Great examples of such companies are Tommy Hilfiger, Abercrombie & Fitch, Banana Republic, Coach, Dooney & Bourke, Ralph Lauren, Tiffany, etc. Now this trend has swept Europe and is blossoming in Asia.
Some people believe that Japan represents “the” blueprint of contemporary luxury consumption in Asia. Japan consumers account for well over 10% of the world’s luxury goods and services. A stunning statistics shows that 95% of young Japanese females own a real Louis Vuitton. Is it a luxury (based on the price – it has to be), a mass-product (95% sounds quite massive to me) or something in between?
Moving from Japan to India. I remember a couple of years ago observing a teenager squatting on a corner of a busy street-market in Mumbai, who proudly showed his friends what seemed to be a newly acquired mobile phone. It wasn’t a cheap no-frills model. Clearly, it was something better than his peers had (or could get). One could deduce that just by looking at the expressions of awe on their faces reflected in the gleaming happiness of the proud owner. It did not matter whether he needed all the functionality of the product or utilized it’s quality production – the others saw him owning the gadget and that made him proud. I doubt that at that specific moment, even a much more expensive possession – whether it is a gold ring or another more traditional sign of affluence - would make him more resplendent and admired than the phone, which seemed to have a very high emotional connection with this group of youngsters.
Price is a highly important aspect of the majority of purchase decisions. Yet a cheap price is not a determinant for commercial success anymore. People are looking for something they can afford but which is not available to everybody. Many are willing to pay higher prices for these newly discovered prestige attributes. Where there is an opportunity of higher prices with higher margins, there is no lack of companies wanting to jump the wagon. Some older and well-respected luxury brands believe that their name would suffice to win the war. Yet is it that simple? Compare Apple iPhone – a definitive premium product - with Prada/LG phone and Armani/Samsung phones. Despite the intimidating names of the heavy weight competition, iPhone won in most places of the Western world. iPhone is upscale albeit real and exciting while the competitors failed to establish the emotional connection with the consumers. Many new middle class consumers are not aspired by the old luxury – they are looking for new, fun experiences that the old luxury industry has yet to catch up with.
The iPhone story above is true around the world with a possible exception of …India where the consumer's obsession with value is paramount. I’ve heard a joke somewhere about an Indian consumer who was thrown out of the showroom when he asked about how economical a super luxury car was. Many prominent brands failed to find the right balance between functionality and value for the Indian market. iPod still has a phenomenal aspirational effect on the Indian consumers but does not sell well there due to the suboptimal balance.
An astute marketer Allyson Stewart-Allen chided that MASTIGE stands for “Marketers Always Seduce Shoppers To Instigate Great Expenditure”. It might be true but it sounded so adorable and appealing when a Japanese company Yosimiya started offering bags of rice printed with a newborn’s photo, name and date of birth, which many proud parents just could not resist. The bags were shaped to resemble a baby and weighed exactly as much as an infant thus giving a feeling of holding a newborn. It felt fresh and different, customized and expensive enough to feel exclusive yet reasonably affordable for middle class families. And most importantly, it appealed to the emotional side of people.
Another example. LG sells usually at the lower end of the market while producing quality products. Their persistent advertisement of low pricing was affecting the company’s ability to move up the scale. So, in the last years, LG concentrated on building a premium image in advertising without much regard to the price. And in some places it is already showing results (recon Prada selecting LG for their premium phone offering).
The economic downturn has had an impact on the trend. Many people raised the bar of their consumption to the level they could not really afford. What would happen to these consumers and the companies that target them during economic slowdown and possible recession? Michael J. Silverstein, the “grandfather” of “trading-up” who was the first prominent author to describe the trend, believes that the trading up phenomenon is recession-proof.
This belief is under heavy testing now. Would the consumers continue paying ten times more for pair of jeans made by a premium brand like 7 for All Mankind from virtually the same denim as a $30 pair of Wranglers? What if instead of trading-up in the current economic situation the consumers will trade down?
In either case, whether you are an established luxury corporation or operate in a mass products area, you can’t afford to ignore this exploding market of high-end / high-margin products. Otherwise, you could be drowned in the surrounding waters of competition.
_______________________________________
Alex Gofman is VP of Moskowitz Jacobs Inc., a NY based company. He is a co-author of the international bestseller Selling Blue Elephants: How to Make Great Products That People Want Before They Even Know They Want Them (www.SellingBlueElephants.com) written with Dr. Howard Moskowitz and recently republished in India along with translations in 14 countries. He is also a co-author of an upcoming book Premium by Design: How to Design and Market High End Products (www.FutureHighEnd.com) written with Marco Bevolo, Director at Philips Design, Stefano Marzano, CEO of Philips Design, and Dr. Moskowitz. Alex may be contacted at alexgofman@sellingblueelephants.com.
Wednesday, August 20, 2008
Saturday, March 15, 2008
My upcoming article with Daily News and Analysis
The President as a Food ProductAlex Gofman
If a presidential candidate were a food, what would (s)he be, and what kind of shoppers would be putting him/her in their carts? Would it be a pizza or a pickle?
This phrase might sound a bit politically incorrect, but it is actually a modified quote from an article in The New York Times written by the well-known columnist John Tierney (in the context of 2004 Presidential Election in the USA) after he learned about the authors, of the future Selling Blue Elephants book, experiments in politics. Tierney named these political experiments “supermarket,” to underscore the surprising similarity between product optimization and political messaging. The original quote was meant for George W. Bush, but the approach applies well regardless of one’s political affiliation.
Voters don’t usually think of political candidates as consumer products. The democratic heritage instills within citizenry a sense of civic pride and responsibility. But reality must intrude, of course. At some level, we recognize that, for an official to get elected, it is important to know what the citizens want, how to express these wishes, and how to create the appropriate political machinery to drive the vote. When you think of it that way, politics is not much different from product and service marketing.
Certainly, the president is promoted as a product in the media. Today’s presidential candidates hold focus groups, try to understand public opinion, and, in general, do all the things that we might expect from the astute marketer. The candidate is searching for volume—not volume of purchases, but volume of votes. The U.S. president is more or less similar to a big-ticket item purchased once every four years.
Then why not treat the president as a product to be sold to do a job? The ‘seller’ just needs to find the right marketing strategy with targeted messages for each ‘consumer group’ (constituency). If you read my previous articles in DNA, you might already be familiar with a very powerful yet simple to use business process called Rule Developing Experimentation (RDE) introduced in the book Selling Blue Elephants: How to Make Great Products That People Want Before They Even Know They Want Them. RDE is widely used for reading the mindsets of the consumers and creating messages targeted to their ‘hot buttons’. In the case of political elections, RDE pinpoints messages that the candidate ought to broadcast to the public—that is, the advertising appropriate for this “president as a product.” If, in fact, we treat the candidate as a product, the job of electing a president becomes a bit easier. Simply monitor the environment, identify what issues come to the fore, let RDE discover hot buttons that drive the consumer (voter interest), and present those new ideas to candidates. Why not? And why not do so on a micro scale— say, in neighborhood after neighborhood? The Internet makes it easy, rapid, and affordable. Maybe even fun.
Let’s look at the 2004 US presidential campaign and focus on messages chosen by John Kerry and George Bush. What did they say? More important, what they should have emphasized and whether the candidates’ messages hit the best hot buttons throughout the campaign?
Let’s begin by deconstructing the candidates’ messaging at the start of his campaign: collecting the speeches at a certain time and identifying the themes and simple quotes. Content analysis works here, as long as we make every effort to keep the candidate’s words and, of course, the tonality of the message. Let’s see the results from executing the exact same RDE project once a month, on the third Wednesday, for the eight months prior to the 2004 election.
The advantage of the RDE way of thinking is that people do not have to and cannot be politically correct in their responses, which they do in direct polls or focus groups. Participants in the RDE exercise cannot figure out exactly which issue they are supposed to be responding to because each vignette comprises a combination of messages. RDE’s computerized interview tool throws a lot of information at voter participants and does so quickly, forcing participants to respond at a gut level. Then RDE picks up the pieces simply by sorting through the data to figure out which issues sway them.
For George W. Bush, we find three mind-sets of voters who would be swayed to vote for him if given the appropriate messaging. The Self- Centereds, as we called the first group, mainly wanted tax relief. The Safety Seekers cared primarily about protection from terrorism. The Better Living Standard Seekers liked hearing promises to revitalize cities, create jobs, and reduce dependence on foreign oil. What is nice about these segments is that at the same time the segments emerge, the candidate knows exactly what messages resonate with the segment. That is, by using actual messaging, RDE guides the candidate, first providing knowledge and then suggesting the specific messages. Not bad for business thinking applied to the social sector.
A few issues were tricky, even for Bush voters:
· Promises to hang tough in Iraq appealed to the Safety Seekers but turned off the other groups.
· Talk of environmental protection won over the Better Living Standard Seekers but yet made the rest less likely to vote for Mr.Bush.
· The Self-Centereds did not like hearing about health care benefits, but the other two groups did.
On the whole, though, the three groups agreed more than they disagreed. The Bush voters were generally middle-class, upwardly mobile people who responded to promises of more money and security. There were not that many polarizing issues among the Bush voters (relative to Kerry’s).
Bush reminded one of pizza: variations on a theme. Someone who would eat one kind of pizza would eat most other kinds as well, unless that person disliked the toppings.
To locate Kerry in our “supermarket”, we have to leave the pizza in the frozen-foods aisle. When we analyzed the Kerry voters, we saw something like the flavor polarization one found in pickle consumers.
· Some people like high-impact sour and garlic pickles; others hate them and like a pickle with a mild crunch. You absolutely cannot please people by giving everyone a middle-of-the-road pickle. It’s impossible when flavor segmentation shows up.
· Kerry’s overall support was about equal to Bush’s, but the voters who could be swayed to vote Democratic fall into three radically contrasting groups, sort of Kerry’s own personal flavor segments, his “political pickles.”
· Some are Improvement Seekers, whose priorities were education reform and new energy policies.
· Others are Idealists, who could be wooed with promises to fight discrimination against women and minorities, improve health care, protect abortion rights, and defend workers against corporations.
· And then there are the Issue Aversives, who were so strongly predisposed to vote for Mr. Kerry that none of his campaign promises could further strengthen their loyalty. In fact, specifics were liable to drive them away because they were turned off by some promises, such as protecting abortion rights, fighting discrimination, and reforming education. The Issue Aversives weren’t so much pro-Kerry as they were anti-Bush. The more Kerry promised the other groups, the more chance he had of offending the Issue Averse voters. It was a tough challenge for Kerry to figure out a coherent strategy that straddled the needs of very different people.
In retrospect, it is clear now that it was not that easy for each of the candidates to keep the voters in their camps. Bush had to yoke a group of ‘dogs’ that generally haul along the same path. Kerry got to harness a clutter of ‘cats’ with individual and conflicting view points. In either case, this information was readily available through RDE’s ‘scanning’ of what people were ‘buying’ or ‘shopping for’ in their political ‘supermarket’. This type of information has been proven time after time to be much more reliable compared to what people claim they like when asked directly in polls and focus groups.
_______________________________________
Alex Gofman is VP of Moskowitz Jacobs Inc., a NY based company, and a co-author of the book Selling Blue Elephants: How to Make Great Products That People Want Before They Even Know They Want Them (www.SellingBlueElephants.com) written with Dr. Moskowitz and recently republished in India (it is also currently translated in thirteen countries). He may be contacted at alexgofman@sellingblueelephants.com
If a presidential candidate were a food, what would (s)he be, and what kind of shoppers would be putting him/her in their carts? Would it be a pizza or a pickle?
This phrase might sound a bit politically incorrect, but it is actually a modified quote from an article in The New York Times written by the well-known columnist John Tierney (in the context of 2004 Presidential Election in the USA) after he learned about the authors, of the future Selling Blue Elephants book, experiments in politics. Tierney named these political experiments “supermarket,” to underscore the surprising similarity between product optimization and political messaging. The original quote was meant for George W. Bush, but the approach applies well regardless of one’s political affiliation.
Voters don’t usually think of political candidates as consumer products. The democratic heritage instills within citizenry a sense of civic pride and responsibility. But reality must intrude, of course. At some level, we recognize that, for an official to get elected, it is important to know what the citizens want, how to express these wishes, and how to create the appropriate political machinery to drive the vote. When you think of it that way, politics is not much different from product and service marketing.
Certainly, the president is promoted as a product in the media. Today’s presidential candidates hold focus groups, try to understand public opinion, and, in general, do all the things that we might expect from the astute marketer. The candidate is searching for volume—not volume of purchases, but volume of votes. The U.S. president is more or less similar to a big-ticket item purchased once every four years.
Then why not treat the president as a product to be sold to do a job? The ‘seller’ just needs to find the right marketing strategy with targeted messages for each ‘consumer group’ (constituency). If you read my previous articles in DNA, you might already be familiar with a very powerful yet simple to use business process called Rule Developing Experimentation (RDE) introduced in the book Selling Blue Elephants: How to Make Great Products That People Want Before They Even Know They Want Them. RDE is widely used for reading the mindsets of the consumers and creating messages targeted to their ‘hot buttons’. In the case of political elections, RDE pinpoints messages that the candidate ought to broadcast to the public—that is, the advertising appropriate for this “president as a product.” If, in fact, we treat the candidate as a product, the job of electing a president becomes a bit easier. Simply monitor the environment, identify what issues come to the fore, let RDE discover hot buttons that drive the consumer (voter interest), and present those new ideas to candidates. Why not? And why not do so on a micro scale— say, in neighborhood after neighborhood? The Internet makes it easy, rapid, and affordable. Maybe even fun.
Let’s look at the 2004 US presidential campaign and focus on messages chosen by John Kerry and George Bush. What did they say? More important, what they should have emphasized and whether the candidates’ messages hit the best hot buttons throughout the campaign?
Let’s begin by deconstructing the candidates’ messaging at the start of his campaign: collecting the speeches at a certain time and identifying the themes and simple quotes. Content analysis works here, as long as we make every effort to keep the candidate’s words and, of course, the tonality of the message. Let’s see the results from executing the exact same RDE project once a month, on the third Wednesday, for the eight months prior to the 2004 election.
The advantage of the RDE way of thinking is that people do not have to and cannot be politically correct in their responses, which they do in direct polls or focus groups. Participants in the RDE exercise cannot figure out exactly which issue they are supposed to be responding to because each vignette comprises a combination of messages. RDE’s computerized interview tool throws a lot of information at voter participants and does so quickly, forcing participants to respond at a gut level. Then RDE picks up the pieces simply by sorting through the data to figure out which issues sway them.
For George W. Bush, we find three mind-sets of voters who would be swayed to vote for him if given the appropriate messaging. The Self- Centereds, as we called the first group, mainly wanted tax relief. The Safety Seekers cared primarily about protection from terrorism. The Better Living Standard Seekers liked hearing promises to revitalize cities, create jobs, and reduce dependence on foreign oil. What is nice about these segments is that at the same time the segments emerge, the candidate knows exactly what messages resonate with the segment. That is, by using actual messaging, RDE guides the candidate, first providing knowledge and then suggesting the specific messages. Not bad for business thinking applied to the social sector.
A few issues were tricky, even for Bush voters:
· Promises to hang tough in Iraq appealed to the Safety Seekers but turned off the other groups.
· Talk of environmental protection won over the Better Living Standard Seekers but yet made the rest less likely to vote for Mr.Bush.
· The Self-Centereds did not like hearing about health care benefits, but the other two groups did.
On the whole, though, the three groups agreed more than they disagreed. The Bush voters were generally middle-class, upwardly mobile people who responded to promises of more money and security. There were not that many polarizing issues among the Bush voters (relative to Kerry’s).
Bush reminded one of pizza: variations on a theme. Someone who would eat one kind of pizza would eat most other kinds as well, unless that person disliked the toppings.
To locate Kerry in our “supermarket”, we have to leave the pizza in the frozen-foods aisle. When we analyzed the Kerry voters, we saw something like the flavor polarization one found in pickle consumers.
· Some people like high-impact sour and garlic pickles; others hate them and like a pickle with a mild crunch. You absolutely cannot please people by giving everyone a middle-of-the-road pickle. It’s impossible when flavor segmentation shows up.
· Kerry’s overall support was about equal to Bush’s, but the voters who could be swayed to vote Democratic fall into three radically contrasting groups, sort of Kerry’s own personal flavor segments, his “political pickles.”
· Some are Improvement Seekers, whose priorities were education reform and new energy policies.
· Others are Idealists, who could be wooed with promises to fight discrimination against women and minorities, improve health care, protect abortion rights, and defend workers against corporations.
· And then there are the Issue Aversives, who were so strongly predisposed to vote for Mr. Kerry that none of his campaign promises could further strengthen their loyalty. In fact, specifics were liable to drive them away because they were turned off by some promises, such as protecting abortion rights, fighting discrimination, and reforming education. The Issue Aversives weren’t so much pro-Kerry as they were anti-Bush. The more Kerry promised the other groups, the more chance he had of offending the Issue Averse voters. It was a tough challenge for Kerry to figure out a coherent strategy that straddled the needs of very different people.
In retrospect, it is clear now that it was not that easy for each of the candidates to keep the voters in their camps. Bush had to yoke a group of ‘dogs’ that generally haul along the same path. Kerry got to harness a clutter of ‘cats’ with individual and conflicting view points. In either case, this information was readily available through RDE’s ‘scanning’ of what people were ‘buying’ or ‘shopping for’ in their political ‘supermarket’. This type of information has been proven time after time to be much more reliable compared to what people claim they like when asked directly in polls and focus groups.
_______________________________________
Alex Gofman is VP of Moskowitz Jacobs Inc., a NY based company, and a co-author of the book Selling Blue Elephants: How to Make Great Products That People Want Before They Even Know They Want Them (www.SellingBlueElephants.com) written with Dr. Moskowitz and recently republished in India (it is also currently translated in thirteen countries). He may be contacted at alexgofman@sellingblueelephants.com
Tuesday, February 26, 2008
Improving the "Stickiness" of Your Website, Part 2: If They Like A and B, Would They Like "A+B"?
Financial Times Press (FTPress.com) just has published my latest article "Improving the "Stickiness" of Your Website, Part 2: If They Like A and B, Would They Like "A+B"?" (the second installment of the article published by FT in September, 2007).
Click here to access it: http://www.ftpress.com/articles/article.aspx?p=1172745
There is a small mix-up with the table but the publisher will make changes shortly.
axg
Click here to access it: http://www.ftpress.com/articles/article.aspx?p=1172745
There is a small mix-up with the table but the publisher will make changes shortly.
axg
Saturday, January 5, 2008
My column at Daily News and Analysis (Dec. 27, 2007)
Here is the latest column at DNA.
AxG
Lessons from HP’s “Always-On” Intelligence system
Alex Gofman
Charles Darwin inherited his love for experimentation from his genes. His grandfather, Erasmus Darwin, believed that “A fool ... is a man who never tried an experiment in his life.” It did not matter if the experiment was expected to have a negative outcome or if everybody believed it was crazy and called them ‘fool’s experiments’. In fact, the creator of the evolution theory remarkably acknowledged: “I love fools' experiments; I am always making them”.
Although his views on the history of living species cause some controversy, the implicit applications of genetic approach to New Product Development (NDP) is quite interesting.
The legendary success of Tom Kelley, General Manager of IDEO, is in part based on his belief in the “cheaper, faster, simpler approach.” If you have the luxury to spend months and months on research and in-depth observation of your customers and at the end come up with a “perfect” product, you are lucky, but you occupy a rather unusual position in today’s market. Your competition might not be willing to wait that long and might grab the market share before you. Remember the runaway success of Microsoft Windows 3.0 (followed by 3.1) released shortly before the competing IBM’s product? The latter system, OS/2 2.0, was superior to Gate’s creation in many aspects, but it sadly failed. One can argue that there were many reasons for this failure. But most agree that in that case as well as in many others one formidable aspect of the competition - the timing – played an indubitable role in the success and failure. Particularly, in the high-tech industry, where new products frequently become outdated before they are released.
Just a few years ago our average modern day mobile phone with a camera, an MP3 player, a personal organizer, etc. would sound like an impossible proposition. Forget about a built-in TV with live and stored programs long enough to drain the batteries long before they are over.
What some ingenious designers manage to coalesce into mundane gadgets is astounding. It does not have to be new features – just a recombination of what is known. Sometimes the product hits the ‘button’ and creates a runaway success. But in a majority of cases, it finishes collecting dust at a discount store or goes into a recycling bin. How can designers and marketers find the right combination of the features? In nature, the never-ending recombination of genes, through cross-breeding and evolution, helps species to survive. A quite popular random experimentation in NPD is much faster than nature’s process but still is inefficient and slow by our modern measures.
Critics might say that this notion of innovation by combination by itself is simply too mechanical, too utilitarian, and, therefore, is certainly void of the charisma of creativity. Others disagree. Michael Vance, a well-known American creativity expert, lecturer and Dean of Disney University, once said, “Innovation is the creation of the new or the rearranging of the old in a new way.”
If you had a chance to read the book Selling Blue Elephants, you might know about the “Always-on intelligence system” established at Hewlett Packard a few years ago. Applicable to virtually any part of the process, the system based on Rule Developing Experimentation (or RDE - see my previous columns) brought the consumer to the table in every design initiative or marketing decision in a way and scale that was unprecedented for HP. RDE changed the way the company thought about answering the problem of “What shall we put into this product to make consumers want to buy it?”
Unlike the data from most ad hoc research projects, which varies in structure and topic, HP used RDE’s discipline to uncover the broader “meta patterns”—patterns that reveal the bigger pictures, across products, across categories, across countries, and over time.
The accumulating library of RDE studies opened a new, virtually effort-free opportunity for the consumer insight team to integrate data across diverse knowledge-development tasks. It became clear that across its many product lines, HP attracted two radically different segments of consumers, with drastically varied mind-sets:
· Segment 1—Technologically savvy individuals who mix and match separate components, and who enjoy and occasionally even revel in the challenge of getting them to work together.
· Segment 2—Individuals who prefer a complete package with all the accessories that work straight out of the box.
This knowledge helped HP to focus and target its ongoing design and marketing efforts, making them more efficient and, as time would prove, far more profitable. RDE provided the specific numbers—what ideas compelled and just how compelling the ideas could become when properly framed. The latest RDE tools also estimate the synergies between the elements – what works well together and what does not.
In turn, the process of data-basing the ideas’ performances could reach the critical mass with a profound impact on effectiveness in the generation of new ideas. Here is another example from a major high-tech company where five years ago, more than four out of five marketing ideas were ineffective (only 18% of about 1800 tested ideas had a positive consumer influence). In 2006, the “institutional learning” through disciplined deployment of RDE has more than doubled the number of ideas with positive consumer influence to about 38%!
Evolution is based on nature’s ‘fool’s experiments’. Good combinations of genes thrive, bad ones do not. NDP does not have to be that painfully slow and cruel. Ideas that come out of the genomics recombination of elements from different products and that perform well in these types of studies tend to do well in subsequent tests and in the market itself. The reason is pretty simple. Unlike “beauty contests” whose goal is to pick one winner from a limited set of contestants subjectively pre-selected according to a ‘heavy-weight’ HiPPO (Highest Paid Person's Opinion), RDE is more like a ‘torture test’ - with the mixing and matching and the rapid-fire presentation of test concepts to the consumers. Any element that does well in this type of survey stands out against many thousands of combinations in which it appears. Betting on that element is like betting on a horse with a great track record in many races, climates, on many different tracks, with many jockeys. The odds are that winning elements, like winning horses, have something good going on that’s worth incorporating into a product. Good genes do increase the chances of survival, don’t they?
_______________________________________
Alex Gofman is VP of Moskowitz Jacobs Inc., a NY based company, and a co-author of the book Selling Blue Elephants: How to Make Great Products That People Want Before They Even Know They Want Them (www.SellingBlueElephants.com) written with Dr. Moskowitz and recently republished in India (it is also currently translated in twelve countries). He may be contacted at alexgofman@sellingblueelephants.com.
AxG
Lessons from HP’s “Always-On” Intelligence system
Alex Gofman
Charles Darwin inherited his love for experimentation from his genes. His grandfather, Erasmus Darwin, believed that “A fool ... is a man who never tried an experiment in his life.” It did not matter if the experiment was expected to have a negative outcome or if everybody believed it was crazy and called them ‘fool’s experiments’. In fact, the creator of the evolution theory remarkably acknowledged: “I love fools' experiments; I am always making them”.
Although his views on the history of living species cause some controversy, the implicit applications of genetic approach to New Product Development (NDP) is quite interesting.
The legendary success of Tom Kelley, General Manager of IDEO, is in part based on his belief in the “cheaper, faster, simpler approach.” If you have the luxury to spend months and months on research and in-depth observation of your customers and at the end come up with a “perfect” product, you are lucky, but you occupy a rather unusual position in today’s market. Your competition might not be willing to wait that long and might grab the market share before you. Remember the runaway success of Microsoft Windows 3.0 (followed by 3.1) released shortly before the competing IBM’s product? The latter system, OS/2 2.0, was superior to Gate’s creation in many aspects, but it sadly failed. One can argue that there were many reasons for this failure. But most agree that in that case as well as in many others one formidable aspect of the competition - the timing – played an indubitable role in the success and failure. Particularly, in the high-tech industry, where new products frequently become outdated before they are released.
Just a few years ago our average modern day mobile phone with a camera, an MP3 player, a personal organizer, etc. would sound like an impossible proposition. Forget about a built-in TV with live and stored programs long enough to drain the batteries long before they are over.
What some ingenious designers manage to coalesce into mundane gadgets is astounding. It does not have to be new features – just a recombination of what is known. Sometimes the product hits the ‘button’ and creates a runaway success. But in a majority of cases, it finishes collecting dust at a discount store or goes into a recycling bin. How can designers and marketers find the right combination of the features? In nature, the never-ending recombination of genes, through cross-breeding and evolution, helps species to survive. A quite popular random experimentation in NPD is much faster than nature’s process but still is inefficient and slow by our modern measures.
Critics might say that this notion of innovation by combination by itself is simply too mechanical, too utilitarian, and, therefore, is certainly void of the charisma of creativity. Others disagree. Michael Vance, a well-known American creativity expert, lecturer and Dean of Disney University, once said, “Innovation is the creation of the new or the rearranging of the old in a new way.”
If you had a chance to read the book Selling Blue Elephants, you might know about the “Always-on intelligence system” established at Hewlett Packard a few years ago. Applicable to virtually any part of the process, the system based on Rule Developing Experimentation (or RDE - see my previous columns) brought the consumer to the table in every design initiative or marketing decision in a way and scale that was unprecedented for HP. RDE changed the way the company thought about answering the problem of “What shall we put into this product to make consumers want to buy it?”
Unlike the data from most ad hoc research projects, which varies in structure and topic, HP used RDE’s discipline to uncover the broader “meta patterns”—patterns that reveal the bigger pictures, across products, across categories, across countries, and over time.
The accumulating library of RDE studies opened a new, virtually effort-free opportunity for the consumer insight team to integrate data across diverse knowledge-development tasks. It became clear that across its many product lines, HP attracted two radically different segments of consumers, with drastically varied mind-sets:
· Segment 1—Technologically savvy individuals who mix and match separate components, and who enjoy and occasionally even revel in the challenge of getting them to work together.
· Segment 2—Individuals who prefer a complete package with all the accessories that work straight out of the box.
This knowledge helped HP to focus and target its ongoing design and marketing efforts, making them more efficient and, as time would prove, far more profitable. RDE provided the specific numbers—what ideas compelled and just how compelling the ideas could become when properly framed. The latest RDE tools also estimate the synergies between the elements – what works well together and what does not.
In turn, the process of data-basing the ideas’ performances could reach the critical mass with a profound impact on effectiveness in the generation of new ideas. Here is another example from a major high-tech company where five years ago, more than four out of five marketing ideas were ineffective (only 18% of about 1800 tested ideas had a positive consumer influence). In 2006, the “institutional learning” through disciplined deployment of RDE has more than doubled the number of ideas with positive consumer influence to about 38%!
Evolution is based on nature’s ‘fool’s experiments’. Good combinations of genes thrive, bad ones do not. NDP does not have to be that painfully slow and cruel. Ideas that come out of the genomics recombination of elements from different products and that perform well in these types of studies tend to do well in subsequent tests and in the market itself. The reason is pretty simple. Unlike “beauty contests” whose goal is to pick one winner from a limited set of contestants subjectively pre-selected according to a ‘heavy-weight’ HiPPO (Highest Paid Person's Opinion), RDE is more like a ‘torture test’ - with the mixing and matching and the rapid-fire presentation of test concepts to the consumers. Any element that does well in this type of survey stands out against many thousands of combinations in which it appears. Betting on that element is like betting on a horse with a great track record in many races, climates, on many different tracks, with many jockeys. The odds are that winning elements, like winning horses, have something good going on that’s worth incorporating into a product. Good genes do increase the chances of survival, don’t they?
_______________________________________
Alex Gofman is VP of Moskowitz Jacobs Inc., a NY based company, and a co-author of the book Selling Blue Elephants: How to Make Great Products That People Want Before They Even Know They Want Them (www.SellingBlueElephants.com) written with Dr. Moskowitz and recently republished in India (it is also currently translated in twelve countries). He may be contacted at alexgofman@sellingblueelephants.com.
Sunday, December 30, 2007
Here is a draft the second part of my article published by Financial Times Press in September, 2007. This article will be posted on FTPress.com on January, 25 2008 (in edited form of course).
Improving the "Stickiness" of Your Website Further:
Conclusions
References
Improving the "Stickiness" of Your Website Further:
Part 2: If they like A and B, would they like A+B?
Alex Gofman,
Vice President, Moskowitz Jacobs Inc.
Interactions in consumer research: searching for a needle in the hay
A few years ago, Heinz introduced quite weird Funky Fries – chocolate flavored and blue-colored fries. Heinz bet was on combining some highly popular ideas. Huge army of the consumers loves fries. Even bigger (arguably) crowd is sucker for chocolate. And kids love color.
As you can guess (or already know), the product has failed miserably. The ideas were so divergent that there was no synergy between them in the eyes of the consumers. Quite opposite, by putting the conflicting ideas together they lost appeal of both fries munchers and chocolate connoisseurs producing a negative effect (Bhatnagar, 2003).
In the marketing lexicon, the situation when reaction of consumers (their liking scores, purchase intent, etc.) to the messages (or ideas, elements of a package or a web page, etc.) combined together are not equal to the sum of their individual ratings, is called an interaction. A positive interaction (when customers' liking of the combined offer is higher than the sum of individual items scores) is called synergism. If customers like the combined idea less than the sum of individual liking scores of the components, then it is called a suppression (a negative interaction).
The problem lies in the shear number of possible pairs of elements. For example, if we have six placeholders on a webpage with six possible alternatives for each one, there are 540 possible pairs of elements.
This should explain why until very recently, the effect of interactions either was ignored or considered a middle ground between art and heavy statistics. In latter case, it required an expert guess about possible significant pairs. Such several 'alleged' (guessed) interactions were then tested with the consumers through a sophisticated statistical method of incorporating these pairs into the survey to confirm / reject the hypothesis.
Market researches tried to tackle the issue for many years (e.g., Green, 1973). Yet, many years later, if the expert was right (or lucky?) in foretelling the potential interactions, the results could lead to improved ideas. If not – too bad: some great ideas might have been discarded unnoticed or bad ideas went into production undetected.
Extending RDE to discover all and any interactions
In the previous article Improving the "Stickiness" of Your Website, we discussed Multivariate Landing Page Optimization (MVLPO) approach which helps to identify a winning combination of the elements of a webpage. Rule Developing Experimentation (RDE)
paradigm introduced in the article mixes and matches the elements of the page according to an experimental design and presents synthesized web pages to consumers for evaluation. Collected data then used to estimate individual contribution of every element to the liking of the web pages (conditional probability of people buying from this site, for example). This in turn allowed us to construct the most appealing webpage from the set of elements tested.
In most cases, the results of this approach help you to create optimized web pages. In a number of occasions although, some latent interactions exist between the elements of the page. Using a highly trained expert opinion to guess these interactions is not a very viable option in the fast moving world of web site design not taking into account the price implications. RDE easily overcomes the limitations of the old methods by automatically testing all and every combination of the elements of the page multiple times according to a built-in unique permuted experimental designs. Because the complexity of the statistical foundation are usually incorporated inside the tool, no special knowledge on the user side is needed (if you are still interested, you can find the details in Gofman, 2006; Moskowitz, Gofman, 2004).
Now let's explore how to make sure that the winning individual parts of the pages, when combined, do not fail. Furthermore, let's see how to find a combination of Web page elements that together produces more impact than just the sum of individual impacts. Putting to use the basic math formulas:
We do not want: 1+1 < 2
We want: 1+1 > 2
Golf Gear Case Study: deeper data mining
Note: All the data in this and previous articles are from the actual project, although the visuals and other marketing materials are representative equivalents and not related to any specific website.
In the previous article, we followed the operator of an online golf store who wanted to optimize the landing page to increase the conversion rate and revenue per visit. As it catered to affluent golf players, the general traffic was not very heavy. However, the revenue per customer (RPV) and the customer lifetime value (CLV) were high because the site sold luxury and premium equipment and strived to retain their patrons. The combination of these conditions precluded the operator from experimenting on live website to avoid possible less than optimal experience for their valuable customers.
The operator chose to use MVLPO in a simulated environment using an RDE tool. She had several options for the banner, feature picture, and different promotions and at the end of the project discovered the best combination of these components (Figure 1). She found out that by choosing 'wrong' elements (the lowest scoring vs. the highest) she would loose half of her potential clients. Or, in reverse, by selecting the best possible elements, she could double the number of happy visitors willing to buy from her site.
In virtually any MVLPO case based on traditional methods, this would be the end of the research stage. RDE on the other hand allows for mining the data even deeper.
Figure 1. Optimized webpage for the golf site without taking into account any possible interactions. The conditional probability of visitors being interested in buying from this site was 48%.
In some cases, there are potential interactions between the elements of the page (both positive and negative). Because of the unique permutation algorithm of experimental design, RDE allows for all and every combination of the elements to appear on the test screens multiple time. This means that it is possible to include them as independent variables into regression model. In our case, we have 90 possible combinations.
If this sounds for some readers a bit like a less than pleasurable lecture in statistics, don't quit reading. The good news – this is all incorporated inside RDE approach and available at a virtually 'point-and-click' level. One does not need to know how bits and bytes are moving inside a processor to use a PC for browsing. The same thing is true about discovering possible interaction using RDE – you do not to be a professor of statistics to find it out – RDE does it for you.
Not every case produces meaningful interactions. In many occasions, interactions are not very strong and could be ignored (considered not significant). If the utility (conditional probability of customers being interesting in buying from this site) of the combination is below the empirical threshold of (+/- 5), it could be discarded. In that case, the results of MVLPO would look like Table 1 in the previous article.
It also should be noted that the effect of the interactions changes the regression model and affects somewhat the rest of the utilities. In a model without interactions, the values of hidden synergies and suppressions are distributed among the individual elements. In a more detailed regression model that includes interactions, the values are extracted and assigned to the cross-terms (pairs of elements).
Comparing Standard and Interactions Models
Table 1 contains the utilities of the individual elements of the web page with several discovered meaningful interactions (right column) compared with the Standard model (middle column) from the previous article. This case does not have very high interactions values (in some cases, an interaction along could add 20 or more points to the liking score) but it does demonstrate the approach.
Table 1. Performance of the elements with interactions. Notice, that the values are somewhat different for the model with interactions compared to the standard model.
Standard Model Interactions Model Base Size 125 Constant 10 9 Banners A3 Banner 3 0 -1 A1 Banner 1 -1 0 A2 Banner 2 -1 -1 Promo 1 B2 Free shipping 7 7 B3 $5.99 shipping 3 2 B1 Free $50 card 3 3 Visuals C2 Golfer playing 16 15 C3 High-tech club 8 8 C1 Golf shoes 8 7 Promo 2 D2 Final clearance-up to 65% off 12 13 D1 Save up to $100 8 8 D3 Free personalization 4 4 Promo 3 E1 St. Andrews Sweepstakes 3 3 E2 115% price guarantee 3 3 E3 Golf vacation entry 0 0 INTERACTIONS A2*C2 N/A 6 D2*E3 N/A 7 C1*E2 N/A -9
The data suggest that the winning web page from the previous article was not the one that generates the highest interest in customers to buy from the site.
The optimal webpage (from the previous article) based on the standard model was:
(Conditional Probability of visitors buying from the site) =
= Const + A3 + B2 + C2 + D2 + E1 = 48%.
We can get a higher purchase intent score if we use a slightly different set of elements:
(Conditional Probability of visitors buying from the site) =
= Const + A2 + B2 + C2 + D2 + E3 + D2*E3 + A2*C2 =
= 9 + (-1) + 7 + 15 + 13 + 0 + 7 + 6 = 56%,
producing the optimal concept presented on Figure 2.
We have replaced two marginally higher scoring elements in two categories with lower scoring ones: in Banners, we switched from A3 (0) to A2 (-1); and in Promo 3, from E1(+3) to E3(0). Although with these subtle changes we have lost 4% in the individual values, the identified interactions in the case study compensated the shortfall and added additional 8% to the purchase intent (note, that the utilities for the interaction model are slightly different from the standard regression model and the elements in the case study are representative).
Figure 2. The highest scoring webpage created using Interactions Model. Although the differences are very subtle, the page has 8% higher conditional probability of customers buying from it compared to Standard Model optimization (Fig. 1).
Conclusions
This case study does not have the most impressive interactions I've seen in my experience. Sometimes, the synergy between the elements reaches 15-20 points or even more. In some cases, there are no significant interactions at all. Yet in some others, a negative interaction (suppression) is so strong that it negates the high positive contribution of individual elements (if any).
For many years, the researchers knew about the existence of possible interactions and tried to identify them by incorporating several handpicked pairs into surveys, usually by guessing. With the introduction of RDE to MVLPO, the permuted individual designs afforded for testing all and any possible combinations of the elements multiple times allowing for more precise models and more targeted optimized pages.
The bottom line, it is difficult not to agree that improving the conversion rate by 10-20% would make a very big difference for virtually any website operator. It is possible to achieve that by just recombining your existing materials with a tad deeper data-mining available in some tools as a simple push of a button.
References
Bhatnagar, Parija (06/20/2003). Blue food goes down the drain. CNN/Money. Retrieved on 11/21/2007.
Gofman, A. (2006). Emergent Scenarios, Synergies, And Suppressions Uncovered Within Conjoint Analysis. Journal of Sensory Studies, 2006, 21(4): 373-414.
Gofman, A. Improving the 'Stickeness' of Your Website. Financial Times Press (09/21-2007). Retrieved on 11/21/2007.
Green, Paul E. (1973). On the Analysis of Interactions in Marketing Research Data.
Journal of Marketing Research, Vol. 10, No. 4 (Nov., 1973), pp. 410-420
Moskowitz, H.R. and Gofman, A. (2004). A System and Method for Performing Conjoint Analysis. U.S. Provisional Application No. 60/538,787, Patent Pending.
Moskowitz, Howard R. and A. Gofman (2007). Selling Blue Elephants: How to make great products that people want BEFORE they even know they want them. Wharton School Publishing, 2007.
Thursday, December 13, 2007
Improving the ‘Stickiness’ of Your Website (Financial Times Press)
Some time ago I have published an article in Financial Times Press (although I am still a bit confused with the editorial 'chain' - the article was submitted to Knowledge @ Wharton). Here is the 'teaser' of the paper:
Financial Times Press, September, 21:
"For a long time, the only solution to make websites appealing and "sticky" was to rely on gurus (web designers who were just supposed to know the "right" answers). But what if the guru made a mistake or did not take into account all the variables and created less-than-optimal pages? Alex Gofman explores ways to involve consumers in the co-creation process in the form of multivariate landing page optimization as a possible solution for the problem of the ever-increasing bounce rate on many websites."
You can read the full paper at:
http://www.ftpress.com/articles/article.aspx?p=1015178&rl=1.
I have just completed a 'sequel' for this paper and hope to post it shortly.
Financial Times Press, September, 21:
"For a long time, the only solution to make websites appealing and "sticky" was to rely on gurus (web designers who were just supposed to know the "right" answers). But what if the guru made a mistake or did not take into account all the variables and created less-than-optimal pages? Alex Gofman explores ways to involve consumers in the co-creation process in the form of multivariate landing page optimization as a possible solution for the problem of the ever-increasing bounce rate on many websites."
You can read the full paper at:
http://www.ftpress.com/articles/article.aspx?p=1015178&rl=1.
I have just completed a 'sequel' for this paper and hope to post it shortly.
My columns at Daily News and Analysis: How to Defeat Murphy’s Law in the Stock Markets
Daily News and Analysis, October 4, 2007
How to Defeat Murphy’s Law in the Stock Markets
Alex Gofman
Merck & Co recently announced that it has agreed to pay $4.85 billion to settle most of the claims that its painkiller Vioxx caused heart attacks and strokes in thousands of users. Although the settlement amount is almost twice as big as the GDP of Mongolia, it is substantially less than many analysts have expected.
In 2004, the news broke that one of the most powerful painkillers on the market, Vioxx, might be implicated in heart attacks. The following lawsuits, adverse publicity, less than optimal corporate responses by Merck and other drug companies in the pain-killer business had the inevitable impact on the stock prices of Merck and the “Big Pharma” in total. In just a few days Merck’s stock tumbled about 40% bringing down the whole pharmaceutical sector (to a lesser extent) and wiping out tens of billions of dollars in the sector’s market capitalization for shareholders. Investors lost fortunes, although some of the Big Pharma companies fared better than others. If one could predict what would be a reaction of investors in such crisis situation on a company by company basis…
On the other side of the conflict, if a company knows a possible response of investors and general public on some of the messages used by it’s PR in such crisis situation, it could have a tremendous impact on the brand image, finances and the future performance. But do they always know? Even some venerable corporations stumbled under the stress in a crisis because they were not prepared. A classic example of such unapt communications happened shortly after the launch of the Mercedes-Benz A-class in 1997 when one of the cars overturned during a test drive conducted by journalists in Sweden, triggering a major crisis for the car manufacturer. The reputation of Mercedes was at stake as the company was accused of producing unsafe cars. Early ill-equipped PR responses by Mercedes only succeeded in exacerbating the crisis, as they fumbled around with what they were going to say and then said the wrong thing at the wrong time.
Is it possible to be prepared to handle a potential crisis when, according to Murphy’s Law, anything that can go wrong, will? Going a bit further, is it possible to try to capitalize on the stock market during such tumult?
This is what the Rule Developing Experimentation (RDE), introduced in my previous articles (October 4, November 1), augurs to do. I could see some skeptical smiles on the faces of the readers saying, “Nobody could predict the stock market”. RDE does not predict the actual stock market performance. It quantifies the expected emotional reaction of investors to specific news and can even drill down the data on brand specific basis. For example, if the FDA (Food and Drug Administration, particularly empowered to oversee the safety of medications) announced that they discovered some new side effects in a flu vaccine, what would be the attitude of investors toward buying, holding or selling the stock of that company and other players in the sector? An astute and prepared investor could use this knowledge to his advantage with potentially huge profit. The ‘defendant’ would be anxiously sitting on the edge of the chair anticipating the answers on how different would be the attitude of the public if the right set of messages is promptly and confidently communicated. Is it possible for the company to ‘repair’ the damage and ‘engineer’ the public sentiments on the issues? Politicians have manipulated public opinions for ages, so why not?
Chance favors the prepared mind, as Louis Pasteur used to say. To be prepared to answer the questions, we can build a model of the consumers / investors minds using the RDE approach. It is not especially difficult, and a majority of businessmen could easily do that themselves.
Here is an example of the insights one could get from the model that was created at the peak of the Vioxx crisis. We searched the Internet for news and announcements about the case from media, FDA, public, experts and Merck itself. The messages were distilled to concise snippets (called elements), grouped by similarity into silos and put into an RDE tool for an automatic mixing and matching according to an experimental design. RDE created a set of vignettes representing a combination of the messages. A random group of investors was invited to participate in the online project and indicate their proclivity to buy, hold or sell the stock if they see the specific news (the details of the process could be found in Selling Blue Elephants book or at http://www.sellingblueelephants.com/ website).
The resulting regression model was so lucid that some experts called the approach a new behavioral economics sub-discipline. The data suggested that if, for example, investors read that The medication was pulled off the market after the company found the problem, the message would cause about 6% of them to change their attitude from buy to sell. But if the company communicated fast that It is in agreement with the FDA that this medication can be safely used for pain relief. Consumers should not exceed the recommended dose or take the product for longer than directed, this would effectively reverse the impact of the former news as, according to the model, it would increase the conditional probability of investors buying the stock by 6%.
The messages do not have a universal effect, much like fashionable cloth is attractive on models but often ludicrous on the majority of us. The messages are time and brand specific. The same message used by different companies in the same market environment will cause substantially different reaction. A model built in the midst of the Vioxx crisis showed that the message The manufacturer will continue to work with the FDA to sponsor a major clinical study to further assess this medication did not affect investors proclivity to buy the Pfizer’s stock while decreasing it by 10% for Merck. The same message in the same market conditions suggested an increase(!) in intended buying of Bayer and Wyeth shares by 6% and 7% respectively.
The easy and insightful results - what wins and loses, interactions between brands and messaging - give the stock analyst and the shareholder a sense of what people say they are likely to do. The vox populi, the feelings about each particular stock “in current time” in a specific situation, can then be compared against the suggestions of analysts, to determine where there are opportunities, where the analysts say one thing but the common voice of the crowd suggests something quite different. The same vox populi gives corporations a fair chance to prepare their PR for different crisis situations with suggested measured response.
As universal and resilient as it is, Murphy’s Law can’t be evaded, but its effects can be counteracted, neutralized and even utilized for profit with diligent preparation.
_________________________
Alex Gofman is VP of Moskowitz Jacobs Inc., a NY based company, and a co-author of the book Selling Blue Elephants: How to Make Great Products That People Want Before They Even Know They Want Them (www.SellingBlueElephants.com) written with Dr. Moskowitz and recently republished in India (it is also currently translated in twelve countries). He may be contacted at alexgofman@sellingblueelephants.com.
How to Defeat Murphy’s Law in the Stock Markets
Alex Gofman
Merck & Co recently announced that it has agreed to pay $4.85 billion to settle most of the claims that its painkiller Vioxx caused heart attacks and strokes in thousands of users. Although the settlement amount is almost twice as big as the GDP of Mongolia, it is substantially less than many analysts have expected.
In 2004, the news broke that one of the most powerful painkillers on the market, Vioxx, might be implicated in heart attacks. The following lawsuits, adverse publicity, less than optimal corporate responses by Merck and other drug companies in the pain-killer business had the inevitable impact on the stock prices of Merck and the “Big Pharma” in total. In just a few days Merck’s stock tumbled about 40% bringing down the whole pharmaceutical sector (to a lesser extent) and wiping out tens of billions of dollars in the sector’s market capitalization for shareholders. Investors lost fortunes, although some of the Big Pharma companies fared better than others. If one could predict what would be a reaction of investors in such crisis situation on a company by company basis…
On the other side of the conflict, if a company knows a possible response of investors and general public on some of the messages used by it’s PR in such crisis situation, it could have a tremendous impact on the brand image, finances and the future performance. But do they always know? Even some venerable corporations stumbled under the stress in a crisis because they were not prepared. A classic example of such unapt communications happened shortly after the launch of the Mercedes-Benz A-class in 1997 when one of the cars overturned during a test drive conducted by journalists in Sweden, triggering a major crisis for the car manufacturer. The reputation of Mercedes was at stake as the company was accused of producing unsafe cars. Early ill-equipped PR responses by Mercedes only succeeded in exacerbating the crisis, as they fumbled around with what they were going to say and then said the wrong thing at the wrong time.
Is it possible to be prepared to handle a potential crisis when, according to Murphy’s Law, anything that can go wrong, will? Going a bit further, is it possible to try to capitalize on the stock market during such tumult?
This is what the Rule Developing Experimentation (RDE), introduced in my previous articles (October 4, November 1), augurs to do. I could see some skeptical smiles on the faces of the readers saying, “Nobody could predict the stock market”. RDE does not predict the actual stock market performance. It quantifies the expected emotional reaction of investors to specific news and can even drill down the data on brand specific basis. For example, if the FDA (Food and Drug Administration, particularly empowered to oversee the safety of medications) announced that they discovered some new side effects in a flu vaccine, what would be the attitude of investors toward buying, holding or selling the stock of that company and other players in the sector? An astute and prepared investor could use this knowledge to his advantage with potentially huge profit. The ‘defendant’ would be anxiously sitting on the edge of the chair anticipating the answers on how different would be the attitude of the public if the right set of messages is promptly and confidently communicated. Is it possible for the company to ‘repair’ the damage and ‘engineer’ the public sentiments on the issues? Politicians have manipulated public opinions for ages, so why not?
Chance favors the prepared mind, as Louis Pasteur used to say. To be prepared to answer the questions, we can build a model of the consumers / investors minds using the RDE approach. It is not especially difficult, and a majority of businessmen could easily do that themselves.
Here is an example of the insights one could get from the model that was created at the peak of the Vioxx crisis. We searched the Internet for news and announcements about the case from media, FDA, public, experts and Merck itself. The messages were distilled to concise snippets (called elements), grouped by similarity into silos and put into an RDE tool for an automatic mixing and matching according to an experimental design. RDE created a set of vignettes representing a combination of the messages. A random group of investors was invited to participate in the online project and indicate their proclivity to buy, hold or sell the stock if they see the specific news (the details of the process could be found in Selling Blue Elephants book or at http://www.sellingblueelephants.com/ website).
The resulting regression model was so lucid that some experts called the approach a new behavioral economics sub-discipline. The data suggested that if, for example, investors read that The medication was pulled off the market after the company found the problem, the message would cause about 6% of them to change their attitude from buy to sell. But if the company communicated fast that It is in agreement with the FDA that this medication can be safely used for pain relief. Consumers should not exceed the recommended dose or take the product for longer than directed, this would effectively reverse the impact of the former news as, according to the model, it would increase the conditional probability of investors buying the stock by 6%.
The messages do not have a universal effect, much like fashionable cloth is attractive on models but often ludicrous on the majority of us. The messages are time and brand specific. The same message used by different companies in the same market environment will cause substantially different reaction. A model built in the midst of the Vioxx crisis showed that the message The manufacturer will continue to work with the FDA to sponsor a major clinical study to further assess this medication did not affect investors proclivity to buy the Pfizer’s stock while decreasing it by 10% for Merck. The same message in the same market conditions suggested an increase(!) in intended buying of Bayer and Wyeth shares by 6% and 7% respectively.
The easy and insightful results - what wins and loses, interactions between brands and messaging - give the stock analyst and the shareholder a sense of what people say they are likely to do. The vox populi, the feelings about each particular stock “in current time” in a specific situation, can then be compared against the suggestions of analysts, to determine where there are opportunities, where the analysts say one thing but the common voice of the crowd suggests something quite different. The same vox populi gives corporations a fair chance to prepare their PR for different crisis situations with suggested measured response.
As universal and resilient as it is, Murphy’s Law can’t be evaded, but its effects can be counteracted, neutralized and even utilized for profit with diligent preparation.
_________________________
Alex Gofman is VP of Moskowitz Jacobs Inc., a NY based company, and a co-author of the book Selling Blue Elephants: How to Make Great Products That People Want Before They Even Know They Want Them (www.SellingBlueElephants.com) written with Dr. Moskowitz and recently republished in India (it is also currently translated in twelve countries). He may be contacted at alexgofman@sellingblueelephants.com.
Subscribe to:
Posts (Atom)
