Sears: From Wishbook to wistful thinking

I noted with interest yesterday morning that Sears Holdings would be closing 150 full-line stores but shrugged my shoulders as this was a necessary step for a retailer that has struggled for years. My eyebrows raised sky-high however this morning when I learned that they are also selling off one of the crown jewels, Craftsman brand tools, to Stanley Black & Decker.

January is always a date of reckoning for retailers as they examine whether the holiday sales propelled them into the black (in spite of the myth around the Black Friday moniker) or provided further evidence of failure in product mix, pricing and consumer engagement due to flagging same store sales. Obviously the news demonstrates that Eddie Lampert’s empire continues to crumble. Whatever the vision is here, the sale of Craftsman is the final nail in the coffin for Sears as an ongoing concern.  Yes the zombie business will continue to lurch about in the dark grasping for opportunities but as Seritage continues to close stores and attempt to recoup the value of the underlying real estate, it must be evident to anyone paying attention that Lampert is past the long game of building a successful Sears as a retailer.

Point of acknowledgement, I started my career at Sears working in the Credit division back in the heyday of Arthur Martinez and was at the cutting edge as the company dove into the nascent web.  But even more, as a kid, Sears was a core part of my childhood.  It was the department store we visited for the annual school shopping trip as my mother loaded up on knock off low top Chuck Taylors – or bobos as we called them back then – Toughskins jeans and striped shirts.  It was the catalog source of all Christmas goodness that a kid would study for weeks as he evaluated what was possible and created a wish list for Santa.  I even spent one Christmas season as a young teenager hired to demo the AG Bear and more importantly the Petster cat robot in the toy aisles of a Sears. It seemed like you could get anything at Sears from keys cut and Zippo lighters personalized – I still have the first one I bought as a 12 year old pyromaniac – to watches, tools, appliances, computers.  Honestly, we bought my first laptop from Sears, my first Armitron digital watch which happened to play Fur Elise, and most of my Dad’s tools. If we needed a new appliance we bought a Kenmore from Sears. If the dishwasher was acting up we visited the Sears Repair and Parts center for the necessary components. I recall more than one family photo taken in the Sears photo studio. And when the car needed a new battery we installed a new DieHard. When we needed a new mattress after getting married we bought it at Sears.

So that in part is what brings such dismay at the news that Sears is unloading the Craftsman brand. It was rumored back in June but I honestly didn’t believe that would  happen so soon.  Craftsman is such a fundamental part of the Sears identity.

When you walked into any Sears store you always knew that there was a guarantee that backed up a sale: “Satisfaction guaranteed or your money back.” And I was not surprised the first time I walked into Sears Headquarters on Beverly Road and saw those words fixed on the wall above the entrance in 3 foot high shiny aluminum letters. So storied was the Craftsman brand that my father liked to regale our friends with how he witnessed a guy walking into the tools department with a 16 inch long 5/16 slotted screwdriver, that had quite obviously been abused as a pry bar, requesting a new screwdriver because his could no longer properly perform its proper function. And the associate gladly exchanged the tool.  There was loyalty to the brand because the tools were reliable. Now, Craftsman has fallen on hard times and the quality of the tools are not always what they once were as I’ve found myself gravitating to Snap-On and other brands when I need a tool that I can count on. So perhaps this is just an overdue acknowledgement that more than just the store format and assortment has lost its way.

But once upon a time Sears was a serious innovator and this should be a cautionary tale for anyone who wants to build a brand toward greatness.  Most do not realize that Sears was a keen innovator in many of the evolutionary efforts to sell what consumers needed.  The catalog is well known but the movement into retail stand alone stores and malls in the suburbs was a big push by Sears.  The concept of a retail credit card started with lists of customers managed at each store and eventually the blue Sears card was the most common credit card in every American’s wallet to the point that 1 in 3 Americans carried and used it.

So what happened? Sears was a casualty of navel gazing and losing track of what made it great: delivering a quality product to customers with great service and providing what customers wanted at a good price.  The retail sector fragmented in the 90s and suddenly Sears no longer knew who their customer was.  Walmart and the Dollar Stores squeezed them from the bottom, Target brought design but budget conscious consumers great products in a bright and cheery buying experience, and all kinds of specialized box stores delivered higher quality products with a focused delivery in sectors like hardware, appliances, TVs and electronics.  No one thought of shopping at Sears because in being swallowed by Kmart it followed that business down the rabbit hole of little investment in the stores or the assortments.  I recall when the merger was announced sitting in a marketing class at Kellogg where a number of us in the class had experience working for Sears.  No one could come up with a defense for Lampert’s vision if it meant making the two stores remain successful and not going the route of Woolworths. We looked at the onslaught of Amazon and the encroachment from all other sides and determined the only way out was to capitalize on the assets. And that it seems is the logical demise of the store.

Yes, Lampert believes he can create this amalgamation of the new millennial retail with an innovative online presence welded to a brick and mortar presence. In 1998 we discussed a vision of allowing the customer to make the buying decision Any time, Any place, Any way – something that has evolved substantially since those early days of e-commerce and mobile computing.  But to me that obsession is no longer the issue for Sears. The bigger question is encouraging customers to shop at Sears. Why should I choose Sears over Target, Walmart, Costco, Amazon, Zappos, Nordstrom, JC Penneys? Every one of those retailers except for Amazon and Walmart has seen their market cap decline in the last 10 years but that really speaks to changing buyer behavior. The question that needs to be solved is who is the target Sears customer and what are they looking for?  As we discuss in ITW the question of who is your 80 customer drives every single decision.  Who are the customers that believe in your Brand and why do they shop with you? What can you do to increase the share of wallet they contribute to you?

My wife used to be a regular customer at Sears but she won’t even set foot in the store any longer because the layout and footprint are chaos.  “Too crowded (as in the racks are too bunched together), too hard to find an associate to help, too little in selection that is attractive to me or for my kids, the lighting is dim and the whole feel of the store is dismal.” This is the description of the Woodfield Mall store which for decades was the flagship store given its close proximity to HQ and placement within one of the best malls in the Midwest.  I haven’t used my Sears card in 3 years and I only make the trip to the Woodfield store if I need a particular tool that I can’t find at the closer Home Depot or can’t wait for Amazon and Snap-On to deliver to me. If Lampert wants to be the competitor to Amazon he needs to provide a more compelling offering than Prime 2-day delivery of practically everything a customer could need for their home with ease of delivery, excellent pricing and no fuss returns. I know this will pain friends I have on one side of the equation and delight those on the other but in our house Amazon, Target, Costco and occasionally Walmart trumps Sears 9 times out of 10.  Maybe we’re no longer the target customer but then who is?

Only being able to answer that question will resolve the problems Sears is facing.  Lampert once believed he would be the next generation Buffett and the SHLD stock skyrocketed in 2007 on the market’s perception that he could build a retail juggernaut with carefully curated selections like Land’s End, Renovation Hardware, and other key assets.  But to really successfully do that would have required a very different culture and a very different management style. My impression at that time when the firm I was working for was called in to present an approach for building a culture of innovation within Sears to the senior leadership on “Mahogany Row” was that the leadership, the vision, the intuitive understanding and the willingness to commit was lacking. We presented a plan and all I heard were platitudes and a view to chaos across an organization that was ingrained as historically extremely command and control. To manage the juggernaut that Lampert spoke of would have required a very loose and decentralized organization that allowed businesses to excel in pursuing their customers.

And hence here we are 10 years later watching the dying gasps of a once great company.  Gary Balter from Credit-Suisse put it quite succinctly: “We continue to believe that Sears will sell off or spin off assets in a controlled liquidation of its chain, monetizing the assets least tied in with Sears’ U.S. stores first. However, over time, selling off the profitable assets is unlikely to be a winning strategy.”

That was almost 5 years ago and Balter should hang his hat on that prediction.

Sad day indeed.

Finding Your False Narratives

How often do you discover that something you thought you knew about yourself was wrong?

I’m not talking about family secrets that suddenly surface years later when you’re an adult and sitting around the table talking with your favorite Uncle. This isn’t a let’s lay down on the couch and have a series of conversations moment but there certainly are some unconscious elements to the “stranger within” that drive our personal behaviors. No, the question here relates to behaviors and rationales for the actions you take in life, the way you do things, and perhaps your favorite activities or hobbies. Do you know why you always turn on the stereo before you put your seat belt on? Do you know why you prefer Jif peanut butter to Skippy? Do you think about why you always sit on the far right side of a classroom or meeting room, closest to the door?

Recently I discovered something fundamental about an action I take on almost a daily basis and have done so for twenty plus years was based on a different rationale than I have explained to myself and to colleagues who have queried me about it.

Let me first explain that I am a note taker, a scrivener, a scribe as it were, though writing as a journalist is certainly not my profession.  It’s possible that I was a stenographer in a previous life. As a result I have an extensive collection of professional (paper) notebooks that date back to my college days. These aren’t personal journals though I do sporadically keep one.  No, these are the insights, deliberations and decisions made in daily meetings captured in extensive detail. Sitting on a shelf in the office I think there must be at least 40 of these notebooks. And in general these are not 80 page half size Moleskines but 8.5″ x 11″ quad ruled 140 page composition notebooks. So yes, some of you, the designers especially, are nodding your heads, and like me as a serious fanatic of notebooks, may get kind of dreamy eyed when terms like acid free and 90 lb gsm roll through your heads and you think about the feel of the pen scrolling new thoughts across the page.  It’s true that I am also a touch typist with sufficient speed and concentration that I can capture practically word for word what is said in a meeting or conversation without detracting from the discussion – this is an extremely useful skill when you’re facilitating an interview – but there is greater enjoyment for me personally when those notes are taken on paper.

Suffice it to say that for my entire career I have maintained deeply detailed notebooks largely for work. Said notebooks once featured extensively in discovery and a 3 day deposition that surrounded arbitration over the earn-out for InstallShield’s acquisition by Macrovision. They say that he who captures his activities in writing leaves a record for posterity but it also creates a highly useful tool for discovery by hawkish attorneys.

I’ve long preferred graph paper in bound composition notebooks that fit in a leather sleeve. But most importantly, I have always only written on the right hand page and the left page was reserved for identifying action items or doodles.

Here’s where the discovery happened. Recently as I opened up a fresh ITW lab notebook, reserved for recording tests and results (for patent purposes) I noticed the instructions page. Now, I have not used an R&D notebook since my last internship at the IV Systems labs at Baxter in 1993.

But as I read the instructions it all came back that “the left hand page is to be used for calculations that do not require formal recording.” I always thought I left that side blank because I write with my left hand and this would mean fewer smears from wet ink. But instead this habit carried over from a requirement for note capture that definitely started in 1991. Avoiding smearing was a discovered additional benefit that eventually overtook the original rationale in my mind.

The engineers reading are all nodding their heads and reflecting back on their first exposure to this practice in the lab with courses like MIT’s 2.671 Measurement and Instrumentation. How could you forget what was drilled into your heads from day one that “keeping a complete and accurate record of experimental methods and data is vital part of science and engineering.” Well captured notes ensure the ability to replicate results and more importantly prove ownership of intellectual property.

Why does this matter?

Because this post isn’t really about me, or notebooks but about understanding customer motivations. It comes down to whether or not you trust what your customers tell you when you want to understand why they do what they do.  A core part of innovation is figuring out the job that a customer needs done, the solutions they hire to do that job, and the work arounds they create due to imperfect products. Every consumer insights specialist or market researcher knows that this leads directly to focus groups and one on one interviews, the grunt work of qualitative research.  But sitting down in a conference room or behind the glass wall is still an incomplete effort and no matter how brilliant the interview guide questions nor how creative the facilitator, you are still going to miss very critical insights that could mean life or death for your product.

You need to spend more time in the field, on the production line, in the home of the consumer, in the kitchen with the chef or under the car with the mechanic if you really want to understand the work they do. Immersion means getting your hands dirty and developing a fundamental view of the essence of the problem space. This is where so many new product development efforts fail.  Teams spend way too much time staring at columns of data and debating their personal views of the mindset of the customer based on anecdotal insights they’ve gathered through sales calls. The richness of your customer persona and how it incorporates the environment in which they operate will directly correlate to the eventual resonance your solution has in the marketplace.

Let me offer a couple of examples to better illustrate the benefits:

A manufacturer of power tools was working on their next generation nail gun and the common factors for improvement were under consideration: increase the power, reduce the weight and expand the nail capacity.  But this team has developed the focus of not just handing the tools to carpenters  to get their feedback in a laboratory. They also spent long hours on the construction site taking photos and watching to see how the nail guns are used.  One photo brought back a clear message to their development team as they observed a carpenter assembling walls with a nail gun in one hand and a hammer in the other.  Ask yourself, why does a carpenter need a hammer if he has a pneumatic nail gun?  There could be a number of answers to that question. This single insight would take the team down multiple paths of successful development as they explored the deeper questions that surfaced.

In the early days of Pringles the manufacturer was struggling with how to get a proper flavor into their chip due to the output from the factory line.  The food engineer given responsibility for solving this problem told me he knew immediately what the issue was as he drove down the road toward the factory.  The smell of boiled potatoes rising from the steam out of the exhaust pipes explained the loss of flavor. It helps to understand that Pringles were one of the first dough based potato chips where the potatoes aren’t sliced thinly and fried in oil but instead boiled, mashed, dried and then formed from a mixture of potato flakes and water.

But here’s where the insight took off.  This engineer and his team realized that since they were introducing a potato flavor back into the chip they could just as easily use the bland chip as a foundation for all kinds of new test flavors. Today there are well over a 100 different flavors globally of what is a Billion dollar snack.

I share two different examples to demonstrate that external, and internal customers deserve similar treatment as you attempt to find solutions for them.  Site visits bring a far more substantial set of insights because often the customer doesn’t even think about the work arounds they have put in place.  And if you asked them to tell you how they do their job they quite likely would not mention the additional steps.

This calls to mind my favorite chocolate chip cookie recipe which I happily share with anyone who asks.  The problem I found much later was that friends could not replicate my results.  Only when one friend asked to help me make cookies and learn the steps taken did I stop to think about how I beat the batter with a fork and not an egg beater, or how I use room temperature margarine and eggs or especially how I pop the dough into the freezer to let it firm before baking. My recipe card reflects none of these steps nor does it mention preferences in specific types of flour and margarine.

In the end, the outcome you seek is entirely dependent on the questions you ask and more importantly the manner in which you go about discovering the problems your customers are trying to solve.  There’s a reason why they’re called unarticulated needs.

 

Languages can remap your world

Robert Heinlein in “Stranger in a Strange Land” reflects on how speaking another language changes your way of seeing the world around you. But I love how he explains why English is such a complicated yet expressive language. My Francophone friends will appreciate the statement concerning controlling the purity of a language (this is an Arab doctor speaking):

“You will understand, then, how difficult I found English. It was not alone that my native language has much simpler inflections and more limited tenses; the whole ‘map’ changed. English is the largest of the human tongues, with several times the vocabulary of the second largest language – this alone made it inevitable that English would eventually become, as it did, the lingua franca of this planet, for it is thereby the richest and most flexible – despite its barbaric accretions…or should I say, because of its barbaric accretions. English swallows up anything that comes its way, makes English out of it. Nobody tried to stop this process, the way some languages are policed and have official limits…probably because there never has been truly, such a thing as ‘the King’s English’ – for the ‘King’s English’ was French. English was in truth a bastard tongue and nobody cared how it grew…and it did! – enormously. Until no one could hope to be an educated man unless he did his best to embrace this monster.
Its very variety, subtlety, and utter irrational, idiomatic complexity makes it possible to say things in English which simply cannot be said in any other language. It almost drove me crazy…until I learned to think in it – and that put a new ‘map’ of the world in top of the one I grew up with. A better one, in many ways – certainly a more detailed one.”

A linguist would say that Heinlein erred in his comprehension of how languages express thought and whether the size of the vocabulary is the best metric for that evaluation. And that is reflected in the doctor’s concluding thought: “But nevertheless there are things which can be said in the simple Arabic tongue that cannot be said in English.”

Either way, it’s an amusing perspective nonetheless. And my geek friends will recognize this as the preamble to Heinlein finally defining his luminescent addition to the English language: the word “grok.” A word he freely used for the first 242 pages before finally almost breaking the fourth wall and providing a tutor session for this highly versatile word.

We would do well in today’s world it seems if more people took the time to grok other concepts, principles, and people before developing a passionate opinion about them. Of course, that would require spending more time thinking and less time tweeting or other types of posting on social media. The Web remains a very reactive environment.

What happened to Thanksgiving?

The third week of November is upon us with a serious chill in the air and children asking for this week’s homework early because their parents are trying not to let school get in the way of education, or at least Thanksgiving vacation.

What’s that you say? Traditions are changing? Yes as a matter of fact they are.  I was rereading Neil Gaiman’s American Gods this week and found myself musing on the “decline of the influence of traditions and gods on the American psyche” that Gaiman explored back in 2001. What’s fascinating is how aptly he predicts that manner in which media and other modern influences shift attention of Americans away from so many of their traditional pursuits  and interests well before the modern Internet, social media and mobile connectivity had overtaken our lives.  How interesting can Odin or Easter possibly be when Call of Duty, iPhone and Facebook are calling?

There’s an enlightening dialogue between Wednesday (Odin) and the female embodiment of Easter in the novel that speaks to this question:

“You’re one of us,” he said. “You’re as forgotten and as unloved and unremembered as any of us. It’s pretty clear whose side you should be one.”

Easter put her slim hand on the back of Wednesday’s square gray hand. “I’m telling you,” she said, “I’m doing fine. On my festival days they still feast on eggs and rabbits, on candy and flesh, to represent rebirth. They wear flowers in their bonnets and they give each other flowers. They do it in my name. More and more of them every year. In my name, old wolf.”

“Serious question, m’dear. Certainly I would agree that millions upon millions of them give each other tokens in your name, and that they still practice all the rites of your festival, even down to the hunting for hidden eggs But how many of them know who you are? …Shall we go out on the street, Easter my dear, and find out how many passers-by know that their Easter festival takes its name [in English at least] from Eostre of the Dawn?”

The whole premise of the conflict that brews between old traditions and modern distractions in the novel is that traditions change even fade away as new “gods” take their place.

It’s illuminating how poets like Shel Silverstein explore the modern shift where instead of sacrificing food and gifts to Baal or Ganesha, many Americans today lay out their trays of food and sacrifice to the gods of NFL Sunday and Netflix as they dine and are immersed in another world that perhaps diverts them from the stresses and struggles of every day life.

What does this have to do with Thanksgiving?  Well that traditions are in a constant state of flux and that  if our most recent election has taught us anything then it’s that retailers and CPG manufacturers have a very real challenge on their hands at navigating an agitated and increasingly diverse public.

So how will we celebrate this, the most American of holidays this year?  What shifts are happening today and how will that change the common narrative that unites us in food, family, and fun?

Many will pursue the very traditional dishes of turkey, potatoes, green bean casserole, sweet potatoes, cranberry relish and pumpkin pie.

thanksgiving-dinner

But with a changing cultural base a growing mass are far more willing to increase the number of meals and the foods on the table than the standard Thanksgiving picture would present.  How many of you celebrated Friendsgiving this week?

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If you’re a Millennial then it’s quite likely that you did and you also had tabouleh or chicken vindaloo or arroz con pollo or a good classic Ghanaian fufu along side that tofurkey.

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Times they are a changing and old traditions that we thought we understood will evolve until that classic Rockwell image Freedom From Want is perhaps as anachronistic as the idea of ice barns from which blocks of ice were delivered weekly to keep the refrigerator cold. In the mind of a market strategist this means you cannot simply assume that your customers will always be the same and expect the same from you year in and year out. No, trends are accelerating in many ways and traditions are evolving that require a close ear to the ground.

But as always change represents a grand land of opportunity if you know how to read the tea leaves properly. Families of various types will likely still gather together on the third week of November. And they want to share love by breaking bread, er tortillas, er naan, well you get the picture.

Why Your Quant Metrics Are Lying To You

This morning I fired up my browser and there on the Nielsen internal home page was a gleaming new post declaring Most Households Read Food Labels by our own Todd Hale, SVP Consumer and Shopper Insights.  For those who know me, they would anticipate my immediate reaction to such a statement: an almost visceral desire to holler, “That’s BS!”  Sometimes I accidentally say these things out loud and then I have to sheepishly apologize to those around me for my explosive behavior.

Please don’t misunderstand, I respect Todd highly and he offers an accurate analysis of what Nielsen’s Homescan panelists (125,000 demographically diverse households spread across the United States), answered in response to a 2008 survey asking the primary shopper about their tendencies for reading labels on food and beverage packages.

Label Reader

But if you relied solely on the data that in summary says 61% of households agree completely or agree somewhat that they read product labels you would be drawing very faulty conclusions as to how readily consumers are responding to what is printed on the product labels.  And such conclusions can lead to bad policy decisions among government and health regulators, bad ingredient decisions by food scientists, and bad marketing decisions by brand managers.

Well why is that you might ask?  Two reasons come to mind:

Quantitative data offers only a narrow slice of understanding consumers’ actions, attitudes, and beliefs

Quantitative data is useful in defining and tracking trends in behavior.  But you cannot get to the truth of what someone actually does unless you actually go out and observe them in the environment where they engage in this activity.  You see, it’s not even good enough to sit down with consumers in a focus group or one on one interview and ask them what they do.  In the case of consumers reading labels, you must go out and visit grocery stores and observe from afar to determine whether people are actually reading labels.  Then if you approach them you can find out what they are looking for on the label and why they read it.  The ethnographic approach complements quantitative data by providing definitive proof of behavior and rounds it out with cultural and personal drivers.

 A combination of confirmation bias and the Heisenberg Uncertainty Principle impacts truthful self reporting

Maybe you realize it, but the truth is, we lie all of the time when our behaviors do not match what we know “the experts” or “society” or even we ourselves have come to believe is the “appropriate behavior.”  If you don’t floss on a regular basis and the dentist confronts you with the results of this by saying “your gums are a little inflamed, are you flossing regularly?” how likely are you to admit, no, I never floss even though I know it’s good for me?  So think about those individuals who reported that they agree completely or agree somewhat that they read product labels.  Some of them probably absolutely do read the labels, especially if they or someone in the home have a restricted diet due to food allergies, health conditions, or less likely, are on a diet.

However, my experiences as a new product development consultant where I engaged with hundreds of consumers and visited dozens of stores demonstrated that most consumers move through the store in a mindless mode of filling their carts with the products and brands they know and only rarely stop to examine the label.  Nielsen’s own (warning PDF) DeltaQual research (warning PDF) shows that once these habits or Omega Rules are formed, only a certain type of trigger might cause a consumer to stop and scrutinize the brand or label more closely.  This differs of course by category where shopper modality adjusts accordingly but the average shopping list from week to week is probably 80% identical and probably 99% identical across an 8 week period.  I described one such delta moment scenario in my last post concerning the not-from-concentrate orange juice “lie” that ruptured the Breillatt household’s perception of what constitutes “fresh squeezed orange juice in a box.”

In reality, consumers may not even realize the lie to the “truth” that they claim defines their behavior.  It is not unusual when visiting a home and asking one member of the family questions about their behavior to have a son or daughter or spouse pipe in with, “No way, that’s not what you REALLY do.” You see, as the Heisenberg Uncertainty Principle (as misused by social scientists) states, “the very act of observing a phenomenon inevitably alters that phenomenon in some way.”  Consumers may believe they’re checking labels because they’ve heard how important it is to be aware of what they’re eating what with the food pyramid from the USDA, the constantly improving Nutrition Facts, and dietary recommendations from pediatricians, Dr. Oz, Dr. Gupta, and every other guru they encounter through media. They remember that of course they checked out the label of many of their foods when the big uproar came up around trans fats or high fructose corn syrup or whatever the latest nutritional crisis might be.  Of course, they forget that they did that once during three weeks’ worth of shopping 2 years ago until they were caught up again by the latest scandal to grip TMZ and the gossip rags at the checkout line.

Allow me to expand on that thought with a recent and relevant example – especially for you social media researchers who are trying to figure out how to leverage the data such sites like Twitter and Facebook offer.  Just a few days ago, the Nielsen funded Council for Research Excellence released the results of the Video Consumer Mapping Study which identified that:

The amount of time Americans report they spend watching online video has been, on average, grossly overstated by conventional forms of media research and audience measurement …conversely, traditional TV viewing has been pretty drastically under-reported” by research that asks people how they consume video.  The reason why, is that research based on how people perceive they consume media isn’t nearly as accurate as research that actually observes how they use it.

The ad industry historically has known about such “halo effects” and the fact that it is considered socially unpopular for people to report that they watch as much TV as they actually do. On the other hand, people tend to over-report their online and mobile video consumption, because “it is new and cool.”

As Arsenio Hall used to say, “Things that make you go hmm.”  Social biases have a real impact on how survey participants perceive themselves and therefore how they report their activities.

So my recommendation is, if you’re going to rely upon a statistic as the foundation for taking an important action to your product, make sure you have a good interpretative lens based on true consumer / user behavior to provide the full color for interpreting the data.

Does Your Brand Tell Lies?

Speaking of orange juice, I completely forgot about this little gem of an article that came out of the Boston Globe two months ago and culminated in a significant change in behavior for my family.  After reading it you may join me in pondering how exactly Tropicana intends to respond to this disaster that will likely descend on them in about 60 days once this baby hits the morning news circuit.

The article is a Q&A with Alissa Hamilton, a Woodcock Foundation Food & Society Policy Fellow, discussing her forthcoming book, “Squeezed: What You Don’t Know About Orange Juice.”

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Let me just cut to the pulpy core of the issue: practically every carton of “not-from concentrate” orange juice you could pick up in the refrigerated section of your local grocery is NOT what you think it is.

As Ms. Hamilton states,

It’s a heavily processed product. It’s heavily engineered as well. In the process of pasteurizing, juice is heated and stripped of oxygen, a process called deaeration, so it doesn’t oxidize. Then it’s put in huge storage tanks where it can be kept for upwards of a year. It gets stripped of flavor-providing chemicals, which are volatile. When it’s ready for packaging, companies such as Tropicana hire flavor companies such as Firmenich to engineer flavor packs to make it taste fresh. People think not-from-concentrate is a fresher product, but it also sits in storage for quite a long time.

Sitting in a metal vat for a year = freshly squeezed? Right, that’s what you’re drinking.  Not something that was freshly picked from the grove, squeezed and then rushed to your grocer in a matter of a few days.  Even though that is what they would like you to think and for which they expect you to pay a mighty premium.

Until February of this year, my family of 5 were loyal purchasers of the 4 pack of 64 oz Tropicana Premium from Costco and paid something like $4 a carton for what we thought was a close approximation to fresh squeezed juice. Give or take a couple of weeks.  I mean, look at the side of the carton where they romanticize the freshly delivered juice that is rushed up the Eastern seaboard from the grove to big cities in the refrigerated Tropicana Juice Train.

Is there any reason to believe there won’t be a huge outcry when consumers learn what they’re actually drinking is not fresh juice taste but a manufactured simulacrum of it? And that even worse, more and more of that juice is not fresh from Florida but instead shipped from Brazil?  At that point, the damage done by Mr. Arnell’s ill considered packaging refresh will be a tempest in a teacup compared to the response to Ms. Hamilton’s book explaining how inauthentic Tropicana’s pretty little cartons of juice really are.  Then Mr. Arnell can add yet another definition to what the phrase “squeeze” means in the minds of Americans today.

What change did the Breillatt household make, you ask?  We decided to go with the best tasting frozen juice we could find since it’s half the price of “not-from concentrate” and essentially the same except you’re not paying for shipping water and the more expensive manufacturing process. Plus you can determine how “juicy” you want your juice by reducing the amount of water you add. Costco has a 6 pack of their Kirkland brand that is actually really good.  And when we want that truly freshly squeezed taste?  Occasionally we’ll squeeze our own oranges to get nothing but juice.

What’s the lesson from this story?  It’s yet to be certain how much of a hit Tropicana and other juices like Florida’s Natural, Simply Orange, and even Minute Maid will take from this revelation.  But if they learned anything from the high fructose corn syrup debate, I’m sure they’ll be lining up their brightest PR stars to attempt to make this story go away.

The better answer though is to be truthful with your consumers.  In this era where their trust has been battered in multiple areas of our life, consumers are increasingly showing loyalty to brands that stay true to their promises.  There really is something to the maxim “authenticity speaks for itself.”

[Update] Seth Godin nails the authenticity trend with his brief post, “What you say, what you do and who you are.”

What Do Your Customers Know About Cool?

Art is not what you see, but what you make others see. Edgar Degas

If you’ve ever found yourself working for a start-up or really small company – I’m talking less than 15 employees – then you’ve no doubt encountered the siren song filled dreams of a mammoth sized marketing budget.

“If only we were like P&G or Apple or Accenture,” the song goes, “with six, seven, yes even eight figure R&D and marketing budgets…we could blast our message on billboards and in every Google Ad possible…starlets would preen around our product in every episode of the best shows on Must See TV…we would have access to all of the research ever generated about our target customer and I could quit guessing when the CEO asks me what is the right next step….Man, our brand would be ubiquitous…customers across the country, even around the world would know how amazing our products are and…we would be inundated with sales…because they would love us.”

Yes, it would be amazing wouldn’t it Virginia?  But be careful because as the Bible says, “where much is given, much is expected.”  It’s enticing to believe that all of the money in the world would provide you with the absolutely complete and perfect understanding of your target consumers.  Your war room would be filled with books (OK well not books but given the thunk factor of those PowerPoint decks when printed and dropped on the board room table, they might as well be) carefully crafted by only the best consultants detailing everything you never even dreamed you wanted to know about the habits of your customer.  You would have hours of candid video footage which you would spend hours studying the minute details of freeze frames like Phil Jackson preparing for the big game.  The best designers would be on speed dial and shower you with their most brilliant and most modern concepts.

Sounds like nirvana, right?

And yet, if that is what a massive marketing budget can provide, then what in the world happened to those poor schlubs over at Tropicana who arguably own the concept of fresh squeezed orange juice?

tropicana

As Grant McCracken, pop cultural anthropoligist extraordinaire, explains, they were swayed by everything money could provide: the glitz AND the glamour! Those entrusted with this sacred brand allowed a so-called guru with the hippest eyewear you ever saw, run their brand right off the cliff.

What, you mean the iconic mouthwatering orange with the straw in it is so fraught with meaning that abandoning it for a sterile, generic looking, impossible to distinguish from the cheapest watered down so-called orange juice sitting at the bottom of the shelf package, would actually lead to a 20% decline in revenues in the critical first 3 months after launch?  As our good friends over at Calculated Risk like to say, “Hoocoodanode??!”  It’s amusing that Tropicana’s initial response to the flat-lined launch was that complaints came from a loyal vocal minority.  A vocal minority?  REALLY?  You lose $33 million in revenues on top of a failed $35 million packaging redesign / launch campaign and you say a vocal minority caused you to stand up and pay attention?  Sounds more like a full scale revolt of a significant portion of your customer base.

McCracken pulls no punches in his cutting critique of Peter Arnell – the so-called guru – and Massimo D’Amore, the Tropicana executive who sponsored the whole debacle.  And Arnell’s response demonstrates an over-engineered thinking that only the brightest minds could produce.  Consumers know what the juice looks like, Peter, the key is making them think they’re about to drink straight from the orange.  No one I know could ever have imagined that they were freshly squeezing the juice by rotating your little orange cap.  Talk about artifice.

The lesson from this story my friends is that no matter how large your budget, if you don’t ask the right people the right questions, you can expect similar results.  And in corollary, the larger your budgetary spend, the more likely your spectacular failure will go down as a Harvard Business School case study of what not to do.

So remember, as one entrusted with a product brand story, you are an artist and your product is destined for the masses – your customers – so if you’re going to entrust your art to some guru, make sure they go out and talk to those same masses and actually LISTEN TO THEM.  In fact, in today’s world of Social Media, for a lot less than what Arnell costs, you can learn more just by dipping your toes in conversations flowing around your brands each day.  Why not strike up a conversation and see where it leads.  Because while those same masses may not know art, they absolutely know what they like:

The public is the tribunal before which all art is judged – not the critics or the academies. The public is the artist’s only patron, and has certain fundamental rights. It will submit to education, and will respond to suggestion, but it will not be bullied. Walter J. Phillips

And to those iconoclastic designers out there who hold themselves above the masses?  I can only say that mediocrity requires aloofness to preserve its dignity.

Next to come, an exploration of why competitors fail to act on customer opportunities in categories clearly demonstrating strong growth and significant innovation.

Vintage DHARMA Initiative Ads

Dharma Initiative

Adam over at Hot Meteor unearthed some incredibly cool vintage advertisements from National Geographic for the DHARMA Initiative – jump over to his Flickr stream to see the whole collection.  For all of you fellow LOST junkies, you have to agree that this is some amazing work!  If I’m ever looking for a designer in the future, Hot Meteor will be one of my first stops.

Hat tip to Jason Kottke for the pointer.

Continuing the Conversation on Finding an Unsolved Problem

Continuing the discussion around how to approach developing a new to the world / industry product (that started off over in the Ask A Good Product Manager post) I wanted to point to a great post and developing conversation that Saeed Khan kicked off over on the blog On Product Management.  Saeed tackles this question admirably and offers thoughts about why sometimes you just have to proceed in developing since consumers might have no idea they have a problem until they are presented with the solution.  I think the discussion that ensues in the Comments section, where I’ve added my own two cents, pretty thoroughly explores the space and helps clarify thinking in how to approach developing a novel solution.

Heelys Kids

I personally believe the framework for new product development remains highly relevant even for novel solutions where  a real world context is hard to identify.  It just requires flexibility in how you approach it and a willingness to proceed based on your own personal convictions while seeking additional data to support your belief that there is a pony in there somewhere.

How to Fail Before You Even Get Started

I wrote a post for Jeff Lash over at Ask A Good Product Manager in response to a question he received from one of his MANY readers.  The question was:

How can I determine the need and saleability of a “new to the world” product?

Make sure you go read the comments at Jeff’s site because they add some real depth to the answer and respond to at least one facet of the question I should have considered.

Fizz Cup

With that said, here’s the answer:

This is a question every product manager will likely face at some time in his or her career and it is one of the more complex challenges due to the multi-faceted answer it requires.

But let’s start at the most basic assumption: you know who your initial customers are and you’ve determined what problem your product solves for them. You do know this, right? Somewhere among your PRDs, MRDs, spreadsheets and extensive collection of feature defining Keynote decks is a single document with one short paragraph that describes:

 [This group of customers] will use [my product] to solve [this problem] in [this context].

You have this right? Don’t feel bad if you don’t. But if you haven’t started actual production / development of your product, don’t go any further until you have this nailed to the wall of your boardroom with the signatures of all internal parties.

[Note, I’m not going to go into the details of what it takes to generate this target customer / product profile but if you want a good primer on this go read Innosight’s write-up of their “JOBS™” methodology. Christensen didn’t invent this concept of ensuring your product aligns with a real job a customer needs to do — it’s Marketing 201 (a.k.a. market segmentation by need states) — but his team does a nice job of framing a successful approach for avoiding the all too common dilemma I’m about to describe. I would also point you to my friends over at K&A as well but none of their relevant materials are posted up on the site.  I’ll just say you won’t truly succeed until you learn the full meaning of the word ethnography.]

In my experience, especially when dealing with engineering-minded entrepreneurs developing “new to the world” products, there is a tendency to enthusiastically focus on developing the new product without stepping back to ask, “Who will want to buy this and why?” Some people call this the Mt. Everest Syndrome — we build because we can and because it is a very cool and extremely technical challenge. There’s nothing wrong with doing it this way, but the problem is that once you’ve reached the “summit” of developing this amazing, mind blowing new widget you suddenly look up and realize, “Wait a second, now what do I do?”

The natural response is to begin chasing after potential customers because you want to get paid for your work. But if you don’t have a clear conceptual model of the person and behaviors you’re targeting, then this will be a very frustrating endeavor because at every turn you will hear a different response from a different type of customer. The Director of IT at one of the still surviving major financial institutions will tell you that your solution would be perfect to audit their expenditures of TARP funds if it had an ITIL compliant server back end that could interface with their Exchange setup. At the same time, the “typical consumer” will tell you that your GUI is too complex and ask why you can’t just dumb it down so that little Kylie can embed photos of her pet fish in her newsletter and easily send them out to the local family mailing list? And of course, the 3l33t programming types will just shake their heads and say, “Dude, where’s my command line interface so that I can link up to my headless virtual servers to manage my growing collection of torrents?!?!”

So, which one of those customer types or “personas” did you want to use for your pricing, sales growth, and marketing outreach planning purposes?

Skriiiiiitch! [mimicking the sound of a needle being yanked across an old LP].

Remember when I said there was nothing wrong with building the product first and then trying to figure out how to market and sell it? Please reach into your ears and yank out this piece of nonsense because in most cases it is absolutely wrong advice. What I haven’t said — and experience teaches — is that there is a strong possibility that you’re going to show your widget to every potential customer out there and people will shrug and say, “So what?”

Those two words should be among the most used words in a good product manager’s lexicon. “So what?” is the defining question for determining whether you have identified a solution that delivers a unique and valuable answer to a real job that an identified segment of customers want to accomplish and for which they would be willing to pay real money.

Unless you work for Microsoft Research or Los Alamos National Laboratory or some other well funded research tank, every single product idea you pursue needs to be latched onto a well-defined customer persona. That customer group is who you will target for your roll-out of the new product when it is actually released.

This is why a proper new product development effort would begin with identifying a problem or “job” that a target group of people need solved and determining:

  1. Who are these target customers? (think demographics)
  2. What existing solutions do they use and/or what work-arounds do they leverage against said existing solutions?
  3. Where and when do they use these solutions; or, better yet, where and when would they like to use these solutions?
  4. Why aren’t existing solutions solving their problem?
  5. What are the key attributes a successful solution needs to provide? (this should be a very short list of probably no more than 3 attributes)
  6. What value do these potential customers place upon such a solution?

See, here’s the thing; once you’ve identified the target customer and have some understanding of the value they place upon an optimal solution then you have completed 80% of the work required to answer your original question: how do I determine the need / saleability of a new to the industry product?

You should now know:

1. Your hypothesized initial target customer persona — when applied against the right demographic data this should enable you to identify a market sizing, which is a critical component for defining your growth model.

2. The value they place on the ideal solution — when combined with an understanding of the competitive landscape and your fixed plus projected variable production costs, this will help you determine pricing.

You still have to do the other 20%, but at this point it’s more a process of filling in the blanks than it is inventing something from whole cloth.

I know, you’re sitting there staring at the screen and thinking, “OK great, Alain, if you’re so smart, how do I accomplish that last 20 percent?”

Well, I’m glad you asked because that was my next point. When I worked in business development it was not unusual for someone from marketing or sales to send me a hurried email asking about a particular solution space and what our potential TAM was if we decided to expand in that direction. I always was quick to ask, “Are you looking to understand our Total Available Market or the Total Addressable Market?” Usually if I was talking face to face with the requestor I got a blank stare in response to that question.

Here’s the thing — if you want determine the potential opportunity for your product, you first need to know the size of the market you are considering entering / creating and what share of it you intend to own. That is the distinction between Available and Addressable. And this isn’t an easy effort. In the book, Marketing Metrics: 50+ Metrics Every Executive Should Master, the authors elaborate:

    Market definition is never a trivial exercise: If a firm defines its market too broadly, it may dilute its focus. If it does so too narrowly, it will miss opportunities and allow threats to emerge unseen. To avoid these pitfalls, as a first step in calculating market share, managers are advised to define the served market in terms of unit sales or revenues for a specific list of competitors, products, sales channels, geographic areas, customers, and time periods….

Data parameters must be carefully defined: Although market share is likely the single most important marketing metric, there is no generally acknowledged best method for calculating it. This is unfortunate, as different methods may yield not only different computations of market share at a given moment, but also widely divergent trends over time. The reasons for these disparities include variations in the lenses through share is viewed (units vs. dollars), where in the channel the measurements are taken (shipments from manufacturers versus consumer purchases), market definition (scope of the competitive universe), and measurement error. In the situation analysis that underlies strategic decisions, managers must be able to understand and explain these variations.

So in defining your market the steps to follow include:

1. Define the boundaries of the target market and determine / estimate the number of consumers / business entities who would be buyers of any solutions that are or could become available. In this case we are considering a “new to the industry” product so, while an existing solution may not exist, there likely are substitutes available that customers are using. Back in the 1950’s before there was a handheld mobile phone, everyone who needed to communicate by voice used landline phones or two-way radios. Therefore, if you were Motorola developing your analog handheld mobile cellular telephone — of which the DynaTAC was the first US public commercial prototype in 1974 — you would have defined your Total Available Market as the entire population of people who seek to communicate by direct voice transmission.

Because Motorola was a large successful company at the time, they likely projected against a global TAM. Of course, a true visionary might have said that the market was broader than just voice communication and included wireless and image communication as well and therefore broadened the TAM to include users of snail mail, telegraph, teletype, television, and messenger services.

But where do you get the data to put an actual number to that projection? Well most industries have a trade association that annually reports the manufacturing numbers or revenue for each defined product space. For PC and software worldwide and regional numbers I always relied on data from International Data Corporation (IDC), Gartner, and Jupiter Research.

Here’s an example of how Macromedia defined their TAM methodology which pretty much mirrors the approach I used to take for Macrovision. What’s interesting about their example is that they also leverage point of sale (POS) data from NPD. Nielsen, the company I work for now, provides this type of data for manufacturers and retailers in the Fast Moving Consumer Goods space. Using this level of data sophistication dramatically improves the accuracy of product growth projections, although access to this data is a costly option on the order of tens to hundreds of thousands of dollars.

If you’re focused exclusively on the consumer space then census data is your friend and a good starting point. Typically you can search out additional descriptions by analysts that spring up in corporate quarterly reports, investor presentations and online repositories including blogs authored by sector experts.

2. Describe the competitive landscape including the type and size of competitors and the nature of their rivalry, threat of entry, threat of substitute solutions, bargaining power of customers, and finally bargaining power of suppliers. The astute among you quickly identified this as a five forces analysis as defined by one Michael Porter of Harvard Business School fame. I’m not going to dive into detail here other than to say, if you haven’t done so, go read his seminal article describing this model and how to effectively use it in defining a competitive market space. A critical component is building an expanded SWOT (Strength, Weakness, Opportunity, Threat) analysis for each primary competitor since it provides a useful characterization of their capabilities and product directions. You need to avoid becoming simplistic in building this analysis and you should clearly identify where your knowledge is factual vs. hypothesized.

3. Break the market into segments and estimate their size. Market segmentation here should really focus back on the jobs a customer is looking to accomplish when they use this solution. For instance, mobile phone users differ significantly between corporate users who are looking to stay in touch with the office and their professional network as they travel across the country and the globe as compared to heavy socially mobile consumers who want the latest games, ringtones, and to be able to share photos and texts with their wide group of close friends who probably live within the same metropolitan area.

Each group has a defined set of requirements that you should ferret out and determine how valuable the opportunity is in pursuing them. Part of your consideration should include attitudes and speed of adoption. It is not always fair to assume that the best market is the 18-34 year old market in spite of what many on Madison Avenue believe. Age and socioeconomic status may not even be the appropriate characteristics for measuring the markets you are trying to define.

Let that sink in for a minute.

Your market segmentation is not necessarily based on age, income, or gender. It should be focused on people who highly identify with the problem your solution solves — whomever they might be and their likelihood for early versus later adoption.

4. Estimate market share of competitors in each defined segment. This is fairly straightforward — like I said, filling in blanks — but you should carefully consider who the competitors and how tightly they hold to your target customer base. Since this is a “new to the industry” solution you need to keep your definition broad until you have narrowed down the precise requirements. With your requirements in place you can effectively identify who plays in your identified target segment for initial launch.

So now what? Well, with all of this data in place, you need to create a market growth projection. There are a number of ways to go about this and in reality all of them are filled with guesswork, estimations, hypotheses, and at least a little gut based decision making. But no VC or CEO is going to accept that you’ve built this model based on your gut so you need some type of analytical model to back up your assertions.

Let me introduce you to the Bass Diffusion Model of adoption. If you’re familiar with the Crossing the Chasm series then this graph should feel comfortable. If you’re not familiar with it then you really should just go read the book or at least a summary of it. Unless your product is completely lacking in analogous solutions that are already or historically have existed in the market place — it does occasionally happen — you should be able to use the Bass Model as a means of projecting your sales or unit growth over the next 1, 3, 10, or 20 years. The formula may appear daunting at first glance but the two key variables you need to worry about are the coefficient of innovation and the coefficient of imitation. As the folks over at smbZen BizJournal state:

The “coefficient of innovation” is the probability that an innovator will adopt the product and, in its calculation, includes the impact of awareness building efforts. The “coefficient of imitation” simply represents the probability that your friends will adopt the service if you did.

“But,” you say, “what if there is nothing analogous that I can project against?” Well, you need to be creative and figure out an appropriate analogy because this is to some extent how you will describe the solution to your target investors as well as your target customer. If it’s completely new to the world then they will be looking for an appropriate analogy and you should be the one to provide it to them. [Note: David Locke in the comments to the original article makes the excellent point that hopefully in this case you’re looking at a technology play where you’ve developed an interesting and unique capability that now needs a market sponsor to help you exploit it and build a market for it. Go read David’s comment for deeper understanding.]

In the consumer packaged goods world, brand managers typically will supplement this data with test market research that includes both panel and real world, hand’s on test product feedback research. My employer, The Nielsen Company, has a strong lock on the former with our BASES studies methodology that leverages a very deep database of historical product introductions and actual sales performance as measured against advertising and promotional spending. We help clients like P&G build concept boards that describe the product in significant detail including imagery, branding, messaging, product SKUs, benefits, and pricing. These boards are then put in front of a few thousand consumers who fit the target customers’ characteristics and feedback is solicited through online surveys and webcasts.

Depending on how the product performs, clients may decide to put actual prototypes of the product in the hands of the sample consumers and test out their experiences with the solution. All of the data gathered from this experience enables a more realistic projection for how the product will perform at launch time.

But if you’re not a P&G you can still go out and do some of this similar effort in alpha testing of screen shots and product descriptions either through online surveys or in-person focus groups. This in part is why Google takes their “Beta” approach to many of their solutions that evolve out of Google Labs.

Finally, it is possible that you can’t go out and do any of the research I have outlined. It is entirely possible that you have developed something like Twitter — a technology that was originally created because someone thought it would be a cool idea and it slowly evolves through constant iterations and significant stumbles into a true utility that consumers love and use ravenously. But unless you are already independently wealthy or have an understanding sponsor, or are willing to spend all of your free time outside of that you spend doing your day job, this is a very difficult path to pursue. Further, there’s no evidence at this point that Twitter is actually going to produce real revenue in the long run, so you may want to focus on developing a solution that pays the bills from day one.