August 25th, 2010

DOES A RETRO PRODUCT STRATEGY REALLY WORK?

Lately, I have been thinking about retro product strategies. You know, when companies maintain or introduce new products that are rooted in designs or use models of the past. I am not talking about products that are just a continuation of trendy or faddy products and categories from years gone by – lava lamps, soda bottle dispensing machines, rotary telephones, and other forms of retro collectibles. No… what I am thinking about are 1) products that have withstood the sands of time and are still popular today and 2) products that are introduced with modern features but packaged in industrial designs to look like they are retro or vintage. They are designed to evoke feelings of nostalgia and of the durability inherent in yesteryear’s products. Let me explain these two types of products in more detail.

 Old Products That Still Sell Well Today

Most of these products are CPG-type food and sundry products. They may have been reformulated, have had new packaging/sizes, and varied pricing over time; however, they are products that have been around for a very long time. Examples include the original McDonald’s hamburger, Crest toothpaste, Johnson’s Baby Shampoo, WD40, Pyrex, Jack Daniel’s whiskey,[RG1]  Crayola crayons, and so on. They still sell very well because they have become imbedded in the fabric and use of our everyday life. They were the best in class then and best in class now. Their product designs and packaging are timeless and very much aligned with their histories.

Some products have become retro because customers never perceived the incremental features and benefits of newer products as outweighing the old products. A great example is the HP 12C calculator. HP makes other calculators (some more fully featured than the HP 12C), but old-school [RG2] people (note: you started work before 1990) still prefer the original 12C.

This was quite a surprise to HP early on. As a result, HP adjusted its strategy and has not only continued to produce the calculator since 1981, but created derivatives such as the 12C Platinum and 12C 25^th Anniversary calculators.

What happens when companies push too far with product development that favors the new over the old? Nothing positive, I am afraid. They [JB3] violate one of those universal laws of marketing by creating products that their customers don’t want. Remember the New Coke – Old Coke marketing and product debacle? Coke had to reintroduce “Coke Classic” to address the customers’ complaints and differentiate the product from “New Coke.” Later, the company killed the “New Coke” product and quietly renamed “Coke Classic” just plain, regular “Coke” again.

Still other old products become niche products with certain customers and applications. For example, DJs and rappers like to scratch real, old-fashioned records, using turntables, when they perform or record and use equipment especially for that purpose. Of course, some of the newer versions have USB interfaces and other ways to plug them into computers and recording equipment. A lot of musicians like the sound of old synthesizers like the Yamaha DX-7.

Modern Products That Draw On the Past for Inspiration

A retro product is a modern product that draws on the past for inspiration. Some retro products are replicas or reissues [RG4] of old favorites, while others are completely new designs with style or detail touches that bring to mind an earlier period. Some industries in which fashion and design are important excel at this.

For example, take the new Chevy Camaro or the gull-winged Mercedes SLS AMG, whose lineages are clearly tied to the muscle and sports car looks of the 1960s and 1970s. Baby Boomers in their 40s and 50s desire those cars, and indeed many drove them back in the day. People like to play old video games either through emulation or on new gaming platforms like the Xbox 360. This is often called retrogaming. Another specific and clear example of this trend is the way in which the sport garments from the ‘70s and ‘80s are used nowadays. Soccer jackets, jerseys and T-shirts with former logos of the soccer associations are very popular; their designs commonly invoke the old days by using lines in the sides and combinations of colors characteristic of those times.

Comparison of old and new Camaro

Brands such as Adidas, Converse, and Nike have their own divisions that specialize in retro products. Jukeboxes could have evolved their designs to keep up with the times; however, even though they play digital files or CDs these days, the design is firmly rooted in the past. Some Motorola police radios look remarkably similar to the ones used in the 1970s, albeit with better LCD displays.

When Does A Retro Strategy Work?

Of course, that is the $100M question. Nobody wants a retro version of an Apple II PC , the original, walkie-talkie sized Motorola cell phone (sometimes called the “brick”), or VisiCalc, the original spreadsheet software. Clearly there are limits to what a retro strategy can achieve. High technology devices that are constantly changing – getting faster, cheaper, better, smaller, and so on – don’t do particularly well with a retro strategy. In some ways, the most successful retro product strategies are derived when the customer views the technology or product as so mature that it cannot be improved upon. Like a fine wine, time makes the products better (compared to alternatives). Retro product strategy is also tied to retro brand revival. This means the brand and the products are revived together, as opposed to creating a retro product within a portfolio of an existing product line and brand.

Retro product strategies seem to work better in categories such as toys, food, candy, beverages, sundries, [RG5] fashion/apparel, music and cars. With rare exceptions, they don’t work well with most IT products, communications, consumer electronics, etc.

In its paper “Everything Old Is New Again,” DDB Communications tied the success of retro products to their ability to 1) allow for rediscovery, 2) connect with timeless consumer values, 3) stay true but contemporize, and 4) build a community around the products.

In summary, understanding the role of nostalgia in the consumption and customer experience is a valuable product strategy. If it is there and can be tapped, it could be a fruitful business strategy for your business.

 Please share your classic and retro product cases and observations on this blog.

Additional Resources:

http://www.americanretro.com/

http://retrowonders.com/

www.ddb.com/pdf/yellowpapers/DDB_YP_Retrobrands_Jul09.pdf

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Posted By Vince Ferraro

July 21st, 2010

6 Product Strategies to Accelerate Business Growth Today

I want to devote this blog post to discuss alternative product strategies to accelerate business growth. Specifically, the 6 key product strategies we used to grow the business while I was at HP. A couple of key considerations are 1) that all of these product strategies approach new business growth in a different way. In HP, we had a healthy paranoia about the competition. As a result, we had no qualms about cannibalizing our own business if we felt that 2) it would help us grow the size of the available market, our market share, or help defend us from current or anticipated competitive moves.

The 6 key product strategies are:

New-to-World Products: These are inventions and discoveries like desktop laser and inkjet printers, iPad, CAT/MRI scanning devices, etc. This product strategy can be extremely disruptive in the market and game changing for customers and vendors. Often times, the disruption comes from lower pricing or smaller physical size. Other ‘new to world’ products are created from categories that already exist; however, new products redefine the categories by using innovative or alternative technology. Examples that come to mind are electric cars, Elliptigo bikes, digital cameras, and Swiffer mops. In some cases, the technology has been around a long time (electric car technology was first used in 1897). Until recently, nobody was able to scale the required battery technology in a way that provided a viable, cost-effective alternative to internal combustion engines. Of course, this is changing rapidly. Creating a completely new product for a completely new market is the most difficult of all the product strategies to execute. In most cases, even the most innovative of new products have some lineage to a previously known technology or application. This is the least used strategy because of its complexity.

New Category Products: These are products that are not new to the world, but new to the company. For example, Apple introduced the iPhone, Mercedes introduced the M Series SUV, Vizio introduced a product line of televisions. In some cases, these new products served adjacent markets/customers using existing channels. In others, it was more risky because the companies did not have an established market presence in the markets they launched their new products in. When companies fail here, often times they are high profile failures. For example, Microsoft’s Zune or Apple’s Newton to go after the emerging PDA market led by Palm at the time.

Additions to Product Lines: These are product line extensions to the company’s existing product line and brand like Diet Coke. HP developed the PhotoSmart printer to go after the market of printing photos at home. In many cases, these are adjacent market opportunities that require more marketing innovation as opposed to technology innovation. Another example of a brand extension is Jello-gelatin creating Jello Pudding Pops and pudding. The line extensions increased awareness of the brand name and increased profitability by providing offerings in more than one product category. According to Wikipedia, A brand’s “extendibility” depends on how strong consumer’s associations are to the brand’s values and goals. “Ralph Lauren’s Polo brand successfully extended from clothing to home furnishings such as bedding and towels. Both clothing and bedding are made of linenand fulfill a similar consumer function of comfort and hominess. Arm & Hammer leveraged its brand equity from basic baking soda into the oral care and laundry care categories. By emphasizing its key attributes, the cleaning and deodorizing properties of its core product, Arm & Hammer was able to leverage those attributes into new categories with success. Another example is Virgin Group, which was initially a record label that has extended its brand successfully many times; from transportation (airplanes, trains) to games stores and video stores such a Virgin Megastores.”

Product Improvements: Are improvements to existing products that are used to grow market share and revenues. For example, Michelin continuously re-launches their successful X One tire series. WD40 re-launched the venerable WD40 lubricant with a ‘Smart Straw’ which resolved customer satisfaction issues of losing the tiny red straw taped to the side of the can. And let’s not forget Microsoft. They introduced Windows 7 as a replacement for Vista.  Some companies have used nostalgia to create retro products with strong lineages to the past like the HP 12C Classic calculator, creating the paradox that ‘old’ is ‘new’. This is the most frequently used product strategy.

Repositioning Existing Products: These are products that are re-targeted for new use models. For example, using baking soda as a deodorant (and 14 other uses). Another example, Lucozadewas first marketed for sick children and then rebranded to target athletes. Merck introduced Propecia, which is essentially a lower dosage version of their popular prostate drug Proscar, when they found the side effect of drug reduced the effects of male pattern baldness.

Cost Reductions: In this strategy, new products replace existing ones, with a lower cost structure. As a result, the new products that result from this approach drive different pricing options and therefore, bigger market opportunities. Some brands, like Ajax, are becoming dollar store brands. In March 1984, the LaserJet(subsequently called the LaserJet Classic) was introduced. It was a 300-dpi, 8 ppm printer that sold for $2,995 with a remarkable desktop design. This product was highly disrupted when compared to the large line and laser printers found in glass rooms of that era. By 2008, HP had introduced $99 laser printers that were 2X faster, smaller, had better print quality, and were 96% lower in price! What started as an expensive device for large enterprises was able to serve additional markets (like small business and consumer) as price points, image quality, performance, and size were improved upon. Finally, Southwest Airlines was able to capture significant market share from established airline companies by offering a no frills, low price alternative flights on popular, domestic routes.

It is important to note that product growth strategies can also be combined. When HP decided to go after the copier market, we took an existing LaserJet platform and added multifunction capability – scan, copy, additional software, and new paper handling capability. In some ways, it was an addition to our existing product line because not all use models were based on the copier market (but some were). It was certainly new to hp, but it also had elements of ‘new to world’ and ‘cost reductions’ because we were building it on a printer platform, which had lower cost and better reliability than a copier. This allowed us to offer a compelling value proposition and take market share away from entrenched competitors.

Business models are also an important consideration. How do you maximize revenues and profits over the life of the product? At HP, we had a razor-razor blade business model (for printers) that was very profitable. Gillette, Keurig, and Swiffer all have similar business models based on this concept. In addition, the concept of ‘lifetime value of the customer’ becomes important here. Even if you do not have a razor-razor blade business model, you can consider other ways to derive accessories, support, or services revenue and profits over the life of your product. This is not only important financially, but can also help improve the overall customer experience and satisfaction of your products by end user customers by meeting a broader set of needs.

The key point here is that all of these strategies require a robust, new product pipeline in order to continue to grow revenues, unit volumes, and market share. Each one of these strategies can be slotted by 1) the level of technology newness and 2) the level of newness the product is to the market and 3) the current level the company participates in these or adjacent markets. The more ‘new’ the product is on these vectors, the higher the risk and potential return. There is an interesting chart that illustrates this concept that can be found here.

Additional Resources:

1000Ventures.com

Product-Market Growth Matrix

Align Product Strategy

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Posted By Vince Ferraro

June 20th, 2010

Overview

I want to devote this blog post to building and using a customer experience models as part of your overall marketing mix. If you have a new or mature business, developing and delivering great customer experiences can be one of the most important ways to create sustainable, differentiated competitive advantage for your company and products. Think about it, if you have a product line where performance and price are roughly comparable to other market share players, what levers are left that are going to truly propel you to a differentiated market position? I believe there are two key things companies can do beyond executing their core business and marketing strategy. First, build exceptional customer experiences and second, drive more customer-appreciated innovation.

Why do we, as marketers, care about all of this? The economics of customer retention and defection and its impact on profitability are very high. According to research I read, the cost of acquiring new customers costs 5X more than retaining and satisfying existing customers. Average satisfied customers tell 5 others. Very satisfied customers are 6X times more likely to repurchase your products and pay higher prices. On the other hand, consider the economics of dissatisfied customers.  On average, companies loose 10-15% of their customers annually. As a result, average unhappy customers tell 9 others and 91% of them will never buy your products again. Finally, loyal customers are not as price sensitive and research has shown a 5% increase in retention can lead to a 25-80% boost in profits!

Although, HP did not develop it, I believe the ACOILUSD total customer experience framework is one of the most valuable models out there that can help a company document existing and improve future customer experiences. In fact it is so important to HP, that they actually have a patent on the process that uses it. Interesting … don’t you think?

The ACOILUSD model of total customer experiences is a fairly straight forward approach. This model proposes that there are 8 stages of a buyer’s customer experience, which are touch points to a buyer’s entire evaluating, buying and usage cycle. If company’s can improve their products’ total customer experience at strategic touch points, the theory is that brand equity, preference, market share, and product satisfaction/loyalty will increase. These enhancements will ultimately drive more revenues and enhanced profitability. My experience with the model would validate this claim. I will talk more about specific examples in a minute.

Here is the model:

8 Phases of the ACOILUSD TCE Lifecycle

The model simply breaks down a product’s evaluation, purchase, and use lifecycle into 8 discreet components.

The idea being that customers touch a company (and their products) at each phase of the lifecycle wheel and (as a vendor) we should strive to enhance our TCE delivery in each phase. Also, the phases are interconnected and work together to build the overall customer experience.  Therefore, the experience in one phase, can affect the experience in other phases.

The Model

Below are summarized descriptions of each segment of the TCE lifecycle wheel with some examples of what is contained in each one

Aware – What customers hear and read about the brand is the way they become aware of us.  It’s the first opportunity we have to make a genuine, personal connection with customers – to show that we are people dealing with people that care – not a corporation dealing with an impersonal set of customers.

Choose – Once customers know about our products and services, they decide whether or not to choose the brand to meet their needs.  Well-made, dependable products that can be adapted to future needs are one reason customers choose your company’s products. Customers rely on us to help them find a solution that’s right for them.

Order – We inevitably touch customers when they order our products—whether it’s through our Web site, at a retail outlet or over the phone. Ordering is often where customers find out how genuinely friendly, approachable, and easy to do business with we really are.

Install – Quick and easy installation can be facilitated by solid reliability and quality that is built into everything we do. This component can also be applied to opening the box and assembling the product for first use. This is often referred to as the “out of box experience” or OOBE. A very helpful and informative presentation on the topic can be found here.

Learn – Everything from the clarity of our printed instructions to the effectiveness of our training courses impact the learning segment of the customer experience.  Learning is an especially important way to show that we are inspired – passionate about helping people achieve their goals and enabling smarter ways of working and living.

Use – The ability of your company’s technology to perform as it should and deliver what the customer needs every day demonstrates that we are dedicated to making things better for our customers, and results from applying intelligence, innovation, and inventiveness.

Support – Support is a key touch point for retaining trust, demonstrating that we are best at partnering with customers and industry leaders, and treating customers with care and respect whether their support is web-based,  call center, or on-site.

Dispose/Upgrade – Environment-friendly disposal is just one way we make things better for our customers, and upgrades at the right time and right price help people to continue to achieve their goals. Think green programs, recycling, and sustainability initiatives.

Relationship: The relationship phase reminds us about the personal connection we need to make with our customers.  Whether the relationship is directly with your customers or indirect through partners, resellers, and/or retailers – we want all our customers to feel that the company cares about them and treats them well.

In Part 2,  I will write  about how to use and apply this model in your company’s overall strategy and how to analyze results from the efforts.

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Posted By Vince Ferraro

June 2nd, 2010

Competitive Differentiation – Does Your Product Strategy Have a Halo?

What do Mercedes-Benz, Hewlett-Packard, Virgin Air, and Sony all have in common?

They all develop and launch halo products as a way to differentiate their brands and products from the competition.

What Are Halo Products?

Halo products are specially developed products that feature advanced technology, capability, and are usually produced in limited quantities – typically for consumer markets and customers. Often times, they are used in a product portfolio to showcase market-leading technology, advanced industrial design, enhanced customer experience, or new, advanced capability that is meant to promote the product and brand leadership of the company. They are called “halo” products because the concept is that the “halo” or “aura” of this type of product leadership will convey to the rest of the product line – the product line you are most likely going to buy. In other words, the halo effect is one where the perceived positive features of a particular item extend to a broader brand. Typically, these halo products are very high priced, relative to the rest of the company’s product portfolio.

Examples of halo products include the following:

Mercedes-Benz SLR McLaren

HP TouchSmart Inkjet Printer

Virgin Galactic Suborbital Flights

Sony Aibo Robot

There are some companies that try to launch all of their products as halo products. Examples that come to mind are Apple, Trump Hotels, and exotic car brands like Ferrari and Lamborghini.

What Can Halo Products Do for a Company?

For many companies, halo products provide a number of benefits. First, they are products that are so interesting and futuristic; they can generate a lot of positive press and PR. Of course the benefits here are obvious for a company. Second, they showcase technology and capabilities that, while not readily available, may eventually migrate down to the rest of a product portfolio over time as the technology becomes less expensive and more mature. Halo products can also convey exclusivity and status. For example, all my friends may drive a Mercedes SL Series but I have a Mercedes-Benz SLR McLaren.  Meaning … I have something special and different than everyone else. Finally, halo products may drive more consumer awareness and preference for your brand. The idea being if you read about or see the halo product (and you like what you see), you are more likely to buy a product from the rest of the company’s product line up.

Should Your Company Launch a Halo Product?

Perhaps it should. Halo products require resources – development, operations, marketing, etc. and funding to create and deploy. Also, a company has to have access to advanced technology, design, performance, etc. to build products that people are going to be interested in and can generate a halo effect. It should be tied to real customer needs and a relevant customer experience. A halo product strategy can be a very beneficial approach for a company, especially when combined with aggressive PR and strategic messaging. For companies that strive to be a premium brand in their industry and want to be seen as a technology leader, a carefully crafted halo strategy can be indispensible in conveying that premium brand image.

There are less expensive ways to create halo products for less money. For example, at HP, our team in Middle East created a gold plated LaserJet printer to celebrate a twenty anniversary for the business. Another example is the use of a limited edition product strategy to deliver a halo-like product. The only barrier here is your imagination and creativity.

Do you have examples of halo products you have seen or created? If so, I would like to hear from you! Please post your comments to my blog.

Additional Resources:

HP Halo Products

Definition of Halo Effect

Creating the Brand Halo Effect

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Posted By Vince Ferraro

April 30th, 2010

Is Pricing Your Friend or Foe (Part 2)?

In the last blog entry, we examined the roles of commodity vs. differentiated products, elasticity of demand, and relative market share play in pricing strategy. Now I would like to look at three more areas – your sustainable price premium, the use of product configurations, and participating in relevant price bands.

Your Sustainable Price Premium

Your ability to use pricing to your advantage is tied to what people are ultimately going to pay for your products. If you are highly differentiated, have a premium brand, deliver a great product, customer experience, etc., you should be able to charge a price premium for your products. The opposite is true as well. Technology examples of premium priced products include HP printers, Apple PCs, and Intel chips. Now let’s look the opposite situation. You can’t charge a price premium. In fact, you may even have to discount your products relative to average market prices. Can Kia charge as much a Toyota? Can Budweiser charge as much as Heineken? Can Lexmark charge more than HP? Even in the best situations, charging more than 10-20% higher than your nearest competitors (as a share leader and/or premium brand) is extremely difficult. There are notable exceptions. If you are a market niche player or luxury product with extreme product differentiation, and control distribution you may be able to sustain more substantial price premiums. Examples include Bose, Louie Vuitton, and exotic cars like Maserati and Ferrari.

The Use of Product Configurations

As a supplier of a product or service, your goal is to get the highest price per unit the customer is willing to pay. In technology marketing, products with attractive low base prices and options (multiple configurations) that contain additional features and accessories bundled together are typically used. The option prices are set up so that the sum of the parts of the bundle are less expensive to buy than buying them individually or are otherwise unobtainable features (if you don’t buy it in a bundle you can’t upgrade your product later for that feature).

See these two examples:  

Apple’s iPad Pricing

HP’s M4345 Multi-Function Product Pricing

It is an art to decide what features should be included in the base product vs. the options. Customer-centered marketing insights will lead you to the right answer. But the net goal is to have attractive, entry-level price points on the base products then build such an attractive portfolio of options that people, based on their needs, will more than likely purchase a more expensive option.  In addition to this product/pricing approach, there need to be compelling up-sell and sell across marketing communication, tools, and promotions to wring out these higher average selling prices.

Participating in Relevant Price Bands

Based on the above, you should be able to triangulate on your pricing, relative to industry averages and nearest competitors. It is helpful to calculate average selling prices or revenue per unit and compare your performance to that of the competition. Many third party companies track this data (like IDC or GfK for printers and PCs). Equally important is the concept of price bands.

 As a company, you ideally want to sell products at all relevant market price bands (or customer- appreciated price points) – whether they are higher or lower. Why? As mentioned earlier, participating in more price bands opens up broader market access. Over time as a product category matures, lower price bands grow faster than higher price bands and there is a mix shift to lower price bands. This follows the trend of classic technology productlife cycles. This becomes important when you are managing your market share. For example, let’s say 50% of your market is priced over $300 per unit and 50% if your market is below $300 per unit. You don’t currently play in the less than $300 market because it is less profitable, cheapens your brand, etc. Let’s say you have 50% market share in that >$300 market.  That would give you 25% market share in the total market (50% x 50%). Let’s assume you are gaining one share point of market share every year in the >$300 market and the <$300 market is growing 2X faster than the >$300 market. In this scenario, even if you gain market share in your traditional segments of the market, you are losing market share in the overall market. That may or may not be OK, depending on your business strategy. If you are the market share leader for the price bands you participate in as well as the overall market, chances are you will want to hold on to your share and keep prices as high as possible. But as new price (probably lower) price bands emerge, you will need to decide how to respond to them. There are ways to respond (but that will be another blog entry).

Equally important to this conversation is to develop the appropriate tracking mechanisms to measure and respond to your industry’s unique pricing dynamics. Appropriate measures can include revenue share, unit share, price premiums vs. average selling prices, market leadership indicators, brand metrics, and coverage of market price points and bands. Looking at these factors and carefully considering your pricing approach will yield better decisions and help you make marketing a more strategic, value-added function.

Often times, companies will make broad statements – that they would like to grow revenues, profits, and market share – all at the same time. Unless you are starting from nothing, this is almost impossible. At best, only two out of the three variables in play can be optimized. You need to make sure you wisely chose the best ones for your business.

So is pricing your friend or foe? It is you friend if it helps you grow revenues, has neutral or positive effect on market share, and helps you manage your overall profitability to goals. It is your foe if pricing decisions drag down your revenues, gross margins, profits, and market prices. While there are no easy answers to pricing decisions, a framework like this will greatly increase your odds that you are making excellent pricing decisions.

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Posted By Vince Ferraro