Last week I had a great time giving two talks at Arizona State University (ASU) – one on strategy and analysis frameworks for marketing and CRM, and one on Entrepreneurship. This post will focus on the entrepreneurship talk and provide some of the resources (below) I shared along the way.

My theme was “From A’s in School to F’s in a Start-up” where the “F’s” were failures, friends and focus. The three “F’s” are less likely to get emphasis in coursework so that’s why I chose these challenges for the meat of the talk. I shared a variety of stories and my perspective on the current environment for starting a business to illustrate the “F’s.” In short, but without the color commentary:

• Failures are desirable – make them, and learn to adapt quickly.
• Friends and family end up caught up in the whirlwind of the fledgling business one way or another – consider the impact on them before making the leap.
• Focus is everything – narrow the business focus to sustain competitive advantage, and tune-out distractions. Nearly everything but the business is a distraction so choose time investments carefully.

Though “failure” may be the most referenced of these points among experts on entrepreneurship, I especially liked the emphasis that this Nike commercial provides on Michael Jordan’s failures.

During the talk I also provided resources (links) for the students to reference as they pursue their entrepreneurial dreams. Here they are, with some of them oriented toward the Arizona market.

• Global Entrepreneurship Week – November 16 – 22, founders include the Kauffman Foundation, the world’s largest foundation devoted to entrepreneurship.
• Entrepreneurship at ASU – the hub for ASU and the Greater Phoenix community for many of the things needed to support entrepreneurship in Arizona.
• Arizona Interactive Marketing Association (AZIMA) – all entrepreneurs need to market their business to someone and this non-profit’s membership is free for students.
• New Avenue – Greg Head’s site/blog – Greg is a successful Arizona entrepreneur with some great resources listed among his posts.
• Seeing Both Sides – Jeff Bussgang’s site/blog – Jeff is a VC (Flybridge Capital Partners) and Entrepreneur-in-Residence at Harvard. I presented Jeff’s facts about Harvard students’ entrepreneurship interests – they have shifted dramatically toward entrepreneurship over the past fifteen years.

Finally, just today I learned that ASU was recognized as one of the top universities in the country for their entrepreneurship development. They placed second on a list of top entrepreneurial universities by the Global Student Entrepreneur Awards, led by the Entrepreneurs’ Organization (EO). Congratulations to ASU!

I’m sure I left out many helpful resources, so please let me and the students at ASU know about any you recommend by adding them through comments for this post.

Advertisers continue to spend too little on digital media – by half. Marketing budget allocations continue to lag consumers’ digital media consumption including web and search advertising, gaming and email marketing. Though estimates vary and simultaneous media consumption complicates picking a simple percentage of time that consumers spend on digital media, marketers have been allocating roughly half the budget they might if they instead chose to spend their budgets where consumers spend their time. (See BIGresearch – SIMM – Simultaneous Media Usage Survey).

Back in 2005 Bill Gates, while speaking at an Interactive Advertising Bureau conference, noted that “the future of advertising is the internet.” Gates was also among those noting that spending lagged eyeballs by about half – that trend continues today. Even though digital marketing budgets are expanding rapidly, they are generally around 10 – 12% of total advertising while time online is around twice that.

Even though digital media channels are booming, consumers are not abandoning TV – its viewership continues to increase. However, if we take a closer look we find that folks using the internet are also watching TV – recent figures from Nielsen indicate that over half of TV and internet homes use the two media forms simultaneously at least once a month. Interestingly, 28% of consumer time using the internet is also spent watching TV, though only 3% of time watching TV is spent simultaneously using the internet. Consumers are clearly spending online time also watching TV and changing the dynamics of how TV, the web and their respective ads are consumed. Perhaps this helps explain why online display ads are seeing far lower clicks vs. just two years ago according to Ad Age.

A few implications:

• Digital spending lags consumer media consumption. Even so, I sense that this may be finally changing as the “Great Recession” has jolted marketers to a new state of examination of their ways of old. As spending (investment) in digital media accelerates, its effectiveness will increase along with the tools for measuring it. There will simply be more at stake and less acceptance of an experimentation mindset – even among emerging digital media.

• Consumers are still watching a lot of TV though their attention to it is less than full.  Between time shifting devices (DVR’s) and the two other screens at their disposal – PC and mobile – consumers are using selective reception and choosing among more “channels” than ever before. Marketers must design communications that serve the selective consumer across media and in bite-sized pieces of time.

• Marketers need to study specific consumer engagement and media consumption tendencies for their brand. Generalization of media consumption just won’t cut it – marketers need to understand how to seamlessly integrate messaging into the world of the simultaneous media consumer by studying precisely how the consumer relates to their category’s communications. In other words, measurement must center on media consumption (not media distribution against demographic segments) among specific consumers of the brand and its competitors. In this way, marketers can link their investments, media consumption and their brand’s volume using consumer income flows (category and brand spending) as the common measure.

These implications are surely the tip of the iceberg. Maybe 2010, though, will be the year that ad spending starts to catch up with consumers’ digital media consumption. Let’s hope so.

As the cost of most things rise, one very important thing costs less – starting an Internet based company. There is general agreement among my friends, associates and recent stories in the media that one can start a viable Internet based company with $50,000 to $250,000.  This compares to $5MM – $20MM about ten years ago. [See Fortune story on Marc Andreesen’s new investment fund, and VentureBeat blog post “Seed is the new Series A for VCs”].

My experience is consistent with these new views and I think that we may see the ante go even lower.  Here are some of the reasons why costs are ramping down:

• infrastructure and site hosting handled in the cloud through solution providers like Amazon EC2
• new rapid development and content management tools
• open source (free) solutions
• global workforce of skilled workers with Internet experience

Times couldn’t be better for entrepreneurs. When coupled with the chaos unleashed by the credit crunch, market meltdown and Great Recession, we’re due for a rush of innovation spurred by economic disruption on one side and low barriers to entry for new businesses on the other.

I’d love to hear about your experiences and views – what and how much does it take to get an Internet business started these days?

I’m still amazed at how often I hear about a new brand measure that will make our lives easy. Each time, the measure is the only thing, or at least the main thing, we must monitor in order to track the health of our brands. These incidents remind me of a client assignment I once had to rank order my top ten measures of brand health for one of the world’s top 100 brands (according to Interbrand at the time). I came up with twenty measures, among them my top ten. Even so, these measures were specific to consumer packaged goods brands (CPG) and I’ve since developed similar recommendations for other categories where CPG measures do not all translate well to the unique dynamics of e-business, travel or consumer services.

As for the single most important measure, well, I agree that there is one measure of brand health and it is a derivative of “sales” – the only measure of brand health for many years! I believe that the one measure most critical to brand health is the net present value (NPV) of expected Customer Income Flows (CIF). This is the basis for underwriting the value of a brand – just as one underwrites the value of a business as an investor. About the only time anyone uses this measure, though, is when buying or selling a brand. Even then, the measures are usually created and negotiated by financial professionals rather than marketers.

Cliquity's Captivation Coefficient (CC)

To be fair, there have been some extremely helpful measures of brand health introduced in recent years like Fred Reichheld’s Net Promoter Score (NPS – http://www.netpromoter.com) and most recently, Razorfish’s Social Influence Marketing (SIM) Score (http://fluent.razorfish.com). NPS is a measure that lends itself to both aggregate and individual calibration, while a SIM Score, as Razorfish defines it, is derived in aggregate. Even so, I believe there are ways to adapt SIM Score to measures of individual customers. I recently worked on one such measure – Captivation Coefficient (CC) – for ClickSquared’s Cliquity framework and model for measuring, monitoring and maximizing marketing success. Cliquity’s CC monitors an individual customer’s brand sentiment (positive or negative change) and then uses these measures to aggregate, or roll up, measures for segments or the entire brand as one sees fit. This approach enables the marketer to combine the sentiment measure (CC) with the customer value measure for powerful insight to how to manage specific customer relationships as investments when they ebb and flow with each brand engagement. [Full disclosure: I'm a founder and shareholder of ClickSquared.]

Even though I’m partial to Cliquity and its Captivation Coefficient, I’ve used NPS, the “ultimate question,” many times in order to have a simple means of measuring (and benchmarking versus other brands) brand health based on how likely customers are to refer my clients’ brands. At the same time, however, I’ve always recommended asking a second question to accompany the NPS question – namely one that gets at relative customer value, or CIF at the individual customer level.  In short, a second measure that tells us how much of the product category in question the customer buys. How much the customer flies, buys, eats, drinks or spends. These two measures enable us to understand how our most important (valuable) customers feel about the brand and how those feelings translate to brand health in terms of monetary value. If the 20% of folks that account for 80% of our brand’s income would wholeheartedly recommend us while over half of our “customers” would not, do we have a problem? Is it getting better or worse? And most important, what does it tell us about the NPV of our expected Customer Income Flows?

The NPV of expected Customer Income Flows (CIF) is a tough measure to gauge since it’s “expected” over a future period and not guaranteed. And, of course, it is surely debatable just as enterprise value is when negotiating the sale of a business. Nonetheless, marketers need to strive to measure and consistently monitor this figure. It is not terribly difficult to track this measure at any point in time (current period CIF – how much a customer spent this month for example), yet quite difficult to forecast the expected value of CIF. When used in tandem with other measures like NPS, Cliquity’s CC, or even an adaptation of SIM at the individual customer level, CIF enables the marketer to create a holistic diagnosis of brand health along with prescriptive marketing actions to improve it through thoughtful investments in specific customers.

One measure? Yes – NPV of Expected Customer Income Flows (CIF). Even so, without other measures of brand health even the best marketing doctor can’t prescribe a course of action to improve the brand.

There is little debate today that marketplace power has shifted from the brand to the customer. Though it is critical that brands establish and maintain trust with customers, increasingly the customer has the power in setting the terms of the value exchange they have with their brands. This power shift was evident in 1997 when the Association of National Advertisers (ANA) published Measuring Brand Communication ROI by Don E. Schultz and yours truly, but fiercely debated at the time. Back then, the web was just beginning to emerge as the newest channel for communication and scholars and marketers alike weren’t sure what to make of the new medium.

Things are clearer now that customers are a click away from buying, selling, touting and trashing virtually any brand. Not only can they share their thoughts, experiences and opinions within minutes of a brand engagement, they can do so while on the move via their smartphones and even share a picture or video to bring their story to life. Never have brands been so blessed with the potential for free publicity and simultaneously cursed with the burden of scenario planning to anticipate and prepare for the PR disaster that may never happen.

This new relationship between brands and customers calls for new marketing approaches. Among these is better scenario planning. Specifically, pre-planned actions that are akin to those that emergency services and military personnel incorporate into their routines. Marketers must be prepared to capitalize on positive customer feedback and respond to miss-steps alike. Though there are many examples where marketers are doing this today, here are two recent examples that illuminate the challenges of managing customer engagement and brand responsiveness 24×7.

Customer-created opportunity: Iran’s recently contested elections have posed a unique opportunity for Iranians and supporters of democracy worldwide. Though it is still unclear whether anything will change in Iran, the post-election protests were shared via social media, including Twitter and YouTube, so that the world could see the discontent and brutal state response to the demonstrations in real-time. Shutting out traditional media didn’t stop the population from publishing their views of Iran’s dictatorship and corruption. If nothing else, Western citizens now feel a stronger kinship with a sizable portion of Iranians as they struggle in their pursuit of democracy. Perceptions of Iran, the brand, have worsened, while perceptions of Iranians themselves are humanized – this must be good and will hopefully transition to Iran as (eventually) a better global citizen/brand.

Customer-created challenge: “Customer-created” is really a misnomer since the brand, more often than not, creates the problem and the customer springs to action to publicize the affront. A few weeks ago a musician took matters into his own hands when United’s baggage folks broke his guitar while in transit – here is the link to the music video created by the artist. The broken guitar, in and off itself, wasn’t nearly the problem that United’s cold shoulders presented him in his attempts to try to “make it right.” The back story from the artist is interesting since the story is still unfolding with new videos on the way. Further, now that the story has captured national media attention, United has “snapped to” and embraced the problem.

I have traveled for years on business to cities but rarely for a vacation. Usually these find me headed to smaller towns and the great outdoors. The trip I just made to Portland, Oregon over the past week, though, was an eye opener from a marketing standpoint. I had a bit more time to soak in the nuances of the local businesses, the people and economy than I might during a business trip. This extra time to soak in the surroundings really got me thinking about the Portland “brand” and how it’s competing with other destinations in a tough economy.

Portland Businesses
Portland reminds me of Austin, but in a woodsy sort of way.  While Austin has an incomparable music scene, Portland has incomparable food. Both towns have larger rivals but none of the rivals have the local soul that Austin injects into its music and Portland folds into its food. From the farmers’ markets to restaurants and brew pubs (most of any city in the US) there is a passion for food. It probably helped that I was there during peak berry season and fresh berries and produce were everywhere I looked…oh, and that I love craft brews!

From a marketing point of view, my key takeaway was reinforcement of “being” one’s competitive advantage in every way. Portland plays up this passion for local food, local business and local stewardship everywhere, all the time. In short, it makes an art out of marketing it breweries, its food and its woodsy vibe.

Portland People
The folks in Portland were remarkably friendly – and I was raised a Southerner so I feel I’m at least somewhat qualified to make such a comparative statement. From the folks paid to be friendly like the saviors that helped us navigate the ticket machines at the rail stations, to the average person on the street, we found friendly folks all around. Maybe it was just the effect of the first really warm, sunny days of the year, or the Waterfront Blues Festival’s 100+ bands over four days, or the nation’s birthday weekend, but I suspect not.

Portland is going through tough times economically, tougher than most cities in the country according to the local media. Even so, the locals seem instinctive about being nice to visitors – a bit like the Aloha spirit of the people of Hawaii that help make it such a great place to visit. Grassroots tourism marketing by the people is a solid base for tourism marketing.

Portland Economy
As I just noted, times in Portland are a bit tough. The local economy is centered on the production of durables (timber, manufacturing, the port/shipping, etc.) and, outside of Detroit, has suffered as much or more than most cities in the US from the recession’s downturn. At the same time, the local people and businesses seem a very focused and creative lot so I’m betting the city will emerge even more clear about its competitive advantages. From what I could see, these include its ability to attract the creative class (like Austin) and spur its technology development base to provide longer-term diversification from its agriculture, materials and durables manufacturing heritage.

One great sign of the city’s focus on tourism service was on display as we were on the way out of town. It came from a service employee on the street that helped us navigate the light rail back to the airport – he was excited about the Elks convention that was in town (he estimated over 10,000 attendees), but just as excited to hear we’d be coming back in April.

Gone are the days when the marketer was merely an expert in classical marketing theory, advertising development and media allocation. It was not that long ago that these spheres of knowledge and a great personality could get one far as a marketer – at least for a few years at any one gig.

Today the successful marketer needs to be a solid marketer, yes, but also a bit technologist and a bit financial analyst. These three competencies have formed my own checklist for hiring and training marketers over the years. Further, these competencies have provided guideposts for continuous development of my own skills. These three fields are evolving rapidly and becoming more intertwined as marketing accelerates its shift toward addressable media and two-way dialog.

Image by nick see

Let’s take a look…

Finance – Much as one might underwrite a loan or the purchase of an asset like a brand, marketers must understand how to develop a systematic way of valuing customers and their income flows. The purpose is to establish a framework for setting investment levels (aka brand communication) for these customers based on brand objectives for ROI.

Technology – The shift to digital communication is no longer limited to certain brands, “below the line” tactical extensions (direct response, etc.) and special segments (youth, technology adopters, etc). Spending in technology-driven media that produce and leverage data is accelerating to catch up with eyeballs as media consumption shifts online and to the third screen (mobile device) at a rapid pace. Marketers need to understand how databases work, how data mining and analysis is done, and how media are deployed and optimized using technology and data.

Marketing – Though marketing theory is fairly long in the tooth (having held up to scrutiny in order to survive), some old constructs are being challenged as new media consumption patterns enable the compression of brand adoption cycles. Traditionally a need or “want” preceded awareness, perception and trial/adoption. Now, however, one finds products and services targeted or referred to them that they didn’t know they wanted to begin with. Further, they can often try it free or compare it to other solutions in real-time, so consumers are being trained to expect responsive, engaging brands they can take home “now.” Brand adoption theory, then, is under pressure as marketers succeed in choreographing new means of spreading the word and the desire for their brand.

I have rarely found people that combine these three disciplines. When I do, they’re usually winners. What I’d like to see more of is universities and corporate training that focus on these core competencies to increase the quality of their talent and generate the complete, 21st century marketer. I’d love to hear your thoughts on what competencies come together to make a complete marketer.

The Financial Times and Advertising Age both ran stories today about research sponsored by Catalina Marketing and the CMO Council showing that loyalty to packaged goods brands is suffering as consumers modify behavior during the recession. A bit over half (52%) appear to be less loyal and around a third of the “highly loyal” have gone adrift – those previously allocating 70% or more share to “their” brand. Their brand, of course, had typically been a premium brand (Cheerios, Coca-Cola Classic, Tylenol and others featured in the study) that may struggle under price and promotion competition in a tough economy.

Image By Irina Souiki

Some of the reader comments on these stories (Ad Age) suggest brand loyalty is a thing of the past. This notion is something I suggested a few years ago in an article for a UK marketing publication. The premise then was that consumers had gone the way of so many marriages by embracing “serial loyalty” (not cereal, though these are not immune to the affliction) where one is most definitely loyal … until one is not. For consumers, this means migrating through a series of brand choices as needs change and brands evolve. For marketers, this means re-defining markets, brand advantages, and customer-brand relationships in order to adapt to changing environments. Market turmoil, just like competitive advantages, can lead to serial loyalty that helps the fittest to adapt and survive as the (previously) mighty become vulnerable.

Through our work with many brands we’ve developed a framework for classifying competitive advantages. This simple classification is derived from the customer’s perspective on brand selection – namely how a customer might consciously or sub-consciously choose one brand over another. It all boils down to four simple “utilities” that matter to customers and that marketers can use to gauge their brand versus its competition.

• Functional Utility – How does the brand perform? Does it get the job done?
• Economic Utility – Is the brand worth the cost?
• Emotional Utility – Does the brand inspire confidence, satisfaction or enjoyment?
• Social Utility – What does the brand say about me to others?

Any brand must deliver on at least one of these advantages to be considered or purchased. The bigger challenge, though, is sustainably delivering on one’s advantages, or customer utilities, over time as competitors emerge and evolve to chip away at one’s market share.

How does a marketer use this list of utilities to build, enhance and protect the brand? These categories, and appropriate sub-categories, frame the criteria a marketer might use to conduct regular marketing research on customers’ relative comparisons of one’s brand to competitive brands. By structuring marketing research, product development and brand communications to provide insight to performance against these criteria, a marketer will have a continuous flow of intelligence on the customers’ perceptions of brand strengths, weaknesses, opportunities and threats (SWOT). With this sort of brand monitoring in place, the marketer has a navigation system for the brand’s evolution to keep it on course.

]]> http://strategyoutfitters.com/what-is-a-sustainable-competitive-advantage/feed 0 http://strategyoutfitters.com/what-is-a-sustainable-competitive-advantage http://feedproxy.google.com/~r/strategyoutfitters/~3/YFeTBbU1Xf0/strategy http://strategyoutfitters.com/strategy#comments Sat, 13 Jun 2009 18:20:16 +0000 Jeff Walters http://strategyoutfitters.com/?p=44

Michael Porter once asked, “What Is Strategy?”

Of course, he then proceeded to answer with an excellent, brief summary and a longer “The Idea in Practice” and 20 page article in the Harvard Business Review in 1996. This work was a great update and refresher for those of us who studied his books on strategy back in the day. Few works since have been as succint as his executive summary for this article.

At Strategy Outfitters we’ve built on his work, among others, and after more than 15 years still like our definition of the purpose of a business – or for that matter – the purpose of marketing. Namely…

Purpose of a Business: To sustain a competitive advantage in order to create customer value to return a profit.

That resulting profit, of course, enables one to sustain the investment necessary to maintain the advantage and this perpetual drive for business and brand survival.

Our aim is to contribute to the market’s base of insight and help marketers think about the roles of strategy, financial analysis of customer value and emerging technologies in marketing. Armed with such insight, we hope to be among those successfully navigating the marketing frontier.

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