Beware the market research company that does all types of market research.     Most companies don't actually do all types of Market Research at all, least not well.    And the few that actually do conduct all types of research and do quality jobs of them all, tend to be very, very high end companies with very large staffs and with prices that are not reasonable for most startup companies.    Those companies spend money like IBM - full service groups, or like the SAP implementation.  

The smart way for smaller businesses who have decided to conduct some inexpensive market research to verify a few assumptions in their business model to ensure that they're not headed in the exact wrong direction.    The challenge is that to get the most from your research dollars you need to find a market research company that already understands the product or services that you intend to offer, and they've conducted research with similar deliverables before (so they, with your pocketbook, are not reinventing the wheel).  
It's actually not that difficult to find a small market research firm that 1) knows your industry and 2) specializes in the type of research that you need to conduct.. However it's very important if you want to get the most out of your research dollars, and find a partner who really cares about providing quality, actionable information.   Often times these smaller companies will take a personal interest in learning more about your business, your competitive situation and put together a much broader and better research presentation than a much larger company who feels that their impressive credentials more than make up for the homework that they don't have to do.  

For my startup I'll find a smaller company that really does want to become a partner and help you through any research projects that might come up.   If you have any trouble finding such a company, send me an e-mail and I'll do a little bit of homework on your behalf to help you find a few appropriate market reseach vendors that that fit the bill.  

Chris Hawkes
Chawkes@MarketResearch101.com <a href="http://www.marketresearch101.com">MarketResearch101</a>.  

Credibility is an issue for all businesses, but it's especially critical for a small business (or relatively unknown company - especially in what most consumers believe to be a mature product market where there is very little if any differentiation between one company's products and another.    If I told you that IBM or another big name company provided the highest quality of PC uptime and the fastest service options available, you'd probably believe it.   You might guess that the cost would be ridiculous, but you probably wouldn't argue the possibility that IBM could deliver on those claims. After all, IBM was the company that originally invented the PC after all (at least the PC that could run multiple software packages on one PC).     

An egg company, Eggsland Best.   They have an advertising campaign to convince egg consumers that Egglsand Best eggs, and their eggs only, are somehow endowed with special nutrients and vitamins - and they don't take the time to explain (at least not to my satisfaction,) how this happens.   It's just presented as a fact and we aren't supposed to simply take their claim at face value and not wonder how this magic came to be.   advertising their eggs as being better than the competition's eggs.  

Not wanting to believe that they're telling us a bold-face lie - that could easily end them up on the wrong end of a class action lawsuit, I tried to imagine how they could enhance the quality or characteristics of their eggs.  Do they have a special breed of chickens that naturally produce eggs that naturally have these beneficial qualities?.   Are they injecting these vitamins into the eggs somehow?    Or are they pumping their chickens full of some type of drugs that cause the chickens to produce these magical eggs?   Whatever it is that their scientist are doing to those poor chickens, it's probably something that I don't want to know about it.   But I probably don't want to eat their eggs either - and I'm pretty sure that wasn't the response that they were hoping to evoke..

My point is simply that credibility has to be earned, it cannot be bought with a few slick commercials, the invention of some spiffy new terms, or even a spiffy little stamp on your eggs that identifies that as special.    I simply don't believe that it works that way for most consumers.  

When you make claims about your business, or your products or services, check with a few people to see if they sound reasonable, and if the explanation that you give puts most people's minds at ease.    If they don't, you probably need a better explanation or to dial back what you're asking your customers to believe.   If you come out with a claim that is ridiculous, or that is judged by your target customers to be ridiculous - you're definitely not doing yourself any favors.   In fact you're likely doing damage to your reputation.    Be careful what you claim and provide some supporting information if people aren't really convinced.    Don't stretch too far or you may damage the most important assest that you have - your company's good name.  

Know Thy Customer,
Chris Hawkes  

I'd thought that toilets were pretty much a commodity product and that most were purchased primarily on price.    But on a recent trip to Tokyo, Japan I experienced something that completely changed my mind - the Toto, "Washlet," toilet seat.    

The Washlet, as it's name implies, takes care of the dirty work of going to the bathroom.    After the toilet-user has done his or her business, there is a "cleansing wand" that, with the push of a button, extends out of the underside of the toilet seat a couple of inches and sprays the buttocks area with a warm pulsating mist of water.  The type of spray, the target of the spray (ladies), the water temperature and the water pressure can all be adjusted.   The seat is also heated with an adjustable thermostat.   Once the cleaning is done, a temperature adjustable flow of air that dries the users bottom.   One version of the Washlet even purifies the air along the way to make sure that the air stays sweet smelling.  

Washlets run between $800 and $1900 dollars and the top of the line model actually opens the lid as it's approached and closes the lid after the person leaves.   Toto claims to have sold millions of Washlets all over the world.   They also state that over half of the homes in Japan have at least one Washlet.  

The reason that I think that is an interesting product is that there really isn't a great deal of technical innovation involved.    There are a number of tasks that have to be done very, very precisely, but most of the technologies have been around for quite a while.    The real breakthrough in this product is in identifying a target market (Japan) that is very sensitive about germs and cleanliness and identifying a task that they wish could be automated - to the tune of many, many Yen.   I don't know enough about the history of Toto and the Washlet, but I would be willing to bet that this wasn't done based just on someone's hunch, I'll bet that they conducted quite a bit of market research to understand what would work and what wouldn't work.     And then they must have placed models in a number of places to have people use them in their own home in order to get a real read on how it really worked out for customers in the long run.  

The Washlet wasn't a simple product to bring to market either, in fact Toto had to create a line of special distributors for their products (mostly higher end home stores with high- touch sales and service capabilities).    Knowing that a standard toilet seat costs well under $100 and the thought of having a toilet seat clean your backside automatically is a very, very foreign concept, they've implemented a trial program through most of their dealerships (which is a program that must have some interesting terms in order to motivate the dealers to sign up for customers returning used toilet seats).  

This is an example of a product that could have been shot down for a million different reasons, but someone at Toto believed in the concept and kept pushing through a great many challenges to launch a very unique and expensive product to great acceptance in the marketplace.  

Know Thy Customer - Very, Very Intimately
Chris Hawkes

A number of factors have combined to cause radio advertising sales to decline for the last several years in the United States.    But a number of  radio stations are fighting back by including newer advertising methods that cleverly incorporate the web, or even "mini-sites" to collect targeted customer information and provide incentives for customers to visit your business.    They can provide streaming ads for visitors of the website, e-mail ads to regular listeners and other ways to reach a much more targeted customer than what they could do in the past.     And the regular decline in their ad revenue means that they're more willing to work with smaller companies than ever.  

Technology is also allowing radio to alter their advertising to reach smaller geographic areas than they could do before - when a typical radio broadcast would cover a very large area, often wasting an expensive advertising message on customers who were too far away from the business location to seriously consider their services.  

If you're a small business struggling with how best to reach your customers, you might call a local radio stations and ask about some of their newer advertising options.     They're hungrier for business than they've been in a long time.   As one radio executive put it,  " The web will play a big role in how radio will be rejuvenated, because radio isn't in the broadcast business; it's in the entertainment business. "  

When it comes to advertising you have to know your options.
Chris Hawkes

In order to advertise effectively, a company must know how many of their customers, or potential customers fall within a standard population of 1000 people (or some measure of likelihood of bumping into one).    The reason that this is so important is that some companies are fortunate enough to sell products that are used or consumed by essentially the entire population, while other companies are truly looking for a needle in a haystack.  

Before you put together an Advertising campaign, consider carefully how many people in the general population might be interested in your category of product.    This knowledge will help you identify what advertising mediums might be best suited to reach these customers, and how much of your efforts my be completely wasted on a group of customers that are either not interested or financially unable to purchase your product.  

Let me use a couple of examples to make my point:  

Fast Food - If you are selling fast food, your potential customer incidence rate is very, very high - at least in the US.    I believe that the latest numbers show that the average American eats fast food, on average, twice a week.   And further, most of these decisions are made within two hours before they are actually ready to eat - so many of these decisions are made on impulse.   Which is why many fast food restaurants tend to sponsor radio commercials right around meal times.    Now you're probably saying that it's possible that a small minority of people eat fast food very, very frequently and the rest of the world may not eat fast food very often at all.    That may be true - but there is a very small minority that has sworn off fast food entirely and stick to their vow.    So, the incidence rate of fast-food eaters is still very high, although there is undoubtedly a wide variability of the frequency of eating fast food.    So this would lead me to believe that a very broad based advertising campaign might make sense for a standard fast food restaurant.  

Vertu Cell Phones - Now I'll jump over to another extreme to make my point.    Nokia phones has a sub-branded phone that is called Vertu.    Vertu phones are exceptionally high end phones, priced between a few thousand and several thousand dollars per phone.    They are made of exotic materials, some of the higher end models are encrusted with diamonds.    Simply holding one in your hand gives you the feeling of being a titan of industry, a God among men.   They have a very unique and distinguished design, and are each handmade in England with the exceptionally fine detailing and very unique capabilities.  Each Vertu cell phone comes with a special button and a concierge service that can help you with such dire emergencies as urgently needing to know where the nearest 5 star Sushi restaurant is to your current location, in whatever city you happen to be in that day!     As their website says, "These are handsets for individuals who only accept the best".     However, adding to the exclusivity of these phones, they're also hard to find.   In all of our United States, there are only 15 states that have one or more places where you can buy these phones.    They're typically in stores that have a nicely dressed security guard and where you have to press a buzzer to be let into the store.    For a product like this, the customer incidence is much, much different than it is for fast-food.     There are probably only a few very high end magazines that Vertu advertises with - and as it should be.    I've never actually seen anyone with one of these phones, although when I travel on research I often peer through the window and wonder what the life of a person that can afford that type of artwork (and they most definitely are, artwork) must be like.  

Marketing fast food is much different than is marketing a $7000 cell phone, I agree.   However, I believe that these examples may help to demonstrate the need to have a clearly defined target customer, and to understand what he/she reads, where he or she shops and what really motivates these people to purchase.  

Is Your Ad Spending Hitting the Sweet Spot?
Chris Hawkes

"Marketing News" a publication of the American Marketing Association had an interesting story on a small family business that had begun in 1915 in Manhattan's Upper East Side, by the Obsatz family. Butterfield Market which started out as a grocery store, when grocery stores were much smaller than they are today, and quickly gained a reputation as providing wonderful service and exceptionally high quality products.     

In 1970 the latest member of the team came on board, Evan Obsatz, who realized the potential of the a small business with a sterling reputation to expand into other areas.    He also realized that the scattered brand didn't provide customers with a unified impression of what Butterfield Market really stood for.    He wanted their little store to communicate the look and feel of a exclusive, high quality experience.    His first steps were to improve the layout of the store and changed the exterior of the building to better fit the type of quality products and services that customers had come to expect.   Over the years they also expanded their product breadth by adding prepared foods and catering services.  

Then Evan realized that the brand image that they were projecting was still somewhat disjointed and "informal" because there were a number of different looks on the company's various supplemental products such as grocery bags, boxes, letterhead, logo, website even the sign on the storefront.   Faced with a great deal of reluctance to spend money on making a more consistent look and feel for the store, Evan agreed to hire an inexpensive New York design company (if you believe there is such a thing!) to create a unified brand across everything that was marked as Butterfield Market.  

Unfortunately nobody was happy with the result - because it didn't really capture the essence of the store and it's long history of quality.  "We tried doing it on the cheap and we got what we paid for" says Evan.    After a taste of what a common brand might look like, even the elder members of the family were a little bit more open to the idea of getting a getting a real brand image created.    So this time Evan asked the owners of companies who's branding he liked, and got the names of a couple of brand and image companies.   Eventually he found a brand and design house to help him develop the perfect look to represent what Butterfield Market was really all about.  

The branding and design house came up with two design options, one of which was greatly appreciated by the family and was eventually incorporated into boxes, shopping bags, uniforms and store vans and are currently working on a new website.   The response has been wonderful, from both the customers as well as all of the family members who can see the benefits of having a consistent image.   "We pride ourselves on quality and on customer satisfaction and on history, and now it's all in the brand".   

Consistent branding probably isn't as critical in all businesses, but for this high-end specialty grocery store it was probably more beneficial for the clientele of this type of a business.    Now Butterfield Market has a solid identity across their entire business and a consistent image that can more easily be leveraged to other locations and now they are considering expanding out to additional locations.    Their new brand image should help to communicate their emphasis on quality as they venture beyond their initial starting place.  

Chris Hawkes

Portions of this blog entry are taken out of a recent WSJ article by David Brooks article called “Demography is King”.    His article was primarily about politics, although as I read it, it was clear to me that there are learnings to be taken from Demography and that apply just as well to getting your business noticed and tailoring your advertising at the group(s) that are most likely to consider purchasing your products.

  The first point that David made was that. people have become much more segregated in the last several decades, by things such as wealth, particular activities, education levels and the types of magazines and books that we read, as well as the type of television shows that are watched.  Fifty years ago 80 percent of American television viewers tuned into watch Milton Berle every Tuesday night.   Doctors and lawyers lived on the same street as the truck-driver – their children played together.    Only 7% of Americans had a college degree.

  Demographic groups have begun to act more like tribes or cultures and the effects can be seen everywhere we look.     Imagine that you go to attend a pro-wrestling event.    What kind of products do you expect to be advertised there?    What kind of beer do you expect to be served there?   Budweiser would be a pretty good guess, maybe Coors.   And there’s probably some Jack Daniels floating around also.   The situation is very different if you go to a play or a musical – that’s a more formal event, where most men have on a jacket and maybe a tie and the beverages that are served are more likely to be wine or micro-brews.    I’ll even bet the cars in the parking lots are very different from one activity to another.     There are probably many more differences too – from education levels, to types of sports, to the neighborhoods that they live in, and the types of restaurants that they frequent.    I’m not saying that this is a perfect split – it’s definitely not, but I think that it probably holds true for Pareto’s 80%, or somewhere in that range.

  “But how does this help me with my marketing efforts”, you might be saying?    Well, a knowledge of the demographics of your customers, and how those demographics spread out in your area, can be a big advantage when it’s time to allocate your advertising dollars – and maybe even your advertising medium, and the copy that goes into your advertising.   For example, imagine that you’ve started a restaurant that serves mostly organic foods and vegetarian dishes.    This type of restaurant might tend to interest kids primarily in the 20s, who prefer tie-dye and Gypsy dresses.   They’re probably a bit ‘crunchy’, play Ultimate or Golf-Frisbee, or at least have friends that do.   One medium might service this restaurant very well, while another medium should be used to get connected to work-at-home mother who spends most of her time in a monster SUV, shuttling her kids from soccer practice to baseball practice and then to country club to cool off and get a nice meal.     

I realize that this is a pretty easy example, but there can be vast difference between different groups of people.    However, there are ways to test your theories.    Change-up your advertising periodically and always keep track of who’s biting and who’s not (you can do this by advertising in one neighborhood or through one newspaper for a certain period of time).     If you hand out coupons you can put in a code so you’ll be able to track down exactly who used the coupon and what area of town they are from.    It’s actually not too difficult to do – just start paying attention to the advertisements that you get and guess what kind of approach they might be using to market their business.  

A key business driver is identifying your target customer and targeting them as precisely as possible (while keeping you mind open to the possibility that you may have missed a target, or identified one that isn’t that interested in your products).  

Know Thy Customers,
Chris

Once a person knows something, it's hard to remember what it was like to not have that knowledge (or know-how).     In the book Made to Stick by Chip and Dan Heath, they describe the way that many companies suffer from the ‘curse of knowledge' syndrome - where a company's representatives believe that their product category is allocated much, much more customer mindshare than it actually receives.     The effects of this syndrome come out in a number of ways:   those who speak to the customers use acronyms and technical jargon that the customer couldn't possibly know unless they worked in the same industry.    Or those people who write the messaging and product literature use terminology assuming that the recipient can automatically convert the product specifications into customer benefits (which requires thought and understanding at the least - and in many cases it just goes over their heads and the mention of such terms was squandered time and probably caused customer frustration).  

The challenge for Marketing is to take dozens or hundreds of product specifications, sort through them with the customer's needs in mind, prioritize them, and then provide the customer with a short list of the most customer-critical benefits of the product.     Everything else that is mentioned is likely to confuse or frustrate the customer - possibly making them believe that this particular product must be made for someone with much more technical knowledge or more complex technical demands.

Tappers and Listeners - This is a great example of how the concept of the ‘curse of knowledge' can play out.    This was tested in a research study several years ago.   A group of people were given a common song and asked to tap the song to another person and to guess how many of the people would be able to guess the song, based only on the rhythm and timing of the tapping.   Tappers (who had the song going through their head as they tapped,) guessed that the receivers would identify the song correctly 50% of the time.   In reality guessers only got it right 3% of the time!   Simply stated, once a person has an understanding of something - it's very, very difficult to remember what it was like when they lacked that knowledge.

The point here is to ensure that anyone who has contact with the customers should constantly strive to ensure that they're not letting technical terminology or industry jargon get into the customer communication.   Doing so, may very well be worse than simply not communicating - it may communicate that the specific product being discussed is inappropriate for that particular customer. 

It's All About Customer Knowledge,
Chris Hawkes

There is a fast growing movement to improve the reputations of many types of companies to have customers perceive them as doing more than just selling products and making a profit.    A growing number of consumers like the idea of giving back something to the less fortunate - especially in the US where our standard of living is so much higher than the vast majority of other people on this planet.   The creation of the term "cause-related marketing" is attributed to American Express, and it was coined to describe efforts to support locally based charitable causes in a way that also promoted business.

The term that has evolved is "Cause Marketing" or Cause-Related Marketing both of which terms refer to a type of marketing involving the cooperative efforts of a "for profit" business and a non-profit organization for mutual benefit. The term is sometimes used more broadly and generally to refer to any type of marketing effort for social and other charitable causes.   There are now stores that sell imported products and claim that they pay a sufficient price to ensure that the employees of their suppliers are paid a "fair wage" or a "livable wage"

Before you tune-out and consider this to be some new age attempt to assuage our consciences - listen to these results from a recent study: according to a 2006 study by the Cone Millennial Cause Study, 89% of Americans (aged 13 to 25) would switch from one brand to another brand of a comparable product (and price) if the latter brand was associated with "good cause". The same study also indicated that a significant percentage surveyed would prefer to work for a company that was considered socially responsible.

Here's an example of cause marketing by Pampers, which promises that each purchase of a certain type of Pamper's diapers will provide a needy American family with free diapers and also provide an inoculation for both a mother and her child.   href=http://www.pampers.com/en_US/home.do  - and click on the box labeled "Pampers the gift that gives twice"

Are your customers people who might respond to something like this?    From the research it appears that the benefits can go to anyone or any group that is considered needy - and you still get the benefits of customer's seeing your company as being compassionate and someone that they might like more of their dollars to go to. 

Know Thy Customer,
Chris Hawkes 

There are a lot of new product development research projects that I do, where one of the most important questions is “do we think that this new product will cannibalize existing sales of the same product category, or could this new product attract a new group of customers, who up until this point have not purchased this type of product" (thus growing the entire market for that type of product).

This distinction is critical to Product Marketing Managers as they develop new products – because if the new product is going to cause a new type of customer to enter an established product in a profitable way, it probably makes a lot of sense. However, there are other cases where a new product is being considered that might simply cannibalize that same company’s existing products (resulting in SKU proliferation and reduced profit margins for the company overall!) In most cases this doesn’t make much sense unless it’s a defensive move to protect the product line from a competitor stealing market share because the current product line is insufficient.  

Here’s an innovative product distribution model that forces the question about whether it will grow the market overall by bringing in new customers, or if it will simply cannibalize current sales. I was walking through the San Francisco airport a couple of weeks ago when I saw these enormous vending machines. However they were selling some very high end products (such as Blaupunkt headsets, a Sony digital camera, a number of Ipods, voltage converters) as well as products that you would more traditionally expect to see in a vending machine. The vending machines accepted credit cards and had a very impressive video display that walked the customer through the key benefits of each product that they sold.  

So what do you think? Will these vending machines cannibalize sales or grow the market? Evidently the companies that are putting their products in these vending machines are betting that this distribution model will reach new customers who might buy their products on an impulse.  

Chris Hawkes

Wrigley’s gum – what can anyone find to argue about it? Nothing, it’s fine, it’s great, it’s always been there and the flavors are so familiar to most of us that it’s like a trusted old friend. Are there other choices? I guess that I just presumed that there really weren’t, after all what else could anyone else want from their gum than a nice flavor that lasts for a while, chewiness and…- it’s just gum and I can’t think of anything else that it should be.
But the other day I was going through the checkout line, waiting for the person in front of me, in what retailers call the “Impulse Isle” and I saw something that caught my eye like a European race car or an Apple iPhone. It was something that called out for my hand to hold it. I didn’t even know what it contained, although it was next to the Wrigley’s Gum, so maybe it was gum. Next thing I know the customer in front of me says “Thanks” and “Goodbye” to the person at the cash register, and it’s my turn to check out, and this mystery package has somehow become part of my purchase – and I’m still not sure what it is.

Anyway, it’s a package of gum of course. A package of gum that has slightly less gum than the trusted Wrigleys had next to it, and a price premium of nearly 32%. ($1.19 v. $1.57) Although as I enjoy my new gum, I realize that the packaging actually has a few well thought-through benefits over the Wrigleys packaging: the box protects the gum from being crushed and curled around the edges the way that it gets in the Wrigleys packaging. There is also a flap that goes over the top to keep the remaining sticks of gum organized and neatly contained because the end of the flap smartly connects into the back of the packag with a clever thumb-size hook that slides into a specially designed slit. And the size of the box is well suited to fit in your inside coat pocket or even in a small shirt pocket. Finally there is the box itself – which really is a beautiful piece of art – it’s both elegant and functional. I’ll be very interested to see what happens to the sales of Rain, and if other companies come out with their own updated versions of premium gum.

What does the packaging and Industrial Design of your product say about what’s contained inside of it? Could there be opportunities to differentiate your product from those of the competition – and maybe even charge a premium?

Know Thy Customers,
Chris

A “business dashboard” is really not much more than a list of business metrics, generally with a simple indication, such as color coding, that indicates whether the particular metric is in line with expectations, performing at less than expected levels or if the metric seems to indicate a problem and needs to be researched and addressed in some way.

I’m a strong advocate for every company maintaining a simple dashboard that is updated with a few key measures. I believe that this is especially important for smaller companies, simply because larger companies have CEO’s and often shareholders and along with those come certain reporting responsibilities or expectations. The problem for many smaller businesses is that it’s easy to fly a small business by the seat of your pants and assume that everything is okay if the bottom line is where it should be.

Depending upon your business, and your competitive position, there are a number of possible business metrics that you could chose to track – here are some examples:
1. Industry Overview (ex: Product category growth or decline, Adjacent category development, Maturing product categories)
2. Company Performance (ex: Company Revenue, Profit Margins, Cost per widget produced)
3. Customer Acquisition and Retention (ex: Major Account retention, New customer acquisitions or trials)
4. Competitive Factors (ex: Number of competitors - maybe in a certain customer segment, or within a certain radius, Competitor’s positioning - or key selling points)
5. Employee Satisfaction (ex: Consider this an excellent place to work, Would gladly recommend this company to a friend as a good place to work)

Initially a dashboard simply forces management to identify a few key metrics and provides an assessment for a single period of time. However, over time, a dashboard provides a longer term look that may help to identify important trends, or opportunities and even threats. It will also help to focus your company on the an identified subset of broad indicators that will helpfully reflect the overall health of your business, and the progress you are making towards your businesses goals.

What metrics would you include for your business?
Chris

Everyone wants more time and you don’t have to be wealthy to be willing to pay a premium to save some time.

Consider the coin machines that you probably walk by at the grocery store every week. The most popular machine seems to be CoinStar. I considered using one when I first became aware of them, and I realized that the charges were pretty stiff (maybe 15% or something like that) and I decided that I kind of enjoy the experience of sorting and rolling my coins in a strange sort of a way. On top of that I resented them charging what I considered to be exorbitant charges. However as I watch people use the CoinStar machines I’ve realized that they’re really paying a pretty good premium to save themselves some time.

Do you have an idea that can save someone some time for a charge that they’re willing to pay? If so, you may be on to the next big thing!

Chris

In case you didn’t already know it, Startbuck’s Coffee has hit a rough patch lately. Their stock is down significantly, their visits are down from FY07 and their per store sales are down in many areas. They recently announced a significant reshuffling of upper level management, with some managers leaving to “spend more time with the family”, while others have been moved into different positions and the US sales force has reportedly been broken up into four quadrants. The potential reasons for Starbuck’s slowing growth are many and complicated and it appears that nobody knows which one, or which combination of factors it is.  

1. Could it simply be an economic anomaly and once house prices stabilize, gas prices go down and people start feeling okay about their finances again they’ll be back for their $4 mochas and $3 dollar muffins? Maybe?
2. Could it be that the Boomers have been visited by the “Ghost of Future Retirement” and have realized that with their house debt at or near market value, a rented car (which marketing prefers to term leasing), and a neglected 401K, that their retirement years will be spent waiting by the mailbox for a paltry Social Security check and maybe a game or two a month of miniature golf instead of a nice club membership they’d been dreaming of.
3. Maybe people have decided that they prefer to patronize a local company to a global behemoth – at 60% or 70% of the price that Starbucks charges?
4. Is it simply that Starbuck’s took their eye off of their core competencies and the quality of their goods and services have really dropped by that much?
5. Worst of all for Starbucks could be that they’ve run their course and that coffee is simply becoming a saturated product category – people have decided that they don’t need as much of their coffee as they did last year, and the year before. Or maybe they still need their coffee but they don’t believe it should cost $4 a cup anymore.

  I just really don’t know which of these, or any other ideas it might be that has caused the massive slide in Starbuck’s share price in the past year or in their abrupt decisions to change their management team and reduce the growth of stores – but I do know that it has the attention of Starbuck’s shareholders and that’s where the problems will really begin for Starbuck's.
For those of you who own small businesses that sell products and services similar to those of Starbuck's this could be a great opportunity for you. This may be a good time to play to your advantages of uniqueness and character and create some special concoctions that Starbuck’s wouldn’t try because they only play in products where unit sales exceed 10,000 cups or more a month – and they can’t cater to more unique drinks.
Just a little Coffee For Thought,
Chris

PS - how about some brave souls comment on this article? If you do, I'll send you a nice little MR101 tchachka for being brave and chiming in!

"The Logic of Life: The Rational Economics of an Irrational World” by Tim Harford. In this book Tim argues that rational behavior is more common than most people believe. Rationality means that rational people (and he believes that most of us are rational, the majority of the time) and simply “respond to incentives” When something becomes more costly or less convenient we will tend to do less of it. While an activity that becomes cheaper, easier or more beneficial we’ll tend to do more of it.” He provides a number of examples, including examples from gambling, smoking and dating. A couple of the more interesting examples include the following.

For small business owners, this book should help to make the types of product and service tradeoffs that our customers are likely to accept, easier to anticipate as we understand their underlying decision processes. Where possible reduce the prices and when you can’t do that, work on ways to make things more convenient and more beneficial for your customers. I think about the transition that service stations or gas stations made over the last decade or two. Gas stations couldn’t find sufficient value to support the price premiums that they were charging on their gasoline (we didn’t really need someone to wash our windows, check the air pressure and oil every time that we filled up), so the profit margins in gasoline were driven down to the point that many companies couldn’t stay in business. Can you identify a full service gas station in your city? What kind of gasoline price premium do they charge per gallon of gasoline for that service? – (it’s 5 or 10 cents per gallon in Boise, where I live) When did you last go there for your gasoline fix? (never, is my answer). Now gasoline is an additional function that convenience stores provide – although the prices of the milk, soda and potato chips are more there than they are at a supermarket, most of us are willing to pay the premium on certain occasions. And viola – an old business is converted into a new business that provides greater convenience than going to two stores to accomplish the same tasks. Just a little food for thought, Chris

I heard an interesting story on NPR a couple of days ago. You’ve probably all heard about how doctors conduct field tests, often by giving half of the respondents a placebo (sugar pill) in “double blind” research studies. The point is simply to ensure that even the researchers don’t know who is getting the real drug and who is getting a placebo (a pill with no active ingredients).

Researchers at MIT decided to conduct research with an interesting twist that put the emphasis on the perceived price of the drugs that the study subjects were receiving. In this study respondents were recruited to assess the pain-reduction qualities of a new drug and were given shocks fifteen minutes after receiving a dosage of that drug to determine which version was more effective. One version, they were told, cost 10 cents per pill and the other version they were led to believe cost $2.50 per pill. In spite of the fact that the respondents were told that the pills had the same active ingredients, they still perceived the more expensive pill as having a significantly greater reduction in the pain reduction. So, although both groups were given pills with identical contents (sugar) the ones who were led to believe that their pills were more expensive reported a greater decrease in pain! Maybe the placebo effect will have to be adapted to the placebo-cost-effect?

Unfortunately, for most products, communicating value to the customer is much more complicated than simply raising prices and repeating “you get what you pay for”. However, this research sheds some light on the belief that there is a connection between the price paid and the value, at least in instances where there are not other cues to help aid in value assessment (size , weight or other subtle indications of quality.)

Know Thy Customer!
Chris Hawkes

http://www.npr.org/templates/story/story.php?storyId=87938032

Including more heads in product development meetings always create a better product. I’ve come to believe that this is not always the case, and in fact, I think that it can often have the opposite effect of what was intended. Often a larger group simply means that the product development becomes, instead of one person’s clear idea of a product, an amalgamation of a number of potentially successful products. These different capabilities are sometimes mixed in a way that don’t offer any specific customer benefits and balloon the price above the essential value of the core product.

I wonder if this could explain the ability of smaller companies to develop breakthrough products and large companies who develop impenetrable bureaucracies where no single person has the ability to say “yes” to the further development of a good product idea, while nearly anyone present seems to wield full “veto” power (which of course means that most ideas are vetoed, often at to the disappointment and frustration of the consensus opinion – and to the detriment of the potential customer).

My opinion is that this tendency can often be handled by being VERY selective about which employees are included in a product development team, and by putting together a coherent concept that the team can get behind and not try to morph into their own idea, or into one that puts their organization’s diverging views in the leadership seat. Many of these meetings are simply an exercise in ensuring that everyone’s organization gets credit for the product, or for a major component of the products’ success, instead of simply putting the company, and the customer ahead of their petty internal concerns. I firmly believe that eventually all of the good ideas will get their chance to be considered and debated at some point, however by harpooning another’s idea with unrealistic expectations from one person’s organization, does nothing but to ensure that company, the customer and ALL of the organizations lose!

I believe that the key to success in this environment is to have one or two people who have imagined the product, lead a small team of open-minded people from the most necessary organizations. In most cases there needs to be one or two primary product managers that have the ability to drive the development authoritatively – and have the others look, not for an organizational snub, but rather focus on the success of the company and the product that the customer would actually desire.

Developing a product? Hand select a few good, open minded employees from key organizations to contribute to the success of the product that you have in mind.

Know thy Customer!
Chris Hawkes
http://www.marketresearch101.com