Roblog

An interesting paper from David Gal and Itamar Simonson that investigates our ability to predict consumer choices in an age of “big data”.

First, preferences are far from static:

“To be sure, in some cases consumers do have strong, precise, stable preferences for particular products or attributes, and they may habitually buy the same options. For instance, some people prefer to buy a 2% organic milk. Likewise, a few consumers may have self-imposed rule as to the highest price they are willing to pay for a water bottle, which prevents them from buying water at airports. When preferences for products or attributes are strong, stable, and precise, consumer choices are relatively easy to predict, such as by simply asking consumers about their preferences.

“However, most of the choices made by consumers that are not habitual or routine are not the result of precise, stable preferences for those products, but are constructed (or discovered) at the time a decision is being made on the basis of interactions among many individual and situational factors.”

After digging into conjoint analysis, recommendation engines, and other predictive tools, Gal and Simonson conclude:

“In contrast, the conclusions from our review reinforce the view that marketing remains as much an art as science, whether or not the analyses produce seemingly precise numbers. Marketers, as much as ever, must rely on their creativity, insight and judgment, as well as trial and error, and often some serendipity, to identify and develop truly new products (and messages) that match dormant (or “inherent”) consumer preferences.”

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A thoughtful post about segmentation from Roger Martin. It’s a controversial subject in the marketing world, having been dissed by Byron Sharp and then written off by his adherents.

Martin reminds us that segmentation is something that’s driven by actual consumers’ actual behaviour, not your own analyses:

“That notwithstanding, customers decide what segment they are in, not you. Big box mass merchandisers (other than Costco, actually) took a while to figure that out. They thought their segment was low-to-middle income families willing to drive to a more distant retailer than their local supermarket to buy goods at a lower price. But Mercedes and BMWs kept showing up in their parking lots. They shouldn’t have been there! They weren’t in the segment. That is half right. They are not in yours, but they are in theirs. And you don’t generate revenues: they do!

“Customers decide whether your offering is a sports car, or not; a cool thing to order at a bar, or not; environmentally friendly, or not. While you are segmenting customers, customers are segmenting you. They create categories, put you in one, and consider you accordingly. You may think their segmentation is nuts, but it just doesn’t matter. Again, you don’t generate revenues: they do.”

He also warns against focusing too hard on the bullseye consumer:

“Many unsuccessful entrepreneurs design an offering that is extremely valuable to the perfect customer – typically themselves – but the drop-off is so steep that their idea collapses, not because it didn’t create value, but because the steepness of the drop-off makes it impossible to make the economics work. Successful entrepreneurs design their offering in a way that appeals to a much broader audience.”

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Another thoughtful piece on brand purpose by Nick Asbury, following his first last year. Rather than simply looking externally – focusing, say, on the shallow nature of brand purpose, or the question of whether consumers care about it – Nick instead drills into the ways that purpose can distort the internal culture of a business:

“Once you’re convinced of the rightness of your cause, it’s easier – consciously or subconsciously – to justify any means towards that end. And right now a lot of companies – whether cynically, genuinely, or somewhere in between – are convincing themselves of the rightness of their cause.”

In the case of Theranos, focusing on grand missions and purpose actually obscured the fraud:

“Imagine you’re a journalist or investor quizzing Elizabeth Holmes back when she was in her prime. What would be the harder questions for her to answer? How questions would be tough – how exactly does this device work? When questions would be equally tricky – you’ve been promising this for a while, but when exactly are you doing to deliver? Questions of what, where and who might also demand specifics – what is your current balance sheet, where is your laboratory, who has signed up so far?

“But ask Elizabeth Holmes why and she will be in her element. She will talk for hours about changing the world, transforming lives, helping our troops on the battlefield, helping our doctors at home… Through a combination of grand vision and personal founding myth, she can hold any audience spellbound.”

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A really thoughtful post from Nick Asbury on the phenomenon of “brand purpose”, which has come to dominate the world of branding in the past decade:

“It’s a hazy fiction that allows people to think well of themselves, even as their decisions are driven by commercial incentives. The defining dynamic of Tech Valley is this outward belief in brand purpose, allied to an inward focus on venture capital and IPO, where you just have to get enough people to believe in your story for enough of the time. IPO is the cashing out of brand purpose.

“Mark Zuckerberg is the supreme example – brand purpose is the wind beneath his hydrofoil board. But we all live in Zuckerberg’s world. I believe passionately that, each time we lend credibility to brand purpose as a concept, another corporate sociopath gets their wings. It’s time to stop feeding this narrative that has dominated the last decade. Turn off the dry ice machine that provides the corporate atmospherics. See the world as it is.”

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Andrew Oved of Reformation points out a classic mistake made by venture capitalists: they think that it’s possible to buy their way to a popular brand that’s part of popular culture. In reality, you have to put in the hard yards:

“When I think about the greatest consumer brands today, here are some of the names that come to mind: Nike, Supreme, Patagonia, Louis Vuitton, Lululemon, Chanel, Revlon. None of these brands raised venture capital. You might say ‘the world is different now’, but I think that’s only partially true. Lululemon was started in 1998, right at the peak of the dot com bubble, the same year that Pets.com launched and WebVan raised hundreds of millions of dollars in venture capital…

“…deliberately taking a slower approach to brand-building is a prerequisite (though not guarantee) for building a long-lasting consumer product brand. Stated differently: Blitzscaling is not a viable option for iconic brand-building: brand is earned, not bought.”

Affinity and loyalty don’t come from bombarding consumers with ads; they come from growing a role in their life, from earning hard-won recommendations among friends, from carving out a sustainable place in the wider culture. Easy come, easy go. #