The flawed Stengel Study of Business Growth

Here I describe the ‘Stengel Study of Business Growth’ using quotes from “Grow: How Ideals Power Growth and Profit at the World’s Greatest Companies” by Jim Stengel, published by Crown Business 2011. Along the way I point out the fatal flaws in the research design.

The ‘Stengel Study of Business Growth’ started in 2007 when Procter & Gamble’s CEO A.G. Lafley endorsed Jim’s idea to “commission a study to identify and learn from businesses that were growing even faster than we were, in whatever industry” (p. 24).

Initially the P&G team studied “the fastest growing brands over the previous five years” (p.24) identified in collaboration with market research agency Millward Brown Optimor using their BrandZ database. The team “assembled five-year financial trends on twenty-five businesses that had grown faster than P&G over that period. The teams then dug behind the numbers with additional research, including interviewing business executives, agency leaders, brand experts, and academics at Harvard, Duke and Columbia”. (p.25)

“We went in looking for superior financial growth, and only after that for whatever the top-ranked businesses were doing differently from the competition” (p26). Professor Philip Rosenzweig explains this classic sampling mistake as being like trying to learn about blood pressure by only looking at a small group of patients who all have high blood pressure.

Another very important mistake, that we have learnt about as various strategy researchers have made it over the years, is to look for causes of success by interviewing managers and ‘experts’ for their opinions on firms that have been doing well. Known as “the Halo effect” people tend to say that firms they know are performing well possess all sorts of desirable characteristics in terms of culture, leadership, values and more. No one describes a known winner as having “unfocused strategy”, or “weak leadership”, or “lack of customer focus”, or “lack of ideals”, or whatever the researchers choose to decide to ask opinions about. As Philip Rosensweig shows clearly in his book “many things we commonly claim drive business performance are simply attributions based on past performance”.

“Successful companies will almost always be described in terms of clear strategy, good organization strong corporate culture, and customer focus” (p.87). Rosenzweig dramatically shows how when successful companies falter experts abruptly change their assessment. Suddenly the previously described “strong culture” is now described as “rigid”, their previously declared “promising new initiatives” are now described as “straying”, their “careful planning” now in hindsight turns out to be “slow bureaucracy” and so on. In reality large businesses change very slowly, but opinions about them change quickly and are largely based on current financial performance (which is itself is largely due to environmental and competitor effects).

The Halo Effect is particularly strong for subjective, nebulous concepts such as ‘values’ and ‘ideals’. The ‘Stengel Study’ made no attempt to supplement their judgements with ‘hard’ objective measures.

In the Stengel study they ‘discovered’ that their chosen high-growth firms were ‘ideal driven’. The central finding therefore was that “businesses driven by a higher ideal, a higher purpose, outperform their competition by a wide margin”. Yet there is no mention of any systematic investigation of competitors, perhaps many of these lesser performers were also ‘ideal driven’? What we can expect is that because of the Halo Effect less successful performers would be less likely to have been described by interviewees as having a clear ideals well activated throughout the business – irrespective of reality.

Subjective concepts such as ‘ideals’ almost certainly introduce confirmation bias on the part of researchers – when there are no objective measures it’s near impossible for a researcher to stop themselves seeing what they want to see. The “unexpected discovery” of the causal effect of ideals, says Jim Stengel “corroborated what I had implicitly believed and acted upon throughout my career”. Hmm, of course it did.

With this ‘ideals’ hypothesis now firmly in place the full ‘Stengel Study’ was then done after Jim Stengel left P&G by selecting 50 brands based on their excellent recent financial performance over 10 years. As a whole this group (refered to as “The Stengel 50”) “grew three times faster over the 2000s than their competitors…individually some of the fastest-growing of the Stengal 50, such as Apple and Google, grew as much as ten times faster than their competition from 2001 to 2011.”

Promotional material for Stengel’s book says that “over the 2000s an investment in these companies—“The Stengel 50”—would have been 400 percent more profitable than an investment in the S&P 500”. The implication is that this proves Stengel’s ‘ideals’ thesis – but Stengel picked these companies for their financial growth!

If they have been picked purely based on some, ideally ‘hard’ (or intersubjectively certifiable), measure of being ‘ideals driven’ then correlations with financial performance might mean something. Especially if this were future, not past, performance. But as these companies were picked for their financial performance then their stock price performance over the same period shows nothing.

A team of four second-year MBA students being taught by Jim Stengel and Professor Sanjay Sood made the Stengal Study the subject of their required applied management research thesis; “this team crawled all over the Stengal 50 to test the role of ideals” conducting interviews with executives, academics and consultants”. No one should be surprised that they found what their instructors believed. They and the ‘Stengal Study’ both passed with flying colors reports Jim Stengel (page 34).

There is one addition to the Stengel Study which is different from previous similar (flawed) studies of business success. Stengel arranged his leading brands into “five fields of fundamental human values that improve people’s lives” by (1) eliciting joy, (2) enabling connection, (3) inspiring exploration, (4) evoking pride, or (5) impacting society (sic). Millward Brown then used implicit and explicit association measures and found that the Stengel 50 brands are perceived as more associated with their selected ideals than competitors.

Again this is a staggering piece of circular logic. First analyse a select group of brands for what particular ideals they represent, then take these ideals into market research and viola these brands turn out to be more associated with these particular ideals. This is not a test that these ideals drive performance, it is simply a test of the researchers’ judgement of brand image. It merely shows that the researchers live in the same culture as the market research respondents. Jim Stengel thinks Backberry ‘enables connection’ and so does the market, Jim Stengel thinks Mercedes Benz ‘evokes pride’ and so do normal people.

Now one might reasonably argue that there is advantage in FedEx and Blackberry being more associated with a category benefit such as “enables connection” than their competitors. However, leading brands always show higher associations because they have more users, who use them more often. Behaviour has a powerful effect on attitudes and memory, for evidence see BIRD, M. & EHRENBERG, A. 1972 “Consumer Attitudes and Brand Usage – Some Confirmations”. Journal of the Market Research Society, 14, 57. RIQUIER, C. & SHARP, B. 1997 “Image Measurement and the Problem of Usage Bias” in proceedings of 26th European Marketing Academy Conference, Warwick Business School, U.K., 1067-1083. ROMANIUK, J. & SHARP, B. 2000 “Using Known Patterns in Image Data to Determine Brand Positioning”, International Journal of Market Research, 42, 219-230.

There is no mention of controlling for this effect.

Conclusion

In summary, the ‘Stengel Study’ makes the same or similar mistakes as much earlier flawed studies that claimed to uncover the secret of sustained financial success. Jim Stengel, and none of his team appear to have read Philip Rosenzweig’s “The Halo Effect: … and the Eight Other Business Delusions That Deceive Managers” which turns out to be a great pity. As he writes “if the data aren’t of good quality, it doesn’t matter how much we have gathered or how sophisticated our research methods appear to be”. The Stengel Study is yet another study that is deeply flawed, it tries to look like science, but turns out to be merely a story, one that will appeal to many but tells us nothing reliable (or new) about the world.

A final note: Based on the track record of previous such studies I expect the financial performance of these ‘ideals driven’ companies to fall back in the near future. Some such as Blackberry, HP have already suffered very dramatic reversals of fortune.

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Review of Jim Stengel’s disappointing book “Grow”

Research reveals the hidden secret to business success? No, sadly this is pseudoscience – that will only convince the most gullible of minds.

Jim Stengel seems a nice guy, he wants us to be passionate about our business and to feel that there is a greater purpose than simply making money.  Few would disagree.  But he also claims to have discovered the secret to sustained super profits – based on a flawed study dressed up as science.

Stengel is a marketing consultant, a famous one because he was formerly Chief Marketing Officer of Procter & Gamble 2001-08 until he surprisingly ‘retired’ to consult (and write this book). During the decade that Jim mostly presided over marketing at P&G the company was pretty successful, at least in comparison to the 3 year period immediately before he became CMO of unsuccessful restructuring and CEO turnover. However the success of the 2000s has been exaggerated; the reality is that during Jim’s decade P&G’s stock price doubled, though that is a misleading overstatement due to the brief dramatic dip in 2000 (the reasons why are discussed here). Without that dip the year before Jim took over as CMO the stock price only improved 20% over the full decade. That’s less impressive than the previous decade (90s) when stock price had increased 5-fold (or 3 fold when the brief dip of 2000 is considered), similar gains were also made in the prior decade (80s). So P&G’s performance during Jim’s tenure should perhaps more accurately described as a mild turnaround, or partial restoration. This chart shows the full history of the stock price.

In all fairness though, Jim Stengel doesn’t ask us to believe his amazing discovery just because he was (like millions of others) a successful practitioner, his claims are based on what he calls an unprecedented 10-year empirical study of highly successful firms and the brands they own. But his study does have precedent, it joins a growing list of books that claim to have discovered a few simple rules for business that near guarantee profit performance that will beat all rivals. Each of these books are based on severely flawed research that ‘proves’ just what the author wanted to say in the first place (which is the opposite of a surprising discovery). “In Search of Excellence” was one of the first of these books, which was largely discredited when the excellent companies went on to make poor financial returns in the years after the book came out.

Professor Phil Rosenzweig exposes these flaws in his 2007 book “The Halo Effect: … and the Eight Other Business Delusions That Deceive Managers“.

I describe and critique “The Stengel Study”, which is the basis of Stengel’s book, here. A quick summary is that to detect factors that might cause financial success then Stengel should at least compared very carefully matched samples of both successful and unsuccessful firms, and developed hard objective measures of strategy – not relied almost entirely on interviews with experts. Also, to avoid confirmation bias, the researchers who described the firms and their strategies should not have been aware of which were the successful and unsuccessful ones. And finally, any resulting theories should be tested against the future performance of the firms. Otherwise what looks like science turns out to be simply a story.

Tellingly the ‘research’ takes up small portion of Stengel’s book, the rest is a story: anecdote and assertion. Jim tells us what to do, but experienced marketers looking for strategic advice won’t find much new or particularly helpful. It’s pretty much the standard sort of consultant fare such as “deliver a near-ideal customer experience”.

It’s well meaning though, Stengel wants us to all be passionate about our business and to feel that there is a greater purpose than simply making money (even if finding out how to make money was the motivation of his ‘research’).  This is a nice sentiment, however, the success of brands (and the large corporations behind them) is far more complex than Stengel’s book and its predecessors claim.

You are charging too much

Why is it that marketing theorists tend to blame a brand’s demise on “loss of differentiation” or some such thing when they shoud be saying “it’s too expensive, it’s no longer competitive” ?  (which incidentally means the brand is becoming more not less differentiated).

Why is charging too much seen as a indicator of marketing strength, not weakness or stupidity ?

It annoys me how people keep citing Apple as a company that charges price premiums.  They don’t.  Anyone really familiar with the industry knows of the comparison feature-by-feature breakdowns that show macs are priced competitively they just don’t compete in bargain basement minimal feature area.  Notice how iPad competitors are struggling to even match the iPads pricing.

Back in 2008 Steve Jobs said this during an interview with financial analysts:

Toni Sacconaghi – Sanford Bernstein:

“And then you had also mentioned the price umbrella statement and you said look, certainly to be successful on iPhone, we don’t want to create a price umbrella. I think in response to another question, you also talked about extraordinary feature functionality in terms of your Mac products. Do you have the same philosophy around Mac as you do with iPhone, that you have to be careful not to create an umbrella in each? So I guess the simple question is should we continue to see more affordable price points across the Mac product family and across iPhone going forward?”

Steven P. Jobs:

“Well, I think what we want to do is deliver a lot, an increasing level of value to these customers. There are some customers which we choose not to serve. We don’t know how to make a $500 computer that’s not a piece of junk, and our DNA will not let us ship that. But we can continue to deliver greater and greater value to those customers that we choose to serve and there’s a lot of them. And we’ve seen great success by focusing on certain segments of the market and not trying to be everything to everybody. So I think you can expect us to stick with that winning strategy and continuing to try to add more and more value to those products in those customer bases we choose to serve. Does that make sense to you?”

Share of wallet isn’t enough

In a recent Harvard Business Review article TIm Keiningham et al (Oct 2011) argue that managers should pay attention to “share of wallet”. To grow brands should aim to improve their share of wallet rank.

To do this you obviously have to get customers who currently give you a very small share of their purchasing to give you a greater share – it’s logically impossible to get much more share out of customers who already give you near 100%.

So Tim Keiningham et al have discovered the importance of light customers. Great.

Unfortunately, in their article they then make an unsupported assertion that the way to improve a brand’s share of wallet metric (and hence market share) is to survey customers on their motivations for buying each brand and then whatever it is that they like about a competitor should be improved in your brand. This ignores the very weak link between claimed motivations and behaviour. But is an unsurprising recommendation from someone who works for a market research agency.

Like Reichheld and Sasser (see retention profit myth) they also imply that improving loyalty metrics is easy – just ask people what they are looking for, provide it, and then your share of wallet metric will jump.

They provide (only) a hypothetical example of a supermarket. So let’s look at real data on supermarket loyalty. This is Kantar Worldpanel data (2006) on UK supermarkets (a very vibrant and competitive grocery market), market share is in the left column, penetration next, and share of purchases in the right:

 

 

Like all loyalty metrics, share of purchases rises with penetration and market share, in accordance with the Double Jeopardy law. As expected, there is much greater variation in penetration than in the loyalty metric.

In the HBR article’s fictional example the supermarket achieves a 7 percentage point gain in share of wallet (at some unknown cost), the implication is that this is an easy task. But this would be equivalent of Sainsbury’s doubling its market share – that’s a Herculean task!  And, very importantly, Double Jeopardy shows us that Sainsbury can’t do this without also increasing its penetration from an annual 64% to something nearer 80% – in other words it has to gain more customers.

That means the supermarket has to increase its reach (in space or time), e.g. more stores, longer hours.  This vital message is missing from the HBR article.

Professor Byron Sharp

Oct 2011

Satisfaction drives Apple’s growth – or not ?

Apple has again topped the American Customer Satisfaction Index for personal computers (the product and service). Famous satisfaction researcher, Professor Fornell, gushes:

“In the eight years that Apple has led the PC industry in customer satisfaction, its stock price has increased by 2,300%,” remarks Claes Fornell, founder of the ACSI and author of The Satisfied Customer: Winners and Losers in the Battle for Buyer Preference. “Apple’s winning combination of innovation and product diversification—including spinning off technologies into entirely new directions—has kept the company consistently at the leading edge.”

But wait a minute… is he implying that satisfaction with Apple computers is driving this financial performance? I’m sure that many would read it like that. But this is only satisfaction with Apple computers, while Apple’s stellar gains in revenue, profits and market capitalization in recent years have almost entirely come from the iPod, iTunes, iPhone and now iPad. Their computer sales have done well, but they are a shrinking part of their revenue and profits.

What is the story on Apple’s PC satisfaction scores ? Well they have always been good, which isn’t surprising given that they steer clear of offering really low quality, low featured, low price models. Even back in the mid to late 90s when Apple sales were dropping and profits evaporated Apple held its position as number 2 on satisfaction behind Dell. Just as Dell has continued to hold onto a satisfaction score of 77 for the past decade in spite of ups and downs in its fortunes.

Apple’s resurgence begain in 1997 with the return of Steve Jobs. Within a year they posted an astonishing profit turnaround (from losses to profits) and launched the iMac. Satisfaction nudged up in 1999 but was still below their norm for the mid-90s. And it kept on nudging up, which probably reflects that their computers and computer service have been getting better. It may also reflect a halo effect from the iPod, iPhone, iPad, iTunes – that’s a problem with satisfaction scores, they are influenced by other things (like the weather).

But let’s be clear, this rise in satisfaction for Apple computers did not cause Apple’s 2300% rise in share price. Maybe it helped a tiny bit but the heavy lifting was done by sales of other products.

Hot blood emotions are seldom the route to loyalty

For more evidence why lovemarks don’t matter see “How Brands Grow“.

Recently, I attended an “emotions in marketing” conference in Amsterdam to hear Tex Gunning, Managing Director of AkzoNobel Decorative Paints (global owner of brands such as Dulux). Unexpectedly Tex invited me up on stage to talk briefly about “How Brands Grow” which he praised.

I was followed by Kevin Roberts, CEO of Saatchi and Saatchi, who presented for an hour on LoveMarks. He started by saying what I said was “scientific claptrap” – I was delighted.

What did I say that perturbed Kevin? Well a few things, here is an account I found by someone in the audience.

The Amsterdam conference had the theme: “emotions in marketing”. And I was asked what I thought about this. I replied that emotions were important but that I felt marketing was grabbing the wrong end of the stick – instead of thinking about the subtle emotive reactions that result in the processing of advertising (rather than screening it out) all the talk was of hot-blooded emotional commitment to brands. These strong emotions are thought to underpin loyalty but we’ve known for decades that that isn’t true.

And then, I illustrated with a little experiment. I noted that there were about 200 chairs in the room and everyone had just got up and then returned from a coffee break. So then I asked for anyone to put their hand up if they had returned to exactly the same chair they were sitting in previously – nearly everyone did. “Amazing loyalty” I said, “but not presumably due to your strong emotional commitment to that particular plastic white chair” 🙂

This and other loyalty phenomena have been documented by social scientists, (and more research is underway at the Ehrenberg-Bass Institute).

Kevin Roberts didn’t like any of this. Obviously.

So what was Kevin’s talk like ? Well he has the gift of the gab, an animated speaker, although he flagged towards the end. His content…… half or more was TV ads, over and over. Great creative but it got exhausting, it was too much, for too long. Don’t ask me what brands the ads were for, I can’t remember – says a lot doesn’t it.

Kevin, at heart, is a story teller, a classic ad man, which is an important skill. That said, he is someone who never lets truth get in the way of a good story. And that was his message, that ads that told stories would build lovemarks that would engender loyalty beyond reason and premium profits (no evidence needed). He constantly praised Apple, who interestingly largely don’t tell stories in their advertising, they show product (iPad 2 – thinner, faster, lighter, smart covers, 10 hour battery life). Ah well, as I said, why let the real world get the way of a good story?

BrandZ ‘predicts’ Apple’s climb in brand value – long after it happened

Last year the BrandZ ranking of “the most valuable brands in the world” was criticized for ranking Apple below IBM. When Apple  had the 2nd largest market capitalization among US companies.

Now, lo and behold, this year’s ranking now has Apple at number one, with a staggering 84% increase in value.  Last year it was supposed to be worth $83M and this year has jumped enormously to $153M.  Granted that Apple had a(nother) good year, but it wasn’t equal to all the years that came before combined!  In fact Apple’ market capitalization grew 50% over 2010, but it had grown by over 100% the previous year (a year that BrandZ lifted its value by just 32% (why???).

Now that Apple is listed as the most valuable brand in the world is the credibility of BrandZ restored? I think not – in fact this back-flip makes it look more ridiculous.

And BrandZ appears to be backward looking. Instead of being a future indicator of brand performance, as their marketing spiel claims, BrandZ reports the past. It tells what everyone already knows.

Personally I think it still looks like pseudo-science and pseudo-finance.  As do many other such brand equity measures, as discussed in “Brand Value Quackery“.

Professor Byron Sharp, May 2011.

Brand Keys (and other brand equity monitors) can’t predict a brand’s future

There are a number of market research products that claim to predict a brand’s future.  Some even make the outrageous claim that they can predict a company’s stock-price, which makes you wonder why these people are still doing the hard work of selling surveys, why aren’t they stockmarket billionaires by now?

Brand Keys is one such market research agency.  I asked them for evidence for their predictive claims and they were nice enough to point to documentation in their book (and many subsequent conference presentations).  But when I looked at the public evidence (it wasn’t hard, I just used Google) I found that the changes in the brand rank in their Customer Loyalty Index occured after real market place changes, not before as they had implied.

Below is the email I sent outlining the evidence to Brand Keys, I received no reply. I don’t mean to single out Brand Keys.  Their rivals in the brand equity business are no better – I have seen no evidence that such surveys can predict a brand’s future.  There is also no good reason to think they should/could.

Dear Robert

Thank you for sending the slide, I also bought your book and have read it, including the Starbucks case study. Unfortunately the evidence does not support the assertion that Brand Keys is able to predict changes in trends ahead of time.

The book and slide give a selective group of different metrics which are supposed to tell a story of Brand Keys predicting, at the start of 2007, Dunkin Donuts awaking from its slumber and Starbucks ending its growth run. It would be impressive if there was evidence of Brand Keys predicting ahead of time a change in trend for either brand but the evidence says differently.

Dunkin Donuts began its resurgence in 2003 (reported by BusinessWeek), long before the 2007 you predicted.  By Aug 2004 it posted an annual 6.9% increase in same store sales, opening 423 new stores, and hence 14% increase in overall sales. Back then Starbucks posted a 10% increase in same store sales, but that was their last year of rises in same store growth, i.e. things started going sour for them in 2004 (when you rated them as fantastic).

Perhaps your 2007 prediction of decline referred to Starbucks’ overall sales revenue – but in 2007 (they year they slipped on your ranking) they posted 22% increase in sales revenue.

Perhaps you meant to predict a change in Starbuck’s share price – but it started declining in 2006, i.e. before you predicted any change in trajectory. Perhaps you meant same store sales – but, as I said, that growth trend ended after 2004.  And actually went negative in 2008 (after practically no change in the Brand Keys score).

Perhaps you meant profits – but these dropped only in 2008, and rose again the next year.

Perhaps you meant market share – but Starbucks has led Dunkin Donuts throughout all this period (and still does). Yes Dunkin Donuts has been growing for a long time now, opening stores where it had none.  Yes Starbucks opened too many stores, especially overseas (it eventually happens to most companies on an expansion drive).  Yes Starbucks got hit by the housing crunch (with big exposure to California and Florida).  But in mid 2009 Starbucks posted a turnaround in same store sales growth achieving record quarterly earnings for the last 3 months of 2009  – note that this before the Brand Keys ranking for Starbuck rose from 3rd to 2nd.

So what predictive claim are you making ?  The facts suggest a rear-view mirror on a host of performance metrics. Please do tell me if I’ve missed some important facts.

Byron

Social Media is not a viable advertising medium (yet)

This is my current advice on social media to consumer brand owners.  Use social media as research (into media), but you can’t justify it as part of your advertising budget.

Key to my position is that currently very little is known about the effectiveness of advertising using social media.  There are a few success stories, but success  stories always get a lot of attention (while the (many more) disappointing case studies are swept under the carpet) and many of the people promoting these have a vested interest.  There are plenty of social media marketing zealots, who say ridiculous things like “TV advertising is dead”.

Just because successful companies are doing it does not make social media marketing effective.  The Roman Army, which was very successful in its day, used to consult pecking chickens before deciding when to go into battle.  My guess is that the way the chickens pecked had little or nothing to do with their success!

Also it’s worth noting that successful companies like Apple have practically no FaceBook presence – I guess Apple don’t see it as an advertising medium.  Instead they use TV, print and outdoor.

Marketing science tells us that brands need to reach all category buyers over and over.  This is what makes media like TV so valuable, it is vast and fast – delivering a lot of reach quickly, at low cost per contact.  Also media like TV, radio and print offer us very reliable, trustworthy metrics.

When we carefully look at social media we see that it is highly fragmented (e.g. the typical tweet only reaches about a dozen people).  It’s impossible for a campaign to be guaranteed reach.  We just have to pray that we “go viral”.  Few brands have more than 1 million Facebook ‘fans’ globally.  The Sunday Mail, in Adelaide alone, can deliver that sort of audience!  Or any moderately rating show on Australian TV.

Also we know very little about how viewers consume advertisements within Social Media.  Do they even see them (when they are concentrating on talking to their friends) ?

So there is much research to be done – which we are doing in the Ehrenberg-Bass Institute.

I also encourage companies to do small experiments with social media, to learn something.  That’s why I say it should be part of the research budget, not the media budget.

If we were looking at Social Media purely as an option for our advertising budget then most firms would conclude it is not a viable option.  So it can only be justified from a business perspective if we are using it purely to learn about this new media – so that we know what it might be useful for our brand in the future (if at all).

Professor Byron Sharp (March 2011)

PS That means firms who are using social media need to have careful experimental designs in place.  The expenditure should be planned by the research department (not the marketing team) and preferably with academic advice because it is really easy to muck up an experiment and waste money learning nothing.

The Reichheld and Sasser Loyalty Myth – Zero Defections is not the path to profits

Watch the YouTube video here.  Exposes one of marketing’s myths.

 

Marketing in a recession – what to expect

Watch the YouTube video here.

Part two, three, four, five, six.

On consumer behaviour in a recession, on what sorts of product categories suffer most/least, and can you launch a new brand in a recession ?

How to price during a recession.

How to advertising during a recession.

How Marketing Can Escape Medieval Thinking

Watch the TEDx video on YouTube.

 

Apple’s push for penetration (beyond its old loyalists)

Apple is a wonderful case study of a sophisticated mass marketer.  A company that stopped focusing on a narrow group of loyalists and massively expanded physical and mental availability.  With great branding too.

But it’s easy to forget just how much Apple has expanded its customer base.  Yes the iMac set it on a path to reach beyond the designer and education markets and sell computers to consumers.  Yes the work to fit in with the Microsoft Exchange server environment stemmed the losses in the corporate world.  Yes the iPod let them ride the digital music revolution better than any company.  But on top of all this, the real success has been to get the MacOS into millions of more hands, thanks to the iPhone and iPod touch, and now iPad.

Apple used to proudly note that it had a user-base of tens of millions, even in the dark days when they were seriously losing share and money.  Today they have grown the base of Macintosh users to around 50 million, a great achievement.  But they now also have 160 million people using iOS devices, practically all of whom have an iTunes account linked to their credit card so they can buy music, apps, and video from Apple with a single click.  Last quarter they were selling over 350,000 iOS devices every day.  That’s more than 10 million every month.

Or put another way, they currently achieve in a few months the amount of penetration growth that they achieved in the first 25 years of the company’s existence.

Apple deserves to have such a high market capitalisation, because it has built (and continues to build) phenomenal market-based assets (physical and mental availability.

Professor Byron Sharp (January 2011).

Innovation to avoid differentiation

The mantra within marketing and R&D departments is that innovation is for delivering differentiation.  But the reality is that much of the purpose of innovation is to avoid differentiation.  It’s largely about keeping the brand competitive and where it is.

Let me explain, innovation holds that wonderful lure of coming up with something that is better than competitors, but this happens rarely and seldom lasts for long.  It’s the cream on the top.  The ‘bread and butter’ of innovation is not falling behind.  It’s about maintaining features and price levels of rival brands.

In some industries the pace of innovation is frantic.  Innovation is therefore constant, but it’s rarely about leap-frogging competitors.  You have to run fast just to stand still.

Alternatively not innovating may possibly save you money but even so that would mean changing the position of the brand, you’d be offering something cheaper but below the quality level in the market where your brand was previously.  You’d increasingly be differentiated but this is not what most brands want.

The other purpose of innovation is not to cause or avoid differentiation but to find new ways of meeting customer needs.

Marketing, and R&D’s, obsession with differentiation can distract from understanding the purpose of innovation and its proper place within overall marketing strategy.  I fear it leads to much unwise and unprofitable innovation.

The ultimate form of target marketing – or maybe not

In my book I speak out about the myth of target marketing – brands largely compete as sophisticated mass marketers. Whereas I note that the latest Kotler textbook on the Australian market (Marketing 8th edition, Kotler, Brown, Burton, Deans and Armstrong 2010) recommends targeted marketing – and that “The ultimate form of target marketing is customised marketing in which the company adapts its product and marketing program to the needs of a specific customer or buying organisation. So, Adidas allows people to order shoes customised to their foot size, and ANZ allows people to personalise their credit card with a photo of their choice.” (page 264)

What nonsense.  This isn’t ultra targeting, it isn’t even targeting! Both Adidas and ANZ aim for the entire market, they are mass marketers. Yes they add in a bit of customisation at the last moment for those that want it, but this doesn’t change anything, it doesn’t affect their media buy, nor how they strive to gain distribution etc.

Most marketers add in a bit of last minute customisation – “would you like a bag ? do you want that gift wrapped ? do you want to pay cash or credit card ?”  This isn’t “the ultimate form of target marketing”.

This textbook shows how target marketing is taught as unthinking gospel.  And academics complain that students don’t think!