On the eve of a special Apple event, it seems the allure of the Apple brand is as strong as ever.  “We have something you really have to see. And touch,” declares the invitation to the March 7^th media event.  Quite a buzz has been building up!

I don’t know if tomorrow’s announcement will impress or disappoint – nor do I know how long Apple will continue to rock our world.  But I remain fascinated by what I can only describe as the magical appeal of the Apple brand.  To try to understand the magic, I looked for clues in Walter Isaacson’s biography, Steve Jobs, and put together this slide show of what the book teaches about brand-building:

The fundamental tensions which companies must manage well was the primary topic of a panel I spoke on last week.  We discussed H2OAudio, a company which makes waterproof cases, waterproof headphones/headsets, and waterproof armbands for iPods and MP3 players.

The panel was part of the MIT Enterprise Forum, a regular gathering of business leaders in which a case study method is used to uncover valuable business insights.  Each month a presentation is made by a CEO of an innovative technology company and then panelists discuss the key challenges the company is facing.  An audience of nearly 250+ people attended this month’s forum which focused on “re-starting the start-up” H2OAudio.

The discussion ended up focusing a lot on the tensions which most growth companies have to figure out how to manage well. Tensions like:

-    core customers vs. new markets – H2OAudio’s CEO, Tom Kampfer, gave an overview of the company’s current customers and his vision of its future customer base.  While it currently targets the “niche” swimming market, he wants to appeal to the much larger fitness and active lifestyle market.

On the one hand, it makes sense – according to the SGMA, there are only 7.3MM active swimmers while there are over 220MM fitness/gym/running/cycling participants.  So the larger market offers more growth potential.

But targeting the larger market isn’t a slam dunk:

• There are a lot more players competing for that market’s business
• H2OAudio’s sales force, distribution, and marketing budget are all fractions of those competitors’ so it will be difficult to breakthrough in the broader market
• Those consumers probably place less value on H2OAudio’s advanced performance and are more price-sensitive

Plus, going after the larger, less hard core market is probably not going to be well-received by the company’s current customers.  Like many growth-minded sporting goods companies before it, H2OAudio may be charged with “selling out” and watering down their products.  A start-up can’t afford to alienate its current customers – it needs every sale it gets.

So H2OAudio may need to manage this tension between securing core customers and expanding into new markets by adjusting its target strategy and pursuing only adjacent markets which are closer to its core, like amateur competitors and serious fitness enthusiasts.

-    distribution vs. marketing – Companies trying to grow small market shares tend to struggle with expanding distribution vs. advertising and PR.

They have a limited amount of working capital and so they can channel it EITHER toward growing the sales force, pursuing new distribution, and paying steep slotting fees, OR it can be used to fund advertising and PR to generate broader awareness and stronger preference among consumers – but not both, or rather, not both very well.

It’s the classic conundrum – you need to make sure people want to buy your product but you also need to ensure your product is readily available in channel so that people who want to buy it can.  Also retailers are more likely to pick up your product if you are giving it strong promotional support.

It’s hard to find the right balance between the two and there isn’t one right answer.  But in H2OAudio’s case, it seems distribution is probably the better investment. That’s because they can promote their products quite cost-effectively through social media (provided they stick to a narrowly-defined target, per the point I made above) – and because they can use targeted channels to help develop awareness and preference on shelf (again, a more focused target which shops at fewer distribution points makes a difference.)

-    function vs. form – Tension in product development arises between increasing functionality and improving form.

H2OAudio is planning some significant product changes to move from a heavy duty action sports look and feel to a slim, multi-sport use focus.  The changes are important in order to broaden the brand’s appeal beyond big male athletes with physiques and style sensibilities like Michael Phelps and Laird Hamilton (two of the company’s celebrity endorsers.)

But Tom also talked about expanding into colors and designs to make the products more fashionable — and that’s where the product development tension arises.

Should product development be focused more on improving the technical functionality of the products (for H2OAudio this might mean wireless headphones which seem to be a real need for swimmers and other athletes dealing with equipment and gear like paddles and surfboards)?  OR should energies be channeled to making the products more stylish and fun to wear (H2OAudio is probably looking to follow in the footsteps of iPod and mobile phone skins and cases)?

I’m guessing that making the products more fashionable is a less expensive undertaking than making them more technologically advanced – and changes in form may be more immediately noticeable to the shopper.  But H20Audio has built its brand and its business on making purpose-built waterproof products for athletic performance.  New products and new features which reinforce performance seem a more effective way to strengthen the company’s differentiation and competitive advantage.

It’s not an either/or decision but a start-up company’s resources are limited and so product development direction needs to be prioritized.

As I reflected on these and other tensions which H2OAudio is working through, it reminded me of something I had seen in the feature Fast Company magazine ran on Nike’s CEO Mark Parker last month.  It was an image of a page from Mark’s journal with the word “Balance“ at the top – it listed all the different dimensions of his business which he works on keeping in balance.

The image served as a telling reminder that all business is about managing tensions – these struggles are not the sole purview of start-ups like H2OAudio.  And while they might seem like major challenges to H2OAudio’s Tom Kampfer, I’m guessing Mark Parker would forewarn him that it only gets harder as the company grows.

related posts:

• nine lessons from the mit enterprise forum

Late last month the business world suffered a tremendous loss with the passing of C.K. Prahalad.  Harvard Business Review is not exaggerating when it calls Prahalad, one of the world’s “wisest and most influential management thinkers.”  I “discovered” Prahalad during my time at Sony, when my primary responsibilities transitioned from working on discrete projects and deliverables to transforming the organization, its culture, and its operations.

Two papers written by Prahalad and the equally prescient Gary Hamel were particularly impactful on my thinking and practice of business: The Core Competence of the Corporation challenged the conventional SBU-driven (Strategic Business Unit) corporation; Corporate Imagination and Expeditionary Marketing laid out the keys to unlocking entirely new markets. As I reflect on the key points of these pieces, I realize how relevant they remain today.

In The Core Competence of the Corporation, Prahalad and Hamel urged leaders to rethink the concept of the corporation itself – from a portfolio of businesses managed and optimized independently, to a portfolio of competencies spanning across individual businesses and delivering real and sustaining competitive advantage.

Nurturing core competencies requires thinking and operating differently. The authors explained that, “When the organization is conceived of as a multiplicity of SBUs, no single business may feel responsible for maintaining a viable position in core products nor be able to justify the investment required to build world leadership in some core competence. In the absence of a more comprehensive view imposed by corporate management, SBU managers will tend to underinvest. “

The following chart captures the key differences between these two approaches:

1

Viewing the corporation through the lens of competence facilitates greater insight into creating competitive advantage – taking the focus off of your own and your competitors’ price/performance of end products and putting it on your and your competitors’ ability to fully exploit capabilities and assets to enable any given individual business to adapt more quickly to challenges and new opportunities.

The rapid pace of change in today’s business world makes the core competence approach even more relevant than it was when it was introduced by Prahalad and Hamel in 1990.  The paper also provides a word of caution to those who are looking at the current economic environment as an ideal one in which to go acquisition shopping:  leaders should evaluate and execute an acquisition for the purpose of building a core competence.

Finally, it challenges the current push toward more decentralized businesses. “The fragmentation of core competencies becomes inevitable when a diversified company’s information systems, patterns of communication, career paths, managerial rewards, and processes of strategy development do not transcend SBU lines,” the paper explained.  Although there might be efficiency to be gleaned from decentralization, perhaps more credence should be given to their prediction that companies will be judged by their ability to “identify, cultivate, and exploit the core competencies that make growth possible.”

The authors’ second paper, Corporate Imagination and Expeditionary Marketing, built upon the first by explaining that “to realize the potential that core competencies create, a company must also have the imagination to envision markets that do not yet exist and the ability to stake them out ahead of the competition.”

The piece argued against a “skunk works” approach to innovation.  Instead of fruitlessly trying to leverage core competencies into new businesses while protecting new ventures from corporate orthodoxies, Prahalad and Hamel exhorted, “Individual imagination must become corporate imagination.”

They outlined four elements which enable the corporate imagination:

• 1.    Escaping the tyrrany of the served market. Instead of viewing every new opportunity through the lens of existing businesses, managers must think outside of current boundaries and explore the white spaces which lie between existing businesses. This is where the core competency mindset helps.
• 2.    Searching for innovative product concepts. Standard approaches to market analysis are not likely to yield ground breaking innovations.  An understanding of needs and functionalities must replace the more conventional view of customers and products.  “Asking ‘innocent’ questions (why does the product have to be this way?), understanding what the current product concept doesn’t do for customers, and imagining how functionalities could be unbundled and rebundled are just some of the means through which managers can escape the orthodoxy of conventional product concepts,” the paper advises.
• 3.    Overturning traditional price/performance assumptions. Thinking about price and performance in linear terms limits the potential for radical innovation.  Instead of using existing product concepts as the starting point for new product development, managers might do well to challenge existing assumptions in the category about price/product trade-offs.
• 4.    Getting out in front of customers. “Simply being customer-led is not enough.”  Particularly in technology categories, customers often can’t even imagine what is possible.  Companies must lead customers where they want to go – before they even know it themselves.

The expeditionary marketing part of the paper was about minimizing the risks of creating new markets and entering into new territory.  Most companies approach their development efforts with a “home-run” mentality – that is, trying to improve the odds of each hit, making big bets with big investments, and expecting huge success.

Prahalad and Hamel offered a different approach:  rapid experimentation.  They advise companies to place many small bets in quick succession in order to increase the likelihood that one will hit the jackpot.  Such an “expeditionary” approach involves minimizing the cost and time of new iterations, pursuing simultaneous development wherein technologists, manufacturing engineers, and marketers work together instead of as a relay team, and accumulating market knowledge through successive failures.

2

This advice, given back in 1991, resonates today with the pursuit of Apple-like innovation and the current trend toward fast prototyping.  Unlocking new markets has gotten more difficult in the two decades that have passed – and yet, the paper outlines principles to serve corporations well even now.

I find the authors’ closing remark as provocative today as it was when I first read it:  “Creating new competitive space is too important to be relegated to those who happen to have time and superfluous resources on their hands. It is top management’s responsibility to inspire the organization with a view of distant shores and then help the intrepid explorers set sail.”

RIP C.K.!

sources:

1 Prahalad, C.K., and Hamel, Gary. 1990. “The Core Competence of the Corporation,” Harvard Business Review.
2 Hamel, Gary and Prahalad, C.K.,. 1991. “Corporate Imagination and Expeditionary Marketing,” Harvard Business Review.

I just returned from a great trip to CES, the Consumer Electronics Show.  There was a lot of excitement around new, innovative products and it seemed like important deals and connections were being made – it was an energizing way to start off the new year!

I particularly enjoyed participating in some breakout sessions in the MommyTech and digitalHealth summits.  It was there that speakers offered up a few sound bites containing wisdom – wisdom that extends beyond the world of consumer electronics and digital technologies.

Here’s what I heard:

“It’s not about the technology.” – Hyung Tai Kim, MD, Ascension Health – Vice President of Research

In a dialogue about how to encourage consumer usage of new digital healthcare products and services, Dr. Kim made this assertion quite matter-of-factly.  His point was that people care about what the technology does for them, not about the technology itself.

This is so true – and not just in the technology sector.  People will want to use any product or service if they understand and value what it does for them.  Most food shoppers don’t know or care what amino acids are, but they are interested in products that help their muscles recover from exercise and sports.  Most automotive buyers don’t care how HEMI engines work, they only want to be able to accelerate faster. Leading edge consumers may be interested in how a product does what it does, but the mainstream simply wants to know what it does and why it’s important.

Manufacturers, somewhat by definition, are usually driven by their products.  But developing products people want and selling them effectively requires adopting the consumer point of view.   Particularly for truly ground-breaking innovations, companies shouldn’t assume consumers understand the value of their products.  They need to connect the dots and educate and inspire people about what the products do for them.

As legendary Harvard Business School marketing professor Theodore Levitt put it, “People don’t want to buy a quarter-inch drill. They want a quarter-inch hole!”

“In electronics, we put more and more features on our products because we can.” – Natali Del Conte, Host, CNET TV

As Ms. Del Conte introduced her take on “What’s Hot at CES 2010,” she chided some companies for their products which seem over-loaded with features.  Her sarcastic observation about how and why technology companies develop feature-saturated products struck a chord.

We’ve all encountered products with features that seem superfluous:  the remote control that allows you to set up picture-in-picture viewing in 20 different ways; the microwave oven featuring functions that less than 1% of owners use; the pages and pages of DVR settings options.  The problem with this overload of features is not simply that these features aren’t used and therefore add unnecessary costs to the product – it’s also that they make product usage more confusing.  For many consumers, less is more.

Lately there’s been a movement in food and beverages to simplify products and reduce the number of ingredients used (Haagen Dazs Five is one example).  Electronics manufacturers, as well as companies in other categories like insurance, sports equipment, cars, banking, etc., would do well to adopt a similar approach.  A streamlined version of a product might broaden a brand’s appeal by appealing to people specifically looking for a simplified user experience – and/or it could be used to convert intimidated prospects who can be upgraded later to more feature-rich offerings.

A good way to start would be to conduct cost/benefit analyses on potential features during the product development process — not only counting development costs but also the costs of consumer confusion and frustration.

“When tech lets me down, I feel like a dummy and that’s an issue for the makers of that technology.” – Becky Worley, Good Morning America’s Tech Reporter/Producer and Contributor

As the mother of 2 year old twins as well as a technology correspondent, Ms. Worley offered great insights about what moms think and feel about consumer electronics.  She described the negative effects of the “technology inferiority complex” that many women – and men! – have:

People want to feel smart and successful. Products that are hard to use, require a lot of time to figure out, or don’t work the way they’re supposed to not only disappoint users, they also make them feel dumb and incompetent.  Such feelings cause a cognitive dissonance that ultimately results in negative brand perceptions.

Ms. Worley also talked about how moms are always picking up their kids – physically, when they’re young; emotionally, when they’re older.  She called for brands to “pick up” moms – practically, by making products easy to use; emotionally, by demonstrating they understand moms.

Although Ms. Worley was talking about moms, I believe the desire to be understood and supported is universal to all consumers. Through ethnographic research and empathic design, companies can develop products, services, customer experiences, and advertising that really resonate with consumers.

Imagine the kind of affinity and loyalty a brand would attract if it makes people feel like heroes!

As you’ve doubtlessly noticed, there’s a common theme to all of these sound bites.  It’s the importance of customer intimacy.  Companies must truly understand their customers – what they want, how they feel, what they value, what their lives are really like.  And they must demonstrate that understanding in everything from product development to marketing communications.

All of the cool new products and technologies at CES give reason to be optimistic about the coming year.  But the fact is, only a few of the innovations will be great successes – the rest will be quickly forgotten or replaced by the next new thing.  The ones that breakthrough are the ones fueled by customer intimacy.

related posts:

• ces 2010 highlight video
• brand inspiration
• to women; love marketers

Once again I find myself writing a post triggered by a New York Times article on the mobile category.  Last Monday it was about the different strategies brands are taking with their mobile application offerings.  Today this post introduces some thoughts based on the piece, “AT&T Takes the Blame, Even for the iPhone’s Faults.”

As the title suggests, the article outlines how AT&T is suffering from poor – and in some cases, undue and inaccurate — perceptions. The author, Randall Stross, reports on independent research which indicates AT&T’s 3G coverage is better than Verizon’s.  He also reveals that some of the problems users experience with the iPhone are a result of iPhone design flaws, not of AT&T’s coverage, or lack thereof.  Stross concludes, “AT&T, while meeting 4,000 percent growth in data use, has acquitted itself quite nicely. But the company is saddled with an awful public image as the perennial laggard.”

This prompted a few observations and insights on the topic of “perception is reality.”  “Perception is reality” is not a new thought, of course — remember those old Rolling Stone magazine Perception/Reality ads?!  But there are a few specific dynamics in the AT&T/iPhone/Verizon situation that add insight to the adage:

1.    Consumers’ perceptions are shaped by the things they care about most.

AT&T may indeed have faster download speeds and stronger signals but, if my understanding of the technology is correct, these are benefits experienced primarily when using mobile apps or the Internet browser.  They have less impact when using the phone to make calls – and that’s what people care about most (for now).

When a call is dropped, it’s a problem:
-    it causes a clear disruption — one instant you’re communicating, the next you’re not
-    that disruption impacts 2 people – you and the (in some cases very important) person you’re talking to
-    and it requires a messy recovery – first, you have to realize the call was dropped (how many of us have continued talking on and on until we realize the other person isn’t there anymore?!); then, you have to hang up and wait for your phone to reset; then you have to redial (which often involves you getting the other person’s voicemail because they’re trying to call you back at the same time and you play several rounds of dialing/getting voicemail/hanging up/waiting for the other person to call you/deciding you’ve waited long enough and maybe the other person isn’t calling you after all/dialing again, etc.); and then finally, when you do get the other person back on the line, you have to exchange apologies and explanations and figure out where the conversation left off before you can resume it

It’s a pain.  When a mobile app doesn’t work, you just refresh or hit “enter” again and it usually works just fine.   Very little hassle; very little lost time.

So, people care a lot more about reliable voice service than about reliable data service (again, for now).  As such, AT&T’s poorer quality of voice service has shaped people’s perceptions of the brand far more than their superior data service.

• The point for brands:  It doesn’t matter how good you are at something if you’re not good at the thing people care about most. Both product development and marketing need to be focused on consumers’ primary drivers.

2.    Perceptions are also shaped by people’s expectations.

Mobile phones are a mainstream category and making calls on mobile phones is an established behavior.  As such, people expect to use their mobile phones to make calls without incident.

Mobile apps and other data-based usage of phones, on the other hand, is still a new phenomenon.  People are just discovering what is possible and so they generally have low expectations.  If something doesn’t work the way they think it should, most people are likely to chalk it up to the new-ness of the technology.  And, really, they’re no worse off than they were 6 months ago when they didn’t even have the thought of doing what they’re trying to do.

People’s perceptions of AT&T and Verizon are based on their expectations of seamless phone calling service – so again, AT&T suffers from poor perceptions.

• The point for brands:  While perceptions may be hard to change, expectations are more easily shaped.  Brands can advance people’s expectations or focus them in a particular direction.  Brands can position themselves as an advocate for a higher standard of performance, and improve perceptions of their own performance in the process (think Target and its “Expect More. Pay Less.” platform.)

3.    Perceptions of a particular product or feature are shaped by overall brand perceptions.

The NYT piece reports that Roger Entner, SVP for telecommunications research at Nielsen, explains although the iPhone’s design has “shortcomings that ‘affect both voice and data…’” in the eyes of the consumer, “the iPhone has the nimbus of infallibility, ergo, it’s AT&T’s fault.”  This might seem unfair, but from the very beginning of AT&T’s partnership with Apple/iPhone, it’s been clear AT&T had more to gain.

A few years ago AT&T was working hard to shed its old “Ma Bell” image and compete more visibly in mobile communications. The new iPhone with all its bells and whistles and Apple’s powerful brand image provided an avenue for AT&T to move its brand forward.  A 2007 press release reporting on the launch stated, “During the past several months, AT&T has been strategically transforming the brand into one that is mobility-centric. The company kicked efforts into high gear in early May to prepare for…the iPhone. The accelerated push…took the company’s branding initiatives to the next level.”

While the effectiveness of these efforts may be debated by some, the fact is AT&T started out from a weaker position and continues to suffer because of it.   Its service quality may indeed be high, but perceptions of the brand overall continue to hold it back.  Promoting speeds and feeds has limited impact; advancing a platform of brand value which resonates with consumers’ values and emotions would do so much more.

• The point for brands:  Specific improvements in your offering go hand-in-hand with improvements in overall brand perceptions. Product improvements will not make an impact if they’re not connected to the brand.  And, attempts to improve brand perceptions without tangible evidence of change will fail.  But together they are a powerful combination.  In product development and promotion, specific changes need to be tied to the overall brand value.

OK, I think I’ll give the mobile category a break for now – but I appreciate the comments from my last post and hope to hear from you on this one.

The series on brand value creation continues today with a look at how brands create value for companies in their Internal Business Processes.   Although a brand’s ability to create value from the Financial and Customer perspectives is probably the most important, its impact on Internal Business Processes is the most fundamental.

Let me back up a bit.  As a reminder, we’re using the Balanced Scorecard as a framework for identifying all the different ways brands create value for companies.  The Internal Business Processes section of the Balanced Scorecard is intended to help leaders evaluate how well their business is running and whether its products and services conform to customer requirements.

A brand lends itself to such an evaluation if the company has adopted the “brand as business^TM” management approach.

What is the “brand as business” management approach?  It is the deliberate and systematic management of the business around the brand — thinking of the brand as the business.  The “brand as business” management approach is based on using your brand as a management tool, not simply a marketing asset.  It’s about operationalizing your brand — integrating your brand and your core company’s operating system.  (The American Management Association recently published an article of mine which explains “brand as business” in more detail.)

OK.  So that was all to set up the discussion on Internal Business Process brand value creation.  When the “brand as business” management approach is employed, the brand impacts the three primary processes of any business:

• product development
• supply chain management, and
• customer relationship management

– and the resources that drive each.

Processes.  To the business processes themselves the “brand as business” management approach contributes focus, efficiency, and power.

• For example, in the product development process the brand focuses R&D on target requirements and value delivery as articulated in the brand platform.  And the brand is used as a filter at each juncture of the stage-gate process.  Evaluations of the fit and viability of new offerings happen faster and more easily with the brand providing a clear, consistent standard.

A strong brand also reduces the cost of new product introductions and improves the success rate of line extensions, cross-selling, and up-selling by stimulating trial and adoption among existing customers.  As noted in my post on Customer brand benefits, customers are more likely to try a new product if they already have a relationship with the brand.

• In the supply chain management process, a strong brand can give a business more negotiation power with suppliers, manufacturers, and distributors.  Having the upper hand in negotiating inventories, logistics, and payment terms is certainly a desired advantage in the constraints of the current business environment.

• Brands impact the third primary business process, customer relationship management, by helping the company to establish relationships with customers in the first place.  Over time strong brands engender trust, and when customers trust a company, they are willing to give the company information like personal data, insights about needs and preferences, and usage information which enables the company to create better customer contact and service strategies.

Those advantages then help businesses retain customers by fostering relationships which are valued by customers.  And instead of having to rely on instituting switching costs which deter existing customers from defecting to a competitor but which may also pose barriers to customer acquisition, companies with strong brands simply enjoy brand loyalty — which by definition prevents brand switching.

Brands also make customer relationships more profitable — an increase of 5% in loyal customers in some categories delivers 95% greater profitability over a customer’s lifetime, according to brand loyalty expert Robert Passikoff who founded and heads up Brand Keys, a research consultancy specializing in customer loyalty.

Furthermore, Passikoff’s research indicates it takes 7 to 10 times the cost to acquire a new customer as it does to keep an existing one.

Resources.  At the resource level of Internal Business Processes, a brand-driven management approach is about optimization.

• A strong brand optimizes your human resources, for example.  You can experience better results in recruiting because a strong brand attracts a larger and/or better applicant pool.   One fast food restaurant chain experienced a dramatic increase in responses to its help-wanted ads simply by adding visual elements from the brand identity to its advertising.

Companies which employ the “brand as business” management approach use the brand as a means for screening candidates, on-boarding new-hires, and training employees more quickly and effectively.  In “The IBM Way”, former IBM marketing executive Buck Rodgers explains the approach his company adopted, “IBM begins imbuing its employees with its…philosophy even before they’re hired, at the very first interview…Basically, anyone who wants to work for IBM is told:  ‘Look this is how we do business…We have some very specific ideas about what that means.’”

By using the brand to inform, inspire, and equip people, companies produce a workforce that is aligned, focused, and motivated.  In turn such a workforce produces more efficient operations, higher quality output, and increased employee retention.

• A strong brand also optimizes your technology resources and other tangible assets by facilitating relationships with other companies from whom you acquire or with whom you develop these resources.  The greater your brand equity, the more desirable your company is as a customer or partner to these other companies.

Internal business processes and the resources which they draw upon are beneficiaries of a brand that is well-established and well-leveraged.

Make sense?

My next post will be the last in the series — Brand Value Creation — Learning & Growth.  Stay tuned.

BusinessWeek’s analysis of “How HP Got Its Wow! Back” reports on a business metric the Company uses that gives me an idea about measuring marketing productivity.

Apparently the new-ish head of the technology company’s PC division, Todd Bradley, has orchestrated a turnaround for the business, increasing market share 4.3 ppts and producing profit margins of 5.5% (which is huge for PCs.)  One of the tactics Bradley has used is a metric called “R&D productivity.”  The article explains:  It measures R&D spending as a percentage of gross margin for each product line. A standard desktop computer with low margins may get one or two innovative features, while a high-end laptop with fat margins would get enough flash to make it stand out. To determine the appropriate R&D level, HP does three-year projections of expected gross margins.

This metric is credited with helping the division strike the right balance between innovation and price, with the success of HP’s new TouchSmart PC (the first touchscreen, all-in-one desktop) as an example.

So, my idea is a “marketing productivity” metric — that is, a way of determining the appropriate amount of marketing spend based on 3-year projections of expected gross margins.  This would mean those products that are likely to produce the most margin would be allocated the most marketing dollars; and low-margin products would get fewer dollars.

On the one hand this approach would limit the common marketing practice of heavily promoting “loss leaders” in order to attract people to your brand, with the hopes of eventually trading them up when it comes time for them to actually make a purchase.

And in some cases, budgeting your marketing dollars according to margin projections would be a self-fulfilling prophecy — after all, how much you spend on marketing should affect the margins you generate.  But your 3-year projections could be made based on normative data, thereby removing the effect of spend.

In doing so, applying a “marketing productivity” metric could be a worthwhile approach.  It would take some of the subjectivity out of marketing budget allocation process, thus assuaging the concerns controllers often have about what seem to be random marketing decisions.  And I would think it would improve marketing ROI (we spent more money and we made more money, assuming the projections were correct) — again something that’s sure to please company leaders.

But perhaps the biggest benefit of utilizing such a metric could be the integration of product development and marketing.  That is, product development decisions could be made simultaneously with marketing decisions — e.g., do we think we can promote these additional features well enough to produce the incremental margin we need in order to include them in the product?  or are they simply add-ons that don’t really make a difference to the customer?

In this way such integration would strengthen the company’s discipline of customer intimacy.  Products would be developed with their relevance to customer needs and wants in mind from the start — vs. the more common approach of engineers and designers creating products based on technological or operational capabilities and then throwing them “over the fence” to the marketing department to figure out how to make them meaningful to customers (cartoon compliments of Tom Fishburne — check out my post on his book!)

What do you think?  Do you think implementing a “marketing productivity” metric makes sense?  I’m eager to hear your thoughts on pros and cons.