Master the Diffusion of Innovation Technique

The Diffusion of Innovation bell curve illustrates how the use of a new product spreads through a population. Ideally, marketers want everyone in a market to immediately run out and buy our new products, but this is not realistic, because consumers differ in how willing they are to accept the risk of buying and using new products. It often takes months or years for most of the population to accept new products.

The Diffusion of Innovation is a valuable tool for marketers because it helps us to forecast sales, penetration timeline, and the life cycle of a new product.

1. Forecast Sales. Let's assume we live in a village with 100 residents and we just invented a new tool. Some residents in our village will run right out to buy our new tool. We call these residents "innovators" and based on the Diffusion of Innovation, there are 2.5 innovators in our village (ignore the fact for now that we can't really sell to half of a customer). If the average price of our tool is $10, then the innovators generate $25 in sales (100x0.025x10). Already, we can predict the total sales of our product for all other types of customers in our village and for all stages of diffusion. Here are some examples:

A. If Innovators account for $25 in revenue, how much revenue will the Early Adopters generate? In other words, if 2.5 residents spend $25, how much will 13.5 residents spend?

If 0.025 = $25, Then 0.135 = x, x = (0.135($25))/0.025 = $135

B. If total product sales to Innovators is $25, what will total product sales through the Early Majority stage be? In other words, if total sales to 2.5 residents is $25, what will total sales be when 50 residents buy the product?

If 0.025 = $25, Then 0.025+0.135+0.34 = x, x = (0.5($25))/.025 = $500

2. Forecast Penetration. Customers differ in how willing they are to accept the risk of buying and using a new product. The 100 residents in your village have different levels of know-how, budget, and experience. Some residents can begin to use your product immediately, while others will require more information, more hands-on experience, and maybe financial incentives. If all Innovators purchase your new tool in 10 weeks, then we can forecast how long it will take for all other types of customers to use your product.

If you begin selling your product on January 1, 2011, and all Innovators buy your tool in the first 10 weeks it is available, when will all Early Adopters buy your tool, i.e. when will you begin to sell to all Early Majority customers?

If 0.025 = 2 weeks, Then 0.025+0.135= x, x = .16(2 weeks)/0.025 = 12.8 weeks, which means mid-April .

We use this data two ways. First, to track our weekly progress toward the goal of getting 13.5 new customers by mid-April. If after 9 weeks we have 10 customers, will we achieve our goal of selling to all Early Adopters by mid-April? We also use this data to remind us to look at our decision-making process. If we fall behind in our penetration and revenue goals, it means we need to pay closer attention to some steps in the customer decision-making process.

3. Forecast Product Life Cycle. All products, no matter how innovative, will eventually lose momentum and sales will shrink. The savvy marketer is constantly watching individual product sales to determine when to reallocate marketing dollars to launch new products and make up for revenue lost from declining products. To do this, we need to match the diffusion stages to phases in a product's life cycle. These are separate curves. The diffusion curve represents various stages of a product's commercialization. During a product's emerging phase, the product is being developed and tested - no revenue is generated. A product's emerging phase is, therefore, a pre-diffusion stage. To match the diffusion stages to life cycle phases, lets use the data from the 100 villager example to calculate the stage sales and sales growth for each phase of diffusion.

To calculate the revenue growth rate, determine the change in revenue and divide by the lower number. For example, if sales in January were $25 and sales in February are $135, then sales grew 440% ((135-25)/25) from January to February.

We can tell by looking at the revenue growth rates in the far right column that the diffusion stages clearly match up to the growth, maturity and decline phases. The growth rates for Innovator, Early Adopter and Early Majority stages were greater than 10% and this corresponds with the growth phase in the product's lif cycle. The growth rate for the Late Majority phase was less than 10%, but not negative, and the product did generate revenue, so this stage matches with the product's maturity phase. Sales in the Laggard phase were negative compared to the prior phase, which means the product is in decline.

Self Test. To see how you did, send your results and work to mcapone@godmncapone.com.

A. Assume the village has a population of 1,763 customers and your new tool costs $29. Forecast total sales to all stages.

B. If you begin to market your product on March 1, 2011 and it takes 4 weeks to sell to Innovators, when will you begin to sell to each of the other diffusion customer types if your penetration rate is constant?

C. Use your answers to the above questions to predict when your product will enter the decline phase, i.e. when you have to have a new product ready for commercialization?

D. If you take a 14% portion of the product's profit earned during maturity and invest it in new product development, how long will you have to get your new product from ideation to testing?

E. If each stage of diffusion takes 20% longer than the previous stage, when will your product begin to decline?

Conversion Models - Forecasting Revenue

A conversion model deals with the transformation of targets into advocates. Conversion models match the consumer decision-making process whereby the marketer makes an individual aware of the product, motivates the individual to seek information about the product, provides the individual opportunity to evaluate the product, then helps the individual to purchase the product and eventually encourages the individual to tell someone else about the product. Marketers are responsible for managing this process and so we create and deliver messages to influence individuals to move to the next step. In many cases, we use the blanket term "customers" to refer to individuals at all stages, but these individuals are actually quite different. Clearly, someone who has never heard about the product needs different information (features and benefits) than the person who is evaluating a product (ratings and reviews) or a customer that has acquired the product (instructions). The most common names for individuals at these various stages are target, lead, prospect, customer, and advocate. A target is an individual who has not yet been made aware of the product. A lead is an individual who is a ware and receiving information about the product. A prospect is an individual who is educated about the product and evaluating the product. A customer is an individual who has purchased the product and is using it. An advocate is an individual who is spreading word-of-mouth.

A conversion model usually looks like a funnel because we need to reach many targets in order to win a few customers. An advertisement during the Superbowl, for example, may reach 120 million viewers, but fewer than 500,000 of them will actually act on the ad. If you pack 120 million grains of rice into a giant funnel and then apply pressure, hundreds, maybe thousands, of rice grains will trickle out the bottom and many grains will remain stuck in the funnel. Imagine the funnel has several holes in its side. As you apply pressure, grains of rice trickle out the bottom, but more grains fall out the sides. Similarly, many customers may see an ad, but most will abandon the process, some will get stuck somewhere in the process, and relatively few will turn into customers. Many individuals remain stuck at some step in the process because no company can satisfy the needs, preferences or expectations of everyone. Even in monopolistic sectors or life critical situations many individuals simply opt not to move forward because they are not properly incentivized to do so.

When an individual acts on a marketing message this is called a "response." We express the response rate as the number of responses to a message divided by the viewers or recipients of that message: R/V, where R is responders and V stands for viewers. When 120 million people view a Superbowl ad and 500,000 viewers respond, the response rate is 500,000/120 million or 4%. It is entirely normal and expected that the response rate to most media is lower than 5% and the actual response rate to television is even much lower.

When we build a conversion model, we are actually calculating the number of people at each stage in the decision-making process, which means we're calculating the size of our funnel. Funnels are usually very fat, but some are narrow. Coca Cola markets to billions of consumers in order to win millions of customers - it has a very fat funnel. On the other hand, Sun Microsystems markets to hundreds of IT professionals in order to convert dozens of them into clients. Sun has a narrow target segment and a relatively narrow funnel which it calls a"pipeline."

Before we can build a conversion model, we need some information:

• Budget. We need to identify a marketing budget.
  
• ROMI. Management has to establish some performance expectations.
  
• Price. A sales price has to be set
• Communication Costs. The expenses associated with promotions and advertising
  
• Process Costs. The expense of interacting with customers
  

Step 1. Design the Experience

The funnel matches the consumer decision-making process so list the actions you want customers to take toward purchasing your product. Although the decision-making process is usually 5 steps, the experience you design for your customer can include many incremental steps. You may have a 3-part information gathering phase or a 2-part evaluation process. I've seen conversion models with as many as 12 discrete stages. Remember, you can't ask customers to skip steps in the decision-making process and you cannot rearrange these steps, although sometimes we allow customers to consume a product prior to purchasing it, but you can combine steps. Events are a way of combining awareness, information, and evaluation into a single step. For this example, let's create a simple 3-step process: we want to influence targets to watch an online video, then we want leads to sign-up for a 30-day free trial, then we want prospects to buy an annual subscription.

1. Targets see ad and go to website to watch video and become leads
   
2. Leads sign-up for trial and turn into prospects
3. Prospects buy annual subscriptions and turn into customers

Note that a three-step conversion process or customer experience has 4 stages:

1. Targets. Consumers who we want as customers
   
2. Leads. Targets who visit the website and watch the video
   
3. Prospects. Leads who sign-up for a trial
   
4. Customers. prospects who commit
   

Step 2. How many Customers?

The next step is to calculate the number of customers needed - the number falling out the bottom of our funnel. Remember, customers refers to individuals who purchase the product. The number of customers is calculated by multiplying the marketing expense (or marketing budget) times the target return-on-marketing-investment (ROMI) and then dividing this sum by the product price: (ME x ROMI)/P, where ME is marketing expense, ROMI is the target return n marketing investment, and P is price. If your marketing budget is $25,000 and your price is $12, then you need 10,417 customers to achieve a target ROMI of 5x.

3. Calculate Prospects

Prospects, in this case, refers to individuals who are evaluating our product and are signed up for the 30-day free trial. If we want 10,417 customers, we obviously need more prospects. After all, the funnel gets bigger because not all prospects will turn into customers. To influence prospects to become customers, we have to do something. We have to invest in some interaction or communication that encourages the desired behavior. For our example, we decide to send each prospect a gift certificate via email and let's assume that similar prior offers generated a 40% response rate. This means that .4P=C, where P is prospects and C stands for customers. Thus, P=C/.4 = 26,043. In order to win 10,417 customers, we have to have 26,043 prospects and convert 40% of them. Emails cost $0.015 each to deliver so it costs us $390.64 to send those 26,043 prospects the gift certificate. Now we can calculate the cost per acquisition (CPA) for this step, which is ME/R, where ME is marketing expense and R stands for responders. Therefore, the CPA for this step is $0.038, which means we will spend almost four cents to convert a prospect into a customer.

4. Calculate Leads

Leads are individuals who visit the website and watch an online video. If we want to capture 26,043 prospects, we need many more leads. After all, not everyone who visits the website will sign-up for the 30-day trial. To influence leads to become prospects, we have to do something. We have to invest in some interaction or communication that encourages the desired behavior. For this example, we will send each lead via email a newsletter. Based on our experience, we expect a 15% response rate. This means that .15L=P, where L is lead and P stands for prospects. Thus, L=P/.15 = 173,620. In order to win 26,043 prospects, we have to have 173,620 leads and we have to convert 15% of them. Emails cost $0.015 each so it costs us $2,604.30 to send the newsletter to those 173,620 leads. The CPA for this step is $0.10, which means we will pay ten cents to convert a lead into a prospect.

5. Calculate Targets

Targets are individuals who do not know about our product. If we want to capture 173,620 leads, we need many more targets. After all, the funnel gets bigger and not everyone who sees our ad will visit the website and watch our video. To convert targets into leads, we have to do something. Let's advertise on television. Based on testimonials from other advertisers during the same time slot, we expect a 1% response rate. This means that .01T=L, where T is target and L stands for lead. Thus, T=L/.01 = 17.4 million. The television station's media kit shows that the ad will actually reach 20 million viewers and will cost us $3 per thousand or $60,000. For mass media like radio, print advertising, and radio, we often pay to reach more customers than we actually need to reach in order to make our conversion model work and we'll adjust for this later. Only with direct media (email, mail or telemarketing) can we reach the exact number of target individuals that we want to reach.

6. Summarize Results

In order to make our conversion model work, we have to reach 17.4 million targets and convert 1% of them into leads, then we have to convert 15% of those 173,620 leads into 26,043 prospects, and finally we have to turn 40% of those prospects into 10,417 customers, who each spend $12 and generate $125,004 in revenue.

To do this, we have to spend $62,994.94 to communicate with customers and influence them to progress through the decision-making process. These expenses represent only our "communication costs." We have to also account for our "process costs," which in this case mean the expenses associated with interactions such as making the video and putting it on the website, the cost of giving away free trials, and the expenses associated with setting up new customer accounts. When we add these process costs to our communication costs, we calculate our total marketing expense. For this example, let's assume that the cost for creating the video is a fixed cost of $2,500, the cost of a trial is $0.25 per prospect or $6,510.75, and the cost of setting up a new customer account is $0.61 each to print and mail a welcome letter and membership card or $6,354.37. Our total process costs are $15,365.12. Our total marketing expense is $78,360.06.

The conversion model we developed says that if we spend $78,360.06, we will win 10,417 customers who generate $125,004 in revenue. This yields an ROMI of just 1.58, which is well below the goal set by management of 5x. Before we make adjustments to the model, lets see if the forecast gets us any closer to our goal.

7. Forecast

So far, we worked up through the funnel to find out what has to happen to make the model work. The conversion model represents what SHOULD happen. Now, let's figure out what will probably happen using real audience numbers for the media we selected to start this entire process.

Because we're using television, we'll reach a larger audience than we actually need to reach in order to make the model work, which is common for mass media. So we have to replace the target number in the model with the actual audience number and then recalculate the numbers for leads, prospects and customers, accordingly. Your funnel will get "fatter" because you're starting with a larger number of targets.

We spend $60,000 to reach 20 million targets and 1% convert to leads. Those leads watch a video that costs us $2,500 to make. Then we spend $3,000 ($0.015 each) to send 200,000 leads a newsletter in order to convert 15% of those leads into prospects. It costs us $7,500 ($0.25 each) to give prospects a free trial. Then we spend $450 ($0.015 each) to send 30,000 prospects a gift certificate via email in order to convert 40% of them into paying customers. We end up with 12,000 customers who spend $12 each and generate revenue of $144,000. We send new customers a welcome letter and membership card that costs $7,320 ($0.61 each). We forecast spending $80,770 and our ROMI will be 1.78.

Although our ROMI is positive in that the revenue generated by this campaign will exceed the total marketing expenses associated with it, the expenses exceed the budgeted amount and our ROMI is unacceptable.

8. Adjust

If your ROMI is not satisfactory, here are some things you can consider:

• increase price
• combine steps and shrink the process
• use more efficient media
• select less expensive media
• increase our budget
• improve conversion rates at one or more steps
• change our ROMI expectations

Orientations and Core Competencies

Mrs. Brown wants a new kitchen table. She opens the phone book to find a list of local furniture companies and calls them to inquire if they have a 64" oval table.

1. A representative at the first company says, "We have state-of-the-art mill work equipment and produce more than 12,000 tables every month. Our equipment is set-up to make only square tables and I have 50 64" tables in stock right now. I can give you the best price in town and you can pick up your new table in 1 hour.
2. A sales associate from the second company says, "Our family has been making tables for more than 125 years. We have one 64" oval table right now - it's an Empire style mahogany pedestal table with a quadraform base and a rose colored Carrara marble top. My uncle is working on a new 64" oval table right now using a rare Brazilian walnut in the French style and it will be completed in about six weeks.

3. The manager at the third company says, "We 1,500 stores nationwide and are the leading retailer of furniture for more than sixty different manufacturers. We also have a fleet of trucks and can deliver your table to your home."

4. A sales person for the forth company says, "Before I tell you what we have, help me to understand what your requirements are. How do you plan to use this table? What style is your other furniture? How large is your dining area? How many people would you like to seat?

These responses represent the four different marketing orientations.

1. Production. The first response is indicative of a "production" orientation, because the company's marketing activities are limited by its manufacturing capabilities and capacity. It's difficult for production oriented companies to change their specifications and processes quickly, so marketers for these companies have to focus on availability and price. Establishing a large distribution network and achieving economies of scale are important for these companies, which include most large manufacturers and farmers. Once Ford sets up a production line, it's difficult for Ford to change the shape of a car. Likewise, if a farmer has 1,000 acres of Granny Smith apple trees, it cannot switch over to Fuji apples quickly.

2. Product. The second response indicates a "product" orientation, because the company's marketing efforts are limited by the skill of its workforce and the quality of its materials. Product oriented companies invest in expertise, which is expensive, and product development is usually time-consuming, so marketers for these companies have to focus on quality and set higher prices. Product oriented companies include luxury brands, pharmaceutical companies and engineering firms. At the Louis Vuitton workshop in Asnieres-sur-Siene, for example, artisans have to complete several years of apprenticeship before they graduate to the atelier and are allowed to build LV's famous steamer trunks. The wood for the trunks is okoume, a hard, lightweight wood from Africa. Each trunk takes several weeks to complete and sell for more than $10,000 each.

4. Sales. The third dialog above is typical of a "sales" orientation, because the company's advantage is its footprint, i.e. the number of locations or sales people it has. The customer advantage is convenience. Insurance companies like State Farm, financial service providers like AG Edwards, and retailers like the GAP are typical sales oriented companies. Marketers for

these companies invest mostly in the customer experience and training.

3. Marketing. The third response above represents a "marketing" orientation, because the company has the flexibility to change it's product line to match the customer's needs. The entertainment, fashion, and consumer electronics industries have to have a strong marketing focus, because their product life cycles are very short and if they do not have a good understanding of what customers want, they could easily miss a fad or trend. New technologies are enabling some manufacturers to be more marketing oriented. For example, digital printing presses and rapid prototyping equipment reduce set-up times and make the production of new products fast and affordable. Honda invested millions of dollars to convert one of its plants to a flex-plant. Whereas it used to take Honda 13 months to modify its production in response to sales trends, it now takes just minutes.

Academic literature will have you believe that a company has one

orientation. Actually all companies have a combination of orientations, which I call the "orientation mix." I use a mixing console akin to that you'd find a music studio to illustrate a company's orientations. Sam Adams prides itself foremost on the quality of its beer. It's brewing process, and the quality of its ingredients, which all speak to a product orientation. In recent years, Sam Adams has responded to the craft brew trend with an ever-growing line of specialty beers, thus indicating a marketing orientation. Sam Adams must have a small sales force and certainly has a brewery, but it's growth is not predicated on its capacity, price, or availability.

The academic literature will also have you believe that the marketing orientation is best or preferred. This is not true. Remember, it is our job as marketers to match the company's resources with the most profitable opportunities. If the company you work for has made enormous investments in machinery for manufacturing a specific part, that part is all you can market - for the time being. Naturally, you should constantly monitor the marketplace to identify new opportunities and threats, but understand that your company's ability to respond to changes in demand may be limited by it's core competency.

In addition to helping you understand how your company can grow, orientations determine the type of partnerships you seek. For example, if you have mass production capabilities, you need a partner that has a very strong sales orientation, i.e. a huge distribution network. See the posting titled "Partnerships and Channels."

Using Lifecycles to Predict Competitors' Actions

Humans start life as infants, then become toddlers who grow up to become adolescents, then teenagers who graduate and turn into college students, who become newlyweds then parents, etc... There are obvious characteristic of these various stages. If you hear someone talking about their son taking his first steps, you know the child is probably a toddler 1-2 years old. If someone tells you she got her driver's license, it's a good bet that she just turned 16 and is still in high school. When someone tells you they are retiring soon, they are probably around 60 years old. When you know what life stage someone is in today, you can also predict with some certainty their future behavior. A high school student is getting ready to go to college. Someone who just graduated college will buy a new car in 12 months and a new home within 36 months. And someone whose kids just went off to college will begin to travel and dine-out more.

Like people, companies and products progress through a series of easily identifiable stages: emerging, growth, mature, and decline. There are certain activities that are characteristic for these stages, and when you when you know what stage a company or product is in, you can predict what will happen next.

Emerging (aka early-stage, launch, and start-up). Companies or products in this stage are just entering the marketplace. The product is not known and is generating little or no revenue. The goal, therefore, is to penetrate the marketplace and build user acceptance. The best method for doing this is to give away free samples. It's often said in marketing, "we have to buy our first customer" because it's the fastest and easiest way to eliminate risk for the customer and start word-of-mouth. Free is not permanent. Sometimes free is only once. A new technology company might give its software free to a Fortune 100 company, a new fashion designer may give a free dress to a celebrity like Sandra Bullock, and a new energy drink company will give its product to a professional athlete like LT or a sports team like the Chargers. A single free tactic may be enough to create esteem around the product and fuel sales for a product.

Growth. Once a product has market momentum, the next goal is to drive revenue growth. This is expensive. It requires a lot of advertising. The company is not yet concerned with profitability, instead it is focused on the top line and most important - revenue NOW. Companies in this stage make trade-in offers, offer prepayment incentives (get 12 months for the price of 10), and provide third-party financing. They establish many partnerships and tend to outsource so they can focus on their core competency. It is common for companies in this stage to report double and triple-digit sales growth. When you start from $1, selling $2 represents 200% sales growth. Investors refer to this phase as "the hockey stick," because the sales chart looks like the sharp curve from the blade to the handle of a hockey stick. Investors are looking for companies entering the growth phase because they foresee the value of their investments doubling and tripling.

Mature. As revenue growth slows to single digit, the company's goal changes from revenue growth to profitability. To do this, the company will seek to achieve efficiencies. Mature companies will acquire competitors to achieve economies of scale and begin to focus on volume so watch out for mergers, acquisitions and consolidation. They'll vertically integrate to improve their gross margins and erect barriers-to-entry for new competitors, and are likely to implement cost-cutting measures like new technology. Frequently, they'll target partners and vendors for acquisition, and there are often lay-offfs when technology replaces workers and redundant departments are eliminated.

Decline. Soon the competition catches up, market trends change, or technology becomes obsolete and the product loses momentum. Sales growth becomes negative. The goal is now survival so the company switches attention to cutting its loses by discontinuing certain services, closing offices, divesting or shuttering under-performing products and divisions. The purpose is to free up capital to invest in the development or acquisition of new products.

Savvy marketers are constantly monitoring their stage in the life cycle. These stages can be short or very long. Fashion and technology products have short-life cycles. Airplanes and Christmas tree farmers have long cycles. Either way, by paying attention to life cycles, we can make sure that our companies continue to grow by constantly introducing new products and strategies when it is most appropriate. A savvy marketer repeats the emerging, growth, and mature cycles over and over, and avoids ever entering the decline phase.

Watching your competitors' stage in the life cycle is equally important to your strategy development.

• If you are an emerging company, watch for growing companies who may entice your customers with better financing and aggressive trade-in offers. Think about implementing a very concentrated segmentation or niche strategy to avoid retaliation from a stronger competitor. Watch for mature companies who will say your product is not proven or unsupported. Respond by emphasizing your ability to adapt or respond faster to customer's needs.
• If you are a growing company, watch out for emerging companies who will entice your customers with free offers and huge discounts. Protect your existing customer base with better service and focus on performance instead of price. Also watch for mature companies who may block your access to market or attempt to control your supply chain. Prevent being excluded from a market by establishing multiple suppliers and partners. Or partner with your larger competitors, aka "coopetition" and position your company for acquisition by focusing on a substantial niche that the competitors ignore.
• If you are a mature company, watch for new entrants in your market because they'll offer new exciting products for free and they'll make aggressive trade-in offers and focus on service quality, when you're focusing on quantity. Eliminate the competition by acquiring them, erecting obstacles for them, or under-cutting their price.

Clearly, there are exceptions. Established companies like Apple can launch new products without giving them away because they have excellent brand equity and huge cash reserves to invest in marketing. Some rapidly growing companies in certain industries reach profitability quickly and go on "buying sprees" or "acquisition binges." When companies do things that are atypical for their stage in the life cycle, warning flags should go up. For example, emerging companies should not be planning expansion or diversification until they can penetrate a market segment.

The Consumer Decison-Making Process

Every customer follows a subconscious, five-step process when making a decision to purchase and consume a product. The marketer cannot control these steps, but it is our ever-ending challenge to influence them. We're constantly looking for more effective or more efficient ways to motivate customer behavior, to shrink this process, and to optimize every interaction with the customer. To this end, we're constantly analyzing customer behavior to identify preferences, we're constantly testing new communications to uncover the best combination of message and challenge for steering behavior, we're studying every interaction with the customer at every step to identify and resolve obstacles and failure points, and we perpetually seek new ways to support the customer and foster positive word-of-mouth. We spend time and money researching, communicating, delivering, and managing because it is our job to guiding customers through the decision-making process so that they buy our products and are so delighted with their purchasing experiences that they tell their friends. The marketer is obsessed with this decision-maing process. Remember, when you're reading about these five steps that (a) they can happen very quickly or take a long time to complete and (b) they are sub-conscious.

1. Need Awareness. In order to motivate a customer to get up from the sofa, get in his car and drive to a store, we have to help the customer realize that he has an unmet need. This is the role of advertising in marketing - to jump start the decision-making process by alerting the customer that there is a difference between his status quo and the ideal state. The most common media for doing this are television, radio, and magazine, direct mail, email, billboards, and telemarketing, to name a few. Pay attention and you'll notice that every ad, postcard or billboard is trying to make you aware of food, safety, intimacy, esteem, or justice. These are the five basic needs according to Maslow. Advertising gets a lot of attention, because it plays this first role and so marketers use a lot of creativity to get their messages noticed. After all, consumers are exposed to more than 5,000 advertising messages every day. But getting noticed is only part of the challenge. As marketers, we're not just interested in awareness, recognition, views, listeners, readers. We want customers to do something. We want them to take the next step. Good advertising will provide a clear call-to-action like "visit us online to learn more" or "call our toll free number to speak with a product specialist" or "visit a store near you."

2. Information Gathering. When advertising is effective, the customer realizes he has a need and then searches for ways to satisfy his need. The customer conducts research. "Yes, I need a new truck. How much do they cost? What features are available? Where can I get a new truck?" This is the primary role websites play today in marketing. They are a 24/7 method for sharing information about your company and products with customers. More than 60% of all purchases in a store begin online. Other sources of information customers use include brochures, sales associates, customer service representatives, product demonstrations, packaging, and point-of-sale signage. As marketers, we're not just interested in luring customers to our website or the store to pick up brochures. We want customers to do something. We want them to take the next step.

3. Evaluate. Only after the customer has satisfied his need for information, will the customer take initiative to test and compare products. "So, I know how much trucks cost, what features I want and where I can get a truck., but which one should I pick and where should I buy it?" To facilitate this step, marketers offer free samples, set-up interactive displays, promote trial memberships, and allow test drives. If the product we market is intangible, i.e. it cannot be sensed prior to purchase, we provide the customer testimonials, awards, reviews, a list of prominent customers or donors, and reports from customers or third-party providers like JD Powers, Consumer Reports, Car&Driver, Charity Navigator, and the Better Business Bureau. The goal of all these investments is to help the customer understand how we're better than the alternative. As marketers, our goal is not to influence bus loads of people to test drive our cars or eat our free samples. We want customers to do something. We want them to take the next step.

4. Commit. If we did a good job of explaining or demonstrating our superiority over the competition, then the customer is ready to make a commitment. Depending on what you're marketing, the commit can be expressed in many different ways. Movie theaters sell tickets, website take orders, a nonprofit organization wants constituents to donate or volunteer, fitness clubs sell memberships, magazines sell subscriptions, landlords lease apartments, travel agents book vacations, hotels reserve rooms, etc... When the customer is ready to make a commitment, we marketers want to be ready to accept the commitment. So we make sure we have enough cash registers, we set-up self-service registers, we implement easy payment systems and accept all major credit cards, checks and cash, we offer trade-ins, establish lay-away programs and offer flexible financing. But we're not happy yet. Yes, we succeeded in motivating a customer to get from his LazyBoy at home, to the website, into the store, and all the way to the register, but that's we're still not done. We want the customer to do something. We want him to take the next step.

5. Use/Refer. We want to reduce or eliminate buyers remorse. We don't want the customer to regret his purchase and return to the store with an open box and a broken item. We want the customer to use the product correctly and experience the promised benefit. So we make sure the instruction manual is clear using the appropriate media for the target segment. We offer delivery, installation, and training services, have a technical support center, account management teams, and a toll-free customer service hotline. We schedule call-backs and conduct surveys to make sure the customer is satisfied. We create affinity programs, award clubs, and referral programs. We issue membership cards, send thank you and birthday cards, host appreciation events, and provide special discounts and services. Then we build online communities and use social media to engage customers. We make all of these investments to ensure the customer is satisfied with their commit and encourage the customer to spread positive word-of-mouth about our organization. We try to convert customers into enthusiastic sales people that some people call "advocates" or "evangelists."

Now we're happy. Almost. We look back at what we did. We measure and analyze everything we did. We fix the things that were broken. We stop doing the things that didn't work. We fine tune the experience and start all over again. Each time getting better, more efficient, more effective, faster, and shorter.

The Four Layers of Brand

Every company has brand. But not every company enjoys brand recognition or brand equity.

Brand Identity. It all starts with a logo, colors, words, phrases, and sounds that are associated with a company or product. In this sense alone, every company has brand because every company at any point in time uses a name, a typeface or logo, and a tagline or phrase. Big companies like Hilton and Walmart have brand identity and so does your local barber shop and convenience store. What constitutes a great brand identity is subjective, but one thing is sure, changing your identity makes it difficult for customers to recognize you. Con Surf Boards was established in 1959 and is the second oldest surf board maker in the world, but few surfers recognize the Con name because it changed its brand identity more than 20 times. The first step to building brand is using a consistent identity.

Brand Recognition. Customers recognize a brand when the identity is consistent and when they are exposed to it repeatedly, But recognition has nothing to do with knowledge. We may recognize brands and still not know what they mean. Cisco and SAP are on BusinessWeeks list of the world's 100 most valuable brands, and consumers obviously recognize these B2B companies, although few consumers can explain what they do. Not all companies enjoy brand recognition. One mistake many start-up companies make is spending too much money to design a corporate-like branding package, and having little money left over for advertising. There are thousands of companies that have exciting products that we want, really cool logos and tag lines, and fancy websites, but no one recognizes these brands because they do not invest in advertising. Building brand recognition costs money, so we're only keen on building recognition in our industry and among our target customers.

Brand Strength. Combine consistent identity, with effective advertising, and consistently rewarding customer experiences and you get brand equity. Starbucks has enormous brand equity. We see the logo from a block away and we know exactly what to expect. We know how the stores are decorated, what's on the menu, how to order, what level of service to expect, how much to pay, and where to pick up our hot steamy cup of coffee. There are many benefits of brand equity, but the most important is a shorter decision-making process. Imagine you're in a different city standing at the corner of a major intersection, you have 5 minutes to get to your customer meeting and you suddenly get the craving for a tall, double shot, no foam, soy peppermint latte. You see a row of four cafes and recognize the Starbucks logo. Do you risk trying to satisfy your craving at a different cafe or do you trust Starbucks? Red Cross also enjoys incredible brand equity. During the weeks following the earth quake in Haiti, the Red Cross raised six times the amount raised by all other aid agencies using only a short t.v. ad and a txt-to-donate call-to-action. Viewers did not have to visit the Red Cross website to learn what it does or if Haiti really needs help. They didn't visit Charity Navigator to see if the Red Cross is a trusted or effective nonprofit organization. Viewers didn't call friends to ask, "who's this Red Cross group?" Red Cross said "we need your help" and 500,000 football viewers trusted them. Without researching and evaluating the Red Cross, football fans simply picked up their cell phones and donated $10.

Brand equity is not always positive. There are companies that established a consistent brand identity, developed strong brand recognition, but are so famous for their bad customer experiences that they have negative brand equity. Kirby and Enron may be globally recognized brands, but I don't know anyone who would be proud to be associated with these companies. Toyota built incredible brand equity and surpassed GM in 2009 as the world's largest auto-maker only to lose its top position quickly due to serious technical and marketing missteps. Recently, thousands of customers filed class action law suits, not because their vehicles are defective, but because they lost resell value.

Our goal as marketers is to establish a consistent brand identity, advertise effectively to build brand recognition, and deliver consistently rewarding experiences to garner positive brand equity so we can shrink the decision-making process. See my other postings about "Brand Strength Criteria" and "Alternative Brand Measurement Tools" to learn more about branding.

Experience Management. A new appreciation for nonprofit marketing.

In my others posts "Why do people hate marketers?" and "What do marketers really do?" I discuss the abuse and misuse of the word "marketing." Every organization and corporation partakes in marketing although some do not like to think they do. The nonprofit sector is one of the industries that has a strong aversion to the idea of marketing, because, as I explained, there is alot of confusion about what marketing really is. The American Marketing Association (AMA) defines marketing as an organizational function and set of processes for creating, communicating, and delivering value and managing customers in a manner that creates benefits for stakeholders and community. Based on this definition of marketing, it's easy to understand why most nonprofits do not think marketing is relevant to them, after all, most don't have customers per se, nonprofits aren't concerned with creating value for their investors, and benefitting the community is their primary mission, not a bi-product or means to an end.

Let's ignore the word marketing and the AMA definition for now and focus instead on the tasks and requisite skill set of a new professional we'll call the Experience Manager. This Experience Manager is responsible for designing, executing, and optimizing consistent constituent experiences. Constituents is an umbrella term we use to refer to every one whose behavior we want to influence including donors, volunteers, sponsors, and customers. Experiences refers to the processes these various constituents follow to make their decisions to volunteer, donate, sponsor, and purchase merchandise or memberships. These concurrent processes are different because our goal for each constituent is different.

Managing these experiences is important because they shape consumer's perception of the organization, also know as brand. When constituents have consistently rewarding experiences with an organization, the positive perception of that organization grows. The brand becomes strong. Inconsistent or consistently poor experiences contribute to the negative perception of an organization and a weak brand. In other words, brand is the result of consistent experiences - good or bad. We can create brand identity (or recognition) by using the same logo, colors, jingle, and tagline, and we can build brand awareness through effective advertising and celebrity endorsements, but brand strength is not something we can create. Brand strength is something that is earned though the execution of consistently rewarding experiences.

So, this new Experience Manager we introduced above is responsible for identifying constituents and then designing, executing, and optimizing their experiences.

• Designing experiences involves mapping out a step-by-step process for converting target constituents into brand ambassadors. This conversion process is complex, time-consuming, and expensive. It requires an understanding of research methodologies, psychology, economics, pop culture, accounting, art and media.
• Executing experiences involves procuring the resources required to support the intended experience. Successful execution requires planning, project management, procurement, logistics, communication, leadership, and collaboration skills.
• Optimizing experiences involves tracking and analyzing constituent behavior to identify success and failure points. This requires an understanding of technology, analytics, statistics, and accounting.

To what end is the Experience Manager engaged in these activities? Building brand strength is one goal, albeit an intermediate objective or a means to the end. Another word for brand strength is trust. Trust is certainly something every nonprofit organization is keen on building, because trust is a precondition for loyalty. Fund-raising executives, program managers, and membership directors all rely on constituent trust to procure donations, recruit volunteers, and grow revenue. If they acted independently of each other, the experiences they would deliver would be expensive and incomplete. It would be difficult turning a volunteer into a donor and turning a customer into a volunteer. The hand-offs would be clumbsy, untimely, and probably improvised.

The Experience Manager is responsible for designing, executing, and optimizing consistent experiences in order to build trust with constituents so that the organization can maximize its relationships with them. Naturally, because we're dealing with charitable organizations, the Experience Manager performs these activities in a manner that is socially responsible and beneficial. Now, simply replace the fictitious title Experience Manager with the real title Nonprofit Marketer.

get a free hit counter