Soichiro Honda, son of a blacksmith and a self-taught mechanical genius, founded the Honda Motor Company in 1948.  The firm was started to provide small engines to attach to bicycles, but soon branched out to manufacturing fully fledged motorcycles in 1949.  Within a few years, Honda had successfully launched several models, and became a dominant manufacturer of motorcycles in Japan and other nearby countries, all of whom were starved for small, inexpensive, personal transportation.  In 1959, sensing an opportunity, and bolstered by its success in Japan, Honda sent a few of its executives to California to see if they could build a market in the USA.

No market research? … heaven forbid

MBA students might be shocked to discover that Honda did this without doing any formal market research, but simply sent the team to American shores to “discover” what might be there.  The original plan was to compete in the marketplace with its larger motorcycles, those over 250 cc’s in engine size.  This category in the USA was already dominated by such domestic manufacturers as Harley Davidson and Indian, and foreign competitors such as the UK’s Triumph.

Honda’s team quickly realized that there was a big problem in competing in this category.  Their motorcycles were designed and built for the quick, short burst, stop and go traffic of Japan and were completely unsuitable for the long vast stretches and speed of the  American roads.  The bikes simply could not physically keep up to the competition on this unfamiliar terrain.  Although Honda engineers quickly identified and fixed the reliability problems, the motorcycles still could not gain a strong following.

We don’t like your bikes, but what’s that little scooter?

Interestingly enough, while some people disliked Honda’s bigger bikes due to their long distance reliability problems, many fell in love with the little 50 cc motorcycle the executives were using to visit potential dealers and distributors.  Many younger customers especially liked the option of a small motorcycle that did not fit the leather jacketed, rebel without a cause, image that other motorcycle manufacturers flaunted.  This resonated perfectly with Honda’s advertising slogan, “You meet the nicest people on a Honda.”  With the sales of its bigger bikes lackluster, Honda welcomed the advances of retail giant Sears who became the first large scale dealer of the small motorcycles in America.

By 1964, supported by a great product, innovative advertising, and strong after sale service, Honda commanded 50% of the American market for motorcycle sales. (By 2008, the Supercub itself had sold over 60 million units worldwide.)  The biggest victims of Honda’s ascendance were the UK manufacturers who saw their market share drop from 49% in 1959, to 9% in 1973. This initial foothold, unintended, unplanned, and without formal market research was the start that Honda needed to become a worldwide goliath of motor vehicle manufacturing, and one in which today over 50% of its production is sold in the American marketplace.

This story is often told as a strategic management classic, where the ability to adapt and create new markets are necessary components of strategic thinking.  Key lessons include the necessity to listen to your customer, segmentation of the market to create a new customer category, and the ability to pivot your company to where the real opportunity lies.  As a result of this thinking, today Honda is the largest motorcycle manufacturer, the largest producer of internal combustion engines, and the 7th largest automobile manufacturer in the world.

About Kurian Tharakan

I help companies grow sales and build markets by implementing Duct Tape Marketing's 7 Core Principles into a customized sales and marketing system. Visit me at StrategyPeak.com to find out more.

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The cell phone bill for the month was $2,400!! Thankfully it wasn’t mine.

My friend had just gotten back from a trip to Cabo San Lucas and Phoenix, and was happily using his smart phone to Google Map his way around, not realizing the he was being charged criminally high international data roaming rates, and not his normal domestic charges.

Recently, I got off a plane for a vacation in Mexico when my iPhone buzzed with a welcome text from my wireless carrier explaining my roaming plan. 75 cents per text, (a low rate?) of $2 minute for voice, and an astounding $8 per megabyte for data.

A moment of panic swept over me as I quickly checked my phone settings to ensure cellular data was turned off. An accidental visit to the Yahoo home page could easily cost me $16. (My fear is high enough that I am sure that I had previously checked the settings at least three times before getting on the plane as well.)

Back in Canada, my monthly package is about $65 but for this I get:

• 200 anytime local minutes
• 1 GB of data, $10 per additional GB
• Unlimited text, picture and video messaging
• Unlimited nationwide talk with any 10 numbers

The key bullet above is the additional data charges per gigabyte, which are only $10. If we extrapolate the data charges in my welcome to Mexico text, they want an equivalent $8,000 per gigabyte for international data!

$8,000 per gigabyte!!

Senõr, that will be $2,960 for your Big Mac, … the fries are extra

As an analogy, imagine going into a McDonald’s in Cancun, ordering a Big Mac, and finding out that it cost you not the usual $3.70 back in Canada but $2,960 (two thousand nine hundred sixty)!! And the best part would be that you would only receive the bill in the mail a few weeks AFTER you ate the burger.

That last part has got to be the most frightening.  Unlike filling up your car’s gas tank, and knowing exactly how much gas you have pumped and what it has cost you, most wireless customers simply get ambushed with their international data bill when they get home from their vacation.  None of the carriers have made it easy for their customers to accurately meter their usage, especially when travelling.

Comparatively, my home land line data rates are pennies per megabyte, and typically carried by cable, copper, or fibre. These are the same conduits used by the phone company to move data from the wireless towers to the other endpoint. In fact, most wireless communication is only wireless between the mobile device and the tower. Everything else is either cable, copper, or fibre which is normally charged to us for pennies per megabyte transferred.

My friend’s $2,400 shock pales in comparison to a family from Saskatchewan who were letting their two boys watch Netflix on their mobile device for $10,000 and a woman in Florida who got a $201,000 surprise.

These horror stories only leave the phone companies customers confused, fearful, and distrustful. I’m sure you will agree that these attributes are not the hallmarks of a customer centric brand, but because there is enough active “collaboration” between the world’s phone companies to preserve these profits there seems very little that customers can do about it.

Of course, this only makes customers very skittish, and extremely disloyal, with customer retention being a major problem. Some studies peg the industry’s customer churn rate as high as 30% to 40%. In other words, at least a third of the entire pool of customers switch carriers during the year. As soon as our contract term is up, everything is up for grabs as we scour offers from rival telcos for our mobile affections. Beyond this, in Canada we are happily anticipating the arrival of two new carriers and the introduction of new consumer protection legislation.

Don’t follow the phone companies

Don’t want to follow the phone companies lead for building your brand? Then try these simple steps:

Be Transparent – Your clients are quite capable of doing the math and evaluating whether your pricing adds up. Instead of making them work, do the math for them and show them WHY your prices are calculated as they are, as well as the features and benefits they receive at each tier. (No one believes that it costs 800 times more to move data in Mexico.)

Be Fair – Just because you can charge 800 times more, does it mean you should? Especially when the result is fear and uncertainty in your clients? You will only be planting the seeds of the long-term destruction of your brand.

Be Trustworthy – Become a client advocate. The golden rule applies in spades: Do unto others as you would have them do unto you. But more importantly, watch out for your clients, protect them, keep them safe.

Is your brand Transparent, Fair, and Trustworthy?

photo credit: Simon Miller

About Kurian Tharakan

I help companies grow sales and build markets by implementing Duct Tape Marketing's 7 Core Principles into a customized sales and marketing system. Visit me at StrategyPeak.com to find out more.

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Retailers love life’s defining moments, especially ones that convey a Significant Emotional Experience for the customer.  College, marriage, and the birth of a new baby, are all examples that signify a moment in that customer’s life when old habits may be parked, and new habits formed.  The possibility of creating a customer’s new shopping habits can especially bring intense glee to a retailer’s heart.

Our behaviors are strongly organized around our habits, and once established they are very difficult to break.  However, on the occasion of a life changing event all previously established patterns of behavior are now open to the potential of re-programming.  The secret is knowing when to strike.

In his book, The Power of Habit: Why We Do What We Do in Life and Business, author Charles Duhigg explores how habits are created, and how retailers use the science of predictive analytics to identify the most opportune moment to hit the customer … right before a habit is formed.

It’s no secret that we live in a time when gigabytes of information are gathered about us from every possible source.  From what we buy, watch, listen to, read, or search for online is all stored in massive data banks just waiting for a computer algorithm to detect even the minutest of patterns.  In the book, Duhigg relates how the giant retailer Target collects purchase data on its customers and is able to predict when they may be approaching a significant life milestone.  In the case of pregnancy, it was noted that moms to be stocked up on typical patterns of vitamins, unscented lotions, and handy wipes.  In fact, Target identified 25 specific items which when bought in certain combinations, and at certain times, were able to be combined to create a pregnancy prediction score with a highly accurate due date window.

Because all of this data was keyed to a specific consumer “guest id”, Target had high confidence to engage the customer in a targeted marketing campaign.  Before you knew it, the baby product coupons would start arriving in the mailbox.  The problem was that if the only thing the mom to be received was coupons and incentives for baby products, this would often creep her out, and make her highly suspicious.  “How do they know I’m pregnant?” would be the first question in her head.  Target got around this by mixing the baby coupons in with other household ads in the targeted mailer.  As long as they didn’t feel they were under covert surveillance, the new mothers bought the products offered in the personalized, targeted mailer.

Of course, Target is not the only retailer with a predictive analytics team.  Other retailers, big banks, and even presidential election campaigns have predictive analytics units.  There are even entire conferences dedicated to the science.  It is once again sexy to be a statistician!

What’s the marketing lesson?

Predictive analytics is about identifying a trigger event.  In the above example, the event is pregnancy and child birth.  But other well known examples include:

By identifying their trigger events, and then getting in front of that curve, a smart marketer will be able to capitalize on the buying moment BEFORE it arrives.

photo credit: flickr, bies

About Kurian Tharakan

I help companies grow sales and build markets by implementing Duct Tape Marketing's 7 Core Principles into a customized sales and marketing system. Visit me at StrategyPeak.com to find out more.

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Imagine that you are the owner of a highly successful orange juice manufacturer.  You have a nationally recognized PREMIUM brand, won numerous consumer awards, and have the thickest profit margins in the industry.  One day, after your annual operations review, your accountants come to you and say that their analysis has revealed that your brand’s juice concentrate per litre is significantly higher than your competitors.  By reducing the juice concentrate by a couple of percent you will be able to increase your profits by millions of dollars per year.

The problem is that this is your grandfather’s recipe and you don’t want to monkey around with a winning formula.  But you reluctantly agree that if a blind consumer taste test concludes that the new reduced formula “tastes” the same that you will go forward with the 2% reduction in concentrate.  A covert series of taste tests are performed, and the result is an imperceptible difference between the old and new formulas.  The new, reduced, formula is ordered into production, and immediately millions in profits is now diverted onto your bottom line.

Looks like the accountants were right!

The next year, the accountants come back with the same idea.  By reducing the juice concentrate by a couple of percent, millions more in new profits could be produced through the savings. Although hesitant, you agree to a series of covert taste tests, and the results are the same!  The difference between the 2 juice formulas is imperceptible.   The new recipe is ordered into production, and millions in new profits are yours.  And what’s more is that you are still the national leader in your juice category!

Once again, the accountants are proven right!  Their tactics have produced multi-millions in savings!

Over the next few years, you agree to similar juice formula changes subject to the results of the taste tests, and each year it seems to work.  UNTIL THE YEAR IT DOESN’T!!   As if out of nowhere, your brand doesn’t just decline in popularity, it plummets!  The reason your customer’s give: your juice isn’t anything special, it’s like everyone else’s.

What happened?  Didn’t you diligently conduct those covert taste tests.  Didn’t the participants tell you there was no difference between the old and new formulas?  WERE THEY LIARS?

Desperately you try and claw your brand back to the top of the category, but even with new IMPROVED changes to the juice formula, it’s too late.  Your customer’s no longer associate your brand with a premium product.

What happened?  Just simple math!

This story illustrate’s Charles Handy’s concept of strategic drift.  After just 10 years of implementing imperceptible “operational efficiencies” based on the math, our friends in the accounting department have taken grand dad’s winning formula and made it just 80% of what it used to be,  No wonder your customer’s have abandoned your once successful company.

But what about those liars in the taste tests?  Actually, they really weren’t liars.  After the first year, the annual taste tests compared the new version of the juice with the PREVIOUS year’s and never the ORIGINAL.  That’s why the tasters never noticed much of a difference.  (see table below)

This is very similar to what happened to the Detroit car manufacturer’s in the 1980’s, and the major mobile phone manufacturer’s prior to the introduction of the smartphone, and then again when generic smart phone manufacturers got hit with Apple’s iphone.  By not innovating, and focusing more on maximizing profits than what the customer wanted from the product, eventually all the offerings became the same.

A brand is about clear differentiation from competitive offerings.  If you create products that ignite desire first, the math will follow.

About Kurian Tharakan

I help companies grow sales and build markets by implementing Duct Tape Marketing's 7 Core Principles into a customized sales and marketing system. Visit me at StrategyPeak.com to find out more.

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I love the analogy of riding a bike.  Almost everyone I know can ride a bike, but very few can actually build a bike, … including me.  And if I could build a bike, you probably wouldn’t want to buy or ride the one I built because it wouldn’t be very good!

Bike design and manufacturing is actually a complicated process, but through a couple of centuries of industry practice, refinement, and evolution, the resulting finished product LOOKS simple. Some people confuse the LOOK of simplicity (handlebars, a couple of tires, and a frame) with BEING SIMPLE to create.  This is the furthest thing from the truth.  The complexity of thought that went into its design and manufacture is what creates a dead simple product anyone can use.

It’s the same with Strategy.  Almost everyone can spell the word “strategy”, but few are able to create an effective one.  A great small business marketing strategy must be able to clearly differentiate your business from your competitors with a compelling, emotionally resonant, functionally relevant, reason to buy!

Last year, I received a call from the owner of a business who had hired a competitor of mine to develop a marketing strategy.  She spent over $25,000 to conduct a series of interviews, perform some market research, and distill the results of the findings.  The final plan’s central recommended strategy statement was:  “You are in the [blank] business servicing the [blank] industry sector.  Your client’s do business with you because they like and trust you.”  The remainder of the paragraph urged the owner to build on this “strategic” position.

Now, you’re probably asking yourself, “Is this for real?”  Unfortunately it is!  Here are some other gems from the beautifully illustrated, professionally laid out report.

Clients choose you because:

• You have industry knowledge and expertise
• You provide good value for price
• You are good people to deal with

The owner called me to look at the report primarily because she didn’t know how she would be able to use the recommended “strategy” to generate new business.  And although very successful, she’s also a very humble woman who thought that she might be missing something, and wanted an expert second opinion.

She was absolutely right.  The plan was fluff!  Here’s what’s wrong with this “strategy”:

It does not clearly differentiate her business from her competitors with a compelling, emotionally resonant, functionally relevant, reason to buy.

Beyond this, I could put the name Ford, Intel, Microsoft, or your mother’s home based crocheting business as the title to the report, and it would apply to all of them because it is too generic to say anything specific.  This is probably the simplest acid test to identify a poorly differentiated strategy: if you can place your mother’s company name above the plan, and it would apply to her as well, you don’t have anything to move forward with.

What’s your strategy?

About Kurian Tharakan

I help companies grow sales and build markets by implementing Duct Tape Marketing's 7 Core Principles into a customized sales and marketing system. Visit me at StrategyPeak.com to find out more.

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