How Blockbuster Lost its ‘Place’
How Blockbuster Lost its Place
Blockbuster Video will go down in history as a tragic marketing misstep in the digital revolution. Its mistake was being in the wrong ‘place’ for its customers.
In my 4 P’s of Marketing article, I talked about the importance of defining your Key Marketing Issue and then examining it in relationship to Place, Product, Promotion and Price. Of those, Price is the one upon which you should avoid competing, because it’ll force you into a commodity game.
The irony of Blockbuster is that ‘Place’ had long been the company’s competitive advantage. At one time, it boasted that 80% of the population of the United States was within a 20 minute drive of a Blockbuster location.
That type of competitive advantage was extremely powerful. Blockbuster could reap great return on its marketing investment because it could advertise almost anywhere in the country and reach a significant number of its target consumers.
When Netflix started to creep-in on Blockbuster’s territory, Blockbuster made the tragic mistake of focusing on ‘Price’ and ‘Promotion’. Rather than think strategically about what mattered to its customers, it eliminated late fees to compete with Netflix. Not only did that not have the desired effect of stopping the exodus of its customers to Netflix, it significantly hurt the company’s top line revenue.
If it had looked forward, Blockbuster would have seen that the digital revolution was arriving, albeit ten years later than the tech bubble of the late 1990′s had promised. By converting its brand equity into an online presence, Blockbuster could easily have been the leader in online movie rentals.
Despite its recent public relations setbacks, Netflix has done very well with it’s flat-rate video streaming service. Rather than compete with Netflix on price, if Blockbuster moved its $4.99 two-day rental business model to the Internet, it would likely be a thriving business today. Instead, Apple saw an opening left by Blockbuster and moved into the rental business. Apple now commands a 68% market share of a high-growth market while Blockbuster Video has gone bankrupt.
The lesson that marketers must take away from the Blockbuster tragedy is that ‘Place’ is a key component of the marketing mix. Tread carefully if your strategy is to to ignore ‘Place’ and focus on ‘Price’.
Chris McPhee, MBA
Email: Chris.McPhee@Marketing-Matters.org
Handling Motivational Conflicts
In previous articles, I’ve outlined the decision making process and summarized some persuasion techniques. Although these discuss the general process that consumers go through to make decisions, the guidance in these articles has been fairly one-sided.
Most of the discussion has been from the perspective of the product or service that you are offering to the consumer. The consumer, however, is always comparing your offering to something else. Everything in marketing is relative.
The concept of ‘motivational conflict’ refers to the internal conflict that all consumers feel when making a decision. To understand the buying behaviour, we must consider the two main types of motivational conflicts.
Types of Motivational Conflicts
Approach-Approach Conflict
The ‘approach-approach’ conflict can be thought of as, “I want this, and I want that, but I can only have one.”
When a consumer makes a buying decision, he or she typically must choose one option amongst the available alternatives. Unless there is an obvious winner in their mind, they will typically feel a sense of loss for not being able ‘have it all’.
Use perception maps to position your offering to address your consumer’s approach-approach motivational conflict. If your offering is correctly positioned, you can make it the ‘obvious’ winner, and reduce the sense of loss that your customer would otherwise feel for not selecting a competing product or service.
Approach-Avoidance Conflict
This type of conflict can be a bit tougher to manage. This is when the consumer wants to make a choice, but wants to avoid the downside. For example, “I want a large vehicle, but I don’t want to impact the environment.,” or “I want that decadent desert, but I don’t want to spend 3 hours in the gym working off the calories.”
Almost all choices consumers make have some downside or risk. We can’t always eliminate the downside, but we must recognize it exists.
A good option to mitigate the downside is to offer complimentary products or services.
For example, a tire store might want to sell winter tires, but it knows that a downside is that the customer will need to switch between summer and winter tires twice a year. That involves a cost of both time and money on for the consumer. To mitigate this approach-avoidance conflict, the tire store can offer free or discounted tire exchange.
Everything in marketing is relative and consumers always have alternatives. When positioning your product or service, consider the motivational conflicts your customers face. It might cost you relatively little to have a big effect on reducing that conflict for your customers.
Chris McPhee, MBA
Email: Chris.McPhee@Marketing-Matters.org
Make your Marketing Messages ‘Sticky’
In previous articles, I’ve discussed how you need to focus your message and how you can use tried and true methods to try to persuade people. There is still something missing, though, if you can’t make your pitch memorable.
Most decisions are based on first coming up with a ‘consideration set’. If you’re asked to buy peanut butter at the grocery store, what brands come to mind? You can probably think of one or two brands, but is that all there is? There must be more than two brands of peanut butter, but only two are memorable. They are top-of-mind brands for you, and achieving top-of-mind, or ‘unaided recall’, is the holy grail of brand management.
To achieve that, you’ll need to come up with a compelling story. There is some magic in doing that, but there is also a good, logical framework that is clearly outlined in the book by Chip and Dan Heath called, Made to Stick.
Creating a ‘Sticky’ Message:
- Simplicity
You need to keep your story simple. People are bombarded with information, and if you don’t keep yours simple, you won’t get through.
- Unexpectedness
In the article on constructing a good advertisement, I talked about how people will remember your story if there is a little twist. By having a little bit of unexpectedness, people are more likely to remember your pitch. - Concreteness
You like have a strong mental image of your product or service as being, ‘best in class’ or ‘high quality’, but people often can’t relate to those abstract images. What does ‘best in class’ smell like? What colour is it? What does it taste like? Translate your message into something that people can concretely visualize. - Credibility
Think about what stories you’ve been told that you can’t believe. How do they differ from the ones that you do believe? We don’t have time to check out all of our facts with first-hand experience, so we depend on credible sources. Add the details to make your story credible. - Emotions
Most good advertising pitches allow the consumer to connect emotionally with the advertisement. Have you ever noticed that you never see the drivers in a car commercial? We are meant to visualize ourselves behind the wheel of that sports car roaring through the picturesque mountain roads. - Stories
Throughout time, human beings have connected through stories. Share your story. It doesn’t need to be about you, but it does need to be authentic. You won’t connect with everyone, but with any luck, you’ll connect with your target market.
Take some time to measure your marketing efforts against these six principles. If you can start to build your messages around these principles, you’re well on your way to creating ideas that stick!
Source: Chip Heath and Dan Heath, Made to Stick (2007)
Chris McPhee, MBA
Email: Chris.McPhee@Marketing-Matters.org
The Concept Test: An Inexpensive Way to Test Your Ideas
Entrepreneurs have a tendency to look before they leap. In some cases, that results in extraordinary success. In most cases, though, it results in heartache and an empty bank account. If only there was a way to test the waters before getting in over your head.
One inexpensive and effective way to test your idea is the one page ‘Concept Test’. The core of this exercise is to determine if potential customers will buy your product for a price that would allow you to make a reasonable profit.
Marketing isn’t just about getting people to buy your product or service. Marketing is about meeting needs profitably. You might have a great idea, but if people won’t buy it at a reasonable price, then its time to rethink the product before you make a significant investment in it.
Structuring a Concept Test:
- Draw a Picture
First create a rudimentary picture of your product and how it works. If you’re thinking, “My idea is too complicated to show in a single picture.”, then your idea is probably too complicated. If your potential customers don’t understand your product or service, then they’re definitely not going to buy it. - Describe the Key Benefits
What problem is your product or service solving for the customer? You should have one to three compelling reasons that your customer needs your product. Again, if you can’t describe three compelling reasons to buy, then your product or service likely isn’t compelling enough. - Ask Customers What They’d Be Willing to Pay
Give a range of 4 or 5 price ranges including the option, “I would not buy this product.” It is important to give a set of price ranges to simulate the customer’s decision-making process. If they love the product, but not the price, then they’re probably not going to buy. Here is an example of the price ranges for a low-cost consumer product:
- $4.99 or Less
- Between $5.00 and $7.49
- Between $7.50 and $9.99
- $10.00 or More
- Would not buy this product
Send out this concept test to people who you would consider to be in your target market. You can either buy a distribution list from a market research company, or just ask a few acquaintances. You’re looking for at least a 50% positive response rate in a price range that you believe is feasible.
In the example above, if you think your cost per unit is around $5.00, then you had better be getting 50% or more responses saying that potential customers would pay at least $7.50. Otherwise, you’ll need to rethink the product or get the costs down.
As Thomas Edison said of his failed inventions, “I am not discouraged, because every wrong attempt discarded is another step forward.” It’s relatively inexpensive to run a concept test as compared to the money that you’ll eventually need to invest, so at least stack the odds in your favour by testing your concept first.
Chris McPhee, MBA
Email: Chris.McPhee@Marketing-Matters.org
Give your Customers NUDGES
In the article on How People Decide, I outlined the typical decision making process followed by consumers. As reasonable as the process seems, people often make decisions that seem to defy reason.
There are many reasons why people might make seemingly strange decisions. They might be in a hurry and don’t have time to review alternatives. They might not have the knowledge or experience to make an informed decision. They might make a mistake.
Richard Thaler, in his book Nudge, outlines a few methods that can be used to structure a Choice Architecture to help people make optimal decisions.
Components of a Choice Architecture
- INcentives
Many aspects of marketing are devoted to creating incentives for consumers. These include product or service bundling, selective discounts, and limited time offers. The key with incentives is to not be ‘gimmicky’. Provide information in a manner that allows the consumer to choose amongst your products or services in a clear manner. You can provide an incentive for the consumer to select a particular offering, but if the customer feels tricked, then they’ll be very resentful in the future. - Understand Mappings
If you’re selling computers, do your typical buyers really understand ‘GHz’? If your selling cars, do your typical buyers really understand ‘HP’? Your sophisticated customers certainly do, but you would probably benefit from ‘mapping’ those technical terms into more relevant concepts for the majority of your customers. - Defaults
Thaler provides some compelling examples of how frequently we just stick with the defaults. People continue subscribing to magazines that they don’t read if they have automatic renewal. Microsoft lobbied long and hard to keep Internet Explorer as the default browser on Windows computers because they know that the majority of us stick with default settings. Don’t underestimate the power of defaults. - Give Feedback
If the decision that you are asking your customer to make is non-trivial, provide feedback to allow them to optimize their decision. This is especially important if the customer is building their own solution (e.g. selecting components of a computer or home theatre).
- Expect Error
People will make errors in their choices. If possible, allow them to change their choice without too much hassle. If they feel ‘stuck’ they will be frustrated and it will show. - Structure Complex Choices
Most complex decisions need to be structured to allow the user to work their way through the complexity. By providing information in a guided manner, you can reduce information overload and provide a more satisfying experience for the customer.
People make decisions all the time, and their decision to interact with you, your business, or your product is likely just one of many that they’ll make today. By giving them NUDGES, you can both meet your needs and theirs.
Source: Nudge: Improving Decisions About Health, Wealth and Happiness by Richard H. Thaler and Cass R. Sunstein
Chris McPhee, MBA
Email: Chris.McPhee@Marketing-Matters.org
Back to the Basics: The 4 P’s of Marketing
Marketing can be pretty sophisticated these days. From Search Engine Optimization to Customer Loyalty Programs and Demand-Based Pricing. It’s great to take advantage of new advances in the art and science of marketing, but there are some fundamental tenants that should underpin your marketing endeavors.
One of the most basic fundamental concepts of marketing is the 4 P’s.
When undertaking a review of your marketing strategy or the development of a specific marketing campaign, take a moment to consider the 4Ps and how they might affect your strategy or campaign. To help center your thinking and discussion, make sure that you first define your ‘key marketing issue’.
Key Marketing Issue
Before considering the P’s, first look at your business to narrow down the key marketing issue. Are you trying to rebrand your product or business? Are you trying to expand your product into a new market segment? Are you trying to respond to a new competitor or disruption in the marketplace? Be specific in your identification of the key marketing issue.
The 4 P’s of Marketing
- Product (or Service)
Define the product that you are selling. The product can be a very specific tangible product, or it can be a very general service offering. It must be that ‘thing’ that your customer is receiving in exchange for their hard-earned cash. - Placement
Consider ‘placement’ to be the level of convenience for your customer. Place might be a physical place of business, but it also might be your website or 3rd-party retailers. Consider both the method and place of purchase, but also the method and place of use. If you’re selling boats, the most important ‘place’ might be where your customer uses their boat rather than where they go to buy it. - Promotion
How does your customer find out about your product or service? Again, think broadly in terms of advertising, word-of-mouth referral, sponsored events, and online searches. Your approach to promotion will need to evolve both with your brand and with the external environment. - Price
Finally, consider the price of your product. In addition to the cash-value price of your product or service, also consider the non-monetary price such as the time and effort your customers need to put into finding, purchasing and using your product. You may have a low-cost option that is ‘expensive’ in terms of the time and effort your customers need to put into the purchase.
Historically, the 4P’s were very specific: your retail location (place), your sales events (promotion), your physical inventory (product) and your price. The 4P’s are still very relevant, fundamental aspects of marketing, but they need to be more broadly considered to be effective.
Chris McPhee, MBA
Email: Chris.McPhee@Marketing-Matters.org
Pricing Strategies
Pricing is an area that seems like it should be very straightforward. Price your product or service at a level that allows you to maintain a healthy profit level.
Unfortunately, it’s not that easy.
Many factors influence what price you can set, or even whether or not you have any ability to influence the price of your products. Those factors include: the competitiveness of the industry, the supply and demand of the product, and the trends in the overall environment. For a more detailed explanation of the types of forces that influence a business, take a look at the articles on Five Forces and Generic Strategy.
Regardless of the type of business that you’re in, there are two basic methods to price your product or service.
Basic Pricing Strategies
- Cost Plus Pricing
The basic pricing strategy that many entrepreneurs (incorrectly) assume is the right method is to ‘mark-up’ your product. Intuitively, it makes a lot of sense. You purchase your raw goods at a certain cost, you’ve got fixed and variable expenses, and you need to make a profit. You apply a mark-up that gives you a fair profit and everyone’s happy! Unfortunately, your customers care very little about the costs that you incur and your ability to make a fair profit. - Market Based Pricing
Market pricing looks at the relative price that you can charge within your market based on your value proposition. The obvious question that begs is, “What about profit?” In some cases, the answer to that is making sure that you can deliver the product or service at a cost that allows you to make profit at the market price. In other cases, it means getting out of the market and leaving it to someone who can deliver the good or service profitably.
It’s not the news that most small business want to hear, but it’s the truth in a competitive marketplace. Set your price relative to your value proposition and relative to the value proposition of your competitors. If you can’t make money that way, change your value proposition or get out of the market.
There is a curious fact about the prices that consumers pay for most things. We don’t typically remember the exact price that we paid for a particular good, especially if it was a ‘low involvement’ purchase. We do, however, remember if it was more or less expensive that the alternatives. We also remember if it was ‘good value’ for money.
Everything is relative.
Chris McPhee, MBA
Email: Chris.McPhee@Marketing-Matters.org
Consumer Motivation
Wouldn’t it be nice if you could pull off some little trick to get people to buy your product or service? Many such things have been tried in the past, but most of them are illegal, so let’s just stick to the basics.
Most, if not all, of our actions are driven by some sort of personal motivation. There are a couple of different theories on what underlies our motivation.
Drive theory suggests that we have a ‘push’ that comes from an internal state of tension that dives us to need to relieve the tension by taking action.
Incentive theory is more of a ‘pull’ approach that suggests that something external motivates us to action.
From a marketer’s standpoint, it isn’t as important to know whether motivation is internally or externally driven. It is important, however, to make sure that our value proposition is aligned with the type of need that our consumers are trying to meet.
If you consider which type of need your product or service is fulfilling, you can better motivate your target customer to action.
Types of Needs that Motivate Behaviour:
- Social Needs
Social needs are extremely powerful as they allow us to associate ourselves with one group or disassociate ourselves from another group. Much of what we purchase is at least partly by our social needs. Give special consideration to the types of ‘reference groups’ that your consumer uses. You might have a great product for your consumer, but if it is not considered worthy by their reference group, then they are unlikely to purchase. - Functional Needs
Functional needs are what we typically think of as our basic needs. We need to eat food, so we need to buy food. We need to keep warm, so we need to buy clothes. Despite the basic requirements of our functional needs, consumers seldom only consider the ability of the good or service to serve their basic functional need. - Hedonic Needs
These are the indulgences that we ‘need’ such as the luxury of leather seats in our car or the down feathers in our pillow. As a marketer, considering hedonic needs is very important as even someone who is just trying to satisfy a functional need will always appreciate a bit of hedonism on the side. - Need for Cognition or Stimulation
We humans have a lot of capacity for thought and creativity. Just look at the popularity of crossword puzzles, Sudoku an Angry Birds. Although we can get mentally exhausted, most of us need some level of stimulation. Making people ‘think’ can be a good hook into your product or service as long as they are in a mental state to want the stimulation.
Good marketing isn’t about making people do something that they don’t want to do. Good marketing is about understanding the consumer’s inherent needs and building an offering that will satisfy those needs.
If you can first understand what type of need your product or service is meeting, you can tap into the underlying motivation that will move prospective customers in your direction.
Chris McPhee, MBA
Email: Chris.McPhee@Marketing-Matters.org
Long Range Market Planning
There are so many different ways to approach long-term market planning that it can seem overwhelming sometimes. I often hear the phrase, “I know I need to spend time on marketing, but there is so many other things that require my attention.”
Part of the problem is that most entrepreneurs didn’t get into their business because they were good marketers. They got into it because they knew their product or service and had a passion for it. Marketing can be daunting.
Here are a few steps to help guide you along the process of long-range planning.
Components of a Long-Range Marketing Plan
- Define the Problem or Opportunity
A good place to start long-term planning is to determine the business ‘problem’ or ‘opportunity’ that you’re trying to address. It is time well spent to consider the variety of business problems that you might solve through marketing. The important thing is to pare the list down to a key problem or opportunity that you want to address. Just like you can’t be everything to all people, marketing can’t solve all of your problems, or address all of your opportunities, at once. - Define the Target Market
This is just as critical to defining the problem or opportunity, but it should be separated out. Why? Because you might have different solutions to the same problem based on your target market. For instance, if you’re trying to improve your sales during your off season, the approach you take for the baby boomer customer segment might be very different than the approach that you take for your young family segment. - Plan and Execute the Marketing Campaign
Once you’ve got a clear Problem or Opportunity and a clear Target Market, you can structure your advertising campaign. Consider laddering the campaign to effectively build up your message. Note that your approach to addressing your problem or solution might not be advertising at all. It might require making adjustments to your product or service offering. - Measure the Results
The final step is to measure the effectiveness of your marketing campaign and either make immediate adjustments or keep the lessons for your next campaign. It can be tough to really understand the effectiveness of marketing, but if you plan the campaign with measurement in mind, you should be able to get some good insight into its effectiveness.
Even if you don’t have time to do an exhaustive long-range marketing plan, at least spend some time Defining the Problem or Opportunity and Defining the Target Market. If you’ve got that information in your back pocket when it comes time to spend money on advertising, you’ll have a much better opportunity to get a good return on your investment.
Chris McPhee, MBA
Email: Chris.McPhee@Marketing-Matters.org
Laddering a Marketing Campaign
In the article, Focus your Message, I talked about how important it is to keep your message simple and concise. That all sounds nice, but if you’re paying hundreds or thousands of dollars for a print, radio, or television campaign, you want to say everything you can about your business.
The problem is that multiple messages confuse the audience. On the other hand, you probably do have several things that you need your audience to know. How do you manage to both keep the message simple and communicate everything you want the audience to know?
An effective way to structure your marketing campaign is to user ‘laddering’.
Laddering effectively guides the audience through your value proposition one step at a time. Each step is individually focused, but the full campaign allows your audience to hear your full message.
Steps to Ladder a Campaign:
- Build Awareness
The first step in a laddered campaign is to simply build awareness. Let your audience know that you exist and give them one or two key pieces of information such as your area of specialty. Don’t go overboard. Your goal is simply to have your audience know that you exist. - Build Interest
Once your target consumer knows that you exist, you can start to reel them in a bit. Again, don’t throw everything at them, but you can start to describe your ‘Points of Parity’ and ‘Points of Difference’. Your main objective is just to build interest, not to bombard your audience with information. - Elicit Action
This is the final stage that you’ve been waiting for. If you’ve laddered the campaign well, your customers will be aware that you exist and have built some interest in your offering. Now you can push to have them commit to visiting the store or making a purchase. This is particularly useful when related to a special event. - Post-Purchase Follow-up
Don’t forget to follow-up with a post-purchase message to thank your customer or congratulate them on making a great decision. The customer experience doesn’t stop when they walk out the door, and you want them to come back again, ideally with friends!
Don’t be afraid to run a laddered campaign multiple times. You’ll help to solidify your core customer base, but you’ve always got new customers moving into your area or discovering your product or service.
Chris McPhee, MBA
Email: Chris.McPhee@Marketing-Matters.org
