Category: Product


The New Concept of Marketing

Filed Under: Marketing, Product, Promotion by apingel — View Comments
June 7, 2010

Once upon a time, when I was a kid growing up in the 80s, mass production was the rule. The economics looked something like this:

  • My local cobbler can make a pair of shoes that fits me perfectly. It costs $50.

  • My local Payless Shoes can provide me with a pair of shoes that fit OK. They cost $20.

By ignoring their customers’ needs, and focusing on what will turn out the most shoes in the least time, manufacturers were able to drastically reduce the cost of shoes. In turn, we all got used to ignoring our own needs, in order to get lower prices.

The 4 Ps of marketing, then looked like this:

Price (as low as possible) ->
Product (whatever we can make cheaply) ->
Promotion (make people think they want our product) ->
Place (wherever we tell them to go)

In other words, you made what you wanted to make, and then spent money to convince people to buy it.

The new rules

I admit that shoes are still pretty much produced the same way. But your local shoe store has many more options, and there are thousands more online. Whatever your requirements, you can find a shoe that meets them.

There are several driving forces for this, but the long and the short of it is that power has shifted. We no longer have to settle for a product that’s good enough. We can almost certainly find a product that’s ideal.

Many, many companies have yet to realize this. But the intelligent ones have shifted their focus from internal to external. A 5th P has been added, to look like this:

Participation (Talk to people, find out what they like and what they want) ->
Product (Whatever the market wants) ->
Price (as low as the market will bear) ->
Promotion/Participation (let people know that you have what they want) ->
Place (wherever is convenient for your customers)

That is, you make what people want to buy, and then let them know it’s available.

What it means to you

The good news: you no longer have to be a conniving, deceptive weasel to be successful in business. Marketing is no longer about manipulating people into buying stuff they don’t want or need.

The bad news: you can no longer make what you want and manipulate people into buying it. You have to make what other people want.

This brings us back to the venn diagram of happiness in business:

You have to find something that overlaps between what you want to make and what people want to buy.

But at least you don’t have to be a lying scumbag.

Resources for Further Reading
Happiness In Business Diagram
Product Is the New Marketing
The Price Is Right

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Your Monetization Is Not Your Business

Filed Under: Marketing, Product by apingel — View Comments
June 4, 2010

What is a “business”? Google defines it as “the activity of providing goods and services involving financial and commercial and industrial aspects.”

That’s still accurate, but the underlying methods for accomplishing financial goals have changed significantly in the past 10 years. It used to be that the “providing goods and services” and the “financial and commercial aspects” were closely related. The value you provided was to (for example) sell cars. People gave you money in return for cars.

But today, just about every product in the world is a commodity. There are more than a million websites where you can buy a Mercedes Benz. So providing me a Mercedes no longer counts as “providing value”. You have to give me extra value, to entice me to buy it from you.

What Business is Amazon In?

Amazon.com makes money selling books, everyone knows that. But that’s really not their value. I can get most of those same books from my friendly local bookstore, or from Barnes&Noble.com, or from Better World Books. And yet Amazon is far and away the #1 bookseller on the web. Why?

Because Amazon provides information. If I need a new book, I don’t have to browse randomly through a genre hoping to find something I like. Amazon will pull out and show me books it thinks I might like. If I’m interested enough to take a look, it will give me ratings of the book, ratings of the author, reviews from readers, and “people who bought this book also bought”. All of that allows me to more quickly find books that I like, including some new stuff I might never have found in my random-genre-browsing method. And, despite the excellent service at my friendly local bookstore, I can’t get all that information from anywhere except Amazon.

If Amazon.com decided to stop selling books, they could still monetize their information: they could sell ads to related products & services, they could join an affiliate program with other booksellers, they could charge a membership fee for anyone who wanted access to the information, or a per-book lookup of $.25 per review, or $1 to get a personalized recommendation list. They could forget about dead-tree books and push hard for the use of their Kindle. There are lots of ways to make money on the information, because it’s valuable information.

But…
If Amazon.com decided to eliminate the information part of their site, they would quickly lose their book sales as well. There would be no reasons to choose them over BarnesAndNoble.com or my local Barnes & Noble. And most people, given the option, would rather support their friendly local bookseller and get their book immediately.

Amazon is not in the book-selling business. They are in the book-information business.

Your Monetization Is Not Your Business

Let’s look at the top 25 websites (according to Alexa.com):

Assorted Googles
Value: make it easy for you to find content on the web
Make money by: selling ads to people who want to sell to you

Facebook
Value: make it easy for you to keep in touch with friends and family, yet also easy to ignore Uncle Arnie’s repeated invitations to Farmville.
Make money by: selling ads to people who want to sell to you

YouTube
Value: entertainment (some education)
Make money by: selling out to Google

Yahoo!
Value: make it easy for you to find content on the web
Make money by: selling ads to people who want to sell to you

Windows Live
Value: make it easy for you to find content on the web
Make money by: selling ads to people who want to sell to you

Wikipedia
Value: easy-to-find information that’s as reliable as the Britannica on basic academic topics, and far more reliable on pop culture topics.
Make money by: asking for donations

That’s the first one on the list — at #6 — that even comes close to asking you to pay for the value they provide. And they’re still not using the traditional business model of selling you the information. You can have the information whether you pay or not.

The next one that even comes close to making you pay is #25 — ebay.com. And ebay doesn’t charge you for its major value: helping buyers & sellers find each other. It doesn’t charge you for browsing auctions to determine the fair market value of an item you may have. It only charges you a tiny fee to actually sell the product.

This is the new model of business: provide value, but don’t charge for it. Figure out who your audience is, and what they would pay money for. Find a way to get a piece of that action. Repeat.

Your Value Is Your Business

Provide value for people. It’s not an afterthought to your business, it is your business. If you provide value, I can help you monetize it. But if all you have is a monetization method, I can’t help you create value.

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How to Use the Long Tail

Filed Under: Marketing, Product, Promotion by apingel — View Comments
May 26, 2010

In The Long Tail, Chris Anderson discusses the three criteria for a long-tail economy to exist (as it does today in online videos, books, and music):

    1) There must be a large quantity of unique, niche material available (homemade videos, self-published books, indie/garage bands, etc).
    2) There must be an aggregator to bring all of that material together (YouTube, Amazon, iTunes, etc).
    3) There must be a way for people to make the transition from the big hits down into the long tail (Related Videos, People who bought this also liked, Pandora, share this on Facebook, etc).

In You Don’t Have To Be A Rock Star I discussed the implications of the long tail for your product, namely that there is almost certainly a market for it. But what do the other two requirements mean for you?

Lessons for a Long-Tail Artist

Lesson 2: Your stuff has to be in the aggregator.
People aren’t finding awesome home videos by randomly surfing the web; they’re finding new videos on YouTube. Bands need to make sure their MP3s are in iTunes & Pandora; novelists need to make sure their books are sold at Amazon.com.

Not sure which aggregator to use? Get your stuff in all of them — it’s probably free.

Lesson 3: Your stuff has to be linked to related stuff
Most long-tail pushing is done algorithmically — there’s not a person saying, “Wow, this stuff is a lot like David Wilcox! I bet his fans would like this album, too.” Amazon is simply noting that people who buy David Wilcox CDs also buy John Gorka CDs. All the same, there are things you can do to “seed” the likelihood of coming up in a search.

  1. Tag your work accurately — If your photos are of small towns in Colorado, you want it to be found by people looking for Colorado small towns. If your lead vocal is a baritone, don’t claim to be a tenor — you’ll displease the people looking for tenors, and the people looking for baritones won’t ever find you.

  2. Ask a friend or one of your fans to write a review comparing you to someone else.
  3. Instead of giving away copies of your book, give people a 100% coupon if they’ll buy something else at Amazon at the same time.

There are lots of other ideas (those are just the ones that came to me in the last 2.6 minutes), but you get the idea: tell your aggregator who might like you.

Resources For Further Reading
The Long Tail

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My Business Plan Isn’t Feasible!

Filed Under: Getting Started, Marketing, Pricing, Product, Promotion, The Very Basics by apingel — View Comments
May 10, 2010

Yesterday we discussed how to make a basic business plan for your own use, and how to determine whether your business idea is feasible.

Sometimes it isn’t.

The three criteria I listed yesterday for a feasible business were:

1) Pricing has to be competitive.
2) Estimates for customers-per-month must be higher than the break-even point.
3) You must be able to get enough start-up capital.

If you fail on one of those criteria, despair not. You still have a chance, you’ll just need to get more creative. Get paper and pencil, pull out your brainstorming hat, call up your favorite brainstorming buddies, and think about how you can change your numbers.

Pricing

As I explained in the previous post, your prices don’t necessarily have to be lower than your competitors’, they just have to be justifiable in the consumers’ minds. This may mean higher prices but better service, or higher prices but more convenience or whatever.

But it has to be somewhere in the vicinity of your competitors. If the prices you have to charge are significantly higher than the prices of others, your customers are going to go elsewhere.

So if making a profit requires you to charge too much, you have two choices: lower your costs, or justify the higher price with a competitive advantage.

Lowering costs
Can you get a better price if you get your materials from somewhere else? Do some comparison shopping online, or see if you can get a bulk discount.
Can you reduce or eliminate sales bonuses?
Can you make delivery cheaper?
Can you negotiate with your suppliers for a lower cost?

Improving Competitive Advantage
What else could you offer to your customers that would make it worthwhile to buy from you? A sympathetic ear costs nothing, but has always been a competitive advantage for bars. Can you think of a low-cost bonus that you could throw in? Can you keep an informational website? A free information product on how to use your merchandise? A place to use your products?
Good customer service is hard to maintain, but can go a long way towards convincing people to pay more.
If you increased your costs by 10%, could you double the quality (and hence the expected price)?

A friend of mine wants to open a bakery; her husband wants to open an auto-repair shop. Individually, neither store can justify much of a premium over their competitors. But a place where you can sit with a scone and check your email while waiting for your brake repair? That’s worth paying a little more, especially if both the pastries and the repairs are high quality.

Break-even

The first thing to check is that your estimates are reasonable. I had you calculate a 1% conversion rate on all forms of advertising, which is a nice, safe, conservative estimate, but may be too conservative in some cases. Walk-bys on a mall, for example, usually have closer to a 15% conversion rate, with 20-50% of those who walk into the store buying something, so that could bring up your expected monthly customers. Talk to someone in your industry, or do some web research, to get more accurate estimates of monthly customer numbers.

If you believe that your estimates are accurate, the easiest way to improve your break-even point is to increase your gross margin, either by raising your price or lowering your cost (or both). If your price analysis indicates that you could charge even a dollar or two more per item, it can have a huge effect on your break-even point.

But if you’ve already been wrestling with the above steps to get your price lower, then raising it isn’t an option. In that case your best bet is to reduce your fixed monthly costs (overhead). Could you take a smaller salary? Could you make do with one fewer employee? What if you closed in the middle of the day, or didn’t open until early afternoon? Could you negotiate a lower rent, or change locations to one that has a lower rent? Would energy-efficient appliances help with the utilities bills? Could you forgo the data package on your smart phone? Are there any advertising methods that aren’t bringing in enough customers to justify the expense? What else can you do to lower your monthly bills?

Start-up Capital

The easiest way to reduce your start-up capital is to sort your list of requirements into two categories:
1) Things I must have to open the business, and
2) Things that would be nice, but could be purchased later as we grow.

It used to be that starting a business at all took hundreds of thousands of dollars, and so a few thousand dollars for leather office chairs, subscriptions to the Wall Street Journal, real linen table cloths, and so on… wasn’t that big a deal.

But today businesses can be started with less than $100, and easily less than $1000. So it’s more important to look down your list and figure out what the bare necessities are. Pulling things off the list and putting them in an appendix of “Things to buy as soon as possible” can reduce required start-up capital in a hurry.

If your pared-down list is still too big, you have two options: you can change the business model, or you can look into scary capital sources like bank loans or venture capitalists.

Some businesses are just inherently capital-intensive. Restaurants really do take that much money to start, and there’s no way around it. A retail store can be the same way. But closely-related businesses might be much cheaper: a catering business run from your home (with the plan to open a restaurant from the catering profits) or an online store (with plans to open a physical location ASAP) can be started with 1/10 the start-up costs.

Or you can take what you’ve got here, turn it into a full-blown business plan, and take it to the bank or to a venture capitalist. I can’t give you much advice on these, because I’ve never started a business for which they were necessary, but they can be a very effective way both to raise capital and to learn a lot about business.

Resources For Further Reading
Creating a Competitive Advantage
How to Raise Start-up Capital
LowCost Startup Ideas

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You Need a Business Plan — maybe

Filed Under: Getting Started, Marketing, Pricing, Product, Promotion, The Very Basics by apingel — View Comments
May 7, 2010

“Plan it today or later you’ll pay!”
“You need a business plan”
“Failing to plan is planning to fail”

….

Actually, you don’t need a business plan. “Need” means something that is necessary, and since businesses are started, run, and even grown every day, without business plans, it’s hard to argue that a business plan is a need.

But they can be very helpful. Of the 95% allegedly “failed” businesses that actually did fail, a significant portion of them could have been successful if they’d thought about and prepared for contingencies, which a business plan would have done.

But I don’t know how to write a business plan

This phrase I learned from my father, and you’re going to hear it a lot whenever you bring up something you don’t know how to do:

Whose problem is this?

A business plan is something to help you… it’s of no benefit to anyone else. So isn’t it worth the effort to figure out how to write a business plan? In fact, learning how to write a business plan is one of the items on the long list of things you get to learn while starting your first business.

Happily, even though this is your problem, I’m going to help you with a solution. I can’t promise that you’ll ever enjoy the process as much as I do (I’m an organization geek) but you can learn the process well enough to write one when you need it.

The following layout won’t make a business plan that you can take to the bank and use to get a loan. But it will ensure that you’ve given consideration to all of the big pitfalls and thought of ways around them. It will also give you something to look at a year from now so you can remember what the heck you were thinking.

Step 1: Questions

I don’t necessarily expect that you will know all of this off the top of your head. Some will require brainstorming; others will require Google. All I ask is that you have answers to these questions before you move on.

Click here to get these questions in PDF format so you can print them out and follow along at home.
Click here to get these questions in .doc format so you can follow along on your computer.

What will you need to start your business? A laptop? An oven? A car? A location with a counter? An app phone? A whole bunch of merchandise?

How much will that cost?

Can you afford to go a few months without income? If not, how are you going to get that income? Factor your salary into the loan? Keep your day job? Get a day job? Not start the business until you have enough savings to go a few months?

How much will it cost you to be open for a month, even if you don’t make a single sale? Factor in heating, lighting, employee salaries, your salary, rent, phone, internet, monthly payments on equipment, advertising expenditures, etc. This is called your overhead, or fixed costs.

How much will it cost you per transaction? Factor in the cost of what you sold (wholesale price or cost of components), employee bonuses, your bonuses, gasoline, milage, delivery costs, sales tax, etc. This is called your variable costs.

Is there a manufacturer’s suggested retail price? How much do your competitors charge for similar products? What’s the standard markup in this industry?

How will customers get to you, or you to them?

How will your customers find out about you? Advertisements? Signs on your store? By finding you on Google? Word of Mouth? Where will you advertise? Flyers? Classified ads? Twitter? Referral or affiliate programs? Telll-a-friend-get-a-bonus cards?

How many potential customers read the papers in which you plan to advertise, or walk by your store, or search for your keyword? How many people have the problem you solve? How many of them know they have that problem?

What hours will you work? Will those hours be convenient for your customers? Do you need employees to cover extra hours?

Step 2: Analysis

Now take all your answers; we’re going to go through them one by one.

Click here to get these questions in PDF format so you can print them off.
Click here to get these questions in .doc format.

Promotional Plan
How do you expect your customers to find you? List out all the ways you think you might get potential customers.
For each item on the list, write down the implications of it. If you expect a lot of people to find you through newspaper ads, which newspapers will you advertise in, and what will it cost? If you expect to get a lot of referrals, what can you do to encourage your customers to tell a friend? If you expect a lot of repeat business, what can you do to increase the odds of customers’ returning?

For each advertising method, how many people will have the potential to see your ad? (This is called your number of exposures). That is, how many people subscribe to this magazine/newsletter/newspaper. How many people search for these keywords? How many people drive by this billboard, or walk in this mall? To how many people will you send coupons in the mail?
Divide the above numbers by 100 — this assumes that 1% of the people who are exposed to your ad will actually act on it. (This will be low for some media but high for others. Feel free to change the number if you have good evidence that the conversion rate is not 1%. But 1% is a pretty reasonable average.
Add up all your divided-by-100 numbers; this is the number of customers you can expect to get from all your promotions.

Start-up Capital
List everything you can think of that you’ll need to start your business. Next to each one, write down how much it will cost.
Whatever your total cost comes out to, multiply it by 1.1 — this gives you a 10% “cushion” for things that you’ll need but didn’t think of.

If you’ll need to take salary out of your start-up capital (you’re going to be doing this full-time, and don’t have the savings to go without income), factor in at least 3 months’ worth of salary, and maybe 6-12 months’ worth.

Add all of that up, and it represents what you’ll need for start-up capital. You’ll need to get loans from the bank, loans from friends/family, your personal savings, angel investors, venture capitalists, or some other method to provide this much money.

Distribution
Will your customers come to you, or you to them? Either way, what will it cost you?

Pricing and break-even
If you charge somewhere in the same vicinity as your competitors, will you be able to make a profit? (is the price they charge higher than what it costs you to buy/make each product?) If not, can you lower costs? Can you think of a way to make your product so much better that consumers would pay more to have it?

Given all that, what will you charge, and why?

For each product you have, what is your gross profit?

    Gross profit = (price you’re charging) – (what it cost you to get it)

How many of those will you have to sell in a month to cover your fixed costs? This is your break-even point

    Break-even point = (Cost to stay open for a month) / (Gross profit)

Step 3: Feasibility

1) Does your pricing seem reasonable, based on MSRP, competitor’s pricing, and the standard industry markup? You can be higher than your competitors as long as you have some competitive advantage that will make the higher price worth it to your customers.. perhaps a more convenient location, better service, or higher-quality products. But you can’t be too much higher, or your customers will decide that organic notepads aren’t worth it.

2) Is the number of expected customers per month substantially higher than the break-even point? All of these numbers are estimates, and you want to leave room for the estimates to be wrong. If you’re guessing that you’ll have enough customers per month to break even, and not enough to make a profit, you’re running a risk that you won’t be able to pay the bills.

3) Can you obtain the required start-up capital?

If the answers to the above 3 questions are “yes”, then you are good to go. You can start this business knowing that it’s got a pretty good chance of success.

If the answer to one or more of the above questions is “no”, despair not. You still have a chance, you’ll just need to get more creative. Tomorrow we’ll discuss ways to tweak your business plan to let you turn a “no” into a “yes”.

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