Archives for February 2010

On October 23rd last year, I wrote a piece on this site called “The great ADP lie and other brand illusions” where I talked about companies that outright lie to their customers and get away with it.

As the head of Toyota talked with Congress yesterday, he said that the things that caused the issues that have led to the recall of over eight million vehicles were basically the result of their push to unseat GM as the world’s leading car maker (which they did).  Their principle of relentless pursuit of the highest quality product, the core of their brand promise,  took a back seat, if you will, to their growth goal.  It was the first time in their 52 year history that they had a recall compared with over 100 recalls just last year among the major US auto makers, by the way.  This shouldn’t be such a big deal.

I don’t have any proof of this, but I think that explanation is hogwash, and I think they know it’s hogwash, but I think they felt they this was the best spin to put on this story to minimize brand damage.  Part of their problem is that they aren’t 100% sure the fixes they have come up with will solve the problems that have led to the recalls.

Why aren’t they sure? Well, depending on who you listen to, these problems aren’t really problems – they are partly operator error and partly a misunderstanding of the product.  It’s unsurprising that the US press is all over this – it’s a huge boost for the US automakers to paint Toyota in a bad light, and that’s just the way it is.  And if a problem isn’t really a problem, then you can’t be 100% confident of your fix, right?  But you can’t really come out and blame your customer, so you are stuck.

If you listen to another crowd and there really are issues, then it still wasn’t the result of the entire company relaxing their quality standards in pursuit of GM, it was one or two, or a handful of people that did a poor job of engineering, and testing the parts in question.  Individuals with names, not the entire corporate entity, as Toyota seems to be trying to make us think.  It almost has the same ring as the Tiger Woods apology last week – when he said, look, I am not perfect, I made mistakes, and I am taking actions to fix them.

In a very different way, Toyota had that same perfect image that Tiger had.

People bought, and liked, the narrative when Tiger delivered it, so why not reuse it to paint Toyota in a better light.  It leaves the door open for (more) Toyota errors, but it has the promise that they are working to prevent them in the future – it would be silly for Toyota to say it’s never going to happen again.

The point is that when companies deliver a message to their customers, facts may or may not play into the message – and assigning blame will rarely happen because that implies the problem will never happen again.  It’s not a matter of lying to the customer, it’s saying things that will minimize the damage, but also maintain (or try to regain) their trust that you will do what you can to avoid it in the future.

-Ric

It doesn’t happen very often, but sometimes I hear about a new company and slap my forehead wondering why I didn’t think of it first.  Netflix was a little bit like that, but I heard about alice.com today and that one in particular bugs me because I have been writing about the basic idea behind Alice for nearly three years, I just hadn’t thought to turn it into an actual Web storefront.

So what is Alice and why is it such an a great idea?  Well, Alice (named for the Brady Bunch character – good move), is a site that sells consumer goods over the internet.  Things like soap, toilet paper, laundry detergent, and so on.  The clever part about their model is that they don’t make any money selling the products that they offer.  They make their money selling advertising on the site, and selling purchase data back to the manufacturers (which the manufacturers have wanted, but lacked forever – Louise Story wrote a fantastic article on this subject here).  Data is king in the world of sales, and Alice is positioning itself to be the impartial third party that sits between the customer and the manufacturer.  As long as Alice doesn’t compromise the identities of their customers, I don’t see how they can lose.  Customers value price and manufacturers value richer customer data (what they buy and what causes them to buy), and everyone wins.

This model is in some respects like Costco in the sense that they also don’t try to make any money selling the products in their stores.  It’s no secret that Costco’s profits come from their membership dues and that model has served them (and their shareholders) very well for a long, long time.  Counter intuitive, but brilliant in retrospect.

I love the spin that Alice is putting on this, and with such a great name, the only way they can fail is in execution, and with two seasoned leaders, that seems pretty unlikely.

This is the kind of rethinking other organizations need to be doing right now. Instead of just optimizing business models that are based on the old fashioned brick and mortar models (like narrow margins on markup), there are so many opportunities to solve age old problems (like manufacturers not getting good data on who is buying their products – and what advertising actually causes customers to buy their products).  People need to figure them out like Alice.

I am half tempted to start a site that sells meat at cost and call it Sam (after Alice’s boyfriend, the butcher), but meat’s a very different animal, if you will.

-Ric

Charles Darwin never said “survival of the fittest” though many people wrongly attribute that notion to him.  Instead, Darwin said “it is not the strongest of the species that survive, or the most intelligent, but the ones most responsive to change.”  It’s being able to adapt in the face of changing conditions that sets the course for longevity and survival.

While it’s no surprise that this is also true in business, it isn’t very often that you get a sort of sea change event that will dramatically ripple through many industries.  A super mutation, if you will.

A super mutation has happened, and while it isn’t going to kill organizations or industries overnight, several of both are already suffering and failing to adapt.

The super mutation is very well described, oddly fittingly, by a rock star in a really well written piece in The New York Times.  The piece called WhoseTube? by Damian Kulash Jr. of the band OK Go.  I will admit I didn’t recognize the name of this band until Mr. Kulash mentioned the hugely famous YouTube video his band posted that shows the band members doing some really creative things on a series of treadmills.  The video literally cost them nothing to make, they filmed it at his sister’s house (though he didn’t mention why she has six treadmills in her house) but nearly 50 million people have watched it and it was hugely helpful in making the song and the band a global phenomenon.

So what does that have to do with a Darwinian super mutation?  I am getting there.  Even though the record producer EMI made a mountain of money as a result of the spike in the popularity the band caused by the YouTube video, they won’t allow anything like it to happen again.  EMI feels like they should have gotten money from all of the people who watched the video and heard the song.  They won’t let people embed the video link on other sites and they want to charge $.004 per view.  EMI is trying to charge for something that is free advertising which is the best way to sell more music.  That is at the heart of this super mutation – knowing what to charge for and what not to charge for, and what the right amount to charge is.

Kulash also does a very good job of explaining that record companies used to act more like venture capitalists (what he calls “risk aggregators”) where they would invest in lots and lots of bands, knowing only a tiny number would be huge hits, but they would keep most of the profits and that model worked for them.  Now record labels (probably in part due to shows like American Idol) sign mostly just the sure bets making it less likely that the OK Gos of the future will be able to sign on with a major recording studio for their first record.

The super mutation is that 20th century notions of licensing and royalties are dead.  Napster was the first shockwave where we learned that people want songs one at a time, and many people don’t think they should have to pay for it (the notion of property and intellectual property, especially when it costs little or nothing to duplicate, has changed).  The same happened with TV on YouTube when stations wouldn’t allow clips (or all) of their shows to be posted.

The first part of the super mutation is the fragmentation of the product.  Not so different from the introduction of pizza by the slice (which was initially laughed at), people don’t want to buy an entire album or watch an entire show, or pay for all of a software product.  While that is huge by itself, this radical shift in the idea of property is even bigger.  Last year the very popular band Radiohead did something groundbreaking that is probably one of the smartest adaptations to this super mutation – they posted a new album and asked people to pay what they thought it was worth.  This huge experiment was a gigantic success and I think it will set the pace for further adaptations.

But that brings up the other half of this super mutation, which is the marketing side.  Viral marketing and messaging isn’t new, but the mechanisms and media by which something can got viral (Facebook, YouTube, Twitter, blogs, etc.) have become the most powerful marketing tool imaginable.

The software world is probably the industry that is, thus far, doing the best job of adapting to this super mutation, through software rental, software-as-a-service (SaaS), and now Cloud computing (which is more than just the internet), and when you think of a huge company like Microsoft shifting from a model where people to buy their software to a model where customers pay for it in different ways, that’s a gigantic shift in everything from revenues, to sales commission structures, to marketing and beyond.

Licensing, pricing, marketing, and property models are changing very rapidly.  Everyone from the entertainment industry to Microsoft needs to start getting a handle on this change, and ask who their customers are (20-somethings have very different notions already compared to the 50-somethings, and so you need to know who you are dealing with) and plot a very different course.  Plotting a different course is harder than ever because you are trying to define where you will end up in such a volatile time – but it must be done, otherwise in the immortal words of Yogi Berra “if you don’t know where you are going, you might end up someplace else.”

So break out the big rethinking guns and plot your course.

OK? Go.

-Ric

P.S. Speaking of Darwin and change, I couldn’t help but wonder this weekend when I read a piece about dolphins being able to cure themselves of diabetes, if through all of the drugs and medical care we get, if that’s starting to teach our bodies to be less adaptive to change.  If the medicine solves the problem, we don’t have to do anything to deal with it.  Is that possible?  I would be interested to hear your thoughts.

As the Toyota mess continues to snowball, it’s clear at least a few people got sloppy there and that has led to the recall of nearly ten million vehicles.  On the other side of the globe, internet powerhouse Google also got called out for making a big mistake with the launch of its new social networking site Buzz, as an explicit effort to compete with Twitter and Facebook.  But Google’s mistake was very different.

With Twitter and Facebook, people have to explicitly reach out to “follow” or “friend” a person in Twitter and Facebook, respectively.  And with varying degrees, once you are a friend or a follower on those sites, you can see who else has been “approved” by the user as a friend or a follower.  Google decided to skip that step for Buzz users, in part because they “could” in the sense that Buzz is connected to a person’s G-mail account and the G-mail account has the names and e-mail addresses of all of the people you contact on G-mail.   So G-mail decided that for everyone who opted into Buzz, they would automatically connect users in the friend/follow sense with their most frequently contacted G-mail contacts.  In a certain sense they did it because they could, the technology was there.  It harkens back to the old British explorer George Mallory  who was one of the first people to try to climb Mount Everest, and when asked why he was doing it, he replied “because it’s there.”

This happens to be a vivid example of a spectacularly bad decision to use technology “because it’s there.”

In Rethink I talk at length about the importance of being in touch with what your customer values, and what they don’t value, and in 2010,  irrespective of customer segment by age, socioeconomic grouping, height, hair color, you name it – privacy is one of the top two or three things you cannot mess with.  Somehow Google overlooked this one and apparently inferred that users would like this feature, but the gigantic uproar last week proved otherwise.

They seem to think that now that they have fixed this problem, they are asking the tens of millions of people who opted in to the Buzz service to opt in again.  I did last week, but I am not going back anytime soon.  It will be a case study for the ages watching whether the Google brand is going to trump the mistake, or if the mistake will be like Odwalla’s E. coli mess in the mid-90s where they lost the trust of their customer and it took more than a decade to rebuild that trust.

I am going to tweet this post now . . .

-Ric

P.S. I do have to wonder if George Mallory’s nickname was G-mall.

If you look back at the big recalls of the past 20+ years, most of us remember them, and not just in the automotive industry:

Audi had their acceleration issue made famous in a 60 Minutes program which turned out not to be Audi’s fault, and it took them nearly 20 years to recover in the US

Odwalla, the juice maker, had e coli in their juices and very nearly went out of business because of it.  I still won’t buy it.

Suzuki’s Samurai tipped over.

But Jack in the Box had e coli and they were fine in the long run.  Ford’s Pinto’s blew up and Ford was fine.

So what will happen to Toyota as they recall millions of vehicles because of a problem with the gas pedal sticking?  Toyota’s brand is built on the reputation of super high quality.  Quality is their culture and their brand.  Certainly this recall pierces through that image of perfection, and certainly we will all remember it for a long, long time.

But I wonder if it will have any meaningful impact on sales.  When their competition is really Ford and GM, in the quality race those companies are farther behind Toyota than I would be in a 100 yard dash with Usain Bolt.

In fairness, the US car companies never really tried to build their brands on quality, they built them on warranties.  When the ads talk about ten year bumper-to-bumper warranties, I hear “sure it’s going to break down a lot, but we will fix it for free” and that message has worked for a long time.

My point is, the Toyota value proposition is different from all the rest, and one mistake on one part is going to tarnish, but not blow up the Toyota brand and I doubt very much there will be any shift in customer loyalty.   I am also confident that Toyota will punish themselves for this more than any public humiliation they face, so my guess is that Toyota will be higher quality than ever as a result of this.

No major rethinking needed at Toyota on this one.

-Ric

The way I see this, it’s a little bit like peanut butter and chocolate, two great tastes you might not expect to go well together.  People are talking about the possible acquisition of video company Netflix by Amazon, and they are speculating that it has to do with movies and streaming media. Maybe, but I don’t think that’s why this acquisition would be so powerful, and I am frankly surprised I haven’t heard more people talking about this.

Here’s why.

One of the biggest mistakes I think Amazon has been making all along is ignoring the buying history of customers.  They never recommend anything to me based on my buying history.  They tell me what other people have bought when I buy a certain book or a tent or a squash racket, but they don’t seem to really pay attention to what I buy and what I like. And I buy a LOT on Amazon.  They are crazy to have ignored this for so long.

By contrast, Netflix has the most incredible recommendation process ever.   While I do have to make the effort to rate movies I have watched (irrespective of whether I watched them through Netflix) based on what I have liked and what I haven’t liked, they have the ability to say, for example, that for a movie like Pulp Fiction, while the average viewer gave it three and a half stars out of five, based on my history and preferences, they think I would like it much more, on the order of four and a half stars.  What’s amazing to me is that they are always right, and I have really unusual taste in movies.

Back to peanut butter and chocolate – if Amazon could use the Netflix recommendation engine to do a better job of tracking my purchases and preferences and recommending everything from books to movies to music to running shoes, it would  be amazing.

Is it worth it?  Well as of today, Netflix is worth about $3.22 billion, according to Wall Street, and Amazon is about 16 times bigger at $52 billion and to have this incredible way to connect with customers and help them find what they will really like even before they know about it, that would be a huge, much needed, boost for Amazon.  The lift in revenue would be significant – just ask anyone in retail about how much upselling is done at the point of purchase.

Overdue rethinking at Amazon, but a great match.  I really hope it happens.

-Ric

P.S.  It makes for an interesting side note if Amazon does buy them, that probably puts founder and CEO Reed Hastings on the board, and he’s already on the board of Microsoft.  Would he stay on the board of Microsoft?