The concept of transparency has grown into a mainstream instrument of business to create a more authentic connection with consumers. By now, people are accustomed to voting with their wallets and demanding more from brands, asking to look under the hood – can you be trusted, are you walking your talk? What makes your company, products and culture run? Increasingly though, this idea of transparency (letting people observe) is no longer enough. On the defensive, you share your culture and values outwardly. However this one-sided communication does not guarantee relevance. The most resilient brands have learned to play the offense by becoming ‘permeable’ (letting people participate). After all, if you’re not innovating with your future consumers, you’re not innovating for them.
Permeability creates opportunities for real world culture to inform company culture and output in real time. By actively engaging with relevant communities, you become complicit in creating culture. As part of the dialogue, you’re less reactive and more proactive. Brands and consumers engage in a shared journey, co-creating each others’ experiences. Why is this so important for the resiliency and success of your business?
Your brand becomes more in tune with shifts in culture as they occur, guaranteeing relevance.
Consumers have a more personal and customised experience, strengthening their bond with you.
Mitigate the risk of creating brand products or experiences that fall flat.
An extreme example of strong brand/culture permeability is Airbnb. Aside from the actual product being embedded in culture (staying in locals homes), Airbnb takes it further, by actively cultivating and inviting in local knowledge from hosts. Authentic culture automatically washes through a guest’s stay, seamlessly creating a meaningful travel experience unrivalled by any hotel chain. No insights need to be groomed, nothing artificial needs to be invented or created.
The early majority of legacy companies are now realising they too need to open up to the outside world to avoid being disrupted by utilising their own present and future consumer communities in co-creation. But they’re unsure how to access and harness the right external resources. Abundance can create inertia around options and choice of methodologies.
Beyond social media engagement, what is your company doing to open up and mobilise the creativity of the communities that surround your brand?
Just as marketers are trying to come to terms with big data, the world’s most sophisticated financial minds are finding creative ways to escape from it. At Sense Worldwide, we work with consumer giants like Nike, PepsiCo and Samsung, but we also work with private equity companies on the prowl for big takeover opportunities. I have news for the marketers out there: the bean counters are coming up with some of the most radical research briefs we’ve seen.
For example, one private equity company is buying daily satellite images of shopping mall car parks to predict footfall. They find it more accurate than any econometric model. Quite a few analysts pay people to count ships and trucks. There’s often little correlation between the reported amount of, say, ore reportedly coming out of a mine and the number trucks that pull up there. A certain hedge fund legend has an even simpler way of tracking data on a certain coffee chain. He noticed that their receipts have a universal sales number on them. Every day he buys a coffee and a muffin, then plugs his receipt number into a spreadsheet, and gets a pretty good estimate of sales volume. Marketers, if you want to save money on research, learn from a billionaire.
We recently worked on a large buyout where we used social media analysis to predict future growth for the target company, and checked their quant research using our network of 5000 influential creative thinkers around the world. The sentiment, and the thought leaders, both indicated that the brand was on the wane, even though it had reported record sales. Our private equity client factored in the marketing cost to buoy the brand back up, and passed on the sale.
Why have the spreadsheet jockeys looked up from their screens? Well, you may remember 2007, the year that the financial industry was almost destroyed by mathematical models. Nobel-prizewinning economists built valuation algorithms like Black-Scholes that few truly understood. But a few bankers were suspicious of them. When analysts pitched high-margin mortgage products to Handelsbanken, its CEO did a radical thing. He got on a plane and went to see the homes backed by the bonds. He concluded that they’d all been bought by speculators, and passed on the deal. Handelsbanken had a good financial crisis. Bear Stearns, who bet the farm on financial models, did less well.
Say what you like about bankers, they’re not stupid. They learned from their mistakes. While marketers still use qualitative research to inspire hypotheses which they take into quant, the financiers are doing the opposite. Yes, they still use surveys and algorithms. But if they can’t make sense of them in the outside world, they’re rejecting them and going with their gut. Maybe some of their methodologies will sound a little weird. But when the Masters of the Universe look at the brand valuation models touted by the likes of WPP and Interbrand, I promise you, they’re boggling at the idea that anybody would take that stuff seriously.
Western consumers have changed over the last five years. Once, the middle classes looked down on value brands as cheap and inferior. Now they’re driving to Lidl and Aldi, snapping up bargains and boasting about how much they saved at dinner parties. Value brands are cropping up all over the home, from the food and appliances in the kitchen to the TV and laptop in the living room.
There are several reasons for this. The first is necessity. Median household incomes in the US dropped by 9.8% in the downturn. In the UK over the same period, they fell by 3.8%. Countries like Spain and Ireland saw even more alarming declines. Still, people need microwaves, fridges and televisions. So many consumers lowered their expectations, and moved away from premium brands. In our research, we’ve discovered that they were pleasantly surprised by what they found. The value brands were actually pretty good.
This wasn’t always the case. Twenty years ago, shopping for appliances involved a tricky balancing act; the cheap stuff wouldn’t work as well, and it would break sooner. If you bought a Miele vacuum, it would cost twice as much but maybe work three times as long as a basic one. Now, that’s less likely to be the case. Thanks to better manufacturing techniques and industrial design, it’s quite hard to buy a rubbish product in the west. There are always exceptions, of course. Turkish manufacturer Beko had a disastrous launch in the UK after many of their fridges burst into flames. Even the poorest western consumers have certain minimum standards. It turns out that they don’t like it when you burn their house down.
Now when you pay for an expensive appliance, you’re not simply forking out for better build quality. Brands like SMEG and AGA justify their margins with distinctive design, and American manufacturers compete on features like fancy ice dispensers. High margin TVs must look ultra-cool on a wall and have add-ons like internet connectivity. Ultimately, some people will always pay for a luxury label on their appliances. Chinese manufacturers can leave that market alone for the moment, and go after the middle classes who want more bang, and not badge, for their buck.
Why bother going after this market with your own brand, when you can create OEM products without the headaches of marketing and distribution? In a word, margins. Even the most successful OEM companies in China eventually get pinched by the margins they can command. Western brands own the relationship with the consumer, and mark up the product accordingly. Look at Foxconn: it grew 51% in the first year it assembled iPads for Apple. In 2012 its revenue grew by 1%. Now it’s launching its own brands of accessories and mobile technologies in a bid to kick-start its growth.
The path from OEM manufacturer to low-end brand to high-end aspirational badge might seem like a daunting one. However there are plenty of companies who’ve made the journey, and have the revenue growth to show it’s worthwhile. A decade ago, Samsung and LG sat firmly in the ‘stack ‘em high and sell ‘em cheap’ end of the market. Through innovative technologies and great design, they elevated their status to become sought-after brands with enviable margins. ASUS and Acer used to make laptops for Sony, Hewlett Packard and the rest, and saw their own computers sell at a fraction of the price. Thanks to beautiful product design, they’ve started to compete with the big players. Personally, I’d rather have a lovely ASUS Zenwatch than an Apple Watch.
In the meantime, Sony, which once seemed unassailable, has been crushed as consumers realised that a great-looking, reliable television could cost only $600.
Finally, there’s the whole question of origin: are US and European consumers ready for a Chinese appliance brand? In my experience, it’s not a question at all. A quick poll of my office, staffed by a diverse selection of super-smart and widely-read consultants, showed that nobody knew where Electrolux, Beko and Maytag came from (Sweden, Turkey, USA), and only one person guessed Zanussi was from Italy. Miele, Bosch and Siemens play off their German origins, and its association with high quality engineering and efficiency. The rest seem to go out of their way to obscure their roots. For many years, Zanussi claimed its products came from a different planet in its UK advertising. If British consumers will happily buy appliances made in outer space, they’re ready for microwaves from Shenzhen.
Chinese brands invented the ‘good enough’ category for developing world consumers; it took a downturn for it to catch on in developed markets. Western brands aren’t going to stand still, though. They don’t want to become the next Sony, and many have developed competitive products for Asian markets – the Electrolux range hood for stir-frying is a great example. It won’t be long before they start taking these products back to penny-counting north american and european consumers. There’s an opening for companies like Haier, SVA and Haisense to get into this market now. It won’t be there forever.This article originally appeared in China Daily
We were lucky enough to be featured in the Financial Times in a piece about extreme consumers. Here’s the full article by Alicia Clegg.
Micah Melton has strong opinions about ice. The water to make it must be double boiled; small dense cubes are best for shaking cocktails; a 9-inch shard of ice chills a gin and tonic to perfection and imparts just the right dilution.
As chef de cuisine at The Aviary, a Chicago cocktails bar, Mr Melton recently allowed a team of innovation consultants to a US home appliances maker to peek inside the drink kitchen over which he presides. They watch ed him prepare drinks as he would for friends and listened as he railed against domestic freezers that churn out “terrible” uniform little cubes.
Welcome to the world of extreme consumers – the mavericks, outliers and downright obsessives that may shine a new light on how a product should be developed.
Sense Worldwide, the London-based innovation consultancy that interviewed Mr Melton for the domestic appliances maker, is among a growing number of consultancies and design teams that draft in “extreme consumers”. While common sense suggests mainstream brands should talk to ordinary people, some product researchers argue that consumers whose expectations go far beyond those of average users can offer richer in sights because they are the ones for whom the performance matters most. “If you ask people what they want, often they will look at you a bit blankly, because most of us are instinctively quite conservative [and inclined to like what we know],” says Brian Millar, director of strategy at Sense Worldwide.
Eric von Hippel, a professor of technological innovation at the MIT Sloan School of Management, recommends seeking out those whose enthusiasm for, or frustration with, existing products is greatest. Not only might their take on improvements be better articulated, but they may have improvised a solution. “You are going out and finding people who have developed a product for their own use and shown that it works,” Prof von Hippel says.
When helping a client develop a toilet brush, Sense Worldwide observed consumers with an obsessive compulsion for cleaning their lavatories hygienically. Many wrapped the bristles in toilet paper to minimise contamination, giving Sense Worldwide the idea of flush-away biodegradable covers for the brush-heads. “Because [the participants] were so interested in the minutiae of cleaning, they were willing to go into details that most people would rather not think about,” Mr Millar says.
Other mavericks Sense Worldwide has pressed into the service of innovation include ex-convicts for an information technology usability project − while behind bars they had missed out on the smartphone and so viewed it with fresh eyes − and dominatrices who shared tips with a foot care brand on how to avoid blisters: “We needed people who wear uncomfortable shoes,” Mr Millar explains.
The range of businesses hoping to learn from users that go to extremes is widening. Sports and fashion brands led the way, but more recent converts include insurers and banks. For a project on service checkouts, Commonwealth Bank of Australia and Ideo, an innovation and design consultancy, went to the fringes of retailing to talk to a pop-up strawberry-picking farmshop as well as high street stores.
Observing retailers in various sectors struggling to accommodate the many ways that consumers want to pay led the bank to develop what it hopes will be a more flexible payment method. By downloading apps to handheld devices, now in the final stages of testing, staff will be able to split bills for groups, record cash transactions and open tabs for regulars. “Talking to extremes helped us understand the full gamut of needs . . . we realised our mindset would not necessarily lead us to the right answer,” says Andrew Cheesman, who heads the Commonwealth Bank division that provides payment technologies for business customers.
Not everyone is an enthusiast for extreme research. John Curran, founder of JC Innovation & Strategy, argues that most innovations, whether hatch ed in laboratories or gar ages, emerge through tinkering. “Eureka” discoveries are possible – businesses developed skateboards after spotting teenagers who improvised their own – but un likely: “Most innovation is incremental and the research that feeds it is wide-ranging.”
Certainly, extreme uses may turn out to be mere foibles. To improve the odds of spotting trends with broad appeal, Sue Siddall, a partner at IDEO, likes to work simultaneously with opposite extremes. IDEO took this approach with Galenicum, a Spanish pharmaceutical business that hopes to use “human centric” design to give excess-cholesterol sufferers a reason to prefer its drugs over rivals. Joaquim Domingo, a partner at Galenicum, learnt from views contributed by an illiterate farmworker, a college educated 25-year-old and a pensioner with multiple diseases (who invented his own method for avoiding medication mix-ups). “With normal consumers you get [ideas] that everyone gets; with extremes you get many crazy ideas, a few of which might [lead somewhere].”
With the coming together of trends such as tech enthusiasts rediscovering DIY through the “maker movement” and open-source technologies, extreme research is entering a new phase. At Ford, K Venkatesh Prasad, who oversees its open innovation strategy, is running an initiative, OpenXC, that encourages car enthusiasts to build motoring apps by giving them access to data from car sensors. The inventors are not obliged to consult Ford about their ideas − which range from a collaborative weather-warning scheme to apps that help use less fuel − but some choose to. Until now, Mr Prasad says, car hobbyists met at weekends. Thanks to virtual communities, “the weekend can now be every day”.
But will commercial-scale innovations result? Prof von Hippel argues that extreme consumers – from creators of white-knuckle sports to surgeons who invent better instruments − are al ready significant innovators. But businesses “need to learn better behaviour”. Extreme users invent mainly to satisfy their own needs, with commercialisation as an afterthought, he says. Yet would-be collaborators with citizen innovators often “don’t ac knowledge their contribution, which makes [them] justifiably annoyed”.
Mr Melton, for his part, merely hopes the ideas he donated will give rise to better ice-making gadgetry for the home. “The sooner it happens the better,” he says.