Tuesday, July 14, 2009


Going through some reading this morning, I came across a story, on the blog of business nerd Jeff Gardner, that I heard long time ago while I was studying branding and its fundamentals; perceived value. This story as simple as it is, is probably to branding what "Who Moved My Cheese?" is to adapting to change.

I once heard about a wedding photographer (who charged average prices) that wanted to work less. So, she figured that if she just began raising her prices there would simply be less interest from clients. First she bumped up to $3,000 a weekend, then $4,000, then $5,000. To her astonishment, she actually began receiving more requests from clients. The clients figured that if she was charging such a high sum, she must be really good. Truth being told, she hadn’t gotten any better, she’d always been a good photographer – but the higher price led her potential clients to believe this and, in the end, they were never disappointed. Finally this photographer raised her prices to $20,000 per weekend, essentially pricing herself above what almost anyone could afford. Her potential clients then began offering to fly her to remote locations around the world just for the chance to have her shoot their exotic weddings.

I think you get my point. The old economic adage that higher price correlates to lower demand doesn’t always hold true, and this is especially true of luxury goods. Design is a premium service. A luxury good. It is certainly not necessary to run a business (just take a look at all the used car dealers of the world for confirmation), but results in a definite advantage to the businesses who value good design. Don’t be surprised to find that design and the pricing of design follows a slightly paradoxical pricing relationship.

This little story also illustrates how important market positioning is to luxury goods. Positioning, positioning, positioning, positioning, positioning, and positioning... In a recession, work on attracting quality clients. Life will be much more enjoyable. Get the idea?

The Fight of the Decade

This morning, I can’t keep myself from smiling and finally give an honest two thumbs up to GM as they finally had the courage to look at their issue from a global stand point, and finally reposition of their brands.

They have a lot on their plate, as this is probably their most ambitious enterprise in years. However, as Larry Light, author of "Six Rules for Brand Revitalization" and global CMO of McDonald's from 2002 to 2005 said: "McDonald's Did It, and You Can Too".

This morning in an article published in Advertising Age, General Motors Vice Chairman Bob Lutz says that: “…one of the first things he plans to do as the new head of marketing is make "drastic" changes in the "tone and content" of all of GM's advertising” (I just hope they will not lose sight of the need for change for the car itself to stick with their new tagline “The Rebirth of the American Car”).

See, beyond perception there’s the product itself. As Columnist Collis Ta'eed writes on his blog, “Changing features on a product is the most obvious way to take on a competitor. And out of all the features that businesses try to use as a hook, price is probably the most common. What is important to remember though is that you need a substantial difference in features for this to work. If you say take 10% off the price, add one or two “oh that’s neat” features, chances are your product won’t be different enough to really win away many users.

A while back I was surveying project management web apps for a blog post. The first couple I looked at stuck in my head, but by the time I’d gotten to about 10, they’d all kinda blurred into one. Sure some of them were cheaper, some had an extra feature or two, but really the only ones that I’d remember were the first couple. Now a small change in features or price may win some users, and you can even build a healthy business out of it.

But you will never be able to really challenge the competition with a 10% upgrade.

If you want to go this route, you need to turn things on their head. If price is the feature, then it needs to be like 90% cheaper. If it’s a feature it has to be a feature that makes people go “wow this changes everything”. These sorts of game busting differences effectively create new markets, ones which can then be dominated.

A great example of a company that turned pricing on its head is iStockPhoto. Before they came along, traditional stock houses would charge hundreds of dollars per photo. iStock initially charged just 50 cents. Sure the product was the same - a photo is a photo (and believe me the quality sometimes is pretty indistinguishable between cheap and expensive stock) - but with that price difference they’d created an entirely new market. iStock went on to dominate so well that their original behemoth competitor Getty not only acquired them, but then made iStock a large part of the core strategy of the company.

Two examples of companies that have delivered huge non-pricing feature changes spring to mind, Dell and Amazon. In the first case, Dell introduced the ‘configure to order’ model of PC manufacturing, which along with its innovations in delivery changed a lot about how people bought PCs. In the latter case, Amazon took bookselling online effectively using online ordering and delivery as a massive feature change to a traditional business.

Of course a dramatic feature change doesn’t need to be quite as industry changing as these examples to be an effective strategy, but they do illustrate how the bigger the change, the better the play. It’s hard to imagine any other way unknown companies could have broken into the top echelons of industries like personal computers and book sales!”

In this morning’s article, “Mr. Lutz says his first priority will be to create the public relations and advertising messages that will "not only break through but actually leave consumers with an enhanced view of each of our brands."

"Easier said than done," he said, "but we must do it."

Mr. Lutz claims that can happen as GM works to increasingly differentiate its vehicles through improved design.

For example, he said, the new Chevrolet Equinox small SUV and the soon-to-be launched GMC Terrain small SUV "don't even look like they were made by the same manufacturer."

Lutz gave some other indications as to how he thinks GM can better define its brands.

"The new Buick design direction, coupled with a soft and luxurious driving experience, is radically different from the more angular and sporty Cadillac design direction," Mr. Lutz wrote.

"Marketing also needs to respect brand differences in how we advertise the various brands and to whom."

With that in mind, Mr. Lutz said, he intends to have Cadillac rival German luxury and performance brands such as BMW, while Buick's task is to take on Lexus.”

I give a round an honest round of applaud to the initiative am still concerned about the quality of the product itself and its ability to compete with the other guys on that angle. He sounds exactly like a hard core disciple of Thomas Watson of IBM who famously said, "Good design is good business." This isn’t a bad thing but we’ll see if design only will be sufficient to give BMW a run for their money. Nevertheless, it will be an interesting battle of creativity to reestablish GM’s rights to hang out with the rich royal families of Europe. I remember Mr. Ta'eed referring to a book called The 22 Immutable Laws of Branding, “…in which the authors discuss what they call the Law of Duality. The idea is that in the long run every market becomes a two horse race. So think Coca Cola and Pepsi, McDonalds and Burger King, Crest and Colgate. The authors state that there is only really room for two brands in a consumers head - the leader and the other guy.

This idea implies that one way to take on an established competitor is to be … the other guy!” Let’s see how GM will set themselves up as the yin to their yang.

At the end of the day, it’s all about differentiation again, and I am eager to see the fight. For me, it will be as exciting as the Stanley Cup finals.