Attention and interest on the web are critical metrics and are an essential component that should guide any online strategy. LinkedIn has done an excellent job in this area of indicating interest quantitatively. Let us look at a few examples:
Indicating interest in you/your profile by showing how many looked at your profile. Indicating interest in a job by showing how many people clicked on the Apply button. Indicating interest in your connections by showing how many changed jobs in a year.
There are some other examples in the online retail industry. For example, Rue La La indicates interest in their products (clothing, accessories, home goods, etc.) by letting us know how many Ralph Lauren sweaters are left to buy thus indicating how quickly a product is getting sold. We also measure interest (though not shown quantitatively) by grouping stuff under most popular, most commented and most shared on various blogs and news sites.
The theme of the third largest social network, Pinterest (Facebook and Twitter are the top two) is centered around interest. Interest is indicated quantitatively through likes, repins and comments. We need to have a measure of interest by consolidating our online behavior (sharing, commenting, viewing, etc.). Let me know if you have any ideas on how to measure interest.
Macroeconomics deals with the performance, structure, behavior, and decision-making of the whole economy. Macroeconomists study aggregated indicators such as GDP, unemployment rates, and price indices to understand how the whole economy functions. Macroeconomists develop models that explain the relationship between such factors as unemployment, inflation, investment, and international trade (Source: Wikipedia).
Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific time period, usually a year. It is a measure of how well an economy is doing. For every 2% increase in GDP unemployment reduces by 1% (Okun's Law).
GDP =consumer spending + investment ((spending on goods and services by businesses) + government spending (federal, state and local) + net exports (exports - imports)
GDP = C + G + I + NX
Consumer spending contributes 70% to a country's GDP, while investment contributes 20% and government spending contributes 5%.
Let's look at why the stimulus failed to create jobs. The stimulus (government spending) contributes to the economy at just 5%. Consumer spending which contributes to 70% of the GDP has not increased with time because average incomes have not increased in the last 10 years in the US. Consumers prefer buying cheaper options that are imported into the US which gives the profits to the country they get imported from. With so much money (government spending) out there interest rates drop thus other countries are less likely to invest in the US. Exports are cheaper and imports more expensive which is why net exports (exports-imports) is in the negative range. Industries are fearful of the recession and are holding on to their money until better times arrive (also as consumer spending has not increased so they fear no one will buy their products). Nothing is being done to fix the trade and budget deficits. In fact spending is increasing the budget deficit and to balance this current account we need to increase our capital account so we increasingly rely on imports which ultimately profits the country from where the imports came from.
Thus consumer spending is not increasing and investment may actually decrease while net exports are in the negative range so even though government spending has increased it hasn’t increased the GDP and thus the unemployment has not increased.
How do we improve the economy?
Reduce the trade and budget deficit by saving wherever possible. Provide incentives for industries to spend locally (as opposed to outsourcing) while keeping costs low. Increase consumer confidence.
On March 1st I went for a talk on Target Product Profiles at UCSF. Patrick Scannon, Xoma's Founder and CSO spoke on how drug discoveries can be made into commercial realities with the help of a Target Product Profile (TPP). A TPP is the first step towards creating a drug label. A TPP is defined as a communication tool to help people in academics (discoverers of drugs in labs) to communicate the value of a drug to investors (people with $ but not convinced). This takes the drug from discovery through development to approval/market entry. It also helps keep various departments/functions such as regulatory, manufacturing, sales, marketing, etc. on the same page.
As drug discovery takes many years to commercialize (about 12 yrs) it is important to have clear goals (TPP) and to start with the end (FDA approval) in mind and work backwards. The TPP defines who the drug is for, what disease it cures, how large is the market, how is it administered and more details as seen in the image. Defining the unknowns upfront helps communicate the goals better to the FDA (governing body that ultimately approves if a drug can be commercialized). The TPP helps in thinking of launch strategies too. For example, some drug companies first launch in an orphan market (diseases affecting fewer than 200,000 people) and then larger markets as its faster to get approval in orphan markets and grants are available to support you in this process. Some companies also choose to launch in international markets before local markets as approval is faster for certain diseases.
Often changes in the IP landscape or manufacturing processes or technical difficulties result in changes to the TPP and CEOs are forced to make a difficult decision to move ahead with the changes or drop the product. If the CEO agrees to go ahead she/he needs to update the TPP and keep all in the loop. The TPP can be used to increase the value of the company by finding ways to create additional IP, communicating improved benefits and decreased adverse events. CEOs can also use the TPP to forecast different scenarios of the drug. For example, a target scenario, a minimal scenario and an optimistic scenario where the CEO predicts the characteristic of the drug and thus his strategies under these three scenarios.
A key concept in marketing is identifying value of a company (value proposition) and communicating (positioning) it to target customers. To define these concepts we answer the 4 key questions below for IKEA.
What does IKEA do well? IKEA’s cost leadership and unique Swedish designs provide its target customers (young buyers) excellent value.
What are the trends in the industry? Americans love to keep furniture. Ikea tried to change these attitudes with an advertisement (lamp has no feelings). The trend is to update furniture based on lifestyle changes (single, married, student, starting a new family, etc). Providing interior design expertise is a critical part of this industry. Manufacturers and distributors are joining forces. Flexible furniture (example: bed plus sofa in one) and furniture that serves dual purposes add value (example: bed has storage too). Distinctions between rooms disappearing – kitchen and living room furniture (example: chairs) is interchangeable. Personalization of furniture is on the rise (color, upholstery, wood stains, etc) and so is experimentation with new materials (jute, etc).
What is the competition doing? The competition is using four (or a combination of these 4) strategies: cost leadership, design differentiation, catering to certain market segments (international, demographic segments-young and old, psychographic segments-improves self image, retail, office, etc) and enhancing the shopping experience (design consultants, in house restaurants, etc). Image on right shows cost leadership and design differentiation for a few competitors.
What does the customer want? Customers want great designs in unique styles to match their lifestyle for low prices. They would like an expert to do the interiors of their home for free. They don’t want to burden themselves with transporting furniture from store to home or having to assemble it. People are willing to spend more on furniture items such as a bed (indicated by the wide range in prices) or items that serve dual purposes (futon serves as a sofa plus a bed). It should be easy to maintain (odors, scratches, etc).
What is Ikea’s positioning strategy relative to its competitors?
Cost Leadership (30-50% lower than competitors): This global furniture retailer based in Sweden targets young furniture buyers who want style at low cost. Buyers trade off service for cost. Ikea designs its own low-cost modular ready-to-assemble furniture (big part of their cost leadership). Customers do their own pickup and delivery or get it delivered for a fee. Employees are trained to save electricity and managers always travel coach and take buses instead of taxis. Cost is so important that first a price point is established, and then the manufacturer, materials and design are chosen. Expensive wood is used only on top visible layers of the furniture. Suppliers are chosen from a pool of 1800 to maintain cost leadership.
Shopping Experience: Ikea owns the furniture buying experience. It displays every product it sells in room-like settings so customers don’t need a decorator to help them imagine how to put the pieces together. Ikea's in house Swedish restaurant is as popular as its furniture and provides respite to customers who walk through 25,000 sq m (average space of Ikea store). Customers move along a predetermined path through a maze of rooms. Ikea offers services aligned to its customers who are young but not wealthy, likely to have children but no nanny and because they work for a living and need to shop at odd hours they are open late and on weekends. They also offer furniture delivery services for a fee.
Swedish Designs (functional and simple): Ikea creates functional cookie-cutter Swedish designs (designs are part of their ‘matrix’). That one table only comes in 4 Scandinavian styles at 3 price points. Design is usually the last step (after choosing, the price point and manufacturer) in the process. Other than its staff of 10 designers it also depends on freelancers highlighting that design was to focus on simple yet functional styles.
Understanding consumer behavior, decision making and buying are critical aspects of any business. Consumer behavior models is just one of the many ways (real time observation and analyzing past data are some others) experts simplify this complex process. Let's look at two consumer behavior models: Hierarchy of Effects and Elaboration Likelihood Model.
Hierarchy of Effects: This suggests consumer buying behavior can be explained in phases. We need to influence and monitor these phases which range from first influencing the lower level objectives such as awareness and understanding of the product to higher level objectives such as associating feelings with the product to encouraging purchase and regular use. This can be represented by a pyramid with fewer consumers at the top than the bottom and each step has definite methods such as advertising or a sales promotion to encourage consumers to embrace the phase and move to the next in order to ultimately purchase the product. There are variations to this model as seen in the image below. Some examples: A fridge is utilitarian for most but Sub-Zero is hedonic. Toothpaste is mundane for most, but Tom’s could be considered utilitarian or self expressive. For some wealthy individuals, a Mercedes Benz may be mundane. A person could be a utilitarian when she starts to use the product and later be hedonic.
Elaboration Likelihood Model: Assumes consumers choose two routes before they decide which product to buy - the central or the peripheral route. The central route assumes customers are highly motivated, read a lot, weigh alternatives and make rational decisions. The peripheral route assumes buying is an emotional decision. Consumers can be persuaded through cognitive and emotional responses and not through rationale or heuristics. For example, using the cartoon character Snoopy in Metlife's advertisements. Consumers tend to choose one over the other based on the type of product (big purchases could be peripheral decisions such as a car) and type of personality.