Which products should you push first?

Walking past my local grocery store today I noticed a sign that that said “Ice cream. On sale.” Now for those of you from the warmer parts of the world let me underline the fact that I am from Norway and in Norway only a very special segment of the populations yearns for ice cream in December. It came to my mind that this grocery store probably had left over ice cream from the recently concluded ice cream season, which they were afraid would go bad if they didn’t sell it soon.  But was this really a good idea?

It occurred to me that if they advertised packets of instant hot chocolate instead they would sell much more extra units than if they sold boxes of ice cream. So I thought to myself, let’s assume that a packet of instant hot chocolate cost about the same and have approximately the same margins as ice cream, should they advertise for ice cream or hot chocolate? It is important to underline that if they sell one extra hot chocolate they would have to buy an extra one from the grocer while in the case of the ice cream they would have to throw away that which is not sold. Given that the price and margins for both goods are, well let’s say $5 and 20 %, we can see that only if the sign sells five times as many boxes of hot chocolate than ice cream the store should focus on selling hot chocolate. Let me explain that again.

Since the alternative to selling the ice cream is to throw them away, both the 20 % margin and the already spent 80 % purchase price counts as profit for the ice cream. If the store can sell 1 additional box of ice cream it makes $5, since the alternative is to throw away the box. If the store sells one additional carton of instant hot chocolate it only makes $1, because the alternative was to order less hot chocolate next week, and thus avoiding the $4 expense it would mean to buy an extra unit. Because of this the store should keep selling the ice cream if it is more than 20 % as effective as advertising for the instant hot chocolate. Also you shouldn’t throw food away.

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Google vs. Newspapers: Why Murdoch is right and why he will fail

Murdoch is right. By taking stories of Google, his customers will have to come to his site to read the news there. It has worked for Schibsted in Norway, but then again, they have a virtual monopoly on country wide news (at least a very high share). If more newspapers follow Murdoch, it will work for them to, but it is unlikely that it will work if only News Corp. Newspapers follow this practice. This may be viewed as a prisoner’s dilemma game. If no newspapers choose to have their news on Google, then the entire newspaper sector will benefit, because consumers will be forced to go directly to the sites they wish to read news from, and thus watch the ads, or pay for the content. However, in such a scenario each individual newspaper will benefit relative to the others should they choose to index their sites, because they might up their share of readers. Therefore it is likely that Murdoch will be alone outside of Google Search and Google News, and loose readers due to it.

If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.

How to decide the size of your marketing budget? or Viewing marketing as an investment instead of cost let you make a better decision

I, and I suppose most of us, have often heard people asking questions along the line of “What is a reasonable marketing cost as a percentage of revenue?”, which is an interesting angle to determining marketing spending. I would argue that if marketing only represents a cost for you then you might as well cut it out. The purpose of marketing, as I am sure most people would agree, is to make more money. Thus, marketing should be viewed as an investment. Marketing as an investment is difficult to understand, partly because the long term effects are hard to measure.

I would pose that if you knew exactly how much you would have to spend in marketing to get one extra sale then you would be able to determine your marketing budget quite easily and logically. This however, to the dismay of many marketers, is a difficult and often impossible task. But if we stick to the economic assumption that the first marketing activity you buy is the one that gets you the highest yield/cost ratio, and when that resource is exhausted you move to the next best, then the marginal returns of marketing does decline. In this case the marginal ROI (the derivative of ROI)  will eventually reach a point in which adding extra money to marketing, is equal to adding that extra money to the second best investment (let’s say new production facilities, or a better webpage or whatever). Identifying this point is of course impossible for most businesses.

One way to approach logical thinking is to ask, if I add x money to the budget, how many more customers will that buy me? And if so, what happens if I add 2x, and so forth. Correspondingly, you should ask, if I don’t add x, what else could I use that money on, and how would that effect the value of my business? What if I remove x? The problem with this approach is that it may to some extent be based on a gut feeling rather than on actual performance metrics, in a scientific sense, but still this may be a better way to think about marketing. I would also like to note that the practice of assigning a given percentage of revenue, or budget or whatever to marketing is one that is widely criticized, because it does not look at what your business actually needs. The main lesson here is to think “what does that next dollar buy me?” and “what else could I have bought for that dollar?”.

Fu the FAQ - or do it right!

If you own a website, my challenge to you is that if you ever create an faq, don’t guess what people would ask. That’s just stupid. Wait until you actually get questions! I’m so incredibly tired of clicking the faq link and getting to a site where the first 50 questions was probably never asked. Your faq is a place to go to get answers, not another advertising channel. If your most frequently asked question is “Why is *** better then everyone else?”, then something is wrong, ok! No one has ever clicked a faq link to get that answer. You see Microsoft does this right. On the IE8 faq the most asked question is “How do I uninstall IE8?” isn’t that just honest?

Change happens when change is due

In April 3, 1984 the Norwegian police raid a man’s home in Gjøvik, near Oslo. The reason is that the man has admitted openly to watching foreign television channels through his satellite dish. In the years that followed a number of laws were lifted due to the realization that it was impossible to isolate Norway from the rest of the world.

In 2001 a program called Napster changed the way we consume music, In a major lawsuit effort, the record companies was able to take down Napster, but the damage had already been done. Hundreds of sharing applications was introduced, technologies that was supposed to make it difficult to track and get the file sharers. In our time the main target of the copyright industry has been the thepiratebay.org, and maybe they have succeeded, but it seems each time they cut of the head of this “monster” that is copyright infringement, two new grow out.

The Napster incident was nevertheless not the first move from the copyright industry to take down technology. In 1976, following Sony’s invention of the Betamax (later overtaken by VCR), there was an upheaval in Disney and Universal Studios that led to a lawsuit to shut down the technology. The argument was that this new technology could be used to copy movies and store them for later use, and this would surely be the end of the movie industry. Bear in mind that back then the major income sources of these companies was from theatres and from television, you couldn’t simply buy the movies. The US Supreme Court found that the technology could not be banned, because it could also have legal uses, and that copying a film to watch it later was “fair use”. Today this seems obvious, but the Supreme Court judges disagreed on the matter, and it was only by one vote that the lawsuit was rejected (the majority changed from 6-3 for the act to 5-4 against in the last minute). Today the largest single source of income from the movie industry is sales of video for home use (through DVD/Blue-ray), something that the movie industry couldn’t possibly have predicted.

In the cases listed above, new technology is viewed by the existing power structure as a source of social change, something that can make the old actors irrelevant. In all of the cases progress occurs without the support of those in power, but by the power of the people. Technological change is a wave moving across society, it has force, and powerful change cannot be stopped. Technological change will happen when the time is right. Instead of fighting change, business should embrace it, and try to think how they can be their best in the new environment. How do change in technology, in society, in consumers represent opportunities for your company?

Storytelling continued

Carmen Agra Deedy is a brilliant storyteller and a children’s books author. Originally from Cuba, she moved to the United States when she was a child. Recently I came across a video of her telling a story at TED, and because my last post was long and tenuous, without any video it seems fitting to add another post with this incredible storyteller. Watch the video, and think about what tools she uses to get you excited about the next part. Where do you get physical reactions? What emotions flutter through you? Do you like her as a person? Why / why not? These are the answers that any good storytellers need to understand.


Talk by: Carmen Agra Deedy tells a story. Settle in and enjoy the ride -- Mama's driving!

Story-telling as a way to convey meaning

Visions, or mantras or values have no meaning to people. Ask a random person what their company’s vision is and most people are blank. Visions, in my view, are usually the product of forced group efforts in companies that do team building activities once every two years. A company’s vision (or mantra or values) should justify its existence. How does your company make a difference in people’s lives? How is it meaningful?

Meaning exists between humans. Only when a business has a reason for existence does it have potential for meaning. Let me give an example: to me it seems Universal Records have no purpose; they don’t add value to society, and because of this I don’t care about them, they have no meaning to me. Thus, i don't care to buy their products. But how do companies, brands, organizations or products become important to us?

Let me tell you a story. There once was an African American boy. At the age of two this boy’s father dies, and the boy is left with only his mother to take care of him. His mother moves away to remarry, so his grandmother raises him, spending her every moment with the boy. At an early age, this boy earns a scholarship that will change his life; he gets in to a expensive private school. His hard work and the help from his grandmother lead him to Columbia University and later Harvard Law. The boy later becomes the first African American President of the United States. When this man said he had come a long way to change America, people believed him. This is really an epic story about a boy, victim to society, left alone by his parents, raised by his loving grandmother (to whom he often referred), that traversed the challenges in his way and rose to become a modern day icon. This is an icon I can care about, because it has meaning to me. Barack Obama has a vision – he wants change. And he has the stories to back it up. He is a story teller. 

I often hear people tell me that Barack Obama became president because he was on facebook and twitter. Let me tell you right now; that’s a misunderstanding. He became president because he could convey meaning through stories. As a part of an organization, or a company ask yourself “What justifies our existence and how do we create meaning in peoples lives?”.Only when you know why you do something, beyond reward, can you create actual meaning, and that is when you gain followers; be it customers, voters, employees or fan groups.

What we can’t see.

I often think about what we can’t see. But if we can’t see it, then how come we know it’s there? Love, gravity, intention, God. For many product developers and innovators exactly what we can’t see is what they spend most of their time doing. What is meaning? Do clothes have meaning to us? What do denim mean? When I buy a good, does that have any invisible value to me? The list go on, here I present you with a clip I enjoyed, in which John Lloyd discuss the invisible in quite a humorous way.




Talk by: John Lloyd,  producer for the BBC and author of books such as "The Meaning of Liff", a collaboration with his friend Douglas Adams.

Predictable irrationality: Why we are wrong!

 A central theme in marketing as well as leadership is the question of: how do we make decisions? It seems suitable to kick of this new blog by saying some words about this. For most people that have either studied psychology or business it seems like a cliché to say that humans have long been looked at as rational actors, when we are really not. Stating this over and over has little or no value, but the question is: why are we systematically wrong? This is a topic that is intriguing to me, and the other day I came over a series of short lectures (13 x >5 minutes), that shed some light over this question, the introduction follows:

Lecture by: Dan Ariely, author of "Predictably Irrational" and Professor of Behavioral Economics at Duke University

To see all the chapters go to http://www.predictablyirrational.com/?page_id=7. Click the pictures on the right to open the videos, I recommend viewing them in the order they are presented.