Marketing Innovation

Innovation: Make the NASCAR Sprint Cup Chase a real playoff

The format of the Chase to the Sprint Cup (NASCAR) and the FedEx Cup (PGA Tour) both bother me because they are billed as a "playoff," when they are, in fact, nothing of the sort.  

In order to have a playoff, you need to have at least two leagues/divisions/conferences/etc.  Neither sport has that. Just singling out the top performers during the regular season and making them the only ones who can win does not a playoff make.

Those two programs are not, in my mind, marketing innovations.

The upcoming IndyCar Racing League (IRL) race at Texas June 11 gave me an idea, though.  Instead of one long 550 km race, they are running two back-to-back 275 km races.  These are both full-field affairs, with the running order in the first race determined by traditional qualifying procedures (fastest lap starts first), and the second race starting positions determined by the finishing order in the first race (could be highest finish first, or invert the field).

Pretty cool.  More action for the fans.

My idea For NASCAR takes it quite a bit further.

Let's organize the Sprint Cup drivers into two leagues -- let's call them the American and National leagues, just for convenience.

Before the season starts, the drivers are assigned to each league based on the prior season's point finish. Drivers who finished in an odd numbered position (1,3,5, etc.) would go into the American League, and the even-numbered finishers go into the National League.  There would be 25 (or more) drivers in each league, with pretty good parity between the leagues.

The first 26 races of the season would be run as two league races -- half field events.  Instead of the Goody's Fast Relief 500, as at Martinsville last weekend, there'd be the Goody's Fast Relief American 250, and the Goody's Fast Relief National 250. Points would be awarded according to the current system.

It would be great for fans, because they get more meaningful action each weekend.  NASCAR would have a great opportunity to stage some sort of event between the races -- a “halftime show,” if you will.  The networks would love it.

After 26 races, only the top 12 to 15 drivers from each league go into the Chase -- that's the 24 to 30 top drivers, which would make for great racing. The Chase races would all be full length affairs, designed to test the durability and talent of the teams competing.  And the Chase would be a true playoff between drivers from two leagues.  There would be a champion driver and a champion league.  Drivers might cooperate on track more to prevent a rival league’s driver from advancing -- it would add a new dimension to race strategy.

The drivers who didn’t make the cut end their season there.  No “start-and-park” teams in the Chase, no wasting money driving laps that don’t mean anything. 

Races would be both shorter and more exciting. There would be lower costs associated with fielding a team for 26 short races, which might bring more sponsors into the sport.  Sponsor deals could be worked for the “regular season” and then again for the playoffs.  Much more flexibility.

NASCAR fans tune in more during the summer than the fall -- the NFL is pretty stiff competition.  For a team owner running outside the top 10 or 12, the Chase is currently a huge money drain.  With my proposed playoff system, there is more excitement for the fans and a better ROI for the owners and sponsors.

With a total of 50 cars each weekend, there's more opportunity for owners and drivers to compete at the Cup level -- and more opportunity for sponsors.

That strikes me as a marketing innovation!

 

Angry Birds as a Strategy Simulator? You bet it is!

I am one of the 40 million regular “active monthly users” of Rovio’s “Angry Birds” game…er, strategy simulator…and a professor of competitive strategy.  I think one of the addicting aspects of the game is the nature of the challenge.

Strategy is about allocating resources to accomplish a goal.  Resources are people, equipment, facilities, money, etc. that companies use to deliver value to their customers.  Constraints are conditions that act to inhibit the effectiveness of your resource deployment on accomplishing your goal. 

For those of you who are not one of the 75 million people who have downloaded some version of the game, here is what it is all about:

The Goal:  Kill pigs by hurling various types of birds from a slingshot into structures that act to protect the pigs.  The structures collapse and the pigs die in the rubble.  (The pigs brought on such animosity by stealing the birds eggs, which made them angry.)

 

 

The Resources (birds):  You are presented with a variety of birds that each have some sort of special aptitude that is deployed when you tap the screen whilst the bird is in flight.

• Red birds are basic projectiles.  They possess inertia and no special “tappable” capabilities. 
• Blue birds split into three smaller birds upon tapping.  These birds don’t have much inertia, but seem especially effective against glass (one of the structural materials).
• Yellow birds accelerate dramatically when you tap.  They seem to work well penetrating wood.
• Black birds turn into a bomb, and explode upon tapping.
• White birds drop a bomb, and zoom off to the upper right when you tap the screen during their flight.
• (I understand there is a toucan in higher levels that comes back toward the slingshot, but I haven’t gotten there yet.  More simulating is required!)

The Constraints (structures):  These are the buildings in which the pigs hide.  They are built from stone, wood, and glass.  

The Game:  You are presented with a limited number of birds, with varying capabilities, in a specific order, that you must figure out how to use against the structure(s).  You choose where to aim the birds; the launch angle; and when to deploy the special power of each bird.

Choosing where to aim often requires thought about what will happen after the bird hits -- will a structure fall over and knock down an adjacent structure, for instance?  In essence, you will intend to set a process in motion that will result in competitive advantage (removal of as many constraints as possible with a single resource).

If and when you fail to kill all the pigs, the remaining pigs -- bruised and battered though they may be -- flash a mocking smile just prior to the “Level Failed!” screen appearing.

If and when you succeed, the flock of spectator birds that are apparently watching just off-screen erupt into wild cheering.  Very rewarding!  

If only stockholders would cheer wildly when a strategy is successfully executed!  Oh, wait, they do, right?  The share price goes up!  I guess that proves my point about just how realistic Angry Birds is as a strategy simulator!

P.S.  When I presented my students with this analogy, they all agreed, and then asked if they could play “Angry Birds” in class.  I said no -- it's homework.  :-)

 

Borders Failure is Symptomatic of Publishing

We've been following the misfortunes of Borders Books in my class for the last six weeks, and the recent Chapter 11 filing and store closure announcements seem like a pause on the path to a complete disappearance.

The press has cited two strategic failures on Border's part -- outsourcing their eCommerce strategy to Amazon for many years, and completely missing the rise of the eBook.  

While they are certainly significant errors, in reality Borders is just a channel for publishers. Publishers share some (most?) of the blame.

I read a lot of books, and most of them share two characteristics. They're in black and white, and they're static.  

Authors write; editors edit; printers print; distributors distribute; and bookstores hold inventory until customers come in and buy.

But what in this whole value chain is really important to the paying customers? How are customer wants and needs changing?

I've recently been reading a few books on my Kindle (well, the Kindle app on my iPad, to be honest), and also subscribing to the first few issues of the online only "newspaper", The Daily.  The comparisons are stark.

"Jet Age" is a good book.  But I'd like the electronic version of it to have hyperlinks, color photographs, and video.  The links would enable the reader to drill down deeper into topics; learn more background; read alternative points of view that might otherwise distract from the story the author is telling.  Videos could illustrate things that would either be tedious to describe, or go completely unsaid.

Bill Bryson's book "At Home" would be enhanced (in my opinion) with more pictures, floor plans, and video and audio files of the things that he so eloquently describes. Let me be clear -- there is no way that I would want him to not write.  His style is to engaging, entertaining, informative, and just plain fun to do without.  It is the book format itself that confines him.

Cookbooks, heck, any "how to" or "DIY" book could offer how-to videos instead of step-by-step instructions.  

Instruction manuals can become interactive.  Nature guides can present video and audio to supplement descriptions.  All this would be searchable, perhaps by voice command.

In short, books are behind the times.  I value well crafted words, but I want more.  I want to have the ability to take excerpts from a book and bring them into PowerPoint, or this blog, to use in teaching or in commentary.  I'd like to be able to instantly share excepts from books with clients or colleagues.  In Adrian Slywotsky's "Value Migration" model, books and their publishers are in the Value Outflow stage, and eBooks (and eNewspapers, like The Daily) are in the Value Inflow.

Does this create potential copyright issues?  Perhaps.  But it also creates new opportunities for content creators to use new media with new methods. It upends the traditional business model and enables new ones to come into being.

Perhaps the books of the future are more like "apps" -- there is no reason to keep the same structure of sequential chapters if the medium is more flexible. Games, apps, books, magazines -- all are transforming in real-time.

Borders is but the canary in the coal mine for traditional publishers and authors -- it will be interesting to see what the "information transfer" industry (aka publishing) brings next.

The Vanilla Paradox: Crossing the Blue Ocean to Mass Market Success

Do you have an innovative product in a mature market?  That isn’t an oxymoron -- most innovations are improvements on existing products or services, and need to be differentiated from what is currently available.  Otherwise, they risk becoming, as a former IBM colleague put it, “just another flavor of vanilla”.

So, how do you go about avoiding the Vanilla Paradox^TM?  I believe that the answer lies in combining the lessons in Geoffrey Moore’s “Crossing the Chasm”/“Inside the Tornado” books with the ideas in W. Chan Kim and Renée Mauborgne’s “Blue Ocean Strategy”.

The main lesson from Moore is that to penetrate the mass market (aka “cross the chasm”), you should identify a niche, or market segment, and provide a “whole product” to it.  A “whole product” is defined as “the minimum set of product and services necessary to ensure that the target customer will achieve his or her compelling reason to buy”.  (Click on the image to see a larger version.)

In other words, a complete solution to a real problem.

That may appear to be obvious, but the key words are “complete” and “real”.  In many innovations, the entrepreneur will offer a new capability, but not a solution.  The customer must still perform some integration-type work to make the innovation into a success.  (These customers are the “early adopters” on the other side of the chasm.)  The “whole product” concept is key.

The other challenge is the “real” problem.  If you have improved an existing product or service, whether it is a light bulb, trailer hitch, asthma inhaler, or invoicing service (etc.), there are a great number of existing customers who are perfectly content to stick with the status quo.

What you want to do is make these customers think differently about the product or service in a way that makes them predisposed to consider buying your innovation.  The message from “Blue Ocean Strategy” is that you need to reinvent the “value curve”.  The objective is to create a “blue ocean” (i.e. uncontested market space) vs. a “red ocean” (a hyper-competitive market space).

The value curve is the relative weight that customers assign to various factors in the purchase decision. Very often price is the most important factor in the value curve, but there are usually others.  

Let’s take ice cream.  Store brands will win on price, but Häagen-Dazs, Edy’s and other premium brands have differentiated based on purity of flavor, fat content, texture, and so on.  And that’s just for vanilla! Ben & Jerry’s has all sorts of funky names for their flavors and a mystique that customers buy into as part of the brand.

Chan and Mauborgne show that the innovator has four strategy options in reshaping the value curve (click on the image to see a larger version of the chart):

• REDUCE certain factors below the industry standard
• CREATE new factors that the industry does not offer
• RAISE certain factors above the industry standard, and
• ELIMINATE certain factors altogether.

Sometimes, the best way to do this is “create” a new way of looking at the product or service -- ask customers to think about their product usage in a new way.  Are they wasting time using existing products?  Is there a safety problem with the current way of doing things?  Is there a new capability that your innovation would enable?  If so, bring that to your customers attention, and you know have a “complete solution” to a “real problem”.  

And you’ve crossed the blue ocean! 

Dell: Return to its Roots to Find a New Future?

Dell is (again) restructuring its top management, and altering its strategy in an effort to rekindle growth.  Sometimes, there is value at looking at history through a different lens to gain insights into what made a company great.

In Dell’s case, the company started by selling a product directly to consumers.  What were the characteristics of that product (and the business model) that made the company even possible, much less successful?

Six factors:

• It used commodity components, meaning that there were multiple suppliers and (perhaps more importantly) no research and development was required.
• There was value added in the assembly (however minor) by the company.
• Supplier terms were favorable to Dell, especially later.  Multiple suppliers of each component meant competition kept prices low.  The exception was the CPU, where paradoxically the Intel monopoly kept prices low because there was always the threat of going to AMD.
• Mass customization of the end product was possible through mixing and matching a virtually infinite number of different component configurations.
• Massive inventory turns enabled by the direct-to-customer model meant that Dell could collect the price of the machine before they had to pay for the parts.
• A brand name that stood for quality.

This is ideal for a desktop computer.  It could be built in a dorm room (or a garage, or pretty much anywhere, which ultimately gave birth to the “white box” built in the so-called “screwdriver shops”, so named because anyone with a screwdriver could build a PC.)  It is also ideal for a PC-based server.

Notebook computers, on the other hand, remove four or five of these sources of competitive advantage.

• Assembly is not done by Dell, but by contract manufacturers, removing that value add.
• Supplier terms aren’t as favorable, because there are fewer contract manufacturers, and they aren’t able to be played off against one and other like, say, power supply suppliers could be.
• Mass customization was much more difficult, because there were a relatively low number of fixed configurations in notebooks.
• All the above three factors combined to produce much lower inventory turns.

As Dell grew, they diversified their product line to include more and more peripherals (printers, for instance) and other electronics (flat screen TV’s, for instance).  These items moved even further away from the six core principles that made Dell successful -- where was the ability to differentiate?  Why was a printer or TV purchased from Dell any better than one from Best Buy?

So what does this mean for the future?  For one possible answer, let’s ask the question a different way:  What products of the next 5 - 20 years share the six characteristics of the original PC?

Perhaps those products are in the PC business, like blade servers, or even parallel supercomputers.  On the other hand, the answer might be in completely different industries.  NOTHING about the “Six Success Factors of Dell” say anything about personal computing or even electronics.  The next industry to be transformed might be something like transportation, where the six competencies described above can provide some competitive advantage in an emerging and/or high growth market.

As for transportation:  We can compare the not-as-Big Three of today to the IBM and Digital Equipment of the 80’s.  Who would have thought that the lowly PC (a “toy”, in some early reviews) would transform one of those business so completely, and eliminate the other one?

Innovation in the Newspaper Business? New Thinking is Needed.

Today’s local paper brought news of yet another cutback in the size of its staff and itself.  The company is contending with “one of the worst advertising slumps in its history”, citing particular pressures in real estate, employment and automotive advertising.  It is the third such cut in the last five months.

The number of full time staff will be reduced, and the paper itself will run 10 fewer pages per week.

This is sad, but it looks like it is headed into an irreversible spiral down. 

1.  Ad revenue slows
2.  Reduce staff
3.  Shrink size of paper
4.  Readership declines
5.  Repeat as long as possible

Or is it irreversible?  Let's see if innovation can play a role.

This cutback highlights a risk with an increasingly popular form of business model:  the ad-supported subsidy.  Any business that depends solely on revenue from advertising dollars works for only the advertisers.  You do not work for the people you call your “customers” or “users”.  Your true customers are the people that pay you.

Newspapers have a hybrid business model, with subscribers (readers) and advertisers both paying.  It seems like the subscription basically covers the cost of distribution, and ad dollars pay to produce news and editorial content.  This is necessary -- people simply won’t pay enough for a subscription to foot the bill to profitably produce a daily paper.

There’s a two things about ad dollars:  there’s only so much of them; and they only go where they can be shown to work.  If advertising revenue is decreasing, it is a function of one, the other, or both of these factors.

The first factor means that you will need to compete for ad spending.  The second factor is how you will compete.  You will need to show that your customer will do better by spending money with you than with all the zillions (and growing) of other places that their ad money can be spent.

There are a couple reasons why money is spent on advertising.  First is to build awareness.  The second (particularly in the employment and classified advertising) is to generate action (apply for a job; call and buy the item).

Advertisers presumably want to know that the audience to which they are pitching their wares is likely to buy those wares.  They want to know that they are reaching a sizable number of those people per dollar spent.  So the question is how to recruit and retain a sizable, loyal audience of people who have a preference of deciding to buy things based on ads in the paper?

The traditional way is to have enough content that people find essential to their existence that they will read the paper cover to cover, and linger on the ads to see which businesses offer what they need to buy at that time.  This isn’t very targeted, and relies on a host of assumptions about subscribers’ buying habits.

However...the number of people who depend on a daily newspaper is shrinking, and those people are older.  Older people are not as susceptible to advertising (if, in fact, anyone still is), but they have more disposable income than the young. (An aside:  The only reason that I can fathom that the 18-34 year old male demographic is regarded as the most desirable for advertisers is that 18-34 year old males spend money like drunken monkeys.  By the time they turn 34, they have either run out of money; gotten married and have to answer for their financial indiscretions (personal experience speaking); they have already bought everything worth buying; or they simply grow up.)

How do we make this model work with the constraints of a smaller, ad-resistant readership?  The answer is to produce something of value to that readership, and perhaps others.

This is about innovation.   Businesses must innovate and separate themselves from their competitors.  There are not a great many inspiring stories of businesses cost-cutting their way to growth and success.

What is it that papers are good at?  I think that it is in editing, printing, and distributing.  Putting stuff into the printing press, and distributing what comes out of it. 

Content typically comes from the reporting staff, augmented with national and international wire services.  The staff is typically focused on local information and opinion.

Is there an opportunity for innovation here?  Is there a way for low-cost (or even free) content generation?  How about giving subscribers a free website and/or blog in return for the right to harvest what they put on those websites and blogs?  Use the editorial and management skills to build a daily report of the most compelling and newsworthy sources.  Use technology to search, sort, and harvest content from the blogs and websites, and organize it into these new editions.  Print that and distribute it.  

It would be easier to target advertising on the blogs/websites themselves than in a traditional paper.  Or, better yet, publish several editions, aimed at different audiences.   For instance:  a political edition, a business edition, a lifestyle edition, a technology edition, and so on.  Advertisers might just like to see such targeting. People might even subscribe to several of these editions, instead of one.  (I subscribe to two dailys, plus another dozen or so magazines.)  The operating principle is called “mass customization”.

Perhaps the days of a single flagship daily per city are gone.  In their place, though, the same organization that stood behind that single flagship daily could be producing multiple, focused, dailies.  (Or biweeklies, or.....)    Maintain a solid, consistent editorial policy, and stay a force in government and open, civil, discourse.

Who knows?  It could just work!

Apples, Mac and Cheese, and A Set of Patio Furniture -- All at Kroger!

Retail business is tough.  The grocery business is insanely tough.  The business model is based on razor-thin margins and high turnover.  Costs must be kept low and traffic must be kept high.  Kroger is an excellently managed company, and one that is featured in Jim Collins' book "Good to Great".  In fact, there is a great example of how Kroger approaches inventory in that book (page 148-9):

"Imagine walking back into the warehouse and instead of seeing boxes of cereal and crates of apples, you see stacks and stacks of dollar bills - hundreds of thousands and millions of freshly minted, crisp and crinkly dollar bills just sitting there on pallets, piled high to the ceiling. That's exactly how you should think of inventory. Every single case of canned carrots is not just a case of canned carrots, it's cash. And it's cash just sitting there useless, until you sell that case of canned carrots."

One of the characteristics of canned carrots is that one can is pretty much the same as the next can, regardless of whose label is on it.  It is very difficult to command a premium price for a particular can of carrots.  As a result, regardless of whose store we buy our carrots from, the price is going to be pretty much the same.  Profit margins (the percentage difference between the sale price and the cost) will be squeezed to the lowest possible level that all grocery stores can live with, usually in the 2% - 4% range. 

"How can anyone make a profit with margins that low?", you might ask.  Well, since profit equals margins times the number of times you can turn over your inventory in a given period, you must get those carrots out of inventory into the checkout line muy pronto.  In business terms, we can see that the velocity of goods moving through any given store must be maximized.  You don't want things gathering dust, either in the warehouse or on the floor.  (By the way, this line of thought deals with canned carrots.  If your carrots aren't canned, then you have the problem of spoilage, making the need for speed that much more pressing.)

Which brings me to patio sets.   You know, wrought iron, or aluminum, or wooden outdoor furniture -- usually a table, four chairs (perhaps with cushions) and maybe a patio umbrella.  In my local Kroger, there's one for about $240.

Why?

Several of us pondered this question over lunch at the local Mexican restaurant, which happened to be in the very same shopping center as the aforementioned Kroger.  The apparent contradiction to me was that patio furniture is very nearly the antithesis of low margin, high turnover products. Why would they carry such a product?

One measure of performance for grocery stores (and retail stores in general) is sales (in dollars) per square foot of space.  Obviously, you want to offer things that sell -- after all, things that do not sell are not helping you turn inventory into cash, and they are taking up space that would be better used being filled by something that did sell.  Generally speaking, grocery stores are filled with items that you can pack a bunch of them into a square foot.  And, as we've seen, they need to sell quickly.

Even though Kroger pioneered the concept of the grocery superstore, there is still a limit to just how elastic people's behavior will be.  I mean, how many people will actually put patio furniture on their grocery list??  What's the thought process there?  "Let's see....we need apples, mac & cheese, bread, milk, and a set of patio furniture.  Now, off to Kroger!"

Patio furniture, though, is not perishable; it is durable. It is not small; it is large.  It strikes me as something that wouldn't turn over all that quickly, necessitating higher margins to be profitable.

So we put on our thinking caps.

Maybe it was to horizontal integration.  Kroger already sells prepackaged salads, potatoes, tomatoes, steak, steak seasoning, charcoal, lighter fluid and a grill.  All you need to prepare a meal.  Perhaps the reasoning was that people would also need a place to eat their meal.  OK....let's take that to another level.  What's the next step?  Selling houses behind which to put the patio set?  I don't think so.

Maybe it was to promote impulse buying, like the racks of candy, gum, soda, gift cards and tabloids to tempt (or inform) you as you wait in line.  Not likely at $240.

Maybe, one of us said, there was dead space in the store that would otherwise be contributing nothing to the "dollars per square foot" measurement but square feet, and filling that up with an item that might sell relatively few units but at higher prices might be worthwhile.  That made some sense!

So I decided to engage in some primary research, and went in to the Kroger.  After paying for my Golden Delicious apples, Yukon Gold potatoes, green onions, and a red onion (I'm making this awesome sounding potato salad for dinner!), I went to see the manager.

I told her that I was intrigued by the fact that they sold (or offered for sale -- that could be a crucial distinction) patio furniture, and that I couldn't really see people putting it on their shopping list (I gave her the "apples, mac & cheese, patio furniture" bit, which made two employees nearby laugh out loud) nor buying it on an impulse.  I asked how many she actually sold. 

"Oh, five to ten," she said.

"Per month?!" I asked, kind of surprised.  That made her laugh.

"No, sweetie, per year.  Five or ten per year."

So I got down to the real question.  "So why do you have them if you only sell five or ten a year?"

She had a very simple answer:  "Competition.  Everyone else has them, so we have to."

Mystery solved.

Update 12 August 2008 by GSH:  I returned to Kroger the other day, and saw that they also sell sleeping bags!  This sort of merchandise selection must represent an innovation in marketing.  I would love to sit in on a meeting at Kroger headquarters while the marketers discuss expanding the selection to include such items as patio furniture and sleeping bags.  I haven't done any research yet to see if "everyone else" has them, though that could be the driving force. 

Applying this sort of logic in reverse, what's next?  Coleman branded beef, ready for the trail, available at your local Kroger?

The End of the 4 P's of Marketing -- and How to Get Them Back

I’m in the market for a new digital camera, and I’ve been doing research for months about which one to buy.  In the course of that research, I’ve noticed that the price band for any given model is very narrow -- across all “places” where the camera is available.  The Internet is my primary source of information about price -- Amazon, J and R Photo, B and H Photo -- but as I branch out into mass merchandisers like Best Buy, Circuit City, and even the office superstores and department stores, I’ve noticed that they all offer a given model at essentially the same price.

So two of the four “P’s” -- price and place -- have been removed from the marketer’s arsenal as levers of differentiation.   Price has found its floor below which no firm will go, and it is available everywhere.  What to do?  

The answer to which the business world turns seems to be to spend money on a third “P” -- promotion.  Advertising is not only a method of promotion, it has become the source of entire business models. 

This is not sustainable. 

The amount of advertising that the average buyer is subjected to -- across all media -- makes the incremental impact of any single ad microscopic.  (If there is any impact at all.)  In short, you can’t promote your way to differentiation, either.  What’s left?

The fourth “P”:  product.  The product (or service) itself is the one lever that a company can use to differentiate itself.  The way to accomplish that is through innovation -- continuing to improve your offering through new features that benefit your customers (current and future). 

Going down this path is a commitment to a new way of doing business.  Once on this path, you can’t get off.  Anything you introduce will be copied, and become the basis of competition for everyone.  You must stay out ahead of the pack.  Innovation must become -- and stay -- part of the DNA of your organization.

The good news is that innovative products that offer new features that benefit your customers reignite the ability of the other three P’s to be marketing levers.  Innovative products have less competition than commodities, so you can offer them in unique places.  You can price in a premium for that innovation (or perhaps you have lowered costs, so you can offer more at a given price point.)  You can promote a difference (or, even better, have other people -- influencers -- promote it for you!)

The erosion of the three P’s seems to point to an inescapable conclusion:  innovation is imperative.  Keeping your “eye” on innovation can bring the four “P’s” back into play.

Customer Based Innovation

An interview with Kraft, Inc. CEO Irene Rosenfeld (WSJ, February 20, 2007, page B1) contained some interesting nuggets about innovation and marketing that I thought I'd post.  (There's no link because a subscription is required.)  As loyal Kraft customers (my son could probably live on Kraft Macaroni and Cheese alone!), I was especially interested in her thoughts.

The first set of questions and answers points out the need to focus on the ultimate consumer of your product.  (At Netanium, we call that "The Customer BuyCycle", and it is the centerpiece of our market strategy formulation process.)  Here, Ms. Rosenfeld says that Kraft had been looking at their products from the manufacturer's perspective, not the consumer's perspective.  Her words:

WSJ: How will you make the new-products pipeline stronger?

Ms. Rosenfeld: Part of the strategy is really about looking at our products through the consumers' eyes rather than through our manufacturer's lens. Cheese is a perfect example. Our cheese segments are based on our manufacturing processes. We have processed slices, natural chunks, jar cheese -- not exactly the most appetizing kinds of descriptions. Consumers are using processed slices to make sandwiches. They're using natural chunks to snack. They're using jar cheese to dip and spread. So if you start to focus on it from the consumers' perspective, it opens up a whole world of possibilities to what new products one might offer.

It's interesting that a company the size of Kraft, in one of the most competitive industries there is (packaged food), can let this happen.  Of course, they aren't alone.  Lou Gerstner's turnaround of IBM was based on fixing the very same problem.

The next exchange shows an interesting global twist on product usage that you couldn't predict in the lab.  It also illustrates that customers will do whatever they want to with your product, whether you developed it for that purpose or not.

WSJ: When you first came back to Kraft, one of the things you did was to go to consumers' homes and watch them. What were you looking for?

Ms. Rosenfeld: We have all kinds of studies that we've done. But there is no substitute for seeing with your own eyes how people actually use the products.

When I went to Beijing, the consumer whose home I was in offered me some Tang. She poured it out and I started to gulp it down and almost burned my tongue because they drink Tang hot. And I didn't know that. We haven't really spent a lot of time thinking about the solubility of our Tang product in hot water.

Another thing that every company has to worry about is how customer perceptions change over time.  Many of these changes happen so gradually that we can really tell that something fundamental is going on.  One day, however, we look around and the landscape is completely different.  This exchange about the nature of cooking illustrates this very nicely:

WSJ: Do people still want to cook?

Ms. Rosenfeld: A lot of people consider microwaving their nacho chips with Cheez Whiz on it as cooking. I think consumers very much like to cook. I think the definition of cooking has changed dramatically. Whereas our mothers were more inclined to using their oven and their stove when they cooked, today's consumers think about using their microwave. They think about assembly as opposed to necessarily cooking.

I'm excited about this new product we just launched in January called Deli Creations. These are hot sandwiches that are made with our high-quality ingredients like Oscar Mayer meats, Kraft cheese and A1 and Grey Poupon sauces. But what's so cool about them is you stick them in your microwave, it takes 60 seconds and it tastes freshly baked.

WSJ: Do people feel like that's cooking?

Ms. Rosenfeld: In all honesty, no. But they certainly feel they've eaten a substantial, quality meal. As part of this notion of changing our lens, we are beginning to have more complete solutions in our offering of products. Today, a lot of what we make are what you'd call components. We make the meat, we make the cheese, we make the mustard, we make the steak sauce. Increasingly there are many consumers who don't have the time or the interest to put it all together themselves.

And lastly, we need to look at how our products are distributed, and what the buying experience of our "end users" is like:

WSJ: How will the supermarket look in 50 years?

Ms. Rosenfeld: We ought to see together the kinds of things that go together. Today if you want to make a salad, you have to go to the produce to get your lettuce, you have to go to the meat and cheese sections -- which are in two different places -- to get your meat and cheese, and then you have to go to a third section to get your salad dressing. So increasingly I think a big part of what we'll see in the future is better thinking about how to organize the store.

Time will tell whether Kraft will succeed with these initiatives, but they'll have the independence to pursue Ms. Rosenfeld's program.  Kraft will be spun out of Altia (NYSE: MO), which will be left with Philip Morris.  The stock symbol for Kraft is KFT on the NYSE, and it will serve as a scorecard for the company. 

I think she's on the right track, and wonder what innovations will come to that friendly blue mac-and-cheese box!

P.S.  Another company often accused of doing what it wants instead of what is best for the use is Microsoft.  Here's a link to a story on PC World's website called "The Most Annoying Things about Windows Vista".  From my reading, that's a pretty ambitious title! 

P.P.S.  I haven't thought about Tang in years.  I wasn't even aware it was still available!  And while many people think it was developed by NASA, it wasn't.  It was developed by General Mills in 1957, and used by NASA starting with the Gemini program.  I guess the Mercury flights were so short that nutritious beverages weren't a problem.

Can the Dell Model Fix the Car Industry?

It is widely known that Michael Dell has retaken the helm of his eponymous computer assembly company.  Many writers feel that the "Dell Model" of assembling computers on demand, coupled with the financial engine of getting paid for the computer long before paying for the parts, is no longer the juggernaut it once was.  The shift to laptops, and the gains in efficiencies have essentially leveled the playing field, and HP is fully competitive with Dell.

The beauty of the Dell Model was enabled by another momentous decision within the industry -- the decision by IBM to build a computer system around open standards.  IBM had little to no proprietary technology in that first PC.  Open standards enabled a host of competitors to spring up -- Kaypro, Osborne, and Compaq to name several.  Parts were interchangeable.  Hercules made graphics cards that worked on monochrome displays.  Lot of vendors popped up to supply compatible parts at either lower prices than IBM; with features not available from IBM; or for markets other than those served by IBM. In fact, the phrase "IBM Compatible" remains with us to this day, in spite of the fact that IBM is no longer in the business!

Looking at the car industry, I see an opportunity for the Dell Model, but I also see an industry that is antique.  A little more history is in order.

In 1864, products that were assembled with bolts and nuts, or screws, used what might be called "proprietary" fasteners.  There was no standard screw thread, so each manufacturer used their own.  If your horse-drawn carriage broke down, you needed to go to the original manufacturer to get replacement bolts.  There was no interchangability.

A man named William Sellers changed that by proposing a new standard for screw threads.  (Wired magazine ran an excellent article on this a few years back.)  Adoption was fairly swift, but not without battles.  Fortunately, Mr. Sellers was an excellent advocate for his standard.  The Sellers screw set loose the forces that would revolutionize the means of production in this country and beyond.  Henry Ford did not invent the assembly line, but his implementation of it to build the Model T was enabled by the standardization of the screw thread.

The car industry today needs a new dose of standardization.  Why aren't engines interchangable?  Or dashboards?  Or steering wheels?  Do consumers really benefit from having an engine designed and built by GM?  Is GM deriving the best return on investment by designing and building its own engines?  What if there were engine builders(a la Intel and AMD), dashboard builders (like Viewsonic and Samsung), and steering wheel builders (like Logitech and Kensington) that would sell to auto assemblers (like Dell and HP and Lenovo)?  Even companies that would build body parts (like computer case manufacturers)?

What if a car was designed like the original IBM PC?  Car companies could spring up overnight.  Michael Dell could take orders for a car in an office in his hilltop home.  In turn, he'd push a button and order up the appropriate parts from a network of suppliers (over the Internet, of course), who would ship them all to a central contract manufacturer, who'd screw them together (with Sellers screws, of course), test it, and ship it.  On demand.  No middle man.

He might choose to set up some kiosks around the country to let people try one out, and they could order one at the kiosk for delivery to their home.  The cost reduction in the price of a car could be enormous.

Of course there are hurdles.  Crashworthiness, insurability, etc. would all have to be dealt with, but where there's a will, there's a way, as it's been said.

Such a disruption would require princely sums of money, but there's a lot of that around, looking for the right place to invest.  There also needs to be some event or force to create the opportunity. 

I think that the arrival of alternative fuel cars (electric and fuel cell primarily) provide that instigating force.  There's nothing that says that the incumbents have any edge at all in bringing that technology to market.

Where are the auto entrepreneurs?  And where are the standards?  Can the first entrepreneurs into this game set the standards by default?