Category Archives: Corporate Strategy

The Good Side of Disintermediation

First published October 11, 2012 in Mediapost’s Search Insider

You know you’ve found a good topic for a column when half the comments are in support of whichever side of the topic you’ve lined up on, and half are against it. Such was the case last week when I wrote about disintermediation.

This week, I promised to present the positives of disintermediation. I’ll do so at the macro level, because there are market forces at work that will drive massive change at every level. But there were also some very interesting questions raised last week by readers:

  • Is disintermediation killing relationships and our ability to deal with people?
  • Are the benefits of disintermediation tied to social status, driving the haves and the have-nots even further apart?
  • Is more information good for the market, or does it just create more noise for us to wade through?
  • What will the social cost of disintermediation be?
  • What are the global implications of disintermediation?
  • In knowledge-based professional markets where experience and expertise are essential (i.e. health care) what role does disintermediation play?
  • Are we just replacing one type of “middle” with another (for example, online travel agencies for traditional travel agencies)?

Each of these questions is worthy of a column itself, so I’ll file those away for future writing over the next few weeks. But today, let’s focus on the silver lining inside the disintermediation cloud.

I’ve written about Kondratieff waves (also K waves) before. In the world of the macro-economist (who are of mixed opinion about the validity of the theory), these are massive waves of disruption (often driven by technological advances) that first deconstruct the marketplace and then rebuild it based on the new (improved?) paradigm.

The Industrial Revolution was one such wave. What that did was create a new marketplace built on scale. Bigger was better. It introduced mass manufacturing, mass markets and mass advertising. It also created the “middle,” which was an essential part of getting goods to the market. Given the scale of the new markets, it was essential to create a huge support infrastructure. Most of the wealth of the 20th century was built on the back of this particular K wave.

One of the characteristics of a K wave is that the positive benefits outweigh the negatives. After the period of destruction as the old market is torn apart, the new market scales to new heights. Technology fuels increased capabilities and opportunities. The world lurches ahead to a new possibility. We were better off (arguably) by most metrics after the Industrial Revolution than before it. We were more productive, had a higher standard of living and could do things we couldn’t do before.

Today, we’re in the middle of another K Wave disruption, and I believe this one is going to dwarf the impact of the Industrial Revolution. Of course, K waves by their nature are long-term phenomena whose impacts take decades to roll their way through society.

This particular K Wave is reversing many of the market dynamics established by the previous “Bigger is Better” one. We’ve begun to deconstruct the gargantuan support system required to service mass markets. Inevitably, there will be pain, and last week’s commentators zeroed in on many of those pain points. But there will also be growth. And the bigger the wave, the bigger the growth. In this case, the same factors I talked about last week – democratization of information, better user experiences, solving the distance problem – are all being driven by technology. As this wave continues, the market will become more efficient. Information asymmetry will be lessened (if not eliminated) and the superstructure of the “middle” will become unnecessary.

A more efficient marketplace means new opportunities. More businesses will start and grow. Previously unimagined sectors of a new economy will emerge. This new economy will be global in scope, but hyperlocal in nature. Pure ingenuity will have a chance to flourish, freed from the constraints of the need for scalability. Once we get through the stumbles inevitable in the transition period, the economy will ramp up for another bull run. But we have to get there first.

The Disintermediation of Everything

First published October 3, 2012 in Mediapost’s Search Insider

Up until five years ago, I had never used the word disintermediation. In fact, if it would have come up in casual conversation, I would have had to pick my way through its bushel of syllables to figure out exactly what it meant.

Today, I am acutely aware of the meaning. I use the word a lot. I would put it up there as one of the three or four most important trends to watch, right up there with the Database of Intentions, which I talked about last week. The truth is, if you’re a middleman and you’re not dead already, you’re living on borrowed time.

Why is the Middle suddenly such a bad place to be? A lot of people have made a lot of money in the Middle for hundreds of years. The Middle makes up a huge part of our economy, including a lot of middle-class jobs. Systematically eliminating it is going to cause a ton of grief. But the process has started, and there’s no turning back now.

Three big shifts are driving disintermediation:

The Democratization of Information

The Middle exists in part because we didn’t have access to what, in game theory, is called perfect information. Either we didn’t have access to information at all, or the information we had was not reliable or useful to us. So, in order to function in the marketplace, we needed a bridge to what information did exist.

Think of travel agents (which for the majority of us, is someone we probably haven’t spoken to for a few years). Travel agents were essential because we were walled off from the information we needed to arrange our own travel. We had no access to the latest airfares, hotel availability or room rates. If you had asked me what was the best hotel in Istanbul, I would have had no clue. We used travel agents because we had no choice.

Today, we do. The travel industry was one of the pioneers in democratizing information. The result? The travel marketplace is infinitely more efficient than it was even a decade ago. The average person can now put together a six-week multi-stop vacation relatively easily.  The middle is being eliminated. In 1998, there were 32,000 travel agencies in the US. Today, through elimination and consolidation, that number is closer to 10,000. Disintermediation has cost thousands of travel agents their jobs.

The Improvement of User Interfaces

When’s the last time you spoke to a bank teller? If you’re like me, it’s probably the last time you had to do something that couldn’t either be done through online banking or at a local ATM.  99% of our banking can now be done quicker and easier because banks have invested in creating platforms and interfaces that enable us to do it ourselves.  It’s better for us as customers, and it’s much more profitable for the banks. Disintermediation in banking has created a more efficient model. Ironically, unlike travel agents, bank tellers have not lost their jobs. They’ve just changed what they do.

The Overcoming of Geography

The final factor is the problem of distance. When mass manufacturing became possible, the distance between the factory and the market started to grow. Suddenly, distribution became a major challenge. Supply chains were born, making a lot of people very rich in the process. Becoming big became essential to overcoming the problem of distance.

But technology has made physical fulfillment much more efficient. Getting a product from the factory floor to your front door is still a challenge, but our ability to move stuff is so much better than it was even a few decades ago. The result? Massive disintermediation. And this particular trend is just beginning.

So What?

Much of what we’re familiar with today is part of the Middle. Just like travel agents, video stores and bank tellers, every year something we have always taken for granted will suddenly disappear. Huge swaths of the economy will be disruptively eliminated. That’s the bad news. The good news will have to wait till next week’s column.

A Benchmark in Time

First published September 13, 2012 in Mediapost’s Search Insider

That’s the news from Lake Wobegon, where all the women are strong, all the men are good-looking, and all the children are above average. — Garrison Keillor

How good are you? How intelligent, how talented, how kind, how patient? You can give me your opinion, but just like the citizens of Lake Wobegon, you’ll be making those judgments in a vacuum unless you compare yourself to others. Hence the importance of benchmarking.

The term benchmarking started with shoemakers, who asked their customers to put their feet on a bench where they were marked to serve as a pattern for cutting leather. But of course, feet are absolute things. They are a certain size and that’s all there is to it. Benchmarking has since been adapted to a more qualitative context.

For example, let’s take digital marketing maturity. How does one measure how good a company is at connecting with customers online? We all have our opinions, and I suspect, just like those little Wobegonians, most of us think we’re above average. But, of course, we all can’t be above average, so somebody is fudging the truth somewhere.

I have found that when we work with a client, benchmarking is an area of great political sensitivity, depending on your audience. Managers appreciate competitive insight and are a lot less upset when you tell them they have an ugly baby (or, at least, a baby of below-average attractiveness) than the practitioners who are on the front lines. I personally love benchmarking, as it serves to get a team on the same page. False complacency vaporizes in the face of real evidence that a competitor is repeatedly kicking your tushie all over the block.  It grounds a team in a more objective view of the marketplace and takes decision-making out of the vacuum.

But before going on a benchmarking bonanza, here are some things to consider:

Weighting is Important

It’s pretty easy to assign a score to something. But it’s more difficult to understand that some things are more important than others. For example, I can measure the social maturity of a marketer based on Facebook likes, the frequency of Twitter activity, the number of stars they have on Yelp or the completeness of their Linked In Profile, but these things are not equal in importance. Not only are they not equal, but the relative importance of each social activity will change from industry to industry and market to market. If I’m marketing a hotel, TripAdvisor reviews can make or break me, but I don’t care as much about my number of LinkedIn connections. If I’m marketing a movie or a new TV show, Facebook “Likes” might actually be a measure that has some value. Before you start assigning scores, you need a pretty accurate way to weight them for importance.

Be Careful Whom You’re Benchmarking Against

If you ask any marketer who their primary competitors are, they’ll be able to give you three or four names off the top of their head. That’s the obvious competition. But if we’re benchmarking digital effectiveness, it’s the non-obvious competition you have to worry about. That’s why we generally include at least one “aspirational” candidate in our benchmarking studies. These candidates set the bar higher and are often outside the traditional competitive set. While it may be gratifying to know you’re ahead of your primary competitors, that will be small comfort if a disruptive competitor (think Amazon in the industrial supply category) suddenly changes the game and blows up your entire market model by resetting your customer’s expectations. Good benchmarking practices should spot those potential hazards before they become critical.

Keep Objective

If qualitative assessments are part of your benchmarking (and there’s nothing wrong with that), make sure your assessments aren’t colored by internal biases. Having your own people do benchmarking can sometimes give you a skewed view of your market.  It might be worthwhile to find an external partner to help with benchmarking, who can ensure objectivity when it comes to evaluation and scoring.

And finally, remember that everybody is above average in something…

Direct vs. Distributors: Clash of the Compensation Models

First published August 24, 2012 in Mediapost’s Search Insider

The world of marketing is heading for a head-on collision, thanks to consumers who seem to think they have the right to inform themselves prior to purchasing. The problem? We marketers trying to jam a semi-trailer full of legacy channel baggage into the sleek new  two-door direct-marketing roadster we’re taking for a spin.  Simple physics dictate that something has to give. My money’s on that bloated distribution chain.

Here’s how this particular pain was recently expressed to me: “We’re double paying for our leads. We get them through pay-per-click, they come to our site, go through the quote engine and get a price, then they go to one of our dealers and buy there. We have to turn around and pay the dealer a commission again, on top of what we already paid to get the lead in the first place. We have to figure out how to stop people from doing that!”

I get the frustration. I truly do. But in this case, it’s just a byproduct of transitioning to a more efficient marketplace. There are also vestiges of hard-to-change buying behaviors. When you have one leg in the old world of marketing and one in the new, and the two are diverging rapidly, groin injuries are not a surprising outcome.

The problem here is that traditional distribution networks were created to get around the problem of geography. For many reasons, you had to be in the same market as your prospects to sell to them. Buyers simply didn’t have the resources available to adequately research future purchases, so they used relationships with distributors as proxy. They relied on the opinion of a person they knew, knowing that if that person steered them wrong, they knew where he/she lived. This risk mitigation mechanism became more effective the more you did business with a particular distributor, so distributors expanded their scope of service, becoming one-stop shops for multiple products or services. The religion of the relationship ruled the market.

But the advent of digital information is in the process of changing this system. Now we can research purchases — and we do. Information is slowly replacing relationships. While we still rely heavily on the opinions of people we know, including distributors (this emerged as the single most influential factor in B2B purchasing in our BuyerSphere research), online research is not far behind, and it’s gaining ground quickly. Humans being humans, we don’t switch en masse from one behavior to the other. We transition over time —  typically, a lot of time — as in several years or even decades.

This, then, is the marketplace that the modern marketer is trying to straddle. In many marketplaces, particularly B2B, we’re seeing a decoupling of product research from the actual purchase. Buyers are quickly learning that distributors have very limited information on the average product they carry, so they’re turning directly to the manufacturer. But when it comes time to purchase, transactions often go through traditional channels. Hence the double paying for each lead the aforementioned marketer was complaining about.  You pay once to gain entry into the prospect’s consideration set while he’s researching, and you pay again to actually win the business.

This double paying isn’t some behavior that can be corrected in buyers. It’s the price we marketers are paying for our efforts to transform the marketplace. In the meantime, as we build new information networks, we have to hold on to our traditional distribution networks. In the long run, it will be a good thing for marketers, as the problem of geography is slowly being eliminated. But it will never be gone, as long as consumers’ trust in information provided by marketers is less than total. If there is a lack of trust, we will still rely on proximate relationships as a mitigating factor. The higher the degree of risk in a purchase, the more we will turn to those relationships.

Marissa Mayer and Yahoo’s Regression to the Mean

First published July 26, 2012 in Mediapost’s Search Insider

There is not a lot of overlap between the universes of Gord Hotchkiss and Marissa Mayer, but our orbits have intersected on a few occasions in the past. I’ve had the opportunity to talk to Mayer about various aspects of search on a handful of occasions, so it was with some interest that I watched the announcement and subsequent buzz about her appointment as Yahoo CEO.

Much has been said about Mayer’s personal qualifications for the job, and the general consensus is that this is a good thing for Yahoo. If this were a movie, I’m thinking she would score an 82% on the Tomatometer, handily qualifying as “fresh.” Personally, I would agree. Mayer has a razor-sharp (and somewhat intimidating) intellect, a core love for search and an innate sense of what’s right for the user. All of these things will be big plusses for Yahoo. What she hasn’t been tested on is her ability to run a big company. And that’s where things could get interesting.

No doubt Google still imparts its own “halo” effect on anyone who has spent time at the “Plex” in a leadership position. And few have spent as much time there as Mayer, who, as hire number 20, was Google’s first female engineer, logging 13 years with bosses (and hopefully still friends) Page and Brin.  These three tied a tight little knot in the early days of Google, but from the outside, that knot seems to have frayed just a little in the past few years. Mayer’s recent moves in the company have been more lateral than vertical, as later additions to the Google team were promoted above her. Undoubtedly, this was a contributing factor to the parting of the ways with Google.

But how much value does Mayer’s vast inside knowledge of Google and its past successes bring to Yahoo? It must have played a major role in her selection as the new chief Yahooligan. But was she instrumental in the streak of seemingly picture-perfect management calls in the early days of the Internet’s Golden Child? And, even if she were, does it really matter?

Earlier this year, I took part in an open forum on search at an industry conference. Our moderator tossed a ticking time bomb at the panel, in the form of this delicately stated question: “What the #%^&$ is Google doing lately? Have they gone insane?” We each offered our opinions, which ranged in the degree of madness ascribed to Google’s executives. I started my response with this, “I think we tend to downplay the role luck played in the early days of Google. Maybe their luck is just running out.”

There is a much fancier name for the hypothetical situation I described, which is called “regression to the mean.”  In his recent book, “Thinking, Fast and Slow,” (a HIGHLY recommended read) psychologist and Nobel laureate Daniel Kahneman explores how this can lead us to overvalue executive talent when it’s combined with the halo effect. Kahneman even uses Google as an example: “Of course there was a great deal of skill in the Google story, but luck played a more important role in the actual event than it does in the telling of it. And the more luck was involved, the less there is to be learned.”

Regression to the mean simply means that when you take a snapshot in time that represents either exceptionally good or bad performance, subsequent snapshots tend to move closer to the average. And those highs and lows generally involve luck to some extent. So you can poach talent from a company on a hot streak, only to find that it wasn’t the executives responsible for the performance, but simply the planets aligning in a favorable way.

As an ex-CEO of a company, albeit a tiny one, I find it hard to swallow that leadership might not be as important as we think in the fortunes of a company. But I generally find Kahneman to be an incredibly astute observer of human errors in judgment, so I have to resist the urge to go with my own cognitive biases here and trust Kahneman’s research.  He doesn’t say leadership is inconsequential, but he does caution against ignoring the role of timing and sheer luck.

This is also not to downplay the role Marissa Mayer will play in the future of Yahoo.  Somebody has to lead the company, and Mayer is at least as good a choice as anyone else I can think of.

Who knows? Maybe Yahoo’s luck is due to change. In their case, “regression to the mean” means there’s no place to go but up.

Bet Big on Digital Acceleration

First published July 19, 2012 in Mediapost’s Search Insider

The other day, I was going through some background research for a client. What struck me, as I waded through the reams of PowerPoint decks and research reports, was how integral digital was to the core functions of this particular industry. Whether it was key influencers in the purchase decision, reasons for doing business with a company or competitive differentiators, technological proficiency was right up there with traditional factors like price, value, convenience and reliability.

As potential customers, we expect companies to have their digital acts together. More than this, it appears we’re ready to reward companies that aggressively invest in raising the bar of their own connected maturity level. Why, then, are companies so loath to place significant bets on their own digital future?

I deal with big companies all the time, and when it comes to investing in their own websites, online marketing, web support platforms and other planks in their digital platform, they seem to prefer hedging their bets, squeezing out miserly budgets at a level that would make Ebenezer Scrooge seem hopelessly profligate. None of them are looking at digital proficiency as a way to distance themselves from the competition. Instead, it seems that they prefer the security of the herd, nervously watching the pack for signs of movement and only investing when they feel they have to to avoid being trampled by a stampede. It’s Geoffrey Moore’s classic Crossing the Chasm behavioral pattern, writ large.

It’s not the first time this has  happened. The same thing took place about 100 years ago, as Industrial America embraced electrical power. The entrenched manufacturers had all invested heavily in steam power. Despite the obvious benefits that electricity offered (cleaner, safer, more efficient factories) they never did fully embrace it, jury-rigging factories and doing ad hoc retrofits, stranding themselves in a competitive no-man’s land between electricity and steam. New competitors built new factories that maximized their advantages, and the old guard never recovered. In a decade, most of them were gone.

Economists refer to this as a regime transition. In hindsight, it seems hedging your bet when it comes to new technology is not really “playing it safe.”

To me, it seems obvious we’re in exactly the same place. History is repeating itself. If these companies look at their own research, it’s easy to see the signs. Yet research tends to be digested in context, and often people see what they want to see in it. What’s potentially worse, they fail to see what they don’t want to see. Even more frustrating, the cost of making a significant, best-in-class investment in accelerating digital maturity is relatively minimal — perhaps even infinitesimal — given the other operating costs these companies are carrying.

When it comes to digital maturity, I find the real acid test is how effectively companies connect with their customers, both present and future, through online channels. Is the website truly effective? Do they have good search visibility? Have they found a way to play in social that recognizes the importance of authenticity and the forging of true relationships? Do they understand how their customers might use a mobile device to connect with them? If a company can do these things right, chances are they’re well advanced in the digital maturity model.

The other thing to look for is how the company is using digital technology to reinvent the traditional ways it does business, especially when it comes to handling relationships with real people. I find sales to be one of the last bastions of “we’ve always done it this way” thinking. If a company is seriously considering how to make its sales force more effective by leveraging digital channels, it’s a good sign for the future.

In my opinion, betting the farm on digital maturity seems to be a no-brainer — especially when, in terms of real dollars and cents, it’s a relatively small farm we’re talking about here.

Three Myths About Customer Love

First published July 5, 2012 in Mediapost’s Search Insider

Today, I want to talk about the last of the three posts by Harvard Business Review bloggers, Karen Freeman, Patrick Spenner and Anna Bird  I have been surveying: “Three Myths about What Customers Want.” Specifically, I want to look at this post’s implications for online marketing.

Myth #1: Most consumers want to have relationships with your brand.

This myth is at the crux of many, many social media campaigns. The theory is, a “like” = “intent to buy.” I have said before that I believe this is hogwash. The HBR bloggers concur:

“Only 23% of the consumers in our study said they have a relationship with a brand. In the typical consumer’s view of the world, relationships are reserved for friends, family and colleagues. That’s why, when you ask the 77% of consumers who don’t have relationships with brands to explain why, you get comments like ‘It’s just a brand, not a member of my family.’”

Marketers being marketers, we tend to think the entire world revolves around whatever it is we’re trying to sell. We believe people actually give a damn. They don’t, at least not in the vast majority of cases.  In contrast, relationships endure. They are there for the long haul. Consumer consideration runs on much shorter timelines.

There are degrees to consider here, however. What consumers can develop for a brand is loyalty. This falls into the category of beliefs, and that is what drives a lot of consumer behavior. We can believe a brand offers good value without having a relationship with it. Beliefs are heuristic decision shortcuts, which help consumers cut through cognitive overload.

Myth #2: Interactions built relationships.

Actually, say the HBR team, relationships are built on shared values:

“Of the consumers in our study who said they have a brand relationship, 64% cited shared values as the primary reason. That’s far and away the largest driver. Meanwhile, only 13% cited frequent interactions with the brand as a reason for having a relationship.”

Values can be a powerful driver of how we form beliefs. The brand I probably have the strongest affinity for is Apple. And it’s not because I have a relationship with Apple (never having visited its Facebook page). It’s because I believe Apple shares my values of creative freedom, uncompromising design and aesthetically pleasing experiences. I interact with an Apple device every day of my life. But I interact with the company only when I need something.

Myth #3: The more interaction, the better.

Marketers want to dominate a prospect’s time, in the mistaken belief that it will make the relationship “stickier.” If “stickier” means frustrating and annoying, they could be right.

“There’s no correlation between interactions with a customer and the likelihood that he or she will be ‘sticky’ (go through with an intended purchase, purchase again, and recommend),” writes the HBR team. “Yet, most marketers behave as if there is a continuous linear relationship between the number of interactions and share of wallet. That’s why, as the Wall Street Journal recently reported, you see well-established retailers like Neiman Marcus, Lands’ End and Toys R Us sending customers over 300 emails annually.”

We all have lots to do. The last thing on that list is to spend unnecessary time interacting with a brand because they’ve targeted us as a “loyal” customer. Here’s a question to ask yourself: Who benefits most from all these interactions — the customer or the marketer? If the answer is the marketer, then why should the customer care?

The danger of becoming marketers is that we gain a distorted perception of reality. Our job is to love a brand. It consumes our professional lives. This does weird things to a human brain. It makes it almost impossible to look at our brands the same way the rest of the world does. We care because we have to. We get paid to. The rest of the world doesn’t share the same motivation.

Paralyzed by Choice

First published June 28, 2012 in Mediapost’s Search Insider

In last week’s column, I looked at how Harvard Business Review bloggers Karen Freeman, Patrick Spenner and Anna Bird spelled the end of the purchase funnel. Today, I’d like to look at the topic they tackled in the second of the three-part series, “If Customers Ask for More Choice, Don’t Listen.”

Barry Schwartz, the author of “The Paradox of Choice,” believes we’re overloaded with choices. In fact, we have so many choices to make, often about inconsequential things, that we live with the constant anxiety of making the wrong choice.

This paradox meets today’s consumer head on, over and over, in situation after situation. The other factor, which I’ve seen play a massive role in buying behaviors, is the degree of risk in the purchase. The bigger the purchase, the higher the risk.

The final piece of the buying puzzle is the reward that lies at the end of the potential purchase. Our brains are built to balance risk and reward in fractions of a second. But we don’t do it by a calm, rational weighing of pros and cons, thus engaging the enlightened thinking part of our brains. We do it by unleashing emotions from the dark, primitive core of our brain. The risk/reward balance whips up a potent mix of neural activity that sets our decision-making engine in motion.

The degree of risk or reward sets the emotional framework for a purchase. High reward, low risk generally means a fairly fast purchase, such as an impulse buy. High risk, low reward may mean a very long purchase cycle with an extended consideration process. Whatever the buying path, there will be an undercurrent of emotion running just below the surface.

Now, let’s match up the findings of the HBR team. High-risk purchases automatically ramp up the level of anxiety we feel. We’re afraid we’ll make the wrong decision. And, in a complex purchase, there’s not just one decision to be made – there are several. At each decision point, we’re bombarded by choices. If the hundreds of purchase path evaluations I’ve done are any indication, the seller spends little time worrying about presenting those choices in a user-friendly way. Catalog pages are jammed with useless and irrelevant items. Internal site search results are generally abysmal. And product information typically takes the form of a long shopping list of features. Very little of it speaks to buyers in a language they care about.

This is a dangerous combination. We have the natural anxiety that comes with risk. We have a gauntlet of decisions to make, each raising the level of anxiety. And we have websites that contribute greatly to the frustration by making it difficult to navigate the information that does exist, which is either too little, too much, too irrelevant or too salesy — never does it seem to be just right.

Again, Freeman, Spenner and Bird ask us to make it simpler for the buyer. Provide them with fewer choices, and make them as relevant and compelling as possible. Ease the burden of risk by providing information that reassures. Realize that one of the components of risk is the degree of bias in the information we’re given. It that information reeks of marketing hyperbole, it will be discounted immediately.

In our numerous eye-tracking studies, we’ve found that in most instances, three to four options seems to be the right number to consider on a Web page. These can be easily loaded into working memory and compared without causing undue wear on our mental mechanics. So, on a landing or home page, three or four groups of coherent and relevant information seems to be an optimal level. We call them “intent clusters.” For navigation bar options, we try to keep it between five and seven choices. If we expect mostly transactional traffic, we ensure there is a “fast path” to purchase. If we expect a lot of purchase research, we aim for rich promises of relevant and reliable information.

As Freeman, Spenner and Bird remind us, “The harder consumers find it to make purchase decisions, the more likely they are to overthink the decision and repeatedly change their minds or give up on the purchase altogether. In fact, regression analysis points to decision complexity and resulting cognitive overload as the single biggest barrier to purchase.”

As marketers, our job is to eliminate the barriers, not erect new ones.

The Death of the Purchase Funnel

First published June 21, 2012 in Mediapost’s Search Insider

A recent series of three posts on the Harvard Business Review blog by Karen Freeman, Patrick Spenner and Anna Bird explored some of the myths about how consumers make decisions. I think each of these has direct implications for search marketers, so over the next three weeks I want to explore them one at a time.

The first, titled “What Do Consumers Really Want? Simplicity,” talks about the breakdown of the purchase funnel. The HBR bloggers contend the funnel, which has been around for well over a hundred years, no longer applies to consumer behaviors. I concur, and said as much in my book, “The BuyerSphere Project.”

We differ a little on the reason for the demise, however. The HBR team credits the demise to cognitive overload on the part of the consumer. We’re simply bombarded by too much information on the purchase path to fit it all into the nice, simple, rational filtering process captured in St. Elmo Lewis’s elegant funnel-shaped model. The accompanying research, a survey of 7,000 consumers, shows decision simplicity was the number-one thing people wanted when making a purchase.

I agree that information overload is part of it, but I also believe that two other factors have led to the end of the purchase funnel. First, the purchase funnel assumes a rational filtering of options based on careful consideration of a consumer’s requirements. I don’t think this was ever the case. Emotions drive our decisions, and more often than not, rationality is applied after the fact to justify our choices. Prior to the Internet, emotion was tough to distinguish from rationality, as buyers didn’t have much control over the content they accessed during the consideration process. They were limited to whatever the marketer pushed out at them. So, whether driven by emotion or logic, they tended to go down the same path and display many of the same behaviors. Given the pervasive believe in humans as rational animals at the time, it was not surprising that a logic-driven model emerged.

The other factor, as I alluded to, was that the Internet shifted the balance of power during the purchase process. Suddenly, we could choose which paths we took during the consideration process. We weren’t all forced down the same path, according to some arbitrary notion of a funnel-shaped model.

What became clear, when consumers could choose their own path, was that the simplicity of the funnel model bore little relation to the actual paths consumers took. And those paths were driven by emotion. People bounced all around, depending on what they were looking to buy. They could go all the way to a shopping cart, then suddenly abandon it and go back to a destination that would be considered “upper funnel” and start all over again. From the outside looking in, this resembled a bowl of spaghetti much more than it did a funnel.

So, we have a trio of suspects in the death of the purchasing funnel: cognitive overload, emotion trumping logic, and consumers gaining more control over their consideration path. All lead to an interesting concept to consider: laying an online path that anticipates the emotional needs of the buyer, and yet keeps the information presented from overwhelming them. For example, marketing has traditionally taken a “turf war” approach to persuading a prospect: “as long as they’re on our turf, we do everything possible to close the sale.

But this doesn’t really match up with the three trends we’re talking about. What online consumers are looking for, according to the HBR research, is a safe online zone that will make their decision easier. Rather than going from site to site, collecting information and filtering out overt marketing hyperbole, what consumers want is a single information source they can trust. They want to be able to lower their “anti-BS” shields, because being a rational, cynical shopper takes a lot of time and effort.

Today, it’s extremely rare to find that trustworthy information on a site you can actually purchase from, but it’s starting to happen in some high activity categories, where independent portals facilitate this simplified approach to shopping. Travel comes to mind.

But let’s consider what would happen if a brand’s website took this approach. Rather than bombard a prospect with exaggerated sales pitches, putting them on the defensive, what if a more neutral, objective experience was provided?  After all, why shouldn’t the decision path be built on your own turf, giving you a home field advantage?

Brand Beliefs and the Facebook Factor

First published May 17, 2012 in Mediapost’s Search Insider

Last week I talked about the power of our beliefs to shape our view of the world around us. I also mentioned how our belief constructs impact our view of brands. As luck would have it, two separate pieces crossed my path this week, both of which provide excellent examples of how we may perceive brands, and how marketers often get it wrong when trying to shepherd a brand through the marketplace.

The first piece was “Does Branding Need to be Rebranded?” by Mediapost’s Matt Straz in Online Spin. In it, Matt mentioned the backlash against Sir James Dyson (he of the cool vacuums) when he dared to mention that he doesn’t believe in branding. Now, to clarify, Dyson doesn’t believe in branding the way it’s practiced by many companies, where through sheer force of advertising, their heavily controlled (and often contrived) brand story is theoretically imprinted in your brain.  This isn’t so much branding as brain-washing. Let’s call it “brand-washing.”

But let’s go back to how our beliefs define our view of brands. We use beliefs as a heuristic short cut allowing us to operate efficiently in our world. We form beliefs so we don’t have to endlessly think through every single decision. Beliefs form based on our own experience, but they are also formed based on what we’re exposed to. All this input gets synthesized into a reasonably coherent and remarkably resilient belief. Once in place, this belief guides our action.

So, from our perspective, a brand can be defined as what the buyer believes a brand to be.  In the ad community, there is much debate about the definition of a brand. But, in the final analysis, the only definition of brand that matters is the one that rests in the mind of the buyer. All else are simply inputs into that final mental model, which is created solely by the customer.

James Dyson believes the best of those paths is by producing great products and then letting them speak for themselves. If you create products that consistently exceed expectations, that is enough to build an authentic and enduring brand belief. It’s hard to argue with that logic, and, in fact, it’s what P&G called the Second Moment of Truth with consumers: their experience when your product is in their hands. In this definition, brand is intimately coupled with the product itself.

But, if Dyson is right, why is there an advertising industry at all? Even Dyson buys ads to sell vacuum cleaners. This brings us to the second piece that I saw in the past week. It was a report out of Forrester called the Facebook Factor. This is a bit of a tangential detour, so bear with me.

The report posits that we can now quantify the value of a Facebook “like.” The reasoning is fairly simple. If you add a few questions to a typical customer survey, you can start to quantify the correlation between someone liking you on Facebook and subsequent purchasing of your product. But, as Forrester points out in the report, there is a correlation/causation trap here that could lead to many marketers making the wrong conclusion.

If you try to equate people who felt motivated to “like” you on Facebook with likelihood to purchase, you run the risk of mistaking correlation for causation. People didn’t buy your product as a result of “liking” you on Facebook.  The Facebook “like” came as a result of a positive “belief” about your brand. It was an effect, not a cause. At best, the Facebook Factor should be considered as nothing more than a leading indicator of brand preference.

But many marketers will confuse cause and effect. They will believe that driving Facebook “likes” will drive higher brand loyalty.  This is where brand and product can potentially become decoupled. Here, once marketers start assigning a value to a Facebook “like” based on Forrester’s methodology, they will start regarding Facebook “likes” as the end goal, trusting in the mistaken belief that a Facebook “like” will always correlate positively to purchase behavior.

Once this decoupling happens, the value of the Facebook “like” starts to erode. The motivation for the “like” often has little to do with a positive brand experience. It’s driven by a promotion or campaign that has just one aim: to drive as many likes as possible. From the customer’s perspective, it’s easy to hit the “like” button. They have no skin in the game. There is no belief behind the action.

In the end, I believe Dyson’s definition of brand is the more authentic one. It goes back to the very roots of branding, which was a reassurance to buyers that they were buying what they believed they were buying.

Read more: http://www.mediapost.com/publications/article/174966/brand-beliefs-and-the-facebook-factor.html#ixzz2ik9IjRDB