The Economic Times has
ran the following 4-column interview with Erich in their September 4th
issue.
Download The Economic_Times_Sept_4th_2007_Aricle
We are
still a little fuzzy on the concept of the "outside". Would you care
to elaborate on it further? How is it different from the demand-first innovation
model?
Outside-in is the overall philosophy of the
demand-first model. The basic prom
ise of outside-in is based on our research
that shows that executives can not see the biggest and sometimes most obvious
opportunities in plain sight. The reason is that their own successes of the
past lead them to view the world from their own perimeters – their existing
products and services. Over time, success creates something like a smoke screen
and companies become obsessed with finding more customers for their products or
services. This is the opposite of the outside-in philosophy. It is an
inside-out philosophy – everything is seen from the vantage point of existing
products and services, past and current successes and the assumption is that
the future will be more or less the same, subject to some trends, perhaps. For
a time, this search of customers for a product can be successful. But
ultimately, the problems of this inside-out paradigm become obvious and
limiting. Everyone else also has a product or services in search of customers.
Companies compete ever more intensively with similar products or services for
the same set of customers. The old adage of success breeds success is wrong. We
believe that success breeds failure to see the next breakthrough ideas or
innovations.
Why is it important for a company to
look from the outside in and let go of the existing process and models?
It is important because the alternative to
outside-in, namely the inside-out philosophy limits your ability to see
opportunities for growth. It is important for every company because no company
is an island. Every company lives within the context of other companies,
competitors, suppliers, consumers and stakeholders. Our environment is changing
at an ever more rapid pace. In such an environment, you have only two choices:
to change with the environment or to die in commodity hell.
An outside-in philosophy adopted at companies
has proven the savior and source of successful reinvention. Think back when
Intel was competing in the memory business against tough competition from Japan.
For
Intel, it was a suicidal game, competing on price in what Andy Grove called:
marching through the valley of death. One day, the inspiration for thinking
about Intel from the outside-in came when Andy Grove asked the co-founder of
Intel Gord Moore what a new CEO
would do if they were fired today. The answer by Gord Moore was: to get out of
the memory business. So, Andy Grove suggested to his colleague to walk out to
the parking lot, to fire themselves, and look at Intel from the outside-in and
do what a new CEO would do. They
walked out and came back, they got out of the memory business and began the
microchips business. The rest is history.
The outside-in philosophy applied here at Intel
gave the co-founders the perspective, vision and conviction to not only see but
also do what saved the company, and that created one of the most successful
periods of growth and profits for the company. The outside-in philosophy can
help reinvent a business, identify breakthrough innovation and growth
opportunities, or build strong brands.
The switch to become much more consumer-centric brand will require a dramatic
investment in terms of time and energy to refocus corporate culture. Will
companies be willing to invest in this approach? How is it going to benefit
them in the long run?
The book has been based on applications in over
50 companies around the world. Companies are adopting these ideas rapidly. We
have studied about another 50 applications in all kinds of industry. The core
reasons for the rapid adoption of these principles have to do with the fact
that companies don’t have to adopt an extensive set of procedures and rigid
processes. This is not reengineering or business process transformation. This
is about adopting a focused set of tools, core methodologies and perfectly
tailored models, it is about making growth itself a process. In our
experiences, it is possible to experiment in just one market or one business
unit or one segment and see the success within months. This can then form the
foundation to successfully implement outside-in thinking across the whole
organization
What do you think will drive tomorrow's
innovation approaches? Global brands have begun traveling to less developed markets like China, India, and Brazil in the past few years. What are the new challenges for the global brand
marketer today?
The new challenges of global brand marketers
have nothing or little to do with those of yesterday. The notion that brands,
products or services travel across markets, the notion that brands have to be
consistent from one market to the other, to become “global brands” in some
cases which you allude to in your question is outdated. Of course, it still
exists. If a company has a successful product or brand at hand in one market,
they can skim the global markets for additional sales. But the opportunities
for real innovation and dramatic growth can not be achieved this way. We have
got to rethink how we think about global markets altogether. From the outside-in
perspective, there are no domestic markets versus global markets. The dichotomy
is an artificial one and belongs to the tool box of marketers stuck in the
1980s and those years are over just like the Reagan presidency in the U.S.
The challenges of global marketers today have to
do with developing customers and markets, not targeting them or rolling out
products or services into developing markets. Customers don’t want to be
targeted. They are not standing on a marketers’ shooting range. In particular,
consumers in China, India or Brazil don't wait to be graced by
products or services from other markets any longer like they did in the past.
Today, whether you live in New York City, Chennai, Singapore or Frankfurt,
we all live in a Times Square-like world where most consumers give a damn about
marketers’ messages and promises, where products that one does not need exist
in abundance and were media and channels have proliferated. And most
importantly, those people walking on Times Square or anywhere around the world are smarter than ever, and they are self-reliant and prefer to inform themselves. They don't rely on marketers telling them what they need.
In this world, building strong brands, achieving
innovation and growth depends on deeply understanding the ecosystem of demand
of a market and then applying the reframing tools as I have outlined in the
book. It is about rethinking business from the outside-in, from the unbiased
and untainted perspective to the consumers’ everyday life – how consumers live,
work and play in the 1,440 minutes they live from midnight to midnight. From this vantage point, the
opportunities for innovation and growth are not only abundant, they also can
happen anywhere in the world – anywhere in our life. I dislike your
characterization of developed markets versus developing markets here, it serves
no useful purpose. That dichotomy also should be retired.
How has the term "marketing"
changed intrinsically over the years? What do you think has been a watershed in changing consumer behavior in recent
years?
The most important aspect of consumer behaviour
that has changed is the consumer itself and the speed in which the context
changes in which a consumer lives. I have just discussed the self-reliant and
smart consumer everywhere around the world. I strongly believe that this is the
most important consumer trend. Nearly everything follows from here: the
difficulty to predict new product success, the relative ineffectiveness of
communications and messaging, the high costs of building strong brands.
Another major trend has to do with the changing
context in which we live. In the book, I describe an entirely new way of
understanding consumers, what I call: capturing the ecosystem of demand. This
involves understanding the behaviors and episodes of a consumer’s life first,
deeply understanding the context of our daily activities, before we study
demographic or psychographic differences among consumers.
We, as marketers, face challenges of gargantuan
proportions. We have to replace the need-fulfillment paradigm of business that
has served us so well for over 50 years. This simplistic paradigm suggests that
marketing and business is about “Find a need and then fulfill it!”. This need-fulfillment paradigm has outlived
its usefulness. We have to replace this paradigm by the new notion of capturing
the ecosystem of demand paradigm.
If you adopt the ideas of the ecosystem of
demand paradigm, you will see that marketing altogether changes. For example,
niching is then the new market strategy; intensive strategies win over
extensive strategies, focus on similarities in behavior rather than differences
in demographics or psychographics and segments. Innovation is no longer
technology- or product-driven, marketing is not about communication about connection
and engagement, it is not about mind share or share of wallet but about share
of the 1,440 minutes we all live from midnight to midnight; It’s about share of life. Also, as I described in the book, the
very model of building strong brands is changing and of communicating with
consumers is flipped upside down.
Companies are spending billions of
dollars on researching consumers. Do you think, that in an environment where
change is constant, the money is well-spent?
Yes, there is no alternative. Unless marketers
will want to compete on the suicidal strategies of an ever improved feature set
or downward spirals of low prices. There is only doom on the horizon for
companies pursuing these strategies.
If you accept that consumers are smart and ever
more sophisticated, you also have to accept that millions or even billions of
consumers are together more ingenious and can be more inventive about your
opportunities for innovation and growth than the few or even hundreds or
R&D managers or engineers tucked away in the company’s laboratory.
The models described in my book show how you can
harness this ingenuity of people without being “customer-driven.”
Customer-driven, even though it sounds so nice and politically correct, is
another totally illogical concept of the past. At our company Vivaldi Partners,
we trust in an insight of Henry Ford, who once said: “If I had asked customers
what they wanted, they would have told me they wanted a faster horse”. This is
why our dominant paradigm is to capture the ecosystem of demand using very
innovative discovery or research procedures like the Day Reconstruction Method,
a tool to re-instantiate in memory episodes of the previous day or an important
event in a customers’ life. Through this systematic reconstruction of episodes
of the lives of people, what really matters to them, we circumvent the classic
traps of measuring feature preferences that consumers don’t even care for or
know about.
Do you think consumers today, and this
particularly noticeable in tech products, are more interested in the
features/value-adds a product delivers rather than the brand itself?
No, they are neither interested in the
features/value-adds a product delivers nor are they interested in brands.
Marketers are interested in brands. But for consumers, brands are just things
in their lives they live with. Brands are as interesting as your neighbors, I
see them and hear them but so what?
We have got to throw out these outdated thinking
about features, benefits, needs, wants and brands altogether. What consumers
care for is living their lives, the activities, projects, tasks, and every
concerns they have to deal with, the challenges and pressures they face.
This is precisely where the models I describe in
the book begin. We need to study in an unbiased and untainted way, independent
of our existing product or feature set, what really matters to consumers. For
example, what matters to consumers is not a better feature of the Walkman over
another music listening device. What matters to them is what they do around
music: how they find out about music, evaluate music, choose music, buy music,
listen to music, store music and discard music. iPod is a brand from Apple that
is not a better listening devise than Walkman. In fact, have you ever wondered why
nobody ever made the comparison between the Sony Walkman and the Apple’s iPod?
It is because it does not matter. The reason is that the iPod is not achieving
a better feature set over Walkman, it is a way to manage our music entirely
from finding out about music through email invite or the iMusic Store, to
comparing music there, to listening it on the device or my Bose stereo system
or storing it in iTunes.
Can brands survive today, with just
differentiation?
Differentiation is overrated. Differentiation
and positioning are two concepts in marketing that derive from the notion that
if you have something different from competitors that competitors can’t copy
you on, you have a competitive advantage. It is worrisome that the whole notion
of business strategy and profits resides on differences.
However,
in the day and age of 250 different brands of mobile phones and 74 different
varieties of Lay’s potato chips, how important is differentiation?
In the book, I recommend to supplement the
notion of competitive advantage with the concept of customer advantage.
Customer advantage is the extent to which consumers have absorbed and
assimilated a product, service, brand or innovation in their everyday life.
Frankly speaking, I don’t know whether Starbucks is really a better coffee or
even a better coffee shop experience, and I don’t really care. Because between
the time I spent at work and at home, I spend an additional some minutes
usually at a Starbucks coffee shop. It is my third place where I spent nearly 45
minutes several times a week. That’s what I mean by customer advantage and if
you want to know why this is important, just think what opportunity space this
opens up for Starbucks to connect and engage with me beyond selling me an
overpriced coffee or a mug.
What is DIG and how is it different from
the company's innovation model?
The DIG model is a systematic and repeatable
process to find and execute a company’s next big growth strategy. I strongly
believe that the occasional brilliance of an employee or executive is like a
drop on a hot stone when it comes to innovation and growth. What is necessary
is to have a system and systemic process to win again and again.
I disagree with some of the notions that
innovation can be achieved by letting 1,000 flowers bloom and source as many
innovations as possible from anywhere in the hope that some will find its way
through the system, processes and structures of an organization. I can’t
believe that companies would gamble with an important function of business like
that.
What do you think are the top three
take-aways from your book Hidden in Plain Sight?
The three take-aways are: first, the biggest and
most obvious opportunities for innovation and growth are in plain sight and we
can often not see them. We need an entirely new paradigm to understanding
consumers. Retire the need-fulfillment paradigm and say hello to the capturing
the ecosystem of demand paradigm.
Second, in order to see, really see the biggest
opportunities, you can not rely on customers. You have to do your own work.
Customers can not know what they have not experienced. Hence, you need to
reframe, like a photographer reframes a picture, to really see the big
opportunities and your company’s sweet spot. There are several major reframing
tools that I have suggested in the book that help to search the demand
landscape and that lead to the creation of growth platforms, not merely a new
product or service. Stop innovating around products and start innovating around
demand-first growth platforms.
Third, in formulating your strategy and action plan, what we call the
strategic blueprint for growth, you have to abandon the notion of competitive
advantage and replace it by achieving customer advantage. This new way of
formulating growth strategies will lead to entire new ways of building brands,
of connecting and engaging with customers, of activating growth platforms and
to achieve breakthrough innovation.
