Andrew Mackie, business catalyst

More harm than good

Today I received a handwritten note from a local real estate agent informing me that she has 'a genuine buyer looking for a property in this vicinity'. I was impressed by the time and attention she had given me until I realised that it was a photocopy, made on coloured paper to appear genuine. I don't like being taken for a ride - even one that lasts only a few seconds - and most definitely will not be trusting her with the sale of my house.

On the weekend I needed to use a service station restroom but didn’t need fuel. As I was deciding what unnecessary item I would buy from the service station store in reciprocation, I encountered a sign sternly informing me that toilets were for customer use only. As I don’t pay for the use of toilets, I felt relieved of the need to reciprocate and left without buying anything at all.

Last week I visited a tea shop. Below every display of teapots and other expensive items were signs informing me that if I broke anything I must pay for it. I had assumed that this was the case before I read the sign - now I felt accused of being both careless and unwilling to take responsibility for my actions. Instead of freely touching and interacting with the beautiful teapots - a commitment/consistency step toward purchase - I stood at the same respectful distance I would give priceless Ming Dynasty china in a museum.

More harm than good.

The thin veneer of luxury

The probable journey of luxury handbags:

• Cows in a field,
• Cows in a truck,
• Cows killed and skinned in an abattoir,
• Cow hides in a truck,
• Cow hides at the tannery,
• Leather in a truck,
• Leather on a container ship,
• Leather in another truck,
• Leather in a factory (or sweatshop),
• Leather cut to size,
• Leather sewn into handbags,
• Handbags labeled, packaged and placed in nondescript cardboard boxes,
• Handbags transported in a truck/container/ship/truck,
• Handbags in nondescript boxes delivered to a retail complex by delivery staff,
• Handbags stored in nondescript boxes in a retail storeroom,
• Handbags removed from nondescript boxes by staff on minimum wages,
• Handbags placed carefully by staff on aesthetically beautiful display units in luxurious retail premises, priced at $3000 as befitting the true luxury & status of the brand.

Why are consumers satisfied by so thin a veneer of luxury? Do they not know or just not care what goes on behind the scenes?

There is momentum building for systems that make the ecological footprint of products visible to consumers - a history that travels with each product. This will no doubt reveal all aspects of production, including the source & conditions of labour for each product. Manufacturers will find transparency forced upon them - those who move fast to voluntarily and openly provide transparency will be the winners. Will this transparency also limit the mystique that marketers can generate around a finished product?

Homaro Cantu, remarkably mad restauranteur

If you thought you'd seen everything there was to see in food, you haven't come across Homaru Canto of moto cuisine. He offers a degustation menu that's so different it's truly remarkable, using liquid nitrogen, class 4 lasers & a patented polymer oven to create visual and textural plays on food beyond anything I've ever seen.

This may not be your thing - Howard doesn't care. I'm sure the place is booked months in advance by people who absolutely love it. Here's what he and business partner Ben Roach had to say at PopTech in 2006:

Nike’s House of Hoops

I’ve been enjoying the BusinessWeek Innovation of the Week podcast series recently - here’s a quick summary of & some thoughts on the Nike House of Hoops retail store discussed in this episode.

Niche
No longer ‘all athletic things to all people’, the Nike House of Hoops concept enables Nike to ‘go much deeper into people’s lives’, with this retail concept exclusively for people who consider themselves to be part of the basketball community. Nike are doing this in other areas - the second floor of Nike Town New York, for instance, is dedicated to the runners who use Central Park.

Consumers are forming into tribes & identity is the next big marketing tactic. Big brands must align closely with each tribe so as to not lose ground to smaller, niche players.

A physical presence
A website can only go so far – this retail presence allows them to be part of their everyday communities, making a stronger relationship with consumers through a physical experience. Nike will localize each store to the immediate community, allowing customers to have a sense of personal ownership.

Brand leverage & partnering
The store is called 'Nike House of Hoops presented by Footlocker'. Here's a paraphrase of a Nike representative on the Footlocker relationship: 

We’ve had a longstanding relationship with Footlocker, literally from their first store in the 70s. Footlocker represents the biggest basketball destination in the US so it was only natural that we progressed to this level of co-operative association. The world is changing and you can’t do everything by yourself any more.

Even Nike leverages other brands - think about that for a second. What are the implications for your business?

Learning
Nike are planning to launch 50 of these stores but they want to learn about this first store first – even the first few hours of opening provided valuable insights for them.

You can invest heavily into research and design but even Nike doesn’t know what will happen until you open the doors to the public. Nike have learned not to become complacent nor to rest on their laurels which is what innovation is all about – being prepared to make mistakes, optimise and relaunch as you go. If you’re not prepared to make mistakes, you can't innovate.

Collaboration

I love collaboration - it's a way of providing both personal gain and mutual benefit, which is another way of saying that it works and is sustainable. Here's a great TED talk by Howard Rhengold on the topic - enjoy.

Something to say

Apparently Albert Einstein was once asked to give a highly anticipated university commencement speech over a formal dinner. For his speech he stood up and said:

"I do not have any particular thoughts to express today, so I wish you all success in your future years."

And then he sat down. After a moment, he stood up again, walked back to the microphone and indicated that if he did have something to say in the future he would come back. Some months later he contacted the university and they held the dinner again in his honour.

Today, I don't have anything to say. Not for lack of ideas - I usually have around two or three new ideas to blog about each day - but rather because I'm increasingly wanting to delve deeper and deeper into topics. Many nights I get to the wee hours of the morning and am still not happy with my post, so I find a quick topic to put up instead and carry the topic over to the next day.

I'm therefore going to modify my original goal of posting daily to instead post whenever I have a meaningful post ready to give you. I'm also going to cut myself some slack and point you to good material without feeling the need to give extensive background on it - in this way I can point you to more useful resources. At this stage I don't know how often I will post but it will be at least one post a week and at times many more.

You may find it helpful to subscribe to my feed via email or RSS rather than have to come to the site to check for new content - see the options on the top right of this screen.

Information asymmetry

In his excellent book The Undercover Economist, author Tim Harford discusses (among many other topics) the problem of information asymmetry, first identified by Nobel prize winner George Akerlof in 1970.

Information asymmetry
Information asymmetry is a market condition where the sellers of a certain good know more about the product than the buyers. Akerlof’s example was the second hand car market where sellers know the foibles of their cars but buyers cannot tell the good cars from the bad. Buyers therefore compensate for this uncertainty by offering a price lower than the sellers of good cars are prepared to accept, preventing the sellers of good cars from entering their car in the market at all. Ultimately the effect of information asymmetry is that the second hand car market becomes a market for lemons.

Solution #1 - Experts
Given the value to both sellers and buyers in reducing uncertainty, a variety of businesses have been created to solve the state of asymmetric information in a number of markets. Two examples might be pre-purchase vehicle inspections in the second hand car market and building & pest inspections in real estate. Of course, experts sometimes have different incentives to that of their clients - real estate agents, for instance, have little incentive to get the best price for their clients, instead looking for turn houses over as fast as possible. Freakonomics discusses one study which found that real estate agents kept their own houses on sale ten days longer (waiting for a better offer) than the average, getting 3% more than the price they obtain for you and I.

Solution # 2 - The internet
Of course, the most powerful antidote for information asymmetry has been the internet. Information is no longer controlled by the powers that be - it's now democratised and readily searchable through Google. It's also changed the speed at which information is available so that everyone gets it at the same time. Finally, a large number of comparison services have been created to deal specifically with this issue, be it a restaurant guide or customer reviews on Amazon & EBay.

Solution #3 - Other signals of quality
Where information asymmetry persists in spite of experts and the internet, Tim Harford explains that consumers look to other signals for quality that have nothing to do with the product itself. A car dealer with a marble-floored showroom would therefore be viewed more favourably than someone who operates from their garage. This is because their larger investment suggests they are more interested in protecting that investment than doing a dodgy deal and leaving town. I see two problems with this, however, where significant financial investment is involved:

a) Apparent risk only
Investing in non-product quality signals speaks to apparent risk rather than real risk – the marble flooring makes no actual difference to the quality of the BMW parked on it. Being an inefficient solution it may worsen the problem - sellers may seek to recover their investment by massively inflating prices, selling lower cost goods or hitting you with hidden costs.

b) The past, not the future
The second problem with this high-investment solution is that a showroom is an indication of a previous commitment, rather than a future commitment. That prior commitment might also involve high levels of debt, requiring solid-looking businesses to close without warning.

What does all this mean? It's hard to get people to trust vendors in faulty markets. For you and I who want to sell things, this is a serious problem. In a future post I'll discuss an inexpensive solution that any business can employ.

Steve Jobs speaks out

The online excerpts from Fortune's interview with Apple CEO Steve Jobs are well worth reading.

Apple is a mature company who has retained its innovative outlook, passion and hunger. They know what they do best and stick to that.  If they don't love a potential product, it doesn't get made. If they're making a product but it's not quite right yet, they don't ship it anyway - they stop the project and get it right. They're experienced enough to anticipate what customers don't yet know they want to create something that they can't live without. They're totally committed to extraordinary design, stunning aesthetics, simplicity and usability. They didn't plan to redefine the music industry with iTunes, but they did it so well that they did. 

How could you not love Apple?

Do you want to build a universally-admired large company like Apple? Don't make compromises at the start - how you begin & build your company is how you will end it.

What's in it for me?

In the battle for Australian ice cream cone supremacy, Nestle and Streets are currently going head to head with expensive TVC campaigns, promoting their Drumstick and Cornetto respectively. Here are their commercials:

Watching the ads, it seems that Streets have a better handle on the 'what's in it for me?' factor - their tagline of 'no boring bits' is a compelling difference between their cone and the competition. The axe-weilding maniac clearly demonstrates the difference - we don't need to believe Streets, we can see the difference.

Nestle, by comparison, appear to be taking a social proof / nostalgia line, that Drumsticks have been part of the Australian summer experience since 1963. This might encourage us to get to the corner store to buy an ice cream, but standing at the fridge which ice cream will we choose? Maybe the one with 'no boring bits' rather than the one that was first made in '63.

Ensure your products have a compelling advantage over the competition (one that consumers will find compelling, not you) and in every instance of your customer-facing material, ensure that it passes the 'what's in it for me?' test - clearly communicate that compelling advantage. If you don't, you're wasting your precious cash, your time and another opportunity to turn consumers into customers.

The Brand Gap

The Brand Gap by Marty Neumeier is one of my favourite business books for three reasons:

• it explains clearly what a brand is (trust),
• it provides a high level view of how to build a brand, and
• you can read it and understand all of the concepts in 90 minutes.

This slide presentation tells you all you need to know about the book - the book uses the same illustrations but with additional text that's worth the investment.

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