Starting an Internet business with a hip dot-com suffix? What better way to corral customers than to place ad spots on the Super Bowl? With hindsight, it’s easy to see that young Internet companies with unproven products were foolish to squander their IPO money on all those wise-cracking TV commercials a couple of years back. But lots of traditional companies have marketing blind spots, too, says Wharton marketing professor
Starting an Internet business with a hip dot-com suffix? What better way to corral customers than to place ad spots on the Super Bowl?
With hindsight, it’s easy to see that young Internet companies with unproven products were foolish to squander their IPO money on all those wise-cracking TV commercials a couple of years back. But lots of traditional companies have marketing blind spots, too, says Wharton marketing professorLeonard M. Lodish, founder of Wharton’s MBA course on entrepreneurial marketing.
In a new book entitled Entrepreneurial Marketing, Lodish draws on the lessons developed for that course to explore the critical role marketing decisions play in business success. Lodish’s co-authors are Howard Lee Morgan, vice chairman of idealab!, an Internet incubator, and Amy Kallianpur, assistant marketing professor at the Eli Broad Business School at Michigan State University.
The book cites the tactics and experiences of a number of companies, ranging from Amazon.com, AOL, Dell Computer, General Electric and Franklin Electronic Publishers to MetaCreations Corp., Preservation Hall Jazz Bands and Rita’s Water Ice. Individual chapters cover positioning, targeting and segmentation, pricing, public relations and publicity, entrepreneurial distribution channel decisions, product/service rollout, sales management, hiring, brand building, raising capital and other topics.
Entrepreneurial Marketing, Lodish said in a recent interview, “is targeted at people who have limited resources, limited time….who need to get the most out of everything they put into their business.” That means established companies as well as small startups.
Marketing “is a big deal for everyone, and it doesn’t get the attention that it deserves,” he noted, adding that 60% of new ventures fail because of bad marketing decisions. “There are some business people who intuitively understanding marketing, but there are a lot who do not.” Indeed, in many companies, decisions are dominated by people who were not exposed to marketing as they rose through other departments.
One of the most crucial early marketing issues at any company is the decision about who are the target customers for a new product or service, Lodish pointed out. A new product or service should be based on the entrepreneur’s area of “distinctive competence” and should promise a competitive advantage that can be sustained. The company must determine how those customers will perceive the product, and all the marketing and sales strategies should convey a consistent message that emphasizes the product’s special characteristics.
Creating a consistent perception about the product is so important that the company should resist the temptation to do any kind of marketing or promotion that might undermine the basic theme, Lodish and his co-authors write. While the company should explore a wide range of creative ways to market its offering, each should be tested before it is used. Novel approaches can be extremely profitable but should not be allowed to sow confusion about what the product is and to whom it should appeal.
Too often, said Lodish, companies with new offerings do not test enough to assure that a product is an appealing concept to enough customers. A dramatic example was the Iridium satellite phone system of the 1990s. The company simply assumed many people would pay premium prices to have mobile phones that could be used anywhere on the planet. But after billions were spent blasting satellites into orbit, the company learned what a good marketing survey would have told it beforehand – that very few potential customers thought the service was worth the cost. The company failed.
In contrast, Synygy Inc, a company that administers incentive compensation plans, used careful testing before making what might at first appear to be a relatively minor change in its advertising campaign several years ago. The print ads were designed to generate leads for the company’s sales force. The first ad was dominated by a photo of a man screaming in agony under the headline, “Is Managing Your Incentive Compensation Plan an Expensive Pain?” It generated two to five leads a week. A Synygy graphic artist then proposed a busier-looking ad headed by a comic strip balloon encasing the quote, “Hello, my name is Tom and I am a spreadsheet abuser.” The ad had less artistic appeal but the company decided to test it anyway. In a single use, the ad was so successful the company scrapped the older ad. With the new one, leads increased 15-fold.
Another crucial decision involves pricing, Lodish said. In many cases entrepreneurs give too little attention to the prices they will charge. It is not always the case that prices are too high, as in the Iridium example. Often, prices are set too low at the beginning. It is hard to raise prices after customers have become accustomed to cheaper deals.
Customers’ perceptions about a product’s price and other characteristics are critical to success, Lodish said. Customers often perceive free publicity as more credible than paid advertising, for example. Public relations efforts therefore need to be carefully managed to capitalize on this benefit and to create a “buzz” about the product.
Even decisions about how a product is sold can influence customers’ perceptions in a critical way. Should the company sell the product itself, directly to customers? Or should it sell through stores or other outlets? Should the company create the perception the product is offered only to select customers? Or should there be widespread distribution? The answer will be different depending on the product. Picking the wrong sales method can sink an otherwise promising product or service.
The perceptions of the company’s own employees also are important, the authors found. The sales force, for instance, should contribute to reinforcing customers’ impressions of the product or service. Generally, a salesperson should be paid more for landing a new account than for increasing sales to an existing account.
While most of the lessons in Entrepreneurial Marketing were derived from studies in the late 1990s, they are even more important today, Lodish said. The stock market downturn of the past year has made it much more difficult for companies to raise money through initial public offerings, and many venture capital sources have dried up as well.
Companies in the early 21st century, Lodish said, “need to have a really good story.” With limited resources, a company offering a new product or service must make every dollar count, and the way to do that is with smart, efficient marketing.