Thursday, July 23, 2009

Free - Digital Marketing Economics

Chris Anderson, Wired Magazine, has just published "Free: The Future of a Radical Price" suggesting that the declining cost of technology will drives digital products to be free because the marginal cost of product approached zero. The application of Moore's law, which suggests that the amount of memory delivered for a given cost will double every two years (a rough statement of the law, not a quote), to the cost of delivering digital products is one of the foundations for the suggestion that pricing will go to zero because the cost to deliver approaches zero.

It's interesting, because the cost appoaches zero but never acheives zero. Therefore, someone must still pay for the cost of delivering the product. Facebook is free, but the servers that house the data cost money. Google is free, but the it costs money to run the search bots, store and serve the data. The marginal cost of a Google search may approach zero, but it is not zero?

So what is the model? If free to oonsumers, there appear to be only one alternative - third party party payment. Third party payment to cover costs and provide profit margin can come from advertisers (the media model), or from a subset of the consuming market. This subset might be fees to subscribers for premium services. In other words, in order to be free to most a few must pay for a premium offering. A second version might be the blades/razor model, the content is free (or near free) but you must purchase the player/iPod/iPhone/Kindle. In the end, "Free" isn't really free, it's the ability to allocate product to a broad population by charging a few or charging in another manner. What do you think?

Zappos Creates Market Value in Amazon Eyes

Amazon is acquiring for $847 Million. With over a billion in revenue (See Forbes article) and reportedly earning $40MM, Zappos has clearly shown that there is profit is shoes. Not only profit, but equity value as well.

Where does all that value come from? Customer service. Zappos has differentiated itself among all shoe sellers by devoted, passionate, exceptional customer service. they successfully took a near-commodity product category and created brand value by differentiating themselves on service - filling a much needed gap in the online marketplace. (By the way, Amazon values customer service and has been a leader in technology solutions for serice - witness their book recommendations.) The lesson for marketers is to look for unconventional ways to differentiate the entire solution bundle (products and services), and you can create real market value.

Wednesday, July 22, 2009

Marketers enter the Shark Tank

Time for another reality business show. We've already seen Trump's "You're Fired" and Richard Branson gave it a show. This time it's Shark Tank, produced by Sony. Entreprenuer wannabes meet succesful entrepreneurs to pitch thier ideas. It may be entertaining, but will it paint a picture close to the reality faced by most entrepreneurs trying market their business? Here are some other blog posts about small business marketing.

Tuesday, July 14, 2009

Home Run Derby - a Sponsorship Payout?

Albert Pujols didn't win the Home Run Derby at the All-Star game festivities last night. The event was won by Prince Fielder of the Milwaukee Brewers, son of former major-leaguer Cecil Fielder. But the real question is, did the marketers win? Pepsi, State Farm and others were the paying sponsors. Did they generate a favorable ROI on their All-Star investment? Probably not, at least in terms of direct sales. But direct product sales was probably not the goal. Brand association with this high-energy, contemporary event (the Derby is still relatively new, and more exciting than the game itself) was the goal. In turn, this association and other sponsorships align these brands with the values of the audience. That is, they associate the brand with contemporary, high-energy, mainstream "American" events. This alignment impacts brand choice over time. This alignment impacts trade relationships as well, especially when a buyer is making a choice to promote a brand (Coke vs. Pepsi). So, Albert Pujols may not have been the big winner last night. In the end, I think the sponsors came out ahead.

Friday, July 03, 2009

Twittering for Brand Marketers

Well, it seems that it's been all Twitter in the news lately (or Michael Jackson). Brand marketers are still trying to figure out how work with Twitter. Many wonder if it's worth the effort at all. With the evolution of Web 2.0 social media tools, brand conversations are happening faster and in more places. This challenges marketers who traditionally spend time trying to manage communications rather than planning and participating in the engagement.

Here a couple of real-world things a brand marketer might try if you are still trying to dip you toe in the waters of Twitter.

1. Set up a Twitter account. (Obviously, you can try the water if you don't go to the pool.)
2. Log In, watch and listen. Then post a few messages. (Step into the shallow end.)
3. Begin to Follow others. There are several ways to do this, but two very easy methods include:
A. Use the Search tool on twitter to find people you want to follow.
B. While logged into to your Twitter account, open another window in your browser and type in using the name of the person you want to follow. For example, to follow me, type When you get to the Twitter page of the person just click the "Follow" button under the photo.

Don't know who to follow? For marketers, try following your competitors, key industry players, and bloggers that you like. Seth Godin is one of the more popular marketers to follow. Follow me if you like.

4. Auto Follow. You can easily set up your account Settings to automatically follow those who follow you. This helps start the potential for dialogue. Once you do this, you are ready for the main part of the pool.

This is not intended as a full training guide, just a push to help you get started. For marketers, it's very easy to move from this point to hosting your own instant "focus group" on Twitter, engage with loyal users, and track key issues.

Good luck!