Archives for September 2012

Lessons from Cool Hand Luke: Failures in Business Communications (Part 2)

Last week, I discussed the potentially dire consequences of using the wrong channels when communicating with customers. Paul Newman’s famous line from Cool Hand Luke, “What we have here is a failure to communicate” served as my theme.

I outlined nine milestones in communications, from the printing press to the Internet. Today, I conclude with a follow-up on how each of those communications channels has fared over the years.

More recent developments in the nine communication mediums include the following:

1. The days of printed books and newspapers may be numbered. Consider the following:

  • Although Amazon keeps its sales figures close to its corporate vest, reports by Bloomberg and other sources suggest it likely sold over eight million Kindles in 2010. Amazon’s January 27, 2011 press release reported, “Amazon.com is now selling more Kindle books than paperback books. Since the beginning of the year, for every 100 paperback books Amazon has sold, the Company has sold 115 Kindle books. Additionally, during this same time period the Company has sold three times as many Kindle books as hardcover books.” Those sales were achieved in spite of stiff competition from the Apple iPad and other eReaders.
  • In an industry financed by advertisers, newspapers now cost more to reach a similar audience than radio, magazines, or websites. The Newspaper Association of America expected ad revenue to drop 9.7% in 2009 after falling 16.5% in 2008.

2. In a press release issued November 12, 2010, the U.S. Postal Service reported a loss of $8.5 billion in fiscal year 2010. They delivered 6.1 billion fewer pieces of mail than the previous year. Labeled advertising mail, 273 million pieces of daily junk mail make up 47% of Postal Service volume, but only 25% of its revenue.

3. Struggling from its failure to win a federal contract to deliver mail, the Pony Express announced its closure on October 26, 1861, two days after the transcontinental telegraph connected Omaha to Sacramento. During an 18-month existence, it succeeded in reducing the cost of a 1/2 ounce letter by 80%.

4. Home phones are being replaced by cell phones and other mobile devices. Smartphone users can now perform virtually any function available on a computer. They can also scan product bar codes for instant price comparisons and download directions to local competitors. In October 2010, CTIA-The Wireless Association reported in their 50 Wireless Quick Facts that over 89% of handsets operating on wireless networks are capable of browsing the web.

5. With its market steadily evaporating since the 1975 invention of digital cameras, Kodak ended a 74-year run when it discontinued production of Kodachrome film in 2009. SEC filings reported a $210 million loss that year. Kodak filed for Chapter 11 bankruptcy in January 2012. They will no longer manufacture cameras, and will sell its film division. The digital camera was invented by a Kodak engineer.

6. A July 2008 report by Borrell Associates titled Say Goodbye to Yellow Pages estimated the industry would lose 39% of its revenue over the next five years as small businesses focus more on online advertising. It was forecast that 2008 print revenue of $12.7 billion would decrease to $7.8 billion by 2013. In an age of instant information, an increasing number of businesses are obviously questioning the wisdom of spending scarce marketing resources on a medium that will not be distributed until months after incurring the expense. Some estimates suggest that up to 20% of small businesses do not survive to see their Yellow Pages ad in print. Meanwhile, concerns over the environmental impact of discarded books are causing cities to explore advanced recovery fee ordinances that will add millions of dollars to industry costs.

7. The marketing impact of satellite radio remains to be seen. Sirius FM Radio reports almost 22 million subscribers in some highly desirable demographics. Yet, the public company has not traded above $3 a share in over four years.

8. A four-decade oligopoly by ABC, CBS and NBC began to crack by the 1980s. Having once controlled 99% of all broadcasts, their market share dropped to 32% by 2005 according to the Journal of Broadcasting & Electronic Media. The Fox Network now produces the highest rated show on TV (American Idol) and the longest running primetime show (The Simpsons). The increased popularity of cable TV, Internet access to programming and digital recording devices threaten to redefine television’s role as the “high end” communications media. Fortunately, the ability to embrace technological changes has allowed television to hold the average American’s attention for 4.7 hours a day (according to a 2008 Nielsen report) over 60 years after its introduction. Finally, NBC’s owner Comcast announced in January 2011 they were dropping the iconic peacock from their corporate logo. This announcement ended a 56-year television tradition that first trumpeted the arrival of color programming to an entire generation of mesmerized children. Curse you, Comcast!

9. Lastly, the traditional model of text dominated static communications on a free World Wide Web navigated via a handful of search engines is being challenged. New paradigms including pay per click advertising, video and yes, social media are quickly redefining it.

As I reflect on this timeline, it occurs to me that few people can anticipate, let alone shape communications in this accelerating stream of consumer driven changes. Names like Gates, Bezos, Zuckerberg and a handful of other young billionaires come to mind.

The rest of us do well just to keep up with it.

The goal of today’s successful small businesses should be to meet customers in whatever communication channels they choose at that moment and to educate and influence (never dictate) consumer behavior as best they can.

There is no “one-size-fits-all” magic formula for success, no one thing that will permanently solve marketing challenges or slow the pace of change. What worked yesterday may not work tomorrow because as Tony Robbins and others have said, “The past does not equal the future!” That much is clear from the timeline. There is simply no substitute for hard work, vision and continuous planning and experimentation.

However, there is also much cause for hope.

Don Bradley and Chris Cowdery’s exhaustive study Small Business: Causes of Bankruptcy had this conclusion: “Evidence suggests that failure rates of small businesses in the United States are related to the nature of a capitalistic market in relying on competition where only the strongest survive. The causes for small business failure and ultimately bankruptcy are many. A successful entrepreneur is, no doubt, the consummate businessperson who must be a jack-of-all-trades. It is evident that nearly all entrepreneurs have the opportunity to control their own destiny. Success is obviously not a guarantee, but nor is failure. A well-rounded businessperson who has carefully planned and prepared with a clear vision of who and what the company is will have an excellent opportunity for success.”

I also point out that many of the marketing ideas discussed in this blog would not have been possible just a few short years ago. Many more have been made easier and more cost efficient by recent technological developments and increased Internet-based competition.

I therefore challenge and encourage you to seize the opportunity to control your own destiny, to embrace change, to experiment with new ideas, and to learn from your triumphs and your disappointments in these exciting times. Your business will grow in the process.

I wish you great success in your efforts and I hope you have fun in your journey.

© 2012 by Dale R. Schmeltzle

Lessons from Cool Hand Luke: Failures in Business Communications (Part 1)

The 1967 movie Cool Hand Luke earned Paul Newman an Academy Award nomination for his portrayal of a nonconformist member of a southern chain gang. It also taught me two lessons. The first is that some people can eat 50 eggs (you had to see the movie). Admittedly, that has never proven to be especially useful information. Nonetheless, it seems good to know.

The second and more important lesson is that a failure to communicate can have potentially dire consequences to individuals, and by inference businesses.

I am tempted to explain away the reason for the high rate of business failure with the fact that they ran out of money. While a true statement, it is overly simplistic. It is also more descriptive of a symptom than the reason for the problem.

I believe a root cause of many business failures is actually a failure to communicate.

Communication is what successful marketing is all about. It is about establishing and strengthening customer relationships by communicating your message and your value statement to the right people, at the right time and using all the right channels. It is about a continual education and training process.

A review of major milestones that have shaped business communications over the centuries will illustrate an essential point. It is that societies and consumers usually accept and embrace communications changes faster than the business community can adapt to them. Even the most carefully designed marketing communiqué, be it a press release, an ad campaign, a newsletter, etc., is likely to fail if it is not transmitted in the optimal channel. The pace of change is escalating, thereby increasing the chances that businesses will fail to communicate their message to customers and prospects.

As you review the timeline, think about how each change influenced the growth and success of businesses that were foresighted enough to embrace it. Consider also the wide variation in the useful lives of the various inventions, ranging from the printing press that has been around almost 600 years to the Pony Express that lasted less than two years. Lastly, imagine how businesses might have successfully adapted to further changes as each of the milestones were eventually displaced or relegated to a lesser importance by later means of communication.

Here are several examples of innovations that significantly influenced businesses:

  1. Gutenberg’s invention of the printing press in 1440 made the mass production of books possible. Mass production of newspapers followed in 1605. The first paid advertisements appeared in a French newspaper in 1836.
  2. The United States Postal Service began in Philadelphia in 1775. Free mail delivery in U.S. cities began in 1863, reaching rural America by 1896.
  3. On April 3, 1860, a rider left St. Joseph, Missouri and headed west. He carried a pouch containing 49 letters and five telegrams. A rider carrying another pouch left San Francisco the same day and headed east. The Pony Express was born. Both pouches reached their destination ten days later. It was the fastest means of east-west communication in the days immediately preceding the Civil War. A 1/2 ounce letter cost $5 at the start of the service, or approximately $135 based on changes in the consumer price index through 2010.
  4. Alexander Graham Bell was awarded a patent for the telephone in March 1876. The first “long distance” call between Cambridge and Boston, a distance of about three miles, occurred in October of that year. New York and Boston became the first cities linked by telephone in 1883.
  5. George Eastman developed film technology to replace photographic plates in 1884. He founded Eastman Kodak in 1892. With the slogan “You press the button, we do the rest” he introduced photography to the masses with cardboard box cameras that sold for $1, the equivalent of $25 in 2010.
  6. Chicago’s R. H. Donnelley created the first Yellow Pages directory in 1886. The name was coined three years earlier when a Wyoming directory printer ran out of white paper and used yellow instead.
  7. On November 2, 1920, Pittsburgh’s KDKA reported the results of the national election that saw Warren G. Harding elected president of the United States. This was the first broadcast of a commercial radio station. Paid advertising followed within two years. Large companies like Westinghouse, Philco, Wrigley and Maxwell House Coffee typically sponsored entire programs.
  8. Scottish inventor John Baird demonstrated the first television in London in 1925. The image had just enough resolution to discern a human face. Television was introduced to the public (including my father) at the 1939 New York World’s Fair. Commercial television developed following World War II. Milton Berle became its first “superstar” in 1948. As with radio, broadcasts were usually sponsored by a single national advertiser including Texaco and Procter & Gamble. The first national broadcast of a show in color was NBC’s Tournament of Roses Parade on New Year’s Day 1954. Westinghouse began offering a color television in the New York City area about two months later. It sold for $1,295, or approximately $10,500 in 2010 inflation-adjusted dollars.
  9. Two decades of research into communication networks, much of it related to government sponsored defense projects, culminated on August 6, 1991 when the European Organization for Nuclear Research introduced the World Wide Web. By 1994, there was a growing public interest. By June 2010, the estimated number of Internet users had reached two billion.

Next week I will review more recent developments in the same communication mediums, and discuss the lessons that can be gained from those changes.

© 2012 by Dale R. Schmeltzle

It’s Hard To Define But I’ll Know It When I See It-The Importance of Precision in Marketing

The title of today’s post is a partial quote from the late Supreme Court Justice Potter Stewart. He wrote it in a famous 1964 decision involving (forgive me) the definition of obscenity. I use it to introduce the topic of marketing and business phrases that lack precise and universally understood meanings.

If a promotional message is ambiguous, its exact meaning is open to individual interpretation by every recipient. A prime example of a vague message is any advertisement that uses the word “value”.  We frequently hear phrases like, “A $75 value, yours for only $19.95 (plus shipping and handling).”

What exactly is value? Possible meanings might include:

  1. The seller’s cost;
  2. What competitors typically charge for a similar product or service; or,
  3. The original price of the item.

Most likely, it is none of the above. Buyers don’t usually know the seller’s cost of an item, and are indifferent even if they do. Furthermore, it’s unlikely a rational seller would promote sales that incur a $55 loss on every transaction. The dynamics of a free market system eliminate the second and third choices. If the intersection of supply and demand fixes the true price of something at $75, a prudent businessperson must offer it near that price, at least in the long-term.

My interpretation of value closely resembles the economic concept of utility, directly correlated to my level of personal satisfaction derived from or desire for something. The problem with this concept from a marketing perspective is multifaceted. Not only is my level of utility different from yours, but it changes over time. Therefore, it is impossible to measure within meaningful parameters.

A classic example is the value or utility of a simple glass of water. If I’m near death from dehydration, presumably I am willing to pay virtually everything I own for a single life-saving gulp.  The second glass of water would still have great value, although slightly less than the first. By the tenth glass, the water would hold little value, as I would be unable to consume it. Its only utility might be to store it for future consumption. In less critical situations, for example in a restaurant, water has no quantifiable value for me. I expect free water with unlimited refills.

The example illustrates a final challenge using the word value in a marketing context. The consumer, not the seller, always defines it!

The reality is words like value, savings, quality and worth are examples of intentionally ambiguous and ill defined terms; all-too-common marketing ploys intended only to suggest some vague concept of an “act now before it’s too late” bargain to the undiscerning consumer.

What is the message here? Effective communication always requires a high level of care and precision. Marketing is no exception. Choose your words carefully and communicate the same meaning to all recipients. Your brand and professional reputation may not survive the alternative.

 © 2012 by Dale R. Schmeltzle

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