Playboy Product Positioning Pivot

The WSJ reports today that Playboy magazine will move away from what started it and what it is known for to become articles only publication. It turns out its print strategy trails its online digital strategy. Playboy had already made its website Safe For Work with no pictures that will get you in trouble at work. That change to playboy.com led to its web traffic skyrocket from 4 million to 16 million visitors a month.

So why the change? Let us use the customer job to be done growth matrix I have shared with you.

They were, for a long time, stayed in the top left quadrant – serving specific jobs of a chosen customer segment.  What job did customers hire Playboy for? They hired it as hedonistic consumption and needed utilitarian justification. Playboy provided the former with pictures and latter with articles. And it was never meant to be conspicuous consumption.

“I only read it for the articles”

This was not a good place to stay put because of two reasons

1. Customer mix changed –  people grew out of it or didn’t grow into it
2. Alternatives proliferated – other numerous cheaper alternatives became available. And these did the customer job better than Playboy could – in cost, content, accessibility, discreteness etc.
3. Customer preference changes – you can see the many possibilities here
4. Contention for customer spend increased – There were more than one candidates competing for the same budget.

So after seeing declining sales, dropping web traffic and site revenue they are doing a pivot. They chose not to play in top left quadrant – that is they did not want to evolve the product to be the better candidate to fill the hedonistic job-to-be-done than alternatives. Instead they are moving to top right quadrant – Existing customers, new jobs – with option to include New customers, new jobs.

Hence the focus on articles and a complete product revamp. As you see in my matrix that is a product pivot and product positioning change. The new positioning is, “Utilitarian consumption with hope as Conspicuous consumption”. That is the articles will be so well researched and erudite that you will proudly display it like you do for The Economist to The Journal.

That is a product pivot and positioning to tell customers what new jobs Playboy wants customers to hire it for. And it opens up new customers beyond its dwindling install base.

Final note, product pivot does not mean they are the right fit. Now they need to contend with other options available to customers for the same job to be done and the cycle starts over.

 

How to fix your wrong 1.0 pricing?

Fitbit, the San Francisco based maker of wearable fitness devices, recently announced a new device Fitbit Force. This new product launch comes less than six months since the release of their last device, Fitbit Flex. When you look at the two devices side by side they do look almost identical  with some feature additions.

The Force, as you can see, adds a display that gives more descriptive metrics than just four LEDs progress bar in Flex. Internally it also adds features like stairs counting.  It is still a product evolution. Yet, instead of choosing to call their new version as Flex 2.0 they chose to introduce a new brand, Force.   To give an analogy it is like Apple deciding to call iPhone 5s as  iPhone Force or some such name.

The answer to why they chose to introduce a new brand for a product evolution lies in how they chose to price Force. Fitbit Flex, when launched in May, was priced at $100. Force is priced at $130, a price realization of additional $30.  Surely you do not believe their marginal cost to add the tiny display or the altimeter is  $30 do you?

After  Fitbit launched Flex at $99, it is highly likely they realized that  a device someone sports on their wrist is lot more about image than about pure fitness. That is, in a basket of reasons why customers buy a product the hedonistic reasons outnumber and outweigh the utilitarian reasons. And hedonistic reasons carry higher willingness to pay over utilitarian ones (just look at the luxury market).

Another aspect is the profile of customer segment. Those who buy a fitness band to proudly display on their wrist are less cost conscious, have higher willingess to pay and have higher disposable income (wherewithal to pay).  So with $100 pricing, Fitbit was leaving too much money on the table by not capturing more consumer surplus.

They needed to fix this initial pricing mistake. And introducing 2.0 version was not going to do it because of previous reference price and its inability to properly serve the hedonistic aspect. Besides they would have to drop the price of Flex below $100 or discontinue it.

So they took a trusted play out of the pricing playbook – Shift the product category, which you can do by deliberate product positioning or by branding. With new brand, Force, they are telling their customers that this is a new category. More importantly their customers just want a reason to give more of their consumer surplus and this new brand gives them that reason.

Previously I wrote about this category shift in moving from free to fee. The same rules apply in fixing your past low price  mistake and getting price realization. It is a new device. It is a new brand. It is a new category. It breaks the comparison and helps them set a new higher price. It gives their customer a reason they are looking for to pay the new price.

Fitbit Force also took another additional step that results in better price realization. Flex ships with two bands for different wrist sizes. That was additional marginal cost with no profit driver. Force switched to one model one size, saving cost of extra band.  Don’t add a cost  component that does not serve a value driver.

Overall good moves by Fitbit. Not great, as I still believe there is more to be gained with even better price realization because wearable fitness devices are extreme form of hedonistic consumptions, they are conspicuous consumptions.

Can you think of another marketer who recently fixed their pricing using branding and category shift?  Amazon’s KIndle Fire HDX. Think about why they branded the new HDX thusly and its $229 price tag.

How do you fix your past pricing sins?

Typewriters Survive on Death

When was the last time you saw a typewriter, let alone use it? If you were to visit any of the funeral parlors in New York or Connecticut you will find them alive but likely on their last breath. These once ubiquitous products survived only because of an anachronistic law in these states that require death certificates to be handwritten or typed.  And the funeral parlors hire typewriters for this job imposed purely due to an externality because the alternative, bad handwriting of undertakers, is not good enough.

Funeral directors in a handful of states must tap out death certificates on a typewriter, relics of the days when the machines represented a modern improvement over an undertaker’s handwriting.

The static customer segment is funeral parlors in a few states. If you look at need based segmentation  – those who cannot use modern printing methods because of negative externalities.  For this segment typewriter seem to do the job better than the next available alternative.

Once the externalities are removed the typewriters will find it extremely hard to justify their position. It does not matter how remarkable a customer experience the typewriter maker delivers , how innovative the ribbon technology is or how sleek the industrial design is. For the customer need imposed purely due to externalities, the product will cease to be the best candidate to fill the need once the externalities are removed regardless of its features.

I wrote about a business progressing  from filling needs of one segment. That was the job to be done growth matrix.

With typewriters we are seeing regression, from serving various needs of different customer segments to serving one specific need of one segment.

“It was growing and growing and growing. I thought: ‘This will never end,’ ” he says.
(The Founder) He says the company sold “thousands and thousands” of typewriters at the peak but declined to be specific. Swintec still sells about 3,000 to 5,000 typewriters a year, to customers including universities, senior centers and state and federal prisons.

Even for this shrinking business they did manage to find another segment with same job to be done  –

but sales were declining by the late 1990s. Then the company stumbled on an idea: a clear typewriter for prisons. The company’s owner, Dominic Vespia, says they were inspired by other transparent products designed to prevent smuggling of contraband, from televisions to toothpaste tubes.

“It’s easier to hide things [in computers],” says Dan Pacholke, assistant secretary for the Washington State Department of Corrections.

They proved popular behind bars. In Texas, state prison inmates have purchased more than 1,500 Swintec typewriters since 2011 from penitentiary commissaries for up to $225 a pop, according to Jason Clark, a spokesman. Swintec typewriters are in Washington state prisons’ libraries and even some inmates’ cells.

As the growth matrix suggests, they did product pivot – transparent typewriters – to serve similar needs of new segment (prisoners). When you look at this closely this is once again a need imposed by an externality – need to prevent contraband being smuggled inside such devices.  As prisons find another way this opportunity will dwindle as well.

What we see here is a business that seemingly focused on customer needs and yet is shrinking. That is because they did not seek to understand the reasons for the need or ask what would happen when the underlying reasons change.  It is taking the quarter inch hole – quarter inch drill bit analogy a bit further.  Ted Levitt said,

Customers are not buying quarter inch drills but buying quarter inch holes

Apparently customers don’t need to buy quarter inch holes  either had it not been due to an arcane legislation.

Customer discovery and need exploration does not stop at observing customers use a product or breaking down the process into multiple steps. It requires second order thinking to ask, “why the first order need even exists? and what would happen if those drivers change?”

Do you understand your customers and their real needs?

 

Free to Fee With Product Positioning Shift

Have you been giving your product away for free and now want to charge for it? Afraid of backlash from your users? Wonder what would make your freeloaders fork over $4.99 a month without complaining about it in twitter?

I have been recommending businesses to focus on the reference price. That is the price customers have  been trained to pay and expect to pay for a product. Any increase from that reference price will be perceived as a pain by the customer and any decrease as a deal.

The reference price problem is severe when the price is frozen at $0, that is you have been giving away your product for free. Changing the price of a pint of ice-cream from $2.99 to $3.49 is difficult but not as difficult as charging $2.99 per week for access to your free online content. The latter is several orders of magnitude more difficult than the former.

Difficult does not mean impossible. You can indeed successfully move reference price in the minds of customers from $0. One such way is using choices, specifically premium priced choices as seen in this research,

Reference price solution alone does not address the free to fee problem says Uri Simonsohn, professor of marketing at Wharton School. According to him the second dimension is – It is the  category problem.

Imagine, for Thanksgiving, you go to your parents’ for dinner and after a nice dinner they say, ‘That’s going to be $10 per person’.

You would be upset.

We expect this category of products to be free like mom’s love is.

If we come to expect a product to be in “forever free” category then reference price is not going to cut it. Moving from free to fee for this category is like charging for mom’s love.

Is there a solution?

Yes – product positioning shift combined with reference price.

Customer Job To Be Done Growth Matrix

Think of your product as something your customers hire to fill a need. You have an active role to play in telling your customers what job you want them to hire your product for. That is product positioning.  When users have come to perceive your product in the forever free category you have a positioning problem. Somehow you have lost control of positioning and let them decide what job they want to hire your product for.

The way to shift that is to change the job – telling your customers what new job you want your product to be hired for. That is serving new jobs of customers (should we call them customers if they are not paying?) you already have.

This may require minor product changes – pivots- but the key is your deliberate action to take complete control of product positioning and telling customers which new jobs your products will serve.

Hopefully you will choose new jobs that they are used to paying for and not yet another mom’s love type jobs.

I, Pencil: My $425 Price Tag

If you have not read the original version of, “I,Pencil“, or the variations as told by many others here is a quick summary

The lesson I have to teach is this: Leave all creative energies uninhibited. Merely organize society to act in harmony with this lesson. Let society’s legal apparatus remove all obstacles the best it can. Permit these creative know-hows freely to flow. Have faith that free men and women will respond to the Invisible Hand.

You likely need no more commentary to see this is about free market economy and the power of invisible hand in setting prices, meeting demands etc.

The famous line from the essay is

Yet, not a single person on the face of this earth knows how to make me.

Be that as it may. It is true no one person can make the pencil on their own. But a subtle point to note is there exist a few who know how to set its price.  Despite what economists say, the pricing is not all left to the market to set. Economists don’t think segmentation, or product positioning. A marketer on the other hand starts with customer segmentation, product positioning and capitalizes on the pricing power that comes with it.

This is back to school season. You likely just bought two dozen pencils for less than $2. If you are willing to shop around you might find even cheaper prices. Price for such commodity pencils are indeed set by the market – by the supply and demand. Add to that retailers cutting prices further to sell pencils as loss leaders.

But those are just commodity pencils that are undifferentiated. More importantly these are pencils that are targeted at a specific segment. You would think  students. True. But think more in terms of needs – Group customers in terms of the common needs they are using a pencil for.

For the segment whose needs are just writing there are many alternatives. The pencil is competing against all those substitutes. And its price is determined by the value of writing to customers and the price of all other substitutes.

But when you take the pencil and position it for other needs, by targeting those segments with those needs and are willing to pay different prices for meeting those needs you have a different game in your hand. You are not any more competing for writing needs or competing against similar writing implements.

That is the story of $425 Pencil,

The Perfect Pencil in brown with sterling silver (925/1000) pencil extender with built-in sharpener and eraser is the perfect adjunct to the pencil. Writes, erases and sharpens

The pencil is not a product. It is simply a value delivery vehicle that you use to position for higher order needs for which customers have higher willingness to pay. Specifically pay $425 for Sterling Silver version or $260 for Platinum.

So what if you do not know how to make a pencil? You only need to know customer needs, specifically those needs that allow you to command a price premium and not be reduced to nameless commodity competing only on price.

Magic Beans Marketing

Sometime back Motoko Rich, economics reporter for Times, wrote this about the lessons he started seeing in children’s stories.

These days, perhaps because I’m covering the national economy — or because current economic troubles are too much to ignore — I often stumble across passages in children’s books that inadvertently teach economic principles.

When Rich reads story of a little girl buying back an item wrongly sold by her sister for lot more than what the seller paid for it, he sees pricing lesson

Pricing is often a function of who wants something more, and what that person is willing to pay for it.

Note that Rich is well grounded and knows why he is seeing these lessons in unexpected places.

It’s just that once economics is on the brain, it suddenly seems to pop up a lot in children’s literature.

And it is likely the news items that were current in his mind were the lessons he saw. Had he been a marketing guru whose school of thought is – all marketers are liars tell stories – that is the type of lessons he is going to see. Unfortunately those could be just plain wrong interpretations.

It appears Mr. Seth Godin, marketing guru (and author of All Marketers Tell Stories), seems to have read Jack and the Bean Stalk and no surprise he sees lessons on telling stories and word of mouth marketing. Before you join the 999 others who shared the story on LinkedIn, ask some questions on the three steps to successful marketing

1. The individual has to be open to hearing the offer at all –  What is your role as a marketer here? You could start with the right segment to target and reach them through channels in which they seek information. Or take a calculated and deliberate scattershot approach so some individuals will self-select themselves to hear your offer. Either way it is about your action.
   An example of second approach is the Nigerian money laundering mails. I see lot of similarity between the magic bean scam and email scam,

   Since gullibility is unobservable, the best strategy is to get those who possess this quality to self-identify. An email with tales of fabulous amounts of money and West African corruption will strike all but the most gullible as bizarre… Those who remain are the scammers ideal targets. They represent a tiny subset of the overall population.

   So it is not about the individual being open to hear your story, it is about you finding those prospects using segmentation and analytics.

2. The person hearing your story has to want to believe it – I do not get the subtlety Mr.Godin says this point has. It is not about the person wanting to believe the story as much as how you are positioning the product in his mind. If segmentation is about identifying customer jobs you want to serve, positioning is about telling those customers, “what job is your product applying for and why it does it better than alterntives”
   And his Uber ensuing example seems to put down Uber and confuses me.

   Uber, for example, offers a newfangled way to call for transport in big cities. Many people haven’t heard of it or used it, largely because they don’t think they need it, aren’t open to something new, or are unwilling to go through all the steps necessary to get the app, etc. So, even if it works as promised, there’s no urgent need felt by some, so they don’t care.

   It does not matter to Uber or other such marketers that not all people use their product. Marketing is about segmentation. Uber as a product targets those who are willing to pay higher price for better value. You do not want everyone who wants your product to be customers, only those who willingly pay prices that maximize your profit.

3. It has to be true – This is mom and apple pie advice. I cannot argue with this. More like a ‘deepity‘. On one hand the statement is trivially true. But the truth is indeed relative, it is in the minds of the customers. If you are selling on economic value add to customers then you are not making a marketing promise but showing proof of value you create and get your fair share of the value created.  On the other hand, think of all the luxury products out there – do the stories have to be true? Or what is true other than the utilitarian aspects?

Marketing failure occurs because you failed to – start with customers needs you want to address, choose those that you can profitably address  and tell them how your product fills those needs better than alternatives.