How Price Sensitive is Your Customer

One of the biggest differences between successful and struggling businesses comes down to one question: has price sensitive is your customer?

It seems like common sense, but I didn’t fully understand what caused price sensitivity until recently.  Here are some of the main factors that I’ve seen contribute to price sensitivity (or lack there of):

  • How visible is your fee to your customer?

Is your fee one of just a few expenses that your customer has to manage or is it one of several dozen?  Does your fee have it’s own line item in your customer’s financial reporting, or is your fee non-transparently tucked into another larger category?  The more visible your fee is to your customer, the more price sensitive they will be.

  • What percentage of your customer’s budget is your fee?

Does your fee represent a small part of a large budget or does your fee represent a large part of a small budget?  The larger the proportion of your customer’s budget you take, the more sensitive your customer (regardless of the actual size of the budget).

  • Is your product or service seen as an expense or an investment?

For most people, buying a house is very visible and expensive, but people see it as an investment, so they are relatively less price sensitive.  Buying a car is more like an expense, and people tend to be much more price sensitive when shopping for cars.

Competition definitely has an impact on price sensitivity (the more providers that offer what you do, the more downward pricing pressure you will feel), but from what I’ve seen – this impact is muted compared to the three bullets above.  There are some very crowded industries where customers still lack price sensitivity (e.g. medical expenses).

A very price sensitive customer almost always makes for a very difficult business.  But, if you find yourself with sensitive customers, it’s not the end of the world.

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Political Correctness

(Disclaimer: This is the third piece in a three part series on Diversity and Inclusion. I’m lucky to work at a company like AppNexus that values D&I and provides training for employees – however not all companies are as forward thinking as AppNexus.  The below post was inspired by a few different workplace stories I heard about through friends and family that I’ve combined into one fictitious case- enjoy.)

Consider this is case.

A manager is given a warning by HR that he said something insensitive on the basis of gender, race, sexual orientation, or gender identity to an employee.

To protect the employee, the manager is not given an explanation of the offense, nor the name of the employee – he’s just told that if he does it again, he’ll be fired.

The problem is: the manager legitimately does not know what he did.  He’s not a hateful person, just ignorant.  He doesn’t know what it feels like to be someone of a different gender, race, sexual orientation, or gender identity and probably has said things all his life that could be heard as slightly offensive.

Ultimately the manager repeats the offense and is fired. Still without explanation.

The manager is outraged.  He can’t believe what’s happening and can only conclude that the company has gotten too “politically correct.”

Two things are wrong here.

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Why is Diversity and Inclusion Important?

Last week Uber CEO Travis Kalanick resigned over a litany of diversity and inclusion (D&I) related troubles.  I’ve read a lot of the coverage (including the blog post by Susan Fowler that started it all) and it’s pretty bad.  Fowler (and other female engineers) were repeatedly harassed and discriminated against, and then shamed and threatened by HR for reporting the offenses.

I’m happy that last week brought significant changes at Uber, however, in some ways, holding Uber up as the golden case study for D&I-done-wrong is problematic.  At Uber, the D&I offenses are so bad they clearly cross the line of moral, ethical, and legal wrongdoing.

Taking the Uber example, one might draw the conclusion that absent any criminal-level D&I violations, there is nothing more to worry about – and this would be a mistake.

The Uber discussion, in my mind, misses the point of why D&I is important.  D&I certainly can get to the point of moral, ethical, and legal violations – but even when it doesn’t, D&I is still important because it’s good for business.

So – why is D&I good for business?  I’ll explain.

A few years back I watched Michael Sandel’s incredible online course on Justice.  The course if published by Harvard University and – if you haven’t seen it – it’s really quite fantastic.  Lecture number eight explores the question “What is a fair start” and dives deep into the societal distribution of wealth and income.

(Note – AppNexus employees will enjoy a fun cameo at 16:22 – https://www.youtube.com/watch?v=VcL66zx_6No&t=16m22s)

Near the end of the lecture – an articulate student in the balcony presents the opinion that wealth should be distributed according to merit.  He gives the example that he worked hard his entire life and was able to gain admittance to Harvard as a result (making a connection between hard work and success).

In a dramatic rebuttal – Sandel demonstrates that even hard work is influenced by a variety of societal and cultural variables.  He demonstrates this fact by asking who in the classroom is the first-born child in their family (and nearly everyone raises their hand).

The point being made here is, if something as arbitrary as birth order can influence success in life, then is it “fair” to reward people who are more “successful”?

In the lecture, this point pertained to equality and wealth distribution, but it’s also very interesting to consider this “first born” example in the context of Diversity and Inclusion.

I’ll admit, it’s not the best example – traditional discussions of D&I don’t usually cover birth order, but this happens to be a topic that, as a youngest sibling, I have some vivid experience with.

To illustrate, let me tell a story.

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Real Diversity and Inclusion is Subtle

I participated in my first corporate diversity training about ten years ago.  I remember it well.  My company had hired a production studio to create films depicting “real life” diversity and inclusion scenes.  Each scene would teach a different lesson about diversity – the training covered gender, age, race, religion, etc.  We even hired a troop of “diversity educators”/actors to come to the office and perform live for employees.  It was actually quite entertaining – part diversity training, part live theatre.

The training has stuck with me over the years.

One of the things that has stuck with me the most was how completely over the top the scenes were.  Each scene would start out largely the same in a normal office environment.  Employees would be in a meeting or sitting around talking about something completely benign.  Then, all of the sudden, the scene would turn on a dime and someone would say something grossly inappropriate.  In the film version of the training – they would even change the background music – in the same way the music changes when the villain appears in a horror movie.

A few examples from the training:

  • Colleagues were preparing for a work dinner with clients – everything is going fine until one of the male colleagues tells a female coworker to wear a low-cut shirt (cue evil music).
  • Employees are at an office birthday party that looks totally friendly, just a few younger employees celebrating the birthday of an older colleague – then they cut to the cake that says, “over the hill” (evil music again).

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Well, We Didn’t Die

 

Last month, I spent a weekend down in Florida on Clearwater beach.  The occasion was somewhat of an impromptu high school reunion – 14 friends joined, many who I hadn’t seen since we graduated from high school in 2003.

We spent most of the weekend hanging out on the beach and learning about each other’s lives.  Everyone had an interesting story to tell, I truly enjoyed catching up with old friends, and, for the most part, the weekend went off without a hitch.

There was one little bump in the road though.

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Keep Innovating After You’re Big: The Benefit of the Roaming Architect

Why do small businesses innovate quickly and big businesses innovate slowly?

Those who are familiar with the work of Clayton Christensen will quickly point to the Innovator’s Dilemma – a theory that involves bias in the resource allocation process of larger companies.  In short, the theory states that big companies avoid investing in nascent markets and technologies largely because they need larger, more mature markets to satisfy their larger, more mature growth requirements.

In general, I buy that argument.  I think the innovator’s dilemma is real, but I don’t think it explains 100% of the reason why big companies can’t innovate.

In addition to the resource allocation process, I think a lot of it has a lot to do with “systems thinking” and the division of labor at larger companies.

Let me explain.

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Napoleon’s Secrets to Success: Hard Work, Break the Rules, and Esprit De Corps

I’ve recently started reading Andrew Roberts’ new biography of Napoleon titled Napoleon: A Life.  For those considering picking it up – be warned: it’s quite an undertaking.  At just under 1000 pages, the book is long and very detailed.  Said differently: if you ever wondered exactly how many cannon Napoleon captured in each one of his battles, this is the book for you.

Most of the intricate details found in the book come from the 33,000 somewhat recently published letters written by Napoleon that have been archived for public viewing by the Fondation Napoléon in in Paris.

Going in, I didn’t know much about the great French leader, but, so far (I’m about half way through) three really interesting trends have emerged.

  • Napoleon was a big time workaholic

Whenever I read a biography of a famous person, I always try to distill what made them so successful.  What about them made them so special?  In the case of Napoleon, it was, first and foremost, his work ethic.  This guy was constantly working.  He worked so hard, that he, in some ways, reinvented the role of a military commander.

Unlike some of the older generals (who Napoleon often faced) that would watch the battles from a safe distance, Napoleon was always on horseback riding around.  His attention to detail was so complete that he would be constantly checking on each battalion to see exactly where they were, how many soldiers they had, the condition of their equipment, and how much ammunition they had.  He wanted to see for himself that everyone was in position, well-equipped and ready to fight.  At a few points in the book there are references to Napoleon riding so hard that he would drive his horses to exhaustion and occasionally he would not be able to walk after spending so much time on horseback.

Napoleon also took pride in the fact that he could personally do any job in the army.  Napoleon could mix his own gunpowder and forge his own cannon balls if he had to.  Basically – this guy knew war at the “doing” level in every position – and he was beyond obsessive when it came to details.

  • Napoleon ignored all the rules

Early in his career when he was serving as an artillery officer in the French army, Napoleon deserted his post in search for more upwardly mobile positions.  Napoleon was basically the 18th century equivalent of someone who hops between jobs to get promoted – and he got promoted very quickly.  He became a General at just 24 years old.

One of the sub-plots to Roberts’ book is the relationship that Napoleon had with the French governing body called the Directory.  Napoleon relied on the Directory for supplies and troops, and as Napoleon grew more successful, he really started throwing his weight around to get what he wanted, often threatening to resign.

Somewhat early in his career, while he was still in his 20’s, Napoleon even went so far as to ignore the Directory all together and unilaterally sign treaties with foreign governments.  It seemed that Napoleon always had a keen sense for his leverage against the government of France and was pushed the boundaries at every stage with regard to what he was allowed to do.

On top of all of that, Napoleon was a prodigious user of propaganda, constantly exaggerating his success.  He routinely lied about the number of casualties on both sides of his conflicts (under-stating his own, and over-stating the enemies).

  • Esprit de corps

One of the most interesting parts of the book for me is Napoleon’s secret weapon: morale.  This was a really big thing for Napoleon, he believed that the secret to success in a military campaign was ¾ “esprit de corps” and ¼ the number of troops and equipment you had.

It seems that caring for his troops is one of the things that made Napoleon most unique as compared to other military leaders of the time.  His caring manifested itself in many ways:

  • He often remembered the names of his soldiers after only meeting them briefly (Napoleon had a fantastic memory)
  • Napoleon spent time with his wounded soldiers and ensured their prompt medical treatment – encouraging them to get back on the battlefield quickly
  • Napoleon encouraged the development of badges, medals and awards for the soldiers who heroically in battle. He even allowed different Regimens to stitch slogans on their uniforms to help build a common identity (a practice that lives on in many armies today)
  • Much more than other generals at the time Napoleon made sure that his soldiers were fed and well clothed – demanding resources from the Directory to ensure the comfort of his soldiers
  • Napoleon would publicize statistics about the success of his army (again – usually exaggerated) and compare the success of his armies to those of antiquity, inferring that his fighting force was the most powerful of all time (which, at the time, was probably true).

All of these elements came together to form one of Napoleon’s greatest skills: the ability to make ordinary men feel like they had the ability to change the course of history.  The soldiers in his army truly felt like their life and, if necessary, their death was tied to something much larger than themselves.

However, Napoleon wasn’t so kind with all his soldiers.  He very harsh with the “middle managers” of his army who he relied on to share his same attention to detail.  “Severe to the officers, kindly to the men” was his mantra.

I’m looking forward to the second half of the book – I’ll let you all know what I find and save you the time reading this enormous tome.

The Rebirth of the Integrated Agency

Eleven years ago, two advertising agencies merged: Draft Direct Worldwide and Foote, Cone, and Belding (FCB).  Draft was a successful direct marketing agency specializing in direct mail advertising.  FCB was more of a traditional ad agency that specialized in creative work for Television and Print.

The thesis at the time of the merger was to apply the creative work of FCB to the effective media tactics of Draft.  Take the effectiveness of Draft Direct, add the creativity of FCB – get the best of both worlds.

I first heard about this strategy in 2007 at a company all-hands, shortly after I started working for DraftFCB in the media department.  The address was given by then-DraftFCB New York President Peter DeNunzio – who truly amazed me by his ability to remember the names of all 1000 employees in the New York office.

On the surface, this type of integration seems like a logical idea – but at the time, a move to combine media and creative cut counter to the dominant industry trend.  Most large advertisers preferred to shop a la carte for their creative and media services – commonly partnering with two or more different agencies to handle media and creative for a single brand.    To some degree the axiom of agency success was: bigger is better when it comes to media (to aggregate buying power and get better rates with national TV networks) and smaller is better when it comes to creative (to get more agile and creative ideas).  Another benefit of working with multiple agencies was that advertisers could leverage their supply chain diversity to demand lower rates – often forcing each of their agencies to price themselves down to the brink of unprofitability.

When DraftFCB combined creative and media in the mid 2000’s – it was a smart bet.  If it worked, it could have helped DraftFCB escape the “race to the bottom” on fees by selling advertisers a bundled product across media and creative.

There was only one problem. It didn’t work.

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Thanks Very Much for Your Opinion, Unfortunately It’s Useless to Me

As a product manager for a technology company, people come to me all the time with suggestions for things we should do.  “We should build X new feature!”  “We should change Y process!”  “We should pay more attention to Z customer group!”  Sometimes it feels like everyone has an opinion for how we can improve our bottom line.

The problem is, often those opinions are presented with little data or factual support.

Over time, I’ve noticed a few different common types of these “opinion based” requests. (more…)

How I Explain Ad Tech to My Parents

Like many people who work in the field of advertising technology, I have a really hard time talking to my parents about my job.  They know I work with computers and they understand that my work involves advertising – but beyond that, they haven’t really a clue what I’ve spent the last decade doing.

Somewhere along the way I came up with this analogy.  I think translates pretty well and it has certainly worked for my parents.

The analogy compares the ad tech value chain to the “grocery store” value chain and compares the role of the programmatic advertiser to the role of the grocery shopper.  Here’s how it goes:

Advertiser = Grocery Shopper
Ad space = Groceries

Let’s say you want to buy some groceries for your home.  As a grocery shopper, you have to first choose which grocery store to go to.  The grocery store, on the ad tech side of this analogy, is the DSP or “Demand Side Platform”.  It’s the place you go when you need to buy food (ad space).

Simple so far right?

Just like grocery stores, there are many different DSPs to choose from.  They all offer fundamentally the same product (ad space), but each of them has somewhat different branding and a slightly different buying experience.

Now, let’s move to the next step of the value chain:

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