Archive for the ‘Entertainment & Hospitality Industry’ Category

What business leaders can learn from the Seattle Seahawks

Now is probably not the most fashionable time to praise the Seattle Seahawks. Last weekend’s Super Bowl saw the team give up their lead with 2:02 left on the clock and proceed to come up just short of winning by throwing an interception in the last minute. But individual failures do not make of break a team. The long game is what matters, and the Seahawks have demonstrated two years running that they are among the most elite, dependably top-performing franchises in the league.

Below, I’ve outlined some characteristics of the Seahawks’ formula. No doubt, the team’s philosophy can seem a little hokey, but there is no denying that their transparent, competition-driven approach works. These insights should be of great interest to business leaders looking to maximize productivity at the lowest possible cost, and the lessons therein applicable to firms looking for better ways to find and manage talent, develop a supportive culture and align their organization around a central mission.

Recruiting talent

During recruitment, companies talk about their values and expectations — but often in an ad hoc or incoherent fashion. This is because many firms do not invest sufficient time and energy in identifying what kind of organization they are. As a result, new hires often discover they’ve been sold a false bill of goods. This can result in reduced engagement and performance and, worse, increased turnover.

The Seahawks recruit differently. Here’s an excerpt from the brochure they provide to prospective players. According to Coach Pete Carroll,

“We wholeheartedly believe in competition in all aspects of our program, and the only way to compete is to show it on the field. We’re dedicated to giving all of our players a look to find out who they are and what they’re all about so we can field the best team possible.”

This document details a philosophy of competition that is clear and direct. It sets an accurate tone from the original point of contact, letting every prospect and their agents know what will be expected and how they will be measured. This simple step helps to mitigate the likelihood of unpleasant surprises down the road.

Managing talent

The fact that more and more can be measured now — both in terms of productivity levels and strategic success — can put managers under a microscope. This inevitably results in an adversarial, “what have you done for me lately” management style and a general risk aversion when it comes to decision-making. Needless to say, this in turn can lead to diminished long-term competitiveness, poor morale and, again, increased turnover.

Seahawks management takes a different tack. Despite poor play for much of the final game, Coach Carroll never wavered from his season-long game plan and reliance on all players in his line-up. He stayed loyal to key players such as Russell Wilson. And, he was not shy about using new players like Chris Matthews. While Mr. Wilson was mediocre during most of the first half, he did lead the team back strong in the late 2nd quarter to the end of the game.Mr. Matthews led the Seahawks in passing reception yards in the final game, despite not catching a pass for the entire season and being a shoe salesman not too long ago.

Rewarding talent

Recruiters tend to bring certain assumptions to the table regarding what kind of person is best for a certain job. These biases often include a preference for candidates from a certain school, possessing a certain degree or having had certain work experience. These assumptions usually go unchecked because many organizations lack the performance measurement systems necessary to uncover what actually works — and what doesn’t. This can result in qualified, and often less expensive, talent being overlooked. Just as troublesome, it can result in weak performance being unwittingly rewarded in terms of hires, promotions and salaries.

The Seahawks, on the other hand, are hard-nosed and pragmatic in their approach. Everyone must compete for their positions every day, regardless of where they come from or what salary they command. Crucially, the Seahawks aren’t afraid of putting un-drafted and untested free agents on the field. These players tend to put in their best effort in exchange for the opportunity. For example, they signed Russell Wilson, who many teams passed up on because he was considered too small, for less than $1-million per year. He went on to be an all-star quarterback. This not only provides the Seahawks with more affordable talent, it motivates their big guns to avoid resting on their laurels and to continue to demonstrate why they deserve to be on the field.

For more information on our services and work please visit the Quanta Consulting Inc. web site.  Also, please follow me on Twitter: @MitchellOsak

Traditional media companies reboot

When I was growing up, watching TV was a family affair. We gathered around one cathode set at the same place at the same time to watch the same shows as everybody else. How times have changed. Nowadays adults spend more time online and on mobile devices than they spend watching TV, listening to the radio or reading the printed word.

Yet some things have stayed the same: We’re still watching TV shows. Only now we’re not necessarily watching the same shows, or watching them at the same time, or even watching them on TV. This trend, which shows no signs of abating, has significant implications for traditional TV cable and content providers, says David Purdy, Rogers Communications Inc.’s senior vice-president, content.

“We’re playing in a market now that has a solid mix of traditional cable subscribers, a growing group of ‘cord shavers’ — those who are tuning in less to traditional cable and more to online sources for TV and movies — and ‘cord nevers,’ many of which are Millennials.”

The move toward the digital consumption of television content is spurring a series of watershed developments in the industry, such as:

  • The rise of high-quality original programming exclusively available on streaming services (e.g. Netflix)
  • Increasing competition from vendors that historically haven’t offered professionally produced content (e.g. YouTube)
  • Increased crowd sourcing to determine which shows get produced, cancelled or resurrected (e.g. Amazon)

Traditional media companies and cable providers should be concerned. All of these developments reflect the fact that more consumers have relinquished cable and forgo live programming, opting instead for cheaper online services.

Rogers is transforming its business to address these shifts, says Mr. Purdy. “We recently partnered with Vice Media to bring more compelling content to the Canadian market. We also invested in and launched Shomi, a video-streaming service.”

How will these trends change advertising?

Online video is changing the way people interact with each other and relate to sponsoring brands. As a result, media companies are facing flat — and in many cases reduced — advertising spending, as ad buyers shift their dollars from well understood TV to new (and unproven) digital formats.

In some ways, however, advertising will become more valuable as TV watching becomes more, not less, social. For example, a growing number of people are having real-time conversations on Twitter about the shows they’re watching. Some viewers have even begun purchasing products they find appealing right from a show, with eBay and other sellers offering apps that enable viewers to browse and buy items related to what they’re watching.

But in other ways viewers are becoming less engaged with programming, and thus with ads, as fewer people watch the same shows (with the notable exception of live sports and a few big television productions such as Canadian Idol). This could translate into more complicated ad buys, more fragmented marketing strategies and harder times ahead for traditional broadcast media companies.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.  Follow me on Twitter @MitchellOsak

Digitally disrupting your company

Disrupt or be disrupted. This is the stark choice with which many senior managers are faced as emerging technologies and corresponding behaviours continue to reshape the marketplace.

Given the choice, most would understandably choose the former. The problem, of course, is that many organizations are crippled by organizational inertia. Market leaders and public companies are particularly vulnerable, as they tend to possess deeply entrenched operational structures, revenue models and cultural values. Either they don’t see the change coming or, more likely, can’t muster the organizational willpower required to do anything about it.

Case study: OLG

Five years ago, Ontario Lottery and Gaming Corp. found themselves in this position. Senior management observed that Millennials are less interested than previous generations in gambling the old-fashioned way. Natives of the Internet and accustomed to the conveniences afforded by smartphones, many were turning away from corner-store kiosks and toward online poker and other “casino-style” games that can be found easily, if illegally, on the Internet.

At the same time, the OLG found itself struggling to hold on to its existing customers. Not only were fewer Americans visiting their casinos, U.S. competitors were also making inroads in luring Canadians south of the border. Both trends spelled a slow slip into irrelevance for the crown corporation.

So they decided to do something about it.

Rather than merely mitigate risk, senior management sought to develop a digital strategy that would enable them to capitalize on these trends. They began by asking the following questions:

  1. What business are we in?
  2. What business should we be in?
  3. How can technology facilitate this transformation?

What they concluded was that they are in the lottery and gaming business, not (merely) the casino and scratch-card business. “OLG’s goal is to provide the games our customers want to play where they want to play them,” says Tom Marinelli, OLG’s acting president and CEO. “As we transform, our advances in technology are giving us a new opportunity to continue to be relevant to our customers.”

In response to changing customer needs and demands, the OLG began work on an online lottery and gaming hub. Set to launch this year, PlayOLG.ca will provide online gaming and sell digital lottery tickets. The idea is that by matching or exceeding the experiences offered elsewhere on the Web in a manner that is both secure and legal, the OLG will be able to attract younger adult customers and fend off illegal international competitors.

The execution strategy for PlayOLG.ca was informed by paying close attention to how the Internet and mobile technology are affecting the gaming and lottery business at large. In doing so, they identified and implemented a set of best practices. Here’s what they came up with:

  • Place technology-savvy leaders at the forefront. For the OLG, this meant selecting Mr. Marinelli, who has a background in both IT and operations, to lead the transformation.
  • Consider change holistically, involving all stakeholders. Because the lottery and gaming industry is highly complex and regulated, all aspects and implications must be considered when implementing any kind of change. The concept of “responsible gambling,” for example, must be applied to all customer-facing products.
  • Communicate plans regularly to employees. With up to 30% of the OLG’s 8,000 employees unionized, poor communication could very well spell disaster.

Even with these pivots, the future of the OLG is uncertain. Currently they’re seeking new ownership, with both Bell and Rogers rumoured to be potential buyers. But whether the OLG stays public or goes private, going digital will surely go a long way toward ensuring the long-term viability of the organization.

Takeaways

Many of the lessons learned by the OLG can be of value to other organizations similarly faced with disruption. To undertake a digital transformation initiative of your own, you should begin by asking yourself the following questions:

  1. How can a new technology help improve operations or better serve customers?
  2. How difficult will deployment be, and at what long-term cost?

To answer these questions, you’ll need to develop a 360-degree view of both your organization and the market in which you are situated.

  • Where are we going as a company?
  • What capabilities and organizational model do we need to adopt in order to capitalize on the new technology?
  • How will customers and other channels be affected by the new technology?
  • What is the potential economic impact of the new technology?
  • What can we learn from other firms’ experiences?

Regardless of what your answers are, any digital transformation of a scope similar to that of the OLG will require the following: support from the board, enterprise-level expertise in adopting and managing emerging technology, a clear understanding of where profitability comes from and a functioning capital and resource allocation process. Above all, however, a successful digital transformation requires just two things: strong senior management and a willingness to change.

For more information on our services or work, please visit the Quanta Consulting Inc., web site.

Unbrand to stand out in the market

For organizations hoping to grow, the mantra is often: faster, better, cheaper. But is this an effective way to build and sustain a brand in an age of consumer skepticism, marketing noise, economic uncertainty and declining product differentiation?

Studies show that as consumers move online, buying decisions increasingly hinge on factors such as social proof, honesty and regular engagement. Firms that fail to pivot their marketing strategy to address these trends increasingly lack integrity and purpose in the eyes of consumers and put themselves at risk of becoming targets of fickle, social-media-enabled customers and activists (see: J.P. Morgan’s #AskJPM campaign).

That’s why some companies are embracing what I call “unbranding” to maximize brand equity and minimize risk. While traditional branding appeals to the left side of the brain — faster, better, cheaper — unbranding appeals to the right side: trust, aspiration, purpose.

  • Trust is is achieved by building credibility through transparency (see: Costco).
  • Aspiration is achieved by developing a brand that aligns with who the customer wants to be (see: Coach).
  • Purpose is achieved by articulating a clear set of values that permeates the entire customer experience (see: Apple).

McDonald’s Corp. is perhaps the most successful unbrander to date. Spurred by customer research and in response to socio-cultural developments, they launched “Our Food. Your Questions.” — a digital hub where McDonald’s employees, suppliers and nutrition experts answer questions from curious consumers and dispel myths that have long plagued the global fast-food giant. Here is a sampling from the site:

Q Is your meat made of cardboard?
A “Cardboard is for moving boxes, meat is for eating.”

Q Did McDonald’s hold a competition to make an edible burger out of worms?
A “We’ve never held such a competition.”

Q Is your beef processed using ‘pink slime’ or ammonia?
A “No.”

Q Why is the food at McDonald’s so cheap?
A “Buying power.”

Q Is your food tasty?
A “Is the Earth round?”

This program is not about bragging, preaching or evading. Rather it’s about dialogue, humility and openness. For McDonald’s, this represents a paradigm shift in how the company builds its brand and reinforces its core message of quality.

“Today, brands need to get comfortable with being uncomfortable and challenge convention,” says Antoinette Benoit, senior vice president, national marketing, McDonald’s Canada. “It’s important for us to have an ongoing and transparent two-way conversation with our customers in order to make a meaningful and long-lasting connection with them. This not only enables us to tell our story but also to evolve our brand based on what’s important to our customers.”

This unbranding strategy has contributed to improving the overall perception of McDonald’s. The idea came out of the Canadian wing of the company, but benefited from further development by McDonald’s France and McDonald’s U.K., both of which were able to overcome business and public relations challenges and grow revenues. The campaign has now been adopted in Australia, New Zealand, the United States and parts of Latin America.

Behind the success of this unbranding strategy was an up-to-date understanding of consumer needs, a return to focusing on historical core values (“quality” in the case of McDonald’s) and courage on the part of management to follow though on the program’s requirement for honesty, transparency and directness. Moving forward, McDonald’s will build on the strategy’s success by incorporating these learnings across the entire customer and partner experience through new training, advertising and more.

How can you make unbranding work for your business?

  1. Understand who you are as company. This should be based on your institutional values, history and how you are perceived within the marketplace.
  2. Identify your customer’s needs. This should be accomplished through both traditional and new marketing-research techniques.
  3. Create a vision or ethos for your company. This should encapsulate who you want to be and how you want to be perceived as an organization.
  4. Select the appropriate communications methods. Understanding how to articulate your message is as important as knowing what your message is.
  5. Unify your message across all customer touch points. Consistency is key in articulating a message that will both resonate and change perception.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

1:1 Marketing is here

If you are a forward-thinking manager, chances are you’re thinking about ‘personalization.’ Delivering a unique, tailored, 1:1 interaction with a customer based on previous interactions, the hardware they are using, their particular needs and location within the purchase cycle is a very compelling idea — if you can pull it off. Where do you start?

Thanks to the arrival of mobile computing, powerful smartphones and advanced data analytics, personalization is taking off. During the pre-purchase phase, firms can deliver special promotions or compelling content to make the shopping experience more engaging. Marketers can use social shopping communities to identify product trends and use these insights to enhance their product mix by segment. Companies can even target shoppers in-store in real time with relevant, personalized, location-based advertisements and promotions, thanks to technology such as Apple’s iBeacon.

Product companies are using personalization strategies to stand out by offering unique products such as do-it-yourself t-shirts, blankets and home decor featuring custom messages and designs. Web-based firms like Amazon are successfully using personalization tools to drive revenue, conversion and average transaction value. FRHI Hotels & Resorts uses personalization to create unique experiences for their three brands (Fairmont, Raffles, Swissôtel) both pre and post stay.

“The key to winning in today’s competitive marketplace is to have a universal commitment to putting customer’s first, understanding their stated and implied needs and providing solutions that address those needs on their terms,” says Jeff Senior, executive vice president and chief marketing officer of FRHI Hotels & Resorts. “It requires a holistically aligned organization, and is not a marketing initiative, but a company commitment.”

FRHI Hotels & Resorts maintains a single, holistic profile of each guest and their needs, with the ability to customize their stay, the promotions they receive and the prices they pay. This profile can seamlessly migrate from call centre and hotel to mobile device and social media platform. This personalization strategy has been an important driver in enhancing customer satisfaction and brand image, leading to market share increases in each of the past six years. Some of the best practices they follow include:

  • Align personalization strategies with well-defined brand strategies and values.
  • Act as an insight-driven organization. For example, the Company leverages big data to get a single, holistic customer profile. Furthermore, Fairmont expends a considerable amount of effort on customer research and social media analytics to define the ideal experience, with no detail escaping their attention.
  • Put the customer by segment (their needs, requirements and expectations) at the center of all operations and planning. Careful attention is paid to articulating the customer opportunity, understanding all business issues and producing creative solutions that fits local requirements.
  • Focus on real-time reputation management. Measure, track and evaluate a variety of customer metrics to better leverage existing programs and identify hiccups.
  • Optimize the operational (online and physical) and talent model to ensure alignment, collaboration, responsiveness and seamless execution.

Implementing your own personalization strategy can improve the value your firm delivers, the precision by which you target customers and the marketing efficiency of your programs. But first you need to do some serious thinking about your customers, brand and organization. Firms looking to implement a personalization model need adopt a customer-centric mindset that engages the entire organization. To do this, key activities such as IT, marketing, research and support must act in an integrated fashion, sharing the same information and strategic playbook. This four-step framework can help take a firm from a strategic vision to a personalized experience:

  1. Segment your customers by lifetime value, needs, and habits.
  2. Categorize them by the digital and physical channels they prefer across their entire purchase and support journey.
  3. Customize and choreograph your offering and experience based on where they are in this journey.
  4. Ensure your capabilities (people, systems, processes, assets) can support your personalization strategy.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

4 rules for running a business

Many companies in mature sectors have been known to embrace the latest management thinking (or fad) to help cope with low market growth, margin compression and lack of differentiation. Examples of these “big ideas” include lean management, outsourcing, business process re-engineering, offshoring and, lately, social business and cloud computing. Despite considerable effort and investment, most of these firms have been unable to outperform their peers over the long term, often due to weak strategic fit, poor planning or flawed execution.

In fact, only 344 of 25,000 public companies analyzed in the Harvard Business Review by Michael Raynor and Mumtaz Ahmed of Deloitte consistently produced above average return on assets from 1966 to 2010.

What made these firms special? Two rules identified in the study — noteworthy for their simplicity, reliability and practicality — helped drive the extraordinary business performance. Below them, I’ve included two other rules for achieving exceptional performance well worthy of consideration.

Better before cheaper

Companies need to focus first on service, quality, design or distribution — not on being the lowest-price competitor. Non-price differentiated brands tend to command richer margins, which can support further product and marketing investments, which, over time, further sustain the firm’s competitive position and profitability.

Revenue growth before costs

Leaders should prioritize top-line revenue by driving volume gains, competing in growing categories and taking advantage of every opportunity to maximize pricing. Volume increases also bring other benefits, including scale economies and channel optimization, which help drive down operating costs and block out competition.

Brands matter

“Brand equity might be the only asset that consistently generates differentiation, higher margins and long-term revenue streams,” says Jerry Mancini, president, Dole Packaged Foods Company. “Dole’s focus on value, quality and brand-building has helped deliver almost 100% brand awareness in close to 100 countries. This allows us, for example, to provide transient consumers around the world with the same quality and unique products they are familiar with, wherever they go.” This strong brand equity has enabled Dole to more easily tap new markets and categories — and drive higher volumes.

Maximize human capital

“Competition, technology and customers are never static,” says Paul Bruner, a partner with McCracken Executive Search. “The key to long-term success is attracting and developing leaders of exceptional character, with the brains, passion and resourcefulness to adapt to and lead through changing circumstances.” Organizations need to focus on recruiting and training the right employees and reinforcing positive behaviours through innovative training and compensation programs.

To be clear, the above four rules suggest a direction, not specific strategies and tactics; it is up to management to make the tough strategic choices and back them up with good plans and sufficient investment. Leaders still need to understand where they should compete (i.e., which markets with which value proposition) and what they are especially good at (i.e., organizational and asset fit). They’ll also need to support their mission by assembling the right capabilities and cultivating them through a culture of continuous improvement and adaptability. Finally, the company and shareholders must recognize they are playing the long game — they will need patience and resilience as well as management systems that reinforce long-term thinking.

For more information on our services or work, please visit the Quanta Consulting Inc. web site.

The crowd makes the decision

Watch out Howard Stern: your role as judge on America’s Got Talent could be in jeopardy, thanks to Crowdsourcing — a proven, web-powered way to raise money and troubleshoot problems. And, this may be just the beginning. Research published in the K@W newsletter (a Wharton Business School publication) shows organizations can now gain significant value by leveraging the crowd to make important decisions on which projects to focus on or which creative execution to choose.

Crowdsourcing is the online process of obtaining needed services, ideas, or funding by soliciting contributions from a large group of people outside of an organization or its supplier network. Raising money, in particular, is very popular. One of its leading platforms, Kickstarter has raised more than $1-billion in pledges for 135,000 projects from 5.7 million donors, a Wikipedia posting notes. Offering an alternative to bank or venture financing is one thing, but can the wisdom of the crowd compete with experts to decide which projects to pursue or talent to back?

New research Professors Ethan Mollick (Wharton) and Ramana Nanda (Harvard) looked at this question by analyzing how theatre projects get funded, and later performed in market. Studying these types of decisions is a good test of crowdsourcing’s potential because they require both a subjective (i.e. artistic taste) and objective assessment (i.e. determine the long-run success of the project). Importantly, the U.S. arts world is a good test bed for evaluating crowdsourcing decisions. Since 2012, more money has gone to the arts through crowdfunding than the government-run National Endowment of the Arts.

The researchers compared the funding decisions by theatre experts and the crowd on six projects. The experts were experienced judges who worked for the NEA. The crowd was participants in a Kickstarter campaign. The findings were thought-provoking. The decisions of the experts and crowd were very similar with a 57% to 62% concurrence on the choices. Yet, decision alignment does not automatically translate into good decisions.

To measure the quality of the choices, the researchers also analyzed the economic impact of the successful theater projects. They found that many of them evolved from a one-night only event into recurring performances that, in some cases, provided dozens of employment opportunities not to mention long-term revenues.

Implications for companies Crowdsourcing decision-making is an appealing tack for many companies. Many decisions, especially ones with subjective criteria, can benefit from multiple lenses that remove the bias of internal experts (e.g., the ‘not invented here’ syndrome), or produce additional opinions when expertise is lacking. Tapping the crowd can be faster and less expensive than finding subject matter experts or using consultants. Finally, relying on the crowd could avoid the internal politicking that comes with high-stakes choices that lack objective data.

A variety of decisions can be made by the crowd. For example, marketers can use it to help them choose the brand messages or advertising creative that best resonates with their target audience. Furthermore, venture capitalists can leverage a community of technologists or consumers to help them decide which startups to fund. Importantly, tapping the crowd does not negate the importance of internal experts, who can still be used to make sure the crowd’s choice passes the ‘common sense test’ and that decisions incorporate all the data.

Tapping an external community, however, will not be ideal in every situation. Many leaders will be unwilling to outsource major decisions given their egos or risk aversion. Furthermore, using the crowd for smaller decisions like picking advertising creative could be impractical and demotivating to staff. Finally, leveraging the crowd may lead to poor results if not properly executed.

Starting out While this research is encouraging, its conclusions should be validated for different situations and industries. One way to do this is to compare the internal decision with the crowd’s choice. To do this, it is best to begin with a pilot. The pilot would have a clear objective with well-defined and articulated choices. To maximize the crowd’s value, the target decision should integrate both subjective and objective evaluations. Managers should also carefully pick the community they want to leverage, within the right online platform. Special attention should be paid to maintaining confidentiality and intellectual property requirements before reaching out publicly. When the pilot is finished, managers should compare the results of each decision and the impact of each process.

For now, Howard Stern can rest easy. Crowdsourcing decisions will never replace thorough analysis, time-tested judgment and gut feel. However, these qualities come with a price, which is often high in terms of cost, time and hassle. If crowdsourcing can be validated for other use cases, then tapping wisdom of the crowd will become an important decision support tool.

For more information on our services and work, please visit the Quanta Consulting Inc., web site.

3 ways to maximize sponsorship ROI

If you followed the World Cup, you would have noticed the many corporate sponsors of the event, the teams and players (i.e. the properties). Sponsoring the right property can give a brand a major boost in awareness and appeal. However, having the wrong approach or property could waste the investment and compromise the firm’s brand image. Fortunately, there are some best practices to follow to maximize a sponsorship’s potential.

Corporate sponsorship is big business. Annual global investment exceeds $25-billion, growing at almost 10% each year. Sports — teams, events and athletes — make up the majority of spend. Growth is being driven by an increase in the number of new properties like rock bands, festivals and charities, the rising value of some properties as well as the growing practice of tiering sponsorship support (think platinum, gold, silver levels).

Sponsorships are an important way for many companies to get their brands in front of elusive, skeptical and mobile consumers who are regularly bombarded by numerous marketing messages. Opportunities can range from naming rights on a stadium and client relationship events to limited edition products and custom advertising programs. Sponsorships can significantly build a business (think Michael Jordan and Nike) or hurt a brand image, as was the case when Kate Moss’ personal issues led to major problems for Chanel and H&M. How do you ensure you get the most value from this powerful but risky marketing tool?

The best programs get three things right:

1.  Align the opportunity to business objectives

Given the range of properties, you need to use a thorough process to filter and analyze the sponsorships to find strategic congruence between the property, brand and target audience. When affinities are lacking, the opportunity and investment could be wasted. In a high-profile program we studied, a mismatch between the firm’s customer base (women, 18-49) and the properties’ core audience (men 18-24) led to a lower than expected ROI.

2.  Promote the sponsorship

Companies often spend a lot of money acquiring sponsorship rights but very little on the promotional support that would magnify its impact. Various studies suggest that underperforming programs spend less than $1 on promotion for every $1 spent on sponsorship rights. The lack of marketing support may trace back to management neglect or the need to limit spending after paying for the rights. In one case, a client of ours believed that becoming a concert sponsor alone would drive their business. Though the sponsorship was deemed a success, management acknowledged that a lack of promotional support resulted in the firm missing out on millions of dollars in merchandise sales. Conversely, higher performing companies spend more than $1.50 in promotion for every $1 in sponsorship. Not only do these firms magnify their sponsorship investment but they also integrate their properties within their marketing mix.

3.  Evaluate performance

Despite the importance of sponsorships, many firms do not effectively quantify the impact of their expenditures. This is not surprising given the difficulty of linking sales directly to sponsorships. Successful companies use a variety of approaches. The simplest way is to survey customers, partners and employees on program impact and lessons learned. Firms can also tie total program spending to key metrics such as unaided awareness or purchase intent, and then link them to sales using regression analysis. The most sophisticated approach uses econometrics to ascertain links between programs, awareness and sales, and then isolate the impact of sponsorships from other marketing and sales activities.

Maximizing sponsorship value can be a challenge, especially when firms have multiple properties, customer segments and marketing tactics. BMO Financial Group is a major sponsor that has figured this out. The bank successfully operates a North American-wide program with dozens of properties and partners including: NBA Basketball (Toronto, Chicago), NHL Hockey (St. Louis, Chicago) Major League Soccer (Toronto, Montreal), amateur sports and the Calgary Stampede.

The Bank looks at sponsorships strategically, with a proven approach to identifying, evaluating and managing sponsorship deals. Each property — whether it is in sports, arts or regional events — aims to reach diverse customer segments within local communities as well as appeal to broader national audiences. The bank magnifies the impact of its sponsorships by integrating its elements with other marketing activities. For example, BMO was able to quickly maximize its sponsorship of the Toronto Raptors during their 2014 playoff run by increasing media advertising and launching a new Twitter campaign.

Finally, BMO sees a deal signing as the beginning of an iterative win-win relationship between the parties and not an end in itself. Justine Fedak, senior vice-president and head of brand, advertising and sponsorships for BMO, emphasizes the importance of long-term partnership. “Similar to marriage, a sponsorship begins with a mutual understanding of shared values and then evolves over time. Gone are the days when you slap a logo on something and walk away.”

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Blockbuster innovation

Companies could learn much about innovation from the Spanish general, Hernan Cortes.  In 1518, Cortes was instructed to sail to Mexico and overthrow the Aztec empire. According to the story, he proceeded to scuttle his boats after putting down a mutiny of some of his staff. This sent a powerful message to his soldiers that there was no retreat. They would conquer Mexico or die in their efforts. History judged his decision successful (if not immoral). His small army of 500 soldiers conquered the country in a mere two years.  What management lessons can be gleaned from this historical episode?

An “all or nothing” strategy seems counter-intuitive when looking at the best way to commercialize risky innovations.  Conventional wisdom says that launching small, measurable experiments or pilots is the best, lowest risk approach to introducing new products or technologies. Though this seems like a prudent tack, it has not necessarily produced market wins. Numerous studies show that the success rate for new products has stubbornly hovered around 10-20%. Fortunately, there may be a better way to commercialize innovation.

A professor at Harvard Business School, Anita Elberse, has studied creativity-driven industries like music, sports, movies and publishing.  In her book Blockbusters, Elberse found that the companies with superior financial returns had strategically focused their efforts and capital on producing movie blockbusters, recruiting superstar athletes or signing popular authors. To use a baseball metaphor, these firms always swing for the fences instead of playing it safe trying for singles and doubles. According to her data, these industries exhibit a ‘winner take all’ dynamic; less than 10% of projects, teams or entertainers produced more than 90% of industry revenue and profit.

In “winner take all” markets, the best strategy is to singlehandedly aim for blockbuster products.  The best way to do this is to focus investment and management attention on proven entities, assets or projects, like a movie sequel, a superstar free agent athlete or a popular book franchise.  Funding a limited number of major innovations is not enough. You also need to front-load your sales and marketing effort to boost initial channel distribution and trigger word-of-mouth effects. Elberse considers a blockbuster strategy a lower risk approach because it improves the odds of success early on and enables firms to cut their losses if results do not pan out.

Applicability to other markets

While Elberse studied the creative and sporting industries, other information-driven sectors may experience similar blockbuster dynamics. Industries with high fixed costs, a low marginal cost (when producing more) and a high marginal profit (on each additional sale) can quickly evolve into “winner take all” markets, particularly when digital technologies reduce customer search costs and eliminate the need for physical proximity between the buyer and seller. There are many reasons for all CEOs to consider this approach for their business:

Rallying the troops

Big innovation bets focus employee and supplier attention, create positive urgency and prevent individual or departmental agendas from stealing resources. 

Reduces complexity

Many R&D projects, particularly small ones, can develop institutional momentum making them difficult to cancel.  Managing this portfolio can generate significant complexity, increasing organizational cost and diffusing effort.  A blockbuster strategy eliminates these wasteful costs plus allows managers to best leverage scale economies in areas like media buying and raw material purchases.

Satisfy real customer needs

Movie studios concentrate investment and time on stories, actors and directors with proven consumer appeal (e.g., a sequel).  The discipline of only targeting key customer needs in profitable segments with real innovation improves the chances of market success.

Elberse’s learnings are relevant to many other industries including education, training, professional services and software. However, not every firm is a good fit. We believe enterprises should have three characteristics:

1.  Self-awareness

Companies that are good at placing the right innovation bets tend to have a good sense of what their core competencies are and where they need to partner or bypass.

2.  Decisiveness

Though having a good innovation evaluation process is important, management still needs to make tough calls quickly in periods of uncertainty.  Moreover, following a blockbuster strategy requires firms to have a culture and performance measurement system that is tolerant of failure.

3.  Nimbleness

Rigid plans lead to risky, binary decisions. Even in the movie industry, extensive consumer research still takes place.  Producers don’t hesitate to make edits or change endings based on focus group research.

Utilizing a blockbuster approach goes against conventional wisdom.  However, there are many examples of hurting companies like AppleIBM and Xerox that followed this strategy and have re-emerged as winners.  Managers should understand their operational dynamics, consider the strong financial business case, and analyze the impact of digital tools like search bots or recommendation engines that create “winner take all” effects.

For more information on our services or work, please visit the Quanta Consulting Inc. web site.

Pricing lessons from the Rolling Stones

Over the years, the Rolling Stones have shown the world about what rock ‘n’ roll is all about.  Back in May, they looked to prove this again by embarking on a 50thanniversary concert tour.  This time, however, the band discovered that they can’t always get what they want.  For the first time in their history, the Rolling Stones had difficulty selling out venues especially the premium seats.  Their difficulties selling tickets offers valuable pricing lessons for other entertainment, sports and premium-product brands.

Initially, ticket prices included $600 for arena seats up to $2,000 for general admission seating in front of the stage.  Not surprisingly, sales lagged from the outset.  The band had to discount prices to fill their first venue, the Staples Center, and subsequent dates.  For the Stones, the impact was lost revenue, a tarnished image and irate fans who resented others getting the same tickets for a lot less money. Though normally aggressive pricers, the Stones clearly overstepped this time.  No wonder some promoters were having a 19th Nervous Breakdown.

The band’s predicament is one that all premium brands can relate to. It is not uncommon for pricing to occasionally overshoot the perceived value or the customer’s ability and/or willingness to pay. The challenge is how to set or recalibrate your pricing and value proposition in a way that maximizes revenue, doesn’t damage the brand or anger customers who paid full price.

Here are a few successful strategies we’ve employed in the past:

Understand your patron

Given economic and demographic realities, the ability of thousands of fans to pay exorbitant concert ticket prices may be a thing of the past.  The Stones incorrectly assumed their fans would continue to see the same value and pay record prices for 70-year-old rockers performing a 40-year-old music catalogue. A more thorough understanding of their customer needs could have led to more segmented pricing levels, early-bird discounts, smaller venues or more delivered value.

Boost your value

The value of a concert experience is reasonably understood.  You pay high prices and get one or two bands performing in a stadium for two hours. Instead of lowering prices, the Stones could have increased the real and perceived value delivered by providing a free gift with purchase (high perceived value with low actual cost), more product (i.e. longer show) or offering bundles (sell a limited edition t-shirt with premium seats).

Communicating high, experiential value is also critical to maximizing sales. Premium quality goods have sophisticated brand values communicated through packaging, advertising and merchandising.  On the other hand, most musical acts tend to have generic brand values, lacking in authenticity or exclusivity.  To sustain premium pricing, brand managers need to ensure all elements of their marketing mix convey an exceptional brand image.

“Succeeding with premium pricing requires that customers clearly understand how your product is superior to substitutes or competitors,” says pricing expert Claire Johnson, senior vice-president and chief financial officer at CIBC Mellon. “The right price point compensates sellers for delivering a better product while leaving buyers satisfied with the value received — and a willingness to repurchase.”

Sell through other channels

When facing unsold tickets or extremely high demand, many acts and teams will use scalpers to distribute their tickets and protect their image. Acts will use scalpers to sell the best seats (so that fans blame scalpers, not the bands themselves, for inflating prices) or to unload excess inventory (so bands don’t look desperate).  Making this strategy work requires the bands to offer bulk blocks of seats and discounts to scalpers. This tack is analogous to premium brands selling their discounted merchandise at outlet stores.

Selectively, lower prices

Price is an important signal of performance, exclusivity and quality.  Reducing the price like the Stones did, especially through clumsy discounting, may provide a short-term revenue and volume lift but may end up doing long-term damage to the brand.  However, there are times when a price decrease is the right strategic move.  The Stones were publicly accused of gouging their fans.  Cutting the price may end up restoring some brand equity by demonstrating fairness and transparency.

The Rolling Stones invested 50 years of hard work to be crowned the “greatest rock ‘n’ roll band.” It would be a shame if poorly considered pricing decisions ended their run amidst accusations of greed, weak sales and sloppy execution.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.