The Polaroid Corporation was founded in 1937 by Edwin Land. While its early products focused on everything from eyewear to gunsight filters, the company was most famous for its innovative instant film cameras that first hit the market in 1948. During the next three decades, Polaroid became one of the most successful technology companies in the post-war era. Sales grew at an annual rate of 23%; profits grew at 17% and its market capitalization exceeded $1 billion.
The problem with Polaroid’s strategy (as with most technology-based companies) was that they began to regard their business as a series of technology challenges and not market challenges. They assumed that once their technological innovations were ready, the market would follow with the result of ever-increasing profits. And while the strategy worked for the better part of their existence, it all came it a screeching halt with one large technology bet that went sour.
Polavision was to be Polaroid’s biggest technological breakthrough - an instant movie system similar to Polaroid’s instant camera. Polavision included a camera, film, and a special movie viewer that was used to both develop the firm and subsequently view the movie. While the system used a new type of color additive process which allowed for instant developing, its shortcomings were significant - the movies only lasted 2 1/2 minutes; there was no sound; and the extremely slow firm speed required very bright lights when taking the movie. The project had been in the R&D pipeline for over a decade and was championed personally by Edwin Land. Others within Polaroid weren’t so confident with the outcome. Polaroid’s president Bill McCune was probably the most skeptical; he felt that Polaroid was making too big a technology bet on a new product that lacked any type of market research. After many delays, Polavision hit the market in 1977--the same time that video-based systems were being introduced by competitors.
The results were stunning but expected. Polavision bombed in the marketplace. With its high cost and poor film quality, Polavision could not even compete in the market against existing Super 8 cameras and projectors, whose days were already becoming numbered due to the emergence of the new video-based systems hitting the market. Polaroid had to write-off all the R&D costs along with most of the manufactured product at an immense cost to the company.
Former Polaroid freelancer Paul Giambarba remarked about the new Polavision system:
"I tried using the product but it was obviously a turkey compared to anything I was using that Kodak offered [..] Instant movie film was an engineering achievement but it's precisely what separated Polaroid techies from Polaroid pragmatists. There just weren't enough customers out there on whom to work the magic."
The Polavision failure was the first straw in the eventual demise of the Polaroid Corporation. The same poor management that allowed Polavision to hit the market without proper market research later allowed Polaroid to completely misread the impact of digital imaging on their highly profitable instant film business.
On October 11, 2001, Polaroid filed for Chapter 11 bankruptcy protection. Almost all the company’s assets (including the Polaroid name itself) were sold to a subsidiary of Bank One. A new company was formed which operated under the name “Polaroid Corporation”. Polaroid cameras were discontinued in 2007. A second bankruptcy was filed in 2008 and production of Polaroid instant-firm ceased in 2009.
Here’s the takeaway: Polaroid’s demise was caused by an almost non-existent market strategy and a mistaken belief that disruptive innovation success is the result of overcoming technology challenges and not business model challenges.
Thirty years ago, General Motor’s Cadillac Division faced the prospect of selling unappealing cars in the middle of a recession where--unlike in today’s low interest-rate environment--interest rates climbed to record highs, making car financing very expensive. That, combined with a fuel crisis where supplies were limited due to the Iranian Revolution, forced gas prices to also reach record highs. To make matters worse, in the midst of all this bad economic news, American luxury car buyers were also rejecting the Cadillac brand and switching loyalties to its European rivals--Mercedes, Audi and BWM.
To try and save Cadillac, management resorted to what could only be described as a ‘Hail-Mary’ product strategy move by attempting to launch a new model--the Cimarron--based on GM’s J-car compact designed Chevrolet Cavalier. By repackaging the Cavalier as a Cadillac--the only noticeable changes being leather seats and a luggage rack bolted on to the trunk--Cadillac committed every mistake possible in their “badge engineering” strategy.
According to Thomas Bonsall, author of Trouble in Paradise: The Story of the Cadillac Cimarron,
Simply put, the Cimarron was a Cavalier with a Cadillac grille insert and Cadillac badges. Even car "nuts" had to get close enough to read the badges to tell the two cars apart. True, the Cimarron featured some minor suspension tweaks, leather upholstery, and every available J-car option as standard equipment, but the $12,000 asking price didn't buy much in the way of Cadillac distinction.
One point lost in most discussions about the J-car, though, is that it was not merely a second-rate Cadillac, it was a second-rate car, at least in its 1982 form. With the original 1.8-liter engine, it was grossly under-powered. Worse, the automatic transmission was so poorly matched that it simply magnified the engine's shortcomings, while the four-speed manual — which, on paper, should have been a viable alternative — felt as if it had been supplied by John Deere.
But the story gets better. When the Cimarron was launched in 1981, Cadillac was so embarrassed by the new model that they initially refused to market it as a Cadillac. Here’s how Thomas Bonsall described the world’s worst product marketing plan and the results:
Technically, it should be pointed out, the 1982 Cimarron was not a Cadillac. It was marketed as the "Cimarron by Cadillac" and salesmen were trained to correct customers who innocently referred to it as a Cadillac. This indicated a certain nervousness on the part of the division (well-founded, as it turned out). Beginning in the 1983 model year, the silly pretense was discarded, but Cadillac dealers were still stuck selling an over-priced Cavalier whose main "Cadillac" distinction was its leather interior.
The division had hoped that the Cimarron would appeal to "near luxury" buyers in the BMW 3-series class, but the last thing they wanted was a clunky General Motors J-car. Cadillac's traditional clientele felt much the same way. As a result, the division's confident predictions of 20,000 Cimarrons during the remainder of the 1981 model year and 50,000 per year thereafter came a cropper. Only 8,786 were built during 1981 and a paltry 14,889 found buyers in 1982.
Seven years after it was first launched, the Cimarron model was discontinued. Sales had slipped so much that less than 6,500 cars were produced in its final year--a far cry from Cadillac’s prediction of 50,000 sales per year.
In the 22 years since the model was discontinued, Cimarron’s brand legacy remains negative. The car is generally thought as one of the worst cars ever produced and marketed. Forbes listed the Cimarron on its list of “Legendary Car Flops”. Author Hannah Elliott explained that the Cimarron "appealed neither to Cadillac's loyal followers, who appreciated powerful V8s and Cadillac's domestic luxury edge, nor to buyers who favored Europe's luxury brands, whose cars out-handled and out-classed the Cimarron in every way." And finally, CNN Money proclaimed the Cimaron the leader of “GM's junk heap” of unsuccessful nameplates. It was simply a high-priced Chevrolet Cavalier - neither a good Cadillac nor a good value.
Here’s the takeaway: GM’s product strategy of ‘Badge Engineering’--the use of common platforms and parts across different brands where only the nameplates (and price tags) are different--was probably more responsible than any other single factor in diluting the once prestigious Cadillac brand into one today where it is fighting for its survival.
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| Neal Ulevich / Associated Press |
With Sony’s announcement that it would discontinue sales of the cassette Walkman in Japan, it marked the end of its 31 year-old iconic product. What the iPod is today in terms or being the innovative market leader, Sony’s Walkman was the same 30 years earlier. Both products were innovative not because they were first movers or because they employed new technology; rather they were innovative because they opened up new markets where none existed before (and they made Sony and Apple millions of dollars in the process).
Here’s what Time Magazine had to say about the Walkman on the 30th anniversary of its introduction:
The Walkman wasn't a giant leap forward in engineering: magnetic cassette technology had been around since 1963, when the Netherlands-based electronics firm Philips first created it for use by secretaries and journalists. Sony, who by that point had become experts in bringing well-designed, miniaturized electronics to market (they debuted their first transistor radio in 1955), made a series of moderately successful portable cassette recorders. But the introduction of pre-recorded music tapes in the late 1960s opened a whole new market. People still chose to listen to vinyl records over cassettes at home, but the compact size of tapes made them more conducive to car stereos and mobility than vinyl or 8-tracks. On July 1, 1979, Sony Corp. introduced the Sony Walkman TPS-L2, a 14 ounce, blue-and-silver, portable cassette player with chunky buttons, headphones and a leather case. It even had a second earphone jack so that two people could listen in at once. Masaru Ibuka, Sony's co-founder, traveled often for business and would find himself lugging Sony's bulky TC-D5 cassette recorder around to listen to music. He asked Norio Ohga, then Executive Deputy President, to design a playback-only stereo version, optimized for use with headphones. Ibuka brought the result — a compact, high-quality music player — to Chairman Akio Morita and reportedly said, "Try this. Don't you think a stereo cassette player that you can listen to while walking around is a good idea?"
All the device needed now was a name. Originally the Walkman was introduced in the U.S. as the "Sound-About" and in the UK as the "Stowaway," but coming up with new, uncopyrighted names in every country it was marketed in proved costly; Sony eventually decided on "Walkman" as a play on the Sony Pressman, a mono cassette recorder the first Walkman prototype was based on. First released in Japan, it was a massive hit: while Sony predicted it would only sell about 5,000 units a month, the Walkman sold upwards of 50,000 in the first two months. Sony wasn't the first company to introduce portable audio: the first-ever portable transistor radio, the index card-sized Regency TR-1, debuted in 1954. But the Walkman's unprecedented combination of portability (it ran on two AA batteries) and privacy (it featured a headphone jack but no external speaker) made it the ideal product for thousands of consumers looking for a compact portable stereo that they could take with them anywhere. The TPS-L2 was introduced in the U.S. in June 1980.
The 1980s could well have been the Walkman decade. The popularity of Sony's device — and those by brands like Aiwa, Panasonic and Toshiba who followed in Sony's lead — helped the cassette tape outsell vinyl records for the first time in 1983. By 1986 the word "Walkman" had entered the Oxford English Dictionary. Its launch coincided with the birth of the aerobics craze, and millions used the Walkman to make their workouts more entertaining. Between 1987 and 1997 — the height of the Walkman's popularity — the number of people who said they walked for exercise increased by 30%.
Another interesting fact about Sony’s successful marketing of their new Walkman was that Sony used an early ‘influencer’ strategy focusing on celebrities and people in the music industry. Sony sent Walkmans to Japanese recording artists, TV and movie stars free of charge and through their influence, the product's popularity quickly spread to the masses. Sony also used imagery that gave the feelings of fun, youth and most importantly, freedom as they targeted younger people and active folks
Here’s the takeaway: Sony’s introduction of the first Walkman in 1979 was innovative because they changed the music-listening habits of millions of people worldwide and became the industry leader making hundreds of millions of dollars in the process.
In an article from today’s Wall Street Journal, Swedish car manufacturer Volvo is said to be under the gun by its new Chinese owners to upgrade its image and define its brand. Recently acquired by China’s Zhejiang Geely Holding Group Co, the automaker is searching for “a clear definition of what the brand stands for”. One direction that seems to be endorsed by both its new Chief Executive Stefan Jacoby and Geely Chairman Li Shufu is for Volvo to become a more full-fledged premium brand by adding bigger cars to its product lineup. In fact, new CEO Jacoby was very explicit is his comments: “...we have to up-scale Volvo in the near future to have a solid position in the premium segment. We have to define a Scandinavian version of what luxury means.”
Volvo’s push into the luxury car market actually began ten years earlier with Ford Motor Company’s 1999 purchase of the Swedish carmaker for $6.45 Billion. Prior to the purchase, Volvo had been known more for its high safety standards and reliability, than for anything else. In fact, prior to the strong government safety regulation that began two decades ago, Volvo was the recognized leader for automobile safety engineering - there was no brand that even came close to what Volvo had achieved.
Ford clearly had a different vision for Volvo. They bought the Volvo brand (along with the Jaguar and Aston Martin brands) to compete head-on with the other premium European automakers. Larger upscale models were introduced during Ford’s ownership and Volvo’s safety heritage was de-emphasized as the carmaker raced to compete alongside the lower end of Mercedes and BMW sedans, wagons, and SUV crossovers.
Ten years later, Ford’s grand plan for Volvo and its new luxury brand ended in disaster. Despite pouring significant resources into the Volvo brand, sales never took off, and by 2008, sales volume was down 20% compared to Volvo sales prior to the acquisition. Volvo went from being a profitable independent car company to one that lost $1.5 Billion in 2008. By late 2008, Ford made the decision to cut their losses and sell Volvo. In December 2009, Ford announced that Volvo had been sold to Zhejiang Geely Holding Group Co for $1.8 Billion - an almost 75% loss on their ten-year investment.
So what should Volvo do? If they really want to define their brand, then the first thing needed is to change direction. The strategy of competing directly against the other premium automotive brands is a loser strategy. That strategy cost Ford billions of dollars in losses over a ten year period: I suspect it will show the same poor results for Volvo’s new owners.
Volvo needs go back to their roots of stressing safety and reliability. And by doing this, I don’t mean for Volvo to go ‘retro’ in the sense that they try to recreate their past. What I do mean is for the Volvo brand to be associated with the safest and most reliable cars manufactured in the world today. Volvo needs to once again become the industry leader in safety - the brand that gave us the first car with a safety cage, the first car with front and rear crumple zones, the first to offer safety door-locks, and the first to offer SIPS - Side Impact Protection System. In terms of reliability, there was a classic Volvo advertisement that ran in the 1990s that highlighted a 1966 Volvo P1800 that had been driven over 2.8 million miles, a Guinness World Record for most miles driven by a single owner in a non-commercial vehicle. That’s brand that Volvo needs to become again.
Here’s the takeaway: For the past ten years, Volvo has been pursuing a loser strategy of competing as a luxury brand. To become profitable again, Volvo needs to change direction and become what it once was before - the premium safety and reliability automobile brand.
For small growing companies, customer development is the most important task to ensure survival. And this customer development process is all about understanding who you are selling to and why they want to by it. Noted author and entrepreneur Steven Gary Blank perhaps says it best when talking about the risks for these types of companies:
“The greatest risk--and hence the greatest cause of failure--is not in the development of the new product but in the development of customers and markets. [They] don’t fail because they lack a product; they fail because they lack customers...”
And this customer development information does not come easily, nor does it become apparent even after your’ve sold your first product. Sometimes you find yourself focusing on the wrong customers, not understanding the demand that buyers have for your product. And other times you focus on the wrong features. In many cases, your best customers are unexpected or they come from markets that were overlooked the first go-around.
In an essay titled The New Venture, Peter Drucker recounts a wonderful story of just such an occurrence.
“Shortly after World War II, a small Indian engineering firm bought the license to produce a European-designed bicycle with an auxiliary light engine. It looked like the ideal product for India; yet it never did well. The owner of this small firm noticed, however, that substantial orders came in for the engines alone. At first, he wanted to turn down these orders; what could anyone possibly do with such a small engine? It was curiosity alone that made him go to the actual areas that the orders came from. There he found farmers who were taking the engines off the bicycles and using them to power irrigation pumps that hitherto had been hand-operated. This manufacturer is now the world’s larger maker of small irrigation pumps, selling them by the millions. His pumps have revolutionized farming all over Southeast Asia.”
For start-ups and other small growing companies, the best lesson to learn is that you may find customers in markets that no one imagined when the product was first developed. and the only way to find these different markets is to get out of the office and investigate. If you see unexpected customers in unexpected markets, find out what’s driving demand. And don’t dismiss the unexpected as a ‘one-off’ exception or a fluke.
Here’s the takeaway: Unexpected customers can come from the most unexpected of markets. Get out of the office; investigate these exceptions and factor that demand into your product development going forward.
Right now at the Dodge Tent Event, you can purchase a new Dodge, drive it for 60 days and if you're not 100% blown away by the four-wheeled pure awesomeness, return it. No harm. No foul. And no monthly payments - that's right, the first two months are on us. We're giving you this opportunity because we're confident in our vehicles and we know that once you're in a Dodge, you won't want to get out of it.
Even after factoring in the fine print (buyer is not reimbursed for title, registration fees, insurance, accessories, dealer fees, extended warranties, finance charges and is responsible for negative equity), the offer seems pretty compelling from the buyer’s perspective. Knowing you have the option of changing your mind within 60 days on such a major purchase will certainly make buyers more compelled to go ahead and purchase the car.
But how does the offer look from Dodge’s perspective? Are the finance guys at Fiat (Dodge’s parent) screaming “How can we do this? What happens if the buyers return all the cars or trucks? How are we going to sell these used cars and trucks without taking a bath?”
The answer, most likely, is that it also looks pretty good from the seller's perspective. In most cases, buyers will not return the cars or trucks even if they are less than satisfied with their purchase. Based on a behavioral economics concept known as the endowment effect, people seem place a higher value on objects they own than objects that they do not. To take this one step further, once you've got that car or truck home and in your garage, your preferences change - they realign...the auto is now "yours", so you're far less likely to take it back to Dodge, even if it doesn't turn out to be as good as you thought when you bought it.
So for Dodge, it could be a win-win proposal. The money-back guarantee figures positively into the buyer’s cost-benefit calculation about whether to buy the auto or not, and once buyers get that car or truck home and have driven it, the endowment effect predicts that they are far less likely to return it.
Here’s the takeaway: Behavioral economics plays a powerful role in the decisions of both buyers and sellers. Failure to take advantage of these powerful forces means less money in your pocket.
In an article published in this weekend's Wall Street Journal here (subscription may be required), it’s reported that Spanish leather goods brand Loewe has introduced a leather version of an ordinary brown grocery bag for about $1,045. The bag is designed by Stuart Vevers - known previously for his handbag creations that transformed the staid British brand Mulberry into a ‘hot creative label.”
While the article mostly talks about the upscale handbag market - reaching new heights in 2006; falling (as most everything else in the luxury goods market) during the 2008 economic crisis; and now facing the challenges of growing again in 2010 and beyond - much can also be learned about the marketing strategies of these luxury items.
In a time when big advertising budgets are a rarity, Loewe is banking on what it calls “a word-of-mouth” strategy. But the reality of their strategy is slightly different - instead, it seems that Loewe is following the tired and well-used strategy of putting the bags into the hands of celebrities. Angelina Jole, Jennifer Lopez and Madonna have all been spotted with these bags and Loewe is hoping that their ‘informal’ endorsements will boost consumer demand for these high-priced luxury goods.
If Loewe really wants to create a true ‘word-of-mouth strategy’ they should change tactics to get these handbags into the hands of their real buyers. Not just any buyers, but buyers who will be so excited about these bags, that they will tell everyone they know. Find a small, but influential group of buyers - again, not your average buyer or your typical fan - these are folks on the fringes who are driven by passion and collaboration. Evangelists drive successful word-of-mouth marketing strategies, and Loewe needs invest their advertising resources into finding these people and getting the product in their hands.
Here's the takeaway: Evangelists, not celebrities drive successful word-of-mouth marketing strategies. If Loewe can find these people, they hit the jackpot. On the other hand, if they continue to follow the tired strategy of product placement in the hands of a few celebrities, sales will disappoint and profits will languish.
Peter Drucker believed that business had two primary functions: marketing and innovation. And he was very clear about this is his various writings.
"A company's primary responsibility is to serve its customers, to provide the goods or services which the company exists to produce. Profit is not the primary goal but rather an essential condition for the company's continued existence. Other responsibilities, e.g., to employees and society, exist to support the company's continued ability to carry out its primary purpose. And because the purpose of business is to create a customer, the business enterprise has two--and only two--basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of business."
Here’s the takeaway: If the main responsibility of a company is to serve its customers, innovation and marketing are the means by which that can be accomplished.
In his 2008 book In Search of the Obvious, Jack Trout makes the case that the minds of customers or prospects are difficult to change. And for some, these perceptions are often interpreted as a “universal truth.”
Trout goes on to say:
“It’s easier to see the power of perception over product when the products are separated by some distance. For example, the three largest-selling Japanese imported cars in America are Toyota, Honda and Nissan. Most marketing people think the battle between the three brands is based on quality, styling, horsepower and price. Not true. It’s what people think about a Toyota, a Honda or a Nissan that determines which brand will win.”
“Japanese automobile manufacturers sell the same cars in the United States as they so in Japan. If marketing were a battle of products, you would think that the same sales order would hold true for both countries. After all, the same quality, the same styling, the same horsepower and roughly the same prices hold true for Japan as they do for the United States. But in Japan, Honda is nowhere near the leader [as it is here in the US]. There, Honda is in third place, behind Toyota and Nissan. Toyota sells more than four times as many automobiles in Japan as Honda does."
“So what’s the difference between Honda in Japan and Honda in the United States? The products are the same, but the perceptions in customers’ minds are different.”
Trout then makes the point that in America, if you told friends that you bought a Honda, they might ask “What model? Civic or Accord?" If you told friends in Japan that you bought a Honda, they would probably ask you what model motorcycle did you buy? The perception in the United States is that Honda is a car manufacturer. That perception in Japan is totally different - they view Honda as a motorcycle manufacturer.
Here’s the takeaway: Marketing is not just a battle of products - it’s also a battle of perceptions.
A few weeks ago, I pointed out that JoS A. Bank (the clothier) was inundating my inbox with more and more sales announcements. And I wasn’t talking about your typical 10-20% off sale for selected suits or shirts, no they were almost giving their product away - in this case it was a “BUY ANY SUIT at regular price and GET A 2ND SUIT FREE! Plus GET A SPORTCOAT OR BLAZER FREE!” sale. My point was as they discounted more and more, value was being destroyed. And for JoS. A. Bank, it would be a challenge going forward to convert loyal customers like me back to paying anything close to the full, listed price.
After looking at today’s ad, it seems clear that not only are the sales continuing, but the discounts continue to grow. Why buy one suit and get two others free, when you can wait a few weeks and get an even better deal? The problem with this is obvious. Whereas three weeks ago I was reluctant to ever pay full price again for a suit, I’m now reluctant to even pull the trigger on any sale because if I wait a few weeks, the discount seems to keep getting larger. JoS A. Bank has now conditioned relatively loyal customers like myself to just wait (until a even better offer arrives in my inbox) before I buy another suit again.
Here’s the takeaway: In their quest to increase sales by offering customers larger and larger discounts, JoS A. Bank is well on their way down the slippery slope where this discounting leads to less, not more sales. It’s a course that will extremely hard to change, and one that has alienated a good portion of their previously loyal customer base.