Brands Create Customers

When you walk into an Apple store you feel your spirits lift, your senses sharpen. That’s a function of a retail space shaped by the Apple brand. And it’s no accident.

If you’ve ever wanted a detailed account of how Apple manages its brand in its retail stores, the ifoAppleStore blog is the place to go.

It’s all here: store basics, design, layout, brand identity, customer experience, architectures of participation and architectures of purchase, and the constant tweaks and adjustments to make it all work.

You can even learn all about those fabulous glass stairs.

Waaay too much caffeine: Starbucks Gossip.

Microsoft critic Mini-Microsoft wants Microsoft restructured into a “lean, mean, efficient, customer-pleasing profit making machine,” reminiscent of its glory days. Wall Street guru Barry Ritholtz joins those who think the answer is to break the Redmond giant into “many Microsofts,” where each new business has to swim on its own.

Ritholtz offers this bleak perspective:

I have never been a big fan of the Mister Softee. From a tech standpoint, their products are kludgy and unimpressive. Their strong suit is not Innovation — it is relentless, incremental improvement, eventually leading to a decent if underwhelming product. What they end up producing are the lowest common denominator bloatware that can be easily managed by a corporate IT staff.

It is a great cash flow machine.

From an investment perspective, there are 2 key issues to observe: first, they are a mature company whose fast growth days are well behind them. They are too big to be responsive, too expensive to be a value stock, too slow growing to be a growth stock. In short, they are in the process of morphing from the software PC leadership company to nice, quiet, money machine. I would expect a good entry purchase (i.e., from lower levels) could throw off gains of 10-15% a year, including their dividend.

The second thing to observe — and all too many investors overlook this — is that the money is in the monopoly products. Except for Windows and Office, pretty much everything else is 3rd rate money-loser, with SQL as the exception. They have a few products that have slowly began to move up the scale, and their hardware products aren’t bad, but note where the lion’s share of their revenue, and nearly all of their profits come from: the Monopoly.

Read the whole post, including the comments. In my view he’s overly harsh, and doesn’t factor in the immense level of talent in Redmond and other MS offices.

The brand challenge
Between Mini-Microsoft and “many Microsofts,” no one wants Microsoft to “stay the course.” Google paranoia is rampant. The rise of Ray Ozzie portends a huge internal refocusing on web-based applications.

This is also a defining brand challenge for Microsoft. As I see it, Microsoft has to reach to its roots and find ways to decouple its brand from the inertia of its entrenched markets. In other words, it needs to create customers who are agents of change. This is a tall order, because most of its core business is focused on locking customers into the Windows platform, where change is limited by Microsoft.

Microsoft’s biggest threat from Google is not over search technology, or Web 2.0 apps, or even ad revenues. It is over which brand owns the keys to change things for the better. That includes helping customers raise themselves to new levels in the process.

Creating new customers to fit an old mold is definitely not the answer.

Brands are finally beginning to realize that their future lies in semantic and semiotic networks, where they stand to reap large benefits from the dynamics of network effects and peer-to-peer relationships.

Thus, my eyes lit up when Tom Evslin at Fractals of Change noted the growing importance of “dynamic peer clusters” as a form of social recommendation engine for purchases of music, books and related goods.

When I saw the phrase “dynamic peer clusters” my mind said: that’s exactly what brand programs should create. As our home page states (quoting this for the nth time):

Brands of the future will not be top-down monoliths. They will be a thousand agile initiatives, loosely coupled, rich in customer texture, often sparked by customers themselves.

Tom defines dynamic peer clusters as “groups of people who like the same books or movies or music or whatever as you do.” These can become “a perfect source for recommendations of new books or movies or music or whatever.”

Last.fm and Netflix are two examples of how dynamic peer clusters can help subscribers discover more items of interest and enjoyment. They provide a network effect of shared taste that gains insight and authenticity the larger it grows.

Why brands need peer clusters
In their present state most brands generate poorly formed dynamic peer clusters. As a result, they leave billions of dollars in value on the table. That value is locked away in the archaic and closed “build it, brand it, sell it” paradigm, and in traditional top-down brand campaigns. Not only could this brand value be out there “working” among customers, it could be engaging customers to create more value on their own, which could be added back to the brand.

Creating customers and creating clusters
The purpose of a brand is to create the customers that will carry the company forward. For the brand, this means engaging customers and delivering new forms of value that customers can use. Specifically, these are forms of value that free customers from a tyranny of routine, cost, diminished opportunity, or impeded growth.

The customers that your brand creates (however imperfectly) become a default peer cluster. They can be a weak cluster–no more than an uninspired, quasi-connected aggregation of “buyers”– or they can become a highly-charged nucleus that autonomically connects with other peers. A recommendation network may be one form, but an customer-driven engine to discover new forms of brand context is much more valuable. Context makes markets. If your customers actively connect one another to richer states of being, and richer states of meaning, your brand can begin to realize its potential.

Grow the customer, grow the brand, grow the business
Thus, when a company like BMW (for example) shapes its brand, it would have a fairly precise idea of the customer it intends to create, and the tenor of the dynamic peer clusters needed to grow the customer, and the brand. To design a brand/customer that does not leverage peer clusters would be a disservice to the brand, and the business.

Photo op: a peer-to-peer brand cluster.

Peer clusters and brand design
Given the importance of dynamic peer clusters to brand growth, the brand design process should be modified accordingly. It should now address these questions:

1. What kind of networked customer do we want to design?
2. How do we create this customer across the brand platform?
3. What type of dynamic peer cluster should we create with our brand?
4. How will this cluster enable our customers to grow our brand by growing themselves?

How a brand answers these questions will play a large role in how deeply it engages its customer base.

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Photo source: Clearly Ambiguous, Flickr

Yahoo now enables video mashups with a spiffy prototype online remix tool. If this becomes fully baked, video mashups will be emailed back and forth, networked, and mashed anew, creating a neverending stream of chain letters as endless, iterative flicks. Yahoo Research was the developer.

Little tools like these are the happy feet of larger platforms.

When you dramatically reduce a barrier to entry into a compelling activity, and free people to grow new capabilities, you can dramatically increase the customer value of your brand.

A great individual in so many ways, Jane Jacobs understood that cities are civic brands that grow their residents (and visitors) with an energy, imagination and richness found nowhere else.

She may not have invented the term, “architecture of participation,” but she taught the world that a city is indeed an architecture of participation, writ large.

Paul Thurrott, a leader in the Microsoft brand ecosystem, laments the broken promises, delays and performance shortfalls of Microsoft’s upcoming Vista operating system.

His concerns raise questions about the viability of the Vista brand itself:

1. After so many missteps, does it have the integrity of vision to lead Microsoft customers?
2. Is it “different enough” from Windows XP to warrant an upgrade?
3. Can Vista generate a brand platform that raises computing to the next level in productivity and user experience, and thereby raise the Microsoft brand ecosystem with it?
4. Can the Vista brand create and grow new customers, given that Apple OS X ships now with a competitive feature set, and Vista isn’t due until 2007?

Why the brand ecosystem matters
A company’s brand ecosystem consists of those parties outside the company who nurture and grow the brand. They are the positive (charged) layer of the brand’s public sphere. They include customers, potential customers, lead users, partners, complementors, fans, and media influencers (print and online).

Often, the brand ecosystem has a better perspective on the brand than the company itself. The ecosystem depends on the value that the brand delivers. It sees the brand in the hard light of reality.

When the brand ecosystem speaks, companies that value their brands listen.

How does MySpace do it? Microsoft, AOL and Yahoo are green with envy at the skyrocketing membership numbers MySpace is putting up. Last I looked it was 67,000,000 and counting, zooming along at 250,000 new members a day. Even if these growth numbers include a healthy dose of puff, they’re figures any online business would die for.

And MySpace is only three years old.

Question: How does MySpace create all those customers?
What’s the secret?

Answer: They don’t use conventional stoke ‘n smoke marketing. They let customers create themselves. It’s as simple as that. MySpace gives members the tools to express their individuality and to connect with friends, and then gets out of the way.

MySpace is a prime example of less is more: less marketing presence means more room for customers to grow—and more customers. Given the right tools and freedoms, customers are far more creative than any marketing plan.

When customers are the product, the product itself becomes endlessly inventive across an infinite array of value domains.

A brand from the bottom up
MySpace does much more than simply unleash the inner customer (although that in itself is an achievement). It sets a standard for “brands from the bottom up.” It doesn’t impose a top-down brand uniformity (like Gap), control customers without their knowledge (like Sony), or lend customers a tethered toy (like GM). It simply fuels the dynamic passions of its customers, and hops on for the ride.

As we’ve noted elsewhere: “Brands of the future will not be top-down monoliths. They will be a thousand agile initiatives, loosely coupled, rich in customer texture, often sparked by customers themselves.”

Ergo, MySpace.

When you read Danah Boyd’s now classic report on the attractions of MySpace, you can see why this particular site has developed so rapidly. It doesn’t try to mesmerize customers as an all-powerful brand icon. Its design cachet is far from world class, being that of a dizzy teenager’s bedroom. It doesn’t need to waste resources on these elements because it is close to the bone.

That’s where every brand belongs.

Can MySpace endure?
Two issues seem paramount: 1) the internal MySpace dynamics as a hangout for fickle teens and twenty-somethings, and 2) how MySpace management tries to leverage more revenue from the brand. There are no hard answers at this time. MySpace is traveling in unexplored territory.

Danah Boyd addresses the first question in a follow-up piece, where she contrasts a fast-growing MySpace with the now-declining Friendster. She seems guardedly optimistic, and gives the advantage to MySpace.

An NYT report (sub required) examines how MySpace’s new corporate owners plan to generate more revenue from the site, and integrate it into a broader media package. The danger here is that MySpace is not your typical “media property.” Any ham-handed attempts to “monetize” MySpace customers would backfire. In the MySpace world, overt marketing is worse than lame. It sucks.

Since the site cannot be simply “reprogrammed” for the benefit of traditional advertising, new and more inventive means of facilitating transactions must be found, consistent with the brand. (Brands and ads approach the customer from totally different directions: ads motivate, while brands animate from within.)

Whether MySpace survives as is, or morphs into something (or things) different, it has the inherent brand advantage of being customer driven. That gives it a foothold in reality that’s hard to displace.

The New Scientist reports that Philips has applied for a patent to force viewers to watch TV ads. The technology would disable TV controls while the ads played in live or recorded programming.

Philips suggests adding flags to commercial breaks to stop a viewer from changing channels until the adverts are over. The flags could also be recognised by digital video recorders, which would then disable the fast forward control while the ads are playing.

Philips’ patent acknowledges that this may be “greatly resented by viewers” who could initially think their equipment has gone wrong. So it suggests the new system could throw up a warning on screen when it is enforcing advert viewing. The patent also suggests that the system could offer viewers the chance to pay a fee interactively to go back to skipping adverts.

If your brand intent is to make customers less free, insult them in the process, and take their money, your brand is officially DOA.

If Philips were smart they would assign this patent to EFF or Creative Commons on the condition that it only be acted upon to prevent similar idiocies from being pursued. That might snatch a win-win from the mouth of unmitigated disaster.

MySpace is not a “container.” It is the uncontained.

Lesson A: Rupert Murdoch

Lesson B: Tila

Markets and customers are constantly changing, but if you look at traditional brand methods, they really seem frozen in time. Some of their assumptions, concepts and practices date back a hundred years or more, when societies were far less diverse and dynamic than they are today.

Brands are not forever, and brand inertia is no virtue. Brands that cling to the past soon lag behind customers–who are a brand’s real bridge to the future.

Common Weaknesses of Traditional Brand Methods
Traditional brand practices can be handcuffs from the past. There are many ways they can limit a company’s ability to innovate on brand.

This chart identifies some of these weaknesses:

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Strategy: find an underserved market overlooked by the big players, or one that’s too tiny for them to bother. Start small. Focus on improvements in speed to market, simplicity and convenience. Better yet, shape your products to the needs of customers in ever smaller market niches—like those two guys over by the fountain.

Above all, be patient about the new venture’s size, but impatient for profits. (Oil pedals often.)

Starbucks may claim the corners, but you own the streets.

Source: Flickr, hummanna

When you’re building brands you’re building communities. In today’s world this often means creating brand ecosystems far from conventional brand territories, across national borders, and across market boundaries.

More often than not, this also means brands for the “bottom of the pyramid.” These are the four billion individuals that live in undeveloped economies. They had the misfortune to be born into non-industrialized societies, yet they have no shortage of intelligence, courage, ingenuity, and drive.

They’re ready to grow. The question is: how will your brand help them grow, even when they have little money? In other words, how do you create customers for your brands when people can scarcely afford them?

Sachet sizes are not the answer. Low price sub-brands are not the answer. Maybe sales are not the answer. Maybe your brand should think of itself as an NGO, and consider investing in infrastructures that can return your investment as platform strength. Instead of pursuing the conventional price premium, maybe your brand’s future is best served by the human premium.

C.K. Prahalad has analyzed new profit opportunities in developing economies. Here is his list of the top areas where innovation is needed at the bottom of the pyramid:

1. Focus on (quantum jumps in) price performance.
2. Hybrid solutions, blending old and new technology.
3. Scaleable and transportable operations across countries, cultures and languages.
4. Reduced resource intensity: eco-friendly products.
5. Radical product redesign from the beginning: marginal changes to existing Western products will not work.
6. Build logistical and manufacturing infrastructure.
7. Deskill (services) work.
8. Educate (semiliterate) customers in product usage.
9. Products must work in hostile environments: noise, dust, unsanitary conditions, abuse, electric blackouts, water pollution.
10. Adaptable user interface to heterogeneous consumer bases.
11. Distribution methods should be designed to reach both highly dispersed rural markets and highly dense urban markets.
12. Focus on broad architecture, enabling quick and easy incorporation of new features.

Prahalad frames the issue:

What is needed is a better approach to help the poor, an approach that involves partnering with them to innovate and achieve sustainable win–win scenarios where the poor are actively engaged and, at the same time, the companies providing products and services to them are profitable.

Let’s look at some of these terms: “partnering with customers,” “actively engaged,” “innovation,” and “win-win scenarios.” Those sound like brand elements to me. Is there any reason why brands, with their protean social powers, should not lead this effort?

The bottom line
It’s a new context out there at the bottom of the pyramid. Old brands won’t work. New brand concepts are needed.

(Thanks to Vinnie Mirchandani)

Via Metafilter, a YouTube video that shows how to dramatically improve the performance of your regular adhesive bandage.

YouTube (and services like it) will set the pace for brands to come. As customers take more initiative in product creation and re-creation, brands will need a new agility to avoid falling behind the curve.

The breakthrough example of this genre was, of course, the now classic how to fold a shirt.

It usually happens like this: I’m describing how a new approach to brands can be the best thing since sliced bread when someone in the room says: “That sounds great, but my company really doesn’t need a brand. We’re not in retail. We’re not a consumer goods company. We don’t worry about packaging and shelf space and stuff like that.”

There are several ways to address the “brands don’t apply to us” issue. I like to start with the universal form of brand that runs like a dial-tone through all markets, affecting all companies.

“What about your default brand?” I ask. “That’s the brand your market assigns to you. Every company has a default brand, whether they realize it or not.”

I explain that a company’s default brand is called caveat emptor. This brand premise is embedded in potential customers. It’s been driven deep into their minds by society, the market, and by their own experience. It tells them that until they know otherwise, their behavior toward you should be “buyer beware.”

Caveat emptor is the first hurdle you cross as you build your active brand to create customers.

And yes, it is your brand, until you demonstrate otherwise.

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One strategy for product introduction is to unleash your innovation in an edge market, build competence, strength and a proven customer base, and then go for the big time.

Alas, there is a fine line between innovation at the edge, and, you know, just . . . edge.

Location: outside Skagway, Alaska.

Moleskine.

You can learn a lot about brand building by watching the first 20 minutes of this Masterclass by Broadway legend Barbara Cook.

In this segment, Ms. Cook helps a talented opera singer free herself from operatic conventions and connect with listeners on a more intimate, emotional level.

Barbara Cook knows what she is doing. Her analysis, process and final results are eye-opening.

Too many brands aim to be high-flung arias and solos, full of formula effects and staged theatrics. They’d be much more effective as a personal, heartfelt chanson.

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(thanks to Metafilter)

The Los Angeles Times explores the notion that Microsoft has used global software piracy to help build its brand advantage. According to business analysts, piracy has helped make Microsoft the default global software brand by seeding copies of Microsoft software around the world.

Although the world’s largest software maker spends millions of dollars annually to combat illegal copying and distribution of its products, critics allege — and Microsoft acknowledges — that piracy sometimes helps the company establish itself in emerging markets and fend off threats from free open-source programs.

The gist of the beneficial piracy argument is that the retail price Microsoft charges for signature products such as Windows and Office — as much as $669, depending on the version — can rival the average annual household income in some developing countries. So the vast majority of those users opt for pirated versions.

The proliferation of pirated copies nevertheless establishes Microsoft products — particularly Windows and Office — as the software standard. As economies mature and flourish and people and companies begin buying legitimate versions, they usually buy Microsoft because most others already use it. It’s called the network effect.

And this comment from Bill Gates in 1998:

Although about 3 million computers get sold every year in China, people don’t pay for the software. Someday they will, though. [. . .] And as long as they’re going to steal it, we want them to steal ours. They’ll get sort of addicted, and then we’ll somehow figure out how to collect sometime in the next decade.

That “next decade” is now. The rest of the article describes how Microsoft’s loose/tight strategy is methodically converting institutional software piracy into sales of fully licensed software.

Fortune magazine has an update on Gap and its continuing struggles to regain fashion relevance. On the business side, Gap has reduced its debt and improved cash flow, but on the fashion side much remains to be done. Gap is not a fashion leader anymore. Same store sales have declined in 18 of the last 21 months. Some top talent inside the company has left. And analysts question if Gap has simply lost its customer vision.

Levi-Strauss demonstrated that rising to fashion icon status is no guarantee of permanent success. Icons can easily become relics, effectively dead, rigid and remote.

Competitors make their customers look “special”

In San Francisco (Gap’s home turf), Gap now has very visible competition from nearby H&M and Zara. Visit those stores and you’ll see what Gap could be, but currently isn’t. Both competitors flash a fashion presence that reaches out and embraces the customer right at the door. It’s as if they’re saying to the customer: “We’re here to make you look special. Everything in here is all about you.” So in you go, gazing wide-eyed at all the new self expressions you had never thought possible.

While Gap makes you look like . . . Gap

At Gap, the brand still seems to say: “We’re here to make you look like Gap. Everything in here is us.

It’s a very big difference.

Singapore outclasses Gap along Orchard Road

Having just returned from Singapore, I saw first hand just how far Gap has to travel to get back into the global fashion game. Frankly, Gap has a long way to go. The spiffy malls and boutiques on Singapore’s Orchard Road make your average Gap store look like Old Navy. At the huge Takashimaya department store, the displays, presentation, styling and variety in the different “brand boutiques” are simply stunning. Style, cut, color and detail jump out at you from every direction. The same can be said for the dazzling Esprit store in nearby Wisma Atria. Gone is the famed super-saturated sub-teen panache that characterized the classic American Esprit. Now there are carefully tailored lines of Euro-sophisticated pieces designed to be combined and recombined, capable of energizing one’s whole wardrobe. And Esprit is growing attractive sub-brands, such as the ESP “sport” line, to plumb adjacent markets.

These brands have a life to them, a vibrant immediacy, even when hanging on the racks. They aren’t just “clothes,” and they’re certainly not “inventory.” They’re an incarnation of you, inviting you to touch. It’s as if you’re surrounded by palettes of potential as you walk through the store.

Limits of the Gap look

In the end it all comes down to what a business does with its design sense. The Gap approach seems intent on creating a merchandisable look, which it wants its customers to adopt. Its competitors seem headed on a different course, creating customers who are simply more fashionable.