Niko Herzeg Marketing » innovation

the business end of innovation (client thoughts on social, co-… and other ideas agencies love to push)

admin — Wed, 14 Sep 2011 00:05:43 +0000

The great lesson in microeconomics is to discriminate between when technology is going to help you and when it’s going to kill you. And most people do not get this straight in their heads. But a fellow like Buffett does.

For example, when we were in the textile business, which is a terrible commodity business, we were making low-end textiles—which are a real commodity product. And one day, the people came to Warren and said, “They’ve invented a new loom that we think will do twice as much work as our old ones.”

And Warren said, “Gee, I hope this doesn’t work because if it does, I’m going to close the mill.” And he meant it.

What was he thinking? He was thinking, “It’s a lousy business. We’re earning substandard returns and keeping it open just to be nice to the elderly workers. But we’re not going to put huge amounts of new capital into a lousy business.”

And he knew that the huge productivity increases that would come from a better machine introduced into the production of a commodity product would all go to the benefit of the buyers of the textiles. Nothing was going to stick to our ribs as owners.

That’s such an obvious concept—that there are all kinds of wonderful new inventions that give you nothing as owners except the opportunity to spend a lot more money in a business that’s still going to be lousy. The money still won’t come to you. All of the advantages from great improvements are going to flow through to the customers.

Conversely, if you own the only newspaper in Oshkosh and they were to invent more efficient ways of composing the whole newspaper, then when you got rid of the old technology and got new fancy computers and so forth, all of the savings would come right through to the bottom line.

In all cases, the people who sell the machinery—and, by and large, even the internal bureaucrats urging you to buy the equipment—show you projections with the amount you’ll save at current prices with the new technology. However, they don’t do the second step of the analysis which is to determine how much is going stay home and how much is just going to flow through to the customer. I’ve never seen a single projection incorporating that second step in my life. And I see them all the time. Rather, they always read: “This capital outlay will save you so much money that it will pay for itself in three years.”

So you keep buying things that will pay for themselves in three years. And after 20 years of doing it, somehow you’ve earned a return of only about 4% per annum. That’s the textile business.

And it isn’t that the machines weren’t better. It’s just that the savings didn’t go to you. The cost reductions came through all right. But the benefit of the cost reductions didn’t go to the guy who bought the equipment. It’s such a simple idea. It’s so basic. And yet it’s so often forgotten.

A Lesson on Elementary, Worldly Wisdom As It Relates To Investment Management & Business, Charles Munger, USC Business School, 1994

design for real impact

admin — Thu, 21 Oct 2010 04:47:27 +0000

Kevin Starr at IIT Design Research Conference 2010 from IIT Institute of Design on Vimeo.

Not just for the third world or social problems, given the fact that the Western world is in financial trouble and adland is a joke…

Murray Gell-Mann: ideas on creative ideas

admin — Tue, 13 Oct 2009 06:55:33 +0000

Murray Gell-Mann, leading scientist and all round Big Brain on creativity.

the root of all magic is reality

admin — Thu, 27 Aug 2009 06:40:59 +0000

Imagine this:

The 1980 NBA finale, the deciding game and your best player, Kareem Abdul Jabbar, out. The way you used to play, build around a system that had served you well, is broken.

What do you do?

We know what head coach Paul Westphal did.

Same choices are presented to us every day. With our expectations about business and live in general in doubt, because they were build on assumptions no longer valid, we can do two things:

1) Keep doing what we did, only work even harder and faster within the know, broke system and hope things slide back into place;
2) Acknowlegde the new reality, be open to the opportunies for disruptive advantages and run with them.

what we can learn from pick up artists

admin — Mon, 20 Jul 2009 18:40:00 +0000

Seeing as I am based in Holland, I thought it time to write a bit in Dutch, and for a Dutch blog.

As of today I will be blogging for Molblog, one of Holland’s most read blogs about marketing.

My first piece of writing is here, but since some of you may not be fluent in Dutch, below is a translation.

What we can learn from pick up artists

There is a crisis. Not that economic one. No. There is crisis in the world of pick-up gurus. Yes, pick-up gurus. Men who can get every woman an teach followers how they can get laid as well.

It all started with a book several years ago. Called “The Game”. It describes journalist Neil Strauss, on his quest to become PUA, Pick Up Artist. The book was a bestseller. But also ensured that women got insight into the workings of these PUA’s.

Because, despite all the shits and giggles, these gentlemen had a process. Their practices were secretly shared on forums and message boards.

From opening sentences, to routines and field reports, PUA’s were constantly trying to improve efficiency and speed up the scoring.

Yet suddenly opening phrases were known, routines (a fixed linguistic pattern to achieve a positive result, think AIDA, but in the pub) were spotted and PUA’s were ridiculed. This led to a number of the gurus proclaiming that they found a new way.

Method vs. Natural
This new group was a response to the way it had been up till now. Until now, PU’s were a series of steps and mechanics. First there was the opening, then the routine, then increasing the tension and finally .. action. Hence the name Method.

But by now the audience knew how it worked, the effect became less strong. This led to even crazier openings, increasingly complex routines. But this did not lead to improvement in outcome. Only more noise and ridicule.

Group two said that a pick-up (PU) was a spontaneous, natural thing, and that you as a PUA attracted women by being yourself. The best self you can be, but still yourself.

No script, no story,just a spontaneous interaction that had an open ending. If there is no script, then you could get caught, and if they liked you because of you, you do not need to worry about fullfilling the image what you portraying with your routines (self-insured and cocky, etc.

For followers and gurus, this is a more difficult path. It requires self-improvement of personality, appearance and self-confidence before you proceed to chase. But if we believe the feedback the Natural way is beating Method.

Not in the least because the practitioners are at least feeling better about themselves and are no longer stressed out memorizing routines.

Action speaks louder than words

Yeah … .. so what you’re think. This is a marketing blog. Correct. And from a marketing standpoint there are some interesting observations.

Google, Hyves, Facebook, HBO, Skype, show us that many of the strongest brands over the last 10 years were built by attracting customers through a disproportionate focus on product and service innovation. Not product and service communications (which still plays a role, but a lesser one).

Research of the University of South London shows us the same. In a study of purchases over time, researcher Charles Graham discovered that despite large amounts of money brands spend, market shares remaines stable. He saw that the market shares of most brands in the study increased or decreased by 3 percent, but always within that margin.

Only six brands increased their market shares by more than 6%. These changes were “not achieved by changes in promotional mix” but by “exceptional, strategic and structural innovation.”

So …
Like PU gurus we are in a crisis. Consumers are more aware of our practices, trust the advice their friends more than our commercials and many businessowners and CFO’s can’t get a good answer to the question of “what that budget is contributing to the bottom line”.

But therein lies the opportunity for our industry to show our value. Not by better creation of campaigns, but by challenging our customers and clients to learn, innovate and be of real value to the lives of consumers in those moments when they need us.

Only we will have to look at ourselves first. For an industry that brags about innovation and creation, we have only played a modest role in the creation of the above mentioned brands or the many other innovations that we know.

Not that there is no place for advertising agencies, but decades ago an agency developed the idea of the soapseries, now we fill the few minutes between content blocks.

For just as women do not mind a talking to fun, spontaneous guy who, in addition to humor and self-confidence, actually has something to say, consumers have nothing against seduction by advertising, products and services, or spending money.

Only the umpteenth variation on “Don’t I know you from somewhere …” will not get us of the list of “things which can be cut”, just as it won’t help PUA’s get dates…