Lluis Martinez-Ribes – Retail innovation through neuromarketing strategy header image 1

Lluis
Martinez-Ribes

Innovation in
MARKETING & RETAIL
Transforming business with omnichannel and neuromarketing strategies

THE SALES EQUATIONS Data-driven retail and neuromarketing

April 8th, 2015 · No Comments

Each year sees the publication of reports on the retail trends in store for us over the coming months, such as those published by Price Waterhouse Coopers and TNS Retail.

data-driven

Image: Carla Vallès

At the start of 2015, one forecast on which most of these reports are in agreement is the consolidation of data-driven marketing (Honaman, 2015). Applied to retail, this involves using business data to be able to carry out actions, such as special offers, for a particular customer based on their location in the store, whether through screens or the customer’s own smartphone. This can equally be applied to physical and digital stores.

Such personalized action activity is based on the use of technologies such as multimedia installations fitted with cameras to detect the sex and age of approaching customers, instantly showing them a promotion adapted to their profile on the screen. The other technology underpinning such initiatives is currently growing in double figures and is paid for by the customer: their smartphone, linked via Bluetooth, iBeacon, NFC (Near Field Communication) and, logically, the CRM.

The sales equation

The usual method of quantifying sales in a physical store and estimating potential growth applies the following parameters:

  • Size of the scope of influence.
  • Number of people of the main target segment.
  • Achievable market share, taking the competition in the area into consideration.
  • Frequency of visit.
  • Conversion rate (% of visits that end in a purchase).
  • Average purchase (= quantity of products x price).

The last of these parameters should be broken down into two parts, depending on the customers’ behaviour:

  • Items they planned to buy, that were on their ‘shopping list’.
  • Unplanned purchases. The relative weight of this part varies significantly depending on the sector and retail format.

It seems clear that many of the aforementioned technologies tend to focus on this last part of the equation nowadays. Lindsey (2014) also confirms that the majority of inter-related technologies on which data-driven retail is based are highly focused on increasing impulse purchases.

Neuroscience’s interpretation

Most people know that the vast majority of human decisions are subconscious or implicit, activated by the limbic system, one of the fastest parts of the brain which, paradoxically, consumes the least glucose. The cortex, the part of the brain that activates when we do something consciously, is much slower and consumes a lot of glucose.

When we do the shopping, we pick out the planned items almost semi-automatically. However, when an offer catches our eye or we get a promo message on our smartphone, we switch from the ‘automatic pilot’ of the limbic system and turn our newly-activated attention to the message we have received. This is when the cortex kicks in, meaning that we are making a mental effort, as we consume more glucose that just a moment earlier.

As Dr. Ralf Ebert explains, when somebody makes effort while shopping, the same part of the brain is activated as when we suffer physical pain: our brain interprets it as an implicit pain. For this reason, when we ask for customers’ conscious attention, it must be compensated for with a relatively large reward (for instance, a real bargain or a moment of happiness).

Customer loyalty is quantifiable

It is well-known that customer loyalty is one of the two founding pillars of the retail business model. Nobody can make a living from customers that buy just once. We want and need them to keep coming back and purchasing repeatedly.

As such, in other words, the company must perceive itself not as a seller of products or services, but rather as a customer cultivator.

This can be quantified. The measurement for calculating the value of a specific customer over the long term is the Customer Lifetime Value (CLTV) or, to put it another way, how much each customer is worth (in € or $) if they continue shopping with the same pattern and habits as they have done so far.

On the following website, Harvard Business School has developed a simple tool for simulating CLTV.

So, how can we stimulate loyalty? Many people think that the key is a fascinating and highly sensory shopping experience. However, one study (Dixon, Freeman and Toman, 2010) shows that customer loyalty is achieved more effectively by reducing the efforts they have to make while shopping, providing what could be referred to as a friction-free shopping experience.

Do these trends work against customer loyalty?

If enhancing the sales equation involves tiring out our customer’s brain, we need to get rid of any unnecessary loads on this journey. To put it in a more contemporary way, if sales are encouraged using ‘push’ promotional strategies, tired out customers may stop coming to our store. This is what many tourists end up doing, crossing the street to avoid waiters who stop them to persuade them to enter their restaurant.

To avoid such problems, the following seven tips may be of use:

  1. 1. Interlinked with the CRM, commercial and contextual data (weather, events, etc.) represents a powerful source of opportunities for gaining greater understanding of the customers, to later be able to implement suitable actions to grow the business. Market intelligence is a key part of any good marketing and sales department.
  2. When we do the sums, the CLTV is greater when customers keep coming back to the store, despite their average purchase each time being lower.
  3. Take full advantage of the fact that smartphones know their owners’ context (space and time) so that they can receive offers adapted to their present situation.
  4. Avoid excessive promotions or communications that force customers to pay too much conscious attention. If we fail to do so, we contaminate the store and cause their psychological self-defence mechanisms to kick in.
  5. Whenever we want to grab the customer’s attention, we have to offer them some kind of reward by way of compensation.
  6. As far as the customer’s brain is concerned, one strong promotion is far better than twenty weak ones.
  7. The rewards must be relevant. In other words, if we possess customer data, we have to be able to offer them something that is truly adapted to their needs. There is no point sending them a promotion for nappies if their kids are all grown up. If we do not manage this, the store may be seen as rude or, even worse, irrelevant to the customer’s life.

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Bibliography

  • Price Waterhouse Coopers & TNS Retail (2007) “Retailing 2015: New frontiers”.
  • Honaman, J. (2015) “Top 6 retail trends to watch in 2015” in Retail Info System News, 5th January
  • Lindsey, K. (2014) “Sealing the deal: Six digital tools targeting impulse shoppers” in Retail Dive, 27th May
  • Dixon, M., Freeman, K. & Toman, N. (2010) “Stop trying to delight your customers” in Harvard Business Review, July.

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Lluis Martinez-Ribes

Source: Código 84, number 185

March 2015

→ No CommentsTags: Customer Lifetime Value · Data-driven · Efforts · Esfuerzos · lealtad · loyalty · Neuromarketing · promotions · retail · sales · smartphone · venta

THE BEST OF LUCK TO YOU, NEW PRODUCT! The Orchestrated Solutions model

February 10th, 2015 · No Comments

According to an article published in the Journal of Product Innovation (2013), the failure rate of new products is 41%, although this figure varies depending on the sector (Castellion, G. & Markham, S., 2013).

It is surprising that almost half of all new products fail when, aside from simply allocating resources, companies normally employ well-known processes for innovation, customer insight, marketing and also sales.

There are several causes behind such commercial tragedies, but they all have a certain aspect in common: the majority of companies that launch new products do so on their own, without strategic partnerships with other companies in the sector with the aim of achieving more comprehensive solutions for their customers.

orquestrado1

Another way is possible

Imagine breakfast time on any given day. You open the fridge and pick whatever you fancy: milk, juice, cookies and so on. You sit down to enjoy your breakfast as you read the papers on your tablet.

While this may appear to be a perfectly normal situation, this is not the case for the 8% of the European population who suffer from diabetes. With this group of consumers in mind, in 2013, the mass market manufacturer Calidad Pascual and the pharmaceutical laboratory Esteve decided to launch DiaBalance, a range of everyday food and drink products suitable for diabetics to be sold in supermarkets, as well as a selection of products for exceptional situations, available in chemists. Moreover, they offered advice on their website to help people with the condition.

Each of the two companies contributed their own respective knowledge and experience in their sectors in order to offer a fairly complete solution to people with diabetes, with the objective of making life easier for them.

The boundaries between the food and pharmaceutical industries have been blurred in the project and the companies have managed to offer a full solution to diabetic consumers in a single purchase, a fact that they appreciate (Bröring et al., 2006).

The commercial start-up of the new solution may have been a slow process, but both of the companies are extremely happy with the project and the lessons they have learned from it.

Two other cases: Nike+ and Nespresso

Nike+ iPod were more than just trainers, they were a complete solution achieved through a partnership between Nike and Apple. The shoes enable wearers to monitor and track their physical activity and share their experiences with other users.

Nike’s revenue rose by 10% in the second quarter of 2006, when these trainers went on sale (Angell, 2006). The following quarter saw sales continue to rise by 9%. In less than 6 months, three million pairs of trainers were sold (Nike Inc., 2006).

Due to technological progress in electronics, Nike has now been able to develop this solution without the need for an iPod and, as such, Apple is now longer a necessary partner in the project.

Meanwhile, working together with Miele, Krups, Delonghi and other companies, Nespresso offered its customers a complete solution: a top-quality espresso, highly optimized coffee makers and an extremely well-planned after sales service. All of this was offered with an apparently luxury appearance.

After a slow start, the company’s sales rose by 22% in 2009 in the depths of the recession and the Nespresso Club reached 7 millions members, even with a significantly higher price than the competition.

What underpins these three examples?

Just like Nike+ and Nespresso, DiaBalance is a practical illustration of what is known as convergence. In other words, this is the partnership process between two or more industries that were unconnected up to that point, in a world in which the lines between sectors tend to be blurred (Weaver, 2007).

orquestrado2

Orchestrated Solutions

There is extensive literature on convergence. In 2010, I published an academic article with Katia Premazzi in which we coined the term “Orchestrated Innovative Customer Solutions” (OICS):

  • A network system with permanent and visible horizontal and/or vertical and/or diagonal links, involving companies that complement their key resources (primarily knowledge) in order to offer a complete, innovative, branded solution to end customers, thereby satisfying their needs.

For a partnership with another company to qualify as an Orchestrated Solution, it must fulfil 6 conditions:

  1. It must provide a complete solution to one of the customers’ needs, not a partial solution that ignores part of the problem, avoiding the short-sighted attitude that ‘It is nothing to do with us”.
  2. The response must be truly innovative, not simply an improvement.
  3. To achieve this solution, the participation of third party companies is required (usually from other sectors), which share their know-how and expertise. A flexible partnership process must usually be adopted with a desire to learn, thereby enabling the partners to increase their capacities dynamically (Teece et al., 1997).
  4. The partner companies know the solution that they want to conceptualize and create. It is not simply a case of working with good input suppliers. In addition, all of the partners’ brands are visible to the end customer on the end solution.
  5. Operating as a system, it must involve a new business model, including the visible facets of both the front-end (range, prices, services, customer service and relations, type of sale, website, etc.) and back-end (production, logistics, finance, technical service, etc.).
  6. Long-term contracts must be established between the partners, ensuring a stable relationship between the companies involved (Weaver, 2007). As large-scale investments are required, albeit not always in equal proportions, the contract must run for a long period in order to ensure an effective ROI.

In short, the Orchestrated Solutions system is currently the most innovative way to launch new products.

It is a method that demands a lot of input: strategic vision and desire, a firm customer-centred focus and a great deal of internal support in terms of time and money.

However, luckily the benefits to be reaped are great: effective differentiation, preference creation, brand development and bigger margins.

To sum up, this is a great management approach for executives who are striving to transform their business, rather than those who are happy to stay in their comfort zone.

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Bibliography

  • Angell, LC. (2006) “Nike profit boosted by Nike+iPod sales”. iLounge, 21st December
  • Bröring, S. et al. (2006) “The front end of innovation in an era of industry convergence: evidence from nutraceuticals and functional foods”, R&D Management vol. 36. Oxford, Blackwell Publishing Ltd.
  • Castellion, G. & Markham, S. (2013) “Perspective: New product failure rates: Influence of Argumentum ad Populum and self-interest”, Journal of Product Innovation Management, pp. 976-979
  • Martínez Ribes, Lluís; Premazzi, Katia. “Orchestrated innovative customer solutions: an emerging trend to master convergence?”, Finanza Marketing & Produzione, Vol. 28, nº 3-2010, 09/2010, pp. 89-122
  • Nike Inc. (2006) “F2Q07 Earnings Call Transcript”, 20th December
  • Teather, D. (2010) “Clooney’s Nespresso steams ahead with 35.5% sales growth in UK”, The Guardian, 9th April.
  • Teece, D. et al. (1997) “Dynamic capabilities and strategic management”, Strategic Management Journal.
  • Weaver, B. (2007) “Industry convergence. Driving forces, factors and consequences”, Lund, The Institute of Eco

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Lluis Martinez-Ribes

Source: Código 84, number 184
February 2015

→ No CommentsTags: business model · collaboration · convergence · Diabalance · modelo de negocio · Nespresso · Nike+ · partner · Solución · orchestrated solutions · Solution

WHERE HAVE ALL THE CUSTOMERS GONE? An overview of showrooming

December 23rd, 2014 · 2 Comments

An MBA student from ESADE who was taking my Retail Innovation course (September 2014) mentioned to me that, in Shanghai, several shopping centres have repurposed entire floors, with a shift from stores to restaurants.

martinez-ribes-showroom

(image: artchandising)

There are lots of countries in which retail chains are struggling to keep up sales and productivity, with many cases ending up in store closures. In the United Kingdom, the proportion of empty stores in 2008 was 5%. In 2014, this figure rose to 13.4%, according to statistics from the Local Data Company.

Forecasts in Europe predict a 3.5% increase in conventional retail sales in 2014, compared to an estimated rise in e-commerce of 11% in the same period. This figure reaches 18% in countries in Southern Europe (Reingold & Wahba, 2014, and Enright, 2013).

However you look at it, the statistics show that the retail sector is undergoing a profound transformation for one main reason: customers now buy in a different way. One of the best-known new ways of shopping is showrooming, the cause of so many headaches lately.

As EKN defined them in 2013, these showroomers are “channel agnostic customers” who completely interconnect all of the interfaces or channels.

Showrooming

Warc (2013) defines showrooming as the phenomenon by which customers see the product in a physical store and then buy it online at a lower price.

However, the practice of buying a product cheaper elsewhere was commonplace long before the internet existed. For instance, people often find out about and look at a washing machine in a department store in the city centre and then end up buying it cheaper at a neighbourhood shop.

A second subtle yet important point that is often overlooked by this common definition is that showrooming only becomes a concern for city centre stores when they miss out on the sale of a non-exclusive product. Zara does not worry unduly about a customer looking at an item of clothing in-store and then buying it on the chain’s own app or website.

Therefore, showrooming occurs when somebody checks out a non-exclusive product in a physical store and then buys it at a better price usually but not always online. Bearing in mind the growing number of people using smartphones, it seems clear that this is the great catalyst that has triggered the recent boom in showrooming around the world.

At its root, showrooming is a case of a multi-interface shopping process (physical store, smartphone, tablet, laptop, other physical stores, etc.) that takes place in various contexts (at home, in-store, somewhere outside the home with an internet connection, etc.)  [1].

When showrooming occurs, the main activities or functions traditionally performed by customers in the shopping process (see attached diagram) no longer have to happen in this order, nor through the same interface.

lmr-showrooming-en-b

(Click to enlarge / image: artchandising)

The fact is that, as a result of showrooming and even more so when smartphones come into play, the shopping process is no longer linear, but rather less predictable and subject to more stimuli that traditional ways of shopping.

Why do customers go to the physical store?

We know from experience that, when we make a decision, two things can happen: we get it right (making us feel good) or we get it wrong (making us feel bad) [2]. All purchases require a number of decisions, including which store to go to, which products to rule out and which one I end up choosing. To reduce the risk of error, we need information.

The information required for decision-making is different depending on the interface (digital or analogue) that is used to obtain it:

Type of information about: Analogue media Digital media
Functional aspects (product performance, price, etc.). Limited information (labelling).

Often higher price.

The information may be more detailed.

Often lower price.

Sensory aspects (user-friendliness, style, weight, etc.). Perceived with the 5 senses. Perceived with 2 senses (3 in the case of touchscreens).
Symbolic aspects (associations with the chain and the product). Depends on the case. Depends on the case.

We can see, therefore, that stores in which customers can see the product physically have an advantage from the perspective of the sensory contribution, while online stores tend to win in terms of functionality (sometimes with respect to greater information and often with a lower price). In symbolic terms, the influence of the brand has to be weighed up on a case to case basis. This could equally be said for both physical stores (e.g. Carrefour) and online operators (e.g. Alibaba).

The usual way of tackling the challenge

Faced with the reality of showrooming, chains have mainly responded along three lines:

  1. Penalizing showroomers when they are in the physical store, for example by not offering them WiFi or making them pay if they leave without buying anything. Obviously, this is not the most common solution nor, of course, the most suitable approach.
  2. Ensuring the exclusivity of the majority of their products. This lets them prevent other stores offering these products and stops customers being able to compare. This approach is often impossible if the chain does not have enormous purchasing power. A slight alternative of this approach involves achieving exclusivity in terms of a small variation of a model, which is given a slightly different code, thereby preventing direct comparison. If this response is feasible, it may be appropriate, but it is often not enough.
  3. Lowering prices to undercut competitors, especially those that sell online. Although this approach may improve the rate of purchase avoidance, its side effect is a reduction in gross profit and, as a result, the equilibrium point is much higher. If we take into account the fact that costs tend to be higher in a physical store than for their online competitors, companies taking this approach run the risk of making losses.

A proactive approach for city centre stores

The first part of the response is to play to your strengths, in this case, the sensory side of shopping. Turning the store into a launch pad for the imagination (e.g. as Ikea does in certain parts of its stores) and a place that inspires a particular emotion triggered by the simultaneous stimulation of various human senses. Let’s not forget here the important role that sellers play in this respect. All of this goes towards creating a packaging or micro-context, a crucially important aspect of any neuromarketing strategy, as we have seen in earlier articles.

The second part of the response is not only “stemming the tide” but rather facilitating the other part of the shopping experience: being easy to use from an operational perspective. In specific terms, this means enabling customers to access the information through various interfaces. Let me explain.

The information found on a physical label on a product is often insufficient, if the customer wants to feel more confident about their purchase. In this case, the retail chain can offer information on demand, whether that is through interactive screens activated with the product code or with a code than can be activated using the customer’s smartphone.

When the customer uses their smartphone in the store, there are two possibilities: the chain’s app (or website) opens, or this app belongs to a third party. In the ideal scenario, the customer could activate a code on the product shelf to activate a code in the chain’s own app, without having to type anything in. This would give customers more information about both the product and the additional benefits offered by the chain when customers choose to buy from them (e.g. methods of payment, delivery outside the standard timetable, extra warranty, etc.).

Ideally, when customers use the chain’s own app, it shows them something relevant or, in other words, personalized for that customer. For instance, if somebody has a baby, they could be recommended the option of a promotional pack suitable for that context. This would be a case of big data being applied to showrooming.

It is worth highlighting here that anything that reduces the effort required (e.g. easily accessible information, non-technical language, avoiding repetitive tasks such as entering personal details or customer card details again, etc) is likely to generate greater sales.

Moreover, from the same platform, all of the information could be sent to somebody for them to give their opinion, reserve the product and maybe even buy it.

As a third response, albeit complementary to the others, a sales promotion can be added that is issued to registered customers who have given permission for their smartphone to be identified. For instance, customers who spend a long enough period in a particular section of the store could be sent a digital coupon for a certain amount that is only valid for the following half an hour. Technologies such as iBeacon can help, as long as they are not intrusive; the cortex would take issue otherwise.

The result of all this is that city centre store companies have to adopt a multi-interface strategy or an omni-channel approach as it is commonly known. In fact, a more suitable name would be a fully customer-centric strategy, as it offers a complete, personalized experience that is interconnected throughout all of the interfaces.

Operating through all of the interfaces, chains have more opportunities to gather information about customers and, as a result, to general a more enjoyable, personalized and stimulating shopping experience.

John Lewis, a good example

One really good example of the integration between interfaces is the British chain John Lewis, winner of several awards for offering customers an omni-channel experience.

The products in-store have two codes: the traditional one and another in-house one. By scanning the latter with their mobile phone, customers access the product information on the company’s own app. As well as the technical specifications being provided there, customers can also see other complementary benefits that John Lewis offers customers for shopping on their website, personalized discounts generated from previous purchasing data, information on demand and other aspects that make the shopping process easier.

As a result, the chain has managed to establish itself as many customers’ preferred option, even though its prices, while competitive, are not the lowest on the internet.

Finding our bearings

The objective of retail chains is not to prevent customers shopping online, but rather ensuring that they do so using the chain’s own range of interfaces. As Ann Zimmerman (2012) says, competition is not between stores or website, but rather between your website and the rest.

Showrooming is just the tip of the iceberg that shows the deep-rooted transformation that is happening and going to happen in retail, the cause of which is the fact that customers live and shop differently now. Achieving harmony with customers’ lives should be a greater trigger for companies to transform, rather than simply reacting to a rival’s initiative.

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[1]  Context refers to the combination of a particular time and place.

[2]  For this reason, what people like most is not having to make a decision.

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Bibliography

  • EKN (2013), “The future of the store”.
  • Enright, A (2014) “U.S. online retail sales will grow 57% by 2018”. Internet retailer, 12th May
  • Internet retailer. “European E-Commerce Forecast 2013-2017”.
  • Local Data Company (2014) “Vacancy report H1 2014”.
  • Reingold, J. & Wahba, P. (2014) “Where have all the shoppers gone?” Fortune, 3rd September
  • Warc Staff (2014) “Retailers face the omni-channel gap” Warc, 18th March
  • Zimmerman, A (2012), “Can retailers halt showrooming?” The Wall Street Journal, 11th April

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Lluis Martinez-Ribes

Source: Código 84, number 183.

December 2014

→ 2 CommentsTags: big data · multi-interface purchase · e-commerce · Estrategia de neuromarketing · experiencia de compra · imaginación · imagination · neuromarketing estratégico · omnichannel · retail · sensorialidad · sensoriality · shopping experience · showrooming · smartphone

NEUROMARKETING AND M-COMMERCE. How apps may please the human brain

December 3rd, 2014 · 1 Comment


Interview by Hans Voorn on November 5th, in the context of the Amsterdam eRetail Europe 2014.

The event brought toghether retailers, etailers and brands, and strategies for a digital world already in place and in a changing digital environment were proposed. The session in which I participated as a speaker with the conference “Neuromarketing and m-commerce. How apps may please the human brain”, was a platform to gain the essential strategic insights on digital commerce in the retailing business for the top 500 European companies that participated.

+ info

→ 1 CommentTags: App · cortex · hábitos · m-commerce · Neuromarketing · no-consciente · non-conscious · sistema límbico

IF IT’S FREE, EVERYBODY WINS. Interpreting “free” in business

October 30th, 2014 · No Comments

According to Flurry, a company of Yahoo group specialist in the use of apps, approximately 90% of the apps in Apple Store are free. Google also gives free access to their search engine services. Hours of work of talented people given for nothing!

Let’s explore this business practice and see what we can learn from it.

freemium-14

From a customer perspective

Even if it’s permanently or just for a short period of time, customers are delighted when they find out that a product or service is free. It’s a nice surprise, something pleasant.

For this reason when someone gives us a gift, our body releases dopamine, a neurotransmitter associated with pleasure and reward feeling.

Scientists affirm that human beings need to enjoy small pleasures in everyday life (for instance, a glass of wine after work, leafing through that attractive magazine before going to bed, etc.), not only to make our life more pleasant, but also to prevent depressions, anxiety or poor performance.

There is also another interesting aspect for the customer who is offered a new product for free: if he doesn’t like the product, the risk assumed is almost zero.

Prof. Sandro Castaldo, from SDA Bocconi, explains this saying that the relationship between the company (or product or brand) and the customer can begin with a first stage: new customers must not feel the risk when pondering over a new product. And one of the best ways to get this is by experimenting it for free; being it for a period of time (e.g. two free sessions of fitness), or in a small amount (e.g. a sample of moisturizer inserted in a magazine).

So from these two perspectives -biological and relational- the surprise of seeing that something is free is really good for the people.

From a business perspective

At a first glance it might seem that firms shouldn’t be interested in giving their products or services for free. However, if we go further into the issue this statement can be qualified.

In a society in which the things that are sold are not always “squeaky clean”, if a company gives their customers the chance of getting in touch with their product for free -without risk-, this is the best possible marketing, both for the first product launch and for when new customers are sought. As Ariely (2008) says, the true attractiveness of free is related to the lack of risk of loosing something due to a bad purchase decision.

So, the cost of what is temporally free must be considered by the company as the “seed” of a new customer.

After all, I encourage (most of) the companies to feel like “customers growers”. Like farmers do: they plant a seed, take care of it, they water the plant, and then they harvest the fruits, and if everything goes well, the amount will increase in every harvest.
I think this agricultural approach is more interesting than the one of hunting customers -they are usually called “target”, “hitting” them with a given “intensity” of advertisements and without listening much to them, except when a market research is conducted.

Apart from this temporal investment of giving something for free, there is another approach, this one of a strategic kind. Companies can take a business model which is colloquially known as “freemium”, the contraction of free and premium. Like well-known companies such as Dropbox, Evernote or many games do, it consists of offering a service for free in its basic option, and a much more complete one -usually without advertising- if the customer pays for this premium upgrade.

Once the customer becomes familiar with that service, he usually desires to go further. And then he is willing to pay for that second premium level, in which he won’t find advertising. For this reason, Pujol (2010) says that freemium is a way to generate demand.

There is life beyond freemium

One of the methods I propose to innovate in marketing and retail is to “move away from the trade guild”: instead of selling good products, try to be of customers’ life (including such good products).

If we sell more or less the same as the competitors, the result is clear: due to the similarity, there is an evident risk of a price war. If such a tragedy happened, the gross margin would decrease, and this would reduce the company “energy”, because the gross margin is like the sap of the plants.

There are companies that know how to sell something apparently more abstract, but very relevant for the customers in certain moments of their life. For example, the company Ziferblat has cafeterias with a very relaxing atmosphere in Russia (Moscow and other cities), London, and soon in New York, in which they don’t charge customers for what they consume, but for the time they spend in there. In Moscow an hour costs around 2.5€ and in London, around 3.75€ (*).

Here, products are free. Instead of selling what the guild sells (with the risk of similarity and the feared price comparison), this retail chain happens to sell something very relevant to their customers’ life: quality time.

Beneath the pavement, the beach

This famous sentence of May 1968 in France is enlightening of the naughty look we can use in business. Instead of remaining in the surface (“the pavement” – what’s free) some managers decide to transform the reality changing their job: they want to be part of their customers-person’s life.

This business transformation may also be called “innovation”. Actually, this is the core part of a sound neuromarketing strategy.

(*) Calculation made in mid September 2014

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Bibliography

  • Ariely, D. (2008) Las trampas del deseo. Editorial Ariel.
  • Busacca, B. & Castaldo, S. (2002) “Trust in market relationships: an interpretative model” Sinergie, Vol. 58: pp 192-226
  • Flurry, The history of app pricing
  • Pujol, N. (2010) “Freemium: attributes of an emerging business model” Social Science Electronic Publishing.
  • Ziferblat

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Lluis Martinez-Ribes

Source: Código 84, Special number AECOC Congress.
October 2014

→ No CommentsTags: App · Dopamina · Estrategia de neuromarketing · Freemium · innovación · innovation · Pequeños placeres · Riesgo · Transformación