Prime Group

TechCrunch reports on a backlash among Facebook users, http://www.techcrunch.com/2008/03/21/cbssports-facing-march-madness-backlash-on-facebook
-this-app-blows/, for an application provided by CBS to track March Madness. Apparently, it doesn’t work very well and there are countless four-letter filled posts beating them up for it. One of the more high profile errors was not crediting Texas A&M with the win over BYU.

Here is one post from the TechCrunch article that identifies a bit of a theme from the Facebook posts minus all the f-bombs.

“this is really about brands taking the leap onto facebook and the potential pitfalls. It’s something many, many companies are exploring and this is a great example of how not to do it.”

Is this really the case of a brand who so desperately wanted to be connected to Facebook and its users that it went to market with a beta application? Maybe, though that seems highly unlikely since, as another TechCrunch poster correctly states, the same Texas A&M bug was on their main site as well.

What is almost certainly true, as anyone at CBS tasked with reading the Facebook threads will find out, is that online, social networks can serve as the world’s biggest echo chamber with one purveyor of information making a claim – e.g. CBS rushed to market because they were desperate for a Facebook strategy – only to have it repeated over and over again by like minded people until most people assume some variation of it to be accurate.

Of course “rushing a Facebook strategy” is probably better than the alternative, echo-chamber “truth” percolating on Facebook – “CBS f-ing sucks.”

In only the rarest of cases does one successful product make a successful company.

LeapFrog, once an industry darling is now trading 90% off its highs. Its blockbuster LeapPad product, once over 60% of revenue, is no longer meeting the often fickle needs of consumers in the edutainment space. Their strategy going forward, as articulated by the current CEO, is heavily centered around getting back to their core demographic, children age 3 to 5, (their marketers will stretch both ends of that demo) with an instructional reading product that includes a real web component. The NY Times article, http://www.nytimes.com/2008/01/28/technology/28leapfrog.html?_r=1&scp=1&sq=leapfrog&st=nyt&oref=slogin describes the core product, Tag, designed to be the centerpiece of this strategy as,

“…a thick, white and green plastic stylus that turns paper books into interactive playthings…Parents who purchase additional titles, which will cost $14 each, have to connect to the company’s Web site to download the digital versions of those books into the Tag’s memory. At the Web site, parents will be encouraged to create a profile page for their child. Every time they connect the Tag to the computer, a record of the child’s activities will be uploaded to that profile, giving parents a detailed look at what the child read, learned and struggled with…”

Well, one thing is clear, it’s a really good thing the NY Times isn’t in charge of writing the ad copy for Tag. What else is clear? Well, we know none of these edutainment products have any solid research demonstrating efficacy as reported by a Kaiser Family Foundation study but perhaps, none need it if they all maintain a “détente” on real proof. And who knows, maybe such a claim isn’t a primary driver of consumer choice. We also know there are parents who spend significant dollars because they believe (or hope) it will provide educational advantage. And let’s not forget the other benefit of the child being able to entertain themselves for a few minutes of the day.

With that, here are a few questions to consider as Tag hits the shelves,

-How straightforward is the online process and how much time commitment on the part of the parent is required? In an age where 4 clicks is at least 1 click too many this could be the weak link.

-Is this product truly entertaining for children? LeapFrog was and past history and anecdotal evidence about Tag suggest they’ll probably deliver here.

-Is there any incentive, for the child to have an online relationship beyond downloading new titles? The CEO references NeoPets and WebKinz a lot when describing the goal of the online component. Based on the NY Times description, this is an incentive model with the parent as the beneficiary (resource, updates, reading diagnostics) versus the child (e.g. games, point accrual, virtual shopping).

The product does appear to be simpler than some “smart-pen” predecessors, it is probably ingenious and probably deserving of design awards but this is praise from the few. Answering these questions and others in the “right” way will dictate if they receive the only praise that really counts, sales.

I sit in a Washington DC office directly across the street from a Juan Valdez retail store, the first foray into US retailing for the National Federation of Coffee Growers of Colombia , a wholesaler gone retail in an effort to capture some portion of the “upstream” profit margins of its wholesale customers, namely Starbucks.

As a coffee addict whose only true loyalty is to a decent cup of coffee, proximity matters more than brand. That said, I’m vaguely familiar with the Juan Valdez brand and assumed, based on those perceptions that the coffee would cross the “decent” threshold. Combine that with the proximity and I could become a regular. So far so good on the value of a brand.

Not so fast. The store has had a “Coming Soon” sign for an interminable time, especially given the 300 square foot space. What were they doing in there? I’m sure any number of construction, contractual or bureaucratic delays are to blame but the point is, I couldn’t help but also wonder if maybe they were reevaluating the entire decision. During this idle time, the inconspicuousness of the Juan Valdez and mule icon also started to weigh on me. It didn’t help that the signage uses a cursive font making the “l” and “d” look like a “b” – Juan Vablez.

I got past the”b” and lack of Juan and his mule when opening day arrived. I walked in for my midmorning cup and was greeted, or rather met, or more accurately, stared at by 7 employees behind the counter. Seven employees standing almost literally on top of one another and none of them, not one, seemed happy to there. Let me cite Mitchell Speiser, a restaurant and food analyst with Lehman Brothers to make the rest of my point.

“There’s so much more to it,” said Mitchell J. Speiser, a restaurant and food service analyst at Lehman Brothers, about the federation’s plans. “It’s site location; it’s branding. It’s the right management team. It’s hiring the right people. Just on paper, having real Colombian coffee and creating a retail shop around it, they do win the authenticity factor, but it takes a lot more than that to create a successful brand and a successful retail chain.”

Truer words have never been spoken and on the hiring front I would be willing to bet at least two of the seven quit after 30 days and another one to two are fired within 90 days. Here is food for thought – why not hire half as many people, pay them 150% and include performance bonuses?

Things usually go better when there is a successful business plan that includes smart branding. A brand in search of a business plan is a recipe for driving traffic to Starbucks.

So, did Apple know it would be dropping the iPhone price and simply elect to maximize profit from the early adopters (Diffusion of Innovation, Wikipedia) or was it a market based reaction to demand falling short of expectations? Maybe it was both - a hope that the $599 was the “right”? price point with a Plan B at the ready if it wasn’t. Regardless, this is one example among countless of dynamic pricing based on segment or individual consumer level differences. In this case, and many others, the segment paying the highest price tends to be the most loyal, least price sensitive Apple customers who had to have the iPhone. (Confession, I’m one of the “suckers”? who bought at $599 but read on to find out why I don’t feel too bad about it)

Does a (product or corporate) brand run a risk of using dynamic pricing, especially when the most loyal often pay the most – e.g. long-time 7 day subscribers to newspapers have always subsidized the fickle churners? Does such a brand run the risk of a perceived sense of unfairness or lack of “reciprocal loyalty”? trumping hard won brand equity? There is ample market research to suggest (Journal Consumer Research (Grewal et al. 2004) consumers do consider differential pricing unfair if it is based on the buyer’s identification (e.g. new customer). And since the internet has made this type of information increasingly accessible it would stand to reason that the level of dissatisfaction is on the rise. However, there are mitigating factors and Steve Jobs, in his open letter to the “dissatisfied”? identifies, knowingly or otherwise, at least three.

One is time. If a buyer thinks the cost difference is more a function of time then buyer identification it is more acceptable. The difference between the $599 buyers and the $399 buyers could be “early adopter”? versus “Christmas shoppers”? but it could also be a function of time. If the difference is attributed, at least partially, to the different time period of purchase then perceived unfairness is mitigated.

Another closely related mitigating factor is past experience. It’s probably fair to say early adopter iPhone buyers have previous technology purchasing experiences and recognize that technology prices tend to go down not up. Again, if past experiences support the price differential then it can further mitigate a sense of unfairness. Reputation also matters and a company (like Apple) with a sterling reputation and brand can weather the perceived unfairness of dynamic pricing better than those without it.