>> Amy Draves: Thank you for coming. My name is Amy Draves and I am pleased
to welcome Itamar Simonson to our Microsoft Research visiting speaker series.
Itamar is here today to discuss his book Absolute Value, when consumers base
their decisions on reviews from other viewers, price comparison apps and
other technologies. The current mantras about branding and loyalty are
losing their relevance.
Itamar is the Sebastian S. [indiscernible] professor of marketing at Stanford
University Graduate School of Business. His work has been featured in many
publications and outlets, including the New York Times and the Washington
Post. He is recognized as one of the worlds leading experts on consumer
decision making.
Please join me in giving him a very warm welcome.
[clapping].
>> Itamar Simonson: Thank you Amy and good afternoon. I would like to talk
today about what influences customers in the age of nearly perfect
information, but before we get there let’s take a minute to review what we
used to believe about consumers. And in the beginning the assumption was
that consumers were generally rational, but because they often cannot assess
the quality of things marketers could influence their choices using
advertising, branding, loyality building topics and all the other topics that
are covered in marketing textbook.
Then, about 25 years ago it got a little more interesting. There are more
and more studies that we have done and that other’s have done that started
showing that consumers often behave or make decisions that appeared
irrational. In fact that’s where I spent the first 20 years of my career
before I started revising my opinions.
Here is an article that I published in the New York Times in 1994. So that
would be 20 years ago and I think the title, the heading tells you what it
was about and who I thought was in control. Today I am only going to talk
about a couple of examples of what led me to write this particular article.
So here, this is in effect first demonstrated at Duke University in the early
80's and here is an example from one study that we did around 1990.
Some consumers are asked to choose between six dollars and it’s a fairly
elegant Cross pen. Other consumers are asked to choose between six dollars,
the same Cross pen and another pen that most people, almost all people, find
less attractive. S, what happens? Virtually no one chooses the Sheaffer, but
the share of people who select the Cross pen over the six dollars, in other
words they are willing to pay six dollars for the Cross pen, significantly
increases.
Okay. Here is another example that we did around that time. Two microwave
ovens. One is more expensive than the other and has more features. Both of
them are on sale, 35 percent off. Now we add another one, this one which is
more expensive, but in any case this particular Panasonic is only 10 percent
off, the same deal. So now you have got here two Panasonic’s and you would
think that you added another Panasonic it’s probably going to steal more
shares from this Panasonic, but not so. Actually this Panasonic makes this
one look attractive because this is 35 percent off, this is only 10 percent
off and the big loser is the Emerson.
Let me talk about another one. Well, before that last year we decided to
replicate this effect and the effect that I will talk about next. What we
did is we showed people, we did it with the doctoral students [indiscernible]
at Stanford, and same deal. Some consumers chose between these two shredders
and other’s chose between another one. Between these 3 where if you look at
the bottom one it’s more expensive, but not as good. It’s dominated as we
say. Now we had two additional sales, two additional versions of this study
where we told consumers in addition to that information we showed them the
kinds of information you find on many web sites such as Amazon. So we showed
them some reviews, we gave them information about other options and so on.
So that would be kind of more like the information environment we have today.
The effect was gone.
Let me talk about another one. This is something I worked on and I call the
compromise effect. I worked on it in the mid 80s as part of my doctoral
dissertation. As you see here there are two cameras and again one is more
expensive than the other and has more features. Again, now we add another
one, this one, it’s more expensive, it has more features, it’s not dominated
and it’s very attractive. If you are into taking pictures it’s a pretty
attractive camera. What happened? Quite a few people actually chose this
camera, but more interestingly more people now chose the middle option, the
one that previously was just the more expensive with more features. Now it
was a compromised option and many people switched to that option. And the
big loser was the least expensive option.
In other words, this is what I would call relative thinking. Why, because
people do not choose based on the evaluation of this individual product
whether it fits what they are looking for they are looking at a choice set
and they take the middle one. Okay, which means that had we shown them a
different choice set they probably would have made a different choice, okay.
Again, last year we tried to replicate this study, same deal, different
cameras. Two cameras here, other consumers shown these three cameras, but
again we had two other versions where we gave them the kind of information
available to consumers today. Again, in those sales where we gave them more
information, where we showed them reviews, where we showed them more
information about other cameras that are available the compromise effect was
gone.
>>: Was it completely gone?
>> Itamar Simonson: What’s that was it completely gone?
>>: Was it completely gone?
>> Itamar Simonson: In that study it was completely gone. I hesitate to say
it will always completely go. In fact, I am not sure, but I think it is
clearly significantly decreasing. But, in this particular study it was gone.
Now the significance of these results from last year goes well beyond the
compromise effect. Why, because as Emanuel Rosen and I called it there is a
general shift from what we call relative decision making to absolute decision
making where more and more consumers evaluate options individually based on
the value of each option instead of in relative terms.
Let’s go back to 1999 and suppose you think you are buying this laptop. It
might be when you evaluated this laptop you might have looked at the brand
name, you might have looked at where it was made and so on, you might have
used some generic rule like you get what you pay for. These are all relative
assessments. Why, because you are judging this particular product not based
on its absolute merit, but relative to perhaps other products by the same
brand, other products at the same price level, other products made in the
same country and so on.
Now the problem with those relative proxies is they often disappoint you.
Why, because the same brands sometimes make great products, other times they
make not so great products. But, increasingly consumers don’t have to rely
on relative proxies and instead they know more and more before they make a
purchase what they are going to actually get.
These are some of the sources of information that are available today to
consumers to evaluate each product individually or in absolute value instead
of having to rely on relative proxies. Now if consumers can predict the
absolute value of things the losers are the proxies and the marketers that
rely on those proxies. And if you think about the marketing textbook much of
that, and if you have ever taken a course in marketing, much of what we have
been teaching in marketing is how to create effective, quality proxies.
Now to the extended consumers can assess the quality of things in absolute
sense then marketers will have much less influence. Let’s go back here and
think about the factors that influence consumers when they make purchase
decisions. First there is what we called “P”, everything that is stored in
our head. Our prior experiences, our prior beliefs, what we know about the
world, what we were born with, heritable tendencies. For example, I am not
going to talk about that today, but we have done now a couple of studies with
identical twins comparing them to fraternal twins and we find that for
reasons that we do not quite understand the tendency to either compromise or
not compromise appears to be largely heritable, but as I said I am not going
to talk about that, but it’s kind of interesting. It’s one of the things
that you cannot explain so you say, “Okay, the best thing I can do is see if
it replicated.”, and sure enough it does even though we tested it repeatedly
across different categories, which is kind of interesting, but it may take a
couple of decades before we will understand why this is happening.
So this is “P”, okay. The second one is “M” which is the influence of
marketers. So let’s say marketers advertise, they try to persuade you, they
use top of mind, they try to create top of mind, they use banner adds, they
run promotions and so on. Then we have “O”, which is the influence of other
people and here I mean other users, not just friends, also experts, you know
people who are demonstrating the product online and so online, so this is
“O”. Now if you want a summary of what has changed largely due to the
internet is the rise of the influence “O” and the decline of the influence of
the “M”. Now I should note here that probably “P”, the influence of what’s
stored in our head as prior experience also declined relative to “O”, because
if we have a lot of information at the point of purchase we are probably less
likely to retrieve information stored in memory based on prior experience.
Now, this change that I talked about doesn’t apply to all categories. There
are many cases where people who do not check reviews. There are many cases
where people do not check reviews. There are many habitual purchases where
you go to buy milk, or bread, or hangers, or soap you are probably not
checking reviews and you just go to the store and if it’s at eye level or
whatever that probably will still influence you.
But, more and more and more categories fall in the “O” dependent end of
things where people do check reviews. In fact, if you go an amazon and you
check the number of reviews you would think this is a matter of personal
taste. It is amazing how many reviews you get. Most of what I will talk
about for the rest of today’s presentation will be about “O” dependent
products.
Now let me now examine in more detail some key, if you will mantras, basic
things that we have been talking about and practicing in marketing. I will
talk about branding; I will talk about loyalty, come back to irrationality,
positioning, targeting, persuasion and market research.
Let’s talk about branding. That’s probably the biggest mantra of all. There
is really nothing more marketing than branding. If you have MBA students why
they take marketing classes branding has a lot to do with it. And you have
all seen those books about branding and obviously they have a lot of valuable
things to say and many people feel very strongly about brands. And it is,
despite what I am going to say, brands will continue to have important
functions.
For example in certain categories if you care about status brands will
continue in some cases to communicate status. And there are other things
where brands will still play a role, so brands are not going to way.
However, having said that, the importance of brands as indicators of quality
is going to decline, or is declining already, because, as I said, today you
can evaluate each product individually without having to rely on an umbrella
brand name.
Now some people say, “Uh, just the opposite.”, in fact there is such
information out there people get overloaded and instead of processing all
this information and getting overloaded they just go by brand name. This
argument appears to be based on the idea that consumers have just two
options. Either you process all the information on the internet and so on or
you rely on brand names. Of course, in reality consumers have many
intermediate options. It’s real easy to get a great deal of information
about quality very quickly and very efficiently.
And let me illustrate that in the category of restaurants. Chain restaurants
used to have one key advantage. You knew what you were getting regardless of
where you are, whereas if you don’t know an independent restaurant you
probably wouldn’t know what to expect. So you just go with the chain
restaurant, you know maybe not the greatest, but you know what you are
getting. Well, that might be changing.
Here is a restaurant, we talked with the owner, but it’s called Machiavelli.
I don’t know if anyone here knows Machiavelli, it’s apparently pretty
popular, it’s on capital hill, 1215 pine street and they have got her over
400 reviews. If you go to the website they have more than 50 pictures of
various dishes. You look here at the rating distribution that’s from Yelp.
You want to look at select reviews, sometimes I am interested to find out why
are those people who give it just one or two starts, what are they concerned
about? Is that relevant to me? It doesn’t take much time. It’s not very
effortful and you get a great deal of information.
Now that means that as Yelp and other review sites penetrate the market we
should see a decline in the relative share of chain restaurants. In fact
Michael Luca a researcher at Harvard conducted a study where he had access to
data about revenues of restaurants before and after Yelp entered the Seattle
market. What he found first was that every additional star on Yelp increases
revenues for the restaurant by about 5 percent. More interestingly he found
that higher Yelp penetration leads to an increase in revenues for independent
restaurants but a decrease of revenues for chain restaurants, which is very
consistent with the idea that now with the penetration with the easy access
of reviews and all those other information sources we don’t need to rely on
brand names. We can evaluate each alternative on its own merit.
Now you might be concerned about fake reviews and I am sure those exist,
however, A it’s not that as easy as you might think. Now if you go to a
place and you see a restaurant with a product with 5 reviews, yeah, I think
it’s reasonable to assume that four out of five are friends and family.
However, if you have many reviews that are useful information, furthermore,
all those web sites that rely on reviews have great incentive to make them
credible. And different companies have done it in different ways. Expedia
and Angie’s List are, if you will, the stricter. And there are trade offs
here, on the one hand you can demonstrate, like on Angie’s List to submit a
review you have to show, they can check whether you actually bought the
product from the supplier that you are evaluating.
Amazon for example doesn’t do it, Yelp doesn’t do it and many others’s don’t
do it. And it think their reasoning is that if that’s what you do you are
discouraging people for submitting reviews, from writing reviews. Other
people do other things, you know, some companies try to filter suspicious
reviews. And by the way, companies and people have developed pretty
sophisticated algorithms for detecting fake or suspicious reviews. There are
sting operations where they would approach companies and offer to sell them
favorable reviews. There are some legal actions, actually there was a recent
interesting case where I believe someone in Virginia, a carpet cleaning
service sued some people who posted negative reviews of his carpet cleaning
service.
It turns out they never actually used his services. In other words, I don’t
know if they were competitors, but they must have had some alterative
motives. Now the defendants in that case said, “Well, that’s covered by the
first amendment”, the courts just a few week ago said, “No, that’s not the
case”. If you write a false review then you can be sued for defamation. I
am not an attorney, but you can be sued. Now you may ask yourself, “What’s
Yelp’s position on this case?”, because you can see them going both ways. On
the one hand I am sure they are concerned about fake views and on the other
hand they don’t want to discourage people form submitting reviews because the
next day they get sued. In this case, my understanding is, just from reading
the press, is that they were on the side of the defendants. And I think
right now it might be on appeal.
In any case it still effects reviews, it’s still a problem, I think it’s not
as big a problem as people suspect and I think in the near future it will
become much less a problem than it might be today. Now what are the
implications of the fact that brand names become less important in consumer
purchase decisions? We talked with the CEO of ASUS Jerry Shen he said that
when he decided to sell, as you may know, ASUS used to make components for
other computer and other manufacturers. So he was what we called an OEM
supplier. When he decided to sell his products under the ASUS name people
told him, “Nah, you have no chance, you have no brand recognition and need
you spend a lot of money on advertising.”
Well by 2012 ASUS was among the top 5 in the world in tablets, in laptops,
they have done very well. I think kind of the break through product that
they have is called EPC. They just started selling it at a very reasonable
price, the word got out, they got good reviews and they have done really
well. That also applies to unknown names in new categories. As you may know
Roku is extremely successful with its streaming player. If you go on Amazon
I think they have something like over 5,000 reviews with an average of 4.5
stars. We have heard recently about Nest, these were unfamiliar names that
have done very well.
So that means that if brand names become less important then the entry
barrier in terms of name recognition is much lower than it used to be as long
as you have the right product. As long as you offer what we call absolute
value. Another implication is that it’s easier to diversify, to enter new
categories under the same name. We used to teach in marketing classes that
each brand is associated with certain perceived skills. Now if you take the
same name and you try to enter a different category you will not be
successful because consumers associate your name just with this particular
industry. That’s no longer true. If you look at Samsung and various other
products, including Microsoft, as long as you offer value you can enter
almost any category.
Let’s talk about loyalty, another kind of favorite topic of marketing courses
and textbooks. I mean how many times have we explained to people the
importance of building loyalty? And there are all kinds of quantitative
calculations, if you increase loyalty by 1 percent and you plug it into
lifetime value calculations it turns out it makes an unbelievable impact on
long-term profitability.
Well, if each product is evaluated on its own merit, loyalty may be not has
as much of an impact as it used to be. I may really like my car, but the
next time I am buying a car I am just going to look around, see what people
are saying and decide accordingly. I don’t mean I don’t like my current car,
but when I am about to by a new car I am just going to look around. Loyalty
becomes a little less important than it used to be. It’s not past experience
determinate; it’s what you are offering today.
This is just from one particular study done by [indiscernible]. They found
that recently the percentage of guests consistently staying at the same hotel
brand is only 8 percent, but it applies to many different categories. So the
implication is that your success depends on each product and you are familiar
with Nokia and Blackberry. I mean Nokia was “the brand” in mobile phones and
they just at some point just stopped offering the smart phones that consumers
were looking for. On the bright side there are better second chances, which
mean that if your next product is great consumers will forget your previous
failures and evaluate your current product.
Now given all the talk about the importance of loyalty, I mean I don’t want
to downplay it; it used to be very important in a world in which consumers
relied on quality proxies and on past experience. So there are all kinds of
measures. There is something called net promoters score which you might be
familiar with. It’s extremely powerful and it’s how many people say they
would measure what ever the measure is, like 5 point or 7 point scale about
how likely you are to recommend the product to other’s. Well, I am not so
sure you need to spend so much time on this net promoter’s score or the
market research. We spend so much time on measures of brands, brand equity
and branding things are changing. It depends, I mean you may have, you brand
may be associated with certain perceptions today, but if your next product is
not so great your great net promoter scores are not going to help you.
Let’s come back to irrationality. And as I said for many years we were
preaching the fact that consumers are often irrational and it was just that
people just didn’t believe us. Well recently, thanks to some popular books,
it’s become widely accepted that consumers are irrational. I mean many
people believe that most consumers are irrational most of the time. Well,
it’s interesting because just as this belief that consumer irrationality has
caught on it’s becoming a little less true. Not because consumers are
smarter today, or they started taking courses in rational decision making,
but simply because of the information environment where you can evaluate the
quality of each product. You don’t have to rely on all the things that
caused you to behave in ways that we as economists as irrational.
Let’s talk a little about positioning, targeting and persuasion. Again, if
you have taken any marketing class you know that what you need to do is you
first decide on positioning. How you want your product to be perceived
relative to your competitors. And the reason that positioning was seen as so
important is that based on your position, positioning was impacting the
perception of consumers and all the components of marketing strategy had to
be derived from your overall positioning strategy. But, in a world in which
you the marketer have less influence and they are more likely to rely on what
I called earlier O, on what others are saying, experts, users and so, perhaps
what marketers want in terms of positioning has less and less influence.
Here is an example that was taken from an ad for an HTC phone; I think it was
called Status. It was introduced and they were trying to position it as the
Facebook phone. Well, they worked it out, people looked at this phone and
regardless of position they evaluated it on its own merit based on the normal
ways in which they evaluate mobile phones and on those dimensions it was not
particularly attractive. It did not do very well, so they might have
thought, “Well, we have kind of cornered the market for the Facebook phone,
it just didn’t work out.”
Let’s talk about other phones, as you may know the guy here on the right.
Let’s start with that. As you know Microsoft was the first company, as far
as I know, that introduced the tablet PC well before the I-Pad; I think it
was around 2002. It was regarded from what I could tell as a good product.
And obviously there were probably multiple reasons why the product didn’t do
as well as the I-Pad ended up doing, but one thing that I do know is that
Microsoft started to target the tablet PC to very well defined segments, I
believe healthcare was one of the target segments. So they didn’t go after
the entire market and let the market sort it out. But, instead they focused
on some vertical segments and that didn’t work out.
Whereas I think the I-Pad did not have such well defined targeting strategy.
They let the market figure out who was interested in that. And perhaps a
simpler example of that is this actually, this photo from what I could tell
from where I got it, those seniors are actually using an Xbox you will be
glad to know, but I think Wii was, when Wii was introduced, the Nintendo Wii,
I don’t think the seniors to be among the key segments. I don’t think that
was planned and I am pretty sure they didn’t do any market research to figure
out if motion sensitive remote is something attractive. Someone just came up
with that idea and it turns out people really like that, but putting that
aside it turns out there was a hidden segment they were not aware of.
Again, it’s very hard to predict which customers will use the product and
marketers should recognize that they cannot plan and they cannot direct
consumers in certain segments to use the product. If you will it’s kind of
more democratic. They have less influence, but the market will discover who
needs the product and hopefully some do.
Another thing I want to mention is we have talked about the importance of
creating top of mind awareness. So if you see Sony, Sony, Sony all the time
and you go to the store to buy something you say, “Oh, okay, Sony top of
mind, I will take Sony.” Well, again, today, with products like that you are
probably going, it’s very easy to gather information, to go on the internet,
to get a lot of information, top of mind becomes less important, because it’s
so easy at the point of purchase to gather information and assess quality.
You are much less influenced by what happens to be top of mind.
So to just summarize these sections positioning and targeting works best when
consumers relied on M, marketers. But again, this has changed, this notion
that marketers can convince consumers that there products are of the highest
quality is just not working as effectively as it used to be. Consumers are
checking quality from other sources. It doesn’t mean you should not generate
interest in your product. It doesn’t mean you that you should not inform the
market and allow people who create those reviews have all the information
about your product. That’s definitely important; you want to get the word
out. But, saying your product is better and more useful and so on, or more
reliable is much less effective than it used to be.
Let’s finally talk about market research. If you think about what market
research is about much of that has to do with measuring P, measuring
consumers stable preferences and based on that trying to predict what they
will buy in the future. Okay, if you have ever used techniques like conjoint
analysis or various other things you are measuring the utility functions or
you are measuring the prior preferences of consumers. And you are thinking
that if you can measure it very accurately you can tell what product they
will buy next year. So if you give customers exactly what they want you will
be successful.
Well, how do you buy those kinds of products in reality today? Well, P, as I
said earlier is becoming less important. At the point of purchase you are
going to find out what people are saying about the products currently
available. And if it turns out that certain features are particularly
important that will influence your current preferences. Therefore, and I
should note it was this notion, for truly new products, the notion that you
can measure peoples preferences about new ideas was always highly suspect,
because consumers are remarkably bad how they will respond to things they are
not used to, because they tend to think whatever they like now they probably
will like in the future, not recognizing that things will change.
But, this is becoming much less though. I mean there is [indiscernible] that
you might have seen before, often people like to site that, some study by a
well known research company about once the I-Phone was announced they came up
with the conclusion that it may be okay for developing countries, but will
not be successful in developed countries.
Yeah?
>>: Who is this?
>> Itamar Simonson: I will tell you it later.
[laughter]
>> Itamar Simonson: You know, one of the largest, you know media
conglomerate. But you should excuse them, so it’s not easy, but they figure
out that I-Phone is just not going to make it in places like America. So
they measured P and consumers were influenced by all kinds of things but in
part by O, which means that measuring P loyalty brand perceptions is becoming
less important and something that marketing researchers should spend less
time on. Of course, if you are selling something like a toothbrush and you
want to find out if purple is going to be more popular than red, sure market
research will still be helpful.
But, for many products, including those that you tend to be involved in, it’s
not very effective. It’s much more important to track O and be responsive.
Another thing that I know you do and many other companies do is take
advantage of the fact that it’s become so easy to conduct experiments with
the real thing. Run experiments, let’s say you have a search engine, let’s
call it Bing and you want to find out whether arranging the results in a
certain way will have certain effects. That is very easy to experiment with.
Experiment, look at the results, run another experiment and continue. That’s
much more effective, much more effective.
So let me just summarize I guess the over arching thing we are talking about
is the shift from relative to absolute value based decisions, which has
implications. I didn’t talk about everything, but I think pretty much the
entire marketing textbook and marketing principals need to be reexamined. I
am not saying that brands are gone, or that loyalty is totally not important,
but they are becoming less important, significantly so and need to be
reexamined. So we talked about branding loyalty, irrationality, positioning,
targeting and persuasion in markets. So now consumers are more likely to
evaluate things based on absolute value, which means that proxies are losing
their impact and marketers are becoming less influential. So they need to
recognize the changes and do a good job of tracking and responding quickly
with experimenting.
Let me end with that and open it up for questions.
hand up, no?
>>: So this is very valued for B to C.
have any opinion in that field?
Yeah, did you have your
What about B to B marketing, do you
>> Itamar Simonson: Yeah, absolutely, I think I used to teach that class at
Stanford for a couple of years. I usually taught the marketing core, which
is the basic marketing class. I think it applies to the B to B as well. Now
you might say that with B to B the customers have always been pretty
sophisticated and in many cases they have their technical staff evaluate
products based on their absolute value.
And so in that regard the significance of the change is not as much, I mean
they are ahead of the C, of the consumer. So, I think that’s correct. I
think even there, and obviously brand name, you talk B to B you talk about
relationships, you talk about individuals, the people you are dealing with,
account executives and so. There are differences, but I think that changes
and there ability to gather information and know in advance is also happening
there. But, I agree that it’s even more important in the B to C market.
>>: So you talked about a lot of things that are kind of invalid.
>> Itamar Simonson: [inaudible].
>>: Okay, there is, a lot of things that were invalid, right that were
previously taken like [indiscernible]. So from these changes now what do you
draw to replace that? So what is the value now of marketing and what should
be the goal?
>> Itamar Simonson: Well, that’s a good question and I hesitate to say this
and I think marketing has a lot of important things. I think overall I think
it’s kind of generalize too much, but I think the marketing function will
become a little less important than it used to be, because much of marketing,
and I hope there are not too many marketing people here, but I think much of
marketing had to do with the creation of those quality proxies. I mean the
thing that marketers could do better than other’s was that they knew all this
brand leadership, and brand this and brand that, okay, and no one else knew.
So that was something like magic and they were probably familiar with value
pricing and those kinds of things. You know, as I said marketers, APR is
still very important and I think that marketers should be able and have
become really good with tracking consumer response in real time and
responding very quickly. So I think that is very important, experimentation
is important and creating awareness. I am now setting the tone about
persuasion, creating awareness, that’s marketing. So, you know, and some of
the other things that we used to do are not going away. As I said, brands
still have a function. So I don’t want to take it too far, but I think if
you are looking for an overall statement yeah, I think that the marketing
function is becoming a little less important than it used to be.
>>: Any predictions about add funded business models? So we see some
companies really deriving a lot of their revenue and profit from advertising.
Are those companies at risk?
>> Itamar Simonson: Well, what kind of companies do you have in mind?
>>: Take for example a Google, or a Facebook or even what is it app
acquisition.
>> Itamar Simonson: I
that will continue to
rate? Let’s say it’s
terms of click rate.
think that if you look at search engine advertising
be effective. I mean I don’t know what’s the click
2 percent, whereas banner ads might be .1 percent in
I don’t know the exact numbers, okay.
>>: [inaudible].
>> Itamar Simonson: What’s that, accurate? Okay, maybe accurate, but
whatever. What I mean is when you search for something that’s the moment, in
many cases, where you are about to make a decision, therefore search engine
advertising that’s likely to continue to be effective. Compare that to other
companies, like you were looking for, you know, you want to communicate with
your friends and on the side there you see some ads for something that you
are not about to buy right now. I think that maybe less valued in the long
run, unless you somehow find an effective way of catching the consumer at the
right time. But, I think it depends, you may ask the same thing on the
advertising agencies and so on. I think that will change and it’s already
changing what they do and how important certain functions are.
Yeah, did you have a question?
>>: So you talked about how now there is more emphasis on O than on
predispositions and marketing, but how do you get to a big O in the first
place from like stage 0? I feel like P and M are still very important and
they contribute to going to an O like when Apple launches a new I-Watch or
something they will have a lot of glitz around the day of launch, there will
be big lines which kinds of contributes to growing that O. So instead of
like, I would say, becoming more subtle than just like throwing banners on
your face.
>> Itamar Simonson: You are absolutely right; they are not going away. Your
prior beliefs and knowledge of brands and so on will have some impact into
the future. So it’s not like each product is a stand alone, evaluated based
on its own merit. So, yeah that is true. Marketers, as I said, for the kind
of products, the O dependent products that we talked about I think that
persuasion is becoming less important there in terms of telling you this is a
high quality product. So yeah, sure marketers can create winners and they
can still do a lot of useful things. And obviously what we have stored in
our memory, which will continue to have impact.
We are talking about relative changes and I think the big change following
the internet is the rise of O. And I think that the people, you know,
looking at the people who will predict what will happen when the internet,
lets say in the mid 90s, you know it kind of became popular, people were
debating what it will do to pricing, will we see lower prices on average
because people will compare like will quality become --. There were all
kinds of debates. I don’t think that people anticipated the sharp rise in
all of those reviews, experts, users and their great impact. That, I think,
to all those future, you know, people who specialize in predicting what will
happen, I don’t think they expected that.
Whereas today we know that this very well may be the most, certainly one of
the most important things. The fact that you have reviews, you have easy
access, quick access to so much information, you know so much about products
even before they are introduced. So, if you think about diffusion of new
products. And a lot of the diffusion theory was developed based on corn
farmers in Iowa I think. And if you think about opinion leaders, those kinds
of concepts and word of mouth that was a very different world.
For example one of the key drivers of diffusion, adoption of innovation was
something that innovation experts called observability. To what extent you
can observe the innovation and O communicated. Think about how easy it is to
do those kinds of things on the internet.
>>: But do you think like that’s where the marketing and that’s where
contributing to growing that O is where those efforts have gone into now
where you have rock stars endorsing brands or endorsing products --.
>> Itamar Simonson: I think that’s much less important. If you think about,
I forget when was it that Andre Agassi was the big spokesperson for Cannon?
You know famously saying image is everything. You may be too young to
remember that and today it wouldn’t have much impact. You see, what is his
name, Ashton Kutcher? He’s now advertising Nikon. I don’t think that it’s
helping Nikon as much as Andre Agassi helped Cannon in the old days, because
yeah, I may like Ashton Kutcher or not, I don’t think I am going to decide on
my next camera on that basis.
Yeah?
>>: How do you feel about vocal minorities and the communities where you go
on different articles and you see who’s the loudest? And I think especially
in the technology industry where there is, it’s called fanboyism, where you
just like Android just because it’s Android and anything that Google does or
just because its Microsoft anything that Google does you just hate. Do you
feel that the community or like that mob mentality is in place still?
>> Itamar Simonson: I think these might be people that you pay close
attention to and I think in certain circles they are very influential. You
know I am not sure; it depends on what kind of products. If you know about
products with wide potential markets --.
>>: I can give you an example.
>> Itamar Simonson: What’s that?
>>: I can give you an example, so for example, our Xbox 1 release we had a
lot of negative press and people say that it’s only the minorities, the small
people that are talking on the different articles [indiscernible], but I know
it hit a point where my younger siblings were like, “Yeah, Xbox you can’t
play your used games on it.”, and that was getting to the playgrounds and it
was spreading that way.
>> Itamar Simonson: You know, as you know, with video games a lot of coolness
is certainly important and what your friends will think about the video games
that you play, like your music, that’s influential. I mean I think it
depends on which segments. If you know about the hardcore video game players
they are probably influenced by those kinds of things, but your more kind of
average or light to medium user probably much less so.
Yeah?
>>: So I work in brand strategy here.
>> Itamar Simonson: Oh, wait, I take it all back.
[laughter]
>>: So one of the things that strike me is that the nature of the product has
changed as well. So the nature of what is the value. I mean I think that in
terms of if we look at some of the examples that you had there, the
microwaves for example, the nature of product today feels like it’s
incorporated some of the other P’s. The other P’s have been dragged in, like
you talk about distribution or you talk about packaging. The product
experience itself has kind of taken in a lot of the things that previously
would have been in the role of marketing. I was wondering if you could talk
about that.
>> Itamar Simonson: I am not sure if I follow what you are saying. So let’s
say that microwaves as you know are still being sold. Not the most exotic
product, but they are still being sold. So what has changed?
>>: Well I think that microwaves have gone a little bit to the hanger side of
the equation, right. There is a commoditization that is happening with the
microwave?
>> Itamar Simonson: I don’t know, but if you buy a microwave wouldn’t you
check reviews?
>>: I definitely would.
>> Itamar Simonson: Right, so I would call that whenever users check reviews
it’s on the laptop, the O dependent side of the continuum.
>>: Right, I think that if we are looking at the products that are on the
right side that you can commoditized inside. It feels like --.
>> Itamar Simonson: It’s not commoditized, it’s not commoditized. I mean
there are certain things that are either not sufficiently important like, you
know, you are not going to check before buying a tooth brush. You are just
going to go to the store and get one that looks good. You are not checking
any reviews. That’s O independent and maybe colors and promotions and those
kinds of things, they still affect you.
So it’s not sufficiently important, you know, there are still things where it
is a status. Like if you like to buy Louis Vuitton handbags you are probably
not doing it for the quality. I do not mean to insult the quality of Louis
Vuitton handbags, they are probably very good, but you apparently are the
type of person who likes to be seen with that Louis Vuitton handbag. You are
not doing it for the quality in that regard, the brand is still very
important.
>>: Right.
>> Itamar Simonson: I am not sure I answered your question, but maybe I did.
>>: Well certainly when we look at products in our industry which are
increasingly becoming a mix of products and service we are, a lot of the
things that traditionally were in the domain of marketers, whether it’s
packaging, the package design, the way the box of soap looks on the shelf,
you know, these are things that are part of the product development process.
The part of the service development process. And so there has been a shift
in terms of the linearity of an industrialized product and how you then
engineer the product, manufacture it, market it and sell it. And I think
that’s one of the things that we are really grappling with in terms of how we
appeal to people beyond just brand, influencing value.
>> Itamar Simonson: Yea, right. The thing, as I said, it’s hard to predict
and clearly product development is extremely important and we put that, I
mean it’s covered in a marketing textbook. And that’s still important and
true. What’s the contribution of marketing? Usually it has something to do
with market research. Market research means that you can measure people’s
preferences and based on that guide the R and D people as to how to develop
the product. And that’s becoming much harder to do effectively. I think
it’s always been a little over estimated, especially if you are talking about
completely new products. But, putting that aside, I think that market
research is not as effective unless you somehow can predict how O will react,
which is really hard to do.
Yeah?
>>: So what is the recommendation for Microsoft given the O we currently have
on PCI dimension, like phones I think?
>> Itamar Simonson: What’s that?
>>: PCI dimension, what would your recommendation be?
>> Itamar Simonson: Gee, I don’t know; I am here just lecturing.
[laughter]
>>: [inaudible].
>> Itamar Simonson: But, yeah, it probably varies by product and I am not
sure. As I stand here right now there are a lot of really smart people at
Microsoft from what I hear and they are thinking about it so you will
probably need to give me at least 5 more minutes.
[laughter]
>>: One of the problems with the old data is that it’s history.
>> Itamar Simonson: It’s what?
>>: It’s history of people who have given reviews based on their prior
experience, but in this era of rapid innovation you are trying to get them to
evaluate their most current offering which people may not have had that much
experience. So is that a challenge in trying to implement this approach?
>> Itamar Simonson: I mean isn’t that true today? You introduce a new
product and instantly you have got reviews. I don’t know if you still call
them beta testers, but you have got people who are looking at the product
beforehand or they are early adopters you get reviews in no time. And you
can look at the most recent reviews; see if they are different than old
adopters. I think that if anything you get much faster feedback.
>>: True, but for service, like the hotel you stay in, or the restaurant you
want to go to. A lot of that is history and things keep changing right.
>> Itamar Simonson: No, that’s very true, if you look at this Machiavelli
restaurant that I was talking about. We started, we actually tracked their
history, they started with a couple of reviews, and then a few more, and then
a few more. And more people tried the restaurant. It takes some time, but
if you look at the accumulative information there is a great deal of
information there that tells you a lot about current quality.
>>: Do we have time for one more question.
>> Itamar Simonson: Oh, that’s a tough choice because I see down there I,
but, yeah, okay, you.
>>: You spoke earlier about the limitations of segmenting, targeting and --.
>> Itamar Simonson: Can you start over?
>>: So you spoke about the limitations of segmenting, targeting and
positioning and pre determining those things. So in thinking about product
planning and development I feel like the segmenting, targeting and
positioning is important in differentiating your product and making decisions
about what features and different things are required to focus on in order to
differentiate from your competitors. So how do you think about
differentiation if you are saying segmenting, targeting and positioning
really isn’t something [inaudible]?
>> Itamar Simonson: What I said is that it is much more difficult to predict
which segments will be most important. And if you make the wrong assumptions
and you build and promote the product accordingly you may miss some high
potential segments and to some extent it seems like it’s much more risky when
the actual demand depends on what other people are saying. Now maybe you can
figure out, I mean I am not a big believer in focus groups for example. So I
don’t think you can take 10 people in a room, do 10 focus groups, let them
have a discussion and let them figure out based on that that is going to use
it. I don’t believe that’s particularly effective. So I think it’s really
hard to predict.
Now if the product has an obvious flaw, yeah, that’s something you may be
able to find quickly, but that’s not what you were talking about. Yeah, you
do need to some extend try and decide when you are looking at what’s
happening, what kind of products, lets say you were a successful follower and
you see that everyone likes phones that replace cameras that have lots of
megapixels. Yeah, that’s something you can learn and say that the market,
based on the response to other products appears to appreciate that, let’s
include that in our next phone. Yeah, I think that makes sense. I am not
sure if that’s what you were referring to.
>>: I suppose it was just more along the lines of differentiating the
products. Like you kind of need to know who your audience is to
differentiate from what a competitor might be targeting or are already using
on a product.
>> Itamar Simonson: Right, okay, so you mean doing things differently.
>>: Yeah, like you kind of have to think in advance and some decisions have
to be made before you build a product about what you are building.
>> Itamar Simonson: Yeah, you are right. I mean sometimes it is successful.
I mentioned in the Nintendo Wii dominated the market for like 3 years because
they came up with the great idea, not based on market research, just someone
came up with that idea and you don’t know how many other things they have
tried that didn’t work out. But, you are talking about something in terms of
general managerial practice, you know, look, do some research, and figure out
on what we want to differentiate. You know, if you are lucky it may work
out. If you look at trends it’s becoming less effective.
>> Amy Draves: Thank you so much Itamar.
[clapping]