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“Amazon and Google are undermining mobile pricing, and that may hurt everyone” by Jon Fingas

Jon Fingas argues that the pricing war initiated by Google and Amazon, as regards to determining the low price at which tablets are sold,  “don’t bear their full costs”. The fact that two of the biggest players have decided to start selling tablets with no profit margin, might be a good thing in short term perspective however, it might prove detrimental for the industry in the long term, as it may derail the industry's’ focus away from providing quality devices and steer it to  selling cheap,  minimum capabilities ones.

It is generally accepted that competitive markets fail for four basic reasons; market power, incomplete information, externalities and public goods.

Inefficiency arises when a producer or a supplier of a factor input has market power and both
Google and Amazon undoubtedly have power. Currently, they are the two biggest market players after Apple, and Amazon is the biggest online retail and content provider. Both have decided on the output quantities of devices and at which marginal revenue to sell and have conceded that the marginal revenue is going to be equal to the marginal cost. Therefore they have squeezed their profit margin for these devices near zero, projecting that the high profit margins will come from selling content and services to consumers.
As a result, they succeed in making competitive products appear overpriced to the consumer, even if they are costly to produce.   Secondly, they force other producers to lower their selling price and subsequently their profit margins.  Further,  they  lead  producers in the  forced dilemma of choosing between quantity  and quality when designing and producing new devices.
Google is aiming to both make a profit and broaden the reach of its Android operating system, while Amazon is looking to restore the profit gap when customers buy movies, books and magazines from its store.

Andrew Rassweiler, an IHS senior director, said Google’s tablet is also clearly aimed at Amazon.com, which shook up the tablet market last year by offering its own version at $199. “Google’s Nexus 7 represents less of an attempt to compete with Apple Inc.’s market-leading iPad, and more of a bid to battle with Amazon’s Kindle Fire,” he said in a statement. While the two are “similar in many regards,” he added, the Nexus 7 “has superior specifications to the Kindle Fire, giving it a more attractive feature set that may make it more desirable to consumers.” Amazon and Google don’t care to monopolize the market but they do care to achieve a monopsony. Amazon and Google appear to be simultaneously trying to establish a wholesale monopsony and a retail monopoly in the e-book and content/ advertising sector. At the same time, it is important to note that Google and Amazon are in effect trying to apply a predatory pricing practice into the market of tablets and content. By selling a Nexus or a Kindle at rock bottom prices, they intend to drive competitors out of the market and/or create entry barriers to potential new competitors. What is even more important to realize/acknowledge is their attempt to establish in buyers’ mind the conviction, that well-known products such as the iPad mini are by default overpriced. If competitors, like Asus, Nook.  Samsung or Rim, or potential competitors, cannot sustain equal or lower prices without losing money, they are eventually driven out of business or discouraged from even attempting to  enter it.

In essence, Amazon and Google have chosen to  undergo short-term pain for long-term gain. Therefore, for both to succeed, they must have sufficient strength (financial reserves, guaranteed financial backing or other sources of offsetting revenue) to endure the initial lean period.   In our case,  it is really interesting to follow  Amazon’s steps,  since Google seems to have all the strength required  to endure the initial period . Since   Amazon had some rough quarters regarding revenues and profitability, this strategy may fail if competitors (like Apple or Samsung) are stronger than expected, or are driven out (like RIM, HTC or Acer)  only to be replaced by others. In either case, this will force the Amazon and Google  groups to either prolong or even abandon the price reduction policy. Their strategy may fail,  if  both Amazon and Google prove unable to sustain  the short-term losses, either because they last longer than expected or simply because they did not estimate  the loss accurately. Therefore it makes the whole situation inefficient because at the end of the day there is a short term better off for Amazon and Google, a worse off for other competitors like ASUS and RIM. In  the long Term, it  is  questionable whether Amazon can endure while practicing the predatory pricing and should be interesting to see how this would affect Apple and its ecosystem.  Tablet makers selling a complete range at that break-even level could ultimately whittle down the market to those who either produced a winning formula at the right time (Apple) or have deep enough content stores and bank accounts to willingly give up large parts of their potential hardware profit (Amazon and Google)

Consumers do not have accurate information about market prices or product quality.

As most consumers are price driven , they tend to ignore the fact,   that it is difficult  for companies who lack the proper profit margins, to access  the funds  required to develop new technologies and provide the market with  innovative products. It is important to stress,  that devices sold by Google and Amazon gain their value from content which  has  to be purchased. So it is quite possible  that people who actually buy a device,  because it  is significantly  cheaper than the competitions’,   find out that either the app ecosystem is not very  safe or well developed or  worse still, that in order to have the proper experience using the inexpensive device, they have to spend more money on  different kinds  of content purchases.

In our case,  market prices do not reflect the activities of either producers or consumers.
Prices are  kept artificially low,  as the producers try to earn market share and gain revenues from content sales. This has an indirect effect on other consumption or production activities that is not reflected directly in market prices. There is an externality, because the price tablets which are sold by Amazon and Google,  do not bear the true cost of producing them or having a reasonable profit margin. The profit margin allows producers to spend funds on Research and Product development so that  they can provide consumers with well designed, well made devices able to improve and optimize the experience of consuming content or services through them. This causes an input inefficiency driving other competitors to push their profit margins lower,  to be able to sell at matching  low prices like Amazon and Google and force on them the dilemma between money, potential market share and quality.

They are basically trying to equate profit margin in the table market segment, with  sin.

Because Google and Amazon are the two biggest players in the market of tablets after Apple, it is possible that the externality will prevail throughout the industry and the price of tablets will be lower than it would be if the cost of production reflected the effluent cost. As a result, competitors who struggle to remain in the market, and which will affect the experience of users will produce too many low quality tablets. There will be output inefficiency.

Criticism

First, it is obvious that in the short term, lower prices for tablets are only beneficial to consumers. By setting the price around $200 for a pretty decent and well made tablet branded by Amazon or Google, consumers become able to access more content and to get a tablet much cheaper. The downturn is that people start to expect or demand products to be sold in such low range prices,  forcing producers to focus in providing cheap products over  quality ones.
Amazon and Google,  by applying predatory pricing practice might get an advantage in the short term,  but  at the same time are opening a Pandora’s box. Selling with no margin or at a  loss, as Amazon did with the first Kindle Fire , might be a good practice if you are a wealthy company but it can easily derail even the strongest plan if unexpected things happen, or markets start to ask for something more advanced or pricy than what producers are able to offer. Furthermore, a situation like that can easily turn against you when buyers expect to be able to buy more products without profit margin and cost. Amazon and Google might lean on content sales where they can still retain margins,  but consumers can as easily  leave them for someone who will come up  with an even more disruptive idea on how content can be sold or distributed. (similar to when Apple almost pushed  out of the content industry,  the mobile providers with the app store).

From the consumers ’ point, there is an important question to be answered: what is the right price for a tablet? Or what is a fair profit margin for producers to sell? In both cases the answer is conceptually Straightforward: the right price or the right profit margin will drive tablets’ price where all negative externalities, like R&D costs, design, market development,  are fully reflected on the tablet’s price. This point is not pegged where Apple sells its own tablets but for sure it is not the point Google and Amazon priced theirs. Finally, in the  long term, producers even the strongest ones,  will face  major  difficulties to keep the pace of innovation and technology development,  when they will struggle to find the necessary money to fund research and development.

from product oriented to customer oriented... but where the magic is?

Companies like Apple, claim that customers know nothing about the kind of products they need, therefore, their mission is to decode this unexpressed customer need,   create and  deliver a product which  customers  don't know how to ask for or even describe.  Companies like  Apple, even though  they don't admit it, run large scale market research campaigns in order to identify trends and  what people are familiar with.  They then  use this data in order to create a product which is  addressing tomorrow's needs, a product which in essence will be  able to create a market.   At least this is how it has been  up to now.

At the same time, companies such as  Google or Samsung  try to collect as much data as possible, in order to identify what users want, how they want it and when they want it.  One can say that this is like making an airplane, Boeing and  Airbus spend years with end customers in order to find out and set up the final design of a new aircraft. As a result, the create amazing products, able to serve today's needs. 

But there is a third player which takes advantage of both approaches  and this is Amazon. Amazon manages to gather a huge load of data which it then processes.   Based on this data and combining it with  its innovative skills and culture,  as a corporation, it succeeds in developing a product which  customers  didn't expect to have, but needed it for sure. 

For example Amazons'  latest  move,  to give free internet access with the product,  is something so welcomed but also so unexpected. And there is where the magic begins.  When a corporation has the ability not only to start a conversation with customers, not only to listen to what they need but also to be one step ahead of them, carefully preparing the whole customer's ecosystem for products its' going to launch.

Brands and the Gamification thing...

Gamification is the new black!

 

Gamification is about challenge, achievement, success, pleasure, but most importantly it’s about engagement. it is about connecting a brand with people through the thing moves the world; competition!

 

According to the ’2011 Gartner Research Report’, it is estimated that by 2015 more than 50% of organizations that manage innovation processes will gamify those processes. Wanda Meloni at M2 Research, calculates that gamification industry revenue amounted to about $100 million in 2011, but she expects it to balloon to $1.6 billion in 2015.  

 

At the most fundamental level, gamification is the use of game mechanics to drive game-like engagement and actions....in everyday life, we are often presented with activities we hate, whether it is boring chores or stressful works.

Gamification is the process of introducing game mechanics into these abhorred activities to make them more game-like (i.e. fun, rewarding, desirable, etc.), so that people would want to proactively take part in these tasks."

For the last 40 years, consumer expectations have been fundamentally altered by exposure to games. Specifically, this means that our beliefs are about; meaning and value of fun, frequency and context of rewards, and omnipresence of sociability. The simple shorthand is; feedback, friends and fun.

 

The consumer has changed, and smart businesses must adapt to survive and thrive. The use of gamification to drive social change is a big movement in culture. It’s worth remembering that in early 2010 there were no hits on the term, gamification, on Google; today there are millions.

 

Gamification is a new discipline with deep roots and extraordinary potential…

Today’s youth mandates a more engaging experience.

Gamification makes things more engaging so people will pay more attention and stay focused for a longer period of time. Seth Priebatsch agrees. “It feels like the next natural evolution of human-technological interaction… as we complete the social layer; we’ll begin construction, in earnest, on the game layer”. The five most commonly used game-mechanics are;points, badges, levels, leaderboards, challenges.  

 

According to Zickerman, “It’s easier than you think to bring the power of games to your business by adding game-mechanics to your marketing mix with these steps”:

●        Ask: What consumer behavior are you trying to drive?

●        Assign points to those behaviors.

●        Create a leaderboard to display points.

●        Develop challenges and message them.

●        Make ‘fun’ your goal!

For anyone unfamiliar with gamification, it’s the application of game-like elements, such as; challenges, points, badges and levels to business and other non-game websites.

 

An estimated 70% of the top 2,000 public companies in the world will have at least one gamified application by 2014, predicts Gartner.

 

Patrick Salyer believes there are two keys to success with gamification:

One is making sure that all gamified elements are inherently social.

That is, don’t restrict engagement to the internal site community. 

 Award points for activities that reach users’ social [networks] to bring in referral traffic.

The other is to focus on rewarding activities that create value for your businesses.

 

Companies should weigh a number of factors before deciding whether to get into the gamification game.  

Dustin DiTommaso, suggests that companies think seriously about why they’re interested in gamification and how it could help them meet their business goals.

 

Before gamifying, he says, a business should be able to answer these questions:

 ●        What is the reason for gamifying your product or service?

 ●        How does it benefit users? Will they enjoy it?

 ●        What are your business goals?

 ●        How do you get users to fulfill those business goals?

 ●        What actions do you want users to take?

Gamification, it’s really not about gaming; it’s about good old behavioral economics using game-mechanics.

 

According to John Bell; the world of ‘gamification’ is certainly buzzy if not frothy.

Many marketers are talking about it and startups are employing it, as if it were the magic sauce that could overcome anything even a bad business plan. We can easily identify these techniques throughout the history of business and marketing as tools for getting users engaged.

 

There is wisdom underneath it all and gamification, as a sometime appropriate feature to stimulate behavior change, is here to stay.  

 

This surge of game-mechanics is all over the Web and is being applied to many things including; brand advocacy, environmental, health behavior, fundraising…

 

But, how did you sell the company management on the idea of games in a very non-gaming business?

 

According to Le-Te;  “This is not about games… it’s about strategy and tools for engaging customers and reaching business goals”.

The benefit to successful gamification is that you see an uptick in:

●        Repeat visitors/

●        Unique visitors

●        membership acquisition

●        Page views per visitor

●        Time spent on site

●        Time spent per user

●        Depth of visit (which is different than just page views as this implicates an exploration further into the site’s architecture)

●        Social sharing (Likes, +1, etc.)

 

5 brands using gamification well

In the article below there are 5 amazing gamification projects listed.

http://www.simplyzesty.com/advertising-and-marketing/brands/5-brands-using-gamification-well/ 

and of course 4 successful facebook gaming contests

http://mashable.com/2011/09/11/successful-facebook-contests/ 

Therefore A brand can increase efficiency in the three areas below.

 ●        Innovation: website modernization can increase brand awareness, loyalty and customer engagement. Much more than your traditional loyalty program Microsoft, Google, Playboy, Ford and others have realized these benefits by adopting game dynamics.

 ●        Monetization: DevHub increased engagement rate of 300% and increased revenue for virtual goods grew to 30% of overall revenue within 3 months.

 ●        Productivity: Microsoft gamified software development testing to drive significant improvements and user participation. Microsoft’s Beta1 Game from the Vista release increased beta testers by 400% and their Language Quality Game for Windows 7 had users provide feedback and commentary on 500,000 screenshots.

 

The primary goal will be not only to increase customer base but also to interact more with existent email receivers, engage them more with places we share and last but not least to increase the value of each email receiver as participant in something which combines social, mobile and location.

 

Last but not least it can be the marketing and engagement tool in brands and agencies hands aiming to achieve having more loyal customers and returning audience

( http://blog.graphicmail.com/post/2011/10/09/Gamification-strategies-for-email-marketing.aspx).

 

marketing like jazz

mktnglikejazz-111211025811-phpapp01.pdf Download this file

I found this presentation made by Peter Economides. 

Peter might be the number one in the world about branding and 21st marketing. I love this presentation because I love so much jazz music and this presentation gave me to understand and feel things about marketing through music's filter and jazz's lens.

A must have presentation

/g

... audiences who can't or don't want to listen to what you have to say

people around us speak loud, read, share (  since Friday May 17th, a share costs 38 US dollars, if we are talking for Facebook shares...), create and are more or less active on what we call "online world".

Compared to the past couple of decades, people now have so much acess to information, news, data and case studies that if one were to describe back then an ecosystem like what we currently have, it would be treated as pure  science fiction. We are literally ,  holders and creators, listeners and participants, users and opinion makers  all at the same time. 

This drives us to start feeling, or believing that we have an opinion which  might be better than other peoples'. And because human beings love to be with winners, as we observe our opinion become part of something bigger, perhaps a small element of a  trend, we start believing that not only do we have an opinion but that this opinion is of key importance to the ecosystem.

This drives us, to become more and more fanatical regarding products we use (i.e. apple owners believe that they are  of superior callibre ), more dedicated to our habits and of course even more commited to what we can refer to as  "a hard to change habit".

 

Of course this is not bad!  Brands love people dedicated to them, firms do everything  possible to create or buy audiences who have no ears for anything else except what they address to them, and we love to be recognised as people who belong to a winning group.

Therefore it becomes a major challenge for firms or brands outside  people's comfort zone to penetrate  that field. and the ensuing question is, how can a brand  gain fanatical audiences' attention?

Like all challenging tasks, something like that  requires time, dedication, a good plan, a well executed plan and of course flexibility. An easy to adopt and adjust strategy to what people say about your effort and how they react to your actions to gain their time.

An easy  but  really short term method is to make a blast through an action which works much like  fireworks. The brand gets the attention it asks for, however it must be accompanied either by a ground activity in order to keep people's attention or more and more fireworkswill be required. This is an  acceptable practice but not a safe choice, because either the brand will quickly  fade from  people's attention, as repetition is the mother of boredom ,or the company depletes their  budget. After all, fireworks cost lots of money

So, we note that an  easy way to attract people's attention is like   fireworks!

A firework action which must be followed by an activity.

An activity with a roadmap to go, with a well designed action plan, specific steps to follow and of course really well described KPIs.

Actions and measured results will  on one hand, keep  the brand on a  safe path  and on the other ,the creative team will be able to react to any kind of audience's behaviours. It is really important for the team to understand, to  feel and  to LISTEN to what people have to say, what they share about this attempt , what they retained  and the most importantly how they feel.

People who are really dedicated to a firm, or  who are fanatical  with a brand,  will most of the time feel unsafe, or inconvinient if they try something new, something which they might resist against.  When a consumer tries a product which was not in their experience  map,   once he  dares  to do it, the consumer  expects  the brand to make him feel special, a front line runner, or  at best a member of a distinguished  team outside the mainstream. 

Having well documented KPIs set, works like a compass in muddy, shallow waters. 

KPIs give the brand all the necessary tools to adjust the campaign to what the addressed fanatic needs. The team responsible for the project should be able to hear and feel how audiences reacts to what the brand attempts.

A campaign, a product launch, an icon making process should be something really dynamic having stable and strong reference points and the ability to change on audience requests and needs. And here is where the magic happens. The audience no matter how fanatical, if the brand reacts and meets  their needs and requests it transforms them into a community.

And although it is  really easy to buy an audience  you can't buy a community. You have to build it.  Once the brand succeeds  to have its community built,  then it can start talking about its fanatic audience, an  amazingly responsive and dedicated audience  which can unfortunately be  easily  lost.   In order to retain the fanatical product following  you must  keep providing and feeding the audience's needs for safety, innovation and the most importantly  their need to feel unique and exceptional.

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I have been impressed with the urgency of doing. Knowing is not enough; we must apply. Being willing is not enough; we must do.

Leonardo da Vinci

customer care or operations?

 brands or firms which specialize in offering services to end users, proudly boast  that they run big "customer care" departments.

Unfortunately what they fail to grasp, is the huge difference that lies between the way  a firm/brand claims to "care" about the client and the way it actually handles  the client when an unfortunate situation arises.

To run customers' logistics, to provide the service and of course to be there when things go wrong,  seems and actually is -most of the time- the easiest thing in the world. But when things fail to  run according to  plan, then the difference between simply managing the situation as opposed to  caring about the customer and accomodating to his  semingly insignificant needs,  is what makes for  excellent customer service.

Customers in our era , want to be made to feel special, particularly since  they have the option to choose among many brands offering  similar service.  To get connected and  stay loyal to a brand becomes the real   issue . The way a brand treats the  people who have chosen to purchase their services when things go wrong is the deciding factor to brand loyalty.

For a brand, things should be centered around  "how can people  be made to feel trust and secure about my service" . To convey through concrete actions to clients that they are important and appreciated by the firm  as opposed to  being treated  as unimportant individuals  who gave  their  money in exchange for a completely unpersonalized service.

The more humanized and personalized the customer support  is, the more it will be   trusted by clients and the more clients  it will attract. 

Nowadays people have less time than before to do things properly.   Therefore what they need to feel is  that even though it is  easy for a company to cheat  them, the brand they trust will always appreciate and go the extra mile for  them.