Posts Tagged ‘Green’

The Tesla Model S… Marketing and Innovation Together Means Stunning Success.

April 9, 2012

Even though the tepid response to current all-electric vehicles like the Chevy Volt and Nissan Leaf indicate otherwise.

Here is quick review of the state of electric vehicles, as of Spring 2012…

“General Motors has temporarily suspended production of the plug-in electric Chevy Volt because of low sales. Nissan’s all-electric Leaf is struggling in the market. A number of start-up electric vehicle and battery companies have folded. And the federal government has slowed its multibillion-dollar program of support for advanced technology vehicles in the face of market setbacks and heavy political criticism.” – NY Times, The Electric Car Unplugged, March 24, 2012

A number of years ago, a friend turned me on to a quote by Peter Drucker that goes something like this… “The two drivers of business growth are Innovation and… Marketing.” This got to me and is a big reason I chose to get in the game of marketing way back when.

At our core, we are a big fan of “new stuff.” We love the challenge of taking new ideas to market, of creating or exploiting demand for products people don’t even know they want, need or love yet.

You Say You Got a Revolution!

In this regard, today is a feast for marketers with a taste for taking innovation on. That’s because we are living in a period of radical change powered by exponential growth of a variety of enabling capabilities. The most notable example perhaps is Moore’s Law and how the number of transistors on a chip have been doubling every 18-months since 1965. Starting gradually, almost flat, after enough doubling, the curve starts to climb and then goes like an elevator straight up if this compounding effect can be maintained.

There are a number of other enabling technologies entering this supercharged phase simultaneously including Bandwidth, Storage and Information creation itself as indicated by the Digital Universe Study conducted by IDC in association with storage leader EMC will attest.

The Potential of Innovation: A Vacuum Effect That Pulls Innovation Forward

Add it all up and we are living in a revolutionary period that is driving the Potential of Innovation, on the grandest scale.

What do we mean here by Potential of Innovation? Simply put, it’s when a Capability has entered the latter or steepest phase of the exponential growth, and the deployment or Utilization of this potential is lagging well behind, as the chart above indicates.

Over the years I have heard technologists describe this gap as a vacuum, a vacuum that by its very nature must be filled… and from what I can tell, the best of what fills this empty space can be boiled down to vision, creativity and innovation.

One company that to us most exemplifies these characteristics is Tesla Motors and most especially the Model S, their new vehicle that is now gearing up for production. With over 7,000 advance orders already on the books for this gorgeous pure electric vehicle, we believe the Tesla S will be a game changer and the first vehicle to truly fulfill the promise of widespread adoption of a car that is not powered in any way by the internal combustion engine, New York Times notwithstanding.

Here’s why?

Again and again we hear about energy efficiency and “green values” relative to the environment and planet we all live in. There is no doubt there is a much higher level of consciousness than ever before. The only problem is, although we may expect or want companies to be good environmental citizens and follow best practices, we as consumers don’t necessarily want to pay extra for it. And for all the talk about energy-efficient cars, the reason we don’t have them now is that customers traditionally follow the money… lower gas prices means we accept the status quo, high prices mean that we cut back. In other words we cut down consumption when fuel cost is high, but invariably resort to our old gas guzzling ways when prices go down with no real alterations made to efficiency standards.

Electric Vehicles: Niche Category…

What this means is that true electric cars appeal by definition to the niche we call Early Adopters, who are into energy efficiency and green tech because they believe in it and are quite willing to pay extra and buy before anyone else to support this belief. And Hybrids? These vehicles aren’t disruptive in any way except that they get good and often great gas mileage. They do prove however there is an audience for energy-efficient products.

This is what makes what Tesla is doing very interesting.

Tesla’s first car the Roadster has been on the market for a couple of years and has sold, if the public account is accurate, around 10,000 vehicles at $100,000 each. These cars are not only pure electric, they are also a very fast, super premium product. In other words, the Roadster is a high performance (0 to 60 miles per hour in 3.6 seconds) sports car that can perform in a league with a Ferrari or a Porsche, that just happens to be electric.

As far as markets go, this is an extremely limited audience by any measure. However, the Roadster is a clever first step from a strategic marketing perspective, as it begins to alter the accepted perception that electric cars by definition don’t measure up to those powered by internal combustion engines.

One of the other objections to electric vehicles overall is that they necessitate new driving habits and expectations that American car buyers have been slow to accept, if at all. The perception is that electric cars are slow, don’t drive as well, cost more than they are worth, and what’s worse, make driving a structured activity posing the risk that the batteries may run out of juice mid trip. This is not a recipe for wide-spread adoption in the US market, certainly.

You can see this reality playing out right now with the Chevy Volt:

“Volt offers the fuel efficiency and forward-thinking you’d expect from Chevrolet.”

The Volt has a range of approximately 35 miles, when the gasoline powered generation system kicks in, so drivers don’t have to worry about getting stuck. It doesn’t look bad, but politics notwithstanding, with a pure electric range of 35 miles a charge, it is compromised and production has stopped, at least for now.

“the new car. 100% electric. zero gas. zero tailpipe.”

And then there is the Nissan Leaf.

The Leaf looks funny, and with a range of 65 miles seems too complex and different for the mainstream car buyer. Again, this is a compromised driving experience, something only an early adopter electric car buyer could and would love.

… Or Mainstream?

The Tesla S is clearly different.

Tesla Model S: Another Vehicle Entirely…

As you can see it’s beautiful. I’d put it next to a Lexus, Mercedes or Infiniti anytime. It also boasts great performance for a luxury sedan (0 to 60 in 5.6 seconds), can go up to 300 miles on one charge, and because the drive train is all-electric, it opens up cabin space and also lowers the center of gravity for a great driving experience. In other words Tesla S is great luxury sedan designed from the ground up that is electric and not the other way around.

In fact, most drivers can get back and forth to work for a week on one charge.

Marketing is a Key Enabler

The question now is, how can we position this vehicle so that the mainstream car buyer get’s it?  As it turns out Marketing has a set of tools that can help us figure it out.

Here is the current positioning from an outside looking in point of view:

Tesla is beautiful luxury car that performs better than any other sedan on the market, including Mercedes, Lexus or Infiniti. It (base model) costs $50,000 gets up to 300 miles a charge, costs a few hundred dollars a year to run and is all-electric.

This can be reflected in Tesla’s own taglines:

  • Performance for the 21st Century
  • Electric from the Ground Up
  • Zero Emissions. Zero Compromises.

Not bad…

The issue here is these core positioning tag lines are not connected directly, and the umbrella line of “Performance for the 21st Century” forces us to define what that means to us. And since there is no “Mainstreet” context for reference,  the “Electric from the Ground Up” with “Zero Emissions and Zero Compromises” then is clearly focused to Early Adopters, which is fine except that it misdirects the overall value proposition away from the mainstream audience and dilutes the position that is inherent to the product to engage the larger “Majority” audience and therefore fulfill its true sales potential.

Positioning for Success

Let’s use our double vector model to break this apart and see what we can do re-position the Tesla Model S for even greater success.

Vector #1: Luxury Sedans

In this case, the Market Alternative is Luxury Cars.

The singular “value vector” in red comes down to best luxury performance in a world dominated by leading brands such as Lexus, Mercedes and Infiniti among others.

With a gorgeous bottom to top design with acceleration from 0-60 in 5.3 seconds and amazing handling, the Tesla S can clearly outperform its gas-powered luxury sedan counterparts.

Vector #2: Electric Cars.

As we can see, there are some stunning differences especially related to design, but here we are looking for a more logical or mental key difference, and what really sticks out is the range. Model S gets up to 300 miles a charge, the others not even close. The Volt goes so far as to integrate a gasoline powered generator that kicks in after 30 miles, but that is an obvious compromise. Tesla does not compromise here. This is where Tesla’s no compromise position noted above obviously comes from.

“X” Marks THE Position… Where Differentiation Matters

Add the two up and Tesla can now make a statement like this:

Add it all up: The Tesla S is designed from the ground up to be a beautiful luxury sedan that just happens to be all-electric. And because we make no compromises, Tesla S not only outperforms any gas-powered sedan in terms of pick up and handling, it also gets up to 300 miles a charge so you drive everyday and never fill up at the pumps again.

Now let’s revisit our tag lines:

Nissan Leaf boils it down this way – “the new car. 100% electric. zero gas. zero tailpipe.”

Chevy Volt – “Volt offers the fuel efficiency and forward-thinking you’d expect from Chevrolet.”

Tesla Model S – THE Luxury driving experience with no compromises, no emissions and up to 300 miles per charge.

Bottom Line: Now, what car do you want to buy? And I am not just directing this question to Early Adopters, who will validate the product, but mainstream car buyers who will elevate this 21st Century Silicon Valley startup into a real player on the auto manufacturing stage with a product category that for the moment at least, is given up as lost.

Marketing and Innovation: Where Everything IS Possible

On one level this is monumental achievement, but for someone like Tesla’s Elon Musk, whose other company SpaceX actually launches stuff into orbit around the earth, this is a manageable task. Tesla clearly demonstrates that when marketing and innovation come together, everything is possible.

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Doing Good… Is it Good Marketing?, Good Business?… or Just Crazy?

September 9, 2010

Knights Apparel is paying its workers in the Dominican Republic three and half times the going rate. Can they thrive when their shirts cost 20% more to produce than everyone else?

  • Introduction
  • Investing in better working conditions and worker salaries in Dominican Republic so that product costs are higher than the competition… are they crazy?
  • Why it can work… applying marketing principles to counter the drive to lower prices and commoditize the product
  • How “doing good” can be good business

Introduction

One of my roles is marketing professor at a great college in Boston. A foundation of all of my courses is to have students comb traditional and online media to find and share marketing-related stories in each and every class. There are a number of reasons for this including the fact that business is dynamic and literally evolving on a minute by minute basis sometimes, a fact that no textbook, at least in the print format, can ever keep up with.

What this means for me as a teacher is that I have to “eat the dog food” as well, if I am to keep up, let alone lead such a research-based activity in a classroom.

So it is that earlier this summer I came across an article in the New York Times last month by Steven Greenhouse, Factory Defies Sweatshop Label, but Can It Thrive?

I was very excited when I read the article and have not been able to get it out of my mind since. This is because contrary to the implication that “doing good” cannot lead to business success as implied by the question “Can It Thrive?” in the headline, when looked at it through a marketing strategy and positioning lens, we can easily see it is very likely this business can and will survive, thrive and perhaps be a model that other more well known consumer brands can and should adopt.

Lowering Costs Drives Business, Doesn’t It?

No, I am not trying to buck the research that typically asserts doing good for its own sake does not necessarily move customers or prospects to act and buy a product or service. There was much discussion a few years back about “green” business initiatives and would customers pay extra for them, and if so how much. Was Green enough on it’s own to drive a marketing program and deliver results?

Perhaps not.

We may have, want and maybe even expect a “green sensibility”, but we see again and again that when it gets to the pocketbook, we don’t want to pay more, at least too much more. We may penalize a product for say a lack of “green-ness” but we don’t necessarily reward them for it either.

In this mindset, the negativity implied in “Can It Thrive?” may make some sense.

The answer however, is far different from a strategic marketing perspective when doing good is positioned as added value.

First a little background.

Introducing Knights Apparel

The company in question is Knights Apparel, based in Spartanburg, South Carolina. Knights is, according to the article, “the leading supplier of college-logo apparel to American universities, according to the Collegiate Licensing Company.” The factory discussed in the article is in the Dominican Republic and produces high quality, college/university logo’d t-shirts for sale under the Alta Gracia label in campus bookstores across the US. The cost of the actual shirt is $4.80 with a wholesale price of $8 and retail cost of up to $18.

What is unusual here is that Knights pays workers a living wage. Where other factories may pay workers $147 a month in often harsh working conditions, the lucky workers at this factory earn $500 a month, up to 3 and a half times more. Not only this, workers are allowed to unionize and work in a clean, friendly, modern and safe environment, which is unheard of at most factory locations.

Shirts of this quality which may cost others $4 to produce, costs Knights $4.80, a 20% premium, so there is an added cost.

Sounds crazy, doesn’t it? Whereas in today’s globalized manufacturing world companies are on a constant quest for countries and workers where they can pay ever lower wages and cut overhead costs in order to maximize profits and value to investors, here is a company bucking the trend and going in the opposite direction.

Plus if the research is to be believed, what customer in their right mind will pay a higher price for a commodity item like a T-shirt?

We do, and we do it all the time.

Positioning Can Be Used to Support Different Business Strategies

It comes down to positioning, brands and value. Using the product adoption lifecycle for a model, we can see the following:

The Early Majority supports leadership and works like a herd… if my friends and peers do it, so will I. And not only that, this audience will pay a premium for a leading product, for its perceived value. This is where brands come in and why they can be very successful. If my friends see value in Nike, so will I. And yes, we all know that cool little swoosh will cost me more, sometimes much more.

To the Late Majority, a t-shirt, is a t-shirt, is a t-shirt. Lowest price wins their purchase. And if we can get a branded shirt at a lowest price in say a discount store, we are not fools, we will buy it. But if it costs more, forget it. Cost, lowest cost is more important to here.

The game here is added value. If Alta Gracia shirts were focusing distribution on say Wal-Mart or other discount channel, the strategy would fail. Pennies matter to the cost of the product, and the higher production cost would not be able to play out in this arena.

But as we read, Knights strategy is to not play in that space. In fact, they are reverse positioning themselves to play in the Early Majority segment, and quite cleverly.

Reverse Positioning For Added Value

Here’s how.

1. The shirt is a high quality shirt. The facility is not manufacturing a commodity quality, no label generic t-shirt.
This alone is not enough.

2. Alta Gracia has not yet built awareness and value for itself as a stand-alone brand, although apparently there will be point of sale merchandising in college bookstores to raise awareness.
However, by providing the academic market with college/university branded product, they in effect are partnering with colleges and univerisites to offer a high quality, high value, co-branded product.

3. Students (and therefore their parents) are known to care about social concerns and they do support with their wallets.
These customers will pay a premium for products that they consider to fair traded, if the value is clear and the cost is in line.

Have you checked out the price for a Nike T-Shirt lately? Alta Garcia’s wholesale and retail pricing is well in line with other high value branded t-shirt products that can often cost $20 or more.

Add it all up and Knights has done its work to strategically position this product right where it needs to be, so it can, and I will argue almost certainly will meet its social and business objectives.

Does “Doing Good” Make Sense?

Are there lessons here for the Nike and Reebok’s of the world, whose logos have high brand value in their own right?

It seems like they have a choice.

A few years ago, Nike and others (remember Kathy Lee Gifford’s clothing line?) were slammed by the media, and customers for simply the appearance of allowing sweatshop conditions in some of their out-sourced, off-shore factory operations. They felt the pain of lost sales and as a result developed and imposed higher standards and better working conditions over time since then.

Left to balancing the quest for higher profits against the public’s expectation of social responsibility, it seems likely this kind of back and forth may continue. Companies will try to cut costs all they can, and consumers will respond if it appears they have crossed some ill-defined line and gone too far. At what is too far?

Is there a business value to a more pro-active posture like the one taken by Knights?

Costco Thinks So

As it turns out, there is a best practice we can look at here as well courtesy of Costco, the leader in the warehouse store category, outlined in a 2005 article in the New York Times, How Costco Became the Anti Wal-Mart.

For many years Costco has been a leader in the retail industry paying its workers “liveable” salaries well in excess of those paid by another leader, Wal Mart (and others) where associate salaries are pegged to the Minimum Wage.

At the same time Costco’s management has been under pressure to lower employee costs, something that Costco’s management has resisted. As noted in the article, one analyst even complained that with Costco “it is better to be an employee or a customer than a shareholder.”

Why then does Costco resist this pressure?

Costco has found that fairly compensated employees are loyal, honest and stay with the company longer. Churn is down, retention high, training costs reduced, and productivity enhanced. Throw in that Costco’s affluent customer base appreciates that lower costs do not come at employee expense, well we get the idea, there is a monetary benefit.

As Costco’s CEO Jim Sinegal put it, “This is not altruistic, this is good business.”

Sound familiar?

Our marketing model shows that companies can do good, quantify its value, serve customers and in the deliver more value to customers, if they live in the right place on the Product Adoption Lifecycle.

The Marketing Lesson of the Product Lifecycle… You Can Choose Where You Live

Then think of the transformative impact this has on the actual workers. One of the workers at Alta Gracia put it this way, “We never had the opportunity to make wages like this before. I feel blessed.” Feel good now?

Here is the recipe that adds value and re- or reverse positions Alta Gracia T-Shirts from a commodity to value product:

1.    The higher quality of the product itself

2.    “Borrowed” Brand Value that leverages the affinity of the College/University

3.    Added Value of a Good Deed that in fact is also doing “Good Business”

4.    Opportunity to build Alta Gracia as a stand alone brand recognized by students

5.    Natural brand extensions to other intersecting markets (parents, etc)

6.    Other affinities, such as sports, music and others can build on model

Add it all up and it means higher value, the kind of higher value customers are willing to pay a premium for.