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HOW TO DETERMINE PRODUCT MARKET FIT IN YOUR INDUSTRY AND HOW TO MEASURE IT

The lack of market need is the main reason for startup failure. Product-market fit is one of the most crucial elements needed to create a successful business. It indicates that people are interested in the company’s product and are willing to pay for it because the offering is better than the other alternatives. Due to this reason, finding a product-market fit should be among the first and foremost objectives for your business.

Snapchat is an excellent example of a startup that managed to find product-market fit. This resulted in more than 293 million daily active users and $2.5 billion in annual revenue since its initial launch in 2011. In 2012 Snapchat users were sharing over 20 million images per day or about 231 per second. 10 million Instagram users, in contrast, were sharing only 25 photos every second. During the early stage, the target audience of the startup consisted of bloggers and students. Snapchat quickly became popular at colleges and high schools through word of mouth. The company was gathering customer feedback and constantly improving the application, which was important in reaching product-market fit. 

Let us take a closer look at the concept of the product-market fit and the practical steps required to achieve it.

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What is a product-market fit?

Product-market fit is the degree to which the product meets the target consumers’ needs and fulfills the market demand. PMF occurs when the business owner develops a solution that fills a certain market niche and evokes the desire to buy it. Product-market fit is not a constant state. Instead, it can be described as the continuous process of adjusting to changing client needs. 

The term was coined by the co-founder of Benchmark Capital, Andy Rachleff, and later popularized by entrepreneur Mark Andreessen, the co-founder of Andreessen Horowitz. Rachleff’s idea was based on the study of the investing approach of Dan Valentine, venture capitalist and founder of Sequoia Capital. Andy Rachleff explains product-market fit as a combination of “the feature set you need to build, the audience that’s likely to care, and the business model required to entice a customer to buy your product.” Marc Andreessen  defines it as “being in a good market with a product that can satisfy that market.”

The alternative definition by Dan Olsen, the author of “The Lean Product Playbook”, says that the product-market is “meeting the underserved needs of target customers better than the competition”. Thus, we can summarize that product-market fit refers to the situation when the company provides value for a substantial number of customers who perceive the value with the effective delivery method, and differentiates itself from the competing companies. 

How to find a product-market fit?

The process of achieving a product-market fit differs for each company. Therefore, to create an outstanding product, you need to understand the problems your solution addresses and the issues your clients are trying to overcome with its help. So, the goal of finding product-market fit should be number one on your company’s priority list as it would dramatically increase the chances of business success. Despite the fact that the path to product-market fit is unique for each business, you can find it by focusing on the key areas and following several simple steps we will discuss below.

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Step 1. Determine your target audience

The first step in developing your product-market fit is to determine the target customers. They will represent the users who decide how well the product aligns with market requirements. The next task is to use market segmentation to later target customers more effectively by relying on their unique features, improving marketing campaigns and discovering more opportunities. Then you need to create buyer personas to ensure that your team’s efforts are tailored to your customers’ needs. Therefore, the main objectives of this step are to analyze your product or service, conduct a competitive analysis, segment your target market into several types of customers, and perform research.

Step 2. Talk to your customers

Gather feedback from your customers to identify their underserved needs and discover a suitable market opportunity. Determine the common challenges they face and how much they are willing to pay for you to solve their problems. The competition plays a huge role in the degree to which the product fits customer demands as they evaluate the solution in comparison to the alternatives.

If you want to improve the existing product, collect data from your sales and marketing departments to understand the recurring complaints. Face-to-face interviews are more effective than online surveys as they provide more useful information. 

Step 3. Define your value proposition

The value proposition is the most crucial aspect of your marketing message. It explains why your customers should purchase your company’s products instead of the competitors. A great value proposition is clear and understandable. The statement should be relevant to the target audience. Describe how your solution addresses customer problems and provide the set of advantages. To define your value proposition, you need to determine customers’ pain points, identify your product’s benefits, describe what value your solution adds to the market, connect it with the problems and make it unique.

Step 4. Specify your MVP feature set

The following step is to define the features that your minimum viable product (MVP) will include. If you add sufficient functionality to your product, you will be able to demonstrate the value to your customers, save time and money and leave space for improvement. MVP will help you determine the features your solution lacks or what can be done better. Moreover, you might understand that the customers will not use the specific function, so you can remove it. The primary objective is to continue adjusting the minimum viable product feature set until the potential customers approve it.

Step 5. Design your MVP

Once you have determined the MVP feature set, it is time to create the test version of your product, so your customers can provide feedback and valuable insights. Building the MVP prototype usually takes less time and effort than producing the working version of the minimum viable product. The prototype will brilliantly represent your product without the need to build it.

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Step 6. Test your MVP with customers and analyze feedback

The last step is to test the MVP prototype with target customers. The goal of MVP testing is to receive feedback from the audience, make improvements to the product and determine whether the idea is valid or not. The most efficient method of MVP testing is user interviews. First, provide the list of the problems your solution aims to solve and put open-ended questions to your customers. Then ask them to rank the issues and analyze their level of interest. Finally, present the MVP as the solution to the problem and offer people to try it. The other way to test your minimum viable product is to create a landing page demonstrating its features or promote the solution through advertising. This will help you to understand whether your MVP interests the target market. You can also test the prototype on crowdsourcing platforms. If the users like your idea, they would be willing to invest in the development of your product, so this would be the perfect indicator of the product-market fit.

After conducting tests: 

1. analyze the received feedback, 
2. identify similar answers and pay attention to common patterns, 
3. use the information received from the customers to modify the initial prototype and address consumer issues.

You might learn that a majority of your audience consider themselves too young or too old for your product. Then you can ask the respondents who they assume the product is intended for. The feedback will reveal how your product is perceived in the market. You might understand that your solution is more niche-oriented than you expected. In this situation, you need to return to step 1, review your customer profiles, and proceed from there. 

If the product is not right, but the audience is a fit, return to step 2 and gather feedback to understand what adjustments your customers would apply to your product to make it more appealing. Then, move to steps 3 and 4 to review your value proposition and minimum viable product features.

Netflix is a company that constantly adapts to changes, monitors trends and shifts in the market, and takes advantage of them. Netflix changed its business model multiple times, adjusting to user demand. In the early 2000s, Netflix achieved the product-market fit when the company positioned itself as the alternative to traditional DVD rental stores. Netflix started shipping DVDs by mail as part of its membership services and allowed clients to keep videotapes for an unlimited period of time. Later, when the DVD trend faded, the company turned into a subscription-based streaming platform and reached product-market fit owing to cheaper and better services. 

Step 7. Build the product and take it to the market

Prepare a product launch plan and create a marketing strategy to take advantage of the opportunity to promote your offering. The product launch event has a significant influence on market acceptance. It helps inform the clients that the product is available for purchase and introduces the solution to the market. With product launch, you will gather valuable information from early users, build anticipation and brand awareness. Create content that will align with marketing activities, such as landing pages, blog posts, and product tutorials. 

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Step 8. Improve product-market fit as you scale

Keep reviewing your product after it is launched. Take small risks and redesign the product in accordance with the customer base, competition, and the new needs of target audiences. Remove the elements that do not work, experiment with new functionality, and test the features on a small scale. Analyze qualitative and quantitative metrics, conduct customer surveys to adapt to changing market conditions, and stay ahead of the competition.

Product-market fit metrics and measuring

There are several quantitative metrics that will determine the percentage of customers who consider your solution as a ‘must-have’. We will discuss them further in greater detail.

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Growth rate

The growth rate will provide you with crucial information about your company’s performance over time. It is one of the essential metrics the investors examine before deciding whether to fund the company or not. To measure the product-market fit, you can analyze the growth in the number of users or revenue. The formula for calculating the monthly or annual growth rates is as follows:

Growth rate = (Period 2 – Period 1) / Period 1 * 100 

It is important to note that a high growth rate does not necessarily mean that you have achieved product-market fit (as it can be followed by a similarly high churn rate). Thus, you need to pay attention to various factors that may have led to this and take into account other metrics. In some cases, high growth rates can result from marketing activities and do not represent product-market fit. 

Churn rate

The churn rate is the number of customers who stop using your product over a certain time frame. With this metric, you can understand whether people are interested in your product or not. The churn rate varies depending on the type of business and its specifics. Newly established companies usually have higher churn rates compared to organizations that have been on the market for a longer time. You should inspect your monthly and annual churn rates to have a clear picture of your progress. The churn rate formula is: 

Churn Rate = (Lost Customers ÷ Total Customers at the Start of Time Period) x 100

Net promoter score

The net promoter score is a scale that ranges from -100 to 100. With this metric, you can estimate customers’ willingness to recommend your company’s products to other people. To calculate the net promoter score, you need to ask your customers a key question: “On a scale of 0 to 10, how likely are you to recommend the product to a friend or a colleague?” Then the respondents are categorized into three main groups depending on the answer: promoters, passives, and detractors. Finally, you want to subtract the percentage of detractors from the percentage of promoters. The final number will show you whether customers generally enjoy using your product. You may compare it to similar metrics in your industry and review it regularly to see if the satisfaction rate is improving.

Product-market fit examples

Now we will look at three successful companies that began their journey as startups but turned into global enterprises with a multi-million customer audience. We will consider how these companies managed to find their product-market fit and adapted to evolving market needs.

Spotify

The idea to create Spotify appeared after Napster’s collapse, and the sales plunge in the music industry as the users started downloading albums from illegal sources. Spotify’s founder Daniel Ek suggested the listeners the opportunity to consume high-quality music legally for a small fee. Now the platform has over 365 million active users.

The startup was created at the most opportune time when the other elements of product-market fit already existed. There was a target market with music listeners, distribution channels, and a lot of content. The platform provided consumers a way to listen to music without addressing any legal issues, resulting in a 20-30% annual growth rate.

Slack

Slack is a well-known messaging platform for business communication. Despite the fact that now Slack’s target customers are mostly enterprises, the company paved the way to product-market fit by targeting individual users. Between March 2020 and April 2021, Slack generated $902 million in revenue, but it all began with a startup that did not even have a sales team. 

At first, Slack’s founders were developing a role-playing video game. The messaging app was originally intended as a tool for internal communication. However, the team later realized that the solution perfectly fits into a free niche, while there are already many role-playing games on the market. The decision to give up the original idea in favor of better opportunity has brought over 12 million users by the end of 2020.

Google

In the early years, Google had a lot of competitors in the market. At that time, the search engines were making a profit from selling the advertising space next to search results. In 2003, Google leaders decided to introduce AdSense. This was a totally new concept that allowed to display the advertisements beyond the search page results. The technology analyzed the web pages and automatically displayed the relevant advertisements. 

Google discovered a gap in the market that no other search engine could fill and satisfied that need. In 2017, the annual revenue from AdSense amounted to $95 billion.

COMMENTARY:   Don Valentine, from Sequoia Capital might have coined the term "product-market fit".  While Marc Andreessen, from A16z popularised it as “being in a good market with a product that can satisfy that market.” According to Andreessen, that is a moment when a product or service has its place in the market, thus enabling traction for the company offering that product or service.

 

Courtesy of an article dated April 4, 2019 appearing in CleverTap, an article dated Unknown appearing in Awware, an article dated June 16, 2021 appearing in HubSpot, an article dated February 18, 2017 appearing in Future.com,

 

TO LURE CUSTOMERS, DESIGN YOUR PRODUCT PACKAGING TO APPEAL TO ALL 5 OF THEIR SENSES, AND DON'T FORGET THE SOCIAL APPROACH

STUART LESLIE, PRESIDENT AND FOUNDER OF 4SIGHT INC, OFFERS SIX TIPS FOR PACKAGING YOUR PRODUCT AND CAPTURING CONSUMER ATTENTION.

We know that consumer purchase decisions are often made quickly and subconsciously, but there are opportunities where it’s possible to influence a consumer’s perception of a brand. People often make buying decisions by using all five of their senses and once product designers discover what each of these sensory influencers are, they can develop packaging that strategically speaks to consumers at each stage of the decision-making process. It’s ultimately about designing a complete experience--one that supports the brand every step of the way.

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Consumers prefer their drinks not simply cold, but chilled to the perfect temperature, are taken through a progression of exercises that mimics the various points of contact that consumers have with a product.

We identify which bottle shape, size, color, material, and texture promises that sense of cold refreshment at first glance. As the test subjects move closer, details such as condensation and frost become evident and when they are handed several bottles, each chilled to the exact same temperature--but made of different materials, textures, shapes and finishes--they provide feedback on which one feels like just the right cold.

In the Sensory Lab, our process helps us ensure that at each stage of interaction with a brand, consumers receive the right information, enabling them to see, feel, hear, smell, and taste the value of the product. Here, we've identified the six stages that lead to a first purchase or a repeat purchase:

THE FIRST GLANCE

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POM Juice, the distinctive profile of the bottle featuring those fully rounded spheres, allows the distinct dark red color of the juice to catch the attention of a shopper. It promises a bold, robust taste.

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A new entry into the tequila segment, SX Tequila chose a distinctive, curvaceous bottle with smooth lines and frosted texture to communicate the sense of a smooth-tasting, chilled beverage.

THE INSPECTION

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Here, consumers take a closer look and this is where details begin to hint at tactile sensations. Flowing details etched into the structure of the Orangina water bottle strongly suggest the refreshment that the product provides.

THE PHYSICAL INTERACTION

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Next, consumers make that first physical contact and combine the visual with the tactile experience. When grasped, the gentle curvature of the Febreze bottle and the angled spray head convey the soft and pleasant aroma that will fill the air.

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The smooth, diagonal neck on the new Miller Lite Bottle promises a refreshing flow of beer while the bold taper from the neck to the body provides a strong and confident grip for the hand. Adding the texture of the hops etched in the glass provides further engagement.

THE OPENING

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When the consumer makes a physical step towards consumption or use of the product, there's another opportunity to solidify your brand's perception. When the foil cover is peeled off of a can of San Pellegrino, it offers the sensation of actually peeling fruit. It also incorporates a crinkling sound, which adds to the sensory experience at opening.

CONSUMPTION OR USAGE

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The point at which the product is consumed or used and here, all five senses can be at play.

Clinique's dark circle corrector containers offers a convenient applicator on the side of the container tip that provides for a clean usage experience and preserves the product for future consumption, as fingers do not contaminate the cream.

THE COMPLETION 

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There's another opportunity to create a pleasant user experience when the product is disposed of or put away for later use. Wrigley 5 Gum incorporates a lock feature and embossed details to convey a secure and clean resealable pack.

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The Oreo cookie package also utilizes the sense of sight with a resealable film to promise lasting freshness. Once the film is replaced after each usage, it recreates the look of a fresh, unopened package.

In The Sensory Lab, we’ve gleaned significant insight into how the five senses influence consumer decision-making at six pivotal points. Incorporating a similar approach in your design process will help insure your package effectively communicates key brand attributes at each and every point of influence.

COMMENTARY:  In a blog post dated September 10, 2011, I pointed out the importance of utilizing both a sensory approach and a social approach to marketing to the Millennial Generation, but this approach can apply to all generations.  As human beings we keenly rely on all five senses when interacting with the outside world.  We translate the signals that our five senses capture and communicate to our brain into some type of decision.  This includes making choices about everything, whether it is the clothing we wear, the food we eat, the medicines we take, the places we prefer to visit, and so forth.  So YES, the five senses enter into everything.  When combined with the decisions that we make subconsciously (another subject altogether) this is how humans react to marketing stimuli.  Although not mentioned in the aboe article, the social approach is also very important in making marketing decisions.  Today, we rely very heavily on the opinion of our friends and relatives in making a final purchasing decision.  This could be person-to-person opinions or indirect through product reviews often found online.  As marketers we must not only rely on the sensory approach, but not forget the poweful impact of the social approach in formulating our marketing strategies, programs and tactics.  

Courtesy of an article dated January 15, 2014 appearing in Fast Company Design

WHY CONSUMER PRODUCT STARTUPS ARE GETTING VENTURE CAPITAL ATTENTION

Procter & Gamble, allow me to introduce hair-dye company Madison Reed and baby care and home-cleaning-products retailer The Honest Company. Gillette, perhaps you’ve heard of the shaving companies Harry’s or Dollar Shave Club? And Uniqlo, meet VANCL, the big, online, Chinese-branded clothing retailer.

These companies are part of a growing wave of venture capital investments into branded consumer goods predicated on using information technology to reduce costs and the Internet to market directly to customers. It’s all with an eye on replacing entrenched industry players, rather than selling those players the tools they’d need to compete against young upstarts.

One venture investor who is backing the eyeglass retailer Warby Parker said. 

“It used to be that tech went into the vertical and sold to everybody in the vertical. Now companies are saying ‘No. I’m going to directly compete with you,’”

That glasses company has set the standard for how startups can try to carve out a market in old-line industries with entrenched competition, according to a number of investors.

The Warby Parker investor said.

“This is a big thing in e-commerce.  You can’t compete selling stuff that Amazon has. Where you can compete is when you sell stuff that can’t be on Amazon.”

It’s the same realization that Fab.com came to in April of last year, when it decided to acquire the custom furniture shop Massivkonzept.  The investor said.  

“To be unique in e-commerce means you’ve got to own products, not just sell products.”

As a thesis, consumer product companies aren’t attracting the same amount of capital as technology offerings in enterprise software, security, or mobile, but the number of investments into companies selling low-tech or no-tech products like razors, soaps, glasses, or clothes, is growing.

For these companies, even grabbing 5 percent of the total market means billions of dollars in sales, investors said.

In 2012 and 2013 there were at least 26 investments made into consumer products companies, according to data from CrunchBase. That’s up from 16 in 2011, and 13 in 2010.

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The companies that have raised the largest rounds in this category include Harry’s, the razor blade manufacturer and retailer; Fab.com, which is now making its own furniture; VANCL, the Chinese online clothing retail behemoth; and Bonobos, which has its own brand of preppy upscale casual wear and suits for men. All told, the five companies have raised in excess of $1.1 billion.

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It’s also worth nothing that of the investors who are active in the consumer market, none is investing more aggressively in the sector than hedge fund investor Tiger Global Management, according to CrunchBase data. The hedge fund first invested in consumer retail branding in China with VANCL before applying the strategy in the U.S. with Warby Parker and Harry’s.

Other top investors active in the largest rounds for consumer brands include Andreessen Horowitz, Thrive Capital and Index Ventures, according to CrunchBase.

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 Renata Quintini said.

“It’s most importantly about leveraging technology to create new brands or extend markets into places where they haven’t existed before.  Now you have distribution channels, social media, and a lot more ways to touch consumers and establish relationships with them.”

COMMENTARY:    

Ten Keys to Successful New Consumer Products

Creating and launching new products successfully isn't easy.  In fact, the industry track record for new product success is dismal. A couple of recent studies place the failure rates as high as 95% in the United States1 and at 90% within two years in Europe.2  Getting beyond the five-year mark with a strong, profitable business is an accomplishment.  While there are no golden paths to new or existing product success, there are a number of principles that greatly improve the odds.  This is designed to outline some of the most important factors in marketing new and existing products successfully. 

• Key #1: Meet a genuine consumer need.  Too many products are in search of a market. Consumer research is critical. Products that meet a genuine consumer need have a basis for long-term consumer interest and purchase.  Sometimes those needs are latent and are created with an innovation in the market, such as with the invention of the internet or cell phones.  Do your homework. Talk to consumers.  Make sure there is a genuine consumer need to fulfill and that the market need is large enough to warrant the introduction.
• Key #2: Make sure product performance measures up.  Products that don't fulfill on their promise or fulfill the wrong need miss the mark and the market. Test the product in the lab and with consumers to ensure that the product not only delivers on the need but that the consumer perceives it to deliver on the need. Prospecting for new customers is expensive. Keeping good customers who are satisfied with the product's performance and who will tell their friends is invaluable for the long-term health of the product. It is also critical that the product is in step with the competitive market. If it performs well but another product is superior, product life may be short.
• Key #3: Ensure strong price-value relationship.  Consumers generally want to make the best buying decision possible for the money.  If the product solves a need and performs well but the cost is too high, the customer will look elsewhere.  The price of the product must be in proportion to the problem or need it meets.  Consumer research is critical here.  Don't forget the competitive assessment.  Price/value is usually relative to the other choices consumers have. Great value for the consumer enhances prospects for market longevity.
• Key #4: Proper positioning and differentiation.  Many times there is a great product that performs well, but the message to the customer is wrong. In a voyage to the moon, missing the target by just 2% will be disastrous for the astronauts.  Likewise, precise positioning of the product to the customer can make the difference between success and failure.  Many companies are too consumed with where they will advertise before carefully determining what to say-the message.  Advertising needs to be focused on a meaningful benefit to the consumer.  It also needs to clearly help the customer understand and feel motivated to buy this product rather than any other one available on the market.  When you are done, you want them to feel there is no better alternative than to buy your product. 
• Key #5: Carefully targeted advertising.  Once the proper message is determined and to whom it should be communicated, sometimes the media used doesn't communicate the message well, doesn't reach the target market, or is too poorly targeted to reach the target economically. The message and the media need to be carefully planned. There also needs to be enough critical mass in media levels to get above the general noise in the market. Reach and frequency are both important. At any given time, prime prospects for your product may be at varying stages of readiness to buy. You must be ready with your message when they are ready to enter the marketplace. Some purchases are considered more carefully than others.  Make sure you can inspire the appropriate level of confidence in your product and be at the right place at the right time with the right message for your customers.
• Key #6: Strong product economics.  Some products with a 30% margin can be successful while others with a 75% margin fail. Considering the entire equation of the product's economics is essential. What percent of sales will it require to reach and win customers?  What is the lifetime value of a customer?  What will it cost to deliver the product to the customer and then provide superior service to support customers?  Don't miss the hidden costs.  Make sure the margins are appropriate for the product.
• Key #7: Effective distribution channels.  Finding the correct channels to get the product to the customer can be as important as the product itself.  Many superb products fail because they don't reach the customer or enough customers.  If a customer loves the product but has difficulty buying it, success will be evasive. Consider not only where the customer can conveniently purchase the product, but also the competitive environment it will be in and whether the image of the channel will be consistent with quality of the product. The servicing of the product is also important. In the intensively competitive grocery aisle, being on the shelf near eye level to be seen can be the difference between life and death.  Many successful products have been built on a store-door delivery sales force that was constantly ensuring good presentation of the product.  Likewise, many products have been successful on the web by distributing through established successful online merchants rather than trying to create their own fulfillment system.
• Key #8: Being on the right timing.  Being early to market is valuable.  Many successful products were established by being the first to market.  However, it is equally important not to be too early before the market is developed.  Being a later entrant to market works best if you can improve on what is available.  There needs to be a reason for customers to want to buy your product over others that are available.  It is hard to start the race late with a horse that won't race as well as the leader.  Likewise, it sometimes requires stamina to develop a new market.  Patience may be the price of success.
• Key #9: Sufficient funding.  Most businesses take longer and require more funding than anticipated.  An investment banker once counseled us on a new venture to calculate how much we expected to need to launch a new business and then double it. Three or four times the estimate is often in order.  Make sure you have enough resources to launch and sustain the product.  It may be the best product introduction in years, but it takes time and resources to let people know about it.  Don't sell yourself short.  Running out of gas part way across the desert is very unsatisfying.  Make sure you have plenty of fuel. Cultivate stakeholders in the business who will help endure the ride.
• Key #10: Organizational support.  People create products, and they are needed to ensure their long-term success.  The organization becomes an extension of the product.  Great products with an organization that doesn't service the customer well are very vulnerable.  In addition, failure to see new threats or opportunities on the horizon such as new competitors, product innovation, major technology change, new governmental regulations, channel shifts or major changes in the economy could make the product obsolete.  A great organization, like a good commanding officer, will be scanning the horizon and have good sources of intelligence. It will also provide great support for those in the trenches with their product.

Product marketing can be highly successful.  Stack the odds in your favor by applying the ten keys to successful product marketing. 

Courtesy of an article dated January 27, 2014 appearing in TechCrunch and an article appearing in Prospecta Marketing

http://techcrunch.com/2014/01/27/no-industry-is-safe-from-vc-disruption/

WHY IS FACEBOOK BLUE? THE SCIENCE BEHIND COLORS IN MARKETING, AND THE COLOR EMOTION GUIDE

TURNS OUT, SOMETHING AS SIMPLE AS TWEAKING THE COLOR OF A BUTTON CHANGES USER BEHAVIOR OR ENDEARS PEOPLE TO YOUR PRODUCT. BUFFER'S LEO WIDRICH EXPLAINS THE IMPORTANCE OF COLOR IN WEBSITE AND BRAND DESIGN.

Why is Facebook blue? According to The New Yorker, the reason is simple. It’s because Mark Zuckerberg is red-green color blind; blue is the color Mark can see the best.

Not highly scientific, right? That may not be the case for Facebook, but there are some amazing examples of how colors actually affect our purchasing decisions. After all, sight is the strongest developed sense in most human beings. It’s only natural that 90% of an assessment for trying out a product is made by color alone.

So how do colors really affect us, and what is the science of colors in marketing, really? As we strive to make improvements to our product at Buffer, studying this phenomenon is key. Let’s dig into some of the latest, most interesting research on it.

First: Can you recognize the online brands just based on color?

Before we dive into the research, here are some awesome experiments that show you how powerful color alone really is. Based on just the colors of the buttons, can you guess which company belongs to each of them?

Example 1 (easy):

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Example 2 (easy):

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Example 3 (medium):

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Example 4 (hard):

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These awesome examples from YouTube designer Marc Hemeon, I think, show the real power of color more than any study could.

How many were you able to guess? (All the answers are at the bottom of this post!)

Which colors trigger which feeling for us?

Being completely conscious about what color triggers us to think in which way isn’t always obvious. The Logo Company has come up with an amazing breakdown that shows which colors are best for which companies and why. Here are 4 great examples:

Black:

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Green:

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Blue:

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Clearly, every one of these companies is seeking to trigger a very specific emotion:

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When we feel compelled to buy something, color can play a major role. Analytics company KISSmetrics created an amazing infographic on the science of how colors affect our purchases.

Green stands out to me as the most relaxing color we can use to make buying easier. We didn’t intentionally choose this as the main color for Buffer--although it seems to have worked very well so far.

At second look, I also realized how frequently black is used for luxury products. Here is the full infographic:

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How to improve your marketing with better use of colors:

This all might be fairly entertaining, but what are some actual decisions we can apply today to our website or app? The answer comes yet again from some great research done by the good folks over at KISSmetrics.

If you are building an app that mainly targets women, KISSmetrics suggests that women love blue, purple, and green, and dislike orange, brown, and gray.

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In case your app is strictly targeting men, the rules of the game are slightly different. Men love blue, green, and black, but can do without brown, orange, and purple.

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In another experiment, Performable (now HubSpot) wanted to find out whether simply changing the color of a button would make a difference in conversion rates.

They started out by trying to guess the outcome of a simple choice between two colors (green and red) and trying to guess what would happen.

“Green connotes ideas like 'natural' and 'environment,' and given its wide use in traffic lights, suggests the idea of 'go' or forward movement. The color red, on the other hand, is often thought to communicate excitement, passion, blood, and warning. It is also used as the color for stopping at traffic lights. Red is also known to be eye-catching.”

So, clearly an A/B test between green and red would result in green, the more friendly color. At least that was their guess. Here is what their experiment looked like:

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So how did that experiment turn out? The answer was surprising: The red button outperformed the green button by 21%.

What’s most important to consider is that nothing else was changed at all: 21% more people clicked on the red button than on the green button. Everything else on the pages was the same, so it was only the button color that made this difference.

This definitely made me wonder: If we were to read all the research before this experiment and ask every researcher which version they would guess would perform better, I’m sure green would be the answer in nearly all cases. Not so much.

At my company, we’ve also conducted dozens of experiments to improve our conversion rates using changes of colors. While the results weren’t as clear, we still saw a huge change. One hypothesis is that for a social media sharing tool, there is less of a barrier to signup, which makes the differences less significant.

Despite all the studies, generalizations are extremely hard to make. Whatever change you make, treat it first as a hypothesis, and see if the actual experiment supports your ideas. Personally, I’m always very prone to go with opinion based on research I’ve come across. Yet, data always beats opinion, no matter what.

Quick last fact: Why are hyperlinks blue?

This is something that always interested me and is actually a fun story. In short, it's offers the highest contrast between the colors used on early websites.

Click Image To Enlarge

Here is the full explanation:

“Tim Berners-Lee, the main inventor of the web, is believed to be the man who first made hyperlinks blue. Mosaic, a very early web browser, displayed webpages with a (ugly) gray background and black text. The darkest color available at the time that was not the same as the black text was that blue color. Therefore, to make links stand apart from plain text, but still be readable, the color blue was selected.”

I think it's fascinating that tweaking something as small as the color can completely change an outcome. What have been your findings in terms of colors and marketing? Tell me about it in the comments.

Solution to the riddle: Example 1: Facebook, Example 2: Google, Example 3: Flickr, Example 4: LinkedIn

COMMENTARY:   According to Harris Interative, here are the brands held in highest esteem in 2012 by the 19,000 random people who participated in the poll (along with our attempts to figure out how they got there):

1. Amazon: It could be the fact that Amazon remains the first and biggest online retailer with a reputation for security and an endless inventory. It could be the brand’s truly innovative recommendation system. Or it could be Amazon’s plan to create its own “virtual” currency – because no dishonest individual would ever make his own money, right?
2. Apple: Of course the public respects a brand that has long dominated the world of innovative technology and customer service. But Apple hasn’t released any “wow” products for a while, and the company’s new semi-desperate PR approach tells us that they probably won’t rank so high next year.
3. The Walt Disney Company: We could be wrong, but we’d like to think people trust Disney because Pixar still somehow manages to make great movies. We also feel like everyone took a cue from the horrible promo campaign and skipped John Carter.
4. Google: The “Don’t be evil” company’s “premature” earnings statement was a big PR fail, but it has maintained a reputation as a great place to work. And we don’t care how many cute videos Microsoft releases–we’re still not going to use Bing.
5. Johnson & Johnson: We find this one surprising in light of all the product recall business. But the PR team did as well as it could with damage control, and any brand known as “the baby company” has already earned some trust from the public. Keep your eye on J&J next year, though.
6. Coca-Cola: While some say that the public loves Coke because it “sells happiness”, we will attribute this position to its bold decision to admit that Americans should probably consume a little less of its product unless they want to end up like this unfortunate lady.  It can’t be because our fellow Americans trust Taylor Swift more than Beyoncé–Bey would never write a breakup song that is so obviously about John Mayer.
7. Whole Foods: It’s expensive–and its CEO is very good at placing his foot in his mouth. But Whole Foods does sell top-quality products, and it’s well-known for its CSR and purpose marketing successes. The whole “in-store drinking” experiment was pretty cool too.
8. Sony: “Green” isn’t everything–quality products like the ever-popular Playstation guarantee a good reputation for Sony, which seems to have emerged from a 2011 hacking scandal with an even stronger public image. It also gets great marks for customer service.
9. Procter & Gamble: The other “baby company” has always earned high marks for leadership within its industry. We don’t quite understand why, but we’re going to say “Moms. Moms. Moms.”
10. Costco: It’s simple: people love cheap stuff. People also love underdogs, a tag that could apply to any company competing with Walmart. Costco also doesn’t have too many problems with things like fake PR stunts, terrible labor practices, large-scale employee protests or testy relationships with major media outlets.

In January 2013, Ragan’s PR Daily and 24/7 Wall Street compiled the worst of the worst based on “stock performance, employee and customer satisfaction, and management decisions.”

Here they are, along with our past and present theories on why they suck:

1. JC Penney: The brand clearly doesn’t listen to its customers (strike one). It consistently disappoints its investors (strike two). And while the Ellen Degeneres controversy was bad news, we think we can blame consistently poor management for strike three.
2. Dish Network:  Sure, they invent cool things sometimes, but customers and employees still hate them! They’re two for two!
3. T-Mobile: The AT&T merger was the only thing that could have saved this “challenger brand.”
4. Facebook: We don’t even know where to start…
5. Citigroup: We’re going to say the decision to fire 11,000 people right before Christmas had something to do with this one (but it’s probably just the investors again).
6. Research In Motion, Ltd.: Do you know anyone who still owns a Blackberry? Neither do we.
7. American Airlines: Poor public relations? Poor employee relations? Celebrity snafus? They’ve got it all, baby!
8. Nokia: A phone company that fell behind on the smartphone trend? We don’t know if the world’s best PR can save them now.
9. Sears: Well, we don’t think it’s the obnoxious Black Friday sales or the “poor” employee reviews…but it might have something to do with a gradual 60% stock drop and the graceless resignation of a CEO who couldn’t quite point the ship in the right direction.
10. Hewlett-Packard: The “end of the PC” doesn’t bode well for one of its top two producers. Also: The company is notorious for awful management, and “accounting improprieties“–and employees who mention “misplaced priorities” don’t rate the experience very highly. All good things!

Column Five and Marketo developed the following infographic which analyzes the importance of colors to your business and what it says about your business:

Click Image To Enlarge

Courtesy of an article dated May 6, 2013 appearing in Fast Company, an article dated January 15, 2013 appearing in MediaBistro.com and an article dated February 14, 2013 appearing in MediaBistro.com

HOW THE FOUNDERS OF HARRY'S WANT TO REPEAT THE SUCCESS OF ONLINE EYEWEAR RETAILER WARBY PARKER, BUT IN SHAVING RAZORS

Jeff Raider and Andrew Katz-Mayfield, the co-founders of a new startup called Harry’s (Click Image To Enlarge)

BY GOING ONLINE TO ELIMINATE THE MIDDLEMEN, WARBY PARKER CHANGED THE EYEWEAR INDUSTRY. NOW, ONE OF ITS CO-FOUNDERS HOPES TO DO THE SAME FOR RAZORS.

When Andrew Katz-Mayfield recently found himself spending 20 confusing minutes and $20 in the razor aisle at his local drugstore, he started thinking about how to remove the frustration (and the big spend) from the experience. Katz-Mayfield also happens to be a childhood friend of Jeff Raider, a co-founder of the online eyeglasses retailer Warby Parker who took a similar approach to simplifying the process of trying and buying glasses.

On the Harry’s website, customers can spend $15 for the Truman kit, which includes the Truman handle, three blades, and a tube of cream (Click Image To Enlarge)

Or, they can spend $25 for the Winston, a slightly more luxe version of the razor (Click Image To Enlarge)

And now, 18 months and a great wooly mammoth logo later, we have Harry’s, a startup hoping to add a dose of charity and value to the shave industry. The company worked with an 80-year-old razor manufacturer in Germany and a stateside industrial designer to develop a handle, which is inspired by antique pens and butter knives. Online, customers can spend $15 for the Truman kit, which includes the Truman handle, three blades, and a tube of cream developed with a local cosmetics studio, or $25 for the Winston, a slightly more luxe version of the razor. Replacement blades go for $2, and a single razor can be had for as little as $10.

Harry’s blades are made by a 90-year-old company in Germany (Click Image To Enlarge)

Their technique produces blades that are incredibly hard and sharp--and rare to come by, in the US (Click Image To Enlarge)

Similarly to Warby Parker, there’s a social responsibility angle, too--for every razor you buy, Harry’s will donate one to an organization that helps people “look good and feel good.” Right now, it’s a nonprofit that helps soldiers reintegrate to life outside of a warzone.

A worker at the plant in Germany (Click Image To Enlarge)

A stateside industrial designer developed the Harry’s handle, which is inspired by antique pens and butter knives (Click Image To Enlarge)

Will the online-only, high-value business model translate to a lower margin product, like razors? Warby’s approach was so successful because it broke a long-standing monopoly with an innovative service model--in other words, it was a pain in the ass (and wallet) to buy glasses, and Warby offered a way to sidestep both the inconvenience and the cost by selling direct to consumers.

The product design aims to hit a sweet spot between great design and affordability (Click Image To Enlarge)

The head is replaceable, while the handle is designed to last (Click Image To Enlarge)

Harry’s faces more of a hurdle when it comes to the market for shaving tools, of which there are plenty of affordable options at every drugstore in town. They’re also not the first to take razors online--you may have heard of Dollar Shave Club, a site that made a viral splash last year. says Katz-Mayfield says.

“They had a really funny video and it struck a chord.  But they’re a retailer, and we actually design and manufacture our own products.”

The razors are nicer than the drug store brand, but not hugely expensive (Click Image To Enlarge)

Replacement blades go for $2, and a single razor can be had for as little as $10 (Click Image To Enlarge)

The profit margins on razorblades certainly aren’t as high as eyeglasses, but Raider and Katz believe there’s room for innovation, mainly in terms of the brand experience. Gillette might be as cheap, and Dollar Shave Club might be as convenient, but neither boast the design quality or social responsibility angle. And eventually Harry’s may take the brand offline and into barber shops and pharmacies. Katz-Mayfield says. 

“We’re not trying to build a website.  We’re trying to build a brand that will be distributed in lots of different ways over time.”

Harry’s also developed its own cream, with help from a local cosmetics company (Click Image To Enlarge)

COMMENTARY:   I like Harry's business model very much because razor blades are replenishable items, and unlike Warby Parker, don't require eye exams and lens prescriptions, and this means a quicker sales cycle and lots of repeat sales. If Netflix can do it with movies-by-mail, RedBox with movie kiosks, and Warby Parker with eyewear, why not Harry's in replacement razor blades.  Gillette the global leader in replacement razor blades has a commanding 80% market share, so there is plenty of room for industry disruption, but I think they will need to provide overnight service to keep up with the demand for instant gratification that razor blades command.  This is never going to be a volume busines, but their uniqueness and quality German made razor blades provides just enough differentiation that some customers who want high quality at an affordable price are will to part with their money. 

Courtesy of an article dated March 20, 2013 appearing in Fast Company Design 

MIT’S SUPER NON-STICK COATING THAT KEEPS KETCHUP, MAYO, JAMS AND JELLIES FLOWING OR ANYTHING ELSE THAT FLOWS

Watch never-before-seen videos of an amazing new condiment lubricant that makes the inside of bottles so slippery, nothing is left inside. This means no more pounding on the bottom of your ketchup containers--and a lot less wasted food.

When it comes to those last globs of ketchup inevitably stuck to every bottle of Heinz, most people either violently shake the container in hopes of eking out another drop or two, or perform the "secret" trick: smacking the "57" logo on the bottle’s neck. But not MIT PhD candidate Dave Smith. He and a team of mechanical engineers and nano-technologists at the Varanasi Research Group have been held up in an MIT lab for the last two months addressing this common dining problem.

The result? LiquiGlide, a "super slippery" coating made up of nontoxic materials that can be applied to all sorts of food packaging--though ketchup and mayonnaise bottles might just be the substance’s first targets. Condiments may sound like a narrow focus for a group of MIT engineers, but not when you consider the impact it could have on food waste and the packaging industry.   Smith says. 

"It’s funny: Everyone is always like, 'Why bottles? What’s the big deal?' But then you tell them the market for bottles--just the sauces alone is a $17 billion market.  And if all those bottles had our coating, we estimate that we could save about one million tons of food from being thrown out every year."

Check out what happens when you pour ketchup out of a LiquiGlide-coated bottle:

 

For point of reference, here’s ketchup coming out of a regular bottle. Keep in mind, this is the exact same ketchup. It’s so time-consuming and wasteful.

 

As Smith describes it,

"LiquiGlide is a surface that’s unique because it’s kind of a structured liquid--it’s rigid like a solid, but it’s lubricated like a liquid."

It works with many types of packaging--glass, plastic--and can be applied in any number of ways, including spraying the coating onto the inside of bottles. Now, thick sauces that would normally move like sludge seem to just fall out of LiquiGlide-coated bottles, as if they were suspended in space.  Smith says.  

"It just floats right onto the sandwich." 

One of the most significant challenges his team faced was making sure the coating was food safe, meaning his team could only work with materials the FDA had approved.  Smith says.  

"We had a limited amount of materials to pick from.  I can’t say what they are, but we’ve patented the hell out of it."

Here’s mayo coming out of the coated bottle:

 

As opposed to this:

 

Originally, Smith’s team, which has been working for years now on developing various types of surface coatings, was pursuing different aims.   Smith says.  

"We were really interested in--and still are--using this coating for anti-icing, or for preventing clogs that form in oil and gas lines, or for non-wetting applications like, say, on windshields.   Somehow this sparked the idea of putting it in food bottles.  It could be great just for its slippery properties. Plus, most of these other applications have a much longer time to market; we realized we could make this coating for bottles that is pretty much ready. I mean, it is ready."

As you can see.

Ironically, if LiquiGlide is a success, it will just mean Smith has to pound even more bottles of ketchup the old-fashioned way. He still has to perform the annoying task in product demos, to show a comparison between the LiquiGlide-sprayed bottles that work and the traditional bottles that don’t.   Smith says, laughing.

"It was never really a personal pain point for me, but I do hate struggling to get sauce out of the bottles.  I didn’t know about the tapping of the '57' until I started looking into this. It was all news to me."

MIT PhD candidate Dave Smith and his research team gather around to demonstrate the super on-stick properties of LiquiGlide (Click Image To Enlarge)

But he’s already close to experiencing the sweet taste of victory: Last week, LiquiGlide came in second place, out of 215 teams, in MIT’s $100k Entrepreneurship Competition. His team also took home the audience-choice award.

Smith is now in talks with a few bottle companies to market LiquiGlide, though nothing is official yet. It’s still early. The team hasn’t even come up with its own company name, nor been incorporated yet. And their lab is still a complete mess.

Smith says.  

"We have all types of sauces, jellies, and jams everywhere in our lab.  It’s like a closet full of condiments."

COMMENTARY:    That's what I call a neat invention.  The non-stick coatings industry is huge. Ketchup bottles is just the tip of the iceberg.  MIT stands to make a bundle from licensing this nanocoating.   Come on FDA, approve LiquiGlide--FAST!!

Courtesy of an article dated May 22, 2012 appearing in Fast Company Exist

GILLETTE FORCED TO SHAVE PRICES ON ITS FUSION PROGLIDE RAZORS, AS SCHICK AND DOLLAR SHAVE CLUB STEAL MARKET SHARE

CATEGORY LEADER SWITCHES TO VALUE MESSAGING AFTER SHICK AND DOLLAR SHAVE CLUB STEAL MARKET SHARE

For a generation, Gillette has been among the most profitable packaged-goods brands, with regular price hikes and market shares north of 80% in the lucrative replacement-blades market.

But as challenges mount from traditional and new rivals and share starts to drop, the Procter & Gamble brand has been shifting its focus toward value messaging.

One of the rivals is Schick Hydro, launched two years ago, about the same time as Gillette's latest system, Fusion ProGlide. In recent months Hydro has added a sharper price edge to digital and direct-mail ads, and has made a superiority claim that would once have seemed unthinkable for a Schick brand heavily outsold by Gillette.

 

A mailer for Schick Hydro 5 states that it's "Preferred over Fusion ProGlide at a better price," a claim that according to the fine print is based on 52-week Nielsen scanner data and surveys of men considering overall performance and price. (A P&G spokesman said Gillette systems continue to win in numerous internal and external surveys and ratings of razor performance.)

 

That was followed by a guerrilla challenge from venture-capital-backed Dollar Shave Club, whose viral video drew more than 4 million views its first month.  Club founder and co-CEO Michael Dubin asks in the video. 

"Do you like spending $20 a month on brand-name razors?"

He adds that "$19 goes to Roger Federer" -- a swipe at the tennis great, who's had viral-video fame himself as a Gillette pitchman.

 

The direct-response Dollar Shave Club offers twin-blade razors for $1 a month ($3, including shipping and handling), or four- and six-blade models for $6 to $9, shipping and handling included.

Mr. Dubin is a former NBC page, MSNBC news writer, improv comedian and producer of custom video content for advertisers at Time Inc. He got the idea for Dollar Shave Club in 2010, after complaining about the high cost of razors to friend and co-founder Mark Levine, who had experience getting products made in China.

DSC built its concept last year at Science, the Los Angeles digital incubator headed by former MySpace CEO Mike Jones. In December and January the club won $1.1 million in backing from venture-capital firms including Kleiner Perkins, Andreessen Horowitz and Forerunner Partners.

Though Mr. Dubin would not disclose the number of DSC subscribers, it has already surpassed 2012 projections with the 12,000 who joined in the first 48 hours after the video launch. Producing the video cost about $4,500.

Gillette is responding by giving more attention to value, starting with ads last month from BBDO, New York, that show a man using a single Fusion ProGlide cartridge during a five-week trip around the world.

Still in development are plans for marketing support for Gillette's Mach 3 system, against which Schick has made its greatest inroads, said P&G spokesman Damon Jones.

Mr. Jones said. 

"You can get Gillette quality at great value no matter how much you want to spend.  We haven't talked about value as much as we'd like. That's where Schick and Dollar Shave Club are coming at us. We know we have to be much more competitive in that space."

But that comes at a cost, particularly the expense of bolstering a legacy system such as Mach 3, historically a low-maintenance business that delivered a tidy profit, said Deutsche Bank analyst Bill Schmitz.

Gillette's share of the $820 million replacement-blades market slipped 2.2 points last year, to 80.8%, according to SymphonyIRI data from Deutsche Bank, after holding stable at about 83% since 2004. But Gillette, which probably commands 90% to 95% of category profit, may have no choice but to give margin back to defend turf, Mr. Schmitz said.

The male-grooming business delivered a 20.3% profit margin last year, six points higher than P&G as a whole. Gillette razors are even more profitable, as lower-margin Braun shave-preparation, soap and deodorant products pulled down performance.

Despite the more aggressive value focus in general, Mr. Jones said, the new high-end ProGlide Styler trimmer-razor has done well and helped expand Gillette's profit pool.

COMMENTARY:   Gillette Fusion ProGlide is perfect example of an increasing returns business model.  They give away the razor handle for free, but charge you a fortune for the blades. It's a great shave, but the blades just cost too much.  Most stores sell the blades in special security dispensors and I have seen the razor handles and blades locked glass display cases because they are considered too valuable and can be easily shoplifted if display on regular counter shelves.   I do love the Shick Hydro 5 prices, though.  That Dolar Shave Club commercial is fucking hillarious, and I think it might be the first one to use the "F" word.  I don't think it will get pass the FCC censors, and ever appear on television, but it has over 4 million views on YouTube, so fuck yeah!! Send me those fucking razors.     

Courtesy of an article dated April 9, 2012 apparing in Advertising Age

 

 

HARVARD PROFESSOR INVENTS 'AEROSHOT PURE ENERGY' A POCKET-SIZED TUBE THAT DISPENSES CAFFEINE YOU INHALE

Remember David Edwards, the Harvard professor who gets paid to make zany gadgets like smokable chocolate and plant-based air purifiers--stuff that’s both totally cool and completely useless? He’s back, only this time he’s invented something that might actually come in handy, especially among Red Bull-pounding college kids. Introducing caffeine you inhale.

Aeroshot Pure Energy is a slim, pocket-sized tube that works like an asthma inhaler. Puff gently, and the tube releases a light powder that dissolves instantly in your mouth. Each Aeroshot contains 100 milligrams of caffeine, roughly equivalent to a tall mocha at Starbucks. Unlike a Starbucks mocha, it’s calorie-free, and it won’t give you horrid coffee breath. And unlike your average energy drink, it meets TSA regulations. Though personally, a big jolt of caffeine is the last thing I want when I’m boarding an airplane.

AeroShot will be available in Boston and New York in January.

COMMENTARY:   I thought I had heard it all, but a "hit" of caffeine, that according to Aeroshot delivers a quick hit of caffeine anytime, anywhere.  Aeroshot is completely transportable so you can get your caffeine hit everywhere you go regardless of the weather.  It also meets TSA regulations, so you can take it onboard a plane.  Aeroshot is easy to use too:  You simply pull the green end to open. Put the other end in your mouth and gently puff in.  Each Aeroshot will give you 6-8 puffs of caffeine. You are puffing in a fine powder that falls out of the air and dissolves instantly in your mouth.  Then push closed with your hand, and tuck it into your pocket or purse.  Each puff of Aeroshot contains 100 mg of caffeine--about the same as a large cup of coffee.   Starbucks watch out.  You have competition.  Maybe Starbucks will buy the company, and market their own Starbucks Aeroshot. Anything is possible.  Another useless waste of your money, but there will be people who will buy this.

According to the Aeroshot Pure Energy website, the new product hits stores in New York and Boston in 85 days.

Courtesy of an article dated October 20, 2011 appearing in Fast Company Design

HOW PROCTER & GAMBLE IS COPING WITH THE COLLAPSE OF AMERICA'S MIDDLE CLASS, AND WHY IT MAY NEVER BE THE SAME AGAIN

For generations, Procter & Gamble Co.'s growth strategy was focused on developing household staples for the vast American middle class.

Now, P&G executives say many of its former middle-market shoppers are trading down to lower-priced goods—widening the pools of have and have-not consumers at the expense of the middle.

That's forced P&G, which estimates it has at least one product in 98% of American households, to fundamentally change the way it develops and sells its goods. For the first time in 38 years, for example, the company launched a new dish soap in the U.S. at a bargain price.

P&G's roll out of Gain dish soap says a lot about the health of the American middle class: The world's largest maker of consumer products is now betting that the squeeze on middle America will be long lasting.

Melanie Healey, group president of P&G's North America business says.  

"It's required us to think differently about our product portfolio and how to please the high-end and lower-end markets. That's frankly where a lot of the growth is happening."

In the wake of the worst recession in 50 years, there's little doubt that the American middle class—the 40% of households with annual incomes between $50,000 and $140,000 a year—is in distress. Even before the recession, incomes of American middle-class families weren't keeping up with inflation, especially with the rising costs of what are considered the essential ingredients of middle-class life—college education, health care and housing. In 2009, the income of the median family, the one smack in the middle of the middle, was lower, adjusted for inflation, than in 1998, the Census Bureau says.

COLLAPSE OF THE MIDDLE CLASS

The slumping stock market and collapse in housing prices have also hit middle-class Americans. At the end of March, Americans had $6.1 trillion in equity in their houses—the value of the house minus mortgages—half the 2006 level, according to the Federal Reserve. Economist Edward Wolff of New York University estimates that the net worth—household assets minus debts—of the middle fifth of American households grew by 2.4% a year between 2001 and 2007 and plunged by 26.2% in the following two years.

[Click Image To Enlarge]

HOW P&G AND OTHER COMPANIES ARE MAKING THE ADJUSTMENT 

P&G isn't the only company adjusting its business. A wide swath of American companies is convinced that the consumer market is bifurcating into high and low ends and eroding in the middle. They have begun to alter the way they research, develop and market their products.

• H.J. Heinz Co., the food giant for example, is developing more products at lower price ranges. 
• Saks Inc. the luxury retailer is bolstering its high-end apparel and accessories because its wealthiest customers—not those drawn to entry-level items—are driving the chain's growth.

THE CONSUMER HOURGLASS THEORY

Citigroup calls the phenomenon the "Consumer Hourglass Theory" and since 2009 has urged investors to focus on companies best positioned to cater to the highest-income and lowest-income consumers. 

It created an index of 25 companies, including Estée Lauder Cos. and Saks at the top of the hourglass and Family Dollar Stores Inc. and Kellogg Co. at the bottom. The index posted a 56.5% return for investors from its inception on Dec. 10, 2009, through Sept. 1, 2011. Over the same period, the Dow Jones Industrial Average returned 11%.

Citigroup analyst Deborah Weinswig explains. 

"Companies have thought that if you're in the middle, you're safe.  But that's not where the consumer is any more—the consumer hourglass is more pronounced now than ever."

Companies like Tiffany & Co., Coach Inc. and Neiman Marcus Group Inc., which cater to the wealthy, racked up outsize sales last Christmas and continue to post strong sales.

Tiffany says its lower-priced silver baubles, once a favorite of middle-class shoppers craving a small token from the storied jeweler, are now its weakest sellers in the U.S.  Tiffany Chief Operating Officer James Fernandez said in June.

"I think that there's probably more separation of affluence in the U.S." 

Firms catering to low-income consumers, such as Dollar General Corp., also are posting gains, boosted by formerly middle-class families facing shrunken budgets. Dollar stores garnered steady sales increases in recent years, easily outpacing mainstream counterparts like Target Corp. and Wal-Mart Stores Inc., which typically are more expensive.

P&G's profits boomed with the increasing affluence of middle-class households in the post-World War II economy. As masses of housewives set up their new suburban homes, P&G marketers pledged that Tide detergent delivered cleaner clothes, Mr. Clean made floors shinier and Crest toothpaste fought off more cavities. In the decades since, new features like fragrances or ingredient and packaging enhancements kept P&G's growth robust.

CHANGES IN CONSUMER BUYING HABITS  

Despite its aggressive expansion around the world, P&G still needs to win over a healthy percentage of the American population, because the U.S. market remains its biggest and most profitable. In the fiscal year ended June 30, the U.S. delivered about 37% of P&G's $82.6 billion in annual sales and an estimated 60% of its $11.8 billion in profit. P&G says that Americans per capita spend about $96 a year on its products, compared with around $4 in China.

During the early stages of the recession, P&G executives defended its long-time approach of making best-in-class products and charging a premium, expecting middle-class Americans to pay up.

But cash-strapped shoppers, P&G learned, aren't as willing to splurge on household staples with extra features. Droves of consumers started switching to cheaper brands, slowing P&G's sales and profit gains and denting its dominant market share positions.

In late 2008, unit sales gains of P&G's cheaper brands began outpacing its more expensive lines despite receiving far less advertising. As the recession wore on, U.S. market-share gains for P&G's cheaper Luvs diapers and Gain detergent increased faster than its premium-priced Pampers and Tide brands.

At the same time, lower-priced competitors nabbed market share from some of P&G's biggest brands.

• Bounce - P&G's dominant fabric-softener sheets business, including its Bounce brand, fell five percentage points to 60.2% of the market as lower-priced options from Sun Products Corp. and private-label brands picked up sales from the second quarter of 2008 through May 2011, according to a Deutsche Bank analysis of data from market-research firm SymphonyIRI.
• Tide - P&G's grasp of the liquid laundry detergent category, led by its iconic Tide brand, also posted a rare slip over the same period as bargain-priced options from Sun and Church & Dwight Co. gained momentum. 
• Gillette - Even the company's huge Gillette refill razor market suffered, declining to 80.1% by May from 82.3% in the second-quarter of 2008, as Energizer Holdings Inc.'s less-expensive Schick brand gained nearly three points.

P&G CHANGES COURSE 

P&G began changing course in May 2009. After issuing a sharply lower-than-expected earnings forecast for the company's 2010 fiscal year, then-CEO A.G. Lafley said the company would take a "surgical" approach to cutting prices on some products and develop more lower-priced goods. Mr. Lafley said.  

"You have to see reality as it is." 

When the company's 2009 fiscal year ended a month later, P&G's sales had posted a rare drop, falling 3% to $76.7 billion.

In August that year, P&G's newly appointed CEO, company veteran Robert McDonald, accelerated the new approach of developing products for high- and low-income consumers.

Mr. McDonald said in September 2009.

"We're going to do this both by tiering our portfolio up in terms of value as well as tiering our portfolio down." 

THE GINI INDEX SAYS IT ALL

To monitor the evolving American consumer market, P&G executives study the Gini Index, a widely accepted measure of income inequality that ranges from zero, when everyone earns the same amount, to one, when all income goes to only one person. In 2009, the most recent calculation available, the Gini coefficient totaled 0.468, a 20% rise in income disparity over the past 40 years, according to the U.S. Census Bureau.

Phyllis Jackson, P&G's vice president of consumer market knowledge for North America says.

"We now have a Gini index similar to the Philippines and Mexico—you'd never have imagined that. I don't think we've typically thought about America as a country with big income gaps to this extent."

HOW P&G'S TARGETS THE NEWLY DIVIDED AMERICAN MARKET

Over the past two years, P&G has accelerated its research, product-development and marketing approach to target the newly divided American market.

Globally, P&G divides consumers into three income groups.

• "Ones" - The highest-earning "ones" historically have been the primary bracket P&G chased in the U.S. as they are the least price sensitive and most swayed by claims of superior product performance. 
• "Twos"  - The "twos," or lower-income American consumers, have grew in size during the Great Recession.  Consequently, P&G decided to target them aggressively, too. 
• "Threes" - P&G doesn't specifically target the "threes", the lowest wage earners in the U.S., since they comprise a small percentage of the population and such consumers are typically heavily subsidized by government aid.

At the high end, it launched its most-expensive skin-care regimen, Olay Pro-X in 2009, which includes a starter kit costing around $60. Previously, the Olay line had topped out around $25. Last year, the company launched Gillette Fusion ProGlide razors at a price of $10 to $12, a premium to Gillette Fusion razors, which sell for $8 to $10, and Gillette Mach3, priced at $8 to $9.

At the lower end, its new Gain dish soap, launched last year, can sell for about half per ounce of the company's premium Dawn Hand Renewal dish soap, which hit stores in late 2008.

Developing products that squarely target the high and low is proving difficult for a company long accustomed to aiming for a giant, mainstream group.

Conquering the high end is difficult because it usually involves a smaller quantity of products.

Bruce Brown, P&G's chief technology officer said. 

"We do big volumes of things really well. Things that are smaller quantities, with high appeal, we're learning how to do that."

Likewise, the cost challenges at the bottom of the pyramid are also proving difficult, Mr. Brown said. Over the past two years, P&G has increased its research of the growing ranks of low-income American households.

Ms. Jackson says. 

"This has been the most humbling aspect of our jobs.  The numbers of Middle America have been shrinking because people have been getting hurt so badly economically that they've been falling into lower income."

COMMENTARY:   A growing cadre of economists have chronicled the steady decline of the middle class, and a corresponding loss of its massive buying power.  Charles Hugh Smith, in an article for Business Insider, provides the following disturbing forensic evidence for the disappearance of the middle class, at least in terms of wealth.  

• The top 20% of the American populace holds roughly 93% of the country's financial wealth.
• The top 1% of the country holds approximately 43% of the money in the U.S. 
• The middle 20% of the population -- what would, officially, be called the middle class -- holds only 6% of the country's total assets. 
• The bottom 40% of the country controls less than 1% of America's wealth.

What Constitutes Middle Class

According to Smith, what income defines "middle class" is a function of locale and prevailing wages/costs ($100,000 in Manhattan or San Francisco isn't much because costs are so high), but in terms of purchasing power it can be generally agreed that middle class includes:

1. Ownership of one or more reliable vehicles. 
2. Homeownership with meaningful equity.
3. Healthcare insurance coverage.
4. A 401(k) retirement fund of some sort.
5. A college education/higher education or training.

By these measures, the middle class comprises at best 20% of the populace.

America's Widening Income Disparity

Barry Ritholtz of the Big Picture blog recently published a chart which depicts the actual distribution of wealth in America and the perceived distribution of wealth--what people estimate based on their knowledge.

G. William Domhoff of "Of Two Minds" created this chart that correlates almost exactly with Barry Ritholtz chart above.

The first chart depicts total wealth, which includes depreciating assets that are illiquid (SUVs, boats, furniture, etc.) and typically overvalued.  In terms of financial wealth, the top 20% own fully 93% of all assets. 

If we characterize the top 20% as "wealthy," then the next 20% would be the "upper middle class" (60% -80%) and the third quintile (60% - 40%) would be "middle class." 

"In terms of financial wealth, the Great Middle Class owns a mere 6% of total assets."

The "Ones"  have always been the "sweet spot" of P&G's target market.  The collapse of the middle class has changed the whole equation.  P&G has been forced to introduce products to fill the needs of the ever growing "Twos" and "Threes", the two markets it has largely ignored through its long history. 

The Collapse of Household Income 

Clearly, middle class Americans are holding a fantasy-view of their piece of the American Dream. A number of people I know consider themselves middle-class based on their substantial income--but they own very few financial/liquid assets, and if they lose their jobs then their health coverage vanishes.

When the average "middle class" American looks at the below chart, they probably reckon this enormous rise in net wealth includes them. But as we have seen above, it doesn't; their "ownership" of this vastly increased wealth is a meager 6%. In other words, the vast majority of this increase flowed to the top 20%.

The Causes Of The Middle Class Collapse

So how did the middle class become second class citizens -- or, as Smith puts it, "Debt Serfs"?

Not surprisingly, the answer is complicated, involving factors like the rising cost of education, the loss of pension funds and affordable health care, falling middle class wages, and the skyrocketing price of housing.

Yet one clear and daunting answer lies in manufacturing.

"When looking at the declining American middle class, a good number to start with is 42,400. That's the total number of factories that the U.S. lost between 2001 and the end of 2009. Put another way, this translates into the outsourcing of 32% of all manufacturing jobs in America." 

The loss of manufacturing jobs has left a massive job drain.

At the end of 2009, 15.7 million people were unemployed, while 12.6 million-- 20% fewer -- worked in manufacturing. This represented only 9% of the American working populace; at manufacturing's height in 1960, 29% of Americans were employed in the sector.  By the way, as of August 2011, the unemployment rate stood at 9.2% and there were still 15 million unemployed Americans.

This bleeding of American manufacturing represents a massive drop in the products that are made in America.

According to one economist, the country currently doesn't produce any television sets. Computer manufacturing in the U.S. employs about 166,000 people; in1975, it employed almost 300,000. Meanwhile, Asia's computer manufacturing sector has about 1.5 million workers and a single tech manufacturer, Foxconn, employs more than 800,000 people.   NOTE:  In a blog post dated October 23, 2010, I profiled Foxconn, the Chinese company that manufactures all of Apple's products: iPod, iPhone and iPad.   Foxconn is quite literally a gulag or slave labor camp, with corrupt management, lack of workers rights, and appalling work conditions that has led to a dozen worker suicides at one of its plants. Take this into account when you buy one of Job's magical devices.   

If the middle class is to rise to anything approaching its former power, American manufacturing must rebound. While the U.S. is still in the upper ranks of the world's largest consumers, its economy is rapidly slipping down on the global list. According to some economists, China's economy is on track to overtake the U.S. by 2040; ten years later, India will also outstrip America. Economic strength requires a strong manufacturing base, but while Asian countries are building theirs, America has slowly allowed its own base to starve.

In one of my most comprehensive blog posts dated July 10, 2011 titled, "The Root Causes of Today's High Unemployment Situation, And Why This May Not Change Anytime Soon", I identify three key job destruction forces:  

• Computerization - Faster computers, the internet, software productivity tools and applications).  
• Globalization - Outsourcing jobs to countries where labor is cheaper, especially NAFTA) 
• Industry consolidation - Mergers and acquisitions due to relaxation of deregulation, elimination of unionization and competititive forces) .  

I also identify the destruction of America's manufacturing base as one of the key reasons why America's unemployment rate continues to remain high.  

How well did some of Citigroup's 25 companies included in its Consumer Hourglass Theory do with the actual performance of the actual companies? According,  Stores Magazine's Top 10 retailers by total sales they were dead-on:

===================================================================

Wal-Mart - $307.73 billion, +0.6%

Kroger - $78.32 billion, +6.4%
Target -  $65.81 billion, +3.8%
Walgreen - $61.24 billion,  +6.3%
The Home Depot - $60.19 billion, +2.2%
Costco - $58.98 billion, +5.5%
CVS Caremark - $57.46 billion, +3.5%
Lowe’s - $48.17 billion,  +2.8%
Best Buy - $37.11 billion,  -0.4%
Sears Holdings - $35.62 billion, -2.2%

===================================================================

In conclusion, P&G and many other American consumer products manufacturer's are going to quickly realize (or have already realized) that structural changes in the American economy will permanently affect their business.  The middle class, the core customer base for many of these companies, has been destroyed to the point where their basic businesss models will have to be changed permanently.   

American manufacturer's cannot depend on the upper class to buy their goods.  Products, prices and package sizes will have to be rethought.   Upper class consumers can not fill the void left by the middle class.  The principal reason why I say this:  There simply are not enough upper class consumers to buy their products.  This is the main reason why many American manufacturer's are moving their production overseas to meet the new demand of growing economies like China, India, Brazil and Indonesia.  

The movement of production from the U.S. overseas will worsen the present unemployment situation, resulting in a further erosion of the middle class, making the destrution of the middle class complete. 

Courtesy of an article dated September 12, 2011 appearing in The Wall Street Journal, an article dated October 17, 2010 appearing in Daily Finance, an article dated October 12, 2010 appearing in Business Insider and an article dated July 18, 2011 appearing in Forbes

 

HOW DO YOU TURN YOUR CUSTOMERS INTO BRAND EVANGELISTS?

In order to get customers to advocate for your brand, you must exceed their expectations.

Achieving the buzz that product designers, brand managers, and business strategists so relentlessly chase isn’t easy. The key is in getting consumers to adopt and advocate a brand. But how do companies convince customers not only to use their products but to adopt their brands? What makes consumers advocate for a product and willingly accept and “own” it as part of their individual identities? How do you get people so revved up that they’re willing to slap a sticker on their car out of allegiance to the company, or tattoo their bodies with your brand, as Harley owners frequently do?

Adoption

Adoption goes well beyond trial and use, the objective of many product managers and marketers. If a consumer is going to become loyal to a brand, she has to be truly satisfied and impressed. To reach the adoption and advocacy threshold, a product or experience must surpass expectations, which happen to be growing more sophisticated and demanding over time -- on a monthly basis in some industries. Expectations are a tricky thing and can only be truly understood after first identifying the needs and aspirations of the target audience. Needs can be relatively easy to address by developing user benefits and ensuring that a product is useful. However, determining aspirations and fulfilling them is best accomplished by inquiry, observation, and translation.

A good shorthand rule I’ve learned is that only products that have true meaningful value for consumers hold the potential for rapid adoption. Meaningful value is a subjective thing, varying among individuals and groups, but it is generally based on having one’s needs or aspirations met, factoring in the value offered by alternative products and customers’ expectations about the future. This is not to say that people can always articulate their needs and aspirations, especially in areas of new technology, but an assessment of consumers’ ability and willingness to adopt must be gauged alongside their motivations for doing so and their expectations of how the market will look in the future. Because if "armchair expectations" are that 3-D TV prices will halve in 18 months, many will hold off on buying one, despite their desire to have one.

It is also important to remember the following about adoption:

• Both internal motivations (needs, aspirations, and idealized self-image) and external ones (concern over others’ perceptions and the universal need for social acceptance) are factors in whether a consumer falls in love with a product.
• Adoption is like high school: What really matters is what the cool kids think. Even in adulthood, popular and trusted tastemakers (e.g., celebrities) influence adoption and advocacy. The good news is that a bull's-eye hit with key influencers will reverberate through the widening circles, so long as the product maintains its credibility.
• When a product or experience enriches the intended user at every stage of interaction, emotional bonds are built, which lead to loyalty and brand relationships.

Advocacy

For a very long time, I’ve championed the belief that ultimately it’s not how you feel about a design or experience but how the design makes you feel about yourself, in large part because influencing how one feels after adopting a product is an essential component of the advocacy process. Adoption certainly precedes advocacy, but often the latter never materializes. Many who find a solution ideal for their lives fail to spread the news. Why?

Advocacy from a modern product or experience standpoint is like attaching one’s own brand to the discovery, which generally happens when a meaningful improvement or benefit is realized and the advocate wants to help others achieve the same discovery. Conversely, if a customer extremely disappointed, you’ll also get advocacy, in this case against the brand. Again, it is a function of expectations -- both disappointment and joy -- and, therefore, understanding and managing them is the underlying objective. To drive people to action and advocacy, expectation must often be shattered, not merely surpassed. Needs and aspirations again inform those expectations and should be the root of study. If you still have doubts, ask yourself why Southwest regularly tops airline satisfaction surveys over competitors who offer more dynamic levels of service. It has managed expectations and aligned them with service aspects that its customer base finds most valuable, which translates to satisfaction -- and often to advocacy. The reality is that on shorter routes, people are willing to forgo personalized service for a lower-priced ticket.

Southwest Airlines, Coca-Cola, Harley-Davidson, and Best Western have all achieved impressive levels of consumer adoption and advocacy by creating brands that are reliable and valued, and that convey a sense of community. These aspects provide the basis for leveraging advocacy, which each organization then encourages and supports through various programs and tools. Best Western, the world’s largest hotel chain, with more than 4,000 independent operators in 90 countries, is a leader in guest satisfaction for midscale hotels. Why? The success is due in large part to the time and energy spent discovering insights into what guests most desire, then training staff to exceed guests’ expectations in both service and room product. The hotel chain’s "I Care 2" guest-service program continues to increase customer satisfaction across North America. And when people feel understood, appreciated, and rewarded, advocacy is born.

Another reason why advocacy often fails to materialize is that adopters are insufficiently motivated to share. The most powerful motivations to do so derive from self-interest, mutual benefit, and altruism, and there are great examples of each driving advocacy. In my experience, personal benefits are the most motivating, and they don’t necessarily have to take tangible forms: By sharing, people may feel tremendously appreciated, especially knowledgeable, well-connected, or even heroic. Insights derived from people’s underlying motivations help to deliver advocacy.

Finally, for adopters to be truly willing to recommend a brand or experience, typically to people they care about, two things are required. First, there must be a strong level of emotional engagement, and second, they must feel their identification strongly represented or actualized (Does it complete me, or the "me" I wish I were?). Delivering these two aspects -- emotional engagement and identification -- can be the most reliable and straightforward way to compel advocacy.

COMMENTARY:  Here are a couple of brand absolutes:

1. Loyalty is absolutely driven by emotion.
2. Consumers are looking for emotional connections -- more than ever before. 

The 14th Annual Loyalty Leaders list gives the loyalty rankings for the 501 brands we assessed in 71 industry categories in the 2010 Brand Keys Customer Loyalty Engagement Index.  Did your favorite brands make the list? Brand Category Rankings       2010 2009 Apple iPhone Smart Phone 1 1 Samsung Wireless Handset 2 2 Wal-Mart Retail Store (Discount) 3 5 Grey Goose Vodka 4 6 Apple Computer 5 9 Hyundai Automotive 6 24 Amazon.com Online Books/Music 7 10 J. Crew Clothing Catalogue 8 11 Blackberry Smart Phone 9 4 Avis Car Rental 10 8 Google Search Engine 11 3 Mary Kay Cosmetics (Mass Merchandiser) 12 7 J. Crew Retail Store (Apparel) 13 23 Dunkin' Donuts Coffee 14 54 Bing Search Engine 15 NA Maybelline Cosmetics (Mass Merchandiser) 16 12 Ketel One Vodka 17 31 McDonald's Coffee 18 16 Estee Lauder Cosmetics (Luxury) 19 13 Mary Kay Moisturizing Skin Care (Mass Merchandiser) 20 17 Nokia Smart Phone 21 18 Clinique Cosmetics (Luxury) 22 19 Eucerin Moisturizing Skin Care (Mass Merchandiser) 23 26 Frosted Flakes Breakfast Cereal: Kids 24 29 3 Olives Vodka 25 89 Target Retail Store (Discount) 26 65 Avon Cosmetics (Mass Merchandiser) 27 80 Lancome Cosmetics (Luxury) 28 20 Sam's Club Retail store (Price Clubs) 29 NA Sanyo Wireless Handset 30 14 Estee Lauder Moisturizing Skin Care (Luxury) 31 22 L'Oreal Cosmetics (Mass Merchandiser) 32 25 Panasonic Wireless Handset 33 27 MSN Search Engine 34 28 Stolichnaya Vodka 35 32 Aveeno Moisturizing Skin Care (Mass Merchandiser) 36 30 Toyota Automotive 37 15 LG Wireless Handset 38 41 L'Oreal Moisturizing Skin Care (Mass Merchandiser) 39 34 Vaseline Moisturizing Skin Care (Mass Merchandiser) 40 35 Lancome Moisturizing Skin Care (Luxury) 41 33 BJ"s Retail Store (Price Clubs) 42 NA Sony Ericsson Wireless Handset 43 46 Kohl's Retail Store (Department) 44 53 Rain Vodka 45 36 Sam Adams Beer (Regular) 46 49 Covergirl Cosmetics (Mass Merchandiser) 47 45 W Hotel Hotel (Luxury) 48 38 Fairmont Hotel (Luxury) 49 51 Kodak Digital Point & Shoot Camera 50 37

Courtesy of an article dated June 23, 2011 appearing in Fast Company and the 14th Annual Loyalty Leaders for 2010 by Brand Keys