What Tech Startups Can Learn From Consumer Goods Companies
Upon arriving San Francisco earlier this year, I quickly realized that technology startups have vastly different marketing strategies than the consumer goods brands I worked with for 8 years at Procter & Gamble and Unilever. And by different marketing strategy, I mean that most startups don’t have one.
In the startup scene, it’s all about product, product, product. Marketing, is an afterthought at best.
The predominant belief is that the best products will gain customer traction and win the market through word-of-mouth alone. While this is true for a rare few, this is not the average case. The belief that a good product can sell and distribute itself is a major fallacy, and companies who hang onto this belief will likely fail.
Coming from a fast-moving consumer goods background where many of the products we sold are indistinguishable from direct competitors, I did not have the luxury of letting my products sell themselves. I needed to manufacture demand for my products and establish brand equity in my consumers’ minds.
Most consumer products exist in well-established categories where their purpose and benefits are easily understood by most people. We know what toilet paper does. Therefore, the marketing goal is straightforward: Differentiate yourself from the competition.
Lighter, softer, and 3x stronger that the competing brand!
Ultra Strong & Ultra Soft!
6 rolls of Charmin = 12 rolls of the ordinary paper!
On the contrary, tech startups operate in new, abstract environments. A product’s market or its real world applications are often undeveloped or not yet defined; as a result, the concepts are more challenging to communicate to the average customer.
With this challenge comes a larger responsibility to rigorously study and refine the target market, and educate them on the product’s main purpose and benefits. How does this product fit into your customer’s life? What problems does it solve? Without a well-defined marketing strategy to develop the brand’s positioning in the minds of the consumer, the messaging and the potential customer will be lost.
Tech startups require a robust marketing strategy to address two main marketing challenges: Make the product relevant to its target customers (define the“Who”), and build brand awareness while securing a leadership position in the space (“Brand Building”).
“A brand is the set of expectations, memories, stories and relationships that, taken together, account for a consumer’s decision to choose one product or service over another. If the consumer (whether it’s a business, a buyer, a voter or a donor) doesn’t pay a premium, make a selection or spread the word, then no brand value exists for that consumer.”
Marketing is paramount to the success of the major consumer goods companies. The combined market cap of Procter & Gamble and Unilever is over $350 billion and their annual ad spend is in the billions. They invest the majority of their time refining their marketing strategies and have done so since the mid-1800’s! (As opposed to the mid 1990’s with internet startups).
A lot can be learned from consumer goods companies when developing a brand or product’s marketing strategy. Here are a few tips on getting yours started:
- Always start by outlining your brand’s goals, both (i) business goals and (ii) marketing goals. Business goals are revenue or profit targets bound within a timeframe, e.g. to be a $1 Mil revenue business by 2020 / or within 5 years. Marketing goals relate to everything you need to do to acquire new users and sales to achieve your business goal — e.g. build brand awareness (get people to think of your brand next time the need for your product/ service category arises), build trial and sign-ups (get people to try your brand for the first time), build repeat purchase & loyalty (get people to choose your brand again, and to talk to others about it). Another way of looking at your marketing goals is to link them to business opportunities, which can be categorized into 3 groups: 1) getting more people to buy (build penetration), 2) getting people to buy more (build repeat purchase), and 3) getting people to pay more for (trade up to premium products).
- Understand your market thoroughly. What’s the size of the market today? How fast is it growing? Which customer segment is the largest? Which segment is driving market growth?
- Understand your target users & target audience. Build a deep understanding of your target customer — their habits, behaviors and attitudes towards the category, their motivations or barriers to trying or purchasing your product. Also, understand how they consume media, and the types of messaging, language, and stimuli to which they respond best.
- Build an extraordinary product and continue to maintain functional superiority over competition through constant innovation.Test market your product (and future versions of it) consistently. Seek feedback proactively, and pay special attention to users’ unsolicited, first reactions and body language. Consumers don’t usually articulate their real feelings. You can do this by running user focus groups that are recorded. Using survey products like SurveyMonkey, Wufoo, and Google Forms are also simple ways to generate immediate feedback from customers.
- Build your Marketing Mix (the 6Ps), and have KPIs for each.
(i) Proposition:
Determine your product’s unique selling proposition or value proposition. What does your product promise to deliver to consumers? What makes it special versus other competitor products?
(ii) Product:
Determine all the features, specs and technology required to delivering the best product experience to your consumers. Your product must deliver or over deliver on consumers’ expectations.
(iii) Packaging:
In the case of tech startups, packaging as consumers’ first point of interaction with the brand — i.e. your website’s landing page. Packaging is also the messaging that can be consistent across all customer segments or tailored for different segments. A/B test different headlines, link copy and other CTA (call-to-action).
It is interesting to me how many startups overlook internationalization. Consumer goods would almost never consider putting English packaging in a Vietnamese store, or Vietnamese packing in an English store. Consider internationalization for different users coming from different geographies or who have their browser set to a foreign language.
(iv) Price:
Many factors need to be considered when determining your product’s pricing strategy. First it’s important to understand the market price and determine whether you want to position your product above, at or below the market price.
If it is a new market, like it often is for a tech startup, the challenge is often pricing the product too low and missing revenue opportunities since there isn’t a benchmark already in the market.
“People tend to be clueless about prices. Contrary to economic theory, we don’t really decide between A and B by consulting our invisible price tags and purchasing the one that yields the higher utility, he says. We make do with guesstimates and a vague recollection of what things are “supposed to cost.”
— William Poundstone, Priceless: The Myth of Fair Value
Pricing is a complex exercise for a new product & market, and warrants its own blog post.
(v) Promotion:
Determine the right marketing activities & channels you want to invest in, and how you will allocate your marketing budget and resources. Consumer goods companies spend billions in traditional ad channels like radio, television and print media, but this is changing rapidly with the advent of the internet and more specifically, social networking. Social profiles where consumers self report their personal preferences and purchasing habits (both explicitly and implicitly) are incredibly valuable marketing tools.
Advertising tools like Google Adwords, Facebook, Twitter and Pinterest yield far superior results when acquiring customers, but traditional media is still powerful when establishing brand equity. Ad re-targeting where internet advertisements can resurface and repeatedly advertise based on a consumer’s past actions has proven very effective.
(vi) Placement:
Determine where and how you want your product to be distributed; clearly identify your sales channels & partners. Understand their motivations and what you need to do to incentivize them to give you the best visibility possible among your target.
Tech startups face a lot of unique challenges when it comes to messaging, pricing and understanding their core customer demographic. They can learn a lot from the likes of P&G, Unilever, Coca-Cola, Nestle and Nike who have spent billions of dollars over the last century understanding their customers, establishing powerful and unique brand identities, and refining their offerings to best position themselves for market success.
In general, tech startups should consider their marketing strategy much earlier in the lifetime of the company. Often, the exercises they perform to better understand their customers will elucidate the aspects of their product they should focus on and where they should double-down on their messaging to customers.
In a space obsessed with “product-market” fit, it’s surprising just how many startups consider their marketing strategy an afterthought.