Moving Beyond Product and Price: Positioning to Win Through Intangible Assets

1. Moving Beyond Product and Price: Positioning to Win Through Intangible Assets Facilitated by Martin McLaughlinMosaic Partners llcmmclaughlin@mosaicpartners.com610.918.9171 October 1, 2004

2. Biggest Challenge? Competing against the Big Guys… But Growth of the Economy is on Our Shoulders

3. Who is doing this well today? How are they doing this? • Who is responsible for creating and managing value in your organization? Why is this important? • Once you have a customer relationship, how can you migrate and expand these relationships? • Well, it all depends on how you define what you do. • What is the impact on your business and revenue model?

4. What does Starbucks sell? What does Progressive Insurance sell? What does UPS sell? What does Home Depot sell? What does Mosaic Partners sell?

5. Starbucks aims to provide quality coffee in a relaxed atmosphere for those seeking a respite between home and work. The ambience and service is the same everywhere. This is the vaulted Starbucks Experience, an elusive halo that competitors desire, but have trouble duplicating. “It’s very easy to copy the superficiality of the brand; in other words, the look and feel of the store,” says Maslen. “The most important thing is how welcome people feel and the connection they make.”“It’s really a contradiction in terms – intimacy on a mass scale. But Starbucks is a very intimate brand.”

6. Read It Closely:“We don’t sell insurance anymore.Wesell speed.”Peter Lewis, Progressive

7. “UPS wants to take over the sweet spot in the endless loop of goods, information and capital that all the packages [it moves] represent.”ecompany.com/06.01 (E.g., UPS Logistics manages the logistics of 4.5M Ford vehicles, from 21 mfg. sites to 6,000 NA dealers)

8. Nardelli’s goal ($50B to $100B by 2005):“… move Home Depot beyond selling ‘goods’ to selling ‘home services.’ … He wants to capture home improvement dollars wherever and however they are spent.”E.g.: “house calls” (At-Home Service: $10B by ’05?) … “pros shops” (Pro Set) … “home project management” (Project Management System … “a deeper selling relationship”).Source: USA Today/06.14.2002

9. SEI INVESTMENTS HPCII Mosaic Partners = 1 Guy with the Change in my Pocket

10. Market Positioning at the Heart of Asset Investment • Customer-based perceptions • Price-to-value trade-off • Two broad positions • low cost • differentiated

11. “Customer’s Eyes” View x Differentiated Nordstrom 4 x Price Low Cost x Wal Mart 1 x Price Selection Quality Atmosphere Service Brand Value Positioning Analysis: Retail

12. Positioning Analysis: Internet Connectivity 2004 Nokia $46 Cable, Broadband AOL $23 Price NetZero Erols < $9 Community Experiences Access Content Value We live in constantly changing and intensely competitive markets We must constantly innovate and make tradeoffs

13. Positioning Analysis: Internet Connectivity Understanding consumers' gradual move towards collecting and storing experiences instead of goods (especially in mature economies), is crucial, whether you sell luxury handbags or manufacture cars. So how are you enabling your customers to make the experience last?

14. Good Offerings Ex-Andersen Focus on Needs of CMO Andersen Network Rosemont Marketing Exchange Existing Customers Opinion Series Positioning Analysis: Marketing Consulting Mosaic Partners Price “Customer’s Eyes” View x 4 x Differentiated Low Cost x 1 x Value

15. Physical and Financial Marketing Migration Customers, People, Brand, Processes, Relationships & Intellectual Property CustomerFocused Solutions UniqueCustomerExperience Quality Products Quality Services CommodityProduct / Service Mosaic Partners LLC TM Increases Decreases Number of Competitors Price Pressure and Margin Erosion Reliance on Market Data Make and Deliver Mindset

16. Migration PositionMeasureSolutions & SuccessExperiences Quality Services SatisfactionQuality Products Six-sigma Marketing Migration Measures Source: Tom Peters

17. Make the product Sell the product Design product Advertise/ promote Procure Make Price Sell Distribute Service Marketing Migration Outside-In View Traditional Physical Process Sequence (Product-centric vs Relationship-centric) OperationalFunctions Marketing Functions

18. Physical and Financial Marketing Migration Process Impact Customers, People, Brand, Processes, Relationships & Intellectual Property Market Migration • Communication - functional - cross functional - efficient and formal - effective and informal - guarded and one way - open and two way - set expectations - understand expectations • Branding - external and static - internal and dynamic - corporate and products - corporate and people - one to many - one to one - marketing shapes - everyone shapes • Customer Service - eliminate variation - orchestrate variation- transactional - relational - reactive and compromise - proactive and surprise

19. Intangible Value is Real Value Q: What is the value creation dynamic that is propelling the need for creative offerings in experiential marketing services? Cost of coffee bean when harvested = $0.50/lb. Value realized by Starbucks from selling cup of coffee = $230/lb.- AN INCREASE OF VALUE OF +46,000%. A: Because of their mastery of the experience economy and creating a holistic experiential marketing program.... Source: Pine and Gilmore

20. Intangible Value is Real Value Source: Pine and Gilmore Q: Why should retailers create theme-park like environments in their stores? A: Toys 'R Us knows. Their 110,000 sq. ft. flagship store in Time Square has become the destination for thrill seekers, make-believe princesses and Jurassic fans of all ages. The store boasts a working 60-ft. Ferris wheel, a two-story Barbie doll house, and a five-ton, 20 ft. high, 34-ft. long animatronic T-Rex dinosaur. John Eyler, Chairman of Toys 'R Us, said: "How do you compete with something like Wal-Mart? Our strategy is to make a store that is visually exciting, one that sells concepts and ideas instead of just boxes on a shelf. For years people have talked about the idea of retailment, which is about bringing theater and drama to retailing, but there are hardly any examples." - New York Times 2-17-02OVER 30,000,0000 PEOPLE HAVE VISITED THIS STORE IN ITS FIRST YEAR!

21. Impact of New Economy on Marketing – Richness and Reach • Years to reach 50 million users: • Radio, 38 years • TV, 13 years • Cable, 10 years • Internet, 5 years • Hotmail, 1 year • iTunes • First 25 million downloads in 8 months • Next 25 million downloads in 4 months • Continuing 2.5 million downloads per week • Why is this important in migrating from product and price? • Impact on the building/destroying brand and relationships? • Impact on the customer experience? • Markets as conversations!!!!

22. CGE&Y (Paul Cole):“Pleasant Transaction” vs.“Systemic Opportunity.”“Better job of what we do today” vs.“Re-think overall enterprise strategy.” Marketing Migration End Game

23. Marketing Migration Measures “The Loyalty Effect” Example: Why is Customer Retention so Important? Customer Experience Cycle Referrals: Over 60% of sales may result from referrals. Conversely, the average dissatisfied customer will tell 10 others about their bad experience. Increased Purchases: Over 40% of highly satisfied customers increase their purchases based upon their positive experience. First Time Repeat Advocate Loyalty Effect = Acquisition Cost - Price Premium -Reduced Cost to Serve - Referrals - Increased Purchases Acquisition Cost: It costs five times more to attract a new customer than to retain an old customer. Price Premium: High customer satisfaction companies charge 9 percent more than poor customer satisfaction companies. Reduced Cost to Serve: In the insurance industry, a 5% increase in customer retention lowers the cost per policy by 18%.

24. Events Relationship Value-In-Use Marketing Migration Measures Understanding Your Customers on Multiple Levels Internal Statistics External Sources CustomerFeedback • Measure at or immediately after customer contact • Defects or Rejects • On-time Delivery • Error Free Orders • Benchmarking? • Customer Complaints • Customer Compliments • Measure relationship across a series of contacts • Length of Relations • Repeat Purchases • Share of Wallet? • Acquisition / Defection Matrix? • Attribute Performance • Attribute Importance(interviews/surveys) • Measure value added to customer’s activities • Competitive Value Exchange • Structured Observation or Site Visits

25. Our Methodology. Create Value Delivering SolutionsThat Matterto Your Customers Articulate Brand Strategy to Employees and Customers Assess Customersand Markets CommunicateValue DeliverValue Mosaic Partners LLC TM Align the Organization andProcesses Around Customers

26. Our Process. • Understand needs of your Best Customers – Think Solutions, NOT Products! • Clearly Define Your Value Proposition within Your Defined Ecosystem! • Un-bundle Your Value – both Tangible and Intangible! • Re-bundle around the Personal / Intimate Needs of Your Customers, Business Partners, Channels, and Ecosystem! • Monetize Your Intangible Assets! Decide where do you need to Invest to Strengthen the Intangible Side of Your Balance Sheet? Focus on the customers’ problems, not your current offerings! Create Value

27. Our Process. • Define the Solutions / Experience that You Want to Create for Your Customers? How can you help Your Customers Create an Experience for Their Customers? • Understand that Solutions will require you to Partner with other solutions providers – Build and Nurture Your Business Ecosystem! • Understand that Ecosystems Don’t Respond Well to Protectionism (within limits)! Challenge, Test, Push, Expand, Invade the Value of Your Ecosystem to Ensue Long-Term Health! • Make it Easy for Your Customers to do Business with You and Your Business Partners! Welcome Your Customer to Your Ecosystems “Roach Motel!” Develop processes that make it easy for customers to do business with you! DeliverValue

28. Our Process. • Develop Your “Burger King” Story! What you advertise, what you sell, and how you make money are 3 different things! • Focus on Internal Branding! You and Your People are the best Communication Vehicle! Can everyone clearly communicate who you are, what you do, and how you are different? • Everything Communicates! Add Value in Every Conversation – It Will Come Back to You…Even If It Takes A Year! • Don’t Make People Guess how they can Help You! Develop a brand strategy that clearly defines who you are, what you do and how you are different! CommunicateValue

29. In Summary. • Sustainable growth is not about products! • Value is migrating from products to solutions and experience! • Solutions and experiences are customer dependent! • Value can’t be applied evenly across all customers! • Value must be created for customers, business partners, ecosystem participants, etc. • You can’t do it all, so partner (build ecosystem) to create value through solutions! • Unbundle your value! • Understand the personal/ intimate needs of your customers! • Rebundle your value! • Invest in your intangible value (assuming your product is good)! • Focus on internal branding where all employees can communicate (with passion) who you are, what you do, and how you are different! • Think about the relationship – even when closing on a transaction!