Corporate social responsibility is always an interesting, thought-provoking topic of discussion. Especially the ecological part has been subject to intense discussion over the last few years, for reasons that include global warming, environmental deterioration and, yes, new opportunities for business and improved profit margins. When discussing ecological initiatives and marketing, green marketing is the word that is most commonly used. In my opinions, one of the most interesting topics in green marketing is environmentally friendly products and the competitive advantage they may or may not yield.

Most companies that are even somewhat up-to-date have some form of eco labels, brands or at least ecological products in their portfolio. Nokia has a few phones with green packaging and a few eco-efficient features, for example. Electricity providers around the world offer the possibility to buy only electricity that is generated from renewable energy sources. Some companies are even founded on the principle of producing only environmentally friendly products or services, such as outdoor gear manufacturer Patagonia.

Having ecological products in your portfolio should be a no-brainer. They usually improve your image, or at the very least do not harm it. Importantly, according to surveys ecological products are also favored by consumers, meaning most consumers would prefer an environmentally friendly product over a ‘normal’ product. Why, then, aren’t all products environmentally friendly? Why are environmentally friendly products rarely major successes? Well, there are, as always, multiple reasons.

One example of a failed eco-product would be Nokia’s first lunge at the eco-product market: Nokia 3110 Evolve. The device was similar to the fairly popular 3110 except greener. What went wrong? Price. It was around 20-30% more expensive than the regular model. The thing marketers often fail to understand about green products is that no matter what the surveys say, consumers are unlikely to compromise on traditional product attributes such convenience, availability, or as in this case, price. It should be noted, however, that consumers may be willing to compromise on other attributes a bit, but the more the consumer is expected to compromise, the less appealing the product is.

Besides the degree of compromise, the other major factor affecting the consumer’s purchase decision on green products is the perception of how much of a sustainability impact the product in question has. In Nokia’s case, along with the complaints about the high price, the 3110 Evolve was repeatedly criticized for the lack of actual sustainable design – the effort was just not considered good enough.

The aforementioned are often the two most critical factors that determine whether a green product will be popular or not: the degree of compromise and the degree of confidence. The higher the consumers’ degree of confidence in a product is, the higher the degree of compromise will be. But, what further complicates matters is that most of the time perceptions of degrees of confidence and compromise fluctuate a lot, even among individual consumers. People simply have different perceptions of how much of an impact different products have (environmentally speaking), and how much they will have to compromise in order to make the ecological decision.

So how to succeed in the launch of a green product? First, make sure you actually have a good product; that all the other attributes are up to par. Second, make sure you communicate the value your product offers properly; if it does have a significantly lower carbon footprint and you want to market a green product, be clear about it. These tenets are not too different from those of a regular product, but for some reason managers continue to fail to understand them. To understand just these two very basic ideas will get you started with green marketing.

Selling the by-products caused by your production processes is a fairly recent practice; previously nearly all by-products were considered junk, and were hauled directly to landfills, or at best, to recycling centers. With the rise of environmentalism, however, companies became more worried about their waste treatment practices, and started to look for smarter ways of disposing their trash to cut costs and follow tightening regulations. Many realized that they can actually make profit with their waste disposal – by selling the waste. The problem was, and often still is, how to price your by-products.

One challenge that is quite common for all pricing is that you really need to understand your customers i.e. the ones you are selling your products/services to. You need to understand, for instance, why they would want such and such products/services, what kinds of attributes they appreciate, and how much they are willing to pay for the product/service and the attributes. With by-products you get all this in addition to the problem of selling to a market you are not likely not particularly familiar with. What most companies end up doing is just trying a few different prices and just set the price so that everything gets sold but the process remains profitable. In other words, by-product pricing most often at the end aims at reducing your production costs.

While it may often be smart to just set the price to a profitable level, it may sometimes pay off to look for other options. A company might look for alternative use for its by-products, perhaps by industries or companies that would be willing to pay more for the by-product. The oil industry, for example, generates quite a valuable by-product in ultra refined petroleum that can be utilized in manufacturing plastics, cosmetics, and fertilizers among other things. So in addition to the already-lucrative margins that oil companies are enjoying, they also have the opportunity to charge decent prices on their by-products. Another possibility to enhance your by-product profitability is to establish ecological industrial clusters with industries that can utilize your by-products or whose by-products you can utilize. For example, a brewery produces lots of organic waste that can be used as feed for pig farms, and so on. There are several examples of such clusters; these companies eliminate both the logistics costs of moving this waste and gaining revenues for their waste.

By-product pricing may be only a small part of operating costs, but in today’s world of increasing competition and decreasing margins, it is something to consider; especially when most companies still are not making full use of it.

Experts often cite market share as possibly the most important marketing metric for measuring marketing performance; it’s an external metric, which gives you information on how well your company is doing with regards to competition. Externality is the key term here; while giving you information on the success of your marketing activities, it also serves as an automatic benchmarking tool. Internal metrics such as sales volume, return on investment (ROI), customer lifetime value (CLV) are good, easy-to-interpret metrics, but they do not tell you how well you are doing compared to competition. This is what makes internal metrics, especially when not complemented with external metrics, somewhat deceptive. Not being aware of what goes on with the competition can be fatal for a company in the medium-to-long term.

Aside from market share, professionals often talk about the importance of customer metrics, such as CLV. And with good reason: as I’ve repeatedly pointed out, the companies that do well are often the ones who keep customers their top priority. Regardless, most customer metrics still do not tell anything about how your industry in general is doing, that is, customer metrics are not relative. What does a respectable CLV matter if the competition does it even better? It simply means you will sooner or later be ousted by the competition.

Naturally, it should be kept in mind that other metrics are needed to complement market share or whatever your favorite metric is; marketing metrics are not meant to be used exclusively. It should go without saying that revenues and profit margins need to be tracked as well, simply because failing to remain profitable, for example, is a certain recipe for bankruptcy. What’s market share good for if does not yield any profit? I guess the lesson to be learned here is that some metrics are more important than others, but it is up to you to determine which are the most important for your business and why. Remember to keep track of your market share and profitability though.

Perhaps the most well-known BoP business model is microfinance, where banks provide very small loans and other banking services to customers who otherwise do not have access to such services (due to employment situation, credit history etc.). Microfinance is especially widespread in the Southeast Asia region, with the Bangladesh-based Grameen Bank (www.grameen-info.org) being the most famous example. Grameen Bank is first and foremost a B2C bank, and is the only business corporation that has been awarded a Nobel Prize.

Another B2C example of doing business in BoP markets would be Finland’s Nokia, which already has claimed huge market shares in several emerging markets and is constantly doing research in BoP markets, as well as adding services such as email to cheaper mobile phones too. Currently Nokia holds an approximately 65% market share in India, which equals to good business presently, and makes the future look all the more brighter. The B2C opportunies are endless, ranging from different leasing services to selling mini-refrigerators or cheap, resource-efficient sanitary systems – all at modest prices but still making profit. An additional bonus for corporations for engaging in responsible BoP programs is the improvement of reputation – companies such as GE contribute to community building in various parts of the world, gaining goodwill in the process. Still, coming up with business models that remain profitable in BoP markets has been a challenge thus far, as is evidenced by the number of companies that have actually been successful at operating in that environment.

In B2B markets, the opportunities are more straightforward, but practices range from responsible to dubious. Especially manufacturing companies have known how to take advantage of the low wage-levels and production costs in developing countries for decades now. Ranging from heavy industries (e.g. aluminum-giant Alcoa) to manufacturers of consumer products such as Nike or Ikea, the economic benefits of outsourcing production to emerging markets have not gone unnoticed. However, goodwill rarely follows as a side product due to the inconsistence of business practices in different organizations, independent manufacturers and even on national levels. The aforementioned Nike and Ikea have experienced this in the past, and nowadays employ rigorous tracking and audit systems for their operations in B2C BoP markets, and still reputation tarnishes easily. Regardless, in most businesses that include manufacturing, operating in BoP markets remains economically profitable, even after all the repercussions.

Regardless of the problems relating to operating in BoP markets, both in B2B and B2C, the fact remains that for Western companies to remain on top of the business world, more and more successful venture into those markets are needed. These are markets that are constantly developing, and gaining a positive image there in an early phase may be critical in the long run. And, as more people rise from poverty, companies continue to have more potential customers and employees. To create and maintain an image that helps a company to be perceived positively in these markets is a challenge that pertains to companies that want to stay in business in the foreseeable future.

So what was behind the success of Apple Stores, aside from a well designed concept and their products? Of course Apple had a bunch of dedicated cult followers back then (early 00’s) already, a cult following alone does not mean mass appeal. A big reason is the buying experience that an Apple Store offers to consumers. Apple Stores are pleasant looking both from outside (see picture) and inside, and not only that, but they actually look like the brand. But what’s more important is the atmosphere and how the products are laid out: they are arranged based on people’s interests, not product categories like in traditional retail outlets. What’s also important, and interesting, is that Apple Stores often have personnel who are not even allowed to sell anything; they’re there just to assist and instruct the customer.

It’s an interesting development in retailing, really. In the days past self service was not even heard of; the clerk had absolute power over the store he/she was supervising. Then came self service, yet the clerk was still there to collect the money from your purchases, and of course to provide you with that much-needed personal interaction. But is this personal interaction at the cash register really meaningful, or even valuable, for the customer? Apple has successfully made personal interaction as a meaningful part of the purchasing experience by having people around who are there to help the customer, not to sell. Ikea does the same. Some grocery stores are moving towards self service cashiers (commonplace in America), preferring to serve the customer at the actual point of acquisition (when the customer picks up the product). It all boils down to offering the customer the best buying experience possible.

For the customer to have an enjoyable buying experience or even just an enjoyable experience at a given store is invaluable for a company. This is what keeps customers coming back to their stores. This is also what companies hope will generate additional revenue; Apple for instance surely hopes Apple Store visitors will be impressed enough to visit their online store in the future. And looking at Apple’s success in both retail outlets and online shopping, they must be doing some things better than most. Their approach to consumer buying experience is something for companies to think about.

During the lecture concerning product development, a few different perspectives to new offering development were introduced (e.g. technology perspective and Kotler’s marketing perspective). While they are useful frameworks for product development processes (not quite utilized by HK with Potku), they lack what is in my opinion one of the key factors in today’s environment: the customer. The customer’s part in product development should not be overlooked today, as many of the most successful companies develop products in cooperation with their customers. This is especially common in B2B markets, but increasingly common in B2C as well. The concept of designing products and offerings together with the customers and perhaps other stakeholders as well is known as co-creation, a term that was originally introduced by C.K. Pralahad and Venkat Ramaswamy in the early 2000s.

As companies are slowly turning towards a more customer-oriented direction, elements of co-creation are turning up more and more. In B2B, co-creation is business as usual especially in some of the more successful companies. An example from software business would be Finnish developer Futuremark, who, when developing new products, always at first converse with their key clients about the problems they have and possible solutions that Futuremark might be able to come up with. Prime examples of B2C co-creation would be Linux, which is based on user-generated content or Counter-Strike, originally a fan-created mod for the legendary first person shooter Half-Life, which subsequently became a phenomenon in its own right. Finnish jewelry maker Kalevala is another example from B2C, as they give their fans opportunities to influence which product- and product line concepts become reality.

At best, co-creation enables products and services that are perfectly tailored for the customer’s wants and needs, and what more could a customer want? Co-creation can and should be utilized in almost any type of business, ranging from software to industrial projects to staples. It is important to keep in mind however, that the customer must be truly able to participate in the development process in order for it to yield the best possible results. If customers are paid a lot attention, wonderful, industry-shifting new ideas may spring: the afore-mentioned Marioff’s HI-FOG® water mist fire protection system is a prime example.

More on co-creation:

http://blog.ogilvypr.com/2009/08/co-creation-grows-into-a-viable-business-model/

http://www.customerthink.com/blog/how_customer_co_creation_is_the_future_of_business

http://www.youtube.com/watch?v=TewISI76cKI

Quite recently my trusty Creative MicroPhoto 8GB mp3-player moved to happier hunting grounds after several years of faithful service. Since I want to keep my mp3-player and my phone as separate entities (due to various issues such as battery life, sports etc.), I quickly found myself taking a closer look at what the mp3-player market had to offer in the 8GB range. Now, as this was a fairly high-involvement purchase (price, emotional involvement) I never even thought of just walking into a store and asking for a salesperson to assist me, but instead I browsed through the wonderful world of Internet in search for the perfect replacement.

You can probably guess which brand turned up most often. Yes, Apple, and in particular the Apple iPod Nano, which combines a conveniently sized sleek-looking device with the trademark Apple usability (well, most people find Apple devices easy to use). At 150€ (at the time)! I quickly browsed through some reviews and found Sandisk’s Sansa Fuze to actually surpass the iPod Nano in sound quality and to be otherwise practically identical, and it was available at just 70€. I’m guessing Sandisk’s (best known for its memory sticks etc.) brand equity is quite low so they probably don’t have much of a markup in that price, but it does demonstrate Apple’s brand equity. I mean, sure, you know the devices are good and fairly reliable, somewhat trendy in some circles and have a great software service along with several different peripheral devices. Apparently these things mean much to a lot of people since the Nano’s doubtless outsold the Fuze by a country mile. Still, Apple’s amazingly high brand equity remains a mystery to me. It’ll be interesting to see how long Apple can continue to charge such premiums.

Now, as Apple’s such a worn out example, there’s another one I like to bring up when discussing brand equity: the cosmetics industry. High-end skincare products from brands such as Biotherm, Dior and Shiseido have some pretty amazing margins (several hundred percent in some products) even though in clinical tests their cheaper counterparts such as Nivea and L’Oreal fare just as well (as an example, Biotherm’s facial moisturizer is priced around 40-50€, while Nivea’s similar product is usually priced between 5€ and 10€). Again, it is the perceived value that the premium brands have; people are afraid of ageing and skin damage so much that they are willing to invest in higher priced products, because the higher price effectively communicates higher quality, which is essential when it comes to preventing ageing, for example.

The examples above illustrate just how important building a strong can be for a company in terms of profitability. With a strong, respected brand, brand equity can grow to downright ridiculous proportions, especially if you stop to think for a moment. Just keep in mind that a strong brand is not built with just top-notch advertising campaigns.

Marioff’s story is very Finnish, in good and bad. Their key innovation is a prime example of advanced, high quality Finnish engineering put to good use. These types of innovations are few and far between; an innovation needs to be truly revolutionary to enable such market dominance as with Marioff. Interestingly, it was not Marioff’s own idea to utilize their technology in fire protection; the idea came from a customer who wanted more efficient fire protection systems in their ships, and thought Marioff’s technology might be suitable. Nevertheless, Marioff’s management saw the opportunity and grabbed it, leading them to become a market leader. Excellent job there, I wish all Finnish companies would be as eager to make good decisions.

So what’s wrong with this picture then? Marioff is doing well and they have an amazing product that really helps their customers and a good deal of their stakeholders too (their system makes for safer ship cruises, takes better care of valuable art collections and is not harmful to the environment). Well, one thing that really sparked my suspicion was that even though they have an amazing solution, they have only recently really started expanding to other markets than just ships. Seems like they’ve been playing a bit too safe for the past decade or so, in that respect.

Marioff’s slow expansion has made me wonder, what if Marioff had, say, 4 or 5 international competitors with more or less identical products (this may well be the situation in the not-so-distant future)? That is the kind of environment most companies have to operate in. What would separate Marioff from its competitors? I’ve seen a few presentations and followed them in the media for a while, and I honestly can’t tell. And that’s the whole point of this entry. It seems as if in Finland, so long as a company has an exclusive, unquestionably superior technology, it remains successful. But in a more traditional business setting Finnish companies have trouble thriving.

Looking at the pace at which information and technology are spreading today, it would be wise for companies to invest more in understanding their customers and to delivering their customers the best possible value no matter what the environment. That is what sets companies apart from their competitors in the long run. Does that apply to Marioff? Hard to tell now, but perhaps time will tell.

-Jukka

PS. Here’s a video of Marioff’s system in action…too bad there’s no fire in this one

http://www.youtube.com/watch?v=RvIAp2J7JO0

The first thing that comes to mind is how often this quote gets awfully misunderstood; that companies should mainly/only concentrate on designing high quality, technically advanced products with great features, and to do that a company needs to acquire the best technological knowhow in the market. Nevermind the rest, as long as we have a product that has better features than our competitors’ products, we’re in business. Sound familiar? This has been a painfully persistent philosophy among Finnish top management for a long time. And at times, it hasn’t been the worst of philosophies; in fact even today it’s not THE worst. However, looking at the excellent technical and technological knowhow we have in Finland, why is it we only have a few stories that can be considered worldwide successes? Indeed, it is not so much about the technical qualities of a product/service but about understanding what sort of qualities your customers need and appreciate.

Understanding your customers is what Peter Drucker is in fact emphasizing in his quote. And that is something that many, many companies still seem to forget. Nokia’s phones are technologically more advanced than Apple’s phones, but Apple seems to be light years ahead of Nokia in understanding its customers. Sometimes understanding your customers might mean being the most advanced technologically: Genelec, the Iisalmi-based manufacturer of active loudspeakers, has attained a strong position in its niche by providing its customers the best sound quality available. In Genelec’s case its customers actually appreciate high quality over everything else. In Nokia’s that doesn’t seem to be the case.

Understading your customers, as Peter Drucker has said, is perhaps the most important single element in today’s marketing. The better you understand your customer, the better you are prepared to offer them what they want and what they are ready to pay you for. Understanding your customers should be any company’s number one aim. This is something that will be reflected in the way most of this course’s topics will be dealt, and perhaps the one thing any student should memorize from this course.

-Jukka