31 October 2013

Internet industrially - doping for competitiveness

I got to know industrial automation in the late 1980s, when we developed software and interface modules based on Bitbus distributed control standard to connect sensors and actuators. In mid 1990s, I was leading another company, which created and sold one of the first machine-to-machine (M2M) solutions based on wireless communications. This fuelled the view that this area will generate great business - but, as is often the case, slower than we imagined at the time.

In retrospect, it can be understood why in the 1990s there was no premises for the emergence of major businesses:
  • Availability and use of sensors were limited and the prices were high: for example, our proprietary GPS tracking solution cost hundreds of dollars per unit
  • IP technologies and wireless communications were not yet sufficiently developed: for example, we had to use wireless SMS and a proprietary protocol built on top of it to communicate with smart devices 
  • Data storage and processing methods were immature: our solution was a typical client-server solution with proprietary applications
  • Ability and willingness of firms to use networked solutions for optimising operations was limited: in most cases, solutions were customised, and thus it was not possible to scale business
The situation is radically changing. The Internet and other new technologies open up a world of new business opportunities. This post outlines the opportunities from manufacturing industry point of view, focusing on companies´ product sales and customer relationships. Benefits, relating to e.g. company's own internal decision-making or improvement of internal efficiency, are not discussed here in detail.

Manufacturing industries meet the Internet

The physical world is becoming an information system. This change is referred to as the Internet of Things (IoT), sensor revolution or programmed world, among others. GE calls it the Industrial Internet. Regardless of the naming, sensors and actuators embedded in physical objects - from roadways to pacemakers - are linked through wired and wireless networks, which often (but not always) use the same Internet Protocol (IP) as the Internet. Vast amounts of data are sent through these networks to computers for analysis and the results are further submitted to users in an easily readable format.

There are number of factors driving the development, such as:
  • Availability of various types of sensors, growth of sensor use and sharply declining prices, caused by e.g. consumer product volumes and advances in material technologies
  • Development and standardisation of wireless communications technologies, such as 3G, WiFi, BT Smart and RFID
  • Development of Big Data storage and analysis technologies, especially driven by needs of consumer Internet services
  • Companies with strong interest in business model development and operations optimisation, based on realised benefits derived from the use of Internet tools
The core of the IoT is to use analytics for process automation, performance optimisation and downtime elimination, as well as to predict when a machine or component will fail. For industrial companies, this may indicate a threat or an opportunity. The threat is that the value of products will migrate to software, provided by other companies, thus endangering profitability of traditional product companies. A more sensible approach is to see the opportunities; in parallel with securing current product business, new value adding Industrial Internet offerings need to be developed.

The Industrial Internet is expected to see tremendous growth. Wikibon says that last year $ 20 billion were used in IoT technologies and the forecast for 2020 is $ 514 billion. Similarly, the Industrial Internet generated last year value of $ 23 billion, and in 2020 it is projected to reach $ 1279 billion. Looking this from another perspective, the Internet today is connected to a little more than 10 billion units. By 2020, the figure is 30 to 75 billion, depending on who is the predictor. The IoT is the biggest growth driver.

Regardless of whether above projections will be realised or not, huge business opportunities will be opening up. The key is to use existing and potential customer relationships and to create new solutions that are exploiting the Industrial Internet. This will also build competitive barriers against cheap equipment suppliers and create opportunities to maintain and further develop company's manufacturing competitiveness.

Business models for the Industrial Internet

To realise the potential of the IoT requires, besides new technology skills, also new business skills related to the Internet and its business models. This section first discusses various options for company business development and then presents four models of how the Industrial Internet can be used by a manufacturing company.

Development options

In principle, a company can develop both technical and business aspects of Industrial Internet solutions in-house, only recruiting necessary additional skills, if needed. Possible challenges here are the old models of thinking and the legacy in building new competences - the company makes too little and too late. Often used solution is to establish internal incubators, organised separate from day-to-day businesses. The incubators are able to develop and test new ideas before they are transferred to the responsibility of mainstream businesses. For example, Bosch has set up three innovation clusters: connected mobility, connected energy and connected building.

Capability building together with partners is a very viable option. Partners may be universities, research institutes and other companies. Especially with the latter, there are many models where traditional rivalry may in some areas be complemented with tight collaboration.

Mobile operators that are very active in the M2M space as solution providers, are natural partners among larger companies. Other prominent players include such companies as Cisco and Ericsson in communications, Intel in micro chips as well as IBM in software and services. Correspondingly, also the big Industrial Internet players are seeking cooperation. GE has made a substantial investment in EMC / VMware spin-off, Pivotal, a company that builds Big Data solutions. In the same area, GE has also announced collaboration with Amazon.

As in the development of the Internet in the past 20 years, startups are going to be a very important source of new ideas and innovation. Cooperation with startups can be anything from using their solutions to acquiring a startup. In this area too, GE has been very active by setting up a base in Silicon Valley and by kicking off a number of cooperation activities with startups.

There are plenty of startups working with sensors, Big Data and M2M, just to name a few. Besides sensor technologies and solutions, startups are also launching solutions to gather and aggregate sensor generated data. Storage, analysis and presentation of Big Data has spawned a number of new entrepreneurs. The traditional model of M2M startups has been seeking cooperation with mobile operators, but also other models are already being introduced in the market.

Improving product competitiveness

Improving competitiveness of a company´s products by increasing their life cycle revenues or by reducing their life cycle costs is probably the most common way to take advantage of the Industrial Internet. For customers this is realised through various value-adding services that are either a core part to utilise the product or supporting the product very strongly in some other way.

A good example is GE that embeds smart sensors in the jet engines and takes advantage of terabytes of data generated to optimise aircraft performance and the ways the engines are maintained. Konecranes TRUCONNECT services, on the other hand, contribute to crane safety, optimise maintenance costs and predict the needs of modernisation. An finally, Vesta support services assist customers to define optimal locations for windmills.

New business

It is also possible to build a completely new, independent business. Typical products are consisting of software that solve specific customer problems. Software may be able to control only the equipment provided by the firm, but it is often advantageous to create interfaces to other vendors´ products, too. In particular, for start-ups and businesses that account for only relatively small part of customer's installed base, this is often the only sensible strategy.

Bosch software products promise to integrate equipment with customers' business processes - equipment can be sourced from numerous manufacturers. The software can also be connected to various back-end systems from multiple vendors. GE has developed an application for power companies, which can be used to determine how to best build and operate turbines. Same kind of software are being developed for rail, mining, oil and gas companies.

New business model

Benefits of new business models - if successful - may be significant. The challenge of reaping the most dramatic benefits is that the development of new value chains requires key players´ support and it takes time to build these chains.

Real-time data generated by sensors, combined with historical data, makes it possible to analyse and predict with high precision use of equipment and machinery. This paves way for new business models, where manufacturers are charging for their products based on costs, revenues or time, whereas the conventional model relies on equipment or machinery purchase and maintenance.

Another example uses crowdsourcing to create added value for company's products. Ford is utilising open interfaces and allows in its OpenXC initiative to customise car features with add-on modules and applications. GE also relies on individual and startup innovation and value creation, and has launched measures to develop solutions for tackling air traffic delays and efficiency of hospital visits.

Marketing assistance

Although it would not be possible to create value-added products, totally new businesses or new business models, the Industrial Internet can significantly boost company's marketing and sales efforts. The main idea is to provide customers and other important stakeholders useful and interesting information, which will improve the competitive position of company's products. The key stakeholders are traditional and digital media, channel partners and influencers important to customers. In this context, the key source of information is the data generated by the products of the company or other data that the company can access at a reasonable cost.

Also the companies that sell to business customers cannot forget opinions of media and consumers: if corporate citizenship is not communicated properly, it will be quickly heard by customers´ decision-makers. If a company sells its products through channel partners, the partners will appreciate any information that helps them acquire new customers or any new opportunities to sell customers new services. Both for media and for customer advocates, it is important to get new information and insights that will enable them to further build their authority in the topic area. Well-thought, fact-based opinions based on available data are a great way to engage customers through media and advocates and thus support sales of company´s products.

For example, a car manufacturer could embed one more sensor to its cars: air pollution sensor would give a car user air quality information from those places that are important to him and give everyone an overview of air pollution situation. When used properly, this kind of activities can provide very interesting information for consumers and also for media, which creates good opportunities to highlight company's social responsibility. Cisco is strongly involved in even more ambitious project. Planetary Skin tends to use billions of sensors on land, water and in the air to detect and predict changes in the environment.

23 October 2013

Quo vadis, Sports Tracker ?

Sports Tracker application is like an old friend. I have used the fitness application from the time it came to market in 2005. I have no closer relationship with Sports Tracking Technologies, the company that is currently responsible for the business.

I was amazed when I read that a Sports Tracker competitor, Endomondo application (which I have also used), is used five times more when counting sport use kilometers. This aroused my curiosity. Are Sports Tracker really trailing Endomondo so badly? What factors have contributed to the development? What is Sports Tracker´s future and how could they improve the business? I did a little bit detective work. By using only public and free sources and tools, the picture became considerably clearer. This research trip is also a good example of how companies can analyse businesses and competitive situation, and thus develop more successful strategies.

Sports Tracker vs. Endomondo

Sports Tracking Technologies (hereinafter referred to simply as Sports Tracker) are a Finnish company with Nokia Corp. roots. A Nokia project launched the first version of the fitness application in May 2005. Endomondo are a good benchmark, because they are coming from another small European country, Denmark, where they were founded in November 2007. Apart from these two, a number of other competitors have emerged, such as Nomad, Skimble, Strava and Runtastic. They are not discussed in detail here.

Number of users

The Sports Tracker application has been used for 230 million sports kilometers, and the Endomondo one for about 1600 million. Various sports kilometers do not match, so this does not clarify the situation. If the number of users would be available that would help a lot. But only Endomondo have published the information that they have cumulatively 20 million registered users. AppAnnie give estimates on application downloads and they provide, inter alia, the following information:
  • In Apple App Store´s health and wellness category the free Endomondo application was in top five in eight countries and in top ten in 23 countries
  • Correspondingly, Sports Tracker were in top five in three countries and in top ten in 13 countries
  • In Google Play´s health and wellness category Sports Tracker were in top five in two countries (Endomondo in eight) and in top ten in six countries (Endomondo in eighteen)
Although AppAnnie do not evaluate Sports Tracker´s traditional area of ​​strength, Symbian, currently Endomondo seem to have a clear lead in download volumes.

Product features

We shall not make any product reviews or comparisons, they are already readily available from multiple sources. Instead, we shall first focus on expert views that are affecting potential customers and also on how users are seeing the two companies´ products.

In various expert reviews Endomondo would appear to get generally higher marks than Sports Tracker. The former have an extensive feature set and well-functioning web services, the latter have a praised mobile application. Sentiment analysis of user tweets is one way of measuring user perceptions, see also the picture below. Product usage experiences are likely to be the most important factor affecting the sentiment of messages. The companies´ products seems on a par till autumn 2011, after which Endomondo reputation is a little bit better.

Characteristics of company products do not explain differences in popularity, so we need to have a look at the reach of potential customers. The most important factor affecting it is the range of operating systems supported. Sports Tracker support extends to the following: Symbian, iOS (Apple), Android, and MeeGo (Nokia N9). Endomondo again support all the previous except Meego, plus they support also RIM (Blackberry). In addition, it is important to understand when the most important operating systems got the support, see the picture below. The picture also shows smartphone sales per Symbian, iOS and Android.

It is clear that Sports Tracker were too long stuck with Nokia and Symbian, and as a consequence, came too late on the tremendously crucial iOS and Android markets. It is difficult to assess whether this was due to not understanding the markets, long-standing links with Nokia, lack of resources or something else.


Use of the Internet and social media have certainly been the key of both companies´ marketing efforts.

Google search statistics dramatically reveal how Sports Tracker have not been able to improve after the year 2009. Endomondo overtook them in the beginning of 2011 and have since then continuously been able to increase their attractiveness. The picture on the left shows also projected searches with dashed line. The number of searches correlates well with overall marketing efficiency and thereby also with interest in company's products.

Web service is an essential part of the overall service offering as perceived by a user. Company website is also an important part of digital marketing assets. Hubspot tool gives Sports Tracker website a score of 54 (scale 0 - 100) and Endomondo get a much better grade of 81. The main problems of Sports Tracker are blogging, mobile use of the website, lead generation and optimising pages for search engines.

Endomondo also have a clear advantage when measuring website visits, see the pictures on the left, Endomondo at the bottom. The pictures illustrate companies´ global ranking of website visits. Again, the Endomondo trend is positive, whereas the Sports Tracker position has not really improved over the years.

Popularity of company's websites is also greatly affected by the number of incoming links. The picture below shows that till the summer of 2011, the companies were equal; but after that, especially since summer 2012, Endomondo have improved much more. This can be partly explained by product features and partly by website attractiveness and success in content marketing.

Problems with Sports Tracker website content become also visible when looking at search results (SERP) of keywords that are important for fitness applications. The two companies occupy the top positions when searching the respective company names with Google. But for example, when searching  'GPS sports tracker', Sports Tracker occupy only the position 3, whereas Endomondo get positions 2, 4, and 5.  'Social Sports Computer' is the central Sports Tracker website tag line, but the positions are not better than 5 and 6.

The most worrying thing is that even when Sports Tracker are able to attract visitors to its website, these visitors do not find the pages interesting enough, see the Alexa picture below.

More than half of the visitors only visit one page, and others do not find a lot of compelling content.

Also in social media utilisation, Endomondo seem to be more skillful. For example, already in 2010 they were more popular than Sports Tracker in Twitter messages, and after that differences are even more remarkable, see the picture below. As regards to Twitter followers, the two companies are almost on a par: Sports Tracker are followed by almost 18000 and Endomondo by almost 21000 persons. This indicates that Sports Tracker still have, however, loyal core group of followers, which are constantly interested in their products.

Business Model

Product development and marketing are of course closely linked to the resources available. Resource availability, on the other hand, is greatly affected by the business model and especially revenue streams.

After Nokia years, Sports Tracker became an independent company in May 2009. The company's turnover in 2012 was 702 000 euros, it was making heavy losses and the equity was negative. The fitness application is downloadable free of charge, and there are no fees related to usage of supporting web service. The company seem to be receiving their income by selling heart rate measurement belts, iPhone bike mounting accessories, headware and socks. Long Nokia connection seems to have affected on the company mindset and implemented business models - when the company was a part of Nokia, the role of their service offering was mainly to support primary equipment business.

Endomondo have been able to take advantage of the emerging business opportunities. When Apple launched App Store in July 2008, and Google store opened in September 2008, they were able to rapidly grow their user base. Alongside the free application, a paid PRO version was launched in December 2010. App Store made it possible to make in-app purchases, i.e. to buy extra features for free apps, in August 2009, and Google Play store started to offer the same option in February 2011. Endomondo began to take advantage of these opportunities in 2011. The company also began to show advertising in connection with its applications and website services in September 2012. In addition, the company have partnered with another company to sell a variety of sports-related products. Endomondo revenues are already sufficient to cover operational costs.


In order to build operations and products as well as to acquire users, both companies have needed to seek external funding.

Sports Tracker financing was handled by Nokia for a long time, but after the establishment of the new company, they have been funded at least by Nokia-Technopolis Innovation Mill, Tekes and the City of Helsinki. Amounts of money have not been published.

Endomondo have received undisclosed amount of seed funding in December 2010, $ 800,000 in March 2011 and $ 2.3 million in September 2011. The company claim that they do not need any external money to continue operations.

It is noteworthy that Endomondo´s external funding has always been linked with company's reported product improvements, measurable improvements of market position and business model enhancements - see also the facts presented earlier. There is no detailed information available about Sports Tracker´s financing projects, but the presented facts tend to imply that attracting new money is much more challenging than in the case of their competitor.


Sports Tracker seem to have a lot of work to further develop their product and marketing as well as to improve the business model. It is most likely that unless the company is able to get external funding, it is not possible to make sufficient investments.

There are, however, substantial and growing markets for the company's expertise and products: fitness and well-being are increasingly important future trends. And the markets have certainly not been shared, yet. According to Alexa statistics, both Sports Tracker (below left) and Endomondo (right) site visits are dominated by small or medium-sized markets; it is still possible to significantly change competitive positions both on current target markets and on many of the biggest markets, not deeply penetrated today.

It is vital, however, that Sports Tracker are able to find again an agile way-of-working, where new emerging business opportunities are boldly and rapidly utilised. This will create constantly renewing competitive advantages upon which to build a successful business.

17 October 2013

10 commandments of professional services digital marketing: acquiring new customers

Professional services firms are perhaps the most conservative marketers, primarily because they trust that customers will find them, if they just do good work. This applies to all industries, say, advertising, legal, consulting and ICT services. This is no longer enough. Increasing competition and disruptions looming in many sectors emphasise the need to find new customers and to use the best of digital marketing methods. Although digital marketing can also be used to recruit capable professionals, we shall not focus on that.

Professional services marketing

Professional services marketing activities are often divided into five categories:
  • Broadcasting: All activities that generate leads, enquiries and potential business opportunities with new customers.
  • Courting: Actions for a single, specific prospect; these activities are traditionally called selling and proposing - even though, especially in professional services, a client makes a decision to enter into a business relationship, not just a purchase.
  • Superpleasing: Serving existing customers on existing matters so well, that they want to continue to cooperate with the service provider.
  • Nurturing: Measures to win new assignments from existing clients through strengthening relationships.
  • Listening to the market: Market data collection and analysis, as well as better understanding of customers, so that a company is able to more effectively market its professional services.
Since broadcasting and courting target new customers, our main focus is on them. Existing customers affect new potential customers through their reference value and word-of-mouth, so superpleasing and nurturing cannot be forgotten. Both existing and new customers are sources of market insights, i.e. what customers want and how customer needs change. Digital marketing tools are also ideally suited for these activities.

Target customers and their buying process need to be well understood: who will influence purchasing decision, and how, what information they need in each phase of the partner selection and where are they typically looking for the information. In addition, it is vital to identify, what external parties are affecting services procurement and how they are affecting it.

When marketing to new customers, there are three basic principles:
  • More attention to selected prospects than to a long list of miscellaneous opportunities
  • Demonstration of competence is more effective than asserting
  • In person tactics are the most effective ones
Finally, customers are won, when there is an opportunity to discuss potential client's problems, so all marketing activities should be planned to give clients the necessary confidence to start these kind of discussions. Next we shall present ten online marketing cornerstones that help a professional services firm to create confidential relationships with its potential new customers.

Make your web site your identity

Own website is also for a professional services firm an important part of the identity, the heart and the face, which gives the company its virtual looks and drives its digital marketing operations.

A company website cannot be a digital company or product brochure, with full of arguments of provided services and excellent know-how. Instead of details of the service offering, it is better to have a look at the offering with customers´ eyes: what are the customer benefits of the services. The most important thing is that the website makes it possible to pass the first customer evaluation gates - the essential criteria are references, capabilities and resources. To build customer confidence, there should be a clear focus, when describing company expertise - there are very few companies that can claim to be an expert at everything.

Pictures, diagrams, videos and other multimedia elements should be used, if they clarify, what a company wants to say. Otherwise, cosmetic changes and improvements of a website or technology gimmicks are seldom very beneficial for achieving company's business objectives.

Become thought leader among your customers

Customers love companies that are able to provide new information, new perspectives and new ideas. Compelling content is the core of thought leadership. Attention, interest and desire to cooperate are won by demonstrating that a professional services company is useful and provides added value to its customers' business.

Company website is the centerpoint of becoming a thought leader. Published articles, research, short videos, webinars, etc. create confidence among site visitors by discussing important issues and concerns of potential new customers. If the company's service offering is personified as its key individual skills, the content must be strongly linked to such persons. However, if the expertise is more anchored to the company structures and practises, this should be communicated on the website, too.

Target customers' needs should drive the creation of content. The content is planned according to what information client decision-makers and external influencers need for each stage of the procurement process.

Share your insights

Many professional services firms have interesting content on their websites, but major stakeholders will never see it. To ensure that content marketing is effective and that it will generate new leads and business opportunities, a company needs to amplify its message. This is done by sharing generated content on sites that are important to customers and their thought leaders; to sites that are happy to take the content free of charge due to its reliability and significance, as well as to those that take a sponsoring fee to publish it. Sharing raises awareness of the additional information found on the company website, and significantly increases site traffic. An effective way to increase visibility is to send press releases through special agencies; for example, when new articles or research is published on company website.

Email distribution can be effective, if messages are not sent on a regular basis according to a schedule and if they can tell the audience something valuable. Often, this means that sent messages must be tailored to the needs of target segments.

Make influencers love you

Several studies suggest that traditional marketing communication has lost much of its power; buyers and decision-makers are looking by themselves for information on products and services - leaning on the Internet and influencers. Their reviews, reports and opinions are often significantly affecting on which companies will be considered in detail.

It is instrumental to identify influencers as well as information sources and communities that they favour, so that influencers can be turned company advocates. And when bloggers, journalists and other thought leaders favour company offerings, it has a bigger impact than company´s own communications.

When trying to influence the influencers, it is vital to provide them tools to increase their social capital: to grow their reputation and online reach. New and relevant information and constantly updated statistics that are important to customers, are good examples of such effective tools.

Extend your reach through social media

Finding new customers through personal contacts is a traditional but laborious way to market professional services. Social media changes this. Potential customers are already in e.g. LinkedIn, Twitter and Facebook and social media is the best way to get to know them and to create an image as a credible and viable service provider. Access to virtual world contacts is also very cost-effective compared to real world ones. And even though there might not be any direct deals through social networks, they may initiate processes resulting in business relationships. For example, cold calls are much more effective, if before making any calls, there is already an established social network link.

Create hooks to catch your customers

Often there are industry practises that can be renewed or changed, thus making it easier to acquire new customers. A good example is to put such new information on company website that has previously been available only as paid services; customers will be able to apply this knowledge by themselves, and thus create a limited version of what other service providers are offering. Information provided can also consist of well-edited current news that is necessary for customers. The company that has made the information available will be well-known to potential customers and thereby strengthens its position, when negotiating future service contracts. Use of a downloadable application to create awareness among client companies is another example: the application provides selected customer decision-makers tools that they need in their work and gets them initially familiar with the service company´s offering.

Marry real world with virtual one

Digital world tools are most effective when used in combination and parallel with offline marketing. At best, their use is seamless ranging from broadcasting messaging to closing of a deal and strengthening of relationships.

The basic level is to link all offline marketing efforts to company webpages to attract potential customers to visit them. Various events, such as seminars and conferences, can also be successfully supported by web tools: besides being event promotion tools, it is possible e.g. to identify in advance the business challenges that the participating companies are facing. This is possible by listing the topics that have been interesting for a specific participant and by seeing what have been his areas of interest in social media. Another example relates to making presentations in industry conferences: copies of the presentation, as well as additional company information should be forwarded through the company website, in return for contact information.

Be patient with your customers

Most of the professional services purchases have been decided before making actual bids; the intent of a bid is just to seal the deal - or then not. Therefore, while a customer has been identified but the deal is not yet closed, it is important to systematically nurture potential customers to get them increasingly interested. Both traditional and digital marketing tools should be used together. Best nurturing methods have produced extremely good results compared to more conventional ones.

It is essential that company website content is targeted to the various stages of customer procurement process. By defining the typical steps how customers get familiar with website content and by comparing that with actual behaviour, it is possible to create a deeper understanding of customers´ purchase barriers. Based on what has been discovered, it is possible to make customers initial suggestions and proposals, with the goal to get customers agree on personal meetings to discuss in greater depth the clients´ business challenges.

Make yourself easy to find

All of the above digital marketing principles will also improve company's site ranking in relevant search results. Fresh and interesting content makes search engines visit company site on a regular basis. And when the site visitors share the content to their social contacts, it convinces search engines that the content is useful. The company must, of course, also take care of search engine optimisation activities.

The above described organic search results are the most highly respected ones among users, but if a company has enough money, also advertising on search result pages is possible. Since measurability of results is one of the absolute benefits of search advertising, you should test the results of such advertising prior to a possible large scale deployment.

Improve continuously

Digital world offers excellent opportunities for continuous improvement. Various testing methods, such as A/B testing, are the tools for this. The idea is to provide relevant audience two or more different versions of webpages, and based on results, determine which version is operationally most effective. It can be tested, for example, how to best respond to page visitors: provision of an article, suggestion to participate in a webinar  or connection to a specific expert. Although there would not be plenty of website traffic, you should, however, recognise the potential for test marketing and conduct tests that are the most important for success.

9 October 2013

Better prices to new customers ?

I thought I made a good deal, when I continued subscription of a trade magazine for the year ahead. The next day, however, I got an offer, which promised me as a potential new subscriber the same magazine with a price tens of percent cheaper. And this was not the first time - numerous times I have seen that I am valued less as a customer than those who are newcomers. Here we shall discuss this from business point of view. When should a company reward new customers, and what factors influence this?

When to reward or punish customers

Yale researchers Shin and Sidhir have examined in more detail, what kind of pricing strategy you should apply in your business - whether existing customers should be 'punished' with a higher price or less favourable terms than the new ones.

In the research, they found that from company point of view, it is essential to understand how concentrated is customer value and how flexible is customer shopping. Concentration of customer value varies greatly, in some areas (such as newspaper purchases or subscriptions) all customers have close to equal value (excluding value for advertisers), while in some businesses there is a significant difference in terms of money between good and ordinary customers (for example in private banking and air travelling). The easier and more convenient it is to change a merchant or product or service vendor, the higher shopping flexibility is.

On this basis, the researchers formulated guidelines for companies, shown in the attached picture. Only if the most valuable customers are buying a lot more than others, and if the product or merchant can be easily replaced, it is worth rewarding existing customers, i.e. to give them lower prices or better benefits than to new ones. The reasoning is that otherwise it is too easy for customers to select other solutions. And because the most valuable customers are the most profitable, it is best that the benefits are given only to them. In all other cases, it makes sense to attract new customers with better terms than the present customers get.

Business characteristics

The model above provides clear guidelines for companies, but when applying it, specific characteristics of the company business should carefully be taken into account. This section discusses some important factors that should be evaluated, when planning the approach.

Relationship Marketing

The key idea of ​​relationship marketing is to know customers, to deeply understand their needs and to appreciate customer relationship that has been created - this builds a competitive advantage for a company. In contrast, technology or gradual improvement of products are often seen as non-sustainable competitive advantages

Relationship marketing creates convenience, trustworthiness and other emotional ties, which build barriers for customers to change company or its products, thus reducing shopping flexibility. As presented above, this should make attracting new customers with better terms more lucrative. On the other hand, this observation is contradictory to normal customer experience: staying friends with a company that does not value me as a customer and gives newcomers better conditions, is seldom preferred.

The Internet and Social Media

The Internet gives consumers access to tremendous amount of product and service information, opinions and buying options, independently of time and place. This has a significant impact on company's customer strategy.

First of all, a large number of vendors and availability of supply facilitate re-orientation of purchases, i.e. shopping flexibility increases. Secondly, opinions and company reputation spread through the web and social media much wider and faster than in the past - and it is also well-known that negative opinions spread much wider than positive ones, so favouring new customers may make existing customers communicate bitter words. Internet content and new products, services and business models enabled by the web create alternative and new ways to satisfy consumer needs, which increases shopping flexibility - often indicating the fact that customers no longer buy the products or services they used to.

The Internet and social media provide companies also tools to enhance their customer strategy. The web can be used to actively communicate with customers, to create dialogue with them and to develop communities around company and its offerings. This increases customer loyalty and creates competitive barriers. Internet technologies can also be used to enhance basic product or service by developing extensions, boosting differentiation and exit barriers.


Globalisation works in conjunction with the Internet and changes consumer purchasing: there are more and more cross-border availability options for existing products and services.

Besides reducing differences in national consumption patterns, globalisation has also created global consumer tribes, which are emotionally connected by common values of consumption and which use consumption of certain products or services to create a community and to express their identity. If a tribe considers a product or service extremely important, shopping flexibility will be very low and shopping value may be much higher than average.


Digitalisation has already revolutionised a number of industries, where transition from physical distribution to digital one has brought new business models and new leading players. The process is underway for example in newspaper and magazine publishing, where printed media is now being complemented and competed by digital products. In addition, there is a great threat of non-consumption, people switching their purchased media products over to ad-sponsored or even free digital content. This environment is a classic example of highly flexible shopping and very low concentration of customer value.

Digitalisation will also bring changes to other industries. Companies can use it to increase customer loyalty and to create valuable extensions for their offerings. For example, both online and offline retailers are using customer information to develop customised offerings that will increase customer engagement and sales.

Company cases

Finally, let´s look at two cases that highlight challenges and opportunities, when applying the learnings above.

Mobile Operators

Mobile operators are selling subscriptions and often mobile phones, together with subscriptions or separately. The value of customers for an operator varies quite a lot, and shopping flexibility is affected e.g. by type of customer contract, bundling models, means to increase competition such as number portability, as well as operator's own actions. In most countries there are three to four operators, and in addition, some countries have so called virtual operators.

Mobile phone use varies greatly, depending on user and use purpose, and operators offer various packages with different service content and prices. The most valuable customers may bring in more than ten times more revenues than standard customers. Prepaid subscription is the most flexible one: when services quota has been used, you can purchase more or take a competing offer. Prepaid customers are usually the least profitable ones. When a customer has a postpaid contract, the situation is very similar with the previous one, but subscription packages (either with or without a phone) create typically a commitment of three months to two years. During this period, a customer is very tightly tied to the chosen provider. Popularity of contract types varies greatly from country to country. For example, postpaid is dominating in the Nordic countries, while in Southern Europe and in developing countries prepaid is typically more popular.

Operators were long able to make subscription change very difficult, because of missing number portability. Gradually, however, widely spread number portability provisions have increased purchasing flexibility. In addition, operators have used their own, exclusive value added services as a means to retain customers. Success of strong, independent service brands also in mobile context has made these initiatives, however, a relatively small success.

Typical customer strategy of operators has thus been offering of more affordable packages to new customers. According to the theory above, making better than normal deals with new postpaid or prepaid customers is questionable - unless you know that they will be generating plenty of revenues in the future. So far, operators have not been innovative enough to build high enough customer exit barriers and to sufficiently reward their loyal customers.


Tiimari, a Finnish retail chain, has already been analysed in a previous post. Tiimari product categories are very widely available also in other offline and online stores. Because the company name is the most important brand asset, not its products, and because customers do not have any closer emotional ties with the company products, shopping flexibility is high. The largest purchases can be quite large compared to average ones.

Tiimari offers same deals for regular customers and new ones. Company products are clearly easily replaceable. If it is not possible to create exit barriers for customers, the company will either need to provide tangible benefits to their major clients, or more effectively hunt for new customers while existing customers´ buying behaviour is unpredictable.

2 October 2013

5 models for Big Data business success

Can data be used to create growth? At least Ronald Reagan believed so, when he said that information is the modern world oxygen. Information has, of course, always been important in business, but the Big Data phenomenon is forcing companies to think more about how they could use information to drive their business.

Big Data and company competitiveness

Gartner defines: Big Data are high-volume, high-velocity and high-variety information assets that demand cost-effective, innovative forms of information processing for enhanced insight and decision making. Big Data's core is therefore not the data nor its high volume, but the company's innovative way of using various sources of available information for successful business building. More and more enterprises are already operating this way: a recent survey found out that 80 % of companies see that harnessing data would make their business stronger.

From a company point of view, sources of data can be divided into three, partly overlapping categories:
  • Firm internal data or the one available through business operations: for example, customer click data at company web pages, data collected by customer services or data provided by equipment and systems delivered by the firm.
  • Data obtained from other companies or entities, in most cases paid data: for example, aggregated data related to potential customers or machine use -related or environmental data provided by firms generating or aggregating them.
  • Public data: Data that has been made available by government, often free-of-charge, for example, various public records, weather and map data.
Data volumes are not large, they are huge - last year 2.6 zettabytes (10 to the power of 21) of data was created in the world, and that number is expected to grow by 40 % annually.

Source of data has a significant impact on businesses. This can be analysed by looking at the simplified value chain of Big Data that consists of four stages, see also the attached picture.

Each stage of the value chain sets different types of requirements to be competitive:
  • Data generation: Opportunity to get access to proprietary data by means of own business; understanding of what is essential in data and how it can be generated.
  • Data aggregation: Understanding of where and how data can be acquired; understanding of how data should be combined and stored so that it can be further processed and made useful.
  • Data analysis: Analytics and algorithm skills; ability to interpret the importance of data from use point of view.
  • Data usage: Ability to present data to users in a readily comprehensible form; understanding of user needs.
Familiar theory that explains how early-stage vertically integrated industries are gradually transforming into specialised ones, ie. horizontally integrated, can also be used in Big Data context. As industry competition is constantly in motion, companies need to shape their own strategy and positioning on the value chain by looking at their competitive advantages and capabilities.

Big data advantages, at their best, reinforce competitiveness of a firm, resulting in profitability and growth. In order to really achieve results with planned activities, Big Data projects need to be anchored in the improvement of competitive position. Assessment of own capabilities gives a realistic picture of what value chain positions are sustainable in a long run. Because overall business benefits are the most important ones, it is feasible to outsource the stages, where competitive advantages cannot be defended.

Big Data growth engine

This section deals with development of Big Data business models and especially ways to achieve growth. Big Data strategic benefits, such as ability to make faster, better or more proactive decisions, or efficiency improvement factors, such as improvement of capabilities and processes, are not discussed in detail here.

Independent Business

Independent Big Data based product businesses can be built by established companies or startups.

For established companies, it is convenient to develop new offerings for existing customers or take advantage of the data that the ongoing activities are generating. In the first case, understanding of customer needs and good customer relationships are typically key competitive advantages. In the latter, preferential access to data gives differentiation. For example, McKenney, a mechanical contractor of buildings, developed a service to reduce maintenance costs by collecting actual building data over the years. If a company position in customer interface or in data collection is strong enough, it is possible to partner with other players to complement the value chain.

Startups are usually missing most of the established companies' competitive advantages and resources in utilisation of Big Data, so they have been more active in the development of tools and know-how. There are many areas, however, where new, disruptive business models have been created, such as job search and recruitment firm Bright, Climate Corporation in crop insurance or Ambiohealth in remote health. Acquiring a startup can offer an established firm a head start to create a new business.

Improved access to public data has reduced the barriers that startups and other actors are facing when bringing new services to markets. For all have access to the same information, successful companies need to continuously improve user experience or add new data sources to stay competitive.

Sales of tools and know-how

In particular startups are actively developing new tools and know-how, in order to sell them to other businesses and organisations. These are exemplified by DataSift and Enigma in data aggregation, Cloudera and Cloudant in data storage, Cloud Physics and Gravity in data analysis and Icimo and Platfora in data presentation. Sensinode, recently acquired by ARM, is an example of Finnish Big Data startups, focusing on data collection technologies.

Support to other businesses

Activities that support well-established businesses will be hugely important as sources of business growth. Also startups are important as outsourced innovators of established firms: they are able to develop and test new ideas and when enough traction has been created, an innovation often ends up being part of the purchasing company's activities.

Support activities aim to maintain and improve competitiveness of company´s current business operations. Life cycle cost reduction of company products through proactive maintenance, cost reduction of distribution through route optimisation and customer satisfaction increase by utilising customer data are good examples of that. The key thing is how Big Data affects on overall revenues and expenditures, not costs and potential income of Big Data initiatives as such. GE and Konecranes are great examples of companies investing in so called industrial Internet - it is believed that Big Data strategy differentiates products and brings significant additional income. Amazon and Walmart are prominent firms utilising Big Data for customer relationships.

The core of the data used for support purposes is mostly in-house, but it can complemented, where appropriate, with purchased and public data. For example, weather and traffic data can be used to refine equipment use or website behavioural data.

Data sales

If a company cannot find meaningful ways to use available Big Data in its own business, opportunities to sell the data to other players should be explored.

Companies such as Bloomberg, Experian, and Affecto are already selling their data and also offer views and analyses based on them. These actors, however, are vertically integrated with operations primarily based on their own data. It is expected that new players, who generate or aggregate unstructured data originating from multiple sources, will be given a wealth of new opportunities.

This will provide Big Data generators and aggregators opportunities to sell data with various maturity levels; either to specialised broker firms or to other firms that make use of this data in their own businesses.

Marketing tool

Big data can also serve as a tool to attract customer prospects to become clients of a company. The trick is to provide free or low-priced information that is important and valuable to potential customers. Use of information creates a relationship of trust with the information provider and reduces barriers to buy full-priced products. Earnings impact is generated indirectly, through increasing customer numbers and revenues.

For example, an investment services company could use social media and the Internet to make sentiment analysis of listed companies for anticipating stock price movements and to provide this service free-of-charge for potential customers. Similarly, an equipment manufacturer could create thought leadership in its industry by developing an easy way to track factors that affect on raw material or semi-finished product prices, important for its potential customers.

If the used data are company proprietary, it is usually easier to functionally combine them with the products sold to customers. There are no reasons, however, that would prevent from developing this kind of offering based on acquired data only.