As I’d mentioned, I was lucky to be able to sit in on on of Professor Youngme Moon’s Consumer Marketing classes at HBS. It is apparently one of the most sought-after classes at HBS, and I believe it. The case study in question was the old Napster and how it represented an "extreme alternative" — that is, an alternative that emerges for consumers that is clearly cheaper/better/more valued than existing options. The fact that p2p file "sharing" enabled consumers to gain access to a wide variety of music (and, later, other media) for free surfaced a lot of latent dissatisfaction on the part of consumers vis a vis the record industry.
The years prior to the advent of Napster were high water marks for the record industry. They were doign well by all of the traditional metrics that they used to measure themselves — units sold, dollar value, market share (the big 5 had 80% of the US market then), and so it is no surprise, and even understandable that they were blindsided by the Napster phenomenon. Professor Moon’s point, however, was that there was a lot of latent dissatisfaction that consumers were only able to express once they had the means to do so. For instance, consumers for years had felt ripped off for having to buy a $17 CD only to have 1 or 2 good songs on it. This wasn’t mentioned in the class, but it’s interesting that consumers don’t harbor nearly as much resentment in blowing $10 for a bad movie. Enough of a digression; I’ll write more about this in a future post. Back to the lessons from the class and my spin on them:
-Latent dissatisfaction can lurk in many industries, especially in the "uncontested elements" of an industry, which breeds complacency. For instance, while there were many elements of the music business that were "contested", such as artist portfolio and distribution network, there were other elements that were lightly contested such as the way music was bundled and priced. This can spell opportunity. Professor Moon mentioned the hospitality industry, which she thinks is ripe for disruption. We as consumers generally pay attention to the contested elements, such as hotel location, price, etc; not so much the uncontested elements. Consider that one pays a surcharge to use the phone, to use the internet, and there is a fridge full of food that is a total ripoff compared to the vending machine in the hall. But we as consumers have just assumed that’s the way things ought to be and so this dissatisfaction is laten and doesn’t show up on the metrics that hotels measure. Interestingly, I recently filled out a survey on a recent stay at a Starwood hotel and some of their questions seemed to be designed to ferret out some of this sort of dissatisfaction (e.g. I was asked to rank what services I’d want such as free long distance, free internet, etc.).
-Consumer satisfaction = consumption experience – consumer expectations. Extreme alternatives can catalyze a change in either element of the equation, and ultimately surface latent dissatisfaction. While it wasn’t mentioned in class, I view Skype as playing just such a role in the telecom industry and am sure a b-school case is being written on them if it hasn’t already.
-One can compete with the "free" business model; indeed competing against "free" protects you from lazy marketing. The bottled water industry is the most obvious example of this, and it was raised by Prof. Moon. However, she raised an interesting point: imagine if consumers were used to getting music for free…do you think you could sell CDs? I’d think so: the value proposition would be around things like artwork, having a backup to the digital file, having a packaged playlist put together by someone else (so you’re paying for editorial programming).
Anyway, thanks to Professor Moon for a fascinating, if frustrating class (frustrating because I wasn’t allowed to participate in the class discussion that was about a subject I’ve lived and breathed the past 6 years!).