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Gain Entrepreneurial Marketing Know-how from Prof. Leonard Lodish's
New Book, Marketing That Works
Victoria's Secret took what had been lewd and turned it into an "affordable luxury."
Through savvy marketing, the company, a subsidiary of Columbus, Ohio-based Limited Brands, re-positioned racy women's underwear, expanding a tiny niche market into a $3.2 billion-a-year business. Today, Victoria's Secret has about 1,000 stores across the United States and has spawned scads of imitators. Without its trailblazing catalogs and ads, featuring scantily clad supermodels, there'd likely be no sexually charged campaigns from Ambercrombie & Fitch or American Apparel.
Victoria's Secret is one of the shrewdest marketers in the country, according to Marketing That Works, a new book by Len Lodish, a Wharton marketing professor; Howard Morgan, vice chairman of Idealab; and Shellye Archambeau, chief executive of MetricStream. The company may sell a simple product—little more than small swatches of cotton, silk and nylon—but it has pioneered all sorts of innovative techniques. "[It] has succeeded in doing what Starbucks has also done—changing how people view a commodity—by changing it into a relatively inexpensive way for women to feel good about themselves," the authors write.
Their book, intended for lay readers, grew out of the entrepreneurial marketing class that Lodish created at Wharton and out of his prior book, called Entrepreneurial Marketing, published in 2001 and also penned with Morgan. The earlier book was aimed at marketers of startups, but Lodish and his co-authors realized that their cost-conscious approach could help bigger companies too. "What we did is take a lot of the same marketing techniques and the newer concepts that have developed with the Web and put in a bunch of examples of medium-size and large companies," he says.
Take adaptive experimentation. As the term implies, it involves trying marketing strategies on a small scale and using what you learn to tweak your product, service or marketing campaign. "Adaptive experimentation can be a very efficient way to estimate the incremental revenue and incremental costs of many marketing activities," the authors write. "Many executives feel that they have to decide ‘once and for all' how best to get to market. However, the reaction of the marketplace is often very difficult to forecast in advance."
Victoria's Secret excels at adaptive experimentation. The chain owns its stores, which gives it lots of flexibility to tinker with inventory and store ambiance. It often chooses a few representative stores in which to test new product lines or marketing ideas. The chain's marketers, for example, tried the Pink line for college-age women in 10 locations before rolling it out chain-wide. Today, every Victoria's Secret store has a separate room, with its own look and feel, for Pink clothing and apparel.
Smart marketing and the development of a top brand have enabled Victoria's Secret to boost prices and thus have translated into better financial results. "In a recent 10-year period, Victoria's Secret quadrupled its revenue and doubled its average selling price," the authors point out.
Marketing That Works spends much time on pricing "because few people do it well," Lodish says. "Most people underprice, especially entrepreneurs." A common mistake is simply adding a fixed markup—say 35 percent—to all of a company's products. That's easy—and foolish. "You're leaving money on the table when you do that," Lodish says.
Smart marketers investigate and experiment, learning not only what competitors charge but also precisely why customers value a particular product or service. If possible, they then try different prices and strive to charge more if their offerings have distinctive qualities valued by customers.
Price experimentation, the authors warn, can be thorny in sectors where firms publish their prices widely. Customers can be annoyed to learn that other people paid less than they did. Southwest Airlines has turned that kind of annoyance into a source of competitive advantage. In adopting a straightforward pricing system, it capitalized on consumer disgust with competitors' oft-changing and unpredictable fares, which led to people paying vastly different amounts for seats in the same row on the same flight.
Marketing That Works also cautions against the common tendency to try to compete on price. Business people often think that they must match competitors' prices. But doing that can undermine your efforts to build a brand. "A lower price, all other things being equal, signals to the marketplace that the value of the product offering is going down also," the authors say. "However, if the perceived value of the offering compared to competition is not going down, then the entrepreneur should not change her price compared to the competition."
If there's an overarching theme in Marketing That Works, it's that marketing matters as much to a company's success as operations or finance. Often, especially in young companies, marketing gets shunted to the side, while managers polish their product or raise money. But in a recent survey, a group of leading venture capitalists rated marketing as a more important driver of a new firm's success than any other function, the authors say. "Too many ventures are focused on the technical superiority or inventiveness of their product, but ‘build it and they will come' often fails, since the customers need to be educated with new products," the authors point out.
Take Iridium, the satellite-phone system developed by Motorola and spun off as a separate company. It was a technological marvel, allowing users to make calls from nearly anywhere in the world, even Antarctica. But consumers found the phones too expensive and unwieldy, and Iridium went bankrupt in the late 1990s. (It has since reorganized and restarted.) "The market research before Iridium was very little, and they realized very late that not many people wanted to carry a phone as big as a brick around that would cost them $150 a month," Lodish says.
Not all techies ignore marketing, of course. Apple Computer is one of the deftest marketers around. Its founder and chief executive, Steve Jobs, has shown himself to be something of a marketing savant, with a rare ability to sniff out what will appeal to consumers. What's more, Jobs has turned new product introductions at the Macworld conference into an ersatz art form, combining Mac evangelism and Jobsian showmanship.
Here's a Wired magazine columnist's description of his introduction of the iPhone at January's Macworld:
"No one else does it like this—mixing commerce with entertainment and giving us a glimpse of the future. Jobs managed to pay homage to the late, great James Brown ("I Got You" played as Jobs came onstage) and make a prank phone call to Starbucks. ("I'd like to order 4,000 lattes to go.") He invoked history, likening the iPhone to Apple's revolutionary products of the past: the Mac and the iPod."
What Jobs understood before many techies is that people don't buy features like, say, the fastest microprocessor or the best graphics card. They buy solutions to their problems and enjoyable experiences. They want to be smart and cool. Apple also strives to make every one of its products easy to use. While first-rate technology necessarily underpins that ease of use, that's not what Apple brags about.
"Technology-oriented people think if they build a better mousetrap, people will buy it," Lodish says. "But as the venture capitalists say, ‘The dogs don't always eat the dog food.' You've got to market effectively."
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