"Being good enough is no longer good enough. In contrast, the rewards from getting it exactly right, one segment at a time, have never been higher."

Supply Side

The long tail effect is produced by firms’ ability to produce and distribute anything they wish. They can display these products online to customers who can find them online. Secondarily, it is driven by hyperdifferentiation, the use of advanced manufacturing to produce an ever-wider range of goods.

Demand Side

The explosive growth of consumer choice is driven by the change in consumer behavior. We don’t all want the same thing. And today’s fully informed consumers can now locate their own choice of resonance marketing offerings — goods and services that precisely match their individual wants and needs, cravings and longings.

Opening Statement: Resonance Marketing in the Age of the Truly Informed Consumer¹

CONTEXT

As Tony Paoni of Diamond Consulting likes to remind his listeners, the new networked economy is not just the old industrial economy with a mess of wires hanging off it. Even mass-produced consumer products like detergent, bread, and soft drinks, or traditional consumer durables like automobiles, are changing. Design, production, sales, distribution, and service are all being altered by the information flows in our networked world.

Effective modern marketing enables firms to achieve greater profitability by responding to changes in consumer behavior that result from changes in consumers' access to and use of information. It's about selling more bread and cheese, or cars, or beer, or iPods, or hotel rooms; as importantly, it's about selling more expensive bread and cheese, or cars, or beer, or iPods, or hotel rooms. It's not about tricking consumers into paying more, but about finding out exactly what consumers want, informing them about it accurately, and charging them prices that they are willing to pay.

The most obvious change in the marketplace is the tremendous increase in product variety (hyperdifferentiation), enabled by changes both in manufacturing technologies and in distribution. This change in product variety is profitable because of changes in consumer behavior (resonance marketing), as consumers select exactly what they want at prices that reflect how well their selections match their wants and needs, cravings and longings.

Resonance marketing is more than just trading up -- it includes trading up, trading down, and trading out, simultaneously, in a single consumer. Trading up of course occurs when a customer moves from a Chevy to a Caddy, or switches from coach to first-class air travel. Trading down occurs when a customer switches to coach air travel on a discount airline, or to a less expensive hotel. Trading out occurs when a customer switches from candy bars to power bars, or from a lager to a heavily hopped craft-brewed American pale ale. Not surprisingly, a customer may exhibit all three behaviors -- trading up in some categories, trading down in other categories, and trading out in still others.

Hyperdifferentiation and resonance activities include the long tail effect, in which far more choice is available to consumers. Changes in marketing represent significantly more than simply selling low-volume items in the long tail. The long tail stresses changes in distribution; we focus here on understanding changes in consumer behavior and the resulting changes in corporate strategy. Hyperdifferentiation and resonance focus on finding what each consumer wants and what each will pay for, as well as on making these changes in corporate strategy work in an environment of physical products, taking into account manufacturing and holding costs and the spoilage of items with slow sales velocity.

CHANGE IN MINDSET

Extreme differentiation requires an entirely new mindset. It's no longer necessary to focus on getting most folks to like you, but instead on getting some folks to love you. Having customers like you and hate you entirely is equivalent to your sales, since neither group will pay a premium price for your products; only customers who love you will pay a premium, but they will do so gladly. The experience of Victory Brewing Company is instructive. At its creation, Victory launched two beers. Its Victory Lager was a perfect replica of an authentic German lager. Everyone likes it, and no one buys it -- it accounts for a very small share of the company's sales. In contrast, its HopDevil Ale is an intensely bitter Americanized version of a traditional British India pale ale; it tastes of pine and orange, and is hopped to a bitterness level more than 400% that of beers with which most Americans are familiar. It is the most hated of Victory's beers, but if you want a beer like this, it is hard to find anything comparable. It is not only the most hated but also the most loved, and it still accounts for close to half of the company's sales.

Resonance marketing isn't about being better in any absolute sense; it's about being better for each customer. Where once we could choose from a limited selection of candy bars, we can now choose from hundreds of power bars. Power bars are different now for men and women, for weight lifters and golfers, even for golfers on the front tee and those starting the back nine. Bars can be differentiated on any attribute, from a focus on designer whey protein for muscle building in weight lifters to the ease with which triathletes can wrap them around bicycle handlebars. There is no single best power bar -- "best" depends on who is buying the bar and what he wants from it. Mass-market fat spots with high market share now break into portfolios of sweet spots with high "margin share."

WHY NOW? THE ROLE OF INFORMATION

The change in information available to consumers is so profound that it requires a new word. Customers are no longer merely aware; they now enjoy true informedness. They know what products and services are available in the marketplace, they know where to find them and from whom, they have a better idea than ever before of the products' precise attributes, and they know exactly what the products will cost.

Informed customers are unwilling to pay any more than they have to for commodities. The competition discount is up; with perfect information, customers know what is available, and prices for undifferentiated offerings are being driven to an all-time low. Brokerage fees have dropped from $500 a trade to $10 or less for online trading, travel agent commissions are merely a memory, and coach airfare costs less than ever before.

And informed customers are unwilling to pay very much for things that are not precisely what they want. If a customer knows that a hotel is too far from midtown, or not formal enough for a family event, the customer will value it less. With better information, customers know more about their alternatives, and the compromise discount resulting from poor fit is higher than ever.

Of course, if a customer does not know what a product really is, or what a service actually offers, the customer does not yet know how well it fits her needs. A hotel may be perfect for a family event, or it may be too formal or too informal. Other products may be too bitter or too sweet, too strong or too weak. When a customer does not know exactly what she will get, her willingness to pay is reduced to the average of the set of things she thinks she might get.

Informed customers, on the other hand, are willing to pay premium prices for what they truly want. With uncertainty reduced or eliminated, a customer knows what he will get, and his willingness to pay for a product is now determined by the degree to which he truly values the product. For products that are perfect for him, willingness to pay is now maximized by the elimination of uncertainty and elimination of the possibility of significant disappointment. The uncertainty discount is down.

Profits from being good enough are down because of the competition discount, and profits from being good for everyone and great for no one are down because of the compromise discount. Being good enough is no longer good enough. In contrast, the rewards from getting it exactly right, one segment at a time, have never been higher.

Equally important, producers can now easily learn about consumers, identify unserved and underserved segments of each product market, and develop sweet spot offerings for them. There are several techniques used to identify unserved and underserved market segments. Some are as old as commerce, while some involve marrying the ethnographic observational skills of an anthropologist with market research. Bill Covaleski and Ron Barchet, founders of Victory Brewing Company, love beer and trust their own judgment. If there is a style they think is really great that is not available, they introduce it to the US East Coast market. Their best-selling brew, HopDevil, was introduced precisely because they wanted a fresh, local IPA with intense West Coast-style hopping. In contrast, Steve Barnett (whose article appears on pp. 8-12 of this issue) watched and videotaped customers at a train station candy kiosk as they examined several candy bars, put them back, and selected something else. He asked them what they were thinking, and a large number told him that they were hungry. Period. They were not looking for a treat; they needed food. Barnett's client responded by introducing a power bar version of its best-selling candy bar. Techniques for finding out what people would buy if it were available are still emerging, but they are mature enough to be of real value.

Unlike mass-market fat spots, highly focused and targeted sweet spots may have small share but huge margins. Moreover, with customers' informedness increasing, sweet spot sales are accelerating, and many offerings are coming from new entrants rather than traditional manufacturers. All-fruit smoothies (e.g., Innocent Drinks in the UK or Naked Juice in the US) and noncarbonated beverages (e.g., Arizona and Snapple in the US) are the fastest-growing and most-profitable segments for beverage retailers, while power bars are threatening traditional candy makers. At traditional grocers, most category sales are flat; in contrast, their premium and super-premium sales and the profits from them are skyrocketing.

IMPLICATIONS FOR TRADITIONAL ASPECTS OF MARKETING STRATEGY

Informedness, hyperdifferentiation technologies, and resonance marketing collectively change all aspects of the marketing strategy of firms, from pricing to product mix, and from manufacturing to marketing, sales, and distribution. Indeed, these phenomena change all of the traditional four Ps of marketing: promotion, price, product, and physical distribution.

CHANGING THE ROLE OF PROMOTION IN MARKETING STRATEGY

Ubiquitous informedness profoundly alters the impact of all promotion activities available to firms, which changes the balance of activities that firms should and should not deploy. Three trends strongly reinforce this change:

• Fragmentation of media and the decline in viewing of traditional media
  
  
• Consumers' distrust and indeed discounting of commercial messages that they see as paid advocacy, pushing self-serving content at them
  
  
• The explosion in trusted, organic informedness
  
  

In addition, the fragmentation of markets into numerous small sweet spots makes promotion extremely difficult to perform in a cost-effective fashion. A generation ago, Procter & Gamble could put a fabric softener into every mailbox in America, believing that the market for Downy was large enough to justify the expense. Today, a product that hopes to capture 1% or 2% of the market cannot justify undirected mailbox stuffing; it requires far more analysis and far more targeting than is possible for most new product launches. Organic informedness is replacing most attempts at seeded informedness based on blanket distribution of samples.

As organic informedness begins to replace traditional advertising, controllable push-based corporate communication is replaced by uncontrollable discussion among users and by online communities and user-generated ratings. Consumers know what is available, and what they know may not be what manufacturers want them to know!

Changing the Role of Price in Marketing Strategy

Informedness and transparency demand a change in pricing strategy, moving from a single, fixed profit-maximizing price to a family of dynamic pricing strategies. This change was first seen in pricing based on differences in customers' cost to serve and other aspects of customer desirability. This practice has been employed in life insurance and property and casualty insurance since the development of actuarial tables, and it has become common in credit card issuance. Pricing categories based on customers' willingness to pay for quality were also introduced, such as the 19th-century practice of pricing rail travel based on class of service. Next, dynamic pricing strategies were developed, such as yield management and congestion pricing. The next round of innovations in pricing was based on trying to capture different individual customers' different willingness to pay, leading to name-your-own-price strategies like Priceline. Resonance marketing combines aspects of all of these strategies, trying to maximize individual customers' willingness to pay by offering products that precisely match their most preferred selections.

Changing the Role of Product in Marketing Strategy

The increasing complexity of product mix is readily observed and has already been noted. This explosion in choice is largely driven by improved customer informedness. Informedness enables producers, service providers, and retailers to exploit extreme differences in customers' preferences, creating extreme differences in customers' willingness to pay. In brief, the delight-based product mix is replacing simpler product design strategies. This change is based on resonance marketing and hyperdifferentiation, and thus it is critically tied to informedness and pricing.

Changing the Role of Physical Distribution in Marketing Strategy

Online distribution now allows for almost universal access for some products like information goods; this is the central thesis of Chris Anderson's view of the long tail effect. Traditional physical distribution strategies are being replaced by far more complex alternatives with far more complete ranges of offerings. The online impact and ability to enable long tail retailing is slightly more complex for other product categories, but it still has a large impact on products that are shelf stable, easily described, and easily sold online. The long tail effect is still more complex for others, those with lower turnover and higher spoilage that are sold in physical stores where space is costly. The long tail effect is altering the grocery industry, as an ever-increasing share of profits comes from sweet spot offerings like cheeses, in-store fish markets and butcher shops, in-store restaurants, and prepared foods. Traditional physical distribution is being transformed, and customers have almost unlimited access to the world's range of alternatives.

Integrating the Four Aspects of Marketing Strategy

The traditional four Ps of marketing have been transformed, and yet there is a rough correspondence between the traditional aspects of marketing strategy and their more modern replacements:

• Dynamic pricing strategies replace simple price.
  
  
• Universal access replaces placement and physical distribution.
  
  
• Informedness and search replace promotion.
  
  
• Product portfolios and delight-based product positioning replace product.
  
  

Not only are the traditional four Ps of marketing transformed, but they are now also far more integrated:

• Pricing strategies are driven by customer informedness and willingness to pay and by delight-based products and willingness to pay. Dynamic pricing strategies are driven by transparency of supply and demand.
  
  
• Access requires retailers' and producers' awareness of product turnover and profitability, and it requires customers' informedness and awareness of attributes.
  
  
• Customer informedness is central; it replaces traditional promotions, motivates consumer behavior, and thereby motivates changes in the strategy of the firm.
  
  
• Delight-based product portfolios are again based on informedness, so that consumers can find and assess new offerings, and firms can identify and respond to unserved and underserved segments of the market with precisely targeted introductions.
  
  

CONCLUSIONS

The trends that are most critical to our observed changes in marketing strategies are:

• Hyperdifferentiation and its related technologies, which enable firms to do whatever they want. This changes the supply side.
  
  
• Resonance marketing, which guides hyperdifferentiation so that, in reality, firms make not whatever they want but whatever consumers want and will pay premium prices to acquire. This changes the demand side.
  
  
• Informedness, which drives both the customers' ability to locate and evaluate new offerings and the producers' ability to determine where unserved and underserved segments can be found.
  
  

Three forces in particular explain the changes in consumer behavior:

• The competition discount is up
  
  
• The compromise discount is up, as
  
  
• The uncertainty discount is virtually eliminated
  
  

And executives must remind themselves that these forces change every aspect of corporate strategy, which will in turn transform their professional lives. You will change the way you approach your job:

• Because you have to
  
  
• Because you want to
  
  
• Because you can
  
  

Likewise, every firm will have to change in order to exploit sweet spot opportunities, every firm will want to, and every firm can.

ABOUT THE AUTHOR

NOTES

¹ More information on hyperdifferentiation, resonance marketing, pricing strategies, and other concepts reviewed here can be found on my Web site: http://opim.wharton.upenn.edu/~clemons.