If you want to meet a truly insightful CMO 2.0, meet Ted Smyth, the Executive Vice President, Corporate Affairs at the McGraw-Hill Companies. Ted has a really interesting background that started with a 15 year long  career as a senior Irish diplomat. He then switched over to the world of business by joining Heinz, where he spent 20 years before joining McGraw-Hill 2 years ago. One of the main lessons learned from this diverse background is that companies have to embrace performance with purpose – you don’t want to achieve profit goals at the exclusion of what’s good for society. Young people especially, will not want to leave their persona’s at the company’s front door, they will want to continue to do good for society while being at work. Another obvious benefit of mixing do-good with company performance  is that as a company you will increase the passion of your employees in the context of their work – which is clearly a win-win proposition.

We quickly delved into the topic of innovation, a hot topic at McGraw-Hill, where many of the industries in which they operate are undergoing tectonic shifts, and many of their businesses are going through the classic innovator’s dilemma. Innovation and customer focus are two major initiatives at McGraw-Hill. They strive to delight customers and prospects, and seek out people who are brilliant, courageous, curious, competitive and driven to do so – both inside and outside the organization. Innovation at McGraw-Hill is both a grass roots as well as a top down initiative, and celebrating wins, benchmarking themselves against other innovators, and developing an understanding of societal needs is all part of their culture of innovation. Ted is a firm believer that innovation needs to be structured and attached to people’s work routine. It needs to be disciplined to succeed and you always have to be on the lookout to not just innovate according to your capabilities, realizing that sometimes you need to upgrade your capabilities to develop what customers want.

Next we talked about education and learning, an important part of McGraw-Hill’s business, and a perfect example of what Ted meant when he talked about achieving business success while also doing good for society. Learning and education are clearly becoming digital activities that can help fix the current system, which is failing our kids – with kids who are slower than average falling behind and those who are faster than average getting bored. Digital courseware helps alleviate these problems. In digital environments, teachers and educators are freed up to become coaches with the ability to provide one-on-one help for the kids. While digital learning can remove some of the social barriers that sometimes inhibit learning (e.g., humiliation for not getting it), digital learning needs to be a very social/collaborative activity in order to succeed.

We then talked about the changes in how people consume content and where they get their buying recommendations from, and how that impacts marketing. The way McGraw-Hill thinks about marketing and advertising has obviously changed, with much more activity shifting towards  thought leadership and relevance in social media. Just like other Hyper-Social Organizations, McGraw-Hill realizes that you can only ensure consistency across all the different touch points that you have with your customers by living your mission and values. They have a very clear mission - need for knowledge, need for capital, need for transparency -, and a set of values that are easy to live by – objectivity, integrity, candor, diversity (especially of thought), and independence.  These simple concepts unite all employees across all divisions and help drive consistent decision-making across different markets with different customers.

Ted finished the conversation with two words of wisdom for marketers – we need to introduce more humor and emotions in communications and better articulate great societal causes. In closing he quoted some lines from an Irish poem by Nobel Laureate Seamus Heaney from the Canon of Expectation that got recited at a St. Patrick’s Day event he attended the day before our interview: “I yearn for hammerblows on clinkered planks, the uncompromised report of driven thole-pins, to know there is one among us who never swerved from all his instincts told him was right action,who stood his ground in the indicative, whose boat will lift when the cloudburst happens.” That is where we as individuals, communities and companies need to be, we need to stand our ground in the indicative, and our boat will lift when the cloudburst happen. We need firmness of purpose and be able to express it emotionally, poetically and humorously – that is where communications needs to be in order to be effective in this cluttered world.

What a great way to close a conversation with a truly great human being. Thank you Ted!

Other topics we touched on:

• The importance of the fundamentals of conflict resolution in business
• The role of training in fostering innovation
• The balance between understanding unmet needs and prospects vs existing customers needs
• The importance of serendipity in innovation
• The lessons that can be learned from game designers in education
• The need to bring down silos in stimulating innovation and learning, both in education and businesses, and the importance of social networking in doing so
• Generational differences in learning
• The importance of content curation in the publishing industry
• The dynamics of the current knowledge economy

As usual, you can listen to the full interview at the CMO 2.0 Conversation site.

About a year ago I wrote about the fact that people have two evaluation frameworks – a market framework and a social framework – and how rewards are not a good idea when looking for community feedback on products.

Authors Ori Brafman and Rom Brafman, in their latest book Sway: the irresistible pull of irrational behavior, describe a research project at the National Institutes of Health (NIH), that confirms the same paradox through neurophysiology.

The NIH researchers placed participants in an MRI machine fitted with a monitor and a joystick to allow the subjects to play a game. At the beginning of each game a circle, a square, or a triangle would appear on the screen. A circle meant that if you succeeded in completing the upcoming task – zapping a figure as it appeared on the screen – you’d earn a monetary reward. Different circles meant different size rewards. A square meant that if you failed to zap the figure you had a penalty of either 20 cents, $1, or $5. A triangle meant that no money was on the line.

When the researchers monitored which part of the brain was active in the various stages of the game they found that every time a circle or square appeared, that is every time there was money to be gained or lost, the pleasure center of their brain lit up – the same center that is associated with the high that results from drugs, sex, and gambling, and which can result in addiction. When triggered, that part of the brain releases dopamine that creates the feeling of contentment and ecstasy – and as addicts will tell you, you need increasing doses of dopamine to achieve the same result over time.

In a separate study, subjects were asked to play the same game, but instead of making or losing money, the participants were told that the better their score, the more money would be donated to charity. Now the MRI revealed that the pleasure center was completely quiet, but instead the “altruism center” of the brain lit up. That is the part of the brain responsible for social interactions – how we perceive others, how we relate, how we form bonds.

The book also describes other case studies of people evaluating things in either their social framework or their market framework. A fascinating one is when the Swiss government was looking for places to dump nuclear waste after World War Two. When they selected two towns and tried to convince the town members to take one for the team by accepting to live near a nuclear dump, 50.8 percent of the voters agreed with it. Thinking that this was still too much opposition, the government instead offered a monetary reward to live next to the dump – the equivalent of $2,175/year. What happened is that after the monetary reward was offered, only 24.6 percent of the population agreed with it. And when the government upped the reward to $4,350 and then $6,525 per year, only one voter changed his mind.

This all proves that using rewards is really bad for marketing. People get addicted to it and they expect it in increasing quantities. This also explains why the SAP developer community had some bullying in the community when they offered individual rewards, and how that all went away when they changed the program so that the overall number of points within the community triggered a donation to a charity.

Words and metaphors are great when used properly – they can also severely limit our views and thinking around certain topics.

Look at marketing as an example. There are a ton of words that we use as part of our jobs that are actually limiting our capabilities to think differently and to innovate. Let’s take a look at a few of them:

Market.

By definition, a market is any place where the sellers of a particular good or service can meet with the buyers of that goods and service where there is a potential for a transaction to take place. The buyers must have something they can offer in exchange for there to be a potential transaction.

So by thinking about markets we are automatically focusing on the transactions, and forgetting about the behaviors that causes people to buy products in the first place.

As I said in previous posts, a better alternative is tribes.

Consumer.

As I was talking with Joel Rubinson yesterday, the Chief Research Officer for ARF, he said “Your focus on the human, and the emphasis on tribes rather than segments caught my eye.” continuing “We do not like the word “consumer” since that is really a state of being in the context of what you (the marketer) care about.” BINGO!

If you think about your prospects as consumers, you are thinking about it in a way that is way too narrow. If you can expand your view and think of them as humans, people with other needs, wants and problems besides the need for your product you may be in for some surprises.

Let’s use the the real estate market with consumers for rental units as an example. Thinking about it that way will lead you to match an apartment with the needs of the renter. Thinking about the consumers as humans, with their specific ethnic backgrounds, family configurations, love for animals, and history, you will recommend a rental unit within a specific neighborhood that has neighbors who love animals and is located within an area that has the right school system – a much richer match.

So the alternative to consumers is humans or people.

Social Media.

This is a new one, and most people focus on the media part of social media. Doing so automatically triggers thoughts around a channel for communications, a way to reach people, and other spam-like activities. What is really important about social media is of course the social – how the social with all its messiness is invading all business processes but also offering tremendous opportunities to those who can harness what emerges from this chaos.

So don’t think about social media, focus instead on social media.

There are other words like that which are causing us to have blinders when we think about marketing. Another obvious one is product, which automatically makes you focus on the features of the product instead of the human who might buy it from you. A much better term would be solution, which includes the buyer as part of the thinking.

Do you know of other words or metaphors that we should try to change in the world of marketing?

Most marketers embrace the economists’ worldview – we are rational people who buy products to fulfill our needs and when confronted with choices we make rational decisions.

Unfortunately that is not always the case – if ever.

Our buying behavior is very much influenced by our social behavior, which in turn is mostly determined by hardwired reflexes. That is what makes it so hard to predict what will sell and what will not. We buy things because they make us look cool, intelligent or well informed. We buy things because our mirror neurons drive us to want to imitate others. We buy things even though we know they are not good for us, and we do not buy things that are proven to have a positive effect on our condition. We buy things without the latest bells and whistles because we hate change. We buy things because we want to belong.

When we buy things, we do not act as rational beings.

Sure, we buy things based on recommendations from others, and avoid things that people badmouth. But it goes further than that – we buy things based on the behavior of the people who bought the same product, and more importantly based on the behavior of others who are observing the original buyers. That is true for personal fashion items as well as for enterprise software solutions.

On the one hand, that makes it a heck of a challenge to predict winners and losers in the marketplace. On the other hand it provides marketers with an opportunity to incorporate expected social behavioral reactions to new products into the product innovation process…

What do you think? Have you seen good examples of that? Hindsight of course is 20/20…but who does it well as a predictor of success?

Most marketers have been trained to use market segments as part of their strategy to approach certain groups of people. Unfortunately when you try to leverage communities as part of your business that no longer works.

Marketers need to move away from market segments, which are based on characteristics, and instead embrace consumer tribes, which are based on behavior.

To understand the difference, let’s use a hypothetical example. Imagine a large health club chain which decides to leverage communities as part of their business. They could target health conscious people, who want a good quality of life and  believe in balance between mind and body, as a basis from which to build a community – that would be using market segmentation. Alternatively, they could look at the tribes that typically hang out at health clubs – such as weightlifters or stay-at-home moms. Weightlifters like to show off and enjoy an audience, they are competitive, they like talking about how much they can lift and what their goals are. Stay-at-home moms prefer fewer people at the gym when they go, preferable women, and like to talk about children issues and community issues.

Now which communities will be more successful in this case? Those designed around the market segment or those designed around the behaviors of tribes?

Reminder: If you leverage communities as part of your business and have not yet taken the survey for the 2009 Tribalization of Business, please do so now, or visit the new Tribalization of Business Site.

Of course you know my answer…

But as I was cruising some sites this morning I came across another interesting stat that seems to support that. Below are two charts indicating the level of growth of job postings on indeed.com for jobs related to marketing and jobs related to social media.

What do you think?

[update] @Marc_Meyer pointed to the fact that social media marketing has unbelievable growth on indeed.com. That prompted me to look at absolute numbers, which is making this whole comparison meaningless. Marketing jobs make up 8% of all jobs, social media related jobs 0.08% and social media marketing jobs 0.004%. All that being said, I still contend that the two are too disconnected…[/update]

An article in this month’s issue of McKinsey Quarterly (requires subscription) talks about “the downturn’s new rules for marketers” and how those rules are different than in the last downturn back in 2001-2002.

In previous downturns, marketers were driven to:

• Focus on large, historically profitable customers, geographies, and market segments
• Emphasize traditional media, such as TV and print ads, while cutting back on new advertising vehicles
• Slash back office sales overhead while investing in frontline salespeople

Because the economic downturn is so profound, and affecting everyone in very different but specific ways, and because traditional media has declined in importance as the Internet and social networking achieved meaningful scale, and because people buy differently than they did in the past – those old rules for marketers in a downturn will not work this time around.

The recommendation for this downturn?

First off, companies need to get very granular in prioritizing the geographies that they will compete in. With the complex impact of this economic downturn, you can find cities that have a high growth potential even within regions that don’t. The authors of the article use the example of a beverage company that had access to micromarket data and found that the price sensitivity of people varied as much as a factor 13 across regional markets, a factor 5 across cities within them, and a factor 3 across zip codes within individual cities. When you know how to redeploy you scarce resources across those zip codes, cities and regions that have the least price sensitivity you will increase your profitability dramatically compared to those competitors who will slash across the board.

For b2b companies, the authors argue that a fresh look at segments will not be enough and they recommend doing the analysis on a customer-by-customer basis, saying that:

“Of course, they must start by assessing the basics: whether a customer has enough cash or liquidity and the likelihood that such funds will survive. Then they should think about how the crisis will affect all aspects of their profitability.”

When it comes down to looking at how to invest marketing and sales resources, besides investing in those geographies and customers with the largest profit potential, the authors recommend a mix of traditional and new vehicles, with the latter typically accounting for 10-15% of spending. Don’t use reach and cost as your metrics to evaluate where to invest – instead focus on quality – or the ability to influence customers.

On reprioritizing sales functions the authors have the following to say:

“As we have seen, in tough times companies try to improve their profits by reducing sales overheads while concentrating resources on the frontline sales force. But today’s sales teams use newer kinds of support that are too important to cut indiscriminately: they play strategic roles in the sales process and are critical to serving the most profitable customers and to converting new prospects. An executive who slashes these support functions as part of a broad cost-cutting campaign risks severely damaging the sales force’s effectiveness.”

And of course, and as the article points out, there are things in marketing that never get outmoded – including the constant need to reevaluate the value proposition of your brands, the fine-tuning of your products and pricing, and the cost management of your agencies.

All that being said, it is going to be interesting to see how companies with micromarket data who can develop microtargeting capabilities using a mix of traditional and social media marketing will do compared to their peers who don’t.

Many marketers view social media marketing as (merely) a way to do marketing using social media tools. Consequently most social media marketing programs in the near future will be just that – marketing programs. They will have little in common with the passionate user communities and consumer movements that truly visionary companies will be able to leverage to transform their entire customer-facing processes – from marketing to customer service and new product innovation.

Those that get beyond this social media myopia and realize that the power of social media marketing comes from putting the social in marketing will achieve results that far surpass those of their colleagues.

So let’s take a look at what social media marketing activity we are likely to encounter in the near future and how these initiatives might evolve in the future. (Of course, you do not have to wait for the future – you can go there directly, right now.)

Say you are a really honest used car dealer, a truly compassionate personal injury lawyer, or a lobbyist fighting for a real noble cause…how do you create an image for yourself that is believable and disconnected from the bad connotations that characterize your industry?

Can you overcome the perceptions?

And how do people make buying decisions when they need a product or service from an industry that is tainted like that? Sure, they can ask for recommendations…but in a lot of cases you do not need that product or service too often, and many of your friends may have never needed it either.

It’s a tough one…and one that many small businesses are facing.

Thoughts? Good case studies? Let me know…

I am scheduled to travel to Belgium to visit my father who was diagnosed with two aneurisms and is facing a fairly complex and dangerous operation later this month. When he had an aneurism 17 years ago it burst and not only did he almost lose his live – he lost his business.

So I made reservations on Air France to go visit, and when I called my parents today with my itinerary I realized that I had made a mistake. I wanted to come back on the 27th and for some reason when I ordered through airfrance.com they booked me a train from Brussels to Parin on the 27th and a flight on the 28th. Now I order stuff online all the time, and if there is an overnight situation I expect the site to alert me to this. I called Air France, hoping that they would rectify the situation, as I do not want to spend a night around the Paris Airport and also need to be back in the US on the 27th. When I heard that they had plenty of room on the 27th, I thought it would be a no-brainer for them to change my reservation – and was even prepared to pay a fine for what surely was their screwed up user interface. But no, they could not change it – I begged, played nice, tried the empathy card – but the answer was no way, non, merde…you lose your ticket and buy a new one (which I did – but on Air Lingus – hoping the Irish are somewhat better).

Now my family has been using Air France ever since the Belgian Airline went out of business 6 or so years ago.

In these bad economic times, you would expect companies whose service are going to be the first to be cut from personal and business budgets to do everything they can to hold on to their customers – especially if it does not cost them a dime to accommodate the change request which would satisfy the customer, and perhaps make up for their deficient product offering.

I am flabbergasted – but should I? You could blame customer service arrogance, something that the French have been accused of, but in the end it has become an industry-wide behavioral attitude.

How do we customers give them the middle finger?