Kurt Hanson's blog

Consumers prefer specialists

Pandora's stock has taken a big hit in recent weeks due to rumors that Apple is considering entering the Internet radio space. Similar concerns have been raised about Microsoft recently "reentering" the space of Internet radio (actually, it's already in and has been for years -- it's simply rebranding its less-than-stellarly-successful "Zune Music Pass" as "Xbox Music Pass"), about the fact that Spotify is offering radio channels, and about the possibility of Google competing in the music space.

In all of these cases, I think the alarm is over-exaggerated.

Here's why: Each of those companies is competing in a different product category: Pandora is focused on offering a brand of personalized Internet radio to consumers. Apple, by contrast, is focused on selling hardware (iMacs, iPads, iPhones, iPads) and, secondarily, selling MP3 music files via its iTunes Music Store. Microsoft is trying to sell hardware (Xboxes and Windows 8 devices) and, secondarily, a music subscription service. Spotify is trying primarily to sell a music subscription service.

In all the cases except Pandora, each company may offer "radio" as a feature, but there's no indication it will be a stand-alone brand or a major company focus in the same way that Pandora is a company that's 100% dedicated to offering a BRAND of personalized radio to consumers.

Here's a good parallel: McCormick & Schmick's, the seafood chain, offers a couple of steaks on its menu -- but that doesn't mean it's a steakhouse. People who are in the mood for a steak tend to go to a specialist (e.g., Morton's The Steakhouse, Ruth's Chris, Del Frisco's). The steak on the McCormick & Schmick's menu is to satisfy the odd-person-out at a table who got dragged along by others.

Similarly, Morton's has a sashimi appetizer on its menu -- but that doesn't make it a sushi restaurant. Their decision to offer a sashimi appetizer is smart, it's trendy, it's an indication that sushi is getting more and more mainstream, but consumers who are in the mood for sushi would never in a million years decide to make a reservation at Morton's.

Consumers prefer specialists.

28 Flavors

How did the largest restaurant chain in the country in the 1960s and 1970s end up virtually defunct today (with only two locations, in Lake Placid NY, and Bangor, ME, both alive mainly for historical reasons)?

I'm talking of course about Howard Johnson's, which I think was the first restaurant my parents took me to as a small child -- famous for 28 flavors of ice cream, clam strips, Indian pudding, and more.

There are a plethora of reasons, but here are a few:

DIVERSIFICATION: Since the name was already famous for hospitality among America's highways and turnpikes, it made logical sense to expand into building Howard Johnson's Motor Lodges adjacent to the restaurants. Plus which, the son of the founder, once he was named CEO, started experimenting with new restaurant concepts -- e.g., a failed steakhouse chain called Red Coach Grills and the more successful upscale burgers-and-more chain Ground Round.

LOSS OF DISTINCTIVENESS: One great thing that helped establish the chain in the 1930s and 1940s was its "28 flavors" of ice cream -- seemingly (at the time) every flavor in the world (including Banana, Black Raspberry, Coconut, Coffee, and even lost flavors like Frozen Pudding and Fruit Salad). About the only distinctive element of the motor lodges was the architecture of the lobby -- a small double-A-frame building with an orange roof.

RUNNING IT FROM CORPORATE: According to the popular reference source Wikipedia, "In 1961, Johnson hired famed New York chefs Pierre Franey and Jacques Pépin to oversee food development at the company's main commissary in Brockton, Massachusetts. Franey and Pépin developed recipes for the company's signature dishes that could be flash frozen and delivered across the country, guaranteeing a consistent product."

COMPETITION FROM A DISRUPTIVE INNOVATION: Almost at the same time, unfortunately, McDonald's and other firms were introducing the "fast food" concept for a family restaurant, which started peeling off customers due to its speed, convenience, and lower prices. By comparison, "the Howard Johnson's model of serving pre-made food with high-quality ingredients in traditional dining rooms was costly."

CHEAPENING THE PRODUCT: So the company "attempted to streamline company operations and cut costs, such as serving cheaper food and having fewer employees." (Sound like any industries you know?)

Bottom line: Here yesterday, gone today.

(But what I would give for a scoop of Frozen Pudding right now... (BTW, apparently it's a New England thing. Kind of like lobster rolls. If I ever take up ice cream making again (as I did for a brief period in the 1980s), I'm going to try Frozen Indian Pudding. (Sound genius? Yes!)))

Pick a color

One of the big lessons I picked up from the marketing books of Al Ries and Jack Trout -- "Positioning: The Battle for Your Mind," "Marketing Warfare," "The 22 Immutable Laws of Marketing," and several others -- is the importance of having a color associated with your brand.

A great example is the world of rent-a-cars. The original leading firm in the space, Hertz, has used yellow (with black highlights) for decades. The "#2" firm (and I'm using quotation marks because they're actually #3, but their marketing angle is that they're #2 (so they try harder)) is Avis, which picked red. National picked green -- and aggressively and effectively features it in its marketing. Next, Budget: Orange (with blue). Less effectively, Thrifty and Alamo went after blue, the former with white highlights and the latter with yellow highlights. Dollar is not very well-positioned in my mind, but maybe that's because they use all three primary colors (along with black), which is not very memorable.

Off-pattern is Enterprise, which is actually nowadays the #1 firm, because it focused on a different target market (the insurance replacement vehicle market) and also uses green. I'm thinking that since they were entering a new market, any color would work, and "green," being associated with money, works in that context. But maybe I'm rationalizing.

Let's look at the world of Internet radio: Pandora owns blue. Slacker has gone for black-and-gold. Last.fm is red. I Heart Radio has also selected red, but their listeners are presumably pretty mainstream, so they may not be familiar with the hipster brand of Last.fm (and vice versa). Regarding AccuRadio, we're really not practicing what I am preaching: We were khaki in the early 2000s, then switched to blue (with yellow highlights) prior to Pandora's arrival on the scene, and now are vacillating between blue and (on our iOS apps) maroon.

At any rate, to quote Ries & Trout: Picking a corporate color for your brand can be an effective marketing tool.

Tablet computers are a "disruptive" innovation

If you've been to a RAIN Summit in 2012 (Las Vegas, Minneapolis, Dallas, or Berlin), you may have seen my "State of the Industry Address," in which I discussed the theories of author/consultant Clayton Christensen ("The Innovator's Dilemma") and argued that Internet radio is a "disruptive innovation."

(By the way, the term "disruptive innovation" is thrown around pretty freely nowadays, but, as Christensen uses it, it has a very specific meaning: It's a type of innovation that starts out worse than existing products in its category, and thus is experimented with but subsequently ignored by most market leaders in its category, but then gets better until it satisfies the needs of most consumers.)

Having looked at the new Microsoft Surface tablet last night (very disappointing, by the way; I can now hardly wait to receive my iPad mini), I am reminded that tablet computers are an excellent example of a disruptive innovation.

Remember the release of the first iPad, in April 2010? It was a device we were very excited about, as we wrote in RAIN at the time, but compared to a laptop computer, it didn't make the grade at all: It was underpowered, it ran hardly any business-related applications, it was slow to type on, and so forth. If you took a business trip in 2010 or 2011, you may have brought your iPad to use for web browsing and for reading e-books, and maybe to quickly scan your e-mail, but you brought your laptop computer along for real work.

But now all that's changing! I have not brought a laptop computer with me on business trips all year: I like Keynote more than PowerPoint for presentations, I like Numbers almost as well as Excel for spreadsheet work, I have an auxiliary keyboard I can use when I need to do a lot of typing, and so forth. The tablet computer -- the iPad, anyway -- has leapfrogged past the laptop computer, at least for my needs. And it's sleeker, lighter, and less expensive! That's why 120 million tablet computers will be sold this year globally, and why by 2016 tablet sales will exceed desktop PC sales.

That's the key thing to remember about disruptive innovations: They get better. McDonald's was a disruptive innovation compared to the family restaurants of the 1960s (tiny menu, no indoor seating), but it got better. And Internet radio is a disruptive innovation compared to AM/FM and satellite radio (no personalities, no news & information, no song segues, limited flow control), and it will get better. That's why it's worth paying attention to.

Friending Gone Berserk

Friends are good to have. Facebook is a fun way to connect with friends. "Social media" is an excellent channel for brands to communicate with their customers.

But sometimes is enough enough? On my way to work this morning in Chicago, there was a poster at the "el" stop for a local bakery, Turano, that primarily serves the food service industry. (I guess some of the restaurants I patronize purchase their bread and rolls from Turano, although since bread and rolls served in a restaurant are an unbranded product (as opposed to, say, ketchup), I would have no way to know which.)

At any rate, Turano wants me to "friend" (or "like," whichever) them on Facebook!

Of the hundreds or, more likely, thousands of products and services I consume over the course of the month (it's thousands if we're counting unknown vendors to the businesses that I knowingly patronize), does it make any sense at all that I would want to establish Facebook relationships with all of them? Or even many?

"Hey, guys, doing anything special for Earth Day?" 4 responses, with only 2 on topic, and neither of those involving Turano products. And this is from ad campaign that I assume must be costing many tens of thousands of dollars.

Well, thanks for letting me be a grumpy old curmudgeon this morning. And don't forget to "friend" me on Facebook, follow me on Twitter, and check out my Tumblr and Pinterest pages!

Your invitation to RAIN Summit West

Dear RAIN reader,

I'm writing you while on my way home from three great conferences -- Radiodays Europe in Barcelona, Canadian Music Week in Toronto, and IAB Audio Day in Los Angeles -- and I have to tell you, I am seeing a level of enthusiasm and excitement about the radio industry that I have not seen in years! If you define "radio," as consumers do, broadly enough to include AM, FM, HD, DAB, satellite, and Internet delivery, then more people are listening to more radio in more places than ever before. Exciting new products, services, brands, and line extensions are being created around the world. Billions of dollars of new value are being created. And both advertising and subscription revenues are on the rise.

This is what I've been calling the "Fourth Golden Age of Radio" when I speak at events.

LVH in Las VegasAnd if you're part of it -- or would like to become part of it -- let me encourage you to come to the event that's bringing all of these players together: RAIN Summit West, on Sunday, April 15th, at the LVH (formerly the Las Vegas Hilton), just preceding the upcoming NAB Show.

It'll be a day full of great speakers, panels, and networking opportunities with people from all sides of the business. You'll learn what's working, and what isn't, and where untapped opportunities lie.

Speakers include ESPN's Traug Keller, the U.S. Copyright Office's David Carson, Pandora's Doug Sterne, Owen Grover of Clear Channel/iHeartRadio, Jim Cady of Slacker, and many, many others. Details here.

Flights and hotels are still generally available and affordable. At $149 (including a nice lunch and a great cocktail party), RAIN Summit West is one of the best conference values in radio -- and Wedensday and Thursday (3/28-29) you can take off an extra $50 by using the discount code "JOINUS" when you register. Several past RAIN Summits have been totally sold out -- don't hesitate. Please join us!

If you love radio, I guarantee you'll be glad you did.

Yours,

Kurt

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