The difference between marketing and design

Your marketing sucks. But then again so does everyone else's. It's been driven to blandness by a combination of focus groups that couldn't "get" your new idea, repeated changes from your management team, internal squabbles and marketing ideas from a time when advertising spend equalled market success. But maybe there is a deeper problem...

Put simply, in 2009 if you don't have a great product then no amount of sales, marketing, branding or advertising will help you. What might just help is design. In particular, a way of approaching new product development and marketing problems called design thinking. You still need traditional marketing to execute but for new ideas or new brands you need a new approach.

I work in a field where design thinking is well defined, well understood and well appreciated. But today a marketing manager stopped me in my tracks in the middle of a meeting. She asked me, "So everything you've told me about design thinking just sounds like good marketing. What gives?" I was lost for words and this blog post is my attempt at an answer after the fact.

Design is not just good marketing. It's a fundamentally different way of approaching problems within your business.

Marketing thinking is all about seeing people in aggregate so that you can communicate with them as efficiently as possible. Design thinking is all about seeing people as individuals so you can delight that one person and extrapolate that out to others.

The best place to see this is in a focus group. Focus groups that are reviewing a concept will tend towards the views of the average. This results in the overwhelming blandness of the products that you see on your supermarket shelves. There is a very healthy place for focus groups in the insights, research and needs identification parts of the process. But not in testing or reviewing your new brand or new product.

A wise old friend (stanford MBA), a successful company CEO and entrepreneur recently reminded me that in business you only have 3 options:

a) be the biggest and win by being the cheapest,
b) be the smallest and win by staying under the radar, or
c) be different.

If you choose option (c) you'd better get aware of how design can help your whole business understand your customers and create difference. - And fast. Because someone pursuing option (a) with an army of marketing experts and someone pursuing option (b) with an invention in their garage are both after you.

To be fair, you still need a marketing strategy and you still need to tell your story. But maybe it's worth having your own story to tell first. We've found that using a marketing approach too early on in the process leads us to ask:

• What will please the greatest number of people just enough to buy our product?

Using a design approach at first tends to lead us through empathy, user centrednesss and creativity to ask:

• What will delight those who buy our product so much that they tell people about it?

Fundamentally, marketing is about talking to a group, design is about listening to an individual. Both are important skill sets at different stages of the process. But in the end, would you rather buy from a company that talked or one that listened?

Business case for design: One widget at a time

Usually design thinkers and product developers wait until a product is in market to test the financial impact that it has had on the business. I'm proposing that for your new product development projects that you include an accountant early on and that as part of the story telling and stage gate process you include financial models of how the product would work for the business.

A telling way to do this is to focus on one product unit at a time. This is very different to the “we could sell xyz of these in the first quarter” type financial modelling for design. Instead you’ll be aiming to tell a story along the lines of:

If the current working prototype was taken to manufacture it would cost $10 in materials, labour and manufacturing. It would cost an additional $5 per unit in go-to-market expenses and we could sell it for $30 based on the value it would deliver to the user.

This gives your management team a $15 gross profit per unit or a gross margin of 50%. There would be a lot more to determine but it provides a rapid prototype that helps people not directly involved in your project to understand it. The numbers you'll need are:

1. Cost of physical materials
2. Cost of manufacturing
3. Distribution, packaging and go-to-market expenses
   
4. A slice for sales & marketing directly related to the widget
   

Keep in mind that the aim here is to communicate the value of your project and the careful design process you are using, not to let financial analysis overrun your empathy, insights or creativity. On the contrary, the goal here is to use finance to defend it.

Top 5 cubicle grenades to help you build the case for design

Using design thinking in your business is all about organisational culture. To change culture, you need to change conversations. To change conversations you need a conversation starter or maybe a "social object".

When was the last time you talked with someone in your organisation about ethnography, deep empathy, future thinking, prototyping, end-user focus or niche marketing? A great way to start these sorts of conversations is to drop a cubicle grenade which prompts a story or a question. Try this:

1. Print one of the cartoons below on an A4 sheet and put it somewhere visitors to your workspace will see.
2. Talk to people about it, ask them what they think of it, ask them what they think of the idea behind it, tell them about why it matters to you, how you found it or who made it. - Tell them a story.

"Cube Grenade" is a new word for an old idea. An object or picture that prompts a meaningful conversation. Each of the cartoons below have the potential to prompt conversations about design thinking, stories about users, a narrative about your brand, insights and even empathy:

1. The Hughtrain:

2. Quality:

3. It's not what the software does:

4. Wolf vs. Sheep:

5. Dinosaur:

These cartoons are all by Hugh Macleod. Hugh is a seriously talented copywriter, artist, strategist and creative business person. I'm pretty excited about his "end-user cause" based approach to marketing Stormhoek Wines (and other clients like Microsoft). In future posts we'll come back to Hugh's work to look at how you can use the design thinking tools of empathy, research, prototyping and story-telling in more and more creative ways.

Hugh has recently invited readers to use twitter to suggest which of his cartoons are their picks for publication as fine art prints. You can tweet him your thoughts at @gapingvoid.

Of course, all the images above are absolutely copyright to Hugh MacLeod. You should check out his blog to find out more about how you can use, share and enjoy his work.

Business case for design: Easiest way to value your intellectual property

You might not want to hear this, but if you can't put a dollar value on the benefit of your design project then you may not have a project at all. You may have a registered trade mark to protect your brand design. Maybe even a patent or design registration to protect your product designs. But how much intellectual property is there really in your business? And how much is it worth?

In previous posts we’ve mentioned accurate but hard ways to value your intellectual property using financial analysis. There is also a fast and easy way of valuing intellectual property. I call this approach Naked Valuation™ because you are going to compare your business to a similar business without your intellectual property.

This technique will help you make the business case for design thinking more easily by quickly providing additional economic evidence that investment in design will increase the value of your business. To get started, ask:

“If I copied all your land, buildings, equipment & machinery, and then employed dozens of well trained but totally inexperienced laborers to do your jobs. Then what can you do today that they couldn’t do?”

The answer may well tell you a lot about where the real intellectual property is in your business.

Asking yourself this question about the comparable “naked” business will often bring up the value of relationships, channels to market, designs, production problems you’ve solved, trade secrets, tweaks to your systems and even deep knowledge by a couple of key staff.

Whether it’s product design, brand design or innovation processes. Each time you invest in design you are going to add value to the assets that are hardest to copy. It may seem easy to replicate intellectual property such as a physical design or a logo but once you realize that the IP is infused into every element of your business its easy to realize how hard it is to replicate.

To perform a Naked Valuation™ on a product instead of a business, simply identify the value of an asset with the trait that you are valuing and compare it to a similar asset without the trait. For example:

• Coca Cola sells for $2.69 for 1.5 litres at my local store, the private label store brand sells for $1.39 for the same volume. A value on intellectual property of 48% of the total price.

• A 2009 Lexus ES sells for $41,000 whereas a Toyota Camry from the same manufacturer with the same design sells for $32,000. To be fair the Lexus includes upgrades that if added to the Toyota would cost around $3,000. Even so, the branded premium is still $6,000 or 15% of the total price.

• A nice New Zealand Sauvignon Blanc will retail for $30 whereas an unbranded “cleanskin” version of the same wine could sell for as little as $10. For a brand and reputation value of 66% of the total price.

There are lots of other reasons for these price differences and the total return on intellectual property is a function of both price and volume. Even so, the insight remains… to get a quick test of the value of a piece of intellectual property, look for the nearest substitute without your intellectual property and compare the economic value of the two.

Top 5 powerpoints to help you build the case for design

Powerpoint is a dangerous tool. Even so, it's useful to see how five of the top design and innovation firms describe what they do. Below is one example each of how these design and innovation firms present to a general business audience. A couple of them were made for specific events so don't get too distracted by the detail.

You can certainly take your time with them but the goal is to absorb an overall picture of what would work for yourself to use as a tool in describing your own work to your CEO, CFO, engineers and even the marketing team.

Adaptive Path

Subject To Change: creating great products and services for an uncertain world

Continuum

Radical Innovation

Frog

Design In The Age Of Convergence

Ideo

Design Thinking

Stone Yamashita

The Worlds Largest Innovation Lab

Each of these presentations is a different take on the core issue of how we describe end-user centred design, design processes and design thinking to a business audience. Vote in the comments on which you feel are the best and worst...

Top 5 metrics to help you build the case for design

The big consulting firms (McKinsey, Booz Allen and BCG) would all love to get you to use more metrics to analyse innovation. Partly because it allows them to apply their existing left-brain analytical skills to your right-brain creative design challenges. Everyone has their own take on the role of metrics in design. Whatever side you take there is a lack of easy metrics that you can use to quickly explain to your CEO and CFO why design is important to your company's growth.

Below are the top 5 metrics that you can pick up today to benchmark your business against your competitors. These are not the only metrics but they are the ones that you'll be able to use to make a strong case for investing in design:

1. Vitality Index

Sales from products created in last 3 years / Total sales

2. Contribution margin

(Sales - Direct costs) / Total sales

3. Return on assets

Net profit before tax / Total assets

4. Brand value

Expected net annual cashflow from your branded products / Your target annual return on investment percentage

5. Return on intellectual property

Total sales / (Market capitalisation - Physical assets)

Warning, these are not measures that you will be using to manage your design process. Later on we'll cover metrics such as delivery in full on time as specified (DIFOTAS), Return on innovation investment (ROII), Time to market (TTM) and a whole host of activity measures.

Next week we'll calculate the numbers for these metrics for a couple of example companies so that you can compare your own performance.

Top 5 podcasts from the Design Council to help you build the case for design

These podcasts are from the UK Design Council who have published some great content over the years. You can browse their full collection here. To save you time, I've listened to all of them and have chosen the top 5 that I would put on the ipod/itrip for a roadtrip with a boss that knew nothing about design but was willing to listen.

They also make great email fowards because you can download them and pass them (or the link) onto a colleague to listen to themselves.

1. InterSections 07: Tim Brown

Tim Brown, Ideo CEO - The challenges of design thinking - 25 October 2007

Duration: 39:52 minutes Size: 18MB

Tim Brown is a design industry leader and key promoter of the concept of 'design thinking', a term given to the introduction of design methods and culture into fields beyond traditional design, such as business innovation

View transcript of InterSections 07: Tim Brown

2. InterSections 07: Frans Johansson

Frans Johansson - Innovation at the intersection of disciplines and culture - 25 October 2007

Duration: 49:44 minutes Size: 22MB

What’s the connection between termites and architecture, candy and computers, between sneakers and Hummer and techno music and Martin Luther King? The answer, according to Frans Johansson, lies in the Medici Effect. Find out what he means.

View transcript of InterSections 07: Frans Johansson

3. InterSections 07: What can design bring to strategy?

Kevin McCullagh, Chair, Jonathan Sands, Elmwood, Richard Eisermann, Prospect and Ed Silk, Interbrand - 26 October 2007

Duration: 46:48 minutes Size: 21MB

Design strategy is a growing sub-discipline of design. The panel ask what strengths designers bring to strategy building and what new skills they might need to acquire?

View transcript of InterSections 07: What can design bring to strategy?

4. InterSections 07: James Woudhuysen

James Woudhuysen - Mission creep: The limits of design - 25 October 2007

Duration: 50:20 minutes Size: 23MB

As design makes inroads into business, public services and policy, it has developed greater ambitions. What are design's merits and limits? How far can design go? James Woudhuysen firmly believes in the principles of universalism, humanism and rationalism.

View transcript of InterSections 07: James Woudhuysen

5. InterSections 07: Clever by Design

Sir George Cox and Dr Andrea Siodmok - Design Council - 26 October 2007

Duration: 28:20 minutes Size: 13MB

Where does design fit into management thinking? What is the role of the designer in the modern economy? Sir George Cox, Design Council Chairman and Dr Andrea Siodmok, head of its Design Knowledge team.

View transcript of InterSections 07: Clever by Design

How far has the economic case for design come?

Your business case for investing in design will include both qualitative and quantitative evidence. This blog focuses on the economics of innovation so we won't spend to much time on qualitative arguments like case studies, war stories and theoretical arguments. Instead the focus is on ways that you can make a compelling financial and economic business case for design.

That said, you'll still need to balance both by including examples along with your analysis and there's a great post from back in 2007 by Brian Gillespie who had just attended the DMI Conference "Improving and Measuring Design’s Role in Business Performance“ which cried out for more case studies and more qualitative examples. In short, he wanted to see more effort put into articulating the role of design in:

• Influence on the purchasing decisions
• Enabling strategy (new markets)
• Enabling product and service innovation
• Reputation/awareness/brand value
• Time to market/process improvement
• Customer experiences
• Cost savings/ROI
• Developing communities of customers
• Good design is good for all: triple bottom line accounting for social, environmental, and business impact

Since 2007 a lot of evidence has emerged on each of these and we'll be reviewing them in turn over the next couple of weeks and including a few new areas where design can add value. Paste any of your favorite micro-examples of end user centred design and design thinking adding practical economic value in the comments below and we'll include them as we go.

Top 5 videos to help you build the case for design

The Technology, Entertainment and Design conferences are an amazing collection of speakers, attendees and energy. What really makes them special for me is the arbitrary 18 minute format that forces every speaker into a high-energy summary of their best material. These summaries make the TED talks ideal ways for you to expose people in your organisation to new ideas in an easy, punchy and quick way.

Picking a top five is a hard task but I'd suggest that you do make the time to watch a couple of these and send the links to your colleagues.

Sir Ken Robinson on why schools kill creativity:

Tim Brown on creativity and play:

Paul Bennett on design in the details:

William McDonough on cradle to cradle:

David Kelly on human centered design:

You can download mp3 versions or save these videos to your ipod by visiting www.ted.com. I've found the best way to foward them on is to copy and paste the links to the page for each particular talk that you want to send to someone. Then they can choose the format to watch or download. For example:

1. http://www.ted.com/index.php/talks/ken_robinson_says_schools_kill_creativity.html

2. http://www.ted.com/index.php/talks/tim_brown_on_creativity_and_play.html

3. http://www.ted.com/index.php/talks/paul_bennett_finds_design_in_the_details.html

4. http://www.ted.com/index.php/talks/william_mcdonough_on_cradle_to_cradle_design.html

5. http://www.ted.com/index.php/talks/david_kelley_on_human_centered_design.html

Business case for design: Statistics and lies

The last line of defence in your case for design investment is the overall impact of design in business. There are several reputable organisations that have spend quite some time and money to analyse how spending on design creates impact on the bottom line.

Interbrand have some fantastic international analysis on the Best Global Brands 2008 and they discuss how to value your brand based on future earnings using (1) forecast financials, (2) economic analysis, and (3) how your brand influences ongoing consumer demand.

The Design Council UK found in 2001 that a basket of companies using design grew by around 10% faster than the market. The Danish Design Centre found in 2006 that out of 800 companies (staff from 35-200) those that use design had growth in gross result (gross profit discussed above) of 250% compared with companies that did not.

In 1993 Roy R. and Potter S. (of the Open University in the UK) found in a study called Winning by Design that 94% of projects using design that were implemented achieved a positive net return. On average the payback period was 14.5 months. Interestingly, product design projects took 15.9 months to pay for themselves and graphics/packaging projects took 11.5 months.

Finally, the Irish Center for Design Innovation gets it in a big way and is worth pointing your finance team towards.

Armed with your economic levers, your accounting impacts, the specific forecasts and some aggregate data to support your assumptions you are now ready to face your CFO.

Business case for design: Forecasting for success

Each of the levers in yesterdays post on accounting will affect key parts of your company's financial statements. To convince the CFO of the value of your design project you'll be forecasting scenarios based on the proposed investment in research, design and innovation. These scenarios can be as simple as guessing the number of units you will sell of the new product or as complex as full financial models of the entire organisation based on discount factors for out-years.

If your CFO is seeking basic forecasts then your analysis from above will be persuasive here as well. If however, your CFO asks for scenario plans and mock-financial statements then you'll want to enroll the help of a sympathetic accountant or financial analyst.

The first question that person will ask you is would you like your forecast "bottom up" or "top down"? The right answer is "both". Bottom up forecast start from your existing production and supply. They then build up to forecast the possible future sales. A top down forecast starts with the potential market demand and builds down to answer the production and supply that would be needed to meet that demand.

The flaw of bottom up forecasts is that they are often boring and do not build a sufficient case to invest in break-through innovation. We see this most often in clients as, "We grew at 10% per annum for the last five years so I guess we'll keep on doing that."

The flaw of top down forecasts is that they risk being "pie-in-the-sky" and ignoring the organisation constraints. We see this most often in clients as, "The Chinese market for this product will be USD$10 billion so we only need to get one percent of that and we'll have a run-away success."

Work with your ally to create forecasts that both stand robustly in the present and aspirationaly in the future. The most powerful technique we've met to achieve this is future-casting five years ahead aspirationally and then looking back from there brutally to see each step involved.

The second question your sympathetic accountant will ask is: "How are we going to account for the non-cash impacts of your project?"

The safest answer at this stage is "We're not."

Business case for design: Accounting for innovation

Today we'll focus on using accounting to measure the impact of product design.

In accounting terms the impact of your design project will be similar to the "economic" impact we discussed last time, but the language you use to articulate the impact will be very different. From a design perspective you'll need to apply some empathy to your use of terminology. It might not be fun, but like driving a car on a windy road, you'll need to treat your accountant the way they want to be treated. If you're going to get the best from them.

Wherever you are from in the world the technical accounting terms might differ but, your finanical controller, Chief Financial Officer and accountant will be interested in any project that can:

1. Increase your revenue

2. Lower your cost of goods sold

3. Deliver a higher contribution margin (and gross margin)

4. Lower your overheads from capital costs

5. Create more earnings before interest in tax (EBIT)

6. Ensure ongoing positive cash-flow

Each of these areas are important to design and innovation. What you might notice is missing is the word "profit". This is because in today's business climate:

Profit is an opinion, cash is a fact.

Business case for design: Economics of innovation

This post addresses the strengthening business case for design.

Let's run through how you as a product development professional can use the language of economics and finance to articulate the return on investment in design expenditure. In particular, in the areas of brand, product and process. Future posts will describe how to articulate the business wide impact of incorporating design thinking into your company's vision, culture and strategy.

We can use a USD$100,000 engagement with an external product design and innovation firm as an example. The aim of this project will be to develop a product that anticipates latent needs, delights end-users and delivers an integrated holistic experience. However before you or your external product designers get to any of that you'll need to get past your CEO, senior management team, CFO and their corporate finance team. We'll address the CEO first.

The economic impact of investments in product design:

The key levers available to your firm's senior management include the price, quantity, variable costs and fixed costs of your business. To convince the CEO and senior management team of the impact of the project you'll want to address the real life impact of the project in each of these areas. You will need to convince them that with the aid of a disciplined approach to NPD and an empathic approach to design your project will create a product that:

1. Commands a higher price because it is differentiated from your competition.

2. Sells a higher quantity because it provides more utility to the customer.

3. Can be produced with lower variable cost.

4. Is designed to allow for lower fixed costs.

Each of these economic levers contributes to the ultimate goal of your CEO which is usually some variation on creating a sustained and differentiated high margin revenue stream. It's likely that you will need to have command of the above terms and be able to structure your business case accordingly. Even so, the attention span of senior management teams is shortening and a good summary in terms they understand is important.

Next time we'll discuss the finance team and their requirements for your project.