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Marketing

How would you destroy Google?

(this is the Day 3 recap of my weeklong Marketing Academy training - a collaboration between Google and Wharton)

We heard from 3 professors today: John Zhang on how to correctly price products, Joe Simmons on how human biases affect our decision making, and Rom Schrift on how to achieve creativity…consistently

Key Takeaways

  1. Beating Google in the search game is easy: you just need a good verticalized search engine
  2. The best pricing models should always over-index on how much value YOUR USERS place on your product
  3. People are much more sensitive to changes than to absolutes
  4. The secret to achieve creativity consistently is to embrace limits (i.e. think inside the box)

How would you destroy Google?

If you skipped over the Key Takeaways section, take ~20 seconds to seriously think about it. If you had all the resources in the world, how would you take down one of the world’s largest technology companies? Would you simply compete with money and hire all the engineers away? Would you try to get more regulations around the tech industry?

Professor John Zhang shares that Google’s initial strategy is very simple: Take advantage of a two-sided market. Give users a product for free (searches), and charge the advertisers a premium to reach those users. In this instance, he argues, Google has effectively priced their product at $0.

Now the question becomes how would you take away all those users who are enjoying Google’s free product? Because if you take them away, the advertisers will surely follow.

The answer: Verticalized search engines that do a better job than Google at finding you what you’re looking for

Think Amazon, Reddit, Quora. If you know there’s a physical item you’d like to buy, you may search on Google to compare prices sure, but it’s more likely you go to www.amazon.com directly

Interestingly enough, we already see this play out in the China market. Baidu is the Google equivalent in China yet the everyday citizen rarely start their searches on there. They go to Zhihu to ask questions, RED and Douyin to watch short-form videos, Bilibili to watch long-form videos, Taobao or JingDong to shop, and Elema for food deliveries

What does any of this have to do with pricing?

Professor Zhang argues it’s because Google had a great pricing strategy (i.e. pricing searches at $0), that they were able to achieve their current level of success, and there are 3 popular pricing models used today:

  1. Cost plus pricing → But the problem is you end up charging too low
  2. Competition-based pricing → But the competition will end up fighting you on price
  3. Consumer-based pricing → This is the “correct” answer but also the hardest to implement in real life, for the simple reason that most of are lazy, and this requires a lot of work

Essentially, consumer-based pricing focuses on the value of the product for the target customer, but you can’t find that value without having to do market research, customer interviews, and lots of analysis (aka it’s a lot of work). Why not just use information we already have (i.e. our costs, our competitor’s prices) to make a pricing decision?

Smart Value Pricing Equation

According to Professor Zhang, the Final price should be equal to a reference value (a comparable project) + the positive differentiation value (the dollar value you assign to what makes your product unique) - the negative differentiation value (the dollar value you assign to the features you’re missing vs. the competition)

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Pro tip: You can comment directly on this post if you have questions or feedback

Choice Architecture

I’m a huge behavioral economics nerd so I was super excited about this lecture by Professor Joe Simmons. Here are the key takeaways (with some real life examples):

People don’t choose between options, they choose between descriptions of options

  • There is no neutral way to design a building
  • How you design the building will influence how people behave inside the building.

Intuitive (System 1) vs. Deliberative (System 2)

This is a concept Daniel Kahneman has talked about extensively in his book “Thinking Fast and Slow” (which I also believe won him a Nobel Prize).

  • Something new I learned is that also System 1 causes a lot of our unconscious biases, if we had to give up a system, we should give up System 2 because System 1 helps us survive
  • Our over-reliance on System 1 can unfortunately be exploited. For example even though they’re the same thing, calling it a “Death Tax” appealed a lot more to a set of voters than the official name “Estate Tax”
  • “Climate Change” sounds a lot less deadly than “Global Warming”
  • People are more likely to borrow on credit than to take out a loan. This is because “loans” feel like debt but “credit” doesn’t (and people dislike debt).

If you want people to think about something, force them to think about it

  • People often neglect opportunity costs. They don’t think about how adopting one policy means that another cannot be adopted
  • People often value eradicating a problem more than preventing the problem in the first place. This is because prevention isn’t often visible or salient, whereas eradication is

People Are Often More Sensitive To Changes Than To Absolutes

If people are sensitive to gains and losses, then they are sensitive to (even arbitrary) reference points

  • In a world without manipulation, most of us would agree NOT getting into an accident is the “norm,” and getting into an accident is “bad”
  • However, this Allstate advertisement effectively changes our reference point, telling us that having an Accident is the “norm” (aka you’re fine!), and if you have no accidents, you actually get a reward!

Choose defaults with care

  • Best example is around organ donors. Countries with the highest level of organ donation rate are those who are opted into donating by default (i.e. you have to make an effort to opt-out, and most people don’t make extra effort)

Standardized Creativity

If you didn’t do a double-take when reading the title “Standardized Creativity” you might already be half asleep because for most us, these two words are in conflict with each other. Isn’t creativity inherently NOT standardized? You can’t predict when a bolt of inspiration strikes!

Let’s take a look at some “creative” advertising examples:

I think most of us would agree that these advertisements are all “creative.” So Professor Shrift points out: if we could find the common denominator for all these ideas, couldn’t we replicate them again and again in new formats? This in turn begs the question, is there something all 3 of these ideas share in common?

What makes Dominos Pizza so special?

If you’ve never had Dominos Pizza, all you need to know is that they’re famous for a slogan: 30 minutes delivery or you get the pizza for free! When they first introduced this concept, they “disrupted” the pizza delivery industry with this “creative” idea

Diving a little deeper, we see something interesting: Dominos Pizza, whether they meant to or not, created a dependency: the PRICE of the pizza would change depending on the DELIVERY TIME

So let’s take this 1 step further, what if the price of the pizza depended on the temperature? I.e. as the temperature of the pizza goes down, the price goes down. Would Dominos end up creating an “oven-car” in order to keep the temperature constant?

While this (obviously) didn’t happen, this example goes to show how we can consistently generate creative ideas through attribute dependency!

Fast forward to the key takeaway, Professor Schrift shares a forecasting matrix he created whereby you would put the attributes of an existing product or concept along the x and y axes, and you move through 1 cell at a time to see what “creative” idea that specific combination will yield!

See you in the next Debrief!


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