Demand Generation is the Real Moat!

In the tech-driven start-up world, we focus a lot on the practical side of things (which is fine), but we overlook the other side: demand generation. The master of demand generation is Nike, which invented influencer marketing when it didn't have a name! Back in the 1970s, Nike closed its first deal. The company paid $5,000 to distance runner Steve Prefontaine to run with the company's shoes. A tiny deal compared to the ones it closes now. Steve Prefontaine represented the athlete who crystallized the approach that Nike would use later on to generate demand for its products. Today (as I'll show you), Nike has scaled this approach, but at the time, it had to re-invent it from scratch, as athletes didn't know who Nike was (the Nike brand shoe was launched in 1972). Prefontaine was also a pupil of Nike's co-founder, Bill Bowerman. Bill Bowerman was a coach at the University of Oregon; he was the product guy, always experimenting with new shoes and making technology a key component of the shoes. Bill Bowerman opened the way to technology as a key component to differentiate the product, thus a key element of Nike's marketing strategy for decades. Yet, the most staggering part of Nike's demand generation is the iconic side. In 1984 Nike closed a deal with basketball player Michael Jordan. Today the Jordan brand - a segment of Nike's $46 billion yearly business empire (in 2022) - generated in the same year a staggering $5.1 billion! And for some context, in 2022, Nike spent $3.9 billion in demand generation efforts. Now, Nike has been doing it for decades, leveling up its game, but initially, it did it with minimum budgets. Thus, for tech-driven companies, demand generation can be done with a combination of fast experimentation and bold bets, not necessarily huge budgets. How? Breaking down the walls between perception and engineering Let's see some of the strategies to use. Change perception, don't change the code. One misleading fact of engineering-driven companies is that you got to make radical, core changes to products, to enhance value. But those can be extremely expensive, time-consuming, and very very risky since they are driven by aggressive assumptions about what users want. Instead, if you change perspective and start to ask, what's the simplest change, I can make on the UX which can change the perception of my product? You get to find bold ideas to test. Those might be cheap, reversible, and easy to execute/test. These ideas are what I like to call asymmetric bets. They carry a low downside and massive upside. There is a caveat for that, to find them, you need to develop a sort of mindset where you can find these asymmetric bets. They are fast, reversible, and have a potentially unlimited upside with a capped downside. And often, they are very simple, counter-intuitive changes that can have a huge impact. For example, if you're developing software products for B2C, removing the technical jargon from the UX can make the product scale. No change to the core software code; simply removes the jargon, which makes the product more accessible, more relatable, and more prone to go viral. Perceived control You have an elevator in an office. Everyone complains that it is too slow. What do you do? Do you get to replace it? You could, but that is an engineer's approach. Instead, you need to understand the problem deeply. You don't need to speed up the elevator's motion; you need to change the perception of the person experiencing the lift. Thus, instead of replacing the elevator, you place a mirror in it. And suddenly, a few more seconds don't look as terrible! Same thing with tech apps. You don't necessarily need to make things faster from an engineering standpoint. . To say, if you run a website, by simply making the UX more pleasant, by changing colors and characters, you can boost the perception of the site. First, you can make the experience more pleasant Perhaps, you can simply increase the size of the fonts. Paradoxically, when you optimize for accessibility, suddenly, you might make things more appealing for everyone else. This, of course, works well for a business that is meant to be accessible to as many people as possible. To say, if you're running a luxury company, the last thing you want to do is to make it accessible. Instead, in that case, you might want to create friction and scarcity (as we'll see). If you run a delivery app, wait time is a key component. The lower, the better, right? Correct! However, there is a certain threshold where less time doesn't make a huge difference. Second, give perceived control to users. In that range, you can warp time perception by, for instance, creating artificial interactions. Where the app describes how the delivery person is coming to you and the progress, it's making. These small things can make the wait time reduced in "perceived time." Let's say you are running a website that gives back an audit of something. But the site is slow when it gets too many requests. Third, give it a rationale. Instead of simply having people wait for the report to upload, create a "virtual queue," which explains that other people are lined up for the free service. That might work well to justify the pain of the wait. All these solutions warp the perceived time for users! Enhanced value through pacing If you're building a software product, speed is all, right? Well, yes, but... We're humans, and if you give me something too fast, I'll assume it was too easy to get. Thus, if you're building, let's say, a reporting tool, instead of spitting out results right on, have it show an interface that says something like "we're computing the answers" or "we're analyzing the data" or simply something that shows the user, the engine is doing cool stuff in the backend. We're humans; we want to know that the person or machine on the other side is making a real effort to give us what we want. And if what we're looking for is extremely valuable, we want to be sure the person or machine on the other side has taken the proper time to ponder our choices. Thus, in this sense, engineering and perception run against each other. The engineer wants to make things faster. The business person understands that engineering needs to be balanced with perception! Friction as artificial scarcity Hundreds of years after its founding, Harvard University still has among the lowest admission rates (about 5%). Why is that? Is it to select talent? Indeed. But, there is also some signaling in it. And that's about enhancing the perceived value of a Harvard degree. And a way to do it is to create friction to entry and keep it artificially scarce. If everyone had a Harvard degree, none would pay hundreds of thousands of dollars to get one! Luxury companies know this principle well. That is why you get a porter at the entrance, and unless you're willing to spend money, you might not feel entitled to enter. That is why Luxury stores look like temples. Everything there stands to signal scarcity and the status quo. While luxury companies spend a lot of money on marketing and sales to achieve that. You can achieve the same with very simple stuff. For instance, if you sell a physical product, great packaging makes its perceived value increase. If you sell a digital product, giving it a physical appearance might make a huge difference. Like selling a digital book but showing the cove as if it was a physical book. Framing and changed perception In general, coupons might not be a great idea for a business, right? Yes, as over time, they devalue your product offering. Yet, if you change the framing and move from a coupon to a contest or lottery, suddenly you've changed the perceived value of the offering, you're increasing demand, and you're not affecting the product pricing for worse. In fact, with a contest and lottery, the person on the other side will feel lucky when they win. However, you still want them to feel good if they lose. So instead of giving up coupons, you can reframe them. You can give coupons to lottery losers, so they will still feel lucky and have a good perception about receiving a coupon. happy about it. Thus, a coupon given without reason is worthless. A coupon given for a reason becomes extremely valuable! To close, in a tech-driven world, perception becomes the moat In a tech-driven world, where every company has become a software company, we're induced to think that hard engineering is the only way to solve issues. Yet, if we were to devote a bit more effort to understand what simple actions we can take that can create product differentiation, scarcity, and status quo, all of a sudden, we can change the fate of our business! Also Published Here