• “My analyst team keeps generating reports, but few of them are actionable.”
• “There are too many spreadsheets with conflicting numbers and we wind up with multiple versions of the truth.”
• “My instincts are telling me this is the right decision, but I can’t get my hands on the right data to support the decision.”

A recent client engagement presented us with these very real questions to resolve. A software company with a sales force selling multiple products experienced rapid growth and quickly outgrew its “start-up” ways of management.  The leadership team needed to understand how they could efficiently scale the business without a parallel increase to the cost of sales.

Rather than starting with a deep dive into the pain points (data integrity, report accuracy/relevance, analytics process, etc.) our approach was to first identify and understand the key business questions we were trying to answer in context of the company’s overall objectives. Only once we have a firm grasp of these objectives could we then move forward and develop a roadmap for delivering improved business intelligence.

Our investigation centered in identifying the specific questions our client needed to answer in order to affect performance. By category, they were: marketing lead performance, sales forecasting and establishing performance benchmarks for individual performers and territories.

To isolate the relevant data to address these questions, we focused on the client’s sales process, along with the key actions taken at each step, to determine whether or not key information was being captured.  To do this we isolated the business drivers, actions required and related business process. A flow diagram was developed as follows:

Once the business drivers were defined, we were then able to initiate the data assessment to determine whether data mapping to each driver was available. To our delight (not to mention the client’s!) the data was already there; but we recommended a few process changes to enhance data quality and designed a data infrastructure to support ongoing reporting and analysis.

After creating the data infrastructure, we used data visualization software from Tableau Software to construct dashboards for each of the four quadrants of business processes identified: Marketing Leads, Sales Activities, Sales Pipeline Management and Revenue Performance:

In Tableau each quadrant has the capability to quickly do a deep dive to answer questions specific to each business process. For example, in isolating Market Lead effectiveness, we can quickly expand the dashboard to reveal Lead Status, Lead Dis-Qualification, Leads by Product Type, Marketing Source and Geo:

Key Takeaways: When faced with the challenge of providing information to your organization that delivers key insights and empowers informed decision making, follow these guidelines:

• Invest time up front to consider your analytical needs in the context of your overall objectives before investigating data integrity, systems, tools, etc. Your aim is to deliver information that will have the greatest impact on your business, which requires a clear understanding of your business goals.
• Identify the key business questions you want to answer.  Hint: The more specific each question, the better. For example:
  • Good: How are our marketing leads performing?
  • Better: How are our marketing leads for Product Y performing in this territory?
  • Best: How are our marketing leads performing for Product Y, by each sales rep (or partner), in this specific territory, over time?
• Map your business questions to the business process(es) that will impact the outcome for each. Since your goal is to provide insights that will have the greatest impact on your business, do not be afraid to de-prioritize those questions that will not drive specific, high value actions.
• Evaluate the data being captured and data design structure to ensure that the information needed is accurate and complete. Where data is missing or incomplete, flag requirements for improvement.
• Develop the reporting solution, conduct QA/testing and prepare users for adoption.

The path to effective sales analytics starts with asking the right questions.

This post contributed by Mark Ippolito, Sr. Manager and Practice Leader, Sales Optimization

We’re growing more accustomed to buying clothes and shoes online. The once intimidating experience of returns and exchanges through the mail has been streamlined and the customer service excellence of stores like Zappos has paved the way for increased trust and participation from mainstream consumers. Black Friday is eclipsed by Cyber Monday.

Even with all the refinements and convenience, online retailers, or e-tailers, tend to lack personal touch during the sales process. Either you already know what you want or… how many brown leather work shoes can you look at before your eyes cross and you click away to YouTube? And how likely are you to buy one of those pairs after you’ve given up?

So, what is the right balance between the personal sales interaction in a typical department store and the convenience of shopping online? How do we get guidance without exposing ourselves to aggressive sales reps and large crowds? For those of us with the awareness that we may be in need of some additional care when selecting our apparel (and perhaps suffer from just a touch of agoraphobia), we have the Trunk Club, a web-based boutique men’s outfitters designed to dress males well, three outfits at a time.

I set out to understand personal shopping through the otherwise impersonal online world by signing up as a member and ordering a trunk…

Business Model and Customer Segments

Trunk Club offers items at unapologetic retail prices, all year round. No sales, no specials, no overstock – when you’re getting clothes at Trunk Club, you are paying full price, which, in some cases, can be up to eight times the wholesale value of the apparel.

That’s a big margin to play with. Trunk Club uses that margin to provide free shipping with a pre-paid return label, one-on-one time with a style expert and a low pressure sales model. You never have an obligation to buy nor do you prepay for anything. In fact, though I did not experience this personally, style experts may actually reject something you are considering and advise you not to buy what you’ve picked out. Comments from shoppers on review websites, such as Yelp, show that this heavy investment and willingness to prevent the customer from a bizarre impulse buy builds trust and loyalty.

So what kinds of shoppers are most inclined to participate in such a setup? Kristin, the “dedicated style expert” who helped me navigate my own wardrobe, indicated that many of their clients are guys who are not fashion aware (check!) and are looking for a wardrobe that works together. It seems simple, but I suspect many of us exhibit fashion blindness when trying to pick out any one piece of clothing – we’re not even sure it fits well, let alone blends with the rest of what we own. (I had to physically dig up the measurements on the jackets and shirts in my closet.)

Customer Experience

Trunk Club doesn’t ship a crate full of clothes but rather a selection of looks. My trunk contained nine articles of clothing arranged into three different outfits, from social to work casual. Assembling them, I could see what “coordination” meant. Wow, I thought, I don’t know jack about style. That revelation probably helps with customer retention, not to mention increasing basket size – always a key concern for retailers.

Using a gradual refinement model like that of Pandora or Amazon, Trunk Club’s style experts will modify their selection over time to perfect the alignment between what they offer and what you desire. This is another value add of their system since it gives customers a sense of familiarity with the staff and the Trunk Club an ever-increasing chance of selling larger baskets.

What’s more, the effort expended by their style experts to create this familiarity is minimal – only about 15-30 minutes on the phone and about an hour putting the wardrobe together per trunk – and the return can be as great as $1250 – $2500, depending on how many things from the trunk the customer chooses to keep.

The only dissatisfying element of the customer experience is returning the trunk. While it is prepaid and can be shipped back at no cost, you have only 10 business days to make your selections and get the trunk in the mail. It’s perfectly reasonable but if you live in an apartment building or don’t have ready access to UPS or FedEx, it is inconvenient.

Feedback

What do people think of Trunk Club? Most of the reviews I found, many from Yelp, seem quite positive, even grateful. People rave about the style experts’ commitment to getting the right look. This gratitude points to a relationship that is built quickly but soundly between retailer and customer.

That said, the brands, while no doubt stylish, are not household names. It may be a hidden bonus that your style is no longer cookie cutter, but you will find neither Gucci nor Armani, Dolce nor Gabbana.

Trunk Club’s most impressive achievement as a business is the white space they’ve found in the clothing and personal shopping market. Their approach is low pressure – they don’t send you stuff until you ask for it and, in the month I’ve been a member, I haven’t received any spam – and the people there are not trying to push specific clothes on you because of poor inventory management.

Perhaps Trunk Club’s approach can be copied or adjusted to fit other retailers, even department stores. Granted, those stores have a different set of objectives when it comes to their customers – many stores want to get you in the door so they can increase the basket size. They use sales and discounts on sought-after items and then pound accessories and related articles as impulse purchases to drive profits. However, never underestimate the power a personal connection has to influence basket size and future sales. Trunk Club’s sales motion is a long and slow, unlike a store experience that occurs quickly and fades, the little interactions that take place over nearly three weeks during the packing, distribution and return, keeps the process top of mind for the consumer. There is unexplored value there for larger retailers, even if this approach isn’t, strictly speaking, scalable.

Overall, I enjoyed using the Trunk Club. At the very least, I will try to hold myself to the higher standards as I look for apparel elsewhere…online.

Submitted by Loren Bors, Marketing Consultant, Lenati LLC

In a previous post we discussed the advantages of mapping your sales process to your buyer’s purchasing decision process. From a sellers perspective, during the “qualify stage” we should be proactive in identifying whether or not the customer has intent to purchase measured by a specific timeline, a committed budget/resources and the authority to execute the transaction.  Assuming we’ve done a thorough investigation of these areas, we then move the customer forward in the sales cycle by prioritizing our selling activities (primarily) driven by the timing of “when” the customer plans to make a purchase or the total dollar value.

It’s reasonable to assume that the deals that are scheduled to “close” earlier in your pipeline should be the ones that you focus the majority of your efforts around. Yet, month after month, quarter after quarter, your win/loss ratio remains stubbornly high and/or shows little improvement.

Perhaps it’s time to start keeping score and prioritize the right opportunities.

Opportunity Scoring Approach: While the buyer’s purchasing timeline and transaction value are critical factors in qualifying opportunities for pursuit, they should not overshadow other critical factors—both positive and negative–  that play a key role in determining which opportunities you will prioritize.

Below is one example of a scoring matrix (you can devise your own that is unique to your product or service) that helps isolate both the advantages and risks associated with an individual opportunity:

For each criterion, we then develop a clear definition that allows us to consistently evaluate every opportunity and apply a consistent score– without prejudice to the rep, client or situational circumstances that can often skew the prioritization scoring results. To illustrate we’ve defined the first two criteria of advantages and risks noted above in the table below:

Once we have defined all the relevant criteria, definitions and applied the scoring, we can then move to create a matrix or dashboard that helps visualize which opportunities will deliver the greatest value with the lowest amount of risk or cost:

(Click image for full-size view)

With this measured, objective perspective of our opportunities in hand, we can view not only “all” the open opportunities that are qualified, but more importantly we can isolate those specific opportunities that have the highest objective probability of resulting in sales.  In addition to helping prioritize which opportunities you choose to pursue, scoring your opportunities can bring additional benefits to your sales organization:

1)      Prioritize Profits Over “Deals”: Often times we see sales teams focused exclusively on chasing the highest dollar “deals” instead of the pursuing those opps that have the potential to generate the greatest profit margin to the company. Viewing opportunities in a measured manner helps reps to see that they can close more deals – and generate higher commissions overall—than focusing on one or two deals in a period that may not generate the best return for them–  or the company.

2)      “New” Does Not Equal “Now”:  Sales reps (and some managers) can get enamored with New Business “wins” and in the process run the risk of “over-investing” in New Business opportunities to the detriment of more valuable opps in the pipeline. Using a scorecard diagnostic can help place your new business opps in the proper perspective and maintain focus on active pursuits resulting in higher close rates.

Keeping score of your opportunities provides a consistent methodology to measure and prioritize the right opportunities you should be pursuing in your pipeline. Opportunity scoring is also a powerful tool to help you separate the winners from the losers.

Submitted by Mark Ippolito, Sr. Manager and Sales Optimization Practice Lead

This is the third in a series of blog posts specifically written to provide sales leaders with insights and best practices on how your organization can accelerate your sales cycle. Please enjoy our first and second posts in this series as well and add your feedback to the comments section below. You can also contact Mark Ippolito via email.

Given the continued and rapid changes in technology, Sales leaders must be proactive and learn how to effectively address the changing nature of telesales and the role it plays in their overall sales strategy.

Companies who deploy successful Telesales teams:

Invest in Technology Tools
These companies place a high priority in implementing and improving their technology tools (specifically CRM/SFA) to help optimize telesales performance.  Leveraging the power of these tools for activities such as integration with company websites to capture leads, assigning and tracking results for web leads, segmentation of data, lead scoring/assigning and accelerated response times are a few of the ways these tools are providing the ability to increase sales effectiveness.

Integrate Sales & Marketing
Telesales deployed as part of a balanced sales strategy are more successful than those that treat it as an isolated tactic. Sales and Marketing teams that align and have joint accountability typically result in higher quality leads and higher conversion rates.

Track Key Performance Indicators
Telesales leaders are measuring leads, conversions to sales opportunities, sales velocity (or length of time required to close sale), transaction value and win/loss ratio. Building dashboards that track KPIs and have real time data lead to the ability to make faster decisions.

Invest in Training
New Hire training programs to help Telesales Reps ramp to full productivity in a shorter time period along with ongoing training programs to continually grow their sales teams abilities and skills are helping to generate more revenue. Managers are also monitoring and measuring “behaviors that are delivering predictable/repeatable results” and working to implement them across the Telesales team.

Practice Quality vs. Quantity
While selling is a numbers game, more is not always better when it comes to calls.  These organizations have are focused on quality calls and higher conversion rates.  When it comes to Leads these companies invest in Lead Scoring systems to ensure the best leads receive top priority and go to the top performing reps.

Utilize Social Media
While social media strategy and program management remains the domain of marketing and communications managers, telesales leaders are increasingly adding social media tools and techniques for lead generation and prospect development.  Sales Teams are leveraging social media tools to identify business opportunities and build prospect relationships.

In spite of challenges in getting qualified buyers to spend time talking on the phone, telesales continues to be a highly effective sales practice for selling B2B technology products & services.  Companies that invest time and money into their Telesales teams are receiving the greatest ROI.

—Posted by Dailah Lester, Sr. Consultant, Lenati

Sign up now to receive a free copy of our research study —  Inside Sales Market Research Study: Is telesales still effective?

For the sake of research, I subscribed to nearly 30 daily deal, specialty, group buying and members only sites and then treated myself to groceries, dinners, manicures, outdoor gear and sailing lessons.

First let’s consider why different companies choose to participate in daily deals.

Whole Foods ran a nation-wide deal with LivingSocial in hopes of quickly acquiring new customers and that they did – within a few hours they maxed out at their 1,000,000 deal limit. Whether they will make money off the deal is questionable; there is no clear upsell plan in place and they don’t know how many coupon redeemers were new vs. old customers. However, the free viral marketing they got from the deal was fantastic. Facebook and Twitter were on fire with people sharing the deal in hopes of getting the deal for free.

Neighborhood restaurants, shops and salons are using daily deals to build awareness and drive traffic into their shops. Because of these great offers, I have tried out three different nail salons, many new restaurants and even a new hair salon (I won’t do that again.) Unless the service is excellent or differentiated, chances are I won’t return without being incentivized again.

Back in March, a local outdoor retail store used LivingSocial to offer a daily deal. I redeemed my coupon in July and during the purchase process they collected the following data: my email address, how much I spent and if I had ever been into the store before. In September they offered the same deal on Groupon and I quickly snatched it up. Why does this shop keep offering up these deals? One reason could be that this store has some huge competition in the Seattle area – customer favorite REI (who recently partnered with Google Offers to give consumers a $25 for $15 deal.) Because of the second deal, I am going to return to this local outdoor shop for a second time. Again I have $25 of their dollars to spend but have no other incentive to stick around and change loyalties.

One of the first deals I saw on a site called Zozi was sailing lessons for two. I had never heard of the company but it sounded legit so I invited my friend to come along. We showed up and as we were sailing I peppered the owner/instructor with questions. Why did you choose to do a daily deal? He was a new business and wanted to build brand awareness and bring in new customers. Why did you choose to go with Zozi? It was a company that offered local experiences and would complement his brand well. How do you plan on getting me to come back? He would give us another discount if we decided to come back for the next level of sailing classes. We said maybe in the spring.

Even the fanciest of restaurants, the ones who said they would never do a daily deal for fear of brand dilution, have succumbed to the pull of the daily deal. One restaurant partnered with a premium deal site to offer an exclusive experience, at a discount. Unfortunately, a discount is a discount, no matter how it is framed. Once people get used to getting discounts it is hard to get them back without another discount. Luckily this restaurant offers a topnotch customer experience and shouldn’t have a problem. However, I recommend that other high-end brands be careful about offering up their services at a discount to the masses if they want to maintain their brand equity and pricing power.

Before you call up Groupon, you need to decide which daily deal company best suits your needs and how you are going to get the most value out of your offer. Groupon, LivingSocial, Google Offers and AmazonLocal are the heavy hitters in this market. They have the largest subscriber base so if you are looking for as many purchases as possible and have a flexible launch date, these might be your best bets. If your offering is more niche you can consider other options. Tippr, Urban Dealight and DealFind have more of a local feel. Zozi offers adventures and experiences. Zulily focuses on daily deals for moms, babies and kids. Bloomspot (and Bloomspot premium) have a more polished feel, though many of the deals are similar to the other sites. There are also invite-only sites like Rue La La (Rue Seattle) which offer higher end deals.

Once you have your partner picked out you need to consider one more, often overlooked, detail before you launch your first deal. How you are going to make money off these newly acquired customers in the future? The worst thing I can think of is that a customer buys a $40 coupon for $20, comes into your shop, spends the $40 and then never returns. You have to create a customer experience that will drive upsell and create customer lifetime value. How can you do this? Collecting data is the first step. Just like that local outdoor shop, if the customer is willing, ask for their contact information and create a shopping history log by noting how much they spend, what they bought and if they have ever made a purchase in your shop. Then you can use this data to create a personalized reason for this person to come back. For example, if I bought a climbing helmet in your outdoor shop, you could send me an offer for 15% off a climbing harness and a free harness fitting. Or you could invite me to a showing of a climbing movie, whether at your shop or another venue in town. Your primary goal should be to build a relationship with your customers and with that will come customer loyalty.

If you are still considering partnering with a deal site don’t forget the three key steps: 1) Assess your business need, 2) thoughtfully evaluate your partner options and 3) have a plan to build relationships to turn newly acquired customers into lifetime customers.

— Posted by Pam Spier, Consultant, Lenati

Calculating Sales quotas is a tricky science. When determining quotas, how do you know what will work best for your sales team?  What is the best algorithm to use?  How do you ensure they motivate the right behaviors?  The quotas that you are preparing need to balance the need for the organization, but they also need to be attainable and motivating to the sales rep.   How do you successfully achieve both?

While each company will have their own specific criteria unique to their business, often the basic criteria sales organizations consider is quite similar. Let’s take a look at some of the different factors sales organizations should consider when calculating quotas.

Historical Performance

How many Reps on your team achieved quota last year?  What was the % of year over year growth?

The historical performance of your individual sales team members versus quota is an important consideration to make when establishing sales goals.   In addition, you should understand why individuals achieved quota and why they fell short.   Was it territory configuration, lead distribution, sales experience, job tenure?  Carefully reviewing individual performance and understanding the reasons for successes will be necessary to properly forecast quotas for the coming year.

Territory Performance

How many territories did you have?   Did certain territories blow away their numbers?  Do the geographic territories need to be realigned?

It is imperative to evaluate your territories and consider what changes are anticipated based on Industry, competitive landscape, business potential, and actual geographical size.   These factors will help you determine how to align sale reps to territories, how many reps cover a territory and how to best anticipate revenue performance.

Products and Services Offerings

What does your product roadmap look like for the next fiscal year?   How many new products will you be introducing to market?   When will you be introducing them?

Arguably, this could have the most significant impact on revenue performance.  The challenge is identifying the timing associated with the launch of new products and services and how they will impact your sales pipeline and convert to revenue.

You will need to rely on past experience and your executive team, from product development; marketing and finance who can assist you and guide you in this area.

Anticipated Growth

What are your growth plans?   What are those based on?   When will those increases occur?   What does your increased sales headcount look like?

Increases in headcount will definitely have an impact on how you allocate sales quotas.   When you add headcount you typically need to realign existing territories to create new ones – in turn, impacting quotas of existing sales reps.  In addition, you need to consider your current ramp time for new reps.  How long does it take for them to build a pipeline and start producing revenue?   In addition, how do you plan for attrition?  These all need to be considered and reflected in your allocation of sales quotas.

Even after all these considerations, economic conditions, deferred product launches and employee turnover can affect the best designed compensation plans.  Quotas should be reviewed and assessed on a quarterly basis so that you can make necessary adjustments as needed.

—Posted by Dailah Lester, Sr. Consultant, Lenati

What’s taken a temporary back seat in Apple news right now with Jobs’ death, albeit for good reason, is the new iPhone 4S and its clear focus on Siri’s voice platform.

For travel, we’re on the verge of another serious potential player in mobile and voice-based travel search along with Google’s emphasis on Android voice search and Microsoft’s integration of voice in Windows Phone, Xbox and Kinect.

How could this impact travel? About a year ago, we identified a convergence of forces that could enable Android voice search integration with ITA Software’s QPX airfare technology, and now Google’s flight tool sends consumers directly to airline sites while bypassing OTAs. Voice search doing the same may not be far off.

Though accuracy needs to progress, natural language air or hotel voice search could take only 5-7 seconds to speak and a few more to return results. Along with the placement of voice search on mobile device homescreens, those are two critical advantages for voice platforms over current travel sites and applications.

Now Apple and Siri have two of the three major steps to deliver travel-focused voice search – what they need are airfare and hotel query partners to bypass intermediaries as well. Is it going to happen? Unclear for now, but Apple is already integrating with Yelp and other content partners on voice command.

What is clear is that among the major mobile platforms, we’re continuing to move along the path of voice integration that could alter travel search as we know it, while existing intermediaries likely cannot replicate it and must invest just to market their mobile apps in the first place.

Any sales manager will tell you that you can’t accelerate your sales cycle until you have a well-defined sales process that your team can easily replicate on every call. No argument here, but all too often when we ask sales managers to tell us what their buyers purchase cycle is we are faced with blank stares.

Focus on the Buyer Process: Regrettably, while tremendous value can be gained from a well-defined sales process, sales managers are too often lulled into process nirvana (aka sales process, call planning, sales playbook, sales motions, etc.) and often neglect to consider—and we would argue– the more important part of the process equation: the buyer’s purchasing process.

Any effective sales process must effectively anticipate the process buyers must go through when considering ANY purchase. The most elegantly conceived sales process is not worth the laminate you’ve entombed it in if it does not effectively map to the buyers purchasing process.

Here is an example of a typical sales process we’ve seen utilized by inside sales teams:

On it’s own, this high level process provides good guidance for the sales team. But take a look at how much more compelling a “Sellers Process” process becomes when viewed through the prism of the “Buyer’s Process”:

Notice how we’ve intentionally re-stated the Seller Process steps to more accurately reflect the intent of the Buyer Process step which precedes it:

Acknowledge the Buyer: Managers have trained sellers to immediate begin qualifying the buyer. While certainly for cold calls this make sense (but in the age of Linkedin, Marketing Lead Gen, Database Mining, is anyone really making cold calls anymore?) Try instead “acknowledging buyers (even on “cold calls”): “I see you’ve been quoted as endorsing a competitor solution. While the results you reported are indeed very impressive, I wanted to make sure you were also aware of the features of our solutions which our customers tell us outperform our competitor in almost every category.”

Identify Buyer’s Specific Needs: Be sure to drill down on the specific problem/opportunity/pain point/budget criteria, etc. the buyer is trying to resolve with their intended purchase: “Regardless of which solution your company ultimately chooses, can you please tell me the one or two criteria the final solution must meet in order to win your business?”

Prove the Solution Meets the Need: Once you know the specific criteria under which the buyer will make a purchase, hammer home as many as ways as possible how your solution uniquely satisfies the buyer’s stated purchase criteria. (extra credit: if your solution only provides parity to other solutions in the market, don’t fret—make sure they know the solution meets their needs as well as others AND comes with something the competitor product does not come with – YOU! “I am confident that our solution meets all of your critical needs and, while I know there are competitor products out there you may be considering, I will personally make sure that if you reward our company with your purchase I will do everything possible to make sure you get the support you need to get successfully implement our solution into your business.”

Complete the Transaction: Sellers want to Close; Buyers want Completion: A well-executed order, one that follows the buyers purchase policy; on time delivery; follow-up support if needed, etc. Give buyers what they want and you are one step closer to the next and final – and, we would argue—the most important step in the Sales Process…

Confirm Buyer’s Satisfaction: When is the last time you called a customer you sold to last month/quarter/year and asked them if they were satisfied with their purchase? If you are not doing so on a routine basis, you are missing perhaps the greatest opportunity to accelerate future sales with not only your immediate buyer, but any buyers your customer is willing to refer you to.

If you are looking to accelerate your sales cycle, take a look at your Sales Process and determine how well it maps to your Buyer’s Process. If it’s not aligned, start talking to your customers today and let the sales process re-engineering begin.

Article posted by Mark Ippolito, Sr. Manager, Inside Sales Optimization Practice

Ideally, the airline industry would recognize the opportunity in this era of baggage fees and other penalty charges to deliver a compelling consumer experience and to drive revenue.

Progress has been slow, focusing on plane WiFi installations, communications technology, and holding on to the original model of trying to have travelers pay for WiFi service, going against broader consumer trends.

The good news is we are now seeing a transformation of Gogo’s and airlines’ approach and a positive step for consumer experience that also could be, depending on how well they execute, economically beneficial. Gogo has done an admirable job in aggregating airline passengers to create a potentially effective channel and opportunity, and Row44 seems to have an updated focus on consumer content experience.

However, it seems their plans – as publicized to this point anyway – may risk not getting off the ground as much as anticipated if they and airlines do not continue to take steps to compete in a fast-moving digital media industry.

That’s right – the broader Digital Media Industry.

This is not just In-Flight Entertainment and Connectivity (IFEC) anymore, and to truly capitalize on the technology and capital investments made in Gogo’s (and Row44’s, and OnAir’s) capabilities, a new, less-myopic mindset is needed.

The game for IFEC has changed, and passively hoping travelers wait until they get on board or up to 10,000 feet to use in-flight systems caps the market.

As demonstrated originally in a January, 2010 presentation, “What can Digital Entertainment, WiFi, and Mobile Mean for Airlines?” Google, Apple, Microsoft, Amazon, Netflix and others were engaging in fierce competition to be top-of-mind for consumers and capture “living room share” via mobile and home devices.

The competition continues to rage – with the brand-new Android market (shown right and below), Google’s $12.5 Billion Motorola acquisition taking square aim at the iPad, today’s Microsoft announcement that Xbox Live will be fully integrated into Windows 8 along with Windows Phones, and Amazon’s soon-to-come tablet to build on its Kindle dominance, among other things.

In more detail, Android now owns about 42% of the smartphone market, iPhone owns about 27%, and Microsoft is investing heavily to gain share, while RIM (Blackberry) is falling rapidly (comScore Jul-11).

When combined with the iPad / tablet / Kindle market, roughly 85% – or more – of travelers carrying smart mobile devices (phones, tablets, eBook readers) – and laptops – will have comprehensive digital media libraries ready for download or streaming on their everyday devices, at any time, right at their fingertips.

Together, they could effectively lower the ceiling on Gogo’s and Row44′s new services, since they would be, in essence, competing while offering the same, or less, content that consumers can easily obtain any time before the flight attendants tell them to turn off their devices.

Just a few months ago, this was not the case (with exception of iTunes). Just a few years ago, IFE truly was just siloed IFE. Consumers could bring their portable DVD and music players, but could not access full entertainment libraries, with virtually unlimited choice, on demand.

So what can airlines and Gogo / Row44 do?

Certainly, they have a natural hedge. Business travelers will have their companies pay for WiFi. A segment of fliers will still pay for WiFi for the general web and use their own subscription or download services like Netflix. Some will wait and purchase movies or eBooks in flight.

But in a December, 2010 paper titled “Part II – Can Airlines Power Ancillary Revenue with Digital Media and WiFi?”, we encouraged airlines, Gogo, and Row44 to create a more compelling and branded consumer experience, stop thinking of travelers as “captives,” and market through a “60-hour cycle” to shift their models and grow the market.

The newly-launched Gogo is great progress, but there continue to be three necessary elements for airlines to capture meaningful wallet share in a capital-intensive venture against highly competitive forces:

1) Airlines must use their main advantage – knowledge of the itinerary – and merchandise digital media content aggressively throughout the “60-hour cycle” (below).

Using the itinerary, airlines have roughly 22-25 round-trip mobile touchpoints to market to high-intent, high-impulse-buy travelers and merchandise digital entertainment and destination product exclusive to travelers. The ability to watch movies for up to 24 hours after the flight simply matches the competition and today’s growing expectation of digital media; it is not an advantage.

2) It could be even more important now to merchandise traditional early-window movie content and other digital entertainment in compelling ways travelers could not access in everyday life

By this we mean true Merchandising. One of the differentiating, though expensive, factors airlines did enjoy in traditional IFE was early-window movie content. That seems to have disappeared with Gogo’s plans, removing a key advantage airlines may actually have over Google, Apple, and Amazon and Netflix, as studios desperately want to avoid what Apple did to the music industry and limit or refuse early-window content to them.

Instead, airlines could investigate opportunities with the movie industry’s own Ultraviolet service (www.uvvu.com), which could perhaps not only enable sourcing of early-window content, but also deliver higher margins by eliminating traditional middlemen in-flight content services. Whether sourcing early-window movie content for streaming distribution is cost effective or unreasonably expensive is a big question, but the opportunity for differentiation is there.

In addition, airline-only promotional deals, such as new-release eBook package deals (buy one Stephen King eBook, get an exclusive airline-only preview of his upcoming new release), offer an experience both exclusive and incremental to what travelers can get themselves. Fearful of Amazon and with Borders going bankrupt, publishers may be open to opportunities to reach consumers in other ways.

3) Continue the effort to integrate other web and travel services, but make sure they’re compelling and even exclusive to travelers

Gogo’s and Row44’s plans to integrate potential services on a “platform” beyond digital entertainment were initially weak (Skytown Center or SkyMall-online, anyone?), but have progressed, such as deals or potential initiatives with Gilt, People magazine, the interesting potential of MondoWindow, destination promotions with Groupon or others, shopping services, and more. These complement the entertainment offering, though a primary revenue stream should be centered on the entertainment categories – if, again, executed well – and Gogo, et al, must continue to drive traffic (in the form of UV’s) to attract partners to a customer acquisition model.

So to summarize, digital entertainment and “living room share” are lightning rods for competition and capital investment today, and while Gogo certainly seems to be working toward a better solution than its original model, there are still major steps necessary to capture “in-flight share” of a large potential market, and the industry needs to think differently (including being more discretionary in spending on seat-back systems).

Hopefully, all the better for both travelers and industry economics. After all, a better consumer experience and higher-margin airline revenue models, unlike most baggage fee policies, do not have to be mutually exclusive, correct?

To quote Aircell’s CMO, Ash ElDifrawi, “Historically, we thought of ourselves as a connectivity company…and now we’re…going to provide a much broader set of in-air experiences and become everybody’s favorite part of flying.” Here’s the video of Gogo’s press conference on Mary Kirby’s RunwayGirl blog.

From a business strategy perspective, we are interested to see this play out. As travelers, we applaud it, as we feared our in-flight WiFi experience might consist of having to pay $10 for WiFi while enduring SkyMall commercials on the overhead monitors blaring “Shopping while you fly – it’s the fun way to buy” jingles, something we actually experienced on a trans-continental United flight – at 1am.

We referenced that (and corresponding lack of sleep) in Part II of our thoughts on how this evolution could transpire, following our initial “What can Digital Entertainment, WiFi, and Mobile Mean for Airlines?” analysis in late 2009 (see both parts here) – just as airlines launched their baggage fee barrage. What we hoped to see would be an ancillary merchandising model beneficial to consumers and airlines alike.

With a potential market of 50-60 Million passengers monthly among the top 10 or so US airlines, it could be significant. How well Gogo (the newly-monikered Aircell) and airlines execute their new model outside of their core competencies is a risk. How consumers adopt the experience remains to be seen. In the ultra-competitive video/movie streaming space, we also wonder if Gogo’s movie streaming product will be sourced from Google’s new YouTube Movies service rather than Hollywood’s cloud-based Ultraviolet Media service, given that Mr. ElDifrawi used to run a portion of YouTube’s business for Google.

Regardless, it’s a welcome test development, and suffice to say, we look forward to potentially streaming Spotify or “Harry Potter and the Deathly Hallows, Part II” in the near future rather than being pitched electric gizmos on SkyMall as the reward for our $10.

Posted by Jonathan Alford, Senior Consultant, Retail Practice