Thursday, February 14, 2008

Machines and Data

Sometimes you stumble on something, but you don’t know if it is anything. While browsing through the book “Designing Modernity” from the Wolfsonian in Miami, I was looking at some of the artwork from the 1920ies and 1930ies that glorify the emerging world of the machine (and human’s interaction with them). I could not avoid the impression that data has become the glorified “Machine” of today’s decade. There is just fewer direct artistic expression of this glorified item “data”, but we seem to speak with as much reverence about it as the artists have portrayed the positive power of machines. But even beyond this potential substitute of machines with data as the underlying power of progress, there seems to be an intricate relationship between machines and data.

The rise of the machine enabled the accumulation and manipulation of a larger amount of data than ever before. But what is a machine? Wikipedia says that a machine is any device that transmits or modifies energy. In common usage, the meaning is restricted to devices having rigid moving parts that perform or assist in performing some work. Machines normally require some energy source (“input”) and always accomplish some sort of work (“output”).

One could argue that the most dominant modern machine, the computer, uses data as its core energy and transforms it into a new set of data. Data becomes the internal mystique and energy of the computer. This might explain why machines are slowly being replaced by data as the symbol of cultural achievement and modernity. We don’t take photos of data or draw quasi realistic images of data interacting with humans in a heroic as artists have done in the 1920ies and 1930ies but our lives are surrounded with screens of data, from CNN’s situation room, to the White House ware room to the two Bloomberg screens that drive our financial world.

The definition of data leads us to a similar view. Wikipedia says that the word data is the plural of the Latin word “datum”, the past participle of “dare”, meaning to give. Therefore it is best translated as “something given”. These givens can be numbers, words, images, etc. Data seem to represent a fundamental truth of life (=something given) whereas machines are purely transformers of energy into something else. Data is replacing machines as the metaphor of today’s life style because computers as the ultimate modern machine do nothing else than transforming data into new data sets, into “new givens”. Computers become pure enablers of creating new data realities, they become just a vehicle and are not anymore the center.
I don’t know if I found something while browsing through these old images but clearly machines and data are tightly linked in today’s modern universe.

Monday, February 04, 2008

Experience budget

I was always intrigued by the concept of “Discretionary Income”. Discretionary Income is the available spend potential that a consumer has after you distract everyday life essential expenditures, like housing, food, etc. Quite a few economists try to understand a consumer’s relationship to his discretionary income. How do consumers spend it? How do they think about it differently in a recession? What motivates a consumer to save or spend a dollar of his discretionary income? To dissect these questions, most economists like to distinguish different spend buckets against which consumers spend money: Luxury items, vacations, cars, education, etc.

But it seems that consumers think less and less in these conceptual corporation centric categories. Most consumers don’t separate products and services in neatly separated categories. But they do ask themselves if they can afford it. And they make quite a few trade decisions around “Can I afford it?” across very different product and service categories. They might buy one but not the other. My hypothesis is that consumers don’t think in most cases about spending $100 aligned with these spend buckets and categories. They are buying a particular experience which could be a fabulous pair of shoes, a nice dinner with their partner or the new iPod. They hunger for a particular experience: Excitement, Self-Validation, Beauty, Enjoyment, Adventure. And they are willing to spend most or all of their “Discretionary Income” for well matched experiences.

Therefore I believe that the term “Experience Budget” is a much more insightful term than “Discretionary Income”. It describes a consumer’s spending behavior from the consumer’s and not from a mathematical analyst’s perspective. But what are the true implications of this re-naming. Here are a few:
  • Most brands have a significant broader competitive set than traditionally assumed. Nike competes with Starbucks competes with Apple competes with Las Vegas. They all compete for a particular experience set that a consumer craves.
  • Most brands need to clearly define the experience that a consumer is buying. Too often brands continue to focus on functional benefits without understanding that these functional benefits only gain meaning by being translated into consumer experiences.
  • Brands have the opportunity to lead a particular experience space or to create a new experience realm. Brands become nothing else than a promise towards a particular experience.

Thinking about “Discretionary income” as experience budgets will help us marketers to focus on a meaningful and consumer centric brand proposition. Brand stewards need to own and understand the particular experience realm that the brand is fulfilling. Consumers don’t spend a part of their “Discretionary Income”, they are buying experiences.