Cisco, Netgear and the Desire for 'More'

Includes: CSCO, INTC, NTGR
by: Rafael Grillo
No different than in other aspects of life, as consumers we are anything but rational. As a general rule, rationality kicks in just after we are emotionally committed to a decision. That applies to almost anything: from the impulsive decision of buying a pack of chewing gum at the convenience store counter to choosing the person we will share the rest of our lives with. We emotionally decide we need that new flat-screen TV. Then rationality engages to a) validate and justify the decision and b) sift through features and alternatives to select the specific product and model to buy. Even this is not a sequential process: there is a constant feedback loop between our emotional and our rational beings before we arrive to a concrete purchasing decision and act on it.
Based on this precept, the implications for any marketer are obvious: engage the emotional side of the customer first. Get him to emotionally commit to your product first and just then provide him with the rational arguments for him to justify and validate his decision. If a marketer tries to win the competitive war based on the assumption of consumer rationality, he’d be choosing the harder, riskier path to success.
One of the most powerful emotional drivers ruling our consumer behavior is, simply, our desire for ‘more’. More what? Anything: better, faster, cheaper. We are helplessly compelled to want whatever we perceive is an improvement over what we already have. We want it (emotional): we can’t always justify it… or afford it (rational). Yet, this is the drive that makes us ditch perfectly fine, working cell phones, TV sets, jeans, sofas, cars to go and get the shiny new one. If emotionally we perceive there is more to be had, and rationally we can justify it, then we have a purchase.
While the principle might be obvious, its execution is not that simple. The challenge for a marketer is not only creating a tangible “better” that consumers can understand and ultimately, desire, but also creating the codes to communicate it. And this is key: consumers must be able to ‘emotionally’ understand the improvement that is offered. Emotionally understand? Isn’t “understanding” an eminently rational trait? Well, not really.
Here is where I want to introduce the concept of category “dimensions” or “coordinates”. For any given product category, consumers create a sort of a mental map or space, not unlike the physical space we live in. In each of these categories, though, there are just a limited number of ‘dimensions’ that consumers use to make up their mind about what is desirable and relevant in a product. Usually there are maximum three or four of these “dimensions” that are relevant. More than that, and the decisions become too complicated. Our brains abhor complexity, and when the decisions become too complicated, our tendency is to just avoid them. If the “better” is not immediately obvious, then I’d rather avoid the risk –and the associated pain- of not making the right decision.
Dan Ariely covers this topic in his book “Predictably Irrational”. When you think about it, this is not that different from the way we perceive the physical world: everything is in three dimensions. We can even entertain the thought of a fourth dimension: but if we are pressured to consider a fifth, sixth or more dimensions, we enter into a mental short circuit. We simply discard the thought.
One of the best examples of how product ‘dimensions’ work and are able to drive consumer behavior is the PC market of the late 80s, early 90s. It is also a great example of how departing from a simple model consumers can easily “emotionally” understand creates a short circuit, and ultimately, lack of consumer interest. It is an example where a drive for rationality took over, paralyzing consumers and ultimately, hindering the growth of a Company that still today is looking for its north.
Many claim that Intel’s (INTC) stroke of genius was its “Intel Inside” campaign. That campaign turned a highly technical computer component into a desirable consumer brand. Intel was able to have consumers demanding PCs built with its processor, and that generated the dramatic growth that ultimately turned Intel into the uncontested leader of the processor industry it still is today. But Intel inside is just half of the story. The other half is how Intel was able to simplify for the consumers what otherwise could have been a very technical and almost ethereal category.
What Intel did was to simplify the processor category for the consumers in terms of just two, simple to get, and very desirable dimensions: a) capacity and b) speed. That’s it. Along with that, it created communication codes that were easy for the consumers to follow. When PCs started making inroads into the consumer market, Intel very quickly changed the branding conventions for its processors from a technically-driven nomenclature (286, 386, 486) to a cool, awe-inspiring brand name: Pentium. And for speed, Intel made sure to make news with the easy-to-follow clock rate in terms of Mghz.
And this is exactly the point: the consumer didn’t need to know what made a Pentium 2 better than a Pentium 1. They didn’t need to know what the clock rate exactly meant. These where just easy indicators for the two dimensions consumers cared about; an increase in the indicators signaled the consumers that there was something ‘better’ out there. That’s all they needed to know. And the race to upgrade started. I vividly remember the buzz among consumers when Pentium 3 was launched; or when the first 1 Ghz processor was introduced.
And then, everything just got more complicated. Suddenly, Intel launches the new Celeron processor. Consumers scratched their head: what is the difference? Should I buy Celeron or Pentium? How do I know? Pentium reached the 4 version as the last significant launch, and that was it. The race for speed stopped at 3.6 Ghz. More dimensions where introduced: the category turned complicated, technical. Decisions became difficult, and with that, consumer interest faded.
The PC turned into a commodity. Yes, of course other factors came into play. But the single most important one is that, as I like to say, engineers took over. Hold it! I have nothing against engineers! I admire them with all my heart. But in terms of marketing, they tend to miss the point, focusing on features and technicalities instead of what really matters for consumers.
This analysis can be applied to any category. Then you’ll notice that those brands and companies that are able to disrupt a category are the ones that a) create one or more new dimensions in such a category that are more relevant for the consumer; and/or b) create more meaningful, easy to understand codes to communicate “better” to consumers.
The technology sector is one that I think can benefit immensely from taking a real consumer approach to their marketing and thus reap the rewards of leveraging the need for ‘more’. I am going to use the Home Wireless Networking sector as an illustration of this point, but the situation is replicated in several other segments dealing directly or indirectly with consumers.
There are two key players vying for the consumer favor in the Home Wireless Networking category: Cisco Systems (CSCO) and Netgear (NTGR). The potential in this market is still largely untapped. Why? In an April 2010 article entitled Tools That Make it Easy to Network Home PCs, US News reported that :

“… About 20 percent, or 1 in 5, sets of wireless networking gear is returned to stores as buyers buckle beneath the vagaries of networking.
There has been progress. It was nearly twice as hard to set up a wireless network just a few years ago, when return rates were closer to 40 percent. But even today's numbers largely represent tech-savvy consumers; many average PC users still don't even try. Ten years after they hit the consumer market, wireless networks have made it into only 30 percent of American households, report market researchers at ABI Research.”
What’s the issue? Many of us can attest that setting up a router is not that hard. Yes, we might be the tech-savvy consumers the article refers to; but I’d sustain that the real obstacle lies in the intimidating number of incomprehensible technical terms manufacturers use to describe their products and their functionalities. Both Linksys and Netgear proudly announce their products meeting the IEEE 802.11 N standard, which is superior to the B and G ones, but not to worry, because they are backward compatible… huh? So now you can have the RangeMax Dualband model XYZ-1234… HUH?
In addition, if you try to shop their line of products, the technicality of the offerings makes it really hard for the layman to understand what he is getting, if he is over-shooting against his needs, and moreover, if he is getting himself into a mess that will end up frying his hard drive, blowing up his monitor and ultimately, getting the US into WW3. And as mentioned above, a consumer faced with such enormous challenges would simply avoid making a decision.
To Cisco’s credit, in 2009 it launched a line of routers denominated Valet, focused exactly on simplicity. It was definitely a step in the right direction. However, its support barely went beyond the launch phase and I think it failed to create a significant stir up in the category.
Now we know what the issues are. How are they to be addressed? And moreover, how can one of these companies not only get consumers to look at routers with different eyes, but moreover, activate and leverage the need for ‘more’? Based on what have been discussed so far, the winner will do the following:
  • It will create a new category, with a consumer-friendly moniker, like ‘wireless Internet hubs’ or ‘wireless centrals’. Anything but ‘routers’ which is an archaic definition from the times of the corporate networked PCs.
  • It will define it in terms of easy-to-understand, relevant dimensions. In my view, they will be a) speed: how fast my data will travel, b) range: how far away I’ll receive my signal and c) power: how many devices can I hook up simultaneously.
  • It will create easy codes for each of these dimensions that consumers can understand, follow… and desire.
  • Its communications will be: a) mainstream: stop advertising in techie magazines and geeky websites, b) reassuring: not focused on the gadget, but on its simple installation and the lifestyle benefits; c) consistent: follow the pattern of their consumer electronics cousins.
The definition of these relevant dimensions, and the corresponding easy-to-understand codes to qualifying them is what will signal consumers of the need (or desire) to upgrade. The consistent communication will keep consumers interested in and aware of the evolution of the category. If and when we see this happening, we’ll have a winner.
This is a very useful framework to scout for companies that represent an interesting opportunity for investing based on -and/or to assess the real potential of- a new product launch or marketing initiative. Keep it in you toolbox.

Disclosure: I am long CSCO.