Instituto Tecnológico Autónomo de México

Internal Branding is an aspect of brand management that is particularly important for service companies. It may be defined as the transfer of knowledge and passion for the corporate brand from the leaders to all levels of the organization.

Especially critical are the contact employees who, for better or worse, act as the representatives of the brand for the customers. This is one of the more difficult strategic challenges for any service company: to turn its employees into true brand ambassadors.

Internal Branding is a process carried out by all service organizations with a strong internal culture, though perhaps they may not call it that. When it works well, employees develop skills and attitudes that drive them to embody the brand promise when performing service tasks for customers. It is easy to see the importance of this for service-intensive companies, such as airlines, hotels, restaurants, banks, insurance companies, etc. However, many service companies have a low success rate in fulfilling their brand promise. A recent study by the Gallupconsultancy asked a representative sample of U.S. employees if they knew what their organization represented and what made it different from other organizations. Only 42% of respondents were fully in agreement. And to the question if they worked for an organization that always keeps the promises it makes to its customers, the percentage of respondents who fully agreed was only 27%.

Managers of Internal Branding

By its very nature, Internal Branding has to do with employees and with the brand promise. But it would be a mistake to assign its management only to Human Resources or only to Marketing. In fact, close cooperation between both departments is required to develop true brand ambassadors.

Human Resources has the skills and technical tools to carry out the selection, induction, training and performance evaluation of employees. On the other hand, Marketing has the competence and tools for designing the value proposition, the brand promise, and its positioning. Likewise, Marketing defines the customer experience and service behaviors that build it, and carries out the systematic measurement of customer satisfaction. All of this is done with the aim of gradually building brand equity.

Internal Branding is usually delivered through the selection, induction and training programs. In fact, one of the training objectives is to transmit to the employees knowledge about the corporate brand, the brand promise and the role of the employee in its delivery, breaking down said delivery to the visible behaviors that customers have come to expect from the brand. For example, a loyal customer of Starbucks expects the barista to greet him/her by name, and a customer of Italiannis expects that the waiters will sing in chorus on the day of his/her birthday.

As a complement to training, an effective Internal Branding is also created when managers and supervisors remind their employees of the content of the brand promise, providing them with practical examples and anecdotes that ground and materialize its delivery.

While all of the above may seem the sole responsibility of Human Resources, it would be a mistake if Marketing were not involved, or if it only participated in creating the content of the training, and then turned all its attention to the outside of the organization “where the sales are.” For a Marketing executive who is truly persuaded by the value and proposition of the corporate brand, spreading his/her enthusiasm to all the employees is a direct way to build brand equity, and thereby encourage brand preference among consumers.

An illustrative example of the mechanisms of Internal Branding is the company Uber, which in Mexico City has built, in fairly short time, a good reputation for fulfilling its brand promise. Uber has deployed two tools to make each driver act as a brand ambassador. First, there is a rigorous selection, training and certification of the drivers. Training is provided through short videos that drivers can watch and review on their phone.The videos highlight the brand promise of Uber – which is well known by its customers – and explain in great detail the visible behaviors that drivers must display to deliver the promise, such as offering bottled water to the customer. The second tool is the evaluation of the service received, which the customer can provide quickly and easily through the Uber application. For the drivers, the evaluation average is key, because if it drops under a challenging 4.7 star threshold (out of a possible 5) they are penalized. The combination of a brand promise that is well described, plus selection, training, and rapid feedback has allowed Uber to quickly earn a remarkable brand loyalty.

Internal Branding in Franchises 

The success of a franchise is mainly based on a brand promise that is consistently delivered. Therefore, the principles and practices of Internal Branding are also important for franchise organizations,with the advantage that on these, the internal visibility of the brand is usually higher than on a conventional organization.

In a franchise, those responsible for delivering the brand promise in each establishment are the franchisees, who receive the technical support and brand leadership of the franchisor. Recent research has shown that the constant dissemination of brand knowledge by the franchisor positively influences the satisfaction of the franchisees, their perceptions of role clarity, and their commitment to the brand – all of which helps to turn them into brand champions.

Internal Branding is particularly important for young franchises that are still building their brand differentiation in saturated markets, such as hotels and restaurants. Consistency in the visible behaviors of employees can only be achieved through a planned and systematic effort, which will bear fruit in a gradual manner. Only in this way will the recurring customer find the same service in all branches and develop a loyalty to the brand.

Systematic Measurement of Internal Branding

Given its importance, it makes good sense to perform a rigorous measurement of the effectiveness of the Internal Branding process through a formal study or diagnostic. These studies are based on surveys of employees, supervisors and managers. In these surveys they are asked to indicate their degree of agreement or disagreement with a series of statements about the brand. A typical question of the employee questionnaire would be, I know how I should behave to ensure that our brand has a positive image with our customers, while a typical question for supervisors would be I frequently give my employees practical examples of behaviors that reflect our brand promise.

Nowadays, thanks to professional platforms for online surveys (such as Qualtrics or QuestionPro), surveys can be answered efficiently using a PC or a smartphone. This solves two major problems: first, the geographical dispersion of many companies, and second, the high cost of deploying and capturing paper and pencil surveys.

For a company with multiple branches, such as a hotel chain, the survey might reveal significant differences in the brand awareness of employees in two different cities, which is already an important finding that can generate corrective actions. But the main contribution of the study is to determine, through a sample of the entire chain, the systemic impact of the variables that management can change on the desired objectives of Internal Branding. Among the variables that management can change are brand training and the brand leadership exhibited by managers and supervisors. Also, through proper selection, the congruence between the personal values of the employees and the brand’s values can be increased. These variables will in turn have an impact on the desired objectives of Internal Branding, such as the brand awareness of employees, the commitment to the brand, and the display of behaviors that deliver the promise.

The core of the diagnostic study is the econometric model that measures the systemic relationship between all the variables. To correctly measure the impacts, it is necessary to formulate structural equation models, and estimate them using the statistical techniques required by the type of sample utilized.In this way, recent investigations have achieved very interesting results. For example, the congruence perceived by the employee between his/her personal values and the values of the brand has a positive impact on the employee’s motivation to display behaviors that benefit the brand.This has practical implications for refining the selection process.

In summary, a well-executed Internal Branding diagnostic study achieves substantial and practical benefits for the organization, such as: identifying gaps in the selection and/or training process; identifying brand promises that are insufficiently specified, communicated or grounded; demonstrating to managers and supervisors the impact they can have on employees through their brand leadership; demonstrating to employees how their service behaviors generate brand perceptions among customers; and triggering a fruitful dialogue about the corporate brand between the CEO, Marketing and Human Resources.

Notes

? O’Boyle, E. & Adkins, A. (2015) “Super Bowl Ads Don’t Make a Brand” Gallup Business Journal. http://www.gallup.com/businessjournal/181358/super-bowl-ads-don-brand.aspx

2 http://www.choferes-uber.com/capacita/

3 King, C., Grace, D., & Weaven, S. (2013) “Developing Brand Champions: A Franchisee Perspective.” Journal of Marketing Management, 29: 1308-1336

4 ibid.

5 Among the main estimation techniques are Partial Least Squares, Covariance- based Structural Equation Models and Hierarchical Linear Models (PLS, CB-SEM and HLM respectively)

6 Xiong, L. & King, C. (2015) “Motivational drivers that fuel employees to champion the hospitality brand.” International Journal of Hospitality Management, 44: 58-69.

Employee surveys can have many positive effects, but they unfold their full potential only if they are communicated effectively. In practice, communication is often done by distributing thousands of computer-generated reports more or less simultaneously to all managers. Leer más

By: Ph.D. Carlos María Alcover, Universidad Rey Juan Carlos, Madrid, España

The last two decades have brought rapid and significant socio-demographic, economic and labor market transformations. Increased longevity and the combined decrease in the mortality and birth rate define the current demographic transition. Leer más

In the minds of today’s managers, it’s common sense that an organization’s employees are its most valuable asset. Keeping a healthy and energetic manpower force may mean the difference between success and crisis, or even failure, in a business operation. Leer más

Since June 2014, the world has assisted to a dramatic fall in the price of oil, which reached approximately half of its previous value.

While this turn of events has hurt producers of oil, like Mexico, it has – or should have – benefitted consumers and companies that use oil as a main input of production. Like airline companies.

It would be natural to expect airline companies to transfer parts of these benefits to consumers in the form of lower travel fares. But those of you who tried to travel in the past year have probably noticed that airplane tickets have not gotten any lower: over some U.S. routes the average fare has even increased by 10USD. What is happening to the industry? Could travelers expect cheaper fares any time soon?

Some representative of the industry has commented that because airline companies are working with long-term oil contracts they are still paying old prices. But these arguments have been dismissed after other exponents admitted that the industry was enjoying a period of unprecedented savings (jet fuel is an airline company’s major expense).

In a competitive environment companies who set prices should fight with discounts until they fill all their seats, cutting their ticket prices down to their marginal costs. And the airline industry has shown in different occasions to be very competitive, bringing notoriously low returns to its shareholders. How is it possible that such a competitive industry has failed to transfer its cost savings to the customers?

One might argue that at end ticket fares depend on travelers’ willingness to pay, and data show that not only are travelers willing to pay these high prices, but airplanes are also flying at almost full capacity! This seems to suggest that actual fares are somehow “fair”.

They key of the puzzle lies in that “capacity”. For an airplane, capacity is given by the number of seats that the company makes available in each category. When companies set a large capacity, customers can find seats more easily or they can delay their purchases with less fear of potentially losing an offer. Also, from the company’s perspective, large capacity would likely bring more empty seats that could only be filled with aggressive discounts. Following these examples, we can begin to understand how large capacity usually leads to lower prices. Analogously, high prices can be usually connected to small capacity. Therefore, when industry representatives state that airplanes are already flying at full capacity they are only presenting one side of the problem. Airplanes are flying at full capacity because the companies have reduced the number of seats available per airplane.

For instance, in a recent trip to Europe I noticed that Lufthansa has introduced a new seat-category called Economy Plus on its flights. While being located in the Economy part of the airplane, this category offers more space in exchange for a higher fare. Apart from allowing for better market segmentation – and therefore higher revenues through price discrimination- the introduction of this category has allowed the company to further reduce the total number of seats available on an airplane, stealing space to the Economy class. Next time you praise an airline company for the good space between seats, remember that you are paying a hidden fee for this space!

Concerns for consumers’ welfare have recently moved the American Antitrust authority to put the industry under investigation. The accusation is that airline companies have tacitly colluded in keeping capacity low.

What are the factors that have contributed to the relaxation of competitive pressure in the last few years? First, the emergence of code sharing alliances has reduced the number of independent players, promoting instead large and coordinated groups. Second, in the U.S. there have been some major mergers (see for instance U.S. Airways and American Airlines) that consolidated the industry, making tacit coordination among rivals easier.

Should we expect to see lower ticket prices anytime soon? Travelers should not be too hopeful. The Antitrust investigation is bound to take some time, and it may be difficult to prove airline companies guilty. Moreover, even if airline companies wanted to add capacity to their flights, they would not be able to do so in the short run. In addition, by the time they could accomplish that, the global oil prices might have returned to historical highs.

This lesson showed the role of capacity in preserving profitability in aggressive markets: capacity moves strategy away from quick and reciprocally dangerous price reactions, into a realm of slow quantity adjustments that stop the erosion of profits.

For a company, moving from a price-setting to a capacity-setting strategy is a way to avoid the harms of price wars and creating a friendlier competitive environment. As a strategic variable, capacity is more rigid to adjust than price is, and therefore is not the optimal tool to react fast and aggressively to a rival’s move. When all companies in the industry adopt this strategy, aggressive play slows down and competitive pressure in the industry will become low. Returns skyrocket and prices stay high.

Decision making is a daily and natural activity. The act of buying is one of the many decisions a person faces in life. There is the idea that this decision is rational. To explain this rationality, marketing gurus, like Kotler and Hawkins, among others, have described this process as a sequence of stages an individual goes through when deciding what, where and when to buy.

However, there is evidence that many buying decisions do not follow this logical, reflective and sequential process, but are more irrational than one might think.

Buying Decision Process
Buying behavior consists of making a decision about the purchase of a product or service that is needed or desired and which involves having a preference. The act of buying follows the steps below:

1. Situation of purchase. The buying process starts with a favorable situation. For example, a craving stimulates buying a soda at the movies; the nearly empty gas tank of a car incites the act of going to the gas station; or having a vacation triggers the search for options for relaxation.
2. Information. Before deciding on a purchase, one seeks information on alternatives to make an informed and reasoned decision. One of the characteristics of the markets today is that more and more information is obtained on the Internet. Moreover, among the most important sources of information are the activities of marketing and advertising companies, recommendations by word of mouth, previous experiences, and opinions of experts on specialized sites.
3. Alternatives. Once aware of the situation, the consumer will define alternatives that satisfy this need: In the case of a craving in the cinema, one might think of a soda, popcorn, sandwich or other food. In the case of gasoline (what to buy), there are not many options. Perhaps one might think of nearby gas stations (where), while the time (when) is as soon as possible. Finally, in the example of vacations – a decision that can be programmed – the alternatives might be a beach, a cruise or a trip to an archeological site.
4. Decision factors. In this step one should determine what factors are important in making a buying decision. In the case of vacations, they may be the price, the number of days off, the distance and travel time, tiredness and need for relaxation. With regard to the cinema, one will look at the price, the quantity of the product, if there is a discount or a package deal, or perhaps the previous experiences may be crucial and a selection may be repeated. For the gas station, one will think of the one that is on the way to the office or the one closest to home, although in this case the decision will be almost automatic and most likely based on habit.
5. Evaluation of alternatives. Each individual is influenced by different factors, which have meaning and importance when evaluating alternatives and selecting the most appropriate or most attractive.
6. Purchase. Once the buying decision is made, the actual purchase of the product or service occurs.
7. Post-Purchase Experience. Finally, after having the experience of the product or service, the buyer is either satisfied or not satisfied with his/her decision, which will influence if the purchase is repeated given the same stimuli.

Irrationality in the Purchase
Strictly speaking, the decision-making process explains how people buy. However, in reality there are many distractors or cravings that limit the rationality of a purchase. Distractors are situations, also known as “blind spots,” that affect one or more steps of the process and make the consumer buy with a limited perspective. The process is also truncated by cravings, such as heuristic methods, habits or impulses. Figure 1 shows the process and the influence of the distractors and cravings.

Figure 1. Buying decision process.

The figure shows how irrationality pervades consumer behavior. It can happen in trivial or important situations, as we shall see in the following four examples.

To show some irrationality in a trivial purchase, let us take the case of the craving for a soft drink in two scenarios that show how a buying decision can be influenced. In Scenario 1, two sizes of soft drinks are offered at the refreshment stand of the theater. The small size costs 20 pesos and the sales person offers the large size, which is more than twice the size, for only 60 pesos. Given the price difference, few people are interested in the large size, because they think that the price is very high and the amount excessive. The justification for this seems rational. In Scenario 2, three sizes are offered – small, medium and large – with a cost of 20, 55 and 60 pesos. Now the sales person offers the large size with the argument that the difference of 5 pesos between the medium and large size is negligible for the additional amount. This time, the vast majority of customers purchased the large size. Was it a rational decision? It was the same product, the same consumers and the same environment. What was the difference? It was the introduction of the medium size as a point of comparison with the large one. Were the customers rational, following a buying process? No, their decision was an impulsive act triggered by apparent convenience.

In the case of a larger purchase, let us take the example of a new car that an individual wants to replace because he will no longer be able to circulate on a daily basis in a few months. If the consumer feels rational, he asks the opinion of his acquaintances and makes a list of several cars that meet his price range, design and model, that is, cars A, B, C and D. After gathering information from the dealers, he sees the cars, tests them, reads the brochures and instructions. Afterwards, he makes comparisons using the factors he considers important, such as price, performance and comfort. He compares all the data until he decides which is the best choice: car B. Did he buy that car? No, because he suddenly thought about the J model and wanted to go see the dealer. At the end, he bought car Z of the model J. It cost more than the winning option (B), the performance level was lower, and the insurance and services were more expensive. What happened? He had an inspiration, a strong desire, to own a car of the model J, and loved the idea of the image of having it. Was it a rational decision? No. Emotional? Definitely. Irrational? Totally. The heuristic method did not influence his decision. Instead there was a distractor in the last step of the buying decision, which we could call a whim or instinct, that is, a reaction that is difficult to explain rationally.

The third example relates to a situation in which a person makes a rational decision to lose weight. He looks for alternatives (types of diets, exercise at home or in a gym); he gets information on the Internet; he asks his family and visits three gyms. After weighing these alternatives, using criteria such as ease, speed and cost, he decides to follow the diet prescribed by the dietician. A few days later he is in a restaurant with friends and when he chooses whether to eat a salad or a hamburger and fries, he decides on the latter. This situation is known as the dilemma between what one wants and what one should do. Rational or irrational? The decision had a distractor called “craving.”

Finally, the last example has to do with the idea of seizing an opportunity. Take for example seasonal discounts, such as night sales, black Friday and now in Mexico the Buen Fin. It is the same product and the same price, but in a different promotional context. The stimulus is the possibility of taking advantage of an opportunity that is presented in a given and limited time.

Figure 2. Shopping in moments of opportunity.

Conclusion
We have seen that consumers do not always follow a rational process in their purchases because distractors may interfere or a decision may be made out of habit, impulse or a heuristic method. For the marketer, more than understanding buyers’ needs it is important to know the distractors and cravings to identify business strategies that consider the irrationality of consumers at the moment they make their decisions. Thus, at the time of purchase, the decision could be more irrational than one might think.

References

Hawkins, Del (2013), Consumer Behavior. Nueva York: McGraw-Hill Irwin

Factors such as facial symmetry increase the attractiveness of a person when compared with faces that are less symmetrical. But when we explain the reasons why we are attracted to a person, an element of this type will hardly come to mind.

Look at the photograph. Do you like it? Why?

Most likely there will be agreement among the majority of responses – the model’s beauty, her personality, style or talent, etc. All of the answers will be as real as they are valid. If we persist in asking the question, surely we will compile more attributes.

However, no matter how much we keep at it, there are reasons why we are attracted to Scarlett Johansson and it will be hard to enumerate them if we are asked. It is not because we deliberately refuse to share the information, but because we are unaware that these reasons exist and that they influence our perception.

Continuing with this example, factors such as facial symmetry increase the attractiveness of a person when compared with faces that are less symmetrical. But when we explain the reasons why we are attracted to a person, an element of this type will hardly come to mind.

Of course, at any time we can all learn that the effect of facial symmetry has an impact on the attractiveness of a person and it is even possible to incorporate it from then on in our repertoire of responses – and it will surely be right. But it would also be a response based on something learned from an external source, not on something that is perceived from our experience of observing someone and assessing what impression that person causes in us. In fact, as we know the effect of facial symmetry, we also know that it is a widespread pattern and that we are unaware of the impact it has on us. Therefore, its inclusion in the answers becomes superfluous and useless (unless you actually want to measure to what extent this knowledge is assimilated by our target audience).

A phenomenon, such as the impact of facial symmetry on our preferences, helps us to demonstrate the blind spots of our conscious thought: those factors that we do not detect or recognize directly but that play a role in our thinking, attitudes and behavior.

Have these blind spots been assimilated and understood by market research? Has there been an attempt to incorporate them into the methods developed decades ago? We will try to answer these questions in the following paragraphs.

If throughout the greater part of history knowledge was accumulated gradually, our period of time stands out, among other things, by the exponential rate at which learning occurs. With the surge of new information, key themes may be found that change the rules of the game in different fields. There are also fields whose repercussions impact many others. One example is the research on the human brain which, being an important topic, has implications for virtually any area of human activity. Indeed, by learning more about the operation of the brain, the applications extend to disciplines as diverse as pedagogy, job performance, psychology, and even consumer behavior.

Michael Gazzaniga conducted an experiment that forced the paradigms of market research to be redefined. In the study, the left hemisphere of the participants, which specializes in interpreting the environment and giving it meaning, among other things, received no information. This was achieved through two mechanisms: The participants’ right eye, which transmits information to the left hemisphere, was covered, and the functioning of the corpus callosum, a tissue that connects the two hemispheres and serves as a transfer channel, was inhibited.

The regions of the brain – where thinking about why things happen – were isolated from all other areas, which were exposed to different stimuli.

Some of the stimuli were verbs that called for action. The participant (or more precisely, the right hemisphere of the participant’s brain) saw a sign with the word “walk” and immediately stood up to walk. When the researchers asked him why he suddenly rose from his seat, he replied that he was thirsty and needed a drink or gave another equivalent explanation. He never referred to the instruction to walk. Although the word stimulated a behavior, at no time was he aware of its influence on it.

The distinct stimuli were of a different nature and some required a verbal response, more than an action. In all, the constant was the same: People responded in a way that had nothing to do with the explanation of their actions or verbalizations. Furthermore, at no time did they say they did not know the reasons for their actions. The conclusion is fascinating: Even when we do not have the slightest idea why we do what we do, we say what we say or choose what we choose, this poses no impediment for us to go ahead and explain our behavior, although in reality we are dealing with rationalizations developed a posteriori and not an observation of what moves us.

Of course, the consumer is not confronted with the conditions of the experiment in real life. Generally, we see reality with both eyes and the corpus callosum that connects our hemispheres is active. That is, we have more tools to understand the world and ourselves as agents. But even so, our behavior shows grey or black areas that we do not see, and therefore the key word is access.

We have access to certain levels of our psyche, but not to all of them. To return to the example at the beginning, we have no problem understanding the features of Scarlett Johansson that we like. We have access to this and other elements that help to explain the attraction that she exerts over us. It is worth asking about these factors because they are real, we are aware of them, and they fulfill a function. But we are not aware what effects such as facial symmetry influence us. We cannot measure these factors from questions, but they are also real and play a role. We have access to the result of the internal processes that we experience, but not necessarily to the processes themselves, and it is easy to make erroneous attributions between one and the other.

In ideal circumstances, the recognition of these situations should be followed by solutions to resolve and minimize or eliminate the degree of uncertainty that derives from that we cannot understand by asking. The practice is uneven, probably as a result of finding ourselves in a moment of transition, in which market research is beginning to recognize and understand these new angles, unpublished until recently.

The implementation of solutions is uneven. We find a wide range of positions in the market – from ignoring new learning and continuing as in the past decades, to the position of discarding the former to replace it with practices based only on the latest findings, passing over more balanced attitudes that seek to complement the two extremes.

In any case, at this point market research is full of possibilities and risks, being a practice modeled according to recent assumptions, but distant because of its difference in the knowledge these assumptions shed about consumers and their level of access to information about their own actions and attitudes.

We could say that at its worse, market research has a school of thought taken from the 1990s, applies solutions and processes from the early 21st century and is faced with challenges of the mid 2010s. To remain a useful tool, it is essential to reconcile these aspects.

Bibliography

Gazzaniga, Michael (2012), Who’s in charge, free will and the science of the brain, Ecco

Etcoff, Nancy (2000), Survival of the prettiest: the science of beauty, Anchor

To understand what happens in Mexico when speaking of “entrepreneurship” – in addition to defining who are entrepreneurs – it is important to learn what the entrepreneurial ecosystem is and what elements comprise it.The entrepreneur is part of a system, like a leaf of a tree, or a tree in a forest. The panorama is filled with those who work, those who are the innovators and those who are dedicated to offering goods and services: the companies.

But behind those companies, behind these entrepreneurs, there are individuals and institutions that contribute so that a business idea can be carried out. All those people and parts of a whole are known as actors in the entrepreneurial ecosystem. In this ecosystem there are incubators, accelerators, investors and even universities or the government – all with the goal of adding value depending on their function, their experience and their links with the other participants, which enriches the end result and benefits all the participants. More than a term, it already forms part of the public domain.

According to the IMEF 2013 working paper, “A Mexico of Entrepreneurs” (a team to provide ideas and proposals to the financial community and the country), the high impact ventures do no exist in isolation nor do they happen by chance. For new business ventures to have a substantial effect on the economic activity of a country or a city, it is necessary to create an entrepreneurial ecosystem (Casas Alatriste, 2013).

If one starts from scratch, at the emergence of an idea, what actors of the ecosystem are involved in this stage? When the entrepreneur aims to consolidate his business model through commercial and financial validations that support the existence of a market interested in its offer of value, the incubators act as specialized agencies that contribute to examining the idea in order to be a part of the formal economy.

Incubators work in particular with start-up companies that have high growth potential. They are non-traditional innovating business models with a high technological component. In recent years, these new companies have increased in the country, which has favored the entrepreneurial ecosystem.

High impact incubators are a key element, which meet two main objectives: 1) to promote the creation of businesses with institutional bases; and 2) to contribute to the development of new products and services that address the needs and social problems of the region. Incubators focus on the core ideas of a citizen governance: governance, security and civil protection; sustainable economic development; habitability and services, public space and infrastructure; effectiveness, accountability and combating corruption.

In Mexico City, the National Entrepreneurship Institute (INADEM) recognizes only seven high impact incubators: Angel Ventures México, Wayra, Venture Institute, Jardín de Innovación, InnovaUnam, Tecnológico de Monterrey campus Santa Fe and Startup Mexico.

Normally during the incubation, entrepreneurs are offered different services, such as a shared space, with a telephone line and Internet, to operate with other ecosystem participants, development of deliverables (business plans and financial models), mentoring and customized consultancies on business models and even specific advice with financial models and commercial feasibility studies.

Incubators have different incubation programs. It depends entirely on entrepreneurs to decide which incubator offers greater added value in accordance with their interests and vision of their company. In general, incubators try to create the largest number of formal jobs, incorporate cutting-edge technologies or new uses of existing technology and prepare tools to compete in national and international markets. The result is a well-structured business model and a survival rate higher than the other companies in their industrial sector.

Accelerators are found in consolidated companies with a greater degree of progress. Originally, the accelerator programs were created to support the gazelle companies. According to the Economy Secretariat, gazelle companies are those with growth rates above average in the sector to which they belong and, as a result, are also those that contribute most to the development of the economy. Among the accelerators recognized by the INADEM are PwC México, Endeavor, New Ventures, NETBA AND Victoria 147, although there are many others, each with its particular acceleration methodology and dedication to different industries.

Through the INADEM, which is a decentralized body of the Economy Secretariat, the government promotes the ecosystem with a variety of tactics. Also, in the National Development Plan 2013-2018, strategy 4.2.4 is established as one of the National Goals for a Prosperous Mexico. This strategy sets as an objective to expand access to credit and other financial services. This means that through the development bank and with funds approved in the budget of expenditures of the Federation, there is an economic section to consolidate a support fund for micro, small and medium-sized enterprises.

The INADEM also drives the ecosystem with its rallying power in the Entrepreneur Support Network, which is defined as a strategy for coordination and linkage of the policies and support programs for entrepreneurs and MSMEs of the various levels of government and the private sector. This project is unprecedented and means that the communication between stakeholders will be smooth and the activities will be aligned in similar ways, instead of being isolated efforts whose results are not transformed into common benefits.

The government is not expected to be the primary motivator, but to facilitate the use of the resources that they already have and that previously the MSME Fund distributed. Now there is a clear strategy that includes the other actors and helps them to collaborate.

There are other resources, apart from those from the government. If the company has already validated its business model and wants to raise capital to move to the next stage, it is recommended that it approach a private equity fund. Funds that operate and invest in Mexico include LIV Capital, Alta Growth, Ventures Capital, AVM I, IGNIA, Adobe, and others. They differ in the average investment per company, the sectors in which they invest, and their investment thesis.

It is the responsibility of the entrepreneur to verify that his project meets the requirements of the fund before requesting a meeting with their officials. Otherwise, it is likely that the fund managers will have the impression that the entrepreneur did no research and they will not consider him among their first investment options. Another important factor of the meeting is that it provides the first opportunity to impress the investor and attract his interest in a project.

There are still other, less recognized actors, who are mentors. They do not play a formal role, but they are a key element for the performance of entrepreneurs.

Recently, Richard Branson, founder and president of Virgin Mobile, said, “No matter how smart an entrepreneur is or how brilliant or innovative his business concept is, he needs a good mentor. The difference between an entrepreneur who seems competent and one who already enjoys success is the mentoring.”

Although the positive impact of mentoring in companies has been demonstrated, less than half of the entrepreneurs seek a mentor. There may be several reasons: a culture in which presenting problems or challenges projects an image of failure; a distrust in presenting ideas for fear that someone is going to steal them; or simply ignorance of this resource and its advantages.

However, there are more important reasons to trust mentoring than not to trust it. In Mexico, the mortality rate of the micro, small and medium-sized enterprises is considerably high, almost 80% during the first year. Many entrepreneurs who start a business do not have the tools or knowledge to manage it. Added to that is a legal and fiscal environment that makes it very difficult to establish and consolidate enterprises. At this point, mentoring is more important because it communicates to entrepreneurs the experience and skills of someone who can meet the challenges.

Mentoring has good results in the survival rate and the generation of income and employment, plus it fosters motivation and entrepreneurial confidence. It is essential that entrepreneurs find the right mentor to grow their business and that they build a trusting relationship so that they hold meetings of intellectual enrichment for all.

Here are some tips to find the ideal mentor:

1. Define the problem or challenge well. The clearer and more specific the request for assistance by the entrepreneur is, the easier it will be to find the proper support.
2. Have initiative. Search, find and keep looking. Locate people who have the skills and knowledge that the entrepreneur needs, in addition to the time needed to support him. The entrepreneur must speak with several close candidates and preferably experts in his field in order to decide who is the best for his particular case.
3. Be ready to learn. The entrepreneur must recognize that he does not know everything and he can learn from others. He should also be open to listening to the advice of his mentor and to positive criticism.
4. Be honest and transparent. The more the mentor knows the business and the challenges it faces, the better he will help the entrepreneur to solve them.

On the other hand, there is a need for more mentors, experts who are willing to put their skills and experience at the service of others. Whoever has a career in the business world would do well to share with others what he has learned.

The IMEF 2013 working paper reads as follows:

Models are simplifications of reality that help to understand it better. In this sense, having a model, an outline or a graphic representation improves the understanding of the social phenomena. In many cases, these graphics follow a geometric, rigid and hierarchical logic, which is not an accurate representation of these new realities that are being experienced. Therefore, we looked for a figure in nature that could be used to represent and help understand these ecosystems. We thought of a neuronal cut, of atoms or of galaxies and, finally, we found something that is more simple and accessible: a flower. In both its structure and its reproduction function, there are important similarities with these entrepreneurial communities [Casas Alatriste, 2013].

Source: Taken from Casas Alatriste, 2013.

In everyday practice, professionals are immersed in their own activities and possibly do not notice they are already part of the ecosystem.

The richness of the entrepreneurial ecosystem lies in the influence of each of the components and in its ability to connect in order to exchange the resources they possess. These resources are human capital, intellectual or economic relationships. The result of adding isolated efforts will prove the theory that 1 + 1 can be 3, or more.

Just as the human being is a witness to the diversity of natural habitats, each with its own context, in a similar way the ecosystem of the entrepreneur in Mexico is unique and unrepeatable. To try to create a copy of models of developed countries would be an irrational endeavor that would interfere with our country’s own, natural evolution. Of course it is always possible to learn from better practices, but without forgetting the basic principle to which the country should advance: conceived, designed, patented and produced in Mexico.

In globally competitive markets, pharmaceutical firms face a precarious situation: declining loyalty from consumers as they increasingly switch to lesser-known, lower-priced brands, and the proliferation of generic substitutes that compete with the branded products of both national and multinational pharmaceutical companies.

Furthermore, as a large number of old patents are set to expire in the near future, fewer new patented molecules are set to take their place (Kielstra, 2011; Jack, 2011). Unless these pharmaceuticals can introduce new patented products, they fear gradual erosion of the market share and price competition as generic brands sell their products at prices that are, on average, around 55% cheaper (IMS Health, World Review 2013).

To what extent can branded Mexican and multinational pharmaceutical companies maintain brand leadership in the Mexican market?

In what follows we propose a tested strategy, developed in Mexico and Latin America, for growing market share by motivating sales force behavior. Companies using this strategy have been able to maintain or even raise their prices despite the proliferation of generic alternatives in the product category while market leaders’ prices and market shares were eroded. We call this strategy cloned rivalry.

Cloned rivalry

Cloned rivalry is based on the premise that sales forces are more committed and responsive when they are challenged to compete against an adversary brand whose characteristics are identical to their own product. The firm creates its own rival that has identical product and price characteristics as the brand it wants to promote in order to build a culture of intensive competition. Having identical product characteristics strips salespeople and brand managers of any pretext for arguing that sales declined for any reason other than their own lack of effort. The firm challenges the sales force on both sides to take more market share than the other, even when incremental market share is at the expense of their own rival brand. Prices between the rival brands are kept similar so that price cannot be used as a mechanism to compete.

To better understand the concept of cloned rivalry, it would be useful to distinguish it wi two examples of cloned products in the pharmaceutical sector that do not represent cloned rivalry. The first type of cloned products are generic brands that compete in price. Competition between the reputation of the innovative, original brand and the low-price generic brands (that do not have a dedicated sales force) can be intense, but the lost market share of the innovator brand can be attributed to the generic’s lower price, and therefore not motivate the sales force since they cannot be blamed for declining market share. In the worst case, competition degenerates into a price war in which both brands lose.

The second example is that companies often create a cloned brand based on the innovative brand, but without the intention of generating a rivalry between the brands. These new brands typically compete with other brands in different markets and cannibalization of the original brand’s sales is discouraged. If the new brand is offered at a different price then it becomes a way for the firm to price discriminate between different consumer segments. This is again inconsistent with our concept of cloned rivalry.

Schering-Plough and cloned rivalry

Schering-Plough (SP), now owned by Merck (MSD), pioneered cloned rivalry in Latin America. The regional president for Latin America and Asia, Alfredo Blanco, observed that sales of SP products in Venezuela were under-performing. To address sales force apathy, the sales force for a top brand was divided into two groups, with one group competing to sell a clone of the original brand. The new strategy worked better than expected and was quickly adopted in other countries in Latin America during the 1990s and early 2000s, as these positive results were replicated elsewhere.

SP introduced the patented molecule Rinelon SP introduced the patented molecule Uniclar, was introduced two years later (Table 1) when Rinelon had reached the peak market share attainable without cloned rivalry. The two rivals quickly took over half of the entire market despite the entry of two new patented entrants around the same time. More than a decade later, they maintain their dominance despite the entry of three new alternatives (two of them patented) between 2008 and 2010. Although these new brands captured 28% of the market by 2011, only 5% of that was taken from the SP brands, while the remaining competitors’ shares declined from a collective 42% to only 20%.

Cloned rivalry leads to important behavioral changes as explained by Critobal Thompson, a co-author of this paper, and ex-manager of Mexico as well as ex-brand manager for SP who was responsible for developing a rival brand.

Organizaciones más planas. Managers welcome insight from the sales force as they seek any small advantage they can gain over the rival brand.

Flatter organizations. Las marcas iniciaron cambios en la presentación o posicionamiento de los productos para satisfacer necesidades específicas detectadas en el mercado. Por ejemplo, en el mercado de esteroides intranasales, los diseños de los envases de Rinelon y Uniclar se modificaron para que fuesen más fáciles de abrir y usar. Por supuesto, los beneficios que trajeron muchos de estos cambios fueron temporales, pues la marca rival copiaba cualquier modificación que reportara ventajas. Sin embargo, otros competidores ignoraban esta rivalidad, por lo que los cambios podrían tener ventajas de largo plazo para las marcas rivales ante el resto de la competencia.

Rapid organizational response. The brands quickly initiated changes in product presentation or positioning to meet specific needs identified in the market. For example, in the intranasal steroids market, the designs of the containers of Rinelon and Uniclar were modified so that they could be easier to open and to use. Of course, many of these changes led to only temporary benefits as the rival would copy any changes that led to clear advantages. However, other competitors would ignore this rivalry, so these changes could have longer-term advantages for the rival brands vis-à-vis the rest of the competition.

Improved service. Since the rival products were identical and the rivalry was the focus of these two brands’ competition, salespeople had to look for factors other than product differentiation to generate an advantage. The main differentiation then became in the services provided by the salespeople as they competed to better meet the doctors’ needs, providing doctors’ requests for product information the following day instead of waiting until their next monthly visit, and preparing easy-to-read summaries that were preferred by doctors.

Identify new market segments and uses.

Rivals sought previously ignored niches as SP granted six-months to one-year exclusivity for developing previously untapped markets. New applications included getting rheumatologists to prescribe Claritin (an antihistamine for allergies) to patients before treating them with biological products in order to avoid potential allergic reactions. New niches included Claritin for patients under 2 years old.

This intense competition generated by this rivalry discouraged other brands from competing directly with the rivals. Sales forces from other brands did not present their brands as close substitutes for these brands, preferring to keep their distance from this rivalry. This explains why when new products are introduced, they primarily took market share from other brands if they are successful, rather than from the rival brands.

Outsourcing Cloned RivalryWithin-company rivalry has its downsides. At a time in which pharmaceutical firms are downsizing, firms must find ways to increase the efficiency of their sales force while minimizing new employment commitments. Also, the implementation of a flatter decentralized system could be translated into higher costs of time and organizational adaptation for the companies. Therefore, we propose the alternative of outsourcing the cloned rivalry.

In the intensely competitive painkiller market, SP agreed to pay Rimsa, a mid-sized Mexican company, royalties to manage Gammadol, a cloned rival of Rimsa’s Sinergix (Table 2) since the year 2007. The price differences were insignificant. In eight years, both brands increased market share in value despite Sinergix increasing prices by 66% and Gammadol by 33% over the period (Table 3). In contrast, Neo-Melubrina, Tempra and Dolac, which had been the market leader brands in terms of value in 2005 – with a combined market share of 38% in terms of value, and 35% in terms of units sold – lost approximately half of their combined market share in both value and volume, both decreasing to 18%. By 2014, the cloned rivals together captured 5.63% percent of the market value, that is, more than 4 times the share they had from the start of their relationship, managing to be the third most successful molecule in the market despite their high initial price (400% above the market average) and despite increasing their prices while the trend in the market was leaning towards more stable prices (Graph 1). During this same period, generic products as a group realized the largest gains in market share, growing from only 1% in value and volume in 2005, to 10% and 19% in 2014, respectively (Table 2), reflecting the increasingly competitive environment over this period.

Conclusion

Cloned rivalry generates an intensely competitive internal culture that makes it difficult for non-rival firms to compete directly with. For a patented product, cloned rivalry can both improve sales during the patented period while preparing the brand for entry into competition when the patent expires. Competing in the new market environment does not have to mean either low profit margins or focusing exclusively on a small niche of higher income consumers. Through cloned rivalry, firms can build and protect substantial market shares while minimizing price competition. Cloned rivalry provides a simple solution to motivating sales force effort when effort is difficult to observe directly. In a market where sellers depend on doctors to recommend their products, sales force motivation can reflect the difference between adequate and successful product performance.?

References

• Kielstra, P. (2011), “Reinventing Biopharma: Strategies for an Evolving Marketplace”, Economist Intelligence Unit, junio, p. 6.
• Jack, A. (2011), “Drugs: Supply Running Low”, Financial Times, febrero, 9.

In the last three years, a new variation of social networking has become popular among many users. We’re referring to visual social networks, in which users share images and photographs, more than personal news, such as in Facebook or Twitter.

Although since their inception Facebook and Twitter have had the capacity to share photos (as demonstrated in the dramatic photo of the landing of US Airways Flight 1549 on the Hudson River in 2009), Instagram and Pinterest, the most widely known of this new genre, were specifically designed to display and share photos and images

Pinterest is organized in the form of visual boards, as seen in Figure 1, which shows the official site of Ralph Lauren. Instagram, on the other hand, displays on the cell phone screen photos recently uploaded by other users and the comments they received. Figure 2 shows a photo uploaded by Mercedes Benz illustrating the unspoken rule of Instagram: uploading high quality photos.

If an image is worth more than a thousand words, these examples reveal that for brands with high visual content (such as cars, fashion and travel) these networks provide an alternative way of generating engagement among followers of the brand, with better measurable results than Facebook or Twitter.

Among the things that have drawn attention to these new networks is their rapid dissemination, even in the volatile world of social media. It took Pinterest only 22 months to reach 10 million users, and Instagram followed in half that time. Both have been extremely successful, although their philosophy and value proposition are very different.

Ben Silbermann, Evan Sharpe and Paul Sciarra launched Pinterest as a digital scrapbook in March of 2010. Sharpe was studying architecture at Columbia University and had a large collection of drawings and sketches that he found increasingly difficult to organize (Bercovici, 2014). He was not the only one with that problem. The idea of organizing scrapbooks dates back to the last decade of the 19th century with the advent of color display advertising in catalogues like Sears and magazines like Good Housekeeping. Some of the scrapbooks of that era ended up in historical archives such as that of the Schlesinger Library at Radcliffe Institute at Harvard University (Zhong, 2014). Pinterest solved a problem for millions of collectors of graphic material, most of whom were women. The tool made it easy to take an image from any website on the Internet and “pin it” to a personal board.

Each user can have multiple boards with images selected and organized thematically. Moreover, as Pinterest is a social network, the boards are public. The traditional scrapbook could be shared with the family and some friends. A good Pinterest board attracts thousands of followers, anxious to know the next image to be added. In addition, they access this on their cell phone, since more than 90% of the use of Pinterest is mobile, surpassing even Twitter (Bercovici, 2014). Navigating on Pinterest boards thus becomes a way to get inspiration, to share good taste and contrast it with that of others, and to feed nostalgia and life projects (Zhong, 2014).

This is how Pinterest can make a real revolution. In a recent interview with Forbes, Silbermann muses, “How do we do for discovery what Google did for search? How do we show you the things you’re going to love even if you didn’t know what you were looking for?” (Bercovici, 2014)

As Twitter popularized the term “retweet,” -as indication that many users liked some content – Pinterest has popularized “repin,” referring to the images chosen by many users to add to their boards. In fact, repin is the most frequent activity on Pinterest (80% of the pins are repins), and it has a special appeal for brands because it contributes to the viralization of the branded content that users find attractive. One study found that of 17 million manifestations of engagement with brands – including pins, repins, comments and “likes” – only 15% occurred on the official brand boards, the other 85% occurred on the boards of users who had repined images on their own boards (Zhong, 2014).

Pinterest has started selling ads under the Promoted Pins format, and since the profile of the website is 80% female and with a strong purchase intent, it can charge advertisers higher fees than Facebook (Bercovici, 2014). When a user pins a wedding dress or a dining set on her board, she is probably expressing an intention to purchase, and the manufacturers would be interested in showing her ads of their products. However, Pinterest is being cautious with the quantity and the quality of Promoted Pins to avoid damaging the experience of the users. Every Promoted Pin, such as the photo of a woman’s handbag, should fit naturally on the advertiser’s official board, and will only appear among the results of users who are searching for handbags.

If Pinterest was created to collect existing images on the Internet, Instagram was built to facilitate the creation of new images. Developed by Kevin Systrom and Mike Krieger, it is an iPhone application that lets you easily upload photos taken with a cell phone to Facebook, Twitter or other social networks, in addition to sharing them and commenting on them with other Instagram users.

It was started as a mobile-only social network, which in the first two years was only accessible from the iPhone screen. This limitation did not affect its popularity, as people increasingly accessed the Internet from their phone. Instagram was launched on the Apple App Store on October 6, 2010. It attracted 100,000 users in the first week, and has remained among the 10 most downloaded apps for the iPhone. This success caught the attention of Facebook, which in April 2012 bought Instagram for a billion dollars, when it had just a dozen employees (Hempel, 2014). At that time, the purchase seemed extravagant, but two years later it is evident that it was a bargain because of its strategic value, comparable to the acquisition of YouTube by Google in 2006.

Among the innovations that contributed to Instagram’s success was the use of filters to enhance the appearance of the photos taken by its users, who were almost all amateurs. In this way, many people became interested in photography and, with practice and feedback from other users, obtained results that once would have been considered professional. Luxury brands also found that Instagram is an effective way of distributing high quality photographs of their products, and this is the type of advertising that users actually want to receive and enjoy on their phones.

The profile of an Instagram user (55% female) is more gender balanced than that of Pinterest, although it is younger, with 54% of its users between 12 and 24 years of age, compared to 30% of Pinterest users. They are also, overwhelmingly, smartphone owners, resulting in a very attractive demographic profile for advertisers. Instagram introduced its ads in November 2013 with the Sponsored Photograph and Video formats, which appear in the “Latest News” app. The company uses Facebook user profile data to select which ads to display and it has a feedback button, in case you do not like the ad. This willingness to listen to the user reduces the annoyance of introducing publicity on the platform, and helps Instagram to improve the targeting algorithms it uses

The rise of visual networks has not gone unnoticed by the major international brands. Of the 100 most valuable brands listed by Interbrand, the vast majority already have both an official Pinterest and Instagram page. Each in its own way provides excellent marketing results that complement what these brands already do on Facebook and Twitter. Recently, the consulting firm eMarketer reported that while Facebook, with more than a billion users, redirects more users to e-commerce sites than Pinterest and Instagram, the average purchasing amount is greater for the visual networks: 65 dollars for Instagram, 58.95 for Pinterest and 55 for Facebook (eMarketer, 2014). Meanwhile, Forrester Research found that on average users have 58 times greater engagement with brand content distributed via Instagram compared to Facebook, and 120 times more compared to Twitter (Elliot, 2014).

At the end of 2014, these networks continue to add new users at amazing speed. Instagram already has 200 million, almost as many as Twitter, and more than LinkedIn (Hempel, 2014). Pinterest has only 70 million, but with a particularly attractive demographic profile for brands. In Mexico, the penetration of these networks is significantly less than in the United States, but in light of recent history it is not difficult to predict what will happen in the next two or three years. Therefore, it is likely that Mexican brands, whose page is already established on these networks and which are experimenting with this new social-visual phenomenon, will soon find themselves in an enviable position. Among the most outstanding are: El Palacio de Hierro, with 51,500 followers on Instagram and 7,000 on Pinterest; Volaris with 9,800 followers on Instagram and 3,000 on Pinterest; and Pinturas Comex with 2,300 followers on Instagram and 5,800 on Pinterest. The moral for Mexican brands is that 2015 could be the time to decide whether to be a leader or a follower as they move into these new digital marketing platforms.
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References

• Bercovici, J. (2014). “Inside Pinterest: The coming ad colossus that could dwarf Twitter and Facebook”. Forbes, November 3th, 2014
• Elliot, N. (2014). “Instagram is the king of social engagment”, en http://blogs.forrester.com/nate_elliott/14-04-29-instagram_is_the_king_of_social_engagement.
• eMarketer (2014). “Facebook is No. 1 for social commerce”, en http://www.emarketer.com/Article/Facebook-No-1-Social-Commerce/1010721.
• Hempel, J. (2014). “Instagram: Big, bad and ready to make money”, Fortune, July 9th, 2014.
• Zhong, L. (2014). ”My pins are my dreams: Pinterest, collective daydreams, and the aspirational gap”, tesis de maestría oinédita inédita, Massachusetts Institute of Technology, en http://dspace.mit.edu/handle/1721.1/89975.