My answer is a hackneyed version of the old adage: “know the why and the how will work itself out.” So, the purpose of this article is to help you find out about the drivers behind fans, how they make brands and what you can do about it.

The case for fans

So, why fans? Why not just customers?

Behind every successful brand is a solid internal business case supporting young fans.

So how do you do it?

Know the difference between fans and “fans”

According to dictionary.com a fan is

“A person who has a strong interest in or admiration for a particular sport, art or entertainment form, or famous person”

I know a guy who’ll get 5000 fans for your brand’s Facebook page for $5 but you have to ask yourself, are these the “fans” you’re really looking for? Do these people really love or admire the brand?

You could have a million “fans” on Facebook but will those “fans” stand up for your brand when publicly attacked? Will those fans listen to what you have to say? Will those fans camp out overnight to be first in line?

In the ongoing battle between Samsung and Apple you see the two marketing strategies play out. It’s a battle between logic and emotion, between liked and loved between customers and fans.

You get the message. Too many brands pile into the fan space, spurred on by johnny-come-lately agencies who promise all the benefits of having fans but with none of the hard work.

Real fans require real work

Consider the story of Alice Finch. For the last year, Alice has been building a scale model of Harry Potter’s Hogwarts school using Lego bricks. Not only has it cost her 400,000 bricks but she’s also lost 2 fingerprints and had numerous injuries from countless hours on her knees meticulously building the Potter world.

“It sounds odd to say ‘Lego-related injuries’ but it is possible,” Ms Finch told News.com.au

Her build was a labor of love. Alice travelled to the locations in the movie from Seattle to Oxford in England because she “wanted to build a more architecturally accurate version”. You have to see her pics on Flickr to appreciate the magnitude of the effort.

• You can’t buy this kind of love and this is where so many brands get it wrong.
• You cannot buy fans (fan love is not for sale)
• You cannot turn customers into fans using advertising (advertising only talks about the brand and uses fans as cameos)
• You cannot get fans to talk about your brand (they’ll talk about themselves first, your brand second)

Finch’s journey into the world of Harry Potter, started 15 years ago with the release of the first book when she was in her early 20s. Since then she’s bought every book and watched every movie. It’s a journey without seeming destination but is constant in her life. When her children were old enough to help, the stories and working on the Lego bricks became a common bond with her family.

• 80% of 5-10 yr olds do not follow box directions but build an original creation (telling their own story)
• 89% of Fan Convention attendees are there to meet new people and friends compared to 71% who attend to learn new skills (many-to-many)

This data shows how little traditional marketers know about them. What many outsiders (including brands) see as odd or “geeky” is in fact the social benefit to the fan and they do it on their own terms, often in ways that we couldn’t preempt.

Commitment creates the fan

When brands talk of fans they often fail to see the emotion (see Brands, Fans and Emotion). They see the cost of commitment to the story as a barrier that excludes the mass market. Too often I hear marketing managers with their heads in the sand say “but we can’t focus on marketing to the 10%!” The cost makes the social benefit. If rebuilding Hogwarts was easy, Alice wouldn’t do it.

Every fandom has a signalling cost that discerns the insiders from the out:

• Alice Finch spends 1 year rebuilding Hogwards using Lego bricks
• Oakland Raider fans dress up in elaborate costumes
• The Ironman tattoo
• Home-made costumes made by comic fans at conventions

Fans are defined by the cost of involvement. Fans are defined by the hurt, the emotion and the tears. The idea that simply “liking” a Facebook page makes you a “fan” is absurd.

Once you understand how the social cost is a benefit you start to understand the emotional commitment between the fan and the brand. You can’t connect with fans if you’re still trying to segment your market. You have to turn traditional marketing on its head and start understanding fans from their perspective and joining the dots.

And that’s how you get more fans, understand their drivers. Fans commit, now you have to do likewise. Commit to helping and understanding them. Connect Alice Finch with likeminded Lego Potter enthusiasts. Arm them with the tools that make their lives better. But, if you can’t be bothered, there’s always 5000 fans for $5.

Here’s what you can do next:

* If you use research in your company, the Brands, Fans and Emotion report is an excellent starter in helping you understand the emotional drivers of fans.

Before we jump into segmentation, let’s first look at youth market. A good a places as any is to start with music because if you want to understand young people today, look at the changes in the music industry:

• Musical genres like “rock”, “pop” and “world music” have become irrelevant
• Successful artists like Jay-Z, Madonna and Bowie transcend genres
• Success has moved from servicing a genre to joining the dots between them

Music is an analogy for identity and, therefore, a powerful insight into marketing.

Consider these points in terms of marketing:

• Market segmentation has become irrelevant
• Successful brands like Red-Bull, Apple and Amazon aren’t defined by segment
• Success is about defining your own tribe of followers and connecting the dots between this diaspora

Shawn Carter’s Story

Shawn Carter is a true American rags-to-riches story. Born into a poor neighborhood in Bedford-Stuyvesant, New York, Carter, through a series of shrewd business dealings, amassed a net worth of $500 million by his 40th birthday.

You may better know him as the 17 time Emmy award winning hip-hop artist Jay-Z, ex president of Def-Jam and Rocafella records. His music empire knows no bounds – from clothing to movies to courting the paparazzi with his celebrity wife Beyonce.

When he sat down to interview with Steve Forbes and Warren Buffet (yes you read that right) wearing a tailored suit more Savile Row than Brooklyn you could have been forgiven for thinking that this was a kid straight out of the Hamptons and Yale rather than Brooklyn. Except for one detail, Shawn Carter is black.

“There is no Black or White music anymore”

For Carter, he tells the story of a young black man, hustling the streets but if you look at the industry data, between 65% and 85% of hip hop fans are non-black. (sources: Soundscan, SMLG, MRI). Without the white kids, rappers like Notorious B.I.G and Busta Rhymes, all who attended Trenton High with Jay-Z would simply have been niche artists rather than multi-millionaires. A recent Soundscan report concluded that “as much as 70 percent of the paying (and downloading) hip-hop audience is white kids living in the suburbs.” Hardly the projects in Brooklyn.

After a recent gig at Arizona State University, Jay-Z issued a press statement that said “there is no black or white music anymore, just good and bad music” pointing to the blurring of lines in a once heavily demarcated musical genre. How can hip-hop be the sound of the ghetto the president be black and the nation’s most popular hip hop artist (Eminem) be white?

• Traditional music marketing offered and black & white view of the world
• Demographics used to be an effective tool for predicting behavior but not anymore
• The shared themes that connect people across demographic and genre are more predictive of behavior and attitude

Traditional segmentation is broken

Business-wise, Jay-Z makes sense. What of those fans who were teens back when Jay-Z went solo at 26 almost 15 years ago? Do they suddenly turn over to “easy listening”? No, he keeps telling the story but he grows up with them.

It’s a challenge industry faces every day – segmentation. If you look at the recording industry’s sales by genre, Rock accounts for the majority of all sales, followed by Pop and R&B. But, according to the RIAA, there are only 10 genres, including anomalies like “easy listening”, “new age” and “world music”. You only have to check Wikipedia to see the market reality – Wiki lists 200+ genres of electronic music alone.

• The whole music industry used to be organized around genre but now this DNA is changing
• The industry has lost control of the definition, now customers decide on genres
• Genres are becoming so fragmented that they are becoming useless for marketing purposes

Genres fall apart

The modern customer is an anomaly. French teens close down Charles de Gaulle airport to herald the arrival of a K-pop band. Female Indonesian soccer fans flood twitter during the world cup. Bollywood pop artists like Daler Mehndi find fan bases in Korea. A middle aged hip-hop superstar from Brooklyn sits down with the sage of Omaha (aka the richest man in the world)?

As Steve Forbes himself said, “You two are unique even though you are in different spheres”. Both a genre of one yet more similar than traditional marketers would care to think.

Connecting the dots

The anomaly exists only in the eyes of the traditional marketer – one who holds on to the idea of segmentation. Women don’t want pink phones. Female technology enthusiasts want to connect with other technology enthusiasts, not other females.

The differences within traditional demographic segments are far greater than the differences between them. When a 17 year old Filipino female student and a 45 year old American marketing executive both love Jay-Z, segmentation becomes irrelevant. No more “we’re different here”.

Traditional marketing bases categorization around how customers relate to products, modern marketing needs to base it around how customers relate to each other. Modern marketing needs to move beyond demographics and psychographics and look at connecting people through the shared stories that are meaningful to their lives.

Segmentation serves no purpose

Segmentation isn’t useful to the customer (who searches in “Rock” on iTunes or Spotify) and offers little to the brand (more segmentation does not lead to more accuracy). What becomes relevant are the stories that these artists and brands tell. In this case, that of an underdog trying to get ahead in the world. The only markets left are the markets of one, connected by themes that transcend traditional barriers.

• More segmentation does not lead to more accuracy
• Customers no longer rely on segmentation for discovery or identity, they turn to each other
• The emotional stories and themes that connect people are replacing segmentation as the most predictive and useful way of organizing marketing

Moving beyond segmentation

So why do we segment in the first place? According to Wind and Cardozo (1973) segmentation “involves appropriate grouping of individual customers into a manageable and efficient (in a cost/benefit sense) number of market segments, for each of which a different marketing strategy is feasible and likely profitable.”

Segmentation is a byproduct of the industrial process. We segmented markets to for management and efficiency. Like advertising, segmentation is the symptom of an information problem, of an era of scarcity and shelfspace rather than digital abundance.

This isn’t 1989 anymore

Now, however, the Pepsi Generation is over. This isn’t 1989 anymore. Like advertising, segmentation becomes increasingly ineffective. Of course, segmentation will be around for a long time yet. But consider why. So, do you invest your skills and knowledge in a ship destined to sink or one with a future?

• Segmentation is a product of the industrial era
• Many interests are built on segmentation (e.g. job titles, departments, internal reporting) so many interests will try to defend the idea of segmentation and prevent change rather than do what’s right for the business or customer
• Segmentation will still be around in years to come but, like advertising, its effectiveness is already in decline

The future lies in connecting the dots between these diffuse digital diasporas – the fans that sit across segments and the advocates that transcend demography. As Jay-Z said on his Forbes interview, “I didn’t focus on any particular demographic, I just focused on telling my story.”

3 Recommended Research Reports:

If you want an introduction and the key numbers behind the youth market opportunity, check out these 3 recommended mobileYouth research reports available on the Youth Research Store:

• The Business Case for Youth – a 16 page PDF report for marketers trying to convince their colleagues that the business needs youth market as much as the adult market.
• Do Mobile Handset Brands Need to Focus on the Youth Market? – a 25 page PDF outlining the youth business case for mobile handset manufacturers.
• Do Mobile Operator Brands Need an MVNO or Sub-Brand to Target the Youth Market? This 17 page research PDF compares branding options for operators and addresses the key mistakes made when engaging youth.

Exploding the Myths

• “Youth are cheap”
• “Gen Y is fickle”
• “Millennials are only good for prepaid”

We hear these words every day and every day we simply point to the evidence – great brands like Apple and Amazon have successfully built their businesses on the youth market, so why can’t you?

Defining the Youth Market

According to Wikipedia

Generation Y, also known as the Millennial Generation, is the demographic cohort following Generation X. There are no precise dates for when Generation Y starts and ends. Commentators use beginning birth dates from the latter 1970s, or from the early 1980s to the early 2000s.

That means we’re dealing with customers from the early teens up until the threshold of their 30s. That’s a very large market and with it a very wide and complex set of mobile customers. Trying to categorize these customers as one blob for analytical convenience is as difficult as using one metric to measure their value – but that’s what we as an industry do.

Redefining Value

The issue stems from an inherent problem in the mobile industry – the only measure of value we have of a customer’s worth is their phone bill. But, what of the student who spends $500 on an iPhone and then puts it on prepay at $12 a month? The reality is that ARPU is a weak measure of value and particularly for mobile operators, we need to move from measuring revenue to measuring value.

• Youth are cheap if we only consider ARPU
• Our measures of value need to evolve from ARPU to lifetime value
• Great brands like Apple and Amazon have successfully evolved from ARPU to lifetime value

Apple: Building a Beachhead on the Student Market

Apple got this right, first building a Beachhead in the student market with its music offering, iTunes and the iPod. From this vantage point it moved into the iPhone and the rest, as they say, is history. If Apple had gone after the high-spending executive customers, it would have been duking it out with Microsoft on the Redmond’s home turf.

When I went to college, everyone used PC. Only left-handers used Macs. By the late 90s, all the college kids were using Macs. Now, the same students are IT managers and heads of departments with their iPads and iPhones.

• Apple built on its brand Beachhead in the student market
• Apple adopted a long term organic approach to growing the brand
• If Apple had chased high end customers first, it would have lost to Microsoft

The Harley Effect: What Ages Brands

Nokia and Blackberry didn’t get it right. From 2006-2008 both Nokia and Blackberry rose to prominence as the leading youth brands not just in their category but globally. Nokia was ranked as the #1 youth brand in the world. Blackberry beat Coke as the most respected youth brand in South Africa in 2010, the same year of the soccer world cup (where Coke was a $500m headline sponsor).

Nokia and Blackberry suffered from what we call the Harley Effect – aging with your customer base. The average age of the Harley Davidson owner is now 51. Middle aged folk remember Easy Rider and Dennis Hopper from their era as the icons of cool. The problem is, that Harley chased the high end customers rather than reinvest their profit into staying relevant with youth.

Harley-Davidson Tries to Rejuvenate Its Business
“Its patrons grew older and wealthier, but its efforts to cultivate a large base of
female and younger riders have been marginally successful.” (source Time)

Now both brands are suffering the tail end of a slow-motion car-crash, the basketball feeding through the hose pipe and other analogies. It will take time, as with aged brands like Levis 501, for these two to rediscover their roots in the youth market and feed through to relevance once again.

• Short term focus on ARPU seduces brands into focusing on high end customers
• If you always chase the high end, middle market, your market will age out of relevance
• Harley Davidson used to be a cutting edge youth brand but now it suffers from an aging market

The 3 Reasons

The Key to winning the youth market is building a compelling business case why. Why do we need youth?

If it’s only about ARPU, you’re always going to chase the high end customers and end up like Harley Davidson.

The challenge here is building a case around long term value, the stuff which happens off the phone bill. So, here’s 3 reason to help you build that case:

1. Youth are the High End Customers

Consider the phone bill and youth appear to be cheaper than middle aged executives. According to The Mobile Youth Report, execs spend marginally more (10-20%) but are often on contract as opposed to prepaid.

What isn’t factored into this equation is the complete picture:

• Spend on the handset
• Spend on mobile data services and accessories

Our research shows that youth are far more willing to spend on the above two categories than older customers. In fact, they’re spending significantly more of their disposable income meaning they have more skin in the game, meaning they place a higher premium on getting in right.

Only 42% of youth rated price as “very important” as a factor in choosing their handset (the lowest of all age groups according to our research), with 88% citing a good customer experience as key to their purchase decision.

Factors included warranty, durability and reliability.

That means not only do youth cite tangible factors other than price, they also offer real insight into what drives the market. Price is never a good indicator of product demand.

Price is overrated by the industry. According to the Mobile Youth Report, industry execs thought “price” was the #1 reason why people bought handsets followed by experience at #2. In reality, customers cited these factors the other way round showing that as an industry, our logic and understanding of buyer behavior is very basic.

When it becomes about price, you’re in the business of commodity. If handsets and operators want to know why buy, look beyond the older customers who tend to mention price and see what youth are saying about the offers.

Youth propensity to spend on value added services is well documented. Youth use mobile messaging services 10x more than older peers. But beyond messaging, youth are spending on music, games, video and apps, opening up these new markets to further investment with their initial revenues.

The value of youth should not be confined to the phone bill. This logic limits you to the mistakes of brands like Nokia, Blackberry and Levis. Think more like Apple and Amazon and invest in the long term.

• If you consider complete spend (ARPU + handset + off bill services/products), youth are high end customers
• Youth rate experience over price. Older customers rate price. If you want to move away from the race-to-the-bottom you have to seek answers in the youth market
• Youth means investing in the long term. It’s not an either-or situation with young vs old customers in the same way business should not focus on the short or the long term. Business needs to focus on both.

2. Youth are the Influencers

Gen Y, Millennials and students are the most vocal when it comes to sharing reviews and information about products with peers. 57% of teenage girls and 47% of teenage boys share new brands or trends with their friends (source The Mobile Youth Report).

What separates the youth and older markets is the youth market’s propensity to create Earned Media.

A quick 101 on Earned Media from Wikipedia to bring you up to speed:

Earned media (or free media) refers to favorable publicity gained through promotional efforts other than advertising, as opposed to paid media, which refers to publicity gained through advertising. Earned media often refers specifically to publicity gained through editorial influence, whereas social media refers to publicity gained through grassroots action, particularly on the Internet.

Earned media is key to brand success today.

But it’s not just each other they’re influencing. Consider the mother of the teenager daughter who’s just learned to use Whatsapp thanks to her daughter installing it on her Samsung Galaxy. Youth tend to be the educators and introducers of new technologies into families.

Brands are often scared to let youth get hold of their products and start advocating them but this is the route to the adult market. Of course, it takes time but Apple has risen to prominence with the highest NPS (net promoter score) of all handset brands on the back of a highly vocal student population who grew up with the brand.

• Youth are the most vocal customers
• Youth influence each other and adult customers
• The route to the adult market (long term) is through organic growth in the youth market

3. Youth Drive Innovation

When parents first bought the iPad, they bought it on the promise of the educational tool painted by its initial marketing. In reality, it was youth (particularly primary school children) who soon co-opted the device and turned it into a games machine.

Youth often take devices out of the context they were originally intended for and turn them into something better (Blackberry and BBM are good cases in point). SMS represents possibly the most significant example of this, given than SMS was originally designed by industry engineers as a system test tool. $1 trillion later, youth have demonstrated their ability to turn our mistakes into successes.

Innovation today is fraught with risk. Consider MMS or Location Based Services – 2 very expensive mistakes made by the mobile industry. It took the best part of a decade to see even the smallest upticks in customer behavior on these two platforms. Only when the industry let go and customers took control did MMS or LBS become anything of note.

De-risking innovation means allowing youth to take the technology, run with it and turn it into something useful. Something useful means applicable for the less-tolerant mass market who want products out of the box. Where youth will navigate inconsistency, the adult mass market wants everything to simply work.

Launching products onto the adult mass market is risky, particularly if you are targeting corporate executives. If you filter it through the youth market first, you get a better idea of applicable charging models, usage scenarios and the messages you need to emphasize in your marketing when later approaching the mass market.

• Youth drive the uptake of new technologies
• Youth today provide a mirror to how the mass market will use technologies tomorrow
• Investing in the innovation of the youth market today allows you to de-risk new product launches for the mass market tomorrow

Summary

Great brands are first built in the youth market. If you chase the high end customers your market will eventually fall off the cliff. You need to be grounded in both markets – an approach that’s worked effectively for brands like Apple and Amazon over the last decade. I share these kind of insights every week on the Mobile Youth newsletter: How to Master the $500 billion youth market opportunity. Subscribe to get weekly insights by email.

Customer smartphone experience varies by market, even with the same handsets. How is this possible?

Through the lens of traditional research you may conclude “our customers are different here” but I want to share with you why that conclusion is a big mistake.

Teens in France and India aren’t so different their experiences of smartphones change. People don’t change, but the Soft Factors that shape the smartphone experience do. If you understand Soft Experience, you understand the smartphone experience.

Let’s take a look at what defines experience and insights from our latest smartphone research.

Consider this anomaly: the iPhone may rank with the highest satisfaction in France, but not in neighboring markets (in the UK, iPhone ranks 2nd whereas in Germany, it doesn’t even feature in the Top 5) (source The Mobile Youth Report via onDevice).

We need to break down the customer experience and look at its psychology. What we’ll find is that the perception of the smartphone and how people feel about it is more important that the physical nature of the smartphone itself.

Soft vs Hard: Our Perception of the Smartphone is the Experience

So, what shapes customer perceptions of experience? Is it usability, price or form factor? The answer lies in understanding the difference between Soft and Hard Smartphone Experience.

The iPhone doesn’t vary by country, but customer perceptions do and these perceptions are shaped by marketing, customer service and the Fans.

The same product is perceived in different ways in different markets. This isn’t because the people are different but because the brand stories, local interpretations and meanings vary.

Understanding smartphone experience means moving beyond the physical unchangeables – the nature of the people and the handset – and focusing on what really determines experience – the soft factors.

Soft Experience: Expectation, brand story, perception, context, social benefit
Hard Experience: Form factor, design, colors, interface, features

Soft experiences change, hard experiences don’t.

Companies focus on the hard factors but these account for only 10% of the smartphone experience. Hard factors are marginal.

90% of our smartphone experience is shaped by these soft factors and these factors are a marketing, not a design challenge. The good news is that focusing on the soft experiences can radically change how customers interact and recommend the handsets and almost all of this can be done without changing the handset.

So, here are mobileYouth’s 5 tips on how brands can improve the smartphone by focusing on the Soft Experience.

1. Sell Benefits not Features

“For each of us, life is a journey. What you want is a device that can help us on the journey,” Samsung’s CEO JK Shin said during the Samsung Galaxy S4 launch.

Better lens resolution is a feature whereas a better way to share photos with your friends is a distinct social benefit. Instagram has shown that most people are more likely to adopt technology based on its social benefit as opposed to technological prowess.

Feature: Long battery life
Benefit: Keeps you connected 24/7 and won’t let you down when trying to connect with friends

If you want to understand why people buy smartphones, understand the interplay of emotion and logic: People buy on emotion and justify with logic. People buy the benefits (e.g. “this helps me fit in with my friends”) and tell you they bought it because of the features (e.g. “it was on special offer”, “it has Carl Zeiss lenses” etc).

Customer Insights need to take the features that the product teams will highlight and correlate this information with the social needs of the customer. This means matching features with known social drivers of your customer base. E.g. “This phone has a great camera lens” becomes “you can create and share better pictures with your friends”.

For marketing people, don’t go to the agency looking for answers about what your customers want, they won’t have a clue. Agencies only know how to sell advertising (and, by the way, if advertising was so good, why don’t ad agencies advertise?) Marketing needs to be briefing agencies about what your customers want (not vice versa) The reality is that if you want to create effective marketing, look inside at your insights team and find out what stories and social benefits you need to brief your agencies with e.g. “we want to emphasize how this camera helps students connect with each other through better photos.”

2. Focus on the Simple

“LG is continuously innovating to offer creative ways to offer a user experience that adds value to our customers,” said Jong-seok Park, President and CEO of LG Electronics Mobile Communications Company. “It’s the positive UX that will differentiate smartphones in 2013 and beyond, not only cutting-edge hardware specs.”

For most people, the simple things underpin experience. Although we get excited about form factors and speeds, it’s the less glamorous aspects of smartphones like battery life and reliability that make or break handset brands.

“Simple can be harder than complex: You have to work hard to get your thinking clean to make it simple. But it’s worth it in the end because once you get there, you can move mountains.” – Steve Jobs

Reliability ranked as the #1 factor that influenced product experience (source The Mobile Youth Report). Battery life and issues with network provider were the two most common forms of negative experience associated with handsets (source McKinsey).

While Apple iPhones are often praised by media for their technology, it’s their reliability (or perceived reliability) that shapes experience. According to website FixYa, Apple ranked as the most reliable device (based on share of over 700,000 reported handset issues).

3. Build Experience Around the Everyday

“Think about your device,” said Google CEO Larry Page. “Battery life is a challenge for most people. You shouldn’t need to carry around a charger to make it through the day. If your kid spills their drink on your tablet, the screen shouldn’t die. And when you drop your phone, it shouldn’t shatter.”

Common things done uncommonly well. While mundane doesn’t sound like a natural selling point for your smartphones, the everyday experience sells phones. 80% of smartphone usage is the regular, low-tech tasks like messaging, email or taking pictures. Most popular smartphone activities are checking email (78%), exchanging text messages (76%) and taking pictures (74%) (source IDC).

Without these mundane features, the smartphone would be useless to most people. How your smartphone performs on a daily basis is far more memorable than its prowess at isolated events (e.g. the typical ad agency “hey look at me in this rock concert video”).

89% of 18-24 year olds reach for the phone within 15 minutes of waking up. What other technology can claim this depth of relationship? If the smartphone was exciting and to some extent, surprising, fewer people would be reaching for it as their de facto starting point of the day but because it’s reliable, controllable and contains no surprises we trust its presence.

4. Focus on P2P Education through Fans

Educating smartphone customers, especially first time buyers, is key to a good experience.

Customers turn to traditional sources of information for answers (e.g. call centers) but their issues may be too specific or easily sourced elsewhere to make call centers a positive experience. 81% of customers turn to friends to related customer service experiences (source The Mobile Youth Report via Dimensional Research).

83% of youth bought their handsets based on what their peers said (source The Mobile Youth report). 68% consulted friends to prior to purchase to advise on benefits (compared with only 9% for brand advertising) (source McKinsey).

Peer to peer customer service leads to 50% reduction in cost per case to service customer issues (source The Mobile Youth Report).

Without Fans, the smartphone experience is a blank slate. It’s Fans who turned SMS into an unused adjunct to the GSM standard into the world’s default messaging format. It’s Fans who invited and introduced you to Facebook. Without Fans your smartphone is just a gray slab of carbon and glass.

Most smartphone features aren’t discovered through the manual or official communication but through peer modelling which in turn promotes the brand. For example, “I used this app on my iphone to check the surf conditions today”. Fans shape the smartphone experience because Fans give meaning to technological content. Fans find new ways to use the smartphone, turning what were once features into social benefits.

5. Don’t overbake the story

Smartphone users, especially Fans, look at your marketing and think “where am I in this story?” A marketing strategy that offers only a rigid, monolithic view of the brand story offers potential buyers little space to interpret the brand story for their own personal narratives.

Soft Experience is a curated not a controlled process. If you want to create a better experience, you have to allow Fans a greater say in the process. This is Paid vs Earned Media 101.

The experience of the brand and the smartphone happens all around the brand not just when you are interacting with the handset. Data shows that people who don’t have an iPhone are more likely to recommend it than those who own one (source The Mobile Youth Report). This anomaly seems bizarre but the reality is that experience doesn’t happen in customer hands but in customer minds.

You need to allow some breathing space for Fans to imprint their own personalities on it.

It’s a question I think about a lot because handset brands keep asking me. My answer to Samsung lies in measuring the emotional attachment between youth and the Samsung brand. Do youth like or love Samsung? (answer in Mobile Youth Report). Take a look at these insights from young people talking about Samsung and Apple:

“Why did you buy Samsung not Apple?”
“It’s lighter, slimmer and has a better camera”

“Why did you buy Apple not Samsung?”
“I don’t know, I just like it”

image (c) Flickr

If it was traditional focus group or survey research the last answer would be dismissed but my experience tells me it is the most revealing. That’s why in my newsletter and report, I focus on brand reality as told by the youth market, not brand makeovers pushed by creative agencies.

What do youth think of Samsung?

I’m presenting at Samsung in Europe this week and one of the questions posed by the research team beforehand was “what do youth think of Samsung?”

To answer this, we need to understand difference between emotion and logic in smartphone sales. You see, youth don’t buy Samsung because they think it’s the better phone, they buy Samsung if they feel it’s the better phone. Note the difference. What youth think and what youth feel about Samsung could be 2 very different questions.

Research from the Mobile Youth Report highlights 3 characteristics of how the Samsung brand is perceived by youth:
1) Youth say Samsung is reliable and affordable
2) Youth say Samsung has better features than other brands
3) Youth would buy Samsung for themselves but not recommend the brand to friends
(source: Youth and Handset Brands Report)

Brand perceptions: logic vs emotion

Our data highlights an interesting divergence in youth brand perception that most traditional brand research or ad agencies fail to pinpoint: the logical and emotional appeal of Samsung are very different. The 3 reasons why youth buy Samsung are not enough to sustain long term engagement.

• Why people like a brand and why they buy it are different things
• People buy smartphones based on peer recommendation not brand advertising
• “Top of mind” no longer translates to profitability

Brand dissonance is easy to hide. Nokia was once here. Here was a brand viewed as reliable and affordable, it was the mass market brand liked by many but loved by few. We even found examples of grandmothers buying Nokia handsets for their grandchildren (because it was seen as “safe” and “reliable”) but the kids taking out the SIM cards to use in other brand phones. The rest, as they say, is history.

Samsung’s strength in market share and brand visibility can also be its biggest weakness. Market share does not translate to profitability long term (62% of the market produces less than 7% of its profit). By comparison, Apple’s iPhone has less than 20% of the market share but produces 70% of industry profits (source: How can mobile handset brands win hearts and minds of customers?).

Emotional branding

What matters is connecting at the emotional level. Remember, people buy on emotion and justify with logic.

Campaigns may create interest but youth market attention isn’t sustainable long term. Samsung generated less consumer buzz compared to Apple during its Next Big Thing Campaign despite several ad campaigns including a Super Bowl Ad (source: How can Samsung beat Apple?). If Samsung aspires to be the “Life Companion” touted by the CEO, it needs to look at the social context of smartphone usage (a subject we’ve studied in depth) and identify the social benefits not features of appeal.

• High visibility advertising is difficult to sustain and expensive
• Visibility drives brands to top of mind and thought, but emotion engages feeling
• Emotional engagement drives long term sustainability

If Samsung is to compete with Apple at the level of emotion and wean itself of its resource hungry high visibility marketing, it needs to connect at the emotional level of appeal. Competing with Apple doesn’t mean “slimmer”, “more affordable” or “better camera” but those less measurable answers like “I just liked it.” When we start to see these results come up in our research, we know that Samsung has arrived.

According to data from the 2013 Mobile Youth Report, SMS has reached a plateau and non-SMS messenger app usage will surpass SMS by 2014. (see “Youth and Mobile Messaging”)

You only have to look at the numbers to see that when the media talks about messaging, we are dealing with a market primed for growth. There are messaging apps that most people have never heard of with user bases in the hundreds of millions. WeChat, for example, has 220 million users, Nimbuzz 120 million and Line 100 million. Heard of Kakao Talk? If you live outside of Latin America, probably not but it claims nearly 75 million users.

It’s easy to look at the new messaging market and feel overwhelmed, perhaps a little threatened. These feelings will be compounded by research firms like Ovum who predict operators will lose $54 billion from the growth of these apps.

2) SMS isn’t dead

But any technology that’s talked about in the trillions doesn’t go away so quickly. If SMS was dead, youth would have moved on a long time ago but this isn’t the case.

Yes, youth are spending less time on SMS but no, youth are not dumping SMS altogether. Youth still spend 14% of their time on texting (compared to 10% on social networking). Mobile Youth data shows that 18-24 year old smartphone owners sent and received 4000 texts per month in 2012 up from 3000 texts per month in 2011. (see “Youth and Mobile Messaging”)

The reality is a pluralistic messaging landscape. This isn’t the winner-takes-all scenario unified messaging fantasy spelled out by some analysts but one in which multiple, diverged apps coexist and complement each other.

If youth were dumping SMS we’d be worried but this is not the case, they are just diversifying their messaging usage. Youth still value SMS as a key tool in their social toolkit. In our research we talk about “One Mobile Phone 7 Social Tools” (see “The Role of Smartphones in the Social Lives of Teenagers”) and the mobile industry needs to start accommodating this new normal of messaging and adapting its value offer and tariffs accordingly.

3) Youth are the drivers

If one thing’s for sure it’s that the future of messaging lies in the youth market. If you want to know how adults will use messaging tomorrow, look at how youth are using it today.

In the messaging report we identify key market drivers for the future messaging market, in particular young female users or ethnic youth whose messaging app reach is the highest (e.g. 72% in Latin America). Being the most vocal and connected, these Beachheads are powerful lines of influence for the technology industry (see “How can mobile brands win the female market?”)

New entrants are attracted to the mobile industry on a daily basis and brands like Apple, Facebook and Google bring a wealth of customer insight and data. The mobile industry doesn’t need to “out-cool” these entrants with exciting technology or youth offerings but should focus on the basics (see “Do mobile operators need an MVNO or sub brand to target the youth market?”). Understanding the lives of the key customer groups who drive the adoption of messaging (e.g. young females) will be critical in staying relevant for this generation and the next.

Mobile operators have long scratched their heads about what happens next in the $1 trillion messaging market. Perhaps the disruption won’t come from incremental improvements in business model, technology or charging but a wholesale change in the role of messaging. What if messaging was given away for free purely to upsell the next generation of mobile services?

For operators, it appears unthinkable. There is too much revenue resting on the messaging market. But for new players like Facebook and Google it’s a distinct possibility and one that may end up putting some mobile players out of business.

The Shift to a Post-SMS World

We previously analyzed the 15 brands that will define the mobile market in 2013. Now, we’ll look at how some of those key players will shape mobile through their messaging agendas.

1) It’s all about messaging, everything else is a sideshow

After messaging everything else is a sideshow.

Facebook has bet its turnaround on the strength of its Home messaging platform for android. Google is in rumored talks to acquire popular messaging service Whatsapp for $1bn. The high prices paid today for messaging may appear excessive but this isn’t just about another technology, this is about control. Securing messaging tomorrow guarantees the mobile market tomorrow. Facebook, Google and Apple are all actively developing their own messaging solutions to enable a place at the top table of the mobile industry.

A brief overview of messaging:

* The most popular mobile app

* The default mobile interaction

* The universal common denominator in mobile

* The preferred mode of communication for young people

* Revenues driven by teen mobile owners

(source Youth and Mobile Messaging Report)

2) Move from being a creator to curator: the messaging landscape has shifted.

The messaging landscape is fragmented. No longer is SMS the only messaging app. From 2011 to 2016, SMS is predicted to grow by 37%, while IP-based messaging will grow 686% (source Smith’s Points Analytics). Growth comes from multiple non-SMS apps with negligible startup costs for the user. Rather than operate a single messaging app, users are apt to download and try multiple apps.

The move by mobile operators to produce their own solutions may prove fatal. Not only are they competing with well financed entrants like Google, Apple and Facebook, they are also competing with the complete cognitive surplus of the world’s creativity. Any teenager in his background can produce a messaging app and there are as many potential producers as there are users.

The competitive landscape of mobile value added services has shifted. Now the focus needs to be on curation rather than creation. If providers can’t compete with the resources of Google and Facebook they need to be curating what’s available by providing a better platform or data tariff to enable these messaging apps to grow.

3) Driving the upsell: The landgrab for free customer touchpoints

The revenue streams of the old business model have become commodities (i.e. voice & data) sold in bundles, at flat rates or near zero pricing. New market entrants bring new models and new growth in the form of the service upsell. By providing the key services free (i.e. messaging), new entrants create a touchpoint to upsell new products (e.g. established services like advertising, apps and payments or the ‘long tail’ of mobile apps popular with youth) while at the same time undercutting incumbents.

New entrants like Facebook and Google have a history of monetizing free – e.g. social media and mail, so represent the biggest possible disruption to the existing mobile landscape.

Facebook and Google’s strength lies in the quality and quantity of their relationships with the youth market. The key relationship has moved from billing to touchpoint. The company that owns the mobile phone screen is the one that has the invitation to upsell. Google has focused on building its presence in the youth market through education and co-creation. Facebook has built on the successes of acquisitions like Instagram (see Teens: Instagram’s growing vocal minority).

Not only do youth drive adoption of new technologies and smartphones (see the Role of Smartphones in the Lives of Teenagers) but they are also the most open to the upsell (e.g. mobile advertising etc). Facebook or Google are the default for this generation, ingrained in the social constant and representing verbs in their daily vernacular.

Messaging in 2015 will be a fragmented landscape controlled by a few dominant players who have a history of strength in the youth market, monetization of free and the economies of both scale and scope to make things happen. Operators need to evolve from being competitive creators to supportive curators who can facilitate these new entrants on a b2b basis.

The future customer journey will be defined by how youth interact with retail today. If retailers want to remain relevant in a multi-channel world, they need to engage these change agents.

Retail: it’s not just about the store anymore.

The store is a pitstop in the customer’s journey. The modern customer’s journey isn’t linear like it used to be. Rather than a journey punctuated by a definable end-point, it’s a process involving multiple consultations with peers and online reviews. Youth are calling their peers for advice and checking video reviews on their smartphones while in store. Retailers need to build around youth behavior and redefine how they deliver this experience.

Meeting customer expectations is no longer enough

People don’t buy alone: shopping is a social process.

Churn, brand and purchase decisions don’t happen in isolation but as the result of long term consultation and influence. 66% of youth purchase handsets based on what their peers not what brands or ad agencies said (source The Mobile Youth Report). 58% of youth call friends or family to consult about their purchase (source Pew). The end-to-end retail experience plays a crucial role in defining which brands youth recommend and ultimately buy.

Youth are the key market influencers, shaping demand for new handsets across all markets but winning youth means going beyond store displays, promotions and advertising. What youth seek today is a retail experience that exceeds expectations.

The difference in satisfaction levels between the best and worst retailers according to the ACSI is only a factor of 20% (between Nordstrom & Walmart). Whereas the difference in recommendation between the best and worst retailers based on NPS data is a factor of 300%. Amazon’s ranks #1 in terms of customer experience and NPS because it doesn’t focus on meeting expectations and satisfying customers but in delivering an experience that exceeds both and drives recommendation.

Going Multi-channel

Retailers need to redefine their offering from being a destination for the purchase process to being a partner that supports it.

Retailers need to provide a seamless multichannel experience that connects the online and offline journey. Data shows that only 13% of mobile phones are sold online, whereas 70% of purchases began online (source Carphone Warehouse). Data from the 2013 Mobile Youth Report shows that 65% of the purchases that started online began on a smartphone. Half of all searches for the iPhone 5 on the CPW site, for example, were made from the mobile phone.

This means that online retail isn’t about selling phones but about curating the customer journey. While 4 mobile phones are sold in the high street for every 1 sold online, offline sales are heavily dependent on the online component.

Traditional offline retailers face a significant online challenge from 2 areas:

Showrooming:
The growth in customer showrooming behavior popular with youth shows that retailers not geared towards a multi-channel delivery end up becoming the physical front end for online competitors. Youth often research products in store before taking purchases online, both to check product reviews and to compare prices. According to latest data from Pew Research, 50% youth match prices online and 56% look up reviews on their mobile phone while in store compared to 27% and 26% respectively for older customers.

Upstart Advantage:
New entrants have been able to redefine retail from the bottom up to better suit the modern customer. Retailers geared towards multi-channel delivery, like Apple, are able to turn showrooms into a positive brand experience and a generator of both recommendation and revenue. Some retailers have improved their customer engagement practices, increasing showrooming and in-store purchases. In recent ACSI surveys, Apple ranked #2 (behind Amazon) in terms of customer satisfaction. Apple’s ability to re-engineer retail beyond traditional confines has enabled it to become the most profitable retailer per square foot in the US ($6000/sqft vs $3000 next placed retailer Tiffanys). Apple understands that retail isn’t just about selling boxes but supporting the customer in the discovery and education process.

“There’s no better place to discover, explore and learn about our products than in retail. It’s the retail experience where you walk in and you instantly realize this store is not here for the purpose of selling. It’s here for the purpose of serving. I’m not even sure “store” is the right word anymore. They’ve taken on a role much broader than that. They are the face of Apple for almost all of our customers.” – Tim Cook, Apple CEO

SMS traffic has peaked. 2013 is the year that mobile messenger app traffic will surpass SMS.

Key Insights

1. Youth are the Change Agents: Youth turned SMS into become a trillion-dollar market for mobile in the last decade. A new study, commissioned by Twitter from Compete, shows that people in the 18-34 age group are 52 percent more likely than other age groups to use a mobile device to access Twitter.
2. Like for Like: Youth are still texting each other but they have changed the platform of choice from SMS to messaging apps. The behavior remains the same but the tool has changed.
3. Make-or-Break Year: 2013 is the watershed year for mobile operator brands to replace lost SMS revenues with growing revenue from messenger apps.

Conclusion

Mobile operators face a decline in ARPU. As youth shift from SMS to messenger apps, operators can no longer depend on SMS as a reliable income source.

Operators leave an open door to competition from messenger apps as first time mobile owners opt for non-SMS clients as de-facto messenger. Messaging apps from Facebook, Apple and Skype are well positioned to implement payments for VOIP and video chat.

Operators risk opening up the long tail to competition from shopping and entertainment apps as well. The Twitter study shows youth are 169 percent more likely to exchange messages when shopping, and three times as likely to use the messaging app before or after seeing a movie.

Mobile operators need to focus on youth. The messaging market gets born and dies with the youth market. What people use tomorrow is what youth are using today. Operators need to invest in the future instead of protecting the past. Attempts to generate more income from SMS will only yield diminishing returns. The key question for operators is how can they take advantage of the messaging app boom.

Key Questions

1. Who are the change agents of the mobile messenger market?
   • Which youth beachhead is driving messenger app growth?
2. What is the Social Currency of messenger apps?
   • Why do youth prefer messenger apps to SMS and voice?
3. How do they manage the diverged landscape?
   • What are the social behavioral niches for each app?

BlackBerry has suffered a turnaround of fortunes since 2009: declining market shares (especially in key markets like India, Indonesia and South Africa) combined with a number of high profile announcements from traditional corporate buyers and government agencies that have opted for iPhone and Android.

BlackBerry has already pulled out of Japan and is now rumored to be pulling out of Korea (following HTC and Motorola), citing an inability to compete with Samsung on its home turf.

But despite the doom and gloom, BlackBerry has space to maneuver. With over $2bn in cash, BlackBerry could instigate a turnaround story but only if they maintain a lean structure with a core focus on the customer segments that drive their brand appeal.

The BYOD Movement

A significant market change that has worked against BlackBerry is the BYOD (Bring Your Own Device) movement. The decision about which mobile phone to bring to work has shifted from the corporate IT department to individual employees. In a survey of 20-something employees, 55% view using their device at work as a ‘right’ rather than a ‘privilege.’ Additionally, 66% consider themselves – not the company – to be responsible for the security of the personal devices they use for work purposes.

BYOD is here to stay and the more vocal, younger employees are opting for devices they feel are more relevant such as Samsung and Apple. BlackBerry’s traditional enterprise-focused marketing is being made redundant by youth driven Earned Media. With Samsung’s recent move into the enterprise market, BlackBerry’s privileged position within corporate IT departments may also be under threat.

Why are youth key to BlackBerry’s turnaround story?

The youth of today will influence the executives of tomorrow. Once handset choice shifts from corporate IT departments to individuals, the decision is shaped by Earned Media. 65% of youth bought handsets based on peer recommendation.

Female teens are traditionally a core Beachhead for the BlackBerry brand. This group is twice as likely to own a BlackBerry handset compared to adults. Not only are they more likely to own a BlackBerry, young aspirant females are also the most influential. Facebook Chief Operating Officer Sheryl Sandberg said in a recent press interview that female Facebookers have 8% more friends and are responsible for 62% of all the sharing on Facebook.

The popularity of BlackBerry extends from the youth to the adult space. Recent industry data found that 56% of women own a smartphone, as opposed to 51% of men, and BlackBerry is clearly their preferred platform (21% of women against 15% of men).

Ethnic youth are also a key Beachhead for BlackBerry. African Americans in the US and young Caribbeans and African descendents in the UK have traditionally been the first to turn BlackBerry into a relevant brand to the wider youth market, preferring BlackBerry over iPhone 2 to 4 times more.

While youth mobile is a $400bn market annually, the value to BlackBerry is in how this market influences the future executive market. The key mobile applications of today have been driven by the youth market (SMS, Facebook and BBM). Now these applications are widely used and monetized corporates but they would not have reached prominence without the original youth Change Agents.