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3 Marketing Lessons From Drug Dealers
Posted on February 11th 2011
"Emulate drug dealers. Make your product so good, so addictive, so ‘can’t miss,’ that giving customers a small, free taste gets them coming back with cash in hand.” Rework, From the Founders of 37 Signals.
I wish I could say the title of this post is my own. It’s not. Recently, I had the pleasure of listening to a presentation with this title from John Moore of Brand Autopsy, a consultancy helping businesses that aspire to become compelling brands. John’s talk was a fun and informative analogy with a few key lessons we can all learn about marketing from a less than traditional industry.
The analogy drew heavily on two ‘drug’ denizens – Frank Lucas, the purveyor of ‘Blue Magic’ heroin in the 70s as depicted in the movie American Gangster, and Starbucks, our own nation’s top retailer of caffeinated energy in a cup. Though only one of these substances is illegal, both organizations used product and marketing to develop a uniquely loyal following.
Here are the top 3 lessons I took away from John’s presentation, though there are many more nuances and lessons in the 30-minute talk.
1. If You Don’t Have a Competitive Advantage, Don’t Compete
That’s a quote from Jack Welch. In the case of Frank Lucas – the value proposition for his Blue Magic was that it was THE ONLY 100% pure heroin on the market. All the other dealers cut down their product at each step of the value chain, resulting in a 1-5% concentration by the time it got to an end user. That meant that the first time a user tried Blue Magic, perhaps as a free sample, he or she was immediately able to tell the difference and often became immediately addicted and loyal. Other dealers competed on price or distribution networks, but Blue Magic was competing on quality – and became synonymous with the best product on the street – making Frank Lucas a lot of money very quickly. Can you articulate your competitive advantage?
2. Sell the Most Product for the Most Money – AKA: Versioning for Revenue Maximization
Whether you sell heroin or coffee, each sale has the actual ‘cost of goods’ as well as any transactional costs involved in making the sale. What drug dealers learned, based on a very high and risky transactional cost, is that selling a larger volume at a discount made customers extremely loyal. They felt spoiled and didn’t want to work with any other dealers. So dealers figured out their own versioning mechanisms to capture the most possible market share across all users while also selling more at the high end.
Starbucks on the other hand, took the standard coffee shop's ‘endless’ cup of coffee and married it to small, medium, and large, yielding the often reviled but stupendously profitable short, tall, grande, venti, and the recent trenta options. When you go to Starbucks, which size do you buy? I don’t think I’ve ever purchased and rarely seen anyone else buy the short – and espresso doesn’t count. Although the transaction costs are all the same, by selling more of the larger sizes, Starbucks is able to generate more sales across a wider spectrum and likely gets more high-profit sales than if they just sold just one version. Most businesses can benefit from versioning – does yours?
3. Don’t Dilute Your Product – Your Brand Will Suffer
As Frank’s heroin business grew, he needed to develop an ever-larger network of resellers, or dealers. One particular dealer, Nicky Barnes, started buying Blue Magic and cutting it down to lower concentrations and charging the going rate for Blue Magic. Frank started to hear about an explosion of Blue Magic on the market and learned that it was getting a bad rap for inconsistency. He confronted Nicky – resulting in a new product – Red Magic. Frank was not going to let anyone destroy his competitive advantage by diluting the product. Across most types of businesses, this holds true. In fact, a Consumer Reports survey found that 75% of shoppers surveyed said they have noticed smaller package sizes and 71% of shoppers believe brands are hiding price increases with smaller sizes. So, as John put it, if you find yourself saying ‘a customer will never notice,’ chances are they will.
At the end of American Gangster, Frank gets caught, rightly. But Starbucks is still making plenty of money. So I don’t suggest going out and seeking a real, live dealer to learn from – but I do think we can learn applicable business lessons in the most unexpected places.
What surprising lesson have you learned lately? Share it with us so we can all expand our sales and marketing expertise!