I gave a speech at HIMSS last week, the largest healthcare event in America and my topic was “Disruptive Innovation and the Consumerization of Healthcare”. As I think more about it, there is a really good lesson learned from Kodak for brands in the healthcare industry.

Moore’s Law is a predictable law that has accurately forecasted the performance and cost improvements of microprocessors for over 40 years. Evolutionary improvement is a totally linear concept.

Innovation is NOT evolution!

Yet innovation never occurs in such a predictable linear way. After I left Apple in 1993 I was asked by the new CEO at Kodak to advise on the future of digital imaging. My advice at the time was pretty simple. “Kodak should focus on picture making, not just picture taking”.  As a $20 billion market cap company, I said why not try to acquire Adobe the creator of Photoshop which was trading at about $1.2 billion?

The executives at Kodak, were top of their class chemical engineers. They saw the growing importance of digital imaging, but in their linear analysis of the digital threat, they concluded it was decades away from becoming mainstream so they doubled down on vertical integration into film processing while setting up a small ancillary digital imaging group to develop and sell digital cameras.

By the early 2000s, digital camera picture quality was getting very good, broadband Internet was coming on strong, and inexpensive photo quality printer meant there was now a high quality end-to-end system for digital photography. Kodak however, was still focused on marketing its single use film camera, which continued to sell well.

In 2007, everything changed almost overnight and Kodak was completely caught unprepared. Apple and Google introduced smart phones that could take high quality photos and send them wirelessly over the now widely available 3G Network.

Meanwhile, Facebook almost overnight became a social media sensation with most of its content made up of personal photos sent from smart phones. Many people abandoned their single use film cameras and stopped printing photos as publishing photos to Facebook took off. A perfect storm decimated Kodak in less than 2 years. Last year, Kodak filed for bankruptcy.

Disruption is non-linear.

I believe the consumerization of healthcare holds really big opportunities for breathtaking innovation. It also holds perils for healthcare brands who fail to adapt and prepare for non-linear disruption.

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Here are seven actions I have seen define great marketers:

1. Seek Deep Customer Insight

I’m always searching for an insightful data-driven customer fact. At Pepsi, it was that consumers would consume as much beverage as we could get into the household inventory. This fact led to our development and marketing focus on the first 2-liter plastic beverage container. At Apple, the early days in the PC industry were mostly about empowering people with spreadsheets. Steve Jobs recognized the opportunity to empower people with a personal publishing system that was inexpensive and easy to use. This led to the creation of desktop publishing. Today, I’m very focused on an impressive fact that my business associates and I discovered in a survey we ran last summer: 24% of the US population has visited a walk-in urgent care clinic at least twice in the past 12 months. That’s a big insight about the opportunities for disruptive retail health services.

2. Seek A Wide Range Of Expertise

The most disruptive breakout opportunity requires expertise in more than one domain. My focus currently is in the three converging domains of the complexity of health care reform + mobile and cloud technology enabling services + Big Brand consumer marketing. Most very successful big companies are focused on the domains that made them successful in the past and are under-skilled in the new domains needed for disruptive innovation. Steve Jobs had domain expertise in user experience computer design.

He recruited me despite the fact that I had no previous computer background because I had domain expertise in something Steve wanted badly, Big Brand consumer marketing. The advantage of having a leadership team with multiple domains of expertise is that it really helps us as marketers to connect the dots and develop differentiated strategies from our competitors.

3. Make An Iron-Clad Commitment To The Customer

It’s always about the best possible customer experience. Great marketers are uncompromising about not saving money at the expense of their customers’ experience. Big brands are always built around strategies that focus on customer trust and loyalty. Some of the biggest mistakes are made when companies, for various reasons, chip away at their products, hoping their customers won’t notice. Customers always find out, eventually, and they don’t like it when they do.

4. Understand Key Customer Economics

Many marketers fail to appreciate the economics of losing a customer. Several surveys have documented that it typically costs 5x or more to replace the sales of a lost customer. It costs as much as 15x more to replace the lost profits of a lost customer. I have always paid a lot of attention to the economics of customer acquisition, customer churn, and customer loyalty.

5. Seek Multiple Perspectives

Informed intuition is key. I learned from working with Steve Jobs the value of what Steve referred to as “zoom-out & zoom-in.” In the space of a single meeting, it was typical of Steve to zoom-out and talk passionately about some big world-changing idea and then immediately zoom-in on a very specific detail that he refused to compromise on. At Apple, there was huge respect for multiple points of view. You have to see something more than one way to really understand it.

6. Take Calculated Risks

Great marketers have to be willing to take risks. Marketing is a left-brain AND right-brain game. Even the most creative intuition should be backed up with careful drill-deep knowledge of everything that can be controlled. The things listed above plus product facts on customer satisfaction, sustainable product economics, and supply chain’s ability to scale are examples.

7. Value Creative Talent 

The best clients always get the best creative work. It’s pretty simple: The best creative people want to see their best work end up in great marketing campaigns. Clients who are tone deaf to what it takes to create a great marketing campaign are no fun to work for and often dismiss would-be game changing creative.

Contributed to Branding Strategy Insider by: John Sculley, Former CEO at Pepsi-Cola Co, Former CEO of Apple, marketing innovator and thought leader.

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The early Mac had a higher COGS (cost-of-goods-sold) than the MS.DOS PC. This is because we had to amortize all of our system software development and leading edge proprietary graphics hardware technology across a much smaller number of physical units than PCs. Microsoft could spread its R&D across 9 times more computers and Bill Gates purposefully priced his operating system at a very low price to OEMs (original equipment manufacturers) in order to hold off competitors. Bill’s strategy was to charge a high price for application software and in fact Microsoft’s profit on each Mac was about the same as Apple’s because Microsoft’s MacOffice was premium priced.

Steve Jobs and I disagreed over the introductory price for the original 128k Mac. Steve wanted to sell it for $1999 and I wanted to sell it for $2499.

Here was why we eventually settled on $2499. In 1993, all of Apple’s profits and cash flow came from the 6 year old Apple II. We needed that Apple II cash flow to fund the Mac development and marketing launch. If the Mac were introduced at $1999 there would be insufficient monies to fund both the Mac launch and follow-on Macintosh R&D without systemically reducing Apple’s traditional 40% gross margin. Neither I, nor the Apple board, wanted to reduce our 40% gross margin and the facts were that Macintosh would continue to be a more expensive R&D computer platform than the Apple II. Even at 27, Steve Jobs was a very sharp business strategist and his defense of the $1999 price point was largely out of loyalty to an expectation he had previously set with his Mac team that he would price the Mac as a consumer appliance and back in 1984, $1999 was actually thought of as a consumer price point for a personal computer.

After Steve Jobs left Apple in 1985, he went on to start NeXT computer and ended up targeting it at the higher education market with an introductory price of $9999. The NeXT computer was technically brilliant and its design elegant but its price was way too high and NeXT never achieved the market success Steve had hoped for. The reality was that breakthrough high tech products have always been expensive in their early days. For example, the first dye sublimation color printer in 1988 was priced at $29,000 ( e.g. ink jet printers today cost about $79). Or a Sharp 70” HDTV 4 years ago was introduced at CES at a price point of over $50,000.

Steve Jobs first principles never changed:

The product experience must be elegant; no compromises.

Apple creates complete end-to-end systems, not just hardware products.

1980s = Mac + Postscript + LaserWriter + PageMaker

1990s = iPods + iTunes.

2007 = iPhones + iOS +App Store.

2009 = iPad + iOS + App Store.

Apple has an increasingly smaller market share in mobile than Android and Samsung, but Apple makes 80% of the profits today in consumer mobility.

27 years after the first Macintosh was introduced, Apple is still employing a premium price strategy.

Contributed to Branding Strategy Insider by: John Sculley, Former CEO of Pepsi-Cola, Former CEO of Apple, marketing innovator and thought leader.

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Big companies have the resources, however middle managers are more often empowered to “say no” than yes.

Timing Is Everything

The only reason for small companies to exist is to think differently and act differently. My advice to big brand companies is take your smaller competitors very seriously and constantly track small companies’ brand strategies.

Disruption Is Almost Always Lead By Product Innovation

For example, Coca-Cola Co. and PepsiCo should take SodaStream seriously as a real game-changer. How did Folgers, at one time the leading coffee brand lose the retail coffee service market to Starbucks?

In 1994 I was asked by Kodak to advise how they should think about their digital future? My advice was, “Their future would not be about picture taking, but picture making”. Kodak at the time had a $20 billion market cap. They could have acquired both Adobe and LexMark together for less than $5 billion. The market cap of Adobe and LexMark today is much higher than $20 billion. In those days, Kodak was known for recruiting the best chemists from the best technical universities. But culturally Kodak was hermetically sealed in Rochester, New York which was a long way from the disruptive risk taking world of Silicon Valley.

Perception Leads Reality

When I was appointed marketing VP of Pepsi-Cola Co. we were way outsold by Coca-Cola. 8 years later, brand Pepsi had passed brand Coke as the largest selling packaged goods product in the USA as measured by AC Nielsen. How did we do it?

We targeted a then new group, “Baby Boomers”, who had a lot of discretionary money to spend. They were interested in high energy activities like riding dirt bikes, surfing, and hiking. Coincidentally, it was the early days in the growth of larger screen color TVs replacing small screen B&W television. Our advertising agency BBDO went to the best motion picture directors in Hollywood with the request to film for us “60 second movies” that focused on appealing life style experiences. Pepsi was just a signature in these TV commercials, not the primary purpose of this campaign. At the time, Coca-Cola Co. advertising was totally focused on the product with a campaign theme, “Coke, its the Real Thing”. We named our brand campaign, “Pepsi Generation” — the first lifestyle advertising which we called “experience marketing”. Michael Jackson helped us drive the brand message.

A few years later we introduced another “experience marketing” campaign called “Pepsi Challenge” with the goal of capturing the surprise of life long Coke drinkers when they discovered they chose Pepsi over Coke in a blind taste test.

In “experience marketing” perception always precedes reality. This insight is what excited Steve Jobs and why he recruited me to Apple.

As a result, I was the first big brand marketer to come to Silicon Valley. In 1982, personal computers were being sold on their technology features. Steve Jobs had a different idea; he believed the Mac (still 2 years away from being fully developed) would be the first easy-to-use personal information appliance. Steve referred to the Mac as a bicycle-for-the-mind and he fell in love with “experience marketing”. You may remember our Super Bowl TV commercial that Chiat-Day created for us using the same brand creative principles we had previously had so much success with at PepsiCo. In fact, that first introductory Mac advertising never even showed the computer or ever mentioned anything about the technology. We had just one line of copy, “On January 24 Apple will introduce Macintosh and 1984 won’t be like 1984” (a reference to George Orwell’s mind control police).

I’ve been asked why Pepsi and Apple consistently had such good creative? The answer is quite simple:

The best clients always get the best brand advertising. Microsoft spends more in advertising than Apple. Samsung has been spending almost 10 times more than Apple. But Apple advertising consistently stands out and is remembered. It helps of course that users’ experience with Apple products always lives up to, or even exceeds expectations.

Contributed to Branding Strategy Insider by: John Sculley, Former CEO of Pepsi-Cola, Former CEO of Apple, marketing innovator and thought leader.

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Branding Strategy Insider is a service of The Blake Project: A strategic brand consultancy specializing in Brand Research, Brand Strategy, Brand Licensing and Brand Education

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