Will your digital life survive the Password Apocalypse?

It all started in 1964 with a guy who called himself Captain Crunch after the cereal he got an invaluable toy boatswain’s whistle from.
As a US Air Force airman based in Alaska, John Draper discovered that the whistle emitted its sound at the same pitch used by AT&T exchange systems for dialling and by using it correctly he could get himself and his comrades free long-distance calls. Years later he and other counterculture followers created a “Blue box” that could generate enough multi-frequency tones to allow them access to the AT&T system.
They called it “phone feaking”. But the idea caught on and was later dubbed “hacking” or “cracking” – gaining unauthorized access to systems using a variety of methods to various ends.
Passwords have been around for millennia in security contexts for the obvious reasons, so when computer networks were created it was a no-brainer that passwords would have to be used along with logins.
But, little by little, various methods have been used by hackers to break them. One of the originals was invented by Captain Crunch and his merry band. 
“Social engineering” was basically calling up a company pretending to be the proper user and using enough of that person’s details to convince the firm that you are them and thereby gain access to their account and/or reset the password etc.
It’s one of the techniques still used today by hackers and detailed in Mat Honan’s excellent article on the weakness of the password system in the January issue of Wired UK.
Long story short, passwords are vulnerable because they have to be easy enough for us to remember and the reset systems need to allow us to do that without too many hurdles. But their ease is their greatest vulnerability.
So how do ensure that you don’t end up having all your accounts cracked by hackers, as happened to him? Here are the key password take-aways from his article:
DON’T

• Reuse passwords for several accounts
• Use a dictionary word, or at least use more than one in a phrase
• Use standard number substitutions – i.e. 1 for l - cracking tools have these built in
• Use a short password – they’re quickly crackable

DO

• Enable two-factor authentication when it’s offered – this allows the system to send you a text to confirm it’s really you if you log in from a non-usual location.
• Give bogus answers to the standard security questions – it’s like a secondary password as many of the answers to standard questions will be accessible online – you may have chatted about your first school/pet etc on Facebook and parental details are on public record.
• Use a unique, secure email address for password recovery – If a hacker knows which account your password reset goes to, that’s a line of attack for them. So set up a special email account you don’t use for regular communications and ensure you don’t create a username linked to your name.
• Scrub your online presence – Sites like 123 people allow you to remove your info from databases.

If, like me, you have all sorts of accounts all over the place, Mat’s article will have been a real eye-opener and the tips vital for ensuring you survive any future Password Apocalypse.

Jessops – some management lessons for SMEs

To a keen photographer it was temptation incarnate, an ocean of exciting products printed on both sides of a very large sheet of paper in very small print.
Reissued with updated listings regularly, the Jessops product list was a must-have for anyone who loved their photography in the 1970s and ‘80s. And visits to their stores was akin to stepping into Ali Baba’s cave — lined with objects of tech lust and often some far-off wish for a pools win to make their purchase possible.
Ever since Jessops opened in Edinburgh I have been a regular customer with them and, given its place in my photographic life, I was deeply saddened to read of its fall into administration yesterday.
So what when wrong? Looking over the coverage, here are the main factors and lessons for SMEs:

• Its core market had been eroded from both ends of the price range – high megapixel smartphones being chosen instead of lower-end digital cameras while top-spec cameras were being bought online from specialists with better ranges based on reviews.
  Lessons:  1) If a new trend or technology is threatening your market, you need to be in it, not fight it like King Canute or you’ll only be washed away by Schumpterian forces of “creative destruction”. Jessops should have offered at least a range of the best cameraphones, but didn’t; 2) You need to find a way to price-match or get close to the price leaders on at least the key products, like John Lewis does. Linking with other independents (through groups like Euronics & Nisa) to gain buying muscle to match the big boys’ prices is one way for smaller retailers.

• Its core marketplace was down overall – you can’t do much about the overall market but you could fight better for a share of what’s still there (see below).

• It hadn’t made the “profits it planned” – it maybe needed to look harder at costs, store locations and alternative ways to do its back-end services (e.g. sharing distribution services with other High St chains). But were its targets too high? Given the debt for equity swap with HSBC in 2009, were they pushing for an unrealistic turnaround timetable? We don’t know, but word on that may emerge.

• Timing of rent payments – this hits all High St retailers equally unless they own their premises. Cashflow is always hard at this time of year for retailers and combined with the importance of Christmas for so many and fiercer price competition, it will have been one of the tipping point factors that forced it into administration.

• It lost the confidence of its suppliers – this is a clear strategy fail. You have to retain credibility and the relationship. This will have been one of the reasons why Canon didn’t go forward with a rumoured cash injection (to help maintain their own High St sales). If Jessops marketing had been better, this, and sales, might have been better.

• It was a victim of 'showrooming' — In economics a distinction is made between ‘experience goods’ (things you have to try to know their quality) and ‘search goods’ (things which are identical commodities for which you’ll typically simply seek the lowest price as you know the product will be the same e.g. branded goods).
  In the early days of e-tailing it was thought that experience goods couldn’t be sold online, but once ‘showrooming’ (where customers sample a product in-store and then buy it online) emerged, it meant experience goods were being tried on the High St but bought online like search goods. So unless a shop can afford to price-match, or at least get close in price, like John Lewis, they will often lose the sale.
  A survey showed 24% of all UK shoppers ‘showroomed’ in the lead-up to last Christmas (39% for 18-39s, 18% for over-40s). You might worry that if that carries on the only winners will be the big chains with ‘clicks & mortar’ offers including collect-in-store, online-only retailers and the postal and courier services, but don’t panic yet as showroomers only represent 10% of overall shoppers and only 40% of showroomers bought items from a competitor after trying in-store.
  The lesson could be, if appropriate in your market, to focus more marketing spend on older non-showroomers via appropriate channels and, if possible, use in-store wi-fi to track what showroomers are searching for and offer them a time-limited ‘have it now’ discount voucher on the in-store price if they check-in to secure the sale. There are lots of occasions when you need something TODAY, so ensure you maximise the stock of key items that are urgent purchases.
  Also, once the last date for online delivery for dates such as Christmas is past, you can target your marketing messages on the ability to get it NOW in-store in time for the big day.

So how else can local and independent High St retailers fight back?

• Make good use of PR and social media – they work just as well for you as the big boys. Yes, they have dedicated teams of experts, but with the key knowledge, the help of people like me, some creativity and some dedicated time you can make it work for you too. It’s all about content and that’s a level playing field where your David can beat the chain Goliath, especially if you can offer the product today.
• Reassess your basic business model, including location to ensure you’re doing everything you can to make the most of your offer & USPs.
• Make sure you’re communicating your USPs regularly — I was amazed to find a local computer supplies shop in Forfar is cheaper for my printer ink than anywhere in Dundee, but I haven’t seen them advertising it anywhere. Shout about your strengths!
• Look into linking up with other local independents to help each other – like the retailers in chain-averse Totnes. Their solidarity is said to be one of the factors behind their success.

There are, sadly, no panaceas for all High St retailers, but if you undertsand your business well you can maximise your chance of not being the latest victim of its tranforming character.

Given my long and happy relationship with it, I hope PWC can find some way of saving Jessops. 

How elastic is your brand’s reputation? Find out with this metric.

In my last blog post I looked at the recent Instagram Terms of Service debacle as a case study of how getting the balance wrong between satisfying your shareholders versus your other key stakeholders can lead to major reputational damage and, ultimately, lost shareholder value.
At the end I introduced the term Reputational Elasticity of Demand (RED). Anyone who’s studied economics will be familiar with the concept of price elasticity of demand — the idea that demand for some products decreases as their price rises (referred to as being elastic, with a price elasticity of demand score above 1), while for others demand is less affected, if at all (referred to as being inelastic, with a price elasticity of demand below 1).
It’s easily seen that usually non-essential goods (like expensive cameras or world cruises) have a higher elasticity than basic needs, such as food. Although I would add the caveat that elite luxury goods appear to be fairly inelastic as the kind of people who buy Bentleys and Impressionist paintings are less bothered by price increases than most buyers as their wealth stays constant enough to allow more consistent consumption of such things.
Applying this notion of demand being influenced by a factor, it’s also easily seen that a company’s reputation can have an influence on its sales. You only have to look at past examples of major PR failures to see how a reputational hit can influence revenue, profitability and sometimes the whole existence of the company. Think Ratners, Arthur Andersen and The News of the World.
More recently, we’ve seen Starbucks change its UK Corporation Tax policy after an outcry over its perfectly legal but unpopular use of international transfer charges to minimize its UK tax bill and comedian Jimmy Carr pulling out of a controversial tax avoidance scheme, again because of the public reaction when his involvement was revealed.
They clearly feel their services are reputationally elastic (Starbucks may have seen its sales fall), but other companies clearly think theirs are reputationally inelastic. Amazon and Google were also named as UK tax dodgers by the same parliamentary committee that named and shamed Starbucks, but they didn’t respond in the same way. In fact, the reaction of Google chairman Eric Schmidt was to say he was “very proud” of their tax avoidance scheme — “It’s called capitalism.” He’s clearly been taking PR lessons from Michael O’Leary of Ryanair!
So why can one company’s demand be more resilient to dents in its reputation than those of another? The simple answer is each will have their own Reputational Elasticity of Demand (RED).
So how do you measure yours and allow it to inform your future decision-making?
First you have to understand the factors which influence how elastic your RED is and how they can be measured.
I would suggest the following factors and metrics can be used in calculating your brand’s RED:

• Market share — the higher yours is, the more inelastic it’s likely to be if the barriers to switching are also high and/or your industry has low competitiveness e.g. Google in search.
• Competitiveness of your market — measured by its concentration ratio and/or Porter’s Five Forces.
• The importance of reputation in your industry — high in art auctions, universities and used car sales, lower in petrol or gas sales where the product is closer to being an identical commodity. Measured by quantitative market research.
• The importance of ethical behaviour to your key customers (an idealism score) — measured by qualitative market research.
•  Likelihood of your key customers to act on core ethical values — measured by qualitative market research.
•  Your brand’s rhetoric on the importance of ethics to your company — everyone hates a hypocrite more than an honest stonewall capitalist e.g. Starbucks and Apple versus Ryanair, banks, oil firms, arms companies. Measured by an ethical rhetoric score.
• The expectation of ethical behaviour in your industry — more so in charities, but less so in the arms industry. Measured by quantitative market research.
• Barriers to switching from your brand to a rival, including transaction costs (hassle) to do so — i.e. coffee lovers in cities can easily use another outlet, but someone in a village with only one bank will find it harder to switch. Similarly, Facebook enjoys a high barrier in terms of the time and effort it would take a user to move all their friends and content to another social network.

Depending on your industry, there may be more, but this is a basic list to start with.
So once you have your RED figure, is it elastic or inelastic? That can be worked out by measuring the RED of a number of companies like Starbucks and Google which clearly enjoy elastic or inelastic RED figures and finding which you are closest to. With enough comparisons you should be able to find the figure which represents the point of transition from reputational elasticity to inelasticity.
Once done, you would need to monitor your RED score regularly as the factors which make it up will vary over time.
So how can you use it to inform your management decision-making?
You could use an equation to do scenario analysis to weigh up the effect of the future options being considered on sales, but to do so would be make the same fundamental reputational error that Ford in America made in the 1970s with the Pinto — where management calculated the cost-benefit of recalling and fixing the fault on the car which caused fires in accidents over versus the cost of potential lawsuits. It would be a PR own goal if found out, more likely in the increasingly transparent online and socially networked world we live in.
Whatever you do, you need to take into account two factors:

• How personal the proposed unpopular conduct is to customers — e.g. Instagram seemed to be threatening to sell users own pictures, while Starbucks was not paying the Government, not us directly, and Apple’s use of Chinese workers with comparatively bad pay & work conditions to make its products seems more distant.
• How unpopular the proposed conduct is with your customers — measured by qualitative market research.

So what’s the solution? I’d say that you need to set out your ethical stall in line with your RED, communicate it clearly via your marketing communications to manage the expectations of your current and future customers and then act accordingly.
If you’re going to be a hard-nosed capitalist, say so. For example, no-one any longer acts surprised when Ryanair takes a tough legal-contractual line over an unpopular policy because they have a long and well-publicised history of being that way. So, for various reasons including the price sensitivity of their customers, their RED is clearly inelastic.
Conversely, don’t project ethical whitewash and then act otherwise, especially if your RED is highly elastic. Brands like Apple and Co-operative Bank have seen the reputational damage of failing to live up to their ethical rhetoric.
Ultimately, using your RED to influence your brand management is about using your judgement, informed by the knowledge of your brand’s RED elasticity, to make the business decisions which will help maintain a high reputation and in the medium and long-term maximise the returns and value to your shareholders.