Marketing Lessons from the Grateful Dead

Posted on by Andrew Jarrett.

A review of a very interesting and unique book on marketing through the lens of one of the most iconic bands in history.

What does the Grateful Dead have to do with anything (besides being fun to listen to)? Well, I recently read a book written by David Meerman Scott and Brian Halligan (the fallible CEO of Hubspot) called "Marketing Lessons from the Grateful Dead". This book is a short little read about different aspects of how the Grateful Dead differentiated themselves from traditional bands of the time. The format of each chapter usually takes a specific attribute of the band and showcases how that was valuable from a marketing perspective and then compares it to a "current" (2010) example of a company having success doing something similar and wrapping up with suggestion on how you can apply these principles to your own enterprises.

My main takeaways from the book are to creatively differentiate, embrace word of mouth and viral marketing, and experiment.

Creatively Differentiate

The Grateful Dead was very creative in how they differentiated themselves from other bands of the time. The biggest differentiator was that they were solely focused on putting on amazing live shows and getting revenue through ticket sales. Most bands are focused on album sales and then will promote a tour for the album after the album has sold successfully. Also, one of the other reasons why I love the Grateful Dead so much is that their music constantly evolved and combined different genres of music. It is very hard to classify exactly what genre the Grateful Dead is (are they rock? folk? jazz? psychedelic? bluegrass?) and so they clearly stood out from others in terms of what kind of music they were offering and a new label was created for them ("jam band").

While there is a lot of focus in this book about how the Grateful Dead differentiated themselves, it may be prudent to point out that from a purely strategic point of view, differentiation is not the only option a company has to provide value for their customers. In traditional strategic thinking, another completely viable option is for a company to be "low cost" where the main value they offer is good quality for a lower price than competitors (more bang for the buck). However, this doesn't make for as provocative reading. I also don't think people buy albums or concert tickets purely based on the artist's price point. But then again, I could be wrong. A further consideration when cutting costs is that maintaining ethics is important as we can see with the recent expose by Dan Lyons and his experience at HubSpot.

Embrace Word of Mouth and Viral Marketing Methods

One of the ways that the Grateful Dead was able to become such an iconic band is that they understood how to get their fans to tell others about them. They had some radically different marketing strategies for the time - they would set up a section of their concerts for bootleggers to tape the concert (provided they didn't sell the copies for profit), licensed out their logos for others to use, and even had a part of their concerts dedicated to a third party "market place" where fans could sell their own wares. All of this effort went into spreading the word about the band in order to have more and more people come to their live shows (which was their main stream of revenue).

While we hear about "social media" or "viral" marketing all the time and how important it is (while we roll our eyes and say "ugghhhh"), word of mouth and viral marketing is a very important part of marketing, especially for startups. This is because of two key metrics in measuring the success of various marketing methods - customer lifetime value (LTV) and customer acquisition cost (CAC). LTV is basically how much value you expect to get out of a customer and CAC is how much you actually spend to acquire a customer. The key metric for a startup is to understand their LTV/CAC ratio. If the startup spends more money acquiring a customer than the actual lifetime value - a ratio of less than 1 - then the startup will fail (very fast). If the startup spends less money acquiring a customer than the actual lifetime value - a ratio of greater than 1 - then the startup actually has a chance of achieving profitability (which can be completely destroyed by other factors). The higher the ratio, the better the chance a startup has of success though. It turns out that word of mouth and viral marketing methods have a very high LTV/CAC ratio because they cost very little to implement and (hopefully) convert many customers. This makes these marketing methods desirable, especially since the actual LTV and CAC values are difficult to determine and LTV is often overestimated (due to higher than expected churn rates) and, likewise, CAC is often underestimated (due to low conversion rates).

Experiment!

The last key takeaway I had from this book was the value of experimentation (of a business model, value proposition, marketing campaigns, etc.). First and foremost, the Grateful Dead always experimented musically - their songs were never quite the same throughout each performance - which added to the excitement of a concert and not knowing exactly what you would experience. Likewise, the Dead was very creative at trying out new ways to reach out to their fans (with a newsletter) or offer them a better experience purchasing tickets and they weren't afraid of trying something new. They approached their marketing very similar to how they approached their music - not afraid to experiment and not afraid of the inevitable failure of something not working like they thought it would.

Experimentation is highly valuable from the perspective of exploring new business ideas. Business is very dynamic and always changing so one strategy or value proposition may suddenly no longer be relevant. When faced with such dynamic situations, approaching the problem through a lens of experimentation helps by controlling variables and quickly developing a strong hypothesis of what needs to be changed to offer a better value proposition or business model. This approach is used extensively when developing a business idea into a solid value proposition or minimum viable product (MVP) and is discussed at length in The Lean Startup and other essential entrepreneurship books.

* Note: On Being a Deadhead

So I admit it - I'm a Deadhead. When I first heard the Grateful Dead, I didn't really like them. I checked out some albums from a friend and I didn't really understand the appeal at first. After a couple years, I decided to give them another chance and I started listening to some Dick's Picks albums (which are live recordings of old concerts) and started getting into them. I never understood the Grateful Dead until I started listening to them live and hearing how they would always play songs differently and improvise so well together so the song was never quite the same. I was also impressed with how they would merge different songs together and sometimes would play fluidly through two or three different songs before even stopping.

An example of a common theme would be to combine "China Cat Sunflower" and "I Know You Rider" and keep on playing. Here's an example from Dick's Picks Vol. 10: