How to think critically about your essential investments in marketing

Dec 9, 2019 | Governance, Marketing, Strategy

 

Marketing is almost always seen as an operating expense rather than an investment in the future.

This reality poses an absurd paradox.

We treat investments in capital equipment for our businesses, and various financial instruments for our own wealth generation,  as items on a balance sheet. By contrast, we treat marketing investments, and particularly those made in various forms of communication, as discretionary items recorded in the profit and loss account as an expense.

Why do we make this distinction?

Both forms of investment have as their motivator, the generation of future cash flow. Just because it is a bit harder to calculate the return on marketing investment than it is to calculate the return on an investment in capital equipment, or financial instruments, should not be a deterrent to the effort.

Nothing is more critical to the long term commercial health of an enterprise than the investment in marketing. What could be more important than identifying, communicating, creating transactions and building relationships with customers, that generate future revenue and cash flow?.

There are 3 basic strategies considered by financial investors

Index investment.

This is a passive, low cost, average but relatively safe return strategy, sticking to stocks that reflect the particular index against which the performance measures will be applied. The most usual are the S&P and ASX 200 indices.

Arbitrage investment.

Essentially this is a short term strategy that assumes the investor is smarter than the market, able to recognise mispricing before anyone else, and their IT programs. It involves a lot of buying and selling of stocks, and often commodity contracts, essentially bets on the short term movement of price. Over the long term, there is plenty of research around that indicates that the performance is around the major stock indices. This is also a high cost strategy, in that the constant trading incurs transaction fees, usually not included in the published performance metrics.

Value investment.

Investing for value is a strategy that involves taking a long term view of the businesses in which you invest. This means you engage deeply, not just with the numbers, but with the management and culture, as well as taking a view of the marketplace in which they compete. It is a ‘filtering’ strategy, one where a lot of research boils down the potential targets to a very few, in which you take a significant position. It is a focussing of resources at the specific points where you see there is long term returns available, and are prepared to accept the vagaries of the short term focussed market gyrations.

If you apply a similar frame to the manner in which businesses make investments in marketing, there is a remarkable similarity.

Index marketing.

Doing what everyone else is doing, being average, a follower, and risk minimiser. It also ensures you do not stand out from the crowd, which in a cut-throat marketing world means nobody notices or cares about you, so perhaps you should save your money.

Arbitrage marketing.

Those following this strategy are just applying tactical actions to situations they see, there is no underpinning strategy, just advertising and promotion, usually driven by a budget that has to be spent, and KPI’s that measure the activity, rather than the harder to measure  outcomes of the activity. The driving word is ‘campaign’. A string of tactical activities will be seen as a campaign, and usually there is little flow from one campaign to another. This tendency has been accelerated to stupid proportions by digital, where the cycle time of a campaign, limited as they have been, has reduced from months to days. No longer are we looking for the strategic ‘big idea’ that will engage and motivate customers over a long period, we are looking for 10 ideas for the Facebook and Instagram posts in the next 24 hours.

Value marketing.

Successful marketing requires a solid strategy, well executed with a long term perspective. Over time, you will fiddle with the details as you become more familiar with the minutiae involved, and you fine tune the application of funds as you learn, but it is a multi-year commitment, not a 6 month campaign, and certainly not a few ‘cat photos’ on Instagram. Such ‘cat photos’ may be a tiny part of the tactical execution, but are never a component of the strategy. This takes time, resources, and most importantly, a laser focus on what is important to  the selected group of primary customers. Over time, you communicate your value proposition that defines why they should do business with you, rather than someone else, and do so at a price that delivers you a premium return, while delivering them premium value.  Then you retain their business, increasing your share of wallet, innovating, reducing customer churn, all of which delivers sustainable cash flow.

If any of the above arguments holds true, then it must be that the measures we use to make decisions about our financial selves should be able to be adapted to the investments we make in marketing.

Step one is to see it as a long term investment in prosperity, and not a short term expense to be reported and forgotten, hidden in a monthly P&L.

Step two is to have a robust, well thought out strategy, that is able to optimise tactically in real time.

Step three is to implement and learn relentlessly, seeking the elusive cause and effect chains that must exist between marketing activity and cash flow.

 

Cartoon credit: Scott Adams and Dilbert reflecting on investment strategies.

 

 

 

How do you predict the unpredictable?

Dec 6, 2019 | Innovation, Leadership

 

Telling the future is a practise best left to  the circus tent, but as strategists we are doing it all  the time.

The question is not how to avoid being wrong, which means you do exactly nothing, but how do you both increase your odds of being right, and be able to pick very early when you are going to be wrong.

The leadership task to be able to play in the future is to decrease the natural discomfort people have with change, to seek ways to  reduce the power of the status quo, look for opposing views that deviate from those that currently drive decision making, and ensure there is diversity of ideas and types in the environment.

Building a resilient marketing and innovation culture is at the core of this challenge. This recent Gartner report covers the challenges well, observing:

‘Innovation is well funded and maturing as a marketing discipline. CMO’s are dedicating head count to innovation and leaning on ecosystems to help accelerate initiatives. despite the progress, obstacles remain, most notably risk-averse corporate cultures’.

None of this is easy. It requires active engagement with the threats you see on the horizon, not just from your immediate environment,  but from the wider field that may influence your enterprise in the future. It is being able to see threats as the opportunities they can be.

As a leader in this sort of change environment you have to be able to make it safe to be wrong, to encourage the pursuit of rabbits down burrows, to learn quickly, and adjust on the run, unlearn the ways that have been successful in the past, and replace them with less proven ideas and processes.

To my mind, curiosity, the absence of fear, and the leveraging of data, are the key ingredients in all  this.

Curiosity is a word that encompasses all sorts of things, from critical thinking to creativity and discovery skills, and so called ‘design thinking’ which is just a fancy term for starting with a clean sheet of paper to design something new from scratch, completely from the end users perspective, while leveraging the best parts of what currently exists. To make  all this happen in an organisation also requires that there is a collegial culture, as nobody can do it on their own, you need teams and networks of collaborators to succeed in todays world.

The second component of predicting the unpredictable is data. Data can reveal patterns, correlations, cause an effect relationships that when seen through a new lens can deliver imaginative insights. It is also true that we have no chance of predicting what an individual might do tomorrow, but assemble a number of similar people together, and we can have a very clear picture of what the majority of them might do tomorrow, and a calculation of the odds of outliers.

The third, which Hugh McLeod nails, again, in the www.gapingvoid.com header cartoon. Innovation is the absence of fear, and only in the absence of fear can we be sufficiently curious and empowered to predict the unpredictable, and bet on it.

 

 

Are brands assets that can be revived?

Dec 4, 2019 | Uncategorized

 

It is generally accepted that brands are assets, the problem is how we value them. Often the valuation is post some sort of transaction, the business is sold, and the difference between net assets and the sale price is ‘goodwill’, which is code for stuff we do  not fully understand, but are confident will generate future cash flow.

Brands fall into that category.

So what happens when  a business reliant on a brand goes to the wall?

Does the brand go to the wall with it, or is there brand life after corporate death.

Thomas Cook did a Titanic last month, hit their iceberg after 178 years of trading. It is one of the better known brands on the planet, with irrevocable ties to travel.

Will the receivers sell it off for a token amount, along with the office furniture, or will someone recognise it has a value and buy it from the rubble and rebuild?

The business was founded in 1841 by Leicestershire cabinet maker Thomas Cook, as a means to carry supporters of the temperance movement around Britain to supporters meetings. It soon expanded into escorted tours to Europe, in 1855, the US in 1866, and progressively, the world.

Can such a brand  survive the corporate death of its owner is a compelling question. In a world that is commoditising and homogenising, a brand with 178 years of equity hidden deep in its DNA must have some value, too someone?

There have been signs of financial fragility in Thomas Cook for a while, leading to  a couple of financial engineering transactions over the past few years. Thomas Cook is, or was, 75% owned by Hong Kong listed conglomerate Fosun. After a dance with bankruptcy in 2011, saved by an injection of capital from shareholders, and some aggressive restructuring, including a sell-off of its plane fleet last year, it seemed to be recovering. Travellers still had sufficient confidence to book with them, only to be stranded by its demise.

There are all sorts of reasons being touted, Brexit stopping people travelling, a hot summer in England, Thomas Cook’s home, so they all went to Blackpool rather than to the Costa Del Sol to harass the locals, and obviously, the internet.

The end however, seemed not to have been expected.

If I ran British Airways, or even Qantas, I would have to be asking myself: what value would a global wholesale travel brand like Thomas Cook add to my portfolio?

It has been reported that Fosun may have bought the Thomas Cook brand from the receivers. Forgive me for thinking that perhaps they were the ones who best understood the brand value, and found an opportunity to capitalise on that knowledge by forcing liquidation and cherry-picking assets.

There are plenty of examples of brands that have experienced a potentially terminal problem and survived. Perhaps the best known are Apple, almost a corpse prior to the return of Steve Jobs in 1997, and Microsoft, sliding down the slippery slope to irrelevance, revived, and currently the most valuable business on the planet, again.

A revival indeed.

Domestically, there are a number of formerly powerful consumer brands that shout for a revival strategy. Meadow Lea,  hollowed out and dumped by successive owners in favour of giving retailers a margin boost, Fountain, once Australia’s largest sauce brand by a mile, a shadow of its former self, SPC, a global brand in an earlier time,  Rosella, Peters, Dairy Farmers, the list goes on. All have some residual untapped value to be extracted. All it would take is an extended time frame, relatively deep pockets, a clear consumer value proposition communicated consistently, innovation across the brands and operational processes, and the guts to have  go.

 

 

Succeed, then start. Strategic lessons from a gardener.

Succeed, then start. Strategic lessons from a gardener.

Dec 2, 2019 | Innovation, Strategy

My sister is a gardener, a producer of a prolific mass of colour and edible plants year round. It takes work, time, and planning, but as they say, the proof is in the pudding.

By contrast, most businesses I work with have a strategic process that starts with a workshop, or some sort of off site involving senior management, sometimes a few more junior and high potential managers, and perhaps an after dinner speaker to liven things up.

Generally the outcome is pretty bland, little more than an articulation of what the CEO or board thought they wanted when walking in on day 1.

Contrast that to my sister.

She does not do her gardening by digging.

She is constantly absorbing ideas and lessons from those around her who are also gardeners, what worked, what did not, and why. She absorbs information from wherever it comes, and then sets up trials to see small scale outcomes before making any commitment to turn over a chunk of her extensive gardens to something different. When all that comes together, she has something different and surprising, she will take the leap and expand the planting, continuing to learn as she goes.

She has a good idea of the outcomes before she commits the time, energy and cost that it takes to commit a chunk of her garden to this new thing, because it has worked in a real world test.

Not so the strategic processes of most. 

There is little energy spent thinking about the strategic, competitive and regulatory environment in which they must succeed, little time and effort spend learning from others, and little appetite for small scale trials that might give the game away to competitors.

My sister succeeds on micro scale before investing in the macro, and it is a continuous process,  not one that takes place at a specific window of time in spring, but rolls continuously through the year.

Perhaps gardening is a better metaphor for strategic development than it would appear at first glance.

As an aside, the current drought in the country town where she lives has delivered some nasty and unexpected surprises. All are being met with a mindset that will see the important parts of her garden survive and thrive again as rain reappears, as it will. She will have learnt much from the experience.

Discover ‘flow’ to build scale 

Nov 28, 2019 | Leadership, Lean, Operations

The notion of ‘flow,’ or as we call it, ‘In the zone,’ is a psychological state first articulated by psychologist Mihaly Csikenmihali, published outside academic circles in his 1990 book ‘Flow: the psychology of optimal experience’.

From time to time, most of us experience ‘flow’ in our lives.

Those rare times when deeply immersed in a task, when energy and concentration are together forming a focus and delivering a rolling output, that makes the time seem to compress and fly. The level and quality of output when in such a state is surprising to us, even  astonishing. 

I wonder if there is a collective noun that describes such a state to a group?. It would apply when a group of individuals are so closely working as one, but using their individual skills simultaneously, and cumulatively, such that the collective output is greater than the sum of its parts.

How does a group go about achieving this state of flow?

It takes engagement, focus, alignment around a common purpose, and preparation. The output when it happens, is amazing.

Einstein must have been in an extended state of flow during his 1905 ‘miracle year,’ when he wrote four papers that together formed much of the foundation of modern physics.

He did  not achieve this by himself, although he was not known outside a small group of friends. He was working full time in the Swiss  patents office in Bern, these seminal papers were his ‘side-gig.’ He was not able to access the supposedly best minds in the fields he was thinking about, as he could not get a job in a university, so he walked and discussed with his few close friends and colleagues, and significantly his first wife, herself a substantial mathematician.

There must have been some degree of collective ‘intellectual flow’ present in that time, the state where collective and collaborative activity delivers compounding outcomes, leading to those seminal papers.  

Every enterprise should strive for ‘Flow’ in their activities. The flow of processes, such that everything happens predictably, smoothly, to a predetermined cadence, building on itself, delivering a compounding outcome.

This applies as much to innovation activity, and strategy development and implementation,  as it does to the mundane processes that we need to have happen every day to keep the doors open.

Can you see any sign of ‘flow’ in your enterprise?

 

Header credit: Lucidpanther via Flikr