The challenges of tension in the evolution of business Strategy

The challenges of tension in the evolution of business Strategy

Jul 24, 2019 | Strategy

 

I want to talk about tension.

The tension present in every commercial and private decision we make, and action we take.

If you focus exclusively on the short term, you will make mistakes, go out of business.

If you focus exclusively on the long term, you will do too little, and go out of business.

You must find a midpoint, one that ensures the bills are paid today, while ensuring that the business has the foundations to prosper into the future.

Current vs Future. The Quantitative with the Qualitative.

Tactics, the short term stuff is powered by data.

Strategy, the long term stuff is powered by insight.

Insight is informed by data, but does  not come exclusively from it. Insight comes from a wide range of sources, many not easily or readily available without a lot of work, time and experience, but nevertheless, absolutely necessary.

In effect, insight is identifying the ‘Why’ stuff happens, while working on the ‘what’ you are doing.

I am going to take this opportunity to ‘come out’ in this safe environment, and reveal a secret I have been hiding for all my adult life.

I am a …. Commercial schizophrenic. 

On one hand, I love the numbers, the investigation, analysis, KPI’s, analytics, the opportunity to dig down and see connections, trends, and find the hidden gems that can be leveraged to deliver value. On the other, I am a frustrated creative.  I cannot draw a line with a ruler, play a note, or hold a tune, and am in envious awe of those who can.

Numbers tend to numb the sense of curiosity, scepticism, and uncertainty, they imply something that is quantitative, and therefore black and white, no room for debate, misunderstanding, or discussion. The absence of numbers, without a credible story as to why, implies not enough work has been done,  and we are therefore wary.

The challenge of measurement in life and commerce is a major one. What to measure, how to measure it, and how to ensure that the measurements lead to some sort of action, without which, the exercise is useless. 

However, the core of the paradox of measurement is that some really fundamental things evade measurement. We are able to measure the past, and get results, biased, context driven, and short of understanding of the behaviours that gave us the measures. However, we have no idea how to measure the future, quantify what had not yet happened. All we know for sure is that it will be different to the past, so extrapolation is at best misleading, at worst totally and terminally wrong.

There is a great tension between the attraction of the seeming objectivity, safety and rationality of numbers, representing a continuation of the past, and the range of assumptions, beliefs, and projections that represent any vision of what the future might look like, and how it will impact on you.

Our brains are always seeking the easy and quick way out, jump to a conclusion to save cogitative energy, and when they see numbers, they automatically give them credibility they often do not deserve. Being creative  by contrast is the exact opposite. There are no rules, the idea matters, creative energy, unquantifiable and harder to generate a quick conclusion, just gets in the way. 

Strategy development is about developing a model of what the future might look like, then assembling and deploying appropriate resources in preparation for its arrival. 

Data is a representation of the past, a quantification of what has happened. It is always easier to assume that the future will look like the past, so we tend to just extrapolate. We also need to be able to react instantaneously, instinctively, to danger and opportunity. This is a function of evolution, where to survive we had to rely on our instincts, instant reactions, typified by ‘flight or fight’ which we are all familiar with. Our ‘fast’ brain drives us, and it takes an effort to override that instant response with something considered. 

I do not like snakes, at all. Nasty slithery things. However, I watched my youngest son when he was much younger play with a carpet snake at one of those touist trap reptile parks, knowing, rationally it was absolutely harmless, but would I touch it…NO. Irrational, emotional, and my rational brain gave up trying to get me to touch the bloody thing despite knowing it was so safe that I would let my son play with it.

Schitzo in the head!

My go-to marketing guru is Albert Einstein, also a reasonable physicist. Among his musings is this: Not everything that matters can be measured, and not everything that can be measured matters’ 

When you need a schitzo with insight born of tough and long experience to help you play with your snakes, let me know.

 

Header photo courtesy of Geoff Ridenour www.ridenourphoto.com

 

 

Solving the paradox of marketing measurement.

Solving the paradox of marketing measurement.

Jul 22, 2019 | Branding, Marketing, Strategy

A bigger brain than mine observed that ‘You get what you measure’. This has been proven to be true time after time.

Our lives are run by those who make the rules based on what has been, simply because it is easy to quantify.

However, what do you do when you want an outcome you cannot measure?

Like ‘good parenting’. We all know the kid benefits, as does the family, and community, from good parenting, but what is the measure?   It is particularly challenging if you choose to try and measure good parenting in real time.

Like ‘Culture’.

We all want a great culture, but how is it measured? There are consultants flogging all sorts of snake-oil dressed up in pretty graphs and dashboards, but I am yet to see one that is of any demonstrable value.

Like ‘Great marketing’. ‘I will know it when I see it’ is simply not good enough!  How do you predict which marketing strategy will be great, and which will be a steaming pile of crap?

If a PhD candidate was to compare the balance sheet valuation to the market cap of the top 1000 listed companies of 1998, I would bet my house that there would be a far closer correlation then, than a similar comparison done in 2018. In those 20 years, capital markets learned to factor into their valuations the future value of intangible assets. 

Facebook paid 19 Billion, yes Billion US in 2014 for WhatsApp, when it was owned and run by 12 people in a garage, supported by a VC investment. At the time it was seen as an insane price by most pundits, the same ones who are now saying it was the purchase of the century.

Intangibles now make up a significant proportion of the market cap of most successful companies, and where do Intangibles come from?

Marketing!!

But what is the measure?

We can see the value with the great benefit of hindsight, but hindsight is not available to us as we do the planning.

So, the question becomes: ‘How do we generate quantitative links between cause and effect?‘

 Such links will provide the connections between Foresight and Hindsight, so we can learn and accumulate wisdom as we go, make resource allocation decision based on what should happen, rather than what we hope may happen, or even worse, an assumption that the future will look just like the past?

Even then, we need to remember the sage words of Einstein who knew a bit about measuring things, when he said ‘Not all things that are important can be measured’

 

Header cartoon courtesy of Hugh McLeod at www.gapingvoid.com

Marketing is dead; Long live marketing

Marketing is dead; Long live marketing

Jul 15, 2019 | Branding, Marketing

 

In 1973 I graduated with a marketing degree, something few had heard of. My father was appalled, as I had set out to get an accounting degree, but had been waylaid by some  new age nonsense that would not get me a job.

Several years later, after quenching my wanderlust, I went looking for a job back in Australia. At that time, marketing was becoming important in a couple of areas, the food industry, and FMCG more generally, being the leader.

I was lucky and scored a job in an environment  which would give rise to one of the (formerly) great Australian brands; Meadow Lea.

Brands had become important through the 20th century in food, as they were a mark of quality, and reassurance that there were no nasties in there that would terminally stunt your growth.  Pretty important in food that you have not grown yourself,  and it is where the big brands emerged, creating the cycle of scale.

Large volumes enables capital expenditure,  and advertising, which exploded when TV emerged in the 50’s, creating massive consumer brands that dominated the landscape of our lives. The corollary is  that there were also many smaller brands, yapping around the edges, stealing a crust here and there, and generally keeping the big blokes honest.

Supermarkets built their scale for the same reasons, delivering price and convenience to consumers, then progressively they  set out to capture some of the proprietary margin of the big brands by leveraging their distribution muscle, by launching house brands in the 80’s. The very first one was a ‘No Frills’ margarine, launched by Franklins in Sydney, supplied by what became Meadow Lea Foods.

Then came the marketing ‘Big Bang’, the arrival of the internet.

I remember seeing the first fax around 1983, and thinking ‘this will change the world’ and it did, but not how I expected, and the fax was nothing compared to the disruption 20 years later.

Suddenly there were thousands of ways to communicate, TV remained, and still does remain an important vehicle, but like an aged boxing champion, is unable to deliver the impact of his youth against a horde of more agile, and stronger contenders who learn on the job every day.

The big brand owners, not wanting to miss out on this new wave of communication channels chucked money and their established ways of doing things at them, and wondered why they were being ignored. At the same time, supermarkets doubled down on housebrands, setting out to market their retail brands as someone you could trust to deliver quality and integrity, while consumers recognised that health regulations made putting nasties in food products a thing of the past.

Who needs brands anymore?

Well, the answer to that question is just about anyone who needs to offer a sense of security, certainty of performance, and a guarantee that they will stand behind their products performance,  to their customers and potential customers. That means anyone pushing the established boundaries of production, distribution, or technology.

Obviously Google, Facebook, Apple, et al fall into this category, and they have built huge global brands in less than 20 years, but those brands look nothing like those of my early years.

They have been built using new channels, as well as reimagining the old ones and executing at scale in ways unimaginable to incumbents. Apple is now the most successful bricks and mortar retailer in the world, when measured on the retailers own key KPI, margin per square foot of retail space, Amazon Go, and Whole Foods are rethinking FMCG retailing, and their bookstores are popping up in places where Dymocks,   Borders, et al closed down a decade ago.

The challenge is that the new marketers emerging now have no idea of how to really build a real brand. FMCG brands are largely irrelevant, so that training ground has gone, the new places to get marketing experience is in tech, and financial services. Tech is building brands despite themselves, simply because they are replacing the old ways with new ones, and financial services, well,  look how puny and irrelevant their brands are in the face of profit pressures, and simply nobody will believe them anymore.

Trust is zero.

Brands cost money to build, and take time building them is an investment in the future, and will not pay off until the future arrives. Unless you have the skills now, the future is looking bleak.

Fortunately there are a few old heads around who still remember, and recognise the ‘4 P’s’ still apply, and a few new heads, not seduced by the newest, shiny tech tool that skates across the surface of brand building

Brands are everywhere, without them, chaos will prevail, but to build one today, you need to be smarter than the next bloke, not just be lucky enough to have more resources and distribution scale. Genuine, creative and forward looking marketing is getting another lease of life.

 Call me when you need a dose of invaluable experience.

 

Header cartoon courtesy Tom Fishburn at www.marketoonsist.com

 

 

 

 

 

 

Genuflecting at the tomb of the unknown customer

Genuflecting at the tomb of the unknown customer

Jul 12, 2019 | Branding, Marketing

More money is thrown at the tomb of the unknown customer than any other source of marketing waste.

Unless you can define very well indeed who your customer is, you will be wasting most of any time, effort, and money you spend.

Defining who your ideal customer is involves choices, as you also  have to determine who is not, and therefore you will not spend resources trying to reach and influence them. This is really difficult for most, especially smaller businesses, to whom turning away a potential customer is an appalling thought.

Over 35 years ago I took over as Marketing Manager of the newly formed General Products Division of Dairy Farmers.

The brand of yoghurt we had was Ski, market leader in a small, and slowly growing market. When I joined, Yoplait had just launched, and the market had exploded.  Ski’s volumes were about the same, but share had dropped to single figures as Yoplait had, rightly,  taken all the growth for itself.

During a qualitative research project aimed at understanding who was buying yoghurt, which brands they preferred and why, the researcher asked the respondents to describe each of the major brands in human terms.

Yoplait was an educated, hip, self reliant, confident young woman who had her life in order the way she wanted it.

Ski was a reliable 50 year old farmer in wellies.

The advertising plan that was in place when I arrived was just more of the same old stuff, trying to convince ‘Miss Yoplait’ that the wellie wearing farmer was a good choice for her.

Might not have worked very well, so it was changed, and Ski started on a 5 year roll of product innovation that led to market leadership.

25 years later, Chobani came along and has done the same thing, again, as the so called marketers who followed, lost sight of the consumer, leaving the field open for a better targeted offer from a newcomer.

Need some help thinking this challenging stuff through? Give me a call.

Rethinking the construction of retail strategy

Rethinking the construction of retail strategy

Jul 11, 2019 | Change, retail, Strategy

 

As Bricks and Mortar stores, (B&M) except those run by on line monsters, Apple, Amazon, and a few others flounder, retail needs to rethink itself.

Easy to say, hard to do.

It is hugely ironic that the most successful B&M retailer on the planet, by the retail industry’s own measure, margin/square foot, is now Apple, and I suspect Amazon is not too far behind. 

Rent is the 3rd biggest cost in most retailers P&L, after staff and Inventory. Rent is in effect the  cost of distribution, or the major part of it, and is always raised as a cost that on line retailers do not have, which is their competitive advantage, along with convenience.

Of course, on line retailers do have distribution costs, increasingly absorbed in the price paid by the customer, or cunningly disguised as some form of membership, as with the sensationally successful Amazon Prime.

Distribution is the battle ground of retail. Reshaping the traditional retail model by cutting out the retail store, and delivering by some combination of post/courier/pigeon.  However, B&M retailers have gutted themselves by electing, on mass, to walk away from their primary competitive advantage: stores, and the relationships they can create and nurture with customers.

The competitive advantage of a store is that a customer can go in, look at, touch, try on the merchandise, and talk to a person, who hopefully has some level of product knowledge, and is able to build a rapport. This is a hugely potent competitive advantage if used well, but instead of using it, most retailers are cutting back their investment in stores, staff, and product knowledge, cowed by the spectre of on line price competition.

It is like a golfer, who when comfortably ahead, stops using his driver because his competitor is better at using his putter, so he uses his putter to compete, on what becomes uneven terms.

Stupid.

If retailers looked at rent, inventory carrying costs, and most importantly the cost of customer facing staff,  as the cost of customer acquisition and retention, they may make startlingly different strategic choices. They become items in their marketing budget, which can be subject to creative experimentation, and customer service and retention  optimisation, rather than a cost to be minimised.

I suggest that this seemingly  simple change in mindset, would lead to a huge change in their capacity to compete and succeed.

Bring out the driver again lads, stop playing the whole game with your putters!