Are you running a zombie business

Are you running a zombie business

Nov 7, 2018 | Management, Strategy

 

Zombies are the fictional ‘living dead’. A zombie business model is one that might still be alive, but may as well be dead, unless there is radical surgery undertaken.

Blockbuster was a zombie model, happily making money while Netflix emerged from its cacoon, to kill it in a few short years.

Blockbuster’s then CEO John Antico recognised the problem and instituted a solution that would probably have saved them,  but fell victim to the entrenched view of the Blockbuster model held by his board. His replacement blew some temporary life into the zombie, but missed the opportunity to rebuild, and shortly after, Blockbuster died a rapid and ugly death.

Many bricks and mortar retailers find themselves in a similar position. They know what they sell,  but have no idea to whom they sell it, and whether or not the price at which they sold maximised their margins. Meanwhile, Amazon knows what they sell, to who, at what price, when, and the details of their location, and a host of demographic and behavioural data gleaned from their big data sets. Who is the zombie in that mix?

I note that this morning Lowes announced the closure of 51 North American stores. Can somebody please ask the former Woolies MD what it was like being in bed with a Zombie!

 

 

How to swim in the profit pool

How to swim in the profit pool

Nov 5, 2018 | Customers, Strategy

 

Every industry is an amalgam of value chains, demographic, behavioural, and geographic segments of customers and suppliers.

Inevitably, some of these segments are more profitable than others for a range of reasons. Therefore it makes sense to understand where the profits in your target value chain are being made currently, and where those profits may move to in the future.

There are two challenges here, the harder is seeing the future, but the second, identifying where the profits are now, should be easier.

Apply the Pareto principal to all the segments in the whole value chain, and you will inevitably see that at each point, Pareto rules.

It therefore follows that your best strategy is to identify the areas where your value proposition can add value to the 20% that deliver 80% of the profit.

The king of this strategy is Apple, who control about 15% of the volume of mobile phones sold, but accrues 85% of the profit available in the market.

Who are the 5% of customers who truly value something only you can offer?

Find them and you will be swimming in the profit pool, with little opposition.

 

When price becomes almost irrelevant.

When price becomes almost irrelevant.

Nov 1, 2018 | Marketing, retail, Sales

Price is just an arbitrary scale for the ‘unquantifiables’ which has only two functions:

  • it is a reflection of the amount someone is prepared to sell something for.
  • It is a relative measure, helping you to make purchase choices by giving you and the seller a constant scale and language to reach an agreed point of exchange.

How often do you choose a restaurant because it is the cheapest?

You might decide to go Italian, or Chinese, then decide which one. You decide on a variety of factors, parking, quality of the food and service, are they licenced, who is it that is going with you, is it a special occasion or just a meal. The conversation in your mind goes on and on, often almost unnoticed.

Why is it then that we tend to make major commercial decisions on price?

Almost every  time I am involved with a client in a commercial purchase decision, one party or another uses price as a major point of choice and often leverage

Why?

Few people buy purely on price, and often you would not want them as a customer anyway, so why let them hammer you down?

Think about the value, what it is that the product or service is delivering, how it solves a problem, how it reflects the image to be projected,  how it fits in with everything else going on.

Price is just a means to come to a point where the value can be exchanged.

Value is what is important, price is just a way of converting value to a common language.

Next time you  are being belted about how high your prices are, agree, they are high,  but they deserve to be because of the value delivered.

Just talk about the value.

Talk persuasively about value, and price will become a result, not a driver of the decision.

The real challenge is to figure out how to do this in a situation where the other party has all the power.  A small supplier selling to one of the Australian supermarket gorillas has little leverage, the definitions of ‘Value’ will never be easily reconciled, so the hard choice is to walk away, and deliver value to  customers outside the supermarket system.

Header credit allanandallen.com

Keep looking for the ‘Big Idea’

Keep looking for the ‘Big Idea’

Oct 29, 2018 | Branding, Communication

 

Following on from my rant about content porn, it seems to me that the real problem has become the immediacy required by the digital age.

You need more stuff, on line, now!

At least, that is the demand, but more stuff is of no value unless it moves someone to an action.

Time is no longer allowed to curate and enable the creative process that can deliver what my old advertising colleagues used to call ‘The big idea’.

Now we just upload any old crap and move on, thinking we have done the job of producing ‘Content’.

So perhaps the problem is not having a framework for  the big idea to emerge?

This is despite the disciplines necessary for effective marketing I have spoken about previously. The persona of the ideal customer, and differentiation, as well as understanding from the  customers perspective what problem you are solving for them, and why they should pay you to solve it.

Setting out to enable the big idea to emerge without having gone through the pain of defining these boundary items first will be in most cases, a waste of time and effort. However, having defined them, there are some simple to say, but very hard to do, steps that you can take that may assist.

Attract  attention.

Unfortunately this is a chicken and egg proposition. To attract attention, you need an idea that resonates with your ideal customer, without which, you will not attract the attention. To resonate, it must solve a problem, often one they did not realise they had, or had just got used to having, so was not a constant itch. The creativity required to see the problem from the perspective of the customer, and frame it in such a way that motivates them to action, is the essence of the process, and is not something that happens quickly, or regularly.

The classic example is Apples ‘big idea’ for the original iPod: ‘A thousand songs in your pocket’

Hold attention.

To hold the attention once passed the huge hurdle of attracting it, the idea must be compelling. Most businesses compete in markets where there is little that is genuinely new, where you have some sort of defensible ‘uniqueness’. Patents are defensible, but the sad reality is that you need very deep pockets, and even then, they are increasingly just a road bump a competitor has to negotiate. Therefore, you need to create some sort of differentiation in the minds of the ideal customer that you can ‘own’. In their minds, it is what you become known for, and is sufficiently compelling that they reach for their wallet. The iPod line achieved this in spades.

If you were in the market for a hard floor covering, and you stumbled across this optical illusion from British tile maker Casa Ceramica, used as the header for this post, you would at least look at them closely.

Have a strategic roadmap

Every idea you generate should be a brick in the road towards your long term strategic goal. You cannot predict the future, but you can define where you want to be, then set out to go there. The route might change, not the goal. You will have challenges and obstacles to overcome on the way that were never envisioned at the outset, but keeping your eyes on the goal provides the framework against which you ask the question ‘Does this idea take a step forward in the journey?‘

This post evolved as a result of seeing the photo in the header on social media somewhere. If you happened to be in the UK midlands, and were thinking of replacing your floors with tiles, you would add this lot to the list to talk to. The aspiration of their website is: ‘We aim to inspire you and help you stand out. We aim to give you the aspirations you need, the innovation of our showroom and knowledge and the dedication you deserve.’  Their mission is all about leading the independent wall and floor tiling industry. This example of a piece of content moves them along towards that goal, and I would suggest, is a great example of the big idea in action.

 

 

 

 

6 confronting questions for every initiative to ensure success.

6 confronting questions for every initiative to ensure success.

Oct 26, 2018 | Management, Operations

 

Long term survival of every commercial enterprise is dependent on one thing, and one thing only: Consistently being able to make a profit sufficient to ensure that the owners are prepared to continue to have their capital in the business rather than moving it elsewhere.

This simple observation applies to the corner store as much as it does to the current incumbents of the Fortune 500.

No initiative developed for a commercial enterprise is worth the paper it is written on if it does not articulate how, in the long term, the businesses shareholders will  be better off as a result of the plan being successfully implemented.

This reality should inform the way every activity, from strategic planning down to minor improvement projects are developed.

Ask 6 simple, but often confronting  questions:

Will this initiative sell more?

This is not about price, it is simply about volume. If you can sell more at current prices while maintaining margins, you are in with a shot.

Is the sales mix maximised?

This question goes to the mix of products sold. Selling is a resource intensive activity, and managing your product portfolio for the best outcome from the resource investment made will deliver results. Every business I have ever seen has products that deliver a range of margins from differing customers and customer segments. It is often challenging to alter the mix of products, channels, and customers serviced, but only by doing so can the profitability be maximised over the long term.

Can you increase the price?

Warren Buffett, who knows a bit about long term profitability says, “The single most important decision in evaluating a business is pricing power. If you have the power to raise prices without losing business to a competitor, you have a very good business. If you have to have a prayer session before raising the price by 10% then you have a terrible business’. This is a piece of wisdom that will serve you well.

How can you reduce costs?

Almost every business I see these days is cost sensitive, but too often that sensitivity is disconnected to the productive outcome incurring the cost delivers. Any time there is an across the board cost reduction of a percentage mandated, it is a reason to run for  the hills, as it is a short term Band-Aid that bears no relationship to the returns. A thoughtful cost reduction regime will over time identify and eliminate the sources of waste in the business, activity that does not add to profit. In manufacturing businesses there is almost always excess inventory held, and rework that becomes necessary to fix a problem. Eliminating the causes of  both will reduce costs.

How can you increase productivity?

We all understand the notion of leverage, doing more with less. In a business when you figure out how to do more with the current investment, or alternatively reduce the investment while generating the same level of outcome, you have increased the productivity of  that investment. This is more than, but closely associated with the reduction of costs, but it looks at the outcome of a cost incurred, rather than the dollar amount of the cost itself.

How will that investment increase profit?

There are many tools accountants use to justify and choose between investments, IRR, ROI, being just two. However, they all rely on assumptions of future cash flow in some way. If you expand the thinking a bit, it often pays to invest in less obvious areas. A former client had great difficulty finding a specific set of skilled trades, and spent a fortune advertising and on labor hire firms with poor results. They invested in two areas to solve the problem:  They increased their salary rates way beyond the so called ‘market rate,’ and they invested in the skills their workforce had. The result was a significant reduction in staff turnover, with attendant cost savings and productivity increases. The investment over time was a very good one indeed, spending money to make money is not always obvious, but it does work.

The answers to  these questions are not often obvious. Finding answers you can bet on, which is what you are doing, requires deep consideration, experience, domain knowledge, and experimentation.

Header: The thinker. August Rodin