How ‘Systems Thinking’ should be applied to marketing and governance.

How ‘Systems Thinking’ should be applied to marketing and governance.

Jun 4, 2018 | Change, Governance, Marketing

We think about marketing reasonably often in business, not often enough, but reasonably often.

However, our thinking is usually muddled, and wrong.

Let me explain.

We think about marketing as if it was a discreet set of actions that can change the fortunes of a business.

The ‘marketing function’ sits alongside sales, production, finance, IT, and the other functional units in a business, that collectively build the success of the business.

Problem is we all see the whole as the sum of its parts, not as an interdependent and related system that is more than the sum of its parts.

Take an engine out of a car, and leave it on the ground. No matter how good the engine, it cannot move itself. It is utterly dependent on the interaction of the other parts of the car to be mobile.

Take the best bits of a range of cars, the BMW engine, Mercedes gearbox, Lotus suspension, Ferrari body shape, the best of the best, and put them together. Logically with all the best bits you will get a superior end result.

Rubbish.

The bits do not fit together in any coherent manner. Individually they may be the best of the best, but together they are little  more than a box of parts.

The whole system is what counts, designing the system from the outside in, not from the inside out.

For some years now I have been referring to the marketing and sales functions together as one function: ‘Revenue Generation’.

While this is better than  the artificial separation into sales and marketing, it is still way short of a system necessary to generate a profit, as that requires the processes that develop, produce and deliver the product to be a part of the system.

We all solve problems from within our own disciplines, that is the way we are trained. We are trained to see a situation from within the confines of the discipline, not from the outside from where we can touch, feel, and see the context.

Outsiders are always better able to see the size and shape of a building than those sitting inside it. Exactly the same as having a knowledgeable and constructively critical thought leader who sits outside your business, looking at the competitive, regulatory  and strategic context in which the business competes for a living.

This was supposed to be the function of a board, outside experts reflecting on the sum of the parts rather than the individual parts, developing strategy to build success for the long term, and seeking optimisation of the assets deployed. Often we seem to fail at that as well, as the outsiders get caught up in the complication and protection of the status quo, and their own position in it, forgetting why they are there in the first place. You only have to observe a little bit of the current Financial Services Royal Commission to see plenty of evidence of that.

 

Is the supermarket business model about to be retired?

Is the supermarket business model about to be retired?

May 30, 2018 | Governance, Leadership, Strategy

 

The face of the supermarket in the 2030’s is emerging, and I suspect it is not a face most of us will warm to immediately. The combination of artificial intelligence and the capacity to automate just about everything will render much of the current supermarket  business model  obsolete.

The model of Amazon Go and Chinese Hema supermarkets will apply particularly to convenience stores, in high traffic high rent areas, like the inner city and business centres. Our grocery shopping will be done on line by voice, and delivered by some amalgam of autonomous vehicle,  Amazon, Ocado, or delivery services like FedEx, Uber and others that will spring up, which will hook up with the owners of the automated Pick ‘n Pack warehouses.

Amazon Alexa and other technology deploying voice ordering ensures a limitation of options, to those that favour the seller. With voice, we get the convenience of ordering from the couch, but in exchange we give up the visual cues of a store where we usually have several options, with differing characteristics and price points, and the resulting capacity of marketers to hang their hats on a point of differentiation to a group of consumers, a niche in the market. Voice removes all that, and will offer you only the one or two that the seller recommends, but their recommendations will be based on their commercial objectives, revenue, margin, and stock rotation, not yours, which are likely to be entirely different.

The recently announced deal between Ocado and Kroger adds a whole new dimension. Ocado is the first entirely e-commerce grocery business that I am aware of, to have leveraged themselves into a controlling position, and it took a while. Like all on line supermarkets, it struggled with fresh produce, and the higher customer acquisition costs that  are the result of having no physical shops. Ocado launched in 2000, went public in 2010, but did not turn a profit until  2014, a modest 7 million quid on a turnover of a billion. The logic appears to be developing and licencing their technology, but little happened  beyond the deal with the John Lewis owned Waitrose until Amazon bought Whole Foods in August 2017, which jump-started a rush into the technology to automate order receipt, pick, pack, and delivery.  Suddenly everyone was chasing them, and in November 2017 a deal was struck with Casino in France, and talks with others advanced quickly, culminating with the Kroger deal.

Kroger is deeply threatened by the Whole foods purchase by Amazon, and while Wal-Mart dominates US grocery, Kroger is a strong second, but has not had a viable on line offering. The potential for Amazon to convert some or all of Whole Foods sites into local delivery warehouses seems pretty real to me, which would give the relatively low on line grocery share in the US (estimated at 1.5% Vs 7.5% in the UK) a real kick along, and potentially add Kroger to the conga line of US retailers heading for the liquidator.  From Ocado’s perspective, the deal offers access to the biggest grocery market in the world for their technology, and led to a share price jump that will be making patient investors reach for the bubbly.

If we think that here in Australia we are insulated from all this, we are in la la land. While the distances here add to the complication, it is a predictable number, and therefore manageable by algorithm. I predict that one or both of the gorillas will be on a plane to talk to Ocado very quickly, if they have not already, although Coles might be pre-occupied with moving out of home, and resetting up in their own digs. Wesfarmers have been badly burnt by the Bunnings foray into the UK, brought to an embarrassing end last week by the sale of the former Homebase business for 1 pound, and would I suspect be wary of supporting an investment of this type for a departing problem child. It might just be an ideal time for Woolies to get a jump on them?

4 questions to enable you to extract maximum leverage from your marketing investment

4 questions to enable you to extract maximum leverage from your marketing investment

May 28, 2018 | Marketing, Small business, Strategy

Imagine you are faced with the task of joining two pieces of wood.

What information are you likely to need before deciding how to go about the task?

How big and important are the pieces? Are they structural weight bearing? Is the joint going to be seen? And so on.

So: you have the information; you can then decide how you go about the joining.  Do you nail? Screw? Glue? Combine rebate glue and screw? Countersink the screw? And so on. You have many options, but without the contextual information, you cannot make an informed decision that will give you the best outcome.

Sometimes this is easy, instantaneous, other times it will require more time and research to get the right answer.

Figuring out your marketing programs is no different.

How are you going to allocate your limited resources across all the possibilities that face you?

Marketing has only one purpose, to generate revenue. Sometimes it is revenue today. Sometimes tomorrow, next month, next year, next decade. If you cannot see a connection between the marketing activity and future revenue, stop now!

 The challenge is to know enough to ask informed and intelligent questions, and be able to separate the bullshit from the good answers.

This ‘marketing game’ is full of sellers of new shiny toys that are ‘guaranteed’ to be the answer to all your commercial problems, delivering you rivers of cash.

In order to help you separate the bullshit from the reality, there are four tools you can use to do the separation, which will assist you too see the connections to revenue.

They all are interdependent, none by themselves is of great value, and together they are a powerful way of thinking about your business.

The 4 seem simple at first glance, but in reality very complex questions, that in combination will give you the beginnings of an answer. The rest will come with experience and domain knowledge.

  • What problem can I solve for a potential customer, or put another way, how do I add value?
  • Who is my ideal customer?
  • How do I apply maximum marketing leverage?
  • How do I make a profit?

 

When you have the answer to these four questions, you are ready to spend some money.

Not before.

However, once answered, it is never enough to stand still and think the answers tomorrow will be the same as today, and that the answer today is the ideal one. Business is iterative, you learn from doing, experimenting, doing it better next time. It is an evolutionary process, so long as you are careful not to bet the farm on a dud horse. These are all connected to each other, one without the other is of less value, and the impact of answering them all well is not just cumulative, it is compounding.

There is never one right answer, the interdependencies are huge, as are the options, it is all incremental, a process of improvement and no good answer remains the best one forever.

These four factors, and all the lesser things that hang off them, are compounding.

The twist is that they also compound in reverse, so you have to be prepared to try things, but get them off the table quickly when they do not work.

 

A little detail on the 4 questions.

What problem can I solve?

Unless you can solve a problem for someone why would they buy from you?

Albert Einstein, my senior marketing guru, said, amongst other things, “If I had an hour to solve a life defining problem, I would spend the first 50 minutes defining the problem, the rest is just maths’

So, do your research before you jump in.

The definition of how you solve the problem becomes your value proposition. In other words, how does what you do add value to the lives of those ideal customers?

If you cannot articulate that, you have nothing except price, and nobody wins a price war.

The solutions to problems come from being able to ask the right questions.

Seeing things others do not see, solving problems better than others, and sometimes seeing a potential problem before it is an acknowledged problem, highlighting it, and then solving it.

The classic case is the iPod. It was not the first MP3 player, and arguably it was not the best technically, but it did something no other mP3 player did. It put ‘1000 songs in your pocket’.  It articulated the problem that the product solved.

While others all talked about their technical superiority, the stuff the geeks thought was important, Apple just told us what consumer problem they solved.

Who is my ideal customer?

Who is your ideal customer, the one who will not haggle the price, who loves the product you sell, and proselytises for you? Knowing that person in great detail would be marketing and commercial gold.

Like all gold, it is hard to find, subject to all sorts of distractions and false starts, but immensely valuable when discovered, and discovery is usually incremental, rather than a ‘eureka’ moment. This means it is also a demanding challenge.

What is often also forgotten in the effort to define that ideal customer is that every customer also has an ideal supplier, one who meets all their needs, delivering value in excess of the cost to them. It is a two way street, and a relationship only prospers where there is value being delivered to both parties.

Defining your ideal customer is an iterative process, deceptively demanding, as it requires choices about who is not an ideal customer, and therefore excluded from primary consideration. Choices like this are challenging, but necessary, particularly for small and medium businesses which do not have the luxury of a big pot of marketing money, you have to get it right or waste limited resources.

Following is a list of 6 parameters you can use. Not all will be equally applicable in every situation, but it will pay to give each deep consideration.

Who: Is the demographics they may exhibit. Where they live, age, gender, education, job, and all the other quantitative characteristics that are available. These parameters are pretty much all that was easily available in any detail until digital tools came along.

What: are their behaviours. Do they go to the opera or rock concerts, perhaps both, do  they travel overseas for holidays, what sort of causes, if any, do they support, are they likely to demonstrate their beliefs publicly, or are they just internal. All the sorts of things that offer a picture of how they think, feel, and behave in all sorts of situations.

Where: will you find them digitally, as well as in the analogue (perhaps real) world, and what means can you use to make a connection. Are they likely to be avid users of Facebook, LinkedIn or other social platforms, are they comfortable buying on line, do they ‘showroom’ digitally then visit the physical retailer, do they get their news from Facebook and Reddit, or more focused news sites, or even, surprise, surprise, newspapers, radio and magazines.

When: will they be ready to buy? Customers are rarely ready to buy when you are ready to sell. Understanding the customer buying cycles, particularly in B2B and a larger purchase is critical.

Why: should they respond to your entreaties, to do whatever it is you are asking of them. What is your value proposition to them? What promise of a new and better tomorrow can you deliver? What can you deliver that is different and more valuable to them than any alternative? If you cannot answer these questions, it will come down to price, and winning a price war is a great way to go broke.

How: will you service the transaction, and the subsequent relationship that may emerge? This is usually down to questions about your business model and the ‘fit’ that has with the customer.

 

How do I make a profit?

Just as a successful young single male professional might opt for a red sports car, when 10 years later, with a family, kids, soccer practise, he might opt for a brick on wheels, you can have different business models to suit different circumstances and conditions.

Most small and medium businesses with which I have been associated give little if any thought to the business model, but it is of critical importance.

Are you retail, wholesale, franchised, subscription, digital, or some combination? All are different, working in differing ways, to allocate and absorb the costs and benefits that accrue. Being very clear about your business model, and being able to anticipate if a potential customer will fit is in some circumstances, a vital component of making a profit.

 

How and where do I apply Maximum Marketing Leverage?

Identifying the point at which you can apply Maximum Marketing Leverage (MML), or in other words, get the most productivity from your marketing investment is the point at which the previous three questions intersect.

Answering the three questions well requires a combination of introspection on your business, in combination with exospection, the examination of your business from an external perspective. The point where these two perspectives intersect is the best spot to apply marketing leverage.

Most will be familiar with the SWOT model of business analysis; this is one of many, and perhaps simplest of the many ‘Mental Models’ you can use to do the examination.  Porters 5 forces, Balanced Scorecard, BC matrix, Business Model Canvas, and many others are alternatives. All have their pros and cons, but the key point is that you give due consideration to them, as they will identify and clarify your point of MML.

The ‘maths’

All that has gone before, in Albert’s language, is the definition of the problem. Now we get to the maths, the way in which you apply the leverage.

Most small businesses rush straight to the tools of leverage without due consideration of the nature of the problem they want the tools to solve. However, once defined, pick a tool, or most often a combination of tools that best fits your point of leverage and apply them, recognising that there is no formula to give you thee exactly right answer, so you need to experiment  to find the best outcomes. The process of experimenting, will also give greater clarity to the 4 questions, which will in turn clarify the point of MML.

The choices you face are multitudinous.

Digital, analogue, which social platform, how much should be spent on Adwords, does Facebook work, how to use the automation tools available, what about email, letterbox drops, and so on, and on, and on. 20 years ago, life was much simpler, there were few choices, but there was also very few of the tools available that enabled the identification of the point of MML, so experimenting was far more costly and risky than it is now, to  the point where small businesses had very few options. Now you have plenty, the challenge is to use them in the best possible manner.

However, there are three things you should always remember, and apply.

  • Customers and potential customers move through a decision making process every time before they put their hands in their pockets. Sometimes this is almost instantaneous, as it would be in a supermarket doing the weekly shop, much of it is on ‘auto-pilot’. By contrast when buying a new car, house, or even considering a restaurant, the decision is usually much more considered, research is done, options considered, a short list compiled before a decision is make. This process happens in many ways, and can be influenced by the marketer using different tools, and combinations of tools at different times in the process.
  • The tools themselves are only as good as the message that is delivered. Whether you are writing an ad for the local newspaper or sending a series of emails to your prospect list, you need to be able to write and design a piece of communication that will engage the reader, give them the information they are looking for at that specific time, and lead them to the next point in the purchase process. In other words, in the vernacular, you need to be able to produce a variety of ‘content’
  • The one tool that should be in every toolbox is your own website. This is your digital home, the spot you own, from which you can communicate with your ideal customer under your terms. The trick of course is to have a website that accurately reflects the answers to the four questions and directs the tools to the point of MML. Most SME’s recognise the need for a website, and either lack the skills to do it themselves, or get a contractor to do it, usually without reference to the 4 questions. Then you end up with a nice looking but not revenue effective website. It is a vital but challenging tool to get right.

A few final but general points about running a successful SME, that are nevertheless vital but rarely  get enough attention.

  • Referrals are the best and cheapest form of marketing; it just takes time and effort to get to the point where current customers will refer you to others. Get this right, and many of your marketing problems will be solved, so it makes sense to have a formal referral process in place.
  • You must understand your ‘numbers’. The accounts, Cash flow forecasts, revenue, cost and customer analysis and forecasts. The Pareto principal, well known as the 80/20 rule applies in every circumstance. Sometimes it is 90/10, rarely is it 70/30.
  • Marketing cannot be left to the last minute, it is absolutely essential you identify your MML before you start spending your limited resources.
  • Social media is not free, despite the rumours, it costs not only in time and effort, as well as design costs to be effective, the quid pro quo is that you give over a heap of personal information that the social platforms then use to market to advertisers. There are no silver bullets in the quest for success.

 

 

 

 

 

Who will pay for tomorrow’s hospitals?

Who will pay for tomorrow’s hospitals?

May 23, 2018 | Governance, Leadership, rant

I did not watch the royal wedding. That does not mean I am a republican, or anti-monarchist, it simply means I am not interested.

If they want to get married, let them get on with it, they do not need the approval of the masses. After all, they are both adults, both famous for being famous, and one has already been there and done that!

I am also not interested in going to church. That does not mean I have no moral compass, or personal code that has as a base what could loosely be termed the 10 commandments. They make sense irrespective of your brand of faith.

What I am interested in is the replacement of important questions and issues, such as how we live together, how we treat others, and who pays the piper, by this wild and to my mind absurd, emotional response to two thirty somethings getting married.

It seems to me that the things that got us were we are, no longer hold any sway.

We have a tax system that is broken, at a time when we voters appear to be demanding more and more. Those with the power, which really means those few individuals running multinational corporations, hold the power to, and are personally paid to ensure the institutions they run pay as little tax as possible, and they have the resources to find the cracks in the system through which they can wriggle.

Amazon is a prime example, along with their digital multinational friends. They are disrupting retail, and a host of other domains, while investing heavily in new services in the cloud. Great you say, they deserve to be successful, and they do, but Amazon is doing it by more than just being the smartest in the room, they are being subsidised by their competitors.

Amazon trades at what  is effectively break even, yet it will probably  become the most valuable company in the world very soon. It has grown by reinvesting their profits into becoming bigger and more powerful across their areas of operation, and as investment is a tax deduction, they pay no tax.

Their competitors do pay tax, they are largely those who were around before Amazon emerged, but will not be around much longer to pay for the schools and hospitals we all want.

Who will pay for them then?

Not Amazon or Apple, or Google, or Netflix, they are reinvesting in growth at the expense of their competitors, and in the process denying our kids a place to go to school.

Amazon has flipped the system.

Listed companies are usually judged by their profitability, usually on an absurdly short term basis.  Companies sweat the books and beat up their staff to deliver on optimistic forecasts of quarterly profitability. By contrast, Jeff Bezos makes no or negligible profits and has made vision and the long term the source of share value.

Amazing!

Any business that pays more tax than it is legally required to do is not acting in the best interests of shareholders, or so the mantra goes, as was so dramatically stated by the late Kerry Packer in 1991. Therefore  in this day of internationalised supply chains, and low tax regimes in fly blown little islands scattered around the place, they register as businesses, and engage in legal but morally bankrupt practises.

In Australia we have in addition the sight of personal greed, cronyism, and utter lack of personal and corporate integrity being brought into the light by Royal Commissioner Hayne and colleagues. I am sure that this level of malfeasance exists elsewhere, most probably in greater volumes, but that does not make the sight any more palatable. Most probably nobody will go to gaol, a few will be banned from being directors for a while, and there will be mutterings of regret forgotten almost before the words are out. Then we have the competing pollies promising handouts of money we do not have, a bill our kids will have to pay in one way or another.

Who will pick up the real bill for tomorrows hospitals?

 

 

 

 

 

How much do I need to spend on marketing my new business?

How much do I need to spend on marketing my new business?

May 22, 2018 | Branding, Marketing, Small business

This ‘How much’ question was posed to me recently in a networking group by a young professional who had just left the comfort of a large corporate firm to strike out on her own with a business partner. My answer: ‘Depends’. There is never a right answer to  this question, every situation is different, but there are a few foundation things that should be considered, and they all involve some sort of trade-off.

Time.

Time is our only truly non-renewable resource, so it makes sense to use it as productively as possible, depending on your definition of productive. For this new firm, while they have clients, they also have more time than they had working as corporate ‘slaves’ in a bigger firm, so they can choose to use it for marketing, developing their professional competence, which is after all an investment in their future, or they may even go to the pub. Early on it makes sense to invest some of the excess time in building their marketing and sales processes so that they can ‘feed’  the pipeline of potential clients.

Money.

Nobody, no matter how big, has sufficient money in the marketing budget to do all they would like. Therefore it is a matter of priorities and choices. Never easy. It is also true that the way you see marketing makes a potentially huge difference. Seen as nothing more than a necessary expense, it is just a chunk of money going out the door. Seen as an investment, marketing becomes something different, by definition. While it costs money now, it is an investment in future prosperity. By gaining clients that will continue to deliver revenue over a longer period, without having to spend on getting them through the door again in the first place, the initial investment will deliver great returns. My answer is also always tied up  in the need to use available money as productively as possible, which means that before you spend a zac on the communication end of the marketing spectrum, make sure you have the definition of  the ideal customer and your value proposition in place, so you can accurately target both the potential clients and your messages.

Expertise.

Expertise you can buy in, but it is dangerous to buy in expertise in a situation where you do  not know enough to adequately make the choice between alternatives.  This applies  perhaps more than anything else the strategic/marketing end of  the service continuum, simply because there is rarely one right answer, and  there are no external professional standards to be met. This means that a  marketing professional may just be highly professional about marketing their  business, but hopeless at marketing yours. If you buy in expertise before you know what expertise you really need, you risk getting a plumber when you need a carpenter. Alternatively, you can buy in the expertise to assist define just what it is you do need before you make the investment in marketing activity. The instinct these days is to talk to a so called ‘digital marketer’ whose business it is to sell you digital marketing services, whether or not that is the best use for your money. It pays to be sure, do some serious introspection before you jump. This is not usually an instinctive thing for most, in this case they are lawyers, not marketers, and marketing remains a ‘dark art’ outside their experience and expertise. Marketing has to be at the front of your mind, not just during the start-up phase, but for ever more. While the specific activity that drives client engagement can be turned up or down according to the capacity available to service the business, marketing is a key part of the DNA of every successful business.

Create processes.

Everything in business is a part of a process, no matter how big or small it may be. Therefore the things that are repetitive should be ‘routinised’ as much as possible so they happen with minimum resources, and optimum performance. In other words, they are a productive use of the time and money allocated. Just as providing a professional service requires a process to be followed, so it is with marketing activity. You can automate just about everything these days, which is where a mistake is often made, as automating a rubbish process just leaves you with automated rubbish. There is  no substitute for mapping out what you want to achieve, and the best way to achieve it, piloting and refining, before you automate. Remember also  that automation by definition, removes the ability to be agile in the face of something not considered in the automation phase.

Prioritise ruthlessly.

We only have so much capacity, spreading it thinly just ensures nothing gets done properly. Far better to do less things, well. Therefore, I absolutely subscribe to, and work with clients to prioritise their investment of time money and expertise. You can do this in any number of ways, two of which I like and use. The first is the well known urgent/not important matrix,

 

 

 

 

 

The second is an aggressively culled priority list. Record the top 20 priorities you have in front of you. Prioritise 1 to 20. Draw a line under number 4, or 5, and discard the rest into a ‘carpark’ of some sort, not to be considered at the moment, but too be kept aside, as being in your top 20, there is some importance to be attributed. Ensure that as a part of  the process you have performance measures built in so that you know which parts of your marketing are working, in which case you double down, and which are not in which case you stop, and either save the investment or use it in the doubling down.

Finally.

Find activities you are happy to do, that you can feel proud of, and do  them. You are in business for yourself, being happy is often hard as the pressures can be substantial, so make the effort to find the elements  of the wider role you have taken on, and do those that you enjoy, are good at, and which add value to your business, and outsource the rest, having done sufficient research to ask good questions of potential suppliers.