Oct 19, 2020 | Analytics, Marketing
How do you identify those who might emerge as competitors?
Might as well ask what the weather will be like next week, or next year. Just looking out the window will not help much, as things tend to change pretty quickly.
So it is with identifying potential competitors and the new value propositions they offer. However, like forecasting the weather, there are indicators, models that can be applied that will at least throw some light on the question.
It seems to me that there are three perspectives to this question, best described by the usual ‘think outside the box’ metaphor.
- Competitors from inside the current box
- Competitors from outside the current box
- Competitors from outside the postcode.
Leaving aside the great benefit of hindsight, it is generally pretty easy to see potential competitors from inside your current box. You are already rubbing up against them in some way, technically, geographically; you might have common customers for products with slightly different characteristics or value propositions. There is always the possibility for someone in an adjacent market expanding their control of the supply chain vertically, which will bring them into competition with you. Now, there are many digital tools that will assist the process from google key word searches, to explicitly looking at where similar offerings are emerging via social media. In addition, these often obvious emerging competitors are usually the ones your sales force are always on about, as they are the dog that got their homework, often by making cut price offerings of stripped down products to your customers.
Identifying potential competitors from outside the box is a bit harder. it is also increasingly important, as the barriers to entry to many industries have been blown away.
To do this well requires focussed critical thinking, and understanding of the drivers of purchase by your customers, the evolution of those purchase drivers, and the current sources of purchase friction encountered by customers. This takes some commitment to longer term strategic thinking.
Identifying those potential competitors from outside the postcode in a disciplined manner is extraordinarily hard, and beyond the resources of any SME I have ever seen. It not only requires the sort of time for deep thinking and scenario analysis available only to large organisations, it requires a very ‘absorbent’ innovation culture, one that accepts the inevitability of major disruption, and explicitly goes about discovering what those sources of disruption might be, and then disrupting themselves.
This sort of out of the postcode thinking opens up your mind to potential competitors. It also opens your mind to potential sources of future growth for yourself. As a result, having as a part of your strategic thinking and review process an explicit and disciplined ideation process should be a part of every strategic exercise and review.
These three perspectives all have in common the requirement that any enterprise, to be successful competitively over the long term, needs to ‘understand itself’ and be very sensitive to changes in their operating and competitive environment. Then, they have to be able to respond, which is often the hardest bit because it demands change. In the case of out of the postcode opportunities, radical change, and a high level of risk tolerance are required. As Sun Tzu is recorded as having said ‘know others and know thyself, and you will not be endangered by innumerable battles”.
The header illustration comes form the extensive StrategyAudit toolbox.
Oct 12, 2020 | Analytics, Marketing
It is easy to define the value of a piece of machinery. It is the revenue generated by the machine, divided by the costs to generate that revenue.
Accounting with the benefit of hindsight is easy. It is not so easy when forecasting what the future value may be. Forecasting when the impact of the many relevant variables can only be estimated is an exercise in fortune telling. Quantifying these relative unknowns to allocate a numerical ‘value’ becomes a task with several parts.
- Defining the factors that may impact the calculation
- Allocating a relative weight to all the identified factors
- Determining the ‘base’ figure from which to build the numbers that enable a calculation.
- Repeating the above process for all the costs involved.
The calculation is then easier:
Value = weighted benefit 1 x weighted benefit 2 x weighted benefit 3: divided by:
weighted cost 1 x weighted cost 2 x weighted cost 3.
It becomes way harder when setting out to value an intangible asset, such as the value of a brand. For example, a pair of sunglasses purchased in a general retailer for a fraction of the price of an almost identical pair, apart from a brand, sold through a specialist optical retailer. Too many, the more expensive branded glasses represent value for a range of emotional reasons, to others, they would be a rip-off.
At some point early on, and subjected to continuing evolution based on experience and research, you need to be able to identify the factors that add value to a target customer, and their relative contribution to the end result.
Always, the complicating factor is context.
I need a new computer, this one is getting a bit old, and while it still does the job well, at some point, something will reach the end of its life, and ‘poof’, gone. At that point the context changes, as does the value equation.
What was something needed but not urgent, that had a calculable value, suddenly becomes a whole new game, as I need the new computer: Now!
A whole different value equation!
The variables may be the same, but the relative weights have changed dramatically, determined by context.
Sep 30, 2020 | Branding, Marketing
Any marketing activity falls somewhere on a continuum between tactical and strategic.
Most are trying to generate activity and profit today, as well as investing in your brand for the long term.
Getting the balance wrong is delivering your brand to the slaughterhouse.
The competitive world we live in now puts increasing pressure on tactical activity, at the expense of strategic. No marketing budget is infinite, therefore choices are made, every day between the tactical and strategic.
As the pressure has increased over the 45 years I have been doing this, I observe the move towards tactical, reflected in almost every product category I can think of. Once you get addicted to the tactical, it is like crack cocaine, very hard to break away.
You learn that throwing money at the problem solves it, for now, so when it comes around again, you repeat the action. It worked last time, and the long term is somebody else’s problem.
As a young marketer in FMCG, the ‘Friday afternoon call’ was a constant threat. A buyer from one of the supermarket gorillas who needed to put some cash into their co-op advertising pool for the week would phone. They would open the conversation by saying the sales manager was out, and he had a problem only I could solve by committing to a promotion of some sort that involved a Co-Op advertising payment. To decline, it was made clear, threatened the distribution of the brand concerned in his chain, and he was sure the Sales manager would not thank me for that. By the way, it was 4.45 pm, and the ‘opportunity’ closed in 5 minutes, so he needed an immediate answer.
The ultimate in tactical activity.
There was not an outcome of any value to the business I worked for from accepting this blackmail, just a downside to be avoided. We might have delivered a few extra pallets of product, but the net price we could invoice was often below anything that was sensible. Also, it consumed resources that had been earmarked for activity that would build brand equity for the long term.
Meadow Lea margarine in the late 70’s had four times the market share of its nearest competitor, in a booming and crowded margarine market. This share was based not just on a very good product, coupled with aggressive and smart sales management, but on consistent, and brilliant brand building activity over a sustained period. A decade later, after the business had been acquired by people who did not understand the dynamics of a brand, Meadow Lea had crawled back to the pack. The total size of the market had also shrunk.
The reason was the move from strategic investment in the brand to tactical activity to keep retail buyers happy.
Digital has injected steroids into this tactical explosion.
Marketers, so called only because that is what is on the door of their office, take the easy way out, and go tactical at the expense of strategic.
Don’t get me wrong, tactical impact is very important, but in isolation from the considerations of the strategic, it is brand suicide. There must be a balance between the activity necessary for today, and the activity now necessary to ensure the long term health of the brand, and in turn, its ability to deliver commercial sustainability.
Want the immediate hit? Spend all your resources on tactical activity.
Want to live a long and profitable life? Make sure you leave some for later.
Sep 21, 2020 | Leadership, Marketing
Warren Buffets side-kick Charlie Munger repeats a story in his 2007 USC Law School commencement address which he tells often. The key part is from minute 28, that I think absolutely applies to the practice of marketing.
“I frequently tell the apocryphal story about how Max Planck, after he won the Nobel Prize, went around Germany giving the same standard lecture on the new quantum mechanics.
Over time, his chauffeur memorized the lecture and said, “Would you mind, Professor Planck, because it’s so boring to stay in our routine. [What if] I gave the lecture in Munich and you just sat in front wearing my chauffeur’s hat?” Planck said, “Why not?” And the chauffeur got up and gave this long lecture on quantum mechanics. After which a physics professor stood up and asked a perfectly ghastly question.
The Planck stand-in speaker said, “Well I’m surprised that in an advanced city like Munich I get such an elementary question. I’m going to ask my chauffeur to reply.”
The point is that knowing the name of something, does not mean you understand it.
As it is with the practice of marketing.
Many out there know the names, the jargon and new age tools with fancy labels. Unfortunately, that is not enough to be truly useful. You have to know how they work, how they interact with each other, and ultimately, how their use adds value to those with whom you are engaging.
Real knowledge and wisdom comes with doing the work, earning the right to make the claim of expertise over time gathering the experience necessary for insight.
The brother of this dictum is simplicity. Those who really understand how something works are able to go to the heart of it, and explain it in simple terms such that a non expert will understand. To quote, again, Einstein: ‘Everything should be made as simple as possible, no simpler”
Albert was not the best mathematician around, he could not even get a job teaching at undergraduate level in a university. His enormous ability was imagination, and the capacity to explain hugely complex ideas in simple terms. He could sort out the important from the unimportant, determining what was necessary to an outcome, and what was superfluous, and come up with what he called ‘mental models’ that demonstrated the explanation in simple terms to others. The mathematics was a secondary skill to the creative insights that led to the need to develop the mathematics that explained it.
Again, as it is with marketing.
Header cartoon courtesy Tom Gauld at TomGauld.com
Sep 7, 2020 | Analytics, Management, Marketing
As a marketer, I want data to better understand the risks and impact of investments in marketing. I am a true believer in data, which also means that the limitations of data are factored into my thinking.
The nonsense pushed around for decades that by default, human beings respond to stimuli in a binary way is increasingly being recognised for the bunkum it is. Marketing effectiveness is not as easily subject to risk analysis and probability based reasoning as most, including myself, would like to be the case.
Data that represents what has happened in the past might be objectively true, but as we see every day, can easily be interpreted and presented differently to deliver the message the carrier wants to be heard.
If we can do it with real data collected from past activities, imagine the vagaries that can be built into the data that is supposed to be telling us what will happen!
The selling point of all the digital data around is that it is both accurate and actionable. Tactically this is partly true, strategically it ranks with the fortune teller in the local fete as a base from which to make long term choices.
The two fundamental drivers of calculating an objective assessment of the impact of a marketing investment are:
Attribution.
Attribution is a particularly difficult and often overlooked problem. Is that purchase because of the anonymous display ads on Google, the annoying branded email that follows you around for weeks after a casual search, the fact that the truck that went past your door delivering was clean, the TV advertising, or that the packaging looked good on a supermarket shelf? All these factors play a role in creating a successful marketing investment, but how do you sort out the relative weights of the impact with one dimensional data?
The unpredictability of human behaviour.
Then you have the fact that people simply do not act rationally, or always in their own best interests, the two foundations of econometrics. They act on a range of impulses and learned behaviours that have little to do with rational economics, and everything to do with psychology. We are only just beginning to understand the impact of psychology on an individuals decision making.
Between them, these two factors make assessment of marketing effectiveness an elusive target. It is best served with the combination of data, and intelligent hindsight, mixed with a high degree of qualitative sensitivity to the drivers in the market, and instinct. These characteristics are only gathered with deep experience, years down in the marketing weeds, learning by doing. It does not come from a textbook, online course, or a few years following instructions.
Sep 2, 2020 | Governance, Marketing, Small business
How do you execute on that BEHAG?
How do you fulfil the vision?
How do you accomplish the mission?
These are all questions I get from time to time from people stumped at the point where the dream, whatever label you choose to put on it, has to be turned into some sort of activity.
A dream in the absence of the steps to achieve that dream is commonly called a fantasy.
The process that I help people through is what I call ‘Hindsight Planning’
It has four distinct steps.
Step 1. Understand the market dynamics.
There is no avoiding the necessity to understand the drivers in the markets you are seeking to leverage. The technologies, barriers to entry and exit, capital requirements, regulatory requirements, major competitive factors, and a host of others all play a role. In the absence of at least having some idea of the ‘Current state’ of the market, you risk that plan being just a shattered dream. Unless you understand what it is you want to change in order to grow, and what the probable drivers of that growth will be, it will remain a fantasy.
Step 2. Agree on the shape of the business down the track.
Planning horizons change from market to market. Technology markets are changing almost as we speak, some others have very long lead times, although it is often these that are disrupted by newcomers who throw the long held beliefs that have driven the market over the wall and change everything. Nevertheless, difficult choices need to be made. What you will do and how, but often more importantly, what you will not do and why.
Step 3. Plan backwards.
Having agreed the shape and size of the business in 1, 3, or 5 years, whatever horizon you have agreed on, the task now is to ‘put yourself there’. Imagine the outcome has been achieved, and then articulate the steps you have taken in that journey. This might seem just to be an exercise in words, and to some extent that is true, but importantly, it is also an exercise in perspective. Working backwards enables you to test ideas, assumptions and choices, against an outcome you have agreed has already occurred, albeit in your collective minds. In that way, a ‘reality filter’ of sorts has been applied.
Some of the obvious questions that need to be answered may be:
- Where did the revenue come from? Growth is not possible in the absence of revenue, so list the sources on a whiteboard. Current customers, new customers, channels, business models, products, technical achievements, geographies, and so on. However, do not just list them, articulate in some detail how it has happened. Again, that past perspective adds real ‘grunt’ to the conversations.
- Where did the capital come from? Growth is a veracious consumer of resources, particularly capital. How did you fund that growth? Reinvestment of retained earnings, capital raising from friends and family, or from the markets, public and private, debt finance considering the necessity for assets as collateral?
- What is the dominant business model? Are you a middleman, retailer, on line item sales, subscription sales, did you achieve a position to monetise arbitrage opportunities, and so on. Digital has delivered a host of new and emerging business models to us over the last decade, but one thing that has become clear, if it was not already, is that differing business models do not live comfortably in the same house. Therefore, if your revenue streams come from different business models, the structure of your resulting business needs to be decentralised by those differing business models.
- What is the ideal corporate structure? Have you remained private, are you publicly owned, a partnership, Joint venture, franchise system? There are many options, and as in the previous question, potential siblings rarely successfully live in the same house.
- What capabilities were required to succeed? This is a question in two parts. Firstly, what capabilities were required from individuals, technical, strategic, financial, and all the other factors that make human beings able to contribute? Secondly, what were the organisational, leadership and cultural factors that enabled the organization to leverage the capabilities the individuals brought in each morning as they turned up to work.
Step 4. Execution of the plan
As noted, a plan of any sort remains a fantasy in the absence of the means to execute, and deliver on the plan.
Executing on a plan to achieve an objective has a few wrinkles that must be accommodated:
- ‘No plan’, as George Patton said, ‘survives first contact with the enemy. This means that the plan must be sufficiently agile to accommodate the unexpected, while remaining focussed on the objective.
- All stakeholders, and most particularly those who are employed, must not only know the plan, but they must understand and ‘buy into’ the objective, while reacting tactically to the unplanned things that confront them. The means to achieve these usually mutually exclusive outcomes, is that they not only understand their role, and the part their role plays in the larger objective, but they must also be prepared to be more than just an unthinking functionary, doing as they are told, or at least as they understand they are being told. It is a process of critical thinking and feedback going up, down, and very importantly, across the management chain. Not an easy thing to achieve and one we normally just attribute to some natural ‘leader’ who emerges. However, everyone has the capacity to be a leader, simply by being a participant in the process and holding themselves accountable for the actions of others.
- Operationally deploying ‘Nested’ functional plans. Like the operations of a mechanical watch, to tell accurate time, each part of the mechanism must contribute in a defined way to every other part of the mechanism, while not being overtly connected. There are always a range of flywheels driving others of varying sizes that are doing different roles, that all add up to that accurate time. An organisation is just the same, and this diversity of role, timing, and relationships to other flywheels must all be kept in synch if the outcome is to be achieved. No easy task, which is why it so often fails. Successfully driving towards an objective, means that the various parts of the mechanism of the organisation must work be synchronised in ways that are able to accommodate the tactical opportunities and reverses that inevitably occur while not losing sight of the objective. This all requires what I call ‘operational nesting’
When you need an expert to help you think about these things, let me know.
