Oct 13, 2015 | Customers, Marketing, retail, Sales, Small business
Innovation in supermarkets
Small business suppliers to supermarket chains are substantially compromised by the lack of resources to innovate.
Peter Drucker stated 50 years ago that innovation is the only really sustainable competitive advantage, and the passage of events have proved him correct.
Commercial survival requires that you are able to continually innovate, or you rapidly find yourself left behind, simply because everybody else is.
Knowing this does not however, make the challenge any less daunting, especially in an environment like FMCG where the retail gorillas stamp on variation as a source of transaction costs, and are actively seeking to reduce SKU numbers by pushing housebrands.
Lets define what we mean by innovation for the purposes of this post.
It does not include business model and process innovation. Both are terrific ways towards commercial sustainability, are paths every business must follow, but have little to do with innovation from the customer perspective, at least in the short to medium term.
By contrast, product innovation is concerned with new stuff that adds value to consumers.
Pretty simple definition, that precludes line extensions, which are just a fact of life, and product changes, which are again a fact of life. We are seeking to talk about the things that really make a difference, and how and why that happens.
Following are some thoughts on the nature of the strategic environment we find ourselves competing.
Innovation Paradox. Big businesses get big by being able to reproduce things without variation, their processes ensure consistency, and reject the outliers. This goes as much for people as it does products, so generally large businesses have more difficulty seeing and acting on something new than small ones. There are obvious exceptions, and large businesses everywhere are seeking ways to overcome the innovative inconvenience of their scale, with greatly differing levels of success. Nevertheless, the generality holds, but the small business end of the FMCG supply chain has been decimated, perhaps almost eradicated by the scale of the supermarkets and the power of their business model. Where is the innovation going to come from I wonder.
Risk. The risk profile of every business is different, but as a generality small businesses have a greater capacity to take risky decisions, but a less capacity to absorb them when they go pear-shaped. Large businesses survive on consistency as noted, and success for individuals in a large business is usually counted by their successes, failures are frowned upon, so the tendency to take risks is reduced, hence, their inability to innovate. Again there are notable exceptions, but they always occur when there is a leader who mandates and lives risk tolerance.
Wide view. Any organisation, no matter how big, only has a small proportion of the people thinking about the categories they compete in, so why do you think you will come up with the great ideas? Those using what I have always called “Environmental Research” always do better. This has nothing to do with hugging trees, and everything to do with understanding the context in which the behaviour of your consumers happens. When you understand the context, and see shifts, the opportunities suddenly become more easily identified.
Habit. Consumers are driven by their own habits, and once formed, it takes a lot of effort to break them. Habits work because they make our lives easier, and we are loathe to risk what we know works, for that for which there may be a question.
Boundaries. Innovation efforts need boundaries, or they tend to wander off into irrelevancy. I have found it far better to provide those boundaries in the pre-workshop, if that is what you are doing, material. It is necessary to encourage people to as the cliché goes, “think outside the box” but it is counter productive to have people thinking outside the municipality. Far better to ground the process in a context that is familiar, where there is market and customer knowledge available to feed the process. Without such grounding you tend to get uncertainty and irrelevancy, and ideas and conversation that skates across the surface rather than digging deep to where the problems and opportunities that provide the fodder of successful innovation are buried. I love the metaphor of Classical music and Jazz in the context of innovation, the score provides the boundaries. To be a good classical music player, you need to be a master of your instrument, and be able to reproduce note perfectly what the composer has written, the allowable variation is very small, the emphasis is on technique. Jazz by contrast requires that you are a master of the instrument, as well as the music to the extent that you can take what a composer has written and innovate around the base rhythm and melody, so you need to be not just a master technician, but a master of the music. Great innovation in a commercial environment has exactly the same characteristics.
Think different. The great 1997 Apple advertisement said it all, but how many corporate entities will tolerate the crazy ones? Very few. If you are to truly be an innovator, somehow you have to accommodate some crazy ones. Generally they are tough going, irreverent, unconcerned with status and the status quo, constantly irritating the nice smooth flow of processes that deliver the consistency that corporates thrive on.
Problem definition. Innovation occurs when a problem is solved. Often it is an old problem solved in a new way, sometimes it is a problem unrecognised until the solution comes along, the classic example being the post-it-note. A huge part of the challenge of innovation is the identification of the problem. Rarely does a problem emerge with a fully-fledged solution, but as Einstein, in my view one of the greatest marketing thinkers who never receives any credit at all once said, “if I had an hour to solve a live changing problem, I would spend the first 55 minutes defining the problem, the rest is just maths.”
Margin maintenance. This is tangled up with risk profile, but is separate. Over the years I have done many proposals for new products killed at the gate by the margin problem. “If we launch this, it will erode our margins” often true, but the standard response I give is “better us than someone else”, but it is often a futile response when the ultimate decision maker is compensated by short term considerations. After all, Kodak managed to survive for 40 years after they invented the digital camera in1975, several generations of CEO had passed through in that time, all taking their packet, it was just the last in the line who had a problem.
Value not just price. Consumers look for “value”, but way too often that is translated by suppliers and the retailer into “price”. Price is just one way of reflecting value, but it is the most obvious, and easiest to articulate.
Barriers. Every industry has its own set of barriers to innovation in addition to the more general ones above. In the case of the Australian packaged goods industry, they are several, all associated with the concentration of power in the retail trade.
Margin squeeze
Speed of house brand copying the successful products
Timing of distribution and advertising
On shelf management of facings, cut in, position, promotional programs and stock weight
13 week “live or die” time
On shelf upfront costs
Category management if you are not the category captain, and few small businesses are, you are at a significant disadvantage
Risk averse retailers
Habit. Everyone is used to doing business in a certain way, so that is the way it is done.
Opportunities for suppliers.
Similarly to barriers, every industry has its own unique set of opportunities that when seen are open for businesses to chase.
Social media. FMCG suppliers have not yet solved the problems of how to best use social media to market their process in supermarkets.
Mobility. Engagement with the web and its tools is now mobile, a majority of net interactions are mobile, and most people have their smart phones with them all the time. Using this capability and the geo-location capability to foster a direct relationship between the brand owner and the consumer with the supermarket playing the distributor role is a real opportunity currently under-recognised and utilised.
Food service and ingredient. These are fragmented markets, where innovation, service and brand can still play a real role, and getting a return on your investment is still up to the quality of your business, not the whim of a buyer in a gorilla suit. Depending on whose numbers you use, sales outside the major chains of ingredient and to food service outlets from fine dining to fast food, is north of 60 $billion.
Digital coupons. Retailers in Australia have ensured that the redeemable coupon, so prevalent in the US does not get a start here, too much transaction cost, but a digital coupon? Why not? There have been several tries of various types, Groupon being the most obvious, but smartphones make it so much easier to collect coupons and redeem them in some way, not necessarily even associated with the retailer.
Range optimisation. Category management as it has evolved has always been data intensive, and from a retailers perspective, the objective has been margin optimisation. The next step I suspect will be range optimisation which is really just margin optimisation with a far greater understanding of consumer behaviour thrown into the mix. We have all operated with the view that our various research tools and their data gave us enough to work with, and they did, but suddenly there is the “big data” behaviour mining opportunity offered by social media and geo location, in addition to the fragmentation of times we shop, and how we place and receive orders. Range optimisation to accommodate all these changes just became in my humble view, the FMCG marketing challenge of the decade.
Innovation from the waste. Until very recently, produce that was outside the specs for appearance was consigned to the waste bin, juicing, and other marginal uses, it was not deemed good enough by retailers to sell, not because it was nutritionally or organolepticly deficient, but because it looked crook. Along came the idea of highlighting the products visual imperfections, “Imperfect pick” is the term Harris Farm have used, Canadian chain Loblaws has successfully rolled out “ugly fruit” in Canada, and both Woolies and Coles appear to be tinkering with the idea currently. There are a myriad of opportunities to utilise undervalued product to build a category, for example, shin bones are the foundation of Osso Bucco, many of us will sample great Osso Bucco at an Italian restaurant, but never cook it at home, when it is an easy, tasty meal with a very low meat cost. Pretty simple marketing I would have thought.
Innovation is tough, but it is also fun and makes the future. Those who just wait for the future to happen will be overwhelmed by it, those who take a role in shaping it will at least have the chance to do well.
This post is the 8th in the series examining the means by which small businesses can deal with the retail gorillas.
The one that started it, back in October 2014, is a summary of the 10 ways to beat the gorillas at their own game, a summary post that generated a lot of interest, so I expanded the individual points in subsequent posts.
The first expanded post was the 3 essential pieces of the business model
The second, 5 ways to compete with data
Third, 6 category management ideas for small business at Christmas
Fourth, 9 imperatives for small businesses to build a brand
Fifth deals with the reality for all supermarket suppliers, that they have two customer types, requiring different approaches.
Sixth, deals with the least understood large cost impact on small businesses: Transaction costs.
Seventh suggested ways for small businesses to collaborate for scale,
Oct 6, 2015 | Branding, Marketing, Small business, Social Media
VW advertising has helped redefine the practise of marketing and advertising over 60 years, and in the process built a brand valued in their last balance sheet at $US23 billion
How much of that 23 Billion has been trashed by the unfolding fraud?
The value of a brand is made up of thousands of individual things over a long period, all adding to a disposition or feeling in consumers minds.
In VW’s case, it really started with advertising in the early 50’s, the original “Lemon” ads that changed the way we thought about advertising, to the more recent “Star Wars” ad series.
I wonder about the impact of the recent publicity on the new car buyer.
Will they now be more likely to add another brand choice to the list of possibles as they consider and research their new car purchase? Will current owners be more or less likely to believe the message on the dash that tells them a service is now due?,
Every business from MNC’s like VW to the bakery around the corner has to be aware of the value of their brand, and the added vulnerability it now faces with the advent of social media, and its ability to generate commentary. United airlines found this to their detriment when they broke a songwriters guitar. This particular piece of payback has been viewed over 15 million times, spawned a host of parodies, song series, covers and even books, and it is a wonderful case study on corporate response to customer service for people like me.
Marketing people are now pretty quick to extol the virtue of social media as a tool to build brands, and some (the few who read balance sheets) even recognise the goodwill you can reflect in the accounts, but are they as vigilant on the flip side?
Rarely.
Investment in brands should be considered as a long term investment, something that will keep on delivering if you get the basics right and nurture it. For small businesses, they have the opportunity to appear to be much larger and sophisticated than perhaps they are if they think about the basics of brand building,.
Unlike physical assets, brands appreciate with use, care and attention, but the flip side is there as well, as VW has discovered.
I will watch their next set of accounts with interest.
Sep 23, 2015 | Branding, Marketing, Small business
“Free” is a really powerful word, it gets used often to gain attention, and put urgency into a call to action, particularly if the “free” period is short.
How many of us have not reacted at some time to the siren song of “Free?”
However, “free” has a huge downside.
Everyone has heard the old saying, “you get what you pay
for” and it holds true.
Free also means no risk, and no commitment.
Take it, but if you do not use it, there are no consequences.
As a young bloke I worked for what is now Meadow Lea Foods in the time we were building Meadow Lea into one of the great Australian brands. A lot of time was spent in stores, demonstrating the product, giving supermarket shoppers a taste of Meadow Lea on a square of bread.
Pretty boring, but it worked.
When we actually got somebody to try a free sample, that was not the end, we sought to convert that trial to a sale by actively selling the product, which meant the consumer had to make a choice, sometimes change the choice they had already made about margarine brand, a commitment, and that commitment cost them a bit of money.
Meadow Lea ended up market leader by a country mile, 4 times the market share of the number 2 brand in a crowded and competitive market. It was more than great advertising that delivered that outcome.
Some advice. Superficial engagement such as downloading a free e-book is better than nothing, and it does get you an email address, but it falls a long way short of any real engagement and importantly, commitment.
Sep 21, 2015 | Branding, Marketing, Small business
Share of wallet
The calculation is easy, sales over total wallet, the problem is in defining the denominator, or what is in/out of your wallet.
The definition of the wallet is the really hard bit, the debate however, can be extraordinarily useful in terms of focussing the attention of the enterprise on the immediate and longer term priorities, and how those priorities are to be addressed.
Markets can be broken up in as many ways as imagination allows, but often for me it has been useful to break it into three.
Target market. The immediate markets where you need success in order to pay the bills.
Adjacent markets. Those market segments around you that would benefit from your solution, in the event that you were able to create and deliver that solution.
Generic market. The wider market that many consider as ‘The market’.
Lets take the insurance market as an example, as there are plenty of current examples around.
The generic market is, pretty obviously, ‘Insurance’.
Insurance companies are seeking to deliver services in increasingly specific niches, and are often creating apparently separate businesses to do so, although they are really just brands.
NRMA for example started with car insurance, and under that brand also deliver, home, contents, and other types, obviously leveraging their marketing reach to homeowners. Under different brands, CGU, SGIC, and others they also deliver competitive personal products as well as more specialised ones. Similarly, Suncorp delivers a range of products under a host of brands, AAMI, APIA, Bingle, Shannon’s, GIO, and others, many of them overlapping and directly competitive.
If you happen to be the marketing manager of “Shannon’s” car insurance for car buffs, does your wallet include the adjacent market of home insurance for said car buffs?
The arguments for and against are obvious, the temptation to lose focus on the primary target market equally obvious.
For many small businesses there is also a geographic component.
One of my mates runs a café in Burwood, and having this debate with him is instructive.
How does he define his wallet between coffee consumers in Burwood and the adjacent suburb of Croydon, and between individual consumers in those suburbs Vs businesses to whom he offers simple “sandwich catering” to order. The manner in which he spends his limited marketing budget, the sort of offers he makes, and the staffing he employees are defined by the answers to the questions.
Defining your wallet is a fundamentally important process, give it due care and attention.
Sep 18, 2015 | Communication, Marketing, Small business, Social Media
Blogging is a journey
Writing a blog can be confronting, and often small business owners shy away for the commitment. Make no mistake it is a commitment, but so is anything worth doing.
After 6 years and 1400 posts, and a lot of reading of posts by others, I have learned a bit, I hope, and assembled a few tips:
Be selective. Starting out you cannot do everything, so pick the platforms that suit you. Logically this follows some thought about where your target market hangs out digitally. This particularly relates to those in your field who are influencers.
Create an engaging profile. Every platform offers the opportunity to create a profile. Do it thoughtfully, considering the things that your preferred readers might like to see. Too often I see profiles that are incomplete or look like resumes, in the latter case, unless you are actively looking for a job, it is not of much interest to anyone but your Mum.
Upload a photo that does you justice. Your profile photo is like the headline photo in the front page of a newspaper, and you only get one chance to make a first impression.
Background images. Again, most offer the opportunity for a background image, this is the opportunity to confirm your expertise, or the thing you want to be remembered for. Unless, you are a Vet, no cats allowed.
Understand the platform. Whichever platform(s) you choose to start with, spend a bit of time understanding how they work, the features, and how you might be able to use them. Just having a profile up is useless, you need to be able to actively engage in the features of the platform to be noticed.
Follow and comment. Engagement starts somewhere, in most cases following those with whom you feel you would like to share a coffee with in real life is a good start. Once following, make comments on their posts, refer to other things they may be interested in, link to your posts, and create debates, offer an alternative point of view.
Learn from others. Social media has been exploding for the last 15 years. There are some real gurus out there along with all the wannabe’s. By watching and listening you will figure out quickly who they are, learn from them, model your digital behaviour on theirs, without copying, as you need your own ‘voice”. One of the gurus I have watched is Jeff Bullas, a true guru who lives almost around the corner in Sydney. By simply watching what he does, I have leant a lot.
Endorse and share. Sharing is an endorsement, if you feel something, is worthwhile, share it amongst your networks with a short note. These days it is easy to share on all platforms, but taking the time to write and endorse a post makes a lot of difference. Just clicking the ‘like’ button really means little any more.
Join groups. This is a great way to come to know those in a market who are the opinion leaders, and make a thoughtful contribution. I much prefer the closed groups, firstly because the rules can be set and you are less likely to be bombarded by irrelevant advertising messages, but more importantly because there is a common reason to be a member of a group, and if the reason is at the core of your businesses, it is clearly a good place to be.
Consistency. This all takes time and effort, but you have to be in the game to win. Those who find you worth following will get used to a rhythm, so once that is established, do your best to keep it up. Consistency in tone of ‘voice’ is also important. A blog is a personal thing, that is why people have followed in many cases, so outsourcing it can be a mistake. By contrast, having guest bloggers can be a great way to add value to your readers, and for your it offers the opportunity to attract new readers, point is that the guest post is explicitly written by a guest. I guest post regularly in a food industry magazine, it helps them with original and relevant articles and thoughts, and drives traffic for me.
Don’t pitch. When you use blog posts to pitch, if you do it too hard, you will lose readers. By all means offer access to landing pages that do pitch products or events, but they should be elsewhere beyond a soft invitation to readers who may be interested to click and go there. Hard selling on a blog post is the quickest way to put off readers other than being irrelevant or committing the sin of bad writing, I have seen.
Be visual. Human beings are visual animals, we respond to visual stimuli. Look at the reaction around the world to the photo of the little drowned Syrian boy being lifted out of the water. 
He is not the first to have been reported to have drowned, this was not the first story, it probably ranks at a number well over a million in the words written, but it grabbed the attention of the world like nothing that has gone before.
Be visible. Use social icons at every opportunity giving people as many opportunities to sample and connect as possible. It is a numbers game after all, and getting them to the front door counts.
Extend courtesy to others. Digital interaction is no different to face to face, apart for the obvious . People like to be thanked, acknowledged for their contributions, and have their efforts reciprocated. However, being selective in the reciprocity can be useful. There are many tools out there that just automatically do stuff, like follow or like. Following back an automated system is not the same as following back a person, so be selective and be careful who you like.
Start. Always the hardest thing, to make the commitment to yourself, and get on with it, dismiss the voice in your ear that tell you that you do not know enough, it is too hard, or that nobody will come. As we all know, the journey stats with the first step.
Sep 14, 2015 | Branding, Marketing, Small business, Social Media
My small business clients ask me this all the time.
They know they have to stand out on Social Media, but the question is how?
The necessary steps and supporting processes are now pretty well understood, but not easy to execute.
1. Find a niche and own it.
This is about the most common piece of advice out there, because it is right, yet so few small businesses do it well. They are seduced by the numbers. ‘there are a billion people on India, if we could sell a widget to .0000015% of them we would be right.’ In contrast, success comes to those who find a niche that fits their expertise, and offer a product that is both differentiated and the best around in some way for the very specific target market. A friend of mine has a potential very deep niche in highly specialised light bulbs. He has access to the products from specialist producers around the world and combined with the specialist technical knowledge he has necessary to understand the best combination of characteristics for a particular use. However, he keeps on being distracted by the opportunity of selling a box of common bulbs available in a suburban lighting shop.
2. Understand the market intimately.
This follows from the point above. People are being bombarded by all sorts of messages, you need to know the ones that will cut through because they promise to deliver a unique benefit of some sort to the target specialised audience. A message about a “light bulb for printers” will not get through the mental defenses of a professional printer, but offering an “Ultra Vitalux lamp with double the normal lamp-life” almost certainly would.
3. Identify and connect with influencers.
In every market, there those who lead, who experiment, and are not afraid to take a shot, and there are the rest. If you can identify and connect with those thought leaders, their endorsement will influence the views and behaviour of the rest.
4. Create a “tribe”.
Seth Godin and Clay Shirky brought the notion of “Tribes” into the vernacular. If you can build one around your particular expertise, those in the tribe will become advocates for your product and expertise. The mistake most make at this point is that they take the opportunity to turn the group or tribe into something that is about them. It has to be about the group, any step beyond a hint of commercialism will kill it dead.
5. Build a brand.
A brand in this context is not the sort of investment exercise necessary in a mass B2C market, it can be done on very small budgets, with a bit of imagination, and a genuine and unique story. Brands are at their core stories about the products, so tell yours.
6. Have a point of view.
Being different makes you stand out, but different just for the sake of being different is flimsy. Stake out a position that is a key part of your brand story that will not resonate with everyone, and be the advocate for that position, defend it against the naysayers and the status quo.
7. Communicate consistently.
In this instance, consistently means communicating not just regularly, but with a consistent message and tone of voice across all the digital platforms and media you use. Digital marketing is a content hungry channel, so the trick is to pick which combination of platforms and media generate the best returns and stick to them, while perhaps experimenting on the fringes. To try and use all the options just a bit is a sure road to failure, much better to pick a small number that are relevant to your prospects and do them really well.
8. Engage with your audience.
Success in digital media is all about the level of engagement you can build with your audience , and subsequently their relevant networks, and those interested in the topic. This takes work, particularly as engagement evolves towards a transaction. Generally it becomes harder to automate the closer you get to a transaction, depending on the products being sold. For many B2B products, the close is face to face.
9. Be opportunistic as appropriate.
None of the above should remove the motivation to use circumstances as they occur to your advantage. Digital media offers great opportunities to become part of a trend, even initiators of trends by the use of hashtags, particularly in Twitter. The downside is that the opportunity must be empathetic with your niche, brand, and everything else you are doing or it may depreciate what your other efforts are delivering.
The huge advance that digital has made that makes the effort necessary to compete is that you can now see clearly what works and what does not, almost in real time.
