The evolving Push & Pull of the supermarket business model.

The evolving Push & Pull of the supermarket business model.

Nov 30, 2017 | Change, Marketing, retail, Strategy

Established supermarkets around the world work from a pretty similar, well-honed playbook. The current business model of supermarket retailers is all about scale and leverage applied to their supply chains, and offer of range and price to consumers. While there are many variations in the detail, in principal  they  are pretty much the same, a ‘Push’ business model.

By contrast, the rapidly evolving ‘E-Tailers’ exemplified by Amazon and Alibaba are pull models, relying on customer engagement to activate the sales process.

When you look  closely at the business models of Amazon and Alibaba, the gorillas in the E-tailing space, there are significant differences. Amazon still at some point in the chain physically handles the products they are selling, and they do often take ownership at some point, while Alibaba at no time touches or owns the products, all they provide is a platform for the exchange to take place, and they make a commission on the transaction.

The established retailers are driven by the core assumption of the 20th Century that price of the product, range, and location of the store will be the dominant factors in determining customer loyalty, which are both supply chain factors. By contrast, the models of the e-tailers are truly customer centric. The value chain is driven by the demands of the customer, which can be influenced, if not completely managed once enough data on the individual is available.

The difference from a strategic perspective is the technology required to drive them both.

It seems to make sense that the existing supermarkets will be setting out to match the customer centricity advantages of their digital competitors, while retaining the advantages bestowed by their control of the supply chain.

How do they do that?

Not easy, but increasingly becoming not just possible, but a reality. By combining their supply chain knowledge with the customer information being collected on store cards, the geolocation capabilities of mobile devices, and social ‘Big data’, supermarkets could find themselves in a position to ‘flip’ some of their revenue from Push to Pull.

Imagine the situation where Mrs Bloggs is driving on her way to pick up the kids at after school care  having finished work at her part time job.  She sometimes stops at the supermarket to do a top up shop for the household commodities, and to buy some fresh produce to cook for dinner. The supermarket  data base knows this routine, and what Mrs Bloggs usually buys from the information collected via the store card she uses.

The algorithms in the store database sends a message to Mrs Bloggs informing her of the price discount they have on a product she may not usually buy, but which they have a surplus at her local store, and the dinner prep bundle for a meal for which she sometimes buys the ingredients. In one case, there will be no discount, why discount something that is a normal sale, keep that discount dollar for a situation where it will generate incremental sales, or can be charged back to a supplier.   The alternative offer is discounted based on the stock turn and availability of the product that needs to be sold quickly. The algorithm also sends a complementary message to Bill and Betty Bloggs, waiting to be picked up, as it knows Mrs Bloggs is driving, so kid pester power is engaged.

Push to Pull.

The strategic development of our grocery markets has been cyclical.

I can still remember as a very young boy going with Mum to a number of stores to buy the groceries. In each one there was a counter and someone who took the order and assembled it from stock to which the customers had no access.  Then came the steady development of the supermarket, which increasingly leveraged the scale of the stores and their control of the supply chains to push product at consumers, and making a margin from the suppliers via retail shelf ‘rental’ and pocketed promotion fees.

The emergence of Amazon et al over the last decade has put some power back in the hands of the consumers, and they are using it, with many households now combining a visit to the supermarket with various forms of on line purchase and delivery. We are going back to the one on one model, but replacing the trip to the store, pantry management, and all the other things my mother used to do, with technology.

Those combinations will continue to evolve, driven by consumers.

Pull winning out over push.

 

Amazons Australian warehouse is finally open: so what?

Amazons Australian warehouse is finally open: so what?

Nov 28, 2017 | Change, retail, Strategy

 

So, Amazon opened its first fulfilment warehouse in Australia last Thursday, to the sounds of the incumbent retailers either telling us that they will have no effect, or just not acknowledging the appearance of a giant shadow on the landscape.

Back in 2015, Whole Foods founder John Mackey waved off Amazon, observing that groceries were a step too far for them. Pity for him he was absolutely wrong, and now works for Jeff Bezos

Does that sound like Gerry Harvey recently?

It seems to me that the most valuable warehouse Amazon has is not  the new behemoth outside Melbourne, but the data warehouse that has been capturing our digital footprints for the last decade.

Last Christmas, my wife of 35 years was moaning that she did not know what to get me, while Amazon was regularly making suggestions of things I might like, and they were usually pretty good suggestions based on the data they collected. In one sense at least, Amazon knows me better than my wife.

Scary, but just another example of the value of data.

Via Amazon Web Services, the biggest in the cloud services business, and growing like crazy, Amazon has their hands around the throats of a huge pile of data on all of us. Add to that the data facebook, Linkedin, Pinterest, Twitter, and all the rest have on us that can be leveraged, and the world of boring old retail in a shop is no longer.

Harvey Norman has a current market capitalisation of $A4.3 billion, Coles about 18 Billion, and Woolworths 35 Billion, and all are struggling. Amazon has a current capitalisation of almost $US1.6 Trillion, (a trillion is a million, million, I had to look it up to be sure) and rising steadily,

Amazon is more than a huge retailer, it is a collection of businesses and dreams that spans a huge range of activities and interests of Jeff Bezos, who has built this giant in 21 years from a simple book selling landing page in 1996.

We always think about on line as being about convenience and price, but it is more than that, it is an immersive experience, we are becoming ‘digital natives’. Our addiction to the screens and devices is advancing at a rapid rate. Nir Eyal documents the means by which we become ‘addicted’ to technology, but as a suggestion, ask your teenager to switch of the notifications on their phone, and there would be a revolution.

So, digital has become immersive, but is that not the real and under-utilised competitive advantage that Bricks and Mortar retail currently has? You can go into a store, touch, feel, try on the stuff, see how it looks in real life, it is a tactile experience.

What will happen as AI and VR explodes onto the scene, you may be able to try on clothes at home, change sizes, colours, combinations, how immersive will that be??

The reality is  that Amazon could buy Woolies and Coles out of petty cash and barely notice the bump in their cash flow. The same could be said about Alibaba, China’s answer to Amazon, that is in fact bigger on most measures, but is an entirely different business model, so is unlikely to venture into the space Amazon is carving out.

Last Thursday was no more than just another day, the opening of Amazons warehouse, just another small brick in the wall Amazon is building. We all knew the opening was coming, but it is just that the pace is picking up, and the retail incumbents are being left behind, as our lives change.

 

Photo credit: Tony Webster via Flikr.

What is the most common question in marketing?

What is the most common question in marketing?

Nov 27, 2017 | Branding, Strategy

How do we build  this brand?

This question leads to all sorts of strategies and tactics that are all aimed at engaging consumers in some way, to get them to prefer the brand and sometimes even buy  and recommend to their friends.

Marketers cannot decide what the term ‘brand’ means. I just googled ‘What is a brand’ and got 290 million responses.  This post by Heidi Cohen lists 30 definitions from very reputable sources, several of them with ‘gurus’ status. All are correct,(at least in my mind) in some way, but they are all different.  None of them reflect the reality that a brand is an outcome in peoples minds, not a thing. Fundamental to most of this thinking is that It is assumed that the word ‘Brand’ is a verb: To brand.

Wrong.

A brand is an outcome of a huge range of activities that impact, usually unnoticed by consumers and potential consumers, that together mix up and deliver an outcome for the individual that when all amalgamated result in what we conveniently call a ‘brand’.

If you are setting out to build a brand, have a clear view of the outcome  you want, but then align the activities so they all contribute in some  small way, incrementally, to the achievement, to the  journey towards what a customer will call a brand.

These observations by marketing professor Mark Ritson on the repositioning of Burberry is exactly on the money.  The new branding guru assumes that the Burberry brand is a thing, and asset albeit intangible that is separate to everything around it, and able to be ‘managed’ as you would a piece of machinery.

Wrong again.

Burberry like every other brand is an outcome of a host of activities that impact on the way customers, and non-customers see the brand, and describe it in the terms Clayton Christianson refers to it in the context of  the Job to be done.

Brand building is a strategic exercise, taking resources, wisdom, and the power to make long term decisions that stick. It is not a task to be undertaken by the junior brand manager, their job is to execute tactically and contribute data, ideas, and competitive intelligence, not play games with the biggest asset most companies own.

Harley Davidson is one of the best known, most deeply seated brands around. While there have been some hiccups along the way, Harley has been utterly consistent in its promise to riders since the beginning. The promise and its delivery continues to evolve, but in a way that recognises that its huge value is the primary asset of the business.

 

Too many slices and the loaf disappears: Is this the end of Australian FMCG?

Too many slices and the loaf disappears: Is this the end of Australian FMCG?

Nov 16, 2017 | Change, Governance, Leadership, rant, Strategy

What the hell have we been thinking?

Some time ago I mused that the slow death of the Australian FMCG manufacturing base was akin to nicking a slice off a cut loaf, one at a time. At any specific time you do not really notice the difference, but looked at over a period, the loss is obvious.

Well, it seems that someone nicked the Food industry loaf, and all we have left are the crumbs.

A report released last week by Food Navigator reveals Australia’s top 10 FMCG suppliers.

Not one of them is  owned by Australians.

Let me say that again: Not one is owned by Australians!

Over time I have worked for two businesses on the list, and at the time, both were aggressively and proudly Australian, wearing the national flag on their shoulders, and in their advertising, and both were in their way successful despite themselves.  However, dismay at some of the nonsense that went on is a primary reason I have been self-employed for the last 22 years.

I struggle to think of many substantial companies still domestically owned, Bega, Patties Pies and San Remo come to mind, but we are then down to the minnows.

All these multinationals will rightly say that they pay lots of taxes, employ lots of Australians, both directly, and indirectly, and that they have Australian best interests at heart.

Bullshit.

It is true they employ many people, and it is true that they pay unavoidable taxes, like GST, local government rates, and collect from their employees PAYE, but do they carry the full weight of their ‘moral obligations’ to the communities they live in via income taxes?  The reality is that have their own best interests at heart, or at least, most of them do. Transfer pricing, creative funding, corporate domicile on low tax environments, and all the rest of the shenanigans revealed again, by the Paradise Papers in the past weeks or so are widespread. It should not come as a surprise to anybody when these large companies make decisions in their interests, not in those of Australians and Australia.

This is like renting a house. You are allowed to live in it, under certain conditions,  but you have no control over the property, someone else makes all the key decisions. The renters best interests are not a factor in the determination of the owners best interests.

We tell ourselves we are a food bowl, and we are, but without any access to the markets at all. We no longer even have any brands for direct contact with consumers (Vegemite is a rare example, purchased back from Kraft last year by Bega, hooray). We are therefore nothing other than commodity suppliers in a price driven world. Not being a low cost producer, without the umbrella of brands and control of the operational infrastructure that can deliver genuine value to consumers, we are inevitably going to be screwed, with the benefits of ownership exported.

Coles and Woollies have ‘conspired’ to destroy the domestic suppliers and their brands by limiting ranges, replacing proprietary brands with house brands, sourced from wherever is convenient and cheap, realising short term margin gains at the expense of long term prosperity, both theirs and that of the communities they serve.  They have also lost in the process the cover of brands at a time where there is a huge retail  disruption looming: Amazon, online ordering, AI, ‘Ubered’ home delivery, and all the rest.

It seems to me the two retail gorillas will now reap the poison crop they sowed as an outcome of their short term,  one dimensional and absolutely unimaginative strategies.  Taking on Amazon with that mind-set is suicide, as if we know anything about Amazon, it is that they do not play by the existing rules. They make up a new set, and  the incumbents are left to wonder in their wake.

Food manufacturing used to be our biggest manufacturing industry, and we have given it away, or at least the benefits of ownership of it, for next to nothing. It is not even as if for the most part the interlopers paid a premium for control, they just waited until the numbers were so crap that they could take it for a song. The most recent example, Murray Goulbourn is a classic case in point, as are two of my previous corporate employers, Dairy Farmers and Goodman Fielder. Both reasonably large, reasonably successful businesses stuffed by poor management decisions until they became unsuccessful smaller ones, that could be scooped up out of Multinational petty cash.

Our kids will pay a heavy price for the short sighted and incompetent management of their fathers and grandfathers. (Cannot help wondering if their grandmothers and mothers would  have done a better job)

Our so called leaders mumble abut populist causes, ignoring the difficult and challenging long term choices that need to be made, which are usually by definition, not populist. It took a crisis to get them to consider ‘power policy’ in their quiet, moments when not looking after their own jobs in the face of failing to check if they are technically Australians, but it is 25 years too late. ‘Manufacturing policy’ discussions are pretty thin on the ground, now the motor industry has folded their tents, and more specific ‘Food Industry Policy’ discussions are as rare as sightings of the  Tasmanian tiger. Rumoured but carrying very little real credibility.

There has been very little of much value about any policy setting that might help us control and leverage our own agricultural and manufacturing capabilities that would enable us to feel confident we can feed ourselves, and others in the region into the medium term. The horse has bolted, and we are left with a pile of shit in the stables.

Sadly, few in power seem to be too concerned with the demise of our ability to control our own food supply, value adding and distribution.

If nothing else, we may have discovered an innovative solution to the national obesity problem.

 

8 Reasons not to change.

8 Reasons not to change.

Nov 13, 2017 | Change, Governance, Strategy

We all understand the power of ‘Not broken, don’t fix’ sort of thinking. When things are going OK, even if that is not as well as you would expect, the temptation to leave the status quo in place is compelling.

No risk in that is there.

I see reasons not to change all the time, and find that change is easiest when all concerned see that there is simply no option, and even then, it is sometimes hard, as any improvement is put down to the status quo delivering as it always has, not to the changes made.

Here are the reasons I hear most often, each with their own variation.

  • We are doing OK, do not rock the boat, there are sharks out there.

Counterargument. The success to date is no indicator of  success into the future, in fact we do know that the future will not look like the past, so we better get on with shaping our own future or we will end up being shark-shit.

  • We are really busy getting stuff done, in order to make these changes, there is a whole bunch of work we do not have the resources or time to do.

Counterargument.  If we are so busy getting stuff done, that is a sure sign that what we are doing is suboptimal. In a world where knowledge is king, unless we are sufficiently curious to think about and try new stuff we will just get busier, and busier, and end up  not seeing the wall before we hit it.

  • We tried that, and it did not work.

Counterargument. It may  not have worked, but do we understand why it did not, and how with the benefit of hindsight we would go about it a second time? Perhaps things have changed sufficiently for it or a variation of it to work today.

  • If we improve what we are doing just a little bit, we will have a huge improvement, so let’s concentrate on that.

Counterargument. Having in place a process of continuous improvement is great but not enough to be sustainably successful. Continuous improvement is a core management responsibility, not an option, or reason for celebration, as at best it optimises existing processes, which may be poor process in the first place. The challenge is to seek new ways of achieving the result that create new sources of value, or indeed, create a new result.

  • Our customers do not seem to think that we need to do it that way

Counterargument. Customers usually see things in their existing context, and so long as the product or service you provide continues to be competitive, often see no reason to change or push you for improvement. However, when an alternative supplier turns up with a better solution, they will move. Steve Jobs famously quipped that he never asked customers what they wanted, simply because they did not know, and Henry Ford observed that if he asked customers what they wanted, the answer would be a faster horse. Don’t get caught having the best horse stables in town when the residents are all driving cars.

  • Change is risky, what if it all goes to hell?.

Counterargument. Change is risky, and it can easily go pear-shaped, so the smart managers avoid betting the farm while changing as quickly as practical and possible.

  • What if we are wrong?

Counterargument. Being wrong can and does happen, indeed, being wrong some of the time is a part of learning how to improve. The key is to plan the changes, understand the outcomes required, monitor the outcomes as they emerge, and be prepared to make adjustments quickly as necessary.  You could also ask yourself ‘what if we are right, but did nothing. What would be the cost of that inaction?

  • We do not have the skills or experience to make these sorts of changes

Counterargument. Few do when they start, that is what change is all about, and what makes it so challenging. What is required is a dose of leadership, someone who inspires the idea that change is necessary, communicates the need widely, then is seen to be ‘walking the walk’ and leading it. Besides, there are plenty of advisors out there with a lot of experience  and knowledge,  pick someone who can help by guiding, mentoring and advising.

Initiating and managing change is the biggest challenge a leader faces. It impacts on every corner and crevice of their business. Most shy away, and very few are able to see all the forces at work themselves. Change is necessarily collaborative and highly ‘leadership sensitive’. An appropriate dispassionate and experienced outside resource, often teams of them, always add value to the process.

Header cartoon credit: Hugh McLeod at gaping Void.

The essential template for profitable management of key, Strategically important customers.

The essential template for profitable management of key, Strategically important customers.

Nov 6, 2017 | Customers, Sales, Strategy

One of the current marketing buzzwords is ‘ABM,’ or Account Based Marketing. It is heralded as the panacea for all B2B sales challenges, generally with the caveat that you buy their software.

What utter Bollocks.

Allocating resources against important, and potentially important customers is about the oldest strategy in sales. I am pretty sure that Cato the grain merchant took Decimus, the biggest baker in Rome to that hot little restaurant in the forum for lunch and a few vinos in 200BC.

Certainly, the whole storyline of that great series ‘Madmen’ is focussed on the acquisition, holding onto and squeezing money out of an ‘Account’. In the early nineties, as a newly minted consultant, I successfully marketed a sales training program I called ‘SKAM’ or Strategic Key Account Management’.

The acronym always got at least a wry grin, and depending on circumstances, I would sometimes substitute ‘Planning’ for ‘Management’

So, to ABM.

The only thing that is new about it is that there is now a slew of software vendors promising to automate and make easy the age-old tasks of sales. There is no doubt that the software can deliver significant productivity benefits, but those benefits are absolutely dependent on doing the basics well, having a solid foundation of sales and marketing disciplines, and that has not changed. After all, if you automate a crap process, all you do is get buried in more crap quicker.

So, to the template.

Define ‘Strategically important’

Pretty obviously the first step is to define just what strategically important means in your context. To many it is those top customers, the 20% that generate the 80% of sales revenue and even more importantly, margin. It is worth remembering however, that each of those top customers were at some point, just a prospect, or a small and therefore easy to ignore customer, that grew. Really smart businesses define clearly a profile of their next group of strategically important customers, and allocate the resources to ensure that they grow to the potential they appear to have.

Have a clear strategy.

This goes hand in hand with the previous point. Without a clear strategy, the result of making often challenging choices about which markets, which types of customers, geographic locations, industry segments, technology base and many others, you will not be in a position to create a definition of what ‘strategically important’ means in your context. The default is almost always the biggest, but as noted, current size is a lagging indicator.

Articulate your value proposition.

Again, this is utterly dependent on the first two steps being done well, as what may be valuable to one customer, will not be to another, and you do  not want to waste precious resources trying to talk to and sell to people who do not care, or have no need for what you can offer.

Create a prioritised prospect hit list.

This is a list of potential customers who fit the general profiles from the first three points. There are many ways to do this, and no one right way, but almost universally it will involve the collection and analysis of publicly available data, from which some conclusions can be drawn.

Progressively execute on, and renew the hit list. 

This is where the rubber hits the sales road, and where most marketing and sales automation cuts in, and often creates significant complication before the benefits can be seen. it is also often the first point of call for many, a huge mistake made by those seduced by the siren song of automation.

Selling is a process based on psychology and understanding the prospective customer in as much detail as possible. We all like to buy, but generally hate to be sold to. Therefore selling is about gaining the attention, and progressively, trust, that you have a solution to the problem the prospect faces, that delivers value, however value is defined in the circumstances that apply to the sale and ongoing relationship.

Rinse and repeat.

As noted, sales is a process, and the more you treat it like a process, a set of steps to be followed that enable feedback loops, learning and improvement at every stage the better.

When you find you need some wisdom gained from extensive experience to be applied, a bespoke program to be developed, or just have some of the gobbledygook and jargon explained, call me.