Nov 27, 2023 | Branding, Customers
Every time I go through a supermarket checkout, I find myself surprised at the total of the bill. Should be used to it by now, but no, I’m not!
The two supermarket gorillas, Coles and Woolworths have both released their annual results in the last month, and shareholders, which via superannuation is most of us, should be very happy.
Woolworths pocketed $1.6 billion on significantly increased margins, and Coles managed $1.1 billion on similarly better margins. The percentages are way above those generated by peers in developed countries, for the simple reason that they are an oligopoly and leverage that power to generate profit. Aldi has made an impact and continues to do a good job of ‘keeping the bastards honest’ but the fact remains, profit comes from market power. It is also fair to acknowledge that both have done a pretty good job of optimising their current operations, which also contributes to those juicy profit numbers.
Supermarket retailers, and other retailers in a position to exercise market power, are in two businesses that together make a powerful business model:
The first is renting retail real estate to their suppliers.
The second is selling products to consumers.
Both are transactional, with constant negotiation between the retailers and their suppliers. Sadly, there is an unequal distribution of power between the retailer and the supplier, so the use of price on both sides of the equation by retailers has become ubiquitous.
They extract maximum ‘rental’ for the shelf space, while being relatively unconstrained at the checkout by competitive pressure.
As a result, suppliers are screwed down so hard that even the very best of them have trouble returning the cost of capital, and price competition that benefits the consumer is a myth.
The price-based promotion programs deeply embedded in the psyche of both retailers and their ever-decreasing pool of suppliers destroys brands. Over the time I have been watching, the supplier margins from which springs the innovation that keeps categories fresh and interesting to consumers, has disappeared.
Retailers are lousy marketers. Ask one to explain the drivers of purchase and they have only one answer: price. Anyone who has ever bought anything knows that is rubbish.
For long term commercial sustainability of both retailers and their pool of suppliers, there must be a balance between tactical promotion and the innovation investment that generates category and brand growth, and there must be serious competition.
That no longer exists. Marketing and behavioural research over many years is unequivocal. Healthy markets need both.
Retailers have used price as their only tool because they can. In the process they have killed off almost all proprietary brands, replacing them with house brands, which are no more than carbon copies. There is no longer category or product innovation, and no suppliers willing to invest in brands, just a conga line of copycats.
The cost-of-living crisis facing many consumers today will become a strategic crisis for the retail gorillas as they fail to evolve their business model.
Oct 9, 2023 | Marketing, Social Media
Being able to market to a ‘persona’ the picture you build of your ideal customer, is a great leap forward enabled by digital. Our ability to define who buys our products, when, why, where, how, instead of what, and so on.
However, there is a flip side.
The flip is the customer, the real one.
They are not stereotypical ‘personas’ they are people, with homes and families, hopes, dreams, problems, prejudices, and challenges. They do not care about your marketing processes, how they fit into your profile, or where they are supposed to be in the ‘customer journey’.
They are people first, customers second.
Forget that simple fact amongst all the marketing tech tools, and you will lose them.
The fumbles in your process are not your customers problem. While they may like the convenience of you having some of their data, they are wary of having that privilege abused. They also like to be in control of their own lives, so be careful of denying them the ability to make their own choices as you pursue them, setting out to ‘catch and extract’ by a variety of means.
Choice is one of the few areas of our lives where the individual still has complete control. Compromise that, and it will not go well for you.
Sep 18, 2023 | Customers, Marketing, Operations
When you want to improve something, find a metric that drives the performance you want.
Pretty obvious, as most of us subscribe to the cliché that you get what you measure, while remembering Einstein’s observation that not all that matters can be measured.
Ultimately, what the customer thinks is crucial to success. Therefore, measuring the performance in meeting the customers’ expectations is always a good place to start measuring your performance.
Amongst my favoured measures is DIFOT.
Delivered In Full On Time.
That means not only the full order delivered on the day it is originally promised, with no errors of any sort, from quality of the product to the delivery time and accuracy of the ‘paperwork’.
DIFOT is a challenging measure, as it requires the collaboration and coordination of all the functional and operational tasks required to deliver in full on time.
As you fail to reach 100% DIFOT, as most do most of the time, at least at first, the failures are used as a source of improvement initiatives.
There is very little more important to the receipt of that next order than your performance on the previous ones. Never forget that, and measure DIFOT.
Hand in hand with DIFOT, you should also measure inventory cover.
The sibling.
You can improve DIFOT by simply increasing inventory when selling a physical product. Demand is inherently difficult to forecast, as it is the future, and entirely out of your hands. The challenge is to prevent your warehouses multiplying, and clogging the operational systems. The ideal situation is ‘make to order’, the ultimate shortening of the order to delivery cycle time.
The most common and very useful measure of inventory is ‘Days cover’. How many days of normal, average, forecast sales, whichever you prefer in your circumstances, do you have on hand to meet demand? This measure is extremely useful on a ‘by product’ basis, but when applied as an average across multiple lines with differing demand levels, can become a dangerous ‘comforter’.
Counter intuitively, the products that cause the most problems are the smaller volume ones, and new products. In both cases, demand is harder to forecast. The swings from out of stock to excess inventory can be erratic, particularly when a production line is geared to the larger volume runs of an established product as a driver of operational efficiency.
To achieve a 100% DIFOT while controlling physical inventory over an extended period is the most difficult operational challenge I have come across. As a result, it is amongst the most valuable to keep ‘front and centre’. The twin measures of DIFOT and ‘Days Cover’ are a vital element in addressing that ultimate challenge of customer service.
Sep 13, 2023 | Innovation, Marketing, Strategy
Creativity comes from somewhere; the challenge is always to understand and manage the process and the people. This applies equally to every type of creativity, from painting, writing poetry, formulating the mathematical representations of our physical world, to designing a bridge or a house, or imagining something entirely new.
Creativity is never just a Eureka moment under the shower with no pre-work as the catalyst. It requires the frameworks provided by the pre-work to enable the catalyst to emerge.
For the pre-work to be able to provide a solid framework within which the catalyst can emerge requires years of study, experience, and lessons learned from the ideas discarded or failed, on top of the few that might succeed.
Specialise.
This leads to focus, and deep knowledge, and an ability to apply well above commodity pricing. When a service or creative product is in short supply, the price goes up. Creative people seek problems to solve, and ideas to explore, which is great, but counterproductive to finding the price that will optimise your time. Be committed to the niche, and the specialisation this niche requires will open the opportunities for other ideas and new problems to be solved.
Specialisation really only happens with the benefit of experience, which happens over time. Define clearly what are you going to do, and who do you do it for, and being very clear to both yourself and those in the market what you will not do. For SME’s this is always a very difficult series of choices to make.
By specialising, you also end up emasculating competition, as they cannot do what you can. For those who want what you provide, there is no option.
Address questions of money early.
We tend not to talk about money, it makes us uncomfortable, and creativity is very personal, not about money. However, making a living providing a creative product is why you are in business. You must be able to talk about it to make it, and talking about it delivers credibility.
Do not be scared of silence.
Nature abhors a vacuum, so the best way after delivering a ‘price-bomb’ is to embrace silence.
When selling, if you fill the void, you tend to say something that reduces the impact of the bomb.
It is uncomfortable, but you get used to it.
State the number and shut up. You will gain a lot of information from the silence. Often it saves yourself from yourself, while offering an ‘out’ for those potential customers looking for a commodity product and price to remove themselves early, before you invest much of your valuable time.
How to measure value in the conversation.
There is no easy way to measure value in a conversation, but there is no substitute to a conversation that seeks to find ways for people to exchange value, in whatever form that value takes. The answer is to discover sources of irritation, complexity, or desire the client would like to address, and propose ways to achieve that outcome. Therefore, identifying quantitatively the impacts of the problem, and the results of your solution will increase the value of your offer. The larger the problem being faced, the greater the value of the creative process.
Say ‘No’ a lot.
As Warren Buffet notes: the difference between successful people and really successful people is that really successful people say no to almost everything.
We all want more what we do not, or cannot have. Saying No increases the desirability of your offer.
Anchoring against desired guaranteed value.
If I could guarantee you an extra million dollars in profit, would you be prepared to pay half as compensation? This is a closed question, but it is an anchoring question at the high end of the range. You can work backwards from that, in terms of risk and the nature of the guarantee. This strategy is used all the time, often without us noticing. Energy retailers seem to be always guaranteeing savings on your power bills when you buy from them, knowing that few will do the measurement, and it is a hypothetical measurement in any event. This tactic can be used in many ways. For example, usually you cannot guarantee value when selling to a bureaucrat, as they cannot pay for value, they pay for certainty against a budget. Therefore, you can offer guarantees of delivery date, or performance, any factor that is quantitative.
Value is entirely subjective. At the heart of value is the trade, where you are both happy. Your costs have nothing to do with the value. People do not want your time, or your deliverables, they want the solutions to their situation that you can deliver.
To conduct a value conversation, you need to have the right questions, not the answers. Ask the questions, and the answers will evolve.
Header credit: Me. As you can see, graphic art is not part of my creative armoury.
Aug 25, 2023 | Branding, Communication, Marketing
Context. The word is ‘Context’
Marketing is a fundamental contributor to our commercial lives.
It is about defining and leveraging the value you create for another, for which they are prepared to pay, while not being about the transaction.
The beach and Heineken experiment as told by behavioural psychologist Richard Thaler describes beautifully the importance of context.
Two blokes on a beach, very hot, and desperate for a beer.
If they are told there is a shack a kilometre down the beach from which they can buy a Heineken, how much would they pay for the beer?
Same situation exactly, except the shack becomes a 5-star hotel.
The price they are prepared to pay for a Heineken from the 5-star hotel is roughly double the price they expect to pay for the same product from the shack.
This is a classic case of context and expectation; people expect to pay more for the identical product from the 5-star hotel than from the shack.
The utility they get from the beer is identical, only the context of the purchase is different.
How do you leverage the context in which your product is presented to potential customers to maximise your revenue generation?
