Jul 10, 2023 | Change, Strategy
As a kid in the sixties, some of my friends had extensive record collections, mostly albums, but also singles of the ‘hits’ from albums. The Beatles dominated, Sgt Pepper’s Lonely Hearts Club Band selling millions of copies when released in 1967, and was still selling millions into the 70’s.
In 1963 Phillips introduced the compact cassette, portable, and it offered the choices of fast forward and replay. I can remember carefully taping favourite songs from the radio to make personalised ‘playlists’. Sales built rapidly, then took off when the Sony Walkman was introduced in the early 80’s.
Meanwhile, Philips had been developing the CD, born in their labs in 1974, and by 2000, held 96% of all sales of recorded music.
Again, parallel development was happening, and the digital audio format called MP3 was born in the late 90’s. This format enabled the conversion of music into a digital file that could be shared. Up popped Napster and similar sites, from which you could download music for free, in breach of copyright, but free.
Meanwhile Apple had made MP3 players sexy by putting ‘A thousand songs in your pocket’ with the iPod. The music industry, tightly held by a small number of large corporations sued, and won, but it was a pyrrhic victory, as Pandoras music box had been opened. As a side note, the sight of an industry body suing to ensure that their product was not distributed is a touch unusual.
Then along came Apple, again, with iTunes and its multifunctional devices we still call phones, followed by more streaming devices and services. Spotify changed the face of the industry, again, and the fight became the more traditional marketing fight for your attention, and money
You can follow a similar path with the development of the movie industry, motor cars, aeroplanes, computers, electricity, and many others.
The point is, the seeds of destruction are planted well before the visible disruption occurs. The timelines we typically think about when considering disruptive innovations are much longer when you step back and look at the lead-up changes that prepared the ground for the disruption.
What is happening in your industry that could bite you on the arse?
Jul 7, 2023 | Branding, Marketing, Sales
A hundred years of practical experience and academic research proves that cutting marketing budgets during tough times is the worst thing you can do. Most do it, simply because it is easy, seems sensible to the uninitiated, and often prevents yelling from the corner office.
This provides great opportunity for those who hold their nerve.
Brands are built by having a ‘share of voice‘ greater than their market share over time. Brand building is a long-term exercise, which becomes cheaper in a recession, as others cut their expenditure, demand for advertising space drops, so does the price as a result, and your customer is more likely to see your ads in a less cluttered environment.
This is a strategic investment.
You should reduce the existing tactical, promotional deals if you can, as they are costs to the bottom line, not investments in your brand. You might get a short-term volume bump, but the added volume rarely replaces the margin lost from the discount.
Do the maths before you agree to the discount.
How much extra volume do you need from the promotion to recover the margin surrendered? Consider also the customers perception of the ‘right price’ for your product. Have you just lowered it?
You can cut yourself to oblivion, easily, while being clapped from the sidelines. Usually those clapping control access to consumers, as do supermarkets, or are those customers who would have been happy to pay more.
Do not miss the opportunity to build your brand while your competitors are hunkered down giving discounts in an effort to maintain volume, while destroying long term commercial sustainability.
Header credit Tom Fishburne at marketoonist, who very effectively pokes fun at marketing hubris.
Jul 5, 2023 | Change, Demand chains, Innovation, Strategy
All the recent focus of industry development, Control of IP, and sovereign manufacturing, has been on High tech.
Should we, or perhaps why don’t we, look to areas where we have dropped the ball in the past, but still have the opportunity to shape world markets, built capability, and diversify our economy.
Should we be looking at some of the obvious, but perhaps boring stuff that can make a significant difference, and where we already have a huge head start.
This race towards the newest shiny thing is fun, generates a lot of press releases, is exciting, attracts attention, as well as capital and competition, but is it the whole game?
In years gone past, Australia supplied a huge percentage of the world’s wool.
We grew it, and processed it through the many stages to the production of yarn, and exported the highly value added product to the world.
No more.
We have been supplanted as the number 1 producer by, you guessed it, China. We proudly, for now, occupy second place in the production stakes. China also is the biggest importer of Australian greasy wool, which they then process and gain the huge value add that the processing stages contribute.
I do not have all the numbers, but the current mean fibre diameter of the Australian clip is 20.8 microns, (AWPFC numbers) which is significantly less that the average of other major producers. At the extreme, production of wool at 13-15 microns is very small, requiring very considerable skill, animal husbandry, and investment in genetics. However, that investment is returned with huge price premiums paid by high end fashion manufacturers. That fine wool sells at auction for up to and sometimes more than $150/kilo, 15 times the average.
Australia’s share of world fine wool production is upward of 80%.
Why is it beyond our capability to capitalise on such a premium position, based as it is on 150 years of experience, a continuing production advantage in the preferred raw product, and many millions of dollars on R&D?
Australian Wool Innovation has been pissing around for the 30 years I have been watching, and from time to time dipping a toe into the water. They have wasted growers money and matched funding from the public purse, while failing to build a sustainable industry value chain that builds Australia’s competitive position. Making excuses, and generally having a fine old time has been the outcome of their efforts.
Having just read the latest strategic plan I can find, that sorry situation is not going to change.
As part of the National Reconstruction Fund, should we revisit old friends like wool that despite the best efforts of the last 40 years, we have failed to kill off? Surely that level of resilience requires some examination and consideration for rebuilding the supply chains that delivered many of the foundations of the prosperity we still enjoy. Such an effort would tick 5 of the 8 priority areas nominated in the reconstruction fund legislation.
13 years ago in a post I asked ‘Where next for wool‘. The question needs to be asked again, and this time we should be expecting some sensible answers.
The header graph is the average price of greasy wool over time. You can see the impact of the wool industry pricing model that ended in tears in July 1995, leaving a huge inventory of unsold wool that screwed the market for a decade. As with all averages, the graph hides the huge opportunity that has been facing us for years, which we continue to ignore.
Jul 3, 2023 | Marketing, Strategy
When building a marketing plan, one of the key choices that must be made early is a deceptively simple one that most fail to recognise.
- Are you setting out to serve existing demand?
- Are you setting out to generate new demand?
Ninety-nine times out of a hundred, when I look at a marketing program, I have no idea which the marketer has chosen. Usually this is because they have jumped the early and challenging question of translating the strategic objectives back into the planning of marketing activities. Marketing is simply the means by which the strategic objective is translated into a series of actions which are communicated to those who might be interested in paying you to consume your product.
There is of course a third option: attempt to do both. However, to do both effectively requires a specific strategic choice. Allowing the ‘do both’ option to become the default of not deciding where the priority lies is commercial cowardice. It leads in most cases to sub-optimal allocation of the limited available resources.
Header cartoon credit: Dilbert demonstrates that choices must be made for clarity.
Jun 30, 2023 | Change, Lean, Operations
Several years ago I became aware of ‘Wrights law‘. In the 1930’s, Theordore Wright an aero engineer proposed that: ‘For every cumulative doubling of units produced, costs will fall by a constant percentage’. This insight came from observing the performance of his own factories building aircraft during the thirties and over the course of the war.
While I do not have the numbers, intuitively after 50 years of observation, it holds very true.
That truth seems to hold over any manufacturing I have seen and read about, unlike its much better known sibling Moore’s Law. Gordon Moore observed the increase in the number of transistors that can be stuffed onto a silicon chip in a given period of time, and predicted that a doubling of numbers would hold consistently over the long term.
Therein lies the significant difference that manufacturers have come to rely on.
Moore’s law refers to technology improvements over time.
Wright’s law refers to the manufacturing cost reductions that come with scale.
I would suggest that the cumulative impact of the combination has had a potent effect on manufacturing costs of everything from the manufacture of simple widgets to solar panels, to the cost of human genome mapping. Wrights Law applies as scale builds, and technology provides a catalyst to a tipping point that radically alters the growth curve, after which the graph finds a new normal in the relationship between volume and cost.
Australia for lack of leadership, foresight and capital has shied away from the investment required to light that catalytic fire many times in the past.
A primary example is solar panels. We have known for a hundred years that solar energy could be harnessed. As a kid I used to burn leaves, paper, ants, and occasionally myself, with a magnifying glass. However, it took researchers at the UNSW to invent PERC (Passivated Emitter and Real Cell) technology in 1983 to kick off Australia being the international leader in Solar cell technology. Funding and the foresight to commercialise could not be assembled here, so the technology was used to develop the manufacturing industry in China, where Wright’s law has facilitated the growth of a dominating share of the world market for wafers, cells, and completed solar modules.
Forecasting manufacturing costs is at the core of every successful manufacturer. While in the early stages of commercialisation there will be a host of variables you need to be able to model, understanding the relationship between your cost base and scale will remove a significant weight from your shoulders when planning capital requirements.
Australia again finds itself on the cusp of being an international leader in Quantum computing, biotechnology, Hydrogen sourced energy, and rare earth extraction and value addition. Let’s not allow ourselves to be distracted this time, we may not get another chance.
Successful economies all have one thing in common: they manufacture stuff others want to buy. Australia’s history is littered with great ideas, and technical innovations that are commercialised elsewhere for lack of foresight, leadership and capital. We would be desperately stupid to let it happen again!
