Feb 24, 2025 | Analytics, Strategy
The ‘Power law of Distribution’ or ‘Zipf’ distribution, can be used as an adjunct to the much better understood Pareto principle.
There is a consistency to the structure of mature markets. There is a dominating leader, followed by a long tail of smaller competitors. The size rank of an enterprise inversely correlates with its market share.
This is the Zipf distribution at work.
Zipf comes from the study of linguistics, where the probabilities of the frequency of words occurring in a written piece was identified by American Linguist George Zipf in 1935. In summary, the characteristic of a Zipf distribution is that the most common item appears approximately twice as often as the second most common, and three times more often than the third most common, and so on.
For example, the most common word appearing in an English text is ‘the’ which appears twice as often as the second most common word ‘of’, and three times as often as the subsequent word. This relationship has been validated across languages and the sophistication of language use via the free Gutenberg Project, a free database of 30,000 works. The obvious use is in the statistical probability calculations used to generate the tokens that deliver us output from AI platforms. It also powers the language translation capabilities of digital tools.
Zipf distributions occur across many domains beyond language. Income distribution, population sizes, numbers tuning in to TV shows, and followers of so called ‘influencers’.
So, how do you use this when thinking strategically about how to break into a market where you are somewhere in the long tail of a Pareto chart?
It is a problem faced by most businesses in competitive markets. The big players get all the attention, leaving little for the small players to fight over.
The answer: Identify an existing niche and own it, or better still, create your own niche, and be the dominating player in a Zipf distribution for that market segment.
Fragmented markets with a wide range of competitive offers tend to consolidate over time into a small number of players that dominate. Typically, the number one competitor evolves to be double the market share of the next.
This occurred when ‘Meadow Lea’ emerged from the crowd of margarine brands in the late seventies. It became the dominant brand with a market share over 20% (at a premium price) with the next brand in line, ‘Flora’, having a share from memory that never climbed over 8%. Then came ‘Miracle’ margarine maxing out at about 5% before going down the gurgler.
‘Apple’ created the smartphone niche, which then became the whole mobile phone market. They led the emerging market in volume until Google released Android, and allowed anyone to use it. Apple no longer holds market volume leadership, currently they are around 15% volume share, but still hold profitability leadership at about 80% of mobile phone profit share, a clear example of a Zipf distribution.
Which would you rather have?
These ‘Zipf dominators’ do not happen by accident.
They are created by a combination of the identification of unmet demand, creation and/or leveraging of a market niche, and an emotional connection compounded by long term brand building.
When you are the second brand, chasing a Zipf dominator, life is tough. It will take strategic insight, investment, time, and perseverance to prevail. Critically, it also requires a deeply strategic analysis of customer behavior and needs to be able to see the ‘white space’ than becomes ‘Zipfable’
Header George Zipf courtesy Wikipedia
Feb 18, 2025 | Marketing
In a world of homogeneity, marketers that focus on delivering customer value via the ‘product P’ in the four P’s’ will win in the end.
The age of cost cutting the minutiae to drop a fraction more to the bottom line is over. As Zig Ziglar once said ‘when the crowd is zigging, you should zag’.
Years ago, as product manager for Fountain tomato sauce Management constantly pressured me to reduce costs. At the time Fountain was runaway market leader at premium prices In New South Wales and had solid share in Queensland and Victoria. The challenge to reduce costs came down to replacing the tomato content with something else that was cheaper. To reach the arbitrary reduction goals, we had to skip on tomatoes which represented about 60% of the ingredient cost, and 35% of Cost of Gods Sold.
We were skimming those tomato ingredient costs, compromising the product quality for what amounted to a few cents.
Over the years, cost-cutting had reduced Fountain to the point that it was no better and little different to the alternative products on the market. Fountain had maintained the ‘Rich Red Fountain Tomato sauce’ advertising position for 40 years, although it had become progressively untrue.
No ‘richer’, no more ‘red’ than any other tomato sauce on the market.
It had seemed to cost-cutters over the years that a slice off a cut loaf was never missed. Until, suddenly, the loaf was no longer of any differentiated value.
In frustration I asked the lab to make up a sample from the original recipe and put it into the latest taste-testing. The difference between the original recipe and the current one, before any further cuts, was dramatic. The panel, which included the MD chose the old recipe as being by far the best option.
While the planned round of cuts was shelved, no further move was made to restore the original recipe, and for being a smart-arse, my career opportunities were suddenly limited. Subsequently the combination of an ordinary product, and an eroding brand position resulted in Fountain becoming just another commodity product in a market it used to dominate.
That erosion of market position and long-term profitability could have been avoided by a very modest reinvestment in the product, and associated brand equity.
Feb 14, 2025 | Governance, Leadership
Trust has been trashed. Governments, institutions, and entire communities have eroded it for decades. The decline started in the late ’60s and has not slowed.
We are heading into an election in a few months.
Last time, both major parties barely scraped a primary vote in the 30’s. In my lifetime, that number has dropped from close to 50%.
People no longer trust the system.
I’ve been around long enough to remember when this rot set in. The Vietnam War was the turning point. The official reports were a little more than wishful thinking and deception. Every night, TV screens told a different story from what the official version of what was happening told us. It was the start of an endless conga line of lies, misdirection, and cover-ups that continue today in Europe and the middle east, as well as everywhere else it seems.
As the lies piled up, trust in institutions crumbled. For years, the erosion was slow. Then, in the mid-’90s, the internet arrived and kicked it into high gear.
Suddenly, we had access to opinions, ideas, and facts that had been previously unseen by all but a few. Today, we carry the internet in our pockets. The moral authority that institutions once held is gone. They may still have legal power, but their credibility is best likened to an old fashioned snake-oil salesman.
The world has shifted from ‘Ownership’ to ‘Performance.’
Consumer behaviour and expectations have changed far more quickly than the institutions that supposedly govern that behaviour. Ownership is way less important than previously. It is being replaced as we speak by ‘Utility’. Increasingly we seek to control the outcome far more than we seek to control the means by which that outcome is achieved.
We don’t want to own cars. We want transportation. We don’t need DVDs. We want instant access to movies, music, news, and so on.
Business models have shifted from ownership to pay-as-you-go. The advantage is the reduction and often removal of entry and exit costs. Without sunk costs, we are free to move when we become dissatisfied for any reason.
People now pay for results, not promises. Performance, not possession. That means institutions of all kinds, including businesses, must be transparent and accountable.
Trust, Accountability, and the Business of Outcomes
I’ve spent 25 years as a consultant, building trust by guaranteeing outcomes. I’m not McKinsey with a glossy reputation. I’m an old bloke who’s been there, done that, and has the results to prove it. Clients trust me because I make them a simple promise: if I don’t deliver, they don’t pay. That’s real accountability.
Banks, politicians, corporations, service providers, every institution of every type, should take note. People aren’t buying your stories anymore. They are buying results, and they have the wherewithal to check your claims against the outcome.
Even churches face this challenge. Selling faith has worked for centuries, but evidence of the afterlife only comes after you’re dead. That makes customer retention an act of faith only. That said, religious institutions are among the best marketers in history. If anyone can adapt, they can. However, to an agnostic like me, they have not shown anything like the agility required to retain followers as the capacity for critical thinking and fact checking increases.
The bottom line? Humans need something to believe in.
If institutions want trust back, they need to earn it, not just tell us they deserve it.
Feb 10, 2025 | Leadership, Management
When most people hear the word dissent, they think, troublemaker.
And sure, dissent can ruffle feathers. It challenges the status quo, pokes at comfort zones, and often triggers defensiveness or knee-jerk loyalty to “the way we’ve always done it.”
But here’s the thing: dissent, when done right, is one of the sharpest tools in your decision-making arsenal.
Dissent can expose blind spots, cracks in logic, and perspectives you might otherwise miss. It’s also constructively contagious. When one person feels safe to question the narrative, others find the courage to share their own opinions. That is how real progress gets made.
Too often, dissent is misread as a personal attack. Instead of hearing a critique of an idea, people take it as a critique of themselves. Cue the drama, defensiveness, and derailed conversations.
This is a sensitive balancing act for leaders.
Effective leaders know dissent isn’t just a “nice-to-have,” it’s essential. If you’re surrounding yourself with “yes people,” you’re not leading, you’re herding.
Leadership means being secure enough to invite challenges to your thinking. It says, “I care more about the right outcome than about being right.”
I once worked with a leader who actively encouraged what he called “impersonal dissent.” It was not a free-for-all. It was a structured process where we played devil’s advocate on every significant decision. The thinking was simple: the more diverse the viewpoints expressed, the more we leveraged available relevant data, the better we would understand the problems, explore possible solutions, and therefore optimise the odds of a positive outcome.
One plus one was not just three, it was exponential in value.
But here’s the kicker: it wasn’t a democracy. When all the arguments were on the table, the leader made the final call. And when the decision was made, the dissenting voices stopped, by convention, the decision became a group decision which all supported. That balance between encouraging dissent but knowing when to move forward was key to our success.
I discovered the downside when that person to whom I had been reporting left the business. I was elevated into his role, now reporting to an MD of the group whose view of dissent was different. Being still young, and somewhat impervious to his displeasure, believing I had the runs on the board to claim the right to ask questions and argue a dissenting perspective, I did not last beyond the first ‘restructure’.
Header courtesy Scott Adams and Dilbert.
Feb 6, 2025 | Analytics
The Rule of 72 is a ‘rule of thumb’ calculation used to quickly estimate how long it will take for an investment to double in value, given a fixed annual rate of return.
It was first introduced by Italian mathematician Luca Pacioli in 1494, a collaborator of Leonardo Da Vinci. Pacioli is best known as the codification of double entry book-keeping, and the reporting of transactions via journals and ledgers, and outcomes via profit and loss and balance sheet.
His Rule of 72 is widely used in the initial ‘back of the envelope’ assessment of investment options.
The formula is: Years to double = 72/Annual rate of return.
For example, if an investment has an annual rate of return of 8%, it will take around 9 years to double. (72/8 = 9)
The rule can be used to make reasonable estimates of a range of outcomes, such as how long it will take for money to lose value due to inflation, the impact of compounding interest on debt, and evaluating the impact of service fees.
Be careful however, at best the calculations will be estimates, reasonably accurate at rates between 5% and 10%. Outside this range, the accuracy will suffer due to the non-linear nature of compounding growth.
