Nov 5, 2021 | Branding, Change, Governance
I cannot let the name change of ‘Facebook’, to ‘Meta’, go uncommented.
They are not the first to undergo a name change, for a range of reasons. Mostly they are to escape bad publicity, sometimes because it made some strategic sense to do so given the nature of the business had changed, and I suspect a few because of a brainfart in the boardroom.
Google changed to Alphabet, Philip Morris changed to Altria, Tribune Publishing (owner of several major newspapers in the US) changed to Tronc, then changed back to Tribune Publishing, (unexplainable) Blackwater changed to Xe Services, then on to Academi (no escape from a nasty history) Quikster changed to Netflix, and the list goes on.
Meta is an odd word, being self-referential, and often the first syllable of other words that mean change, such as metamorphose, and metabolism. It is also a word the few late teens I know use as an expression of surprise, or pleasure: even they cannot adequately define it.
Nearly 5 years ago, I wrote a post focussed on the ‘Moats‘ Facebook had built around itself. This latest move is one that adds a further dimension to the moat analogy, throwing a wide moat around the whole Facebook empire, while at the same time, attempting to separate the individual components of the castle inside the moat into (supposedly) more independent entities. It least, that may be the theory, although I see no change happening inside the moat, just more defence of the status quo.
Perhaps it is just a defensive move in response to the series of damaging leaks to the New York Times and other outlets by former senior executive Frances Haugen. Make the eggs that much harder for regulators to unscramble?
I watched Mark Zuckerberg explain the change in a video, and remain somewhat confused. He claimed the driver of the change was his vision of the future, and the technologies that will deliver it. I am very wary of that fluffy, tech friendly story. The current technologies and impact of all the Facebook stable of products are very similar. They collaborate to deliver some really nasty stuff kept hidden amongst the many useful tools. All this in the name of ‘connection’.
Will Meta take some of the pressure off Facebook and Mark Zuckerberg? I doubt it, but I also suspect if you asked Zuckerberg, and managed to get the truth out of him, he really could not give a toss.
Oct 18, 2021 | Branding, Marketing, Sales
In competitive markets, price is a bit like a game, typified by the ‘prisoners dilemma’ of game theory, where two players acting in their own self-interest will result in a suboptimal outcome for both.
In the classic scenario, you have two people, suspects of a crime held in separate rooms with no means to communicate.
The copper tells each of them that if they confess and testify and the other does not, you will go free.
If you do not confess and the other does, you will get the maximum sentence of 3 years.
If both confess you will both be sentenced to 2 years.
If neither confesses, there is enough evidence to have you both serve 1 year.
The result is that if the prisoners act out of self-interest, the result is worse than if they had cooperated.
When you consider this in a competitive duopoly market, to keep it simple: what happens if one party cuts its price?
The other has the choice of cutting theirs to match, which inevitably results in less profit for both if competitor two cuts their price in response. However, if the reaction of the second mover is to keep their prices up, they might sell less, but very probably make more profit. The price cutter will be relying on selling more at the lesser price to increase profit, or grabbing market share which is usually the driver, because of the added volumes.
Given most organisations have KPI’s around sales volumes, the temptation to cut prices in the face of competitive activity is almost irresistible, despite the profit impact which is often ignored.
The Fountain Tomato sauce story: I joined Cerebos back in 1981. Fountain Tomato sauce had a share in NSW of about 40% of volume and 50% of value. Fountain sold for .72 cents for the 600ml bottle, I remember the numbers well. A short time after I joined, discounter Franklins brought out No Frills tomato sauce, on shelf for .69 cents,
The sales force was in a panic, as Fountain was a big part of their sales and they insisted that we had to drop the price to match No Frills or lose huge volumes.
I did the numbers, and convinced the marketing manager, and MD to overrule the sales manager, and we put the price of Fountain up, so it was on shelf at .81 cents, and we started advertising: ‘Rich Red Fountain Tomato Sauce’
The logic was that Fountain at .72 and No Frills at .69, were very close, so the consumer found it sensible and easy to save a few cents, as after all, they must be pretty much the same if the price was so similar.
However, at a price difference of .12 cents, very substantial in percentage terms, but not particularly significant in the mix of a weekly shop, consumers figured that they had to be very different. Fountain had to be the far better product, and the advertising we did confirmed that view. More tomatoes, no filler, ‘Rich Red Fountain tomato sauce’. Our volumes did drop marginally, and our profits went up.
This outcome was not just instinct, it was based on research and experience.
‘No Frills’ margarine was the very first cheap housebrand on the Australian market. It was proposed and supplied by the business that at the time owned Meadow Lea margarine, my employer. I had done quite a bit of research after the launch of No Frills margarine to understand the consequences, and so was lucky to be in a position where I had some understanding of the dynamics that were at play, without at that time having any solid idea of the psychology that drove them.
Later, both Fountain and Meadow Lea allowed the retailers to dictate their strategies, so redirected advertising funds into price promotions, boosting the retailers margins and destroying their brands. Both Fountain and Meadow Lea are now just ‘also-rans’ in their markets, (judging by shelf presence) and neither would be anywhere near as profitable as they were in their heyday.
The lesson is that the intense pressure to reduce price as a competitive reaction is almost always a very bad choice. Resist the pressure and protect profit, without which you will be out of business.
Sep 13, 2021 | Branding, Marketing, Strategy
One of the most quoted of quotes is attributed to Ralph Waldo Emerson: ‘Build a better mousetrap, and the world will beat a path to your door’
Unfortunately, Mr Emerson got it almost entirely wrong.
The better product, on its own, never wins. Just being ‘better’ is simply not enough to win that competitive battle with incumbent but technically inferior products. I am sure there are a few exceptions, I just cannot think of any.
Why is it so?
Several common reasons pop up as I survey the field of my experience.
Customers must care.
What is the value of being different, technically superior in some way if customers do not recognise the value of that differentiation to them? If customers do not care then you will fail, despite the supposed superiority of the alternate. Customer indifference is often the reality, uncoloured as they are by the marketers enthusiasm for the new, improved features.
Peer pressure
We are social animals, and while we do like being one up on the next person, being a long way up puts us outside the herd, and therefore vulnerable to all sorts of attack.
Risk aversion
Doing what you have always done is safe, you know it works, so there is no risk. A change of any type invites risk, which we are shaped by evolution to avoid. While risk aversion varies enormously between individuals, it takes a significant effort to change from the riskless to the riskier, even if the change is slight. In addition, often we simply do not see the alternatives. Consider your own behaviour in a supermarket in commonly purchased categories. There might be something new, perhaps better, but you simply do not see it in the process of pushing the trolley down the aisle trying to get out as quickly as possible.
Habit.
Doing simple things without thought frees up cognitive space to spend in more productive ways. We develop habits, repeated relatively mindless actions as the tool to enable this more productive use of our cognitive capacity. As with risk aversion, it is an outcome of evolutionary psychology that we leave as much capacity as possible free to react quickly and decisively in a tough situation.
Incumbents leverage entrenched distribution channels.
Combined with the four above, incumbents have a huge advantage in that they have access to distribution channels that newcomers must buy their way into somehow. While it is a standard barrier to entry, it costs money to overcome, which leaves less cash available for other activities designed to counter the four above. Again, consider supermarkets. In this country (Australia) two supermarket chains have around 70% of FMCG sales. For a newcomer, no matter how superior to existing alternatives they may be, they must ‘buy’ distribution. This leaves less money available for advertising, and other demand generating activities. It is also easier for incumbents to ‘channel-stuff’ in the lead up to a competitive launch. I have both used this tactic, and been on the receiving end many times, and it works.
If you want to win the war on mice, do not just build a better trap, figure out a way to stop the buggars breeding in numbers in the first place. That way, the solution to the problem is both sufficiently different to be noticed, and it overcomes the value of incumbency given to the existing trap makers.
Sep 6, 2021 | Branding, Marketing
Value is not ever just a function of the sticker price. In commodity markets, it may appear to be close, but will never be the same for all buyers.
What might offer value to one person is often absurd to another.
Value is equated in each buyers mind differently, and is related to the ‘Utility’ derived. Utility is a combination of the physical and psychological responses, specific to the individual.
Currently the most expensive NFT (Non-Fungible Token), the artistic equivalent of Bitcoin, created by artist Michael Winkelmann, brought $69.4 million US in an auction by Christies in March this year.
It is a piece of digital artwork, which you can download for free, a perfect copy of the original, for which someone paid $69.4 million.
At the absolute opposite end of the Fungible scale, we had Billy and Beatrice Cox pay artist, and I use the word cautiously, Maurizio Cattelan $120,000 in December 2019 for a banana taped to a wall in an art gallery. Someone obviously failed to appreciate the artistic value, so later in the day swiped the banana and ate it. Price, .50cents at Woolies.
Value is a continuum, from the extreme where the dollar is the only measure to where there is just some unexplainable value to a few people, like an NFT, or perhaps a pet rock, or an artistic banana.
The reality is that ‘the price’ is just what someone is prepared to pay. It has nothing at all to do with cost, which is the basis of most price lists I have ever seen, and everything to do with psychology.
Price and value are not the same thing, ever.
Go to Bunnings and buy a box of nails, it is the same as every other box of nails, but those nails hold your million dollar house together. Think about it in that context, and it may influence your view of the value of the nails.
Price is just the easiest way to articulate the product/service package we deliver, but it is one dimensional, just a small part of the whole, and fails to put any value on the benefit a customer receives by using your product/service.
It is our task if we are to stay in business, to find a way to articulate the value in terms other than price, while recognising that we need to be paid more than our costs to stay in business.
One of my favourite stories about value generation comes from Rory Sutherland. He proposed a creative alternative to spending billions to speed up the Dover to Paris train journey time. He suggested that instead, they just buy up all the back vintages of Chateau Petrus, obtain the world’s last inventory of genuine fresh caviar, and have it served by supermodels (male and female to avoid any problems) on the journey. The result would be that everyone would demand the train to be slowed, and the savings would be sufficient to feed sub–Saharan Africa for a generation.
Whimsical, but no doubt right!
Somewhere in the mix of tangible and intangible outcomes is our sweet spot, the price. It will vary enormously depending on the individuals and circumstances involved.
That is why it is so fundamentally important to know your ideal customer, as well as your own costs, so that you can both satisfy their varying needs, and make enough profit to build commercial sustainability for yourself.
An expert can often uncover ‘value’ you might not see. The old trees and forest metaphor at work.
Aug 20, 2021 | Branding, Social Media
As regular readers would know, I write a lot.
There are a number of challenges faced every day as I scribble another blog post.
- Using several words when one might do.
- Writing long sentences.
- Using words with a clear meaning to me that may not be as clear to others.
- Not having a simple, sustaining idea for the post: no ‘Hook’.
The last one is the most potent challenge, and why I have masses of material that varies from a few words, to a sentence, to completed posts that never made the ‘cut’ to be published.
As I struggle along, I often think of two stories that make the point.
- Mark Twain writing a letter to his wife, apologising to her for writing a long letter, as he did not have the time to write a short one.
- A well-known Hollywood producer only accepting unsolicited scripts when the idea behind the script was distilled so that it fitted on the back of a business card.
That distilled brevity is what made the 140 character limit on Twitter so powerful. Once they doubled it, the blather more than doubled, and I stopped using it.
It would be nice to be missed by a few, but it is better to be ‘twittered’.
Jun 21, 2021 | Branding, Marketing
Retailer ‘brands’ have taken a huge toll on the ability of proprietary marketers to profitably market their brands and build markets in FMCG.
A proprietary marketer may spend several years and make a huge investment in product R&D, market research, advertising and listing fees in various forms in order to get a product on shelf. They carry all the risk in this exercise.
Retailers carry no risk beyond the inventory risk when they choose to stock a new product. That inventory risk would normally be mitigated by the supplier, at least partially in the deal to secure initial shelf space.
Retailers have at their disposal detailed information about the performance of every product on their shelves. Volumes, margins, behavioural data such as what consumers have in the same basket, what products have been removed by consumers from their basket, and price sensitivity and elasticity.
Based on this information, they can reverse engineer formulations, and have a contract manufacturer supply a direct copy very quickly, with very little risk.
An innovative proprietary product will normally be supported by advertising, which will also often benefit the housebrand product.
If a small manufacturer copied a product and launched it into the market, perhaps via alternative channels, the proprietary marketer may have the option of legal action for passing off. It is illegal to mislead consumers, yet this is happening every day on supermarket shelves, in the name of choice.
It seems a different set of rules applies to the major retailers who have all the power in the relationships.
Over the time I have been watching FMCG markets, the level of investment in product R&D, and brand building has declined substantially. Many brands that had created and built markets have virtually disappeared. The investments previously made in product and brand growth have been directed towards retailer profits, and to be fair, consumers have benefitted by lower prices in some product categories. The downside is the lack of innovation and category building which delivers benefits over the long term, that has occurred as a result.
I do not have an easy answer to the dilemma faced by marketers, and it would be suicide for any manufacturer to sue Coles or Woollies for passing off a housebrand, but in an idle moment, it may be a question worth asking?
