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?
Jun 15, 2021 | Branding, Marketing, Strategy
A few weeks ago, Apple released an upgrade of their operating system, iOS 15. This release includes a (potentially) monumental change in the digital world of communication. Its default is to turn off the ability of a third party to track your online activity. If you are relaxed about being tracked, you can opt in and continue to be tracked.
This will be an opening shot in a war between very powerful vested interests.
For years there has been genuine and rapidly increasing concerns about the volume and use of the data collected by apps, and the privacy invasion and leverage that data can generate. As the concerns grew, so did the mumbling from the advertising industry about the value of targeted ads, and soothing bullshit from Facebook.
Apple has gone in hard by making opt-out of tracking the default of the new release. I suspect Apple sees it as a point of competitive leverage that they can exploit. Their advertising is making this differentiation not just clear, but an explicit reason to move to Apple.
I think it is an absolute game-changer.
There are several dimensions to the vested interest battles I expect:
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- Facebook Vs Apple. The business model that has made Mark Zuckerberg one of the world’s richest men, and arguably one of the most powerful, is based on the ability of Facebook to track activity and market their ad services based on that ability to target. Removing that ability will compromise that model, and Zuckerberg has not demonstrated any sort of tolerance to any interference to his ability to accumulate more and more billions.
- Apple Vs Android. For many consumers, the ability to turn off tracking will deliver a valuable competitive advantage to Apple over Android. This presents Google, the owner of the Android system with a dilemma. Do they follow and compromise their own ad business, or allow Apple to retain such an advantage in mobile computing? Indeed, is the attraction of an automatic ‘No cookie’ environment as strong as I anticipate?
- Regulators Vs Tech. For the past 5 years or so, regulators have been suggesting that some sort of regulatory framework was necessary to protect the privacy of consumers from the rampages of ad targeting. At the same time, regulators have demonstrated a rancid inability to even understand the basics of the challenges that such regulation will face in implementation, enforcement and unintended consequences.
- Advertisers Vs Ad fraudsters. The emergence of ad fraud because of so called ‘programmatic’ digital advertising, has offered fraudsters the opportunity to milk billions out of the system unhindered. Advertisers controlling large budgets have been largely unwilling, and perhaps unable to stem these losses, so just paper them over with cliches and bullshit. In a 2017 presentation to the IAB, Marc Pritchard the CMO of P&G publicly took a stand against the ‘crap’ as he called it spawned by digital channels. Crap ads, and the fraud perpetrated by those who assembled digital advertising inventory. The P&G initiative to stop advertising in the absence of hard data about the reach to humans rather than bots, and the location of ads placed, was followed by several other major advertisers. Sadly, the words were more hollow than substantial, as the fraud continues. The fraudsters will not go quietly, and based on performance to date, advertisers are too timid, or seduced by the seeming ease of reach, to do much. Dr Augustine Fou in his research highlights the tactics, breadth and depth of the fraud being accepted by advertisers.
- Consumers Vs advertisers. Marketers have found their ability to communicate compromised by the never-ending demand for new and different content to throw at the digital channels. They no longer have the time, and increasingly the inclination, to do the foundation work that leads to creativity and advertising cut-through.
Apple’s advertising revenue is very modest, by comparison to Google and Facebook. It has little to lose from this change. Facebook and Google by contrast have huge ad revenues. In Facebooks case, advertising is 98% of its total revenue, for Google the number is about 80%.
This change by Apple, if it creates a surge of iOS market share from its current 15% will compromise these revenues, and erode the business model of both Facebook and Google.
It certainly creates a strategic dilemma for the Google owned Android software, powering around 85% of mobile devices currently. Do they follow Apple, or take another route?
For marketers who understand ‘marketing’ as distinct from the digital ‘new shiny thing’ syndrome, who treat ‘marketing’ as an integral part of their investment in future prosperity, it will be a boon. They will be much better placed to leverage real marketing skills that the large businesses have lost.
To the question posed in the headline: the degree to which consumers demonstrate they value privacy, will be measured by the rate at which they will switch to Apple to protect it. Alternatively, if Google decides to follow with Android, game over.
Note, an hour after publishing: I omitted to mention above that Google pays Apple something around 12 billion a year to remain the default search engine on iOS and Safari. This is so Google can collect information on your searches on Apple. For Apple, it is money for jam. If I am right, and there is a significant move towards the auto opt out in the new iOS upgrade, this 12 billion will erode over time, so Apple does have a bit more skin in the game than noted above.
Header cartoon credit: Dilbert explains tracking codes.
Jun 7, 2021 | Branding, Marketing
Brand is underplayed as a source of economic power in B2B. We seem to default to the tactical marketing tools used in B2C too easily.
Over the years I have concluded that there are only two core elements in B2B brand strength:
Trust.
Service.
They are mutually reinforcing, or indeed, depreciating, and are both multi-faceted, with variations that are as varied as the businesses that deal with each other.
The dictionary definition of Trust is something like:” A statement that is taken as truth in the absence of anything more than the word of the party giving it”.
So, trust is based on doing what we say we will do.
The definition of service would be something like: “An act of selflessly helping someone else”.
Again, as varied as the contexts in which it is used.
Clearly however, service drives trust, and trust is the fodder of service, and both go both ways.
You still must do all the stuff to get customers inside the tent, once there, they have at least once, accepted that you will do as you say. Do that, and the reasons they might move on for the next time are way more limited than if you fail on some dimension of the service that they believe is important.
Therein lies the dilemma. Every business sees ‘service and trust’ in their own context, within their own definitions of ‘Value’.
It is your task, as the seller to unravel that often unclear ball of expectations.
When you think you would benefit if your customers trusted you more, give me a call, an audit of your trust profile with customers may be enlightening.
Header cartoon credit: Scott Adams’ alter ego Dilbert does it again.
May 13, 2021 | Branding, Customers, Marketing
Having a point of differentiation that is sustainable, and sufficiently valuable to customers that they are prepared to pay for it, is marketing’s holy grail.
Everybody seeks differentiation, the challenge is to do it effectively.
It seems to me there are three dimensions:
The first is the product itself, pretty obvious. The benefits that the various product features that add the differentiated value to customers are not easily replicated by competitors.
The second is the means by which you deliver those benefits, which is your business model.
A valuable differentiation is one that competitors cannot or will not replicate without great expense and effort. Some of these evolve out of a significant change in the prevailing business model, such as happened when Amazon started to sell books, but most happen incrementally.
It is relatively easy for a competitor to copy one or two things you do, and usually they will get it pretty right, even 99% right. However, when you do a whole lot of things together, it is harder to copy them all, and even if they do, getting 5 elements of your strategy copied at 99% accuracy, delivers only 95%. Few customers will opt for 95% without a significant discount.
The third is the choices you make that exclude some customers but have an impact on your ability to better service those who remain. This is a strategic choice you make based on the needs of your ideal customer.
Years ago, part of my sales responsibility for my employer at the time was for the regional distributors we used. Across NSW we had numerous small distributors, most of whom took small amounts of product on each delivery. The logistic costs were often more than the gross margin on the sales, but the sales revenue in total was significant. I took the decision to deliver only in 1/2 pallet lots of any product, and put in a staged discount for increased pallet numbers. After the initial yelling finished, most distributors moved to one of our competitors, along with the margin losses. We were able to increase the levels of support we gave to the remaining larger distributors, and they were able to significantly increase their sales, and our costs dropped accordingly. That segment of distributor customers suddenly became profitable after years of losses.
If you cannot figure out how to differentiate in ways that are meaningful to a cohort of customers, you are destined to be defined by price.
No future in that!
