The unfortunate unintended consequence of Google.

The unfortunate unintended consequence of Google.

Jan 13, 2022 | Customers, Marketing, Strategy

 

Google has been a revelation, all the answers you need at your fingertips, or so it would seem.

What is the consequence of this instant question gratification?

Do we ask better questions, or just more superficial ones?

Does the volume of questions we ask, to which there are instant answers, substitute for the value of the fewer but deeper questions we used to ask?

My clients and those in my networks hear me rambling on about what I regard as the key to success. That single characteristic I have seen in all successful people I have known, and watched from a distance. Yes, they are all smart, and yes, they are all motivated to success, but underlaying those two factors is a third characteristic:

Curiosity.

I have never seen someone who is smart, and successful, who is not also curious. I have also seen many who have both of those characteristics, but are not successful. Generally, they strike me as not being also curious.

I use Google and Wikipedia every day to answer questions that emerge as I service clients and write this blog, but neither offers the catalyst to a post. That catalyst is curiosity, sated by the deep but selective ‘backgrounding’ I do of books, podcasts, blogs, journals, and absorbing informed commentary.

They are where the catalysts are hidden, uncovered by curiosity.

Social media, Google and Wikipedia specifically have sated our curiosity at a superficial level. No longer do we have to search for answers to questions, they are dished out for us, making life easy, but reflecting the superficiality of the answers to the superficial questions we ask.

Are our lives better because of this ability to get immediate answers to questions?

Undoubtedly yes, but are the questions as useful, offering the deep insights found as we used to dig around for answers, often finding that the initial question was inadequate, superficial, or simply the wrong question.

I like books, my car is a mobile library from which I can consume from a menu of offers in the idle moments between the busy times out of my home office. The one I pick at any time is most likely the one that relates to a question on my mind at that time, or that throws light on a topic of current interest.

Thanks Google and Wikipedia, you have made my life easier, both because I can find the answers to superficial questions, and because most of my competitors stop there, at the superficial.

You need books to go deep.

 

 

 

 

 

What is the right price?

What is the right price?

Dec 13, 2021 | Customers, retail

A dictionary will define price as something like: “The amount of money for which something is sold’ 

Pretty obvious.

However, price can mean many different things to different people in different contexts.

Years ago, I ran a food manufacturing business that sold product through multiple distribution channels. Supermarkets, route trade, distributors, food service, direct via our own vans, and export.

The pricing architecture had a common starting point, the ‘List price’ after which everything changed depending on a wide range of factors such as: the relative power of the channel, volumes, payment terms, negotiated promotional and incentive programs, supply and demand at any specific time, geography, variable freight charges, seasonal factors, clearance prices, rebates, and others.

Exactly the same products, subject to a whole range of variations, both formulaic and negotiated.

In that complexity, how do you define what the ‘right’ price is?

At one point we made the attempt to calculate the actual price based on the net cash flow from the products and customers. In the days before flexible digital tools, this was a brain buster, and consumed too much time and effort to deliver a return, but was a good idea at the time.

Added to the complexity which discourages most from developing the understanding necessary to optimise whatever the net price ends up being, is the impact of unintended consequences and the channel conflict that is almost inevitable.

For example, the small retailers we serviced saw their competitors as the supermarkets and were very noisy indeed when they could buy a case of product at Woolies cheaper than they could buy it direct or via a distributor. They did not care about the nuances of our pricing architecture, or the fact that they might buy a case, and a supermarket buy multiple truckloads. Their concern was serving their customers by not having them go to Woolies for cheaper prices, while remaining profitable.

As a young bloke doing the backpack thing around Europe, I stayed at one point for a few weeks on a small Greek island. On the occasions a cruise ship came in, the retailers of all types simply substituted one price list and price display for another, somewhat more expensive. The locals knew not to buy that day. Amazon takes that flexible pricing strategy to the limit with its use of your browsing and purchase history to automatically set the price their algorithms indicate gives them the best combination of the purchase being made at the maximum margin.

So, what is the right price?

Whatever you and the buyer who completes a transaction determine it to be, in those circumstances, on that particular day.

 

 

The day we went broke being successful.

The day we went broke being successful.

Nov 29, 2021 | Customers, retail

 

On Friday last week, I had to go into the city. About 10.00am I turned up at Town hall station, and the shopping precinct around it was crowded, people lining up to get into shops that a few days previously were deserted.

It took me a while to realise that it was ‘Black Friday’.

Retailers were making extreme offers to generate a sale, and seemed to be succeeding. When I got back to my home office and opened my computer, it was deluged with digital ‘Black Friday’ specials from everyone to whom I had deliberately or inadvertently given my email address since 2010. ‘90% off Black Friday Special’ was not an uncommon header.

‘Black Friday’ is the wrong description, coming as it does from the US where it joined Mother’s Day and Father’s Day created by Hallmark cards, as a marketing construct. In contrast, Black Friday should be called ‘Stupid Discount Day’ or ‘The day we went broke’.

The attraction of deep discounts does a few things to a retailer’s sales numbers:

  • Generates volume, (hopefully) sometimes at a loss on the discounted item, so retailers are hoping you buy something else at the same time to recover margin. This volume comes, if it comes, with the advertising costs. For a small retailer, these costs might be just a few banners in the window, and someone outside the store spruiking, but are more likely to  include some email marketing, and social media posts, and usually some of which are paid to generate reach.
  • Rewards non-customers who buy once, try, and you hope come back. Rarely happens, especially in the madness of a mass discount.
  • Attracts the worst customers, those who never buy anything at full price, who only chase discounts. It is often these same customers who create most customer service costs.
  • Rewards existing customers who would have bought anyway at full price This usually results in a ‘pantry stock’ that kills sales and margin in subsequent periods.
  • Erodes brand positioning, sometimes built up over years, establishing a new ‘base price’ for their products and brands.

Most of the offers in my computer were for digital products, where the marginal cost is zero, so they can give away 90% price and not go into the red. Bricks and Mortar retailers, the ones with queues outside them in the QVB, Town Hall station underground mall, and the giant Westfield next door do not have the luxury of zero marginal cost.

I suspect many of these retailers are desperate after 2 years of struggle, and desperation often leads to very poor decision making.

Hopes that deep discounting will increase volumes sufficiently to recover margin are almost always in vain. When you do the numbers, depending on the gross margin, and additional promotional expenses, volumes have to increase by a factor of at least 3 or 4 in order to break even. The more frequent outcome is a very nasty shock when the P&L is done at the end of the month.

Anyone can sell anything at a deep discount. It does not make you successful, just thoughtless, desperate, stupid, or a bit of all three. The lesson should be, not to go broke being successful.

 

 

When is a price ‘guesstimate’ good enough?

When is a price ‘guesstimate’ good enough?

Nov 8, 2021 | Customers, Marketing

Many small businesses operate a job-shop business model for some or all of their revenue.

They do not produce products, then sell from inventory, they sell a product as specified by the buyer, which in the detail will be unique. However, from a higher perspective, there will be great similarity to many other jobs they have done, the experience from which is valuable.

This extends from engineering workshops, toolmakers, smash repairs, printers, and many others. Many SME’s I have seen deploy fancy estimating software that can and does cost the individual jobs down to the last fraction of a cent. The downside of this otherwise admirable level of detail is fourfold:

  • It is too easy to make a mistake telling the software what to cost, and what comes out of the computer is rarely adequately questioned. This trust in the output of software can lead to significant blunders.
  • The time it often takes from the initial request, to estimate production costs, price approval, and communication to the potential customer
  • The customer does not give a toss about your costs, they only want the price so they can make a choice, almost always on a set of factors of which price is only one. Often a major one, but still only one of several.
  • The conversion rate from request to sale is often very low, particularly in commoditised industries like printing, so many resources are wasted, or margins are cut to secure a job because the operational equipment may be otherwise idle.

In these circumstances, a guesstimate based on industry knowledge and intimate understanding of the operational costs that comes from long association may be enough. It may not be as accurate in the detail, but will be close, and may meet one of the increasingly potent drives of customer behaviour:

Immediacy.

Take printing for example, an industry where I have had some exposure.

At the ‘small’ end, much of the volume has been taken by local instant print shops. They all operate with the same equipment, same material costs, at standard machine costs per piece printed. The total cost therefore becomes a function of set-up time, wastage, and overheads. In these cases, the conversion rate is more a function of turnaround time and convenience for the customer than anything else.

At the ‘bigger’ end, multicolour offset, and even more bespoke letterpress, price does become a larger factor, but still only one of a number: quality, service relationships, value add services such as storage and part delivery, artwork services, and turnaround times. In these cases, the profitability is obviously impacted by price to the customer, but also very heavily by the flow of jobs through the factory and machine utilisation achieved, to which customers are oblivious and uncaring.

The impact of increasing the flow of jobs that have the costings ‘roughly’ right, but delivered ‘on the spot’ to potential customers is huge. The resultant machine utilisation, combined with the conversion attraction of the quick turnaround sought by customers dwarfs the job profitability added by taking time to accurately estimate the last few percentage points of cost.

In one case, a printer I was working guaranteed a firm price and turnaround time within four working hours of receipt of the request. This often required judgements to be made based on deep knowledge of costs from experience, and a high level of control of the workflow. Early on, some mistakes were made, but the ‘guestimates’ became increasingly accurate when measured against the detailed software estimations, to the point where we needed only a small number of basic job parameters to be crunched by the software to get what proved to be a very accurate costing. Meanwhile, the immediacy of quoting increased the conversion rate substantially, which flowed into greater machine utilisation, which together delivered big increases in profit in an industry suffering poor profitability.

Sometimes informed guestimates of costs are the best way to build profit.

Header photo courtesy Wiki Media.

Set objectives by deciding what not to do.

Set objectives by deciding what not to do.

Oct 5, 2021 | Customers, Marketing, Small business

 

We usually look at objectives and goals as the things we want to achieve. We then set about figuring out the path towards achievement.

There are always hundreds of ways to achieve a goal. Often we find ourselves bewildered by the options, and procrastinating or picking a fuzzy path as a result.

Try drawing a line through the things you will not do to achieve the goal, rather than struggling to pick what you will do.

This will help focus on a path quickly that removes ambiguity and the many opportunities to be distracted.

Over the years I have worked with a number of SME’s in the food industry. In almost every case, the seductive promise of the volumes delivering profitability to be extracted from the two supermarket gorillas is there somewhere. This always confuses the focus on delivering value and building brands for those who care about quality and differentiation before price. In addition, the resources for mass marketing and promotion that are necessary for success beyond an initial flurry in supermarket chains are usually absent in SME’s.

Failing to Recognise the mechanics of the supermarket business model, and the resultant infrastructure necessary to service this model, is a major source of financial and strategic failure of many SME’s in this space.

In those cases, I encourage people to set their goals, by excluding the option of supermarket distribution. Instead, focus their minds on the many opportunities outside supermarkets that better suit the capabilities and resources available.

 

 

 

The three inevitable stages of successful entrepreneurial activity

The three inevitable stages of successful entrepreneurial activity

Sep 27, 2021 | Customers, Innovation, Small business

Every business starts small. The biggest on the planet all started somewhere, in a garage, dorm room, lab, somewhere between the ears of the entrepreneur.

Most fail, or at best deliver a return that would have been dwarfed by the interest on the same investment in a bank account.

Some however, do succeed, occasionally in spectacular fashion.

We all see the ones that do, they are shoved down our throats all the time as the heroes, the ones who made it, and we are asked the question, if they can, why can’t you?

There seems to me to be a pretty consistent sequence of growth, a sequence that holds true across all sorts of products and services, geographies, technologies, and circumstances.

Cheering.

This is the first stage, it is all enthusiasm, cheering from the sidelines, jumping up and down, wishing for stuff to happen. What it is about when you are in the midst of it all is hard grind, chaos, and cash.

At the beginning, you work your arse off, seemingly 24/7, with no letup. Everything that gets done depends on you doing it, you do not do it, it does not get done. Simple. It is messy, usually chaotic, as pressures come from every direction, your attention is demanded by each, which is why the 24/7, and still there is little forward progress.

Then there is cash. As you start, nothing is more important than cash. More start-ups go broke for lack of cash than every other reason combined. Managing your cash is simply the most important thing you must do.

Planning & doing.

Assuming you survive the cheering stage, you will have come to the point where you have a little more head time to be used considering ‘what next’. You probably have a small number of employees, and perhaps some outsourced services, like accounting and IT.

Answering the ‘what next’ question will be eating at your guts, as for sure you do not want to continue as you have been. Your kids are growing up without you, your family seem to be strangers, you have not had a weekend with your mates for ages.

So, you look forward to a different future and stumble into some planning. It is never as easy as filling in some generic template, of which there are plenty making alluring promises. It is more about the graft of figuring out how to accumulate and allocate the resources necessary to grow. While the game is still about cash, it has also become about profit, what is left for reinvestment at the end of the month, quarter, and year.

You plan your products and services, the foundation stuff you need to get right, like the legal and regulatory things that must be done, understand the financial and strategic pressures that are present, and settle for the moment on a business model that guides how you will turn your chaos into sustainable profitability.

However, a plan, no matter how good it may be at telling the future, envisioning new products, markets, and customers, needs one further ingredient.

It needs to be implemented.

Plans that do not get implemented are usually called dreams. You will also recognise the realty of the muttering of generals throughput the ages that while planning is essential, nothing ever goes exactly to plan, so you must be ready to be agile tactically, while consistent strategically.

Building & growing.

The essential ingredients to building and growing an enterprise, on top of the financial resources that enable that growth are threefold:

  • People to do the work,
  • Processes for people to follow, and over time, optimise,
  • Retention of the hunger and freedom that enables innovation.

The great paradox, and downfall of many if not most successful businesses is that they get the last one wrong, as they optimise risk out of their processes in favour of certainty and continuity of the status quo.

The task of being the entrepreneur has changed from one of management, to one of leadership. You are no longer engaged in tactical activity, which is being done by others in a manner that is transparent to overview, and with KPI’s based on outcomes. The tasks now are about the people doing the work, from the daily tactical stuff to the functional management. Your role is to lead all these people and ensure that the processes being deployed deliver on the plan. It is all about the productivity of resources deployed, people and financial, that is delivered via the processes that evolve.

Anyone who thinks this is easy has never done it.

Anyone who stands on the sidelines and cheers for you might be a cheerleader, supporter, and beneficiary, but they are not a coach. A coach delivers the models and means by which the success is generated, which is much more than cheering, as it involves getting dirty from time to time, being always challenging, and ensuring you are looking beyond the tactical that threatens to always consume you.

At each point in this growth pattern, there is a single question that you can ask that will give you an answer to the question of growth potential contained in any tactical decision:

‘Does this scale?’

Many small business owners do not ask this question, so end up selling their time for money, and there is only a limited time in any day. Therefore, if you are about to invest in tactical activity of any type, ask that simple question. If the answer is yes, fine. If it is no, think again.

When you are looking for a coach with the scars to prove experience, browse through the posts on this StrategyAudit site, and then you might want to give me a call.