Feb 9, 2022 | Innovation, Marketing
There is a reallocation of capital from advertising to R&D evolving. Elon Musk may be the typifier. Tesla spends nothing on advertising, relying on Elon and social media, plus all the commentary he generates. Meanwhile, Tesla put $1.5 billion (in 2020) into R&D, representing triple the amount spent/car of the next biggest spenders, Ford, and Toyota.
R&D is the new differentiator, replacing the confected differentiators of the age of ‘mass marketing’
This is a sea-change, the old model was to make mediocre products, and use money to drive mass distribution, and big advertising budgets on TV to drive volumes. The amount of R&D was small, advertising budgets big.
The Korean vehicle maker Hyundai announced in December 2021, that it will close the internal combustion engines R&D group, and redirect funds to Electric development. All carmakers currently reliant on internal combustion will be thinking along the same lines, although to date they seem to have hedged their bets. They must look longingly at the market cap of Tesla, hovering over $1,000 a share, with a PE ratio in the stratosphere. Tesla is worth more than the next ten biggest carmakers in the world combined, astonishing, and unsustainable in my view. Even the second and third US pure EV plays, Rivian (101 billion), and Lucid (72 billion) start-ups who sell almost nothing, are worth more than all but the top 3 carmakers we all know of, Toyota, Volkswagen and General Motors.
This capital reallocation is happening all around us; vehicles are just a convenient metaphor for the trend across economies.
Telcos have been busy spending money on mobile infrastructure over the last 20 years. Coverage has been the competitive differentiator. What happens when technology takes over, as is happening, and you can run a 5G network via an AWS type server farm? Suddenly physical infrastructure becomes redundant, and the location of competitive advantage moves dramatically.
FMCG suppliers used to be major contributors to media profitability via TV advertising. Now, as a result of supermarket chains exercising their power over the point of sale, consumers have a vastly reduced brand choice as the margin pool shifts towards retailers. On the other side of the equation, retailers are themselves facing aggressive competition for the customers attention and orders, a trend evident before 2020, but turbocharged by covid.
I ask myself where can technology drive innovation in FMCG that cannot easily be copied, so the investment by the supplier has a chance to pay dividends?
Plant based packaged meat substitute foods may be one answer. As we learn how to edit genes to produce the enzymes that generate flavour and texture, capital and technology can be applied to intensive farming, replacing low tech and land intensive meat production. The evolution of some produce types in capital intensive glasshouses and aquaculture combinations may be the thin edge of the wedge.
The marketing differentiator in the future will be the leverage technology and intellectual capital offers to the smart marketers, not a line extension or modest evolution of current products backed by mass advertising. Put more simply, ideas, and the intellectual capital that generate them are the new competitive differentiators.
Jan 31, 2022 | Change, Innovation, retail
Life in FMCG world is, almost unbelievably, becoming more competitive than it has ever been. However, the nature of competition has changed radically over the last 25 years.
Performance measures that we have relied on in the past no longer serve as well, we need a rethink.
The business model, while retaining the foundations that had delivered such success to supermarket chains in the past, has morphed.
No longer do big brands hold sway.
I suggest ‘Net Distribution Gain’ should be a standard measure in the FMCG marketer’s toolbox.
The previous business model used to be big add budgets splashed on TV, an OK product that appealed to the general average consumer, drove weight of distribution and shelf offtake.
That has all changed.
Most brands have disappeared, for those remaining, the name of the game is shelf space and position.
Where there used to be 5 or 6 brands competing in a decent sized category, there is now one, sometimes two, or at most three proprietary brands in big categories competing with house brands under various guises. These remaining brands have eroded their position by allowing retailers to convert their marketing budgets from brand building into price promotion, shelf position, and retailer margin enhancement.
Gaining distribution these days is a matter of buying it, and for a new product, if you are successful, there will be a copy house brand coming very quickly.
The outcome of all this is that innovation is at an all-time low, and the cycle just accelerates.
Retailers practise the one in one out method, it has become a standard procedure across supermarket retailers. It recognises their inelastic store sides and imposes minimum sales discipline on the suppliers.
For a supplier, having one of your competitors products deleted to make room for yours is a win, but for the retailer, it makes little difference which SKU is sold beyond any differences in the delivered margin. However, genuinely new products, ones that warrant net new space in a category, are where the real category gains and marketing success lie hidden.
NDG should be a standard measure to use by suppliers considering the planning and KPI of product launch strategies. There are several choices, which could become very complex with the addition of a weighting index based on shelf position:
One in one out of your range
Yours in, competitor SKU out
New space for the category.
Clearly in the last case the retailer is making choices elsewhere in the category mix, and the ripples widen, but for the category marketer, a NDG would be an indicator of a successful genuinely new product as distinct from a line extension of a successful competitive SKU.
Dec 6, 2021 | Change, Innovation, Leadership
The old way of thinking and working in silos, based on organisation charts, is gone.
The key commercial question now is how to develop and commercialise innovative solutions to problems faced by individuals, and the wider community, faster and more efficiently than others.
We all know that we work better in small groups, differently but better, more productively. The problem is we have had imposed on us the structures originally conceived to enable scaling from cottage industries to mass manufacturing, where the benefits of scale outweighed the transaction costs incurred.
We have now reached a point where the worm has turned.
The transaction costs are greater than the scaling benefits, because of the transparency enabled by digital.
The nasty covid pandemic has accelerated the process of digitisation to the extent that we have consumed a decade or more of change in a year or so. Some have not made the change, and long for the return of the ‘normal’ way before covid. However, the truth is that we must go forward, we need to accommodate the new world as it is now by the way we collaborate.
For the last 30 years we have struggled with the growing inefficiency and resulting lack of engagement of employees down the organisation chart, driven by the remoteness from decision making.
We tried to fix it with various forms of matrix organisation, but we approached it from the old mindset of accountability and responsibility. ‘How can I be responsible for something over which I have no control????’ This question has loomed large on many occasions.
Matrix organisations with a silo management mentality do not work.
We need to embrace not just the ‘radical transparency‘ espoused by the likes of Ray Dalio, and Atlassian where it is a core value, but ‘radical adaptability’ to prosper.
Giving control and accountability for outcomes over individual workplaces to the people in them is the new way. Finding ways to speed up the process of change, to be able to adapt and innovate has become the path to commercial survival. We have been talking about it for ages, but trying to build it from a siloed mentality starting point will go nowhere.
The ‘radical transparency’ of Dalio will not suit everyone. You need to be a resilient personality to take and grow from the negative feedback. Recognising this, Dalio only hires what he calls ‘arseholes’, those who are resilient enough to take the feedback and learn from it.
A business with a culture of being ‘nice’, polite, keeping ideas and views to yourself, and not articulating those views and ideas to others, leads to the politics we see in most organisations. Things that are thought, and said privately, that will not be said publicly are corrosive of trust and collaboration.
Radical transparency needs an entirely different mindset.
That different mindset can lead to ‘radical adaptability’, as any idea is a good one until it is taken down by a better one, or by finding some flaw in the argument. By another name, in other circumstances, this is ‘Evolution’ or ‘Survival of the fittest’, and John Boyd’s OODA Loop at work.
Accountability & candour lead to collaboration, and collaboration is the key to growth in this new, digitised world, as it compounds effort and outcomes.
Header cartoon credit: WWW.Gapingvoid.com Highlights the challenges of enabling transparency. It is usually great for others, and in principle, but not for me!
Dec 1, 2021 | Branding, Innovation, retail
Promotional pricing is often the only tool used to generate volume. Ask any salesperson ‘Why’ and they will say ‘because it works’. Go next door and ask a marketer, and their response is more likely to be something like: ‘to encourage non-users to try the product, and if they like it, to come back, become loyal customers’
Therein lies the paradox. The well intentioned promotion of a brand results in killing it.
By promotional pricing the product down, you reward current users who would have bought at full price, while not being effective at persuading potentially new users to try for any reason other than price.
The power of habit is huge in routine purchases, like the ones we make every week in the supermarket. A regular consumer is not necessarily loyal to a particular brand, they are more unthinking, more habitual than most marketers will concede, especially to themselves. If a choice is to be made to change brands, that decision takes up cognitive capacity better dedicated elsewhere, and involves risk, which we are programmed by evolution to avoid.
To change habits, we must change behaviour, an extremely challenging thing to do.
Psychologists have found over and over, the best way to change habits is to change little things, one at a time, progressively leading to the changed behaviour that in its turn becomes a habit. Each stage takes 3 or 4 times to become sufficiently entrenched to start to take on the characteristics of a habit.
Back to our supermarket.
Price promotions follow each other on a weekly basis. No brand is given the time to establish its routine purchase as a new behaviour, as there is a price promotion of an alternative brand every week, often several at the same time.
The net result is that for every product on shelf, the discounted price becomes the ‘real’ price, which becomes less and less relevant as consumers are trained by the retailers to think that the discount price is the real price for the products and the categories.
That, in a nutshell, is why we are seeing less and less brands on the supermarket shelves, and as a direct result, less and less innovation, as suppliers have little chance of recouping development costs in such an environment.
Oct 28, 2021 | Innovation, Lean
Every improvement project at some point refers to the Shewhart cycle: Plan, Do, Check, Act. I have used it extensively myself, but never been fully comfortable with the language of the last two points in the cycle, and the actions that the language implies.
Plan, Do, Check, Act.
Plan. Planning is essential, it is a fundamentally important part of any project, no matter how big, or small. If nothing else, a plan articulates the points of departure as the journey progresses.
Do. Again, doing is essential, without the doing, the planning is just a dream, someone’s illusion of activity.
Check. This is the point where I start to have problems. The word has two unfortunate connotations. The first is to ‘Stop’, not a good idea in a continuous improvement process. The second, its use in the context of checking someone’s ‘homework’, have they done what they said they would do, by the time agreed? Again, this is necessary, but in my experience in a supposedly collaborative group, when the ‘leader’ is doing the checking, the dog gets busy with the homework. It is better for those in the group to self-manage their commitments to each other and let the group dynamics take care of the laggards. It is the leader’s job to encourage the evolution of the ‘group culture’ that enables this to happen. Therefore, I will propose we replace ‘Check’ with ‘Review’. When we review progress in a regular meeting, or by whichever method is used, the review will ensure that the work is done as agreed. However, review has a wider meaning which makes it way more valuable. It implies that not only does the group review the work to date, and review the reasons for variations, it encourages a wider review of the context and causes of those unexpected outcomes, and variations from the planning hypothesis.
Act. The final step. Act can sometimes feel disconnected from the previous step of Check. It is even more distant if we alter the naming of the previous step to ‘Review’. I would therefore propose we change the ‘Act’ to ‘Adjust’. This change implies that based on the outcomes of the ‘review’ process, we have now ‘Adjusted’ our actions appropriately. We can then repeat the process, starting again at plan, as we now have a more robust set of data to work with as we evolve more informed hypotheses to test.
Plan, Do, Review, Adjust.
Replace the PDCA cycle with the PDRA cycle?
Perhaps a bit presumptuous of me to suggest such heresy, but working with those SME’s that make up the bulk of my client base, it makes sense both to me, and more importantly, to them.
It is a little thing, just two words, but little things are cumulative, and do eventually can make a significant contribution.
Oct 13, 2021 | Innovation, Leadership
Machines do not, at least do not yet, have ideas.
Ideas come from people, they are social things, emerging from social situations.
We often find technical solutions to problems, but are they ideas?
It seems to me that they are more the progressive peeling of the onion, until you get to the core when a solution presents. By contrast, ideas do not come from the onion, rather, they come from seeing the onion in some sort of new context that delivers a new and unexpected outcome, not connected to the original.
Research demonstrates that men are more likely to show up on the autism spectrum than women, the ratio being about 4:1.
On the other hand, women are more social than men, their brains are more likely to ‘see’ things from the perspective of others. Empathy in the jargon.
This is consistent with my observation over the years that women are better marketers than men, in terms of the idea generation, but less likely to implement to a plan without deviation. A gross generality, proven often in my experience by the numerous exceptions.
It is just more likely that women will come up with something from ‘left field’, a connection of seemingly unconnected items, than men.
However, the lesson is that ideas have a genesis in social interaction, curiosity about others, and emotive understanding of a different perspective. The more interaction there is, the more fertile the ground from which ideas emerge.
Idea farming is not dissimilar to any other sort of farming. Both require prepared and fertile ground, a willingness to take on some risk, local knowledge, technical expertise, lots of feedback, and appropriate catalysts.
Then comes the more mechanical process of implementation.
None of this is easy. If it was, everybody would be doing it. When you need to add a bit of experience and ‘idea farming;’ expertise, let me know, I just may be the catalyst you need.
