How supermarkets have destroyed brands by promotional pricing.

How supermarkets have destroyed brands by promotional pricing.

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.

 

 

 

Does the Shewhart cycle still do the job?

Does the Shewhart cycle still do the job?

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.

 Do women or men have more/better ideas?

 Do women or men have more/better ideas?

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.

 

 

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.

Is pain always the best catalyst for rapid change?

Is pain always the best catalyst for rapid change?

Sep 22, 2021 | Innovation, Strategy

In the absence of pain, it is easier to do nothing, and just let things evolve.

This is human, we do not invest ‘just in case’, we invest to reduce pain, or more carefully, to leverage an opportunity. This is why big companies & bureaucracies are slow at reacting, the individuals who can lead change, those at the top feel little pain, in fact, accepting risk is dangerous, and invites pain into the room, so risk is avoided.

Look at any major event in history, the pain associated with it leads to change. Any war, epidemic, coup, they all lead to change. Often the change may have happened over a long time frame in the absence of the pain, but in its presence, the time is suddenly compressed.

Just look at the speed that mRNA vaccines have rolled out of labs and into peoples arms over the last 18 months.

The science of mRNA has been evolving slowly for decades. The first suggestion that RNA molecules that drive the synthesis of proteins, move around in a cell was made in the early fifties, and messenger RNA (mRNA) was discovered in 1961.

The first successful trials with mice of an mRNA vaccine were done in the early 90’s. However, the idea was not the target of significant investment, as it seemed alternative approaches were more promising. Over the last decade as the development of CRISPR technology made mRNA techniques potentially more stable, there was renewed scientific interest.

By early 2018 there was a body of scientific exploration that indicated that there was a significant opportunity for mRNA vaccines to be successfully deployed against a range of viruses.

Then along came Covid.

The rate of development accelerated dramatically because of the rapid and huge investment of both public and private money. By mid-2020 both Pfizer established in 1849, and Moderna established in 2010, were conducting human trials of a synthetic version of the messenger molecule that moves RNA from the nucleus of a cell to the outer casing of that cell, delivering protection from the virus.

Since then, there has been the biggest human trial in history going on, with millions of participants from whom data is being collected, enabling the rapid refinement of these vaccines.

This is exactly the process that has happened many times over history. A crisis of some sort compresses geometrically the time that would normally be associated with a significant change. However, the seeming rapid deployment of pain relievers usually happens after a long gestation of the basic science that delivers the antidote. mRNA did not happen overnight, the development from an idea to a testable molecule took decades before the vaccine could be developed and commercialised.

Pain causes rapid change as we seek aggressively to relieve it, disregarding the usual barriers, and accelerating the deployment of the science in products that relive the pain that are improved in real time.

As an aside, I would have thought the fires and floods of early 2020 in eastern Australia would have been sufficient pain for the message of climate change to penetrate the  collective brains of our political ‘leaders’, but it seems not. The final catalyst to action on this front will have to be really nasty indeed!

Header sketch. Francis Crik. The header is an informal 1956 sketch of the role Francis Crick imagined was played by RNA in the transfer of information in a cell. The presence of what became known as ‘messenger RNA’ was confirmed several years later.

Note: my understanding of the development process of mRNA is rudimentary at best, I am a marketer not a scientist or biologist.

How can Australian manufacturing leverage Wright’s Law?

How can Australian manufacturing leverage Wright’s Law?

Sep 20, 2021 | Change, Innovation, Operations

Moore’s law is well known, understood, and has stood the test of time since published by Gordon Moore in 1965. Wright’s Law is less well known, and has also stood the test of time since the mid 1930’s.

Formulated by Theodore Wright, a pioneer aeronautical engineer, Wright’s Law describes quantitatively the relationship between volume and cost. It provides a reliable framework for forecasting cost declines as a function of cumulative production.

It states: For every cumulative doubling of units produced, costs will fall by a constant percentage’.

In various manufacturing operations I have been associated with, and many I have observed, I have seen this in action, but until recently I was unaware of Theodore Wright.

In effect, Wrights Law reflects the outcome of ‘learning by doing’.

Wright observed that for every doubling of output from the Curtiss-Wright Aeroplane factories, the production labour costs dropped by 10-15%. Other sources of cost reduction that together give a consistent cost reduction relationship are process standardisation and optimisation, labour specialisation, network effects, machine availability and efficiency, all things in the modern engineering toolbox.

Look around now at what is happening to the cost of Solar panels, Lithium-ion batteries, industrial robots, and what has happened to cars over a very long period.

Intuitively, Wrights Law stands up, and there is plenty of empirical evidence that supports Wrights 1936 thesis.

As Australia embarks on a path to some level of sovereign manufacturing capability, it will pay us to observe the realities of Wright’s Law.

This means we should find a way to judiciously apply patient funding to manufacturing operations that offer the opportunity to reach the volume inflection points that lead to a sustainable manufacturing base of key manufactured products.

We have thrown away many such opportunities, let’s not repeat the mistakes of the past.

As an aside, we now have another federal industry minister after the (necessary) resignation of Christian Porter yesterday. The now incumbent temporary minister Angus Taylor, is unlikely to do anything useful, but someone has to warm the seat. Being the eighth ‘seat-warmer’ in a government formed in 2013, 7 of whom would not know an ‘industry’ if it whacked them on the head  is hardly an ad for consistent policy and investment confidence.  Sadly this is in a time where both are desperately needed.

Header photo courtesy Wikipedia.