Technology Intensive Differentiation: The new marketing El Dorado.

Technology Intensive Differentiation: The new marketing El Dorado.

 

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.

 

 

 

The unfortunate unintended consequence of Google.

The unfortunate unintended consequence of Google.

 

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.

 

 

 

 

 

The 10 most read StrategyAudit posts of 2021

The 10 most read StrategyAudit posts of 2021

 

At the end of the year, it seems sensible to have a look at the posts that generated the most traffic. Surprisingly, none are posts that have gone up in this most challenging year, not an outcome I anticipated. This demonstrates the long-term value of a blog of this nature. Collecting and curating ideas and perspectives over a long period becomes an investment, certainly for me as the writer, and hopefully for those who choose to follow, or just dip in from time to time.

In order, from the most viewed, the 10 were:

5 key factors to consider when planning your budgeting process. January 2020.

https://wp.me/p5fjXq-2sN

This post was the first of 2020, and did generate some traction early on. However, in the early parts of 2021, when suddenly businesses had to rethink their budgeting processes in the face of Covid it took off. It will no doubt kick along again in the early part of 2022, which is unlikely to be much more predictable than the year just finishing.

 

3 essential pieces of the supermarket business model. November 2014.

https://wp.me/p5fjXq-1pd

First published way back in 2014, this post has been number one or two in the most read posts every year since. Clearly the elements of the supermarket business model retain an abiding interest. Retail is also the core of my corporate experience, now 25 years behind me. Many of the illustrative stories in these pages come from that time, as the lessons are timeless. The tools have changed, the behavioural foundations remain very consistent. Even amongst the massive switch to online retailing in the past year, the foundations of retailing have remained consistent. The pace has increased geometrically, and the logistics are new, but the basic requirement for success, to add value to the consumer, remains exactly as it was.

 

The 4 dimensions of project planning. August 2017.

https://wp.me/p5fjXq-1Gz

Every business is a mass of individual and group projects of various types and importance. This post offers a framework to consider when going about the planning processes. Planning is another form of predicting the future, and as we know, that is not a reliable process. However, planning ensures you are better prepared than just relying on being reactive as circumstances change. As Eisenhower noted just before the Normandy landings in 1944 ‘In preparing for battle, I have always found that plans are useless, but planning is indispensable’

 

The 5 strategic dimensions of price. October 2018.

https://wp.me/p5fjXq-2ba

To my mind, this is one of the more important posts I have written amongst the 2100 over 13 years. How to set and maintain optimum price is a challenging, even confronting task, too often not given the strategic importance it deserves. After all, every added dollar of revenue you can extract from the marketplace falls straight to the bottom line, and it is the one driver of profitability over which management has absolute control. It is one of a number of posts around price that are in the archives.

 

A marketer’s explanation of Net Present Value. February 2018

https://wp.me/p5fjXq-20v

Net Present Value, or NPV, is an accounting term thrown around with gay abandon by accountants, assuming everyone understands what it means. Over the years, very few marketers I have known had a clear understanding of NPV. Hopefully, this post helped some in those conversations with their accounting peers, trying to get their own back for all the jargon marketers habitually use, by using a bit of their own.

 

A private note to the chairman. April 2013

https://wp.me/p5fjXq-10x

This one was a surprise. It is an old post from 2013 that paraphrases a conversation I had with the chairman of an organisation on whose board I sat at the time. We had failed to agree for some time over a series of questions that could be characterised as the priority list against which the board should have been making resource allocation decisions for management to execute. At the time I was pretty fired up, and subsequently resigned the role. On rereading the post, I would not resile from any of the items listed, and would offer the same advice were I to be in a similar situation again.

 

How to wield Occam’s Razor to build robust strategy. June 2016.

https://wp.me/p5fjXq-1Rd

Occam’s Razor seems to have become a bit fashionable recently which is perhaps why this post got a guernsey in the top ten, after languishing with the ‘also-rans’ for 5 years. The advice however is sound, seeking the simplest possible explanation that fits all the facts, no matter how unexpected it may be. In a complex and volatile world, simplicity is one the hardest things to achieve.

 

Classic Marketing Strategy: Before and After. September 2016.

https://wp.me/p5fjXq-1Il

The title says it all. Marketing is about delivering a value proposition to those who may engage and make a purchase. Showing how the outcome of the purchase delivers a positive outcome has always been, and will always be a powerful way to communicate. I used myself as the example, having just had a couple of ‘headshots’ to replace the one I had been using, which was ‘homemade’. It might be time for an update, although the years and inactivity of Covid have not done me any favours.

 

Problem solving continuum. June 2010.

https://wp.me/p5fjXq-k3

This post was a very early one, proposing the idea that every problem sits somewhere on a continuum that describes the way in which management goes about finding and executing a solution. At one end workarounds are common, to the other end where difficult problems are subjected to continuous improvement processes. There is much more that could be said, and a number of subsequent posts addressed some of these items, but given the interest, this idea will receive greater consideration in 2022.

 

The 7 mental models for Successful marketing. June 2017.

https://wp.me/p5fjXq-1Rw

This 10th inclusion reflects on a very personal experience that highlighted to me the simple fact that while the tools of marketing have changed radically over the last decade, the foundations have not changed at all. It is one of the longer posts in the archives, running to almost 3,000 words, and includes an audio version delivered at a small business seminar tagged on the end.

 

To those who have followed, commented, or just ‘dipped in’ occasionally, I extend my thanks, and hope that you continue to draw some value from my musings.

Have a great 2022, it can only be better than 2021.

 

Is price the driver or outcome of where you choose to play?

Is price the driver or outcome of where you choose to play?

Customers read much into the price you choose to charge, the architecture of your price list, and willingness to deploy price tactically.

Price can also override all your other marketing activity, as it is the quantitative reflection of what you think your customers are prepared to pay. It reflects the market in which you choose to play.

When was the last time you saw Grange discounted in Dan Murphy’s, or a ‘dinner-deal’ at the perennially ‘three hatted’ Quay restaurant in Sydney?

‘Never’ would be the right answer.

Price is a key part of the strategic choices that must be made to establish a ‘Price Architecture’. This architecture is in its turn a fundamental driver of the business model.

So called ‘premium’ products have many characteristics: extreme quality, scarcity, a differentiated offer, a strong brand, high service levels, are often hard to find and with few if any substitutes. The purchase of a truly premium product demands deep consideration and happens rarely. It is never driven by discounts.

By contrast, commodity products have none of these characteristics, but do have a low relative price, and are easily substituted.

The distance between these two extreme points is a continuum along which a product can be moved, by accident or design. The limiting factor is that it is very hard to move ‘up’ the continuum from commodity towards premium, but very easy to slide in the opposite direction.

Your position on the scale is one of both strategic and tactical choice.

Make the choice wisely.

When is a price ‘guesstimate’ good enough?

When is a price ‘guesstimate’ good enough?

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.

Is ‘Go to Market’ a redundant strategy?

Is ‘Go to Market’ a redundant strategy?

 

 

There are a number of common phrases used in marketing that should be redundant.

‘Go to market’ is often used before words like ‘strategy,’ ‘Plan’ and ‘Process.’

‘Product/market fit’ is increasingly used in the context of digital products, as in ‘seeking product/market fit’ with prototypes and ‘Minimum Viable Product’ tests before committing to the expense of production.

They have served their purpose but are now redundant.

Independently there has been a rise in the use of the term ‘customer centric.’

I seem to be hearing it a lot, even from those who have never seen a customer, let alone interacted with one. It is fast becoming a cliché.

At the same time, we have a phalanx of tools at our disposal that can segment and re-segment customer cohorts down to the micro level. These are used by those flogging digital space for ads, ‘micro-targeting’ and regrettably, often micro retargeting.

It seems pretty obvious to put these together and start thinking about ‘go to customer’ strategies.

Surely if the customer is truly central to what we are seeking to do, add value to their lives, solve problems, and make a bob delivering that value to them, we should be figuring how to talk to them as mentors and peers, rather than yelling at them from the sidelines.

Micro segments, or micro groups of customers with specific needs, problems, contexts, or indeed, lapsed customers, those who have dropped out of the ‘funnel’ in some way. We can now focus our efforts on understanding these people and re-engaging with them in a human way.

It is all about finding the places potential customers look for information, for engagement, and all the rest of the things they do before they actually make a purchase decision.

Customer centric means you go where the customers are, not try and force them into a funnel that assumes they all act in a similar manner.

These days with all the tools at our disposal, you need an ‘always on’ marketing strategy rather than the traditional episodic campaign communication processes.