Nov 20, 2024 | Communication, Management, Strategy
When thinking about selling your business ensure you spend time and effort identifying the intangible components that could contribute up to 90% of the value of the sale
Almost 6 years ago I wrote a post that identified intangible value at 87% of the Standard and Poor’s index. An update to that index done by Ocean Tomo now puts the number at 90%. While this is a small increase only, it is off an extraordinarily high base, and the index is based on 2020 numbers. Given the run of technology stocks over the last couple of years, I hazard a guess that the number is now well over 90%. It is the last 10% that is, as everyone knows, the hardest to capture.
This is a considerably greater percentage than the other major stock market indices. For example the European S&P at 75%, Shanghai Shenzhen index is at 44%, and the Nikkei sits at 32%.
This wide disparity comes from the makeup of the indices.
The US S&P top ten contains nine technology businesses the outlier being Berkshire Hathaway. In order, on Nov 16, 2024, the top ten and their share of the index is:
NVIDIA 7.2%. Apple 6.8%, Microsoft 6.2% Amazon 3.8%, Meta 2.5%, Alphabet 2.1%, Tesla 1.8%, Broadcom 1.7%, Berkshire Hathaway 1.7%.
Even amongst these behemoths, there is a strong skew to the top three. This top ten constitute 35.4% of the total value of the 500 companies in the S&P index. The Pareto Principle at work, again.
The trend is also clear amongst the other major indices. From much lower bases, they are all heading towards the increasing valuation of intangibles in the total value of their stock.
Ignoring this trend and failing to respond is leaving money on the table.
Over the last few years, I have consulted on several projects where small businesses have been sold. In each case, the sale has been made at a considerable premium to the standard industry multiples that would usually be applied. The driver of the premium has been the effort put into identifying and articulating the value of intangibles to the purchaser. I’ve called it finding the ‘Rembrandts in the roof’, a phrase I picked up somewhere after reading of a dusty Rembrandt was discovered and authenticated in the roof of an old house in Amsterdam 30 years ago.
Are you actively looking to identify and quantify your hidden Rembrandts?
Nov 7, 2024 | Analytics, Management, Marketing, Strategy
How do you anticipate the reactions of competitors to your initiatives?
First you must understand them holistically and well. The better you understand them, specifically the strategic and tactical frameworks they work with, the better able you will be to anticipate and respond. You should also reflect on the leadership of your competitors, as their behaviour drives their decision making.
11 questions to ask yourself and your team:
- Will they react at all?
- Will they see and understand the strategic and tactical drivers of your actions?
- Will they feel threatened?
- Will mounting a response be a priority?
- What options will they actively consider?
- Do they have the right mix of resources to respond meaningfully?
- Which option are they most likely to choose?
- How many moves ahead do they look: do they play draughts or chess?
- What metrics do they use that will influence their decision making?
- What are the lead times required to respond effectively?
A final and key question in this volatile environment that is often missed:
- Who might emerge to be a competitor, who could change the dynamics of your market that currently would not be classed as a genuine competitor?
Commercial history is littered with failures to see the possibility of a disruptive new competitor emerging from left field.
Anticipating competitor reactions to your initiatives is a competitive superpower.
It enables you to strike at their weak points, and repel their advances at minimum cost to you, while having them consume resources for no result.
The downside of focusing on competition is that your customers do not see the world as you do. They are looking for the supplier who best addresses their need, solves their problem, or scratches their itch.
Those who spend their time looking over at their competition are risking taking their eyes away from their current and future customers. Lose sight of your customers, and one way or another, you will be eaten!
Nov 4, 2024 | Branding, Marketing
There is a big difference between a customer who always chooses your brand because they genuinely love it, and one who may prefer it as one of a group of acceptable products, but picks you just because of a good deal.
A truly loyal customer will choose your brand without thinking twice.
They come back because they trust your quality, your service, their emotional connection for one reason or another, and what your brand stands for. Price becomes irrelevant.
Working from home, good coffee is a crucial part of my morning routine.
I usually buy a specific brand to feed the habit, but only when it is on special.
The ‘standard’ shelf price is close to $40 per kilo, but on special, you can find it around $22. I tend to buy ‘pantry stock’ when it is on special to ensure I do not run out. On occasions I have run out, I switch to other brands, usually ones I am familiar with, on special at around that ‘special floor price’ of $22-25.
If asked in a research group to name my Favorite brand, it would be XXXX. Asked which I most often used, the answer would be the same. As a result, I would be classed as a ‘Loyal’ user. However, this is less the behaviour of a ‘Loyal’ user than one who simply has a preference and shops accordingly. The aggressive price discounting has established my perception of what it costs per kilo for a quality coffee I will enjoy. It is up to $25, not the $40 that is the nominated ‘usual’ shelf price.
The choice is driven by availability and price rather than loyalty, although I would be classed as ‘loyal’.
The power of the retail gorillas, and relative weakness of their suppliers have served over time to drive this gap between ‘normal’ shelf price and a promotional price that has become a category floor.
In the process it has killed brand loyalty. Dead.
Retailers make their money from the ‘rent’ suppliers pay in many forms for the shelf space, and thus access to consumers. The cash from the tills is the cream.
Suppliers over the last 30 years have made a rod for their own backs that is only getting heavier. They have forgotten the difference between brand loyalty and brand preference. They allowed retailers to dictate the split of available investment in their revenue generation activities.
There is a huge difference strategically between brand building activity, driving a consumer to take a product off the retail shelf because it best fills their personal requirements, and in store sales activation.
Suppliers to FMCG have forgotten that key driver of long term success. They have collectively taken the easy way out, and kicked the can down the road.
Nov 1, 2024 | Branding, Customers, Marketing
Imagine you’re at a bustling cocktail party.
The room is filled with chatter, each person vying for attention.
Now, picture your company in that room. How do you make sure it’s the one everyone remembers?
That’s where positioning comes in.
What is Positioning?
Positioning is like choosing the perfect spot at that party, and being interesting enough to attract others into your conversation. It’s not about changing who you are, but about how you present yourself to leave a lasting, positive, and compelling impression. In the business world, it’s about carving out a distinct place in your customers’ minds.
Think of it this way: When I say “safety,” you might think “Volvo.” When I say, “overnight delivery,” “FedEx” might pop into your mind. That’s not by accident – it’s careful positioning at work.
Why Does It Matter?
In today’s crowded marketplace, being good isn’t enough. You need to be memorable. Positioning helps you cut through the noise and stick in people’s minds.
Remember, your customers don’t care about all the features your team has painstakingly built. They care about how those features solve their problems or improve their lives. Positioning is about highlighting that connection.
How Does It Work?
Positioning isn’t just a catchy slogan or a clever ad campaign. It’s a strategic framework that guides everything from product development to sales pitches. Here’s how you can make it work for your company:
- Find Your Niche: Even if it’s small, being a leader in a specific category is powerful. It’s better to be a big fish in a small pond than a minnow in the ocean. However, like everything, there is a limit. There may be a niche in the market, but you had better make sure there is a market in the niche.
- Simplify Your Message: In the world of positioning, less is more. Aim to “own” a word or concept in your customers’ minds. Make it easy for them to understand and remember what you stand for.
- Align with Customer Needs: Your positioning should resonate with your target market’s specific needs and expectations. A product that seems irrelevant to one group might be a game-changer for another if positioned correctly.
- Create a Mental ‘Box’: Help customers categorize your product or service. If they can’t quickly grasp what you offer, you’ve already lost them.
- Be Flexible: As markets shift and your company evolves, be ready to adapt your positioning. What worked yesterday might not work tomorrow.
Putting It into Practice
Imagine your company has just developed a new line of double-glazed windows and doors. Instead of listing all the technical specifications, you might position them as the solution to high energy bills in harsh Australian climates. Suddenly, you are not just selling windows and doors, you are selling comfort, savings, and style.
This positioning would then guide everything from how your R&D team refines the product to how your sales team pitches it. Effective positioning creates a coherent story that resonates across all departments and customer touchpoints.
The Bottom Line
As CEO, think of positioning as your strategic compass.
It is not what you say about your product, it is what your customers believe about it that counts.
When done right, positioning:
- Gives customers a clear reason to choose you over competitors.
- Aligns your entire organization towards a common goal.
- Makes your marketing more effective and efficient.
Remember, in the crowded marketplace of ideas and products, it’s not the loudest voice that wins. It is the one that resonates most clearly with its audience.
That’s the power of positioning.
What position do you want your company to occupy in your customers’ minds?
Answer that challenging question, and you will have taken the first step towards market leadership.
Oct 18, 2024 | Communication, Customers, Marketing
The sales funnel, often depicted in materials promising a path to riches, has profound flaws.
It implies two misleading concepts:
Gravity: The notion that business arrives at your door via discrete steps in a gravity-driven funnel is nonsensical.
No customer focus: Until the bottom of the funnel, where deals are signed, the emphasis is on marketing tactics rather than the customer.
Success demands that a customer is willing to pay for a need to be filled, an itch scratched, or an aspiration fulfilled that’s worth more than the price paid. Value must be created for the customer.
Even for everyday consumer goods, not everyone is in the market all the time. For most products, consumers are only occasionally in the market. In B2B sales, buyers may only appear once a decade, and they’re often not the ones who ultimately make the decision to buy and authorise payment.
These factors lead to the conclusion that the standard templated sales funnel is fundamentally flawed.
My alternative, displayed in the header, is more realistic. It shows progression through a sales process powered by the quality of attraction at each point. It starts with the customer being in the market only occasionally. At those times, you must be included on their list of possible solutions, usually weeded down to a shortlist for further investigation.
At each stage, customers face friction, go/no-go decision points, as they move towards a transaction. Your marketing collateral and overall impression contribute to overcoming this friction. For example, a potential car buyer will suddenly notice many shortlisted brands on the roads simply because they’re now aware of them.
This process is called the “frequency illusion” or its formal name: the “Baader-Meinhof phenomenon” (A scary name for those over 65.) It involves two related psychological concepts:
- Selective Attention: Once aware of something, your brain automatically looks for it, making it more likely to be noticed.
- Confirmation Bias: Encountering the thing you’re now aware of, your brain notices it, making it seem more prevalent.
Templated sales funnels tend to oversimplify the complexity of a customer’s journey towards a purchase. They rarely accommodate the differing behaviours of potential customers, lack recognition of the reasons one prospect drops out, and others circulate between stages as they reflect on the purchase. They completely ignore the impact of competitive activity and offers that may emerge, and tend to emphasise quantity over quality of prospects gathered.
By starting at the exact opposite end, where the potential customer lives, you should be much better able to craft marketing collateral and action points that reflect the real position in a purchase journey of a prospective customer.
Oct 14, 2024 | Analytics, Marketing
Against my better judgment, I recently engaged in a conversation about the ‘Law of Purchase Duplication’ with a young marketer. He seemed quite convinced that he was delivering a groundbreaking insight to a marketing dinosaur.
In essence, the law argues that the larger a brand’s market penetration, the more likely a consumer is to purchase alternative brands within the same category. Smaller brands, on the other hand, struggle with loyalty, relying primarily on occasional or incidental purchases when they fall within a larger brand’s ecosystem.
This concept, while not new, remains fundamental to understanding brand dynamics in the marketplace.
Back in the day, we referred to it as the purchaser’s ‘acceptable pool of brands.’
This young hot shot expanded on the advantages of being the dominant brand, and how it becomes self-sustaining through positioning, weight and quality of advertising, brand salience, product accessibility, and consumer perception. While this may all be true, the notion of it being ‘self-fulfilling’ is a step too far.
The reality is that maintaining market dominance requires constant effort and adaptation to changing consumer preferences and market conditions.
During our discussion, the topic of brand loyalty surfaced, leading to several useful questions about what brand loyalty truly means in today’s fast moving consumer markets:
- Does it mean that no other brand will ever be purchased under any circumstances?
- Does it only matter when a preferred brand is unavailable?
- Is there a sliding scale of brand loyalty that correlates to price differences?
- How does this law of duplication apply to sub-categories within the same brand?
- What are the varying impacts of demographics and psychographics of consumers?
- Could brand loyalty simply be a combination of awareness and preference, disconnected from actual purchasing behaviour in-store?
These questions highlight the complexity of consumer brand loyalty and the need for an understanding of the nuanced drivers of consumer behaviour in every market.
Over the years, I’ve been intimately involved with several instances where this so-called ‘Duplication of Purchase Law’ played out in real-world brand battles:
Meadow Lea Vs all comers. The rapid ascent of Meadow Lea margarine in the late 70s and early 80s was astonishing. The brand evolved from one of many competitors to a market leader, at its peak dominating with three times the market share of its nearest rival. Although it was driven by exceptional advertising, there were several alternative brands consumers could have turned to. However, consistent availability, competitive pricing, and in-store sampling helped cement its position. These instore marketing activities supported the brand advertising that built long term brand salience and loyalty.
Yoplait Vs Ski. The yogurt wars between Yoplait and Ski during the 80s and 90s are another example. Yoplait initiated huge market growth by making yogurt mainstream when it launched. This left Ski, the previous leader, floundering and scrambling to recover. Both brands became largely interchangeable despite product differentiation. Yoplait strawberry was an acceptable alternative to Ski strawberry, and vice versa. However, this dynamic didn’t extend evenly across other flavour categories or packaging formats. If Ski strawberry was unavailable, Yoplait strawberry was more likely to be purchased than an alternative ski flavour. These inconsistencies across the product categories and pack sizes, highlighted how nuanced and context-specific the Duplication of Purchase Law can be.
Having reliable data from the likes of Ehrenberg-Bass provides the statistical credibility necessary to sell what to date have been qualitatively understood wisdom, to the boardroom. However, it’s crucial to remember that this qualitative wisdom, built over time, should never be discarded or obscured by academic multi-syllable descriptions or management jargon. One-dimensional data cannot replace the wisdom accumulated by thoughtful marketers over time.
