Customer value conforms to the laws of Thermodynamics

Customer value conforms to the laws of Thermodynamics

Sep 24, 2018 | Change, Marketing

Theoretical Physicists disagree on a lot, but one thing they do agree on is that matter is constant, it does not disappear, it can undergo changes of form, and become something different, but is not destroyed.

Value is like matter, it does not disappear, it just undergoes change, and moves somewhere else.

Customers used to look for value in places where they no longer get the best return, so they look elsewhere to find it.

Technology may destroy some jobs, as it has in retail, and factories, but the jobs are not destroyed, they change form and move elsewhere.

For the last 20 years I have heard the ‘technology destroys jobs’ story, usually told by those with a direct interest in the industries being disrupted, in parallel to the number of jobs being created, usually touted by politicians with an agenda.

This is  not to denigrate the pain of those whose jobs are replaced by an automated process, but it does demonstrate the movement from one form to another.

Apple may have been a destroyer of jobs in some sectors, but they created many more in different locations, and in newly imagined retail as they re-created lost retail jobs in their Apple stores, now the most successful retailer in the world on a GM/Square foot metric.

If you take this perspective when thinking about the pressures on your business, and how it must respond to those pressures to survive, you just might be one of the fortunate ones who sees a picture of what the future might look like, and move there in front of the wave.

My favourite marketing strategist, Albert Einstein, once again, got it right!!

 

The online advertising fantasy revealed

The online advertising fantasy revealed

Sep 20, 2018 | Branding, Marketing

 

The web gives us huge value, piles of stuff we want that we think we need, for free.

Or is it?

The web is fuelled by advertising. Pure and simple.

The ‘free ‘ stuff we get is really in exchange for our eyeballs, not because there is some benevolent power seeking to help us.

The two most powerful businesses on the planet, Google and Facebook are dependent on advertising for their profitability. Ok, Google has diversified a lot, and now generates profits from all sorts of other activities, but the core is still ads.

As consumers we all want the free stuff, and resent the advertising, otherwise, we would not install all the millions of ad blockers we have.

Pity no-one seems to have figured out what Don Draper knew, that advertising to be of commercial value has to be entertaining, as well as informative and behaviour changing. The deluge of crap on the web seems to have overwhelmed the need to be anything other than there. Those who flog various forms of unaccountable ‘ad tech’ have badly  mistaken the value of the big idea, believing that many small poor ideas used every day, labelled content, can add up to the impact of the one big one.

Fantasy.

This missive is fuelled by the recent tightening of the LinkedIn algorithms related to the number and apparent management of ads being shown on an individuals home page, and the increasing challenge of communicating in groups. Clearly, the Microsoft behemoth is becoming more aggressive about squeezing  a return from its purchase of LinkedIn. Not unreasonable in principal, but if they wreck the reason we are all there, it will blow up in their face.

It is time to wake up and recognise that advertising is the foundation of the web, so it had better be good, or the foundations will crumble. Advertising itself is not bad, it is bad advertising that is bad, coupled with its rotten digital bedfellow, tracking.

Having our digital footsteps stored and accumulated to better ‘personalise’ the ads we see, which is really code for trashing any personal digital security and privacy we may have, is not something I like at all. To my mind, it is a significant part of the price we really pay for the ‘free stuff’, and is on he verge of becoming too high.

Cartoon credit: Once again to Tom Fishburne, who continues to distil the fluff, self interest, hubris and pure bullshit that infests the marketing industry into bite sized chunks of reality.

‘Data Science’ in marketing is frequently bullshit

‘Data Science’ in marketing is frequently bullshit

Sep 17, 2018 | Branding, Marketing

I started life as an accountant, and luckily, recognised before anyone else that I would be the world’s worst. However, from my trials, I do have respect for numbers, proof, real outcomes tested and validated by the scientific method.

As a marketer, I have always tried to find the quantitative base of the stuff I was doing, rather than being seduced by the hyperbole, supposition, and self-interested ‘data’ presented by someone with an interest in the outcome.

Usually that someone has had a pecuniary interest in the decision. They are selling something, from a piece of machinery to an advertising campaign, to a bottle of shampoo sitting on a supermarket shelf.

Science starts with a hypothesis that you set out to prove by trying to disproving it. Having failed to disprove it, the result must be the truth. As Arthur Conan Doyle via Sherlock Holmes said ‘When you have eliminated the impossible, whatever remains, however improbable, must be the truth.‘ A sample of 12 carefully selected personnel from your ad agency does not constitute proof that your made up new natural sounding ‘extract’ will make your hair shine.

‘Data’ as used by whole ranges of marketers, advertisers, and perhaps worst of all, politicians, is often nothing like a reliable representation of the truth, it is just the opposite. It is the selective use of bits of pieces of information, (real or imagined)  and contextual engineering that suits the pre-ordained conclusion that is presented. The opposite to the scientific method, in that the result is determined, then data is constructed that does as good a job as possible to ‘prove’ the outcome.

In academic and scientific circles, this is a heinous crime that will end your career.

From time to time I have not been popular as a result of asking what to me seems to be reasonable questions of those presenting ‘data’ in an effort to sell something.

What is the size and structure of the sample used?

How does the methodology replicate actual behaviour?

What controls were used to manage the data?

Where did the outliers come from, and where are they in the stats?

Have the results been substantiated by independent repeat studies?

There are a few more, but usually I only get one or two out before I am dismissed as some sort of data cretin who does not understand these things.

It is amazing to me how often I see major decisions taken on the basis of flawed, incomplete and inconsistent ‘data’ where the vested interest is clear to all who choose to look closely.

 

 

What makes the perfect business?

What makes the perfect business?

Sep 14, 2018 | Marketing, Small business

A while ago after a networking meeting, a few of us went to a pub for a steak, and ended up solving the problems of the world on beer coasters.

As you do.

Given we all owned and ran small businesses, the main topic of conversation was around the nature of the perfect business, the one none of us had.

The depth of intellectual effort that had gone into  the discussion deserved preservation, so I collected the tattered and somewhat wet coasters at the end of the night.

The next day it took a greater than anticipated effort to decipher what had been very clear just a few hours before. However, following are the parameters of the perfect business we arrived at.

  • It has a wide demand area, not just the local area, the world. This is now a possibility whereas a decade ago it was still fantasy.
  • You have a ‘monopoly’ in a niche, with inelastic demand. To achieve this the business must be very specific, and very good at what it does. So good, and so specific in fact, that it is simply not worth the investment and risk of competitors coming after you, but customers need your product and are prepared to pay for it. (A former client sold a highly refined chemical into a high end niche in the professional photographic market. A tiny, narrow world market, where the users needed the product in very small quantities, so price was not an issue, but the challenges for a competitor were significant. Perfect.
  • Substitutes are hard to find. In the example above, there were substitutes, quite acceptable ones at average levels of output integrity, but at the really pointy end, there were none so he could set his own prices. This is, until digital took over, making his business one of the bits of disrupted post digital debris.
  • Labour costs are minimal, the fewer personnel the better. Contractors undertake the recurrent processes, often in lower cost locations.
  • As above with overheads, which just anchor you to a place.
  • Investments in inventory, which chews up working capital, are minimal.
  • The business is mobile, in the sense it really does not matter if the HQ is in Sydney, Melbourne, or under a tree in Port Douglas.
  • There are limited regulatory regimes that interfere in the running of the business. The opposite is also true, where the regulatory impositions are so high that they discourage competition.
  • There is some element of cash, not for tax evasion purposes (although this angle did have some attraction) but to minimise the working capital necessary to run the day to day operations.
  • It is not bricks and mortar retail. Sounds specific, but in retail there are always long hours, and problems with personnel and customers, that just get in the way of making a profit. Besides, B&M retail is in the early stages of disruption, and Amazon had just opened their warehouse in Melbourne.
  • It is a subscription business of some sort, where the revenue just rolls in without the necessity to go through the sales process again and again for every dollar of revenue.
  • It is not a straight trade of your time for money, there has to be leverage involved. The web with its opportunity to leverage content has opened up a host of opportunities not around a few years ago.
  • The business has some value to your ‘internal’ life. It is something you love, it feeds your intellect, gives you the time you need to chase a dream, whatever it is, it delivers more than just the financial rewards.

None of this allows you to be successful in the absence of real marketing understanding, a product that fills a genuine need in ways not easily replicated by others, and a bit of being in the right place at the right time. Being able to see an opportunity when it knocks is critical, as it rarely knocks twice.

Additions to the list are very welcome, and it may serve as a scorecard for your business!!

21 Lessons from a manufacturing turnaround

21 Lessons from a manufacturing turnaround

Aug 28, 2018 | Branding, Change, Leadership, Marketing, Strategy

 

I was asked the question ‘what did you learn from the turnaround of the GPD‘ a while ago, and was persuaded to present on it.

The GPD was the ‘General Products Division’ of the Dairy Farmers Co-Operative Ltd. It produced all the dairy products you manufacture with milk, which were at the time (mid 80’s) unregulated, while the stuff you put on your cereal in the mornings was regulated to the wahzoo. The GPD  was spun out of the much larger milk business so it could be run as a business, and not an outpost to absorb the milk not required in the regulated market.

Various aspects of that journey have been in these pages before, but I had never contemplated the question in depth and from a height, at the same time.

I started with the business just after it had been set up, then called the ‘By-Products Division’ and in the early stages of building a new ‘state of the art’ factory in Western Sydney.

The division was commercial road kill.  I know that as I did the first P&L by hand, (calculator, 18 column ledger sheets, pencil and rubber)  from scraps of information gathered and constructed from a variety of sources, and a lot of observation.

From that position, turning over $32 million, losing somewhere between $6 & $8 million, with the heavy commitment of the half finished high tech plant nobody knew how to run, 8 years later it was turning $162 million and making good money, with much improvement still to be done. It was a very substantial turnaround, not without its share of drama and missteps,  moments of joy and ‘what the hell just happened’. It was a journey that involved everybody in the business, at first reluctantly, then enthusiastically, had built astonishing momentum that was really only obvious to those on the inside.

Then it was stuffed up by a stupid decision to re-incorporate the business back into the milk business in order to ‘spread the successful commercial DNA‘  in preparation for the inevitable deregulation of white milk.

Over the first 6 years I carried responsibility for the Logistics, and part of  the sales, in addition to the marketing role I was hired for, and for  the last 2 years that the GPD was a separate entity, I was the GM. My ideal job at that time in my life.

Over the eight years, the business and its processes was totally reorganised, the  culture completely turned around, and we launched a string of successful market leading products, all of which contributed to the success.

So what did I learn, in no particular order?

  • You have to engage all employees, at all levels in the journey. They must understand their role and importance in that journey and to each other.
  • When you make a blue, recognise it early, correct and move on. Chasing a sunk investment that is not working is a terrible mistake to make.
  • Never look back with nostalgia, just for the lessons as input for what is next.
  • Price is not a measure of customer value, it is simply a means to express it that is understood, and unfortunately, usually misunderstood. Price only really matters when all other things are equal.
  • No business can be all things to all people.
  • Look after your small customers, one day they might be your big ones.
  • Standards of performance and behaviour have to be both present, well understood, transparent, and meticulously followed by those who set the tone.
  • The greater the general level of transparency the better. Hiding bad news never works, and brushing over problems just lets them fester and get worse. ‘Nip it in the bud’ is always a good piece of advice.
  • A managers job is to support the efforts of their staff, not the other way around. Successful companies extend trust to all employees at all levels, and deals with those who breach that trust openly, and absolutely consistently.
  • Breaching trust is very different to making a mistake. ‘Good’ mistakes are the result of initiative, trial and error implemented with due diligence, and are essential for learning.
  • Continuous investment in product and brand development is necessary, and even more important when times are tough. A great mistake is to see this investment as an expense item in the P&L, available to be managed to deliver a short term result. A powerful brand does not happen overnight, is the outcome of many thousands of small actions and improvements, as well as the obvious external marketing activity,  and it is the greatest asset any business can have.
  • The culture of the place is very hard to describe to an outsider, but clear to an insider. It is a mix of rules, experiences, stories, relationships, habits, and is more complex than any family.
  • Have in place a robust and well understood strategic process which serves as a framework for all decision making at all levels. When an opportunity presents itself, no matter how attractive it may seem, if it is outside the framework, leave it alone.
  • Have in place a robust but simple set of KPI’s intimately connected to the strategy, cascaded through every level, and proactively managed.
  • Never compete with a stronger competitor on their ground.
  • As far as possible, fund growth from cash flow. Long term debt is sometimes necessary, but can turn toxic when the best interests of the lender and the business diverge.
  • Be prepared to kill your favourite children and sacred cows, just be careful to ensure they are not golden geese in disguise.
  • Look for diversity in the thinking styles of people, and encourage that diversity of thought to bubble through and influence the whole business.
  • Treat employees as you would a trusted associate, not a piece on a chess board to be moved around at will. That trust will pay huge dividends in morale, productivity and loyalty
  • Institutionalise regular interaction and conversations across functions and up and down the company, without the impediment of formal roles.
  • Continuous improvement in everything should be so ingrained that people feel its absence keenly.

My final two years in Dairy Farmers were as GM Marketing of the much larger entity that now included the former GPD. While the business continued to be successful, the pace of change and improvement stalled under the dead weight of the still regulated milk business. After  two years, the MD of the business reached the end of his tether with me, constantly being a thorn in his side demanding change, and I with him, so one morning we parted company. The irony is that during this time, I (and the marketing team) launched the single most successful product I ever launched, the last in a long list of successful product launches as an employee. However, the means by which I had to subvert the ‘rules’ to do so were the nail in my corporate coffin.

Another two years on after my exit, the business was flogged off, ultimately to a Japanese brewer, at what I regarded as a fraction of its long term value. A sad end indeed to an iconic Australian food manufacturing business, and perhaps a metaphor for the whole food industry.

 

 

Convergence of Governance and Marketing in Financial Services

Convergence of Governance and Marketing in Financial Services

Aug 22, 2018 | Governance, Marketing

The shocking revelations from the Royal Commission continue to flow.

Last week it was NAB’s turn in the hot seat, and they did not fail to add to the building dismay and absolute disgust being felt.

The Governance Institute defines governance as:

Governance encompasses the system by which an organisation is controlled and operates, and the mechanisms by which it, and its people, are held to account. Ethics, risk management, compliance and administration are all elements of governance.

This seems to be an OK definition to me, with the obvious omission of any reference to the customer, the ones who put the money on the table in the first place. I had a quick look on the AICD site, and could not find any sort of definition, which seemed a bit odd.  A google search for ‘marketing governance’ turned up a lot of self-serving fluff and cliché, but not much of value I could see in a quick scan.

Being simplistic, the revelations from the Royal Commission all seem to point to some very poor governance of the marketing function. Perhaps not surprising, as so few seem to have thought constructively about it. (myself included beyond the implications on strategy and resource allocation)

Besides the apparent breaches of the law, certainly breaches of ethical behaviour, and absolute failure of a culture to reflect in any way the promises made by the organisations to their customers, there is clearly no governance of marketing in the Financial Services industry.

If there was, we would not be paying commissions on sales, continuing to extract trailing fees, charging for services not delivered, lying, and even charging dead people for advice.

Effective marketing over the long term relies on ensuring that customers remain customers, that the lifetime value of a customer is not just respected, but revered.

The barriers to exit in Financial services are high, largely because of the low level of financial literacy and the sheer complication in this area. This is made worst by the blizzard of regulatory changes, industry jargon, sheer disinformation, and malevolence  that abounds around a trough the size of the compulsory superannuation money pot.

It may be fine to put barriers to exit in place, customers hate them, but understand the reason, but then to screw customers behind the barriers to exit amidst the fog of disinformation and jargon, is a gross failure of marketing governance.

The responsibility of marketing lies with the representation of the customer inside the business. We talk about customer journeys, then stop at the first sales transaction. Has nobody in Financial Services thought of lifetime customer value, and acted as if they cared?

Here endith the rant!

Header credit: Once again, to Hugh McLeod at gapingvoid.com, who must have seen the Australian Royal Commission coming when he penned this cartoon years ago.  This seemed like the perfect opportunity to use it!