Dec 8, 2014 | Customers, Marketing, Small business
1932 Rolls Royce Phantom 11
I bang on about “Value” a lot, in all sorts of contexts, and using all sorts of examples and metaphors.
Defining the components of value is challenging, as value to every individual is different in differing contexts.
Value can be described as the difference between the price of an item or service, and the utility the buyer derives from delivery of those goods or services. It is made up of a myriad of variables, speed and reliability of service, timeliness, design, warranties, intrinsic cost of the components, and many, many others unique to the individual and the circumstances they face.
The core challenge of an analysis of Value is that price is quantitative, but everything else is qualitative. Every persons calculation of value will vary according to the relevant factors and the weighting allocated in any set of circumstances.
So what?
Well, the conclusion must be that defining the behavioral characteristics of your target market as closely as you possibly can is essential to maximising the mix of factors to be delivered that the customer will count positively in their calculation of “value”.
Specifying the factors that they will include in a calculation of quality, and understanding the weighting they may allocate in differing circumstances will significantly assist you to craft messages that will engage them in some way.
Often the value derived from an item is in the way of a reward, the pleasure derived from use. A $15,000 KIA is just about as reliable a set of wheels for a journey from point A to Point B these days, but wouldn’t that journey be far more pleasurable in a Ferrari, or BMW, or 1932 Phantom 11 Roller?
There is value in the pleasure, and the imagery usage delivers, and often it is way more important than any quantitative utility derived from use, it is just hard to define.
Assisting with the process of defining the behavior drivers of customers, a Customer Value Audit, is a core part of the StrategyAudit process, going as close as possible to quantifying the components of value for each individual.
PS. Spooky. Bernadette Jiwa, a really accomplished marketing thinker, even though she is a “sand-groper” today posted on Value, as I did. A thought provoking example, and I cannot but wonder at the co-incidence.
Great minds Bernie??
Dec 4, 2014 | Category, Marketing, Operations, retail, Small business
Data management & analysis
The second of 10 ways to beat the supermarket gorillas at their own game, after understanding the way the supermarket business model works, is to be savvy with data.
Supermarket retailing is heavily data intensive. These days, any retailing beyond the archetypical lemonade stand by the side of the road is data intensive, but particularly supermarkets. Commonly a supermarket range is up to 30,000 Sku’s across a number of different formats and geographic and demographic locations, and several thousand suppliers, all with their own focus and story to tell.
The supermarkets physical space needs to be allocated across the Sku’s chosen to be on range in the way that best delivers a return on their investment in the particular store and strategically across the chain.
SME suppliers to chain supermarkets usually are playing from a position of weakness, as they lack the scale to have the data and category management resources that supermarkets demand. However, their strength is that they can be far more agile and market sensitive that their bigger rivals, often SME’s can develop and launch a product before a multinational can get the first development workshop together.
Whilst supermarkets have a wealth of data at their fingertips, both their own, and that supplied by their large suppliers, they recognise that not every piece of data is worth the digits it is written with. Data is only of any value if it leads to some sort of actionable insight, and it is here that SME’s have an advantage despite the disadvantage of small size. Making the connections between differing seemingly disconnected data points is where the gold is hidden.
There are several points at which data can be collected, from which insights can be gained. Internal, observed and purchased.
- Sales and margin history. No SME should be without a robust and detailed sales and margin analysis of their own sales history, and thus ability to forecast with some certainty. Every SME has a sales history in their accounting package, most do not use it. Most use the “Office” package, which included Excel, but many do not use the power of the tools in excel. Pivot tables are the most underutilised and useful tool I have ever seen for SME’s. If you are one of the majority who do not use them, wake up, spend 30 minutes on YouTube figuring out the basics, and start generating insights. Also in excel is the V-Lookup tool, which can be enormously valuable to SME’s to keep accurate track of a whole range of variables in their business.
- Sales intelligence. SME’s are usually in a position to have unfiltered market intelligence in the hands of decision makers easily and quickly. Usually the people best positioned to see change as it is evolving are those in direct contact with customers and consumers, often the lower paid front line staff. Being engaged with these staff, or indeed as is the case for many, being that staff as a part of the role of the SME business owner puts you in a position to see shifts as they occur, if you are watching. Finding a way to turn these random conversations and insights into data points that can be connected and acted on can build into a significant competitive advantage. There is no substitute for the insights gained by simply watching and understanding the drivers of consumer behaviour, then crafting an offer that adds value.
- Agile operations. Scale brings its own momentum, despite the huge improvements over the last 20 years by the adoption of Lean practises. Large suppliers to supermarkets, with large factories, fixed planning cycles and extended supply chains are often caught short by the unexpected and unplanned. Agile suppliers can often fill the gaps created, but do so they need to be able to make very quick decision on costs, time frames, and operational priorities and limitations. To make these decisions, they need absolute understanding of their cash and financial position, costs and decision drivers like break even points, the impact of discounts, and negotiation trade-offs they can make. To be truly agile, you need accurate and detailed financial and operational data that is easily useable to make well informed decisions, then track the outcomes of those decisions.
- Be experimental. Having good data enables experimentation on a scale that offers great insights, but minimises risk. The supermarkets are increasingly amenable to enabling SME’s to experiment with all sorts of offerings as they learn as well from the activity. However, you cannot just walk in and expect to be taken seriously without a history of sensible innovation and a relationship with the individual decision makers in the retailer. Having robust, realistic and well understood strategic and operational planning in place is a must if you wish to be experimental and stay in business.
- Purchase syndicated data. Scan data can be purchased in many forms, and to varying degrees of analysis and detail. There is a significant cost to this information, firstly the purchase costs, but more importantly, the data analysis capabilities. Increasingly scan data is being matched to the behavioural data emerging from store loyalty cards to add another dimension to decision making, and this trend will only accelerate. SME’e can dip in and out of this data, taking a slice here and there to provide insights without the significant investment of being fully engaged. Treated sensibly, it can be used a bit like market research, taking a small and well defined sample and using it as representative of the whole picture.
None of this is easy, which is OK, because if it was, everyone would be doing it. However, many SME’s simply think it is all too hard, and stay away, effectively walking away from 75% of the volume in the market. For many, this is a sensible decision, but for some, those SME’s with a genuine opportunity to become larger businesses, building solid capabilities in collecting and leveraging data is essential.
Nov 27, 2014 | Branding, Category, Change, Marketing, retail, Small business
A short while ago, I posted “10 strategies for SME’s to beat the supermarket gorillas at their own game” which generated quite a bit of comment and feedback. Amongst the feedback were a number of requests to go into more detail on each of the strategies, and so this is the first of the series, focussed on understanding the business model of the supermarkets.
I deliberately used the word “Gorillas” because of the extraordinarily concentrated nature of Australia’s supermarket retailers, with Coles and Woolworths between them holding over 70% of FMCG sales depending on the category, and whose numbers you believe.
You know the old question: “where do the 500kg gorillas sleep?”
Answer: “anywhere they bloody like”
That was the way it was, a comfy duopoly, however, more recently there have been some major strategy alterations by Coles which has dramatically lifted their financial performance, and Aldi has successfully carved out a growing niche as a third retail presence. In addition, there are still some very good independent retailers around operating out of the wholesaler Metcash, who also competes with some of their own and franchised retail outlets.
This mix, combined with the opportunities suppliers have to sell into food service and institutional markets and increasingly direct to consumers via the net and other means makes for an environment where the agile and insightful suppliers can be very successful despite the obstacles, but it is a very challenging environment.
The concept of business models is well known, in summary, it is the expression of how a business makes money. It always involves a matrix of revenue generated, the fixed and variable costs of generating that revenue, and the choices that the business makes about its customers and how they will be serviced, and the way they incur the costs of that servicing.
Supermarkets are a great example of a number of seemingly similar competitors that have slightly differing business models. At a macro level they have strong similarities, relying on volume, price, and shopper numbers to succeed, but everyone who shops knows that Woolworths is not Coles, is not Aldi.
However, they do have some common building blocks.
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- Revenue generation. Supermarkets generate revenue on both sides of the equation.
- Shoppers buy products, paying at the checkout.
- Suppliers “pay” for shelf space via a range of charges levied for every variable the retailers can dream up. Volume discounts, payment terms, promotional levies, preferred shelf positioning, promotional slots, access to sales information, and a host of others. Some are items for which suppliers receive an invoice, others are taken as discounts off the invoice price, increasingly applied automatically as a part of the trading term package.
- Cost management. Supermarkets work on very low percentage margins, relying on the volume to generate the cash margins.
- Fixed costs are a significant part of retailers total costs, made up of the provision of the retail floor space, the logistics infrastructure and personnel. Supermarkets attack their fixed cost base aggressively using their scale as negotiation tools with landlords and logistics suppliers, while keeping a very substantial proportion of front line retail staff as casuals rather than permanent employees so they can better adjust staff levels to match activity. The sorts of choices retailers make are between high density shopping centre locations Vs stand alone locations. There are costs and benefits to each which are considered as a part of their strategic decision making.
- The biggest variable cost is the cost of good sold, and they similarly use their scale to manage those costs downward. Tactics vary between retailers, but the core game is to maximise their margins while keeping prices as low as possible to attract the volume buyers. This is an extremely delicate balance.
- Transaction costs are usually pretty well hidden in most businesses, but are really significant in the case of supermarkets simply due to the number of transactions they make. For example, there is a cost to managing the buying relationship with a supplier, but the larger the supplier, the less is the total costs/unit of sale of managing that relationship. This has led to a dramatic reduction of the number of suppliers supermarkets have in any category over the last 15 years or so a trend further accelerated by the increasingly common strategy of limiting the number of proprietary brands in any category substituting house-branded products, and reducing the number of relationships to be managed. This has made negotiating shelf space increasingly hard, and because of scarcity, increasingly expensive for suppliers, in turn putting extreme pressure on small suppliers.
- Customer service and relationships. The retailers have each made choices about the pricing, location, ranging, and service strategies that sets them apart from each other, and more subtly, they have back office strategies that differ. However, their common aim is to have as much market share ass possible, as volume is the profit generator.
- As in any market, no retailer can be all things to all people, so each makes the choice of the “ideal” customer, and markets towards them, grateful for any overlap. Increasingly the marketing is being supported by customer loyalty cards and the data mining and personalised promotional opportunities that technology is delivering, but the fundamental measures of success remain unchanged: number of shoppers, share of wallet, and basket size.
- The two major retailers have very large marketing budgets which they spend in a wide variety of ways, across all channels of communication with customers and potential customers, and often in joint activity with their suppliers, which inevitably, the suppliers end up funding in return for volume. The smaller the retailer, the less “mass market” they are, so the tactics tend to differ, although strategically, finding willing supplier partners is a core part of every retailers marketing mix.
- Consumers generally want choice when they are in a supermarket, the more the better, in any category. Woolworths and Coles stores carry 12-20,000 Sku’s (Stock keeping unit) depending on the size and location of the store, a typical IGA might carry 8-10,000, while Aldi carry just over 1,000. The sku’s carried in any store also reflect of the demographic and cultural mix. The Woolworths store in Auburn in Sydney has a significantly different product mix to the Woolworths of a similar size in Double Bay.
- Every retailer uses some form of category management disciplines as a means to monitor, adjust and locate their inventory onto the sales face in the way that best meets their customers needs and maximises impulse pick-up. This is always a data intensive mix of the volume and margin of the individual Sku, (such as Ski strawberry yoghurt 200gm) group of similar Sku’s (all strawberry 200gm yoghurt) subcategory (all strawberry yoghurt) and category (all yoghurt) and between categories. They make choices about how many brands and types to keep in stock, where they put them, on shelf and in relation to other yogurts, and indeed other chilled products. A facing of yoghurt added is a facing of some other product gone, as the sides of the stores are not elastic. At the core of the category management activities is the need to best satisfy consumers, whilst competing effectively and delivering maximised margins.
Being agile, persistent, and prepared to experiment are about the best qualities a supplier to supermarkets can have.
Nov 20, 2014 | Communication, Customers, Marketing, Sales, Small business
Success these days is hard won, how do you go about winning your share?
Most progress of a sales prospect through the sales funnel happens with some sort of design in mind, rather than accident, even though the actual process is usually chaotic. As the one setting out to engage, there are things that need to be done to maximise the leverage that can be applied without exerting any “hard sell” pressure on a prospective customer, poison in this day of sales mobility.
There are three headline of questions that you can ask yourself, and then reflect the answers in the manner in which you communicate, in every way from the published ads, to the website, location signage, the words your staff use, and the way you follow up any contact.
What is your Share of Attention?
- The world we now live in is one where everyone is bombarded with messages almost every moment, from every imaginable device and location from the sophisticated and targeted offer on your own mobile phone to the ad on the back of the dunney door in the shopping centre. Those marketing their goods and services are in life and death competition just to get noticed, and extract the few seconds it takes for someone to skim a headline, and hopefully be sufficiently intrigued to take some action. Usually that action at the first point is just to read or listen to the rest of the message.
- Who is it for? Nothing can be for everyone, and but too often this simple and basic fact of marketing life is ignored. The targeted ad to a mobile phone number is way more challenging to assemble than the general ad in the dunney door which can only discriminate by gender. Gaining a share of attention of someone in the market for a new car has to involve recognising the personal circumstances of that person. Setting out to sell a two seater sports car to a lady with one child and another on the way is usually a waste of effort, better to focus on delivering a car that will meet her particular needs, more likely a 4 door sedan that fits her budget and preferences. The process of answering the question “who is it for” will always throw up uncomfortable choices. In days past, as someone who spent millions in advertising on the 80’s and 90’s, the typical target audience was something like ‘women 25-40, with children” It was about as good as we could do in those days, with a bit of U&A added. Nowadays, that broad description is so inadequate as to be laughable.
- How are you going to reach them, to create an awareness that you are in a position to meet their need or solve their problem, when and f it occurs. The tools of the web have been absolute game-changers here.
What is your Share or engagement?
- Why should a prospect be giving you some of their most valuable resource, their time? To be worthy of peoples time, you need to add value in some way to build a share of their brain, to get them to think about what it is you have to offer and how that offer can be of value to them.
- Why should they buy from you? In almost all cases, a buyer has options when it comes to buying something. Being clear about why the chosen vendor should be you is fundamental to getting the sale. To continue the analogy above, a car dealership that has some female sales personnel, and who have as a part of their marketing efforts a pick-up and delivery service from the local day-care centres is more likely to make the sale to our pregnant Mum than a dealership full of men emerging from the workshop with grease to the elbows, calling prospective female customers “Luv”.
- In sales with long lead time, there is a process that most prospects will go through, from initial awareness of a need through often several stages of engagement, before a sale can be made. Tactics vary through this sales funnel, but one thing remains consistent, the sale goes to those who are constantly working all points in the funnel, being available to the prospects, and . Perhaps the best salesman ever, Joe Girard who sold 13,001 new cars over a 12 year career in one dealership, a feat that sees him in the Guinness book of records. Joe not only never missed an opportunity to engage, and develop a relationship, and once you were on his radar, he created opportunities to speak to you, all in the days before the internet. Once you had bought a car from Joe, you got a post card about monthly from him, always thanking you for your business, congratulating you on a birthday or promotion at work, and offering help in some way. When it came time to buy Another car, Joe was the only salesman most people spoke to, as they knew him, trusted him, and understood he would be there for them.
What is your Share of Wallet?
- Share of wallet is an absolutely vital and often overlooked measure. When you have created a customer, ask yourself how much that customer buys over a period that you could supply. If they spend $1,000 dollars a year on products similar to yours, but you sell them only $200, your share of wallet is 20%. To continue the story of Joe Girard, he knew that the average time between new car purchases was about 3 years, so sales cycle his typical customers “wallet” was about $20,000 every three years, and he stayed in regular contact, so that when the purchase time came around, his share was high, I have been told as high as 60%. Given some people moved away, some died, and some just changed car brands for any number of reasons, that is an astonishing figure.
- Defining the wallet is usually a challenging exercise, what to include, what to exclude, and over what time frame. My advise is always to calculate the wallet over the average purchase cycle time, for cars, 3 years ago it was about 3 years, for refrigerators it may be 10 years, for womens fashion it may be a couple of months. A friend of mine, a professional woman shops almost exclusively at a particular retailer. They know her sizes and preferences, offer her an exclusive first look at anything new that comes in that they think she might like, deliver on a few minutes notice, collaborate with the shoe shop, and accessories retailers in the vicinity to ensure everything is matched, and do a number of other small things that ensure she simply has no reason to go anywhere else. I suspect their share of my friends considerable wallet is very high indeed, and they have defined it to include the things that go with their products, on which they make no money, but it adds to he service they provide.
None of this is easy, there are no formulas that work for every case, but there are general rules that can be applied. In addition, today, everything is measurable, every time you reach out to a customer or prospective customer you can measure the effectiveness of that action. Joe Girard would have been in hog heaven.
Nov 11, 2014 | Customers, Marketing, Social Media
The stupidity of the functional silos that deliberately separates an organisations capability to deliver value and service to their customers, and the way the customer experiences those services never ceases to amaze me.
A friend of mine has a mortgage on his home, and a cash flow problem.
The stupidity is being demonstrated again, as the bank concerned is sending him very nasty computer generated letters telling him of the dire consequences of not getting his payments back in order. His equity is around 99%, for 25 years the payments have been made on time and he has much of his other financial products through the bank.
Why would a responsible, customer responsive, innovative and customer oriented bank, which we know they are because they spend millions every year telling us this is so, set out to so terminally piss off a long standing, loyal customer?
He has options, few of which are beneficial for the bank, and he also has family and friends who are less than impressed, and now would not touch this bank with a bargepole, and they all communicate widely.
I pick on the bank because it is top of mind, but they are not alone. Corporations everywhere cling to the functional management system while consumers take delivery of their products and services cross functionally.
Failure to acknowledge and manage this intersection in an age of Social media and the ubiquity of information is marketing suicide. I guess the upside is that it leaves plenty of room for innovation for those not stuck in the C20, which has led to the rise and rise of Paypal, Uber, Airbnb, e-wallet, and thousands of others who manage the way they deliver to customers in the way customers experience the need to have a product or service delivered. Tom Fishburne put the Maths Vs Mad dilemma wonderfully simply in a cartoon this morning, pointing out the stupidity of just allowing the technology to take the place of common sense, marketing wisdom and customer intimacy.
Nov 10, 2014 | Communication, Marketing, Sales, Social Media
courtesy www.copyblogger.com
Much of Email marketing has become a bit like the electronic version of the letterbox stuffing junk mail. Marketers are aggressively and creatively finding ways to collect email addresses, then directing traffic to the addresses in the expectation that a few will be opened, and a few of them will then lead to a transaction.
However, this misses the essential point that email marketing has in its favour. An email can be personalised and directed, just like a snail mail letter from the “old days”, it is just that most do not do the hard work necessary that puts in place the “necessaries” to get them opened.
To improve your open rate success, there are six things you need to do:
- Add value. An email that is just seeking to extract value from the receiver will not get much time given, usually it will be deleted assuming it gets through the spam filters. On the other hand, an email that explicitly sets out to add value to the recipient will have a way better chance of being opened and acted up on in a meaningful way.
- Be optimised for however the receiver wants to see you. Mobile is growing exponentially, so ensuring you are mobile optimised is a must do.
- Be personalised. When was the last time you opened an email directed at “Dear Mr Andrew Bloggs” or even worse, “Dear customer”? Been a while right? The email has to be directed to the person as if it came from their best mate, not some automating system. We may all know it is automated, but knowing and having it demonstrated by a stupid salutation are two different things.
- Be contextual. A personalised email is good, but if it is of no interest to the receiver, it will be discarded. Recognising the interests of the reviver in the subject line is immensely important. However, being able to do that assumes you know a lot about them, their interests, habits and lives. Without wanting to be at all spooky, it is possible to collect information on individuals and reflect that in the subject lines of the email.
- Be focussed in the subject line. You get a split second of a receivers attention when they first see the email. Typically people look at the subject line, if it is of interest, they usually look at who it is from, and if it is still of interest, may open it, or perhaps put it aside for a better time. Miss out on either of these two things, “interest”, and “who”, in that split second, and you have probably lost them.
- Measure and improve. The analytic options available that enable continuous improvement in open rates are myriad, often free, and your competition is using them, so there really is no excuse.
Of course, once the email is opened, the marketing game begins. When you need help with that, get in touch to access the StrategyAudit experience.
