Mar 20, 2025 | Branding, Change, Marketing, Strategy
We no longer own stuff, increasingly we are renting it in one form or another.
That lack of ownership discourages brand loyalty and makes defining the boundaries of a contested market all that much harder to do in a way that reflects the psychology of potential customers.
Years ago, while marketing fast moving consumer food products the logic was, we did 90% of the prep work in the packet. The strategy was to suggest to the overworked stressed woman who in those days did all the cooking, to add some garnish and therefore feel she owned the result. The best example is cake mix. Almost everything was done in the packet, all a cook had to do was add an egg, beat it with a fork, and stick it in the oven.
We’ve taken that idea much further now.
One of my sons lives in the inner the suburbs of Sydney and does not own a car. When he needs one, he simply uses the app and within a few minutes walk, there is a car waiting for him.
What we’ve lost in this process is the sense of ownership, the psychological comfort that something was ours. This spreads past the ownership of a car to things like music.
I have an irrational attachment to a couple of 50 year old vinyl records that played a significant role in my young life. The music on those records is ‘mine’. I do not play them anymore, don’t even have a working record player, but separating from those old vinyl records and their memories by association would be painful.
The challenge for marketers now competing in a subscription and rental driven world is how you replace that sense of ownership. If you can figure it out in your product category, you will win.
Feb 28, 2025 | Marketing, Strategy
‘Find a niche and own it’ has been a mantra of mine for years.
SME’s who have done this can do very well.
What it implies is that you have gone out and found those few people who overvalue what you do very well.
Defining what you do better than anyone else is the start.
You do not have to be the best in the world, you just have to be the best available to your ideal customer. For many SME’s that is a geographic market, for others, it may be personal service, or a particular blend of coffee beans the delivers a specific flavour, every time when made by Tony the barista.
When you excel at something that a potential customer overvalues, that is a recipe for success. Price will become a secondary consideration.
My eldest son paid his way through university buying and selling guitars, and valves for amps. He knew guitars and their value, so was able to make a few bucks on the arbitrage. However, he knew valves to an extraordinary level of detail. His market was highly specialised Blues guitarists in Sydney, those few insisted on valve amps rather than the modern electronic units. They came to him explaining the sound they wanted from their amp, and Geoff would assemble a valve set that delivered. It was a very narrow, deep, and specialised market and price was never a determining factor.
As University neared completion, he had to ask himself if there was a market in the niche, rather than just a niche in the market. His conclusion, yes there was a market in the niche, but the infrastructure and investment necessary to make a real commercial go at it, rather than just be a side gig for a uni student was more than he was able to make. As a result, he wound it down, and got a ‘proper job’ after graduation.
Briggs and Stratton is one business that years ago identified, leveraged, and now owns a global niche for mobile, small capacity internal combustion engines designed for outdoor use. Lawn mowers, outboard motors, pumps, and mobile generators all use B&S motors, often supplied and branded with the end product. For example, Victor lawn mowers in Australia is a venerable brand. The motor is branded Victor, the engine is actually supplied by B&S.
As their markets ‘electrify’ power systems (engines and batteries) for mobile machinery, it remains to be seen if they can retain their position.
When you are the only solution to a burning problem, even when only a few have it, price becomes increasingly less relevant as the urgency of the problem increases.
The marketing challenge is to identify and highlight the problem to which your solution is the only one possible.
Header drawing by DALL-E
Feb 24, 2025 | Analytics, Strategy
The ‘Power law of Distribution’ or ‘Zipf’ distribution, can be used as an adjunct to the much better understood Pareto principle.
There is a consistency to the structure of mature markets. There is a dominating leader, followed by a long tail of smaller competitors. The size rank of an enterprise inversely correlates with its market share.
This is the Zipf distribution at work.
Zipf comes from the study of linguistics, where the probabilities of the frequency of words occurring in a written piece was identified by American Linguist George Zipf in 1935. In summary, the characteristic of a Zipf distribution is that the most common item appears approximately twice as often as the second most common, and three times more often than the third most common, and so on.
For example, the most common word appearing in an English text is ‘the’ which appears twice as often as the second most common word ‘of’, and three times as often as the subsequent word. This relationship has been validated across languages and the sophistication of language use via the free Gutenberg Project, a free database of 30,000 works. The obvious use is in the statistical probability calculations used to generate the tokens that deliver us output from AI platforms. It also powers the language translation capabilities of digital tools.
Zipf distributions occur across many domains beyond language. Income distribution, population sizes, numbers tuning in to TV shows, and followers of so called ‘influencers’.
So, how do you use this when thinking strategically about how to break into a market where you are somewhere in the long tail of a Pareto chart?
It is a problem faced by most businesses in competitive markets. The big players get all the attention, leaving little for the small players to fight over.
The answer: Identify an existing niche and own it, or better still, create your own niche, and be the dominating player in a Zipf distribution for that market segment.
Fragmented markets with a wide range of competitive offers tend to consolidate over time into a small number of players that dominate. Typically, the number one competitor evolves to be double the market share of the next.
This occurred when ‘Meadow Lea’ emerged from the crowd of margarine brands in the late seventies. It became the dominant brand with a market share over 20% (at a premium price) with the next brand in line, ‘Flora’, having a share from memory that never climbed over 8%. Then came ‘Miracle’ margarine maxing out at about 5% before going down the gurgler.
‘Apple’ created the smartphone niche, which then became the whole mobile phone market. They led the emerging market in volume until Google released Android, and allowed anyone to use it. Apple no longer holds market volume leadership, currently they are around 15% volume share, but still hold profitability leadership at about 80% of mobile phone profit share, a clear example of a Zipf distribution.
Which would you rather have?
These ‘Zipf dominators’ do not happen by accident.
They are created by a combination of the identification of unmet demand, creation and/or leveraging of a market niche, and an emotional connection compounded by long term brand building.
When you are the second brand, chasing a Zipf dominator, life is tough. It will take strategic insight, investment, time, and perseverance to prevail. Critically, it also requires a deeply strategic analysis of customer behavior and needs to be able to see the ‘white space’ than becomes ‘Zipfable’
Header George Zipf courtesy Wikipedia
Jan 29, 2025 | AI, Governance, Strategy
The tech news of the decade blew up on Monday January 27, 2025.
Nvidia, the darling stock of the AI revolution dropped six hundred billion (17%) in market capitalisation in one day. This is the biggest one day loss in stock market history. It sparked a selloff of other tech stocks, leading to a sector drop of 5.6%.
Has the bubble burst, or is it just the theories of Clayton Christianson writ large, again?
The spark was the recognition of the impact of the Chinese AI architecture represented by DeepSeek R1 by the technical wizards and stock analysts.
Surprisingly, DeepSeek released a research paper outlining their approach to AI training. This details an architecture that dramatically reduces cost and complexity of training LLM’s while delivering results at least as good as OpenAI and comparable models. It took a week or so for the described technology and results to be absorbed and understood, culminating in Mondays panicked sell-off.
Is this a bubble bursting or just a sensible reordering of expectations?
Two factors outside corporate malaise have dogged my innovative efforts over the years, both of which are in play here:
- The notion that innovation takes place in an environment of constraints. While history demonstrates the truth of this, the stories we tell ourselves celebrate what appears to be great innovation emerging as a result of chaos. In this case, the restrictions placed on China getting the existing technology created restrictions they have beaten.
- What I call the ‘Christianson effect’, better known as the Innovators Dilemma, after Harvard professor Clayton Christianson is proven accurate time after time, after time. Again, Christianson accurately saw that a high cost solution to a problem would eventually be replaced by a much lower cost solution to the same problem. DeepSeek is just another example of the power of his observation.
The US under the Biden administration for security reasons put export bans on Nvidia chips, chipmaking tools, and development software. These bans covered US allies in an effort to isolate China from the Intellectual capital as well as the means to bridge the technology gap that suddenly appeared. It would appear that rather than accepting the ban and going home, the Chinese reacted by using the ban as a motivator to rethink the engineering of the guts of AI systems, and come up with a solution that addressed the two hurdles facing current AI:
- The enormous amounts of data required to train the models.
- The huge drain on power required to process even modest requests to the models for a response.
Both it would seem, are gamechangers, as the cost reduction probable for AI platforms is enormous.
The real question for those who run businesses that use this technology, or are starting to use it more generally in our lives, which is all of us, is what comes next?
Here is what I think, assuming the initial hype is close to the mark, and not another chimera like the Theranos scam.
- The huge allocations of capital being made by the big US companies, Microsoft, Google, Amazon, and Meta, will be put on ice. Nvidia has hundreds of billions of dollars in orders from these giants that it cannot currently adequately fill. Some if not many will be quietly cancelled.
- More billions allocated to build the infrastructure to accommodate the models, big chunks of expensive land, and power sources will also be slowed down. For example, the project called the ‘Stargate project’ triumphantly announced last week by the president involving a 500 billion dollar investment by the government will become just another Trump press release consigned to the round file. The project as outlined is a JV with Oracle, Microsoft, Softbank, and others to build AI capability in the US. It represented an equity investment by the government in the commercial leveraging of emerging technology, a first. I also speculate that the proposal to fire up a mothballed nuclear reactor at 3 Mile Island by Microsoft will require a rethink, although it may have just been at best, a thought-bubble.
- The disruption created by the DeepSeek technology will redirect the tsunami of capital towards Chinese technology, until the next innovation iteration comes along. This will both geometrically accelerate the rate of adoption necessary by business if they want to keep up with competitors, and make the current security concerns surrounding Tik Tok look trivial by comparison.
- The disruption might ‘democratise’ the use of AI in the sense that it will be more widely available once the costs are dramatically reduced. Alternatively, it may mean that the existing ‘moat’ controlled by the current crop of AI platforms, all American, will be replaced by a Chinese moat.
- Regulating AI in some way has been a topic of frantic debate since OpenAI launched Chat. To observe that regulators have no idea would be accurate. Now, instead of regulators being caught with their pants around their ankles, it is apparent that their pants, if they own any, are secure in the wardrobe. In a regulatory and geopolitical sense, we are spinning out of control.
- The rate of development of systems that enable humans to expand the reach and depth of the intelligence we evolved to have will be extended at a rate that is further accelerated by the huge reduction in cost that appears probable as a result of this Chinese breakthrough. We had better all start learning Mandarin.
As the old Chinese saying goes ‘We live in interesting times’
Jan 21, 2025 | Leadership, Strategy
‘Strategic thinking’ is that thing most managers claim to do. Often their effort amounts to little more than scheduling next year’s budget with a 5% increase across the board. It’s like preparing for a cross-country road trip by only checking your rearview mirror. Such a view does deliver information, which makes everyone feel better, but it is probably not what you really need to know to avoid the changes in the road.
Think of strategy like a game of stud poker. There are the cards in your hand (things you control), the cards on the table (things you can see but can’t control), and the cards yet to be dealt (the unknown unknowns that keep CEOs awake at night). Most of us spend our time obsessing over our hand while barely glancing at the table, let alone thinking about what might come next. It’s no wonder most strategic plans have the shelf life of a quarterly forecast derailed by something unexpected.
These are the three perspectives you need to integrate to build a resilient strategy that delivers superior outcomes:
- Your Hand (The Controllable): This is your comfort zone – budgets, teams, processes. Important? Sure. But if this is all you focus on, you’re playing solitaire in a poker tournament. For example, Netflix’s early strategy focused on perfecting its DVD rental logistics, then moved very early to streaming. Blockbuster completely missed the streaming wave by being wedded to what they had in their hand.
- The Table (forecastable but Uncontrollable): These are the market trends, competitor moves, and regulatory changes that everyone can see. It’s like looking out the window at the weather, you can’t control it, but you’d better pay attention, or miss out as did Blockbuster.
- The Unknown (The Wild Cards): This is where things get interesting. It’s the stuff nobody saw coming. The Covid pandemic, Hamas attacking Israel, and the ferocity of Israel’s response might qualify. Similarly, a competitors factory burning down, or the sudden emergence of TikTok. Tesla’s rise wasn’t just about electric cars; it was about reimagining the automobile industry in ways others hadn’t considered, and stealing a huge lead over incumbents as a result.
Roger Martin’s Secret Sauce
Roger Martin, is the strategy guru who makes other strategy gurus feel like they need to up their game. He developed a framework that’s surprisingly simple to say, but still deeply challenging to deploy well. He calls it “Playing to Win.” I sometimes refer to it as “Five Questions that might stop you shooting yourself in the foot.”
Here’s the deal:
- What’s your winning aspiration? For Patagonia, it’s protecting the planet while making quality gear. “Being the best” doesn’t count, as it does not enable anything. My eldest sons soccer team had that goal, but lacked the basic ingredient of talent.
- Where will you play? You cannot be everything to everyone, despite what your sales team may think. Targeting eco-conscious adventurers allowed Patagonia to dominate its niche.
- How will you win? This is where you need to get specific. “Excellent customer service” is not a strategy. Amazon redefined customer service with ‘free’ 24 hour shipping and no-questions-asked returns.
- What capabilities do you need? Be honest, not optimistic. Amazon’s logistics network didn’t appear overnight; it was built with significant and deliberate investment.
- What systems must be in place? The boring but crucial bit that makes everything else possible. Walmart’s supply chain system is a textbook example of operational efficiency.
Following are some tips from experience that should make deploying Martin’s framework a bit easier.
Channel your inner five-year-old
Remember your kids kept asking “why” until you questioned your life choices? That’s first principles thinking in action. Instead of accepting “that’s how we’ve always done it” (the corporate equivalent of “because I said so”), we need to channel that annoying but brilliant five-year-old curiosity.
Tesla didn’t just make better cars. Elon Musk saw the potential of an entirely new way of engineering personal transport. Ask yourself: “What would this look like if we started from scratch today?”
Customer centricity
Being customer-centric is like being a good listener at a party. Everyone claims to do it, few actually pull it off. Real customer centricity means developing almost psychic levels of customer understanding.
Apple anticipates user needs with seamless ecosystems, while Spotify curates personalised playlists that feel almost uncanny. It’s not just about asking customers what they want, but about understanding their lives so well you can see where they’re headed before they do. Amazon keep an empty chair in every meeting as a reminder that they must never forget the customer.
Scenario planning
Think of this as your business GPS, but one that shows possible future roads, not just the ones that exist today. There are plenty of mind-mapping and task recording tools around now that assist the thinking. Update it regularly, make the updating of the map a quarterly agenda item in your management meeting. In this way, you will almost certainly be more thoughtful about emerging opportunities and threats than your current opposition.
The assumption testing framework
This is where you play “strategic Jenga” carefully pulling out each assumption to see which ones are actually holding up your business model and which ones are just taking up space. Often the challenge is to identify the core assumptions, before they become so ingrained in the fabric of the enterprise that they can almost disappear. Start by listing the core assumptions about your market, and test one at a time by having conversations in key customer segments. These conversations will also serve to alert you to the stuff happening on the fringes that may evolve to disrupt current assumptions.
Synthetic market research
AI powered market research is an emerging tool that will rapidly alter the balance of power in many markets. Suddenly, you can get very accurate insights in a very short time, for a fraction of the cost of traditional market research. For smaller marketers have been excluded from extensive market research insights by cost and time. AI powered ‘synthetic’ research is like having a time machine enabling you to look forward and make those difficult strategic choices with more certainty than just yesterday. There is no certainty about the future, but the more and better insight you have, the better choices can be made.
Have a weak signal detection system
This is your business equivalent of those people who can smell rain coming before the clouds appear. Set up your organization to notice the little changes that normally occur on the fringes of every market, that might become mainstream.
- Subscribe to trend newsletters in adjacent industries.
- Conduct regular chats with customers (the kind where you actually listen).
- Build cross-functional collaborative teams who compare notes, ideas, trends they see, and insights.
- Forge partnerships with startups to stay ahead of disruption.
- Look for the small customers that the sales people describe as demanding and difficult. Sometimes that are the ones setting out to be different. Remember that every large customer started out as a prospect, and most probably a small and difficult customer.
Continuous strategic improvement.
When playing out on the edge, mistakes will happen. When they do the best companies and people learn from them, absorb the lessons, and go again. They build resilience and deep domain expertise from everything that happens to them. Continuous improvement is a mindset as valid in strategic thinking as it is in any other operational domain. Arguably it is the driver of CI across an enterprise, as the strategy plays a key role on the generation and nurturing of culture, a necessary context for CI to thrive.
Strategic thinking isn’t about having a crystal ball, although we are getting better at articulating the challenging strategic choices that abound. It’s about building an organization that can spot changes early, adapt quickly, and occasionally make bold moves that leave competitors wondering what just happened.
The trick is finding the right balance between the cards you can see and preparing for the ones you can’t. Use first principles thinking to challenge those comfortable assumptions, stay close enough to your customers to finish their sentences, and leverage new tools like synthetic research to stay ahead of the curve.
The goal is not to predict the future perfectly, it’s to be better prepared for it than the next guy. When you can do that, you can win the competitive race, and hopefully have a little fun along the way. After all, if you’re going to spend time thinking about strategy, you might as well enjoy the process.
Jan 17, 2025 | Analytics, Branding, Marketing, Strategy
Small improvements in average price drive large improvements in profitability.
Do the numbers.
The normal expectation in consumer markets is that volumes will increase when you promote. Usually they do, but that period is usually followed by a period of lower volume, as what you have done is pull volume forward. This gives those who would have bought at the full price a discount, and rewards those who only buy on price, but who will move on next time to the cheapest on the day.
Brand equity flattens the peaks and troughs of price driven demand, reducing the volatility of price driven volume.
A reduction in the volumes driven by price alone, and an upward to the right movement in average prices paid, act together to drive profitability.
The challenge is to be in sufficient control of your distribution to be able to manage the balance of price based promotional activity often demanded by distribution channels, and investment in brand equity held by the end consumer.
In Australia, the power of the supermarket duopoly together with poor management of that balance by weak minded and brand equity unaware management has resulted in the brand equity of most consumer brands being trashed by supermarkets. It has been replaced by cyclic price promotions, with mandatory participation if distribution is to be maintained.
One of the great missed opportunities to build and leverage brand equity (in my opinion anyway) is the use years ago of Al Pacino by Vittoria coffee.
I have no idea how long the campaign went, or how much they spent, but I clearly remember seeing the ad on TV, and on posters in coffee shops around Sydney. I still buy Vittoria coffee as my preferred coffee, but have been ‘trained’ and rarely need to buy it at the full price of close to $40/kilo, when it is ‘on promotion’ regularly at between $20 and $25. I drink a lot of coffee, so the low price is a pantry stock opportunity.
Unless I am highly unusual, Vittoria has missed out on many millions of dollars of profit over the decade. Heavens, they miss out on several hundred a year just from me!
The potential power of human emotion on the purchase choices they make is huge.
Most fail to leverage it to its fullest extent.
The campaign for Meadow Lea margarine that ran from about 1977 to the mid-eighties is another example. ‘You ought to be congratulated’ not only drove the brand to massive market share leadership at an average price that was a premium to its natural competitors, but it also drove the size of the whole market.
When the dopes who took over the brand failed to recognise the dynamics, and cut advertising, while bowing to retailer pressure, the brand shrunk like a balloon with a slow leak.
Nearly 40 years on, the ‘you ought to be congratulated’ positioning may retain enough equity to be revived. Similarly, I am sure Al Pacino still drinks coffee every day, but may now be a very expensive spokesman.
Maybe not. Worth a try?
