Developing Competitive Advantage

Different industries offer different competitive opportunities: therefore different strategies are required.  There is no one catch all strategy that will be successful across all industries.

So to develop an appropriate strategy for your market, you need to identify the appropriate competitive advantages and hence develop appropriate strategies.

There are three steps to identifying competitive advantage:

  1.  Define the Industry:  What are the market boundaries? What are the ‘rules of the game’? Who are the other players?
  2. Identify the possible competitive moves so as to exploit competitive advantage: What is the life cycle stage of the market? If the market is mature there will be different competitive advantages to a market which is in its growth stage; and therefore different strategies will be applicable. How will the actions of your competitors affect the market?
  3. What is your generic strategy? Differentiation, Cost focus or niche?

Remember successful strategies are the successful completion of a series of competitive moves

The first step, identifying the boundaries of an industry is not as easy as it first appears.  Take a farm shop with a cafe and children’s petting zoo.  Is that business a food retailer and producer; or is it part of the catering industry, or is it part of a wider leisure sector?

In assessing an industry’s boundaries each identified business activity should add perceived value in the minds of potential consumers. That perceived value is the string of benefits accrued by obtaining a product or service.  Some of these benefits can be abstract such as self image. The price is determined by what people are willing to pay to accrue those benefits.  If consumers place low perceived value on goods or services, they will expect those goods and services to come with a low price.

The ‘game’ is to create a disequilibrium between perceived value and the same price offered by competitors. Two factors can be adjusted, the perceived value and the price. this leads to three main options:

  1. Offering more perceived value for the same price as your competitors
  2. Offering the same perceived value as your competitors for a lower price
  3. Offering significantly more perceived value but for a higher price.

We do not live in a world of perfect competition where price is the only differentiating factor between market offers.

Obviously every activity to produce goods or services has a cost. The accrued costs of production and supply set the minimum price level at which products can be marketed.  Your business system must remain profitable. External factors such as tariffs and taxes can affect that profitability.  UK businesses currently exporting in a tariff free environment will likely face pressure on profit margins if, as seems likely, not trade agreement can be agreed with the EU and the country reverts to trading on WTO schedules.

The best approach in a market is to offer the highest possible levels of perceived benefit for the lowest possible delivered cost.

In assessing the ‘rules of the game’, you also need to take into account the logic of the business system; how business activities coordinate to achieve a common goal.  Resources needed to achieve common goals also need to be examined e.g. People, technology and finance.

When assessing competitors you need to look at all market entrants, not just core competitors.  that means suppliers, distributors, retailers etc.  You need to know which market players will sub-optimise your whole business system.

Competitive moves are defined as the best way to utilise your defined business systems to provide perceived value.  This is achieving superior performance in at least one business system activity e.g. best after-sales care; or through the innovative combination of several activities i.e. your marketing mix. This is the basis of all successful marketing strategies.

In assessing which competitive moves you need to make, you need to know the stage of the life cycle the market exists in.  Competitive moves will be different in a new emerging industry than in a mature of declining industry.

To identify strategic groups use perceptual mapping.  Plot consumers perception of value (not product quality) against cost.

There are two forms of generic strategy: one dimensional strategies and out-pacing strategies.

One dimensional strategies affect either perceived quality or price.  They are a repeated single move with the intention of retaining a static market position.  They are defensive strategies.  Short life cycle industries, such as fashion will use one dimensional strategies focused on high perceived value.

Businesses with long life cycles such as commodities (gas, electricity, water, etc) can look at low delivered cost strategies.

Using one dimensional strategies in other circumstances can be dangerous.

Out-pacing strategies do not repeat the same strategic move over and over.  You outpace your competitors by moving from one strategic position to another through altering value options.  The timing of outpacing strategies is crucial.  This is very much a dynamic strategy option.

Pre-emptive outpacing strategies are often used by industry leaders to avoid attacks by competitors. Again this is predominantly a defensive strategy option.  this could include shifting the industry life cycle through the development of product standards.  You need to create a pricing reserve so as to invest in process improvements to allow a shift to low delivered cost strategy until the new industry standard is adopted.

Price can be leveraged to prevent market followers from generating cash flow needed to transition to the next industry stage. For example, many saw Betamax video recorders as the premium product but VHS was cheaper and VHS was able to become the industry standards for home video cassettes. Price can be used to prevent new market entrants; possibly through the creation of fighter brands.

Again, the timing pre-emptive outpacing strategies is crucial.

Pro-active outpacing strategies tend to require market maturity and lower growth rates.  The are used to escape maturity stalemate and to avoid destructive price wars. In effect you are changing the rules of the game.

Unbundling perceived value is a common outpacing strategy.  This is achieved through the use of value chain analysis.  You then remove unacceptable costs which do not add to perceived value.  this may be moving from high street stores to out of town warehouses, or even moving to internet distance shopping from traditional retail. Ikea went from a traditional furniture retailer to a supplier of flat pack self-assembly furniture.

Analysing the competitive advantage options in your industry is critical to the achievement of successful strategies.





Responding to Technological Threat

Products have a life cycle.  They are introduced to the market and the standard model of the life cycle follows an S-curve of growth maturity and decline.  Products go into decline for a variety of reason.  It could simply be a matter of public tastes changing. Today, a prominent reason for products entering the decline stage of the life cycle is technological change.

A prominent example of technological change leading to product decline is the market in processing chips.  Although there is some evidence that Moore’s law is no longer applies; for many years the market for chips followed the pattern of double the number of semiconductors on the chip every eighteen months. Of course, when the processing power increased, the old chips became obsolete.

History is littered with such changes.  The replacement of steam trains with diesel electric trains, the rise of the smartphone, digital cameras over film cameras.  The last of these examples is particularly interesting.  Kodak invented the digital camera sensor. They then let others develop it as Kodak continued to focus of producing film rolls. Kodak eventually had to file for bankruptcy protection.

Technology can destroy old industries and creates new ones.  In the 1960s very few saw a market for home computers.

Businesses are often faced with a host of technological threats.  Not just products but technological change in supply and distribution chains (e.g. e-books and music downloads), changes to customer habits (such as internet shopping, fast food home delivery apps), changes to production processes (e.g. 3D printing).  Good managers, or perhaps lucky managers, know some technological threats will never materialise as a threat but others will have a major effect on their business.

It is common for new technology to be developed outside and industry and then applied to that industry.  Often the new technology is developed by new firms entering the market (disruptors)

New technology is often crude and expensive at the outset and sales of old technology may initially continue to grow following the product life cycle curve.  However, the old technology tends to decline within 5 to 15 years of the new technology being introduced.

Existing firms in a market can respond to the new technology in two ways:

  1. Develop new products containing an improved version of the old technology
  2. Fight on two fronts; continue with the old technology whilst developing a presence in the market for the new technology.

When new technology arrives, an existing market member may be facing a host of new market entrants.

So what are the potential strategic responses to the arrival of new technology:

  1. Do nothing
  2. Monitor the new technology through environmental scanning and forecasting
  3. Fight the new technology using public relations; or in extreme circumstances through the courts.  For example, Apple and Samsung fought a long legal battle over the technology in each others smartphones.
  4. Increase organisational flexibility to be better able to address technological threats
  5. Avoid the technological threat by withdrawing from the market and going and doing something different.  John Menzies went from running high street newsagents and stationers to becoming a trade distributor of computer peripherals.
  6. Improve the existing technology in your market e.g. more efficient and cleaner petrol and diesel engines.
  7. Maintain sales by modifying your marketing mix – Price cutting, increased advertising budgets, better after sales service: a non-technological response.

You could also participate in the new technology.  Dyson bought the firm holding the patent for solid state rechargeable batteries with the intention of putting them in his now abandoned electric car project. He also bought a ventilator patent from researchers when the UK government called for a simple design of ventilator in response to Covid-19.

Such participation in new technology can be seen as a defensive action or as an attempt to achieve market leadership.

In deciding to adopt new technology, you need to assess the strategic dimension.  What is the level of acceptable risk?  What commitment in terms of finance, non-money assets and time does adopting the new technology require? What is the correct timing of the commitment? Do you capture early adopters or aim for the mass market? Do you develop the new technology within your firm or do you gain the technology through acquisition?


Fragmented Markets

Earlier this week, I was reading and article written in the 1980s by Michael Porter of Harvard Business School.  The article discussed fragmented markets.

the following factors are indicators of a potentially fragmented market:

  • The market is populated by a large number of small and medium-sized companies.  Often these are family-owned firms.
  • Often there is an absence of a clear market leader with the power to shape the market.
  • The market is characterised by differentiated products.
  • The market is most likely technologically sophisticated.  This does not mean that it competitors are cutting edge firms but that specialist equipment is required to operate in the market. the example given by Porter is a distiller who needs specialist equipment like coppers and condensers.

Markets become fragmented through underlying economic causes.  The market will have low entry barriers.  If entry barriers were high, there wouldn’t be so many small firms in it.

There is an absence of economies of scale and there is no steep learning curve.

There are high transportation costs in the market which means production must be local to the end user and there is a limit on the size of production plant.

There are high inventory costs and erratic sales fluctuations.  An example would be a musical instruments retailer.  Inventory costs are high and you will likely have to hold onto stock for a significant period of time.  There will be times when sales are low and times, like Christmas, when sales are high.

There will be no advantage with organisational size when dealing with suppliers and buyers.  Suppliers may be so large that even the biggest firms in the market have no discount leverage.  Alternatively, there are lots of small suppliers in the market and large powerful retailers e.g. the Supermarkets.

A fragmented market will have some diseconomies of scale.  This is and important factor in fragmented markets.  This could be caused by rapid product change e.g. high fashion or technological advances.  Market companies may need to have a wide product range.  For example, guitar manufacturers often need to make a wide range of models to suit different musical styles such as classical nylon string guitars, steel string acoustics, hollow body jazz guitars, rock guitars with humbucker pick-ups, etc.

Consumers in fragmented markets have diverse needs.  So, again with guitars, some players prefer Gibson guitars with fat necks, others prefer Fender guitars with slim necks.  Often the choice of instrument goes with the style of music.  Heavy metal guitarists will prefer Jackson or Schechter guitars.  Progressive rock players will like Ibanez Gems.  Market companies will often offer bespoke products and some market consumers will pay a premium to obtain them.  Instrument manufacturers like Fender, Gibson and Paul Reed Smith have custom shops where instruments are made to the requirements of individual consumers.

Products in fragmented markets have distinct product images which results in product differentiation.  So some musicians will sign for specialised labels dealing with jazz, indie, classical or dance music rather than signing for a major multi-segment company like EMI or BMG.  This may be because of the image the band or musician wants to develop.

A fragmented market may have exit barriers.  These keep marginal firms in the market so as to avoid these exit barriers.  this means that the market cannot consolidate.

fragmented markets often have local regulation i.e. there are British Standards in the industry not European Standards or International standards. Such local regulation restricts the size and scope of the market.

Government may prohibit such consolidation within a market.  For example, the UK government has rules regarding media plurality so one company cannot dominate the newspaper sector.

Fragmented markets are often new markets where no one firm has yet developed the skills and resources to command significant market share.

I’m sure the above criteria are known to many readers of this blog!

So how do you cope in a fragmented market?

Industries are all different so there is no ‘one size fits all’ solution to the fragmented market situation.  Porter developed his generic marketing strategies; Differentiation, Cost Focus and Niche; with fragmented markets in mind.

To survive in a fragmented market companies will need:

  • Tightly-managed Decentralisation: Local management and operations are vital. there may be high levels of personal service.  Senior management must also have tight control of what their local managers are doing.  It requires a careful balance between central control and the ability for small offices to be as autonomous as possible.  this will likely mean tight targets for local managers and performance related rewards.
  • Formula Facilities:  For example, Macdonald’s Drive-through restaurants are often built to a common set of plans.  In fact, the building may arrive prefabricated on the back of a lorry.  Hotel chains will have identical room layouts and décor.
  • Increased value-added:  You could offer increased service levels to accompany a sale or allow local managers to part fabricate finished product e.g. dealer vehicle specifications.
  • Specialisation by Product Type or Market Segment: So Ferrari operate in the sports car market; they do not make people carriers.
  • Specialisation by Customer Type: Target certain customers within a market, so Top Shop targets teenagers whilst other clothes retailers will target the over-40s.
  • Specialisation by Type of Order: An off-licence will sell wine by the bottle but a retail wine merchant will sell wine by the case. Direct marketers like Laithwaites sell wine by the mixed half dozen bottles.  You may offer quicker delivery, smaller minimum order sizes or be less price sensitive than your customers. You may develop the ability to take custom orders.
  • Geographic Focus:  You may concentrate on certain parts of a country or region.  This allows you to economise on the size of your sales force or to have more efficient advertising.  you might only need one distribution centre.
  • Bare Bones:  You may develop a no frills position in the market with low overheads, low staffing costs and lower margins.  This may give you the best position to compete on price.
  • Backward Integration: You integrate your suppliers into your business and put pressure on your competitors who cannot afford such expenditure.

The article by Porter was written in the late 1980s.  Looking at it in 2020, where we have technological disruptors, mass customisation, and markets are increasingly fragmented, Porter’s guidance is particularly apt.



Over the past week, I have been astonished by the UK government response to the Covid-19 pandemic.  If you want to see an object lesson in how not to develop strategy, objectives and to pass goals, the government’s activities over recent weeks is it.  They have been amateurish, often shambolic and hugely dishonest.

In developing a strategy you need clear and objective goals.  You need a clearly stated mission and you need good communications.  All these factors have gone missing from UK government practice.

The ‘mission’ was clear, protect the public, protect the NHS from being over-run with cases, and to lower the risk of infection.  The government set itself five tests that MUST be passed before lockdown could be lifted.  So far it has met two of those tests and not met the other three.  Yet today, at 7pm, the prime minister will announce a loosening of the lockdown.  This announcement has been heavily promoted in the press, which in some parts of the country has led to increased breaking of lockdown measures.  There is also a distinct disconnect between government advice and the enforcement of pandemic law.  The situation is a confusing mess.

Successful strategies have the following characteristics:

  1. There is a clear mission and a distinct vision as to how the goal of the strategy will be achieved.
  2. There are over-arching goals
  3. There are incremental objectives which must be met for the goal to be achieved.

In business, the over-riding mission of company directors is to achieve the best results for shareholders. Often this is defined, incorrectly, as short-term provision of share dividends.  In truth this mission is a complex mix of market position, market share, share value and the long-term existence of the business.

In government, there is one over-riding mission, the protection of the population.

To achieve this mission, you set long-term goal e.g. the development and production of a vaccine, or the elimination of the virus as a major threat to public health.

To achieve these long-term goals you set shorter-term objectives e.g. developing and maintaining testing capacity and ensuring the appropriate levels of PPE to medical and care workers.

Supply of PPE to healthcare workers was one of the government’s five tests for loosening the lockdown.  This target has not been met. PPE is still a scarce commodity. The much promoted delivery of PPE from Turkey is currently sitting in a warehouse at Heathrow, all 400,000 items, as it has failed PPE standards and is of no use in the combatting of Covid-19.

Then we come to the issue of mass testing. Another of the government’s five tests to reduce lockdown.

What appears to be a SMART objective was set: To complete 100,000 Covid-19 swab tests by the end of April.

As previously discussed in this blog, the government did not achieve this objective.  It moved the goalposts.  The test became not just tests carried out, i.e. tests sent to a laboratory for analysis; It became tests returned for analysis AND testing kits posted out.

To have your strategy succeed, you cannot ‘shift the goalposts’ in this way.

Since the government it is a fact that the government has still not met the 100,000 tests a day target.  In fact, every day since the first of May, the government has missed not only the 100,000 tests returned for analysis objective, it has missed the 100,000 tests per day returned for analysis and kits posted out target.

Then there was Boris Johnson’s statement a Prime Ministers Questions that the number of tests per day target was to be raised to 200,000 tests per day.  This was quickly altered by health ministers to having the capacity to complete 200,000 tests per day.

Let’s look at this objective under the lens of SMART objective criteria:

  1. SPECIFIC:  This target is clearly not specific.  Is it tests at a laboratory for analysis or is it the capacity to do those tests?  Is it swab kits returned or swab kits posted? In my old professional role as a food standards officer a sample was not considered completed until I had received the results of analysis from the laboratory.
  2. MEASURABLE:  Clearly the number of kits analysed can be counted but is just counting the number of test kits arriving at a laboratory enough.  Surely objectives should include seeing a reducing number of positive tests and reducing the number of virus hotspots.  Also what is the point of setting one metric and then altering that metric when it is clear you are not going to meet the original objective.
  3. ACHIEVABLE: Is the target achievable; particularly within the given timeframe?  It is believed UK laboratory capacity is around 86,000 tests a day with laboratories working flat out.  So why set targets higher than your existing capacity?  The papers today are reporting that the UK is now flying completed swab kits to America in an attempt to increase the number completed.  But this isn’t increasing the UK’s capacity to do tests, it’s taking part of another nation’s capacity to do tests
  4. REALISTIC:  Given that the UK government has never met its original 100,000 tests a day target, how realistic is it that in a short-time frame a 200,000 tests a day; or test capacity; target can be met? Well, it isn’t realistic.  It’s pie in the sky stuff from a politician desperate to enhance his position and trying to avoid blame.
  5. TIME BOUND:   The targets were time bound.  The end of April is a clear deadline.  It must be asked why the end of April was chosen?  What was special about that date? Why not by the middle on May? Others have suggested that this deadline was set not for clinical reasons but to fit the government’s news cycle and PR strategy.  The date was a Friday and so fitted the story appearing in the Sunday papers.  Two days of good PR could be achieved.

Politicians have long used the tactic of shifting goalposts but the UK government’s attempt to do so in recent days have been pathetic.

We need only look at the other event celebrated this weekend for comparison, VE day.

Boris Johnson need look no further than his hero, Winston Churchill, for how to properly develop and achieve strategy.

Churchill knew that to succeed in his over-arching goal of defeating Nazism there would be setbacks, failures, reverses but that to achieve that goal required honesty and a willingness to accept those reverses for what they were.  Churchill was focused on the long-term strategy, not the short-term tactics.  He was willing to take responsibility for failures and to alter strategy and tactics as a result of those failures.  The honest manager or leader accepts that failures and setbacks in strategy will occur.  They do not hide behind half truths or alter facts to suit their personal ambitions.  Unfortunately many in government seem able only to do the latter


Evaluating strategy

This week, Matt Hancock, the UK government health minister, announced that he had met his self-imposed target of carrying out one hundred thousand tests for the Covid 19 virus.  Except he hadn’t. Seventy three thousand tests had been carried out and a further forty thousand testing kits had been posted to households.

Most sensible individuals would not count a test kit posted as a completed test and would only consider kits returned to laboratories for analysis as a completed test.  What Hancock had done was the long-practised political tactic of ‘moving the goalposts i.e. if you aren’t going to hit the target, you change the target.

this was the second time this week he had done so.  Earlier in the week, he claimed to have met the stated target for supplying personal protective equipment to healthcare workers. However, he only achieve that target by counting surgical gloves individually, rather than in pairs.

In politics you might just get away with such chicanery; in business you cannot.  You need to set SMART objectives.  You must have the resources and capability within your business to achieve those targets.

Business strategies cannot be formulated or adjusted in an environment of changing circumstances without a process of strategic evaluation.

For many strategic evaluation is a simplistic process of collating business returns e.g. growth rates, profit margins, growth in turnover, etc.

However, this line of reasoning often misses the point of the intended strategy.  Critical success factors are often not directly observed and are not easily measured.  Often strategic opportunities and threats appear only when it is too late to measure them.

So strategic evaluation must look beyond simplistic statistics and financial returns. You need to consider the health of your business over the long-term.

You also need to keep one eye on the future and many business metrics, particularly financial metrics look to the past.

Strategic evaluation asks three questions.

  1.  Are business objectives appropriate?  Do they meet the SMART criteria? Do they fit your organisational culture and do they match the expectations of your market?
  2. Are your policies and plans appropriate?
  3. Do results obtained to date confirm or refute the central assumptions on which the strategy rests?

Answering these questions is not simple or straightforward.

Every business strategy is unique.  Your organisation’s culture and the environmental effects on your business will give a different effect that that affecting your competitors.  In short there is ‘no one best way’ and you cannot succeed by simply copying the practices of others in the market.

The central concern of strategy is the selection of goals and objectives.  This requires situational logic.

Strategic review can create conflict within and organisation.  This often relates as to who is best qualified to give an objective evaluation.  You need ‘management by more than results’ but this often runs counter to modern management thinking.

In science, theories can never be proven absolutely true.  However, they can be proven absolutely false if they do not withstand repeated testing. Similarly in business no strategy can be proven optimal, but you can test for critical flaws.

Testing business strategies should fit within four broad categories:

  1.  Consistency:  Is the strategy inconsistent with your businesses wider goals and policies? Is it consistent with your organisational culture?
  2. Consonance:  Strategy must be capable of an adaptive response.  It must be able to change as the environment changes.  Again we must consider the UK government’s current strategy as to obtaining a trade deal with the European Union following Brexit.  It is generally recognised that big, complicated trade deals take significant time to negotiate and agree.  Often they take one or more decades.  The UK government is adamant that it will not extend the Brexit transition period and that a trade deal must be agreed by December.  This timescale appears rushed in normal circumstances.  In the aftermath of the Covid-19 pandemic, this timescale appears to be lunacy.  the government policy has no consonance.  It is unable to adapt to changing circumstances.
  3. Advantage:  Does the proposed strategy create a sustainable competitive advantage?
  4. Feasibility:  Does the proposed strategy fit within your existing resources and not create unsolvable sub-problems?

If your strategy does not pass one of these four tests, it is likely to be a flawed strategy.

Remember competitive advantage is created through having superior resources, superior skills or creating a superior position, than your competitors.

So in selecting a strategy for your business:

  1.  Does it take advantage of special competences that exist in your business and which are needed to answer questions raised by the strategy?
  2. Does your organisation have sufficient internal cohesion, coordination and skills to deliver the chosen strategy?
  3. Does the chosen strategy have the ability to challenge and motivate key personnel?

To maintain a competitive position in a changing environment you need a dual view of strategy and strategic evaluation:

  1. Within day to day operations; and,
  2. In building systems and structures which make strategy delivery an object of daily activity.

Turning things around

All businesses, at some time of other, even the most successful corporations, suffer either stagnation or decline.  This becomes a cause of great anguish amongst investors and in the media.  In the UK, Marks and Spencer often sees headlines about how it is in decline.

However, most of these organisations do not die.  They either grow at a slower rate or they stop growing.  In mature western markets we have got used to a mantra of ‘grow or die’.  But this mantra is often a myth.  Management adjusts to new circumstances, they accept growth will be slower and more difficult.  They move from policies of aggressive growth to defensive positions to maintain existing share and margins.

However, in times of stagnation or decline within an organisation, the market still moves forwards.  Managers have to ‘run to stand still’.  Stagnation of output does not mean stagnation of inputs.  More effort is required to maintain existing market position.  Some managers may vegetate rather than apply additional effort.

Two factors affect business turnaround: the areas of the organisation affected and how time critical the turnaround needs to take place.

Most turnarounds affect:

  1. Organisational profitability and efficiency,
  2. Reclaiming market share, or
  3. Poor asset utilisation.

There are two types of organisational turnaround; strategic turnaround and operational turnaround.

There are two types of strategic turnaround:

  1. new strategies to compete in the same market
  2. strategies to enter new markets.

The latter of these two options is not for times of crisis.

So what options exist to change strategy within your existing market?

  • Move to a larger strategic group within your market. This could be through acquiring competitors, mergers or vertical/horizontal integration.
  • Compete more effectively within your existing your existing strategic group by modifying your competitive weaponry or core skills
  • Move to a smaller strategic group within your industry, downsize or focus on a niche.

The second way to turnaround a business is to improve your operational effectiveness through:

  1.  Increasing revenues (selling more)
  2. Decrease costs – through increased efficiency
  3. Decreasing your asset base – selling stuff
  4. A balanced combination of all three of the above.

Often the distinction between operational and strategic turnaround becomes blurred.  Often changing at an operational level requires new strategies and changing strategy needs new operational tools.

So how do you choose which is the best approach to turnaround for your particular situation:

  1.  Is the business worth saving or is it better to divest and do something else?  An example in John Menzies, the Scottish equivalent of WH Smith.  In the early 1990s, Menzies decided to get out of retailing.  they sold their smaller stores to the McCall newsagent chain and their larger stores to WH Smith.  The business of Menzies was then refocused on the distribution of computer peripherals.
  2. What is the operational health of the organisation. Can you continue to flog a dead horse?
  3. What is the strategic health of the organisation e.g. are you simply reheating the strategies of the past or are new dynamic strategies appearing.

Most turnaround situations are time critical.  Often the survival of business is at stake.

So it is important to check the operational health of your business before looking for strategic changes.  Is the business in imminent risk of bankruptcy, how much time do you have before bankruptcy, how big is the task of avoiding bankruptcy, what financial resources do you need in the short-term?

Once you have looked at the financial situation do the same for your market, technological and product positions.  You need a full picture of your operational health before you start looking to new strategies.

If your strategy is strong, it could be wasted if your operations are weak.

If your operations are strong but your strategy is weak, you be wasting your efforts.

If both your strategy and operations are weak, You won’t last very long.

I suspect the second of these positions is the case with many SMEs.  They have excellent operational ability but they do not think strategically.  This lack of strategic thought means they are not prepared for market shock.  However, strong operations may give you a grace period within which you can develop new market strategies.

When approaching strategic turnaround you need to assess what magnitude of strategic change is needed. Are you looking to maintain your current market position.  Can you easily build defences to retain that position.  Or do you need to develop a new market position e.g. moving from market follower to market challenger or from market challenger to market leader?

Some businesses may wish to jump two market positions e.g. from follower to leader.  Often such a jump in market position is all but impossible unless the market leader slips or there is a major market or product change.  For example for many years Nokia was the market leader for mobile phones but the arrival of the smartphone allowed Samsung and Apple to overtake them.

Often the best way to move market position is to niche hunt; to search for market segments that increase your strategic position.  However, for some reason this approach is often ignored.

So if you feel your business needs to be turned around:

  1.  Analyse your situation
  2. Calculate what you need to do
  3. Avoid knee jerk reactions
  4. Examine the conditions across your industry. It your industry too rigid? Is the whole industry in decline? Do shifts in market leadership happen regularly? Are your competitors asleep at the wheel?

Managing crises

The is no doubt the world and the economy is in crisis.  The Covid-19 pandemic had brought things to a virtual standstill as we adapt to social distancing and enforced lockdowns.

It is calculated that the UK economy will contract by 35% as a result of the pandemic.  the effects of the virus could be with us for a decade or more.

The UK government, which planned a massive spending spree has just extended its overdraft with the Bank of England and billions are being diverted into supporting incomes.  UK national debt is expected to reach 100% of GDP in the Autumn. This is at a time where every country affected by the pandemic will be competing for loans. Our debt and economic contraction means we will be a higher risk borrower.  This means higher interest rates and a lower credit rating.

In the US unemployment claims have hit a record 22 million.  This represents 15% of the US workforce.  If that is replicated in the UK we are looking at 5 million unemployed; a level of unemployment not seen since the early 1980s.

And still the UK government is resisting calls for an extension to the Brexit transition period stating that the UK will end transitional arrangements with the EU in December.  This matters because the forecasts for a Boris Johnson-style Brexit is a drop in GDP growth of between 6.8% and 7.6%. This is a long-term effect which is expected to affect the UK economy for 15 years or more.  A no deal exit will have a bigger drag effect.  It seems that as HMS Great Britain sails away from its biggest trading partner, those on the bridge are chucking a gigantic drag anchor off the stern.  It beggars belief that those in charge of protecting the UK economy are still following such a nihilistic policy.  We are facing an economic meltdown and our government is about to inflict economic sanctions on itself.

We are likely in for a deep recession.  The government’s reaction to that recession will define whether the economy bounces quickly or the whether the recession becomes a long depression.  A government deliberately putting up barriers to trade and following policy expected to hammer economic growth appears to be one happy with the latter option.

Of course, the primary response of many businesses in such an environment will be to focus on their survival.  This focus can be dangerous, especially if the decision is to contract the business.

This is what happen in America when their two big car manufacturing firms, Ford and General Motors were in crisis.  Senior managers created a survival plan that involved major closures of factories and production lines.  Both firms cut too deep.  They focused fixed costs onto a far smaller operational capacity. This cut deep into margins and di more harm than the initial crisis.  Both companies had to go to the US federal government for a bailout and towns such as Flint in Michigan and Detroit are still trying to cope with the fallout.  This is all described in Michael Moore’s book  Stupid White Men.

Businesses, like products and brands, have a lifespan.  Businesses will fail.  Crises like Covid-19 and the credit crunch often weed out those companies which are badly managed, have weak business plans and some which are simply unlucky.

Mintzberg outlined causes of business collapse.  These can be summarised as follows:

  • ‘One man rule’ – this can happen when businesses have a figurehead manager determined to follow a course of action based on his/her personal perceptions (and to be honest it is more than likely a ‘him’ rather than a ‘her’).  These firms often have a lack of management depth.  They may have a weak finance function and an unbalanced top team.  It has long been a criticism of UK businesses that they’re boards are dominated by accountants not engineers or marketers.
  •  Poor budgetary control – Firms that have poor cashflow forecasts, incompatible margins, poor costing systems and the incorrect valuation of assets.  Firms now put the value of their brands on their balance sheets.  But brands are intangible and therefore incredibly difficult to value.  Too many businesses look back to the financial results of the past; expecting the same level of results in the future; they do not properly forecast potential financial results
  • Poor responses to change – Not properly monitoring competitive trends and economic change. Some firms overtrade.  An example is Jessops, which was a small specialist camera retailer.  It rapidly expanded its store network and started selling items like laptops. In my town, Shrewsbury, population 80,000, Jessops had two retail outlets. But when everyone carries a digital camera on their phone there simply wasn’t the consumer demand to maintain so many outlets.
  • Gross Errors – For example, Gerald Ratner, the high street jeweller, beign recorded saying his stores sold ‘crap’ in an after dinner speech.  This destroyed the Ratner’s brand and had a incredibly damaging effect on other brands in the group such as H Samuel.
  • Focus on one big project – In some ways this links to last week’s blog about Arnhem.  General montgomery was focused on his big plan, Operation Market Garden, rather than smaller incremental operations, such as opening up Antwerp’s port, which required fewer assets and which may have had a greater impact on the campaign.  In today’s Sunday Times, not normally a paper to criticise the new right wing orthodoxy, there is a damning article stating that Boris Johnson’s government ignored the necessary intitial planning for Covid-19 because they were too focused on their big project, planning for a no deal Brexit.

Business collapse has symptoms.  Signs that a business is failing include a tendency for creative accounting (see Carillion as a prime example); the delaying f financial results; low staff morale and ‘doom-mongering amongst middle managers.  So if your middle managers are behaving like Private Fraser; repeatedly saying ‘we’re doomed’; it may be an indication of trouble ahead.

W Stewart Howe, in his book Corporate Strategy, outlines steps to recover from a crisis.  Firstly, to again refer to Dad’s Army, or possibly The Hitch-hikers Guide to the Galaxy, “DON’T PANIC!”:

  1. Recognise the issues within the crisis
  2. Evaluate those issues.
  3. Take emergency action.
  4. Stabilise your business
  5. Return to growth.

The most dangerous course in a crisis is to take incorrect actions which hasten organisational failure.

There are two sources of crisis; from organisational shortcomings; and from environmental effects.  Businesses fail when those two elements interact.

It is important not to simply rely on perceptions from within your organisation.  Getting a ‘critical friend’ or an external view can be important in surviving a crisis.  It is the time for trouble-shooters.  Defects within your organisation will affect your perceptions of the crisis.  There may be a willingness to blame your organisational defects on the effects of the environment.  Reality can be distorted.

Reactions to crises vary.  Some may try to ignore the crisis.  President trump initially described Covid-19 as a hoax.  He then said he had it ‘beat’.  Now America has the most recorded deaths from the virus and the highest rate of infection.

There may be attempts to blame the crisis away.  This can often be seen in accounting reports where poor results are blamed on the environment rather than the business’s reaction to that environment.  Again, see Trump’s claims that the US’s poor response to the Covid-19 virus is because ‘the germ is clever’.

There may be a failure to plan for the exceptional.  There is an ‘It’ll never happen to us’ culture.  Again, in the Sunday Times report, Boris Johnson’s government is criticised for ignoring expert advice on the levels of PPE and ventilators required to be available to cope with the Covid-19 outbreak.  The BBC reported yesterday that some hospitals will run out of PPE this weekend, but the UK exported lots of PPE to China in February.  It could also be argued that the austerity of the last decade critically damaged UK public services ability to cope with a major emergency such as Covid-19.  It could also be argued that the focus on deficit reduction, rather than debt reduction, hamstrung the UK’s ability to react.

Successive government’s have been accused of only planning for the short to medium-term; ignoring necessary long-term objectives.  Often in businesses, long-term planning is formulaic. This all makes reacting to unexpected events difficult.

Often the early signs of a crisis are ignored.  This certainly happened in China where the Doctor who initially reported the outbreak was ridiculed.  Many argue that the UK’s initial response to the outbreak was also lackadaisical e.g. the delays in closing schools and imposing lockdown.  People are still flying into the UK with no checks at airports to see if they are carrying the virus.

People fear rapid change and crisis is often created by a rapid change.  In such circumstances we often incorrectly look to the past.  An example is all the references in the media to the 1918 ‘Spanish’ flu outbreak.  Those making the comparison often ignore that the environment around that pandemic were completely different.  the virus spread in transit camps for troops and in refugee camps from the First World War.  Many of the troops and refugees in these camps were living in squalor and had depressed immune systems.  The ‘churn’ of people moving through these camps was a perfect environment for the flu to spread.

Some, in the face of crisis, will go into denial.  Initially this was Donald Trump’s response; that the virus was a hoax.  People in denial will see no need for strategic realignment.  Those in the UK government still pushing for an end to the Brexit transition in December could also be seen as being in denial.

Those responsible for creating plans and strategies will often see those strategies as being perfect and not needing alteration in the face of a crisis.  they may try to delay reactions to a crisis to maintain those strategies and to prevent strategic change.  But ‘normal’ behaviour in the face of a crisis will often make things worse, not better.

Centralising control in a crisis to inappropriate people can exacerbate that crisis.  Again, look at the actions and statements of President Donald Trump.

Finally, in a crisis, do not live in a collapsing palace.  Palaces are large robust buildings. But if the land beneath those palaces begins to crumble, the palace will collapse.  This goes back to the biblical parable of the man who built his house on sand.  Palaces on subsiding ground can only be shored-up temporarily.  to survive a crisis you need to be flexible.  The large solid prop forward of a business which normally tries to bulldoze its way through the market is less suited to surviving a crisis than the fleet of foot winger of a business.

To survive a crisis:

  • Avoid excesses and ‘magic bullet’ strategies – no one prescription can render a crisis impossible. You need agility
  • You may need to replace senior management or lok externally to your organisation for solutions (consultants or trouble shooters)
  • Have the capacity to act with urgency.
  • Reject implicit assumptions – they are often wrong
  • Experiment with your portfolios.  Look for new markets, new products, new technology, new routes to market and new ways of operating.  Recognise experimentation so that it can be properly managed.  People who have an experimental mindset are often never satisfied.  They will always strive for better results.
  • Look to change your management ideology.  Senior managers are often seen as the villains in a crisis.  They can be seen as steering an organisation towards a crisis rather than away from it.  they can become fall guys.  An example is Demi Moore’s character in the film Margin Call.  She is sacked not because she was to blame for the crisis but because the CEO needed a sacrificial lamb to placate the bank’s board.  Changing your management ideology may be the best way to recover from a crisis.

Remember, the Chinese symbol for crisis is made up of two other symbols; one representing danger; the other representing opportunity.  To survive a crisis, look for opportunities in that crisis; do not see events solely in terms of danger.

Remember the guidance of Sun Tzu in The Art of War:

“There is no one constant supremacy”. “Victorious campaigns are unrepeatable they take form in response to the infinite varieties of circumstance”.

Market Garden and Strategic Failure

This week I want to do something slightly different with this blog.  I have just finished reading Anthony Beevor’s history of Operation Market Garden,  Arnhem, The Battle for the Bridges, 1944. This is the military campaign described, somewhat inaccurately, in the film, A Bridge Too Far.  The Operation was the idea of the British General, soon to be Field Marshal, Bernard Montgomery.  Despite the propaganda that the campaign was 90% successful”, Market Garden was one of the biggest allied disasters of World War Two, with significant casualties, loss of equipment and collateral damage.  Operation Market Garden wholly failed to meet its ultimate objective.

What I want to do is look at Montgomery’s plan using some of the tools of modern strategic planning and see what lessons can be learnt for marketers and businesses.  Of course, my analysis has the benefit of hindsight but there were clear indications at the time that Market garden was an incredibly high risk operation that needed every aspect to go exactly as planned if it was to succeed.  We now know that Montgomery’s failure to remember Murphy’s law; that if a thing can go wrong, it will; and his incorrect assumptions as to the German response; led to the deaths of thousands of allied troops and the near destruction of the British Airborne division.

The fist aspect we need to examine is the environment within which Market Garden was created.

Following the battle for Normandy, the Germans were now in full retreat on all fronts.  The battle to secure the bridgehead following the D-Day landings, through the high hedges and sunken roads of Normandy had been fierce; but German resistance had folded and the allies had rushed across France and liberated Paris.  They had pushed on over a broad front and by the end of the summer of 1944, they were in Belgium and looking for an opportunity to cross the Rhine into Germany.  Going north to Arnhem was one route which seemed beneficial as it flanked the German Siegfried line of traps and concrete bunkers which sat between Germany, France and Belgium.

However, the allied advance was beginning to slow as supply chains lengthened.  This was not helped by the lack of operational ports.  One of the two temporary Mulberry harbours had been destroyed in storms following D-Day.  Other French ports were severely sabotaged as the Germans retreated.  The nearest port to the Allied front line was the Belgian city of Antwerp.  The allies had taken the city but the Northern bank of the river leading to the city’s port was still in German hands and was heavily fortified, making the port unusable

Eisenhower was faced with two competing strategic options, to continue with a broad front pushing the Germans back or to go for a narrow spearhead into Germany.

So let’s look at the internal and external stakeholders in the environment.

Internal stakeholders:

  1. Bernard Montgomery: The British hero of El Alemein. An ambitious general with a big ego.  Montgomery felt he was being side-lined in the chain of command as the American’s took over the brunt of the campaign in Western Europe.  He felt he should have been given a greater role in the campaign and was keen to take command of US troops in his sector of the battlefield.  He developed the Market Garden plan.
  2. George Patton: A bombastic American general with an ego as large as, if not bigger than that of Montgomery.  Patton had been at the forefront of the allied advance across France.  He favoured the broad front approach and was continually pushing for more resources to continue his advance.  Patton disliked Montgomery and saw the British general as a poor strategist.  He blamed Montgomery for the slow British advance in Normandy and a similar problem in Sicily.  He saw Montgomery as the main reason the allies had failed to take the city Caen following D-Day and risking the allied bridgehead.   The fact that in both theatres Montgomery had faced far stronger opposition from the Germans both in Sicily and Normandy did not enter Patton’s mind.  Patton was no stranger to controversy.  He had been suspended for duty after striking a solider suffering from what we would now consider PTSD and for calling the solider a coward.  This controversy meant that in the run up to D-Day Patton’s command had been the phantom army of inflatable tanks and imaginary divisions in East Anglia; part of the intelligence effort to fool the Germans into thinking the attack was to be near Calais and not the beaches of Normandy.
  3. The British Government:  Britain was under attack by Hitler’s ‘super-weapons’, the V1 and V2 rockets.  There was pressure placed on Eisenhower to put these weapons out of range.  Many of the launching sites for the V1 rockets were located in the low countries, Belgium and Holland.
  4. The American Government:  America was fighting two wars, against the Germans in Europe and against the Japanese in the Pacific.  There was pressure to finish the wat in Europe so resources could be switched to the Pacific theatre.

External Stakeholders:

  1. Stalin: The Soviet leader felt that his army had taken the brunt of the fighting in Europe and that now the western allies were in France they should be pressing home to victory.  He felt D-Day had taken too long to come and the US/British advance into Germany was taking too long.
  2. Hitler:  The German leader was increasingly nihilistic and was determined to stop the Americans and British advancing into Germany.  He was looking for a big counter offensive.  This would come after market Garden with the Battle of the Bulge where he targeted the Belgian Ardennes forest as a weak point in the allied lines with the aim of recapturing Antwerp and splitting the allied forces in two.

So were the objectives of Operation Market Garden SMART?

Well there was a Specific objective; to invade the Rhur; Germany’s industrial heartland; and deny the Nazis the capacity to wage war.  Market Garden was in two parts, airborne troops landing behind German lines and taking strategic bridges, most notably at Arnhem, Eindhoven and Nijmegen.  this was the Market element of the operation.  The allied airborne divisions had been based back in the UK since D-Day.  Thirteen times they had been placed on standby for operations in France only for their drops to be cancelled as weather intervened or Patton’s troops over-ran their intended landing grounds behind German lines.

The Garden Element was British XXX corps, an armoured division of tanks and other military vehicles which would race across Holland along a single road.  XXX Corp was given two days to drive the sixty miles to Arnhem along what was to become known as Hell’s Highway. After they crossed the Rhine they were to loop right into the Rhur destroying German industrial capacity.  The ultimate aim of market garden was to end the war in ‘100 days’.  Another way of saying finishing the war by Christmas.

So the objective was time-bound – two days to take Arnhem, one hundred days to end the war.

Obviously, the objective was measurable in bridges gained, German casualties and the liberation of Holland.

That brings us to the remaining elements of the SMART mnemonic; Achievable and Realistic.

Was Market Garden achievable?  The answer to this is yes BUT only if every element of the plan went as predicted.

Was Market Garden Realistic? The answer to this in no.  There were many warning signs that the plan was in trouble from the start.

Firstly, there were issues with resources.  The allies simply did not have enough transport aircraft to deliver all the airborne troops to their target in one go.  The parachute drops and glider landings would have to take place over three days. Not only that, the British landing grounds at Arnhem were eight miles from their target bridge.  Both these issues destroyed the major advantage of airborne troops, surprise.

In the film, A Bridge Too Far, much is made of the fact that the radios of the British airborne division were faulty.  A much bigger issue was the fact that the newly developed radio beacon technology Eureka, appeared to be faulty.  This meant the airborne division at Arnhem had no way of contacting transport aircraft dropping supplies of food, medicines and ammunition.  Much of this was dropped to the Germans.  It was found later that the Eureka receivers on the planes had been set to a different frequency to the Eureka transmitters on the ground.

Montgomery’s assumption that the Germans would not be able to mount a defence and would crumble as the operation progressed was wrong.  Firstly, he miscalculated how quickly the Germans could use railways to move armour into the Arnhem area.  Little if any thought had been given to destroying railheads in Germany near the Dutch border. So a rapid response from the German army was still possible.

throughout the war the pattern had been of German defeat in battle followed by retreat but then a new defensive line being put in place. this had happened in North Africa, it had happened in Sicily and twice in Italy with Anzio and the Gustav line.  Montgomery’s assumption that the Germans were finished as a fighting force and unable to mount another defence was completely wrong.

there was also more bad luck with the weather.  Fog delayed the second and third air landings meaning the allies had fewer troops and less equipment than planned to hold the bridges.

So in a business strategy sense what can we learn from Market Garden:

  1.  Middle and Senior managers like to empire build, Montgomery certainly was an empire builder.  They like their egos to be massaged and the thrive on power and influence.  this can lead to management squabbles and office politics which divert from the main aim.  Market Garden was brewed in an environment of management dispute and ‘office politics’. It therefore diverted from more appropriate strategies such as opening up the Port of Antwerp to allow resupply near the front line.
  2. The assumption that airborne troops can only be delivered into theatre by aircraft was incorrect.  It had been perfectly possible for these troops to be delivered into theatre by ship and road.  There was also nothing stopping aircraft being moved onto the continent prior to the battle meaning the issue of fog in the North Sea was avoided.
  3. Montgomery failed to make a realistic assessment of what the German response to his plan would be. All previous campaigns in the theatre showed that, at some point, the Germans would retaliate or create a new defensive position, particularly as the allies closed in on the ‘Fatherland’.
  4. No plan ever goes 100% right.  You need contingencies in place for realistic setbacks.  Montgomery’s assumptions about the speed an armoured column could travel sixty miles along an often narrow road was wholly unrealistic and no contingencies had been made for delay.
  5. Make a solid assessment of the ground where battle is to take place. Low-lying Holland, criss-crossed with rivers, canals and high dykes was incredibly poor ground for tank warfare.  the whole strategy since America had entered the was had been Steel not Men.  America’s industrial power meant that it could flood the battlefield with tanks, guns and aircraft.  Armour was the key to victory.  By choosing to fight in Holland, that mechanical advantage over the Germans was negated.  Rivers are natural defensive lines and by destroying some of the minor bridges long XXX corps route, the Germans were able to build such defensive lines.  Armour being unable to move off the single road, meant the head of the armoured column was a sitting target.  Several times the Germans counter-attacked cutting the road.  This meant rather than rushing along the road to Arnhem, XXX Corps was delayed having to fight off counter-attacks.  Instead of taking 2 days to reach the outskirts of Arnhem, it took the armoured column eleven. the airborne troops in Arnhem had only been issued with 48 hour ration packs.
  6. Don’t let junior managers divert or dilute the plan.  Much criticism has been placed on the American General Jim Gavin for not acting in accordance with his instructions during Market Garden.  Gavin’s objective was the bridge outside the city of Nijmegen.  But instead of rushing to secure the bridge, Gavin decided that he needed to take the city and the nearby Grosbeak heights first.  This delay allowed the Germans to create a defensive line on the northern side of the bridge slowing the allied advance (this is the bit in the film where Robert Redford leads an amphibious assault across the rhine in boats.
  7. Does the plan divert from accepted methodology for no good reason.  It was a well known fact that the best tactic to take and hold bridges was to attack both ends of the bridge at once.  This is what had happened on D-Day and in Italy.  Montgomery’s plan diverted from this orthodoxy at both Arnhem and Nijmegen where troops were only landed on one side of the bridges; making their capture much, much harder.

Market Garden was a disaster.  It likely lengthened the war and encouraged Hitler’s winter offensive in the Ardennes.  It severely weakened what were seen as elite units, most notably the British airborne division.  It had horrific consequences for the people of Holland who suffered in the Hunger Winter of 1945 as the Germans retaliated by denying the Dutch population food.

The Germans forced the citizens of Arnhem to abandon what was left of their town, which they then looted.  The ghost town of Arnhem was only liberated by allied troops in the Spring of 1945.

Communications Strategies and the Communications Mix

Fill (2002) outlined four strategic approaches to the marketing communications mix; the Promotion element of the marketing mix.  These are:

  1. Positioning
  2. Audience
  3. Platform
  4. Configuration

A positioning strategy uses market analysis and segmentation to create communications strategies focused on the achievement of SMART marketing goals.  This approach aims to target finite resources efficiently and direct communication effort to the most valuable markets.  This approach has three parts; segmentation of the market; selection of target segments and positioning within markets.

To successfully achieve a positioning communications strategy, you need choose the market segments most attractive to your firm; matching your organisational goals so that you maximise returns.  A positioning strategy should position your products and your brand to meet the perceptions and expectations of target audience.  You therefore need to know your consumers needs.

You must also recognise that everyone has four states of identity:

  1. The Worry Self
  2. The Actual Self
  3. The Idealised Self; and
  4. The Fantasy Self

So which of these identities do you want to target.  Insurance firms target the worry self; Firms selling family hatchbacks target the actual self. Firms selling designer clothes target the idealised self; luxury brands often target the fantasy self.

A positioning strategy is key for developing brands. You develop a brand position which shows what the brand does, what the brand means and how the brand gives value.

FMCG (fast-moving consumer goods and other highly competitive, low margin sectors often favour a positioning strategy.

Positioning is an audience focused, not a product focused activity.  It is focused on brand meaning, brand values and differentiating your brand from that of your competitors.

Audience based strategies focus on the different ways items are purchased and the supply chain.  For example, the audience for consumer goods tends to be individuals whereas the audience for industrial goods tends to be buying groups which contain influencers. the decision to purchase a new piece of machinery will be made by a group within an organisation but that group will contain ‘influencers’ who initiate and advise on the purchase e.g. the Production Manager.

So your communications strategy will alter depending on the audience your message is intended for.  Your audience could be the end users of your product such as consumers, it may be your suppliers and retailers or it could be other stakeholders in your business such as shareholders and financiers.

This means there are three audience-focused communications strategies:

  1. Push strategies intended to target supply channel members.
  2. Pull strategies which target end users.
  3. Profile strategies aimed at third-party stakeholders.

Push and pull strategies work in relation to how product is drawn through the distribution chain.  You use push communications, such as sales representatives and trade press advertising to push your production onto the shelves of retailers and wholesalers (this can include using communications to attain prime locations in stores such as eye-level shelves.  Pull strategies , such as television advertising, target the generation of demand in the end users of your production i.e. you target consumers who then demand that retailers stock your goods.

Profile advertising is similar to a positioning strategy as you use communications to secure your identity in the minds of third parties.  This could be using PR and your corporate website to attract investors.

An audience strategy is about using the right communications tools to lock your products and brands in the minds of the intended audience.

All too often I see firms, particularly SMEs focusing much of their communications budget on social media advertising.  Some of this, like YouTube advertising is Pull advertising no different to traditional TV and Cinema advertising.  However, much of social media communication is push or profile communication.  It’s intention is to build a brand identity and develop customer retention.  It is a pretty poor way to lock your brand identity into the needs of consumers or to attract new customers.

You cannot operate solely on a pull strategy or a push strategy.  You need a bit of both.  You need to communicate with end users to generate demand and you need to communicate with intermediaries to ensure that that demand can be satisfied.

A platform strategic approach aims to express a brand promise through brand values and differentiated claims.  But to do so it must be consistent and be anchored in corporate principles.  It involves the development of a brand theme which is made up of consistent promises.

There are three platform types:

  1. Creative – Messaging consistent big ideas across different communications channels.
  2. Brand Concept – Which are routed in the brand identity but use different creative ideas (Guinness advertising is a brand concept strategy)
  3. Participation Platforms – using interactive channels such as social media to engage in dialogue with end users.  the aim is to integrate the brand into people’s lifestyles.

The final strategic approach is a configuration strategy which focuses on the way communications are structured.  This strategy is based on the form and format of communications e.g.

  • The frequency of contact between parties
  • The direction of communications either vertically down distribution channels or horizontally across a market.
  • The modality of the communication – how it is to be transmitted e.g. print, digital, TV, Radio, person to person, etc. Whether communication is formal or informal; regulated or spontanious.
  • The content of the communication is it a direct advertisement or is it indirect communication such as PR and social media chat? Does the message directly focus on a subject or is it a ‘nudge’ to alter behaviour.
  • The exchange relationship – Is the communication aimed at creating a long-term collaborative relationship or is it an ad-hoc, one off contact?
  • The climate within which the communication is sent e.g. the level of trust between parties, compatibility between parties, etc.
  • The power dynamic: Who holds the power in the relationship, you or your customer?

None of the above strategies are mutually exclusive and you will find many organisations using a combination of all four strategy types in their communications mix.

In Times of Strife

I sit composing this blog under lockdown due to Covid 19.  Like millions of others, I am stuck at home, only allowed out for daily exercise or to buy essentials.  At my local supermarket, only 10 people are allowed on the store at any one time and the queue of people, standing two metres apart, stretches right around the car park.  At my local pharmacy, it takes forty five minutes to collect a prescription.  Restaurants, leisure centres and thousands of ‘non-essential businesses are closed.  It is likely these restrictions are going to last weeks and even when the strictest restrictions are lifted, the virus will have an effect on our lives for the next year.

The economic effects of the pandemic are likely to last far longer than the outbreak.  Some economists have calculated the economic fall out of Covid 19 will last a decade.  Governments are printing billions upon billions of currency in an attempt to shore up their economies.  Previous plans for extensive infrastructure spending and tax breaks will likely have to be shelved.

Covid 19 will lead to a recession and in the UK that recession may be deep and lengthy.  Economic growth in the UK since the 2106 EU referendum has been slow. Productivity has fallen off a cliff.  In the 3 months to March, the UK economy was stagnant with zero growth. Add the effects of the pandemic on the economy and the economy declines. Add the economic effects of Brexit and that decline spirals downwards. If we only agree the type of deal favoured by Boris Johnson, the calculated effect on UK GDP growth is between 6.8% and 7.6%.  A no deal scenario would have a larger negative effect.  For comparison the equivalent effect of the 2008 crash was 1.3%.

A mix of pandemic, a flatlining economy and Brexit could easily result in a depression.  The only comparable downturn would be the economic stagnation of the 1890s: and Britain no longer has an empire to soften the blow.

Niccolo Machiavelli, in The Prince, says of a recession: “Luck decides half of what we do; the other half is more or less up to us”.

He then talks of how to survive a shock or emergency.  Machiavelli was writing during the Italian renaissance.  Italy was not one country but a group of independent city states. Wars and conflicts between these city states were common.  It was a time to trust no one. Even in your own court, rivals to your throne could be found in your own household. Family conflicts exploded into assassinations and coup d’états.  This was a time when a ruler could gain power one day and lose it the next.

Machiavelli compares emergencies like Covid 19 to a river in spate. A raging torrent which destroys everything in its path.  Such torrents are common in Northern Italy in the Autumn and spring as water sheds off the Alps down narrow valleys.  He states that with such torrents the initial reaction of the majority is to run for high ground and safety.

Machiavelli states that good leaders will prepare for such torrents.  They will build banks and dykes to control the flood when river levels were low.  So he advises repairing the roof whilst the sun shines.  It could be argued that the UK governments policy of austerity has done exactly the opposite.  That is why we now see an NHS with fewer beds, high staff vacancies, a lack of appropriate PPE and too few ventilators.

In his writings, Machiavelli despairs of the ability of the Italian states to withstand turmoil and invasion. He argues that they are only strong and able to withstand such shocks if they are united with common purpose.  So the UK is facing a massive economic shock just as it isolates itself from its nearest markets and neighbours.  And the UK government isn’t helping matters by ignoring joint ventures such as the EU plan to collaborate on the purchase and supply of medical equipment (a plan which both Norway and Switzerland were happy to join).

So a deep and destructive recession is likely: but don’t panic.  Don’t simply use this time to fight fires and short-term problems.  Yes, ensure your business survives the initial economic shock but also plan for the longer-term.

Do not become infected with ‘Anorexia Industrialosa’ (a term invented by Andrew Lorenz).  This is an excessive desire for a business to become leaner and fitter.  This excessive desire can lead to emaciation and death of a company.  Cost cutting leads to poor customer service and excessively limited offers.  Which in turn is rejected by customers.  Earnings suffer and so you cut again leading to even more limited offers and even worse service.  A downward spiral accelerates.

And closing outlets and factories to try and maintain margins can also be a serious error.  You may end up concentrating fixed costs on fewer outlets damaging your ability to maintain margins and making your business unviable.

In modern markets the businesses that do best are those which maintain the interest of their customers and which maintain their customer focus. Excessively reducing your market offer and damaging your customer service is directly against this goal.

So in times of recession you need to put marketing centre stage.  Customer-focus is your prime strategy. You need to concentrate on segments and customers which fit your long-term goals.

Professor Malcolm Macdonald gives the following guidelines for operating during a recession:

  1. Customers are attracted by promises but retained through satisfaction.  If you cannot describe the value a product or service required in the mind of your consumers, you cannot deliver that value. So you need to understand your customers needs.
  2. Don’t try to cover too many market segments.  Focus on those segments that your organisation wants to lead in the long-term.
  3. Reduce your product portfolio but be careful in doing so.  Rid yourself of products which do not provide adequate customer value.  Recently Mars, the confectionery giant, did this reducing its portfolio to only brands it considered as market leaders.
  4. Look at your distribution network. Is it flabby.  Is it too big or too slow.  Are there better distribution methods out there.
  5. Improve the productivity of your promotional spend.  If you have a sales force examine their activities closely
  6. Reduce costs in the unproductive areas of your business.  Use value chain analysis.  Don’t incur costs for servicing unprofitable markets or customers.
  7. Identify your key customer accounts.  Don’t rely on your sales team to do this alone.  Assign senior managers to key accounts.
  8. Don’t let your sales force deal with big customers alone. There is a danger they will all receive maximum discounts in order to keep their business.  Large contracts need to be overseen by senior managers.
  9. Selectively attack competitors key accounts that are attractive to you. Don’t worry if you lose unprofitable customers to do so.
  10. Keep the heart of your business: Key products, key customers and key segments

Use this time of lockdown productively. It is a perfect opportunity to plan and prepare for what is to come in the long-term.

Don’t enter a vicious circle of:

  • cutting prices,
  • increasing volumes at low margins,
  • reducing specifications to maintain return on investment,
  •  losing sales
  •  and then cutting prices further

Enter a virtuous benign circle of:

  • Raise prices
  • Have lover volume of sales but at higher margins and revenue
  • Improve your products and promotion
  • Develop higher customer acceptance and therefore volume
  • Allowing for prices to rise again.