Tag: business growth

Strategic alliances to boost growth

Last week, I mentioned the Ansoff Matrix and the four strategic options for growing a business it proposes.  What is clear from the matrix is that each of the options contains an increasing level of risk.  Several of the options will involve significant level of expenditure. Diversification can be expensive; as is the process of new product development.

With NPD you can spend fortunes on prototype products which never go to market.  It is estimated that James Dyson spent £2 billion on his electric car project before pulling the plug (sorry for the pun) on the concept.  Dyson, when announcing that the car wasn’t going into manufacture said that production would not be financially viable. I also suspect his experimental solid state battery technology was incapable of powering the vehicle.

One way to reduce the costs of, and to some extent the risk of business growth, is to enter an alliance or joint venture.  One wonders that if Dyson had viewed his electric car project as a joint venture with an existing motor manufacturer, instead of slagging them off at the concept launch, his car might have seen the light of day in the marketplace.

Dyson forgot the mantra, ‘No business is an island’. Businesses operate in complex markets where it is likely suppliers, distributors and retailers are shared.

If you are looking to expand your market, either geographically or by moving from commercial markets to consumer markets,, you may well need the expertise and knowledge of those already operating within your expansion target.

When creating new products you may want to spread development costs, or you may need specialist technical know-how.

Diversification is the highest risk and potentially the most expensive growth option for a business.  You may need guidance from those who already know the proposed product category.

At a strategic level alliances should add value by leveraging the optimal level of assets and competencies.

It is increasingly unlikely that a single business can keep all these assets and competencies in-house. ‘No business is an island’. Exclusivity costs.

A partnership or alliance may be the best way to maximise economies of scale.

So a telecommunications firm may choose to partner with an IT firm to create integrated systems.  Computer manufacturers partner with manufacturers of VDUs, processing chips and graphics cards. Car manufacturers share production platforms and car ‘chassis’ designs.

And it isn’t just in production that an alliance can create economies. You can build alliances with retailers, distributors and suppliers.

Alliances are not just for big multi-nationals. take the example of McKean Foods, a Haggis producer. McKean started selling haggis online and received lots of interest from the United States of America.  However, the USA bans imports of haggis as a measure against the spread of the disease Scrapie, which affects sheep.  this ban is completely non-sensical as McKean operates in the UK/EU where animal welfare and food standards regulations are amongst the most comprehensive in the world.

So as McKean Foods cannot export Haggis to the USA, clearly an alliance with a US manufacturer would allow growth through market expansion.

In modern markets there are the following motivations for alliances and joint vewntures:

  1. Globalisation: Many companies are now compelled to work on the world stage.  Globalisation has also led to shorted product lifecycles. the mobile phone market is a clear example of product lifecycle contraction. Contrary to the argument for Brexit, the world is becoming a smaller place and around the world nation states are joining forces to create economic blocs e.g. Mercosur and the South African Development Alliance.
  2. Assets and Competencies: As stated above, a single company cannot be good at everything.  It is almost certain you are going to need specialist knowledge and expertise available through alliances.  An alliance can allow your company to concentrate on its core attributes whilst ancillary functions are outsourced to external specialists.  So, for example, fast food chains link with firms operating home delivery apps such as Just Eat and Deliveroo.
  3. Risk:  Alliances can work to reduce risk.  Financial commitments can be shared.  Going it alone could mean isolation from industry and technical standards.  For example, small food producers wanting to supply UK supermarket chains are expected to meet British Retail Consortium standards which often go beyond EU and UK legislation.
  4. Learning and Innovation:  Alliances and joint-ventures allow businesses to learn. that learning can help firms develop sustainable competitive advantage.

For joint-ventures to be successful, you need more than a strategic fit.  You need a cultural fit as well.  You must be able to work with your chosen partner.  If your business is risk averse, a partnership with a buccaneering high risk operator will be unlikely to succeed.  A fine example is the failed joined venture between BP and the Russian oil firm TNK.  That partnership became distinctly frosty and hostile and in the end BP could no longer work with TNK.

 

Evaluating Brand Extension

Many entries ago, I discussed the theory of product and brand growth proposed by the American mathematician and marketing academic H. Igor Ansoff.

Ansoff believed that there were two customer groups, a brand’s existing customer base and new customers. He also stated that there were two types of brand products, existing products and new products.

This leads to a two by two matrix offering four strategic options for brand growth:

  1.  Market Penetration:  Selling more of your existing products to your existing customer base.  This could be tactics like Buy One Get One Free offers, improving delivery networks and increasing the number of retail outlets.
  2. Market Expansion:  Selling your existing products to new customers.  This could mean geographic expansion of the brand to new territories i.e. to paraphrase Andrea Leadsom, selling innovative jams to the Chinese.  It could mean selling products originally targeted at business customers in the consumer market.
  3. New Product Development/Brand Extension:  This is selling new products to your existing customers.  Dyson make vacuum cleaners but they have extended their cyclone technology into products such as hand driers, room fans, hair dryers and car air conditioning units.  Mars extended their chocolate bar brand into products such as ice cream and milk drinks.
  4. Diversification:  or selling new products to new customers.  Richard Branson’s Virgin group of companies operates a diversification policy. Virgin began as a record shop and importer.  It soon became a music label and a chain of record shops.  Today, the Virgin brand has a radio station, an airline, train franchises, a bank, a hotel chain, an online travel agency and a whole host of other businesses in a variety of sectors.

Ansoff stated that with each step from market penetration to diversification, risk of failure increased.  Diversification is the most risky strategy a business can follow.  It is therefore imperative that a firm looking at diversification strategies carries out comprehensive and accurate strategic planning.

In the early days of Virgin, Richard Branson was of the view that he would do things differently and the standard practice of planning had no place in Virgin’s operations. Virgin after all was a counter culture business.  it is widely known that if Branson hadn’t have signed Mike Oldfield and produced the album Tubular Bells, his company would have failed.  Branson was only able to develop the country house which was used as Virgin’s recording studio thanks to a significant loan from a member of his family.

Richard Branson now states that detailed strategic planning is critical to the success of the Virgin Group.

there is one part of the Ansoff Matrix that is controversial.  Ansoff said that you shouldn’t move on to the next riskiest strategy until all efforts have been exhausted in the lesser risk strategy.  So you do not try to expand your market until you have exhausted all efforts in penetrating your existing market.  Many leading business academics and leaders see this as too restrictive a position.  Business after all is about exploiting opportunities as they arise.

But clearly you need to clearly define the risks and rewards of a business opportunity before you act.  Julian Richer of Richer Sounds, the UK hi-fi retailer has a risk averse approach and has slowly built his brand over fifty years; whereas Richard Branson leaps into new sectors at a pace, giving each new business a defined time to succeed.

For many businesses, growth is defined by diversification or brand extension. For these businesses there is little opportunity to penetrate further or to expand.  For example, farmers will look to sell all their output (the harvest) and they are tied to contracts with suppliers.  For example dairy farmers have close links to dairies.

For these businesses, the instruction has been to diversify.  So farmers built golf courses and hotels, they entered tourism markets and became food manufacturers.  Often these farm-based diversifications are poorly thought through or are ‘me too’ efforts i.e. copying the activities of neighbours.  They have not asked or answered the six crucial questions of brand extension:

  1.  What is the attraction of the new market or product category?  Is the target market growing? Is it less price sensitive than existing markets?  Are existing service levels poor and your existing service offers can thrive?
  2. What advantages do you bring to the new sector?  Do you have better distribution networks? Can you offer better customer service? Can you offer new technologies? Can you provide more efficient manufacture? Do you have higher productivity than your competitors? Can you provide better market coverage and share of voice?
  3. Can you make your market advantages durable?  Do you have intellectual property ownership of technologies? Can you offer the new extension through your existing dealer network? Can you develop exclusive partnerships with retailers? Can you demand eye level shelf space or aisle ends? Can you cut out middle men and sell direct?
  4. What will be the reaction of your new competitors to the market extension? Dyson entered the vacuum cleaner market when the existing market leader, Hoover, was in significant financial difficulty and reeling from the failure of the Sinclair C5 and the disastrous free flights special offer.  Do you have resources available to fight off the reaction of competitors e.g. price drops or aggressive advertising campaigns? Can you offer technological solutions to disrupt competitor’s defence of market share?
  5. How legitimate would your brand be in the new sector? Laughing Cow Cheese is a brand with a child-friendly family image, so an extension into the alcoholic beverage market was not legitimate.  Coca Cola, commonly used as a spirits mixer has successfully extended into the pre-mixed alcoholic beverage market (in conjunction with Bacardi Rum).  Donald Trump released a fragrance.  However it is unlikely that Trump cologne would succeed in the UK where trump is slang for breaking wind.
  6. What does the proposed extension bring to the parent brand?  Some extensions may dilute your existing brand image and identity.

Of course you must seize opportunities to pitch your business ahead but market extensions should simultaneously surprise and leave their mark.  They must be a mix of doing the unexpected and retain brand consistency.

When a brand extension is chosen it must be able to export existing brand attributes and equities; but be able to defend the new market position.

A good example is Apple which caught the music industry on the hop with the development of the iPod and iTunes but retained the brand reputation for design and quality manufacture.

Some firms through history make really surprising leaps into new sectors.  Take as an example Yamaha.

I have just bought an excellent Yamaha acoustic guitar.  Yamaha started in the 19th by making organs and pianos.  Soon it was making guitars and other acoustic instruments.  In World War Two, Yamaha’s factories were turned over to manufacturing military equipment.  After the war, the company repurposed the military manufacturing plant to make motorcycles.  In the 1970’s Yamaha’s piano division started making synthesisers.  This led to the company moving into the semiconductor market where it is now a major producer.

So don’t reject diversification or market expansion as strategies for your business: but if you intend to diversify or expand make sure you have comprehensive SMART strategies in place.

Strategies to Grow a Brand

Last week I discussed the strategic options for market leaders and I pointed out that in most first world countries, most markets for goods and services are mature.  This means that options were restricted to three main choices:

  1. Growth through increased usage by existing customers
  2. Growth through taking competitors’ market share
  3. Growth through finding new uses for existing products

Here are some examples of brands being built through these strategies and associated tactics.

The first example is Bailey’s Irish Cream liqueur where the brand was built through building volume of use per capita.  This strategy involves shifting usage of the product from low volumes to higher volumes.

Bailey’s was a mature brand and it had developed a restrictive image.  It was seen as a drinks for special occasions, particularly Christmas and New Year. Bailey’s was a drink for little old ladies and due to it’s sweet taste it was served in small measures.

For Bailey’s to improve its market position and to have long-term survival, this image had to change as did the way in which Bailey’s was used.

An extensive marketing campaign making massive changes to Bailey’s marketing mix was instigated. Advertising promoted the liqueur to young women.  They were encouraged to consume Bailey’s over ice in large glasses. New Bailey’s glassware was sent to pubs and nightclubs. Consumer packs containing the larger glass were distributed to retailers. Bailey’s was promoted as a drink for any occasion, not just Christmas, a beverage for a night out on the town.  Bailey’s took the opportunity to sponsor Sex and the City, at the time the most popular television programme amongst women in the 18 to 35 age demographic.  the drink was reimagined as one for those who are outgoing and as one of fellowship.

This new image significantly increased usage and sales of Bailey’s amongst target segments.

There are three levels of growing usage per capita which were leveraged in the Bailey’s campaign.

  1. Abandoning Cost-Plus Pricing: Prices are set based on the price point of the most popular product in a geographical area.
  2. Gaining Local Monopolies: This does not mean gaining more than 35% of the market (the traditional definition of a monopoly situation).  Local monopolies are created by flooding the marketplaces with opportunities to purchase and consume the product.  Everywhere the target consumer goes or congregates, they should have an opportunity to purchase.
  3. Adapting Prices to the Buying Situation: So the prices for Bailey’s in a night club will be more than in a pub or bar. The price of Bailey’s in a retail situation will be lower than at a venue.

Specific marketing plans need to be created for each purchase opportunity.  For Bailey’s this could mean different marketing mixes for supermarkets, bars, restaurants, vending machines and hotel mini-bars, off licences and general stores.

Coca Cola, the long time market leader in the soft drinks market has continually developed and amended such segmental strategies for decades.

In addition Coke has two critical alliances to grow sales; with Macdonald’s and with Bacardi.

The McDonald’s alliance targets young consumers and looks to continually refresh Coca Cola’s customer base.  It aims to build the habit of consuming Coke amongst teenagers who will hopefully continue to consume the cola for the rest of their lives.

The alliance with Bacardi, which includes pre-mixed bottles of rum and coke, targets adult drinkers and the use of the cola as a mixer. Bacardi Rum is the world’s most consumed spirit drink.

The second way to grow a brand  in a mature market is to address barriers to consumption.

Surprisingly Coca Cola were slow to address the issues consumer’s had with their product, in particular health concerns and concerns that the soft drink contained too much sugar.  Sugar free soft drinks like Tab and even Coke’s main rival Diet Pepsi, were established in the market long before Diet Coke arrived.

However, Coke has used its market position to launch a series of healthy option to break down consumer’s reluctance to buy the drink.  They now produce a range of low sugar and sugar free options such as Coke Life (with added vitamins), Caffeine Free Coke, Diet Coke, Coke Zero (No sugar) and Caffeine Free Diet Coke.

However both these strategies only go so far.  The easiest and most cost effective option is to get your existing customers to consume more of your product.

There are two ways to increase existing consumers consumption. To get them to use more of the product and to get them to use the product more often.  You want to turn consumers who only buy a small amount of your product into customers who are medium consumers and medium consumers into heavy consumers.  You want to turn occasional customers into regular customers and regular customers into ‘dominant customers who will only purchase your brand)

Every marketer should be aware of the Pareto Principle (80% of your returns come from 20% of your activities). Similarly the heavy use/dominant customer group represents 10% of brand buyers and 50% of brand volume.  To grow this heavy/dominant group you need to use behavioural segmentation to target particular consumers.

You need to ask consumers why they are reluctant to buy your product and address their specific barriers to consumption. You need to build a marketing mix based on specific product improvements and higher experiential benefits.  It is very rare to find that consumers reluctance to purchase a product is simply to do with the product’s image.

You also need to ask why consumers prefer other brands.

The third way to grow a brand in a mature market is growth through addressing new uses and situations.

You have to ask:

  1. Your brand is for what?
  2. Your brand is for whom?
  3. Your Brand why?
  4. The brand against whom?

Consumers want solutions to particular problems. They want a five millimetre hole, not a five millimetre drill bit. Can your product solve multiple problems e.g. Listerine began life as a household detergent now it’s sold as mouth wash.

A Porsche 911 isn’t the car for the school run or going to the supermarket but the Porsche Cayenne 4×4 can be used for those purposes and provide sport’s car performance. Car firms often enter into joint venture to allow brands to meet new uses.  For example, Aston Martin have a joint venture with Toyota to produce a small, fuel efficient city car.

Growth can also be obtained through getting existing consumers to ‘trade up’.  This is why, when you go to a Volkswagen dealership you are bombarded with a multitude of options for your car. Brompton Bicycles go one further and allow consumers the opportunity to effectively design their folding bike from a dizzying array of product options. You can produce gift packs or extend your brand to related uses e.g. the Christmas box of fragrances which contain aftershave, deodorant, shaving balm, shampoo, shower gel, etc.

Special editions of products can also help consumers ‘trade up’.  Fender guitars produce special edition models of their guitars which are produced in small numbered batches. For example, the alternative reality series where each month a short run of guitars is produced with novel body shapes, different neck woods, different switching options and pick up configurations.

Most whisky distillers give consumers to trade up to 10, 15, 20 and 25 year old maturations, they produce cask strength whiskies and age their brand in different casks e.g. bourbon or sherry casks.

Growth can be developed through line extension.  Think of the number of formats and sizes in which Coca Cola is sold.  Coke’s largest sales are not in bottles or cans, single items or in multipacks, it is the sale of syrup to bars and caterers for mixing with carbonated water at the point of sale.

You can provide incremental variance (e.g. Volkswagen’s huge choice of engine options)

You can multiply the physical forms of your product, so Ariel washing detergent comes as a powder, a liquid, in tablet form and as a gel sachet.  You can provide different versions of your brand for different purposes; so Dettol produces an all purpose cleaner but also specific product options for bathrooms and kitchens.

Line extensions represent 85% of new products placed on the market.

However, when creating line extensions you should beware hyper-segmentation.  New line extensions must have mass appeal.

To manage line extensions well you need to:

  • Improve cost accounting to minimise additional costs in the value chain
  • Prioritise resources to high margin extensions
  • Your sales force should be able to describe the reason for the each extension in a few words
  • You withdraw products as consumers move over to line extensions (you will likely need to encourage such withdrawal).

Finally, you can grow a brand through innovation.  Colgate toothpaste is regularly reformulated with new innovative options such as sensitivity relief, whitening and gum health solutions)

Colgate is an example of incremental innovation so a premium product moves to being the standard product over time as innovations are introduced.

Some firms are seen as innovation champions and they are aware of the benefits and impact of an innovation from its inception.  these innovation champions know they can leverage higher price points than their competitors confident in the knowledge that the innovation provides real customer benefits.  Innovation champions also work to gain more prominent shelf positions, such as eye-level and aisle ends.  They will be willing to pay supermarkets for these locations.  Innovation champions will also clearly advertise innovation benefits including prominent display of innovations on packaging.

The Inevitability of strategic Wear Out

Regardless of your position in the marketplace; whether you are a market leader, a follower, a challenger or a niche marketer; you need to recognise that over time successful marketing strategies begin to wear out and will need to be replaced.  They will lose impact.

It is imperative that you continually adapt your strategy to meet new competitive challenges and to match shifting consumer needs.  Many extremely successful brands, from Kodak to House of Fraser have suffered from over-reliance on their long-standing strategies ignoring the fact that the consumer base has moved on to other new, sparkling concepts.

House of Fraser maintained a department store model based on concessions whilst the fashion brands they relied upon built direct selling through websites and brand-specific stores.

Kodak, despite inventing the digital image sensor, failed to invest in the digital camera and continued to invest heavily in 35 millimetre colour film.

Blockbuster video tried to retain the model of DVD and cassette rental in an age of downloads and Netflix.  Similarly HMV, which has failed twice, ignored the rise of music streaming services such as Spotify and iTunes.

Often management are unwilling to change what they see as successful strategies.  They only see the need to change when it is already too late.

The following effects can contribute to strategic wear out:

  1.  Changes to market structure
  2. The entry and exit of competitors from the market
  3. Changes in your competitors’ strategic positions
  4. Competitive innovations
  5. Changes in consumer expectations
  6. Changes in the macro and micro economy
  7. Changes in legislation
  8. Technological change – including change which at first appears unrelated to your market
  9. Changes to distribution and supply channels
  10. Lack of internal investment
  11. Poor cost control
  12. A tired or uncertain management philosophy.

Perhaps one reason that businesses hold on to outdated marketing strategies is that the process of creating new ones can be painful.  Managers may feel the move away from tired and trusted methods is a black mark against their personal record.  Often, changes to marketing strategy can only be achieved through a change in personnel at board level.

However, there is a law of marketing gravity. Regardless of how big or powerful an organisation is in the marketplace, sooner or later its marketing programme will decline.  Marketing gravity is entropy, that all things break down and become dust.

Four principles are often evident in firms retaining outdated marketing philosophies and strategies:

  1.  Marketing Myopia:  That you ignore the impact of your actions on your brand.  You apply the rules of marketing whilst ignoring the spirit of marketing.  So marketing planning becomes an annual chore.  Marketing is only a sales support activity.  This is the decision by British Airways to redesign the tailfin of their aircraft in an attempt to be more exclusive and ‘international’; the redesign blurred BA’s distinctive image as a national flag carrier and by trying to focus on only high end and executive customers, they restricted the size of their potential market limiting earning potential.
  2. Marketing Arrogance:  You ignore the effect of your actions on your brand. This is the attitude of Gerald Ratner when he may a supposedly humorous after dinner speech about the jewellery sold in his shops being ‘crap’; a speech which hugely damaged the Ratner’s/H Samuel brand.  This is the manager who operates on hunches and that they know what the customer wants without carrying out any research or analysis.
  3. Marketing Hubris:  This is believing in your own PR to the detriment of your brand.  Microsoft believe it could operate free from the constraints of other brands. Richard Branson used to believe Virgin could ignore traditional strategic planning and could do things differently. Both Microsoft and Virgin have reversed these positions.  Branson now says that the strategic planning process is crucial and central to the success of his brand.
  4. Marketing Silliness:  This is putting common sense aside in an attempt at being creative.  We all see TV advertising which is glossy, has startling imagery and artistic flair; but when we are asked what the product or service on offer is, we cannot identify it.

It is also the case that ‘dead cats only bounce once’.  Once a strategy has worn out, you will likely only get one attempt to revive it and gain lost market position.  if that attempt fails, your market share and position will drop dramatically.  We live at a time where many traditional high street retailers are facing oblivion as the internet and home delivery services drive down margins.  To respond, these retailers need to focus on strategies which create unique value for consumers.  Increasingly, to get footfall, these firms will need to create experience beyond that of traditional high street shopping.  Too many of these retailers are relying on consumer inertia or consumer ignorance.  An example is high street banks and utilities firms which often only rely on consumers reluctance to switch to other providers; expecting that consumers will stick with what they know rather than try the new.

You cannot simply stick with what has worked in the past.  The future will be different.

You cannot stand still.  You must always look for the next strategic step. Break away from the past and create strategies for the future.

 

Defining marketing and why projects fail

I was chatting with a fellow member of the federation of Small Businesses at a recent networking event.  He mentioned that he had been at a talk given by the owner of a successful small business who commented that she had built her business without doing any marketing.  This was a statement which I found incredulous.

I suspect the business owner giving the talk was incorrectly defining marketing.  What she meant was that she had built her business without the use of print or television advertising.  If it is the business I am thinking of, I know she has used social media and the internet,  I also know she has used sales representatives and entered into arrangements with beauty salons to promote her products.  She may not have used traditional advertising but she has used alternative promotional channels AND THAT IS ONLY A SMALL PART OF HER MARKETING MIX.

In his book Principles of Marketing, a standard marketing text for graduates, Philip Kotler describes the forms of marketing used by businesses as they grow.

The first stage is described by Kotler as entrepreneurial marketing.  This is a company living by its wits.  Marketing activity is done on a whim, often based as the perceptions of market conditions in the mind of the business owner.  There is a considerable use of guerrilla and surprise marketing.  Marketing activity isn’t planned; it takes as and when the business proprietor believes it to be necessary.

As a business grows it is no longer possible to exist solely on unplanned marketing activities.  A business moves to a state of formulated marketing.  the scale of the business and the need to satisfy the needs of wider stakeholder groups requires a structured approach to marketing.  This is the standard marketing process in most businesses.

For very large businesses, there is still a requirement to be fleet of foot and not to be predictable.  Kotler suggests that these businesses use an ‘intrapreneurial’ approach to marketing.  He uses as an example Virgin, the conglomerate owned by Richard Branson.

Virgin is not just big brands such as Virgin Music and Virgin Atlantic, it is made up of over 200 separate businesses and several hundred legal entities.  Branson encourages his staff to come up with new business ideas within the group umbrella.  He is constantly searching for new market opportunities and new business concepts.  Not all of these succeed and several only exist in the short term, such as Virgin Cola, but several grow into significant market players e.g. Virgin Money and Virgin Holidays.

By encouraging his employees to act as entrepreneurs within his company, Branson can adapt to new markets and new technologies quicker than his competitors.  He wants his staff to act as market disruptors.  If Virgin is constantly changing the rules of the market, it is more difficult for his competitors to gain a commercial advantage. Virgin is also made up of linked but separate commercial units.  This means that if one unit fails, there is a smaller risk of that failure being a contagion affecting other business units.

Clearly, the CEO who was giving the talk was at Kotler’s stage one.  If she is to grow to a business which can compete with the multi-nationals which dominate her particular market, she may need to take a leaf out of Virgin’s book.

On a separate matter, I have being doing some CPD in relation to my project management skills and was taking notes from the book Project Management by Dennis Lock.  Again, this is a standard text for business and engineering graduates.

In the book, Lock states that a major reason for project failure is a poor project definition.  He lists ten reasons why inappropriate project definitions can mean that a project can fail at the outset.  These are:

  1. The project scope is not clearly stated and understood
  2. Vague technical requirements
  3. Estimates of cost, timescale and expected benefits are over-optimistic
  4. The risk assessment is incomplete or flawed
  5. The intended project strategy is inappropriate
  6. Insufficient regard is given to cash flows and the provision of funds
  7. The interests and concerns of stakeholders are not taken into account
  8. Undue regard is given to the motivations of people undertaking the project
  9. Insufficient regard is given to the reactions of those affected by the project by changes imposed upon them
  10. Politics and personal goals overtake the aims of the project.

Reading Lock’s list, I couldn’t help thinking of Brexit.  In particular the comments of Sir Amyas Morse, the head of the National Audit Office who has complained that the UK government proposals for leaving the European Union are “vague” and that there is a lack of cross-departmental work in government which could “crack open Brexit like the first tap on a chocolate orange”.

I concur,  the UK approach to Brexit appears so slapdash, it will likely cause severe damage to the UK economy and be disastrous for the UK business community.

Why ‘living the brand’ is crucial.

The traditional view of brand building is based on marketing communications; in particular advertising.  Senior management prefer advertising as they see it as a method of communication which can be controlled.  It is a one way method of communication where the advertiser is in control of the message.

Today, consumers are bombarded with advertising and other forms of marketing communication.  Increasingly, they want to interact with brands.  There is a shift from one way communications to collaborative conversations.  Advertising may sell your products but if you are looking to build a brand; the combination of attributes which gives an organisation a distinctive identity and value relative to its competitors, customers, advocates and stakeholders; you need to do more than advertise. This is especially true when you are trying to sell services where there may be no physical product to attract a target audience.

To subsist and grow, brands need to evolve through interaction.

Often, the most important element in building a brand is an organisation’s employees.  Employees are the part of an organisation which actually interacts with the outside world.  They actually speak to your customer base.  They drive customer retention.  They share knowledge and create great customer experiences.  Properly engaged, they can strengthen a brand and secure future cash flows.  Employees are essential brand stakeholders and they need to know how to engage with and understand the brand.  Employees are also consumers of brands and brand messages.  They have an inherent power to deliver brand promise especially if they are informed and enthusiastic about the brand message.

Traditionally, too many firms have seen brand messaging as a function of senior management and the marketing team.  If you are truly interested in building a brand presence, you need to spread that process throughout your organisation.  That shift requires marketing to be seen not in terms of marketing communications and promotion but as a central element in planning business strategy.  Brand building involves everyone from the Chief Executive to the production line.

Many organisations talk of internal marketing.  A process of spreading the message through the organisation using internal promotional messages.  Such an approach can be problematic in brand building.  That is why this article is headed ‘living the brand and not ‘live the brand’.  Live the brand implies the internal marketing route, senior management creating messages which tell their employees how to act and behave.  It is the ‘big brother’ approach to marketing.  Employees are told how they must behave rather than them choosing to engage with the brand and make it part of their life.  An organisation’s processes may belong to its owners and managers but its culture belongs to all its stakeholders.  All too often internal marketing is an exercise on imposing cultural norms on an organisation rather than allowing the members of that organisation choose them.

Building a brand culture is an exercise in thought which not held in common but created in common.

To drive a common understanding in an organisation two things are required, active participation amongst employees and a simple clear message.  To drive participation you must involve stakeholders from inside and out with your organisation.  The Japanese system of Kaizen does this through the use of quality circles and staff involvement in developing process improvements.  In firms using Kaizen, staff feel they are listened too and that they have an active role to play in developing their work activities.  IN traditional western firms resentment can build if staff see their ideas being hijacked or there is only senior management diktat.

Marketing staff and senior managers may understand complex marketing theories and models however shop floor staff may need a simple clear message they can easily pass to consumers.  Often such messages are clichés which talk of quality, environmentalism, integrity or innovation.  It is not the uniqueness of the words in a brand’s message which are important but the way those words are used and interpreted.  Words such as quality remain abstract constructs until staff and consumers actually experience the product.

To build a brand a Top Down/Bottom Up approach is usually required.  this is where management pass down strategic goals to the organisational stakeholders and allow these stakeholders to present plans to achieve those goals.  This is a major part of systems such as kaizen.  Such an approach can bring life to otherwise bland brand images.

Building a brand isn’t about making excellent products or having flash messages; it is about building a culture and a community.  Hatch and Shultz (2008) said “stop asking how you can get your employees behind the brand and start thinking how you can put the brand behind your employees”.  Greater commitment and creativity can be generated if a brand becomes the framework that supports employees and their aspirations.  Don’t tell your staff about the brand, make them engage with it.  Even more importantly listen to your employees, create strong and reliable feedback to create value in your brand.

Why firms use Brand Extension

The Ansoff Matrix tells us that brand extension as a growth strategy is a riskier option than market penetration and market expansion; although it is less risky than diversification.  Ansoff also stated that brand and product extensions should only take place once market penetration and market expansion opportunities had been exhausted.  So in today’s marketplace, why do so many firms choose brand extension as their primary method of growing their brand?

Well the answer is that many of today’s commercial markets are mature.  Market Penetration and expansion opportunities are scarce and increasingly costly.  Rather than starting from scratch in a new market, it is easier to enter it with an existing brand.

In his book The New Strategic Brand Management, J.P. Kapferer give advice on whether brand extensions is an appropriate strategy.  He strongly believes that in mature and luxury markets it is necessary.

Many luxury brands use extension as a core business model.  In these markets it can provide increased brand power and profitability.  This is why major names in the fashion industry introduce perfumes, luggage and watches.  Some fashion designers, such as Victoria Beckham extend their design services to products like cars.  Mrs Beckham apparently designed the interior trim of the Range Rover Evoque.

A successful brand extension relies on the business’s ability to create a distinct competitive advantage through leverage of existing reputation in a new, growing, market sector.

Kapferer argues that five basic assumptions must be met if a brand extension is to succeed:

  1. The brand must already have strong equity and a strong asset base.  Trust levels with consumers must be high.  The extension must offer strong customer benefits, both tangible and intangible.
  2. Assets must be transferable to the extension.  Consumers must believe and acknowledge that the new extension product will be endowed with the benefits already associated with the brand.
  3. Extension products must offer a real perceived competitive advantage in the minds of consumers compared to the products of competitors.
  4. The brand’s values must be relevant to the market segment into which it will be extended.  However, the segmentation of the new market should be done in such a way as to make it difficult for competitors to react quickly.
  5. The brand extension must be competitive in the long run.  That means you need to provide sufficient resources to achieve market leadership and to develop productivity.

Brand extension can also be a defensive strategy.  It can also be linked to efficiency and productivity measures.

  1. Firms use brand extension to reduce media and other costs.  Rather than the expense of separate campaigns for different products, they are merged into a single mega-brand.
  2. Some brands operate in declining product categories.  To avoid market contraction and closure, these brands need to expand into new segments.  In 2003, Porsche entered the 4×4 market.  A time when the market for sports coupe was declining.
  3. In business to business markets, brand extensions can evolve as a result of the need to provide ever-increasing customer value.  For example, a firm providing office cleaning services may begin to offer the provision and maintenance of house plants, or furniture, or art, to its existing customers.  British Gas faced new competition when the UK utilities market was opened up to competition.  They extended their base by offering domestic white goods maintenance to their existing customers.
  4. A brand’s market can be cyclical or seasonal.  Brand extension may be necessary to flatten out that cycle.  The Bill Paterson film, Comfort and Joy took inspiration from a real life  and very violent war between the operators of ice cream vans in Glasgow.  The real war was a very nasty affair between organised crime gangs who were using the vans to sell drugs.  In the film, it was a battle to preserve territorial boundaries.  The main protagonist of the film, a radio DJ played by Bill Paterson, got the competing firms to cooperate by extending their brands into the sale of deep-fried ice cream fritters which could be sold in the winter. (the film was made before the advent of the deep fried Mars Bar).
  5. Brand extensions can also be a result of a firm having insufficient resources to maintain a wide brand portfolio.  By merging brands the costs of packaging and promotion can be shared.  Scarce resources can be targeted on productivity or quality improvement.  In such circumstances, brand extension can a curse into a blessing turning a house of brands into a branded house.
  6. Brand extensions can get round promotional and advertising restrictions.  The promotion of tobacco products is widely prohibited.  Brands such as Dunhill are now as well, if not better known for their luggage and accessories than their cigarettes.  In many states it is illegal to advertise prescription drugs directly to consumers.  Pharmaceutical firms therefore extend their brand into over the counter medicines.

Brand extension can be a risky growth strategy but if you are operating in a market which is mature and meets the above circumstances, brand extension may be a better option than a full diversification.

Local Brands Can Win

Today we live in a world of global mega-brands.  The financial and business press is regularly filled with stories about the activities of brands such as Coca Cola, McDonald’s and Apple.  Only this week, the story of Pepsi’s disastrous advertisement featuring Kendall Jenner went viral.

It seems that smaller local brands are doomed and at best they will pick up the scraps of market share left to one side as these global brands continue their feeding frenzy.  Although mega-brands may dominate the column inches of business papers, there are significant examples where smaller local brands have defended their market leading role.

Did you know that the market leading hamburger restaurant chain in Korea is not McDonald’s or Burger King but Lotteria, an offshoot of a local department store chain.  Smaller local brands can dominate their market and hold off attempts by international corporations to take their market position.

It is obvious why big corporations want to expand internationally.  The Ansoff matrix tells us that it can be difficult and costly to penetrate your home market further when you are the market leader.  Governments have laws regarding monopoly positions (in the UK a firm with more than 25% market share is considered as having a monopoly).  The ability to gain market share may increase in cost exponentially.  You may be paying increasing costs to garner smaller and smaller percentages of your market.

Ansoff also states that activities such as new product development and differentiation are increasingly difficult and costly.  Market expansion is less risky particularly if you can implant your current business model into another region or state.  If you are the market leader domestically, your best option may to be to expand internationally.

So how can a local brand fight back against global brands, how can they defend their local market where the competition may have more money and resources to take into battle.

Local brands often use first-mover advantage to hold the market-lead.  They were the first to enter the sector in their local area and so become associated with that sector in the minds of consumers before other brands get a foot in.  However, brand loyalty can be fleeting and should not be the sole strategy for market dominance.  You need to work hard to retain customers rather than just assuming they will stay loyal.  If a large conglomerate provides a better offer, consumers will switch.

To develop a local market lead position you need:

  • A specific business model and specific processes.  Ideally these should match the expectations and values of local consumers.
  • To be more accessible to the local market than larger competitors.
  • You have to offer strong growth potential; and,
  • You have to have stronger local attributes than global firms

Recently, Starbuck’s attempted to enter the Italian coffee shop market.  A market the firm had so far ignored.  This was probably Starbuck’s last throw of the dice in relation to market expansion.  The last country on the list where they had no presence.  The reason why Starbucks had avoided Italy so long was that their business model simply did not fit into the Italian coffee drinking culture.  Many Italians treat coffee as an icon of their culture.  You wake up with an espresso and you certainly do not drink a cappuccino after mid-morning.  The culture is of locally run coffee bars which are as much community centres as businesses.  Starbucks had avoided Italy because the reaction to their business model was hostile.   Starbucks model does not meet the four attributes listed above in the minds of Italian coffee drinkers.

Other activities by large brands may be treated with hostility.   Take the example of Waterstone’s, the UK bookshop chain.  They opened stores in small rural towns which outwardly gave no indication that they were part of the chain.  Consumers felt tricked by this practice.  They reacted strongly to the strategy feeling Waterstones were trying to pass off their chain as local independents.

Often small local firms exhibit significant limitations:

  1. They show a lack of willingness to innovate
  2. They have self-imposed inertia.  They look to the past not the future.
  3. Their resources are too widely dispersed. They try to be all things to all consumers.  They ignore Porter’s generic Niche strategy.
  4. They rely too heavily on customer loyalty as a driver of customer preference.
  5. They are self restricting.  They do not enter new markets because they feel they are dominated by a global brand even though clear opportunities exist.
  6. They don’t appear to be local and try to copy the practices and attributes of global brands.

For local brands growth strategies do exist.  Some local brands succeed by dominating a single distribution strategy (such as direct sale/mail order).  Some merge smaller brands to make one larger brand more able to defend against the international mega-brands.  Some nurture innovation, others look to target expansion into markets which have similar characteristics to their home market.

Despite the dominance of global brands in our interconnected world, it is possible for local brands to succeed and to lead in their local market.

Market Segmentation and a Multi-Brand Strategy

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Michael Porter of Harvard Business School proposed that there were three basic marketing strategies for any business:

  1.  Cost Focus – a strategy of keeping costs down and offering the best-value to the market
  2. Differentiation – Offering multiple products and brands to different market segments
  3. Niche – selecting the most profitable market segments and limiting you offer to those segments

Porter argued that a company which tried to meet two or more of these strategies would be in ‘no man’s land’ and be at risk of failure.

For small firms this basically means the adoption of a niche marketing strategy as they will often lack the economies of scale for a cost focus approach or the resources to produce products which meet the needs of every market segment.  Small firms need to segment their market so that they can properly target their marketing resources.

However, as firms grow, a differentiated marketing strategy often needs to be developed and a multi-brand portfolio created.  This is particularly true if your market is mature, where product innovation and development becomes an increasingly important element of an organisation’s marketing tools.

A multi-brand approach and a differentiated marketing strategy can provide significant benefits:

  1. It can offer a route to grow and develop your market
  2. |t can increase your market coverage
  3. Differentiation is necessary in mature markets
  4. Having several brands allows the communication of different brand attributes at the same time without confusing consumers or weakening brand identity.
  5.  It can provide a defence. It can be a barrier to new entrants into your market and it can stop competitors from taking your market share..
  6. It can help to maintain a brand image.  For example, Disney owns Bueno Vista and Touchstone; two brands which allow them to distribute movies aimed at adults without harming their family friendly image
  7. It can be a route to innovation.  A product failure will have less of an impact on your primary brand.
  8. It allows market leaders to develop challenger brands in other markets.

So how do you segment a market for a multi-brand strategy?

The most obvious ways of segmenting a market are based on socio-demography.  This is breaking down a market or population on factors such as age or income.  For many years, this was the method used by the UK census with the A, B, C1, C2, D and E categories.  The census system broke the UK population down by profession and social standing.

Ferraro Kinder, Europe’s biggest confectionery manufacturer uses demography as part of its multi-brand strategy. Products such as their Roche chocolates are aimed at adults whilst Kinder products are aimed at children and young adults.

Another common method of segmentation is to use psychographic data. This breaks down the population of a market on the basis of lifestyle choice.  The ACORN segmentation system partially uses psychographic methodology.  The spirit drinks industry often uses this method to segment.  Haig whisky is aimed at ‘affluent greys’, older consumers with significant leisure time and disposable income; Haig Club is aimed at younger fashion conscious ‘aspiring’ professionals and uses David Beckham as a brand ambassador.

However, there are other methods of market segmentation:

  1.  You can segment your market by the benefit your product professes to provide.  This occurs in the mineral water market where Evian segments on the basis of health and Volvic segments in relation to ‘vitality’.  These are defined key criterion for consumers
  2. You can segment on the basis of consumer attitude.  PSA owns two parallel brands, Peugeot and Citroen (it is about to add two more with Vauxhall and Opel). These brands are designed to attract different market segments. Peugeot focuses on driving experience whilst Citroen focuses of utility.  These two brands share a production platform enabling economies of scale.
  3. You can segment by channel.  Distribution channels can be in conflict with one another.  For example you may choose to buy from a company’s web store rather than from their high street shops. L’Oréal segments their brands according to the distribution channel.  They own brands for premium and department stores but sell different brands in supermarkets.  They own specific brands for direct sale to consumers and brands only sold in pharmacies.  They own mail order only brands and brands which are only supplied through professional hairdressers. Until recently they owned brands such as The Body Shop which were only sold in brand specific stores.
  4. You can segment by occasion experience.  Guinness is segmented on the pub experience; Carlsberg segment on the ‘release’ occasion e.g. nightclubs; Budweiser concentrates its marketing on beer as part of relaxation in the home.
  5. You can segment on price through the creation of fighter and trade-up brands.  Whirlpool owns a budget fighter brand, Laden, and an aspirational trading up brand, Bauknecht, as well as mass market brands such as Indesit.  This provides a defence against others taking a market share via ‘pincer’ attacks.
  6. In business to business markets, you can segment on the basis of the purchase decision-maker and other key influencers on the buying decision.  For example, the UK firm Hydro Building Solutions (HBS) owns different brands in different European countries which sell aluminium construction products.  Wicona in Germany markets to Architects, engineers and research establishments.  Donal in Italy markets to installation firms and contract bidders.  Technal in France markets to end-users via TV advertisements and has its own installation network.

As a small or new start business, you need to segment to ensure that you are making the best use of your limited resources.  As your business grows and as your market matures, you can use segmentation tactically and to develop a multi-brand approach.

Are you thinking strategically

A few years ago, I carried out a metrological inspection of a local factory.  I was escorted around the factory whilst carrying out my various duties by the company’s production manager. The production manager was in high spirits. After many years, he had finally got his board to employ an American efficiency consultant.  The consultant was to look at their production processes and suggest productivity improvements.  I jokingly quipped that the best such measure would be for the company to move premises. The production manager smiled wryly. I suspect this was also his view but he would never get such a measure through the firm’s family dominated board.

The factory had been built by the family firm in the 19th century.  It had been located on its current site; on the edge of the town centre and next to the railway station; for over one hundred years.  The factory was on one side of the main thoroughfare into town.  The company offices sat on the other side of this busy road.  It was a rabbit warren of buildings and often the easiest to move from one production department to another was to walk out of one door onto the main road and walk along the pavement to another entrance.  The factory site sloped meaning that many of the production processes happened on different ground levels.  Despite being next to the railway station, the company’s products were predominantly delivered by road.  This meant that lorries and tankers had to traverse narrow streets many of which were now residential.  Beside the factory were railway arches which were too low for many commercial vehicles.  Many parts of the factory were dark, dingy and dirty.  There was a real problem with rodents and major electrical re-wiring was urgently needed.

Another division of the same company was as a house builder and many of the estates around the factory had been built by that company.

The production manager wanted to improve productivity and to grow production but he had little available space to store raw materials and finished products.  As much of the equipment used in the factory was bulky, the factory had effectively been built around it.  This meant that the business was stuck with aging infrastructure which was difficulty and costly to maintain.  It was also virtually impossible to reconfigure production lines for more efficient processes.

The production manager could also see that tactically it was a good time to carry out a move.  The area of town where the factory was located was a target for regeneration.  The local council had plans to carry out significant improvements to the area.  Many of the light industrial buildings which used to be located around the railway station had either been demolished or converted to make way for housing.  A big project was underway to attract new residents to the town.  At the same time, a new business park, partly funded by the local development agency was expanding on the town’s northern edge.  Not only did the business park open up the possibility of a modern factory on a single level, it had direct road links to the local motorway network.  Transport logistics would be much easier.  A modern factory, on a single level would also allow for easier production line ergonomics and the implementation of just-in-time stock control.  A new factory would allow room for production to expand to supply more customers and new markets.  A new factory would allow for increased product development and entry into different market segments.

I could also see marketing advantages.  The company manufactured high quality specialist lubricants for the automotive and aeronautical sectors.  Many of their high-profile customers premises looked more like scientific laboratories than production facilities.  For example, the company supplied many of the leading sports car manufacturers operating in Formula One and other leading race series.  It supplied companies such as British Aerospace and Airbus.  Surely it would be advantageous for two major elements of its marketing mix, its process and place, to attempt to mirror that of its major customers?

A few months later, I returned to the factory to carry out some follow-up work.  I asked the production manager about the consultants report.  I was told it had been rejected out of hand by the controlling family.  They had voted to stay put in the factory their antecedents had built.  The consultants carefully presented arguments about efficiency and modern production processes were dismissed out of hand.  The board baulked at the initial capital costs of a move and ignored the long-term efficiency savings of a more modern facility.  It seemed history and tradition was more important than future viability.

Strategic business management has changed over the last forty years.  Aaker (1995) described these changes:

  1. Budgeting – This was the traditional method of allocating resources in a strategic manner.  Budgets were allocated to various functions and monitoring of these budgets was used as a method of controlling complex processes.
  2. Long-Range Planning – This was a move away from annual budget settlements.  Greater emphasis was placed on forecasting future market events.  The extrapolation of trends was used to plan future sales, profits and costs. Long-range plans were used as a basis for decision-making.
  3. Strategic Planning – A specific overall direction of travel for a firm would be determined and control of planning activities centralised.  Trends are used to examine the overall business environment.
  4. Strategic Management – This is the situation today.  Strategies are formulated and their implementation managed.  The focus of planning and forecasting is putting agreed strategies into practice.  The focus of strategy is managing change and transforming the business to meet current market conditions.

Marketing too has seen change.  Initially industry focused on making products.  The more you made the more successful you would become.  This focus on production ignored important things such as the quality and consistency of products or the needs of consumers.

Company’s then developed a product focus where the aim was to reduce wastage, reworking and increase product consistency.

The trend then moved to a sales focus.  Marketing activity was focused solely on increasing sales.  Many firms still have a structure where marketing activity is predominantly focused on sales figures and promotional activity.

Today many organisations are applying marketing practices across all of their functionality.  The focus is to meet the individual needs of customers.  For example firms such as Brompton Bicycles, Mini and Reebok allow customers to effectively design their own products from a seemingly endless range of product options.

The lubricant manufacturer is still located in my local town centre.  They are now storing finished products in an additional building (which involves transferring barrels of product by fork lift across a street which is a bus route).  This building had preciously been leased to a gym chain and the rental income used to offset some costs.  This rental income has now been lost and what was once a dance studio and function room is now filled with barrels of oil.

It seems that the company has been set in aspic.  I suspect that its ability to be fleet of foot and to explore new markets has been seriously hampered.  I also suspect that its ability to adapt to new customer demands and to defend against attacks by competitors has also been hampered.  I suspect the firm is surviving and defending its market position rather than being at the forefront of changes in its market.  It had the chance to change and modernise.  It didn’t take it and I hope that decision doesn’t harm its viability in the long-term.