Why you may need to reposition your product

There may be times in a product or brand’s life cycle that it needs to be repositioned in the mind of consumers. A famous example is Listerine which was first sold as a general household detergent and which is now sold as a mouthwash against tooth decay and gum disease.

The most difficult thing with repositioning a brand is removing the existing brand image and expectations from the minds of target consumers. The longer a product or brand has been around, the harder it is to reposition.

Skoda cars is another example of good repositioning. For years, when Skoda models were produced under the Communist Czechoslovakian government behind the ‘Iron Curtain’, the cars were seen as cheap, poorly built, inefficient and unfashionable. When the Warsaw pact fell apart and Czechoslovakia became part of the EU Skoda was purchased by Volkswagen Audi. The Skoda brand was repositioned as a fighter brand; a cheaper version of a standard Volkswagen. today, with models like the Yeti, Skoda is a mid-market car brand showing good build quality and good value for money.

There are four reasons why you may need to reposition a product or brand:

  1. A competitor produces a product which is positioned in direct competition to your product and is therefore taking market share from your brand. The need to reposition may be strong if said competitor is larger and better resourced than your organisation. A larger competitor may be able to quickly take control of your market niche.
  2. You may need to reposition as consumer preferences change. In the UK food preferences have changed as our diet has become more international. In the 1950’s you could only buy Olive Oil at pharmacies where it was used to clear ear wax. Then, following the boom in Mediterranean package holidays exposed British travellers to the food of Italy, Spain and Greece. Olive Oil is now a staple in the UK diet and our consumption of animal fats like dripping and lard has reduced. Animal fat producers have had to repurpose their brands to meet the consumer preference for vegetable oils and fats.
  3. There may be new customer preferences. For many years Lucozade was marketed as a health drink for invalids. Advertising often included a glass bottle of Lucozade in it’s plastic wrapper on a hospital bedside cabinet. Today, given the expansion of fitness brands, Lucozade has been reformulated as an isotonic energy drink for athletes.
  4. A mistake was made with the original positioning. Ready Brek is an example where the product was repositioned because the original marketing strategy failed. Ready Brek was first marketed as instant porridge. It was rejected by those who liked porridge for breakfast. They saw the product as fake, they didn’t like the taste. Some rejected Ready Brek as it was ‘too easy to make’. Ready Brek was repositioned as ‘central heating for kids’ a warming breakfast for kids during the winter months.

Repositioning is risky. Changing consumer perceptions may alienate existing consumers and the new target customers may not accept the new definition of the product or brand. New positions may end up lees attractive than the former position. Continually trying to shift consumer’s perceptions of a brand, non-stop repositioning, may only cause confusion.

There are three sub-divisions of repositioning:

  1. Repositioning for Existing Customers: This is possibly the safest form of repositioning. You reposition the product with existing customers by offering new ways of using the product. This is why many larder staples come with recipes printed on the pack. This is a good way from shifting a product from being a standard item in the cupboard to one which is keeping up with new ideas.
  2. Repositioning for New Customers: Try to develop a new image for your brand amongst people who do not normally use it. Ugg sheepskin boots began by being marketed to male surfers to keep their feet warm when they had come out of the water. Now they are retailed as a female fashion item.
  3. Repositioning for New Uses: Often consumers will find new uses for a product. Astute businesses will spot these new uses and use them to promote their products. Powdered Gelatine was a food additive, but now it is also used as a way for women to strengthen their finger nails. Super glue was first created as a way of sealing wounds on the frontline during combat. That is why it is so good at sticking your fingers together. Today, it is marketed as a strong general purpose glue for repairing household goods.

All repositioning carries a degree of risk. If a product is selling reasonably in its existing market, it may be better to leave its position alone. A better option may to be to create a new product or brand to meet new customer perceptions. However, if your product is losing ground to your competitors, repositioning may be the best option.

Anyone who was around in the late 1980’s will remember the disaster of ‘new recipe’ Coca Cola. The recipe change was an attempt to reposition the Coca Cola brand in response to increased competition, particularly the success of Diet Pepsi. The repositioning strategy was an utter failure and caused Coca cola significant reputational damage.

Bases of Segmentation

I recall speaking to a businessman about his marketing goals. I asked him who he intended to sell his services to. He responded, ‘Everyone and anyone’.

I then asked who he intended to market his product to. At first he was puzzled. Surely that question had already been answered: He would market to those who he was intending to sell to, everyone and anyone.

I narrowed the question. Who would the businessman target to receive marketing messages. The word target puzzled the businessman. Surely he would target marketing messages at ‘Everyone and anyone.

So I had to explain the concept of market segmentation and targeting.

Marketing to everyone is expensive in terms of both cash and effort. By marketing to all, you could be reducing your margins and make you marketing messages inefficient. You may have to develop high share of voice, big advertising budgets and bland messaging.

Most businesses do not restrict who they will sell their goods to. If you have the money to buy the goods or the service, they will trade with you. there are exceptions. For example, for some models of Ferrari, you will have to show you have the skill to drive the vehicle as well as having the requisite pot of cash. Occasionally a firm may refuse to sell a product to a particular individual if they feel such a sale will actually harm their brand image (but such occasions are incredibly rare.).

Businesses who follow a diversified marketing strategy will still segment the market and create distinct offers for different segments. the car industry is an example of this Ford create cars from budget city cars through to executive saloons, SUVs, off-road vehicles, sports cars, etc.

Businesses who target a market niche need to segment the market so as to identify the boundaries of their market.

Businesses who are following a cost focus strategy need to segment the market to identify groups of consumers who will be attracted by a budget offer.

Since the concept of market segmentation was created, the methods and techniques used to achieve distinct segments have evolved.

  1. Geographic and Geodemographic: This is possibly the earliest form of market segmentation. You divide your market into different geographic areas and develop marketing materials specifically for those areas. For example, I once dealt with a parallel imports case in relation to branded jeans. The jeans’ manufacturer had complained that the retailer had no right to import the jeans as, they were marketed differently and were manufactured differently. The imported jeans were made to a lower standards and of different materials to suit the price cap of the intended market, Eastern Europe, not the standards expected in the UK. A geodemographic model of segmentation takes a distinct geographic area and then segments that area by different lifestyles. ACORN is a good system of lifestyle types for the United Kingdom and includes groupings such as Affluent Greys and Striving Families.
  2. Demographic Segmentation: Such segmentation splits a market by terms of age and family lifecycle. Currently the UK has an ageing population. We have more older people. So using marketing messages which attract that ageing demographic can be a route to marketing success. Think of the Werther’s Originals adverts and adverts which rely on ‘the good old days’ nostalgia. Also, think of fashion brands and sports clothing which tend to be marketed to under 25 year olds. The family life cycle is analysis of how a family changes over time. There is also the psychological life cycle that recognises that life stages don’t happen to everyone at the same time. We don’t all learn to drive at 17. We don’t all get married at 21. We don’t all retire at 65. Income is also a major demographic factor. Everyone is aware of the A, B, C1, C2, D, E categories used by government which split the population through occupation and income bracket. However, the A, B, C1, categories are now seen as a blunt tool and somewhat out of date. Gender is also a major demographic for segmentation. Think how successful marketing campaigns for male cosmetics have been.
  3. Behavioural Segmentation: this is segmenting a market by identifying how different groups of consumers behave. In the UK a famous example is Professor Malcolm MacDonald’s seven farmer model. Professor McDonald identified seven types of farmer when fertiliser was to be purchased. He found one group of farmers who will always buy the cheapest fertiliser; another group who would buy based on the yield expectations of the fertiliser; a third who would buy based on the science behind the fertiliser; a fourth who would buy only if they felt they had achieved a discount; etc. Behavioural segmentation recognises that people are not sheep tied to their herd. Income and demographics are one aspect of our lives, our beliefs and actions will differ and only be partially affected by the demographic group in which we conform. That is not to say we do not belong to tribes; we do. The football team we support puts us in a tribe. The music we like puts us in a tribe. The clothes we wear, the sports we play, the events we attend, put us in tribes. The important thing to realise is that we can all be members of several tribes simultaneously.
  4. Psychographic and Lifestyle Segmentation: This is complex segmentation techniques based on three factors: Tradition-directed behaviour (easily predictable e.g. My Mum bought Brand X washing powder, so I buy Brand X washing powder); Other directedness (e.g. peer pressure e.g. Jimmy says Reebok trainers aren’t cool so I want Nike trainers); Inner Directedness (I don’t care that others don’t like smooth jazz, I do, so I’ll put Norah Jones on my iPod). Psychographic and lifestyle segmentation is common amongst fashion brands and in the car industry. Firms in these sectors create ideal customer profiles which list a range of lifestyle options.

In business you need to be focused, productive and efficient. So whatever your generic marketing strategy you need to make the best of scarce resources and achieve the most return for the least effort. therefore segmenting a market and targeting the most profitable consumers within that market is critical.

The Customer Value Ladder

It is obvious that a business’s customer base is its source of income.  Customers spend money with businesses: You hope!

But your customer base in more than a supplier of cash.  Your customers are your primary source of marketing data.  Marketing and business are knowledge-based activities. If you know your customer base, its attributes and opinions, you can predict its movement and they ways it may change.  You can identify what your customers see as best value and develop your organisation to deliver that value.

Customers have both financial and information value. To capture those customers in the first place, you also need knowledge.

Previously in this blog, I have discussed the concept of the customer value ladder.  A similar concept is the ‘ladder of advocacy’.

There are five ‘rungs’ on these ladders:

  1. Prospect
  2. Customer
  3. Supporter
  4. Advocate
  5. Partner

At each stage up the ladder we have different expectations as to the actions of customers.  At the lower levels it could just be purchase or re-purchase.  On higher rungs it could be partnership sharing and referring your business to others.  Obviously if you expect different actions by consumers as they move up the ladder, you will need to employ different tactics and use different promotional techniques and channels.

It is also worth considering that it isn’t only the customer who is moving up the ladder; so are the people they are talking to about your company.

Cross and Smith (1997) advocate that you bond with your customer in different ways as they move up the ladder:

  1. Prospect: Develop Awareness bonding to move them to;
  2. Customer: Where you concentrate on identity bonding to move them to;
  3. Supporter: Where bonding focuses on relationship development so that the customer becomes an;
  4. Advocate: Where bonding concentrates on creating a community. As the community becomes closer, customers become:
  5. Partners: Where you develop partnership bonding

Developing customer relationships is a two-way process.  Simply pumping out emails, newsletters or social media posts is not building a relationship.

On the first rung of the ladder you create a bond through brand and product awareness.  You need to invest in obtaining ‘share of mind’. Once you have obtained a share of mind you need to work to keep it.  You need to work to build on the target customers needs and wants.  This is often best achieved through traditional promotional techniques and channels, e.g. advertising or visits by representatives.  You also need to adapt your marketing mix to meet those customer expectations.

On the second rung of the ladder, you need to build the relationship with your customer group beyond awareness.  You need to attract ‘share of heart’. A bond developed out of shared values and aspirations.  You develop this bond through ’cause marketing’.  this could be through charity support, environmental standards and issue sponsorship.

Berry (1995) defines four types of relationship you can have with a customer:

  1. Legal:  You have a contractual relationship with your customers and that contract provides legal obligations.  You have statutory responsibilities towards your customers such as their sale of goods rights, product safety standards and responsibilities with regard to product description. You have data protection responsibilities towards your customers.
  2. Fiscal:  You have mutual financial relationships with your customers.  You may offer credit or deferred payment.  Credit terms can be a method of financial bonding.
  3. Social:  Businesses have social links with their customer base.  Football clubs offer stadium tours and opportunities to ‘press the flesh’ with current and former players. Venues offer patron-only previews of concerts.  Shops give valued customers ‘pre-launch’ opportunities to view new products. Restaurants offer ‘soft opening’ opportunities to regular diners to test new menus and at new restaurant locations.
  4. Organisational:  In business to business markets there are often organisational relationships between customers and suppliers.  These often develop into ‘partnerships’.

On rung three of the ladder values begin to be exchanged and deep knowledge of customers begins to be developed.  The relationship itself has value at this point.  Customers at this point are now getting something out of their relationship with your firm. This is the beginnings of building a community.  This is where owners’ clubs, social media groups and internet forums begin to have value.  You need to encourage feedback and information exchange.  Loyalty programmes can develop relationships at this point.  Bear in mind that, like many coffee outlets, a loyalty programme has little benefit if you offer membership to everyone!  You cannot ignore customer feedback and keep customers on this rung.

The value to your brand is:

  1.  Having knowledge of your target segment and the wider environment
  2. Your developed ‘share of heart’ and,
  3. The ability of customers on this rung to support those on lower rungs of the ladder

On rung four of the ladder you need to bond through creating social relationships with customers.  Here is the true and proper use of social media in marketing.  But you need to go further.  You need to offer opportunities for your customer base to meet not only your organisation but each other.  This is where customer conventions and fan events are useful.  You can develop product owner’s clubs and offer members discounts on things like servicing and accessories.  Community members need the opportunity to bond

Rung five is the development of partnerships.  This is a further development of developing a community.  An example is Ugg the sheepskin bootmaker who offer ‘brand fans’ opportunities to work for the brand and to help design their footwear.  As a result the customer develops very deep loyalty for your brand.  In business to business markets things go even further where suppliers offer onsite maintenance and service and locate employees in the premises of their customers.  Suppliers may get involved in their customers product design e.g. Rolls Royce helping to design the planes where their engines are to be located.  Suppliers may take over the running of a customers stock control processes and develop systems to help their customers produce products e.g. Just In Time supply software.  Partnership requires mutual respect and the integration of value chains.

At each stage of the value ladder you need to collect different data, use different marketing techniques and promotional tools.  It takes marketing skill to move your customers up the value ladder and to keep them on its higher rungs.

Designing and Delivering More Customer Value

One of the secrets of successful marketing is developing your organisation so that it has fewer, smarter people to deliver more value to customers faster.

However, things are not that simple in complex, mature, competitive markets.  All players in such markets are after the same thing and they are all fighting for the same set of customers.

Some economists will place price as the primary or sole factor in customer value.  this is the perfect competition model. It may be acceptable in simplified economic modelling but it bears no relation as to what happens in real life.

Consumers do not just buy products.  If a product solution was the only factor in consumer purchases, all goods would have the same features and price would be the sole factor in consumer decision making.

The only markets where price is such an over-riding concern are bulk commodity markets, such as steel or oil. Certainly consumer product markets are rarely decided on price alone.

Consumers form brand preferences.  They value things like customer service. Their self-image projected by the use of brands is important to them.  They like to develop brand loyalty.

These brand preferences drive customer expectation.  For example, consumers expect BMW cars to be superbly engineered; They expect Marks and Spencer’s clothes to be well made and good value; They expect McDonald’s burgers to be of a consistent quality and consistency.

When these customer expectations do not match the delivered product, then customers are dis-satisfied and seek alternatives.

More and more, as technology drives product conformity, brands are using halo services to differentiate their products from those of competitors.  Brands today represent more than physical products. Increasingly brands look to expand beyond their traditional product categories. Caterpillar isn’t just a maker of earth moving equipment, they are a clothing brand.

Brands are not only product; they are services, values, promises made by the seller.  They are an amalgamation of aspects which leads to the creation of a ‘personality’.

Smart marketers do not look to sell products: They sell benefits packages. They don’t sell purchase value, they sell usage value.  So if, for example, you are in the seed business, you don’t prioritise the cost of a bag of grain, you sell the likely value of the yield from that pack of grain.

Porter state that there are three ways to deliver more value to customers and to beat your competitors:

  1.  Charge a lower price than that of your competitors
  2.  Help customers reduce other costs
  3.  Add benefits which make your brand more attractive than that of your competitors

To win through price leadership means having an aggressive pricing strategy.  You must become the low cost option (again not just purchase price but usage price). Such a strategy requires organisational scale, market experience, inexpensive locations (outsourcing), superior cost control and supply chain bargaining power.

Often price leadership means offering fewer options in the market.  Lower prices are often driven by not offering free delivery or making the customer do more of the work.  For example, if you forget to print your boarding card at home, they will apply a significant surcharge to print it at the airport.  Ikea make you assemble their furniture.

Such a low cost strategy means relying on tight profit margins and selling in bulk.  It is difficult to sustain such a position over the longer term.

Many firms operating in business to business markets focus on lowering their customers other costs.  this could be through having longer service schedules, energy efficient machinery, easier repairs.  They market by showing customers that the cost of usage over time is lower than that of competitors products. Others offer to share the customers risk by selling on consignment, having low minimum order quantities or issuing exceptional guarantees e.g. no win no fee litigation.

Some firms go further by actively helping their customers lower costs.  Such companies want to be considered a business partner not just a supplier.  they offer customers training and support.  They may locate staff in customers premises to offer functions like on-site maintenance.  They offer services such as computer software and automated re-stocking.

Inventory cost can be lowered through matching customers Just In Time stock control procedures or through providing inventory outsourcing.

Through helping to reduce customers processing costs many firms become the preferred option in a market.  This could be through improving yields; reducing waste and reworking; reducing customer’s labour costs, reducing accidents and lowering energy costs.

Many firms analyse their production chain using customer value analysis.  Offering to lower costs away from that value chain, such as reducing administration costs or the costs of legal compliance can be a profitable marketing opportunity.

Some firms are successful in markets through offering value added.  This could be through a ‘more for more’ strategy where additional features and functions are added for a slightly increased price.  The trick is to bundle features and services which customers value but which come at a relatively low cost.

This could be the offering of product customisation, increased convenience, faster services such as delivery time, adding free coaching or training, offering consultancy services, issuing extraordinary guarantees and member benefit programmes (e.g. executive lounges at airports).

Sources of Marketing Opportunity

Over the past couple of days I have been looking at replacing my rather elderly car.  it has got to the stage where the cost of annual servicing exceeds the cars value.  One of the cars I have looked at is a successor model to a car I owned thirty years ago.  the new car has a bigger fuel injected engine that that old car.  In fact in the model range, it is a significantly superior model version when compared to the old car.

Yet the new modern car offers a far lower nought to sixty time, a lower top speed and only marginally better fuel consumption.

I was astonished.  Surely after thirty years, improvements in these categories would have been made.  Yet it seems that, in terms of performance, things have gone backwards.

That got me thinking.  How was this new model of car a superior marketing offer than its predecessor? How does it provide marketing opportunity?

Philip Kotler, in his breakthrough book Kotler on Marketing describes three sources of marketing opportunity:

  1.  Supply something that is in short supply
  2. Supply a product in a new or superior way
  3. Supply a new product or service (including an IMPROVED product or service)

When goods are services are in short supply buyers should be queuing up to buy them. So in the middle of a pandemic, things like face masks and surgical gloves will be in short supply.  This situation requires the least amount of marketing talent.  the opportunity is obvious to all.  The product is price inelastic so suppliers can charge high prices.  However, such shortages tend to be short-lived; so the market opportunity does not last.

When supplying an existing product you need to examine how you can IMPROVE that product. It doesn’t seem that the manufacturer of the car described above has properly considered what is an improvement.

There are three ways to identify product improvements:

  1. Use the Product Detection Method
  2. Use the ‘Ideal’ method
  3. Use the ‘Chain’ method

The problem detection method assumes consumers are accepting the current versions of goods but that they are not fully satisfied with those versions e.g. I like my new car but it uses too much fuel or I like my new car but I wish it had better acceleration.  Such statements create marketing opportunities.  problem detection is the primary method for product improvement but it is less helpful in terms of new product innovation.

The ‘ideal’ method involves asking consumers what they see as the ideal version of a product.  However consumers creating an ideal product wish list can create contradictions.  When using the ideal method, you may be faced with overcoming these contradictions.  For example, Consumers may like the taste of high alcohol but want them to be lower calories.  However consumers also reject low calorie beers as they have too low an alcohol content and a bad taste.  You can make a low alcohol beer tastier but only by increasing its alcohol content and you can only lower a high alcohol beer’s ABV by reducing its taste.

The consumption chain method examines the steps consumers take to acquire, use and dispose of products.  Are consumers satisfied with the way they consume products and can those steps of consumption be improved.  This could be through changes to the product itself or changes to the ancillary services which surround a product.

By analysing the customer activity cycle around your goods you can inform product improvements.  You also look beyond purchase value and look at your long-term relationship with those consumers (lifetime value).

When supplying a new product or service, you may not be able to rely on customer opinion,  They will not be aware of their need for the product until it appears on the market.  No one foresaw the home computer market. In the 1960’s it was expected that every major city might have a computer.  When desktops arrived they were tools for businessmen and engineers, not a domestic product.  When Apple produced the iPad, people forecast disaster as they saw no market for tablet computers.

Again, there are three models for assessing new product ideas:

  1. First use your company organisation to derive promising opportunities.  This is your sales force listening to customers and investing in blue sky research and development.  This can be a high risk approach
  2. The second method is to create the role of an Ideas Manager.  This is a senior role in an organisation who is tasked with managing product improvement and new product development.  They should lead a multi-disciplinary team with members from across your organisation including engineers, operations managers, marketers and finance.  It is this team who follow a formal process of idea assessment.  This can be new product proposals or improvements suggested by staff through systems like Kaizen and Total Quality Management.  The Ideas Manager should champion the concept of an Ideas Organisation and should take ownership of the decisions of the ideas committee.
  3. The Strategic Breakthrough Model:  This involves even more improvement thinking targeted at breaking through market growth pinch points and blockages.  this could involve finding new customer groups and new market segments.  It could mean geographic expansion of your firm or new sales strategies.  It could be new pricing strategies or financing solutions, e.g. most cars are now bought via leasing agreements as opposed to the old method of hire purchase. It could also mean adding new product features or developing completely new products.

Competitive Forces Shape Strategy

Market analysis is central to strategy formulation. Dealing with competition is the essence of strategy formulation.

However competition isn’t only defined by other market players.  There are a host of underlying economic and social forces affecting competition.

There are two elements to market analysis: An examination of the macro-environment and an examination of the micro-environment.

The mnemonic PESTEL (or PESTLE) is often used to describe the analysis of the macro-environment. It stands for POLITICS, ECONOMICS, SOCIETAL, TECHNOLOGY, ENVIRONMENTAL, LEGAL.

SO UK businesses over the last five years should have been examining the effects of Brexit on their market, it’s impact on politics, it’s impact on the economy, how it has changed UK society, what technological effects it brings, its effect on environmental policy and how it is going to change the law.

An analysis of the micro-environment also has to take place.  These are factors directly affecting a particular market or market segment.  Michael Porter described these as five forces: Industry Competitors, New Market Entrants, Suppliers, Buyers and Substitute Products.

These collectively impact the profitability of an industry or market segment.

Some economists model on the basis of perfect competition.  However, perfect competition only exist in those models it does not exist in the real world.  More enlightened economics now apply scientific rigour and evidential standards to their modelling.  Yes, this makes models more complex as factors beyond price need to be accounted for in modelling but the results of such models are more realistic.

If Porter’s five forces are strong, entering a market can be incredibly difficult and costly.  Even if the five forces are ‘mild’ they can combine to hamper market entry.

Market entry by new competitors can occur where there are few economies of scale; where products across a market are homogenous, where capital requirements are low or where cost advantages are independent of organisational scale.

Existing market players can leverage a learning or experience curve to protect there market position.  Where there is no learning curve, or it is short.  Where experience is limited.  These barriers to market entry are low.

Often existing market players will use legal barriers such as intellectual property rights to prevent entry.  For example, for many years Cadbury held the patent on the machinery to make Flake bars, so competitors were unable to make generic copies of the bar.  Muller Dairies hold a patent on the corner yoghurt pot and have successfully sued competitors who developed copycat products.

New market entrants can also be blocked through existing market players controlling distribution and supply chains.  This can occur through forward and backward integration of suppliers and sellers within a market.

Government policy can prevent market entry.  Governments may create licensing requirements within an industry such as the arms trade.  Governments create legislation, safety regulations, environmental standards, etc, which limit opportunities for market entry.

Currently in the UK there is a growing political argument over the lowering of food standards and animal welfare standards.  The Johnson government has legislated to lower UK standards and move away from the high common standards held when the UK was a member of the European Union.  This is seen as preparing for a US trade deal and to allow the importation of food from the USA which is often produced with low animal welfare standards and low food hygiene controls. US practices such as chlorine baths for poultry and using Ractopamine on pork cuts is common in the US but currently banned in the UK.  These US practices are attempts to cover up America’s ‘secret epidemic’ of food-borne disease and food poisoning.  Groups of varying political allegiance, including some cabinet members are opposing lowering of food standards to US levels.

Market incumbents often fight back against new market entrants through the use of discount fighter brands.  This is a common tactic in the golf equipment market where the majority of premium club manufacturers own a fighter brand to combat new entrants.

Where market growth is slower, such as in a mature market, entry can be all but impossible.  In such circumstances, significant market change needs to happen to allow entry e.g. Brexit.

Powerful buyers and suppliers affect a market through the use of their bargaining power.  Suppliers can raise prices and limit supply (as OPEC often did with oil).  Powerful suppliers, such as the large supermarket chains can use bulk purchasing to drive down wholesale prices. The tied house system for many years allowed breweries to control the price of beer and limit tenant landlords profitability.

Suppliers are powerful where there are a few dominant supply companies e.g. petrochemicals and where similar industries do not directly compete (e.g. steel fabrication and aluminium smelting).  They can also be powerful when a market is subject to forward integration (raw material suppliers buying finished product manufacturers). So TATA was an Indian steel maker which purchased Jaguar Land Rover the car maker.

Suppliers are also powerful where the supplied industry is not critical to their survival or profitability.  The Ravenscraig steelworks, built by the nationalised British steel to make plate steel for the automotive industry was a weak supplier wholly dependent on the Leyland car works at Linwood and the Ford plant at Bathgate.  When those car plants closed, there was no market for Ravenscraig’s steel.

Buyers are powerful when purchases are large, concentrated and central.  They are also powerful where large scale purchases are technologically complex e.g. supercomputers.

Buyers are also powerful where products are homogenous e.g. buying potatoes.  they are also powerful where they can buy a readily available alternative e.g. buying cane sugar compared to buying beet sugar.

Buyers are also powerful when the product purchased is not critical and can be easily cut from the buyers systems.

Buyers can also be powerful when they look to integrate back up the supply chain.

Substitute products limit profit opportunities they can reduce opportunities during market boom times and they can temper the ability to raise prices.

Existing competitors often jockey for market position.  Intense rivalries for market leadership exist if all market players are of similar size and there is no dominant market leader.  Slow industry growth (mature markets) can create fights for market share which limit opportunity.  Competitors can be strong where products are undifferentiated or where it is easy for customers to shift supplier.  In such markets, fixed costs can be high, products are often perishable (agricultural goods such as milk) or there could be a reliance on high sales volumes due to low profit margins (high street fashion).  Existing competitors can be powerful where there is overcapacity in a market (such as car production) or where markets are slow-moving such as musical instruments or antique furniture.  For example, once a pianist has bought a piano, how long will it be before they need to replace it (if they ever need to).

Often markets have high exit barriers, such as environmental clean up costs or the need for expensive specialist machinery.  This means competitors may stay in a market when in other circumstances they would have diversified elsewhere.

To succeed where industry competition is strong, you need to focus on market positioning, influencing the balance of the market and exploiting industry change. You also need to build defences so you are less vulnerable to the strategic attacks of other market players.

Time and Technology

We live in a world where technology and science progress at an ever increasing rate.  It was probably millennia before man progressed to create the wheel. Life in the middle ages was not too different to life in Roman times. Yet today rarely a day goes by without a what once would have been considered a major scientific discovery.  Accelerating technological advancement has become the norm.  Progress affects commerce.  progress affect your business. So you have to be aware and plan for technological change.

There are plenty of examples of businesses ignoring technological change.  The big music retail chains ignored music streaming.  VHS rental became a thing of the past.  Kodak invented the digital camera sensor but then allowed others to develop the digital camera as they focused on film rolls.

Time affects many business resources: manpower, finance, raw materials, knowledge.  The trio of money, quality and time dominate.  To implement the quality demanded by those in the marketplace is often a factor of money and time.

Quality often relies on the available time to market and the technology needed to deliver that quality.  Technology includes the actual features of a product but the support functions used to produce that product.

You also have to consider the lifecycle of a market.  Over time markets develop, they often enter a technological stage.  This affects the consumers perception of the state of the market and your businesses position in that market.  Is your business seen as cutting edge or as old-fashioned?

However in some circumstances appearing old-fashioned can be seen as a benefit.  Take Fender guitars, they sell a lot of instruments which are still made on machines installed in the 1950s and which contain features like neck profiles and electronics which are all but identical to those of 50 years ago.  Many players of the electric guitar still prefer amplifiers which contain valve technology little changed since the early 20th century.

Technology also affects the level of automated support in the marketplace.  This isn’t just production line technology but secondary process technology such as raw material delivery technology, automated aftersales support technology and even automated marketing technology.

It can be industrial technology, like the creation of long-life egg powder for bulk bakers or 5 gigabyte memory cards for digital cameras. It can be workplace technology such as customer databases or production line automation.

There are four aspects to workplace technology:

  1.  Improving the speed of an activity
  2. Improving the precision of an activity
  3. Technology overcoming production limitations
  4. technology reducing costs and wastage

Time is important as it allows faster delivery of best value but it also creates pressures.  You need to be able to strategize faster, implement faster whilst meeting customer expectations faster.

That latter aspect requires careful market monitoring.  Consumer attitudes change over time.  Changing perceptions is fundamental to marketing.

Time can also be a competitive advantage.  Being first into a market, being ‘first there and best dressed’ has long been seen as an advantageous position with sustained market share.  However this view is dependent on a market being ready for the innovation and being both willing and able to assimilate it.

Reducing time required to complete a function can provide market flexibility.  Who hasn’t spent hours pouring over Gantt charts and production networks trying to match available resources to production deadlines?

There are four aspects to new product taxonomy:

  1.  Product renovation:  altering old products which are already in the market place, new designs, new features
  2. Creating copycat products: Products which use technology which exists in the marketplace but which is new to your business
  3. Commercialisation of in-house products – products which exist within your business (for business purposes) which are then marketed to the consumer market.
  4. True innovation: New products created from new emerging technologies.

Innovation implies increased complexity and thus increased risk.  You need to apply marketing functions to educate the market as to the benefits of the new technology

Time affects workplace technology.  You need to pace your time resource to meet market readiness.  You need to exploit technology to introduce innovation over complexity.  The technology may be complex but it needs to make things easier for the consumer.

In terms of marketing, time and technology need to be considered in both strategic and operational terms.

Strategically, time and technology need to be applied to sustain competitive advantage.  Operationally, time and technology need to be leveraged so as to enable first to market, to reduce costs, to develop better systems, etc.

In applying time and technology to your business, you need to be aware of the strategic advantage cycle:

  1. Observe your environment.
  2. Orientate your organisation to that environment
  3. Decide what you need to do to make that environment favourable to your organisation
  4. Act to implement your decision.

Your decision needs to advance and sustain a competitive advantage over your competitors.

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?

 

Marketing is not just promotion

I recently saw a group of recruitment advertisements for marketing consultants. On reading the content of these job notices, my heart sank.  It seems a lot of businesses, especially small businesses are using bad, incorrect and out of date definitions as to the role of marketing in their organisation.

You see some advertisements which are just silly. These tend to fall into three groups:

  1.  Businesses putting all their marketing ‘eggs’ in one basket. Many of these businesses think social media is a magic bullet to all their marketing problems.  They see social media as a cheap marketing option. It isn’t and by focusing solely on social media these firms may be missing traditional marketing channels which give better value for money and better returns on investment.
  2. Businesses who underestimate the marketing task.  I saw one advertisement recently for a business asking for someone to ‘sort’ their marketing on a contract of eight hours a week.  I believe that firm would be better off by spending money on a consultant rather than employing an individual on such a restricted contract. That consultant could design a marketing plan and existing members of staff could work to that plan.  This matches current marketing theory that every employee of an organisation has a role to play in marketing that organisation
  3. Businesses who want a miracle worker but who don’t want to pay for that miracle worker.  I see plenty of advertisements for marketing staff that want a jack of all trades. They want one person who is an analyst, a researcher, a planner, a strategist, a web designer, a photographer, a graphic designer, a copy writer and a videographer.  They then say the salary for such a person is the equivalent of a shop floor labourer.  I’m not joking.  One such example I saw recently was for a graduate, with three years experience, to carry out the above wide range of activities, for a salary of £18,000 per annum. Casting my eye over the job description, I estimated that the value of the task required would reasonably demand a salary of £35,000 per annum. Worse, it is rare to find an individual who has an analytical brain; who is good at collating and analysing facts and figures; but who is also creative. The human brain doesn’t work that way, some people are good at creative arts but then tend to be awful at figures. Other people are excellent at analysing data but can’t draw for toffee.

However, I think the biggest mistake made by many organisations is to view marketing as solely a promotional activity. Marketing is seen as a substitute term for advertising or sales promotion. Marketing is not advertising.  Marketing is not PR.  Marketing is not door to door visits by sales reps. Yes, all those activities are related to marketing but they are subordinate to marketing.

Marketing is the development of customer-focused business strategies.  It is the conversion of corporate mission and goals into practical strategies and tactics.  Your marketing plan will determine how you approach promotion as part of the wider marketing mix.

Remember, your strategic marketing plan will lead to corporate policies, plans and investments which affect all parts of your business. Each area of the 7 P extended mix will itself have it’s own mix of tactics and methodology.

  • Product: You will have a product mix.  Different product/service options designed to meet the needs and desires of different target audience segments.  Marketing strategists will work closely with product developers and your production managers to provide best fit product options for target segments.  In each of these segments you might have a product range. Marketers will be closely involved in new product development and management of products through their life span.
  • Price: You will have a mix of prices designed to meet the wallets of different target segments. Marketers will help manage prices to maximise returns and to help extend product life span.
  • Place: Marketers will help decide how your goods are brought to market, how they are distributed and where they are sold.  This might mean physical stores, home delivery, electronic supply. Increasingly the use of 3D printers is raised. Do you want to sell through retailers or third-party agents. Do you want to sell directly? If you are operating internationally, do you need a partner firm already within your selected market?
  • People: Who are the right people for your organisation. How should they look at behave? Do you want to mirror your customer base?  For example, if you are selling high street fashion to the 18 to 25 demographic, do you want 60 year old sales staff?  And it could be that you want different people within your organisation for different customer groups.  Take as an example a landscaping firm which does both domestic and commercial work. Domestic customers may be happy to see a workman in a boiler suit or a fleece jacket but a big building firm would most likely want to see a representative in smart business attire.
  • Process:  Process needs to match customer expectations.  If you are making ‘bespoke’ garden furniture, it is likely that your process will reflect artisan craftmanship. If you are mass producing widgets for the automotive sector, your customers would likely expect a clean automated factory with short lead times, kaizen, and just in time supply.
  • Physical evidence: The documentation and other physical evidence used by your business should also match your target customers expectations. Different customer groups will have different expectations. So an insurance firm selling car insurance might get away with documents covered in puppet meerkats but that same insurance firm selling building insurance won’t use those documents to sell commercial building insurance (in fact that firm will likely use a completely different brand entity to do so).
  • Promotion: You will have a promotional mix. A wide range of promotional tactics and channels to maximise your exposure to your target audience. This mix should not only meet the expectations of your customers, it should maximise your share of voice.  It should be a mix of push tactics, like traditional advertising which ‘push’ your products into the minds of your target audience and ‘pull’ tactics which get consumers to demand your products from retailers and suppliers. Promotion should also help build brand equity and customer retention. Social media content tends to be ‘pull’ promotion. It builds desire and moves customers from prospects to regular customers. It is however a poor channel for push marketing and getting your products fresh into the minds of consumers. Social media’s main benefit is the building of a customer community. It has so far proven to be a poor sales channel.

There are several models of how promotional messages work in the minds of consumers.

The traditional model was that consumers minds carry out a structured process when deciding to buy. Promotional activities must therefore match that structured process. This process is described by the mnemonic AIDA:

  1. Awareness: First your customers must become aware of your offer.
  2. Interest: Then they become interested in your offer
  3. Desire: That interest should develop into a need to obtain your offer.
  4. Action: The consumer then should be prompted to take action to obtain your offer.

Promotional activities should therefore work to develop and match these procedural stages.

The hierarchy of effect model of promotion is similar:

  1. Consumers become aware of your offer
  2. They demand and build knowledge of your offer
  3. They develop a liking for your offer
  4. They develop a preference for your offer
  5. They develop a conviction to obtain your offer
  6.  They purchase your offer

More recently, the information processing model of promotion has been developed;

  1. First target consumers are presented with your offer
  2. You get their attention
  3. You develop comprehension of your offer in the minds of target consumers
  4. They retain that knowledge and comprehension
  5. That knowledge and comprehension affects the target consumers behaviour and they purchase your offer.

As you can see each of these models requires promotional activities to carry out a range of tasks.  There is another mnemonic (marketers love a mnemonic; and a matrix), DRIP:

  • Differentiation: Marketing is about leveraging difference. Your promotional activities should create an identity which distinguishes your offer from that of your competitors.
  • Remind/Refresh: Your promotional activities should reinforce the knowledge of your offer in the minds of consumers. It should remind previous purchasers that your offer still exists.
  • Inform: Your offer should inform your target audience of the content of your offer.
  • Persuade: Your promotion should persuade target customers to purchase your offer.

Each of these tasks will take prominence depending on the place in which the target customers mind sits in the purchasing process. For new prospects, informing them of your presence in the market will take prominence. For existing customers, your promotion needs to remind and refresh. For switching customers, you want to differentiate so they move to your offer from that of competitors. For undecided customers, your promotion needs to prioritise persuasion.

So promotion is not as simple as sticking a post on Facebook, or a video on YouTube. It needs careful though and a mix of promotional routes which maximise exposure to the market. Most of all promotion is part of a far wider marketing process.

So stop getting marketing wrong. think beyond the stereotype and apply marketing theory to all aspects of your business.