Beware the Big Bad BCG

When I say beware of the big bad BCG, I am not referring to Roald Dahl’s friendly giant.  I am also not referring to the inoculation every UK teenager gets and which produces a large purple pustule on your arm.  What I mean by the big bad BCG is the Boston Consulting Group’s Growth Share Matrix which is a prominent method of portfolio analysis.

Drucker (1963) identified that portfolio analysis was an important strategic marketing tool.  He declared that it helped firms:

  • Identify tomorrow’s breadwinners
  • Identify today’s breadwinners
  • Identify products capable of making a contribution to turnover
  • Identify yesterday’s breadwinners
  • Identify also-rans; and
  • Identify failures.

Every student studying business at college or university is taught the Boston Consulting group growth share matrix as the predominant method of analysing a company’s product portfolio.  However the matrix must be treated with care and it cannot be used in isolation.  Doing so could lead to some very expensive mistakes.

The BCG matrix plots the rate of market growth for a product or strategic business unit (SBU) against that product/SBU’s market share when compared with the largest competitor in the market. The latter is plotted on a logarithmic scale.

When using the matrix to examine product portfolios, you must consider the future potential of the market.  This can be achieved through using the market growth rate as one of the matrix elements.

What results from the matrix is an expression of a products competitive position.

The 2×2 grid produced in the matrix relies on four assumptions:

  1. Margins and funds generated increase with market share as a result of experience and scale effects.
  2. sales growth depends on cash to finance working capital and increases in capacity.
  3. To increase market share you need to invest cash which supports share-gaining tactics.
  4. Growth slows as  products reach life cycle maturity.  At maturity, additional cash can be generated without loss of market share.  This cash can be used to support new products and those which are in the growth segment of their life cycle.

Each of the four quadrants produced by the matrix has a distinctive name:

  1. Dogs:  These products have low market share and low growth.  They produce low profit levels or even losses.  They take up valuable management time.
  2. Question Marks:  (previously known as Problem Children)  These products have low market share but high growth.  They require cash investment if they are to succeed with an improved market position.  Often these are adolescent products entering the growth stage and there is a strategic choice between supporting them or divesting: picking winners and losers.
  3. Stars: These products have high market share and a high growth rate.  These are often market leading products.  Cash is needed to maintain market position and to defend against competitors.  Often star products are not the most profitable due to the cost of maintaining market position.  However, over time these products can become….
  4. Cash Cows:  These products have high market share but a low growth rate.  These are often established mature products.  These products generate cash which can then be used to support stars and selected question marks.  Often these products produce economies of scale and high profit margins.

Harris et al. (1992) expanded the matrix to add two additional ‘quadrants’:

5.  War Horses:  which have high market share but negative growth

6.  Dodos:  Which have low market share and negative growth.

A further suggested group is products which sit between cash cows and dogs.  These ‘cash dogs’ can be harvested for additional margins.

The BCG matrix suggests four potential product strategies:

  • Build:  Increase market share by investing in a product or SBU
  • Hold:  Defend your current position (useful for cash cows.
  • Harvest:  Increase short-term cash flows (Dogs and rejected question marks).  This is for products with no long-term future where you mortgage the product’s future for short-term gain.
  • Divest:  Get rid of products which are a drain on turnover and make better use of the money invested in them elsewhere.

There are significant pitfalls with the use of the BCG growth-share matrix for portfolio analysis.  It needs care in its interpretation.  It provides a snapshot of the current position.  It often results in products being required to meet unrealistic growth targets.  It also requires that products and SBUs need individual management.

Other typical mistakes in the use of the BCG matrix are:

  • Businesses investing heavily in an attempt to improve the market position of dog products
  • Businesses maintaining too many question mark products which means that resources are spread too thin.
  • Draining cash cows of funds which weakens them prematurely.  Alternatively investing too much in cash cows so funds cannot be used to support question marks and star products.
  • Seeing portfolio analysis as offering more than a contribution to management of products and that a products position produces only one potential strategy e.g. You must only defend a cash cow or that you must divest dog products.

For SMEs, the BCG matrix can be a poor tool to use.  It is unlikely that an SME’s products are going to be market leaders unless they operate is a specific niche market.

Properly used, BCG growth share matrix is a relatively easy to use tool for management and can offer a useful basis for strategic thought.  It can help identify product portfolio priorities.

However, it can be a poor guide for wider strategies as only market growth rate and market share are considered and other market factors are ignored.

It is difficult to calculate market share, particularly that of your competitors.  Smaller firms will nearly always have a smaller level of market share than that of multinationals.  The model driven by the matrix sees cashflow as being dependent on market growth.  This is not necessarily the case.

The BCG growth-share matrix fails to recognise the nature of marketing strategy and the forms of competitive advantage which will lead to success.

If you are going to use the BCG growth-share matrix, it is best to do so in conjunction with other portfolio models such as the GE strategic direction matrix,  The BCG growth-gain matrix and the Shell Directional Policy matrix.

 

Views of Academics on Strategy Development

It is generally accepted that marketing strategies are developed with assessments of the market, managerial expectations and organisational capabilities.

However, strategy and planning remain two of the most misunderstood words in the business lexicon.

Mintzberg described strategy development as having five attributes:

  • Planning – the direction of the organisation
  • Ploys – to deal with and outwit the competition
  • Patterns – a logical stream of actions
  • Position – how the organisation is located in the marketplace
  • Perspectives – Reflections of how the management team view the world.

Peter Drucker summarised these attribute as: What is our business? What should it be?

Mintzberg went on to describe eight types of strategy:

  1.  Planned strategies:  Deliberate and precise intentions
  2. Entrepreneurial strategies:  Emerging from a personal vision (emphasised by businessmen like Elon Musk and SpaceX)
  3. Ideological strategies:  The collective vision of the management team
  4. Process strategies: Which result from an organisation’s leadership taking control of a process
  5. Umbrella strategies: Based on objectives set by the organisation’s leadership.
  6. Disconnected strategies:  Set by organisational sub-units and only loosely connected.
  7. Consensus strategies:  Where members of an organisation converge on strategic patterns
  8. Imposed strategies:  Where the external environment dictates a pattern of actions upon an organisation.

The extent to which strategies are achieved is often determined by the way in which organisational resources are allocated.

The need for an organisation to plan is straightforward:

  1. Plan to co-ordinate activities
  2. Plan to ensure the future is taken into account
  3. Plan to be rational
  4. Plan to control

Richardson and Richardson (1989) found eight critical problems for planning:

  1. How best to manage and identify organisational stakeholders.
  2. How to anticipate the long-term.
  3. How to plan for the foreseeable things that can go wrong.
  4. How to turn product or market dreams into reality.
  5. How to create cost-cutting and contribution-creating opportunities.
  6. How to create a responsive team culture which combines resources to meet changing market conditions and to increase customer satisfaction
  7. How to create a base for innovation
  8. How to make the most of the unexpected; both opportunities and to survive shocks.

Over the decades academics have disagreed on the best approach to take when developing strategies.  Mintzberg describes the following strategic schools:

  1.  The Design School:  Where there is a focus on strengths, weaknesses, opportunities and threats (SWOT analysis).  This leads to clear but simple strategies and there is very much a top down approach to strategy development.
  2. The Planning School:  Where strategy is developed through formal distinct steps which are driven by planners and senior managers.
  3. The Positioning School: driven by academics like Michael Porter and the Boston Consulting Group.  Strategy development is an analytical process based on generic strategies with a focus on hard data.  This approach to strategy uses techniques like game theory and value chains.
  4. The Entrepreneurial School:  Where the focus is on the chief executive or another figurehead e.g. Richard Branson, James Dyson, or Elon Musk.  There can be real issues with this approach when the figurehead is no longer around.  Apple suffered when Steve Jobs left and there were concerns following his death. Similarly the death of Anita Roddick of the Body Shop.
  5. The Cognitive School:  Where the focus is on the mental processes underpinning strategy.  The focus is on cognitive biases and how information is processed e.g. SERVQUAL
  6. The Learning School:  where strategy is developed through a series of small incremental steps e.g. Kaizen.  Strategy and implementation are inter-related.
  7. The Power School:  Strategy development derives from those who hold power.  It results from the politicking of organisational players.  On the micro-organisational level this is the power plays of managers and union officials.  On the macro level it relates to joint ventures and both vertical and horizontal integration.
  8. The Cultural School – where strategy is based on common interest.  Social progress is created through the organisational culture.  This is best exhibited by Japanese management culture in the 1970s and 1980s.
  9. The Environmental School:  Strategy focuses on the demands placed on an organisation by its environment (‘contingency thinking’).  Environment limits strategic options.

Mintzberg argues that each of these schools only views a part of the strategic picture.  They are two-dimensional views of the strategic picture.  He proposes a further strategic school which creates a 3D image; The Contingency School; which combines the best aspects of all the other options.

Whittington (1993) describes four approaches to strategy formulation:

  1.  The Classical Approach:  Which is underpinned by economic theory.  There is a focus on profit maximisation.  This approach requires rigorous intellectual analysis and there is a view that the internal and external environment can be controlled.
  2. The Evolutionary Approach: Where strategy cannot control the environment.  Managers recognise strategic options and keep them open as long as possible.  Long-term strategies are seen as unproductive and you are better off using a series of short-term strategies.  An overall strategy emerges as short-term strategies succeed or fail.
  3. The Procession Approach:  Small steps turn into a strategic pattern.  One strategy builds on those which have come before.
  4. The Systematic Approach:  The focus on the implementation of strategies is crucial and is influenced by the organisational culture.  Strategy needs a social context.  No one strategic approach is suitable for all organisations.

Too many businesses do not consider their approach to strategy.  In SME’s, ‘the way we do things round here’ and the views of the business proprietor often dominate.  Many businesses would be best placed to employ an external expert to help them manage the strategy development process. This individual can identify and debunk organisational biases.

 

Why Market Segmentation is Important to your Business

Philip Kotler and other gurus of marketing science see three factors as central to world-class marketing:

  1. A deep understanding of your market.
  2. Correct market segmentation.
  3. Product development, positioning and branding based on that market segmentation.

Market segmentation is key to all successful marketing and the creation of sustainable competitive advantage and shareholder value.

These three factors, combined with:

  • Effective marketing planning
  • Long-term integrated strategies
  • Efficient supply chain management
  • Market-driven organisational structures
  • Careful recruitment, training and career management
  • Rigorous line management implementation

Leads to a successful, customer-focused business.

The marketing writer Ted Levitt once said, “If you’re not talking segments, you’re not talking marketing”.

Marketing segmentation is important because if you don’t understand how different parts of your market think, everything else you do is flawed.

If you aren’t segmenting your market and are treating it as a homogenous mass, you will only survive if your competitors are as equally ignorant.  Relying on your competitors being incompetent is not a sustainable business strategy.

Markets are not homogenous.  Consumers do not all have the same motivations and needs.  If your data shows a homogenous market, it is probably wrong or poorly analysed.

Segments should be distinct.  Consumers shouldn’t cross over between different segments.

Your chosen segments should be accessible.  There is not point targeting a segment if you cannot get your goods and services to it.  Segments should also be viable.  They should be big enough, stable and worthwhile entering financially.

Professor Malcolm McDonald examined the market for Global Tech and described the following market segments.

  1. Koala Bears – Like to use extended warranties and won’t repair tech themselves; they prefer to call a service engineer.  Often small offices.  28% of the market.
  2. Teddy bears  – Require lots of account management from a single service provider.  Prepared to pay a premium for service and attention. Larger companies. 17% of market.
  3. Polar Bears – Teddy Bears but colder. Will Shop around for cheap service.  Will use third-party engineers rather than those of the tech provider. Expects freebies e.g. training. Carries out ‘serious’ annual reviews of contracts. Requires a supplier who can cover several locations. Larger companies. 29% of the market.
  4. Yogi bears – A ‘wise’ Teddy Bear or Polar Bear.  Will train their staff to carry out their own service needs.  Needs a skilled product specialist via distance communication (probably on the phone 24 hours.  Requires different service levels in different parts of their business.  Can be large or small companies. 11% of the market.
  5. Grizzly Bears – Will bin tech rather than repair it.  Wants tech that is so reliable that when it breaks, it’s already obsolete. Won’t pay for training. Not small companies. 6% of the market
  6. Andropov Big Bears – Their business is totally dependent on your product.  Claims to know more about your product than you do.  You will do as they instruct.  Expect you to ‘jump to it’ when called. Not large or small companies. 9% of the market.

What is important to note about McDonald’s segments is that they are not based on traditional demographics or financial data.  They are based on attitudes and expectations.

It is also important not just to segment by product category.  For example, you may wish to segment by expected distribution channel.

Segmentation is matching your offer to meet consumer needs.  It is not easy.  It is a complex and critical task to appropriately define consumer groups, which can be fickle.

What is a value proposition and how do you create one?

Treacy and Wiersema defined a value proposition as, ‘a specific promise a company makes to its customers to deliver a particular combination of value’.

So to maximise customer value in your products and services and to ensure your business succeeds, you need to develop at least one value proposition.

Treacy and Wiersema defined three generic types of value:

  • Management efficiency/Operational excellence
  • Product leadership
  • Customer intimacy

Note that they do not mention price. They also state, like with Porters generic marketing strategies, you should concentrate on one of the three types of value (as long as you meet the level of adequacy standard in your sector for the other two).

All too often, value is only seen in terms of price.  But maximising value is not simply a plan to cut prices.  That may be the obvious option to creating value but businesses have other options:

  • Increasing the benefits of usage (but the benefits increased must be ones that customers really want).
  • Reducing Effort.  Make things easier for consumers to accomplish e.g. ready meals that can be cooked in a microwave.
  • reduce consumer risk; through offering consumer trial use and providing guarantees.

And it isn’t just target customers who need these value propositions.  Your marketing department needs them to help define the marketing mix. Other staff need them to point out common organisational goals. Your sales force need them to sell your products and services.  Your wholesalers and distributors need value propositions to attract prospects and to build customer retention. Your agencies need them to develop promotional messages. Your investors need them to shore up and grow share value and dividends.

The key to a successful business and to successful marketing is PREFERENCE.  You want consumers to prefer your products to those of your competitors.  Customers are not concerned with the internal schisms and difficulties within a business; they just want to capture as much value as possible and they will go where they perceive the most value.  Customers will only remain brand loyal as long as they see the products of that brand as providing best value.

To ensure that consumers come to your business and not that of competitors, you need to develop difference.

To define that difference, you need to state where the customer can see tangible results from your business by purchasing and using your products and services.

This can be done through developing two value proposition statements:

  1.  An External Value Proposition Statement:  Define where your offer provides customers with greater value than the offer of your competitors.  This should include the consumer choosing to do nothing: i.e. not taking up either your or your competitors offer. It should compare offers in terms of what consumers give up, both in terms of effort and money.
  2. An Internal Value Proposition Statement: This should define customer and competitor targets.  It should define your core differentiation strategy.

In addition to Treacy and Wiersema’s three generic value options, your value proposition should:

  • relate to suppliers, agency staff and others – the stakeholders who ‘sell your value’
  • Integrate and align your internal stakeholders to meet customer needs
  • Inform stakeholders where they fit in the customer value process and how they relate to each other
  • Specify how the organisation creates customer value in a differentiated way to that of competitors.  Your points of differentiation should be specified within the value proposition

A successfully tested value proposition is essential in a differentiated business.  It:

  • Opens the door to more sales
  • Creates strong customer propositions
  • Increases revenues through clear positioning
  • Speeds time to market
  • Decreases wastage
  • Improves operational efficiency
  • Increases market share
  • Decreases employee turnover
  • Improves customer retention.

Of course, you need to develop a hierarchy of value propositions as consumers react to different attributes and they will not view attributes equally.

One way to create value propositions is to create worksheets which answer the following questions:

  1.  Who is the target market for the product or service?
  2. What does your target audience want and need?
  3. What does your product do for your target customer?
  4. How does our offer differ from that of our competitors?
  5. Who is our closest competitor?
  6. Why should consumers prefer our offer?
  7. What is our brand promise to the market?
  8. What are the fundamental attributes required for our offer to be viable?
  9. What is our best route to market?
  10. Do we need critical alliances to get to the market?
  11. What is our pricing strategy?
  12. What is our ‘elevator’ pitch?

Going Global

Currently, the UK government is promoting the idea of exporting to small and medium-sized businesses.  This is a bit counter-intuitive as at the same time, the government is in such a mess with Brexit, it is highly likely that the conditions for exporting past 29 March 2019 will be such, and barriers to trade so high, that for many small businesses the costs of exporting may become prohibitive.

So what should a small business consider when looking to market their products abroad?

The world is, in many ways shrinking.  Faster communications occur the rise of the internet and cloud computing.  We have faster transport links through the development of faster aircraft and ships.  We have high-speed rail lines and improved road networks.  The result of this improved communications and logistics infrastructure has meant a boom in international trade.

Many companies now like to see themselves as ‘global firms’ which operate across countries, regions and continents.  Going global has allowed these firms to make gains in terms of research and development, production, marketing and financial structures.  They have been able to build cost and reputational advantages which are not available to firms which operate on a domestic basis.

However, to globalise successfully, companies need to ask themselves pertinent questions:

  • What market position do we want in a particular country or region?
  • Who are our competitors, in the chosen market and globally?
  • Can we operate on our own in a new market or do we need a strategic alliances?

If you are considering global expansion, you need to understand the frameworks under which trade will take place. Is there a free trade or cooperation agreement in place?  Are their tariff free quotas? Are you operating on WTO tariffs?  Does GATT24 apply to any trade deal? Do you know the status of the various international trading blocs such as the EU, Mercosur, SADC, TPP, NAFTA, etc.

The WTO developed out of the General agreement on Tariffs and Trade.  Over seven rounds of international talks, the WTO has lowered the average tariff for manufactured goods from 45% to 5%.  However, significantly high levels of tariffs still exist in certain goods classes, e.g. the tariff for motor vehicles and components is 12% and speciality foods can have tariffs of up to 40% on the importation value.

In recent years, the progress of the WTO has stalled.  The eighth round of trade talks, the Doha round, stalled.  Several countries, particularly the Trump administration have distinctly protectionist policies which have weakened the WTO.  In particular, Trump is refusing to appoint members to the WTO council and looks to implement punitive tariffs against individual countries, particularly China, in breach of WTO rules.  Such moves are threatening the viability of the WTO and increasingly it is seen as a failing organisation.

International trading blocs, such as the EU and NAFTA, have been major drivers of trade internationalisation.

This is one of the fascinating things about the Brexit debate.  Brexit supporters shout that they want a global Britain; but the EU record on international free trade is astonishing.

The EU/EEA has 31 member states.  The EU also has 54 FTAs with both countries and trading blocs such as the Southern Africa Development Council.  On top of those deals, the EU offers unilateral free trade to the world’s poorest 48 nations under the Everything but Arms policy.  The WTO has 164 member nations and the EU has free trade arrangements with nearly three-quarters of them.  In addition to full free trade agreements, the EU has a number of cooperation agreements with nations, many of which allow for tariff free quotas for certain products.  For example, the EU has a tariff free quota arrangement with New Zealand for lamb meat.  New Zealand hasn’t exceeded this quota level for a number of years.

The EU is currently in the process of negotiating trade deals with Morocco, Egypt and the South American trade bloc Mercosur.

It is highly unlikely that the UK post-Brexit, will be able to quickly negotiate trade deals equivalent to those of the EU and simply due to market size, it is unlikely that the UK alone will be able to obtain the levels of commitment included in EU deals.

To succeed in international markets, you need a deep understanding of the regional and national attributes of your chosen market.

Firstly, what type of economy is your target market?

There are four basic categories of economy:

  1.  Subsistence Economies:  Where the majority of the population work in basic agriculture and where most output is consumed domestically.  This large parts of Africa.
  2. Raw Material Exporting Countries:  A country or region that is rich in a particular raw material resource, e.g. The Democratic Republic of Congo which has large cooper reserves and which supplies much of the world’s cobalt.
  3. Emerging ‘Industrialising’ Economies:  This includes the BRIC economies.  These countries have a rapidly growing middle class where there is increased demand for Fast-Moving Consumer Goods.
  4. Industrialised Economies:  Which often had lower levels percentage of GDP growth (but actual value of that economic growth can be far more that of emerging economies).  This category includes the USA, most of Europe and Japan.  These countries export manufactured goods and professional services.  They are rich markets for all types of goods.

It is interesting to note that many Brexiters see Africa and the UK’s former colonies as a solution to the trade lost with the EU due to leaving the bloc.  However, you have to consider that the GDP of the whole continent of Africa is less than half that of France.

Secondly, what is the income distribution of your chosen international market?

Developed nations often have a mix of high medium and low-income households.  Developing nations tend to have a small rich elite class and the mass of the population have low incomes, so if you sell products aimed at the ‘middle ground’ such a market may not be viable.  Much of the interest for exporters in the BRIC nations is their growing middle class.

You need to consider a countries legal and political environment of your chosen international market.  For example, China has few intellectual property laws and enforcement of the laws that do exist is poor.  So do you want to sell your designer goods in a market where counterfeiting and trademark breaches are common?

Some nations are open to foreign firms; some are less welcoming.  India bothers foreign firms with import quotas, currency restrictions and other hindrances.

On the other hand, Singapore is a market which looks to attract foreign firms with extensive incentives and favourable tax and trading conditions.

Some countries, such as Canada, are extremely politically stable.  Others, the most prominent current example being Venezuela, are not.

You need to examine the cultural environment of your target market.  You need to ask how certain countries treat certain products.  For example, some Indian states have strict laws on the sale of alcohol and the quantity that can be bought (you may have to register with a certain retailer to be able to buy alcohol)). Until recently, it was illegal for women to drive a car in Saudi Arabia; yet in Western Europe many small family cars are directly marketed to women.  Italy has proven to be a difficult market for the large coffee shop chains.  How you drink coffee, and what and when you drink coffee, have strong cultural meaning in Italy.

You need to be aware of a countries folkways, norms and taboos if you are to successfully market your products and services in that market.

There have been some horrendous mistakes made by large firms where they have not taken into account cultural norms.

For example, in Africa, the norm is to label product packaging with the contents of the container.  For example, you show a chicken on tins of Chicken soup. Nestle made a huge mistake when they labelled packs of infant milk formula with the picture of a baby.

Burger King had to pull adverts when the showed a ham sandwich in the hand of a Hindu God (With the strap-line ‘the snack which is sacred’).  Hindu’s are vegetarian.  So a meat product being advertised through the image of a Hindu god was seen as highly blasphemous.  The advertising campaign had to be withdrawn

In many Arabic countries, using the left hand to hold or eat food is seen as highly insulting.  Traditionally, in lands where water and vegetation is scarce, the left hand is traditionally used for cleaning yourself after being to the toilet.

So what are the indicators of market potential:

Demographic Characteristics

  • Levels of Education
  • Population size and growth
  • Population age composition

Sociological Factors

  • Consumer lifestyles, beliefs and values
  • Business norms and approaches
  • Cultural and social norms
  • Languages

Geographic Characteristics

  • Climate
  • Country size
  • Population density
  • Transportation infrastructure and market accessibility

Political and Legal Factors

  • National priorities
  • Political stability
  • Government attitude to global trade
  • Government Bureaucracy
  • Monetary and trade regulations

Economic Factors

  • GDP size and growth
  • Income distribution
  • Natural resources
  • Financial and human resources

When deciding how to enter a market you need to consider whether to export directly or indirectly.  Do you use joint-ventures through licensing or contract manufacturing, management contracting or full joint ownership.  Some countries may require you to have a domestically based partner if you are to operate within their borders.  Do you invest directly in production facilities in the state.  Do you assemble products in those facilities or do you carry out full manufacture from raw materials?

Each of the above options increase the levels of risk in an expansion.  They may require increasing levels of control but equally profit potential may be increased.

You also need to consider whether to follow a global marketing plan where there is little variation in your offer between countries; or whether you develop specific marketing mixes for individual countries or regions.

Do you have an Integrated Communications Strategy?

A couple of weeks ago, I watched a BBC4 documentary on the history of the electric guitar and effects pedals in rock music.  Included in the programme was a short interview with Uli Jon Roth, the former lead guitarist with the German heavy rock band, Scorpions.

Two of Roth’s comments in the interview stood out.  The first was that he felt restricted with the five note pentatonic scale often used in rock music.  He wanted to use the seven note chromatic scale more often seen in classical music. He wanted to spread licks over two or more octaves rather than one.

Secondly Roth commented that he saw musical notes as colours. he experiences aural synaesthesia.

Roth is known as the ‘King of Shred’.  The man who created a monster that would dominate rock music in the 1980s; shredding.  Roth, like Baron Frankenstein despaired of his creation.  He feels that guitar solos became an exercise in technical proficiency and fitting as many notes in a stave as possible.  Rock music began to forget melody and metre.

So what has an interview with a Euro-rock guitarist got to do with Marketing Strategy?

Let’s take the second point.  Roth’s synaesthesia is a clear indication that people process information in different ways and they react differently to communication triggers.  Some people prefer and will react to visual stimuli, others to aural stimuli.  Some people prioritise touch, others prefer smell.  So if you are limiting your communications triggers to one of the ‘five’ senses, your message may not be getting through to those consumers who prioritise the other senses.  Much of the internet is a visual medium; like this blog; therefore when designing marketing communications, consider the other senses, use sound, smell and touch to get your message into media.

Well, Roth has a point about limiting your options.  Why limit your marketing and communications activities to a few expected promotional channels when there is a wider palette of channels available?

I see lots of tweets on social media praising the use of digital promotional channels as a panacea; a magic pill to all your promotional needs; it is nothing of the sort.

I regularly get criticised that I don’t understand how digital marketing works.  Well I do.  I just believe that digital is one channel amongst many and by restricting yourself to that channel you are ignoring communications options which may provide better return on investment to your business.

Clearly it would be unwise to totally ignore digital marketing channels and social media in your promotional mix.  However, these channels must be used with a strategic purpose which matches the expectations of your target market.  Clearly, if you are selling high street fashion to teenagers, you will need to have digital as a prominent part of your promotional mix.  However, what if you are selling mobility scooters to pensioners? Wouldn’t more traditional promotional channels make more sense?

Digital channels are not a cheap option.  To get equivalent returns to that of traditional media, you may have to spend more on digital.  Before choosing communication channels you need to carefully examine costs and press providers to the level of return on the potential investment.

For SMEs operating locally, it may well be the case that traditional communications channels are a more effective way to get your message across.

Marketing academics are still not convinced of social media as a sales promotion channel.  However, they do see it as useful for customer retention and developing ‘electronic word of mouth’.  It is also good for developing advocacy.

When it comes to digital, you also have to remember Zipf’s law; P(x)≈1/x.  You can optimise your position on search engines to your heart’s content but if you’re not within the top four links on a page your chances of picking up significant numbers of clicks are dramatically reduced.  Firms like Amazon can put huge resources into securing the top links on a search engine page, irrespective of the alterations ISPs make to search engine algorithms to compete head on against those resources may a highly inefficient use of promotional budgets.

So when developing a promotional mix do not put all your eggs into one basket. Don’t do what is ‘expected’ in your chosen segment; do something different to your competitors.

Marketing as a science is a fairly young discipline.  Academic rigour only began to be applied to it in the 1950s.  It is a developing field where theory and models are continually evolving.

For many years the presumption was that different promotional channels had to be dealt with by separate professional consultants.  You went to a direct marketing agency for printed matter, you went to an advertising agency for TV and radio advertising (in fact there were/are specific agencies for radio advertising).  If you wanted press attention, you used a PR agency and exhibitions were often the remit of your sales department.

In the 1980s, academics began to promote integrated marketing communications.  This was the delivery of a single consistent group of messages across media channels.  Prior to IMC, different communications media were used to deliver different parts of the promotional mnemonic DRIP.  Advertising was used differentiate your products from those of competitors; sales promotion was used to persuade customers to purchase.  PR was used to remind customers of your existence and print media was used to inform customers of your products attributes.

Under IMC, a single message was used to deliver all the aspects of DRIP.

IMC was seen as having significant drivers:

  • it increased the efficiency of promotional activities
  • it increased the accountability of marketing managers
  • it promoted the need for ‘cross-border’ marketing and changing communications structures
  • It coordinated brand development and the creation of competitive advantage
  • it allowed for more efficient use of management time
  • It provided direction and a sense of purpose for employees
  • It anticipated greater levels of audience communication literacy
  • It foresaw media and audience fragmentation
  • It allowed for stakeholders increasing needs for diversity of information
  • it reduced message clutter and allowed for media cost inflation
  • It accounted for competitor activity and low levels of brand diversification
  • It allowed for the creation of relationship marketing as opposed to transactional marketing
  • It allowed for network development, collaborative marketing and the creation of alliances
  • It allowed for technological advances and new communication channels e.g. social media.
  • It aimed to increase message effectiveness through consistency and the enforcement of core messages
  • It allowed for the development of more effective consumer triggers and recall of both messages and the brand identity
  • It aimed to develop consistent and less confusing brand images
  • It developed a need to build brand reputations and to provide clear identity cues.

IMC sounds wonderful doesn’t it.  Most importantly it was seen as a way to create a customer-centred promotional strategy.

IMC was seen as having the following advantages:

  • Efficient use of promotional budgets
  • A synergy to communications
  • Competitive advantage through clear positioning
  • Coordinated brand development
  • Employee participation and motivation
  • It allows for the review of communications activities
  • fewer agencies were needed to support a brand.

However, there were some downsides to the creation of integrated marketing communications strategies:

  1. It was a strategy that promoted centralisation of activities and the development of bureaucracy.
  2. It promoted the uniformity of a single message (difficult if your aim to target two or more distinct market segments)
  3. It leads to ‘Mediocrity’ as all communications activities are in the hands of a single agency.

So like Uli Jon Roth’s approach to the rock solo, IMC became a bit of a monster.  Some marketing academics felt that it lost the ‘melody and metre’ of promotional activities.

Today, most marketing academics promote a nuanced form of IMC.  Yes messages should be used to promote all aspects of DRIP and promotion is a role for all the stakeholders in an organisation, not just the advertising department.

Today it is advocated that promotional strategies is the creation of a promotional mix using tools which best fit the expectations of your target customers.

 

Establishing Organisational Capabilities

It is an essential part of developing a sustainable marketing strategy that you establish and assess your organisational capabilities.  It is key to identify where your organisation is superior to its competitors and potential competitors.

All organisations are made up of specific assets and competencies.  Do you know what they are in your organisation?

It is also true that no organisation is good at everything.  There will be things you do better than other parts of your business process.  There will be areas which need improvement or which need additional investment.  You may be spending too much on other processes.

The following is a list of the type of assets which make up an organisation:

  1.  Sales Advantage:  Market Share; Relative and Absolute Media Weight; Leverage over Suppliers; International Presence; Sales, Distribution and Service Coverage; Specialist Skills due to Scale.
  2. Production Processes:  Level of Contemporary Practice; Flexibility; Economies of Scale; Capacity Utilisation; Patents; Unique Processes and Services.
  3. Working Capital:  Quantity; Access to; Location of; Access to Credit.
  4. Sales/Distribution/Service Network:  Coverage; Relationships; Size; Quantity.
  5. Relationship with Others;  Suppliers; Financial Institutions; Joint Ventures; Joint Exploitation of Assets e.g. Technology.
  6. Property:  Type; Location; Ability to Expand; Quality.

So Muller Dairies have a significant asset in owning the patent to the corner yoghurt pot.  House of Fraser once had an asset in its store portfolio but, with changes to the retail sector, that asset turned into a liability as stores were often of Victorian construction, difficult to maintain, and unsuitable for modern technology installation.

However, you organisations assets must not be viewed in isolation.  You also need to establish your organisational capabilities.

A tool which can be used to ascertain your organisational capabilities is value chain analysis.  This is more normally used to discover where your target customers see value in your organisational processes so that scarce resources can be targeted on those which offer the most value to customers.  Areas where customers do not see value can have their costs minimised.

In value chain analysis, there are two categories of process: Primary activities such as manufacturing processes and product distribution and Support activities such as human resources management and procurement.

But key competencies can be classed as either primary or support activities.  Davidson (1997) split key competencies into three areas:

  1.  Marketing:  New Product Development; Business Analysis; Category Management; Brand Extension; Brand Equity Management; Unique Market Research Techniques; Planning Skills; Database Management; Advertising Development; Customer Targeting; Design Testing.
  2. Selling:  Supply Chain Management; Account Management; Relationship Development; Customer Service;  Building partnerships; Motivation and Control; Planning; New Account Development; Merchandising; Presentations Skills; Space Management; Negotiation Skills; Pricing and Promotion; Trade Marketing.
  3. Operation:  Motivation and Control, Process Engineering, Industrial Relations, Inventory Control, Cost Management, Productivity Improvement, Planning, Health and Safety; new Facility Development, Management Training and Development;  Speed of Response; Flexibility;  Total Quality Management; Purchasing; Payment Systems, Capacity Utilisation; Product commercialisation; Supplier Engagement; Property Skills; Global Operation.

I don’t quite agree with the content of Davidson’s key competency groups.  Some items classed in Selling or Operations are more obviously marketing functions and vice versa, but his point stands; You must strategically align you organisation’s assets with your competencies.

It is then possible to use them to build a low-cost, a differentiated or a niche position in the marketplace.

Jobber (1995) believes managers should ask four key questions when attempting to match organisational assets with business competencies:

  1.  Marketing Assets:  Does your current market segment allow you to take advantage of current market strengths?
  2. Cost Advantage:  Can you enter price sensitive segments consistent with an organisation that has a low-cost base?
  3. Technological Strengths:  Do you have superior technology that can be used to your competitive advantage?
  4. Managerial Capabilities and Commitment:  Do you have the managerial and technical skills to succeed in your chosen segment?

Most importantly of all, is entering a particular market segment compatible with your organisations long-term aims and objectives?  If not, you may only be diverting time and scarce resources away from the common goals of your enterprise.

This is where tools like the Shell Directional Policy Matrix can be used.  By using weighted criteria, you can assess potential target markets based on segment attractiveness and the strength of your organisational assets and competencies.