Risk

Business is, like life, about taking, managing and coping with risk.

Economists categorise a risky activity as having two characteristics:

  1.  The likely outcome, for example the return on an investment; and
  2. The degree of variation in all possible outcomes.

So, a ‘fair gamble’ is one where, on average you will achieve zero monetary profit.  For example, for your investment you have a 50% chance of gaining £100 but you also have a 50% chance of losing £100. On average you do not gain.

An ‘unfair gamble’ means you will have only 30% chance of making that £100 but you have a 70% chance of losing that sum.  On average you will lose by accepting such a gamble.  This is how most casinos operate where the chance of winning always lies on the side of the house.

You also have ‘favourable gambles’.  This is where you have, say, a 70% chance of winning and a 30% chance of losing.  Such situations are referred to as profitable.  Success in business is about seeking out ‘favourable gambles’.

There are also different levels of risk.  So, for your initial stake you have the chance of winning £200, not £100, with the same percentage odds, your bet will be ‘riskier’.

Bear in mind, for most marketing campaigns, you should be looking for a return on investment many times that of your initial stake; your marketing budget.  It is not unusual to expect a return on marketing investment of between 500% and 1000%.  So you are looking at a ‘bet’, not of 100:30 but of between 1:5 or 1:10.

Businesses, like people, will have different risk profiles.  Economists classify such attitudes into these groups:

  • Risk averse
  • Risk neutral
  • Risk-loving

A risk neutral business will only invest when the outcome is likely to be profitable (on average.  They are only interested in fair gambles or better.

A risk averse business will refuse a fair gamble and will only invest when the odds are sufficiently favourable and the potential monetary profit will overcome their inherent dislike of risk.

A risk-loving business will take on an investment even if the strict mathematical calculation of the risk describes the investment as unfavourable.

Think of Richer Sounds, the hi-fi and electronics retailer.  The business has been in operation for over forty years and on average has opened one shop  every couple of years.  The slow careful growth of the firm could easily be described as, at best, risk neutral, and potentially risk averse.

Compare that position to the actions of Fred Goodwin at Royal Bank of Scotland.  One of the accusations made of Goodwin on the banks collapse was that he was pursuing rapid growth at all costs.  He was making investment and purchase decisions whilst ignoring the normal due diligence analyses carried out by the bank’s staff.  This resulted in the disastrous purchase of ABN Ambro, the Dutch bank.  In fact that purchase was not of all of ABN Ambro.  The profitable retail arm of the bank was purchased by Santander.  What Goodwin had purchased for RBS was ABN Ambros’ investment banking arm, which was stuffed full of American sub-prime mortgage debt.

Fred Goodwin was clearly a risk-lover.

Insurance is the opposite of risk.

Insurance is the payment of a small sum to cover unlikely events.  So you are willing to invest £300 a year to insure your car which is worth £15,000 (despite the fact that it is a legal requirement).

However in business, often the cost of insurance is ignored.  There was much anger that, after the disastrous fire, Glasgow School of Art was not insured.  But it is likely that the Charles Rennie MacIntosh designed building was uninsurable as the cost of a policy would exceed the cost of repair or rebuilding the school.  So, a business decision was made not to insure the building.

In such circumstances both a risk neutral manager and a risk loving manager would reject the cost of the insurance offer.

So if you cannot buy an insurance product to cover a business investment, how do you protect your investment?

In traditional gambling, a ‘punter’ will spread his bets.  He will make a small bet on a horse with long odds and a larger bet on the favourite.  If the favourite comes in, he takes his winnings, but if the outsider comes in, he covers his initial stake.

Some professional gamblers tactically ‘bet to lose’.  They make smaller bets against favourites.  Think how often horses listed as favourite fail to win races.

In the financial markets, investment brokers use hedge funds.  They hedge their bets.  So if they buy shares or derivatives with the intention of selling at a particular rise in price, they will cover the risk of that growth in value not occurring by laying a ‘hedge’ with a hedge fund to cover their investment.

For most small businesses, there is little opportunity to hedge or to insure investments in things like product development and market entry. So how do you protect your investment.

Well, that is where Philmus Consulting comes in.

Philmus Consulting can help your business develop robust due diligence systems with respect to food standards, metrology and trading standards.  We can help you with product safety risk assessment and product recall plans.  If you know the risk in a particular regulatory area, you can reduce the chance of the risk occurring and mitigate its effects.

In marketing, risk is reduced through market analysis and marketing research.  You reduce risk by using such information to set realistic business goals.  You reduce risk by creating strategic marketing plans and by defining alternative opportunities.  This can be achieved through the use of tools such as the GE matrix and the Shell Directional policy framework.  You reduce and insure against risk by researching your target market and developing products to meet the needs of that target market. This is by far a more preferable route to product development than that of creating a product and then trying to find a market for it.

 

Brexit – A Project Management Perspective

I have tended to shy away from Brexit in this blog and have concentrated on Marketing and Business Strategy.  However, with ten weeks until the UK leaves the EU, I think it is worth looking at the way government has handled Brexit over the last two years.  To do this, I am taking a project management approach.  As anyone who has read some of the articles I have written about Brexit, or indeed anyone who follows my twitter feed, you will understand that I am no fan of the policy.  I see Brexit as a self-inflicted wound on the UK economy.  Indeed, all economic projections on Brexit see it as doing significant harm to the UK economy.  It is estimated that a Brexit deal, as negotiated by Theresa May in the draft withdrawal agreement, will cause a 5% drag effect on the UK.  A no deal Brexit is calculated as causing a 9% drag.  Brexit is the UK economy hobbling itself.  HMS Britain is about to drop a heavy drag anchor which will slow growth and hinder international competitiveness; all for the nebulous concept of ‘sovereignty’.

I say nebulous because those who shouted loudest about parliamentary sovereignty are now the first to shout foul when that parliamentary sovereignty is exhibited.

But this blog entry isn’t about political views or whether there is support for Brexit.  It asks whether the project is being appropriately managed.

Dennis Lock defines the stages of a project in his book, Project Management, the standard text for all business students on that subject.  Perhaps by listing those stages and factors for success and failure given by Lock, we get an idea of how the Brexit project is proceeding and its likely outcome.

The stages of a project listed by Lock are:

  1.  Project Definition
  2. Preparation and Planning
  3. Project Design
  4. Purchasing
  5. Fulfilment
  6. Completion and handover

It is utterly clear that the Brexit project is badly defined.  The referendum question asked one question; whether the UK should remain a member of the EU or Leave the EU.  The result, narrow as it was, was that the UK should leave.  But that answer didn’t provide a single possible outcome.  There was a range of options available and those on the Leave side of the argument didn’t present a single solution.  Britain could leave in a ‘hard Brexit’ or no deal.  Britain could retain close ties with the EU, the EEA model as shown by Norway; or Britain could decide to have a limited relationship: The Swiss model.  It seems that no one in government can decide and cabinet ministers to this day still present different potential outcomes.

Nor was there space left for compromise in the negotiation process, as Mrs May’s ‘red lines’ severely limited the options available.  Clearly Brexit was a poorly defined project.

Lock then describes success and failure factors in project definition:

  1.  Project Scope needs to be clearly stated and understood
  2. Technical requirements are not vague
  3. Estimates of timescale, costs and benefits are not over-optimistic.
  4. Risk Assessments are not incomplete of flawed
  5. The intended project strategy is inappropriate.
  6. Insufficient regard is given to cash flows and the provision of funds required to complete the project
  7. The interests and concerns of stakeholders are not taken into account.
  8. Undue regard is given to the motivation and behaviour of the people who will execute the project
  9. Insufficient regard is given to how those affected by the project will adapt to change
  10. Approval of the project plan is given for political, personal or intuitive reasons without due consideration to the business plan.

Where to start with this list in respect of Brexit!

As stated above, the project scope was vaguely defined.

Technical requirements as a result were vague.  If a soft Brexit was chosen, the technical requirements were completely different to those of a no deal Brexit.

The two year timescale is wholly insufficient to achieve Brexit.  The officials who drafted the Article 50 clause admit this.  But given the short timescale of the article 50 process, it was wholly inappropriate for the government to trigger that clause with absolutely no contingency planning in place.  A better proposal would have to been to do the contingency planning, then trigger Article 50 for the negotiations.  At least with contingency plans in place, the government’s position would be informed and appropriate red lines set.

The government’s Brexit plans completely fail to stand up to any interrogation based on the above list.

With only weeks to go until the Brexit deadline, arguments are still ongoing about factors in the above list.  We should have moved on to the delivery aspects of the Brexit plan by now: project fulfilment.

Lock lists the success and failure factors at the project fulfilment stage:

  1.  Good definition of the project and a sound business case
  2. An appropriate choice of project strategy
  3. Strong support for the project amongst management, in particular those managers responsible for managing the plan
  4. Firm control of changes to the project
  5. Technical competence
  6. Strong quality culture
  7. Appropriate regard for health and safety of all those affected by the plan
  8. Good project communication
  9. Well-motivated staff
  10. Quick and fair resolution of conflict.

Again, where do you start with this list!

The Brexit project has been poorly defined and there is no sound business case for it.  We are actually in a position of a government with a solemn duty to do the best for the country and its people is actively engaged on a mission which does nothing but harm to those interests.

The choice of project strategy, particularly the choice to trigger Article 50 prematurely has been appalling.

Those put in charge of driving May’s Brexit plan have been hard Brexiteers wholly opposed to it.

Fulfilment has been technically incompetent.  We have had ferry contracts awarded to a company with no ships and a port lacking the necessary infrastructure for HGVs.  We have had a trial at an airport designed to hold 5000 HGVs where only 87 HGVs turned up.  It appears we have a government which cannot plan a traffic jam.

Project communication has been appalling.  No deal preparation papers were short, vague and lacking necessary detail.  Risk assessments were incompetently produced and their content was held as secret.  Even when MPs demanded access to them, there was no appetite to share their content.

Staff motivation is clearly absent.  DExEU has the highest staff turnover of any government department.  It is seen by many as the death knell of a civil service career.  Currently the department is advertising for staff who ‘don’t panic’ in the face of pressure.

It is clear that the government, in particular ministers, put in charge of fulfilling the Brexit project simply aren’t up to the task.

Lock explains that in project management there is a direct relationship between cost, time and performance.

It is estimated that Brexit is already costing the UK government around £600 million per week.

The performance and quality of project delivery has been appallingly poor.

Most critical is the time objective.  A project not started in time can hardly be expected to finish on time.  To paraphrase Napoleon, “There is one kind of robber whom the law does not strike at and who steals that which is precious; time”.

It is utterly clear that the Brexit project has been managed horrendously and that it has run out of time.  In such circumstances the best option is probably to abandon the project entirely.

 

The Importance of Relationship Marketing

The traditional view of marketing is activities designed to promote transactional activity: the physical act of selling goods and services.  Little thought was applied other than to creating transactions.

In recent years however, the focus of marketing has shifted from transaction marketing to building relationships.  Increasingly marketing is about developing customer loyalty and creating the most effective long-term relationships with customers.

This makes sense in mature economies where the number of new customers is limited and additional market share is obtained by taking it from competitors.

Transactional marketing:

  • Has a focus on single sales
  • Has a short timeframe
  • Makes little effort to retain customers
  • Has limited customer commitment
  • Has moderate customer contact
  • Quality is the concern of production managers and no-one else.

Relationship marketing:

  • Has a focus on customer retention and building customer loyalty.
  • Has an emphasis on product benefits meaningful to target customer groups.
  • Focuses on the long-term: You accept high costs in the short-term because they lead to larger long-term profits.
  • The emphasis is on high service standards; often tailored to individual customers
  • Has high customer commitment
  • Has high customer contact (to gain information not just building relationships).
  • Product quality is a concern for all stakeholders in an organisation.  The attitude is that minor mistakes can lead to major problems.

In mature markets the costs of obtaining new customers can be far greater than the costs of servicing existing customers.  Relationship marketing and long-term relationships offers greater opportunities for cross-selling, up-selling, strategic partnerships and other alliances.  The focus is on creating significant customer lifetime value.  Relationship marketing can allow the ability to charge price premiums.  Relationship marketing is also a way to develop word of mouth and create customer referrals.  There can be lower marketing costs over the longer term with relationship marketing tactics and greater value can be created from higher order volumes.

To develop a relationship marketing strategy you need to focus on four steps:

  1.  Focus on the between target and existing behaviour
  2. Identify steps to close any gaps between these behaviours
  3. Formulate a programme of benefits that satisfy the core needs of target customers
  4. Formulate a communications plan which aims to modify the behaviour of target customer groups.

Before taking these four steps you need to:

  • Identify key customers where the most profitable long-term relationships can be developed.
  • determine what customers want from a relationship.  Some customers will only want a transaction.
  • categorise customers in terms of current and future potential
  • Tailor goods and services offered to those potentials
  • Examine the expectations of each market segment from both sides, customer and seller.
  • Identify how these two sides can work together in a cost-effective and profitable way.
  • Appoint relationship managers whilst changing operational processes on both sides of the relationship so cooperation is easier.  For example, a logistics firm may offer bespoke computer software which ties customers to their systems.
  • Develop small wins in the first instance and gradually strengthen the relationship.
  • recognise from the outset that different customers will have different expectations that will need to be satisfied if a relationship is to develop.

Focus on Core Competences

In the UK over the last couple of years, political debate has been dominated, almost to the exclusion of any other subject matter, by Brexit.  It is a subject tearing the UK apart and the splits on whether it is a good idea are as wide as ever.

The guru for the fundamentalist wing of Brexiteers, the ERG, is Professor Patrick Minford of Cardiff University and his small cohort of free market economists, the Economists for Free Trade (formerly Economists for Brexit).

The EFT has seemingly managed the impossible.  There is an old trope that if you ask three economists the same question, you will get three different answers.  Well, the EFT has managed to get virtually every other economic forecast group to agree that its work is nonsense.

The London School of Economics has produced an excellent critique of Minford’s work on Brexit and in particular his Liverpool Model.  The LSE point to Minford’s lack of an evidence base for his forecasts; that his work relies heavy on political dogma rather than scientific method; that his modelling makes huge assumptions and that it ignores current economic theory.

Two aspects of the LSE critique are prominent.

Firstly, that Minford ignores the concept of economic gravity; the proven fact that irrespective of trading terms, most firms do the majority of their export trade with nations and blocs which are geographically close.  So no matter the outcome of Brexit, UK firms will still look at Europe as its primary export destination.

The second huge assumption made by Minford is that manufacturers operate in a market with perfect competition.  Perfect competition assumes that there are many manufacturers in a sector all producing identical goods.  No one company has the power to set the base price in a market and as a result all market entrants focus on cost reduction and profit maximisation.  In markets with perfect competition, the only consumer determinant is price.

Anyone who has studied marketing knows that price is only one element of the marketing mix.  We know that some consumers are not driven by price when the purchase. We know that for some consumers, product performance or convenience is a more important purchase factor than price.

We also know that, businesses segment markets and target particular customer groups.  That may mean designing products that are different to those of competitors.  It is utterly clear that consumers are faced with numerous choice variables.

In my view, the work of Professor Minford is dogma-driven nonsense and it is astounding that some senior politicians take his work seriously.

What is true is that most organisations have aspects of their business they feel they are really good at and which make them stand out for the competition.  Businesses have competencies.  However, for these competencies to be effective, if they are to have any market effect, they must be core to the expectations of consumers.

Hamad and Prahalad (1990) defined core competencies in an article in the Harvard Business Review entitled Competing for the Future.

  1. A core competency must provide customer benefits and add value.  These benefits must be differentiated from those of your competitors and they must be the reason that consumers choose your products over those of competitors.
  2. Core competencies must be difficult for competitors to copy.  They should be competitively unique.  Consumers must not be able to copy them quickly e.g. protected by intellectual property rights.  They must be a competency your competitors wished they had.
  3. You must be able to leverage core competencies across a wide range of products and markets.  Competencies belong to an organisation, not a product or service or brand.  Does your business have core competencies which allow or enable the production of new products or services.

It is also true that a business cannot be good at everything. If you are good at one competency, it is unlikely that you will be equally good at other competencies  At most a business will have two or three core competencies, otherwise your organisational focus is diluted.

There is no point in believing that you are good at a particular competency if that competency is of no interest to your target customers.

Hamad and Prahalad identify four different types of core competency:

  1.  Unique Core Competencies:  These competencies are uncopyable skills and knowledge bases.  They could include intellectual property and they offer superior customer value and superior returns.
  2. Latent Core Competencies:  These competencies are latent but allow you to operate in a market sector.  A hotel chain could not operate without a wide range of competencies from supply chain managers and skilled professionals such as chefs and event organisers; but only some of these competencies are unique.
  3. Competitive Core Competencies:  These competencies allow a firm to compete in its chosen market.  They are hygiene factors.  For examples retailers will need strong supply chain and logistics skills.  Usually these competencies are held by all successful market players.
  4. Future Core Competences:  Competencies need to change over time as consumer expectations change.  Many UK retailers are failing because they are relying on historical core competencies such as high street locations when retailing has moved on and internet retailers such as Amazon thrive.  Core competencies also need to change so you can dominate tomorrow’s markets.

Core competencies are crucial to your business delivering its proposition to consumers and differentiate your organisation in the marketplace.  They need to be at the heart of your business.  In fact your business should be structured around them.  You must invest heavily in them and you must acquire skills to develop them.  Everyone in your organisation should understand the importance of your core competencies as they are the fabric of a successful organisation.

It is said that evolution is better than revolution.  Brexit is a revolution and it is likely to cause significant harm to the UK economy. It is stripping the UK of one of its core competencies, as an inward investment gateway into Europe.

The concept of core competencies shows how wrong Professor Minford’s assumption of perfect competition is.  No business will succeed if the only advantage it can offer to consumers is a market base level price.

Organisational Buying Behaviour and Selling To Local Authorities

Too many small businesses do not differentiate between selling to businesses and selling to consumers.  They assume that there are no differences as to how organisations and the public buy goods and services. The failure to take account of organisational buying behaviour leads to many small businesses assuming that selling to large organisations is too difficult and they  concentrate solely on consumer segments.

I have discussed the four Ansoff market growth strategies several times in this blog.  Ansoff prioritises market penetration as the easiest strategy to grow your presence in the market; that is selling more of your existing products to your target market segments.  Ansoff then argues that once there are no more opportunities for market penetration, the next least risky strategy is one of market expansion; selling your existing products to new markets.  Market expansion could mean expanding your sales geographically but another perfectly plausible strategy is to sell your existing products and services to organisations.

However, business and organisational markets segment differently to consumer markets.  This difference is driven by the nature of organisational buying behaviour.

Consumers often make purchases on the spur of the moment.  They often take the decision to purchase as individuals.  Organisations tend to have structured buying procedures which are followed for the majority of purchases.  The bigger the cost and the risk of the purchase, the more likely that strict purchasing processes will be followed.

It is rare for organisational purchases to be made by an individual.  There will be a group of people behind an organisational purchase.  Where a group of people are involved in a purchase, there will be formal and informal power dynamics.

Marketers call those in an organisation involved in a purchase a Decision-making Unit (DMU).  Within a DMU there are six main roles:

  • Initiator:  This individual identifies the issue that must be overcome by the decision to purchase a product or service.  When I worked in Trading Standards this was one of my roles.  I was responsible for the maintenance, calibration and replacement of the services metrological and testing equipment.  I also had to procure the services of test laboratories for formal and informal samples of food, consumer products and fuels.  With regard to the purchase of equipment, which could cost thousands of pounds, I may have identified the need to purchase, but I could not make that purchase on my own volition.  I had to refer the purchase to a group of senior managers.
  • User:  This is the person who will actually use the product or service after it is purchased.  This could be the initiator or it could be other members of staff.  For example, an IT manager may identify the need for new copywriting software but it will be the firms marketers who will use that software.  Many organisations have implemented quality assurance systems such as Kaizen.  A feature of such systems is that staff, through suggestion boxes or quality circles identify where processes could be improved.  In such systems process improvement may mean the purchase and design of new equipment.  So in such circumstances, the user will also be the initiator.
  •  Buyer:  Many organisations will employ a professional buyer to purchase everything from office equipment, IT systems to raw materials and production equipment.  Often large organisations have central purchasing units who carry out the vast majority of purchases in bulk and from a central location such as a head office.  Professional buyers will negotiate the best price for bulk purchases and they will work from detailed technical briefs.  These technical briefs will be created by other members of the decision-making unit.
  • Influencer:  The influencer is a member of the decision making unit who does not directly make the decision to purchase or the decision as to which supplier to use; but they have a major impact on the decision.  This could be an employee of the organisation who has expert knowledge.  So the health and safety manager of a firm may influence the decision to buy machinery by advising the DMU of the law with regard to safety requirements and compliance with legislation such as the Electricity at Work Regulations.
  • Decider:  This is the person who actually makes the decision to purchase.  This could be a senior manager such as a firms managing director or in many cases, the finance director.  The greater the importance of the purchase, the more a senior figure in a firm will be involved with it.
  • Gatekeeper:  These individuals determine the flow of information that reaches the decision-making unit.  Secretaries, executive assistants and PAs often act as a gatekeeper to their busiy bosses.  Technical managers may have a preference for one supplier over another, e.g.  an IT manager may prefer Apple products over those of Microsoft.

The size and make up of the decision-making unit will depend on the size and nature of purchase.  If a company is buying new production line robots, the DMU will be significantly larger than the decision to buy a photocopier.

Organisational purchases can be classified in terms of their level of risk:

  • Routine Order Products:   These items are bought on a regular basis and are unlikely to cause performance problems regarding their use.
  • Procedural Problem Products:  These products will require some level of staff training for their use.  There may be some resistance to these products as staff resent the change to their daily life.
  • Performance Problem Products:  There are risks that the product or service purchased will not meet users’ requirements.  This issue often occurs with the implementation of new technology.
  • Political Problem Products:  Such issues occur where a purchase takes resources from one area of an organisation and gives them to another part of the organisation.  So if a business makes a high value investment in IT and that purchase takes budget from the sales team.  These purchase decisions will likely cause political strife within an organisation.  They can lead to accusations of empire building and arguments about status between managers.

Members of a decision-making unit will often act in their own self interest as well as in the interest of the organisation.  Self interest can get in the way of the aims of an organisation.  Such issues can develop when there are different incentives for different parts of an organisation.  So if an investment means that the sales team may receive lower commission rates, there may be resistance to it.

Local authority purchasing displays all the characteristics of organisational buying behaviour but there are additional considerations.  Many local authorities employ central purchasing units and have expert influencers on purchasing decisions.

Local authorities, by law, must follow best value protocols.  The definition of Best Value is often confused with a requirement to accept the lowest bid; particularly in these times of austerity where local government budgets are squeezed.

Best value does not mean a focus on the lowest bid.  Higher bids may be accepted if they offer more in terms of functionality.  So if a laptop computer is more expensive, but it has more memory and better pre-loaded apps, that may be better value to the authority than the cheaper equivalent product.

Best value protocols require local authorities to obtain multiple contract bids for products and services.  There will nearly always a competitive bidding process.  The need to obtain competitive bids can be ignored only if there are exceptional reasons for doing so. 

For example, one of my roles as a TSO was to obtain the services of expert witnesses and test laboratories.  If I believed that a particular expert or laboratory could provide exceptional value, I could ignore competitive bidding.  I often did this where a product neeed to be tested and I knew that evidence for a criminal trial would require a particular expert opinion.  I often preferred one laboratory because I knew that the court evidence would be provided by the chair of the appropriate British Standards Institution panel.

For large scale of expensive local authority purchases, it will be the case that the decision to purchase will be taken out of the hands of managers and would be taken by a committee of councillors or even a full council vote.  In such circumstances purchasing decisions can become fractious with opinions falling along party lines or even splitting between political groups within the ruling administration.

When entering organisational and B2B markets it is critical that you do your homework.  You need to carefully examine bid specifications.  You need to research the decision-making unit within the organisation and target your marketing activity on those group members who have the most influence on the decision to purchase.  You also need to work hard to get your promotional effort past gatekeepers.

Integrated Marketing Communications

Over the past couple of years I have kept a keen eye on recruitment advertisements for marketing staff in my local area.  Many of these advertisements are wholly focused on digital marketing, in particular social media account management.  It seems that many businesses in my area see social media as the main plank of their marketing activity.  I suspect that they view social media as a cheap and easy way to market their business, often at the exclusion of more traditional marketing communications channels.

I also meet many individuals who offer services as social media account managers on a freelance basis.  Often these individuals are good at the physical operation of social media platforms.  Often however, they fail to grasp the strategic goals of social media use.

Now there is no doubt that in certain markets social media is an important marketing communications channels.  If your target audience is consumers under the age of 40, and you are selling fashion or digital gadgets, social media is a perfect channel to deliver your marketing messages.  If your target audience is pensioners or you are selling to a business audience, your use of social media has to be different.

I have also found that many of the local businesses using social media channels do not do so strategically.  They have no underlying goal as to their use of social media beyond advertising their goods and services.  They do not measure the outcomes of their social media use.

Social media has yet to be shown to be a good sales channel.  Before using social media, you need to understand why you are using it as a marketing channel and you need to measure usage against predetermined goals.

The main of social media in marketing is not to directly advertise products.  It is a two-way communications channel.  You use social media to:

  • Retain existing customers by moving them up the relationship ladder (from prospect to advocate or partner)
  • To emphasise your Brand identity (brand personality)
  • As a signpost to your website or to your physical locations
  • to develop electronic word of mouth

Recently, I have seen recruitment advertisements for marketing staff from firms operating in business to business markets.  Again, there seems to be an over-riding need to use social media.  Yet the target audiences for these businesses tend not to be individuals but discreet buying groups made up of a number of people who take purchasing decisions collectively.  Social media tends to be communication from one individual to another, not an individual seeking a group to make a collective decision.  Again, there is little evidence that social media is an effective channel in such circumstances and the use of more traditional marketing communications channels may prove more successful.

It is also misleading to think of social media channels as a cheap and easy communications route.  To use social media effectively, often takes greater physical and  financial resources than traditional marketing communications channels.

So if you are tempted by claims that social media is the answer to your marketing communications delivery, beware.  Before jumping on the social media bandwagon, examine your target audience, define the purpose of your social media use and set clear goals and don’t expect miracles.

Over recent decades marketers have focused on perfecting mass marketing; selling highly standardised products to the masses.  As a result they developed mass communications techniques to supports such strategies.

Companies would spend large quantities on mass media advertising, television or print.  A single advertisement was able to reach millions of readers or viewers.

In recent years, marketing communications have changed.  In fact the media industry has changed.  Promotion has becomes the most altered part of the marketing mix.

Marketing managers have had to face the realities of the changing promotional and media landscape.

Consumers are changing.  We live in a digital connected world where consumers are better informed and they are communications empowered.  The recent Fake News crisis shows that consumers can be targeted almost on a personal basis and messages can be designed to fit with their preconceptions and beliefs (even if those preconceptions and beliefs are not true).

Consumers no longer rely solely on information provided by retailers and manufacturers.  They can easily find other sources of information through the internet or through their peers.

Consumers can connect more easily and as a result peer pressure may form a greater element in purchase decisions.  Consumer ‘tribes are fragmenting. This has created micro-segments in markets

Marketing strategies are changing.  Mass markets have fragmented.  Firms must now use focused micro-segmentation strategies.  This has resulted in a move away from mass marketing strategies.  Products are increasingly personalised.  Henry Ford may have said of the Model T, “you can have any colour you like as long as it is black’.  Compare that to the modern mini or the Brompton bicycle where consumers can ‘build’ their car or bike from a vast range of product options.  The Mini has over 1600 product options from in-car accessories to choice of wheels.  This means virtually every Mini that comes off the production line is unique.

There has also been a move away from one-off sales of products to using marketing communications to develop a relationship between the producer and the consumer.  Customer retention and customer advocacy are key.  Often the aim is to turn consumers into brand advocates.

There have been sweeping advances in communications technologies.  From mobile smartphones to interactive televisions.  This communications revolution has had a huge impact on marketing communications.  The dominance of traditional media is collapsing.  Newspaper circulation figures are falling.  The wide range of television channels means audience numbers are declining.  A prime time television programme in the UK would often gain an audience of 12 million in the 1970s.  In 1989, the BBC cancelled Doctor Who with an audience averaging 7.5 million.  Today, such a size of audience is seen as high and the programme considered a hit.

So now the modus operandi of marketing communications professionals is to use a broad selection of more specialised and highly targeted media to reach smaller customer segments.  This involves the creation of more personalised and interactive messages.  It is less broadcasting and more narrowcasting.

Increasingly consumers are in control of media exposure.  For example some video streaming services offer the opportunity to skip advertisements.  TV advertising is still a dominant channel in terms of media spend but such spending has stagnated whilst promotional budgets have shifted to new media channels.  Advertising spend in radio and print advertising has fallen sharply.

We have moved from a position where advertising is force-fed to consumers as a mass and interrupts their activities to a position where marketing communications interact with smaller groups of consumers.

Regardless of your choice of communications channel, the key is to integrate media in a way which best communicates the brand message and which enhances consumer experience.

Marketing communications is no longer simply placing advertisements.  You are managing brand content and developing conversations with your customers over a fluid mix of communications technologies.

The result is that you need to integrate marketing communications across a range of communications channels.  Failure to do this produces a hodge podge of communications to consumers which do not provide a single marketing identity.

Consumers today are bombarded with messages.  Marketing professionals may differentiate between different channels, e.g. social media, television, print, direct mail, but consumers do not.  Your promotional activity needs to present a single consistent message. A single broad image or concept.

You cannot send out one message and signal in print media which is different from the message and signal given by electronic communications.  Mixed signals from different media blurs brand perceptions in the minds of consumers.

The challenge for communications managers is to bring together brand concepts and messages across media channels in an organised way.

This is where the concept of integrated marketing communications comes in.  IMC requires the careful blending of communications tools to create a compelling, clear brand messages.

Brand messages and concepts are no longer in the sole purview of marketing departments.  They take place at every interaction between a firm and its customer base, from sales presentations to after-sales service and complaint management.  They are the responsibility of all stakeholders in a firm.  You need to identify all the customer touch points with your organisation.  Each of these is an opportunity to convey your brand identity and message to consumers. Careful coordination of your brand message is required throughout the organisation.

You need to think not just of the message you want to convey but the best method to get that message to your target consumer.  You also need to define the unique role each function of your business has in passing on your brand message to your customer base.

SOme readers may see a contradiction between the goals of integrated marketing communications and my views on the use of social media.  I see no such contradiction.

My complaint is not that firms use social media.  It is that all too often it is seen as a magic bullet.  A simple and cheap way of meeting promotional goals.  Yet far too many businesses treat social media as a form of mass marketing communication.  They use the old rules of promotion in a new media.  They fail to take account of the changes in society and technology.  Most importantly of all, they fail to set identifiable goals for social media use and they fail to measure whether those goals have been met.

Customers

In the nineteenth century, retail entrepreneurs such as Henry Gordon Selfridge popularised the mantra, ‘The customer is always right’.

As a trading standards professional with over twenty years experience in dealing with consumer complaints this is a statement I can categorically state is not true.  Customers are often badly in the wrong.

I prefer a variation of the mantra which states, ‘The customer is king’.  This amendment puts the customer in their true position.  Customers are the most important stakeholder in any business.

In business, the customer is the name of the game.  They are the source of your income and profits.  They are the reason that your business exists and survives.

To survive in business, you need to know what your customers want and who they are.  But customer needs change, as do their expectations and habits.  Market segments are in a constant state of flux.

To thrive and succeed in business you need to know more than what your customers want.  You need to internalise customers needs and wants and you need to commoditise them.

What you must not do is:

  • assume you know better about what customers want than they do.
  • think you know what they ‘ought to want’.
  • hope that customers will want what you have decided to make.
  • fail to care what consumers want because you have sales targets and you’ll be able to find someone to offload products to.

So you need to know exactly what customers want.  Except that is an impossible task. Often customers don’t know what they really want. This is a position clearly exposed by the current Brexit debate where supporters of the UK leaving the EU have vacillated between various different definitions of Brexit from a fictitious ‘world trade deal’ under WTO rules, to a ‘Canada Plus Plus Plus’ super-duper trade deal, to having the rights of EU membership without the costs.  Ask three Brexiteers as to their chosen Brexit ‘product’ and you will get three different answers.

However, even if it is impossible to know exactly what consumers want, you can reduce risk of customer indecision by carrying out market research.  You ask customers what they want, you don’t guess.  Again Brexit is a case in point. If a market researcher surveyed consumers over two variants of a product and the result of that survey was 52%/48%, the research would likely be treated as inconclusive and in need of repetition.

Market research is not marketing research.  Market research is examining the composition of markets, customer needs and wants, etc.  Marketing research is the examination of a firm’s marketing activities and its ability to access markets.

Market research is not easy and you’d be amazed what some senior managers in business have said about it:

  • “We’ve never done it”
  • “Qualitative research is too touchy-feely”
  • “How do you find out what customers themselves do not know”
  • “This organisation works on numbers; not loose concepts of ideas”
  • “The market research agencies we use don’t do that type of stuff”
  • “Sorry, the finance people won’t buy it”
  • “”Product managers hold the research budget and they have sales targets”
  • “Spending money on that hits our profit centre”.

Market research done properly informs management decision-making.  It is not a substitute for creative or professional decision-making.  Again there is a parallel with Brexit.  Many members of parliament say they personally oppose Brexit but that, because the majority in their constituency was to leave, they must obey the instruction of that majority. But such an attitude is not the role of MPs.  Members of Parliament are representatives, not delegates.  Their role is not to obey instructions, it is to use their own good judgement and to make decisions on the basis of the facts placed before them.  That role, to paraphrase Burke, is based on three duties; first, to do what is good for the country; second, to do what is good for constituents and third, party organisation: In that order and where the first duty predominates over the other two.

Similarly management decision-makers have a duty to do what is good for those who hold shares in the business.  That duty may conflict with the results of market research.

Like scientific and pseudo-scientific methodologies, market research has limits of error and when making decisions these limits of error must be carefully explained.

Market research is not an end in itself.  It is simply a method of reducing risk.

So who are your customers?

Customer knowledge is the biggest asset your organisation has.  Like any asset, you need to know it, maintain it and maximise the returns from it.  To do this you need to develop a robust Marketing Information System which can be used to;

  • analyse data for trends and changes
  • gives understanding behind the reasons for changes in customer behaviour
  • and which supports the marketing skills of your organisation and which allows you to do something about the changes in consumer behaviour you have identified.
  • Identifies what consumers buy from you and from your competitors.

It must be remembered that customers do not buy product features; they buy benefits or solutions to their problems.

Remember:

  1.  A product is what a product does;
  2. Customers just need to get things done;
  3. They need products to do those things;
  4. People don’t want a washing powder, they want clean clothes.

So don’t just measure sales data, measure the needs and problems of consumers which leads to those sales and which motivate purchases.  Does your firm measure more than basic sales data?

What benefits do customers seek?

Good marketing is not doing what you are good at but doing what your customers want you to do.

To meet that challenge, you need to find out:

  • What your customers wants and needs are.  The problems they need to solve and the jobs they need to do.  You need to find out where consumers ‘hurt’
  • What your customers need and want from you.  What they believe you can do for them, what they believe you are capable of offering; compared to what you actually can offer; and what they believe you are incapable of delivering.
  • What will your customers need in three months time, a year’s time and in five years’ time.

These are deceptively easy questions which are incredibly difficult to answer.  However, you need to know the answers to those questions in order to know:

  1. Where to put the money for maximum return
  2. Which customers do you want to invest time and money in.
  3. What products and services you need to develop.
  4. What products do you need to divest from or put on hold.

The really pertinent questions you need to ask consumers are:

  • What will the purchase and use of our products do for them and how will it affect a consumer’s status amongst their peers?
  • What will other people think of the consumer by their use of your products and services?
  • What will the consumer enjoy about their use of the product or service; or the result of such use?
  • Will consumers enjoy the relationship created with the producer through their purchase of the product? And will they want to maintain that relationship through repeat purchases?