Market Breakpoints

Predicting the future is the easy part. It’s knowing what to do with it that counts”.

Faith Popcorn, 2001

A fundamental aspect of any competitive marketing strategy should be the anticipation of major environmental or structural change. Today marketers are operating in an environment which is increasingly volatile – and potentially malevolent.  Just look at recent ‘megatrends’.

  1.  The explosion in information and communication technologies and their increasing power.
  2. Market globalisation.
  3. A shift from manufacturing and the exploitation of natural resources to economies based on knowledge, information, innovation and added value.
  4. The decoupling of the physical economy from the virtual economy of financial markets.
  5. Geographic rebalancing and the emergence of a new world order, particularly China.
  6. The twilight of government.  This is clearly evidenced by the current political chaos in the UK.
  7. Sector convergence
  8. The growth in new forms of business organisation e.g. social enterprises.
  9. The shift of the economic centre of gravity from multinational conglomerates to smaller, nimbler, more agile firms.
  10. The increasing influence of environmentalism.
  11. The increasing speed, complexity and unpredictability of change.

Such industry or sectoral changes are often referred to as industry or market breakpoints.  The consequences of such breakpoints can be extensive and as a result existing strategies become obsolete.  Look at how many traditional retailers have failed to adjust to the impact new technology has had on their business.

In developing forecast strategies to take account of breakpoints you must clearly understand the definition of an industry breakpoint.

Strebel (1996) describes a market breakpoint as:

A new offering to the market that is so superior in terms of customer value and delivered cost that it disrupts the rules of the competitive game: a new business system is needed to deliver it.  The new offering typically causes a sharp shift in the industry growth rate whilst the competitive response to the new business system results in a dramatic realignment of market shares.”

Note the use of the word ‘disrupts’.  This is the source of the term ‘disruptors’ which is so commonly used to describe new tech start-ups.

Once a breakpoint has occurred, existing market players need to respond, often dramatically, or recognise the significant negative implications on their position and performance in the market.

There are numerous examples of market breakpoints.  Consider:

  • The impact of the internet on the package holiday market
  • The arrival of low-cost carriers on the airline industry
  • Kodak’s failure to recognise the implications of digital camera technologies (despite the fact they invented the imaging sensor).

Despite the impact of such breakpoints, you will still find business managers ignoring the impact of such change with the assumption that their industry will carry on as before.  However, in today’s commercial environment, no industry is safe from such breakpoints.

Strebel defines two types of breakpoints:

  1.  Divergent Breakpoints:  There is a sharp increase in the variety of competitive offerings and consequently more consumer choice.
  2. Convergent Breakpoints:  These develop from changes and improvements in the systems used to deliver offerings which result in lower delivery costs.

Breakpoint are created through:

  • Technological breakthroughs
  • The economic cycle causing a radical rethink of product or service delivery.
  • New sources of supply at reduced cost
  • Changes in government policy
  • Shifts in consumer values/expectations
  • Identification of new business opportunities and the divergence of competitors’ responses and behaviour as a result.
  • Shifts in distribution networks and the changing power balance between marketers and retailers.
  • New market entrants with different perspectives
  • Declining returns forcing a radical rethink in how a business should develop into the future.

Marketing planners need to identify where breakpoints are most likely to occur and in what form they will take.

In your planning you need to be proactive, not just reactive.

No manager should operate within a closed environment.  They all need to look beyond the internal environment of their organisation.  They shouldn’t just rely on historical financial data.  All managers need to take account of potential future trends.  But how many managers are provided with incentives or rewards for the redefinition of products, processes or company attitudes?

The competitive cycle tends to fluctuate between convergent and divergent breakpoints.  Divergent breakpoints are the creation of variety in the market. Convergent breakpoints are survival of the fittest.

  1.  Divergence of offerings in an attempt to be different
  2. An emphasis on innovation and creation of variety develops
  3. Breakpoint
  4. Some innovative products succeed, others fail.
  5. Focus develops on the successful products
  6. There is a convergence of offerings to match the successful products
  7. Breakpoint
  8. Products become so similar there is little choice in the market.
  9. There is divergence of offerings in an attempt to be different.

A good example is video tape.

In the 1970s, if you wanted to see a film, you went to the cinema or you waited for the film to appear on television.

Then the video tape industry developed smaller, cheaper tape and the home video market took place.  There was an explosion in home video technologies, the most prominent being Betamax and VHS.  Betamax failed and VHS became the industry standard.  Then along came DVDs.  These were technologically superior.  For a while VHS and DVD co-existed but it didn’t take long for VHS tapes to disappear from the market. DVD and then Blu-ray became the standard.  Today the market for DVDs is under threat due to downloads and streaming services such as Netflix and Amazon Prime.

How you watch movies has gone through several market breakpoints.  Cinemas have also reacted with the rise of the IMAX screens, immersive sound systems and special events such as fan preview screenings.

Faced with increasingly rapid change and the ever-faster breakpoint cycle, marketers are faced with a series of issues:

  1. Balancing short-term and long-term goals
  2. Increasingly needing to be both market-orientated and customer-driven
  3. Higher customer expectations
  4. Creative and strategic segmentation
  5. Achieving leadership in chosen segments
  6. How best to add value and differentiate market offers from those of competitors
  7. Pricing for competitive action
  8. Increasing the effectiveness of distribution channels
  9. New technologies
  10. Shifting market boundaries and globalisation
  11. Improving marketing and control systems

Hamel and Prahalad (1994) offer three rules on future planning:

  1.  Step off the corporate treadmill.  Don’t become preoccupied with day-to-day issues.  Focus on the few really important issues which contribute to competitive advantage.
  2. Compete for industry foresight and learn to forget.  Learn how the market is changing and forget some of the traditional roles and patterns of behaviour in the market.
  3. Develop a new strategic architecture.  Concentrate and leverage strategy to make better use of marketing assets.

Office Politics

If you work in an organisation with other people, you will encounter organisational politics.  It is inevitable.  If you are planning new strategies or organisational change, you will have to cope with organisational politics.

It is an extremely naïve position to expect the members of an organisation and other stakeholders to exist in an environment which is bereft of organisational politics.  Office politics are a fact of life and they must be coped with.

Twice in my career I have worked in organisations where organisational politics have either prevented the achievement of stated goals or caused damage to the organisational purpose.  Managers ended up spending more time on petty disputes than getting on with the job at hand.  However, it is equally naïve to expect an organisation to exist in a political vacuum where everyone is expected to ‘just get on with the job’.

In developing plans and strategies, you will no doubt be dealing with a level of organisational change and during that change organisational politics will be evident.  In developing plans, you must be cognisant of potential political eventualities.

Whilst people in an organisation will work towards a common goal; they will collaborate; they will also compete, for reward, for advancement and for power. This competitive imbalance leads to organisational politics.

Power is a major driver of organisational politics.  This can be those with power exercising it; or those craving power trying to achieve it.  For some obtaining power is an end in itself.  The more power a person obtains, the more political they become, and perhaps need to be.

Organisation politics can arise from both internal and external pressures on an organisation.  They can develop vertically within an organisation through layers of management; or horizontally between department and peer groups.

Much of the organisational strife of the UK in the 1970s was caused by demarcation disputes between various peer groups in an organisation.  One strike at the BBC was caused by an argument over the Play School clock.  Play School was a programme for toddlers which opened with a musical clock which displayed an item which was the episode’s theme.

The union for the scenery shifters argued that the clock was a piece of scenery therefore it was their responsibility to look after the clock.  However, the electricians union argued that the clock contained electrical components and as a piece of electrical equipment it was their responsibility.  The inability of BBC managers to solve this demarcation dispute ended up with both the Scenery shifters union and the electricians union going on strike.  This stopped all studio recordings at Television Centre and several programmes, including the Doctor Who serial Shada, had to be scrapped.

The Play School clock affair is a clear example of a minor dispute being used as a trigger for power games between different peer groups and management.

External organisational politics can include legal action, whistleblowers and unofficial leaks.

Internal organisational politics can arise from obstructive behaviour, grudges, covert lack of support, the bypassing of superiors, favouritism, outstanding obligations and favours, informal groups and cliques, badmouthing and rumour-mongering.

Some people enjoy playing organisational politics, others, like me, hate it.  To some playing politics in an organisation can be an enjoyable game.  I recall one former colleague who could be best described as a barrack-room lawyer.  They would deliberately play opposing groups off one another as they enjoyed the resulting chaos.

However, organisational politics can have unpleasant consequences, especially where threatening tactics are involved.  They can lead to bullying and increase stress levels.

People do not act rationally or logically.  They act emotionally. That affects an organisation’s political environment.

So how do you deal with office politics?  Here is a short checklist of issues to consider:

  1.  People are People, not just organisational animals:  Which is one reason I hate the term Human Resources; it has evolved from the 1970’s concept that people are an organisational input similar to power of raw materials.  It infers people are part of the machine, not free-thinking individuals.  It is therefore important that managers developing strategies and organisational change get to know the people in the organisation beyond their work status.
  2. Learn to Listen:   Organisational grapevines are not just malicious rumour-mongering.  Listen to what is discussed in your organisation but also learn t evaluate what you hear.
  3. What are the Rules?  How are people expected to communicate in your organisation and how do they actually communicate.  Do you have a shared, open culture of communication or a strict hierarchical communication model.  Are members of the organisation expected to stick to strict protocols or is individualism encouraged? How is influence enacted?
  4. Criteria for Success: What has worked well in the past? What hasn’t? How have senior managers behaved when placed in a similar position? And what was the outcome of their actions? What did senior managers do to get to their position and how much is this reflected in people’s reaction to them?
  5. Alignment:  How do personal ambitions fit with those of the organisation?  The closer the fit, the greater the likelihood of successful strategic change. Are personal ambitions consistent with the values and beliefs of the organisation?  I know of a charity where it appears senior management are more concerned with personal reward and status as opposed to the defined charitable goals.
  6. Build Relationships:  Link with information and power brokers across functions and departments.  Be prepared to trade information.
  7. To thine own self be true:  You have to be able to sleep at night and face yourself in the mirror.  Don’t abandon your personal values.  Instead use your behaviours and actions to become what you want to see.

 

Shaping the Promotional Mix

As I have said before in this blog, I continually see businesses advertising for marketing staff and when you examine the job description, the new staff member is solely focused on digital marketing, particularly social media management.

Such recruitment advertising worries me.  It’s not that digital marketing isn’t important.  it’s that these businesses seem to be putting all their marketing eggs in one basket.  They also seem to be treating digital as a form of marketing promotion instead of its proper definition as a communication channel.

Digital is only one part a businesses promotional armoury.  It isn’t a magic pill which will solve all your marketing issues.  Digital marketing isn’t cheaper than traditional marketing channels and in some ways it is a riskier enterprise.

Your use of digital marketing needs to be strategic and it must fit with your target audience.  Foe example, if you are selling teenage fashion, it is likely that social media and digital platforms will be prominent in your marketing activity.  However, if you are selling stairlifts and disability aids to pensioners, traditional promotional techniques such as television advertising, direct mail and newspaper advertising would dominate your promotional mix.

Remember, Digital is a promotional channel not a promotional technique.

When you are developing a marketing strategy, it is important to create the proper balance of channels and tools.  Your use of these must meet the expectations of your target audience.

Consider that businesses operating in the same market may have distinctly different promotional mixes.  Max Factor use television advertising, magazine advertising and the internet to promote their cosmetics however Avon rely on direct marketing and sales representatives to promote their products.

Today, most businesses try to create an integrated marketing communications strategy which promotes you products but which also creates a unified brand image.

To define a promotional mix you must first examine the nature of different promotional tools.

  1. Advertising:  Advertising can reach a mass audience which is geographically dispersed.  It can be a form of promotion which has a low-cost per consumer exposure.  It can allow a message to be repeated several times to intended recipients.  Digital media can be used to advertise e.g. Facebook or YouTube.  Consumers view advertising as a legitimate form of promotion and it can be used to create a brand image over the longer-term.  However, advertising lacks the personal touch and is a one way form of communication.  Some forms of advertising can be expensive and a large budget may be required if it is to be effective.
  2. Personal Selling:  Personal Selling is good for building buyer preferences, convictions and actions.  It involves personal interaction between two or more people.  It can be used to build personal relationships by sales representatives solving customers problems.  However, personal selling is the most expensive form of promotion: up to three times the cost of advertising.
  3. Sales Promotion:  This is techniques such as offering coupons, discounts or premiums for purchases or repeat purchases.  Sales promotion uses a wide range of such tools and is good at attracting the attention of target consumers.  It provides strong incentives to purchase and it can dramatize product offerings to boost sagging sales.  Sales promotion invites a rapid response from consumers.  The message isn’t ‘buy my product’, it’s ‘buy it now!’.  However, the effects of sales promotions are short-lived and over the medium to long-term sales promotion will have less impact than advertising or sales promotion.  Sales promotion does not create long-term relationships with customers.
  4. Public Relations:  Public relations is a very believable form of promotion.  PR is the presentation of commercial messages in the form of news stories, features and sponsored content.  PR can reach people who are adverse to advertising and who avoid sales representatives.  It can add drama to a campaign.  traditionally PR has been underused by marketers but as the environment becomes more crowded with commercial messages, its use is increasing. PR is most effective when it is used in conjunction with other promotional mix elements.  Heinz have successfully used PR to promote their Salad Cream.  In fact they have had three bites at the Salad Cream PR cherry.  A few years ago, they issued press releases saying that they were ending production due to falling sales.  The response was a huge increase in sales of Salad cream.  A few months ago, they announced that they were changing the name to Sandwich Cream, again they got headlines.  Last week they announced that they had changed their mind and were retaining the name.  Yet more column inches about the product.  However, over use of PR creates cynicism in the minds of consumers.
  5. Direct Marketing:  This is the use of brochures, catalogues flyers and online advertising.  it is a less public form of promotion but you can target your message to particular groups.  Direct marketing can be interactive, a dialogue as opposed to a monologue.  It allows tailored messages to be delivered quickly.

Once you have decided on the tools within your promotional mix, you must define your strategy.

There are two forms of promotional strategy: Push strategy, where a firm pushed its goods through the sales channels by promoting them to channel members such as suppliers and retailers; and Pull strategy; where business promote their goods to end consumers, who in turn pressure retailers to stock the firm’s products.

Some business to business industrial companies only use a push strategy but for most businesses the promotional mix is a carefully balanced combination of push and pull strategies.  B2B firm’s tend to use more push strategies, B2C firms tend to use more pull strategies.

To create a successful promotional mix, you need to have a smooth integration between mix elements.  The promotional mix needs to be guided by an company-wide communications strategy.  Mix elements need to combine to create a unified brand message your messages must be consistent and conform to your brand image.  Your messages must appear where they can be seen by your target customers.  All parts of your business and all your internal stakeholders must be involved in the promotional effort.  Your promotion must engage all your sales channel stakeholders e.g. wholesalers and retailers, not just end consumers.

A confused communications strategy can dilute the impact of your promotional messages and lead to a confused market position. A confused strategy will not maximise you marketing efforts.

 

Understanding Value

Michael Porter defines value as;

“A firm is profitable if the value it commands exceeds the costs involved in creating the product”.

Your customers will understand the concept of value intuitively.  It is therefore difficult to measure value dispassionately.  Every customer will have a different concept of value.  They buy on the basis of value and they spend much of their lives as consumers searching for it.

Value does not mean lowest price and you should not confuse the term value with the cheap and nasty end of the market.  In my former career in local government; where local authorities are legally bound by the concept of best value, I was continually frustrated that managers and councillors confused value with the lowest bid or price for a product or service.  It was part of my job to procure the services of test laboratories.  My managers were keen that I only accepted low bids.  However, I recognised that the expertise of the laboratory and the status of the evidence they could provide was important value criteria.  I would always see more value in a test report signed off by a recognised specialist in say, Toy standards, than a laboratory which could provide a test certificate but who could not provide the Bona Fides of the specialist lab.

What is important in the consumer’s calculation in value is their perception of the utility of your offer i.e. what they believe the product will do for them.

When consumers are considering buying a product or service, they spend a considerable part of the decision process trading off different perceived values of different offers for the goods or service demanded.  The more expensive or complex the goods or services being purchased; the more complex the decision process and the trade-offs.

Value is a critical concept in any market offer but it is still one of the most over-used and least understood terms in business.  All too often, senior management only link value to price.  They ignore other concepts of value.  They forget value means different things to different people.

There is a formula which is often used to represent value:

Value = Benefit – Effort – Risk – Price

The more value you are able to offer, the more likely your ability to create profit.

Value is not about price and it is not about being cheap.  It is about what the customer perceives about a product and that your offer will meet its promises.  It is the value of a job being done in the way your promise demands.

Consumers see benefit as the ability of a good or service to provide the perfect solution to their specific problem.  The closer to the perfect solution you are able to provide, the greater the customer will perceive value in your offer.  The greater the benefit the customer perceives in your offer, the more they will be willing to pay.

 

To understand perceived customer benefit, you need to find out:

  1.  The nature of the consumer’s problem.
  2. What the consumer perceives to be the perfect  solution to their problem
  3. Where your product and service fits on the scale of the consumers perception of ‘a perfect solution’ i.e. does your product fully meet their needs or will it just about do, or is it useless.
  4. If your product won’t provide the perfect solution, where does it fall down.

As every consumer’s perception is unique, these are difficult questions to answer.

Effort is how much work the consumer has to put in to solving their problem when they use your product.  It is the question of ease and convenience.  We live in a convenience society. So the greatest value for consumers is the product or service which is most convenient.

Consumers see risk in many facets of choice and value criteria.  The greater the risk inherent in the decision to purchase a particular product, the lower the perceived value of that product.  Consumers ask themselves, if I buy X brand of a product:

  • What can go wrong?
  • What are the downsides?
  • How long will it take to choose?
  • How long before benefits will begin to flow?
  • How will that product affect my image?
  • What utility will the product offer?
  • If the product doesn’t meet its promise, how will I feel?

Price is a more complex issue than just whether consumers feel they are paying too much or whether goods may be cheaper elsewhere.  If a product or service seems to be too cheap, consumers will wonder if your offer is unfit for purpose or that your goods are of inferior quality.

You also have to consider the opportunity cost of a consumer’s purchase.  This isn’t just the cost incurred in arranging to buy the product.  There is the opportunity cost of the time taken to buy the product; transportation costs, etc.  There is also the thoughts in the minds of consumers of what they could buy if they chose not to purchase your product.

So to maximise customer value:

  1. You can cut prices.  This is the dinosaurs method of maximising value; offering more for less. It is crude and it can be expensive.  It can drag you into expensive price wars out of which no-one can win.
  2. Perhaps it is better to increase the benefit from usage,  You can add more benefits to your products.  But these must be real benefits your customers want.
  3. You can reduce the effort required by consumers to buy your product.  Make it easier for consumers to acquire the benefits of your offer.
  4. You can reduce consumer risk through guarantees and warranties, you can offer free trials and use your brand reputation to build consumer trust.  You need to become a brand that can be believed in.  Your branding effort can reduce risk.

All stakeholders in your business, both external and internal, from shareholders to prospective customers, need a value proposition. If you cannot easily describe your value proposition to them, you may have trouble convincing them that your offer is something in which they can invest.

Brand Revitalisation and Brand Repositioning

It is commonly understood that products have a life cycle.  They are introduced to the marketplace; hopefully they catch on with target consumers and sales volumes grow; eventually growth slows and the product becomes mature in the market; finally, the product, through changing consumer tastes or through new technologies, goes into decline.

Where marketers are working with mature or declining products, their focus tends to be on maintaining the position of the mature product in the market or in slowing the products decline.

It is also recognised that brands have a lifespan.  For example, who in the UK drives a Datsun car?  Who watches a Thorn television? Who shops at Safeway?

Of course, brands are rarely linked to a single product offering.  So a brand’s life cycle tends to be longer than a product life cycle.

Brand revitalisation is the process of gaining sales volume for the brand by expanding its market.  Six distinct opportunities exist to revitalise a brand:

  1. You enter a new market with the brand.  This can be geographic (Irn Bru is now sold in Russia) or it can be selling a brand previously associated with a business to business market to consumers.  For example, four by four vehicles were seen as suitable for farmers and the military; now they are used by mothers on the school run.
  2. You can enter new market segments.  For example, Johnson and Johnson changed the marketing of their baby shampoo to target adult users.  Listerine started life as a floor cleaning detergent: It is now sold as a mouthwash.
  3. You can increase the frequency of use.  Kellogg’s has just started to re-run a campaign advising that their cereals are not just for breakfast and they can be eaten as a snack at any time of the day.
  4. You can create incentives for purchase.  This could mean offers where collecting tokens gets you free gifts such as cheap airline flights.  Airlines run frequent flyer programmes where ‘club’ members get the use of exclusive departure lounges and priority booking.  Coffee shops stamp loyalty cards and when the card is filled, the customer gets a free cup.
  5. You can increase the quantity used.  Fast food outlets make their standard sizes bigger (with a price rise).  Consumers get used to the higher price and to the larger standards size.  Chocolate biscuits are sold in packs of seven.  This means, that a family with 2.4 children will buy two packs not one.  Weetabix advertise on the slogan ‘Can you eat three’ to promote the idea of bigger serving sizes.  You can also remove barriers to consumption through product reformulation e.g. sugar free soft drinks, low-calorie chocolate, etc.  Many breakfast cereals despite high sugar contents are advertised on the fact they are fortified with vitamins and minerals.  Such health claims became an issue and now the EU strictly regulates their use.
  6. You can move a brand into a new category e.g. Mars bars as an ice cream or as the flavouring in a milk drink.

Brand repositioning is a strategy to increase or improve your competitive position in the market place.  In doing so, you aim to increase sales volumes and your market share.  Often this means seizing market share from your rivals.  Repositioning is achieved via changing aspects of your products or by changing the target market for a brand.

This leads to four strategic opportunities:

  1.  Image Repositioning – Product attributes are unchanged and the product is aimed at the existing group of target consumers.  This is the process of changing a product’s image amongst target consumers.  For example, Adidas was seen as a ‘dull’ brand.  The Adidas brand was repositioned to develop ‘street credibility’ amongst sports shoe wearers.  Tango was a minor player in the UK soft drink market but by creating its ‘You’ve been Tangoed’ anarchic image, it is now a major player in the market aimed at 18 to 24 year olds.
  2. Market Repositioning – In this strategy, you change the target market whilst keeping the product the same or similar.  For example, Lucozade was sold as a drink for invalids, particularly children (in my native Scotland, it’s a hangover cure!).  The brand was repositioned as an isotonic sports drink.
  3. Product Repositioning – In this strategy you reformulate the product to adapt to changing customer tastes.  So the target market remains the same but the product changes.  Castlemaine XXXX beer upped its alcohol content from 3.7% to 3.9% (4% for pub sales) to match changing tastes among lager drinkers.
  4. Total Repositioning – This is where the brand’s target segment changes and the brands products change.  Skoda went through a total repositioning following the brand’s purchase by Volkswagen.  The quality of the company’s cars was vastly improved to attract more affluent consumers.

Marketing is about creating sustainable competitive advantages which are profitable.  Brand Revitalisation and Brand Repositioning are critical strategies to ensure that sustainability.

 

Protected Food Names: The Next BREXIT Battle

Last week, Marcus Fysh, the hard Brexit-supporting Conservative backbench MP sent out a tweet evoking a post-EU Britain where we could enjoy American feta cheese and Chinese businessmen could quaff English champagne.

I found this tweet maddening as it highlighted some Brexiteers utter ignorance of current food protections and that by breaching them, British exports could be seriously endangered.

Let’s start with the American Feta.  What Mr Fysh does not seem to realise is that American ‘feta’ is a completely different product to the genuine Greek cheese.  Greek Feta is usually made from goat’s milk (and occasionally sheep’s milk).  The American version is made from cow’s milk.

American cheese, although there are some exceptions to prove the rule, is generally regarded as terrible.

Then there is the use of the term Champagne.  This has already been the subject of a long and bitterly fought trade dispute between America and France.  In fact a solution was only negotiated once the EU became involved and used its scale to exert influence on the US government.

Champagne has a PDO, a protected designation of origin.  This means that the use of the name champagne can only be applied to sparkling wines from that region of France.   The EU has negotiated with other administrations around the world to ensure that other wines do not use the term.

In America, some wine makers continued to use the term champagne to describe their wines.  In 2006 the EU and the US governments agreed that all new wine production would stop using the term champagne.  Wine that had already been produced could continue to use the name until stocks were exhausted.

As with most international agreements, there is a legal loophole.  This relates to the treaty of Versailles signed at the conclusion of World War One.  The treaty contained a clause to deal with a dispute on the naming of wines in France and Germany.  The US government was a signatory to the treaty but the US senate did not ratify the wine clause.

What this means is that US wine producers who have been in continuous production since the 19th century can continue to use the term Champagne as long as they use the statement ‘California Champagne’.

In the 1920s, America went into the prohibition era.  The sale and consumption of alcohol was all but banned (some individuals could get a certificate from their Doctor stating that they could consume alcohol, on prescription, for health reasons!).

What this meant was that the vast majority of wineries were shut down by the US government.  A handful, who were producing for export only, survived.

Even after prohibition, the US wine industry struggled.  It went into a steep decline and only recovered in the 1970s.

There are a handful of Californian wine producers (I can only find four) that can continue to use the term ‘California Champagne.  As most US wineries only date from the 1970s, they cannot use the term.

It is also worth mentioning that ‘California Champagne’ is a different wine from that produced in France. French champagne is a wine made from Chardonnay or Pinot Noir grapes.  ‘California Champagne’ tends to be made from Zinfandel grapes.

Of course, the term ‘California Champagne’ can only be used within the United states.  One winery bottles its export product under the term ‘California Sparkling Wine’.

Mr Fysh also fails to recognise the disparity between the size of the French wine industry and that of the UK.  UK wine production is a growing niche sector.  French wine production dwarves the UK industry.  Fysh is expecting an industry which employs around 1200 people to compete with one which employs twenty times that number.  It is like saying Morgan cars are a direct competitor of Ford.

There are effectively three layers of protection for speciality regional foods within the EU.

Products such as whisky are protected by a specific EU directive (the Spirit Drinks Directive).  Whisky is defined as; “grain alcohol matured in oak barrels for a minimum of three years”.  Scotch is given additional protection in that the maturation process must take place in Scotland.

Then there are PGOs.  These are protections where the location of the food production is protected.  For example, Scotch Beef and Welsh Lamb must be reared and produced in Scotland and Wales respectively.  Often it is the place of production alone that offers the protection.

Finally, there are PDOs.  These are protected designations of origin where there is a specific recipe, production method or list of ingredients which is representative of a particular geographic area.  Foods with PDOs include Parma Ham, Parmesan cheese, Melton Mowbray Pork Pies, Stilton Cheese, Rutland Bitter, Arbroath Smokies, Cornish Dairy Ice Cream and the Cornish Pasty.

To use a name with a protected designation of origin, it must follow the declared production process AND it must be produced within the declared geographic area.  For example, a Melton Mowbray Pork Pie must have its crust moulded around a wooden dolly, not rolled out with a rolling-pin; the pie must be produced within the specified area around the town of Melton Mowbray.

There are around 80 UK foods which are given EU-wide name protection. Until recently, there were campaigns to add further UK foods to the PDO/PGO list.  For example, in Scotland, campaigns were started to get both Dundee Cake and the Forfar Bridie PDO protection.

Geographic protections guarantee product consistency and quality.  They create a marketable branding identity.  They can add a price premium.  They can help to protect jobs and artisan production.

Most geographic protections have arisen from campaigns by producer groups, consumers and local people.  Many such groups have fought for years the ensure protected status.

And then along comes Brexit.

With six months to go until the UK leaves the EU, there is little solid information as to what will happen to protected name status after Brexit.  The UK government has stated that it intends to create a separate system of food protections.  The EU has put protected food descriptions near the top of their demands as part of the exit settlement.  The EU has stated that it will not revoke existing UK food name protections within the bloc after Brexit. However, if the UK does not reciprocate, that position could change.

However, six months to go leave insufficient time for protected food producers to plan for life outside the EU.

Clearly, the UK government can regulate as to what happens within the UK market.  It is questionable whether it will have the negotiating heft to demand that similar protections exist outside UK borders.

Food name protections are a factor in the UK negotiations at the WTO.  And the sharks are circling.

In New England, where Cornish fishermen and tin miners emigrated in the 18th and 19th centuries, pasties are a common food.  Producers in that part of the United States want to apply the description Cornish to their products.

American distillers have already stated that they want to reduce the prescribed maturation period for whisky from three years to two.  They want to mature whisky in metal tanks, not oak barrels.

Asian whisky producers want to describe their products as ‘Scotch’.

So what happens if Mt Fysh gets his wish? What happens if the UK accepts American Feta and sells sparkling wine to Asia with the description Champagne?

The likely impact on UK exports to the EU would be disastrous.  EU states would simply refuse to allow UK production into their markets.  Bear in mind that the vast majority of UK food exports go to Europe.  UK foods containing ingredients such as ‘American Feta’ would not be allowed into our biggest export market.

Then there is the impact on UK producers.  If American distillers flood our market with 2-year-old gut rot;  if Chinese distillers start producing ‘Scotch’ for their domestic customers; the impact on the Scottish distillery industry will be disastrous.

With his crass, and frankly insulting, tweet, Marcus Fysh is putting at risk premium food exports and thousands of UK jobs.

Aligning Organisational Capabilities

Every organisation has specific assets and capabilities.  Your skills, knowledge, equipment, staff capabilities and finances will differ from those of your competitors.

It is therefore critical that once you have carried out the process of market segmentation that you target specific segments which align with your assets and capabilities.  In particular you need to pick market segments where your assets and capabilities are stronger than those of your competitors or of potential new market entrants.

So what is meant by assets and capabilities?

Assets are organisational attributes which can be both tangible and intangible and which can be used to gain a competitive advantage in the market.

Assets can be:

  1.  Scale Advantages – Such as high market share; media weight (high share of voice); leverage over your suppliers; International presence; Sales/distribution/service coverage; specialist skills due to scale.
  2. Production processes, plant, machinery and information systems – Level of contemporary practice e.g. robotic production line versus small workforce; level of flexibility; economies of scale; capacity utilisation; unique items of technology.
  3. Customer franchises – Brand name and reputation; brand franchises; CRM databases; relationship with customers; unique products and services; intellectual property including patents.
  4. Working Capital – Quantity of; ready access to; location of; access to credit.
  5. Sales/Distribution and Service Network – Area of coverage; Relationships with external distributors; size; quality.
  6. Relationships with other organisations – Suppliers; financial institutions; joint ventures; and joint exploitation of assets such as distribution capabilities and technology.
  7. Property – Type; location; ability to expand and quality of premises.

Assets should not be viewed in isolation and the competitive advantage that they provide must be clearly identified.

One method of identifying the value and strategic usefulness of assets is value chain analysis.  Such analysis can identify areas of your business that provide competitive advantage.  In particular it identifies where customers see value in your business.  Competitive advantages can originate in both primary activities and support activities.  Normally, value chain analysis is used to identify where investment should be made in the eye of your customers.  This often means that the focus is on primary activities i.e. your production chain.  This leads of investment being focused on these primary activities and resources being shifted away from secondary, background activities.

For example in relation to a business consultancy, primary activities would include service configuration, marketing and sales, data collection, data analysis, data interpretation (the conversion of raw data into specific, useful information), development of recommendations, reporting and communication and the implementation and evaluation of advice.

Support activities for a business consultancy would include ICT, human resources functionality and procurement.

Key competencies are often split into three broad categories:

  1.  Marketing – including activities such as new product development, PR, advertising, business analysis, Customer service, customer relationships and brand extension.
  2. Selling – Including activities such as supply chain management, partnership building, merchandising, negotiation.
  3. Operations – Motivation and control, process engineering, productivity improvement, total quality management and purchasing.

Competitive advantages exist in all three of these three categories.

Targeting is the process of the strategic alignment of assets and competencies with the most attractive market segments.  Targeted segments should fit within your chosen generic strategy i.e. cost focus, differentiation or niche.

It is therefore critical that your chosen market segments allow you to maximise your organisational strengths. Is your marketing presence able to create successful situations within your chosen segment?

Are there cost advantages in the chosen market segment?  Would entering a price sensitive segment be consistent with your capabilities and your desired brand and corporate image?

Do your technological strengths give you an advantage in your chosen segment(s)?  Is your technological ability consistent with your desired segment?

Do you have the required managerial capabilities and commitment to enter your chosen segment? If you do not have the appropriate skills, can you easily acquire them at a reasonable cost?

Is entering a particular target segment consistent with your long-term goals and objectives?  If not, your strategy may be weak and it will be a waste to divert resources.

Tools such as the Shell Directional Policy Matrix or the GE Matrix, which use weighted criteria for corporate abilities and segment attractiveness can be useful in target segment selection.

Market segmentation is a strategic process where both qualitative and creative judgements need to be made.  opportunities need to be evaluated on the basis of strategic fit.  Your aim is to build synergies.  You also need to consider if a competitive advantage is sustainable and compatible with your organisational mission. Is it consistent with your organisational values and culture?  Does the chosen segmentation challenge your prevailing corporate values.  Are there power struggles in your organisation which may be exacerbated by your chosen segmentation?  Will such struggles hinder entry into a chosen segment?

Segmentation processes can act as a focal point for action and future organisational development.  The selection of and entry into a chosen segment can facilitate innovation.  You need to consider whether you have the ability to meet the innovation challenge and create an innovation culture which is compatible with your service capabilities and infrastructure.  Does entry into a segment fit within your existing information flows and reporting lines.

Factors such as those outlined above are critical to successful strategic implementation of new segment strategies.

Remember, successful market segmentation strategies depend on the alignment of your organisational assets and capabilities and the creation of sustainable competitive advantages.