Organisational Buying Characteristics

The other night at a business networking event, I met a new business owner who was struggling to define the market she wanted to enter.  The business owner had just started a cleaning company and was unsure whether to concentrate on domestic cleaning (of customer’s homes) or commercial cleaning (Shops, offices, etc.).  She was also considering marketing her services to estate and letting agents.

As a new business, I advised her of Porter’s generic marketing strategies; cost focus, diversification and niche marketing.  As a new start business, I advised her to, at least initially, to concentrate on one market niche.  The reason for this advice was that small businesses often lack the resources to offer distinct offers to different market segments and that cost focus could restrict the earning potential needed to offset set up costs.

I also advised her that there was a big difference between marketing your services to consumers and marketing to organisations.

Organisational buying is the purchase of products and services to meet the needs of manufacturers, resellers, government and other types of organisation.

There are three types of organisational market:

  1.  Industrial Markets:  Companies that purchase goods and services to make other goods and services.  For example, most car manufacturers buy components from other suppliers.  A major employer in my town is a plastic mouldings firm who supplies dashboards and other plastic components to a wide range of car manufacturers.
  2. Reseller Markets:  Members of these markets buy goods and services which they sell on to others.  For example, supermarkets buy milk from farmers which they sell on to consumers.
  3. Government Markets:   Councils, government departments and other agencies buy goods and services to help them with their activities.  Increasingly governmental services are provided by private sector outsourcing firms such as Capita and Serco.

If you are considering selling your goods and services into an organisational market, a business to business marketing environment, you need a strong understanding of the buying behaviour of organisations.

The implications of making bad buying decisions in an organisational market have greater significance than in consumer markets.  Professional buyers tend to be more cautious and they will often follow pre-determined systems and procedures when deciding whether or not to buy.

Organisational buyers do not purchase on impulse; consumers do.

So if you want to sell your products to an organisation, you need to have a good understanding of the buying culture and processes of that organisation.

When I worked in a local authority, I regularly got cold called by salesmen trying to sell the council goods and services.  I worked in consumer protection.  The Council’s central purchasing unit were in a neighbouring office.  The council’s buyers operated a tendering process and a policy of best value purchasing was in place which meant that two quotes had to be received for every contract (other than in exceptional circumstances.  The council did not respond to cold calls or telemarketing.

A decision by an organisation to buy goods is likely to be made buy a group not an individual.  There may be many stakeholders in the organisational buying decision:

  • Initiators – those individuals in the organisation who start the buying decision.
  • Deciders –  those in the organisation who decide to start the buying process: usually in a management role.
  • Influencers – professionals such as accountants or engineers who place constraints on the buying process and help to determine the purchasing criteria.
  • Buyers – Certified professionals who carry out the buying and negotiation process.
  • Gatekeepers – those control access to decision-makers.  The PA of a company CEO is often a master gatekeeper.

These stakeholders often make up a formal decision-making unit or buying centre.  You will likely need to be aware of the group dynamics of a buying centre to successfully obtain a contract.

Organisational buying will often exhibit the following characteristics:

  1. Nature and Size of Customer:   The number of customers in an organisational market tends to be small.  In the Airliner industry, there are only two major players; Boeing and Airbus.  The Pareto Principle often applies.  Eighty percent of a suppliers income may come from only twenty percent of its customer base (hence key account management).  Often, long-term relationships exist between buyers and suppliers.  Supply is often direct from the manufacturer to the customer.  There are few middle men in the organisational buying process.
  2. Complexity of Buying:   Organisational buying tends to involve large sums of money.  Many people in both the buying and selling organisations may be involved in the purchasing process. Often the people buying the product will not be the end-user of the product.  Often there is multi-level selling involving sales teams rather than individual salesmen.
  3. Economic and Technical Choice Criteria:   These exist in organisational buying and purchasing decisions are far less likely to be made on the basis of emotions.  There are formal buying procedures and tender documents.
  4. Risk:  Often the contract is agreed before the product or service is made.  Products tend not to be off the shelf.  This was a major issue in the collapse of Carillion where contract delays eat into expected margins.
  5.  Buying to Specific Requirements:  Product specifications are drawn up by buyers and potential suppliers compete to meet those specifications.  You therefore may have to design a product or service for an individual customer rather than for a demographic group.
  6. Reciprocal Buying:  Customers in organisational markets may exert significant power and be in a more advantageous position than suppliers.  With such power they are able to demand significant concessions from suppliers.  This may include reciprocal buying where a supplier is expected to buy some of the customers goods in exchange for the contract.  For example, a supplier to a major motor vehicle manufacturer may be expected to buy and use that customers vehicles for deliveries.
  7. Derived  Demand:  Demand for industrial goods is often derived from the demand for consumer goods.  Consumers buy yoghurt, Muller buy milk and equipment to make yoghurt.  A small rise in the demand by consumers for products may result in a massive rise in the demand for manufacturing equipment as production lines reach maximum capacity.  This is known as the accelerator principle.  Elon Musk has seen significant rise in demand for his Model 3 electric car.  Musk doesn’t have the production capacity to meet the rise in demand and this has led to significant delivery delays.  As a result Tesla has had to significantly increase production capacity including building new production lines.  However, this expansion in capacity has involved Musk incurring significant costs and increased his firm’s losses.
  8. Negotiations:  Negotiation is important in organisational buying as the purchasing process is often complex.  A supplier’s price is likely seen as the starting point for negotiation rather than the final price to be paid by the buying organisation.
  9. Frequency of Purchase:  If a manufacturing company is buying new production line equipment, they may only do so infrequently.  They may also expect a supplier to provide extensive maintenance services many years after the initial purchase of equipment.  Just in Time supply chains mean that buyers may purchase large amounts of raw materials but expect them to be delivered in small quantities on tight deadlines.

The following may be concerns and complications in the organisational buying process:

  • The supplier may struggle to supply products of the desired quality and there may be issues with availability.
  • Suppliers may be beaten down on price and there may be extensive costs during the life-cycle of a contract.
  • Suppliers may struggle to provide continuity of supply – particularly with JIT resourcing.
  • Perceived risks – these can be functional; that the supplied product will not operate as intended; or they can be psychological e.g. a buyer may not trust the supplier to provide goods of adequate quality based on prior experiences.
  • Office politics may be in operation within a buying centre.  Managers within an organisation at be competing for advancement or to gain power for their department within the organisation.  These power games may be played out within the buying decision.
  • Individual members of a buying centre will have individual likes and dislikes.  One buying centre member may like a particular salesman whilst another member of the group may hate that salesman.  A graphic designer may like a particular brand of software whilst his manager may prefer the software of a competitor.  I know a few photographers.  Some of those photographers will only use Nikon cameras and lenses whilst others will only use Canon products.

The implications of marketing to organisations are extensive.  You may have to take great care and pay significant attention to the needs of different buying centre members if you are to succeed in obtaining contracts.

How to write a press release

In the last blog entry, I discussed how many businesses incorrectly defined marketing as a sub-function of their sales department.   There is also a second incorrect definition, to think of marketing solely in terms of promotional activity.

Promotion is one element of the strategic marketing mix and the choice of promotional strategy is intertwined with your choice of target demographic and the other mix elements.

It is also a mistake to think of promotion in terms of a single channel.  I see this with many small firms who incorrectly view their promotional activity solely in terms of social media.  Digital marketing and social media marketing is not an easy or cheap option.  You may have to use more energy and resources to develop a digital marketing campaign than on more traditional promotional techniques.  Social media marketing often relies on the development of ‘viral’ content.  There are no guarantees that content will develop a viral status proportional to the resources applied to it.  Digital and social media marketing is not a cheap fix and marketing academics are still struggling to define appropriate success metrics for the digital channel.

I was out for a walk yesterday and passed a local carpet shop.  In the shop window was a large sign proudly displaying the shops Trustpilot rating.  But ask yourself, who buys carpets over the internet?  You need to see the carpets up close and you need to supply accurate room measurements.  To buy carpets you need to visit a shop or have a sales representative visit your home with samples. I would be interested to see what proportion of that shops sales are through digital channels.  I suspect not very many.

Of course there will be demographic groups where digital marketing takes a more prominent part in your promotional mix, e.g. selling fashion to teenagers. But in other markets, such as selling stair lifts to the elderly, traditional promotional channels are still required.

So you need to develop a promotional mix using a variety of digital and traditional tactics.  These can include print and television advertising, radio, product placement, digital and Public Relations.

Public relations often gets a bad rap.  It is associated with dubious individuals such as the sex offender Max Clifford, who made a career out of selling kiss and tell stories to the tabloid press.  However, public relations have an important part to play in marketing communications.

Public relations are properly defined as the management of communications and relationships to establish goodwill between an organisation and its publics.  PR is the management and maintenance of your corporate reputation through both intended and unintended messages.

PR messages have a wider focus than pure marketing messages. Whereas marketing communications are focused on consumers of your product, public relations messages are to a wider cohort of stakeholders such as media organisations, government and finance providers.

The objectives of public relations include:

  1.  Prestige and reputation management:  to sell products, attract good employees and to promote community and government relations.
  2. Promotion of products: Build consumer desire through the use of press articles and product placement
  3. Dealing with issues and opportunities: Using social and community issues to create mutual benefit for your organisation and other stakeholders
  4. Developing customer goodwill: Treating customer issues fairly accurately and speedily.
  5. Developing goodwill with employees: Ensuring that employees identify with your organisation and share its values.  Overcoming the misconceptions of staff which may do damage to the organisation.
  6. Developing goodwill with suppliers and distributor:  Being a good customer to your suppliers and a good supplier to your distributors.
  7. Developing goodwill with government:  Influencing the opinions of public officials and politicians.
  8. Dealing with unfavourable press coverage:  Reacting quickly, accurately and effectively to negative press coverage.

There are two basic models of public relations:

  1. One-way Public Information Model – through the use of press releases and press conferences.
  2. Two-way Communication Model –  Where a conversation develops between an organisation and its stakeholders.   This model operates in two modes; symmetric where the balance of power is equal and communication reciprocal and  asymmetric; where the power balance is not equal and where the organisation affects stakeholder behaviour through persuasion.

These two modes tend to co-exist.

Public relations includes activities such as corporate advertising, event sponsorship and lobbying but for SMEs, probably the most prominent PR activity is media relations.

Media relations is the use of news stories in both tradition and electronic media to promote an organisation and its products without paying for advertising space.  However, it must be remembered that there are costs to the development of media relations. It is not free marketing.

The most common form of media relations is the use of the press release.

I have prepared many press releases over the years and was taught to write them by an experienced journalist and editor.  I have also seen managers and business owners who are terrible at providing written information to the press.  Here are a few tips which will help you prepare press statements which will catch the eye of editors and journalists:

  1.  Your content must be newsworthy:  A press statement must have something to say.  it is not solely an attempt to get free advertising.  It must have some meet on its bones. The fact you are having a sale is not newsworthy.  The fact you are donating a percentage of your profits to a local charity most likely is.  Potentially newsworthy topics include the launch of new products, new business investments, business expansions, significant changes to the marketing mix e.g. product rebranding, Productivity records, promotions and employee recruitment, capital investments, financial statements, acquisitions, big export orders, training awards, achievements of staff, visits by famous people, conferences, significant anniversaries.
  2. You have to be media savvy.  News of a manager being promoted may be of interest to the trade press but it probably will be spiked by a national newspaper (unless it is the CEO of a major bank).  Also be savvy about the timing of your release.  Be aware of slow news days and times when news is scarce e.g. during the summer parliamentary recess.
  3. Your message has to be of high credibility:  Higher than advertising.  It will be written up by a professional journalist, an expert in investigating and questioning statements not your in-house copywriter.  You will lose control of publication. When you buy advertising you pay for a particular position in a paper or magazine.  But a newspaper editor will decide where to place a news story in the paper.  You could end up on page thirty ‘below the fold’.
  4. Writing News Releases:  You have to keep press releases short.  You are not writing the article you are providing information to a journalist who will do the writing.  Keep the press release to one page at most.  Even better, keep it to two or three paragraphs.  If there are statistics or there is complex information to impart, provide bullet pointed Notes for Editors alongside the press release.  I have seen press releases which are little more than management reports and which go on for page after page.  These generally will end up spiked.  Remember newspapers and magazines have style guides for layout and grammar.  Only provide an pre-written article if requested to do so and ask for advice on style.
  5. Content:  Your headline must be factual.  leave flowery writing and puns to professional subeditors.  Your headlines task is to provide a brief introduction to your story.  Your first paragraph should summarise the story and provide all the critical detail.  It provides  the essential message of your story and it must catch an editor’s attention.  Your copy should also be factual and be backed up with evidence such as statistical data.  Include a ‘sparkling quote or even better two as it helps personalise the story and give it gravitas
  6. Layout: Use double spacing and leave significant margins.  This allows editors to mark the story for publication, to add information and make proofing amendments.  If the press release goes over the page (it shouldn’t) put “(MORE) at the bottom of the page on the right margin and number the pages.
  7. Embargoes and contact details: If there is an embargo only after which a story can be published, make sure it is in bold below the headline to the article.  Always include contact details so that editors can get further information.

Editors may receive hundreds of press releases in a single day.  To get yours published it must be professional and stand out from the crowd.

 

In-house or Outsource?

In the last blog entry, I discussed some of the aspects of the collapse of Carillion, the UK-based civil engineering and outsourcing firm.  Carillion’s collapse has led to a wider conversation about when outsourcing is appropriate and whether outsourcing firms are more effective and efficient than public authorities providing services in-house.

Using outsourcing firms to provide public services began in the early 1990s.  Successive governments have increased the amount of public services delivered by private firms year on year.  In his 2016 budget, George Osborne introduced tax advantages for local authorities who transferred services to the private sector.

The growth of public service outsourcing has moved private sector provision from back office functions such as ITC provision to front-line service delivery.  If you need an assessment for disability benefits, it isn’t provided by DWP staff but by ATOS, a private sector firm.   My refuse is collected by a French firm Veolia, road maintenance is carried out by a private sector firm, my local sports centre is run by Serco, not the local council.  Carillion was running prisons and providing school catering.

The question isn’t whether the private sector should be involved in the provision of public services but at what level that involvement should be.  There are also serious questions as to where the power and control lies in an outsourcing arrangement.  Are elected councillors determining the decision-making and service standards of an outsourced service or are these decisions based on the commercial needs of the outsourcing firms shareholders?

My local council’s contract with Veolia for refuse collection is a case in point.  Somehow, the Council signed a 29 year contract with Veolia which basically allowed Veolia to annually increase the cost of service provision.  Worse, the contract included a clause in relation to the building of a waste incinerator.  Something no one in my town wanted.  The contract term stated that if the council refused planning permission for the incinerator, it would become liable for all of Veolia’s legal costs in a potential planning appeal.  The council refused permission for the incinerator and was left liable for a multi-million pound bill.

The big argument for outsourcing is that the private sector is more efficient than the public sector.  By outsourcing, that private sector efficiency can be infused into the public sector.

As someone who spent over twenty years working in the public sector in a job which inspected the private sector, that argument looks weak.  A recent report about ATOS’s performance in delivering PIP (Personal Independence Payments) shows a catalogue of errors, delays and poor decision-making.

Local authorities of all political persuasions have been bringing outsourced services back in-house citing poor service delivery and increasing costs.  For example, Liverpool Council brought street cleansing back in-house after the chosen outsourcing firm failed to meet required service standards.

In my twenty years in local government, I have seen the good and bad of outsourcing.  I worked at one council which outsourced its ITC provision in a highly successful manner which brought in better equipment and servicing.  I have also seen outsourced contracts which delivered poor quality services and unacceptable costs.  In my experience, the use of the private sector is no more efficient or cost-effective than providing in-house services.

Possibly the worst example of outsourcing I have come across was a small local authority who outsourced their trading standards provision.  To this day, I cannot work out how the councillors thought they would save money or improve service provision with the deal.  All the existing trading standards staff were seconded to the outsourcing firm as it had no experience of working in the profession.  They all had TUPE equivalent rights which meant their pay and conditions could not be altered.  The Chief Inspector then had to be transferred back to the council as, by law, that role has to be a direct employee of the local authority.  This was outsourcing delivered by dogma rather than common sense.

I have spoken to other local councillors who have expressed the wish of ‘commercialising’ trading standards.  I then ask them how?

Trading standards main income generation stream, metrological verification, was removed twenty years ago when the government allowed manufacturers and installation firms to self-verify metrological equipment as fit for use in trade.  Local authorities were left with the legal duty to inspect equipment to ensure it was properly installed and calibrated but with no ability to offset the inspection cost.

In some circumstances, under the Primary Authority scheme, local authorities can charge for the provision of business advice.  However, for charges to apply, the business seeking guidance must operate across local authority boundaries.  In any case, authorities can only charge to cover costs.  There can be no profit motive.

In his book, Marketing in the Public Sector, Philip Kotler asks, “What do citizens want from public services?”

He argues that they want two things:

  1.  Performance of services that are critical to the public interest (such as policing and the military); and,
  2. Performance of necessary services that cannot be appropriately handled by the private or non-profit sectors i.e. some form of welfare state.

He points to the views of many on the political right that public services are often inefficient and wasteful.

Kotler argues that public servants need to improve not only real performance issues but the perception of their services amongst the general public.  He argues that to do this public services need to learn from the processes prevalent in the public sector including those of the professional marketer.

Throughout my career, I have seen this process in action.  I have worked in local authority departments which have ISO9000 series quality assurance systems.  I have seen total quality management being applied.  Increasingly local authorities have flat management structures.  Some have tried non-hierarchical matrix structures.  Performance appraisal and metrics are now the norm and lean production is used.

I agree with Kotler that the differences between the public and private sector are often overstated and these differences are often a convenient excuse to avoid the application of private sector style management processes and procedures.

I am also aware that there are often statutory and moral reasons that certain private sector processes may be inappropriate for public service use.

It must be remembered that many public services are statutory.  They must be provided.  Unlike a business, a public sector body cannot move out of a sector simply because it is unprofitable.  For example, John Menzies, once Scotland’s biggest chain of newsagents saw that the sale of newspapers and stationery was increasingly unpopular.  Menzies sold their shops to WH Smith and instead concentrated on the distribution of computer peripherals.  A local authority cannot decide to stop the provision of social work services or its library service just because there is no money in it.  Social services must be delivered by law.

I suspect the reason why so many public service outsourcing contracts go wrong is the attempt by management to force a new culture on to staff.  This builds resentment and argument.

It is a good idea to remember that the culture of an organisation belongs to everyone in that organisation and to try to force cultural change without the agreement of all stakeholders can be a disaster.

Whereas culture belongs to all stakeholders, procedure belongs to management.  It is much better to adopt culture through the proper application of procedures that to force a sharp change in the organisational culture by diktat.

Perhaps the outsourcing of public services has taken a step too far.  Certainly, the debate on where outsourcing sits in the provision of public services has a new impetus in light of the Carillion collapse.

My personal view is that public services can learn from private sector management processes but that the private sector can also learn from the vocational pride of many public servants.

 

 

 

What is Marketing?

In previous blog entries, I have discussed at length the modern definition of marketing.  However, I still feel that many SME’s still don’t get it.  They still see marketing as a subsidiary of sales or as only the management of promotional activity.  Worse, I still see many advertisements for marketing jobs which expect marketing professionals to be experts in graphic design or website management.

I decided to look at a few university websites to see the course content of their marketing courses.  What I saw on the university sites were course syllabuses containing marketing theory and management practice.  Not one course included modules or subject streams on graphic design or web management.

The conclusion is simple, if you need a professional graphic designer, advertise for a graphic designer.  If you need a website technician, advertise for a website technician.  Do not expect a marketing graduate to have such professional expertise.

Another common feature of marketing job advertisements is the prominence of social media management.

Now, social media is no doubt an important part of a firm’s promotional mix.  However, it seems that many businesses view it as a cheap option for their promotional activity.

social media is not a cheap option.  It is a promotional channel like any other and requires a similar amount of effort and resources.  In fact it could require additional resources to provide the same outcomes as other, more traditional marketing channels.

The jury is still out on the effectiveness of social media as a sales channel.  Some firms may feel they are getting good results but there has been little research done to measure social media’s effectiveness as a sales channel.  What marketers do know is that social media can help your website become ‘sticky’.  It can help as a signpost to your website, it can generate electronic word of mouth and it is a useful tool for developing brand advocates.  However, there is little evidence to show that it is a more effective channel than traditional promotional strategies.

One thing marketing is not is the generation of propaganda.  This week, the UK Conservative Party released three promotional messages.  One relating to the extension of the plastic bag levy to small shops; a second regarding the banning of charges for consumer credit; and a third relating to manufacturing output.

The first two messages passed off the policies as Conservative Party policy.  In truth they were the implementation of EU directives.

The third message stated, in a congratulatory manner that UK manufacturing output had passed 2008 levels.

For me this message caused significant cognitive dissonance.  In the normal run of things, UK manufacturing output in 2018 should be far higher than in 2008.  New technology alone should have meant an increase in manufacturing output compared to 2008.   There are indications that rather than investing in new equipment and additional capacity, UK firms are holding cash at bank: building a safety net to see them through post-Brexit turbulence. What the message actually indicated was that UK manufacturing had suffered a lost decade.

The Conservative message also took the manufacturing figures in isolation.  When you look at the UK economy in a wider perspective, there are still some worrying statistics.

The UK construction industry is effectively in recession and last year saw a 3.6% reduction in output.  Carillion, the UK’s largest civil engineering and public service outsourcing firm is in serious financial trouble.  There are rumours that it may enter administration tomorrow if a deal cannot be agreed with its pension fund and creditors.

Many UK retailers have reported poor trading figures over the Christmas period.  House of Fraser, for example, is talking to its landlords about reducing store rents.  Other firms such as Argos have struggled in what should be their strongest sales period.

Consumer debt is also rising.  Household debt has now passed pre-credit crunch levels and the Bank of England has told banks to tighten lending requirements.  Inflation is increasing whilst wages are stagnating.

UK exports have risen since the EU referendum predominantly due to the fall in the value of the pound.  However, the cost of raw materials has risen dramatically. At one point factory gate inflation was running at 18% where commodities were traded in US dollars.  Part of the reason CPI is rising is that many manufacturers are having to pass that factory gate inflation on to domestic UK consumers.

The UK government has been careful to prioritise statistics relating to the volume of exports not the level of earnings from those exports.  I strongly suspect that UK firms may be selling more abroad but that their earnings from those exports has not grown.

it will be interesting to see if the modest rise in the pounds value in recent weeks impacts export growth as British goods become more expensive abroad.

Many Brexit supporters point to the rise in the pound and the value of stock exchanges as signs that the impact of leaving the EU are being overstated.  However, there are other reasons that have caused these effects.

The first is that the US bond market is currently a bear market.  Investors are switching their strategy from government bonds to shares.  The second reason is that the dollar is lower than it should be and the cause of that is Donald Trump.

Trump has two major economic policies, the lowering of tax rates and vastly increased infrastructure spending.  These two policies conflict with one another.

Much of America’s infrastructure is in dire need of renovation or replacement.  For example, nearly all of America’s dams are long past their expected life span.  To increase infrastructure spending trump needs additional federal income.  Big tax cuts are not going to provide that additional income.  Trump will have to significantly increase the level of US government borrowing to carry out his proposed infrastructure projects.

Higher government borrowing means lower bond yields and as a result constrains the value of the dollar. Hence the bull market in shares.  There is a real risk that stock market levels are a bubble; and bubbles burst.  There is a real risk the bull may become a bear.

So, given the above factors, the promotional messages from the Conservative Party are political propaganda not marketing messages.

So if marketing is not the dissemination of ‘propaganda’, what is it?

Marketing is not advertising, it is not web or graphic design.  Marketing is the development of a consumer focus throughout all aspects of your business from product design to after-sales service.

In previous entries, I have shown how, over the last century, manufacturing has moved from a product focus, to a sales focus, to a consumer focus.  How business went from concentrating on manufacturing as many goods as possible; to a prominence on selling as many goods as possible; to a modern focus on satisfying the needs and desires of target customer groups.  Modern marketing is the last of these.  It is not a subset of sales or advertising; it is the development of corporate strategies and should be at the centre of your corporate planning.

Some academics have complained that putting marketing at the centre of business planning is little more than an ideology; that marketing constrains innovation and that it leads to dullness.  I suspect that such views come from studies of firms that aren’t doing it right.

Surely the aim of any business is to maximise income and to survive in the longer term.  If you are producing goods and services that people don’t want, neither of those goals will be achieved.  By putting the expectations of your consumers at the centre of your planning, you are more likely to meet those goals.

Look at the number of proposals on Dragon’s Den that are rejected because the entrepreneur has not considered the expectations of prospective customers?  How many are told the dragons will not invest as they see no market for the product.

Those stating that marketing is a source of dullness infer that the use of market research in planning leads to copycat products and dull marketing campaigns.  But that is marketing done badly.  Good marketing is looking for difference; not copying your competitors and attacking head on but finding strategic gaps and exploiting them.

Done properly, marketing should torment and tantalise the intended target segment and as a result create insatiable desire.

In response to those advocating consumer focus as producing dullness, the concept of retro marketing was developed.  This concentrates on four elements:

  1. Create exclusivity:  Hold product back and delay consumer gratification e.g. Apple watches exclusive deal with EE.
  2. Create secrecy:  Use teaser advertisements and hold back information e.g. The Harry Potter series of books held back titles and cover artwork until the day of launch.
  3. Amplification:  Get consumers talking about your product e.g. Cadbury’s drumming gorilla
  4. Entertainment:  Create a sense of fun
  5. Tricksterisation:  Use panache and audacity e.g.  Britvic used advertisements which looked like public information films.  Then a big orange man jumped out and slapped the subject of the film with the tag line, “You’ve been tangoed”.

Using such tactics, the motivation to use ‘Me Too’, copycat promotional strategies can be avoided.  That is true marketing.

 

 

 

Wha’s Like Us?

Over the Christmas period, I took my usual trip to my parents in Scotland.  It was there that I noticed three linked news stories.  The first related to a medical research project aimed at the reduction of type 2 diabetes.  Patients diagnosed with type two diabetes were placed on a strict diet rather than being prescribed drugs.  The results of the survey were startling with the vast majority of patients reversing their diabetes symptoms.

Type 2 diabetes is often the result of obesity and poor diet.  It appears that if a patient sticks to the diet they are given, there is a good chance that they will not require a lifetime on prescribed drugs.

Scotland, particularly the west of Scotland has horrific statistics for obesity, poor diet and early death.  This has a direct impact on the health service and if the incidence of type 2 diabetes can be reduced it will have a direct implication on health service budgets.

The second two stories related to the sugar tax which was introduced in the 2016 budget. The tax is aimed at soft drinks containing high levels of sugar.  As a marketer what interested me was the way two soft drinks producers reacted to the new tax, Coca Cola and A.G. Barr.

Barr’s produce Irn Bru, famously “Made in Scotland from Girders”; in truth, made in Scotland using a staggering amount of sugar.  In response to the new tax, Barr’s announced that they would changing the secret recipe of Irn Bru to reduce the sugar content.  This announcement has led to Irn Bru addicts stockpiling cans and bottles of the beverage.  A petition has received thousands of signatures and asks that Barr’s increase the price of Irn Bru to cover the tax rather than reduce the sugar content.    One comment on the petitions states that the recipe shouldn’t be changed as it is only the high sugar content of Irn Bru that cures an individual consumers hangover.  Wha’s like us indeed!

Coca Cola, in reaction to the sugar tax, have announced that they will not be changing their recipe but that Classic Coke would be sold in smaller bottles and at a higher price.  A 1.75 litre bottle of Coke will be reduced to 1.5 litres and will cost 20p more.

It must be noted that, in Scotland, Irn Bru outsells both Coca Cola and Pepsi.

The sugar tax is an attempt by government to ‘nudge’ consumers into making healthier choices.  One of the first acts of David Cameron as Prime Minister was to set up a cabinet office team (now a semi-privatised business called Behavioural Insights) to apply nudge theory to public policy.  The team’s work is based on the work of Richard Thaler, a behavioural economist whose nudge theory won last years Nobel prize for economics.  The aim of nudge theory is to use economic and other factors to achieve the unforced compliance of political and economic aims.  rather than banning high sugar content in soft drinks, the sugar tax makes them more expensive.  Consumers, hopefully, will balk at the high price of the drinks and select cheaper, healthier options instead.  That, or fearing lower sales revenue, manufacturers will change their formulations.  Another example of behavioural economics are the plastic bag levy.

When preparing a strategic marketing plan, it is important that businesses undertake an analysis of the market environment.  This takes in two levels of interaction, with the macro-environment and the micro-environment.  The micro environment, often expressed in terms of Porter’s five forces, includes stakeholders such as consumers.  The macro-environment, often expressed in terms of the acronym PESTEL, includes wider political, sociological and economic factors.

The sugar tax should be included in such an environmental analysis.  Clearly it is politically motivated, it is aimed at changing societal norms, it has an economic impact and there will be a reaction from consumers (such as the petition).  It will also have an impact on those firms supplying sugar to the soft drinks trade.  A significant quantity of the sugar in soft drinks is corn syrup.

Clearly, faced with the same problem, Coca Cola and A.G. Barr have come up with different strategic solutions.

Coca Cola is a worldwide brand and he classic Coke recipe is the same in every country.  A.G. Barr is a regional soft drink manufacturer.  Barr’s market is predominantly the UK and the vast majority of sales of Irn Bru take place in Scotland.  It is unlikely that Coca Cola would want to produce one recipe of Classic Coke for the UK market and a different recipe elsewhere in the world.  Coca Cola’s reaction to the sugar tax is to reduce the quantity in bottles and to raise their price.

Barr’s have taken another route to compliance, rather than raise the price of Irn Bru, affecting sales in their main market, they have chosen to alter their secret recipe.

What must be taken from these two different positions is that marketing strategy may be different for firms operating in the same market and facing the same issue.  When deciding on strategy, you must consider a wide range of individual factors impacting your business.  Just because one of your competitors takes a particular course of action, that does not mean such a strategy is right for your business

Goodbye 2017

Over the Christmas period, I have been reading Marketing Due Diligence by McDonald et al.  In the book Professor Malcolm Macdonald and his colleagues discuss how to link marketing activity to a firm’s share price and other financial measures.

The book is an attempt to explain the theories behind marketing strategy in a way understandable by senior managers and company directors.  Many of these individuals come from a financial background and look at marketing in terms of financial results only.  They ignore methods of measuring success, such as Kaplan and Norton’s Balanced Scorecard, which look at corporate success in terms of long-term growth, as opposed to short-term financial gain.

McDonald exposes the fallacy that marketing has failed.  That consumer power has exposed traditional marketing activities as irrelevant.  He argues that there is gross ignorance amongst many senior managers as to the power of marketing strategies and this means that this ignorance has led to mistaken definitions of marketing’s role in a business.

The truth is that marketing is a core business activity and traditional marketing activities have as much power today as they did fifty years ago.

McDonald argues that too many businesses give marketing professionals a subsidiary role in their business.  Often these companies concentrate on a product, technical, operations or financial focus.  Marketing’s secondary role in these firms means that it is never truly effective.

He also has concerns that some in the marketing industry are overly evangelical about their profession’s role in business and that marketing should be the core of the corporate universe.  Marketing is similar to finance and other business disciplines.  It is a functional profession with its own body of knowledge, processes, tools and techniques.  Marketing like these other professions has its own professional institute, the CIM, which prescribes, researches, examines and develops the marketing discipline in the same manner as other professions.

McDonald argues that marketing shouldn’t be given priority over other professional disciplines but that it should be given equal status to them.

However, it is clear that marketing is a pivotal strategic process and important to business leaders.  It should flourish at three different levels in a business:

  1.  Senior managers and business proprietors need to understand and enthusiastically embrace the concept of customer service and the development of a customer-focused organisation.  the creation and maintenance of customer satisfaction should be the only route to long-term profitable success.   There should be an organisation-wide market-driven culture of superior customer service within a business as this route to success offers significant sustainability.
  2.  Business strategies must start and be evaluated against the needs of the market.  Marketing activities must have a strategic focus and an organisation’s future must be planned from the market inwards.
  3. Promotional and marketing tactics must be implemented within the context of an overall marketing strategy and be market-led.  Such tactics must meet the professional standards expected in such areas as market research, promotion and sales.

Customer satisfaction and customer focus are not simply the domain of the marketing department.  They should be the core concept throughout all of an organisations activities.

Marketing has a central role in the creation of sustainable competitive advantage.  As Kelly states in his paper Customer Intelligence; From Data to Dialogue (2005), ” the customer is the fulcrum of the business and everything from production ,to supply chain, to finance, risk management, personnel management and product development, all adapt and converge on the business value proposition that is projected to the consumer”.

This means that marketing activities need to be controlled at three levels:

  1.  Marketing due diligence; whether marketing activities enhance or destroy shareholder value on the basis of an objective assessment and how strategy will be improved.
  2. Marketing effectiveness; that tactics applied to each chosen market segment targeted by the marketing strategy create the expected competitive advantage
  3. Promotional effectiveness: That marketing communications activity achieves the required objectives in terms of awareness, brand recognition, etc.

Measuring marketing effectiveness is not like factory output.  It is easy to measure what goes into a factory and what comes out, i.e. productivity.  It is not easy to measure the outcomes of marketing activity.  This fact is not grasped by many non-marketing professionals.  Productivity can be measured at the factory gate whereas the results of marketing activity may not be clear until many months after the strategy has been enacted.

Brand language and communications

Increasingly promotional activity and communicating brand messages is not a verbal medium; it is a visual medium.  The requirement to create visual messages; combined with the ever-shortening attention spans of viewers; makes promotional advertising and the communication of brand messages more difficult.  Consumers are bombarded with commercial messages.

This means that if you are to successfully communicate your brand message, you must carve out a distinct territory.  A unique and successful brand message does not appear out of thin air.

Creating brand territory is not as simple as just repeating the same phrases over and over again.  It is the development of a brand language which expresses your corporate ideology.  It is a favourite practice of politicians to come up with a single phrase which encapsulates their whole campaign; for example Donald Trump’s ‘Make America Great Again’, Theresa May’s ‘Strong and Stable’ or Tony Blair’s, ‘Education, Education, Education’.  Politicians are trying to create a shorthand which uses a single phase to draw the attention of the widest possible electorate.  However, for a commercial branding strategy, such shorthand leads to excessive repetition which can clog up the brand message.

Often there is such an urge to create an image of unity and common spirit in a brand message across different campaigns that brand messages become a code.  Code is artificial language.  it isn’t human or natural.  When creating a brand message you want to communicate personality, your culture and your brand values.  You want to announce products in a way which charms customers.  If you resort to a shorthand, impersonal code, these factors are missing.

Rather than creating a code, you need to build a glossary of terms which apply to your brand.  Such a glossary helps decentralise your message whilst keeping your chosen language within your identified brand prism.

The process is similar to the creation of the style guides used by newspapers and other publications.  The style guide for The Economist runs to over three hundred pages and the Yahoo style guide is even longer.  These documents specify the agreed spelling of certain words, page layout and appropriate punctuation.  They define how these publications look on the page.

A brand charter, or expression guide, the promotional equivalent of a journalistic style guide.  They will include agreed phrases and even where on a page the brand name and logo are located but they will also specify the dominant features of style such as colours used, text fonts and image requirements.  For internet and television promotions they will show agreed gestures and jingles.  Graphic layouts and narrative structure codes will be included.  Think of a Coca Cola television of cinema advert, they will nearly always show someone drinking from the traditional glass Coca-Cola bottle (the bottle shape is a registered trademark) even though the majority of Coca Cola sales are now either in metal cans or plastic bottles.

In mature markets advertising is a challenge. There are no guaranteed results and often defined goals are not easily measurable.  Such goals are not SMART (Specific, Measurable, Achievable, Realistic or Time Bound).

As a result many brands are switching away from traditional advertising forms and mediums.  For example the wine brand Jacob’s Creek has stopped using traditional television advertising and instead has switched to the sponsorship of television programmes.  Jacob’s Creek was built on an award-winning product, in-store promotions, support to the retail and distribution trade and customer tasting sessions at the point of sale.  The switch from traditional television advertising to programme sponsorship is a better match top the brand image and ideology.  Another tactic being employed by Jacob’s Creek and other brands is the increased use of product placement in films.

For top of the range brands, a common branding tactic is an association with opinion leaders.  For example, eBay is arguably the most successful internet sales and auction site.  eBay’s position was not built on television advertising (although recently they have started to use that promotional channel).  EBay developed its brand position through the use of online referral and public relations.

There is an old maxim: “Half of my advertising budget is wasted but I don’t know which half”.  Statement is nonsense.  Wasted promotional activity is easy to identify.  It is advertising activity which:

  • Is not sufficiently creative and individual
  • Which misses its target audience
  • or which is shown where the promoted product is not on sale.

Of these three reasons, the first is the most important.

Often, the failure of promotional campaigns is blamed on the advertising agency.  However, the client employing the agency can be equally at fault.  often promotional campaigns fail because the specification provided to the agency is not clear in identifying the required brand message of the goals to be achieved.  Often the fault is the quality of the brief, not the quality of the agency.

Brand propositions must be incisive.  They cannot be bland.  it is unlikely that even the most creative advertising agencies can transform a bland brief. A promotional brief that is full of statistics and has a dearth of actionable ideas is likely to fail.

You must radicalise your advertising targets.  Your brief shouldn’t just describe your target customers, it should reflect them.  Your promotional messages should be given through radical characters not plain people.  For many years Cillit Bang was advertised using a fictional character ‘Barry Scott’.  Barry became as famous as the product.  Many thought him to be a real person and not an actor playing a part.  The Barry Scott character was carefully designed to reflect the ideal consumer of the brand and to exaggerate defined characteristics.

After using the character for many years, Barry was dropped from Cillit Bang’s advertising and there was a distinct fall in sales.  So much so, the character was brought back and once again fronts their advertising.

Creative and radicalised promotions are difficult for brands which consumers have known all their lives.  Oxo has recently reverted to having a OXO family, a promotional strategy it first used in the 1970s.  However some mature and established brands do manage to present radicalised messages.  One need only think of the Cadbury Dairy Milk promotion with the drumming gorilla.

If you are looking to promote a brand over the long-term or to reinvigorate a mature brand, it is important to present a radicalised message and the development of a comprehensive brand charter.