Tag: Strategic Planning

The Inevitability of strategic Wear Out

Regardless of your position in the marketplace; whether you are a market leader, a follower, a challenger or a niche marketer; you need to recognise that over time successful marketing strategies begin to wear out and will need to be replaced.  They will lose impact.

It is imperative that you continually adapt your strategy to meet new competitive challenges and to match shifting consumer needs.  Many extremely successful brands, from Kodak to House of Fraser have suffered from over-reliance on their long-standing strategies ignoring the fact that the consumer base has moved on to other new, sparkling concepts.

House of Fraser maintained a department store model based on concessions whilst the fashion brands they relied upon built direct selling through websites and brand-specific stores.

Kodak, despite inventing the digital image sensor, failed to invest in the digital camera and continued to invest heavily in 35 millimetre colour film.

Blockbuster video tried to retain the model of DVD and cassette rental in an age of downloads and Netflix.  Similarly HMV, which has failed twice, ignored the rise of music streaming services such as Spotify and iTunes.

Often management are unwilling to change what they see as successful strategies.  They only see the need to change when it is already too late.

The following effects can contribute to strategic wear out:

  1.  Changes to market structure
  2. The entry and exit of competitors from the market
  3. Changes in your competitors’ strategic positions
  4. Competitive innovations
  5. Changes in consumer expectations
  6. Changes in the macro and micro economy
  7. Changes in legislation
  8. Technological change – including change which at first appears unrelated to your market
  9. Changes to distribution and supply channels
  10. Lack of internal investment
  11. Poor cost control
  12. A tired or uncertain management philosophy.

Perhaps one reason that businesses hold on to outdated marketing strategies is that the process of creating new ones can be painful.  Managers may feel the move away from tired and trusted methods is a black mark against their personal record.  Often, changes to marketing strategy can only be achieved through a change in personnel at board level.

However, there is a law of marketing gravity. Regardless of how big or powerful an organisation is in the marketplace, sooner or later its marketing programme will decline.  Marketing gravity is entropy, that all things break down and become dust.

Four principles are often evident in firms retaining outdated marketing philosophies and strategies:

  1.  Marketing Myopia:  That you ignore the impact of your actions on your brand.  You apply the rules of marketing whilst ignoring the spirit of marketing.  So marketing planning becomes an annual chore.  Marketing is only a sales support activity.  This is the decision by British Airways to redesign the tailfin of their aircraft in an attempt to be more exclusive and ‘international’; the redesign blurred BA’s distinctive image as a national flag carrier and by trying to focus on only high end and executive customers, they restricted the size of their potential market limiting earning potential.
  2. Marketing Arrogance:  You ignore the effect of your actions on your brand. This is the attitude of Gerald Ratner when he may a supposedly humorous after dinner speech about the jewellery sold in his shops being ‘crap’; a speech which hugely damaged the Ratner’s/H Samuel brand.  This is the manager who operates on hunches and that they know what the customer wants without carrying out any research or analysis.
  3. Marketing Hubris:  This is believing in your own PR to the detriment of your brand.  Microsoft believe it could operate free from the constraints of other brands. Richard Branson used to believe Virgin could ignore traditional strategic planning and could do things differently. Both Microsoft and Virgin have reversed these positions.  Branson now says that the strategic planning process is crucial and central to the success of his brand.
  4. Marketing Silliness:  This is putting common sense aside in an attempt at being creative.  We all see TV advertising which is glossy, has startling imagery and artistic flair; but when we are asked what the product or service on offer is, we cannot identify it.

It is also the case that ‘dead cats only bounce once’.  Once a strategy has worn out, you will likely only get one attempt to revive it and gain lost market position.  if that attempt fails, your market share and position will drop dramatically.  We live at a time where many traditional high street retailers are facing oblivion as the internet and home delivery services drive down margins.  To respond, these retailers need to focus on strategies which create unique value for consumers.  Increasingly, to get footfall, these firms will need to create experience beyond that of traditional high street shopping.  Too many of these retailers are relying on consumer inertia or consumer ignorance.  An example is high street banks and utilities firms which often only rely on consumers reluctance to switch to other providers; expecting that consumers will stick with what they know rather than try the new.

You cannot simply stick with what has worked in the past.  The future will be different.

You cannot stand still.  You must always look for the next strategic step. Break away from the past and create strategies for the future.

 

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.

 

Does your organisation properly define the Sales and Marketing relationship?

Does your business have a Sales and Marketing department?

Do you call your sales force ‘Marketing Representatives’?

Do you have a sales office or a marketing suite?

When you employ marketing staff or consultants, do you measure their performance on the basis of sales KPIs?

I have found many businesses which can answer all these questions in the affirmative and that is puzzling.  These businesses clearly have a confused definition of two separate but linked specialisms.

Worse, the description Sales and Marketing is worrying as it gives prominence to the activity of personal selling over the strategic role of marketing professionals.

Sales is the activity of personal selling usually based on the employment of a cohort of sales representatives and involves direct face to face communication between the seller and the buyer.  It is a promotional activity based on two-way communication.  Sales presentations are also often designed to meet the needs of individual customers based on specific buyer demands and taking into account knowledge of the buyers status and issues.

Personal selling is often an expensive communication channel. You have to pay for expenses such as cars, travel expenses and a sales office. The total bill for a sales representative can be double their salary.  The practice of the traditional sales representative model is also changing through the increasing use by organisations of centralised purchasing teams.

Sales representatives are increasingly having to learn new skills.  Often the focus is now on the retention of profitable customers whilst the zombie customers that represent costs are abandoned.  Sales reps are now Customer Service Representatives, where the focus is on long-term customer retention as opposed to short-term one-off transactions.  Salesmen are now also expected to provide knowledge and database management providing market research data and administration.  Their role is to promote products and develop solutions; not just to sell.  Representatives are now problem solvers who develop partnerships with their clients.  They satisfy needs and add value.

The stereotypical image of the salesman as a  slick, fast-talking charmer is gradually disappearing to be replaced with that of the thoughtful, knowledgeable professional.

However, personal selling is not a stand alone business activity.  It sits as one part of a wider marketing mix.  It is only one element of a comprehensive marketing strategy.

Modern sales practice depends on:

  1. Target market choice: the targeting of profitable accounts.  This requires a wider of your targets through market segmentation and key account identification.  These wider strategic marketing functions provide for effective sales force management.
  2. The creation of differential advantage: The start of  successful marketing strategy.  This strategy needs to be embedded in the sales plan and be effectively communicated to all staff involved in the sales process.  The sales force must be able to articulate the differential advantage to customers.

One danger is that your sales representatives dilute your differential advantage by caving in to customer demands for price concessions.  it is also important that product benefits are communicated in terms that are understandable to the customer.

So sales activity relies on the strategic objectives of your marketing plan.

There are four generic marketing strategies depending on your market position.  These reflect the four quadrants of the Boston Consulting Group Growth/Share matrix:

  1.  Build your market: grow market share and sales volumes; increase your levels of distribution and increase your service levels. prospect the market for new accounts
  2. Hold your market position: maintain your market share, sales volumes and service levels. Limit prospecting
  3. Harvest the market: Increase earnings by reducing costs and targeting the most profitable customers. Reduce the cost of service. Reduce market prospecting. Transfer less profitable accounts to telemarketing.
  4. Divest: Limit sales visits to the most profitable accounts and increase order levels to minimise stock levels. No market prospecting.

Each of these marketing positions requires a different sales strategy:

  1.  Build:  Requires high call rates to existing accounts.  Highly focused sales activity during calls. Increased prospecting for new customers.
  2. Hold: Maintain current call levels.  Moderate focus during calls.  Call on new customers as they appear.
  3. Harvest: Call on profitable accounts. Move others to email contact and telemarketing. Don’t prospect for new customers.
  4. Divest:  Apply quantity discounts to hive volume accounts.

Perhaps the term Sales and Marketing should be reversed to recognise the strategic role of marketing.  it is your marketing strategy that determines the activity of your sales force.  Your sales force should not determine your marketing and corporate strategy.  This would be a better representation of the relationship between marketing and sales.

Even better, your marketing function should be allied to your wider corporate planning rather than being located as a silo function of your sales team. Strategic marketing planning should be a central part of your organisations top-level business planning.

 

 

 

 

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.

Planning in SMEs

Small and medium-sized enterprises have some specific problems and certain advantages when it comes to business planning.  Often they lack the skills and resources required to carry out the depth of research needed or they lack the time to develop detailed and structured corporate plans.

However, the current Chair of the Chartered Institute of Marketing has described small businesses as natural marketers and that due to their small size, they can adapt more quickly to environmental change.

Some small businesses do not adequately plan.  If business plans or marketing plans are prepared, they are too often a means of placation to bank managers or peer-to-peer lenders.  Plans are prepared for external stakeholders not to outline the future direction of the business or to achieve stated goals.

Whittington (2001) described four approaches to strategy that he saw as prevalent in small business planning:

  1. Classical:  This approach relies on rational planning methods and environmental analysis as the basis for decision-making and long-term planning.
  2. Evolutionary:  This approach assumes survival of the fittest.  It is the law of the jungle.  Correct strategies develop over time and in reaction to environmental changes.  Ad hoc responses are given to environmental challenges.  Under the evolutionary model of small business planning, long-term plans are not feasible.
  3. Process:  Strategy is subservient to existing and fallible business processes (of both the business and its market).  Strategy is a ‘bottom-up’ process where staff react to environmental change.  Senior management may not be in control of business procedures.
  4. Systematic:  The ends and means of strategy are closely linked to the local social systems in which it takes place.  Companies follow processes dictated by local social restraints rather than strict business considerations.

Given these four approaches, it is clear that many small firms see themselves as emergent and profit-maximising.  The operate on the basis of survival of the fittest and they fail because they cannot adapt to environmental challenges or the actions of competitors.

Statistics vary but the latest set of figures I have seen show that 91% of small businesses survive their first year but that only forty percent of those businesses last  for five years.

I have also seen worrying statistics that 60% of small businesses have no business or marketing plan and 80% of those that do only plan 12 months in advance.  Planning should not be an annual chore; it shouldn’t be a  tick box exercise.  Whittington rejects the toolbox format prevalent in so many business texts found in high street bookshops.  Planning processes should be organised to meet the business’s culture and to fit within its resource base.

The differences between the four approaches to planning really matter.  Each approach will offer strikingly different solutions to the same set of variables.  This means managers of small businesses may be offered radically different choices and outcomes.

Weak planning processes mean that many small companies are at the mercy of their environment and they are not in a suitable position to plan for the long-term.  this doesn’t mean that there is no strategy at play; just that the strategy has developed in reaction to environmental change.

An often quoted and possibly apocryphal mantra is “there are no small businesses, only businesses that haven’t got big yet”.  Business is about growth.  Whether it is about growth of earnings and profitability, growth geographically or growth in terms of scale.

If you want your small business to grow and be sustainable in the long-term, it is important that you develop appropriate and robust strategic planning processes.

Assessing Market Risk

A crucial part of strategic marketing planning is the assessment of risk.

Marketing risk can be broken down into five sub-components:

  1.  Product Category Risk – Is your chosen product category large enough to support your business and to provide sufficient earnings?  Many of the businesses pitching on Dragon’s Den are rejected for this very reason.  This risk is high for novel products and low for existing product categories.
  2. Market Existence Risk – Is your target market smaller than planned?  I have a business presentation based on a company supplying three Michelin star catering for private jets; a firm which is yet to make a profit.  It is clear that in setting up the business, the proprietor overestimated the number of potential customers.
  3. Sales Volume Risk – Are sales lower than planned?  This risk is higher if you make assumptions about your customers and competition. It is lower if you carry out appropriately detailed market research.  Beware that you are not entering a ‘fad’ market or product category.  A fad can show massive market and sales growth which can disappear almost overnight.
  4. Forecast Risks – The market grows slower than forecast.  Expected growth fails to appear.  Orders are In excess of production expectations.  The latter risk is currently affecting Tesla who have obtained orders far in excess of their planned production levels.  This has led to a significant drop in tesla’s share price as consumers are not receiving vehicles on time.  Having too many orders can be as bad as having too few especially if you do not receive payment for stock made significantly after it has been produced.
  5. Pricing Risk – Pricing levels in the market are lower than planned.  This obviously affects margins, return on investment and profitability.

If you develop a strong marketing strategy and plan, there is a high probability of delivering your desired market share.  A weak strategy and plan will result in weak market performance.

Marketing risk can be placed under two headings; market risk and profit risk.

There are five market risk criteria:

  1. Target Market Risk –  This is where your strategy only works with some of your target customer segment.  It may not work at all.  This risk is higher for heterogeneous groups and lower for homogenous groups.
  2. Proposition Risk – Your offer doesn’t appeal to some or all of the target customer group.  This is higher if you make the same offer to all customers; lower if a specific offer is made to each customer segment.
  3. SWOT Risks – This risk occurs when you do not leverage your strengths; or you ignore threats; or you don’t improve weaknesses; or you fail to act on opportunities.
  4. Uniqueness Risk – Your strategy fails because you are competing head on with other market suppliers and your offer to consumers is identical to that of your competitors.
  5. Future Risk – Your strategy fails because prior to its launch a major change has occurred in the marketplace.

There are also five criteria in measuring Profit Risk:

  1.  Profit Pool Risk – Profits are lower than planned because of competitors reaction to your strategy.  Often, higher profitability comes at the expense of your competitors and s they react to your strategy.  This risk is higher if your market is mature and static and lower if there is room for market growth.
  2. Profit Sources Risk – Profit is less than planned once again to competitors reacting to your strategy.  This risk is lower if there is growth in the overall profit pool of the market.  It is higher if the source of profits comes from taking customers from your competitors.
  3. Competitor Impact Risk – This occurs where there is a single large competitor in your market and they react to defend their large market share.  This risk is high if your strategy affects that large competitor directly and low if the threat is spread over numerous competitors.
  4. Internal Gross Margin Risk – Profits are reduced because production costs are higher than planned or the costs of providing services are higher than planned.  For example, the Brexit referendum caused a significant drop in the value of the pound compared to the US dollar.  Companies producing goods which rely on raw materials traded in dollars suddenly faced far higher raw material prices yet they were reluctant to pass those cost increases on to consumers.  The result was lower profit margins and less cash for productivity investment.
  5. Other Cost Risks – The costs of promotion, customer service and other ancillary functions are higher than planned and therefore affect profitability.

The risk of not delivering the required level of profit margin is highest when profit margins in the market are shrinking,  your strategy impacts a single powerful competitor and when you make optimistic cost assumptions.

The risk of not obtaining required market share is highest when you treat customers as identical and you do not develop discreet offers to clearly identifiable market segments.

Clearly, if you make plans based solely on assumptions you face higher risk than if you carry out appropriate and robust market research and strategic planning.

A Key Marketing Activity

Business leaders and academics are agreed that the correct definition of a business’s market, followed by careful market segmentation are key to successful marketing planning, the development of sustainable competitive advantage and the creation of stakeholder value.

The following ingredients  must be combined to create world-class marketing functionality:

  • A deep understanding of the market in which you operate
  • Correct marketing segmentation
  • Careful product development, positioning and branding based on that segmentation activity
  • Effective marketing planning processes
  • Long-term, integrated marketing plans
  • Institutionalised creativity and innovation
  • Total supply chain management
  • A market-driven organisational structure
  • Careful recruitment, training and career management
  • Rigorous line management implementation

All these activities rely heavily (or in part) on an organisation correctly defining the market within which it operates.

Lets take the example of a businessman who runs an Italian restaurant.  How should he define his market; who is he competing against?

It is unlikely that he views his business as just being in competition with other Italian restaurants.  It is likely that he will view his business as in competition with other types of restaurant e.g. Chinese, Indian or Thai.

But is that sufficient?  Should that restaurateur be looking at the wider food industry for competitors?

The correct way to define the market in which you operate is to assess your competitors as all those businesses which satisfy the same need.

Our restaurateur may feel that  this definition is met best by considering all leisure activities which compete for a consumers disposable income.  He isn’t competing in the restaurant business but the evening leisure and entertainment sector.  He isn’t just competing against restaurants but also pubs, clubs, cinemas, theatres and sports venues.

Take as an example a pension provider.  A pension is a financial services product, not a market.  Pension providers do not consider themselves as competing only against one another.  They are also competing against other forms of post-work income provision such as equity release firms, investment brokers, financial advisors and investment trusts.

Pension funds compete against a wide range of financial products, not just other pension suppliers.

An important element in defining your market is to draw a market map.  Ask yourself:

  • Who are your competitors?
  • Who are the market distributors?
  • Who are the market resellers?
  • Who are the customers?
  • Who are the end users?
  • What distribution channels are there?

Then assign values to:

  • The market as a whole
  • Each layer of the market
  • Each distribution option
  • Each market player

You therefore create a map which displays the distribution and value chains that link suppliers with end users and which takes into account buying mechanisms and the part played by ‘influencers’.  For example, in financial services, independent financial advisors are likely to be considered market influencers.

Delia Smith, the celebrity cook, could be considered a market influencers.  When she includes particular ingredients in her recipes, cookery fans will rush to buy them and often there are shortages on supermarket shelves.  Grocery suppliers therefore keep a close watch on Ms Smith’s recipes to look for the next fashionable ingredient.

A marketing map also allows you to identify leverage points. These are parts of your market where your organisations attributes, your market power and your marketing mix can be used to impact consumers purchasing decisions.

If you are in business, any business, a clear understanding of the environment in which you operate is crucial to sustained success and developing a market map is the crucial step in developing that understanding.

Defining your position

A critical element in the planning of marketing mix strategies, including promotional communications, is the management of your market position.

Market positions operate in relation to two dynamics:

  1. who is the target audience – i.e. your chosen market segments; and,
  2. how that audience views your offering – either through their understanding of how the product works or through their understanding of your communications. i.e. how their minds interpret your message.

One of the roles of marketing professionals in a business is to research these two dynamics and to develop a position which maximises the offering in relationship to them.

Most marketers use the following process to develop distinct market positions:

  1. Examine the positions of a business’s competitors.  This usually involves the development of perceptual maps taken from customer market research.  Perceptual mapping helps determine consumer attitudes and perceptions.
  2. They then determine the position of the focus brand.  This is the process of finding gaps in the market which are commercially viable or where competitors are seen as vulnerable.
  3. You then determine the positioning strategy for your brand.  Where in the market do you want to be.
  4. The next stage is critical.  You must determine whether that market position is viable in terms of the competition and your budgetary constraints.  I do a presentation on strategic marketing planning which includes a section on positioning.  I use the example of a private jet catering company.  Despite being in existence for a number of years, the company has never made a profit.  The owner of the firm believed he had identified a clear position in the market which was not being catered for (sorry bad pun) by his competitors.  However, it was clear why his competitors had not filled that market gap – there wasn’t enough income to be generated to cover the high costs of the segment.  In choosing a market position, it must be viable in the long-term.
  5. Once an appropriate market position has been chosen, you should develop an appropriate marketing mix which will maximise opportunities.
  6. You then need to continually monitor the market position; to defend against entrants to the segment and to adjust your offering to account for changing consumer tastes.

You need to develop a position which your intended customers can relate to and understand.   This means developing distinct brand attributes and values.

There are numerous approaches to developing marketing positions based upon factors in the market, customer profiles at through brand redefinition e.g.

  • Product features:  For example, mobile phones are sold on features such as software apps, storage capacity and the quality of the built-in camera.
  • The price/quality ratio:  Price is often a strong signifier of quality.  You don’t get cheap designer watches or clothes.  For many years Stella Artois lager was sold using the strapline “reassuringly expensive’.
  • The product class association: Dove is not a soap, it is a ‘beauty bar’.  Head and Shoulders began its life as an anti-dandruff shampoo, not it is sold as the UK’s favourite shampoo.  Listerine began life as a multi-purpose household detergent, now it is sold as a mouth wash to prevent bad breath.
  • The product use: A few years ago, Kellogg’s ran a highly successful advertising campaign where their cereals were redefined not simply as breakfast food but as snack foods to be eaten at any time of the day.  They also ran a campaign advertising their cereals to people dieting to lose weight where they replaced either lunch or dinner with a bowl of cereal.  Kellogg’s Corn Flakes were originally sold as a health food.  The original formulation of Coca Cola was sold as a medicinal tonic, not a soft drink.  Lucozade was a drink for invalids but its use was successfully re-interpreted as a drink for sportsmen and sportswomen.
  • The User:  Products which are designed for carefully chosen consumer groups.  This is common in the market for fragrances.  Firms such as Unilever and Estee Lauder develop perfumes with pop stars such as Britney Spears and One Direction to specifically target their fan base.
  • The Competitor:  For many years Tesco and Sainsbury’s battled to be the UK’s top supermarket chain.  They would watch each others activities closely and develop very similar offerings in terms of own brand products and specialist ranges.  Before their demise, Saab competed with Volvo as to who produced vehicles with the highest level of safety features.
  • Benefit: Sensodyne toothpaste is marketed as the toothpaste for people who suffer from porous tooth enamel.   Daewoo for many years marketed the fact that you could buy their cars directly without a dealer as a middle man.  Eliminating the dealer was seen as a benefit as it reduced vehicle costs and increased the consumer’s power in the deal.
  • Heritage or cultural symbol:  A unique aspect of heritage in the UK is the display of Royal warrants, the fact that your firm supplies goods and services to the Queen and Royal family.  It is no accident that Universities are marketed using their coat of arms.  Firms proudly display that they were ‘established in 1803’ and there are brands such as Kronenbourg 1663 lager which use a date as an indication of longevity and quality.

Whatever the position chosen for a brand or product, it must be relevant to the target customer group and have a consistent marketing mix.  It must be believable and credible to consumers and supply chain partners.  It must be developed for the long-term.  It must be adaptable to account for changing market conditions and customer tastes.

If you are looking to reposition an existing brand or product (such as Listerine) you should do so not from your own perceptions but from the viewpoint of consumers.  You need promotional and marketing activities which suppress the old market position so that the consumer dissociates the product with its existing position.  You also need to promote the new position so that consumers are educated about the change.  It is important that these two activities are complimentary i.e.  the activities which weaken the old market position should strengthen the new market position.

 

Marketing Project Control and Henry the VIII

The word control has had a bad press.  It is often associated with terms such as limiting freedom, coercive action and keeping costs to an absolute minimum.

In project management the term control refers to a mechanism to protect strategic plans during their implementation.  Murphy’s Law states that if anything can go wrong, it will.  Therefore a control mechanism pre-empt such problems and thus is a valuable asset.  A control mechanism links actual behaviour to the intended overall strategic intent.

The basis of control systems is the ability to measure.  It is the process of comparing what should happen with what has actually happened or what is likely to happen.  Too many firms measure what is easy to measure; not what is important to measure.

Good project management control systems identify and rectify problems at an early stage.  Prevention is better than cure.  Be proactive not reactive.

It is better to break the process down into a series of simple steps.  Interim targets should be set and integrated into overall strategic planning.  Results should be compared with expected goals.

There are two sides to control – inputs and outputs.  If you only deal in outputs, you are inspecting the process; you are not controlling it.  Control processes must reflect both inputs and outputs.  This allows managers to optimise processes and to take a strategic view of plans.

Typically there are three typical categories of input:

  • Finance (investment, working capital and cash)
  • Operations (Capacity, usage, efficiency and the application of machinery and other assets)
  • People (numbers, skills and quality)

There are two forms of output:

  • Efficiency (How well do we use inputs? Are we at optimal capacity? Are we getting from our financial assets?)
  • Effectiveness (Are we doing the right things?  This means measuring everything from sales revenues to levels of customer satisfaction)

It is more important to measure effectiveness than efficiency.  For example, a firm may be highly efficient in producing its goods but, if it produces the wrong goods, or is ineffective at finding customers for them, those goods may sit gathering dust in warehouses.

 

On a totally unrelated matter, I must make a couple of comments on the UK government’s plans to control the legislative process as the UK leaves the EU.

This week there has been a lot of comment and debate on the proposed use of ‘Henry the Eighth powers’ by cabinet ministers.  These are powers given to government ministers and which allow them to amend legislation using statutory instruments.

Henry the Eighth powers are controversial as they are seen as a way of bypassing parliamentary debate.

In the UK there are two parliamentary processes for the creation of legislation.  These are referred to as primary and secondary legislation.

Primary legislation is where the government produces a bill and it is given full scrutiny by parliament It then becomes an act.  Bills receive three readings and a committee stage in both Houses of Parliament, the Commons and the Lords.

Secondary legislation is where the government creates regulations and orders.  Most EU law is transferred into UK law through secondary legislation; e.g. The Toy Safety Regulations; which are made under the European communities Act 1972.

However, over recent years successive governments have imposed red tape challenges to try to reduce the number of regulations.  This means that a lot of law which was formerly in secondary legislation has been included in primary acts.  For example The Consumer Rights Act amalgamates a lot of law which was formerly in secondary legislation.

This is where Henry the Eighth powers become contentious; where secondary legislation is used to amend or revoke primary legislation.  Many politicians are unhappy that instead of full parliamentary scrutiny of the act, change will be made by the signature of a government minister.

There are two routes to the introduction of secondary legislation; the positive route and the negative route.

The positive route is where the new statutory instrument is recognised as needing some parliamentary scrutiny.  In this route there is usually a short debate on the proposed changes and a committee of lords and MPs will sit to examine the changes.

The negative route, usually reserved for technical and uncontroversial changes is the negative route.  This route is where the draft statutory instrument is laid in the Commons and Lord’s libraries.  Only if sufficient members oppose the new statutory instrument and ‘call it in’ is it tabled for debate.

Theresa May, through the EU withdrawal bill is proposing that the negative route is used for all legislative change and amendment.  Government ministers will have wholesale powers to alter UK law, bypassing parliament and effectively dispensing with the UK’s constitutional democracy.

For example, a minister may decide that he does not like the two-year sunset clause on such powers in the EU withdrawal act.  He might decide to use a statutory instrument to remove the sunset clause and make the Henry the Eighth power permanent.

It is interesting to note that many of the prominent Brexit-supporting politicians who are avid supporters of Henry the Eighth clauses in relation to EU exit were not so keen seventeen years ago.

In 1999, the Blair government proposed to abolish imperial units of measurement.  This meant a minor change to the Weights and Measures act 1985.  Blair used a statutory instrument to revoke that part of the schedule to the Weights and Measures Act which stated that imperial measures were for use in trade.

When the metric martyrs took their case to the Supreme court for the retention of imperial measures, their primary argument was that the Blair government’s use of such powers was unconstitutional and therefore unlawful.  The martyrs lost that argument.

It is interesting to note that significant supporters of the Metric Martyr’s case were UKIP and many Eurosceptic MPs (odd since metrication was a wholly British policy and had nothing to do with the EU).

On Thursday, I sat and watched Sir Bill Cash in the second reading of the withdrawal Bill.

Sir Bill was a prominent supporter of the metric martyrs yet her he was supporting the government’s right to use Henry the Eighth clauses with gay abandon: precisely the opposite view he had in relation to metrication.

It has also emerged that Mrs May is trying to circumvent normal parliamentary conventions in relation to the committees that will sit in relation to Brexit.  Normally, parliamentary committees represent the balance of the parties in the House of Commons.  A majority government therefore will have a majority on these committees.

Theresa May, through the withdrawal bill is proposing that her government will retain a majority on scrutiny committees despite the fact that she no longer commands a majority government.

It is clear that Mrs May is attempting to use the clichéd view of project control, particularly in terms of limiting freedom and trying to coerce action.  Perhaps she should consider the project management definition instead?