Using the Brand Pyramid To Increase Sales

The Brand Conversion Pyramid is a powerful tool that allows consumer marketers and B2B businesses to identify growth opportunities.   
The Brand Conversion Pyramid is a visual representation of the levels of conversion a business has attained among its entire target group of potential customers / consumers.  The pyramid steps up from awareness of a brand, to consideration through trial, repeat and loyalty (multiple repeat). 

The Future of Media – And Lessons for Business

I had the pleasure of attending a Regional Business Outlook in Philadelphia put together by the Greater Philadelphia Senior Executives Group (GPSEG). The seminar was hosted by great Philadelphia news personality, Larry Kane, featured Executive Vice President of Comcast Corporation, David Cohen, and Gregory Osberg, Publisher and CEO of Philadelphia Media Network, which owns the Philadelphia Inquirer, the region’s top newspaper. The seminar’s discussion topic was ‘the future of media’.

Comcast is the top cable, internet, and voice carrier in many parts of the country, headquartered in Philadelphia, and the new owner of NBC Universal. The Philadelphia Inquirer, a superb local newspaper, is caught deep in the throws of the changing digital landscape and trying to hold on to a paying subscriber base.












I came away this great discussion with three big implications of the future of Media.

1. The future of media is all about content - Content (the stories, shows, movies, news) is more important than the medium on which it is received. Developing strong and differentiated programming has challenged both these companies as the migration to newer delivery in digital formats has seemed to overshadow the need for compelling content. The acceleration of change in delivery options has led many content providers to lose focus.
• For newspaper, this means staying close to local news, and never losing focus on in-depth investigative reporting on issues that matter to local consumers. Newspapers deliver the most in-depth stories possible and offer it in a mostly unbiased way. Greg Osberg finally led the Philadelphia Inquirer to dial back on national news, increasing emphasis on hard-hitting regional stories. While the newspaper “printing and distribution” model (unchanged since Ben Franklin’s days) has become less relevant now that breaking news is available around the clock, their strong writing and depth of local coverage cannot be found in any other way.
• For cable companies, the TV subscription model is moving to internet delivered video content on newer devices like tablets and phones. Comcast struggles with declining cable subscriptions but has growing internet and phone services. Their huge investment to buy NBC allows them to migrate from, not only, owning the airwaves (and cables), to providing some of the biggest shows on TV.
 
2. Consumers will continue to receive content in new ways. – Tablets, phones and interactivity continue to evolve at lightning speed. The ways in which the consumer gets their daily news and updates will continue to evolve. Mr. Cohen marveled at how everyone, including himself, thought that TV would be replaced by internet, but this never happened. We all know that while the number of devices we use to gain content increased, TV viewership never declined (confirmed by Nielson studies). As newspapers chased what appeared to be the explosion of new digital consumers, they gave the content away free, hoping the climbing advertising revenue would offset the decline in paid subscriptions. This never happened, and newspapers are having trouble getting subscribers back into a pay model. Mr. Osberg likened it to putting the “toothpaste back in the tube”. The Philadelphia Inquirer is now selling an Android-based tablet for $99 already loaded with the Web edition of the Inquirer – a great, innovative idea
3. The Digital Gap is Leaving Some Behind – The transition to digital information and media is leaving portions of the population behind. Comcast has taken great strides in offering significantly discounted services to poorer families who are far less connected digitally. This initiative is now being taken up by the Federal Government. The future competitiveness of America is at stake.
 

Implications for Marketers? Clearly, there are analogies to businesses that must reach out to consumers and customers by way of advertising. Content remains king – businesses need to stay focused on creating compelling stories that connect with their target. There has been a departure, over the past several years, from “compelling brand stories” to “facilitating conversations” -- making the idea of traditional brand differentiation and messaging seem old and tired. But tactics should not drive strategy. Just as The Philadelphia Inquirer lost its differentiation by jumping on the bandwagon to be just like New York Times, the company came to its senses with smarter leadership and a return to its core target. So, watch out – the latest gadget, channel, or social widget is no replacement for your core message and good old-fashioned selling throughout your organization. Make sure your message is accessible everywhere your consumer wants to see it, but never stop being different.

Steve Jobs – The Real Lesson of Managing Growth

Much has been written about Steve Jobs; certainly, the release of his biography will have people talking for a long time about the person. Readers will want to catch a glimpse into Jobs’ inner qualities, looking for those transferable and teachable lessons of how he successfully led the world into a more modern digital age.

One aspect of the Apple success story and Steve Jobs is rooted in the category life cycle approach to product management. It is a simple lesson that can be followed by any company competing in the growth phase of a category lifecycle. Steve Jobs happened to be a master at the simple approach.

The category life cycle is a Boston Consulting Group model that divides categories into stages (intro, growth, maturity, decline). The model gives guidance to how a business should build a participation strategy that can win in each stage. Apple competes in categories that are in the growth phase, of course, with the exception of its PC business which is in a mature phase.

Lessons of Winning in the Growth Phase

1. Continuous innovation to replace existing products. Competing in the growth phase of the category lifecycle demands distinct, ownable differentiation that makes its own or other products obsolete.

2. The leaders realize they do not continuously stay leaders. Competitors can be bigger and more innovative at times. Over time, leaders worry most about continued differentiation to gain share.

3. Price for long term profitability. Price to recover costs and make healthy profits  from the beginning. If the product does not warrant higher prices and strong margin, it does not get released.

4. Building a strong brand in the growth phase should focus on a single emotional tie to the consumer. Without emotional attachment, technology (or any type of physical differentiation) is quickly replaced.

Steve Jobs will be remembered as a founder of a great company, but his true business fame is illustrated on the accompanying chart. When Jobs reentered the Apple Company in 1997 after several years of “executive managers” at the helm, the stock was underperforming and the product pipeline was stuffed with weak offerings. Between 1997 and 2011, Apple’s stock rose 1400% and beat major stock indices.

Managing in the growth cycle isn’t easy.  It is a very tough game to play and win, long term. While the rules are simple and time tested, very few companies survive. Winning in the growth phase of the product life cycle is, in fact Steve Jobs’ greatest achievement.

Is Marketing Leadership Just Icing On the Cake?

Several years ago, when I was a Marketing Director at a large consumer products company, I found myself having to deal with frustration among Brand Managers in my group regarding the extensive review and approval process built into the planning cycle.   It seemed, to many of my managers, that after all their months of hard work building their individual annual marketing plans, the approval process through the Director, VP, Division GM, and President was onerous.  Each layer would review and politely make change after change until the manager’s original plan was only vaguely recognizable. 

My explanation of this process (handed down to me) went like this:   marketing planning in a large company is like baking a cake.  The manager is the chef - building a compelling growth plan for the upcoming year.  Charged with the hard task of building the guts of the business plan, they are the Cake-Makers mixing the unique ingredients together and cooking it perfectly in the oven.  But they are only building the cake itself, without decoration.   Once the fluffy, chocolaty cake is ready, they would present it to their Marketing Director who was charged with examination and then adding his/her thoughts to the plan.  This was like adding the frosting.  After any recommended changes were made, - they would both then take it to the next level (Marketing VP) for examination and the addition of new comments and revisions  - which would be the icing colors and the little balloon cake decorations.  After any changes and improvements, of course it is then taken to the President who finally would add just a few overarching comments as to the validity of the plan within the overall corporate strategy – thus, adding the cherry on top.   

The point I was trying to make was that a cake really isn’t a cake until all the steps are finished and the cherry is applied.   There were two truths to this analogy.   First the goal of management is not only to critically review, but to offer real enhancements.  Secondly the later stages are designed to make the end product far more valuable than the original.   While the original manager tends to believe that all value comes from the cake itself, there is much value added at later stages.   

I admit this analogy was simple and bordered on patronizing (hardly stuff for the Harvard Business Review) but the point hit home.  Managers understood that executives had a real role to play and senior executives needed to realize the importance in recognizing the feelings of the managers who created the cake and also the executive role of adding value to what has been created – not asking for a pumpkin pie just because they could.

Is There Still Time for Cake-Making?

Big companies may still operate like this in their marketing departments. It is likely more true in companies in which there are relatively big investment to gain incremental market share but have stable/mature category.   But there is a fatal flaw to this traditional hierarchy – first, it pushes decision making too high in the organization.  Executives become super brand managers and subjective opinions rampantly replace the facts and original ideas.  Secondly, there is a huge sacrifice of decision making speed where it takes a year to build next year’s plan.   Lastly, and importantly, exciting plans get watered down in committee thinking where the safe and tested trumps the new and different. 

Let’s hire the right managers and teach them to make cakes right from the start, rather than building them slowly and painfully.  Management’s role is to hire chefs, get them the best ingredients and ovens in which to cook, and enjoy the feast of an authentic homemade, but not perfectly decorated, delight.

Designing the Right Marketing Department for Your Growing Business

 When a firm finds it has grown to sufficient size and stability to install an internal team of marketers, it is important to build the right team structure.  There are a several structural options, and the choice of which one will make a significant impact on the direction and growth of the company.  Apart from the easy solution of simply assigning someone to lead the "marketing department" and letting them figure it out, there are a couple of critical components to the decision

What should your marketing department do?

The role of any marketing group will center on a couple of key deliverables.  Namely, a marketing department needs to understand the core needs of the consumer and to understand them in a deep way.  Second, they should understand the role of the brand and how the proposition of the brand (its product delivery, price and promotions) uniquely delivers to the needs of the consumer.  And understanding the competitive trends of the category, the  marketing team should be able to develop a tactical marketing plan.  Some of the elements of that plan will be the sales goals,  new products opportunities and, very importantly, the communication plan that informs the intended target all about the benefits of purchasing and using the brand product or service.

Types of Marketing Team Structures

From basic to the more complex, here are the 3 most common forms of marketing departments:

1. The PR / Marketing department - the goal of this group is to gain exposure to the product or company services.  They will either directly, or through an agency, contact media outlets, issue press releases, and generally look for any opportunity to raise awareness.  Broad exposure (to the intended target) is the goal and the term “buzz” is often used to describe this group’s goal.  Word of mouth, websites and social media are core tactics of this group’s activity.  While this early type of marketing structure can be lean and effective for the smaller organizations, the team can struggle to think independently and end up feeling as if they are no more than the arms and legs to execute the senior executive’s marketing ideas.

2. Brand Management - More advanced marketing departments direct the overall activities of the business to meet the consumer needs.  Brand management, as this is commonly called, evolves when the organization is already operationally functional across the core disciplines of sales,  operations,  finance and customer service.  There becomes is a growing need to direct the activities of the business toward a common consumer end. By activities I mean designing the strongest innovation program, building a full business plan with all the necessary marketing programs and then executing the advertising and promotions.  The second component of brand management is the full accountability to delivering the volume lifts needed from the plan they have devloped.  The company and it's most senior executives must feel confident that this type of marketing team will build better plans aligned with consumer desires rather than gut feel.  Expertise in consumer insight and latest marketing principles must deliver what the traditional functions alone cannot through awareness campaigns (i.e. PR).  There is certainly a relinquishment of day to day decision making by senior executives and in a growing firm this separation from these activities cand be difficult.  Many senior executives believe they are uniquely equipped through experience to manage the creative side of the business.   Brand management structures, which were the initial brand management idea of the 1960s assigned a manger to a consumer brand to manage all facets of the business planning and marketing activity

3. Product Line Management - The “product platform” approach is more commonly found in technology, hard goods, apparel and services.  Here, a manager is assigned to a product type that may have several brands attached.   This structure allows the marketer to be more deeply involved in understanding product evolution and innovation rooted in core technology of the company.  This platform approach has become more common, even in consumer brand companies, due to a couple of key advantages over the brand management approach.  The first advantage is that the product line manager becomes more familiar with the product costs, production process and is able to innovate and bring forward commercially viable ideas that can work in production.  They tend to take on general manager accountabilities for the platform and develop expertise in understanding non-marketing areas such as forecasting,  inventory and cost drivers.   A Marketing Services group will assist the marketer and they tend to specialize in consumer research, advertising and promotional campaigns managing the appropriate agency relationships including all the latest digital communication tools and shopper marketing.  The expansion of scope and knowledge required to execute the right communication tools has made it harder for the traditional brand manager to stay current.

These are the most common types of marketing departments within consumer-based product or service companies.  Each is useful and choosing between them is a matter of fit to the company’s long term goals.  Having managed teams in each type of department, I conclude that none is better than the other; rather, the best fit the business needs, and build leadership capabilities with the department and organization.

Netflix - Managing in that Nasty Growth Cycle

Netflix pulled another surprise move on its loyal customer base.  After only recently hiking the price of its service by almost 60% (charging equally as much for having DVDs mailed to your home versus on-line streaming of video - when it used to be all one price), Netflix has announced that it is spinning off its DVD business.  The new company (really a division of the original) will be called Qwikster.  Netflix will retain the video streaming business while the DVD consumer will soon go to Qwikster for DVDs mailed to your home. 

There are more than a few people upset about all this.  It is reported that Netflix has lost close to 1 million users of its 22 million base.  The stock price has taken a massive hit and people are swearing to cancel their subscriptions.  The company CEO, Reed Hastings, apologized for his handling of the price increase and all the trouble he has caused by not communicating effectively and getting all his customers rather upset.  This apology, by the way is also where he announced the company split.  Netflix, of 3 months ago, seemed a way cooler entity with which to do business.  Everyone was just starting to fumble around to see if their TV had a computer hookup on the back of it, so we too, could enter the magical new world of streaming video in our home. The streaming picture is also really sharp in HD.

Growth Category Strategy

Lets take a strategic look at this move.   Netflix competes in a market that is defined as a Growth market in a classic category lifecycle model.  You remember the category lifecycle curve of Introductory, Growth, Maturity and Decline.   In a category that is in the growth section of the lifecycle, players can rely on three things to happen.  First, competitors are not only out to displace you, they are out to reinvent the category with new technology.   Second, market share leadership is a fleeting thing and you cannot get used to it even for a moment.  Lastly, if you stay still for more than a day, you are toast.  Think of brands like Tivo, Atari, and even Atkins diet. They are all gone because they did not evolve once they became market leaders and inevitably, competitors came in and made them irrelevant with newer and more exciting technology.  There are currently several viable video streaming alternatives waiting in the wings to sign you up for some type of streaming service.  For example, Google just bought Hulu – a company that streams video.  Netflix does not want to be seen as a DVD rental company; allowing competititors to position them as “old news”.

 

Strategically Sound Move

Strategically, the Netflix move makes sense.  There are over 100 million households in the USA, and the average home has more than 2 televisions, multiple computers, smart phones and soon tablets.  So while 22 million Netflix subscribers sounds like a lot, it isn’t anywhere near where the video streaming market will be soon.  Netflix doesn’t see itself as owning a market yet. In another year, Netflix will have moved to yet another technology wedded to the last handheld gadgets and new operating systems.

What about the Consumer?

So the question is how do you manage to reinvent your company with super speed without taking your loyal users on a roller coaster ride?  Netflix certainly didn’t get the communications right, and its consumers may penalize them more than just a little.  Netflix has cashed in a chip of consumer trust they may one day need.  While all this may be soon forgotten and dwarfed by the market potential they are positioning themselves to capture, they cashed in the “cool” chip and are now just another arrogant company out to make a buck.  Consumers don’t care about growth curves and strategy, they just want to be loved and delighted.  Does anyone know a good PR firm? 

Category Lifecycle – Finding The Right Brand Strategy

I am presenting at a marketing conference in San Francisco on Monday, September 12th and am really excited to speak on the topic of “Managing Brands Across the Category Lifecycle”.  My goal is to show that there are winning strategies in every part of the category life cycle (Intro, Growth, Maturity and Decline).  

One example of a brand that is managing well while it is in a category in the decline stage its life cycle is Kingsford Charcoal.  The charcoal briquette category has been declining for years as consumers turn to gas grills.  As is often the case in this stage of the lifecycle, there has been a shakeout of competitors and one branded player remains (usually along with a Private label counterpoint).  Kingsford is now the share leader. They can make unhindered strategic moves to keep the brand fresh and the category relevant for the retailer without the constant competitive pricing battles that occur in the maturity stage.  

Here’s an overview of what I think would be the Kingsford Charcoal marketing strategy. 

Consumer Insight  “I am proud to know authentic charcoal grilling, and I want to get together with my closest friends and cook up some fun.”

Theme - The only name in charcoal

Communication   - Kingsford will stay true to the lifestyle of heavy users and be authentic in all communication. Communication will be light on advertising, heavy on PR, blogging, events, music, contests, and tailgate sponsorships.  Very seasonally focused.

Innovation  - Stay close to the core with the best performance charcoal in the category  – close-in innovation only with wood flavors (Mesquite, Hickory, etc.). 

Product Range - Reduce, rationalize, and trade up to higher price points.  Look to license and find a new market to grow.  They probably should have launched a barbeque sauce under the Kingsford name, but parent, Clorox, has chosen to get behind the successful KC Masterpiece brand instead.

Pricing - Consistent increases to keep the charcoal category relevant to the retailer and growing.  Pricing is the single most important factor in leveraging share dominance - it funds all the marketing strategy activities.

There you have it -- a case study of leader in a declining category with the right strategy to win, grow, and maintain leadership share.  Happy tailgating!

HP – Saying No To An Unprofitable PC Business

Does anyone believe, like me, that the reason that HP is getting out of PC manufacturing is really that there is little profitable growth left in the industry?  And that this is really a good move?  Many of the blogs and comments I have read seem to display a sharp, emotional, mocking tone about HP’s decision. I think it is a good decision. 

Prices and profit margins, in the laptop market, are going down together.  Every consumer that wants a PC has one.  Growth will come from overseas markets at super low, stripped down prices.  Tablets will soon replace laptops.  While this is a growth market, Apple has locked in the high end market and 4- 5 players will compete for the remaining market, which will soon be based upon price.  For tablets, the whole game on increased household penetration breaks open when the tablet comes in under $300 or so (oh yeah, no profits again).  Consumer fascination for tablets is strong now, but in the near future, the hardware makers may not be the ones making the profits, while the software and cloud services will be profitable.   

PCs are a Mature Category

In most markets that are in a growth phase, competitors each try to establish their rightful market share through product differentiation and consumer awareness.  Some will win and some will lose based on their skills and proprietary technology.  Those fascinated with computers want to believe that the industry should act like a growth industry, but that is not the case.  In a mature market, a consolidation is the correct strategy; one or two players must emerge winners to regain profitability to the category.  If you don’t see that you will be number one and make profits, it is time to exit.  

Lets take a quick summary of Porter’s 5 Forces for the global laptop industry  Thanks to Aditya Shah, Abhinav Dalal’s report on the global state of the laptop industry (2009)

1. Competitive Rivalry From within the industry – very high as major players fight on price differentiation -- HP, Dell, Toshiba, Acer, Lenovo, Apple
2. Bargaining Power of suppliers – Technology (Intel and AMD processors) lack the consumer brand power in term of consumer excitement so not much power from them.  Windows operating system is ubiquitous (unless it is Apple) so Microsoft has lots of power.
3. Bargaining Power of Customers – High – in both businesses that buy PCs for employees and large retail formats.  Growth in this PC market will be overseas in less developed countries where price will be even more of an issues.
4. Threat of New Entrants – The barriers to entry in hardware are actually high due to high R&D investment needed to get enter the market, high costs, low prices and low margins.  It is difficult to gain a foothold if you are not yet in the business.
5. Threat of Substitutes – High – due to the move to cloud computing, tablets, mobile phones, etc.  The PC is will soon be giving way to these new formats.

I totally agree that HP has not been an innovator and that innovation could have been a game changer after it bought Compaq. Its company history is based on top scientific quality and high prices - think scientific calculators, and top-end personal printers that virtually are synonymous with their respective markets.  HP should have entered PCs and tablets at the top end of the quality/price game, but it made the mistake of having me-too technology.  My last post regarding the key to success in innovation, pointed out that innovation must be at least as profitable as the product it replaces.  This is a serious concern if HP were to invest in the needed innovation to win, only to find that the consumer buys on price alone.

Yes, it is easy to laugh at at the supposed blunder of HP’s decision and announcement to get out of this business, believing that they never should have bought Compaq (true), but now saying they are crazy to sell it off.   I think there is something more basic about this executive decision – there is no money left in this business.  Business is about making money, not wearing badges and looking good.  Sometimes the right decision isn’t welcomed by the pundits who don’t have to pay the shareholders.  It wasn’t smart for HP to go all in to get a me-too player in Compaq – but maybe it is very smart to get out.  Today’s decision is the smart one.

I’d love to know what you think.

The Key to New Product Success

Most new product programs do not deliver the results that are hoped for by the organization.  Most consumer product categories in the developed world are stagnant and marked with intense competition just to hold share position.  In a recent survey, conducted by Grocery Manufacturers of America (GMA) and Accenture, only 36% of consumer product goods (CPG) companies believed they have a holistic and effective approach to new product development and introduction (from innovation to end of life).    Yet these executives know that the future of their companies will be tied to their ability to innovate to grow segments as well as steal share from competitors.   

Much of the focus of new product development programs, therefore, is on top-line growth and finding strong product ideas to put into the development funnel.  Marketers know that New Products is a numbers game –- many ideas will be hatched, few will make it to launch.  The focus is often turned to the quality of the new products process, strategy behind the ideas, and precision of execution.  There is, however, an even bigger factor that will determine the overall success of a new product process.   

Replacement Profitability

“Replacement Profitability” is the level of profitability of a new product compared to the item it will replace in the existing portfolio. Most new products have a strong cannibalistic affect on items in the line.  Often, profitable base items in the line are declining and new products must be introduced to keep sales strong.  While the net effect of new products to the company can be growth, new products often rely on new technology, higher costs of goods and generally non-standard manufacturing. Pricing often cannot be taken too much higher or consumers will not adopt the new items.  Replacement profitability is logical; however, once the development of a new product is well underway, the team’s excitement can rationalize away the costs that creep higher.

Deteriorating Profitability

 

 

 

 

 

In the illustration above, new products drive overall top-line sales while slightly lower margins on these new items lower profits for the company. The net effect is lowered dollar profits as margins begin to quickly shrink.  New item must make equal or greater profit margins than the base item that are declining.  (This illustration assumes that the base product profit margin remains constant, which is often not the case. Therefore, the overall profit picture worsens). Project leaders must ensure that items deliver strong profit margins at every check point of the development program.  Innovation can grow a company profitably, or quietly eat away profitability and leave a company weaker, delivering less back to the bottom line.

How to Make Money In The Long Tail

The Long Tail theory was developed by Chris Anderson, who first published the idea in 2004 in Wired magazine, and then went on to publish his 2006 bestselling book.   His theory was that when consumers were given unlimited access to variety of products (easy to do in an online world) – they would tend to migrate to more targeted offerings that were previously unavailable to them (in the “tail” of the sales curve).   While sales of individual products in the tail would be small, the huge selection would bring in more sales overall. It became known as the “profitable tail” in corporations as these items could be more profitable on a per unit basis.  The tail was a low volume, high profit model. And for retailers like Amazon, this confirmed their decision to extend the breadth of their offerings rather than consolidating around best sellers.  The Long Tail theory was counterpoint to the current market segmentation and portfolio approaches where high market share and high growth were the paths to profitability. 

An exciting part of Long Tail theory for the providers of these tail products and services was that the barriers of entry into markets would also be lowered in terms of investments in people, resources and discounting.  Business segments in which consumers want variety are the supposed winners.  Take recorded music and books as examples  - traditional publishing / distribution companies currently provide and promote limited variety, then achieve profitable market share dominance when sales exceed relatively high fixed costs.   Long tail thinking, however, says anyone can write an e-book, record an album, and be found on the internet.  Given access to much more choice, consumers would happily purchase something that perfectly fits their tastes rather than having limited choice. The democratization of the marketplace sounds great, especially if you are a smaller player.

The dilemma for the long-tail entries.  Entering a market as an unknown player using long tail-thinking can be treacherous.  The price that a vendor can charge if they are only playing in the long tail will gravitate to the costs of goods of the lowest cost provider, which eliminates any chances of profit for any of the players, or even worse, moves prices to zero of free.   If recording a piece of music or writing a book has no hard costs (other than the artist’s time and sweat), then pricing for these products will gravitate to zero.   Let’s say I was to try to charge people to read this blog.  My great points of view as well as my time and energy must be worth at least a penny or two, yet readers have too many other choices for quality content that is free (the tail in blogging is a very long one).

“Free” is a bad pricing model.  Working in the long tail is a labor of love, a hobby, maybe a fulfilling way to learn and dream.  But the laws of economics (pricing being a function of supply and demand) make it an unprofitable business.

The solution is to stand out.  Pricing leverage comes from offering truly unique, differentiated and remarkable products or services.  Author Seth Godin has been writing about pushing yourself to stand out in your chosen field (Read Linchpin and The Dip),  Mediocre is the risky middle ground that is expendable.  Standing out is no longer just a good idea, it is now an imperative.  Why?  It comes down to pricing power.  

Pricing power is everything.  To market products or services in the long tail, you must figure out a way to be a price leader – which means charging a fair price for something that is so unique that it has no equal.  This is a form of market share leadership – even if the market is tiny.  Make no mistake, Seth Godin, Chris Anderson, and even Amazon are market share leaders in their fields which allows them to charge money and make profits selling products.  The ease of entry into a category can be deceiving.  Offering what is already available, even if you do it really well, will lead to a lack of ability to charge a price that allows you to make money.  Focus only on what it takes to be the single best offering that will drive your market share to the top. 

Pepsi Refresh Campaign - Putting the “Social” in Social Media

Pepsi is encouraging people to take on a social project in their latest “Refresh” on-line campaign – and they will in turn post your project and even help to fund.  Fantastic idea.  A brand the size of Pepsi can make this happen.  The viral implications are great, the example for the young generation is cool, and it just might make a difference in the world. 

So what’s the problem?  Well, Pepsi is not growing.  Actually, Diet Coke took the number 2 spot away form the flagship Pepsi brand.  That hurts.

The bloggers and advertising community are buzzing.  Pepsi took their eye off of the fact that they have to sell soda first.  Too many eggs (media dollars) in one basket.  They even skipped out on Super Bowl advertising to start this viral on-line campaign (sort of makes you long for the days of Cindy Crawford sipping a Pepsi in super slow motion).  Social media is an add-on, not a replacement, to the core media message.  Doing good rocks, but it comes on top of the core.  I agree and applaud.  Case study…closed.

In my humble, expert opinion; if what you are doing does not resonate with your sales team (I assume they had a few skeptics in that group), beware. Put yourself in the shoes of that team.  Are they applauding along with your consumers?  Are you driving sales and helping the team make bonus.  Successful brands do just that.  

Social media is a valid and bold strategy, no matter what the skeptics say.  Your consumers have to love you too.  Just watch out on how you allocate the messaging. 

Hats off to a great idea.  Now, lets sell soda.

Social Media Marketing – How to Prepare a Plan that Keeps the Focus on Your Brand

Social media’s development as a marketing tool for business, has fundamentally changed the way businesses communicate to their consumers, customers, and within the industry.  This is not news to most executives.  But the pace of this change is surprising to many that have not truly had a close eye on this trend.  Marketing tools and media choices have always evolved, but this time the choices, and measurement are totally new ground to even the most seasoned marketing teams. 

Social sites grew up catering to the mobile phone carrying younger generation.  This “generational” gap soon closed and services such as Facebook, blogs, Twitter, etc. are now mainstream.  But the social sites were not initially designed for business the way early television and radio broadcasting came about – those media,  hugely supported by a sponsored programming model. 

We are in new territory, with new capabilities, technologies and rules for engagement.  Many manufacturers and services are struggling with this development.  They do not have the technological know how, nor the consumer communication strategies to take advantage of this “open dialogue” , originally intended to occur amongst friends.

Utilizing this medium to simply take advantage of this new world is not always a good strategy. Building communities and fostering open dialogue, which is what social media is all about, takes a major commitment of time and messaging. While it is much less expensive to get into the discussions (in many cases free), it can end up adding very little to a brand activation program.  And quite honestly, the paid advertisement banner approach, while familiar, is not very engaging.

While there are thousands of experts and agencies to help you navigate the technology, for the strategic marketer, it comes down to a few simple rules.

1. What does your Brand stand for - it is important to define the vision of the brand as well as its unique selling proposition (USP) that will define all communication.  
2. What is your Consumer insight – important to understand the consumer insight that helps shape the need of the consumer and how your brand solves this need.  
3. How does your target use Social Media – consumers are adding online and social media sites to their media consumption. Online and social media consumption is not replacing time spent with other media. Consumers are literally doing both with the rise of simultaneous viewing of TV, online and mobile technology. 
4. What role should social media play in your mix of communication – based on an analysis if the time and energy your target devotes to social media, you MAY want to consider it as a part of your mix in accomplishing your goals.  Remember, social media means participating in a two way conversation – which involves discussions and searching out kindred spirits to build community. 
5. Can you invest in building a presence – if in fact you choose to use social media, then you will need to begin to invest in the development of a community.  Lower in cost, yet much higher in terms of people commitment.  the best way to build a presence in in discussion, giveaways, tips, and discussions.
6. Try new things  Test and Learn – it is relatively easy to try new things here.  The medium is fluid and the responses are rather immediate.  therefore, it is great to see what works and improve as you go.
7. Track and Validate – Social media has different metrics than traditional media but this media is measurable.  As in any marketing plan, it is important to find the most meaningful measurements.  This is a medium that is measured in real-time so it is easy to course correct and see where the dialogue is going.

Many established companies have a profound skepticism regarding social media and its impact on sales results.  Smart marketers can champion this new media with case studies and in-market results that will keep healthy skepticism from turning negative.  As a marketer, embrace the new social media but remember that it is just another opportunity to delight your consumer target with your engagement to them as a brand.

How “Brand Vision” Leads to Brand Growth

Defining a brand vision is an often overlooked task within a company mostly because it is not well understood as to its purpose or usefulness.  Strong brands and companies, however, usually do have compelling visions.  The purpose of having a brand vision is to state clearly a direction for the brand,  allowing differentiation in the market, standing for a set of core values, and ultimately gaining a loyal consumer base and building strong market share.

What is a Vision Statement?

My simple definition -- a vision statement is a description (or snapshot) of the world, that has been changed by having your brand accomplish its goals.    In other words – once you have changed the world for your customer – what does the world look like?  That is a “vision”.  

Here is an example.  Microsoft, back in its earliest days (mid 1970s), had a vision for their company. 

"We started with a vision of a computer on every desk and in every home...

– Bill Gates
Chairman and Chief Software Architect

This was a radical statement at the time, as  computers were never in homes (they didn’t fit in terms of size or household activity).  Brilliant -- home computers would require stand alone software systems for these individual boxes (a key enabler).  See how the vision works?

I love some non-marketing examples.  Martin Luther King, Jr. famously stated, “ I have a dream - that my four little children will one day live in a nation where they will not be judged by the color of their skin but by the content of their character.”  Wow – what a great snapshot of the inspiring side of vision.  John F. Kennedy said in the early 1960s that the US would have a man on the moon by the end of the decade.  While this was a bit more of an objective than a vision, its radical-ness alone made it a compelling vision. 

These statements (vision statements) were all unimaginable (at the time the were made) snapshots of the future for the the affected population (consumers), but inspired those who went to work on changing the world.  And, broadly speaking, these visions were achieved through the power of that inspiration.  Visions say nothing about how to accomplish this future state as that is not their purpose.

Why is Brand Vision Important?

A Brand, too, can have a vision and that vision can spark positive change in its direction and ability to satisfy the needs of consumers.  The point is to inspire and set the benchmark of how consumers live happier lives, have more time with their families, live on a more sustainable planet, etc. because your brand exists.   Today’s top brands have created loyalty, not only in delivering functional performance, but in ‘delighting’ consumers in their approach (2011 Brand keys Customer Loyalty Index).  A brand should clearly articulate the happiness, satisfaction or changed behavior in a world where problems have been solved by that brand having existed.  It is especially important in breakthrough ideas and new brands, but as the study also shows, mature brands can take advantage also.  

Key to Effective Vision:

1. Snapshot of a changed world
2. Simple, compelling and inspirational for the people who must work on the task
3. Has a specific date when that vision is realized
4. The brand should be inseparable and a key enabler to the realization of that vision

When a brand has a vision, the people working on it are inspired to change the world. That leads to consumers that are in love with the brand, and that leads to sustainable growth.

Productivity Reset - No Such Thing as a Free Lunch

(The following post was written by Larry Clark.  Larry is a senior corporate executive with extensive experience in Corporate Talent, Strategy & Development)  
 
The office has been a bit crazy for most folks since, well, about 2008. The shedding of costs by just about everyone has put more work and stress on those lucky soldiers who have maintained their steady paychecks. And I guess we were willing to deal with it because the alternative was looming large. Better to be over-worked than unemployed.

But there's a new kind of pain hitting the average worker now that isn't caused by "unfavorable business conditions." Bunches of companies are posting solid - sometimes record-breaking - quarterly earnings again. And in spite of all the Washington rhetoric, the federal government is still spending like crazy. Sure, some industries are still hurting, but where there's a rising tide, why does the average workday make it seem like we're in a bigger crisis than before?

Because of something leaders are calling a productivity reset. That's code for a dangerous leadership mindset that gets short-term gain but long-term trouble. Quite simply, it means using the current headcount level in your organization, post-layoffs, as the baseline for how many people you need to cover the same amount of work as you had pre-layoff. You've reset the baseline for productivity higher, covering more workload with fewer people - permanently.

The stats tell the story. You can see in the chart from the US Bureau of Labor Statistics, showing the year-over-year change in productivity. We’ve had significant increases since 2006, with the exception of 2008 (when the economy tanked, productivity grew more slowly, and actually stayed flat in manufacturing). But since 2008, the shedding of the workforce led to – no surprise – big increases in productivity. Because business is back, but jobs are not – at least not yet.

So, looking at the numbers, it might seem like the plan is working – fewer workers, more revenue, better productivity. So what’s the problem?

The problem is, the dam is getting ready to break. Like dot-com boom "new economy" thinking, Productivity Reset is a nonsensical, alluring concept that whispers to leaders that they can get something for nothing - over-driving your headlights at the expense of your people. Its proponents swear it works for two main reasons, but both are flawed. First, they say the workforce post-layoffs has adapted, figuring out ways to increase its productivity because it had to for survival. Second, there must have been at least a little headcount bloat in there somewhere, what with some low performers and a few extra roles scattered about that no one really misses much…

They say the best lies have just enough truth in them to make them credible. This is just such a case. But it's still a lie - and we're telling it to ourselves to see if we can make the new math work.

So let's call it what it is - bad management. On an economic upswing (especially a drawn-out version like we're in right now in the states), leaders charged up with new visions of a rosy, growing future drive new initiatives with renewed leadership vigor - but with a lingering fear of things going in the toilet again. So, we ask people to step up and drive to the new future, but it's an unfunded mandate.

How will this play out? We're already seeing it. Top performers, who are always in demand regardless of economic conditions, suddenly have lots of options that they're beginning to explore. Churn among high-potential workers is peaking again. And their departures stress remaining organizations to make up the losses and ramp new people. Battlefield promotions to fill gaps creates chaos. And the no-room-for-error situation created by the productivity reset means that critical initiatives will fall over.

So no matter what the new "collective wisdom" is trying to sell us about a Productivity Reset, the old school wisdom is winning out. Apparently, there's still no such thing as a free lunch.

Should You Outsource Your Marketing?

Outsourcing, for the small and mid-sized company, can be a very effective strategy to gain access to skills, and services at a fraction of the cost of hiring employees.  There is an adage that a company should outsource everything that is not a core competency.  For years, firms have taken this on in the areas of payroll, IT, distribution, and logistics.  Certain functions, such as sales, marketing, R&D, etc. have been held close within the organization as core competencies due their strategic ability to grow the firm and their intimate knowledge of the growth levers of the business. 

The time to reassess this practice may be here.  One of the largest components of any firm’s costs are in the compensation of its staff.  Even a small department of 2 – 4 people can cost the company hundreds of thousands of dollars in compensation alone, not to mention computers, phone and rented space.  This expense is also not flexible when topline sales may be temporarily weaker than normal.  What does outsourcing deliver?

1. Access to top talent
2. Latest thinking in the field
3. Methods and processes built and tested over time in other organizations
4. Ability to contract and pay only for services needed, rendered 

What About Marketing?

Marketing’s role in the organization is to first set the correct marketing strategy for growth.  Marketing will then take on any of a number of functions in the marketing mix (see insert) depending on the needs of the organization.  Marketers should understand and build the consumer insights that feed communication, and product development.  Marketing’ will also develop and execute the outbound functions of the communication with the customer.  This includes public relations, advertising, social media, market research, promotions, and provide customer and consumer direction for the company’s innovation pipeline.  Marketing staff typically handles even the tactical customer presentations, logos and letterhead, trade shows etc. Smaller organizations do not need all of these areas covered at any one time.

There is a small, but growing, field of contractors that specialize in the area of marketing and can assist management in setting strategy and developing programs typically handled by an internal marketing department.  They will develop these programs or work with outside agencies ensuring that each resource is delivering against the plan.  

Many small firms go directly to a PR, ad, or web design agency to fill the role of a marketing department.  There are drawbacks to this approach.  First, agencies tend to specialize in an area of execution.  This area may or may not align with the strategic needs of the company.  PR agencies will offer great PR programs, advertising agencies will look to advertise, web and social media will provide social media solutions.  Second, agencies still have a vested interest in you spending as much as your budget allows, where a marketer should only be interested in effective spend, flexibility and growing the bottom line of the company.

Many smaller- to medium-sized businesses must keep a keen eye on the day-to-day managing of their business.  Marketing can become a distraction taking up valuable time and energy away from the operational side of the business.  For many firms, outsourcing can be a very cost effective way to gain access to top notch skills to get the results needed.  

Verizon iPhone 4 - Can AT&T Keep the Profitable Customer

The iPhone 4 is out now available  from Verizon, and it is predicted to be a blockbuster.  AT&T is expected to lose iPhone customers in droves to Verizon’s plan which has virtually the same cost and little difference in service.  Why?  Because Verizon has a reputation of having better coverage than AT&T.  That means fewer dreaded dropped calls.   There are some drawbacks.  The Verizon plan doesn’t have some multitasking features – such as making a call and surfing the web at the same time – tricky to do at best.

So how does AT&T use this expected migration away from its plans to improve its overall profitability?  Are the customers that will remain with AT&T more profitable?  My guess is that they are.  The customers that will migrate may be more data intensive users that are stretching the limits of their fixed fee data plans.  Switchers are probably less loyal as branded consumers.  They may be less satisfied with cell phone service, live in more remote areas, and in general take up more time on service.  Nothing wrong with a high maintenance, non-loyal consumer now and then, but are they less profitable in the long run? 

The Auto Insurance Example

Let’s look at an example of another service category that cuts across a wide segment of the population – Auto Insurance.   While consumers are never in love with their auto insurance companies, take a look at Allstate’s strategy.  They have been advertising a program called declining deductibles – which in essence means that as your good driving record continues over time, the amount you would pay on a deductible goes down, eventually to zero. 

Think about this strategy – it appeals only to good drivers which are more profitable to Allstate since they have far fewer claims.  This is Allstate’s way of rewarding good (profitable) customer behaviors while sticking unprofitable consumers with much higher costs.  This program also builds on the tiered pricing strategy of insurance but goes as far as giving incentives back to the most profitable customer.  Let Geico and Progressive take the price switcher – likely switching on price because of less clean driving and accident records.  My first hand knowledge will attest to the exorbitant rates Allstate will likely charge if you have an accident and a subsequent speeding ticket the same year after many years of uneventful insurance relationship.  I also bet that the  accident where you get to use that zero deductible you have been earning for all those years will cost you a fortune when your rates go up the following week. 

But the lesson for AT&T is this.  If you are going to lose consumers, which is inevitable, build incentives that reward and maintain the consumers that are most profitable based upon their lower usage against the fixed fee data plans, multiple family members and participation in only value added service that can be priced up.  Let Verizon have the less profitable consumer.

TASTYKAKE – the “Value” of An Iconic Brand

I grew up loving TASTYKAKE products.  They were a treat in our household and were often the high point of my lunch box.  Chocolate cupcakes were my favorite while my wife loved the Butterscotch Krimpets……yummmm. 

As many of us in the Philadelphia area know, the company has been under pressure lately. Costs of ingredients are way up, the new factory at the Philadelphia Navy Shipyard is up and running, but not yet realizing its promised savings.  And finally, a big customer, A&P and Pathmark, has declared bankruptcy. The company’s sales and gross profits are no longer high enough to cover their fixed costs.  As loans were coming due against big debt for the factory, Governor Rendell pledged $1 million of taxpayer money, over the $5.5 million obtained in private financing, to keep the company running while it explores strategic options.

The Value of a Brand

Successful iconic brands have built consumer loyalty by consistently delighting consumers.  TASTYKAKE certainly lives up to that measure.  Generations of consumers across the northeast, and especially in Philadelphia, would agree. 

A successful brand also has “value”.  That value is the intangible asset that that makes a company worth more  than tangible equipment and plants.  It allows a company to profit in a segment when the low-price competitor that has a lesser brand cannot command pricing, and profitability. Given this yardstick, TASTYKAKE might be loved and cherished in the memory of a consumer, but is not giving “value” back to its owner. 

Lets look at TASTYKAKE “Value”

These numbers from the company’s Published financial reports:

	2009	2008
Net Sales	$180.6	$173.9
Cost of Sales	$116.6	$119.2
% of Net Sales	64.6%	68.5%
Gross profit	$64.0	$54.8
GP % of Net Sales	35.4%	31.5%
Selling/overheads	$67.6	$62.2
% of Net Sales	37.4%	35.8%
Profit before tax	($3.4)	($7.5)

If you compare their 35% Gross profit to an industry “average” (I eyeballed about 5 other big food companies – remember, this is a blog) the gross profit is always north of 40% and the Selling / overheads is usually 30%) leaving 10+ points of operating income.   For TASTYKAKE bakery, its SG&A of 37% is too high and needs to come down. But the real issue is ultimately that the pricing they can command is not high enough to cover the true cost of making these wonderful products and is probably hindered by the strength of the trade and the strength of its competitors (Hostess and Entenmann’s, for example).  They really need to merge with a large company or at least pair with another midsized company to gain efficiency if they cant price higher.  Also, they need to optimize the product line for profitability.  Running a mid-sized bakery is not for the feint of heart.

This all brings home a hard truth about a brand.  Consumer love is extremely important, but should lead to creating “value” for a company.  The true measurement of strength is in translating consumer love into the ability to command sustainably strong profits and higher prices in the market.  

Philly is rooting for them.