The Mobile MBA: 112 Skills to Take You Further, Faster (Richard Stout's Library) (5 page)

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Customers
: what sort of customers (segments) will we target?

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Competitors
: who are our rivals and how are we different and better than them in a way that is sustainable and hard for them to copy?

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Channels
: how will we reach our customers in terms of sales, marketing, and distribution?

Again, the non-marketers observe that there is a missing C: costs. Marketing can be a very expensive discipline and managing costs is hard, because you cannot
immediately relate marketing costs to either sales or production. It is an investment which pays off in the longer term. The four Ps and three Cs ignore profits (the fifth P) and costs (the fourth C), which is why marketers used to have a bad name. Today, marketers ignore profits and costs at their peril.

most effective strategy starts with the logic of the marketplace

A marketing driven firm will understand the needs of the market and will drive the logic of the market back through all that the firm does. Most effective strategy starts with the logic of the marketplace. In contrast, many firms become very internally focused and lose sight of the market. Classically, Ford succeeded in the early days by creating the world’s first moving production line. It was supplanted by GM who took a more customer focused view of the world. Ford promised customers could have a car in any color, as long as it was black. GM promised a car for “every purse and purpose”: the world of market segmentation and customer focus had arrived.

Dealing with advertising agencies is to enter a parallel universe where people will say things like “wonderful production values; sans serif is much more authoritative; this curve is very dynamic.” They will be deeply offended if you start laughing at such nonsense: they genuinely think that they are being deeply insightful. You are meant to be impressed, overawed, and feel privileged to pay their fees. There is only one known antidote to such talk: a good advertising brief. A good advertising brief has four parts:

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Target audience:
to whom are we trying to communicate? “Everyone” is a bad answer. Targeting multiple groups is also unhelpful, because they will probably want different things. Make your target audience as focused as possible. You should be able to imagine your target buyer as an individual.

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Benefits:
what is the distinctive benefit which we offer to our customer? Is it relevant to their needs and is it distinctive versus the competition? If the answer is more than 12 words long, it is too long.

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Reason why:
why should our customer believe that we can deliver the benefit they want? What is it about our product or service that means it can do what we say it can do? Again, 12 words or less.

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Brand character:
once more in 12 words or less. People do not just buy a benefit, they buy an image. In some cases, such as cosmetics, that is more or less all they buy. So what is the image of your brand and how will that appeal to your target customer?

Once you have a clear advertising brief, you have the basis for a sensible discussion about advertising. Instead of it being entirely subjective (“mauve is the must have color this year...”), you can have a semi-objective discussion about how far the advertising meets the brief. To be a true advertising expert, you then apply a few more criteria to the advertising you see, and that is the subject of the next section.

Typically, an advertising brief will need to be supported by a media strategy. The media strategy looks at which sort of media we will use (TV, Internet, posters, magazines, etc.) and then at how much coverage we want to achieve. This will normally be expressed as the amount of times our target audience will see our advertising in a specified period of time. If you have defined your target audience well, then the media strategy will follow naturally. If you are targeting multi-millionaires then advertising on daytime TV is probably not the most efficient way of reaching them.

P&G is one of the world’s great marketing and advertising companies. Most of its advertising is controlled by brand managers who have recently graduated from a university or MBA school. So how do they create advertising experts out of such relatively inexperienced people? In practice, there are a few simple disciplines which they hammer home time and again, and which I learned marketing Daz, a detergent.

The first thing you discover is that you do not judge advertising by whether you like it or not. The purpose of advertising is not to entertain, it is to sell product, in my case Daz. Winning awards is irrelevant. It does not matter if people like the advertising: not everyone likes Daz advertising, but they remember it and they buy it. So the ultimate tests of any advertising are:

• Do people remember it?

• Do they buy the product?

To figure out if advertising is likely to work, before spending vast amounts of money, there are 10 tests you can apply. Apply this set to any advertising you see: you will find many campaigns are expensive failures, while others work even if you do not like them.

You do not need to be a marketing expert to contribute to the marketing discussion. Often, marketing is not about knowing all the answers, but about asking smart questions. The best questions are the simplest ones, which cut to the heart of the business. And the best way of getting to the heart of the business is to focus on the marketing strategy.

At the heart of a marketing strategy is the advertising strategy and we’ve just covered this:

• Target audience

• Product benefit

• Reason why

• Brand character

Clearly, there is more to marketing than advertising. So the full marketing strategy needs a few more elements. Here they are:

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Media strategy:
how are we going to communicate with our target audience? How often will we communicate with them and through what media?

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Pricing strategy:
how will we price our product? You have several choices:

– Cost plus: add a fixed margin to our costs. But this takes no account of what customers want to pay and how much competitors charge.

– Price to value: work out the value that the customer gets, and price to that.

– Price relative to competition: “We will charge a 10% premium/discount versus our main competitor.”

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Channel strategy:
how will we sell to our target audience? What channels will we use?

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Product strategy:
how will we develop our product so that it stays relevant to customers and remain competitive in the marketplace? How will we present and package our product in line with the advertising brief?

The best marketing strategies have a clear strategy for test markets and market research. Creating a marketing strategy is a process of asking very simple questions, which are very hard to answer with any confidence. Test marketing and market research are the best ways to find out many of the answers, and to ensure that you keep your offering relevant and competitive in the marketplace.

marketing strategy is a process of asking very simple questions, which are very hard to answer

If you want a productive discussion with your marketing colleagues, do not focus on whether you like the packaging, advertising, or product smell. It is a subjective discussion which leads nowhere. Focus instead on the marketing strategy and goals. If the strategy is clearly being followed, then do not waste time arguing over the detail: trust the professionals to execute it properly.

Not all customers are the same. They differ in size, profitability, and cost to serve. They have different needs. Each different type of customer is potentially a different market segment. Many great strategies are based on this simple insight. You can find market segmentation all around you:

• The car market is segmented by price, need, and lifestyle. Ferraris, Minis, and off-road vehicles all represent different markets and different customer segments.

• Your bank will treat you differently depending on the value of your account: with services going all the way from standard retail offerings, to high end private banking where a relationship manager will actually know you and your family personally.

• Washing powders are classics of market segmentation with different products for stains (Ariel), delicate fabrics (Dreft), softening and cleaning (Bold), white clothes (Daz) and all-round family cleaning (Persil), alongside cheaper own label brands.

Market segmentation is also essential in the business-to-business market. Consulting firms and banks segment their clients by size and industry, so they can offer specialist services to each type of industry customer. Chemical companies can specialize by size of customer: larger customers get more specialized support and products than smaller customers. Paint companies segment by customer need: car manufacturers, house builders, aerospace, and domestic customers all have very different needs and pricing.

How do you test to ensure you have a viable market segment? It must be:

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Unique:
a customer cannot belong to two segments at the same time.

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Actionable:
you must be able to identify who belongs to each segment and treat them differently. Serving different age groups or regions is fairly simple. Identifying and serving people who are whimsical, arrogant, or playful is much harder and is probably not actionable.

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Sustainable and durable:
if you want to go to the expense of serving a group of customers in a unique way, you need the group to be big enough to be worth serving.

In practice, you have a market segment when you treat one group of customers differently from another. In the jargon of the day, you serve each segment with a different value proposition, which means you will:

• Offer a different product or service variation to each different segment (“product differentiation”)

• Maintain different prices for different customer groups (“price differentiation”)

• Go to market in different ways: you may use different advertising channels and messages for each group

• Compete against different competitors in each segment

Unless you are responsible for marketing or strategy, you are unlikely to have to do a market segmentation exercise yourself. But segmentation should still inform your thinking on a range of topics.

Management discussions of “the market” or “the customer” are often very misleading because there is no average customer. You can offer insight to your colleagues by exploring different sorts of customer and need, and seeing how you can serve each segment best.

Reviewing market research could lead to a discussion of averages, which is at best useless and at worst dangerous. Provide insight by probing for the responses from different groups. If the average response is to rate a product 5/10, that may hide the “Marmite effect”: some people love it (10/10) and some people hate it (0/10). This leads to a radically different action from focusing on the average response.

Profitability discussions often look at simple decisions such as “raising prices” or “lowering costs.” Look at different market segments to find where you can best raise prices or lower costs without hurting the business.

Have you ever heard a customer or a sales person say that your prices are too low? The road to profit is higher prices. But all the pressure is to lower prices. So how do you price? There are three basic methods:

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Cost plus:
add a margin to your basic (variable) costs and hope to make enough to cover your fixed costs and leave a profit. Very often this leads to underpricing, and low to no profit. A variation of cost plus is return on capital: this is used by regulators of utilities, normally with catastrophic effect.

the road to profit is higher prices

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Price to competition:
typically this is called “follow the leader.” Follow the market leader’s pricing and add a premium or a discount according to where your product stands. The problem with this is that the market leader always wins: they have more volume and will make more money than you do on your lower volumes.

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Price to value:
the customer has no interest in how much it costs you to produce your product or service. If you offer $100 of value and it costs you only $1 to deliver it, then the customer will still be happy if you charge $50 or even more. Your major constraint is competition.