Monthly Blogs for December 2016

“We look for opportunities where we can offer something better, fresher and more valuable and we seize them. We often move into areas where the customer received a poor deal and where the competition is complacent. And with our growing e-commerce activities, we also look to deliver old products in new ways. We are proactive and quick to act, often leaving bigger and more cumbersome organizations in our wake” – Richard Branson

Competitive Analysis

To differentiate and position your business you must understand the competitive landscape by focusing on four key elements:

1. Industry Size and Growth: How big is the industry and what is its growth rate? Its important to study the industry which your product belongs to.
2. Market Segments: Every industry can be dissected in a variety of ways into market segments. Each segment focuses on a bundle of value that appeals to a customer. A company has to decide which segment it wants to play in and, if possible, dominate that segment. Walmart is the leader in the price segment in household goods. In the organic food segment, Whole Foods provides leadership. For fast hamburgers, McDonald’s excels.
3. Key Competitors: You need to understand trends. Who are your key competitors and what are their strengths and weaknesses? Share of market and its change, are a good indicator of the underlying strength of a business.
4. Opportunities: Every industry offers possible opportunities. Look for gaps and unmet needs. What advantage are you planning to focus on and why will you succeed?

Are you on top of your game? What about that of your competitors?

Verinder Syal, Author: Discover The Entrepreneur Within

In my last post, we spoke about an article titled “Marketing Malpractice, published in the Dec 2005 Harvard Business Review”

Professor Clayton Christensen and his colleagues posited that each product or service had a “job to do” and understanding this job was the key to making the product successful.

The article described the efforts of a large company trying to increase its sales of milkshakes. The company first did a demographic segmentation of the market so it could define the primary milkshake customer. It then experimented with ways to make the milkshake better.

They tried making it thicker, thinner, more chocolate, less chocolate and adding fruit. None of these tests led to higher sales.

Professor Christensen and his team took a different tack. They started by observing who used the product, when it was used and why they used it. They learned that the primary consumers of milkshakes in the morning were commuters driving to work who wanted something that would keep them full until lunch. The milkshake was a substitute for eating a bagel or a doughnut in the car and it was far less messy to consume.

With this insight, the company did three things:

1. It created a thicker milkshake with chunkier fruit pieces for its morning commuter customers. This took longer to drink and was more filling. The fruit pieces also added a bit of playfulness.

2. A faster pay option was added since these customers were generally in a hurry.

3. At the same time, the company realized that this thicker milkshake was not desirable for children who came in the afternoon with their parents. Did a parent really want to look at their kid sipping a milk shake for 30 minutes? Even parental love has limitations. For this segment, a thinner milkshake was created.

The key question that should always be asked is: “What is the job that the product is being hired to do?” Thousands of new products are introduced each year with 95% of them failing. So many products fail because companies focus on products that they can and want to make, rather than on what the customer wants. Renowned Harvard Marketing Professor Theodore Levitt succinctly captured this idea: “People don’t want to buy a quarter inch drill. They want to make a quarter inch hole.”

“Marketing Malpractice” also offered another key insight: “With few exceptions, every job that people need or want to do has a social, functional and an emotional dimension.”

These three dimensions, social, functional and emotional, are the bundle of value that we have been searching for.

Verinder Syal, Author: Discover The Entrepreneur Within

Understanding customers and connecting with them is the essence of marketing. Such understanding is hard to come by since human beings are complex creatures. They say one thing and do something else. They think one way and act another. I always smile when students, dressed in fancy jeans and snazzy sneakers, carrying the latest iPhones, lament their limited means. The reality is that people, including seemingly impoverished students, will always spend money on things they find of value.

What is Value?

You buy a watch to tell time, right? Casio and Rolex both tell time. Which one would you buy and why? Why does somebody buy a Maserati? It does go fast – very fast – but almost any car can go fast.

Let’s take something more basic. A meal at Chipotle costs about $10 and approximately $6 at McDonald’s. Are the ingredients at Chipotle that much more expensive? Unlikely. Then why are you willing to pay so much more?

The price of a product represents a bundle of value. What then is the bundle of value of Chipotle that allows it to sell for almost double the price of McDonald’s?

Why are people willing to pay $10,000 for a Rolex or $100,000 for a Maserati?

Beauty is in the eyes of the beholder. Value too is in the eyes, mind and heart of the beholder: the customer. How do you go about understanding a customer’s bundle of value?

“What is the job that the product is being hired for?”

In the December 2005 Harvard Business Review, Harvard Business School Professor Clayton Christensen and his colleagues, tackled this subject in an article titled “Marketing Malpractice.”

They suggested that the dry statistics of demographics and psychographics could not fully capture human behavior and motivation. Rather, they posited that each product or service had a “job to do” and understanding this job was the key to making the product successful.

We will look at this more deeply in my next post.

Verinder Syal, Author: Discover The Entrepreneur Within

The 3 Ps

1. PRODUCT – What is the product?

Products can be a physical good (iPhone), person (Kobe Bryant advertising sneakers), place (Disneyland), organization (Red Cross), service (Verizon), or even an idea (Breast Cancer ribbon).

2. PRICE – At what price will the product be sold?

A customer receives a bundle of benefits in every transaction. For example, Chipotle is a place to go to get somewhat higher quality Mexican food. The total value that a customer receives at Chipotle includes the product, the service (speed, mode of assembly, cleanliness, friendliness etc.) and also Chipotle’s philosophy of local sourcing and its humane approach to animals.

It is the customer’s perception that determines the value to him and the price he is willing to pay, not what the company actually thinks, believes, markets, or portrays.

3. PROMOTION – How will the product be promoted?

Typically, promotions have several components such as Advertising, Sales Promotion, Personal Selling and Publicity.

Advertising includes commercials on TV and radio, advertising in newspapers, magazines, billboards and direct mail. Digitally, web sites, podcasts, webinars, email blasts, banner ads and social media are all options.

Sales Promotion includes coupons, displays in stores, demonstrations and in-store sampling (like you see at Costco).

Personal Selling would include hiring salespeople, agents, distributors, telemarketing and selling at trade shows.

Publicity entails getting the news about the company, or the product, to the customers. An article written about the product is desirable. Speaking on a panel provides publicity too.

Word of Mouth is the oldest and by the far the best form of promotion. However, going viral is its ultimate manifestation.

The 3 Cs

1. COMPETITION – Which other companies sell something similar to the same customers? For example, the competition for Chipotle would be Qdoba, Baja Fresh and maybe even Panera depending on how broadly you defined the competitive arena.

2. CONSUMER – Who is the target market for the product? You need to know their demographics (such as age, sex, income, education, etc.), as well as their psychographics (beliefs, causes they feel strongly about, etc.).

3. CHANNEL – What are the channels of distribution, specifically where will the product be available?

Domino’s, the pizza chain, has two key channels – home delivery and store pickups for example.

Starbucks’ main channel of distribution is through its retail locations. They also sell their products in grocery and convenience stores.

Let’s assume Kellogg’s wants to sell you Frosted Flakes. After manufacturing it, they ship the boxes to a wholesaler who then sends it to retailers (Safeway, Vons, Jewel, etc.). You then buy this box of cereal from your local retailer.

Amazon works an e-commerce model, selling directly to consumers.

There are other channels such as telemarketing, home-delivery through online services and much less frequently of late – Tupperware parties.

Using this simple model, you can learn a significant amount about a company, its products, pricing and competitive strength among other things.

Verinder Syal, Author: Discover The Entrepreneur Within