Beachhead Target

Too many companies try to appeal to a broad base of customers and try to meet a large set of requirements. However, they end up diluting their product, their connection with the customer, and overstretching their own abilities. The results are rarely satisfactory. One of the great axioms of life is that you cannot be everything to everybody. Another good rule of thumb is the Pareto Principle which states that 80% of the value is created by 20% of the customers.

You must focus on those customers that really want your product and who you have the ability to serve exceptionally well. It means making choices, doing fewer things and keeping a sharp focus. It requires developing a beachhead target of customers that you will start with. You will live and die with them at this stage.

What then are some of the key characteristics of this beachhead group? In Disciplined Entrepreneurship, Bill Aulet suggests seven criteria, which we have paraphrased as follows:

1.    Can the target afford your product?

2.    Do they have a compelling reason to buy your product?

3.    Can you deliver the product to them through your channels?

4.    Can you deliver a complete product?

5.    Can you overcome any existing competition to deliver your product?

6.    Will this segment open doors to other segments?

7.    Is this target consistent with your passions and values?

This is a variation of the questions that you have already been thinking about. Now is a good time to look at these questions afresh and answer them.

Different kinds of people adopt new products at different times. There are people who are always trying new things (“early adopters”) and then there are people who are a century or two behind (“laggards”). The chart below, which appears in most marketing textbooks, gives you an idea of these different sets of people and their rate of adoption.

The “Beachhead” customers are most often found amongst the innovators and early adopters.

Developing a Persona

By now you have collected a lot of information about your target customer. In Disciplined Entrepreneurship the author suggests developing a “Persona” for your customer. Who is your customer as a person? Can you articulate a persona for this person given all the details that you have developed? Go further and develop a picture or a sketch of this person.

Sometimes this person might be on your team, especially if the product is a passion for one of you. At other times, it might be someone who you know well or a customer you have come across in the past. It can also be a composite picture of various people.

My guess is, that if you took “selfies” of yourself or a friend, many of you would be looking at the Chipotle and Apple personas.

Developing a Persona is a powerful tool. It will guide you in your decision-making, because now you will have a clear image of the customer you are trying to appeal to.

Have you developed the persona of your customer? What does he/she look like?

Verinder Syal, Author: Discover The Entrepreneur Within

Visualising The Customer

The two pillars of any business are its customers and its people. While having the right people is crucial to your success, everything starts with your customers.

“There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.” – Sam Walton

It is therefore important that you understand the customer from all angles. Who are they (demographics)? How do they think (psychographics)? What do they value (marketing utility)? Given limited resources, a new business must first focus on its most likely customers, who are called the beachhead target. It is helpful to develop a persona for this prototypical customer. The clearer you can visualize this person, the better you can understand what he needs and why he will buy your product. Please your customer and smile all the way to the bank is a maxim worth remembering.

Here is a list (I have shared this in an earlier post) of the key demographics and psychographics. Feel free to add or subtract from the list to customize it for your customer.

Key Demographics

• Age

• Gender

• Occupation

• Income

• Education

• Ethnicity

• Marital Status

• Children

• College Educated

• Geographic Location

Key Psychographics

• Environmental Focus

• Lifestyle (Active, Sedentary etc.)

• Social Focus (high, medium, low)

• Tech Savvy (high, medium, low)

• Image Conscious

• Financial Focus

• Key beliefs

• What is most important to them?

• What do they fear most?

• What do they read?

• Where do they travel?

• What shows do they like?

Marketing Utility

Divide the Marketing Utility pie of 100 points into the three utilities, FunctionalSocial and Emotional. In one sentence explain what you believe your customer is seeking from your product.

As an example, with the help of Professor Dobie, we have developed this data for Apple.

Apple

Demographics

• Age 18-34

• Urban dwellers

• Middle/upper income ($100K)

• 67% have college degree

• Strong verbal aptitude

Psychographics:

• Lifestyle focus

• 58% consider themselves “liberal” in politics

• Early adopter of new technology

• Want to be perceived as unique and different

• Appreciate simplicity and want to remove complexity from lives

• Prefer modern art and are design enthusiasts

• Throw more parties

• Care about the way the brand connects on a human level

• Less modest than PC users

• More assured of their own superiority

Utility:

• 30% Functional

• 50% Social

• 20% Emotional

You may develop a similar persona for your customer using the above example as a guide.

Verinder, Author: Discover The Entrepreneur Within

Marketing Utility: Disneyland, Nike and More

“How many of you have been to Disneyland?” is a question I always ask my classes. Smiles break out, memories are rekindled and a certain joy pervades the room as almost everyone raises their hands. As we discuss what value Disneyland provides, it becomes clear that the

Functional Utility is pretty low. Rides at Disneyland are interesting but if you wanted thrills you’d be better off going to Six Flags, where the heart is sure to pump faster. What people remember and value the most about their Disneyland experience is linked to who they were with, what they did with them and how they felt. All of these factors fall in the realm of social and emotional utilities.

Functional utility relates to what the product basically does. It is a commodity. It is the starting point but it rarely provides significant differentiation. Let’s call this the necessary condition. A watch must tell time accurately, a theme park must have rides that are both safe and provide some enjoyment and a fast food restaurant must serve food, fast.

Beyond this functionality, what else is provided?

Social and Emotional utilities are more intangible since they deal with feelings and self-beliefs. Often these two utilities are intertwined.

When the iPod first came out, Apple was not the preferred name on college campuses. But, as the white iPod buds proliferated, more and more students were swayed by Apple’s hipness. This led to a greater penetration of Macs which then begat iPhones and iPads. This virtuous cycle is a good example of social utility.

What do you see in most beer commercials? There is a set of cool people having fun, seemingly living life to the hilt and then there is this one gawky looking fellow on the outside who wants to be cool. Being perceived as cool and socially adept creates social utility. This in turn can make us feel better about ourselves thereby providing a dollop of emotional utility too.

To get a better sense of these utilities, let’s try to quantify them by dividing 100 points between the three utilities. This is not a scientific equation so there are no right answers. Is it arbitrary? Yes. Nevertheless, the exercise will give you insight that is directionally correct.

This is my best guess for the utilities for Disneyland:

Functional: 20% It provides fun rides

Social: 30% It’s fun to visit with friends

Emotional: 50% Great memories are created

I think that emotional satisfaction creates the most value at Disneyland. Walt Disney created these theme parks to make people happy and he obviously succeeded. The social value created by being with your family and friends is also significant.

We don’t have to agree on our answers. As they say, “Your mileage may vary.” This is just an exercise to understand a business in one more way.

What would your allocations be for Walmart? This is what I came up with:

Functional: 90% People go there for the price 

Social: 0% Nobody brags about it

Emotional: 10% Saving money provides some delight

How about Nike? Why are people willing to pay $200, or more, for a pair of sneakers to walk around in? Will you run faster or jump higher? Or is it because it makes you feel that you might just have a bit of LeBron James in you? My guess is:

Functional: 20% The high price is rationalized based on quality, fit and the looks

Social: 30% It signals that you are serious about fitness

Emotional: 50% “Be like Mike” used to be the song people hummed when Michael Jordan was around. Today it might be “Got Game?”

These utilities often vary by country and culture. In Brazil, for example, the population is very brand conscious and really likes to dress up. Branded sneakers there, cost more than two or three times what we pay in the United States. Nevertheless, they love buying expensive sneakers, even though the greatest wear and tear of these sneakers takes place in shopping malls rather than at the gyms. For Brazil the ratings might be:

Functional: 20%

Social: 50%

Emotional: 30%

Think of other products that have a heavy dollop of emotional utility, e.g. jewelry, purses, perfume, chocolate, perhaps a Rolls Royce? Or is that mainly social utility at play?

By thinking about products and services in this way your understanding of “utility” and the “job hired to do” will increase significantly.

Verinder Syal, Author: Discover The Entrepreneur Within

Ways to Segment Your Business

When I researched the U.S. Restaurant Business, I found that the restaurant business has been segmented by service (full, limited) or by style (full, casual, fast casual and quick service).

It is useful to think about several different ways to segment so as to discover new opportunities where unmet needs still exist.

The most basic of these “value adds” are the price and service levels. A simple example is Walmart. People drive long distances to shop there because of the low prices while accepting an adequate level of service. For more service and a willingness to pay somewhat higher prices, you are likely to turn to a national or local chain nearer your home, perhaps a King Sooper or a Safeway in the Denver area. Close to home, you might stop at an independently owned grocery store where the prices are high but the owner greets you by name.

There is almost a limitless way to segment: priceservicevaluedemographicsspeedethnicitystyle, etc. A graphic from the April 2015 issue of Fast Company details the segmentation of the apparel industry very well.

The chart captures the challenge that the retailer Gap finds itself. It is in the middle and needs to make “… clothes that people actually want to wear.” Being in the plum center of such a chart is not a good place to be. When you try to please everybody, you end up pleasing very few people.

Occasionally, a company can develop advantages on several dimensions. For example, Amazon initially competed with bookstores on price and breadth of selection. They won that war. Then they expanded their offerings and started to offer electronics, for example, at a price better than Best Buy’s prices. Even though Best Buy’s local presence offered the advantage of convenience, its anemic service made their bundle of value unattractive. They continue to chisel away at the distance disadvantage with their Amazon Prime 2-day service model. Currently it is offering same day service in some markets. Amazon efficiently segments every business it enters. It is the big gorilla in the low price segment with Amazon, but it also offers a full-priced, high service, selection of shoes and clothing through Zappos, a company that it owns.

A Common Mistake

Many people make the mistake of looking at a large category and assuming that they can develop a nice sized business by getting a small share of the market. Their reasoning might go as follows: China has more than a billion people. It seems feasible to reach 2% of the market and sell them four cereal boxes a year at $2 / box. This would allow our business to scale to $160 million rapidly.

Even though the numbers seem small and therefore “conservative”, such as only a 2% market share and only four cereal boxes a year, they are based on more hope than reality. The better questions to ask might be:

  1. How many people eat cereal in China?
  2. How many boxes per year do the cereal eaters buy?
  3. Which companies are selling cereals there today? How big are they? What is their experience to date?
  4. What will be our point of difference?

Beware of the beguiling fallacy of large numbers.

Take the time to understand your industry really well. It will make your future life easier and quite likely, richer.

Verinder, Author: Discover The Entrepreneur Within

Understanding Competition: Research

In my last post, we saw the four key elements (Industry Size & Growth, Market Segments, Key Competitors & Opportunities) we must focus on, to understand competition better in order to position our business more strategically. To collect and evaluate this data requires research. Besides the usual “Googling,” there are numerous publications from the Government and Industry Trade Associations that provide relevant data.

Market leaders also provide a treasure trove of data with financial reports and analyst presentations. White Papers can often be good sources of information as well. Consulting, venture capital and branding firms often release consumer and industry reports. Many companies also sell data and reports for this very purpose.

You will not suffer from lack of data; rather you’ll be inundated by it. Your challenge is to take that vast amount of data and distill it into key, actionable insights. Charts and graphs often tell a better story than pages and pages of statistics and analysis.

A research plan, using the above template, can help you remain organized and focused. Research is like putting a jigsaw puzzle together. The more pieces you fit together, the clearer the picture becomes. Use common sense and make assumptions where necessary. Try to verify the information from more than one source.

AN EXPERIMENT

I decided to use this approach to look at two industries I wanted to understand better:

1. Global Media. What were the major channels, who was gaining market share, what was declining, where was the heart of the action and who was winning?

2. The U.S. Restaurant Business. Which segments were gaining ground, what were the key trends and where would future growth most likely come from?

For each industry I spent about 60 minutes collecting data from a variety of sources on the Internet and analyzing it. A composite picture of this analysis is included in my book. The purpose of this exercise was to see how much I could learn in a short time. The answer: A lot. I suspect you will be able to do even better.

Verinder, Author: Discover The Entrepreneur Within

Competition

competition

 

“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

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

product

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

The Value Proposition

value

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 3Ps and 3Cs of Marketing

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

Introduction To Marketing

Billions of dollars are spent on marketing each year, but much of it is wasted. How many of you watch TV commercials? When was the last time a billboard or a newspaper ad caught your attention? How fast do you toss out junk mail? The word “junk” says it all.

Why do you think so much marketing spending is futile? Simply because most companies focus on selling something and not on what the customer wants. Companies need to reverse course.

Marketing is about the customer, meeting his needs and wants. This can only be done, by understanding these needs in depth. You may even have to go further. Today many more people are looking to do business with organizations that share their values and ethos. The mission of Warby Parker or Patagonia may resonate with you. Or perhaps it is the companies that focus on green, organic, Fair Trade or Non GMO products that you feel more deeply about. We buy from people we like and there is a strong social and emotional element to our decisions.

Professor Gretchen Dobie, who has been teaching an introductory marketing class to MBA students at Loyola University for many years, puts it this way: “Effective marketing is recognizing customer needsand devising ways to attract customers to the product.”

Marketing, then, is both a strategy and a variety of tactics. The latter include advertising, promoting, pricing, branding, positioning, segmenting and selling. However, the best place to start is to focus on the basic questions that were raised earlier:

  • What is the problem that is being solved? Who is the customer? How much will they pay?
  • Who is the competition? Why will customers buy your product over those of the competition?

Professor Dobie gives my students an introduction to marketing, a crash course of sorts, in which we use a modified marketing model that we call “The 3Ps and 3Cs.”

We shall look at what these 3 Ps and 3Cs are, in my next post. Till then, keep thinking of what is the problem your product/ service is solving, and who is your customer and your competition.

Verinder Syal, Author: Discover The Entrepreneur Within