tag:blogger.com,1999:blog-74847639405316880192024-03-05T17:30:38.521-07:00"M" is for MarketingThis blog is for everyone in business today. Marketing creates more economic value for business than any other activity, yet it is too often seen as a marginal activity, a support function and a tactical cost line. I want you to think differently. Follow this blog to read perspectives on marketing and business strategy.Unknownnoreply@blogger.comBlogger26125tag:blogger.com,1999:blog-7484763940531688019.post-8098842218442555202009-05-06T21:17:00.002-06:002009-05-06T21:48:51.728-06:00"Marketing" is not just an investment but insuranceRecently, I read an article by Al Ries, legendary marketing strategist. The article was reflecting on overemphasis on marketing metrics and ROI in this age of sophisticated data models used to analyze consumer behaviour. He goes on to say that business world suffers from "metrics madness" and so is marketing buried in ROI analysis. Now I found that intriguing...I spent a year in B-school learning to measure marketing ROI as it was the only way marketing would stay relevant.<br /><br />Moreover, my engineering background has led to me believe that "if you cant measure something, you cant manage it". And so, as you'd guess, I found Al Ries' comments puzzling to say the least but the guy made his point.<br /><br />Today, marketing is trying to create its value to business by measuring its impact (ROI, KPI customer metrics). However, marketing is more of an art than science. You dont need marketing ROI to prove that Apple's marketing efforts are more effective than Microsoft's. Question is can marketing metrics improve or optimize marketing spend - i think it can. But mathematical modeling is an overkill for marketing and is not going to help businesses. You just cant run a company by numbers alone - or you will run the company to ground. What is needed are marketers who are creative and strategic in their approach.<br /><br />And if this whole buzz around marketing metrics and data crunching is to create relevance for Marketing in the business, then the whole premise is flawed.<br /><br /><span style="font-weight: bold;">In words of Al Ries: Advertising (read</span><span style="font-style: italic; font-weight: bold;"> marketing</span><span style="font-weight: bold;">) is more like insurance than it is like an investment. What's your "return on investment" of a five-year term life insurance policy if you don't die? Zero.</span><br /><br /><span style="font-weight: bold;">We dont buy insurance policy to make money but to protect our family in case we die. Similarly, marketing is an insurance to secure market share and even if ROI is negative, in few circumstances, it is worth every penny if you are defending your market leadership - consequences of losing which is not comprehended in your ROI analysis but could cost the business in the long term. </span><br /><br /><span style="font-style: italic;">The overall practice of marketing is not mathematically based, although subsets of the discipline may be: direct marketing, research, media selection. Mathematics is logical. Marketing is not. That's why marketing is so difficult to learn. </span>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-7484763940531688019.post-15142505281500748832009-03-21T13:20:00.001-06:002009-03-21T13:20:51.627-06:00Death of Need-Based Marketing<div style="font-weight: bold;"><span style="color: rgb(153, 255, 153);">Peter Drucker got it right: <span>"The customer rarely buy what the business thinks it sells him".</span></span> </div><br /><div> </div>Most companies segment along lines defined by the characteristics of their product (category or price) or customers (age, gender, income level). But customer and product characteristics are poor indicators of customer's buying behavior, proven by the research work of Clayton Christensen,et al and published in the Harvard Business Review (<span style="font-style: italic;">Harvard Business Review on Innovation)</span>. And the current need-based segmentation and marketing is self-limiting at the best; in some cases, it could even mislead marketers in their quest to understand what customers "really" want.<br /><br />Challenge is that "buyer needs" change far more often than marketers would acknowledge. These needs change and evolve continually - as a function of situations and surroundings (environment).<br /><br />"Need-based marketing" does not explain why a guy takes out his girlfriend to a movie theater on one night but next evening, they order pizzas at home and watch movies on DVDs ordered from Netflix or picked from the nearby video store.<br /><br />Another example: Say,you are rushing to get to work for that early morning meeting and you miss your breakfast. You then decide to grab a bite at a local coffee shop that's on your way to the office. However, a busy drive-thru at the coffee shop means that you could miss your meeting; so not taking a chance you decide to head straight to work. You are still hungry and a dairy shop near the office might be your best bet. This dairy shop has a quick drive-thru and they have recently started serving thick"fruity milkshakes" that are quite filling actually. And so you have just found your next best "alternative" to breakfast bun at the coffee shop. The new fruity flavored milkshake is healthier and filling at the same time. Add to this a faster drive-thru and customer service at the dairy shop, you have just "hired" milkshake over breakfast bun.<br /><br /><span style="font-weight: bold; color: rgb(153, 255, 153);">Customers don't buy products, they "hire" products to get a job done. </span><span style="color: rgb(153, 255, 153);">Marketing guru, Ted Levitt, taught us 30 years ago that customers "don't want a quarter-inch drill. They want a quarter-hole!"</span><br />This concept was recently re-introduced by Clayton and others in Harvard Business Review. As illustrated in case of dairy shop example, you hire "milkshake" to feed your morning hunger in a healthier and filling manner. Not only that, choice of milkshake over breakfast bun at the coffee shop is reinforced by smaller line-up and faster drive-thru at the dairy shop. In fact, you don't need breakfast bun or milkshake, in fact what you need most is to feed yourself quickly to get you going till lunch. Milkshake and "Breakfast bun +coffee" are two alternatives to meet the same need. You choose the one that offers you the most value.<br /><br />Products are just like "job candidates" hired by consumers to get a specific job done. The best candidate wins the job - product which can help consumer get a job done most efficiently and effectively will surely win.<br /><br />We think of FedEx as the fastest parcel/courier service. When we think of BMW, we are reminded of high performance cars. Think of online auctions and eBay comes to mind. Best products position themselves as <a href="http://businessism.blogspot.com/2008/12/purpose-brands.html">"purpose brands"</a> (read <a href="http://businessism.blogspot.com/2008/12/purpose-brands.html">this post</a>). These products and brands are associated with a clear purpose and pop into customers' minds when they need to do the jobs that these products were optimized to do.<br /><br />Marketers should think of this concept before rolling out new surveys, focus groups and forum discussions. It should be central to any customer-driven strategy. The key is to ask right questions. Ask the right questions and you'd unlock key information on the buying behavior of your customers.<br /><br /><span style="font-weight: bold; color: rgb(153, 255, 153);">Ask the "right" questions:</span> The "right" question to ask in a survey is NOT <span style="font-weight: bold;">what your customers want</span>? Most of the times, they wouldn't know it either (historically, customersurveys are not very useful for ahead-of-the-curve technology products like walkman, iPODs and even PCs) and if customers know what they want, they would tell you and likely share a long list of feature enhancements for your product. But what they will never tell you is if they would also pay for the same. Unsuccessful product launches are testimony to this fact; after investing heavily in marketing research and surveys, companies launch products loaded with new features and technologies (that their customers asked for in those surveys) but dismal sales prove otherwise; customers do not value new functionality enough - at least not as much as to pay for it! These functionalities end up getting labelled as "bells and whistles".<br /><br />Therefore, marketers should focus less on product-centric questions and more on customer-centric questions. By asking the right questions, marketers can unlock a wealth of information about customer buying behaviors.<br /><ol><li><span style="font-weight: bold;">What your customers use your product for?<br /></span></li><li><span style="font-weight: bold;">What job are they trying to do?<br /></span></li><li><span style="font-weight: bold;">How do they use your product to get those jobs done?<br /></span></li><li><span style="font-weight: bold;">Is there a better way in which your product could help them perform customers perform their job better? </span></li><li><span style="font-weight: bold;">What do they use as alternatives if they are not using your product?</span></li></ol>These questions are key to unlocking buyer-value. Not only that responses to these questions would help in new product enhancements (#4) and finding new competition in alternatives (#5). It is valuable insight for any marketer and should help organization to develop best products <span style="font-weight: bold;">and build successful brands.</span><span><br /><br /></span><span>I am not prophesying </span><span>death of "Need-based marketing". It is a useful concept and has been put into good practice producing successful results over the decades. It tells us to focus on customer needs in order to win their business - that is and will remain an undeniable truth for years to come.<br /><br />But as consumer choices increase and their needs change at any given moment, need based marketing in its current form proves static rather than dynamic to reflect that change. </span><span>Need-based marketing will cease to exist in its current form - as a snapshot in time of customer needs - assumption that buyer needs remain static over long periods of time. <span style="color: rgb(153, 255, 153);">Need based marketing will face a certain death if it fails to capture varying customer needs and competing alternatives</span><span style="font-weight: bold; color: rgb(153, 255, 153);">.</span></span><span style="font-weight: bold;"><br /><br /></span><span style="color: rgb(153, 255, 153); font-weight: bold;">RECOMMENDED READING</span><span style="font-weight: bold;">: </span><span>For further reading, refer to following books.<br /><br /></span><br /><iframe src="http://rcm-ca.amazon.ca/e/cm?t=httpbusinessi-20&o=15&p=8&l=as1&asins=0471703591&fc1=F3EDED&IS2=1&lt1=_blank&m=amazon&lc1=00FF81&bc1=141212&bg1=141212&f=ifr" style="width: 120px; height: 240px;" marginwidth="0" marginheight="0" scrolling="no" frameborder="0"></iframe> <iframe src="http://rcm.amazon.com/e/cm?t=wwwexpertguid-20&o=1&p=8&l=as1&asins=0749450282&fc1=F5EDED&IS2=1&lt1=_blank&m=amazon&lc1=00FF5C&bc1=141313&bg1=141313&f=ifr" style="width: 120px; height: 240px;" marginwidth="0" marginheight="0" scrolling="no" frameborder="0"></iframe> <iframe src="http://rcm.amazon.com/e/cm?t=wwwexpertguid-20&o=1&p=8&l=as1&asins=1578516145&fc1=FBF7F7&IS2=1&lt1=_blank&m=amazon&lc1=00FF38&bc1=1C1717&bg1=1C1717&f=ifr" style="width: 120px; height: 240px;" marginwidth="0" marginheight="0" scrolling="no" frameborder="0"></iframe>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-7484763940531688019.post-71382325772504130872009-03-20T21:19:00.000-06:002009-03-20T21:20:40.589-06:00Customers "hire" products to get a job done.<strong><span style="color: rgb(153, 255, 153);">Customers dont buy products, they "hire" products to get a job done.</span></strong><br /><br />A "Job" is the fundamental problem that customer needs to resolve in a given situation- a concept that was introduced by Clayton Christensen.<br />Think about this for a while. It is an important concept to understand because many marketers think of "need-based marketing" when positioning products. According to this school of thought, a product must meet customers' needs. Problem is that needs are not static. Customers' buying behavior change far more often - function of situation and environment.<br /><br />When a product does a job well, it creates a potential for marketers to create "purpose brands". A purpose brand links customers' realization that they need to do a job with a product designed to do it. Think of powerful brands - FedEx, Starbucks, BlackBerry and Google. Each of these brands is associated with a clear purpose and pop into customers' minds when they need to do the jobs that these products were optimized to do.<br /><br />Without specific purpose for their products, marketing executives must attempt brand building through expensive advertising. But given the high fixed cost of building new brands through advertising, it deters many companies to build new brands at all, so the acquire and consolidate brands instead.<br /><br />Positioning products to do specific jobs help companies target their advertising more effectively. To give you an example, a chain of scuba diving shops marketed its diving classes and gear by segmenting customers by "demography"-primarily people who subscribed to scuba diving magazines - and zip codes to market locally. However, they still failed to succeed. But when they asked their customers in what situations they "hired" scuba gear, they found that most of them were engaged couples and planning wedding trips in tropical destinations. No surpises then, the company started purchasing mailing list from <em>Brides</em> instead of <em>Dive</em> magazine.<br /><br /><strong><span style="color: rgb(153, 255, 153);">RECOMMENDED READING</span></strong>: For further reading, I recommend following books on this subject available at Amazon Store. <span style="color: rgb(153, 255, 153);">Simply click and buy!<br /></span><iframe style="width: 120px; height: 240px;" marginwidth="0" marginheight="0" src="http://rcm.amazon.com/e/cm?t=wwwexpertguid-20&o=1&p=8&l=as1&asins=0471690163&fc1=F7F1F1&IS2=1&lt1=_blank&m=amazon&lc1=00FF74&bc1=1C1A1A&bg1=1C1A1A&f=ifr" scrolling="no" frameborder="0"></iframe><iframe style="width: 120px; height: 240px;" marginwidth="0" marginheight="0" src="http://rcm.amazon.com/e/cm?t=wwwexpertguid-20&o=1&p=8&l=as1&asins=1578518040&fc1=F7F1F1&IS2=1&lt1=_blank&m=amazon&lc1=00FF8D&bc1=1A1919&bg1=1A1919&f=ifr" scrolling="no" frameborder="0"></iframe> <iframe src="http://rcm-ca.amazon.ca/e/cm?t=httpbusinessi-20&o=15&p=8&l=as1&asins=1591396190&fc1=F9EFEF&IS2=1&lt1=_blank&m=amazon&lc1=00FF5C&bc1=141313&bg1=141313&f=ifr" style="width: 120px; height: 240px;" marginwidth="0" marginheight="0" scrolling="no" frameborder="0"></iframe>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-7484763940531688019.post-69101092404412423742009-02-16T16:45:00.001-07:002009-02-16T16:45:05.646-07:00Brand StrategyCheck out this SlideShare Presentation: <div style="width:425px;text-align:left" id="__ss_54574"><a style="font:14px Helvetica,Arial,Sans-serif;display:block;margin:12px 0 3px 0;text-decoration:underline;" href="http://www.slideshare.net/nusantara99/brand-strategy?type=powerpoint" title="Brand Strategy">Brand Strategy</a><object style="margin:0px" width="425" height="355"><param name="movie" value="http://static.slideshare.net/swf/ssplayer2.swf?doc=brand-strategy-10945&stripped_title=brand-strategy" /><param name="allowFullScreen" value="true"/><param name="allowScriptAccess" value="always"/><embed src="http://static.slideshare.net/swf/ssplayer2.swf?doc=brand-strategy-10945&stripped_title=brand-strategy" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="425" height="355"></embed></object><div style="font-size:11px;font-family:tahoma,arial;height:26px;padding-top:2px;">View more <a style="text-decoration:underline;" href="http://www.slideshare.net/">presentations</a> from <a style="text-decoration:underline;" href="http://www.slideshare.net/nusantara99">Yodhia Antariksa</a>. (tags: <a style="text-decoration:underline;" href="http://slideshare.net/tag/management">management</a> <a style="text-decoration:underline;" href="http://slideshare.net/tag/marketing">marketing</a>)</div></div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-7484763940531688019.post-52673507530101774492009-02-16T15:15:00.003-07:002009-02-16T15:15:59.358-07:00Brand "U.0"Check out this SlideShare Presentation: <div style="width:425px;text-align:left" id="__ss_588552"><a style="font:14px Helvetica,Arial,Sans-serif;display:block;margin:12px 0 3px 0;text-decoration:underline;" href="http://www.slideshare.net/darmano/brand-u0-presentation?type=presentation" title="Brand "U.0"">Brand "U.0"</a><object style="margin:0px" width="425" height="355"><param name="movie" value="http://static.slideshare.net/swf/ssplayer2.swf?doc=u02-1220905320479681-9&stripped_title=brand-u0-presentation" /><param name="allowFullScreen" value="true"/><param name="allowScriptAccess" value="always"/><embed src="http://static.slideshare.net/swf/ssplayer2.swf?doc=u02-1220905320479681-9&stripped_title=brand-u0-presentation" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="425" height="355"></embed></object><div style="font-size:11px;font-family:tahoma,arial;height:26px;padding-top:2px;">View more <a style="text-decoration:underline;" href="http://www.slideshare.net/">presentations</a> from <a style="text-decoration:underline;" href="http://www.slideshare.net/darmano">David Armano</a>. (tags: <a style="text-decoration:underline;" href="http://slideshare.net/tag/internet">internet</a> <a style="text-decoration:underline;" href="http://slideshare.net/tag/brand">brand</a>)</div></div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-7484763940531688019.post-15007395857029289172009-02-16T15:15:00.001-07:002009-02-16T15:15:28.582-07:00Brand Mapping ToolCheck out this SlideShare Presentation: <div style="width:425px;text-align:left" id="__ss_98408"><a style="font:14px Helvetica,Arial,Sans-serif;display:block;margin:12px 0 3px 0;text-decoration:underline;" href="http://www.slideshare.net/kevinsugrue/brand-mapping-tool?type=presentation" title="Brand Mapping Tool">Brand Mapping Tool</a><object style="margin:0px" width="425" height="355"><param name="movie" value="http://static.slideshare.net/swf/ssplayer2.swf?doc=brand-mapping-tool1295&stripped_title=brand-mapping-tool" /><param name="allowFullScreen" value="true"/><param name="allowScriptAccess" value="always"/><embed src="http://static.slideshare.net/swf/ssplayer2.swf?doc=brand-mapping-tool1295&stripped_title=brand-mapping-tool" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="425" height="355"></embed></object><div style="font-size:11px;font-family:tahoma,arial;height:26px;padding-top:2px;">View more <a style="text-decoration:underline;" href="http://www.slideshare.net/">presentations</a> from <a style="text-decoration:underline;" href="http://www.slideshare.net/kevinsugrue">kevinsugrue</a>. (tags: <a style="text-decoration:underline;" href="http://slideshare.net/tag/advertising">advertising</a> <a style="text-decoration:underline;" href="http://slideshare.net/tag/marketing">marketing</a>)</div></div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-7484763940531688019.post-34461992212052943072009-02-16T15:04:00.001-07:002009-02-16T15:04:34.834-07:00Brand YouCheck out this SlideShare Presentation: <div style="width:425px;text-align:left" id="__ss_319491"><a style="font:14px Helvetica,Arial,Sans-serif;display:block;margin:12px 0 3px 0;text-decoration:underline;" href="http://www.slideshare.net/GregFish/brand-you?type=presentation" title="Brand You">Brand You</a><object style="margin:0px" width="425" height="355"><param name="movie" value="http://static.slideshare.net/swf/ssplayer2.swf?doc=brand-you-12063726875622-2&stripped_title=brand-you" /><param name="allowFullScreen" value="true"/><param name="allowScriptAccess" value="always"/><embed src="http://static.slideshare.net/swf/ssplayer2.swf?doc=brand-you-12063726875622-2&stripped_title=brand-you" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="425" height="355"></embed></object><div style="font-size:11px;font-family:tahoma,arial;height:26px;padding-top:2px;">View more <a style="text-decoration:underline;" href="http://www.slideshare.net/">presentations</a> from <a style="text-decoration:underline;" href="http://www.slideshare.net/GregFish">GregFish</a>. (tags: <a style="text-decoration:underline;" href="http://slideshare.net/tag/branding">branding</a> <a style="text-decoration:underline;" href="http://slideshare.net/tag/brand">brand</a>)</div></div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-7484763940531688019.post-90853783249556631392009-02-16T15:03:00.001-07:002009-02-16T15:03:34.014-07:00ZAG- 17 steps process branding workshop (NYL)Check out this SlideShare Presentation: <div style="width:425px;text-align:left" id="__ss_69165"><a style="font:14px Helvetica,Arial,Sans-serif;display:block;margin:12px 0 3px 0;text-decoration:underline;" href="http://www.slideshare.net/lynjang/newyorklife?type=presentation" title="ZAG- 17 steps process branding workshop (NYL)">ZAG- 17 steps process branding workshop (NYL)</a><object style="margin:0px" width="425" height="355"><param name="movie" value="http://static.slideshare.net/swf/ssplayer2.swf?doc=newyorklife2263&stripped_title=newyorklife" /><param name="allowFullScreen" value="true"/><param name="allowScriptAccess" value="always"/><embed src="http://static.slideshare.net/swf/ssplayer2.swf?doc=newyorklife2263&stripped_title=newyorklife" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="425" height="355"></embed></object><div style="font-size:11px;font-family:tahoma,arial;height:26px;padding-top:2px;">View more <a style="text-decoration:underline;" href="http://www.slideshare.net/">presentations</a> from <a style="text-decoration:underline;" href="http://www.slideshare.net/lynjang">lynjang</a>. (tags: <a style="text-decoration:underline;" href="http://slideshare.net/tag/branding">branding</a> <a style="text-decoration:underline;" href="http://slideshare.net/tag/workshop">workshop</a>)</div></div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-7484763940531688019.post-21091253940193180432009-02-16T12:10:00.001-07:002009-02-16T12:10:33.140-07:00The Brand GapCheck out this SlideShare Presentation: <div style="width:425px;text-align:left" id="__ss_28886"><a style="font:14px Helvetica,Arial,Sans-serif;display:block;margin:12px 0 3px 0;text-decoration:underline;" href="http://www.slideshare.net/coolstuff/the-brand-gap?type=presentation" title="The Brand Gap">The Brand Gap</a><object style="margin:0px" width="425" height="355"><param name="movie" value="http://static.slideshare.net/swf/ssplayer2.swf?doc=the-brand-gap-14630&stripped_title=the-brand-gap" /><param name="allowFullScreen" value="true"/><param name="allowScriptAccess" value="always"/><embed src="http://static.slideshare.net/swf/ssplayer2.swf?doc=the-brand-gap-14630&stripped_title=the-brand-gap" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="425" height="355"></embed></object><div style="font-size:11px;font-family:tahoma,arial;height:26px;padding-top:2px;">View more <a style="text-decoration:underline;" href="http://www.slideshare.net/">presentations</a> from <a style="text-decoration:underline;" href="http://www.slideshare.net/coolstuff">coolstuff</a>. (tags: <a style="text-decoration:underline;" href="http://slideshare.net/tag/design">design</a> <a style="text-decoration:underline;" href="http://slideshare.net/tag/brand">brand</a>)</div></div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-7484763940531688019.post-23940445774655623642009-02-07T12:45:00.007-07:002009-02-07T13:17:24.554-07:00Done your Marketing Audit yet?<div style="color: rgb(153, 255, 153);" align="center"><h3> <span style="color: rgb(255, 255, 255);font-size:100%;" >Marketing is a strategic weapon! Are you taking full advantage of all your internal assets in a highly leveraged way that will grow and build your company profitably?</span></h3></div> <span style="color: rgb(153, 255, 153);font-size:130%;" ><span style="font-weight: bold;">T</span></span>he Marketing Audit is proving popular for its recession-proofing ability and because it helps you get the most out of everything you have. It provides the "Road Map" that will help you conduct an Audit of your company's marketing strategies.<br /><br />The Marketing Audit will help your company to: <ul><li>Position your products and services for optimum sales.</li><li>Evaluate the competitive environment.</li><li>Identify problems with your marketing efforts.</li><li>Evaluate your pricing strategy.</li><li>Implement cost-effective marketing strategies and tactics.</li><li>Assess your marketing plan</li><li>Many more strategies.</li></ul> <span style="font-weight: bold; color: rgb(153, 255, 153);">The marketing audit explores 10 aspects of your marketing...</span><br /><br />1. How you get more customers <span style="color: rgb(153, 255, 153);">(lead generation, channel strategy)</span><br />2. How you get more dollars per customer <span style="color: rgb(153, 255, 153);">(customer profitability)</span><br />3. How you get more transactions per customer <span style="color: rgb(153, 255, 153);">(scale benefits)</span><br />4. How you perform against competitive threats <span style="color: rgb(153, 255, 153);">(competition analysis)</span><br />5. How well your website and online marketing is performing <span style="color: rgb(153, 255, 153);">(channel strategy, product strategy)</span><br />6. How good your visual branding is <span style="color: rgb(153, 255, 153);">(branding and communication)</span><br />7. How well your sales people and sales systems work <span style="color: rgb(153, 255, 153);">(sales management)</span><br />8. How you define your target market, customers and competition <span style="color: rgb(153, 255, 153);">(blue ocean strategies)</span><br />9. How you have structured your pricing strategy<br />10. How well is your marketing mix positioned for recessionary times <span style="color: rgb(153, 255, 153);">(product, price, channel and promotion strategies)</span><br /><br /><p>Make an investment in both yourself and your business by purchasing this checklist, and then conduct the audit! Your customers will be glad you did. And, when the results show on your bottom line, you will be glad you did also. <b><br /></b></p><p><b>Take the Next Step!</b> Where your business has been, or is today, is no longer important. <b>What matters MOST is what comes NEXT!</b> Take the next step on the road to growth and profitability. Contact me at <span style="color: rgb(153, 255, 153);">arvind@expertguidance.ca</span> and get a free quote for Marketing Audit Checklist and Consulting.<b><br /></b></p>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-7484763940531688019.post-59203402271014018382009-01-11T20:42:00.006-07:002009-01-15T19:36:49.100-07:00Blue Ocean Strategy- Part 2Check out this SlideShare Presentation: <div style="width: 425px; text-align: left;" id="__ss_258800"><a style="margin: 12px 0pt 3px; font-family: Helvetica,Arial,Sans-serif; font-style: normal; font-variant: normal; font-weight: normal; font-size: 14px; line-height: normal; font-size-adjust: none; font-stretch: normal; display: block; text-decoration: underline;" href="http://www.slideshare.net/pchitchai/blue-ocean-strategy-bos-258800?type=powerpoint" title="Blue Ocean Strategy (BOS)">Blue Ocean Strategy (BOS)</a><object style="margin: 0px;" width="425" height="355"><param name="movie" value="http://static.slideshare.net/swf/ssplayer2.swf?doc=blue-ocean-strategy-bos-1202550384361716-4&stripped_title=blue-ocean-strategy-bos-258800"><param name="allowFullScreen" value="true"><param name="allowScriptAccess" value="always"><embed src="http://static.slideshare.net/swf/ssplayer2.swf?doc=blue-ocean-strategy-bos-1202550384361716-4&stripped_title=blue-ocean-strategy-bos-258800" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="425" height="355"></embed></object><div face="tahoma,arial" size="11px" style="height: 26px; padding-top: 2px;"><strong></strong>View SlideShare <a style="text-decoration: underline;" href="http://www.slideshare.net/pchitchai/blue-ocean-strategy-bos-258800?type=powerpoint" title="View Blue Ocean Strategy (BOS) on SlideShare">presentation</a> or <a style="text-decoration: underline;" href="http://www.slideshare.net/upload?type=powerpoint">Upload</a> your own. (tags: <a style="text-decoration: underline;" href="http://slideshare.net/tag/innovative">innovative</a> <a style="text-decoration: underline;" href="http://slideshare.net/tag/business">business</a>)<br /><br /><br /><br /><br /><br /></div></div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-7484763940531688019.post-69547214360071661052009-01-04T11:52:00.003-07:002009-01-05T00:31:06.849-07:00Blue Ocean Strategy - Part 1<strong style="font-weight: normal;">I just finished reading a book on strategy: <span style="font-weight: bold;">"Blue Ocean Strategy" written by W.Chan Kim and Renee Mauborgne.</span></strong> It is one of the best books written on strategy out there and that is why I wanted to share this with you in this post.<br /><br />It redefines strategy as we know it today: competition-based and customer-driven strategies are referred to as "red ocean strategies" in this book. Authors provide examples of how companies continue to compete head-on in overcrowded industries - that results in nothing but bloody "red ocean" rivals fighting over a shrinking profit pool.<br /><br /><span style="color: rgb(153, 255, 153);"><strong>Definition: Strategy<br /></strong></span>The word "Strategy" derives from the Greek word stratēgos, which derives from two words: stratos (army) and ago (ancient Greek for leading). Stratēgos referred to a 'military commander' during the age of Athenian Democracy. This definition leads us to believe that strategy is about making such choices that beat the competition; that's a classic red-ocean strategy.<br /><br /><strong><span style="color: rgb(153, 255, 153);">Blue Ocean Strategy</span></strong><br />Blue Ocean Strategy is just the opposite. Instead of<em> beating the competition</em>, this new strategy focuses on <em>making the competition irrelevant</em> by changing the market-space. It starts with re-orienting the company's strategic focus from <em>"competitors"</em> to <em>"alternatives"</em> and from <em>"customers"</em> to "<em>non-customers". Conventional </em>Red Ocean Strategy is based on <span style="color: rgb(153, 255, 153);">value-cost trade-off</span> which explains why companies pursue either "<em>differentiation</em>" or "<em>low cost</em>" strategy. As it is conventionally believed that companies can either create <span style="font-style: italic;">greater value</span> to customer at a <span style="font-style: italic;">higher cost </span>or create <span style="font-style: italic;">reasonable value</span> at a <span style="font-style: italic;">lower cost.</span><br /><br />Blue Ocean Strategy leads us to break the value-cost trade off .Basic tenet of this strategy is that "differentiation" AND "low cost" should be pursued simultaneously by companies in order to create "blue oceans".<br /><br /><strong><span style="color: rgb(153, 255, 153);">Key Principles of Blue Ocean Strategy</span></strong><br />Blue Ocean Strategy is different than red ocean strategy in several ways. As I just mentioned, the focus of blue ocean is to<br />1) create "uncontested market space" unlike competing in existing market space (red ocean).<br />2) focus on non-customers to create and capture new customer demand<br />3) make the competition irrelevant<br />4) break the value-cost trade off<br />5) align firm's activities in pursuit of both <em>differentiation </em>and <em>low cost</em><br /><br />To read more about Blue Strategy analytical tools and frameworks, stay tuned for my next post-<br /><span style="font-style: italic;"> Blue Ocean Strategy-Part 2</span>. Also don't forget to check out previous posts from December last year: <a href="http://businessism.blogspot.com/2008/12/purpose-brands.html"><span style="text-decoration: underline;">Purpose Brands</span></a>, <a href="http://businessism.blogspot.com/2008/12/learning-to-love-recessions.html">Learning to Love Recession</a>, <a href="http://businessism.blogspot.com/2008/12/whats-your-companys-profit.html">What's your profit?</a> and<a href="http://businessism.blogspot.com/2008/12/concept-of-pocket-price-waterfall.html"> Pocket-Price Waterfall. </a><br /><br /><strong><span style="color: rgb(153, 255, 153);">RECOMMENDED READING</span></strong>: Blue Ocean Strategy (Kim & Mauborgne)<br /><iframe style="width: 120px; height: 240px;" marginwidth="0" marginheight="0" src="http://rcm-ca.amazon.ca/e/cm?t=httpbusinessi-20&o=15&p=8&l=as1&asins=1591396190&fc1=F9EFEF&IS2=1&lt1=_blank&m=amazon&lc1=00FF5C&bc1=141313&bg1=141313&f=ifr" scrolling="no" frameborder="0"></iframe><iframe style="width: 120px; height: 240px;" marginwidth="0" marginheight="0" src="http://rcm.amazon.com/e/cm?t=wwwexpertguid-20&o=1&p=8&l=as1&asins=1591396190&fc1=F5F3F3&IS2=1&lt1=_blank&m=amazon&lc1=00FF74&bc1=040404&bg1=040404&f=ifr" scrolling="no" frameborder="0"></iframe>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-7484763940531688019.post-75628417097404577192009-01-04T10:41:00.005-07:002009-01-05T00:33:28.277-07:00"Value Innovation"<span style="font-size:85%;">[Excerpts from Blue Ocean Strategy, Chapter 1]</span><br /><br />"Value Innovation" is the cornerstone of Blue Ocean Strategy (read more on<a href="http://businessism.blogspot.com/2008/12/blue-ocean-strategy-part-1.html"> Blue Ocean Strategy</a>). <em>Value innovation</em> places equal emphasis on "value" and "innovation". Innovation without value tends to be technology-driven, market pioneering or even futuristic - shooting beyond what buyers are willing to accept and pay for. At the same time, value without innovation tends to focus on value creation on an incremental scale - something that creates value but it fails to make you stand out in the marketplace.<br /><br />Value innovation is created in the region where a company's actions favorably affect both its cost structure and its value proposition to buyers.<br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjtd4vUihjz7XZcmakiEXuEhLsI7m7xyNooMuXMPj_FCT4QYhGQfItEtUd14HZzhyphenhyphenYIsBmLq-PE0uhAmqmtzbd3GE_Ym-BK-wQTZuj8ux2p4KeK8RjW0Tt53uPZtZ8UGYs6i4bNtnG9RGs/s1600-h/image-value+innovation.png"><img id="BLOGGER_PHOTO_ID_5282837256904662530" style="margin: 0px 10px 10px 0px; float: left; width: 320px; height: 253px;" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjtd4vUihjz7XZcmakiEXuEhLsI7m7xyNooMuXMPj_FCT4QYhGQfItEtUd14HZzhyphenhyphenYIsBmLq-PE0uhAmqmtzbd3GE_Ym-BK-wQTZuj8ux2p4KeK8RjW0Tt53uPZtZ8UGYs6i4bNtnG9RGs/s320/image-value+innovation.png" border="0" /></a><br /><br /><br /><br /><br /><br /><br /><br /><br /><br /><br /><br /><br /><br /><br />Cost savings are made by <em>eliminating</em> and<em> reducing </em>the factors that industry competes on. Buyer value is lifted by <em>raising</em> and <em>creating</em> elements the industry has never offered. (<em>read more on this in The Four Actions Framework</em>). Value Innovation breaks the <a href="http://businessism.blogspot.com/2009/01/blue-ocean-strategy-part-1_04.html">value-cost trade-off </a>and enable companies to pursue differentiation and low cost, simultaneously.<br /><br />Value innovation enable companies in the simultaneous pursuit of differentiation and low cost. By focusing on <em>alternatives</em> instead of just <em>competition a</em>nd by targeting non-customers (beyond existing customers), companies will create new marketplace and make the competition irrelevant.<br /><br /><strong><span style="color: rgb(153, 255, 153);">RECOMMENDED READING</span></strong>: Blue Ocean Strategy by Kim and Mauborgne. <em>To get the best deals on shipping, Canadian readers purchase this book from Amazon.<strong>ca;</strong> International and US residents should use Amazon.</em><strong><em>com<br /></em></strong><br /><iframe style="width: 120px; height: 240px;" marginwidth="0" marginheight="0" src="http://rcm-ca.amazon.ca/e/cm?t=httpbusinessi-20&o=15&p=8&l=as1&asins=1591396190&fc1=F9EFEF&IS2=1&lt1=_blank&m=amazon&lc1=00FF5C&bc1=141313&bg1=141313&f=ifr" scrolling="no" frameborder="0"></iframe><iframe style="width: 120px; height: 240px;" marginwidth="0" marginheight="0" src="http://rcm.amazon.com/e/cm?t=wwwexpertguid-20&o=1&p=8&l=as1&asins=1591396190&fc1=F5F3F3&IS2=1&lt1=_blank&m=amazon&lc1=00FF74&bc1=040404&bg1=040404&f=ifr" scrolling="no" frameborder="0"></iframe>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-7484763940531688019.post-2757086918675259192009-01-04T10:21:00.013-07:002009-01-04T19:06:13.150-07:00Death of "Need-Based Marketing"<div style="font-weight: bold;"><span style="color: rgb(153, 255, 153);">Peter Drucker got it right: <span>"The customer rarely buy what the business thinks it sells him".</span></span> </div><br /><div> </div>Most companies segment along lines defined by the characteristics of their product (category or price) or customers (age, gender, income level). But customer and product characteristics are poor indicators of customer's buying behavior, proven by the research work of Clayton Christensen,et al and published in the Harvard Business Review (<span style="font-style: italic;">Harvard Business Review on Innovation)</span>. And the current need-based segmentation and marketing is self-limiting at the best; in some cases, it could even mislead marketers in their quest to understand what customers "really" want.<br /><br />Challenge is that "buyer needs" change far more often than marketers would acknowledge. These needs change and evolve continually - as a function of situations and surroundings (environment).<br /><br />"Need-based marketing" does not explain why a guy takes out his girlfriend to a movie theater on one night but next evening, they order pizzas at home and watch movies on DVDs ordered from Netflix or picked from the nearby video store.<br /><br />Another example: Say,you are rushing to get to work for that early morning meeting and you miss your breakfast. You then decide to grab a bite at a local coffee shop that's on your way to the office. However, a busy drive-thru at the coffee shop means that you could miss your meeting; so not taking a chance you decide to head straight to work. You are still hungry and a dairy shop near the office might be your best bet. This dairy shop has a quick drive-thru and they have recently started serving thick"fruity milkshakes" that are quite filling actually. And so you have just found your next best "alternative" to breakfast bun at the coffee shop. The new fruity flavored milkshake is healthier and filling at the same time. Add to this a faster drive-thru and customer service at the dairy shop, you have just "hired" milkshake over breakfast bun.<br /><br /><span style="font-weight: bold; color: rgb(153, 255, 153);">Customers don't buy products, they "hire" products to get a job done. </span><span style="color: rgb(153, 255, 153);">Marketing guru, Ted Levitt, taught us 30 years ago that customers "don't want a quarter-inch drill. They want a quarter-hole!"</span><br />This concept was recently re-introduced by Clayton and others in Harvard Business Review. As illustrated in case of dairy shop example, you hire "milkshake" to feed your morning hunger in a healthier and filling manner. Not only that, choice of milkshake over breakfast bun at the coffee shop is reinforced by smaller line-up and faster drive-thru at the dairy shop. In fact, you don't need breakfast bun or milkshake, in fact what you need most is to feed yourself quickly to get you going till lunch. Milkshake and "Breakfast bun +coffee" are two alternatives to meet the same need. You choose the one that offers you the most value.<br /><br />Products are just like "job candidates" hired by consumers to get a specific job done. The best candidate wins the job - product which can help consumer get a job done most efficiently and effectively will surely win.<br /><br />We think of FedEx as the fastest parcel/courier service. When we think of BMW, we are reminded of high performance cars. Think of online auctions and eBay comes to mind. Best products position themselves as <a href="http://businessism.blogspot.com/2008/12/purpose-brands.html">"purpose brands"</a> (read <a href="http://businessism.blogspot.com/2008/12/purpose-brands.html">this post</a>). These products and brands are associated with a clear purpose and pop into customers' minds when they need to do the jobs that these products were optimized to do.<br /><br />Marketers should think of this concept before rolling out new surveys, focus groups and forum discussions. It should be central to any customer-driven strategy. The key is to ask right questions. Ask the right questions and you'd unlock key information on the buying behavior of your customers.<br /><br /><span style="font-weight: bold; color: rgb(153, 255, 153);">Ask the "right" questions:</span> The "right" question to ask in a survey is NOT <span style="font-weight: bold;">what your customers want</span>? Most of the times, they wouldn't know it either (historically, customersurveys are not very useful for ahead-of-the-curve technology products like walkman, iPODs and even PCs) and if customers know what they want, they would tell you and likely share a long list of feature enhancements for your product. But what they will never tell you is if they would also pay for the same. Unsuccessful product launches are testimony to this fact; after investing heavily in marketing research and surveys, companies launch products loaded with new features and technologies (that their customers asked for in those surveys) but dismal sales prove otherwise; customers do not value new functionality enough - at least not as much as to pay for it! These functionalities end up getting labelled as "bells and whistles".<br /><br />Therefore, marketers should focus less on product-centric questions and more on customer-centric questions. By asking the right questions, marketers can unlock a wealth of information about customer buying behaviors.<br /><ol><li><span style="font-weight: bold;">What your customers use your product for?<br /></span></li><li><span style="font-weight: bold;">What job are they trying to do?<br /></span></li><li><span style="font-weight: bold;">How do they use your product to get those jobs done?<br /></span></li><li><span style="font-weight: bold;">Is there a better way in which your product could help them perform customers perform their job better? </span></li><li><span style="font-weight: bold;">What do they use as alternatives if they are not using your product?</span></li></ol>These questions are key to unlocking buyer-value. Not only that responses to these questions would help in new product enhancements (#4) and finding new competition in alternatives (#5). It is valuable insight for any marketer and should help organization to develop best products <span style="font-weight: bold;">and build successful brands.</span><span><br /><br /></span><span>I am not prophesying </span><span>death of "Need-based marketing". It is a useful concept and has been put into good practice producing successful results over the decades. It tells us to focus on customer needs in order to win their business - that is and will remain an undeniable truth for years to come.<br /><br />But as consumer choices increase and their needs change at any given moment, need based marketing in its current form proves static rather than dynamic to reflect that change. </span><span>Need-based marketing will cease to exist in its current form - as a snapshot in time of customer needs - assumption that buyer needs remain static over long periods of time. <span style="color: rgb(153, 255, 153);">Need based marketing will face a certain death if it fails to capture varying customer needs and competing alternatives</span><span style="font-weight: bold; color: rgb(153, 255, 153);">.</span></span><span style="font-weight: bold;"><br /><br /></span><span style="color: rgb(153, 255, 153); font-weight: bold;">RECOMMENDED READING</span><span style="font-weight: bold;">: </span><span>For further reading, refer to following books.<br /><br /></span><br /><iframe src="http://rcm-ca.amazon.ca/e/cm?t=httpbusinessi-20&o=15&p=8&l=as1&asins=0471703591&fc1=F3EDED&IS2=1&lt1=_blank&m=amazon&lc1=00FF81&bc1=141212&bg1=141212&f=ifr" style="width: 120px; height: 240px;" marginwidth="0" marginheight="0" scrolling="no" frameborder="0"></iframe> <iframe src="http://rcm.amazon.com/e/cm?t=wwwexpertguid-20&o=1&p=8&l=as1&asins=0749450282&fc1=F5EDED&IS2=1&lt1=_blank&m=amazon&lc1=00FF5C&bc1=141313&bg1=141313&f=ifr" style="width: 120px; height: 240px;" marginwidth="0" marginheight="0" scrolling="no" frameborder="0"></iframe> <iframe src="http://rcm.amazon.com/e/cm?t=wwwexpertguid-20&o=1&p=8&l=as1&asins=1578516145&fc1=FBF7F7&IS2=1<1=_blank&m=amazon&lc1=00FF38&bc1=1C1717&bg1=1C1717&f=ifr" style="width:120px;height:240px;" scrolling="no" marginwidth="0" marginheight="0" frameborder="0"></iframe>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-7484763940531688019.post-55330867533953960362008-12-13T16:49:00.016-07:002008-12-14T11:59:01.926-07:00"Purpose Brands"<strong><span style="color:#99ff99;">Customers dont buy products, they "hire" products to get a job done.</span></strong><br /><br />A "Job" is the fundamental problem that customer needs to resolve in a given situation- a concept that was introduced by Clayton Christensen.<br />Think about this for a while. It is an important concept to understand because many marketers think of "need-based marketing" when positioning products. According to this school of thought, a product must meet customers' needs. Problem is that needs are not static. Customers' buying behavior change far more often - function of situation and environment.<br /><br />When a product does a job well, it creates a potential for marketers to create "purpose brands". A purpose brand links customers' realization that they need to do a job with a product designed to do it. Think of powerful brands - FedEx, Starbucks, BlackBerry and Google. Each of these brands is associated with a clear purpose and pop into customers' minds when they need to do the jobs that these products were optimized to do.<br /><br />Without specific purpose for their products, marketing executives must attempt brand building through expensive advertising. But given the high fixed cost of building new brands through advertising, it deters many companies to build new brands at all, so the acquire and consolidate brands instead.<br /><br />Positioning products to do specific jobs help companies target their advertising more effectively. To give you an example, a chain of scuba diving shops marketed its diving classes and gear by segmenting customers by "demography"-primarily people who subscribed to scuba diving magazines - and zip codes to market locally. However, they still failed to succeed. But when they asked their customers in what situations they "hired" scuba gear, they found that most of them were engaged couples and planning wedding trips in tropical destinations. No surpises then, the company started purchasing mailing list from <em>Brides</em> instead of <em>Dive</em> magazine.<br /><br /><strong><span style="color:#99ff99;">RECOMMENDED READING</span></strong>: For further reading, I recommend following books on this subject available at Amazon Store. <span style="color:#99ff99;">Simply click and buy!<br /></span><iframe style="WIDTH: 120px; HEIGHT: 240px" marginwidth="0" marginheight="0" src="http://rcm.amazon.com/e/cm?t=wwwexpertguid-20&o=1&p=8&l=as1&asins=0471690163&fc1=F7F1F1&IS2=1&lt1=_blank&m=amazon&lc1=00FF74&bc1=1C1A1A&bg1=1C1A1A&f=ifr" frameborder="0" scrolling="no"></iframe><iframe style="WIDTH: 120px; HEIGHT: 240px" marginwidth="0" marginheight="0" src="http://rcm.amazon.com/e/cm?t=wwwexpertguid-20&o=1&p=8&l=as1&asins=1578518040&fc1=F7F1F1&IS2=1&lt1=_blank&m=amazon&lc1=00FF8D&bc1=1A1919&bg1=1A1919&f=ifr" frameborder="0" scrolling="no"></iframe> <iframe src="http://rcm-ca.amazon.ca/e/cm?t=httpbusinessi-20&o=15&p=8&l=as1&asins=1591396190&fc1=F9EFEF&IS2=1<1=_blank&m=amazon&lc1=00FF5C&bc1=141313&bg1=141313&f=ifr" style="width:120px;height:240px;" scrolling="no" marginwidth="0" marginheight="0" frameborder="0"></iframe>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-7484763940531688019.post-87427689765825317472008-12-13T08:00:00.018-07:002008-12-14T14:42:52.303-07:00Learning to Love Recessions<p>Recession strikes different sectors in different ways, and at different times - but it is not always bad for everyone. Studies show that some companies emerge from recession stronger and more highly valued than they were before economy soured. By making strategic choices that defy conventional wisdom, these companies outperform their peers and doing so increase their market valuations. But if past is prologue, many companies would also lose their market leadership during this recession while others wouldn't last longer and fail.<br /><br />McKinsey Quarterly studied the impact of last recession in 2000-01. Many companies weren’t prepared for the recession and nearly 40 % of leading US industrial companies toppled from the first quartile in their sectors during the recession, and a third of leading US banks met the same fate. At the same time, 15 % of companies that had not been industry leaders prior to the last recession vaulted into those positions during it.<br /><br />So what distinguishes winners from losers? Are there certain attributes of successful companies, both during the recession and healthier economic times? Definitely, yes.<br />There are certain characteristics that successful companies have exhibited both <strong>prior to recession and during recession</strong>, which might help explain why they outperformed their peers.<br /></p><p><strong><span style="color:#99ff99;">Preparedness:</span></strong> Recessions strike different sectors in different ways and at different times. But the post-recession leaders across sectors had one characteristic in common - they were better prepare than others. </p><p><span style="color:#99ff99;"><strong>Pre-recession strategy</strong></span>: Successful companies enter downturn with a great degree of strategic flexibility which becomes even more valuable during the recession. Before the recession, these companies have made good decisions to: </p><ul><li>Maintain lower leverage on their balance sheets - lower Debt-to-Equity (D/E) ratios</li><li>Control operating expenses better </li><li>Diversify product portfolio and geographic presence. </li></ul><p>By comparison, their unsuccessful peers leverage heavily as they try to expand through acquisition and alliances, before the recession. Not only that most companies would leverage to increase dividend payments or buy back share in good times. </p><p>Successful companies follow a conservative strategy in good times. These companies increase their asset-base through capital expenditures but with a different growth strategy - they rely more on organic growth rather than M&A, joint ventures etc. Also these post-recession leaders avoid excess capacity through restrained spending. </p><p><strong><span style="color:#99ff99;">Recession strategy</span></strong>: Recession strategy is simply reverse of pre-recession strategy. Unlike their conservative peers in recession, successful firms are not afraid to spend their cash reserves. They leapfrog the competition by continuing to invest and grow inorganically through M&A - possibly buying cheaper assets from distressed sellers. </p><p>Also for most companies, selling, general and administrative (SG&A) costs are typically difficult to cut in the short term. However, successful firms are better positioned because of their increased operating flexibilty before the recession. It gives them immense advantage to cut spending selectively. Note that these post-recession leaders continue to focus spending on 3 key areas -even during recession: <strong>innovation (R&D), marketing programs and customer service for key customers. </strong></p><p><strong><span style="color:#99ff99;">Example <span style="font-size:85%;">(from McKinsey Quarterly):</span></span></strong> Starbucks used these tactics successfully in holding its market leadership before and after the recession. It maintained a low D/E ratio of 8% compared with average of 14% for restaurant sector, in 1996. The company consistently reduded its leverage every year until 1999 - to a low of 2% compared to industry average of 31%. Strategy was to grow by licensing outlets- expanded proportion of licensed outlets from 7% in 1998 to 23% in 2000. The company continued to build on its strategy of licensing and international expansion through alliances even during the recession (Exhibit). Currently, Starbucks' alliances contribute 14 % of the company’s revenues but account for 39 % of its profits.<br /></p><p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgokJ7TOElkoHIvFKVTsT6FTJ6CML3cMEff9rnypkNxBXJVL-INHhJSCCAxNQIj80g1peMsgZaoE7yhYJ9NIyTG4F6gCb1G1rNwE2NbEWfgtwz5Cc7WipEkVn5BaIplxhZ2h1Y3QoxSJwY/s1600-h/image2.png"><img id="BLOGGER_PHOTO_ID_5279296187813254386" style="DISPLAY: block; MARGIN: 0px auto 10px; WIDTH: 320px; CURSOR: hand; HEIGHT: 271px; TEXT-ALIGN: center" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgokJ7TOElkoHIvFKVTsT6FTJ6CML3cMEff9rnypkNxBXJVL-INHhJSCCAxNQIj80g1peMsgZaoE7yhYJ9NIyTG4F6gCb1G1rNwE2NbEWfgtwz5Cc7WipEkVn5BaIplxhZ2h1Y3QoxSJwY/s320/image2.png" border="0" /></a></p><p>When the recession struck, Starbucks avoided price cuts by offering innovative value-add services (WiFi internet access in Starbucks stores), Starbucks card and improved customer service.</p><p>If you have followed my previous posts, you might have noticed a consistent theme and common characteristics of successful companies. Their strategy defy conventional wisdom as they play conservative in good times and grow aggressively through acquisitions and product innovations-during recession. Such contrarian strategies have helped these companies beat their competition and in the process, create more wealth for its shareholders. </p><p></p><strong><span style="color:#99ff99;">RECOMMENDED READING</span></strong>: Following books are recommended for further reading.<br /><iframe style="WIDTH: 120px; HEIGHT: 240px" marginwidth="0" marginheight="0" src="http://rcm.amazon.com/e/cm?t=wwwexpertguid-20&o=1&p=8&l=as1&asins=0071403027&fc1=F7F1F1&IS2=1&lt1=_blank&m=amazon&lc1=00FF99&bc1=0A0A0A&bg1=0A0A0A&f=ifr" frameborder="0" scrolling="no"></iframe><iframe style="WIDTH: 120px; HEIGHT: 240px" marginwidth="0" marginheight="0" src="http://rcm.amazon.com/e/cm?t=wwwexpertguid-20&o=1&p=8&l=as1&asins=0316017922&fc1=EFE6E6&IS2=1&lt1=_blank&m=amazon&lc1=00FF74&bc1=060606&bg1=060606&f=ifr" frameborder="0" scrolling="no"></iframe><iframe style="WIDTH: 120px; HEIGHT: 240px" marginwidth="0" marginheight="0" src="http://rcm.amazon.com/e/cm?t=wwwexpertguid-20&o=1&p=8&l=as1&asins=0393071014&fc1=F1F1F1&IS2=1&lt1=_blank&m=amazon&lc1=00FF81&bc1=040404&bg1=040404&f=ifr" frameborder="0" scrolling="no"></iframe>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-7484763940531688019.post-43387731370432661132008-12-12T18:11:00.019-07:002008-12-14T10:35:59.031-07:00Pricing in Economic DownturnThese are tough times. In an economic downturn like this, decreasing demand combined with excess capacity and greater price sensitivity continue to drive down prices.<br /><br />In most downturns, it is seen that the cost of raw materials, feedstocks, and other upstream supplies tends to stabilize and even decrease as the overall business activity slows. As a result,decreases in downstream prices are at least partially offset by lower upstream costs.<br /><br />But in this unusual donwturn, not only is weaker demand from the end user making it harder to maintain prices, but significantly higher and more volatile input costs mean that companies are getting hit from both sides. What’s a business to do?<br /><br />According to McKinsey research, in the current downturn, companies need to manage the profitability of individual customers and transactions with greater precision (read: <a href="http://businessism.blogspot.com/2008/12/concept-of-pocket-price-waterfall.html">"Concept of Pocket Price Waterfall"</a>),develop richer insights into their customers’ changing needs and price sensitivities, and understand more clearly the microeconomics that shape their own industries and those of their suppliers.<br /><br />McKinsey & Co assembled five tactics to find the best balance possible between sales volume and profit margins in the current challenging environment<br /><br /><span style="color:#99ff99;"><strong>1) Watch for sudden shifts in price structure</strong>:</span> Companies should be vigilant in monitoring pricing policing that reduces revenues - such as volume discounts, rebates and cashbacks- as well as cost to serve their customers. Good companies are reviewing their pocket margin waterfalls closely and more frequently - to understand how much revenue company is really keeping from each of their transaction and adjusting pricing policy accordingly. <a href="http://businessism.blogspot.com/2008/12/concept-of-pocket-price-waterfall.html">Read my previous blog on pocket margin for more specifics. </a><br /><br /><span style="color:#99ff99;"><strong>2) Monitor customer-level profitability:</strong></span> By analyzing transaction-level data, companies can measure customer profitability. By doing so, companies can detect if cost to serve particular customers and/or declining volume (or sales) are nudging those customers below desired profitability levels. Based on this insight, companies should selectively raise prices, where possible, and reduce cost to serve by finding alternate and cost-effective channels<br /><br /><span style="color:#99ff99;"><strong>3) Adjust to changing customer needs:</strong> </span><span style="color:#c0c0c0;">Customer needs and buying patters change during economic downturns. And, say, if your company operates in B2B environment and your customers are businesses, it is crucial to understand how the downturn has affected them. It is likely that their business is as slow and struggling as yours - orders will likely fall and cost of serve could increase if you do not find better ways to do inventory management.<br /><br /></span><span style="color:#99ff99;"><strong>4) Analyze price sensitivity models:</strong></span> Update price sensitivity research by re-running your costing and pricing models for all products and services. Inflationary downturn has made consumer more price sensitive than before - dramatic increase in food prices and gas has cut a little more from discretionary budgets, sharply increasing price sensitivity<br /><br /><span style="color:#99ff99;"><strong>5) Industry microeconomics:</strong></span> Extreme volatility in a downturn demands that companies reexamine not only the microeconomics of their own industries but also the microeconomics of their suppliers' industries.<br /><br />Get your company's pricing right !<br /><br /><span style="color:#99ff99;">RECOMMENDED READING:</span> Beating the Business Cycle (Lakshman) & Pricing With Confidence(Reed)<br /><br /><iframe style="WIDTH: 120px; HEIGHT: 240px" marginwidth="0" marginheight="0" src="http://rcm.amazon.com/e/cm?t=wwwexpertguid-20&o=1&p=8&l=as1&asins=B000FC1MZK&fc1=EDE4E4&IS2=1&lt1=_blank&m=amazon&lc1=00FF38&bc1=040404&bg1=040404&f=ifr" frameborder="0" scrolling="no"></iframe><iframe style="WIDTH: 120px; HEIGHT: 240px" marginwidth="0" marginheight="0" src="http://rcm.amazon.com/e/cm?t=wwwexpertguid-20&o=1&p=8&l=as1&asins=0470197579&fc1=FDFBFB&IS2=1&lt1=_blank&m=amazon&lc1=00FF74&bc1=0E0D0D&bg1=0E0D0D&f=ifr" frameborder="0" scrolling="no"></iframe>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-7484763940531688019.post-47560531321213412452008-12-09T00:51:00.014-07:002008-12-14T00:11:01.182-07:00Make This Blog Work for You!Hi everyone, couple of things about this blog. This blog is for everyone in business today. Whether you are a senior executive or small-business owner, brand manager or product manager, marketing manager or sales executive - you will likely gain from shared perspectives on business and marketing. Content is the key to success of any blog - therefore, I spend a good time in researching different business models and marketing strategies before posting them at this blog.<br /><br /><strong><span style="color:#99ff99;">READ</span> </strong><br />Read new and archive posts from the list under "Blog Archive". Blog posts include key marketing and management topics. This blog focuses on discussion of some of the most complex but insightful concepts and theories of marketing management. Most articles discuss strategic aspects of business and marketing - wherever I can, I'll share my experiences to back it up. And I invite you to comment on these posts and share your experiences.<br /><br /><strong><span style="color:#99ff99;">CONTRIBUTE</span> </strong><br />Contribute to this blog community by posting your comments and starting a discussion thread. Feel free to share your experience at work as relevant to topic of the post.<br /><br /><strong><span style="color:#99ff99;">QUESTIONS</span> </strong><br />Again, if you have questions or disagree with the content in the post, please use the "comment" feature at the end of the post. If you would like me to write on topics of your interest - in marketing or business - I will be glad to post articles of your interest.<br /><br /><strong><span style="color:#99ff99;">RECOMMENDED READINGS</span><br /></strong>At the end of each post, I recommend interesting books and literature for further reading. More often than not, I have studied books that I recommend. In some cases, when I post these articles, I make reference from the same books.<br />To purchase the book, simply click on the book-icon and you will be directed to a discount Amazon online store.<br /><br /><strong><span style="color:#99ff99;">SUBSCRIBE</span> </strong><br />Subscribe to blog posts and comments to stay on top of new postings.<br /><br /><span style="color:#99ff99;"><strong>FOLLOW THIS BLOG</strong></span><br />Follow this blog by clicking on "Follow the blog" link.<br /><br /><strong><span style="color:#99ff99;">EMAIL TO FRIEND</span></strong><br />Now you can share interesting posts with your friends. Send them instant email and they would receive the post in their inbox. To send this instant email to your friends, click on that email icon at the bottom of post.<br /><br /><strong><span style="font-size:130%;">Have fun Reading and Learning!!</span></strong>Unknownnoreply@blogger.com23tag:blogger.com,1999:blog-7484763940531688019.post-55153923427513574882008-12-08T22:45:00.025-07:002008-12-14T13:16:38.302-07:00Economic Value Added (EVA)<div align="left">This is a follow-up to my earlier post: <a href="http://businessism.blogspot.com/2008/12/whats-your-companys-profit.html">What's Your Profit? </a>I recommend reading that post first to understand the nuts and bolts of Economic Value Added (EVA).<br /><br />EVA (or economic profit) is found by taking the net operating profit after taxes (NOPAT) for a particular period (such as a year) and subtracting the annual cost of ALL the capital a firm uses. EVA recognizes all capital costs, including the opportunity cost of the shareholder funds.</div><div align="left"></div><div align="left">EVA Example: This example illustrates how a company's economic profit differs from its accounting profit. It also explains application of EVA in calculating "true" profitability of business.<br /></div><div align="left">Let us review the formula for EVA:</div><div align="left">_________________________</div><div align="left"></div><div align="left"><strong><span style="color:#99ff99;">EVA = NOPAT - After Tax Cost of Total Capital </span></strong></div><div align="left"><strong><span style="color:#99ff99;">= EBIT (1- Tax Rate) - (Total Capital) (After Tax cost of capital)</span></strong></div><div align="left">_________________________</div><div align="left"></div><div align="left">Total capital used here is total assets <em>minus</em> current liabilities. Hence, it is long term liabilities <em>plus</em> equity (preferred stock and common stock)</div><div align="left"><br />Say, a company with $100,000 in equity capital (stated at fair value)and $100,000 in 8% debt (also at fair value) had $60,000 in earnings before interest and taxes (EBIT). Assume that $200,000 equals capital employed. The corporate tax rate is 40%. Company's weighted average after-tax cost of capital is 14%.<br /><br /><strong><span style="color:#99ff99;">EBIT =$60,000</span></strong><br /><span style="color:#99ff99;"><u><strong>- Taxes </strong>(40% x 60,000) = <strong>($24,000)</strong></u></span><br /><strong><span style="color:#99ff99;">NOPAT= $36,000 </span></strong><br /><span style="color:#99ff99;"><u><strong>- Capital Charge </strong>(14% x 200,000) = <strong>($28,000)</strong></u></span></div><div align="left"><strong><u><span style="color:#99ff99;"></span></u></strong></div><div align="left"><strong><span style="color:#99ff99;">EVA = $ 8,000</span></strong></div><div align="left"><strong><span style="color:#666666;"></span></strong></div><div align="left"><strong><span style="color:#666666;"></span></strong></div><div align="left"><strong><span style="color:#666666;"></span></strong></div><div align="left"><span style="color:#666666;"></span></div><div align="left"><span style="color:#cccccc;">The company's traditional income statement reports income of $31,200 calculated as follows:</span></div><div align="left"><span style="color:#cccccc;"></span></div><div align="left"><span style="color:#cccccc;"></span></div><div align="left"><strong><span style="color:#cccccc;"></span></strong></div><div align="left"><strong><span style="color:#cccccc;"></span></strong></div><div align="left"><strong><span style="color:#99ffff;">EBIT =$60,000 </span></strong></div><div align="left"><strong><span style="color:#99ffff;"><u>- Interest (8% x 100,000) = ($8,000)</u> </span></strong></div><div align="left"><strong><span style="color:#99ffff;">Income Before Taxes= $52,000</span></strong></div><div align="left"><u><strong><span style="color:#99ffff;">- Income Taxes (40% x 52,000) = ($20,800)</span></strong></u></div><div align="left"><strong><span style="color:#99ffff;"></span></strong></div><div align="left"><strong><span style="color:#99ffff;">Net Income After Tax = $31,200</span></strong></div><div align="left"><span style="color:#c0c0c0;"></span></div><div align="left"><span style="color:#000000;"></span></div><div align="left">Initially a 31.2% return on equity ($31,200 or net income/ $100,000 of equity capital) seems favourable, but WHAT IS THE COST OF THAT EQUITY CAPITAL?</div><div align="left"></div><div align="left">Given equal amounts of debt and equity, the cost of equity capital is calculated as follows:</div><div align="left"></div><div align="left"><strong>14% = (1/2)(4.8%)+"X"(1/2) : after-tax cost of debt capital =8% (1.0-40%)=4.8%</strong></div><div align="left"><strong></strong></div><div align="left"><strong>=>Cost of equity capital ("X") = 23.2% </strong></div><div align="left"></div><div align="left">Thus, $23,200 of $31,200 of net income is nothing more than the opportunity cost of equity capital. The $8,000 (31,000 - 23,000) of EVA is the only portion of earnings that has created real value for shareholders. Accordingly, if net income after tax had been only $20,000 (a 20% return on equity), shareholder value would have been reduced because cost of equity capital exceeded returns.</div><div align="left"> </div><div align="left"></div><div align="left"><strong><span style="color:#99ff99;">RECOMMENDED READING</span></strong>: For further reading, I recommend two books - simply click and and purchase from Amazon Store. </div><div align="left"></div><div align="left"></div><iframe style="WIDTH: 120px; HEIGHT: 240px" marginwidth="0" marginheight="0" src="http://rcm.amazon.com/e/cm?t=wwwexpertguid-20&o=1&p=8&l=as1&asins=0764139401&fc1=FDF5F5&IS2=1&lt1=_blank&m=amazon&lc1=00FF20&bc1=0E0D0D&bg1=0E0D0D&f=ifr" frameborder="0" scrolling="no"></iframe><iframe style="WIDTH: 120px; HEIGHT: 240px" marginwidth="0" marginheight="0" src="http://rcm.amazon.com/e/cm?t=wwwexpertguid-20&o=1&p=8&l=as1&asins=0764112759&fc1=F3E6E6&IS2=1&lt1=_blank&m=amazon&lc1=00FF2C&bc1=0C0B0B&bg1=0C0B0B&f=ifr" frameborder="0" scrolling="no"></iframe>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-7484763940531688019.post-89594370025370337872008-12-08T16:56:00.053-07:002008-12-09T14:07:29.644-07:00What's your Profit?<div align="left"><u><strong><span style="font-size:130%;color:#99ff99;">ECONOMIC VALUE ADDED (EVA): DEMYSTIFIED</span></strong></u></div><div align="left"><strong><u></u></strong></div><div align="left"></div><div align="left"></div><div align="left">Recently, I was working on an assignment that involved analyzing financial statements for a company. It does not take a finance-major to calculate profits of the company - it is that simple!<br />However, calculating "economic profit" can be tricky as it is not same as the "accounting-profit" we are accustomed to seeing in corporate profit and loss statement.<br /></div><div align="left">Economic profit is a term used for "Economic Value Added (EVA)" - a registered trademark of Stern Stewart & Co. To many, the EVA metric is shrouded in complexity - and therefore, wanted to spend some time explaining this concept in very simple terms. Moreover, in this post, I will try to give you a perspective on the importance of this metric - as I found it during my financial analysis of the company which reported net profits in their annual report but had a negative EVA; in other words it incurred "economic loss". </div><div align="left"><br />So if you are scratching your head over this, you are not alone. It is a new concept so many business leaders do not know about this and those who understand it (i.e. CFOs, CEOs, COOs) do not necessarily care about it as much because financial markets still use "account profit" or coporate earnings as a key performance metric for public companies. However, recently, I have been reading about companies such as Eli Lilly (a pharma-major) reporting "economic profit" in the financial highlights section of Annual Report. Not only that, more and more companies are using EVA for internal reporting and bonuses. </div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjAO2d1t9HEhB5dI4BT5tkHYpmfNcsecX1anL1s8ZGF_eUvL79xO1ZATcpeQLwgJViMMIZouMAGRx1KfaMVtRD69Ffc5SDXgv4qC7470yQVmyy89IqMPvu6MiffgsajMWT1-CLOTTe4JbM/s1600-h/EVA.png"><img id="BLOGGER_PHOTO_ID_5277577579817835682" style="WIDTH: 320px; CURSOR: hand; HEIGHT: 159px" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjAO2d1t9HEhB5dI4BT5tkHYpmfNcsecX1anL1s8ZGF_eUvL79xO1ZATcpeQLwgJViMMIZouMAGRx1KfaMVtRD69Ffc5SDXgv4qC7470yQVmyy89IqMPvu6MiffgsajMWT1-CLOTTe4JbM/s320/EVA.png" border="0" /></a><br /></div><div align="left"></div><div align="left">Why is it important for you to know about "economic profit"? Besides, the fact that it should make you feel smarter! You should understand it because it is at heart of the business- measure of operation's "true" profitability. And did I tell you that it has generated a growing interest among financial analysts who are often comparing company's reported "accounting profits" with their true "economic profits". </div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left"><strong></strong></div><div align="left"><strong><span style="color:#99ff99;">UNDERSTANDING EVA (ECONOMIC PROFIT):</span></strong> If you have looked at the income statement, you would know net earnings (net income or profit) is measured as follows: </div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left"><strong>____________________________________________</strong></div><div align="left"><strong><span style="color:#33cc00;">SALES </span></strong></div><div align="left"><strong><span style="color:#33cc00;"><u>- EXPENSES </u>_<br />EARNING BEFORE INTEREST AND TAXES (EBIT)</span></strong></div><div align="left"><strong><span style="color:#33cc00;">- INTEREST EXPENSE (I) </span></strong></div><div align="left"><span style="color:#33cc00;"><strong><u>- TAX EXPENSE (T)</u><br />NET EARNINGS</strong> (</span>or "Accounting Profit") ..........................(A) </div><div align="left">_________________________________________________<br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjAO2d1t9HEhB5dI4BT5tkHYpmfNcsecX1anL1s8ZGF_eUvL79xO1ZATcpeQLwgJViMMIZouMAGRx1KfaMVtRD69Ffc5SDXgv4qC7470yQVmyy89IqMPvu6MiffgsajMWT1-CLOTTe4JbM/s1600-h/EVA.png"></a><br />SO WHAT IS WRONG WITH THIS? The cost of debt capital (or interest expense) is deducted when calculating Net Earnings, but no cost is deducted to account for the cost of common equity.</div><div align="left">Hence, in an economic sense , net earnings overstates "true" income. EVA overcomes this flaw in conventional accounting. </div><div align="left"></div><div align="left">EVA (or economic profit) is found by taking the net operating profit after taxes (NOPAT) for a particular period (such as a year) and subtracting the annual cost of ALL the capital a firm uses. EVA recognizes all capital costs, including the opportunity cost of the shareholder funds.</div><div align="left">______________________________________________</div><div align="left"></div><div align="left"></div><div align="left"><strong></strong></div><div align="left"><strong><span style="color:#33ff33;">EVA = NOPAT - After-tax cost of total capitaL</span></strong></div><div align="left"><strong><span style="color:#33ff33;">= Earnings before Interest and Taxes (EBIT) * (1-tax rate) </span></strong></div><div align="left"><strong><span style="color:#33ff33;">- (Total Capital) * (After-tax cost of capital)</span></strong></div><div align="left"><strong>_________________________________________</strong></div><div align="left"><strong></strong></div><div align="left"></div><div align="left"></div><div align="left">WHOAAA!! If I lost you in this financial "jargon" of the cost of capital, debt and equity; let us take a moment to review few basic concepts of financing:</div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left">Companies often invest in growth projects and operations. These projects require external or internal financing to fund these projects or investments. Internally, companies use their cash and retained earnings. Externally, companies generate this capital either by DEBT or EQUITY financing. If a company apply for a bank-loan or issues corporate bonds, it is terms as debt financing. The company incurs a cost of debt capital (referred as "interest expenses" ) in addition to principal amount due in fixed term. </div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left"></div><div align="left">Alternatively, a company can also issue stocks (equity) in exchange for shareholders' funds. This is called "equity financing". Just like cost of debt capital, equity capital has a cost because funds provided by shareholders could have been invested elsewhere where they would have earned some return. The return they could earn elsewhere in investments of equal risk represents the cost of equity capital. This cost is an <em>opportunity cost</em> rather than an <em>accounting cost</em>, but it is quite real nevertheless.</div><div align="left"></div><div align="left"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgB35zn7XAvKQYcYT61P8RHankk3uyom3NKJ5vngAkYqkfmFI83oVj4BM6emLc7y0tBzTxOncEEFcnHdBtpEKfvnJtD88wSZo4NRi0PwnLBvSz4DqAEalCnk9Q6wWCwnCcxZvfFY7KOIz8/s1600-h/EVA2.png"><img id="BLOGGER_PHOTO_ID_5277579032587828050" style="WIDTH: 320px; CURSOR: hand; HEIGHT: 214px" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgB35zn7XAvKQYcYT61P8RHankk3uyom3NKJ5vngAkYqkfmFI83oVj4BM6emLc7y0tBzTxOncEEFcnHdBtpEKfvnJtD88wSZo4NRi0PwnLBvSz4DqAEalCnk9Q6wWCwnCcxZvfFY7KOIz8/s320/EVA2.png" border="0" /></a><br /><br />Unless you are in finance or accounting, I doubt if you'll ever use EVA calculations at work. But as a business leader you should always remember that EVA is a measure of company's "true" economic profit. Such economic profits are the basis of shareholder value creation - purpose and goal of any business.<br /><br /><span style="color:#99ff99;">RECOMMENDED READING:</span> Following are two books, I recommend reading on the subject of EVA and its implementation.<br /><iframe style="WIDTH: 120px; HEIGHT: 240px" marginwidth="0" marginheight="0" src="http://rcm.amazon.com/e/cm?t=wwwexpertguid-20&o=1&p=8&l=as1&asins=047147889X&fc1=EDE2E2&IS2=1&lt1=_blank&m=amazon&lc1=08C932&bc1=0C0C0C&bg1=0C0C0C&f=ifr" frameborder="0" scrolling="no"></iframe><iframe style="WIDTH: 120px; HEIGHT: 240px" marginwidth="0" marginheight="0" src="http://rcm.amazon.com/e/cm?t=wwwexpertguid-20&o=1&p=8&l=as1&asins=0071364390&fc1=F3E7E7&IS2=1&lt1=_blank&m=amazon&lc1=09DF2E&bc1=000000&bg1=080707&f=ifr" frameborder="0" scrolling="no"></iframe></div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-7484763940531688019.post-54878693584635792072008-12-08T03:23:00.022-07:002008-12-14T13:16:10.059-07:00"Pocket-Price Waterfall"In 2003, McKinsey & Co introduced a concept of "Pocket-Price Waterfall" (see: chart below). In the booming years of the 1990s, robust demand and different cost cutting programs drove up corporate earnings. Therefore, managers didn't pay any attention to pricing- they didn't have any reasons to worry about it then.<br /><br /><p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj4CmGv6EEmHaOeCAAX0YEs5ryinYi9t_PSXMQR3QwITNJ_EicR2N7oOiGioSer__CxMyO5oQ9h5CtCfnW1FmUnzbhFfIfapeA1wTkHZH4uoiKT_MyBLJ97u3iPo4LFedY5oPtX1I6gQfw/s1600-h/price+waterfall.png"><img id="BLOGGER_PHOTO_ID_5277376587579809746" style="DISPLAY: block; MARGIN: 0px auto 10px; WIDTH: 320px; CURSOR: hand; HEIGHT: 168px; TEXT-ALIGN: center" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj4CmGv6EEmHaOeCAAX0YEs5ryinYi9t_PSXMQR3QwITNJ_EicR2N7oOiGioSer__CxMyO5oQ9h5CtCfnW1FmUnzbhFfIfapeA1wTkHZH4uoiKT_MyBLJ97u3iPo4LFedY5oPtX1I6gQfw/s320/price+waterfall.png" border="0" /></a><br />But now in these times of economic downturn - weaker demand and declining earnings - it has exposed shortfall in pricing capabilities. Many companies have already completed much needed cost-cutting and are struggling to sustain their earning-levels in these turbulent times.<br /><br />In this post, I explain what it is the concept of "pocket price waterfall". And then how you can use these concepts to develop pricing strategy. Before reading this post, I recommend you to read my previous posts on "<a href="http://businessism.blogspot.com/2008/12/why-is-pricing-so-important.html">Power of Pricing</a>" and "Pursuit of Premium Pricing".</p><p>Let's get started with concept definitions:<br /><br /><strong><span style="color:#99ff99;">POCKET PRICE:</span></strong> The "pocket price" is a measure of the effective price paid by the customer in a particular transaction after accounting for all relevant discounts, promotions, rebates and allowances.<br /></p><p><strong><span style="color:#99ff99;">POCKET PRICE WATERFALL</span></strong>: The "pocket price waterfall" reveals how price erodes between a company's invoice figure and the actual amount paid by the customer--the transaction price. It tracks volume purchase discounts, early payment bonuses, and frequent customer incentives that squeeze a company's profits</p>Now why is it all that important? Right pricing is a more subtle game than setting list prices or even tracking invoice prices. Significant amounts of dollars can leak away from list or base prices as customers receive discounts, incentives and other giveaways to seal contracts and maintain volumes.<br /><br />In the <a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj4CmGv6EEmHaOeCAAX0YEs5ryinYi9t_PSXMQR3QwITNJ_EicR2N7oOiGioSer__CxMyO5oQ9h5CtCfnW1FmUnzbhFfIfapeA1wTkHZH4uoiKT_MyBLJ97u3iPo4LFedY5oPtX1I6gQfw/s1600-h/price+waterfall.png">chart</a> above, McKinsey studied a case of global lighting supplier who saw different customer discounts and promotions itemized on each invoice pushed average invoice price by 32.8% below standard base price (or list price). As if that wasn't enough - more revenue leaks beyond invoice prices are not detailed on invoices. These off-invoice leakes include cash discounts for prompt payments, cost of carrying account receivables, off-invoice promotional programs and freight expenses. In the end, company's average pocket price was half of its standard price - drop of 16.3% point in revenue deductions that did not appear in invoices!!<br /><br /><strong><span style="color:#99ff99;">POCKET PRICE BAND</span></strong>: Pocket price waterfall is created as an average of all transactions. But in reality, amount and type of discounts vary on a customer to customer basis. It may even vary by order. Therefore pocket prices can vary a great deal. "Pocket price band" plots the range of pocket prices over which any given unit volume of a single product sells.<br /><br /><span style="color:#99ff99;">STRATEGY:</span> Smart companies look at this band and identify "costly" and "unprofitable" customers. It is important to direct sales force to bring into line- or drop- these customers getting ungodly high discounts. At the same time, it is important to get more share of profitable customers. Launch intensive marketing programs to stimulate sales at customers generating higher pocket price for the company.<br /><br />Remember a 1% increase in price will boost company's operating profits by more than 11%. (read <a href="http://businessism.blogspot.com/2008/12/why-is-pricing-so-important.html">Power of Pricing</a>)<br /><br /><span style="color:#99ff99;">RECOMMENDED READING</span>: Two great books on pricing and competition- "Pricing Strategy" by Morris Engelson and "Blue Ocean Strategy" by Kim and Mauborgne.<br /><iframe style="WIDTH: 120px; HEIGHT: 240px" marginwidth="0" marginheight="0" src="http://rcm.amazon.com/e/cm?t=wwwexpertguid-20&o=1&p=8&l=as1&asins=0964287064&fc1=FBF5F5&IS2=1&lt1=_blank&m=amazon&lc1=00FF50&bc1=000000&bg1=000000&f=ifr" frameborder="0" scrolling="no"></iframe><iframe style="WIDTH: 120px; HEIGHT: 240px" marginwidth="0" marginheight="0" src="http://rcm.amazon.com/e/cm?t=wwwexpertguid-20&o=1&p=8&l=as1&asins=1591396190&fc1=F5F3F3&IS2=1&lt1=_blank&m=amazon&lc1=00FF74&bc1=040404&bg1=040404&f=ifr" frameborder="0" scrolling="no"></iframe>Unknownnoreply@blogger.com2tag:blogger.com,1999:blog-7484763940531688019.post-65890007170002299442008-12-07T11:22:00.004-07:002009-01-04T23:05:57.911-07:00The Power of 'Pricing'"Pricing" is the biggest of 4Ps of the Marketing Mix (Product, PRICE, Place and Promotion). Yet so often businesses are reactive in their pricing strategy - largely founded on competitive pricing pressures. It is no secret then that market-share in mature markets is often won by waging price-wars with your competition.<br /><br />By reducing prices, businesses would probably win market-share. But such a pricing strategy would dimish value of premium products, commoditize brands and, ultimately, hurt the bottom line. It is the latter that most companies haven't understood quite well - how much a pricing strategy could affect the bottom-line.<br /><br />We all understand that increasing pricing improves Revenues. What most marketers do not understand is that "pricing" is a profit lever - directly impacting company's bottom line.<br /><br /><strong><span style="color: rgb(153, 255, 153);"><u>Consider this:</u> <em>By increasing Price by 1%, the "operating profit" rises by more than 11%.</em></span> (based on Compustat survey of 2463 companies).<br /></strong><br />No other profit lever matches Pricing's impact on Operating profits:<br />1) a 1% reduction in <span style="color: rgb(153, 255, 153);"><strong>variable costs, improves profits by 7.8%.</strong><br /></span>2) a 1% increase in <strong><span style="color: rgb(153, 255, 153);">sales volume (units), improves profits by 3.3% only.<br /></span></strong><br />Reducing "price" for premium product should not be a strategy - not even your last resort. Companies like General Motors (GM) have been market leader in the US but unprofitable. The sole purpose of business is to ensure profitable returns for its shareholders- GM was bleeding cash even when it was a market leader and now it is at the brink of bankruptcy. How did that happen? Well! put it simply, regardless of the top-line, if companies dont make enough profits and under pressures from analysts, they will trim marketing budgets and cut operational expenses to achieve targeted profits (EPS).<br />Classic example of "downward spiral": blind cost-cutting results in inferior product quality and limited marketing resources - which in turn results in drop in sales/revenues. In order to maintain their top-line, companies would cut their price again falling into the trap of "shrinking" profitability.<br /><br />But then you might ask, and rightly so, how can businesses maintain current price-levels and leave alone raising prices for products/services in these times of economic downturn.<br /><br />Follow my next post on "Pursuit of premium pricing" for answers to these questions.<br /><br /><strong><span style="color: rgb(153, 255, 153);">RECOMMENDED READING</span></strong>: For those interested in further reading on pricing strategies, I'd recommend two books:<br /><br /><span style="color: rgb(153, 255, 153);"><strong>1)THE STRATEGY AND TACTICS OF PRICING</strong> (Thomas Nagle)<br /><strong>2) MARKET-BASED MANAGEMENT</strong> (Roger Best)</span><br />3) Basic Marketing (Kenneth Wong)*<br /><br /><iframe style="width: 120px; height: 240px;" marginwidth="0" marginheight="0" src="http://rcm.amazon.com/e/cm?t=wwwexpertguid-20&o=1&p=8&l=as1&asins=0131856774&fc1=F3EFEF&IS2=1&lt1=_blank&m=amazon&lc1=70F30A&bc1=000000&bg1=000000&f=ifr&npa=1" scrolling="no" frameborder="0"></iframe><iframe style="width: 120px; height: 240px;" marginwidth="0" marginheight="0" src="http://rcm.amazon.com/e/cm?t=wwwexpertguid-20&o=1&p=8&l=as1&asins=0132336537&fc1=F9F3F3&IS2=1&lt1=_blank&m=amazon&lc1=59F565&bc1=000000&bg1=000000&f=ifr&npa=1" scrolling="no" frameborder="0"></iframe> <iframe src="http://rcm-ca.amazon.ca/e/cm?t=httpbusinessi-20&o=15&p=8&l=as1&asins=0070916667&fc1=FBF5F5&IS2=1&lt1=_blank&m=amazon&lc1=00FF38&bc1=141313&bg1=141313&f=ifr" style="width: 120px; height: 240px;" marginwidth="0" marginheight="0" scrolling="no" frameborder="0"></iframe><br /><br /><span style="color: rgb(153, 255, 153);font-size:85%;" >[* Ken Wong is professor in marketing at Queen's University. He is one of the best marketing minds and thought leaders in Canada. I had the fortune to be taught Advanced Marketing courses by Ken during my MBA class at Queen's in 2005. I majored in Marketing and I still use lessons from Ken's classes to date - at work.]</span>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-7484763940531688019.post-72435926326327234082008-12-06T19:55:00.006-07:002009-01-04T19:18:29.612-07:00SWOT and Strategic Marketing<p>If you have worked on business-case development, you know that "SWOT analysis" is central to analyzing market opportunities or any business investment for that matter. SWOT is an acronym for Strength, Weakness, Opportunity and Threat analysis. It is a tool used to analyze external factors (opportunities/threats) and internal factors or capabilities (strengths/weaknesses). I am not going to explain here how to do a SWOT analysis - that's easy.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgQ74YMcOjO7KlzPWkQs-ZJsGogR2jrzoMMDc8QLyyUQXELvG-xYQgSEUrlME9Ce1oz8WYReZM30o6vjrLAOiecg7Wqi0NvUIs5n3OKxK-71zNcf03pHLZedl0Z35sxp4IFfalv4WiBz94/s1600-h/image.png"><img id="BLOGGER_PHOTO_ID_5276881977847307218" style="margin: 0px 10px 10px 0px; float: left; width: 320px; height: 232px;" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgQ74YMcOjO7KlzPWkQs-ZJsGogR2jrzoMMDc8QLyyUQXELvG-xYQgSEUrlME9Ce1oz8WYReZM30o6vjrLAOiecg7Wqi0NvUIs5n3OKxK-71zNcf03pHLZedl0Z35sxp4IFfalv4WiBz94/s320/image.png" border="0" /></a>The difficult part is to know what to do with SWOT analysis. In other words, you have just completed SWOT - now what? In my own experience, I have seen people jumping from SWOT analysis to defining their value proposition and product-fit (with opportunity). They have missed the point though - SWOT analysis is as good as its application....<br /><br /><strong>What is SWOT's application - you might ask. Well! in simple terms SWOT results should define your marketing strategy.<br /></strong><br />Strategy is about choices. Strategy demands a focus of effort, deciding where your priorities lie and, by implication, deciding what you will no do. SWOT helps define that "strategic focus" and therefore allow businesses to market strategically - define their competitive turf and build capabilities to beat the competition.<br /><br />From my days at business school, I remember key lessons from our marketing class - and one such lesson was on "strategic marketing" and the "right" use of SWOT analysis. "Opportunities and Threats" help define market attractiveness. At the same time, "Strengths and Weaknesses" analysis explain how well the company is positioned vis-à-vis competition.<br /></p><p>Armed with this information, business leaders should apply different strategies depending on competitive position in both potential and/or existing markets (see chart above). <span style="font-size:85%;">[This strategic framework was shared by Prof. <a href="http://www.speakers.ca/wong_ken.aspx">Ken Wong of Marketing at Queen's University.</a> He is an award-winning professor and frequently cited marketing authority. He is a Professor of Business, expert in marketing and business strategy, and co-author of Canada’s largest-selling introductory marketing text, <i>Basic Marketing</i>]</span></p><p><span style="color: rgb(153, 255, 153);">1) </span><strong><span style="color: rgb(153, 255, 153);">INVEST</span> </strong>- Build/buy capabilities if your product/business unit is positioned strongly in an attractive market. (These are your "Star" products or businesses) </p><p><span style="color: rgb(153, 255, 153);">2) <strong>BE SELECTIVE</strong></span> - Given medium-to-weak competitive position in a flat-growth market market, companies should invest their dollars selectively. Game theory would tell us how companies would still invest in weak categories and declining markets to distract their competition from investing in their turf. </p><p><span style="color: rgb(153, 255, 153);"><strong>3) HARVEST/ DIVEST</strong></span> - Milk your "cash cows" and sell-off "dogs" (or sick units). Harvesting strategy calls for increasing prices, halt product development and cut down on customer-service. This is done to strategically wind down business and move customers away from and towards "stars" products/units. </p><p>By applying SWOT analysis to develop a marketing strategy, companies would be able to leverage market opportunities effectively and invest to build a strong competitive position.</p><p><br /><span style="color: rgb(153, 255, 153);">RECOMMENDED READING</span>: For better grasp of strategic marketing, I'd recommend one of the best books on this subject- Basic Marketing, written by Ken Wong. Another book is SWOT Analysis part I and II - from Harvard Business School Press.</p><p><img style="border: medium none ; margin: 0px;" alt="" src="http://www.assoc-amazon.com/e/ir?t=wwwexpertguid-20&l=as2&o=1&a=0132336537" border="0" width="1" height="1" /> <iframe style="width: 120px; height: 240px;" marginwidth="0" marginheight="0" src="http://rcm.amazon.com/e/cm?t=wwwexpertguid-20&o=1&p=8&l=as1&asins=B000M5KRKQ&fc1=FDF7F7&IS2=1&lt1=_blank&m=amazon&lc1=00FF8D&bc1=000000&bg1=000000&f=ifr" scrolling="no" frameborder="0"></iframe><iframe style="width: 120px; height: 240px;" marginwidth="0" marginheight="0" src="http://rcm.amazon.com/e/cm?t=wwwexpertguid-20&o=1&p=8&l=as1&asins=B000M5KRL0&fc1=FFFBFB&IS2=1&lt1=_blank&m=amazon&lc1=00FF81&bc1=000000&bg1=000000&f=ifr" scrolling="no" frameborder="0"></iframe></p> <iframe src="http://rcm-ca.amazon.ca/e/cm?t=httpbusinessi-20&o=15&p=8&l=as1&asins=0070916667&fc1=F5EDED&IS2=1&lt1=_blank&m=amazon&lc1=00FF68&bc1=000000&bg1=100C0C&f=ifr&npa=1" style="width: 120px; height: 240px;" marginwidth="0" marginheight="0" scrolling="no" frameborder="0"></iframe>Unknownnoreply@blogger.com2tag:blogger.com,1999:blog-7484763940531688019.post-18750271072261030532008-12-06T14:09:00.006-07:002008-12-09T14:11:43.511-07:00BOOMING IN RECESSIONThis is a follow-up to my earlier post: "Tough Times Call for Tough Actions- Not Panic".<br /><br />Small and large businesses are struggling to survive this recession. But SMART businesses continue to thrive (and not just survive) in these tough times. Of course, it isn't easy -else it wouldn't have been a problem for many. But SMART businesses take smart and BOLD measures -sometimes even challenging status-quo of "recessionary" thinking. It requires business leaders to undertake a new strategic thinking rooted in courage and hopefulness - not fear and rejection.<br /><br /><span style="color:#99ff99;"><strong>STRATEGY</strong>:</span> Strategy is about choices. Understandably, not many businesses would plan for growth in a time of recession and decline. Their response is instinctive and fearful -"let us cut our losses". They are "preparing to die: slowy but surely".<br /><br /><strong><span style="color:#99ff99;">Shouldn't their response be</span></strong> : "let us find ways in which we could maintain steady growth" that is needed to weather-out the tough storm.<br /><br />Strategy demands a focus of efforts - deciding where your priorities lie. Three key areas of business operations - Marketing, Finance and Operations - require strategic re-thinking...explained below.<br /><br /><strong><span style="color:#99ff99;">MARKETING</span></strong>: Marketing is all the more important in tough times as it directly contributes to the top-line (Revenues). Following actions are required:<br /><span style="color:#99ff99;">1) <strong>Identify your niche</strong></span>: If you haven't found it already, it is about time! Niche marketing optimizes market efforts and budget. Once a niche is found, it secures your customer-base from competition. Your target customers identify with your product/service brands. I don't think people who buy iMacs would start buying DELL notebooks -even during a recession.<br /><span style="color:#99ff99;">2) <strong>Analyze your marketing ROI</strong>:</span> Make sure you are getting most bang for your buck (dollars). It is important to measure marketing's ROI and optimize your marketing programs.<br /><span style="color:#99ff99;">3) <strong>Re-negotiate sales compensation/bonuses</strong></span> : Rather than laying-off your sales team and guarantee revenue losses, take this opportunity to re-negotiate sales compensations.<br /><strong><span style="color:#99ff99;">4) Show "Love" to your Key Customer</span></strong> : Hire key account managers for your large customers. Depending on industry, most companies find 80% of their revenues coming from 20% of customers (it is a generalization of Pareto's80/20 rule --- could be 70/30 or even 60/40 mix between large and small customers)<br /><br /><strong><span style="color:#99ff99;">OPERATIONS</span>: </strong>Responsible for cutting costs and improving the bottom line.<br /><span style="color:#99ff99;">1) <strong>Cut wasteful spending</strong>:</span> Cut unwanted and wasteful expenses - for example, corporate travel expenses could drop by as much as 50% if companies use remote web-meeting tools like WebEx or GoToMyPC<br /><span style="color:#99ff99;">2) <strong>Consolidate assets:</strong></span> Lease and not buy fixed assets like office computers, furniture etc. Consolidate your data-center, storage and other IT assets.<br /><br /><strong><span style="color:#99ff99;">FINANCING/INVESTING</span></strong>: Recession is a great time to make smart purchases. More companies would sell-off their non-core businesses and/or assets in economic downturn- as everyone is selling off, buyers get a bargain for their purchases.<br /><span style="color:#99ff99;">1) <strong>Buy or Build "Stars</strong>":</span> Invest more in your profitable business line (unit). Even purchase assets that offer strong strategic-fit.<br /><span style="color:#99ff99;">2)<strong> Sell-off "Dogs</strong>":</span> If you could not turn around a sick/unprofitable business unit in good times, it is clear that bad times would make things worse only. Sell off unprofitable and/or non-core assets. You may end up settling for cheap sell but you will save money by focussing your resources on the "stars" and "cash cows" of your company.<br /><span style="color:#99ff99;">3) <strong>Financing strategy</strong>:</span> Look for both public and private financing options when you need funds to purchases needed assets. Remember that cost of capital (debt+equity) must be below hurdle rate of your investment for a profitable venture.<br /><br />These are strategic choices and require strong management decision-making. But in all this, you know, companies can grow without laying-off people or other assets. Tough times call for strong introspection and stronger decision-making.<br /><br /><span style="color:#99ff99;">RECOMMENDED READING</span>: Couple of interesting books on this subject.<br /><br /><iframe style="WIDTH: 120px; HEIGHT: 240px" marginwidth="0" marginheight="0" src="http://rcm.amazon.com/e/cm?t=wwwexpertguid-20&o=1&p=8&l=as1&asins=3540287841&fc1=F7F5F5&IS2=1&lt1=_blank&m=amazon&lc1=00FF81&bc1=000000&bg1=020202&f=ifr&npa=1" frameborder="0" scrolling="no"></iframe><iframe style="WIDTH: 120px; HEIGHT: 240px" marginwidth="0" marginheight="0" src="http://rcm.amazon.com/e/cm?t=wwwexpertguid-20&o=1&p=8&l=as1&asins=0954920627&fc1=F9F7F7&IS2=1&lt1=_blank&m=amazon&lc1=00FF5C&bc1=000000&bg1=040404&f=ifr" frameborder="0" scrolling="no"></iframe><br /><iframe style="WIDTH: 120px; HEIGHT: 240px" marginwidth="0" marginheight="0" src="http://rcm.amazon.com/e/cm?t=wwwexpertguid-20&o=1&p=8&l=as1&asins=0393071014&fc1=F1F1F1&IS2=1&lt1=_blank&m=amazon&lc1=00FF81&bc1=040404&bg1=040404&f=ifr" frameborder="0" scrolling="no"></iframe>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-7484763940531688019.post-49287844956194129192008-12-06T13:46:00.000-07:002008-12-07T14:38:43.532-07:00What Is M?<strong>"M" is for Marketing!</strong><br /><br />Thought about it for a while - "M" could be Me, Money, Maserati, Mars or simply..... Marketing?<br /><br /><br /><strong>Why "M" for Marketing?</strong><br /><br />Marketing creates more economic value for business than any other activity, yet it is too often seen as a marginal activity, a support function and a tactical cost line. Through this blog, I want to inspire you to think differently - and to do great Marketing!<br /><br />This blog is for everyone in business today. Whether you are a brand manager or product manager, communication specialist or market researcher, CMO or CEO, this blog is for you.<br /><br />I am not a subject-matter expert of marketing. But I am an avid reader and follower of marketing trends and management theories. Through my own work experience in marketing arena - as a manager of strategy and business development- I can share with you what worked for me and what did not.<br /><br />It is important to note that markets have changed, therefore, marketing is changing, and marketers need to change further if they are to achieve high performance.<br /><br />Please free to comment on posts or email me your questions. Also if you think differently, please share your marketing experiences so that all readers benefit from discussions and conversations on this blog.<br /><br />Read on!<iframe src="http://rcm.amazon.com/e/cm?t=wwwexpertguid-20&o=1&p=13&l=ur1&category=books&banner=1N4P1140VP34Z6816KR2&f=ifr" width="468" height="60" scrolling="no" border="0" marginwidth="0" style="border:none;" frameborder="0"></iframe>Unknownnoreply@blogger.com0