Business Common Sense

To Think or Not To Think …

~ Anna @ roots ~ Leave a comment

Although it feels that our economy is back to normal and advancing at an expected, somewhat slow pace, certainty of the future growth is most probably misplaced. Given the global tensions and ever-speeding technological developments, our world the way we know it will most probably change not even 5 years from now … and coming changes may not be the familiar, evolutionary in nature, but more transformational and abrupt.

So if we assume that we, as a society, stand at a major fold that will transform our ways of life, can we risk assuming that businesses can go on making their products, offering their services and thinking about the future in the same way they did in their past?

How important then it is to peer into the future and create different scenarios of probable conditions (assumptions) that will lead to changes in your business strategy?

Here are a few examples from the past when businesses short-sightedly made a decision without considering possible scenarios:

We’re a serious business, thank you very much.  In 1876, William Orten was President of Western Union, which had a monopoly on the most advanced communications technology available, the telegraph. Orten was offered the patent on a new invention, the telephone, for $100,000 (worth about $2M in current dollars). He considered the whole idea ridiculous, and wrote directly to Alexander Graham Bell, saying, ”After careful consideration of your invention, while it is a very interesting novelty, we have come to the conclusion that it has no commercial possibilities… What use could this company make of an electrical toy?” Two years later, after the telephone began to take off, Orten realized the magnitude of his mistake, and spent years (unsuccessfully) challenging Bell’s patents.

Say cheese! The Eastman Kodak company developed the first digital camera in 1975, then proceeded to sit on it (and the core technology for the cell phone, as well).  They decided not to develop it because they were afraid it would cannibalize  their film business (at one point they had a 90% share of the US film market.)

[source: It Seemed Like A Good Idea At The Time, Forbes.com, by Erica Andersen]

And here is a great article on why considering at least 4 different scenarios in business decision making is so important … The Use and Abuse of Scenarios

What is Go-To-Market Strategy?

~ Anna @ roots ~ Leave a comment

If go-to-market (GTM) strategy sounds intimidating to you, you are not the only one in the business world who feels that way. GTM strategy is a concept perfected by big-name consulting firms with major resources devoted to outlining, explaining, researching, and developing its different models. As far as mid-market companies and smaller organizations are concerned, GTM strategy stayed in an intimidating realm of very sophisticated and resource-intensive projects with questionable success at the implementation stage.

The truth is GTM strategy is much simpler than imagined by many: it is a structure around activities conducted by certain participants (channels) connecting products and services to customers. In its simplest definition GTM strategy is an approach agreed upon the decision makers in a given company on WHAT they will sell, to WHOM and HOW (how the audience will be reached). Often in academia, it is defined by a simple triangle that looks something like this:

GTM Strategy triangle

To answer What, How and Who questions, it is reasonable to assume that research needs to be conducted to uncover the answers. However, the research does not necessary need to be complex or expensive. If I could summarize in 5 sentences the type of research questions a company should focus when defining its GTM strategy, it would read as follows:

• First, let’s define what is unique about us as a company that nobody else or a rare competitor can replicate. (as you may see, this will require a pretty deep understanding of our competences and our competition)

• Next, let’s understand what market segments and what type of companies within these segments benefit the most from this unique value proposition.

• As we start learning about our best target audience, let’s get very familiar with their path-to-purchase-decision process and specific needs that this audience has.

• As a follow-up on this, let’s be frank with ourselves, and compare whether our current products, services and distribution channels match the peculiarities of our target audience’s processes and needs. (here lies our chance for product/service improvements and new product development ideas!)

• And finally, combine all the learning from prior steps into a simple approach that makes sense to ALL: our target audience, all participants in marketing, selling, and developing-new-product processes, and all the rest of stakeholders who have keen interest in the company’s success!

One very important question (often ignored) that an executive team needs to answer before engaging into defining the strategy is who will be championing the project and the implementation of strategy once the visionary and research parts of the project are completed. It is important, because while solid, unbiased information is vital in making decisions on what you will offer to which market segments, with what type of message and through what kind of channels, the success of your strategy will always depend on who will be responsible for implementing it.

A dedicated team of champions, and ideally cross-functional team, takes the strategy, which is yet an unrealized possibility, and turns it into a systematic way of conducting business that brings victory every time, many times! Needless to say that early participation in the project by this cross-functional team is detrimental to its future success. So is a consistent support by the company’s executives.

Marketing, if available as a resource, can play a leading role in the development of GTM strategy. This business function is responsible and comfortable with stretching the boundaries, asking deeper questions, going beyond the norm. The boundaries of the GTM strategy run across functional lines inside an organization, but marketing is well positioned to lead its creation and implementation: marketing interaction with two other functions in a company makes it a perfect intermediary in this process. First, marketing interacts with product development via product marketing to convey market requirements, to test target market acceptance, and to manage entire product life-cycle. Besides product management, marketing also interacts with sales by providing content for communications and sales tools, building demand and generating lead pipeline.

Developing GTM strategy can be a culture-changing undertaking that will require commitment of the entire organization from senior executive team to the customer-service representative, but it does not have to be complex. To prove the new strategy successful it is important to focus on one or two core issues and not spread resources too thin. Once it is a success, adapting it as a way of doing business will be easy!

Philosophical Thoughts on Unanswered Questions of Marketing: How to Price a New Product?

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Thinker by Rodin

A friend of mine who goes by pen-name of Prodicus and who also has many more years of giving wise advice to all sorts of companies, has recently engaged me into a discourse on how human nature is impacting business decision-making. I decided, with his permission, to publish these thoughts in my blog. The first “unanswered question of marketing” deals with the question of pricing new product. All companies, no matter what size or industry, will deal with this question at least once in their existence. Here are a few insights on how to think about this challenge.

Have we ever underpriced our product?

Product Manager (PM): “I am happy to report that we have wrapped up our market study on the QX product. The research reaffirms our initial analysis that we have a sure-fire winner. The QX far outperforms the competitors’ products currently on the market, and our R&D department seems confident that we will have a defensible patent.”

General Manager (GM): “Finally some good news! You chaps have been working on the QX for a year and a half. Give me a quick snapshot of the market conditions and economics of QX.”

PM: “Well, there are three competitors currently that are producing the incumbent product that QX will take on. All three are comparable products and priced within pennies of each other. One competitor has about 60% market share, and the balance is split between the other two. We estimate the market for QX to be around $65 million, with the current product selling for about $6.15/lb.”

GM: “Sounds like a nice sized market. What is the value proposition for QX?”

PM: “QX can replace the competitive products, and in addition demonstrate two additional benefits to the customer. One, the customer will realize significant fuel savings by switching to QX. We have estimated these savings at $2.88/lb of material used. Two, the customer will no longer need to use an additive that he currently uses. Our research tells us that on the average the customer would save $1.19 in additive costs, per lb of QX used. And to top it off, we see no significant technical impediments for QX to replace the current material being used.”

GM: “And what are you proposing as our introductory price?”

PM: “I am still in discussions with sales, and the folks in production. We seem to be converging on an introductory price of $5.99/lb.”

GM: “Why?”

PM: “Sales thinks staying just under the competitor’s price of $6.15/lb will get the customer’s attention. Our cost figures have come in at $4/lb. At $5.99/lb we clear a tidy 50% gross margin, well above our corporate hurdle rate of 35%.”

GM: “Are we underpricing the QX? It seems capable of creating a great deal of value for the customer.”

PM: “I don’t think so. We are coming in just below the price in the market and we have the cost position to justify it.”

GM: “Still, I feel we are leaving money on the table and will never know how much we could have charged.”

This conversation while hypothetical is not at all uncommon in B2B settings. To better understand the GM’s concern with leaving money on the table put yourself in the role of the PM.

The choice a PM is faced with is to go either for a sure thing, in this case a price below the competitor’s offering coupled with a value proposition that saves the customer $4.07/lb ($2.88+1.19) in other savings. Or, to be more aggressive in pricing by gunning for a higher price to justify the enhanced performance of the QX product, but run the risk that the market may not go for it. What incentive does a PM have to go with the second option? A success is a success, and a smaller success has an equally good personal payoff for the PM without the additional risk. And, who is to know that we could have had a larger (i.e., higher priced) success!

This phenomenon of minimizing personal risk in pricing decision-making is one of the thorniest issues in pricing decisions. Helping PM’s cope with this risk takes a thoughtful GM who is willing to push the PM’s reasoning and justification for a price point. In addition, for a PM to step up to a more aggressive stance on pricing decisions, the GM will need to be more open to sharing some of the risk with the PM.

Some pricing mantra’s to bear in mind:

1. While customers are quick to tell you that your prices are too high, rare is it for a customer to call to inform you that you could have charged more.

2. Increasing a price is a matter of blood, sweat and a lot of tears. So get it right the first time.

3. Post-introduction, the pressure to reduce price is relentless.

4. Your customer is not particularly interested in your costs, only in the price that they expect to pay.

5. Service, even great service, is table stakes. Don’t expect a higher price for your product because of it (at least not for any length of time).

6. Customers will not pay for performance they do not need.

7. If you have a better product, please ask for a price that is worthy of it.

 

How to Beat the Market …

~ Anna @ roots ~ Leave a comment

Top-performing companies actively build a culture that’s customer-focused, managed for the long-term, creative, confident, flexible, and fast-moving. While transforming marketing and sales capabilities to drive growth is not easy, many companies have difficulty simply knowing where to start. To learn more about what McKinsey&Company proposes as strategy when building your marketing and sales capabilities, please follow the link: http://www.mckinsey.com/

Liberating Market Potential

~ Anna @ roots ~ Leave a comment

Companies, large or small, get formed and prosper because there was something unique they could offer to the market place. With time, as sales get established and complacency settles in, companies tend to lose their razor-sharp focus that they had at the very beginning of their existence.

To keep the focus sharp, executives must go back to their roots. Uncovering the unrealized market potential is not something that can be done overnight or by one person. Usually, it is a collaboration process of a well-tuned multi-functional team that can look at opportunities in the market and compare them against company’s core capabilities and unique expertise. Driving a company too far from its core competency has been proven many times to be a mistake. Consider two most known cases: Apple and Starbucks.

Apple (NASDAQ: AAPL) may be the most improbable of the turnarounds. The company was co-founded by Steve Jobs in 1976. He was forced out and then returned to build one of the world’s great corporations. Apple created one of the first PCs and for a time competed directly with IBM’s PC products which ran Microsoft software. The most successful product that the company produced in its first decade was the Macintosh, launched in 1984. Sales were initially strong, but Apple mistakenly relied on software that was incompatible with PCs. The Apple board decided that Jobs was not old enough or experienced enough to manage a company that was growing quickly.

New CEO John Sculley, who was brought in from Pepsi, pushed Jobs out the door in 1985. The products launched under Sculley were popular at first, particularly the Powerbook, one of the earliest portable PCs. Sculley decided to capitalize on the Mac’s success by launching a broad range of new products. The market’s appetite for such a large number of models did not exist. Apple’s large product line damaged customer retention. Apple also refused to release software that worked with Windows, which had become the dominant operating system. Sales dropped so sharply in the early 1990s that Apple went through a series of large layoffs and two CEOs.

In 1997, Apple’s board, now desperate, turned back to its co-founder to salvage the flailing company. Jobs understood that Apple’s success could not be based on the niche market for the Mac. Apple launched the iMac in 1998 to reinvigorate the modest customer base for the computer. But, Jobs took a real risk when decided in 2000 to use the Apple brand to launch a portable multimedia player–the iPod. Apple had never produced a product even remotely like it. Jobs decision paid off. The iPod became one of the best-selling consumer electronics products in history.

(Source: 247wallst.com)

Starbucks … The coffee shop chain became one of the largest food and beverage retail chains in the world. Starbucks expand so rapidly in the early 2000s that it had 15,000 stores by 2007. Management, led by CEO Jim Donald, had diversified into the sales of music, coffee accessories, and food. Donald publicly challenged McDonald’s and said that Starbucks would eventually have 40,000 outlets.

Donald made three critical mistakes. The first was to move Starbucks well beyond its core products. The next was to fail to counter fierce competition from McDonald’s. The last was to continue to move toward the 40,000 store goal while the economy began to weaken. The Starbucks success story came to an end in 2007 as sales and the company’s share price fell rapidly. Founder Howard Schultz returned to Starbucks as CEO in early 2008.

As is true with many large turnarounds, the first thing that Schultz did was brutally cut costs. From the time Schultz returned, he cut the number of Starbucks locations by nearly 1,000 and the number of workers by over 15,000. Schulz had a base to build profits, but the economy was in the middle of a recession. The CEO made several critical decisions, the first of which was to focus on the company’s core product–coffee– and the second was to recreate the ambiance of a local coffee houses. Beans were ground locally. Machines were changed so that customer could more easily see workers behind the bar. The company guaranteed that any drink not made to a customer’s satisfaction would be replaced. Schultz built customer affinity programs and aggressively extended the brand into instant coffee and stores. Schultz returned Starbucks to the position of being a premium brand and not just an expensive competitor to McDonald’s.

(Source: 247 wallst.com)

Read more: America’s Ten Biggest Corporate Turnarounds – 24/7 Wall St. http://247wallst.com/investing/2011/02/03/america%e2%80%99s-ten-biggest-corporate-turnarounds/#ixzz3TcGaLPjt