Posted on

Jean-Claude Larréché: Marketing Momentum

Why is it that some of the most successful companies spend surprisingly small percentages of their revenue budgets on marketing? The answer, if you think about it, is obvious: as total revenue income goes up, if you are a successful business, you get more bang for your marketing buck. They may be spending a lot, but the proportion is lower.

So, how do you get your business to this enviable position? The answer, says INSEAD Professor, Jean-Claude Larréché, is momentum. Some products do not need to be aggressively marketed to deliver superior sales performance: instead, their fit with customers’ needs and desires is so great, that they gain a momentum of their own.

Jean-Claude Larreche
Jean-Claude Larreche

Short Biography

Jean-Claude Larréché was born in 1947 and studied electronic engineering at INSA in Lyon, where he was awarded a bachelor’s degree in 1968. He followed this with an MSc in Computer Science at the University of London (1969), and an INSEAD MBA, in 1970. He then went on to research marketing modelling at the Graduate School of Business at Stanford University, where he was awarded a PhD in 1974.

Larréché’s research led him to develop a now widely used marketing simulation, MarkStrat, and his growing expertise in the modelling of how marketing works led to a non-executive appointment to the board of Reckitt & Coleman (now Reckitt Benckiser), that he held from 1983 to 2001.

In 1982, he returned to INSEAD as Professor of Marketing, becoming The Alfred H. Heineken Chaired Professor of Marketing in 1993. He continues to hold this role. Whilst collaborating in a number of books, Larréché’s most significant publication is his 2008 book, The Momentum Effect.

The Momentum Effect

Larréché differentiates between ‘upstream marketing’ and ‘downstream marketing’. Upstream marketing is designed to start the process of product or service awareness among appropriate prospects, and allow the business to refine their product or service offering, to meet potential buyers’ needs. You do this with customer insight and content marketing tactics. Downstream marketing is the communication and promotion that puts your products and services to the market, to generate purchasing intent.

The key, Larréché asserts, is to divert funds from downstream to upstream marketing, to ensure that you have a product or service that is so attractive to customers, that it creates its own momentum. The obvious example he cites is Apple’s marketing of the iPhone and iPad ranges.

Larréché’s book sets out his 8 component ‘Momentum Strategy’, which he summarises in a diagram like this one:

Twin Engines of Momentum - Larreche
Twin Engines of Momentum – Larreche

Here, Larréché separates out the design and execution (or build-sell-support) components of product development, giving equal weight to the two sides. He also shows these two components as interacting cycles. The cyclical metaphor is an important aspect to note: Larréché argues strongly for our continuing refinement of our offering, to continue to drive momentum.

Here is Larréché talking about his ideas in an InSEAD video

Larréché has transcended his earlier career focus on marketing. With The Momentum Effect, he is really talking about business strategy, and placing his ideas about successful marketing at the heart. You can get a real sense of this in this interview, where he answers some excellent challenging questions, including about how companies lose momentum.

Share this:
Posted on

Seth Godin: Permission Marketing

The internet has changed the old pre-1990 world of marketing and advertising. It has thrown up new rules, new tools and new gurus. One of the very first to spot that this would happen, and then to study strategy and tactics, was Seth Godin. A serial entrepreneur and opinion former, Seth Godin is far better known among entrepreneurs, small business owners and freelancers than among the marketing managers of larger corporations. but he has worked hard to keep his analysis fresh and relevant, and there is much that any manager can learn from him.

Seth Godin

Short Biography

Seth Godin was born, grew up and continues to live and work in New York State. Born in 1960, he read computer science and philosophy at Tufts University and then did an MBA in marketing at Stanford Graduate School of Business. He then went to work at educational software business, Spinnaker Software, as a brand manager.

He started his first business, in book packaging, after leaving Spinnaker in 1986, but real success came in 1995, when he and business partner Mark Hurst started a marketing company called Yoyodyne. Godin is an avid reader and Yoyodyne was possibly named after a fictional defence contractor in Thomas Pynchon’s novels.

Yoyodyne used the concept of ‘Permission Marketing’. This is a term Godin claims to have coined with his book of the same name, published in 1999. The idea behind this is that we, the targets of marketing, give our permission for the marketer to send us their messages. In the case of Yoyodyne, it gained permission on behalf of its clients, by offering their prospects games and contests. With a blue-chip customer base, Godin sold the business in 1998 to Yahoo!, becoming Yahoo!’s VP for Direct Marketing. He only stayed for two years, which suggests that this was a tie-in period, before setting out on his own again.

Multiple ventures have followed: ChangeThis (an idea dissemination platform – sold in 2005), Squidoo (a web microsite platform sold in 2014), The Domino Project (a book publishing venture that published one book per month in 2011 – four have been reprinted by Portfolio/Penguin in 2015).

In amongst this, Godin has been a prolific author and a successful speaker. He largely promotes his own events based on a massive following for his daily blog posts. This gives him a massive permission marketing base for his books, events, courses and any other venture he is drawn to.

Seven Big Ideas

We can track Godin’s ideas through his books (currently over 20, I think). Let’s take a look at a few that will appeal to a range of managers and professionals.

Permission Marketing (1999) and All Marketers are Liars (2004)

Don’t force your message on your audience – create a demand from your audience to hear your message. And then, when they come to you, don’t tell them about your product, tell them stories.

Purple Cow (2002)

The key is differentiation. Without it you won’t stand out and marketing will fail. You need to abandon product, place, price, and promotion in favour of p for phenomenal or, as Godin puts it: p for Purple Cow.

The Dip (2007)

Doing things really well is hard. You make a lot of progress at the start of your learning journey and then slow down. This is the Dip. If you take on too much, you won’t have the time or attention to escape the dip on anything. True success means quitting on most things so you can succeed on a few.

Tribes: We need you to lead us (2008)

Market by leading. Find like-minded people who believe in what you are doing and lead them. Create products or services that they want, and they will crave what you offer. The ultimate in permission marketing. See an earlier Pocketblog about Godin’s Tribes concept.

Linchpin: Are You Indispensable? (2010)

Market yourself by becoming essential to your organisation or your tribe. Do this with creativity and by doing the most valuable work that you can. This is a manifesto for personal success, rather than the success of your product.

We are all Weird (2011)

Everyone is different and the internet allows us to make for and market to the long tail – small communities who would have been too small to build a career or product on before the internet allowed us to address the world.

The Icarus Deception (2012)

Playing it safe is not a safe strategy. Success means taking risks and being exceptional. Be creative and do the best work you possibly can.

Seth Godin at TED

Seth Godin has spoken twice at TED, in 2003 and in 2009.

[ted id=28]

[ted id=538]

 

 

Share this:
Posted on

Guy Kawasaki: Corporate Evangelist

It is a common cry that the internet has changed everything and almost equally common to hear that it has transformed marketing. One person leading the charge to dedefine marketing in the technology age is Guy Kawasaki; formerly, and perhaps most famously, Chief Evangelist for Apple.

Guy Kawasaki

Short Biography

Guy Kawasaki was born in 1954, in Honolulu. He says of his school that ‘it is not as well known as its rival, because no presidents of the US went there’. However, it did allow him to study psychology at Stanford University, from where he went on to UCLA, after a week at UC Davis; starting Law School, but finding it wasn’t for him. After gaining his MBA at UCLA, his first job was in the jewellery trade, which taught him how to sell.

Kawasaki’s next job took him into the milieu in which he has remained: the technology industry. It was when his employer was taken over, and he was asked to move to Atlanta, that he made the move instead to Apple, in 1983. There he took the role of ‘Software evangelist’ – his job was to convince developers to create products for a new computer that, at the time, had a tiny user-base, no backwards compatibility, and minimal sales. He stayed in this role for four years.

His next role was leading a software business, creating products for a new computer… He says deprecatingly of himself that he believed his own hype, but for a while, the database software that Acius created was among the best for the Apple system. A spell of journalism followed (in the Mac arena) and then he collaborated to set up another software company. But in 1995, Kawasaki returned to Apple as their ‘Chief Evangelist’ charged with developing and protecting the brand.

Leaving Apple again in 1997, he co-founded a technology venture capital business and gradually built up a wide portfolio of advisory positions with tech businesses. Indeed, he continued to found businesses too – most notably Alltop, and increasingly became a much in-demand speaker and author. He is currently Chief Evangelist at graphics and design software service company, Canva.

Kawasaki’s Ideas

The first thing to say is that Kawasaki’s ideas are not original, and I doubt he would claim it for them. His skill is creating a coherent narrative around ‘marketing by enchantment’ – using the ideas of soft influence to engage an audience and build a loyal customer base for a product or service. He himself likens the content of his book, Enchantment: The Art of Changing Hearts, Minds and Actions, to Dale Carnegie’s earlier book, How to Win Friends and Influence People. He also describes himself as the author of thirteen books, or of one book, written thirteen times. Be aware of this when shopping, as it does contain a grain of truth!

For me, Enchantment is the book that contains his central thesis. He describes ‘enchantment’ as ‘to charm, delight, enrapture’, and as ‘the process of delighting people with a product, service, organization, or idea.’

So how can you create enchantment?

Kawasaki identifies three primary requirements for enchantment:

1. Greatness

Greatness is about quality – you cannot truly enchant with a sub-standard product. If you want to enchant, you need to start with the passion to create a great product that people will crave, because it goes well beyond good: in Steve Job’s words; ‘crazy good’. Canva, with which he is currently associated, has been described as ‘the easiest to use design program in the world’. Whether or not you believe this is true, the fact that people with knowledge say this is a sign of its greatness (and it is pretty good – and free to use!). It is also an example of another of Kawasaki’s points: that a grand vision is not important, drawing the supposition that Richard Branson almost certainly had no concept of ‘Virgin Group’ when he started Virgin Records – he simply set out to create a great record label. For many years, Canva has been targeted at individuals; only recently has it started to create an enterprise level offering.

2. Likeability

You need to make your product or service likeable, by being humble, generous, decent and doing what you say you’ll do. Answer your phones quickly, and do the right thing for people. Kawasaki is mistrustful of charisma and instead urges real engagement with customers and prospective customers. Show them courtesy and respect, and do nice things for them and they will surely come to like you and your brand.

3. Trust

Long-term, likeability will turn into trust. When you continually delight with both the quality of your product or service and treat people exceptionally well, they will come to trust you. Once you have that, as long as you do not squander it, you have created real and valuable capital for your brand.

I think you can see that none of this is revolutionary.

So why is it important? It is important because it works, yet is not that widely acted upon. The burden of Kawasaki’s advice is honoured more often in the breach than the observance, as the vast majority of corporations continue to invest highly in traditional forms of marketing and advertising, which fail to respectfully engage with their markets. Why? I think because it is easier. I think that you can readily hire an agency for the one, but need exceptional individuals and exceptional commitment to ‘do enchantment’ well.

Presenting to Enchant
A short diversion

I was very much taken, while researching this blog, with Kawasaki’s simple advice for presenters, so here it is…

The 10-20-30 Rule:

  • 10 Slides
  • 20 minutes
  • 30 point font

Use lots of graphics and images

Where you can, demonstrate rather than explain

Kawasaki Speaking

Guy Kawasaki is a much in demand speaker. Here he is at TEDx talking about ‘The Art of Innovation’. This is one of my favourite TED talks with plenty of aha moments.

Share this:
Posted on

Estée Lauder: Modern Marketing

Christmas is coming and many readers will be considering perfume and beauty products as gifts. One of the biggest players in that market is Estée Lauder – the eponymously named cosmetics business founded by a determined and charismatic entrepreneur: Estée Lauder.

Estee Lauder

Brief Biography

Estée Lauder was born in 1908 and grew up in the Queens suburb of New York, where her father (like mine) ran a hardware store. Her interest in beauty products started when her Hungarian uncle, Dr Schotz, who was a chemist, came to live with her family and created skin creams in the kitchen, and later in a laboratory in a stable out back. He also made paint stripper, embalming fluid, and lice treatment for chickens. We can only hope that there were no serious mix ups in packaging!

Lauder helped Schotz by selling beauty products and so began her career as a consummate salesperson and marketer, selling skin care and makeup in beauty salons, demonstrating her products on women while they were sitting under hair dryers. This cemented her belief that women must try if they are to buy.

The Estée Lauder name borrows from her given name, Josephine Esther Mentzer, which the family shortened to Esty, and her married name, following her marriage to Joseph Lauder in 1930 or, more strictly, I’d guess, following their remarriage in 1942, following separation and reconciliation. In 1946 she and Joseph Lauder  launched the Company, soon winning a concession at their first department store.

Lauder targeted the most prestigious store, Saks, and a year later was able to finally persuade the buyer after giving a talk at the Waldorf Astoria hotel, and then giving away samples at the end. This created a demand that Saks could not ignore, and marked her second key lesson in marketing.

Lauder’s first fragrance was Youth Dew, a bath oil, created in 1953. It was a rapid success, and Lauder continued to demonstrate her olfactory acumen (as a ‘nose’ is how the industry terms it) by overseeing the creation of five more brands of fragrance before she retired in 1995.

Lauder’s Approach to Marketing

Many of Lauder’s marketing strategies and tactics will strike a modern reader as very… modern. They remain very much what is still recommended; because it still works. So, as a primer on marketing, we can do little better than take inventory of seven of her best approaches.

Give away samples

The try before you buy approach is so successful, it is used on a multi-million dollar scale. Just look at how many millions of versions of U2’s latest record were given away by Apple (500 million actually) at the launch of their new iOS8 and iPhone 6. Was this successful? You bet. Most of U2’s earlier albums re-entered the iTunes charts within a week, generating millions of dollars (undisclosed) of sales for both U2 and Apple.

Direct Mailing

Early on, Lauder used Sak’s mailing list to send samples and gifts to their customers, encouraging them to visit the Estée Lauder concession in store. Direct mailing may have fallen out of fashion to a degree, but many marketers still argue that, in the days of so much direct email, a well thought-out direct mail campaign can be successful. Whether you agree or not, the use of direct email is a powerful and omnipresent force in our lives – the same strategy; just new technology.

Clever Naming

When the US Food and Drug Administration came down hard on the scientific claims of Lauder’s rivals’ products, Lauder took an altogether more savvy route. Her advertising refrained from making scientific claims, but her naming implied the attributes she was unable to claim: Re-Nutriv is meaningless as a word, but caries a vast weight of associations.

Clever Pricing

‘You get what you pay for’ my dad used to say. If lots of her customers believed that, then her premium pricing strategy was clever. Without doubt, two things are true: she did insist on top-quality ingredients, but her pricing included a substantial mark-up, creating exclusivity and emphasising the quality through the most important real-estate in the store: the price label.

Gift with a purchase

That idea may well been hers – she certainly exploited it well, long before BOGOF and three-for-two offers made shopping bags twice as heavy.

Hands on Consultative Selling

Going one step beyond her ‘try-before-you-buy’ strategy, Lauder did pioneer in-store beauty consultations as a way of selling. She believed that in order to make a sale, you must touch the customer, and spent a great deal of her time advising customers and teaching Beauty Advisors.

Brand Clarity

Lauder believed that every woman had a right to feel beautiful and therefore ensure that her advertising portrayed beauty that was both aspirational and approachable. From 1962, Estée Lauder selected one model to be the “face” of the brand. These have included supermodels and actresses. Whether they are really ‘approachable’ is debatable, but at any one time, the face of the brand become a distinctive image for the company.

To learn more about marketing and sales…


This blog is for my mother, Jeanne Clayton, whose favourite perfume was Estée by Estée Lauder.

Share this:
Posted on

Public Relations Primer

The Management Pocketbooks Pocket Correspondence Course

This is part of an extended management course. You can dip into it, or follow the course from the start. If you do that, you may want a course notebook, for the exercises and any notes you want to make.


Not every manager will need to get involved in public relations, or PR, but, from time-to-time, many will. So it is worth knowing and understanding the basics of one of the most important aspects of marketing.

What is PR?

The definition differs from one expert to another and the emphasis is very different on the two sides of the Atlantic. I personally prefer the simplicity of the definition offered by the Public Relations Society of America (PRSA) on their website:

‘Public relations is a strategic communication process that builds mutually beneficial relationships between organizations and their publics.’

The UK’s Chartered Institute of Public Relations (CIPR) places its emphasis on reputation, and defines PR as:

‘Public Relations is about reputation – the result of what you do, what you say and what others say about you.

‘Public Relations is the discipline which looks after reputation, with the aim of earning understanding and support and influencing opinion and behaviour. It is the planned and sustained effort to establish and maintain goodwill and mutual understanding between an organisation and its publics.’

For me, PR is about engaging with your public, so the concept of PR is relevant not just at the corporate level, but also at the level of individuals who want to strengthen their careers. The principal approaches to PR are:

  • Writing
  • Collaborating
  • Engaging the press and professional media
  • Engaging through social media
  • Direct engagement

We will take a short look at each.

Writing

Getting your message out by writing articles, blogs (like this one) and books has a very simple effect: it says ‘we know what we are talking about’. By offering your public practical or insightful content, you are enhancing your reputation and strengthening your relationships with your readers. It has traditionally been largely one-way, but with the advent of social media and bookmarking, the ability for your public to comment on your writing and engage in a dialogue about it has grown mightily. This can only be a good thing for you, if you have something valuable to say, and you say it well. Please comment below!

Collaborating

If you can collaborate with other, non-competing, organisations, you can extend the reach of your PR activities to encompass their public as well as your own. If you engage them effectively, they can become your public too. So the relationship you need with the ideal potential collaborator is one of overlapping interests, but not conflict. This is not to say that there are not some valuable collaborations to be made between competitors too, but the risks (and rewards) are substantially higher.

Engaging the Press and Professional Media

For some people, PR and issuing press releases amount to pretty much the same thing. Without a doubt, the press is continually hungry for engaging stories that will interest their audiences, so if you do this correctly, this is nothing more than an example of a good collaboration. But what the media can do is get your message out, bundled in a package of objectivity and professionalism that amplifies its effectiveness considerably. But don’t blow it: if you are asked to comment on camera, on the radio, or even in print: prepare well, because if you don’t, and you perform poorly, the media can turn your reputation into an overnight shambles.

Engaging through Social Media

With so many forms of social media around, even the so-called experts are struggling to offer coherent advice as to which to focus on and how to do it well. The two tips that seem to surface again and again from the best of them, and which make greatest sense to me, are:

  1. Focus: choose one or two social media that your audience are most likely to engage with in numbers and in depth, and focus on using them well
  2. Social: the nature of social media is that they enable social connections, so you need to be listening to conversations and engaging with them as you would in a bar, cafe or restaurant. If you just use them for announcements, then you are losing most of their value.

Direct Engagement

From meeting customers in the street, to sending them information by newsletter, direct engagement has the capacity to be the most powerful form of PR of all – and therefore the ability to do your reputation most harm as well as good. The difference between a helpful advice email, with some good offers, and a piece of unwanted junk is subtle. As with writing, above, direct engagement has to have WAM factor: ‘what about me?’ says your public.

Further Reading 

You may like The Marketing Pocketbook. There are also some great resources on the PR profession websites:

 

Share this:
Posted on

The Basics of Marketing

The Management Pocketbooks Pocket Correspondence Course

This is part of an extended management course. You can dip into it, or follow the course from the start. If you do that, you may want a course notebook, for the exercises and any notes you want to make.


Marketing is not about selling. That may sound obvious, but too many people act as if the purpose of marketing is to sell: it is not. The purpose of marketing is to raise awareness of your product or services, so that people will be motivated to investigate further, or they will be aware of what you offer, if they need it in the future.

The challenges for marketing are:

  • Knowing who your potential customers are
  • Knowing what channels of information they most actively engage with
  • Knowing what messages will resonate most strongly with them

Using the answers to these, you can design a marketing campaign that answers the three questions that a prospective customer will have:

Question 1: What are you offering me?

If I am a customer of yours, then your product or service must meet a need or satisfy a desire in me. A strong marketing message sets up that need or desire, to prequalify readers, viewers or listeners and get the attention of those who are suitable targets. It then stimulates their interest by making a promise that the product or service can meet their needs. Finally, it amplifies desire, by showing the customer what they will get (beyond the product or service itself) by buying. This bit is about benefits and you must link them to strong positive emotional states. The favourite of many advertisers is, of course, the promise of love, romance or the three-letter alternative. Now they want it, you need to answer the next question…

Question 2: Is it good value?

They want it, but how much are they prepared to pay for it. Focus on value not cost. Done well, some customers won’t even care about cost (think of the people who queue to buy the latest hi-tech, hi-cost products that simply replace things they already have – desire; not need). But if they do care about cost, you must show how the benefits you are offering outweigh this – and the ratio is a measure of the customer’s perception of value. If you can satisfy them on this too, they don’t only want it, they want to go out and get it. So now answer…

Question 3: How can I get it?

Choose a delivery strategy that is consistent with the image you want to convey for your product or service and then (in most cases) make it easy for the customer to buy. Why ‘in most cases’? Because for certain products or services at the premium end of their market, you can add to the perceived cachet of the product by making it hard for the customer to buy. This increases its sense of exclusivity and therefore of its perceived value.

Getting your message out

Promoting your product means providing prospective customers with plentiful relevant information. It needs to answer their questions about your product or service, but also about you, and why they should buy from you. There are a near infinite number of media that you can use, in combination. Here is a selection.

  • Advertising: newspapers, magazines, radio, television, online, billboards, posters, leaflets
  • Promotional: brochures, pens, apparel, stationery, bags, websites
  • Sponsorship: events, causes, awards, hospitality
  • Direct: mail, email, telemarketing, newsletters
  • Signage and branding: buildings, plant, vehicles, uniforms, products
  • Public Relations: articles, press releases, interviews
  • Events: conferences, exhibitions, hospitality and entertaining, trade fairs
  • Social media: Twitter, blogging, Pinterest, Facebook, LinkedIn, YouTube

Further Reading 

You may like The Marketing Pocketbook and a couple of earlier Pocketblogs:

Share this:
Posted on

Listening to your Customer

Steve Jobs famously eschewed focus groups and market research in designing new Apple products.  He did not want to supply what customers wanted.  He wanted customers to want what he created.

Whether Apple will be able to sustain that level of creativity is a question only time will answer.  But Jobs’ attitude did not mean that Apple was deaf to its customers – quite the opposite.  Having created the kind of loyalty that just about any other corporation can only dream of, everything Apple does has been tailored to retaining that crazy loyalty.

Marketing departments typically spend their time and resources looking for ever better ways to ensure that potential customers hear their message.  Customer service departments focus on fixing customer problems.  Who in your business is dedicated to listening to the customers you have, to build loyalty?  It’s cheaper and easier than acquiring new customers, and it’s cheaper and easier than fixing relationships with disappointed customers.

The big question is ‘How?’

How can you really listen to the voice of your customer? 

Surveys are great – especially low cost, easy-to-implement online surveys using tools like Zoomerang or Survey Monkey.  These have the benefit that they take little effort from your customer (and why should they make a big effort?) and can be supported by an appropriate incentive like a small reward or a competition entry.

The gold standard for good feedback on what you do (and don’t do) is follow-up calls or meetings from someone separate from the team that serves your customer.  To make it work for both you and your customer, you must welcome absolutely frank assessments and ask good questions to secure details that make appropriate actions easy to target accurately.

But what if your customers won’t talk to you?  You can always employ a ‘professional customer’ – mystery shoppers.  They are great for thorough, detailed and accurate assessment of what you do.  Unlike real customers, however, they cannot give you information about what else they want, from your product or service lines.

Customer focus groups or ‘customer panels’ can do that.  They are a lot of work to plan and organise and expensive too – often requiring specialist consultants, room hire, and inducements to participate.  This is a form of market research and the Marketing Pocketbook offers eight more variants on what we have above.

The forgotten question is Why?

In case ‘why would you listen to your customer?’ seems like a pointless question with an obvious answer: ‘of course you must’ – stop for a moment.

Of course you must, but unless you know why you are going to do it, you rune the risk of asking the wrong questions, choosing the wrong format, and mis-using the answers.  It is all too easy to feel like you are doing something useful by sending people out to listen to your customers, but before you do so, make sure you have a purpose and design the process accordingly.

A Paradigm Shift

Michael Porter identified two sources of competitive advantage:

  1. Industry Cost Leadership
  2. Product Differentiation

Arguably, Apple has neither, with high prices for products that are being successfully emulated by their main rivals.  So how are they succeeding?  I believe by a third source of competitive advantage: brand loyalty.

As a prevailing business strategy, this is new force in big business, but one we can all exploit, by building an organisation that excites and values its customers so much that we win the kind of fanatical following that Apple has.

If you can do that – with or without one of Porter’s two other sources of competitive advantage – you have the basis for a long-term business.

Share this:
Posted on

On Competition – The Far End of the Value Chain

Back in August, we met Michael Porter – a professor at Harvard Business School, and an authority on competitive strategy.  In a blog called ‘On Competition – Five Forces’ I described his best known ‘Five Forces Model’ and also his model of three sources of competitive advantage:

Porter's Three Generic Business Strategies

The Whole Picture?

At a recent seminar, I challenged participants to identify any additional business strategy that can deliver competitive advantage.  After all, in my August blog, I did assert that this model is showing its age.

Could a business outcompete rivals with a higher cost product, that does pretty much the same as its competing products, and has no niche focus?  The answer takes us into a fascinating debating point, by way of another powerful model with which Porter is closely associated.

Competitive Advantage

Porter’s 1985 book ‘Competitive Advantage’ gives you a pretty thorough précis of his earlier ‘Competitive Strategy’ in Chapter 1 – focusing on the three strategies – and then takes off.  Competitive advantage, Porter says, comes from understanding the ‘value chain’.  This is the full set of activities that company undertakes, to create value.  It is illustrated below.

Porter's Value Chain

Competitive advantage is about understanding the Five Forces model and the sources of cost advantage and product differentiation in terms of these nine activities.

The Far End of the Value Chain

The five primary activities form a chain of value-adding processes, supported by the four secondary processes that provide the necessary resources to make the value chain work.  Each can be a source of competitive advantage, most obviously through cost differentiation.

I want to focus on Marketing & Sales, and Service.  My argument is that a company can differentiate its product – to give it competitive advantage, through these two, without focusing on a niche, delivering a substantively different product, and with no cost leadership.

Marketing, Sales and Service are about Myth-making

Hello Kitty is a trademark of SanrioIf you can create a compelling narrative about your product, people will want it, to associate themselves with the myth you have created around your brand.  My daughter loves ‘Hello Kitty’ – I don’t know why.  As far as I can tell, the Hello Kitty brand started life as nothing more than a motif, appearing on a range of products.  Now, not just children, but adults too, want goods just because they have the face of a little white cat (with no mouth) on them.

The products are no better, no different (unless you include the motif) and certainly no different functionally, and definitely no cheaper.  There is little niche focus beyond, as far as I can tell, females.  Hello Kitty thrives in most cultures and at many age groups from 2 to forty, at least.

I think the source of Sanrio’s competitive advantage is nothing more than marketing.

Would I fall for such a ruse?

Of course not.  Unlike some grown ups, I would never have Hello Kitty nor any other character on my iPhone case…

‘Hold on Mike, did you say iPhone?’

iPhone certainly has no cost advantage and it now has many competing products that offer the same functionality.  And as a niche, iPhone users are pretty hard to define: old and young, across social and cultural spectra…

So how does marketing create competitive advantage?

It seems implausible that three sources of competitive advantage could be all there is.  Yet I have come to the conclusion that I haven’t yet found an exception.  Despite arguing that marketing is that exception, let me explain.

What does marketing do that creates such loyal followings for Hello Kitty and iPhone (and, indeed, for both – I saw someone with a Hello Kitty iPhone cover, which was the nudge for writing this blog)?

I think the great marketing that Sanrio and Apple create, builds a loyal following for their products.  Many people will identify themselves as iPhone users – in a way that others would not identify themselves as Wildfire or Galaxy users.  What great companies can do is use marketing and service to create a ‘tribe’ of people who are loyal to their brand – or to a part of their brand.

What this relatively new form of marketing is doing is building a niche focus that is defined by the products and services of the company.

So, Porter was right after all.  Now we need to look at this concept of ‘tribes’.  More next week.

Management Pocketbooks you might enjoy

Share this:
Posted on

Marketing is an Ethos

I think Neil Russell-Jones strikes the nail perfectly in his introduction to the Marketing Pocketbook:

‘Marketing is not a department or a group of people.It is an ethos, that is a type of thinking that must flow throughout an organisation and permeate every aspect of its operations.’

What he means is that we should not leave marketing to ‘the marketers’ and we should not consider it a distinct activity from any other aspect of running our business.  Every aspect of every organisation from a multi-million-mega-corp to a sole-trader; and from the biggest Government department to the smallest cog in the Big Society machine needs to reflect the need to get a positive message out.

The game has changed: the rules are the same

SocialMediaThe game of marketing has changed out of all recognition in the last ten years.  The web and social media marketing channels have taken over and present us all with a huge amount to learn about how to use them effectively.  Luckily, for the moment, the rules are the same – in the sense that they are defined by human psychology.

 

Continue reading Marketing is an Ethos

Share this: