Brand building without marketing

Companies who think that a strong brand can only be developed through marketing are missing out on other ways to improve their image.   While marketing is vital, we take the view that the brand is impacted by the entire business.  Many functions like sales, customer support and facilities management play a key role in creating customer perceptions.  While this is not an original idea, most companies still rely on traditional marketing activities like advertising, packaging and promotion to build their image. Our research suggests that other factors are equally if not more important in influencing a brand.  Companies who can identify these key brand drivers will be able to improve their brand execution, not to mention business and financial performance.

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Loads of research confirms that trust in brands has declined.  People view brands with a jaded eye and consumers are uncomfortable with a brands’ desire to control the message. The market research firm Young & Rubicam found that the percentage of brands that consumers consider trustworthy plunged from 52% in 1997 to 22% in 2008. This skepticism is being amplified by the power of social media which now give consumers and influencers as much power as the marketer to influence the brand.

A new branding paradigm

Enlightened organizations understand that building a trustworthy branding is a process that is too important to be left only to the marketing department. These companies recognize that brand communication is the responsibility of all employees, involves every department and is a participatory process. As a result, some firms are moving away from a marketing-led, push-based communications strategy towards a more holistic approach that seeks to rebuild consumer trust and communicate the brand promise at every external touch point.  This new paradigm integrates corporate strategy, employees as branding ambassadors and regular engagement with external stakeholders.

Keeping it real

Implementing this new approach is part marketing program, part operational strategy and part cultural change.  Below are a few ways managers can build their brand without traditional marketing:

Employees as brand ambassadors

We have seen many companies spend millions of dollars on advertising but neglect to effectively communicate their value proposition to their employee base – many of whom deal with customers on a regular basis. Marketing one thing and having your employees believe something else is a recipe for poor brand execution and wasted spending. Getting everyone aligned takes time but will pay dividends through reinforcing branding messages and increasing clarity.   

Optimize the customer experience

A compelling brand strategy will flounder if the customer experience is not supportive of the brand promise.  Our client experience bears this out. We have seen a service-focused hospitality brand stumble (and witness declines in loyalty and up-sells) when the front line staff was not consistently friendly, responsive and knowledgeable.  In another case, we witnessed how ignoring channel needs and product documentation compromised the brand equity of a leading software product.  Ultimately, this helped contribute to lower market share and margins.

Open up the brand

One way to garner trust is to open up your brand to your stakeholders.   In essence, customers, employees and influencers contribute to your brand message through social media and other marketing vehicles.  Although the likelihood of frank discussions – warts and all – is high, this strategy can reduce skepticism and mistrust by portraying the company as an honest, open, credible and authentic corporate citizen.

The Danish toy company, Lego Group, is a good example of well-known brand that has gotten even stronger through open branding.  Lego recognized early on that its brand was not created by the marketing department, but instead by the entire company through its interactions with its community – retailers, consumers, media and other stakeholders.

Open branding is a great way to reinforce your brand building blocks.  To best leverage this new construct while minimizing risk, marketers should-

1. Deliver value not communication – Typical marketing communications is a turnoff to customers as well as employees.  Increasingly, consumers want valuable, objective and timely content – not just slogans – that helps them and respects their time.    
2. Share control – If brands want to be seen as credible, authentic and compelling, firms must accept that their image is no longer solely controlled by its managers.  With the emergence of social media and other new Web 3.0 technologies, brands are now being molded by a diverse group of people whose opinions should be heard.
3. Open up – A brand manager’s role must go beyond traditional marketing to fully engage – listen, absorb, facilitate and share – consumers and influencers.  The key organizational shift here is to stop seeing consumers as an object or transaction and to start seeing them as a source of creativity and co-creation in areas like branding, product design and support. Many successful brands like Harley Davidson and Apple nurture communities of passionate users who evangelize the brand and provide vital market and product information. 

For more information on our services and work, please visit the Quanta Consulting Inc. web site

In retail, are you experienced?

Now more than ever, creating a rich shopping “experience” is de rigueur for retailers seeking to be a destination of choice.  Competing on the basis of the shopping experience – for example, delivering useful education, ‘best n class’ service, welcoming aesthetics and engaging entertainment – is not a novel idea.  Many world class firms like Walt Disney, Southwest Airlines and Hard Rock Hotels have built significant businesses by leveraging an experiential-based business and marketing model. Its now the retail sector’s turn.

The evolving landscape

Recent market, technological and consumer developments have put the shopping experience at the center stage of retail marketing and operations. Stores and chains are increasingly seen by buyers as undifferentiated and unexciting; consumer spending has stalled and; pure-play Web retailers and online shopping tools have come into their own.  At the same time, social networking’s popularity is exploding while bored, confused or fickle customers increasingly demand education, aesthetics and entertainment as part of their retail experience.  To stay relevant and competitive particularly in the mid-market and premium segments, merchants will need to regularly orchestrate and promote compelling on and offline shopping memories.  That memory itself will become the one of the products – i.e. the “experience.” 

Evolving consumer behavior is a major factor impacting the customer experience. For one thing, sales channels are changing.  Online sales, already 7% of all transactions, are forecasted to hit 15% by 2019 (source:  Google).  Although in its infancy, mobile commerce is expected to explode over the next few years.  Increasingly, buying decisions are being made before the consumer visits the web or traditional store.  Twenty years ago, 70-80% of all grocery purchasing decisions were made at a store.  Today, it is less than 50% according to Joel Rubinson, former chief research officer of the Advertising Research Foundation.  Typically, consumers will first research products online or canvas their friends and then decide what they will buy before going to a store.  Or, they may forego a trip to the store altogether and make purchases via the Internet. 

Moreover, social networking is enabling consumers to take control of how marketing messages are distributed and consumed – at the expense of company-sponsored sites.  Buyers now attach significant value to online reviews and often spend more money online after reading product recommendations by other consumers.  Facebook, for example, accounts for 38% of social media page referrals online (source: MDC Partners, a marketing firm).  According to pundits, reviews like these are trusted some 12 times more than advertising messages.

These changes have important consequences. When shoppers think about a brand, they now consider their entire buying and service experience.  To be successful, marketing campaigns will now have to encompass and integrate all of the touch points of a company’s relationship with a consumer, including the first moment of contact when a product search begins, through the sale and service, and eventual product disposal and replacement. Though consumers have far more control over marketing messages than they ever have, retailers still have plenty of scope to guide opinions. That’s where experiential marketing comes in.

Who is getting it

Recently, a number of retailers have pushed marketing boundaries to create innovative experiences that integrate entertainment, social media, information and traditional advertising. Two examples were highlighted in a recent issue of the Knowledge@Wharton newsletter:

Macy’s

In 2010, Macy’s hit the mark with a couple of highly successful marketing programs that integrated a number of different experiential elements.   During New York’s Fashion Week, the retailer provided customers with a “magic fitting booth,” which allowed them to “try on” virtual outfits and post images of themselves in their new clothes on Facebook. All year round, shoppers were able to use their phones to watch videos for fashion tips from designers and makeup artists. For the holiday season, Macy’s launched an animated website with an online tool enabling customers to send letters to Santa Claus. The site, which received more than 1M letters, was combined with a fundraising drive for a children’s charity and a mail order guide.

Bloomingdale’s

This merchant understands the critical role of human contact in delivering powerful retail experiences.  Bloomingdale’s 8,000 in-store “associates” play a key role in delivering and enabling experiences.  Their responsibilities include collecting customer information in databases.  This information is then used for marketing programs such as birthday alerts or shopping recommendations based on previous purchases. “What we don’t want to lose is the assurance and authenticity of human contact: the touch, the feel, the laugh, the personal knowledge” says Tony Spring, President and COO of Bloomingdale’s.

Making it real

Incorporating the above elements – plus emerging mobile and location-based services – into the marketing and operational model will lead to further evolution of the shopping experience. To remain competitive and efficient, retailers will need to develop a holistic “customer experience” vision and strategy that integrates both traditional and new media, while addressing every point of the purchase/service continuum.  Making this vision a reality will requires firms to revamp their organizational structure in order to bridge functional silos like digital marketing, public relations, store design, advertising and merchandising.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Social media is dead…long live social media

Over the past year, a number of much-heralded social media campaigns have floundered failing to deliver the desired results.  To wit:

• Despite a variety of Facebook and viral marketing campaigns that generated considerable buzz, Burger King sales witnessed 6 consecutive quarters of declining sales;
• Pepsi’s very public shift away from Super Bowl ads to Refresh Project, a social charity program, was unable to prevent the brand’s drop to the number three market share position.

In addressing these setbacks, SM boosters will argue that these initiatives surpassed their customer response and engagement goals.  As well, they contend that some failures are to be expected given the nascent state of the SM space.  Finally, apologists will blame other culprits such as the economy, pricing, and distribution that can sabotage campaign success.

In reality, these arguments are a little specious.  If a SM campaign can not directly trace to higher sales then what is the use of measuring esoteric values like a conversation and tweets in the first place? Interestingly, some SM programs have been in market for over 6 years belying the claim that the “media” is relatively new.  Finally, if other marketing or product elements mattered more than SM they should have been the focus of the program investments in the first place.

Should these poor experiences cause marketers to reconsider their ambitious SM plans?  Maybe, but not so fast.  Concurrently with the failures, there have been a many SM successes across a variety of industries including retail banking, automobiles and insurance. The aforementioned problems may have more to do with the end of SM as a fad and the emergence of SM as a serious marketing discipline.  Within many companies, there is a growing realization that SM is just one marketing tool and cannot kill traditional advertising & promotion in the same way that the arrival of the microwave didn’t kill the oven.

Some important lessons can be gleaned from these high profile failures as well as the successes:

SM has not changed people’s buying behaviour – Most people still evaluate and purchase products today the same way they did 10 or even 50 years ago. As long as the vast majority of sales occur in stores or through sales people, driving traffic to these areas should be the focus of SM programs.

Marketing integration is essential – Without the support of value-based pricing, optimal channel management and solid product quality, all SM efforts will fail to generate meaningful results.

The brand promise remains paramount – If it doesn’t reinforce a brand’s winning value proposition and character, a SM program will be nothing more than a cool (and often expensive) marketing activity.

The key metrics haven’t changed – Today, SM metrics and analytics are not ideal, being inherently qualitative and relational.  Until metrics can be linked to revenues by becoming quantitative and absolute, then there will be a challenge justifying program ROI.

Competitive matching is the last reason to deploy SM –  As the negative examples of Domino Pizza, Amazon and KFC demonstrate, SM can be a high risk activity and should not be pursued without a compelling strategic and revenue-generating rationale.

You still need to execute with excellence – Like other marketing or product initiatives, SM activities need to move beyond the creative, “cool” factor and focus on delivering marketing and operational effectiveness and efficiency.

Most pundits would agree SM’s future is bright.  It’s the short term that marketers should now focus on getting right.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

How to fix CRM

Boulevard of Broken Dreams is not only a popular song but a metaphor for the history of Customer Relationship Management programs at some firms.  Thousands of companies have consumed billions of dollars of capital and countless hours with little to show for their CRM investments.  Without a new, strategic deployment approach, senior leaders will be much more cautious about prioritizing and deploying new CRM systems. 

CRM is a widely implemented suite of technology and business processes used to manage a company’s sales, marketing and support interactions with its customers and sales prospects. Arriving on the scene about 15 years ago, CRM systems – including demand generation, sales force automation and analytics – promise much to organizations.  A myriad of potential benefits include driving tighter 1:1 customer relationships, more precise targeting of segments with tailored offers, better decision support and increased program efficiencies.  

Unfortunately, the reality did not meet the promise.  According to a MIT Sloan School study, 55% to 75% of firms fail to meet the expected return on their CRM investments.  Furthermore, research from marketing consultancy, CSO Insights, indicated that less than 40% of companies had end-user CRM adoption rates above 90% of full capabilities.  Simply put, CRM has yet to deliver the goods.

Dashed results trace to a number of factors.  For one thing, management exuberance and competitive pressures often lead to business case shortcuts and rash over-spending. Secondly, implementation and integration challenges within complex IT infrastructures can push out ROI and reduce available capabilities.  Thirdly, organizational dynamics – a lack of a clear strategy, poor planning and insufficient training as examples – will minimize internal buy-in and adoption.  Fourthly, CRM often triggers a tsunami of customer data which can easily overload the capabilities and resources of marketing departments.  Finally, CRM will do little for products or a company with a poor value proposition or weak market differentiation.

Despite the challenges, CRM’s potential remains too compelling to ignore.  There is now a wealth of learning from successful companies that can help reduce design, implementation, and integration risk.  With the aid of research published in MIT’s Sloan Management Review, I have put together some best practices to assist gun-shy managers get the most out of their existing and proposed CRM investments:

Align CRM to your Business Strategy

CRM has the ability to positively (and negatively) transform an organization’s relationship with its clients.  As such, firms must take care to ensure that CRM strategies and investments are not inconsistent with their brand positioning, value proposition and business model. In order to minimize customer and cost risk, managers need to undertake a thorough analysis up-front in order to design the optimal strategy and program.

Start small but don’t under-invest

Although CRM is a mature technology, its implementation will still benefit from a measured deployment that can build early momentum & support, garner learnings in flight and measure ROI at key milestones. At the same time, firms must be careful not to be ‘penny wise and pound foolish’ by starving young CRM initiatives of the needed skills & resources, technology spend and internal priority.

Ensure marketing is up to the task

To maximize returns, managers must ensure that marketing and IT has robust capabilities as well as fundamental consumer knowledge before making any investments.   If important analytics, demand generation and marketing communications capabilities are not in place at the outset, CRM will never realize its promise. 

Don’t neglect the human dimension

Maximizing internal alignment and participation is vital to the success of CRM.  Delivering this requires proven change management tools as well as providing adequate training and support resources.  Moreover, companies must safeguard retention and their brand image by making sure their customers will not resent CRM-driven sales & marketing programs aimed at them.

For more information on our services and work, pleas visit the Quanta Consulting Inc. web site

Do genes influence consumer choice?

Perhaps, according to a new study coming out of Stanford’s Graduate School of Business.  The research, the first of its kind, studied the link between genetics and consumer decision making.  Conventional marketing wisdom says that consumer choice is unpredictable and can be influenced through advertising, packaging etc. The new findings suggest that consumer choices are in fact very stable, if not genetically pre-determined. 

The authors, Itamar Simonson and Aner Sela, explored the impact of genetics on consumer decision making by studying the behavior of identical and fraternal twins. Each set of  twins were subjected to a number of questionnaires in order to analyze their choices and opinions on a variety of issues. Where they found a greater similarity in behavior or trait between identical rather than between fraternal twins the authors concluded that the phenomenon or choice in question was likely to be inherited and therefore predictable.

While the researchers found no iPad gene, they did note that people seem to be genetically predisposed to one of two alternatives when making choices.  For example, people either:  make compromises or take more “extreme” options; select sure gains or take gambles; prefer easy but non-rewarding tasks or pursue challenging but more rewarding ones; and chose utilitarian items or hedonistic ones.

Simonson and Sela also found that people’s preferences may be genetically hardwired towards liking specific products such as chocolate, mustard, and hybrid cars. As well, there is a genetic predisposition towards certain musical forms such as opera and jazz, and in the case of films, science fiction movies. Of note, the study was not able to determine genetic influence on a host of other behaviors including the tendency to choose attractive over unattractive items, and the preference for larger rewards later versus smaller rewards sooner.

Simonson himself issues a few cautions about his research. “People are not born with a Prius gene, a compromise gene, or a jazz gene,” he notes. “Instead, these tendencies probably reflect a yet unknown combination of genetics, and gene expression characteristics, which, in turn, are influenced by an interaction between nature (genes) and nurture (environment).”

This research has interesting implications for companies.  For one thing, genetic considerations could in the future inform firms which new products and technologies could have a better chance of being well-received by particular genetic segments. According to Simonson, “genetic research could potentially reveal that a video game that uses a motion-sensitive remote is likely to benefit from certain genetic predispositions, perhaps even suggesting the most promising target consumer segments.”

Although these findings are a good first start, further research is needed to establish a direct link between specific genetic characteristics & clusters and preferences, traits and behaviors.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Yes, you can raise prices in a recession

During recessionary times, most companies focus on maintaining market share and margins by slashing prices and cutting costs to the bone.  However, this is a shortsighted strategy for all but a few firms.  For one thing, only a small number of categories can support more than one low cost “value” brand.  Moreover, it is extremely difficult for any firm – outside of those with the largest scale economies – to achieve and sustain a leadership cost position.   As a result, competing on price turns into a Faustian bargain: battle it out with other price cutters (who usually have the same access to technology and supply chain) to keep market share while watching your profitability erode. 

Harvard Business School researchers Frank Cespedes, Benson P. Shapiro, and Elliot Ross suggest another approach, Performance Pricing, which offers companies a way to increase profits and maintain if not grow share. Traditionally, most managers set prices according to simple but crude cost-plus or average pricing policies or merely follow competitive moves. PP is a different strategy.  It sets price levels based on the functional and intangible value delivered by the products. PP uses premium pricing as a signal to the consumer of superior product performance, image and value. As such, PP seeks to maximize both the customer benefit and the selling company’s profitability. 

According to the researchers, PP seeks to create the largest possible gap between the total basket of benefits provided to customers and the unit cost, as a function of  the product’s  benefits, brand image and ability to exploit favorable pricing situations (e.g., time sensitive delivery).   Larger value gaps allow the firm to raise prices without compromising their value equation based on the premise that consumers will gladly pay higher prices for receiving more relevant and compelling benefits.

Fundamental to the notion of providing differential value is “framing” the price appropriately by customer need, purchase moment and type of buyer.  Specifically, a product can and usually does have different value depending on the context, thereby supporting different prices for specific transactions. In other words, the product is what the product does at the moment the customer purchases it, not what the industry or organizational culture thinks it is.  PP also has important implications for investment spending.  Capital and marketing investments would flow only into product and service initiatives that consumers value highly and that they are willing to pay higher prices for. 

PP makes no assumptions about standard pricing levels or industry returns on capital.  Performance-priced brands can deliver price premiums across the business cycle even in unattractive or declining markets.  A number of industries have benefited from this approach – also called value-based pricing – including logistics (Fed Ex), cement (Cemex) and truck manufacturing (PACCAR)

The following are key success factors in deploying a PP strategy: 

1. Dispense with the notion of “fair” prices or industry-driven pricing.  Companies don’t determine what is fair, customers do and their assessment is based on the total value you bring.
2. PP requires work.  It is not a simple exercise to understand your product’s value or what, how, when and why consumers buy.
3. Firms must relentlessly communicate and monitor their delivered value to justify premium pricing.
4. Don’t ignore costs.  Lower costs enable higher profits and help fund value-building activities.
5. PP is an organization-wide process.  Bring together the “cost counters” like finance and the “value generators” like marketing so they can truly understand both sides of the equation and what the levers are.

 For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Smarter Segmentation

A fundamental task of marketing is to perform segmentation analysis. When properly applied, segmentation guides companies in tailoring their product and service offerings to the groups most likely to purchase them at a price that generates sufficient profits.  Unfortunately, many companies incorrectly segment their markets around factors that are not strongly linked to consumer outcomes, profitability or strategic fit.  As a result, these firms do not maximize share and profitability and are vulnerable to competitive advances.

Most companies segment around a single dimension such as product performance & image, price point, usage or psychographics.  While these are relatively easy to comprehend and measure, they often miss the mark in terms of effectiveness and efficiency.    For example, segmenting by feature or functionality often leads to product improvements that are irrelevant to a consumer’s fundamental need and desired outcome.  This type of segmentation also tends to inflate the cost structure due to wasteful R&D and marketing expenses.  Segmenting by customer type also creates problems of its own.   When marketers design a product to address the needs of a typical customer in a demographically defined segment, they cannot know whether any specific individual will buy the product.  Marketers can only express a likelihood of purchase in probabilistic terms.

Psychographic segmentation is even more nebulous as a tool.  Psychographics may capture some truth about real people’s lifestyles, attitudes, self-image, and aspirations, but it is very weak at predicting what if any of these people is likely to purchase in any given product category.

A better approach to segmentation considers different and multiple factors in aggregating like customers and prospects.  Some of these dimensions include: 

The job to do – Focusing on what outcomes customers actually want will help define what the segment, product and usage boundaries should be.  To quote the famous Harvard Business School Professor, Theodore Levitt, “People don’t want to buy a quarter-inch drill. They want a quarter-inch hole!” Arm and Hammer baking soda is an excellent example of job-focused brand that has been extended much farther than traditional baking soda to new usages and markets (think laundry detergent, toothpaste and deodorant).

Link to corporate strategy – Segmentation decisions must be dynamic, reflecting major new strategic moves instead of focusing only on targeting customers in traditional markets. The segmentation analysis should examine the need/outcome states of adjacent markets as well as under serviced or dissatisfied users in traditional markets.  A good example of successfully linking multiple segments to strategy has been the evolution of Apple from a PC-only business to a wireless and consumer electronics powerhouse.

Adjacent revenue pools – To grow revenues, a company should understand what makes its best customers as profitable as they are and then seek new customer segments who share at least a couple of those characteristics. Many banks such as Wells Fargo and ING do an excellent job of ‘following the money’ into new and lucrative product segments.

Although segmentation can illuminate market potential, it lacks the predictive power of actual purchase behavior including usage, brand switching, and retail-format selection. To uncover this information, researchers can utilize laboratory-like simulations like conjoint analysis to measure how purchase behavior would change when you change product features, pricing or channel options.

To sustain profitable growth, marketers must use smarter segmentation strategies to link their products to how customers actually live their lives and how their company competes today and tomorrow.

For more information on our work and services please visit us at Quanta Consulting Inc.

Why Do New Products Often Miss the Mark?

Thousands of new & improved products are launched into market every year. These initiatives represent billions of dollars in investment, the commitment of millions of work hours and the reputation of thousands of managers.  Given this sizable commitment, are corporations getting a return on this investment or would they be better off spending their time and money on other growth strategies like advertising, price discounts or M&A?

If market share and profitability is your measure, most new product investment can be considered a serious waste of capital and effort. According to Harvard Business School Research and Quanta Consulting experience, no more than 10-20% of all new product innovations deliver positive ROI and target market share 12 months post launch.  For new products that reach this first hurdle, fewer than 50% are flourishing by year 3. 

A number of internal and external factors contribute to this low success rate. For example, companies often deploy significant capital on R&D yet under-invest in sales and marketing, dooming awareness building and consumer trial.  In other cases, firms fail to follow through on a well-planned strategy by executing poorly in the manufacturing, distribution or sales domains.  Finally, bad luck plays an under-appreciated role in scuttling the best laid plans and products. 

Our experience suggests that from a consumer’s (jaded) perspective, the majority of “new and improved” products are neither very new nor significantly better than the alternatives.  Furthermore, given the ‘perform or perish’ model of many retailers, new products are launched in an environment where they either hit quickly home runs or are de-listed, even if sales are generated.

There are many reasons new products fail to meet business and consumer expectations:

1.         Most product categories exhibit significant consumer inertia

• Consumers often underestimate the benefits of the new product; new benefits are not relevant to consumers or; the new benefits are poorly messaged and supported through packaging and advertising.
• Consumers over-value the utility of (and the potential risk of leaving) the incumbent product.
• Despite using the product, many consumers are simply disinterested in the category and will always gravitate to a default behavior and brand (i.e. what mom bought) regardless of inducements or marketing efforts.

2.         Management over-exuberance for the new product

• Managers typically over-estimate the value of the upgrade, often because they are psychologically vested in the new product initiative.
• Most managers are consciously or sub-consciously driven by institutional factors including:  performance measurement systems, departmental influences (e.g. R&D, Sales) and corporate values that reward employees for launching new products even if they are problematic. 
• Many executives willingly follow their peers, historical precedence and industry best practices [sic], which embrace new product development as conventional wisdom.

The potential gap between a consumer’s inertia and a manager’s exuberance could result in a substantial value mismatch between what the buyer wants and what the marketer gives them. This gulf can be so big as to doom any new product launch before it even hits the market and even if it delivers real benefit.  Many marketers do recognize these challenges and typically deploy a variety of carrots and sticks to change purchase behavior and usage. However, even with tantalizing and expensive incentives, many consumers may never switch to the new innovation, unless forced to.   Click on this link for some tips on how to improve the odds of new product success as well more details on our and the HBS research.

For more information on our service or work, please visit http://www.quantaconsulting.com/

Why Should a Customer Buy from You? Improving your Value Proposition

Marketers are increasingly being challenged to differentiate, support and communicate their product or company’s value proposition versus the competition.  This problem is even more acute in industries like health care, commodities and services that do not sell packaged, branded products.  The fact is, most company’s position and promote the same things.  For example, how many times have you heard firms in your industry advertise that they have the best price, performance or service, and yet provide little support to back it up?

Truth be told, firms that can not demonstrate and communicate compelling and relevant differentiation will have an extremely difficult time gaining market share over the long term, without significant price discounting, corporate acquisitions or competitive missteps.  A significant body of research confirms that a lack of differentiation is inevitably linked to lower pricing levels and margins.

How do companies end up misreading and misrepresenting their value proposition?  For one thing, there are significant human and organizational barriers to seeing the problem, including:  executive-inspired groupthink, limited customer contact, and a lack of critical information around product performance, competition etc.  Moreover, questioning the value proposition often becomes a “third rail” issue because it gets to the core of what a company is and what it’s employees do day-to-day. 

For firms to flourish, they need to regularly understand their competitive position.  To do this, they first establish whether there is a problem.  Here is how I help determine that:

I often play a little trick on the senior leadership team, including the CEO and marketing head.    Before meeting, I briefly scan what key competitors are doing and saying.  Then, I quickly review what the client’s value proposition is and how it is being communicated.  Then, I gather together senior executives from across the organization and ask them to privately write down the 3 reasons why customers should do business with them, as compared to key competitors.  For the last step, I share the answers with the group.  To their surprise (but not mine), the responses usually encapsulate different clichés like service, responsiveness or performance – similar to what is being said by competitors.  The point is simple:  if companies don’t understand if and why their value proposition resonate, neither will customers or channel partners.

Much of the problem lies in the haphazard way marketers develop and message their value propositions.   One “best in class” approach is to conduct a yearly and systematic review of your competitive position by category, including: 

1. Understanding the customer’s key functional and emotional needs;
2. Analyzing the true advantage or benefit that your product delivers;
3. Confirming the “reason why” or proof for this benefit;
4. Identifying whether you consistently deliver on your value proposition;
5. Reviewing whether your value proposition is communicated in a meaningful fashion. 

Most firms have value propositions.  The very successful ones make them relevant, credible and different.

For more information on our service or work, please visit www.quantaconsulting.com

Tide Basic’s In, Brand Value is Out?

I share at least one thing with P&G’s Robert McDonald (CEO) and A.G. Lafley (Chairman):  We all worked on P&G’s flagship brand, Tide.  I’m sure they agonized over a decision, I never believed was possible.   This year, P&G launched into a US test market a lower cost/lower performing version of its #1 selling brand, Tide.  The new product has been (strangely) named Tide Basic.   

Like many other consumer packaged goods (CPG) companies, P&G fortunes have hit the skids due to the poor economy and the growing success of private label products in key retailers like Wal Mart, Kroger and Target.  These products deliver solid (or good enough) performance with pricing that is typically 20-25% lower than the leading brand.  The results have been sobering. P&G’s Q4 profit was down $2.5B (-18%) versus same quarter a year ago while revenues dropped -11%. For perspective, the $3B Tide business has lost approximately 10% of its market share since 2007, despite a flurry of product enhancements.    

P&G launched Tide Basic to attract consumers who would otherwise buy cheaper private label products or who were penny pinching Tide loyalists who would momentarily trade down within the Tide franchise.  Historically, P&G has been successful with a trade down strategy with brands like Pampers and Crest.  However, many financial analysts and marketers, myself included, have serious doubts about whether this move makes sense for Tide.  Here’s why:

Trades Down Revenue

Tide Basic may cannibalize more premium Tide consumers than attract new users from other brands.  Furthermore, there is a risk that when the economy improves Tide Basic consumers will never return to its premium and more costly cousin when they realize they could get a similar brand at a 20% discount.

Hurts Tide’s Brand Image

If line extensions and flankers often degrade the image and growth of premium brands, I can’t see how a lower performing line extension will help one of the World’s strongest brands.  P&G may have been better off using Cheer (the value brand in my day) or launching a new, value-focused brand.

Ignores Roots of the Problem

Launching Tide Basic may not address two of the fundamental issues.  Firstly, how do you counteract the ability of retailers to control the shelf and develop their own premium private label brands?  One way is to secure direct access to the consumer.  Some game-changing strategies could include direct selling via the Internet or through buying small equity stakes in key retailers. 

Secondly, how can P&G use advertising and product innovation to reignite consumer “pull,” forcing retailers to either exit this category or level the playing field?  Tide could take a page from P&G competitor Reckitt Benckiser and refocus their efforts on better delivering on new consumer needs and ratcheting up marketing investment. Reckitt Benckiser has successfully (sales +8%, profits +14% in Q2 versus year ago) addressed market challenges by moving up-market with improved products and a +25% increase in marketing spend.  

Overlooks Changing Consumer Perceptions

The worst recession since 1929 may have changed consumer perceptions of value and importance of the category, at least in the short term.   Consumers may be shunning premium brands because the alternatives are good enough or because they want to devote less (scarce) disposable income to premium brands, especially in non-sexy categories like detergents.  To address this, P&G may need to recast the value proposition of Tide. They could either: 1) enhance Tide’s performance and value through innovation to better justify the brand price premium (very difficult to accomplish) or;   2) reduce the shelf price to better bring the price-value equation in line with private label brands (very expensive to sustain).  This stategy has been followed in other categories by other CPG companies including Unilever.

Whatever path P&G takes, its shareholders, competitors and retailers will be paying close attention.

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