Leading Your Business Beyond the Core

Chris Zook in his books Profit from the Core, Beyond the Core and Unstoppable describes three phases a business progresses through in order to grow and thrive. Marketers are well places to lead their businesses through these developmental phases.

1. Focus on the Core

In the first phase a company focuses on its core business in defining and maximising the return from its primary strengths. Questions to ask in this phase include:

• What do we sell?
• Who is the core customer for what we sell?
• How can we develop the product to better meet the customer opportunity?
• How can we do what we do better?
• How can we do it more cost efficiently?
  

2. Expand the Core

In this phase a business begins to leverage its core competencies to grow beyond its core. This is the phase of line extensions, new geographic markets and new channels to market. The progression is evolutionary, not revolutionary moving a business into new but “neighbouring” opportunities for growth. Questions in this phase include:

• Where can we “stretch” the brand? EG Can our juice bar product be pre-packaged?
• How would this work overseas / interstate? (and where?).
• What distribution channels are we not leveraging? EG Can our juice bar juice be distributed in supermarkets?
  

3. Beyond the Core

Sooner or later the core cannot be stretched further, in fact, it may well be shrinking. This could be for a host of reasons – the market is close to saturation (mobile phones), a competitor with a better cost structure or new innovation has entered the market (air travel significantly disrupted the railway market in the US) or maybe a fundamental shift in the market environment has changed the very basis of your business (I suspect many Hedge Fund managers are asking themselves this question today).

It is in this phase that business must reinvent themselves or die. Questions to ask in this phase include:

• What business are we really competing in? EG Railroads or Transport?
• What are our hidden assets? EG Marvel Entertainment have identified their characters (rather than their illustrations) as their true assets and have introduced these to a new generation via film and merchandise licenses.
• What are the related opportunities that we should focus on? eg Apple’s decision to focus on digital music via the emerging MP3 market saved the company.
• What competitors could threaten our core? How do we defend?
  
  

Source: Unstoppable, Chris Zook. Harvard Business School Press, 2007.

The world is moving quickly and is so interconnected that change is happening at an exponential rate. The average lifespan of a company is 10 years - in the 1980s it was 14 years. Back then the average tenure of a CEO was around 8 years today it is less than 5.

Marketers are ideally placed to lead their companies through these changes. We know (or should know) about our customers needs, we are constantly on the look out for opportunities and threats in the market and we are generally adept at moving quickly to exploit them.

Marketers, rise up beyond your current campaigns and move beyond the core!

Segmentation

Below is an edited transcript of an interview that I did with Douglas Nichol of Mongrel Marketing. To listen to the interview please visit www.mongrelmarketing.com.au/podcasts.asp


Q: How have you used customer/prospect segmentation in your marketing programs in the past? Have they worked well?

Many marketers tend to think of segmentation as a tool to assist in more targeted communications but this is just scratching the surface.

The most far reaching segmentation project that I undertook was whilst working with Telstra BigPond.

In the years since it had launched, the number of BigPond packages had slowly increased to meet various market needs and opportunities ultimately growing to an unwieldy and confusing 13 plans. This resulted in significant customer frustration and confusion as they tried to determine which plan was right for them.

By segmenting the market based on both volume and sophistication of usage and profiling our existing base we were able to identify distinct clusters.
This, in turn, facilitated the simplification of the offering to just 4 plans.
Each plan was associated with a simple customer statement to assist prospective customers in identifying the plan that best met their needs (eg “I don’t know how much the family use, I just want a plan that gives me a flat price and the family what they need”).

By tailoring the offering to better meet the needs of consumers we were able to achieve three things:
- Increase yield
- Improved acquisition and
- Retention maintenance.

More than simply targeting consumers better, segmentation became a tool for driving business planning and pricing.

Moreover, a subsequent global benchmark survey found 89% of prospective customers were able to easily identify the appropriate plan, understand pricing and sign-up online. This highest score of any ISP worldwide.


Q: What bits of advice can you give our listeners on how to get it right?

I don’t believe that there is one right way to segment your audience. I have found, however, three key considerations when commencing a segmentation project to ensure that the outcome is useful.

Firstly, be conscious of why you are segmenting. It sounds obvious but a useful outcome will look different based on your purpose. For example, are you looking for a deeper understanding of your audience (ie a true customer segmentation) or simply a method for grouping customers for internal purposes (ie product groups or value groupings).

Will you use your segmentation to target communications channels (in which case demographics will be important) or to look for business opportunities though a deeper understanding of consumer mindsets and behaviours (in which case your focus will be more on psychographics).
None of these are right or wrong – it’s horses for courses.

Secondly, consider your product category. Is it high involvement or low involvement? Do customers transact regularly or infrequently? Are transactions high or low value?
Simple transactional data such as this can be useful in understanding customer behaviour and assist in your segmentation.

Just be sure that the data that you are basing this on provides a complete picture of the customer behaviour and not just their interactions with your company.

Finally, and most importantly, consider how your target audience view themselves. Put them in a box that they resist you may find that segmentation actually hinders your customer interactions.
A classic example of this is Marketers targeting the so-called “Small and Medium Enterprise” or SME segment.

SME is a convenient grouping for large business to describe small and medium businesses and can be relevant internally, however, the target audience do not think of themselves in this way and often view the terms “SME” and “Small Business” as descriptors used by large businesses that don’t understand them.

This audience tends to view themselves as “IN Business” rather than “small business” and group themselves by industry rather than number of employees, phone lines, newspaper subscriptions or computer screens.

For this audience in particular, I have found that targeting by industry is most effective, however, this requires very specific groupings. A broad industry grouping such as “Property and Business Services” may include anyone from Real Estate Agents to Consultants to Janitorial Staff.

I may sound like a Marketing heretic but sometimes it may also be appropriate to choose not to segment at all. For example, in the case of SMEs, if you are not able to effectively target by industry, you may find that simply proposing business solutions that your products and services can deliver and allowing the audience to self select and effectively self segment can be an effective approach.

Q: Where do people get it wrong?

There are probably a million ways to get it wrong, though equally a million ways to get it right! There are some common pitfalls, however.

1. Segmenting based on your current customer value without taking into consideration potential value.
For example, consider a Telco that segments based on number of phone lines. They may believe that a particular company has 5 phone lines and is a small business. What they may not know is that this company has another 200 lines with one of their competitors.

2. Over complicating segments – you should only have as many segments as you can actively manage from a customer communications and service perspective,

3. Not integrating customer segments into every aspect of the business. All too often segmentation is purely used by marketers when- in reality - their true value lies in helping front line staff engage with customers in a more meaningful and relevant way.

Finally, never lose sight of the fact that segments are not homogeneous but simply approximate groupings.

At the end of the day you are interacting with individuals each with their own experiences, needs and wants. By all means present what you believe will meet their needs but don’t tell them – allow them to decide.

The Other P

In Marketing 101 we are taught about the 4 P’s – Price, Product Place (Distribution) and Promotion. In more advanced courses we are taught of the additional P’s that apply to Services Marketing, namely – People, Process and Physical Evidence (of the service delivery).

In my experience there is another “P” that can be applied to assist in achieving marketing objectives – Partnerships. Creating and leveraging relationships with other organisations can provide a myriad of opportunities for driving your business.

Suitable Partners

There is no point partnering with a company whose customers are completely different to yours – even if you are mates with the Marketing Director. Think about companies that your customers do business with and there is a fair chance that they will have other customers who are not currently buying from you.

It sounds obvious but make sure that companies you plan to partner with do not compete with you. Even if you are not in the same line of business, are they competing for the same consumer dollar or do they appear to have aspirations to get into you market?

Finally, make sure there is a relevant brand fit. If you are a premium brand like Cunard, a challenger brand like Jetstar may not be the ideal partner.


Leveraging Partnerships

So now that you have identified suitable partners and assuming they want to work with you, how do you leverage your new relationship? The possibilities are endless and often as you start to work with a partner and learn more about their business you will both discover new and different ways to build on the initial relationship.

Some thought starters are below:

Special offers to each others base. This is the simplest form of partnership and may consist of a flyer or coupon in each others regular mailers (see my blog on Leveraging Every Touch Point) or shopping bags. Be careful to avoid third line forcing (see below) and don’t simply exchange contact details of your customers or your risk contravening the Privacy Act.

Shared links. Recommend each other on your respective websites.

Bundled offers. Think mobile phone handsets bundled with phone plans. This can be quite effective if your products are complimentary but again, be aware of third line forcing.

Channel Support. Are your trucks delivering to the same areas as your partner? Can you co-ordinate complementary territories?


Legal Traps

Privacy: For an overview of Federal Privacy Law I refer you to the Office of the Privacy Commissioner. See http://www.privacy.gov.au/act/

Third line forcing: The Australian Competition and Consumer Commission (ACCC) explains third line forcing as follows – “Third line forcing is a specific form of exclusive dealing prohibited outright by the Trade Practices Act. It involves the supply of goods or services on condition that the purchaser buys goods or services from a particular third party, or a refusal to supply because the purchaser will not agree to that condition. (See http://www.accc.gov.au/content/index.phtml/itemId/816377 ). This prevents a company from only offering a product or service if the customer does business with a third party.

Speaking Your Customers Language

According to recent figures released by the Australian Bureau of Statistics almost 1 in 4 (24%) Australians were born overseas and of those born in Australia some 26% had at least one parent born overseas. Are you passing up the opportunity to market to this large section of the population?

There is little doubt that you will pick up many of these potential customers in your mainstream communications but Reach and Frequency aside, are you speaking to them with a cultural relevance that gets you noticed?

Products and People

Before you even consider promoting to this audience, make sure that your products are suited to them. I know of a Telecommunications carrier that heavily promoted its voicemail service to the Chinese community without first considering that the voice prompts for this service were in English only. Needless to say, take up wasn’t great

Likewise, is your company set up to provide customer service for non-English speakers? A bilingual customer service representative in your call centre is necessary if you are to have a telephone call to action on your ad, for example.

Lost In Translation

Like any segment, you need to understand the audience before you market to them. Simply translating your mainstream ads at best, may not get your message across and at worst, may not tell your customers what you really intended.

Some classic examples of this include Coca-Cola’s attempt to translate their then tagline “Coke adds life” for the Chinese market. The result “Coke will bring your ancestors back from the dead” proved something of an over promise.

Similarly, General Motors ran into problems launching their GM Nova into South America suggesting to the Spanish speaking audience that this was a car that won’t go (“no va” – literally in Spanish means “will not”).

Whilst not perfect, the best way to ensure that you are getting your message across is to have a different translator “back translate” your text into English. The wording is unlikely to exactly match the original English text but should give you a fair indication if your message is getting across.

Try to avoid puns or clever word-plays. They rarely translate so the joke is inevitably lost.

More than words

To effectively target a Non-English Speaking Background (NESB) audience, it is best to understand as much about this community, their experiences and background as you can.

Are there any specific demographic features that are relevant? For example Greek and Italian immigration to Australia was largely post Second World War so native speakers are likely to be elderly.

Are there any relevant cultural or religious events? Chinese New Year is a time of gifting sweets. Diwali may be an opportunity to sell candles to the Indian community. Festivals may also provide an opportune season for promoting long distance calling or phone cards.

Are there any superstitions to avoid? To the Japanese chopsticks pointing upright in a bowl of rice is symbolic of death (it is part of the funeral ritual) – images such as this should be avoided.

The Media Is The Message – Except When It’s Not

There are around a dozen Arabic language newspapers in Australia but don’t assume that they are all speaking to the same audience. A culturally relevant ad related to the Islamic festival Eid al-Fitr (the end of the month of Ramadan) whilst relevant to Gulf state Arabs, would not talk appropriately to Lebanese Christians.

Traditional language media (generally press and radio) are not the only ways to target these communities. Be creative – why not in language outdoor in areas with large NESB communities? Direct marketing? Sponsorship of community events?

Australia is a multi-cultural country and for many companies this may provide great opportunities to find relevant new markets. It takes a little extra effort but good Marketing doesn’t?

Leverage Every Touch Point

When business conditions become harder, Marketing budgets are often one of the first operating expense line items to feel the discomfort of the Finance department’s knife. Suddenly we are required to achieve more with less resulting in much wringing of hands and gnashing of teeth.

Why is it that so many Marketers wait until this pressure is applied before trying to identify opportunities that were sitting right in front of them?


Where to Start?

Whilst the idea of an audit may send shivers down the spine of your colleagues in Finance, a simple audit identifying every touch point that your organisation has with its customers can provide a treasure trove of inexpensive and even no-cost marketing opportunities.

Every contact with a customer (trade or end consumer) is a brand experience at the very least and often provides an opportunity to cross-sell or up-sell. Even a customer complaint, handled in the right way, can create an advocate for your brand.

Below are just a few typical customer touch points and some thought starters on how you can leverage them. This list is by no means exhaustive and not all will apply to every type of organisation but hopefully you’ll find one or two gems here that will help you meet both KPI and CFO objectives.

Invoices, Statements, Order Confirmations, etc

How many non-marketing mail pieces does your organisation send each month? Postage isn’t likely increase with the inclusion of a small piece of marketing material so why not include a flyer promoting your other products or services?

The people that you are sending these communications to are your customers so you probably have enough information to be able to segment these mailing to tailor your message to maximise returns. Do it right and you may be surprised how often customers thank you for bringing this useful information to their attention.

What works best – a flyer, a letter, a post-it note, a catalogue? Experiment as you would with any other DM.


Emails

How many emails does your company send every day? Why not introduce a standard auto-signature inviting the recipient to trial a new product, experience a new part of your website, take advantage of a seasonal sale, etc?

Again, test different messages and presentation of these messages to see what is most effective and make sure to refresh the message regularly so they don’t become “visually stale” and invisible.

Customer Service / Retail Assistants

How many times have you heard the words “Would you like fries with that?”? How often did you respond in the affirmative? How many incremental sales have McDonalds made simply for training their staff to ask this question?

What are the complementary products in your organisation? Are your sales / customer service teams trained to identify cross-sell and up-sell opportunities? How often do they ask this sort of question and are they given any incentive to do so? (A couple of movie tickets or the like can often go a long way and never underestimate the power of a “Certificate of Appreciation”).

Whilst on the subject of customer facing staff, how empowered are your staff to resolve customer issues and complaints? When they escalate a query, how quickly do they get a response (if at all)? In any commercial organisation, it is not the boss that pays the wages, it is the customer and they should be treated as such. Even if you can’t give the answer that they want, just the fact that a real person gives them an answer can often be the difference between keeping and losing a customer (not to mention the flow on Word of Mouth effect).


Your Customers

When was the last time that you asked a customer to recommend your products? We all tend to know people with similar needs and interests as ourselves and if your customers are happy with what you provide for them, it stands to reason that their friends might be too.

My mortgage broker periodically asks me if I know anyone who is looking to refinance and, as he has always looked after me, I’m more than happy to. Moreover, on each occasion he has sent me a small gift to thank me for the referral. It is quite unexpected and quite unnecessary; however, we all like to be appreciated so it certainly has the effect of making me feel more positive about his brand. . . and perhaps even more inclined to recommend him again.


In summary, every interaction that your company has with its customers is an opportunity to improve your brand relationship and potentially up-sell or cross-sell you products or services. Identifying these “channels” and then experimenting with different ways of leveraging them can provide very cost effective ways to drive your business . . . and keep your CFO happy!

1. Marshall McLuhan Was Right – Leverage The Medium

In the 1960’s Marshall McLuhan coined the phrase - “The medium is the message” suggesting that the form of the media itself can influence the meaning of the content carried by it. When marketers consciously leverage this they can create powerful communications that cut through the clutter.

And clutter there is with consumers exposed to thousands of marketing messages each day they have become very adept and filtering them out. Even before the remote control enabled us to mute ads or flick channels with ease, television ad breaks provided a convenient time to go to the bathroom or grab a cuppa. The introduction of technologies such as TiVo will make ads even easier to avoid.

Of course, it its not just TV ads that are being screened and consumers have become so immune to marketing communications that they can filter out “irrelevant” messages without the support of technology.

Product Placement

In recent years there has been much growth in (and discussion of) the concept of “product placement” whereby a company pays to have its product appear “naturally” as part of a film, television show and the like. Whilst this isn’t a new concept – early radio shows were called “Soap Operas” as they were indeed underwritten by manufacturers of soap – these days it seems that there is hardly a major blockbuster film that doesn’t have at least one such deal associated.

Putting aside the ethical issues of blurring advertising with content (is it deceitful or reasonably expected by consumers?) this kind of promotion can suffer from either being too blatant – and therefore unbelievable – or so subtle that the consumer doesn’t get the message. Did you notice all the Sony products in the 2006 remake of Casino Royale? If you did, does the fact that a fictional character uses Sony make you more inclined to buy their products?

The other major issue with product placement is that it has limited application for brands that are not global or with mass appeal.

Topical Cut-Through

By extending the definition of “medium” to include context, savvy marketers are able to leverage a short term event, feeling or mood prevalent in a particular community to achieve topical cut through.

The most obvious and simple examples of this are the retailer who places a sign promoting “Cold Drinks” on a sweltering hot day or the umbrella vendors that appear on the pavements of many large cities at the first sign of rain. A hot thirsty consumer or harried office worker who didn’t see the weather forecast will see (and likely respond) to these promotions as they are immediately relevant to their current context.

Quick thinking in response to a news item or event that resonates with your audience can provide great tactical opportunities.

I recall an ad for a travel company that specialised in tours to Australia that appeared in UK newspapers the day after it was announced that Sydney had won the bid for the 2000 Olympics. It showed a line drawing of an Olympic cauldron (that was shaped a little like a Weber Bar-B-Q) with the line “Come on over, we’re having a Barbie”).

Another example was an ad for a boutique beer called Redback that ran just after the coup that attempted to overthrow then leader of the Soviet Union, Mikhail Gorbachev. The ads showed an image of Gorbachev (with his prominent birthmark replaced by the beer company’s trademark splash of red paint logo) and the line “It’s good to have a Red back”.
Whilst the longevity of such tactical ads is, by their very nature, short. If they can create a resonance with the audience they will be talked about creating a larger reach than the media that carries them.

Right Time, Right Place

Waiting for the right weather condition or a suitable world event, whilst potentially tactically effective, clearly cannot form the basis of a sustained communications strategy. Nevertheless, by thinking about where and when a consumer will receive your message, smart marketers can avoid the consumers’ filters.

Ironically, this is achieved by taking a contrarian view to the traditional advertising model. That is, don’t disrupt the consumer but rather, integrate your message to the context in which they are receiving it. Unlike product placement, this approach is transparent as to the fact that you are delivering a marketing message (so shouldn’t be too subtle) and enables you to deliver a specific on strategy message. Execute it well and in an entertaining fashion and the audience will not only choose not to filter your message, they may well acknowledge the cleverness and – in the case of really clever campaigns – actually actively seek out other executions.

A good example of this was a Foxtel campaign not long after pay-TV launched in Australia. The proposition was “more choice”. Foxtel placed billboards at suburban train stations within a certain radius of the city (eg Turramurra) with the headline “More stations than from Turramurra to Central”. The concept only worked because of the location of the media and the local reference made it contextually relevant to railway commuters from Turramurra.

Another more recent and sustained campaign that does this well is the brand campaign for The Australian Financial Review. [Author’s declaration: I have been directly involved in the development and evolution of this campaign for some years].

This long running campaign is focussed around the brand essence of “Success”. The Financial Review headlines have included “Business Upgrade” and “Arrive Ahead of Schedule” in airport concourses; “Going Up?” and “Make Sure The Doors Open For You” in elevators; “Stimulate Your Career” and “Morning Wake Up Call” on coffee cups to name a few. In each case the ad does not clash with but rather complements the environment providing an little bit of entertainment in a relevant context and in so doing reinforces the consistent brand message.

In summary, if marketers treat the media that they use as more than simply a vehicle for message delivery but as an integral part of the message the potential for cut through and relevance is increased. Consider other environmental factors and you may discover even more opportunities for meaningful engagement.

Just make sure that the “clever” use of context enhances rather than detracts from your core message. There’s no point getting cut-through of a message that isn’t on strategy and isn’t immediately associated with your brand.

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