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Beat the Competition in 2018 (Higher growth, profitability, innovation)

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After the mid-year break, most organisations get into their planning phase for the coming year in earnest. Do you know how you’re going to beat the competition in 2018? If not then this article will set out some clear priorities.

Although business plans are usually developed and approved in the middle of the year before the vacation period starts, it is only afterwards that the real work begins. So what have you promised your top management? Faster growth, increased profitability, or more successful innovations?

Whatever is in your plans, now is the time to review them and decide the very best strategies and tactics for meeting them. Let’s take a look at each of these objectives and see how best to meet them.

 

Higher Growth

As you know, there are basically only three ways to grow your sales:

  1. Get more people to buy
  2. Get people to buy more
  3. Get people to buy more frequently

What you may never have noticed before when reviewing these options, is that all three approaches include the word “people.” And it is only by understanding them better than you do today, that you will be able to grow your business tomorrow.

So, how well do you know your current and potential customers? Do you know what they think about your current offer? Do you understand their needs, desires and dreams? Do you recognise what they really want but can’t even themselves articulate? Uncovering these are what will give you a clear competitive advantage.

Of the three strategies, the first seems to be the one that most organisations immediately think about when looking to grow their business. They go out looking for new customers by increasing their distribution channels in the hope of getting more people to buy. But that costs a lot of money, doesn’t it?

Most organisations try to get more purchasers to grow their #business. Be different! #sales Click To Tweet

CPG (consumer packaged goods) companies on the other hand, frequently encourage their customers to buy more through promotions and discounts. This too takes a large portion of their budget.

However, it is now well documented that it is easier to increase sales amongst your current customers than it is to go out and attract news customers to buy.

A 2015 study by  Price Intelligently showed that a 1% increase in customer acquisition impacts your bottom line by around 3.3%. But improving your retention rate by 1% affects your bottom line by around 7%. In other words, it is twice as profitable to retain a customer than to acquire a new one.

“It is twice as profitable to retain a customer than to acquire a new one.”

Even if you replace every customer who leaves by a new customer who buys, you end up with the same number of customers—but lower margins–because it costs far more to gain a new customer than to keep the one you already have.

According to ThinkJarCollective, it is six to seven times more expensive to attract a new customer than it is to retain an existing one.

“It is six to seven times more expensive to attract a new customer than it is to retain an existing one.”

Marketing Metrics helps you beat the competition

To quote a comment in the excellent book Marketing Metrics, from the Wharton School Collection, by Paul W. Farris, Neil Bendle, Phillip Pfeifer, and David Reibstein, the probability of selling to an existing customer is up to 14 times higher than the probability of selling to a new customer.

Therefore it’s clear that your current customers are worth far more to you than any new potential customers are today.

Whichever strategy you use to grow your business, it involves knowing your customers deeply. Therefore that is what you need to work on first.

To do this, start by collecting everything you know about them and then store all this knowledge and information as a descriptive and visual persona. (You are welcome to download our 4W™ Template if you don’t already have one)

Then get out and meet as many of your customers as possible in person.

Meet your customers to beat the competition

This could be by serving behind the counter if you have a retail outlet. Or attending market research interviews, focus group discussions, or by getting to know your customers by meeting them in their house or going shopping with them.

All of these are great ways to see the reality behind the numbers and truly brings your data to life. And the more you meet and understand your customers, the more likely you are to beat the competition – as long as you put your learnings into action of course!

Increased Profitability

Profit comes from selling your product or service at a higher price than it costs you to make. However that doesn’t mean selling it for a price that is just a percentage increase on your costs.

There are two important things to consider in addition to the category pricing range:

  1. What value do your customers place on your offer?
  2. What is your customer’s lifetime value?

To answer both these questions you need information.

Value-based pricing requires an understanding of what your customers value. With many product categories becoming ever more commoditised, price has unfortunately become almost the only the differentiator. This is a dangerous strategy, as I explain in “Are you on the way to brand heaven or hell?”

A better way to compete is to identify not only the basic requirements customers are looking for in a category, but the small things they value in addition. These include:

  • Sensorial elements such as a better perfume, a more appealing colour, a more elegant packaging
  • Rational advantages such as an easy-carry handle, resealable pack, reusable container
  • Emotional advantages such as club membership, preferential treatment, express service

In so many categories today, the leading brands are nor performing any better than their competitors, they just have a small edge in one or more areas that their customers value.

Does your product or service offer a competitive advantage beyond price? If not read “How do people recognise brands?” for inspiration.

The second area of pricing to review is your customers’ lifetime value.

Sometimes a product can be sold at a price that is not at all or only slightly profitable. This is done because the company makes money from the customers continued loyalty.

Think coffee capsules, razor blades, printer cartridges and game stations. In most of these cases once you have bought the item, you can only continue to use it by buying the same branded elements, usually at highly exaggerated prices.

This business model is called two-part pricing. The first item is sold cheaply and the second, disposable item at a (huge) profit. Customers can’t use the first without the second. Their only alternative is to buy a new product from a competitor. As long as that is more expensive than the replacement item for your current product, you will reluctantly pay up.

A further cost associated with this model that customers must consider, is the cost of switching.

Here the cost is not so much monetary, as time and energy to make the change. That’s why so many software platforms are offered for free trial. They count on familiarity breeding contempt for the competitors offer after the trial. For many, the hassle is just not worth the energy to learn a new system and you pay up.

The final cost for customers in switching in the psychological cost of doing so.

After a certain time, customers are invested in their choice and switching becomes harder to justify. They don’t want to admit – even to themselves – that they made a poor choice.

So you see, pricing isn’t just about cost for the manufacturer, it’s also about the cost and value to the customer that really matters.

Pricing isn't just about cost for the manufacturer, it's also the cost & value to the customer. Click To Tweet

 

More Successful Innovation

There are many articles here on innovation, such as “A Customer-First Approach to Successful Innovation” and “Improving Ideation, Insight & Innovation: How to Prevent Further Costly Failures.”

Both of these posts emphasise the importance of customer understanding and starting your innovation process with the customer.

What does your innovation process look like? Is it a funnel or a virtuous circle that starts and ends with customer understanding. Unless you have moved to the latter, your innovations are almost certainly not as successful as they could be.

The two above posts clearly lay out how you can move from a linear to a circular approach and then how to integrate the customers into your innovation process. That is why I’m not going to go into more detail on how to do this here. Read the above mentioned posts for an in-depth roadmap to more successful innovations.

 

At the end of the day, growing your business more profitably and beating the competition, is simply about knowing your customers deeply, often times better they even know themselves!

Do you know which area offers you the biggest chance of beating the competition in 2018? If not, then why not answer our short quiz. The C3C Evaluator™ Tool will give you a clear indication of which of the four areas of adopting a customer-first strategy you should prioritise. And the summary report will give you exactly what you need to change.

Link to the Mini C3C Evaluator Tool

 

Click on the image opposite to complete the evaluation yourself.

 

 

Hopefully this article has helped you prioritise your strategies and tactics for meeting your business plans and to beat the competition in 2018. If you have another challenge which I haven’t mentioned, then let me know. I will answer all your questions personally either in the comments below or by email, by contacting me HERE

In September I am offering a 20% discount on any 1-Day Catalyst Training Session. I thought that this would help you to meet your objectives next year in a more serene and comfortable position. Again you can book online HERE

A Customer-First Approach to Successful Innovation (and 3 Secrets Shared)

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Whether you believe that 60% of new product launches fail, or the number is 80% or 95%+, the truth is that successful innovation is rare. Why is this? Read on for my own ideas of the reasons and propositions for some simple solutions.

Last year I wrote a highly popular post on “Improving Ideation, Insight & Innovation: How to Prevent Further Costly Failures.” In it, I spoke about the importance of starting the innovation process with customers. I also mentioned that it should be a virtuous circle rather than the funnel that most organisations still use today. 

This time, I want to examine the role of the customer in successful innovation. And why they should actually have a prominent position throughout the process.

 

Start with the Category rather than (just) the Customer

Every customer-centric organisation should start their processes with a review of the customers they are looking to please. But to do this, the first step to both insight development and successful innovation is to identify the category in which you are, or want to compete. Especially when looking to innovate, it is vital to identify what business you are in.

Now you probably can immediately answer that question but would you be right?

A recent client of mine was looking to launch a juice flavoured soft drink. They naturally (?) thought they would be in competition to juices. When we dug deeper, using our “Home or Away™” decision tool, we found they were actually competing with energy drinks for athletes!

Another practice I use is to zoom in or out when looking at a category, in order to identify new opportunities. Today’s technological world is forcing many organisations to take another look at their complete business models – whether they like it or not!

  • Telecoms have become geolocalization data providers to other industries.
  • Pharmaceuticals are being forced (?) to move from treating illness to maintaining wellness.
  • Food companies are moving into nutraceuticals, concentrating the health benefits of certain foods. (have they really only recently understood that our health comes primarily from the food we eat?!)
  • Tobacco companies are reinventing personal pleasure systems with e-cigarettes and other tobacco replacement products. In fact, André Calantzopoulos, Philip Morris International’s CEO recently predicted a “phase-out period” for cigarettes.
  • Alcohol providers are turning more and more to lower and non-alcoholic drinks trying to keep up with the interest in wellness. They have understood that whereas drinking is a social behaviour, most people no longer include getting drunk with that sociability.

From these examples, it is clear that most companies could benefit from a re-evaluation of their assumed category, to see whether it has or will change in the near or longer-term future.

Once the category is defined, it becomes much easier to identify the correct customer segment to target. Of course, you still need to get to know them through customer connection sessions. And then complete both a customer persona and journey map for them. (You do have these don’t you?)

 

Your business is or will change - fast - so don't depend on your skills alone

One of the problems I see when I first start working with a new client is that they start their innovation process from their strengths, their technical and product skills. While this may deliver quicker introductions, it is more likely to produce renovations and certainly not ground-breaking innovations.

This is such a standard "no-brainer" way of innovating that many companies find themselves out of business as a result.

  • Kodak thought it was in the photo business and not in the memory and souvenir business. They consequently lost out to digital, despite having the technology
  • Borders thought they were in the print book business rather than the storytelling business. As a result, they lost out to Kindle, despite a late reaction with the launch of Kobo. For now, Barnes & Nobles have managed to join the race with their Nook, but for how long? It will be interesting to see whether Amazon's quiet expansion of its physical bookstores will support or sound the death knell for other outlets.
  • Blockbuster video rental lost their dominance of the home entertainment industry to streaming options like RedBox and Netflix.

These are a few examples of businesses that have changed, leaving the category leaders high and dry with no-one to blame but themselves for their lack of scenario planning. (This won't happen to you, will it?)

Music trends on and offlineAnd what about AI and VR and their impact on TV,  gaming, music today?

Speaking of which, look at the graph on the right which shows the incredibly fast change from offline to online music. In less than ten years online passed offline and all but annihilated it!

This is how fast and well prepared all businesses need to be today.

Many industries have been cloned into totally new businesses as a result of technology and new customer priorities.

As already mentioned, Telecom companies now make more money selling geolocalization data than they do selling phones and lines.

So what about some other industries that are being impacted by changes in customer behaviour and preferences?

As just one example of this, Food companies must now adapt to delivering family time, not just ready-made meals. There has therefore been an explosion in meal kits because families want to eat better and even prepare together.

 

The future of the future

But enough about the past and present, how can you prepare for the future and have successful innovations? What new areas are some of the larger online companies buying into today and why?

Google has gone from Internet-related products and services to hardware such as Pixel smartphones and Google Home, an Amazon Echo-like device. It has also expanded into a multitude of other industries, through partnerships and investments. These include energy, AR (augmented reality), VR (virtual reality) and eye-tracking. It's clear that they intend to stay up-to-date if not ahead of fast-moving trends and be ready to take advantage of them. Read more on Wikipedia.

Perhaps in preparation, in the last year or so Google has reorganised its various interests into a conglomerate called Alphabet. Google remains the umbrella company for Alphabet's Internet interests, but this restructuring no doubt announces more to come.

Virgin has gone from airlines, media and entertainment, to travel, health and aerospace. You can read about all their industries and investments on Wikipedia.

Amazon has gone from an online bookstore to the general retail of a vast selection of products. Today it is testing bricks and mortar stores for both books and general groceries. You can again read more about this on Wikipedia.

Facebook started as a social media and networking service. One year ago, its CEO Mark Zuckerberg revealed his ten-year vision, centred around artificial intelligence, global connectivity, VR and AR. Read more on Wikipedia.

Tesla started in the automotive industry but has since moved into energy storage and residential solar panels. Today it is advancing into underground high-speed transport and space travel.

All these examples show the importance of being ready to adapt to fast changes impacting many industries at lightning speed. We no longer have the luxury of time to wait, watch and learn as we once did. Future scenario planning is the only way to be ready for all eventualities and to be able to quickly jump into any new opportunities before our competitors do.

 

Your next steps to future-proofing your innovation

Some of my clients understand that they are not as well-prepared as they need to be for successful innovation. In my training course I propose many different ideas; here are just a few of them:

#1. Working with new innovation levers

As already mentioned, most organisations start innovating from their past successes and current skills. While this is certainly quick, it is unlikely to lead to successful innovations. Why not challenge yourself to look at your business from a new perspective? 

Challenge yourself to look at your business from a new perspective. #innovation #Business Click To Tweetsuccessful innovations come from using multiple levers

The diagram on the right is a simplified example of the innovation wheel that I use in brainstorming sessions with clients who are tired of thinking within their boxes.

A personally adapted and developed wheel is a powerful tool to get people to think differently about their brand, category or offer. The brand expansion it encourages has seen brands like:

  • Gerber and Purina move into insurance.
  • Nespresso move into china and chocolate.
  • Mars move into ice cream.
  • Vicks (P&G) move from various cold remedies into a sleep-aid.

What all these examples have in common is a deep understanding of both their customers and their own brand image.

 

When one or both of these are missing, you get epic failures like the examples below:

Coca-Cola Clothing: while it may work for sponsorships and promotions, clothing didn't work for them - this time around?

Coca-Cola clothing nor successful innovation
Image source: eBay

Zippo perfume for women: Zippos got it spectacularly wrong with this offer on many fronts. Smoking and especially Zippo lighters have very masculine images. Replacing the wonderfully exotic and luxury glass bottles of perfume by this was never going to work!

Zippos perfume not successful innovation
Image source: Fragrantica

 

Colgate frozen food: The only thing that frozen entrees and toothpaste have in common is that after the first you need the second! From that to expecting consumers to make the jump from minty mouths to chicken was just too much!

Colage entrees not successful innovation
Image source: Marketing Directo, Madrid

 

 

#2. Zooming out for brands and categories

When you are successful in one category, it can be tempting to extend into others. However, this needs to be done after careful thought. Go too far from the parent brand, as the above examples did and you'll be doomed to failure. Stay too close and you'll not benefit from anything more than a mere renovation.

Will BabyNew be a successful innovation?
Image source: BabyNes

Companies which expand successfully are those that build on their strengths, whether image, position or technical know-how. One example I like to share of a successful innovation using this idea comes from Nespresso's owner Nestle.

They expanded from capsules for coffee (Nespresso) into capsules for both hot and cold drinks (Dolce Gusto).

Nestle then expanded their systems into BabyNes, a capsule system for bottle feeding.

I can imagine they will be looking to extend their system even further in the future. Perhaps they will consider adding minerals, vitamins and supplements to food and drinks, or targeting specific groups of consumers such as seniors or athletes. It will be interesting to see what comes next.

 

#3. Zooming into a category niche

It is possible to innovate by zooming in rather than out of the category in which you are in. There are again many examples of this since, in theory at least, it is simpler to do. You already know the category customers and can segment to appeal more strongly to certain groups of them.

Food manufacturers use this strategy a lot. They often extend into low calorie or low fat, and more recently into gluten-free, OMG-free or lactose-free offerings.

Online marketers depend a lot upon finding the right niche for their product or service offer. They have the advantage over bricks-and-mortar stores of collecting a wealth of personalised information. Together with machine learning, they can quickly develop algorithms to precisely target each person with relevant offers. Offline retail will never catch up, however long they collect data - unless they have an online sales strategy too, of course.

 

Conclusion

So there you have some ideas on how you can improve the frequency of launching successful innovations. Whether working with scenarios, innovation levers, zooming in or out, the one element every strategy has in common is customer understanding. You wouldn't expect anything less from me, would you? Going forward just remember:

  • It's important to know and understand your customers intimately today but also how they are likely to change tomorrow.
  • It's important to understand the category you really are competing in and what customers think about it.
  • It's important to understand your brand's image and ensure it's aligned with any future innovations you consider.

 

What new ways are you looking to successfully innovate in this fast-paced, constantly changing and challenging world? Please share your ideas and thoughts about the above ideas or add new ones below. Thanks.

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