Transcript Stever-Barnett - Best Practice Institute

Snap out of Your
Unrewarded Excellence!
Capture Profits Moving from
Fat Spots to Sweet Spots
Steve Barnett
Bardo Consulting
[email protected]
With Prof. Eric Clemons
The Wharton School
1
Overview — The Problem
Your core competence no longer rewarded
Your product is better: Costs are down and quality is up by
any objective measure
Your profits are not growing
Consumers are flocking to lower cost price-focused players
or defecting for quirky products around the edges of the
category
Jet Blue
Arizona Iced Tea, Ben & Jerry’s
2
Overview — The Solution
You can get back on track
You can capture the high margin quirky business, without damaging
your core brands or your core efficiencies
Resonance Marketing & Hyper-Differentiation — developing musthave products and services
Customer Informedness — customers truly know cost and features of
products, and select offerings that resonate with their desires, cravings,
and longings
Customer Science — Companies can develop offerings that truly
respond to desires, longings, and cravings
Companies that can harness customer science and customer
informedness to support resonance marketing will flourish
Those that cannot will find that profits erode, even while unit sales and
market share appear healthy
3
Overview —
Resonance Marketing
Resonance Marketing
Must-have products
Products without effective substitutes;
each is perfect for some consumers
Take price almost entirely out of the
consumers’ product selection process
4
Unrewarded Excellence
You’re as good as ever
Three finely tuned machines
• Production
• Logistics and Distribution
• Marketing and Branding
Profits are not growing
Customers may be abandoning you — and yet they are
not complaining
Customer survey data are as positive as ever
And yet overall product ratings are not reflected in market
share or margins
5
Unrewarded Excellence
Trapped in the box of unrewarded excellence
Your three machines are still functioning superbly
You’re losing out to low cost alternatives
You’re losing out to quirky niche products aimed at underserved market
segments with high willingness to pay
These are segments that you used to choose to ignore
These are the same segments that now account for almost all category
growth and profits
You are trapped in the box of serving the huge middle with uniformity,
consistency, and simplicity while the market demands delight, surprise,
and focus
Consequently, you are ignoring the highly profitable individuals in the
edges of each product category
6
Unrewarded Excellence
The problem — focusing on the big box in the middle
Price comparisons against serious competition for
your core customers
Defections around the edges
Loss of growth and profits
The solution
Continue what you are doing — keep the three
strong machines humming
While capturing enough of the customers around
the edges with with truly novel products aimed at
desires, cravings, and longings
7
The Trap of Unrewarded Excellence
You got caught in the trap for very good reasons, following very sound
strategies!
The manufacturing path into the trap
Cost control for competitive advantage
Simplicity of product lines, for consistency, uniformity, scale, and
learning curve
Ford — “any color, as long as it is black”
The service sector path into the trap
Clear and consistent brand image and scale of advertising
Eliminate surprise for the newly mobile American consumer —
Holiday Inn, McDonalds
“First choice of last resort”
8
Consequences of Unrewarded
Excellence — Customer Defections
Customer no longer values what you are selling — not a problem of quality
but of fit
Customer defections — trading up
From Holiday Inn to Four Seasons
From Budweiser to Celebrator DoppleBock
Customer defections — trading out
From Snickers to Granola Bar
From Generic Granola Bar to highly specialized power bars, for
everything from weight lifting to front and back nine golf bars
Advertising won’t help — the consumer knows what you have
Easy to underestimate the damage — only a few thousand accounts a
month, but your best accounts
The accounts that are left may be indifferent to fit, forcing you to compete
solely on price
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Consequences of Unrewarded
Excellence — Customer Defections
Customer defections — why now?
Four trends
Customer information on pricing
Customer information on product attributes and features,
allowing them to make precise price / function tradeoffs
Informed competitors, understanding customer
preferences and developing products and services with the
appropriate set of features
Competitors effectively mastering production and
distribution, in part through outsourcing and third party
supply chain management, reducing your advantage
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Informedness = Hyper-Differentiation
Fundamental, profound change in information
availability and transparency
Leading to observable changes in customer behavior
Victory Beer and the premium price that can be charged
to customers who love you
It is the strength of the top ratings that drive growth
after launch, not the averages
Individual hotels and the difficulty of selling at all if some
customers admit hating you
It is the intensity of the negative reviews that affect
online sales, not the averages
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Customer Informedness — Attributes and
Features
Willingness to pay is
a function of fit with
preferences
Willingness to pay is
dramatically
reduced by
uncertainty
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Customer Informedness — Attributes
and Features
Uncertainty dramatically
reduces willingness to
pay
Reducing uncertainty
facilitates new product
introductions
13
Customer Informedness — Attributes
and Features
Number of products, clustered around market fat spots
Fat spots (lots of customers) vs Sweet spots (high margins)
Potential sweet spot markets have always existed, but customers were unwilling to pay because of great
uncertainty
Historically, cost of producing additional offerings was high
Historically, companies did not know much about customers’ preferences
Historically, customers could not learn much about companies’ new product offerings, reducing their
willingness to pay
Natural response was for companies to offer limited number of products
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Customer Informedness — Attributes
and Features
Sweet spots can now be exploited
First, cost of complex portfolio of offerings greatly reduced
Next, informedness now allows customers to learn about new
offerings’ attributes with accuracy and precision, restoring
willingness to pay as hyper-differentiation
Finally, customer science allows companies’ to understand
customers’ desires, longings, and cravings, and their willingness
to pay for new offerings, focusing innovations
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Reasons for Hope?
Informed Competition Based on Fit
You are free of many of the old constraints imposed
by manufacturing and distribution technologies —
hyper-differentiation
You are free of many of the old constraints imposed
by inability to communicate value propositions to
customers and resulting lower willingness to pay —
resonance marketing
You enjoy rich information endowment on customers,
based on your transactions history
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Resonance Marketing
Balance between sweet spots and fat spots has changed
Firms have always sought to balance costs and benefits of
differentiation
Rewards for effective differentiation have never been
greater
Accuracy of focusing launches has never been better
Costs of differentiation have never been lower
New world of resonance marketing
Taking price largely out of play
Customers’ selection based on attributes and fit
High margin products without direct substitutes
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Enablers of Resonance Marketing
(1) Technologies for
hyper-differentiation
(2) Marketplace trends towards
Customer informedness
(3) Methodologies for
Customer Science
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Enablers of Resonance Marketing
But is this really new?
(1) alone says we can make anything; sure, that’s
what hyper-differentiation means
(1 and 2) together says that someone can find
precisely what the customer wants and can get
lucky; it’s a crapshoot playing with investors’ money
(1 and 2 and 3) says that you can find precisely what
customer wants and get rich; it’s a matter of
combining the right skills to achieve resonance
marketing
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Organizational Implications
Need to change corporate mind set
Back off from traditional reliance on scale
Change incentives that reward occupying the center of
the box
Become passionate about products with small market
share
1% of category volume, which may be 3% of revenue
and 20% of profits
A customer for a 60¢ Bud may become a customer for
a $2 DogFish Head or an $8 Westvleteren; each
customer lost costs you what you could have earned
with the right products
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Is this new? What Resonance
Marketing Is and is not
Customer segmentation
and profitability analysis
Delighting customers
through better products
Product proliferation and
line extensions
Viral marketing
Products that transform
customers into profitable
customers
Delighting customers
through better fit
Targeted fit
Responding to inevitable
customer informedness
21
Organizational Implications
You need to continue your core strengths in production,
distribution, and marketing and branding in the center of your
category, which satisfying customers’ demand for products
around the edges
You need to embrace customer science as a core skill, so that
you will identify the resonance marketing sweet spots
You need a new set of metrics to evaluate corporate
performance and to reward your employees
Not volume and mean satisfaction levels
Price premium, mean of the top decile evaluations,
percentage of business captured by new offerings
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Summary
Old Market
Adequate products
Numerous substitutes
Competition based on price of the
product relative to competitors
Slight variation in features to control
complexity of product or message
Reliance upon aspirational
messages, emotional context, and
stories in advertising
Supported by economies of scale in
production and distribution
Low margin fat spots
Adequate for everyone
Production engineering
New Market
Must-have products
Few substitutes
Competition based on fit with ideal
choice
Profound variation in features to
achieve resonance with customers’
preferences
Minimal role for advertising stories,
replaced by fact based messages
and word of mouth
Supported by differentiation and
customers’ informedness
High margin sweet spots
Perfect for someone
Customer science and product
design
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Conclusions
Importance of sweet spots will not decrease
Companies will continue to rely on fat spots and traditional strengths,
achieving profits through scale from consumers without passion for a
category
Companies can seize numerous sweet spots, adding them to their fat
spot portfolio and increasing profits from consumers where their
products resonate
More and more of companies’ portfolio will be based on sweet spots
and resonance, achieved through customer science and hyper differentiation
Directed by customer science
Implemented as strategic inspired line extensions done internally,
or new offerings through alliances, co-packers, and outsourcers
Welcome to resonance marketing as a strategy!
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New Integrated Strategy
Far more integrated than the traditional 4 Ps of
marketing
And yet, rough correspondence
Dynamic Pricing Strategies replace
simple Price
Universal Access replaces Place
Informedness and Search replace
Promotion
Product portfolios and Delight-based
Product Positioning replaces Product
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New Integrated Strategy
Illustrative example — Supermarket Retailing
Earn almost nothing on branded merchandise in the center of the store
Increased reliance on specialty products along the perimeter — dry-aged
prime beef, in-store kosher deli, cheese counter
Wal-Mart winning the price game, grocers responding by encouraging
trading up and trading out
And yet … traditional marketing and marketing research supports the
price game … “how do I discount an individual customer to sell more Kraft
cheese?”
Increasing interest in informedness to create resonance , sell more
Roquefort and dry aged prime beef
But how?
Websites, email, in-store sampling
To move customer from latent, uninformed willingness to pay for gourmet
blues to experienced, certain, willingness to pay
But how?
26
New Integrated Strategy
Not Four Ps Anymore but P - A - I - D
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