Monday, April 29, 2013

What is the Next Disruptive Technology?

How can you determine if your company is at risk of attack from a disruptive technology? How can you take advantage of the next wave of business opportunities?

Clearly, if you can answer these questions you are well on your way to becoming the next billionaire. Since finding the answers will be challenging it is important to identify a process to review industries and businesses and discover indicators that might identify opportunities.

Clayton Christensen’s theories on disruptive technologies can provide some insights. His theories show that disruptive technologies often are created when industry leaders’ products have been improved to the point that a significant share of the market’s customers do not want or need all of the product’s attributes. This allows a new market entrant to provide a lower cost “good enough” product that doesn’t have all of the “bells and whistles” of the industry leader’s product. This new entrant will attract the least profitable customer of the industry leader and makes it difficult for the industry leader to create strategies focused on its most profitable customer (wants all the “bells and whistles”) and its least profitable customers at the same time.
The new market entrant, as a result, is allowed to grow its customer base until it overwhelms the market leader.
To use this principle to spot emerging opportunities requires a bit of research and the ability to identify potential market disruptions. The steps we recommend are as follows:
1)    Identify markets ripe for disruption. A market ripe for disruption is one where the profits are very high and the mid to lower profit range customer base growth is at a point where it is stagnating or possibly shrinking. This is an indication that the products provided might have reached the point where customers may not want or need all of the attributes offered or that the price is reaching an unacceptable or unsustainable level. An example might be the health care industry. Here the cost of medical care has gotten to the point that care without insurance is difficult to afford. Further the costs are driving up insurance costs to the point that insurance is difficult to afford. While the total market for health care remains large and the demand is high, the lower profit segment is stagnating and some are foregoing all but the critical health care.
2)    Identify new market entrants that are focused on the industry’s least profitable customers. New entrants would be providing products that are less expensive than those provided by the industry leaders. For health care it might be the clinics operated by nurses that are located in grocery stores and drug stores. Another entrant for health care might be the telemedicine technologies that can provide diagnosis and some treatment protocols via telecommunications. For retailers, a disruptive technology was RFD mail delivery that spawned the catalog business in the late 1800s.
3)    Make sure that the new entrants are disruptors. There are certain new technologies that might appear to be market disruptors that are in fact a sustaining technology that can be used by market leaders to better serve their best customers. The Internet, for example, is considered a disruptive technology for the newspaper business. The problem with this conclusion is that the Internet market entrants targeted the newspapers’ most profitable customers. This, while in the short run, had a significant impact on newspapers it also allowed newspapers the ability to focus on counter strategies. That is, the new entrant didn’t focus on the least profitable customers that would have created a dilemma for the newspapers to have to abandon very profitable customers to protect a marginally profitable customer base. The result is that newspapers and media companies have integrated the Internet into their businesses and are beginning to develop new digital strategies.
4)    Create an analysis that compares opportunities across industries. There may be similarities across industries that provide very large opportunities. RFD mail delivery provided an opportunity for retailers to reach new communities by providing non-custom, “good enough” wares to be ordered through the mail. This delivery also allowed opportunities to printing, graphic and media industries. The Internet has been a boon for social networking, search engine and retailing but quickly became a key component for the delivery of new technology such as telemedicine and energy production.
After going through this process there will be a large number of choices and even the best analysis may result in a less than optimal choice. The analysis will, however, likely increase the probability of identifying a potential market disruptor.
My guesses for the next big disruptive technologies are:
1)    Telemedicine – new bioscience, telecommunication and digital technologies will provide the ability to deliver quality health care globally with smaller facilities on site. The new technologies will include bio monitoring and feedback, micro robotics and high resolution, 3D teleconferencing during diagnosis and treatment.
2)    Energy – Hydraulic fracking will continue to provide energy at lower costs. This technology will allow expanded global manufacturing capabilities in the U.S. as well as developing nations.
3)    Education – Internet based college courses and degrees will increase and allow more training that directly impacts career development. College degree costs will drop and access to top tier universities will be available globally.
I am personally focused on telemedicine. In Houston, MD Anderson Cancer Center, Rice University and the National Space Biomedical Research Institute have agreed to create an eHealth Research Institute. This institute will review and vet telemedicine projects that can advance the use of technology to deliver health care at a distance. As projects are approved to be accepted for development the research institute will seek funding for the project by attracting investment partners that will participate in commercialization of the project’s products.
If you have an interest in learning more about the eHealth research Institute or about becoming a project partner send me an email at gary@gwrresearch that includes some background on you and your company.

Tuesday, April 23, 2013

Build Your Business by Forming Alliances

How do you grow a business when you simply don’t have the resources to focus on new opportunities? How do you attract new talent that can bring new business without adding a financial burden to your organization?
Forming business alliances is an approach that is being used today to meet these challenges.
Retail Opportunities
A major retail grocery chain uses an alliance to provide sushi bars in its retail stores. The grocer contacted a small sushi catering service and asked if the caterer would be interested in finding individuals to set up sushi bars in the retail stores. In return the grocer would use its buying power to provide sushi ingredients at the lowest possible rate and keep track of sales through its registers. Further the grocery company would subtract the cost of goods sold and simply pay the caterer a percentage of the profit of each sushi item sold.
The caterer found a source of individuals willing to set up and man the sushi bars in the grocery stores by forming a subcontractor arrangement. Essentially the caterer provides training and quality control to the subcontractor for each store and shares the money from sales with the sub contractor.
The results have been very significant. The grocer has sushi bars in 200 outlets and is very happy with the product quality, sales volume and customer service the caterer has provided. This was accomplished without having to hire new employees or incur other expenses associated with adding a new service to the grocery operation.
The caterer was able to expand his business without taking on additional financial risk and the business has been so successful he has a waiting list of quality subcontractors to start sushi bars in grocery stores.
This program has been so successful the grocer is now looking at other services that can be added to the retail outlet using the same model.
Consulting Service Opportunities
A well-established accounting firm wanted to expand its consulting business without increasing the costs associated with attracting high-powered consultants from a wide range of industries. The consulting firm created teaming agreements that allowed small consulting firms to work with the larger firm.
The small consulting firm would have the ability to offer a full line of consulting services and would be supported by the larger consulting firm’s staff. The larger consulting firm would have the benefit of the smaller consulting firm’s contacts, relationships and new business opportunities.
As a result the smaller consultants were able to call on major clients and offer services without taking on additional cost for expanded support staff. The larger consulting firm, as a result, generated more sales and had the expertise of consultants from a myriad of industries without the associated employment costs.
Technology Sales Opportunities
A technology company that provides ground breaking teleconferencing display hardware uses relationships with technology sales organizations to market their products. The technology company is able to reach new markets and customers by tapping into the sales organization’s contacts and established relationships.
The sales organization’s ability to offer its clients the latest in teleconferencing hardware enhances its ability to create new revenue streams.
As a result the technology company has had its equipment exposed to new industries and is experiencing strong sales growth.
Steps to Creating Successful Business Alliances
To create a successful business alliance all partners must benefit. Here is a checklist to follow when considering forming a business alliance.
1)    Make certain the partner has the skill sets and ability to deliver agreed upon goods or services. A test project may help determine each party’s capabilities prior to forming a long-term relationship.
2)    Be sure to clearly define each party’s responsibilities and obligations at the outset of the relationship. This should be a written document that covers normal operating procedures, revenue and expense allocations and how out of the normal situations will be handled.Finally, the ability for each party to end the relationship should be agreed upon in writing.
3)    Develop a business strategy. A plan should be designed that shows how each member of the alliance will benefit and outlines their role in creating business opportunities that benefits all alliance members.
4)    Set regular meetings with alliance partners. Meetings should be held regularly to review the progress toward achieving desired results and to discuss new programs and opportunities.
5)    Terminate the alliance if it is not working. Everyone hopes for success in a newly formed alliance but there will be some alliances that will not be productive. It is better to terminate a program that isn’t working rather than continue putting effort and resources in an unworkable program.

As the global economy expands, building business alliances will become an important tool to create and develop new business opportunities. Choosing the right partners and alliance operating procedures can improve the chances the alliances will have a successful outcome.

Wednesday, April 17, 2013

A Process To Choose Ad Media For Ad Campaigns

The Dilemma

Today there are so many options for businesses to advertise their products or services to consumers that the decision making process becomes difficult at best. The new technologies allow new methods of reaching potential customers and new marketing techniques provide different approaches to segmenting groups into meaningful audiences.  It seems that each advertising medium has a logical story that suggests it is the best medium to use to reach current and potential customers. Here are some steps that will help design an effective ad campaign.

Determine the Job To Be Done

A business may want to reinforce relationships with current customers, attract new customers, introduce a new product, create a need for a product or build an image. These are but a few of the jobs that may need accomplished and they each may require a different mode of advertising.  The media that will work best will depend on the audience to be reached. It is likely that an advertiser will need to use several media. For example, a company wishing to strengthen its image as reliable with its current customer base and develop a new customer base with an image of being innovative might require one set of media for each set of customers.
For an ad agency, media executive or Chief Marketing Officer this is the most important step in building a successful ad campaign.
Once a clear understanding of the job to be done is completed it is time to consider the type of media and the cost effectiveness.

Determine Media Usage by Customer Segment

There is abundant information available on media usage by demographic and psychographic characteristics. Matching each of the advertiser’s customer groups using these characteristics with the appropriate media improves the chances that the targeted advertising message will reach the right audience. 
It is important to note that a company’s established customer base may have a different demographic profile than a new customer base that is targeted. For example, an Internet game developer may have an established audience that is young, single and at the early stages of a career. This developer may also want to find a market in the business community for a program that allows business professionals to test various market scenarios. Reaching these two audiences will require considerable thought to message design and media choice.

Determine the Budget

 It is important to understand the amount of money available to accomplish the task set for the advertising project. Companies usually know what they need accomplished and they know what their ad expenditures are to be kept within a certain budget.

The question becomes: How do you compare the cost of advertising between the various mediums? Here it is important to understand the cost of reaching an intended recipient. For media with subscriber bases and established viewing audiences it will be easier to project a rate at which a target audience member is reached than for media which have not established viewership or who have models that tend to further fragment the market. For Internet programs with rotating advertising spots, it will be more difficult to determine how often the intended recipient is on line at the same time the ad is being rotated into view. Similarly, SEO program success requires that the right key words be matched with the intended audience. Here determining the right key words and the likelihood that the intended audience will opt for search engine support is important.

It will be necessary to compare the cost of each media to reach intended audiences. This will allow the development of a strategy that can use various media to meet an advertiser’s objectives within the prescribed budget.

Where possible build programs that create synergy among media components.

Recognizing that audiences are not pure in their media usage will require the development of strategies that understand customer behavior and media cost. For example, for an advertiser wishing to strengthen its image as reliable to current customers and present an image of innovation to attract new customers simply means that the message should translate to both audiences and be promoted using media that reaches both audiences. This synergistic approach tends to improve media effectiveness while controlling ad campaign costs.

Tuesday, April 9, 2013

Use a Concept Test to Validate New Product Strategies.

How can you determine if the latest new product idea will be a success? 

As the potential organizational impact of a new product introduction increases it becomes more important to find ways to improve the chances that the product will be a success.
In previous blogs I have talked about steps to create a new product:
I have also talked about a new product development process:
The product creation process and the new product development process provide a structure to methodically develop and bring a product to market. These tools however do not determine the chances that the marketing strategy for the new product will be a success.

A concept test provides a simple inexpensive way to determine the appropriate marketing strategy and to project potential sales.

Here are the steps for implementing a concept test to validate the marketing strategy for a new product.

Describe the New Product. The new product description should include all physical characteristics (this may include a mock up of the product).  Also describe marketing attributes such as price, where the product will be available and special promotional efforts.

Identify Targeted Market Segments. Identify customer segments for which the product is intended, then, further subdivide the groups by demographic characteristics. For example, if the product were a new sports automobile the most likely customer segments would be current owners of sports cars. The customer segments might be; people who only buy sports cars, people who own their first sports car and people who do not own sports cars but have other characteristics in common with sports car owners. The next step would be to take these potential customers and categorize them by demographic characteristics. The resulting categories can be cross-matched with the demographic segments to provide a better understanding of the customer base. For example one sub grouping might be females who only buy sports car that are professionals and 25 to 35 years old.

Develop a questionnaire to assess the product’s physical and marketing attributes. The questionnaire should identify key characteristics that will determine their appeal. In the case of a sports car, the questionnaire might be accompanied by a mock up or artist’s representations to make sure there are no misunderstandings when interviewing a respondent. Attributes that should be tested include: design, complexity, peer influence, pricing, intangibles (guarantees etc.) and availability (willingness to travel to purchase).  Each characteristic should be measured along a scale that can be measured (for example “On a scale from 1 to 10 how would you rate the design?”). Also include questions that measure the willingness to act ("Of the following distances, which is the farthest you would travel to purchase this product?" or "Which of the following prices do you think reflects the value of this product?").

Conduct a survey of customers from various market segments including the targeted market segment. The survey should include the broad customer segments of interest as well as those that are not considered to be likely customers. The size of the survey should provide a meaningful representation from each category. This approach will provide meaningful information about potential purchasers and people who may influence the purchaser but are not purchasers themselves.

Compile survey results to determine market size and potential revenues. After the survey has been completed and the results analyzed there should be evidence that allows managers to develop an implementation strategy for the new product that has a good chance of succeeding. The analysis should show the demographic profiles of those most likely to purchase the product, how far they will travel, the price they will pay and so on. The analysis  can also identify some potentially harmful marketing tactics that might have been used if the concept test were not employed.

Use weighted averages to determine the importance of product and marketing strategy components. Using the scales to measure the value of each marketing component on the questionnaire, develop averages for each sub group and a weighted average for the total group. For example, let's assume people who buy only sports cars would travel 30 miles to buy the "right" sports car while first time buyers would travel only 15 miles and the remaining general car buyers would only be willing to travel 10 miles. If the market were made of 15 % of the first group and 30% of the second group  and 55 % of general automobile purchasers, then the weighted average of the travel distance would be (.15 X 30 miles) + (.3 X 15 miles) + (.55 X 10 Miles) = 14.5  miles weighted average distance the purchasing groups. If however 60% of the sales were likely to come from the general automobile purchaser market then the travel travel distance would be 9.6 miles or (.4 X 9 miles) + (.6 X 10 miles). In this case using the 30 mile distance people who only bought sports cars would be willing to travel as a guide for dealership placement would be a mistake. Moving dealerships within 9.6 miles of population centers would capture more sales.

We used this process for a new product group that had proposed several alternative products to address a market threat. All of the products seemed to address the market challenge and all of the products had been through the stage-gate approach used in the new product development process mentioned earlier.

The result of the concept test allowed us to: identify the most appropriate products for the market challenge, eliminate products that would have failed, identify the best promotion and pricing strategies and estimate, with great accuracy, the revenues and profits the new products would generate.

Tuesday, April 2, 2013

Grow Your Business Through Community Involvement and Leadership

Business is built on relationships that start with individuals and grow to include groups and institutions. Community involvement is an excellent means of creating opportunities to meet individuals and develop meaningful relationships.

Whether you are a large company or a small, family-run operation relationships built through community involvement pays big dividends.  For companies considering how to get involved in the community, here are some pointers for choosing the best activities for your company.

1) Don’t choose too many activities. Stay within the bounds of your financial and human resources. The goal here is to have a successful business that grows and participates in the community.

2) Choose activities that help employees grow in the community and develop new networks. Most Chambers of Commerce have Leadership programs for developing community leaders. These programs are excellent and bring long-term benefits for the organization and the employees.

You’ll find +AT&T involved in most chambers of commerce, leadership building programs and broad based community philanthropic efforts. This is clearly good for the community and good for AT&T. It is the individual employees that represent AT&T and sit on the chamber boards. These individuals benefit from an elevated standing in the community and this has a positive halo effect on AT&T.

3) Get involved in supporting programs that benefit the community. Whether it is a program to clean up the city, help the needy or attract a major convention or business, the benefits to the community and to those involved are significant.

In Texas, +HEB Grocery Co. is a large, privately owned chain of grocery stores that has been a prominent business fixture for a century. For as long as I can remember HEB has contributed to its communities by providing philanthropic support to a wide range of efforts. I can recall a time after a hurricane that HEB had its large trucks deliver free water and dry ice to communities to combat others who were trying to benefit off of the community’s misery. HEB provides support for medical, education and civic programs in every city in which they have stores.

4) Be willing to serve on the Board of Directors or even as Chairperson of the organizations and activities that you support. As you serve in the positions you will be recognized as a community leader. This “halo effect” transfers to the business community.

In Corpus Christi, Texas, Caller-Times, which was part of a group of newspapers owned by the Harte Hanks Corporation, still had as its publisher +Ed Harte. Ed had managed the newspaper for years and had become very involved in supporting efforts to improve the community. The newspaper under his leadership worked to bridge differences between the Hispanic and Anglo communities, build hospitals, improve the local economy and increase the importance of the community in the state and national arenas. He served as Chair or on the Board of Directors of most of the major community projects.

I think his leadership is a reason that other newspapers trying to enter the market failed. I am certain his leadership is why in a community that was over 50% Hispanic, no Spanish language newspaper was able to gain a foothold.

When I joined the Houston Chronicle, +Richard J.V. (Dick) Johnson and +Gene McDavid held the Publisher and President’s roles respectively. They were true newspaper professionals dedicated to community involvement and leadership. Dick spearheaded the effort to purchase the land that belonged to the Shamrock Hilton that is now the site for much of the Texas Medical Center. Gene oversaw the construction for Jones Hall, a major theatre venue and home of the Houston Symphony.

Dick and Gene were always involved in the community and served on numerous nonprofit boards. They were committed to the community and under their leadership the newspaper continued to prosper.

Without continued community involvement, businesses fall from the public’s attention and when business is discussed they are less likely to be considered. Every instance in which a company is involved in the community provides an opportunity to enhance its image and reputation and increases the likelihood that it will be considered in business making discussions.

In recent years I have found that my many years of community involvement opened doors that has allowed me to grow my business and when I was at the Chronicle I am certain it contributed to the outstanding growth in revenues and profit.

My conclusion: If you wish to grow your business make community involvement a cornerstone of your strategy