Sunday, November 17, 2013
The chart below demonstrates the approach for developing a successful marketing strategy. The graphic suggests that a vision and mission should drive the price, place product and promotion marketing components and that once these 4 Ps are identified a strategy can be developed.
It is interesting to ask which of the 4 P’s is most important. To determine value of each of the four Ps requires a vision and mission statement that clearly defines the nature of a business, the market segment to be served and an idea of what success looks like.
For my classes at the University of Houston’s Bauer College of Business I have used the example of an individual with a pressure washer and limited funds wishing to enter into the maintenance business and grow to be a major player in home and commercial maintenance.
This individual might create a mission statement that as follows: 1) To make available quality exterior maintenance service to home and business clients throughout the state of Texas, and 2) Create value and make a difference.
The vision statement might be as follows: 1) Using internal cash flows to develop an organization that provides exceptional quality service at reasonable rates, 2) Create a network of technology and industrial partners to provide innovative and effective solutions for exterior building maintenance, 3) Develop an organization that is highly effective, lean and fast moving and 4) Maximize financial returns.
This vision and mission statement would help determine how the components of marketing would fit together to develop a marketing strategy. Since we know that it is to be a self-financed operation and that the only service now available is pressure washing, identifying the market that can be served now is important. The potential customers are those that need pressure washing but can’t afford or don’t want the services of well-established exterior maintenance companies.
After some consideration a strategy statement might be developed. In this case the marketing strategy statement might be: To market convenient, low price pressure washing service to individual home and small business owners while adding services and markets as cash flow allows.
Here the Ps requiring attention will be promotion to efficiently let potential customers know of the service available. The place P will also be important in that the service should be offered only in areas that can be served with existing personnel and equipment.
It is with the vision and mission driven strategy that the Planning, Organizing, Directing and Controlling components of management can be employed. At this point strategy directs the development of the tactics that are in alignment with the vision and mission.
Planning would start with available resources and describe the process to grow from a single pressure washer driven organization to a statewide organization providing services to a large base of customers. The plan would describe the growth rate based on reasonable customer base growth and new services to be offered. The planning would consider the type of work force to deliver the service (brokered, through other providers, independent contractors, employees and so on).
The plan would describe the internal cash flows and the amount of cash to be used to maintain and grow the business. It would also describe approaches to increase cash flows, incur debt or invite equity partners into the business.
The plan would also describe the whether the types of equipment needed, when it would be needed and if it should be leased or purchased. Finally, the planning process would indentify the methods by which the company would be managed from sales approaches to accounting procedures from quality control to credit management and job logistics.
After the plan is developed and compared with the vision, mission and strategy the business can set the organizational structure, understand how to direct activities and create reports that allow management to gauge how closely actual results measure against planned goals.
This is a simple example but shows the importance of understanding what an organization wishes to do (vision/mission and strategy) before developing tactics.
I recently visited with a young entrepreneur who had a small business that was seasonal. This entrepreneur also had a pretty clear idea of what he would like his business to grow to over time.
Faced with the need to fill in the off-season business cycles he thought he would provide other types of seasonal businesses. While it was a reasonable approach the seasonal business would not move his company toward the ultimate goal he had set for the business. I advised that using an approach of filling available work time with work that didn’t support the long-term goals of the business could change the focus and perhaps prevent the attainment of the long-term goal.
Young entrepreneurs aren’t the only people facing this dilemma. Seasoned CEOs find themselves faced with challenges and responding to market changes and competitors in ways that are not in keeping with the organizations mission and vision. These CEOs are usually driven by short-term profit requirements and analyst’s expectations.
It can be difficult to always go back to check to see if the latest tactics being implemented to address a business challenge support the firm’s mission and vision. It is more difficult to require that mid-level managers spread across many operating units only implement tactical solutions that are in keeping with the firm’s overall mission and vision driven strategy.
However, by not insuring implemented tactics are in alignment with a mission and vision driven strategy is the surest way for an organization to find itself in an unintended business, producing value for unintended markets. This can spell financial ruin in the worst case and in the best of cases it will require a change in the mission and vision statement and direction of the business.
Wednesday, November 6, 2013
I have been involved in developing marketing strategies that required the developing a competitive advantage in markets filled with strong competitors. I have consistently found that developing solid information on the market and the competitors was critical in building a foundation for the strategy.
Gathering information on the market and the competition is readily available if you know where to look. Information on the market is available through census data, industry data and consumer research. Most of this is readily available on the Internet.
Gathering data on the competition is also readily available. Some of the information can be taken from financial reports if the competitor is a publicly traded company. These reports usually give key statistics, profiles of key managers and basic financial data.
Information on competitors can also be gathered from customers, vendors and public records. Developing financial profiles of a competitors business can also provide valuable information.
This information can point to some strengths and weaknesses of the competitors, opportunities and threats in the market place, in the environment and customer profiles.
Below are a couple of examples that underscore how specific information can help in developing a competitive advantage.
The Houston Post
In late 1994 newspapers were confronted with rapidly rising newsprint costs. I was the Financial Director at the Houston Chronicle at the time. We decided that although we had good relationships with suppliers and strong contracts through our parent company, Hearst, it would be important to project future newsprint rate increases and develop advertising and circulation rate increase programs. As a result, the Chronicle announced that it would have three 8% rate increases: one in September 1994, one in January 1995 and one in June 1995.
We were concerned about our major competitor, the Houston Post. They, of course could, decide not to increase their ad or circulation rates and gain market share.
I had been tracking the ad linage each day for the Houston Post by purchasing their newspaper and measuring the ads. I estimated their ad rates based on what we learned from customers that bought ads from the Post. Making assumptions based on circulation and the size of their organization I was able to have a pretty good idea of the Post’s revenues, expenses and contribution margin. My projections showed that the Post had a small contribution margin and my guess was that they too would increase ad rates for two reasons. First they would increase ad rates to accommodate the rise in newsprint costs and second they would increase ad rates because local advertisers wanted two major newspapers competing against each other to hold ad rates down.
One of the interesting things I learned while doing the research was that the Post did not have long -term newsprint agreements with the manufacturers and was buying newsprint on the spot commodities market. This meant their newsprint costs would be much more volatile than ours. This made it even more likely that they would increase their ad rates in concert with our announced rate increases.
Unbelievably, the Post announced that they would not increase ad rates and the Chronicle reports of rising newsprint costs were inaccurate. As soon as this announcement was made, I went to the Chronicle’s President, Gene McDavid, and said that I couldn’t see the Post making it for another 6 months using that strategy. Clearly newsprint rates were going up and if the Post were able to gain more advertising by not raising rates they would require more newsprint at volatile spot market rates.
Interestingly, in April 1995, the Chronicle bought the assets of the Post and Houston became a one major newspaper town.
Creating a pricing strategy for advertising and circulation during this time was dependent upon gathering quality information on the market and the competition. The sources of information had to be reliable. Newsprint rate increase information came form the vendors selling newsprint with which the Chronicle had outstanding relationships. Information on the competition came from tracking the competitor as well as newsprint salespeople who let the Chronicle know about the buying habits of the competition.
While the Chronicle did not anticipate the move made by the Post on advertising rates, the approach used by the Chronicle set a strategy that would be successful regardless of the actions of the competition.
In late 1995 the Houston Chronicle embarked on a strategy to recapture advertising revenue lost to direct mail, specifically revenue lost to “marriage mail”.
Marriage mail is a program that allows several advertisers to put their circulars in a mail package and share the postage expense. This provides a cost savings to the advertiser. ADVO became a leader in providing this type of advertising package nationwide. During the 1980s many retailers moved their circular advertising out of newspapers and into ADVO’s marriage mail program.
Houston newspapers lost virtually all of the grocery advertising to ADVO in the mid 1980s. Prior to ADVO grocery advertising had been a key advertising revenue source for the Houston Chronicle.
I led the effort to create a product to compete with the ADVO program. It seemed that the Chronicle would be able to combine mail delivery (for non-newspaper subscribers) with newspaper delivery (for newspaper subscribers) and provide an advertising product similar to ADVO’s product that would be less expensive since circulars could be added to newspapers without increasing the delivery costs.
In the information gathering process we discovered that ADVO earned low postal rates by providing saturation coverage (covering 100% of the households). ADVO also saved costs by eliminating the mail labels on each package (each package had the same contents and went to every house thereby eliminating the need for a label and making delivery very easy for the post office).
We knew that by combining newspaper delivery with mail delivery, we would need to provide each mailed package with a label since no area would be comprised of mail only or newspaper only delivery. We also knew that to get the lowest postal rates we would have to put our mail packages in postal carrier walk sequence to make the delivery for the addressed package as easy as the ADVO package,
Developing a newspaper and labeled mail delivery product for the Chronicle advertisers resulted in a program that could provide customized delivery for advertiser. That is, since we knew the addresses of subscribers and mail delivered nonsubscribers, we could have different circulars in each package. For advertisers this meant that they could have different advertising circulars for different neighborhoods or subdivisions or specific addresses. This was a feature that could not be offered by ADVO with the undifferentiated, unlabeled marriage mail packages.
Over the course of a year or so following the development of the newspaper and labeled mail program the Chronicle won back all of the grocery advertisers and has held that advertising category to this day.
The success of this program resulted from gathering information on the competitor’s product and developing a complete understanding of the sales and production process. This information led to the development of program for the Houston Chronicle that grew to be one of its key revenue sources.
I now teach marketing strategy courses to undergraduate and MBA students at the University of Houston Bauer College of Business. These classes are divided into teams and work with real clients to develop specific marketing strategies during the semester. The first half of the semester is devoted to gathering information on the market, the competition, the company and the environment. With this information and specific objectives set by the client company, students spend the second half of the semester developing marketing strategies.
In every case students are told to look for that one piece of information that can contribute to developing a marketing strategy that can have a significant positive impact on the client companies.
In the example of the Houston Post it was the financial tracking and the knowledge of the newspaper-purchasing program that led to the Chronicle’s successful strategy.
For the ADVO example it was the knowledge of the packaging and delivery process that allowed the development of a strategy to which ADVO could not respond.
Over the years I have been involved in many strategic marketing efforts and every successful project can be traced to developing solid information on the customers, the market and the competition.